NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
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, 2016, the Company operated 129 senior housing communities in 23 states with an aggregate capacity of approximately 16,500 residents,
including 79 senior housing communities which the Company owned and 50 senior housing communities that the Company leased. As of December 31, 2016, the Company also operated one home care agency. 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.
Long-Lived Assets
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. 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. In that event, a loss is recognized based on the amount the carrying value
exceeds the fair market value, generally based on discounted cash flows, of the long-lived asset. The Company does not believe there are any indicators of impairment that would require an adjustment to the carrying value of the property and
equipment or their remaining useful lives as of December 31, 2016 and 2015.
Off-Balance
Sheet Arrangements
The Company had no material
off-balance
sheet arrangements at December 31, 2016.
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. 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, 2016
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 managements 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 Companys policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as income tax
expense.
Revenue Recognition
Resident and health care revenue is recognized at estimated net realizable amounts, based on historical experiences, due from residents in the period in which the rental and other services are provided.
Additionally, substantially all community fees received from residents are
non-refundable
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 5.5% of the Companys revenue in fiscal 2016, 4.6% of the Companys revenue in fiscal 2015, and 4.0% of the Companys revenue
in fiscal 2014. During fiscal 2016, 2015, and 2014, 40, 34, and 30, respectively, of the Companys 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 Companys communities were providers of services under the Medicare program during fiscal 2016, 2015, or 2014.
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.
Affiliated
management services revenue was recognized when earned and related to the Company providing certain management and administrative support services under management contracts which were terminated when the Company acquired 100% of the member
interests in its unconsolidated joint ventures on June 30, 2014.
Community reimbursement revenue is comprised of
reimbursable expenses from the
non-consolidated
communities that the Company operated under long-term management agreements, which were terminated when the Company acquired 100% of the member interests in its
unconsolidated joint ventures on June 30, 2014.
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
(ASC 805). 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
F-8
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
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 Companys resident receivables are generally due within 30 days from the date billed.
Accounts receivable are reported net of an allowance for doubtful accounts of $4.3 million and $3.2 million at December 31, 2016 and 2015, respectively, and represent the Companys estimate of the amount that ultimately will be
collected. The adequacy of the Companys 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 managements 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 Companys cost of
funds, minimum lease payments and other lease terms. The lease rates under the Companys 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, 2016 and 2015, the Company leased 50 communities, 48 of which the Company classified as operating leases and two of which the Company classified as capital
lease and financing obligations. The Company incurs lease acquisition costs and amortizes these costs over the term of the lease agreement. Certain leases entered into by 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 2016 or 2015. Effective January 31, 2017, the Company acquired four of its senior housing communities
leased from Ventas, Inc. (Ventas) for a total acquisition price of $85.0 million.
Facility lease expense in
the Companys 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.
Employee Health and Dental Benefits, Workers Compensation, and Insurance Reserves
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 Companys 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
F-9
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
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, 2016; 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 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, 2016, 2015, and 2014 were $15.0 million, $13.9 million, and $12.7 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,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net loss
|
|
$
|
(28,017
|
)
|
|
$
|
(14,284
|
)
|
|
$
|
(24,126
|
)
|
Net loss allocated to unvested restricted shares
|
|
|
|
|
|
|
|
|
|
|
(598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed net loss allocated to common shares
|
|
$
|
(28,017
|
)
|
|
$
|
(14,284
|
)
|
|
$
|
(23,528
|
)
|
Weighted average shares outstanding basic
|
|
|
28,909
|
|
|
|
28,688
|
|
|
|
28,301
|
|
Effects of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee equity compensation plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
28,909
|
|
|
|
28,688
|
|
|
|
28,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per share
|
|
$
|
(0.97
|
)
|
|
$
|
(0.50
|
)
|
|
$
|
(0.83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss per share
|
|
$
|
(0.97
|
)
|
|
$
|
(0.50
|
)
|
|
$
|
(0.83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards of unvested restricted stock representing approximately 0.8 million, 0.8 million, and
0.7 million shares were outstanding for the fiscal years ended December 31, 2016, 2015, and 2014, 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.
F-10
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
Treasury Stock
The Company accounts for treasury stock under the cost method and includes treasury stock as a component of shareholders equity
until it is canceled. The Company repurchased 144,315 shares of its common stock during fiscal 2016. There were no repurchases of the Companys common stock during fiscal 2015 or 2014. All shares acquired by the Company have been purchased in
open-market transactions.
Stock-Based Compensation
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 Companys stockholders approved the 2007 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation (as amended, the 2007 Plan) which provides for,
among other things, the grant of restricted stock awards and stock options to purchase shares of the Companys common stock. The 2007 Plan authorizes the Company to issue up to 4.6 million shares of common stock and the Company currently
has 1.3 million shares of common stock reserved for future issuance pursuant to awards 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, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
2017-01,
Business Combinations
Clarifying the Definition of a Business
. ASU
2017-01
provides guidance in accounting 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 assets 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 all 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 assets and activities is not characterized as a business. ASU
2017-01
is applied prospectively and is effective for fiscal years beginning after December 15, 2017, and interim periods
within those fiscal years. Early application is permitted. Management does not expect the adoption of ASU
2017-01
to have a material impact on the Companys financial position, results of operations or
cash flows. No disclosures are required at transition.
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. Early application is permitted. Management does not expect the adoption of ASU
2016-09
to have a material impact
on the Companys financial position, results of operations or cash flows.
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
F-11
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
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 leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with
an option to use certain transition relief. The Company is currently evaluating the impact of adopting the new leases standard on our consolidated financial statements.
In September 2015, the FASB issued ASU
2015-16,
Business Combinations Simplifying the Accounting for Measurement-Period Adjustments
. ASU
2015-16
eliminates the requirement for an acquirer in a business combination to account for the measurement-period adjustment retrospectively. Instead, acquirers must recognize measurement-period adjustments during
the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. ASU
2015-16
is applied prospectively and is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early application is permitted. The Company adopted the
provisions of ASU
2015-16
on January 1, 2016, and incorporated the provisions of this update to its consolidated financial statements upon adoption. 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 Companys Consolidated Balance Sheets.
In August 2014, the FASB issued ASU
2014-15,
Disclosure of Uncertainties about an Entitys
Ability to Continue as a Going Concern
. This ASU requires management to perform interim and annual assessments of an entitys ability to continue as a going concern within one year of the date the financial statements are issued and to
provide certain disclosures if conditions or events raise substantial doubt about the entitys ability to continue as a going concern. ASU
2014-15
is effective for annual reporting periods ending after
December 15, 2016 and subsequent interim reporting periods. The adoption of ASU
2014-15
did not have a material impact on the Companys financial position, results of operations or cash flows.
In May 2014, the FASB issued ASU
2014-09,
Revenue from Contracts with
Customers
. ASU
2014-09
affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer 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. The Company is currently evaluating the impact the adoption of ASU
2014-09
will have on the
Companys consolidated financial statements and disclosures; however, based on our initial assessment we do not believe it will have a significant impact on the Companys financial statements. Additionally, the Company is still evaluating
if it will adopt the standard under the full retrospective adoption or modified retrospective adoption.
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 risk and allowance for doubtful accounts, lease accounting, employee health and dental benefits, workers compensation and insurance reserves,
long-lived assets, and income taxes are its most critical accounting policies and require managements most difficult and subjective judgments.
F-12
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
Reclassifications
Certain reclassifications have been made to prior period amounts to conform to current period presentation.
3.
|
Transactions with Affiliates
|
The Company was party to a series of property management agreements (the SHPIII/CSL Management Agreements) with three joint ventures (collectively SHPIII/CSL) owned 90% by Seniors
Housing Partners III, LP (SHPIII), a fund managed by Prudential Investment Management, Inc. and 10% by the Company, which collectively owned and operated three senior housing communities. The SHPIII/CSL Management Agreements were for
initial terms of ten years from the date the certificate of occupancy was issued and extended until various dates through January 2019. The SHPIII/CSL Management Agreements generally provided for management fees of 5% of gross revenue plus
reimbursement for costs and expenses related to the communities. On June 30, 2014, the Company acquired 100% of the member interests in these joint ventures.
