Capital Senior Living Corporation (CSU)

CSU 
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Capital Senior Living Corp. (CSU)

Q1 2008 Earnings Call

May 7, 2008 11:00 am ET

Executives

Jim Stroud - Chairman

Larry Cohen - Vice Chairman and CEO

Ralph Beattie - EVP and CFO

Analysts

Frank Morgan - Jefferies & Company

Jerry Doctrow - Stifel Nicolaus

Todd Cohen - MTC Advisors

David Ratliff - Doucet Asset Management

Rick Fetterman - Fetterman Investments

Presentation

Operator

Good day, everyone, and welcome to the Capital Senior Living first 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 limited to the company's ability to complete refinancing of certain of our wholly-owned communities, realize the anticipated savings related to such financing, 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 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 with the Securities and Exchange Commission.

And now, at this time, I would like to turn the call over to the Chairman, Mr. Jim Stroud. Please go ahead, sir.

Jim Stroud

Good morning and welcome to Capital Senior Living's first quarter 2008 earnings call. The first quarter 2008 results continue to improve as compared to the prior year period. Revenues of $48.5 million increased $2.3 million or approximately 5% from the first quarter of 2007.

Adjusted EBITDAR, as defined in the press release, increased $14.4 million, approximately 9% from the prior year period. And our adjusted EBITDAR margin was 29.6% for the first quarter 2008, which represents 110 basis points improvement from the first quarter of 2007.

The organic growth in the first quarter of 2008 was reflected in our same-store results for the quarter. Average monthly rent increased 4.4%, while expenses increased 2.5% in the quarter. This resulted in a 4.6% increase in same-store net income for the first quarter of 2008.

On March 24, 2008, we announced the addition of Mr. Harvey Hanerfeld and Mr. Peter Martin to the Board of Directors, and the formation of a special Board Committee to review strategic alternatives, including execution of the company's existing business plan. The Special Committee has met several times and is in the process of hiring a nationally recognized investment banking firm as its financial advisor. This process is expected to take a number of months. The company will update the progress of the Special Committee when it hires an investment banking firm, and on future earnings calls.

Now, at this time, I'd like to introduce Larry Cohen, Chief Executive Officer for further comment. Larry?

Larry Cohen

Thank you, Jim, and good morning, everybody. The first quarter is typically our most challenging as we deal with higher levels of attrition and harsh winter weather, particularly in the Midwest this past winter. Despite these conditions and a challenging economy in housing markets, first quarter revenues, EBITDAR, and net income all increased with strong margins, as we implement rent increases and employ sound expense controls.

Our 2008 business plan is focused on increasing capacity and levels of care to meet the needs of our residents with an average age of 85 through expansions, conversions, new developments in home healthcare. These investments are expected to improve occupancies, produce excellent returns on invested capital and build shareholder value.

We achieved solid community operating results in the first quarter of 2008. During the quarter, 60 of our communities were stabilized with an 89% average physical occupancy rate, and operating margins, before property taxes, insurance, and management fees, were 48.5% in our 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, same-store revenues increased 3.3% versus the first quarter of 2007 as a result of a 4.4% increase in average monthly rent and a 90 basis point decrease in financial occupancy.

Our sound expense controls and group purchasing program limited same-store expense growth to 2.5% resulting in same-store net income growth of 4.6% from the comparable period in 2007.The operating leverage in our business model is reflected in the 54% incremental EBITDAR margin realized from the same-store revenue increases.

The number of communities we consolidated in the first quarter increased to 50 from 48 a year earlier. Financial occupancies at these communities averaged 87.4% during the quarter. Operating margins at our consolidated communities were 44% during the quarter and average monthly rents were $2,415, a 3.8% increase from first quarter 2007 average monthly rents.

17 of our consolidated properties are Waterford Wellington communities, which we developed and opened between 1999 and 2002. In the first quarter 2008, these communities had an 89.8% financial occupancy compared to 91.6% in first quarter 2007 and average monthly rents grew 4.2% to $2,044.

Every 1% increase in occupancy at our consolidated communities would generate approximately $2 million in additional revenues. A 5% increase in average monthly rents at our consolidated communities would generate approximately $8.5 million in additional annual consolidated revenues over annualized March 2008 revenues.

At the incremental EBITDAR margins that we typically achieve on these additional revenues, the company's EBITDAR would increase significantly.

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