Five Star Senior Living agrees to Senior Housing arrangement changes

By Caroline Salls

Pittsburgh, April 2 – Five Star Senior Living Inc. has entered into a definitive agreement to modify its existing business arrangements with Senior Housing Properties Trust, according to a news release.

Five Star said it expects its current financial position and near-term liquidity challenges will be immediately improved because of the transaction.

“We evaluated multiple options to find a solution that would remedy Five Star’s deteriorating financial position and near-term liquidity challenges ranging from the restructuring agreement we have announced today to seeking bankruptcy protection to reorganize Five Star,” Barbara Gilmore and Donna Fraiche, co-chairs of a special committee of Five Star’s board of directors, said in the release.

“While Five Star is issuing a substantial ownership stake to SNH and SNH shareholders as part of this restructured business arrangement with SNH, we think it is in the best interest of Five Star because this transaction provides both an immediate solution to Five Star’s liquidity challenges and provides a materially improved long-term financial outlook for Five Star.”

Five Star president and chief executive officer Katie Potter said in the release “I am pleased that Five Star and SNH have come to an arrangement which materially improves our long-term financial outlook as well as addresses our short-term liquidity challenges and enables us to repay $52 million that is drawn under our revolving credit facility that matures on June 28, 2019.

“I am also pleased that today’s announcement removes the cloud of uncertainty that has hung over Five Star recently.”

Transaction details

Under the transaction, Five Star’s total monthly rent payments, retroactive to Feb. 1, for the senior living communities that it leases from Senior Housing have been reduced to $11 million from $17.4 million.

Five Star has sold roughly $50 million of property, plant and equipment to Senior Housing related to the senior living communities it leases.

Five Star has entered a $25 million short term revolving credit facility provided by Senior Housing that carries a 6% interest rate on any drawn amounts and matures on Jan. 1, 2020. This credit facility currently has no amount outstanding.

Effective Jan. 1, 2020, the existing five master leases of 184 senior living communities that are leased from Senior Housing as well as existing management agreements and pooling agreements affecting 77 communities will be terminated and replaced with new management agreements for all 261 senior living communities owned by Senior Housing and operated by Five Star.

Share issuances

Simultaneous with the conversion of the existing lease and management agreements into new management agreements, Five Star said it will issue common shares to Senior Housing and Senior Housing shareholders such that their ownership of Five Star will be equal to 34% and 51%, respectively, post-issuance.

At the same time, the company said Senior Housing will reduce Five Star’s credit facility debt, assume specified liabilities of Five Star or make a cash payment to Five Star in an amount equivalent to $75 million.

The transaction was unanimously approved by both the special committee of Five Star’s board and the entire Five Star board and is expected to close on Jan. 1, 2020.

The share issuances are subject to the approval of a majority of Five Star’s stockholders. Senior Housing and ABP Trust, which currently collectively own about 44% of Five Star’s outstanding common shares, have both agreed to vote in favor of the issuances.

Citigroup Global Markets Inc. is acting as exclusive financial adviser to the special committee, and Ropes & Gray is acting as legal counsel.

Based in Newton, Mass., Five Star operates senior living communities.

© 2015 Prospect News.
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