Sonida Senior Living, Inc. (SNDA) Q1 2010 Earnings Report, Transcript and Summary

Good day and welcome to the Capital Senior Living First Quarter 2010 Earnings Release Conference Call. Today’s conference is been recorded. 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 limitations to the company’s ability to find suitable acquisition properties at favorable terms, financing, licensing, business condition, risks of downturns in economic conditions generally, satisfaction of closing conditions such as those pertaining to licenser, availability of insurance at commercially reasonable rates and changes in accounting principles and interpretations among others, and other risk and factors identified from time to time in our reports filed with the Securities and Exchange Commission. At this time, I would like to turn the conference over to Mr. Larry Cohen, Chief Executive Officer. Please go ahead sir.

Thank you, good morning. I am pleased to welcome everyone to Capital Senior Living’s First Quarter 2010 Earnings Release Conference Call. The first quarter of the year is typically our most challenging period and this year was particularly impacted by harsh weather around the country. Yet we achieved positive results through increases and average multi-rents and tight control of expenses. Our EBITDAR margin increased from the first quarter of 2009 and cash flow from operations was $0.15 per share. We are encouraged by improvement in move-ins and deposits in March and April and by the fact that new supply is practically non-existent as demand continues to grow. With the efficiencies we have achieved during this difficult economic period, we expect future occupancy gains to result in solid incremental margins and meaningful cash flow growth. Sequentially average occupancies for our same store communities excluding three communities with conversions declined 30 basis points from the fourth quarter of 2009. Move-ins, deposits, leads and tours improved in March and April. I am cautiously optimistic that this trend will continue as it is typical the case for the balance of the year. Despite the harsh weather experienced in January and February, we ended the first quarter with 40 more net move-ins and 35 more deposits than during the first quarter of 2009. The last week of April was our best week of the year with 27 net move-ins and our deposits unless that move-out notices indicate a 70 basis point improvement in our least two occupancy. Our attrition rate of the first quarter was 38.5% as compared to 38.3% in the first quarter of 2009. Our disciplined approach to reducing expenses at both the corporate and property level while increasing average multi-rents continues to generate positive results, at communities under management excluding three communities…

Thanks Larry and good morning. I hope everyone has had a chance to see the press release which was distributed last night. In the next few minutes I am going to review and expand up on highlights of our financial results for the first quarter of 2010. If you need a copy of our press release that has been posted on our corporate website at www.capitalsenior.com, the company reported revenues of $47.9 million for the first quarter of 2010 compared to revenues of $48 million for the first quarter of 2009. The number of communities we consolidated on our income statement was 50 in both periods. Financial occupancy at the consolidated portfolio averaged 83.4% for the quarter with an average monthly rent of $2552 per occupied unit. Excluding three communities with units being converted to higher levels of care, financial occupancy at the remaining 47 consolidated communities averaged 84.6%. Revenues under management were $56.4 million in the first quarter of 2010 compared to $54.8 million in the first quarter of 2009. There were 66 communities under management in the first quarter of 2010 compared to 64 in the first quarter of 2009 as two joint venture developments opened last year. At these communities under management excluding three communities undergoing conversions, same store revenue increased 2.3% versus the first quarter of 2009 as a result of a 2.6% increase in average monthly rent. Same community expenses increased 1.9% and net income increased 2.8% from the comparable period of the year. As a percent of resident and healthcare revenue operating expenses were 61.4% in the first quarter compared to 61% in the first quarter of the prior year. General and administrative expenses of $3 million were approximately equal to the first quarter of the prior year. As a percentage of revenue under…

Thank you. (Operator Instructions). We will now go to Jerry Doctrow with Stifel Nicolaus.

It's actually Dan Bernstein filling in for Jerry. I just wanted to get your thoughts on the trade-off between owning properties versus leasing properties, especially in context to the leases with HCN and whether you thought about buying those properties on balance sheet or not, given the high occupancy and so forth.

