Good morning, and welcome to the Senior Housing Properties Trust Second Quarter 2018 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Brad Shepherd, Director of Investor Relations. Please go ahead.

Thank you. Welcome to Senior Housing Properties Trust’s call covering the second quarter 2018 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 without the prior written consent of SNH are strictly prohibited. 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, Tuesday, August 7, 2018. SNH 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 and cash-based net operating income or cash NOI. Reconciliations of net income attributable to common shareholders to these non-GAAP figures and components to calculate AFFO, CAD or FAD are available on our supplemental operating and financial data package found on SNH’s 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. I’d now like to turn the call over to Jennifer.

Thank you, Brad, and good morning, everyone. Thank you for joining us on SNH’s second quarter 2018 earnings call. In this quarter Senior Housing Properties Trust delivered stable property level operating results; growing year-over-year same property cash NOI by $1.3 million or just under 1% combined with cash NOI growth from quality acquisitions adding an additional $4.1 million. We continue to experience headwinds in our senior living portfolio from the increased competition in the industry but we'll remain focused on recycling capital from dispositions into life science and medical office property acquisitions to help offset the impact these challenges have on our results. In the second quarter life science and medical office properties for our MOB segment represented approximately 42% of our consolidated cash NOI and we hope to continue to grow both property types as a percentage of our entire portfolio. Our MOB segment same property cash NOI increased 1.8% in the second quarter compared to last year and total occupancy at the end of the quarter was 95.7% which was up 30 basis points sequentially. During the quarter we executed a 106,000 square foot of new leases and 88,000 square foot of renewal leases; these renewals averaged to 3.5% roll off in rent and a weighted average lease term of 6.2 years. Digging into the performance of our MOB segment same property cash NOI in our life science properties increased 1.2% and our traditional medical office properties increased 2.5%; our traditional medical office portfolio’s performance in the second quarter was driven by leasing and rent growth throughout the entire portfolio; we did see noticeable growth in a few of our stronger markets where we have concentration of buildings such as Austin and Phoenix. Our triple net lease senior living portfolio continued to produce consistent growth with same store…

Thank you Jennifer and good morning everyone. I am going to touch on some of the second quarter financial highlights beyond what Jennifer just covered. Starting with our balance sheet we ended the second quarter with $30.7 million in cash and a $108.7 million of restricted cash on hand. $94.3 million of that restricted cash represent the majority of the proceeds from the sale of our fourth Sunrise Senior Living community. These proceeds are being held for SNH's benefit and are available to fund acquisitions as part of the like kind exchange but are considered restricted for accounting purposes. We had $64 million outstanding on our $1 billion unsecured revolving credit facility leaving us with $936 million of drawing capacity at quarter end. Our reported debt to adjusted EBITDA was 5.9 times and debt to gross assets was 41.2%; adjusting for the restricted cash related to the Sunrise sale debt to adjusted EBITDA was 5.7 times and debt to gross assets was down 40.6%. Between our cash and borrowing capacity on the revolver we continue to believe we have ample liquidity and are very well positioned for growth. In the second quarter we spent $18.5 million on capital expenditures, of which 8.8 million is considered recurring and includes building improvements, leasing costs and tenant improvements at our MOBs and managed senior living communities. The remaining portion of our capital expenditures $9.7 million was invested in development and redevelopment capital projects. The majority of which was spent in our managed senior living portfolio. I mentioned last quarter that we expected expansions and renovations to ramp up throughout the remainder of the year and that we could spend $50 million on development and our managed senior living communities and MOBs in 2018. This quarter’s development expenditures were largely in line with that…

We’ll now begin the question-and-answer session. [Operator Instructions] The first question comes from Drew Babin of Robert W. Baird. Please go ahead.

A question on the smaller dispositions of the significant asset -- the assisted living asset in the second quarter although they’re small I was hoping you could provide the yields on those just for comparability purposes?

So on the assets that had a purchase option just to note that that’s the only purchase option that we have in any of our leases; it was an 8.6 cap; on other two we talked about -- we’ve talked about Sunrise so people know that was a forecast; on the skilled nursing facility it was a 5.9 cap but I think the important number to think about is that Five Star gets rent reductions by 10% of proceeds on that.

And I guess a related question looking at your triple net split portfolio there’s been some private activity or private bid in that space recently and I was just curious, would a disposition or JV of that portfolio be something that that’s worth looking at and I guess as your pipeline of reinvestment opportunities robust enough right now to justify something like that?

So I think that our reinvestment opportunity pipeline is certainly robust to consider something like that as part of the asset management plan that I talked about last quarter we’re looking at all of our assets, we’re looking very closely at the skilled nursing facilities within our managed portfolio doing a highest best use study across the portfolio to better understand if there’s another better use for those so yes we’re looking pretty closely at this skilled nursing assets and units.

And then one last question for Rick on the balance sheet the unsecured term loan, the floating rate obviously picked up a little bit from the first quarter to the second quarter and I guess would there be -- are there any options for fixing that being evaluated or you’re kind of comfortable with your overall floating-rate debt exposure and willing to let that fluctuate?

