Shareholder Urges Brookdale to Capitalize on Real Estate Upside

Brookdale Senior Living (NYSE: BKD)—the nation’s largest owner and operator of private-pay senior living communities, and one of the largest home health and hospice providers—is again under pressure from an activist shareholder.

Brentwood, Tennessee-based Brookdale has faced a slew of challenges following its acquisition of rival Emeritus Corp. in 2014. Last year, as the company was undergoing a review of strategic alternatives, there were rumors that it might be sold in whole or in part.

As Brookdale’s share price has declined, its owned real estate has become a key area of focus, as the value of this property does not appear to be reflected in the company’s market capitalization.


Stamford, Connecticut-based Land and Buildings Investment Management LLC wrote in an open letter to shareholders released on Monday that Brookdale’s real estate is potentially worth double its current share price.

Brookdale owns 358 of the 1,010 senior living communities in its portfolio, according to a recent investor document. Land and Buildings held 2.7% of Brookdale’s stock as of last October.

“With Brookdale’s stock trading in the $9 to $10 range, and the real estate value of the company potentially double its stock price based on recent transaction comps and the likely bottoming of fundamentals this year, significant upside remains to be realized,” Land and Buildings founder and Chief Investment Officer Johathan Litt wrote in the letter. “Therefore, we believe any shareholder feedback the company receives should and will be taken seriously.”


The activist shareholder tasked the senior housing provider’s investment committee with finding ways to maximize the value of Brookdale’s owned real estate, particularly in light of the company’s recent lease negotiations with Welltower Inc. (NYSE: WELL) and Ventas, Inc. (NYSE: VTR).

Additionally, Land and Buildings urged the operator to further eliminate lease structures, which may include converting leases into management contracts to ease up pressure on lease liability while giving landlords additional upsides.

A representative for Brookdale declined to comment for this story, but there are signs the operator also wants to unlock more value from its real estate. The company has indicated it would like to shed some underperforming or non-strategic assets, and could shrink its senior housing portfolio by as much as 20% in the next three years.

Other changes recommended by Land and Buildings included declassifying Brookdale’s board of directors, refraining from expanding the board past nine members, swapping in two new members with health care and real estate investment trust (REIT) expertise, and adding a new finance-oriented member to the board’s investment committee.

Though Land and Buildings has in the past pressured Brookdale to boost transparency and negotiate a partial or complete sale of the company, the senior living operator has seemingly not taken heed.

“While we are disappointed with the lack of urgency, we remain hopeful that the board will seriously consider the views of its shareholders, including those set forth above, and that it will work to improve value on behalf of all Brookdale shareholders,” Land and Building’s letter concluded. “We nonetheless must continue to monitor the company, and evaluate all options available to maximize shareholder value.”

The latest calls for the publicly traded company to capitalize on its real estate assets come as earnings for its home health business remain relatively weak.

Brookdale’s first-quarter 2018 ancillary services operating income totaled $8.3 million, down 46.8% from the first quarter of 2017. That downturn was primarily driven by home health, according to company leadership.

Brookdale’s home health business has largely stalled, but its hospice business is thriving.

Hospice revenue increased 45% on a year-over-year basis in the first quarter of 2018, according to the company. Despite mixed results, Brookdale plans to remain committed to both segments moving forward, CEO Cindy Baier told Home Health Care News toward the beginning of the year.

Brookdale’s share price hovered around $9.74 by mid-day Monday.

Written by Tim Regan

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