Emeritus Acquisition Streak Continues In Seniors Housing Arena

Dan Baty has a straightforward growth plan for Emeritus Corp. He intends to “rationally” acquire as much real estate as possible over the next two years. Not only does it sound simple, but Baty may even make it look simple. After all, he is an industry veteran with experience building and operating some of the largest firms in the seniors housing sector.

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Baty is co-founder, chairman and co-CEO of Seattle-based Emeritus (NYSE: ESC), one of the largest owners and operators of assisted living properties in the U.S. It operates 316 communities in 36 states. “We're positioned to be the lead growth story in the sector,” Baty says. “We have the experience, the capital, and the structures and systems in place to grow the company.”

The current growth strategy follows much the same plan that produced a 60% growth rate for Emeritus over the past three years as the company jumped from 171 properties that it owned and leased in 2006 to its current portfolio of 279 properties. How's Wall Street reacting? Well, the company's stock price closed at $18.37 per share on Feb. 23, up from $16.45 a year earlier.

2010 is shaping up to be busy on the acquisition front. Emeritus is finalizing its joint-venture acquisition of 134 seniors living communities operated by an affiliate of Sunwest Management, which filed for bankruptcy in 2009.

Blackstone Real Estate Advisors will put in the lion's share of the equity at 80%, while Emeritus and another of Baty's affiliates, Columbia Pacific Advisors, will each chip in 10%. On top of that, Emeritus also expects to buy an additional 10 to 15 properties this year from smaller owner/operators that will likely total about $100 million.

The fact that this latest round of acquisitions coincides with an expected surge in occupancies and rental rates is no accident. The current occupancy in Emeritus' portfolio is 88.3%, about 50 basis points below the industry average. Baty expects occupancies to rise to 91% to 92% over the next two years with rental rate increases of 4% to 5% per year due to rising customer demand.

“We think our occupancy and rate in 2011 and 2012 are going to increase significantly,” Baty says. “Our main theme is to increase capacity and go out and rationally acquire as much real estate, assisted living and memory care buildings as we have the opportunity to get.”


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