Rumored $2 Billion Hawthorn Pricetag Drives Brookdale Speculation

Columbia Pacific Advisors’ (CPA) planned acquisition of Hawthorn Retirement Group likely commanded a hefty price tag—and it may be an indication of what’s to come for the largest senior housing owner and operator out there, Brookdale Senior Living (NYSE: BKD).

While CPA did not officially disclose financial details of the transaction, the 79-property portfolio and related operating and construction businesses is rumored to have run around $2 billion, analysts told Senior Housing News. Columbia Pacific Advisors had not responded to requests for comment from SHN as of press time.

Indeed, Royal Bank of Canada analyst Frank Morgan issued a note stating that CPA likely paid that $2 billion amount for the portfolio, equating to roughly $211,000 to $249,000 per unit.

Advertisement

With this Hawthorn valuation in mind as a benchmark, RBC estimated that Brookdale is currently worth about $27 per share, including the value of the company’s management services, ancillary services, unconsolidated ventures and leased portfolio assets. That’s about 80% higher than Brookdale’s current stock price.

At the time the note was issued, Brookdale’s stock price was just $14.78 per share. The share price rose to $15.01 as of market close on Tuesday.

The valuation for Brookdale is of intense interest because takeout rumors have swirled around the company since early this year, with the latest chatter involving a potential China-based buyer offering $3 billion for the enterprise. That equates to roughly $16 per share.

Advertisement

“Brookdale’s stock was up today because investors said, that’s a good benchmark for valuation,” Jefferies analyst Brian Tanquilut told Senior Housing News, referring to the Hawthorn deal.

However, it’s important to keep in mind that Brookdale’s portfolio differs in several key respects from Hawthorn’s, including its geographic footprint, average age of units, and mix of care levels, he added. The Hawthorn portfolio is mostly independent living, and this asset class has been outshining assisted living lately in terms of occupancy.

In addition, there are personal connections between CPA co-founder Dan Baty and Hawthorn co-owners Brad and Bart Colson. The Colsons’ father, Bill Colson, co-owned independent living giant Holiday Retirement for many years with Baty.

Recommended SHN+ Exclusives

“There’s a good intimate knowledge of the business from the buyer’s perspective that allowed them or gave them comfort in throwing in a premium valuation,” Tanquilut said.

Due to these differences, Brookdale likely won’t command such a high valuation, he said. Still, the overall takeaway from this transaction is good for the industry, showing healthy buyer interest.

“I think that the implied price per unit is a positive read for the industry, in terms of showing a pretty healthy valuation for assets,” Tanquilut said. “It shows you the health of the senior housing market from an acquisition perspective.”

And despite shelling out a hefty sum for the Hawthorn portfolio, Dan Baty and his Columbia Pacific colleagues might still have plenty of dry powder for further acquisitions, thanks to foreign capital that the firm has raised to supplement its homegrown reserves. Private firms like CPA in particular might be in a prime position for growth, given that they have the leeway to make moves today that will pay off when demographics really begin to shift in favor of senior housing around 2020.

“If you’re not a publicly traded company that’s judged quarter to quarter, senior housing is a very attractive space to be in, if you’re looking at the long ball,” Tanquilut said. “[Baty] certainly is in a sweet spot to be opportunistic.”

Written by Mary Kate Nelson and Tim Mullaney

Companies featured in this article:

, , ,