Senior Housing Properties Trust is focusing its acquisitions energy on its life science and medical office building segments as it waits for senior living challenges related to occupancy and operating expenses resulting from overbuilding to lessen, President and Chief Operating Officer Jennifer Francis said Tuesday on a second-quarter earnings call.
“We’re looking at senior living communities when they hit the market, but we’re just much more focused on life science and MOB,” she said. Most of the buyers of seniors housing properties right now are private equity firms, Francis said.
Life science and MOB properties represented approximately 44% of Newton, MA-based SNH’s consolidated net operating income in the second quarter, she said, adding, “We hope to continue to grow both property types as a percentage of our entire portfolio.”
The real estate investment trust is redeveloping or repositioning some of its existing senior living properties to keep them competitive, she said. The REIT reported investing approximately $10.1 million in such improvements in the second quarter.
All of the REIT’s segments saw same-property cash NOI growth during the quarter except for the managed senior living community segment, Francis said. That segment saw a 4.6% decline in the quarter compared with the second quarter of 2017, primarily because of higher operating expenses, she said. Occupancy increased 10 basis points on a same-property basis, however, whereas residents’ fees and services remained flat.
“Looking deeper into the revenue detail, independent living revenues increased 5%, and assisted living revenues increased 1.1%,” Francis said. “Conversely, skilled nursing revenues from the healthcare units within our [continuing care retirement communities] decreased enough to offset these increases, causing revenues to be flat year-over-year.”
The REIT, Francis said, is “looking very closely at the skilled nursing facilities within our managed portfolio, doing a highest and best-use study across the portfolio to better understand if there’s another better use for those.”
SNFs accounted for 3% of SNH’s second-quarter NOI, whereas independent living and assisted living accounted for a total of 50%.
Asked whether she thought supply had peaked in senior living, Francis noted that the National Investment Center for Seniors Housing & Care says that annual inventory growth is still outpacing absorption, although construction starts have decreased.
“They’ve been down this quarter and last, but I don’t know if that’s enough to be a trend,” she said. “I’d love to hope that it’s slowing down, but I think we need another quarter or two of data to really determine whether those two quarters are a trend.”
Transactions in the second quarter:
- SNH acquired the two remaining properties that were part of a six-property November 2017 purchase agreement with Five Star Senior Living. The gross purchase price of $23.3 million included the assumption of $16.6 million of debt. Five Star continues to manage the properties.
- In May, the REIT sold the last of the four Sunrise Senior Living communities that were part of a deal with Welltower that had been announced in January. The community sold for $96 million, excluding closing costs, resulting in a gain of approximately $78.9 million.
- In June, SNH sold two communities in individual transactions. In one deal, a private operator exercised its purchase option on a leased assisted living community and bought it for $15.4 million. In the other deal, a skilled nursing facility that had been leased to Five Star was sold for $6.5 million. The net gain from both sales was approximately $1.9 million, the REIT said.