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Brookdale Senior LivingC A P I T A L S E N I O R L I V I N G C O R P O R A T I O N 2 0 0 4 A N N U A L R E P O R T What’s up at Capital Senior Living Corporation? F I N A N C I A L B E N C H M A R K S Our total revenues and operating income rose in 2004. Total Revenue (in millions) 100 $93.3 80 60 40 20 0 $66.3 2003 2004 Operating Income (in millions) 8 7 6 5 4 3 2 1 0 $6.7 $5.8 2003 2004 1. What’s up: K E Y O P E R A T I O N A L I N D I C A T O R S 2. Our number of communities, resident capacity, occupancy levels and average rents rose in 2004. Annual Change in Rent: Stabilized Communities 5% 4% 3% 2% 1% 0 5% 5% 4% CSU IL AL I N D U S T R Y Capital Senior Living Communities N U M B E R O F C O M M U N I T I E S 54 42 R E S I D E N T R E S I D E N T C A PA C I T Y C A PA C I T Y 20,000 20,000 15,000 15,000 60 50 40 30 20 10 0 8,668 8,668 10,000 10,000 6,854 6,854 Source: Company data and from The State of Seniors Housing 2003 by the American Seniors Housing Association (ASHA) 2003 2004 Wholly Owned JV Ownership/Managed Management Only 5,000 5,000 00 Occupancy Rates P R O P E R T Y T Y P E S t a b i l i z e d S t a b i l i z e d L e a s e u p 100% 80% 60% 40% 20% 0 1 0 N U J 1 0 P E S 1 0 C E D 2 0 R A M 2 0 N U J 2 0 P E S 2 0 C E D 3 0 R A M 3 0 N U J 3 0 P E S 3 0 C E D 4 0 R A M 4 0 N U J 4 0 T P E S 4 0 C E D 1 0 N U J 1 0 P E S 1 0 C E D 2 0 R A M 2 0 N U J 2 0 P E S 2 0 C E D 3 0 R A M 3 0 N U J 3 0 P E S 3 0 C E D 4 0 R A M 4 0 N U J 4 0 T P E S 4 0 C E D 3. What’s up: D E M O G R A P H I C T R E N D S Estimated Growth in Elderly Population P O P U L AT I O N I N M I L L I O N S 35 30 25 20 15 10 5 0 32.6 27.0 22.3 17.9 18.5 19.6 16.6 4.2 4.9 5.8 6.4 6.7 7.4 8.9 2000 2005 2010 2015 2020 2025 2030 Population Age 75+ Population Age 85+ Source: U.S. Census Bureau 4. Demand for our services is forecast to rise for years to come. Senior Housing Construction T O TA L U N I T S B Y P R O P E R T Y T Y P E 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 1997 1998 1999 2000 2001 2002 2003 2004 Source: American Seniors Housing Association Seniors Housing Construction Report, 2004 Srs. Apt. CCRC AL IL Demand for Senior Living E L D E R LY P O P U L AT I O N W I T H I N C O M E O V E R $ 1 5 , 0 0 0 ) s d n a s u o h t n i ( s d e B 1400 1200 1000 800 600 400 0 0 0 2 5 0 0 2 0 1 0 2 5 1 0 2 0 2 0 2 5 2 0 2 0 3 0 2 Independent Living Skilled Nursing Assisted Living Source: Price Waterhouse LLP/ National Investment Conference 5. What’s up: for 2005 and beyond? O P P O R T U N I T I E S F O R G R O W T H 6. In a fragmented, consolidating industry, Capital Senior Living’s financial strength, national presence and industry expertise make us an attractive partner for both joint venture acquisition investments and third party management contracts, giving us opportunities for continued growth in the years ahead. Revenues Under Management (Q4 2004, annualized, in millions) 200 150 100 50 0 $160 $127 2003 2004 Capital Senior Living National Platform Wholly Owned (29) JV Ownership/Managed (10) Management Only (15) 7. TO OUR FELLOW SHAREHOLDERS: This year’s annual report asks, “What’s up at Capital Senior Living?” The answer is: performance in key areas throughout the Company. Capital Senior Living has historically demonstrated some of the strongest metrics in the industry, and 2004 was a year of significant accomplishment for us. It was a year that our long-term converged strategy with improving industry fundamen- tals. This strategy positioned us well to take advantage of both industry trends and opportunity during the year. Focused management and hard work have resulted in higher occupancy r a t e s , i m p r o v e d revenues, enhanced operating income and strong margins while important we were completing corporate initiatives: J A M E S A . S T R O U D several Chairman of the Company L AW R E N C E A . C O H E N Chief Executive Officer • We began the year with the successful completion of a $34.5 million equity offering, further strengthening our financial position and providing a foundation for future growth opportunities. • We retired $21.8 million of debt. • We completed the acquisition of CGI Management, Inc., adding 14 senior living communities to our portfolio of managed properties and increasing our capacity by 1,800 residents. We formed a new joint venture with Prudential Real Estate Investors which acquired four other communities with approximately 8. 