Senior Housing Properties Trust Announces First Quarter 2018 Results

By a News Reporter-Staff News Editor at Biotech Week -- Senior Housing Properties Trust (Nasdaq: SNH) announced its financial results for the quarter ended March 31, 2018 (see also Senior Housing Properties Trust).

"2018 is off to a strong start, as we were able to put a large amount of capital to work which will be additive to our portfolio of stable, high quality healthcare real estate," said Jennifer Francis, President and Chief Operating Officer. "During the quarter, we sold $217 million of senior living communities at low cap rates generating significant book gains, and accretively recycled the capital into $155 million of senior living and MOB acquisitions. Since the beginning of 2017, we have sold $812 million of assets and accretively recycled the proceeds into $307 million of acquisitions. We continue to make good progress selectively reinvesting capital into high quality healthcare real estate.

We would also like to recognize and thank David Hegarty for his contributions to SNH since its founding in 1999. His expertise and commitment helped develop SNH into a premier healthcare REIT." Results for the Quarter Ended March 31, 2018: Net income attributable to common shareholders was $236.0 million, or $0.99 per diluted share, for the quarter ended March 31, 2018 compared to $32.2 million, or $0.14 per diluted share, for the quarter ended March 31, 2017. This increase in net income attributable to common shareholders is primarily the result of a $181.2 million gain on sale of properties recognized for the quarter ended March 31, 2018, unrealized gains and losses on equity securities, net, of $27.2 million which, effective January 1, 2018, is included in earnings in accordance with an update to U.S. generally accepted accounting principles, or GAAP, as well as SNH's acquisitions since January 1, 2017. These increases were partially offset by an increase in general and administrative expenses due to the $14.3 million of business management incentive fee expense recognized for the quarter ended March 31, 2018 as a result of SNH's total shareholder return, as defined, exceeding the returns for the SNL U.S. REIT Healthcare index over the applicable measurement period compared to the $3.3 million of business management incentive fee expense recognized for the quarter ended March 31, 2017. Normalized funds from operations, or Normalized FFO, were $107.2 million and $108.4 million, respectively, or $0.45 and $0.46 per diluted share, respectively, for the quarters ended March 31, 2018 and 2017.

Reconciliations of net income attributable to common shareholders determined in accordance with GAAP to funds from operations, or FFO, and Normalized FFO for the quarters ended March 31, 2018 and 2017 appear later in this press release. Portfolio Operating Results: For the quarter ended March 31, 2018, 41.9% of net operating income, or NOI, came from 129 properties leased to medical providers, medical related businesses, clinics and biotech laboratory tenants, or MOBs, with 12.6 million leasable square feet. As of March 31, 2018, 95.1% of MOB square feet were leased compared to 96.4% as of March 31, 2017. Occupancy at MOBs owned continuously since January 1, 2017, or same property, was 94.9% as of March 31, 2018 compared to 96.3% as of March 31, 2017. Same property cash basis net operating income, or Cash Basis NOI, from MOBs decreased 1.9% for the quarter ended March 31, 2018 compared to the quarter ended March 31, 2017.

For the quarter ended March 31, 2018, 40.6% of NOI came from 233 triple net leased senior living communities with 24,947 living units. The weighted average rent coverage for triple net leased senior living communities decreased to 1.20x for the 12 month period ended December 31, 2017 compared to 1.26x for the 12 month period ended December 31, 2016(1)(2). Same property Cash Basis NOI from triple net leased senior living communities increased 1.9% for the quarter ended March 31, 2018 compared to the quarter ended March 31, 2017.

For the quarter ended March 31, 2018, 14.8% of NOI came from 72 managed senior living communities with 9,258 living units. Occupancy at managed senior living communities was 85.8% for the quarter ended March 31, 2018 compared to 86.0% for the quarter ended March 31, 2017. Same property occupancy at managed senior living communities was 85.8% for the quarter ended March 31, 2018 compared to 86.0% for the quarter ended March 31, 2017. Same property average monthly rates at managed senior living communities were $4,318 for the quarter ended March 31, 2018, which rates were generally consistent with the rates for the quarter ended March 31, 2017. Same property Cash Basis NOI from managed senior living communities decreased 1.6% for the quarter ended March 31, 2018 compared to the quarter ended March 31, 2017.

