Newton’s Senior Housing Properties Trust (SNH) received notice from Sunrise Senior Living Inc. that 10 of its senior living communities leases (2,472 living units) will be terminated effective Dec. 31, 2013.
Sunrise currently leases 14 senior living communities from SNH. Sunrise’s obligations to SNH under the 14 leases are guaranteed by Marriott International Inc. The terms of these leases provide that they are automatically renewed on Dec. 31, 2013 for a five-year renewal term unless Sunrise gives notice to SNH at least two years before the expiration date, and lease extensions automatically extend 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.
Virgina-based Sunrise has locations around the country.
The 10 communities were 87.4 percent occupied during the 12 months ended Sept. 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 (before percentage rent and straight line adjustments).
Sunrise has offered to extend its leases for all 14 communities on their existing terms without a guarantee from Marriott International; but SNH has declined this offer. SNH and Sunrise may continue to discuss leasing the 10 communities before the scheduled lease expirations at year end 2013. However, SNH can provide no assurance that it will reach agreement to continue to lease these affected 10 communities to Sunrise on their current terms, or on any terms, after Dec. 31, 2013.
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.