700 residents. We retained long-term operating contracts for each of these communities. • We reorganized our national platform for more efficient regional management, allowing us to leverage our infrastructure for future growth. • We took other actions, such as completing the acquisition of the remaining Triad Entities, to enjoy the economic benefit of ownership, simplify our balance sheet and provide greater transparency for our shareholders. • We finished the year by refinancing approximately half of our total debt, consolidating the loans with one lender while increasing available cash and eliminating numerous loan covenants. In all, 2004 was one of significant accomplish- ment that elevated our market presence, improved our performance, and better positioned us to capitalize on the opportunities we see before us. Industry Dynamics It is well documented that the U.S. population is aging, and the average person now lives longer than ever before. Today, the large baby-boomer genera- tion is middle-aged and their parents are in their senior years. During the late 1990s, construction of senior housing surged to meet this anticipated demand, creating a highly competitive industry environment. Starting in 2000, capital constraints and other economic factors tempered new construction and, since then, supply and demand have come back into equilibrium. Factors including ongoing industry consolidation, evidenced by several operators exiting the senior housing market, have contributed to significant changes in our industry. As a result, both individual properties and entire portfolios are in need of new ownership, new management, or both. This creates a substantial near and long-term opportunity for Capital Senior Living. Strategies for Operations and Growth Our successes are based on key operational and growth strategies. Rather than being constrictive, these strategies are adaptable to changing industry conditions and provide the foundation for opportunistic growth. Provide quality, well-managed senior living facilities at affordable prices in demographically attractive areas. At the end of 2004, we owned or managed 54 properties in 20 states, with the capacity to provide living facilities and amenities to approximately 8,700 residents. The properties are dispersed in geographic regions with high population densities that create viable markets for our properties and allow our residents to be close to their families. This distribution is supported by our regional manage- ment infrastructure. Our properties, whose executive directors average 13 years of industry experience, had an average monthly rent of approximately $2,100 at the end of 2004. Achieve internal growth through lease-up of existing properties and new services. We completed 2004 with 44 stabilized com- munities, 9 in lease-up, and one more in renovation/releasing status. The 10 communities in lease-up and renovation status will provide incremental growth opportunities as we move them toward a stabilized status. Improve occupancy and operating margins of stabilized communities. Efficient operations are a hallmark of effective management teams, and our goal is to attain high industry metrics while providing quality facilities and amenities for our residents. It is an ongoing focus and the results demonstrate the success of our efforts. Our stabilized communities achieved 90 percent occupancy, which exceeds the industry averages of 89.5 percent and 87.5 percent for independent living and assisted living, respectively. Stabilized operating margins (before property taxes, insurance, and management fees) were 45 percent compared to industry averages of 43.2 percent for independent living and 39.1 percent for assisted living. Our annual resident satisfaction survey underscores the reasons for strong demand for our properties that make these results possible. In 2004, we achieved a 95 percent satisfaction rating from our residents. In fact, one of the best referral sources we have is current residents. Participate in acquisitions or co-investments. Current industry dynamics make acquisition an attractive avenue for growth, either directly or with a financial partner. With our national platform and strengthened balance sheet, we are able to evaluate and participate in opportunistic, strategic acquisitions. In August 2004, we completed the acquisition of CGI Management, Inc., adding 14 managed properties to our portfolio and providing options to purchase seven of the properties in the future at a fixed price. In November 2004, we acquired an equity interest with management contracts in four senior living communities through a joint venture with Prudential Real Estate Investors. In total, we have acquired 10 senior housing communities through ventures with Blackstone and Prudential, adding capacity of 1,900 residents and providing ongoing revenue through long-term management contracts. We will continue to pursue similar opportunities that fit well with our management/resident profile and our long-term strategy. 