Senior Housing Properties Trust Enters Purchase & Lease Transaction for $112.4 Million & Amends Certain Management Arrangements
June 29 2016 - 5:08PM
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.
WARNING REGARDING FORWARD LOOKING
STATEMENTS
THIS PRESS RELEASE INCLUDES STATEMENTS AND HAS IMPLICATIONS
WHICH CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER
SECURITIES LAWS. ALSO, WHENEVER SNH USES WORDS SUCH AS BELIEVES,
EXPECTS, INTENDS, ANTICIPATES, ESTIMATES, WILL, MAY OR SIMILAR
EXPRESSIONS, SNH IS MAKING FORWARD LOOKING STATEMENTS. THESE
FORWARD LOOKING STATEMENTS ARE BASED UPON SNH’S CURRENT INTENT,
BELIEFS, OR EXPECTATIONS, BUT THEY ARE NOT GUARANTEED TO OCCUR AND
MAY NOT OCCUR FOR VARIOUS REASONS. ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE STATED OR IMPLIED BY FORWARD LOOKING
STATEMENTS. FOR EXAMPLE:
- THIS PRESS RELEASE STATES THAT THE RENT
PAYABLE BY FIVE STAR FOR THE SEVEN COMMUNITIES THAT SNH HAS
ACQUIRED MAY INCREASE STARTING AFTER 2017. SUCH RENT INCREASES
UNDER THE LEASE ARE DETERMINED BASED UPON A PERCENTAGE OF REVENUE
INCREASES AT THE LEASED COMMUNITIES. IT IS IMPOSSIBLE TO KNOW
WHETHER FUTURE REVENUES AT THE LEASED COMMUNITIES WILL INCREASE
AND, IN FACT, FUTURE RENTS MAY NOT INCREASE.
- THIS PRESS RELEASE STATES THAT THE
CHANGES MADE IN THE CONTRACTS PURSUANT TO WHICH FIVE STAR MANAGES
SENIOR LIVING COMMUNITIES FOR SNH ARE NOT EXPECTED TO HAVE A
MATERIAL IMPACT UPON SNH’S EARNINGS FROM THE MANAGED COMMUNITIES
AND THAT THE REVISED FORMULAS FOR CALCULATING FIVE STAR’S
MANAGEMENT FEES MAY CREATE INCENTIVES FOR IMPROVED PERFORMANCE BY
FIVE STAR IN THE FUTURE. AN IMPLICATION OF THESE STATEMENTS MAY BE
THAT SNH WILL BENEFIT FROM THESE CHANGES. IN FACT, FIVE STAR WILL
REALIZE SOME IMMEDIATE BENEFITS FROM CHANGES TO THE MANAGEMENT
ARRANGEMENTS FOR CERTAIN COMMUNITIES AND THE BENEFITS WHICH SNH MAY
REALIZE FROM THE IMPROVED INCENTIVES DEPEND UPON FIVE STAR’S OWN
FUTURE PERFORMANCE. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT SNH
WILL BENEFIT FROM THE CHANGES MADE TO THE CONTRACTS UNDER WHICH
FIVE STAR MANAGES COMMUNITIES.
- THIS PRESS RELEASE STATES THAT THE
TERMS OF THE TRANSACTIONS ANNOUNCED TODAY WERE NEGOTIATED AND
APPROVED BY SPECIAL COMMITTEES OF SNH’S INDEPENDENT TRUSTEES AND
FIVE STAR’S INDEPENDENT DIRECTORS WHO ARE NOT ALSO TRUSTEES OR
DIRECTORS OF THE OTHER PARTY AND WHO ARE INDEPENDENT OF RMR, AND
THAT THESE COMMITTEES WERE REPRESENTED BY SEPARATE LEGAL COUNSEL.
AN IMPLICATION OF THESE STATEMENTS IS THAT THE TERMS OF THESE
TRANSACTIONS WERE SIMILAR TO THE TERMS THAT WOULD HAVE BEEN
ACHIEVED BY NEGOTIATIONS BETWEEN UNRELATED PARTIES. SNH CAN PROVIDE
NO ASSURANCE THAT THE TERMS OF THESE TRANSACTIONS ARE THE SAME AS
WOULD HAVE BEEN ACHIEVED BY NEGOTIATIONS BETWEEN UNRELATED PARTIES.
ALSO, THE FACT THAT THESE TERMS WERE NEGOTIATED AND APPROVED
BETWEEN RELATED PARTIES MAY CAUSE SOMEONE TO CHALLENGE THESE
AGREEMENTS AND SUCH CHALLENGES MAY BE EXPENSIVE TO DEFEND EVEN IF
THE CHALLENGES ARE WITHOUT MERIT.
THE INFORMATION CONTAINED IN SNH’S FILINGS WITH THE SECURITIES
AND EXCHANGE COMMISSION, OR THE SEC, INCLUDING UNDER THE CAPTION
“RISK FACTORS” IN SNH’S PERIODIC REPORTS OR INCORPORATED THEREIN,
COULD CAUSE SNH’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
STATED OR IMPLIED IN THIS PRESS RELEASE. SNH’S FILINGS WITH THE SEC
ARE AVAILABLE AT THE SEC’S WEBSITE AT WWW.SEC.GOV.
FOR THESE AND OTHER REASONS, INVESTORS SHOULD NOT PLACE UNDUE
RELIANCE UPON FORWARD LOOKING STATEMENTS OR THEIR IMPLICATIONS.
EXCEPT AS REQUIRED BY LAW, SNH DOES NOT INTEND TO UPDATE OR
CHANGE ANY FORWARD LOOKING STATEMENTS AS A RESULT OF NEW
INFORMATION, FUTURE EVENTS OR OTHERWISE.
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version on businesswire.com: http://www.businesswire.com/news/home/20160629006458/en/
Senior Housing Properties TrustBrad Shepherd,
617-796-8234Director, Investor Relations
Senior Housing Properties (NASDAQ:SNH)
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