Brookdale makes $204M buy

Analysts like deal's timing, see purchase as positive sign in rebounding industry

Email | Print By Erin Lawley

Brentwood-based Brookdale Senior Living has an agreement to buy 21 senior-living communities from Virginia-based Sunrise Senior Living for $204 million.

The acquisition includes 92 independent-living units, 876 assisted-living units and 421 Alzheimer's units in 11 states, giving the long-term care company more than 560 communities across the country. The transaction, expected to close in November, will be funded through a combination of cash on hand and $134 million in mortgage debt.

Given that Brookdale is the largest owner and operator of senior living facilities in the country, a 21-facility acquisition isn’t a large purchase, said Robert Mains, analyst with Morgan Keegan & Co.

However, Mains said the timing of the deal is significant for the company, given that occupancy rates in this largely self-pay industry are rebounding from a low point earlier in the year. Additional occupancy should provide more revenue and improved cash flow for the company in these and other facilities, he said.

Jerry Doctrow, managing director of equity research at Stifel Nicolaus & Co., said Brookdale has “held up among the best of anyone in the recession” among senior-housing providers. He said the company is in a good position to take advantage of industry consolidation his firm expects during the economic recovery.

“Some of these (senior living) companies, specifically Brookdale, are generating a significant amount of cash from existing operations and are able to redeploy that in a positive way,” Doctrow said.

Additionally, Brookdale should able to capture additional revenue from ancillary services in these markets. The company said 80 percent of the units are in markets it can immediately serve with therapy and 55 percent of them are in markets it can serve with home health.

“They’ll be able to get that additional revenue that really nobody in the industry would be able to capture,” Mains said.

Shares of Brookdale (Ticker: BKD) were up about 3 percent near 1 p.m. They've more than tripled so far this year.

The deal is also positive for Sunrise. The company, which warned investors earlier this year that it might need to seek bankruptcy protection if it could not restructure its debt, expects to receive about $60 million in proceeds from the deal. It expects a $7 million impairment charge in the third quarter to write down five of the communities to fair value. The sale of real estate should provide Sunrise a gain of about $50 million when the transaction closes.

"This is another important step in our restructuring process and provides us with needed funds to pay down our bank line and with additional working capital," Sunrise CEO Mark Ordan said in a statement.

As of June 30, Sunrise (Ticker: SRZ) operated 415 communities in the United States, Canada, Germany and the United Kingdom.