Good day and welcome to the Senior Housing Properties Trust First Quarter Financial Results Conference Call. This call is being recorded. I would like to turn the call over to the Director of Investor Relations, Kimberly Brown for opening remarks and introductions. Please go ahead, ma'am.

Thank you, and good afternoon, everyone. Joining me on today's conference 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, May 6th, 2015. 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 and cash based net operating income or cash NOI. A reconciliation of these non-GAAP figures 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. 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 first quarter earnings call. Earlier this morning, we were pleased to report normalized funds from operations, our normalized FFO, $0.45 per share for the first quarter, up 4.7% compared to the same period last year and in line with consensus. Before I review our segment results, I'd like to start out with an update of our acquisition activities. Over the past several years, we've been very successful at further strengthening the quality of our portfolio, increasing our percentage of private pay revenue and diversifying our tenant base. Since the beginning of the year, we've completed two portfolio acquisitions to support this important initiative. In January, we closed an acquisition 23 Class A 100% occupied medical office property for approximately $539 million. These assets are of the highest quality and they're long term leased to premiere healthcare tenants, the vast majority of which are investment grade rating [indiscernible] on May 1st, we closed on the acquisition of 37 of the 38 private pay senior living communities from CNL Lifestyle Properties for approximately $763 million. There's one remaining lease community that will be acquired for $27 million when all the closing conditions are satisfied. As a reminder, the 38 Class A communities have approximately 3,500 living units, one third of which are independent living and two-thirds assisted living and memory care. On May 1st, with this closing, we assumed 17 leases, which have a combined coverage ratio in excess of 1.2 times and a weighted average remaining lease term of approximately 10 years. We converted one management agreement into a long-term 15 year lease bringing the total number of these communities in the transaction to 19. In terms of the managed communities, we've assumed the agreement with…

Thank you, Dave. Good afternoon, everyone. The first quarter of 2015, we generated normalized FFO of $98.6 million, up 23% from $80.1 million in the first quarter of last year. On a per share basis, normalized FFO for the quarter increased 4.7% to $0.45 per share up from $0.43 per share for the same period last year. Rental income for the quarter increased $34 million to $146 million. The increase is primarily due to external growth from investments in 25 medical office buildings offset by a reduction in rental income due to the sale of seven senior living communities and 3 MOBs since January 1st, 2014. $55 million of rental income was derived from our senior living leased communities, while $86 million was derived from our medical office buildings. Looking at our managed senior living portfolio, residents' fees and services revenues from our 46 managed properties increased over 4% to $83 million, compared to the first quarter of last year. The increase primarily relates to acquiring two managed senior living communities since January 1st, 2014 and an increase in the average monthly rental rate. Property operating expenses increased 10% in the first quarter to $86 million compared to the same period last year, due to external growth from acquisitions as we added two managed senior living communities and 25 MOBs to our January 1st, 2014 offset by dispositions during the same period. Approximately $23 million of property operating expenses were derived from our medical office buildings and $62 million were derived from our managed senior living communities. General and administrative expenses for the quarter were at $10.6 million compared to $8.3 million for the same period last year. The increases primarily relates to the property acquisitions offset by dispositions of January 1st, 2014. At 4.6% of quarterly revenues, SNH continues…

[Operator Instructions] And we will go to the line of Tayo Okusanya with Jefferies. Your line is open.

Yes. Good afternoon. Just a couple of quick ones from us. First of all, the leases that were cancelled from the prior operators and now with Five Star, could you just discuss a little bit about the rationale for that transfer, number one and if you could just give a sense of some of the key differences in regards to the management agreements, in regards to the Five Star agreement was to what the agreement looked like?

