Capital Senior Living Corporation Reports Fourth Quarter and Full Year 2007 Results

Capital Senior Living Corporation (NYSE:CSU), one of the country’s largest operators of senior living communities, today announced operating results for the fourth quarter and full year 2007. Company highlights for the fourth quarter and 2007 fiscal year include: Financial Highlights – Fourth Quarter Revenues of $48.2 million increased $5.2 million or approximately 12 percent from the fourth quarter of 2006. Adjusted EBITDAR (income from operations plus depreciation and amortization and facility lease expense) of $14.9 million increased 25 percent from the prior year period. Adjusted EBITDAR excludes the write-off of Hearthstone transaction costs and includes the normalization of real estate taxes as explained later and reconciled on the last page of this release. Adjusted EBITDAR margin of 30.9 percent improved 320 basis points from the fourth quarter of the prior year. Net income of $1.3 million versus $0.8 million in the fourth quarter of 2006. Adjusted net income of $1.8 million or $0.07 per diluted share, versus net income of $0.7 million or $0.03 per diluted share in the fourth quarter of 2006. These comparisons exclude the write-off of Hearthstone transaction costs, the normalization of real estate and income taxes and the write-off contract rights. Adjusted cash earnings (net income plus depreciation and amortization) of $4.8 million or $0.18 per diluted share, versus $3.4 million or $0.13 per diluted share in the fourth quarter of 2006, with the adjustments noted above. Financial Highlights – Full Year Revenues of $189.1 million increased $30.0 million or approximately 19 percent from the prior year. Adjusted EBITDAR of $55.3 million increased 37 percent from the prior year. Adjusted EBITDAR margin of 29.3 percent improved 380 basis points from 2006. Net income of $4.4 million versus a loss of $2.6 million in 2006. Adjusted net income of $5.2 million or $0.20 per diluted share, versus a loss of $0.5 million or a $0.02 loss per share in 2006. These comparisons exclude the fourth quarter adjustments noted above along with the write-off of deferred loan costs and non-cash charges related to joint venture amortization. Adjusted cash earnings of $16.5 million or $0.62 per diluted share, versus $11.8 million or $0.45 per diluted share in 2006, with the adjustments noted above. Operational Highlights – Fourth Quarter Average physical occupancy rate for the 60 stabilized communities was 90.0 percent. Operating margins (before property taxes, insurance and management fees) were 48 percent in stabilized independent and assisted living communities. At communities under management, same-store revenue increased 4.1 percent versus the fourth quarter of 2006 as a result of a 4.7 percent increase in average monthly rent and a 0.5 percent decrease in occupancy. Same-community expenses increased 0.4 percent and net income increased 10.1 percent from the comparable period of the prior year. Incremental EBITDAR margin on same-store revenue increases was approximately 93 percent. Significant Transactions – Fourth Quarter The Company and Prudential Real Estate Investors (PREI®), acting on behalf of institutional investors in its Senior Housing Partners III fund, formed a third joint venture to develop a senior housing community. The community under development is located in Perrysburg, Ohio and will consist of 101 independent living units and 45 assisted living units. The community is expected to open in the first quarter of 2009. The equity in the new venture will be funded 10 percent by the Company and 90 percent by PREI. This equity represents approximately 35 percent of the project costs and the venture has obtained a construction loan for the remaining 65 percent. Under the venture agreement, the Company will earn development and management fees and may receive incentive distributions. In February of 2008, the Company entered into a lease on the Whitley Place community located in Keller, Texas. This 47-unit assisted living community has capacity for 65 seniors and is expected to produce annual revenues of approximately $1.4 million. Whitley Place was purchased by a publicly traded healthcare REIT from a third party for approximately $5 million. The Company has leased this community on a ten-year term with two five-year renewal options. The initial lease rate of 7.75 percent is subject to conditional escalation provisions. "The Company continues to benefit from leveraging its operating platform and tightly controlling expenses,” said James A. Stroud, Chairman of the Company. "We achieved a $14.8 million increase in annual EBITDAR on a $30.0 million increase in revenues. Our full year EBITDAR margin improved by 380 basis points