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Edited Transcript of SNH earnings conference call or presentation 7-Nov-19 3:00pm GMT

Q3 2019 Senior Housing Properties Trust Earnings Call

Newton Nov 16, 2019 (Thomson StreetEvents) -- Edited Transcript of Senior Housing Properties Trust earnings conference call or presentation Thursday, November 7, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jennifer F. Francis

Senior Housing Properties Trust - President & COO

* Michael Kodesch

Senior Housing Properties Trust - Director of IR

* Richard W. Siedel

Senior Housing Properties Trust - CFO & Treasurer

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Conference Call Participants

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* Alexander J. Kubicek

Robert W. Baird & Co. Incorporated, Research Division - Research Analyst

* Bryan Anthony Maher

B. Riley FBR, Inc., Research Division - Analyst

* Jonathan Hughes

Raymond James & Associates, Inc., Research Division - Senior Research Associate

* Michael Albert Carroll

RBC Capital Markets, Research Division - Analyst

* Todd Jakobsen Stender

Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the Senior Housing Properties Trust Third Quarter 2019 Financial Results Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would like to now turn the conference over to Michael Kodesch, Director of Investor Relations.

Please go ahead.

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Michael Kodesch, Senior Housing Properties Trust - Director of IR [2]

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Thank you. Welcome to Senior Housing Properties Trust call covering the third quarter 2019 results. Joining me on today's call are Jennifer Francis, President and Chief Operating Officer; and Rick Siedel, Chief Financial Officer and Treasurer.

Today's call includes a presentation by management followed by a question-and-answer session. I would like to note that the transcription, recording and retransmission of today's conference call are strictly prohibited without the prior written consent of Senior Housing Properties Trust or SNH. Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based upon SNH's present beliefs and expectations as of today, Thursday, November 7, 2019. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's conference call other than through filings with the Securities and Exchange Commission or SEC.

In addition, this call may contain non-GAAP numbers, including normalized funds from operations or normalized FFO, EBITDA or adjusted EBITDA and cash basis net operating income, or cash basis NOI. Reconciliations of net income attributable to common shareholders to these non-GAAP figures and the components to calculate AFFO, CAD or FAD are available in our supplemental operating and financial data package found on our website at www.snhreit.com. Actual results may differ materially from those projected in any forward-looking statements. Additional information concerning factors that could cause those differences is contained in our filings with the SEC. Investors are cautioned not to place undue reliance upon any forward-looking statements.

Now I'd like to turn the call over to Jennifer.

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Jennifer F. Francis, Senior Housing Properties Trust - President & COO [3]

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Thank you, Michael. Good morning to our shareholders and call participants, and welcome to the third quarter earnings call for Senior Housing Properties Trust. To begin today's call, I'd like to report that with the targeted close date of our restructuring of the business arrangements with Five Star Senior Living just under 2 months away, we're on track and are progressing as planned. With Five Star shareholders approving the issuance of Five Star common stock to SNH and SNH shareholders, our only remaining milestone is obtaining the requisite licenses from the states in which our assets are located, a process which is well underway and on schedule.

All in all, we remain on target for the January 1, 2020 conversion of our triple-net leases to management contracts. In conjunction with the Five Star restructuring, we continue to make headway in our disposition strategy which will both reduce our financial leverage and transform our portfolio to best position SNH for the future. We have previously mentioned that we expect to sell or have under agreement to sell assets valued at approximately $900 million by the end of 2019 to reach our target leverage, and we remain on schedule for this objective.

There is abundant capital in the medical office, life science and Senior Living acquisitions markets, and we continue to feel comfortable that our pricing and timing goals are achievable. We now have assets valued at over $740 million either sold, under agreement to sell or with offers received. We're actively marketing the remainder of our disposition portfolio valued at over $240 million, which we expect to be under agreement by year-end.

