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

Executives

Tim Bonang - VP - Investor Relations

Dave Hegarty - President and COO

Rick Doyle - CFO

Analysts

Jana Galan - Bank of America

Tayo Okusanya - Jefferies

Daniel Bernstein - Stifel Nicolaus

Todd Stender - Wells Fargo Securities

James Milam - Sandler O'Neil

Jarrell Golotti - Morgan Stanley

Derek Bower - UBS

Senior Housing Properties Trust (SNH) Q1 2012 Earnings Call April 30, 2012 1:00 PM ET

Operator

Good morning, and welcome to the Senior Housing Properties Trust First Quarter Conference Call. This call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to the Vice President of Investor Relations, Mr. Tim Bonang. Please go ahead, sir, the floor is yours

Tim Bonang

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 recording and retransmission of today's conference call is strictly prohibited without 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 on Senior Housing's present beliefs and expectations as of today, April 30, 2012. 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 regarding this reporting period.

In addition, this call may contain non-GAAP numbers including funds from operations, normalized funds for 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 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.

And with that, I would like to turn the call over to Dave Hegarty.

Dave Hegarty

Thank you, Tim, and thank you all for joining us on today's call, and good afternoon to you.

For the first quarter of 2012, we reported normalized funds from operations or normalized FFO of $0.45 per share, and this compares with normalized FFO of $0.44 per share that we reported for the same period a year ago. Our first quarter results were in line with our expectations as we continued to absorb the new properties that we acquired at the end of last year.

During the quarter, we saw above-average rental rate increases on new leases, executed at our medical office buildings and also experienced modest occupancy and rate growth in our private pay senior living communities.

We still maintained the highest percentage of private pay assets in the industry, with 94% of our NOI derived from properties with the majority of revenues up in the residents or tenants private resources.

Our dividend yield continues to be very attractive at about 7% and our balance sheet remained conservative and well managed.

Recent data published by the National Investment Center for Seniors Housing & Care industry or NIC showed modest occupancy growth year-over-year and sequentially for both independent and assisted living properties during the first quarter. According to the recently quarterly NIC report, the seniors housing average occupancy rate has risen consistently during the past eight quarters and is 1.3 percentages points above its cyclical low in the first quarter 2010. They also note that construction of new senior housing inventory remained muted and construction of the share of existing inventory declined quarter-over-quarter.

All of these statistics continue to support our thesis of investing in private pay senior living communities with its potential for occupancy growth in continued merit supply. Our acquisition activity was modest during the quarter when we closed on the acquisition of nine two unit senior living community in Alabama for $11 million in February. We continue to work with several acquisitions on our agreement which we have discussed on previous earnings calls. As a recap we currently have $258 million of previously announced acquisitions on our agreement but if you close the assumption of $89 million of mortgage debt made up of four senior living communities in South Carolina, New York and Missouri and three medical office buildings in Georgia and Hawaii.

We expect to acquire the majorities acquisition on agreement within the next three months but these would have minimal impact on the second quarter results. One senior living community in New York which was part of the V transaction for $99 million, but $32 million of assume debt is still expected to close sometime during the second half of this year.

One medical office building acquisition for $70 million is under agreement in Hawaii and it's a property that we believe is a solid investment with long term growth opportunities. It's a 203,000 square foot building with a 500 car parking garage attached and it's located adjacent to the (inaudible) clinic and hospital which is part of an A rated Healthcare system in Hawaii.

It's a 100% occupied with a waiting list of positions now the healthcare providers. Earlier this month we terminated an agreement which we announced last quarter to acquire one medical office building in Connecticut with a 171,000 square feet, a $31.5 million. We have $71 million if new acquisitions under our agreement including the assumption of $25 million of mortgage debt. During March and April we entered into an agreement to acquire four senior living communities and two medical office buildings. The four private pay senior living communities will be triple net leased to a new private operator.

These communities contain 511 units now located in Colorado, Idaho and Washington. The two medical office buildings contain 127,000 square feet. One is located in Massachusetts and it's leased to an investment grade A healthcare system. The other is located in the greater Washington, DC area and its multi-tenanted.

Our expected weighted average, gap yield on these acquisitions is 8.2% and the expected weighted average cash yield is 7.7%. We continue to monitor the acquisition landscape and are seeing individual assets and small portfolios across the senior living and medical office building spaces to consider.

