UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended December 31, 20172019
Or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 1-13445
Capital Senior Living Corporation
(Exact name of registrant as specified in its charter)
Delaware |
| 75-2678809 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
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14160 Dallas Parkway, Suite 300 Dallas, Texas |
| 75254 |
(Address of principal executive offices) |
| (Zip Code) |
Registrant’s telephone number, including area code:
(972) 770-5600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $.01 par value per share | CSU | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by a check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes ☐ No ☑
Indicate by a check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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| Accelerated filer |
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Non-accelerated filer |
| ☐ |
| Smaller reporting company |
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| Emerging growth company |
| ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The aggregate market value of the 24,076,01025,257,764 shares of the Registrant’s common stock, par value $0.01 per share (“Common Stock”), held by non-affiliates (defined to exclude all of the Registrant’s executive officers, directors, and certain significant stockholders) on June 30, 2017,28, 2019, the last day of the Registrant’s most recently completed second quarter, based upon the adjusted closing price of the Registrant’s Common Stock as reported by the New York Stock Exchange on such date was approximately $366.2$127.0 million. As of February 23, 2018,March 25, 2020, the Registrant had 30,500,80031,956,439 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement pertaining to its 20182020 Annual Meeting of Stockholders and filed or to be filed not later than 120 days after the end of the fiscal year pursuant to Regulation 14A are incorporated herein by reference into Part III of this report.
CAPITAL SENIOR LIVING CORPORATION
TABLE OF CONTENTS
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Item 1. | 2 | |
Item 1A. |
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Item 1B. |
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Item 4. |
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Item 5. |
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Item 6. | 31 | |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 32 |
Item 7A. |
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Item 8. |
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Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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Item 9A. |
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Item 9B. |
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Item 10. |
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Item 11. |
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Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Item 13. | Certain Relationships and Related Transactions, and Director Independence |
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Item 14. |
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Item 15. |
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F-1 |
i
Overview
Capital Senior Living Corporation, a Delaware corporation (together with its subsidiaries, the “Company”), is one of the largest operators of senior housing communities in the United States in terms of resident capacity. The Company and its predecessors have provided senior housing since 1990. As of December 31, 2017,2019, the Company operated 129126 senior housing communities in 23 states with an aggregate capacity of approximately 16,50016,000 residents, including 8380 senior housing communities whichthat the Company owned and 46 senior housing communities that the Company leased. During 2017,2019, approximately 94.4%94.1% of total revenues for the senior housing communities operated by the Company were derived from private pay sources.
The Company’s operating strategy is to provide value to its senior living residents by providing quality senior living services at reasonable prices, while achieving and sustaining a strong, competitive position within its geographically concentrated regions, as well as continuing to enhance the performance of its operations. The Company provides senior living services to the elderly,75+ population, including independent living, assisted living, and memory care services. Many of the Company’s communities offer a continuum of care to meet its residents’ needs as they change over time by integrating independent living, assisted living, and memory care, and is bridged by home care through independent home care agencies, sustaining residents’ autonomy and independence based on their physical and mentalneuro-cognitive abilities.
Recent Developments
After leadership changes in early 2019, we supplemented our operating strategy with initiatives intended to complement and enhance our core operational efforts and position us for future growth and success in light of recent trends in demographics, technology, and healthcare delivery methods.
A key component of our turnaround plan has been the optimization of our portfolio of our senior housing communities, which includes disposing of certain owned and leased communities and restructuring our lease agreements with our three largest landlords. We undertook this initiative to simplify and streamline our business, increase the quality and durability of our cash flows, improve our liquidity, reduce our short and long-term debt and lease leverage, and increase our ownership in our consolidated community portfolio. Recent activities in furtherance of this component of our turnaround plan included:
covering the communities into property management agreements with the Company on December 31, 2020 if Ventas has not transitioned such communities to a successor operator. |
On October 22, 2019, we executed an amendment to our master lease agreement with Healthpeak Properties, Inc., formerly HCP, Inc. (“Healthpeak”), which was later amended, to transition one of the Healthpeak communities to a new operator on or around January 15, 2020 and to sell the remaining eight communities as soon as possible to one or more buyers. We were obligated to pay a $250,000 termination fee on the transition of the one community to the new buyer. On March 1, 2020, we executed an agreement providing for the early termination of our master lease agreement with Healthpeak, previously scheduled to mature in April 2026. The master lease agreement was converted to a management agreement under a REIT Investment Diversification Act (“RIDEA”) structure pursuant to which we agreed to manage the six communities that were subject to such lease agreement until such communities are sold by Healthpeak. In conjunction with the agreement, we agreed to release approximately $1.9 million of security deposits held by Healthpeak.
Effective October 1, 2019, we sold two communities located in Springfield, Missouri and Peoria, Illinois that were operating at peak performance, which resulted in net proceeds to us of approximately $14.8 million and the retirement of outstanding mortgage debt of $44.4 million.
Effective May 1, 2019, we opportunistically disposed of one senior housing community located in Kokomo, Indiana, which resulted in net proceeds to us of approximately $1.4 million and the retirement of outstanding mortgage debt of $3.5 million.
During fiscal 2020, we intend to continue to increase our ownership percentage in our senior housing portfolio by exiting underperforming leases when possible, and opportunistically selling certain communities in order to further strengthen our balance sheet and allow us to strategically invest in certain existing communities.
Website
The Company’s Internet website, www.capitalsenior.com, contains an Investor Relations section, which provides links to the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, Section 16 filings and any amendments to those reports and filings. These reports and filings are available through the Company’s Internet website free of charge as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (“SEC”).
Industry Background
The senior living industry encompasses a broad and diverse range of living accommodations and supportive services that are provided primarily to persons 75 years of age or older.
For the elderlyseniors who require limited services, independent living residences supplemented at times by home health care, offers a viable option. Most independent living communities typically offer community living packaged with basic services consisting of meals, housekeeping, laundry, 24-hour staffing, transportation, social and recreational activities and health care monitoring. Independent living residents typically are not reliant on assistance with activities of daily living (“ADLs”), although some residents may contract oututilize outside vendors for those services.
As a senior’s need for assistance increases, care in an assisted living residence is often preferable and more cost-effective than home-based care or nursing home care. Typically, assisted living represents a combination of housing and support services designed to aid elderly residents with ADLs such as ambulation, bathing, dressing, eating, grooming, personal hygiene and monitoring or assistance with medications. Certain assisted living residences may also provide assistance to residents with low acuity medical needs, orneeds. Others may offer higher levels of personal assistance for incontinent residents with chronic diseases and conditions or memory care services for residents with Alzheimer’s disease or other cognitive or physical frailties. Generally, assisted living residents require higher levels of care than residents of independent living residences and retirement living centers, but require lower levels of care than patients in skilled nursing facilities. For seniors who need the constant attention of a skilled nurse or medical practitioner, a skilled nursing facility may be required.
According to the American Seniors Housing Association, Seniors Housing Construction Monitor – Winter 20182020 Report, as of the fourth quarter of fiscal 2017, 21.0%2019, 22.3% of the age-restricted seniors housing supply in the United States were assisted living units, 22.6%22.5% were independent living units, 49.8%47.8% were nursing care units, and 6.6%7.6% were memory care units.
The senior living industry is highly fragmented and characterized by numerous small operators. Moreover, the scope of senior living services varies substantially from one operator to another. Many smaller senior living providers do not operate purpose-built residences, do not have extensive professional training for staff and provide only limited assistance with ADLs. The Company believes that, many senior livingas one of the nation’s largest operators, do notit has scale and resources to provide the required comprehensive range of senior living services designed to permit residents to “age in place” within the community as residents develop further physical or cognitive frailties. The Company believes that as one of the nation’s largest operators it has scale and resources that provide it with certain competitive advantages.frailties, whereas smaller providers do not.
The Company believes that a number of demographic, regulatory and other trends will contribute to the continued growth in the senior living market, including the following:
Consumer Preference
The Company believes that senior housing communities are increasingly becoming the setting preferred by prospective residents and their families for the care of the elderly.75+ population. Senior living offers residents greater independence and allows them to “age in place” in a residential setting, which the Company believes results in a higher quality of life than that experienced in more institutional or clinical settings.
The likelihood of living alone increases with age. Most of this increase is due to an aging population in which women outlive men. Societal changes, such as high divorce rates and the growing numbers of persons choosing not to marry, have further increased the number of Americans living alone. This growth in the number of elderlyseniors living alone has resulted in an increased demand for services that historically have been provided by a spouse, other family members or live-in caregivers.
Demographics
The primary market for the Company’s senior living services is comprised of persons aged 75 and older. ThisDue primarily to advancements in healthcare and an increased life expectancy, this age group is one of the fastest growing segments of the United States population. The older population itself is increasingly older. In 2011, the 75-84 age group in the United States (12.8 million persons) was 16 times larger than in 1900 and the 85 and over age group in the United States (5.7 million persons) was 40 times larger. The 85 and over population in the United States is projected to more than double from 5.7 million persons in 2011 to 14.1 million persons in 2040. As the number of persons aged 75 and older continues to grow, the Company believes that there will be corresponding increases in the number of persons who need assistance with ADLs.
Senior Affluence
The average net worth of senior citizens is typically higher than non-senior citizens, partially as a result of accumulated equity through home ownership. The Company believes that a substantial portion of the senior population has historically accumulated significant resources available for their retirement and long-term care needs. The Company’s target population is comprised of moderate to upper income seniors who have, either directly or indirectly through familial support, the financial resources to pay for senior housing communities, including an assisted living alternative to traditional long-term care.
Reduced Reliance on Family Care
Historically, the family has been the primary provider of care for seniors. The Company believes that the increase in the percentage of women in the work force, the reduction of average family size, and overall increased mobility in society is reducing the role of the family as the traditional caregiver for aging parents. The Company believes that these factors will make it necessary for many seniors to look outside the family for assistance as they age.
Restricted Supply of Nursing Beds
Several states in the United States have adopted Certificate of Need (“CON”) or similar statutes generally requiring that, prior to the addition of new skilled nursing beds, the addition of new services, or the making of certain capital expenditures, a state agency must determine that a need exists for the new beds or the proposed activities. The Company believes that this CON process tends to restrict the supply and availability of licensed nursing facility beds. High construction costs, limitations on government reimbursement, and start-up expenses also act to constrain growth in the supply of such facilities. At the same time, nursing facility operators are continuing to focus on improving occupancy and expanding services to sub-acute patients generally of a younger age and requiring significantly higher levels of nursing care. As a result, the Company believes that there has been a decrease in the number of skilled nursing beds available to patients with lower acuity levels and that this trend should increase the demand for the Company’s senior housing communities, including, particularly, the Company’s assisted living communities.
Cost-Containment Pressures
In response to rapidly rising health care costs, governmental and private pay sources have adopted cost containment measures that have reduced admissions and encouraged reduced lengths of stays in hospitals and other acute care settings. Private insurers have begun to limit reimbursement for medical services in general to predetermined charges, and managed care organizations (such as health maintenance organizations) are attempting to limit hospitalization costs by negotiating for discounted rates for hospital and acute care services and by monitoring and reducing hospital use. In response, hospitals are discharging patients earlier and referring elderlyaging patients, who may be too sick or frail to manage their lives without assistance, to nursing homes and assisted living residences where the cost of providing care is typically lower than hospital care. In addition, third-party payors are increasingly becoming involved in determining the appropriate health care settings for their insureds or clients, based primarily on cost and quality of care. Based on industry data, the typical day-rate in an assisted living facility is one-fourth of the cost for comparable care in a nursing home and two-thirds of the cost of living at home with a third partythird-party home health care provider.
Operating Strategy
The Company’s operating strategy is to provide value to its senior living residents by providing quality senior living services at reasonable prices, while achieving and sustaining a strong, competitive position within its geographically concentrated regions, as well as continuing to enhance the performance of its operations. The Company is implementing its operating strategy principally through the following methods:
Provide a Broad Range of Quality Personalized Care
Central to the Company’s operating strategy is its focus on providing quality care and services that are personalized and tailored to meet the individual needs of each community resident. The Company’s residences and services are designed to provide a broad range of care that permits residents to thrive and “age in place” as their needs change and as they develop further physical or cognitive frailties. By creating an environment that maximizes resident autonomy and provides individualized service programs, the Company seeks to attract seniors at an earlier stage, before they need the higher level of care provided in a skilled nursing facility. The Company also maintains a comprehensive quality assurance program designed to ensure the satisfaction of its residents and their family members. The Company conducts annual resident satisfaction surveys that allow residents at each community to express whether they are “very satisfied,” “satisfied” or “dissatisfied” with all major areas of a community, including, housekeeping, maintenance, activities and transportation, food service, security and management. In each of fiscal 2017 and 2016, the Company achieved 94.6% overall approval ratings from the residents’ satisfaction surveys. In addition, the Company ranked third among senior living operators nationally in 2018 according to J.D. Powers 2018 Senior Living Satisfaction Study. The study measured resident and family overall satisfaction across factors important to them including community staff, convenience of location, food and beverage, room, building and grounds, senior service and activities among others.
Offer Services Across a Range of Pricing Options
The Company’s range of products and services is continually expanding to meet the evolving needs of its residents. The Company has developed a menu of products and service programs that may be further customized to serve both the moderate and upper income markets of a particular targeted geographic area. By offering a range of pricing options that are customized for each target market, the Company believes that it can develop synergies, economies of scale and operating efficiencies in its efforts to serve a larger percentage of the elderly population within a particular geographic market.
Improve Occupancy Rates
The Company continually seeks to maintain and improve occupancy rates by: (i) retaining residents as they “age in place” by extending optional care and service programs and converting existing units to higher levels of care; (ii) attracting new residents through the use of technology to enhance Internet marketing and on-site marketing programs focused on residents and family members; (iii) selecting communities in underserved markets; (iv) aggressively seeking referrals from senior care referral services, professional community outreach sources, including area religious organizations, senior social service programs, civic and business networks, as well as the medical community; and (v) continually refurbishing and renovating its communities.
Improve Operating Efficiencies
The Company seeks to improve operating efficiencies at its communities by actively monitoring and managing operating costs and by moving to a more centralized operating platform. By having an established portfolio of communities in geographically concentrated regions throughout the United States with regional management in place, the Company believes it has established a platform to achieve operating efficiencies through economies of scale in the purchase of bulk items, such as food and supplies, and in the spreading of fixed costs, such as corporate overhead, over a larger revenue base, and to provide more effective management supervision and financial controls. The Company’s growth strategy includes acquiring additional communities within our geographically concentrated regions to achieve further efficiencies.
Emphasize Employee Training and Retention
The Company devotes special attention to the hiring, screening, training, supervising and retention of its employees and caregivers to ensure that quality standards are achieved. In addition to normal on-site training, the Company conducts national management meetings and encourages sharing of expertise among managers. The Company has also implemented a comprehensive online training program that addresses the specific challenges of working within the senior living environment. The Company’s commitment to the total quality management concept is emphasized throughout its training programs. This commitment to the total quality management concept means identification of the “best practices” in the senior living market and communication of those “best practices” to the Company’s executive directors and their staff. The identification of best practices is realized by a number of means, including: emphasis on regional and executive directors keeping up with professional trade publications; interaction with other professionals and consultants in the senior living industry through seminars, conferences and consultations; visits to other properties; leadership and participation at national and local trade organization events; and information derived from marketing studies and resident satisfaction surveys. This information is continually processed by regional managers and the executive directors and communicated to the Company’s employees as part of their training. The Company hires an executive director for each of its communities and provides them with autonomy, responsibility and accountability. The Company’s staffing of each community with an executive director allows it to hire more professional employees at these positions, while the Company’s developed career path helps it to retain the professionals it hires. The Company believes its commitment to and emphasis on employee training and retention differentiates the Company from many of its competitors.
The Company provides senior living services to the elderly,residents aged 75 and greater, including independent living, assisted living, and memory care services. By offering a variety of services and encouraging the active participation of the resident and the resident’s family and medical consultants,professionals, the Company is able to customize its service plan to meet the specific needs and desires of each resident. Additionally, the Company is actively working to expand service offerings through conversions of existing units to higher levels of care. As a result, the Company believes that it is able to maximize customer satisfaction and avoid the high cost of delivering unnecessary services to residents.
The Company’s operating philosophy is to provide quality senior housing communities and services to senior citizens and deliver a continuum of care for its residents as their needs change over time coordinated with third party post-acute care providers. This continuum of care, which integrates independent living, assisted living, and memory care services and is bridged by home care, sustains residents’ autonomy and independence based on their physical and mental abilities. As residents age, in many of the Company’s communities, they are able to obtain the additional services they need within the same community, avoiding the disruptive and often traumatic move to a different facility.
Independent Living Services
The Company provides independent living services to seniors who typically do not yet need assistance or support with ADLs, but who prefer the physical and psychological comfort of a residential community that offers health care and other services. As of December 31, 2017,2019, the Company owned 4037 communities and leased 15 communities that provide independent living services, which include communities that combine assisted living and other services, with an aggregate capacity for approximately 6,9006,500 residents.
Independent living services provided by the Company include daily meals, transportation, social and recreational activities, laundry, housekeeping and 24-hour staffing. The Company also fosters the wellness of its residents by offering access to health screenings (such as blood pressure checks), periodic special services (such as influenza inoculations), dietary and similar programs, as well as ongoing exercise and fitness classes. Classes are given by health care professionals to keep residents informed about health and disease management. Subject to applicable government regulation, personal care and medical services are available to independent living residents through either the community
staff or through the Company’s agency or other independent home care agencies. The Company’s independent living residents pay an average fee of $2,800$2,700 per month, in general, depending on the specific community, program of services, size of the unit and amenities offered. The Company’s contracts with its independent living residents are generally for a term of one year and are typically terminable by either party, under certain circumstances, upon providing 30 days’ notice unless state law stipulates otherwise.
Assisted Living Services
The Company offers a wide range of assisted living care and services, including personal care services, 24-hour staffing, support services, and supplemental services.services, including memory care services at some communities as described below. As of December 31, 2017,2019, the Company owned 6766 communities and leased 40 communities that provide assisted living services, which include communities that combine independent living and other services, with an aggregate capacity for approximately 9,6009,500 residents. The residents of the Company’s assisted living residences generally need help with some or all ADLs, but do not require the more acute medical care traditionally givenprovided in nursing homes. Upon admission to the Company’s assisted living communities, and in consultation with the resident, the resident’s family and medical consultants, each resident is assessed to determine his or her health status, including functional abilities and need for personal care services. The resident also completes a lifestyles assessment to determine the resident’s preferences. From these assessments, a care plan is developed for each resident to ensure that all staff members who render care meet the specific needs and preferences of each resident where possible. Each resident’s care plan is reviewed periodically to determine whether a change in care is needed.
The Company has adopted a philosophy of assisted living care that allows a resident to maintain a dignified independent lifestyle. Residents and their families are encouraged to be partners in the residents’ care and to take as much responsibility for their well-being as possible. The basic types of assisted living services offered by the Company include the following:
Personal Care Services. These services include assistance with ADLs such as ambulation, bathing, dressing, eating, grooming, personal hygiene, and monitoring or assistance with medications.
Support Services. These services include meals, assistance with social and recreational activities, laundry services, general housekeeping, maintenance services and transportation services.
Supplemental Services. These services include extra transportation services, personal maintenance, extra laundry services, and special care services, such as services for residents with certain forms of dementia. Certain of these services require extra charges.
The Company’s assisted living residents pay an average fee of $4,000 per month, in general, depending on the specific community, the level of personal care services, support service and supplemental services provided to the resident, size of the unit and amenities offered. The Company’s contracts with its assisted living residents are generally for a term of one year and are typically terminable by either party, under certain circumstances, upon providing 30 days’ notice unless state law stipulates otherwise.
Memory Care Services
The Company maintains programs and special unitsliving accommodations at some of its communities for residents with certain forms of dementia, which provide the attention, care and services needed to help those residents maintain a higher quality of life. Specialized services include assistance with ADLs, behavior management and life skills-based activities programs, the goal of which is to provide a normalized environment that supports residents’ remaining functional abilities. Special unitsliving accommodations for residents with certain forms of dementia are located in a separate area of the community and have theirwith its own dining facilities, resident lounge areas, and specially trained staff. The special care areas are designed to allow residents the freedom to ambulate as they wish, while keeping them safely contained within a secure area with a minimum of disruption tofrom other residents. Resident fees for these programs and special unitsliving accommodations are dependent on the size of the unit, the design type and the level of services provided.
The Company’s memory care residents pay an average fee of $5,200$5,100 per month, in general, depending on the specific community, the level of personal care services, support service and supplemental services provided to the resident, size of the unit and amenities offered. The Company’s contracts with its memory care residents are generally
for a term of one year and are typically terminable by either party, under certain circumstances, upon providing 30 days’ notice unless state law stipulates otherwise.
Home Care Services
As of December 31, 2017,2019, the Company made home care services available to clients at a majority of its senior housing communities through third-party providers. The Company believes that the provision of private pay, home care services is an attractive adjunct to its independent living services because it allows the Company to make available more services to its residents as they age in place and increases the length of stay in the Company’s communities. In addition, the Company makes available to residents certain customized physician, dentistry, podiatry and other health-related rehabilitation and therapy services that may be offered byavailable to its residents through third-party providers.
The table below sets forth certain information with respect to senior housing communities operated by the Company as of December 31, 2017.2019.
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Community | Location |
| Units |
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| AL |
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| Total |
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| Ownership |
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| of Operations2 | Location |
| Units |
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| IL |
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| AL |
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| Total |
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| Ownership |
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| of Operations2 | ||||||||||
Owned: |
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Aspen Grove | Lamberville, MI |
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| 78 |
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| — |
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| 83 |
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| 83 |
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| 100 | % |
| 03/14 | Lamberville, MI |
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| 78 |
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| — |
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| 83 |
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| 83 |
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| 100 | % |
| 03/14 |
Autumn Glen | Greencastle, IN |
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| 49 |
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| — |
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| 64 |
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| 64 |
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| 100 | % |
| 06/13 | Greencastle, IN |
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| 49 |
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| — |
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| 64 |
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| 64 |
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| 100 | % |
| 06/13 |
Brookview Meadows | Green Bay, WI |
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| 78 |
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| — |
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| 156 |
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| 156 |
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| 100 | % |
| 01/15 | Green Bay, WI |
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| 78 |
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| — |
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| 156 |
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| 156 |
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| 100 | % |
| 01/15 |
Canton Regency | Canton, OH |
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| 239 |
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| 162 |
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| 145 |
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| 307 |
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| 100 | % |
| 03/91 | Canton, OH |
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| 239 |
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| 162 |
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| 145 |
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| 307 |
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| 100 | % |
| 03/91 |
Chateau of Batesville | Batesville, IN |
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| 41 |
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| — |
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| 43 |
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| 43 |
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| 100 | % |
| 10/12 | Batesville, IN |
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| 41 |
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| — |
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| 43 |
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| 43 |
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| 100 | % |
| 10/12 |
Cottonwood Village | Cottonwood, AZ |
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| 163 |
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| 131 |
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| 58 |
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| 189 |
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| 100 | % |
| 03/91 | Cottonwood, AZ |
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| 163 |
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| 131 |
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| 58 |
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| 189 |
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| 100 | % |
| 03/91 |
Country Charm | Greenwood, IN |
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| 89 |
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| — |
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| 166 |
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| 166 |
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| 100 | % |
| 10/12 | Greenwood, IN |
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| 89 |
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| — |
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| 166 |
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| 166 |
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| 100 | % |
| 10/12 |
Courtyards at Lake Granbury | Granbury, TX |
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| 81 |
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| — |
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| 112 |
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| 112 |
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|
| 100 | % |
| 03/12 | Granbury, TX |
|
| 81 |
|
|
| — |
|
|
| 112 |
|
|
| 112 |
|
|
| 100 | % |
| 03/12 |
Georgetowne Place | Fort Wayne, IN |
|
| 159 |
|
|
| 242 |
|
|
| 0 |
|
|
| 242 |
|
|
| 100 | % |
| 10/05 | Fort Wayne, IN |
|
| 159 |
|
|
| 242 |
|
|
| 0 |
|
|
| 242 |
|
|
| 100 | % |
| 10/05 |
Good Tree Retirement and Memories | Stephenville, TX |
|
| 60 |
|
|
| 20 |
|
|
| 75 |
|
|
| 95 |
|
|
| 100 | % |
| 03/12 | Stephenville, TX |
|
| 60 |
|
|
| 20 |
|
|
| 75 |
|
|
| 95 |
|
|
| 100 | % |
| 03/12 |
Gramercy Hill | Lincoln, NE |
|
| 143 |
|
|
| 34 |
|
|
| 113 |
|
|
| 147 |
|
|
| 100 | % |
| 10/98 | Lincoln, NE |
|
| 143 |
|
|
| 34 |
|
|
| 113 |
|
|
| 147 |
|
|
| 100 | % |
| 10/98 |
Greenbriar Village | Indianapolis, IN |
|
| 124 |
|
|
| — |
|
|
| 134 |
|
|
| 134 |
|
|
| 100 | % |
| 08/15 | Indianapolis, IN |
|
| 124 |
|
|
| — |
|
|
| 134 |
|
|
| 134 |
|
|
| 100 | % |
| 08/15 |
Harbor Court | Rocky River, OH |
|
| 122 |
|
|
| — |
|
|
| 144 |
|
|
| 144 |
|
|
| 100 | % |
| 12/12 | Rocky River, OH |
|
| 122 |
|
|
| — |
|
|
| 144 |
|
|
| 144 |
|
|
| 100 | % |
| 12/12 |
Harrison at Eagle Valley | Indianapolis, IN |
|
| 104 |
|
|
| 138 |
|
|
| 0 |
|
|
| 138 |
|
|
| 100 | % |
| 03/91 | Indianapolis, IN |
|
| 104 |
|
|
| 138 |
|
|
| 0 |
|
|
| 138 |
|
|
| 100 | % |
| 03/91 |
Heritage at the Plains at Parish Homestead | Oneonta, NY |
|
| 108 |
|
|
| 97 |
|
|
| 53 |
|
|
| 150 |
|
|
| 100 | % |
| 05/15 | Oneonta, NY |
|
| 108 |
|
|
| 97 |
|
|
| 53 |
|
|
| 150 |
|
|
| 100 | % |
| 05/15 |
Independence Village of Peoria | Peoria, IL |
|
| 158 |
|
|
| 158 |
|
|
| — |
|
|
| 158 |
|
|
| 100 | % |
| 08/00 | |||||||||||||||||||||||
Keystone Woods Assisted Living | Anderson, IN |
|
| 58 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
|
| 100 | % |
| 07/11 | Anderson, IN |
|
| 58 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
|
| 100 | % |
| 07/11 |
Laurel Hurst Laurel Woods | Columbus, NC |
|
| 102 |
|
|
| 70 |
|
|
| 60 |
|
|
| 130 |
|
|
| 100 | % |
| 10/11 | Columbus, NC |
|
| 102 |
|
|
| 70 |
|
|
| 60 |
|
|
| 130 |
|
|
| 100 | % |
| 10/11 |
Marquis Place of Elkhorn | Elkhorn, NE |
|
| 65 |
|
|
| — |
|
|
| 69 |
|
|
| 69 |
|
|
| 100 | % |
| 03/13 | Elkhorn, NE |
|
| 65 |
|
|
| — |
|
|
| 69 |
|
|
| 69 |
|
|
| 100 | % |
| 03/13 |
Middletown | Middletown, OH |
|
| 61 |
|
|
| — |
|
|
| 75 |
|
|
| 75 |
|
|
| 100 | % |
| 09/13 | Middletown, OH |
|
| 61 |
|
|
| — |
|
|
| 75 |
|
|
| 75 |
|
|
| 100 | % |
| 09/13 |
Montclair | Springfield, MO |
|
| 156 |
|
|
| 178 |
|
|
| — |
|
|
| 178 |
|
|
| 100 | % |
| 12/12 | |||||||||||||||||||||||
North Pointe | Anderson, SC |
|
| 64 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
|
| 100 | % |
| 10/11 | Anderson, SC |
|
| 64 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
|
| 100 | % |
| 10/11 |
Park-Oak Grove | Roanoke, VA |
|
| 93 |
|
|
| — |
|
|
| 164 |
|
|
| 164 |
|
|
| 100 | % |
| 08/14 | Roanoke, VA |
|
| 93 |
|
|
| — |
|
|
| 164 |
|
|
| 164 |
|
|
| 100 | % |
| 08/14 |
River Crossing Assisted Living | Charlestown, IN |
|
| 100 |
|
|
| — |
|
|
| 106 |
|
|
| 106 |
|
|
| 100 | % |
| 12/13 | Charlestown, IN |
|
| 100 |
|
|
| — |
|
|
| 106 |
|
|
| 106 |
|
|
| 100 | % |
| 12/13 |
Riverbend Independent and Assisted Living | Jeffersonville, IN |
|
| 97 |
|
|
| — |
|
|
| 114 |
|
|
| 114 |
|
|
| 100 | % |
| 03/12 | Jeffersonville, IN |
|
| 97 |
|
|
| — |
|
|
| 114 |
|
|
| 114 |
|
|
| 100 | % |
| 03/12 |
Remington at Valley Ranch | Irving, TX |
|
| 127 |
|
|
| 158 |
|
|
| — |
|
|
| 158 |
|
|
| 100 | % |
| 04/12 | Irving, TX |
|
| 127 |
|
|
| 158 |
|
|
| — |
|
|
| 158 |
|
|
| 100 | % |
| 04/12 |
Residence of Chardon | Chardon, OH |
|
| 42 |
|
|
| — |
|
|
| 52 |
|
|
| 52 |
|
|
| 100 | % |
| 10/12 | Chardon, OH |
|
| 42 |
|
|
| — |
|
|
| 52 |
|
|
| 52 |
|
|
| 100 | % |
| 10/12 |
Rose Arbor | Maple Grove, MN |
|
| 146 |
|
|
| 86 |
|
|
| 87 |
|
|
| 173 |
|
|
| 100 | % |
| 06/06 | Maple Grove, MN |
|
| 146 |
|
|
| 86 |
|
|
| 87 |
|
|
| 173 |
|
|
| 100 | % |
| 06/06 |
Rosemont Assisted Living and Memory Care | Humble, TX |
|
| 96 |
|
|
| — |
|
|
| 120 |
|
|
| 120 |
|
|
| 100 | % |
| 09/16 | Humble, TX |
|
| 96 |
|
|
| — |
|
|
| 120 |
|
|
| 120 |
|
|
| 100 | % |
| 09/16 |
Sugar Grove | Plainfield, IN |
|
| 164 |
|
|
| 48 |
|
|
| 116 |
|
|
| 164 |
|
|
| 100 | % |
| 12/13 | Plainfield, IN |
|
| 164 |
|
|
| 48 |
|
|
| 116 |
|
|
| 164 |
|
|
| 100 | % |
| 12/13 |
Summit Place | Anderson, SC |
|
| 80 |
|
|
| 19 |
|
|
| 89 |
|
|
| 108 |
|
|
| 100 | % |
| 10/11 | Anderson, SC |
|
| 80 |
|
|
| 19 |
|
|
| 89 |
|
|
| 108 |
|
|
| 100 | % |
| 10/11 |
Summit Point Living | Macedonia, OH |
|
| 163 |
|
|
| 126 |
|
|
| 98 |
|
|
| 224 |
|
|
| 100 | % |
| 08/11 | Macedonia, OH |
|
| 163 |
|
|
| 126 |
|
|
| 98 |
|
|
| 224 |
|
|
| 100 | % |
| 08/11 |
Towne Centre Retirement Community | Merrillville, IN |
|
| 210 |
|
|
| 163 |
|
|
| 75 |
|
|
| 238 |
|
|
| 100 | % |
| 03/91 | Merrillville, IN |
|
| 213 |
|
|
| 0 |
|
|
| 238 |
|
|
| 238 |
|
|
| 100 | % |
| 03/91 |
Vintage Gardens | St. Joseph, MO |
|
| 95 |
|
|
| 44 |
|
|
| 92 |
|
|
| 136 |
|
|
| 100 | % |
| 05/13 | St. Joseph, MO |
|
| 95 |
|
|
| 44 |
|
|
| 92 |
|
|
| 136 |
|
|
| 100 | % |
| 05/13 |
Waterford at Baytown | Baytown, TX |
|
| 129 |
|
|
| 18 |
|
|
| 132 |
|
|
| 150 |
|
|
| 100 | % |
| 03/15 | Baytown, TX |
|
| 129 |
|
|
| 18 |
|
|
| 132 |
|
|
| 150 |
|
|
| 100 | % |
| 03/15 |
Waterford at Bridle Brook | Mahomet, IL |
|
| 78 |
|
|
| — |
|
|
| 120 |
|
|
| 120 |
|
|
| 100 | % |
| 09/15 | Mahomet, IL |
|
| 78 |
|
|
| — |
|
|
| 120 |
|
|
| 120 |
|
|
| 100 | % |
| 09/15 |
Waterford at Carpenter’s Creek | Pensacola, FL |
|
| 94 |
|
|
| — |
|
|
| 105 |
|
|
| 105 |
|
|
| 100 | % |
| 02/16 | Pensacola, FL |
|
| 94 |
|
|
| — |
|
|
| 105 |
|
|
| 105 |
|
|
| 100 | % |
| 02/16 |
Waterford at Colby | Colby, TX |
|
| 44 |
|
|
| — |
|
|
| 48 |
|
|
| 48 |
|
|
| 100 | % |
| 01/16 | Colby, TX |
|
| 44 |
|
|
| — |
|
|
| 48 |
|
|
| 48 |
|
|
| 100 | % |
| 01/16 |
Waterford at College Station | College Station, TX |
|
| 53 |
|
|
| — |
|
|
| 87 |
|
|
| 87 |
|
|
| 100 | % |
| 03/12 | College Station, TX |
|
| 53 |
|
|
| — |
|
|
| 87 |
|
|
| 87 |
|
|
| 100 | % |
| 03/12 |
Waterford at Columbia | Columbia, SC |
|
| 117 |
|
|
| 141 |
|
|
| — |
|
|
| 141 |
|
|
| 100 | % |
| 11/00 | Columbia, SC |
|
| 117 |
|
|
| 141 |
|
|
| — |
|
|
| 141 |
|
|
| 100 | % |
| 11/00 |
Waterford at Corpus Christi | Corpus Christi, TX |
|
| 50 |
|
|
| — |
|
|
| 56 |
|
|
| 56 |
|
|
| 100 | % |
| 10/12 | Corpus Christi, TX |
|
| 50 |
|
|
| — |
|
|
| 56 |
|
|
| 56 |
|
|
| 100 | % |
| 10/12 |
Waterford at Creekside | Pensacola, FL |
|
| 84 |
|
|
| — |
|
|
| 98 |
|
|
| 98 |
|
|
| 100 | % |
| 02/16 | Pensacola, FL |
|
| 84 |
|
|
| — |
|
|
| 98 |
|
|
| 98 |
|
|
| 100 | % |
| 02/16 |
Waterford at Deer Park | Deer Park, TX |
|
| 119 |
|
|
| 144 |
|
|
| — |
|
|
| 144 |
|
|
| 100 | % |
| 11/00 | Deer Park, TX |
|
| 119 |
|
|
| 144 |
|
|
| — |
|
|
| 144 |
|
|
| 100 | % |
| 11/00 |
Waterford at Dillon Pointe | Spartanburg, SC |
|
| 51 |
|
|
| — |
|
|
| 55 |
|
|
| 55 |
|
|
| 100 | % |
| 12/13 | Spartanburg, SC |
|
| 51 |
|
|
| — |
|
|
| 55 |
|
|
| 55 |
|
|
| 100 | % |
| 12/13 |
Waterford at Edison Lakes | South Bend, IN |
|
| 116 |
|
|
| — |
|
|
| 138 |
|
|
| 138 |
|
|
| 100 | % |
| 12/00 | South Bend, IN |
|
| 116 |
|
|
| — |
|
|
| 138 |
|
|
| 138 |
|
|
| 100 | % |
| 12/00 |
Waterford at Fairfield | Fairfield, OH |
|
| 120 |
|
|
| 140 |
|
|
| — |
|
|
| 140 |
|
|
| 100 | % |
| 11/00 | Fairfield, OH |
|
| 120 |
|
|
| 140 |
|
|
| — |
|
|
| 140 |
|
|
| 100 | % |
| 11/00 |
Waterford at Fitchburg | Fitchburg, WI |
|
| 82 |
|
|
| — |
|
|
| 150 |
|
|
| 150 |
|
|
| 100 | % |
| 10/13 | Fitchburg, WI |
|
| 82 |
|
|
| — |
|
|
| 150 |
|
|
| 150 |
|
|
| 100 | % |
| 10/13 |
Waterford at Fort Worth | Fort Worth, TX |
|
| 154 |
|
|
| 177 |
|
|
| — |
|
|
| 177 |
|
|
| 100 | % |
| 06/00 | Fort Worth, TX |
|
| 154 |
|
|
| 177 |
|
|
| — |
|
|
| 177 |
|
|
| 100 | % |
| 06/00 |
Waterford at Hartford | Hartford, WI |
|
| 39 |
|
|
| — |
|
|
| 53 |
|
|
| 53 |
|
|
| 100 | % |
| 05/15 | Hartford, WI |
|
| 39 |
|
|
| — |
|
|
| 53 |
|
|
| 53 |
|
|
| 100 | % |
| 05/15 |
Waterford at Hidden Lake | Canton, GA |
|
| 43 |
|
|
| — |
|
|
| 98 |
|
|
| 98 |
|
|
| 100 | % |
| 12/14 | Canton, GA |
|
| 43 |
|
|
| — |
|
|
| 98 |
|
|
| 98 |
|
|
| 100 | % |
| 12/14 |
Waterford at Highland Colony | Jackson, MS |
|
| 119 |
|
|
| 143 |
|
|
| — |
|
|
| 143 |
|
|
| 100 | % |
| 11/00 | Jackson, MS |
|
| 119 |
|
|
| 143 |
|
|
| — |
|
|
| 143 |
|
|
| 100 | % |
| 11/00 |
Waterford at Ironbridge | Springfield, MO |
|
| 118 |
|
|
| 142 |
|
|
| — |
|
|
| 142 |
|
|
| 100 | % |
| 06/01 | Springfield, MO |
|
| 118 |
|
|
| 142 |
|
|
| — |
|
|
| 142 |
|
|
| 100 | % |
| 06/01 |
Waterford at Levis Commons | Toledo, OH |
|
| 146 |
|
|
| 163 |
|
|
| 44 |
|
|
| 207 |
|
|
| 100 | % |
| 04/09 | Toledo, OH |
|
| 146 |
|
|
| 163 |
|
|
| 44 |
|
|
| 207 |
|
|
| 100 | % |
| 04/09 |
Waterford at Mansfield | Mansfield, OH |
|
| 118 |
|
|
| 97 |
|
|
| 45 |
|
|
| 142 |
|
|
| 100 | % |
| 10/00 | |||||||||||||||||||||||
Waterford at Mesquite | Mesquite, TX |
|
| 153 |
|
|
| 176 |
|
|
| — |
|
|
| 176 |
|
|
| 100 | % |
| 09/99 |
|
|
|
|
|
|
| Resident Capacity1 |
|
|
|
|
|
| Commencement | ||||||||||||||||||||||||||||||||
Community | Location |
| Units |
|
| IL |
|
| AL |
|
| Total |
|
| Ownership |
|
| of Operations2 | ||||||||||||||||||||||||||||
Mansfield, OH |
|
| 118 |
|
|
| 97 |
|
|
| 45 |
|
|
| 142 |
|
|
| 100 | % |
| 10/00 | ||||||||||||||||||||||||
Waterford at Mesquite | Mesquite, TX |
|
| 153 |
|
|
| 176 |
|
|
| — |
|
|
| 176 |
|
|
| 100 | % |
| 09/99 | |||||||||||||||||||||||
Waterford at Oakwood | Oakwood, GA |
|
| 64 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
|
| 100 | % |
| 09/13 | Oakwood, GA |
|
| 64 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
|
| 100 | % |
| 09/13 |
Waterford at Oshkosh | Oshkosh, WI |
|
| 91 |
|
|
| — |
|
|
| 109 |
|
|
| 109 |
|
|
| 100 | % |
| 08/14 | Oshkosh, WI |
|
| 91 |
|
|
| — |
|
|
| 109 |
|
|
| 109 |
|
|
| 100 | % |
| 08/14 |
Waterford at Pantego | Pantego, TX |
|
| 118 |
|
|
| 143 |
|
|
| — |
|
|
| 143 |
|
|
| 100 | % |
| 12/00 | Pantego, TX |
|
| 118 |
|
|
| 143 |
|
|
| — |
|
|
| 143 |
|
|
| 100 | % |
| 12/00 |
Waterford at Park Falls | Park Falls, WI |
|
| 36 |
|
|
| — |
|
|
| 36 |
|
|
| 36 |
|
|
| 100 | % |
| 01/16 | Park Falls, WI |
|
| 36 |
|
|
| — |
|
|
| 36 |
|
|
| 36 |
|
|
| 100 | % |
| 01/16 |
Waterford at Plano | Plano, TX |
|
| 135 |
|
|
| 109 |
|
|
| 57 |
|
|
| 166 |
|
|
| 100 | % |
| 12/00 | Plano, TX |
|
| 135 |
|
|
| 109 |
|
|
| 57 |
|
|
| 166 |
|
|
| 100 | % |
| 12/00 |
Waterford at Plymouth | Plymouth, WI |
|
| 69 |
|
|
| — |
|
|
| 82 |
|
|
| 82 |
|
|
| 100 | % |
| 08/14 | Plymouth, WI |
|
| 69 |
|
|
| — |
|
|
| 82 |
|
|
| 82 |
|
|
| 100 | % |
| 08/14 |
Waterford at Richmond Heights | Richmond Heights, OH |
|
| 148 |
|
|
| 117 |
|
|
| 110 |
|
|
| 227 |
|
|
| 100 | % |
| 04/09 | Richmond Heights, OH |
|
| 148 |
|
|
| 117 |
|
|
| 110 |
|
|
| 227 |
|
|
| 100 | % |
| 04/09 |
Waterford at Thousand Oaks | San Antonio, TX |
|
| 119 |
|
|
| 135 |
|
|
| — |
|
|
| 135 |
|
|
| 100 | % |
| 05/00 | San Antonio, TX |
|
| 119 |
|
|
| 135 |
|
|
| — |
|
|
| 135 |
|
|
| 100 | % |
| 05/00 |
Waterford at Virginia Beach | Virginia Beach, VA |
|
| 111 |
|
|
| — |
|
|
| 138 |
|
|
| 138 |
|
|
| 100 | % |
| 10/15 | Virginia Beach, VA |
|
| 111 |
|
|
| — |
|
|
| 138 |
|
|
| 138 |
|
|
| 100 | % |
| 10/15 |
Waterford at West Bend | West Bend, WI |
|
| 40 |
|
|
| — |
|
|
| 41 |
|
|
| 41 |
|
|
| 100 | % |
| 05/15 | West Bend, WI |
|
| 40 |
|
|
| — |
|
|
| 41 |
|
|
| 41 |
|
|
| 100 | % |
| 05/15 |
Waterford at Wisconsin Rapids | Wisconsin Rapids, WI |
|
| 58 |
|
|
| — |
|
|
| 66 |
|
|
| 66 |
|
|
| 100 | % |
| 01/16 | Wisconsin Rapids, WI |
|
| 58 |
|
|
| — |
|
|
| 66 |
|
|
| 66 |
|
|
| 100 | % |
| 01/16 |
Waterford on Cooper | Arlington, TX |
|
| 105 |
|
|
| — |
|
|
| 151 |
|
|
| 151 |
|
|
| 100 | % |
| 03/12 | Arlington, TX |
|
| 105 |
|
|
| — |
|
|
| 151 |
|
|
| 151 |
|
|
| 100 | % |
| 03/12 |
Waterford on Huebner | San Antonio, TX |
|
| 119 |
|
|
| 135 |
|
|
| — |
|
|
| 135 |
|
|
| 100 | % |
| 04/99 | San Antonio, TX |
|
| 119 |
|
|
| 135 |
|
|
| — |
|
|
| 135 |
|
|
| 100 | % |
| 04/99 |
Wellington at Arapaho | Richardson, TX |
|
| 140 |
|
|
| 113 |
|
|
| 57 |
|
|
| 170 |
|
|
| 100 | % |
| 05/02 | Richardson, TX |
|
| 140 |
|
|
| 113 |
|
|
| 57 |
|
|
| 170 |
|
|
| 100 | % |
| 05/02 |
Wellington at Conroe | Conroe, TX |
|
| 44 |
|
|
| 25 |
|
|
| 35 |
|
|
| 60 |
|
|
| 100 | % |
| 03/12 | Conroe, TX |
|
| 44 |
|
|
| 25 |
|
|
| 35 |
|
|
| 60 |
|
|
| 100 | % |
| 03/12 |
Wellington at Dayton | Dayton, OH |
|
| 149 |
|
|
| 146 |
|
|
| 94 |
|
|
| 240 |
|
|
| 100 | % |
| 08/08 | Dayton, OH |
|
| 149 |
|
|
| 146 |
|
|
| 94 |
|
|
| 240 |
|
|
| 100 | % |
| 08/08 |
Wellington at Kokomo | Kokomo, IN |
|
| 96 |
|
|
| — |
|
|
| 138 |
|
|
| 138 |
|
|
| 100 | % |
| 07/11 | |||||||||||||||||||||||
Wellington at North Bend Crossing | Cincinnati, OH |
|
| 122 |
|
|
| 54 |
|
|
| 146 |
|
|
| 200 |
|
|
| 100 | % |
| 11/16 | Cincinnati, OH |
|
| 122 |
|
|
| 54 |
|
|
| 146 |
|
|
| 200 |
|
|
| 100 | % |
| 11/16 |
Wellington at North Richland Hills | North Richland Hills, TX |
|
| 118 |
|
|
| 139 |
|
|
| — |
|
|
| 139 |
|
|
| 100 | % |
| 01/02 | North Richland Hills, TX |
|
| 118 |
|
|
| 139 |
|
|
| — |
|
|
| 139 |
|
|
| 100 | % |
| 01/02 |
Wellington at Southport | Indianapolis, IN |
|
| 64 |
|
|
| — |
|
|
| 105 |
|
|
| 105 |
|
|
| 100 | % |
| 10/12 | Indianapolis, IN |
|
| 64 |
|
|
| — |
|
|
| 105 |
|
|
| 105 |
|
|
| 100 | % |
| 10/12 |
Wellington at Springfield | Springfield, MA |
|
| 235 |
|
|
| 119 |
|
|
| 117 |
|
|
| 236 |
|
|
| 100 | % |
| 09/16 | Springfield, MA |
|
| 235 |
|
|
| 119 |
|
|
| 117 |
|
|
| 236 |
|
|
| 100 | % |
| 09/16 |
Whispering Pines Village | Columbiana, OH |
|
| 68 |
|
|
| 24 |
|
|
| 88 |
|
|
| 112 |
|
|
| 100 | % |
| 07/15 | Columbiana, OH |
|
| 68 |
|
|
| 24 |
|
|
| 88 |
|
|
| 112 |
|
|
| 100 | % |
| 07/15 |
Whitcomb House | Milford, MA |
|
| 87 |
|
|
| — |
|
|
| 87 |
|
|
| 87 |
|
|
| 100 | % |
| 10/13 | Milford, MA |
|
| 87 |
|
|
| — |
|
|
| 87 |
|
|
| 87 |
|
|
| 100 | % |
| 10/13 |
Woodlands of Columbus | Columbus, OH |
|
| 116 |
|
|
| — |
|
|
| 117 |
|
|
| 117 |
|
|
| 100 | % |
| 10/12 | Columbus, OH |
|
| 116 |
|
|
| — |
|
|
| 117 |
|
|
| 117 |
|
|
| 100 | % |
| 10/12 |
Woodlands of Hamilton | Hamilton, OH |
|
| 77 |
|
|
| — |
|
|
| 100 |
|
|
| 100 |
|
|
| 100 | % |
| 10/12 | Hamilton, OH |
|
| 77 |
|
|
| — |
|
|
| 100 |
|
|
| 100 |
|
|
| 100 | % |
| 10/12 |
Woodlands of Shaker Heights | Shaker Heights, OH |
|
| 66 |
|
|
| — |
|
|
| 85 |
|
|
| 85 |
|
|
| 100 | % |
| 10/12 | Shaker Heights, OH |
|
| 66 |
|
|
| — |
|
|
| 85 |
|
|
| 85 |
|
|
| 100 | % |
| 10/12 |
Woodview Assisted Living | Fort Wayne, IN |
|
| 88 |
|
|
| — |
|
|
| 153 |
|
|
| 153 |
|
|
| 100 | % |
| 12/13 | Fort Wayne, IN |
|
| 88 |
|
|
| — |
|
|
| 153 |
|
|
| 153 |
|
|
| 100 | % |
| 12/13 |
Wynnfield Crossing Assisted Living | Rochester, IN |
|
| 50 |
|
|
| — |
|
|
| 79 |
|
|
| 79 |
|
|
| 100 | % |
| 07/11 | Rochester, IN |
|
| 50 |
|
|
| — |
|
|
| 79 |
|
|
| 79 |
|
|
| 100 | % |
| 07/11 |
|
|
|
| 8,475 |
|
|
| 4,474 |
|
|
| 6,293 |
|
|
| 10,767 |
|
|
|
|
|
|
|
|
|
| 8,068 |
|
|
| 3,975 |
|
|
| 6,318 |
|
|
| 10,293 |
|
|
|
|
|
|
|
Leased: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ventas: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amberleigh | Buffalo, NY |
|
| 267 |
|
|
| 387 |
|
|
| 66 |
|
|
| 453 |
|
| N/A |
|
| 01/92 | Buffalo, NY |
|
| 267 |
|
|
| 387 |
|
|
| 66 |
|
|
| 453 |
|
| N/A |
|
| 01/92 | ||
Crown Pointe | Omaha, NE |
|
| 136 |
|
|
| 85 |
|
|
| 80 |
|
|
| 165 |
|
| N/A |
|
| 08/00 | Omaha, NE |
|
| 136 |
|
|
| 85 |
|
|
| 80 |
|
|
| 165 |
|
| N/A |
|
| 08/00 | ||
Independence Village of East Lansing | East Lansing, MI |
|
| 146 |
|
|
| 161 |
|
|
| — |
|
|
| 161 |
|
| N/A |
|
| 08/00 | East Lansing, MI |
|
| 146 |
|
|
| 161 |
|
|
| — |
|
|
| 161 |
|
| N/A |
|
| 08/00 | ||
Independence Village of Olde Raleigh | Raleigh, NC |
|
| 167 |
|
|
| 177 |
|
|
| — |
|
|
| 177 |
|
| N/A |
|
| 08/00 | Raleigh, NC |
|
| 167 |
|
|
| 177 |
|
|
| — |
|
|
| 177 |
|
| N/A |
|
| 08/00 | ||
Villa Santa Barbara | Santa Barbara, CA |
|
| 125 |
|
|
| 64 |
|
|
| 62 |
|
|
| 126 |
|
| N/A |
|
| 08/00 | Santa Barbara, CA |
|
| 125 |
|
|
| 64 |
|
|
| 62 |
|
|
| 126 |
|
| N/A |
|
| 08/00 | ||
West Shores | Hot Springs, AR |
|
| 137 |
|
|
| 131 |
|
|
| 42 |
|
|
| 173 |
|
| N/A |
|
| 08/00 | Hot Springs, AR |
|
| 137 |
|
|
| 131 |
|
|
| 42 |
|
|
| 173 |
|
| N/A |
|
| 08/00 | ||
Whitley Place | Keller, TX |
|
| 47 |
|
|
| — |
|
|
| 65 |
|
|
| 65 |
|
| N/A |
|
| 02/08 | Keller, TX |
|
| 47 |
|
|
| — |
|
|
| 65 |
|
|
| 65 |
|
| N/A |
|
| 02/08 | ||
HCN: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Welltower: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Azalea Trails Assisted Living | Tyler, TX |
|
| 56 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 09/10 | Tyler, TX |
|
| 56 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 09/10 | ||
Buffalo Creek Assisted Living | Waxahachie, TX |
|
| 56 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 09/10 | Waxahachie, TX |
|
| 56 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 09/10 | ||
Dogwood Trails Assisted Living | Palestine, TX |
|
| 65 |
|
|
| — |
|
|
| 75 |
|
|
| 75 |
|
| N/A |
|
| 09/10 | Palestine, TX |
|
| 65 |
|
|
| — |
|
|
| 75 |
|
|
| 75 |
|
| N/A |
|
| 09/10 | ||
Hawkins Creek Assisted Living | Longview, TX |
|
| 56 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 09/10 | Longview, TX |
|
| 56 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 09/10 | ||
Hearth at Prestwick | Avon, IN |
|
| 132 |
|
|
| — |
|
|
| 150 |
|
|
| 150 |
|
| N/A |
|
| 08/06 | Avon, IN |
|
| 132 |
|
|
| — |
|
|
| 150 |
|
|
| 150 |
|
| N/A |
|
| 08/06 | ||
Hearth at Windermere | Fishers, IN |
|
| 128 |
|
|
| — |
|
|
| 150 |
|
|
| 150 |
|
| N/A |
|
| 08/06 | Fishers, IN |
|
| 128 |
|
|
| — |
|
|
| 150 |
|
|
| 150 |
|
| N/A |
|
| 08/06 | ||
Heritage Oaks Assisted Living | Conroe, TX |
|
| 75 |
|
|
| — |
|
|
| 90 |
|
|
| 90 |
|
| N/A |
|
| 09/10 | Conroe, TX |
|
| 75 |
|
|
| — |
|
|
| 90 |
|
|
| 90 |
|
| N/A |
|
| 09/10 | ||
Keepsake Village of Columbus | Columbus, IN |
|
| 42 |
|
|
| — |
|
|
| 48 |
|
|
| 48 |
|
| N/A |
|
| 08/06 | Columbus, IN |
|
| 42 |
|
|
| — |
|
|
| 48 |
|
|
| 48 |
|
| N/A |
|
| 08/06 | ||
Magnolia Court Assisted Living | Nacogdoches, TX |
|
| 56 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 09/10 | Nacogdoches, TX |
|
| 56 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 09/10 | ||
Martin Crest Assisted Living | Weatherford, TX |
|
| 56 |
|
|
| — |
|
|
| 86 |
|
|
| 86 |
|
| N/A |
|
| 09/10 | Weatherford, TX |
|
| 56 |
|
|
| — |
|
|
| 86 |
|
|
| 86 |
|
| N/A |
|
| 09/10 | ||
Pecan Point Assisted Living | Sherman, TX |
|
| 56 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 09/10 | Sherman, TX |
|
| 56 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 09/10 | ||
Santa Fe Trails Assisted Living | Cleburne, TX |
|
| 56 |
|
|
| — |
|
|
| 86 |
|
|
| 86 |
|
| N/A |
|
| 09/10 | Cleburne, TX |
|
| 56 |
|
|
| — |
|
|
| 86 |
|
|
| 86 |
|
| N/A |
|
| 09/10 | ||
Spring Lake Assisted Living | Paris, TX |
|
| 56 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 09/10 | Paris, TX |
|
| 56 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 09/10 | ||
Spring Meadows Libertyville | Libertyville, IL |
|
| 198 |
|
|
| 208 |
|
|
| 45 |
|
|
| 253 |
|
| N/A |
|
| 04/11 | Libertyville, IL |
|
| 198 |
|
|
| 208 |
|
|
| 45 |
|
|
| 253 |
|
| N/A |
|
| 04/11 | ||
Spring Meadows Naperville | Naperville, IL |
|
| 193 |
|
|
| 186 |
|
|
| 45 |
|
|
| 231 |
|
| N/A |
|
| 04/11 | Naperville, IL |
|
| 193 |
|
|
| 186 |
|
|
| 45 |
|
|
| 231 |
|
| N/A |
|
| 04/11 | ||
Spring Meadows at Summit | Summit, NJ |
|
| 89 |
|
|
| — |
|
|
| 98 |
|
|
| 98 |
|
| N/A |
|
| 04/11 | Summit, NJ |
|
| 89 |
|
|
| — |
|
|
| 98 |
|
|
| 98 |
|
| N/A |
|
| 04/11 | ||
Spring Meadows at Trumbull | Trumbull, CT |
|
| 152 |
|
|
| 182 |
|
|
| 56 |
|
|
| 238 |
|
| N/A |
|
| 04/11 | Trumbull, CT |
|
| 152 |
|
|
| 182 |
|
|
| 56 |
|
|
| 238 |
|
| N/A |
|
| 04/11 | ||
Stonefield Assisted Living | McKinney, TX |
|
| 75 |
|
|
| — |
|
|
| 90 |
|
|
| 90 |
|
| N/A |
|
| 09/10 | McKinney, TX |
|
| 75 |
|
|
| — |
|
|
| 90 |
|
|
| 90 |
|
| N/A |
|
| 09/10 | ||
Walnut Creek Assisted Living | Mansfield, TX |
|
| 56 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 09/10 | ||||||||||||||||||||||||
Waterford at Ames | Ames, IA |
|
| 49 |
|
|
| — |
|
|
| 122 |
|
|
| 122 |
|
| N/A |
|
| 02/06 | ||||||||||||||||||||||||
Waterford at Miracle Hills | Omaha, NE |
|
| 54 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 03/06 | ||||||||||||||||||||||||
Waterford at Roxbury Park | Omaha, NE |
|
| 55 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 02/06 | ||||||||||||||||||||||||
Waterford at Van Dorn | Lincoln, NE |
|
| 63 |
|
|
| — |
|
|
| 84 |
|
|
| 84 |
|
| N/A |
|
| 02/06 |
|
|
|
|
|
|
| Resident Capacity1 |
|
|
|
|
|
| Commencement | ||||||||||||||||||||||||||||||||
Community | Location |
| Units |
|
| IL |
|
| AL |
|
| Total |
|
| Ownership |
|
| of Operations2 | ||||||||||||||||||||||||||||
Mansfield, TX |
|
| 56 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 09/10 | |||||||||||||||||||||||||
Waterford at Ames | Ames, IA |
|
| 49 |
|
|
| — |
|
|
| 122 |
|
|
| 122 |
|
| N/A |
|
| 02/06 | ||||||||||||||||||||||||
Waterford at Miracle Hills | Omaha, NE |
|
| 54 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 03/06 | ||||||||||||||||||||||||
Waterford at Roxbury Park | Omaha, NE |
|
| 55 |
|
|
| — |
|
|
| 70 |
|
|
| 70 |
|
| N/A |
|
| 02/06 | ||||||||||||||||||||||||
Waterford at Van Dorn | Lincoln, NE |
|
| 63 |
|
|
| — |
|
|
| 84 |
|
|
| 84 |
|
| N/A |
|
| 02/06 | ||||||||||||||||||||||||
Waterford at Woodbridge | Plattsmouth, NE |
|
| 40 |
|
|
| — |
|
|
| 45 |
|
|
| 45 |
|
| N/A |
|
| 02/06 | Plattsmouth, NE |
|
| 40 |
|
|
| — |
|
|
| 45 |
|
|
| 45 |
|
| N/A |
|
| 02/06 | ||
HCP: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atrium of Carmichael | Sacramento, CA |
|
| 151 |
|
|
| 155 |
|
|
| — |
|
|
| 155 |
|
| N/A |
|
| 01/92 | Sacramento, CA |
|
| 151 |
|
|
| 155 |
|
|
| — |
|
|
| 155 |
|
| N/A |
|
| 01/92 | ||
Charlotte Square | Charlotte, NC |
|
| 118 |
|
|
| — |
|
|
| 150 |
|
|
| 150 |
|
| N/A |
|
| 12/06 | Charlotte, NC |
|
| 118 |
|
|
| — |
|
|
| 150 |
|
|
| 150 |
|
| N/A |
|
| 12/06 | ||
Chesapeake Place | Chesapeake, VA |
|
| 103 |
|
|
| — |
|
|
| 153 |
|
|
| 153 |
|
| N/A |
|
| 12/06 | Chesapeake, VA |
|
| 103 |
|
|
| — |
|
|
| 153 |
|
|
| 153 |
|
| N/A |
|
| 12/06 | ||
Covenant Place of Abilene | Abilene, TX |
|
| 50 |
|
|
| — |
|
|
| 55 |
|
|
| 55 |
|
| N/A |
|
| 08/04 | Abilene, TX |
|
| 50 |
|
|
| — |
|
|
| 55 |
|
|
| 55 |
|
| N/A |
|
| 08/04 | ||
Covenant Place of Burleson | Burleson, TX |
|
| 74 |
|
|
| — |
|
|
| 80 |
|
|
| 80 |
|
| N/A |
|
| 08/04 | Burleson, TX |
|
| 74 |
|
|
| — |
|
|
| 80 |
|
|
| 80 |
|
| N/A |
|
| 08/04 | ||
Covenant Place of Waxahachie | Waxahachie, TX |
|
| 50 |
|
|
| — |
|
|
| 55 |
|
|
| 55 |
|
| N/A |
|
| 08/04 | Waxahachie, TX |
|
| 50 |
|
|
| — |
|
|
| 55 |
|
|
| 55 |
|
| N/A |
|
| 08/04 | ||
Crescent Place | Cedar Hill, TX |
|
| 80 |
|
|
| — |
|
|
| 85 |
|
|
| 85 |
|
| N/A |
|
| 11/05 | Cedar Hill, TX |
|
| 80 |
|
|
| — |
|
|
| 85 |
|
|
| 85 |
|
| N/A |
|
| 11/05 | ||
Crescent Point | Cedar Hill, TX |
|
| 111 |
|
|
| 134 |
|
|
| — |
|
|
| 134 |
|
| N/A |
|
| 08/04 | Cedar Hill, TX |
|
| 111 |
|
|
| 134 |
|
|
| — |
|
|
| 134 |
|
| N/A |
|
| 08/04 | ||
Crosswood Oaks | Sacramento, CA |
|
| 121 |
|
|
| 127 |
|
|
| — |
|
|
| 127 |
|
| N/A |
|
| 01/92 | Sacramento, CA |
|
| 121 |
|
|
| 127 |
|
|
| — |
|
|
| 127 |
|
| N/A |
|
| 01/92 | ||
Good Place | North Richland Hills, TX |
|
| 72 |
|
|
| — |
|
|
| 80 |
|
|
| 80 |
|
| N/A |
|
| 08/04 | North Richland Hills, TX |
|
| 72 |
|
|
| — |
|
|
| 80 |
|
|
| 80 |
|
| N/A |
|
| 08/04 | ||
Greenville Place | Greenville, SC |
|
| 85 |
|
|
| — |
|
|
| 153 |
|
|
| 153 |
|
| N/A |
|
| 12/06 | Greenville, SC |
|
| 85 |
|
|
| — |
|
|
| 153 |
|
|
| 153 |
|
| N/A |
|
| 12/06 | ||
Meadow Lakes | North Richland Hills, TX |
|
| 118 |
|
|
| 145 |
|
|
| — |
|
|
| 145 |
|
| N/A |
|
| 08/04 | North Richland Hills, TX |
|
| 118 |
|
|
| 145 |
|
|
| — |
|
|
| 145 |
|
| N/A |
|
| 08/04 | ||
Myrtle Beach Estates | Myrtle Beach, SC |
|
| 101 |
|
|
| — |
|
|
| 156 |
|
|
| 156 |
|
| N/A |
|
| 12/06 | Myrtle Beach, SC |
|
| 101 |
|
|
| — |
|
|
| 156 |
|
|
| 156 |
|
| N/A |
|
| 12/06 | ||
Tesson Heights | St. Louis, MO |
|
| 182 |
|
|
| 134 |
|
|
| 72 |
|
|
| 206 |
|
| N/A |
|
| 10/98 | St. Louis, MO |
|
| 182 |
|
|
| 134 |
|
|
| 72 |
|
|
| 206 |
|
| N/A |
|
| 10/98 | ||
Veranda Club | Boca Raton, FL |
|
| 186 |
|
|
| 129 |
|
|
| 97 |
|
|
| 226 |
|
| N/A |
|
| 01/92 | Boca Raton, FL |
|
| 186 |
|
|
| 129 |
|
|
| 97 |
|
|
| 226 |
|
| N/A |
|
| 01/92 | ||
|
|
|
| 4,541 |
|
|
| 2,405 |
|
|
| 3,351 |
|
|
| 5,756 |
|
|
|
|
|
|
|
|
|
| 4,541 |
|
|
| 2,405 |
|
|
| 3,351 |
|
|
| 5,756 |
|
|
|
|
|
|
|
Total |
|
|
| 13,016 |
|
|
| 6,879 |
|
|
| 9,644 |
|
|
| 16,523 |
|
|
|
|
|
|
|
|
|
| 12,609 |
|
|
| 6,380 |
|
|
| 9,669 |
|
|
| 16,049 |
|
|
|
|
|
|
|
(1) | Independent living (IL) residences and assisted living (AL) residences based on community licensure. |
(2) | Indicates the date on which the Company acquired or commenced operating the community. The Company operated certain of its communities pursuant to management agreements prior to acquiring interests in or leasing the communities. |
Growth StrategiesOperations Overview
The Company believes that the fragmented nature of the senior living industry and the limited capital resources available to many small, private operators provide an attractive opportunity for the Company to expand its existing base of senior living operations.competitive differentiation. The Company believes that its current operations with geographic concentrations throughout the United States and centralized support infrastructure serve as the foundation on which the Company can build senior living networks in targeted geographic markets and thereby provide a broad range of high qualityhigh-quality care in a cost-efficient manner.
The following are the principal elements of the Company’s clear and differentiated growthoperating strategy:
Organic GrowthProvide a Broad Range of Quality Personalized Care
Central to the Company’s operating strategy is its focus on providing quality care and services that are personalized and tailored to meet the individual needs of each community resident. The Company’s residences and services are designed to provide a broad range of care that permits residents to thrive and “age in place” as their needs change and as they develop further physical or cognitive frailties. By creating an environment that maximizes resident autonomy and provides individualized service programs, the Company seeks to attract seniors at an earlier stage, before they need the higher level of care provided in a skilled nursing facility.
Portfolio Optimization
The Company intends to continue to focus on its occupancy, rents and operating margins of its stabilized communities. The Company continually seeks to improve occupancy rates and increase average rents by: (i) retaining residents as they “age in place” by extending optional care and service programs and converting existing units to higher levels of care; (ii) attracting new residents through the use of technology, to enhance Internetincluding enhanced digital marketing through social media and other electronic means, and on-site marketing programs focused on residents and family members; (iii) aggressively seeking referrals from senior care referral services and professional community outreach sources, including area religious organizations, senior social service programs, civic and business networks, as well as the medical community; (iv) strategically acquiring properties to expand our footprint in the core markets we serve; (v) disposing of properties or exiting leases of properties that do not meet our long-term goals and (iv)(vi) continually refurbishing and renovating its communities.
Expansion and ConversionsOffer Services Across a Range of Existing CommunitiesPricing Options
The Company intendsCompany’s range of products and services is continually expanding to increase levels of care and capacity at certainmeet the evolving needs of its existing communities through expansion and/or conversions of certain units. Increasing our levels of care and capacity is expected to increase revenue and operating income while meeting the needs of our residents who have an average age of 85 years.
Pursue Strategic Acquisitions
residents. The Company intendshas developed a menu of products and service programs that may be further customized to continue to pursue acquisitionsserve both the moderate and upper income markets of senior housing communities. Through strategic acquisitions, joint venture investments, or facility leases, the Company seeks to acquire communities in existing geographically concentrated regions as a means to increase market share, augment existing clusters, strengthen its ability to provideparticular targeted geographic area. By offering a broad range of care, and create operating efficiencies. As the industry continues to consolidate,pricing options that are customized for each target market, the Company believes that opportunities will ariseit can develop synergies, economies of scale and operating efficiencies in its efforts to acquire other senior living companies. The Company believes that the current fragmented natureserve a larger percentage of the senior living industry, combined with the Company’s financial resources,population within a particular geographic market.
Improve Operating Efficiencies
The Company seeks to improve operating efficiencies at its communities by actively monitoring and managing operating costs and by moving to a more centralized operating platform. By having an established portfolio of communities in geographically concentrated regions and extensive contacts withinthroughout the industry, should provide itUnited States with the opportunity to evaluate a number of potential acquisition opportunitiesregional management in the future. In reviewing acquisition opportunities, the Company will consider, among other things, geographic location, competitive climate, reputation and quality of management and communities, and the need for renovation or improvement of the communities.
Expand Referral Networks
The Company intends to continue to develop relationships with local and regional hospital systems, managed care organizations and other referral sources to attract new residents to the Company’s communities. In certain circumstances these relationships may involve strategic alliances or joint ventures. The Company believes that such arrangements or alliances, which could range from joint marketing arrangements to priority transfer agreements, will enable it to be strategically positioned within the Company’s markets if, asplace, the Company believes senior living programs become an integral partit has established a platform to achieve operating efficiencies through economies of scale in the evolving health care delivery system.purchase of bulk items, such as food and supplies, and in the spreading of fixed costs, such as corporate overhead, over a larger revenue base, and to provide more effective management supervision and financial controls.
Centralized Management
The Company centralizes its corporate and other administrative functions so that the community-based management and staff can focus their efforts on resident care. The Company maintains centralized accounting, finance, human resources, training and other operational functions at its national corporate officeDallas Support Center located in Dallas, Texas. The Company also has a corporate office in New York, New York. The Company’s corporate offices areDallas Support Center is generally responsible for: (i) establishing Company-wide policies and procedures relating to, among other things, resident care and operations; (ii) performing accounting functions; (iii) developing employee training programs and materials; (iv) coordinating human resources; (v) coordinating marketing functions; and (vi) providing strategic direction. In addition, financing, development, construction and acquisition activities, including feasibility and market studies, and community design, development, and construction management are conducted at the Company’s corporate offices.Dallas Support Center.
The Company seeks to control operational expenses for each of its communities through proprietary expense management systems, standardized management reporting and centralized controls of capital expenditures, asset replacement tracking, and purchasing for larger and more frequently used supplies and food inventories through group purchasing programs. Community expenditures are monitored by regional operational managers and district managersdivisional vice presidents who are accountable for the resident satisfaction and financial performance of the communities in their region.region or division.
Regional Management
The Company provides oversight and support to each of its senior housing communities through experienced regional operational managers and district managers. A district manager will generally oversee the marketing and operations of three to seven communities clustered in a small geographic area.divisional vice presidents. A regional operational manager will generally cover a largerlarge geographic area consisting of eight to thirteen communities. In most cases, the district and regional operational managers will office out of the Company’s senior housing communities. Currently, there are districtThe Company’s divisional vice presidents oversee the Company’s Southwest, Mid-America, and regional managers based in the East, Central Plains, South Central, Dallas, Indiana, Midwest, Texas, Southwest, and WestGreat Lakes regions.
The executive director at each community reports to a regional or district manager. The regional and district managersoperations manager, who reports to a vice president of operations. Vice presidents of operations report on the operations of each community directly to senior management at the Company’s corporate office. The districtDallas Support Center. Regional operations managers and regional managersdivisional vice presidents make regular site visits to each of their assigned communities. The site visits involve a physical plant inspection, quality assurance review, staff training, financial and systems audits, regulatory compliance, and team building.
Community-Based Management and Retention
The Company devotes special attention to the hiring, screening, training, supervising and retention of its employees and caregivers to ensure that quality standards are achieved. In addition to normal on-site training, the Company conducts national management meetings and encourages sharing of expertise among managers. The Company
has also implemented a comprehensive online training program that addresses the specific challenges of working within the senior living environment. The Company’s commitment to the total quality management concept is emphasized throughout its training programs. This commitment to the total quality management concept means identification of the “best practices” in the senior living market and communication of those “best practices” to the Company’s executive directors and their staff. The identification of best practices is realized by a number of means, including: emphasis on regional and executive directors keeping up with professional trade publications; interaction with other professionals and consultants in the senior living industry through seminars, conferences and consultations; visits to other properties; leadership and participation at national and local trade organization events; and information derived from marketing studies and resident satisfaction surveys. This information is continually processed by regional managers and the executive directors and communicated to the Company’s employees as part of their training.
An executive director manages the day-to-day operations at each senior housing community, including oversight of the quality of care, delivery of resident services, sales and marketing, and monitoring of the community’s financial performance. TheDepending on the size of the community, the executive director is alsotypically supported by a leadership team consisting of a sales director, wellness director, and business director. However, the executive director is ultimately responsible for all personnel, including food service, maintenance, activities, security, assisted living, housekeeping, and, where applicable, nursing or care services. In most cases, each community also has department managers who direct the environmental services, nursing or care services, business management functions, dining services, activities, transportation, housekeeping, and marketing functions.
The assisted living component of the senior housing communities is managed by licensed professionals, such as a nurse and/or a licensed administrator. These licensed professionals have many of the same operational responsibilities as the Company’s executive directors, but their primary responsibility is to oversee resident care. Many of the Company’s senior housing communities are part of a campus setting, which may include independent living and/or memory care. This campus arrangement allows for cross-utilization of certain support personnel and services, including administrative functions that result in greater operational efficiencies and lower costs than freestanding facilities.
The Company actively recruits qualified personnel to maintain adequate staffing levels at its existing communities and hires new staff for new or acquired communities prior to opening. The Company has adopted comprehensive recruiting and screening programs for management positions that utilize corporate office team interviews and thorough background and reference checks. The Company offers system-wide training and orientation for all of its employees at the community level through a combination of Company-sponsored seminars and conferences.
Quality assurance programs are coordinated and implemented by the Company’s corporate and regional staff. The Company’s quality assurance is targeted to achieve maximum resident and resident family member satisfaction with the care and services delivered by the Company. The Company’s primary focus in quality control monitoring includes routine in-service training and performance evaluations of caregivers and other support employees. The Company has established a Corporate Quality Assurance Committee which consists of the Executive Vice-President,Vice President and Chief Operating Officer, and Vice Presidents of Operations, Senior Vice-President, and Vice-President of Operations,Vice President- Human Resources, Vice President- Finance, Quality and Clinical Directors, and Senior Vice President- General Counsel. The purpose of the committee is to monitor and evaluate the processes by which care is delivered to our residents and the appropriateness and quality of care provided within each of our communities. Additional quality assurance measures include:
Resident and Resident’s Family Input. On a routine basis, the Company provides residents and their family members the opportunity to provide valuable input regarding the day-to-day delivery of services. On-site management at each community has fostered and encouraged active resident councils and resident committees who meet independently. These resident bodies meet with on-site management on a monthly basis to offer input and suggestions as to the quality and delivery of services. Additionally, at each community the Company conducts annual resident satisfaction surveys to further monitor the satisfaction levels of both residents and their family members. These surveys are sent directly to a third party firm for tabulation, then to the Company’s corporate headquarters for distribution to onsite staff. In each of fiscal 2017 and 2016, the Company achieved 94.6% approval ratings from its residents. For any departmental area of service scoring below 90%, a corrective action plan is developed jointly by on-site, regional and corporate staff for immediate implementation. In addition, the Company ranked third among senior living operators nationally in 2018 according to J.D. Powers 2018 Senior Living Satisfaction Study. The study measured resident and family overall satisfaction across factors important to them including community staff, convenience of location, food and beverage, room, building and grounds, senior service and activities among others.
Regular Community Inspections. Each community is inspected, on at least a quarterly basis, by a member of the regional and/or corporate staff.operational leadership team. Included as part of this inspection is the monitoring of the overall appearance and maintenance of the community interiors and grounds. The inspection also includes monitoring staff professionalism and departmental reviews of maintenance, housekeeping, activities, transportation, marketing, administration and food and health care services, if applicable. The inspections also include observing residents in their daily activities and the community’s compliance with government regulations.
Independent Service Evaluations. The Company engages the services of outside professional independent consulting firms to evaluate various components of the community operations. These services include mystery shops, competing community analysis, pricing recommendations and product positioning. This provides management with valuable unbiased product and service information. A plan of action regarding any areas requiring improvement or change is implemented based on information received. At communities where health care is delivered, these consulting service reviews include the on-site handling of medications, recordkeeping and general compliance with all applicable governmental regulations.
Peer Review Program. During the second quarter of 2019, the Company implemented a peer review program. For each region, a committee consisting of the top performing executive directors, sales directors, wellness directors, maintenance directors, and dietary directors visit other communities within the region to evaluate the performance of their peers at the community and share best practices. In 2019, 54 communities were reviewed, and the Company plans to expand the program in 2020.
Sales and Marketing
Most communities are staffed bywith an on-site sales directorsdirector and additional marketing/sales and marketing staff depending on the community size and occupancy status. The primary focus of the on-site sales/marketing staff is to create awareness of the Companycommunity and its services among prospective residents and family members, professional referral sources and other key decision makers. These efforts incorporate an aggressive marketinga strategic plan to include monthly, quarterly and annual goals for leasing, new lead generation, prospect follow up, community outreach, and resident and family referrals. Additionally, the marketing plan includes a calendar ofreferrals, promotional events, and a comprehensivemarket specific media program. On-site sales/marketing departments perform a competing community assessment quarterly.
Corporate and regional sales directors monitor theEach community’s on-site sales departments’and marketing department’s effectiveness and productivity is monitored on a weekly basis. Routine detailed marketing department audits are performed on a quarterly basis or more frequently if deemed necessary. Corporate and regional personnel assist in the development of marketing strategies and campaigns for each community to address the continuously changing resident profile and maintain a focus on building brand awareness and increasing Internet websitedigital traffic and leads. The marketing strategies developed utilize the implementation of application program interface systems with certain website and Internet referral partners, social media platforms and the production of creative media and necessaryrelated marketing collateral. The Company has also implemented numerous Internet web-based initiatives to attract prospects including certain e-mail and website triggers prompting interactive invitations with on-going follow-ups, as well as a nurturing program to actively engage prospects throughout the marketing/sales cycle. Ongoing sales training of on-site marketing/sales staff is implemented by corporate and regional marketing directorspersonnel as well as third partythird-party professionals.
Government Regulation
Changes in existing laws and regulations, adoption of new laws and regulations, and new interpretations of existing laws and regulations could have a material effect on the Company’s operations. Failure by the Company to comply with applicable regulatory requirements could have a material adverse effect on the Company’s business, financial condition, cash flows, and results of operations. Accordingly, the Company monitors legal and regulatory developments on local and national levels.
The health care industry is subject to extensive regulation and frequent regulatory change. At this time, no federal laws or regulations specifically regulate assisted or independent living residences. While a number of states have not yet enacted specific assisted living regulations, certain of the Company’s assisted living communities are subject to regulation, licensing, CON and permitting by state and local health care and social service agencies and other regulatory authorities. While such requirements vary from state to state, they typically relate to staffing, training, physical design, patient privacy, required services and the quality thereof and resident characteristics. The Company believes that such regulation will increase in the future. In addition, health care providers are receiving increased scrutiny under anti-trust laws as integration and consolidation of health care delivery increases and affects competition. Moreover, robust state and federal enforcement of fraud and abuse laws continues. Because some of the Company’s communities receive a portion of their funds from Medicaid, such communities are also subject to state and federal Medicaid standards, the noncompliance with which may result in the imposition of penalties or sanctions or suspension or exclusion from participation in the Medicaid program. The Company’s communities are also subject to various zoning restrictions, local building codes, and other ordinances, such as fire safety codes. Failure by the Company to comply with applicable regulatory requirements could have a material adverse effect on the Company’s business, financial condition, and results of operations. Regulation of the assisted living industry is evolving. The Company is unable to predict the content of new
regulations and their effect on its business. There can be no assurance that the Company’s operations will not be adversely affected by regulatory developments.developments in the future.
The Company believes that its communities are in substantial compliance with applicable regulatory requirements. However, unannounced surveys or inspections may occur annually or bi-annually, or following a regulator’s receipt of a complaint about a community. In the ordinary course of business, one or more of the Company’s communities could be cited for deficiencies resulting from such inspections or surveys. Most inspection deficiencies are resolved through an agreed upon plan of corrective action relating to the community’s operations, but the reviewing agency typically has the authority to take further action against a licensed or certified community, which could result in the imposition of fines, repayment of amounts previously paid, imposition of a provisional or conditional license, suspension or revocation of a license, suspension or denial of admissions, loss of certification as a provider under federal health care programs or imposition of other sanctions, including criminal penalties. Loss, suspension or modification of a license may also cause us to default under our loan or lease agreements and/or trigger cross-defaults. Sanctions may be taken against providers or facilities without regard to the providers’ or facilities’ history of compliance. We may also expend considerable resources to respond to federal and state investigations or other enforcement action under applicable laws or regulations. To date, none of the deficiency reports received by us has resulted in a suspension, fine or other disposition that has had a material adverse effect on our revenues. However, any future substantial failure to comply with any applicable legal and regulatory requirements could result in a material adverse effect to our business as a whole. In addition, states’ Attorneys General vigorously enforce consumer protection laws as those laws relate to the senior living industry. State Medicaid Fraud and Abuse Units may also investigate assisted living communities even if the community or any of its residents do not receive federal or state funds.
Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet certain federal requirements related to access and use by disabled persons. A number of additional federal, state and local laws exist that also may require modifications to existing and planned properties to permit access to the properties by disabled persons. While the Company believes that its communities are substantially in compliance with present requirements or are exempt therefrom, if required changes involve a greater expenditure than anticipated or must be made on a more accelerated basis than anticipated, additional costs would be incurred by the Company. Further legislation may impose additional burdens or restrictions with respect to access by disabled persons, the costs of compliance with which could be substantial.
The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), in conjunction with the federal regulations promulgated thereunder by the Department of Health and Human Services, has established, among other requirements, standards governing the privacy and security of certain protected and individually identifiable health information that is created, received or maintained by a range of covered entities. HIPAA has also established standards governing uniform health care transactions, the codes and identifiers to be used by the covered entities and standards governing the security of certain electronic transactions conducted by covered entities. Penalties for violations can range from civil money penalties for errors and negligent acts to criminal fines and imprisonment for knowing and intentional misconduct. In addition, the Company may be subject to a corrective action plan, the cost of compliance of which could be significant. In addition, some states have begun enacting comprehensive privacy laws, including the California Consumer Privacy Act of 2018.
In addition, the Company is subject to various federal, state and local environmental laws and regulations.regulations, which could require an owner or operator of real estate to investigate and clean up hazardous or toxic substances present at or migrating from properties they own, lease, or operate. Such laws and regulations often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of hazardous or toxic substances. The costs of any required remediation or removal of these substances could be substantial and the liability of an owner or operator as to any property is generally not limited under such laws and regulations andregulations. Liabilities could exceed the property’s value and the aggregate assets of the owner or operator. The presence of these substances or failure to remediate such contamination properly may also adversely affect the owner’s ability to sell or rent the property, or to borrow using the property as collateral. Under these laws and regulations, an owner, operator or an entity that arranges for the disposal of hazardous or toxic substances, such as asbestos-containing materials, at a disposal site may also be liable for the costs of any required remediation or removal of the hazardous or toxic substances at the disposal site. In connection with the ownership or operation of its properties, the Company could be liable for these costs, as well as certain other costs, including governmental fines and injuries to persons or properties. The Company has completed Phase I environmental
audits of substantially all of the communities in which the Company owns interests, typically at the time of acquisition, and such audits have not revealed any material environmental liabilities that exist with respect to these communities.
Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at or migrating from such property, and may be held liable to a governmental entity or to third parties for property damage and for investigation and clean-up costs. The Company is not aware of any environmental liability with respect to any of its owned, leased or managed communities that the Company believes would have a material adverse effect on its business, financial condition, or results of operations. The Company believes that its communities are in compliance in all material respects with all federal, state and local laws, ordinances and regulations regarding hazardous or toxic substances or petroleum products. The Company has not been notified by any governmental authority, and is not otherwise aware of any material non-compliance, liability or claim relating to hazardous or toxic substances or petroleum products in connection with any of the communities the Company currently operates.
The Company believes that the structure and composition of government and, specifically, health care regulations will continue to change and, as a result, regularly monitors developments in the law. The Company expects to modify its agreements and operations from time to time as the business and regulatory environments change. While the Company believes it will be able to structure all its agreements and operations in accordance with applicable law, there can be no assurance that its arrangements will not be successfully challenged.
The senior living industry is highly competitive, andcompetitive. Due to the relatively low barriers of entry into the senior living space, the Company expects that all segments of the industry will become increasingly competitive in the future. Although there are a number of substantial companies active in the senior living industry and in the markets in which the Company operates, the industry continues to be very fragmented and characterized by numerous small operators. The Company primarily competes with national operators such as Brookdale Senior Living Inc. and Five Star Quality Care, Inc. and other regional and local independent operators. The Company believes that the primary competitive factors in the senior living industry are: (i) quality on-site staff; (ii) location; (iii) reputation for and commitment to a high quality of service; (iv) support service offerings (such as food services); (v) fair price for services provided; and (vi) physical appearance and amenities associated with the communities. The Company competes with other companies providing independent living, assisted living, skilled nursing, home health care, and other similar service and care alternatives, some of whom may have greater financial resources than the Company. Because seniorsprospective residents tend to choose senior housing communities near their homes, the Company’s principal competitors are other senior living and long-term care communities in the same geographic areas as the Company’s communities. The Company also competes with other health care businesses with respect to attracting and retaining nurses, technicians, aides and other high quality professional and non-professional employees and managers.
Employees
As of December 31, 2017,2019, the Company employed 7,4266,600 persons (101(105 of whom are employed at the Company’s corporate offices)office), of which 4,4134,202 were full-time employees and 3,0132,398 were part-time employees. None of the Company’s employees are currently represented by a labor union and the Company is not aware of any union organizing activity among its employees. The Company believes that its relationship with its employees is good.
Information about Our Executive Officers and Other Key Employees of the Registrant
The following table sets forth certain information concerning each of the Company’s executive officers and other key employees as of February 23, 2018:March 31, 2020:
Name |
| Age |
| Position(s) with the Company |
|
|
|
| President, Chief Executive Officer and |
|
|
| Executive Vice President and Chief Financial Officer | |
Brandon M. Ribar | 39 |
| Executive Vice President and Chief Operating Officer | |
|
|
| ||
David R. Brickman |
|
|
| Senior Vice President, Secretary and General Counsel |
Jeremy D. Falke |
|
|
| Senior Vice President – Human Resources |
|
|
|
| Senior Vice President |
|
|
|
| Vice President |
|
|
|
| Vice President |
Tiffany L. Dutton | 40 | Vice President – Accounting and Financial Reporting | ||
Gloria M. Holland |
|
|
| Vice President |
|
|
| ||
|
|
| ||
Robert F. Hollister |
|
|
| Property Controller |
|
|
|
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Kimberly S. LodyLawrence A. Cohen has served as one of our directors since November 1996 and as Vice Chairman of joined the Board since November 1996. He has served as our Chief Executive Officer since May 1999 and was our Chief Financial Officer from November 1996 to May 1999. From 1991 to 1996, Mr. Cohen servedCompany as President and Chief Executive Officer of Paine Webber Properties Incorporated. Mr. Cohen serves on the boards of various charitable organizations and is active in several industry associations. Mr. Cohen wasJanuary 2019, having served as a founding member and a former Chairmandirector of the American Seniors Housing AssociationCompany since May 2014. Her more than 25 years of experience in clinical and serves on the Operator Advisory Board of the National Investment Center for the Seniors Housing & Care Industry. He received an LL.M.commercial health care settings includes leadership positions in Taxation from New York University School of Law, a JD from St. John’s University School of Law,medical devices, healthcare services, and a BBA in Accounting from The George Washington University. Mr. Cohen has had positions with businesses involved in senior living for 33 years.
Brett D. Lee joined the Company as Executive Vice Presidentcomplex regulatory and Chief Operating Officer in August 2017.payor environments. Prior to joining the Company, Mr. LeeMs. Lody served as the Chief Executive OfficerPresident of theGN Hearing North TexasAmerica, where she led seven consecutive years of above-market growth and Dallas Markets of Tenet Healthcare Corporation. His experience also includes servingexpansion across multiple channels and brands. Prior to GN Hearing, Ms. Lody served as VP Marketing and then President, US Chronic Care at Coloplast from 2009 to 2011. From 2004 to 2009, she served as an independent consultant, providing interim leadership to companies in senior leadership positions in four of the nation's top 10 children's hospitals. Mr. Leehealthcare, consumer products, and insurance services. Ms. Lody served as Chief Operating Officer at Children'sof Senior Home Care from 2003 to 2004, as Chief Marketing Officer of Gentiva Health Services from 1997 to 2003, and as VP Managed Care Programs for Apria Healthcare of Atlanta, Chief Operating Officer at Riley Hospital for Children in Indianapolis, Vice President of Operations and Clinical Services at Children's Medical Center in Dallas and Vice President of Operations at Cook Children's Medical Center in Fort Worth. Mr. Leefrom 1994 to 1997. Ms. Lody received a BS in Physical TherapyBusiness from the University of OklahomaHiram College of Allied Health, a Master of Health Science, Healthand an MBA in Finance and Management from the Johns Hopkins School of Public Health, a Master of Science in Leadership Development from the University of Pennsylvania, and a Doctorate in Allied Health and Physical Therapy from Massachusetts General Hospital Institute of Health Sciences.Wake Forest University.
Carey P. Hendrickson joined the Company as Seniorin May 2014 and is currently the Executive Vice President and Chief Financial Officer in May 2014.Officer. From 2010 through 2014, he served as the Senior Vice President/Chief Financial Officer and Treasurer of Belo Corp., a television company that owned and operated network-affiliated television stations and their associated websites (“Belo”). Prior to serving in such capacity, Mr. Hendrickson served Belo in various roles including Senior Vice President/Chief Accounting Officer, Vice President/Human Resources, Vice President/Investor Relations and Corporate Communications, and Vice President/Strategic & Financial Planning. He began his career with KPMG LLP and was the director of financial planning for Republic Financial Services before joining Belo in 1992. Mr. Hendrickson received a BBA in Accounting from Baylor University and a Master of Business Administration in Finance from the University of Texas in Arlington.
Brandon M. Ribar joined the Company in September 2019 and is currently the Executive Vice President and Chief Operating Officer. Prior to joining the Company, Mr. Ribar served as an executive healthcare consultant primarily focused on improving existing operations and expanding continuing care retirement communities for multiple investment platforms and operators since 2018. From 2014 through 2018, he served as the Senior Vice President, Operations of Golden Living, a post-acute healthcare provider. Prior to serving in such capacity, Mr. Ribar served Golden Living in various roles including Senior Vice President, Operational Finance and Strategy and Senior Vice President, Corporate Strategy and Business Development. Prior to Golden Living, Mr. Ribar served as Vice President of Fillmore Capital Partners from 2004 through 2009. Mr. Ribar received a BCS in Operations and Management Information Systems from Santa Clara University.
David R. Brickman is currently the Senior Vice President, Secretary, and General Counsel of the Company. He served as Vice President and General Counsel of the Company and its predecessors since July 1992 and has served as Secretary of the Company since May 2007. From 1989 to 1992, Mr. Brickman served as in-house counsel with LifeCo Travel Management Company, a corporation that provided travel services to U.S. corporations. Mr. Brickman earned a Juris Doctor and Masters of Business Administration from the University of South Carolina and a Masters in Health Administration from Duke University. He currently serves on the Board of Advisors for the Southern Methodist
University Corporate Counsel Symposium. He is also a member of the National Center for Assisted Living In-house Counsel Roundtable Task Force, as well as the Long-Term Care Risk Legal Forum. Mr. Brickman has either practiced law or performed in-house counsel functions for 3133 years.
Jeremy D. Falke joined the Company as Senior Vice President – Human Resources.Resources in February 2018. Mr. Falke held various positions within Tenet Healthcare Corporation (“Tenet”) from November 2004 to February 2018, serving most recently as the Vice President, Talent, Culture and Performance Systems in Dallas. In this role, he was responsible for all talent planning, development, and cultural programming and transformation for an organization with over 75 acute-care hospitals and 450 outpatient facilities, employing more than 125,000 people. Prior to this role, Mr. Falke served as the Senior Director, Strategic Operations, Analytics and Reporting in Dallas and as the Chief Human Resources Officer for Creighton University Medical Center, which was then owned by Tenet in Omaha, Nebraska. Mr. Falke received a Bachelor of Science in Business Management from University of Phoenix in Scottsdale, and a Masters of Business Administration with a concentration in Healthcare Management from the University of Nebraska in Omaha.
David W. Beathard, Sr. is currently the Senior Vice President — Operations of the Company. He served as Vice President — Operations of the Company and its predecessors from August 1996 to June 2013. Mr. Beathard joined Life Care Services Corporation in 1977 where he served in various roles including Vice President and Director of Operations Management. From 1992 to 1996, he owned and operated a consulting firm, which provided operational, marketing, and feasibility consulting regarding senior housing communities. Mr. Beathard has served as an Advisory Board Member of the Texas Assisted Living Association. He earned a BA degree from Miami University where he also attended graduate school with a focus in business administration. Mr. Beathard has been active in the operational, sales and marketing, and construction oversight aspects of senior housing for 43 years.
Kevin E. WilburMichael C. Fryar joined the Company as Chief Revenue Officer in February 2000 as an Executive Director2019. His 20 years of experience focusing on brands in complex, multi-channel environments includes leadership positions in medical device and servedmarketing agency settings, with the majority of his career focused in that capacity until being promoted to a District Manager role and then to a Regional Manager of Operations role. He was promoted to his current position of Vice President — Operations in September 2016.senior healthcare. Prior to joining the Company, Mr. Fryar served as Vice President of GN Hearing North America, where he was part of a leadership team responsible for seven consecutive years of above-market growth and expansion across multiple channels and brands. Prior to GN Hearing, Mr. Fryar served as Senior Director, Marketing at Starkey Hearing Technologies from 2006 to 2012. From 1998 to 2006, he served as an account director at marketing agency Colle McVoy, specializing in 2000,digital and traditional marketing, advertising and public relations. Mr. Wilbur was employed by Lantis EnterprisesFryar received a BA in Communications Studies with a minor in Economics Management from Gustavus Adolphus College.
Carole J. Burnell is currently the Vice President – Operations of the Company. She served as the Regional Operations Manager in the Dallas Region of the Company from January 2004 to March 2019. Ms. Burnell has over 22 years of senior living industry experience and has held a variety of leadership roles during that time. She started her career as an Executive Director. He isDirector with Assisted Living Concepts, and has since served in both large publicly traded and small privately held senior living companies with multi-community oversight responsibilities. She earned a graduate of the Nebraska College of Business and also attended BellevueBBA degree with a concentration in Accounting from West Texas A&M University. Mr. Wilbur has been active in the operational and marketing aspects of senior housing for over 22 years.
Joseph G. SolariJeffrey P. Cellucci joined the Company as Vice President — Corporate Development– Operations in September 2010. Mr. Solari has more than 19 years of experience originating, structuring, negotiating and executing the acquisition, sale and divestiture of healthcare real estate and real estate operating companies.May 2018. Prior to joining the Company, from 2007 to 2009, Mr. Solari was Managing Director, Acquisitions for Ventas, Inc.,Cellucci spent nine years with Kindred Healthcare where he most recently served as Division Vice President and was responsible for overseeing the firm’s real estate investment activitiesoperations and strategic planning of nine long-term acute care hospitals. He also led integration efforts for Kindred's post-acute care service lines in North Texas which included Home Health, Hospice and Rehab. Mr. Cellucci held a variety of other leadership roles with Kindred Hospitals including Hospital CEO and District Chief Operating Officer across the Midwest and Northeast. Mr. Cellucci received his Bachelor of Science in Economics from the Wharton School at the University of Pennsylvania and his Master of Business Administration from Northwestern University. He is currently the Board President for the American Lung Association in North Texas and previously served as a Board Trustee for the DFW Hospital Council. Mr. Cellucci was also selected to the 2018 class of the Texas Hospital Association Leadership Fellows Program.
Tiffany L. Dutton, a Certified Public Accountant, joined the Company as Vice President – Accounting and Financial Reporting in January 2020. Prior to joining the Company, Ms. Dutton served as an accounting consultant primarily focused on assisting healthcare and retail entities with improving financial reporting and accounting structures since 2017. Prior to such time, Ms. Dutton served as the Director- Accounting Policy in 2017 and Assistant Controller- Operations from 2014 to 2017 for Adeptus Health, Inc, Senior Manager- Financial Reporting for RealPage, Inc. from 2013 to 2014, as Manager, Accounting, Reporting and Compliance for Pier 1 Imports from 2010 to 2013, and as Senior Manager of Accounting Policy of Dollar Thrifty Automotive Group from 2008 to 2010. She began her career as a Manager in the seniors housingassurance and skilled nursing industries. Prior to Ventas, Inc.,advisory business services practice of Ernst & Young LLP. Ms. Dutton earned a BBA in Accounting and a BBA in Economics and Finance from 1999 to 2007, Mr. Solari spent eight years in the healthcare investment banking groupUniversity of Houlihan Lokey, where he was responsible forOklahoma and is a member of the origination and executionAmerican Institute of merger and acquisition, private placement and financial restructuring engagements for the firm’s healthcare clients, with particular focus on facility-based, healthcare services companies. Mr. Solari earned his Masters in Business Administration degree from Virginia Commonwealth University.Certified Public Accountants.
Gloria M. Holland has served as Vice President —– Finance of the Company since June 2004. From 2001 to 2004, Ms. Holland served as Assistant Treasurer and a corporate officer for Aurum Technology, Inc., a privately held company that provided technology and outsourcing to community banks. From 1996 to 2001, Ms. Holland held positions in Corporate Finance and Treasury at Brinker International, an owner and operator of casual dining restaurants. From 1989
to 1996, Ms. Holland was a Vice President in the Corporate Banking division of NationsBank and predecessor banks. Ms. Holland received a BBA in Finance from the University of Mississippi in 1989.
Glen H. Campbell has served as Vice President — Asset Management of the Company since September 1997. From 1990 to 1997 Mr. Campbell served as Vice President of Development for Greenbrier Corporation, an assisted living development and management company. From 1985 to 1990 Mr. Campbell served as Director of Facility Management for Retirement Corporation of America. Mr. Campbell has been active in the design and development of retirement communities for 45 years.
Christopher H. Lane, a Certified Public Accountant, joined the Company in December 2008 and currently serves as Vice President — Financial Reporting. Prior to joining the Company, Mr. Lane served as a Senior Manager in the financial services audit practice of KPMG LLP. Mr. Lane earned a Masters in Accounting from Texas Tech University and is a member of the American Institute of Certified Public Accountants, Texas Society of Certified Public Accountants and Institute of Management Accountants.Mississippi.
Robert F. Hollister, a Certified Public Accountant, has served as Property Controller for the Company and its predecessors since April 1992. From 1985 to 1992, Mr. Hollister was Chief Financial Officer and Controller of Kavanaugh Securities, Inc., a National Association of Securities Dealers broker dealer. Mr. Hollister is
Linda M. Zimmerman, a member of the American Institute of Certified Public Accountants.
Donald S. Beasley, joined the Company in August 2011 as Director of Employee Relations andAccountant, has served as Corporate Controller for the Director of Human ResourcesCompany since May, 2013.September 2019. She previously served as the Assistant Property Controller for the Company from 2014 to 2019. Prior to joining the Company, Mr. BeasleyMs. Zimmerman served as Vice President and Director of Human Resources at ASAlliances Biofuels as well as Carillon, Inc, a large senior housing provider. He has also held several positions within Motorola, Inc. serving their supply chain/logistics business as well as Corporate Human Resources. Mr. Beasley earned a bachelor’s degree in Psychology and Master of Business Administration in HR, and is currently certified as a Senior ProfessionalAssociate for B&J Financial Services from 2013 to 2014. She served Belo as the Supervisor/ Accounting Operations from 2013 to 2017 and Corporate Accountant from 2005 to 2007. She began her career as an Auditor for The Exchange from 2002 to 2005. Ms. Zimmerman earned a Bachelors and Masters in Human Resources as well as Senior Certified Professional by the Society for Human Resource Management.Accounting from Baylor University.
Subsidiaries
Capital Senior Living Corporation is the parent company of several direct and indirect subsidiaries. Although Capital Senior Living Corporation and its subsidiaries are referred to collectively for ease of reference in this Form 10-K as the Company, these subsidiaries are separately incorporated and maintain their legal existence separate and apart from the parent, Capital Senior Living Corporation.
Our business involves various risks and uncertainties. When evaluating our business, the following information should be carefully considered in conjunction with the other information contained in our periodic filings with the SEC. Additional risks and uncertainties not known to us currently or that currently we deem to be immaterial also may impair our business operations. If we are unable to prevent events that have a negative effect from occurring, then our business may suffer. Negative events are likely to decrease our revenue, increase our costs, makenegatively impact our financial results poorer and/or decrease our financial strength, and may cause our stock price to decline.
Risks Related to Our Business, Industry, and Operations
We have significant debt and our failure to generate cash flow sufficient to cover required interest and principal payments could result in defaults of the related debt.