I think we’re pretty comfortable right now where we are we have the 10-Q published later today and I think the interest rate sensitivity of 4 percentage points is only $0.02 a share and I don’t see the rates increasing a full percentage point anytime soon. But again we’re opportunistic, we will continue to talk with our banking partners and see what’s out there. I know there is a couple of other deals in the market recently, so it is something that we look at, we also don’t have a lot of secured debt, some of those rates are pretty attractive, so again we got a lot of flexibility, I think while we do have just a ton of capacity on our revolving credit facility right now and again the team is actively looking to redeploy some of the capital we recycled. So will look at it to fix it out for long-term options but again very comfortable with where we’re today.

The next question is from Bryan Maher of B. Riley FBR. Please go ahead.

You talked briefly in last question regarding your pipeline. Can you give us a sense of kind of how deep that is and I’m assuming its predominantly MOB and life science and then secondarily how quickly do you think you act on that.

Sure. Our pipeline is we don’t have a lot in the pipeline right now with our acquisitions group is an incredibly active group they look at everything that hits the market on the MOB life science side and senior living, we’re focusing on life science and MOB and we’re looking at everything. We don’t have anything under agreement right now but we’re pursuing a couple of opportunities and we will keep looking hard we definitely want to deploy capital.

And who are you seeing out there as the MOB sellers and what is the supply pipeline look like what you’re seeing for new builds.

Well definitely there are developers that are out in the market selling, there are physicians practices that are selling MOBs, what was the second part of your question.

I just want to know what the supply pipeline was like, maybe as a percentage of existing assets as far as what you guys are seeing.

I’m not sure that I have a percentage of existing assets, I don't have that answer to this. It's not there is not a huge number of assets that are hitting the market, we sit down weekly and go through all of the properties that are being considered and there is we probably talk about six or seven a week, that we’re thinking about writing up as few of those will fall away just because they don’t make sense for us, the buildings are too old or there are on campus as opposed to where our preferences off campus or farther away from the hospitals.

And then lastly on the senior living side, who are the buyers out there in the market place now, it seems like there is a decent amount of talk amongst owners off selling or thinking about selling. But who is on the other side of that table.

I think it’s private equity that tend to be the buyers right now.

I think we’ve seen most of the REITs have been pretty disciplined and been on the side lines while on the senior housing space faces the headwinds that its faced. I know that’s what we go through internally when we talk about MOB versus senior housing.

And I guess that leads to kind one more for me. When we talk to our hotel companies that we cover it seems like supply is kind of peaking here around 2% or low 2% level; when you look at the senior living supply growth that’s coming to the market and is coming to the market do you get the sense that it is peaking or do you think that there's still more to come for a couple of years?

It’s hard to imagine I mean the mix data they talk about the annual inventory growth is still outpacing absorption, construction starts I think are down, they've been down this quarter and last but I don’t know if that’s enough to be a trend; I’d love to hope that it’s slowing down; but again I think we need another quarter or two of data to really determine whether those two quarters are a trend.

The next question is from Michael Carroll of RBC Capital Markets. Please go ahead.

Hey this is Jason here with Mike. We’re wondering what SNH’s outlook is on the Five Star coverage ratios and what potentially your team could be doing and what the operators could do to drive those metrics higher?

Well I’ve talked a lot when I’ve been -- we’ve been out and about our asset management team and really taking a look at all of our assets that are leased and managed to better understand what we can do, I spent a minute early on the call talking about doing highest and best use studies within our managed portfolio looking at the skilled nursing and understanding if those were the best uses for those that space, I think deploying capital to redevelop assets that are facing fierce competition in the market and there’re lots of competition in the markets and that’s both on -- that’s both senior living and MOB life sciences but we’re deploying a good amount of capital into the portfolio to keep pace or to compete head on with the competition and I think we’re going to continue to do that.

Great, so is it fair to say that the recent net sales should help improve coverage?

Absolutely I mean we -- Jennifer just mentioned that the sale of that one’s within Five Star portfolio was done at around 5.9 but again because of the contract and the terms in place they wind up with a 10% of proceeds rent reduction so that lowers a rent a little bit we’ll need to go and redeploy the proceeds but it certainly helps them a small amount from a coverage perspective and again they can be opportunistic and look at other assets in the portfolio that do something similar; we’d encourage them to do that, I think these questions are a lot easier to answer when their coverage is higher but again they’re laser focused right now on just stabilizing the senior housing operations or senior living operations and again they do a great job caring for people and we’re just looking for them to clean up the bottom of the portfolio a little bit and that it should lift all those.

They’re also spending a lot of time focusing on their employees and making sure bringing employees up within the organization, obviously unemployment at 3.9 it’s hard to keep to get and keep employees but they’re doing a lot to bring people up and to fill those EB positions and I think just growing their business and strengthening their core business because again they’re a great operator but just making sure that they’re plugging the hole that might be coming to keep the business strong.

