Discussions between Senior Housing Properties Trust and Five Star Senior Living are “actively happening,” and the organizations expect to have an announcement within 60 days about operating and liquidity issues at Five Star, Senior Housing Properties Trust President and Chief Operating Officer Jennifer Francis said Friday.
“The boards of both Senior Housing Properties Trust and Five Star have formed special committees comprised solely of independent trustees and directors, and they have engaged separate advisers to help facilitate these discussions,” Francis said during the real estate investment trust’s fourth-quarter and full-year 2018 earnings call.
Both the REIT and the senior living operator are based in Newton, MA.
Five Star, a former subsidiary and currently the REIT’s largest tenant and operator, announced in November that its financial situation raised “substantial doubt on our ability to continue as a going concern.” At the time, then-President and CEO Bruce Mackey said that the company might sell some of its senior living communities or repurpose units within communities to help solve the financial issues. The REIT’s chief financial officer and treasurer, Richard Siedel, said Friday that “a fairly small percentage” of assets are being marketed.
Francis said Senior Housing Properties Trust’s agreements with Five Star could be restructured, but “we cannot be sure that there will be any changes to our agreements with Five Star or whether Five Star will be able to continue as a going concern.”
She expressed optimism regarding new President and CEO Katherine Potter, who replaced Mackey in December.
“Katie has been with Five Star since 2012, serving as executive vice president and general counsel,” Francis said. “We are very excited about what Katie will bring to Five Star as a leader. I know that she will instill a culture of diligence, accountability and innovation at Five Star, and we look forward to seeing all that will result from her leadership.”
She also cited as bright spots Five Star’s implementation of a revenue management system to analyze local market conditions and competitors’ rates; capital expenditures that have improved occupancy at Five Star Premier Residences of Yonkers in New York and Five Star Premier Residences of Dallas to “over 95%” and “nearly 100%,” respectively, from 70% and 83%; and three Five Star communities becoming the first to earn J.D. Power senior living certification.
As of Dec. 31, Five Star leased 184 senior living communities and managed 76 senior living communities for Senior Housing Properties Trust, accounting for 26.7% and 20.4% of the REIT’s communities, respectively, according to information filed with the Securities and Exchange Commission. The leases accounted for approximately 31.1% of the REIT’s total annualized rental income and approximately 19% of total revenues in 2018. Management agreements with Five Star accounted for approximately 37.3% of the REIT’s total revenues for 2018.
Overall, Senior Housing Properties Trust’s managed senior living portfolio saw a 6.8% decrease in same-property net operating income in 2018 over 2017, 60% of which was due to wages and benefits as well as maintenance and repairs, Francis said. The triple-net leased senior living portfolio saw cash NOI growth of 1.4%, but rent coverage decreased to 1.1 times overall and 1.0 times for Five Star leased communities for the 12 months ended Sept. 30, she said.
Occupancy at managed communities overall was 85.8% for the quarter, compared with 85.9% for the same quarter in 2017. Same-property occupancy at managed communities was 86.2% for the quarter, compared with 85.9% for the same quarter in 2017. Occupancy increased 20 basis points for the full year.