Senior housing providers across the country are continuing to take advantage of low interest rates and favorable demographics to enhance their portfolios through acquisitions. While we noted yesterday how a Census report indicates that these favorable demographics are likely to continue, we also noted that the stimulus provided by the Federal Reserve (Fed) to lower interest rates is already being pared back and that this is also likely to continue as the economy continues to expand. Accordingly, senior housing providers who wish to strengthen their portfolios by way of an acquisition should consider doing so sooner rather than later because while demand for senior housing should remain strong for some time, interest rates will also rise as the Federal Reserve continues winding down its stimulus programs. One example of a provider that has embarked on an acquisition oriented strategy to fuel its growth is Capital Senior Living.
Capital Senior Living is one of the country’s largest operators of seniors housing. It operates over 110 senior housing communities which are extremely diverse and include independent living, assisted living, and memory care facilities. The company recently had an earnings call in which it discussed its first quarter results and its plans for the future. Reflecting data from the Federal Reserve, the Department of Labor, and other sources, Capital Senior Living noted that it was not immune to the extreme weather conditions that plagued parts of the country during this past winter. For example, because of the extreme winter it spent more on heating and snow removal than it had expected to and this was one of the factors that caused it to report a net loss of $4.6 million for the first quarter. However, the company is excited about the remainder of the year as heating costs should return to normal now that winter has ended and it continues to focus on a strategy of growth through acquisitions.
This strategy was already noticeable in the first quarter when the company spent $14.6 million to acquire a 78 unit assisted living and memory care facility to enhance its presence in the Ohio region, but has become even more apparent as it continues diligence on other properties and publicly touts its strategy of growth through acquisitions. For example, during its earnings call Capital Senior Living’s management stated that “We expect to acquire approximately $84 million of high-quality senior living communities in regions with extensive operations in the second quarter, subject to customary closing conditions. In addition, we are conducting due diligence on approximately $34 million of additional transactions of high-quality senior living communities in regions with extensive operations. Subject to completion of due diligence and customary closing conditions, these transactions are expected to close in the third quarter of 2014.”
This statement shows that Capital Senior Living is bullish on the senior housing market and is expressing this through an aggressive strategy of acquisitions. Perhaps even more important is the timing of these acquisitions as the company’s goal is to have them all closed by the third quarter of this year, or put another way, before the Federal Reserve’s quantitative easing program is expected to end. This is important because that program has helped reduce long-term interest rates and in recognition of the fact that these rates will rise as the program is wound down and extinguished, Capital Senior Living is attempting to close as many acquisitions as possible before this occurs. Other senior living providers who are interested in strengthening their portfolios through acquisitions should take note of this and should also consider adjusting their timelines to take advantage of today’s low interest rates before the pairing of the Fed’s stimulus programs leads to a material rise in them. Lastly, they should also continue to look to the successful financing firm Cambridge Realty Capital and the many different programs it offers to finance their acquisitions and any other senior housing transactions that they are seeking capital for.