Five Star Announces $112.4 Million Sale Leaseback and Amends Certain Management Arrangements
June 29 2016 - 5:10PM
Business Wire
Five Star Quality Care, Inc. (NYSE: FVE) today announced that it
has entered a $112.4 million sale and leaseback transaction with
Senior Housing Properties Trust (NYSE: SNH) for seven assisted
living communities (545 living units) located in four states (North
Carolina: 3; South Carolina: 2; Tennessee: 1; and Virginia: 1).
Simultaneously with the sale of these communities, Five Star
entered a combination lease for these communities for 12.5 years
plus renewal options thereafter. The initial rent payable by Five
Star will be $8.4 million/year. The net sale price realized for
these seven communities was approximately $81.8 million in excess
of net book value and, under generally accepted accounting
principles, Five Star will amortize this gain as a reduction of
rent expense during the lease term.
Five Star intends to use the proceeds it receives from the sale
and leaseback transaction to repay in full amounts outstanding
under its secured revolving credit facility which had $60 million
outstanding on June 28, 2016, and for general business purposes.
Some of the communities sold to SNH previously served as collateral
for the Company’s $150 million credit facility and availability
under that facility was reduced according to the formula in that
facility. After the sale of the seven communities, Five Star
continues to own 26 senior living communities (2,666 living units),
including 10 communities which are unencumbered.
Simultaneously with entering the sale and leaseback transaction,
Five Star and SNH also amended certain terms of the agreements
under which Five Star manages 63 senior living communities (8,428
living units) for taxable REIT subsidiaries of SNH, as follows:
- the formula for calculating management
fees payable to Five Star for communities that Five Star commenced
managing after May 1, 2015, (17 communities with 1,172 living
units) changed from three percent (3%) of gross revenues and thirty
five percent (35%) of net operating income that exceeds threshold
amounts to five percent (5%) of gross revenues and twenty percent
(20%) of net operating income that exceeds threshold amounts;
and
- certain other amendments were made to
the formulas for calculating management fees payable to Five Star
which are not expected to have a current material impact on Five
Star, but may allow Five Star to realize additional management fees
from participation in the net operating income at the managed
communities sooner than before the formulas were amended.
“This transaction allows us to recognize and utilize a portion
of the value of Five Star’s owned real estate to improve our
financial position while preserving the properties’ operating
economics within our portfolio,” said Bruce Mackey, President and
Chief Executive Officer of Five Star. “Additionally, the amendments
to our management arrangements with SNH will increase management
fee revenue from certain managed communities.”
Five Star was formerly a 100% owned subsidiary of SNH and SNH is
Five Star’s largest shareholder, owning 4,235,000 of Five Star’s
shares. One of Five Star’s Directors is also a Trustee of SNH. Both
Five Star and SNH 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 sale and leaseback as well as the
amendments to the management arrangements under which Five Star
serves as manager for SNH described in this press release were
negotiated and approved by Special Committees of Five Star’s
Independent Directors and SNH’s Independent Trustees who are not
also Directors or Trustees of the other party and who are
independent of RMR, and these Committees were represented by
separate legal counsel.
Five Star Quality Care, Inc. is a senior living and healthcare
services company. As of March 31, 2016, Five Star owned, leased and
managed a total of 274 senior living communities with 31,051 living
units located in 32 states (excluding one community classified as
discontinued operations). These communities offer independent
living, assisted living and skilled nursing services. Five Star 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 FIVE STAR USES WORDS SUCH AS
BELIEVES, EXPECTS, INTENDS, ANTICIPATES, ESTIMATES, WILL, MAY OR
SIMILAR EXPRESSIONS, FIVE STAR IS MAKING FORWARD LOOKING
STATEMENTS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON FIVE
STAR’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
INITIAL RENT PAYABLE BY FIVE STAR FOR THE SEVEN COMMUNITIES SOLD TO
SNH WILL BE $8.4 MILLION. THAT RENT AMOUNT IS SUBJECT TO FUTURE
INCREASES IN THE EVENT FIVE STAR REQUESTS AND SNH AGREES TO
PURCHASE IMPROVEMENTS TO THE LEASED COMMUNITIES; AND, STARTING
AFTER 2017, INCREASED RENT MAY BE PAYABLE BY FIVE STAR TO SNH
CALCULATED AS A PERCENTAGE OF REVENUE INCREASES AT THE LEASED
COMMUNITIES.
- THIS PRESS RELEASE STATES THAT CERTAIN
AMENDMENTS WERE MADE TO THE FORMULAS FOR CALCULATING MANAGEMENT
FEES PAYABLE TO FIVE STAR WHICH MAY ALLOW FIVE STAR TO PARTICIPATE
IN NET OPERATING INCOME SOONER THAN BEFORE THE FORMULAS WERE
AMENDED. FIVE STAR’S ABILITY TO REALIZE MANAGEMENT FEES BY
PARTICIPATING IN THE NET OPERATING INCOME OF ITS MANAGED
COMMUNITIES DEPENDS UPON THOSE COMMUNITIES ACHIEVING INCOME IN
EXCESS OF THRESHOLD AMOUNTS. THE THRESHOLD AMOUNTS MAY INCREASE
WHEN THE COMMUNITY OWNER INVESTS IN IMPROVEMENTS TO THE MANAGED
COMMUNITIES. THERE IS NO ASSURANCE THAT THE NET OPERATING INCOME
FROM THE MANAGED COMMUNITIES WILL EXCEED THE THRESHOLDS OR THAT
FIVE STAR WILL EARN INCREASED MANAGEMENT FEES IN THE FUTURE.
- THIS PRESS RELEASE STATES THAT THE
TERMS OF THE TRANSACTIONS ANNOUNCED TODAY WERE NEGOTIATED AND
APPROVED BY SPECIAL COMMITTEES OF FIVE STAR’S INDEPENDENT DIRECTORS
AND SNH’S INDEPENDENT TRUSTEES WHO ARE NOT ALSO DIRECTORS OR
TRUSTEES 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. FIVE STAR 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 FIVE STAR’S FILINGS WITH THE
SECURITIES AND EXCHANGE COMMISSION, OR THE SEC, INCLUDING UNDER THE
CAPTION “RISK FACTORS” IN FIVE STAR’S PERIODIC REPORTS OR
INCORPORATED THEREIN, COULD CAUSE FIVE STAR’S ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE STATED OR IMPLIED IN THIS PRESS
RELEASE. FIVE STAR’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, FIVE STAR 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/20160629006460/en/
Five Star Quality Care, Inc.Brad Shepherd, 617-796-8245Director,
Investor Relations
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