e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended December 31,
2010
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file
number: 1-13445
Capital Senior Living
Corporation
(Exact name of registrant as
specified in its charter)
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Delaware
(State or other jurisdiction
of
incorporation or organization)
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75-2678809
(I.R.S. Employer
Identification No.)
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14160 Dallas Parkway, Suite 300
Dallas, Texas
(Address of principal
executive offices)
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75254
(Zip
Code)
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Registrants telephone number, including area code:
(972) 770-5600
Securities registered pursuant to Section 12(b) of the
Act:
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Name of each exchange
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Title of each class
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on which registered
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Common Stock, $.01 par value
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by a check mark if the registrant is a well-known
seasoned issuer, as defined by Rule 405 of the Securities
Act. Yes o No þ
Indicate by a check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d)
of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by a check mark whether the registrant is a shell
company (as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the 26,161,412 shares of the
Registrants common stock, par value $0.01 per share
(Common Stock), held by non-affiliates (defined to
exclude all of the Registrants executive officers and directors)
on December 31, 2010, based upon the closing price of the
Registrants Common Stock as reported by the New York Stock
Exchange on June 30, 2010, was approximately
$130.0 million. As of February 28, 2011, the
Registrant had 27,151,919 shares of Common Stock
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Registrants definitive proxy statement
pertaining to its 2011 Annual Meeting of Stockholders and filed
or to be filed not later than 120 days after the end of the
fiscal year pursuant to Regulation 14A are incorporated
herein by reference into Part III of this report.
CAPITAL
SENIOR LIVING CORPORATION
TABLE OF
CONTENTS
1
PART I
Overview
Capital Senior Living Corporation, a Delaware corporation
(together with its subsidiaries, the Company), is
one of the largest operators of senior living communities in the
United States in terms of resident capacity. The Company and its
predecessors have provided senior living services since 1990. As
of December 31, 2010, the Company operated 77 senior living
communities in 23 states with an aggregate capacity of
approximately 11,000 residents, including 32 senior living
communities which the Company either owned or in which the
Company had an ownership interest and 45 senior living
communities that the Company leased. As of December 31,
2010, the Company also operated one home care agency. During
2010, approximately 95% of total revenues for the senior living
communities operated by the Company were derived from private
pay sources.
The Companys operating strategy is to provide quality
senior living communities and services to its residents, while
achieving and sustaining a strong, competitive position within
its chosen markets, as well as to continue to enhance the
performance of its operations. The Company provides senior
living services to the elderly, including independent living,
assisted living, skilled nursing and home care services. Many of
the Companys communities offer a continuum of care to meet
its residents needs as they change over time. This
continuum of care, which integrates independent living and
assisted living and is bridged by home care through independent
home care agencies or the Companys home care agency,
sustains residents autonomy and independence based on
their physical and mental abilities.
Website
The Companys Internet website www.capitalsenior.com
contains an Investor Relations section, which provides links to
the Companys annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
proxy statements, Section 16 filings and amendments to
those reports and filings, which reports and filings are
available through the Companys Internet website free of
charge as soon as reasonably practicable after such material is
electronically filed with or furnished to the Securities and
Exchange Commission (SEC).
Industry
Background
The senior living industry encompasses a broad and diverse range
of living accommodations and supportive services that are
provided primarily to persons 75 years of age or older.
For the elderly who require limited services, independent living
residences supplemented at times by home health care, offers a
viable option. Most independent living communities typically
offer community living packaged with basic services consisting
of meals, housekeeping, laundry,
24-hour
staffing, transportation, social and recreational activities and
health care monitoring. Independent living residents typically
are not reliant on assistance with activities of daily living
(ADLs) although some residents may contract
out for those services.
As a seniors need for assistance increases, care in an
assisted living residence is often preferable and more
cost-effective than home-based care or nursing home care.
Typically, assisted living represents a combination of housing
and support services designed to aid elderly residents with
ADLs such as ambulation, bathing, dressing, eating,
grooming, personal hygiene and monitoring or assistance with
medications. Certain assisted living residences may also provide
assistance to residents with low acuity medical needs, or may
offer higher levels of personal assistance for incontinent
residents or residents with Alzheimers disease or other
cognitive or physical frailties. Generally, assisted living
residents require higher levels of care than residents of
independent living residences and retirement living centers, but
require lower levels of care than patients in skilled nursing
facilities. For seniors who need the constant attention of a
skilled nurse or medical practitioner, a skilled nursing
facility may be required.
According to the American Seniors Housing Association Seniors
Housing Construction Trends Report for 2010, 14% of the senior
housing supply in the 100 largest metropolitan areas of the
United States are assisted living
2
units, 19% are independent living units, 44% are nursing care
beds, 3% are memory care units and 20% relate to age restricted
senior apartments.
The senior living industry is highly fragmented and
characterized by numerous small operators. Moreover, the scope
of senior living services varies substantially from one operator
to another. Many smaller senior living providers do not operate
purpose-built residences, do not have extensive professional
training for staff and provide only limited assistance with
ADLs. The Company believes that many senior living operators do
not provide the required comprehensive range of senior living
services designed to permit residents to age in
place within the community as residents develop further
physical or cognitive frailties.
The Company believes that a number of demographic, regulatory
and other trends will contribute to the continued growth in the
senior living market, including the following:
Consumer
Preference
The Company believes that senior living communities are
increasingly becoming the setting preferred by prospective
residents and their families for the care of the elderly. Senior
living offers residents greater independence and allows them to
age in place in a residential setting, which the
Company believes results in a higher quality of life than that
experienced in more institutional or clinical settings.
The likelihood of living alone increases with age. Most of this
increase is due to an aging population in which women outlive
men. Societal changes, such as high divorce rates and the
growing numbers of persons choosing not to marry, have further
increased the number of Americans living alone. This growth in
the number of elderly living alone has resulted in an increased
demand for services that historically have been provided by a
spouse, other family members or live-in caregivers.
Demographics
According to the American Seniors Housing Association Seniors
Housing Construction Trends Report for 2010, the largest 100
metropolitan areas contain approximately 66% of the total United
States population, 62% of the age 65+ population, and 61%
of the age 75+ population, based on the most recent
population projections from the United States Census Bureau. As
the number of persons aged 75 and over continues to grow, the
Company believes that there will be corresponding increases in
the number of persons who need assistance with ADLs.
Senior
Affluence
The average net worth of senior citizens is typically higher
than non-senior citizens, partially as a result of accumulated
equity through home ownership. The Company believes that a
substantial portion of the senior population has historically
accumulated significant resources available for their retirement
and long-term care needs. The Companys target population
is comprised of moderate to upper income seniors who have,
either directly or indirectly through familial support, the
financial resources to pay for senior living communities,
including an assisted living alternative to traditional
long-term care. However, recent volatility and downturns in the
housing, financial, and credit markets could negatively affect
the ability of senior citizens to relocate into our communities,
or the time at which they choose to do so, which could have a
significant impact on our business, financial condition, cash
flows, and results of operations.
Reduced
Reliance on Family Care
Historically, the family has been the primary provider of care
for seniors. The Company believes that the increase in the
percentage of women in the work force, the reduction of average
family size, and overall increased mobility in society is
reducing the role of the family as the traditional caregiver for
aging parents. The Company believes that these factors will make
it necessary for many seniors to look outside the family for
assistance as they age.
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Restricted
Supply of Nursing Beds
Several states in the United States have adopted Certificate of
Need (CON) or similar statutes generally requiring
that, prior to the addition of new skilled nursing beds, the
addition of new services, or the making of certain capital
expenditures, a state agency must determine that a need exists
for the new beds or the proposed activities. The Company
believes that this CON process tends to restrict the supply and
availability of licensed nursing facility beds. High
construction costs, limitations on government reimbursement for
the full costs of construction, and
start-up
expenses also act to constrain growth in the supply of such
facilities. At the same time, nursing facility operators are
continuing to focus on improving occupancy and expanding
services to subacute patients generally of a younger age and
requiring significantly higher levels of nursing care. As a
result, the Company believes that there has been a decrease in
the number of skilled nursing beds available to patients with
lower acuity levels and that this trend should increase the
demand for the Companys senior living communities,
including, particularly, the Companys assisted living
communities.
Cost-Containment
Pressures
In response to rapidly rising health care costs, governmental
and private pay sources have adopted cost containment measures
that have reduced admissions and encouraged reduced lengths of
stays in hospitals and other acute care settings. The federal
government had previously acted to curtail increases in health
care costs under Medicare by limiting acute care hospital
reimbursement for specific services to pre-established fixed
amounts. Private insurers have begun to limit reimbursement for
medical services in general to predetermined charges, and
managed care organizations (such as health maintenance
organizations) are attempting to limit hospitalization costs by
negotiating for discounted rates for hospital and acute care
services and by monitoring and reducing hospital use. In
response, hospitals are discharging patients earlier and
referring elderly patients, who may be too sick or frail to
manage their lives without assistance, to nursing homes and
assisted living residences where the cost of providing care is
typically lower than hospital care. In addition, third-party
payors are increasingly becoming involved in determining the
appropriate health care settings for their insureds or clients,
based primarily on cost and quality of care. Based on industry
data, the typical day-rate in an assisted living facility is
two-thirds of the cost for comparable care in a nursing home.
Operating
Strategy
The Companys operating strategy is to provide quality
senior living services to its residents while achieving and
sustaining a strong, competitive position within its chosen
markets, as well as continuing to enhance the performance of its
operations. The Company is implementing its operating strategy
principally through the following methods:
Provide
a Broad Range of Quality Personalized Care
Central to the Companys operating strategy is its focus on
providing quality care and services that are personalized and
tailored to meet the individual needs of each community
resident. The Companys residences and services are
designed to provide a broad range of care that permits residents
to age in place as their needs change and as they
develop further physical or cognitive frailties. By creating an
environment that maximizes resident autonomy and provides
individualized service programs, the Company seeks to attract
seniors at an earlier stage, before they need the higher level
of care provided in a skilled nursing facility. The Company also
maintains a comprehensive quality assurance program designed to
ensure the satisfaction of its residents and their family
members. The Company conducts annual resident satisfaction
surveys that allow residents at each community to express
whether they are very satisfied,
satisfied or dissatisfied with all major
areas of a community, including, housekeeping, maintenance,
activities and transportation, food service, security and
management. In both 2010 and 2009, the Company achieved 95%
overall approval ratings from the residents satisfaction
surveys.
Offer
Services Across a Range of Pricing Options
The Companys range of products and services is continually
expanding to meet the evolving needs of its residents. The
Company has developed a menu of products and service programs
that may be further customized to
4
serve both the moderate and upper income markets of a particular
targeted geographic area. By offering a range of pricing options
that are customized for each target market, the Company believes
that it can develop synergies, economies of scale and operating
efficiencies in its efforts to serve a larger percentage of the
elderly population within a particular geographic market.
Improve
Occupancy Rates
The Company continually seeks to maintain and improve occupancy
rates by: (i) retaining residents as they age in
place by extending optional care and service programs;
(ii) attracting new residents through the
on-site
marketing programs focused on residents and family members;
(iii) selecting communities in underserved markets;
(iv) aggressively seeking referrals from professional
community outreach sources, including area religious
organizations, senior social service programs, civic and
business networks, as well as the medical community; and
(v) continually refurbishing and renovating its communities.
Improve
Operating Efficiencies
The Company seeks to improve operating efficiencies at its
communities by actively monitoring and managing operating costs.
By having an established national portfolio of communities with
regional management in place, the Company believes it has
established a platform to achieve operating efficiencies through
economies of scale in the purchase of bulk items, such as food
and supplies and in the spreading of fixed costs, such as
corporate overhead, over a larger revenue base, and to provide
more effective management supervision and financial controls.
The Companys growth strategy includes regional clustering
of new communities to achieve further efficiencies.
Emphasize
Employee Training and Retention
The Company devotes special attention to the hiring, screening,
training, supervising and retention of its employees and
caregivers to ensure that quality standards are achieved. In
addition to normal
on-site
training, the Company conducts national management meetings and
encourages sharing of expertise among managers. The
Companys commitment to the total quality management
concept is emphasized throughout its training program. This
commitment to the total quality management concept means
identification of the best practices in the senior
living market and communication of those best
practices to the Companys executive directors and
their staff. The identification of best practices is realized by
a number of means, including: emphasis on regional and executive
directors keeping up with professional trade journals;
interaction with other professionals and consultants in the
senior living industry through seminars, conferences and
consultations; visits to other properties; leadership and
participation at national and local trade organization events;
and information derived from marketing studies and resident
satisfaction surveys. This information is continually processed
by regional managers and the executive directors and
communicated to the Companys employees as part of their
training. The Company hires an executive director for each of
its communities and provides them with autonomy, responsibility
and accountability. The Companys staffing of each
community with an executive director allows it to hire more
professional employees at these positions, while the
Companys developed career path helps it to retain the
professionals it hires. The Company believes its commitment to
and emphasis on employee training and retention differentiates
the Company from many of its competitors.
Senior
Living Services
The Company provides senior living services to the elderly,
including independent living, assisted living, skilled nursing
and home care services. By offering a variety of services and
encouraging the active participation of the resident and the
residents family and medical consultants, the Company is
able to customize its service plan to meet the specific needs
and desires of each resident. As a result, the Company believes
that it is able to maximize customer satisfaction and avoid the
high cost of delivering unnecessary services to residents.
The Companys operating philosophy is to provide quality
living communities and services to senior citizens and deliver a
continuum of care for its residents as their needs change over
time. This continuum of care, which integrates independent
living and assisted living and is bridged by home care, sustains
residents autonomy and independence based on their
physical and mental abilities. As residents age, in many of the
Companys
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communities, they are able to obtain the additional needed
services within the same community, avoiding the disruptive and
often traumatic move to a different facility.
Independent
Living Services
The Company provides independent living services to seniors who
typically do not yet need assistance or support with ADLs, but
who prefer the physical and psychological comfort of a
residential community that offers health care and other
services. As of December 31, 2010, the Company had
ownership interests in 30 communities and leased 14 communities
that provide independent living services, which include
communities that combine assisted living services, with an
aggregate capacity for approximately 6,600 residents.
Independent living services provided by the Company include
daily meals, transportation, social and recreational activities,
laundry, housekeeping and
24-hour
staffing. The Company also fosters the wellness of its residents
by offering access to health screenings (such as blood pressure
checks), periodic special services (such as influenza
inoculations), dietary and similar programs, as well as ongoing
exercise and fitness classes. Classes are given by health care
professionals to keep residents informed about health and
disease management. Subject to applicable government regulation,
personal care and medical services are available to independent
living residents through either the community staff or through
the Companys agency or other independent home care
agencies. The Companys independent living residents pay a
fee ranging from $1,350 to $4,560 per month, in general,
depending on the specific community, program of services, size
of the unit and amenities offered. The Companys contracts
with its independent living residents are generally for a term
of one year and are typically terminable by either party, under
certain circumstances, upon 30 days notice.
Assisted
Living Services
The Company offers a wide range of assisted living care and
services, including personal care services, 24 hour
staffing, support services, and supplemental services. As of
December 31, 2010, the Company had ownership interests in
11 communities and leased 36 communities that provide assisted
living services, which include communities that combine
independent living and other services, with an aggregate
capacity for approximately 3,700 residents. The residents of the
Companys assisted living residences generally need help
with some or all ADLs, but do not require the more acute medical
care traditionally given in nursing homes. Upon admission to the
Companys assisted living communities, and in consultation
with the resident, the residents family and medical
consultants, each resident is assessed to determine his or her
health status, including functional abilities and need for
personal care services. The resident also completes a lifestyles
assessment to determine the residents preferences. From
these assessments, a care plan is developed for each resident to
ensure that all staff members who render care meet the specific
needs and preferences of each resident where possible. Each
residents care plan is reviewed periodically to determine
when a change in care is needed.
The Company has adopted a philosophy of assisted living care
that allows a resident to maintain a dignified independent
lifestyle. Residents and their families are encouraged to be
partners in the residents care and to take as much
responsibility for their well being as possible. The basic types
of assisted living services offered by the Company include the
following:
Personal Care Services. These services include
assistance with ADLs such as ambulation, bathing, dressing,
eating, grooming, personal hygiene, and monitoring or assistance
with medications.
Support Services. These services include
meals, assistance with social and recreational activities,
laundry services, general housekeeping, maintenance services and
transportation services.
Supplemental Services. These services include
extra transportation services, personal maintenance, extra
laundry services, and special care services, such as services
for residents with certain forms of dementia. Certain of these
services require extra charges.
The Companys assisted living residents pay a fee ranging
from $1,550 to $7,175 per month, in general, depending on the
specific community, the level of personal care services, support
service and supplemental services provided to the resident, size
of the unit and amenities offered. The Companys contracts
with its assisted living
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residents are generally for a term of one year and are typically
terminable by either party, under certain circumstances, upon
30 days notice.
The Company maintains programs and special units at some of its
assisted living communities for residents with certain forms of
dementia, which provide the attention, care and services needed
to help those residents maintain a higher quality of life.
Specialized services include assistance with ADLs, behavior
management and life skills based activities programs, the goal
of which is to provide a normalized environment that supports
residents remaining functional abilities. Whenever
possible, residents assist with meals, laundry and housekeeping.
Special units for residents with certain forms of dementia are
located in a separate area of the community and have their own
dining facilities, resident lounge areas, and specially trained
staff. The special care areas are designed to allow residents
the freedom to ambulate as they wish, while keeping them safely
contained within a secure area with a minimum of disruption to
other residents. Resident fees for these special units are
dependent on the size of the unit, the design type and the level
of services provided.
Continuing
Care Retirement Community Services
The Companys continuing care retirement communities are
senior living rental properties where the Company provides
traditional long-term care through
24-hour-per-day
skilled nursing care by registered nurses, licensed practical
nurses and certified nursing assistants as well as assisted
living and independent living care. The Company also offers a
comprehensive range of restorative nursing and rehabilitation
services in its communities including, but not limited to,
physical, occupational, speech and medical social services. The
Companys residents receiving skilled nursing services pay
fees ranging from $3,630 to $7,500 per month, in general,
depending on the specific community and the level of care
provided. As of December 31, 2010, the Company had
ownership interests in one community and leased one community
providing a continuum of care services with an aggregate
capacity for approximately 700 residents at all levels of care
at those two communities.
Home
Care Services
As of December 31, 2010, the Company provided home care
services to clients at one senior living community through the
Companys home care agency and made home care services
available to clients at a majority of its senior living
communities through third-party providers. The Company believes
that the provision of private pay, home care services is an
attractive adjunct to its independent living services because it
allows the Company to provide more services to its residents as
they age in place and increases the length of stay in the
Companys communities. In addition, the Company makes
available to residents certain customized physician, dentistry,
podiatry and other health-related services that may be offered
by third-party providers.
Operating
Communities
The table below sets forth certain information with respect to
senior living communities operated by the Company as of
December 31, 2010.
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Resident Capacity(1)
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Commencement
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Community
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Units
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IL
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AL
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CCRC
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Total
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Ownership(2)
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of Operations(3)
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Owned:
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Canton Regency
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Canton, OH
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291
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357
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357
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100
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%
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03/91
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Gramercy Hill
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Lincoln, NE
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146
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62
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103
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165
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100
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%
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10/98
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Heatherwood
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Detroit, MI
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158
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185
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185
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100
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%
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01/92
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Independence Village
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East Lansing, MI
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151
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161
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161
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100
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%
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08/00
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Independence Village
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Peoria, IL
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158
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166
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166
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100
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%
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08/00
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Independence Village
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Raleigh, NC
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165
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177
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177
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100
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%
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08/00
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Independence Village
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Winston-Salem, NC
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156
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161
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161
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100
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%
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08/00
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Sedgwick Plaza
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Wichita, KS
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144
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134
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35
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169
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100
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%
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08/00
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Waterford at Columbia
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Columbia, SC
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120
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141
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141
|
|
|
|
100
|
%
|
|
|
11/00
|
|
Waterford at Deer Park
|
|
Deer Park, TX
|
|
|
120
|
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
144
|
|
|
|
100
|
%
|
|
|
11/00
|
|
Waterford at Edison Lakes
|
|
South Bend, IN
|
|
|
120
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
141
|
|
|
|
100
|
%
|
|
|
12/00
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resident Capacity(1)
|
|
|
|
|
|
Commencement
|
|
Community
|
|
|
|
Units
|
|
|
IL
|
|
|
AL
|
|
|
CCRC
|
|
|
Total
|
|
|
Ownership(2)
|
|
|
of Operations(3)
|
|
|
Waterford at Fairfield
|
|
Fairfield, OH
|
|
|
120
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
140
|
|
|
|
100
|
%
|
|
|
11/00
|
|
Waterford at Fort Worth
|
|
Fort Worth, TX
|
|
|
151
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
176
|
|
|
|
100
|
%
|
|
|
06/00
|
|
Waterford at Highland Colony
|
|
Jackson, MS
|
|
|
120
|
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
143
|
|
|
|
100
|
%
|
|
|
11/00
|
|
Waterford at Huebner
|
|
San Antonio, TX
|
|
|
120
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
135
|
|
|
|
100
|
%
|
|
|
04/99
|
|
Waterford at Ironbridge
|
|
Springfield, MO
|
|
|
119
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
142
|
|
|
|
100
|
%
|
|
|
06/01
|
|
Waterford at Mansfield
|
|
Mansfield, OH
|
|
|
119
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
|
142
|
|
|
|
100
|
%
|
|
|
10/00
|
|
Waterford at Mesquite
|
|
Mesquite, TX
|
|
|
154
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
176
|
|
|
|
100
|
%
|
|
|
09/99
|
|
Waterford at Pantego
|
|
Pantego, TX
|
|
|
120
|
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
143
|
|
|
|
100
|
%
|
|
|
12/00
|
|
Waterford at Plano
|
|
Plano, TX
|
|
|
136
|
|
|
|
109
|
|
|
|
57
|
|
|
|
|
|
|
|
166
|
|
|
|
100
|
%
|
|
|
12/00
|
|
Waterford at Shreveport
|
|
Shreveport, LA
|
|
|
117
|
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
136
|
|
|
|
100
|
%
|
|
|
03/99
|
|
Waterford at Thousand Oaks
|
|
San Antonio, TX
|
|
|
120
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
135
|
|
|
|
100
|
%
|
|
|
05/00
|
|
Wellington at Arapaho
|
|
Richardson, TX
|
|
|
137
|
|
|
|
112
|
|
|
|
57
|
|
|
|
|
|
|
|
169
|
|
|
|
100
|
%
|
|
|
05/02
|
|
Wellington at North Richland Hills, TX
|
|
North Richland Hills, TX
|
|
|
119
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
139
|
|
|
|
100
|
%
|
|
|
01/02
|
|
Wellington at Oklahoma City
|
|
Oklahoma City, OK
|
|
|
120
|
|
|
|
143
|
|
|
|
|
|
|
|
|
|
|
|
143
|
|
|
|
100
|
%
|
|
|
11/00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,501
|
|
|
|
3,443
|
|
|
|
252
|
|
|
|
357
|
|
|
|
4,052
|
|
|
|
|
|
|
|
|
|
Leased:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ventas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amberleigh
|
|
Buffalo, NY
|
|
|
267
|
|
|
|
387
|
|
|
|
|
|
|
|
|
|
|
|
387
|
|
|
|
N/A
|
|
|
|
01/92
|
|
Cottonwood Village
|
|
Cottonwood, AZ
|
|
|
163
|
|
|
|
131
|
|
|
|
58
|
|
|
|
|
|
|
|
189
|
|
|
|
N/A
|
|
|
|
03/91
|
|
Crown Pointe
|
|
Omaha, NE
|
|
|
134
|
|
|
|
139
|
|
|
|
26
|
|
|
|
|
|
|
|
165
|
|
|
|
N/A
|
|
|
|
08/00
|
|
Georgetowne Place
|
|
Fort Wayne, IN
|
|
|
162
|
|
|
|
242
|
|
|
|
|
|
|
|
|
|
|
|
242
|
|
|
|
N/A
|
|
|
|
10/05
|
|
Harrison at Eagle
Valley4
|
|
Indianapolis, IN
|
|
|
124
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
138
|
|
|
|
N/A
|
|
|
|
03/91
|
|
Rose Arbor
|
|
Maple Grove, MN
|
|
|
137
|
|
|
|
86
|
|
|
|
87
|
|
|
|
|
|
|
|
173
|
|
|
|
N/A
|
|
|
|
06/06
|
|
Towne Centre
|
|
Merrillville, IN
|
|
|
327
|
|
|
|
|
|
|
|
|
|
|
|
358
|
|
|
|
358
|
|
|
|
N/A
|
|
|
|
03/91
|
|
Villa Santa Barbara
|
|
Santa Barbara, CA
|
|
|
126
|
|
|
|
64
|
|
|
|
62
|
|
|
|
|
|
|
|
126
|
|
|
|
N/A
|
|
|
|
08/00
|
|
West Shores
|
|
Hot Springs, AR
|
|
|
137
|
|
|
|
131
|
|
|
|
42
|
|
|
|
|
|
|
|
173
|
|
|
|
N/A
|
|
|
|
08/00
|
|
Whitley Place
|
|
Keller, TX
|
|
|
47
|
|
|
|
|
|
|
|
65
|
|
|
|
|
|
|
|
65
|
|
|
|
N/A
|
|
|
|
02/08
|
|
HCN:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Waterford at Ames
|
|
Ames, IA
|
|
|
59
|
|
|
|
|
|
|
|
122
|
|
|
|
|
|
|
|
122
|
|
|
|
N/A
|
|
|
|
02/06
|
|
The Waterford at Miracle Hills
|
|
Omaha, NE
|
|
|
64
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
70
|
|
|
|
N/A
|
|
|
|
03/06
|
|
The Waterford at Roxbury Park
|
|
Omaha, NE
|
|
|
62
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
70
|
|
|
|
N/A
|
|
|
|
02/06
|
|
The Waterford at Van Dorn
|
|
Lincoln, NE
|
|
|
68
|
|
|
|
|
|
|
|
84
|
|
|
|
|
|
|
|
84
|
|
|
|
N/A
|
|
|
|
02/06
|
|
The Waterford at Woodbridge
|
|
Plattsmouth, NE
|
|
|
40
|
|
|
|
|
|
|
|
45
|
|
|
|
|
|
|
|
45
|
|
|
|
N/A
|
|
|
|
02/06
|
|
Keepsake Village of Columbus
|
|
Columbus, IN
|
|
|
42
|
|
|
|
|
|
|
|
48
|
|
|
|
|
|
|
|
48
|
|
|
|
N/A
|
|
|
|
08/06
|
|
The Hearth at Prestwick
|
|
Avon, IN
|
|
|
132
|
|
|
|
|
|
|
|
150
|
|
|
|
|
|
|
|
150
|
|
|
|
N/A
|
|
|
|
08/06
|
|
The Hearth at Windermere
|
|
Fishers, IN
|
|
|
126
|
|
|
|
|
|
|
|
150
|
|
|
|
|
|
|
|
150
|
|
|
|
N/A
|
|
|
|
08/06
|
|
Spring Lake
|
|
Paris, TX
|
|
|
52
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
70
|
|
|
|
N/A
|
|
|
|
09/10
|
|
Pecan Point
|
|
Sherman, TX
|
|
|
52
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
70
|
|
|
|
N/A
|
|
|
|
09/10
|
|
Santa Fe Trails
|
|
Cleburne, TX
|
|
|
52
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
70
|
|
|
|
N/A
|
|
|
|
09/10
|
|
Walnut Creek
|
|
Mansfield, TX
|
|
|
52
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
70
|
|
|
|
N/A
|
|
|
|
09/10
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resident Capacity(1)
|
|
|
|
|
|
Commencement
|
|
Community
|
|
|
|
Units
|
|
|
IL
|
|
|
AL
|
|
|
CCRC
|
|
|
Total
|
|
|
Ownership(2)
|
|
|
of Operations(3)
|
|
|
Martin Crest
|
|
Weatherford, TX
|
|
|
52
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
70
|
|
|
|
N/A
|
|
|
|
09/10
|
|
Azalea Trails
|
|
Tyler, TX
|
|
|
52
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
70
|
|
|
|
N/A
|
|
|
|
09/10
|
|
Hawkins Creek
|
|
Longview, TX
|
|
|
52
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
70
|
|
|
|
N/A
|
|
|
|
09/10
|
|
Magnolia Court
|
|
Nacogdoches, TX
|
|
|
52
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
70
|
|
|
|
N/A
|
|
|
|
09/10
|
|
Buffalo Creek
|
|
Waxahachie, TX
|
|
|
52
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
70
|
|
|
|
N/A
|
|
|
|
09/10
|
|
Dogwood Trails
|
|
Palestine, TX
|
|
|
61
|
|
|
|
|
|
|
|
72
|
|
|
|
|
|
|
|
72
|
|
|
|
N/A
|
|
|
|
09/10
|
|
Stonefield
|
|
McKinney, TX
|
|
|
74
|
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
90
|
|
|
|
N/A
|
|
|
|
09/10
|
|
Heritage Oaks
|
|
Conroe, TX
|
|
|
74
|
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
90
|
|
|
|
N/A
|
|
|
|
09/10
|
|
HCP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atrium of Carmichael
|
|
Sacramento, CA
|
|
|
152
|
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
|
155
|
|
|
|
N/A
|
|
|
|
01/92
|
|
Covenant Place of Abilene
|
|
Abilene, TX
|
|
|
50
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
55
|
|
|
|
N/A
|
|
|
|
08/04
|
|
Covenant Place of Burleson
|
|
Burleson, TX
|
|
|
74
|
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
80
|
|
|
|
N/A
|
|
|
|
08/04
|
|
Covenant Place of Waxahachie
|
|
Waxahachie, TX
|
|
|
50
|
|
|
|
|
|
|
|
55
|
|
|
|
|
|
|
|
55
|
|
|
|
N/A
|
|
|
|
08/04
|
|
Crescent Place
|
|
Cedar Hill, TX
|
|
|
80
|
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
85
|
|
|
|
N/A
|
|
|
|
11/05
|
|
Crescent Point
|
|
Cedar Hill, TX
|
|
|
112
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
134
|
|
|
|
N/A
|
|
|
|
08/04
|
|
Crosswood Oaks
|
|
Sacramento, CA
|
|
|
121
|
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
127
|
|
|
|
N/A
|
|
|
|
01/92
|
|
Good Place
|
|
North Richland
|
|
|
72
|
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
80
|
|
|
|
N/A
|
|
|
|
08/04
|
|
|
|
Hills, TX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Meadow Lakes
|
|
North Richland
|
|
|
120
|
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
145
|
|
|
|
N/A
|
|
|
|
08/04
|
|
|
|
Hills, TX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tesson Heights
|
|
St. Louis, MO
|
|
|
184
|
|
|
|
134
|
|
|
|
72
|
|
|
|
|
|
|
|
206
|
|
|
|
N/A
|
|
|
|
10/98
|
|
Veranda Club
|
|
Boca Raton, FL
|
|
|
141
|
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
|
182
|
|
|
|
N/A
|
|
|
|
01/92
|
|
Charlotte Square
|
|
Charlotte, NC
|
|
|
73
|
|
|
|
|
|
|
|
125
|
|
|
|
|
|
|
|
125
|
|
|
|
N/A
|
|
|
|
12/06
|
|
Chesapeake Place
|
|
Chesapeake, VA
|
|
|
87
|
|
|
|
|
|
|
|
153
|
|
|
|
|
|
|
|
153
|
|
|
|
N/A
|
|
|
|
12/06
|
|
Greenville Place
|
|
Greenville, SC
|
|
|
87
|
|
|
|
|
|
|
|
153
|
|
|
|
|
|
|
|
153
|
|
|
|
N/A
|
|
|
|
12/06
|
|
Myrtle Beach Estates
|
|
Myrtle Beach, SC
|
|
|
80
|
|
|
|
|
|
|
|
142
|
|
|
|
|
|
|
|
142
|
|
|
|
N/A
|
|
|
|
12/06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,377
|
|
|
|
2,195
|
|
|
|
2,961
|
|
|
|
358
|
|
|
|
5,514
|
|
|
|
|
|
|
|
|
|
Affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHPII/CSL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Libertyville
|
|
Libertyville, IL
|
|
|
197
|
|
|
|
208
|
|
|
|
45
|
|
|
|
|
|
|
|
253
|
|
|
|
5
|
%
|
|
|
03/01
|
|
Naperville
|
|
Naperville, IL
|
|
|
193
|
|
|
|
186
|
|
|
|
45
|
|
|
|
|
|
|
|
231
|
|
|
|
5
|
%
|
|
|
01/01
|
|
Summit
|
|
Summit, NJ
|
|
|
88
|
|
|
|
|
|
|
|
98
|
|
|
|
|
|
|
|
98
|
|
|
|
5
|
%
|
|
|
11/00
|
|
Trumbull
|
|
Trumbull, CT
|
|
|
150
|
|
|
|
136
|
|
|
|
42
|
|
|
|
|
|
|
|
178
|
|
|
|
5
|
%
|
|
|
09/00
|
|
SHPIII/CSL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Levis Commons
|
|
Toledo, OH
|
|
|
146
|
|
|
|
152
|
|
|
|
55
|
|
|
|
|
|
|
|
207
|
|
|
|
10
|
%
|
|
|
04/09
|
|
Miami
|
|
Miamisburg, OH
|
|
|
146
|
|
|
|
150
|
|
|
|
90
|
|
|
|
|
|
|
|
240
|
|
|
|
10
|
%
|
|
|
08/08
|
|
Richmond Heights
|
|
Richmond Heights, OH
|
|
|
141
|
|
|
|
152
|
|
|
|
75
|
|
|
|
|
|
|
|
227
|
|
|
|
10
|
%
|
|
|
04/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,061
|
|
|
|
984
|
|
|
|
450
|
|
|
|
|
|
|
|
1,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
8,939
|
|
|
|
6,622
|
|
|
|
3,663
|
|
|
|
715
|
|
|
|
11,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Independent living (IL) residences, assisted living (AL)
residences and continuing care retirement community (CCRC) beds. |
|
(2) |
|
Those communities shown as 5% owned consist of the
Companys ownership of 5% of the member interests in
SHPII/CSL (as defined below). Those communities shown as 10%
owned consist of the Companys ownership of 10% of the
member interests in SHPIII/CSL (as defined below). |
9
|
|
|
(3) |
|
Indicates the date on which the Company acquired or commenced
operating the community. The Company operated certain of its
communities pursuant to management agreements prior to acquiring
interests in or leasing the communities. |
|
(4) |
|
The Companys home care agency is
on-site at
The Harrison at Eagle Valley community. |
Management
Contracts
The Company was party to a series of property management
agreements (the Midwest I Agreements) to manage five
communities acquired by Midwest Portfolio Holdings, L.P.
