Brookdale Senior Living (NYSE:BKD) is considering options for structuring the company going forward, including the possibility of being bought out by a real estate investment trust, executives said during the Stephens Fall Investment Conference held last week in New York.
As the largest national senior living provider, Brookdale operates about 67,000 units and owns 22,000 of them. Although analysts have valued the company’s shares in the $28 to $33 range, it trades at about $23 to $24 a share, leading the board to look for ways to optimize value and mitigate the impact of cuts to Medicare reimbursements.
“There are different ways to get at that value, and they generally involve some kind of a REIT structure,” said Mark Ohlendorf, co-president and CFO of Brookdale, during a presentation. “The REITs have achieved very high valuations in today’s world, because everyone’s trying to get yield in some way, and REITs are yield.”
There are a number of different options Brookdale is exploring, said Ohlendorf. “We could monetize value in some way with an existing REIT. We have three very large successful REITs in our world,” he continued, referencing HCP (NYSE:HCP), Ventas (NYSE:VTR), and Health Care REIT (NYSE:HCN).
“They could buy our assets, our company, [and] there could be different tax consequences for different structures,” he said.
Brookdale is also considering splitting its business into two companies, one for operating communities and the other for owning them. But then, said Ohlendorf, the company would have to look for two CEOs instead of just one to replace Bill Sheriff, who announced his impending retirement in July.
A couple months ago, Health Care REIT announced it was acquiring Sunrise Senior Living (NYSE:SRZ) for $845 million, prompting speculation that other senior living chains would be the next targets for REIT buy-outs.
However, while Brookdale may follow a similar path, it doesn’t consider Sunrise or senior living providers such as Emeritus or Capital Senior Living Corporation to be its main competition in the industry.
“The biggest competitor we’ve got is people staying at home,” Ohlendorf said. “Many of those [people] are old, frail, and need service. They’re getting it in a different way: getting home care, paying for it privately, or getting it from family members.”
It’s not just nursing homes and home care providers posing competition to the senior living industry, but also families, he said, especially as the economic downturn has prompted family caregivers to play a larger role.
Brookdale’s target audience is the 80+ population, which numbers about 12 million. Currently, about 1.7 million, or roughly 15%, live in senior living communities, according to Ohlendorf.
“The generation of seniors we take care of today is the silent generation, [who are in their] early 80s, generally, when we admit them,” he said. “The vast majority have pensions. It’s a very affluent group of folks we’re caring for today.”
Written by Alyssa Gerace