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Archdiocese sells nursing homes for $145 million

The Archdiocese of Philadelphia has reached an agreement to sell its seven nursing and senior-living facilities for $145 million, officials said Tuesday.

St. John Neumann Home on Roosevelt Boulevard.
St. John Neumann Home on Roosevelt Boulevard.Read moreArchdiocese of Philadelphia

The Archdiocese of Philadelphia has reached an agreement to sell its seven nursing and senior-living facilities for $145 million, officials said Tuesday.

It's the biggest deal yet in Archbishop Charles J. Chaput's effort to fill deep financial gaps caused by years of overspending and mismanagement.

The buyer, Center Management Group, is a privately held for-profit company in Flushing, N.Y.

Center Management owns and operates 15 nursing homes in New York and New Jersey, including two former Catholic homes in Brooklyn, archdiocesan officials said.

The sale of the Catholic Health Care Services operations includes five nursing homes and two facilities that offer a wider range of senior-living options. Altogether, the properties in Chester, Delaware, Montgomery, and Philadelphia Counties offer 1,400 beds.

"No one wanted to have to do this. It's sad that we're faced with having to make a decision like this," said Timothy O'Shaughnessy, chief financial officer for the archdiocese.

"The archbishop has been clear that we're going to fix our financial problems," he said.

A year ago, the Catholic Church in Southeastern Pennsylvania was facing a daunting $340 million in long-term deficits for pensions and other liabilities.

Significant progress was made by leasing the archdiocesan cemeteries to StoneMor Partners L.P. for payments totaling $89 million. In May, the church received an initial payment of $53 million in that deal.

The nursing-home sale, which is expected to close by the end of the year, if not sooner, could generate roughly $95 million in net proceeds for the archdiocese to put toward its underfunded obligations.

No decisions have been made on how that money will be distributed, O'Shaughnessy said.

Center Management emerged as the winner in large part because of its willingness to meet conditions imposed by Chaput, including the maintenance of the homes as Catholic institutions, protections for employees, and a guarantee that residents will not be kicked out if they go on Medicaid, which pays too little to cover nursing-home expenses.

A visit to the Center Management homes in Brooklyn, which the company bought from St. Vincent Catholic Medical Centers in 2010, convinced archdiocesan officials that they could trust Center Management to continue Catholic traditions at the homes being sold here.

"They are not officially Catholic. They are not required to be Catholic. But they still very much felt Catholic," O'Shaughnessy said of the Brooklyn facilities. "They have an active pastoral-care staff headed up by members of a Catholic religious order."

With 1,215 skilled-nursing beds, Catholic Health Care Services homes were the nation's seventh-largest nonprofit nursing-home group last year, according to LeadingAge Ziegler, an industry report.

The size of the operation likely attracted bidders. Nearly 30 firms were in the first round of bidding, O'Shaughnessy said.

The homes had $137 million in revenue in the year ended June 30, 2013, but a very small operating profit of $3.9 million, which meant that Center Management was counting on greatly increasing profit.

Otherwise, it wouldn't make sense to pay $145 million for the homes, said Steve Monroe, editor of the trade newsletter SeniorCare Investor.

Monroe predicted that Center Management would try to increase the number of Medicare patients, which pays better than Medicaid. "They are going to obviously cut costs," he said.

Charles-Edouard Gros, chief executive of Center Management, founded in 1999, was hesitant to discuss financial matters.

"I don't know if we do anything to increase the Medicare percentage. I think we do everything to provide the best level of care. We make sure people are staying in the right level for them," said Gros, a native of France and a licensed nursing-home administrator.

As to how his company - which he described as a partnership of nursing-home administrators - arrived at its price for the archdiocesan homes, Gros said it was a complex process: "There's no magic. It was a bidding process."

Center Management had made other acquisitions, though the pending archdiocese deal would be its biggest. This year, for example, the company agreed to buy Runnells Specialized Hospital in Berkeley Heights, N.J., for $26 million.

The deal for the Philadelphia-area facilities requires approval by the Vatican before it can be completed. Plus, Center Management must be licensed in Pennsylvania.

Gros said he became excited about the opportunity to buy the archdiocesan homes after a visit.

"As we went through the facilities, you just felt the love, the kindness, and the wonderful care that was being given by the staff," he said. "That really attracted us to pursue this transaction."

The homes in the deal are:

Immaculate Mary, Philadelphia.

Villa Saint Martha, Downingtown.

Saint Francis Country House, Darby.

Saint John Neumann Home, Philadelphia.

Saint Martha Manor, Downingtown.

Saint Mary Manor, Lansdale.

Saint Monica Manor, Philadelphia.

Key Financial Moves

June 2012: 25 percent of headquarters jobs eliminated.

November: Villa St. Joseph by the Sea

in Ventnor sold for $4 million.

December: Cardinal's mansion sold

for $10 million.

March 2013: Plans announced to sell

or lease some seminary land

in Lower Merion (proceeds to

benefit the seminary).

September: Deal reached to lease

13 cemeteries for $89 million. Initial $53 million payment received in May.

November: Decision made to freeze traditional pension plan for lay employees.

July 2014: Deal reached to sell six nursing homes and one assisted-living facility for $145 million.EndText