As a reminder, on July 1, we also sold our entire equity stake in the RMR Group for approximately $99 million in net proceeds. The company's third quarter 2019 results reflected a period of deliberate transition as we continue to set the stage to improve the sustainability of revenue, deliver long-term diversified growth and provide reliable returns for our shareholders moving into 2020 and beyond.

Earlier this morning, we reported a 14.9% decrease in consolidated same-property cash basis NOI in the third quarter compared to the same quarter last year. This decrease was expected and was primarily the result of the reduction in Five Star's rent for the full quarter, as agreed upon in the April transaction. Excluding the triple net leased senior living communities, same-property cash basis NOI was down 4.4% compared to the same quarter last year.

This decrease was mainly the result of a $3.9 million or 17.5% same-property NOI decline in our managed senior living portfolio. It's important to spend a minute providing detail on this decrease as it was driven by a combination of workforce investment initiatives within our managed senior living portfolio that we have discussed on previous calls, the 140 basis point drop in same-property occupancy in the managed senior living portfolio compared to the prior year and several nonrecurring expense items.

First, increased wages and benefits and contract labor accounted for $2.2 million of the year-over-year decrease. As we've mentioned on previous calls, wage pressure and competition for high-quality leadership remained 2 of the most significant challenges in senior living across all employee types.

To address this, Five Star has increased its commitment to its team members, which we see as an essential move ahead of the conversion of our leased communities to managed. Additionally, open positions in a tight labor market led to the increased use of costly contract labor. As third-party labor into overtime wages can cost substantially more than that of traditional employees, Five Star continues working towards stabilizing its workforce to a high-quality permanent team. We support Five Star's investment and its team members and believe this will lead to even better service to our residents and ultimately, increased occupancy and rent growth.

Next, much of our managed communities drop in occupancy that I just mentioned is due to Georgia and South Carolina markets, which continue to face an influx of supply relative to absorption and where our communities faced additional disruption due to transition of leadership. Improvements in these markets are critical, and we look forward to seeing Five Star's plans successfully implemented.

Finally, the combination of the impact of filling open positions at our recently completed ground-up development of an independent living community in Tennessee and costs related to Hurricane Dorian, preparation and evacuation roughly accounted for the remainder of this decline.

Moving to our MOB segment. SNH's portfolio contains over 12 million square feet, comprised of 7.4 million square feet of medical office buildings and 4.7 million square feet of life science assets, with a weighted average lease term of 6.4 years.

We generated strong leasing results this quarter with 314,000 square feet of new and renewal leases executed with a weighted average lease term of 6.1 years, a 5.1% rollup in rent and leasing costs of just $3.97 per square foot per year.

Activity for prospective new tenants and renewals is strong, with a robust leasing pipeline for vacant space and upcoming expirations. As we work through our deleveraging efforts, we will continue to focus on leasing, tenant retention and operational excellence by leveraging RMR's asset and property management teams. RMR's local presence in more than 30 offices across the U.S., in addition to the company's deep bench and wealth of experience provides a competitive advantage for tracking local market trends and demand drivers as well as building meaningful relationships with both our tenants and leasing brokers.

In today's extremely competitive labor market, the RMR group has a heightened focus on developing numerous programs to attract and retain high-quality real estate professionals. As a testament to the success of these programs, it recently won the Real Estate Management Excellence Award for employee and leadership development from IREM, or the Institute of Real Estate Management at its 2019 Global Summit in September. This award recognizes RMR's programs and initiatives for recruiting, onboarding, retention and professional development.

We believe the breadth, strength and recognition of these programs are clear evidence of the benefits SNH receives from RMR shared services platform.

Back to our results. There are a few factors that continue to negatively impact our MOB segment results when compared to the same quarter last year. First, we had an early termination fee paid by a tenant last year who downsized in the building in Minneapolis, where we immediately released the space with a roll-up in rent of over 16%, and 2 building vacancies, one in a property outside of Minneapolis, where we've recently completed a repositioning, the other, a building in South Carolina, where a large tenant recently vacated, both of which have strong leasing pipelines.