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 been included in general and administrative expenses
within the Companys Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Fannie Mae for approximately $22.0 million of the acquisition price at a fixed interest rate of 4.24% with a
10-year
term with the balance of the acquisition price paid from the Companys existing cash resources.
Effective September 30, 2016, the Company closed the acquisition of one senior housing community located in Springfield, Massachusetts, for $27.0 million (the Springfield
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 Companys 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 Companys existing cash resources.
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 consists of 96 assisted living units. The Company incurred approximately $0.2 million in transaction costs related to this acquisition which have been included in general and administrative expenses within the Companys
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 Companys 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 Companys
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 Companys 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
F-13
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
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 Companys 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 Companys 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 Companys Consolidated Balance Sheets which will be depreciated or amortized over the estimated useful lives. With the exception of the Pine Ridge, Pensacola
Transactions, and Kingwood the purchase accounting for these acquisitions is preliminary as it is subject to final valuation adjustments. 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 Companys 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 Companys 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.
Fiscal 2015
Effective October 30, 2015, the Company closed the
acquisition of one senior housing community located in Virginia Beach, Virginia, for $38.0 million (the Virginia Beach Transaction). The community consists of 111 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 Companys Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing
from Protective Life Insurance Company (Protective Life) for $28.0 million of the acquisition price at a fixed interest rate of 4.25% with a
10-year
term with the balance of the acquisition
price paid from the Companys existing cash resources.
Effective September 30, 2015, the Company closed the
acquisition of one senior housing community located in Mahomet, Illinois, for $15.5 million Mahomet Transaction (the Mahomet Transaction). The community consists of 78 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 Companys Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing
from Fannie Mae for approximately $11.1 million of the acquisition price at a fixed interest rate of 4.69% with a
10-year
term with the balance of the acquisition price paid from the Companys
existing cash resources.
Effective August 11, 2015, the Company closed the acquisition of one senior housing community
located in Indianapolis, Indiana, for $21.0 million (the Indianapolis Transaction). The community consists of 124 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 Companys Consolidated Statements
F-14
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
of Operations and Comprehensive Loss. The Company obtained financing from Protective Life for $13.2 million of the acquisition price at a fixed interest rate of 4.25% with a
10-year
term with the balance of the acquisition price paid from the Companys existing cash resources. The note with Protective Life associated with the Indianapolis Transaction includes a loan commitment for
up to $2.6 million of supplemental funding at the same terms and 4.25% fixed interest rate. The loan commitment is based on meeting certain funding requirements and is available through February 28, 2018.
Effective July 28, 2015, the Company closed the acquisition of one senior housing community located in Columbiana, Ohio, for
approximately $13.3 million (the Columbiana Transaction). The community consists of 68 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 Companys Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Protective Life for approximately $9.9 million of the acquisition price
at a fixed interest rate of 4.25% with a
10-year
term with the balance of the acquisition price paid from the Companys existing cash resources.
Effective May 29, 2015, the Company closed the acquisition of one senior housing community located in Oneonta, New York, for
$14.9 million (the Heritage Transaction). The community consists of 64 independent living units and 44 assisted living units. The Company incurred approximately $0.4 million in transaction costs related to this acquisition
which have been included in general and administrative expenses within the Companys Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Fannie Mae for approximately $11.2 million of the
acquisition price at a fixed interest rate of 4.79% with a
10-year
term with the balance of the acquisition price paid from the Companys existing cash resources.
Effective May 21, 2015, the Company closed the acquisition of two senior housing communities located in Hartford and West Bend,
Wisconsin, for $12.0 million (the Emerald Transaction). The communities consist of 79 assisted living units. The Company incurred approximately $0.2 million in transaction costs related to this acquisition which have been
included in general and administrative expenses within the Companys Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Fannie Mae for approximately $9.2 million of the acquisition price at a
fixed interest rate of 4.55% with a
10-year
term with the balance of the acquisition price paid from the Companys existing cash resources.
Effective March 27, 2015, the Company closed the acquisition of one senior housing community located in Baytown, Texas, for
approximately $29.6 million (the Baytown Transaction). The community consists of 9 independent living cottages and 120 assisted living units. The Company incurred approximately $0.2 million in transaction costs related to this
acquisition which have been included in general and administrative expenses within the Companys Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Protective Life for approximately
$21.4 million of the acquisition price at a fixed interest rate of 3.55% with a
10-year
term with the balance of the acquisition price paid from the Companys existing cash resources.
Effective January 13, 2015, the Company closed the acquisition of one senior housing community located in Green Bay, Wisconsin, for
approximately $18.3 million (the Green Bay Transaction). The community consists of 78 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 Companys Consolidated Statements of Operations and Comprehensive Loss. The Company obtained financing from Fannie Mae for approximately $14.1 million of the acquisition price at a
fixed interest rate of 4.35% with a
10-year
term with the balance of the acquisition price paid from the Companys existing cash resources.
As a result of these acquisitions, the Company recorded additions to property and equipment of approximately $148.0 million and other
assets of approximately $14.6 million, primarily consisting of
in-place
lease intangibles, within the Companys Consolidated Balance Sheets which will be depreciated or amortized over the estimated
useful lives.
F-15
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
During fiscal 2015, these acquisitions generated $17.2 million of revenue and
$(6.5) million of losses before income taxes which are included in the Companys 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 2015 and 2014. The unaudited pro forma combined results of operations have been prepared as if the acquisitions had occurred on January 1,
2014, as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Total revenues
|
|
$
|
425,789
|
|
|
$
|
416,518
|
|
Loss before income taxes
|
|
$
|
(3,616
|
)
|
|
$
|
(40,880
|
)
|
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, 2014.
Effective
August 6, 2015, the Company closed a transaction to sell one of its senior housing communities located in Wichita, Kansas, for approximately $14.8 million (the Sedgwick Sale Transaction). As a result of the sale, outstanding
mortgage debt totaling approximately $6.8 million was assumed by the buyer. The Company recognized a gain on sale of approximately $6.4 million and received net proceeds, less the debt assumption, of approximately $8.0 million. For
income tax purposes, the Company executed a like-kind exchange and acquired a replacement property shortly after the sale which resulted in the deferral of the gain without the Company incurring any current federal or state income tax liabilities.
The Company contracted with a qualified intermediary for purposes of reaching its determination that the transaction satisfied all requirements of a like-kind exchange under applicable federal and state income tax law.
Effective January 22, 2015, the Company closed a transaction to sell four of its senior housing communities located in Oklahoma City,
Oklahoma, Shreveport, Louisiana, Southfield, Michigan, and Winston-Salem, North Carolina, in a single transaction for approximately $36.5 million (the Four Property Sale Transaction). As a result of the sale, the outstanding
mortgage debt on the Companys senior housing communities located in Oklahoma City and Shreveport was repaid without incurring any prepayment penalties as these notes were short-term, bridge loan interim financing. However, the mortgage loan
associated with the Companys senior housing community located in Winston-Salem could not be prepaid under the existing loan agreement as it did not offer a prepayment provision. Additionally, this mortgage loan was cross-collateralized with
another mortgage loan on one of the Companys senior housing communities located in Peoria, Illinois, which also did not offer a prepayment provision. Therefore, the Company determined it would defease the Winston-Salem and Peoria mortgage
loans by acquiring certain treasury securities to serve as collateral for the outstanding principal balance as of the date of the sale until the note matured on September 1, 2015. The Company contracted with a third party trust to assume the
mortgage debt and assigned all of its rights to the treasury securities to serve as collateral until the balance remaining comes due. Based on this structure, the Company concluded it met the requirements to report the debt transaction as a legal
defeasance which resulted in the Company removing the respective assets and liabilities from its Consolidated Balance Sheet during the first quarter of fiscal 2015 when the transaction closed. The Company had reported these assets as held for sale
at December 31, 2014, and recorded a remeasurement write-down of $0.6 million to adjust the carrying values of these assets to the sales price, less costs to sell. As a result of the sale, the Company received net proceeds of approximately
$35.7 million.
