Assisted Living experiences a rebound

12.05.2008 01:00 Health - Source: JS Online

Menomonee Falls - Publicity can affect a company's stock price in different ways.

A case in point is Assisted Living Concepts Inc. (ALC) of Menomonee Falls, which produced the second-best return of any public Wisconsin corporation in April, according to calculations by Bloomberg News. While its business practices have generated critical stories in the general news media, its financial situation produced favorable coverage in a specialized outlet.

Assisted Living runs a chain of 216 assisted-care living centers in 20 states. The service provided is more than independent living but less than that of a nursing home. About 70% of its clients are women, and their average age is 82.

The company went public in 2006, when it was spun out of a Canadian organization. Although it only has 12 operations in Wisconsin, its 100-person headquarters was established in Menomonee Falls because Laurie Bebo, its chairman and chief executive officer, is from Milwaukee.

Assisted Living is profitable and has sales of more than $200 million annually, but it has kept a low profile. Its class A shares trade publicly, but most of the controlling class B is still in the hands of the Canadians who once owned the entire company.

'Serious money'

At the time of the spinoff, "financial buyers were always the most interested because of the ability to leverage the real estate component in a seniors housing deal," according to an article that ran in the April issue of The SeniorCare Investor, a newsletter published in Norwalk, Conn.

After Assisted Living started to trade as an independent company, it "topped $13 per share amid the takeover frenzy of early 2007, propped up, in part, by hedge funds believing the shares were undervalued when compared with the ubiquitous 'replacement cost' comparison," according to the article, which was written by Managing Editor Steve Monroe.

Then in July, when credit problems started to spread across the globe and hedge funds needed cash, many sold their Assisted Living stock and the price dropped. It hit $5.46 a share in March, prompting Monroe to write his article under the headline: "With recent drop, Assisted Living Concepts is too cheap."

The stock has since risen above $7, finishing April at $7.31.

"There has not been any significant news out of the company or out of the industry that would cause the major rebound that you saw," said Derrick Dagnan, a research analyst with Avondale Partners, an investment bank in Nashville, Tenn., who follows Assisted Living. But he did mention the SeniorCare article when asked why the shares had done so well in April.

Asked about the influence of his article on the results, Monroe said: "We wondered whether anyone was listening, or reading. Well, someone has made some serious money."

Changing the mix

Part of Monroe's analysis of why the stock was too cheap had to do with the replacement value of its assets. But another had to do with how those assets are being used.

Under Bebo's leadership, Assisted Living is working to change the mix of its residents. It wants to stop providing service to those receiving Medicaid in favor of those who can make private payments.

While the Medicaid recipients are about 13.4% of Assisted Living's clients, they provide only about 9.4% of its revenue. By raising the proportion of private-pay clients, the company can increase its revenue, Bebo explained.

The policy is being implemented by not admitting any more Medicaid clients and by requiring existing residents to leave when they exhaust their own resources and have to apply for government help, Bebo said. She likened it to doctors declining to take new patients who rely on the government program.

"It is not a hardship" on clients, she said. "We work well with families and residents to make the transition positive."

However, the policy has produced news stories about 100-year-old-plus women being forced to move and cries of foul from state regulators.

Returning home

That bad publicity has not caused Bebo, a 37-year-old Marquette University graduate, to change the policy. She also wants to increase profits by expanding existing facilities and buying additional ones. The assisted living industry is fragmented, with the top 20 companies controlling only about 13% of the market, she said. Assisted Living Concepts is No. 5 in market share, Bebo said.

But while the number of Medicaid clients is being reduced, it has been harder than anticipated to find private payers to replace them. "The net result has been flatish revenue and flatish margins," Dagnan said.

Bebo said more clients than usual are leaving to live with their families, something she sees as an indication of slow economic times. If sons or daughters lose their jobs, they have more time to care for aged parents and less money to pay someone else to do so, she said.

Assisted Living Concepts has plenty of money to make acquisitions and is engaged in a building program, but whether its plan to increase revenue by ending service to Medicaid recipients will succeed remains an open question.

"Let's wait and see what happens," Dagnan said. "The drop-off in these Medicaid residents significantly exceeds the addition of private-pay residents. Until we start to see that trend decline, we are not going to really recommend the stock."

  Add comment

Name:
E-Mail:
Comment:
Enter code: