UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

For the quarterly period ended March 31, 20182019

OR

For the transition period from                     to                     

Commission file number: 1-13445

Capital Senior Living Corporation

(Exact Name of Registrant as Specified in its Charter)

(972) 770-5600

(Registrant’s Telephone Number, Including Area Code)

NONE

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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   ☒     No   ☐

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes   ☒     No   ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Securities registered pursuant to Section 12(b) of the Act:

As of April 27, 2018,May 3, 2019, the Registrant had 31,124,41331,119,487 outstanding shares of its Common Stock, $0.01 par value, per share.

CAPITAL SENIOR LIVING CORPORATION

INDEX

Part I. FINANCIALFINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS.

CAPITAL SENIOR LIVING CORPORATION

CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands, except per share data)thousands)

See accompanying notes to unaudited consolidated financial statements.

CAPITAL SENIOR LIVING CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited, in thousands, except per share data)

See accompanying notes to unaudited consolidated financial statements.

CAPITAL SENIOR LIVING CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(unaudited, in thousands)

See accompanying notes to unaudited consolidated financial statements.

CAPITAL SENIOR LIVING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

See accompanying notes to unaudited consolidated financial statements.

CAPITAL SENIOR LIVING CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 20182019

1. BASIS OF PRESENTATION

Capital Senior Living Corporation, a Delaware corporation (together with its subsidiaries, the “Company”), is one of the largest operators of senior housing communities in the United States in terms of resident capacity. The Company owns, operates, and manages senior housing communities throughout the United States. As of March 31, 2018,2019, the Company operated 129 senior housing communities in 23 states with an aggregate capacity of approximately 16,500 residents, including 83 senior housing communities that the Company owned and 46 senior housing communities that the Company leased. 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 accompanying Consolidated Balance Sheet, as of December 31, 2017,2018, has been derived from audited consolidated financial statements of the Company for the year ended December 31, 2017,2018, and the accompanying unaudited consolidated financial statements, as of and for the three month periods ended March 31, 20182019 and 2017,2018, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States have not been included pursuant to those rules and regulations. For further information, refer to the financial statements and notes thereto for the year ended December 31, 2017,2018, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 2, 2018.1, 2019.

In the opinion of the Company, the accompanying consolidated financial statements contain all adjustments (all of which were normal recurring accruals) necessary to present fairly the Company’s financial position as of March 31, 2018,2019, results of operations for the three month periods ended March 31, 20182019 and 2017,2018, and cash flows for the three month periods ended March 31, 20182019 and 2017.2018. The results of operations for the three month period ended March 31, 2018,2019 are not necessarily indicative of the results for the year ending December 31, 2018.2019.

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 deposits must remain so long as the letters of credit are outstanding which are subject to renewal annually.

The following table sets forth our cash and cash equivalents and restricted cash (in thousands):

Assets Held for Sale

Assets are classified as held for sale when the Company has determined all of the held-for-sale criteria have been met. 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 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 Company’s estimates.

During the three months ended March 31, 2019, the Company classified one senior housing community located in Kokomo, Indiana, as held for sale, resulting in $4.9 million being reclassified as assets held for sale and $3.5 million of corresponding mortgage debt being reclassified to the current portion of notes payable within the Consolidated Balance Sheet. The Company determined, using level 2 inputs as defined in the accounting standards codification, that the assets had an aggregate fair value, net of costs of disposal of $4.9 million. As the fair value was less than the carrying value of $7.2 million, a remeasurement write-down of approximately $2.3 million was recorded to adjust the carrying values of the assets held for sale at March 31, 2019. There were no senior housing communities classified as held for sale by the Company at December 31, 2018.

Revenue Recognition

Resident revenue consists of fees for basic housing and certain support services and fees associated with additional housing and expanded support requirements such as assisted living care, memory care, and ancillary services. Basic housing and certain support services revenue is recorded when services are rendered and amounts billed are due from residents in the period in which the rental and other services are provided andwhich totaled approximately $112.7$112.6 million and $113.7$112.7 million for the three month periodsmonths ended March 31, 20182019 and 2017,2018, respectively. Residency agreements are generally short term in nature with durations of one year or less and are typically terminable by either party, under certain circumstances, upon providing 30 days’ notice, unless state law provides otherwise, with resident fees billed monthly in advance. At December 31, 2018, the Company had contract liabilities for deferred resident fees paid by our residents prior to the month housing and support services were to be provided totaling approximately $4.5 million which were recognized into revenue during the three months ended March 31, 2019. At December 31, 2017, the Company had contract liabilities for deferred resident fees paid by our residents prior to the month housing and support services were to be provided totaling approximately $3.9approximately$3.9 million which were recognized into revenue during the three month periodmonths ended March 31, 2018. The Company had contract liabilities for deferred resident fees totaling approximately $3.9$4.0 million and $4.5 million which are included as a component of deferred income within current liabilities of the Company’s Consolidated Balance Sheets at March 31, 2018.2019 and December 31, 2018, respectively. Revenue for certain ancillary services is recognized as services are provided, and includes fees for services such as medication management, daily living activities, beautician/barber, laundry, television, guest meals, pets, and parking which are generally billed monthly in arrears and totaled approximately $1.0 million and $1.2 million and 1.3 million for

the three month periodsmonths ended March 31, 20182019 and 2017,2018, respectively, as a component of resident revenue within the Company’s Consolidated Statements of Operations and Comprehensive Loss.

