It has been a tumultuous year for Capital Senior Living, more so than for many other large providers. Not only did management have to deal with the pandemic, like everyone else, but they also had to deal with questions about solvency, liquidity and a shareholder battle over the future of the company and its capital structure.
Well, that is now all behind them (except the pandemic), as will be the company name effective November 15 when they become Sonida Senior Living with a new ticker “SNDA.” We suppose they decided that a new name was appropriate for a new financial beginning.
One week before announcing third quarter earnings results, the company closed its hotly contested financing transaction with Conversant Capital. This resulted in raising a total of $154.8 million in gross new capital, inclusive of $34 million from the company’s common stock rights offering. For a company claiming to be facing a liquidity crisis, this is a huge capital infusion. It is also very dilutive.
At least $31.5 million of the cash will be going to repay in full an outstanding bridge loan with Fifth Third Bank. Another loan, with BBVA and that was set to mature this December, was extended for a year this past August with an agreement to extend it for an additional six months to June 2022 if certain financial criteria are met. Principal payments of $5.3 million were required to be paid in installments over the term of the extension, which should be no problem with the new capital infusion.
The company will be “re-starting” from a better than average census situation. Third quarter occupancy increased by 290 basis points compared with the second quarter, reaching 81.0%. October average occupancy was 81.2%, or 590 basis points higher than the pandemic clow of 75.3%. And best of all, the company ended October with occupancy of 82.3% when many companies are still struggling to get above 80%. It did help the numbers that Cap Senior was able to offload several of its underperforming properties.
Getting to the third quarter financial results, the company still has a ways to go to return to true profitability. Its EBITDAR margin was just 4.9% and it does not fully cover the interest expense of $9.7 million, which should continue to decline. At the community level, the operating margin is closer to 20%. G&A was still high at nearly 14% of revenues, which is a major problem, and while declining, has a long way to go. They also suffered from an increase in operating costs in the third quarter of $3.1 million compared with the second quarter, most of which came from labor and food cost increases. Some of these problems will improve if census continues to rise, but they, and everyone else, are going to have to raise unit rates by high single digits if not low double digits to cover increasing costs and pay for the additional labor they will need.
With the recap, the company has added six new board members, so we will see how on top of things they will be. It will all depend on how quickly the company increases census and gets a handle on operating costs. But with inflation at a 30-year high, and the winter season arriving soon, it could be tricky.
