The nation’s largest senior living provider has scaled down at least a bit, entering into an agreement to sell a portfolio of 44 communities for an aggregate price of $252.5 million.
The Brookdale Senior Living (NYSE: BKD) buildings represent 1,874 assisted living units and 579 memory care units and are spread across 12 states, the Brentwood, Tennessee-based company stated in announcing the deal late Wednesday. The buildings generated about $89 million in revenue in the 12-month period that ended March 31, 2016, and their average occupancy for the first quarter of this year was 79%.
Brookdale did not identify the third party buyer by name.
CEO Andy Smith has been open about plans to trim the huge Brookdale portfolio, which grew to more than 1,100 properties in 46 states following a mega-merger with Emeritus Corp. in 2014. In March of this year, Smith identified 34 non-core assets that were in the process of being divested, and he emphasized that the sale would help the company operate more efficiently and deleverage. Those twin goals were sounded again on Wednesday.
“We are pleased to continue our portfolio rationalization initiative to simplify our business model and divest communities that do not fit with our strategy,” Smith said in a press release. “This single transaction divests a diverse group of communities spread across 12 states and minimizes any operational disruption. We expect to use the proceeds of the transaction to primarily repay debt in another step towards deleveraging the balance sheet.”
Kevin Tyler, an analyst with Green Street Advisors, characterized the transaction in similar terms.
“It’s a clean-up sale for Brookdale,” he told Senior Housing News. “Portfolio occupancy is 900 basis points below the industry average, sale price per unit is also below average, and the cap rate could be as high as 9% assuming operating margins of 25%.”
The transaction comes as Smith and his colleagues have been touting a new phase in the integration of Emeritus. Occupancy woes, community-level staff turnover, and other issues have plagued Brookdale since the Emeritus deal, contributing to sliding share prices and shareholder discontent—activists at one point last year pressed Brookdale to spin off its owned real estate into a real estate investment trust (REIT) to help unlock share value.
But the steep challenges after the acquisition now are in the “rearview,” Smith said in May. The new focus now is on streamlining operations and getting basic things right, he said. In addition to divesting certain buildings, this effort includes everything from implementing a new digital tool to put data at associates’ fingertips to saving more money through sustainability initiatives. Brookdale managed to beat analysts’ revenue expectations in the first quarter of 2016, largely through aggressive rent increases.
The closing of the 44-property transaction is expected by the end of 2016, subject to customary approvals and conditions, Brookdale stated.
Written by Tim Mullaney