After launching a proxy combat with the Brookdale (NYSE: BKD) board of administrators final month, activist investor Oretelius Advisors has revealed a letter outlining how the nation’s largest operator can unlock the “intrinsic worth” of its actual property.
The corporate issued a letter Thursday to its fellow Brookdale stockholders urging various sweeping adjustments to the corporate’s possession and operations. They embrace monetizing underperforming properties, lowering mortgage debt, eliminating the corporate’s leased portfolio, putting in a brand new administration crew and refreshing its board of administrators.
Oretelius Advisors at the moment owns 1.3% of Brookdale’s widespread inventory.
The letter follows the departure of former Brookdale CEO Cindy Baier earlier this month, actions that had been “too little too late,” in response to Ortelius.
“Brookdale stockholders deserve extra and higher, and Ortelius stays dedicated to holding every of the corporate’s administrators accountable, offering viable paths to reversing Brookdale’s decline and maximizing long-term stockholder worth,” reads the Ortelius letter from Managing Member Peter DeSorcy.
Ortelius cut up the corporate’s 619 communities into two classes: “GoodCo” communities with occupancy above 75%, and “BadCo” communities with occupancy lower than 75%. Brookdale owns 353 properties and leases 266.
The corporate advocated for a brand new board that might consider the right way to monetize the operator’s owned “BadCo” communities, presumably by promoting at the least a few of them.
“The remaining GoodCo owned properties would yield larger occupancy charges, rents, NOI, NOI margins, adjusted funds from operations, free money circulate, and valuations; and decrease capitalization charges and loan-to-value ratios,” the letter from DeSorcy reads. “Moreover, Brookdale would achieve pricing energy, get pleasure from working leverage, get rid of BadCo PropCo capital expenditures, and rationalize prices for the smaller footprint, additional enhancing monetary efficiency.”
Ortelius additionally referred to as for eliminating Brookdale’s “poorly performing” 266 leased communities portfolio.
“The leased portfolio common annual adjusted EBITDA margin was a meager 1% in 2018 by 2024, and extremely dilutive, and pro-forma free money circulate era is questionable,” DeSorcy wrote.
Ortelius famous that landlords similar to Ventas (NYSE: VTR) are more and more changing triple-net leases into REIT Funding Diversification and Empowerment Act (RIDEA) constructions.
By eliminating its leased portfolio, Brookdale would have solely properties “valued on NOI and capitalization charges” versus communities “valued on decrease EBITDA and EBITDA multiples.” Ortelius famous it believes the GoodCo owned properties are value billions of {dollars}, “multiples of Brookdale’s present market capitalization.”
“Whereas the Firm’s weighted common occupancy fee (owned portfolio) was a dismal 78.6% in 4Q 2024, the historic excessive occupancy fee (owned and leased portfolios) was 89.0% in 4Q 2013, and the GoodCo occupancy fee (owned and leased communities higher than 75%) was within the high-80’s in 4Q 2024,” the letter reads. “And whereas NOI margins (owned portfolio) had been a substandard 24.7% in 2024, NOI margins (owned and leased portfolios) had been 36.5% in 2013.”
In early March, Ortelius entered a proxy combat with Brookdale after it nominated six new board members. Every nominated member has between 25 and 35 years of expertise in quite a lot of related sectors and industries, in response to the discharge.
“After years of missteps and shortcomings, stockholders have misplaced confidence within the incumbent board’s decision-making talents, and the board can’t be trusted to take decisive motion, obligatory after the huge destruction of stockholder worth, and put stockholders first,” the discharge states. “Within the coming weeks, Ortelius seems to be ahead to offering further particulars and incomes your assist.”
