After the announcement of Sabra Health Care REIT’s 49% investment in the majority of Enlivant’s assisted living properties at a value of $195,000 per unit, the market chatter started anew. The common theme was that if Enlivant’s properties, which were designed and built in areas assuming a 20% to 40% Medicaid census, could sell for that high a price, surely someone would belly up to the bar and take Brookdale Senior Living private, which generally has nicer properties.

Not so fast. Like Hawthorn Retirement before it, which went for a high price, these two companies are relatively “clean,” meaning there are not complex issues to work out, such as landlord permissions, ADA lawsuits and a very wide mix of real estate. The Hawthorn properties were all pretty similar and built by Hawthorn, as are the Enlivant communities, which were built by the former Assisted Living Concepts. In other words, there is little “noise” with these two companies compared with Brookdale, which in addition has some morale problems to work through.

Was there a portfolio premium paid for the Enlivant investment? Absolutely. Was the price based on future increased occupancy and cash flow? We believe so. Is Brookdale currently undervalued relative to the value of its owned real estate? Absolutely. The difference is that monetizing Brookdale’s real estate value today will result in long-term damage to the company as a whole, as it would completely change the capital structure, for the worse. Unless, of course, they just sold off the owned real estate, turned over the keys and presented the shareholders with a big dividend. We are not sure, however, how the existing landlords would feel about a move like that.

If buying Brookdale were so easy, it would have been sold by now. But as every buyer who has looked at it has come to realize, it is not easy, and we are not sure how much the expected price has been the issue. Ease of transacting can have a significant impact on pricing, let alone getting a deal done. What the Enlivant deal tells us is that there is still plenty of capital out there looking for deals, and looking for big ones. It also tells us that some buyers will pay up for strategic, long-term reasons that may shock the market from a valuation perspective. But clean is clean, and that goes a long way. That is why we don’t think everything out there is comparable.