Good day. And welcome to the Senior Housing Properties Trust Fourth Quarter Financial Results Conference Call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the Director of Investor Relations, Ms. Kim Brown. Please go ahead.

Thank you, and good afternoon, everyone. Joining me on today’s call are David Hegarty, President and Chief Operating Officer; and Rick Doyle, Treasurer and Chief Financial Officer. Today’s call includes a presentation by management, followed by a question-and-answer session. I would also note that the transcription, recording and retransmission of today’s conference call are strictly prohibited without the prior written consent of Senior Housing. Before we begin, I would like to state that 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, February 26, 2014. 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. A reconciliation of normalized FFO to net income 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 these 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. Our fourth quarter supplemental includes a couple of additional enhancements compared with our prior reports. First, we reclassified what we report as medical office buildings, or MOBs. Previously, our property count reflected the number of individual MOB’s in SNH’s portfolio. While we continue to disclose our total number of MOB buildings in the supplemental, we are now consolidating those buildings that are in the same proximity and will be counted as a single property. In addition, we are including cash net operating income or cash NOI in our financial table. Now, I would like to turn the call over to Dave.

Thank you, Kim, and good afternoon, everyone. And thank you for joining us on today’s earnings call. Before we begin, I would like to introduce Kim Brown who recently joined Senior Housing as Director of Investor Relations. Kim brings nearly 15 years of direct Investor Relations experience to our organization and will be a great resource for all of you. Early this morning, we were pleased to report normalized funds from operations or normalized FFO of $0.43 per share for the fourth quarter and a $1.69 per share for the full year. Rick will discuss these results in further detail in a few minutes. As discussed in our prior earnings calls, we view 2013 as a transformative year. During the past year, we’ve made significant progress on our previously stated strategy of owning and acquiring private pay assets and minimizing our exposure to government-funded programs such as Medicare and Medicaid. Throughout the year, we completed approximately $203 million of private pay acquisitions, with the weighted average cap rate of 8.2%. The acquisitions included 16 living communities, as well as seven medical office buildings. We were also successful on the disposition front. On December 31st, we closed the sale of our two Greater Boston inpatient rehabilitation hospitals ahead of schedule to a third-party joint venture for $90 million. Additionally, we sold one skilled nursing facility during 2013 and one assisted living community in January of 2014. We have nine senior living communities and seven medical office buildings currently held for sale, which we expect to sell by mid 2014. In addition, we invested heavily in the redevelopment of our RIDEA assets, so that we could reap the benefits in future periods. As noted in the supplemental, our outstanding same-store TRS NOI growth of nearly 11%, which includes the majority of the…

Thank you, Dave and good afternoon, everyone. I will now review our fourth quarter and year end financial results. For the fourth quarter of 2013, we generated normalized FFO of $80.5 million, up 6.6%, from the fourth quarter of last year. On a per share basis, normalized FFO for the quarter was $0.43 per share, compared to $0.43 per share for the same period last year, and in line with consensus. For the year ended December 31, 2013, we generated normalized FFO of $317.4 million, an increase of 7.3% over 2012. Normalized FFO was $1.69 per share in 2013, compared to $1.75 per share in 2012. As Dave mentioned, normalized FFO per share was primarily impacted by the significant re-development investments we made in the 10 former Sunrise leased properties and the transition of these properties to our triple net lease portfolio to our TRS. In addition, normalized FFO was impacted by the timing difference between when we raised equity back in January, to when we were able to fully invest the proceeds in August. Rental income for the quarter increased by 1.1%, to $123 million, mainly due to our external growth from investments in one senior living lease community and seven medical office buildings. $66 million of rental income was derived from our senior living lease communities while $52 million was derived from our medical office buildings. The increase we reported in rental income from new investments was offset by the reduction of $3.2 million due to the transition of two communities formally leased to Sunrise into our TRS on November 1, 2012 and the sale of one senior living lease community in 2013. Percentage rent from our senior living operators was $9.2 million, down from $10.5 million last year, again primarily due to the transition of the 10…

(Operator Instructions) And we will begin with the line of Michael Carroll with RBC Capital Markets. Please go ahead.

Yeah, thanks. Rick, can you give us your new leverage targets since you’re planning on financing the Boston acquisition with, what, 75% debt?

Yes. As we previously stated, we would -- our plan is to fund that acquisition with 75%, 25% equity. As I stated, we do have a very conservative balance sheet today, and that gives us that advantage right there to use. So our leverage, we are comfortable as we roll over $5 billion and $6 billion on total assets to be up in the mid 45%. And in fact, that’s exactly where our peers are, so we’ll be in line where our peers are, if not better. So that’s our comfortable leverage.

