Advisory Firm Backs 2 Ortelius Nominees For Brookdale’s Board, Sparking New Debate

The back-and-forth proxy fight between Brookdale Senior Living (NYSE: BKD) and Ortelius Advisors reached a new pitch after an independent proxy advisory firm endorsed two of the activist investor’s nominees for the operator’s board.

On Monday, both companies again traded barbs after Institutional Shareholder Services (ISS) recommended voting for Steven Vick and Lori Wittman, two of the six nominees that Ortelius recommended to shareholders in March, ahead of Brookdale’s annual shareholder meeting on July 11.

The ISS report urged shareholders not to cast a vote for Brookdale nominees Lee Wielansky and Victoria Freed and instead vote for Wittman, who “has broad real estate experience” and is the lead independent director at GMRE; and Vick, who co-founded Pegasus Senior Living and previously turned around 37 Brookdale properties in partnership with Welltower (NYSE: WELL).

Specifically, ISS weighed concerns about Brookdale’s performance compared to fellow publicly traded operator Sonida Senior Living (NYSE: SNDA) and real estate investment trusts (REITs) Ventas (NYSE: VTR) and Welltower.

The firm also believes that Brookdale’s current board members have moved too slowly and committed “unforced errors” in their search to replace former CEO Cindy Baier.

“Beyond questions about the pace of refreshment, there is a pattern of directors and insiders referring new candidates, which raises more serious concerns about independence,” the firm wrote in its report.

But ISS stopped short of fully endorsing Ortelius’ plan, which calls for monetizing on assets below 75% occupancy, presumably through selling them, and eliminating its 266 leased communities portfolio.

“It is unclear what the expected timing of a sale process would be, what the expected proceeds of a sale would amount to, who the potential buyers are, whether higher occupancy assets need to be included in any portfolios that would be sold, and how the dissident would negotiate with the company’s lenders to sell assets that may be part of larger loan collateral pools,” the ISS report reads. “Further, it is unclear whether the company’s lessors would be willing to terminate the leases at a reasonable price, and the dissident has not provided sufficient evidence that the company would be able to execute on the planned terminations.”

Ortelius, which owns 1.3% of Brookdale’s common stock, touted the recommendation from ISS as indication that the firm “agrees with our view that there is a need for urgent change at Brookdale.”

“As ISS observed, the board only appears to act when pushed by stockholders, which underscores Ortelius’ campaign to put more qualified and independent voices in the boardroom,” Peter DeSorcy, managing member of Ortelius, said in a press release.

Brookdale management said in a statement the company agreed with ISS’ assessment that Ortelius should not fully control the company’s board, but that it “reached the wrong conclusion” by urging shareholders to vote for Vick and Wittman.

“Replacing Lee Wielansky or Victoria Freed with dissident nominees Lori Wittman or Steven Vick would deprive the board of key skillsets, expertise, and institutional knowledge at a critical time, could impair the board’s ability to recruit and oversee a new CEO with the requisite background to move the company forward and could jeopardize shareholder value creation,” Brookdale management wrote in the company’s statement.

The company also said that replacing Wielansky and Freed with Wittman and Vick would mean that six of the company’s board members will have served on the body for about one or fewer years.

“Not having experienced directors on the board to provide effective support and oversight of the management team could present a significant challenge to the board’s ability to recruit a first-class CEO,” Brookdale management wrote. “With the addition of Ortelius’ nominees, Brookdale would effectively have a new board and CEO, both lacking sufficient and essential historical knowledge of the company, which would significantly disrupt the execution of our strategy at this pivotal inflection point.”

The ISS report and response from both companies is only the latest development in their months-long proxy fight. On May 15, Brookdale touted the recent successes the company has seen, including raising guidance for adjusted EBITDA and RevPAR, same community weighted occupancy reaching 80% and planning $10 million in portfolio improvements.

Earlier this month, both companies traded barbs, with Brookdale noting replacing board members would derail the progress the company is making while Ortelius cited free cash flow had “imploded” to negative $660 million and 65% of the company’s debt is set to mature by 2029.

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