Senior Housing Properties Trust (SNH)

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Senior Housing Properties Trust (SNH)

Q2 2013 Earnings Call

July 30, 2013 10:00 AM ET

Executives

Timothy Bonang – VP, IR

David Hegarty – President and COO

Richard Doyle – Treasurer and CFO

Analysts

Juan Sanabria – Bank of America/Merrill Lynch

Michael Carroll – RBC Capital Markets

Omotayo Okusanya – Jefferies

Daniel Bernstein – Stifel Nicolaus

Todd Stender – Well Fargo Securities

Presentation

Operator

Good day and welcome to the Senior Housing Properties Trust Second 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 the Vice President of Investor Relations, Mr. Tim Bonang. Please go ahead, sir.

Timothy Bonang

Thank you and good morning, everyone. Joining me on today’s call are David Hegarty, President and Chief Operating Officer; 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 transcription, 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, July 30, 2013. The company undertakes no obligation to revise or publicly release the results of any revision 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 in 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 on our filings with the SEC. Investors are cautioned not to place undue reliance upon any forward-looking statements.

And now, I would like to turn the call over to Dave.

David Hegarty

Thank you, Tim and good morning everyone and thank you for joining us on today’s call. Earlier this morning, we reported normalized functional operations or normalized FFOs of $0.42 per share for the second quarter 2013. Our results this quarter were mixed with many positives to note. In short our triple net leased assets were steady with modest growth and our same store senior living portfolio demonstrated outstanding results although the former Sunrise properties underperformed expectations and the same store medical office building underperformed our expectations for the quarter but we remain optimistic. As announced this morning, we have $101 million of acquisitions that are under agreement that will be completed over the next few months which are the big positive given that the (inaudible) were slow coming out of the gate during the beginning of 2013.

We are well positioned today to pursue accretive acquisitions without access to the capital markets conserving the capital we raise in January which we’re still working to fully invest. In addition, after taking an aggressive look at our portfolio, we made the decision to market to sale 18 properties in our portfolio which will generate more cash for investing. With all these moving parts, our board determined in early July to leave the dividend unchanged to $0.39 per share which represents an attractive 5.9% dividend yield as the (inaudible) base close. Occupancy and rental coverage at our triple net senior living communities remained strong and essentially unchanged for the 12 months ended March 31, 2013 over the prior year period.

Same store triple net GAAP rental income for the quarter was up 1.2% year-over-year. Our managed senior living communities demonstrated strong internal growth and same store occupancy for the second quarter was up 390 basis points from the same period last year and same store NOI increased by an impressive 7.9%. Our medical office building portfolio remained well occupied at 94% at quarter end and total NOI was up 13% since the second quarter last year. However, same store NOI declined primarily due to a decline in same store occupancy since last year as a result of the few earlier lease terminations.

On the acquisition front since April 1st we entered in two agreements to acquire five properties for total of $101 million. Four properties of private pay senior living communities with 306 units located in Georgia Tennessee totaling $51 million and will be added to our senior living portfolio. The fifth property was 105,000 square foot biotech laboratory building located in Boston for $50 million. This property will be leased to Perkinelmer a publicly traded investment grade company for a 15 year initial lease term. One private pay senior living community for $22 million which was previously disclosed in Q1 of this year will close on August 1st. We expect the other acquisitions under agreement to close over the next several months.

And as mentioned on our last earnings call, we disclosed an agreement to acquire a medical office building at Cherry Hill, New Jersey for $21.5 million. During June, we terminated this acquisition due to results of our diligence process. As I mentioned earlier after taken an aggressive look at our portfolio decision was made to market the sale 18 properties including 11 senior living communities with 856 units and seven medical office building with 831,000 square feet. The 11 senior living communities consist of seven skilled nursing facilities and four assisted living communities and have an aggregate net book value of $15.5 million. The seven medical office buildings were 99.3% occupied with a weighted average remaining lease term of one year.

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