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The Real Elmcroft Ventas Story

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By Steve Moran

The blockbuster story of the week was the announcement by Ventas with respect to Elmcroft where what appeared to be happening was that Elmcroft was going to go from an 83 community company to a 13 community company.   

I spent a fair share of the week reaching out to industry insiders asking their thoughts and there was a fair amount of speculation about what this might mean, but all agreed it was blockbuster news. Here are some snippets from the earnings call:

Turning to strategic decisions, we want to give you early insight into two exciting opportunities we are actively working on. Our proposed venture with an institutional investor and the creating of a new relationship with an experienced and highly regarded senior housing management team.

First, we intend to form a new joint venture with an institutional partner on a senior living portfolio we currently own continue over 70 communities. The portfolio is currently operated by Elmcroft Senior Living under a Master Lease with the Company. We are in detailed preliminary discussions and look forward to partnering leading global capital source on a successful joint venture.

The joint venture will continue diversifying our capital sources and could expand to provide a competitive advantage as the company continues to grow. Second, we formed a strategic Kai Hsiao and his long time colleagues on the creation of a new senior housing operator. With over 50 years of combined experience across senior housing, this management team has a demonstrated track record of success and value creation. To see the new company, we intend to transition operations of the Elmcroft portfolio to Kai and his team, whose company will be a valuable addition to our existing operator relationships.

And this from the Q & A portion of the call:

Smedes Rose

Hi, thanks. I just want to ask you on just the Elmcroft mechanics a little bit, say the natural lease was expiring and you're basically just allowed to say to them they are pulling this contract completely from you, they don't have any recourse to maintain management if they wanted to or if it's something that you work out?

Debra Cafaro

We have a good relationship with Elmcroft. They have been good partners, we've known them for a long time. They originally were at Vencore many, many years ago and spun off as part of the original Atria. So the relationships we have with them go way back and we are working with them collaboratively to transition the portfolio and so that's how we are making it happen.

While a careful reading does not quite go so far as to say Elmcroft is going from an 83 community company to a 13 community company it is pretty hard to come to a different conclusion.

Then . . . over the weekend I had a chance to visit with Kai Hsiao about what was happening and his response was that common thinking is not quite a fair description.  

Bam!

Here is the real deal:

There will be a new entity that is called Elmcroft led by new executive leadership with Kai Hsiao at the helm. From a practical standpoint, residents will still be living in an Elmcroft community, employees will still be working for Elmcroft and reporting to the same folks' organizational structure (except for executive leadership).

I do know the initial announcement caused understandable consternation on the part of those working for Elmcroft. Kai’s message was that the team at Elmcroft should not be panicked.

The one question I don’t have the answer to is what is next for Pat Mulloy, who is a long-time well-respected leader in the industry. I sent an email to him earlier this week and have not had a response.

Part 2 coming . . .

The first draft of this article was “The REIT Chickens Come Home to Roost.” That story is still coming in the next few days.

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