Senior Housing Properties Trust Weighing Five Star Restructuring

Senior Housing Properties Trust (NYSE: SNH) is weighing a litany of options for Five Star Senior Living (Nasdaq: FVE) in light of the operator’s ongoing financial and operational problems — including a possible adjustment to the two companies’ agreements.

That was top of mind during the the Newton, Massachusetts-based real estate investment trust’s (REIT) fourth-quarter earnings call with investors and analysts Friday.

“In November, our largest tenant and operator of our senior living communities, Five Star Senior Living, announced there is substantial doubt about its ability to continue as a going concern,” remarked Senior Housing Properties Trust CEO Jennifer Francis. “We are currently engaged in discussions with Five Star about a possible restructuring of our agreements to address its operating and liquidity issues.”


To facilitate those discussions, both companies’ boards have formed special committees comprised of independent trustees and directors, and have also engaged separate advisors, she added. Still, the discussions may result in any number of options outside of an agreement readjustment — or nothing at all, Francis cautioned.

The REIT declined to elaborate on the discussions further, but added that a decision is likely sometime in the next 60 days.

Five Star’s recent challenges are well-documented. The company has struggled against the tide of fierce memory care competition and skilled nursing woes that have have buffeted revenue growth and led to net losses in previous quarters. Those challenged have helped to reduce the operator’s stock price, threatening its continued listing on the Nasdaq.


The company has also seen some management changes as of late. Last December, Five Star announced it had chosen Katherine Potter to replace outgoing CEO Bruce Mackey. Potter first joined Five Star in 2012, and worked as the company’s executive vice president and general counsel.

Despite its challenges, Five Star has snagged some accolades as of late. Global marketing information services company J.D. Power in February awarded its coveted badge to three Five Star communities as part of its new senior living certification program.

Senior Housing Properties Trust had 266 senior living communities and 38 skilled nursing facilities in its portfolio at the end of 2018. It also has 129 medical office building (MOB) and life science properties.

Senior living strategy

Current market headwinds, along with Five Star’s struggles, weighed down Senior Housing Property Trust’s senior living performance in the fourth quarter of 2018.

Overall, the REIT saw fourth-quarter normalized funds from operations (FFO) of $65.1 million, or $0.27 per share, which fell short of analysts’ expectations by seven cents.

For its total senior housing portfolio, the company logged a consolidated net operating income (NOI) of $92.9 million in the fourth quarter of 2018, which is about 8.3% less than what it saw during the same period in 2017.

Current market conditions such as new competition, along with steady wage pressures and maintenance costs, are partly to blame for the sagging results.

“I think the market is at its bottom, but is it turning? It’s hard to say,” Francis said. “The news looks good, but there’s still time for some of the properties under construction to complete and open. Competition will stay high, and wages and benefits are continuing to stay high.”

Looking ahead, Senior Housing Properties Trust intends to grow its MOB portfolio, partly by recycling some of the proceeds from selling senior housing communities. Last year, the company realized $260 million in gains from the disposition of senior living portfolio, and reinvested some of that money back into its MOB holdings.

“The goal is to acquire MOB and life science properties, and we’ve been actively pursuing acquisitions,” Francis said.

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