The Company's senior housing communities have residency agreements which generally require the resident to pay a community fee prior to moving into the community and are recorded initially by the Company as deferred revenue. At March 31, 20182019 and December 31, 2017,2018, the Company had contract liabilities for deferred community fees totaling approximately $1.4$1.0 million and $1.3$1.1 million, respectively, which are included as a component of deferred income within current liabilities of the Company’s Consolidated Balance Sheets. The Company recognized community fees of approximately $0.7 million and $1.0 million during the three month periods ended March 31, 2018 and 2017, respectively, as a component of resident revenue within the Company’s Consolidated Statements of Operations and Comprehensive Loss.Loss of approximately $0.6 million and $0.7 million, respectively, during the three months ended March 31, 2019 and 2018.

Lease Accounting

The Company determines whether to account for its leases as 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 Company’s cost of funds, minimum lease payments and other lease terms. As of March 31, 2018,Effective January 1, 2019, the Company leased 46 senior housing communities, 44adopted the new lease standard provisions of whichASC 842. Due to the Company classified as operating leases and twoadoption of whichASC 842, the Company classified as capital lease and financing obligations. The Company incursunamortized balances of lease acquisition costs and amortizes these costs over the termlease incentives were reclassified as a component of the respective operating lease agreement. Certain leases entered into byright-of-use asset. Additionally, the Company qualified as sale/leaseback transactions, and as such, any related gains have been deferred and are being amortized over the respective lease term. Facility lease expense in the Company’s Consolidated Statements of Operations and Comprehensive Loss includes rent expense plus amortization expense relating to leasehold acquisition costs offset by the amortizationunamortized balance of deferred gains associated with sale leaseback transactions totaling approximately $10.0 million was written-off to retained earnings.

Management determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of the identified asset means the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.

Operating lease incentives.right-of-use assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term on the lease commencement date. When the implicit lease rate is not determinable, management uses the Company’s incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future minimum lease payments. The expected lease terms include options to extend or terminate the lease when it is reasonably certain the Company will exercise such options. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease terms.

There are various financial covenants and other restrictions inCertain of the Company’s lease agreements. Under the terms ofarrangements have lease agreements with a certain landlord, the Company is required to maintain a minimum lease coverage ratio for the seven communities within the lease portfolio. Cure provisions within the respective lease agreements allow the Company to deposit cash collateral with the landlord to serve as a short-term remedy for a lease coverage shortfall.and non-lease components. The Company received a waiver from the landlord whereby the lease coverage ratio for the portfolio was waived for the period. With this waiver, the Company was not required to deposit cash collateral with the landlordaccounts for the lease coverage shortfallcomponents and was in compliancenon-lease components as a single lease component for all classes of underlying assets. Leases with allan expected lease covenants at March 31, 2018. The Companyterm of 12 months or less are not recorded on the balance sheet and landlord are currently negotiating terms to providethe related lease expense is recognized on a long-term remedy forstraight-line basis over the expected lease coverage ratio requirement. Earnings related to these properties were not significant to the consolidated operating results of the Company for the first quarter ended March 31, 2018.term.   

Credit Risk and Allowance for Doubtful Accounts

The Company’s resident receivables are generally due within 30 days from the date billed. Accounts receivable are reported net of an allowance for doubtful accounts of $5.0$7.3 million and $4.9$6.8 million at March 31, 2018,2019, and December 31, 2017,2018, respectively, and represent the Company’s estimate of the amount that ultimately will be collected. The adequacy of the Company’s allowance for doubtful accounts is reviewed on an ongoing basis, using historical payment trends, write-off experience, analyses of receivable portfolios by payor source and aging of receivables, as well as a review of specific accounts, and adjustments are made to the allowance as necessary. Credit losses on resident receivables have historically been within management’s estimates, and management believes that the allowance for doubtful accounts adequately provides for expected losses.

Employee Health and Dental Benefits, Workers’ Compensation, and Insurance Reserves

The Company offers certain full-time employees an option to participate in its health and dental plans. The Company is self-insured up to certain limits and is insured if claims in excess of these limits are incurred. The cost of employee health and dental benefits, net of employee contributions, is shared between the corporate office and the senior housing communities based on the respective number of plan participants. Funds collected are used to pay the actual program costs including estimated annual claims, third-party administrative fees, network provider fees, communication costs, and other related administrative costs incurred by the plans. Claims are paid as they are submitted to the Company’s third-party administrator. The Company records a liability for outstanding claims and claims that have been incurred but not yet reported. This liability is based on the historical claim reporting lag and payment trends of health insurance claims. Management believes that the liability for outstanding losses and expenses is adequate to cover the ultimate cost of losses and expenses incurred at March 31, 2018;2019; however, actual claims and expenses may differ. Any subsequent changes in estimates are recorded in the period in which they are determined.

The Company uses a combination of insurance and self-insurance for workers’ compensation. Determining the reserve for workers’ compensation losses and costs that the Company has incurred as of the end of a reporting period involves significant judgments based on projected future events including potential settlements for pending claims, known incidents which may result in claims, estimates of incurred but not yet reported claims, changes in insurance premiums, estimated litigation costs and other factors. The Company regularly adjusts these estimates to reflect changes in the foregoing factors. However, since this reserve is based on estimates, the actual expenses incurred may differ from the amounts reserved. Any subsequent changes in estimates are recorded in the period in which they are determined.

