Brookdale Senior Living (BKD, $11.60) today reported earnings for the third quarter. Earnings, adjusted for non-recurring costs, were 51 cents per share with consensus looking for 62 cents. Non-recurring charges brought the quarter to a huge loss of 28 cents. Revenues were flat at $1.25 billion.
They announced a collaboration with Blackstone (BX: $25, flat) to acquire a 15% ownership interest in a joint venture that intends to acquire 64 communities currently leased to Brookdale by HCP, Inc. (HCP: $31, down $3). Upon completion of the acquisition of the assets, Brookdale will manage the communities on behalf of the joint venture.
Additionally, the company announced that it has entered into a definitive agreement with HCP for the termination of leases for 29 communities, the contribution of four communities currently leased to Brookdale by HCP into an existing joint venture with HCP, and the financing of certain communities.
The company’s President and CEO had the typical words for these major changes as “meaningful” and how they will see “improved return on capital,” and “improved cash flow.” We will spare you printing his whole statement but he said “We are committed to continuing to pursue other opportunities to optimize our portfolio, simplify our business and create shareholder value."
Here is more detail from the company: “Pursuant to an agreement between Blackstone and HCP, Blackstone has agreed to purchase the 64 community portfolio (5,967 units) for $1.125 billion subject to the existing leases. Separately, Brookdale and Blackstone have agreed to form a joint venture into which Blackstone will contribute the portfolio at the closing of the purchase from HCP, and into which Brookdale expects to contribute a total of approximately $170 million to purchase a 15% equity interest, terminate the existing lease, and fund its share of anticipated closing costs and working capital. Following closing of the transaction, expected in the first quarter of 2017, Brookdale will manage the communities on behalf of the joint venture.”
It looks to us like they are getting out of the business of owning and further into the business of management.
These announcements are complex and far-reaching and at this point it is hard to say if they will pay off. The stock is down about 19% as we write this and since it blew through our Sell Price of $15, we feel there is no sense in selling at this point. We would hold the stock and watch and wait. We feel the downside is limited here since the stock has been hammered, down from its 52-week high of $24 a year ago. 18 months ago it was $38.
Needless to say we are very upset that another Wall Street company has disappointed investors. We will now watch and wait.