As of December 31, 2017,2019, we had mortgage and other indebtedness, excluding deferred loan costs, totaling approximately $967.3$930.1 million. We cannot assure you that we will generate cash flow from operations or receive proceeds from refinancings, other financings or the sales of assets sufficient to cover required interest and principal payments. Any payment or other default could cause the applicable lender to foreclose upon the communities securing the indebtedness with a consequent loss of income and asset value to us. Further, because some of our mortgages contain cross-default and cross-collateralization provisions, a payment or other default by us with respect to one community could affect a significant number of our other communities.
We have significant lease obligations and our failure to generate cash flows sufficient to cover these lease obligations could result in defaults under the lease agreements.
As of December 31, 2017,2019, we leased 46 senior housing communities with future lease obligations totaling approximately $433.3$255.0 million, with minimum lease obligations of $63.6$63.5 million in fiscal 2018.2020. We cannot assure you that we will generate cash flow from operations or receive proceeds from refinancings, other financings or the sales of assets sufficient to cover these required operating lease obligations. Any payment or other default under any such lease could result in the termination of the lease with a consequent lossand the acceleration of income and asset value to us.our obligations under such lease. Further, because our leases contain cross-default provisions, a payment or other default by us with respect to one leased community could affect all of our other leased communities with related lessors. Certain of our leases contain various financial and other restrictive covenants, which could limit our flexibility in operating our business. Failure to maintain compliance with the lease obligations as set forth in our lease agreements could have a material adverse impact on us. The termination of a significant portion of our facility lease agreements could have a material adverse effect on our business, financial condition, cash flows, and results of operations.
With regard to our Master Lease Agreements with Ventas and Welltower, we were not in compliance with certain financial covenants as of December 31, 2019, and in February 2020, we began paying Ventas and Welltower monthly rental amounts based on the estimated monthly cash flows generated by the communities in Ventas’ and Welltower’s respective portfolios, which were less than the rental amounts due and payable under the terms of the Master Lease Agreements. Although we have entered into forbearance agreements with Ventas and Welltower with respect to such defaults, no assurances can be given that we will be able to comply with the terms and conditions of such forbearance agreements or the other terms and conditions of our Master Lease Agreements.
Our failure to comply with financial covenants and other restrictions contained in debt instruments and lease agreements could result in the acceleration of the related debt or lease or in the exercise of other remedies.
Our outstanding indebtedness and leases are secured by our communities, and, in certain cases, a guaranty by our Company or by one or more of our subsidiaries. Therefore, an event of default under the outstanding indebtedness or leases, subject to cure provisions in certain instances, would give the respective lenders or lessors, as applicable, the right to declare all amounts outstanding to be immediately due and payable, terminate the lease, or foreclose on collateral securing the outstanding indebtedness and leases.
There are various financial covenants and other restrictions in certain of our debt instruments and lease agreements, including provisions which:
require us to meet specified financial tests at the subsidiary company level, which include, but are not limited to, tangible net worth requirements;
require us to meet specified financial tests at the community level, which include, but are not limited to, lease coverage tests;
require us to maintain the physical condition of the community and meet certain minimum spending levels for capital and leasehold improvements; and
require consent for changes in control of us.
If we fail to comply with any of these requirements, then the related indebtedness or lease obligations could become due and payable prior to their stated dates. We cannot assure that we could pay these debt or lease obligations if they became due prior to their stated dates.
Please refer to the immediately preceding risk factor for a description of certain recent defaults under our Master Lease Agreements with Ventas and Welltower and the Forbearance agreements we recently entered into with both Ventas and Welltower with respect to such defaults.
We will require additional financing and/or refinancings in the future and may issue equity securities.
Our ability to obtain such financing or refinancing on terms acceptable to us could have a material adverse effect on our business, financial condition, cash flows, and results of operations. Our ability to meet our long-term capital requirements, including the repayment of certain long-term debt obligations, will depend, in part, on our ability to obtain additional financing or refinancings on acceptable terms from available financing sources, including through the use of mortgage financing, joint venture arrangements, by accessing the debt and/or equity markets and possibly through operating leases or other types of financing, such as lines of credit. Turmoil in the financial markets can severely restrict the availability of funds for borrowing and may make it more difficult or costly for us to raise capital. There can be no assurance that financing or refinancings will be available or that, if available, will be on terms acceptable to us. Moreover, raising additional funds through the issuance of equity securities could cause existing stockholders to experience dilution and could adversely affect the market price of our common stock. Disruptions in the financial markets may have a significant adverse effect on the market value of our common stock and other adverse effects on us and our business. Our inability to obtain additional financing or refinancings on terms acceptable to us could delay or eliminate some or all of our growth plans, necessitate the sales of assets at unfavorable prices or both, and would have a material adverse effect on our business, financial condition, cash flows, and results of operations.
We face risks related to an epidemic, pandemic or other health crisis, such as the recent outbreak of the novel coronavirus (COVID-19), which could cause a significant decrease in the occupancy levels at our communities and have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects.
We face risks related to an epidemic, pandemic or other health crisis. Since its discovery in December 2019, a new strain of coronavirus, which causes the viral disease known as COVID-19, has spread from China to many other countries, including the United States. The outbreak has been declared to be a pandemic by the World Health Organization, and the Health and Human Services Secretary has declared a public health emergency in the United States in response to the outbreak. Additionally, the Centers for Disease Control and Prevention has stated that older adults are at a higher risk for serious illness from the coronavirus. The extent to which the coronavirus impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of the coronavirus and the actions taken to contain the coronavirus or treat its impact, among others.
Our revenue and operating results depend significantly on the occupancy levels at our communities. The occupancy at our communities could significantly decrease if the coronavirus or other public health outbreak results in early resident move-outs; directly impacts one of our communities; causes us to delay accepting new residents due to quarantines or otherwise; or results in potential new residents determining to postpone moving to a senior housing facility, which could have a material adverse effect on our ability to meet financial and other contractual obligations,
including the payment of rent, as well as on our business, financial condition, liquidity, results of operations and prospects.
A pandemic, epidemic or outbreak of a contagious illness, such as COVID-19, could cause our operating costs to increase and divert the time and attention of management and other personnel, which could adversely impact our business, operating results and financial condition.
A pandemic, epidemic, or other outbreak of an infectious illness or other public health crisis could cause a material increase in our operating costs, whether due to actions that we take to address outbreaks (including with respect to enhanced health and safety precautions), an inability to continue to obtain necessary goods and provide adequate staffing at our communities, or other factors. If the residents in any of our senior housing communities test positive for a contagious illness, it would result in increased costs of caring for the residents in that facility and, in all likelihood, a reduced occupancy at that facility. Further, a pandemic, epidemic or other outbreak might adversely impact our operations by causing staffing and supply shortages. In addition, outbreaks, such as the recent COVID-19 outbreak, cause our facilities and our management to spend considerable time planning for such events, which diverts their attention from other business concerns. We are continuing to evaluate and consider the potential impact of the COVID-19 outbreak, which could result in some or all of these negative outcomes and adversely impact our business, operating results and financial condition. There can be no assurances that a pandemic, epidemic or outbreak of a contagious illness, such as COVID-19, will not have a material and adverse impact on our business, operating results and financial condition in the future.
Increases in market interest rates and/or the Consumer Price Index (“CPI”) could significantly increase the costs of our floating rate debt and lease obligations, which could adversely affect our liquidity and earnings.
Our floating rate debt and lease obligations and any future indebtedness and lease obligations, if applicable, exposes us to interest rate and CPI risk. Therefore, any increase in prevailing interest rates or CPI could increase our future interest and/or lease payment obligations, which could in the future have a material adverse effect on our business, financial condition, cash flows, and results of operations.
We cannot assure that we will be able to effectively manage our growth.
We intend to expand our operations, directly or indirectly, through the acquisition of existing senior housing communities and/or the expansion of some of our existing senior housing communities. The success of our growth strategy will depend, in large part, on our ability to implement these plans and to effectively operate these communities. If we are unable to manage our growth effectively, our business, financial condition, cash flows, and results of operations may be adversely affected.
We cannot assure that we will attempt to, or be able to, acquire additional senior housing communities.
The acquisition of existing communities or other businesses involves a number of risks. Existing communities available for acquisition frequently serve or target different markets than those presently served by us. We may also determine that renovations of acquired communities and changes in staff and operations management personnel are necessary to successfully integrate those communities or businesses into our existing operations. The costs incurred to reposition or renovate newly acquired communities may not be recovered by us. In undertaking acquisitions, we also may be adversely impacted by unforeseen liabilities attributable to the prior operators of those communities or businesses, against whom we may have little or no recourse. The success of our acquisition strategy will be determined by numerous factors, including our ability to identify suitable acquisition candidates; the competition for those acquisitions; the purchase price; the requirement to make operational or structural changes and improvements; the financial performance of the communities or businesses after acquisition; our ability to finance the acquisitions; and our ability to integrate effectively any acquired communities or businesses into our management, information, and operating systems. Additionally, there is competition among potential acquirers of communities in the senior housing industry, including real estate investment trusts (“REITs”) and private equity firms, and there can be no assurance that we will be able to successfully complete acquisitions, which could limit our ability to grow our business effectively. We cannot assure that our acquisition of senior housing communities or other businesses will be completed at the rate currently expected, if at all, or if completed, that any acquired communities or businesses will be successfully integrated into our operations which could have an adverse impact on our liquidity, revenues, results of operations, and cash flows.
If we are unable to renovate, reposition, or redevelop our communities in accordance with our plans, our anticipated revenues, results of operations, and cash flows could be adversely affected.
We are currently working on projects that will renovate, reposition, or redevelop a number of our existing senior housing communities. These projects are in various stages of development and are subject to a number of factors, some of which we have little or no control. Our ability to successfully renovate, reposition, or redevelop our senior housing communities will depend on a number of factors, including, but not limited to, our ability to acquire suitable sites at reasonable prices; our success in obtaining necessary zoning, licensing, and other required governmental permits and authorizations; and our ability to control construction costs and accurately project completion schedules. We anticipate that the renovation, repositioning, or redevelopment of existing senior housing communities may involve a substantial commitment of capital for a period of time of two years or more until completion and are operating and producing revenue. In addition, we may incur substantial costs prior to achieving stabilized occupancy for each project and cannot assure you that the costs will not be greater than we have anticipated. Our failure to achieve our renovation, repositioning, and redevelopment plans could adversely impact our anticipated revenues, results of operations, and cash flows.
Termination of resident agreements and resident attrition could affect adversely our revenues and earnings.
State regulations governing assisted living facilities require written resident agreements with each resident. Most of these regulations also require that each resident have the right to terminate the resident agreement for any reason on reasonable notice. Consistent with these regulations, the resident agreements signed by us allow residents to terminate their lease upon 0 to 30 days’ notice. Thus, we cannot contract with residents to stay for longer periods of time, unlike typical apartment leasing arrangements that involve lease agreements with specified leasing periods of up to a year or longer. Our resident agreements generally provide for termination of the lease upon death or allow a resident to terminate their lease upon the need for a higher level of care not provided at the community. In addition, the advanced age of our average resident means that the resident turnover rate in our senior living facilities may be difficult to predict. If a large number of residents elected to or otherwise terminate their resident agreements at or around the same time, then our revenues and earnings could be adversely affected.
We have incurred losses from operations in each of the last three fiscal years and may do so in the future.
We have incurred a net loss in each of fiscal 2019, 2018 and 2017. We currently have limited resources and substantial debt and lease obligations. Given our history of losses and the current industry conditions, it is not certain that we will be able to achieve and/or sustain profitability or positive cash flows from operations in the future, which could adversely affect the trading price of our common stock and our ability to fund our operations and fulfill our debt and lease obligations.
We largely rely on private pay residents and circumstances that adversely affect the ability of the elderlyseniors to pay for our services could have a material adverse effect on us.
Approximately 94.4%94.1% of our total revenues from communities that we operated were attributable to private pay sources and approximately 5.6%5.9% of our revenues from these communities were attributable to reimbursements from Medicaid, in each case, during fiscal 2017.2019. We expect to continue to rely primarily on the ability of residents to pay for
our services from their own or family financial resources. Unfavorable economic conditions in the housing, financial, and credit markets, inflation, or other circumstances that adversely affect the ability of the elderlyseniors to pay for our services could have a material adverse effect on our business, financial condition, cash flows, and results of operations.
The senior living services industry is very competitive and some competitors may have substantially greater financial resources than us.
The senior living services industry is highly competitive, and we expect that all segments of the industry will become increasingly competitive in the future. We compete with other companies providing independent living, assisted living, home health care and other similar services and care alternatives. We also compete with other health care businesses with respect to attracting and retaining nurses, technicians, aides and other high quality professional and non-professional employees and managers. Although we believe there is a need for senior housing communities in the markets where we operate residences, we expect that competition will increase from existing competitors and new market entrants, some of whom may have substantially greater financial resources than us. In addition, some of our competitors operate on a not-for-profit basis or as charitable organizations and have the ability to finance capital expenditures on a tax-exempt basis or through the receipt of charitable contributions, neither of which are available to us. Furthermore, if the development of new senior housing communities outpaces the demand for those communities in the markets in which we have senior housing communities, those markets may become saturated. Regulation in the independent and assisted living industry is not substantial. Consequently, development of new senior housing communities could outpace demand. An oversupply of those communities in our markets could cause us to experience decreased occupancy, reduced operating margins and lower profitability.
We rely on the services of key executive officers and the transition of management or loss of these officers or their services could have a material adverse effect on us.
We depend on the services of our executive officers for our management. We have recently undergone changes in our senior management and may experience further changes in the future. The transition of management, loss of someany of our executive officers and theor our inability to attract and retain qualified management personnel in the future, could affect our ability to manage our business and could adversely affect our business, financial condition, cash flows, and results of operations.
A significant increase in our labor costs could have a material adverse effect on us.
We compete with other providers of senior living services with respect to attracting and retaining qualified management personnel responsible for the day-to-day operations of each of our communities and skilled personnel responsible for providing resident care. We rely upon the quality of our staff as a means to differentiate our services from other providers. A shortage of nurses or trained personnel may require us to enhance our wage and benefits package in order to compete in the hiring and retention of these personnel or to hire more expensive temporary personnel. We also will be dependent on the available labor pool of semi-skilled and unskilled employees in each of the markets in which we operate. No assurance can be given that our labor costs will not increase, or that, if they do increase, they can be matched by corresponding increases in rates charged to residents. Any significant failure by us to control our labor costs or to pass on any increased labor costs to residents through rate increases could have a material adverse effect on our business, financial condition, cash flows, and results of operations.
We are subject to risks related to the provision for employee health care benefits and recentongoing health care reform legislation.
We use a combination of insurance and self-insurance for employee health care plans. We record expenses under these plans based on estimates of the costs of expected claims, administrative costs and stop-loss premiums. These estimates are then adjusted to reflect actual costs incurred. Actual costs under these plans are subject to variability depending primarily upon participant enrollment and demographics, the actual costs of claims and whether stop-loss insurance covers these claims. In the event that our cost estimates differ from actual costs, we could incur additional unplanned health care costs which could have a material adverse effect on our business, financial condition, cash flows, and results of operations.
In March 2010, comprehensive health care reform legislation under the Patient Protection and Affordable Care Act (HR 3590) and the Health Care Education and Affordability Reconciliation Act (HR 4872) was passed and signed into law. This legislation expands health care coverage to many uninsured individuals and expands health care coverage to those already insured under existing plans. The health care reform legislation includes, among other things, guaranteed coverage requirements, eliminates pre-existing condition exclusions and annual and lifetime maximum limits, restricts the extent to which policies can be rescinded, and imposes new and significant taxes on health insurers and health care benefits. Provisions of the health care reform legislation become effective at various dates over the next several years. The United States Department of Health and Human Services, National Association of Insurance Commissioners, Department of Labor and Treasury Department continue to issue necessary enabling regulations and guidance with respect to the health care reform legislation. Due to the breadth and complexity of the health care reform legislation, the lack of implementing regulations and interpretative guidance, and the phased-in nature of the implementation, it is difficult to predict the overall impact this legislation will have over the coming years; however, this legislation could have a material adverse effect on our business, financial condition, cash flows, and results of operations.
There is an inherent risk of liability in the provision of personal and health care services, not all of which may be covered by insurance.
The provision of personal and health care services in the long-term care industry entails an inherent risk of liability. In recent years, participants in the long-term care industry have become subject to an increasing number of lawsuits alleging negligence or related legal theories, many of which involve large claims and result in the incurrence of significant defense costs. Moreover, senior housing communities offer residents a greater degree of independence in their daily living. This increased level of independence may subject the resident and, therefore, us to risks that would be reduced in more institutionalized settings. We currently maintain insurance in amounts we believe are comparable to those maintained by other senior living companies based on the nature of the risks, our historical experience and industry standards, and we believe that this insurance coverage is adequate. However, we may become subject to claims in excess of our insurance or claims not covered by our insurance, such as claims for punitive damages, terrorism and natural disasters. A claim against us not covered by, or in excess of, our insurance could have a material adverse effect upon us.our business, financial condition, cash flows, and results of operations.
In addition, our insurance policies must be renewed annually. Based upon poor loss experience, insurers for the long-term care industry have become increasingly wary of liability exposure. A number of insurance carriers have stopped writing coverage to this market, and those remaining have increased premiums and deductibles substantially. Therefore, we cannot assure that we will be able to obtain liability insurance in the future or that, if that insurance is available, it will be available on acceptable economic terms.
We are subject to government regulations and compliance, some of which are burdensome and some of which may change to our detriment in the future.
Federal and state governments regulate various aspects of our business. The development and operation of senior housing communities and the provision of health care services are subject to federal, state and local licensure, certification and inspection laws that regulate, among other matters, the number of licensed beds, the provision of services, the distribution of pharmaceuticals, billing practices and policies, equipment, staffing (including professional licensing), operating policies and procedures, fire prevention measures, environmental matters, and compliance with building and safety codes. Failure to comply with these laws and regulations could result in the denial of reimbursement, the imposition of fines, temporary suspension of admission of new residents, suspension or decertification from the Medicaid program, restrictions on the ability to acquire new communities or expand existing communities and, in extreme cases, the revocation of a community’s license or closure of a community. We believe that such regulation will increase in the future and we are unable to predict the content of new regulations or their effect on our business, any of which could materially adversely affect us.our business, financial condition, cash flows, and results of operations.
Various states, including several of the states in which we currently operate, control the supply of licensed beds and assisted living communities through CON or other programs. In those states, approval is required for the addition of licensed beds and some capital expenditures at those communities. To the extent that a CON or other similar approval is required for the acquisition or construction of new communities, the expansion of the number of licensed beds, services, or existing communities, we could be adversely affected by our failure or inability to obtain that approval, changes in the standards applicable for that approval, and possible delays and expenses associated with obtaining that approval. In addition, in most states, the reduction of the number of licensed beds or the closure of a community requires the approval of the appropriate state regulatory agency and, if we were to seek to reduce the number of licensed beds at, or to close, a community, we could be adversely affected by a failure to obtain or a delay in obtaining that approval.
Federal and state anti-remuneration laws, such as “anti-kickback” laws, govern some financial arrangements among health care providers and others who may be in a position to refer or recommend patients to those providers. These laws prohibit, among other things, some direct and indirect payments that are intended to induce the referral of patients to, the arranging for services by, or the recommending of, a particular provider of healthcare items or services. Federal anti-kickback laws have been broadly interpreted to apply to some contractual relationships between health care providers and sources of patient referral. Similar state laws vary, are sometimes vague, and seldom have been interpreted by courts or regulatory agencies. Violation of these laws can result in loss of licensure, civil and criminal penalties, and exclusion of health care providers or suppliers from participation in the Medicaid program. There can be no assurance that those laws will be interpreted in a manner consistent with our practices.
Under the Americans with Disabilities Act of 1990, all places of public accommodation are required to meet federal requirements related to access and use by disabled persons. A number of additional federal, state and local laws exist that also may require modifications to existing and planned communities to create access to the properties by disabled persons. Although we believe that our communities are substantially in compliance with present requirements or are exempt therefrom, if required changes involve a greater expenditure than anticipated or must be made on a more accelerated basis than anticipated, additional costs would be incurred by us. Further legislation may impose additional burdens or restrictions with respect to access by disabled persons, the costs of compliance with which could be substantial.
The Health Insurance Portability and Accountability Act of 1996, in conjunction with the federal regulations promulgated thereunder by the Department of Health and Human Services, has established, among other requirements, standards governing the privacy of certain protected and individually identifiable health information that is created, received or maintained by a range of covered entities. HIPAA has also established standards governing uniform health care transactions, the codes and identifiers to be used by the covered entities and standards governing the security of certain electronic transactions conducted by covered entities. Penalties for violations can range from civil money penalties for errors and negligent acts to criminal fines and imprisonment for knowing and intentional misconduct. HIPAA is a complex set of regulations and many unanswered questions remain with respect to the manner in which HIPAA applies to businesses such as those operated by us.
In addition, some states have begun to enact more comprehensive privacy laws and regulations addressing consumer rights to data protection or transparency. For example, the California Consumer Privacy Act became effective in 2020, and we expect additional federal and state legislative and regulatory efforts to regulate consumer privacy protection in the future. Compliance with such legislative and regulatory developments could be burdensome and costly, and the failure to comply could have a material adverse effect on our business, financial condition, cash flows and results of operations.
An increasing number of legislative initiatives have been introduced or proposed in recent years that would result in major changes in the health care delivery system on a national or a state level. Among the proposals that have been introduced are price controls on hospitals, insurance market reforms to increase the availability of group health insurance to small businesses, requirements that all businesses offer health insurance coverage to their employees and the creation of government health insurance plans that would cover all citizens and increase payments by beneficiaries. We cannot predict whether any of the above proposals or other proposals will be adopted and, if adopted, no assurances can be given that their implementation will not have a material adverse effect on our business, financial condition or results of operations.
We may be subject to liability for environmental damages.
Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at the property, and may be held liable to a governmental entity or to third parties for property damage and for investigation and clean-up costs incurred by those parties in connection with the contamination. These laws typically impose clean-up responsibility and liability without regard to whether the owner knew of or caused the presence of the contaminants, and liability under these laws has been interpreted to be joint and several unless the harm is divisible and there is a reasonable basis for allocation of responsibility. The costs of investigation, remediation or removal of the substances may be substantial, and the presence of the substances, or the failure to properly remediate the property, may adversely affect the owner’s ability to sell or lease the property or to borrow using the property as collateral. In addition,
some environmental laws create a lien on the contaminated site in favor of the government for damages and costs it incurs in connection with the contamination. Persons who arrange for the disposal or treatment of hazardous or toxic substances also may be liable for the costs of removal or remediation of the substances at the disposal or treatment facility, whether or not the facility is owned or operated by the person. Finally, the owner of a site may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site. If we become subject to any of these claims the costs involved could be significant and could have a material adverse effect on our business, financial condition, cash flows, and results of operations.
Various factors, including general economic conditions, could adversely affect our financial performance and other aspects of our business.
General economic conditions, such as inflation, the consumer price index, commodity costs, fuel and other energy costs, costs of salaries, wages, benefits and insurance, interest rates, and tax rates, affect our facility operating, facility lease, general and administrative and other expenses, and we have no control or limited ability to control such factors. Current global economic conditions and uncertainties, the potential for failures or realignments of financial institutions, and the related impact on available credit may affect us and our business partners, landlords, counterparties, and residents or prospective residents in an adverse manner including, but not limited to, reducing access to liquid funds or credit, increasing the cost of credit, limiting our ability to manage interest rate risk, increasing the risk that certain of our business partners, landlords or counterparties would be unable to fulfill their obligations to us, and other impacts which we are unable to fully anticipate.
Damage from catastrophic weather and other natural events could result in losses.
A certain number of our properties are located in areas that have experienced and may experience in the future catastrophic weather and other natural events from time to time, including snow or ice storms, windstorm, tornados, hurricanes, fires, earthquakes, flooding or other severe weather. The Company maintains insurance policies, including coverage for business interruption, designed to mitigate financial losses resulting from such adverse weather and natural events; however, there can be no assurance that adverse weather or natural events will not cause substantial damages or losses to our communities that could exceed our insurance coverage. In the event of a loss in excess of insured limits, such loss could have a material adverse effect on our business, financial condition, cash flows, and results of operations.
We rely on information technology in our operations, and failure to maintain the security and functionality of our information technology and computer systems, or to prevent a cybersecurity attack, breach or other unauthorized access, could adversely affect our business, reputation and relationships with our residents, employees and referral sources and may subject us to remediation costs, government inquiries and liabilities under HIPAA and data and consumer protection laws, any material failure, inadequacy, interruption or security failure of that technologywhich could harmmaterially and adversely impact our business.revenues, results of operations, cash flow and liquidity.
We rely on information technology networks and systems, includingupon the Internet, to process, transmit and store electronic information and to manage or support a variety of our business processes, including medical records, financial transactions and maintenance of records, which may include personally identifiable information of residents and other customers and payroll data. We rely on commercially available systems, software, tools and monitoring to provide security for processing, transmitting and storing confidential information, such as personally identifiable information relating to health and financial accounts. Although we have taken steps to protect the security of the data maintained in our information systems, it is possible that our security measures will not be able to prevent the systems’ improper functioning, or the improper disclosure of personally identifiable information such as in the event of cyber-attacks. Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information; however, no instances of these potential threats have been identified by the Company. The Company maintains cyber and data privacy-related insurance coverage which provides liability protection associated with network security, privacy and sensitive electronic-data, and privacy breach expenses. Any failure to maintain proper function security and availability of our information technology and computer systems, including hardware, software, applications and electronic data storage, to communicate with our residents and patients, their doctors and other healthcare providers, and our employees and vendors and to store, process, safeguard and transmit our business information, including proprietary business information, private health information and personally identifiable information of our residents and employees. We have taken steps and expended significant resources to protect the cybersecurity and physical security of our information technology and computer systems and have developed and implemented policies and procedures to comply with HIPAA and other applicable privacy laws, rules and regulations. However, there can be no assurance that our security measures, policies and procedures and disaster recovery plans will prevent damage to, or interruption or breach of, our information systems or other unauthorized access to private information.
The cybersecurity risks to the Company and our third-party vendors are heightened by, among other things, the frequently changing techniques used to illegally or fraudulently obtain unauthorized access to systems, advances in computing technology and cryptography, and the possibility that unauthorized access may be difficult to detect, which could lead to us or our vendors being unable to anticipate these techniques or implement adequate preventive measures. In addition, components of our information systems that we develop or procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise the security or functionality of our information systems. Unauthorized parties may also attempt to gain access to our systems or facilities, or those of third parties with whom we do business or communicate, through computer viruses, hacking, fraud or other forms of deceiving our employees or contractors such as email phishing attacks. As cyber threats continue to evolve, we may be
required to expend significant additional resources to continue to modify or enhance our cybersecurity or to investigate and remediate any cybersecurity vulnerabilities, attacks or incidents.
In addition, we rely on software support of third parties to secure and maintain our information systems and data. Our inability, or the inability of these third parties, to continue to maintain and upgrade our information systems could interruptdisrupt or reduce the efficiency of our operations,operations. Costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our operations.
Failure to maintain the security and functionality of our information systems, or to prevent a cybersecurity attack or other unauthorized access to our information systems, could expose us to a number of adverse consequences, including: (i) interruptions to our business and operations; (ii) the theft, destruction, loss, misappropriation, or release of sensitive information, including proprietary business information and personally identifiable information of our residents, patients and employees; (iii) significant remediation costs; (iv) negative publicity that could damage our reputation subject us toand our relationships with our residents, patients, employees and referral sources; (v) litigation and potential liability claimsunder privacy, security and consumer protection laws, including HIPAA, or regulatory penaltiesother applicable laws, rules or regulations; and (vi) government inquiries that may result in sanctions and other criminal or civil fines or penalties. Any of the foregoing could materially and adversely impact our revenues, results of operations, cash flow and liquidity.
Actions of activist stockholders could cause us to incur substantial costs, divert management's attention and resources, and have an adverse effect on our business, results of operations, cash flow, and the market price of our common stock.
We value constructive input from our stockholders and engage in dialogue with our stockholders regarding our governance practices, strategy, and performance. However, activist stockholders may disagree with the composition of our board of directors or management, our strategy, or capital allocation decisions and may seek to effect change through various strategies that range from private engagement to public campaigns, proxy contests, efforts to force proposals, or transactions not supported by our board of directors and litigation. Responding to these actions may be costly and time-consuming, disrupt our operations, divert the attention of our board of directors, management, and our associates and interfere with our ability to pursue our strategy and to attract and retain qualified board and executive leadership. The perceived uncertainty as to our future direction that may result from actions of activist stockholders may also negatively impact our ability to attract and retain residents at our communities. We cannot provide assurance that constructive engagement with our stockholders will be successful. Any such stockholder activism may have an adverse effect on our business, results of operations, and cash flow and the market price of our common stock.
The potential phasing out of LIBOR may increase the interest costs of our debt obligations, which could adversely affect our business, financial condition, or results of operations.operations and cash flow.
The interest rates for certain of our variable-rate debt obligations are calculated based on the London Interbank Offer Rate (LIBOR) plus a spread. LIBOR is regulated by the United Kingdom's Financial Conduct Authority, which has announced that it plans to phase-out LIBOR by the end of 2021. Although certain of such debt obligations are scheduled to mature prior to the end of 2021, such debt obligations may be extended or we may enter into new variable interest rate debt obligations based on LIBOR. If LIBOR were to be discontinued, the terms of such variable-rate debt agreements may provide that the lender will have the right to choose an alternative index based on comparable information. It is unclear whether LIBOR will cease to exist or if new methods of calculating LIBOR will evolve by the end of 2021, or whether alternative and comparable index rates will be established and adopted by our lenders and other financial institutions. If LIBOR ceases to exist or if the methods of calculating LIBOR change, interest rates on any such variable-rate debt obligations may increase, which would adversely affect our results of operations and cash flow.
Risks Related to Our Common Stock
Anti-takeover provisions in our governing documents, governing law and material agreements may discourage, delay or prevent a merger or acquisition that our stockholders may consider favorable or prevent the removal of our current board of directors and management.
Certain provisions of our amended and restated certificate of incorporation and our amended and restated by-laws may discourage, delay or prevent a merger or acquisition that our stockholders may consider favorable or prevent the
removal of our current board of directors and management. We have a number of anti-takeover devices in place that will hinder takeover attempts, including: a staggered board of directors consisting of three classes of directors, each of whom serve three-year terms; removal of directors only for cause, and only with the affirmative vote of at least a majority of the voting interest of stockholders entitled to vote; right of our directors to issue preferred stock from time to time with voting, economic and other rights superior to those of our common stock without the consent of our stockholders; provisions in our amended and restated certificate of incorporation and amended and restated by-laws limiting the right of our stockholders to call special meetings of stockholders; advance notice requirements for stockholders with respect to director nominations and actions to be taken at annual meetings; requirement for two-thirds stockholder approval for amendment of our by-laws and certain provisions of our certificate of incorporation; and no provision in our amended and restated certificate of incorporation for cumulative voting in the election of directors, which means that the holders of a majority of the outstanding shares of our common stock can elect all the directors standing for election. Our board of directors has approved amendments to our certificate of incorporation that will phase out the Company’s staggered board of directors over a three-year period and to eliminate the requirement that directors may only be removed for cause, but such amendments are subject to the approval of our stockholders and there are no reassurances as to when, if at all, such approval will be received.
Several of our leases, loan documents and other material agreements require approval in case of a change of control of our company. These provisions may have the effect of delaying or preventing a change of control of our company even if this change of control would benefit our stockholders.
In addition to the anti-takeover provisions described above, we are subject to Section 203 of the Delaware General Corporation Law. Section 203 generally prohibits a person beneficially owning, directly or indirectly, 15% or more of our outstanding common stock from engaging in a business combination with us for three years after the person acquired the stock. However, this prohibition does not apply if (A) our directors approve in advance the person’s ownership of 15% or more of the shares or the business combination or (B) the business combination is approved by our stockholders by a vote of at least two-thirds of the outstanding shares not owned by the acquiring person.
Because we do not presently have plans to pay dividends on our common stock, stockholders must look solely to appreciation of our common stock to realize a gain on their investment.
It is the policy of our Boardboard of Directorsdirectors to retain any future earnings to finance the operation and expansion of the Company’s business. Accordingly, the Company has not and does not currently anticipate declaring or paying cash dividends on your common stock in the foreseeable future. The payment of cash dividends in the future will be at the sole discretion of our Boardboard of Directorsdirectors and will depend on, among other things, the Company’s earnings, operations, capital requirements, financial condition, restrictions in then existing financing agreements and other factors deemed relevant by our Boardboard of Directors.directors. Accordingly, stockholders must look solely to appreciation of our common stock to realize a gain on their investment. This appreciation may not occur.
If we cannot meet the NYSE continued listing requirements, the NYSE may delist our common stock.
Our common stock is currently listed on the NYSE. In the future, if we are unable to meet the continued listing requirements of the NYSE, including, among other things: (i) the requirement of maintaining a minimum average closing price of $1.00 per share over a consecutive 30 trading-day period, and (ii) the requirement to maintain an average market capitalization of not less than $50 million over a 30 trading-day period and at the same time stockholders’ equity is also less than $50 million, we would fall below compliance standards and risk having our common stock delisted. In addition, in the event of an abnormally low share price of our common stock and/or we fail to maintain an average market capitalization of at least $15 million over a 30-trading day period, we would be subject to immediate delisting under the NYSE’s rules without any opportunity to cure. On March 19, 2020, the NYSE filed a proposed rule change to suspend until June 30, 2020, the application of the NYSE continued listing requirement with respect to the $15 million average market capitalization rule as a result of COVID-19 market turbulence. On March 25, 2020, the closing price of our common stock on the NYSE was $0.57 per share and our market capitalization was approximately $18.2 million.
A delisting of our common stock could negatively impact us by, among other things:
reducing the liquidity and market price of our common stock;
reducing the number of investors, including institutional investors, willing to hold or acquire our common stock, which could negatively impact our ability to raise equity;
limiting our ability to issue additional securities, obtain additional financing or pursue strategic restructuring, refinancing or other transactions; and
impacting our reputation and, as a consequence, our ability to attract new business.
The price of our common stock has fluctuated substantially over the past several years and may continue to fluctuate substantially in the future.
Our stock price has been, and may continue to be, subject to significant fluctuations as a result of a variety of factors, which are described throughout this Annual reportReport on Form 10-K, including those factors discussed under this section entitled “Risk Factors.” Some of these factors are beyond our control. We may fail to meet the expectations of our stockholders or securities analysts at some point in the future, and our stock price could decline as a result. This volatility may prevent you from being able to sell your common stock at or above the price you paid for your common stock.
In addition, the stock markets in general have experienced extreme volatility recently that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. Such litigation, if instituted against us, could result in very substantial costs, divert our management’s attention and resources and harm our business, operating results and financial condition.
Future offerings of equity securities by us may adversely affect the market price of our common stock.
In the future, we may attempt to increase our capital resources by offering additional equity securities. Additional equity offerings may dilute the economic and voting rights of our existing stockholders and/or reduce the market price of our common stock. Our decision to issue equity securities in a future offering will depend on market conditions and other factors, some of which are beyond our control, we cannot predict or estimate the amount, timing, or nature of our future offerings. Thus, holders of our common stock bear the risk of our future offerings reducing the market price of our common stock and diluting their holdings in our Company.
None.
The executive and administrative offices of the Company are located at 14160 Dallas Parkway, Suite 300, Dallas, Texas 75254, and consist of approximately 26,000 square feet. The lease on the premises currently extends through September 2020. The Company is currently negotiating an extension to the office lease. The Company believes that its corporate office facilities are adequate to meet its requirements through at least fiscal 20182020 and that suitable additional space will be available, as needed, to accommodate further physical expansion of corporate operations. The Company also leases executive office space in New York, New York pursuant to a two-year lease agreement.
As of December 31, 2017,2019, the Company owned or leased and managed the senior housing communities referred to in Item 1 above under the caption “Operating Communities.”
The Company has claims incurred in the normal course of its business. Most of these claims are believed by management to be covered by insurance, subject to normal reservations of rights by the insurance companies and possibly subject to certain exclusions in the applicable insurance policies. Whether or not covered by insurance, these claims, in the opinion of management, based on advice of legal counsel, should not have a material effect on the consolidated financial statements of the Company if determined adversely to the Company.
Not applicable.
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. |
(a) Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.
Market Information and Holders
The Company’s shares of common stock are listed for trading on the New York Stock Exchange (“NYSE”) under the symbol “CSU”. The following table sets forth, for the periods indicated, the high and low sales prices for the Company’s common stock, as reported on the NYSE. At February 23, 2018,March 25, 2020, there were approximately 213138 stockholders of record of the Company’s common stock.
|
| 2017 |
|
| 2016 |
| ||||||||||
Year |
| High |
|
| Low |
|
| High |
|
| Low |
| ||||
First Quarter |
| $ | 17.66 |
|
| $ | 13.09 |
|
| $ | 20.71 |
|
| $ | 14.58 |
|
Second Quarter |
|
| 16.08 |
|
|
| 13.21 |
|
|
| 20.85 |
|
|
| 15.89 |
|
Third Quarter |
|
| 15.30 |
|
|
| 11.60 |
|
|
| 19.92 |
|
|
| 15.70 |
|
Fourth Quarter |
|
| 16.72 |
|
|
| 12.09 |
|
|
| 17.89 |
|
|
| 12.65 |
|
Dividends
It is the policy of the Company’s Board of Directors to retain all future earnings to finance the operation and expansion of the Company’s business. Accordingly, the Company did not declare or pay cash dividends on its common stock during fiscal 2017 or 2016 and does not anticipate declaring or paying cash dividends on the common stock in the foreseeable future. The payment of cash dividends in the future will be at the sole discretion of the Company’s Board of Directors and will depend on, among other things, the Company’s earnings, operations, capital requirements, financial condition, restrictions in then existing financing agreements, and other factors deemed relevant by the Board of Directors.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table presents information relating to the Company’s equity compensation plans as of December 31, 2017:2019:
Plan Category |
| Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights |
|
| Weighted-Average Exercise Price of the Outstanding Options, Warrants and Rights |
|
| Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in First Column) |
| |||
Equity compensation plans approved by security holders |
|
| — |
|
| $ | — |
|
|
|
|
|
Equity compensation plans not approved by security holders |
|
| — |
|
|
| — |
|
|
| — |
|
Total |
|
| — |
|
| $ | — |
|
|
|
|
|
The following Performance Graph shows the cumulative total return for the five-year period ended December 31, 2017, in the value of $100 invested in: (1) the Company’s common stock; (2) the Standard & Poor’s Broad Market Index (the “S&P 500”); and (3) the common stock of the Peer Group (as defined below) of companies, whose returns represent the arithmetic average of such companies. The values with each investment as of the beginning of each year are based on share price appreciation and the reinvestment of any dividends on the respective ex-dividend dates.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Capital Senior Living Corporation, the S&P 500 Index,
and a Peer Group
The preceding graph assumes $100 invested at the beginning of the measurement period, including reinvestment of any dividends, in the Company’s common stock, the S&P 500, and the Peer Group and was plotted using the following data:
|
| Cumulative Total Returns |
| |||||||||||||||||||||
|
| 12/12 |
|
| 12/13 |
|
| 12/14 |
|
| 12/15 |
|
| 12/16 |
|
| 12/17 |
| ||||||
Capital Senior Living Corporation |
|
| 100.00 |
|
|
| 128.36 |
|
|
| 133.28 |
|
|
| 111.61 |
|
|
| 85.87 |
|
|
| 72.18 |
|
S&P 500 |
|
| 100.00 |
|
|
| 132.39 |
|
|
| 150.51 |
|
|
| 152.59 |
|
|
| 170.84 |
|
|
| 208.14 |
|
Peer Group |
|
| 100.00 |
|
|
| 107.51 |
|
|
| 140.38 |
|
|
| 71.75 |
|
|
| 48.83 |
|
|
| 37.53 |
|
The Company’s Peer Group, which was selected in good faith on an industry basis, consists of Brookdale Senior Living, Inc. and Five Star Quality Care, Inc.
(b) Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities.
Not applicable.
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
The following information is provided pursuant to Item 703 of Regulation S-K. The information set forth in the table below reflects information regarding the aggregate shares repurchased by the Company pursuant to its share repurchase program (as described below) as of December 31, 2017.2019.
Period |
| Total Number of Shares Purchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
| ||||
Total at September 30, 2017 |
|
| 494,115 |
|
| $ | 6.94 |
|
|
| 494,115 |
|
| $ | 6,570,222 |
|
October 1 – October 31, 2017 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,570,222 |
|
November 1 – November 30, 2017 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,570,222 |
|
December 1 – December 31, 2017 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,570,222 |
|
Total at December 31, 2017 |
|
| 494,115 |
|
| $ | 6.94 |
|
|
| 494,115 |
|
| $ | 6,570,222 |
|
Period |
| Total Number of Shares Purchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
| Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
| ||||
Total at September 30, 2019 |
|
| 494,115 |
|
| $ | 6.94 |
|
|
| 494,115 |
|
| $ | 6,570,222 |
|
October 1 – October 31, 2019 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,570,222 |
|
November 1 – November 30, 2019 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,570,222 |
|
December 1 – December 31, 2019 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,570,222 |
|
Total at December 31, 2019 |
|
| 494,115 |
|
| $ | 6.94 |
|
|
| 494,115 |
|
| $ | 6,570,222 |
|
(1) | On January 22, 2009, the Company’s board of directors approved a share repurchase program that authorized the Company to purchase up to $10.0 million of the Company’s common stock. The repurchase program does not obligate the Company to acquire any particular amount of common stock and the share repurchase authorization has no stated expiration date. On January 14, 2016, the Company announced that its board of directors approved a continuation of the share repurchase program. All shares that have been acquired by the Company under this program were purchased in open-market transactions. The Company does not expect to repurchase any shares of the Company’s common stock in the near term. |
The following table presents selected financial data of the Company which has been derived from the audited consolidated financial statements of the Company. The selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes thereto included in this Annual Report.Not applicable.
|
| At and for the Year Ended December 31, |
| |||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
| 2013 |
| |||||
|
| (In thousands, except per share and other data) |
| |||||||||||||||||
Consolidated Statements of Operations and Comprehensive Loss Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
| $ | 466,997 |
|
| $ | 447,448 |
|
| $ | 412,177 |
|
| $ | 383,925 |
|
| $ | 350,362 |
|
Income from operations |
|
| 7,842 |
|
|
| 14,390 |
|
|
| 18,835 |
|
|
| 13,900 |
|
|
| 11,250 |
|
Net loss |
|
| (44,168 | ) |
|
| (28,017 | ) |
|
| (14,284 | ) |
|
| (24,126 | ) |
|
| (16,504 | ) |
Net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per share |
| $ | (1.50 | ) |
| $ | (0.97 | ) |
| $ | (0.50 | ) |
| $ | (0.83 | ) |
| $ | (0.58 | ) |
Diluted net loss per share |
| $ | (1.50 | ) |
| $ | (0.97 | ) |
| $ | (0.50 | ) |
| $ | (0.83 | ) |
| $ | (0.58 | ) |
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (excluding restricted cash) |
| $ | 17,646 |
|
| $ | 34,026 |
|
| $ | 56,087 |
|
| $ | 39,209 |
|
| $ | 13,611 |
|
Working capital (deficit)(1) |
|
| (22,954 | ) |
|
| 638 |
|
|
| 26,726 |
|
|
| 13,113 |
|
|
| (5,892 | ) |
Total assets(1) |
|
| 1,182,671 |
|
|
| 1,145,781 |
|
|
| 1,019,033 |
|
|
| 891,370 |
|
|
| 745,549 |
|
Long-term debt, excluding current portion(1) |
|
| 938,206 |
|
|
| 882,504 |
|
|
| 754,949 |
|
|
| 592,884 |
|
|
| 467,376 |
|
Shareholders’ equity |
| $ | 80,433 |
|
| $ | 116,918 |
|
| $ | 135,746 |
|
| $ | 141,174 |
|
| $ | 157,950 |
|
Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communities (at end of period) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned or leased |
|
| 129 |
|
|
| 129 |
|
|
| 121 |
|
|
| 117 |
|
|
| 109 |
|
Joint ventures & managed |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
Total |
|
| 129 |
|
|
| 129 |
|
|
| 121 |
|
|
| 117 |
|
|
| 112 |
|
Resident capacity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned or leased |
|
| 16,523 |
|
|
| 16,523 |
|
|
| 15,416 |
|
|
| 15,149 |
|
|
| 13,939 |
|
Joint ventures & managed |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 674 |
|
Total |
|
| 16,523 |
|
|
| 16,523 |
|
|
| 15,416 |
|
|
| 15,149 |
|
|
| 14,613 |
|
|
|
ITEM 7. | MANAGEMENT’S |
Certain information contained in this report constitutes “Forward-Looking Statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which can be identified by the use of forward-looking terminology such as “may,” “will,” “would,” “intend,” “could,” “believe,” “expect,” “anticipate,” “estimate” or “continue” or the negative thereof or other variations thereon or comparable terminology. The Company cautions readers thatExamples of forward-looking statements, including,include, without limitation, those relating to the Company’s future business prospects revenues,and strategies, financial results, working capital, liquidity, capital needs and expenditures, interest costs, insurance availability and income,contingent liabilities. Forward-looking statements are subject to certain risks and uncertainties that could cause the Company’s actual results and financial condition to differ materially from those indicated in the forward-looking statements, dueincluding, but not limited to, several important factors herein identified. These factors include the Company’s ability to find suitable acquisition properties atgenerate sufficient cash flows from operations, additional proceeds from debt refinancings, and proceeds from the sale of assets to satisfy its short- and long-term debt and lease obligations and to fund the Company’s capital improvement projects to expand, redevelop, and/or reposition its senior living communities; the Company’s ability to obtain additional capital on terms acceptable to it; the Company’s ability to extend or refinance its existing debt as such debt matures; the Company’s compliance with its debt and lease agreements, including certain financial covenants and the terms and conditions of its recent forbearance agreements, and the risk of cross-default in the event such non-compliance occurs; the Company’s ability to complete acquisitions and dispositions upon favorable terms financing, licensing, business conditions,or at all; the risks related to an epidemic, pandemic, or other health crisis, such as the recent outbreak of downturnthe novel coronavirus (COVID-19); the risk of oversupply and increased competition in the markets which the Company operates; the risk of increased competition for skilled workers due to wage pressure and changes in regulatory requirements; the departure of the Company’s key officers and personnel; the cost and difficulty of complying with applicable licensure, legislative oversight, or regulatory changes; the risks associated with a decline in economic conditions generally, satisfaction of closing conditions such as those pertaining to licensure,generally; the adequacy and continued availability of the Company’s insurance at commercially reasonable rates,policies and the Company’s ability to recover any losses it sustains under such policies; changes in accounting principles and interpretations, among others,interpretations; and the other risks and factors identified from time to time in the Company’s reports filed with the SEC.
Overview
The following discussion and analysis addresses (i) the Company’s results of operations on a historical consolidated basis for the years ended December 31, 2017, 2016,2019 and 2015,2018, and (ii) liquidity and capital resources of the Company, and should be read in conjunction with the Company’s historical consolidated financial statements and the selected financial data contained elsewhere in this report.
The Company is one of the largest operators of senior housing communities in the United States. The Company’s operating strategy is to provide value to its senior living residents by providing quality senior living services at reasonable prices, while achieving and sustaining a strong, competitive position within its geographically concentrated regions, as well as continuing to enhance the performance of its operations. The Company provides senior living services to the elderly,75+ population, including independent living, assisted living, and memory care services at reasonable prices. Many of the Company’s communities offer a continuum of care to meet its residents’ needs as they change over time. This continuum of care, which integrates independent living, assisted living, and memory care, and is bridged by home care through independent home care agencies, sustains residents’ autonomy and independence based on their physical and mental abilities.
As of December 31, 2017,2019, the Company operated 129126 senior housing communities in 23 states with an aggregate capacity of approximately 16,50016,000 residents, including 8380 senior housing communities whichthat the Company owned and 46 senior housing communities that the Company leased.
Significant Financial and Operational Highlights
The Company primarily derives its revenue by providing senior living housing and services to the elderly.75+ population. When comparing fiscal 20172019 to fiscal 2016,2018, the Company generated total revenues of approximately $467.0$447.1 million compared to total revenues of approximately $447.4$460.0 million, respectively, representing an increasea decrease of approximately $19.5$12.9 million, or 4.4%2.8%. The increase in revenues primarily results from a full year of activity for the senior housing communities acquiredOur resident revenue was positively impacted by the lease-up of our two communities impacted by the aftermath of Hurricane Harvey. These communities were closed beginning in the third quarter of 2017 for physical repairs. The Company began accepting residents during the third quarter of fiscal 20162018, which resulted in an increase in revenue of approximately $15.3$3.2 million and we experienced anin our resident revenue during fiscal 2019 when compared to fiscal 2018. However, the increase in resident revenue at our same-store communities of approximately $4.3 million. The increase in revenue at our same-store communities during fiscal 2017 was negativelyfrom the two properties impacted by Hurricane Harvey which resultedwas fully offset by a
decrease in resident revenue at the full evacuation of our residents at two of our senior housingCompany’s other communities located in southeast Texas. Both of these communities are undergoing repairs and remain fully vacated which resulted in a decrease of approximately $3.5$16.1 million, which was primarily due to a 2.4% decrease in our same-store revenue during fiscal 2017. average financial occupancies.
Excluding the two senior housing communities impacted by Hurricane Harvey and the three communities sold during 2019, the weighted average financial occupancy rate for each of our consolidatedfiscal 2019 and same-store communities for the fiscal years ended December 31, 20172018 was 82.6% and 2016 was 86.8% and 87.9%85.0%, respectively. Although each of our consolidated and same-store occupancies declined, we achieved ana 0.2% increase in average monthly rental rates at our consolidated and same-store communities when comparing fiscal 20172019 to fiscal 2016 of 3.3% and 2.8%, respectively.2018. The increase in average monthly rental rates during fiscal 20172019 was primarily the result of our recent senior housing community acquisitions, annual rent increases for our existing residents and the capital improvements we have invested in our communities for unit conversions which enable us to provide a broader range of senior living services at higher levels of care.
On December 15, 2017,23, 2019, the Company completed supplementalobtained $31.5 million of mortgage financing of approximately $4.1 milliondebt from Fannie Mae atFifth Third Bank on its Autumn Glen and Cottonwood Village senior housing communities. The new mortgage loan is interest-only and has a fixedtwo-year term and an initial variable interest rate of 5.71%LIBOR plus 3.25%. The Company incurred approximately $0.6 million in deferred financing costs related to this loan, which are being amortized over the term of the loan. On the same date, the Company amended and repaid $24.5 million in principal on one community located in Oneonta, New York. The supplementalits interest-only mortgage loan is coterminous, cross-collateralizedwith BBVA USA, secured by the Company’s Cottonwood Village, Georgetowne Place, Harrison at Eagle Valley, and cross-defaulted withRose Arbor communities. As a result of the original existingamendment, BBVA USA released the Cottonwood Village assets from collateral for the mortgage debt maturing in June 2025.