In our last call we discussed that we expect to make between 304 million of core acquisitions on an annual basis and we feel confident in our ability to grow a diversified portfolio, although it may be more back end loaded for 2012. Looking at last year’s performance is a triple net leased living tenants in our portfolio.

As a reminder our tenant statistics are reported a quarter over leases and are based on a 12 month ended December 31, 2011 to eliminate seasonality.

For our properties leased to Five Star our largest tenant in one of the top five independent assist living provides in the United States. Occupancy increased in two of their leases and declined in the other two. Occupancy trends have been flat for modestly increasing for independent and assisted living, our scaled nursing has been on the steady decline. These results are in line with what the industry has been experiencing.

Rental coverage on EBITDA basis across all four leases range between 1.14, and 1.44 times. Coverage was down only a few basis points from the prior quarter and three of the leases and we attribute this relatively minor decline in rental coverage to the skilled nursing Medicare cuts that went into effect in October of last year.

The properties released to Sunrise Senior Living include strictly strong rental coverage of 1.6 times and steady occupancy of 9%. The four properties at Sunrise has exercised its renewal option on and who is able to secure Meridian International guarantee for had coverage of two times with occupancy of 93%. The 10 properties they will not be operating after the lease matures had 1.3 times coverage and occupancy of 87%. Our properties leased to booked senior living were 92% occupied and cover their rents by over two times.

Occupancy across our private operators was 84% and rental coverage was 2.8 times. Our ten wellness centers continued to perform amazingly well maintaining coverage ratios in excess of over two times. Now looking at our managed senior living operating assets we have 23 properties with over 3000 units which represent a 9.5% of first quarter than the last.

Occupancy averaged 87.2% for the quarter, since taking on these 23 properties starting on second quarter of last year we have seen performance improve which was in-line with our expectations because the first quarter the in-line margins for these properties was 28% which was an increase over well we underwrote but we believe there are significant room for improving overtime.

We believe that having and growing these operating assets to a reasonable size as part of our portfolio mx provides us higher growth opportunities supported by favorable supply and demand demographics. The managed portfolio adds significant diversification to our revenue stream, like multi-family assets our credit risk is 3000 plus seniors renting apartments from us and not the manager we hire. Although we like the growth prospects the managed senior living operating assets are large and stable triple net lease portfolio continuous to provide stability to our cash flows.

I recently visited several of our TRS operating assets in the Florida market including communities in Boca Raton, Pompano Beach, Plantation in Hollywood and occupancies were in the 90% range and the properties were in great physical condition. One of the most dramatic positive changes in our TRS portfolio is the community we own in Teaneck, New Jersey. When we underwrote the deal occupancies averaged high 70% and this quarter the average occupancy was 88%.

These successes came in spite of the fact that six of our TRS assets were briefly closed for admission during the quarter due to the spell of the norovirus. I want to mention that we have included additional metrics in our senior living operating properties in our first quarter supplemental package which we believe will be helpful for investors to evaluate performance of these properties. And in the future we will provide more meaningful same store comparable data and other data as it becomes more relevant.

Moving on to the medical office building component of our portfolio, we own a 108 medical office buildings, leased to over 500 tenants with 7.6 million square feet which comprises of 31% of our NOI, thanks to our NOI growth during the quarter which is approximately 4% and occupancy at quarter end was 94.2%. The sequential decline in our occupancy is mostly attributable to one building that became vacant during the first quarter which I discussed in our last earnings call.

We plan to reposition this property and sell or release it which will take several quarters, during the quarter 22,000 square feet was renewed and we had new leases for 24,000 square feet. Overall we saw rental rates on newly executed leases and on renewals increased by a strong 17%. The benefit of these increases will be derived in future periods though.

Tenant improvement and leasing commissions for the quarter were $1.5 million. Will that I will turn it over to our Chief Financial Officer, Rick Doyle.

Rick Doyle

Thank you Dave and good afternoon everyone. I will now discuss our year-over-year quarterly financial results for the first quarter of 2012. For the first quarter we generate normalized FFO of $72.5 million or $0.45 per share up 17% in the aggregate and 2.3% on a per share basis.

Earlier this month our Board declared a quarterly dividend of $0.38 per share which represents a normalized FFO payout ratio of 84% of the first quarter’s normalized FFO. Looking first at our income statement total revenues increased 47% to $145 million. This increase was due to several factors; first we had significant external growth from acquisition since January 2011. We invested $336 million in 28 medical office buildings and $668 million in 29 senior living communities. And in addition we spent $40 million on revenue producing capital improvements as certain of our senior living communities.

