Five Star Trades Seven Assisted Living Properties in Sale-Leaseback Deal

Bruce Mackey, president and CEO of Five Star Quality Care, Inc.

NEWTON, MA— Senior Housing Properties Trust reports it has entered into a $112.4-million purchase and lease transaction with former subsidiary Five Star Quality Care, Inc. for seven assisted living communities in the Southeast. Both firms, based in Newton, MA, did not divulge the specific properties that were part of the sale-leaseback deal. The transaction involves a total of 545 living units in 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 per year 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, Senior Housing Properties Trust states in an announcement. Five Star was formerly a 100% owned subsidiary of REIT Senior Housing Properties Trust and SNH is Five Star’s largest shareholder, owning 4.235 million of Five Star’s shares. One of Five Star’s directors is also a trustee of SNH. In 2000, Senior Housing Properties Trust formed Five Star Quality Care to manage troubled nursing homes for SNH. Five Star stock was distributed to SNH shareholders in late 2001, and began trading as a separate company on the American Stock Exchange, now NYSE, on Jan. 2, 2002. “SNH is pleased to add these quality assets that produce attractive returns with solid rent coverage to its triple net leased senior living portfolio,” says David Hegarty, president and COO of Senior Housing Properties Trust. “These assets fit within our investment strategy of owning high quality private pay senior living assets.” The net sale price realized for the seven communities for Five Star was approximately $81.8 million in excess of net book value. Five Star intends to use the sale proceeds from the sale/leaseback transaction to repay in full its secured revolving credit facility, which had $60 million outstanding on June 28, 2016, as well as for general business purposes. Some of the communities sold to SNH previously served as collateral for Five Star’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 is finalized, Five Star will own 26 senior living communities totaling 2,666 living units. Simultaneous to the sale/leaseback deal, SNH and Five Star amended management agreements pertaining to Five Star acting as manager of certain senior living communities operated for certain SNH’s taxable subsidiaries. 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 taxable subsidiaries. “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,” says Bruce Mackey, president and CEO of Five Star. He adds that the agreed upon management amendments will increase management fee revenue for the firm. Senior Housing Properties Trust 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. an alternative asset management company, also headquartered in Newton.