VOLUME 27 | ISSUE 5 Inside the World of Senior Care Mergers, Acquisitions and Finance Since 1948 Occupancy Trends In Seniors Housing MAY 2015 Is It Getting Better Or Hitting A Wall ? ll eyes were on Brookdale Senior Living (NYSE: BKD) when they announced fourth quarter 2014 earnings results, which were hurt not When Brookdale Senior Living announced Aonly by an unexpectedly large drop in occupancy from its recent drops in occupancy in the fourth quarter, Emeritus acquisition, but also by some declines at its own legacy properties. everyone thought it was a problem specific to All eyes have been on Brookdale for other reasons as well (see other lead Brookdale and its acquisition of Emeritus. story below), but here we are going to focus on what has been happening That may be the case, but with public with occupancy trends and what we may be in for during the rest of the year. companies about to report, and one REIT already disclosing first quarter occupancy The data that came out from NIC MAP was slightly disturbing but not surpris- results for its seniors housing portfolio, the ing. Seniors housing occupancy dropped by 20 basis points since the fourth news appears to be a bit grim. Blame has quarter of 2014, to 90.2%, with independent living staying the same at 91.2% been cast on the flu season and snow in the but assisted living plunging 60 basis points sequentially. Yes, the flu shots winter months, but there may be more to it. this year were not nearly as effective as in most years, and the heavy snow See article at right in the Northeast most likely resulted in some delayed move-ins, but these factors should have impacted the independent living occupancy trends simi- larly (at least in theory). But in theory, assisted living is needs-based, with The Ventas Spin-Off continued on page 12 The announcement by Ventas that it will be spinning out most of its skilled nursing assets into a new REIT caught the market by surprise. The Tea Leaves Of The Ventas Spin-Off While we believe it was a brilliant move, it may The Move May Portend Other REIT Sector Developments also usher in a new period of “REIT think,” where the Big Three review their portfolios We don’t know anyone who wasn’t a bit surprised by the Ventas (NYSE: and make some major moves. VTR) announcement that it will be spinning out the majority of its leased See article at right skilled nursing portfolio to a new entity, to be called Care Capital Properties (CCP), that will be listed on the New York Stock Exchange. Seniors Housing Acquisitions ........Page 3 We have already opined that we think it is a brilliant move, and a great move for Ray Lewis, who will become the CEO. After all, he is just six years Skilled Nursing Acquisitions ..........Page 8 younger than Ventas CEO Debbie Cafaro, and the time was right to be on REIT Transactions .........................Page 16 his own. The market was right as well, which doesn’t hurt things. Financing News ............................Page 22 But why was everyone so surprised? It was an extremely logical move, and it was announced at the same time as a $1.2 billion acquisition of a hospital People on the Move ......................Page 27 company, so the spin-off will not be too much of a net reduction in assets in VTR’s portfolio. It will remain to be seen whether the sum of the parts when Visit us Online: the spin-off is complete will be greater than the current whole, especially as www.seniorcareinvestor.com REIT stocks have been slipping the past several weeks with a small uptick in interest rates compounded by the always present fear of larger increases. SeniorCare_Inv All things equal, however, we believe that sum of the “future” parts will be continued on page 2 The SeniorCare Investor continued from page 1 greater because CCP will be able to grow its skilled nursing According to the American Health Care Association, pub- portfolio, something that Ventas was reluctant to do. And, it licly traded REITs own only 14.3% of the 15,600 skilled will have one primary competitor in Omega Healthcare nursing facilities in the country, so CCP will own just over Investors (NYSE: OHI) among the REITs, and with the 43 10% of the total REIT ownership. That means there is a lot regional and local private operators already in the portfolio, of opportunity for a growth-oriented REIT that wants to focus there is a large base of built-in customers. on the SNF market. Starting out, CCP will own 325 skilled nursing facilities, 18 specialty hospitals and 10 seniors Speaking of