The next question is from Juan Sanabria of Bank of America Merrill Lynch. Please go ahead.

Hi this is Kevin on for Juan. I’m just hoping if you could give us an update on if the variety of MLB senior housing kind of renovation CapEx projects you guys have on going on right now, just kind of update on just the general progress in that area.

Sure on the MLB side we got some building we positioning got a building and MLBs down in Washington DC that we’re doing a complete reposition of, interestingly enough I was looking at the stats and saw that this quarter they did a 100,000 square foot, lease close to 10,000 square foot lease there and we’re able to push rent 20%. And so that’s really just with the story of the improvement that started on the work. But so repositioning of MLB we got a building down in suburban Pennsylvania that were working on a repositioning and then in on the managed the TRF portfolio we got about seven projects that are underway and there are a range of projects, they range from about 1.5 million to about $25 million so it's a wide range. Again looking we’re looking at these and our operators looking at the portfolio and trying to figure or come up with plans on how that growth independent assistance living units or reposition the asset to keep up with competition and I think on those lease side, it think Five Star's always get about 12 or so properties or projects that they've got underway at one time and again there it’s a mostly repositioning assets either a heavy reposition or refreshing to keep up with competition.

Thank you and then I guess this on for a road to coverage is that from the addition of I guess more CapEx expansion funding or is that supply environment I think operations.

We did fund CapEx so that a road to coverage, we’re still pretty comfortable with their coverage at over two times.

The next question is from Todd Stender of Wells Fargo. Please go ahead.

Rick I think you said you'll deploy about 50 million of capital improvements this year, did I get that number right.

Yes, between the managed senior living communities and the MOBs that’s about what we expect to be for the year.

What the breakout for each of those two buckets, and do you have different return expectations for each one.

Interestingly the breakout, seems to change somewhat regularly. I think last quarter, we were probably in the 10 million on the MOB side and 40 on the managed side, that shifted a little bit again I mentioned in the prepared remarks that it is a fairly tight construction market getting the right number of bids and everything out that we got relationships around the country to get the work done but in order to go through the process the way we want to go through and have enough competitive bids some of the projects have bogged down a little bit and others have accelerated, where we have capacity where we moving forward. So I think the MOB numbers come up a little bit where we've been able to accelerate some of that and I think some of the managed slow down a bit, so we're still net-net about the same number but it's probably 15 million to 20 million on the MOB side and little bit less on the senior living side. Sorry what was your second question?

Return expectations is that about what a cap rate would be or little -- you'd gain a little more juice and your returns for those?

Interestingly there’s usually a little bit more juice, we’re usually high single digit or double digit frankly and again that’s why we’ve been so aggressive about investing in CapEx because the return is better than what you see out there in the acquisitions market with some of the compressed cap rate.

Great, thank you. And then just shifting to life science just on the acquisition criteria we’ve seen you guys acquire Q1 cap rates of I believe there were two acquisitions 8.5 cap and then a mid 9%, is the stuff you’re looking at about that range and is this all single tenant in general that you’ll be acquiring?

Not that we’ve been -- look what we’ve been looking at on the life sciences side is below that, I’d say we’re seeing cap rates kind of a little above or little below at 6, to really get into the markets; we’ve been looking at buildings this quarter that are in the market that are heavily concentrated in the life sciences and so the cap rates are going to be a bit compressed in those markets.

Would that be in Cambridge or even out West, South San Francisco kind of areas?

Cambridge is tough there’s not a huge amount that’s trading in Cambridge and it would be hard for us to get a fixed cap in Cambridge but in the market around Cambridge there’re some -- there’re properties trading and then yes down in Southern California we’re looking at assets down there as well.

The next question is from Vikram Malhotra of Morgan Stanley. Please go ahead.

You referred in your remarks and maybe in the press release about growing certain segments while varying down exposure rather than just of you get sort of a 2 to 3 year view can you give us a sense of how you think that shapes up for the company?

Well we’re very opportunistic in our acquisitions and so it’s -- we’ve been saying and continue to say that we’re going to focus on life science and medical office properties and so I could see that with that -- percentage of our portfolio would grow considerably, it’s hard to know what exactly it’s going to hit the market, and what will be successful in acquiring so again we’re looking at senior living communities when they hit the market but we’re just much more focused on life science and MOB so it’s hard to say what percentage we’re going to be at, even at the end of the year never mind two or three years.

And then just thinking about the senior housing space and there’s a question on coverages, can you maybe update us or remind us as you look at the portfolio on a EBITDAR basis where are we kind of what percentage of the portfolio is below one times?

There’s not a lot in the portfolio that’s below one times or we’re currently working with one small private operator, we also transitioned another property from a private operator into the TRS this past quarter in the managed portfolio we generally our leases are positive, a lot of our leases are master leased in one together, just as a function of that there may be some individual properties that the operator should look to move on but for the most part leases are positive.

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

Thank you for joining us on our second quarter earnings call. I look forward to seeing many of you at our upcoming investor conferences. Have a nice day.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.