(Midwest I), a joint venture owned approximately 89%
by GE Healthcare Financial Services (GE Healthcare)
and approximately 11% by the Company. The Midwest I Agreements
were for an initial term of five years, extended until various
dates through February 2011, and contained automatic one year
renewals thereafter. The Midwest I Agreements generally provided
for a management fee of 5% of gross revenues. On April 16,
2010, Midwest I closed the sale of the Midwest I subsidiaries
that owned the five senior housing communities to Health Care
REIT, Inc. (HCN). Upon closing the sale, the Company
leased the five senior housing communities from HCN. For
additional information, refer to Note 4, Facility
Lease Transactions, in the notes to the consolidated
financial statements.
The Company was party to a series of property management
agreements (the Midwest II Agreements) to
manage three communities acquired by Midwest Portfolio Holdings
II, L.P. (Midwest II), a joint venture owned
approximately 85% by GE Healthcare and approximately 15% by the
Company. The Midwest II Agreements were for an initial term
of five years, extended until various dates through August 2011,
and contained automatic one year renewals thereafter. The
Midwest II Agreements generally provided for a management
fee of 5% of gross revenues. On April 30, 2010,
Midwest II closed the sale of the Midwest II
subsidiaries that owned the three senior housing communities to
HCN. Upon closing the sale, the Company leased the three senior
housing communities from HCN. For additional information, refer
to Note 4, Facility Lease Transactions, in the
notes to the consolidated financial statements.
The Company was party to a series of property management
agreements with CGI Management, Inc. (the CGIM
Agreements) currently expiring in August 2011. The CGIM
Agreements generally provide for management fees of 5% to 6% of
gross revenues, subject to certain base management fees. The
Company managed one community under the CGIM agreements which
the Company terminated during the fourth quarter of fiscal 2010.
The Company no longer manages any communities under the CGIM
Agreements as of December 31, 2010.
The Company is party to a series of property management
agreements (the SHPII/CSL Management Agreements)
with four joint ventures (collectively SHPII/CSL)
owned 95% by Senior Housing Partners II, L.P.
(SHPII), a fund managed by Prudential Real Estate
Investors (Prudential), and 5% by the Company, which
collectively own and operate four senior living communities
(collectively the Spring Meadows Communities). The
SHPII/CSL Management Agreements currently extend until various
dates through November 2014. The SHPII/CSL Management Agreements
generally provide for management fees of 5% of gross revenue
plus reimbursement for costs and expenses related to the
communities. On December 22, 2010, the Company announced
that SHPII entered into an agreement to sell the SHPII
subsidiaries that own the four senior living communities to HCN.
As a condition to closing of the sale to HCN, the Company will
enter into long term leases of the senior living communities.
The Company is party to a series of property management
agreements (the SHPIII/CSL Management Agreements)
with three joint ventures (collectively SHPIII/CSL)
owned 90% by Senior Housing Partners III, L.P.
(SHPIII), a fund managed by Prudential Investment
Management, Inc. (Prudential Investment) and 10% by
the Company, which collectively own and operate three senior
living communities. The SHPIII/CSL Management Agreements are for
initial terms of ten years from the date the certificate of
occupancy was issued and currently extend until various dates
through January 2019. The SHPIII/CSL Management Agreements
generally provide for management fees of 5% of gross revenue
plus reimbursement for costs and expenses related to the
communities.
Development
Agreement Guarantees
In 2007, the Company and SHPIII entered into a series of joint
venture agreements to develop three senior housing communities
located in Ohio. The Company has guaranteed the communities will
be completed and
10
operated at budgeted costs approved by the joint venture
members. These costs include the hard and soft construction
costs and operating costs until each community reaches
breakeven. The budgeted costs include contingency reserves for
potential cost overruns and other unforeseen costs. The terms of
these guarantees generally do not provide for a limitation on
the maximum potential future payments. These joint venture
communities are currently in lease up and one of the joint
ventures had exhausted its lease up reserve under the existing
loan commitment. The Company will be required to fund any
operating deficits until the joint venture reaches breakeven for
three consecutive months. Any amounts funded by the Company
under this commitment, up to $0.5 million, may be
recoverable from the joint venture in the event of liquidation.
As of December 31, 2010, the Company had recognized deficit
charges of approximately $0.4 million under these
development agreement guarantees. The Company does not currently
anticipate funding any deficits in excess of the amounts
estimated to be recoverable from the joint ventures.
Growth
Strategies
The Company believes that the fragmented nature of the senior
living industry and the limited capital resources available to
many small, private operators provide an attractive opportunity
for the Company to expand its existing base of senior living
operations. The Company believes that its current operations
with geographic concentrations throughout the United States
serve as the foundation on which the Company can build senior
living networks in targeted geographic markets and thereby
provide a broad range of high quality care in a cost-efficient
manner.
The following are the principal elements of the Companys
growth strategy:
Organic
Growth
The Company intends to continue to focus on the
lease-up of
its non-stabilized communities and to increase its occupancy,
rents and operating margins of its stabilized communities. The
Company continually seeks to maintain and improve occupancy
rates by: (i) retaining residents as they age in
place by extending optional care and service programs;
(ii) attracting new residents through the
on-site
marketing programs focused on residents and family members;
(iii) aggressively seeking referrals from professional
community outreach sources, including area religious
organizations, senior social service programs, civic and
business networks, as well as the medical community; and
(iv) continually refurbishing and renovating its
communities, including converting existing units to higher
levels of care. Since 2004, our same community revenue has grown
at an average rate of 5.3% per annum and our same community net
operating income has grown at an average rate of 8.7% per annum.
Expansion
and Conversion of Existing Communities
The Company intends to increase levels of care and capacity at
certain of its existing communities through expansion
and/or
conversion of certain units. Increasing our levels of care and
capacity is expected to increase revenue and operating income
while meeting the needs of our residents who have an average age
of 85 years old.
Pursue
Strategic Acquisitions
The Company intends to continue to pursue acquisitions of senior
living communities. Through strategic acquisitions, joint
venture investments, or facility leases, the Company seeks to
acquire communities in existing markets as a means to increase
market share, augment existing clusters, strengthen its ability
to provide a broad range of care, and create operating
efficiencies. As the industry continues to consolidate, the
Company believes that opportunities will arise to acquire other
senior living companies. The Company believes that the current
fragmented nature of the senior living industry, combined with
the Companys financial resources, geographic presence, and
extensive contacts within the industry, can be expected to
provide it with the opportunity to evaluate a number of
potential acquisition opportunities in the future. In reviewing
acquisition opportunities, the Company will consider, among
other things, geographic location, competitive climate,
reputation and quality of management and communities, and the
need for renovation or improvement of the communities.
11
Expand
Referral Networks
The Company intends to continue to develop relationships with
local and regional hospital systems, managed care organizations
and other referral sources to attract new residents to the
Companys communities. In certain circumstances these
relationships may involve strategic alliances or joint ventures.
The Company believes that such arrangements or alliances, which
could range from joint marketing arrangements to priority
transfer agreements, will enable it to be strategically
positioned within the Companys markets if, as the Company
believes, senior living programs become an integral part of the
evolving health care delivery system.
Operations
Centralized
Management
The Company centralizes its corporate and other administrative
functions so that the community-based management and staff can
focus their efforts on resident care. The Company maintains
centralized accounting, finance, human resources, training and
other operational functions at its national corporate office in
Dallas, Texas. The Company also has a corporate office in New
York, New York. The Companys corporate offices are
generally responsible for: (i) establishing Company-wide
policies and procedures relating to, among other things,
resident care and operations; (ii) performing accounting
functions; (iii) developing employee training programs and
materials; (iv) coordinating human resources;
(v) coordinating marketing functions; and
(vi) providing strategic direction. In addition, financing,
development, construction and acquisition activities, including
feasibility and market studies, and community design,
development, and construction management are conducted at the
Companys corporate offices.
The Company seeks to control operational expenses for each of
its communities through standardized management reporting and
centralized controls of capital expenditures, asset replacement
tracking, and purchasing for larger and more frequently used
supplies through a group purchasing program. Community
expenditures are monitored by regional and district managers who
are accountable for the resident satisfaction and financial
performance of the communities in their region.
Regional
Management
The Company provides oversight and support to each of its senior
living communities through experienced regional and district
managers. A district manager will oversee the marketing and
operations of three to six communities clustered in a small
geographic area. A regional manager will cover a larger
geographic area consisting of seven to twelve communities. In
most cases, the district and regional managers will office out
of the Companys senior living communities. Currently,
there are regional managers based in the Eastern, Central
Plains, Midwest, Southwest, Texas and West regions.
The executive director at each community reports to a regional
or district manager. The regional and district managers report
directly to senior management at the Companys corporate
office. The district and regional managers make regular site
visits to each of their communities. The site visits involve a
physical plant inspection, quality assurance review, staff
training, financial and systems audits, regulatory compliance,
and team building.
Community-Based
Management
An executive director manages the
day-to-day
operations at each senior living community, including oversight
of the quality of care, delivery of resident services, and
monitoring of financial performance. The executive director is
also responsible for all personnel, including food service,
maintenance, activities, security, assisted living,
housekeeping, and, where applicable, nursing. In most cases,
each community also has department managers who direct the
environmental services, nursing or care services, business
management functions, dining services, activities,
transportation, housekeeping, and marketing functions.
The assisted living and skilled nursing components of the senior
living communities are managed by licensed professionals, such
as a nurse
and/or a
licensed administrator. These licensed professionals have many
of the same operational responsibilities as the Companys
executive directors, but their primary responsibility is to
oversee resident care. Many of the Companys senior living
communities and all of its skilled nursing facilities are part
of a
12
campus setting, which include independent living. This campus
arrangement allows for cross-utilization of certain support
personnel and services, including administrative functions that
result in greater operational efficiencies and lower costs than
freestanding facilities.
The Company actively recruits personnel to maintain adequate
staffing levels at its existing communities and hires new staff
for new or acquired communities prior to opening. The Company
has adopted comprehensive recruiting and screening programs for
management positions that utilize corporate office team
interviews and thorough background and reference checks. The
Company offers system-wide training and orientation for all of
its employees at the community level through a combination of
Company-sponsored seminars and conferences.
Quality
Assurance
Quality assurance programs are coordinated and implemented by
the Companys corporate and regional staff. The
Companys quality assurance is targeted to achieve maximum
resident and resident family member satisfaction with the care
and services delivered by the Company. The Companys
primary focus in quality control monitoring includes routine
in-service training and performance evaluations of caregivers
and other support employees. Additional quality assurance
measures include:
Resident and Residents Family Input. On
a routine basis, the Company provides residents and their family
members the opportunity to provide valuable input regarding the
day-to-day
delivery of services.
On-site
management at each community has fostered and encouraged active
resident councils and resident committees who meet
independently. These resident bodies meet with
on-site
management on a monthly basis to offer input and suggestions as
to the quality and delivery of services. Additionally, at each
community the Company conducts annual resident satisfaction
surveys to further monitor the satisfaction levels of both
residents and their family members. These surveys are sent
directly to a third party firm for tabulation then to the
Companys corporate headquarters for distribution to onsite
staff. For both 2010 and 2009, the Company achieved 95% approval
ratings from its residents. For any departmental area of service
scoring below a 90%, a plan of correction is developed jointly
by on-site,
regional and corporate staff for immediate implementation.
Regular Community Inspections. Each community
is inspected, on at least a quarterly basis, by regional
and/or
corporate staff. Included as part of this inspection is the
monitoring of the overall appearance and maintenance of the
community interiors and grounds. The inspection also includes
monitoring staff professionalism and departmental reviews of
maintenance, housekeeping, activities, transportation,
marketing, administration and food and health care services, if
applicable. The inspections also include observing residents in
their daily activities and the communitys compliance with
government regulations.
Independent Service Evaluations. The Company
engages the services of outside professional independent
consulting firms to evaluate various components of the community
operations. These services include mystery shops, competing
community analysis, pricing recommendations and product
positioning. This provides management with valuable unbiased
product and service information. A plan of action regarding any
areas requiring improvement or change is implemented based on
information received. At communities where health care is
delivered, these consulting service reviews include the
on-site
handling of medications, record keeping and general compliance
with all governmental regulations.
Marketing
Most communities are staffed by
on-site
sales directors and additional marketing/sales staff depending
on the community size and occupancy status. The primary focus of
the on-site
marketing staff is to create awareness of the Company and its
services among prospective residents and family members,
professional referral sources and other key decision makers.
These efforts incorporate an aggressive marketing plan to
include monthly, quarterly and annual goals for leasing, new
lead generation, prospect follow up, community outreach and
resident and family referrals. Additionally, the marketing plan
includes a calendar of promotional events and a comprehensive
media program.
On-site
marketing departments perform a competing community assessment
quarterly. Corporate and regional marketing directors monitor
the on-site
marketing departments effectiveness and productivity on a
monthly basis. Routine detailed marketing department audits are
performed on an annual basis or more frequently if deemed
necessary. Corporate and regional personnel assist in the
development of marketing strategies for each
13
community and produce creative media, assist in direct mail
programs and necessary marketing collateral. Ongoing sales
training of
on-site
marketing/sales staff is implemented by corporate and regional
marketing directors.
In the case of new development, the corporate and regional staff
develops a comprehensive community outreach program that is
implemented at the start of construction. A marketing pre-lease
program is developed and
on-site
marketing staff are hired and trained to begin the program
implementation six to nine months prior to the community
opening. Extensive use of media, including radio, television,
print, direct mail and telemarketing, is implemented during this
pre-lease phase.
After the community is opened and sustaining occupancy levels
are attained, the
on-site
marketing staff is more heavily focused on resident and resident
family referrals, as well as professional referrals. A
maintenance program for continued lead generation is then
implemented.
Government
Regulation
Changes in existing laws and regulations, adoption of new laws
and regulations and new interpretations of existing laws and
regulations could have a material effect on the Companys
operations. Failure by the Company to comply with applicable
regulatory requirements could have a material adverse effect on
the Companys business, financial condition, cash flows,
and results of operations. Accordingly, the Company monitors
legal and regulatory developments on local and national levels.
The health care industry is subject to extensive regulation and
frequent regulatory change. At this time, no federal laws or
regulations specifically regulate assisted or independent living
residences. While a number of states have not yet enacted
specific assisted living regulations, certain of the
Companys assisted living communities are subject to
regulation, licensing, CON and permitting by state and local
health care and social service agencies and other regulatory
authorities. While such requirements vary from state to state,
they typically relate to staffing, physical design, required
services and resident characteristics. The Company believes that
such regulation will increase in the future. In addition, health
care providers are receiving increased scrutiny under anti-trust
laws as integration and consolidation of health care delivery
increases and affects competition. The Companys
communities are also subject to various zoning restrictions,
local building codes, and other ordinances, such as fire safety
codes. Failure by the Company to comply with applicable
regulatory requirements could have a material adverse effect on
the Companys business, financial condition, and results of
operations. Regulation of the assisted living industry is
evolving. The Company is unable to predict the content of new
regulations and their effect on its business. There can be no
assurance that the Companys operations will not be
adversely affected by regulatory developments.
The Company believes that its communities are in substantial
compliance with applicable regulatory requirements. However, in
the ordinary course of business, one or more of the
Companys communities could be cited for deficiencies. In
such cases, the appropriate corrective action would be taken. To
the Companys knowledge, no material regulatory actions are
currently pending with respect to any of the Companys
communities.
Under the Americans with Disabilities Act of 1990
(ADA), all places of public accommodation are
required to meet certain federal requirements related to access
and use by disabled persons. A number of additional federal,
state and local laws exist that also may require modifications
to existing and planned properties to permit access to the
properties by disabled persons. While the Company believes that
its communities are substantially in compliance with present
requirements or are exempt therefrom, if required changes
involve a greater expenditure than anticipated or must be made
on a more accelerated basis than anticipated, additional costs
would be incurred by the Company. Further legislation may impose
additional burdens or restrictions with respect to access by
disabled persons, the costs of compliance with which could be
substantial.
The Health Insurance Portability and Accountability Act of 1996
(HIPAA), in conjunction with the federal regulations
promulgated thereunder by the Department of Health and Human
Services, has established, among other requirements, standards
governing the privacy of certain protected and individually
identifiable health information (PHI) that is
created, received or maintained by a range of covered entities.
HIPAA has also established standards governing uniform health
care transactions, the codes and identifiers to be used by the
covered entities and standards governing the security of certain
electronic transactions conducted by covered entities.
14
Penalties for violations can range from civil money penalties
for errors and negligent acts to criminal fines and imprisonment
for knowing and intentional misconduct. HIPAA is a complex set
of regulations and many unanswered questions remain with respect
to the manner in which HIPAA applies to businesses such as those
operated by the Company.
In addition, the Company is subject to various federal, state
and local environmental laws and regulations. Such laws and
regulations often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of
hazardous or toxic substances. The costs of any required
remediation or removal of these substances could be substantial
and the liability of an owner or operator as to any property is
generally not limited under such laws and regulations and could
exceed the propertys value and the aggregate assets of the
owner or operator. The presence of these substances or failure
to remediate such contamination properly may also adversely
affect the owners ability to sell or rent the property, or
to borrow using the property as collateral. Under these laws and
regulations, an owner, operator or an entity that arranges for
the disposal of hazardous or toxic substances, such as
asbestos-containing materials, at a disposal site may also be
liable for the costs of any required remediation or removal of
the hazardous or toxic substances at the disposal site. In
connection with the ownership or operation of its properties,
the Company could be liable for these costs, as well as certain
other costs, including governmental fines and injuries to
persons or properties. The Company has completed Phase I
environmental audits of substantially all of the communities in
which the Company owns interests, typically at the time of
acquisition, and such audits have not revealed any material
environmental liabilities that exist with respect to these
communities.
Under various federal, state and local environmental laws,
ordinances and regulations, a current or previous owner or
operator of real estate may be required to investigate and clean
up hazardous or toxic substances or petroleum product releases
at such property, and may be held liable to a governmental
entity or to third parties for property damage and for
investigation and clean up costs. The Company is not aware of
any environmental liability with respect to any of its owned,
leased or managed communities that the Company believes would
have a material adverse effect on its business, financial
condition, or results of operations. The Company believes that
its communities are in compliance in all material respects with
all federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances or petroleum products.
The Company has not been notified by any governmental authority,
and is not otherwise aware of any material non-compliance,
liability or claim relating to hazardous or toxic substances or
petroleum products in connection with any of the communities the
Company currently operates.
The Company believes that the structure and composition of
government and, specifically, health care regulations will
continue to change and, as a result, regularly monitors
developments in the law. The Company expects to modify its
agreements and operations from time to time as the business and
regulatory environments change. While the Company believes it
will be able to structure all its agreements and operations in
accordance with applicable law, there can be no assurance that
its arrangements will not be successfully challenged.
Competition
The senior living industry is highly competitive, and the
Company expects that all segments of the industry will become
increasingly competitive in the future. Although there are a
number of substantial companies active in the senior living
industry and in the markets in which the Company operates, the
industry continues to be very fragmented and characterized by
numerous small operators. The Company primarily competes with
Assisted Living Concepts, Brookdale Senior Living Inc., Emeritus
Corporation, Five Star Quality Care, Inc. and Sunrise Senior
Living, Inc. The Company believes that the primary competitive
factors in the senior living industry are: (i) location;
(ii) reputation for and commitment to a high quality of
service; (iii) quality of support services offered (such as
food services); (iv) price of services; and
(v) physical appearance and amenities associated with the
communities. The Company competes with other companies providing
independent living, assisted living, skilled nursing, home
health care, and other similar service and care alternatives,
some of whom may have greater financial resources than the
Company. Because seniors tend to choose senior living
communities near their homes, the Companys principal
competitors are other senior living and long-term care
communities in the same geographic areas as the Companys
communities. The Company also competes with other health care
businesses with respect to
15
attracting and retaining nurses, technicians, aides and other
high quality professional and non-professional employees and
managers.
Employees
As of December 31, 2010, the Company employed
4,188 persons, of which 2,178 were full-time employees (60
of whom are located at the Companys corporate offices) and
2,010 were part-time employees. None of the Companys
employees are currently represented by a labor union and the
Company is not aware of any union organizing activity among its
employees. The Company believes that its relationship with its
employees is good.
Executive
Officers and Other Key Employees of the Registrant
The following table sets forth certain information concerning
each of the Companys executive officers and other key
employees as of December 31, 2010:
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Name
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Age
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Position(s) with the Company
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Lawrence A. Cohen
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57
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Chief Executive Officer and Vice Chairman of the Board
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Keith N. Johannessen
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54
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President and Chief Operating Officer
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Ralph A. Beattie
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61
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Executive Vice President and Chief Financial Officer
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Rob L. Goodpaster
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57
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Vice President National Marketing
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David W. Beathard, Sr.
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63
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Vice President Operations
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David R. Brickman
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52
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Vice President, Secretary and General Counsel
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Joseph G. Solari
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46
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Vice President Corporate Development
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Gloria Holland
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43
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Vice President Finance
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Glen H. Campbell
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66
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Vice President Development
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Robert F. Hollister
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55
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Property Controller
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Lawrence A. Cohen has served as one of our directors
since November 1996 and as Vice Chairman of the Board since
November 1996. He has served as our Chief Executive Officer
since May 1999 and was our Chief Financial Officer from November
1996 to May 1999. From 1991 to 1996, Mr. Cohen served as
President and Chief Executive Officer of Paine Webber Properties
Incorporated. Mr. Cohen serves on the boards of various
charitable organizations and is active in several industry
associations. Mr. Cohen was a founding member and is on the
executive committee of the Board of Directors of the American
Seniors Housing Association, serves on the board of the Assisted
Living Federation of America (ALFA), and serves on the Operator
Advisory Board of the National Investment Center for the Seniors
Housing & Care Industry. Mr. Cohen is a licensed
attorney and is also a Certified Public Accountant. He received
an LLM from New York University School of Law, a JD from St.
Johns University School of Law, and a BBA in Accounting
from The George Washington University. Mr. Cohen has had
positions with businesses involved in senior living for
26 years.
Keith N. Johannessen has been a director since February
2004. Mr. Johannessen currently serves as our President and
Chief Operating Officer. He has more than 32 years of
operational experience in seniors housing. Mr. Johannessen
began his senior housing career in 1978 with Life Care Services
Corporation and then joined Oxford Retirement Services, Inc as
Executive Vice President. He later served as Senior Manager in
the health care practice of Ernst & Young LLP prior to
joining the Company in 1993. Mr. Johannessen has served on
the State of the Industry and Model Assisted Living Regulations
Committees of the American Seniors Housing Association. He holds
a BA degree.
Ralph A. Beattie joined the Company as Executive Vice
President and Chief Financial Officer in May 1999. From 1997 to
1999, he served as Executive Vice President and the Chief
Financial Officer of Universal Sports America, Inc., which was
honored as the number one growth company in Dallas for 1998. For
the eight years prior to that he was Executive Vice President
and Chief Financial Officer for Haggar Clothing Company, during
which time Haggar successfully completed its initial public
offering. Mr. Beattie has earned his Masters of Business
Administration from Carnegie Mellon University and is both a
Certified Management Accountant and a Certified Financial
Planner.
16
Rob L. Goodpaster has served as Vice
President National Marketing of the Company and its
predecessors since December 1992. From 1990 to 1992,
Mr. Goodpaster was National Director for Marketing for
Autumn America, an owner and operator of senior housing
facilities. Mr. Goodpaster has been active in professional
industry associations and formerly served on the Board of
Directors for the National Association for Senior Living
Industries. Mr. Goodpaster has been active in the
operational, development and marketing aspects of senior housing
for 34 years.
David W. Beathard, Sr. has served as Vice
President Operations of the Company and its
predecessors since August 1996. From 1992 to 1996,
Mr. Beathard owned and operated a consulting firm, which
provided operational, marketing, and feasibility consulting
regarding senior housing facilities. Mr. Beathard has been
active in the operational, sales and marketing, and construction
oversight aspects of senior housing for 37 years.
David R. Brickman has served as Vice President and
General Counsel of the Company and its predecessors since July
1992 and has served as Secretary of the Company since May 2007.
From 1989 to 1992, Mr. Brickman served as in-house counsel
with LifeCo Travel Management Company, a corporation that
provided travel services to U.S. corporations.
Mr. Brickman has also earned a Masters of Business
Administration and a Masters in Health Administration. He
currently serves on the Board of Advisors for the Southern
Methodist University Corporate Counsel Symposium. He is also a
member of the National Center for Assisted Living In-house
Counsel Roundtable Task Force as well as the Long-Term Care Risk
Legal Forum. Mr. Brickman has either practiced law or
performed in-house counsel functions for 24 years.
Joseph G. Solari joined the Company as Vice
President Corporate Development in September 2010.
Mr. Solari has more than 15 years of experience
originating, structuring, negotiating and executing the
acquisition, sale and divestiture of healthcare real estate and
real estate operating companies. Prior to joining the Company,
from 2007 to 2009, Mr. Solari was Managing Director,
Acquisitions for Ventas, Inc., where he was responsible for the
firms real estate investment activities in the seniors
housing and skilled nursing industries. Prior to Ventas, Inc.,
from 1999 to 2007, Mr. Solari spent eight years in the
healthcare investment banking group of Houlihan Lokey, where he
was responsible for the origination and execution of merger and
acquisition, private placement and financial restructuring
engagements for the firms healthcare clients, with
particular focus on facility-based, healthcare services
companies. Mr. Solari earned his Masters in Business
Administration degree from Virginia Commonwealth University.
Gloria M. Holland has served as Vice
President Finance of the Company since June 2004.
From 2001 to 2004, Ms. Holland served as Assistant
Treasurer and a corporate officer for Aurum Technology, Inc., a
privately held company that provided technology and outsourcing
to community banks. From 1996 to 2001, Ms. Holland held
positions in Corporate Finance and Treasury at Brinker
International, an owner and operator of casual dining
restaurants. From 1989 to 1996, Ms. Holland was a Vice
President in the Corporate Banking division of NationsBank and
predecessor banks. Ms. Holland received a BBA in Finance
from the University of Mississippi in 1989.
Glen H. Campbell has served as Vice President
Development of the Company since September 1997. From 1990 to
1997 Mr. Campbell served as Vice President of Development
for Greenbrier Corporation, an assisted living development and
management company. From 1985 to 1990 Mr. Campbell served
as Director of Facility Management for Retirement Corporation of
America. Mr. Campbell has been active in the design and
development of retirement communities for 36 years.
Robert F. Hollister, a Certified Public Accountant, has
served as Property Controller for the Company and its
predecessors since April 1992. From 1985 to 1992,
Mr. Hollister was Chief Financial Officer and Controller of
Kavanaugh Securities, Inc., a National Association of Securities
Dealers broker dealer. Mr. Hollister is a member of the
American Institute of Certified Public Accountants.
Subsidiaries
Capital Senior Living Corporation is the parent company of
several direct and indirect subsidiaries. Although Capital
Senior Living Corporation and its subsidiaries are referred to
for ease of reference in this
Form 10-K
as the
17
Company, these subsidiaries are separately incorporated and
maintain their legal existence separate and apart from the
parent, Capital Senior Living Corporation.
Our business involves various risks. When evaluating our
business the following information should be carefully
considered in conjunction with the other information contained
in our periodic filings with the SEC. Additional risks and
uncertainties not known to us currently or that currently we
deem to be immaterial also may impair our business operations.
If we are unable to prevent events that have a negative effect
from occurring, then our business may suffer. Negative events
are likely to decrease our revenue, increase our costs, make our
financial results poorer
and/or
decrease our financial strength, and may cause our stock price
to decline.
We
have significant debt and our failure to generate cash flow
sufficient to cover required interest and principal payments
could result in defaults of the related debt.
As of December 31, 2010, we had mortgage and other
indebtedness totaling approximately $175.7 million. We
cannot assure you that we will generate cash flow from
operations or receive proceeds from refinancings, other
financings or the sales of assets sufficient to cover required
interest and principal payments. Any payment or other default
could cause the applicable lender to foreclose upon the
communities securing the indebtedness with a consequent loss of
income and asset value to us. Further, because some of our
mortgages contain cross-default and cross-collateralization
provisions, a payment or other default by us with respect to one
community could affect a significant number of our other
communities.
We
have significant operating lease obligations and our failure to
generate cash flows sufficient to cover these lease obligations
could result in defaults under the lease
agreements.
As of December 31, 2010, we leased 45 communities with
future lease obligations totaling approximately
$409.7 million, with minimum lease obligations of
$45.4 million in fiscal 2011. We cannot assure you that we
will generate cash flow from operations or receive proceeds from
refinancings, other financings or the sales of assets sufficient
to cover these required operating lease obligations. Any payment
or other default under any such lease could result in the
termination of the lease, with a consequent loss of income and
asset value to us. Further, because our leases contain
cross-default provisions, a payment or other default by us with
respect to one leased community could affect all of our other
leased communities with related lessors. Certain of our leases
contain various financial and other restrictive covenants, which
could limit our flexibility in operating our business. Failure
to maintain compliance with the lease obligations as set forth
in our lease agreements could have a material adverse impact on
us.
Our
failure to comply with financial covenants and other
restrictions contained in debt instruments and lease agreements
could result in the acceleration of the related debt or lease or
in the exercise of other remedies.
Our outstanding indebtedness and leases are secured by our
communities, and, in certain cases, a guaranty by one or more of
our subsidiaries. Therefore, an event of default under the
outstanding indebtedness or leases, subject to cure provisions
in certain instances, would give the respective lenders or
lessors, as applicable, the right to declare all amounts
outstanding to be immediately due and payable, terminate the
lease, or foreclose on collateral securing the outstanding
indebtedness and leases.
