Following Sunrise Buy-Out, Are Emeritus and Brookdale the Next Targets?

Health Care REIT’s $845 million acquisition of Sunrise Senior Living at a 60% premium may have opened the door to a whole world of senior living industry-changing acquisition activity, reports Bloomberg, and Emeritus and Brookdale might be next.

The takeover of Sunrise Senior Living Inc. at the biggest premium ever paid for an operator of homes for the elderly is turning companies from Brookdale Senior Living Inc. (BKD) to Emeritus Corp. into the next targets.

Brookdale, the industry’s largest company with a market value of $2.7 billion, has the group’s lowest valuation relative to cash flow, and its operating margin is projected to reach a record high next quarter, according to data compiled by Bloomberg. Emeritus, the second-biggest, fell last month to the cheapest price since 2005 versus the cash it generates.

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Health-care REITS “have demonstrated a strong interest in senior housing,” Jeffrey Kolitch, New York-based manager of the Baron Real Estate Fund (BREFX) at Baron Capital Inc., which oversees $17 billion, said in a telephone interview. “We are in the early stages of a cyclical recovery. Many of the public senior housing operators, such as Brookdale Senior Living, Capital Senior Living and Emeritus, trade at meaningful discounts. Further consolidation in the senior housing industry is a strong possibility.”

Emeritus and Capital Senior are even more appealing takeover candidates because they are smaller than Brookdale and own a large proportion of their properties, said JMP’s [Peter] Martin. Emeritus, with a market capitalization of $944 million yesterday, and Capital Senior, at $409 million, each own almost 40 percent of the communities they manage, according to their annual reports.

Both companies are too small to make significant acquisitions on their own, and the premiums REITs are willing to pay would be enticing, Martin said.

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Neither Brookdale nor Emeritus offered Bloomberg any comment as to whether or not they had been approached by a REIT or were considering a sale. Analysts named healthcare REIT giants HCP Inc. (NYSE:HCP), Ventas Inc. (NYSE:VTR) and even Health Care REIT (NYSE:HCN) as potential buyers in the article, although none of the entities provided any comment as to their acquisition plans. 

“There’s still a lot of real estate to be consolidated out of the public senior-housing operators, whether we see another outright sale of a company or not,” Daniel Bernstein, an analyst with Stifel Nicolaus, is quoted as saying. “But the takeover of Sunrise certainly opens that door.”

Read the full piece at Bloomberg.

Written by Alyssa Gerace