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Acvists are circling this stock, but it's not time to buy...yet

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February 19, 2015 – Comments (4) | RELATED TICKERS: BKD , ADK , CTRE

Given the demographic tailwinds and what I view to be likely consolidation in the sector, I have been keeping my ear to the ground for potential investments in the senior living segment. This potential special situation in the sector recently popped up on my radar. An activist investor called Sandell Asset Management is pushing Brookdale Senior Living Inc. (BKD) to spin off its real estate assets into a REIT.

Some of you may find the name Sandell Asset Management familiar. That's because the firm currently has an activist position in an another special situation-esque stock pick, Bob Evans (BOBE).

I looked at Brookdale on my own a few months ago. At the time the company did not strike me as being particularly cheap, nor a takeover target...it's the largest senior living company in the U.S. I do however, see how spinning off the company's owned real estate into a REIT has the potential to drive the stock higher. According to Sandell, if the company were to make such a move its stock could trade up to $49 versus $36 right now. That's based upon the asset-light OpCo trading at 12x cash earnings and the PropCo at a 5.5% cap rate. Both seem very reasonable to me.

I really like the idea, BUT...the problem is that Brookdale's management has shown absolutely no indication that it would make the move to spin off a REIT and the company's Board of Directors does not seem to have much independence.

In the senior living segment, I currently prefer the spinoff REITs CareTrust (CTRE) and New Senior Investment Group (SNR) and the former operator that is currently in the process of converting itself into a dividend-paying REIT-like property owner Adcare Health Systems (ADK), all of which I currently own.  Should Sandell actually launch a proxy fight to persue its agenda I might be inclined to buy into BKD.

Here's a link to a recent SA article by the excellent Marshall Hargrave on this situation: 

Summary

•Sandell took a new stake in Brookdale last quarter and is now pushing the senior living center to spin off its real estate.

•Brookdale owns around 40% of its properties.

•But Sandell also wants a corporate governance overhaul.


Sandell Asset Management Dials Up Brookdale Senior Living

http://seekingalpha.com/article/2923006-sandell-asset-management-dials-up-brookdale-senior-living

Why did I include this picture of a hammerhead at the end of this post?  Because they're awesome and it's my post so I can do what I want ;).

Thanks for reading, recommending (that easy-to-click button in the top right corner of this post, hint, hint) and commenting.

Jason 

4 Comments – Post Your Own

#1) On February 19, 2015 at 1:24 PM, TMFDeej (97.44) wrote:

That should say "Activists" not "Acvists."  Darn you lack of edit button!!!!

Jason

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#2) On February 19, 2015 at 4:50 PM, lemoneater (56.81) wrote:

Hammerhead sharks are my favorite! Last spring I enjoyed the opportunity to see baby hammerheads at Atlantis in Bahamas.

Recently I bought AVIV which itself will magically transform into OHI Omega Healthcare Investors. We'll see how that turns out. I guess REITs are still an overall good investment with the FED staying put for the moment on interest rates.

Enjoy checking out your ideas! Take care! 

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#3) On February 19, 2015 at 4:57 PM, TMFDeej (97.44) wrote:

Thanks lemon.  The Atlantis looks awesome.  I definitely want to go there some day.  I considered going there this summer, but with all the consolidation in the industry the airfare there was outrageous.  I ended up not flying and taking a cruise out of New York to Bermuda instead.  Still awesome, but much more economical.

AVIV has done pretty well.  Kudos.  I hope that you purchased it before this past fall. 

See you around.

Jason 

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#4) On February 20, 2015 at 10:34 AM, lemoneater (56.81) wrote:

I've never taken a cruise--the next time I can't get the airfare I want, I'll consider that! With the "artic" temperatures currently here in SC Bermuda sounds good.

I bought AVIV in January. I seem to always get interested in stocks on an upswing. "Buy high sell higher" is an easier motto for me to follow than buy low. Since OHI has a higher dividend rate than AVIV I thought it was a rather painless way to get a dividend raise. Time will tell if I was smart or not.

 Have a great weekend!

 

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