F-16
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
6.
|
Property and Equipment
|
Property and equipment consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Asset Lives
|
|
|
2016
|
|
|
2015
|
|
Land
|
|
|
|
|
|
$
|
66,755
|
|
|
$
|
61,254
|
|
Land improvements
|
|
|
5 to 20 years
|
|
|
|
21,644
|
|
|
|
17,613
|
|
Buildings and building improvements
|
|
|
10 to 40 years
|
|
|
|
1,030,676
|
|
|
|
897,668
|
|
Furniture and equipment
|
|
|
5 to 10 years
|
|
|
|
51,471
|
|
|
|
42,879
|
|
Automobiles
|
|
|
5 to 7 years
|
|
|
|
5,776
|
|
|
|
4,977
|
|
Leasehold improvements
|
|
|
(1)
|
|
|
|
77,364
|
|
|
|
58,466
|
|
Construction in progress
|
|
|
NA
|
|
|
|
23,906
|
|
|
|
5,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,277,592
|
|
|
|
1,088,557
|
|
Less accumulated depreciation and amortization.
|
|
|
|
|
|
|
(245,162
|
)
|
|
|
(197,985
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
$
|
1,032,430
|
|
|
$
|
890,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Leasehold improvements are amortized over the shorter of the useful life of the asset or the remaining lease term.
|
At December 31, 2016 and 2015, furniture and equipment included $3.2 million of capitalized computer software development costs
of which $2.8 million and $2.6 million, respectively, has been amortized and is included as a component of accumulated depreciation and amortization. During fiscal 2016, final valuation adjustments associated with senior housing community
acquisitions in 2015 resulted in the Company reclassifying approximately $1.3 million from other assets to property and equipment; however, as a result of adoption of ASU
2015-16,
the Consolidated Balance
Sheet for the year ended December 31, 2015, has not been adjusted and recast to reflect these reclassification adjustments.
Property and equipment includes $32.4 million of assets under capital lease in connection with the Ventas Lease Transaction, as
discussed at Note 17, Leases, of which $14.6 million and $13.7 million has been amortized and is included as a component of accumulated depreciation and amortization at December 31, 2016 and 2015, respectively.
Other
assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred lease costs, net
|
|
|
7,538
|
|
|
|
8,211
|
|
Security and other deposits
|
|
|
14,274
|
|
|
|
12,953
|
|
In-place
lease intangibles, net
|
|
|
6,301
|
|
|
|
7,719
|
|
Other
|
|
|
3,210
|
|
|
|
2,310
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31,323
|
|
|
$
|
31,193
|
|
|
|
|
|
|
|
|
|
|
In connection with the Companys 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-17
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
During fiscal 2016, final valuation adjustments associated with senior housing community
acquisitions in 2015 resulted in the Company reclassifying approximately $1.3 million from other assets to property and equipment; however, as a result of adoption of ASU
2015-16,
the Consolidated Balance
Sheet for the year ended December 31, 2015, has not been adjusted and recast to reflect these reclassification adjustments.
At December 31, 2016 and 2015, the Company had gross
in-place
lease intangibles of
$86.5 million and $74.9 million, respectively, of which $80.2 million and $67.2 million, respectively, has been amortized. The unamortized balance at December 31, 2016 is expected to be fully amortized during fiscal 2017.
Accrued
expenses consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Accrued salaries, bonuses and related expenses
|
|
$
|
12,465
|
|
|
$
|
11,121
|
|
Accrued property taxes
|
|
|
14,244
|
|
|
|
14,087
|
|
Accrued interest
|
|
|
3,288
|
|
|
|
3,035
|
|
Accrued health claims and workers comp
|
|
|
3,998
|
|
|
|
3,230
|
|
Accrued professional fees
|
|
|
792
|
|
|
|
748
|
|
Other
|
|
|
4,277
|
|
|
|
2,079
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39,064
|
|
|
$
|
34,300
|
|
|
|
|
|
|
|
|
|
|
F-18
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
Notes
payable consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lender
|
|
Average
Monthly
Payment
|
|
|
Net Book
Value
Of Collateral(1)
|
|
|
Interest
Rate
|
|
|
Maturity
Date
|
|
Notes Payable
December 31,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Fannie Mae
|
|
|
78
|
|
|
|
15,069
|
|
|
|
5.69
|
|
|
August 2021
|
|
$
|
12,507
|
|
|
$
|
12,716
|
|
Fannie Mae
|
|
|
26
|
|
|
|
5,812
|
|
|
|
4.97
|
|
|
October 2021
|
|
|
4,419
|
|
|
|
4,502
|
|
Fannie Mae
|
|
|
101
|
|
|
|
21,210
|
|
|
|
4.92
|
|
|
October 2021
|
|
|
17,448
|
|
|
|
17,779
|
|
Fannie Mae
|
|
|
27
|
|
|
|
21,210
|
|
|
|
5.19
|
|
|
October 2021
|
|
|
4,911
|
|
|
|
4,978
|
|
Fannie Mae
|
|
|
117
|
|
|
|
23,916
|
|
|
|
4.92
|
|
|
November 2021
|
|
|
20,291
|
|
|
|
20,674
|
|
Fannie Mae
|
|
|
27
|
|
|
|
6,105
|
|
|
|
4.38
|
|
|
March 2022
|
|
|
4,936
|
|
|
|
5,036
|
|
Fannie Mae
|
|
|
60
|
|
|
|
12,171
|
|
|
|
4.76
|
|
|
April 2022
|
|
|
10,614
|
|
|
|
10,814
|
|
Fannie Mae
|
|
|
19
|
|
|
|
12,171
|
|
|
|
4.85
|
|
|
April 2022
|
|
|
3,522
|
|
|
|
|
|
Fannie Mae
|
|
|
135
|
|
|
|
27,613
|
|
|
|
4.69
|
|
|
April 2022
|
|
|
24,123
|
|
|
|
24,584
|
|
Fannie Mae
|
|
|
11
|
|
|
|
4,351
|
|
|
|
4.97
|
|
|
April 2022
|
|
|
2,051
|
|
|
|
|
|
Fannie Mae
|
|
|
60
|
|
|
|
15,667
|
|
|
|
4.48
|
|
|
May 2022
|
|
|
10,926
|
|
|
|
11,141
|
|
Fannie Mae
|
|
|
20
|
|
|
|
15,667
|
|
|
|
4.85
|
|
|
May 2022
|
|
|
3,752
|
|
|
|
|
|
Fannie Mae
|
|
|
144
|
|
|
|
35,315
|
|
|
|
4.34
|
|
|
November 2022
|
|
|
26,935
|
|
|
|
27,462
|
|
Fannie Mae
|
|
|
33
|
|
|
|
7,584
|
|
|
|
4.50
|
|
|
November 2022
|
|
|
6,000
|
|
|
|
6,113
|
|
Fannie Mae
|
|
|
43
|
|
|
|
27,026
|
|
|
|
5.49
|
|
|
November 2022
|
|
|
7,504
|
|
|
|
7,592
|
|
Fannie Mae
|
|
|
84
|
|
|
|
17,818
|
|
|
|
4.32
|
|
|
January 2023
|
|
|
15,856
|
|
|
|
16,164
|
|
Fannie Mae
|
|
|
49
|
|
|
|
17,818
|
|
|
|
5.39
|
|
|
January 2023
|
|
|