There are various financial covenants and other restrictions in
certain of our debt instruments and lease agreements, including
provisions which:
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require us to meet specified financial tests at the subsidiary
company level, which include, but are not limited to, tangible
net worth requirements;
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require us to meet specified financial tests at the community
level, which include, but are not limited to, occupancy
requirements and lease coverage tests; and
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require consent for changes in control of us.
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18
If we fail to comply with any of these requirements, then the
related indebtedness or lease obligations could become due and
payable prior to their stated dates. We cannot assure that we
could pay these debt or lease obligations if they became due
prior to their stated dates.
We
will require additional financing and/or refinancings in the
future and may issue equity securities.
Our ability to obtain such financing or refinancing on terms
acceptable to us could have a material adverse effect on our
business, financial condition, cash flows, and results of
operations. Our ability to meet our long-term capital
requirements, including the repayment of certain long-term debt
obligations, will depend, in part, on our ability to obtain
additional financing or refinancings on acceptable terms from
available financing sources, including through the use of
mortgage financing, joint venture arrangements, by accessing the
debt and/or
equity markets and possibly through operating leases or other
types of financing, such as lines of credit. Recent turmoil in
the financial markets has severely restricted the availability
of funds for borrowing and may make it more difficult or costly
for us to raise capital. There can be no assurance that
financing or refinancings will be available or that, if
available, will be on terms acceptable to us. Moreover, raising
additional funds through the issuance of equity securities could
cause existing stockholders to experience dilution and could
adversely affect the market price of our common stock. The
disruptions in the financial markets have had and may continue
to have a significant adverse effect on the market value of our
common stock and other adverse effects on us and our business.
Our inability to obtain additional financing or refinancings on
terms acceptable to us could delay or eliminate some or all of
our growth plans, necessitate the sales of assets at unfavorable
prices or both, and would have a material adverse effect on our
business, financial condition, cash flows, and results of
operations.
Any
future floating rate debt and lease obligations could expose us
to rising interest rates.
Future indebtedness and lease obligations, if applicable, may be
based on floating interest rates prevailing from time to time.
Therefore, increases in prevailing interest rates could increase
in the future our interest or lease payment obligations and
could in the future have a material adverse effect on our
business, financial condition, cash flows, and results of
operations.
We
cannot assure that we will be able to effectively manage our
growth.
We intend to expand our operations, directly or indirectly,
through the acquisition of existing senior living communities,
the expansion of some of our existing senior living communities
and/or
through an increase in the number of communities which we manage
under management agreements. The success of our growth strategy
will depend, in large part, on our ability to implement these
plans and to effectively operate these communities. If we are
unable to manage our growth effectively, our business, financial
condition, cash flows, and results of operations may be
adversely affected.
We
cannot assure that we will attempt to, or be able to, acquire
additional senior living communities, or expand existing senior
living communities.
The acquisition of existing communities or other businesses
involves a number of risks. Existing communities available for
acquisition frequently serve or target different markets than
those presently served by us. We may also determine that
renovations of acquired communities and changes in staff and
operating management personnel are necessary to successfully
integrate those communities or businesses into our existing
operations. The costs incurred to reposition or renovate newly
acquired communities may not be recovered by us. In undertaking
acquisitions, we also may be adversely impacted by unforeseen
liabilities attributable to the prior operators of those
communities or businesses, against whom we may have little or no
recourse. The success of our acquisition strategy will be
determined by numerous factors, including our ability to
identify suitable acquisition candidates; the competition for
those acquisitions; the purchase price; the requirement to make
operational or structural changes and improvements; the
financial performance of the communities or businesses after
acquisition; our ability to finance the acquisitions; and our
ability to integrate effectively any acquired communities or
businesses into our management, information, and operating
systems. We cannot assure that our acquisition of senior living
communities or other businesses will be completed at the rate
currently expected, if at all, or if completed, that any
acquired communities or businesses will be successfully
integrated into our operations.
19
Our ability to successfully expand existing senior living
communities will depend on a number of factors, including, but
not limited to, our ability to acquire suitable sites at
reasonable prices; our success in obtaining necessary zoning,
licensing, and other required governmental permits and
authorizations; and our ability to control construction costs
and accurately project completion schedules. Additionally, we
anticipate that the expansion of existing senior living
communities may involve a substantial commitment of capital for
a period of time of two years or more until the new senior
living communities or expansions are operating and producing
revenue, the consequence of which could be an adverse impact on
our liquidity.
Termination
of resident agreements and resident attrition could affect
adversely our revenues and earnings.
State regulations governing assisted living facilities require
written resident agreements with each resident. Most of these
regulations also require that each resident have the right to
terminate the resident agreement for any reason on reasonable
notice. Consistent with these regulations, the resident
agreements signed by us allow residents to terminate their
agreement on 30 days notice. Thus, we cannot contract
with residents to stay for longer periods of time, unlike
typical apartment leasing arrangements that involve lease
agreements with specified leasing periods of up to a year or
longer. If a large number of residents elected to terminate
their resident agreements at or around the same time, then our
revenues and earnings could be adversely affected. In addition,
the advanced age of our average resident means that the resident
turnover rate in our senior living facilities may be difficult
to predict.
We
largely rely on private pay residents and circumstances that
adversely affect the ability of the elderly to pay for our
services could have a material adverse effect on
us.
Approximately 95% of our total revenues from communities that we
operated were attributable to private pay sources and
approximately 5% of our revenues from these communities were
attributable to reimbursements from Medicare and Medicaid during
fiscal 2010. We expect to continue to rely primarily on the
ability of residents to pay for our services from their own or
family financial resources. The current unfavorable economic
conditions in the housing, financial, and credit markets,
inflation, or other circumstances that adversely affect the
ability of the elderly to pay for our services could have a
material adverse effect on our business, financial condition,
cash flows, and results of operations.
We are
subject to risks related to third-party management
agreements.
At December 31, 2010, we managed seven senior living
communities for joint ventures in which we have a minority
interest pursuant to multi-year management agreements. The
management agreements generally have initial terms of five
years, subject to certain renewal rights. Under these agreements
we provide management services to joint venture owners to
operate senior living communities and have provided, and may in
the future provide, management and consulting services to third
parties on market and site selection, pre-opening sales and
marketing,
start-up
training and management services for facilities under
development and construction. In most cases, either party to the
agreements may terminate them upon the occurrence of an event of
default caused by the other party. In addition, subject to our
rights to cure deficiencies, community owners may terminate us
as manager if any licenses or certificates necessary for
operation are revoked, or if we have a change of control. Also,
in some instances, a community owner may terminate the
management agreement relating to a particular community if we
are in default under other management agreements relating to
other communities owned by the same community owner or its
affiliates. In addition, in certain cases the community owner
may terminate the agreement upon 30 days notice to us
in the event of a sale of the community. In those agreements,
which are terminable in the event of a sale of the community, we
have certain rights to offer to purchase the community. The
termination of a significant portion of our management
agreements could have a material adverse effect on our business,
financial condition, cash flows, and results of operations.
Failure
to perform our obligations under our joint venture arrangements
could have a material adverse effect on us.
We hold minority interests ranging from approximately 5% to 10%
in several joint ventures with affiliates of Prudential and
Prudential Investment. We also manage the communities owned by
these joint ventures. Under the
20
terms of the joint venture agreements with Prudential and
Prudential Investment covering seven properties, we are
obligated to meet certain cash flow targets and failure to meet
these cash flow targets could result in termination of the
management agreements.
The Company, on three joint venture developments with Prudential
Investment, has guarantees that the communities will be
completed and operated at the budgeted costs approved by the
joint venture members. These costs include the hard and soft
construction costs and operating costs until each community
reaches breakeven. The budgeted costs include contingency
reserves for potential costs overruns and other unforeseen
costs. The terms of these guarantees generally do not provide
for a limitation on the maximum potential future payments. These
joint ventures are currently in lease up and one of the joint
ventures has exhausted all of its reserves under the existing
loan commitment. The Company will be required to fund operating
deficits until the joint venture reaches breakeven for three
consecutive months. Any amounts funded by the Company under this
commitment, up to $0.5 million, may be recoverable from the
joint venture in the event of liquidation. As of
December 31, 2010, the Company had recognized deficit
charges of approximately $0.4 million under these
development agreement guarantees. The Company does not currently
anticipate funding any deficits in excess of the amounts
estimated to be recoverable from the joint ventures.
All of the management agreements with the joint ventures contain
termination and renewal provisions. We do not control these
joint venture decisions covering termination or renewal.
Performance of the above obligations or termination or
non-renewal of the management agreements could have a material
adverse effect on our business, financial condition, cash flows,
and results of operations.
The
senior living services industry is very competitive and some
competitors may have substantially greater financial resources
than us.
The senior living services industry is highly competitive, and
we expect that all segments of the industry will become
increasingly competitive in the future. We compete with other
companies providing independent living, assisted living, skilled
nursing, home health care and other similar services and care
alternatives. We also compete with other health care businesses
with respect to attracting and retaining nurses, technicians,
aides and other high quality professional and non-professional
employees and managers. Although we believe there is a need for
senior living communities in the markets where we operate
residences, we expect that competition will increase from
existing competitors and new market entrants, some of whom may
have substantially greater financial resources than us. In
addition, some of our competitors operate on a
not-for-profit
basis or as charitable organizations and have the ability to
finance capital expenditures on a tax-exempt basis or through
the receipt of charitable contributions, neither of which are
available to us. Furthermore, if the development of new senior
living communities outpaces the demand for those communities in
the markets in which we have senior living communities, those
markets may become saturated. Regulation in the independent and
assisted living industry, which represents a substantial portion
of our senior living services, is not substantial. Consequently,
development of new senior living communities could outpace
demand. An oversupply of those communities in our markets could
cause us to experience decreased occupancy, reduced operating
margins and lower profitability.
We
rely on the services of key executive officers and the loss of
these officers or their services could have a material adverse
effect on us.
We depend on the services of our executive officers for our
management. The loss of some of our executive officers and the
inability to attract and retain qualified management personnel
could affect our ability to manage our business and could
adversely affect our business, financial condition, cash flows,
and results of operations.
A
significant increase in our labor costs could have a material
adverse effect on us.
We compete with other providers of senior living services with
respect to attracting and retaining qualified management
personnel responsible for the
day-to-day
operations of each of our communities and skilled personnel
responsible for providing resident care. A shortage of nurses or
trained personnel may require us to enhance our wage and
benefits package in order to compete in the hiring and retention
of these personnel or to hire more expensive temporary
personnel. We also will be dependent on the available labor pool
of semi-skilled and unskilled
21
employees in each of the markets in which we operate. No
assurance can be given that our labor costs will not increase,
or that, if they do increase, they can be matched by
corresponding increases in rates charged to residents. Any
significant failure by us to control our labor costs or to pass
on any increased labor costs to residents through rate increases
could have a material adverse effect on our business, financial
condition, cash flows, and results of operations.
There
is an inherent risk of liability in the provision of personal
and health care services, not all of which may be covered by
insurance.
The provision of personal and health care services in the
long-term care industry entails an inherent risk of liability.
In recent years, participants in the long-term care industry
have become subject to an increasing number of lawsuits alleging
negligence or related legal theories, many of which involve
large claims and result in the incurrence of significant defense
costs. Moreover, senior living communities offer residents a
greater degree of independence in their daily living. This
increased level of independence may subject the resident and,
therefore, us to risks that would be reduced in more
institutionalized settings. We currently maintain insurance in
amounts we believe are comparable to those maintained by other
senior living companies based on the nature of the risks, our
historical experience and industry standards, and we believe
that this insurance coverage is adequate. However, we may become
subject to claims in excess of our insurance or claims not
covered by our insurance, such as claims for punitive damages,
terrorism and natural disasters. A claim against us not covered
by, or in excess of, our insurance could have a material adverse
effect upon us.
In addition, our insurance policies must be renewed annually.
Based upon poor loss experience, insurers for the long-term care
industry have become increasingly wary of liability exposure. A
number of insurance carriers have stopped writing coverage to
this market, and those remaining have increased premiums and
deductibles substantially. Therefore, we cannot assure that we
will be able to obtain liability insurance in the future or
that, if that insurance is available, it will be available on
acceptable economic terms.
We are
subject to government regulations and compliance, some of which
are burdensome and some of which may change to our detriment in
the future.
Federal and state governments regulate various aspects of our
business. The development and operation of senior living
communities and the provision of health care services are
subject to federal, state and local licensure, certification and
inspection laws that regulate, among other matters, the number
of licensed beds, the provision of services, the distribution of
pharmaceuticals, billing practices and policies, equipment,
staffing (including professional licensing), operating policies
and procedures, fire prevention measures, environmental matters
and compliance with building and safety codes. Failure to comply
with these laws and regulations could result in the denial of
reimbursement, the imposition of fines, temporary suspension of
admission of new residents, suspension or decertification from
the Medicare program, restrictions on the ability to acquire new
communities or expand existing communities and, in extreme
cases, the revocation of a communitys license or closure
of a community. We believe that such regulation will increase in
the future and we are unable to predict the content of new
regulations or their effect on our business, any of which could
materially adversely affect us.
Various states, including several of the states in which we
currently operate, control the supply of licensed skilled
nursing beds, assisted living communities and home health care
agencies through CON or other programs. In those states,
approval is required for the construction of new health care
communities, the addition of licensed beds and some capital
expenditures at those communities, as well as the opening of a
home health care agency. To the extent that a CON or other
similar approval is required for the acquisition or construction
of new communities, the expansion of the number of licensed
beds, services, or existing communities, or the opening of a
home health care agency, we could be adversely affected by our
failure or inability to obtain that approval, changes in the
standards applicable for that approval, and possible delays and
expenses associated with obtaining that approval. In addition,
in most states, the reduction of the number of licensed beds or
the closure of a community requires the approval of the
appropriate state regulatory agency and, if we were to seek to
reduce the number of licensed beds at, or to close, a community,
we could be adversely affected by a failure to obtain or a delay
in obtaining that approval.
22
Federal and state anti-remuneration laws, such as
anti-kickback laws, govern some financial
arrangements among health care providers and others who may be
in a position to refer or recommend patients to those providers.
These laws prohibit, among other things, some direct and
indirect payments that are intended to induce the referral of
patients to, the arranging for services by, or the recommending
of, a particular provider of health care items or services.
Federal anti-kickback laws have been broadly interpreted to
apply to some contractual relationships between health care
providers and sources of patient referral. Similar state laws
vary, are sometimes vague, and seldom have been interpreted by
courts or regulatory agencies. Violation of these laws can
result in loss of licensure, civil and criminal penalties, and
exclusion of health care providers or suppliers from
participation in Medicare and Medicaid programs. There can be no
assurance that those laws will be interpreted in a manner
consistent with our practices.
Under the Americans with Disabilities Act of 1990, all places of
public accommodation are required to meet federal requirements
related to access and use by disabled persons. A number of
additional federal, state and local laws exist that also may
require modifications to existing and planned communities to
create access to the properties by disabled persons. Although we
believe that our communities are substantially in compliance
with present requirements or are exempt therefrom, if required
changes involve a greater expenditure than anticipated or must
be made on a more accelerated basis than anticipated, additional
costs would be incurred by us. Further legislation may impose
additional burdens or restrictions with respect to access by
disabled persons, the costs of compliance with which could be
substantial.
The Health Insurance Portability and Accountability Act of 1996,
in conjunction with the federal regulations promulgated
thereunder by the Department of Health and Human Services, has
established, among other requirements, standards governing the
privacy of certain protected and individually identifiable
health information that is created, received or maintained by a
range of covered entities. HIPAA has also established standards
governing uniform health care transactions, the codes and
identifiers to be used by the covered entities and standards
governing the security of certain electronic transactions
conducted by covered entities. Penalties for violations can
range from civil money penalties for errors and negligent acts
to criminal fines and imprisonment for knowing and intentional
misconduct. HIPAA is a complex set of regulations and many
unanswered questions remain with respect to the manner in which
HIPAA applies to businesses such as those operated by us.
An increasing number of legislative initiatives have been
introduced or proposed in recent years that would result in
major changes in the health care delivery system on a national
or a state level. Among the proposals that have been introduced
are price controls on hospitals, insurance market reforms to
increase the availability of group health insurance to small
businesses, requirements that all businesses offer health
insurance coverage to their employees and the creation of
government health insurance plans that would cover all citizens
and increase payments by beneficiaries. We cannot predict
whether any of the above proposals or other proposals will be
adopted and, if adopted, no assurances can be given that their
implementation will not have a material adverse effect on our
business, financial condition or results of operations.
We may
be subject to liability for environmental damages.
Under various federal, state and local environmental laws,
ordinances and regulations, a current or previous owner or
operator of real estate may be required to investigate and clean
up hazardous or toxic substances or petroleum product releases
at the property, and may be held liable to a governmental entity
or to third parties for property damage and for investigation
and clean up costs incurred by those parties in connection with
the contamination. These laws typically impose
clean-up
responsibility and liability without regard to whether the owner
knew of or caused the presence of the contaminants, and
liability under these laws has been interpreted to be joint and
several unless the harm is divisible and there is a reasonable
basis for allocation of responsibility. The costs of
investigation, remediation or removal of the substances may be
substantial, and the presence of the substances, or the failure
to properly remediate the property, may adversely affect the
owners ability to sell or lease the property or to borrow
using the property as collateral. In addition, some
environmental laws create a lien on the contaminated site in
favor of the government for damages and costs it incurs in
connection with the contamination. Persons who arrange for the
disposal or treatment of hazardous or toxic substances also may
be liable for the costs of removal or remediation of the
substances at the disposal or treatment facility, whether or not
the facility is owned or operated by the person. Finally, the
owner of a site may be subject to common law claims by third
parties based on damages and
23
costs resulting from environmental contamination emanating from
a site. If we become subject to any of these claims the costs
involved could be significant and could have a material adverse
effect on our business, financial condition, cash flows, and
results of operations.
Anti-takeover
provisions in our governing documents, governing law, material
agreements and our shareholder rights plan may discourage, delay
or prevent a merger or acquisition that our stockholders may
consider favorable or prevent the removal of our current board
of directors and management.
Certain provisions of our amended and restated certificate of
incorporation and our amended and restated by-laws may
discourage, delay or prevent a merger or acquisition that our
stockholders may consider favorable or prevent the removal of
our current board of directors and management. We have a number
of anti-takeover devices in place that will hinder takeover
attempts, including: a staggered board of directors consisting
of three classes of directors, each of whom serve three-year
terms; removal of directors only for cause, and only with the
affirmative vote of at least a majority of the voting interest
of stockholders entitled to vote; right of our directors to
issue preferred stock from time to time with voting, economic
and other rights superior to those of our common stock without
the consent of our stockholders; provisions in our amended and
restated certificate of incorporation and amended and restated
by-laws limiting the right of our stockholders to call special
meetings of stockholders; advance notice requirements for
stockholders with respect to director nominations and actions to
be taken at annual meetings; requirement for two-thirds
stockholder approval for amendment of our by-laws and certain
provisions of our certificate of incorporation; and no provision
in our amended and restated certificate of incorporation for
cumulative voting in the election of directors, which means that
the holders of a majority of the outstanding shares of our
common stock can elect all the directors standing for election.
Several of our leases, loan documents and other material
agreements require approval in case of a change of control of
our company. These provisions may have the effect of delaying or
preventing a change of control of our company even if this
change of control would benefit our stockholders.
In addition to the anti-takeover provisions described above, we
are subject to Section 203 of the Delaware General
Corporation Law. Section 203 generally prohibits a person
beneficially owning, directly or in directly, 15% or more of our
outstanding common stock from engaging in a business combination
with us for three years after the person acquired the stock.
However, this prohibition does not apply if (A) our
directors approve in advance the persons ownership of 15%
or more of the shares or the business combination or
(B) the business combination is approved by our
stockholders by a vote of at least two-thirds of the outstanding
shares not owned by the acquiring person. Also, our board of
directors adopted and our stockholders approved a stockholder
rights plan, which may discourage a third party from making an
unsolicited proposal to acquire 20% or more of our common stock.
Because
we do not presently have plans to pay dividends on our common
stock, stockholders must look solely to appreciation of our
common stock to realize a gain on their
investment.
It is the policy of our Board of Directors to retain any future
earnings to finance the operation and expansion of the
Companys business. Accordingly, the Company has not and
does not currently anticipate declaring or paying cash dividends
on your common stock in the foreseeable future. The payment of
cash dividends in the future will be at the sole discretion of
our Board of Directors and will depend on, among other things,
the Companys earnings, operations, capital requirements,
financial condition, restrictions in then existing financing
agreements and other factors deemed relevant by our Board of
Directors. Accordingly, stockholders must look solely to
appreciation of our common stock to realize a gain on their
investment. This appreciation may not occur.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS.
|
None.
The executive and administrative offices of the Company are
located at 14160 Dallas Parkway, Suite 300, Dallas, Texas
75254, and consist of approximately 26,000 square feet. The
lease on the premises extends through May 2013. The Company
believes that its corporate office facilities are adequate to
meet its requirements through at
24
least fiscal 2011 and that suitable additional space will be
available, as needed, to accommodate further physical expansion
of corporate operations. The Company also leases executive
office space in New York, New York pursuant to an annual lease
agreement.
As of December 31, 2010, the Company owned, leased
and/or
managed the senior living communities referred to in Item 1
above under the caption Operating Communities.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS.
|
The Company has claims incurred in the normal course of its
business. Most of these claims are believed by management to be
covered by insurance, subject to normal reservations of rights
by the insurance companies and possibly subject to certain
exclusions in the applicable insurance policies. Whether or not
covered by insurance, these claims, in the opinion of
management, based on advice of legal counsel, should not have a
material effect on the consolidated financial statements of the
Company if determined adversely to the Company.
25
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
|
|
|
(a)
|
Market
Price of and Dividends on the Registrants Common Equity
and Related Stockholder Matters.
|
Market
Information and Holders
The Companys shares of common stock are listed for trading
on the New York Stock Exchange (NYSE) under the
symbol CSU. The following table sets forth, for the
periods indicated, the high and low sales prices for the
Companys common stock, as reported on the NYSE. At
February 28, 2011, there were approximately 135
stockholders of record of the Companys common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
Year
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
5.49
|
|
|
$
|
4.21
|
|
|
$
|
3.42
|
|
|
$
|
2.10
|
|
Second Quarter
|
|
|
5.85
|
|
|
|
4.34
|
|
|
|
4.86
|
|
|
|
2.36
|
|
Third Quarter
|
|
|
5.61
|
|
|
|
4.73
|
|
|
|
6.49
|
|
|
|
3.95
|
|
Fourth Quarter
|
|
|
7.10
|
|
|
|
5.15
|
|
|
|
6.39
|
|
|
|
4.26
|
|
Dividends
It is the policy of the Companys Board of Directors to
retain all future earnings to finance the operation and
expansion of the Companys business. Accordingly, the
Company has not and does not anticipate declaring or paying cash
dividends on the common stock in the foreseeable future. The
payment of cash dividends in the future will be at the sole
discretion of the Companys Board of Directors and will
depend on, among other things, the Companys earnings,
operations, capital requirements, financial condition,
restrictions in then existing financing agreements, and other
factors deemed relevant by the Board of Directors.
Securities
Authorized for Issuance under Equity Compensation
Plans
The following table presents information relating to the
Companys equity compensation plans as of December 31,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
Number of Securities to
|
|
|
Weighted-Average
|
|
|
Remaining Available for
|
|
|
|
be Issued Upon
|
|
|
Exercise Price of the
|
|
|
Future Issuance Under
|
|
|
|
Exercise of Outstanding
|
|
|
Outstanding
|
|
|
Equity Compensation Plans
|
|
|
|
Options, Warrants and
|
|
|
Options, Warrants
|
|
|
(Excluding Securities
|
|
Plan Category
|
|
Rights
|
|
|
and Rights
|
|
|
Reflected in First Column )
|
|
|
Equity compensation plans approved by security holders
|
|
|
516,334
|
|
|
$
|
4.44
|
|
|
|
1,810,375
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
516,334
|
|
|
$
|
4.44
|
|
|
|
1,810,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Performance
Graph
The following Performance Graph shows the cumulative total
return for the five-year period ended December 31, 2010, in
the value of $100 invested in: (1) the Companys
common stock; (2) the Standard & Poors
Broad Market Index (the S&P 500); and
(3) the common stock of the Peer Group (as defined below)
of companies, whose returns represent the arithmetic average of
such companies. The values with each investment as of the
beginning of each year are based on share price appreciation and
the reinvestment with dividends on the respective ex-dividend
dates.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Capital Senior Living Corporation, The S&P 500
Index,
And A Peer Group
|
|
|
|
*
|
$100 invested on 12/31/05 in stock or index, including
reinvestment of dividends.
Fiscal year ending December 31.
|
Copyright©
2011 S&P, a division of The McGraw-Hill Companies Inc. All
rights reserved.
The preceding graph assumes $100 invested at the beginning of
the measurement period, including reinvestment of dividends, in
the Companys common stock, the S&P 500, and the Peer
Group was plotted using the following data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Total Returns
|
|
|
12/05
|
|
12/06
|
|
12/07
|
|
12/08
|
|
12/09
|
|
12/10
|
Capital Senior Living Corporation
|
|
|
100.00
|
|
|
|
102.90
|
|
|
|
96.03
|
|
|
|
28.82
|
|
|
|
48.55
|
|
|
|
64.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S & P 500
|
|
|
100.00
|
|
|
|
115.80
|
|
|
|
122.16
|
|
|
|
76.96
|
|
|
|
97.33
|
|
|
|
111.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peer Group
|
|
|
100.00
|
|
|
|
133.37
|
|
|
|
98.06
|
|
|
|
21.71
|
|
|
|
51.83
|
|
|
|
62.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys Peer Group, which was selected in good faith
on an industry basis, consists of Assisted Living Concepts,
Inc., Brookdale Senior Living, Inc., Emeritus Corporation, Five
Star Quality Care, Inc., and Sunrise Senior Living, Inc.
|
|
(b)
|
Recent
Sales of Unregistered Securities; Use of Proceeds from
Registered Securities.
|
Not Applicable.
27
|
|
(c)
|
Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers.
|
The following information is provided pursuant to Item 703
of
Regulation S-K.
The Company did not repurchase any shares of its common stock
pursuant to the Companys share repurchase program (as
described below) during the year ended December 31, 2010.
The information set forth in the table below reflects shares
repurchased by the Company pursuant to this program prior to the
year ended December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Approximate Dollar
|
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
|
Value of Shares
|
|
|
|
|
|
|
Average
|
|
|
Part of Publicly
|
|
|
that May Yet Be
|
|
|
|
Total Number of
|
|
|
Price Paid
|
|
|
Announced Plans or
|
|
|
Purchased Under the
|
|
Period
|
|
Shares Purchased
|
|
|
per Share
|
|
|
Programs
|
|
|
Plans or Programs(1)
|
|
|
Total at December 31, 2009
|
|
|
349,800
|
|
|
$
|
2.67
|
|
|
|
349,800
|
|
|
$
|
9,065,571
|
|
January 1 March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1 June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1 September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 1 December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at December 31, 2010
|
|
|
349,800
|
|
|
$
|
2.67
|
|
|
|
349,800
|
|
|
$
|
9,065,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On January 22, 2009, the Companys board of directors
approved a share repurchase program that authorized the Company
to purchase up to $10.0 million of the Companys
common stock. The repurchase program does not obligate the
Company to acquire any particular amount of common stock and the
share repurchase authorization has no stated expiration date.
All shares that have been purchased by the Company under this
program were purchased in open-market transactions. |
28
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA.
|
The following table presents selected financial data of the
Company which has been derived from the audited consolidated
financial statements of the Company. The selected financial data
should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and
related notes thereto included in this Annual Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At and for the Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share data)
|
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
211,929
|
|
|
$
|
191,991
|
|
|
$
|
193,274
|
|
|
$
|
189,052
|
|
|
$
|
159,070
|
|
Income from operations(1)
|
|
|
18,515
|
|
|
|
16,612
|
|
|
|
17,015
|
|
|
|
20,006
|
|
|
|
14,068
|
|
Net income (loss)
|
|
|
4,254
|
|
|
|
2,759
|
|
|
|
3,724
|
|
|
|
4,360
|
|
|
|
(2,600
|
)
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share
|
|
|
0.16
|
|
|
|
0.10
|
|
|
|
0.14
|
|
|
|
0.17
|
|
|
|
(0.10
|
)
|
Diluted income (loss) per share
|
|
$
|
0.16
|
|
|
$
|
0.10
|
|
|
$
|
0.14
|
|
|
$
|
0.16
|
|
|
$
|
(0.10
|
)
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
31,248
|
|
|
$
|
28,972
|
|
|
$
|
25,880
|
|
|
$
|
23,359
|
|
|
$
|
25,569
|
|
Working capital(2)
|
|
|
31,434
|
|
|
|
18,796
|
|
|
|
13,799
|
|
|
|
12,919
|
|
|
|
15,331
|
|
Total assets
|
|
|
382,781
|
|
|
|
380,503
|
|
|
|
388,120
|
|
|
|
390,053
|
|
|
|
394,488
|
|
Long-term debt, excluding current portion
|
|
|
170,026
|
|
|
|
173,822
|
|
|
|
177,541
|
|
|
|
185,733
|
|
|
|
196,647
|
|
Stockholders equity
|
|
$
|
163,823
|
|
|
$
|
158,130
|
|
|
$
|
155,149
|
|
|
$
|
150,157
|
|
|
$
|
144,084
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communities (at end of period)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned or leased
|
|
|
70
|
|
|
|
50
|
|
|
|
50
|
|
|
|
49
|
|
|
|
48
|
|
Joint ventures & managed
|
|
|
7
|
|
|
|
16
|
|
|
|
14
|
|
|
|
15
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
77
|
|
|
|
66
|
|
|
|
64
|
|
|
|
64
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resident capacity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned or leased
|
|
|
9,566
|
|
|
|
7,950
|
|
|
|
7,701
|
|
|
|
7,636
|
|
|
|
7,551
|
|
Joint ventures & managed
|
|
|
1,434
|
|
|
|
2,234
|
|
|
|
1,750
|
|
|
|
1,908
|
|
|
|
1,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
11,000
|
|
|
|
10,184
|
|
|
|
9,451
|
|
|
|
9,544
|
|
|
|
9,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Income from operations for fiscal 2007 and 2006 was revised to
reduce facility lease costs to include amortization of deferred
gains on sales of assets of $3,243 and $2,401, respectively,
which had no impact on net income. |
|
(2) |
|
Working capital for fiscal 2007 and 2006 was revised to
reclassify capital replacement reserves and certain escrow
deposits of $220 and $76, respectively, from current assets to
other assets, which had no impact on total assets. |
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
Certain information contained in this report constitutes
Forward-Looking Statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended, which can be identified by the use of forward-looking
terminology such as may, will,
would, intend, could,
believe, expect, anticipate,
estimate or continue or the negative
thereof or other variations thereon or comparable terminology.
The Company cautions readers that forward-looking statements,
including, without limitation, those relating to the
Companys future business prospects, revenues, working
capital, liquidity, capital needs, interest costs, and income,
are subject to certain risks and uncertainties that could cause
actual results to differ materially from those indicated in the
forward-looking statements, due to several important
29
factors herein identified. These factors include the
Companys ability to find suitable acquisition properties
at favorable terms, financing, licensing, business conditions,
risks of downturn 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 the Companys reports filed with the SEC.
Overview
The following discussion and analysis addresses (i) the
Companys results of operations on a historical
consolidated basis for the years ended December 31, 2010,
2009, and 2008, and (ii) liquidity and capital resources of
the Company and should be read in conjunction with the
Companys historical consolidated financial statements and
the selected financial data contained elsewhere in this report.
The Company is one of the largest operators of senior living
communities in the United States. The Companys operating
strategy is to provide quality senior living services to its
residents, while achieving and sustaining a strong, competitive
position within its chosen markets, as well as to continue to
enhance the performance of its operations. The Company provides
senior living services to the elderly, including independent
living, assisted living, skilled nursing and home care services.
