Senior Housing Properties Trust Announces Fourth Quarter and Year End 2017 Results

By a News Reporter-Staff News Editor at Biotech Week -- Senior Housing Properties Trust (Nasdaq: SNH) announced its financial results for the quarter and year ended December 31, 2017 (see also Senior Housing Properties Trust).

"Operating results were stable in 2017, with consolidated annual Cash Basis NOI growth of 1% year over year showcasing our strategic portfolio composition of high quality healthcare real estate," said David Hegarty, President and Chief Operating Officer. "2017 was highlighted by our ability to raise cost effective capital and to invest the proceeds on a disciplined and accretive basis, and we continued to successfully execute on this strategy during the first quarter with our $500 million senior notes offering in February 2018. At year end, we announced that we agreed to sell four senior living communities for $368 million and we expect to report a gain of approximately $308 million on this sale. During the 2017 fourth quarter, we acquired four medical office buildings and two senior living communities for aggregate consideration of $120 million at attractive cap rates and subsequent to year end, we acquired three medical office buildings and two senior living communities for $133 million." Results for the Quarter Ended December 31, 2017: Net income attributable to common shareholders was $65.0 million, or $0.27 per diluted share, for the quarter ended December 31, 2017, compared to $42.9 million, or $0.18 per diluted share, for the quarter ended December 31, 2016. This increase in net income attributable to common shareholders is primarily the result of a $46.1 million gain on sale of properties recognized for the quarter ended December 31, 2017, as well as acquisitions since October 1, 2016, partially offset by an increase in general and administrative expenses as a result of $33.7 million of business management incentive fee expense recognized for the quarter ended December 31, 2017 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 three year measurement period ended December 31, 2017. Normalized funds from operations, or Normalized FFO, were $59.2 million and $118.6 million, respectively, or $0.25 and $0.50 per diluted share, respectively, for the quarters ended December 31, 2017 and December 31, 2016.

Reconciliations of net income attributable to common shareholders determined in accordance with U.S. generally accepted accounting principles, or GAAP, to funds from operations, or FFO, and Normalized FFO for the quarters ended December 31, 2017 and 2016 appear later in this press release. Results for the Year Ended December 31, 2017: Net income attributable to common shareholders was $147.6 million, or $0.62 per diluted share, for the year ended December 31, 2017, compared to $141.3 million, or $0.60 per diluted share, for the year ended December 31, 2016. This increase in net income attributable to common shareholders is primarily the result of a $46.1 million gain on sale of properties recognized for the year ended December 31, 2017, acquisitions since January 1, 2016 and decreases in depreciation and amortization expense, acquisition and certain other transaction related costs and asset impairment charges, partially offset by increases in general and administrative expenses as a result of $55.7 million of business management incentive fee expense recognized for the year ended December 31, 2017 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 three year measurement period ended December 31, 2017. Normalized FFO were $375.3 million and $446.4 million, respectively, or $1.58 and $1.88 per diluted share, respectively, for the years ended December 31, 2017 and December 31, 2016.

Reconciliations of net income attributable to common shareholders determined in accordance with GAAP to FFO and Normalized FFO for the years ended December 31, 2017 and 2016 appear later in this press release. Portfolio Operating Results: For the quarter ended December 31, 2017, 45.1% of net operating income, or NOI, came from 235 triple net leased senior living communities with 25,790 living units. As a result of increased capital investments, which increase rents and may disrupt community operations during expansions and renovations, along with other factors, the weighted average rent coverage for triple net leased senior living communities decreased to 1.21x for the 12 month period ended September 30, 2017 compared to 1.28x for the 12 month period ended September 30, 2016(1)(2). Cash basis net operating income, or Cash Basis NOI, from triple net leased senior living communities owned continuously since October 1, 2016, or same property, increased 0.9% for the quarter ended December 31, 2017 compared to the quarter ended December 31, 2016.

For the quarter ended December 31, 2017, 39.0% of NOI came from 125 properties leased to medical providers, medical related businesses, clinics and biotech laboratory tenants, or MOBs, with 12.1 million leasable square feet. As of December 31, 2017, 95.0% of MOB square feet were leased compared to 96.5% as of December 31, 2016. Same property occupancy at MOBs was 94.9% as of December 31, 2017 compared to 96.4% as of December 31, 2016. Same property Cash Basis NOI from MOBs decreased 1.6% for the quarter ended December 31, 2017 compared to the quarter ended December 31, 2016. As of December 31, 2017, SNH's investments in life science properties constituted approximately half of SNH's total $3.7 billion invested in MOBs.

For the quarter ended December 31, 2017, 13.3% of NOI came from 70 managed senior living communities with 9,043 living units. Occupancy at managed senior living communities was 85.9% for the quarter ended December 31, 2017, compared to 85.2% for the quarter ended December 31, 2016. Same property occupancy at managed senior living communities was 87.4% for the quarter ended December 31, 2017 compared to 86.5% for the quarter ended December 31, 2016. Same property average monthly rates at managed senior living communities increased by 0.9% to $4,262 for the quarter ended December 31, 2017 compared to the quarter ended December 31, 2016. Same property Cash Basis NOI from managed senior living communities decreased 3.4% for the quarter ended December 31, 2017 compared to the quarter ended December 31, 2016.

SNH's 10 wellness centers remained 100% leased as of December 31, 2017 and December 31, 2016 and provided SNH with Cash Basis NOI of $4.4 million in each of the three months ended December 31, 2017 and December 31, 2016.

Consolidated same property Cash Basis NOI decreased 0.7% for the quarter ended December 31, 2017 compared to the quarter ended December 31, 2016.

Reconciliations of net income determined in accordance with GAAP to same property Cash Basis NOI by operating segment for the quarters ended December 31, 2017 and 2016 appear later in this press release. Financing Activities: In December 2017, SNH prepaid approximately $8.4 million of secured debt encumbering one MOB with an annual interest rate of 6.73% and a maturity date in April 2018.

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 October 2017, SNH acquired two MOBs (two buildings) located in Minnesota and North Carolina with a total of approximately 255,000 square feet for an aggregate purchase price of approximately $38.5 million, excluding closing costs.

In November 2017, SNH acquired one MOB (one building) located in California with approximately 63,000 square feet for approximately $26.5 million, excluding closing costs.

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 additional 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 as third party approvals are received by the end of the first quarter of 2018.

In December 2017, SNH acquired one MOB (one building) located in Virginia with approximately 136,000 square feet for approximately $15.6 million, excluding closing costs.

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.

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

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