Oil prices have soared, inflation’s ugly head is popping up again and the Fed keeps raising interest rates, all of which should spell lower stock prices. But in the seniors housing and care market, that does not seem to be happening. Year-to-date, nine of the 13 publicly traded companies have posted double-digit increases, with most well over 20%, and only two have declined (but by just 1% and 2%, so they hardly count). Leading the pack is Advocat, up 208% for the year and hitting an eight-year high of $16.45 per share, followed by Brookdale Senior Living (up 66%), Extendicare (up 45%) and Five Star Quality Care (up 40%). The assisted and independent living market has been hot, but two of these four companies are primarily in the skilled nursing business, while Five Star is a hybrid, so the price performance can’t be attributed to “the Brookdale effect.” Perhaps investors have become more comfortable with SNF companies because of relatively robust state coffers and the continued profitability of Medicare.
Brookdale jumped by 57% in the six weeks after its IPO late last year and now, with its continued surge this year, it has a market cap that is larger than the five other seniors housing (not nursing facility) companies combined, including Sunrise Senior Living. This is an astounding development for a company that underwriters thought was worth about $19 per share a little over six months ago and is now near $50 per share. When it completes the acquisition of American Retirement Corporation, Brookdale’s market cap will exceed Manor Care’s and become number one in the entire seniors housing and care market.
Meanwhile, the providers’ landlords are not faring as well. For the first five months of 2006, not one health care REIT is up more than 4%, and if interest rates keep rising during the remainder of the year, they may all be in the red by December, except Ventas, if it comes out big in its rent reset negotiations with Kindred Healthcare. But eventually, higher interest rates will begin to impact more than just the REITs, so the top of the market may have arrived.
Comments