Senior Housing Properties Trust (SNH) recently disclosed the sale of two rehabilitation hospitals to a joint venture (JV) for $90 million. The company expects to reap a gain of over $30 million from selling these hospitals.
The two properties — New England Rehabilitation Hospital in Woburn, MA and Braintree Rehabilitation Hospital in Braintree, MA would be sold to a JV comprising affiliates of The Sanders Trust, LLC of Birmingham, AL and Harrison Street Real Estate Capital, LLC of Chicago, IL. Notably, New England Rehabilitation Hospital has 198 licensed beds while Braintree Rehabilitation Hospital comprised 166 licensed beds.
The hospitals, which were acquired in 2002, are currently leased to Five Star Quality Care, Inc. (FVE). As part of the deal, Five Star’s lease of the hospitals would be terminated and the operating rights and obligations would be shifted to entities affiliated with Reliant Hospital Partners, LLC, a private company in Richardson, Texas. The disposition is expected to be completed by about mid-year 2014.
The move comes as Senior Housing Properties continues to lower its exposure to properties that generate a large chunk of their revenues from government funded programs like Medicare and Medicaid. Following the sale, a minimum percentage (only 2%) of Senior Housing Properties’ total revenues would come from the ownership of healthcare facilities where Medicare and Medicaid represent the bulk of revenues.
As a matter of fact, a greater exposure to properties that generate revenue from government reimbursement makes the company’s earnings more susceptible to the politics and whims surrounding such government funding. A cut in the reimbursement rate has an adverse impact on tenants rent coverage that has the capability to negatively impact the REIT’s revenue.
Moreover, though the company would bear the impact of rent reduction from these dispositions, the sale proceeds can be efficiently channelized into other healthcare related real estate. Hence, it is in line with the company’s strategic portfolio repositioning moves.
Senior Housing currently has a Zacks Rank #4 (Sell). However, a number of promising stocks include Sotherly Hotels Inc. (SOHO) carrying a Zacks Rank #1 (Strong Buy) and Highwoods Properties Inc. (HIW) having a Zacks Rank #2 (Buy).
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