Senior housing operator Brookdale Senior Living (NYSE:BKD) has had a rough few years, and its investors have gotten crushed as a result. Over the past three years, the stock has dropped by 80% -- including today's pop, thanks to declining revenue and generally tough industry conditions.
However, the company announced some good news today. Specifically, the lease agreement has been favorably restructured on the 128 communities Brookdale leases from healthcare real estate investment trust Ventas (NYSE:VTR).
- The entire Ventas-Brookdale portfolio is simplified into a single lease, with initial term through the end of 2025 and two 10-year extension options.
- Brookdale will receive rent credits throughout the term of the lease, including $8 million in both 2018 (prorated) and 2019, $7 million in 2020, and $5 million thereafter. The portfolio currently generates about $180 million in annual rent for Ventas, so this translates into significant cost savings for Brookdale.
- Brookdale and Ventas will jointly pursue the sale of some of the properties, which account for about $30 million of the above-mentioned rent. Ventas would receive the sale proceeds, while Brookdale would receive a rent reduction upon the sale(s).
- Annual rent escalators (increases) will be the lesser of 2.25% per year or four times CPI.
Any news that improves Brookdale's financial position is good news, and this certainly does just that. While Brookdale still has a way to go before it will be on solid and sustainable financial footing, this is certainly a positive development for the company and its shareholders.