Capital Senior Living Corporation (CSU)

CSU 
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Exchange: NYSE
Industry: Health Care
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Capital Senior Living (CSU)

Q2 2013 Earnings Call

August 06, 2013 11:00 am ET

Executives

Lawrence A. Cohen - Chief Executive Officer and Vice Chairman

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

Analysts

Darren P. Lehrich - Deutsche Bank AG, Research Division

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

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

Dana Hambly - Stephens Inc., Research Division

Presentation

Operator

Good day, and welcome to the Capital Senior Living's Second Quarter 2013 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 without limitation, to the company's ability to find suitable acquisition properties at favorable terms, financing, licensing, business conditions, risks of downturns in economic conditions generally, satisfaction of closing conditions, such as those pertaining to licensure, availability of insurance at commercially 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 by the Securities and Exchange Commission.

At this time, I would like to turn the call over to Mr. Larry Cohen. Please go ahead, sir.

Lawrence A. Cohen

Thank you, and good morning. Welcome to Capital Senior Living's Second Quarter 2013 Earnings Release Conference Call. I'm very pleased to report continued positive results for the second quarter, as we recovered from the effects of the flu season in the first quarter. Second quarter same-community occupancies increased 50 basis points, revenue increased over 13% and CFFO grew 15% from the second quarter of the prior year.

I am also pleased to report that we are further enhancing our private-pay revenues through a repositioning of our 2 continuing care retirement communities. After considering a number of alternatives, including a sale of these owned communities, we decided that a reconfiguration of the services we offer will enhance CFFO, improve operating metrics and enable meaningful gains in shareholder value.

Complementing our organic growth is a robust pipeline that allows us to continue our disciplined and strategic acquisition program that increases our ownership of high-quality senior living communities in geographically concentrated regions and generates meaningful increases in CFFO earnings and real estate value. 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 meaningful gains in shareholder value 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.

In the second quarter, we completed the acquisition of 2 senior living communities in Missouri and Indiana for a combined purchase price of approximately $25.4 million. These transactions are expected to add CFFO of $0.03 per share, increase earnings by $0.02 per share and increase revenue by $5 million. These communities were financed with an aggregate of approximately $19.1 million of nonrecourse mortgage debt, consisting of $14.5 million of 12-year debt with an interest date of 5.3% and bridge financing of approximately $4.6 million with a variable interest rate of approximately 4%. The bridge loan is for a community that we are converting from independent living to assisted living. And once licensure is complete, we'll be refinanced with permanent financing.

We have scheduled closing dates on approximately $65 million of additional transactions consisting of high-quality senior living communities in regions with extensive existing operations. Subject to completion of due diligence and customary closing conditions, these transactions are expected to close in the third and fourth quarters.

During the first 6 months of the year, we have completed or agreed to acquire approximately $100 million of high-quality senior living communities with an expected effective cash-on-cash return on equity of more than 17%. 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 these additional communities in the fourth quarter of this year.

Now I'd 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 benefit from our proprietary expense management systems, our community-based empowerment philosophy, our operating strategy to provide value to our senior living residents and our geographically concentrated operating platform. We believe we are different from other companies in our peer group with our sole focus on the substantially all private-pay senior living business, capitalizing on the competitive strengths in operating communities in geographically concentrated regions and profiting from our competitive advantages as a larger company with economies of scale and proprietary systems operating in a highly fragmented industry that continue to generate excellent results.

We are enhancing our private-pay revenues through the repositioning of our 2 continuing care retirement communities with space being converted to other private-pay use. We expect the reconfiguration to enhance CFFO by approximately $0.02 to $0.03 per share. While these 2 communities are being repositioned, same-community results for these 2 communities will be excluded. At communities under management, excluding these 2 communities, same-community revenue in the second quarter of 2013 increased 3.2% versus the second quarter 2012. Same-community expenses increased 2% and net operating income increased 4.7%. Our same-community occupancies increased 50 basis points from the comparable quarter of the prior year.

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