Income Taxes

Income taxes are computed using the asset and liability method and current income taxes are recorded based on amounts refundable or payable in the current year. The effective tax rates for the three month periodsmonths ended March 31, 20182019 and 20172018 differ from the statutory tax rates due to state income taxes, permanent tax differences, and changes in the deferred tax asset valuation allowance. The Company is impacted by the Texas Margin Tax (“TMT”), which effectively imposes tax on modified gross revenues for communities within the State of Texas. During each of the three month periodsmonths ended March 31, 20182019 and 2017,2018, the Company consolidated 38 Texas communities, and the TMT increased the overall provision for income taxes.

Deferred income taxes are recorded based on the estimated future tax effects of loss carryforwards and temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in the years in which we expect those carryforwards and temporary differences to be recovered or settled. 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 the evaluation, management has evaluated taxable income in carryback years, future reversals of taxable temporary differences, feasible tax planning strategies, and future expectations of income. Based upon this analysis, an adjustment to the valuation allowance of $1.4$2.9 million and $13.1$1.4 million was recorded during the first quarters of fiscal 20182019 and 2017,2018, respectively. The valuation allowance reduces the Company’s net deferred tax assets to the amount that is “more likely than not” (i.e., a greater than 50% likelihood) to be realized and resulted in net reductions of $38.1$49.2 million and $36.7$46.3 million to the Company’s deferred tax assets at March 31, 20182019 and December 31, 2017.2018, respectively. However, in the event that we were to determine that it would be more likely than not that the Company would realize the benefit of deferred tax assets in the future in excess of their net recorded amounts, adjustments to deferred tax assets would increase net income in the period such determination was made. The benefits of the net deferred tax assets might not be realized if actual results differ from expectations.

The Company completed an analysis determining its best estimate for provisional tax adjustments based on the revised tax legislation associated with the Tax Cuts and Jobs Act (“TCJA”), which was enacted on December 22, 2017. Additionally, the Securities and Exchange Commission issued Staff Accounting Bulletin 118 (“SAB 118”), to address the accounting and reporting of the TCJA. SAB 118 allows companies to take a reasonable period, which should not extend beyond one year from enactment of the TCJA, to measure and recognize the effects of the new tax law. The Company is continuing to analyze certain aspects of the TCJA and refine its tax calculations and estimates, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts.

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 management’s assessment is that such position is “more likely than not” to be upheld on audit based only on the technical merits of the tax position. The Company’s policy is to recognize interest related to unrecognized tax benefits as interest expense and penalties as income tax expense. The Company is generally no longer subject to federal and state income tax audits for tax years prior to 2014.2015.

Net Loss Per Share

Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Potentially dilutive securities consist of unvested restricted shares and shares that could be issued under outstanding stock options. Potentially dilutive securities are excluded from the computation of net loss per common share if their effect is antidilutive.

The following table sets forth the computation of basic and diluted net loss per share (in thousands, except for per share amounts):

Awards of unvested restricted stock and restricted stock units representing approximately 1,338,000984,000 shares and 849,000147,000 stock options outstanding were antidilutive as a result of the net loss reported by the Company for the three months ended March 31, 2019. Awards of unvested restricted stock and restricted stock units representing approximately 1,379,000 shares outstanding were antidilutive as a result of the net loss reported by the Company for the three months ended March 31, 2018. Accordingly, such shares and options were not included in the calculation of diluted weighted average shares outstanding for the three months ended March 31, 20182019 and 2017, respectively, and were antidilutive.2018.

Treasury Stock

The Company accounts for treasury stock under the cost method and includes treasury stock as a component of stockholders’ equity. All shares acquired by the Company have been purchased in open-market transactions. There were no repurchases of the Company’s common stock during the three month periodmonths ended March 31, 2019 or fiscal 2018.

Recently Issued Accounting Guidance

In January 2017,June 2016, the FASB issued ASU 2016-13, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-01, Business Combinations – ClarifyingInstruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. Current U.S. generally accepted accounting principles (GAAP) require an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. ASU 2016-13 replaces the Definitioncurrent incurred loss methodology for credit losses and removes the thresholds that companies apply to measure credit losses on financial statements measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities with a methodology that reflects expected credit losses and requires consideration of a Business.broader range of reasonable and supportable information to form credit loss estimates. ASU 2017-01 provides guidance in accounting2016-13 is effective for business combinations when determining if the transaction represents acquisitions or disposals of assets or of a business. Under ASU 2017-01, when determining whether an integrated set of assetsfiscal years and activities constitutes a business, entities must compare the fair value of gross assets acquired to the fair value of a single identifiable asset or group of similar identifiable assets. If substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in the single identifiable assets or group of similar identifiable assets, the integrated set of assets and activities is not characterized as a business. ASU 2017-01 is applied prospectively and is effectivefor interim periods within those fiscal years beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.2018. The Company adoptedis currently evaluating the provisions of ASU 2017-01 on January 1, 2018 and beginning from the date of adoption will apply the accounting guidance provided to the Company’s acquisition activities. Management expects the adoption to require the accounting for acquisitions of senior housing communities to be reflected as acquisitions of assets rather than as a business combination; however, management does not expectimpact the adoption of ASU 2017-01 to2016-13 will have a material impact on the Company’sits consolidated financial position, results of operations or cash flows.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force). ASU 2016-18 requires an entity to include in its cashstatements and cash-equivalent balances in the statement of cash flows those amounts that are deemed to be restricted cash and restricted cash equivalents. ASU 2016-18 is effective for interim and annual reporting periods beginning after December 15, 2017 and should be applied on a retrospective basis. The Company adopted the provisions of ASU 2016-18 on January 1, 2018 and the adoption resulted in the Company no longer reporting changes in restricted cash balances in the Consolidated Statements of Cash Flows within net cash flows (used in) provided by financing activities which did not have a material impact on the Company’s cash flows.  

