Capital Senior Living reiterated its belief that conditions related to COVID-19 “raise substantial doubt about the company’s ability to continue as a going concern” in a document filed Monday with the Securities and Exchange Commission.
Potential operating losses and negative cash flows from operations for projected fiscal years 2020 and 2021 also led to the assessment, the company said in the quarterly report, known as a Form 10-Q, covering the quarter ending June 30.
The “going concern” statement, required by accounting rules, echoes one the company made in May at the time of its first-quarter earnings call, when the company detailed its plans “to improve its liquidity position and address uncertainty about its ability to continue as a going concern.”
The statement was not included in an 8-K filing the company made with the SEC last week when it held its second-quarter earnings call. On the recent call, however, Capital President and CEO Kim Lody and other executives described plans to transfer operations and ownership of 18 senior living communities to Fannie Mae as well as agreements it had reached with real estate investment trusts Healthpeak, Ventas and Welltower in the first quarter to reduce facility lease expenses. The transaction with Fannie Mae, Capital said, will reduce the company’s debt by $216.3 million and improve annual cash flow by approximately $10 million.
“The Company’s plans are designed to provide the Company with adequate liquidity to meet its obligations for at least the twelve-month period following the date its financial statements are issued; however, the remediation plan is dependent on conditions and matters that may be outside of the Company’s control or may not be available on terms acceptable to the Company, or at all, many of which have been made worse or more unpredictable by COVID-19,” Capital said in the 10-Q. “Accordingly, management determined it was not probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. If the Company is unable to successfully execute all of these initiatives or if the plan does not fully mitigate the Company’s liquidity challenges, the Company’s operating plans and resulting cash flows along with its cash and cash equivalents and other sources of liquidity may not be sufficient to fund operations for the twelve-month period following the date the financial statements are issued.”
Capital also noted that in April the company was informed that it was not in compliance with standards to be listed on the New York Stock Exchange but that in July, the NYSE approved the company’s plan to regain compliance. Capital has until Dec 19, 2020, and Dec. 19, 2021, to meet aspects of compliance.
A delisting of the common stock, Capital said, could negatively affect the company in several ways, including making the stock unattractive to investors and harming the company’s reputation to the point that it could not attract new business.