The SeniorCare Investor: ALF M&A Market Takes Off--

Spike In Sales Volume May Be Positive Sign For Future 

While the Ventas purchase of Atria is obviously at the large end of the acquisition spectrum, smaller portfolio acquisitions are getting done as well.  A case in point is the recent acquisition of Milestone Senior Living by Keystone Senior, LLC.  The Milestone portfolio, which operates under the name “Our House,” includes 28 assisted living facilities (with some memory care) in Wisconsin and Minnesota with 561 units (572 licensed beds). 

This is a unique portfolio because of the small size of each facility, with the largest property having 41 units and the smallest having just 18 units (the overall average is 28 units).  What is also unique, but impressive, is that the occupancy rate for all of the facilities in the portfolio is 98%, including those new developments open for at least a year.  There are few providers who can claim this kind of performance.

The purchase price was $60.5 million, or $107,800 per unit, which is a fairly high per-unit price for small facilities in small markets and obviously reflects the high occupancy rate.  Keystone has opened 13 different communities in nine states over its 15-year history, and today operates nine communities in four states offering independent and assisted living services, as well as memory care.  There is no geographic concentration, however, with operations in Massachusetts, Ohio, Iowa and Colorado, and none of the current facilities are in Keystone’s home state of Indiana.  With the acquisition of Milestone, Keystone will certainly become more of a Midwestern company.  Mike Collins and Daren Dudgeon of Senior Care Realty represented the seller and Adam Fischer of Dynamic Healthcare represented the buyer. Scott Moore and John Powell of Red Mortgage Capital arranged nearly $51 million in HUD LEAN mortgage financing on 27 of the properties which included 18 loan applications, a master lease structure and some seller financing.      

In another large transaction, but one with no change in management of the operations, Assisted Living Concepts (NYSE: ALC) entered into an agreement to purchase nine assisted living facilities with 365 units which are located in Texas (seven) and New Jersey (two).  The deal was expected to close on or about October 31 and the purchase price is $27.5 million, or $75,300 per unit.  These facilities are currently operated under leases with HCP, Inc. (NYSE: HCP) that are expiring between 2010 and 2012.  With occupancy of just 60%, which is close to ALC’s overall average, we have to believe that HCP is not unhappy to off-load these properties.  Assisted Living Concepts will also be happy to get rid of annual lease payments of $2.78 million on these nine facilities in exchange for an estimated increase in interest expense of $1.79 million.  This results in increased annual cash flow of about $1.0 million before tax implications. 

While this may look like the proverbial no-brainer because of the lease expense, these leases were expiring soon and we assume ALC had the option not to renew them and just walk away if they were going to be stuck at that 60% occupancy level for quite a while... Want to read more? Click here for a free trial and download the current issue today