Brookdale Issues Most Heated Argument Yet Against Board Nominee Flaherty

The gloves have come off in an ongoing proxy battle between Brookdale Senior Living (NYSE: BKD) and activist shareholder Land & Buildings.

Brookdale on Thursday ratcheted up the intensity of its arguments against board nominee Jay Flaherty, a former CEO of real estate investment trust HCP (NYSE: HCP), who was put forward by activist shareholder Land & Buildings.

The Brentwood, Tennessee-based senior living operator made its comments in a letter to shareholders ahead of its annual meeting of stockholders set for Oct. 29. In the letter, the nation’s largest senior living operator said Flaherty has a “troubled history of demonstrating dishonesty and a disregard for baseline ethics.”


Land &Buildings, a Stamford, Connecticut-based real estate investment firm which holds a portion of the senior living operator’s shares, fired back with its own response on Thursday.

“The deeply personal attacks Brookdale has chosen to make against our director nominee, James ‘Jay’ F. Flaherty III, are reflective of a board that has willingly sacrificed its professionalism and integrity to prevent a truly objective voice from entering the boardroom,” the responseread.

Instead of supporting Flaherty, Brookdale urged shareholders to vote for nominees Victoria Freed, a senior vice president of sales at Royal Caribbean International; and Guy Sansone, a managing director at professional services firm Alvarez & Marsal.


Earlier this week, the operator enlisted the help of Glenview Capital Management — its largest shareholder — to vote all of its shares in favor of Freed and Sansone.

“We believe appointing Mr. Flaherty to the board would not be in the best interests of Brookdale and all of its stockholders,” Brookdale wrote in its latest letter. “It could potentially endanger the health of our business and operations, the relationships with our largest landlords, the morale of our team and the quality of services and care we provide to our valued residents and patients, while also undermining the measurable progress and value driven thus far by the company’s turnaround efforts.”

In nominating Flaherty, Brookdale alleged that Land & Buildings Chairman Jonathan Litt was seeking to derail the provider’s operational progress, and instead advance a “fundamentally flawed and extremely risky” real estate-focused strategy.

“We have repeatedly attempted to arrive at an agreement with Land & Buildings -– most recently prior to entering into the support agreement to appoint Guy Sansone as Non-Executive Chairman of the Board — if both of Brookdale’s nominees are elected,” Brookdale’s letter read. “At every turn, Land & Buildings has declined our proposals.”

War of words

The comments Thursday marked the strongest rebuke yet in an escalating war of words between the Stamford, Connecticut-based real estate investment firm and the nation’s largest senior living operator.

The two companies have traded blows this year over whether Brookdale should split into an operating company and a real estate investment trust (REIT) — an arrangement sometimes referred to as an OpCo/PropCo.

Land & Buildings has called for such a spinoff for almost two years, citing a feasibility study from the advisory and consulting arm of Green Street Advisors which found that a Brookdale OpCo/PropCo split could add up to a combined total of $13.60 per share.

But Brookdale has pushed back against that plan in recent months. In August, the operator said it saw “fundamental flaws” in the Green Street assessment. One month later, the senior living operator warned that electing Flaherty to its board would only amplify Litt’s calls for a real estate spinoff.

‘Troubled history’

Brookdale outlined its case against Flaherty in its most recent letter, calling out what it perceives as “bad behavior” from the former senior housing executive.

The operator urged stockholders to read the opinion of the United States Court of Appeals for the Sixth Circuit in Ventas, Inc. v. HCP, Inc., a 2011 case that ended in a judgement instructing HCP to pay Ventas nearly $102 million. The opinion shows that HCP “improperly interfered” with a competitor’s real estate acquisition and “misled the market” while Flaherty was at the helm, Brookdale noted in its letter.

“We believe his presence on the board would be value-destructive, potentially damaging key relationships that are critical to the execution of our strategy,” the letter stated.

But Land & Buildings said Brookdale used “cherry-picked, out-of-context information” in a bid to sink the company’s nomination of Flaherty.

“For example, when discussing his departure from HCP, Inc., Brookdale neglects to mention that Mr. Flaherty resigned as a director because of a disagreement in strategic direction from the rest of the board, which is clearly stated in a letter filed with the SEC at the time,” Land & Buildings wrote in response.

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