As of December 31, 2010, the Company operated 77 senior
living communities in 23 states with an aggregate capacity
of approximately 11,000 residents, including 32 senior living
communities which the Company either owned or in which the
Company had an ownership interest, and 45 senior living
communities that the Company leased. As of December 31,
2010, the Company also operated one home care agency.
Significant
Financial and Operational Highlights
The Companys operating strategy is to provide quality
senior living communities and services to its residents, while
achieving and sustaining a strong, competitive position within
its chosen markets, as well as to continue to enhance the
performance of its operations. The Company provides senior
living services to the elderly, including independent living,
assisted living, skilled nursing and home care services. Many of
the Companys communities offer a continuum of care to meet
its residents needs as they change over time. This
continuum of care, which integrates independent living and
assisted living and is bridged by home care through independent
home care agencies or the Companys home care agency,
sustains residents autonomy and independence based on
their physical and mental abilities.
The Company primarily derives its revenue by providing senior
living and healthcare services to the elderly and operating
senior living communities under joint venture arrangements.
Despite challenging economic conditions, when comparing fiscal
2010 to fiscal 2009 the Company was able to increase total
revenues approximately $19.9 million, or 10.4%, of which
approximately 92.9% of these revenues consisted of senior living
and healthcare services compared to 89.2% in fiscal 2009.
In April 2010, the Company and GE Healthcare sold its respective
ownership interests in Midwest I and II to HCN in
sale/leaseback transactions of eight senior living communities
owned by subsidiaries of Midwest I and II. Upon closing the
sales, the Company leased the senior housing communities from
HCN. As a result of these sale/leaseback transactions, the
Company received cash proceeds of approximately
$4.5 million, net of closing costs, resulting in gains to
the Company of approximately $1.2 million, which have been
deferred and are being recognized in the Companys
statement of income as a reduction in facility lease expense
over the initial
15-year
lease term.
In September 2010, the Company acquired the leasehold interests
in 12 communities and certain related personal property from
Signature Assisted Living of Texas, LLC (the Signature
Transaction). Simultaneously with closing the Signature
Transaction, the Company executed a Master Lease Agreement with
affiliates of HCN for the 12 communities (the Master Lease
Agreement). The Master Lease Agreement has a term of
fifteen years with one
15-year
renewal option beyond the initial lease term. The initial lease
rate is 8.5% and is subject to certain conditional escalation
clauses. The Master Lease Agreement is a triple net
lease pursuant to which the Company pays all expenses of the
properties except principal and interest on any mortgage debt of
the properties. The Master
30
Lease Agreement contains customary representations and
warranties as well as affirmative and negative covenants and the
lease payments are guaranteed by other subsidiaries of the
Company.
During 2010, the Company was able to decrease general and
administrative expenses 2.9% when compared to fiscal 2009. These
reductions were primarily the result of the Companys
ability to leverage resources and identify areas where overhead
could be reduced without compromising superior levels of service
and care to our residents.
During 2010, the Company extinguished $7.5 million of its
outstanding debt obligations, which included a pay-off
settlement with a Lehman securitized trust for a promissory note
of one of the Companys wholly owned subsidiaries. The
securitized promissory note carried an outstanding principal
balance of $4.6 million which was collateralized with the
assets of the subsidiary and was nonrecourse to the Company. The
pay-off settlement was for $3.7 million, excluding amounts
reserved and escrowed, with no further obligation to the
Companys subsidiary and resulted in a gain to the Company
of approximately $0.7 million. These principal reductions
further reduced the Companys exposure to the volatility in
the credit markets and enabled the Company to reduce interest
expense by approximately $0.6 million, or 4.9%, during
fiscal 2010 when compared to fiscal 2009.
The senior living industry continues to be negatively impacted
by unfavorable conditions in the housing, credit and financial
markets and the overall economy, generally resulting in lower
than anticipated occupancy rates. Throughout fiscal 2010, in
response to these conditions, the Company has continued to focus
on maintaining an emphasis on occupancy increases, improvement
in rental rates, expense management and growth in net operating
income per unit, conversions of existing units to higher levels
of care, and other opportunities to enhance cash flow and
shareholder value.
Joint
Venture Transactions and Management Contracts
As of December 31, 2010, the Company managed 7 communities
owned by joint ventures in which the Company has a minority
interest. For communities owned by joint ventures, the Company
typically receives a management fee of 5% of gross revenues.
The Company believes that the factors affecting the financial
performance of communities managed under contracts with third
parties do not vary substantially from the factors affecting the
performance of owned and leased communities, although there are
different business risks associated with these activities.
The Companys third-party and joint venture management fees
are primarily based on a percentage of gross revenues. As a
result, the cash flow and profitability of such contracts to the
Company are more dependent on the revenues generated by such
communities and less dependent on net cash flow than for owned
or leased communities. Further, the Company is not responsible
for capital investments in managed communities. The management
contracts are generally terminable only for cause or upon the
sale of a community, subject to the Companys right to
offer to purchase such community. At December 31, 2010, the
Company did not manage any communities in which it did not have
an ownership interest.
Midwest I
Transaction
In January 2006, the Company and GE Healthcare formed Midwest I
to acquire five senior housing communities from a third party.
Midwest I was owned approximately 89% by GE Healthcare and 11%
by the Company. The Company contributed $2.7 million for
its interest in Midwest I. The five communities currently
comprise 293 assisted living units with a combined capacity of
391 residents. The Company accounted for its investment in
Midwest I under the equity method of accounting.
The Company was party to a series of property management
agreements (the Midwest I Agreements) to manage the
five communities acquired by Midwest I. The Midwest I Agreements
were for an initial term of five years, extended until various
dates through February 2011, and contained automatic one year
renewals thereafter. The Midwest I Agreements generally provided
for a management fee of 5% of gross revenues. On April 16,
2010, Midwest I closed the sale of the Midwest I subsidiaries
that owned the five senior housing communities to HCN. Upon
closing the sale, the Company leased the five senior housing
communities from HCN. For additional information, refer to
Note 4, Facility Lease Transactions, in the
notes to the consolidated financial statements.
31
Midwest II
Transaction
In August 2006, the Company and GE Healthcare formed
Midwest II to acquire three senior housing communities from
a third party. Midwest II was owned approximately 85% by GE
Healthcare and 15% by the Company. The Company contributed
$1.6 million for its interest in Midwest II. The three
communities currently comprise 300 assisted living and memory
care units with a combined capacity of 348 residents. The
Company accounted for its investment in Midwest II under
the equity method of accounting.
The Company was party to a series of property management
agreements (the Midwest II Agreements) to
manage the three communities acquired by Midwest II. The
Midwest II Agreements were for an initial term of five
years, extended until various dates through August 2011, and
contained automatic one year renewals thereafter. The
Midwest II Agreements generally provided for a management
fee of 5% of gross revenues. On April 30, 2010,
Midwest II closed the sale of the Midwest II
subsidiaries that owned the three senior housing communities to
HCN. Upon closing the sale, the Company leased the three senior
housing communities from HCN. For additional information, refer
to Note 4, Facility Lease Transactions, in the
notes to the consolidated financial statements.
SHPII/CSL
Transactions
In November 2004, the Company formed SHPII/CSL with SHPII.
SHPII/CSL is owned 95% by SHPII and 5% by the Company. In
November 2004, SHPII/CSL acquired the Spring Meadows Communities
which currently comprise 628 units with a combined capacity
of 758 residents. The Company contributed $1.3 million for
its interests in SHPII/CSL. The Company accounts for its
investment in SHPII/CSL under the equity method of accounting.
The Company is party to a series of property management
agreements (the SHPII/CSL Management Agreements)
with SHPII/CSL, which collectively own and operate the Spring
Meadows Communities. The SHPII/CSL Management Agreements
currently extend until various dates through November 2014. The
SHPII/CSL Management Agreements generally provide for management
fees of 5% of gross revenue plus reimbursement for costs and
expenses related to the communities. On December 22, 2010,
the Company announced that SHPII/CSL entered into an agreement
to sell the Spring Meadows Communities to HCN. As a condition to
closing of the sale to HCN, the Company will enter into long
term leases of the communities with HCN.
SHP III
Transactions
In May 2007, the Company and SHPIII formed SHPIII/CSL Miami, LLC
(SHPIII/CSL Miami) to develop a senior housing
community in Miamisburg, Ohio. Under the joint venture and
related agreements, the Company earns development and management
fees and may receive incentive distributions. The senior housing
community currently consists of 101 independent living units and
45 assisted living units and opened in August 2008. The Company
contributed $0.8 million to SHPIII/CSL Miami for its 10%
interest. The Company accounts for its investment in SHPIII/CSL
Miami under the equity method of accounting.
In November 2007, the Company and SHPIII formed SHPIII/CSL
Richmond Heights, LLC (SHPIII/CSL Richmond Heights)
to develop a senior housing community in Richmond Heights, Ohio.
Under the joint venture and related agreements, the Company
earns development and management fees and may receive incentive
distributions. The senior housing community currently consists
of 96 independent living units and 45 assisted living units and
opened in April 2009. The Company contributed $0.8 million
to SHPIII/CSL Richmond Heights for its 10% interest. The Company
accounts for its investment in SHPIII/CSL Richmond Heights under
the equity method of accounting.
In December 2007, the Company and SHPIII formed SHPIII/CSL Levis
Commons, LLC (SHPIII/CSL Levis Commons) to develop a
senior housing community near Toledo, Ohio. Under the joint
venture and related agreements, the Company earns development
and management fees and may receive incentive distributions. The
senior housing community currently consists of 101 independent
living units and 45 assisted living units and opened in April
2009. The Company contributed $0.8 million to SHPIII/CSL
Levis Commons for its 10% interest. The Company accounts for its
investment in SHPIII/CSL Levis Commons under the equity method
of accounting.
32
The Company is party to a series of property management
agreements (the SHPIII/CSL Management Agreements)
with SHPIII/CSL Miami, SHPIII/CSL Richmond Heights, and
SHPIII/CSL Levis Commons (collectively SHPIII/CSL),
which joint ventures are owned 90% by Senior Housing Partners
III, L.P. (SHPIII), a fund managed by Prudential
Investment and 10% by the Company, which collectively own and
operate SHPIII/CSL. The SHPIII/CSL Management Agreements are for
initial terms of ten years from the date the certificate of
occupancy was issued and currently extend until various dates
through January 2019. The SHPIII/CSL Management Agreements
generally provide for management fees of 5% of gross revenue
plus reimbursement for costs and expenses related to the
communities.
CGIM
Transaction
The Company was party to a series of property management
agreements with CGIM (the CGIM Agreements) expiring
in August 2011. The CGIM Agreements generally provided for
management fees of 5% to 6% of gross revenues, subject to
certain base management fees. The Company managed one community
under the CGIM agreements which the Company terminated during
the fourth quarter of fiscal 2010. The Company no longer manages
any communities under the CGIM Agreements as of
December 31, 2010.
Lease
Transactions
The Company currently leases 45 senior living communities from
certain real estate investment trusts (REITs). The
lease terms are generally for
10-15 years
with renewal options for 5-15 years at the Companys
option. Under these lease agreements the Company is responsible
for all operating costs, maintenance and repairs, insurance and
property taxes.
As of December 31, 2010, the Company leased ten senior
living facilities (collectively the Ventas Lease
Agreements), from Ventas Healthcare Properties, Inc.
(Ventas). The Ventas Lease Agreements each have an
initial term of approximately ten years, with two five-year
renewal extensions available at the Companys option. The
initial lease rate under each of the Ventas Lease Agreements
range from 7.75% to 8% and are subject to certain conditional
escalation clauses which will be recognized when probable or
incurred. The initial terms on the Ventas Lease Agreements
expire on various dates through January 2018. The Company
incurred $2.2 million in lease acquisition costs related to
the Ventas Lease Agreements. These deferred lease acquisition
costs are being amortized over the initial
10-year
lease terms and are included in facility lease expense in the
Companys statement of income. The Company accounts for
each of the Ventas Lease Agreements as operating leases.
As of December 31, 2010, the Company leased 15 senior
living facilities (collectively the HCP Lease
Agreements), from HCP, Inc. (HCP). The HCP
Lease Agreements each have an initial term of ten years, with
two ten year renewal extensions available at the Companys
option. The initial lease rate under the HCP Lease Agreements
range from 7.25% to 8% and are subject to certain conditional
escalation clauses, which will be recognized when probable or
incurred. The initial terms on the HCP Lease Agreements expire
on various dates through October 2018. The Company incurred
$1.5 million in lease acquisition costs related to the HCP
Lease Agreements. These deferred lease acquisition costs are
being amortized over the initial
10-year
lease terms and are included in facility lease expense in the
Companys statement of income. The Company accounts for
each of the HCP Lease Agreements as operating leases.
As of December 31, 2010, the Company leased 20 senior
living facilities (collectively the HCN Lease
Agreements), from HCN. The HCN Lease Agreements each have
an initial term of 15 years, with one 15 year renewal
extension available at the Companys option. The initial
lease rate under the HCN Lease Agreements range from 8.25% to
8.5% and are subject to certain conditional escalation clauses,
which will be recognized when probable or incurred. The initial
terms on the HCN Lease Agreements expire on various dates
through September 2025. The Company incurred $1.2 million
in lease acquisition costs related to the HCN Lease Agreements.
These deferred lease acquisition costs are being amortized over
the initial
15-year
lease terms and are included in facility lease expense in the
Companys statement of income. The Company accounts for
each of the HCN Lease Agreements as operating leases.
33
The following table summarizes each of the Companys lease
agreements (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
|
|
|
Lease
|
|
|
Deferred
|
|
|
|
|
|
Number of
|
|
|
Value of
|
|
|
|
|
Lease
|
|
|
Acquisition
|
|
|
Gains / Lease
|
|
Landlord
|
|
Date of Lease
|
|
Communities
|
|
|
Transaction
|
|
|
Term
|
|
Rate(1)
|
|
|
Costs(2)
|
|
|
Concessions(3)
|
|
|
Ventas
|
|
September 30, 2005
|
|
|
6
|
|
|
$
|
84.6
|
|
|
10 years
(Two five-year renewals)
|
|
|
8
|
%
|
|
$
|
1.3
|
|
|
$
|
4.6
|
|
Ventas
|
|
October 18, 2005
|
|
|
1
|
|
|
|
19.5
|
|
|
10 years
(Two five-year renewals)
|
|
|
8
|
%
|
|
|
0.2
|
|
|
|
|
|
Ventas
|
|
March 31, 2006
|
|
|
1
|
|
|
|
29.0
|
|
|
10 years
(Two five-year renewals)
|
|
|
8
|
%
|
|
|
0.1
|
|
|
|
14.3
|
|
Ventas
|
|
June 8, 2006
|
|
|
1
|
|
|
|
19.1
|
|
|
9.5 years
(Two five-year renewals)
|
|
|
8
|
%
|
|
|
0.4
|
|
|
|
|
|
Ventas
|
|
January 31, 2008
|
|
|
1
|
|
|
|
5.0
|
|
|
10 years
(Two five-year renewals)
|
|
|
7.75
|
%
|
|
|
0.2
|
|
|
|
|
|
HCP
|
|
May 1, 2006
|
|
|
3
|
|
|
|
54.0
|
|
|
(4)
(Two ten-year renewals)
|
|
|
8
|
%
|
|
|
0.2
|
|
|
|
12.8
|
|
HCP
|
|
May 31, 2006
|
|
|
6
|
|
|
|
43.0
|
|
|
10 years
(Two ten-year renewals)
|
|
|
8
|
%
|
|
|
0.2
|
|
|
|
0.6
|
|
HCP
|
|
December 1, 2006
|
|
|
4
|
|
|
|
51.0
|
|
|
(4)
(Two ten-year renewals)
|
|
|
8
|
%
|
|
|
0.7
|
|
|
|
|
|
HCP
|
|
December 14, 2006
|
|
|
1
|
|
|
|
18.0
|
|
|
(4)
(Two ten-year renewals)
|
|
|
7.75
|
%
|
|
|
0.3
|
|
|
|
|
|
HCP
|
|
April 11, 2007
|
|
|
1
|
|
|
|
8.0
|
|
|
(4)
(Two ten-year renewals)
|
|
|
7.25
|
%
|
|
|
0.1
|
|
|
|
|
|
HCN
|
|
April 16, 2010
|
|
|
5
|
|
|
|
48.5
|
|
|
15 years
(One 15-year
renewal)
|
|
|
8.25
|
%
|
|
|
0.6
|
|
|
|
0.8
|
|
HCN
|
|
May 1, 2010
|
|
|
3
|
|
|
|
36.0
|
|
|
15 years
(One 15-year
renewal)
|
|
|
8.25
|
%
|
|
|
0.2
|
|
|
|
0.4
|
|
HCN
|
|
September 10, 2010
|
|
|
12
|
|
|
|
104.6
|
|
|
15 years
(One 15-year
renewal)
|
|
|
8.50
|
%
|
|
|
0.4
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
|
|
|
|
4.9
|
|
|
|
35.5
|
|
Accumulated amortization through December 31, 2010
|
|
|
|
|
|
|
(1.8
|
)
|
|
|
|
|
Accumulated deferred gain recognized through December 31,
2010
|
|
|
|
|
|
|
|
|
|
|
(16.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net lease acquisition costs / deferred gains / lease concessions
as of December 31, 2010
|
|
|
|
|
|
$
|
3.1
|
|
|
$
|
19.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Initial lease rates are measured against agreed upon fair market
values and are subject to conditional lease escalation
provisions as forth in each lease agreement. |
|
(2) |
|
Lease acquisition costs are being amortized over the
leases initial term. |
|
(3) |
|
Deferred gains of $32.9 million and lease concessions of
$2.6 million are being recognized in the Companys
statement of income as a reduction in facility lease expense
over the leases initial term. Lease concessions of
$0.6 million relate to the HCP transaction on May 31,
2006, and $2.0 million relate to the Signature Transaction
on September 10, 2010. |
|
(4) |
|
Initial lease term expires on October 31, 2018. |
Facility lease expense in the Companys statement of income
includes rent expense plus amortization expense relating to
leasehold acquisition costs offset by the amortization of
deferred gains and lease incentives.
On September 10, 2010, in conjunction with the Signature
Transaction, a non-cancelable lease that expires in 2013 for ten
12-passenger Ford Minibuses used to transport residents of the
communities was transferred from Signature to the Company. The
lease is classified as a capital lease because it contains a
bargain purchase option which resulted in the Company recording
a Capital Lease Obligation for $0.2 million.
There are various financial covenants and other restrictions in
our lease agreements. Under the terms of certain lease
agreements, the Company was required to pay additional cash
collateral of approximately $1.1 million and
34
$1.2 million during the fiscal years ended
December 31, 2010 and 2009, respectively. Once the Company
reaches certain performance targets, the additional cash
collateral paid is returnable to the Company. At
December 31, 2010, the Company was not in compliance with a
certain lease covenant which was cured by the Company through a
lease modification amendment agreed to by the Company and
landlord on March 11, 2011. There were no other lease
covenant violations at December 31, 2010. The Company was
in compliance with all of its lease covenants at
December 31, 2009.
Debt
Transactions
On September 10, 2010, in conjunction with the Signature
Transaction, the Company obtained certain insurance policies and
entered into a finance agreement totaling $0.3 million. The
finance agreement has a fixed interest rate of 3.30% with
principal being repaid over a
7-month term.
On September 10, 2010, the Company issued standby letters
of credit, totaling $2.2 million, for the benefit of HCN on
certain leases between HCN and the Company.
On May 31, 2010, the Company renewed certain insurance
policies and entered into a finance agreement totaling
$3.7 million. The finance agreement has a fixed interest
rate of 3.30% with principal being repaid over a
12-month
term.
On April 16, 2010, the Company issued standby letters of
credit, totaling $1.7 million, for the benefit of HCN on
certain leases between HCN and the Company.
On April 15, 2010, the Company negotiated a pay-off
settlement with a Lehman securitized trust for a promissory note
of one of the Companys wholly owned subsidiaries that
matured on September 1, 2009. The securitized promissory
note carried an outstanding principal balance of
$4.6 million which was collateralized with the assets of
the subsidiary and was nonrecourse to the Company. The pay-off
settlement was for $3.7 million, excluding amounts reserved
and escrowed, with no further obligation to the Companys
subsidiary and resulted in a gain to the Company of
approximately $0.7 million.
On October 31, 2009, the Company renewed certain insurance
policies and entered into a finance agreement totaling
$0.5 million. The finance agreement has a fixed interest
rate of 3.66% with principal being repaid over a
10-month
term.
On May 31, 2009, the Company renewed certain insurance
policies and entered into a finance agreement totaling
$1.6 million. The finance agreement has a fixed interest
rate of 3.66% with principal being repaid over a
10-month
term.
The senior housing communities owned by the Company and
encumbered by mortgage debt are provided as collateral under
their respective loan agreements. At December 31, 2010 and
2009, these communities carried a total net book value of
$212.7 million and $224.9 million, respectively, with
total mortgage loans outstanding of $174.0 million and
$182.3 million, respectively.
The Company must maintain certain levels of tangible net worth
and comply with other restrictive covenants under the terms of
certain promissory notes. The Company was in compliance with all
of its debt covenants at December 31, 2010 and 2009.
Recent
Events
On December 22, 2010, the Company announced that SHPII/CSL
entered into an agreement to sell the Spring Meadows Communities
to HCN. As a condition to closing of the sale to HCN, the
Company will enter into long term leases of the communities. The
Company currently manages the Spring Meadows Communities in the
SHPII/CSL joint venture under long-term management agreements.
Critical
Accounting Policies
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the amounts reported in the
35
accompanying financial statements and related notes. Management
bases its estimates and assumptions on historical experience,
observance of industry trends and various other sources of
information and factors, the results of which form the basis for
making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources.
Actual results could differ from these estimates. Critical
accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and potentially could
result in materially different results under different
assumptions and conditions. The Company believes the following
critical accounting policies require managements most
difficult, subjective and complex judgments.
Revenue
Recognition
Resident and health care revenue is recognized at estimated net
realizable amounts, based on historical experiences, due from
residents in the period to which the rental and other services
are provided.
Revenues from the Medicare and Medicaid programs accounted for
approximately 5% of the Companys revenue in fiscal 2010
and 6% of the Companys revenue in each of fiscal 2009 and
2008. Seventeen of the Companys communities are providers
of services under Medicaid programs. Accordingly, the
communities are entitled to reimbursement under the foregoing
program at established rates that are lower than private pay
rates. Patient service revenue for Medicaid patients is recorded
at the reimbursement rates as the rates are set prospectively by
the state upon the filing of an annual cost report. Two of the
Companys communities are providers of services under the
Medicare program and are entitled to payment under the foregoing
programs in amounts determined based on rates established by the
federal government.
Laws and regulations governing the Medicare and Medicaid
programs are complex and subject to interpretation. The Company
believes that it is in compliance with all applicable laws and
regulations and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing.
While no such regulatory inquiries have been made, compliance
with such laws and regulations can be subject to future
government review and interpretation as well as significant
regulatory action including fines, penalties, and exclusion from
the Medicare and Medicaid programs.
Management services revenue is recognized when earned.
Management services revenue relates to providing certain
management and administrative support services under management
contracts, which currently have terms expiring through 2018.
Substantially all community fees received from residents are
non-refundable and are recorded initially by the Company as
deferred revenue. The deferred amounts are amortized over the
respective residents initial lease term which is
consistent with the contractual obligation associated with the
estimated stay of the resident.
Community reimbursement revenue is comprised of reimbursable
expenses from non-consolidated communities that the Company
operates under long-term management agreements.
Investments
in Joint Ventures
The Company accounts for its investments in joint ventures under
the equity method of accounting. The Company was the general
partner in two partnerships and owns member interests in seven
other joint ventures. The Company has not consolidated these
joint venture interests because the Company has concluded that
the limited partners or the other members of each joint venture
has substantive kick-out rights or substantive participating
rights. Under the equity method of accounting, the Company
records its investments in joint ventures at cost and adjusts
such investments for its share of earnings and losses of the
joint venture.
Development
Agreement Guarantees
In 2007, the Company and SHPIII entered into a series of joint
venture agreements to develop three senior housing communities
located in Ohio. The Company has guaranteed the communities will
be completed and operated at budgeted costs approved by the
joint venture members. These costs include the hard and soft
construction costs and operating costs until each community
reaches breakeven. The budgeted costs include contingency
reserves for potential cost overruns and other unforeseen costs.
The terms of these guarantees generally do not provide for a
limitation on the maximum potential future payments. These joint
venture communities are
36
currently in lease up and one of the joint ventures had
exhausted its lease up reserve under the existing loan
commitment. The Company will be required to fund any operating
deficits until the joint venture reaches breakeven for three
consecutive months. Any amounts funded by the Company under this
commitment, up to $0.5 million, may be recoverable from the
joint venture in the event of liquidation. As of
December 31, 2010, the Company had recognized deficit
charges of approximately $0.4 million under these
development agreement guarantees. The Company does not currently
anticipate funding any deficits in excess of the amounts
estimated to be recoverable from the joint ventures.
Assets
Held for Sale
Assets are classified as held for sale when the Company has
committed to selling the asset and believes that it will be
disposed of within one year. The Company determines the fair
value, net of costs of disposal, of an asset on the date the
asset is categorized as held for sale, and the asset is recorded
at the lower of its fair value, net of cost of disposal, or
carrying value on that date. The Company periodically
reevaluates assets held for sale to determine if the assets are
still recorded at the lower of fair value, net of cost of
disposal, or carrying value. The Company has one parcel of land
classified as held for sale at December 31, 2010. The fair
value of this property is generally determined based on market
rates, industry trends and recent comparable sales transactions.
The actual sales price of this asset could differ significantly
from the Companys estimate.
Lease
Accounting
The Company determines whether to account for its leases as
either operating, capital or financing leases depending on the
underlying terms of each lease agreement. This determination of
classification is complex and requires significant judgment
relating to certain information including the estimated fair
value and remaining economic life of the community, the
Companys cost of funds, minimum lease payments and other
lease terms. As of December 31, 2010, the Company leased 45
communities and classified each of the leases as an operating
lease. The Company incurs lease acquisition costs and amortizes
these costs over the term of the lease agreement. Certain leases
entered into by the Company qualified as sale/leaseback
transactions and as such any related gains have been deferred
and are being amortized over the lease term.
Facility lease expense in the Companys statement of income
includes rent expense plus amortization expense relating to
leasehold acquisition costs offset by the amortization of
deferred gains and lease incentives.
Long-Lived
Assets
Property and equipment are stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the
assets. The estimated useful lives are 10 to 40 years for
buildings and building improvements, 3 to 10 years for
leasehold improvements, 5 to 20 years for land improvements
and 5 to 10 years for furniture, equipment and automobiles.
At each balance sheet date, the Company reviews the carrying
value of its property and equipment to determine if facts and
circumstances suggest that they may be impaired or that the
depreciation period may need to be changed. The Company
considers internal factors such as net operating losses along
with external factors relating to each asset, including contract
changes, local market developments, and other publicly available
information. The carrying value of a long-lived asset is
considered impaired when the anticipated undiscounted cash flows
from such asset is separately identifiable and is less than its
carrying value. In that event, a loss is recognized based on the
amount the carrying value exceeds the fair market value,
generally based on discounted cash flows, of the long-lived
asset. The Company analyzed certain long-lived assets with
operating losses, under the undiscounted cash flow method, for
impairment. The Company does not believe there are any material
indicators that would require, and the cash flow analysis did
not require, an adjustment to the carrying value of the property
and equipment or their remaining useful lives as of
December 31, 2010 and 2009.
37
Income
Taxes
At December 31, 2010, the Company had recorded on its
consolidated balance sheet deferred tax assets of approximately
$4.8 million. Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Management regularly
evaluates the future realization of deferred tax assets and
provides a valuation allowance, if considered necessary, based
on such evaluation. The Company has evaluated future
expectations of net income and various tax planning strategies
that it believes are both prudent and feasible, including
various strategies to utilize net built-in gains on the
Companys appreciated assets. However, the benefits of the
net deferred tax assets might not be realized if actual results
differ from expectations. The Company believes based upon this
analysis that the realization of the net deferred tax assets is
reasonably assured and therefore has not provided for a
valuation allowance.
The Company evaluates uncertain tax positions through
consideration of accounting and reporting guidance on
thresholds, measurement, derecognition, classification, interest
and penalties, accounting in interim periods, disclosure, and
transition that is intended to provide better
financial-statement comparability among different companies. The
Company is required to recognize a tax benefit in its financial
statements for an uncertain tax position only if
managements assessment is that its position is more
likely than not (i.e., a greater than 50 percent
likelihood) to be upheld on audit based only on the technical
merits of the tax position. The Companys policy is to
recognize interest related to unrecognized tax benefits as
interest expense and penalties as income tax expense. The
Company is not subject to income tax examinations for tax years
prior to 2006.
Recently
Issued Accounting Guidance
In August 2010, the Financial Accounting Standards Board
(FASB) issued Accounting Standard Updates
(ASU)
2010-24,
Health Care Entities (Topic 954): Presentation of
Insurance Claims and Related Insurance Recoveries, which
clarifies that a health care entity generally remains liable for
payment of claims and retains the risk of loss for that claim
even if an insurance entity is paying for the defense of the
claim and ultimately pays for some or all of the award or
settlement. It was concluded that gross presentation of the
claim reflects that the health care entity remains obligated for
the claim and that the entity is exposed to credit risk from the
insurer until the claim has been resolved. The guidance provided
in this ASU is effective for the fiscal years, and interim
periods within those years, beginning after December 15,
2010. The adoption of this standard is not expected to have a
significant impact on the Companys financial condition,
results of operations or cash flows.
FASB Accounting Standards Codification (ASC)
810-10
(formerly FASB Statement No. 167, Amendments to FASB
Interpretation No. 46(R)) requires an enterprise to perform
an analysis to determine whether the enterprises variable
interest or interests give it a controlling financial interest
in a variable interest entity. This analysis identifies the
primary beneficiary of a variable interest entity as the
enterprise that has both the power to direct the activities of a
variable interest entity that most significantly impact the
entitys economic performance and the obligation to absorb
losses of the entity that could potentially be significant to
the variable interest entity or the right to receive benefits
from the entity that could potentially be significant to the
variable interest entity. This guidance also requires ongoing
reassessments of whether an enterprise is the primary
beneficiary of a variable interest entity and was effective for
the Company on January 1, 2010. The adoption did not have
an impact on the Companys financial condition, results of
operations, or cash flows.
