Senior Housing Properties Trust (NYSE: SNH) announced Friday that it has entered into an agreement to sell two rehabilitation hospitals to a joint venture for $90 million.
The two hospitals to be sold are the 198-bed New England Rehabilitation Hospital located in Woburn, Massachusetts, and 166-bed Braintree Rehabilitation Hospital in Braintree, Mass.
Currently leased to Five Star Quality Care, Inc. (NYSE: FVE), the two hospitals will be sold to the joint venture comprised of affiliates of The Sanders Trust, LLC of Birmingham, Alabama, and Harrison Street Real Estate Capital, LLC of Chicago.
In connection with the transactions, FVE has agreed to terminate its lease of the hospitals and transfer operating rights and obligations to entities affiliated with Reliant Hospital Partners, LLC, a private company located in Richardson, Texas, that will operate the hospitals once the sale is completed.
FVE believes that the combination of capital investment required to comply with recent federal and state hospital regulation, along with future Medicare rate limitation pressures, mean that economies of scale are essential to produce financially successful hospital operations, according to the company’s President and CEO Bruce Mackey.
“After carefully considering these factors, Five Star determined to focus its future operations on expanding its private pay senior living business and to transfer these hospitals’ operations to Reliant,” Mackey said. “The exit from these hospital operations increases Five Star to focus on its core business of operating private pay senior living communities.”
When the hospitals’ sale and operations transfer are completed, FVE expects to realize cash proceeds of between $6.5 million and $7.5 million by retaining its working capital investment in these hospitals, according to a company release.
Upon completion of the sale, SNH currently expects to realize a gain of over $30 million.
For more than a decade, SNH has been focused on reducing its exposure to government funded programs like Medicare and Medicaid, according to David Hegarty, president and COO of SNH.
“Upon completion of the sale of these hospitals, this plan to reduce SNH’s exposure to possible future reductions in government funded Medicare and Medicaid programs will be nearly complete,” he said.
SNH also believes that it can offset its rent reduction by reinvesting the sale proceeds into additional healthcare-related real estate.
The sale of these hospitals is not subject to any financing conditions, however, the transition is subject to various health regulatory approvals and other closing conditions.
Both SNH and FVE expect the sale may be completed by mid-year 2014. Jefferies & Company, Inc., acted as a financial advisor in connection with the sale.
Written by Jason Oliva