Senior Housing Properties Trust (SNH)

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Senior Housing Properties Trust (SNH)

Q3 2010 Earnings Call Transcript

November 1, 2010 1:00 pm ET

Executives

Tim Bonang – VP, IR

David Hegarty – President and COO

Rick Doyle – Treasurer and CFO

Analysts

Todd Stender – Wells Fargo Securities

Tayo Okusanya – Jefferies & Company

Jerry Doctrow – Stifel Nicolaus

Dana Galen [ph] – Bank of America

Dustin Pizzo – UBS

Kevin Ellich – RBC Capital Markets

Buck Horne – Raymond James

David AuBuchon – R.W. Baird

Presentation

Operator

Ladies and gentlemen thank you for standing by and welcome to the Senior Housing Properties Trust third quarter conference call. At this time all participants are in a listen only mode. Later we will conduct a question-and-answer session instructions will be given at that time. (Operator instructions). As a reminder this conference is being recorded.

I’d now like to turn the conference over to our host Mr. Tim Bonang. Please go ahead.

Tim Bonang

Thank you and good afternoon everyone. Joining me on today’s call are David Hegarty, President and Chief Operating Officer and Richard Doyle, Chief Financial Officer. Today’s call includes a presentation by management followed by a question-and-answer session. I’d also note that the recording or retransmission of today’s conference call is strictly prohibited without prior written consent of SNH.

Before I begin today’s call I’d 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 November 1, 2010.

The company undertakes no obligations 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 FAD are available on pages 11 and 14 in our Q3 supplemental, operating and financial data package found on our Web site 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 difference is contained in our Q3 2010 Form 10-Q to be filed with the SEC later today. Investors are cautioned not to place undue reliance on any forward-looking statements.

With that I’d like to turn the call over to David Hegarty.

David Hegarty

Thank you, Tim and good afternoon, everyone. Thank you for joining us. We are very pleased with the results. For the third quarter we continued to have a strong performance portfolio coupled with ample liquidity with a solid balance sheet. Before we get into the details I’d like to review some of the highlights for the quarter.

In August our senior unsecured debt rating was upgraded to Baa3 by Moody’s, as well in September our corporate rating was upgraded to BBB-minus by Standard and Poor’s.

Additionally, subsequent to quarter end we raised our quarterly dividend by $0.01 per share or 2.8% to $0.37 per share. On past decade we have raised the dividend by an average of $2% per year and with our stock price appreciation our total return has been over 450%.

For the third quarter of 2010 we generated funds from operations of $0.42 per share as compared to $0.41 per share for the same quarter a year ago. We made modest investments during the quarter, which helped to further diversify our revenues and our asset types. Our $550 million revolving credit facility remains almost completely undrawn and we have no near term debt maturities.

During the quarter we closed on two Class A medical office buildings, which we mentioned in the last call totaling $28.2 million and subsequent to quarter end we closed on another Class A medical office building for $15 million.

Additionally, we funded $8 million of capital improvement for the expansions at senior living properties. We remain optimistic that there will continue to be numerous investment opportunities to consider for the remainder of 2010 and into 2011.

Before I get into the details of our portfolio the acquisition environment and our outlook Rick will review our results for the quarter.

Rick Doyle

Thank you Dave and good afternoon everyone. Rental income for the third quarter increased by $9 million or 12% to $81 million as compared to the third quarter of 2009. General and administrative expense increased $357,000 or 7% to $5.5 million.

Our G&A cost as a percentage of revenue remained one of the lowest in the healthcare REIT industry at 6.8%. Depreciation expense increased by $2.8 million or 14% to $22.5 million.

The year-over-year quarterly increase in rental income, G&A and depreciation expense reflects 32 properties acquired since July 2009, partially offset by the sale of six skilled nursing facilities and one medical office building.

Property operating expense increased by $483,000 to $4.6 million compared to the same period in 2009. This increase was primarily due to the acquisition of 21 medical office buildings acquired since July 2009, and in most cases, these operating expenses are recovered from the tenant.

Interest expense for the third quarter 2010 was $4.3 million higher versus the 2009 period. This increase is primarily due to the interest in amortization of deferred financing fees relating to our agency debt with Fannie Mae, which closed in August 2009, as well as the $200 million of senior unsecured notes issued in April 2010, offset by the lesser amount outstanding under our revolving credit facility and the redemption of $97.5 million of senior unsecured notes due 2015.

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