Item 1.01 Entry into a Material Definitive Agreement.
On March 15, 2020, Capital Midwest, LLC, Capital Texas S, LLC, Capital Spring Meadows, LLC and Capital Senior Living Properties, Inc., each a wholly owned subsidiary of Capital Senior Living Corporation (collectively, the “Company”), entered into a forbearance agreement (the “Forbearance Agreement”) with certain entities affiliated with Welltower Inc. (“Welltower”) that are landlords under the Master Lease Agreement (as defined below). The Forbearance Agreement, which is effective February 1, 2020 (the“Effective Date”), relates to the Master Lease Agreement, dated as of December 1, 2014 (“Welltower Master Lease No. 1”), the Master Lease Agreement, dated as of September 10, 2010 (“Welltower Master Lease No. 2”) and the Master Lease Agreement, dated as of April 8, 2011 (“Welltower Master Lease No. 3” and, together with Welltower Master Lease No. 1 and Welltower Master Lease No. 2, collectively the “Master Lease Agreement”), by and between the Company and Welltower pursuant to which the Company leases from Welltower certain independent, assisted living and memory care communities located in various states.
The Forbearance Agreement provides that (i) the Company will not be required to comply with certain financial covenants of the Master Lease Agreement during the Forbearance Period (as defined below), and (ii) assuming that no Transition Election (as defined below) is exercised, for the period from the Effective Date until December 31, 2020, the Company is required to pay approximately $2.2 million of monthly rent as compared to approximately $2.8 million of monthly base rent under the Master Lease Agreement (the “current pay amount”). For each property with respect to which a Transition Election (a) has not been made, Welltower will apply the proceeds of drawdowns on letters of credit furnished by the Company to cover the remaining amount of monthly base rent under the Master Lease Agreement; and (b) has been made, the current pay amount due from the Company will be reduced by an amount equal to the lower of(x) one-third of such facility’s earnings before interest, taxes, depreciation, amortization and rent (“EBITDAR”) for the period October 1, 2019 through December 31, 2019, and (y) average monthly EBITDAR for such facility for the last full three months immediately preceding the transition. The difference between the current pay amount and the actual contractual base rent due during the Forbearance Period under the Master Lease Agreement will continue to accrue until the date that the Final Release Conditions (as defined below) have been fully satisfied (such date, the “Final Release Date”), in which event such difference will no longer be due, or the occurrence of a Forbearance Default (as defined below), in which event such difference will become immediately due and payable. Under the Forbearance Agreement, the “Final Release Conditions” include, without limitation, the following conditions: (i) no Forbearance Default has occurred, (ii) all of the communities subject to the Master Lease Agreement have been fully transferred and transitioned to a Successor Operator (as defined below) or Welltower in accordance with the Forbearance Agreement, and (iii) the Company is not subject to a bankruptcy or similar proceeding.
In addition, pursuant to the Forbearance Agreement Welltower may elect to terminate the Master Lease Agreement with respect to any or all of the communities subject to the Master Lease Agreement by providing written notice to the Company no later than 30 days (60 days for a termination involving more than seven communities) prior to the effective date of such termination, which effective date may not be later than December 31, 2020 (such notice, a “Termination Notice”). Any such Termination Notice must indicate whether Welltower elects (i) for the Company or one of its affiliates (the “Manager”) to manage the applicable community (a “Management Election”) or (ii) to transition the applicable community (a “Transition Election”) to a new operator (a “Successor Operator”). Upon any such termination, each applicable community will be deleted and removed from the Master Lease Agreement. If, as of December 1, 2020, Welltower has not delivered a Termination Notice for any communities subject to the Master Lease Agreement, then, with respect to any such communities, Welltower will be deemed to have delivered a Termination Notice making a Management Election for such communities with an effective date of December 31, 2020. In the event of a Management Election, the applicable community will be transferred and transitioned to Welltower, provided that the Company and Welltower will enter into a property management agreement with respect to such community. Any such management agreement will provide for a management fee equal to 5% of the gross revenues of the applicable community payable to the Company and other customary terms and conditions. In the event of a Transition Election, the applicable community will be transferred and transitioned to the Successor Operator. The Forbearance Agreement requires the Company and Welltower to agree to a general form of operations transfer agreement within 45 days after the Effective Date, which will then be used for all transitions under the Forbearance Agreement, subject to customary changes requested by operators and deal-specific changes applicable to the facility being transitioned.
