NEWTON, Mass.--(BUSINESS WIRE)--Senior Housing Properties Trust (NYSE: SNH) today announced that it has entered a $112.4 million purchase and lease transaction for seven assisted living communities (545 living units) located in four states (North Carolina: 3; South Carolina: 2; Tennessee: 1; and Virginia: 1). The communities are leased under a combination lease that expires at year end 2028, plus renewal options thereafter. The initial annual rent payable to SNH under the lease will be $8.4 million/yr., or approximately 7.5% of the purchase price. Starting after 2017, the rent may increase based upon a percentage of gross revenue increases realized by operations at the leased communities.
The tenant under the lease will be a subsidiary of Five Star Quality Care, Inc. (NYSE: FVE) and the lease obligations will be guaranteed by Five Star.
SNH funded the purchase of the seven communities with cash on hand and drawings under its $1 billion unsecured revolving credit facility.
Simultaneously with the purchase and lease transaction, SNH and Five Star amended agreements pursuant to which Five Star acts as the manager of certain senior living communities which are operated for the account of SNH’s taxable subsidiaries, or TRSs. The principal effects of these amendments is to adjust, effective July 1, 2016, certain calculations of management fees payable by SNH to Five Star for the 63 communities which Five Star manages for SNH’s TRSs. The change in the formulas for calculating these management fees is not expected to have a material impact upon SNH’s earnings from the managed communities, but SNH believes that the revised fee formulas may create incentives for improved performance by Five Star in the future.
“SNH is pleased to add these quality assets that produce attractive returns with solid rent coverage to its triple net leased senior living portfolio,” said David Hegarty, President and Chief Operating Officer of SNH. “These assets fit within our investment strategy of owning high quality private pay senior living assets. Additionally, we believe the amendments to the TRS arrangements provide our operator with enhanced incentives to improve performance at our managed communities.”
Five Star was formerly SNH’s wholly owned subsidiary until Five Star’s shares were distributed to SNH shareholders. SNH is currently Five Star’s largest shareholder, owning 4,235,000 Five Star common shares (8.6% of the Five Star shares outstanding). One of the Trustees of SNH is also a Director of Five Star, and both SNH and Five Star have contracted for management services from The RMR Group LLC, the operating subsidiary of The RMR Group Inc. (NASDAQ: RMR). Because of these historical and continuing relationships, the terms of the purchase and lease transaction and the amendments to the management arrangements described in this press release were negotiated and approved by Special Committees of Independent Trustees of SNH and Independent Directors of Five Star who are not also Trustees or Directors of the other party and who are independent of RMR, and these Committees were represented by separate legal counsel.
Senior Housing Properties Trust is a real estate investment trust, or REIT, which owns senior living communities, medical office buildings and wellness centers located throughout the United States. SNH is managed by the operating subsidiary of The RMR Group Inc. (NASDAQ: RMR), an alternative asset management company, which is headquartered in Newton, MA.