SNH's 10 wellness centers remained 100% leased as of March 31, 2018 and March 31, 2017, and provided SNH with Cash Basis NOI of $4.4 million in each of the three months ended March 31, 2018 and 2017.

Reconciliations of net income determined in accordance with GAAP to same property Cash Basis NOI by operating segment for the quarters ended March 31, 2018 and 2017 appear later in this press release. Financing Activities: In January 2018, SNH prepaid approximately $4.3 million of secured debt encumbering one senior living community with an annual interest rate of 4.375% and a maturity date in September 2043.

In February 2018, SNH issued $500.0 million of 4.75% senior unsecured notes due 2028. SNH used the net proceeds of this offering to reduce the outstanding balance under its revolving credit facility. Investment Activities: In November 2017, SNH agreed to acquire six senior living communities from Five Star Senior Living Inc. (Nasdaq: FVE), or Five Star, for an aggregate purchase price of approximately $104.0 million, including SNH's assumption of approximately $33.7 million of mortgage debt secured by certain of these senior living communities and excluding closing costs. In December 2017, SNH acquired two of these communities for an aggregate purchase price of approximately $39.2 million, excluding closing costs. In January 2018, SNH acquired one of these communities for approximately $19.7 million, excluding closing costs. In February 2018, SNH acquired one of these communities for approximately $22.2 million, including the assumption of approximately $16.8 million of mortgage debt and excluding closing costs. In connection with these acquisitions, SNH entered management and pooling agreements with Five Star for Five Star to manage these senior living communities for SNH, and SNH expects to enter management and pooling agreements with Five Star concurrent with the acquisition of the remaining two communities. The closings of the acquisitions of the remaining two communities for an aggregate purchase price of approximately $23.3 million, including SNH's assumption of approximately $16.8 million of mortgage debt, are expected to occur by the end of the second quarter of 2018 as third party approvals are received.

In January 2018, SNH acquired three MOBs (three buildings) located in Kansas, Missouri and California with a total of approximately 400,000 square feet for an aggregate purchase price of approximately $91.2 million, excluding closing costs.

In March 2018, SNH acquired one MOB (one building) located in Virginia with approximately 135,000 square feet for a purchase price of approximately $22.8 million, including the assumption of approximately $11.1 million of mortgage debt and excluding closing costs.

During the quarter ended March 31, 2018, SNH invested approximately $2.2 million in improvements at its owned senior living communities that has generated or will generate additional rent under the terms of its existing senior living communities' leases. SNH regularly makes additional investments at its MOBs and its managed senior living communities that it expects may maintain or enhance the competitive positions of those properties and may increase its operating revenue from those properties. Disposition Activities: In March 2018, SNH sold two senior living communities that were leased to Sunrise Senior Living, LLC, or Sunrise, for an aggregate sales price of $217.0 million, excluding closing costs, resulting in a gain of approximately $181.2 million. SNH has agreed to sell an additional senior living community leased to Sunrise for a sales price of $96.0 million, and expects the closing of this sale to occur before the end of the second quarter of 2018. SNH expects to realize a gain of approximately $80.0 million related to this sale.

In March 2018, SNH agreed to sell one skilled nursing facility, or SNF, leased to Five Star for a sales price of approximately $6.5 million, excluding closing costs. SNH expects the closing of the sale of this SNF to occur before the end of 2018. SNH expects to realize a gain of approximately $3.0 million related to this sale. Conference Call: At 8:00 a.m. Eastern Time on Thursday, May 10, 2018, President and Chief Operating Officer, Jennifer Francis, and Chief Financial Officer and Treasurer, Richard Siedel, will host a conference call to discuss SNH's first quarter 2018 financial results. The conference call telephone number is (877) 329-4297. Participants calling from outside the United States and Canada should dial (412) 317-5435. No pass code is necessary to access the call from either number. Participants should dial in about 15 minutes prior to the scheduled start of the call. A replay of the conference call will be available through 11:59 p.m. on Thursday, May 17, 2018. To access the replay, dial (412) 317-0088. The replay pass code is 10118590.

Keywords for this news article include: Business, Mortgage, Investing, Real Estate, Investment and Finance, Senior Housing Properties Trust.

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