(Bloomberg) — Shareholders of America’s largest retirement-home operator may reap a 25 percent gain should the company heed an activist investor’s calls for a breakup.
Brookdale Senior Living Inc. (NYSE:BKD) surged the most in almost two years to about $37 on Feb. 6 after Sandell Asset Management Corp. urged the $6.7 billion company to spin off its owned properties into a real estate investment trust (REIT). Even after the pop, the senior-housing operator is trading below the value of its assets, estimated by analysts at about $46 a share, on average. Sandell puts the valuation even higher, at $49 a share.
“The equity price of Brookdale is not necessarily reflecting the actual value of the real estate,” Jeffrey Langbaum of Bloomberg Intelligence said in a phone interview. “It makes sense that someone would propose they find a way to monetize it.”
With commercial property values on the rise, activists have pushed corporate targets from Pinnacle Entertainment Inc. to Darden Restaurants Inc. and Dillard’s Inc. to explore REITs. Because the investment trusts pay little to no taxes, the move may be particularly logical for Brookdale, which will soon lose some tax benefits that are set to expire, said Brian Tanquilut of Jefferies.
Sandell is also seeking to revamp the Brookdale board by adding new members with more real estate expertise and making changes to its corporate governance policies. Brookdale said it had met with the activist investor and that its board and management were considering the suggestions.
Representatives for Sandell and Brookdale declined to comment further.