Senior Housing Properties Trust (SNH)

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Senior Housing Properties Trust (SNH)

Q1 2013 Earnings Call

April 29, 2013 1:00 p.m. ET

Executives

Tim Bonang – Vice President, Investor Relations

David Hegarty – President and Chief Operating Officer

Richard Doyle – Treasurer and Chief Financial Officer

Analysts

James Milam - Sandler O'Neill

Jorel Guilloty - Morgan Stanley

Michael Carroll - RBC Capital Markets

Daniel Bernstein - Stifel Nicolaus

Todd Stender - Wells Fargo

Presentation

Operator

Good day and welcome to the Senior Housing Properties Trust First Quarter Financial Results Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Vice President of Investor Relations, Mr. Tim Bonang. Please go ahead, sir.

Tim Bonang

Thank you and good afternoon, everyone. Joining me today in this call are David Hegarty, President and Chief Operating Office, and Rick Doyle, Treasurer and Chief Financial Officer.

Today’s call includes a presentation by management followed by a question-and-answer session. I would also note that the recording and retransmission of today’s conference call is strictly prohibited without the prior written consent of Senior Housing.

Before we begin, I would like to state that today’s conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based upon Senior Housing’s present beliefs and expectations as of today, April 29, 2013.

The company undertakes no obligation to revise or publicly release the results of any revisions to the forward-looking statements made in today’s conference call other than through filings with the Securities and Exchange Commission or SEC regarding this reporting period.

In addition, this call may contain non-GAAP numbers, including normalized funds from operations or normalized FFO. A reconciliation of normalized FFO to net income and the components to calculate AFFO, CAD or FAD are available on our supplemental operating and financial data package found on our website at www.snhreit.com.

Actual results may differ materially from those projected in any forward-looking statements. Additional information concerning factors that could cause those differences is contained in our filings with the SEC. Investors are cautioned not to place undue reliance upon any forward-looking statements.

Now, I would like to turn the call over to Dave Hegarty.

David Hegarty

Thank you Tim and good afternoon everyone. Thank you for joining us on today’s call. Earlier this morning we reported normalized funds from operations or normalized FFO of $0.43 per share for the first quarter of 2013, in line with our expectations. Rick will discuss our year over year quarterly results in further detail later on in this call.

To start off, I’d like to review some of the important highlights from the first quarter. We continued to have an industry leading 94% of our revenues through private pay tenants. I think it’s best to discuss the portfolio of the three operating primary segments. Approximately 49% of our net operating income or NOI is derived from triple-net senior living investments, 32% from Medical Office Buildings and another 15% from managed senior living communities which are leased through our Taxable REIT Subsidiary or TRS.

In addition, 4% of our NOI is derived from wellness centers. Occupancy and rental coverage in our triple-net senior living communities was strong and essentially unchanged for the 12 months ended December 31, 2012 or the prior year period. Our managed senior living communities began to demonstrate internal growth and we believe these properties have the potential to add significant long term growth to our overall portfolio.

Same store occupancy at our managed communities was up 430 basis points from last year and same store NOI increased by 3.2%. We’re encouraged by signs of continued improvement here and by the general positive outlook for the industry as a whole.

Our medical office building portfolio was well occupied at 95% at March 31, 2013 and NOI was up 13% since the first quarter last year. We also executed over 300,000 square feet of leasing activity for 3.6% weighted average roll up in rent and a five year weighted average lease term.

On the acquisition front, during the first quarter, we completed $75 million of acquisitions and have approximately $44 million of additional investments under agreement. On the capital markets front, we issued 11,500,000 common shares in January and raised net proceeds of approximately $262 million. We used these proceeds to repay amounts outstanding under our revolving credit facility and to fund additional acquisitions. We still have surplus cash on hand and our $750 million revolving credit facility is currently undrawn.

Our capital needs remain low for the foreseeable future as our debt to book capital is conserved at 39%. Last, but not least, our Board declared a dividend earlier this month of $0.39 per share, representing a $0.055 yield after Friday’s close.

Looking now at the details of our acquisition activity for the quarter, since January 1 we have acquired one private pay senior living community and three Medical Office Buildings for a total of $75 million, including assumption of $12.3 million of mortgage debt. The senior living community located in Redmond, Washington, has 150 units and is triple-net leased to Stellar Senior Living, an independent operator. Two of the medical office buddings are located in Bothell, Washington and contain 145,000 square feet of primarily state of the art research and lab space. These properties are 100% leased to Seattle Genetics. The other medical office building is located in Hattiesburg, Mississippi and has 72,000 square feet and is leased to six tenants with the primary tenant being Forrest General Hospital, an A rated hospital system. The weighted average cap rate for these acquisitions was 8.6%.

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