Capital Senior Living reduces merger consideration to ILM and ILM II by about 10%

By Meredith Bonner

ALBR Assistant Managing Editor

Capital Senior Living (Dallas) has reduced its bid for ILM Senior Living and ILM II Senior Living by about 10%, to $155 million from $172 million. Capital first offered in February 1999 $174 million in cash and preferred securities for the real estate investment trusts. The company then amended its offer in October 1999, offering $172 million in cash or stock.

According to a New York Times report, the company cut its bid after more competition and higher interest rates hurt its share price.

The amended agreements have been approved by the boards of each party, Capital says. The mergers require approval of the shareholders of the ILMs and, if approved, are expected to be completed in July 2000.

The deal would add 2,100 residents to communities owned by Capital, which has managed ILM’s 13 communities for a fee since 1996. Capital says it has signed commitment letters with GMAC Commercial Mortgage Corp. and its affiliates to provide acquisition financing for those 13 communities and to refinance three communities owned by Capital. The financing of the communities will increase the company’s debt by about $146 million, Capital says. With the GMAC commitments, the company has sufficient cash and cash flow from operations to fund the ILM mergers.

Capital CEO Lawrence Cohen says that since the company has managed the 13 ILM facilities for the past four years, the company does not "anticipate any integration issues."

When completed, Cohen says, the transactions are expected to increase Capital’s resident and healthcare revenue by about $38 million and its earnings before interest, taxes, depreciation, and amortization by about $16.5 million.

In February, Capital told ALBR that in hopes of lowering its building costs, it would no longer use joint ventures when starting projects. Capital said that instead, it would record future development on its balance sheet.

As another part of the restructuring, Capital said in February, it engaged Lehman Brothers as a financial partner to assist it in assessing its Triad partnerships for Triads II through V, which are currently developing 14 Waterford communities. Triad is the joint venture partner Capital had used until its announcement.

After extensive review and analysis, and based on current market conditions, the company has decided to continue the development of these 14 projects in Triads II through V. Any future acquisitions, expansions of owned communities, and/or future developments, Capital says, are expected to be on the company’s balance sheet funded from additional borrowings and funds from operations. It is the company’s goal to manage its future growth by judiciously using its balance sheet and internally generated cash flows from operations.

Capital saw 1Q00 ended March 31 revenues of $12.5 million, and a net income in 1Q00 of $1.5 million, 7 cents per share.