I have been thinking about these numbers for a while now and thinking I should write about it but, with the stories rumoring that Blackstone Group is in talks with Brookdale to purchase the company, it seems the perfect time.

By Steve Moran

I have been thinking about these numbers for a while now and thinking I should write about it but, with the stories rumoring that Blackstone Group is in talks with Brookdale to purchase the company, it seems the perfect time.

Sell or Keep My Stock

First . . . a few weeks ago I ran a poll asking senior living folks whether or not they thought I should sell my deeply underwater shares of Brookdale. Here are the results:

  • Overall 62.5% of those who took the poll think I should sell my stock.

  • Brookdale team members are much more optimistic. Only 28.60% of them think I should sell.

  • Not terribly surprising, nearly 80% of the ex -Brookdale/Emeritus folks thought I should sell.

  • There were a handful of “declined to states” and about ⅔ thought I should sell.

I haven’t sold yet.

Some Data

I need to start with some data:

  • According to a recent release from NIC, overall senior living occupancy dropped to a new recent low of 89.6% like this:

    • 91.1% for independent living

    • 87.6% for assisted living

  • Demand continues to be strong but 5,900 units were added to the inventory in the last quarter slightly outstripping demand

  • Based on their last quarterly earnings report Brookdale manages 1,077 properties with around 105,000 units

  • Brookdales most currently reported occupancy rate is 86.2%

  • This suggests that at any given time they have 14,500 empty but ready to go units

  • With a Brookdale average of 97.5 units per building that 14,500 empty units equals roughly 149 empty senior living communities

  • If the Brookdale communities were to increase occupancy to the industry average, they would fill just shy of 4,000 additional units

What It Might Mean

If Brookdale is bought out by Blackstone or someone else it will depend a lot on what happens to the operations side of the company. There seem to be two clear market realities:

  • Based on the current stock price and market prices for senior living real estate assets, the Brookdale communities are hugely undervalued.

  • The stock market valuation is an implicit indication that investors see the company as being severely undermanaged.

No Management Change

If only the ownership changes and the management teams stays in place it will likely have no significant impact on the overall senior living marketplace. It is possible the existing team will make some incremental gains in occupancy, but history would suggest this is unlikely. The big benefit of going private is that it would remove the quarter-to-quarter pressure to improve performance numbers and allow management to play more of a long game.

I am not sure that is where the problem is, but it might help.

Divesting the Assets

It would seem the path to big profits for Blackstone or another organization would be to sell the whole portfolio in pieces to smaller national and regional operators. There is a huge amount of cash looking for assets and prices are still very high. If this were to happen it is very likely that new operators would see some huge opportunities to infuse their own culture and signature operating systems as a way to improve occupancy, cash flow and value.  

It could also have a huge impact on overall occupancy. It would likely mean a very different competitive landscape for everyone operating in markets where Brookdale has underperforming communities. It is interesting to think about. This, of course, is not entirely accurate but you might think of it this way:

  • It would be like adding close to 15,000 units to the existing marketplace.

  • This would be the equivalent of adding 149 new communities.

  • If all those communities did was come up to average it would be 3,900 units or almost a quarter’s worth of new units.

It is in my mind almost unimaginable that this or something else will not happen. Yet I still believe Andy Smith should resist the pressure to, in effect, throw in the towel. He should stand up to the investment community and say, “We can do it!” or to borrow from president elect Trump . . . “We can make Brookdale great again!”

While I know it will never happen, I am drolling over the idea that Andy would call me up and say, “Put your money where your mouth is. Come be a consultant and help us make it great.”

A Board No More

Finally . . . it looks like I will have to quit suggesting they put me on the board, since it sounds like before much longer there will be a board no more.