Brookdale Senior Living Inc. (NYSE: BKD) announced Wednesday it has entered into a definitive agreement to sell a majority stake in its home health, hospice and outpatient therapy business.
As part of the transaction, the Brentwood, Tennessee-based Brookdale will partner with HCA Healthcare (NYSE: HCA), a for-profit operator of health care facilities that has more than 2,000 sites of care nationwide.
“The health and wellbeing of our residents is at the core of Brookdale’s mission,” Lucinda Baier, Brookdale’s president and CEO, said in a statement issued with the company’s Q4 earnings results. “Today’s partnership with HCA Healthcare will continue the high quality services delivered to our residents and patients, strengthen our liquidity position and provide meaningful opportunities for growth through better integration of services across the entire care continuum.”
Brookdale has agreed to sell 80% of the equity in Brookdale Health Services to the Nashville, Tennessee-based HCA Healthcare for a purchase price of $400 million. That total implies a $500 million value for the segment, according to Brookdale.
Brookdale Health Services operates 57 home health agencies and 22 hospice agencies across 26 states, along with 84 outpatient therapy locations.
One of the nation’s largest operators of senior living communities, Brookdale will retain a 20% equity interest in the venture with HCA Healthcare. Brookdale currently operates and manages over 726 independent living, assisted living, memory care and continuing care retirement communities (CCRCs) in 43 states.
HCA Healthcare’s network includes 185 hospitals, surgery centers, freestanding ERs, urgent care centers and physician clinics in 20 states and the U.K. The company conducts about 32 million annual patient encounters.
“HCA exited 2020 in a stronger financial position than it began the year, providing significant financial flexibility to be opportunistic on opportunities such as this deal,” Stephens analyst Scott Fidel wrote in a Wednesday investor note. “In recent earnings calls, HCA has also signaled enthusiasm to deploy capital to acquire new capabilities in higher growth areas of [health care such as home health].”
Brookdale’s health services segment delivers home health, hospice and outpatient therapy services to over 17,000 patients across the U.S. The segment brought in $91.9 million in revenue in Q4 2020, a year-over-year decrease of 16.1% from the same period a year prior.
That loss was tied to labor costs, a lower patient census and the general impact of the Patient-Driven Groupings Model (PDGM) in the home health space, the company noted.
Overall, Brookdale’s average daily home health census in Q4 was 14,618, with a full-year average daily census of 15,457. On the hospice side of the segment, its Q4 average daily census was 1,704, with a full-year average daily census of 1,580.
The home health business exclusively accounted for $74 million in revenue for Q4 and over $327 million for the full year.
Brookdale was ranked as the seventh-largest home health provider in 2020, according to the Atlanta-based data and technology firm LexisNexis Risk Solutions.
The possibility of a sale was recently floated in December after the company fell short of its Q3 projections. In Q3 2020, total home health revenue was just over $61 million, which was down 23.6% compared to Q3 2019.
“Brookdale has significant assets, [including] owned real estate, home health and hospice business,” investment banking company Jefferies wrote in a note after Brookdale’s Q3 earnings call. “Those are able to be monetized and could unlock shareholder value.”
In part, many M&A experts believed Brookdale would explore a sale of its home health and hospice assets because of the severe disruption caused by the COVID-19 pandemic across the senior living industry. As of Q3 2020, the company estimated it had missed out on $161 million in revenue due to the pandemic, with an additional $95 million in costs to mitigate the impact of the virus since March.
Senior housing occupancy in the U.S. hit a record low in the fourth quarter of 2020, according to the National Investment Center for Seniors Housing & Care (NIC).
With older adults increasingly skewing toward aging-in-place options to avoid exposure risks, the selling of Brookdale’s home health and hospice segments offered a way for the company to possibly get quick cash on hand.
Even so, Brookdale had often signaled being “disappointed” with the segment prior to the public health emergency. Some suggested the company should have cashed in even sooner.
“Given the valuations in the home health and hospice industries, we believe Brookdale has explored strategic alternatives for the health care services segment,” Dana Hambly, an analyst with independent financial services firm Stephens, told Home Health Care News in May of 2019. “With the home health business seemingly on the upswing and the steady growth in the hospice business, this is now a more attractive asset than it was 12 months ago.”
HCA’s deal values Brookdale’s overall health care services business at about 20 times the segment’s 2019 income and at about 1.1 times its 2019 sales, according to the Stephens note.
Also on Wednesday, PE Hub reported that Louisville, Kentucky-based BrightSpring Health Services has entered into an agreement to buy the at-home care company Abode Hospice and Home Health for $775 million.
Brookdale is scheduled to hold its Q4 2020 earnings call on Thursday morning.
This is a developing story. Please check back shortly for more updates.