and was nearly 31 percent in the most recent quarter. The successful execution of our 2007 Business Plan is the foundation for these gains.” OPERATING AND FINANCIAL RESULTS Fourth Quarter Results For the fourth quarter of 2007, the Company reported revenue of $48.2 million, compared to revenue of $43.0 million in the fourth quarter of 2006, an increase of approximately $5.2 million or 12 percent. Resident and healthcare revenue increased from the fourth quarter of the prior year by approximately $4.4 million, or 12 percent. The number of consolidated communities increased from 48 in the fourth quarter of 2006 to 49 in the fourth quarter of 2007. Financial occupancy of the consolidated portfolio averaged 88.5 percent in the fourth quarter of 2007 with an average monthly rent of $2,404 per occupied unit. Revenue under management increased approximately 9 percent to $55.9 million in the fourth quarter of 2007 from $51.5 million in the fourth quarter of 2006. Revenue under management includes revenue generated by the Company’s consolidated communities, communities owned in joint ventures and communities owned by third parties that are managed by the Company. There were 64 communities under management in both periods. Operating expenses for the fourth quarter of 2007 increased by $2.5 million from the fourth quarter of 2006. As a percentage of resident and healthcare revenue, operating expenses improved from 63.0 percent in the fourth quarter of 2006 to 62.4 percent in the fourth quarter of 2007, an improvement of 60 basis points. Operating expenses for the quarter included approximately $0.3 million of real estate tax adjustments as a result of assessments which applied to 2006 and 2007. Had these property taxes been booked in the earlier periods to which they applied rather than the fourth quarter, this quarter's operating expenses would have been 61.7 percent of resident and healthcare revenue. General and administrative expenses of $2.9 million were approximately $0.2 million higher than the fourth quarter of 2006. Approximately half of this increase was due to expenses associated with the Company’s investment in information technology and half was due to transaction costs for the Hearthstone acquisition, which the Company terminated in February of 2008. As a percentage of revenue under management, general and administrative expenses were 5.6 percent in the fourth quarter of 2007. Facility lease expenses were $6.9 million in the fourth quarter of 2007, approximately $1.3 million higher than the fourth quarter of 2006, reflecting 24 leased communities at the end of the fourth quarter of 2007 versus 23 at the end of the fourth quarter of 2006. Depreciation and amortization expense was $2.9 million in the fourth quarter of 2007, compared to $2.7 million in the fourth quarter of the prior year. Excluding the Hearthstone transaction costs and normalizing the effect of the real estate tax adjustments, adjusted EBITDAR for the fourth quarter of 2007 was approximately $14.9 million, an increase of 25 percent from $11.9 million in the fourth quarter of 2006. Adjusted EBITDAR margin was 30.9 percent for the period, a 320 basis point improvement from the comparable period of the prior year. Interest expense was $3.1 million in the fourth quarter of 2007, compared to $3.5 million in the fourth quarter of 2006, as a result of refinancings and other debt retirement earlier this year. The Company reported a gain on sale of assets of $0.8 million in the fourth quarter of 2007 from the recognition of deferred gains. As of December 31, 2007, the Company had deferred gains of $26.4 million that are being amortized over the initial lease terms of the underlying assets. The Company reported pre-tax income of approximately $2.6 million in the fourth quarter of 2007 compared to approximately $1.2 million in the fourth quarter of 2006. Pre-tax income in the fourth quarter of 2007 is net of approximately $0.1 million of Hearthstone transaction costs and approximately $0.3 million of real estate tax adjustments. Excluding these items, adjusted pre-tax income in the fourth quarter of 2007 was $3.0 million. The Company reported net income of $1.3 million, or $0.05 per diluted share, in the fourth quarter of 2007 versus net income of $0.8 million, or $0.03 per diluted share, in the fourth quarter of 2006. The Company’s tax rate in the fourth quarter of 2007 was 49.6 percent, approximately 11 percentage points higher than normal. The higher rate is due to true-ups of 2006 taxes which occurred when federal and state income tax returns were prepared in late 2007. Approximately $0.3 million of additional taxes were booked in the fourth quarter of 2007, primarily reflecting additional state taxes on gains resulting from sale-leaseback