About One-Third of Nursing Homes on Block : Beverly Enterprises Announces Plans to Sell 370 of Its Facilities

Beverly Enterprises said Wednesday that it intends to sell a third of its nursing homes, dramatically expanding the scope of a financial overhaul that was first announced early last year.

The planned sale of 370 facilities with more than 38,000 beds is intended to whittle down the Pasadena firm’s heavy debt and rid it of unprofitable operations. In the short run, however, the company will pay a price for the sale--a reduction in pretax earnings of $120 million, contributing to a second-quarter net loss of $98 million.

Beverly revealed plans in early 1988 to sell 200 nursing homes, but so far it has sold only 49. The firm now plans to sell an additional 170 facilities in seven states. None of the company’s 83 California facilities are included.

If the sales are completed, Beverly will be left with 680 homes and still rank as the nation’s largest nursing home operator.

In a related development Wednesday, California investor David H. Murdock sold his entire 3.5-million-share stake in Beverly. Goldman, Sachs & Co., an investment banking firm, said it handled the block trade at a price of $8.625 a share but declined further comment. Murdock was the second-largest shareholder in the company with 6.5%.

The Murdock sale helped make Beverly the second most active issue on the New York Stock Exchange with a total of 5.25 million shares changing hands. The stock closed at $8.25 a share, down 87.5 cents. Before the restructuring announcement, Beverly had been rumored to be a takeover target.

Executives at Beverly said they expect to get $235 million for all 370 facilities that were put up for sale. As a group, however, the nursing homes to be sold have lost money, according to the company, and some industry analysts said Beverly will have difficulty selling all of the units for the price it wants.

“I really doubt that they’ll be able to sell some of these facilities,” said Seth Shaw, an analyst at Prudential-Bache Securities. “This move helps the company, but happy days are far from being here again for Beverly.”

However, Beverly Chairman Robert Van Tuyle, citing changes in the Medicare program that will boost revenues of nursing homes, said the facilities up for sale will attract bids. Under provisions enacted last year, Medicare now pays for longer stays in nursing homes and eligibility requirements have been liberalized, Van Tuyle noted.

“The (nation’s) demographics and the needs of the elderly bode well for the industry,” he said. “There’s been an increase in (public) support for taking care of the elderly, and government is responding.”

Analysts also said there have been improvements in the climate for the industry. Beverly and other nursing home operators have been squeezed recently by rising labor costs and lagging government reimbursement rates. However, a number of states have recently raised reimbursement rates for Medicaid.

“The ground is a little bit firmer,” said Joyce Albers-Schonberg, an analyst at the investment firm of First Boston. “The industry is beginning to stabilize.”

‘Very Positive Move’

By entering this changing market environment as a smaller firm, Beverly should be more competitive, some analysts said.

“Beverly is a very large company, and it’s too difficult to manage a company of that size efficiently,” said Rae Alperstein, an analyst at Bateman Eichler, Hill Richards. The plan to sell additional nursing homes, she said, “was a very positive move.”

Analyst David Lothson of Paine Webber also praised the plan. “They had to do something to get back on the earnings path,” he said. “If this doesn’t make them profitable over the next 18 months, nothing will.”

Beverly lost $107 million during the first six months of 1989, compared to a loss of $841,000 during the same period in 1988. The company lost a total of $24 million in 1988.

The restructuring at Beverly is designed to reduce total beds to 68,445 from about 115,000. The company said its nursing homes average an 87% occupancy rate and are located in 34 states.

The company recently completed probation from the state Health Department for allegedly providing substandard patient care in some of its California homes.

Meanwhile, Standard & Poor’s Corp. said it affirmed its rating of CCC+, which denotes a highly speculative issue, on $68 million of Beverly’s subordinated debt.

“Divestiture of unprofitable facilities could contribute to better than break-even operation in the future,” the rating service said. “Still, uncertainties relating to census levels, reimbursement rates and ongoing ability to obtain outside financing remain.”

DOWNSIZING BEVERLY ENTERPRISES

Changes in the size of nursing home chain

PEAK (As of December, 1986): 1,110 FACILITIES

CURRENT (After sales in 1987 and 1988): 950 FACILITIES

PROJECTED (After proposed sales): 680 FACILITIES

Los Angeles Times