Third Avenue Value Fund Adds to Brookdale Senior Living

Move will be profitable in the long run

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Feb 02, 2016
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Third Avenue Value Fund added to its stake in Brookdale Senior Living (BKD, Financial) in the fourth quarter. The company's management then commented on its holding:

"Brookdale Senior Living is the largest and best in class owner-operator of senior housing in the U.S. Brookdale also owns 399 high quality senior housing properties," the management said. "We believe that these properties represent approximately 50% of the company’s asset value that the market is not currently recognizing. In addition to being a best-in-class operator with valuable hard assets, Brookdale has attractive long-term tailwinds from an aging baby boomer population. Finally, Brookdale is well financed. It has approximately $6.8 billion of mortgage debt and capital leases on an estimated asset value of more than $20 billion, making it very well capitalized.

"Brookdale ran into two short-term problems that have resulted in negative earnings revisions and a share price decline over the past six months. Brookdale merged with competitor Emeritus last year and integration issues have led to lower-than-expected occupancy, and high level executive turnover created uncertainty regarding the company’s ability to execute.

"Despite these short-term issues, the investment case remains unchanged. At the end of our quarter, Brookdale traded at $22.20 per share. From this depressed price, we believe there is tremendous upside, particularly if the company manages to monetize its real estate. Without any operating improvements, we believe Brookdale’s net asset value to be near $38 per share. Including synergies from the Emeritus merger and likely improvements in occupancy and average rents, Brookdale’s value could be well in excess of this estimate."

Brookdale Senior Living is also traded in Germany.

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Brookdale Senior has a market cap of $2.97 billion, an enterprise value of $9.33 billion, a P/B ratio of 1.17 and a quick ratio of 0.67.

Brookdale Senior Living is the U.S. leader in senior living solutions. Its objective is to help people age well. It offers four main types of services to its customers: Independent living, assisted living, dementia care and skilled nursing. The company's differentiation that sets it above the competition is its offering for coordinated ancillary services platform, which includes therapy, home health and hospice services. Brookdale Senior Living understands that its customers' needs are constantly changing, and Brookdale is doing its best to adapt to those changes.

Baby boomers are aging each day, and they need a place to live out their golden years as they continue to grow older. There are roughly 44 million people in the U.S. who are now 65 years old or older. By 2050, that number is expected to double, and all of these people are going to require a place to live. Brookdale is the current leader in the U.S. in the Global Long Term Health Care facilities industry.

Third Avenue Value Fund's decision to raise its holding in Brookdale Senior Living is smart and will be profitable over the long term.

Cheers to your investment success.