Beverly to Sell Units in Face of Profit Slump

Facing its first decline in annual net income since 1977, Beverly Enterprises has announced a restructuring plan to sell a major portion of its retirement living facilities as well as one-sixth of its durable medical equipment operation, which has $100 million in sales per year.

Despite the move, Beverly will only break even for the fourth quarter ended Dec. 31, officials said.

Beverly said the restructuring plan includes the sale of long-term health care facilities during the next 18 months, the sale of about 15 of the company’s 89 durable medical equipment outlets and a reduction in Beverly’s annual acquisition program from 13,500 nursing home beds to between 3,000 and 5,000.

The plan also includes the repurchase of up to 10 million Beverly common shares during the next year and efforts to seek an increase in Beverly’s line of credit to about $400 million.

Beverly said it expects to realize a gain as a result of the dispositions. But officials on Wednesday could not estimate the amount of the gain.

The announcement comes about one month after Beverly Enterprises terminated discussions with a management group trying to engineer a leveraged buyout of the company. Beverly never disclosed why those talks failed.

But Beverly Chairman Robert Van Tuyle blamed the fourth quarter’s poor financial performance, in part, on “expenses associated with the terminated discussions of a leveraged buyout.” He also blamed “cancellation of a major limited partnership transaction (as well as) unbudgeted increases in liability and health insurance.”

Decreased tax benefits also contributed to lower fourth-quarter earnings, Van Tuyle said.

Aided by income from its expanding list of nursing home facilities, analysts had expected Beverly’s revenues to show strong growth in 1987. They were also optimistic about profits because of the demand for retirement and nursing home facilities created by the nation’s growing elderly population and Beverly’s dominance of the industry.

But Beverly, the nation’s largest profit-seeking nursing home chain with about 1,000 homes and 120,000 beds, has been thwarted in its growth efforts this year.

Profit margins in the nursing home industry traditionally have been razor thin, and Beverly’s efforts to boost revenue through new acquisitions stalled as the price of nursing homes rose and Beverly was unable to buy as many new facilities.

“It’s hard to justify paying the prices for homes people are asking (for) these days,” Van Tuyle said.