Second, we recognized $36 million of residence fees and services at our managed senior living communities who leased to our TRS. As we now have 23 senior living communities leased to our TRS, we expect that excluding the four properties we have left to acquire in our TRS and with all other things being equal $36 million of residence fees and services is a good run rate.

And third, percentage rent from our senior living operating increased 7% to approximately $3 million driven from occupancy and rate increases at our triple net senior living communities. These increases in revenues were offset by the sale of seven properties in 2011 for approximately $40 million which reduced annual revenues by $3.5 million. Property operating expenses for the quarter were at $39 million which was in line with our expectations as we have added a significant number of senior living communities and medical office buildings to our portfolio.

Of the $39 million $14 million was attributable to our medical office buildings and $25 million to our managed senior living communities, excluding the 13 properties we have left to acquire and with all other things being equal, we believe this is a good run rate. Depreciation expense increased by 27% to $33 million. General and administrative expense increased 25% to $7.7 million. G&A is currently 5.3% of total revenues which is a 90 basis points improvement over the last year.

Interest expense was $29 million, a 27% increase from last year, the increase relates primarily to several factors including the assumption of $218 million of mortgage that we took on in connection with certain 2011 acquisitions at a weighted average rate of 5.9%. In the sale of $300 million of 10 year unsecured senior notes in December 2011 with the interest rate of 6.75%. The increase was partially offset by the redemption of our $225 million of senior notes in January, 2012 and the repayment of one mortgage loan for $12 million in February with an interest rate of 6%.

Today we repaid in full 17 mortgage loans of $33 million which encumbered 17 properties with a weighted average interest rate of approximately 6.95%. The repayment of this debt was funded with borrowings on our revolving credit facility. With the exception of the mortgage loans we paid off today and the addition of $114 million of mortgage debt we expect to assume with pending acquisitions we expect this level of interest expense to be a good run rate.

We evaluate our portfolio for impairments on a quarterly basis, in this quarter we recognize an impairment of assets charged of $3 million related to the recently vacated medical office building in Pennsylvania.

Now let’s move to the balance sheet. In February, we acquired one senior living community leased to our TRS for $11.3 million using cash on hand, and during the quarter we invested $6.3 million into revenue producing capital improvements at our senior living communities. Five Star repaid us the remaining $38 million outstanding on their bridge loan with us in the fund we are applied to the outstanding balance on our revolving credit facility. This final payment terminated the bridge loaned as there are no borrowings available. At March 31, we had $255 million outstanding on our revolving credit facility, three series of unsecured senior notes totaling $750 million and mortgage loans and capital leases totaling $846 million. Our total debt was 1.9 billion and our equity was $2.4 billion or a ratio of debt to total book capital of 43%.

On a market basis, our debt to total market capitalization was 34%, our credit statistics remain healthy with debt to annualized EBITDA at 4.6 times and EBITDA over interest expense of 3.5 times.

After paying off $33 million of mortgages loans today, 94 of our debt is not due until 2015 or later. Today, there is $235 million outstanding on our credit facility and $515 million available to borrowers.

In summary, we are pleased with the continued performance of our portfolio amidst the growth of last year. We expect to see a continued growth profile, once our acquisitions on agreement are completed. We will continue to be prudent in our acquisition strategy and in keeping our balance sheet well managed and flexible and we'll keep looking for opportunities to diversify our portfolio of mix with both private pay senior living communities in medical office buildings.

With that Dave and I are now happy to take questions.

Question-and-Answer Session

Operator

Ladies and gentlemen we will now begin the question-and-answer session of today's conference. (Operator Instructions). Our first question will come from the line Jana Galen of Bank of America. Please go ahead.

Jana Galan - Bank of America

I wanted to follow up on your TRS operating asset margins and where do you think those margins can get to and is it driven primarily through occupancy or are there still expenses that could be taken out?

Dave Hegarty

Well for the quarter the operating margin was about 28% and typically for independent and assisted living properties they are significantly higher than that. I would say they are probably another about 10% that they could grow to the mid-30s or independent living if its running in our film is concerning the north of 40%. But I would say this portfolio should, when we get there with increasing occupancy and range, there's probably still some expense efficiencies that we can obtain, but I would say something mid-30s would be more appropriate.