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 amends the guidance in Accounting Standards Codification (“ASC”) 230, which often requires judgment to determine the appropriate classification of cash flows as operating, investing or financing activities and has resulted in diversity in practice in how certain cash receipts and cash payments are classified. ASU 2016-15 is effective for interim and annual reporting periods beginning after December 15, 2017 and should be applied on a retrospective basis. The Company adopted the provisions of ASU 2016-15 on January 1, 2018 and the adoption did not have a material impact on the Company’s cash flows.disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases(Topic “ASC 842”). ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 will be effective beginning in 2019. Early adoption of ASU 2016-02 as of its issuance is permitted. The new lease standard requires lessees to recognize on the balance sheet a modified retrospectiveliability to make lease payments and a right-of-use asset representing the right to use the underlying asset for the lease term. Additionally, in July 2018, the FASB issued ASU 2018-11, Leases, Targeted Improvements, which provided entities with a transition approach for all leases existing at, or entered into after, the date of initial application, with anmethod option to use certain transition relief.not restate comparative periods presented, but to recognize a cumulative effect adjustment to beginning retained earnings in the period of adoption. The Company is currently evaluating the impact of adoptingadopted the new lease standard on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets. Under ASU 2014-09, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. ASU 2014-09 is effective for annual periods beginning after December 15, 2017. The Company adopted the provisions of ASU 2014-09 on January 1, 2018 under2019, on a prospective basis, forgoing comparative reporting using the modified retrospective approach. Underadoption method, utilizing the modified retrospective approach, the guidance is appliedsimplified transition method available pursuant to the most current periodstandard, which allowed the Company to continue to apply the legacy accounting guidance under ASC 840, including its disclosure requirements, in the comparative periods presented recognizingin the cumulative effectyear of the adoption to beginning retained earnings.adoption. The Company has determined thatelected to utilize certain practical expedients permitted under the adoption of ASU 2014-09 did not result in an adjustment to beginning retained earnings and did not result in significant changes to the amount and/or timing of revenue reportedtransition guidance within the Company’s consolidated financial statements; however, ASU 2014-09 requires enhanced disclosures related to the nature, amount, timing and uncertainty of revenue arrangements. Additionally, our contracts with residents are generally short term in nature and revenue is recognized when services are provided; as such, ASU 2014-09 provides an entity need not disclose information related to performance obligations when the performance obligation is part of a contract that has an original expected duration of one year or less.

Reclassifications

Certain reclassifications have been made to prior period amounts to conform to current period presentation.

3. ACQUISITIONS

Fiscal 2017

Effective January 31, 2017 (the “Closing Date”),new standard, which allowed the Company acquiredto carryforward the historical lease classification, not separate the lease and non-lease components for all classes of underlying real estate throughassets in which it is the lessee, not reassess initial direst costs for existing leases, and make an asset acquisition associated with four of the senior housing communities previously leased from Ventas, Inc. (“Ventas”)accounting policy election not to account for an acquisition price of $85.0 million (the “Four Property Lease Transaction”). The Company obtained interest only, bridge financing from Berkadia Commercial Mortgage LLC (“Berkadia”) for $65.0 million of the acquisition priceleases with an initial variable interest rateterm of LIBOR plus 4.0% and a 36-month term, with12 months or less on the balance of the acquisition price paid from the Company’s existing cash resources. Additionally, the Company agreed to continue paying $2.3 million of the annual rents associated with the four communities acquired over the remaining lease term of the seven communities remaining in the Ventas lease portfolio. As such, the total additional lease payments to be paid over the remaining lease term were discounted back to the Closing Date utilizing a credit-adjusted risk-free rate to determine the fair valuesheet. Adoption of the lease termination financing obligationstandards by the Company initially resulted in the recording of $16.0 million. operating lease right-of-use assets of $255.4 million and operating lease liabilities of $289.5 million on the Company’s Consolidated Balance Sheet as of January 1, 2019. The difference between amounts recorded for the operating lease right-of-use assets and operating lease liabilities is due to net reductions for the reclassification of certain deferred lease costs and lease incentives of $16.3 million and impairment write-down adjustments of $17.8 million recorded to retained deficit. The fair value of the four communities acquired was determined to approximate $88.1 million.right-of-use assets were estimated, using level 3 inputs as defined in the accounting standards codification, utilizing a discounted cash flow approach based upon historical and projected cash flows and market data, including management fees and a market supported lease coverage ratio. The fair valuesestimated future cash flows were discounted at a rate that is consistent with a weighted average cost of capital from a market participant perspective. The adoption of the property, plant, and equipmentlease standard did not have a material impact on the consolidated cash flows of the acquired communities were determined utilizing a direct capitalization method considering facility net operating incomeCompany and market capitalization rates. These fair value measurements were basedhad no impact on the Company’s covenant compliance under its current market conditions as of the acquisition datedebt and are considered Level 3 measurements (fair value measurements using significant unobservable inputs) within the fair value hierarchylease agreements. See additional discussion at “Note 8 – Leases.”