8,572
|
|
|
|
8,684
|
|
Fannie Mae
|
|
|
39
|
|
|
|
8,635
|
|
|
|
4.58
|
|
|
January 2023
|
|
|
7,092
|
|
|
|
7,224
|
|
Fannie Mae
|
|
|
85
|
|
|
|
18,298
|
|
|
|
4.66
|
|
|
April 2023
|
|
|
15,423
|
|
|
|
15,700
|
|
Fannie Mae
|
|
|
18
|
|
|
|
5,444
|
|
|
|
5.46
|
|
|
April 2023
|
|
|
3,110
|
|
|
|
3,150
|
|
Fannie Mae
|
|
|
45
|
|
|
|
8,732
|
|
|
|
5.93
|
|
|
October 2023
|
|
|
7,312
|
|
|
|
7,411
|
|
Fannie Mae
|
|
|
67
|
|
|
|
13,857
|
|
|
|
5.50
|
|
|
November 2023
|
|
|
11,359
|
|
|
|
11,526
|
|
Fannie Mae
|
|
|
67
|
|
|
|
13,035
|
|
|
|
5.38
|
|
|
November 2023
|
|
|
11,419
|
|
|
|
11,591
|
|
Fannie Mae
|
|
|
282
|
|
|
|
54,150
|
|
|
|
5.56
|
|
|
January 2024
|
|
|
47,390
|
|
|
|
48,071
|
|
Fannie Mae
|
|
|
632
|
|
|
|
117,877
|
|
|
|
4.24
|
|
|
July 2024(4)
|
|
|
123,465
|
|
|
|
125,677
|
|
Fannie Mae
|
|
|
120
|
|
|
|
27,085
|
|
|
|
4.48
|
|
|
July 2024
|
|
|
22,806
|
|
|
|
23,196
|
|
Fannie Mae
|
|
|
81
|
|
|
|
21,230
|
|
|
|
4.30
|
|
|
July 2024
|
|
|
15,756
|
|
|
|
16,035
|
|
Fannie Mae
|
|
|
91
|
|
|
|
70,919
|
|
|
|
4.98
|
|
|
July 2024
|
|
|
16,822
|
|
|
|
|
|
Fannie Mae
|
|
|
134
|
|
|
|
28,509
|
|
|
|
4.59
|
|
|
September 2024
|
|
|
25,247
|
|
|
|
25,666
|
|
Fannie Mae
|
|
|
22
|
|
|
|
14,354
|
|
|
|
5.72
|
|
|
September 2024
|
|
|
3,724
|
|
|
|
|
|
Fannie Mae
|
|
|
54
|
|
|
|
11,175
|
|
|
|
4.70
|
|
|
September 2024
|
|
|
10,037
|
|
|
|
10,200
|
|
Fannie Mae
|
|
|
53
|
|
|
|
12,723
|
|
|
|
4.50
|
|
|
January 2025
|
|
|
10,091
|
|
|
|
10,258
|
|
Fannie Mae
|
|
|
95
|
|
|
|
6,372
|
|
|
|
4.46
|
|
|
January 2025
|
|
|
18,345
|
|
|
|
18,651
|
|
Fannie Mae
|
|
|
70
|
|
|
|
16,122
|
|
|
|
4.35
|
|
|
February 2025
|
|
|
13,678
|
|
|
|
13,909
|
|
Fannie Mae
|
|
|
109
|
|
|
|
9,316
|
|
|
|
3.85
|
|
|
March 2025
|
|
|
22,522
|
|
|
|
22,939
|
|
Fannie Mae
|
|
|
102
|
|
|
|
25,219
|
|
|
|
3.84
|
|
|
April 2025
|
|
|
21,157
|
|
|
|
21,548
|
|
Fannie Mae
|
|
|
31
|
|
|
|
25,219
|
|
|
|
5.53
|
|
|
April 2025
|
|
|
5,435
|
|
|
|
|
|
Fannie Mae
|
|
|
47
|
|
|
|
10,156
|
|
|
|
4.55
|
|
|
June 2025
|
|
|
8,944
|
|
|
|
9,087
|
|
F-19
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lender
|
|
Average
Monthly
Payment
|
|
|
Net Book
Value
Of Collateral(1)
|
|
|
Interest
Rate
|
|
|
Maturity
Date
|
|
|
Notes Payable
December 31,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Fannie Mae
|
|
|
59
|
|
|
|
12,675
|
|
|
|
4.79
|
|
|
|
June 2025
|
|
|
|
10,929
|
|
|
|
11,095
|
|
Fannie Mae
|
|
|
81
|
|
|
|
16,576
|
|
|
|
5.30
|
|
|
|
June 2025
|
|
|
|
13,811
|
|
|
|
14,029
|
|
Fannie Mae
|
|
|
58
|
|
|
|
13,378
|
|
|
|
4.69
|
|
|
|
October 2025
|
|
|
|
10,956
|
|
|
|
11,122
|
|
Fannie Mae
|
|
|
44
|
|
|
|
10,012
|
|
|
|
4.70
|
|
|
|
October 2025
|
|
|
|
8,280
|
|
|
|
8,406
|
|
Fannie Mae
|
|
|
273
|
|
|
|
41,221
|
|
|
|
4.68
|
|
|
|
December 2025
|
|
|
|
51,991
|
|
|
|
52,774
|
|
Fannie Mae
|
|
|
9
|
|
|
|
9,645
|
|
|
|
5.81
|
|
|
|
December 2025
|
|
|
|
1,461
|
|
|
|
|
|
Fannie Mae
|
|
|
62
|
|
|
|
11,875
|
|
|
|
5.43
|
|
|
|
April 2026
|
|
|
|
10,607
|
|
|
|
10,761
|
|
Fannie Mae
|
|
|
29
|
|
|
|
11,875
|
|
|
|
5.84
|
|
|
|
April 2026
|
|
|
|
4,957
|
|
|
|
|
|
Fannie Mae
|
|
|
98
|
|
|
|
24,517
|
|
|
|
4.10
|
|
|
|
October 2026
|
|
|
|
20,195
|
|
|
|
|
|
Fannie Mae
|
|
|
108
|
|
|
|
26,026
|
|
|
|
4.24
|
|
|
|
December 2026
|
|
|
|
21,975
|
|
|
|
|
|
Protective Life
|
|
|
96
|
|
|
|
25,664
|
|
|
|
3.55
|
|
|
|
April 2025
|
|
|
|
20,665
|
|
|
|
21,081
|
|
Protective Life
|
|
|
49
|
|
|
|
11,857
|
|
|
|
4.25
|
|
|
|
August 2025
|
|
|
|
9,713
|
|
|
|
9,882
|
|
Protective Life
|
|
|
78
|
|
|
|
18,665
|
|
|
|
4.25
|
|
|
|
September 2025
|
|
|
|
15,444
|
|
|
|
13,145
|
|
Protective Life
|
|
|
138
|
|
|
|
34,462
|
|
|
|
4.25
|
|
|
|
November 2025
|
|
|
|
27,447
|
|
|
|
27,961
|
|
Protective Life
|
|
|
57
|
|
|
|
14,585
|
|
|
|
4.50
|
|
|
|
February 2026
|
|
|
|
11,149
|
|
|
|
|
|
Protective Life
|
|
|
187
|
|
|
|
43,618
|
|
|
|
4.38
|
|
|
|
March 2026
|
|
|
|
34,396
|
|
|
|
|
|
Protective Life
|
|
|
70
|
|
|
|
15,961
|
|
|
|
4.13
|
|
|
|
October 2031
|
|
|
|
12,950
|
|
|
|
|
|
Berkadia
|
|
|
71
|
|
|
|
17,993
|
|
|
|
(3)
|
|
|
|
July 2018(5)
|
|
|
|
11,742
|
|
|
|
11,800
|
|
HUD
|
|
|
16
|
|
|
|
5,698
|
|
|
|
4.48
|
|
|
|
September 2045
|
|
|
|
3,042
|
|
|
|
3,093
|
|
Insurance Financing
|
|
|
76
|
|
|
|
|
|
|
|
1.66
|
|
|
|
October 2017
|
|
|
|
756
|
|
|
|
|
|
Insurance Financing
|
|
|
139
|
|
|
|
|
|
|
|
2.16
|
|
|
|
May 2017
|
|
|
|
691
|
|
|
|
|
|
Insurance Financing
|
|
|
177
|
|
|
|
|
|
|
|
2.16
|
|
|
|
September 2017
|
|
|
|
1,576
|
|
|
|
|
|
Insurance Financing
|
|
|
|
|
|
|
|
|
|
|
1.73
|
|
|
|
October 2016
|
|
|
|
|
|
|
|
711
|
|
Insurance Financing
|
|
|
|
|
|
|
|
|
|
|
1.73
|
|
|
|
April 2016
|
|
|
|
|
|
|
|
553
|
|
Insurance Financing
|
|
|
|
|
|
|
|
|
|
|
1.79
|
|
|
|
March 2016
|
|
|
|
|
|
|
|
625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,259
|
|
|
|
|
|
|
|
4.60%(2)
|
|
|
|
|
|
|
|
910,234
|
|
|
|
777,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less deferred loan costs, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,841
|
|
|
|
8,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
900,393
|
|
|
|
768,583
|
|
Less current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,889
|
|
|
|
13,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
882,504
|
|
|
$
|
754,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
77 of the facilities owned by the Company are encumbered by mortgage debt and are provided as collateral under their respective loan agreements.
|
(2)
|
Weighted average interest rate on current fixed interest rate debt outstanding.
|
(3)
|
Variable interest rate of LIBOR plus 4.50%, which was 5.16% at December 31, 2016.
|
(4)
|
On August 6, 2015, approximately $6.8 million of this outstanding mortgage debt was assumed by the buyer in conjunction with the Sedgwick Sale Transaction.
