Senior Housing Properties Trust Earnings Call Nuggets: TRS Operating Asset Margins, GAAP Rents

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

TRS Operating Asset Margins

Jana Galan – Bank of America: I wanted to follow-up on your TRS operating asset margins, and where do you think those margins can get to, and is it driven primarily through occupancy or are there still expenses that could be taken out?

David J. Hegarty – President and COO: Well, for the quarter the operating margin was about 28%, and typically for independent and assisted living properties, they are significantly higher than that. It’s probably another about 10% that they could grow to mid-30s for independent living if its running on all cylinders could certainly be north of 40%, but I would say this portfolio should – when we get there with increasing occupancy and rates and there is probably still some expense efficiencies that we can obtain, but I would say something – mid-30s would be more appropriate.

Jana Galan – Bank of America: Then just quickly on the MOBs, it seemed that renewals were down on GAAP rent, maybe if you can just touch upon that?

David J. Hegarty – President and COO: Let’s see. On the new renewals that we pictured into this period, we actually had a significant increase in renewals and the rates in the northeast, particularly the Boston area as well as the southwest of Cedars-Sinai and a few properties in Virginia where we had a softness was in Long Island area, and also some of the other Maryland locations, but overall I think it was about 17% increase in new leases and renewals entered into during this quarter.

GAAP Rents

Omotayo Okusanya – Jefferies: Just following on Jana’s question about the – I think she was focused on just the negative change in GAAP rents purely on the renewals – the 22 renewals you did in the MOB portfolio this quarter. Was that that one or two renewals just skewed the whole number?

David J. Hegarty – President and COO: It was I would say the – there are a couple locations where they did have a decline. Considering there’s not a lot of activity that occurs during the quarter, so it doesn’t take much to skew it, but on the renewals, yeah, pretty much New York was I’d say the one that had mostly declines on renewals?

Omotayo Okusanya – Jefferies: Of about how much, Dave?

David J. Hegarty – President and COO: Let’s see. Those were in the Long Island area was about 11% decline in rates.

Omotayo Okusanya – Jefferies: And then just back to the TRS portfolio on the senior housing side, I believe (you’ve got around) five acquisitions or so to close and if I heard correctly Rick said the run rate going forward was to be about $36 million, which is currently about where it’s at right now. Did I hear that correctly or did I mishear something?

Richard A. Doyle, Jr. – Treasurer and CFO: No that’s right Tayo. We expect that to be a good run rate and as we close on acquisitions it will increase accordingly.

Omotayo Okusanya – Jefferies: So the $35.5 million right now is sort of 23 you own and as you add acquisitions then that number will grow?

Richard A. Doyle, Jr. – Treasurer and CFO: Yes.

Omotayo Okusanya – Jefferies: Okay got it. And the five that you have outstanding right now if I recall correctly, those are better assets that will automatically expand the NOI margins?

Richard A. Doyle, Jr. – Treasurer and CFO: Yes. Since we announced these acquisitions the properties have been improving and remember one of these will not close until the second half of 2012.

Omotayo Okusanya – Jefferies: Okay that makes sense. Then the asset that you guys declined to buy after you did the due diligence, could you talk a little bit about that and what caused that?

David J. Hegarty – President and COO: Well, I can’t give too many specifics, but there was actually a biotech property that in the diligence we discovered that they (weren’t) a long-term player for that property and the re-leasing would be very expensive and so on. So we decided to pull the plug on it and terminate the transaction.