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Brookdale Senior Living (NYSE: BKD) announced third-quarter 2016 earnings before the opening bell today that missed analyst expectations. Worse than that, the company also lowered full-year 2016 financial guidance and provided an update to its portfolio optimization strategy -- the single largest driving force for the stock. Investors reacted by hammering the stock, which was down 19.2% by 1 p.m. EDT today.
The company's revenue growth was essentially flat. Revenue for the first nine months of 2016 is up 1.2% compared to the year-ago period. But total quarterly revenue rose less than 1% year over year, to $1.25 billion. Stagnant revenue growth did little to cushion the blow of cost-heavy operations, which were once again bogged down by restructuring activities.
To be fair, there were signs of improvement, but there's still a lot of ground to cover before investors see the return of profits. Consider that operating income for the first nine months of 2016 is over $300 million higher than the year-ago period, with considerable gains in the most recent quarterly period. However, third quarter earnings per share settled in at negative $0.28. That's up from EPS of negative $0.37 in the third quarter of 2015, but the company has still managed a net loss of $135.9 million for the first nine months of this year.
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In an attempt to respond to more competitive markets for its 1,077 senior living communities in 47 states and execute its portfolio-optimization strategy, the company announced a partnership with Blackstone Real Estate Partners. The latter will purchase 64 communities from Brookdale Senior Living for $1.125 billion, roll them into a new joint venture, and then sell a 15% equity stake in the venture to Brookdale Senior Living for $170 million. Other assets could be sold into the JV in the future.
There was a lot to unpack in this morning's quarterly update, and it seems investors went with their initial reaction -- yuck! -- to take time to sort through the details later.
The partnership with Blackstone is beneficial in the near term. The asset sale will give Brookdale Senior Living more breathing room on its balance sheet, allow it to pay down its immense debt load, and reduce operating costs over time. While investors don't seem happy about only owning 15% of the new JV or about the selling price of the 64 communities, the company simply doesn't have much bargaining power at the moment.
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