Sector Wrap: Assisted living center operators
Friday May 9, 3:08 pm ET
Housing slump, weak economy pressuring occupancy rates at assisted living center operators
NEW YORK (AP) -- Shares of most senior housing operators declined Friday, as analysts said a protracted slowdown in the residential market threatens to continue slowing growth in the sector.
As housing prices continue to fall and sales stagnate, many retirees are choosing to remain in their homes rather than sell for a meager profit or even at a loss. This has meant fewer aging baby boomers are moving into assisted living communities.
Seattle-based Emeritus Corp., which provides assisted living and Alzheimers and related dementia care services, late Thursday reported a first-quarter loss that more than doubled to $26 million, or 67 cents per share, on revenue of $186.5 million.
Analysts had expected a smaller loss of 55 cents per share on higher revenue of $191 million. The company also lowered its revenue outlook for 2008 to a range of $760 million to $775 million from prior estimates of $780 million to $795 million.
Stifel Nicolaus analyst Jerry Doctrow said Emeritus warned that move-ins remain flat in the second quarter and that expansions and development will drag on occupancy. Shares of the Seattle-based company fell $1.92, or 8 percent, to $22.10 in afternoon trading on triple average volume.
Meanwhile, Jefferies analyst Frank G. Morgan thinks Sunrise Senior Living Inc.'s preliminary quarterly results were "quite impressive," given recent industry headwinds and weak reports from other senior living providers.
"While strong rate growth was largely responsible for the increase in the top-line, occupancy was relatively stable in what has been a tough quarter for the company's peers," Morgan wrote. Sunrise said Thursday it has not seen any impact on move-in activity or attrition related to the economic slowdown, and indicated that it currently has 40 development projects under construction and another 100 under contract.
Shares of McLean, Va.-based Sunrise slipped 9 cents to $23.07.
Goldman analyst Jonathan Habermann said Brookdale Senior Living posted solid quarterly results Wednesday despite soft housing markets. But he maintained a "Neutral" rating and $24 price target on the stock, believing that Brookdale's cash flow growth may moderate slightly in the near-term due to the slowing economy and higher integration expenses in the first half of the year.
"That said, the supply and demand dynamics for senior housing remain favorable longer-term in our view and we believe that BKD is well-positioned as the largest senior housing operator," Habermann wrote in a note to clients.
Jefferies' Morgan also said Brookdale generated better-than-expected revenue in the first quarter even though occupancy remains challenging in this economic environment. With management affirming expectations for improving occupancy in the second half of the year, Morgan thinks the stock is undervalued.
He maintained a "Buy" rating and $34.50 price target. Chicago-based Brookdale Senior Living Inc. shares fell 69 cents, or 2.7 percent, to $25.17.
Dallas-based Capital Senior Living Corp. on Tuesday reported quarterly results which missed Wall Street's earnings per share forecast by a penny. The company said occupancy is seeing continued modest pressure from the broader housing market and economy, and Stifel's Doctrow notes that rents continue to increase at a higher rate than expenses.
Doctrow thinks the biggest issue for Capital Senior investors is the status of the company's pursuit of strategic alternatives now that it has agreed to add two independent directors to its board and consider a possible sale.
shares rose 12 cents to $7.89.
Shares of Menomonee Falls, Wis.-based Assisted Living Concepts Inc. fell 4 cents to $6.47, continuing a downward run sparked by the company's earnings report Monday. Assisted Living met Wall Street profit estimates for the quarter, but said occupied private pay units declined 3.2 percent from the end of the fourth quarter, and occupied Medicaid units declined 15.4 percent.
The company said it believes more and more private pay residents are now moving out of its facilities to be cared for at home by relatives due to the weaker economy, which is spurring layoffs and concerns about family budgets, rather than from a desire by private pay residents to preserve the option of switching to Medicaid in the future.
Stifel's Doctrow says Assisted Living is intentionally reducing its Medicaid census but has not yet shown the ability to refill these units with private-pay residents, a key part of the company's strategy. He kept a "Hold" rating on the stock.
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