The adoption of ASC 820-10, Fair Value Measurement. The range of capitalization rates utilized was 7.25% to 8.50%, depending upon the property type, geographical location, and overall quality of each respective community. The acquisition price of $85.0 million and lease termination obligation of $16.0 million842 resulted in total aggregate consideration by the Company for the acquisition of the four communities of $101.0 million. The Company recorded the difference between the total aggregate consideration ($101.0 million) and the estimated fair value of the four communities acquired ($88.1 million) of $12.9 million as a loss on facility lease termination during the first quarter of fiscal 2017. Additionally, the Company incurred approximately $0.4 million in transaction costs relatedfollowing adjustments to this acquisition which have been capitalized as a component of the cost of the assets acquired.

As a result of this acquisition, the Company recorded additions to property and equipment of approximately $88.1 million within the Company’s Consolidated Balance Sheets which will be depreciated or amortized overSheet at January 1, 2019:

3. DEBT TRANSACTIONS

 Effective March 10, 2019, the estimated useful lives.

4. DEBT TRANSACTIONSCompany exercised its option to extend its interest-only variable interest rate mortgage loan with Compass Bank on four of its senior housing communities (Cottonwood Village, Georgetowne Place, Harrison at Eagle Valley, and Rose Arbor). The maturity date was extended from February 10, 2020, to May 11, 2020.  

The Company previously issued standby letters of credit with Wells Fargo Bank (“Wells Fargo”), totaling approximately $3.9$3.4 million, for the benefit of Hartford Financial Services (“Hartford”) in connection with the administration of workers compensation.workers’ compensation which remain outstanding as of March 31, 2019.

The Company previously issued standby letters of credit with JP Morgan Chase Bank (“Chase”), totaling approximately $6.7 million, for the benefit of Welltower, Inc. (“Welltower”), in connection with certain leases between Welltower and the Company.Company which remain outstanding as of March 31, 2019.

The Company previously issued standby letters of credit with Chase, totaling approximately $2.9 million, for the benefit of HCP, Inc. (“HCP”) in connection with certain leases between HCP and the Company.Company which remain outstanding as of March 31, 2019.

The senior housing communities owned by the Company and encumbered by mortgage debt are provided as collateral under their respective loan agreements. At March 31, 20182019 and December 31, 2017,2018, these communities carried a total net book value of approximately $994.0$948.0 million and $1.0 billion,$966.9 million, respectively, with total mortgage loans outstanding, excluding deferred loan costs, of approximately $958.8$978.0 million and $963.1$981.6 million, respectively.

In connection with the Company’s loan commitments described above, the Company incurred financing charges that were deferred and amortized over the terms of the respective notes. At March 31, 20182019 and December 31, 2017,2018, the Company had gross deferred loan costs of approximately $14.1$14.2 million and $14.0$14.1 million, respectively. Accumulated amortization was approximately $5.0$5.1 million and $4.6$4.7 million at March 31, 20182019 and December 31, 2017,2018, respectively. The Company was in compliance with all aspects of its outstanding indebtedness at March 31, 2018,2019 and December 31, 2017.2018.

5.4. EQUITY

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 Company’s board of directors 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 March 31, 20182019 or December 31, 2017.2018.

Share Repurchases

On January 22, 2009, the Company’s board of directors approved a share repurchase program that authorized the Company to purchase up to $10.0 million of the Company’s 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. On January 14, 2016, the Company announced that its board of directors approved a continuation of the share repurchase program. Pursuant to this authorization, during the first quarter of fiscal 2016, the Company purchased 144,315 shares of its common stock at an average cost of $17.29 per share for a total cost to the Company of approximately $2.5 million. All such purchases were made in open market transactions. The Company has not purchased any additional shares of its common stock pursuant to the Company’s share repurchase program during the three months ended March 31, 2019 or fiscal 2018.

6.5. STOCK-BASED COMPENSATION

The Company recognizes compensation expense for share-based stock awards to certain employees and directors, including grants of employee stock options and awards of restricted stock, in the Company’s Consolidated Statements of Operations and Comprehensive Loss based on their fair values.

On May 8, 2007, the Company’s stockholders approved the 2007 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation (as amended, the “2007 Plan”), which provides for, among other things, the grant of restricted stock awards, restricted stock units and stock options to purchase shares of the Company’s common stock. The 2007 Plan authorizes the Company to issue up to 4.6 million shares of common stock and the Company has reserved shares of 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.

In March 2019, the Company’s Board of Directors approved the 2019 Omnibus Stock and Incentive Plan for Capital Senior Living Corporation (the “2019 Plan”), which, subject to stockholder approval, will replace the 2007 Plan.  A description of the terms and conditions of the 2019 Plan is set forth in “Proposal 4—Approval of the Capital Senior Living Corporation 2019 Omnibus Stock and Incentive Plan” beginning on page 62 of the Company’s Definitive Proxy Statement filed with the Securities and Exchange Commission on April 8, 2019 relating to the Company’s 2019 annual meeting of stockholders.

