Now that Land & Buildings has ended its proxy fight to get former HCP, Inc. CEO Jay Flaherty on Brookdale Senior Living’s board of directors, it is apparent that Brookdale management can now face the long, tough slog to enhance operations, census and cash flow, the old-fashioned way. Unfortunately for shareholders who invested at much higher prices than the current levels, the wait may be a long one to get back up to breakeven. It is those newcomers to the stock that may get impatient, again, for management to do something as the share price heads higher. Right now, at $8.48 per share, it is 41% higher than at the beginning of June, and 15% higher than three weeks ago. Progress.
We think that Brookdale’s CEO Cindy Baier has surprised investors with her ability to improve the balance sheet and renegotiate (or terminate) unprofitable leases, which were certainly a drag on the company’s ability to change course. In addition, recent debt refinancings have lowered the company’s overall cost of capital. Whether her goal was to do it all to put Brookdale in a better position for a sale, at a time of her choosing, or to have a stronger financial footing for the long term is anyone’s guess. We still believe it is the latter. Regardless, give credit where credit is due, as she has persevered and succeeded in clearing the deck to at least be in a position to make a run for the long term. Two years ago, that was not really possible. One person even said maybe she will be the new “Mark Ordan,” but that may be premature.
As financial stability returns, and loser leases get terminated or restructured, it may be time for Ms. Baier to take her CPA hat off, and really be the CEO/COO that the company needs to thrive. Not that she hasn’t been acting like a CEO, but with so many financial and shareholder distractions, it has not been easy. She still needs to take a hard look at her inventory of properties, and decide which ones will help the company five and 10 years from now. If they won’t, or if they need too much capex to compete (capex that will not yield a financial return), then it is time to divest. Why focus so much time, energy and money on high-risk communities? Hope is not a business plan, and size in Brookdale’s case does not really matter anymore.
The very slight uptick in occupancy, according to NIC MAP, should bode well for Brookdale’s third quarter numbers, but those numbers will still not be what they should. A long, tough slog is not one that should be measured in quarters, but in years. Not what shareholders want to hear, but sometimes the truth hurts.