Senior Housing Properties Trust’s (NYSE: SNH) sale this week of two hospitals for $90 million looks to further reduce the company’s Medicare and Medicaid footprint and focus in on private pay senior housing assets in its portfolio.
SNH announced December 31, 2013 that it closed the sale of two rehabilitation hospitals to a joint venture comprised of affiliates of The Sanders Trust, LLC of Birmingham, Alabama, and Harrison Street Real Estate Capital, LLC of Chicago—a transaction previously announced in September.
The two hospitals are New England Rehabilitation Hospital located in Woburn, Massachusetts, and Braintree Rehabilitation Hospital located in Braintree, Mass.
Since a large majority of the revenues at the sold hospitals are paid by Medicare, with the completion of this sale, only 2% of SNH’s total revenues derive healthcare properties where Medicare and Medicaid represent a majority of revenues, according to a company release issued Thursday.
Limiting the company’s exposure to Medicare and Medicaid is part of SNH’s strategy to avoid further reductions these government funded programs might experience in the future, according to SNH President and Chief Operating Officer David Hegarty.
“With this sale our decade plus plan, to reduce SNH’s exposure to possible future reductions in government funded Medicare and Medicaid programs, is nearly complete,” Hegarty said. “Now, 98% of SNH’s revenues have limited exposure to government funding. We are pleased that we were able to complete the sale of these two hospitals ahead of our expected timeframe of mid-year 2014.”
SNH acquired both properties in 2002, and the hospitals’ real estate assets were leased to Newton, Mass.-based Five Star Quality Care, Inc. (NYSE: FVE). The two hospitals were leased by SNH to FVE under a combination lease that also included 51 senior living properties.
With the sale, FVE transferred its operating rights and obligations to entities affiliated with Reliant Hospital Partners, LLC, a private company located in Richardson, Texas.
Additionally, FVE expects to realize cash proceeds of approximately $8 million from the retention of its working capital investments in the sold hospitals.
Recommended SHN+ Exclusives
In connection with the transfer of operations of the hospitals, FVE’s $35 million secured revolving credit facility was reduced to $25 million, however, the company has an additional $150 million revolving credit facility that is unaffected by the transfer of operations associated with Thursday’s announcement.
Following the sale, FVE now says it is 100% focused on operating senior living communities.
“By exiting these hospital operations, Five Star increases its focus on its core business of private pay senior living communities,” said Bruce Mackey, president and CEO of FVE, in a statement. “I believe the fact that the large majority (approximately 77%) of Five Star’s total revenues are from residents and patients who pay for services with private resources is an indication of the high quality of FVE’s services.”
Jefferies LLC acted as a financial advisor in connection with the transaction.
Written by Jason Oliva