Good morning, and welcome to the Senior Housing Properties Trust Second Quarter 2019 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Michael Kodesch, Director of Investor Relations. Please go ahead.

Thank you. Welcome to Senior Housing Properties Trust call covering the second 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. 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 Senior Housing's present beliefs and expectations as of today, Thursday, August 8, 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 within the SEC. Investors are cautioned not to place undue reliance upon any forward-looking statements. Now, I would like to turn the call over to Jennifer.

Thank you, Michael. Good morning to all of our shareholders and call participants. We are pleased to announce the Company's second quarter 2019 results, as this transitional year remains on course to improve the sustainability of revenue, deliver long-term diversified growth and provide reliable returns for our shareholder moving into 2020 and beyond. The progress on completing the restructured business arrangements with our largest tenant Five Star Senior Living is advancing as planned. On June 11, 2019 Five Star reached an important milestone in completing this transaction with us. Five Star’s shareholders voted in favor of issuing Five Star common stocks to SNH and SNH shareholders in satisfaction of one of the conditions to restructuring Five Star’s business arrangement. Meanwhile, we continue to move through requisite licensing applications with the states in which our assets are located. In order to transition the assets from triple-net leased or IBS, all-in-all we remain on target for the January 1, 2020 conversion. 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 previously mentioned that we expect to sell or have under agreements to sell asset value of up to $900 million by the end of 2019 to reach our target leverage. There is abundant capital in both the medical office and Senior Living acquisitions markets and we continue to feel comfortable that our pricing and timing goals are obtainable. As a reminder, the makeup of our disposition portfolio is weighted to our Senior Living communities and non-core properties and our MOB segment. We are currently engaged with brokers on each property. Year-to-date we have sold 13 assets from our medical office segment and three skill nursing facilities…

Thank you, Jennifer, and good morning everyone. I will be discussing some of the second quarter financial highlights beyond what Jennifer just covered. Normalized FFO for the second quarter of 2019 was $81 million or $0.34 per share, which was down $0.10 per share compared to the same quarter last year. $0.09 of a decrease in normalized FFO came from our triple-net lease Senior Living Communities, largely due to the full quarter effect of the reduction in Five Star’s rent. In July, we declared a $0.15 per share dividend payable in the third quarter of 2019. The normalized FFO payout ratio for the second quarter based on our new dividend was approximately 44%. As we stated on our last call, this dividend is based on target payout ratio of approximately 80% of projected cash available for distribution after the conversion of leased communities and after selling assets to meet our leverage target. General and administrative expenses decreased $20.2 million or almost 70% for the second quarter compared to last year as a result of our lower stock price and therefore a reduced base business management fee paid and no estimated 2019 incentive fee accrued to our manager. As our manager is currently being paid on total market capitalization and not the historical cost of assets, we believe this decrease demonstrates the strong line of interest between RMR and SNH shareholders as the reduced market capitalization driven by reduced stock price in the second quarter translated to annualized run rate of about $15.3 million less in base business management fees paid to RMR. We remind investors that this reduction in the base business management fee is not deferred or recaptureable by RMR in anyway. Turning to capital expenditures. We spent $9.6 million in recurring CapEx and $19.1 million on redevelopment this…

We will now begin the question and answer session. [Operator Instructions] The first question comes from Michael Carroll of RBC Capital Markets. Please go ahead.

Good morning guys. This is [Jason] (Ph) on for Mike.

Good morning.

Got a question on the $900 million in asset sale. So, is the RMR stake included in that?

No. we have actually as I said in the past, identified $1.2 billion in asset so you can hit that $900 million disposition target. The RMR group share sale certainly helps us create flexibility. But we still are on target to sell $900 billion in assets.

Okay, got it. And then how do you guys think about Senior Housing supply moving forward into 2020 and 2021?

Well, kind of turning to the next data. Construction starts are continuing to trend lower. That doesn't mean that there isn't inventory growth, there is. But I think that where we are happy to see the construction starts are trending lower. Hopefully, I think is probably even five quarters, four or five quarters of that that trend has been happening. So hopefully, that will continue on.

Got it. And then I was wondering what your expectations are for the shop in 2020. So, if you have construction starts trending lower, paired with the elevated labor costs you know how do those two things balance out and then what are your expectations for the portfolio?