transactions in 2006. These gains were deferred and amortized under GAAP, but not for tax purposes. Normalizing this tax provision at a rate of 38.5 percent, along with the pre-tax adjustments noted above, would increase net income from the reported $1.3 million, or $0.05 per diluted share, to an adjusted net income of $1.8 million, or $0.07 per diluted share. On this same basis, adjusted cash earnings were $4.8 million, or $0.18 per diluted share, in the fourth quarter of 2007, versus $3.4 million, or $0.13 per diluted share, in the fourth quarter of 2006. Full Year Results For the 2007 fiscal year, the Company produced revenues of $189.1 million, compared to revenues of $159.1 million in the prior year, an increase of $30.0 million or approximately 19 percent. Reflecting the adjustments noted above, adjusted EBITDAR for 2007 was $55.3 million, an increase of $14.8 million or 37 percent from the $40.5 million reported in 2006. Adjusted net income was $5.2 million or $0.20 per diluted share and adjusted cash earnings were $16.5 million or $0.62 per diluted share. "We made progress on a number of fronts in 2007,” said Lawrence A. Cohen, Chief Executive Officer. "Revenues, EBITDAR and net income all increased significantly as margins expanded through higher rents and sound expense controls. Our 2008 business plan is focused on increasing capacity and levels of care to meet the needs of our residents with an average age of 85 through expansions, conversions, new developments and home health care. These investments typically produce excellent returns on invested capital and are expected to build shareholder value.” CAPITAL OVERVIEW AND FINANCING Capital expenditures in the fourth quarter of 2007 were approximately $3.4 million, including $1.6 million of systems development, $0.7 million of community renovations and the balance for recurring items. The Company ended the quarter with approximately $23.4 million of cash and cash equivalents and approximately $189.1 million of mortgage debt at fixed interest rates averaging approximately 6.1 percent. Q407 CONFERENCE CALL INFORMATION The Company will host a conference call with senior management to discuss the Company’s fourth quarter and full year 2007 results. The call will be held on Wednesday, March 12, 2008 at 11:00 a.m. Eastern Time. The call-in number is 913-312-1467, confirmation code 3845712. A link to a simultaneous webcast of the teleconference will be available at www.capitalsenior.com through Windows Media Player or RealPlayer. For the convenience of the Company’s shareholders and the public, the conference call will be recorded and available for replay starting March 12, 2008 at 2:00 p.m. Eastern Time, until March 19, 2008 at 8:00 p.m. Eastern Time. To access the conference call replay, call 719-457-0820, confirmation code 3845712. The conference call will also be made available for playback via the Company’s corporate website, www.capitalsenior.com, and will be available until the next earnings release date. ABOUT THE COMPANY Capital Senior Living Corporation is one of the nation’s largest operators of residential communities for senior adults. The Company’s operating philosophy emphasizes a continuum of care, which integrates independent living, assisted living and home care services, to provide residents the opportunity to age in place. The Company currently operates 64 senior living communities in 23 states with an aggregate capacity of approximately 9,400 residents, including 37 senior living communities which the Company owns or in which the Company has an ownership interest, 25 leased communities and 2 communities it manages for third parties. In the communities operated by the Company, 69 percent of residents live independently, 24 percent of residents require assistance with activities of daily living and 7 percent of residents live in continuing care retirement communities. This release contains certain financial information not derived in accordance with generally accepted accounting principles (GAAP), including adjusted EBITDAR, cash earnings, cash earnings per share and other items. The Company believes this information is useful to investors and other interested parties. Such information should not be considered as a substitute for any measures derived in accordance with GAAP, and may not be comparable to other similarly titled measures of other companies. Reconciliation of this information to the most comparable GAAP measures is included as an attachment to this release. 