The SeniorCare Investor: Acquisition Market Surges In Late April

With a burst of merger and acquisition activity not seen in a few years, nearly $400 million of assets changed hands in the past few weeks, with most of the volume occurring in the assisted living and retirement housing sector. Some of these transactions had been planned for a long time, while others involved the manager taking possession of the real estate. Consequently, this recent jump in activity should not be viewed as the start of a new period of acquisition delirium.

In the largest transaction of the month, AIMCO (NYSE: AIV) sold six retirement communities to BLC Acquisition Corp., otherwise known as Brookdale Living Communities. The total purchase price was $139 million, or just over $96,000 per unit for the communities with 1,359 units and 83 beds. The communities, operating under the "Chambrel" name and located in five states, were all built between 1985 and 1987 and most of them maintained average occupancy rates of about 95%. The buyer assumed $101 million of tax-exempt debt and $20 million of conventional debt.

The transaction was actually broken into two parts, with Dave Rothschild of CB Commercial representing the seller in four of the campuses. The most expensive property, in terms of the per unit price, was the community in Virginia that contains 166 independent and 55 assisted living units. The price was just over $125,000 per unit with an 11.1% cap rate and a 3.9x revenue multiple. Only 15 of the 56 acres have been developed in historic Williamsburg.

Two of the communities are located in Florida, and one of them, with 229 independent and 40 assisted living units, sold for $99,000 per unit with a 10.8% cap rate and a 3.9x revenue multiple. The second community sold for just over $58,000 per unit with a 12% cap rate and a 2.5x revenue multiple. The relatively low price and multiples reflect an EBITDA margin of just 30% compared to over 40% for the other two.

The final campus in this part of the package is in Akron, Ohio, and includes 136 independent and 32 assisted living units, plus a health care center that has 75 skilled beds and eight personal care beds. The price was just over $69,000 per unit/bed with a 10.8% cap rate and 2.0x revenue multiple. The IL/AL component had a 33% operating margin and the health care center had just a 10% margin, which helps explains the low per unit price but does little to explain why it had the lowest cap rate in the group.

McDonald & Co. represented the seller in the other part of the package, which included campuses in Georgia and Texas. The Georgia community contains 256 independent and 24 assisted living units and sold for $116,000 per unit, while the Texas property has 198 independent and 68 assisted living units and was priced at $97,000 per unit. Financial details for these two properties have not yet become available.

This appears to be a tremendous transaction for Brookdale, with the per unit prices, cap rates and revenue multiples completely in line with industry norms. Although the entire package is about 15 years old, we understand that the properties have been well maintained and a few of them are exceptional. The floating rate tax-exempt debt that was assumed is also an attractive feature, and with stabilized occupancies there should be no transition problems and little, if any, potential downside.