Capital Senior Living Terminates Hearthstone Deal

Capital Senior Living Corp., one of the country’s largest operators of senior living communities, has backed out of a deal announced in late December to acquire 32 purpose-built assisted living and dementia care facilities from Hearthstone Senior Services L.P. Initially, Capital Senior Living said the acquisition would increase its resident capacity by about 40 percent. However, after “due diligence and financial analysis,” Capital executives recommended that the company’s board of directors reject the deal because it would not “create demonstrable value” for the company, according to a company release. On Dec. 27, CPN reported that the agreement called for Capital Senior Living to pay $35 million to acquire the lease interests in the Hearthstone properties.  The acquisition would have increased Senior Capital Living’s facilities under management from 64 to 96. Annualizing year-to-date results, combined revenues were expected to grow by 54 percent to nearly $290 million and annual EBITDAR would have increased 75 percent to over $94 million. The Hearthstone communities averaged approximately 89 percent occupancy at the end of September. As part of the announcement to terminate the Hearthstone deal, Capital Senior Living released its 2008 Business Plan, which will focus on increasing levels of care through expansions, conversions and new developments as well as acquiring home care agencies to provide home health and ancillary services The company intends to convert 256 independent living units in eight communities to units of assisted living and dementia care. Of these conversions, 80 units were converted in 2007 and the remaining units are expected to be licensed as assisted living during the next two quarters. Upon stabilization, these converted units are projected to increase the company’s revenues by $4.3 million with a 60 percent incremental margin. The total cost to complete these conversions is estimated to be approximately $2 million.  Capital is also planning to expand three communities, adding a total of 180 assisted living units, 60 dementia care units and 30 independent living units.  The firm also recently joined with Prudential Real Estate Investors, acting on behalf of institutional investors in its Senior Housing Partners III fund, to form a third joint venture to develop a senior housing community in Perrysburg, Ohio. That property will consist of 101 independent living units and 45 assisted living units, and is expected to open in the first quarter of 2009.  Earlier this month, the company entered into a lease on Whitley Place in Keller, Texas.  Dallas-based Capital Senior Living currently operates 64 senior living communities in 23 states with a capacity of approximately 9,400 residents, including 37 senior living communities which the company owns or in which the company has an ownership interest, 25 leased communities and two communities it manages for third parties.