Misjudging the competition hurt Brookdale Senior Living financially in the third quarter, President and CEO Andy Smith said Tuesday during a third-quarter earnings call. Revenues of $1.25 billion for country’s largest senior living operator missed analysts’ projections by $10 million, and earnings per share, at 28 cents, missed analysts’ projections by 17 cents.

“We’re disappointed with our results for the quarter and with the fact that we have revised our guidance for the year,” Smith said. “While we made progress in occupancy rate, cash generation and on a number of fronts, we misjudged the effect of new competition in certain of our markets, and our results were lower than we expected.”

Specifically, the CEO said, the number of competing properties opening within 20 minutes of Brookdale communities was the highest it has been in many years. Additionally, Smith said, openings in midsized markets were at their highest level in more than a decade. And he said he expects the competitive environment to continue for the next two or three quarters.

The financial performance was detailed on the same day that the country’s largest senior living operator announced transactions affecting almost 200 communities, or more than 15% of its portfolio. Smith said the transactions fall into three “buckets.”

  1. Asset dispositions. Before the third quarter, Brookdale had sold or terminated leases on 30 communities, Smith said. “During the quarter, we completed the sale of 32 of the 60 assets we had held for sale at the end of last quarter,” he added. “We expect to complete the sale of the remaining 28 assets over the next few quarters, for an ultimate total of 90 communities.”
  2. Lease termination and purchase. HCP is reducing the number of Brookdale properties it owns. The leases on 64 underperforming communities that Brookdale currently leases from HCP now will be terminated, and they will be purchased for $1.125 billion in a joint venture between Brookdale and Blackstone Real Estate Partners VIII L.P. Brookdale will manage the properties. “At the closing of this transaction, we will invest approximately $170 million of cash to acquire a 15% equity interest in the Blackstone joint venture, to terminate the underwater leases and to fund our share of closing cost and working capital,” Smith said.
  3. Transition from triple net lease to RIDEA joint venture. In a separate agreement with HCP, four communities will transition from the triple net lease structure into RIDEA joint venture, 29 community leases will be terminated and nonrecourse mortgage debt will be added on Brookdale’s non-consolidated continuing care retirement community joint venture with HCP. “We anticipate these financings will provide us with an excess of $200 million of proceeds at an attractive rate,” Smith said. The 29 communities do not fit in with Brookdale’s long-term strategy, he added. Those leases will be terminated in stages, beginning in the fourth quarter of this year and continuing through the fourth quarter of next year.

“Taking all of these three transaction buckets together, these transactions represent an important milestone for us as we streamline our portfolio and improve our capital structure to improve the amount and quality of our cash flows,” Smith said.

Brookdale plans to seek additional opportunities to sell owned assets and restructure underperforming leases in 2017, he said.

In other news:

  • The company’s board of directors has approved a share repurchase program involving up to $100 million of common stock shares. Smith said the program is a means to return capital to shareholders.
  • Daniel Decker, who has served as non-executive chairman since 2015, has been appointed to serve as Brookdale’s executive chairman. In this role, he will be a member of the company’s executive team, with a special focus on capital allocation, portfolio rationalization, strategic growth and shareholder engagement. He will provide counsel and advice to the company’s management team.

Brookdale’s portfolio ownership profile, from the presentation prepared for its Nov. 1 call about third-quarter earnings: