The big are getting bigger in the seniors housing industry. Senior Housing Properties Trust (NYSE: SNH), a giant real estate investment trust, earlier this month signed a deal to acquire 20 senior living communities in five states for approximately $304 million.
The transaction is expected to close in the second quarter and is subject to regulatory and lender approvals. The purchase was disclosed in a March 9 filing with the Securities and Exchange Commission.
Newton, Mass.-based Senior Housing Properties owns senior living communities, medical office buildings, hospitals and wellness centers throughout the United States.
As of Dec. 31, 2010, the portfolio of Seniors Housing Properties included 226 senior living communities with 26,380 living units/beds and two rehabilitation hospitals with 364 licensed beds; 82 medical office buildings with 5.2 million sq. ft. of space; and 10 wellness centers with approximately 812,000 sq. ft. of interior space.
All but two of the newly acquired communities are located in the Southeast: North Carolina (seven communities); South Carolina (five communities); Florida (four communities); Georgia (two communities); and Virginia (two communities).
The 20 communities primarily offer independent and assisted living services, which are paid by residents from their private resources. The 2,111 living units in these communities include 814 independent living apartments, 939 assisted living suites, 311 suites which offer specialized Alzheimer's care, and 47 skilled nursing beds.
Fifteen of the 20 communities costing approximately $211.5 million are expected to be leased to a taxable REIT subsidiary of Senior Housing Properties and managed by Five Star Quality Care Inc. (NYSE: FVE) under a long-term management contract.
These 15 communities are approximately 85% occupied. Senior Housing Properties expects it may realize increasing income as these communities continue to fill. The current cash flows, before capital expenditures, from the communities to be leased to the taxable REIT subsidiary are forecast to produce initial annual cash flows to Senior Housing Properties equal to approximately 7% to 7.5% of its purchase price.
The remaining five communities, which will cost approximately $92.5 million and are 97% occupied, are expected to be leased to Five Star and added to one or more of the combination leases currently in effect between Senior Housing Properties and Five Star.
The rent for the five communities to be leased to Five Star is expected to produce an initial yield on Senior Housing Properties’ investment of approximately 8% annually and may increase starting in 2013 based upon a percentage of the increases in gross revenues at these communities.
Senior Housing Properties expects to fund this purchase by assuming approximately $79 million of mortgage loans and using cash on hand and drawings under its $550 million revolving credit facility, which was largely undrawn before this transaction.
The REIT’s stock price closed at $22.41 per share on Friday, March 25 compared with $22.15 a year ago.