Kandu Capital Can Do It Again

July 30, 2021, Ben Swett, The SeniorCare Investor - Last month we reported on the sale of two senior living communities in South Carolina by Kandu Capital and its operating affiliate Bloom Senior Living.  They did well on the sale, especially at the tail end of COVID, and we referred to it as maybe a triple based on the price compared with the original cost basis. 

It looks like they have done it again, but this time with a property in St. Petersburg, Florida.  This 94-unit assisted living and memory are community was operating at breakeven when Bloom purchased it in 2017 from a local owner/operator.  It didn’t do much better the next year, but finally made it into reasonable positive territory by 2019, and then doubled the EBITDA before management fee to $600,000 in 2020.  And this during the height of the COVID crisis.  

Bloom paid approximately $5.5 million in 2017, or $58,500 per unit, which despite the lack of profits, seemed like a steal since it was built in 2014 with 72 assisted living units and 22 memory care units.  Just four years later they turned around and sold it for $12.5 million for a nice 127% gain.  Especially for a sale during the pandemic, we would call this a home run, maybe with a runner on first.  Too bad the U.S. women’s softball team couldn’t do this for the gold medal. 

The building has 50,748 square feet on four acres, and current occupancy is about 82%.  The $12.5 million price represents a 4.3x multiple of revenues, and a 4.8% cap rate based on the first six months of 2021 EBITDA annualized.  But the buyer, Alabama-based Atlas Senior Living, was certainly not looking at this as a 4.8% cap rate deal. 

With occupancy on the rise for the sector, combined with the potential for higher rates and more services at the community, our guess is that their stabilized cap rate is closer to 7%, and maybe higher.  We do not know of any physical plant improvements that might be made to enhance census and rates.  

Leverage was quite low for the seller, so net proceeds must have been close to $9 million.  Newmark represented the seller in the transaction, which closed in late July.  Multiple bids were received, and the sale closed in less than 90 days.  We hear Bloom may be hitting a grand slam in another upcoming sale.  Stay tuned.