Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Tim Bonang – Vice President, Investor Relations

David Hegarty – President, Chief Operating Officer

Rick Doyle – Treasurer, Chief Financial Officer

Analysts

James Milam – Sandler O’Neill

Michael Carroll – RBC Capital Markets

Jana Galen – Bank of America Merrill Lynch

Dan Bernstein – Stifel Nicolaus

Senior Housing Properties Trust (SNH) Q4 2012 Earnings Call February 15, 2013 1:00 PM ET

Operator

Good day and welcome to the Senior Housing Properties Trust Fourth Quarter and Year End Results Conference Call. At this time, all lines are in a listen-only mode. And today’s call is being recording. For opening introductions, I would like to turn the call over to Vice President of Investor Relations, Mr. Tim Bonang. Please go ahead.

Tim Bonang

Thank you and good afternoon, everyone. Joining us today in this call are David Hegarty, President and Chief Operating Office, 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 retransmission of today’s conference call is 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, February 15, 2013.

The company undertakes no obligation to revise or publicly release the results of any revisions 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 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 on our supplemental operating and financial data package found on our website 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 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 Hegarty.

David Hegarty

Thank you, Tim, and thank you all for joining us on today’s call. Earlier today, we reported normalized funds from operations or normalized FFO of $0.43 per share for the fourth quarter and $1.75 per share for the full year. Rick will discuss these results in further detail later on in this call.

The fourth quarter marked the close of a very dynamic and successful year. In 2012, we took a high-quality portfolio and made it better as evidenced by the further diversification across geography, tenant and asset mix. Our focus was on acquiring medical office buildings affiliated with major healthcare operators and high-quality senior living communities in grown markets that were added to our taxable REIT subsidiaries, or TRS.

During 2012, we acquired approximately $450 million from senior living and medical office buildings. The 24 properties we acquired are spread across 15 states and have a weighted average cap rate of 8% based on our estimated annual net operating income or NOI. In addition, this year we added a seasoned private operator in the northwest for our triple-net leased senior living communities located in that region.

During the year, we diversified our portfolio by increasing our TRS NOI from 4% to 12% during the quarter compared to last year. We also expanded our investments in medical office buildings during the year. During the year, we welcomed 45 new tenants growing our total number of tenants by 8%. This was accomplished by purchasing assets at rational prices. Overall, we purchased 13 MOBs with a weighted average cap rate of 8.3% and purchased 11 private pay senior living communities at a weighted average cap rate of 7.7%.

During 2012, we raised the divided for the 11th consecutive year and did so well maintaining a conservative payout ratio. We will look to maintain this positive record going forward and believe our growth through acquisitions will help achieve normalized FFO growth per share to allow us to grow our already attractive dividend, while maintaining a conservative payout ratio.

During the year or during 2012, we stayed true to our conservative financial history and strengthened our balance sheet. We ended the year with debt as 43% of total book capital and we have no near term debt maturities. 82% of our debt matures in 2016 and beyond and 44% of our debt matures in 2020 and beyond. Our investment grade credit rating of Baa3 was recently reaffirmed by Moody's with a stable outlook, where they noted that they view positively SNH's focus on private pay sub-segments in healthcare real estate market and our execution of a disciplined growth strategy.

Our excess to capital has never been stronger. In 2012, we raised approximately $650 million in capital markets transactions. Subsequent to year-end at January, we sold 11.5 million common shares, raising net proceeds of approximately $262 million and this offering was upsized modestly in the phase of overwhelming investor demand. I would note that yesterday our stock price closed at 52-week high of $24.72 per share and this transaction put us in a strong position to pay down our revolving credit facility in full, finance our recent acquisitions and positions us to be able to maximize acquisition opportunities in 2013.

As we enter 2013, we continue to operate in an industry where healthcare supply and demand fundamentals are largely positive and growing. We continue to find attractive acquisition opportunities both in the fourth quarter and moving into the New Year. During the fourth quarter, we acquired approximately $85 million of properties comprised of two senior living communities with over 150 units and six medical office buildings containing over 250,000 square feet. The weighted average cap rate for these acquisitions during the quarter was 8.5% based on estimated annual NOI.

