Capital Senior Living Corporation (the “Company”) (NYSE:CSU) announced this week that Midwest Portfolio Holdings, LP (“Midwest I”), a joint venture in which it holds an 11 percent partnership interest, has entered into an agreement to sell five senior living communities to Health Care REIT, Inc. (NYSE:HCN). Upon closing the transaction, the Company will lease the communities from HCN. The Company currently manages the five communities in the joint venture under long-term management agreements. The properties being leased have approximately 295 units and a combined resident capacity of nearly 390 and include four assisted living communities in Nebraska and one assisted living community in Iowa.
“This transaction will provide immediate benefits to our shareholders,” commented Lawrence A. Cohen, Chief Executive Officer of the Company. “Along with a significant increase in our revenues, the lease will be accretive to cash flow and earnings. While we have been earning management fees on these communities since 2006, we will now be able to consolidate the results of operations and benefit fully from further improvement in occupancies, margins and rental rates. These five communities are strategically located in the Midwest portion of the country, where nearly 50 percent of our operations are located. We are also extremely pleased to enter into a new relationship with Health Care REIT, Inc., a leading healthcare REIT that invests across the full spectrum of senior housing and health care real estate.”
The Company anticipates receiving proceeds from Midwest I of approximately $3.0 million, compared to its contribution of approximately $2.7 million. The Company may receive additional proceeds after the joint venture settles its customary post-closing costs. Annualizing third quarter 2009 results of operations for the five communities, with financial occupancy of 91 percent, yields approximately $10.7 million of revenue and $5.1 million of EBITDAR. The initial lease expense is approximately $4.0 million and is subject to conditional annual escalation provisions. The triple net operating lease has an initial term of 15 years, with one 15-year renewal option. The Company expects to begin consolidating the revenues and expenses of the five communities on its income statement, along with the lease expense, in the first quarter of 2010, subject to lender and regulatory approvals and other customary closing conditions.