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| SNH > SEC Filings for SNH > Form 10-Q on 4-Nov-2009 | All Recent SEC Filings |
4-Nov-2009
Quarterly Report
The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included in this quarterly report and our Annual Report on Form 10-K for the year ended December 31, 2008.
PORTFOLIO OVERVIEW
The following tables present an overview of our portfolio (dollars in thousands
except per unit/square foot):
% of
Number of Investment Annualized
(As of September Number of Units/Beds or Carrying % of Annualized Current
30, 2009) Properties Square Feet Value (1) Investment Current Rent Rent
Facility Type
Independent living
communities (2) 43 11,524 $ 1,119,530 35.1% $ 109,878 34.2%
Assisted living
facilities (2) 120 8,472 910,129 28.4% 84,822 26.4%
Skilled nursing
facilities (2) 58 5,844 228,536 7.1% 20,413 6.4%
Rehabilitation
hospitals 2 364 61,025 1.9% 9,648 3.0%
Wellness centers 10 812,000 sq. ft. 180,017 5.6% 17,069 5.3%
MOBs 56 2,867,862 sq. ft. 702,307 21.9% 79,124 24.7%
Total 289 $ 3,201,544 100.0% $ 320,954 100.0%
Tenant / Operator
Five Star (Lease
No. 1) (3) 80 5,919 $ 533,304 16.7% $ 45,273 14.1%
Five Star (Lease
No. 2) (3) 50 6,106 502,738 15.7% 49,294 15.4%
Five Star (Lease
No. 3) (3) 28 5,618 617,161 19.3% 61,564 19.2%
Five Star (Lease
No. 4) (3) 25 2,461 230,636 7.2% 21,144 6.6%
Sunrise / Marriott
(4) 14 4,091 325,165 10.2% 32,416 10.1%
Brookdale 18 894 61,122 1.9% 8,173 2.5%
6 private companies
(combined) 8 1,115 49,094 1.5% 6,897 2.1%
Wellness centers 10 812,000 sq. ft 180,017 5.6% 17,069 5.3%
Multi-tenant MOBs 56 2,867,862 sq. ft 702,307 21.9% 79,124 24.7%
Total 289 $ 3,201,544 100.0% $ 320,954 100.0%
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Tenant Operating Statistics (Quarter Ended June 30) (5)
Annualized Rental Income per Living Unit,
Rent Coverage Occupancy Bed or Square Foot (6)
2009 2008 2009 2008 2009 2008
Five Star (Lease
No. 1) (3) 1.37x 1.23x 87% 88% $ 7,649 $ 7,520
Five Star (Lease
No. 2) (3) (7) 1.37x 1.44x 82% 84% $ 6,905 $ 6,520
Five Star (Lease
No. 3) (3) 1.52x 1.56x 89% 91% $ 10,958 $ 10,670
Five Star (Lease
No. 4) (3) 1.06x 1.38x 85% 90% $ 8,592 $ 8,280
Sunrise / Marriott
(4) 1.44x 1.43x 89% 90% $ 7,924 $ 7,817
Brookdale 2.14x 2.19x 90% 91% $ 9,142 $ 8,965
6 private companies
(combined) 1.96x 1.92x 81% 83% $ 6,186 $ 6,134
Wellness centers (8) 2.36x 2.37x 100% 100% NA NA
Multi-tenant MOBs
(9) NA NA 98% 99% $ 28 $ 22
Short and Long Term Residential Care Facilities
Percentage of Operating Revenue Sources
Private Pay (10) Medicare Medicaid
2009 2008 2009 2008 2009 2008
Five Star (Lease 60% 60% 14% 14% 26% 26%
No. 1) (3)
Five Star (Lease 52% 51% 32% 32% 16% 17%
No. 2) (3)
Five Star (Lease 87% 88% 12% 11% 1% 1%
No. 3) (3)
Five Star (Lease 67% 69% 14% 14% 19% 17%
No. 4) (3)
Sunrise / Marriott 69% 81% 27% 16% 4% 3%
(4)
Brookdale 100% 99% - - - 1%
6 private companies 24% 26% 24% 23% 52% 51%
(combined)
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Tenant Operating Statistics (Six Months Ended June 30) (5)
Rent Coverage Occupancy Annualized Rental Income per Living Unit,
2009 2008 2009 2008 2009 2008
Five Star (Lease
No. 1) (3) 1.35x 1.34x 87% 88% $ 7,649 $ 7,520
Five Star (Lease
No. 2) (3) (7) 1.33x 1.47x 81% 85% $ 6,905 $ 6,520
Five Star (Lease
No. 3) (3) 1.58x 1.59x 89% 92% $ 10,958 $ 10,670
Five Star (Lease
No. 4) (3) 1.03x 1.43x 85% 90% $ 8,592 $ 8,280
Sunrise / Marriott
(4) 1.45x 1.52x 90% 91% $ 7,924 $ 7,817
Brookdale 2.18x 2.21x 91% 91% $ 9,142 $ 8,965
6 private companies
(combined) 1.89x 2.08x 81% 85% $ 6,186 $ 6,134
Wellness centers (8) 1.86x 1.99x 100% 100% NA NA
Multi-tenant MOBs
(9) NA NA 98% 99% $ 28 $ 22
Short and Long Term Residential Care Facilities
Percentage of Operating Revenue Sources
Private Pay (10) Medicare Medicaid
2009 2008 2009 2008 2009 2008
Five Star (Lease 49% 50% 18% 18% 33% 32%
No. 1) (3)
Five Star (Lease 50% 51% 33% 34% 17% 16%
No. 2) (3)
Five Star (Lease 86% 88% 13% 11% 1% 1%
No. 3) (3)
Five Star (Lease 68% 69% 13% 4% 19% 17%
No. 4) (3)
Sunrise / Marriott 67% 67% 29% 29% 4% 4%