These factors largely drove a 6.3% decrease in our medical office same-property cash basis NOI. However, this was offset by a 6.1% increase in our life science portfolio, resulting in same-property cash basis NOI in our MOB segment down 30 basis points compared to the same quarter last year. The increase in the life science cash basis NOI was mainly as a result of the base rent increase at our 1 million square foot property in the Seaport District of Boston. This 15-year lease that commenced in 2013 has an 8% rent increase every 5 years, one of which took effect on January 1 of this year.

As stated in prior quarters, plans are underway to redevelop the 3 building life sciences campus located in Torrey Pines within the Greater San Diego market for approximately $100 million. Torrey Pines is considered one of the top markets for life sciences in the country, ranking third behind Boston and San Francisco. The property will undergo a full transformation, which includes complete demolition down to concrete and steel. Following its estimated substantial completion in late 2020, the property will be a prominent class A campus offering flexible lab and office space as well as modern amenities. We're already in discussions with possible tenants for the buildings and anticipate an increase to the overall campus square footage and a sizable rollup in rent.

I'll now turn the call over to Rick to provide further discussion of our financial results for the quarter.

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Richard W. Siedel, Senior Housing Properties Trust - CFO & Treasurer [4]

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Thank you, Jennifer, and good morning, everyone. I will be discussing some of the third quarter financial results beyond what Jennifer just covered. Normalized FFO for the third quarter of 2019 was $70.1 million or $0.29 per share, which was down $0.13 per share compared to the same quarter last year. The majority of the decrease in normalized FFO was due to the Five Star rent reduction in our triple-net leased senior living communities that Jennifer mentioned earlier.

In October, we declared a $0.15 per share dividend payable in the fourth quarter of 2019. The normalized FFO payout ratio for the third quarter based on this dividend was approximately 52%.

General and administrative expenses decreased $21.4 million or almost 70% for the third quarter compared to last year as a result of lower business management fees.

We've recruited no incentive management fee and our managers' base fee continues to be paid on market capitalization and not on the historical cost of assets. We believe the decrease in business management fees demonstrates the strong alignment of interest between RMR and SNH shareholders, as the reduced market capitalization driven by the reduced stock price in the third quarter translated to a reduction in base business management fees paid to RMR at an annualized run-rate of almost $15 million.

Turning to capital expenditures. We spent $15.3 million in recurring CapEx and $15.7 million on redevelopment this quarter. The redevelopment capital was split fairly evenly between projects in our MOB segment and managed senior living portfolio.

In our MOB segment, we continue to make progress on the repositioning in Washington, D.C. that we've discussed on prior calls.

In our managed senior living portfolio, the majority of the redevelopment capital expenditures were related to the independent-living, ground-up development at one of our properties in Tennessee that Jennifer mentioned earlier, which was substantially completed in September.

Going forward, we expect to see increased redevelopment capital expenditures as we work to complete the repositioning in Washington, D.C. begin the redevelopment in Torrey Pines and continue to invest in our senior living portfolio. As we have previously mentioned, we also expect to spend about $1,500 per unit per year in recurring capital expenditures in our senior living portfolio.

Moving to our balance sheet. We ended the third quarter with $49.5 million of cash on hand and $589 million outstanding on our revolving credit facility. Subsequent to quarter-end, we reduced our borrowings under the revolving credit facility to $517 million as of today, using proceeds from dispositions.

As of September 30, our debt to adjusted EBITDA was 7.4x and debt to gross assets was 42.4%. We mentioned last quarter that we expected our leverage to peak during the third quarter, and there is no change to this expectation as asset sale proceeds from our disposition program will be used to pay down debt to reduce leverage to roughly 6x or lower.

That concludes our prepared remarks. Operator, please open up the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Michael Carroll with RBC Capital Markets.

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Michael Albert Carroll, RBC Capital Markets, Research Division - Analyst [2]

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Jennifer, can you talk to us a little bit about Five Star's labor initiatives that they're pursuing right now? How much is the operator increasing individual wages? And are these expenses expected to increase over a multiyear period? Or should we expect a shorter time frame of the elevated operating expense growth?

