Whether it was leaked from Brookdale Senior Living, or from one of its advisors, or not, it was reported on Friday that the company was in talks with one or more advisors about a potential sale of the company. Forgive us if we yawn, but we have been through this before. Although, it was exciting to see a seniors housing company’s share price jump by 20% in a market that has not been kind to our industry, for how long it remains up is the important question.
The shares had recently hit a 52-week low of $3.87, so jumping by 20% does not mean as much. This is especially true when one considers the fact that they walked away from a conditional indication of interest to buy the company four years ago for between $9 and $11 a share. As we recall, either the conditions were too onerous or they did not have a lot of faith in the buyer coming to the closing table at the indicated price range. Still, it was double where the shares are today. And yes, we know we had something called COVID in between.
This was when CFO Cindy Baier took over as CEO from Andy Smith, who orchestrated the disastrous acquisition of Emeritus. Two years later, she was hit with the pandemic and a plunge in census, margin and cash flow. Our guess, and it is just a guess, is that if the company is looking to find a buyer, one reason may be that Cindy has grown tired after nearly five years trying to guide the largest seniors housing company in the world through the most turbulent times the industry has ever seen. Who wouldn’t want to take a break from that?
The problem is that the timing could hardly be worse. Yes, census has been on the rise, but from a large hole for everyone, and the gains in the past six quarters can be considered the low-hanging fruit. To match those gains in the next six quarters will be hard work. Given we are in a rising interest rate environment and probably heading into a recession, the buyer pool for BKD will be small and pricing will not get very generous. No strategic buyer will do it, and the ones with capital, REITs and PE firms, will be wary. Besides, four of the REITs are already invested in Brookdale with leases. The one wild card is Ventas, which as part of a previous lease restructuring took warrants to buy 16.3 million shares at about $3 per share, so their capital cost on an acquisition would be lower than anyone else’s. And who wouldn’t love to see Justin Hutchens running Brookdale?
Or maybe Healthpeak Properties could make a huge strategic reversal after basically exiting the seniors housing sector. With Scott Brinker, who spent nearly two decades at Welltower, suddenly taking over as CEO, stranger things have happened. He certainly knows the seniors housing industry, maybe even better than we do, and that could have been the reason he is replacing the former CEO, the well-respected Tom Herzog who orchestrated the exit from seniors housing. The reality is that if Brookdale is talking to some advisors, the advisors may just tell them it is not a good time for a sale and that the buyer pool is too small. That would not be fun, would it? We need some fun.
