Last Friday, Capital Senior Living announced that shareholders approved the amended agreement with Conversant Capital to provide needed funds to stabilize the company while it continues to work on increasing census, as well as funds for future growth. This involves plans to raise up to $154.8 million in various financings. This was based on preliminary vote estimates taken after the shareholder vote on Friday.
The news of the presumed approval, without giving the breakdown of the voting, sent the shares up by 2.38% to close at $29.68. That is a far cry from where they traded last July. The day before they hit a low of $25.85 during the day, which was the lowest price since August 13. Keep in mind that in early July the shares had been trading in the mid- to high-50’s. That’s almost double where they were last week.
As part of the proposed restructuring, current shareholders will have the right to purchase 1.1 shares of Capital Senior Living at $30 per share for each share they owned on September 10. While slightly higher than last Friday’s close, it is close enough. Shareholders have until 5:00 pm this Wednesday to exercise their option. Most of the largest shareholders will be expanding their ownership since they seem to be the believers in the future of the company as a result of the infusion of new capital.
Obviously, the success rests on current management’s ability to continue to increase census and cut costs. Its G&A expense was out of control this past year, and that is the first place that should be looked at. Presumably, costs associated with the restructuring and activist battle will go away, but the excess costs go beyond that. Next up will be increasing rents as demand increases and they worry less about filling empty beds and focus on margin expansion. That will not be easy with our prediction that labor costs will be increasing way beyond the current inflation rate. And then you have to find that labor. And train them. No one ever said this was an easy business, but we wish management success as they can focus on the task at hand.
