Senior Housing Properties Trust’s Net Income Up in Q1 Despite Norovirus Spell

Healthcare REIT Senior Housing Properties Trust (NYSE:SNH) reported a net income of $32.4 million for the quarter ended March 31, 2012, a slight increase from the previous year’s $31.8 million.

However, net income per share actually decreased from $0.22 in the first quarter of 2011 to $0.20, due to a non-cash impairment of assets charge of approximately $3.1 million, or $0.02 per share, related to one property. 

Despite six of the REIT’s assets briefly closing in the first quarter due to a spell of the norovirus, president and COO David Hegarty noted that the company’s TRS operating assets in the Florida market showed favorable occupancies in the 90% range.


Normalized funds from operations (FFO) rose to $72.4 million, up 17% from 2011’s $62.1 million. 

The day of the earnings call, SNH paid off $33 million of its mortgage loans, using its revolving credit facility.

Since the year began, Senior Housing Properties Trust has acquired or entered agreements to acquire 14 properties for total purchase prices of approximately $340.5 million, including the assumption of approximately $113.9 million of mortgage debt, but excluding closing costs.


These acquisitions include three separate agreements to acquire four senior living communities and two properties leased to medical providers, medical-related businesses, clinics, and biotech laboratory tenants (medical office buildings), for a total $71.4 million, including assuming about $25 million of mortgage debt, but excluding closing costs. 

Also in February, SNH acquired an all-private pay Alabama senior living community for approximately $11.3 million. The community is managed by Five Star Quality Care.

The REIT is also in previously-disclosed agreements to acquire seven properties that haven’t yet closed, including four senior living communities and three MOBs for a total $257.8 million, including the assumption of about $88.9 million of mortgage debt and excluding closing costs. 

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SNH has also entered an agreement to sell a Massachusetts MOB for approximately $1.2 million, contingent on the buyer’s completion of due diligence. 



Source: Senior Housing Properties Trust April 2012 Investor Presentation

A majority of SNH’s net operating income, at 94%, comes from private pay properties. The REIT’s asset types are comprised of: MOBs (31%), independent living (35%), assisted living (25%), nursing homes (4%), rehabilitation hospitals (1%) and wellness centers (4%). Occupancy for the quarter averaged 87.2%.

In the first quarter, the REIT had a NOI margin 28%, according to the earnings call, during which Hegarty stated  that “there is significant room for improvement” for the margin over time. That margin could grow about 10% to the mid-30s, and for independent living, it could even be north of 40%, according to executives at the REIT. “There’s probably still some expense efficiencies we could attain,” Hegarty added during the earnings call.

During the call, one analyst asked about the REIT’s thoughts on permanent capital options to finance pending acquisitions, such as equity, unsecured debt, or term loans.

“We do have multiple options to look at,” said Rick Doyle, CFO of SNH. “We do have $515 million on that credit facility available. A few of these acquisitions are going to close over time… Options we would be looking at include equity, the debt market; we’re looking at the term loan, we don’t have a term loan on our books. All those options are available to us, we’d consider all of them at the time.”

But the REIT doesn’t feel an urgent need to take advantage of the current favorable capital markets, Doyle continued.

“It’s a long time for when we’re going to close [on those properties]; we’re not rushing out to any market. We do have time on our side.”

SNH stated its plans to keep looking for opportunities to diversify its property mix with MOBs and other senior living assets.

Written by Alyssa Gerace

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