Capital Senior Living (NYSE: CSU) is taking a big step to improve its liquidity and enhance its balance sheet.
The Dallas-based senior living provider on Thursday announced plans to raise up to $152.5 million through the private placement of convertible preferred stock to affiliates of Conversant Capital, a private investment adviser.
Capital is also proposing a common stock rights offering to existing shareholders, partially backed by Conversant. Additionally, Conversant will provide Capital with a $25 million accordion — a new tranche of debt typically used to increase the revolving credit facility commitments under an existing loan — subject to certain conditions.
Proceeds will be earmarked to repay debt and provide working capital.
Capital Senior Living also intends to use a portion of the proceeds to strategically expand its portfolio through accretive acquisitions, President and CEO Kim Lody told Senior Housing News. As of July 22, Capital’s portfolio includes 75 communities in 18 states, serving over 7,000 seniors.
Lody noted that in the current senior housing landscape, there are operators who continue to struggle from the impact of the Covid-19 pandemic, and may not be capitalized or staffed sufficiently to recapture occupancy. Capital’s scale allows the company to absorb new communities with little to no incremental overhead, and she believes there are opportunities in its core markets to find attractive acquisitions that would be earnings accretive and also deliver benefits to residents.
The infusion of new capital will also give Capital the bandwidth to pursue a broader range of growth strategies, including outright acquisitions as well as management contracts that may require some capital investment.
“That flexibility is part of what makes us so excited to announce this transaction,” she said.
Founded in 2020, Conversant targets credit and equity investments in real estate, hospitality, and digital infrastructure, in both the public and private markets.
Its real estate investments include an April 2021 deal in which it recapitalized Quinn Residences, an Atlanta-based owner and operator of single-family rentals. As part of that deal, Conversant affiliates provided up to $600 million of equity capital to fund Quinn’s future growth, and became the company’s majority shareholder.
Under the terms of the Capital Senior Living transaction:
- Capital will provide a Conversant affiliate with an $82.5 million private placement of newly designated Class A convertible preferred stock. The stock will accrue dividends, to be paid in cash or in kind at Capital’s option, at a to be determined rate between 11% and 15%, based on the participation in the rights offering. The preferred stock can also be converted into common stock at an initial conversion price of $40 per share.
- Conversant will provide a $17.3 million promissory note as interim debt, which Capital can access for working capital between the signing and closing of the preferred stock private placement. The loan carries a 15% interest rate, and will either be converted into convertible preferred stock upon closing of the private placement, or paid down with proceeds from the placement.
- Capital will offer existing shareholders nearly $70 million in common stock, at a price of $32 per share. Conversant will backstop the offering by buying up to $42.5 million in additional preferred stock, ensuring Capital will receive at least $125 million in proceeds at closing, and up to $152.5 million if the offering is fully subscribed.
- The $25 million accordion will be funded through the issuance of additional preferred stock shares to Conversant.
- Conversant has the right to appoint a number of directors to Capital’s board, proportionate to its ownership stake, and agreed to transfer restrictions and standard standstills for the benefit of the company.
Capital has been actively improving its operations in recent months, announcing a new memory care program and a growing partnership with Aegis Therapies to implement wellness programming.
Over the past two years, the company has resized its portfolio in order to capture growth through its “SING” (stabilize, invest, nurture, and grow) strategy, has brought on board new executive leadership, and has made a series of portfolio restructuring moves, including handing back 18 underperforming properties to mortgage holder Fannie Mae and exiting its triple-net leases with real estate investment trusts.
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