What happened
Brookdale Senior Living (BKD 2.54%) saw its shares drop 33.23% on Wednesday. The stock closed on Tuesday at $4.92, then opened on Wednesday $4.25. It fell to a 52-week low of $3.27 late in the afternoon before closing the day at $3.29. The company, which operates 672 senior living facilities in 41 states, has seen its shares fall 36% so far this year.
So what
The reason for the big drop was the company announcing it was holding a public offering of 2.5 million tangible equity units to raise $125 million for operations. The stock sale is dilutive to current investors.
This may also signal deeper financial difficulties for the company, which already has a relatively high (7.76) debt-to-equity ratio. In the third quarter, Brookdale reported revenue of $775.5 million, up 18% year over year, but with a net income loss of $28.4 million, or an earnings per share (EPS) loss of $0.15, compared to net income of $174.3 million in the same period a year ago, or $0.89 in EPS.
Now what
The entire senior housing industry has been hit hard by lowered occupancy numbers, added expenses, and increased labor costs and labor shortages during the COVID-19 pandemic. Brookdale's EPS loss was hardly unexpected. With its latest move, the healthcare company is looking to be one of the survivors in the industry, which thanks to our aging population, has plenty of long-term tailwinds.
Brookdale also figures to see less competition in the coming years because of reduced inventory as construction costs and higher interest rates create a barrier to newer facilities being built. The company is still in a solid position as a long-term investment, but the stock sale will definitely put a damper on its shares in the short term.
There's also the chance that Brookdale could be bought by another company. In October, Bloomberg reported that the company was consulting with advisors about potentially selling.
