Oh, what an end of the year. With just three publicly traded seniors housing companies, all three are under some sort of pressure to do something to increase shareholder value. First it was Brookdale Senior Living, then Capital Senior Living and now Five Star Quality Care. The owners of Senior Star have made an unsolicited offer to buy Five Star’s 33 owned communities with more than 3,100 units, with assisted living and memory care representing just over 75% of the total units and independent living the remainder. At a price of $325 million, or just over $100,000 per unit, the value to shareholders comes to more than $5.00 per share net of some mortgage debt. Five Star currently trades near $3.50 per share even after the offer was disclosed. Management, however, wants no part of it, even though the owned assets represent less than 15% of the total properties under management, with the rest either leased or managed only.

The bottom line, at least from Senior Star’s perspective, is that Five Star would get a value for the owned properties at a 50% premium to the current share price, and shareholders would basically retain the operating company for free (minus the 33 properties). Senior Star’s case would be more compelling, or at least easier to do, if they made an offer for the entire company, which we do not believe is something they want to do. It is very difficult to persuade a company to part with its only owned assets, even in this environment when every activist investor wants to enhance value by monetizing owned real estate. So Senior Star has a great idea, but it seems unlikely to come to pass right now without some changes.