Jana Galan - Bank of America

And then just quickly on the MOBs, seeing that renewals were down on GAAP trend, maybe you can just touch upon that.

Dave Hegarty

On the new renewals that we hit today's to this period, we actually have a significant increase in renewals rates in the north east particularly Boston area as well as the South West of (inaudible) and a few properties in Virginia where we have a softness within Long Island area and also some of other Maryland locations. But overall I think we had about 17% increase in new leases and reports entered into during this quarter.

Operator

Our next question will come from the line of Tayo Okusanya of Jefferies. Please go ahead.

Tayo Okusanya - Jefferies

Good afternoon Dave and Rick. Just following on Yana's question, I think she was focused on just the negative changing GAAP rents purely on the renewals, the 22 renewals that you did in the MOB portfolio this quarter. Were there like one or two renewals just skewed the whole number?

Dave Hegarty

It was, I would say there are a couple locations where they did have a decline. Now considering them, there is a not a lot of activity that occurs during the quarter, so it doesn’t take much to skew it. Now at the other renewals, yes, pretty much New York was I'd say, one that had mostly declines on renewals.

Tayo Okusanya - Jefferies

Of about how much Dave?

Dave Hegarty

Let's see. Those were in the in Long Island area was about 11% decline in rates.

Tayo Okusanya - Jefferies

Got it, thank you. That's helpful and then just back to the TRS portfolio on the senior housing side, I believe you guys got about five acquisitions or so to close and if I heard correctly, Rick said the run rate going forward will still be about 36 million which is currently about where it's at right now. Did I hear that correctly or did I mishear something?

Rick Doyle

No that's right. We expect that to be a good run rate and as we close on acquisitions, it would increase accordingly.

Tayo Okusanya - Jefferies

Okay, so 35.5 right now is just for the 23 you own and as you add acquisitions then that number will grow.

Rick Doyle

Yes.

Tayo Okusanya - Jefferies

Okay, got it. And the five that you have outstanding right now, if I recall correctly it was a better asset that will automatically expand the NOI margins?

Rick Doyle

Yes. Since we announced these acquisitions, the properties have been improving and remember one of these will not close until the second half of 2012.

Tayo Okusanya - Jefferies

Yes, okay that makes sense. Then the asset that you guys declined to buy, after you did the due diligence, can you talk a little bit about that and what caused that?

Dave Hegarty

Well I can't give you too many specifics but that was actually a biotech property that when the diligence we discovered that they weren't a long-term player for that property and the leasing would be very expensive and so on. So we decided to pull the plug on it and terminate the transaction.

Operator

Our next question will come from the line of Daniel Bernstein of Stifel Nicolaus. Please go ahead.

Daniel Bernstein - Stifel Nicolaus

I also wanted to go back over to the same store results for senior housing TRS. You added one property in the quarter and I just want to understand the impact on your results there. Looks like the results would be good for the quarter but just want to understand the impact to that one property.

Dave Hegarty

That was probably the property in Alabama that we added and that came on I believe February 1st. And that property actually negatively impacted the operations for the first quarter and what we find is that most of the time it does take a couple of quarters of transition but period that before you exceed what you initially underwrote it at. I would say the Bell properties (and the) (ph) properties clearly are significantly above what we originally underwrote them at, but the one-off that we added actually negatively impacted the results this quarter and what we do find is that there is a transition period where a lot of those - the linens, the names on the buildings, everything has to be changed over and there is a fair amount of inefficiencies for a quarter or two, but we expect...

Daniel Bernstein - Stifel Nicolaus

Was that just the impact in on the margin or are these properties similar occupancy, similar rates to the ones you have now?

Dave Hegarty

They are similarly occupied in the mid-80s, mid to high 80s. And the impact has been on the operating expense side and so negatively impacted margins at this time.

Daniel Bernstein - Stifel Nicolaus

And can you go back over the impact of the Norwalk virus on your properties, if any on the TRS and Five Star on their call earlier today went intuitively a little bit detail?

Dave Hegarty

Right, well its always very difficult to exactly quantify the impact but like I said we had four of the weak properties and two of our Bell properties experience the norovirus in this first quarter. So that let's see, I think it's about 73 days I believe it was closed for new admissions. So you have a little bit of period where existing tenants pathway or transfer but you can't admit till you get a clearance and so it's very difficult to quantify the impact on occupancy. But it definitely impacted us for a period of time during this quarter.