On November 30, 2017,and extended the maturity date from July 11, 2020 to December 10, 2021. The Company completed supplementalhad previously exercised its option to extend such mortgage financing of approximately $3.0 millionloan from Fannie Mae at a fixed interestMay 11, 2020 to July 11, 2020. The amended mortgage has an interest-only variable rate of 5.49% on one community located in Rocky River, Ohio. The supplemental mortgage loan is coterminous, cross-collateralized and cross-defaulted withLIBOR plus 4.5%.
As mentioned above, the original existing mortgage debt maturing in January 2023.
The Company had two of its senior housing communities located in southeast Texas impacted by Hurricane Harvey during the third quarter of fiscal 2017. Both of these communities remain fully vacated and are undergoing repairs. We maintain insurance coverage on these communities which includes damage caused by flooding. The insurance claim for this incident required a deductible of $100,000 that was expensed as a component of operating expenses in the Company’s Consolidated Statement of Operations and Comprehensive Loss in the third quarter of fiscal 2017. Through December 31, 2017, wePhysical repairs have been completed to restore the communities to their condition prior to the incident and these communities reopened and began accepting residents in July 2018. We have incurred approximately $3.9$6.2 million in clean-up and physical repair costs, and we expect to incur additional repair costsalmost all of which we believe are probable of beinghave been recovered through insurance proceeds. At December 31, 2019, we expected to receive an additional $0.3 million in insurance proceeds from our carriers relating to such costs. In addition to the repairs of physical damage to the buildings, the Company’s insurance coverage includes loss of business income (“Business Interruption”). Business Interruption includes reimbursement for lost revenue as well as incremental expenses incurred as a result of the hurricane.such Hurricane. The Company received payments from our insurance underwriters during fiscal 20172019 and 2018 totaling approximately $2.7$2.5 million of which approximately $2.2and $5.1 million related to Business Interruption, through December 31, 2017,respectively, which hashave been included as a reduction to operating expenses in the Company’s Consolidated Statement of Operations and Comprehensive Loss for each respective year. Business Interruption payments ceased in fiscal 2017. Based uponaccordance with our initial assessment of the physical damages and insurance coverage, the Company currently estimates insurance proceeds will be sufficient to reimburse the Company for all damages and repair costs to fully restore the communities to their condition prior to the incident.
Effective January 31, 2017, the Company acquired the underlying real estate associated with four of the senior housing communities previously leased from Ventas, Inc. (“Ventas”) for an acquisition price of $85.0 million (the “Four Property Lease Transaction”). The Company obtained interest only, bridge financing from Berkadia Commercial Mortgage LLC (“Berkadia”) for $65.0 million of the acquisition price with an initial variable interest rate of LIBOR plus 4.0% and a 36-month term, with the balance of the acquisition price paid from the Company’s existing cash resources. For additional information refer to Note 3, “Acquisitions”, within the notes to consolidated financial statements.policy in July 2019.
Facility Leases
As of December 31, 2017,2019, the Company leased 46 senior housing communities from certain real estate investment trusts (“REITs”). The lease terms are generally for 10-15 years with renewal options for 5-20five-20 years at the Company’s option. Under these lease agreements, the Company is responsible for all operating costs, maintenance and repairs, insurance and property taxes. No new facility leases were entered into by the Company during fiscal 2017.2019.
As of December 31, 2017,2019, the Company leased 7seven senior housing communities (collectively the “Ventas Lease Agreements”) from Ventas, Inc. (“Ventas”).Ventas. Effective January 31, 2017, the Company closed the Four Property Lease Transaction and acquired from Ventas the underlying real estate associated with four of its operating leases for a total acquisition price of $85.0 million.million (the “Four Property Lease Transaction”). The Company obtained interim, interest only,interest-only, bridge financing from BerkadiaCommercial Mortgage LLC (“Berkadia”) for $65.0 million of the acquisition price with an initial variable interest rate of LIBOR plus 4.0% and a 36-month term, with an option to extend six months, and the balance of the acquisition price paid was from the Company’s existing cash resources. For additional information refer to Note 3, “Acquisitions”, within the notes to consolidated financial statements. Prior to the Four Property Lease Transaction, the Company previously leased 11 senior housing communities from Ventas.
During the second quarter of fiscal 2015, the Company executed amendments to the master lease agreements with Ventas to facilitate up to $24.5 million of leasehold improvements for 10 communities within the Ventas lease portfolio and extend the lease terms until September 30, 2025, with two five-year renewal extensions available at the Company’s option. During the second quarter of fiscal 2016, the Company executed amendments to the master lease agreements with Ventas to increase the Special Project Fundsfunds budgeted for leasehold improvements (the “Special Project Funds”) from $24.5 million to $28.5 million and extend the date for completion of the leasehold improvements to June 30, 2017. During the second quarter of fiscal 2017, the Company executed amendments to the master lease agreements with Ventas to decrease the Special Project Funds for leasehold improvements from $28.5 million to approximately $17.0 million due to the Four Property Lease Transaction and extend the date for completion of the leasehold improvements to June 30, 2018. During the second quarter of fiscal 2019, the Company executed amendments to the master lease agreements with Ventas to increase the Special Project Funds for leasehold improvements from approximately $17.0 million to approximately $20.0 million and extend the date for completion of the leasehold improvements to December 31, 2020. The initial lease rates under each of the Ventas Lease Agreements ranged from 6.75% to 8% and are subject to certain conditionalcontingent rent escalation clausesclauses. When a contingency is resolved and an escalation occurs, the amount is included within lease payments and reflected in the right-of-use “(ROU”) asset and lease liability.
On March 10, 2020, the Company entered into an agreement with Ventas, which will be recognized when probable or incurred.was subsequently amended on March 26, 2020, providing for the early termination of a Master Lease Agreement between it and Ventas covering seven communities. Pursuant to such agreement, among other things, from February 1, 2020 through December 31, 2020, the Company agreed to pay Ventas rent of approximately $1.0 million per month for such communities as compared to approximately $1.3 million per month that would otherwise have been due and payable under the Master Lease Agreements. The Company initially incurred $11.4will not be required to comply with certain financial covenants of the Master Lease Agreements during the forbearance period. In conjunction with the agreement, the Company agreed to release $3.9 million in security deposits held by Ventas. In addition, the agreement with Ventas provides for the conversion of the lease acquisition and modification costs related toagreements covering the Ventas Lease Agreements, of which a portion of these costs were written-off upon closing the Four Property Lease Transaction leaving $8.7 million in lease acquisition and modification costs associatedcommunities into property management agreements with the remaining properties. These deferred lease acquisition and modification costs are being amortized over the lease terms and are included in facility lease expense in the Company’s Consolidated Statement of Operations and Comprehensive Loss. The Company accounts for five of theon December 31, 2020 if Ventas Lease Agreements as an operating lease and two ashas not transitioned such communities to a capital lease and financing obligation.successor operator.
Healthpeak
As of December 31, 2017,2019, the Company leased 15 senior housing communities (collectively the “HCP“Healthpeak Lease Agreements”) from Healthpeak Properties, Inc., formerly HCP, Inc. (“HCP”Healthpeak”). During the fourth quarter of fiscal 2013, the Company executed an amendment to the master lease agreement with HCPHealthpeak to facilitate up to $3.3 million of leasehold improvements for one community within the HCPHealthpeak lease portfolio and extend the initial lease terms for nine communities until October 31, 2020, with two 10-year renewal extensions available at the Company’s option.2020. During the second quarter of fiscal 2015, the Company exercised its right to extend the lease term with HCPHealthpeak for the remaining six communities in the HCPHealthpeak lease portfolio until April 30, 2026, with one 10-year renewal extension available at the Company’s option.2026. The initial lease rates under the HCPHealthpeak Lease Agreements ranged from 7.25% to 8% and are subject to certain conditional escalation clauses,clauses. When a contingency is resolved and an escalation occurs, the amount is included within lease payments and reflected in the ROU asset and lease liability.
On October 22, 2019, the Company executed an amendment to the master lease agreement with Healthpeak, which will be recognized when probablewas later amended, to transition one of the Healthpeak communities to a new operator on or incurred.around January 15, 2020, and to sell the remaining eight communities as soon as possible to one or more buyers. The Company incurred $1.6 million in lease acquisition and modification costs relatedwas obligated to pay a $250,000 termination fee on the HCP Lease Agreements. These deferred lease acquisition and modification costs are being amortized over the lease terms and are included in facility lease expense in the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company accounts for eachtransition of the HCP Lease Agreements asone community to a new operator. On March 1, 2020, the Company executed an operating lease.agreement providing for the early termination of its master lease agreement with Healthpeak, previously scheduled to mature in April 2026. The master lease agreement was converted to a management agreement under a RIDEA structure pursuant to which the Company agreed to manage the six communities that was subject to such lease agreement until the communities have been sold by Healthpeak. In conjunction with the agreement, the Company agreed to release approximately $1.9 million of security deposits held by Healthpeak.
Welltower
As of December 31, 2017,2019, the Company leased 24 senior housing communities (collectively the “Welltower Lease Agreements”) from Welltower, Inc., formerly Health Care REIT, Inc. (“Welltower”). The Welltower Lease Agreements each have an initial term of 15 years, with one 15-year renewal extension available at the Company’s option.years. The initial lease rates under the Welltower Lease Agreements ranged from 7.25% to 8.5% and are subject to certain conditional escalation clauses, which will be recognized when probable or incurred. clauses. When a contingency is resolved and an escalation occurs, the amount is
included within lease payments and reflected in the ROU asset and lease liability. The initial terms on the Welltower Lease Agreements expire on various dates through from April 2025 through April 2026.
On March 15, 2020, the Company entered into an agreement with Welltower, providing for the early termination of three Master Lease Agreements between it and Welltower covering 24 communities. Pursuant to such agreement, among other things, from February 1, 2020 through December 31, 2020, the Company agreed to pay Welltower rent of approximately $2.2 million per month for such communities as compared to approximately $2.8 million per month that would otherwise have been due and payable under the Master Lease Agreements. The Company incurred $2.1will not be required to comply with certain financial covenants of the Master Lease Agreements during the forbearance period. In conjunction with the agreement, the Company agreed to release $6.5 million in lease acquisition costs related tosecurity deposits held by Welltower. In addition, the agreement with Welltower Lease Agreements. These deferred lease acquisition costs are being amortized overprovides for the conversion of the lease terms and are included in facility lease expense inagreements covering the Company’s Consolidated Statementscommunities into property management agreements with the Company on December 31, 2020, if the transition of Operations and Comprehensive Loss. The Company accounts for each of the Welltower Lease Agreements as an operating lease.such communities have not been transitioned to a successor operator.
The following table summarizes each of the Company’s facility lease agreements as of December 31, 20172019 (dollars in millions):
Landlord |
| Initial Date of Lease |
| Number of Communities |
|
| Value of Transaction |
|
| Current Expiration and Renewal Term |
| Initial Lease Rate(1) |
|
| Lease Acquisition and Modification Costs(2) |
|
| Deferred Gains / Lease Concessions(3) |
|
| Initial Date of Lease |
| Number of Communities |
|
| Value of Transaction |
|
| Current Expiration and Renewal Term |
| Initial Lease Rate (1) |
|
| Lease Acquisition and Modification Costs (2) |
|
| Deferred Gains / Lease Concessions (3) |
| ||||||||||
Ventas |
| September 30, 2005 |
|
| 4 |
|
| $ | 61.4 |
|
| September 30, 2025 (4) (Two five-year renewals) |
|
| 8 | % |
| $ | 7.7 |
|
| $ | 4.2 |
|
| September 30, 2005 |
|
| 4 |
|
| $ | 61.4 |
|
| September 30, 2025 (4) (Two five-year renewals) |
|
| 8 | % |
| $ | 7.7 |
|
| $ | 4.2 |
|
Ventas |
| January 31, 2008 |
|
| 1 |
|
|
| 5.0 |
|
| September 30, 2025 (4) (Two five-year renewals) |
|
| 7.75 | % |
|
| 0.2 |
|
|
| — |
|
| January 31, 2008 |
|
| 1 |
|
|
| 5.0 |
|
| September 30, 2025 (4) (Two five-year renewals) |
|
| 7.75 | % |
|
| 0.2 |
|
|
| — |
|
Ventas |
| June 27, 2012 |
|
| 2 |
|
|
| 43.3 |
|
| September 30, 2025 (4) (Two five-year renewals) |
|
| 6.75 | % |
|
| 0.8 |
|
|
| — |
|
| June 27, 2012 |
|
| 2 |
|
|
| 43.3 |
|
| September 30, 2025 (4) (Two five-year renewals) |
|
| 6.75 | % |
|
| 0.8 |
|
|
| — |
|
HCP |
| May 1, 2006 |
|
| 3 |
|
|
| 54.0 |
|
| October 31, 2020 (5) (Two 10-year renewals) |
|
| 8 | % |
|
| 0.3 |
|
|
| 12.8 |
| ||||||||||||||||||||||||
HCP |
| May 31, 2006 |
|
| 6 |
|
|
| 43.0 |
|
| April 30, 2026 (6) (One 10-year renewal) |
|
| 8 | % |
|
| 0.2 |
|
|
| 0.6 |
| ||||||||||||||||||||||||
HCP |
| December 1, 2006 |
|
| 4 |
|
|
| 51.0 |
|
| October 31, 2020 (5) (Two 10-year renewals) |
|
| 8 | % |
|
| 0.7 |
|
|
| — |
| ||||||||||||||||||||||||
HCP |
| December 14, 2006 |
|
| 1 |
|
|
| 18.0 |
|
| October 31, 2020 (5) (Two 10-year renewals) |
|
| 7.75 | % |
|
| 0.3 |
|
|
| — |
| ||||||||||||||||||||||||
HCP |
| April 11, 2007 |
|
| 1 |
|
|
| 8.0 |
|
| October 31, 2020 (5) (Two 10-year renewals) |
|
| 7.25 | % |
|
| 0.1 |
|
|
| — |
| ||||||||||||||||||||||||
Healthpeak |
| May 1, 2006 |
|
| 3 |
|
|
| 54.0 |
|
| October 31, 2020 (5) (Two 10-year renewals) |
|
| 8 | % |
|
| 0.3 |
|
|
| 12.8 |
| ||||||||||||||||||||||||
Healthpeak |
| May 31, 2006 |
|
| 6 |
|
|
| 43.0 |
|
| April 30, 2026 (6) (One 10-year renewal) |
|
| 8 | % |
|
| 0.2 |
|
|
| 0.6 |
| ||||||||||||||||||||||||
Healthpeak |
| December 1, 2006 |
|
| 4 |
|
|
| 51.0 |
|
| October 31, 2020 (5) (Two 10-year renewals) |
|
| 8 | % |
|
| 0.7 |
|
|
| — |
| ||||||||||||||||||||||||
Healthpeak |
| December 14, 2006 |
|
| 1 |
|
|
| 18.0 |
|
| October 31, 2020 (5) (Two 10-year renewals) |
|
| 7.75 | % |
|
| 0.3 |
|
|
| — |
| ||||||||||||||||||||||||
Healthpeak |
| April 11, 2007 |
|
| 1 |
|
|
| 8.0 |
|
| October 31, 2020 (5) (Two 10-year renewals) |
|
| 7.25 | % |
|
| 0.1 |
|
|
| — |
| ||||||||||||||||||||||||
Welltower |
| April 16, 2010 |
|
| 5 |
|
|
| 48.5 |
|
| April 30, 2025 (15 years) (One 15-year renewal) |
|
| 8.25 | % |
|
| 0.6 |
|
|
| 0.8 |
|
| April 16, 2010 |
|
| 5 |
|
|
| 48.5 |
|
| April 30, 2025 (15 years) (One 15-year renewal) |
|
| 8.25 | % |
|
| 0.6 |
|
|
| 0.8 |
|
Welltower |
| May 1, 2010 |
|
| 3 |
|
|
| 36.0 |
|
| April 30, 2025 (15 years) (One 15-year renewal) |
|
| 8.25 | % |
|
| 0.2 |
|
|
| 0.4 |
|
| May 1, 2010 |
|
| 3 |
|
|
| 36.0 |
|
| April 30, 2025 (15 years) (One 15-year renewal) |
|
| 8.25 | % |
|
| 0.2 |
|
|
| 0.4 |
|
Welltower |
| September 10, 2010 |
|
| 12 |
|
|
| 104.6 |
|
| September 30, 2025 (15 years) (One 15-year renewal) |
|
| 8.50 | % |
|
| 0.4 |
|
|
| 2.0 |
|
| September 10, 2010 |
|
| 12 |
|
|
| 104.6 |
|
| September 30, 2025 (15 years) (One 15-year renewal) |
|
| 8.50 | % |
|
| 0.4 |
|
|
| 2.0 |
|
Welltower |
| April 8, 2011 |
|
| 4 |
|
|
| 141.0 |
|
| April 30, 2026 (15 years) (One 15-year renewal) |
|
| 7.25 | % |
|
| 0.9 |
|
|
| 16.3 |
|
| April 8, 2011 |
|
| 4 |
|
|
| 141.0 |
|
| April 30, 2026 (15 years) (One 15-year renewal) |
|
| 7.25 | % |
|
| 0.9 |
|
|
| 16.3 |
|
Subtotal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 12.4 |
|
|
| 37.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 12.4 |
|
|
| 37.1 |
|
Accumulated amortization through December 31, 2017 |
|
|
|
|
|
| (7.2 | ) |
|
| — |
| ||||||||||||||||||||||||||||||||||||
Accumulated deferred gains / lease concessions recognized through December 31, 2017 |
|
|
| — |
|
|
| (24.2 | ) | |||||||||||||||||||||||||||||||||||||||
Net lease acquisition costs / deferred gains / lease concessions as of December 31, 2017 |
|
| $ | 5.2 |
|
| $ | 12.9 |
| |||||||||||||||||||||||||||||||||||||||
Accumulated amortization through December 31, 2018 | Accumulated amortization through December 31, 2018 |
|
|
|
|
|
| (7.9 | ) |
|
| — |
| |||||||||||||||||||||||||||||||||||
Accumulated deferred gains / lease concessions recognized through December 31, 2018 | Accumulated deferred gains / lease concessions recognized through December 31, 2018 |
|
|
| — |
|
|
| (26.2 | ) | ||||||||||||||||||||||||||||||||||||||
Adoption of ASC 842 | Adoption of ASC 842 |
|
|
|
|
|
| (4.5 | ) |
|
| (10.9 | ) | |||||||||||||||||||||||||||||||||||
Net lease acquisition costs / deferred gains / lease concessions as of December 31, 2019 | Net lease acquisition costs / deferred gains / lease concessions as of December 31, 2019 |
|
| $ | - |
|
| $ | - |
|
(1) | Initial lease rates are measured against agreed upon fair market values and are subject to conditional lease escalation provisions as set forth in each respective lease agreement. |
(3) |
|
(4) | Effective June 17, 2015, the Company executed amendments to the master lease agreements with Ventas to facilitate leasehold improvements for 10 of the leased communities, of which the underlying real estate associated with four of its operating leases was acquired by the Company upon closing the Four Property Lease Transaction on January 31, 2017, and extend the lease terms through September 30, 2025, with two five-year renewal extensions available at the Company’s option. |
(6) | On April 24, 2015, the Company exercised its right to extend the lease terms with |
Facility lease expense in the Company’s Consolidated Statements of Operations and Comprehensive Loss includes rent expense plus amortization expense relating to leasehold acquisition costs offset by the amortization of deferred gains and lease incentives. There are various financial covenants and other restrictions in the Company’s lease agreements. The Company was in compliance with all of its lease covenants at December 31, 20172018. With regard to its Master Lease Agreements with Ventas and 2016.Welltower, the Company was not in compliance with certain financial covenants as of December 31, 2019. In February 2020, the Company began paying Ventas and Welltower monthly rental amounts based on the estimated monthly cash flows generated by the communities in Ventas’ and Welltower’s respective portfolios, which were less than the rental amounts due and payable under the terms of the Master Lease Agreements. Although the Company has entered into forbearance agreements with Ventas and Welltower with respect to such defaults, no assurances can be given that we will be able to comply with the terms and conditions of such forbearance agreements or the other terms and conditions of the Master Lease Agreements.
On December 15, 2017,23, 2019, the Company completed supplementalobtained $31.5 million of mortgage financing of approximately $4.1 milliondebt from Fannie Mae atFifth Third Bank on its Autumn Glen and Cottonwood Village senior housing communities. The new mortgage loan is interest-only and has a fixedtwo-year term and an initial variable interest rate of 5.71%LIBOR plus 3.25%. The Company incurred approximately $0.5 million in deferred financing costs related to this loan, which are being amortized over the remaining initial loan term. On the same date, the Company amended and repaid $24.5 million in principal on one community located in Oneonta, New York. The supplementalits interest-only mortgage loan is coterminous, cross-collateralizedwith BBVA USA for the Company’s Cottonwood Village, Georgetowne Place, Harrison at Eagle Valley, and cross-defaulted withRose Arbor communities. As a result of the original existingamendment, BBVA USA released the Cottonwood Village assets from collateral for the mortgage debt maturing in June 2025.and extended the maturity date from July 11, 2020 to December 10, 2021. The Company had previously exercised its option to extend such mortgage loan from May 11, 2020 to July 11, 2020. The amended mortgage has an interest-only variable rate of LIBOR plus 4.5%.
On December 1, 2017,May 31, 2019, the Company renewed certain insurance policies and entered into atwo finance agreementagreements totaling approximately $3.5 million.$2.6 million and $2.7 million, respectively. The finance agreement hasagreements each have a fixed interest rate of 3.04%4.4%, with the principal being repaid over ana 11-month term.
On November 30, 2017, the Company completed supplemental mortgage financing of approximately $3.0 million from Fannie Mae at a fixed interest rate of 5.49% on one community located in Rocky River, Ohio. The supplemental mortgage loan is coterminous, cross-collateralized and cross-defaulted with the original existing mortgage debt maturing in January 2023.
On May 31, 2017, the Company renewed certain insurance policies and entered into a finance agreement totaling approximately $1.6 million. The finance agreement has a fixed interest rate of 2.76% with the principal being repaid over an 11-month term.
On January 31, 2017, in conjunction with the Four Property Lease Transaction, the Company obtained $65.0 million of mortgage debt from Berkadia. The new mortgage loan is interest-only and has a three-year18-month term, with an initial variable interest rate of LIBOR plus 4.00%.respectively.
The Company issued standby letters of credit with Wells Fargo Bank, (“Wells Fargo”), totaling approximately $3.9$3.4 million, for the benefit of Hartford Financial Services (“Hartford”) associated with the administration of workers compensation.compensation, which remain outstanding as of December 31, 2019.
The Company issued standby letters of credit with JPMorgan Chase Bank (“Chase”), totaling approximately $6.7$6.5 million, for the benefit of Welltower on certain leases between Welltower and the Company.Company, which remain outstanding as of December 31, 2019.
The Company issued standby letters of credit with Chase, totaling approximately $2.9 million, for the benefit of HCPHealthpeak on certain leases between HCPHealthpeak and the Company.Company, which remain outstanding as of December 31, 2019.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements and related notes. Management bases its estimates and assumptions on historical experience, observance of industry trends and various other sources of information and factors, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially could result in materially different results under different assumptions and conditions. The Company believes the following are our most critical accounting policies and/or typically require management’s most difficult, subjective and complex judgments.
Resident revenue consists of fees for basic housing and certain support services and fees associated with additional housing and expanded support requirements such as assisted living care, memory care, and ancillary services. Basic housing and certain support services revenue is recognized at estimated net realizablerecorded when services are rendered and amounts based on historical experiences, billed are due from residents in the period toin which the rental and other services are provided. Additionally, substantially allResidency agreements are generally short-term in nature with durations of one year or less and are typically terminable by either party, under certain circumstances, upon providing 30 days’ notice, unless state law provides otherwise, with resident fees billed monthly in advance. Revenue for certain ancillary services is recognized as services are provided, and includes fees for services such as medication management, daily living activities, beautician/barber, laundry, television, guest meals, pets, and parking, which are generally billed monthly in arrears.
The Company's senior housing communities have residency agreements that generally require the resident to pay a community fees received from residents are non-refundable fee prior to moving into the community and are recorded initially by the Company as deferred revenue. The deferred amounts are amortized over the respective residents’ initial lease term, which is consistent with the contractual obligation associated with the estimated stay of the resident.
Revenues from the Medicaid program accounted for approximately 5.6%5.9% of the Company’s revenue in fiscal 2017, 5.5%2019 and 5.4% of the Company’s revenue in fiscal 2016, and 4.6% of the Company’s revenue in fiscal 2015.2018. During fiscal 2017, 2016,2019 and 2015,2018, 41 40, and 34,40, respectively, of the Company’s communities were providers of services under Medicaid programs. Accordingly, these communities were entitled to reimbursement under the foregoing program at established rates that were lower than private pay rates. Patient service revenue for Medicaid patients was recorded at the reimbursement rates as the rates were set prospectively by the applicable state upon the filing of an annual cost report. None of the Company’s communities were providers of services under the Medicare program during fiscal 2017, 2016,2019 or 2015.2018.
Laws and regulations governing the Medicaid program are complex and subject to interpretation. The Company believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing. While no such regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from the Medicaid program.
Purchase Accounting
In determining the allocation of the purchase price of senior housing communities acquired to net tangible and identified intangible assets acquired and liabilities assumed, if any, the Company makes estimates of fair value using information obtained as a result of pre-acquisition due diligence, leasing activities and/or independent appraisals. The Company assigns the purchase price for senior living communities to assets acquired and liabilities assumed based on their estimated fair values which are determined in accordance with the provisions of ASC 805, Business Combinations. The determination of fair value involves the use of significant judgments and estimates which is generally assessed as follows:
The Company allocates the fair values of buildings acquired on an as-if-vacant basis and depreciates the building values over the estimated remaining lives of the buildings, not to exceed 40 years. The Company determines the allocated values of other fixed assets, such as site improvements and furniture, fixtures and equipment, based upon the replacement cost and depreciates such values over the assets’ estimated remaining useful lives as determined at the acquisition date. The Company determines the value of land by considering the sales prices of similar properties in recent transactions.
The fair value of acquired lease-related intangibles reflects the estimated fair value of existing resident in-place leases as represented by the cost to obtain residents and an estimated absorption period to reflect the value of the rent and recovery costs foregone during a reasonable lease-up period as if the property acquired was vacant. The Company amortizes any acquired resident in-place lease intangibles to depreciation and amortization expense over the estimated remaining useful life of the respective resident operating leases.
Credit Risk and Allowance for Doubtful Accounts
The Company’s resident receivables are generally due within 30 days from the date billed. Accounts receivable are reported net of an allowance for doubtful accounts of $4.9$8.6 million and $4.3$6.8 million at December 31, 20172019 and 2016,2018, respectively, and represent the Company’s estimate of the amount that ultimately will be collected. The adequacy of the Company’s allowance for doubtful accounts is reviewed on an ongoing basis, using historical payment trends, write-off experience, analyses of receivable portfolios by payor source and aging of receivables, as well as a review of specific accounts, and adjustments are made to the allowance as necessary. Credit losses on resident receivables have historically been within management’s estimates, and management believes that the allowance for doubtful accounts adequately provides for expected losses.
Off-Balance Sheet Arrangements
The Company had no material off-balance sheet arrangements at December 31, 2017.2019 or 2018.
Lease Accounting
The Company determines whether to account for its leases as operating, capital or financing leases depending on the underlying terms of each lease agreement. This determination of classification requires significant judgment relating to certain information, including the estimated fair value and remaining economic life of the community, the Company’s cost of funds, minimum lease payments and other lease terms. The lease rates under the Company’s lease agreements are subject to certain conditional escalation clauses which are recognized when probable or incurred and are based on changes in the consumer price index or certain operational performance measures. As of December 31, 2017 and 2016,Effective January 1, 2019, the Company leased 46 and 50 communities, respectively, twoadopted the new lease standard provisions of whichASC 842. Due to the Company classified as capital lease and financing obligations withadoption of ASC 842, the remaining classified as operating leases. The Company incursunamortized balances of lease acquisition costs and amortizes these costs over the termlease incentives were reclassified as a component of the respective operating lease agreement. Certain leases entered into byright-of-use asset. Additionally, the Company qualified as sale/leaseback transactions, and as such, any related gains have been deferred and are being amortized over the respective lease term. No new communities were leased by the Company during fiscal 2017 or 2016. Effective January 31, 2017, the Company acquired from Ventas the underlying real estate associated with four of its operating leases. For additional information refer to Note 3, “Acquisitions”, within the notes to consolidated financial statements.
Facility lease expense in the Company’s Consolidated Statements of Operations and Comprehensive loss includes rent expense plus amortization expense relating to leasehold acquisition costs offset by the amortizationunamortized balance of deferred gains associated with sale leaseback transactions totaling approximately $10.0 million was written-off to retained deficit.
Management determines if a contract is or contains a lease at the inception or modification of such contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of the identified asset means the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.
Operating lease incentives.right-of-use assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term on the lease commencement date. When the implicit lease rate is not determinable, management uses the Company’s incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future minimum lease payments. The expected lease terms include options to extend or terminate the lease when it is reasonably certain the Company will exercise such options. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease terms.
Employee HealthFinancing lease right-of-use assets are recognized within property, plant and Dental Benefits, Workers’ Compensation,equipment and Insurance Reservesleasehold improvements, net on the Company's consolidated balance sheets. The Company recognizes interest expense on the financing lease liabilities utilizing the effective interest method. The right-of-use asset is generally amortized to depreciation and amortization expense on a straight-line basis over the lease term.
Certain of the Company’s lease arrangements have lease and non-lease components. The Company accounts for the lease components and non-lease components as a single lease component for all classes of underlying assets. Leases with an expected lease term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the expected lease term.
Self-Insurance Liability Accruals
The Company offers certain full-time employees an option to participate in its health and dental plans. The Company is self-insured up to certain limits and is insured if claims in excess of these limits are incurred. The cost of employee health and dental benefits, net of employee contributions, is shared between the corporate office and the senior housing communities based on the respective number of plan participants. Funds collected are used to pay the actual program costs including estimated annual claims, third-party administrative fees, network provider fees, communication costs, and other related administrative costs incurred by the plans. Claims are paid as they are submitted to the Company’s third-party administrator. The Company records a liability for outstanding claims and claims that have been incurred but not yet reported. This liability is based on the historical claim reporting lag and payment trends of health insurance claims. Management believes that the liability for outstanding losses and expenses is adequate to cover the ultimate cost of losses and expenses incurred at December 31, 2017;2019; however, actual claims and expenses may differ. Any subsequent changes in estimates are recorded in the period in which they are determined.
The Company uses a combination of insurance and self-insurance for workers’ compensation. Determining the reserve for workers’ compensation losses and costs that the Company has incurred as of the end of a reporting period involves significant judgments based on projected future events, including potential settlements for pending claims, known incidents which maythat result in claims, estimates of incurred but not yet reported claims, changes in insurance premiums, estimated litigation costs and other factors. The Company regularly adjusts these estimates to reflect changes in the foregoing factors. However, since this reserve is based on estimates, the actual expenses incurred may differ from the amounts reserved. Any subsequent changes in estimates are recorded in the period in which they are determined.
Long-Lived Assets and Impairment
Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful lives of the assets. At each balance sheet date, the Company reviews the carrying value of its property and equipment to determine if facts and circumstances suggest that theyindicate the carrying amount of an asset group may not be impairedrecoverable or that the depreciation period may need to be changed. The Company considers internal factors such as net operating losses along with external factors relating to each asset, including contract changes, local market developments, and other publicly available information. information to determine whether impairment indicators exist.
If an indicator of impairment is identified, the carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flows from such asset is separately identifiable and is less than its carrying value. InRecoverability of an asset group is assessed by comparing its carrying amount to the estimated future undiscounted net cash flows expected to be generated by the asset group through operation or disposition, calculated utilizing the lowest level of identifiable cash flows. If this comparison indicates that event, a lossthe carrying amount of an asset group is recognizednot recoverable, we are required to recognize an impairment loss. The Company determines the fair value of operating lease ROU assets by comparing the contractual rent payments to estimated market rental rates. Long-lived ROU and fixed assets are valued at fair value using inputs classified as Level 3 in the fair value hierarchy, which are unobservable inputs based on the amountCompany’s assumptions. Impairment, if any, is recorded in the carrying value exceedsperiod in which the fair market value, generally based on discounted cashimpairment occurred.
flows, of the long-lived asset. The Company does not believe there are anyFor property and equipment where indicators of impairment that would require anwere identified, tests of recoverability were performed at December 31, 2019 and 2018. The Company recorded impairment charges of $1.6 million and $1.4 million related to fixed assets and lease ROU assets, respectively, related to the Company’s property located in Boca Raton, Florida, which transferred to a new operator subsequent to (see Note 18, Subsequent Events, for discussion of the property’s transition) December 31, 2019. The Company has concluded its property and equipment was recoverable and did not warrant adjustment to the carrying value of the property and equipment or their remaining useful lives as of December 31, 2017 and 2016.2018.
Income taxes are computed using the asset and liability method and current income taxes are recorded based on amounts refundable or payable in the current year.payable. Deferred income taxes are recorded based on the estimated future tax effects of loss
carryforwards and temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in the years in which we expect those carryforwards and temporary differences to be recovered or settled. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income. Based upon this evaluation, a valuation allowance has been recorded to reduce the Company’s net deferred tax assets to the amount that is more likely than not to be realized. However, in the event that we were to determine that it would be more likely than not that the Company would realize the benefit of deferred tax assets in the future in excess of their net recorded amounts, adjustments to deferred tax assets would increase net income in the period we made such a determination. The benefits of the net deferred tax assets might not be realized if actual results differ from expectations. The effective tax rates for fiscal 20172019 and 20162018 differ from the statutorytax rates due to state income taxes, permanent tax differences, and changes in the deferred tax asset valuation allowance. The effective tax rate for fiscal 2017 differs from the statutory tax rate primarily due to state income taxes, changes in the deferred tax asset valuation allowance, tax reform impact on deferred income taxes, adoption of ASU 2016-09, and other permanent tax differences. The Company is impacted by the Texas Margin Tax (“TMT”), which effectively imposes tax on modified gross revenues for communities within the State of Texas. During each of fiscal 20172019, 2018, and 2016,2017, the Company consolidated 38 Texas communities and the TMT increased the overall provision for income taxes.
The Company evaluates uncertain tax positions through consideration of accounting and reporting guidance on criteria, measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial-statement comparability among different companies. The Company is required to recognize a tax benefit in its financial statements for an uncertain tax position only if management’s assessment is that its position is “more likely than not” (i.e., a greater than 50 percent likelihood) to be upheld on audit based only on the technical merits of the tax position. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as income tax expense. The Company is generally no longer subject to federal and state income tax audits for years prior to 2014.2016.
Recently Issued Accounting Guidance
In January 2017,August 2018, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting Standards Update (“ASU”) 2017-01, ASU No. 2018-13, Business Combinations – ClarifyingFair Value Measurement (Topic 820), which modifies certain disclosure requirements in Topic 820, such as the Definitionremoval of a Business. ASU 2017-01 provides guidance in accountingthe need to disclose the amount of and reason for business combinations when determining if the transaction represents acquisitions or disposals of assets or of a business. Under ASU 2017-01, when determining whether an integrated set of assetstransfers between Level 1 and activities constitutes a business, entities must compare the fair value of gross assets acquired to the fair value of a single identifiable asset or group of similar identifiable assets. If substantially allLevel 2 of the fair value of the gross assets acquired (or disposed of) is concentrated in the single identifiable assets or group of similar identifiable assets, the integrated set of assetshierarchy, and activities is not characterized as a business.several changes related to Level 3 fair value measurements. ASU 2017-01 is applied prospectively and2018-13 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early application is permitted. Management2019. The Company does not expect the adoption of ASU 2017-012018-13 to have a material impact on the Company’sits consolidated financial position, results of operations or cash flows.statements.
In NovemberJune 2016, the FASB issued ASU 2016-18, 2016-13,Statement Financial Instruments - Credit Losses: Measurement of Cash Flows (Topic 230): Restricted Cash (a consensusCredit Losses on Financial Instruments. Current U.S. generally accepted accounting principles (“GAAP”) require an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. ASU 2016-13 replaces the current incurred loss methodology for credit losses and removes the thresholds that companies apply to measure credit losses on financial statements measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities with a methodology that reflects expected credit losses and requires consideration of the FASB Emerging Issues Task Force).a broader range of reasonable and supportable information to form credit loss estimates. For smaller reporting companies, ASU 2016-18 requires an entity to include in its cash and cash-equivalent balances in the statement of cash flows those amounts that are deemed to be restricted cash and restricted cash equivalents. ASU 2016-182016-13 is effective for fiscal years and for interim and annual reporting periods within those fiscal years beginning after December 15, 2017. Management does not expect2022. The Company is currently evaluating the impact the adoption of ASU 2016-18 to2016-13 will have a material impact on the Company’s cash flows.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 amends the guidance in Accounting Standards Codification (“ASC”) 230, which often requires judgment to determine the appropriate classification of cash flows as operating, investing or financing activities and has resulted in diversity in practice in how certain cash receipts and cash payments are classified. ASU 2016-15 is effective for interim and annual reporting periods beginning after December 15, 2017 and should be applied on a retrospective basis. Management does not expect the adoption of ASU 2016-15 to have a material impact on the Company’s cash flows.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-based Payment Accounting. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in ASU 2016-09 are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted the provisions of ASU 2016-09 on January 1, 2017, and incorporated the provisions of this update into its consolidated financial statements upon adoption. Upon adoption, the Company elected to change its accounting policy to account for forfeitures as they occur. This change was applied on a modified retrospective basis with a cumulative effect adjustment to retained earnings of $0.2 million. Additionally, the adoption of ASU 2016-09 resulted in the Company recording an adjustment of $5.3 million, which resulted in an increase to the Company’s deferred tax asset valuation allowance, to recognize net operating loss carryforwards attributable to excess tax benefits on stock compensation that had not been previously recognized to additional paid in capital. Excess tax benefits for share-based payments are now included in net operating activities rather than net financing activities within the Company’s Consolidated Statements of Cash Flows. As a result of the adoption of ASU 2016-09, these reporting changes have been applied prospectively and prior periods have not been adjusted.disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 will be effective beginning in 2019. Early adoption of ASU 2016-02 as of its issuance is permitted. The new leaseslease standard requires lessees to recognize on the balance sheet a modified retrospective transition approach for all leases existing at, or entered into after,liability to make lease payments and a right-of-use asset representing the date of initial application, with an optionright to use certain transition relief. The Company is currently evaluating the impact of adoptingunderlying asset for the new leases standard on the Company’s consolidated financial statements.
In May 2014,lease term. Additionally, in July 2018, the FASB issued ASU 2014-09,2018-11, Revenue from ContractsLeases, Targeted Improvements, which provided entities with Customers. ASU 2014-09 affects any entity that either enters into contracts with customersa transition method option to transfer goods or services or enters into contracts fornot restate comparative periods presented, but to recognize a cumulative effect adjustment to beginning retained earnings in the transferperiod of nonfinancial assets. Under ASU 2014-09, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. ASU 2014-09 is effective for annual periods beginning after December 15, 2017.adoption. The Company has evaluatedadopted the impactnew lease standard on January 1, 2019, forgoing comparative reporting using the modified retrospective adoption method, the simplified transition method available pursuant to the standard. This allowed the Company to continue to apply the legacy
accounting guidance under ASC 840, including its disclosure requirements, in the comparative periods presented in the year of ASU 2014-09 will haveadoption. The Company elected to utilize certain practical expedients permitted under the transition guidance within the new standard, which allowed the Company to carryforward the historical lease classification, not separate the lease and non-lease components for all classes of underlying assets in which it is the lessee, not reassess initial direct costs for existing leases, and make an accounting policy election not to account for leases with an initial term of 12 months or less on the balance sheet. Adoption of the lease standards by the Company initially resulted in the recording of operating lease right-of-use assets of $255.4 million and operating lease liabilities of $289.5 million on the Company’s consolidated financial statementsConsolidated Balance Sheet as of January 1, 2019. The difference between amounts recorded for the operating lease right-of-use assets and disclosures. Based on our assessment, we dooperating lease liabilities is due to net reductions for the reclassification of certain deferred lease costs and lease incentives of $16.3 million and impairment write-down adjustments of $17.8 million recorded to retained deficit. The fair value of the right-of-use assets was estimated, using level 3 inputs as defined in the accounting standards codification, utilizing a discounted cash flow approach based upon historical and projected cash flows and market data, including management fees and a market supported lease coverage ratio. The estimated future cash flows were discounted at a rate that is consistent with a weighted average cost of capital from a market participant perspective. The adoption of the lease standard did not believe it will have a significantmaterial impact on the consolidated cash flows of the Company and had no impact on the Company’s consolidated financial statements. covenant compliance under its current debt and lease agreements. See additional discussion at “Note 16 – Leases.”
The Company is planningadoption of ASC 842 resulted in the following adjustments to adopt the standard under the modified retrospective adoption.Company’s Consolidated Balance Sheet at January 1, 2019:
Assets |
|
|
|
Prepaid expenses and other |
| $ | (2,050) |
Property and equipment, net |
|
| (15,569) |
Operating lease right-of-use assets, net |
|
| 255,386 |
Other assets, net |
|
| (4,715) |
Total assets |
| $ | 233,052 |
Liabilities and Shareholders’ Equity |
|
|
|
Deferred income |
| $ | (17,498) |
Financing obligations |
|
| (35,956) |
Operating lease liabilities |
|
| 289,513 |
Other long-term liabilities |
|
| (15,643) |
Total liabilities |
| $ | 220,416 |
Total shareholders’ equity |
| $ | 12,636 |
The following tables set forth, for the periods indicated, selected historical Consolidated Statements of Operations and Comprehensive Loss data in thousands of dollars and expressed as a percentage of total revenues.
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| Year Ended December 31, |
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Revenues: |
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|
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|
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|
|
Resident revenue |
| $ | 466,997 |
|
|
| 100.0 | % |
| $ | 447,448 |
|
|
| 100.0 | % |
| $ | 412,177 |
|
|
| 100.0 | % |
| $ | 447,100 |
|
|
| 100.0 | % |
| $ | 460,018 |
|
|
| 100.0 | % |
Expenses: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (exclusive of facility lease expense and depreciation and amortization expense shown below) |
|
| 290,662 |
|
|
| 62.2 |
|
|
| 273,899 |
|
|
| 61.2 |
|
|
| 248,736 |
|
|
| 60.3 |
|
|
| 306,786 |
|
|
| 68.6 |
|
|
| 294,661 |
|
|
| 64.1 |
|
General and administrative expenses |
|
| 23,574 |
|
|
| 5.0 |
|
|
| 23,671 |
|
|
| 5.3 |
|
|
| 20,351 |
|
|
| 4.9 |
|
|
| 27,518 |
|
|
| 6.2 |
|
|
| 26,961 |
|
|
| 5.9 |
|
Facility lease expense |
|
| 56,432 |
|
|
| 12.1 |
|
|
| 61,718 |
|
|
| 13.8 |
|
|
| 61,213 |
|
|
| 14.9 |
|
|
| 57,021 |
|
|
| 12.8 |
|
|
| 56,551 |
|
|
| 12.3 |
|
Loss on facility lease termination |
|
| 12,858 |
|
|
| 2.8 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||
Provision for bad debts |
|
| 1,748 |
|
|
| 0.4 |
|
|
| 1,727 |
|
|
| 0.4 |
|
|
| 1,192 |
|
|
| 0.3 |
|
|
| 3,765 |
|
|
| 0.8 |
|
|
| 2,990 |
|
|
| 0.7 |
|
Stock-based compensation expense |
|
| 7,682 |
|
|
| 1.6 |
|
|
| 11,645 |
|
|
| 2.6 |
|
|
| 8,833 |
|
|
| 2.1 |
|
|
| 2,509 |
|
|
| 0.6 |
|
|
| 8,428 |
|
|
| 1.6 |
|
Depreciation and amortization expense |
|
| 66,199 |
|
|
| 14.2 |
|
|
| 60,398 |
|
|
| 13.5 |
|
|
| 53,017 |
|
|
| 12.9 |
|
|
| 64,190 |
|
|
| 14.4 |
|
|
| 62,824 |
|
|
| 13.7 |
|
Total expenses |
|
| 459,155 |
|
|
| 98.3 |
|
|
| 433,058 |
|
|
| 96.8 |
|
|
| 393,342 |
|
|
| 95.4 |
|
|
| 461,789 |
|
|
| 103.3 |
|
|
| 452,415 |
|
|
| 98.3 |
|
Income from operations |
|
| 7,842 |
|
|
| 1.7 |
|
|
| 14,390 |
|
|
| 3.2 |
|
|
| 18,835 |
|
|
| 4.6 |
| ||||||||||||||||
Income (Loss) from operations |
|
| (14,689 | ) |
|
| (3.3 | ) |
|
| 7,603 |
|
|
| 1.7 |
| ||||||||||||||||||||||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 73 |
|
|
| 0.0 |
|
|
| 67 |
|
|
| 0.0 |
|
|
| 53 |
|
|
| 0.0 |
|
|
| 221 |
|
|
| — |
|
|
| 165 |
|
|
| — |
|
Interest expense |
|
| (49,471 | ) |
|
| (10.6 | ) |
|
| (42,207 | ) |
|
| (9.4 | ) |
|
| (35,732 | ) |
|
| (8.7 | ) |
|
| (49,802 | ) |
|
| (11.1 | ) |
|
| (50,543 | ) |
|
| (11.0 | ) |
Write-off of deferred loan costs and prepayment premium |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,766 | ) |
|
| (0.7 | ) | ||||||||||||||||
(Loss) Gain on disposition of assets, net |
|
| (123 | ) |
|
| (0.0 | ) |
|
| (65 | ) |
|
| (0.0 | ) |
|
| 6,225 |
|
|
| 1.5 |
| ||||||||||||||||
Write-off of deferred loan costs and prepayment premiums |
|
| (4,843 | ) |
|
| (1.1 | ) |
|
| (12,623 | ) |
|
| (2.7 | ) | ||||||||||||||||||||||||
Long-lived asset impairment |
|
| (3,004 | ) |
|
| (0.7 | ) |
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Gain (Loss) on disposition of assets, net |
|
| 36,528 |
|
|
| 8.2 |
|
|
| 28 |
|
|
| — |
| ||||||||||||||||||||||||
Other income |
|
| 7 |
|
|
| 0.0 |
|
|
| 233 |
|
|
| 0.0 |
|
|
| 1 |
|
|
| 0.0 |
|
|
| 7 |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
Loss before provision for income taxes |
|
| (41,672 | ) |
|
| (8.9 | ) |
|
| (27,582 | ) |
|
| (6.2 | ) |
|
| (13,384 | ) |
|
| (3.3 | ) | ||||||||||||||||
Provision for income taxes |
|
| (2,496 | ) |
|
| (0.5 | ) |
|
| (435 | ) |
|
| (0.1 | ) |
|
| (900 | ) |
|
| (0.2 | ) | ||||||||||||||||
Loss before benefit (provision) for income taxes |
|
| (35,582 | ) |
|
| (8.0 | ) |
|
| (55,367 | ) |
|
| (12.0 | ) | ||||||||||||||||||||||||
Benefit (Provision) for income taxes |
|
| (448 | ) |
|
| (0.1 | ) |
|
| 1,771 |
|
|
| 0.4 |
| ||||||||||||||||||||||||
Net loss and comprehensive loss |
| $ | (44,168 | ) |
|
| (9.4 | )% |
| $ | (28,017 | ) |
|
| (6.3 | )% |
| $ | (14,284 | ) |
|
| (3.5 | )% |
| $ | (36,030 | ) |
|
| (8.1 | )% |
| $ | (53,596 | ) |
|
| (11.6 | )% |
Year Ended December 31, 20172019 Compared to the Year Ended December 31, 20162018
Revenues
Resident revenue was $467.0$447.1 million for the year ended December 31, 2017,2019, compared to $447.4$460.0 million for the year ended December 31, 2016,2018, representing a decrease of $12.9 million, or 2.8%. Our resident revenue was positively impacted by the lease-up of our two communities impacted by the aftermath of Hurricane Harvey. These communities were closed beginning in the third quarter of 2017 for repairs. The Company began accepting residents once repairs were completed during the third quarter of 2018, which resulted in an increase of approximately $3.2 million in our resident revenue during fiscal 2019 when compared to fiscal 2018. However, the increase in resident revenue from the two properties impacted by Hurricane Harvey was fully offset by a net decrease in resident revenue at the Company’s other communities of approximately $16.1 million, which was primarily due to a 240 basis points decrease in average financial occupancies.
Expenses
Total expenses were $461.8 million during fiscal 2019 compared to $452.4 million during fiscal 2018, representing an increase of $19.5$9.4 million, or 4.4%. The increase in resident revenue primarily results from an increase of $15.3 million from a full year of activity for the senior housing communities acquired by the Company during fiscal 2016 and an increase of $4.3 million due to a 2.8% increase in average monthly rental rates at the Company’s same-store communities which was primarily the result of annual rent increases for our existing residents and recent capital improvements we have invested in our communities for unit conversions which enable us to provide a broader range of senior living services at higher levels of care. The increase in resident revenue at our same-store communities was negatively impacted by Hurricane Harvey which resulted in the full evacuation of our residents at two of our communities located in southeast Texas. Both of these communities are undergoing repairs and remain fully vacated which resulted in a decrease in our same-store resident revenue of approximately $3.5 million.
