Shortly after its majority shareholder decided not to buy the rest of the company, assisted-living provider Balanced Care Corp. said last week that it can't make its rent payments, with a shortfall of $1.3 million per month.
Mechanicsburg, Pa.-based Balanced Care also said it is negotiating for the rent cuts with five of its landlords.
Balanced Care's problems are a sign of the trouble assisted-living providers are having because the supply of units grew too fast, said Tom Shinkle, a healthcare securities analyst with Imperial Capital in Beverly Hills, Calif., a debt-focused brokerage and investment bank.
"The same demographics that make it look attractive, i.e. a growing elderly population, more people between the ages of 70 and 80 (who are) physically unable to take care of themselves, and wealthy, private-pay patients," made a variety of developers pursue assisted-living projects, Shinkle said.
Balanced Care was stabilized by an
$8 million infusion of cash from lenders in exchange for stock in November, but the company was shaken at the end of last month when Luxembourg-based IPC Advisors, which owns 53% of the company, decided against an offer of $1 per share for the remaining shares.
After IPC Advisors' announcement, Balanced Care said its board of directors appointed a committee to study the company's options, but company officials declined to comment on what the options could be.
The rent announcement, which was disclosed in a news release and as a filing with federal securities regulators, was not greeted warmly by landlords.
One of them, Nationwide Health Properties, already is proving to be recalcitrant. The Newport Beach, Calif.-based real-estate investment trust announced it is taking advantage of default provisions in two master leases with Balanced Care. Nationwide Health Properties said it would draw on more than $2 million in security deposits made by Balanced Care to cover rent payments. Another landlord, Nashville-based Healthcare Realty Trust, announced that Balanced Care will continue to meet its obligations to them.
Balanced Care is not likely to be the last assisted-living provider to report bad news, Imperial Capital's Shinkle said. He expects it will take three to five years to weed out the weaker providers.
"We'll have a washout here, and then recover," Shinkle said. "But I don't think we're done with the washout yet."