Capital Living Closes $97M Sale-Leasebacks

Ralph Beattie, executive vice president and CFO for the Dallas-based Capital Senior Living, tells GlobeSt.com that the package has been sold to one of the nation's leading healthcare REITs. As part of the dealmaking, Capital Senior Living secured 10-year management contracts with a pair of 10-year renewal options for the properties. The initial lease rate is 8%, subject to escalation provisions.

The newest deal involved exercising an option from the August 2004 buyout of Fort Worth-based Covenant Group's management division. The takedown, all in Texas, involves seven assets in Abilene, Burleson, Cedar Hill, Waxahachie and North Richland Hills--502 rooms that are 96% occupied. Capital Senior Living spent $40.6 million to acquire the assets and gleaned $43 million with the flip of six.

The seventh asset, Meadowview in Arlington, is under contract after being tagged as non-core due to on-site components for medical services like rehabilitation therapy. "We have a tentative deal struck that will probably close in the next 60 days," Beattie says, citing the sale as one-off deal with a buyer other than the REIT.

James A. Stroud, Capital Senior Living's chairman, says in a press release that the six properties exemplify the firm's "ability to create value" after two years at the management helm. The operator picked up an immediate $3.5-million gain, but expects to end up with net proceeds of $4.5 million after transaction costs.

Four days ago, Capital Senior Living spent $54 million on Crosswood Oaks in Citrus Heights, CA, Veranda Club in Boca Raton, FL and Tesson Heights in St. Louis. The sale-leaseback for 494 units set up a gain of nearly $13 million along with a 10-year management lease with the same terms as today's flip. The three-property deal required the loan assumption of $29.3 million at an 8.2% fixed-rate interest, but that was immediately retired with today's deal, according to the press releases.

Capital Senior Living's executive team is planning a "significant refinancing" later this month. Execs predict the refinancing coupled with applying about $15 million of the $24 million to its debt will drive an interest rate savings of nearly $3.5 million.

In the release, Capital Senior Living CEO Lawrence A. Cohen says the just-closed deals bear $16.5 million in gains with annual amortized return of $1.65 million over the life of the management contracts. With the back-to-back deals and financial maneuvering, Capital Senior Living estimates interest expense will be lowered by $6.3 million per year.