Senior Housing Properties Trust (SNH)

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Senior Housing Properties Trust (SNH)

Q1 2010 Earnings Call

May 4, 2010; 11:00am ET


David Hegarty - President & Chief Operating Officer

Rick Doyle - Chief Financial Officer

Tim Bonang - Vice President of Investor Relations


Todd Stender - Wells Fargo Securities

Jerry Doctrow - Stifel Nicolaus

Omotayo Okusanya - Jefferies & Co.

Kevin Ellich - RBC Capital Markets

Andrew Yu - Bank of America/Merrill Lynch



Good day, and welcome to the Senior Housing Properties Trust, first quarter 2010 financial research 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.

Tim Bonang

Thank you and good morning everyone. Joining me on today’s call are David Hegarty, President and Chief Operating Officer; and Rick Doyle, 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 transmission of today’s conference call is strictly prohibited without prior written consent of SNH.

Before we begin today’s call, 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 Federal Securities laws.

These forward-looking statements are based on Senior Housing’s present beliefs and expectations as of today, May 4, 2010. 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 funds from Operations or FFO. A reconciliation of FFO to net income, as well as components to calculate AFFO, CAD or SAD are available on pages 11 and 14 on our Q1 supplemental operating and financial data package found on our website at

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 2010 Form 10-Q to be filed with the SEC by the end of the day tomorrow. Investors are cautioned to not place undue reliance on any forward-looking statements.

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

David Hegarty

Thank you Tim, and good morning everyone, and thank you for joining us. For the first quarter 2010, we generated $0.43 pre share of funds from operations, which is consistent with consensus expectations, and once again we ended the quarter with a strong balance sheet. SNH continues to be lowly levered with no-near term debt maturities.

Since our last conference call two months ago, things have been quite on the transaction front. During the quarter, we funded capital improvements and expansions at our accumulating properties, and on April 1 we closed on an acquisition on the medical office building located in Colorado.

Additionally, subsequent to the quarter we issued $200 million of senior unsecured notes due in 2020, and have given notice to redeem the $97 million of senior notes due in 2015. Before I get into the details of our portfolio, the acquisition environment, and the outlook, Rich will review our results for the quarter.

Richard Doyle

Thank you Dave, and good morning everyone. Looking first to the income statement, rental income increased by $12.1 million to $80.4 million, or 18% compared to the first quarter of 2009.

General and administrative expense increase $750,000 or 16%, to $5.5 million, and depreciation expense increased by $3.9 million or 21% to $22.3 million, compared to the first quarter of 2009.

The year-over-year quarterly increase and rental income, G&A and depreciation expense, reflects properties acquired since January 2009, partially offset by the sale of four properties in 2009.

Property operating expenses increased by $1.4 million or 48%, to $4.4 million due to our acquisitions of MOBs since January 2009. Percentage rent revenue from our senior living tenants for the first quarter of 2010 increased 19% to $2.5 million versus the first quarter of 2009.

The percentage rent revenue now includes that 30 senior living communities acquired in 2008, leased to Five Star Quality Care and are based on 2009 revenues. In 2010, 170 of the 190 senior living communities leased to Five Star and all of the Sunrise Senior Living and Brookdale Senior Living Communities are on this revenue sharing formula.

Interest expense for the first quarter of 2010 was $7.6 million higher versus the 2009 period, due to the interest in amortization of deferred financing fees relating to our new agency debt with Fannie Mae, offset by lesser amount outstanding under our revolving credit facility at lower interest rates.

For the first quarter of 2010, our FFO was $54.8 million or $0.43 per share, compared to $52.1 million or $0.44 per share for the same period in 2009. In April, we declared a dividend of $0.36 per share, which represents a payout ratio of 84% of our first quarter FFO.

During the first quarter, we have assets of $6.2 million into revenue producing capital improvements. On April 1, we acquired one medical office building located in Colorado for $4.5 million. We funded this acquisition using cash on hand, and by assuming a mortgage loan totaling $2.5 million, with an interest rate of 6.7%, but going in cap rate on this investment is 9.5%.

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