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Time Is Ripe for Life Care Services to Bulk Up On Acquisitions

Time Is Ripe for Life Care Services to Bulk Up On Acquisitions

As some companies shed operations to survive a punishing economic downturn, Life Care Services (LCS) is expanding with two new acquisitions. The Des Moines-based company recently purchased property manager CRSA Holdings, establishing LCS as one of the nation’s top property managers of continuing care retirement communities. LCS declined to reveal the price.

In another recent transaction, LCS paid $41 million for the Wyndemere Senior Living Community, a retirement campus in Wheaton, Ill.

LCS manages about 100 continuing care communities and owns 12 of the properties. Memphis-based CRSA manages 29 properties, mostly continuing care retirement communities owned by non-profit groups.

“We see great compatibility between the companies,” says Rich Seibert, vice president and director of corporate marketing at LCS. “This enhances our ability to build a national integrated network.”

Both CRSA and LCS are privately held. The terms of the sale were not disclosed, though Seibert says CRSA was not in financial trouble and is not a turnaround situation.

CRSA has about 400 employees and its Memphis office will remain open. The company will retain its own name and identity, too. “We did not buy CRSA just to get the management contracts,” says Seibert of LCS.

The companies will be able to enjoy savings by combining some operations, such as purchasing, he says. The home health care and insurance programs offered by LCS will be available at CRSA properties.

The development arm of CRSA, which provides services for non-profit community operators, will remain open. LCS has its own development group for company-owned projects that will continue to operate.

LCS opened its newest owned property, Sagewood, in Phoenix, last December. The 85-acre community features 294 independent living units. The assisted living and nursing care building is currently under construction and should be complete by the end of the year.

CRSA has a new project, Longhorn Village, in Austin, Texas. The 56-acre property, which opened last August, features 173 apartments and 41 villas. The healthcare building with assisted living, nursing and memory care units is in the process of opening. The project is affiliated with the Ex-Students’ Association of the University of Texas.

M&A activity heating up

More industry consolidation could be on the horizon, sources say. The seniors housing business is still quite fragmented and some operators now find themselves in challenging positions because of the weak economy. Big operators with cash have the chance to capture market share while property prices are low.

Brookdale Senior Living purchased 21 properties for $204 million last winter from Sunrise Senior Living. The $1.3 billion purchase of 134 Sunwest buildings by a group of investors led by the Blackstone Real Estate Advisors was just approved by the bankruptcy court. The deal is expected to close in the third quarter.

Meanwhile, Formation Capital and Smith/Packett Med-Com purchased 18 assisted living buildings in North Carolina last December for about $100 million. The seller was Wakefield Capital, a healthcare real estate investment firm in Chevy Chase, Md.

“We are always looking at acquisitions,” says Arnold Whitman, chairman and CEO at Formation Capital based in Alpharetta, Ga. Like a lot of investors, Whitman says that economies of scale are key to generate healthy investment returns in seniors housing.

“Companies have to deliver services at the lowest price point and large companies can be more efficient than small ones at delivering services,” says Whitman. He estimates that a large company can save 1% on overhead costs after integrating the operations of a smaller acquisition.

Capital concerns persist

Big acquisitions, those over $50 million, are still hampered today by the lack of debt financing. “That’s a real obstacle,” says Kevin McMeen, president of real estate lending at MidCap Financial based in Chicago.

Debt financing may be more readily available in the latter part of 2011, adds McMeen, assuming the economy continues to recover. “Companies will have the capital to back their appetite for growth.”

LCS financed the Wyndemere community purchase with a bank loan, though Seibert would not provide details. Wyndemere was sold by DuPage Central Hospital, which developed the 14-acre campus and opened it in 1993.

The hospital operated Wyndemere as a non-profit entity, but now, under LCS, the property will be a for-profit venture.

LCS plans to spend at least $2 million to upgrade the property. Currently, the average entrance fee is about $280,000. The average monthly fee is about $3,000. A pricing change is not anticipated at this point.

The campus has about 400 residents and features 212 apartments and 26 cottages for independent seniors. There are 65 assisted living and 131 nursing care units. The property’s occupancy rate is about 85%.

“Wyndemere has a good reputation,” says Seibert. “We plan to continue the same philosophy of operations.”

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