Jason this is Rick. I hope we have been fairly clear or transparent that we anticipated double-digit declines in NOI in 2019, and that we expected some continued pressure in 2020. We have modeled it a little flatter and just to fill a little further into that new supply, within our markets the current TRS portfolio, we actually saw slightly higher inventory growth this quarter than [NIC] (Ph) did and as a result that resulted in the 40 basis point decline in occupancy. So we are really happy and confident in the things that Five Star’s new management team are doing and investing in the portfolio and the workforce. And we believe they are doing the right things to turn the business around and it's very much in-line with our expectations so far.

Okay. Thank you guys.

Thank you.

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

Thanks. Just to go back to the disposition on you are expecting - the language in the release suggest that you may sell or have under contract. Does that suggest that some of that 900 may bleed into 2020 just from a timing basis?

Thanks Todd for your question. Yes, we do think that will be under agreements, we will have closed on a big chunk, but we will be under agreement to close by year-end. That is really due to licensing issues in the Senior Living space. So with the transition from triple-net to idea SNH is getting licensed for all of the Senior Living Communities, and we don't want to put that licensing at risk. And so we have decided that while we are still marketing those assets, we expect that it we will be under agreements and then the closing will happen after the first of the year.

Okay. And then in addition to the 900, So there is another 120 million is that purely sniffs and is that in your same timing expectations?

The sniffs are included in our 900 for the most part, and the vast majority of them are already under agreement. So we have had some progress selling this season and we expect more to close throughout the rest of this year.

Okay. And then Rick, just to stick with you. If you are I guess on a leverage basis, I guess it debt-to-EBITDA will peak this quarter. Does that suggests the timing for dispositions could be sooner than later and because you are going to be using disposition proceeds to pay down your line?

We will, I think we are likely to have a lot of properties under agreement at the end of the third quarter. It won’t surprise me if we have a lot of Q4 closing. We know a lot of folks are very interested in our execution on our plan and as Jennifer said, we are very confident that we will be able to execute as we had planned. So yes, I think from overall leverage metrics and what we will report, leverage will peak sometime in Q3 if we can close some of these properties in September versus October, we may report lower leverage, but if we wind up with October closings it will likely peak at 930.

Okay thank you.

Thanks.

The next question comes from Bryan Maher of B. Riley FBR. Please go ahead. Mr. Maher please go ahead from B. Riley.

Hi good morning, I was on mute. Kind of a bigger picture question when we look at occupancy trends a lot of the calls we get is what is going on with Senior Living occupancy in general in the face of new supply. And when we look at your supplemental we see modest but still increases for like the last three quarters or so kind of around that 84% blended all-in. What is in your view kind of the optimal level for Senior Living occupancy for the assets that you own?

We would love to see that at 90%. I think that the Assisted Living is dragging the Senior Living industry down, because Assisted Living is across all ownership and all-time low and Independent Living I think across all ownerships is about 90% this is according NIC Data, so if we could pull Assisted Living up a bit, I think 90% would be a good target.

And how do you weigh because we have noticed also there is quarters where rates going up and maybe occupancies going down a little bit. What type of flexibility do your properties have in managing the rate occupancy variables?

Well I think the Five Star has been working on revenue management across the portfolio and trying to get that rolled out and that will give them a great deal of flexibility and as properties become occupied they are able to push rate a bit more. Also with revenue management able to be a little more dynamic in what you are charging for different types of units across the community. So I think if that continues, just keeping an eye on the market and then the internal market within the communities will help them to hopefully push occupancy and then push rates.

So that is basically a decentralized decision at the property level or where along the management food chain are the decisions really being made?

I think it’s both local and within corporate, it’s a combination of the two.

Okay. And then shifting gears for a minute over to the Five Star transition, would you consider the major hurdles between now and January 1 to get that done and is there any risk that it doesn’t get done on January 1, because I think I recall you guys saying it's kind of like an all or none. If it doesn't happen in January 1, 2020, I think it is pushed out to January 1, 2021. Is that all still correct?

It is. There were two hurdles, really and the first one was the vote that has already occurred Five Star shareholder vote and so that milestone has been met. The next is licensing the communities with a triple-net lease structure, the operator is licensed in the communities and with right deal of structure the SNH will be licenses, so we have a team of experts that are working on that licensing now and I still feel confident that that will hit that milestone as well and be able to have this transition happen at year-end.

