Senior Housing Properties Trust (NYSE: SNH) today announced that it has entered agreements for early terminations of leases for 10 senior living communities (2,472 living units) currently operated by Sunrise Senior Living, Inc. (NYSE: SRZ). As and after appropriate regulatory approvals are obtained, SNH expects to lease these communities to its wholly owned taxable REIT subsidiaries (“TRSs”) and the communities will be managed by Five Star Quality Care, Inc. (NYSE: FVE).
On December 30, 2011, SNH announced that Sunrise notified SNH that it would not renew these 10 leases when the current terms end on December 31, 2013. Sunrise’s obligations under these leases are guaranteed by Marriott International, Inc. (NYSE: MAR), the former tenant of the 10 communities, and the renewal of these leases required MAR’s approval. The agreement announced today will accelerate the terminations of these leases and the transfers of these operations from Sunrise to SNH’s TRSs. Also, SNH will purchase the inventory and certain improvements owned by Sunrise at these communities for a total of $1 million.
The 10 communities had combined average occupancy in 2011 of approximately 87% and combined gross revenues of approximately $115.6 million. A large majority of these revenues were paid by residents from their private resources, not from Medicare or Medicaid government funded programs. The minimum rents historically paid by Sunrise to SNH for these communities were approximately $13.5 million per year (plus percentage rents of approximately $2.8 million based upon revenue increases at these communities) and the net cash flow historically realized from operations of these communities in 2011 was approximately 1.5x the minimum rents due to SNH. The ten communities are located in six states: Arizona, 2 communities (293 living units); California, 1 community (393 living units); Florida, 4 communities (1,163 living units); Illinois, 1 community (364 living units); Texas, 1 community (145 living units); and Virginia, 1 community (114 living units).