Better late than never, we suppose. On the last day of the first quarter, Capital Senior Living (CSU) came out with its fourth quarter earnings results, and the leaner (much leaner) company will hopefully be better able to navigate the numerous issues still facing it. Investors seemed somewhat optimistic, sending CSU shares up 3% in the hours immediately after the earnings call and up 12% early the next day, with the share price reaching a high of $42.00 per share on April 1.
There is some reason to be optimistic. Since CSU announced it had exiting all of its triple-net leases on January 7 (which resulted in reduced lease liabilities of $265.4 million and improved annual cash flow of more than $22 million), its share price has more than doubled from $12.50 per share closing price on January 6 to a high of $45.18 per share on March 16. That period also coincided with almost all of CSU’s residents getting fully vaccinated, which certainly helps provide a solid foundation for census growth moving forward.
Leading indicators of leads and tours began to rebound in December, followed by move-in and move-out trends starting to stabilize and even improve in the first quarter of 2021. The occupancy decline seemed to slow considerably throughout the quarter, with CSU’s current portfolio of 60 owned assets reporting 75.7% occupancy in January and 75.2% in February. Ownership expects March to be consistent with February based on the month’s highest level of move-ins in more than two years.
Historically, these 60 assets had performed well, with occupancy in the mid- to high-80s and margins in the mid-30% range. In 2020, they averaged 80.5% occupancy and a 28% margin. CSU also currently manages seven Ventas communities, four Healthpeak Properties assets, four Welltower assets, two Fannie Mae assets and one seniors housing community in Canton, Ohio that it previously sold in December 2020 for $18 million. But the PEAK, WELL and Fannie Mae assets should transition to other operators by the end of the second quarter, leaving eight properties in CSU’s managed portfolio.
Turning to COVID relief, Capital Senior Living received approximately $8.1 million in Phase II Provider Relief funds in November 2020 and an additional $8.7 million in Phase III funding in the first quarter. The company also received approximately $900,000 of relief funds from state programs in Wisconsin and Ohio in the fourth quarter and about $1.1 million in distributions in the second and fourth quarters from the Ohio Bureau of Worker’s Compensation. As far as payroll tax deferrals, CSU deferred an additional $2.2 million in the fourth quarter under the CARES Act, bringing its total payroll tax deferral to $7.4 million. One-half of the deferred payroll taxes, which amount to $3.7 million, will be due by December 2021, while the other half will be due by December 2022.
CSU management did address liquidity concerns regarding the refinance of two bridge loans totaling $72.5 million that are currently set to mature in December 2021. The company is actively discussing with existing and potential lending sources but stressed that due to the current lending environment and its own operations, the terms of the new financing may not be as favorable as the bridge financing currently in place. That could be a tough pill to swallow later this year, with that looming maturity date, and the company issued a warning that they may have to “seek alternative sources of financing, which may be less attractive or unavailable,” if they cannot obtain refinancing proceeds sufficient to cover the maturing indebtedness. We hope they find a solution.
