Five Star Quality Care, Inc. (NYSE: FVE) Set To Generate $112.4 Million In Sale & Lease Back Deal


Five Star Quality Care, Inc. (NYSE: FVE) has agreed to sell and then lease back a portion of its real estate. The transaction will generate $112.4 million for the company, which the management says exceeds the net book value of the assets by nearly $82 million.

The real estate assets that Five Star Quality Care, Inc. (NYSE: FVE) is monetizing are 7 assisted living communities with 545 living units. The communities are located in four states namely North Carolina, South Carolina, Tennessee and Virginia. North Carolina has the highest number of the communities being sold while Tennessee and Virginia have the least number.

FVE is selling the communities to Senior Housing Properties Trust (NYSE: SNH).

Leaseback arrangement

But the sale of assets doesn’t mean that FVE will suddenly stop using them. The company has struck a deal with SNH to continue occupying the facilities under a leaseback arrangement. The initial phase of the leaseback will run for 12.5 years with renewal option. During the first 12.5 years of leaseback, FVE will pay $8.4 million annually in rent.

According to the management of FVE, besides the immediate cash boost from the sale of the communities, they are treating the transaction as an opportunity to reduce rent expenses over the lease period.

What is FVE left with?

Five Star Quality Care, Inc. (NYSE: FVE)’s portfolio includes skilled nursing facilities, assisted living facilities and independent living communities. The sale of the 7 assisted living communities to SNH will leave FVE with 26 senior living communities with close to 2,666 living units and other real estate assets.

What’s the money for?

Five Star Quality Care, Inc. (NYSE:FVE) has outlined how it plans to spend the $112.4 million windfall. First, the company will go into fully repaying its revolving credit facility that had about $60 million outstanding as of June 28. The balance will go into financing other corporate purposes that may include working capital.

What transpired in 1Q for Five Star Quality Care, Inc. (NYSE: FVE)

Five Star Quality Care, Inc. (NYSE:FVE)’s senior living revenue rose 1.8% to $280.1 million in 1Q2016. Increase in average monthly rates supported the topline gain. The company’s EPS loss narrowed to $0.06 from $0.11 a year ago.


1 Comment

  1. Is this an arms length transaction?

    Is the lease back also prepaid by property sale?

    Can the auditors capitalize part of sale?

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