Benchmark Assisted Living - assisted living, elderly care, senior living for senior citizens

This month's issue of The Senior Care Investor features Benchmark's acquisition of Village in its lead story.

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IN THIS ISSUE TWO REGIONAL COMPANIES CASH OUT, BUT MORE ARE EXPECTED

In a development that has been anticipated all year, the owners of two sizable assisted living companies decided the time was right to sell their companies to larger entities and let the new owners grow them further. At this time last year we said that there were many regional companies that were getting to the point where they would have to raise new equity to continue growing, and that if they were large enough the public equity market was friendlier than it had been in years for senior care companies. The alternative, of course, was to sell, which makes a lot of sense if your facilities are stabilized (or close to it) given the relatively low cost of capital for buyers and an environment.

Five Star Quality Care is the winning bidder for LifeTrust America, and Benchmark Assisted Living quietly negotiates a family-friendly acquisition of a large New England assisted living company. Both deals are valued over $100 million, and we expect to see more of the same over the next 12 months.

THE
A NEWSLETTER PUBLISHED BY IRVING LEVIN ASSOCIATES, INC.
INVESTOR

SeniorCare VOLUME 16, ISSUE 10

OCTOBER 2004

In the second significant corporate transaction, Benchmark Assisted Living announced that it reached an agreement to purchase nine communities owned and operated by Rhode Island-based Village Retirement. Founded 15 years ago, Village Retirement operates two communities in Rhode Island, six in Connecticut and one in Massachusetts with a total of 1,160 units. The units are mostly traditional assisted living and Alzheimer’s, but with some independent living units as well. The prototype community is very different from the LifeTrust facilities because each property has over 100 units, and the last two that were built have 150 units each.

Although no financial terms of the transaction have been released, we believe the purchase price to be between $150 million and $160 million, or above $130,000 per unit. The portfolio has an occupancy rate of 91%, which includes the two 150-unit facilities built in the past two years that are at 80% occupancy and still filling up. The other seven are at 95% occupancy. Revenues in 2004 will be close to $40 million, but should reach $45 million next year.

Depending on which revenue figure is used, the price to revenue multiple is between 3.5x and 4.0x, which is on the high end for assisted living, but the units also include independent living, which usually has higher revenue multiples.

We do not know the level of cash flow, but given some industry standards on margins for stabilized properties, our estimate is that the cap rate is somewhere in the 8.5% to 9.5% range on 2005 estimated cash flow, a year that will not be fully stabilized. The cap rate should be higher based on stabilized cash flow beginning in mid-2005.

To finance the acquisition, Benchmark is assuming the existing loans in the amount of $57.5 million on five of the properties and has received a financing commitment from a lender for the other four. The equity is being provided by two investors, including an investment fund managed by Greenfield Partners, LLC, and Benchmark has formed a joint venture with these investors to complete the transaction.

This deal will get criticized for being too expensive, both on a per-unit and a cap rate basis, but it also says something about how hungry the market is for quality assets. And that has been the problem these past few years—there have been so few higher-end, and stabilized, assisted or independent living facilities available for sale that buyers are willing to pay top dollar for the good ones, especially if they make so much strategic sense. This acquisition works well for Benchmark because it increases the number of units under management by 60%, and they are all in the company’s backyard, making it the largest assisted living provider in New England. The company’s revenue run rate for 2005 is close to $150 million, but we wouldn’t be surprised to see that jump with another acquisition.

The company has a relatively unique structure as most of the properties it buys or builds are actually owned by a few different joint ventures with different equity backers, but with Benchmark also participating in the real estate ownership. The deal for the Village Retirement properties is no different, with the two new investors providing the equity capital, and Benchmark providing management services.

We hope to check in this time next year and see what the cap rate comes out to on 2005 cash flow.

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