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Jennifer F. Francis, Senior Housing Properties Trust - President & COO [3]

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Thanks for your question, Mike. Five Star is, as you said, very focused on their labor initiatives through team member engagement. I think Katie Potter, their CEO's calling it, putting people first. Where they're investing in staff members to provide a culture of higher standards. Yes, there's a few things that are going on as far as their initiatives and wage pressure. Wage pressure isn't going away anytime soon. There's the kind of the macro issue where unemployment hasn't been this low since 1969, and the senior living industry has been especially challenged and operators are obviously competing extremely fiercely for qualified employees.

So on top of these market conditions, Five Star has had some challenges with labor as well. But the initiatives, they're -- again, they're super focused on hiring and retaining the best employees possible. There's been some -- as I said, there's been some struggle with them in that, initially, there were some employee uncertainty because of the announcement of their -- the doubts that existed about their ability to continue as a going concern. That's been solved, so that issue has gone away.

And then there was some uncertainty that was created with the replacement of the -- of Five Star C-suite. So Katie has talked about, again, this -- one of these initiatives is building a culture of accountability, transparency and innovation. That caused some disruption because I think there were some employees who decided to leave because they didn't want to work in that environment of accountability.

Next, we announced our disposition program, $900 million of dispositions of assets, 60% of which were in the senior living space. We didn't publicly announce specifically what assets were being sold. So that caused employee disruption. Five Star had to pay costly overtime and contract labor as a result of that. So I think Katie's initiative -- Katie and her team's initiative to bring in the best and the brightest and still a lot of those open positions that have been created because of this disruption, I don't think that -- as I just said, some of those disruption factors have wound down but because they're going to continue to focus on workforce and attracting that highly qualified workforce, it's -- I don't think it's anytime soon. I don't -- I think it's well into 2020.

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Michael Albert Carroll, RBC Capital Markets, Research Division - Analyst [4]

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Okay. And then what drove the weaker trends in your occupancy and rental rates this quarter? And it seems like the managed portfolio saw the brunt of it versus the Five Star leased portfolio. I guess is there a reason for the difference? And do you expect those trends to continue? Is there something happening in the marketplace?

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Jennifer F. Francis, Senior Housing Properties Trust - President & COO [5]

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I think it was a -- we talked about a couple of markets specifically, where we really had some issues. The South Carolina and Atlanta markets, there were leadership changes there that causes disruption. And so it's -- I'm not sure that it's an overall all-community issue. It's really just a couple of markets.

And now that they could kind of -- hired new leadership for those markets, I think we'll see an improvement.

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Michael Albert Carroll, RBC Capital Markets, Research Division - Analyst [6]

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Okay. And then last one for me. Are you seeing competitors in your market cutting rates or offering significant concessions in order to drive their own occupancy rates higher? Are you seeing a much more competitive operating environment?

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Jennifer F. Francis, Senior Housing Properties Trust - President & COO [7]

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I think that there are certainly those that will give a lot of things away to attract residents. We're trying through our revenue management to -- or Five Star is trying through their revenue management to set the correct rates for specific units within their communities and not offer a great deal of concessions, that's -- Katie spends a bunch of time talking about that. Though -- so we're going to be more -- we're going to be competitive. It may just not be by giving things away.

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Michael Albert Carroll, RBC Capital Markets, Research Division - Analyst [8]

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Okay. And has that -- has the operating environment been more competitive today, let's say, versus 12 months ago? Or is it the same?

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Jennifer F. Francis, Senior Housing Properties Trust - President & COO [9]

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I think it's the same, which is -- which means incredibly competitive. I don't think that it's hard -- I think it's hard -- it would be hard for it to get more competitive than it's been.

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Operator [10]

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The next question comes from Todd Stedner (sic) [Stender] with Wells Fargo.

