Senior Housing Properties Trust (SNH)

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Senior Housing Properties Trust (SNH)

Q1 2014 Earnings Conference Call

May 2, 2014 13:00 ET

Executives

Kimberly Brown - Director, Investor Relations

David Hegarty - President and Chief Operating Officer

Rick Doyle - Treasurer and Chief Financial Officer

Analysts

Vikram Malhotra - Morgan Stanley

Juan Sanabria - Bank of America

Michael Carroll - RBC Capital Markets

Daniel Bernstein - Stifel

Todd Stender - Wells Fargo

Tayo Okusanya - Jefferies

Presentation

Operator

Good day, and welcome to the Senior Housing Properties Trust First Quarter Financial Results Conference Call. This call is being recorded. I would like to turn the call over to the Director of Investor Relations, Kimberly Brown for opening remarks and introductions. Please go ahead, ma’am.

Kimberly Brown - Director, Investor Relations

Thank you, and good afternoon, 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 transmission of today’s conference call are 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, May 2, 2014. 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.

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 the 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.

David Hegarty - President and Chief Operating Officer

Thank you, Kim and good afternoon everyone. Thank you for joining us on today’s earnings call. Earlier this morning, we were pleased to report to normalized funds from operations or normalized FFO of $0.43 per share for the first quarter, which was in line with our expectations and consensus. We have made great strides year-to-date in executing our strategic plan of strengthening and diversifying our portfolio making accretive acquisitions and increasing the percentage of private pay assets, which was currently an industry leading 96% of NOI. Our acquisition and disposition activities as well as our investments in the RIDEA assets are the cornerstone of driving normalized FFO and dividend growth and improving shareholder value.

Our primary focus this past quarter has been closing on the $1.1 billion acquisition of the Vertex biotech medical office buildings located in Seaport District of Boston. Upon closing this transaction will represent our largest investment in company history and will be transformative to our portfolio. From an asset diversification perspective, MOBs will increase from one-third of our portfolio to over 40% of our NOI. And from the tenant diversification perspective, our largest tenant decreases to approximately mid 30% of our NOI. And finally from a quality perspective, it takes our already high-grade and quality portfolio to next level and be the brand new buildings that is truly state-of-the-art irreplaceable assets set in the premier location.

The Vertex acquisition also meets our economic standards for trophy assets such as this. And as we previously disclosed, this acquisition is expected to be immediately accretive to SNH shareholders. As evidenced by our successful disciplined capital raising activities for the past couple of weeks and consistent with our previous guidance, we are executing on our plan to finance Vertex with approximately 75% debt and 25% equity. In April, we issued 15.5 million shares of common stock and raised net proceeds of $323 million and issued $650 million to 5-year and 10-year unsecured senior notes.

As a result of these activities and consistent with our previous expectations, we remain confident in our accretion guidance of $0.06 to $0.08 per share on a normalized FFO basis and $0.05 to $0.07 per share on an AFFO or CAD basis, after leveling the effect of straight line rent. We currently expect the Vertex transaction to close next week. In the meantime, we continue to focus on other acquisition opportunities and are more typical in size for SNH. In April, we purchased the Texas Center for Athletes, a 125,000 square foot Class A multi-tenant medical office building located in San Antonio’s South Texas Medical Center. The purchase price was approximately $33 million with a GAAP cap rate of 8.9% and the cash cap rate of approximately 8%. The building was 97% occupied and is ideally located adjacent to the San Antonio surgical training facility.

We are continuing to review several acquisition opportunities and will remain selective and disciplined in our strategy. Since the beginning of the year we have made progress in our disposition activities as well. We sold one assisted living facility in Texas for $2.4 million and one medical office building in New Hampshire for $5 million. Currently we have nine remaining senior living communities which are primarily skilled nursing facilities and six medical office buildings held for sale, which we expect to sell over the next couple of quarters.

Read the rest of this transcript for free on seekingalpha.com