Capital Senior Living Shareholder Not Happy With Deal

January 17, 2008

January 17, 2008
Don't get me wrong, I love free press for our publications. But when a dissident shareholder of a company makes reference to certain things we have said, such as in the January 2008 issue of The SeniorCare Investor, in a letter to the outside director of Capital Senior Living and it is filed with the SEC, we take particular note. Especially so when they take bits and pieces of what we said to help make their case, but leave out important parts.

West Creek Capital has control over more than 1.7 million shares of Capital Senior Living, or about 6.6% of the outstanding common stock. Three weeks ago Capital Senior Living announced its agreement to buy the leased interest on 32 assisted living facilities operated by Hearthstone Senior Service. The transaction will be immediately accretive to the buyer and it gives the company some needed bulk, and we had a generally favorable opinion about the deal, which we expressed in the January issue. But you would never know that from West Creek's letter. We did make reference to the fact that when the original Hearthstone completed a sale/leaseback with Nationwide Health Properties 18 months ago, the initial coverage was a skinny 1.0x, which West Creek repeated. What they failed to say was that the coverageseems to have increased to 1.14x, based on the first nine months of 2007, and that it is probably higher than that today. They went on and on about an "underwater" senior position (Nationwide Health's, we presume), but a positive coverage hardly looks to be underwater to us, especially with $5.0 million of EBITDA after lease payments, and growing. 

It seems that West Creek still wants to see a sale of the company, but the last time we looked, the capital markets are not too friendly to that sort of thing, and we doubt they would get a valuation that would make sense for them, with or without Hearthstone. West Creek complained about Capital Senior Living's share price slide since the Hearthstone announcement, but it is not hitting 52-week lows like some of its industry competitors. Capital Senior Living may at some point be a takeover candidate, either if its share price really drops or when the credit markets return to some sort of normalcy. But for now, accretive acquisitions and organic growth would seem to make the most sense for shareholders, at least for those not looking for a quick buck and exit.

 Regarding the issue of independent directors owning shares of the company's stock so that their economic interests are aligned with other shareholders, we sincerely doubt that if independent director Jim Moore owned more than the 20,000 or so shares he currently owns his votes would be any different than they have been to date.


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