NASHVILLE, TENN–Ventas and Brookdale Senior Living have entered into definitive agreements to restructure the leases of Brookdale's portfolio of 128 communities with Ventas. The agreements combine all of the Ventas leased communities into a single master lease and security agreement.
The new master lease provides for $175 million in rent for 2018, and $177 million in 2019. The agreement also gives Brookdale more flexibility as it now can terminate its leasehold interests for certain assets if they are sold by Ventas.
Some 8% of the portfolio has been at or near underwater condition up until this point, Mizuho REIT analyst Richard Anderson noted in a research alert — a situation made worse because all of the leases were due to expire in 2019. This reset is a trade-off for Ventas as it effectively takes the near-term risk of this situation off the table, Anderson wrote. “While unfortunate that it had to happen and we aren't jumping for joy, the company addressed it with a sense of urgency as we expected it would, and that is a good thing in our opinion.”
Activist shareholder Land & Buildings was less circumspect in its description of the situation, announcing it was “thrilled” that the two companies agreed to restructure their lease agreements. The move, it said, will pave the way for Brookdale to monetize its valuable real estate portfolio.
In particular Land & Buildings likes the new lease because it has removes a key provision which, in its view, has prevented Brookdale from pursuing strategic alternatives for years. “Specifically, Ventas has pre-agreed to what is likely a de minimis 'objective change of control standard'”, it said.
Land & Buildings is also pleased that the new lease reduces Brookdale's rent to be paid to Ventas, likely allowing these leases to return to profitability for Brookdale.
“With approximately $450 million in owned real estate net operating income as of the fourth quarter, we believe the value of the owned real estate is likely in the mid-teens per share,” it said.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