Stock Options

Although theThe Company has not grantedmay periodically grant stock options in recent years, the Company’s stock option program isas a long-term retention programtool that is intended to attract, retain and provide incentives for employees, officers and directors and to more closely align stockholder interests with those of our employees and directors. The Company’s stock options generally vest over a period of one to five years and the related expense is amortized on a straight-line basis over the vesting period. NoA summary of the Company’s stock option activity and related information for the three months ended March 31, 2019 is presented below:

The options were outstanding at March 31, 2018.2019 had no intrinsic value, a weighted-average remaining contractual life of 9.75 years, and a weighted average exercise price of $7.46. None of the options outstanding at March 31, 2019 were exercisable.

The Company used 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 Company’s common stock. The expected term of options granted is based primarily on historical exercise patterns on the Company’s 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 Company’s historical option forfeiture patterns.

The following table presents the Company’s assumptions utilized to estimate the grant date fair value of stock options granted during the three months ended March 31, 2019:

Restricted Stock

The Company may grantperiodically grants restricted stock awards and units 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. For restricted stock awards and units without performance and market-based vesting conditions, the Company records compensation expense for the entire award on a straight-line basis over the requisite service period, which is generally a period of one to four years, unless the award is subject to certain accelerated vesting requirements. Restricted stock awards are considered outstanding at the time of grant since the holders thereof are entitled to dividends, upon vesting, and voting rights. For restricted stock awards with performance and market-based vesting conditions, total compensation expense is recognized over the requisite service period for each separately vesting tranche of the award as if the award is, in substance, multiple awards once the performance target is deemed probable of achievement. Performance goals are evaluated periodically, and if such goals are not ultimately met or it is not probable the goals will be achieved, no compensation expense is recognized and any previously recognized compensation expense is reversed for performance-based awards.

The Company recognizes compensation expense of a restricted stock award over its respective vesting or performance period based on the fair value of the award on the grant date, net of actual forfeitures. A summary of the Company’s restricted stock awards activity and related information for the three-month periodthree months ended March 31, 20182019 is presented below:

The restricted stock outstanding at March 31, 20182019 had an intrinsic value of approximately $14.4$3.5 million.

During the three month periodmonths ended March 31, 2018,2019, the Company awarded 643,866229,408 shares of restricted common stock to certain employees and directors of the Company, of which 237,840147,239 shares were subject to performance and market-based vesting conditions. The average market value of the common stock on the date of grant was $11.38.$6.23. These awards of restricted stock vest over a one to four-year period and had an intrinsic value of approximately $7.3$1.4 million on the date of grant.

The Company recognized $(1.0 million) and $1.9 million in stock-based compensation expense during the three months ended March 31, 2019 and 2018, respectively, which primarily is associated with employees whose corresponding salaries and wages are included within general and administrative expenses within the Company’s Consolidated Statements of Operations and Comprehensive Loss. The credit balance in stock-based compensation expense for the three months ended March 31, 2019, primarily results from the full reversal of stock compensation expense previously recognized by the Company due to stock award cancellations for the retirement and separation of certain members of executive management and the Company concluding certain performance metrics associated with performance-based restricted stock awards was no longer probable of achievement. Unrecognized stock-based compensation expense is $14.3was $6.8 million as of March 31, 2018.2019. If all awards granted are earned, the Company expects this expense to be recognized over a one to three-year period for performance and market-based stock awards and a one to four-year period for nonperformance-based stock awards, options and units.

7.

6. CONTINGENCIES

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.

The Company had two of its senior housing communities located in southeast Texas impacted by Hurricane Harvey during the third quarter of fiscal 2017. Both of these communities remain fully vacated and are undergoing repairs. We maintain insurance coverage on these communities which includes damage caused by flooding. The insurance claim for this incident required a deductible of $100,000 that was expensed as a component of operating expenses in the Company’s Consolidated Statement of Operations and Comprehensive Loss in the third quarter of fiscal 2017. Physical repairs have been substantially completed to restore the communities to their condition prior to the incident and these communities reopened and began accepting residents in July 2018. Through March 31, 2018,2019, we have incurred approximately $4.2$6.8 million in clean-up and physical repair costs and we expect to incur additional repair costs which we believe most are probable of being recovered through insurance proceeds. In addition to the repairs of physical damage to the buildings, the Company’s insurance coverage includes loss of business income (“Business Interruption”). through one year after the buildings were placed back in service. Business Interruption includes reimbursement for lost revenue as well as incremental expenses incurred as a result of the hurricane. TheAs of March 31, 2019, the Company has received payments from our insurance underwriters totaling approximately $2.0$12.9 million during the first quarter of fiscal 2018, and $2.7 million in fiscal 2017 of which approximately $1.6$8.6 million and $2.2 million, respectively, related to Business Interruption. During the three month periods ended March 31, 2019 and 2018, the Company recognized $1.2 million and $1.6 million, respectively, of Business Interruption andwhich has been included as a reduction to operating expenses in the Company’s Consolidated Statements of Operations and Comprehensive Loss.  Based upon our assessments of the physical damages and insurance coverage, the Company currently estimates insurance proceeds will be sufficient to reimburse the Company for all damages and repair costs to fully restore the communities to their condition prior to the incident.  

8.7. FAIR VALUE OF FINANCIAL INSTRUMENTSMEASUREMENTS

Financial Instruments

The carrying amounts and fair values of financial instruments at March 31, 2018,2019 and December 31, 2017,2018, are as follows (in thousands):

The following methods and assumptions were used in estimating the Company’s fair value disclosures for financial instruments:

Cash and cash equivalents and Restricted cash: The carrying amounts reported in the Company’s Consolidated Balance Sheets for cash and cash equivalents and restricted cash approximate fair value, which represent level 1 inputs as defined in the accounting standards codification.

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, which represent level 2 inputs as defined in the accounting standards codification.

Assets Held for Sale

During the three months ended March 31, 2019, the Company classified one senior living community as held for sale and determined a remeasurement write-down of approximately $2.3 million was required to adjust the carrying value to its fair value, net of cost of disposal. The Company determines, using level 2 inputs as defined in the accounting standards codification, 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 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 Company’s estimates.

Operating Lease Right-Of-Use Assets

The Company’s adoption of ASC 842 on January 1, 2019, resulted in the recognition of operating lease right-of-use assets which were determined not fully recoverable and required impairment write-down adjustments of approximately $17.8 million recorded directly to retained deficit. The fair value of the right-of-use assets were estimated, using level 3 inputs as defined in the accounting standards codification, utilizing a discounted cash flow approach based upon historical and projected cash flows and market data, including

management fees and a market supported lease coverage ratio. The estimated future cash flows were discounted at a rate that is consistent with a weighted average cost of capital from a market participant perspective.

The estimated fair value of these assets and liabilities could be affected by market changes and this effect could be material.

8. LEASES

Management determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control over the use of the identified asset means the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.

Operating lease right-of-use assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term on the lease commencement date. When the implicit lease rate is not determinable, management uses the Company’s incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future minimum lease payments. The expected lease terms include options to extend or terminate the lease when it is reasonably certain the Company will exercise such options. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease terms.

Certain of the Company’s lease arrangements have lease and non-lease components. The Company accounts for the lease components and non-lease components as a single lease component for all classes of underlying assets. Leases with an expected lease term of 12 months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the expected lease term.

The Company has operating leases for various real estate (primarily senior housing communities) and equipment. As of March 31, 2019, the Company leased 46 senior housing communities from certain real estate investment trusts (“REITs”). Under these facility lease agreements, the Company is responsible for all operating costs, maintenance and repairs, insurance and property taxes. Additionally, facility leases include variable lease payments due to contingent rent increases when certain operational performance thresholds are surpassed.

Most of the Company’s lease agreements include one or more options to renew, with renewal terms that can extend the lease term for an additional one to 20 years at the Company’s option. The recoverability of assets and depreciable life of leasehold improvements are limited by expected lease terms. There are various financial covenants and other restrictions in the Company’s lease agreements. The Company’s lease agreements do not contain any material residual value guarantees. The Company was in compliance with all of its lease covenants at March 31, 2019 and December 31, 2018.

The following table summarizes information related to the Company’s lease activities during the three months ended March 31, 2019:

Future minimum lease payments associated with operating lease labilities recognized on the Company’s Consolidated Balance Sheet as of March 31, 2019, are as follows (in thousands):

9. SUBSEQUENT EVENTS

Effective May 1, 2019, the Company closed the sale of one senior housing community located in Kokomo, Indiana for a total purchase price of $5.0 million and received approximately $1.4 million in net proceeds after retiring the debt associated with the community and paying customary transaction and closing costs. The community was comprised of 138 assisted living units.

Item 2. MANAGEMENT’S 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 thatExamples of forward-looking statements, including,include, without limitation, those relating to the Company’s future business prospects revenues,and strategies, financial results, working capital, liquidity, capital needs and expenditures, interest costs, insurance availability and income,contingent liabilities. Forward-looking statements are subject to certain risks and uncertainties that could cause the Company’s actual results and financial condition to differ materially from those indicated in the forward-looking statements, dueincluding, but not limited to, several important factors herein identified. These factors include the Company’s ability to find suitable acquisition properties atgenerate sufficient cash flow to satisfy its debt and lease obligations and to fund the Company’s capital improvement projects to expand, redevelop, and/or reposition its senior living communities; the Company’s ability to obtain additional capital on terms acceptable to it; the Company’s ability to extend or refinance its existing debt as such debt matures; the Company’s compliance with its debt and lease agreements, including certain financial covenants, and the risk of cross-default in the event such non-compliance occurs; the Company’s ability to complete acquisitions and dispositions upon favorable terms financing, licensing, business conditions,or at all; the risk of oversupply and increased competition in the markets which the Company operates; the risk of increased competition for skilled workers due to wage pressure and changes in regulatory requirements; the departure of the Company’s key officers and personnel; the cost and difficulty of complying with applicable licensure, legislative oversight, or regulatory changes; the risks of downturnassociated with a decline in economic conditions generally, satisfaction of closing conditions such as those pertaining to licensure,generally; the adequacy and continued availability of the Company’s insurance at commercially reasonable rates,policies and the Company’s ability to recover any losses it sustains under such policies; changes in accounting principles and interpretations, among others,interpretations; and the other risks and factors identified from time to time in the Company’s reports filed with the Securities and Exchange Commission (“SEC”)., including those set forth under “Item 1A. Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, 2018.

