Brookdale Senior Living Upgraded At Wells Fargo On Higher Probability Of A Strategic Deal

Wells Fargo has upgraded Brookdale Senior Living, Inc. BKD to Outperform from Market Perform on higher probability of a strategic deal under which Brookdale could either sell some or all of its assets.

The brokerage noted that getting consent from REIT partners would not be a material impediment to some of the strategic options in play.

The comments came after the Wall Street Journal reported Brookdale was in very early talks with Blackstone Group LP BX about a sale of all or part of the company.

Possible Asset Sales

“We think a sale of at least some of BKDs owned assets has the highest probability purely because it is the most straightforward of strategic options on the table and would likely face least resistance by its REIT partners,” analyst Ryan Halsted wrote in a note.

The analyst believes a deal could put a floor on the share price by tying the value closer to the NAV of its owned real estate. This should help reduce financial leverage and creating an opportunity to return value to shareholders through a stock buyback.

Halsted is also not ruling out the possibility of sale of the whole company to Blackstone, as he expects the Brookdale’s REIT partners are likely to consent to a change of control to a financial sponsor.

That said, a sale along with restructuring of its leases into a REIT Investment Diversification and Empowerment Mt (RIDEA) structure is the most complex of the strategic options.

Also, getting consent from all of the REIT partners to restructure its leases is another challenging aspect of the deal.

Nevertheless, buoyed by higher probability of a deal, the analyst raised his valuation range to $18.00 to $21.00 from $14.00 to $16.00.

At last check, shares of Brookdale rose 4.53 percent to $16.16.