Senior Housing Properties (SNH) in lease discussions with largest tenant.

During Senior Housing Properties' 4Q'18 earnings call today, the company announced that it has entered into discussions with tenant Five Star Senior Living regarding a possible lease restructuring.  Five Star currently represents approximately 28% of SNH's annualized rental income.  The lease discussions follow Five Star's own admission in November that there is substantial doubt about its ability to continue as a going concern.  Five Star's ability to cover rent has declined steadily during 2018, reaching 1.0X on a trailing 12-month basis as of September 30, 2018.

As noted on the call, any reset of the Five Star rental rates (presumably to market coverage levels) would have a corresponding negative impact on SNH cash flows "and possibly our distributions to shareholders."  As SNH's dividend payout ratio for 2018 is already in excess of 100% of AFFO according to REIT/BASE, there is essentially zero earnings cushion to absorb any fallout with Five Star.

SNH is currently rated Baa3/Negative by Moody's and BBB-/Negative by S&P.