Daniel Bernstein - Stifel Nicolaus

And you call it unusual occurrence?

Dave Hegarty

Yes I would. It's definitely seasonal. What happens in the first quarter more than any other time of the year, but I think that is unusual.

Daniel Bernstein - Stifel Nicolaus

And then on the acquisition pipeline, starting off slow you are still hoping to fix up into the back of the year. Can you talk about maybe a little bit of the tilt of that portfolio, acquisition pipeline, is it more MOBs and senior housing or vice versa? And then maybe a related question would be, you said you'd grow the TRS to a reasonable size. Maybe you can talk about what a reasonable size would be and whether you are looking at any additional TRS assets?

Dave Hegarty

Well currently I'd say what is in our pipeline is predominantly medical office buildings. So I would expect the majority of the acquisitions that I can see at this present time would be on the medical office side. I would envision maybe we will probably pick up some individual assets on a TRS basis. And I don't envision the TRS to grow tremendously. I would think that I'll probably hold it about 20% of our NOI in that range. Obviously it's not an exact science. It depends on the size of transaction. But I don't obviously want to significantly to go beyond 20% in any way.

Operator

Our next question will come from the line of Todd Stender with Wells Fargo Securities. Please go ahead.

Todd Stender - Wells Fargo Securities

I think you said this in your opening remarks that the net lease assets that you acquired in the senior housing space are going to leased to a private operator, did I get that right?

Dave Hegarty

Yes, that's correct and it will be on a triple-net basis.

Todd Stender - Wells Fargo Securities

Okay, if so, what's the decision revolver around? How come it's not Five Star?

Dave Hegarty

Well combination of things. First of all, the states that they're in, Idaho, Washington so on are states that Five Star does not have a presence in. Also we're comfortable with this operator. I think down the road we'll provide a little more detail on it, but we still have to go through some loan assumptions and license approvals, so on. So it's most likely to close about the end of this quarter and we can probably give you more detail on next call, but predominantly that is adequate cash flow there and Five Star doesn’t have a presence there.

Todd Stender - Wells Fargo Securities

And just based on your comments before on the Connecticut MOB that didn't make it through the due diligence period, I would think that this would contribute to dispelling some of the notion that SNH grows just for growth sake based on how RMR gets paid. Do you have any rough percentages of properties that you actually close on to just spell out that quite a few do not get closed on; maybe it's a lower percentage than investors think?

Dave Hegarty

Yes, we see tremendous opportunities come through here all the time and evaluate a number of senior living properties as well as medical office and other types of properties. And I would say maybe 25% of those properties actually, we enter the negotiation stage and if we come to an acceptable pricing, we'll try to acquire that property, but as you said, things do come up in diligence, some very early, and if we hadn’t preannounced it, we probably would have killed this deal without mentioning it. And if you look at the fact that we're the fourth largest healthcare REIT, and not in the top three, I'd say we've been certainly one of the lesser acquisitive companies in our space. And if we were acquiring to grow assets, then we should be in the thick of it with the others, but we're much more cautious and we grow slower.

Todd Stender - Wells Fargo Securities

And this is probably a question for you Rick, just for the medical office building becoming so meaningful now, can you just share what you're budgeting for CapEx specifically for the MOB portfolio, maybe a cost per square foot?

Rick Doyle

Yes, we have a budget for the full year around $12 million for the full year and that's over 7.6 million square feet.

Todd Stender - Wells Fargo Securities

Okay and just further with that, can you break out, just for the senior housing assets, the triple net leased versus what you'd expect for the RIDEA?

Rick Doyle

Yes, on the TRS for the CapEx, we're figuring between $1,000 per unit a year which right now would be about 4.5 million to $5 million for 2012.

Operator

Our next question will come from the line of James Milam of Sandler O'Neil. Please go ahead.

James Milam - Sandler O'Neil

Just wanted to follow-up on the new triple net Senior Housing portfolio. Did you guys have the option to use Five Star as the operator? I mean it sounds like you decided to go with the existing, but could you have replaced them if you wanted to or was that part of the deal that they would only sell to if they could maintain the management?

Dave Hegarty

We could have replaced them, that was an option to us, but again, we chose not to and I think we were happy with the management that was going to operate these properties, and again Five Star too it would have been a new market for them that they don't have an existing presence in, so it didn't make a lot of sense for them either.

