Capital Senior Living Corporation (CSU)

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Capital Senior Living Corporation (CSU)

Q3 2008 Earnings Call

November 5, 2008 11:00 am CT


James A. Stroud - Chairman of the Board

Lawrence A. Cohen - Vice Chairman of the Board & Chief Executive Officer

Ralph A. Beattie - Chief Financial Officer & Executive Vice President


Carter Dunlap - Dunlap Equity Management

Sam Miran - GEM Realty Capital

Todd Cohen - MTC Advisors

Rick Fetterman - Fetterman Investments

David Ratliff - Doucet Asset Management LLC



Good day and welcome to the Capital Senior Living third quarter 2008 earnings release conference call. Today’s conference is being recorded.

Any forward-looking statements made by management in this conference call are subject to certain risks and uncertainties that could cause results to differ materially including, but not without limitations, to the Company's ability to find suitable acquisition properties at favorable terms, financing, licensing, business condition, risks of downturns in economic conditions generally, satisfaction of closing conditions such as those pertaining to licensure, availability of insurance at commercially reasonable rate, and changes in accounting principles and interpretations among others, and other risk factors identified from time to time in the Company’s report filed with the Securities and Exchange Commission.

At this time I would like to turn the call over to Mr. James Stroud. Please go ahead sir.

James Stroud

Good morning and welcome to Capital Senior Living’s third quarter 2008 earnings call. Despite a challenging operating environment, year-over-year results include an increase in resident revenues of 3% and a 40 basis point improvement in EBITDAR margins. In the third quarter of 2008, resident revenue increased $1.3 million to $43.2 million, approximately 3% increase from the third quarter of 2007. The EBITDAR margin for the third quarter of 2008 was 29.9%, an improvement of 40 basis points over the third quarter of 2007. These positive gains are evident in our same communities under management.

Excluding the four communities undergoing conversions, same-store revenue increased 2.9% versus the third quarter of 2007. Average monthly rent increased 5.3%while same community expenses increased 2.7%. The result was a 3.2% increase in net income from the comparable prior year period. On May 29th 2008, the Company announced that a special committee of our Board of Directors had engaged the Bank of America Securities as our financial adviser to assist the Company and exploring and considering a range of strategic alternatives. The Company is still evaluating a strategic alternative and at appropriate time we will advice the marketplace where the Company stands in the process. During this time period, the Company intends on executing its 2008 business plan.

Now for further comments on the third quarter 2008, I introduce Larry Cohen, Chief Executive Officer. Larry?

Lawrence A. Cohen

Thanks Jim and good morning. I am pleased to welcome everyone to our third quarter earnings release call. Our community’s offers Senior’s Quality Housing in elegantly appointed buildings with support of services at affordable rates. Despite a challenging economy and housing market, we have made progress in the third quarter. As we grew occupancies, implemented rent increases and employed sound expense management. We continue to differentiate our communities as an affordable option delivering exceptional value to elder seniors in challenging economic times. Our communities enjoy solid, well-established reputations in the market. Our accomplished marketing staff and first-rate sales directors are implementing effective marketing plans including direct mail campaigns, telemarketing, increased events and outreach. These efforts are generating higher occupancies and revenues.

Move-ins and deposit increased to all levels of care and move-out decreased resulting in a 50 basis point improvement in physical occupancy of the third quarter. Our attrition rate in the third quarter slowed to 37.3% compared to 40.7% in the second quarter. Independent living attrition was 33.7% for the quarter compared to 36.2% for the second quarter and assisted living attrition was 47.4% versus 58.2% in the second quarter.

Deposits and occupancies improved in October and we are cautiously optimistic that these improvements will continue in November. Our disciplined approach to managing expenses and increasing rate is producing positive results. Average monthly rents in September increased 5% from a year prior and 1.1% from June of 2008. Community offering results were solid in third quarter. Fifty seven of our communities were stabilized with an 89% average physical occupancy rate.

Operating margins before was property taxes; insurance and management fees were 47.7% in stabilized independent and assisted living communities. At communities under management, these include our consolidated communities, communities owned in joint ventures, and communities owned by third parties and managed by the Company, excluding four communities with units being converted to higher levels of care, same-store revenues increased 2.9% versus the third quarter or 2007 with a 5.3% increase in average monthly rent. Our expense management and group purchasing program limited same-store expense growth to 2.7% despite unusual increases in utilities expense in July and August with 27 days of above 100 degree heat in Texas and as compared to one above 100 degree day in 2007. These achievements generated same-store net income growth of 3.2% from the comparable period in 2007.

The number of communities we consolidated in the third quarter increased to 50 from 49 a year earlier. Financial occupancy of the consolidated portfolio averaged 85.7% in the third quarter. Excluding the four communities with units being converted to higher levels of care, the average financial occupancies for the quarter for 46 consolidated communities was 87.6%. Average monthly rents increased 5.7% to $2,491 and that is also a 1.4% sequential increase from the second quarter average monthly rents. Most of our communities are located in the more stable housing market in the country and offers Senior’s quality housing with support of services at affordable rates.

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