Capital Senior Living Enters Recovery Mode, Standardizes Operations

Capital Senior Living (NYSE: CSU) is in recovery mode.

The Dallas-based senior housing provider has introduced a number of “recovery initiatives” to improve performance both operationally and financially, Capital Senior Living CEO Larry Cohen said during Wednesday’s third-quarter 2017 earnings call with analysts.

If all goes according to plan, the end result of the company’s efforts will be a “new standardized operating model,” Brett Lee, Capital Senior Living’s COO, explained during the call.


So far, the efforts appear to be meeting the provider’s various expectations.

“I have been disappointed by the operational and sales challenges that we’ve faced,” Cohen said. “But I’m pleased with the progress that is already underway.”

Capital Senior Living’s third-quarter 2017 loss per share of 7 cents beat analysts’ expectations by 20 cents, but its third-quarter revenue of $117.32 million missed analysts’ expectations by about $650,000.


New way of operating

In the past, Capital Senior Living espoused a rather decentralized operational model, in which the company empowered local leaders to make their own financial and operational decisions with respect to their communities, Lee explained. This is no longer the best path forward, however.

“Too much decentralization does not allow us to take advantage of economies of scale,” Lee said.

For instance, Capital Senior Living sees “tremendous variations” across the company when it comes to cost per meal. At some communities, that cost is as low as $2.50; at others, it’s $10.

As a result, Capital Senior Living is implementing a “new, standardized operating model” that involves, among other things, evaluating all major expense categories, centralizing certain support functions such as accounts payable, rolling out a uniform customer service platform, establishing budget management templates and implementing comprehensive sales training for community-based sales directors.

Most of these initiatives started in late August, Lee said. So far, they have proven effective and sustainable.

“The initiatives that we made in August really made a difference,” Cohen said. “…This level of expense management and expenses should be sustainable into the future.”

Additionally, the provider is investing more in its staff. Lee holds weekly calls with all of the company’s executive directors, as well as sales directors, to determine what’s going well and what the corporate office can do to help them improve.

“We have tried to arm them with the tools that they’ll need to be successful, and accompanied that with a significant amount of training,” Lee said.

Plan for 2018

Looking ahead, Capital Senior Living plans to tone down its acquisition volume—at least in the first half of next year.

The company “may have approximately $50 million in acquisitions in 2018,” but only in the second half of the year, CFO Carey Hendrickson said on the earnings call.

“We do not intend to pursue any new acquisitions until the middle part of 2018,” Cohen explained.

Additionally, the company hopes to boost occupancy by 60 to 90 basis points next year, as well as increase average rent by 3%, Hendrickson said. Currently, the company’s median occupancy is 89.4%, Cohen added.

Capital Senior Living, overall, is aiming to be “more thoughtful of how we act as a larger company,” Lee concluded.

“We are committed to returning Capital Senior Living to operational excellence,” Cohen added.

As of market close on Wednesday, Capital Senior Living’s share price had fallen 3.08% to $12.89.

The provider’s Wednesday earnings call serves as the latest indication that the senior housing industry is in a period of upheaval. Within the past few months, real estate investment trust (REIT) Ventas Inc. (NYSE: VTR) announced it is transitioning its portfolio of approximately 70 Elmcroft Senior Living properties into the hands of a new management company; Anthem Memory Care is having trouble paying its quarterly rent in full to LTC Properties (NYSE: LTC); and Brookdale Senior Living’s (NYSE: BKD) talks to be potentially acquired by a Chinese bidder reportedly ended without a deal.

Written by Mary Kate Nelson

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