# Senior Housing Properties Trust Earnings Call Insights: G&A Calculations and the NOI Margin

Senior Housing Properties Trust (NYSE:SNH) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

G&A Calculations

James Milam – Sandler O’Neill: First question for you on the G&A, can you maybe just help me out with the math as to either – I guess I thought that G&A was based on a percentage of assets and went down sequentially. I’m just curious if there was something else in that number or if I’m thinking about the way it’s calculated incorrectly?

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David J. Hegarty – President and COO: Yes, SG&A actually grew year-over-year from third quarter 2012 to the fourth quarter 2012. It went down and we incurred some expenses in the third quarter. There’s professional expenses and other expenses that go through our G&A and not just the acquisitions and we incurred some expenses on the third quarter that we didn’t in the fourth quarter. Also in the fourth quarter, we closed on a lot of our properties there, the last week of the quarter. So, the fourth quarter doesn’t take an effective full quarter G&A of the acquisitions. So, modeling for the first quarter, you really have to take the last week of acquisitions in the year, and calculate a full quarter of those and we’ve also closed about \$60 million already in 2013 that you would have to model in there too, but basically to answer your question, quarter-over-quarter did decrease because of some expenses we incurred on third quarter that we did in the fourth quarter.

James Milam – Sandler O’Neill: So, then I guess, another way to think about it is probably \$30 million for the full year of ’13 plus a little bit more for acquisitions, should be about the right number.

David J. Hegarty – President and COO: Yeah, the right number, if you took an average of the third and fourth quarter, maybe about 500,000, probably a good run rate there and then with the acquisition, just making sure that you have a full quarter run rate on any new acquisitions?

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James Milam – Sandler O’Neill: Then, I guess my second question, I’m sorry, can you just repeat what the operating – how the margin was excluding the Sunrise transition asset and then just bigger picture, are the capital expenditures and renovations going on in these communities, are they – basically involve shutting down certain wings over a period of time and I guess the lost NOI, to the extent that, the loss from occupancy declined et cetera, would that be recovered by growth in the other part of the senior housing portfolio and then I guess thinking three to five years out, where do you see the margins for this business going to as everything stabilizes and gets into kind of a normalized state of operations?

Richard A. Doyle, Jr. – Treasurer and CFO: Our margins, if you exclude the 10 former Sunrise communities would be approximately 27.5%, which would be an increase sequential quarters. We do plan on putting on excess capital expenditures on some of those properties that may affect some of the units. We’re going to be very careful on how we pick, which properties we’re going to upgrade to make sure that we do get ample return on any renovations that we do, and we’re going to be very careful not to interrupt too many units also. So it’s something that we’re not going to go out and do all of them all at once and interrupt our whole operations. We will spread this over and as we said in prior quarters, it’s really only one, two or three properties that’s going to have major renovations and it’s going to take some time to put in. It’s going to take the full-year 2013 as well as maybe another six months going into 2014, so we’ll spread it around to make sure that we’re spending it at the right place and we’re going to get returns after they’re all done.

David J. Hegarty – President and COO: James, I will just add, a lot of the issues that are coming up, stuff like carpet and painting stuff should not be that intrusive to make it fairly quick. But a lot of the costs have to do with redoing some of the units that have been vacant. Many of them are not fitted out for occupancy right away, so we will have to do turns for those properties. And then there’s a few issues like a generator or (indiscernible) issues in some of the buildings that will have to be addressed and that’s predominantly exterior related. So, again, I don’t anticipate that it would have a big impact on the performance, but it is disruptive and we are always have compensate for that might B2B discount rates and stuff and give people rates initially and then as soon as the work is done, I don’t want go market into market.

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James Milam – Sandler O’Neill: I guess over the longer term, you would expect these that total portfolio to be in the 30% or higher margin range as everything stabilizes in 2013?

David J. Hegarty – President and COO: Definitely a lot of like V product we acquired is all — 75% independent living and well, that’s well occupied and performing well. You should expect margins closer to a 40% range and then for assisted living independent size of the building and efficiencies you can gain, but you would think that those should be 35% to 40% and then take stay skilled nursing like some of — out of every one of these Sunrise properties had skilled nursing in it and margins in the skilled nursing as you know pretty much single digits in low teens at best, so when you average all that in, probably back to the 30% or 35% margins.

The NOI Margin

Jarail – Morgan Stanley: This is actually (Jarail) with Paul. My first question is following up on James, specifically I wanted to know about the NOI margin, what — how soon do you think you can hit that 30% level with the Sunrise assets in place?

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David J. Hegarty – President and COO: Well, that’s the question what the Sunrise assets in place it’s I mean I would say we’re probably later into the year probably at best I do think that the other (indiscernible) and portfolios and the individual assets can get there I would think during this year, but the Sunrise would take time late this year or early next year.

Jarail – Morgan Stanley: In terms of the recent RIDEA acquisitions you’ve been the last two assets were acquired at yields at/or above 8%. Is this where the cash yields for RIDEA assets are right now or was this specific for these assets?

David J. Hegarty – President and COO: Well, what we had acquired recently were individual assets in individual markets that were complimentary to existing properties but they weren’t deal of East Coast necessarily. So, we believe individual assets can be acquired in the 8. If it’s a 300 unit trophy property then we’ve gone for less, but lower cap rate. If there is a portfolio premium and there are a set of locations that would demand a premium too, urban, difficult to build sites and stuff like that, that might – it’s such a nice quality portfolio it is probably in the 6s at this point, but otherwise we should be able to acquire something in the 7s and like I say individual assets are more likely to be 8 or there about.

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Jarail – Morgan Stanley: Then my last question pertains to the empty Philadelphia Medical Office Building, you mentioned in your initial comments, but could you provide an update as to the plans for the asset are you planning on selling as of this point or looking at lease up?

David J. Hegarty – President and COO: We are still evaluating what we want to do with the property. The property was one that was build out with some lab space in it, for new target will come in, we would have to substantially redevelop the property forum. So, we will do build-to-suit or something of that nature. We’re also concerned why we would sell it. And I think will determine that clearly in first half of this year.

A Closer Look: Senior Housing Properties Trust Earnings Cheat Sheet>>