Senior Housing Properties Trust to focus on existing assets

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Senior Housing Properties Trust will focus its senior living efforts in 2017 on its existing portfolio rather than on acquisitions, President and Chief Operating Officer David Hegarty said Monday to those participating in an earnings call.

”Within the senior living particularly, we're focusing on trying to add wings, units and other refurbishments that will significantly allow us to raise rates,” he said.

Acquisition activity will be “very disciplined,” he said, “mainly due to current asset pricing and our relative cost of capital. We are still seeing a considerable amount of deals, and we'll continue to monitor the investment opportunities in the senior living and medical office markets. However, acquisition activity for the foreseeable future will likely be modest with individual properties in small portfolios, and we will continue to identify opportunities to invest in our existing portfolio.”

Approximately 11% of the healthcare REIT's portfolio of managed senior living properties, as of the fourth quarter of 2016, is located within five miles of new construction that is projected to open this year or next year, Hegarty said. But new construction seems to be plateauing in the markets in which SHPT operates, he said.

This year may hold occupancy challenges, “but we remain optimistic that occupancy will hold steady, with improving age population demographics on the horizon,” Hegarty said. “Our tenants continue to respond to the supply challenges by controlling cost and increasing rents in markets where they can. We continue to partner with them by providing the necessary capital to help the communities remain competitive.”

The REIT's triple net senior living portfolio had an occupancy level of 85.1% and rent coverage of 1.31 times for the 12 months ended Sept. 30, 2016. Occupancy at the managed senior living properties was affected by Hurricane Matthew in October, Hegarty said. Fourteen of 68 communities in three states were affected, and occupancy decreased 60 basis points in the managed same-store portfolio over the prior year. Average monthly rate increased slightly, by 1.6%, however.

Among activity in the fourth quarter of 2016, Hegarty said, the REIT acquired two senior living communities in December for $18.6 million and sold a formerly managed memory care building in Florida for approximately $2.1 million.

The two newly acquired assisted living communities, located in Southern Illinois, have a total of 126 units and are 100% private-pay facilities, Hegarty said. They are leased to Five Star with an initial lease rate of 7.5%, he added.

“Five Star already had an operational presence in the area, so the transition from the existing operator to Five Star was seamless, and the communities will be able to take advantage of supply chain and other operating efficiencies,” Hegarty said. “Also, because of the high occupancy and the need for memory care, there is potential for expansion at both of these facilities.”

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