Total expenses were $459.2 million during fiscal 2017 compared to $433.1 million during fiscal 2016, representing an increase of $26.1 million, or 6.0%2.1%. This increase is primarily the result of a $16.8$12.1 million increase in operating expenses, a $12.9$0.6 million loss onincrease in general and administrative expenses, a $0.8 million increase in bad debt expense due to an increase in the Medicaid-related bad debt reserve, a $0.5 million increase in facility lease termination,costs due to lease escalations, and a $5.8$1.4 million increase in depreciation and amortization expense, slightlypartially offset by a $5.3 million decrease in facility lease expense and a $4.0$5.9 million decrease in stock-based compensation expense.
fiscal 2019 related to Business Interruption for two communities located in southeast Texas that were impacted by Hurricane Harvey, an increase of $4.5 million due to increased wages and benefits to employees for annual merit increases and incremental costs, including increased contract labor expense needed to supplement and maintain current staffing levels in a competitive labor market, an increase of $1.3 million in promotion and marketing costs, an increase of $0.8 million in service contracts costs, and an increase of $0.7 million in repairs and maintenance expenses, and a $0.7 million increase in supplies expenses. |
The $0.6 million increase in general and administrative expenses primarily results from ana $1.1 million increase of $11.6 million from a full year of activity for the senior housing communities acquired by the Company during fiscal 2016in labor-related costs primarily attributable to employee incentive compensation and an increase of $5.2 million at the Company’s same-store communities primarily due to increased wages and benefits to employees for annual merit increases, and incremental costs, including increased labor costs for additional staffing required for newly licensed memory care and assisted living units, to support changesan increase of $0.7 million in occupancy with more of our residents at higher levels of care. Thetravel-related expenses, a $0.1 million net increase in operatingother expenses, at our same-store communities included a reduction of $2.2 million for insurance proceeds the Company received to cover Business Interruption through December 31, 2017, for the period the two communities located in southeast Texas were unoccupiedincluding consulting and contract labor, due to Hurricane Harvey.the need to supplement and maintain current staffing levels in an increasingly competitive labor market, partially offset by a decrease of $1.3 million in separation, placement and retention costs. Travel expenditure increases were due to the new members of the Company’s corporate operations and marketing leadership team providing hands-on leadership directly to our communities, and the creation of peer review teams in the second quarter of 2019 that provide constructive feedback and best practice recommendations across our communities.
The $12.9$1.4 million loss on facility lease termination is due to the Four Property Lease Transaction that closed on January 31, 2017, whereby the Company acquired the underlying real estate associated with four of the senior housing communities previously leased from Ventas. For additional information, refer to Note 3, “Acquisitions”, within the notes to consolidated financial statements.
The increase in depreciation and amortization expense primarily results from an increase of $3.4 million from a full year of activity for the senior housing communities acquired by the Company during fiscal 2016 and an increase of $8.7 million due to an increase in depreciable assets at the Company’s same-store communities partially offset by a decrease in in-place lease amortization of $6.3 millionresulting from senior housing communities acquired by the Company prior to fiscal 2016.ongoing capital improvements and refurbishments.
The decrease in facility lease expense primarily results from the Four Property Lease Transaction that closed on January 31, 2017.
The$5.9 million decrease in stock-based compensation expense results fromis primarily attributable to the accelerated vestingretirement of the Company’s former CEO and separation of the Company’s former COO, which resulted in the cancellation of their unvested restricted stock awards for severance benefitsin the first quarter of 2019. Additionally, the Company concluded performance metrics associated with the passing of the Company’s Chief Operating Officer in the fourth quarter of fiscal 2016, the Company granting fewer shares ofcertain performance-based restricted stock to certain employeesawards were no longer probable of the Company during fiscal 2017.achievement, which resulted in remeasurement adjustments.
Other income and expenseexpense.
Interest income generally reflects interest earned on the investment of cash balances and escrowed funds or interest associated with certain income tax refunds or property tax settlements.
InterestThe $3.0 million increase in impairment expense increased $7.3 million in fiscal 2017 when compared to fiscal 2016 primarily due to an increase of $2.0 million from a full year of activity for the additional mortgage debt associated with the senior housing communities acquired by the Company during fiscal 2016 and an increase of $5.2 million at the Company’s same-store communitieswas due to the Four Property Lease TransactionCompany recording $1.6 million and $1.4 million in impairment expense related to fixed assets and the ROU lease asset, respectively, of a leased property located in Boca Raton, Florida, that closed on January 31, 2017, additional mortgage debt for supplemental loans obtained by the Company during fiscal 2017, andtransferred to a full year of activity for certain refinancings and supplemental loans obtained by the Company during fiscal 2016.
Other income in fiscal 2016 represents payments received by the Company associated with certain legal settlements.new operator subsequent to year-end.
ProvisionBenefit (Provision) for income taxes
ProvisionThe provision for income taxes for fiscal 20172019 was $2.5$(0.4) million, or 6.0%(0.1%) of loss before income taxes,revenues, compared to a provisionbenefit for income taxes of $0.4$1.8 million, or 1.6%0.4% of loss before income taxes,revenues, for fiscal 2016.2018. The effective tax rates for fiscal 20172019 and 20162018 differ from the statutory tax rates due to state income taxes, permanent tax differences, and changes in the deferred tax asset valuation allowance. The Company is impacted by the Texas Margin Tax (“TMT”),TMT, which effectively imposes tax on modified gross revenues for communities within the State of Texas. During each of fiscal 20172019 and 2016,2018, the Company consolidated 38 Texas communities and the TMT increased the overall provision for income taxes. The increasevariation in provisionbenefit (provision) for income taxes forfrom fiscal 20172019 to fiscal 2018 was attributable to an increasethe Company electing real property trade or business under Section 163(j)(7)(B) of $0.2 million for higher state income taxes with the remaining $1.9 million dueInternal Revenue code to recent tax legislation changes associated withopt out of the Tax Cuts and Jobs Act (“TCJA”), which was enacted on December 22, 2017. interest expense limitation
Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income. Based upon this evaluation, adjustments to the deferred tax asset valuation allowance of $5.9$4.4 million and $8.6$9.5 million were recorded during fiscal 20172019 and 2016,2018, respectively, to reduce the Company’s net deferred tax assets to the amount that is more likely than not to be realized. Of the $4.4 million adjustment to the valuation allowance during fiscal 2019, a $3.0 million decrease in the valuation allowance was the result of the retained earnings impact related to the adoption of ASC 842 and a $7.4 million increase to the valuation allowance was due to current year activity.
Net loss and comprehensive loss
As a result of the foregoing factors, the Company reported net loss and comprehensive loss of $(44.2 million) for the fiscal year ended December 31, 2017, compared to net loss and comprehensive loss of $(28.0 million) for the fiscal year ended December 31, 2016.
Year Ended December 31, 2016 Compared to the Year Ended December 31, 2015
Revenues
Resident revenue was $447.4$36.0 million for the fiscal year ended December 31, 2016, compared to $412.22019 and net loss and comprehensive loss of $53.6 million for the fiscal year ended December 31, 2015, representing an increase of $35.3 million, or 8.6%. The increase in resident revenue primarily results from an increase of $31.0 million from the senior housing communities acquired by the Company during fiscal 2016 and a full year of activity for the senior housing communities acquired by the Company during fiscal 2015 and an increase of $6.8 million due to a 2.0% increase in average monthly rental rates at the Company’s same-store communities, slightly offset by a decrease of $2.6 million due to the Company’s sale of one of its senior housing communities located in Wichita, Kansas, (the “Sedgwick Sale Transaction”) and the Company’s sale of four senior housing communities located in Oklahoma City, Oklahoma, Shreveport, Louisiana, Southfield, Michigan, and Winston-Salem, North Carolina (the “Four Property Sale Transaction”), each of which closed in fiscal 2015.
Expenses
Total expenses were $433.1 million during fiscal 2016 compared to $393.3 million during fiscal 2015, representing an increase of $39.7 million, or 10.1%. This increase in expenses is primarily the result of a $25.2 million increase in operating expenses, a $7.4 million increase in depreciation and amortization expense, a $3.3 million increase in general and administrative expenses, a $2.8 million increase in stock-based compensation expense, a $0.5 million increase in provision for bad debts, and a $0.5 million increase in facility lease expense.
The increase in operating expenses primarily results from an increase of $21.2 million from the senior housing communities acquired by the Company during fiscal 2016, a full year of activity for the senior housing communities acquired by the Company during fiscal 2015, and an increase of $6.0 million at the Company’s same-store communities primarily due to increased wages and benefits to employees for annual merit increases as well as the incremental costs to support changes in occupancy mix with more of our residents at higher levels of care, partially offset by a decrease of $2.0 million due to the Sedgwick Sale Transaction and Four Property Sale Transaction each of which closed in fiscal 2015.
The increase in general and administrative expenses primarily results from an increase of $1.8 million in employee insurance benefits and claims paid, which resulted in higher health insurance costs to the Company, an increase of $1.1 million for severance benefits associated with the passing of the Company’s Chief Operating Officer in the fourth quarter of fiscal 2016, and an increase of $0.4 million in wages and benefits for existing employee annual merit increases and additional employees hired during fiscal 2016.
The increase in stock-based compensation expense results from the accelerated vesting of restricted stock awards for severance benefits associated with the passing of the Company’s Chief Operating Officer in the fourth quarter of fiscal 2016, the Company granting additional shares of restricted stock and restricted stock units to certain employees and directors of the Company during fiscal 2016, some of which required accelerated expense recognition, and a full year of amortization for restricted stock awards and units granted during fiscal 2015.
The increase in facility lease expense primarily results from contingent annual rental rate escalations for certain existing facility leases.
Other income and expense
Interest income generally reflects interest earned on the investment of cash balances and escrowed funds or interest associated with certain income tax refunds or property tax settlements.
Interest expense increased $6.5 million in fiscal 2016 when compared to fiscal 2015 primarily due to an increase of $5.0 million from the additional mortgage debt associated with the senior housing communities acquired by the Company during fiscal 2016 and a full year of interest for the senior housing communities acquired by the Company during fiscal 2015 and an increase of $1.7 million at the Company’s consolidated same-store communities due to additional mortgage debt added by the Company associated with supplemental loans that occurred during fiscal 2016 and a full year of activity for certain refinancing’s and supplemental loans that occurred during fiscal 2015, slightly offset by a decrease of $0.2 million due to the Sedgwick Sale Transaction and Four Property Sale Transaction each of which closed in fiscal 2015.
Write-off of deferred loan costs and prepayment premiums in fiscal 2015 is primarily attributable to the early repayment of certain mortgage debt on the Company’s owned senior housing communities due to scheduled maturities and the opportunity to replace interim variable interest rate debt with long-term fixed interest rate financing.
Gain on disposition of assets in fiscal 2015 is primarily attributable to the Sedgwick Sale Transaction, slightly offset with final closing cost adjustments associated with the Four Property Sale Transaction.
Other income in fiscal 2016 primarily represents payments received by the Company associated with certain legal settlements.
Provision for income taxes for fiscal 2016 was $0.4 million, or 1.6% of loss before provision for income taxes, compared to a provision for income taxes of $0.9 million, or 6.7% of loss before provision for income taxes, for fiscal 2015. The effective tax rates for fiscal 2016 and 2015 differ from the statutory tax rates due to state income taxes, permanent tax differences, and changes in the deferred tax asset valuation allowance. During fiscal 2015, the Company incurred $0.3 million in additional income taxes due to the taxable gain realized from the Four Property Sale Transaction. For income tax purposes, in conjunction with the Sedgwick Sale Transaction that closed in fiscal 2015 the Company executed a like-kind exchange and acquired a replacement property shortly after the sale which resulted in deferral of the gain without the Company incurring any current federal or state income tax liabilities. The Company is impacted by the TMT, which effectively imposes tax on modified gross revenues for communities within the State of Texas. During fiscal 2016 and 2015, the Company consolidated 38 and 37 Texas communities, respectively, and the TMT increased the overall provision for income taxes. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income. Based upon this evaluation, adjustments to the deferred tax asset valuation allowance of $8.6 million and $5.0 million were recorded during fiscal 2016 and 2015, respectively, to reduce the Company’s net deferred tax assets to the amount that is more likely than not to be realized.
Net loss and comprehensive loss
As a result of the foregoing factors, the Company reported net loss and comprehensive loss of $(28.0 million) for the fiscal year ended December 31, 2016, compared to net loss and comprehensive loss of $(14.3 million) for the fiscal year ended December 31, 2015.2018.
Quarterly Results
The following table presents certain unaudited quarterly financial information for each of the four quarters ended December 31, 20172019 and 2016.2018. This information has been prepared on the same basis as the audited consolidated financial statements of the Company appearing elsewhere in this report and include, in the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the quarterly results when read in conjunction with the audited consolidated financial statements of the Company and the related notes thereto.
|
| 2017 Calendar Quarters |
| |||||||||||||
|
| First |
|
| Second |
|
| Third |
|
| Fourth |
| ||||
|
| (In thousands, except per share amounts) |
| |||||||||||||
Total revenues |
| $ | 115,990 |
|
| $ | 116,718 |
|
| $ | 117,318 |
|
| $ | 116,971 |
|
(Loss) Income from operations |
|
| (9,610 | ) |
|
| 4,691 |
|
|
| 4,513 |
|
|
| 8,248 |
|
Net loss and comprehensive loss |
|
| (21,842 | ) |
|
| (7,835 | ) |
|
| (8,132 | ) |
|
| (6,359 | ) |
Net loss per share, basic |
| $ | (0.75 | ) |
| $ | (0.27 | ) |
| $ | (0.28 | ) |
| $ | (0.22 | ) |
Net loss per share, diluted |
| $ | (0.75 | ) |
| $ | (0.27 | ) |
| $ | (0.28 | ) |
| $ | (0.22 | ) |
Weighted average shares outstanding, basic |
|
| 29,288 |
|
|
| 29,478 |
|
|
| 29,512 |
|
|
| 29,531 |
|
Weighted average shares outstanding, fully diluted |
|
| 29,288 |
|
|
| 29,478 |
|
|
| 29,512 |
|
|
| 29,531 |
|
|
| 2019 Calendar Quarters |
| |||||||||||||
|
| First |
|
| Second |
|
| Third |
|
| Fourth (1) |
| ||||
|
| (In thousands, except per share amounts) |
| |||||||||||||
Total revenues |
| $ | 114,176 |
|
| $ | 113,126 |
|
| $ | 111,110 |
|
| $ | 108,688 |
|
Income (loss) from operations |
|
| 1,970 |
|
|
| 203 |
|
|
| (8,105 | ) |
|
| (8,757 | ) |
Net income (loss) and comprehensive income (loss) |
|
| (12,984 | ) |
|
| (12,534 | ) |
|
| (20,731 | ) |
|
| 10,219 |
|
Net income (loss) per share, basic |
| $ | (0.43 | ) |
| $ | (0.41 | ) |
| $ | (0.68 | ) |
| $ | 0.34 |
|
Net income (loss) per share, diluted |
| $ | (0.43 | ) |
| $ | (0.41 | ) |
| $ | (0.68 | ) |
| $ | 0.34 |
|
Weighted average shares outstanding, basic |
|
| 30,102 |
|
|
| 30,279 |
|
|
| 30,324 |
|
|
| 30,342 |
|
Weighted average shares outstanding, fully diluted |
|
| 30,102 |
|
|
| 30,279 |
|
|
| 30,324 |
|
|
| 30,412 |
|
|
| 2016 Calendar Quarters |
| |||||||||||||
|
| First |
|
| Second |
|
| Third |
|
| Fourth |
| ||||
|
| (In thousands, except per share amounts) |
| |||||||||||||
Total revenues |
| $ | 109,173 |
|
| $ | 111,034 |
|
| $ | 111,436 |
|
| $ | 115,805 |
|
Income from operations |
|
| 4,153 |
|
|
| 5,793 |
|
|
| 3,686 |
|
|
| 758 |
|
Net loss and comprehensive loss |
|
| (5,984 | ) |
|
| (4,446 | ) |
|
| (7,077 | ) |
|
| (10,510 | ) |
Net loss per share, basic |
| $ | (0.21 | ) |
| $ | (0.15 | ) |
| $ | (0.24 | ) |
| $ | (0.36 | ) |
Net loss per share, diluted |
| $ | (0.21 | ) |
| $ | (0.15 | ) |
| $ | (0.24 | ) |
| $ | (0.36 | ) |
Weighted average shares outstanding, basic |
|
| 28,751 |
|
|
| 28,926 |
|
|
| 28,959 |
|
|
| 29,000 |
|
Weighted average shares outstanding, fully diluted |
|
| 28,751 |
|
|
| 28,926 |
|
|
| 28,959 |
|
|
| 29,000 |
|
(1) | The fourth quarter of calendar 2019 was impacted by a $38.8 million gain the Company recognized due to the sale of two communities located in Springfield, Missouri and Peoria, Illinois on October 1, 2019. |
| 2018 Calendar Quarters |
| ||||||||||||||
|
| First |
|
| Second |
|
| Third |
|
| Fourth (1) |
| ||||
|
| (In thousands, except per share amounts) |
| |||||||||||||
Total revenues |
| $ | 114,643 |
|
| $ | 114,627 |
|
| $ | 115,650 |
|
| $ | 115,098 |
|
Income (loss) from operations |
|
| 5,386 |
|
|
| 3,643 |
|
|
| 1,696 |
|
|
| (3,122 | ) |
Net loss and comprehensive loss |
|
| (7,156 | ) |
|
| (9,060 | ) |
|
| (11,089 | ) |
|
| (26,291 | ) |
Net loss per share, basic |
| $ | (0.24 | ) |
| $ | (0.30 | ) |
| $ | (0.37 | ) |
| $ | (0.88 | ) |
Net loss per share, diluted |
| $ | (0.24 | ) |
| $ | (0.30 | ) |
| $ | (0.37 | ) |
| $ | (0.88 | ) |
Weighted average shares outstanding, basic |
|
| 29,627 |
|
|
| 29,831 |
|
|
| 29,877 |
|
|
| 29,908 |
|
Weighted average shares outstanding, fully diluted |
|
| 29,627 |
|
|
| 29,831 |
|
|
| 29,877 |
|
|
| 29,908 |
|
(1) | The fourth quarter of calendar 2018 was impacted by $4.2 million of additional general and administrative expenses for separation and placement costs primarily associated with the retirement and replacement of the Company’s former CEO and $12.6 million for write-off of deferred loan costs and prepayment premiums from the early repayment of certain mortgage debt on the Company’s owned properties due to the opportunity to establish a master credit facility (“MCF”) with Berkadia and extend scheduled maturities. |
Liquidity and Capital Resources
In addition to approximately $17.6$24.0 million of unrestricted cash balances on hand as of December 31, 2017,2019, the Company’s principal sources of liquidity are expected to be cash flows from operations, supplemental debt financings, additional proceeds from debt refinancings, equity issuances, and/or proceeds from the sale of assets. The Company expects its available cash and cash flows from operations, supplemental debt financings, additional proceeds from debt refinancings, and proceeds from the sale of assets to be sufficient to fund its short-term working capital requirements. The Company’s long-term capital requirements, primarily for acquisitions and other corporate initiatives, could be dependent on its ability to access additional funds through joint ventures and the debt and/or equity markets. The Company from time to time considers and evaluates transactions related to its portfolio including supplemental debt financings, debt refinancings,re-financings, equity issuances, purchases and sales of assets, reorganizations and other transactions. There can be no assurance that the Company will continue to generate cash flows at or above current levels or that the Company will be able to obtain the capital necessary to meet the Company’s short and long-term capital requirements.
ChangesRecent changes in the current economic environment, and other future changes, could result in decreases in the fair value of assets, slowing of transactions, and tightening liquidity and credit markets. These impacts could make securing debt for acquisitions or refinancings for the Company, its joint ventures, or buyers of the Company’s properties more difficult or on terms not acceptable to the Company. Additionally, the Company may be more susceptible to being negatively impacted by operating or performance deficits based on the exposure associated with certain lease coverage requirements.
In summary, the Company’s cash flows were as follows (in thousands):
|
| Year Ended December 31, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Net cash provided by operating activities |
| $ | 55,594 |
|
| $ | 52,279 |
|
| $ | 48,895 |
|
Net cash used in investing activities |
|
| (124,940 | ) |
|
| (201,049 | ) |
|
| (161,427 | ) |
Net cash provided by financing activities |
|
| 52,966 |
|
|
| 126,709 |
|
|
| 129,410 |
|
(Decrease) Increase in cash and cash equivalents |
| $ | (16,380 | ) |
| $ | (22,061 | ) |
| $ | 16,878 |
|
|
| Year Ended December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Net cash provided by operating activities |
| $ | 5,229 |
|
| $ | 36,870 |
|
Net cash provided by (used in) investing activities |
|
| 47,778 |
|
|
| (21,908 | ) |
Net cash used in financing activities |
|
| (60,264 | ) |
|
| (1,666 | ) |
Increase (decrease) in cash and cash equivalents |
| $ | (7,257 | ) |
| $ | 13,296 |
|
Operating Activities
The Company had net cash provided by operating activities of $55.6 million, $52.3$5.2 million and $48.9$36.9 million in fiscal 2017, 2016,2019 and 2015,2018, respectively. The net cash provided by operating activities for fiscal 20172019 primarily results from net non-cash charges of $96.0$39.4 million, a decrease in other assets of $4.1 million, an increase in other liabilities of $5.0 million, and an increase in accounts payable of $2.8 million, and in increase in accrued expenses of $1.7$4.3 million, partially offset by net loss of $(44.2 million), an increase in accounts receivabledeferred resident revenue of $8.2$0.6 million, and a decrease in deferred resident revenuetax and insurance deposits of $1.9 million.$0.5 million, partially offset by a net loss of $36.0 million, a decrease in accounts payable of $0.7 million, and increases in prepaid expenses, accounts receivable, and other assets of $1.0 million, $1.3 million, and $0.5 million, respectively. The net cash provided by operating activities for fiscal 2016 2018
primarily results from net non-cash charges of $82.1$87.1 million, a decrease in other assets of $1.4 million, an increase in accounts payable of $1.3 million, a decrease in tax and insurance deposits of $1.2 million, a decrease in prepaid expenses of $1.1 million, an increase in accrued expenses of $4.8$1.1 million, and an increase in accounts payabledeferred resident revenue of $1.7$0.6 million, partially offset by net loss of $(28.0 million),$53.6 million and an increase in accounts receivable of $2.5 million, an increase in other assets of $2.2 million, an increase in prepaid expenses of $2.0 million, and a decrease in deferred resident revenue of $1.1$3.2 million. The net cash provided by operating activities for fiscal 2015 primarily results from net non-cash charges of $63.8 million, a decrease in prepaid expenses of $2.4 million, an increase in accounts payable and accrued expenses of $3.0 million, and an increase in deferred resident rent and customer deposits of $0.5 million, partially offset by net loss of $(14.3 million), an increase in accounts receivable of $2.9 million, an increase in property tax and insurance deposits of $2.2 million, and an increase in other assets of $1.3 million.
The Company had net cash used inprovided by (used in) investing activities of $124.9 million, $201.0$47.8 million and $161.4$(21.9 million) in fiscal 2019 and 2018, respectively. The net cash provided by investing activities for fiscal 2019 primarily results from the Company’s receipt of $68.1 million in fiscal 2017, 2016,proceeds from the disposition of assets, partially offset by capital expenditures associated with ongoing capital renovations and 2015, respectively.refurbishments of the Company’s senior housing communities of $20.3 million. The net cash used in investing activities for fiscal 20172018 primarily results from capital expenditures of $40.0 million associated with ongoing capital renovations and refurbishments at the Company’s senior housing communities and the acquisition of senior housing communities by the Company of $85.0 million. The net cash used in investing activities for fiscal 2016 primarily results from capital expenditures of $62.4 million and acquisitions of senior housing communities by the Company of $138.8 million. The net cash used in investing activities for fiscal 2015 primarily results from capital expenditures of $42.4 million and acquisitions of senior housing communities by the Company of $162.5 million, partially offset by proceeds from the Sedgwick Sale Transaction and Four Property Sale Transaction of $43.5 million.communities.
Financing Activities
The Company had net cash provided byflows used in financing activities of $53.0 million, $126.7$60.3 million and $129.4$1.7 million in fiscal 2017, 2016,2019 and 2015,2018, respectively. The net cash provided byused in financing activities for fiscal 20172019 primarily results from notes payable proceeds of $77.2$37.5 million, of which $65.0approximately $31.5 million is related to newresulted from mortgage debt associated with the acquisition of senior housing communities by the Company, approximately $7.1 million related torefinancings and supplemental mortgage debt obtained onfinancings and the Company’s existing owned senior housing communities, and approximately $5.1remaining $6.0 million related to insurance premium financing, partiallywhich was offset by repayments of notes payable of $20.1$95.1 million, payments on capital lease and financing obligationsinclusive of $2.9$4.4 million in debt prepayment penalties, and deferred financing charges paid of $1.2 million associated with the acquisitionand payments on financing leases and financing obligations of senior housing communities by the Company.$1.5 million. The net cash provided byused in financing activities for fiscal 20162018 primarily results from notes payable proceeds of $150.8$208.8 million, of which approximately $101.5$206.3 million is related to newresulted from mortgage debt associated with the acquisition of senior housing communities by the Company, approximately $44.4 million related torefinancings and supplemental mortgage debt obtained on existing senior housing communities,financings and approximately $4.9the remaining $2.5 million related to insurance premium financing, partially offset by repayments of notes payable of $17.7$204.1 million, purchasesinclusive of treasury stock of $2.5$11.1 million in debt repayment penalties, deferred financing charges paid of $2.5$3.3 million, and payments on capital lease and financing obligations of $1.3 million. The net cash provided by financing activities for fiscal 2015 primarily results from notes payable proceeds of $250.9 million, of which approximately $118.1 million is related to new mortgage debt associated with the acquisition of senior housing communities by the Company, approximately $2.2 million related to insurance premium financing, and the remaining $130.6 million resulted from supplemental financings, mortgage refinancings, or new mortgage debt obtained on existing unencumbered senior housing communities, partially offset by repayments of notes payable of $115.9 million, deferred financing charges paid of $3.8 million, payments on capital lease and financing obligations of $1.0 million, and additions to restricted cash of $0.9$3.2 million.
Disclosures About Contractual Obligations
The following table provides the amounts due under specified contractual obligations for the periods indicated as of December 31, 2017 (in thousands):
|
| Less Than One Year |
|
| One to Three Years |
|
| Three to Five Years |
|
| More Than Five Years |
|
| Total |
| |||||
Long-term debt, including interest expense(1) |
| $ | 66,705 |
|
| $ | 196,492 |
|
| $ | 249,901 |
|
| $ | 718,234 |
|
| $ | 1,231,332 |
|
Operating and capital leases(2) |
|
| 64,391 |
|
|
| 126,246 |
|
|
| 100,584 |
|
|
| 144,241 |
|
|
| 435,462 |
|
Total contractual cash obligations |
| $ | 131,096 |
|
| $ | 322,738 |
|
| $ | 350,485 |
|
| $ | 862,475 |
|
| $ | 1,666,794 |
|
|
|
|
|
Long-term debt relates to the aggregate maturities of the Company’s notes payable. As of December 31, 2017, the Company leases its corporate headquarters in Dallas, an executive office in New York, 46 senior housing communities and certain equipment used at the Company’s communities.
To date, inflation has not had a significant impact on the Company. However, inflation could affect the Company’s future revenues and results of operations because of, among other things, the Company’s dependence on senior residents, many of whom rely primarily on fixed incomes to pay for the Company’s services. As a result, during inflationary periods, the Company may not be able to increase resident service fees to account fully for increased operating expenses. In structuring its fees, the Company attempts to anticipate inflation levels, but there can be no assurance that the Company will be able to anticipate fully or otherwise respond to any future inflationary pressures.
The Company’s primary market risk is exposure to changes in interest rates on debt and lease instruments. As of December 31, 2017, the Company had $967.3 million in outstanding debt comprised of various fixed and variable interest rate debt instruments of $890.8 million and $76.5 million, respectively. In addition, as of December 31, 2017, the Company had $433.3 million in future facility lease obligations with contingent rent increases on certain leases based on changes in the consumer price index or certain operational performance measures.
Changes in interest rates would affect the fair market value of the Company’s fixed interest rate debt instruments, but would not have an impact on the Company’s earnings or cash flows. Fluctuations in interest rates on the Company’s variable interest rate debt instruments, which are tied to LIBOR, would affect the Company’s earnings and cash flows but would not affect the fair market values of the variable interest rate debt. Each percentage point increase in interest rates would impact the Company’s annual interest expense by approximately $0.8 million based on the Company’s outstanding variable interest rate debt as of December 31, 2017. Increases in the consumer price index could have an effect on future facility lease expense if the leased community exceeds the contingent rent escalation thresholds set forth in each of the Company’s lease agreements.
The following table summarizes information on the Company’s debt instruments outstanding as of December 31, 2017. The table presents the principal due and weighted average interest rates by expected maturity date for the Company’s debt instruments by fiscal year.
Principal Amount, which excludes deferred loan costs, and Average Interest Rate by Expected Maturity Date at December 31, 2017 ($ in thousands):Not applicable.
|
| 2018 |
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
|
| Thereafter |
|
| Total |
|
| Fair Value |
| ||||||||
Long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate debt |
| $ | 21,168 |
|
| $ | 17,742 |
|
| $ | 18,482 |
|
| $ | 72,706 |
|
| $ | 106,161 |
|
| $ | 654,568 |
|
| $ | 890,827 |
|
| $ | 852,495 |
|
Average interest rate |
|
| 4.6 | % |
|
| 4.6 | % |
|
| 4.6 | % |
|
| 4.6 | % |
|
| 4.6 | % |
|
| 4.6 | % |
|
|
|
|
|
|
|
|
Variable rate debt |
|
| 253 |
|
|
| 11,252 |
|
|
| 65,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 76,505 |
|
|
| 76,505 |
|
Average interest rate |
|
| 5.5 | % |
|
| 5.4 | % |
|
| 5.4 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 967,332 |
|
| $ | 929,000 |
|
The consolidated financial statements of the Company are included under Item 15 of this Annual Report on Form 10-K.
The Company had no disagreements on accounting or financial disclosure matters with its independent accountants to report under this Item 9.
Effectiveness of Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Based upon the controls evaluation, the Company’s CEO and CFO have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective.
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company’s fiscal quarter ended December 31, 20172019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Internal Controls Over Financial Reporting
Management’s Report On Internal Control Over Financial Reporting
Management of the Company, including the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) under the Exchange Act. The Company’s internal controls were designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017.2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework (2013 framework). Based on our assessment, we believe that, as of December 31, 2017,2019, the Company’s internal control over financial reporting is effective based on those criteria.
The effectiveness of our internal control over financial reporting as of December 31, 2017,2019, has been audited by Ernst & Young LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, as stated in their report which is included as part of this Annual Report on Form 10-K. The Ernst & Young LLP report is on page F-33F-37 of this report.
None.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.* |
* | Information required by Items 10, 11, 12, 13 and 14 will be set forth in the definitive proxy statement relating to the |
The following documents are filed as part of this Report:
| (1) | Financial Statements: |
The response to this portion of Item 15 is submitted as a separate section of this Report. See “Index to Financial Statements” at page F-1.
| (2) | Financial Statement Schedules: |
All schedules have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes.
| (3) | Exhibits: |
The following documents are filed as a part of this report. Those exhibits previously filed and incorporated herein by reference are identified below. Exhibits not required for this report have been omitted.
Exhibit Number |
|
| Description |
3.1 |
|
| |
|
| ||
3.1.1 |
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| |
|
| ||
3.2 |
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| |
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| ||
4.1 |
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| |
|
| ||
4.2 |
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| |
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| ||
4.3 |
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| |
4.4 | |||
*4.5 | |||
|
| ||
10.1 |
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| |
|
| ||
10.2 |
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|
| |||
|
| |||
|
| |||
10.5 |
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| ||
| ||||
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| |||
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| ||
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| |||
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| ||
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| |||
| ||||
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| |||
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| |||
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| |||
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| |||
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| |||
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| |||
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| ||
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| |||
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| |||
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| ||
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| |||
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|
Exhibit Number | Description | |||
|
| |||
| ||||
|
|
| ||
|
| |||
|
|
| ||
10.18 | ||||
10.19 | ||||
10.20 | ||||
10.21 | ||||
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|
|
| |
10.22 |
|
| ||
10.23 | ||||
10.24 | ||||
10.25 | ||||
|
|
|
| |
*21.1 |
|
| ||
|
|
|
| |
*23.1 |
|
| ||
|
|
|
| |
*31.1 |
|
| Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) | |
|
|
|
| |
*31.2 |
|
| Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) | |
|
|
|
| |
*32.1 |
|
|
Exhibit Number | Description | ||
|
|
|
|
*32.2 |
|
| Certification of Carey P. Hendrickson pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
*101.INS |
|
| XBRL Instance Document |
|
|
|
|
*101.SCH |
|
| XBRL Taxonomy Extension Schema Document |
|
|
|
|
*101.CAL |
|
| XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
*101.LAB |
|
| XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
*101.PRE |
|
| XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
*101.DEF |
|
| XBRL Taxonomy Extension Definition Linkbase Document |
* | Filed herewith. |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CAPITAL SENIOR LIVING CORPORATION | |
|
|
By: | /s/ |
|
|
|
|
|
|
Date: March |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Each person whose signature to this report appears below hereby appoints Lawrence A. CohenKimberly S. Lody and Carey P. Hendrickson and each of them, any one of whom may act without the joinder of the other, as his or her attorney-in-fact to sign on his behalf, individually and in each capacity stated below, and to file all amendments to this report, which amendment or amendments may make such changes in and additions to the report as any such attorney-in-fact may deem necessary or appropriate.
Signature |
| Title |
| Date |
|
|
| ||
/s/ | President, | March 31, 2020 | ||
Kimberly S. Lody |
| Chief Executive Officer |
| |
|
|
|
| |
|
| Executive Officer) and Director |
|
|
|
|
| ||
/s/ CAREY P. HENDRICKSON |
|
|
| March |
Carey P. Hendrickson |
| Chief Financial Officer (Principal |
|
|
|
| Financial and Accounting Officer) |
|
|
|
|
| ||
/s/ MICHAEL W. REID |
| Chairman of the Board |
| March |
Michael W. Reid |
|
|
|
|
|
|
| ||
/s/ PHILIP A. BROOKS |
| Director |
| March |
Philip A. Brooks |
|
|
|
|
|
|
| ||
/s/ ED A. GRIER |
| Director |
| March |
Ed A. Grier |
|
|
|
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|
|
| ||
/s/ E. RODNEY HORNBAKE |
| Director |
| March |
E. Rodney Hornbake |
|
|
|
|
|
|
| ||
/s/ PAUL J. ISAAC |
| Director |
| March |
Paul J. Isaac |
|
|
|
|
|
|
| ||
/s/ JILL M. KRUEGER |
| Director |
| March |
Jill M. Krueger |
|
|
|
|
|
|
| ||
/s/ ROSS B. LEVIN |
| Director |
| March |
Ross B. Levin |
|
|
|
|
|
|
| ||
/s/ |
| Director |
| March |
| ||||
|
|
| ||
|
|
|
|
|
| Page |
Consolidated Financial Statements of Capital Senior Living Corporation |
|
Report of Independent Registered Public Accounting Firm, Ernst & Young LLP | F-2 |
Consolidated Balance Sheets — December 31, | F-3 |
F-4 | |
F-5 | |
F-6 | |
F-7 | |
|
Report Report of Independent Registered Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Capital Senior Living Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Capital Senior Living Corporation (the Company) as of December 31, 20172019 and 2016, and2018, the related consolidated statements of operations and comprehensive loss, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2017,2019, and the related notes (collectively referred to as the “financial“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 20172019 and 2016,2018, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sCompany's internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 2, 2018,31, 2020 expressed an unqualified opinion thereon.
Adoption of ASU No. 2016-02
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases effective January 1, 2019 due to the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), and the related amendments.
Basis for Opinion
These financial statements are the responsibility of the Company‘sCompany's management. Our responsibility is to express an opinion on the Company‘sCompany’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the riskrisks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditorsauditor since 2006.
Dallas, Texas
March 2, 201831, 2020
CAPITAL SENIOR LIVING CORPORATION
(in thousands)
|
| December 31, |
| |||||||||||||
|
| 2017 |
|
| 2016 |
|
| December 31, |
| |||||||
|
| (In thousands) |
|
| 2019 |
|
| 2018 |
| |||||||
ASSETS | ASSETS |
| ASSETS |
| ||||||||||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 17,646 |
|
| $ | 34,026 |
|
| $ | 23,975 |
|
| $ | 31,309 |
|
Restricted cash |
|
| 13,378 |
|
|
| 13,297 |
|
|
| 13,088 |
|
|
| 13,011 |
|
Accounts receivable, net |
|
| 12,307 |
|
|
| 13,675 |
|
|
| 8,143 |
|
|
| 10,581 |
|
Federal and state income taxes receivable |
|
| 72 |
|
|
| 152 |
| ||||||||
Property tax and insurance deposits |
|
| 14,386 |
|
|
| 14,665 |
|
|
| 12,627 |
|
|
| 13,173 |
|
Prepaid expenses and other |
|
| 6,332 |
|
|
| 6,365 |
|
|
| 5,308 |
|
|
| 5,232 |
|
Total current assets |
|
| 64,049 |
|
|
| 82,028 |
|
|
| 63,213 |
|
|
| 73,458 |
|
Property and equipment, net |
|
| 1,099,786 |
|
|
| 1,032,430 |
|
|
| 969,211 |
|
|
| 1,059,049 |
|
Operating lease right-of-use assets, net |
|
| 224,523 |
|
|
| — |
| ||||||||
Deferred taxes, net |
|
| 76 |
|
|
| 152 |
| ||||||||
Other assets, net |
|
| 18,836 |
|
|
| 31,323 |
|
|
| 10,673 |
|
|
| 16,485 |
|
Total assets |
| $ | 1,182,671 |
|
| $ | 1,145,781 |
|
| $ | 1,267,696 |
|
| $ | 1,149,144 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | LIABILITIES AND SHAREHOLDERS’ EQUITY |
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
| ||||||||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 7,801 |
|
| $ | 5,051 |
|
| $ | 10,382 |
|
| $ | 9,095 |
|
Accrued expenses |
|
| 40,751 |
|
|
| 39,064 |
|
|
| 46,227 |
|
|
| 41,880 |
|
Current portion of notes payable, net of deferred loan costs |
|
| 19,728 |
|
|
| 17,889 |
|
|
| 15,819 |
|
|
| 14,342 |
|
Current portion of deferred income |
|
| 13,840 |
|
|
| 16,284 |
|
|
| 7,201 |
|
|
| 14,892 |
|
Current portion of capital lease and financing obligations |
|
| 3,106 |
|
|
| 1,339 |
| ||||||||
Current portion of financing obligations |
|
| 1,741 |
|
|
| 3,113 |
| ||||||||
Current portion of lease liabilities |
|
| 45,988 |
|
|
| — |
| ||||||||
Federal and state income taxes payable |
|
| 383 |
|
|
| 218 |
|
|
| 420 |
|
|
| 406 |
|
Customer deposits |
|
| 1,394 |
|
|
| 1,545 |
|
|
| 1,247 |
|
|
| 1,302 |
|
Total current liabilities |
|
| 87,003 |
|
|
| 81,390 |
|
|
| 129,025 |
|
|
| 85,030 |
|
Deferred income |
|
| 10,033 |
|
|
| 12,205 |
| ||||||||
Capital lease and financing obligations, net of current portion |
|
| 48,805 |
|
|
| 37,439 |
| ||||||||
Deferred taxes |
|
| 1,941 |
|
|
| — |
| ||||||||
Deferred income, net of current portion |
|
| — |
|
|
| 8,151 |
| ||||||||
Financing obligations, net of current portion |
|
| 9,688 |
|
|
| 45,647 |
| ||||||||
Lease liabilities, net of current portion |
|
| 208,967 |
|
|
| — |
| ||||||||
Other long-term liabilities |
|
| 16,250 |
|
|
| 15,325 |
|
|
| — |
|
|
| 15,643 |
|
Notes payable, net of deferred loan costs and current portion |
|
| 938,206 |
|
|
| 882,504 |
|
|
| 905,637 |
|
|
| 959,408 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value: |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Authorized shares — 15,000; no shares issued or outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized shares — 65,000; issued and outstanding shares 30,505 and 30,012 in 2017 and 2016, respectively |
|
| 310 |
|
|
| 305 |
| ||||||||
Authorized shares — 65,000; issued and outstanding shares 31,441 and 31,273 in 2019 and 2018, respectively |
|
| 319 |
|
|
| 318 |
| ||||||||
Additional paid-in capital |
|
| 179,459 |
|
|
| 171,599 |
|
|
| 190,386 |
|
|
| 187,879 |
|
Retained deficit |
|
| (95,906 | ) |
|
| (51,556 | ) |
|
| (172,896 | ) |
|
| (149,502 | ) |
Treasury stock, at cost – 494 shares in 2017 and 2016 |
|
| (3,430 | ) |
|
| (3,430 | ) | ||||||||
Treasury stock, at cost — 494 shares in 2019 and 2018 |
|
| (3,430 | ) |
|
| (3,430 | ) | ||||||||
Total shareholders’ equity |
|
| 80,433 |
|
|
| 116,918 |
|
|
| 14,379 |
|
|
| 35,265 |
|
Total liabilities and shareholders’ equity |
| $ | 1,182,671 |
|
| $ | 1,145,781 |
|
| $ | 1,267,696 |
|
| $ | 1,149,144 |
|
See accompanying notes to consolidated financial statements.
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
| ||||||
|
| (In thousands, except per share data) |
|
| (In thousands, except per share data) |
| ||||||||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resident revenue |
| $ | 466,997 |
|
| $ | 447,448 |
|
| $ | 412,177 |
|
| $ | 447,100 |
|
| $ | 460,018 |
|
| $ | 466,997 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (exclusive of facility lease expense and depreciation and amortization expense shown below) |
|
| 290,662 |
|
|
| 273,899 |
|
|
| 248,736 |
|
|
| 306,786 |
|
|
| 294,661 |
|
|
| 290,662 |
|
General and administrative expenses |
|
| 23,574 |
|
|
| 23,671 |
|
|
| 20,351 |
|
|
| 27,518 |
|
|
| 26,961 |
|
|
| 23,574 |
|
Facility lease expense |
|
| 56,432 |
|
|
| 61,718 |
|
|
| 61,213 |
|
|
| 57,021 |
|
|
| 56,551 |
|
|
| 56,432 |
|
Loss on facility lease termination |
|
| 12,858 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12,858 |
|
Provision for bad debts |
|
| 1,748 |
|
|
| 1,727 |
|
|
| 1,192 |
|
|
| 3,765 |
|
|
| 2,990 |
|
|
| 1,748 |
|
Stock-based compensation expense |
|
| 7,682 |
|
|
| 11,645 |
|
|
| 8,833 |
|
|
| 2,509 |
|
|
| 8,428 |
|
|
| 7,682 |
|
Depreciation and amortization expense |
|
| 66,199 |
|
|
| 60,398 |
|
|
| 53,017 |
|
|
| 64,190 |
|
|
| 62,824 |
|
|
| 66,199 |
|
Total expenses |
|
| 459,155 |
|
|
| 433,058 |
|
|
| 393,342 |
|
|
| 461,789 |
|
|
| 452,415 |
|
|
| 459,155 |
|
Income from operations |
|
| 7,842 |
|
|
| 14,390 |
|
|
| 18,835 |
| ||||||||||||
Income (Loss) from operations |
|
| (14,689 | ) |
|
| 7,603 |
|
|
| 7,842 |
| ||||||||||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 73 |
|
|
| 67 |
|
|
| 53 |
|
|
| 221 |
|
|
| 165 |
|
|
| 73 |
|
Interest expense |
|
| (49,471 | ) |
|
| (42,207 | ) |
|
| (35,732 | ) |
|
| (49,802 | ) |
|
| (50,543 | ) |
|
| (49,471 | ) |
Write-off of deferred loan costs and prepayment premiums |
|
| — |
|
|
| — |
|
|
| (2,766 | ) |
|
| (4,843 | ) |
|
| (12,623 | ) |
|
| — |
|
(Loss) Gain on disposition of assets, net |
|
| (123 | ) |
|
| (65 | ) |
|
| 6,225 |
| ||||||||||||
Long-lived asset impairment |
|
| (3,004 | ) |
|
| — |
|
|
| — |
| ||||||||||||
Gain (Loss) on disposition of assets, net |
|
| 36,528 |
|
|
| 28 |
|
|
| (123 | ) | ||||||||||||
Other income |
|
| 7 |
|
|
| 233 |
|
|
| 1 |
|
|
| 7 |
|
|
| 3 |
|
|
| 7 |
|
Loss before provision for income taxes |
|
| (41,672 | ) |
|
| (27,582 | ) |
|
| (13,384 | ) | ||||||||||||
Provision for income taxes |
|
| (2,496 | ) |
|
| (435 | ) |
|
| (900 | ) | ||||||||||||
Loss before benefit (provision) for income taxes |
|
| (35,582 | ) |
|
| (55,367 | ) |
|
| (41,672 | ) | ||||||||||||
Benefit (Provision) for income taxes |
|
| (448 | ) |
|
| 1,771 |
|
|
| (2,496 | ) | ||||||||||||
Net loss |
| $ | (44,168 | ) |
| $ | (28,017 | ) |
| $ | (14,284 | ) |
| $ | (36,030 | ) |
| $ | (53,596 | ) |
| $ | (44,168 | ) |
Per share data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per share |
| $ | (1.50 | ) |
| $ | (0.97 | ) |
| $ | (0.50 | ) |
| $ | (1.19 | ) |
| $ | (1.80 | ) |
| $ | (1.50 | ) |
Diluted net loss per share |
| $ | (1.50 | ) |
| $ | (0.97 | ) |
| $ | (0.50 | ) |
| $ | (1.19 | ) |
| $ | (1.80 | ) |
| $ | (1.50 | ) |
Weighted average shares outstanding — basic |
|
| 29,453 |
|
|
| 28,909 |
|
|
| 28,688 |
|
|
| 30,263 |
|
|
| 29,812 |
|
|
| 29,453 |
|
Weighted average shares outstanding — diluted |
|
| 29,453 |
|
|
| 28,909 |
|
|
| 28,688 |
|
|
| 30,263 |
|
|
| 29,812 |
|
|
| 29,453 |
|
Comprehensive loss |
| $ | (44,168 | ) |
| $ | (28,017 | ) |
| $ | (14,284 | ) |
| $ | (36,030 | ) |
| $ | (53,596 | ) |
| $ | (44,168 | ) |
See accompanying notes to consolidated financial statements.
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
|
| Common Stock |
|
| Additional Paid-In |
|
| Retained |
|
| Treasury |
|
|
|
|
|
| Common Stock |
|
| Additional Paid-In |
|
| Retained |
|
| Treasury |
|
|
|
|
| ||||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Stock |
|
| Total |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Stock |
|
| Total |
| ||||||||||||
|
| (In thousands) |
|
| (In thousands) |
| ||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2015 |
|
| 29,097 |
|
| $ | 294 |
|
| $ | 151,069 |
|
| $ | (9,255 | ) |
| $ | (934 | ) |
| $ | 141,174 |
| ||||||||||||||||||||||||
Exercise of stock options |
|
| 3 |
|
|
| 1 |
|
|
| 37 |
|
|
| — |
|
|
| — |
|
|
| 38 |
| ||||||||||||||||||||||||
Restricted stock awards |
|
| 439 |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4 |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 8,833 |
|
|
| — |
|
|
| — |
|
|
| 8,833 |
| ||||||||||||||||||||||||
Excess tax benefits on stock options exercised |
|
| — |
|
|
| — |
|
|
| (19 | ) |
|
| — |
|
|
| — |
|
|
| (19 | ) | ||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (14,284 | ) |
|
| — |
|
|
| (14,284 | ) | ||||||||||||||||||||||||
Balance at December 31, 2015 |
|
| 29,539 |
|
| $ | 299 |
|
| $ | 159,920 |
|
| $ | (23,539 | ) |
| $ | (934 | ) |
| $ | 135,746 |
| ||||||||||||||||||||||||
Exercise of stock options |
|
| 6 |
|
|
| — |
|
|
| 60 |
|
|
| — |
|
|
| — |
|
|
| 60 |
| ||||||||||||||||||||||||
Restricted stock awards |
|
| 611 |
|
|
| 6 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 7 |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 11,645 |
|
|
| — |
|
|
| — |
|
|
| 11,645 |
| ||||||||||||||||||||||||
Excess tax benefits on stock options exercised |
|
| — |
|
|
| — |
|
|
| (27 | ) |
|
| — |
|
|
| — |
|
|
| (27 | ) | ||||||||||||||||||||||||
Treasury stock |
|
| (144 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,496 | ) |
|
| (2,496 | ) | ||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (28,017 | ) |
|
| — |
|
|
| (28,017 | ) | ||||||||||||||||||||||||
Balance at December 31, 2016 |
|
| 30,012 |
|
| $ | 305 |
|
| $ | 171,599 |
|
| $ | (51,556 | ) |
| $ | (3,430 | ) |
| $ | 116,918 |
| ||||||||||||||||||||||||
Balance at January 1, 2017 |
|
| 30,012 |
|
|
| 305 |
|
|
| 171,599 |
|
|
| (51,556 | ) |
|
| (3,430 | ) |
|
| 116,918 |
| ||||||||||||||||||||||||
Restricted stock unit conversions |
|
| 3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| 0 |
|
|
| — |
|
|
| — |
|
|
| 0 |
|
Restricted stock awards |
|
| 490 |
|
|
| 5 |
|
|
| (4 | ) |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 490 |
|
|
| 5 |
|
|
| (4 | ) |
|
| — |
|
|
| — |
|
|
| 1 |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 7,864 |
|
|
| (182 | ) |
|
| — |
|
|
| 7,682 |
|
|
| — |
|
|
| — |
|
|
| 7,864 |
|
|
| (182 | ) |
|
| — |
|
|
| 7,682 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (44,168 | ) |
|
| — |
|
|
| (44,168 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (44,168 | ) |
|
| — |
|
|
| (44,168 | ) |
Balance at December 31, 2017 |
|
| 30,505 |
|
| $ | 310 |
|
| $ | 179,459 |
|
| $ | (95,906 | ) |
| $ | (3,430 | ) |
| $ | 80,433 |
|
|
| 30,505 |
|
|
| 310 |
|
|
| 179,459 |
|
|
| (95,906 | ) |
|
| (3,430 | ) |
|
| 80,433 |
|
Restricted stock awards |
|
| 768 |
|
|
| 8 |
|
|
| (8 | ) |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 8,428 |
|
|
| — |
|
|
| — |
|
|
| 8,428 |
| ||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (53,596 | ) |
|
| — |
|
|
| (53,596 | ) | ||||||||||||||||||||||||
Balance at December 31, 2018 |
|
| 31,273 |
|
|
| 318 |
|
|
| 187,879 |
|
|
| (149,502 | ) |
|
| (3,430 | ) |
|
| 35,265 |
| ||||||||||||||||||||||||
Adoption of ASC 842 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12,636 |
|
|
| — |
|
|
| 12,636 |
| ||||||||||||||||||||||||
Restricted stock awards |
|
| 168 |
|
|
| 1 |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| (1 | ) | ||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 2,509 |
|
|
| — |
|
|
| — |
|
|
| 2,509 |
| ||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (36,030 | ) |
|
| — |
|
|
| (36,030 | ) | ||||||||||||||||||||||||
Balance at December 31, 2019 |
|
| 31,441 |
|
| $ | 319 |
|
| $ | 190,386 |
|
| $ | (172,896 | ) |
| $ | (3,430 | ) |
| $ | 14,379 |
|
See accompanying notes to consolidated financial statements.
