Capital Senior Living Told to Seek Sale by Red Alder Fund

  • Activist argues company could fetch as much as $35 a share
  • Public markets undervaluing company's improving performance

Capital Senior Living Corp. is being urged by activist shareholder Red Alder to hire an investment bank to explore “strategic alternatives, including a sale” because the senior-housing provider is undervalued.

The Dallas-based company, which has a market value of about $631 million, should take advantage of low interest rates and buyer appetite for cash-flow yielding health-care and real estate-oriented companies, fund co-founder Schuster Tanger wrote in a letter to the board. Red Alder disclosed a 5.6 percent active stake on Oct. 9, and the letter dated Dec. 10 refers to more than a year of talks held with Capital Senior Living’s management, as well as discussions with other investors.

“Despite your best efforts and improved operational performance, the public markets are not affording the company credit for your pipeline, portfolio, and management business,” Tanger wrote. “We ask that you immediately retain a nationally recognized investment bank to begin this process.”

Tanger’s funds Red Alder and Lucus Advisors are best known for an activist campaign at Ann Inc. -- the Ann Taylor and Loft-branded women’s clothing retailer sold to Ascena Retail Group Inc. in May.

Capital Senior Living operates 121 communities that can accommodate about 15,400 residents. Tanger said in the letter that Capital Senior Living may fetch $32 to $35 a share from a private equity or strategic health-care real estate buyer. 

The company’s share price rose as much as 4.1 percent shortly after the open Thursday to $22.24.

A representative for Capital Senior Living didn’t immediately respond to a request for comment outside of normal business hours Thursday.

Tanger argued the company has underperformed the market, its peers and relevant real estate investment trusts -- despite delivering earnings and operational improvements.

“The fact that a company has favorable prospects is hardly a reason not to explore a value-maximizing transaction,” Tanger wrote. “Just the opposite –- often an ideal time to sell a company is when it has favorable prospects.”

Tanger requested a board response to his letter by Jan. 15.

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