Subsequent to year-end in January, we acquired a 150 unit private pay senior living community in the State of Washington for $22.4 million and this acquisition expands our relationship with Stellar Senior Living, a privately owned senior living operating company, operating in the Northwest.

Yesterday, we acquired two medical office buildings that are also located in the State of Washington for $38 million with the combined 145,000 square feet. These properties are biotech research lab buildings and they are 100% leased to Seattle Genetics. We also have an agreement to acquire a multi-tenant medical office building located in Mississippi for $14.6 million containing 72,000 square feet, and this medical office building's major tenant is an A rated healthcare system.

And the closing of this acquisition is continuing upon completion of our diligence and we can provide no assurance that we'll purchase the property. As we have discussed in the past, we continue to evaluate individual assets and smart portfolios in senior living and Medical Office space. We are uniquely positioned in the healthcare REIT industry due to our size, we enjoy best above growth like the smaller healthcare REITs, we do not have to bring in big deals to move the needle unlike by larger healthcare REIT's, we have excellent access to capital.

Now, turning to performance of our portfolio, first, I'll review our senior living properties which reports reported on a rolling 12 month basis as of September 30, 2012. Overall, we saw consistent quarterly and annual increase in occupancies and independent assisted living, while skilled nursing declined modestly since last year.

If you look at the data provided by the industry leading provider of Senior Housing Data, the National Investment Centers for the Senior Housing and Care, they show that occupancies for senior housing have been increasing over the last 11 quarters. Absorption rates were favorable while new development was still very modest. These trends are clearly benefiting our tenants as we've seen improving occupancy across the portfolio, which gives them the ability to increase rental rates and demand increases and supply remains constrained.

Now, looking at Five Star, our largest tenant, the 190 communities leased to them had combined occupancy of 84.8%. Rental coverage on EBITDA basis was between 1.2 to 1.7 times across the four leases and 1.3 times in the aggregate. Earlier today, they reported another profitable quarter with net income from continuing operations of $0.07 per basic diluted share for the fourth quarter. And the fourth quarter results reflected their 16th consecutive quarter of profitability and improving private pay independent assisted living results.

Our four properties leased to Sunrise Senior Living were a slight increase in occupancy, which was 93.2%, with rental coverage at strong 1.9 times. Although Sunrise Senior Living is now a private entity, we still hold a guarantee by Marriott International for these leases. The properties we leased at Brookdale Senior Living, saw a nice increase in occupancy which was 94% and rental coverage increasing to 2.4 times.

Our other triple net leased properties are leased to private initial operators and these properties in the aggregate experience a slight decline in occupancy, our rental coverage remained strong at two to three times. Now looking at our managed senior living communities, occupancy during the fourth quarter was 87.4%, an increase from both last quarter and last year. NOI for these properties now represents 12% of our overall portfolio. We're pleased to announce we have successfully transitioned all 10 properties formerly leased to Sunrise into our TRS as of year-end. At December 31, we have 39 private pay communities in our TRS for just over 6,600 units. We believe that we've created a very good foundation for future growth with these high quality assets.

And moving on to the medical office building component of our portfolio; at year end, we had 120 medical office properties, with more than 8.4 million square feet which reflects average of 70,000 square feet per building and NOI totaled $34.1 million. Occupancy was 93.3%. Now on a quarterly same-store basis, occupancy was 92.8% and NOI was $30.7 million.

Although same store occupancy declined 310 basis points since the fourth quarter last year, NOI only decreased by approximately $360,000 and NOI margins actually increased 20 basis points to 68.3%. The declining occupancy in NOI was primarily due to the vacant building we have in the Mid-Atlantic region which was discussed on prior calls.

Now, during the quarter, 42,000 square feet was renewed and we signed new leases for 19,000 square feet, with average rental rates increasing 5% compared to previous rates for the same space. For full year, 535,000 square feet was renewed and we signed new leases for 101,000 square feet with average rental rates increasing 2% compared to previous rates for the same space.