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Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [11]

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I guess just looking at the third quarter sales, and then the properties you have teed up for sale, I guess, here in Q4. So we've seen a lot of MOBs, more coming. I would have thought that maybe more assisted living facilities tucked in there. Can you just comment on maybe what's left, by my account, you've got about $150 million left that should get you to the $900 million number. What's left? What property types should we see?

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Jennifer F. Francis, Senior Housing Properties Trust - President & COO [12]

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It's a real mix, actually. Thanks for your question. It's a mix. The MOBs -- there are licensing issues that come with the sale of senior living. And so MOBs and life sciences assets are just less complicated to sell. And so you can go under agreement, have relatively quick due diligence and close. So that may be why we may have front-loaded some of those MOB life sciences sales, but it's a mix. I don't know that it's 50-50, but it's not heavily weighted towards one or the other segment.

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Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [13]

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And then any cap rate expectations? Going into this, where did you think you'd see them? And then where are you seeing them now in the latest round of stuff that's teed up?

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Jennifer F. Francis, Senior Housing Properties Trust - President & COO [14]

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We thought we were going to see around a 7% cap. And I would say it's hard -- I don't want to talk about the sales to-date and the cap rates because I'm -- we really are talking about a full portfolio, the full disposition, but we're expecting them to be at or a bit below a 7%.

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Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [15]

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Okay. And then switching gears to the Torrey Pines project. So that's a good size, I think you said $100 million. Is that something that's marketable? It's a premier location, and I don't doubt that it'll be a Class A building. But is that the project for you guys right now as you reposition the portfolio and just stabilize things?

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Jennifer F. Francis, Senior Housing Properties Trust - President & COO [16]

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Yes. It's a great project for us. It is in an incredibly marketable submarket within San Diego. It's -- yes, it's just -- we have lots of interest. There's not a lot of Class A vacancy in that market. So we're getting a great deal of interest, and it's -- we have a development team who are specifically focused on this asset. So it's a very different team than the teams that are focused on some of the other initiatives. So yes, we're excited about it.

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Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [17]

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So not for sale? That's not something you would hold on to?

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Jennifer F. Francis, Senior Housing Properties Trust - President & COO [18]

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It's not for sale.

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Todd Jakobsen Stender, Wells Fargo Securities, LLC, Research Division - Director & Senior Analyst [19]

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Okay. And then Rick, so if you're at a peak or you've seen the peak, I guess, for a debt to EBITDA number for leverage. You've got plenty of proceeds coming in from asset sales. You've got a term loan due in January. Is that something that can be extended? Or are you going to probably meet that maturity, and we can see a real precipitous decline in leverage?

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Richard W. Siedel, Senior Housing Properties Trust - CFO & Treasurer [20]

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Yes. I mean we certainly do have some ability to refinance some or a portion of it. We've got great relationships with our bank group. At this point, though, we think we've got more than sufficient capacity between the revolver and the disposition proceeds to take out all of the coming maturities. Again, to the extent we look to refinance a small portion of it, that'll just create more flexibility for us to be ready to reinvest once we wind down the disposition program and position the company for growth. But we feel really good about where we are and we expect leverage to tick down, again, kind of hit the high watermark.

We think by the midpoint of next year, we should be down around 6, and then as we continue to spend on some of the redevelopments throughout next year. We're probably ending next year in the low 6s, probably 6.1, 6.0, somewhere in that range. So again, we feel very comfortable with where our leverage is. We've got some really great assets. The disposition program has only made the portfolio stronger. So we feel pretty good about where we are. And as the senior living business kind of gets through some of the headwinds and starts to come back, we'll see leverage move even lower.

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Operator [21]

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Next question comes from Drew Babin with Baird.

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Alexander J. Kubicek, Robert W. Baird & Co. Incorporated, Research Division - Research Analyst [22]

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This is Alex on for Drew. MOB's same-store NOI growth continues to be negative. As you alluded to in your prepared remarks, vacancy has been a major driver. But given you have a material amount of leases expiring over the coming years, when do you -- when should we expect occupancy to stabilize or begin to improve, so we can get NOI growth back to a positive trajectory?

