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The following article was reprinted from the January 2010 issue of The SeniorCare Investor with permission from Irving Levin Associates, Inc. Click here to download a printable version of this article

The SeniorCare Investor- January, 2010 issue

California Deals.  Last month we profiled an acquisition of a large independent living community in Arizona by West Living, but what we didn’t know was that they had also purchased a second community that was almost as large.  Located in California, this campus includes a main building with 98 units that are mostly assisted living, plus six “cottages” that contain eight units each for a total of 48 units that are mostly independent living.  The occupancy in the main building is about 80%, while the cottages are much lower at 50% for a combined 70% occupancy for the community.  Occupancy a year ago was about 61% after the secured lender (the seller) foreclosed on the property in November 2008.  Average rents across the board are about $4,000 per month.  When they foreclosed, Medical Capital leased the property for one year to a third party manager, Autumn Care, which was able to bring the occupancy up to the current level, but the sale coincided with the end of their agreement. 
This community was built in 1980, and West Living plans on spending $2 to $3 million in improvements over the next few years to spruce things up a bit, which we assume will be money well spent.  The purchase price was $14.4 million, or $98,600 per unit, which translates into a 9.6% cap rate on 2010 estimated EBITDA.  Revenues are projected to be just over $5.1 million with a 27% operating margin, but that assumes a modest 4% increase in revenues from 2009 and not much of a change in occupancy until later in the year.  The independent living cottages have obviously been the problem, and management believes it will take at least two years to bring them to stabilized occupancy.  And, once that happens, as part of the deal there are an additional 1.8 acres that can be developed in the future. 
This acquisition, like the one in Arizona, was purchased with all cash and will be financed at a later date when the cash flow and value are both much higher.  West Living has a 20-year time horizon, and with “patient capital” backing them, they will have the time to get it done the right way.  The company wants to complete 12 to 15 acquisitions in the next three to four years, so they plan to be busy.  In addition, they have a development in La Quinta, California that should break ground in 2011 and another one in Carlsbad that should start in 2012.  Obviously, this management team is optimistic on the sector’s future, and for a reason.

The following article was reprinted from the December 2009 issue of The SeniorCare Investor with permission from Irving Levin Associates, Inc. Click here to download a printable version of this article

The SeniorCare Investor- December, 2009 issue
There have not been many sales of strictly independent living communities this year, and although the volume of transactions in this sector is always relatively low, this has been a particularly slow year.  One large transaction, however, did close recently.  This 197-unit community is located in Scottsdale, Arizona and was constructed in 2007.  After a great start, with occupancy reaching 70% in seven months (20 move-ins per month), the owners had a difficult time moving beyond that level as the economy began to deteriorate.  In fact, the census was still near 70% at the time of sale.
 At the current occupancy level, revenues and EBITDA are approximately $4.2 million and $1.2 million, respectively.  With an all-cash purchase price of $24.0 million, that comes to $121,800 per unit and a 5% cap rate on in-place cash flow.  That, we suspect, is not quite what the buyer, Carlsbad, California-based West Living, has in mind for their return on investment.  This community has four distinct wings, and while we don’t know whether one of the wings is mostly empty, that often happens with new developments.  The average in-house rate for independent living is about $2,750 per month (before any discounts) compared with a street rate of $3,000 per month.  That obviously indicates a certain degree of market softness.  It would make financial and market sense to utilize one of the wings for the more need-driven assisted living, and that would change nearly 50 units to the higher level of care. 
 Since some of the units are quite large—one-bedrooms go up to 840 square feet and two-bedrooms are up to 1,296 square feet—there is also the possibility of some of the units being used with double occupancy.  If you assume that assisted living rates start at a 30% premium to the current average rate received, when stabilized the additional revenues would be up to $1.9 million with at least half that going to the bottom line.  On top of that, as levels of care increased, additional revenues and cash flow would follow.  Admittedly, we do not know the demand for assisted living services in the Scottsdale market, but the rate we used is probably on the low side and may be a way to drive demand, at least initially.  Leisure Care has been the manager and will presumably stay on into 2010, but we hear that newly-formed West Living may want to start its own management company.  Lisa Widmier of VantagePointe Capital Management & Advisory acted as the financial advisor to both the buyer and seller in the transaction.

West Living
Located in Carlsbad, California, West Living was formed in early 2009 to focus on the development, ownership and operation of senior housing communities for the benefit of West Family Holdings, LLC, a holding company of diversified enterprises wholly owned by Gary & Mary West.  West Living is continuously seeking acquisition of to-be-built, lease-up and stabilized communities in southern California (primary market), northern California (secondary market) and western states neighboring California (tertiary market).  They target independent and assisted living communities that offer multiple levels of lifestyle and wellness options.  West Living’s long term investment horizon and flexible capital structure provides an excellent opportunity to manage and optimize the operations at all of our properties.
West Living
6005 Hidden Valley Rd.
Suite 215
Carlsbad, CA  92011
Phone: 760-496-7440