New Senior Investment Group (NYSE: SNR) has set in stone a plan to put distance between it and Fortress Investment Group (NYSE: FIG) while internalizing its operations — and Susan Givens will continue leading the company as CEO.
The New York City-based real estate investment trust (REIT) announced Tuesday it had entered into an agreement to internalize the company’s management functions as of the Jan. 1, 2019. The announcement marks the culmination of a strategic review process that began earlier this year in February. That strategic review also resulted in a number of other new initiatives, including a repositioning of its 51-property Holiday Retirement portfolio in May; a reset of the REIT’s dividend in August; and a $720 million refinancing in October.
New Senior is one of the largest owners of senior housing properties in the country, with a portfolio that spans 133 private-pay senior housing properties in 37 states. The largest operator in its portfolio is Winter Park, Florida-based independent living giant Holiday Retirement, which is owned by Fortress and went through its own major management change in 2017.
As part of the newly inked deal, both companies have agreed to end a management agreement under which New Senior was externally advised and managed by a Fortress affiliate. That agreement also meant that all of the people who provided services to New Senior were employees of the Fortress affiliate, and that New Senior paid it certain fees.
New Senior will also pay a consideration to its soon-to-be former external manager made up of $40 million in preferred stock and $10 million in cash. The Fortress affiliate can redeem half of the preferred stock starting at the end of 2020, and the remaining half at the end of 2021.
Then, starting Jan. 1, New Senior will cease to be managed by the Fortress affiliate, and become the employer of its officers and employees. Susan Givens will stay on as New Senior’s CEO, and the company’s management team will still include some employees of the Fortress affiliate, at least for a time. The Fortress affiliate will also continue to provide certain services, at cost, to New Senior during a transition period following the internalization.
The REIT touts the internalization as having three main benefits: cost savings, simplicity and transparency, and a potentially larger institutional ownership base. Specifically, New Senior expects that the internalization will result in a reduction in annual general and administrative expenses of about $10 million.
“As an internally managed company, we will become more comparable to our peers in the health care REIT space, which we think could bolster interest in our company and expand our investor base,” Givens said during a third-quarter earnings call earlier this month. “I’m very optimistic that the measures taken to date as part of the strategic review process will position the company for growth and facilitate additional efforts to maximize shareholder value.”
Not all of New Senior’s investors of the were as upbeat as Givens when the plan to internalize management was announced, however. In particular, New Senior shareholder and Omega Advisors CEO Leon Cooperman criticized the $50 million consideration.
“I find [the payment] offensive,” Cooperman told Senior Housing News in August. “… Fortress has not done a good job.”
New Senior was originally formed in 2014 as a spin-off of Newcastle Investment Corp. The REIT’s share price was above $19 in the fall of 2014, and has since fallen sharply, trading at an all-time low of $5.23 on Nov. 16.
Written by Tim Regan