Late last Friday, Capital Senior Living announced that it expects to disclose its first quarter earnings results before the market opens on May 21, and then hold its conference call with analysts. It will not be pretty.
Also late Friday, the company filed an 8-K with the SEC stating that the coronavirus was taking its toll, and we quote: “The sudden onset of COVID-19 has had a significant adverse impact on occupancy levels, revenues, expenses and operating results at our communities. Although we are unable to predict the full nature and extent of the impact of COVID-19 at this time, we expect COVID-19 will continue to have a significant adverse effect on our business, financial condition, liquidity and results of operations.”
All we can say is, join the club. The difference is that the other companies were not as explicit with their wording. That is because Capital Senior Living, after trying to dig itself out of a hole, may be approaching decision time. In the SEC filing, they also stated that the coronavirus will affect management’s assessment as to whether “there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date on which the Company’s financial statements are issued.” The potential for the dreaded “going concern” opinion by accountants may be what has kept the company from filing their first quarter report on time.
While we would like to say the share price can’t fall much further from the current $0.67, it was as low as $0.45 within the past year, so anything is possible come May 21. The coronavirus pandemic is affecting everyone, directly or indirectly, so we are not sure why it would impact Capital Senior Living more than others. In fact, since they operate more in secondary markets, we would think they would have had less exposure than other large operators.
The company was operating on thin ice before the pandemic, but as recently as March 31, when they finally released fourth quarter earnings, management gave the sense that they had things somewhat under control. We actually began to feel a little better about their prospects, and prior to the March 31 release, we thought they could be announcing a Chapter 11 bankruptcy filing. And now this. The problem is that it didn’t have to go this way. The company always owned the majority of its assets, had recently modified its leases that it could no longer afford, and shed assets that no longer fit for the long term.
If their census is falling at the same rate as Welltower’s and Ventas’ SHOP portfolios, we don’t know how they would be a going concern within 12 months without a bailout, renegotiated debt terms or something else to keep the lights on. The problem is, with costs escalating, it is going to be very, very difficult to continue to operate. The other problem is that it didn’t have to come to this. If a “going concern” opinion does occur, expect some angry shareholders to be very vocal. This is all very unfortunate.