For the most part, it’s a safe bet to be long on senior housing according to an article in Barron’s this weekend. For those of you who don’t subscribe to Barron’s Weekly, there was an article in the paper over the weekend touching on the theme that anything housing-related has taken a beating in the stock market, inclusive of the stocks of some of the publicly traded senior housing providers. With continued worries about seniors postponing their moves into senior housing, many of the housing operator’s ability to raise rates and margins will be hurt based upon the reticence to move. The article notes that Brookdale Senior Living (BKD), the largest private-pay senior housing company, is off by 53% over the last 12 months. The article points out two companies that it feels present good opportunities for investing, Emeritus (ESC), Seattle-based assisted living specialist and Newton, MA based Five Star Quality Care (FVE) that provides skilled nursing care.
The article points out that these two companies are expected to grow their facilities and their cash flow from operations over the next two to three years based upon conservative growth and their limited exposure to continuing-care retirement facilities (CCRCs). Barron’s takes a few shots at Brookdale’s relationship with the private equity firm Fortress Investment Group (FIG) that controls approximately 60% of the outstanding shares and through this control continues to withdraw a hefty 8% return through its annual dividends and depleting it available cash flow to re-invest in facilities and growth. The article mentions the 800 pound gorilla Sunrise Senior Living (SRZ) but comes out and says to avoid it like the plague based upon the delayed financial reporting and other issues surrounding the company. As the article notes, the long term out look for the industry remains strong but thinks that looking at specific stories within the broader group may yield better returns by focusing the short-term trends.
For more information on the article, click here (subscription required).
