SNH to Buy 38 Private-Pay Senior Living Communities for $790 Million

Building upon it existing portfolio of 370 healthcare properties, Senior Housing Properties Trust (NYSE: SNH) is acquiring 38 senior living communities from CNL Lifestyle Properties, Inc. for $790 million, including assumption of debt, the company announced Tuesday.

The properties are private pay, comprise six new operating partners and six new managers for the real estate investment trust, and will work toward diversifying its portfolio, the company’s management said in a press release.

“We are very pleased to acquire such a high quality portfolio of private pay senior living communities,” said David Hegarty, President and Chief Operating Officer of Newton, Mass.-based SNH. “In 2014, SNH has made great strides towards diversifying its tenants and upgrading the quality of its portfolio.”

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Earlier this year, the REIT closed on two Boston-based medical office buildings for $1.1 billion, and has continued to be active in the acquisition and sale of both medical office buildings and senior housing properties, including a recently announced deal to acquire 23 medical office buildings.

“Upon closing of both the acquisition of these 38 communities as well as our previously announced acquisition of 23 medical office buildings, approximately 56% of SNH’s consolidated net operating income will come from senior living properties and approximately 44% will come from medical office buildings; in addition, rents from our largest tenant, Five Star, will account for less than 20% of our annualized revenues,” Hegarty said.

In total, the portfolio being acquired from CNL Lifestyle Properties spans 3,466 total living units, including 826 independent living units, 1,860 assisted living units, 744 memory care units and 36 skilled nursing beds. Historically, more than 95% of revenues at the 38 communities have been private pay. Combined occupancy for the properties as of November was 93%.

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Of the 38 properties, 18 are currently leased to six senior living operators, none of which are current SNH tenants. Those properties are located across 12 states, including four in California; two in Georgia; two in Washington; two in Oregon; and one property in each: Alabama, Arizona, Colorado, Florida, Indiana, Montana, North Carolina, and Rhode Island.

The combined lease coverage ratio for the 18 communities was in excess of 1.2x for the quarter ended September 30, the company said, and all of the leases included annual minimum rent increases during the lease term.

The remaining 20 communities, are managed by six senior living operators currently, none of which are currently managers for SNH. These 20 managed communities are located across six states, including six in Illinois; five in Georgia; four in Missouri; three in Arkansas; and one each in Oregon and Nevada. SNH said it plans to meet with the managers of these communities discuss SNH’s plans for its ownership of these communities.

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Under the terms of the agreement, SNH expects to assume $153 million of mortgage debt associated with some of the 38 senior living communities, at an average interest rate of 4.8% per annum. The expected cap rate for the portfolio is to be in excess of 7% per annum based on 2015 estimated GAAP net operating income, the company said.

Written by Elizabeth Ecker

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