Tenant improvement and leasing commissions for the quarter were $2 million, and for the full year $6.3 million. Through our medical office acquisitions during 2012, we expanded our relationships with HCA in every clinic. We also established new relationships with major investment grade healthcare systems including Hallmark Healthcare Systems here in the Boston area, Baylor Health Care in Texas and the Straub Medical Center in Hawaii. In addition, we began relationships with a number of other well established healthcare providers across the country.

We enter 2013 having strengthened our portfolio, increase the dividend maintained our conservative financial profile, we look forward to deploying our substantial capacity to make acquisitions and grow FFO per share to make 2013 our 12th continuous year of dividend growth.

With that, I'll turn it over to our Treasurer and Chief Financial Officer, Rick Doyle, to discuss our financial results in detail.

Rick Doyle

Thank you, Dave, and good afternoon everyone. I will now review our fourth quarter financial results. For the fourth quarter of 2012, we generated normalized FFO of $75.5 million, up 11% from last year. On a per share basis, normalized FFO for the quarter was $0.43 per share compared to normalized FFO of $0.42 per share that we reported for the same period last year.

For the year ended December 31, 2012 we generated normalized FFO of $296 million, up 15% from last year. For the 2012 full year, we reported normalized FFO of $1.75 per share, up from $1.73 per share for the previous year. In early January, our Board declared a quarterly dividend of $0.39 per share which represents a 91% payout ratio of the fourth quarter's normalized FFO.

Looking first at the income statement, rental income for the quarter increased 3.1% to $124 million mainly due to external growth from investments in senior living leased communities in medical office buildings. $72 million of rental income was derived from our senior living leased communities, while the other $52 million was derived from our medical office buildings.

The increase we reported in rental income was offset by a reduction of $2.4 million due to the transition of 10 communities formerly leased to Sunrise into our TRS. Percentage rent from our senior living operators was $10.9 million, down from $11.3 million last year, due to the transition of the 10 communities from our triple net leased communities to our TRS. During 2013, $2.1 million of percentage rent will be excluded due to this transition.

Residence fees and services from our managed senior living communities grew to $70.1 million during the quarter, up from last year. NOI for the fourth quarter was $40 million and NOI margins were at 20%. If you were to exclude the 10 Sunrise communities, NOI margins would have been 27.5%.

Average monthly rate for the fourth quarter was approximately $4,200, up 4.8% compared to third quarter of 2012. We expect to report same-store results of operations beginning in the first quarter of 2013 that will provide a meaningful comparison from our senior living managed communities.

Property operating expenses for the quarter increased to $73 million. $70 million of property operating expenses were derived from our medical office buildings and $56 million were derived from our managed senior living communities. For the full year, property operating expenses increased to $201 million. These increases were in line with our expectations as we added a significant number of senior living managed communities and medical office buildings to our portfolio.

General and administrative expenses for the quarter were up $7.4 million compared to $5.6 million for the same period last year. For the full year, G&A grew to $31.5 million compared to $26 million for the same period last year. The quarterly and annual increase in G&A are result of acquisitions. As a percentage of revenues, G&A for the full year decreased 90 basis points to 4.9% compared to last year.

Interest expense increased 9% to $29.8 million from the prior quarter. For the year ended, interest expense increased 19% to $117.2 million for the prior year. Interest expense increased due to several factors. During 2012, we assumed a total of $122 million of mortgage debt related to seven properties we acquired at a 5.8% weighted average interest rate.

Also in July 2012, we issued $350 million of 30 year unsecured senior notes at an interest rate of 5% to 5.8%. Offsetting this activity in January, we repaid $225 million of 8.58% of unsecured senior notes and during 2012 we also paid off approximately $250 million of mortgage loans that were encumbered by 31 properties at a weighted average interest rate of 6.4%.

Moving to the balance sheet, we closed on approximately $85 million of investments during the quarter comprised of two senior living communities and six medical office buildings and assumed $9.6 million from mortgage debt at an interest rate of 6.7%. Weighted average cap rates for these acquisitions was 8.5% based on estimated annual NOI.

During the quarter, we invested $12.3 million into revenue-producing capital improvement at our leased senior living communities. We spent $4.2 million on capital improvements at our medical office buildings of which $2 million was leasing capital and the remaining $2.2 million were building improvements.