James Milam - Sandler O'Neil

My second question is, the G&A was a pretty big increase over the fourth quarter. Is that just related to the portfolio growth or was there something else that also caused that large increase?

Rick Doyle

Well the G&A is what we expected. It's right in line with our expectations, and the breakout as I said on the call, was 25 million to the TRSs and the remaining to the MOBs, but it's as expected and it will grow as we start closing on these pending acquisitions.

James Milam - Sandler O'Neil

Okay, great. Thanks. And then my last one, just what about 230 million out on the line of credit, and a couple of hundred million dollars more of capital you'll need to close these acquisitions over the course of the year. What are your thoughts on sort of permanent capital to finance those acquisitions? Are you looking more to equity, unsecured debt or possibly term loans, and maybe if you could give color on pricing for each of the possible options?

Rick Doyle

Yes, we do have multiple options to look at and once again, we do have 515 million on that credit facility available and a few of these acquisitions are going to close overtime, especially the property in New York, so we do have some time. But our options would be looking at equity, be looking at the debt market, and we're looking at the term loan, we don't have a term loan on our books. And we also have an option for it. So, I think all those options are available to us and we'd consider all of them at the time.

James Milam - Sandler O'Neil

Is there any sense of urgency from you guys, it seems like the capital markets are pretty favorable right now. Is it something you'd like to pre-fund with these acquisitions identified or are you content or I guess patient to wait until closer to closing?

Rick Doyle

It's just long time, and like you said, when we're going to close, if there is any other activity going, I don't think we're rushing out to any market. And so, we do have time on our side and we do have availability on the credit facilities if something did come up.

James Milam - Sandler O'Neil

Let me just ask one more and then I'll be done. It looks like there is a big drop in the lease maturities for 2013, but the total lease maturities overtime didn't really decrease by that much. Was that switch, is that related to the Sunrise portfolio or is there something else in there as well?

Dave Hegarty

We moved the four properties that Sunrise extended till 2018 so we just moved it down because now it's going to close on 2018 for four of those properties.

Operator

Our next question will come from the line of Jarrell Golotti of Morgan Stanley. Please go ahead.

Jarrell Golotti - Morgan Stanley

You mentioned that the NOI margin goal for the RIDEA asset is 30% to 35%. I was just wondering where you envision that NOI margin being at the end of the year?

Dave Hegarty

Let's see, I can't tell how fast things will progress but I do expect it will improve from the 28% today and I do expect the occupancy to continue to improve and sort of like in the Florida locations the rates can be pushed. I think expenses will remain in check. So I hope to be at least at the 30% by year end. One of the other things that’s also difficult is that as we add properties in they may increase or decrease that margin percentagewise. So I'd say some of the existing portfolio should do better from where it is today. A number of the Bell Properties that are still yet to come into the fold have better margins and average. So those would help bring us up. The Yonkers property is a big one that is back more in a 25% margin and by the time that comes in that will be much higher but those are variables that would affect that margin.

Jarrell Golotti - Morgan Stanley

And the other question I had is in relation to your acquisitions run rate. So you had mentioned that the run rate is anywhere between $300 million to $400 million per year. You've already committed or have closed on $340 million of assets, which is the midpoint of that guidance. I was wondering how much more upside do you see from your committed deals or acquired deals considering that you are at the midpoint right now of your guidance.

Dave Hegarty

It is very difficult to predict. We seem to manage to buy $50 million or so each quarter in normal bread and butter transactions and we occasionally hope to win some of these bids on larger portfolios. So I'd say you could probably factor in say $50 million a quarter barring something significant.

Operator

Our next question will come from the line of Derek Bower of UBS. Please go ahead.

Derek Bower - UBS

I was just wondering if you could provide any update on the negotiations or if there have been any with Sunrise regarding the 10 remaining assets?

Dave Hegarty

Sure, well we're in regular ongoing discussions with them. We don’t have anything to report on what's going to happen or where those assets are today. I can say that we'll continue to interact with them on possible scenarios.

Derek Bower - UBS

How active would you say you've been over the last three months just marketing those assets to other operators other than Sunrise?

Dave Hegarty

Not very at the moment. I think we still have about 18 months left, no more than that, 20 months left on the lease. So we really can't do anything if we would have to compensate Sunrise to walk away from the leases and so right now it's pretty much a dialogue with them.

