by Veronica Dagher
Wednesday, December 16, 2009
Senior-housing operator Emeritus Corp. survived its industry's bubble and has emerged stronger as a result.
"They've proven themselves to be survivors - they didn't fall for the 'boom and bust' deals last time," said Robert Mains, analyst at Morgan Keegan & Co., referring to the overbuilding in the assisted living sector in the late '90's and early part of this decade.
Unlike many of its competitors, Emeritus didn't gorge itself on high-risk off-balance-sheet debt and end up bankrupt.
What some viewed as management's conservative moves have helped set the stage for the assisted-living owner and operator to become a bigger player in the industry. Emeritus's generally resilient business, desire for acquisitions and mindful eye on debt give it a competitive edge. If the company can continue to increase occupancy without too much rent discounting, it could be well-positioned next year.
"We want to own assets but they [acquisitions] have to be the best use of our cash," said Co-Chief Executive Granger Cobb.
Since the company began operations in 1993, it has incurred losses except in one year, making some investors leery. Emeritus said its growth throughout acquisitions and financing activities contributed to the losses. "We are cash-flow positive, which is what we focus on to run the business," said Mr. Cobb. As the 11-th largest owner of senior housing in the U.S. as of July 1, according to the American Senior Housing Associations, the company has plenty of room to grow. Emeritus owns about 13,095 units, compared with the largest publicly traded senior housing owner, HCP Inc. which has roughly 31,419. Overall, the fundamentals for senior housing look good with plenty of aging baby boomers expected to fuel demand.
Still, occupancy growth for Emeritus and its competitors is somewhat limited as many seniors prefer to stay in their own homes or with their adult children. Emeritus owns some properties and operates others under contracts with health-care real-estate-investment trusts where it is responsible for the day-to-day management of the facilities, the majority of which are assisted-living facilities.
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