For additional information refer to Note 5, Dispositions.
|
(5)
|
On July 31, 2016, the Company extended the maturity date with Berkadia to July 10, 2018.
|
F-20
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
The aggregate scheduled maturities of notes payable at December 31, 2016 are as
follows (in thousands):
|
|
|
|
|
2017
|
|
|
19,240
|
|
2018
|
|
|
28,358
|
|
2019
|
|
|
17,649
|
|
2020
|
|
|
18,385
|
|
2021
|
|
|
72,602
|
|
Thereafter
|
|
|
754,000
|
|
|
|
|
|
|
|
|
$
|
910,234
|
|
|
|
|
|
|
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.
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.
F-21
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
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.
Effective July 31, 2016, the
Company extended the maturity of its mortgage loan with Berkadia Commercial Mortgage LLC (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 Indianapolis Transaction 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.
F-22
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
On December 17, 2015, the Company completed supplemental mortgage financing of
approximately $7.6 million from Fannie Mae at a fixed interest rate of 5.49%on three senior housing communities located in Columbus, Ohio, Chardon, Ohio, and Greenwood, Indiana. The supplemental mortgage loans are coterminous,
cross-collateralized and cross-defaulted with the original mortgage debt maturing in November 2022. The Company incurred approximately $0.2 million in deferred financing costs related to these loans, which are being amortized over the remaining
initial loan terms.
On November 24, 2015, the Company completed supplemental mortgage financing of approximately
$3.2 million from Fannie Mae at a fixed interest rate of 5.46% on one senior housing community located in Elkhorn, Nebraska. The supplemental mortgage loan is coterminous, cross-collateralized and cross-defaulted with the original mortgage debt
maturing in April 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 November 24, 2015, the Company completed supplemental mortgage financing of approximately $8.7 million from Fannie Mae at a
fixed interest rate of 5.39% on one senior housing community located in Springfield, Missouri. The supplemental mortgage loan is coterminous, cross-collateralized and cross-defaulted with the original 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 November 12, 2015, the Company repaid mortgage loans totaling approximately $31.6 million from Fannie Mae associated with four of its senior housing communities located in Columbia, South
Carolina, Deer Park and Pantego, Texas, and South Bend, Indiana, each of which was scheduled to mature in June 2017. The Company obtained approximately $52.8 million of new long-term fixed interest rate mortgage financing from Berkadia, who
later sold the loans to Fannie Mae, at a fixed interest rate of 4.68% with a
10-year
term and the principal amortized over a
30-year
term. The Company incurred
approximately $0.6 million in deferred financing costs related to the new mortgage loans, which are being amortized over 10 years. As a result of the early repayment of the existing mortgage debt, the Company accelerated the amortization of
approximately $0.1 million in unamortized deferred financing costs and incurred a prepayment premium of approximately $1.7 million to Fannie Mae.
On October 30, 2015, in conjunction with the Virginia Beach Transaction, the Company obtained $28.0 million of mortgage debt from Protective Life. The new mortgage loan has a
10-year
term with a 4.25% 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 September 30, 2015, in conjunction with the Mahomet
Transaction, the Company obtained approximately $11.1 million of mortgage debt from Fannie Mae. The new mortgage loan has a
10-year
term with a 4.69% 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, 2015, the Company completed supplemental financing of approximately $5.0 million from Fannie Mae at a fixed
interest rate of 5.19% on one senior housing community located in Macedonia, Ohio. The supplemental loan is coterminous, cross-collateralized and cross-defaulted with the original mortgage debt maturing in October 2021. 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 24, 2015, the Company obtained approximately $8.4 million long-term fixed interest rate mortgage financing from Fannie Mae to replace interim variable interest rate financing
obtained by the Company from Berkadia on September 30, 2013, in connection with the Companys previous acquisition of a senior housing community located in Oakwood, Georgia. The new mortgage loan has a
10-year
term with a 4.7% 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.
F-23
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
On August 11,
2015, in conjunction with the Indianapolis Transaction, the Company obtained approximately $13.2 million of mortgage debt from Protective Life. The new mortgage loan has a
10-year
term with a 4.25% 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.
The note with Protective Life associated with the Indianapolis Transaction included a loan commitment for up to $2.6 million of supplemental funding at the same terms and 4.25% fixed interest rate. The loan commitment was based on meeting
certain funding requirements which the Company met during fiscal 2016 and allowed the Company to draw down the supplemental funding commitment on May 3, 2016.
On August 6, 2015, outstanding mortgage debt totaling approximately $6.8 million was assumed by the buyer in conjunction with the Sedgwick Sale Transaction. As a result of the buyers
assumption of the existing mortgage debt, the Company accelerated the amortization of approximately $0.1 million in unamortized deferred financing costs. For additional information refer to Note 5, Dispositions.
On July 28, 2015, in conjunction with the Columbiana Transaction, the Company obtained approximately $9.9 million of mortgage
debt from Protective Life. The new mortgage loan has a
10-year
term with a 4.25% 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 May 31, 2015, 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 1.73%
with the principal being repaid over an
11-month
term.
On May 29, 2015, in
conjunction with the Heritage Transaction, the Company obtained approximately $11.2 million of mortgage debt from Fannie Mae. The new mortgage loan has a
10-year
term with a 4.79% 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 May 21, 2015, in conjunction with the Emerald Transaction, the Company obtained approximately $9.2 million of mortgage debt
from Fannie Mae. The new mortgage loan has a
10-year
term with a 4.55% 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
March 27, 2015, in conjunction with the Baytown Transaction, the Company obtained approximately $21.4 million of mortgage debt from Protective Life. The new mortgage loan has a
10-year
term with a
3.55% 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 March 5, 2015, the Company repaid an interim, interest only variable rate mortgage loan totaling
approximately $21.6 million from Wells Fargo on one of its senior housing communities located in Toledo, Ohio. The Company obtained approximately $21.8 million of mortgage debt from Fannie Mae to replace the Wells Fargo interim financing.
This new mortgage loan has a
10-year
term with a fixed interest rate of 3.84% and the principal amortized over
30-years.
The Company incurred approximately
$0.2 million in deferred financing costs related to this loan, which are being amortized over the loan term. As a result of the refinance, the Company received approximately $0.2 million in cash proceeds. Due to the early repayment, the
Company accelerated the amortization of approximately $79,000 in unamortized deferred financing costs and incurred additional prepayment fees totaling approximately $55,000.
On February 17, 2015, the Company obtained new permanent mortgage financing totaling approximately $23.2 million from Fannie Mae on one of its owned senior housing communities located in Peoria, Illinois.
The new financing replaced a mortgage loan previously scheduled to mature on September 1, 2015, which was defeased by the Company on January 22, 2015, in conjunction with the Four Property Sale Transaction. This new
F-24
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
mortgage loan has a 10-year term with a fixed interest rate of 3.85% and the principal amortized over 30 years. The Company incurred approximately $0.2 million in deferred financing costs related
to this loan, which are being amortized over the loan term. As a result of the Peoria financing, the Company repaid existing mortgage debt on two owned properties totaling approximately $14.1 million. Due to the early repayment, the Company
accelerated the amortization of approximately $0.2 million in unamortized deferred financing costs and incurred additional prepayment fees totaling approximately $0.5 million.
