Senior Housing Properties Trust Earnings Call Nuggets: MOB Portfolio and Acquisitions Timetable

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

MOB Portfolio

James Milam – Sandler O’Neill: My first question is on the MOB portfolio. So the same-store number if I heard you correctly does no longer includes the Philadelphia Life Science building correct?

David J. Hegarty – President and COO: Yes, we took that out of the statistics, results of operations.

James Milam – Sandler O’Neill: So, I guess my question is the same-store NOI was down, but it looks like you guys had some pretty good leasing velocity. Can you just I guess may be tell us how much of that include or is impacted by leases that have been signed but haven’t commenced paying rent and what your outlook is maybe as those tenants take occupancy further kind of through the rest of the year?

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David J. Hegarty – President and COO: Sure, with the new leases that have been signed as you said, one thing that’s unique about office statistics is that the occupancies that are stated here are as of quarter end and do include leases that are for future occupancy. I would expect that nearly merely is probably only about a 0.5% of the say 95% that’s in place as of quarter end. The leasing is looking pretty good for renewals and so on going forward. I’d say in a couple of properties we have situations where we’ve extended the leases, but had to reduce the rents a bit to keep them in place, but most of the typical doctors’ offices and so on, we’re seeing modest increases, a couple of percent, so net-net probably the growth will be more or less flat though, I’d say for this year.

James Milam – Sandler O’Neill: So, maybe slightly positive into the second half to kind of offset the diff in the first quarter?

David J. Hegarty – President and COO: Right, and also we expect some and improvement on the expense side too.

James Milam – Sandler O’Neill: Then just moving to the managed communities, it sounds like the work is progressing there kind of in line with expectations, is there, I guess when you guys are going through some of the major projects is that kind of evenly spaced over the next four to six quarters or are there any quarters where there may be more disruption in terms of what’s going on at the resident level on your ability to keep the units full?

Richard A. Doyle, Jr. – Treasurer and CFO: We’re budgeting that it’s going to be consistent, quarter-over-quarter. We don’t have any real uptick to take on any specific one quarter over the next four to six quarters.

David J. Hegarty – President and COO: Right, what you’re seeing right now is actually a lot of the Vi and early Bell transactions, a lot of the CapEx being fully implemented now and some of the projects are wrapping up. So, Sunrise projects are – some of it’s just commencing right now. So, it should say pretty much, more or less consistent over the rest of the year.

James Milam – Sandler O’Neill: Then Dave, just my last question, you mentioned the margin last quarter was 27.5% and now it’s 30.5%. Is that for everything except the former Sunrise assets?

David J. Hegarty – President and COO: That is correct.

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Acquisitions Timetable

Jorel Guilloty – Morgan Stanley: I had a question on acquisition. So, you said on the last call that you’ve envisioned $300 million to $400 million of acquisitions for the year. You mentioned earlier on this call that acquisitions pace has been slower if you will, especially if I compare what you’ve announced closest is $120 million versus $340 million at this point last year. So, what I wanted to get is a little bit more color as to timing, as to when you expect the acquisitions pace to quicken and a little bit more color as to what exactly is driving this slowness if you will so far this year?

David J. Hegarty – President and COO: Well, I think it’s fair to say that most, but not all of the large portfolios of senior living properties out there have already probably been acquired. So now it’s this handful of major of large portfolios that still could be acquired, but generally we’re seeing the one-off in small portfolios and those typically are a developer has developed a property or two or somebody is trying to turnaround over the last couple of years and is bringing it to market, now that it’s stabilized and probably going to get some very good value for the pricing. So, I think we had people who were rushing to get what they could get done before year end last year to take advantage of what if you recall back in December nobody was quite sure of what the tax increases were going to be but they know they were going to be going up. So, there are a lot of closings that occurred in December. Then January just first couple of weeks started off really quite slow, but we’re seeing I would probably say a half dozen opportunities a week to consider. So, I think it’s starting to pick up to pretty much a steady pace where it was in the middle of last year and I think there is also considerable amount of capital chasing senior living and medical office buildings. So, it clearly probably will affect pricing and drive down cap rates a bit more. But a truly Class A product that’s coming out one at a time typically and now it’s probably going to be fives and sixes for cap rates. I would say the A minus B properties will still be in the 7th, and I guess we see a pretty steady amount of individual assets in that category. In medical office it’s probably similar, where I expect more of our growth to come from medical office this year than from Senior Housing and it’s because we are seeing a lot more opportunity there and again it’s in our $10 million to $25 million per transaction type sweet spot, where we can compete very effectively. (Indiscernible) give you some color on it.

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Jorel Guilloty – Morgan Stanley: When you say 5 and 6s are you talking about individual assets or small portfolios?

David J. Hegarty – President and COO: Individual Class A or A plus assets. There are some that are just hit their stride this year and have been coming to market about once every other week and those tend to be trophies and its lot of money chasing them so.

Jorel Guilloty – Morgan Stanley: Then on their call this morning and as a corollary to the cap rate compression comment, Five Star mentioned that they are actually looking more into redevelopment to drive returns just because of where pricing is right now. It this an area of more interest to you and if so how would you to intend to participate, would you do investments on — direct equity investments yourself, would you provide loans to our your tenants. Is it something that’s been more considered now given where cap rates are at?

David J. Hegarty – President and COO: Right. It is something we are actively considering and I know we already have a mechanism in our Five Star leases, where they will do the improvements and then look for us to reimburse them, basically, and when we do reimburse them, the rent will go up at typically 8% on the dollars invested and during the quarter, we did a bit over $8 million in the first quarter, that type of expenditure, a revenue producing expansion let’s say. So, I would expect that number to pick up as they expand certain properties that are under our leases. I’m trying to think – there are a few locations too where it may even make sense for them to do a whole new facility catering to all time care or assisted living and we may or may not because, some of those standalones and we also have done it for other tenants, some of our private operators, we’ve funded expansions there too and every case we get a return on investment and we structure it as additional rent.

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