Okay. Is that based on book?

Yes.

And then how should we think about how you’re going to finance that with permanent debt, with the term loan that you have commitments for? Are you going to use the term loan or are you going to try to use permanent debt? Obviously, if you use a term loan, it is going to be much more accretive than what you’ve indicated.

Yeah, we do have that commitment of $800 million of the term loan, but we’re also looking at longer-term permanent debt and are looking at mortgages, putting a mortgage on there for about half of the 75%.

And what rate would that be at?

We figure that the all-in cost rate for all of the funding will be less than 5%.

Okay, great. And then, can you talk a little bit about the TRS performance? I mean, it was a solid performance on an NOI basis, but it looks like a lot of that was driven by expense savings. Was there something in those numbers that were non-recurring and should we expect better topline growth going into 2014?

Yes, I mean, we had great results on the expense side. There was a lot of control. We expect that to continue. And remember that 8 of the 10 Sunrise communities in the fourth quarter were included in the fourth quarter too. And some of those -- those facilities have the skilled nursing beds in them, which -- and we’re doing a capital expenditures on those buildings, too. So we feel that although the expense controls are there, but we have opportunities to grow rates and occupancies in all those same store results.

So the expense savings is entirely driven by just better controls at those properties?

Better controls.

Go ahead, David.

You have to recall too that a lot of these properties went through a transition period from the prior management company to Five Star. So now, as they’ve been put into Five Star’s systems and get the benefit of scale with the Five Star company, they’re able to achieve better pricing and drive down the cost to get better economics there.

You said you expect those savings to continue as in they are going to stay there or are you are going to get more?

I would expect they will at least stay there and continue to look for opportunities to further push them down.

Great. Thank you.

You’re welcome.

(Operator instructions) Our next question comes from the line of Daniel Bernstein with Stifel. Please go ahead with your question.

Good afternoon.

Hi, Dan.

I just missed, can you go back over the -- how the management fees are working on the Vertex property purchase?

Right. As we mentioned, the Vertex situation, its base management fee, which is capped at 50 basis points on the historical cost of the investment, but it could be lower if the total market capitalization is lower on SNH. And again, 10% of that fee is paid in the form of common shares that are restricted. But then the management fee for property management, this building, although many of the costs are passed back to Vertex and get reimbursed from Vertex, it’s still actively managed to do that. So if we get a snowstorm, it’s up to us to get the landscaping crew in there to clear out the premises and so on. And real estate taxes and insurance and many things like that, we’re still responsible for paying and then getting reimbursed from the various tenants and doing the allocations. So that is percentage of revenues, [3%] of revenues and it’s partially reimbursed by all the tenants, including Vertex.

I also want to ask about the acquisitions you did, both the assisted living and the other small medical office buildings that you did in Florida. Just want to understand for the AL side, if you could talk a little bit more about the age of the property, the occupancy there, the need for CapEx. I’m just trying to understand, since you put that in the TRS, what are those properties? Are they where you want them to be, and do you have to put some money into them as well?

Sure. Many of the properties, like each particular store is a bit different, but like coming to Georgia, it’s a very affluent suburb north of Atlanta, and it was built in the last two or three years. At the time we bought it, one of only five facilities in the State of Georgia that complied with the newest assisted-living regulations. So it’s definitely a state-of-the-art property. And we’re even looking to do an expansion on the property. That requires virtually no capital upfront. Some of the other properties that are also in similar counties in Georgia, ones in Tennessee and Wisconsin, again they are pretty much in the high 80 to low 90% occupancies. Some very basic capital improvements. They’re probably within 10-years old, and so it’s going into still minor cosmetic improvements to corridors and common areas and so on. So that’s the -- knowing that, we’re getting a higher cap rate going into it, which we will put in some capital. But again, they are predominantly mom and pop operators. And so I think that’s on the senior living side and just the MOB side. Bethel, Washington was built in last five years, and a tremendous amount of capital was put in by the tenant for new research labs. Hattiesburg, Pennsylvania-- Hattiesburg, Mississippi is also an affiliated MOB with the healthcare system there and it’s about 15 years old. Boston and Orlando, that’s all -- I’d say, in the 10 to 15-year range. Boston had major lab space built out. It’s actually a nuclear medicine being performed there. So, each property has its own intrinsic value to us.

In terms of the Senior Housing, it looks like you’re doing almost all TRS. Are you seeing any triple net opportunities, or is that by design? You don’t want to do triple net. You want to build the TRS portfolio. So just trying to understand maybe where the opportunities are coming from, from just from the mom and pops, and if it’s really just again by design, TRS, versus triple net?