(4)
Brookdale 100% 99% - - - 1%
6 private companies 23% 27% 25% 24% 52% 49%
(combined)
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(2) Properties are categorized by the type of living units / beds which constitute a majority of the living units / beds at the property.
(3) On August 4, 2009, in connection with the Federal National Mortgage Association, or FNMA, transaction, we realigned our four leases with Five Star Quality Care, Inc., or Five Star. The data presented reflects this realignment.
(4) Marriott International, Inc. guarantees this lease.
(5) All tenant operating data presented are based upon the operating results provided by our tenants for the indicated quarterly or six month periods, or the most recent prior period for which tenant operating results are available to us. Rent coverage is calculated as operating cash flow from our tenants' operations of our properties, before subordinated charges, divided by minimum rents payable to us. We have not independently verified our tenants' operating data. The table excludes data for periods prior to our ownership of some of these properties.
(6) Represents annualized rent by lease divided by the number of living units, beds or square feet leased at September 30, 2009 and 2008.
(7) Annualized rental income per living unit, bed or square foot excludes the two rehabilitation hospitals because these properties have extensive clinic space for services to both overnight patients and patients who receive treatment and do not stay overnight, and these properties are not comparable to residential senior living properties.
(8) Annualized rental income per living unit, bed or square foot excludes the wellness centers because these properties have extensive indoor and outdoor recreation space which is not comparable to properties where rent is based on interior space only.
(9) Our medical office, clinic and biotech laboratory building, or MOB, leases include both triple net leases where, in addition to paying fixed rents, the tenants assume the obligation to operate and maintain the properties at their expense and net and modified leases where we are responsible to operate and maintain the properties and we charge tenants for some or all of the property operating costs. A minority of our MOB leases are so-called "full-service" leases where we receive fixed rent from our tenants and no reimbursement for our property operating costs.
(10) Private pay excludes revenues from the Medicare and Medicaid programs.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
The following tables set forth information regarding lease expirations as of
September 30, 2009 (dollars in thousands):
Cumulative
Percentage
Percent of of
Annualized Rent Total Annualized
Short and Long Annualized Current
Term Residential Wellness Current Rent Rent
Year Care Facilities MOBs Centers Total Expiring Expiring
2009 $ - $ 997 $ - $ 997 0.3% 0.3%
2010 1,333 2,392 - 3,725 1.2% 1.5%
2011 - 2,047 - 2,047 0.6% 2.1%
2012 - 5,951 - 5,951 1.9% 4.0%
2013 32,416 3,658 - 36,074 11.2% 15.2%
2014 - 6,167 - 6,167 1.9% 17.1%
2015 2,072 5,324 - 7,396 2.3% 19.4%
2016 2,888 6,760 - 9,648 3.0% 22.4%
2017 29,317 1,308 - 30,625 9.5% 31.9%
2018 - 1,896 - 1,896 0.6% 32.5%
2019 and after 156,735 42,624 17,069 216,428 67.5% 100.0%
Total $ 224,761 $ 79,124 $ 17,069 $ 320,954 100.0%
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Average remaining lease term for all properties (weighted by rent) 12.8 years
Number of Tenants Cumulative
Short and Percent of Percentage
Long Term Total Number of Number
Residential Wellness of Tenants of Tenants
Year Care Facilities MOBs Centers Total Expiring Expiring
2009 - 15 - 15 6.8% 6.8%
2010 1 23 - 24 10.9% 17.7%
2011 - 22 - 22 10.0% 27.7%
2012 - 38 - 38 17.2% 44.9%
2013 1 21 - 22 10.0% 54.9%
2014 - 22 - 22 10.0% 64.9%
2015 2 18 - 20 9.0% 73.9%
2016 2 18 - 20 9.0% 82.9%
2017 2 12 - 14 6.3% 89.2%
2018 - 6 - 6 2.7% 91.9%
2019 and after 4 12 2 18 8.1% 100.0%
Total 12 207 2 221 100.0%
