Real estate investment trust Diversified Health CareTrust and provider AlerisLife, formerly known as Five Star Senior Living, held their fourth-quarter and year-end 2021 earnings calls on Thursday.
Diversified Health Care Trust
Although 2020 required defensive measures to withstand pandemic headwinds, Diversified Healthcare Trust President and CEO Jennifer Francis said on the real estate investment trust’s fourth-quarter earnings call that 2021 was defined by proactive steps meant to carry the REIT into the future.
“As vaccine acceptance and easing of pandemic related social restrictions helped curb deterioration across the senior living industry, we executed on a plan to refine operator mix, enhance liquidity and deploy capital to reposition a number of our properties,” Francis said.
For the fourth quarter, the Newton, MA-based REIT:
- Reported net income attributable to common shareholders of $365.6 million, or $1.54 per share.
- Reported normalized funds from operations attributable to common shareholders of $(16.5) million, or $(0.07) per share.
- Recorded a gain on sale of properties of $461.4 million, or $1.94 per share, from DHC’s sale of equity interest in its existing joint venture to another third-party institutional investor.
As of Dec. 31, DHC completed the transition of 107 senior living communities from Five Star Senior Living to 10 new third-party managers. Those management transitions were completed as part of the previously announced agreement between DHC and Five Star.
“As our new operators have started settling in, we’re already seeing the benefits of utilizing regional operators for these communities,” Francis said.
Rick Siedel, chief financial officer and treasurer, said that in the fourth quarter, DHC recognized approximately $2 million of percentage rent from its triple net lease senior living tenants this quarter. Percentage rent is calculated annually based on revenues in the communities and is included in the company’s non-segment net operating income, he said.
Two joint venture transactions in the quarter generated more than $1 billion of liquidity, and DHC amended its revolving credit facility. The three transactions substantially increased the REIT’s liquidity, Siedel said.
“The amendment extends the waiver of the fixed charge coverage ratio through Dec. 31, 2022, and provides increased flexibility to fund investments in our portfolio,” Siedel said. “In exchange for these changes, our credit facility capacity was reduced by $100 million to $700 million and the interest rate premium increased by 15 basis points.”
According to a press release issued in conjunctions with the earnings call:
- In October, DHC exercised its option to extend the maturity date of its revolving credit facility by one year, to January 2023.
- As of Dec. 31, DHC had approximately $1 billion of cash and cash equivalents and restricted cash.
- As of Dec. 31, DHC’s ratio of consolidated income available for debt service to debt service was below the 1.5x incurrence requirement under DHC’s revolving credit facility and its public debt covenants, as the effects of the COVID-19 pandemic continued to adversely affect DHC’s operations. DHC currently is unable to incur additional debt because this ratio is below 1.5x on a pro forma basis.
- This month, DHC and its lenders amended the agreement governing its revolving credit facility to, among other things, extend the waiver of the fixed charge coverage ratio covenant through Dec. 31 and reduce the facility commitments to $700 million. DHC also exercised its option to extend the maturity date of the revolving credit facility through January 2024.
“Utilizing the solid foundation we built in 2021, we believe that we’re on track to optimize portfolio performance, deliver earnings growth and maximize long term shareholder returns,” Francis said.
Read more about the fourth-quarter earnings at McKnight’s Senior Living .
AlerisLife
Newton, MA-based AlerisLife also reported its fourth-quarter 2021 earnings Thursday.
“Following the successful transition of 107 smaller, higher [needs] communities to third-party operators, which was completed in the fourth quarter, our residential segment [which Five Star formerly called senior living] is now comprised of 20 owned communities and 120 managed communities, of which the majority of our units are weighted towards lower [needs], choice-based customers,” CEO and President Katie Potter said.
According to Jeffrey C. Leer, executive vice president, chief financial officer and treasurer, the REIT’s fourth-quarter management and operating revenues were approximately $40 million, representing a decrease of $2.9 million from the previous quarter. He attributed the decrease primarily to the completed transitions throughout the year, which he said affected management revenues for the year by approximately $9 million.
“On a run rate basis, we expect a further reduction of management fee revenues by approximately $316,000 due to communities that transitioned during the quarter,” Leer said.
General and administrative expenses for the fourth quarter totaled $18.8 million, which included $2.9 million reimbursed by Diversified Health Care Trust. Net general and administrative expense was approximately $15.9 million, which represents a decrease of $1.1 million or 6.4% from the third quarter.
On Jan. 27, AlerisLife closed on a $95 million senior secured term loan, $63 million of which was funded on the effectiveness of a new credit agreement, including approximately $3.2 million in closing costs. The remaining proceeds include $12 million for capital improvements and an opportunity for another $20 million when certain financial thresholds are met. The maturity date of the loan is Jan. 27, 2025.
At the end of the fourth quarter, “due to timing of funding working capital obligations in conjunction with capital deployments at our own communities,” the company’s cash balance remains “slightly below” $100 million, Leer said.
At the end of 2021, AlerisLife had approximately $67 million of unrestricted cash and cash equivalents, with $6.8 million of outstanding debt obligations related to a mortgage note maturing in 2032, Leer said. The fourth-quarter unrestricted cash position represented a $13.2 million decline from the third quarter, for which $5.8 million was reinvested in company-owned communities “and include certain nonrecurring investments,” according to Leer.
Read more about the fourth-quarter earnings at McKnight’s Senior Living.
