After Brookdale Ceo Departure, Ortelius Calls For Sweeping Changes To ‘unlock Real Estate Value’

After launching a proxy fight with the Brookdale (NYSE: BKD) board of directors last month, activist investor Oretelius Advisors has published a letter outlining how the nation’s largest operator can unlock the “intrinsic value” of its real estate.

The company issued a letter Thursday to its fellow Brookdale stockholders urging a number of sweeping changes to the company’s ownership and operations. They include monetizing underperforming properties, reducing mortgage debt, eliminating the company’s leased portfolio, installing a new management team and refreshing its board of directors.

Oretelius Advisors currently owns 1.3% of Brookdale’s common stock.

The letter follows the departure of former Brookdale CEO Cindy Baier earlier this month, actions that were “too little too late,” according to Ortelius.

“Brookdale stockholders deserve more and better, and Ortelius remains committed to holding each of the company’s directors responsible, providing viable paths to reversing Brookdale’s decline and maximizing long-term stockholder value,” reads the Ortelius letter from Managing Member Peter DeSorcy.

Ortelius split the company’s 619 communities into two categories: “GoodCo” communities with occupancy above 75%, and “BadCo” communities with occupancy less than 75%. Brookdale owns 353 properties and leases 266.

The company advocated for a new board that would evaluate how to monetize the operator’s owned “BadCo” communities, presumably by selling at least some of them.

“The remaining GoodCo owned properties would yield higher occupancy rates, rents, NOI, NOI margins, adjusted funds from operations, free cash flow, and valuations; and lower capitalization rates and loan-to-value ratios,” the letter from DeSorcy reads. “Additionally, Brookdale would gain pricing power, enjoy operating leverage, eliminate BadCo PropCo capital expenditures, and rationalize costs for the smaller footprint, further improving financial performance.”

Ortelius also called for eliminating Brookdale’s “poorly performing” 266 leased communities portfolio.

“The leased portfolio average annual adjusted EBITDA margin was a meager 1% in 2018 through 2024, and highly dilutive, and pro-forma free cash flow generation is questionable,” DeSorcy wrote.

Ortelius noted that landlords such as Ventas (NYSE: VTR) are increasingly converting triple-net leases into REIT Investment Diversification and Empowerment Act (RIDEA) structures.

By eliminating its leased portfolio, Brookdale would have only properties “valued on NOI and capitalization rates” versus communities “valued on lower EBITDA and EBITDA multiples.” Ortelius noted it believes the GoodCo owned properties are worth billions of dollars, “multiples of Brookdale’s current market capitalization.”

“While the Company’s weighted average occupancy rate (owned portfolio) was a dismal 78.6% in 4Q 2024, the historic high occupancy rate (owned and leased portfolios) was 89.0% in 4Q 2013, and the GoodCo occupancy rate (owned and leased communities greater than 75%) was in the high-80’s in 4Q 2024,” the letter reads. “And while NOI margins (owned portfolio) were a substandard 24.7% in 2024, NOI margins (owned and leased portfolios) were 36.5% in 2013.”

In early March, Ortelius entered a proxy fight with Brookdale after it nominated six new board members. Each nominated member has between 25 and 35 years of experience in a variety of relevant sectors and industries, according to the release.

“After years of missteps and shortcomings, stockholders have lost confidence in the incumbent board’s decision-making abilities, and the board cannot be trusted to take decisive action, necessary after the vast destruction of stockholder value, and put stockholders first,” the release states. “In the coming weeks, Ortelius looks forward to providing additional details and earning your support.”

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