CAPITAL SENIOR LIVING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
| ||||||
|
| (in thousands) |
|
| (in thousands) |
| ||||||||||||||||||
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (44,168 | ) |
| $ | (28,017 | ) |
| $ | (14,284 | ) |
| $ | (36,030 | ) |
| $ | (53,596 | ) |
| $ | (44,168 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 66,199 |
|
|
| 60,398 |
|
|
| 53,017 |
|
|
| 64,190 |
|
|
| 62,824 |
|
|
| 66,199 |
|
Amortization of deferred financing charges |
|
| 1,626 |
|
|
| 1,193 |
|
|
| 1,029 |
|
|
| 1,612 |
|
|
| 1,709 |
|
|
| 1,626 |
|
Amortization of deferred lease costs and lease intangibles, net |
|
| 859 |
|
|
| 679 |
|
|
| 1,555 |
|
|
| — |
|
|
| 849 |
|
|
| 859 |
|
Amortization of lease incentives |
|
| (1,336 | ) |
|
| (710 | ) |
|
| (134 | ) |
|
| — |
|
|
| (2,074 | ) |
|
| (1,336 | ) |
Deferred income |
|
| (1,397 | ) |
|
| (414 | ) |
|
| (677 | ) |
|
| 1,078 |
|
|
| (1,391 | ) |
|
| (1,397 | ) |
Deferred taxes |
|
| 1,941 |
|
|
| — |
|
|
| — |
|
|
| 157 |
|
|
| (2,245 | ) |
|
| 1,941 |
|
Operating lease expense adjustment |
|
| (5,243 | ) |
|
| — |
|
|
| — |
| ||||||||||||
Lease incentives |
|
| 5,673 |
|
|
| 7,530 |
|
|
| 2,464 |
|
|
| — |
|
|
| 3,376 |
|
|
| 5,673 |
|
Loss on facility lease termination |
|
| 12,858 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12,858 |
|
Write-off of deferred loan costs and prepayment premiums |
|
| — |
|
|
| — |
|
|
| 2,766 |
|
|
| 4,843 |
|
|
| 12,623 |
|
|
| — |
|
Loss (Gain) on disposition of assets, net |
|
| 123 |
|
|
| 65 |
|
|
| (6,225 | ) | ||||||||||||
(Gain) Loss on disposition of assets, net |
|
| (36,528 | ) |
|
| (28 | ) |
|
| 123 |
| ||||||||||||
Long-lived asset impairment |
|
| 3,004 |
|
|
| — |
|
|
| — |
| ||||||||||||
Provision for bad debts |
|
| 1,748 |
|
|
| 1,727 |
|
|
| 1,192 |
|
|
| 3,765 |
|
|
| 2,990 |
|
|
| 1,748 |
|
Stock-based compensation expense |
|
| 7,682 |
|
|
| 11,645 |
|
|
| 8,833 |
|
|
| 2,509 |
|
|
| 8,428 |
|
|
| 7,682 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (8,159 | ) |
|
| (14,519 | ) |
|
| (6,605 | ) |
|
| (1,326 | ) |
|
| (3,173 | ) |
|
| (8,159 | ) |
Property tax and insurance deposits |
|
| 279 |
|
|
| (267 | ) |
|
| (2,200 | ) |
|
| 545 |
|
|
| 1,213 |
|
|
| 279 |
|
Prepaid expenses and other |
|
| 33 |
|
|
| (1,995 | ) |
|
| 2,427 |
|
|
| (1,013 | ) |
|
| 1,100 |
|
|
| 33 |
|
Other assets |
|
| 4,061 |
|
|
| (2,228 | ) |
|
| (1,289 | ) |
|
| (500 | ) |
|
| 1,350 |
|
|
| 4,061 |
|
Accounts payable |
|
| 2,750 |
|
|
| 1,695 |
|
| 815 |
|
|
| (715 | ) |
|
| 1,294 |
|
|
| 2,750 |
| |
Accrued expenses |
|
| 1,689 |
|
|
| 4,798 |
|
|
| 2,146 |
|
|
| 4,343 |
|
|
| 1,129 |
|
|
| 1,689 |
|
Other liabilities |
|
| 5,017 |
|
|
| 12,014 |
|
|
| 3,677 |
|
|
| — |
|
|
| — |
|
|
| 5,017 |
|
Federal and state income taxes receivable/payable |
|
| 165 |
|
|
| 107 |
|
|
| (108 | ) |
|
| 14 |
|
|
| 23 |
|
|
| 165 |
|
Deferred resident revenue |
|
| (1,898 | ) |
|
| (1,148 | ) |
| 176 |
|
|
| 579 |
|
|
| 561 |
|
|
| (1,898 | ) | |
Customer deposits |
|
| (151 | ) |
|
| (274 | ) |
| 320 |
|
|
| (55 | ) |
|
| (92 | ) |
|
| (151 | ) | |
Net cash provided by operating activities |
|
| 55,594 |
|
|
| 52,279 |
|
|
| 48,895 |
|
|
| 5,229 |
|
|
| 36,870 |
|
|
| 55,594 |
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (39,959 | ) |
|
| (62,371 | ) |
|
| (42,430 | ) |
|
| (20,306 | ) |
|
| (21,965 | ) |
|
| (39,959 | ) |
Cash paid for acquisitions |
|
| (85,000 | ) |
|
| (138,750 | ) |
|
| (162,460 | ) |
|
| — |
|
|
| — |
|
|
| (85,000 | ) |
Proceeds from disposition of assets |
|
| 19 |
|
|
| 72 |
|
|
| 43,463 |
|
|
| 68,084 |
|
|
| 57 |
|
|
| 19 |
|
Net cash used in investing activities |
|
| (124,940 | ) |
|
| (201,049 | ) |
|
| (161,427 | ) | ||||||||||||
Net cash provided by (used in) investing activities |
|
| 47,778 |
|
|
| (21,908 | ) |
|
| (124,940 | ) | ||||||||||||
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable |
|
| 77,197 |
|
|
| 150,798 |
|
|
| 250,944 |
|
|
| 37,499 |
|
|
| 208,841 |
|
|
| 77,197 |
|
Repayments of notes payable |
|
| (20,099 | ) |
|
| (17,680 | ) |
|
| (115,896 | ) |
|
| (95,077 | ) |
|
| (204,093 | ) |
|
| (20,099 | ) |
Cash payments for capital lease and financing obligations |
|
| (2,869 | ) |
|
| (1,314 | ) |
|
| (978 | ) | ||||||||||||
Increase in restricted cash |
|
| (81 | ) |
|
| (138 | ) |
|
| (918 | ) | ||||||||||||
Cash proceeds from the issuance of common stock |
|
| — |
|
|
| 67 |
|
| 42 |
| |||||||||||||
Excess tax benefits on stock options exercised |
|
| — |
|
|
| (27 | ) |
|
| (19 | ) | ||||||||||||
Purchases of treasury stock |
|
| — |
|
|
| (2,496 | ) |
| — |
| |||||||||||||
Cash payments for financing lease and financing obligations |
|
| (1,516 | ) |
|
| (3,151 | ) |
|
| (2,869 | ) | ||||||||||||
Deferred financing charges paid |
|
| (1,182 | ) |
|
| (2,501 | ) |
|
| (3,765 | ) |
|
| (1,170 | ) |
|
| (3,263 | ) |
|
| (1,182 | ) |
Net cash provided by financing activities |
|
| 52,966 |
|
|
| 126,709 |
|
|
| 129,410 |
| ||||||||||||
(Decrease) Increase in cash and cash equivalents |
|
| (16,380 | ) |
|
| (22,061 | ) |
|
| 16,878 |
| ||||||||||||
Cash and cash equivalents at beginning of year |
|
| 34,026 |
|
|
| 56,087 |
|
|
| 39,209 |
| ||||||||||||
Cash and cash equivalents at end of year |
| $ | 17,646 |
|
| $ | 34,026 |
|
| $ | 56,087 |
| ||||||||||||
Net cash provided by (used in) financing activities |
|
| (60,264 | ) |
|
| (1,666 | ) |
|
| 53,047 |
| ||||||||||||
Increase (Decrease) in cash and cash equivalents |
|
| (7,257 | ) |
|
| 13,296 |
|
|
| (16,299 | ) | ||||||||||||
Cash and cash equivalents and restricted cash at beginning of year |
|
| 44,320 |
|
|
| 31,024 |
|
|
| 47,323 |
| ||||||||||||
Cash and cash equivalents and restricted cash at end of year |
| $ | 37,063 |
|
| $ | 44,320 |
|
| $ | 31,024 |
| ||||||||||||
Supplemental Disclosures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
| $ | 47,022 |
|
| $ | 40,585 |
|
| $ | 33,642 |
|
| $ | 47,448 |
|
| $ | 49,225 |
|
| $ | 47,022 |
|
Income taxes |
| $ | 543 |
|
| $ | 582 |
|
| $ | 1,039 |
|
| $ | 505 |
|
| $ | 555 |
|
| $ | 543 |
|
Non-cash operating, investing, and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Notes payable assumed by purchaser through disposition of assets |
| $ | — |
|
| $ | — |
|
| $ | 6,764 |
|
See accompanying notes to consolidated financial statements.
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 20172019
1. | Organization |
Capital Senior Living Corporation, a Delaware corporation (together with its subsidiaries, the “Company”), is one of the largest operators of senior housing communities in the United States in terms of resident capacity. The Company owns, operates, develops and manages senior housing communities throughout the United States. As of December 31, 2017,2019, the Company operated 129126 senior housing communities in 23 states with an aggregate capacity of approximately 16,50016,000 residents, including 8380 senior housing communities which the Company owned and 46 senior housing communities that the Company leased. The accompanying consolidated financial statements include the financial statements of Capital Senior Living Corporation and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.
2. | Summary of Significant Accounting Policies |
Cash and Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with original maturities of three months or less at the date of acquisition to be cash equivalents. The Company has deposits in banks that exceed Federal Deposit Insurance Corporation insurance limits. Management believes that credit risk related to these deposits is minimal. Restricted cash consists of deposits required by certain lenders as collateral pursuant to letters of credit. The deposit must remain so long as the letter of credit is outstanding which is subject to renewal annually.
The following table sets forth our cash and cash equivalents and restricted cash (in thousands):
|
| Year Ended December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Cash and cash equivalents |
| $ | 23,975 |
|
| $ | 31,309 |
|
Restricted cash |
|
| 13,088 |
|
|
| 13,011 |
|
|
| $ | 37,063 |
|
| $ | 44,320 |
|
Long-Lived Assets and Impairment
Property and equipment are stated at cost and depreciated on a straight-line basis over the estimated useful lives of the assets. At each balance sheet date, the Company reviews the carrying value of its property and equipment to determine if facts and circumstances suggest that they may be impaired or that the depreciation period may need to be changed. The Company considers internal factors such as net operating losses along with external factors relating to each asset, including contract changes, local market developments, and other publicly available information. information to determine whether impairment indicators exist.
If an indicator of impairment is identified, the carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flows from such asset is separately identifiable and is less than its carrying value. InRecoverability of an asset group is assessed by comparing its carrying amount to the estimated future undiscounted net cash flows expected to be generated by the asset group through operation or disposition, calculated utilizing the lowest level of identifiable cash flows. If this comparison indicates that event, a lossthe carrying amount of an asset group is recognizednot recoverable, we are required to recognize an impairment loss. The Company determines the fair value of operating lease ROU assets by comparing the contractual rent payments to estimated market rental rates. Long-lived ROU and fixed assets are valued at fair value using inputs classified as Level 3 in the fair value hierarchy,
which are unobservable inputs based on the amountCompany’s assumptions. Impairment, if any, is recorded in the period in which the impairment occurred.
Assets Held for Sale
Assets are classified as held for sale when the Company has determined all of the held-for-sale criteria have been met. The Company determines the fair value, net of costs of disposal, of an asset on the date the asset is categorized as held for sale, and the asset is recorded at the lower of its fair value, net of cost of disposal, or carrying value exceedson that date. The Company periodically reevaluates assets held for sale to determine if the assets are still recorded at the lower of fair market value, net of cost of disposal, or carrying value. The fair values are generally determined based on discounted cash flows,market rates, industry trends and recent comparable sales transactions.
During the year ended December 31, 2019, the Company determined a remeasurement write down of the long-lived asset. The Company does not believe there are any indicators of impairment that would require an adjustmentapproximately $2.3 million was required to adjust the carrying value of a community classified as held for sale to its fair value, net of cost of disposal, which is included in gain (loss) on disposition of assets, net on the propertyCompany’s Consolidated Statements of Operations and equipment or their remaining useful lives as ofComprehensive Loss. The community was sold prior to December 31, 20172019. The Company did not recognize any expense related to assets held for sale during the year ended December 31, 2018. The fair values are generally determined based on market rates, industry trends, and 2016.recent comparable sales transactions. The actual sales price of these assets could differ significantly from the Company’s estimates. There were no senior housing communities classified as held for sale by the Company at December 31, 2019 or 2018.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense was approximately $3.9 million, $3.3 million and $2.8 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Off-Balance Sheet Arrangements
The Company had no material off-balance sheet arrangements at December 31, 2017.2019 or 2018.
Income Taxes
Income taxes are computed using the asset and liability method and current income taxes are recorded based on amounts refundable or payable in the current year.payable. Deferred income taxes are recorded based on the estimated future tax effects of loss carryforwards and temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in the years in which we expect those carryforwards and temporary differences to be recovered or settled. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income.
F-7
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
The Company evaluates uncertain tax positions through consideration of accounting and reporting guidance on criteria, measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial-statement comparability among different companies. The Company is required to recognize a tax benefit in its financial statements for an uncertain tax position only if management’s assessment is that its position is “more likely than not” (i.e., a greater than 50 percent likelihood) to be upheld on audit based only on the technical merits of the tax position. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as income tax expense.
Resident revenue consists of fees for basic housing and certain support services and fees associated with additional housing and expanded support requirements such as assisted living care, memory care, and ancillary services. Basic housing and certain support services revenue is recognized at estimated net realizablerecorded when services are rendered and amounts based on historical experiences, billed are due from residents in the period in which the rental and other services are provided. Additionally, substantially allprovided which totaled approximately $440.1 million and $452.5 million, respectively, for the fiscal years ended December 31, 2019 and 2018. Residency agreements are generally short term in nature with durations of one year or less and are typically terminable by either party, under certain circumstances, upon providing 30 days’ notice, unless state law provides otherwise, with resident fees billed monthly in advance. The Company had contract liabilities for deferred fees paid by our residents prior to the month housing and support services were to be provided totaling approximately $4.3 million and $4.5 million, respectively, which are included as a component of deferred income within current liabilities of the Company’s Consolidated Balance Sheets at December 31, 2019 and 2018. Deferred fees paid by our residents recognized into revenue during fiscal 2019 and 2018 totaled approximately $4.5 million and $3.9 million, respectively, and were recognized as a component of resident revenue within the Company’s Consolidated Statements of Operations and Comprehensive Loss. Revenue for certain ancillary services is recognized as services are provided, and includes fees for services such as medication management, daily living activities, beautician/barber, laundry, television, guest meals, pets, and parking which are generally billed monthly in arrears.
The Company's senior housing communities have residency agreements which generally require the resident to pay a community fees received from residents are non-refundable fee prior to moving into the community and are recorded initially by the Company as deferred revenue. TheAt each of December 31, 2019 and 2018, the Company had contract liabilities for deferred amountscommunity fees totaling approximately $2.2 million and $1.1 million, respectively, which are amortized over the respective residents’ initial lease term which is consistent with the contractual obligation associated with the estimated stayincluded as a component of deferred income within current liabilities of the resident.Company’s Consolidated Balance Sheets. The Company recognized community fees as a component of resident revenue within the Company’s Consolidated Statements of Operations and Comprehensive Loss of approximately $2.9 million and $2.8 million, respectively, during the fiscal years ended December 31, 2019 and 2018.
Revenues from the Medicaid program accounted for approximately 5.9% of the Company’s revenue in fiscal 2019, 5.4% of the Company’s revenue in fiscal 2018, and 5.6% of the Company’s revenue in fiscal 2017, 5.5% of the Company’s revenue in fiscal 2016, and 4.6% of the Company’s revenue in fiscal 2015.2017. During fiscal 2017, 2016,2019, 2018, and 2015,2017, 41, 40, and 34,41, respectively, of the Company’s communities were providers of services under the Medicaid program. Accordingly, these communities were entitled to reimbursement under the foregoing program at established rates that were lower than private pay rates. Patient service revenue for Medicaid patients was recorded at the reimbursement rates as the rates were set prospectively by the applicable state upon the filing of an annual cost report. None of the Company’s communities were providers of services under the Medicare program during fiscal 2017, 2016,2019, 2018, or 2015.2017.
Laws and regulations governing the Medicaid program are complex and subject to interpretation. The Company believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing. While no such regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from the Medicaid program.
Purchase Accounting
In determining the allocation of the purchase price of senior housing communities acquired to net tangible and identified intangible assets acquired and liabilities assumed, if any, the Company makes estimates of fair value using information obtained as a result of pre-acquisition due diligence, leasing activities and/or independent appraisals. The Company assigns the purchase price for senior living communities to assets acquired and liabilities assumed based on their estimated fair values which are determined in accordance with the provisions of ASC 805, Business Combinations.values. The determination of fair value involves the use of significant judgments and estimates which is generally assessed as follows:
The Company allocates the fair values of buildings acquired on an as-if-vacant basis and depreciates the building values over the estimated remaining lives of the buildings, not to exceed 40 years. The Companydetermines the allocated values of other fixed assets, such as site improvements and furniture, fixtures and equipment, based upon the replacement cost and depreciates such values over the assets’ estimated remaining useful lives as determined at the acquisition date. The Company determines the value of land by considering the sales prices of similar properties in recent transactions.
F-8
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
The fair value of acquired lease-related intangibles reflects the estimated fair value of existing resident in-place leases as represented by the cost to obtain residents and an estimated absorption period to reflect the value of the rent and recovery costs foregone during a reasonable lease-up period as if the property acquired was vacant. The Company amortizes any acquired resident in-place lease intangibles to depreciation and amortization expense over the estimated remaining useful life of the respective resident operating leases.
Credit Risk and Allowance for Doubtful Accounts
The Company’s resident receivables are generally due within 30 days from the date billed. Accounts receivable are reported net of an allowance for doubtful accounts of $4.9$8.6 million and $4.3$6.8 million at December 31, 20172019 and 2016,2018, respectively, and represent the Company’s estimate of the amount that ultimately will be collected. The adequacy of the Company’s allowance for doubtful accounts is reviewed on an ongoing basis, using historical payment trends, write-off experience, analyses of receivable portfolios by payor source and aging of receivables, as well as a review of specific accounts, and adjustments are made to the allowance as necessary. Credit losses on resident receivables have historically been within management’s estimates, and management believes that the allowance for doubtful accounts adequately provides for expected losses.
Lease Accounting
The Company determines whether to account for its leases as operating, capital or financing leases depending on the underlying terms of the lease agreement. This determination of classification requires significant judgment relating to certain information, including the estimated fair value and remaining economic life of the community, the Company’s cost of funds, minimum lease payments and other lease terms. The lease rates under the Company’s lease agreements are subject to certain conditional escalation clauses which are recognized when probable or incurred and are based on changes in the consumer price index or certain operational performance measures. As of December 31, 2017 and 2016,Effective January 1, 2019, the Company leased 46 and 50 communities, respectively, twoadopted the new lease standard provisions of whichASC 842. Due to the Company classified as capital lease and financing obligations withadoption of ASC 842, the remaining classified as operating leases. The Company incursunamortized balances of lease acquisition costs and amortizes these costs over the termlease incentives were reclassified as a component of the respective operating lease agreement. Certain leases entered into byright-of-use asset. Additionally, the Company qualified as sale/leaseback transactions, and as such, any related gains have been deferred and are being amortized over the respective lease term. No new communities were leased by the Company during fiscal 2017 or 2016. Effective January 31, 2017, the Company acquired from Ventas the underlying real estate associated with four of its operating leases. For additional information refer to Note 3, “Acquisitions”.
Facility lease expense in the Company’s Consolidated Statements of Operations and Comprehensive loss includes rent expense plus amortization expense relating to leasehold acquisition costs offset by the amortizationunamortized balance of deferred gains associated with sale leaseback transactions totaling approximately $10.0 million was written-off to retained deficit.
Management determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of the identified asset means the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.
Operating lease incentives.right-of-use assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term on the lease commencement date. When the implicit lease rate is not determinable, management uses the Company’s incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future minimum lease payments. The expected lease terms include options to extend or terminate the lease when it is reasonably certain the Company will exercise such options. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease terms.
Employee HealthCertain of the Company’s lease arrangements have lease and Dental Benefits, Workers’ Compensation,non-lease components. The Company accounts for the lease components and Insurance Reservesnon-lease components as a single lease component for all classes of underlying assets. Leases with an expected lease term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the expected lease term.
Self-Insurance Liability Accruals
The Company offers certain full-time employees an option to participate in its health and dental plans. The Company is self-insured up to certain limits and is insured if claims in excess of these limits are incurred. The cost of employee health and dental benefits, net of employee contributions, is shared between the corporate office and the senior housing communities based on the respective number of plan participants. Funds collected are used to pay the actual program costs, including estimated annual claims, third-party administrative fees, network provider fees, communication costs, and other related administrative costs incurred by the plans. Claims are paid as they are submitted to the Company’s third-party administrator. The Company records a liability for outstanding claims and claims that have been incurred but not yet reported. This liability is based on the historical claim reporting lag and payment trends of health insurance claims. Management believes that the liability for outstanding losses and expenses is adequate to cover the ultimate cost of losses and expenses incurred at December 31, 2017;2019; however, actual claims and expenses may differ. Any subsequent changes in estimates are recorded in the period in which they are determined.
F-9
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
The Company uses a combination of insurance and self-insurance for workers’ compensation. Determining the reserve for workers’ compensation losses and costs that the Company has incurred as of the end of a reporting period involves significant judgments based on projected future events, including potential settlements for pending claims, known incidents which may result in claims, estimates of incurred but not yet reported claims, changes in insurance premiums, estimated litigation costs and other factors. The Company regularly adjusts these estimates to reflect changes in the foregoing factors. However, since this reserve is based on estimates, the actual expenses incurred may differ from the amounts reserved. Any subsequent changes in estimates are recorded in the period in which they are determined.
Advertising
Advertising is expensed as incurred. Advertising expenses for the years ended December 31, 2017, 2016, and 2015 were $16.7 million, $15.0 million, and $13.9 million, respectively, and are included as a component of operating expenses within the Consolidated Statements of Operations and Comprehensive Loss.
Net Loss Per Share
Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Potentially dilutive securities consist of unvested restricted shares and shares that could be issued under outstanding stock options. Potentially dilutive securities are excluded from the computation of net loss per common share if their effect is antidilutive.
The following table sets forth the computation of basic and diluted net loss per share (in thousands, except for per share amounts):
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
| ||||||
Net loss |
| $ | (44,168 | ) |
| $ | (28,017 | ) |
| $ | (14,284 | ) |
| $ | (36,030 | ) |
| $ | (53,596 | ) |
| $ | (44,168 | ) |
Net loss allocated to unvested restricted shares |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Undistributed net loss allocated to common shares |
| $ | (44,168 | ) |
| $ | (28,017 | ) |
| $ | (14,284 | ) |
| $ | (36,030 | ) |
| $ | (53,596 | ) |
| $ | (44,168 | ) |
Weighted average shares outstanding — basic |
|
| 29,453 |
|
|
| 28,909 |
|
|
| 28,688 |
|
|
| 30,263 |
|
|
| 29,812 |
|
|
| 29,453 |
|
Effects of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee equity compensation plans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Weighted average shares outstanding — diluted |
|
| 29,453 |
|
|
| 28,909 |
|
|
| 28,688 |
|
|
| 30,263 |
|
|
| 29,812 |
|
|
| 29,453 |
|
Basic net loss per share |
| $ | (1.50 | ) |
| $ | (0.97 | ) |
| $ | (0.50 | ) |
| $ | (1.19 | ) |
| $ | (1.80 | ) |
| $ | (1.50 | ) |
Diluted net loss per share |
| $ | (1.50 | ) |
| $ | (0.97 | ) |
| $ | (0.50 | ) |
| $ | (1.19 | ) |
| $ | (1.80 | ) |
| $ | (1.50 | ) |
Awards of unvested restricted stock representing approximately 0.91.1 million, 0.81.3 million, and 0.80.9 million shares were outstanding for the fiscal years ended December 31, 2017, 2016,2019, 2018, and 2015,2017, respectively, and are antidilutive. Beginning in fiscal 2015, the unvested restricted stock did not meet all of the requirements to be deemed participating securities and therefore, are calculated under the treasury method.
The Company accounts for treasury stock under the cost method and includes treasury stock as a component of shareholders’ equity until it is canceled. There were no repurchases of the Company’s common stock during fiscal 2017. The Company repurchased 144,315 shares of its common stock during fiscal 2016, pursuant to a share repurchase program approved by the Company’s board of directors. All shares acquired by the Company have been purchased in open-market transactions.2019 or 2018.
F-10
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
The Company recognizes compensation expense for share-based payment awards to certain employees and directors, including grants of stock options and awards of restricted stock, in the Consolidated Statements of Operations and Comprehensive Loss based on their fair values.
On May 8, 2007, the Company’s stockholders approved the 2007 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation (as amended, the “2007 Plan”) which providesprovided for, among other things, the grant of restricted stock awards and stock options to purchase shares of the Company’s common stock. The 2007 Plan authorizesauthorized the Company to issue up to 4.6 million shares of common stock, and the Company currently has 1.1 millionhad reserved shares of common stock reserved for future issuance pursuant to awards under the 2007 Plan.
On May 14, 2019, the Company’s stockholders approved the 2019 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation (the “2019 Plan”), which replaced the 2007 Plan. The 2019 Plan provides for, among other things, the grant of restricted stock awards, restricted stock units and stock options to purchase shares of the Company’s common stock. The 2019 Plan authorizes the Company to issue up to 2,250,000 shares of common stock plus reserved shares not issued or subject to outstanding awards under the 2007 Plan, and the Company has reserved shares of common stock for future issuance pursuant to awards under the 2019 Plan. Effective March 26, 2019, the 2007 Plan was terminated and no additional awards will be granted under the 2007 Plan.
Segment Information
The Company evaluates the performance and allocates resources of its senior living facilities based on current operations and market assessments on a property-by-property basis. The Company does not have a concentration of operations geographically or by product or service as its management functions are integrated at the property level. The Company has determined that all of its operating units meet the criteria in Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting, to be aggregated into one reporting segment. As such, the Company operates in one segment.
Recently Issued Accounting Guidance
In January 2017,August 2018, the Financial Accounting Standards Board (“FASB”)FASB issued Accounting Standards Update (“ASU”) 2017-01, ASU No. 2018-13, Business Combinations – ClarifyingFair Value Measurement (Topic 820), which modifies certain disclosure requirements in Topic 820, such as the Definitionremoval of a Business. ASU 2017-01 provides guidance in accountingthe need to disclose the amount of and reason for business combinations when determining if the transaction represents acquisitions or disposals of assets or of a business. Under ASU 2017-01, when determining whether an integrated set of assetstransfers between Level 1 and activities constitutes a business, entities must compare the fair value of gross assets acquired to the fair value of a single identifiable asset or group of similar identifiable assets. If substantially allLevel 2 of the fair value of the gross assets acquired (or disposed of) is concentrated in the single identifiable assets or group of similar identifiable assets, the integrated set of assetshierarchy, and activities is not characterized as a business.several changes related to Level 3 fair value measurements. ASU 2017-01 is applied prospectively and2018-13 is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early application is permitted. Management2019. The Company does not expect the adoption of ASU 2017-012018-13 to have a material impact on the Company’sits consolidated financial position, results of operations or cash flows.statements.
In NovemberJune 2016, the FASB issued ASU 2016-18, 2016-13,Statement Financial Instruments - Credit Losses: Measurement of Cash Flows (Topic 230): Restricted Cash (a consensusCredit Losses on Financial Instruments. Current U.S. generally accepted accounting principles (GAAP) require an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. ASU 2016-13 replaces the current incurred loss methodology for credit losses and removes the thresholds that companies apply to measure credit losses on financial statements measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities with a methodology that reflects expected credit losses and requires consideration of the FASB Emerging Issues Task Force).a broader range of reasonable and supportable information to form credit loss estimates. For smaller
reporting companies, ASU 2016-18 requires an entity to include in its cash and cash-equivalent balances in the statement of cash flows those amounts that are deemed to be restricted cash and restricted cash equivalents. ASU 2016-182016-13 is effective for fiscal years and for interim and annual reporting periods within those fiscal years beginning after December 15, 2017. Management does not expect2022. The Company is currently evaluating the impact the adoption of ASU 2016-18 to2016-13 will have a material impact on the Company’s cash flows.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 amends the guidance in ASC 230, which often requires judgment to determine the appropriate classification of cash flows as operating, investing or financing activities and has resulted in diversity in practice in how certain cash receipts and cash payments are classified. ASU 2016-15 is effective for interim and annual reporting periods beginning after December 15, 2017 and should be applied on a retrospective basis. Management does not expect the adoption of ASU 2016-15 to have a material impact on the Company’s cash flows.
F-11
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-based Payment Accounting. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in ASU 2016-09 are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted the provisions of ASU 2016-09 on January 1, 2017, and incorporated the provisions of this update into its consolidated financial statements upon adoption. Upon adoption, the Company elected to change its accounting policy to account for forfeitures as they occur. This change was applied on a modified retrospective basis with a cumulative effect adjustment to retained earnings of $0.2 million. Additionally, the adoption of ASU 2016-09 resulted in the Company recording an adjustment of $5.3 million, which resulted in an increase to the Company’s deferred tax asset valuation allowance, to recognize net operating loss carryforwards attributable to excess tax benefits on stock compensation that had not been previously recognized to additional paid in capital. Excess tax benefits for share-based payments are now included in net operating activities rather than net financing activities within the Company’s Consolidated Statements of Cash Flows. As a result of the adoption of ASU 2016-09, these reporting changes have been applied prospectively and prior periods have not been adjusted.disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 will be effective beginning in 2019. Early adoption of ASU 2016-02 as of its issuance is permitted. The new leaseslease standard requires lessees to recognize on the balance sheet a modified retrospective transition approach for all leases existing at, or entered into after,liability to make lease payments and a right-of-use asset representing the date of initial application, with an optionright to use certain transition relief. The Company is currently evaluating the impact of adoptingunderlying asset for the new leases standard on the Company’s consolidated financial statements.
In May 2014,lease term. Additionally, in July 2018, the FASB issued ASU 2014-09,2018-11, Revenue from ContractsLeases, Targeted Improvements, which provided entities with Customers. ASU 2014-09 affects any entity that either enters into contracts with customersa transition method option to transfer goods or services or enters into contracts fornot restate comparative periods presented, but to recognize a cumulative effect adjustment to beginning retained earnings in the transferperiod of nonfinancial assets. Under ASU 2014-09, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. ASU 2014-09 is effective for annual periods beginning after December 15, 2017.adoption. The Company has evaluatedadopted the impactnew lease standard on January 1, 2019, on a prospective basis, forgoing comparative reporting using the modified retrospective adoption method, utilizing the simplified transition method available pursuant to the standard, which allowed the Company to continue to apply the legacy accounting guidance under ASC 840, including its disclosure requirements, in the comparative periods presented in the year of ASU 2014-09 will haveadoption. The Company elected to utilize certain practical expedients permitted under the transition guidance within the new standard, which allowed the Company to carryforward the historical lease classification, not separate the lease and non-lease components for all classes of underlying assets in which it is the lessee, not reassess initial direct costs for existing leases, and make an accounting policy election not to account for leases with an initial term of 12 months or less on the balance sheet. Adoption of the lease standards by the Company initially resulted in the recording of operating lease right-of-use assets of $255.4 million and operating lease liabilities of $289.5 million on the Company’s consolidated financial statementsConsolidated Balance Sheet as of January 1, 2019. The difference between amounts recorded for the operating lease right-of-use assets and disclosures. Based on our assessment, we dooperating lease liabilities is due to net reductions for the reclassification of certain deferred lease costs and lease incentives of $16.3 million and impairment write-down adjustments of $17.8 million recorded to retained deficit. The fair value of the right-of-use assets was estimated, using level 3 inputs as defined in the accounting standards codification, utilizing a discounted cash flow approach based upon historical and projected cash flows and market data, including management fees and a market supported lease coverage ratio. The estimated future cash flows were discounted at a rate that is consistent with a weighted average cost of capital from a market participant perspective. The adoption of the lease standard did not believe it will have a significantmaterial impact on the consolidated cash flows of the Company and had no impact on the Company’s consolidated financial statements. covenant compliance under its current debt and lease agreements. See additional discussion at “Note 16 – Leases.”
The Company is planningadoption of ASC 842 resulted in the following adjustments to adopt the standard under the modified retrospective adoption.Company’s Consolidated Balance Sheet at January 1, 2019:
Assets |
|
|
|
Prepaid expenses and other |
| $ | (2,050) |
Property and equipment, net |
|
| (15,569) |
Operating lease right-of-use assets, net |
|
| 255,386 |
Other assets, net |
|
| (4,715) |
Total assets |
| $ | 233,052 |
Liabilities and Shareholder’s Equity |
|
|
|
Deferred income |
| $ | (17,498) |
Financing obligations |
|
| (35,956) |
Operating lease liabilities |
|
| 289,513 |
Other long-term liabilities |
|
| (15,643) |
Total liabilities |
| $ | 220,416 |
Total shareholder’s equity |
| $ | 12,636 |
Use of Estimates and Critical Accounting Policies
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying
financial statements and related footnotes. Management bases its estimates and assumptions on historical experience, observance of industry trends and various other sources of information and factors, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially could result in materially different results under different assumptions and conditions. The Company believes revenue recognition, purchase accounting, credit risklong-lived asset impairment, and allowance for doubtful accounts, lease accounting, employee health and dental benefits, workers’ compensation and insurance reserves, long-lived assets, and income taxesself-insurance liability accruals are its most critical accounting policies and/or require management’s most difficult and subjective judgments.
Reclassifications3. Impairment of Long-Lived Assets
Certain reclassifications have been made to prior period amounts to conform to current period presentation.
F-12
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended December 31, 2017
Fiscal 2017
Effective January 31, 2017 (the “Closing Date”),2019. the Company acquiredrecorded impairment charges of $1.6 million and $1.4 million related to fixed assets and lease ROU assets, respectively, due to a change in the underlying real estate through an asset acquisition associated with fouruseful life of its community located in Boca Raton, Florida, which transferred to a new operator subsequent to year-end (see Note 18, Subsequent Events, for discussion of the senior housing communities previously leased from Ventas, Inc. (“Ventas”)property’s transition). Due to the change in useful life, the Company concluded the assets related to that property were not recoverable. For property and equipment where indicators of impairment were identified, tests of recoverability were performed and the Company has concluded its property and equipment is recoverable and does not warrant adjustment to the carrying value or remaining useful lives, except for an acquisition pricethe property noted above, as of $85.0 million (the “Four Property Lease Transaction”). TheDecember 31, 2019 and 2018.
4.Dispositions and Other Significant Transactions
On October 22, 2019, the Company obtained interest only, bridge financing from Berkadia Commercial Mortgage LLC (“Berkadia”) for $65.0 millionentered into a lease amendment with Healthpeak, as lessors of certain of the acquisition priceCompany’s leased properties, which was later amended, to transition one Healthpeak property to new operators on or around January 15, 2020, and to sell the remaining eight as soon as possible, with an initial variable interest rateexpected sale dates in or around the second quarter of LIBOR plus 4.0% and2020, to a 36-month term, withbuyer or buyers. Under the balanceterms of the acquisition price paid from the Company’s existing cash resources. Additionally,agreement, the Company agreed to continue paying $2.3 millionwill make a one-time payment of $250,000 for the annual rents associated with the four communities acquired overtransitioned property as a prepayment against the remaining lease termpayments. For the eight properties to be sold, Healthpeak is required to arrange, negotiate, and close the sale of these properties. The Company is entitled to 50% of the sevenproceeds in excess of a specified selling price for one of the properties, up to $350,000. At December 31, 2019, none of the properties had been transitioned to a new operator or sold. Subsequent to year-end, the Company entered into an agreement with Healthpeak, providing for the early termination of its other Master Lease Agreement between it and Healthpeak. See discussion at Note 18- Subsequent Events.
Effective October 1, 2019, the Company sold two communities remaininglocated in the Ventas Lease Portfolio. As such, the total additional lease paymentsSpringfield, Missouri and Peoria, Illinois, for $64.8 million. The properties were sold in order to be paid over the remaining lease term were discounted backmonetize assets deemed at peak performance and resulted in net proceeds to the Closing Date utilizing a credit-adjusted risk-free rate to determine the fair valueCompany of the lease termination financing obligation of $16.0 million. The fair value of the four communities acquired was determined to approximate $88.1 million. The fair values of the property, plant, and equipment of the acquired communities were determined utilizing a direct capitalization method considering facility net operating income and market capitalization rates. These fair value measurements were based on current market conditions as of the acquisition date and are considered Level 3 measurements (fair value measurements using significant unobservable inputs) within the fair value hierarchy of ASC 820-10, Fair Value Measurement. The range of capitalization rates utilized was 7.25% to 8.50%, depending upon the property type, geographical location, and overall quality of each respective community. The acquisition price of $85.0 million and lease termination obligation of $16.0 million resulted in total aggregate consideration by the Company for the acquisition of the four communities of $101.0approximately $14.8 million. The Company recordedrecognized a gain of $38.8 million on the difference between the total aggregate consideration ($101.0 million) and the estimated fair valuedisposition of the fourtwo communities, acquired ($88.1 million) of $12.9 million as a loss on facility lease termination during the first quarter of fiscal 2017. Additionally, the Company incurred approximately $0.4 million in transaction costs related to this acquisition which have been capitalized as a component of the cost of the assets acquired.
As a result of this asset acquisition, the Company recorded additions to property and equipment of approximately $88.1 million within the Company’s Consolidated Balance Sheets which will be depreciated or amortized over the estimated useful lives.
The purchase accounting for the Springfield Transaction and Cincinnati Transaction, as defined below, which closed during fiscal 2016, was finalized during the first quarter of fiscal 2017 and valuation adjustments resulted in the Company reclassifying approximately $1.3 million from property and equipment to other assets to reflect the final purchase price allocation.
Fiscal 2016
Effective November 2, 2016, the Company closed the acquisition of one senior housing community located in Cincinnati, Ohio, for $29.0 million (the “Cincinnati Acquisition”). The community consists of 45 independent living units and 77 assisted living units. The Company incurred approximately $0.2 million in transaction costs related to this acquisition which have beenis included in general and administrative expenses withingain (loss) on disposition of assets, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Fannie MaeAt September 30, 2019, these properties were deemed as assets held for approximately $22.0sale resulting in $24.4 million being reclassified to assets held for sale and $44.4 million of corresponding mortgage debt being reclassified to the acquisition price at a fixed interest ratecurrent portion of 4.24% with a 10-year term with the balance of the acquisition price paid fromnotes payable within the Company’s existing cash resources.Consolidated Balance Sheets. These communities comprised of 156 and 158 independent living units, respectively.
Effective September 30, 2016,May 1, 2019, the Company closed on the acquisitionsale of one senior housing community located in Springfield, Massachusetts,Kokomo, Indiana, for $27.0a total purchase price of $5.0 million and received approximately $1.4 million in net proceeds after retiring outstanding mortgage debt of $3.5 million and paying customary transaction and closing costs (the “Springfield“Kokomo Sale Transaction”). The community consists of 97 independent living units and 90 assisted living units. The Company incurred approximately $0.3 million in transaction costs related to this acquisition which have been included in general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Fannie Mae for $20.3 million of the acquisition price at a fixed interest rate of 4.10% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources.
F-13
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
Effective September 27, 2016, the Company closed the acquisition of one senior housing community located in Kingwood, Texas for $18.0 million (the “Kingwood Transaction”). The community consistswas comprised of 96 assisted living units. The Company incurredhad reported these assets as held for sale at March 31, 2019 and recorded a remeasurement write-down of approximately $0.2$2.3 million in transactionto adjust the carrying values of these assets to the sales price, less costs related to this acquisitionsell, which have beenwas included in general and administrative expenses withinGain (loss) on disposition of assets, net, on the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Protective Life Insurance Company (“Protective Life”) for $13.0 million of the acquisition price at a fixed interest rate of 4.13% with a 15-year term with the balance of the acquisition price paid from the Company’s existing cash resources.
Effective February 16, 2016, the Company closed the acquisition of two senior housing communities located in Pensacola, Florida, for $48.0 million (the “Pensacola Transaction”). The two communities consist of 179 assisted living units. The Company incurred approximately $0.3 million in transaction costs related to this acquisition which have been included in general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Protective Life for $35.0 million of the acquisition price at a fixed interest rate of 4.38% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources.
Effective January 26, 2016, the Company closed the acquisition of three senior housing communities located in Colby, Park Falls, and Wisconsin Rapids, Wisconsin, for approximately $16.8 million (the “Pine Ridge Transaction”). The three communities consist of 138 assisted living units. The Company incurred approximately $0.1 million in transaction costs related to this acquisition which have been included in general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Protective Life for $11.3 million of the acquisition price at a fixed interest rate of 4.50% with a 10-year term with the balance of the acquisition price paid from the Company’s existing cash resources.
As a result of these acquisitions, the Company recorded additions to property and equipment of approximately $126.0 million and other assets of approximately $12.8 million, primarily consisting of in-place lease intangibles, within the Company’s Consolidated Balance Sheets which will be depreciated or amortized over the estimated useful lives. During fiscal 2016, final valuation adjustments associated with 2015 senior housing community acquisitions resulted in the Company reclassifying approximately $1.3 million from other assets to property and equipment. As a result of adoption of ASU 2015-16, prior periods were not adjusted and recast to reflect this reclassification within the Company’s Consolidated Balance Sheets.
During fiscal 2016, these acquisitions generated $15.5 million of revenue and $(7.7) million of losses before income taxes which are included in the Company’s Consolidated Statements of Operations and Comprehensive Loss from the dates of acquisition. Losses before income taxes primarily result from the amortization of in-place lease intangibles associated with acquisitions during fiscal 2016 and 2015. The unaudited pro forma combined results of operations have been prepared as if the acquisitions had occurred on January 1, 2015, as follows (in thousands):.
|
| December 31, |
| |||||
|
| 2016 |
|
| 2015 |
| ||
Total revenues |
| $ | 461,653 |
|
| $ | 434,967 |
|
Loss before income taxes |
| $ | (19,389 | ) |
| $ | (27,374 | ) |
The unaudited pro forma consolidated amounts are presented for informational purposes only and do not necessarily reflect the results of operations of the Company that would have actually resulted had the acquisitions occurred on January 1, 2015.
F-14
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
PropertyAs of December 31, 2019 and 2018, net property and equipment and leasehold improvements, which include assets under financing leases, consists of the following (in thousands):
|
|
|
| December 31, |
|
|
|
| December 31, |
| ||||||||||
|
| Asset Lives |
| 2017 |
|
| 2016 |
|
| Asset Lives |
| 2019 |
|
| 2018 |
| ||||
Land |
|
|
| $ | 69,842 |
|
| $ | 66,755 |
|
|
|
| $ | 66,764 |
|
| $ | 69,842 |
|
Land improvements |
| 5 to 20 years |
|
| 24,665 |
|
|
| 21,644 |
|
| 5 to 20 years |
|
| 25,718 |
|
|
| 25,373 |
|
Buildings and building improvements |
| 10 to 40 years |
|
| 1,148,816 |
|
|
| 1,030,676 |
|
| 10 to 40 years |
|
| 1,096,386 |
|
|
| 1,158,577 |
|
Furniture and equipment |
| 5 to 10 years |
|
| 62,614 |
|
|
| 51,471 |
|
| 5 to 10 years |
|
| 65,828 |
|
|
| 66,202 |
|
Automobiles |
| 5 to 7 years |
|
| 6,236 |
|
|
| 5,776 |
|
| 5 to 7 years |
|
| 5,947 |
|
|
| 6,344 |
|
Leasehold improvements |
| (1) |
|
| 85,384 |
|
|
| 77,364 |
| ||||||||||
Assets under financing leases and leasehold improvements |
| (1) |
|
| 95,281 |
|
|
| 98,396 |
| ||||||||||
Construction in progress |
| NA |
|
| 5,711 |
|
|
| 23,906 |
|
| NA |
|
| 1,491 |
|
|
| 421 |
|
|
|
|
|
| 1,403,268 |
|
|
| 1,277,592 |
|
|
|
|
| 1,357,415 |
|
|
| 1,425,155 |
|
Less accumulated depreciation and amortization |
|
|
|
| (303,482 | ) |
|
| (245,162 | ) |
|
|
|
| (388,204 | ) |
|
| (366,106 | ) |
Property and equipment, net |
|
|
| $ | 1,099,786 |
|
| $ | 1,032,430 |
|
|
|
| $ | 969,211 |
|
| $ | 1,059,049 |
|
(1) | Leasehold improvements are amortized over the shorter of the useful life of the asset or the remaining lease term. Assets under financing leases and leasehold improvements include $0.6million of financing lease right-of-use assets, net of accumulated amortization, as of December 31, 2019. Refer to Note 16, Leases, for further information on the Company’s financing leases. |
At December 31, 20172019 and 2016,2018, furniture and equipment included $3.2$4.1 million and $3.8 million of capitalized computer software development costs of which $3.0$3.3 million and $2.8$3.1 million, respectively, has been amortized and is included as a component of accumulated depreciation and amortization. During fiscal 2017, final valuation adjustments associated with senior housing community acquisitions in fiscal 2016 resulted in the Company reclassifying approximately $1.3 million fromAt December 31, 2019 and 2018, property and equipment, to other assets; however, as a result of adoption of ASU 2015-16, the Consolidated Balance Sheet for the year ended December 31, 2016, has not been adjusted and recast to reflect these reclassification adjustments.
Property and equipment includes $31.8 million of assets under capital lease in connection with the Ventas Lease Transaction, as discussed at Note 15, “Leases,” of which $15.4net included $2.0 million and $14.6$0.8 million, hasrespectively, of capital expenditures which had been amortized and is included as a component of accumulated depreciation and amortization at December 31, 2017 and 2016, respectively.incurred but not yet paid.
| Other Assets |
Other assets consist of the following (in thousands):
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2019 |
|
| 2018 |
| ||||
Deferred lease costs, net |
| $ | 5,555 |
|
| $ | 7,538 |
|
| $ | - |
|
| $ | 4,715 |
|
Security and other deposits |
|
| 10,234 |
|
|
| 14,274 |
|
|
| 9,915 |
|
|
| 9,889 |
|
In-place lease intangibles, net |
|
| — |
|
|
| 6,301 |
| ||||||||
Other |
|
| 3,047 |
|
|
| 3,210 |
|
|
| 758 |
|
|
| 1,881 |
|
|
| $ | 18,836 |
|
| $ | 31,323 |
|
| $ | 10,673 |
|
| $ | 16,485 |
|
In connectionPrior to the adoption of ASC 842, lease acquisition and modification costs were classified as other assets and amortized over their respective lease terms. The unamortized portion of lease acquisition and modification costs were reclassified into operating right-of-use assets in conjunction with the Company’s acquisitions and certain of its lease transactions, subject to final valuation adjustments, the Company records additions to in-place lease intangibles in order to reflect the value associated with the resident operating leases acquired. In-place lease intangibles are being amortized over the estimated remaining useful life of the respective resident operating leases. The value of in-place leases includes lost revenue that would be realized if the resident operating leases were to be replaced by the Company.
F-15
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
During fiscal 2017, final valuation adjustments associated with senior housing community acquisitions in 2016 resulted in the Company reclassifying approximately $1.3 million from property and equipment to other assets; however, as a result of adoption of ASU 2015-16,ASC 842 on January 1, 2019. See Note 2, Summary of Significant Accounting Policies, for further information on the Consolidated Balance Sheet for the year ended December 31, 2016, has not been adjusted and recast to reflect these reclassification adjustments.
At December 31, 2016, the Company had gross in-place lease intangiblesCompany’s adoption of approximately $86.5 million of which approximately $80.2 million had been amortized. The unamortized ending balance of approximately $6.3 million at December 31, 2016, was fully amortized during fiscal 2017.ASC 842.
Accrued expenses consist of the following (in thousands):
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2019 |
|
| 2018 |
| ||||
Accrued salaries, bonuses and related expenses |
| $ | 13,015 |
|
| $ | 12,465 |
|
| $ | 14,733 |
|
| $ | 11,996 |
|
Accrued property taxes |
|
| 14,208 |
|
|
| 14,244 |
|
|
| 15,186 |
|
|
| 14,079 |
|
Accrued interest |
|
| 3,757 |
|
|
| 3,288 |
|
|
| 3,617 |
|
|
| 3,066 |
|
Accrued health claims and workers comp |
|
| 4,547 |
|
|
| 3,998 |
| ||||||||
Accrued health claims and workers compensation |
|
| 5,281 |
|
|
| 4,845 |
| ||||||||
Accrued professional fees |
|
| 763 |
|
|
| 792 |
|
|
| 1,265 |
|
|
| 1,012 |
|
Other |
|
| 4,461 |
|
|
| 4,277 |
|
|
| 6,145 |
|
|
| 6,882 |
|
|
| $ | 40,751 |
|
| $ | 39,064 |
|
| $ | 46,227 |
|
| $ | 41,880 |
|
F-16
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
Notes payable consists of the following (in thousands):
|
| Average Monthly |
|
| Net Book Value |
|
| Interest |
|
| Maturity |
| Notes Payable December 31, |
|
| Average Monthly |
|
| Net Book Value |
|
|
|
|
|
|
|
| Notes Payable December 31, |
| |||||||||||||||
Lender |
| Payment |
|
| Of Collateral(1) |
|
| Rate |
|
| Date |
| 2017 |
|
| 2016 |
|
| Payment |
|
| Of Collateral (1) |
|
| Interest Rate |
|
| Maturity Date |
| 2019 |
|
| 2018 |
| ||||||||||
Fannie Mae |
| $ | 78 |
|
| $ | 14,534 |
|
|
| 5.69 |
|
| August 2021 |
| $ | 12,283 |
|
| $ | 12,507 |
|
| $ | 135 |
|
| $ | 24,980 |
|
|
| 4.69 |
|
| April 2022 |
| $ | 22,592 |
|
| $ | 23,127 |
|
Fannie Mae |
|
| 26 |
|
|
| 5,675 |
|
|
| 4.97 |
|
| October 2021 |
|
| 4,331 |
|
|
| 4,419 |
|
|
| 11 |
|
|
| 3,992 |
|
|
| 4.97 |
|
| April 2022 |
|
| 1,958 |
|
|
| 1,991 |
|
Fannie Mae |
|
| 101 |
|
|
| 20,586 |
|
|
| 4.92 |
|
| October 2021 |
|
| 17,097 |
|
|
| 17,448 |
|
|
| 60 |
|
|
| 14,170 |
|
|
| 4.48 |
|
| May 2022 |
|
| 10,214 |
|
|
| 10,462 |
|
Fannie Mae |
|
| 27 |
|
|
| 20,586 |
|
|
| 5.19 |
|
| October 2021 |
|
| 4,839 |
|
|
| 4,911 |
|
|
| 20 |
|
|
| 14,170 |
|
|
| 4.85 |
|
| May 2022 |
|
| 3,579 |
|
|
| 3,640 |
|
Fannie Mae |
|
| 117 |
|
|
| 22,981 |
|
|
| 4.92 |
|
| November 2021 |
|
| 19,886 |
|
|
| 20,291 |
|
|
| — |
|
|
| — |
|
|
| 4.32 |
|
| January 2023 |
|
| — |
|
|
| 15,194 |
|
Fannie Mae |
|
| 27 |
|
|
| 5,990 |
|
|
| 4.38 |
|
| March 2022 |
|
| 4,831 |
|
|
| 4,936 |
|
|
| — |
|
|
| — |
|
|
| 5.39 |
|
| January 2023 |
|
| — |
|
|
| 8,327 |
|
Fannie Mae |
|
| 60 |
|
|
| 11,700 |
|
|
| 4.76 |
|
| April 2022 |
|
| 10,403 |
|
|
| 10,614 |
|
|
| 39 |
|
|
| 7,756 |
|
|
| 4.58 |
|
| January 2023 |
|
| 6,656 |
|
|
| 6,808 |
|
Fannie Mae |
|
| 19 |
|
|
| 11,700 |
|
|
| 4.85 |
|
| April 2022 |
|
| 3,470 |
|
|
| 3,522 |
|
|
| 17 |
|
|
| 7,756 |
|
|
| 5.49 |
|
| January 2023 |
|
| 2,950 |
|
|
| 2,990 |
|
Fannie Mae |
|
| 135 |
|
|
| 26,638 |
|
|
| 4.69 |
|
| April 2022 |
|
| 23,637 |
|
|
| 24,123 |
|
|
| 45 |
|
|
| 7,810 |
|
|
| 5.93 |
|
| October 2023 |
|
| 6,972 |
|
|
| 7,092 |
|
Fannie Mae |
|
| 11 |
|
|
| 4,178 |
|
|
| 4.97 |
|
| April 2022 |
|
| 2,022 |
|
|
| 2,051 |
|
|
| 67 |
|
|
| 12,408 |
|
|
| 5.50 |
|
| November 2023 |
|
| 10,792 |
|
|
| 10,992 |
|
Fannie Mae |
|
| 60 |
|
|
| 15,214 |
|
|
| 4.48 |
|
| May 2022 |
|
| 10,699 |
|
|
| 10,926 |
|
|
| 67 |
|
|
| 11,598 |
|
|
| 5.38 |
|
| November 2023 |
|
| 10,837 |
|
|
| 11,042 |
|
Fannie Mae |
|
| 20 |
|
|
| 15,214 |
|
|
| 4.85 |
|
| May 2022 |
|
| 3,697 |
|
|
| 3,752 |
|
|
| 282 |
|
|
| 49,090 |
|
|
| 5.56 |
|
| January 2024 |
|
| 45,077 |
|
|
| 45,892 |
|
Fannie Mae |
|
| 144 |
|
|
| 34,196 |
|
|
| 4.34 |
|
| November 2022 |
|
| 26,382 |
|
|
| 26,935 |
|
|
| 632 |
|
|
| 103,848 |
|
|
| 4.24 |
|
| July 2024 |
|
| 116,183 |
|
|
| 118,715 |
|
Fannie Mae |
|
| 33 |
|
|
| 7,384 |
|
|
| 4.50 |
|
| November 2022 |
|
| 5,881 |
|
|
| 6,000 |
|
|
| 120 |
|
|
| 24,074 |
|
|
| 4.48 |
|
| July 2024 |
|
| 21,513 |
|
|
| 21,963 |
|
Fannie Mae |
|
| 43 |
|
|
| 26,135 |
|
|
| 5.49 |
|
| November 2022 |
|
| 7,403 |
|
|
| 7,504 |
|
|
| 81 |
|
|
| 19,081 |
|
|
| 4.30 |
|
| July 2024 |
|
| 14,836 |
|
|
| 15,156 |
|
Fannie Mae |
|
| 84 |
|
|
| 17,197 |
|
|
| 4.32 |
|
| January 2023 |
|
| 15,532 |
|
|
| 15,856 |
|
|
| 91 |
|
|
| 61,630 |
|
|
| 4.98 |
|
| July 2024 |
|
| 16,053 |
|
|
| 16,322 |
|
Fannie Mae |
|
| 49 |
|
|
| 17,197 |
|
|
| 5.39 |
|
| January 2023 |
|
| 8,453 |
|
|
| 8,572 |
|
|
| 11 |
|
|
| 8,817 |
|
|
| 6.30 |
|
| July 2024 |
|
| 1,777 |
|
|
| 1,796 |
|
Fannie Mae |
|
| 39 |
|
|
| 8,311 |
|
|
| 4.58 |
|
| January 2023 |
|
| 6,953 |
|
|
| 7,092 |
|
|
| 134 |
|
|
| 25,548 |
|
|
| 4.59 |
|
| September 2024 |
|
| 23,856 |
|
|
| 24,342 |
|
Fannie Mae |
|
| 17 |
|
|
| 8,311 |
|
|
| 5.49 |
|
| January 2023 |
|
| 3,029 |
|
|
| — |
|
|
| 22 |
|
|
| 12,916 |
|
|
| 5.72 |
|
| September 2024 |
|
| 3,584 |
|
|
| 3,634 |
|
Fannie Mae |
|
| 85 |
|
|
| 17,613 |
|
|
| 4.66 |
|
| April 2023 |
|
| 15,131 |
|
|
| 15,423 |
|
|
| 54 |
|
|
| 9,810 |
|
|
| 4.70 |
|
| September 2024 |
|
| 9,494 |
|
|
| 9,683 |
|
Fannie Mae |
|
| 18 |
|
|
| 5,242 |
|
|
| 5.46 |
|
| April 2023 |
|
| 3,068 |
|
|
| 3,110 |
|
|
| 53 |
|
|
| 11,293 |
|
|
| 4.50 |
|
| January 2025 |
|
| 9,538 |
|
|
| 9,731 |
|
Fannie Mae |
|
| 45 |
|
|
| 8,560 |
|
|
| 5.93 |
|
| October 2023 |
|
| 7,205 |
|
|
| 7,312 |
|
|
| 95 |
|
|
| 6,552 |
|
|
| 4.46 |
|
| January 2025 |
|
| 17,333 |
|
|
| 17,686 |
|
Fannie Mae |
|
| 67 |
|
|
| 13,398 |
|
|
| 5.50 |
|
| November 2023 |
|
| 11,180 |
|
|
| 11,359 |
|
|
| 70 |
|
|
| 14,605 |
|
|
| 4.35 |
|
| February 2025 |
|
| 12,912 |
|
|
| 13,179 |
|
Fannie Mae |
|
| 67 |
|
|
| 12,634 |
|
|
| 5.38 |
|
| November 2023 |
|
| 11,236 |
|
|
| 11,419 |
|
|
| — |
|
|
| — |
|
|
| 3.85 |
|
| March 2025 |
|
| — |
|
|
| 21,633 |
|
Fannie Mae |
|
| 282 |
|
|
| 52,384 |
|
|
| 5.56 |
|
| January 2024 |
|
| 46,662 |
|
|
| 47,390 |
|
|
| 102 |
|
|
| 22,879 |
|
|
| 3.84 |
|
| April 2025 |
|
| 19,883 |
|
|
| 20,324 |
|
Fannie Mae |
|
| 632 |
|
|
| 113,697 |
|
|
| 4.24 |
|
| July 2024 |
|
| 121,141 |
|
|
| 123,465 |
|
|
| 31 |
|
|
| 22,879 |
|
|
| 5.53 |
|
| April 2025 |
|
| 5,223 |
|
|
| 5,300 |
|
Fannie Mae |
|
| 120 |
|
|
| 26,087 |
|
|
| 4.48 |
|
| July 2024 |
|
| 22,394 |
|
|
| 22,806 |
|
|
| 81 |
|
|
| 14,732 |
|
|
| 5.30 |
|
| June 2025 |
|
| 13,077 |
|
|
| 13,335 |
|
Fannie Mae |
|
| 81 |
|
|
| 20,645 |
|
|
| 4.30 |
|
| July 2024 |
|
| 15,462 |
|
|
| 15,756 |
|
|
| 58 |
|
|
| 12,021 |
|
|
| 4.69 |
|
| October 2025 |
|
| 10,402 |
|
|
| 10,595 |
|
Fannie Mae |
|
| 91 |
|
|
| 68,299 |
|
|
| 4.98 |
|
| July 2024 |
|
| 16,579 |
|
|
| 16,822 |
|
|
| 44 |
|
|
| 8,878 |
|
|
| 4.70 |
|
| October 2025 |
|
| 7,862 |
|
|
| 8,008 |
|
Fannie Mae |
|
| 134 |
|
|
| 27,541 |
|
|
| 4.59 |
|
| September 2024 |
|
| 24,805 |
|
|
| 25,247 |
|
|
| 273 |
|
|
| 37,074 |
|
|
| 4.68 |
|
| December 2025 |
|
| 49,385 |
|
|
| 50,295 |
|
Fannie Mae |
|
| 22 |
|
|
| 13,867 |
|
|
| 5.72 |
|
| September 2024 |
|
| 3,682 |
|
|
| 3,724 |
|
|
| 9 |
|
|
| 8,787 |
|
|
| 5.81 |
|
| December 2025 |
|
| 1,407 |
|
|
| 1,426 |
|
Fannie Mae |
|
| 54 |
|
|
| 10,711 |
|
|
| 4.70 |
|
| September 2024 |
|
| 9,864 |
|
|
| 10,037 |
|
|
| 98 |
|
|
| 22,990 |
|
|
| 4.10 |
|
| October 2026 |
|
| 19,127 |
|
|
| 19,498 |
|
Fannie Mae |
|
| 53 |
|
|
| 12,277 |
|
|
| 4.50 |
|
| January 2025 |
|
| 9,915 |
|
|
| 10,091 |
|
|
| 108 |
|
|
| 23,515 |
|
|
| 4.24 |
|
| December 2026 |
|
| 20,853 |
|
|
| 21,243 |
|
Fannie Mae |
|
| 95 |
|
|
| 6,313 |
|
|
| 4.46 |
|
| January 2025 |
|
| 18,023 |
|
|
| 18,345 |
|
|
| 655 |
|
|
| 148,134 |
|
|
| 5.13 |
|
| January 2029 |
|
| 150,782 |
|
|
| 150,782 |
|
Fannie Mae |
|
| 70 |
|
|
| 15,660 |
|
|
| 4.35 |
|
| February 2025 |
|
| 13,434 |
|
|
| 13,678 |
|
|
| 163 |
|
|
| 148,134 |
|
|
| (3 | ) |
| January 2029 |
|
| 50,261 |
|
|
| 50,261 |
|
Fannie Mae |
|
| 109 |
|
|
| 8,913 |
|
|
| 3.85 |
|
| March 2025 |
|
| 22,086 |
|
|
| 22,522 |
| ||||||||||||||||||||||
Fannie Mae |
|
| 102 |
|
|
| 24,411 |
|
|
| 3.84 |
|
| April 2025 |
|
| 20,749 |
|
|
| 21,157 |
| ||||||||||||||||||||||
Fannie Mae |
|
| 31 |
|
|
| 24,411 |
|
|
| 5.53 |
|
| April 2025 |
|
| 5,372 |
|
|
| 5,435 |
| ||||||||||||||||||||||
Fannie Mae |
|
| 47 |
|
|
| 9,822 |
|
|
| 4.55 |
|
| June 2025 |
|
| 8,794 |
|
|
| 8,944 |
| ||||||||||||||||||||||
Fannie Mae |
|
| 59 |
|
|
| 12,332 |
|
|
| 4.79 |
|
| June 2025 |
|
| 10,753 |
|
|
| 10,929 |
| ||||||||||||||||||||||
Fannie Mae |
|
| 81 |
|
|
| 15,898 |
|
|
| 5.30 |
|
| June 2025 |
|
| 13,580 |
|
|
| 13,811 |
| ||||||||||||||||||||||
Fannie Mae |
|
| 24 |
|
|
| 12,332 |
|
|
| 5.71 |
|
| June 2025 |
|
| 4,079 |
|
|
| — |
| ||||||||||||||||||||||
Fannie Mae |
|
| 58 |
|
|
| 12,968 |
|
|
| 4.69 |
|
| October 2025 |
|
| 10,780 |
|
|
| 10,956 |
| ||||||||||||||||||||||
Protective Life |
|
| 96 |
|
|
| 23,558 |
|
|
| 3.55 |
|
| April 2025 |
|
| 19,325 |
|
|
| 19,787 |
| ||||||||||||||||||||||
Protective Life |
|
| 49 |
|
|
| 10,566 |
|
|
| 4.25 |
|
| August 2025 |
|
| 9,157 |
|
|
| 9,350 |
| ||||||||||||||||||||||
Protective Life |
|
| 78 |
|
|
| 16,938 |
|
|
| 4.25 |
|
| September 2025 |
|
| 14,565 |
|
|
| 14,871 |
| ||||||||||||||||||||||
Protective Life |
|
| 138 |
|
|
| 30,917 |
|
|
| 4.25 |
|
| November 2025 |
|
| 25,940 |
|
|
| 26,478 |
| ||||||||||||||||||||||
Protective Life |
|
| 57 |
|
|
| 12,901 |
|
|
| 4.50 |
|
| February 2026 |
|
| 10,554 |
|
|
| 10,761 |
| ||||||||||||||||||||||
Protective Life |
|
| 187 |
|
|
| 39,862 |
|
|
| 4.38 |
|
| March 2026 |
|
| 32,099 |
|
|
| 32,920 |
| ||||||||||||||||||||||
Protective Life |
|
| 70 |
|
|
| 14,620 |
|
|
| 4.13 |
|
| October 2031 |
|
| 11,995 |
|
|
| 12,326 |
| ||||||||||||||||||||||
Berkadia |
|
| 230 |
|
|
| 60,462 |
|
|
| (4 | ) |
| December 2021(4) |
|
| 40,500 |
|
|
| 65,000 |
|
F-17
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
|
| Average Monthly |
|
| Net Book Value |
|
| Interest |
|
| Maturity |
| Notes Payable December 31, |
| ||||||||
Lender |
| Payment |
|
| Of Collateral(1) |
|
| Rate |
|
| Date |
| 2017 |
|
| 2016 |
| |||||
|
| 44 |
|
|
| 9,648 |
|
|
| 4.70 |
|
| October 2025 |
|
| 8,147 |
|
|
| 8,280 |
| |
Fannie Mae |
|
| 273 |
|
|
| 39,692 |
|
|
| 4.68 |
|
| December 2025 |
|
| 51,163 |
|
|
| 51,991 |
|
Fannie Mae |
|
| 9 |
|
|
| 9,229 |
|
|
| 5.81 |
|
| December 2025 |
|
| 1,445 |
|
|
| 1,461 |
|
Fannie Mae |
|
| 62 |
|
|
| 11,382 |
|
|
| 5.43 |
|
| April 2026 |
|
| 10,443 |
|
|
| 10,607 |
|
Fannie Mae |
|
| 29 |
|
|
| 11,382 |
|
|
| 5.84 |
|
| April 2026 |
|
| 4,903 |
|
|
| 4,957 |
|
Fannie Mae |
|
| 98 |
|
|
| 22,563 |
|
|
| 4.10 |
|
| October 2026 |
|
| 19,854 |
|
|
| 20,195 |
|
Fannie Mae |
|
| 108 |
|
|
| 25,235 |
|
|
| 4.24 |
|
| December 2026 |
|
| 21,617 |
|
|
| 21,975 |
|
Protective Life |
|
| 96 |
|
|
| 24,806 |
|
|
| 3.55 |
|
| April 2025 |
|
| 20,234 |
|
|
| 20,665 |
|
Protective Life |
|
| 49 |
|
|
| 11,429 |
|
|
| 4.25 |
|
| August 2025 |
|
| 9,535 |
|
|
| 9,713 |
|
Protective Life |
|
| 78 |
|
|
| 18,092 |
|
|
| 4.25 |
|
| September 2025 |
|
| 15,163 |
|
|
| 15,444 |
|
Protective Life |
|
| 138 |
|
|
| 33,301 |
|
|
| 4.25 |
|
| November 2025 |
|
| 26,993 |
|
|
| 27,447 |
|
Protective Life |
|
| 57 |
|
|
| 14,070 |
|
|
| 4.50 |
|
| February 2026 |
|
| 10,959 |
|
|
| 11,149 |
|
Protective Life |
|
| 187 |
|
|
| 42,753 |
|
|
| 4.38 |
|
| March 2026 |
|
| 33,705 |
|
|
| 34,396 |
|
Protective Life |
|
| 70 |
|
|
| 15,505 |
|
|
| 4.13 |
|
| October 2031 |
|
| 12,645 |
|
|
| 12,950 |
|
Berkadia |
|
| 78 |
|
|
| 19,476 |
|
|
| (3 | ) |
| April 2019(5) |
|
| 11,505 |
|
|
| 11,742 |
|
Berkadia |
|
| 298 |
|
|
| 96,952 |
|
|
| (4 | ) |
| February 2020 |
|
| 65,000 |
|
|
| — |
|
HUD |
|
| 16 |
|
|
| 5,622 |
|
|
| 4.48 |
|
| September 2045 |
|
| 2,989 |
|
|
| 3,042 |
|
Insurance Financing |
|
| 146 |
|
|
| — |
|
|
| 2.76 |
|
| May 2018 |
|
| 725 |
|
|
| — |
|
Insurance Financing |
|
| 324 |
|
|
| — |
|
|
| 3.04 |
|
| November 2018 |
|
| 3,505 |
|
|
| — |
|
Insurance Financing |
|
| — |
|
|
| — |
|
|
| 1.73 |
|
| October 2017 |
|
| — |
|
|
| 756 |
|
Insurance Financing |
|
| — |
|
|
| — |
|
|
| 1.73 |
|
| May 2017 |
|
| — |
|
|
| 691 |
|
Insurance Financing |
|
| — |
|
|
| — |
|
|
| 1.79 |
|
| September 2017 |
|
| — |
|
|
| 1,576 |
|
|
| $ | 5,677 |
|
|
|
|
|
| 4.60%(2) |
|
|
|
| $ | 967,332 |
|
| $ | 910,234 |
| |
Less deferred loan costs, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 9,398 |
|
|
| 9,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 957,934 |
|
| $ | 900,393 |
|
Less current portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 19,728 |
|
|
| 17,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 938,206 |
|
| $ | 882,504 |
|
|
| — |
|
|
| — |
|
|
| — |
|
| July 2020 |
|
| — |
|
|
| 3,500 |
| |
Berkadia |
|
| 96 |
|
|
| 16,953 |
|
|
| (5 | ) |
| October 2021 |
|
| 10,992 |
|
|
| 11,255 |
|
Fifth Third |
|
| 125 |
|
|
| 33,852 |
|
|
| (6 | ) |
| December 2021 |
|
| 31,500 |
|
|
| — |
|
HUD |
|
| 16 |
|
|
| 4,572 |
|
|
| 4.48 |
|
| September 2045 |
|
| 2,875 |
|
|
| 2,933 |
|
Insurance Financing |
|
| — |
|
|
| — |
|
|
| 3.64 |
|
| May 2019 |
|
| — |
|
|
| 799 |
|
Insurance Financing |
|
| — |
|
|
| — |
|
|
| 4.40 |
|
| November 2019 |
|
| — |
|
|
| 763 |
|
Insurance Financing |
|
| 240 |
|
|
| — |
|
|
| 4.40 |
|
| May 2020 |
|
| 1,187 |
|
|
| — |
|
Insurance Financing |
|
| 74 |
|
|
| — |
|
|
| 4.04 |
|
| November 2020 |
|
| 730 |
|
|
| — |
|
Insurance Financing |
|
| 173 |
|
|
| — |
|
|
| 4.40 |
|
| October 2020 |
|
| 1,698 |
|
|
| — |
|
|
| $ | 5,357 |
|
|
|
|
|
| 4.65% (2) |
|
|
|
| $ | 930,085 |
|
| $ | 983,207 |
| |
Less deferred loan costs, net |
|
|
|
|
|
|
|
|
|
|
|
|
| 8,629 |
|
|
| 9,457 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 921,456 |
|
| $ | 973,750 |
|
Less current portion |
|
|
|
|
|
|
|
|
|
|
|
|
| 15,819 |
|
|
| 14,342 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 905,637 |
|
| $ | 959,408 |
|
(1) |
|
(2) | Weighted average interest rate on current fixed interest rate debt outstanding. |
(3) | Variable interest rate of LIBOR plus |
(4) | Variable interest rate of LIBOR plus |
(5) |
|
F-18
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
(6) | Variable interest rate of LIBOR plus 3.25%, which was 4.98% at December 31, 2019. |
The aggregate scheduled maturities of notes payable at December 31, 20172019 are as follows (in thousands):
2018 |
| $ | 21,421 |
| ||||
2019 |
|
| 28,994 |
| ||||
2020 |
|
| 83,482 |
|
| $ | 17,793 |
|
2021 |
|
| 72,706 |
|
|
| 97,144 |
|
2022 |
|
| 106,161 |
|
|
| 53,293 |
|
2023 |
|
| 52,741 |
| ||||
2024 |
|
| 240,493 |
| ||||
Thereafter |
|
| 654,568 |
|
|
| 468,621 |
|
|
| $ | 967,332 |
|
| $ | 930,085 |
|
On December 15, 2017,23, 2019, the Company completed supplementalobtained $31.5 million of mortgage financing of approximately $4.1 milliondebt from Fannie Mae atFifth Third Bank on its Autumn Glen and Cottonwood Village senior housing communities. The new mortgage loan is interest only and has a fixedtwo-year term and an initial variable interest rate of 5.71% on one community located in Oneonta, New York. The supplemental mortgage loan is coterminous, cross-collateralized and cross-defaulted with the original existing mortgage debt maturing in June 2025.LIBOR plus 3.25%. The Company incurred approximately $0.2$0.6 million in deferred financing costs related to this loan, which are being amortized over the remaining initialterm of the loan. On the same date, the Company amended and repaid $24.5 million in principal of the interest-only mortgage loan term.with BBVA USA on its Cottonwood Village, Georgetowne Place, Harrison at Eagle Valley, and Rose Arbor. As a result of the amendment, BBVA released the Cottonwood Village assets from collateral of the mortgage and extended the maturity date from July 11, 2020 to December 10, 2021. The amended mortgage has an interest-only variable rate of LIBOR plus 4.5%.
On DecemberOctober 1, 2017,2019, in conjunction with the sale of two of its senior housing communities, the Company repaid $44.4 million of associated mortgage debt and $4.4 million of prepayment penalties.
Effective June 28, 2019, the Company exercised its option to extend its interest-only variable interest rate mortgage loan with BBVA USA (formerly Compass Bank) on four of its senior housing communities (Cottonwood Village, Georgetowne Place, Harrison at Eagle Valley, and Rose Arbor). The maturity date was extended from May 11, 2020 to July 11, 2020.
On May 31, 2019, the Company renewed certain insurance policies and entered into atwo finance agreementagreements totaling approximately $3.5$2.6 million and $2.7 million. The finance agreement hasagreements each have a fixed interest rate of 3.04%4.4%, with the principal being repaid over an 11-month term.
On November 30, 2017, the Company completed supplemental mortgage financing of approximately $3.0 million from Fannie Mae at a fixed interest rate of 5.49% on one community located in Rocky River, Ohio. The supplemental mortgage loan is coterminous, cross-collateralized and cross-defaulted with the original existing mortgage debt maturing in January 2023. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which are being amortized over the remaining initial loan term.
On May 31, 2017, the Company renewed certain insurance policies and entered into a finance agreement totaling approximately $1.6 million. The finance agreement has a fixed interest rate of 2.76% with the principal being repaid over an 11-month term.
On January 31, 2017, in conjunction with the Four Property Lease Transaction, the Company obtained $65.0 million of mortgage debt from Berkadia. The new mortgage loan is interest-only and has a three-year18-month term, with an initial variable interest rate of LIBOR plus 4.00%. The Company incurred approximately $0.9 million in deferred financing costs related to this loan, which are being amortized over three years.
On December 22, 2016, the Company completed supplemental mortgage financing of approximately $5.0 million from Fannie Mae at a fixed interest rate of 5.84% on one community located in Lamberville, Michigan. The supplemental mortgage loan is coterminous, cross-collateralized and cross-defaulted with the original existing mortgage debt maturing in April 2026. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which are being amortized over the remaining initial loan term.
On December 22, 2016, the Company completed supplemental mortgage financing of approximately $1.5 million from Fannie Mae at a fixed interest rate of 5.81% on one community located in Mishawaka, Indiana. The supplemental mortgage loan is coterminous, cross-collateralized and cross-defaulted with the original existing mortgage debt maturing in December 2025. The Company incurred approximately $45,000 in deferred financing costs related to this loan, which are being amortized over the remaining initial loan term.
F-19
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
On December 22, 2016, the Company completed supplemental mortgage financing of approximately $3.7 million from Fannie Mae at a fixed interest rate of 5.72% on one community located in Roanoke, Virginia. The supplemental mortgage loan is coterminous, cross-collateralized and cross-defaulted with the original existing mortgage debt maturing in September 2024. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which are being amortized over the remaining initial loan term.
On December 15, 2016, the Company completed supplemental mortgage financing of approximately $5.4 million from Fannie Mae at a fixed interest rate of 5.53% on one community located in Toledo, Ohio. The supplemental mortgage loan is coterminous, cross-collateralized and cross-defaulted with the original existing mortgage debt maturing in April 2025. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which are being amortized over the remaining initial loan term.
On December 1, 2016, the Company renewed certain insurance policies and entered into a finance agreement totaling approximately $0.8 million. The finance agreement has a fixed interest rate of 1.66% with principal amortized over a 10-month term.
On November 2, 2016, in conjunction with the Cincinnati Transaction, the Company obtained $22.0 million of mortgage debt from Fannie Mae. The new mortgage loan has a 10-year term with a 4.24% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which are being amortized over 10 years.
On September 30, 2016, in conjunction with the Springfield Transaction, the Company obtained $20.3 million of mortgage debt from Fannie Mae. The new mortgage loan has a 10-year term with a 4.10% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which are being amortized over 10 years.
On September 27, 2016, in conjunction with the Kingwood Transaction, the Company obtained $13.0 million of mortgage debt from Protective Life. The new mortgage loan has a 15-year term with a 4.13% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which are being amortized over 15 years.
On September 23, 2016, the Company completed supplemental mortgage financing of approximately $3.5 million from Fannie Mae at a fixed interest rate of 4.85% on one community located in Jeffersonville, Indiana, with existing mortgage debt maturing in April 2022. The supplemental mortgage loan is cross-collateralized and cross-defaulted with the original mortgage debt. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which are being amortized over the remaining initial loan term.
On September 23, 2016, the Company completed supplemental mortgage financing of approximately $3.8 million from Fannie Mae at a fixed interest rate of 4.85% on one community located in Irving, Texas, with existing mortgage debt maturing in May 2022. The supplemental mortgage loan is cross-collateralized and cross-defaulted with the original mortgage debt. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which are being amortized over the remaining initial loan term.
On August 2, 2016, the Company completed supplemental mortgage financing of approximately $2.1 million from Fannie Mae at a fixed interest rate of 4.97% on one senior housing community located in Conroe, Texas. The supplemental mortgage loan is coterminous, cross-collateralized and cross-defaulted with the original mortgage debt maturing in April 2022. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which are being amortized over the remaining initial loan term.
F-20
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
Effective July 31, 2016, the Company extended the maturity of its mortgage loan with Berkadia on one of its senior housing communities located in Canton, Ohio. The maturity date was extended from July 10, 2017 to July 10, 2018 with an initial variable interest rate of LIBOR plus 4.50% with principal amortized over 25 years. In conjunction with the loan extension, the Company incurred an extension fee of approximately $30,000 which will be amortized over the new loan term.
On June 15, 2016, the Company completed supplemental mortgage financing of approximately $16.9 million from Fannie Mae at a fixed interest rate of 4.98% on four senior housing communities located in Texas, two senior housing communities located in Ohio, and one senior housing community located in Missouri. The supplemental mortgage loans are coterminous, cross-collateralized and cross-defaulted with the original mortgage debt maturing in July 2024. The Company incurred approximately $0.5 million in deferred financing costs related to these loans, which are being amortized over the remaining initial loan terms.
On May 31, 2016, the Company renewed certain insurance policies and entered into a finance agreement totaling approximately $2.6 million. The finance agreement has a fixed interest rate of 2.16% with principal amortized over a 15-month term.
On May 31, 2016, the Company renewed certain insurance policies and entered into a finance agreement totaling approximately $1.5 million. The finance agreement has a fixed interest rate of 2.16% with principal amortize over an 11-month term.
On May 3, 2016, the Company drew down approximately $2.6 million of supplemental funding proceeds from Protective Life associated with the previous acquisition of one senior housing community located in Indianapolis, Indiana, during fiscal 2015, at a fixed interest rate of 4.25% with a 10-year term and principal amortized over a 30-year term. The loan commitment was based on certain funding requirements being met and was available to the Company through February 28, 2018.
On February 16, 2016, in conjunction with the Pensacola Transaction, the Company obtained $35.0 million of mortgage debt from Protective Life. The new mortgage loan has a 10-year term with a 4.38% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.4 million in deferred financing costs related to this loan, which are being amortized over 10 years.
On January 26, 2016, in conjunction with the Pine Ridge Transaction, the Company obtained approximately $11.3 million of mortgage debt from Protective Life. The new mortgage loan has a 10-year term with a 4.50% fixed interest rate and the principal amortized over a 30-year term. The Company incurred approximately $0.2 million in deferred financing costs related to this loan, which are being amortized over 10 years.respectively.
The Company issued standby letters of credit with Wells Fargo Bank (“Wells Fargo”), totaling approximately $3.9$3.4 million, for the benefit of Hartford Financial Services (“Hartford”) associated with the administration of workers compensation which remain outstanding as of December 31, 2017.2019.
The Company issued standby letters of credit with JPMorgan Chase Bank (“Chase”), totaling approximately $6.7$6.5 million, for the benefit of Welltower, Inc. (“Welltower”), formerly Healthcare REIT, Inc. on certain leases between Welltower and the Company which remain outstanding as of December 31, 2017.2019.
The Company issued standby letters of credit with Chase, totaling approximately $2.9 million, for the benefit of HCP,Healthpeak Properties, Inc. (“HCP”Healthpeak”) on certain leases between HCPHealthpeak and the Company which remain outstanding as of December 31, 2017.2019.
F-21
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On December 31, 2017
18, 2018, the Company repaid certain mortgage loans associated with 21 of its senior living communities totaling approximately $170.6 million from Fannie Mae which were scheduled to mature on various dates beginning August 2021 through April 2026. The repayment of these mortgage loans facilitated the establishment of a Master Credit Facility (“MCF”) with Berkadia whereby the Company obtained approximately $201.0 million of new mortgage financing. The MCF will allow the Company to make future advances, should the Company decide to do so, assuming certain borrowing conditions are satisfied. The MCF consists of two separate loans which are cross-defaulted and cross-collateralized. Approximately $150.8 million of the new financing is long-term fixed interest rate debt at a fixed interest rate of 5.13% with a 10-year term and interest only for the first 36 months and the principal amortized over a 30-year term thereafter. Approximately $50.3 million of the new financing is long-term variable interest rate debt at a variable interest rate of LIBOR plus 2.14% with a 10-year term and interest only for the first 36 months and a fixed monthly principal component of $67,000 thereafter. The Company incurred approximately $3.0 million in deferred financing costs related to the MCF, which are being amortized over 10 years. As a result of the early repayment of the Fannie Mae mortgage debt, the Company accelerated the amortization of approximately $1.5 million in unamortized deferred financing costs and incurred prepayment premiums of approximately $11.1 million. The MCF was subsequently assigned to Fannie Mae on December 28, 2018, and is reported as such in preceding notes payable summary table.
On December 18, 2018, the Company completed mortgage financing of $3.5 million from Berkadia at a variable interest rate of LIBOR plus 3.75% on one community located in Kokomo, Indiana. The mortgage loan is
interest-only and has an 18-month term maturing in July 2020. The Company incurred approximately $91,000 in deferred financing costs related to this loan, which are being amortized over 18 months.
On December 1, 2018, the Company renewed certain insurance policies and entered into a finance agreement totaling approximately $0.8 million. The finance agreement has a fixed interest rate of 4.40% with the principal being repaid over an 11-month term.
On November 30, 2018, the Company completed supplemental mortgage financing of approximately $1.8 million from Fannie Mae at a fixed interest rate of 6.30% on one community located in Mesquite, Texas. The supplemental mortgage loan is coterminous, cross-collateralized and cross-defaulted with the original existing mortgage debt maturing in July 2024. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which are being amortized over the remaining initial loan term.
Effective June 29, 2018, the Company extended its mortgage loan with Berkadia on one of its senior living communities located in Canton, Ohio. The maturity date was extended to October 10, 2021 with an initial variable interest rate of LIBOR plus 5.0% with principal amortized over 25 years.
Effective May 31, 2018, the Company renewed certain insurance policies and entered into a finance agreement totaling approximately $1.7 million. The finance agreement has a fixed interest rate of 3.64% with the principal being repaid over an 11-month term.
In connection with the Company’s loan commitments described above, the Company incurred financing charges that were deferred and amortized over the life of the notes. At December 31, 20172019 and 2016,2018, the Company had gross deferred loan costs of $14.0$14.3 million and $12.8$14.1 million, respectively. Accumulated amortization was $4.6$5.7 million and $3.0$4.7 million at December 31, 20172019 and 2016,2018, respectively. Amortization expense is expected to be approximately $1.7$1.6 million in each of the next five fiscal years. The Company was in compliance with all aspects of its outstanding indebtedness at December 31, 20172019 and 2016.2018.
| Equity |
Preferred Stock
The Company is authorized to issue preferred stock in series and to fix and state the voting powers and such designations, preferences and relative participating, optional or other special rights of the shares of each such series and the qualifications, limitations and restrictions thereof. Such action may be taken by the Board without stockholder approval. The rights, preferences and privileges of holders of common stock are subject to the rights of the holders of preferred stock. No preferred stock was outstanding as of December 31, 20172019 and 2016.2018.
Share Repurchases
On January 22, 2009, the Company’s board of directors approved a share repurchase program that authorized the Company to purchase up to $10.0 million of the Company’s common stock. Purchases may be made from time to time using a variety of methods, which may include open market purchases, privately negotiated transactions or block trades, or by any combination of such methods, in accordance with applicable insider trading and other securities laws and regulations. The size, scope and timing of any purchases will be based on business, market and other conditions and factors, including price, regulatory and contractual requirements or consents, and capital availability. The repurchase program does not obligate the Company to acquire any particular amount of common stock and the share repurchase authorization has no stated expiration date. Shares of stock repurchased under the program will be held as treasury shares. Pursuant to this authorization, during fiscal 2009, the Company purchased 349,800 shares at an average cost of $2.67 per share for a total cost to the Company of approximately $0.9 million. On January 14, 2016, the Company announced that its board of directors approved a continuation of the share repurchase program. Pursuant to this authorization, during fiscal 2016, the Company purchased 144,315 shares of its common stock at an average cost of $17.29 per share for a total cost to the Company of approximately $2.5 million.
All such purchases were made in open market transactions. There were no repurchases of the Company’s common stock during fiscal 2017.2019 or 2018.
| Stock-Based Compensation |
The Company recognizes compensation expense for share-based stock awards to certain employees and directors, including grants of employee stock options and awards of restricted stock, in the Company’s Consolidated Statements of Operations and Comprehensive Loss based on their fair values.
The Company’s Amended 2007 Omnibus Stock Optionsand Incentive Plan (the “2007 Plan”) provided for, among other things, the grant of restricted stock awards, restricted stock units and stock options to purchase shares of the Company’s common stock. The 2007 Plan authorized the Company to issue up to 4,600,000 million shares of common stock and the Company had reserved shares of common stock for future issuance pursuant to awards under the 2007 Plan.
AlthoughOn May 14, 2019, the Company’s stockholders approved the 2019 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation (the “2019 Plan”), which replaced the 2007 Plan. The 2019 Plan provides for, among other things, the grant of restricted stock awards, restricted stock units and stock options to purchase shares of the Company’s common stock. The 2019 Plan authorizes the Company to issue up to 2,250,000 shares of common stock plus reserved shares not issued or subject to outstanding awards under the 2007 Plan, and the Company has notreserved shares of common stock for future issuance pursuant to awards under the 2019 Plan. Effective March 26, 2019, the 2007 Plan was terminated and no additional awards will be granted stock options in recent years,under the 2007 Plan.
Stock Options
The Company’s stock option program is a long-term retention program that is intended to attract, retain and provide incentives for employees, officers and directors and to more closely align stockholder and employee interests. The Company’s stock options generally vest over one to five years and the related expense is amortized on a straight-line basis over the vesting period.
F-22The fair value of stock options was estimated using the Black-Scholes option pricing model. The Black-Scholes model requires the input of certain assumptions including expected volatility, expected dividend yield, expected life of the option and the risk-free interest rate. The expected volatility used by the Company is based primarily on an analysis of historical prices of the Company’s common stock. The expected term of options granted is based primarily on historical exercise patterns on the Company’s outstanding stock options. The risk-free rate is based on zero-coupon U.S. Treasury yields in effect at the date of grant with the same period as the expected option life. The Company does not expect to pay dividends on its common stock and therefore has used a dividend yield of zero in determining the fair value of its awards. The option forfeiture rate assumption used by the Company is based primarily on the Company’s historical option forfeiture patterns. The fair value of stock options was estimated using a Black-Scholes option pricing model with the following weighted-average assumptions:
Year ended December 31, 2019 | |||
Expected volatility | 37.0% | ||
Expected dividend yield | 0.0% | ||
Expected term in years | 6.0 | ||
Risk free rate | 2.55% | ||
Expected forfeiture rate | 0.0% |
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The options outstanding at December 31, 2019 had no intrinsic value, a weighted-average remaining contractual life of 9.0 years, and a weighted-average exercise price of $7.46. None of the options outstanding at December 31, 2019 were exercisable. No stock options were outstanding at December 31, 2018 and 2017, as all outstanding options had fully vested and have been exercised or forfeited.
A summary of the Company’s stock option activity and related informationtransactions for the years ended December 31, 2019, 2018, and 2017 2016, and 2015 is presented below:as follows:
|
| Outstanding at Beginning of Year |
|
| Granted |
|
| Exercised |
|
| Forfeited |
|
| Outstanding End of Year |
|
| Options Exercisable |
|
| Outstanding Beginning of Year |
|
| Granted |
|
| Exercised |
|
| Forfeited |
|
| Outstanding End of Year |
|
| Options Exercisable |
| ||||||||||||
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Shares |
|
| — |
|
|
| 147,239 |
|
|
| — |
|
|
| — |
|
|
| 147,239 |
|
|
| — |
| ||||||||||||||||||||||||
Weighted average price |
| $ | — |
|
| $ | 7.46 |
|
| $ | — |
|
|
| — |
|
| $ | 7.46 |
|
| $ | — |
| ||||||||||||||||||||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Shares |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Weighted average price |
| $ | — |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | — |
| ||||||||||||||||||||||||
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Weighted average price |
| $ | — |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
| $ | — |
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Shares |
|
| 3,000 |
|
|
| — |
|
|
| 3,000 |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Weighted average price |
| $ | 10.97 |
|
|
| — |
|
| $ | 10.97 |
|
|
| — |
|
| $ | — |
|
| $ | — |
| ||||||||||||||||||||||||
December 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Shares |
|
| 6,000 |
|
|
| — |
|
|
| 3,000 |
|
|
| — |
|
|
| 3,000 |
|
|
| 3,000 |
| ||||||||||||||||||||||||
Weighted average price |
| $ | 8.44 |
|
|
| — |
|
| $ | 5.90 |
|
|
| — |
|
| $ | 10.97 |
|
| $ | 10.97 |
|
NoAt December 31, 2019, there was approximately $0.3 million of total unrecognized compensation expense related to unvested stock option awards, which is expected to be recognized over a weighted average period of 2.0 years. The fair value of the stock options were outstanding at December 31, 2017 and 2016,is amortized as all outstandingcompensation expense over the vesting periods of the options. The Company recorded stock-based compensation expense related to stock options have fully vested and have been exercisedof approximately $0.1 million in 2019. No expense was recorded related to stock options in 2018 or forfeited. The options outstanding and the options exercisable at December 31, 2015 had an aggregate intrinsic value of $30,000.2017.
Restricted Stock
The Company may grant restricted stock awards and units to employees, officers, and directors in order to attract, retain, and provide incentives for such individuals and to more closely align stockholder and employee interests. For restricted stock awards and units without performance and market-based vesting conditions, the Company records compensation expense for the entire award on a straight-line basis over the requisite service period, which is generally a period of one to four years, unless the award is subject to certain accelerated vesting requirements. Restricted stock awards are considered outstanding at the time of grant since the holders thereof are entitled to dividends, upon vesting, and voting rights. For restricted stock awards with performance and market-based vesting conditions, total compensation expense is recognized over the requisite service period once the performance target is deemed probable of achievement. Performance goals are evaluated periodically and if such goals are not ultimately met or it is not probable the goals will be achieved, no compensation expense is recognized and any previously recognized compensation expense is reversed. If the achievement of a market condition varies from initial estimates on the date of grant, compensation expense will not be adjusted to reflect the difference since the grant date fair value of the performance award gave consideration to the probability of market condition achievement.
The Company recognizes compensation expense of a restricted stock award over its respective vesting or performance period based on the fair value of the award on the grant date, net of actual forfeitures. A summary of the Company’s restricted common stock awards activity and related information for the years ended December 31, 2017, 2016,2019, 2018, and 20152017 is presented below:
|
| Outstanding at Beginning of Year |
|
| Issued |
|
| Vested |
|
| Forfeited |
|
| Outstanding End of Year |
|
| Outstanding Beginning of Year |
|
| Issued |
|
| Vested |
|
| Forfeited |
|
| Outstanding End of Year |
| ||||||||||
December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Shares |
|
| 1,345,159 |
|
|
| 662,154 |
|
|
| (424,556 | ) |
|
| (493,411 | ) |
|
| 1,089,346 |
| ||||||||||||||||||||
December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Shares |
|
| 964,484 |
|
|
| 830,794 |
|
|
| (386,900 | ) |
|
| (63,219 | ) |
|
| 1,345,159 |
| ||||||||||||||||||||
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
| 829,766 |
|
|
| 565,745 |
|
|
| (355,400 | ) |
|
| (75,627 | ) |
|
| 964,484 |
|
|
| 829,766 |
|
|
| 565,745 |
|
|
| (355,400 | ) |
|
| (75,627 | ) |
|
| 964,484 |
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Shares |
|
| 783,310 |
|
|
| 666,883 |
|
|
| (565,224 | ) |
|
| (55,203 | ) |
|
| 829,766 |
| ||||||||||||||||||||
December 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Shares |
|
| 702,718 |
|
|
| 467,944 |
|
|
| (358,716 | ) |
|
| (28,636 | ) |
|
| 783,310 |
|
F-23
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
The restricted stock outstanding at December 31, 2017, 2016,2019, 2018, and 2015,2017, had an aggregate intrinsic value of $3.4 million, $9.1 million, and $13.0 million, $13.3 million, and $16.3 million, respectively.
During fiscal 2017,2019, the Company awarded 565,745662,154 shares of restricted common stock to certain employees and directors of the Company, of which 194,652325,415 shares were subject to performance and market-based vesting conditions. The average market value of the common stock on the date of grant was $13.75.$4.50. These awards of restricted shares vest over a one to four-year period, unless the award is subject to certain accelerated vesting requirements, and had an intrinsic value of $7.8$3.0 million on the date of grant. Additionally, during fiscal 2017,2019, the Company awarded 26,78759,841 restricted stock units to certain directors of the Company with average market value of $13.44$3.76 on the date of grant. These awards of restricted units vest over a one-year period and had an intrinsic value of approximately $0.4$0.2 million on the date of grant.
Stock Based Compensation
The Company uses the Black-Scholes option pricing model to estimate the grant date fair value of its stock options. The Black-Scholes model requires the input of certain assumptions including expected volatility, expected dividend yield, expected life of the option and the risk free interest rate. The expected volatility used by the Company is based primarily on an analysis of historical prices of the Company’s common stock. The expected term of options granted is based primarily on historical exercise patterns on the Company’s outstanding stock options. The risk free rate is based on zero-coupon U.S. Treasury yields in effect at the date of grant with the same period as the expected option life. The Company does not expect to pay dividends on its common stock and therefore has used a dividend yield of zero in determining the fair value of its awards. The option forfeiture rate assumption used by the Company is based primarily on the Company’s historical option forfeiture patterns. The Company currently has no stock options outstanding.
The Company uses the Monte-Carlo simulation model to determine the fair value of performance awards which include market-based vesting conditions. The Monte-Carlo simulation model uses the same input assumptions as the Black-Scholes model,model; however, it also further incorporates into the fair-value determination the possibility that the market condition may not be satisfied. Compensation costs related to awards with a market-based condition are recognized regardless of whether the market condition is satisfied, provided that the requisite service has been provided. During fiscal 2017,2019, in accordance with the Company’s long-term incentive compensation plan, the Company granted 194,652325,415 shares of restricted common stock with performance and market-based vesting conditions to certain employees of the Company. These performance awards are subject to a market-based condition that may increase or decrease the number of shares vested if the Company’s 20192021 Total Stockholder Return (“TSR”) exceeds or falls below certain achievement level parameters when ranked against the Company’s designated Peer Group. These restricted performance shares vest over a three-year period based on the Company’s Earnings before Interest, Taxes, Depreciation, Amortization, and Rent (“EBITDAR”) financial performance target set by the Company’s compensation committee for the fiscal year ending December 31, 2019.2021. The number of shares of restricted common stock ultimately issued will be prorated between performance level targets achieved.
The Company recognized $7.7$2.5 million, $11.6$8.4 million, and $8.8$7.7 million in stock-based compensation expense during fiscal 2019, 2018, and 2017, 2016,respectively, which primarily is associated with employees whose corresponding salaries and 2015, respectively.wages are included in general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Loss. Unrecognized stock-based compensation expense is $9.1$3.7 million for the year endedat December 31, 2017.2019. The Company expects stock-based compensation expense to be recognized over a one to three-year period for performance restricted stock awards and a one to four-year period for nonperformance-based restricted stock awards and units.
F-24
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
The (benefit) provision for income taxes consists of the following (in thousands):
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
| ||||||
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
| $ | 6 |
|
| $ | — |
|
| $ | — |
|
| $ | (71 | ) |
| $ | (152 | ) |
| $ | 6 |
|
State |
|
| 550 |
|
|
| 435 |
|
|
| 900 |
|
|
| 443 |
|
|
| 474 |
|
|
| 550 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
| 1,940 |
|
|
| — |
|
|
| — |
|
|
| 76 |
|
|
| (2,093 | ) |
|
| 1,940 |
|
State |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| $ | 2,496 |
|
| $ | 435 |
|
| $ | 900 |
| ||||||||||||
(Benefit) Provision for income taxes |
| $ | 448 |
|
| $ | (1,771 | ) |
| $ | 2,496 |
|
The (benefit) provision (benefit) for income taxes differed from the amounts of income tax (benefit) provision (benefit) determined by applying the U.S. federal statutory income tax rate to income before (benefit) provision (benefit) for income taxes as a result of the following (in thousands):
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
| ||||||
Tax (benefit) provision at federal statutory rates |
| $ | (14,168 | ) |
| $ | (9,335 | ) |
| $ | (4,515 | ) | ||||||||||||
State income tax expense, net of federal effects |
|
| (648 | ) |
|
| (550 | ) |
|
| 64 |
| ||||||||||||
Tax benefit at federal statutory rates |
| $ | (7,472 | ) |
| $ | (11,627 | ) |
| $ | (14,168 | ) | ||||||||||||
State income tax benefit, net of federal effects |
|
| (548 | ) |
|
| (665 | ) |
|
| (648 | ) | ||||||||||||
Change in deferred tax asset valuation allowance |
|
| 7,857 |
|
|
| 8,569 |
|
|
| 4,986 |
|
|
| 7,478 |
|
|
| 9,543 |
|
|
| 7,857 |
|
Tax reform impact on deferred income taxes |
|
| 13,959 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13,959 |
|
Share based compensation ASU 2016-09 adoption |
|
| (5,326 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,326 | ) |
Other |
|
| 822 |
|
|
| 1,751 |
|
|
| 365 |
|
|
| 990 |
|
|
| 978 |
|
|
| 822 |
|
|
| $ | 2,496 |
|
| $ | 435 |
|
| $ | 900 |
| ||||||||||||
(Benefit) Provision for income taxes |
| $ | 448 |
|
| $ | (1,771 | ) |
| $ | 2,496 |
|
The effective tax rate for fiscal 2019 differs from the statutory tax rate primarily due to state income taxes, changes in the deferred tax asset valuation allowance, and other permanent tax differences. The Company is impacted by the Texas Margin Tax (“TMT”), which effectively imposes tax on modified gross revenues for communities within the State of Texas and accounts for the majority of the Company’s current state tax expense. The valuation allowance recorded as of Fiscal 2019 was $50.7 million, which had increased from the prior year by $4.4 million. Of the $4.4 million adjustment to the valuation allowance during fiscal 2019, a $3.0 million decrease in the valuation allowance was the result of retained earnings impact related to the adoption of ASC 842 and a $7.4 million increase to the valuation allowance was current year activity. The fiscal 2019 other permanent tax differences include $0.7 million of stock compensation shortfalls and $0.4 million of Section 162(m) compensation limitation.
