Through a joint venture that engineered one of the largest transactions in the history of the seniors housing industry, Arcapita partnered with Sunrise Senior Living Holdings (Sunrise) in 2005 to acquire The Fountains in an 80/20 split. The venture achieved a steady annual cash yield and favorable exit value, not least by enhancing occupancy rates in the facilities through investment in significant community upgrades, material renovation projects and new technology to improve service provision and operational effectiveness.
Founded by David Freshwater and George Kaiser in 1985, The Fountains consisted of a high-quality seniors housing portfolio that provided independent living, assisted living, memory care and skilled nursing services across the United States. Between 1985 and 2005, The Fountains grew to become one of the top 25 seniors housing provisions in the US.
Following rigorous processes for property selection and due diligence and in keeping with Shari’ah principles, the Arcapita/Fountains venture decided to acquire 16 of the total of 18 properties from The Fountains. Following acquisition, the focus was on stabilizing the communities, investing in the physical plant and improving the financial performance in order to deliver best care to residents and solid returns to investors.
Why The Fountains?
The Fountains was selected based on key market indicators. The elderly population in the US is the fastest growing age group and over 50% of that group require services offered by assisted living homes. A strong real estate market meant seniors had substantial resources to afford the costs of a Continuing Care retirement community (CCRC). Seniors no longer wished to become a burden on their children or grandchildren. The Fountains communities were positioned to attract senior people to live full and enjoyable lives. The properties were situated in prime locations across the US., in cities with higher than average incomes and larger than average populations of aging individuals.
The joint venture had a smooth beginning but like many companies during the late 2000s, Sunrise experienced financial restructuring -thus, Arcapita took the commercial decision to reappoint the management of The Fountains back to the original owners (now known as Watermark). Upon taking such a tough decision, and with Watermark at home with their core competency, the investment got back on track. Through substantial investment in upgrading communities, renovating units and adopting new technologies, Arcapita ensured The Fountains communities remained attractive places to reside and get the best possible care. Furthermore, capital expenditures set the financial foundations in place by positioning the portfolio to provide excellent care for residents and to ensure The Fountains’ financial stability for many years to come.
As a result of Arcapita’s decision to appoint Watermark as managers of The Fountains, pro forma revenue increased from $160.1 million in 2011 to $191.7 million at exit in 2015. Moreover, $55 million was invested in significant community upgrades, material renovation projects and new technology to improve service provision and operational effectiveness. As a consequence, this impact was felt on lives too. Residents were assured of having independence when they wanted it and assistance when they needed it through high-quality communities delivering equally high-quality care.PDF
The investment was successfully exited in June 2015 and sold to NorthStar Healthcare for $639.3 million. Given Arcapita’s investment and Watermark’s competent management, the communities have earned a favorable reputation as exceptional facilities with equally exceptional care. Arcapita ensured that investors made a sound financial return and residents were assured of excellent community care and facilities – demonstrating Arcapita’s philosophy of seeking to continuously improve our investments during our ownership period.
ARCAPITA Key Value Creation Achievements
- Portfolio generated revenue of $191.7 in 2015 on a pro forma basis, up from $160.1 in 2011
- Expanded adjusted NOI increased from $33.5 million in 2011 to $55.3 million in 2015
- Increased total occupancy from 82.9% in 2011 to 86% in 2015
- Generated additional $58.5 million in net cash flow via entrance fees from 2010 to 2014
The Investment Merits Behind Selecting The Fountains
- Large portfolio was diversified by geography and asset class
- Highly structured return would help reduce underwriting risk
- Seller financing simplified skilled nursing facility assets which are typically more challenging to finance
People With Whom We Invest Know Our Difference
The Freshwater Group/ Watermark Retirement Communities
“Given we had previously owned The Fountains, we were delighted that Arcapita placed their trust in us to manage the largest portfolio of its type in this industry. The freedom we were given to invest in significant community upgrades, material renovation projects and new technology ensured better service provision for residents and improved operational effectiveness for communities. ”