We also spent $4.1 million in capital improvements at our managed senior living communities during the quarter. We expect capital spending to increase significantly at our managed senior living communities mostly focused on the 10 former Sunrise communities and could be in the range of $5 million to $6 million per quarter. We expect this spending may have an impact on occupancy and rental rates as the underlying communities while the renovations are conducted.

Note our normal recurring capital expenditures run rate would be $1,000 to $1,500 per unit which is $5.6 million to $10 million per year in the extra amount we are spending now gets to reposition and to upgrade the properties.

At year-end we had $42.4 million of cash on hand, $190 million outstanding on our revolver, $1.1 billion of unsecured senior notes, and $725 million of secured debt and capital leases, making our debt-to-total book capitalization ratio of 43%. Our targeted leverage using debt-to-total book capital is in the range of 40% to 45%.

In January, we sold 11.5 million common shares raising net proceeds of, approximately $262 million. We used a portion of the net proceeds to repay the entire outstanding balance on our revolving credit facility. Yesterday we acquired two medical office buildings for $38 million, which we funded using these proceeds. Today, we have approximately $100 million of cash on hand.

Following our equity offering, our total common shares outstanding are 188 million shares. Taking this offering into account, our debt to total book capitalization ratio would have been approximately 38%. Our credit statistics remain extremely strong with EBITDA over interest expense of 3.5 times and debt over annualized EBITDA of 4.8 times.

Overall, our results for the fourth quarter were in line with our expectations we shared with you on our third quarter conference call. We communicated last quarter that our reported normalized FFO per share of $0.43 would be a good run rate going forward due to the focus we have been placing on transitioning the 10 Sunrise communities from our triple net lease portfolio to our managed senior living portfolio. The transition of these communities to another operator is a situation that always leads to a two to three quarter retrenchment in operations.

We also expect to spend significant capital to get these properties back to stabilization and subsequent growth. In addition for calculating estimates for our first quarter 2013 normalized FFO per share, we need to consider our recent equity offering in January, which we expect may dilute our earnings by $0.01 per quarter into the excess funds up fully invested.

As we begin 2013, we are very well positioned for growth with $100 million of cash on hand and $750 million untapped credit facility. The Senior Living TRS properties we acquired in 2011 and 2012 have seen encouraging occupancy increases and we have ample capital to invest, to make these properties even more attractive to potential residents.

Our existing MOB portfolio experience increased rates on new leases of 5% in the fourth quarter. Like the senior living market, the national MOB market is fragmented and we believe we will provide us with total acquisition opportunity for the full year 2013 of $300 million to $400 million. Taking into account the positive industry trends in favorable demographics we think that SNH is in a great place to provide investors within attractive yield and improving shareholder returns.

With that Dave and I are now happy two take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question today comes from the line of James Milam with Sandler O’Neill. Please go ahead.

James Milam – Sandler O’Neill

Hi guys I apologize for my voice little bit here today. First question for you on the G&A, can you maybe just help me out with the math as to either – I guess I thought that G&A was based on a percentage of assets and went down sequentially. I'm just curious if there was something else in that number or if I'm thinking about the way it's calculated incorrectly?

David Hegarty

Yes, SG&A actually grew year-over-year from third quarter 2012 to the fourth quarter of 2012 it went down, and we incurred some expenses in the third quarter. There's professional expenses and other expenses that go through our G&A and not just the acquisitions and we incurred some expenses on the third quarter that we didn't in the fourth quarter. Also in the fourth quarter, we closed on a lot of our properties there, the last week of the quarter. So, the fourth quarter doesn't take an effective full quarter G&A of the acquisitions. So modeling for the first quarter, you really have to take the last week of acquisitions in the year, and calculate a full quarter of those and we've also closed about $60 million already in 2013 that you would have to model in there too, but basically to answer your question, quarter-over-quarter did decrease because of some expenses we incurred on third quarter that we did in the fourth quarter.

James Milam – Sandler O’Neill

So, then I guess, another way to think about it is probably $30 million for the full year of 2013 plus a little bit more for acquisitions, should be about the right number..

