Brookdale Buying The Sunrise Portfolio
October 13, 2009
Brookdale is paying $204 million, which is just under $147,000 per unit and represents approximately an 8.7% cap rate based on 2008 EBITDA before capital expenditures. Because the forecast for 2009 was just a little worse than 2008, we will assume the cap rate is close to that on 2009 EBITDA as well. The acquisition is a liitle cheaper than that, however, because there is about $134.9 million of assumable debt with a weighted average interest rate and maturity of about 3% and four years, respectively. And, we will assume that starting in the third quarter of next year Brookdale will begin to improve on the 21.4% EBITDA margin that Sunrise had with the portfolio, especially when they bring in their therapy services, which have an 80% geographic overlap. There was a much worse geographic fit with Emeritus. So, we assume that Brookdale is looking at this as a 9.5% to 10.5% cap rate deal after their synergies and low-cost debt, and it will be accretive in 2010. The closing is scheduled for November 16.
Sunrise shareholders liked the news, initally sending the shares up by 27% with nearly half the company’s shares trading hands. Since September 1, the shares have doubled in value as the prospects for paying down the company’s debt keep on improving, with this deal representing a big step.