38
Results
of Operations
The following tables set forth, for the periods indicated,
selected historical consolidated statements of income data in
thousands of dollars and expressed as a percentage of total
revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resident and healthcare revenue
|
|
$
|
196,936
|
|
|
|
92.9
|
%
|
|
$
|
171,194
|
|
|
|
89.2
|
%
|
|
$
|
172,025
|
|
|
|
89.0
|
%
|
Unaffiliated management services revenue
|
|
|
60
|
|
|
|
0.0
|
|
|
|
72
|
|
|
|
0.0
|
|
|
|
194
|
|
|
|
0.1
|
|
Affiliated management services revenue
|
|
|
2,044
|
|
|
|
1.0
|
|
|
|
2,698
|
|
|
|
1.4
|
|
|
|
4,882
|
|
|
|
2.5
|
|
Community reimbursement income
|
|
|
12,889
|
|
|
|
6.1
|
|
|
|
18,027
|
|
|
|
9.4
|
|
|
|
16,173
|
|
|
|
8.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
211,929
|
|
|
|
100.0
|
|
|
|
191,991
|
|
|
|
100.0
|
|
|
|
193,274
|
|
|
|
100.0
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (exclusive of facility lease expense and
depreciation and amortization shown below)
|
|
|
119,614
|
|
|
|
56.4
|
|
|
|
104,790
|
|
|
|
54.6
|
|
|
|
107,315
|
|
|
|
55.5
|
|
General and administrative expenses
|
|
|
11,535
|
|
|
|
5.5
|
|
|
|
11,883
|
|
|
|
6.2
|
|
|
|
13,654
|
|
|
|
7.1
|
|
Facility lease expense
|
|
|
34,253
|
|
|
|
16.2
|
|
|
|
25,872
|
|
|
|
13.4
|
|
|
|
25,057
|
|
|
|
13.0
|
|
Provision for bad debts
|
|
|
174
|
|
|
|
0.1
|
|
|
|
344
|
|
|
|
0.2
|
|
|
|
556
|
|
|
|
0.3
|
|
Stock-based compensation
|
|
|
919
|
|
|
|
0.4
|
|
|
|
1,201
|
|
|
|
0.6
|
|
|
|
1,036
|
|
|
|
0.5
|
|
Depreciation and amortization
|
|
|
14,030
|
|
|
|
6.6
|
|
|
|
13,262
|
|
|
|
6.9
|
|
|
|
12,468
|
|
|
|
6.5
|
|
Community reimbursement expense
|
|
|
12,889
|
|
|
|
6.1
|
|
|
|
18,027
|
|
|
|
9.4
|
|
|
|
16,173
|
|
|
|
8.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
193,414
|
|
|
|
91.3
|
|
|
|
175,379
|
|
|
|
91.3
|
|
|
|
176,259
|
|
|
|
91.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
18,515
|
|
|
|
8.7
|
|
|
|
16,612
|
|
|
|
8.7
|
|
|
|
17,015
|
|
|
|
8.8
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
48
|
|
|
|
0.0
|
|
|
|
67
|
|
|
|
0.0
|
|
|
|
422
|
|
|
|
0.2
|
|
Interest expense
|
|
|
(11,242
|
)
|
|
|
(5.3
|
)
|
|
|
(11,819
|
)
|
|
|
(6.2
|
)
|
|
|
(12,217
|
)
|
|
|
(6.3
|
)
|
Gain on settlement of debt
|
|
|
684
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
681
|
|
|
|
0.4
|
|
Write-down of assets held for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(134
|
)
|
|
|
(0.1
|
)
|
Write-off of deferred loan costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
(330
|
)
|
|
|
(0.1
|
)
|
|
|
107
|
|
|
|
0.1
|
|
|
|
270
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
7,675
|
|
|
|
3.6
|
|
|
|
4,967
|
|
|
|
2.6
|
|
|
|
6,037
|
|
|
|
3.1
|
|
Provision for income taxes
|
|
|
(3,421
|
)
|
|
|
(1.6
|
)
|
|
|
(2,208
|
)
|
|
|
(1.2
|
)
|
|
|
(2,313
|
)
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,254
|
|
|
|
2.0
|
%
|
|
$
|
2,759
|
|
|
|
1.4
|
%
|
|
$
|
3,724
|
|
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2010 Compared to the Year Ended
December 31, 2009
Revenues
Total revenues were $211.9 million for the year ended
December 31, 2010, compared to $192.0 million for the
year ended December 31, 2009, representing an increase of
approximately $19.9 million, or 10.4%. This increase in
revenue is primarily the result of a $25.7 million increase
in resident and healthcare revenue offset by a decrease in
affiliated management services revenue of $0.7 million and
a $5.1 million decrease in community reimbursement revenue.
39
|
|
|
|
|
The increase in resident and healthcare revenue primarily
results from an increase of $15.5 million from the
consolidation of eight communities previously owned by Midwest I
and Midwest II that were sold to HCN and leased back by the
Company in April 2010, an increase of $9.3 million from the
addition of the leasehold interests in 12 communities from
Signature in September 2010, and an increase in occupancy of
0.3% which was partially offset by a decrease in average rental
rates of 0.5% at the Companys other consolidated
communities.
|
|
|
|
The decrease in affiliated management services revenue of
$0.7 million primarily results from the sale of the eight
communities owned by Midwest I and Midwest II to HCN and
leased back by the Company in April 2010.
|
|
|
|
Community reimbursement revenue is comprised of reimbursable
expenses from non-consolidated communities that the Company
operates under long-term management agreements. The decrease in
community reimbursement revenue of $5.1 million primarily
results from the sale of the eight communities owned by Midwest
I and Midwest II to HCN and leased back by the Company in
April 2010.
|
Expenses
Total expenses were $193.4 million in fiscal 2010 compared
to $175.4 million in fiscal 2009, representing an increase
of $18.0 million, or 10.3%. This increase is primarily the
result of a $14.8 million increase in operating expenses, a
$8.4 million increase in facility lease expense, and a
$0.8 million increase in depreciation and amortization
expense offset by a $0.3 million decrease in general and
administrative expenses, a $0.3 million decrease in
stock-based compensation, a $0.2 million decrease in the
provision for bad debts, and a decrease in community
reimbursement expense of $5.1 million.
|
|
|
|
|
The increase in operating expenses primarily results from an
increase of $8.9 million from the consolidation of eight
communities previously owned by Midwest I and Midwest II
that were sold to HCN and leased back by the Company in April
2010, an increase of $5.0 million from the addition of the
leasehold interests in 12 communities from Signature in
September 2010, and an increase in operating costs at the
Companys other consolidated communities of
$0.9 million primarily due to an increase in labor and
benefit costs of $0.6 million and utilities of
$0.3 million.
|
|
|
|
The increase in facility lease expense primarily results from an
increase of $4.8 million from the consolidation of eight
communities previously owned by Midwest I and Midwest II
that were sold to HCN and leased back by the Company in April
2010, $2.7 million from the addition of the leasehold
interests in 12 communities from Signature in September 2010,
and $0.9 million for contingent annual rental rate
escalations for certain existing leases.
|
|
|
|
Depreciation and amortization expense increased
$0.8 million primarily as a result of an increase in
depreciable assets at the Companys consolidated
communities.
|
|
|
|
General and administrative expenses decreased $0.3 million
primarily due to a decrease in employee benefit claims paid,
which resulted in lower health insurance costs to the Company.
|
|
|
|
Stock-based compensation decreased $0.3 million due to a
decrease in the number of unvested restricted shares outstanding.
|
|
|
|
The provision for bad debts decreased $0.2 million due to
better collection results of resident accounts receivable during
fiscal 2010.
|
|
|
|
Community reimbursement expense represents payroll and
administrative costs paid by the Company for the benefit of
non-consolidated communities and joint ventures. The decrease in
community reimbursement expense of $5.1 million primarily
results from the sale of the eight communities owned by Midwest
I and Midwest II to HCN and leased back by the Company in
April 2010.
|
40
Other
income and expense
|
|
|
|
|
Interest income results from interest earned on investment of
cash balances and escrowed funds. Interest income decreased
primarily due to lower interest rates in fiscal 2010 when
compared to fiscal 2009.
|
|
|
|
Interest expense decreased $0.6 million to
$11.2 million in fiscal 2010 compared to $11.8 million
in fiscal 2009. This decrease in interest expense primarily
results from lower debt outstanding combined with a slightly
lower average interest rate during fiscal 2010 compared to
fiscal 2009.
|
|
|
|
Gain on settlement of debt represents the recognition of the
gain associated with the pay-off settlement of the promissory
note with the Lehman securitized trust in April 2010.
|
|
|
|
Other (expense) income in fiscal 2010 and 2009 relates to the
Companys equity in the net losses of unconsolidated
affiliates, which represents the Companys share of the net
losses on its investments in joint ventures.
|
Provision
for income taxes
Provision for income taxes for fiscal 2010 was
$3.4 million, or 44.6% of income before taxes, compared to
a provision for income taxes of $2.2 million, or 44.5% of
income before taxes, for fiscal 2009. The effective tax rates
for fiscal 2010 and 2009 differ from the statutory tax rates due
to state income taxes and permanent tax differences. The Company
is impacted by the Texas Margin Tax (TMT) and
Michigan Business Tax (MBT), which effectively
impose taxes on modified gross revenues for communities within
the States of Texas and Michigan, respectively. As of
December 31, 2010, the Company consolidated 29 Texas
communities and two Michigan communities and the TMT and MBT
increased the overall provision for income taxes. Management
regularly evaluates the future realization of deferred tax
assets and provides a valuation allowance, if considered
necessary, based on such evaluation. The Company has evaluated
future expectations of net income and various tax planning
strategies that it believes are both prudent and feasible
including various strategies to utilize net built-in gains on
the Companys appreciated assets. The Company believes,
based upon this analysis, that the realization of the net
deferred tax asset is reasonably assured and therefore has not
provided for a valuation allowance.
Net
income
As a result of the foregoing factors, the Company reported net
income of $4.3 million for the fiscal year ended
December 31, 2010 compared to net income of
$2.8 million for the fiscal year ended December 31,
2009.
Year
Ended December 31, 2009 Compared to the Year Ended
December 31, 2008
Revenues
Total revenues were $192.0 million for the year ended
December 31, 2009, compared to $193.3 million for the
year ended December 31, 2008, representing a decrease of
approximately $1.3, million or 0.7%. This decrease in revenue
was primarily the result of a $0.8 million decrease in
resident and healthcare revenue, a $2.2 million decrease in
affiliated management services revenue, and a $0.1 million
decrease in unaffiliated management services revenue offset by
an increase in community reimbursement revenue of
$1.8 million.
|
|
|
|
|
Resident and healthcare revenue decreased $0.8 million, or
0.5%, primarily due to a decrease in average occupancy of 1.4%
partially offset by an increase in average revenue collected of
2.2% at the Companys consolidated communities.
|
|
|
|
The decrease in affiliated management services revenue of
$2.2 million, or 44.7%, primarily resulted from the Company
no longer earning development and marketing fees from three
joint venture communities that were under development during
fiscal 2008.
|
|
|
|
The decrease in unaffiliated management services revenue of
$0.1 million primarily resulted from the management of one
community owned by a third party during fiscal 2009 compared to
two communities owned by third parties during fiscal 2008.
|
41
|
|
|
|
|
Community reimbursement revenue is comprised of reimbursable
expenses from non-consolidated communities that the Company
operates under long-term management agreements.
|
Expenses
Total expenses were $175.4 million for the year ended
December 31, 2009, compared to $176.3 million for the
year ended December 31, 2008, representing a decrease of
$0.9 million, or 0.5%. This decrease was primarily the
result of a $2.5 million decrease in operating expenses, a
$1.8 million decrease in general and administrative
expenses, and a $0.2 million decrease in bad debt expense,
offset by a $1.9 million increase in community
reimbursement expense, a $0.8 million increase in
depreciation and amortization expense, a $0.8 million
increase in facility lease expense, and a $0.1 million
increase in stock-based compensation.
|
|
|
|
|
Operating expenses decreased $2.5 million, or 2.4%,
primarily due to a reduction of $2.1 million in independent
living expenses, a reduction of $0.3 million in assisted
living expenses, and a reduction of $0.3 million in
insurance expense offset by an increase in healthcare expenses
of $0.1 million. Decreases in independent living expenses
primarily consisted of a decrease in labor and benefit costs of
$0.7 million, a decrease in food costs of
$0.5 million, a decrease in utilities costs of
$0.2 million, and a net decrease of $0.7 million in
other general independent living operating costs. Assisted
living expenses decreased primarily due to a decrease in
employee benefit costs. Insurance expense decreased due to an
improved claims history which allowed for lower negotiated
premium renewals during fiscal 2009. Healthcare expenses
increased due to a net increase in other general healthcare
operating costs.
|
|
|
|
General and administrative expenses decreased $1.8 million,
or 13%, primarily due to the write-off of accumulated due
diligence costs of $0.6 million during fiscal 2008 related
to a potential acquisition that the Company terminated and a
reduction in corporate compensation of $1.2 million due to
the reduction of corporate employees.
|
|
|
|
Depreciation and amortization expense increased
$0.8 million primarily as a result of an increase in
depreciable assets at the Companys consolidated
communities and leasehold improvements.
|
|
|
|
Facility lease costs increased $0.8 million primarily due
to contingent annual rental rate escalations for existing leases.
|
|
|
|
Stock-based compensation increased $0.1 million during
fiscal 2009 compared to fiscal 2008 primarily due to the award
of additional restricted shares of common stock to certain
employees of the Company.
|
|
|
|
Community reimbursement expense represents payroll and
administrative costs paid by the Company for the benefit of
non-consolidated communities and joint ventures.
|
Other
income and expense
|
|
|
|
|
Interest income reflects interest earned on the investment of
cash balances and interest earned on escrowed funds. Interest
income decreased $0.4 million primarily due to lower
interest rates in fiscal 2009 compared to fiscal 2008.
|
|
|
|
Interest expense decreased $0.4 million to
$11.8 million in fiscal 2009 compared to $12.2 million
in fiscal 2008. This decrease in interest expense primarily
resulted from less debt outstanding during fiscal 2009 compared
to fiscal 2008.
|
|
|
|
Gain on sale of assets in fiscal 2008 represented gains
associated with the sale of two parcels of land of
$0.7 million and the amortization of a deferred gain on the
sale of the Richmond Heights land in fiscal 2007 to a joint
venture in which the Company has an equity interest, offset by a
$0.1 million impairment adjustment on a parcel of land,
located in Fort Wayne, Indiana, which is classified as held
for sale.
|
|
|
|
Other income (expense) in fiscal 2009 and 2008 relates to the
Companys equity in the earnings/losses of unconsolidated
affiliates, which represents the Companys share of the
earnings or losses on its investments in joint ventures.
|
42
Provision
for income taxes
Provision for income taxes for fiscal 2009 was
$2.2 million, or 44.5% of income before taxes, compared to
a provision for income taxes of $2.3 million, or 38.3% of
income before taxes, for fiscal 2008. The effective tax rates
for fiscal 2009 and 2008 differ from the statutory tax rates due
to state income taxes and permanent tax differences. The Company
is significantly impacted by the TMT and MBT, which effectively
impose taxes on modified gross revenues for communities within
the States of Texas and Michigan. The Company consolidated 17
Texas communities and two Michigan communities in fiscal 2009
and the TMT and MBT increased the overall provision for income
taxes. Management regularly evaluates the future realization of
deferred tax assets and provides a valuation allowance, if
considered necessary, based on such evaluation. The Company has
evaluated future expectations of net income and various tax
planning strategies that it believes are both prudent and
feasible, including various strategies to utilize net built-in
gains on the Companys appreciated assets. However, the
benefits of the net deferred tax assets might not be realized if
actual results differ from expectations. The Company believes,
based upon this analysis, that the realization of net deferred
tax assets is reasonably assured and therefore has not provided
for a valuation allowance.
Net
income
As a result of the foregoing factors, the Company reported net
income of $2.8 million for the fiscal year ended
December 31, 2009, compared to net income of
$3.7 million for the fiscal year ended December 31,
2008.
Quarterly
Results
The following table presents certain unaudited quarterly
financial information for each of the four quarters ended
December 31, 2010 and 2009, respectively. This information
has been prepared on the same basis as the audited Consolidated
Financial Statements of the Company appearing elsewhere in this
report and include, in the opinion of the Companys
management, all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the quarterly results
when read in conjunction with the audited Consolidated Financial
Statements of the Company and the related notes thereto.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Calendar Quarters
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Total revenues
|
|
$
|
47,908
|
|
|
$
|
50,513
|
|
|
$
|
53,600
|
|
|
$
|
59,908
|
|
Income from operations
|
|
|
4,066
|
|
|
|
4,714
|
|
|
|
3,760
|
|
|
|
5,975
|
|
Net income
|
|
|
725
|
|
|
|
1,458
|
|
|
|
481
|
|
|
|
1,590
|
|
Net income per share, basic
|
|
$
|
0.03
|
|
|
$
|
0.05
|
|
|
$
|
0.02
|
|
|
$
|
0.06
|
|
Net income per share, diluted
|
|
$
|
0.03
|
|
|
$
|
0.05
|
|
|
$
|
0.02
|
|
|
$
|
0.06
|
|
Weighted average shares outstanding, basic
|
|
|
26,540
|
|
|
|
26,575
|
|
|
|
26,607
|
|
|
|
26,624
|
|
Weighted average shares outstanding, fully diluted
|
|
|
26,638
|
|
|
|
26,670
|
|
|
|
26,703
|
|
|
|
26,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Calendar Quarters
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Total revenues
|
|
$
|
47,975
|
|
|
$
|
47,205
|
|
|
$
|
48,114
|
|
|
$
|
48,697
|
|
Income from operations
|
|
|
4,286
|
|
|
|
3,759
|
|
|
|
4,219
|
|
|
|
4,348
|
|
Net income
|
|
|
820
|
|
|
|
429
|
|
|
|
750
|
|
|
|
760
|
|
Net income per share, basic
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
Net income per share, diluted
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
Weighted average shares outstanding, basic
|
|
|
26,346
|
|
|
|
26,187
|
|
|
|
26,222
|
|
|
|
26,275
|
|
Weighted average shares outstanding, fully diluted
|
|
|
26,395
|
|
|
|
26,272
|
|
|
|
26,351
|
|
|
|
26,395
|
|
43
Liquidity
and Capital Resources
The impact of the current economic environment could result in
decreases in the fair value of assets, slowing of transactions,
and tightening liquidity and credit markets. These impacts could
make securing debt for acquisitions or refinancings for the
Company, its joint ventures, or buyers of the Companys
properties more difficult or on terms not acceptable to the
Company. Additionally, the Company may be more susceptible to
being negatively impacted by operating or performance deficits
based on the exposure associated with certain development
guarantees or lease coverage requirements.
In addition to approximately $31.2 million of unrestricted
cash balances on hand as of December 31, 2010, the
Companys principal sources of liquidity are expected to be
cash flows from operations, cash flows from SHPIII/CSL Miami,
SHPIII/CSL Richmond Heights, SHPIII/CSL Levis Commons,
SHPII/CSL, debt refinancings,
and/or
proceeds from the sale of assets. The Company expects its
available cash and cash flows from operations,cash flows from
SHPIII/CSL Miami, SHPIII/CSL Richmond Heights, SHPIII/CSL Levis
Commons, and SHPII/CSL, and proceeds from the sale of assets to
be sufficient to fund its short-term working capital
requirements. The Companys long-term capital requirements,
primarily for acquisitions and other corporate initiatives,
could be dependent on its ability to access additional funds
through joint ventures and the debt
and/or
equity markets. The Company from time to time considers and
evaluates transactions related to its portfolio including
refinancings, purchases and sales, reorganizations and other
transactions. There can be no assurance that the Company will
continue to generate cash flows at or above current levels or
that the Company will be able to obtain the capital necessary to
meet the Companys short and long-term capital requirements.
In summary, the Companys cash flows were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net cash provided by operating activities
|
|
$
|
15,550
|
|
|
$
|
19,635
|
|
|
$
|
15,012
|
|
Net cash used in investing activities
|
|
|
(5,282
|
)
|
|
|
(7,304
|
)
|
|
|
(7,372
|
)
|
Net cash used in financing activities
|
|
|
(7,992
|
)
|
|
|
(9,239
|
)
|
|
|
(5,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
$
|
2,276
|
|
|
$
|
3,092
|
|
|
$
|
2,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
The Company had net cash provided by operating activities of
$15.6 million, $19.6 million, and $15.0 million
in fiscal 2010, 2009, and 2008, respectively. The net cash
provided by operating activities for fiscal 2010 primarily
results from net income of $4.3 million, net non-cash
charges of $17.4 million, and an increase in accrued
expenses of $3.8 million offset by an increase in accounts
receivable of $1.1 million, an increase in property tax and
insurance deposits of $2.6 million, an increase in prepaid
expenses and other assets of $3.6 million, an increase in
accounts payable of $0.1 million, and an increase in
federal and state income taxes receivable of $2.5 million.
The net cash provided by operating activities for fiscal 2009
primarily resulted from net income of $2.8 million, net
non-cash charges of $15.9 million, a decrease in accounts
receivable of $0.8 million, a decrease in prepaid expenses
and other assets of $1.9 million, and a decrease in federal
and state income taxes receivable of $0.6 million offset by
an increase in other assets of $0.8 million, a decrease in
accounts payable and accrued expenses of $1.3 million, and
a decrease in customer deposits of $0.3 million. The net
cash provided by operating activities for fiscal 2008 primarily
resulted from net income of $3.7 million, net non-cash
charges of $13.7 million, a decrease in other assets of
$1.1 million, and an increase in accounts payable and
accrued expenses of $0.8 million offset by an increase in
federal and state income taxes receivable of $0.3 million,
an increase in accounts receivable of $1.4 million, an
increase in prepaid expenses and other assets of
$1.4 million, an increase in property tax and insurance
deposits of $0.8 million and a decrease in customer
deposits of $0.4 million.
Investing
Activities
The Company had net cash used in investing activities of
$5.3 million, $7.3 million, and $7.4 million in
fiscal 2010, 2009, and 2008, respectively. The net cash used in
investing activities for fiscal 2010 primarily results from
44
capital expenditures of $8.5 million and $2.0 million
for intangible assets acquired in connection with the Signature
Transaction offset by distributions from joint ventures of
$5.2 million. In fiscal 2009, net cash used in investing
activities primarily resulted from capital expenditures of
$8.0 million offset by net investments in joint ventures of
$0.7 million. In fiscal 2008, net cash used in investing
activities primarily resulted from capital expenditures of
$8.1 million, net investments in joint ventures of
$0.7 million offset by proceeds from the sale of two
parcels of land, one in Carmichael, California, and the other in
Lincoln, Nebraska, for $1.4 million.
Financing
Activities
The Company had net cash used in financing activities of
$8.0 million, $9.2 million, and $5.1 million in
fiscal 2010, 2009, and 2008, respectively. The net cash used in
financing activities for fiscal 2010 primarily results from net
repayments of notes payable of $6.5 million and additions
to restricted cash of $4.2 million offset by
$2.0 million in lease incentives from the Signature
Transaction, an increase in capital lease obligations of
$0.2 million, and proceeds and excess tax benefits from the
issuance of common stock of $0.5 million. The net cash used
in financing activities for fiscal 2009 primarily resulted from
net repayments of notes payable of $6.4 million, additions
to restricted cash of $2.2 million, and purchases of
treasury stock of $0.9 million offset by proceeds and
excess tax benefits from the issuance of common stock of
$0.3 million. For fiscal 2008, the net cash used in
financing activities primarily resulted from net repayments of
notes payable of $5.3 million offset by proceeds from the
issuance of common stock of $0.2 million.
Disclosures
About Contractual Obligations
The following table provides the amounts due under specified
contractual obligations for the periods indicated as of
December 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
One to
|
|
|
Four to
|
|
|
More Than
|
|
|
|
|
|
|
One Year
|
|
|
Three Years
|
|
|
Five Years
|
|
|
Five Years
|
|
|
Total
|
|
|
Long-term debt, including interest expense
|
|
$
|
16,189
|
|
|
$
|
28,936
|
|
|
$
|
143,257
|
|
|
$
|
37,218
|
|
|
$
|
225,600
|
|
Operating and capital leases
|
|
|
46,395
|
|
|
|
91,931
|
|
|
|
87,354
|
|
|
|
186,336
|
|
|
|
412,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$
|
62,584
|
|
|
$
|
120,867
|
|
|
$
|
230,611
|
|
|
$
|
223,554
|
|
|
$
|
637,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt relates to the aggregate maturities of the
Companys notes payable. The Company leases its corporate
headquarters, an executive office in New York, 45 senior living
communities and certain automobiles and equipment used at the
Companys communities.
Impact of
Inflation
To date, inflation has not had a significant impact on the
Company. However, inflation could affect the Companys
future revenues and results of operations because of, among
other things, the Companys dependence on senior residents,
many of whom rely primarily on fixed incomes to pay for the
Companys services. As a result, during inflationary
periods, the Company may not be able to increase resident
service fees to account fully for increased operating expenses.
In structuring its fees, the Company attempts to anticipate
inflation levels, but there can be no assurance that the Company
will be able to anticipate fully or otherwise respond to any
future inflationary pressures.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
|
The Companys primary market risk is exposure to changes in
interest rates on debt and lease instruments. As of
December 31, 2010, the Company had $175.7 million in
outstanding debt comprised solely of fixed rate debt
instruments. In addition, as of December 31, 2010, the
Company had $409.7 million in future facility lease
obligations with contingent rent increases on certain leases
based on changes in the consumer price index or certain
operational performance measures.
Changes in interest rates would affect the fair market value of
the Companys fixed rate debt instruments but would not
have an impact on the Companys earnings or cash flows.
Increase in the consumer price index could have
45
an effect on future facility lease expense if the leased
community exceeds the contingent rent escalation thresholds set
forth in each of the Companys lease agreements.
The following table summarizes information on the Companys
debt instruments outstanding as of December 31, 2010. The
table presents the principal due and weighted average interest
rates by expected maturity date for the Companys debt
instruments by fiscal year.
Principal Amount and Average Interest Rate by Expected Maturity
Date at December 31, 2010 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
Thereafter
|
|
|
Total
|
|
|
Value
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate debt
|
|
$
|
5,645
|
|
|
$
|
4,156
|
|
|
$
|
4,446
|
|
|
$
|
4,725
|
|
|
$
|
122,261
|
|
|
$
|
34,438
|
|
|
$
|
175,671
|
|
|
$
|
170,466
|
|
Average interest rate
|
|
|
6.0
|
%
|
|
|
6.0
|
%
|
|
|
6.0
|
%
|
|
|
6.0
|
%
|
|
|
5.9
|
%
|
|
|
5.9
|
%
|
|
|
|
|
|
|
|
|
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
|
The consolidated financial statements of the Company are
included under Item 15 of this Annual Report on
Form 10-K.
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
|
The Company had no disagreements on accounting or financial
disclosure matters with its independent accountants to report
under this Item 9.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES.
|
Effectiveness
of Controls and Procedures
The Companys management, with the participation of the
Companys Chief Executive Officer (CEO) and
Chief Financial Officer (CFO), has evaluated the
effectiveness of the Companys disclosure controls and
procedures (as such term is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
Exchange Act)) as of the end of the period covered
by this report. The Companys disclosure controls and
procedures are designed to ensure that information required to
be disclosed by the Company in the reports that it files or
submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
SECs rules and forms. Disclosure controls and procedures
are also designed to ensure that such information is accumulated
and communicated to the Companys management, including the
CEO and CFO, as appropriate to allow timely decisions regarding
required disclosure.
Based upon the controls evaluation, the Companys CEO and
CFO have concluded that, as of the end of the period covered by
this report, the Companys disclosure controls and
procedures are effective.
There have not been any changes in the Companys internal
control over financial reporting (as such term is defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) during the Companys fiscal quarter
ended December 31, 2010 that have materially affected, or
are reasonably likely to materially affect, the Companys
internal control over financial reporting.
Internal
Controls Over Financial Reporting
Managements
Report On Internal Control Over Financial Reporting
Management of the Company, including the Chief Executive Officer
and the Chief Financial Officer, is responsible for establishing
and maintaining adequate internal control over financial
reporting, as defined in
Rules 13a-15(f)
under the Exchange Act. The Companys internal controls
were designed to provide reasonable assurance to the
Companys management and board of directors regarding the
preparation and fair presentation of published financial
statements.
46
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial
statement preparation and presentation.
Management assessed the effectiveness of the Companys
internal control over financial reporting as of
December 31, 2010. In making this assessment, management
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in
Internal Control Integrated Framework. Based
on our assessment, we believe that, as of December 31,
2010, the Companys internal control over financial
reporting is effective based on those criteria.
The effectiveness of our internal control over financial
reporting as of December 31, 2010, has been audited by
Ernst & Young LLP, the independent registered public
accounting firm that audited our consolidated financial
statements included in this Annual Report on
Form 10-K,
as stated in their report which is included as part of this
Annual Report on
Form 10-K.
The Ernst & Young LLP report is on
page F-27
of this report.
|
|
ITEM 9B.
|
OTHER
INFORMATION.
|
None.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.*
|
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION.*
|
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.*
|
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.*
|
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES.*
|
* Information required by Items 10, 11, 12, 13 and 14
is or will be set forth in the definitive proxy statement
relating to the 2011 Annual Meeting of Stockholders of Capital
Senior Living Corporation, which is to be filed with SEC
pursuant to Regulation 14A under the Exchange Act. This
definitive proxy statement relates to a meeting of stockholders
involving the election of directors and the portions therefrom
required to be set forth in this
Form 10-K
by Items 10, 11, 12, 13 and 14 are incorporated herein by
reference pursuant to General Instruction G(3) to
Form 10-K.
47
PART IV
|
|
ITEM 15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES.
|
The following documents are filed as part of this Report:
(1) Financial Statements:
The response to this portion of Item 15 is submitted as a
separate section of this Report. See Index to Financial
Statements at
page F-1.
(2) Financial Statement Schedules:
All schedules have been omitted as the required information is
inapplicable or the information is presented in the financial
statements or related notes.
(3) Exhibits:
The exhibits listed on the accompanying Index To
Exhibits at
page E-1
are filed as part of this Report.
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CAPITAL SENIOR LIVING CORPORATION
|
|
|
|
By:
|
/s/ LAWRENCE
A. COHEN
|
Lawrence A. Cohen
Vice Chairman of the Board
and Chief Executive Officer
Date: March 14, 2011
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated. Each person whose signature to this report appears
below hereby appoints Lawrence A. Cohen and Keith N. Johannessen
and each of them, any one of whom may act without the joinder of
the other, as his or her attorney-in-fact to sign on his behalf,
individually and in each capacity stated below, and to file all
amendments to this report, which amendment or amendments may
make such changes in and additions to the report as any such
attorney-in-fact may deem necessary or appropriate.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ LAWRENCE
A. COHEN
Lawrence
A. Cohen
|
|
Chief Executive Officer and Vice Chairman of the Board
(Principal Executive Officer)
|
|
March 14, 2011
|
|
|
|
|
|
/s/ KEITH
N. JOHANNESSEN
Keith
N. Johannessen
|
|
President and Chief Operating Officer and Director
|
|
March 14, 2011
|
|
|
|
|
|
/s/ RALPH
A. BEATTIE
Ralph
A. Beattie
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial and Accounting Officer)
|
|
March 14, 2011
|
|
|
|
|
|
/s/ JAMES
A. MOORE
James
A. Moore
|
|
Chairman of the Board
|
|
March 14, 2011
|
|
|
|
|
|
/s/ PHILIP
A. BROOKS
Philip
A. Brooks
|
|
Director
|
|
March 14, 2011
|
|
|
|
|
|
/s/ CRAIG
F. HARTBERG
Craig
F. Hartberg
|
|
Director
|
|
March 14, 2011
|
|
|
|
|
|
/s/ JILL
M. KRUEGER
Jill
M. Krueger
|
|
Director
|
|
March 14, 2011
|
|
|
|
|
|
/s/ RONALD
A. MALONE
Ronald
A. Malone
|
|
Director
|
|
March 14, 2011
|
|
|
|
|
|
/s/ PETER
L. MARTIN
Peter
L. Martin
|
|
Director
|
|
March 14, 2011
|
|
|
|
|
|
/s/ MICHAEL
W. REID
Michael
W. Reid
|
|
Director
|
|
March 14, 2011
|
49
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Capital Senior Living Corporation
We have audited the accompanying consolidated balance sheets of
Capital Senior Living Corporation as of December 31, 2010
and 2009, and the related consolidated statements of income,
shareholders equity, and cash flows for the each of the
three years in the period ended December 31, 2010. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Capital Senior Living Corporation at
December 31, 2010 and 2009, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended December 31, 2010, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Capital Senior Living Corporations internal control over
financial reporting as of December 31, 2010, based on
criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 14, 2011,
expressed an unqualified opinion thereon.
