Brookdale Senior Living’s (NYSE: BKD) share value jumped Friday after a Bloomberg report that the nation’s largest senior living operator is exploring a sale of the company.
The Brentwood, Tennessee-based company is engaged with financial advisors on finding possible buyers, according to a report from Bloomberg citing “people familiar with the matter.”
Brookdale stock traded at $4.81 by the time the markets closed Friday, an increase of almost 20% during the day.
Brookdale management has not yet made a final decision regarding whether to sell the company, the Bloomberg report notes.
“As a matter of policy, we don’t comment on market rumors or speculation,” Kathy MacDonald, senior VP of investor relations for Brookdale, told Senior Housing News.
Brookdale operates more than 674 communities nationwide, the majority of which offer assisted living and memory care.
Private equity, REIT buyers possible
While Brookdale stock jumped on Friday on Bloomberg’s report, the company’s stock price earlier this week had dipped to a 52-week low of $3.88, according to a report on SeekingAlpha.
But the new report from Bloomberg should serve to validate Brookdale’s strategic value and “put a floor under the stock,” wrote Stifel Analyst Tao Qiu.
Qiu also speculated that a buyer of the operator could potentially be private equity firm or one of the major health care REITs that the operator works with or has worked with, such as Ventas (NYSE: VTR) or Welltower (NYSE: WELL).
“However, we think it is unlikely they would be stepping forward this time since both have been shedding exposure to Brookdale in the recent past,” Qiu wrote. “Having said that, recent lease restructurings with the big three have also modified certain change-of-control provisions, making it easier for Brookdale to strike a deal.”
Brookdale has made progress in recent years on the turnaround plan CEO Cindy Baier laid out when she first took the reins in 2018. Back then, the operator was in worse operational shape, with an unwieldy portfolio of more than 1,000 communities, multiple underwater lease arrangements and a host of other pressures.
But thanks to a multi-year effort to renegotiate leases and grow the company’s total owned assets, Baier believes the operator now has “a portfolio where we have the ability to win.”
The company reported an average occupancy rate of 77.9% as of the end of August, which is still shy of the operator’s pre-pandemic occupancy rate of 84.5%. But Baier noted during a second-quarter earnings call this year that she saw “a huge opportunity for occupancy recovery” in the quarters ahead, as well as for revenue growth.
If Brookdale hit its historic occupancy high of 89% in the future, that would drive at least $500 million in incremental revenue, the company’s management has noted. Even if the company only hit its pre-pandemic occupancy benchmark, it would still realize $350 million of incremental revenue at today’s resident rates.
“There is tremendous, powerful upside built into our existing portfolio,” Baier said during the company’s second-quarter earnings call this year.
In addition to growing occupancy, the operator is also focused on growing its resident rates. Baier earlier this year told SHN she saw a runway in 2022 to grow the company’s revenue per available room (RevPAR) by about 10% to 12%.
Brookdale’s senior housing operating margins neared 21% in the second quarter of 2022.
Sale rumors have swirled before
If sold, Brookdale would join a growing list of senior living companies that have traded hands in recent years, including Foundry Commercial’s acquisition of Spring Arbor Senior Living; the former Holiday Retirement, which is now part of Atria; and Tealwood Senior Living, which was acquired by Lifespark.
Other senior living acquisitions in recent years have included Invesque’s (TSX: IVQ.U) acquisition of Commonwealth Senior Living in 2019.
But this is not the first time Brookdale was rumored to have been imminently trading hands. In 2017, it was reported that real estate investment trust Ventas (NYSE: VTR) was considering a buyout of the operator. The company later put those rumors to rest.
Earlier that same year, reports surfaced that private equity giant Blackstone Group was in talks to acquire Brookdale Senior Living, a move that ultimately did not happen.
Additionally, a strategic review ended in 2018 with a decision not to sell the company after it reportedly received a buyout offer for between $9 and $11 per share. Current CEO Baier took the reins at the same time.
“For some investors, this may feel like deja vu,” Qiu wrote.
Brookdale also has faced repeated calls over the years from activist investor Land & Buildings to consider more moves to unlock shareholder value by spinning off or selling its real estate.
The company has sold off certain assets in the not-too-distant past, however. At the beginning of 2021, the operator sold an 80% stake in its home health and hospice segment to Nashville-based health system HCA Healthcare.
The senior living industry is thought to be at a crossroads with regard to M&A activity at the tail end of 2022. Although many senior living operators have made progress since the start of the pandemic, owners of senior housing assets — particularly underperforming or distressed communities — are increasingly looking to sell. And a Brookdale sale in late ’22 or early ’23 could only be the start of a wave of companies or communities changing hands.
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