Capital Senior Living CEO Bullish on Company’s ‘Unique Position’

Capital Senior Living (NYSE: CSU) CEO Larry Cohen exuded confidence during a call with investors on Thursday, emphasizing the company’s strengths and its alignment with all shareholders— months after being publicly pressured to consider a sale. In particular, Dallas-based Capital Senior Living does not share some of the same challenges as its competitors, has a size that puts it at a competitive advantage and is poised to benefit from “market dislocation,” Cohen said.

“We’re successful, we’re focused, we’re stable and we’re growing prudently,” Cohen said of Capital Senior Living during the fourth-quarter and full-year 2015 earnings call, in which he reviewed the company’s business model and strategy, hitting hard on what makes it unique among its peers. For one, Capital doesn’t have some of the same problems that are hurting other senior living companies.

Capital Senior Living is not facing integration issues, nor is it dealing with turning around bankrupt organizations or having to dispose of underperforming or non-core assets, Cohen said.


While Cohen did not name-check Brookdale Senior Living (NYSE: BKD), the nation’s largest senior living provider, that company is still dealing with integration issues after its acquisition of Emeritus Senior Living.

What’s more, Capital Senior Living in an improved position to make acquisitions, due to its owner-operator structure. It wholly owns more than 60% of its communities, which is the highest percentage among the nation’s largest senior living providers.

“We really are in a unique position with a lot of the other natural buyers pulling back from the market,” Cohen said.


As the capital markets have tightened and turned increasingly volatile, health care REITs and other public companies are reducing their allocation of capital to senior living acquisitions, Cohen said. Capital Senior Living, then, is “in an excellent position to benefit from this dislocation in the market, as the company’s differentiated business strategy enables it to fund its growth from internal sources without accessing the public capital markets.”

And the company’s pipeline is as large as ever.

“We always have hundreds of millions of dollars of acquisition opportunity in the pipeline,” Cohen explained.

The pipeline is filled with A- or B-quality assets, and it keeps growing, he added.

“Unlike our largest competitors, we don’t need to make large portfolio acquisitions to move the needle,” Cohen explained.

Specifically, the company’s “onesie, twosie” acquisition approach allows it to be selective and cherry-pick its acquisition targets, he said.

Like other major senior living players, Capital Senior Living has faced declines in its share price over the last year. Pressed by analysts on whether an expanded share buyback program makes sense, Cohen ran through some math to demonstrate that acquisitions are more accretive. They also provide cash flow that can be used for other acquisitions or conversions, and good transactions enhance the real estate value of the portfolio.

“We agree our stock is not reflecting our growth and our value and we’ll continue this rate purchase program because we think it’s good investment,” Cohen said. “[This] shows the confidence and commitment we have to shareholder value, but the other allocations of capital are actually more accretive and, more importantly, actually create cash that we can then reinvest elsewhere and continue to enhance our shareholder returns.”

The company, meanwhile, boasts high retention rates, he said.

Capital Senior Living recorded a 95% resident satisfaction score for 2015, he said, attributing the score to the company’s “talented employees.”

Capital Senior Living is also confident it can grow its occupancy, Cohen said, in response to analysts’ questions. The company believes its occupancies can grow over the next few years to an optimal level of 92% to 93%, due in part to limited competitive new supply in its local markets and the gains it is seeing from unit conversions, and community refurbishments and renovations.

Same-community occupancy reached 88.9% in the fourth quarter of 2015, a gain of 50 basis points compared with the fourth quarter of 2014, and a 20-basis-point increase from the third quarter of 2015, Cohen said.

The company’s size may have something to do with its current position. Capital Senior Living is large for its industry—and has all of the benefits of scale—but it’s smaller than health care REITs and its bigger peers, Cohen said.

The company operates 126 senior living communities with an aggregate capacity of about 15,800 residents. Brookdale operates about 1,100 communities, serving about 108,000 residents.

“Our size is a real competitive advantage,” Cohen stressed.

Supporting Cohen’s bullish tone, earnings per share in the fourth quarter of 2015 beat analyst expectations by $0.09, and revenue for the quarter—$107.5 million—was up on a year-over-year basis.

The company’s stock was up slightly Friday late afternoon to $16.58 per share.

Written by Mary Kate Nelson

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