Diversified Healthcare Trust (Nasdaq: DHC) is making progress on its plan to transition 108 communities operated by Five Star Senior Living (NYSE: FVE) to new operators by the end of 2021.
The Newton, Massachusetts-based real estate investment trust (REIT) announced three new management agreements with operators for 66 communities, accounting for 61% of the portfolio Diversified and Five Star, also based in Newton, agreed to transition in April.
The three operators are Naperville, Illinois-based Charter Senior Living; Roswell, Georgia-based Phoenix Senior Living; and Alpharetta, Georgia-based Oaks Senior Living.
Charter will manage communities in Florida, Maryland, Tennessee, and Virginia.
Phoenix will manage facilities in Alabama, Arkansas, Kentucky, Missouri, North Carolina and South Carolina.
Oaks will assume management of 26 communities in Georgia and South Carolina, which will be rebranded under the Oaks Senior Living banner, CEO Alex Salabarria told Senior Housing News.
Oaks has an existing relationship with Diversified. The REIT acquired three communities from the operator nearly six years ago. All of the communities will be managed under third party management agreements.
Phoenix Senior Living President and CEO Jesse Marinko declined to disclose to SHN the total number of communities for which the company is assuming operations. But many of the buildings will be rebranded under “The Bungalows,” targeting middle-market seniors in rural markets.
At the time of publication, Charter had not replied to requests for comment from Senior Housing News.
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The transitioned communities total 4,084 units within Diversified’s senior housing operating portfolio (SHOP), and the REIT remains on target to transition the remaining communities to new operators by the end of the year, President and CEO Jennifer Francis said in a statement.
The transitioned communities and those remaining to be transferred to new operators represent some of the smaller assets in Five Star’s portfolio, and accounted for less than 12% of the operator’s total management and operating revenues in 2020.
Transitioning the communities to new operators will allow Five Star to focus on its larger senior housing communities, standalone active adult and independent living facilities, and Ageility, its rehabilitation and wellness segment which has seen substantial growth in recent years.
The new operating agreements run five years at market rates, including base and incentive management fees. In certain circumstances, the terms are more favorable than the previous agreements with Five Star, which Diversified believes will provide strong incentives for performance and alignment of interests, and expedite a post-pandemic recovery, Francis said.
As of December 31, 2020, Diversified had 235 senior housing assets in its SHOP portfolio, along with 25 under triple-net leases.