New Senior Charts ‘New Path’ in $385M Assisted Living Portfolio Sale

New Senior Investment Group (NYSE: SNR) is selling all of its assisted living and memory care properties in a significant step in the company’s ongoing transformation, following moves to distance itself from Fortress Investment Group (NYSE: FIG)

The New York City-based real estate investment trust (REIT) intends to sell its entire portfolio of assisted living and memory care properties for $385 million, executives announced in a third-quarter earnings call Friday. The portfolio, which is currently managed by six different operators, is composed of 28 assisted living and memory care properties spread across 14 states.

The sale is aimed at improving the company’s senior housing portfolio, which is already weighted heavily in favor of independent living, according to CEO Susan Givens.

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“Our IL assets, which currently represent approximately 83% of our total NOI, have generally been much more stable than our AL assets,” Givens said during Friday’s call. “The IL portfolio was up 0.7% year-over-year … [while] our AL portfolio, which represents only 14% of our total NOI, was down a disappointing 10% year-over-year.”

Industry headwinds have battered the assisted living segment in recent months and years. National average assisted living occupancy was 85.4% in the third quarter of this year, a slight improvement from a previous record low of 85.1%, according to the most recent NIC data.

And other REITs — such as Ventas (NYSE: VTR) — have reported headwinds for assisted living communities in recent months. In the case of Ventas, the company’s assisted living communities saw problems in secondary and tertiary markets.

After the sale closes, New Senior will have a portfolio of 102 independent living assets and one continuing care retirement community (CCRC). These properties will remain the company’s core focus moving forward.

“The transaction will enable us to focus on our core independent living properties, which generally benefit from higher operating margins, longer length of stay, lower regulatory risk and less new supply than AL and memory care,” Givens said. “Additionally, our IL portfolio serves the attractive private-pay middle-market demographic, and we are extremely well positioned to benefit from fast-growing demand in this segment.”

New Senior will use the proceeds generated from the sale to pay $350 million in debt. The REIT also expects to refinance its largest near-term debt maturity, leaving it with no material debt maturities until 2025.

The sale will also save the REIT money on an ongoing basis, as a “significant number” of the assisted living properties were losing money.

“The AL portfolio has had a prolonged negative impact on our overall financial results, a trend that we would have expected to continue into 2020 and beyond,” Givens said. “By selling the AL portfolio, we are left with an IL portfolio that has a strong track record of delivering stable results and has consistently outperformed our more challenged AL assets.”

New Senior didn’t specify the buyer for the portfolio on its earnings call, and hasn’t yet responded to a Senior Housing News request for more information about the sale. But Givens shed some light on who it might be during the company’s earnings call Friday.

“The group that we’re selling to is a very sophisticated institutional buyer with a long and successful track record in the space,” she said. “We have a lot of respect for them.”

For the third quarter of 2019, the REIT reported funds from operations (FFO) of 14 cents per share, beating analysts’ expectations by one cent. Total revenue for the quarter was $115.5 million, a decrease from the $117.7 million revenue the REIT logged one year ago.

The REIT’s share prices grew 6.68% to land at $7.51 by the time the markets closed Friday.

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