A Merger, A For-Profit Buyout & A Land Buy For New Development
Despite the economy — or perhaps because of it — senior living providers with thriving organizations are able to expand by acquiring struggling facilities or moving forward with new development. We profile three transactions that closed recently.
Aspirus/Pleasant View Health Care
On April 1, 2008, Pleasant View Health Care, a 74-bed, not-for-profit nursing home in Phillips, Wisconsin, was merged into the Aspirus not-for-profit, community-directed health system, based in Wausau, Wisconsin, with no exchange of cash. It was an asset transfer through which Aspirus assumed Pleasant View’s debt, according to Leland Olkowski, senior vice president of corporate services at the time of the transaction and now a consultant employed by Aspirus. “The amount of debt was not material to the deal,” he noted.
Aspirus will hold 75% ownership of Pleasant View; Memorial Membership Association, which runs the Memorial Health Center of Medford, Wisconsin, will hold 25% ownership. Memorial Health Center is a 60-bed, not-for-profit, primary-care hospital. Memorial plans to add a primary-care clinic at the Pleasant View facility.
Pleasant View is a good fit for Aspirus, which provides services to 15 counties in Wisconsin and the Upper Peninsula of Michigan, including affiliated hospitals, home health care, pharmacies, hospice care, critical care, and several long-term care facilities in the various locations.
“Pleasant View is located within the geographic area in which we operate,” said Olkowski, “and we merged Pleasant View right into Aspirus Extended Services” — a separate corporation set up to administer the organization’s long-term care operations and jointly owned by Aspirus and the Memorial Membership Association.
Prior to the merger, Pleasant View’s board of directors was struggling with its position as an independent nursing home. “Operating totally alone in today’s health care world is really difficult,” said Jean Burgener, vice president of Aspirus Extended Services. “The [Pleasant View] board recognized the need to entrust its community-based nursing home and other services to an organization with expertise in all of Pleasant View’s areas of operation, particularly an organization that has a lot of medical and reimbursement knowledge.”
Pleasant View operated as “an independent island” and encountered some tough times in recent years, Olkowski added. Its board was looking for someone with the “horsepower” to take over and get it on the right path. Part of the Aspirus tagline is “passion for excellence,” and the Pleasant View board understood that was true. The other part of the tagline is “compassion for people.” So with those two elements, Pleasant View’s board felt that Aspirus would take the facility to the level that it wanted to achieve.
Aspirus is prepared to invest up to $8 million in capital improvements to Pleasant View. About $2.5 million in refurbishments — new paint, wallpaper, etc. — would enhance the surroundings to ensure both good care for patients and a good working environment for employees, according to Burgener. “But it’s an older nursing home, and we would like to replace it,” she said. That could cost close to $7 million.
“No decision has been made yet as to which direction we’re taking,” Olkowski emphasized, “but either one should be feasible.” Aspirus periodically floats bonds to take care of its major capital needs and, more than likely, either of these approaches would be integrated into a bond issue. “But we’re far from the decision stage,” he reiterated.
Covenant Retirement Communities/Geneva Place
On May 30, 2008, Covenant Retirement Communities, Inc. (CRC), a not-for-profit CCRC operator based in Chicago, Illinois, took full control and assumed operation of Geneva Place, LLC, a 53-unit, for-profit, rental retirement community located in Geneva, Illinois. “It is unusual for a not-for-profit to acquire a for-profit entity,” observed Rick Fisk, president of CRC, “but Geneva Place was physically very close to two of our other facilities.”
Geneva Place is nearly equidistant from two existing Covenant CCRCs: Windsor Park Manor in Carol Stream, Illinois, and The Holmstad in Batavia, Illinois. Skilled nursing, assisted living, and memory-care services will be delivered to Geneva Park residents at Windsor Park Manor, which has beds available. The Holmstad, just three miles away, will oversee the administration of Geneva Place. “We have easier access for management from the Batavia facility,” explained Fisk. In addition, CRC’s Covenant Care at Home agency will extend home care services to Geneva Place residents, as it does to all CRC campuses in Illinois.
CRC has a hub-and-spoke acquisition policy, according to Fisk. “Basically, we have core services available,” he explained. “And even though we contract with our residents for services, we usually have excess services that we supply to others. Outside people can access our assisted living and skilled facilities, for example, without becoming members of our communities. So the Geneva Place acquisition is consistent with that concept.”
Geneva Place struggled to meet the 50% occupancy required to secure permanent financing, because it didn’t offer a full continuum of services. Originally marketed as an entrance-fee facility, CRC will market it as a rental-only facility without an entrance fee and with services paid for separately. The contracts of residents who paid entrance fees to Geneva Place will be honored, with those fees repaid as the units are vacated. “We agreed to maintain those contracts when we bought the property,” said Fisk. “New residents of Geneva Place, however, will participate in our new program, which provides priority access to the assisted living and nursing services at our Carol Stream facility and our home-care services, both at market rates.”
CRC operates 15 retirement communities in nine states. It administers the communities on behalf of the Board of Benevolence of the Evangelical Covenant Church. The assets of Geneva Place were purchased outright by CRC for an undisclosed price and financed internally. Not quite four years old, the community is in excellent shape — with several of the units having never been occupied. Therefore, no renovations are planned.
ACTS Plantation Village/Land Buy for New CCRC
On June 18, 2008, ACTS Retirement-Life Communities entered into a purchase agreement to buy a 48-acre parcel of land in Matthews, North Carolina, for approximately $10 million. The land, which is being sold by a local family, is located 15 miles southeast of Charlotte and adjacent to Plantation Estates, an existing ACTS CCRC that is home to about 560 retirees.
ACTS plans to build a new CCRC on the property — to be called Plantation Village — that will include about 350 independent living apartments and single-family homes, with an undetermined number of assisted living and skilled care suites. The new development will be designed to complement the existing Plantation Estates community, which offers assisted living and skilled care.
“We may decide to build just carriage homes on this property,” said Michael Smith, director of communications for ACTS, “and have the assisted living and skilled care in a different area of the campus. At last check, however, our plans are to build the villas and single-family homes and then add the additional assisted living and skilled care [in the same area].”
In any event, residents of the Plantation Village independent living units will be under a Life Care contract, which provides full access to the medical facilities.
The cost of the proposed Plantation Village project is expected to be well over $150 million, which is the typical cost of a full-fledged ACTS community built from the ground up.
The project will be funded through tax-exempt bonds. Marketing is about to begin, and construction will begin when 70% of the project is pre-sold.
“It won’t take us long to pre-sell 70% of this community,” predicted Smith, “because Plantation Estates is fully occupied with a significant waiting list — probably more than 100 prospects.” It’s assumed that many of those people will opt to move to the new property.
The 20-year-old Plantation Estates property is currently undergoing a $9 million rensovation and expansion of its own, which will add additional independent living apartments and a 16,000-square-foot wellness center with an indoor pool.
ACTS, which is based in West Point, Pennsylvania, currently owns and operates 19 communities; Plantation Village will become number 20. The organization is also looking to buy another parcel of land in Pennsylvania, upon which it will build another new CCRC from the ground up. That announcement is expected by the end of summer, according to Smith.
July 1, 2008