David Hegarty

Yeah, the right number, if you took an average of the third and fourth quarter, maybe about 500,000, probably a good run rate there and then with the acquisition, just making sure that you have a full quarter run rate on any new acquisitions?

James Milam – Sandler O’Neill

Okay, perfect. Then, I guess my second question, I'm sorry, can you just repeat what the operating – how the margin was excluding the Sunrise transition asset and then just bigger picture, are the capital expenditures and renovations going out of these communities, basically involve shutting down certain wings over a period of time, and I guess the lost NOI, to the extent loss from occupancy declined et cetera, would that be recovered by growth in the other part of the senior housing portfolio and then I guess thinking three years to five years out, where do you see the margins for this business going to as everything stabilizes and gets into kind of a normalized state of operations?

Rick Doyle

Sure. Our margins, if you exclude the 10 former Sunrise communities would be approximately 27.5%, which would be an increase sequential quarters. We do plan on putting on excess capital expenditures on some of those properties that may affect some of the units. We're going to be very careful on how we pick, which properties we're going to upgrade to make sure that we do get ample return on any renovations that we do, and we're going to be very careful not to interrupt too many units also. So it's something that we're not going to go out and do all of them all that want to interrupt our whole operations.

We will spread this over and as we said in prior quarters, it's really only one, two or three properties that's going to have major renovations and it's going to take some time to put in. It's going to take the full-year 2013 as well as maybe another six months going into 2014, so we'll spread it around to make sure that we're spending it at the right place and we're going to get returns after they're all done.

David Hegarty

James, I will just add to like, a lot of the issues that are coming up, stuff like carpet and painting stuff should not be that intrusive to make it fairly quick. But a lot of the costs have to do with redoing some of the units that have been vacant. Many of them are not fitted out for occupancy right away, so we would have to do turns for those properties. And then there's a few issues like a generator or EFIS issues in some of the buildings that will have to be addressed and that's predominantly exterior related.

So, again, I don't anticipate that it would have a big impact on the performance, but it is disruptive and we are always should have to compensate for that might B2B discount rates and stuff and give people rates initially and then as soon as the work is done, I don't want go market into market.

James Milam – Sandler O'Neill

I guess over the longer term, you would expect the total portfolio to be in the 30% or higher margin range and everything stabilizes in 2013.

David Hegarty

Definitely, a lot of like the V product we acquired is all 75% independent living, and well, that's well occupied and performing well. You should expect margins closer to a 40% range and then for assisted living independent size of the building and efficiencies you can gain, but you would think that those should be 35% to 40% and then take study of skilled nursing like some of – out of every one in these Sunrise properties have the skilled nursing unit it, and margins in the skilled nursing as you know pretty much single digits or low teens at best, so when you average all that in, you probably back to the 30% or 35% margins.

James Milam – Sandler O'Neill

Okay, thank you guys. Appreciate it.

David Hegarty

Thank you.

Operator

Our next question comes from Paul Morgan with Morgan Stanley. Please go ahead.

Unidentified Analyst

Good afternoon. This is actually Jerrell for Paul.

David Hegarty

Hi Paul.

Unidentified Analyst

My first question is following up on James, specifically I wanted to know about the NOI margin, what – how soon do you think you can hit that 30% level with the Sunrise assets in place?

David Hegarty

Well, that’s the question, what the Sunrise assets in place it’s, I mean I would say we’re probably later into the year probably at best I do think that the other bell and V portfolios and the individual assets can get there, I would think during this year, but the Sunrise would take time late this year or early next year.

Unidentified Analyst

In terms of the recent RIDEA acquisitions you’ve been the last two assets were acquired at yields at/or above 8%. Is this where cash yields for RIDEA assets are right now or was this specific for these assets?

David Hegarty

Well, what we had acquired recently were individual assets in individual markets that were complimentary to existing properties, but they weren't New York or East Coast necessarily. So, we believe individual assets can be acquired in the 8%. If it's a 300 unit trophy property, then we've gone for less, but lower cap rate. If there is a portfolio premium and there are certain locations that would demand a premium too, urban, difficult to build sites and stuff like that, that might – it's a nice quality portfolio, you probably in the 6% at this point, but otherwise we should be able to acquire something in the 7% and like I say individual assets are more likely to be 8% or thereabout.

