Senior Housing Properties Trust Announces Early Termination of 10 Sunrise Leases & Continued Operations in its Taxable REIT S...
May 30 2012 - 7:00AM
Business Wire
Senior Housing Properties Trust (NYSE: SNH) today announced that
it has entered agreements for early terminations of leases for 10
senior living communities (2,472 living units) currently operated
by Sunrise Senior Living, Inc. (NYSE: SRZ). As and after
appropriate regulatory approvals are obtained, SNH expects to lease
these communities to its wholly owned taxable REIT subsidiaries
(“TRSs”) and the communities will be managed by Five Star Quality
Care, Inc. (NYSE: FVE).
On December 30, 2011, SNH announced that Sunrise notified SNH
that it would not renew these 10 leases when the current terms end
on December 31, 2013. Sunrise’s obligations under these leases are
guaranteed by Marriott International, Inc. (NYSE: MAR), the former
tenant of the 10 communities, and the renewal of these leases
required MAR’s approval. The agreement announced today will
accelerate the terminations of these leases and the transfers of
these operations from Sunrise to SNH’s TRSs. Also, SNH will
purchase the inventory and certain improvements owned by Sunrise at
these communities for a total of $1 million.
The 10 communities had combined average occupancy in 2011 of
approximately 87% and combined gross revenues of approximately
$115.6 million. A large majority of these revenues were paid by
residents from their private resources, not from Medicare or
Medicaid government funded programs. The minimum rents historically
paid by Sunrise to SNH for these communities were approximately
$13.5 million per year (plus percentage rents of approximately $2.8
million based upon revenue increases at these communities) and the
net cash flow historically realized from operations of these
communities in 2011 was approximately 1.5x the minimum rents due to
SNH. The ten communities are located in six states: Arizona, 2
communities (293 living units); California, 1 community (393 living
units); Florida, 4 communities (1,163 living units); Illinois, 1
community (364 living units); Texas, 1 community (145 living
units); and Virginia, 1 community (114 living units).
The management contract terms between SNH and Five Star will be
substantially similar to the management contracts previously
entered between SNH and Five Star for other communities owned by
SNH and managed by Five Star; and these management contracts will
be combined, or pooled, with other management contracts between SNH
and Five Star, including the contracts for the Vi®Classic
Residences (f/k/a Classic Residences by Hyatt), for purposes of
determining incentive fees due to Five Star and otherwise. Sunrise
will continue to lease four communities with 1,619 living units
owned by SNH under leases which currently run through December 31,
2018, and Sunrise’s obligations to SNH under those four leases will
continue to be guaranteed by Marriott.
Commenting upon today’s announcement, David J. Hegarty,
President of SNH made the following statement:
“Because of the expected termination of
Sunrise’s leases at year end 2013, SNH believes it is important for
the community residents and for SNH that these operations be
transferred to a manager with a longer term outlook as soon as
possible.
“Five Star operates some of the highest
quality retirement communities in the country, including several
that have achieved national recognition for superior services to
residents. SNH will be working with Five Star to conduct a thorough
investigation of the staffing and capital needs at these
communities; and SNH expects they will become among the best run
communities in the country.
“It appears to SNH that Sunrise has made some
progress toward improving its financial condition since accounting
irregularities were disclosed a few years ago. However, according
to information published by Sunrise, Sunrise remains in default of
certain debts. In these circumstances and in the absence of
continuing guarantees of Sunrise’s obligations from Marriott, SNH
determined that it would be best for SNH if these operations were
transferred to its TRSs and managed by a financially stable, high
quality operator like Five Star.”
Because of required regulatory approvals, the lease
terminations, the new TRS leases and the Five Star management
contracts discussed in this press release are expected to be
completed during the remainder of 2012.
Senior Housing Properties Trust is a real estate investment
trust, or REIT, which owns independent and assisted living
communities, nursing homes, rehabilitation hospitals, wellness
centers and medical office buildings throughout the United States.
SNH is headquartered in Newton, MA.
WARNING REGARDING FORWARD LOOKING
STATEMENTS
THIS PRESS RELEASE CONTAINS STATEMENTS 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 “BELIEVE”, “EXPECT”, “ANTICIPATE”,
“INTEND”, “PLAN”, “ESTIMATE” OR SIMILAR EXPRESSIONS, IT IS MAKING
FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING STATEMENTS AND
THEIR IMPLICATIONS ARE BASED UPON SNH’S CURRENT INTENT, BELIEFS OR
EXPECTATIONS, BUT THEY ARE NOT GUARANTEED TO OCCUR AND MAY NOT
OCCUR FOR VARIOUS REASONS, INCLUDING SOME REASONS BEYOND SNH’S
CONTROL. FOR EXAMPLE:
- THIS PRESS RELEASE STATES THAT THE
HISTORICAL OPERATIONS OF THE 10 COMMUNITIES TO BE LEASED TO SNH’S
TRSS COVERED THE MINIMUM RENTS DUE SNH BY 1.5 TIMES IN 2011. AN
IMPLICATION OF THIS STATEMENT MAY BE THAT SNH WILL REALIZE MORE
INCOME FROM THESE COMMUNITIES THAN THE HISTORICAL RENTS SNH
RECEIVED. HOWEVER, THE INCOME WHICH SNH MAY REALIZE FROM THESE 10
COMMUNITIES WILL DEPEND UPON THE RESULTS OF FUTURE OPERATIONS
MANAGED BY FIVE STAR. FIVE STAR MAY BE UNABLE TO MAINTAIN THE
HISTORICAL OCCUPANCY AT THESE COMMUNITIES AND FIVE STAR’S
OPERATIONS MAY BE MORE EXPENSIVE THAN SUNRISE’S HISTORICAL
OPERATIONS. ALSO, SUNRISE’S FIRST QUARTER 2012 REPORT INDICATES
THAT THE CASH FLOW SUNRISE HAS REALIZED FROM THESE 10 COMMUNITIES
IS LESS THAN THE RENTS DUE SNH AND SNH DOES NOT KNOW WHETHER THESE
RESULTS ARE TEMPORARY AND REVERSIBLE OR IF THEY INDICATE A MORE
SERIOUS LONG TERM DECLINE IN ACHIEVABLE FINANCIAL RESULTS. FACTORS
BEYOND SNH’S OR FIVE STAR’S CONTROL ALSO COULD ADVERSELY IMPACT THE
FUTURE FINANCIAL RESULTS OF THESE COMMUNITIES OR SOME OF THEM, SUCH
AS AN OUTBREAK OF PANDEMICS, OTHER NATURAL DISASTERS OR CHANGES IN
LABOR MARKETS. FOR THESE REASONS, AMONG OTHERS, FIVE STAR’S
MANAGEMENT OF THESE 10 COMMUNITIES MAY NOT PRODUCE FINANCIAL
RESULTS FOR SNH WHICH ARE BETTER THAN, OR EVEN AS GOOD AS, THE
HISTORICAL RENTS SNH RECEIVED.
- THIS PRESS RELEASE STATES THAT SNH
EXPECTS THE LEASE TERMINATIONS, THE NEW TRS LEASES AND THE FIVE
STAR MANAGEMENT CONTRACTS TO BE COMPLETED DURING THE REMAINDER OF
2012. ALL OF THE 10 COMMUNITIES DISCUSSED IN THIS PRESS RELEASE ARE
OWNED BY SNH FREE AND CLEAR OF MORTGAGE DEBTS AND NO LENDER
APPROVALS WILL BE REQUIRED FOR THE LEASE TERMINATIONS, THE NEW TRS
LEASES OR THE NEW MANAGEMENT AGREEMENTS. HOWEVER, THE TRANSFERS OF
OPERATING CONTROL OF THESE 10 COMMUNITIES ARE SUBJECT TO HEALTH
REGULATORY APPROVALS IN THE STATES WHERE THESE COMMUNITIES ARE
LOCATED AS WELL AS SOME APPROVALS FROM CERTAIN THIRD PARTY PAYORS
FOR RESIDENT SERVICES. SNH CANNOT CONTROL THE RESULTS OR TIMING OF
THESE APPROVAL PROCESSES. ACCORDINGLY, SOME OF THESE APPROVALS MAY
BE DELAYED OR MAY NOT OCCUR AND THE CANCELLATION OF THE SUNRISE
LEASES AND TRANSFER OF OPERATIONS TO SNH’S TRSS MAY BE DELAYED OR
MAY NOT OCCUR.
FOR THESE REASONS, AMONG OTHERS, INVESTORS SHOULD NOT PLACE
UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS IN THIS PRESS
RELEASE.
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.
A Maryland Real Estate Investment Trust with
transferable shares of beneficial interest listed on the New York
Stock Exchange.No shareholder, Trustee or officer is personally
liable for any act or obligation of the Trust.
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