Overview

The following discussion and analysis addresses (i) the Company’s results of operations for the three month periodsmonths ended March 31, 20182019 and 2017,2018, and (ii) liquidity and capital resources of the Company, and should be read in conjunction with the Company’s consolidated financial statements contained elsewhere in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.2018.

The Company is one of the largest operators of senior housing communities in the United States. The Company’s operating strategy is to provide value to its senior living residents by providing quality senior living services at reasonable prices, while achieving and sustaining a strong, competitive position within its geographically concentrated regions, as well as continuing to enhance the performance of its operations. The Company provides senior living services to the elderly, including independent living, assisted living, and memory care services at reasonable prices. Many of the Company’s communities offer a continuum of care to meet its residents’ needs as they change over time. This continuum of care, which integrates independent living, assisted living, and memory care, and is bridged by home care through independent home care agencies, sustains residents’ autonomy and independence based on their physical and mental abilities.

As of March 31, 2018,2019, the Company operated 129 senior housing communities in 23 states with an aggregate capacity of approximately 16,500 residents, including 83 senior housing communities that the Company owned and 46 senior housing communities that the Company leased.

Significant Financial and Operational Highlights

The Company primarily derives its revenue by providing senior living and healthcare services to the elderly. When comparing the first quarter of fiscal 20182019 to the first quarter of fiscal 2017,2018, the Company generated resident revenue of approximately $114.2 million compared to resident revenue of approximately $114.6 million compared to revenue of approximately $116.0 million, respectively, representing a decrease of approximately $1.3$0.4 million, or 1.2%0.4%. Our resident revenue continues to be negativelyhas been impacted from the aftermath of Hurricane Harvey, which resulted in the full evacuation of our residents at two of our senior housing communities located in southeast Texas during the third quarter of fiscal 2017. BothPhysical repairs were substantially completed and both of these communities are undergoing repairs and remain fully vacatedbegan accepting residents in July 2018, which resulted in a decreasean increase of approximately $2.4$1.0 million in our resident revenue during the first quarter of fiscal 20182019 when compared to the first quarter of fiscal 2017. The decrease2018. However, this increase in resident revenue from the two senior housing communities negatively impacted by Hurricane Harvey was partiallyfully offset by an increasewith a decrease in resident revenue at our other remaining senior housing communities of $1.1$1.4 million, which was primarily due to a 1.7% increase1.8% decrease in average monthly rental rates.financial occupancies.    

Excluding the two senior housing communities negatively impacted by Hurricane Harvey, the weighted average financial occupancy rate for the first quarters of fiscal 2019 and 2018 was 84.1% and 2017 was 85.9% and 87.2%, respectively. Although average financial occupancies decreased, we experienced an increase in average monthly rental rates of 1.7%0.7% when comparing the first quarter of fiscal 20182019 to the first quarter of fiscal 2017.2018.    

As mentioned above, the Company had two of its senior housing communities located in southeast Texas impacted by Hurricane Harvey during the third quarter of fiscal 2017. Both of these communities remain fully vacated and are undergoing repairs. We maintain insurance coverage on these communities which includes damage caused by flooding. The insurance claim for this incident required a deductible of $100,000 that was expensed as a component of operating expenses in the Company’s Consolidated Statement of Operations and Comprehensive Loss in the third quarter of fiscal 2017. Physical repairs have been substantially completed to restore the communities to their condition prior to the incident and these communities reopened and began accepting residents in July 2018. Through March 31, 2018,2019, we have incurred approximately $4.2$6.8 million in clean-up and physical repair costs and we expect to incur additional repair costs which we believe most are probable of being recovered through insurance proceeds. In addition to the repairs of physical damage to the buildings, the Company’s insurance coverage includes loss of business income (“Business Interruption”). through one year after the buildings were placed back in service. Business Interruption includes reimbursement for lost revenue as well as incremental expenses incurred as a result of the hurricane. TheAs of March 31, 2019, the Company has received payments from our insurance underwriters totaling approximately $2.0$12.9 million, during the first quarter of fiscal 2018, and $2.7 million in fiscal 2017 of which approximately $1.6

$8.6 million and $2.2 million, respectively, related to Business Interruption. During the first quarters of fiscal 2019 and 2018, the Company recognized $1.2 million and $1.6 million, respectively, of Business Interruption andwhich has been included as a reduction to operating expenses in the Company’s Consolidated Statements of Operations and Comprehensive Loss. Based upon our assessment of the physical damages and insurance coverage, the Company currently estimates insurance proceeds will be sufficient to reimburse the Company for all damages and repair costs to fully restore the communities to their condition prior to the incident.

Facility Lease Transactions

The Company currently leases 46 senior housing communities from certain real estate investment trusts (“REITs”), 44all of which are accounted for as operating leases and two of which are accounted for as capital lease and financing obligations.leases. The lease terms are generally for 10-15 years with renewal options for an additional 5-20 years at the Company’s option. 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 Company’s facility lease agreements as of March 31, 20182019 (dollars in millions):