The effective tax rate for fiscal 2018 differs from the statutory tax rate primarily due to state income taxes, changes in the deferred tax asset valuation allowance, and other permanent tax differences. The fiscal 2018 other permanent tax differences include $0.5 million of stock compensation shortfalls and $0.3 million of Section 162(m) compensation limitation.
The effective tax rate for fiscal 2017 differs from the statutory tax rate primarily due to state income taxes, changes in the deferred tax asset valuation allowance, tax reform impact on deferred income taxes, adoption of ASU 2016-09, and other permanent tax differences. The fiscal 2017 other permanent tax differences include $0.7 million of stock compensation shortfalls and $0.2 million of Section 162(m) compensation limitation.
A summary of the Company’s deferred tax assets and liabilities, are as follows (in thousands):
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2019 |
|
| 2018 |
| ||||
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred gains on sale/leaseback transactions |
| $ | 2,890 |
|
| $ | 5,416 |
|
| $ | — |
|
| $ | 2,440 |
|
Net operating loss carryforward (expiring up to 2037) |
|
| 25,441 |
|
|
| 23,206 |
| ||||||||
Lease liabilities |
|
| 62,166 |
|
|
| — |
| ||||||||
Net operating loss carryforward |
|
| 34,284 |
|
|
| 33,252 |
| ||||||||
Compensation costs |
|
| 2,245 |
|
|
| 3,707 |
|
|
| 2,134 |
|
|
| 3,087 |
|
Depreciation and amortization |
|
| 4,367 |
|
|
| — |
|
|
| 3,525 |
|
|
| 5,323 |
|
Other |
|
| 2,099 |
|
|
| 3,221 |
|
|
| 2,991 |
|
|
| 2,330 |
|
Total deferred tax assets |
|
| 37,042 |
|
|
| 35,550 |
|
|
| 105,100 |
|
|
| 46,432 |
|
Deferred tax asset valuation allowance |
|
| (36,737 | ) |
|
| (30,821 | ) |
|
| (50,699 | ) |
|
| (46,280 | ) |
Total deferred tax assets, net |
|
| 305 |
|
|
| 4,729 |
|
|
| 54,401 |
|
|
| 152 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| (2,246 | ) |
|
| (4,729 | ) |
|
| — |
|
|
| — |
|
Operating lease right-of-use assets |
|
| (54,325 | ) |
|
| — |
| ||||||||
Total deferred tax liabilities |
| $ | (2,246 | ) |
| $ | (4,729 | ) |
| $ | (54,325 | ) |
| $ | — |
|
Net deferred tax (liabilities) assets |
| $ | (1,941 | ) |
| $ | — |
| ||||||||
Deferred taxes, net |
| $ | 76 |
|
| $ | 152 |
|
F-25
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
Income taxes are computed using the asset and liability method and current income taxes are recorded based on amounts refundable or payable in the current year.payable. Deferred income taxes are recorded based on the estimated future tax effects of loss carryforwards and temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in the years in which we expect those carryforwards and temporary differences to be recovered or settled. Management regularly evaluates the future realization of deferred tax assets and provides a valuation allowance, if considered necessary, based on such evaluation. As part of the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income. Based upon this evaluation, a valuation allowance has been recorded to reduce the Company’s net deferred tax assets to the amount that is more likely than not to be realized. A significant component of objective evidence evaluated was the cumulative losses before income taxes incurred by the Company over the past several fiscal years. Such objective evidence severely limits the ability to consider other subjective evidence such as the Company’s ability to generate sufficient taxable income in future periods to fully recover the deferred tax assets. However, in the event that we were to determine that it would be more likely than not that the Company would realize the benefit of deferred tax assets in the future in excess of their net recorded amounts, adjustments to deferred tax assets would increase net income in the period we made such a determination. The benefits of the net deferred tax assets might not be realized if actual results differ from expectations. The valuation allowance recorded as of Fiscal 2019 was $50.7 million, which had increased from the prior year by $4.4 million. Of the $4.4 million adjustment to the valuation allowance during fiscal 2019, a $3.0 million decrease in the valuation allowance was the result of retained earnings impact related to the adoption of ASC 842 and a $7.4 million increase to the valuation allowance was current year activity.
TheAt December 31, 2017, the Company completed an analysis determining its best estimate for provisional tax adjustments based on the revised tax legislation associated with the Tax Cuts and Jobs Act (“TCJA”), which was enacted on December 22, 2017. Additionally, the Securities and Exchange Commission issued Staff Accounting Bulletin 118 (“SAB 118”), to address the accounting and reporting of the Act. SAB 118 allowsallowed companies to take a reasonable period, which should not extent beyond one year from enactment of the TCJA, to measure and recognize the effects of the new tax law. The Company is still analyzing certain aspects of the TCJA and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts; however, basedBased upon the Company’s analysis of the TCJA and consideration of SAB 118, the Company remeasured its deferred income taxes on a provisional basis as of December 31, 2017, which resulted in a net $14.0 million reduction in the Company’s deferred tax assets and liabilities. The remeasurement consisted of a $15.9 million reduction to the Company’s deferred tax assets for the change in the corporate statutory tax rate from 34% to 21% and a $0.3 million reduction to the Company’s deferred tax asset valuation allowance for the repeal of
the corporate Alternative Minimum Tax (“AMT”), partially offset by a $2.2 million increase to the Company’s deferred tax asset valuation allowance for maximum deduction limits for future net operating loss (“NOL”) carryforwards to 80% of taxable income for losses arising in tax years beginning after December 31, 2017.
The Company completed its assessment of the TCJA under SAB 118 as of December 31, 2018, resulting in a net $2.2 million reduction to the Company’s deferred tax asset valuation allowance. The $2.2 million reduction was primarily related to guidance released in December 2018 for companies electing real property trade or business under Section 163(j)(7)(B) of the Internal Revenue Code to opt out of the interest expense limitation. This guidance requires residential rental property to be depreciated under the Alternative Depreciation System (“ADS”), including assets placed in service prior to 2018.
As of December 31, 2017,2019, the Company has federal and state NOL carryforwards of $108.5$160.5 million and $91.6$135.0 million and related deferred tax assets of $22.8$33.7 million and $5.3$7.2 million, respectively, and a federal AMT credit carryforward of $0.3$0.1 million. The federal and state NOL carryforwards in the income tax returns filed included unrecognized tax benefits. The deferred tax assets recognized for those NOLs are presented net of the unrecognized benefits. If not used, the federal NOL generated prior to fiscal 2018 will expire during fiscal 2033 to 2037 and non-conforming state NOL’s will expire during fiscal 2020 to 2039. Federal NOL’s generated in fiscal 2018 and beyond currently have no expiration due to 2037.changes to tax laws enacted with the TCJA. Some state jurisdictions conform to the unlimited net operating loss carryforward provisions as modified by the TCJA. However, some jurisdictions do not conform to the above-mentioned provisions.
Utilization of the net operating loss carryforwards might be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). These ownership changes may limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups.
Since the Company’s formation, the Company has raised capital through the issuance of capital stock on several occasions which, combined with the purchasing stockholders’ subsequent disposition of those shares, may have resulted in such an ownership change, or could result in an ownership change in the future upon subsequent disposition. As no utilization of the NOL carryforwards are being or are projected to be utilized in the near future, the Company has not currently completed a study to assess whether an ownership change has occurred. As the Company maintains a valuation allowance in all jurisdictions where the NOL carryovers are present, any potential Section 382 limitation would also be impacted by the valuation allowance. Any carryforwards that will expire prior to utilization as a result of a Section 382 limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowance
A summary of the Company’s unrecognized tax benefits activity and related information for the years ended December 31, 2019, 2018, and 2017 is presented below (in thousands):
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Beginning balance, January 1 |
| $ | 4,644 |
|
| $ | 3,416 |
|
| $ | 3,786 |
|
Gross increases – tax positions in prior period |
|
| 2,468 |
|
|
| 1,228 |
|
|
| — |
|
Gross decreases – tax positions in prior period |
|
| — |
|
|
| — |
|
|
| (370 | ) |
Gross increases – tax positions in current period |
|
| — |
|
|
| — |
|
|
| — |
|
Settlements |
|
| — |
|
|
| — |
|
|
| — |
|
Lapse of statute of limitations |
|
| (323 | ) |
|
| — |
|
|
| — |
|
Ending balance, December 31 |
| $ | 6,789 |
|
| $ | 4,644 |
|
| $ | 3,416 |
|
The Company evaluates uncertain tax positions through consideration of accounting and reporting guidance on criteria, measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial-statement comparability among different companies. The Company is required to recognize a tax benefit in its financial statements for an uncertain tax position only if management’s assessment is that its position is “more likely than not” (i.e., a greater than 50 percent likelihood) to be upheld on audit based only on the technical merits of the tax position. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as income tax expense. As of December 31, 2017,2019, the Company has unrecognized tax benefits of $3.4$6.8 million for an uncertain tax position associated with a change in accounting method. The unrecognized tax benefits as of December 31, 20172019 are timing-related uncertainties that if recognized would not impact the effective tax rate of the Company.
F-26
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
A summary of the Company’s unrecognized Unrecognized tax benefits activity and related information for the years ended December 31, 2017, 2016, and 2015 is presented below (in thousands):
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Beginning balance, January 1 |
| $ | 3,786 |
|
| $ | — |
|
| $ | — |
|
Gross increases – tax positions in prior period |
|
| — |
|
|
| 2,451 |
|
|
| — |
|
Gross decreases – tax positions in prior period |
|
| (370 | ) |
|
| — |
|
|
| — |
|
Gross increases – tax positions in current period |
|
| — |
|
|
| 1,335 |
|
|
| — |
|
Settlements |
|
| — |
|
|
| — |
|
|
| — |
|
Lapse of statute of limitations |
|
| — |
|
|
| — |
|
|
| — |
|
Ending balance, December 31 |
| $ | 3,416 |
|
| $ | 3,786 |
|
| $ | — |
|
The effective tax rates for fiscal 2017 and 2016 differ from the statutory tax rates due to state income taxes, permanent tax differences, andbenefit changes in the deferred tax asset valuation allowance.next 12 months will be a reduction of $1.7 million. The Company is impacted byfiles income tax returns in the Texas Margin Tax (“TMT”), which effectively imposes tax on modified gross revenues for communities withinU.S. federal jurisdiction and U.S. state jurisdictions. As of December 31, 2019, the State of Texas and accounts for the majority of the Company’s current state tax expense. During each of fiscal 2017 and 2016 the Company consolidated 38 Texas communities and the TMT increased the overall provision for income taxes. The Company is generally no longer subject to U.S. federal and state income tax auditsexaminations for tax years before 2014.prior to 2016.
| Employee Benefit Plans |
The Company has a 401(k) salary deferral plan (the “Plan”) in which allcertain employees of the Company meeting minimum service and age requirements are eligible to participate. Contributions to the Plan are in the form of employee salary deferrals, which are subject to employer matching contributions of 50% of up to 4% of the employee’s annual salary. The Company’s contributions are funded semi-monthly to the Plan administrator. Matching contributions of $0.5 million were contributed to the Plan in each of fiscal 2017, 20162019, 2018 and 2015.2017. The Company incurred administrative expenses related to the Plan of $21,300, $24,600,$24,000, $25,000, and $20,900$21,300 in fiscal 2017, 2016,2019, 2018, and 2015,2017, respectively.
| Contingencies |
The Company has claims incurred in the normal course of its business. Most of these claims are believed by management to be covered by insurance, subject to normal reservations of rights by the insurance companies and possibly subject to certain exclusions in the applicable insurance policies. Whether or not covered by insurance, these claims, in the opinion of management, based on advice of legal counsel, should not have a material effect on the consolidated financial statements of the Company if determined adversely to the Company.
The Company had two of its senior housing communities located in southeast Texas impacted by Hurricane Harvey during the third quarter of fiscal 2017. Both of these communities remain fully vacated and are undergoing repairs. We maintain insurance coverage on these communities which includes damage caused by flooding. The insurance claim for this incident required a deductible of $100,000 that was expensed as a component of operating expenses in the Company’s Consolidated Statement of Operations and Comprehensive Loss in the third quarter of fiscal 2017. Through December 31, 2017, wePhysical repairs have been completed to restore the communities to their condition prior to the incident and these communities reopened and began accepting residents in July 2018. We have incurred approximately $3.9$6.2 million in clean-up and physical repair costs, and we expect to incur additional repair costsalmost all of which we believe are probable of beinghave been recovered through insurance proceeds. At December 31, 2019 and 2018, the Company expected to receive an additional $0.3 million and $2.4 million, respectively, in insurance proceeds from our respective carrier, which was included in prepaid expenses and other on the Company’s Consolidated Balance Sheets. In addition to the repairs of physical damage to the buildings, the Company’s insurance coverage includes loss of business income (“Business Interruption”). Business Interruption includes reimbursement for lost revenue as well as incremental expenses incurred as a result of the hurricane. The Company received payments from our insurance underwriters during fiscal 20172019 and 2018 totaling approximately $2.7$2.5 million of which approximately $2.2and $5.1 million related to Business Interruption, through December 31, 2017,respectively, which hashave been included as a reduction to operating expenses in the Company’s Consolidated Statement of Operations and Comprehensive Loss for each respective year. Business interruption payments ceased in fiscal 2017.accordance with our insurance policy in July 2019.
In July 2018, the Company received notifications from the Internal Revenue Service (“IRS”) pursuant to the Affordable Care Act (“ACA”) that the Company may be liable for an Employer Shared Responsibility Payment (“ESRP”) in the amount of approximately $2.1 million for the year ended December 31, 2015. The ESRP is applicable to employers that had 50 or more full-time equivalent employees, did not offer minimum essential
coverage (“MEC”) to at least 70% of full-time employees and their dependents, or did offer MEC to at least 70% of full-time employees and their dependents which did not meet the affordable or minimum value criteria and had one or more full-time employees certified as being allowed the premium tax credit (“PTC”). The IRS determines the amount of the proposed ESRP from information returns completed by employers and from income tax returns completed by employees. Based upon our initial assessmentthe Company’s review of the physical damages and insurance coverage,notifications provided by the IRS, the Company currently estimates insurance proceeds willinitially concluded it would be sufficient to reimburseliable for approximately $0.2 million of the ESRP assessments which was accrued within certain employee benefit reserves. The Company for all damages and repair costs to fully restore the communities to their condition priorformally responded to the incident.
F-27
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
notifications from the IRS and received favorable decisions revising the ESRP to $83,200 during the fourth quarter of fiscal 2018. The Company believes it has appropriate reserves as of December 31, 20172019 and 2018.
14.Fair Value of Financial Instruments
The carrying amounts and fair values of financial instruments at December 31, 20172019 and 20162018 are as follows (in thousands):
|
| 2017 |
|
| 2016 |
|
| 2019 |
|
| 2018 |
| ||||||||||||||||||||
|
| Carrying Amount |
|
| Fair Value |
|
| Carrying Amount |
|
| Fair Value |
|
| Carrying Amount |
|
| Fair Value |
|
| Carrying Amount |
|
| Fair Value |
| ||||||||
Cash and cash equivalents |
| $ | 17,646 |
|
| $ | 17,646 |
|
| $ | 34,026 |
|
| $ | 34,026 |
|
| $ | 23,975 |
|
| $ | 23,975 |
|
| $ | 31,309 |
|
| $ | 31,309 |
|
Restricted cash |
|
| 13,378 |
|
|
| 13,378 |
|
|
| 13,297 |
|
|
| 13,297 |
|
|
| 13,088 |
|
|
| 13,088 |
|
|
| 13,011 |
|
|
| 13,011 |
|
Notes payable, excluding deferred loan costs |
|
| 967,332 |
|
|
| 929,000 |
|
|
| 910,234 |
|
|
| 879,448 |
|
|
| 930,085 |
|
|
| 899,326 |
|
|
| 983,207 |
|
|
| 945,318 |
|
The following methods and assumptions were used in estimating its fair value disclosures for financial instruments:
Cash and cash equivalents and Restricted cash: The carrying amounts reported in the balance sheet for cash and cash equivalents and restricted cash equal fair value, which represent levelLevel 1 inputs as defined in the accounting standards codification.
Notes payable: The fair value of notes payable is estimated using discounted cash flow analysis, based on current incremental borrowing rates for similar types of borrowing arrangements, which represent levelLevel 2 inputs as defined in the accounting standards codification.
Assets Held for Sale
During the first quarter of fiscal 2019, the Company classified one senior living community as held for sale and determined a remeasurement write-down of approximately $2.3 million was required to adjust the carrying value to its fair value, net of cost of disposal. The senior living community was sold during the second quarter of fiscal 2019 for its carrying value. During the third quarter of fiscal 2019, the Company classified two senior living communities as held for sale which required no remeasurement to adjust the carrying value to its fair value.
The Company determines, using Level 2 inputs as defined in the accounting standards codification, the fair value, net of costs of disposal, of an asset on the date the asset is categorized as held for sale, and the asset is recorded at the lower of its fair value, net of cost of disposal, or carrying value on that date. The Company periodically reevaluates assets held for sale to determine if the assets are still recorded at the lower of fair value, net of cost of disposal, or carrying value. The fair values are generally determined based on market rates, industry trends and recent comparable sales transactions.
Operating Lease Right-Of-Use Assets
The Company’s adoption of ASC 842 on January 1, 2019, resulted in the recognition of operating lease right-of-use assets which were determined not fully recoverable and required impairment write-down adjustments of approximately $17.8 million recorded directly to retained deficit. The fair value of the right-of-use assets was estimated, using level 3 inputs as defined in the accounting standards codification, utilizing a discounted cash flow
approach based upon historical and projected cash flows and market data, including management fees and a market supported lease coverage ratio. The estimated future cash flows were discounted at a rate that is consistent with a weighted average cost of capital from a market participant perspective.
The estimated fair value of these assets and liabilities could be affected by market changes and this effect could be material.
| Allowance for Doubtful Accounts |
The components of the allowance for doubtful accounts are as follows (in thousands):
|
| December 31, |
|
| December 31, |
| ||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
| ||||||
Balance at beginning of year |
| $ | 4,253 |
|
| $ | 3,188 |
|
| $ | 2,321 |
|
| $ | 6,793 |
|
| $ | 4,881 |
|
| $ | 4,253 |
|
Provision for bad debts, net of recoveries |
|
| 1,748 |
|
|
| 1,727 |
|
|
| 1,192 |
|
|
| 3,765 |
|
|
| 2,990 |
|
|
| 1,748 |
|
Write-offs and other |
|
| (1,120 | ) |
|
| (662 | ) |
|
| (325 | ) |
|
| (1,915 | ) |
|
| (1,078 | ) |
|
| (1,120 | ) |
Balance at end of year |
| $ | 4,881 |
|
| $ | 4,253 |
|
| $ | 3,188 |
|
| $ | 8,643 |
|
| $ | 6,793 |
|
| $ | 4,881 |
|
Accounts receivable are reported net of an allowance for doubtful accounts to represent the Company’s estimate of inherent losses at the balance sheet date. The increase in the allowance for doubtful accounts is primarily due to an increase in Medicaid receivables, which is due to an increase in the number of residents for which Medicaid is the payor. The Company’s bad debt expense for Medicaid is higher than that for private pay residents.
| Leases |
The Company has operating leases for various real estate (primarily senior housing communities) and equipment as well as financing leases for certain vehicles. As of December 31, 2017,2019, the Company leased 46 senior housing communities from certain real estate investment trusts (“REITs”). The lease terms are generally for 10-15 years with renewal options for 5-20 years at the Company’s option. Under these facility lease agreements, the Company is responsible for all operating costs, maintenance and repairs, insurance and property taxes. No newAdditionally, facility leases were entered into bymay include contingent rent increases when certain operational performance thresholds are surpassed, at which time the Company during fiscal 2017.
F-28
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
The following table summarizes each of the Company’s facilityright-of-use assets and lease agreements as of December 31, 2017 (dollars in millions):liability will be remeasured.
Landlord |
| Initial Date of Lease |
| Number of Communities |
|
| Value of Transaction |
|
| Current Expiration and Renewal Term |
| Initial Lease Rate (1) |
|
| Lease Acquisition and Modification Costs (2) |
|
| Deferred Gains /Lease Concessions (3) |
| |||||
Ventas |
| September 30, 2005 |
|
| 4 |
|
| $ | 61.4 |
|
| September 30, 2025 (4) (Two five-year renewals) |
|
| 8 | % |
| $ | 7.7 |
|
| $ | 4.2 |
|
Ventas |
| January 31, 2008 |
|
| 1 |
|
|
| 5.0 |
|
| September 30, 2025 (4) (Two five-year renewals) |
|
| 7.75 | % |
|
| 0.2 |
|
|
| — |
|
Ventas |
| June 27, 2012 |
|
| 2 |
|
|
| 43.3 |
|
| September 30, 2025 (4) (Two five-year renewals) |
|
| 6.75 | % |
|
| 0.8 |
|
|
| — |
|
HCP |
| May 1, 2006 |
|
| 3 |
|
|
| 54.0 |
|
| October 31, 2020 (5) (Two 10-year renewals) |
|
| 8 | % |
|
| 0.3 |
|
|
| 12.8 |
|
HCP |
| May 31, 2006 |
|
| 6 |
|
|
| 43.0 |
|
| April 30, 2026 (6) (One 10-year renewal) |
|
| 8 | % |
|
| 0.2 |
|
|
| 0.6 |
|
HCP |
| December 1, 2006 |
|
| 4 |
|
|
| 51.0 |
|
| October 31, 2020 (5) (Two 10-year renewals) |
|
| 8 | % |
|
| 0.7 |
|
|
| — |
|
HCP |
| December 14, 2006 |
|
| 1 |
|
|
| 18.0 |
|
| October 31, 2020 (5) (Two 10-year renewals) |
|
| 7.75 | % |
|
| 0.3 |
|
|
| — |
|
HCP |
| April 11, 2007 |
|
| 1 |
|
|
| 8.0 |
|
| October 31, 2020 (5) (Two 10-year renewals) |
|
| 7.25 | % |
|
| 0.1 |
|
|
| — |
|
Welltower |
| April 16, 2010 |
|
| 5 |
|
|
| 48.5 |
|
| April 30, 2025 (15 years) (One 15-year renewal) |
|
| 8.25 | % |
|
| 0.6 |
|
|
| 0.8 |
|
Welltower |
| May 1, 2010 |
|
| 3 |
|
|
| 36.0 |
|
| April 30, 2025 (15 years) (One 15-year renewal) |
|
| 8.25 | % |
|
| 0.2 |
|
|
| 0.4 |
|
Welltower |
| September 10, 2010 |
|
| 12 |
|
|
| 104.6 |
|
| September 30, 2025 (15 years) (One 15-year renewal) |
|
| 8.50 | % |
|
| 0.4 |
|
|
| 2.0 |
|
Welltower |
| April 8, 2011 |
|
| 4 |
|
|
| 141.0 |
|
| April 30, 2026 (15 years) (One 15-year renewal) |
|
| 7.25 | % |
|
| 0.9 |
|
|
| 16.3 |
|
Subtotal |
|
|
| 12.4 |
|
|
| 37.1 |
| |||||||||||||||
Accumulated amortization through December 31, 2017 |
|
|
| (7.2 | ) |
|
| — |
| |||||||||||||||
Accumulated deferred gains / lease concessions recognized through December 31, 2017 |
|
|
| — |
|
|
| (24.2 | ) | |||||||||||||||
Net lease acquisition costs / deferred gains / lease concessions as of December 31, 2017 |
|
| $ | 5.2 |
|
| $ | 12.9 |
|
|
|
|
|
|
|
|
|
|
|
F-29
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
|
|
Ventas
As of December 31, 2017,2019, the Company leased 7seven senior housing communities (collectively the “Ventas Lease Agreements”) from Ventas. Effective January 31, 2017, the Company closedacquired from Ventas the Four Property Lease Transaction and acquiredunderlying real estate associated with four of the senior housing communities leased from Ventasits operating leases for a total acquisition price of $85.0 million.million (the “Four Property Lease Transaction”). The Company obtained interim, interest only,interest-only, bridge financing from BerkadiaCommercial Mortgage LLC (“Berkadia”) for $65.0 million of the acquisition price with an initial variable interest rate of LIBOR plus 4.0% and a 36-month term, with an option to extend six months, and the balance of the acquisition price paid was from the Company’s existing cash resources. For additional information referAdditionally, the Company agreed to Note 3, “Acquisitions.” continue paying $2.3 million of the annual rents associated with the four communities acquired over the remaining lease term of the remaining seven leased communities. At December 31, 2019 and 2018, the lease termination obligation was $11.4 million and $12.9 million, respectively. Prior to the Four Property Lease Transaction, the Company previously leased 11 senior housing communities from Ventas.
During the second quarter of fiscal 2015, the Company executed amendments to the master lease agreements with Ventas to facilitate up to $24.5 million of leasehold improvements for 10 communities within the Ventas lease portfolio and extend the lease terms until September 30, 2025, with two five-year renewal extensionextensions available at the Company’s option. Additionally, duringDuring the second quarter of fiscal 2016, the Company executed amendments to the master lease agreements with Ventas to increase the Special Project Fundsfunds budgeted for leasehold improvements (the “Special Project Funds”) from $24.5 million to $28.5 million and extend the date for completion of the leasehold improvements to June 30, 2017. During the second quarter of fiscal 2017, the Company executed amendments to the master lease agreements
with Ventas to decrease the Special Project Funds for leasehold improvements from $28.5 million to approximately $17.0 million due to the Four Property Lease Transaction and extend the date for completion of the leasehold improvements to June 30, 2018. During the second quarter of fiscal 2019, the Company executed amendments to the master lease agreements with Ventas to increase the Special Project Funds for leasehold improvements from approximately $17.0 million to approximately $20.0 million and extend the date for completion of the leasehold improvements to June 30, 2021. The initial lease rates under each of the Ventas Lease Agreements rangeranged from 6.75% to 8% and are subject to certain conditionalcontingent rent escalation clauses that will be recognized when probable or incurred. The Company initially incurred $11.4 million inclauses. When a contingency is resolved and an escalation occurs, the amount is included within lease acquisitionpayments and modification costs related to the Ventas Lease Agreements, of which a portion of these costs were written-off upon closing the Four Property Lease Transaction leaving $8.7 million in lease acquisition and modification costs associated with the remaining properties. These deferred lease acquisition and modification costs are being amortized over the lease terms and are included in facility lease expensereflected in the Company’s Consolidated Statement of OperationsROU asset and Comprehensive loss. The Company accounts for five of the Ventas Lease Agreements as an operating lease and two as a Capital lease and financing obligation.
Effective June 27, 2012,liability. Subsequent to year-end, the Company closed a lease modification transactionentered into an agreement with Ventas, which resulted inproviding for the Company exchanging twoearly termination of its owned communities for one of the communities in the existingMaster Lease Agreement between it and Ventas lease portfolio and simultaneously leasing back the two communities exchanged (the “Ventas Lease Transaction”). This transaction was the result of negotiations for a solution to the anticipation of the Company not meeting certain lease coverage ratio requirements for its lease portfolio of ten properties with Ventas. The two communities previously owned by the Company are located in East Lansing, Michigan (the “East Lansing Community”) and Raleigh, North Carolina (the “Raleigh Community”) and were exchanged for a community located in Merrillville, Indiana (the “Towne Centre Community”). All three communities continue to be operated by the Company. In conjunction with this transaction, Ventas assumed approximately $18.3 million of existing mortgage debt from Berkadia and the Company received the Towne Centre Community unencumbered. All of the leased communities in the Ventas lease portfolio were modified to be coterminous with the East Lansing and Raleigh Community leases expiring on September 30, 2020, which were extended to September 30, 2025 during fiscal 2015, with two 5-year renewal extensions availablecovering seven communities. See discussion at the Company’s option, eliminate property-level lease covenants, and contain substantially similar terms and conditions. These leases were re-evaluated by the Company at the modification date and continue to be treated as operating leases. Under the terms of the original lease agreements with Ventas, the Company had previously deposited additional cash collateral of approximately $3.4 million, which was returnable to the Company once certain performance targets were reached. However, due to the rebalanced lease portfolio meeting the lease coverage ratio requirements, the Company negotiated the return of these deposits as a condition to the lease modification. Additionally, due to the extension of the lease terms for the Ventas lease portfolio to fiscal 2020, the rights of Ventas to reset the underlying values of the leased communities were deferred for five years.Note 18- Subsequent Events.
F-30
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
Healthpeak
Pursuant to ASC 840, Leases, the Company performed a sale/leaseback analysis to determine whether the East Lansing Community and Raleigh Community could be removed from its Consolidated Balance Sheets. Based upon the analysis performed, the Company concluded certain aspects of the lease modification would be considered forms of “continuing involvement” which precludes the Company from derecognizing these assets from its Consolidated Balance Sheets under sale/leaseback accounting criteria. Therefore, the Company recorded financing obligations equal to the fair market value of the communities exchanged and the mortgage debt assumed by Ventas. At the end of the lease term, including exercise of any renewal options, the net remaining financing obligation less the net carrying value of the leased assets will be recognized as a non-cash gain on sale of the East Lansing Community and Raleigh Community. Rental payments under these leases will not be reflected as a component of facility lease expense but will be recognized as a reduction of the financing obligation and interest expense based upon the Company’s incremental borrowing rate at the time the transaction was closed. As a result of this transaction, the Company recorded additions to property and equipment of approximately $13.2 million and other assets, primarily consisting of lease intangibles, of approximately $11.8 million within the Company’s Consolidated Balance Sheets, which will be depreciated or amortized over the estimated useful lives. The additions to property and equipment were reduced by approximately $4.9 million, which represented the unamortized portion of the deferred gain previously recognized by the Company when the Towne Centre Community had been sold in fiscal 2006. Lease intangibles consist of the fair value of in-place leases associated with the Towne Centre Community and the fair value attributable to Ventas deferring its right to reset the underlying values of the lease portfolio five years until fiscal 2020.
HCP
As of December 31, 2017,2019, the Company leased 15 senior housing communities (collectively the “Healthpeak Lease Agreements”) from HCP.Healthpeak Properties, Inc., formerly HCP, Inc. (“Healthpeak”). During the fourth quarter of fiscal 2013, the Company executed an amendment to the master lease agreement with HCPHealthpeak to facilitate up to $3.3 million of leasehold improvements for one community within the HCPHealthpeak lease portfolio and extend the initial lease terms for nine communities until October 31, 2020, with two 10-year renewal extensions available at the Company’s option.2020. During the second quarter of fiscal 2015, the Company exercised its right to extend the lease term with HCPHealthpeak for the remaining six communities in the HCPHealthpeak lease portfolio until April 30, 2026, with one 10-year renewal extension available at the Company’s option.2026. The initial lease rates under the HCPHealthpeak Lease Agreements rangeranged from 7.25% to 8% and are subject to certain conditional escalation clauses,clauses. When a contingency is resolved and an escalation occurs, the amount is included within lease payments and reflected in the ROU asset and lease liability. On October 22, 2019, the Company executed an amendment to the master lease agreement with Healthpeak, which will be recognized when probablewas later amended, to transition one of the Healthpeak communities to a new operator on or incurred.around January 15, 2020, and to sell the remaining eight as soon as possible to one or more buyers. The Company incurred $1.6was obligated to pay a $0.3 million in lease acquisition and modification costs related totermination fee on the HCP Lease Agreements. These deferred lease acquisition and modification costs are being amortized over the lease terms and are included in facility lease expense in the Company’s Consolidated Statements of Operations and Comprehensive Loss. The Company accounts for eachtransition of the HCP Lease Agreements asone community to a new operator. Subsequent to year-end, the Company entered into an operating lease.agreement with Healthpeak providing for the early termination of the master lease agreement with Healthpeak. See discussion Note 18- Subsequent Events.
Welltower
As of December 31, 2017,2019, the Company leased 24 senior housing communities (collectively the “Welltower Lease Agreements”) from Welltower. The Welltower Lease Agreements each have an initial term of 15 years, with one 15-year renewal extension available at the Company’s option.years. The initial lease rates under the Welltower Lease Agreements rangeranged from 7.25% to 8.5% and are subject to certain conditional escalation clauses, which will be recognized when probable or incurred.clauses. When a contingency is resolved and an escalation occurs, the amount is included within lease payments and reflected in the ROU asset and lease liability. The initial terms on the Welltower Lease Agreements expire on various dates through from April 2025 through April 2026. Subsequent to year-end, the Company entered into an agreement with Welltower, providing for the early termination of three Master Lease Agreement between it and Welltower covering 24 communities. See discussion at Note 18- Subsequent Events.
The Company incurred $2.1 milliondetermines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of the identified asset means the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset. The Company, as lessee, makes a determination with respect to each of its community and equipment leases as to whether each should be accounted for as an operating lease acquisition costs relatedor financing lease. The classification criteria is based on estimates regarding the fair value of the leased asset, minimum lease payments, effective cost of funds, economic life of the asset, and certain other terms in each lease agreement.
Operating lease right-of-use assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term on the lease commencement date. When the implicit lease rate is not determinable, the Company’s incremental borrowing rate based on the information available at the lease
commencement date is used in determining the present value of future minimum lease payments. As of December 31, 2019, the weighted average discount rate and average remaining lease terms of the Company's operating leases was 7.8% and 5.6 years, respectively. The expected lease terms include options to extend or terminate the Welltowerlease when it is reasonably certain the Company will exercise such options. Lease Agreements. These deferredexpense for minimum lease acquisition costspayments is recognized on a straight-line basis over the expected lease terms.
Financing lease right-of-use assets are beingrecognized within property, plant and equipment and leasehold improvements, net on the Company's consolidated balance sheets. The Company recognizes interest expense on the financing lease liabilities utilizing the effective interest method. As of December 31, 2019, the weighted average discount rate and average remaining lease term of the Company's financing leases was 7.1% and 3.9 years, respectively. The right-of-use asset is generally amortized to depreciation and amortization expense on a straight-line basis over the lease terms and are included in facility lease expense interm.
Certain of the Company’s Consolidated Statements of Operationslease arrangements have lease and Comprehensive Loss.non-lease components. The Company accounts for eachthe lease components and non-lease components as a single lease component for all classes of underlying assets. Leases with an expected lease term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the expected lease term.
Most of the Welltower Lease Agreements asCompany’s lease agreements include one or more options to renew, with renewal terms that can extend the lease term for an operating lease.
Facility lease expense inadditional one to 20 years at the Company’s Consolidated Statementsoption. The recoverability of Operationsassets and Comprehensive Loss includes rent expense plus amortization expense relating todepreciable life of leasehold acquisition costs offsetimprovements are limited by the amortization of deferred gains andexpected lease incentives. The Company leases its corporate headquarters in Dallas, Texas, and an office in New York City and has various lease contracts for a duration of 5 years or less on automobiles, buses and office equipment. The lease on the corporate headquarters currently expires on September 30, 2020.
F-31
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017
The Company incurred $59.7 million, $64.5 million, and $62.8 million in lease expense during fiscal 2017, 2016, and 2015, respectively. Future minimum lease commitments as of December 31, 2017, are as follows (in thousands):
2018 |
| $ | 64,391 |
|
2019 |
|
| 64,366 |
|
2020 |
|
| 61,880 |
|
2021 |
|
| 50,307 |
|
2022 |
|
| 50,277 |
|
Thereafter |
|
| 144,241 |
|
|
| $ | 435,462 |
|
At December 31, 2017 and 2016, the Company had gross deferred lease costs of $12.4 million and $15.1 million, respectively. Accumulated amortization at December 31, 2017 and 2016 was $7.2 million and $8.0 million, respectively, and amortization expense is expected to be approximately $0.9 million in each of the next five fiscal years. The reduction in deferred lease costs and corresponding accumulated amortization was due to the Four Property Lease Transaction that closed on January 31, 2017.terms. There are various financial covenants and other restrictions in the Company’s lease agreements. The Company’s lease agreements do not contain any material residual value guarantees. The Company was in compliance with all of its lease covenants at December 31, 20172018 and 2016.lease covenants with regard to its Healthpeak leases at December 31, 2019. With regard to its Master Lease Agreements with Ventas and Welltower, the Company was not in compliance with certain financial covenants as of December 31, 2019. Subsequent to year-end, the Company entered into forbearance agreements with Ventas and Welltower with respect to such defaults. See footnote 18, “Subsequent Events.”
A summary of operating and financing lease expense (including the respective presentation on the consolidated statement of operations) and cash flows from leasing transactions for the year ended December 31, 2019 is as follows:
Operating Leases (in thousands) |
| Year Ended December 31, 2019 |
| |
| $ | 57,022 |
| |
General and administrative expenses |
|
| 812 |
|
Operating expenses, including variable lease expense of $6,142 |
|
| 6,466 |
|
Total operating lease costs |
| $ | 64,300 |
|
Operating lease expense adjustment |
|
| 5,243 |
|
Operating cash flows from operating leases |
| $ | 69,543 |
|
| Year Ended December 31, 2019 |
| ||
Depreciation and amortization |
| $ | 11 |
|
Interest expense: financing lease obligations |
|
| 3 |
|
Total financing lease costs |
| $ | 14 |
|
Operating cash flows from financing leases |
|
| 11 |
|
Financing cash flows from financing leases |
|
| 3 |
|
Total cash flows from financing leases |
| $ | 14 |
|
The aggregate amounts of future minimum lease payments recognized on the consolidated balance sheet as of December 31, 2019 are as follows (in thousands):
Year Ending December 31, |
| Operating Leases |
| Financing Leases |
| ||
2020 |
| $ | 63,549 |
| $ | 148 |
|
2021 |
|
| 51,401 |
|
| 148 |
|
2022 |
|
| 51,321 |
|
| 148 |
|
2023 |
|
| 51,274 |
|
| 138 |
|
2024 |
|
| 51,245 |
|
| — |
|
Thereafter |
|
| 44,762 |
|
| — |
|
Total |
| $ | 313,552 |
| $ | 582 |
|
Less: Amount representing interest (present value discount) |
|
| (59,107 | ) |
| (72 | ) |
Present value of lease liabilities |
| $ | 254,445 |
| $ | 510 |
|
Less: Current portion of lease liabilities |
|
| (45,871 | ) |
| (117 | ) |
Lease liabilities, net of current portion |
| $ | 208,574 |
| $ | 393 |
|
The aggregate amounts of future minimum operating lease payments not recognized on the consolidated balance sheet under ASC 840 as of December 31, 2018 are as follows (in thousands):
Year Ending December 31, |
| Operating Leases |
| |
2019 |
| $ | 66,455 |
|
2020 |
|
| 63,929 |
|
2021 |
|
| 52,093 |
|
2022 |
|
| 52,062 |
|
2023 |
|
| 52,026 |
|
Thereafter |
|
| 97,165 |
|
Total lease payments |
| $ | 383,730 |
|
The following table presents certain unaudited quarterly financial information for each of the four quarters ended December 31, 20172019 and 2016.2018. This information has been prepared on the same basis as the audited consolidated financial statements of the Company and include, in the opinion of the Company’s management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the quarterly results when read in conjunction with the audited consolidated financial statements of the Company.
|
| 2017 Calendar Quarters |
| |||||||||||||
|
| First |
|
| Second |
|
| Third |
|
| Fourth |
| ||||
|
| (In thousands, except per share amounts) |
| |||||||||||||
Total revenues |
| $ | 115,990 |
|
| $ | 116,718 |
|
| $ | 117,318 |
|
| $ | 116,971 |
|
(Loss) Income from operations |
|
| (9,610 | ) |
|
| 4,691 |
|
|
| 4,513 |
|
|
| 8,248 |
|
Net loss and comprehensive loss |
|
| (21,842 | ) |
|
| (7,835 | ) |
|
| (8,132 | ) |
|
| (6,359 | ) |
Net loss per share, basic |
| $ | (0.75 | ) |
| $ | (0.27 | ) |
| $ | (0.28 | ) |
| $ | (0.22 | ) |
Net loss per share, diluted |
| $ | (0.75 | ) |
| $ | (0.27 | ) |
| $ | (0.28 | ) |
| $ | (0.22 | ) |
Weighted average shares outstanding, basic |
|
| 29,288 |
|
|
| 29,478 |
|
|
| 29,512 |
|
|
| 29,531 |
|
Weighted average shares outstanding, fully diluted |
|
| 29,288 |
|
|
| 29,478 |
|
|
| 29,512 |
|
|
| 29,531 |
|
|
| 2019 Calendar Quarters |
| |||||||||||||
|
| First |
|
| Second |
|
| Third |
|
| Fourth (1) |
| ||||
|
| (In thousands, except per share amounts) |
| |||||||||||||
Total revenues |
| $ | 114,176 |
|
| $ | 113,126 |
|
| $ | 111,110 |
|
|
| 108,688 |
|
Income (Loss) from operations |
|
| 1,970 |
|
|
| 203 |
|
|
| (8,105 | ) |
|
| (8,757 | ) |
Net income (loss) and comprehensive income (loss) |
|
| (12,984 | ) |
|
| (12,534 | ) |
|
| (20,731 | ) |
|
| 10,219 |
|
Net income (loss) per share, basic |
| $ | (0.43 | ) |
| $ | (0.41 | ) |
| $ | (0.68 | ) |
| $ | 0.34 |
|
Net income (loss) per share, diluted |
| $ | (0.43 | ) |
| $ | (0.41 | ) |
| $ | (0.68 | ) |
| $ | 0.34 |
|
Weighted average shares outstanding, basic |
|
| 30,102 |
|
|
| 30,279 |
|
|
| 30,324 |
|
|
| 30,342 |
|
Weighted average shares outstanding, fully diluted |
|
| 30,102 |
|
|
| 30,279 |
|
|
| 30,324 |
|
|
| 30,412 |
|
|
| 2016 Calendar Quarters |
| |||||||||||||
|
| First |
|
| Second |
|
| Third |
|
| Fourth |
| ||||
|
| (In thousands, except per share amounts) |
| |||||||||||||
Total revenues |
| $ | 109,173 |
|
| $ | 111,034 |
|
| $ | 111,436 |
|
| $ | 115,805 |
|
Income from operations |
|
| 4,153 |
|
|
| 5,793 |
|
|
| 3,686 |
|
|
| 758 |
|
Net loss and comprehensive loss |
|
| (5,984 | ) |
|
| (4,446 | ) |
|
| (7,077 | ) |
|
| (10,510 | ) |
Net loss per share, basic |
| $ | (0.21 | ) |
| $ | (0.15 | ) |
| $ | (0.24 | ) |
| $ | (0.36 | ) |
Net loss per share, diluted |
| $ | (0.21 | ) |
| $ | (0.15 | ) |
| $ | (0.24 | ) |
| $ | (0.36 | ) |
Weighted average shares outstanding, basic |
|
| 28,751 |
|
|
| 28,926 |
|
|
| 28,959 |
|
|
| 29,000 |
|
Weighted average shares outstanding, fully diluted |
|
| 28,751 |
|
|
| 28,926 |
|
|
| 28,959 |
|
|
| 29,000 |
|
(1) | The fourth quarter of calendar 2019 was impacted by a $38.8 million gain the Company recognized due to the sale of two communities located in Springfield, Missouri and Peoria, Illinois on October 1, 2019. |
| 2018 Calendar Quarters |
| ||||||||||||||
|
| First |
|
| Second |
|
| Third |
|
| Fourth (1) |
| ||||
|
| (In thousands, except per share amounts) |
| |||||||||||||
Total revenues |
| $ | 114,643 |
|
| $ | 114,627 |
|
| $ | 115,650 |
|
| $ | 115,098 |
|
Income (Loss) from operations |
|
| 5,386 |
|
|
| 3,643 |
|
|
| 1,696 |
|
|
| (3,122 | ) |
Net loss and comprehensive loss |
|
| (7,156 | ) |
|
| (9,060 | ) |
|
| (11,089 | ) |
|
| (26,291 | ) |
Net loss per share, basic |
| $ | (0.24 | ) |
| $ | (0.30 | ) |
| $ | (0.37 | ) |
| $ | (0.88 | ) |
Net loss per share, diluted |
| $ | (0.24 | ) |
| $ | (0.30 | ) |
| $ | (0.37 | ) |
| $ | (0.88 | ) |
Weighted average shares outstanding, basic |
|
| 29,627 |
|
|
| 29,831 |
|
|
| 29,877 |
|
|
| 29,908 |
|
Weighted average shares outstanding, fully diluted |
|
| 29,627 |
|
|
| 29,831 |
|
|
| 29,877 |
|
|
| 29,908 |
|
(1) | The fourth quarter of calendar 2018 was impacted by $4.2 million of additional general and administrative expenses for separation and placement costs primarily associated with the retirement and replacement of the Company’s CEO and $12.6 million for write-off of deferred loan costs and prepayment premiums from the early repayment of certain mortgage debt on the Company’s owned properties due to the opportunity to establish an MCF with Berkadia and extend scheduled maturities. |
Disposition of Boca Raton, Florida Community
Effective January 15, 2020, the Company’s leased senior living community located in Boca Raton, Florida transitioned to a new operator. In conjunction with the transition, the Company paid Healthpeak a one-time $0.3 million payment as a prepayment against the remaining lease payments and was relieved of any additional obligation to Healthpeak with regard to that property. The transition was the first transaction under the Company’s October 22, 2019 agreement with Healthpeak.
Early Termination of Master Lease Agreements
Welltower
On March 15, 2020, the Company entered into an agreement with Welltower, providing for the early termination of three Master Lease Agreements between it and Welltower covering 24 communities. Pursuant to such agreement, among other things, from February 1, 2020 through December 31, 2020, the Company agreed to pay Welltower rent of approximately $2.2 million per month for such communities as compared to approximately $2.8 million per month that would otherwise have been due and payable under the Master Lease Agreements. The Company will not be required to comply with certain financial covenants of the Master Lease Agreements during the forbearance period. In conjunction with the agreement, the Company agreed to release $6.5 million in security deposits held by Welltower. In addition, the agreement with Welltower provides for the conversion of the lease agreements covering the communities into property management agreements with the Company on December 31, 2020, if such communities have not been transitioned to a successor operator.
On March 10, 2020, the Company entered into an agreement with Ventas, providing for the early termination of a Master Lease Agreement between it and Ventas covering seven communities. Pursuant to such agreement, among other things, from February 1, 2020 through December 31, 2020, the Company agreed to pay Ventas rent of approximately $1.0 million per month for such communities as compared to approximately $1.3 million per month that would otherwise have been due and payable under the Master Lease Agreements. The Company will not be required to comply with certain financial covenants of the Master Lease Agreements during the forbearance period. In conjunction with the agreement, the Company agreed to release $3.9 million in security deposits held by Ventas. In addition, the agreement with Ventas provides for the conversion of the lease agreements covering the communities into property management agreements with the Company on December 31, 2020 if Ventas has not transitioned such communities to a successor operator.
Healthpeak
On March 1, 2020, the Company entered into an agreement with Healthpeak, effective February 1, 2020, providing for the early termination of a Master Lease Agreement between it and Healthpeak, previously scheduled to mature in April 2026. The Master Lease Agreement was converted into a management agreement under a RIDEA structure pursuant to which the Company agreed to manage the six communities that were subject to such lease agreement until such communities are sold by Healthpeak. In conjunction with the agreement, the Company agreed to release approximately $1.9 million of security deposits held by Healthpeak.
The Company expects that these agreements will result in lease modifications under ASC 842, which will significantly reduce the Company’s operating lease right-of-use assets, net and its operating lease liabilities. Additionally, the Company expects the lease modifications to advance the timing of recognition within the Company’s Consolidated Statements of Operations and Comprehensive Loss for certain assets and liabilities including $43.7 million of leasehold improvements and $11.4 million of lease related financing obligations as of December 31, 2019 as the modified leases are now expected to terminate by December 31, 2020.
Coronavirus
Since its discovery in December 2019, a new strain of coronavirus, which causes the viral disease known as COVID-19, has spread from China to many other countries, including the United States. The outbreak has been declared to be a pandemic by the World Health Organization, and the Health and Human Services Secretary has declared a public health emergency in the United States in response to the outbreak. Additionally, the Centers for Disease Control and Prevention has stated that older adults are at a higher risk for serious illness from the coronavirus. As a result of the outbreak, which effectively began impacting the United States in early March, the Company has taken necessary precautions to prevent and/or minimize spread of the virus at its communities. After the COVID-19 outbreak, the Company began experiencing a decrease in the number of in-person potential resident tours; however. the Company has created virtual tours, and prospective residents are able to see pictures of the community and resident rooms online. While leads and in-person tours have slowed, new residents do continue to move in, although at a lower rate than in recent months. Move outs have also slowed as compared to recent months. The Company expects to recognize increases in labor costs due to the need for premium labor to supplement staffing, and increases in medical supplies. In response, the Company has reduced spending on non-essential supplies, travel costs and all other discretionary items, and has ceased all non-essential capital expenditure projects. The Company is monitoring the potential impact on its revenues and expenses. The extent to which the coronavirus impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of the coronavirus and the actions taken to contain the coronavirus or treat its impact, among others.
Disposition of Merrillville, Indiana Community
Effective March 31, 2020, the Company sold one community located in Merrillville, Indiana for a total purchase price of $7.0 million and received approximately $6.9 million in net proceeds after paying customary closing costs. The community was unencumbered. The community was comprised of 171 assisted living units and 42 memory care units.
Report of Independent RegistRegistered Public Accouered Public Accountingnting Firm
To the Shareholders and the Board of Directors of Capital Senior Living Corporation
Opinion on Internal Control overOver Financial Reporting
We have audited Capital Senior Living Corporation’s internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control-IntegratedControl—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Capital Senior Living Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2019, based on the COSO criteria.criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Capital Senior Living Corporationthe Company as of December 31, 20172019 and 2016, and2018, the related consolidated statements of operations and comprehensive loss, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 20172019, and the related notes (collectively referred to as the “financial statements”) of Capital Senior Living Corporation, and our report dated March 2, 201831, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
Capital Senior Living Corporation’s
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting.Reporting. Our responsibility is to express an opinion on Capital Senior Living Corporation’sthe Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to Capital Senior Living Corporationthe Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Dallas, Texas
March 2, 201831, 2020
F-34F-37