Capital Senior Living at Odds with Brookdale on Oversupply

Tuesday began with one major senior housing provider warning of historic levels of new competition in certain markets, and ended with another prominent provider telling a different story.

Brookdale Senior Living (NYSE: BKD), the nation’s largest senior living provider, blamed bad third-quarter financial results largely on “unprecedented” levels of new competition in secondary markets. But Capital Senior Living (NYSE: CSU) said that demand remains strong and oversupply fears should not be blown out of proportion.

In terms of demand, Capital Senior Living recorded 500 move-ins in September, setting a company record, CEO Lawrence A. Cohen said Tuesday during a call with analysts. This goes to show that Capital Senior Living in particular is not buckling under new supply pressures, and supply trends industry-wide also are not troubling Cohen.

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“We are seeing a tapering off of supply across the senior housing market,” he said.

He could not say specifically which markets might have been trouble spots for Brookdale, Cohen emphasized, but he did tout that his company is not exposed in the metro areas at greatest risk. Capital Senior Living only operates in three of the top 10 metro areas with the highest levels of construction versus inventory, as identified by the National Investment Center for Seniors Housing & Care (NIC).

These cities are Columbus, Ohio, where CSU has one property; San Antonio, where it has two properties; and Charlotte, North Carolina, where it has one building. Occupancy is strong in all these communities, Cohen said.

Dallas-based CSU operates about 130 communities, compared with about 1,100 operated by Brookdale.

Move-Outs Hurt

Despite the record number of move-ins, Capital Senior Living’s results were hurt by an unusual number of move-outs during the third quarter.

The company averages 404 monthly move-outs, but experienced 437 in July and 468 in August, Cohen said. The reasons for these were not out of the ordinary, though, with 71% resulting from death or moving to a higher level of care. And, in fact, move-outs to competitors dropped during this period.

No pattern could be discerned in terms of geography or health concerns, suggesting that the high attrition rate was an anomaly, said Senior Vice President and CFO Carey Hendrickson.

The third quarter earnings per share of -$0.02 missed analyst expectations by $0.01, and revenue of $111 million came up short of expectations by $1.73 million.

In light of these figures, Cohen and Hendrickson sought to stress CSU’s strong fundamentals, noting that the main dampeners of its quarterly performance were outside the control of management. The company saw higher than usual health care claims, as well as the high attrition.

And in addition to being insulated from supply pressures, Capital Senior Living also is not facing the increased labor costs cited by Brookdale, nor is it exposed to the risk of changing government reimbursement rates the way skilled nursing or home health companies are, Cohen said.

Capital Senior Living did discount rents as part of an effort to counteract the high attrition, but the company is moving away from this and looks to build rate growth going forward, Cohen said. The company’s overall portfolio is expanding as well.

Capital Senior Living is set to complete the acquisition of a senior housing community this week for $29 million, following the acquisition of two other communities in late September for $45 million. They are located in Texas, Massachusetts, and Ohio, and encompass 405 units of independent living, assisted living, and memory care.

The company expects to close on another four-community acquisition in January 2017, at a price of about $85 million.

CSU’s share price was down 8.45% to $14.62 as of market close on Tuesday.

Written by Tim Mullaney

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