Derek Bower - UBS

And I guess just in general with negotiations on lease renewals, how long of a timeframe do you typically like to lock up a tenant before the lease expires, just in generalities, maybe just not even talking about this lease in general but typically would you like to have a tenant secured by 12 months or eight, nine months before?

Dave Hegarty

Yes, typically if you look through all of our leases its generally one year to two years per notification period and then once you know their intentions then you typically work out a transition with them. It also depends on what states they are in. Like I say one year is usually adequate, but when you're in New York or California or few other states, the process can be very cumbersome and last a long time. So it is negotiation once you line up somebody else but one year as most deals, this deal we were very fortunate to have a two year notice.

Operator

Our next question is a follow up from the line of Tayo Okusanya of Jefferies. Please go ahead.

Tayo Okusanya - Jefferies

Just most of a conceptual question, just given how large the MOB portfolio is getting at this point and really just trying to get your comments on if the Supreme Court ultimately does end up striking down the Healthcare Reform Act, exactly what impact you would expect that to have on the medical office building business, whether it's all of a sudden because all the uncertainty becomes hard to lease stuff up or kind of whatever general commentary if the world suddenly changes come June.

Dave Hegarty

I think either way it pans out. I don’t think it would necessarily be bad news for us in the medical office space because healthcare is moving this way anyway. Obviously the demographics for the baby boomer, 65 and up tend to be the biggest users of the medical system.

I think I heard a sort of statistic that up to now about 70% of medical procedures have been done in patient and the goal is ultimately get them to 70% to be done on an outpatient basis, all of which would suggest smaller outpatient centers located closer out to where the residents are, where the potential patients are.

So I think there is a lot of compelling forces that are going to create demand for this space regardless of what happens with healthcare reform. If healthcare reform stays in place I think you'll see a lot more of the healthcare systems becoming much more proactive in managing the real estate and trying to design a plan which would create opportunities for us, and also you would have the increased patient population that would utilize the system. So another positive force for people in this space.

If it's rejected I think you'll still have a fair amount of discussion in Washington about if it's a modified plan that could be passed to preserve some of this and I think it will be a bit positive, it takes some pressure off the healthcare systems to do something immediately and they may to wait to see what the new legislation might look like but again, I think that may slow down the process a little but I do think that it's still going in that direction of increasing demand for these services.

Operator

And our next question is also a follow up from the line of Daniel Bernstein of Stifel Nicolaus. Please go ahead.

Daniel Bernstein - Stifel Nicolaus

Just going back to the Sunrise leased assets that aren’t being renewed, there is a big disparity between lease coverage on the 10 assets that now are being renewed versus before that are. Is there some mechanism in the leases to I guess reset the rents on the four to a market rate? Just want to understand how the rent mechanism works there.

Dave Hegarty

The rent mechanism is a continuation of the existing rent formula which is a base rent plus percentage rent as the revenues grow at the properties. There are reasons that those, and in fact one renewal option was exercised for five years. So that’s why the leases on those four properties go out to December 31, 2018 and then presumably we'd have to face the whole discussion again in 2016.

And obviously with the Marriott International Guarantee I think Sunrise paid a significant sum and utilized a considerable amount of resources to get Marriott to continue on with the guarantee and as a result I don’t think they either could or would have wanted to commit more resources to take on more than these four properties from us. So I think it's more economical in their end.

Daniel Bernstein - Stifel Nicolaus

How many more renewals are there? Was it just one or?

Unidentified Company Representative

There's three more renewals following the one that they just exercised.

Rick Doyle

And like Dave said, Marriott would have to be on those renewals. So we'll have to take them one at a time.

Daniel Bernstein - Stifel Nicolaus

In same rents terms or would it just continue with whatever normal bumps?

Unidentified Company Representative

After a couple of more renewals down yes.

Operator

There are no further questions in queue at this time. I'd like to turn the conference call back over to Mr. Dave Hegarty.

Dave Hegarty

Great. Thank you all for joining us today. We will be participating in several conferences this spring including the JMP Securities Conference in San Francisco, the BofA Merrill Lynch Healthcare Conference in Las Vegas, also in May and the Jefferies Healthcare Conference as well as the NAREIT Conference both in New York City in June. So we look forward to meeting with our investors and analysts at any one of those events and thank you again. Have a great day.

Operator

Ladies and gentlemen, that does conclude our conference call for today. On behalf of today's panel I'd like to thank you for your participation and thank you for using AT&T. Have a wonderful day. 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 Management Discuss Q1 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts