Just weeks after Brookdale Senior Living walked away from its lease renewal with Ventas covering some 120 communities, the two companies came to an agreement that appears to be a win-win for both.
Brookdale will continue to lease 65 communities which average about 62 units each and represent 40% of the units in the original master lease. The initial cash rent on these will increase by 38% and will now be $64 million with 3% annual escalators. But for 2025, Brookdale will pay the contractual rent of $48 million on these.
For the remainder, 44 communities will go into the Ventas SHOP portfolio with new operators, to be determined later. Annualized NOI for these after a 5% management fee is about $54 million with average occupancy of 76%. These communities are double the size of the 65 communities remaining in the master lease, or 129 units each on average. With new operators they expect the census to increase by quite a bit in the first few years (helloooo Sevy), maybe by 1,000 basis points. Wouldn’t that be nice, and that would take them only to 86%. And let’s not forget that replacing operators on 120 communities would have been a time-consuming task for Ventas management. Ventas plans to sell the remaining 11 communities in 2025. Must be some real bow-wows.
For Brookdale, the agreement with Ventas is expected to give them a more than $15 million increase in cash flow in 2025, and more in following years. The 55 communities Brookdale is not renewing have 6,125 units and generated a negative $31 million in cash flow for Brookdale after management fee, rent, actual capex and allocated G&A. We presume it will not be that bad with new operators.
The communities Brookdale is keeping have an average occupancy of 83%, so definitely some room for improvement, and maybe that will happen with better focus. In addition, the 65 have a 20% higher RevPOR than the others, 30% higher RevPAR and 70% higher operating income per available unit. These 65 communities are mostly within 25 miles of other Brookdale communities, making management easier with a slimmed down portfolio.
While we have always stated that Brookdale still needs to get smaller, this is a good step in the right direction and when all is done, they will own more than 75% of their consolidated communities. Well done Justin and Cindy, and we previously stated that we thought you would work something out beyond the termination of the lease. It just made too much sense for both sides. That is called working together for your mutual benefit.
Merry Christmas!