Right. It is a pretty close call between a TRS and RIDEA, just because the pricing structure out there, there is still a good amount of capital chasing transaction. So we are doing some triple nets up in the northwest, at least for stellar senior living. Other properties, we’re doing TRS because of the pricing and also we believe that there’s a good amount of upside potential at those properties, that’s the main drivers. The sellers again are mom and pops regional operators, a few equity pioneers who are looking at exit investments that they got into three to five years ago, et cetera.

And just one more quick question, on Brookdale, do they have extension options on those leases?

They do. And given the coverage and everything, we would expect they will extend.

And is the rent reset to bring the coverage back down to the normal level? Those are pretty higher number.

Let’s see. I think it’s -- we might have one renewal at existing terms and the second one might be fair market value.

Okay.

But I think they’re looking at doing a number of expansions at several of the properties given the occupancies and coverage.

Okay. Sounds good to me. Thanks a lot.

You’re welcome.

And the next question comes from the line of Tayo Okusanya with Jefferies. Please go ahead with your question.

Hello, everyone.

Hi, Tayo.

Hi, Tayo.

One quick question is just on the Senior Housing operating platform. Again, in 4Q, you guy have 34 assets in same store. As you explained, a meaningful amount of them are the Sunrise assets that are in transition. What I am trying to understand, if I look out 12 months from now on just these 35 assets that have the upside from the Sunrise piece, what should I be expecting this portfolio to do, specifically the Sunrise names, what occupancy today where we trying to get to? Where do we think we can kind of raise rents to, to get a good sense of what same-store NOI growth could look like in 2014?

Sure. I think 2014 looks pretty good for being in the same ballpark of what we’re currently reporting, because we believe there is still a good amount of upside potential with these properties during this year. Obviously, double-digit returns is probably not as sustainable as it was long term. Hopefully, it will come down to a more average of probably about 5% growth. But if we were to look at say the year numbers, the 22 properties there and that’s mostly Vi and from Bell property, and those are continuing to improve occupancies and rates have only been modestly raised at this point. And the margins are, I think at 28%, 29%. So, if you are looking at 35, clearly what has come online are the Sunrise stuff, which is lower occupancies, lower margins. But have I think plenty of capability to improve significantly. So I mean, it’s very difficult to predict. Obviously, it will be a year from now. But I think we’re doing quite a bit of -- the Sunrise won’t achieve the same margins that the Vi or Bell ones will, just because of the presence of skilled nursing in those buildings. But I think they have quite a bit of room to go in occupancies.

Yeah. The occupancy, it’s in the mid-80s right now, if I recall correctly?

For the all 35?

No, for the Sunrise, that’s for the Sunrise stuff?

Yes, that’s right. Its about the mid-80s.

Okay. Okay. That’s helpful. And then I just wanted to clarify again, the comments about the Fan Pier transaction. Dave, I think you mentioned you expect the deal to be accretive to AFFO in the year after the management fee?

That is correct. Yes. The numbers we’ve all been stating has been post all fees.

So post all fees. How come there is not a big difference? I mean, you are expecting about $0.06 to $0.08, I believe you said on the FFO. But yet, you expect about $0.05 on the AFFO, but you still have about $150 per square foot on TI.

Yeah. I mean, the big difference is the fixed increases in the lease, are relatively modest, but they are kicking near 6 and 11. But also, the GAAP return is just what is contractually there today. We believe that there will be other opportunities to enhance revenues through the parking lot system that’s there. And it’s going to be a number of high end restaurants on the first level and things like that, that there maybe -- we believe that there will be some further non-GAAPable income coming in.

Okay. Okay. That’s helpful. And just one more before I get off. Just how are you thinking about the dividend going into 2014? You made $0.43 FFO this quarter. When I take out all of the AFFO-related charges you end up about $0.39 of AFFO and the dividend is about $0.39. How should we think about the build-up for 2014, and what could potentially happen with the dividend?

Well, again, I think we look at it each quarter, and I think we look for the opportunity to raise it. Certainly, one of the things that the Vertex transaction does for us is that, the amount of CapEx that is attributable to that property will be pretty minimal for the first several years of that ownership. So, that gives us a lot more breathing room for CAD purposes. And so I think each quarter we will look, based upon on how our numbers are looking for that quarter, whether or not that is sustainable and whether we can raise it. So, I think we will be looking to try to raise it at the earliest possible time in 2014.

Sure. Thank you very much.

You’re welcome. Very good.

There are no further questions. Please continue, Mr. Hegarty.

All right. Just thank you all for joining us today. And we will be heading right down now to the Wells Fargo Real Estate Securities Conference in New York for tomorrow. And we look forward to meeting many of you there. Thank you. Have a good day.