Archdiocese sells nursing homes for $145 million

July 01--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.

It owns and operates 15 nursing homes in New York and New Jersey, including two former Catholic homes in Brooklyn that it continues to operate in a Catholic manner, 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 include 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. The archbishop has been clear that we're going to fix our financial problems," said Timothy O'Shaughnessy, chief financial officer for the archdiocese.

A year ago, the Catholic church in Southeastern Pennsylvania was contending with $340 million in long-term deficits for pensions and other liabilities.

Significant progress was made through the 60-year lease of the archdiocesan cemeteries to StoneMor Partners L.P. In May, the church received an initial payment of $53 million in that deal.

That money was split three ways: $30 million went toward a $79.8 million deficit in the church's trust and loan fund; $11.5 million was used to reduce a $30 million deficit in a self-insurance reserve; and $11.5 million went to the pension fund for priests, which had an $87.8 million deficit.

The fourth major deficit is in the pension fund for lay employees. Benefits in that fund -- which had a $142 million deficit last June, but has more than $550 million in assets -- were frozen last year.

That pension deficit will be eliminated over the next 20 to 25 years, O'Shaughnessy said.

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 yet on how that money will be distributed, O'Shaughnessy said.

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 homes had $137 million in revenue in the year ended June 30, 2013.

The size of the operation likely attracted bidders. Thirty firms were in the first round of bidding, 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 does not pay enough to cover 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 the Catholic tradition at the homes being sold.

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

Charles-Edouard Gros, chief executive of Center Management, said he became excited about the opportunity to buy the archdiocesan homes after a visit early in the process.

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

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