New Senior Investment Group will decrease its skilled nursing exposure and increase its independent living exposure before the end of the year when it completes the sale of $296 million in Life Care Services and Holiday Retirement communities in Florida and Texas, the real estate investment trust announced Thursday.
The transactions include the $186 million sale of six triple net leased properties — as well as termination of the related lease with LCS — and a $109.5 million sale of nine assisted living / memory care properties managed by Holiday Retirement.
“The sales announced today significantly advance our stated objective of pursuing selective asset sales in order to enhance the overall quality of our portfolio,” New Senior CEO Susan Givens said Thursday in a statement. “In addition, these sales are expected to generate significant dry powder for new investments and other initiatives.”
The LCS properties have seen significant occupancy and earnings declines since New Senior acquired them, the REIT said. Their sale will eliminate the company’s lowest-covering triple net lease portfolio.
Also, because four of the six properties are continuing care retirement communities, New Senior’s exposure to skilled nursing will be “substantially eliminate[d],” the company said, adding that its exposure in the competitive Dallas metropolitan area will be significantly reduced as well.
The LCS properties also include an assisted living / memory care community and an independent living community.
The sale of the Holiday properties will divest non-core, underperforming assets that have low net operating income margins, New Senior said. The communities had an average occupancy of 82.3% and an NOI margin of 16.4% in the second quarter, according to the REIT. Excluding these properties from the company’s second-quarter results would improve same store occupancy by 60 basis points, to 86.8%, and same store NOI margin by 190 basis points, to 34.5%, New Senior said.
Holiday accounted for 75% of the REIT’s NOI in the second quarter, according to a presentation released in conjunction with an earnings call for that quarter. At the time, the REIT’s portfolio had 51 triple-net Holiday properties and 60 managed Holiday properties.
Altogether, selling the LCS and Holiday assets will result in an increased exposure to independent living in New Senior’s leased and managed portfolios. Excluding the properties from second-quarter results, the company’s exposure to independent living assets as a percentage of NOI would increase from 72% to 80%.
In a third-quarter 2016 earnings call, executives said that independent living remained appealing to them due to less government oversight, a longer length of stay relative to other areas of senior living, less supply compared with assisted living and memory care, and higher margins due to lower operating expenses relative to other areas of senior living.
Florida and Texas currently account for the greatest concentration of New Seniors’ NOI, followed by California. Excluding the properties properties to be sold from second-quarter results would reduce the concentration of NOI from these three states from 39% to 32%, the company said.
As of June 30, New Senior had 148 seniors housing properties across 37 states. The REIT is managed by an affiliate of global investment management firm Fortress Investment Group.
