Senior Housing Properties Trust Earnings Call Nuggets: Potential Acquisition Pipeline, Yields on New Deals

On Monday, Senior Housing Properties Trust (NYSE:SNH) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Potential Acquisition Pipeline

Jana Galen – Bank of America Merrill Lynch: Can you discuss what you’re viewing in your potential acquisition pipeline going through yearend in terms of property type, what you’ve seen with cap rates and also what is your preference in terms of growing exposure to MOBs, senior housing triple-net and senior housing TRS?

David J. Hegarty – President and COO: What we’re predominantly looking at are the smaller one-off transactions, the small portfolios. I expect to do probably about maybe two-thirds or so of senior housing versus MOBs, although I think that’s partly a reflection of the environment that’s – opportunities out there right now. The MOBs were being a little more aggressive to try to bring up that percentage of our portfolio. We would like to bring it up to more in the range of like 40% of our portfolio or better. But in order to win something of size there, you have to significantly reduce your cap rate, but we’re finding a number of opportunities in the high 7s to low 8s for both medical office and senior housing.

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Jana Galen – Bank of America Merrill Lynch: And then maybe if you could just clarify for the realignment of leases with Five Star you did in August. Did that change any of the bundles or did those 10 Sunrise assets just get placed into those leases? How did that work?

Richard A. Doyle, Jr. – Treasurer and CFO: That’s really related to when we paid off the Fannie Mae debt, the $199 million, and we were able to release 11 of the 28 properties from lease number three and what we did, we just spread those 11 properties into lease number one, two and four, and at that time, it just helped realign the rent coverages and we include all prior periods for that occupancy and rent coverage and location of those 11 properties, and we just disburse them in between those (three other) leases.

David J. Hegarty – President and COO: Right. And the Sunrise properties are totally separate topic and those are going into our taxable REIT subsidiary as licenses get approved and as they are allowed to be rolled off of the leases to Sunrise and into our TRS portfolio.

Jana Galen – Bank of America Merrill Lynch: Then are those 11 unencumbered assets, did anything change in terms of their rents or lease term?

Richard A. Doyle, Jr. – Treasurer and CFO: No. We look at all four leases as (one, two), so the bottom line, nothing changes.

David J. Hegarty – President and COO: But the (economics) of the rents and stuff was unchanged.

Yields on New Deals

James Milam – Sandler O’Neill: Can you just go over the yields on the acquisitions that you closed in the quarter and also what you expect the yields to be on the deals that you’ve announced pending for the fourth quarter?

David J. Hegarty – President and COO: Sure. I mean there is a schedule in the supplemental, but broad picture, there were two properties that we closed on that had cap rates in the 7s, say around 7.3%. So one was the Yonkers New York property that was the last remaining property and one in Pompano Beach, Florida was a Medical Office Building that’s 80% leased and it’s physically adjacent to one of the senior living properties in our TRS, and we expect to move that occupancy up considerably, so our yield at the end of the day should be a lot better. Everything else has been pretty much in the low 8s for cap rates, about 8.28 in the quarter and what’s in the pipeline today pretty much again in that low-to-mid 8 cap rate range.

James Milam – Sandler O’Neill: On the debt that you guys are assuming, is any of that – I guess what’s the maturity on that debt and as any of that available, do you prepay at any point or would it be (indiscernible) what currently is a little bit higher of a yield for a while?

Richard A. Doyle, Jr. – Treasurer and CFO: We focus on the pending acquisitions, if we can prepay, we will prepay it. That’s our first priority. This debt is about four, five years out and pre-payable a year or two from maturity date and we are always evaluating any prepayment opportunities we can get, but these are about four or five years out and so we have to wait for a year or two prior.

James Milam – Sandler O’Neill: My last one, the MOB same-store stats were down a little bit. I think you mentioned in the prepared remarks that’s really just based on the Philadelphia asset. Is that correct? And maybe could you talk about trends in the MOBs for the same-store portfolios if you exclude that asset what they would look like?

David J. Hegarty – President and COO: That’s probably if you were to point out one thing that affected the number the most from comparison year-over-year that would be the main asset. Everything else had modest improvement offsetting that from the other assets, so net-net we were just down a little bit. Some of the things you are seeing in the portfolio, we are seeing some situations where some of the doctors’ groups are splitting up in some properties that have been leased to one tenant are now multi-tenanted. Rents are holding up very well. I’d say we have some properties in the Southwest where it’s little more challenging to release some space but generally it’s not significant. So, it is a very stable portfolio, but I’d say that one particular asset excuse the numbers I should say.