Katie Potter hedshot

A total of 243 senior living communities operated by Five Star Senior Living are affected by the restructuring of business arrangements between the company and real estate investment trust Diversified Healthcare Trust (formerly Senior Housing Properties Trust) completed effective Jan. 1, the entities announced Thursday.

The five existing master leases for 166 of DHC’s senior living communities (18,676 living units) that were leased to Five Star, as well as the existing management agreements and pooling agreements between DHC and Five Star for an additional 77 of DHC’s senior living communities (10,168 living units), have been terminated and replaced with new management agreements. Five Star was DHC’s largest tenant.

Under the new management agreements, Five Star will receive a management fee equal to 5% of the gross revenues realized at the applicable senior living communities, plus reimbursement for direct costs and expenses related to the communities, as well as a conditional annual incentive fee. The agreements last for 15 years, and Five Star can extend them for two consecutive five-year terms if certain performance targets are achieved.

Five Star CEO Katherine “Katie” Potter previously said that the restructuring is “a permanent solution” to financial woes at the company but “is only the first step in our transformation.” The company is the fourth largest senior living operator in the country, according to a 2019 list compiled by the American Seniors Housing Association, and the fifth largest senior living company according to a 2019 list compiled by Argentum.

As part of the restructuring, on Jan. 1 Five Star issued approximately 10.3 million of its common shares to DHC and an aggregate of approximately 16.1 million of its common shares to DHC’s shareholders of record as of Dec. 13. In exchange, DHC paid or assumed $75 million of Five Star’s working capital liabilities.

Five Star also has agreed to add an independent director to its board who is “reasonably satisfactory to DHC” within six months, according to documents filed with the Securities and Exchange Commission.

Both DHC and Five Star are managed by The RMR Group LLC, the majority-owned operating subsidiary of the RMR Group Inc., an alternative asset management company; all of the companies are headquartered in Newton, MA.

Senior Housing Properties Trust changed its name to Diversified Healthcare Trust, effective Jan. 1, thinking that the name “more accurately depicts both our portfolio of diverse, high-quality healthcare real estate and our strategy moving forward,” President and Chief Operating Officer Jennifer Francis said.