We like to take a very balance approach to our balance sheet even with now these eight properties moving over to at least, we have almost a 50-50 split between owned in these communities. As you pointed out in your note this morning we ended the quarter with our $35 million of cash. So, we are looking to drive properties into the company. Looking at the lease with healthcare REIT, we think it’s a very favorable transactions to the company with strong cash flow, attractive terms that we are very comfortable with. Most importantly we look at EBITDAR coverage of 1.4 times. So, when you look at the coverage that we can obtain with a lease to allow us to increase our cash flow, increase our revenues by over $20 million, EBITDAR by almost $10 million. We had have type of coverage, we think that’s a very efficient use of capital in order for us to grow the company. Moving forward and I think we will continue to look at joint ventures. It's been very profitable, again in this transaction we took two joint ventures owing the eight properties, we sold the interests we had earned management fees in those ventures as well as cash flow returns as participants in the venture and then on the transaction we had about $1.1 million gain. We have picked up about $4.5 million of cash and now can contribute, continue to operate this. Going forward I think we continue to look at both owning and leasing, we also want to make sure we marshal assets accordingly, because we do have $35 million of cash, that $10 million of that is required for ongoing needs within the company and our properties.

Okay, I just want make sure I understand what you were saying about the April move-ins. Did you say that it was implying about a 70 basis point increase in occupancy? If I heard you right?

Yes that’s a least two number based on deposits in hand less move-out notices as of last Friday. Of course to the extent that there are move-outs by death or unanticipated causes, that may change that number. But based on what we have on hand as of last Friday that suggest when those residents move-in there would be a 70 basis improvement in occupancy.

Is any of that coming from higher home sales, say from the tax credit? Or is it just a -- you don't have any entrance fees, but do you think that's influencing the higher move-ins? Or is it just people are just feeling better about the economy.

I think confident levels are higher, clearly we saw some of a spurt last year with the credit, I am not sure that the tax credit had that much of an effect this year on move-ins. Really across the country we saw a marked improvement in March and April. I think we had one of the worst winters we had ever experienced, ten inches of snow in Dallas, storms throughout the country. It’s really a cold weather, a lot of snow and ice, so that definitely impacted January and February. So there might also be just on pent up demand where people who could move in January and February are moving in March and April, but we are now reaching the summer months, spring and summer months which are typically the best for our business. So, hopefully that will continue but I am also encouraged that we have seen an improvement in California which we hadn’t seen in years, so that might be some stability in the housing market as well some more confidence. Florida actually has had a pretty good first quarter. So, I think that we are encouraged by what we are seeing and hopefully it’s a indication that confidence levels have improved and we can continue to see these trends continue throughout the year and we are optimistic that come 2011, 2012 we should really start to see some marked improvement just because of the growth in our demand and we are seeing virtually no new supply coming out of the ground.

Do you expect to be able to push rates higher as occupancy improves? Or is it still too early.

We are supposed to do. One thing you can see even in your first quarter numbers, we really feel strongly about maintaining the integrity of our lease structure. We have avoided deep discounts, we necessarily we may have some specials to be able to move some units particularly those that are in the hardest to move locations in the building for example. We are forecasting next year internally, rent growth of about 4%, so we do think that we will start to see rent increases but clearly with hopefully growth in demand, improved occupancies and no new supply, you would think it would give some pricing power. Coupled the fact that we do have an affordable market that we serve and units are affordable. So, hopefully we won’t have some of the potential pushback that you may see in higher priced units just because of an affordability factor as we look into the future.

Okay and then just on the weather, were there any usual expenses in the quarter that -- because of the weather that might go away in the second quarter, just wanted to…

Yeah we had, but utilities raffled a bit in the first quarter but nothing marked, I mean you see the 1.9% increase in same store expenses. Some of that quite frankly was the good news is that we are - commissions on move-ins which is always a good thing to see. And then the other which is typical increases in cost, labor, and other type of costs that we experience. But there was nothing unusual including some of the weather related nothing significant that we incurred that you would adjust the next quarters to reflect any unusual expenses in the quarter.

I thought you would tell me about high snow removal costs from Texas.

Good thing that Texas melts itself.

I wish you could say the same for Baltimore this year.

By the way I was in Baltimore, Dan, when you had your snow in the Baltimore/Washington area, and it was amazing.

We'd be happy to give you the 70 inches of snow we had.

Luckily we had no buildings there.

That's all for me, thank you.

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Well thanks everybody for your participation today and we look forward to speaking to you throughout the quarter. If you have any other questions please feel free to give Ralph or myself a call. And enjoy your day. Thank you very much.