New Senior to pay $50 million to bring management in-house after strategic review

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Bridge Park, a Holiday Retirement community in Seattle, is featured in a supplement related to New Senior Investment Group's second-quarter earnings release.
Bridge Park, a Holiday Retirement community in Seattle, is featured in a supplement related to New Senior Investment Group's second-quarter earnings release.

New Senior Investment Group plans to bring its management in-house by Jan. 1 as part of an effort to maximize shareholder value, the real estate investment trust announced Thursday as it released its second-quarter financial results.

The move, the result of a strategic review announced in February, is expected to save $10 million in general and administrative expenses annually. But first, the REIT will have to pay its current external manager, an affiliate of Fortress Investment Group, $10 million in cash and $40 million in preferred stock.

“As an internally managed company, we will become more comparable to our peers in the healthcare REIT space, which we think could bolster interest in our company and expand our investor base,” CEO Susan Givens said during the company's earnings call.

New Senior previously had announced the move of 51 Holiday Retirement communities from its triple-net lease portfolio to its managed portfolio as part of the REIT's strategic review. Thursday, New Senior announced two other review-related initiatives in addition to the management change:

  1. During the fourth quarter, the REIT expects to refinance a $720 million loan maturing in May 2019 with a long-term loan, increasing the weighted average maturity of the company's debt from approximately three years to over five years. The move should save $11 million in interest annually, Givens said. “In addition to cost savings, we designed this refinancing to preserve our flexibility to recycle capital in the event that we identify opportunities to redeploy capital accretively,” she said.
  2. The company cut its dividend in half, from $0.26 to $0.13. The board determined that the re-set will align payout ratios more closely with those of industry peers, Givens said. The cash dividend will be payable Sept. 21 to shareholders of record as of Sept. 7. “Our dividend coverage has been an ongoing focus as coverage has declined due to asset sales, the conversion of the Holiday lease to a managed portfolio and continued weakness in operating results across the senior housing industry,” the CEO said.

“All of this amounts to a pretty transformational year for the company,” Givens said. “There is still a significant amount of work to be done, but we believe the initiatives announced today, combined with our previously announced initiatives, draw us significantly closer to conclusion of the strategic review. In the meantime, we remain focused on our core business and identifying ways to optimize our portfolio. We believe we have a uniquely attractive portfolio of senior housing assets, and the medium- and long-term fundamentals of the senior housing industry remain compelling.”

New Senior has 133 senior living and skilled nursing properties with more than 15,000 beds across 37 states, said David Smith, managing director. The REIT had a net loss of $39.1 million, or $0.48 per share, for the quarter. Total same-store cash net operating income decreased 3% versus the same quarter of 2017.

Same-store average occupancy in the managed portfolio decreased 140 basis points to 85.4% compared with 86.8% for the second quarter of 2017. Same-store average occupancy in the triple-net portfolio was 89.3%.

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