growth, it was also announced that CCP would housing properties located in 37 states with more than be buying, with $11.0 million of its stock when it is issued, 38,000 beds or units. One problem is that about one-third a national valuation firm with many industry contacts across of the SNFs were built in the 1960s, but that could be a the spectrum. Although this is pure speculation, by process growth opportunity if CCP wants to finance renovations that of elimination we assume that it may be Florida-based may not have been done to keep them up to snuff. HealthTrust, which could do a lot of due diligence and valu- Regardless, this new REIT will have plenty of capital to com- ation work for CCP with its vast experience across the pete in the acquisition market, and it will be interesting to country. Even though this is not something ever done by a see if, in a few years, another REIT takes a run at it. There health care REIT before, depending on the structure of the is a lot of fluid movement in the health care REIT space right acquisition, it appears that it could solve a human resources now, and anything, in theory, is up for grabs to the highest problem of having to hire the staff to do these functions, bidder. and it could be a growing business as well. One example is the just announced sale by Health Care REIT (NYSE: HCN) of its 49% interest in seven life science buildings in MIT’s Technology University Park outside of Inside the World of Senior Care Mergers, Acquisitions and Finance Since 1948 Boston for a whopping $573.5 million. This represents an ISSN#: 1075-9107 unlevered annual return of 15% on the original total invest- Published Monthly by: ment of $327 million in 2010 (inclusive of debt). The sale Irving Levin Associates, Inc. 268-½ Main Avenue Norwalk, CT 06851 also represents a 5% cap rate on forward 12 months net Phone: 203-846-6800 Fax: 203-846-8300 operating income. The sale was to the 51% partner, Forest [email protected] City Enterprises, and we have to believe HCN would do that www.seniorcareinvestor.com trade all day long. Health care REITs in general don’t sell Publisher: Eleanor B. Meredith their assets very often, but given their rapid growth over the Editor: Stephen M. Monroe past 10 years, especially the Big Three, it is likely we will see Analyst: Benjamin Swett more movement as they realign their portfolios to deal with Advertising: Jeanne Aloi changing priorities and opportunities in the market. The Single subscription rate: $697 Ventas spin-off may be just the start. Multiple subscription rate: $1,997 The big rumor in the market right now is that Ventas and ©2015 Irving Levin Associates, Inc. All rights reserved. Reproduction or quotation in whole or part without HCP, Inc. (NYSE: HCP) might be teaming up to make a joint permission is forbidden. bid for Brookdale Senior Living (NYSE: BKD). Whether this is to buy the company and split out the assets they don’t This publication is not a complete analysis of every material fact regarding any company, industry or security. Opinions expressed already own, or just buy out the remaining assets that are subject to change without notice. Statements of fact have Brookdale still owns, which is a few billion dollars worth, been obtained from sources considered reliable but no representation is made as to their completeness or accuracy. would be anyone’s guess. Although we hear the talk, we POSTMASTER: Please send address changes to The SeniorCare really can’t see two very competitive REITs working together Investor, 268-1/2 Main Avenue, Norwalk, CT 06851. in this manner. The one caveat is that, with Brookdale’s two new board members and the obvious pressure on BKD 2 www.seniorcareinvestor.com VOLUME 27 | ISSUE 5 The Providers Current Stock % Change % Change Price Market Cap from from 52-Week Range Company Ticker 4/30/15 (In Millions) Prior Month 1/1/15 High Low Skilled Nursing AdCare Health Systems ADK $4.02 $78 -8.2% 0.2% $5.05 3.58 Diversicare Health DVCR 16.12 99 16.4 70.6 17.15 5.97 Ensign Group ENSG 42.11 1,080 -10.1 -5.1 48.00 21.70 Kindred Healthcare KND 22.95 1,920 -3.5 26.2 26.81 16.94 National HealthCare NHC 63.30 893 -0.6 0.7 66.00 52.01 Genesis HealthCare(1) GEN 6.91 1,060 -2.9 -19.4 9.32 4.82 Assisted/Independent Living Brookdale Senior Living BKD 36.23 6,650 -4.1 -1.2 39.89 29.50 Capital Senior Living CSU 26.17 772 0.9 5.1 27.75 20.33 Five Star Quality Care FVE 4.25 208 -4.3 2.4 5.33 3.23 (1) Skilled Healthcare Group completed a reverse merger with Genesis HealthCare on February 2.