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Jennifer F. Francis, Senior Housing Properties Trust - President & COO [23]

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Thanks for your question. I would say that we're going to -- it will be stabilized in the near term. We had a couple of buildings, as I mentioned in my prepared remarks, that kind of dragged us down this quarter. A building in Minneapolis, which is -- we've got a great deal of activity on that, probably 60% of the building, close to coming to terms. The property in South Carolina that has affected us. We're also in active discussions with a tenant for that building.

Our pipeline of new and renewal leases is, we've probably got 600,000 square feet of new leases that are in discussions over the entire portfolio and close to 700,000 square feet of renewal conversations that we're in. Those are actually conversations that have progressed to the point where we're negotiating LOIs as opposed to just a pipeline. So we're looking like we're in pretty good shape.

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Alexander J. Kubicek, Robert W. Baird & Co. Incorporated, Research Division - Research Analyst [24]

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That's some real helpful color. And then just one more question for me. Brookdale's EBITDARM coverage has been trending lower a little bit here and basically for almost 2 years now. I know 1.95x, there's still plenty of cushion, but can you just speak to your confidence in kind of the stabilization of those assets over the next couple of years? And kind of if you're still comfortable where they're performing to-date?

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Richard W. Siedel, Senior Housing Properties Trust - CFO & Treasurer [25]

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I'll take that one. This is Rick. Obviously, our senior living communities leased to Brookdale have continued to perform well with over 1.9x coverage. We have seen some deterioration in that coverage. But I really think that's just a function of the wage and supply pressure that the entire industry has faced. We really aren't concerned about these properties and do expect them to continue to perform in the future.

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Operator [26]

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The next question comes from Bryan Maher with B. Riley FBR.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [27]

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So just to be clear, on the $900 million in asset sales that are targeted, that does not include the roughly $100 million of RMR shares?

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Jennifer F. Francis, Senior Housing Properties Trust - President & COO [28]

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That's correct.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [29]

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Okay. And of the assets that you've been selling, has there been a propensity of a certain buyer for those? Is it local buyers? Is it private equity? Who have you been running into the most looking at your properties?

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Jennifer F. Francis, Senior Housing Properties Trust - President & COO [30]

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It varies depending on the segment. So in senior living, it's probably -- it's about 45% either regional or national operators. Another 30% of the pool are private equity, and then it breaks down into smaller chunks from there, the next biggest interested buyer are REITs. In the MOB space, it's mostly private equity. We have -- the rest of it is pretty evenly spread between REITs, family office, some pension funds.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [31]

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Okay. And then when we think about senior housing supply as we enter into 2020 and 2021, specifically as it relates to your markets, is that lightening up at all? What are your thoughts there?

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Jennifer F. Francis, Senior Housing Properties Trust - President & COO [32]

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Well, I mean it's lightening up across all of the markets. NIC reported in the last quarter that construction as a percentage of inventory was at 6.3% in Q3, which is near the looks about as low as it's been since Q2 2015 within the properties are -- SNH's properties that are within NIC's covered markets. The units under construction was 7.2%, so not much higher, a bit higher, but not much higher. And that, for us, is the lowest ratio since Q1 2016. And 30 basis points below Q2. So things are looking -- they're looking better.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [33]

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When you think about what Five Star is doing with their employee retention efforts, et cetera, and the costs associated with that, and you guys converting with them early next year to the RIDEA format, has that changed your, for lack of a better word, underwriting, thought process on going down that road? Or not really?

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Jennifer F. Francis, Senior Housing Properties Trust - President & COO [34]

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Not at all. This was -- this is something that we and Five Star have been talking about for a long time. And it's absolutely within our expectations, and we're encouraging these employee initiatives.

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Bryan Anthony Maher, B. Riley FBR, Inc., Research Division - Analyst [35]

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Okay. And then just lastly for me, Jennifer. It feels like with everything you guys are doing, that you're probably in the sixth or seventh inning, for lack of a better word, this transition pain and that maybe by mid-2020, things are looking much better. Would you agree or disagree with that?