Okay, and then just last for me. I think you made the comment Jennifer that there was kind of a lot of money out there. That gives you confidence, you will be able to get the 900 million sold, who are the most profound buyers you are running into when you are selling and marketing these assets?

Yes. I think it's across the spectrum. I think that there are a lot of private operators or private buyers with operators in-hand. We are seeing a lot of that, we are still a buyer out there and with our manager in-hand, there may be some kind of small JV partnership with an operator. It is still private equity out there, but I think it's the private buyers and lease primarily.

Okay. Thanks. That is all for me.

Thank you.

The next question comes from Drew Babin of Baird. Please go ahead.

Good morning.

Good morning.

Question on kind of forecast different scenarios for RIDEA fundamentals or Senior Housing fundamentals in the next year. It would sound like the 900 million in dispositions is sufficient to keep leverage down in a scenario where RIDEA, Senior Housing probably getting less bad and maybe gets closer to the flat. Are there any scenarios you are underwriting internally where the fundamentals remain down high-single-digits year-over-year next year, might that necessitate more dispositions to keep leverage low presuming that the remaining investment grade is a high priority?

We have certainly modeled it a number of ways. And we feel like we have been fairly conservative with what we have talked about publicly. Again, we don't officially give guidance, but we have tried to be as transparent as possible about expecting double-digit declines this year and kind of flat into next year. So we do take our ratings very seriously and I know the rating agencies in particular are looking to see us execute on our plan. And we still are very confident that we will be able to do that. Again, I don't think I can stress enough how excited we are about things that Five Star is doing to kind of turn the business around. Again, also encouraged by some of the slowdown in new construction starts, but you know now I don't think we will need to sell more assets. I mean, I think we will have an ongoing regular capital recycling program, but that will be more to fund external growth accretively versus bringing our leverage back in line.

I just want to follow on that if I may. Rick is saying that we are pleased with what Five Star is doing. They just announced a new CEO - a COO that has been hired. So the new senior management team there with the new CEO, now a new COO they have a new CFO. I have talked about this before, but it's a whole new team there and we are really encouraged by the progress we think they can make with that new senior management team.

Thank you for that and one more from me just circling back to the Torrey Pines property and talking about there being a roll up upon re-occupancy of that property. Is that on a GAAP basis relative to the prior lease or I know it was long-term lease on the prior one that maybe had higher expiring cash rents how do you expect to kind of just on the cash basis initial rents to trend relative to where strips expired at?

I have been looking at the GAAP numbers and it’s substantial roll up in GAAP rents. I think it’s probably flat in cash, but we tend to look at it in the GAAP rent basis and again rents are really shaking up out there, it seems like every quarter rents are getting pushed up.

Okay, great. Thanks for the color.

Thank you.

And we have a follow-up from Todd Stender of Wells Fargo. Please go ahead.

Thanks. Just back to the State Licensing, you guys needed to have to participate in the RIDEA and is it state-by-state so it may not necessarily be an all or none, can you maybe just kind of flush that out a little bit?

It is state-by-state, but we are pushing very hard to have it being all. There is certain timing expectations in how long it takes by state and our team is very tied into when those applications need to be filed in order to get them in time. So we are really pushing - to be in all getting most sense on all of the PNBs.

That is right. There are some contingency in place, so we do have some flexibility to the extent it was just a property or two or a small - but we are 100% really pushing and planning to get it all done by the end of the year.

Is that something you will announce as they happen or is that something we just hear on conference calls I guess on a quarterly basis?

I mean, we can report on progress or - I guess really all the license we expect to be effective 1/1/2020 and if there were to be a bump in the road that was significant we would certainly talk about it, but I really can’t envision that scenario right now.

But under a positive acceptance when you get the license, would you release that information? I guess an early announcement.

We are applying to license is that will take effect on 1/1. So..

So for instance if we know that it takes 120 days to get a license then they are scheduling that application so that they are applying a few days before that 120 days. So I think that the goal isn’t to apply early and get license in November, I think the goal is to get license so that it lines up with the end of the year, we the beginning of 2020.

Got it thank you.

Sure.

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

Thank you and thank you for joining us on our second quarter earnings call. With an active on quarter of investor events coming up including non-deal road shows in Chicago, New York and the Mid-Atlantic in addition to attending NIC and the BMO Real Estate Conferences. We look forward to seeing many of you at these events. Thank you.

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