Capital Senior Living Corporation Reports Third Quarter 2011 Results; CFFO Increases 85% versus Prior Year

Capital Senior Living Corporation (the "Company”) (NYSE:CSU), one of the country’s largest operators of senior living communities, today announced operating results for the third quarter of 2011. Company highlights for the third quarter include:

Highlights

• Adjusted Cash From Facility Operations ("CFFO”) was $5.7 million or $0.21 per share in the third quarter of 2011. Excluding a tax refund from amending tax returns in the third quarter of the prior year, CFFO increased 85% from the third quarter of 2010.
• Revenue increased 27.2% to $68.2 million in the third quarter of 2011, an increase of $14.6 million from the third quarter of 2010.
• Average monthly rent increased 10.3% to $2,924 per occupied unit in the third quarter of 2011, an increase of $272 per occupied unit from the third quarter of 2010. Sequentially, average monthly rent increased 1.1% per occupied unit from the second quarter of 2011.
• Consolidated average occupancy including 112 units converted to higher levels of care that are in lease-up was 84.7% in the third quarter of 2011, equal to the third quarter of 2010 with approximately 1,000 additional consolidated units in the current period. Sequentially, consolidated average occupancy was up 80 basis points from the second quarter of 2011.
• Adjusted EBITDAR increased 42.9% to $23.8 million in the third quarter of 2011, an increase of $7.2 million from the third quarter of 2010. EBITDAR margin improved to 34.9% from 31.1% in the third quarter of the prior year.
• The Company completed the acquisition of four senior living communities for a combined purchase price of $53 million.
• Subsequent to the end of the third quarter, the Company completed the acquisition of three additional senior living communities for a combined purchase price of approximately $30 million.

"We are very pleased to report positive third quarter results from the implementation of our strategic plan that is focused on operations, marketing and accretive growth,” said Lawrence A. Cohen, Chief Executive Officer of the Company. "These initiatives have resulted in revenue growing 27% and EBITDAR increasing 43% versus the third quarter of the prior year. Average monthly rents increased by over 10% and EBITDAR margin improved 380 basis points. Excluding the effect of amending a tax return in the third quarter of last year, CFFO in the current quarter increased 85%. These results reflect the fundamental strength of our substantially all private-pay business as we benefit from need-driven demand and limited new supply. We are encouraged by our strong occupancy gains, with third quarter average occupancy growing by 80 basis points on a sequential basis. We are also excited about our acquisitions, which increase our ownership of high-quality senior living communities, enhance our geographic concentration and generate meaningful increases in CFFO and earnings.”

Recent Investment Activity

• In the third quarter, the Company completed the acquisition of four senior living communities for a combined purchase price of approximately $53 million. Three of these communities are in Indiana and one is in Ohio, enhancing the Company’s geographic concentration in these states. Highlights of these transactions include:
  • Additional CFFO of $2.0 million, or $0.08 per share.
  • Incremental earnings of $0.8 million, or $0.03 per share.
  • Increases annual revenue by $13.0 million.
  • Occupancy exceeds 95%.
  • Average monthly rents are approximately $3,200.

  These four communities were financed with approximately $37.3 million of 10-year fixed rate debt that is non-recourse to the Company with a blended average interest rate of 5.20%.

• Subsequent to the end of the third quarter, the Company completed the acquisition of three senior living communities for a combined purchase price of approximately $30 million. Two of these communities are in South Carolina and one is in North Carolina, enhancing the Company’s existing operations in these states. Highlights of this transaction include:
  • Additional CFFO of $1.4 million, or $0.05 per share.
  • Incremental earnings of $0.7 million, or $0.03 per share.
  • Increases annual revenue by $8.0 million.
  • Average occupancy 92%.
  • Average monthly rents are approximately $2,900.
  These three communities were financed with approximately $22 million of 10-year fixed rate debt that is non-recourse to the Company with an interest rate of 4.92%.

• The Company is conducting due diligence on a number of additional transactions consisting of high-quality senior living communities in locations with existing extensive operations. Subject to completion of due diligence and customary closing conditions, the Company expects to acquire additional communities near the end of the year and in the first quarter of 2012.

Financial Results

For the third quarter of 2011, the Company reported revenue of $68.2 million, compared to revenue of $53.6 million in the third quarter of 2010. Resident and healthcare revenue increased from the third quarter of the prior year by approximately $16.5 million or 32.7%, largely as a result of converting the four Spring Meadows communities previously owned in joint ventures to leased communities and the acquisition of four communities in the current quarter. The number of consolidated communities increased from 70 in the third quarter of 2010 to 78 in the third quarter of 2011.

Average monthly rent was $2,924 per occupied unit in the third quarter of 2011, an increase of $272, or 10.3%, over the third quarter of 2010. Financial occupancy of the consolidated portfolio, including the recently converted 112 units that are in lease-up, averaged 84.7% in the third quarter of 2011, versus 83.9% in the second quarter of 2011, a sequential improvement of 80 basis points.

As a percentage of resident and healthcare revenue, operating expenses were 61.2% in the third quarter of 2011 compared to 61.9% in the third quarter of 2010, an improvement of 70 basis points. Operating expenses for the third quarter of 2011 were $41.0 million, an increase of $9.8 million from the third quarter of 2010, primarily due to 8 additional communities now being consolidated.

General and administrative expenses were $3.3 million in the third quarter of 2011. Excluding transaction costs associated with the recent acquisitions, general and administrative expenses were $0.1 million less than the third quarter of 2010 and 4.2% of revenues under management.

Adjusted EBITDAR for the third quarter of 2011 was approximately $23.8 million, an increase of $7.2 million or 42.9% from the third quarter of 2010. Adjusted EBITDAR margin was 34.9% for the period, an improvement of 3.8 percentage points from the third quarter of 2010.

Adjusted net income for the third quarter of 2011 was $1.7 million or $0.06 per share excluding non-recurring or non-operating items reconciled on the final page of this release. This compares to adjusted net income of $0.7 million or $0.03 per share in the third quarter of 2010.

Adjusted CFFO was $5.7 million or $0.21 per share in the third quarter of 2011. Over $2.0 million of CFFO in the third quarter of 2010 was attributable to the Company amending prior year tax returns to recover refunds of taxes paid. Excluding this adjustment, CFFO in the third quarter of 2011 increased $2.6 million from the third quarter of 2010.

For the first nine months of 2011, the Company reported revenue of $192.4 million, compared to revenue of $152.0 million for the first nine months of 2010. Resident and healthcare revenue increased 33.2% or $46.5 million from the first nine months of the prior year.

Adjusted EBITDAR for the first nine months of 2011 was $66.9 million, compared to $47.7 million for the first nine months of 2010. The Company earned adjusted net income of $4.8 million or $0.18 per share in the first nine months of 2011, compared to adjusted net income of $2.7 million or $0.10 per share in the first nine months of 2010. CFFO was $16.7 million or $0.62 per share in the first nine months of 2011, compared to $11.5 million or $0.43 per share in the first nine months of 2010, excluding the adjustment for amending prior year tax returns.

Operating Activities

At communities under management, excluding one community that had a recent conversion, same-community revenue in the third quarter of 2011 increased 3.7% versus the third quarter of 2010. Same-community expenses increased 5.5% and net income increased 1.0% from the third quarter of the prior year. Expenses increased primarily due to higher utility costs related to the severe summer, the implementation of new care plan technology that is expected to result in higher future revenues and additional expenses associated with staffing recently converted units.

Same-community occupancies were 30 basis points higher than the third quarter of 2010 and 60 basis points higher than the second quarter of 2011. Average rents were 3.1% higher than the third quarter of 2010 and 0.5% higher than last quarter.

Capital expenditures for the third quarter of 2011 were approximately $3.5 million, representing $2.1 million of investment spending and $1.4 million of recurring capital expenditures. If annualized, spending for recurring capital expenditures equaled approximately $600 per unit.

Balance Sheet

The Company ended the quarter with $39.8 million of cash and cash equivalents, including restricted cash. In furtherance of the Company’s strategic plan, $16.1 million of cash was invested as equity to acquire four communities for $53.4 million with returns on investment expected to be in the mid-teens. In addition, a $5.2 million tax payment was made that related to a gain on the Spring Meadows transaction in the second quarter.

As of September 30, 2011, the Company financed its 29 owned communities with 28 mortgages totaling $208.3 million at fixed interest rates averaging 5.9% with no mortgage maturities prior to the third quarter of 2015.

Q3 2011 CONFERENCE CALL INFORMATION

Capital Senior Living Corporation (NYSE:CSU) will host a conference call with senior management to discuss the Company’s third quarter 2011 financial results. The call will be held on Thursday, November 3, 2011 at 11:00 a.m. Eastern Time.

The call-in number is 913-312-1487, confirmation code 3471921. A link to a simultaneous webcast of the teleconference will be available at www.capitalsenior.com through Windows Media Player or RealPlayer.

For the convenience of the Company’s shareholders and the public, the conference call will be recorded and available for replay starting November 3, 2011 at 2:00 p.m. Eastern Time, until November 12, 2011 at 8:00 p.m. Eastern Time. To access the conference call replay, call 719-457-0820, confirmation code 3471921. The conference call will also be made available for playback via the Company’s corporate website, www.capitalsenior.com.

ABOUT THE COMPANY

Capital Senior Living Corporation is one of the nation’s largest operators of residential communities for senior adults. The Company’s operating philosophy emphasizes a continuum of care, which integrates independent living, assisted living and home care services, to provide residents the opportunity to age in place. The Company currently operates 84 senior living communities in 23 states with an aggregate capacity of approximately 12,000 residents.

The forward-looking statements in this release are subject to certain risks and uncertainties that could cause results to differ materially, including, but not without limitation to, the Company’s ability to find suitable acquisition properties at favorable terms, financing, licensing, business conditions, risks of downturns in economic conditions generally, satisfaction of closing conditions such as those pertaining to licensure, availability of insurance at commercially reasonable rates, and changes in accounting principles and interpretations among others, and other risks and factors identified from time to time in our reports filed with the Securities and Exchange Commission.

This release contains certain financial information not derived in accordance with generally accepted accounting principles (GAAP), including adjusted EBITDAR, adjusted CFFO, adjusted CFFO per share and other items. The Company believes this information is useful to investors and other interested parties. Such information should not be considered as a substitute for any measures derived in accordance with GAAP, and may not be comparable to other similarly titled measures of other companies. Reconciliation of this information to the most comparable GAAP measures is included as an attachment to this release.

Contact Ralph A. Beattie, Chief Financial Officer, at 972-770-5600 for more information.