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 limitation to, the Company’s ability to find suitable acquisition properties at favorable terms, financing, licensing, business conditions, risks of downturns in economic conditions generally, satisfaction of closing conditions such as those pertaining to licensure, availability of insurance at commercially reasonable rates, and changes in accounting principles and interpretations among others, and other risks and factors identified from time to time in our reports filed with the Securities and Exchange Commission. Contact Ralph A. Beattie, Chief Financial Officer, at 972-770-5600 or Cameron Donahue or Brett Maas, Hayden Communications, Inc., at 646-653-1854 for more information. CAPITAL SENIOR LIVING CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands)   December 31, 2007   2006   ASSETS Current assets: Cash and cash equivalents $ 23,359 $ 25,569 Accounts receivable, net 3,232 3,838 Accounts receivable from affiliates 846 784 Federal and state income taxes receivable 2,084 241 Deferred taxes 996 672 Assets held for sale 1,011 2,034 Property tax and insurance deposits 7,954 6,460 Prepaid expenses and other   4,652   3,493 Total current assets 44,134 43,091 Property and equipment, net 310,442 313,569 Deferred taxes 12,824 15,448 Investments in limited partnerships 6,199 5,253 Other assets, net   16,454   17,127 Total assets $ 390,053 $ 394,488   LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,980 $ 3,566 Accrued expenses 12,782 11,224 Current portion of notes payable 9,035 6,110 Current portion of deferred income 5,174 4,306 Customer deposits   2,024   2,478 Total current liabilities 30,995 27,684 Deferred income 23,168 26,073 Notes payable, net of current portion 185,733 196,647 Commitments and contingencies Shareholders' equity: Preferred stock, $.01 par value: Authorized shares -- 15,000; no shares issued or outstanding — — Common stock, $.01 par value: Authorized shares -- 65,000; issued and outstanding shares 26,596 and 26,424 in 2007 and 2006, respectively 266 264 Additional paid-in capital 129,159 127,448 Retained earnings   20,732   16,372 Total shareholders' equity   150,157   144,084 Total liabilities and shareholders' equity $ 390,053 $ 394,488 CAPITAL SENIOR LIVING CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)         Three Months Ended December 31, Year Ended December 31, 2007   2006 2007   2006 Revenues: Resident and health care revenue $ 42,721 $ 38,281 $ 167,563 $ 139,456 Unaffiliated management services revenue 652 136 1,591 994 Affiliated management services revenue 1,082 651 3,117 1,767 Community reimbursement revenue   3,732     3,902     16,781     16,853   Total revenues 48,187 42,970 189,052 159,070   Expenses: Operating expenses (exclusive of facility lease expense and  depreciation and amortization expense shown below) 26,647 24,100 103,804 89,184 General and administrative expenses 2,866 2,692 12,046 11,420 Facility lease expense 6,870 5,528 27,054 16,610 Provision for bad debts 224 22 330 121 Stock-based compensation expense 216 318 979 870 Depreciation and amortization 2,934 2,702 11,295 12,345 Community reimbursement expense   3,732     3,902     16,781     16,853   Total expenses   43,489     39,264     172,289     147,403   Income from operations 4,698 3,706 16,763 11,667   Other income (expense): Interest income 165 377 674 843 Interest expense (3,148 ) (3,459 ) (12,763 ) (16,610 ) Gain on sale of assets 847 781 3,351 2,495 Write-off of deferred loan costs — — (538 ) (1,867 ) Other income (expense)   24     (249 )   (37 )   (37 ) Income (loss) before (provision) benefit for income taxes 2,586 1,156 7,450 (3,509 ) (Provision) benefit for income taxes   (1,283 )   (340 )   (3,090 )   909   Net income (loss) $ 1,303   $ 816   $ 4,360   $ (2,600 )   Per share data: Basic net income (loss) per share $ 0.05   $ 0.03   $ 0.17   $ (0.10 ) Diluted net income (loss) per share   0.05     0.03     0.16     (0.10 ) Weighted average shares outstanding — basic   26,286     26,127     26,205     26,014   Weighted average shares outstanding — diluted   26,624     26,559     26,637     26,014   CAPITAL SENIOR LIVING CORPORATION SUPPLEMENTAL INFORMATION                   Communities Resident Capacity Units Q4 07 Q4 06 Q4 07 Q4 06 Q4 07 Q4 06 Portfolio Data I. Community Ownership / Management Consolidated communities Owned 25 25 3,926 3,926 3,503 3,503 Leased 24 23 3,710 3,625 3,105 3,025 Joint Venture communities (equity method) 12 12 1,406 1,406 1,221 1,221 Third party communities managed 3   4   502   587   408   488   Total 64 64 9,544 9,544 8,237 8,237   Independent living 6,713 6,713 5,738 5,738 Assisted living 2,176 2,176 1,881 1,881 Continuing Care Retirement Communities 655   655   618   618   Total 9,544 9,544 8,237 8,237   II. Percentage of Operating Portfolio Consolidated communities Owned 39.1 % 39.1 % 41.1 % 41.1 % 42.5 % 42.5 % Leased 37.5 % 35.9 % 38.9 % 38.0 % 37.7 % 36.7 % Joint venture communities (equity method) 18.8 % 18.8 % 14.7 % 14.7 % 14.8 % 14.8 % Third party