Activists at retirees’ gate mean gains for Brookdale

REITs invest in properties and mortgages and receive tax benefits in exchange for distributing the majority of their income as dividends. Brookdale operates more than 1,100 senior living communities in 46 states and in July completed a takeover of Emeritus Corp.

See also: LTC provider dealmaking heats up.

"With them owning a third of their real estate, it's a big enough portfolio that you can allot enough value to move the stock if you do something with it," Tanquilut said in a phone interview.

It's not the simplest process. Creating a REIT spinoff could affect the company's credit profile, limit its ability to make changes at the properties and require the approval of the landlords from which it rents other real estate, Tanquilut said. Those are all challenges Brookdale would have to resolve if it moved ahead with a split, he said.

Other options

A Brookdale REIT also may not command the same multiple as bigger, more diversified peers, Langbaum of Bloomberg Intelligence said. An alternative is to sell the properties to an already established REIT and then lease them back, he said. Ventas Inc., HCP Inc. and Health Care REIT Inc. are all looking to grow by adding more real estate and could be buyers of Brookdale's assets, according to Langbaum.

"Why not just sell your real estate to them and let them pay market price for it and monetize it that way? That's probably an easier execution," he said.

A third option is for someone to buy all of Brookdale and then potentially spin off the operating company instead, said Frank Morgan, a Nashville-based analyst at RBC Capital Markets, a unit of Royal Bank of Canada. After missing out on Emeritus, the big health-care REITs may settle for a takeover of Emeritus' acquirer.

Brookdale needs to do something to unlock the significant value embedded in its real estate portfolio, Sandell Chief Executive Officer Tom Sandell, said in the Feb. 6 statement.