Hi Tayo. Just one correction is that, whatever was leased before in the CNL transaction was just filled by us. We did not terminate any leases with the CNL transaction and in fact it was one manager that we terminated the management agreements and entered into a longer term lease with. And for the managers that we did terminate, all of those agreements matured within about one and a half to three years and something needed to be done anyways. So, we were not willing to assume those contracts as they were currently structured on those very little, if any termination costs to terminate those agreements. So, we approached each operator to encourage them to enter into a long term lease with us, but we could not come to terms, usually because they wanted the rent to be set at such a discount from the current cash flows that it was no longer attractive to us to do that type of transaction, so really it was a question of whether to try to structure a long term management agreement with them or offer the opportunity to Five Star to manage. Five Star agreements on 3% of revenues with a larger incentive on the bottom line performance versus our agreements, historically have been at, say 5% or so of revenues with a little bit of a bonus if they achieve certain results. So, we decided -- and then in addition, another consideration for us was the fact that, as a public company, we had to be worried about compliance to Sarbanes-Oxley rules and we had some concerns about whether some of these local managers would be able to comply and we certainly would not want them to impede our ability to access capital markets. So, we came to a conclusion that we wanted to engage Five Star to manage these properties and we believe that they can bring along additional revenue to the properties by adding services and expanding physical plant at a number of these properties and continue to grow the revenue side, and expense wise, we believe that they can achieve some savings on the expense side. I think we may need to incur some additional costs with healthcare benefits and things of that nature but net-net, I think it should be a positive for us.

That's very helpful. Then just one quick follow up. The same-store NOI growth this quarter for the RIDEA platform at 5%, that came despite same story occupancy actually dropping. So, I'm just curious what the offset is. Is it just really strong rents? Is it much lower OpEx growth, kind of what happened to generate the 5% and how sustainable is that going forward?

Well, a good part of it is actually the rate increase. Just, if you were to do a quick back of the envelope calculation, the occupancy represents about 65 or so residents and the loss of income from those by revenue is more than offset by just [indiscernible] rate increase across the board for everybody else. So, that nets to about a $600,000 or $700,000 revenue increase just on that alone. That explains why I think it was pretty well kept in check. We really didn't. I think that's a very sustainable run rate for expenses, and last year, the [indiscernible] volatility during the quarter at the end of the year I think was about 3.5%, year-over-year growth, I think 3% to 5%, we would expect to be at least normal to sustain over the course of time and I think this offers a margin of growth that we can achieve given these assets.

That's helpful. Thank you very much.

[Operator Instructions] We'll go to the line of Daniel Bernstein with Stifel. Your line is open.

[indiscernible] for Dan Bernstein. Good afternoon. So, a couple of questions on shop first, a couple of housekeeping actually, to being with. Do you have sequential same-store occupancy change for the shop portfolio available?

It would be a different number of communities in both areas.

Right. Okay. So, there's no same-store number that we can grab, just for the sequential change?

Well, occupancy for the fourth quarter last quarter was about on the same-store 88.4%.

Okay. But that's a different number of communities than the ones in same-store from 1Q?

Yes. We've added a couple of more communities.

Okay. But that's a decent proxy for picking up a difference?

Absolutely.

Okay. Sounds good. Then what is the breakdown of AO vs IO and did the AOs do worse? Was there really any difference in performance between AO and IO?

Well, let's see, roughly it's about two-thirds AO. There is some skilled nursing that was picked up as part of the Sunrise Senior Living transaction a couple of years ago. So, 20% skilled nursing, another 40% or so -- 45% assisted living and the rest is independent living. What we saw was independent living continues to improve on an occupancy rate basis. Assisted living has been kind of flat, and skilled nursing I would say, declined a little bit. At my fingertips, I don't have the specific numbers, but that's the general trend.

Okay. That's fine. And then, yesterday, Capital Senior was discussing the same flu impact that they saw and mentioned that towards the end of the quarter in March they really regained a lot of their occupancy and I'm wondering if you saw the same pattern happening in your portfolio and just trying to get an idea of what it looks like going into April.

Yeah. We did have a handful of properties in our portfolio that were close to new admissions during the first quarter. So that definitely effected our occupancy levels. We did see the flu season continue on into April, and it was really towards the later April that we started to see census pick up meaningful to get close to where it was before.

Okay. And then one general one on trends you're seeing in terms of portfolio transactions. Do you think if you were to be closer negotiating the transactions that you've closed so far this year or have pending, that they'd be happening at about the same cap rate that you saw or are you seeing a meaningful compression in cap rates even this year?

I do think that cap rates are still under a lot of pressure to shrink and I am very confident that everything we bought, it would trade most likely for a lower cap rate today than what we agreed to, even six months ago. I consider the market very frothy right now, and I think, as a company, I think we're going to exercise extreme discipline and pursue predominantly smaller transactions that are added into our existing portfolio to fill in some holes or to [indiscernible] expansions that existing properties, but I think we'll be very, very cautious about anything of size.

All right. Thank you. That's it for me.

We have a follow up from Tayo Okusanya with Jefferies. Your line is open.

Yes. Thanks for indulging me. Just a follow up in regards to the triple net portfolio, again, you did see same store NOI slow in that portfolio on a same store basis, but yet again, occupancy did increase, same store occupancy increased. So, was that all REIT related, did you have like a really big roll down or I'm trying to understand what created the slowdown there.

Yeah, Tayo we had – this is where a lot of our sales in the senior living are coming from too. So, we're taking those out of the triple net senior living. The increases, we don't have set increases for the majority of our leases there. They're based on percentage rent increases, and if you look at our percentage rent on the FFO page, the calculation is flat year-over-year and that's particularly from the ones that we have sold. They're not participating no longer. So, we hope that as 2015 goes on, that percentage rent will go with the existing leases, but other than that other increases really relate to the capital improvements that we put into the property. That's really, that's all happening on our triple net senior living side, the capital improvements.

So, it's mainly just a lower percentage rent. Is that what was going on there?

It was flat. It wasn't lower. It was just flat year over year, where usually you would see maybe 100,000 or 200,000 increases, if we had all the properties still in there, but we're selling off some of these properties that are no longer participating.

Okay. So, slight change in the same store pool is what kind of created some of that noise?

That's right.

Okay. Got it. Then on the MOB side as well, same store NOI growth negative 1.5%, just talk a little bit about that and what happened during the quarter.

As Dave mentioned on the call, there was a decline in occupancy of about 40 basis points and there was a modest increase in the expenses, probably right around, only about 125,000 that really both impacted the same store MOB results for the quarter. However, during the quarter, we've seen positive leasing activity with average rent roll ups about 8.9%, which will take as Dave said, it'll take effect during – throughout the year, 2015, but we saw that, and in addition, about 50% of the recent vacancy space has been released at comparable or better rates, once again, will also take effect probably in the third or fourth quarter and so we see those, but those are all the positives.

Yeah, and if you're looking at [indiscernible] Q4, we tend to have more escalatable income because we now have a little more clarity on some of the accruals and things like that. So, Q4's probably the best quarter of the year for MOB.

Okay. Thank you.

Our next question comes from the line of Vikram Malhotra with Morgan Stanley. Your line is open.

Could you just remind us, you know, now that you've got a larger MOB portfolio, following the recent transaction, how are you thinking about the portfolio? Are there parts of it that, you could – you may look to dispose of and just how do you think about how much MOBs are as a percent of the business now and where do you want that to go?

Well, let's see – we continue to look at the portfolio and as far as the assets that we just acquired, I don't vision really selling any of the new ones, but I do expect that we will continue to revaluate the existing portfolio and it's a good chance that we will select some assets to [indiscernible] generally the portfolios are performing very well. As far as a percentage of our portfolio, it's about 44% today. There are – it's interesting to view that asset class, because they're very good assets, typically, very stable and the industry as a whole, very fragmented, so this creates a lot more opportunity to do, one odd small portfolios and so on. I think we'd be willing to buy more and bring it up closer to 50% of our portfolio, but I [indiscernible] but I think that better growth opportunity, internal growth is on the senior living side. So we have to balance those two in our decisions.

Then, just to get a little more insight into the portfolio, as it stands today, do you know what the mix is of single tenant buildings versus multi-tenant for the MOB portfolio?

I think from a single tenant perspective, let's see, it's approximately about a third of the portfolio, and by single tenant that doesn't necessarily mean triple net. A lot of them are managed buildings, but with one tenant in them.

Oh yeah. That's what I meant. And what percent roughly of the leases are directly with the hospital or a healthcare system versus just individual doctor's practices?

Well, let's see, our portfolio, our MOBs themselves, includes biotech, healthcare facilities and some medical equipment manufacturers and so on. If you would pull apart, it's about 45% of the portfolio where it's either directly leased to a healthcare system like our Aurora Healthcare or where the healthcare system is the major tenant to draw to that building like the [indiscernible] some of the healthcare systems we have [indiscernible] Aurora.

Okay. That's helpful. Thank you.

Thank you, and I'm showing no further questions at this time. Please continue.

All right, well, thank you all for joining us today and we look forward to seeing many of you at NAREIT which is just around the corner in June. Thank you. Have a great day.