Brookdale Senior Living’s (NYSE: BKD) is considering selling off its home health and hospice businesses. The company may seek a private equity-backed, a strategic buyer or a combination of the two, according to a report by PE Hub.
Whispers of a potential sale come on the heels of a troubled year for the senior housing and health care giant. With seniors particularly vulnerable to COVID-19, the pandemic has rocked the senior housing and assisted living industries with many facilities seeing outbreaks or reduced resident volume. Brookdale did not comment to Hospice News on any potential transaction.
All told, the pandemic cost Brookdale $71 million in the third quarter of this year, even as the company contended with wildfires and hurricanes in some of its markets.
“[Brookdale] has seen significant occupancy and earnings drags from COVID, as high mortality rates in ‘nursing homes’ has caused fear among potential new residents and reduced interest among families to move their loved ones into these communities (facility-level lockdowns have made moving relatives into senior communities undesirable),” indicated Equity Analyst Brian Tanquilut and Equity Associate Jack Slevin of Jeffries, L.L.C., in a note shared with Hospice News.
The COVID-19 pandemic gut-punched Brookdale’ hospice segment in particular during the third quarter, despite seeing growth earlier in the year. The company saw a 9% drop in hospice revenues in the third quarter of 2020, compared to the prior year’s quarter. Q3 hospice revenues fell to almost $23 million from $25.2 million in the same period in 2019. Revenues were also down slightly compared to the first and second quarters of this year.
Home health admissions have been falling off industry-wide during the pandemic due to widespread limitations on elective procedures and hospital discharges.
The Brookdale report comes on the heels of an announcement from Encompass Health (NYSE: EHC) that it was considering a spin off or sale for its hospice and home health business.
Divesting its home health and hospice lines would not be a simple proposition for Brookdale. While patients do not have to be residents of Brookdale’s senior living communities to use their health care services, that is where the company obtains most of its hospice and home health business. Any potential buyer would have to enter into an agreement with Brookdale to ensure it keeps its top hospice and home health client, according to PE Hub.
Selling off its home health and hospice business could bring Brookdale an influx of cash and allow it to refocus on its core senior housing business, according to Tanquilut and Slevin, This is particularly promising considering the record high multiples in the hospice space during 2020, reaching as high as 29x.
“We believe the wide valuation disparity that exists between [Brookdale’s] ancillary services business lines and the core senior living segment merits a [sum-of-the-parts] revisit, as highly elevated multiples in home nursing and hospice, as well as outpatient physical therapy open the possibility for divesting these non-core businesses to maximize [Brookdale’s] equity value,” Tanquilut and Slevin said in the note.
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