Acquisitions Drag Down Q3 Net Income for Senior Housing Properties Trust

Note: This covers Q3 earnings for Senior Housing Properties Trust (NYSE:SNH) & Five Star Quality Care (NYSE:FVE).

SNH’s Net Income Falls in Q3 Due to Expenditures, Capital Distributions

Senior Housing Properties Trust saw its net income fall to $25.6 million, or $0.15 per share, for the quarter ended Sept. 30, 2012, compared to $30 million or $0.20 per share during last year’s third quarter, due to the way capital was distributed in the quarter.

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The 15% drop in net income was attributed to the timing of acquisitions and deployment of proceeds received from July capital raises. Additionally, it includes a loss on the early extinguishment of debt of approximately $6.3 million related to the prepayment of a portion of the REIT’s outstanding principal balance of a Fannie Mae secured term loan; a loss on the lease terminations of approximately $104,000, related to SNH’s agreement with Sunrise Senior Living (NYSE:SRZ) to terminate 10 senior living properties leased to them scheduled to expire in December 2013; and a loss on sale of properties of approximately $101,000 related to the sale of a property in July. 

Normalized funds from operations in the third quarter rose about 15% to $74.8 million, or $0.43 per share, compared to $65.4 million, or $0.43 per share, in the same quarter one year ago.

Since July 1, 2012, SNH has acquired or made agreements to acquire 15 properties for a total purchase price of approximately $37.3 million, excluding closing costs. Most of the residents in these communities are privately funding their stays. The communities are managed by a subsidiary of Five Star Quality Care.

Some specific senior housing acquisitions include:

  • July 2012—Four senior living communities in Colorado, Idaho, and Washington State with a total of 511 units for about $36.5 million, including the assumption of approximately $6.9 million of mortgage debt and excluding closing costs. The properties are leased to Stellar Senior Living, LLC.
  • August 2012—A senior living community in New York with 310 units for about $99 million, including the assumption of approximately $31.2 million of mortgage debt and excluding closing costs. The property is managed by Five Star.
  • August 2012—A Missouri senior living community with 87 units for about $11.3 million, including the assumption of about $5.8 million of mortgage debt and excluding closing costs. The property is managed by Five Star.
  • August and October 2012—SNH entered four separate agreements to acquire three senior living communities and a medical office building for a total of about $68.3 million, including the assumption of about $!2.3 million of mortgage debt and excluding closing costs. The senior living communities are located in Mississippi, Tennessee, and Washington State and have a total of 437 living units. The MOB is in Tennessee and is 33,796 square feet. The closing of the transaction is contingent on due diligence. 

Positive Earnings for Five Star Quality Care in Q3 Following Pharmacy Sale

Five Star Quality Care, Inc. announced a net income of $16.4 million, or $0.34 per basic share, for the third quarter ended Sept. 30, 2012, reaping positive results compared to last year’s loss of $528,000, or $0.01 per basic share.

“During the last several months, we made substantial progress towards further focusing our operations on the private pay independent and assisted living business,” said Bruce Mackey, president and CEO of Five Star, in the earnings report. “Since May 2012, we have either begun to manage or agreed to manage 14 senior living communities with a combined 3,159 living units which are primarily providing independent and/or assisted living services and generate a large majority of their revenues from residents’ private resources.”

The third quarter income included a $13 million gain from discontinued operations, including the sale of Five Star’s pharmacy business to Omnicare, Inc. for $34.3 million.

“We think [the sale of the pharmacy business] is a significant milestone and helps simplify the Five Star story for investors,” Mackey said during the earnings call.

In October 2012, Five Star agreed to sell two Michigan skilled nursing facilities with a total of 271 units for $8 million. The facilities receive the majority of their revenues from Medicare/Medicaid reimbursements.

Total revenues increased 7% to $332.4 million up from $310.6 million during the same period in the previous year.

Senior living occupancy rates at Five Star’s owned and leased communities fell 30 basis points to 85.7% compared to the third quarter of 2011. However, the percentage of senior living revenues derived from residents’ private pay resources in the quarter rose to 75% up from 73%, and 92% of the company’s total revenues come from senior living. 

Written by Alyssa Gerace

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