Dallas, Texas
March 14, 2011
F-2
CAPITAL
SENIOR LIVING CORPORATION
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except per share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
31,248
|
|
|
$
|
28,972
|
|
Restricted cash
|
|
|
6,334
|
|
|
|
2,167
|
|
Accounts receivable, net
|
|
|
3,777
|
|
|
|
3,340
|
|
Accounts receivable from affiliates
|
|
|
911
|
|
|
|
424
|
|
Federal and state income taxes receivable
|
|
|
3,962
|
|
|
|
1,493
|
|
Deferred taxes
|
|
|
1,290
|
|
|
|
1,208
|
|
Assets held for sale
|
|
|
354
|
|
|
|
354
|
|
Property tax and insurance deposits
|
|
|
11,059
|
|
|
|
8,632
|
|
Prepaid expenses and other
|
|
|
4,896
|
|
|
|
4,010
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
63,831
|
|
|
|
50,600
|
|
Property and equipment, net
|
|
|
295,095
|
|
|
|
300,678
|
|
Deferred taxes
|
|
|
3,478
|
|
|
|
7,781
|
|
Investments in joint ventures
|
|
|
2,224
|
|
|
|
6,536
|
|
Other assets, net
|
|
|
18,153
|
|
|
|
14,908
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
382,781
|
|
|
$
|
380,503
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,951
|
|
|
$
|
2,037
|
|
Accrued expenses
|
|
|
16,125
|
|
|
|
12,287
|
|
Current portion of notes payable
|
|
|
5,645
|
|
|
|
9,347
|
|
Current portion of deferred income
|
|
|
7,242
|
|
|
|
6,838
|
|
Current portion of capital lease obligations
|
|
|
135
|
|
|
|
|
|
Customer deposits
|
|
|
1,299
|
|
|
|
1,295
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
32,397
|
|
|
|
31,804
|
|
Deferred income
|
|
|
14,493
|
|
|
|
16,747
|
|
Capital lease obligations, net of current portion
|
|
|
83
|
|
|
|
|
|
Other long-term liabilities
|
|
|
1,959
|
|
|
|
|
|
Notes payable, net of current portion
|
|
|
170,026
|
|
|
|
173,822
|
|
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 27,083 and 26,945 in 2010 and 2009, respectively
|
|
|
274
|
|
|
|
273
|
|
Additional paid-in capital
|
|
|
133,014
|
|
|
|
131,576
|
|
Retained earnings
|
|
|
31,469
|
|
|
|
27,215
|
|
Treasury stock, at cost 350 shares in 2010 and
2009
|
|
|
(934
|
)
|
|
|
(934
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
163,823
|
|
|
|
158,130
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
382,781
|
|
|
$
|
380,503
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
CAPITAL
SENIOR LIVING CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Resident and health care revenue
|
|
$
|
196,936
|
|
|
$
|
171,194
|
|
|
$
|
172,025
|
|
Unaffiliated management services revenue
|
|
|
60
|
|
|
|
72
|
|
|
|
194
|
|
Affiliated management services revenue
|
|
|
2,044
|
|
|
|
2,698
|
|
|
|
4,882
|
|
Community reimbursement revenue
|
|
|
12,889
|
|
|
|
18,027
|
|
|
|
16,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
211,929
|
|
|
|
191,991
|
|
|
|
193,274
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (exclusive of facility lease expense and
depreciation and amortization expense shown below)
|
|
|
119,614
|
|
|
|
104,790
|
|
|
|
107,315
|
|
General and administrative expenses
|
|
|
11,535
|
|
|
|
11,883
|
|
|
|
13,654
|
|
Facility lease expense
|
|
|
34,253
|
|
|
|
25,872
|
|
|
|
25,057
|
|
Provision for bad debts
|
|
|
174
|
|
|
|
344
|
|
|
|
556
|
|
Stock-based compensation expense
|
|
|
919
|
|
|
|
1,201
|
|
|
|
1,036
|
|
Depreciation and amortization
|
|
|
14,030
|
|
|
|
13,262
|
|
|
|
12,468
|
|
Community reimbursement expense
|
|
|
12,889
|
|
|
|
18,027
|
|
|
|
16,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
193,414
|
|
|
|
175,379
|
|
|
|
176,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
18,515
|
|
|
|
16,612
|
|
|
|
17,015
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
48
|
|
|
|
67
|
|
|
|
422
|
|
Interest expense
|
|
|
(11,242
|
)
|
|
|
(11,819
|
)
|
|
|
(12,217
|
)
|
Gain on settlement of debt
|
|
|
684
|
|
|
|
|
|
|
|
|
|
Gain on sale of properties
|
|
|
|
|
|
|
|
|
|
|
681
|
|
Write-down of assets held for sale
|
|
|
|
|
|
|
|
|
|
|
(134
|
)
|
Other income (expense)
|
|
|
(330
|
)
|
|
|
107
|
|
|
|
270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
7,675
|
|
|
|
4,967
|
|
|
|
6,037
|
|
Provision for income taxes
|
|
|
(3,421
|
)
|
|
|
(2,208
|
)
|
|
|
(2,313
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,254
|
|
|
$
|
2,759
|
|
|
$
|
3,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share
|
|
$
|
0.16
|
|
|
$
|
0.10
|
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share
|
|
$
|
0.16
|
|
|
$
|
0.10
|
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
26,587
|
|
|
|
26,257
|
|
|
|
26,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
26,687
|
|
|
|
26,356
|
|
|
|
26,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
CAPITAL
SENIOR LIVING CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Treasury
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Stock
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Balance at January 1, 2008
|
|
|
26,596
|
|
|
$
|
266
|
|
|
$
|
129,159
|
|
|
$
|
20,732
|
|
|
$
|
|
|
|
$
|
150,157
|
|
Exercise of stock options
|
|
|
38
|
|
|
|
|
|
|
|
258
|
|
|
|
|
|
|
|
|
|
|
|
258
|
|
Restricted stock awards
|
|
|
45
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
1,036
|
|
|
|
|
|
|
|
|
|
|
|
1,036
|
|
Excess tax benefits
|
|
|
|
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
(27
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,724
|
|
|
|
|
|
|
|
3,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
26,679
|
|
|
|
267
|
|
|
|
130,426
|
|
|
|
24,456
|
|
|
|
|
|
|
|
155,149
|
|
Exercise of stock options
|
|
|
59
|
|
|
|
|
|
|
|
254
|
|
|
|
|
|
|
|
|
|
|
|
254
|
|
Restricted stock awards
|
|
|
557
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
1,201
|
|
|
|
|
|
|
|
|
|
|
|
1,201
|
|
Excess tax benefits
|
|
|
|
|
|
|
|
|
|
|
(305
|
)
|
|
|
|
|
|
|
|
|
|
|
(305
|
)
|
Treasury stock
|
|
|
(350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(934
|
)
|
|
|
(934
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,759
|
|
|
|
|
|
|
|
2,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
26,945
|
|
|
|
273
|
|
|
|
131,576
|
|
|
|
27,215
|
|
|
|
(934
|
)
|
|
|
158,130
|
|
Exercise of stock options
|
|
|
100
|
|
|
|
1
|
|
|
|
358
|
|
|
|
|
|
|
|
|
|
|
|
359
|
|
Restricted stock awards
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
919
|
|
|
|
|
|
|
|
|
|
|
|
919
|
|
Excess tax benefits
|
|
|
|
|
|
|
|
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
|
161
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,254
|
|
|
|
|
|
|
|
4,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
27,083
|
|
|
$
|
274
|
|
|
$
|
133,014
|
|
|
$
|
31,469
|
|
|
$
|
(934
|
)
|
|
$
|
163,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
CAPITAL
SENIOR LIVING CORPORATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,254
|
|
|
$
|
2,759
|
|
|
$
|
3,724
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
14,030
|
|
|
|
13,251
|
|
|
|
12,432
|
|
Amortization
|
|
|
|
|
|
|
11
|
|
|
|
36
|
|
Amortization of deferred financing charges
|
|
|
330
|
|
|
|
335
|
|
|
|
338
|
|
Amortization of deferred lease costs and lease intangibles
|
|
|
1,005
|
|
|
|
371
|
|
|
|
367
|
|
Amortization of debt discount
|
|
|
|
|
|
|
|
|
|
|
177
|
|
Deferred income
|
|
|
(3,034
|
)
|
|
|
(2,645
|
)
|
|
|
(2,112
|
)
|
Deferred income taxes
|
|
|
4,221
|
|
|
|
3,125
|
|
|
|
1,706
|
|
Equity in the (earnings) losses of unconsolidated joint ventures
|
|
|
331
|
|
|
|
(107
|
)
|
|
|
(270
|
)
|
Gain on settlement of debt
|
|
|
(684
|
)
|
|
|
|
|
|
|
|
|
Gain on sale of properties
|
|
|
|
|
|
|
|
|
|
|
(680
|
)
|
Provision for bad debts
|
|
|
174
|
|
|
|
344
|
|
|
|
556
|
|
Write-down of assets held for sale
|
|
|
|
|
|
|
|
|
|
|
134
|
|
Stock compensation expense
|
|
|
919
|
|
|
|
1,201
|
|
|
|
1,036
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(611
|
)
|
|
|
125
|
|
|
|
(1,133
|
)
|
Accounts receivable from affiliates
|
|
|
(487
|
)
|
|
|
728
|
|
|
|
(306
|
)
|
Property tax and insurance deposits
|
|
|
(2,584
|
)
|
|
|
|
|
|
|
(772
|
)
|
Prepaid expenses and other
|
|
|
(931
|
)
|
|
|
1,920
|
|
|
|
(1,404
|
)
|
Other assets
|
|
|
(2,670
|
)
|
|
|
(794
|
)
|
|
|
1,102
|
|
Accounts payable
|
|
|
(86
|
)
|
|
|
117
|
|
|
|
719
|
|
Accrued expenses
|
|
|
3,838
|
|
|
|
(1,374
|
)
|
|
|
100
|
|
Federal and state income taxes receivable/payable
|
|
|
(2,469
|
)
|
|
|
566
|
|
|
|
(307
|
)
|
Customer deposits
|
|
|
4
|
|
|
|
(298
|
)
|
|
|
(431
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
15,550
|
|
|
|
19,635
|
|
|
|
15,012
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(8,447
|
)
|
|
|
(8,049
|
)
|
|
|
(8,065
|
)
|
Intangible assets acquired in Signature Transaction
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
|
|
Proceeds from sale of assets
|
|
|
|
|
|
|
1
|
|
|
|
1,397
|
|
Distributions from (Investments in) joint ventures
|
|
|
5,165
|
|
|
|
744
|
|
|
|
(704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(5,282
|
)
|
|
|
(7,304
|
)
|
|
|
(7,372
|
)
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
3,591
|
|
|
|
1,926
|
|
|
|
4,645
|
|
Repayments of notes payable
|
|
|
(10,154
|
)
|
|
|
(8,324
|
)
|
|
|
(10,023
|
)
|
Lease incentive from Signature Transaction
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
Increase in capital lease obligations
|
|
|
240
|
|
|
|
|
|
|
|
|
|
Cash payments for capital lease obligations
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
Increase in restricted cash
|
|
|
(4,167
|
)
|
|
|
(2,167
|
)
|
|
|
|
|
Cash proceeds from the issuance of common stock
|
|
|
359
|
|
|
|
223
|
|
|
|
232
|
|
Excess tax benefits on stock options exercised
|
|
|
161
|
|
|
|
37
|
|
|
|
27
|
|
Purchases of treasury stock
|
|
|
|
|
|
|
(934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(7,992
|
)
|
|
|
(9,239
|
)
|
|
|
(5,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
2,276
|
|
|
|
3,092
|
|
|
|
2,521
|
|
Cash and cash equivalents at beginning of year
|
|
|
28,972
|
|
|
|
25,880
|
|
|
|
23,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
31,248
|
|
|
$
|
28,972
|
|
|
$
|
25,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
10,949
|
|
|
$
|
11,464
|
|
|
$
|
11,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
2,328
|
|
|
$
|
530
|
|
|
$
|
2,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
CAPITAL
SENIOR LIVING CORPORATION
December 31, 2010
Capital Senior Living Corporation, a Delaware corporation
(together with its subsidiaries, the Company), is
one of the largest operators of senior living communities in the
United States in terms of resident capacity. The Company owns,
operates, develops and manages senior living communities
throughout the United States. As of December 31, 2010, the
Company operated 77 senior living communities in 23 states
with an aggregate capacity of approximately 11,000 residents,
including 32 senior living communities which the Company either
owned or in which the Company had an ownership interest and 45
senior living communities that the Company leased. As of
December 31, 2010, the Company also operated one home care
agency. The accompanying consolidated financial statements
include the financial statements of Capital Senior Living
Corporation and its wholly owned subsidiaries. All material
intercompany balances and transactions have been eliminated in
consolidation. The Company accounts for significant investments
in unconsolidated companies, in which the Company has
significant influence, using the equity method of accounting.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Cash
and Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with
original maturities of three months or less at the date of
acquisition to be cash equivalents. The Company has deposits in
banks that exceed Federal Deposit Insurance Corporation
insurance limits. Management believes that credit risk related
to these deposits is minimal. Restricted cash consists of
deposits required by certain lenders as collateral pursuant to
letters of credit. The deposit must remain so long as the letter
of credit is outstanding which is subject to renewal annually.
Long-Lived
Assets
Property and equipment are stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the
assets. At each balance sheet date, the Company reviews the
carrying value of its property and equipment to determine if
facts and circumstances suggest that they may be impaired or
that the depreciation period may need to be changed. The Company
considers internal factors such as net operating losses along
with external factors relating to each asset, including contract
changes, local market developments, and other publicly available
information. The carrying value of a long-lived asset is
considered impaired when the anticipated undiscounted cash flows
from such asset is separately identifiable and is less than its
carrying value. In that event, a loss is recognized based on the
amount the carrying value exceeds the fair market value,
generally based on discounted cash flows, of the long-lived
asset. The Company analyzed certain long-lived assets with
operating losses, under the undiscounted cash flow method, for
impairment. Based on this analysis, the Company does not believe
there are any indicators that would require an adjustment to the
carrying value of the property and equipment or their remaining
useful lives as of December 31, 2010 and 2009.
Assets
Held for Sale
Assets are classified as held for sale when the Company has
committed to selling the asset and believes that it will be
disposed of within one year. The Company determines the fair
value, net of costs of disposal, of an asset on the date the
asset is categorized as held for sale, and the asset is recorded
at the lower of its fair value, net of cost of disposal, or
carrying value on that date. The Company periodically
reevaluates assets held for sale to determine if the assets are
still recorded at the lower of fair value, net of cost of
disposal, or carrying value. The fair values of properties are
generally determined based on market rates, industry trends and
recent comparable sales transactions. The actual sales price of
these assets could differ significantly from the Companys
estimates.
The Company had one parcel of land, in Fort Wayne, Indiana,
held for sale at December 31, 2010. The parcel of land was
written down to its fair value, less costs to sell, to
$0.4 million during fiscal 2008. The Company
F-7
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
currently estimates that this parcel of land has an aggregate
fair value, net of costs of disposal, that exceeds its carrying
value of $0.4 million at December 31, 2010. The amount
that the Company will ultimately realize on the parcel of land
could differ materially from this estimate.
Investments
in Joint Ventures
The Company accounts for its investments in joint ventures under
the equity method of accounting. The Company was the general
partner in two partnerships and owns member interests in four
other joint ventures. The Company has not consolidated these
joint venture interests because the Company has concluded that
the limited partners or the other members of each joint venture
has substantive kick-out rights or substantive participating
rights. Under the equity method of accounting, the Company
records its investments in joint ventures at cost and adjusts
such investments for its share of earnings and losses of the
joint ventures.
Development
Agreement Guarantees
The Company, on three joint venture developments, has guarantees
that the communities will be completed and operated at the
budgeted costs approved by the joint venture members. These
costs include the hard and soft construction costs and operating
costs until each community reaches breakeven. The budgeted costs
include contingency reserves for potential costs overruns and
other unforeseen costs. The terms of these guarantees generally
do not provide for a limitation on the maximum potential future
payments. These joint venture communities are currently in lease
up and one of the joint ventures had exhausted its lease up
reserve under the existing loan commitment. The Company will be
required to fund any operating deficits until the joint venture
reaches breakeven for three consecutive months. Any amounts
funded by the Company under this commitment, up to
$0.5 million, may be recoverable from the joint venture in
the event of liquidation. As of December 31, 2010, the
Company had recognized deficit charges of approximately
$0.4 million under these development agreement guarantees.
The Company does not currently anticipate funding any deficits
in excess of the amounts estimated to be recoverable from the
joint ventures.
Income
Taxes
At December 31, 2010, the Company had recorded on its
consolidated balance sheet net deferred tax assets of
$4.8 million. Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Management regularly
evaluates the future realization of deferred tax assets and
provides a valuation allowance, if considered necessary, based
on such evaluation. As part of that evaluation, management has
evaluated future expectations of net income. However, the
benefits of the net deferred tax assets might not be realized if
actual results differ from expectations. The Company believes
that based upon this analysis that the realization of the net
deferred tax assets is reasonably assured and therefore has not
provided for a valuation allowance.
The Company evaluates uncertain tax positions through
consideration of accounting and reporting guidance on criteria,
measurement, derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and
transition that is intended to provide better
financial-statement comparability among different companies. The
Company is required to recognize a tax benefit in its financial
statements for an uncertain tax position only if
managements assessment is that its position is more
likely than not (i.e., a greater than 50 percent
likelihood) to be upheld on audit based only on the technical
merits of the tax position. The Companys policy is to
recognize interest related to unrecognized tax benefits as
interest expense and penalties as income tax expense. The
Company is not subject to income tax examinations for tax years
prior to 2006.
Revenue
Recognition
Resident and health care revenue is recognized at estimated net
realizable amounts, based on historical experiences, due from
residents in the period in which the rental and other services
are provided.
F-8
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Revenues from the Medicare and Medicaid programs accounted for
approximately 5% of the Companys revenue in fiscal 2010
and 6% of the Companys revenue in each of fiscal 2009 and
2008. Seventeen of the Companys communities are providers
of services under the Medicaid program. Accordingly, the
communities are entitled to reimbursement under the foregoing
program at established rates that are lower than private pay
rates. Patient service revenue for Medicaid patients is recorded
at the reimbursement rates as the rates are set prospectively by
the state upon the filing of an annual cost report. Two of the
Companys communities are providers of services under the
Medicare program and are entitled to payment under the foregoing
programs in amounts determined based upon rates established by
the federal government.
Laws and regulations governing the Medicare and Medicaid
programs are complex and subject to interpretation. The Company
believes that it is in compliance with all applicable laws and
regulations and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing.
While no such regulatory inquiries have been made, compliance
with such laws and regulations can be subject to future
government review and interpretation as well as significant
regulatory action including fines, penalties, and exclusion from
the Medicare and Medicaid programs.
Management services revenue is recognized when earned.
Management services revenue relates to providing certain
management and administrative support services under management
contracts, which have terms expiring through 2018.
Substantially all community fees received from residents are
non-refundable and are recorded initially by the Company as
deferred revenue. The deferred amounts are amortized over the
respective residents initial lease term which is
consistent with the contractual obligation associated with the
estimated stay of the resident.
Community reimbursement revenue is comprised of reimbursable
expenses from non-consolidated communities that the Company
operates under long-term management agreements.
Lease
Accounting
The Company determines whether to account for its leases as
operating, capital or financing leases depending on the
underlying terms of the lease agreement. This determination of
classification is complex and requires significant judgment
relating to certain information including the estimated fair
value and remaining economic life of the community, the
Companys cost of funds, minimum lease payments and other
lease terms. As of December 31, 2010, the Company leased 45
communities and classified each of the leases as an operating
lease. The Company incurs lease acquisition costs and amortizes
these costs over the term of the lease agreement. Certain leases
entered into by the Company qualified as sale/leaseback
transactions and as such any related gains have been deferred
and are being amortized over the lease term.
Facility lease expense in the Companys statement of income
includes rent expense plus amortization expense relating to
leasehold acquisition costs offset by the amortization of
deferred gains and lease incentives.
Credit
Risk
The Companys resident receivables are generally due within
30 days. Credit losses on resident receivables have
historically been within managements estimates, and
management believes that the allowance for doubtful accounts
adequately provides for expected losses.
F-9
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Advertising
Advertising is expensed as incurred. Advertising expenses for
the years ended December 31, 2010, 2009, and 2008 were
$6.5 million, $5.6 million, and $5.9 million,
respectively.
Net
Income Per Share
Basic net income per common share is computed by dividing net
income remaining after allocation to unvested restricted shares
by the weighted average number of common shares outstanding for
the period. Except when the effect would be anti-dilutive, the
calculation of diluted net income per common share includes the
net impact of unvested restricted shares and shares that could
be issued under outstanding stock options.
The following table sets forth the computation of basic and
diluted net income per share (in thousands, except for per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Net income
|
|
$
|
4,254
|
|
|
$
|
2,759
|
|
|
$
|
3,724
|
|
Net income allocated to unvested restricted shares
|
|
|
(73
|
)
|
|
|
(67
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed net income allocated to common shares
|
|
$
|
4,181
|
|
|
$
|
2,692
|
|
|
$
|
3,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
26,587
|
|
|
|
26,257
|
|
|
|
26,377
|
|
Effects of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee equity compensation plans
|
|
|
100
|
|
|
|
99
|
|
|
|
243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
26,687
|
|
|
|
26,356
|
|
|
|
26,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share
|
|
$
|
0.16
|
|
|
$
|
0.10
|
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share
|
|
$
|
0.16
|
|
|
$
|
0.10
|
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards of unvested restricted stock representing approximately
0.5 million, 0.6 million, and 0.3 million shares
were outstanding for the fiscal years ended December 31,
2010, 2009, and 2008, respectively, and were included in the
computation of allocable net income.
Awards of unvested restricted stock representing approximately
48 incremental shares were not removed from the effects of
dilutive securities in the computation of diluted weighted
average shares outstanding for the fiscal year ended
December 31, 2008, as the effects did not materially impact
previously reported diluted income per share.
Treasury
Stock
The Company accounts for treasury stock under the cost method
and includes treasury stock as a component of stockholders
equity.
Stock-Based
Compensation
The Company recognizes compensation expense for share-based
payment awards to employees, including grants of employee stock
options and awards of restricted stock, in the statement of
income based on their fair values.
On May 8, 2007, the Companys stockholders approved
the 2007 Omnibus Stock and Incentive Plan for Capital Senior
Living Corporation (the 2007 Plan) which provides
for, among other things, the grant of restricted stock awards
and stock options to purchase shares of the Companys
common stock. The 2007 Plan authorizes the Company to issue up
to 2.6 million shares of common stock and the Company has
reserved 1.8 million shares of
F-10
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
common stock for future issuance pursuant to awards under the
2007 Plan. Effective May 8, 2007, the 1997 Omnibus Stock
and Incentive Plan (as amended, the 1997 Plan) was
terminated and no additional shares will be granted under the
1997 Plan. The Company has reserved 0.8 million shares of
common stock for future issuance upon the exercise of
outstanding stock options pursuant to the 1997 Plan.
Recently
Issued Accounting Guidance
In August 2010, the Financial Accounting Standards Board
(FASB) issued Accounting Standard Updates
(ASU)
2010-24,
Health Care Entities (Topic 954): Presentation of
Insurance Claims and Related Insurance Recoveries, which
clarifies that a health care entity generally remains liable for
payment of claims and retains the risk of loss for that claim
even if an insurance entity is paying for the defense of the
claim and ultimately pays for some or all of the award or
settlement. It was concluded that gross presentation of the
claim reflects that the health care entity remains obligated for
the claim and that the entity is exposed to credit risk from the
insurer until the claim has been resolved. The guidance provided
in this ASU is effective for the fiscal years, and interim
periods within those years, beginning after December 15,
2010. The adoption of this standard is not expected to have a
significant impact on the Companys financial condition,
results of operations or cash flows.
FASB Accounting Standards Codification (ASC)
810-10
(formerly FASB Statement No. 167, Amendments to FASB
Interpretation No. 46(R)) requires an enterprise to perform
an analysis to determine whether the enterprises variable
interest or interests give it a controlling financial interest
in a variable interest entity. This analysis identifies the
primary beneficiary of a variable interest entity as the
enterprise that has both the power to direct the activities of a
variable interest entity that most significantly impact the
entitys economic performance and the obligation to absorb
losses of the entity that could potentially be significant to
the variable interest entity or the right to receive benefits
from the entity that could potentially be significant to the
variable interest entity. This guidance also requires ongoing
reassessments of whether an enterprise is the primary
beneficiary of a variable interest entity and was effective for
the Company on January 1, 2010. The adoption did not have
an impact on the Companys financial condition, results of
operations, or cash flows.
Segment
Information
The Company evaluates the performance and allocates resources of
its senior living facilities based on current operations and
market assessments on a
property-by-property
basis. The Company does not have a concentration of operations
geographically or by product or service as its management
functions are integrated at the property level. The Company has
determined that all of its operating units meet the criteria in
ASC 280 to be aggregated into one reporting segment. As such,
the Company operates in one segment.
Use of
Estimates and Critical Accounting Policies
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in the accompanying financial statements and
related footnotes. Management bases its estimates and
assumptions on historical experience, observance of industry
trends and various other sources of information and factors, the
results of which form the basis for making judgments about the
carrying value of assets and liabilities that are not readily
apparent from other sources. Actual results could differ from
these estimates. Critical accounting policies are defined as
those that are reflective of significant judgments and
uncertainties, and potentially could result in materially
different results under different assumptions and conditions.
The Company believes revenue recognition, investments in limited
partnerships, leases, long-lived assets, income taxes and assets
held for sale are its most critical accounting policies and
require managements most difficult, subjective and complex
judgments.
F-11
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
Transactions
with Affiliates
|
Midwest
I Transaction
In January 2006, the Company and GE Healthcare formed Midwest I
to acquire five senior housing communities from a third party.
Midwest I was owned approximately 89% by GE Healthcare and 11%
by the Company. The Company contributed $2.7 million for
its interest in Midwest I. The five communities currently
comprise 293 assisted living units with a combined capacity of
391 residents. The Company accounted for its investment in
Midwest I under the equity method of accounting.
The Company was party to a series of property management
agreements (the Midwest I Agreements) to manage the
five communities acquired by Midwest I. The Midwest I Agreements
were for an initial term of five years, extended until various
dates through February 2011, and contained automatic one year
renewals thereafter. The Midwest I Agreements generally provided
for a management fee of 5% of gross revenues. On April 16,
2010, Midwest I closed the sale of the Midwest I subsidiaries
that owned the five senior housing communities to Health Care
REIT, Inc. (HCN). Upon closing the sale, the Company
leased the five senior housing communities from HCN. For
additional information, refer to Note 4, Facility
Lease Transactions.
Midwest II
Transaction
In August 2006, the Company and GE Healthcare formed
Midwest II to acquire three senior housing communities from
a third party. Midwest II was owned approximately 85% by GE
Healthcare and 15% by the Company. The Company contributed
$1.6 million for its interest in Midwest II. The three
communities currently comprise 300 assisted living and memory
care units with a combined capacity of 348 residents. The
Company accounted for its investment in Midwest II under
the equity method of accounting.
The Company was party to a series of property management
agreements (the Midwest II Agreements) to
manage the three communities acquired by Midwest II. The
Midwest II Agreements were for an initial term of five
years, extended until various dates through August 2011, and
contained automatic one year renewals thereafter. The
Midwest II Agreements generally provided for a management
fee of 5% of gross revenues. On April 30, 2010,
Midwest II closed the sale of the Midwest II
subsidiaries that owned the three senior housing communities to
HCN. Upon closing the sale, the Company leased the three senior
housing communities from HCN. For additional information, refer
to Note 4, Facility Lease Transactions.
SHPII/CSL
Transactions
In November 2004, the Company formed SHPII/CSL with SHPII.
SHPII/CSL is owned 95% by SHPII and 5% by the Company. In
November 2004, SHPII/CSL acquired the Spring Meadows Communities
which currently comprise 628 units with a combined capacity
of 758 residents. The Company contributed $1.3 million for
its interests in SHPII/CSL. The Company accounts for its
investment in SHPII/CSL under the equity method of accounting.
The Company is party to a series of property management
agreements (the SHPII/CSL Management Agreements)
with SHPII/CSL, which collectively own and operate the Spring
Meadows Communities. The SHPII/CSL Management Agreements
currently extend until various dates through November 2014. The
SHPII/CSL Management Agreements generally provide for management
fees of 5% of gross revenue plus reimbursement for costs and
expenses related to the communities. On December 22, 2010,
the Company announced that SHPII/CSL entered into an agreement
to sell the Spring Meadows Communities to HCN. As a condition to
closing of the sale to HCN, the Company will enter into long
term leases of the communities with HCN.
F-12
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
SHP
III Transactions
In May 2007, the Company and SHPIII formed SHPIII/CSL Miami to
develop a senior housing community in Miamisburg, Ohio. Under
the joint venture and related agreements, the Company earns
development and management fees and may receive incentive
distributions. The senior housing community currently consists
of 101 independent living units and 45 assisted living units and
opened in August 2008. The Company contributed $0.8 million
to SHPIII/CSL Miami for its 10% interest. The Company accounts
for its investment in SHPIII/CSL Miami under the equity method
of accounting.
In November 2007, the Company and SHPIII formed SHPIII/CSL
Richmond Heights to develop a senior housing community in
Richmond Heights, Ohio. Under the joint venture and related
agreements, the Company earns development and management fees
and may receive incentive distributions. The senior housing
community currently consists of 96 independent living units and
45 assisted living units and opened in April 2009. The Company
contributed $0.8 million to SHPIII/CSL Richmond Heights for
its 10% interest. The Company accounts for its investment in
SHPIII/CSL Richmond Heights under the equity method of
accounting.
In December 2007, the Company and SHPIII formed SHPIII/CSL Levis
Commons to develop a senior housing community near Toledo, Ohio.
Under the joint venture and related agreements, the Company
earns development and management fees and may receive incentive
distributions. The senior housing community currently consists
of 101 independent living units and 45 assisted living units and
opened in April 2009. The Company contributed $0.8 million
to SHPIII/CSL Levis Commons for its 10% interest. The Company
accounts for its investment in SHPIII/CSL Levis Commons under
the equity method of accounting.
The Company is party to a series of property management
agreements (the SHPIII/CSL Management Agreements)
with SHPIII/CSL Miami, SHPIII/CSL Richmond Heights, and
SHPIII/CSL Levis Commons (collectively SHPIII/CSL),
which joint ventures are owned 90% by Senior Housing Partners
III, L.P. (SHPIII), a fund managed by Prudential
Investment Management, Inc. and 10% by the Company, which
collectively own and operate SHPIII/CSL. The SHPIII/CSL
Management Agreements are for initial terms of ten years from
the date the certificate of occupancy was issued and currently
extend until various dates through January 2019. The SHPIII/CSL
Management Agreements generally provide for management fees of
5% of gross revenue plus reimbursement for costs and expenses
related to the communities.
CGIM
Transaction
The Company was party to a series of property management
agreements with CGIM (the CGIM Agreements) expiring
in August 2011. The CGIM Agreements generally provided for
management fees of 5% to 6% of gross revenues, subject to
certain base management fees. The Company managed one community
under the CGIM agreements which the Company terminated during
the fourth quarter of fiscal 2010. The Company no longer manages
any communities under the CGIM Agreements as of
December 31, 2010.
|
|
4.
|
Facility
Lease Transactions
|
The Company currently leases 45 senior living communities from
certain REITs. The lease terms are generally for
10-15 years
with renewal options for 5-15 years at the Companys
option.