communities managed 4.7 % 6.3 % 5.3 % 6.2 % 5.0 % 5.9 % Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %   Independent living 70.3 % 70.3 % 69.7 % 69.7 % Assisted living 22.8 % 22.8 % 22.8 % 22.8 % Continuing Care Retirement Communities 6.9 % 6.9 % 7.5 % 7.5 % Total 100.0 % 100.0 % 100.0 % 100.0 % Selected Operating Results I. Consolidated communities Number of communities 49 48 Resident capacity 7,636 7,551 Unit capacity 6,608 6,528 Financial occupancy (1) 88.5 % 90.4 % Revenue (in millions) 42.6 38.3 Operating expenses (in millions) (2) 24.0 21.9 Operating margin 44 % 43 % Average monthly rent 2,404 2,269 II. Waterford / Wellington communities Number of communities 17 17 Resident capacity 2,426 2,426 Unit capacity 2,132 2,132 Financial occupancy (1) 91.7 % 91.7 % Revenue (in millions) 11.9 11.3 Operating expenses (in millions) (2) 6.5 6.4 Operating margin 45 % 43 % Average monthly rent 2,028 1,942 III. Communities under management Number of communities 64 64 Resident capacity 9,544 9,544 Unit capacity 8,237 8,237 Financial occupancy (1) 88.8 % 89.2 % Revenue (in millions) 55.9 51.5 Operating expenses (in millions) (2) 30.6 29.0 Operating margin 45 % 44 % Average monthly rent 2,523 2,394 IV. Same Store communities under management Number of communities 60 60 Resident capacity 9,124 9,124 Unit capacity 7,910 7,910 Financial occupancy (1) 88.7 % 89.2 % Revenue (in millions) 52.5 50.5 Operating expenses (in millions) (2) 28.8 28.0 Operating margin 45 % 45 % Average monthly rent 2,501 2,388 V. General and Administrative expenses as a percent of Total Revenues under Management Fourth Quarter 5.6 % 5.3 % Fiscal 2007 5.5 % 5.6 % VI. Consolidated Debt Information (in thousands, except for interest rates) Excludes insurance premium financing Fixed rate debt 189,072 159,439 Variable rate debt, with a cap - 33,000 Variable rate debt, no cap or floor -   4,801   Total debt 189,072   197,240     Fixed rate debt - weighted average rate 6.1 % 6.2 % Variable rate debt - weighted average rate 0.0 % 7.6 % Total debt - weighted average rate 6.1 % 6.5 %   (1) - Financial occupancy represents actual days occupied divided by total number of available days during the month of the quarter. (2) - Excludes management fees, insurance and property taxes. CAPITAL SENIOR LIVING CORPORATION NON-GAAP RECONCILIATIONS       Three Months Ended December 31,   Year Ended December 31, 2007   2006 2007   2006   Adjusted EBITDAR Net income from operations $ 4,698 $ 3,706 $ 16,763 $ 11,667 Depreciation and amortization expense 2,934 2,702 11,295 12,345 Facility lease expense 6,870 5,528 27,054 16,610 Write-off of Hearthstone transaction costs 122 - 122 - Real estate tax adjustments   267     (27 )   107     (107 ) Adjusted EBITDAR $ 14,891   $ 11,909   $ 55,341   $ 40,515     Adjusted EBITDAR Margin Adjusted EBITDAR $ 14,891 $ 11,909 $ 55,341 $ 40,515 Total revenues   48,187     42,970     189,052     159,070   Adjusted EBITDAR margin   30.9 %   27.7 %   29.3 %   25.5 %     Adjusted net income (loss) and net income (loss) per share Net income (loss) $ 1,303 $ 816 $ 4,360 $ (2,600 ) Write-off of Hearthstone transaction costs, net of tax 75 - 75 - Adjustment to normalize tax rate of 38.5% 287 (105 ) 222 442 Real estate tax adjustments, net of tax 164 (17 ) 66 (66 ) Write-off deferred loan costs, net of tax - - 331 1,148 Write-off contract rights costs, net of tax 18 - 18 533 Joint venture noncash charge   -     -     153     -   Adjust net income (loss) $ 1,847   $ 694   $ 5,225   $ (543 )         Adjusted net income (loss) per share $ 0.07   $ 0.03   $ 0.20   $ (0.02 )   Diluted shares outstanding 26,624 26,559 26,637 26,014   Adjusted cash earnings and cash earnings per share Net income (loss) $ 1,303 $ 816 $ 4,360 $ (2,600 ) Depreciation and amortization expense 2,934 2,702 11,295 12,345 Write-off of Hearthstone transaction costs, net of tax 75 - 75 - Adjustment to normalize tax rate of 38.5% 287 (105 ) 222 442 Real estate tax adjustments, net of tax 164 (17 ) 66 (66 ) Write-off deferred loan costs, net of tax - - 331 1,148 Write-off contract rights costs, net of tax 18 - 18 533 Joint venture noncash charge   -     -     153     -   Adjusted cash earnings $ 4,781   $ 3,396   $ 16,520   $ 11,802           Adjusted cash earnings per share $ 0.18   $ 0.13   $ 0.62   $ 0.45     Diluted shares outstanding 26,624 26,559 26,637 26,014   Adjusted pretax income (loss) Pretax income (loss) as reported $ 2,586 $ 1,156 $ 7,450 $ (3,509 ) Write-off of Hearthstone transaction costs 122 - 122 - Real estate tax adjustments 267 (27 ) 107 (107 ) Write-off deferred loan costs - - 538 1,867 Write-off contract rights costs 30 - 30 866 Joint venture noncash charge   -     -     248     -   Adjusted pretax income (loss) $ 3,005   $ 1,129   $ 8,495   $ (883 )