Colony Capital Hands 36 Senior Housing Properties to Lender Due to Default

Colony Capital (NYSE: CLNY) has transferred ownership of 36 senior housing properties to a lender, as a step toward resolving a default.

Los Angeles-based Colony is a global digital infrastructure, real estate and investment management firm with $46 billion in assets under management. Its health care portfolio includes senior housing, skilled nursing facilities, medical office buildings and hospitals. As of June 30, 2020, Colony’s senior housing operating portfolio numbered 89 properties, and its net lease portfolio numbered 65 properties, according to Securities and Exchange Commission (SEC) filings. Colony owns between 69.6% and 81.3% of the various portfolios within its health care segment.

Of Colony’s total health care-related debt as of June 30, $203 million was in default.

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“Subsequently, in August 2020, the Company indirectly conveyed the equity of certain of its health care borrower subsidiaries, comprising 36 assets in its senior housing operating portfolio and $157.9 million of the aforementioned defaulted health care debt (based on outstanding balance at June 30, 2020), to an affiliate of the lender, which released the Company from all rights and obligations with respect to those health care assets and corresponding debt,” the company stated in its 10Q, filed Monday with the SEC.

As of the time of that filing, $45.1 million of Colony’s health care debt remained in default and negotiations with lenders were ongoing.

Colony did not publicly identify the properties that have been transferred or the lender involved. The company declined comment for this article.

The majority of Colony’s defaulted health care debt was already in default prior to Covid-19; however, the pandemic has further strained this business segment. Visitation and admissions bans suppressed occupancy in senior housing during Q2 2020, while the pandemic caused $7.7 million in incremental costs within the senior housing operating portfolio. About $1.6 million was abated through government stimulus funding.

“The challenges faced by our health care operators and our tenants as a result of COVID-19 will continue to put pressure on future revenues and operating margins in our health care segment,” Colony’s 10Q stated. “As necessary, we will engage in discussions with our lenders on the deferral of payment obligations, and/or waiver of defaults for any potential failure in the future to satisfy certain financial or other covenants.”

Chicago-based real estate investment trust Ventas (NYSE: VTR) — itself a major owner of senior housing properties — is among Colony’s lenders. However, the Ventas loan is not in default, CEO Debra Cafaro said last week during the REIT’s Q2 2020 earnings call.

“The Colony loan is a LIBOR-based loan and there continues to be, for the time being, very significant cushion between the cash flow of the collateral and the debt service,” she said.

Colony Capital’s transfer is not the only recent case of senior living properties going into the possession of a lender. Dallas-based provider Capital Senior Living (NYSE: CSU) is negotiating to transfer the operations and ownership of 18 communities to Fannie Mae, which holds the non-recourse debt on the properties.

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