On January 22, 2015, outstanding mortgage debt totaling approximately $13.7 million was defeased in conjunction with the Four Property Sale Transaction. The mortgage loan associated with the
Companys senior housing community located in Winston-Salem, North Carolina, carried an outstanding balance of approximately $5.7 million and could not be prepaid under the existing loan agreement as it did not offer a prepayment
provision. Additionally, this mortgage loan was cross-collateralized with another mortgage loan on one of the Companys senior housing communities located in Peoria, Illinois, which carried an outstanding mortgage balance of approximately
$8.0 million and also did not offer a prepayment provision. Therefore, the Company determined it would defease the Winston-Salem and Peoria mortgage loans by acquiring certain treasury securities to serve as collateral for the outstanding
principal balance as of the date of the sale until the note matured on September 1, 2015. The Company contracted with a third party trust to assume the mortgage debt and assigned all of its rights to the treasury securities to serve as
collateral until the balance remaining came due. Based on this structure, the Company concluded it met the requirements to report the debt transaction as a legal defeasance which resulted in the Company removing the respective assets and liabilities
from its Consolidated Balance Sheet during the first quarter of fiscal 2015 when the transaction closed. Due to the defeasance, the Company accelerated the amortization of approximately $18,000 in unamortized deferred financing costs. For additional
information refer to Note 5, Dispositions.
On January 13, 2015, in conjunction with the Green Bay
Transaction, the Company obtained approximately $14.1 million of mortgage debt from Fannie Mae. The new mortgage loan has a
10-year
term with a 4.35% fixed interest rate and the principal amortized over a
30-year
term. The Company incurred approximately $0.1 million in deferred financing costs related to this loan, which are being amortized over 10 years.
The Company issued standby letters of credit, totaling approximately $3.9 million, for the benefit of Hartford Financial Services
associated with the administration of workers compensation.
The Company issued standby letters of credit, totaling
approximately $6.6 million, for the benefit of Welltower, Inc., formerly Healthcare REIT, Inc., (Welltower) on certain leases between Welltower and the Company.
The Company issued standby letters of credit, totaling approximately $2.8 million, for the benefit of HCP, Inc. (HCP) on
certain leases between HCP and the Company.
In connection with the Companys loan commitments described above, the
Company incurred financing charges that were deferred and amortized over the life of the notes. At December 31, 2016 and 2015, the Company had gross deferred loan costs of $12.8 million and $10.3 million, respectively. Accumulated
amortization was $3.0 million and $1.8 million at December 31, 2016 and 2015, respectively. During fiscal 2015, due to the early repayment of the Companys existing mortgage debt associated with the Four Property Sale
Transaction, Sedgwick Sale Transaction and refinancings with Fannie Mae, the Company
wrote-off
approximately $0.5 million in unamortized deferred financing charges and removed the respective accumulated
amortization of approximately $1.4 million. Amortization expense is expected to be approximately $1.2 million in each of the next five fiscal years. The Company was in compliance with all aspects of its outstanding indebtedness at
December 31, 2016 and 2015.
F-25
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
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, 2016 and 2015.
Share Repurchases
On January 22, 2009, the Companys board of directors approved a share repurchase program that authorized the Company to purchase up to $10.0 million of the Companys 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.
11.
|
Stock-Based Compensation
|
Stock Options
Although the Company has not granted stock options in recent years, the Companys 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 Companys stock options generally vest over one to five years and the related expense is amortized on a straight-line basis over the vesting
period.
A summary of the Companys stock option activity and related information for the years ended December 31,
2016, 2015, and 2014 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
Beginning of
Year
|
|
|
Granted
|
|
|
Exercised
|
|
|
Forfeited
|
|
|
Outstanding
End of Year
|
|
|
Options
Exercisable
|
|
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
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
19,000
|
|
|
|
|
|
|
|
13,000
|
|
|
|
|
|
|
|
6,000
|
|
|
|
6,000
|
|
Weighted average price
|
|
$
|
7.10
|
|
|
|
|
|
|
$
|
6.48
|
|
|
|
|
|
|
$
|
8.44
|
|
|
$
|
8.44
|
|
F-26
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
No stock options were outstanding at December 31, 2016, as all outstanding options
had fully vested and had been exercised. The options outstanding and the options exercisable at December 31, 2015 and 2014 had an aggregate intrinsic value of $30,000 and $0.1 million, respectively.
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-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-based vesting conditions, total compensation expense is recognized over the requisite service period for each separately vesting tranche of the award as if the award is, in substance,
multiple awards 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.
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 forfeitures. A summary of the Companys restricted common stock awards activity and related information for
the years ended December 31, 2016, 2015, and 2014 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
Beginning of
Year
|
|
|
Issued
|
|
|
Vested
|
|
|
Forfeited
|
|
|
Outstanding
End of Year
|
|
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
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
870,217
|
|
|
|
350,716
|
|
|
|
(406,072
|
)
|
|
|
(112,143
|
)
|
|
|
702,718
|
|
The restricted stock outstanding at December 31, 2016, 2015, and 2014, had an aggregate intrinsic
value of $13.3 million, $16.3 million, and $17.5 million, respectively.
During fiscal 2016, the Company awarded
666,883 shares of restricted common stock to certain employees and directors of the Company, of which 199,692 shares were subject to performance-based vesting conditions. The average market value of the common stock on the date of grant was $16.10.
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 $10.7 million on the date of grant. Additionally, during fiscal 2016,
the Company awarded 8,220 restricted stock units to certain directors of the Company. The average market value of the restricted stock units on the date of grant was $18.25. These awards of restricted units vest over a
one-year
period and had an intrinsic value of $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
F-27
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
the Company is based primarily on an analysis of historical prices of the Companys common stock. The expected term of options granted is based primarily on historical exercise patterns on
the Companys 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 Companys
historical option forfeiture patterns. The Company recognizes compensation expense of a restricted stock award over its respective vesting period based on the fair value of the award on the grant date, net of estimated forfeitures.
The Company recognized $11.6 million, $8.8 million, and $7.3 million in stock-based compensation expense during fiscal
2016, 2015, and 2014, respectively. Unrecognized stock-based compensation expense, net of estimated forfeitures, is $9.9 million for the year ended December 31, 2016. Forfeiture rates are estimated annually based on the average historical
cancellations that occurred during the past three fiscal years, which is the average period over which stock awards vest. The Company expects this expense to be recognized over a
one-year
period for
performance awards and a one to four-year period for nonperformance awards.
The
provision (benefit) for income taxes consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
State
|
|
|
435
|
|
|
|
900
|
|
|
|
719
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
435
|
|
|
$
|
900
|
|
|
$
|
719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision (benefit) for income taxes differed from the amounts of income tax provision (benefit)
determined by applying the U.S. federal statutory income tax rate to income before provision (benefit) for income taxes as a result of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Tax (benefit) provision at federal statutory rates
|
|
$
|
(9,335
|
)
|
|
$
|
(4,515
|
)
|
|
$
|
(7,958
|
)
|
State income tax expense, net of federal effects
|
|
|
(550
|
)
|
|
|
64
|
|
|
|
(90
|
)
|
State effective rate changes
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Change in deferred tax asset valuation allowance
|
|
|
8,569
|
|
|
|
4,986
|
|
|
|
8,456
|
|
Other
|
|
|
1,751
|
|
|
|
365
|
|
|
|
305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
435
|
|
|
$
|
900
|
|
|
$
|
719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
A summary of the Companys deferred tax assets and liabilities, are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Deferred gains on sale/leaseback transactions
|
|
$
|
5,416
|
|
|
$
|
6,176
|
|
Net operating loss carryforward (expiring up to 2036)
|
|
|
23,206
|
|
|
|
15,144
|
|
Compensation costs
|
|
|
3,707
|
|
|
|
1,804
|
|
Other
|
|
|
3,221
|
|
|
|
2,802
|
|
Total deferred tax assets
|
|
|
35,550
|
|
|
|
25,926
|
|
Valuation Allowance
|
|
|
(30,821
|
)
|
|
|
(22,252
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net
|
|
|
4,729
|
|
|
|
3,674
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(4,729
|
)
|
|
|
(3,674
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Current deferred tax assets, net
|
|
$
|
|
|
|
$
|
|
|
Long-term deferred tax (liabilities) assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
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. 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 Companys 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 Companys 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.
