A dissident shareholder has emerged trying to pressure Brookdale Senior Living to monetize its real estate assets.
With Brookdale Senior Living’s weak fourth quarter earnings announcement came the dissident shareholder response from Sandell Asset Management. They want Brookdale to monetize the value of the real estate owned to boost the share price by nearly 35%, taking advantage of higher REIT valuations. Sorry, but it just isn’t that easy. Sandell’s proposal is to spin out the real estate, most likely in a new REIT in a tax-free distribution to shareholders. Well, that’s fine, but if it sale/leasebacks on 35,000 units, what about those rent escalators on such a large portfolio? Would it suffer the current HCR ManorCare problem? Well, Sandell doesn’t care, but management does. There are some other problems with their analysis, especially with regard to 5.0% to 5.5% cap rates on the Emeritus assets, and a 7% cap rate for skilled nursing. The question for Brookdale management is, do they wait and try to build up their legacy operations, but more specifically, the Emeritus portfolio, and then make the monetizing decision with the higher future cash flow? Or do they do it now for fear of missing the market peak? Tough call.
