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Will Capital Senior Living Resist?

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By Steve Moran

This is honestly sucks . . . (I know I will get some heat for using this word, I just don't know a better word)

It almost makes me want to use bad words . . .

It almost makes me want to support Bernie Sanders for president.

All I Care About is Money

On December 10, 2015 an investment firm by the name of Lucus Advisors LLC issued a letter to the board of directors of Capital Senior Living urging them to consider selling the assets of the company as a way to increase shareholder value. They believe doing this would increase share prices (today, December 14, 2015 around $20.40) by around 57%.

While I have not talked to anyone at Lucus or Capital Senior Living about this letter, it seems pretty apparent all Lucas cares about is increasing the share price. They don’t care that what they are proposing would almost certainly disrupt the lives of seniors and their families. They don’t care about the people who work for the company or the families who depend on that income to survive and thrive.  

They don’t care about the long-term health of the company.

Are Profits All That Matter?

When people form and invest in companies they do it to make money. There is nothing wrong with this. In fact, it is a great thing because the profit motive drives people to be excellent at what they do, which means, in the case of senior living, to do a great job serving seniors, family members and team members. Capital has excelled at this. They have a healthy balance sheet and healthy cash flow.

One of the reason for their healthy cash flow and balance sheet is that they do not have the heavy debt service and lease obligations some other senior living companies have. This has to be an operating philosophy that says we are not interested in chasing the very highest short-term shareholder value, rather we want to create long-term sustainable value for shareholders. We want to make sure we take care of our other stakeholders in the business: residents and team members. 

Intriguingly it would seem that if the industry does experience an excess supply, this cautious approach might very well be the nest egg that allows Capital Senior Living to make some strategic and opportunistic investments.

Go Pound Sand

I hope the Capital Senior Living board tells Schuster Tanger and Lucus Advisors to GO POUND SAND. It would be a smart and strategic thing to do for at least these reasons:

  • It would send a strong clear message to residents and family members and prospects that quality resident care is the highest priority and singularly the best path to long-term growth and profitability for Capital Senior Living. It might be the best possible marketing opportunity they ever have.

  • It will send a strong clear message to team members that they and their families are more important that short-term profits. It will make team members more loyal, it will encourage them to invite their friends to join the team. It is a potential recruitment and retention gift.

  • Who knows, it might even result in a higher level of awareness about Capital Senior Living, which would move the stock price upward.

Been There Before . . . And It Wasn’t Good

Back in February of 2015 a similar group made a similar demand of Brookdale. At that time the Brookdale share price was around $37. Brookdale added some individuals to the board who were friendly to the idea of spinning off the real estate assets (what the investor group demanded). The REIT spinoff never happened (not to say it couldn’t still happen) and today the Brookdale share price is just under $19.00 a share (December 14, 2015). I am not saying there was a cause and effect, but I do believe, at the very least, the demand for short-term profits was a huge distraction which hurt occupancy and profitability.

I am hopeful The Capital Board will pushback and pushback hard.

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