9. • Approximately 95 percent of our revenue is from private-pay sources, allowing us to avoid significant exposure to government reimbursement issues. • We are well capitalized with a strong balance sheet. • We have a national platform that we can leverage to accommodate future growth. • Our senior management has 150 years of combined industry expertise, bringing decades of successful experience to our operations. • We have a long-term operating and growth strategy that has delivered results through industry cycles. In summary, 2004 was one of considerable significance for the Company. It delivered strong results for the year and provided a foundation for future growth and opportunity. We thank you for your ongoing support. Sincerely, JAMES A. STROUD Chairman of the Board LAWRENCE A. COHEN Chief Executive Officer Manage acquired and other communities. One of our Company’s greatest strengths is our industry experience and management expertise. This provides us the opportunity for high margin revenue growth through managing acquired properties or to directly provide management services for other entities. Selectively develop communities for third parties. Our expertise in developing communities provid- ing quality facilities that meet the unique needs of the senior population is well established. As supply and demand dynamics evolve in our industry, we see the opportunity to assist other entities, such as real estate or financial investors, in selectively developing new senior living communities. We anticipate these development activities would incorporate long-term management contracts of the new properties. The Capital Advantage Capital Senior Living has a number of important factors that differentiate us from others in the industry. • Our significant blended portfolio of 54 wholly-owned properties, joint-venture/managed properties, and managed-only properties, provides both equity ownership and long-term revenue. • Our residents are classified as 85 percent independent living – the segment of highest demand in the senior living industry. The other 15 percent are primarily assisted living. Our assisted living facilities permit residents to receive higher levels of care without being relocated, allowing them to stay with us for longer periods. 10. Company Management Board of Directors LAWRENCE A. COHEN Chief Executive Officer JAMES A. STROUD JAMES A. STROUD Chairman of the Board, Capital Senior Living Corporation Dallas, Texas Chairman of the Company and Secretary LAWRENCE A. COHEN KEITH N. JOHANNESSEN President and Chief Operating Officer RALPH A. BEATTIE Executive Vice President and Chief Financial Officer ROB L. GOODPASTER Vice President, National Marketing DAVID W. BEATHARD Vice President, Operations GLEN H. CAMPBELL Vice President, Development DAVID R. BRICKMAN Vice President and General Counsel GLORIA M. HOLLAND Vice President, Finance JERRY D. LEE Corporate Controller ROBERT F. HOLLISTER Property Controller Vice Chairman of the Board, Capital Senior Living Corporation New York, New York KEITH N. JOHANNESSEN Capital Senior Living Corporation Dallas, Texas CRAIG F. HARTBERG 1,2,3 Retired First Vice President, Bank One, Texas, N.A. Dallas, Texas JILL M. KRUEGER2 President and CEO, Health Resources Alliance, Inc. Oakbrook, Illinois JAMES A. MOORE 1,2,3 President, Moore Diversified Services, Inc. Fort Worth, Texas VICTOR W. NEE, PH.D. 1,3 Professor Emeritus, Department of Aerospace and Mechanical Engineering, University of Notre Dame Scottsdale, Arizona 1 Member of the Board’s Compensation Committee 2 Member of the Board’s Audit Committee 3 Member of the Board’s Nominating Committee 11. Corporate Information Regional Information CORPORATE HEADQUARTERS EASTERN REGIONAL OFFICE 14160 Dallas Parkway, Suite 300 186 Old Stagecoach Road Dallas, Texas 75254 (972) 770-5600 (972) 770-5666 fax main@capitalsenior.com NEW YORK OFFICE 300 Park Avenue, Suite 1700 New York, New York 10022 (212) 551-1770 (212) 551-1774 fax CORPORATE WEB SITE www.capitalsenior.com Shareholder Information Ridgefield, Connecticut 06877 (203) 894-9406 (203) 894-9407 fax MIDWESTERN REGIONAL OFFICE 3060 Valley Farms Road Indianapolis, Indiana 46214 (317) 280-9404 (317) 280-9405 fax WESTERN REGIONAL OFFICE 5757 Cypress Avenue Carmichael, California 95608 (916) 480-0634 (916) 486-4375 fax STOCK EXCHANGE LISTING SOUTHWESTERN REGIONAL Capital Senior Living Corporation OFFICE Common Stock is listed on the New York Stock 14160 Dallas Parkway, Suite 300 Exchange and trades under the symbol CSU. TRANSFER AGENT AND REGISTRAR Mellon Investor Services LLC 85 Challenger Road Ridgefield Park, New Jersey 07660 (800) 635-9270 www.melloninvestor.com AUDITORS Ernst & Young LLP 2121 San Jacinto, Suite 1500 Dallas, Texas 75201 (214) 969-8000 12. Dallas, Texas 75254 (972) 770-5600 (972) 770-5666 fax TEXAS REGIONAL OFFICE 2222 Walter Smith Road Azle, Texas 76020 (817) 237-2496 (817) 237-3496 fax Form 10-K A copy of Capital Senior Living Corporation’s 2004 annual report to the SEC on Form 10-K is included herein and is available without charge upon written request to the Investor Relations Department at corporate headquarters. It can also be found on the Company’s web site, www.capitalsenior.com. Annual Shareholders Meeting May 10, 2005 at 10 a.m. Central Time Bent Tree Country Club 5201 Westgrove Dallas, Texas 75248 (972) 931-3310 10-K C a p i t a l S e n i o r L i v i n g C o r p o r a t i o n 14160 Dallas Parkway, Suite 300 Dallas, Texas 75254 (972) 770-5600 fax (972) 770-5666 www.capitalsenior.com
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