F-13
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Under these lease agreements the Company is responsible for all
operating costs, maintenance and repairs, insurance and property
taxes. The following table summarizes each of the Companys
lease agreements (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
|
|
|
Lease
|
|
|
Deferred
|
|
|
|
Date of
|
|
Number of
|
|
|
Value of
|
|
|
|
|
Lease
|
|
|
Acquisition
|
|
|
Gains / Lease
|
|
Landlord
|
|
Lease
|
|
Communities
|
|
|
Transaction
|
|
|
Term
|
|
Rate(1)
|
|
|
Costs(2)
|
|
|
Concessions(3)
|
|
|
Ventas
|
|
September 30, 2005
|
|
|
6
|
|
|
$
|
84.6
|
|
|
10 years
(Two five-year renewals)
|
|
|
8
|
%
|
|
$
|
1.3
|
|
|
$
|
4.6
|
|
Ventas
|
|
October 18, 2005
|
|
|
1
|
|
|
|
19.5
|
|
|
10 years
(Two five-year renewals)
|
|
|
8
|
%
|
|
|
0.2
|
|
|
|
|
|
Ventas
|
|
March 31,2006
|
|
|
1
|
|
|
|
29.0
|
|
|
10 years
(Two five-year renewals)
|
|
|
8
|
%
|
|
|
0.1
|
|
|
|
14.3
|
|
Ventas
|
|
June 8, 2006
|
|
|
1
|
|
|
|
19.1
|
|
|
9.5 years
(Two five-year renewals)
|
|
|
8
|
%
|
|
|
0.4
|
|
|
|
|
|
Ventas
|
|
January 31, 2008
|
|
|
1
|
|
|
|
5.0
|
|
|
10 years
(Two five-year renewals)
|
|
|
7.75
|
%
|
|
|
0.2
|
|
|
|
|
|
HCP
|
|
May 1, 2006
|
|
|
3
|
|
|
|
54.0
|
|
|
(4)
(Two ten-year renewals)
|
|
|
8
|
%
|
|
|
0.2
|
|
|
|
12.8
|
|
HCP
|
|
May 31, 2006
|
|
|
6
|
|
|
|
43.0
|
|
|
10 years
(Two ten-year renewals)
|
|
|
8
|
%
|
|
|
0.2
|
|
|
|
0.6
|
|
HCP
|
|
December 1, 2006
|
|
|
4
|
|
|
|
51.0
|
|
|
(4)
(Two ten-year renewals)
|
|
|
8
|
%
|
|
|
0.7
|
|
|
|
|
|
HCP
|
|
December 14, 2006
|
|
|
1
|
|
|
|
18.0
|
|
|
(4)
(Two ten-year renewals)
|
|
|
7.75
|
%
|
|
|
0.3
|
|
|
|
|
|
HCP
|
|
April 11, 2007
|
|
|
1
|
|
|
|
8.0
|
|
|
(4)
(Two ten-year renewals)
|
|
|
7.25
|
%
|
|
|
0.1
|
|
|
|
|
|
HCN
|
|
April 16, 2010
|
|
|
5
|
|
|
|
48.5
|
|
|
15 years
(One 15-year renewal)
|
|
|
8.25
|
%
|
|
|
0.6
|
|
|
|
0.8
|
|
HCN
|
|
May 1, 2010
|
|
|
3
|
|
|
|
36.0
|
|
|
15 years
(One 15-year renewal)
|
|
|
8.25
|
%
|
|
|
0.2
|
|
|
|
0.4
|
|
HCN
|
|
September 10, 2010
|
|
|
12
|
|
|
|
104.6
|
|
|
15 years
(One 15-year renewal)
|
|
|
8.50
|
%
|
|
|
0.4
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
4.9
|
|
|
|
35.5
|
|
Accumulated amortization through December 31, 2010
|
|
|
(1.8
|
)
|
|
|
|
|
Accumulated deferred gain recognized through December 31,
2010
|
|
|
|
|
|
|
(16.4
|
)
|
|
|
|
|
|
|
|
|
|
Net lease acquisition costs / deferred gains / lease concessions
as of December 31, 2010
|
|
$
|
3.1
|
|
|
$
|
19.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Initial lease rates are measured against agreed upon fair market
values and are subject to conditional lease escalation
provisions as forth in each lease agreement. |
|
(2) |
|
Lease acquisition costs are being amortized over the
leases initial term. |
|
(3) |
|
Deferred gains of $32.9 million and lease concessions of
$2.6 million are being recognized in the Companys
statement of income as a reduction in facility lease expense
over the leases initial term. Lease concessions of
$0.6 million relate to the HCP transaction on May 31,
2006, and $2.0 million relate to the Signature Transaction
on September 10, 2010. |
|
(4) |
|
Initial lease term expires on October 31, 2018. |
F-14
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Facility lease expense in the Companys statement of income
includes rent expense plus amortization expense relating to
leasehold acquisition costs offset by the amortization of
deferred gains and lease incentives.
Signature
On September 10, 2010, the Company executed an asset
purchase agreement with Signature Assisted Living of Texas, LLC
(Signature) to acquire its leasehold interests in 12
senior housing communities owned by HCN. Simultaneously with
closing, the Company executed a Master Lease Agreement with HCN
for the 12 communities (the Master Lease Agreement).
The Master Lease Agreement has an initial term of 15 years
with one
15-year
renewal extension available at the Companys option. The
initial lease rate is 8.5% and is subject to certain conditional
escalation clauses. The Company has accounted for this lease as
an operating lease. The Company recorded a lease incentive from
HCN equal to the value of the intangible assets acquired from
Signature. The current estimate of the intangible assets
acquired and the corresponding lease incentive is
$2.0 million and is subject to final valuation adjustments.
The intangible assets have been recorded within other assets,
net, and will be amortized over their respective useful lives.
The lease incentive has been recorded within other long-term
liabilities and will be amortized over the initial lease term as
a reduction in facility lease expense. Additionally, the Company
incurred $0.6 million in lease transaction costs, of which
$0.4 million have been deferred and are being amortized as
a reduction in facility lease expense over the initial
15-year
lease term.
From September 10, 2010 through December 31, 2010, the
12 communities acquired from Signature generated
$9.3 million of revenue and $1.1 million of earnings
before income taxes. Had the Signature Transaction occurred on
January 1, 2010, unaudited pro forma revenue and earnings
of the Company for the year ended December 31, 2010 would
have been $230.4 million and $7.6 million,
respectively. Had the Signature Transaction occurred on
January 1, 2009, unaudited pro forma revenue and earnings
of the Company for the year ended December 31, 2009 would
have been $214.6 million and $5.8 million,
respectively.
Midwest
I
On April 16, 2010, the Company and GE Healthcare sold its
respective ownership interests in Midwest I to HCN in a
sale/leaseback transaction of five senior living communities
owned by subsidiaries of Midwest I. Upon closing the sale, the
Company leased the five senior housing communities from HCN.
This lease was effective April 16, 2010, and has an initial
term of 15 years, with one 15 year renewal extension
available at the Companys option. The initial lease rate
is 8.25% and is subject to certain conditional escalation
clauses. The Company incurred $0.6 million in lease
acquisition costs which have been deferred and are being
amortized in the Companys statement of income over the
initial 15 year lease term. The Company has accounted for
this lease as an operating lease. As a result of this
sale/leaseback transaction, the Company received cash proceeds
of approximately $3.2 million, net of closing costs,
resulting in a gain to the Company of approximately
$0.8 million which has been deferred and is being
recognized in the Companys statement of income as a
reduction in facility lease expense over the initial
15 year lease term.
Midwest
II
On April 30, 2010, the Company and GE Healthcare sold its
respective ownership interests in Midwest II to HCN in a
sale/leaseback transaction of three senior living communities
owned by subsidiaries of Midwest II. Upon closing the sale, the
Company leased the three senior housing communities from HCN.
This lease was effective May 1, 2010, and has an initial
term of 15 years, with one 15 year renewal extension
available at the Companys option. The initial lease rate
is 8.25% and is subject to certain conditional escalation
clauses. The Company incurred $0.2 million in lease
acquisition costs which have been deferred and are being
amortized in the Companys statement of income over the
initial 15 year lease term. The Company has accounted for
this lease as an operating lease. As a result of this
sale/leaseback transaction, the Company received cash proceeds
of approximately $1.3 million, net of closing costs,
resulting in a gain to the Company of approximately
$0.4 million which has been
F-15
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
deferred and is being recognized in the Companys statement
of income as a reduction in facility lease expense over the
initial 15 year lease term.
|
|
5.
|
Property
and Equipment
|
Property and equipment consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Asset Lives
|
|
2010
|
|
|
2009
|
|
|
Land
|
|
|
|
$
|
17,787
|
|
|
$
|
17,787
|
|
Land improvements
|
|
5 to 20 years
|
|
|
1,315
|
|
|
|
1,203
|
|
Buildings and building improvements
|
|
10 to 40 years
|
|
|
332,413
|
|
|
|
329,451
|
|
Furniture and equipment
|
|
5 to 10 years
|
|
|
15,670
|
|
|
|
15,126
|
|
Automobiles
|
|
5 to 7 years
|
|
|
1,671
|
|
|
|
971
|
|
Leasehold improvements
|
|
(1)
|
|
|
20,344
|
|
|
|
16,227
|
|
Construction in progress
|
|
(2)
|
|
|
180
|
|
|
|
182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
389,380
|
|
|
|
380,947
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
94,285
|
|
|
|
80,269
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
$
|
295,095
|
|
|
$
|
300,678
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Leasehold improvements are amortized over the shorter of the
useful life of the asset or the remaining lease term. |
|
(2) |
|
Construction in progress at December 31, 2009, includes
$0.1 million of capitalized computer software development
costs. |
Furniture and equipment includes $2.3 million and
$2.2 million of capitalized computer software development
costs at December 31, 2010 and 2009, respectively, of which
$1.2 million and $0.8 million has been amortized and
is included as a component of accumulated depreciation and
amortization at December 31, 2010 and 2009, respectively.
Automobiles include $0.3 million of assets under capital
lease at December 31, 2010, of which $12,000 has been
amortized and is included as a component of accumulated
depreciation and amortization at December 31, 2010.
F-16
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred loan costs, net
|
|
$
|
1,796
|
|
|
$
|
2,126
|
|
Deferred lease costs, net
|
|
|
3,201
|
|
|
|
2,587
|
|
Security and other deposits
|
|
|
11,773
|
|
|
|
10,195
|
|
Other
|
|
|
1,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,153
|
|
|
$
|
14,908
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Accrued salaries, bonuses and related expenses
|
|
$
|
4,368
|
|
|
$
|
3,282
|
|
Accrued property taxes
|
|
|
7,470
|
|
|
|
5,167
|
|
Accrued interest
|
|
|
913
|
|
|
|
958
|
|
Accrued health claims and workers comp
|
|
|
1,258
|
|
|
|
1,342
|
|
Accrued professional fees
|
|
|
740
|
|
|
|
559
|
|
Other
|
|
|
1,376
|
|
|
|
979
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,125
|
|
|
$
|
12,287
|
|
|
|
|
|
|
|
|
|
|
Notes payable consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Notes Payable
|
|
|
|
Monthly
|
|
|
Net Book Value
|
|
|
Interest
|
|
|
Maturity
|
|
December 31,
|
|
Lender
|
|
Payment
|
|
|
Of Collateral(1)
|
|
|
Rate
|
|
|
Date
|
|
2010
|
|
|
2009
|
|
|
Freddie Mac
|
|
$
|
728
|
|
|
$
|
129,516
|
|
|
|
6.29
|
%
|
|
July 2015
|
|
$
|
101,270
|
|
|
$
|
103,475
|
|
Capmark
|
|
|
239
|
|
|
|
42,664
|
|
|
|
5.46
|
|
|
August 2015
|
|
|
34,787
|
|
|
|
35,707
|
|
Fannie Mae
|
|
|
178
|
|
|
|
32,858
|
|
|
|
5.91
|
|
|
May 2017
|
|
|
28,692
|
|
|
|
29,098
|
|
Freddie Mac
|
|
|
60
|
|
|
|
7,656
|
|
|
|
5.75
|
|
|
March 2017
|
|
|
9,216
|
|
|
|
9,390
|
|
Lehman
|
|
|
|
|
|
|
|
|
|
|
8.20
|
|
|
September 2009
|
|
|
|
|
|
|
4,643
|
|
Insurance Financing
|
|
|
344
|
|
|
|
|
|
|
|
3.30
|
|
|
May 2011
|
|
|
1,706
|
|
|
|
|
|
Insurance Financing
|
|
|
|
|
|
|
|
|
|
|
3.66
|
|
|
March 2010
|
|
|
|
|
|
|
491
|
|
Insurance Financing
|
|
|
|
|
|
|
|
|
|
|
3.66
|
|
|
July 2010
|
|
|
|
|
|
|
365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,549
|
|
|
|
|
|
|
|
6.01
|
%(2)
|
|
|
|
|
175,671
|
|
|
|
183,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less current portion
|
|
|
5,645
|
|
|
|
9,347
|
|
|
|
|
|
|
|
|
|
|
Notes payable, net
|
|
$
|
170,026
|
|
|
$
|
173,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
24 of the facilities owned by the Company are encumbered by
mortgage debt and are provided as collateral under their
respective loan agreements. |
F-17
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(2) |
|
Weighted average interest rate on current debt outstanding. |
The aggregate scheduled maturities of notes payable at
December 31, 2010, are as follows (in thousands):
|
|
|
|
|
2011
|
|
|
5,645
|
|
2012
|
|
|
4,156
|
|
2013
|
|
|
4,446
|
|
2014
|
|
|
4,725
|
|
2015
|
|
|
122,261
|
|
Thereafter
|
|
|
34,438
|
|
|
|
|
|
|
Total
|
|
$
|
175,671
|
|
|
|
|
|
|
On September 10, 2010, in conjunction with the Signature
Transaction, the Company obtained certain insurance policies and
entered into a finance agreement totaling $0.3 million. The
finance agreement has a fixed interest rate of 3.30% with
principal being repaid over a
7-month term.
On September 10, 2010, the Company issued standby letters
of credit, totaling $2.2 million, for the benefit of HCN on
certain leases between HCN and the Company.
On May 31, 2010, the Company renewed certain insurance
policies and entered into a finance agreement totaling
$3.7 million. The finance agreement has a fixed interest
rate of 3.30% with principal being repaid over a
12-month
term.
On April 16, 2010, the Company issued standby letters of
credit, totaling $1.7 million, for the benefit of HCN on
certain leases between HCN and the Company.
On April 15, 2010, the Company negotiated a pay-off
settlement with a Lehman securitized trust for a promissory note
of one of the Companys wholly owned subsidiaries that
matured on September 1, 2009. The securitized promissory
note carried an outstanding principal balance of
$4.6 million which was collateralized with the assets of
the subsidiary and was nonrecourse to the Company. The pay-off
settlement was for $3.7 million, excluding amounts reserved
and escrowed, with no further obligation to the Companys
subsidiary and resulted in a gain to the Company of
approximately $0.7 million.
On October 31, 2009, the Company renewed certain insurance
policies and entered into a finance agreement totaling
$0.5 million. The finance agreement has a fixed interest
rate of 3.66% with principal being repaid over a
10-month
term.
On May 31, 2009, the Company renewed certain insurance
policies and entered into a finance agreement totaling
$1.6 million. The finance agreement has a fixed interest
rate of 3.66% with principal being repaid over a
10-month
term.
The senior housing communities owned by the Company and
encumbered by mortgage debt are provided as collateral under
their respective loan agreements. At December 31, 2010 and
2009, these communities carried a total net book value of
$212.7 million and $224.9 million, respectively, with
total mortgage loans outstanding of $174.0 million and
$182.3 million, respectively.
In connection with the Companys loan commitments described
above, the Company incurred financing charges that were deferred
and amortized over the life of the notes. At December 31,
2010 and 2009, the Company had gross deferred loan costs of
$3.3 million. Accumulated amortization was
$1.5 million and $1.2 million at December 31,
2010 and 2009, respectively. Amortization expense is expected to
be $0.3 million in each of fiscal 2011, 2012, 2013, 2014,
and 2015.
F-18
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company must maintain certain levels of tangible net worth
and comply with other restrictive covenants under the terms of
certain promissory notes. The Company was in compliance with all
of its debt covenants at December 31, 2010 and 2009.
Preferred
Stock
The Company is authorized to issue preferred stock in series and
to fix and state the voting powers and such designations,
preferences and relative participating, optional or other
special rights of the shares of each such series and the
qualifications, limitations and restrictions thereof. Such
action may be taken by the Board without stockholder approval.
The rights, preferences and privileges of holders of common
stock are subject to the rights of the holders of preferred
stock. No preferred stock was outstanding as of
December 31, 2010 and 2009.
Share
Repurchases
On January 22, 2009, the Companys board of directors
approved a share repurchase program that authorized the Company
to purchase up to $10.0 million of the Companys
common stock. Purchases may be made from time to time using a
variety of methods, which may include open market purchases,
privately negotiated transactions or block trades, or by any
combination of such methods, in accordance with applicable
insider trading and other securities laws and regulations. The
size, scope and timing of any purchases will be based on
business, market and other conditions and factors, including
price, regulatory and contractual requirements or consents, and
capital availability. The repurchase program does not obligate
the Company to acquire any particular amount of common stock and
the share repurchase authorization has no stated expiration
date. Shares of stock repurchased under the program will be held
as treasury shares. Pursuant to this authorization, during
fiscal 2009, the Company purchased 349,800 shares at an
average cost of $2.67 per share for a total cost to the Company
of approximately $0.9 million. All such purchases were made
in open market transactions. The Company did not purchase any
shares of its common stock pursuant to the Companys share
repurchase program during fiscal 2010.
|
|
10.
|
Stock-Based
Compensation
|
Stock
Options
The Companys stock option program is a long-term retention
program that is intended to attract, retain and provide
incentives for employees, officers and directors and to align
stockholder and employee interest. The Companys options
generally vest over one to five years and the related expense is
amortized on a straight-line basis over the vesting period.
A summary of the Companys stock option activity and
related information for the years ended December 31, 2010,
2009, and 2008 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Options
|
|
December 31, 2010
|
|
Year
|
|
|
Granted
|
|
|
Exercised
|
|
|
Forfeited
|
|
|
End of Year
|
|
|
Exercisable
|
|
|
Shares
|
|
|
642,120
|
|
|
|
|
|
|
|
99,752
|
|
|
|
26,034
|
|
|
|
516,334
|
|
|
|
516,334
|
|
Weighted average price
|
|
$
|
4.34
|
|
|
$
|
|
|
|
$
|
3.58
|
|
|
$
|
5.21
|
|
|
$
|
4.44
|
|
|
$
|
4.44
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
895,334
|
|
|
|
|
|
|
|
59,245
|
|
|
|
193,969
|
|
|
|
642,120
|
|
|
|
642,120
|
|
Weighted average price
|
|
$
|
4.83
|
|
|
$
|
|
|
|
$
|
3.67
|
|
|
$
|
6.81
|
|
|
$
|
4.34
|
|
|
$
|
4.34
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
937,334
|
|
|
|
|
|
|
|
38,000
|
|
|
|
4,000
|
|
|
|
895,334
|
|
|
|
895,334
|
|
Weighted average price
|
|
$
|
4.87
|
|
|
$
|
|
|
|
$
|
6.06
|
|
|
$
|
3.69
|
|
|
$
|
4.83
|
|
|
$
|
4.83
|
|
F-19
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The options outstanding and the options exercisable at
December 31, 2010, 2009, and 2008, had an intrinsic value
of $1.2 million, $0.9 million, and $250,000,
respectively. The fair value of the 5,000 shares that
vested in fiscal 2008 was $29,000. All stock options had fully
vested as of December 31, 2008.
The following table summarizes information relating to the
Companys options outstanding and options exercisable as of
December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Options Exercisable
|
|
|
|
Number
|
|
|
Remaining
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
Outstanding at
|
|
|
Contractual Life
|
|
|
Weighted Average
|
|
|
Exercisable at
|
|
|
Weighted Average
|
|
Range of Exercise Prices
|
|
End of Year
|
|
|
(Years)
|
|
|
Exercise Price
|
|
|
End of Year
|
|
|
Exercise Price
|
|
|
$1.80 to $1.80
|
|
|
206,024
|
|
|
|
0.72
|
|
|
$
|
1.80
|
|
|
|
206,024
|
|
|
$
|
1.80
|
|
$2.00 to $3.70
|
|
|
17,000
|
|
|
|
1.88
|
|
|
$
|
3.20
|
|
|
|
17,000
|
|
|
$
|
3.20
|
|
$3.75 to $3.75
|
|
|
2,000
|
|
|
|
1.24
|
|
|
$
|
3.75
|
|
|
|
2,000
|
|
|
$
|
3.75
|
|
$4.14 to $4.14
|
|
|
1,600
|
|
|
|
1.08
|
|
|
$
|
4.14
|
|
|
|
1,600
|
|
|
$
|
4.14
|
|
$4.50 to $4.50
|
|
|
3,000
|
|
|
|
3.58
|
|
|
$
|
4.50
|
|
|
|
3,000
|
|
|
$
|
4.50
|
|
$4.85 to $4.85
|
|
|
6,000
|
|
|
|
3.38
|
|
|
$
|
4.85
|
|
|
|
6,000
|
|
|
$
|
4.85
|
|
$5.90 to $5.90
|
|
|
6,000
|
|
|
|
4.36
|
|
|
$
|
5.90
|
|
|
|
6,000
|
|
|
$
|
5.90
|
|
$6.30 to $6.30
|
|
|
259,710
|
|
|
|
2.92
|
|
|
$
|
6.30
|
|
|
|
259,710
|
|
|
$
|
6.30
|
|
$6.63 to $6.63
|
|
|
6,000
|
|
|
|
3.08
|
|
|
$
|
6.63
|
|
|
|
6,000
|
|
|
$
|
6.63
|
|
$10.97 to $10.97
|
|
|
9,000
|
|
|
|
5.35
|
|
|
$
|
10.97
|
|
|
|
9,000
|
|
|
$
|
10.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.80 to $10.97
|
|
|
516,334
|
|
|
|
2.06
|
|
|
$
|
4.44
|
|
|
|
516,334
|
|
|
$
|
4.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock
The Company may also grant restricted stock awards to employees,
officers, and directors in order to attract, retain, and provide
incentives for such individuals and to more closely align
stockholder and employee interests. Restricted stock awards
generally vest over a period of three to four years but such
awards are considered outstanding at the time of grant, since
the holders thereof are entitled to dividends and voting rights.
A summary of the Companys restricted common stock awards
activity and related information for the year ended
December 31, 2010, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
Year
|
|
|
Issued
|
|
|
Vested
|
|
|
Forfeited
|
|
|
End of Year
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
649,207
|
|
|
|
59,000
|
|
|
|
236,742
|
|
|
|
21,572
|
|
|
|
449,893
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
251,632
|
|
|
|
561,625
|
|
|
|
159,050
|
|
|
|
5,000
|
|
|
|
649,207
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
256,858
|
|
|
|
66,000
|
|
|
|
50,586
|
|
|
|
20,640
|
|
|
|
251,632
|
|
The restricted stock outstanding at December 31, 2010 and
2009, had an intrinsic value of $3.0 million and
$3.3 million, respectively.
During fiscal 2010, the Company awarded 59,000 shares of
restricted common stock to certain employees and directors of
the Company. The average market value of the common stock on the
date of grant was $5.03. These awards of restricted shares vest
over a three to four-year period and had an intrinsic value of
$0.3 million on the date of issue.
F-20
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
Based Compensation
The Company uses the Black-Scholes option pricing model to
estimate the grant date fair value of its stock options. The
Black-Scholes model requires the input of certain assumptions
including expected volatility, expected dividend yield, expected
life of the option and the risk free interest rate. The expected
volatility used by the Company is based primarily on an analysis
of historical prices of the Companys common stock. The
expected term of options granted is based primarily on
historical exercise patterns on the Companys outstanding
stock options. The risk free rate is based on zero-coupon
U.S. Treasury yields in effect at the date of grant with
the same period as the expected option life. The Company does
not expect to pay dividends on its common stock and therefore
has used a dividend yield of zero in determining the fair value
of its awards. The option forfeiture rate assumption used by the
Company, which affects the expense recognized as opposed to the
fair value of the award, is based primarily on the
Companys historical option forfeiture patterns. The
Company recognizes compensation expense of a restricted stock
award over its vesting period based on the fair value of the
award on the grant date, net of estimated forfeitures.
The Company has total stock-based compensation expense, net of
estimated forfeitures, of $1.0 million not recognized as of
December 31, 2010, and expects this expense to be
recognized over approximately a three to four-year period.
The provision (benefit) for income taxes consists of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(1,184
|
)
|
|
$
|
(1,125
|
)
|
|
$
|
109
|
|
State
|
|
|
383
|
|
|
|
477
|
|
|
|
498
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
3,327
|
|
|
|
2,263
|
|
|
|
1,502
|
|
State
|
|
|
895
|
|
|
|
593
|
|
|
|
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,421
|
|
|
$
|
2,208
|
|
|
$
|
2,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision (benefit) for income taxes differed from the
amounts of income tax provision (benefit) determined by applying
the U.S. federal statutory income tax rate to income (loss)
before benefit for income taxes as a result of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Tax provision at federal statutory rates
|
|
$
|
2,610
|
|
|
$
|
1,689
|
|
|
$
|
2,053
|
|
State income tax expense, net of federal effects
|
|
|
844
|
|
|
|
706
|
|
|
|
463
|
|
Federal and state income tax return true up
|
|
|
(40
|
)
|
|
|
(196
|
)
|
|
|
(222
|
)
|
State effective rate changes
|
|
|
|
|
|
|
|
|
|
|
5
|
|
Other
|
|
|
7
|
|
|
|
9
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,421
|
|
|
$
|
2,208
|
|
|
$
|
2,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of the Companys deferred tax assets and
liabilities, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Deferred gain on sale/leaseback transaction
|
|
$
|
7,636
|
|
|
$
|
8,092
|
|
Depreciation and amortization
|
|
|
|
|
|
|
1,830
|
|
Net operating loss carryforward (expiring up to 2028)
|
|
|
1,776
|
|
|
|
1,621
|
|
Compensation costs
|
|
|
1,488
|
|
|
|
1,750
|
|
Investment in partnerships
|
|
|
2,604
|
|
|
|
2,644
|
|
Other
|
|
|
1,241
|
|
|
|
1,179
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
14,745
|
|
|
|
17,116
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Triad partnership interest
|
|
|
9,768
|
|
|
|
8,127
|
|
Depreciation and amortization
|
|
|
209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
9,977
|
|
|
|
8,127
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net
|
|
$
|
4,768
|
|
|
$
|
8,989
|
|
|
|
|
|
|
|
|
|
|
Current deferred tax assets, net
|
|
$
|
1,290
|
|
|
$
|
1,208
|
|
Long-term deferred tax assets, net
|
|
|
3,478
|
|
|
|
7,781
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net
|
|
$
|
4,768
|
|
|
$
|
8,989
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Management regularly evaluates the
future realization of deferred tax assets and provides a
valuation allowance, if considered necessary, based on such
evaluation. The Company has evaluated future expectations of net
income and various tax planning strategies that it believes are
both prudent and feasible, including various strategies to
utilize net built-in gains on the Companys appreciated
assets. However, the benefits of the net deferred tax assets
might not be realized if actual results differ from
expectations. The Company believes, based upon this analysis,
that the realization of net deferred tax assets is reasonably
assured and therefore has not provided for a valuation allowance
As of December 31, 2010, the Company has federal and state
net operating loss carryforwards of $1.9 million and
$27.9 million, respectively, and related deferred tax
assets of $0.6 million and $1.1 million, respectively.
The Company is generally no longer subject to federal and state
tax audits for years before 2006.
|
|
12.
|
Employee
Benefit Plans
|
The Company has a 401(k) salary deferral plan (the
Plan) in which all employees of the Company meeting
minimum service and age requirements are eligible to
participate. Contributions to the Plan are in the form of
employee salary deferrals, which are subject to employer
matching contributions of up to 2% of the employees annual
salary. The Companys contributions are funded semi-monthly
to the Plan administrator. Matching contributions of
$0.4 million were contributed to the Plan annually in
fiscal 2010, 2009, and 2008. The Company incurred administrative
expenses related to the Plan of $13,750, $13,100, and $12,400 in
fiscal 2010, 2009, and 2008, respectively.
F-22
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has claims incurred in the normal course of its
business. Most of these claims are believed by management to be
covered by insurance, subject to normal reservations of rights
by the insurance companies and possibly subject to certain
exclusions in the applicable insurance policies. Whether or not
covered by insurance, these claims, in the opinion of
management, based on advice of legal counsel, should not have a
material effect on the consolidated financial statements of the
Company if determined adversely to the Company.
|
|
14.
|
Fair
Value of Financial Instruments
|
The carrying amounts and fair values of financial instruments at
December 31, 2010 and 2009 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Carrying
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Cash and cash equivalents
|
|
$
|
31,248
|
|
|
$
|
31,248
|
|
|
$
|
28,972
|
|
|
$
|
28,972
|
|
Restricted cash
|
|
|
6,334
|
|
|
|
6,334
|
|
|
|
2,167
|
|
|
|
2,167
|
|
Notes payable
|
|
|
175,671
|
|
|
|
170,466
|
|
|
|
183,169
|
|
|
|
170,393
|
|
The following methods and assumptions were used in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents and Restricted
cash: The carrying amounts reported in the
balance sheet for cash and cash equivalents and restricted cash
equal fair value.
Notes payable: The fair value of notes payable
is estimated using discounted cash flow analysis, based on
current incremental borrowing rates for similar types of
borrowing arrangements.
The estimated fair value of these assets and liabilities could
be affected by market changes and this effect could be material.
|
|
15.
|
Investments
in Joint Ventures
|
The Companys investments in joint ventures consist of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Midwest I partner interest
|
|
$
|
|
|
|
$
|
2,506
|
|
Midwest II partner interest
|
|
|
|
|
|
|
1,116
|
|
SHPII/CSL member interests
|
|
|
1,122
|
|
|
|
1,141
|
|
SHPIII/CSL Miami member interest
|
|
|
36
|
|
|
|
486
|
|
SHPIII/CSL Richmond Heights member interest
|
|
|
536
|
|
|
|
646
|
|
SHPIII/CSL Levis Commons member interest
|
|
|
530
|
|
|
|
641
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,224
|
|
|
$
|
6,536
|
|
|
|
|
|
|
|
|
|
|
Midwest I: In January 2006, the Company
announced the formation of a joint venture, Midwest I with GE
Healthcare to acquire five senior housing communities from a
third party. Midwest I was owned approximately 89% by GE
Healthcare and 11% by the Company. The Company contributed
$2.7 million for its interests in Midwest I. The five
communities currently comprise 293 assisted living units with a
capacity of 391 residents. Effective February 1, 2006,
Midwest I acquired four of the five communities and on
March 31, 2006, Midwest I closed on the fifth community.
The Company managed the five acquired communities under
long-term management agreements with Midwest I. The Company
accounted for its investment in Midwest I under the equity
method of accounting and
F-23
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the Company recognized earnings in the equity of Midwest I of
$0.1 million in fiscal 2010 and $0.2 million in both
fiscal 2009 and 2008. In addition, the Company earned management
fees of $0.2 million in fiscal 2010 and $0.5 million
in each of fiscal 2009 and 2008 on the Midwest I communities. On
April 16, 2010, Midwest I closed the sale of the Midwest I
subsidiaries that owned the five senior housing communities to
HCN. Upon closing the sale, the Company leased the five senior
housing communities from HCN. For additional information, refer
to Note 4, Facility Lease Transactions.
Midwest II: In August 2006, the Company
announced the formation of a joint venture, Midwest II, with GE
Healthcare to acquire three senior housing communities from a
third party. Midwest II was owned approximately 85% by GE
Healthcare and 15% by the Company. The Company contributed
$1.6 million for its interest in Midwest II. The three
communities currently comprise 300 assisted living units with a
capacity of 348 residents. On August 11, 2006,
Midwest II acquired the three senior living communities.
The Company managed the three acquired communities under
long-term management agreements with Midwest II. The Company
accounted for its investment in Midwest II under the equity
method of accounting and the Company recognized earnings
(losses) in the equity of Midwest II of $16,000,
$0.1 million, and ($0.1) million in fiscal 2010, 2009,
and 2008, respectively. In addition, the Company earned
management fees of $0.2 million, $0.6 million, and
$0.5 million in fiscal 2010, 2009, and 2008, respectively,
on the Midwest II communities. On April 30, 2010,
Midwest II closed the sale of the Midwest II
subsidiaries that owned the three senior housing communities to
HCN. Upon closing the sale, the Company leased the three senior
housing communities from HCN. For additional information, refer
to Note 4, Facility Lease Transactions.
SHPII/CSL: In November 2004, the Company
formed SHPII/CSL with SHPII. Effective as of November 30,
2004, SHPII/CSL acquired the Spring Meadows Communities which
currently comprise 628 units with a combined capacity of
758 residents. The Company contributed $1.3 million for its
interests in SHPII/CSL. The Company manages the Spring Meadows
Communities under long-term management contracts with SHPII/CSL.