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Number of Living Units or Beds or Square Feet with Leases Expiring
Cumulative
Short and Percent Percentage Cumulative
Long Term of Total of Total Percent Percent of
Residential Living Living Wellness of Total Total
Care Units or Units or MOBs Centers Total Square Square
Facilities Beds Beds (Square (Square Square Feet Feet
Year (Units/Beds) Expiring Expiring Feet) Feet) Feet Expiring Expiring
2009 - 0.0% 0.0% 26,716 - 26,716 0.7% 0.7%
2010 140 0.5% 0.5% 73,408 - 73,408 2.0% 2.7%
2011 - 0.0% 0.5% 63,458 - 63,458 1.7% 4.4%
2012 - 0.0% 0.5% 296,708 - 296,708 8.2% 12.6%
2013 4,091 15.6% 16.1% 143,974 - 143,974 4.0% 16.6%
2014 - 0.0% 16.1% 157,987 - 157,987 4.4% 21.0%
2015 283 1.1% 17.2% 232,520 - 232,520 6.4% 27.4%
2016 517 2.0% 19.2% 328,525 - 328,525 9.1% 36.5%
2017 3,355 12.8% 32.0% 32,895 - 32,895 0.9% 37.4%
2018 - 0.0% 32.0% 48,174 - 48,174 1.3% 38.7%
2019 and after 17,818 68.0% 100.0% 1,413,562 812,000 2,225,562 61.3% 100.0%
Total 26,204 100.0% 2,817,927 812,000 3,629,927 100.0%
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RESULTS OF OPERATIONS
Three Months Ended September 30, 2009 Compared to Three Months Ended
September 30, 2008:
2009 2008 Change % Change
(dollars in thousands, except per share amounts)
Rental income $ 72,010 $ 58,844 $ 13,166 22.4%
Interest and other income 355 829 (474 ) (57.2)%
Property operating expenses 4,112 1,024 3,088 301.6%
Interest expense 15,949 9,606 6,343 66.0%
Depreciation expense 19,689 15,859 3,830 24.2%
Acquisition costs 517 - 517 -
General and administrative 5,284 4,303 981 22.8%
Impairment of assets 11,249 - 11,249 -
Income before gain on sale of
properties 15,565 28,881 (13,316 ) (46.1)%
Gain on sale of properties - 266 (266 ) -
Net income $ 15,565 $ 29,147 $ 13,582 (46.6)%
Weighted average shares
outstanding 121,665 114,493 7,172 6.3%
Income before gain on sale of
properties per share $ 0.13 $ 0.25 $ (0.12 ) (48.0)%
Net income per share $ 0.13 $ 0.25 $ (0.12 ) (48.0)%
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Rental income increased because of rents earned from our real estate acquisitions since October 1, 2008, including $13.7 million of rental income in the third quarter of 2009 due to our acquisition of MOBs since June 2008. Interest and other income decreased as a result of lower levels of investable cash and lower interest rates.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
The increase in property operating expenses for the quarter ended September 30, 2009 is theresult of our acquisition of MOBs since June 2008 and principally includes expenses related to real estate taxes, utilities, cleaning costs and property management fees paid to Reit Management & Research LLC, or RMR.
Interest expense increased because of interest payments on our $512.9 million mortgage financing entered in August 2009 with a weighted average interest rate of 6.59%, the amortization of $11.8 million of deferred financing fees incurred in connection with this mortgage financing and greater amounts outstanding under our revolving credit facility offset by lower interest rates. Our weighted average balance outstanding and interest rate under our revolving credit facility was $90.4 million and 1.1%, and $32.2 million and 4.0%, for the three months ended September 30, 2009 and 2008, respectively. Interest expense also increased due to $61.3 million of debt assumed in connection with our third quarter 2008 acquisitions.
Depreciation expense for the third quarter of 2009 increased because of acquisitions since October 1, 2008. Commencing January 1, 2009, acquisition costs are expensed under the Business Combinations Topic of The FASB Accounting Standards CodificationTM, or the Codification. General and administrative expenses increased in 2009 principally due to our acquisitions since October 1, 2008.
During the three months ended September 30, 2009, we recognized an impairment of assets charge of $11.2 million related to eight properties, including six skilled nursing facilities, one assisted living property and one MOB.
