Capital Senior Living Corporation (NYSE: CSU) may sound like a boring business but not for shareholders! The company's shares moved sharply higher today after the company announced that it has appointed two new board members and agreed to explore a possible sale. The news comes amid substantial pressure from several activist shareholders that saw unrealized value in the country's largest operator of senior living communities.
The dissident shareholders behind the push included Boston Avenue Management (7.3% owners), West Creek Capital (6.4% owners), and Matthes Capital Management (1.7% owners). New directors from the latter two hedge funds will serve on a committee to explore strategic alternatives, including whether or not to sell Capital Senior Living. Whether or not a sale will actually happen remains to be seen, but the number of activist shareholders and board seats tilts the odds more than usual.
Capital Senior Living also swung to a profit last year after posting a loss in 2006, which substantially improves its marketing in the event of a sale. Additionally, the company's focus on providing significant income and asset growth, strengthening the balance sheet, and improving the comapny's profitability were all realized during its latest earnings announcement.
Revenues, EBITDA, and net income all significantly increased as margins expanded through higher rents and solid expense control. Monthly rental income increased by 4.4% while the average occupancy rate stood at around 90% with management fees around 48%. Additionally, the company expanded its capacity through new developments, consolidations, and in-home services.
Management expects these trends to continue as the company continues to prosper despite a poor economy. Long-term, the baby-boomer population will continue to age and be placed into senior living communities such as these. The company is well positioned as one of the leading operators in the nation and will likely to continue to benefit through these trends despite the tough economic environment.
In the end, the activists believe the stock is undervalued and are seeking to unlock value through a sale process. Meanwhile, the company continues to perform extremely well having swung to a profit and improved in almost every important measure of success. Combined, these factors can only spell good news for shareholders who stand to benefit long-term from the company's success or short-term from the activists' success.
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