Senior Living M&A Highlights Big Value In Senior Living (SRZ, HCN, SNH, BKD, ALC, CSU, FVE, ESC)

There is value in all those old folks living in retirement homes and in retirement communities.  The latest deal in the world of mergers and acquisitions has Sunrise Senior Living, Inc. (NYSE: SRZ) being acquired by Health Care REIT, Inc. (NYSE: HCN).

Specific terms of the deal are $14.50 per share of Sunrise in an all-cash transaction, which is not subject to financing contingencies, which has been approved by both companies, and also which is expected to close in the first half of 2013.

We would be paying close attention to other senior living companies such as the following: Senior Housing Properties Trust (NYSE: SNH); Brookdale Senior Living Inc. (NYSE: BKD); Assisted Living Concepts Inc. (NYSE: ALC); Capital Senior Living Corp. (NYSE: CSU); Five Star Quality Care Inc. (NYSE: FVE); and Emeritus Corp. (NYSE: ESC).

The transaction premium is over 62% from yesterday’s close.  There is a break-up fee of some sort here: “If the transaction does not close on or prior to February 21, 2013, as a result of certain closing extension rights which may be exercised by Health Care REIT, Sunrise shareholders will be entitled to receive additional transaction consideration during the period beginning on February 21, 2013.”

Sunrise offers a full range of personalized senior living services.  Here is what the REIT is acquiring: approximately 31,600 employees, just over 300 communities located in the United States, Canada and the United Kingdom; and it is also getting a unit capacity of approximately 29,800 units.

Before the recession, Sunrise was a $20 stock and before that it was briefly a $40 stock. Its market capitalization rate after a 59% gain to $14.24 is just under $820 million and its prior 52-week range was $3.68 to $9.00.

The deal is spilling over into increased value elsewhere in retirement living and retirement community stocks, minus one key REIT:

Senior Housing Properties Trust (NYSE: SNH) is down almost 1% at $21.66 and this REIT comes with a 6.8% dividend yield.  This one was part of our 2012 Model Dividend Portfolio (and it still is).

One winner is Brookdale Senior Living Inc. (NYSE: BKD), with a gain of almost 8% to $21.50 versus its prior 52-week range of $10.98 to $20.49.  Its market cap is $2.6 billion, so it is two and a half times the size of Sunrise.

Assisted Living Concepts Inc. (NYSE: ALC) is up almost 8% at $8.07, but its 52-week range is $6.93 to $20.33 and its market cap is still under $200 million even after today’s jump.

Capital Senior Living Corp. (NYSE: CSU) is up 4% at $12.04 against its prior 52-week range of $5.44 to $12.00 and its market cap is about $330 million.

Five Star Quality Care Inc. (NYSE: FVE) is up 6% at $4.10 against a 52-week range of $2.15 to $3.95 and it is worth just under $200 million.

Emeritus Corp. (NYSE: ESC) looks to be more memory related with Alzheimer’s and dementia care but its shares are up 2.5% at $20.04 with its high of $21.00 today marking a new high above the prior 52-week range of $13.36 to $20.59. Its market cap is about $900 million.

This question has always been a bit of a puzzle… Shouldn’t Sunrise really be called Sunset in this instance?

JON C. OGG