Senior Housing Properties Trust Saw ‘Stable’ 2017

Senior Housing Properties Trust (NYSE: SNH) had a decent year in 2017 despite facing a few headwinds in the fourth quarter, the company’s CEO said during its fourth-quarter earnings call Tuesday.

The Newton, Massachussets-based real estate investment trust (REIT) logged a normalized funds from operations (FFO) of $59.2 million, or 25 cents per share, for the fourth quarter of 2017, missing analysts’ expectations by 8 cents. The REIT’s yearly revenue of $278.5 million was roughly in line with analysts’ expectations.

The REIT’s share price fell 5.82% to $14.90 by the time the markets closed on Tuesday.

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Company CEO David Hegarty began Tuesday’s earnings call by paying tribute to RMR Group (Nasdaq: RMR) founder Barry Portnoy, who passed away on Feb. 25. RMR Group manages Senior Housing Properties Trust and also provides management services to the REIT’s largest senior living tenant, Five Star Senior Living (Nasdaq: FVE).

“We’re deeply saddened by the unexpected passing of Barry Portnoy, our founder, and one of our managing trustees,” Hegarty said. “I’ve worked closely with him for 35 years, and I, like all the other RMR employees, will miss his friendship, mentorship, and sage advice.”

‘Stable year’ overall

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Overall, 2017 was a “very stable year” for the REIT, Hegarty said. Notable happenings on the senior housing side included a deal to acquire six Five Star communities for approximately $104 million and an agreement to sell four Sunrise Senior Living communities to Welltower (NYSE: HCN) for about $368 million.

Occupancy across Senior Housing Properties Trust’s 236 triple-net leased senior housing properties was 83.4% for the fourth quarter of 2017, a small decline from the previous year’s occupancy of 83.8%. Meanwhile, the company’s 70 managed senior living communities logged an occupancy of 85.9% for the fourth quarter of 2017, a slight increase from the 85.2% occupancy logged during the same period in 2016.

“On the margin, certain properties in the portfolio are feeling the pressure of new properties opening up, but in general, revenues in [independent and assisted living] are holding steady,” Hegarty explained.

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The REIT invested about $10.7 million in improvements at its owned senior living communities in the fourth quarter of 2017.

“We’re investing sensibly in our [taxable REIT subsidiary] portfolio to be competitive for new competition and changing demand in our markets,” Hegarty said. “Much of this investment has been through renovations, which disrupts operations, but ultimately better positions properties in their respective markets.”

Skilled nursing sore spots

One sore spot for Senior Housing Properties Trust had to do with the skilled nursing industry. In particular, some of the REIT’s continuing care retirement communities (CCRCs) are feeling the crunch in response to recent industry headwinds.

“While independent living, assisted living and memory care revenues have been stable the past four quarters at our CCRCs, skilled nursing revenues have continued to decline,” Hegarty said.

One possible remedy is related to Five Star’s Rehab to Home program, which converts skilled nursing units in the company’s CCRCs into high-end suites for younger, short-stay Medicare patients.

“Every place where they have put those in place has generated increased Medicare business,” Hegarty said.

Another initiative to boost skilled nursing admissions at the REIT’s CCRCs has to do with electronic medical records (EMR). About 85% of Senior Housing Properties Trust’s freestanding CCRCs have fully converted to a new EMR platform, with the rest expected to finish that process by the end of the first quarter of this year.

Written by Tim Regan

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