On July 1, 2008, we sold three assisted living facilities for net proceeds of $21.4 million. The carrying value of these properties at the time of sale was $21.1 million, resulting in a gain on sale of $266,000.
Net income per share decreased because of the changes in revenues and expenses described above and the effect of an increase in the weighted average number of shares outstanding resulting from our issuance of common shares in February and September 2009.
Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008:
2009 2008 Change % Change
(in thousands, except per share amounts)
Rental income $ 209,785 $ 160,591 $ 49,194 30.6%
Interest and other income 750 2,025 (1,275 ) (63.0)%
Property operating expenses 10,286 1,124 9,162 815.1%
Interest expense 37,432 28,934 8,498 29.4%
Depreciation expense 56,713 43,235 13,478 31.2%
Acquisition costs 1,911 - 1,911 -
General and administrative 15,335 12,506 2,829 22.6%
Impairment of assets 11,249 2,940 8,309 282.6%
Income before gain on sale of
properties 77,609 73,877 3,732 5.1%
Gain on sale of properties - 266 (266 ) -
Net income $ 77,609 $ 74,143 $ 3,466 4.7%
Weighted average shares
outstanding 120,005 102,004 18,001 17.6%
Income before gain on sale of
properties per share $ 0.65 $ 0.72 $ (0.07 ) (9.7)%
Net income per share $ 0.65 $ 0.73 $ (0.08 ) (11.0)%
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Rental income increased because of rents earned from our real estate acquisitions since October 1, 2008, including $35.2 million of rental income in the nine months ended September 30, 2009 due to our acquisition of MOBs since June 2008, partially offset by a reduction in rental income resulting from the sale of three properties during the third quarter of 2008. Interest and other income decreased as a result of lower levels of investable cash and lower interest rates.
The increase in property operating expenses for the nine months ended September 30, 2009 is the result of our acquisition of MOBs since June 2008 and principally includes expenses related to real estate taxes, utilities, cleaning costs and property management fees paid to RMR.
Interest expense increased because of interest payments on our $512.9 million mortgage financing entered in August 2009 with a weighted average interest rate of 6.59%, the amortization of $11.8 million of deferred financing fees incurred in connection with this mortgage financing and greater amounts outstanding under our revolving credit facility offset by lower interest rates. Our weighted average balance outstanding and interest rate under our revolving credit facility was $169.2 million and 1.3%, and $48.2 million and 3.8%, for the nine months ended September 30, 2009 and 2008, respectively. Interest expense also increased due to $61.3 million of debt assumed in connection with our third quarter 2008 acquisitions.
Depreciation expense for the nine months ended September 30, 2009 increased because of acquisitions since October 1, 2008. Commencing January 1, 2009, acquisition costs are expensed under the Business Combinations Topic of the Codification. General and administrative expenses increased in 2009 principally due to our acquisitions since October 1, 2008.
During the nine months ended September 30, 2009, we recognized an impairment of assets charge of $11.2 million related to eight properties, including six skilled nursing facilities, one assisted living property and one MOB. During the nine months ended September 30, 2008, we recognized an impairment of assets charge of $2.9 million related to one assisted living property.
On July 1, 2008, we sold three assisted living facilities for net proceeds of $21.4 million. The carrying value of these properties at the time of sale was $21.1 million, resulting in a gain on sale of $266,000.
Net income per share decreased because of the changes in revenues and expenses described above and the effect of an increase in the weighted average number of shares outstanding resulting from our issuance of common shares in February and June 2008 and February and September 2009.
LIQUIDITY AND CAPITAL RESOURCES
Our principal source of funds to pay operating expenses, debt service and distributions to shareholders is rental income from our properties. We believe that our operating cash flow will be sufficient to meet our operating expenses and debt service and pay distributions on our shares for the foreseeable future. Our future cash flows from operating activities will depend primarily upon our ability to:
† maintain or improve the occupancy of, and the current rent rates at, our properties;
† control operating cost increases at our properties; and † purchase additional properties which produce positive cash flows from operations. |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Our Operating Liquidity and Resources
We generally receive minimum rents monthly or quarterly from our tenants and we receive percentage rents monthly, quarterly or annually. During the nine months ended September 30, 2009, we generated $160.5 million of cash from operations and at September 30, 2009, we had $72.5 million of cash and cash equivalents.
Our Investment and Financing Liquidity and Resources
In order to fund acquisitions and to accommodate cash needs that may result from timing differences between our receipts of rents and our need or desire to pay operating expenses and distributions to our shareholders, we maintain a revolving credit facility with a group of institutional lenders. This revolving . . .
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