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REIT relationships complicated a potential Brookdale sale, execs say

Brookdale Senior Living Inc. had in-depth takeover talks with multiple foreign and domestic parties as part of its review of strategic alternatives, but did not reach a deal in part because doing so would have required the consent of major landlords, which include Ventas Inc. and Welltower Inc., company leaders said.

At the end of the process, the seniors housing operator rejected an indication of interest from a potential acquirer offering $9 per share in cash. The price in the proposed deal could have risen to $11 per share, but that escalation was subject to conditions that Brookdale's board did not believe would likely be satisfied, Lee Wielansky, the board's new nonexecutive chairman, said on an earnings conference call.

Wielansky added that the board believed the $9-per-share offer was well below Brookdale's net asset value and intrinsic value. In early Feb. 22 trading, after the company announced that it had not reached a deal, its share price fell more than 20% to roughly $7 per share.

The review process was "complicated" by the need for Brookdale to receive consent from certain third parties — the company's real estate investment trust landlords — for any change of control, Wielansky said. Brookdale received indications of interest at higher prices than the overture it rejected and pursued them "vigorously," but did not secure firm offers, in part because of the necessary landlord consents, he added.

One of the REIT landlords, HCP Inc., agreed in November 2017 to give up its right to unilaterally deny a change in control at Brookdale, in a development that Wielansky said gives the operator more transactional flexibility.

Asked in the conference call whether Brookdale is continuing negotiations with the other REITs toward similar agreements, Brookdale's new President and CEO Cindy Baier said: "We are looking for a win-win relationship with our REIT partners. We value those relationships."

In a separate conference call held immediately after Brookdale's, a Welltower executive addressed the operator's process.

"We hope that their decision to end their strategic review process, which has been the focus of much of management's attention for a protracted period, will now allow them to get back to the basics," Welltower Executive Vice President Mercedes Kerr said. "Like we have said before, we're satisfied with our portfolio holdings with Brookdale, and we will continue to collaborate with them going forward, just as we have before."