As of December 31, 2016, the Company has Federal and State Net Operating Loss (NOL) carryforwards of $66.8 million and $93.5 million and related deferred tax assets of
$22.7 million and $3.7 million, respectively, and a Federal Alternative Minimum Tax Credit carryforward of $0.3 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 will expire during fiscal 2033 to 2036 and state NOLs will expire during fiscal 2017 to 2035. Additionally, the Company
has a Federal NOL carryforward of $15.7 million related to the excess tax benefits associated with stock-based compensation and stock option exercises. The benefit of this NOL will be recognized as an increase to additional
paid-in
capital at the point when such NOL provides cash benefit to the Company.
F-29
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
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 managements 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 Companys policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as income tax
expense. As of December 31, 2016, the Company has unrecognized tax benefits of $3.8 million for an uncertain tax position associated with a change in accounting method. The unrecognized tax benefits as of December 31, 2016 are
timing-related uncertainties that if recognized would not impact the effective tax rate of the Company.
A summary of the
Companys unrecognized tax benefits activity and related information for the years ended December 31, 2016, 2015, and 2014 is presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Beginning balance, January 1
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Gross increases tax positions in prior period
|
|
|
2,451
|
|
|
|
|
|
|
|
|
|
Gross decreases tax positions in prior period
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross increases tax positions in current period
|
|
|
1,335
|
|
|
|
|
|
|
|
|
|
Settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
Lapse of statute of limitations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance, December 31
|
|
$
|
3,786
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. 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 Companys current state tax expense. During fiscal 2016 the Company consolidated 38 Texas communities and during fiscal 2015 the Company consolidated 37 Texas communities and the TMT increased the
overall provision for income taxes. The Company is generally no longer subject to federal and state tax audits for years before 2013.
13.
|
Employee Benefit Plans
|
The Company has a 401(k) salary deferral plan (the Plan) in which all 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 employees annual salary. The Companys
contributions are funded semi-monthly to the Plan administrator. Matching contributions of $0.5 million were contributed to the Plan in each of fiscal 2016, 2015 and 2014. The Company incurred administrative expenses related to the Plan of
$24,600, $20,900, and $15,000 in fiscal 2016, 2015, and 2014, respectively.
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.
F-30
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
15.
|
Fair Value of Financial Instruments
|
The carrying amounts and fair values of financial instruments at December 31, 2016 and 2015 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
|
Carrying
Amount
|
|
|
Fair Value
|
|
Cash and cash equivalents
|
|
$
|
34,026
|
|
|
$
|
34,026
|
|
|
$
|
56,087
|
|
|
$
|
56,087
|
|
Restricted cash
|
|
|
13,297
|
|
|
|
13,297
|
|
|
|
13,159
|
|
|
|
13,159
|
|
Notes payable, excluding deferred loan costs
|
|
|
910,234
|
|
|
|
879,448
|
|
|
|
777,116
|
|
|
|
724,769
|
|
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 level 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 level 2 inputs as defined in the accounting standards codification.
The estimated fair value of these assets and
liabilities could be affected by market changes and this effect could be material.
16.
|
Allowance for Doubtful Accounts
|
The components of the allowance for doubtful accounts are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Balance at beginning of year
|
|
$
|
3,188
|
|
|
$
|
2,321
|
|
|
$
|
1,900
|
|
Provision for bad debts, net of recoveries
|
|
|
1,727
|
|
|
|
1,192
|
|
|
|
717
|
|
Write-offs and other
|
|
|
(662
|
)
|
|
|
(325
|
)
|
|
|
(296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
4,253
|
|
|
$
|
3,188
|
|
|
$
|
2,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31, 2016, the Company leased 50 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 Companys 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 2016.
F-31
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
The following table summarizes each of the Companys facility lease agreements as
of December 31, 2016 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Landlord
|
|
Date of Lease
|
|
Number
of
Communities
|
|
|
Value
of
Transaction
|
|
|
Term
|
|
Initial
Lease
Rate
(1)
|
|
|
Lease
Acquisition
and
Modification
Costs (2)
|
|
|
Deferred
Gains
/Lease
Concessions (3)
|
|
Ventas
|
|
September 30, 2005
|
|
|
6
|
|
|
$
|
84.6
|
|
|
(4)
(Two five-year renewals)
|
|
|
8
|
%
|
|
$
|
9.5
|
|
|
$
|
4.6
|
|
Ventas
|
|
October 18, 2005
|
|
|
1
|
|
|
|
19.5
|
|
|
(4)
(Two five-year renewals)
|
|
|
8
|
%
|
|
|
0.3
|
|
|
|
|
|
Ventas
|
|
June 8, 2006
|
|
|
1
|
|
|
|
19.1
|
|
|
(4)
(Two five-year renewals)
|
|
|
8
|
%
|
|
|
0.6
|
|
|
|
|
|
Ventas
|
|
January 31, 2008
|
|
|
1
|
|
|
|
5.0
|
|
|
(4)
(Two five-year renewals)
|
|
|
7.75
|
%
|
|
|
0.2
|
|
|
|
|
|
Ventas
|
|
June 27, 2012
|
|
|
2
|
|
|
|
43.3
|
|
|
(4)
(Two five-year renewals)
|
|
|
6.75
|
%
|
|
|
0.8
|
|
|
|
|
|
HCP
|
|
May 1, 2006
|
|
|
3
|
|
|
|
54.0
|
|
|
(5)
(Two ten-year renewals)
|
|
|
8
|
%
|
|
|
0.3
|
|
|
|
12.8
|
|
HCP
|
|
May 31, 2006
|
|
|
6
|
|
|
|
43.0
|
|
|
(6)
(One ten-year renewal)
|
|
|
8
|
%
|
|
|
0.2
|
|
|
|
0.6
|
|
HCP
|
|
December 1, 2006
|
|
|
4
|
|
|
|
51.0
|
|
|
(5)
(Two ten-year renewals)
|
|
|
8
|
%
|
|
|
0.7
|
|
|
|
|
|
HCP
|
|
December 14, 2006
|
|
|
1
|
|
|
|
18.0
|
|
|
(5)
(Two ten-year renewals)
|
|
|
7.75
|
%
|
|
|
0.3
|
|
|
|
|
|
HCP
|
|
April 11, 2007
|
|
|
1
|
|
|
|
8.0
|
|
|
(5)
(Two ten-year renewals)
|
|
|
7.25
|
%
|
|
|
0.1
|
|
|
|
|
|
Welltower
|
|
April 16, 2010
|
|
|
5
|
|
|
|
48.5
|
|
|
15 years
(One 15-year renewal)
|
|
|
8.25
|
%
|
|
|
0.6
|
|
|
|
0.8
|
|
Welltower
|
|
May 1, 2010
|
|
|
3
|
|
|
|
36.0
|
|
|
15 years
(One 15-year renewal)
|
|
|
8.25
|
%
|
|
|
0.2
|
|
|
|
0.4
|
|
Welltower
|
|
September 10, 2010
|
|
|
12
|
|
|
|
104.6
|
|
|
15 years
(One 15-year renewal)
|
|
|
8.50
|
%
|
|
|
0.4
|
|
|
|
2.0
|
|
Welltower
|
|
April 8, 2011
|
|
|
4
|
|
|
|
141.0
|
|
|
15 years
(One 15-year renewal)
|
|
|
7.25
|
%
|
|
|
0.9
|
|
|
|
16.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
15.1
|
|
|
|
37.5
|
|
Accumulated amortization through December 31, 2016
|
|
|
|
|
|
|
(8.0
|
)
|
|
|
|
|
Accumulated deferred gains / lease concessions recognized through December 31, 2016
|
|
|
|
|
|
|
|
(22.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net lease acquisition costs / deferred gains / lease concessions as of December 31, 2016
|
|
|
$
|
7.1
|
|
|
$
|
15.4
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
(2)
|
Lease acquisition and modification costs are being amortized over the respective lease terms.
|
(3)
|
Deferred gains of $34.9 million and lease concessions of $2.6 million are being recognized in the Companys Consolidated Statements of Operations and
Comprehensive Loss as a reduction in facility lease expense over the respective initial lease terms. Lease concessions of $0.6 million relate to the transaction with HCP on May 31, 2006, and $2.0 million relate to the transaction with
HCN on September 10, 2010.
|
(4)
|
Effective June 17, 2015, the Company executed amendments to the master lease agreements with Ventas to facilitate up to $24.5 million of
leasehold improvements for 10 of the leased communities and extend the lease terms through September 30, 2025, with two
5-year
renewal extensions available at the Companys option. Additionally,
effective June 30, 2016, the Company executed amendments to the master lease agreements with Ventas to increase the Special Project Funds for leasehold improvements from $24.5 million to
|
F-32
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
|
$28.5 million and extend the date for completion of the improvements to June 30, 2017. On January 31, 2017, the Company acquired four of the senior housing communities leased from
Ventas for a total acquisition price of $85.0 million.
|
(5)
|
On November 11, 2013, the Company executed a third amendment to the master lease agreement associated with nine of its leased communities with HCP to facilitate up
to $3.3 million of leasehold improvements for one of the leased communities and extend the respective lease terms through October 31, 2020, with two
10-year
renewal extensions available at the
Companys option.
|
(6)
|
On April 24, 2015, the Company exercised its right to extend the lease term with HCP through April 30, 2026, with one
10-year
renewal extension remaining available at the Companys option.
|
Ventas
As of December 31, 2016, the Company 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 extension available at the Companys option. Additionally, during the second quarter of fiscal 2016, the Company executed amendments to
the master lease agreements with Ventas to increase the Special Project Funds for leasehold improvements from $24.5 million to $28.5 million and extend the date for completion of the leasehold improvements to June 30, 2017. The
initial lease rates under each of the Ventas Lease Agreements range from 6.75% to 8% and are subject to certain conditional escalation clauses that will be recognized when probable or incurred. The Company incurred $11.4 million in lease
acquisition and modification costs related to the Ventas 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 Companys Consolidated
Statement of Operations and Comprehensive loss. The Company accounts for nine of the Ventas Lease Agreements as an operating lease and two as a Capital lease and financing obligation.
Effective January 31, 2017, the Company acquired four of the senior housing communities leased from Ventas for a total acquisition
price of $85.0 million. The Company obtained interim, interest only, bridge financing from 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 Companys existing cash resources.
Effective June 27, 2012, the Company closed a lease modification transaction with Ventas which resulted in the Company exchanging two of its owned communities for one of the communities in the
existing 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
available at the Companys 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
F-33
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
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.
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 Companys 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 Companys 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, 2016, the Company leased 15 senior housing communities from HCP. During the fourth quarter of
fiscal 2013, the Company executed an amendment to the master lease agreement with HCP to facilitate up to $3.3 million of leasehold improvements for one community within the HCP lease portfolio and extend the initial lease terms for nine
communities until October 31, 2020, with two
10-year
renewal extensions available at the Companys option. During the second quarter of fiscal 2015, the Company exercised its right to extend the
lease term with HCP for the remaining six communities in the HCP lease portfolio until April 30, 2026, with one
10-year
renewal extension available at the Companys option. The initial lease rates
under the HCP Lease Agreements range from 7.25% to 8% and are subject to certain conditional escalation clauses, which will be recognized when probable or incurred. The Company incurred $1.6 million in lease acquisition and modification costs
related to 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 Companys Consolidated Statements of Operations and
Comprehensive Loss. The Company accounts for each of the HCP Lease Agreements as an operating lease.
Welltower
As of December 31, 2016, the Company leased 24 senior housing communities from Welltower. The Welltower Lease
Agreements each have an initial term of 15 years, with one
15-year
renewal extension available at the Companys option. The initial lease rates under the Welltower Lease Agreements range from 7.25% to
8.5% and are subject to certain conditional escalation clauses, which will be recognized when probable or incurred. The initial terms on the Welltower Lease Agreements expire on various dates through April 2026. The Company incurred
$2.1 million in lease acquisition costs related to the Welltower Lease Agreements. These deferred lease acquisition costs are being amortized over the lease terms and are included in facility lease expense in the Companys Consolidated
Statements of Operations and Comprehensive Loss. The Company accounts for each of the Welltower Lease Agreements as an operating lease.
F-34
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
Facility lease expense in the Companys 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. 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.
The Company incurred $64.5 million, $62.8 million, and $60.9 million in lease expense during fiscal 2016, 2015, and 2014,
respectively. Future minimum lease commitments as of December 31, 2016, are as follows (in thousands):
|
|
|
|
|
2017
|
|
$
|
67,289
|
|
2018
|
|
|
67,194
|
|
2019
|
|
|
67,133
|
|
2020
|
|
|
64,811
|
|
2021
|
|
|
53,532
|
|
Thereafter
|
|
|
206,585
|
|
|
|
|
|
|
|
|
$
|
526,544
|
|
|
|
|
|
|
Effective January 31, 2017, the Company acquired four of its leased senior housing communities from
Ventas which will result in a $44.9 million reduction to total future minimum lease commitments, with a $5.3 million reduction to lease commitments in fiscal 2017, a $5.1 million reduction to lease commitments in each of fiscal 2018
to 2021, and a $19.2 million reduction to lease commitments thereafter, which is not reflected in the table above.
At
December 31, 2016 and 2015, the Company had gross deferred lease costs of $15.1 million. Accumulated amortization at December 31, 2016 and 2015 was $8.0 million and $7.4 million, respectively, and amortization expense is
expected to be approximately $0.7 million in each of the next five fiscal years. There are various financial covenants and other restrictions in the Companys lease agreements. The Company was in compliance with all of its lease covenants
at December 31, 2016 and 2015.
18.
|
Quarterly Financial Information (Unaudited)
|
The following table presents certain unaudited quarterly financial information for each of the four quarters ended December 31, 2016 and 2015. 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 Companys 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
F-35
CAPITAL SENIOR LIVING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 Calendar Quarters
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
(In thousands, except per share amounts)
|
|
Total revenues
|
|
$
|
98,640
|
|
|
$
|
101,588
|
|
|
$
|
104,420
|
|
|
$
|
107,529
|
|
Income from operations
|
|
|
3,718
|
|
|
|
3,680
|
|
|
|
5,676
|
|
|
|
5,761
|
|
Net (loss) income and comprehensive (loss) income
|
|
|
(6,039
|
)
|
|
|
(5,166
|
)
|
|
|
2,871
|
|
|
|
(5,950
|
)
|
Net (loss) income per share, basic
|
|
$
|
(0.21
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
0.10
|
|
|
$
|
(0.21
|
)
|
Net (loss) income per share, diluted
|
|
$
|
(0.21
|
)
|
|
$
|
(0.18
|
)
|
|
$
|
0.10
|
|
|
$
|
(0.21
|
)
|
Weighted average shares outstanding, basic
|
|
|
28,565
|
|
|
|
28,705
|
|
|
|
28,732
|
|
|
|
28,749
|
|
Weighted average shares outstanding, fully diluted
|
|
|
28,565
|
|
|
|
28,705
|
|
|
|
28,733
|
|
|
|
28,749
|
|
Effective January 31, 2017, the Company acquired four of the senior housing communities leased from Ventas for a total acquisition
price of $85.0 million. The Company obtained interest only, bridge financing from 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 Companys existing cash resources. The Company has not yet completed its initial purchase price allocation for this transaction.
F-36