Once again Land and Buildings is beating on Brookdale to make more aggressive changes . . . are they right to do so?

By Steve Moran

Once again Land and Buildings is beating on Brookdale (the link will download a pdf document) to make more aggressive changes. The letter starts by rightfully praising CEO Cindy Baier and new Chairman Lee Wielansky for “taking the bull by the horns” to maximize shareholder value. But then it moves right into why it is not enough.  

They are demanding/asking for 7 things:

  1. Take all necessary actions to fully de-stagger the Board at the 2018 Annual Meeting, which is in line with governance best practices.

  1. Refrain from expanding the size of the Board beyond nine (9) members.

  1. Refresh the Board with at least two (2) individuals with relevant healthcare experience and expertise in REITs, tax structuring, real estate, and finance and ask two (2) long-standing Board members to tender their resignation.

  1. Appoint the new finance-oriented Board member to the Investment Committee of the Board.

  1. Charge the Investment Committee with evaluating ways to maximize the value of the owned real estate, particularly in light of recent lease restructuring that has removed prior obstacles to real estate monetization, including evaluating splitting up the Company, joint ventures, or outright sales.

  1. Charge the Investment Committee with evaluating strategies to further eliminate lease structures to transform Brookdale into a best-in-class manager of senior housing, including evaluating converting leases into management contracts, which relieves Brookdale of the lease liability while providing the landlords with additional upside opportunity.

  1. Provide additional disclosures to Brookdale shareholders on which properties are owned and which are leased, including property listings and new supply statistics.

I read the Land & Buildings letter the same day I was editing Jack Cummings article titled: Why Sharks Are Healthy for Senior Living and he got me to thinking that it might be worth exploring the idea that something healthy could come out of this Land & Buildings thing.

Big Bad “Land & Buildings”

I fundamentally think these activist investors are horrible for the senior living industry. They have no long-term interest in the welfare of residents, team members, elders and the marketplace. They want to see the stock jump 30-100% and then bail out.

This is not a nice way to approach caring for seniors.

Further, I believe they are wrong in thinking these buildings have all kinds of unrealized value just waiting to be unlocked. If Brookdale were to sell those additional owned assets to REITs it would further impinge their cash flow and that would be a bad thing.   

And Yet . . .

I find myself thinking maybe there are some things that can be learned from this assault on Brookdale. In his article, Jack quotes JefBezo of Amazon: “When you are criticized, first look in the mirror and decide: Are the critics right? If they are right, change. If they are not, then don’t change.” And that is super advice.

What we can learn:

  • Sometimes changing up management is a good idea

  • Keeping on doing the same old thing when the same old thing is not working is a bad strategy

  • New blood can make all the difference in the world when it comes to struggling organizations

It is easy to just dismiss this assault on Brookdale leadership, but it would not be happening if things were not broken. It is abundantly clear the board waited way too long to make any changes, justifying the desire of Land & Buildings to shake up the board that allowed things to get where they are.  

I want to close by saying there is new leadership today and the stock price is creeping up, but changing out the board makes a lot of sense. And, of course, I believe they should start by making Steve Moran a board member.