Sunrise Leases Terminated by Senior Housing Properties Trust
Newton, Mass-based Senior Housing Properties Trust (NYSE: SNH) received notice from McLean, VA-based Sunrise Senior Living, Inc. (NYSE: SRZ) that Sunrise’s leases for 10 senior living communities which have a total of 2,472 living units will be terminated effective December 31, 2013.
Sunrise currently leases 14 senior living communities from SNH and its obligations under those leases are guaranteed by Marriott International, Inc. (NYSE: MAR).
These leases would have been automatically renewed on December 31, 2013 for five years had Sunrise not given notice. The five year lease extensions would have automatically extended Marriott International’s guarantee to SNH.
“SNH believes that Marriott declined to permit Sunrise to extend Marriott International’s guarantee obligations for 10 of the 14 communities and, accordingly, that Sunrise was required to give notices of termination for the 10 leases,” wrote Senior Housing Properties Trust in a release.
The 10 communities were 87.4% occupied during the 12 months ended September 30, 2011 and produced cash flow coverage of SNH’s minimum rents for the same period of approximately 1.6 times on a weighted average basis. Minimum rents received by SNH for the 10 affected communities for the 12 months ended September 30, 2011 were approximately $14.2 million.
Sunrise has offered to extend its leases for all 14 communities on their existing terms without a guarantee from Marriott International; but SNH declined.
A spokesman for SNH explained that SNH believes the financial and other terms of the 10 leases which are the subject of Sunrise’s notice are favorable to the tenants based upon current market conditions. SNH also believes that Sunrise’s current credit characteristics require changes in those terms to offset any loss of credit support provided by Marriott International‘s guarantees to SNH.