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Jennifer F. Francis, Senior Housing Properties Trust - President & COO [36]

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I would agree with that.

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Operator [37]

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The next question comes from Jonathan Hughes with Raymond James.

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Jonathan Hughes, Raymond James & Associates, Inc., Research Division - Senior Research Associate [38]

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Do you plan to give 2020 guidance with 4Q '19 results since the managed senior living portfolio will comprise 30% -- 35%, 40% of the total portfolio?

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Richard W. Siedel, Senior Housing Properties Trust - CFO & Treasurer [39]

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Probably not officially. We have -- our policy is not to give guidance. We have tried to be more transparent than ever with this transition. We've, I think, been fairly transparent on the labor pressure that we've seen and what our expectations were for the managed portfolio. I think we'll continue to kind of work with Five Star to fine-tune our budgets for next year, and we can give some general direction, but I don't think we'll officially give official guidance. So [no] changes there.

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Jonathan Hughes, Raymond James & Associates, Inc., Research Division - Senior Research Associate [40]

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Okay. Fair enough. Could you, I guess, maybe one step further, could you maybe share any expectations on G&A trajectory next year? Is that expected to change materially after the Five Star transition?

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Richard W. Siedel, Senior Housing Properties Trust - CFO & Treasurer [41]

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It really shouldn't. Our G&A is fairly simple. The lion's share of it is the fees paid to RMR, the manager. And as we said in prepared remarks, I mean they're down 70% or so from last year as a result of our lower stock price. I'd like to think as we complete the disposition program and start positioning the portfolio for growth again, that we'll see the stock price come up. I think most of us would be happy to see the fees go back up as long as it's tied to shareholder return, which is our goal. So it's hard to say specifically, but again, interests are very much aligned between our manager and our shareholders through that G&A line.

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Jonathan Hughes, Raymond James & Associates, Inc., Research Division - Senior Research Associate [42]

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Okay. Yes, look, I know -- the guidance and any additional color what the next quarterly results would definitely be helpful. I'm sure a lot of listeners feel the same way. Just one more for me. Looking at the contract with RMR, what is the breakup fee payable to RMR if they were to determine it would be this manager of SNH?

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Richard W. Siedel, Senior Housing Properties Trust - CFO & Treasurer [43]

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I don't know what it is offhand. I'm sure our SEC filings have all the information necessary if you want to calculate it, but as everyone on the call can imagine, we are laser-focused on executing on our disposition plan and reducing leverage and improving the portfolio. It's not a small task to restructure the senior living business and position this company for growth. So given the difficult operating environment we've been in, that is clearly getting all our focus. And again, as Jennifer mentioned in the prepared remarks, we think RMR is doing a lot of really great things to help position SNH and really all of the managed REITs. So again, just not a focus, but I'm sure it's in our SEC filings, if you need it.

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Jonathan Hughes, Raymond James & Associates, Inc., Research Division - Senior Research Associate [44]

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Okay. I mean has the RMR Board looked at -- I mean you're selling a lot of assets, $900 million or so expected to be under contract. I mean why not sell the whole company to close this valuation gap?

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Jennifer F. Francis, Senior Housing Properties Trust - President & COO [45]

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I think that everything is considered. Certainly, when we were looking -- or when the independent committees were looking at this transaction that we announced in April, all kinds of scenarios were considered. Clearly, the scenario that we went with was the one that both groups thought made the most sense. And therefore, the RMR Board, I would assume, supported that.

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Operator [46]

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This concludes our question-and-answer session. I would like to now turn the conference over to Jennifer Francis for any closing remarks.

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Jennifer F. Francis, Senior Housing Properties Trust - President & COO [47]

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Thank you. And thank you for joining us on our third quarter earnings call. We look forward to seeing many of you at NAREIT in Los Angeles next week.

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Operator [48]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.