The Company accounts for its investment in SHPII/CSL under the
equity method of accounting and the Company recognized earnings
in the equity of SHPII/CSL of $0.3 million in each of
fiscal 2010, 2009, and 2008. In addition, the Company earned
$1.2 million in management fees on the SHP II/CSL
communities in each of fiscal 2010, 2009, and 2008. On
December 22, 2010, the Company announced that SHPII/CSL
entered into an agreement to sell the Spring Meadows Communities
to HCN. As a condition to closing of the sale to HCN, the
Company will enter into long term leases of the communities with
HCN.
SHPIII/CSL Miami: In May 2007, the Company and
SHPIII entered into SHPIII/CSL Miami to develop a senior housing
community in Miamisburg, Ohio. Under the joint venture and
related agreements, the Company earns development and management
fees and may receive incentive distributions. The senior housing
community currently consists of 101 independent living units and
45 assisted living units with a capacity of 196 residents and
opened in August 2008. The Company contributed $0.8 million
to SHPIII/CSL Miami for its 10% interest. The Company accounts
for its investment in SHPIII/CSL Miami under the equity method
of accounting and the Company recognized losses in the equity of
SHPIII/CSL Miami of ($0.4) million, ($0.2) million and
($0.1) million in fiscal 2010, 2009, and 2008,
respectively. The Company earned $0.2 million in
development fees from SHPIII/CSL Miami in fiscal 2008. In
addition, the Company earned $0.1 million in pre-marketing
fees and $0.1 million in management fees on the community
in fiscal 2008. The Company earned $0.2 million in
management fees on the community in each of fiscal 2010 and 2009.
SHPIII/CSL Richmond Heights: In November 2007,
the Company and SHPIII entered into SHPIII/CSL Richmond Heights
to develop a senior housing community in Richmond Heights, Ohio.
Under the joint venture and related agreements, the Company
earns development and management fees and may receive incentive
distributions. The senior housing community currently consists
of 96 independent living units and 45 assisted living units with
a capacity of 197 residents and opened in April 2009. The
Company contributed $0.8 million to SHPIII/CSL Richmond
Heights for its 10% interest. The Company accounts for its
investment in SHPIII/CSL Richmond Heights under the equity
method of accounting and the Company recognized a loss in the
equity of SHPIII/CSL Richmond
F-24
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Heights of ($0.1) million in each of fiscal 2010 and 2009.
The Company earned $1.0 million in development fees from
SHPIII/CSL Richmond Heights in fiscal 2008. In addition, the
Company earned $12,500 and $0.1 million in pre-marketing
fees on the community in fiscal 2009 and 2008, respectively. The
Company earned $0.2 million and $0.1 million in
management fees on the community in fiscal 2010 and 2009,
respectively.
SHPIII/CSL Levis Commons: In December 2007,
the Company and SHPIII entered into SHPIII/CSL Levis Commons to
develop a senior housing community near Toledo, Ohio. Under the
joint venture and related agreements, the Company earns
development and management fees and may receive incentive
distributions. The senior housing community currently consists
of 101 independent living units and 45 assisted living units
with a capacity of 197 residents and opened in April 2009. The
Company has contributed $0.8 million to SHPIII/CSL Levis
Commons for its 10% interest. The Company accounts for its
investment in SHPIII/CSL Levis Commons under the equity method
of accounting and the Company recognized a loss in the equity of
SHPIII/CSL Levis Commons of ($0.1) million and
($0.2) million in fiscal 2010 and 2009, respectively. The
Company earned $1.1 million in development fees from
SHPIII/CSL Levis Commons in fiscal 2008. In addition, the
Company earned $12,500 and $0.1 million in pre-marketing
fees on the community in fiscal 2009 and 2008, respectively. The
Company earned $0.2 million and $0.1 million in
management fees on the community in fiscal 2010 and 2009,
respectively.
|
|
16.
|
Allowance
for Doubtful Accounts
|
The components of the allowance for doubtful accounts are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of year
|
|
$
|
1,573
|
|
|
$
|
1,541
|
|
|
$
|
1,043
|
|
Provision for bad debts, net of recoveries
|
|
|
173
|
|
|
|
344
|
|
|
|
556
|
|
Write-offs and other
|
|
|
(139
|
)
|
|
|
(312
|
)
|
|
|
(58
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
1,607
|
|
|
$
|
1,573
|
|
|
$
|
1,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company currently leases 45 senior living communities with
certain REIT. The lease terms are generally for
10-15 years
with renewal options for 5-15 years at the Companys
option. Under these lease agreements the Company is responsible
for all operating costs, maintenance and repairs, insurance and
property taxes.
As of December 31, 2010, the Company leased ten senior
living facilities from Ventas. The Ventas Lease Agreements each
have an initial term of approximately ten years, with two
five-year renewal extensions available at the Companys
option. The initial lease rate under each of the Ventas Lease
Agreements range from 7.75% to 8% and are subject to certain
conditional escalation clauses which will be recognized when
probable or incurred. The initial terms on the Ventas Lease
Agreements expire on various dates through January 2018. The
Company incurred $2.2 million in lease acquisition costs
related to the Ventas Lease Agreements. These deferred lease
acquisition costs are being amortized over the initial
10 year lease terms and are included in facility lease
expense in the Companys statement of income. The Company
accounts for each of the Ventas Lease Agreements as operating
leases.
As of December 31, 2010, the Company leased 15 senior
living facilities from HCP. The HCP Lease Agreements each have
an initial term of ten years, with two ten year renewal
extensions available at the Companys option. The initial
lease rate under the HCP Lease Agreements range from 7.25% to 8%
and are subject to certain conditional escalation clauses, which
will be recognized when probable or incurred. The initial terms
on the HCP Lease Agreements expire on various dates through
October 2018. The Company incurred $1.5 million in lease
acquisition costs related to the HCP Lease Agreements. These
deferred lease acquisition costs are being amortized
F-25
CAPITAL
SENIOR LIVING CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
over the initial 10 year lease terms and are included in
facility lease expense in the Companys statement of
income. The Company accounts for each of the HCP Lease
Agreements as operating leases.
As of December 31, 2010, the Company leased 20 senior
living facilities from HCN. The HCN Lease Agreements each have
an initial term of 15 years, with one 15 year renewal
extension available at the Companys option. The initial
lease rate under the HCN Lease Agreements range from 8.25% to
8.5% and are subject to certain conditional escalation clauses,
which will be recognized when probable or incurred. The initial
terms on the HCN Lease Agreements expire on various dates
through September 2025. The Company incurred $1.2 million
in lease acquisition costs related to the HCN Lease Agreements.
These deferred lease acquisition costs are being amortized over
the initial 15 year lease terms and are included in
facility lease expense in the Companys statement of
income. The Company accounts for each of the HCN Lease
Agreements as operating leases.
At December 31, 2010 and 2009, the Company had gross
deferred lease costs of $4.9 million and $3.9 million,
respectively. Accumulated amortization at December 31, 2010
and 2009 was $1.8 million and $1.3 million,
respectively. Amortization expense is expected to be
approximately $0.4 million in each of the next five fiscal
years.
The Company leases its corporate headquarters in Dallas, Texas,
and an office in New York City and has various lease contracts
for a duration of 5 years or less on autos, buses and
office equipment. The lease on the corporate headquarters
expires in February 2013.
On September 10, 2010, in conjunction with the Signature
Transaction, a non-cancelable lease that expires in 2013 for ten
12-passenger Ford Minibuses used to transport residents of the
communities was transferred from Signature to the Company. The
lease is classified as a capital lease because it contains a
bargain purchase option which resulted in the Company recording
a Capital Lease Obligation for $0.2 million.
The Company incurred $37.5 million, $29.7 million and
$28.8 million in lease expense during fiscal 2010, 2009,
and 2008, respectively. Future minimum lease commitments as of
December 31, 2010, are as follows (in thousands):
|
|
|
|
|
2011
|
|
$
|
46,395
|
|
2012
|
|
|
46,188
|
|
2013
|
|
|
45,743
|
|
2014
|
|
|
45,437
|
|
2015
|
|
|
41,917
|
|
Thereafter
|
|
|
186,336
|
|
|
|
|
|
|
Total
|
|
$
|
412,016
|
|
|
|
|
|
|
There are various financial covenants and other restrictions in
our lease agreements. Under the terms of certain lease
agreements, the Company was required to pay additional cash
collateral of approximately $1.1 million and
$1.2 million during the fiscal years ended
December 31, 2010 and 2009, respectively. Once the Company
reaches certain performance targets, the additional cash
collateral paid is returnable to the Company. At
December 31, 2010, the Company was not in compliance with a
certain lease covenant which was cured by the Company through a
lease modification amendment agreed to by the Company and
landlord on March 11, 2011. There were no other lease
covenant violations at December 31, 2010. The Company was
in compliance with all of its lease covenants at
December 31, 2009.
F-26
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Capital Senior Living Corporation
We have audited Capital Senior Living Corporations
internal control over financial reporting as of
December 31, 2010, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Capital Senior Living Corporations
management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Managements Report on
Internal Control Over Financial Reporting. Our responsibility is
to express an opinion on the companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Capital Senior Living Corporation maintained, in
all material respects, effective internal control over financial
reporting as of December 31, 2010, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Capital Senior Living Corporation
as of December 31, 2010 and 2009, and the related
consolidated statements of income, shareholders equity,
and cash flows for each of the three years in the period ended
December 31, 2010, and our report dated March 14,
2011, expressed an unqualified opinion thereon.
Dallas, Texas
March 14, 2011
F-27
INDEX TO
EXHIBITS
The following documents are filed as a part of this report.
Those exhibits previously filed and incorporated herein by
reference are identified below. Exhibits not required for this
report have been omitted.
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
2
|
.1
|
|
|
|
Asset Purchase Agreement, dated as of June 25, 2010,
between Capital Senior Living Acquisition, L.L.C. and Signature
Assisted Living of Texas, LLC. (Incorporated by reference to
exhibit 2.1 to the Companys Current Report on
Form 8-K,
dated June 28, 2010, filed by the Company with the
Securities and Exchange Commission.)
|
|
3
|
.1
|
|
|
|
Amended and Restated Certificate of Incorporation of the
Registrant (Incorporated by reference to Exhibit 3.1 to the
Registration Statement
No. 333-33379
on
Form S-1/A
filed by the Company with the Securities and Exchange Commission
on September 8, 1997.)
|
|
3
|
.1.1
|
|
|
|
Amendment to Amended and Restated Certificate of Incorporation
of the Registrant (Incorporated by reference to Exhibit 3.1
to the Companys Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 1999, filed by
the Company with the Securities and Exchange Commission.)
|
|
3
|
.2
|
|
|
|
Bylaws of the Registrant (Incorporated by reference to
Exhibit 3.2 to the Registration Statement
No. 333-33379
on
Form S-1/A
filed by the Company with the Securities and Exchange Commission
on September 8, 1997.)
|
|
3
|
.2.1
|
|
|
|
Amended and Restated Bylaws of the Registrant (Incorporated by
reference to Exhibit 3.2 to the Companys Quarterly
Report on
Form 10-Q
for the quarterly period ended September 30, 1999, filed by
the Company with the Securities and Exchange Commission.)
|
|
3
|
.2.2
|
|
|
|
Amendment No. 2 to Amended and Restated Bylaws of the
Registrant (Incorporated by reference to Exhibit 3.2.2 to
the Companys Annual Report on
Form 10-K
for the year period ended December 31, 2002, filed by the
Company with the Securities and Exchange Commission.)
|
|
4
|
.1
|
|
|
|
1997 Omnibus Stock and Incentive Plan for Capital Senior Living
Corporation, as amended (Incorporated by reference to
Exhibit 4.1 to the Companys Registration Statement on
Form S-8,
filed on December 3, 1999, by the Company with Securities
and Exchange Commission.)
|
|
4
|
.2
|
|
|
|
2007 Omnibus Stock and Incentive Plan for Capital Senior Living
Corporation. (Incorporated by reference to Exhibit 4.6 to
the Companys Current Report on
Form 8-K
filed by the Company with the Securities and Exchange Commission
on May 31, 2007.)
|
|
4
|
.3
|
|
|
|
First Amendment to 2007 Omnibus Stock and Incentive Plan for
Capital Senior Living Corporation. (Incorporated by reference to
Exhibit 4.7 to the Companys Current Report on
Form 8-K
filed by the Company with the Securities and Exchange Commission
on May 31, 2007.)
|
|
4
|
.4
|
|
|
|
Rights Agreement, dated as of February 25, 2010, by and
between Capital Senior Living Corporation and Mellon Investor
Services LLC, including all exhibits thereto (Incorporated by
reference to Exhibit 4.1 to the Companys Current
Report on
Form 8-K
on February 25, 2010).
|
|
4
|
.5
|
|
|
|
Form of Certificate of Designation of Series A Junior
Participating Preferred Stock, par value $0.01 per share
(Incorporated by reference to Exhibit 4.2 to the
Companys Current Report on
Form 8-K
on February 25, 2010).
|
|
4
|
.6
|
|
|
|
Form of Right Certificate (included as Exhibit B to the
Rights Agreement, which is Exhibit 4.4 hereto).
|
|
4
|
.7
|
|
|
|
Form of Summary of Rights (included as Exhibit C to the
Rights Agreement, which is Exhibit 4.4 hereto).
|
|
10
|
.1
|
|
|
|
1997 Omnibus Stock and Incentive Plan for Capital Senior Living
Corporation, as amended (Incorporated by reference to
Exhibit 4.1 to the Companys Registration Statement on
Form S-8,
filed on December 3, 1999, by the Company with Securities
and Exchange Commission.)
|
|
10
|
.1.1
|
|
|
|
Form of Stock Option Agreement (Incorporated by reference to
Exhibit 4.2 to the Companys Registration Statement on
Form S-8,
filed on December 3, 1999, by the Company with Securities
and Exchange Commission.)
|
|
10
|
.3
|
|
|
|
Employment Agreement, dated as of November 1, 1996, by and
between Capital Senior Living Corporation and Lawrence A. Cohen
(Incorporated by reference to Exhibit 10.11 from the
Registration Statement
No. 333-33379
on
Form S-1
filed by the Company with the Securities and Exchange
Commission.)
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
10
|
.4
|
|
|
|
Employment Agreement, dated as of November 26, 1996, by and
between Capital Senior Living, Inc. and David R. Brickman
(Incorporated by reference to Exhibit 10.12 to the
Registration Statement
No. 333-33379
on
Form S-1
filed by the Company with the Securities and Exchange
Commission.)
|
|
10
|
.5
|
|
|
|
Employment Agreement, dated as of November 26, 1996, by and
between Capital Senior Living, Inc. and Keith N. Johannessen
(Incorporated by reference to Exhibit 10.13 from the
Registration Statement
No. 333-33379
on
Form S-1
filed by the Company with the Securities and Exchange Commission.
|
|
10
|
.6
|
|
|
|
Employment Agreement, dated as of December 10, 1996, by and
between Capital Senior Living, Inc. and Rob L. Goodpaster
(Incorporated by reference to Exhibit 10.50 to the
Companys Annual Report on
Form 10-K
for the year ended December 31, 1998, filed by the Company
with the Securities and Exchange Commission.)
|
|
10
|
.7
|
|
|
|
Agreement of Limited Partnership of Triad Senior Living II, L.P.
dated September 23, 1998 (Incorporated by reference to
Exhibit 10.57 to the Companys Annual Report on
Form 10-K
for the year ended December 31, 1998, filed by the Company
with the Securities and Exchange Commission.)
|
|
10
|
.8
|
|
|
|
Agreement of Limited Partnership of Triad Senior Living III,
L.P. dated November 10, 1998 (Incorporated by reference to
Exhibit 10.58 to the Companys Annual Report on
Form 10-K
for the year ended December 31, 1998, filed by the Company
with the Securities and Exchange Commission.)
|
|
10
|
.9
|
|
|
|
First Amendment to Amended and Restated Employment Agreement of
James A. Stroud, dated March 22, 1999, by and between James
A. Stroud and Capital Senior Living Corporation (Incorporated by
reference to the Exhibit 10.2 to the Companys
Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 1999, filed by
the Company with the Securities and Exchange Commission.)
|
|
10
|
.10
|
|
|
|
Second Amendment to Amended and Restated Employment Agreement of
James A. Stroud, dated May 31, 1999, by and between James
A. Stroud and Capital Senior Living Corporation (Incorporated by
reference to the Exhibit 10.3 to the Companys
Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 1999, filed by
the Company with the Securities and Exchange Commission.)
|
|
10
|
.11
|
|
|
|
Agreement of Limited Partnership of Triad Senior Living IV, L.P.
dated December 22, 1998 (Incorporated by reference to
Exhibit 10.59 to the Companys Annual Report on
Form 10-K
for the year ended December 31, 1998, filed by the Company
with the Securities and Exchange Commission.)
|
|
10
|
.12
|
|
|
|
Employment Agreement, dated May 26, 1999, by and between
Lawrence A. Cohen and Capital Senior Living Corporation
(Incorporated by reference to the Exhibit 10.4 to the
Companys Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 1999, filed by
the Company with the Securities and Exchange Commission.)
|
|
10
|
.13
|
|
|
|
Employment Agreement, dated May 25, 1999, by and between
Ralph A. Beattie and Capital Senior Living Corporation
(Incorporated by reference to the Exhibit 10.76 to the
Companys Annual Report on
Form 10-K,
dated March 30, 2000, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.14
|
|
|
|
Second Amended and Restated Agreement of Limited Partnership of
Triad Senior Living I, L.P. (Incorporated by reference to
the Exhibit 10.78 to the Companys Annual Report on
Form 10-K,
dated March 30, 2000, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.14.1
|
|
|
|
Amendment No. 1 to Second Amended and Restated Agreement of
Limited Partnership of Triad Senior Living I, LP.
(Incorporated by reference to the Exhibit 10.10.5 to the
Companys Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 2002, filed by
the Company with the Securities and Exchange Commission.)
|
|
10
|
.15
|
|
|
|
First Amendment to Triad II Partnership Agreement
(Incorporated by reference to Exhibit 10.26 to the
Companys Current Report on
Form 8-K,
dated August 15, 2000, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.16
|
|
|
|
Third Amendment to Amended and Restated Employment Agreement of
James A. Stroud, dated November 8, 2000, by and between
James A. Stroud and Capital Senior Living Corporation
(Incorporated by reference to Exhibit 10.96 to the
Companys Annual Report on
Form 10-K,
dated March 26, 2002, filed by the Company with the
Securities and Exchange Commission.)
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
10
|
.17
|
|
|
|
Support Agreement dated as of September 11, 2002 by and
between Capital Senior Living, Inc., Triad I, Triad II,
Triad III, Triad IV and Triad V. (Incorporated by reference
to Exhibit 10.102 to the Companys Quarterly Report on
Form 10-Q
for the quarterly period ended September 30, 2002, filed by
the Company with the Securities and Exchange Commission.)
|
|
10
|
.18
|
|
|
|
Fourth Amendment to Amended and Restated Employment Agreement of
James A. Stroud, dated January 16, 2003 by and between
James A. Stroud and Capital Senior Living Corporation
(Incorporated by reference to Exhibit 10.105 to the
Companys Annual Report on
Form 10-K,
dated March 26, 2003, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.19
|
|
|
|
Second Amendment to the Employment Agreement of Lawrence A.
Cohen, dated January 27, 2003 by and between Lawrence A.
Cohen and Capital Senior Living Corporation (Incorporated by
reference to Exhibit 10.106 to the Companys Annual
Report on
Form 10-K,
dated March 26, 2003, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.20
|
|
|
|
First Amendment to the Employment Agreement of Keith N.
Johannessen, dated January 17, 2003 by and between Keith N.
Johannessen and Capital Senior Living Corporation (Incorporated
by reference to Exhibit 10.107 to the Companys Annual
Report on
Form 10-K,
dated March 26, 2003, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.21
|
|
|
|
First Amendment to the Employment Agreement of Ralph A. Beattie,
dated January 21, 2003 by and between Ralph A. Beattie and
Capital Senior Living Corporation (Incorporated by reference to
Exhibit 10.108 to the Companys Annual Report on
Form 10-K,
dated March 26, 2003, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.22
|
|
|
|
Second Amendment to the Employment Agreement of David R.
Brickman, dated January 27, 2003 by and between David R.
Brickman and Capital Senior Living Corporation (Incorporated by
reference to Exhibit 10.109 to the Companys Annual
Report on
Form 10-K,
dated March 26, 2003, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.23
|
|
|
|
Amended and Restated Draw Promissory Note, dated
February 1, 2003, of Triad Senior Living I, L.P. in
favor of Capital Senior Living Properties, Inc. (Incorporated by
reference to Exhibit 10.110 to the Companys Annual
Report on
Form 10-K,
dated March 26, 2003, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.23.1
|
|
|
|
Amended and Restated Draw Promissory Note (Fairfield), dated
February 1, 2003, of Triad Senior Living II, L.P. in favor
of Capital Senior Living Properties, Inc. (Incorporated by
reference to Exhibit 10.111.1 to the Companys Annual
Report on
Form 10-K,
dated March 26, 2003, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.23.2
|
|
|
|
Amended and Restated Draw Promissory Note (Oklahoma City), dated
February 1, 2003, of Triad Senior Living II, L.P. in favor
of Capital Senior Living Properties, Inc. (Incorporated by
reference to Exhibit 10.111.2 to the Companys Annual
Report on
Form 10-K,
dated March 26, 2003, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.23.3
|
|
|
|
Amended and Restated Draw Promissory Note (Plano), dated
February 1, 2003, of Triad Senior Living II, L.P. in favor
of Capital Senior Living Properties, Inc. (Incorporated by
reference to Exhibit 10.111.3 to the Companys Annual
Report on
Form 10-K,
dated March 26, 2003, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.24
|
|
|
|
Amended and Restated Draw Promissory Note, dated
February 1, 2003, of Triad Senior Living III, L.P. in favor
of Capital Senior Living Properties, Inc. (Incorporated by
reference to Exhibit 10.112 to the Companys Annual
Report on
Form 10-K,
dated March 26, 2003, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.25
|
|
|
|
Amended and Restated Draw Promissory Note, dated
February 1, 2003, of Triad Senior Living IV, L.P. in favor
of Capital Senior Living Properties, Inc. (Incorporated by
reference to Exhibit 10.113 to the Companys Annual
Report on
Form 10-K,
dated March 26, 2003, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.26
|
|
|
|
Amended and Restated Draw Promissory Note, dated
February 1, 2003, of Triad Senior Living V, L.P. in
favor of Capital Senior Living Properties, Inc. (Incorporated by
reference to Exhibit 10.114 to the Companys Annual
Report on
Form 10-K,
dated March 26, 2003, filed by the Company with the
Securities and Exchange Commission.)
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
10
|
.28
|
|
|
|
Form of Restricted Stock Award Under the 1997 Omnibus Stock and
Incentive Plan for Capital Senior Living Corporation
(Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on
Form 8-K,
dated February 10, 2005, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.29
|
|
|
|
Master Lease Agreement, dated June 30, 2005, between Ventas
Amberleigh, LLC and Capital Senior Management 2, Inc.
(Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on
Form 8-K/A,
dated June 30, 2005, filed by the Company with the
Securities and Exchange Commission on July 11, 2005.)
|
|
10
|
.30
|
|
|
|
Schedule identifying substantially identical agreements to
Exhibit 10.63 (Incorporated by reference to
Exhibit 10.2 to the Companys Current Report on
Form 8-K/A,
dated June 30, 2005, filed by the Company with the
Securities and Exchange Commission on July 11, 2005.)
|
|
10
|
.31
|
|
|
|
Loan Agreement, dated July 18, 2005, by Capital Senior
Living Peoria, LLC and GMAC Commercial Mortgage Bank
(Incorporated by reference to the Exhibit 10.1 to the
Companys Current Report on
Form 8-K,
dated July 18, 2005, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.32
|
|
|
|
Schedule identifying substantially identical agreements to
Exhibit 10.65 (Incorporated by reference to the
Exhibit 10.2 to the Companys Current Report on
Form 8-K,
dated July 18, 2005, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.33
|
|
|
|
Master Lease Agreement, dated October 18, 2005, between
Ventas Georgetowne, LLC and Capital Senior Management 2, Inc.
(Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on
Form 8-K,
dated October 18, 2005, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.34
|
|
|
|
Contract of Acquisition, dated as of March 7, 2006, between
Health Care Property Investors, Inc. and Capital Senior Living
Properties 2 Crosswood Oaks, Inc., Capital Senior
Living Properties 2 Tesson Heights, Inc. and Capital
Senior Living Properties 2 Veranda Club, Inc.
(Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on
Form 8-K,
dated March 7, 2006, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.35
|
|
|
|
Contract of Acquisition, dated as of March 7, 2006, between
Texas HCP Holding, L.P. and Capital Senior Living Acquisition,
LLC (Incorporated by reference to Exhibit 10.2 to the
Companys Current Report on
Form 8-K,
dated March 7, 2006, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.36
|
|
|
|
Agreement of Purchase and Sale of Real Property, dated
March 10, 2006, by and between Covenant Place of Abilene,
Inc. and Capital Senior Living Acquisition, LLC (Incorporated by
reference to Exhibit 10.3 to the Companys Current
Report on
Form 8-K,
dated March 7, 2006, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.37
|
|
|
|
Schedule identifying substantially identical agreements to
Exhibit 10.70 (Incorporated by reference to
Exhibit 10.4 to the Companys Current Report on
Form 8-K,
dated March 7, 2006, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.38
|
|
|
|
Master Lease Agreement, dated May 31, 2006, between
subsidiaries of the Company and HCP (Incorporated by reference
to Exhibit 10.1 to the Companys Current Report on
Form 8-K,
dated May 31, 2006, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.39
|
|
|
|
Lease, dated May 31, 2006, between subsidiaries of the
Company and HCP regarding the Crosswood Oaks Facility in Citrus
Heights, California (Incorporated by reference to
Exhibit 10.2 to the Companys Current Report on
Form 8-K,
dated May 31, 2006, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.40
|
|
|
|
Schedule identifying substantially identical agreements to
Exhibit 10.73 (Incorporated by reference to
Exhibit 10.3 to the Companys Current Report on
Form 8-K,
dated May 31, 2006, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.41
|
|
|
|
Multifamily Note, dated June 9, 2006, executed by Triad
Senior Living II, L.P. in favor of Capmark. (Incorporated by
reference to Exhibit 10.1 to the Companys Current
Report on
Form 8-K,
dated June 9, 2006, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.42
|
|
|
|
Schedule identifying substantially identical agreements to
Exhibit 10.75 (Incorporated by reference to
Exhibit 10.2 to the Companys Current Report on
Form 8-K,
dated June 9, 2006, filed by the Company with the
Securities and Exchange Commission.)
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
10
|
.43
|
|
|
|
Multifamily Deed of Trust, Assignment of Rents and Security
Agreement and Fixture Filing, dated June 9, 2006, by Triad
Senior Living II, L.P. to Ed Stout, as trustee, for the benefit
of Capmark. (Incorporated by reference to Exhibit 10.3 to
the Companys Current Report on
Form 8-K,
dated June 9, 2006, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.45
|
|
|
|
Loan Agreement, dated June 20, 2006, by and between Triad
Senior Living III, L.P. and Capmark Bank. (Incorporated by
reference to Exhibit 10.1 to the Companys Current
Report on
Form 8-K,
dated June 20, 2006, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.46
|
|
|
|
2007 Omnibus Stock and Incentive Plan for Capital Senior Living
Corporation (Incorporated by reference to Exhibit 4.6 to
the Registration Statement on
Form S-8,
dated May 31, 2007, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.47
|
|
|
|
First Amendment to 2007 Omnibus Stock and Incentive Plan for
Capital Senior Living Corporation (Incorporated by reference to
Exhibit 4.7 to the Registration Statement on
Form S-8,
dated May 31, 2007, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.48
|
|
|
|
Multifamily Note dated May 3, 2007 executed by Triad Senior
Living III, L.P. in favor of Capmark Bank (Incorporated by
reference to Exhibit 10.1 to the Companys Current
Report on
Form 8-K,
dated March 3, 2007, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.49
|
|
|
|
Schedule identifying substantially identical agreements to
Exhibit 10.3 (Incorporated by reference to
Exhibit 10.2 to the Companys Current Report on
Form 8-K,
dated March 3, 2007, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.50
|
|
|
|
Multifamily Deed of Trust, Assignment of Rents and Security
Agreement and Fixture Filing dated May 3, 2007 by Triad
Senior Living III, L.P. in favor of Chicago Title Insurance
Company, as trustee for the benefit of Capmark Bank.
(Incorporated by reference to Exhibit 10.3 to the
Companys Current Report on
Form 8-K,
dated March 3, 2007, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.51
|
|
|
|
Schedule identifying substantially identical agreements to
Exhibit 10.5. (Incorporated by reference to
Exhibit 10.4 to the Companys Current Report on
Form 8-K,
dated March 3, 2007, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.52
|
|
|
|
Asset Purchase Agreement, dated December 21, 2007, by and
among the sellers identified therein, Capital Senior Living
Acquisition, LLC and Hearthstone Senior Services, L.P.
(Incorporated by reference to the Exhibit 2.1 to the
Companys Current Report on
Form 8-K,
dated December 28, 2007, filed by the Company with the
Securities and Exchange Commission.)
|
|
10
|
.53
|
|
|
|
Settlement Agreement, dated March 19, 2008, by and among
Capital Senior Living Corporation, West Creek Capital LLC,
Harvey Hanerfeld and Roger Feldman. (Incorporated by reference
to the Exhibit 10.1 to the Companys Current Report on
Form 8-K
filed by the Company with the Securities and Exchange Commission
on March 26, 2008.)
|
|
10
|
.54
|
|
|
|
Settlement Agreement, dated March 19, 2008, by and among
Capital Senior Living Corporation, Boston Avenue Capital, LLC,
York town Avenue Capital, LLC, Stephen J. Heyman, and James F.
Adelson (Incorporated by reference to the Exhibit 10.1 to
the Companys Current Report on
Form 8-K
filed by the Company with the Securities and Exchange Commission
on March 26, 2008.)
|
|
10
|
.55
|
|
|
|
Severance Agreement, dated December 12, 2008, by and among
Capital Senior Living Corporation and James A. Stroud.
(Incorporated by reference to the Exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed by the Company with the Securities and Exchange Commission
on December 16, 2008.)
|
|
10
|
.56
|
|
|
|
Fourth Amendment to the Employment Agreement of Lawrence A.
Cohen. (Incorporated by reference to exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
April 20, 2010.)
|
|
10
|
.57
|
|
|
|
Second Amendment to the Employment Agreement of Keith N.
Johannessen. (Incorporated by reference to exhibit 10.2 to
the Companys Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
April 20, 2010.)
|
|
10
|
.58
|
|
|
|
Second Amendment to the Employment Agreement of Ralph A.
Beattie. (Incorporated by reference to exhibit 10.3 to the
Companys Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
April 20, 2010.)
|
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
10
|
.59
|
|
|
|
Master Lease Agreement, dated as of September 10, 2010,
between Capital Texas S, LLC and the Landlord parties thereto.
(Incorporated by reference to exhibit 10.1 to the
Companys Current Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 16, 2010.)
|
|
10
|
.60
|
|
|
|
Note, dated as of September 10, 2010, by Capital Texas S,
LLC in favor of Health Care REIT, Inc. (Incorporated by
reference to exhibit 10.2 to the Companys Current
Report on
Form 8-K
filed with the Securities and Exchange Commission on
September 16, 2010.)
|
|
*21
|
.1
|
|
|
|
Subsidiaries of the Company
|
|
*23
|
.1
|
|
|
|
Consent of Ernst & Young LLP
|
|
*31
|
.1
|
|
|
|
Certification of Chief Executive Officer required by
Rule 13a-14(a)
or
Rule 15d-14(a)
|
|
*31
|
.2
|
|
|
|
Certification of Chief Financial Officer required by
Rule 13a-14(a)
or
Rule 15d-14(a)
|
|
*32
|
.1
|
|
|
|
Certification of Lawrence A. Cohen pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
|
*32
|
.2
|
|
|
|
Certification of Ralph A. Beattie pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|