Capital Senior Living Corporation (CSU)

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Capital Senior Living (CSU)

Q4 2012 Earnings Call

March 07, 2013 11:00 am ET


Lawrence A. Cohen - Vice Chairman and Chief Executive Officer

Ralph A. Beattie - Chief Financial Officer, Principal Accounting Officer and Executive Vice President


Dana Vartabedian - Deutsche Bank AG, Research Division

John W. Ransom - Raymond James & Associates, Inc., Research Division

Daniel M. Bernstein - Stifel, Nicolaus & Co., Inc., Research Division

Joseph P. Munda - Sidoti & Company, LLC

Dana Hambly - Stephens Inc., Research Division

Will Hamilton



Good day, everyone, and welcome to the Capital Senior Living Fourth Quarter and Full Year 2012 Earnings Release Conference Call. Today's conference is being recorded. The forward-looking statements in this release are subject to certain risks and uncertainties that could cause results to differ materially, including, but not limited to the company's ability to find suitable acquisition properties at favorable terms, financing, licensing, business conditions, risks of downturns and economic conditions generally, satisfaction of closing conditions such as those pertaining to licensure, availability of insurance at reasonable rates and changes in accounting principles and interpretations among others, and other risks and factors identified from time to time in our reports filed with the Securities and Exchange Commission. At this time, I'd like to turn the call over to Mr. Larry Cohen, Chief Executive Officer. Please go ahead, sir.

Lawrence A. Cohen

Thank you very much. Good morning, and welcome to Capital Senior Living's fourth quarter and full year 2012 earnings release conference call. I am very pleased to report continued occupancy growth and strong operating and financial results from the successful implementation of our strategic plan that is focused on operations, marketing and accretive growth to enhance shareholder value. CFFO of $1.37 per share was 46% higher and our EBITDAR margin improved 40 basis points from the prior year. We differentiate Capital Senior Living as the value leader in providing quality seniors housing and care at reasonable prices. We are well positioned to make further gains as a substantially private pay business in an industry that benefits from need-driven demand, limited new supply and an improving economy and housing market. These strong fundamentals are further enhanced by our disciplined and strategic acquisition program that increases our ownership of high-quality senior living communities in geographically concentrated regions, generating meaningful increases in CFFO, earnings and real estate value.

In the fourth quarter, we completed the acquisition of 10 senior living communities for a purchase price of approximately $105.7 million. These communities are located in Texas, Indiana, Ohio and Missouri, enhancing the company's geographic concentration in each of these states. These transactions are expected to add CFFO of $0.20 per share, increase earnings by $0.12 per share and increase annual revenue by $29.6 million. Occupancy at these communities average above 95%, with average monthly rents of $3,200. The 10 communities were financed with approximately $74.7 million of 10-year fixed-rate non-recourse debt at a blended interest rate of approximately 4.44%. We are in the process of completing the acquisition of another senior living community in Nebraska for a purchase price of approximately $6.7 million. This transaction is expected to add CFFO and increase revenue by $2.6 million. This committee will be financed with another community we acquired in October 2012 to repay its bridge loan with combined loan proceeds of $16.4 million of 10-year fixed-rate non-recourse debt with an interest rate of 4.66%. The effective cash on cash return on equity on the Nebraska acquisition is more than 18%.

We are conducting due diligence on additional transactions consisting of high-quality senior living communities in regions where we have extensive existing operations. Subject to completion of due diligence and customary closing conditions, we expect to acquire additional communities in the second quarter of 2013.

I would now like to review our operating activities. I am pleased to report that in addition to the success we are experiencing with our acquisition program, we are also achieving strong operating results, with gains in occupancy and net operating income. We are benefiting from our community-based empowerment philosophy, our operating strategy to provide value to our senior living residents and our geographically concentrated operating platform, with most of our regions enjoying better economies and lower levels of unemployment than national averages. We believe we are different from other companies in our peer group, with our sole focus on a substantially all private-pay senior living business, capitalizing on our competitive strengths in operating communities in geographically-concentrated regions and profiting form our targeted advantages as a larger company with economies of scale and proprietary systems operating in a highly fragmented industry that continue to generate excellent results.

At communities under management, excluding one committee that had a recent conversion, same-community revenue in the fourth quarter of 2012 increased 4.2% versus the fourth quarter of 2011. Same-community expenses increased 2.8% and net income increased 6.2% from the fourth quarter of the prior year. For the second consecutive quarter, our same-community occupancies increased 180 basis points from the comparable quarter of the prior year and 80 basis points sequentially. Same-community occupancy over the past year reflected occupancy gains in independent living, exceeding those in higher levels of care, resulting in average monthly rents 2.1% higher than the fourth quarter of 2011.

Sequentially, same-community independent living occupancies improved 120 basis points and assisted living occupancy gained 30 basis points from the third quarter of 2012.

Our fourth quarter operating data results are compared favorably to NIC MAP top 100 MSA data, which report industry same-community fourth quarter 2012 occupancy growth of 20 basis points sequentially and 80 basis points annually. NIC MAP reported trailing 12-month construction starts as the percentage of supply decreased to 1.4% and unit absorption to supply increased to 1.9%. These metrics are very favorable, with absorption exceeding inventory growth for the past 11 consecutive quarters.

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