Unidentified Analyst

Got it. And then my last question pertains to the empty Philadelphia medical office building. You mentioned it on your initial comments, but could you provide an update as to the plans for the asset or you planning on selling it as of this point or you looking at lease up?

David Hegarty

We are still evaluating what we want to do with the property. The property was one that was build out with some lab space in it, for new properties come in, we would have to substantially redevelop the property forum. So, we will do build-to-suit or something of that nature, but we're also concerned whether we would sell it. And I think we’ll determine that clearly in first half of this year.

Unidentified Analyst

Got it. Thank you very much.

David Hegarty

Thank you.

Operator

Our next question today comes from Michael Carroll with RBC Capital Markets. Please go ahead.

Michael Carroll – RBC Capital Markets

First to your RIDEA portfolio, what percentage of those assets or would you call in as stabilized and what percentage are currently being transitioned?

David J. Hegarty

Good question because we typically look at these as portfolios. I would say, the first two portfolios we bought, I would consider at this point stabilizing, growing from here. The Sunrise assets are transitioning obviously and now represents 40% of the portfolio. So I would say about 50% in total would be transitioning and the other 50% is stabilized and actively contributing and growing.

Michael Carroll – RBC Capital Markets

Okay. Then with the stabilized assets, what can we expect a growth rate from those do you expect like a 5% growth rate or something lower than that?

David Hegarty

I mean I'd be conservative right now just to say 3% to 5%. I'll be able to provide more clarity on that probably on the next earnings call, because we will be providing same store data, which we then will dwell into more detail on individual portfolios. But I mean may be faster, but I just cautious to say that at this point.

Michael Carroll – RBC Capital Markets

Okay. Then with the transitioning assets, should we expect a flat growth rate or should we expect a modest decline?

David Hegarty

I believe they had hit bottom and would be improving from here.

Michael Carroll – RBC Capital Markets

Okay. And then my last question is related to I know we talked before about the potential tax change to medical devices that could put pressure on your off-campus MOB portfolio. Have you had discussions with those respective tenants, is there any updates on that?

David Hegarty

No really any updates. We've had some lease renewals that have been short-term renewals as they assess what the impact of that would be. On the other hand we have another situation where I thought it was going to be a challenge, but I believe they are going to renew it for at least another five more years. So we have a couple situations and one of them certain I think for beyond a year out and the other one I think we're pretty good for at least five more years.

Michael Carroll – RBC Capital Markets

Okay great. Thanks guys.

David Hegarty

Thank you.

Operator

We’ll go to the line of Jana Galen with Bank of America Merrill Lynch. (Operator Instructions) Ms. Galen your line is open.

Jana Galen – Bank of America Merrill Lynch

Thank you.

David Hegarty

Hi, Galen.

Jana Galen – Bank of America Merrill Lynch

Thank you for providing kind of a $300 million to $400 million range of potential acquisitions. Can you maybe let us know what the pipeline you're looking at? Is it larger now than it was at the end of last year? Has it kind of slowed down because of some people looking to get ahead of any potential tax changes and then what's kind of the split between Senior Housing and medical office?

David Hegarty

Sure. I will say that we did have a flurry of transactions closing, it was a very crazy week between Christmas and New Year and a couple of buildings getting right down to the last day of the year to close. So I do think there was very much concern about the tax considerations and there was an acceleration of closings.

We have done some acquisitions subsequent to year-end and I'd say from new activity to look at during first couple of weeks of January was probably – it was slow compared to the past, but we are starting to see things pick up significantly, and I think that we're probably most likely be close to a 50-50 split between MOBs and Senior Housing. All one-offs and small portfolios, there's obviously a few large transactions that are percolating out there, but I don't think they're actively in the marketplace at the moment.

Jana Galen – Bank of America Merrill Lynch

Thank you.

Operator

Our next question comes from the line of Dan Bernstein with Stifel Nicolaus. Please go ahead.

Dan Bernstein – Stifel Nicolaus

Good afternoon.

