Today Land and Buildings Investment Management LLC (“Land & Buildings”) issued the following open letter to shareholders of Brookdale Senior Living Inc. (NYSE:BKD) (“Brookdale” or “BKD”):

Dear Fellow Brookdale Shareholders:

On Wednesday November 28th, at the invitation of Brookdale's Chairman of the Board, Lee Wielansky, Land & Buildings – together with a leading real estate investment banking team and a highly regarded REIT-practice at a top law firm – engaged in a discussion with members of the Brookdale Board of Directors (the “Board”) and management regarding strategies to unlock trapped real estate value at Brookdale.

Our dialogue focused on a potential REIT election for BKD’s high-quality properties and the creation of a separate public company for the management business. This structure would be similar to numerous REIT conversions that have occurred through the years, including Marriott's (NYSE:MAR) split from Host Hotels (NYSE:HST) and, more recently, Vici Properties’ (NYSE:VICI) separation from Caesars Entertainment (NASDAQ:CZR) in late 2017.

The discussion was productive, and several interesting perspectives surfaced. We left the conversation with a strong conviction that structural and tax issues involved in such a path can be overcome.

This leaves one final and important question: Would a Brookdale REIT create significant shareholder value? We believe the answer is a resounding “yes.”

A Brookdale REIT would own the highest quality, most ideally-located senior housing properties in the company and could maintain a deleveraged balance sheet. The REIT would most likely operate under a REIT Investment Diversification and Empowerment Act (RIDEA) structure to preserve the net operating income (NOI) upside for Brookdale shareholders. It could seek to employ other industry-leading operators, in addition to Brookdale, and would likely do so at the time of the separation.

We believe a Brookdale REIT could generate approximately $1 per share of recurring cash flow (i.e., adjusted funds from operations, or AFFO) with an attractive growth trajectory as we look to 2020 and beyond.

The average health care REIT trades in the mid- to high teen AFFO multiples, suggesting a Brookdale REIT could potentially trade at double where the share price is today, and at a level similar to the potential upside large BKD shareholder Macquarie Investment Management outlined in an open letter to shareholders on November 9th.

The Brookdale operator, which would consist of the manager and the ancillary services, would be well-positioned over time to establish itself as the brand of choice for owners of senior living properties, and could be positioned to enjoy solid unit growth in the future as it increases its management footprint along the lines of a Hilton or Marriott in the lodging business.

The operator’s balance sheet would be supported by opportunistic real estate currently owned by Brookdale, with a goal of improving those assets and monetizing upon stabilization. A substantial portion of the leases expire by 2025 and the operator’s balance sheet would improve further as these leases are further re-structured or become profitable.

Improving the operations at Brookdale remains key to enhancing value, and we are highly encouraged that Brookdale reached out to us and leading real estate advisors to explore ways to maximize value for all shareholders.

While there is no guarantee about what path the Brookdale Board will choose, we believe a REIT election would provide immediate and sustainable value creation while preserving the long-term upside that CEO Cindy Baier, the rest of the BKD management team, and the entire Brookdale organization is working hard every day to realize, while also continuing Brookdale’s meaningful presence in Nashville.

Fellow shareholders, we urge you to reach out to management and the Board to voice your opinions about the potential strategic options Brookdale may pursue with respect to its real estate.

Sincerely,

Jonathan Litt
Founder & Chief Investment Officer
Land & Buildings

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