[UPDATED] Cohen to Retire as Capital Senior Living CEO, Stay On As Consultant

Capital Senior Living (NYSE: CSU) CEO Larry Cohen is retiring at the beginning of next year, the company announced Wednesday morning.

Cohen first joined the Dallas-based senior living operator 21 years ago, and served as CEO for 19 of those years. His retirement takes effect Jan. 1, 2019.

“Having done this for 19 years, I feel we’ve put in place a great team, and it’s the strength of this team and our differentiated strategy focused on owning our real estate that gives me a lot of confidence,” Cohen told Senior Housing News in an interview Wednesday afternoon. “I’m looking forward to the board’s search process and finding a successor.”

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The announcement is not entirely surprising, given Capital Senior Living’s recent financial turbulence, and some investors may want further action and even a sale of the company, according to analysts at Stephens. Still, Cohen said he’s leaving the enterprise in good hands.

“It’s been an honor to lead this company and our dedicated team of employees, and I think my retirement is a testament to their hard work and dedication,” he said. “Having worked closely with a great team of leaders and having the great organization that serves our residents throughout the country … gives me confidence that the future of this company continues to be very bright.”

And Cohen acknowledged that, while the senior living industry does face headwinds, it’s weathered similar storms before.

“I’ve gone through periods of downturns in the late 1990s, we survived the Great Recession in 2008 through 2010, and I think we’ve always demonstrated that this industry continues to be very resilient,” he said.

Cohen’s next steps

Though Cohen is leaving the CEO role, that doesn’t mean he’s cutting ties with Capital Senior Living at the beginning of next year.

As part of his retirement, he will work with Capital as a consultant for a period of two years—a job for which the company will pay him more than $2.5 million in total, according to an Aug. 22 SEC filing. During that two-year period, Cohen will be subject to non-competition and non-disparagement agreements.

Between now and next year, Cohen will also work with the company’s leadership team and board of directors to help with the transition to a new company leader. Already, Capital Senior Living has tapped Heidrick & Struggles, an executive search firm, to assist with finding a new CEO.

He also plans to tie up some loose ends before January.

“Right now, I’m focused on completing my year at Capital, [as] we will have a lot of work to be done on action plans that we spoke about on the last earnings call,” Cohen said. “That’s my focus right now.”

Cohen said he will continue to work with industry associations such as American Seniors Housing Association (ASHA) and the National Investment Center for Seniors Housing & Care (NIC).

But the outgoing Capital CEO also plans to “take a little breather” after running one of the biggest senior living operators in the country.

“It’s been 21 years of a very active work life, a lot of travel away from family, and I’m looking forward to taking a little bit of a pause,” he said. “And then I’ll think about other things I’m interested in in life, both personally and professionally.”

Chronicling the Cohen era

Cohen first joined Capital Senior Living as chief financial officer in 1996. The following year, the company went public.

Three years later, one of Capital Senior Living’s founders retired, and Cohen ascended to the CEO role. Cohen described it as a difficult time for both the company and the industry as a whole, in a 2016 Leadership Series interview with Senior Housing News.

“In 1999, like every other company, we faced a challenge of filling buildings that were built between 1988 and 1999 as the industry imploded and our stock dropped to less than $2 per share,” Cohen said. “That was probably the most treacherous period in our history, surviving when so many companies went bankrupt.”

With Cohen at the helm, Capital Senior Living was able to recover its stock price and push it to new heights, hitting a peak of more than $26 per share in 2015.

During Cohen’s time as CEO, Capital Senior Living grew its senior housing portfolio from 36 communities in 1999 to 129 communities today. Cohen attributed much of his company’s success to the people around him.

“When I saw the quality of the operating team, which still is there today, I felt that in any real estate based operation, I’ve never seen such quality and passion for what they do,” he told SHN in 2016. “I haven’t been disappointed in 20 years.”

He also predicted that demographic changes would cause the senior living industry to “explode” with new business by 2021, a view that most in the industry still hold.

“This will be a very exciting business in five years. I think we will be thinking about different products and services. Residents will want more choices and we’ll deliver that,” he said in 2016. “It will be a different consumer that we serve. I think we’ll have a much higher penetration rate with a much larger demographic, which I think will result in a very successful operation.”

As the CEO of a major publicly traded senior living company, Cohen was in recent years among the highest paid leaders in the senior living industry.

In the end, Cohen’s departure marks the end of one chapter for Capital Senior Living, and the beginning of a new one.

“I would hope that the next CEO, who I expect to be a very talented person with a great track record of execution, can understand that there’s a great culture here,” Cohen said. “I think always getting fresh outlooks and fresh ideas is a good thing, so it’s probably exciting to have someone new come into this organization.”

Operational challenges

The news about Cohen’s retirement comes at a challenging time for Capital Senior Living.

Most recently, during the second quarter of 2018, the operator’s occupancy for consolidated and same communities hit 85.5%, a drop of 60 basis points from the previous quarter, and 100 basis points from the same quarter a year earlier.

For that quarter, Capital’s quarterly revenue of roughly $114.6 million missed analysts’ expectations by about $3.6 million, though its second-quarter 2018 earnings per share loss of 17 cents beat analysts’ expectations by 2 cents.

While the company blamed the “disappointing” financial results and lower occupancy on competitive pricing and wage pressures, occupancy woes aren’t a new trend for Capital, and investors seem to have taken notice. The provider’s share price dropped more than 18% after ongoing concerns regarding occupancy prompted brokerage and investment firm Stifel to downgrade CSU’s stock rating from hold to sell.

CSU shares were trading up 7.15%, at $8.24, by the time the markets closed on Wednesday.

Cohen’s decision to step down at the beginning of next year didn’t come as a shock, according to an update from the analysts at financial services firm Stephens.

“Following 2Q18 results, there were clear investor concerns around management credibility, so this announcement is not all that surprising,” read the update, which was shared with Senior Housing News.

While the external CEO search is likely to be seen as encouraging, the update read, the lack of an announcement of a strategic review may disappoint some investors who would like to see Capital Senior Living sold.

Capital Senior Living isn’t the only company experiencing industrywide headwinds.

In July, U.S. senior housing occupancy reached its lowest level in over eight years. Specifically, occupancy averaged 87.9% in the second quarter of 2018, representing a decline of 0.4 percentage points from the first quarter of 2018 and 0.8 percentage points from the same quarter in 2017, according to the National Investment Center for Seniors Housing & Care (NIC).

Written by Tim Regan

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