Capital Senior Living Corporation (CSU), Brookdale Senior Living (BKD) and Emeritus Corporation (ESC) could end up being acquired by larger companies in the health care real estate space given the current juncture of interest rates, says Dana Hambly, Analyst at Stephens Inc.
“With interest rates being a bit of an uncertainty right now, it probably is going to create more activity in the marketplace. It’s definitely impacting the psyches of both buyers and sellers. If you’re buying right now, you might think, well, interest rates are up, but still they’re very low by historical standard, so if they are on their way up, it makes a lot of sense for us to be buying stuff now. And if you’re a seller and interest rates are going up and that, in effect, could push your asset price down, then maybe you didn’t catch it right at the top, but you’d still be getting a very attractive price,” Hambly said.
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Hambly says BKD, ESC and CSU could always end up as takeout candidates, although the timing would differ for each. He said, “Brookdale has talked in the past about maybe doing something where they could split their assets out into some sort of property company. I’m not sure that happens anymore. Emeritus, certainly it has been speculated in the past. If any of the three names that I’ve talked about get taken out, that would probably be the first one.”
Capital Senior, he says, currently has growth potential in the double digits for its cash flow, and a transaction may take place after this growth is realized. “CSU, certainly it’s much smaller, and CSU has a lot of growth in front of it right now. They can do 20%-plus type of cash flow growth over the next few years doing their own acquisitions. I think they’d be giving up a lot of potential future value by selling out right now. But certainly, I think at some point they’re all potential candidates for some sort of transaction involving their real estate, and I think that the markets understand that, and I think they are getting pretty good premium valuations right now with some expectation that something could happen with their real estate to unlock shareholder value,” Hambly said.
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