Five Star to sell 6 communities but keep managing them

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Five Star CEO Bruce Mackey
Five Star CEO Bruce Mackey

Five Star Senior Living will sell six senior living communities to Senior Housing Properties Trust for $104 million, Five Star President and CEO Bruce Mackey told those participating in a Thursday third-quarter earnings call. But the company will continue to manage them.

The aggregate sales price includes $34 million of mortgage debt that SNH will assume, he said.

Three of the communities are located in Tennessee, with one each in Alabama, Arizona and Indiana. Between all six, there are a total of approximately 600 units.

“Simultaneous to this transaction, we will enter a long-term management agreement with SNH to manage these communities for a management fee of 5% of gross revenue,” Mackey said.

The sales are expected to close before the end of the first quarter of 2018.

The transactions will give Five Star access to capital and reduce the company's long-term mortgage debt balance, he said, adding that proceeds will go toward future capital investments in Five Star's remaining leased and owned communities.

Senior Housing Properties Trust executives also discussed the transaction in their third-quarter earnings call on Thursday.

David Hegarty, president and chief operating officer, said that the properties have an occupancy rate of 91% and have the potential for future development, including independent living expansion at an age-restricted community that already offers assisted living and home care.

“And because Five Star has managed them before, there is virtually zero transition risk here,” said Rick Siedel, SNH's chief financial officer and treasurer.

“From their perspective it is a positive that they can reap some value out of these assets from cash, because they are certainly not getting the valuation in their stock price,” Hegarty said.

Five Star had earnings per share of $0.15 in the quarter, beating analysts' projections by $0.01. Revenues of $347.1 million, up 0.7% year over year, missed projections by $3.13 million.

SNH had earnings per share of $0.44 in the quarter, missing analysts' projections  $0.01. Revenues of $266.68 million, up 1% year over year, beat projections by $0.4 million.

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