Two advisory firms, Glass Lewis & Co. and Egan-Jones Ratings Co., have joined the discussion surrounding the proxy fight between Brookdale Senior Living (NYSE: BKD) and Ortelius Advisors.
On Tuesday, both Brookdale and Ortelius touted two reports from the independent advisory firms, with both declaring the dueling reports supported their bid in the proxy fight.
Glass Lewis this week cited concerns with Ortelius’ plans to remake the company to unlock value, but urged shareholders to “withhold” votes on Brookdale directors Lee Wielansky and Victoria Freed. Meanwhile, Egan-Jones recommended that shareholders vote for all six of Ortelius’ nominees for the operator’s board of directors “to effectively execute a meaningful turnaround and unlock long-term value for shareholders.”
Ortelius, which owns 1.3% of Brookdale’s stock, is pushing for “meaningful change” at Brookdale that would overhaul the company’s board of directors and unlock real estate value by selling underperforming senior living communities. The activist investor has called for eliminating Brookdale’s “poorly performing” 266-community leased portfolio, among other changes.
Brookdale has repeatedly pushed back on Ortelius’ concerns, and company management noted last month that picking the activist investor’s board of director nominees “would significantly disrupt the execution of our strategy” and effectively mean the company has a new board and CEO during a “pivotal inflection point.”
Brookdale is navigating in a period of change in 2025. Former Brookdale CEO Cindy Baier stepped down from her role in April, and the company is currently searching for a new top leader with Denise Warren currently working as interim CEO.
Brookdale stock fell almost 1.7% Tuesday, ending the trading day at $6.85 per share.
Concerns over activist investor’s lack of ‘framework for execution’
Advisory firm Glass Lewis was mixed on Ortelius and criticized a lack of infromation surrounding the acivist investor’s plans. Ortelius has not given investors necessary details, nor has it outlined a sufficient framework for enacting its plans, the advisory firm wrote.
“We are concerned that the foregoing framework discards the observed near-term yield on Brookdale’s existing efforts while offering investors comparatively poor visibility and functionally vacant benchmarking. We believe this contrasts poorly with an effort to secure six of eight seats on a board,” reads the Glass Lewis report that Brookdale cited Tuesday.
The activist investor has not offered “a clear, persuasive and measurable framework for execution,” such as procedural architecture, anticipated timeframes or a valuation breakdown, Glass Lewis wrote.
The advisory firm also weighed concern over the fact that Ortelius has not visited any of Brookdale’s communities.
“We are concerned these factors suggests there is substantially no codified standard by which investors would be positioned to hold Ortelius’ nominees accountable, nor is there any indication the dissident is substantively familiar with Brookdale’s owned properties (and thus the values which might be attributable to such properties in a sale process),” the report reads.
Glass Lewis’ concerns follow that of independent advisory firm Institutional Shareholder Services (ISS), which wrote in its own report in June that Ortelius has not outlined “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.”
But the advisory firm also urged shareholders to withhold votes from Wielansky and Freed, and noted that Ortelius board picks Steven Insoft and Steven Vick “offer valuable senior housing and real estate expertise at a critical juncture, with particular attention to Brookdale’s ongoing portfolio optimization efforts.”
“Their elections in place of Ms. Freed and Mr. Wielansky would further demonstrate board refreshment directly predicated on exercise of the shareholder franchise, rather than on deference to members of management,” the advisory firm wrote.
While ISS recommended against giving the activist investor control of the Brookdale board of directors, it also recommend voting for two Ortelius board nominees, Vick and Lori Wittman, over current Brookdale board members Wielansky and Freed.
In a press release Tuesday, a representative for Brookdale wrote that “while we agree with Glass Lewis and ISS that Ortelius should not have control of the Brookdale Board, we strongly disagree with the proxy advisory firms’ suggestion that the Ortelius campaign for board representation warrants a vote for any one of the Ortelius nominees.
“The skills offered by Ortelius’ candidates are not additive or relevant to our business,” reas the company’s press release. “If shareholders follow the proxy advisory firms’ recommendation, and Mr. Wielansky and Ms. Freed are removed from the Brookdale board and any two of Ortelius’ nominees are added, six of Brookdale’s eight directors would have served on the board for approximately one year or less – putting the company at risk with minimal institutional experience at the board level.”
Egan-Jones endorses full slate of Ortelius nominees
While ISS and Glass Lewis advocated against giving control of the Brookdale board of directors to Ortelius, Egan-Jones recommended shareholders vote for all six of the company’s nominees to Brookdale’s board of directors.
In its reasoning, the advisory firm wrote that it believes “the current management and the Ortelius nominees propose strategies that are diametrically opposed to each other.”
Specifically, Egan-Jones wrote that “management is determined that they will be able to grow out of their debt – something that seems unlikely given multiple years in a row of extremely low operating margins.”
The advisory firm added that, “on the other hand, Ortelius believes underperforming assets must be sold off to pay down debt and improve operating margins.”
Egan-Jones’ argument also hinged on the fact that Brookdale’s total shareholder returns are “stagnant” despite “strong industry tailwinds, such as rising occupancy in senior housing and increasing demand due to changing demographics.”
“The company’s financial performance presents significant concerns, primarily due to high leverage and poor operational efficiency,” Egan-Jones wrote in its report. “With debt-to-enterprise value ratios consistently average over 90% over the past five years, BKD is heavily reliant on debt. Revenue growth is being offset by the company’s persistently low operating margin. In our view, the company’s weak balance sheet limits its financial flexibility and means to restore profitability.”
Conversely, Egan-Jones believes that Ortelius’ nominees “bring the right mix of skills and expertise across senior housing, REITs, finance, capital markets and operational turnarounds” to enact meaningful changes across the company’s portfolio.
“We believe the Ortelius nominees are correct that assets will need to be sold off to generate cash, to pay off debt, invest in improved facilities, and re-align its strategy as a pure play company,” reads the Egan-Jones report shared by Ortelius Tuesday.
Brookdale said in response that Egan-Jones “reached the wrong conclusion in failing to recommend that Brookdale shareholders elect all of the board’s highly qualified director nominees.”
Brookdale management said the company’s “strategy to de-lever and create shareholder value is working, whereas Ortelius’ strategy appears to be vague and untested.”
“Brookdale has in fact already met a key hurdle cited by Egan-Jones, reporting 80% same community weighted average occupancy, (a key turning point towards positive cash flow generation) in Q1 2025,” the operator wrote in response.
