Senior Housing Properties Trust Closes $763 Million Acquisition Portfolio

Senior Housing Properties Trust (NYSE: SNH) has closed on 37 of 38 senior living communities it acquired from CNL Lifestyle Properties Inc. for approximately $763 million, the real estate investment trust (REIT) announced Wednesday.

SNH first announced the deal with CNL in December 2014. It is expected to total $790 million, once the last lease community is acquired for $27 million. That is anticipated to occur as soon as closing conditions are satisfied, said Dave Hegarty, SNH’s president and COO.

The total acquisition portfolio consists of about 3,500 units, which are about one-third independent living and two-thirds assisted living and memory care. Historically, more than 95% of revenues at the communities have been private pay. They are located in 16 states.


With the May 1 closing, SNH assumed 17 leases and converted one management agreement to a 15-year lease, Hegarty said. The REIT assumed an agreement with one private operator to manage five communities, and the remaining 14 will be operated by SNH’s largest tenant, Five Star Senior Living (NYSE: FVE). 

The decision to terminate some of the existing managers of the CNL properties and bring in Five Star was based on several considerations, Hegarty explained, including that the agreements were set to mature within 1.5 and 3 years, so “something needed to be done anyways.”

“We approached each operator to encourage them to enter into a long-term lease with us, but we could not come to terms, usually because they wanted the rent to be set at such a discount from the current cash flows that it was no longer attractive to us to do that type of transaction,” he said. “So really it was a question of whether to try to structure a long-term management agreement with them or offer the opportunity to Five Star to manage.”


While some “volatility” can be expected during the transition of the managed communities, SNH still expects the deal to achieve a higher than 7% return long-term, Hegarty said.

SNH took steps toward diversifying its portfolio in 2014, undertaking this acquisition along with a $1.1 billion deal to acquire two Boston-based medical office buildings and another deal to acquire 23 MOBs. About 56% of consolidated net operating income now comes from senior living properties and 44% comes from MOBs.

“I think we’d be willing to buy more [MOBs] and bring it up closer to 50% of our portfolio … but I think that better growth opportunity, internal growth is on the senior living side,” Hegarty said on Wednesday’s call.

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Overall, SNH posted normalized funds from operations of $98.6 million for the first quarter, up from $80.1 million a year prior. That translated to FFO of $0.45 per share for the first quarter, which was a 4.7% year-over-year increase. This met the projections of nine analysts polled by Thomson Reuters.

Written by Tim Mullaney

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