David Hegarty

Hi, David.

Dan Bernstein – Stifel Nicolaus

Hi, I just want to make sure, a clarification on the operating margins and Senior Housing operating portfolio. Those margins you quoted are before or after the management fee to Five Star?

Rick Doyle

After the management fee to Five Star.

Dan Bernstein – Stifel Nicolaus

Okay. And also on the lines of your acquisitions in the quarter, Stellar Senior Living is that Evrett Benton's company from Salt Lake?

David Hegarty

That is a company that he has formed with his sons and some other people out in the West Coast.

Dan Bernstein – Stifel Nicolaus

So, do you see additional opportunities with them going forward, I don’t know what kind of scale, but you see helping him grow his company?

David Hegarty

Yes, I think we have Five Star at the moment.

Dan Bernstein – Stifel Nicolaus

Okay. And then also on MOB acquisitions, I just want to be clear as well. Are those acquisitions, would you consider a traditional medical office, affiliated with a hospital, physicians, and surgery, or is it more of the lab space, medical devices. I just want to make sure I understand what you bought and what you're buying and maybe what the pipeline is as well?

David Hegarty

Sure. Well, I'd say pretty much all we acquired were affiliated with major healthcare systems where they were the major tenant, and one or two have been like surgery centers with large physician groups. And then I don't see any of the ones that closed during the last year were biotech. The one we did announce today was the one in Seattle. That is biotech lab space, and so that's I'd say – that's the only biotech type tenant.

Dan Bernstein – Stifel Nicolaus

So you would say you’re focusing more on the traditional medical office buildings then, lab, biotech, med devices.

David Hegarty

Yeah.

Dan Bernstein – Stifel Nicolaus

Okay, and then one other question I had, the terminated acquisition, I guess what was the reasoning behind the termination there, and I guess that was Sunrise property just trying to remember what that was?

David Hegarty

I don’t think…

Dan Bernstein – Stifel Nicolaus

So, it’s irrelevant to going forward, right?

David Hegarty

No. Just in the course of due diligence, we discussed some issues that we resolved them. In the short term, so we decided not to pursue it.

Dan Bernstein – Stifel Nicolaus

Okay. That’s really all I have and I just want to mention that we’ll appreciate in the first quarter when you guys start to do the same store, so that’s very much appreciated. Thanks.

David Hegarty

Thank you.

Rick Doyle

Thanks Dan.

Operator

And we have a follow-up from James Milam with Sandler O'Neill. Please go ahead.

James Milam – Sandler O'Neill

Thanks guys. I just wanted to ask one more. We touched a little bit on MOB leasing, but it looks like in the quarter at least leasing cost and concessions in the quarter were a little bit higher on a per square foot per year basis. I’m wondering if you can just broadly speak about what the leasing trends are and if the interpretation there that you had to put a little bit more capital into the buildings to attract tenants or if this is more specific to the individual lease that you signed in the quarter? Thank you.

David Hegarty

Okay, sure James. Well, I mean I would say we don't have a lot of volume of transactions that make up our leasing roll over. I think it is a case-by-case basis. I don't believe the market has changed all that much that we need to put in substantial upfront capital to get them to renewal or to offer a new tenant. But again – as you know, in our portfolio, we have some very intense MOBs like the Cedars-Sinai is 100% full all the time to other one's that are probably 80% full or 90% full and depending on the tenancy for that last space affects our CapEx requirements. Clearly the new tenancy will require and we're willing to step up and offer greater tenant improvements and so on. I just think that just hitting this quarter I don't think that's a cycle or anything to extrapolate from that.

James Milam – Sandler O'Neill

Okay, perfect. Thank you.

David Hegarty

Thanks, Jim.

Operator

Mr. Hegarty there are no further questions at this time. Please go ahead.

David Hegarty

Great. Well, thank you all for joining us today and we hope to see you soon at either the Wells Fargo Real Estate Conference in New York at the end of February or the Citi Global Conference to be held in Florida in early March. Thank you all and have a great day and a great weekend.

Operator

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and using AT&T Executive Teleconference. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Senior Housing Properties Trust's CEO Discusses Q4 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts