NEWTON, Mass.--(BUSINESS WIRE)--Senior Housing Properties Trust (Nasdaq: SNH) today announced its financial results for the quarter ended June 30, 2018.

Jennifer Francis, President and Chief Operating Officer, made the following statement regarding the second quarter ended June 30, 2018 results:

“Generally, our overall portfolio, which consists of a diversified mix of high quality healthcare properties, continued to perform well during the quarter, with consolidated same property Cash Basis NOI increasing 0.9%. Each of our different healthcare property segments experienced solid same property Cash Basis NOI growth during the quarter, except for our managed senior living segment, which saw a decline primarily because of higher operating expenses.”

“We also continue to experience headwinds in our senior living properties from the recent overbuilding in the industry, which has led to occupancy pressure and increasing operating expenses. To help address this issue, we are focused on recycling capital from dispositions into life science and medical office properties. During the quarter, life science properties and medical office properties represented approximately 23% and 21%, respectively, of our consolidated NOI, and we hope to grow both these healthcare property portfolios in the future.”

Results for the Quarter Ended June 30, 2018:

Net income attributable to common shareholders was $123.6 million, or $0.52 per diluted share, for the quarter ended June 30, 2018 compared to $16.0 million, or $0.07 per diluted share, for the quarter ended June 30, 2017. This increase in net income attributable to common shareholders is primarily the result of: (1) $80.8 million of net gains on the sale of properties recognized for the quarter ended June 30, 2018, (2) unrealized gains and losses on equity securities, net, of $23.3 million which, effective January 1, 2018, is included in earnings in accordance with an update to U.S. generally accepted accounting principles, or GAAP, (3) acquisitions since April 1, 2017, and (4) a decrease in asset impairment charges as compared to the prior year. This increase in net income attributable to common shareholders was partially offset by an increase in general and administrative expenses due to the $17.6 million of business management incentive fee expense recognized for the quarter ended June 30, 2018 as a result of SNH's total shareholder return, as defined, exceeding the returns for the SNL U.S. REIT Healthcare index by 38.3% over the applicable measurement period compared to the $10.8 million of business management incentive fee expense recognized for the quarter ended June 30, 2017, as well as an increase in interest expense. Normalized funds from operations attributable to common shareholders, or Normalized FFO attributable to common shareholders, were $104.8 million and $103.6 million, respectively, or $0.44 and $0.44 per diluted share, respectively, for the quarters ended June 30, 2018 and 2017.

Reconciliations of net income attributable to common shareholders determined in accordance with GAAP to funds from operations attributable to common shareholders, or FFO attributable to common shareholders, and Normalized FFO attributable to common shareholders for the quarters ended June 30, 2018 and 2017 appear later in this press release.

Results for the Six Months Ended June 30, 2018:

Net income attributable to common shareholders was $359.6 million, or $1.51 per diluted share, for the six months ended June 30, 2018 compared to $48.2 million, or $0.20 per diluted share, for the six months ended June 30, 2017. This increase in net income attributable to common shareholders is primarily the result of: (1) $261.9 million of net gains on the sale of properties recognized for the six months ended June 30, 2018, (2) unrealized gains and losses on equity securities, net, of $50.5 million which, effective January 1, 2018, is included in earnings in accordance with an update to GAAP, (3) acquisitions since January 1, 2017, and (4) a decrease in asset impairment charges as compared to the prior year. This increase in net income attributable to common shareholders was partially offset by an increase in general and administrative expenses due to the $32.0 million of business management incentive fee expense recognized for the six months ended June 30, 2018 as a result of SNH's total shareholder return, as defined, exceeding the returns for the SNL U.S. REIT Healthcare index by 38.3% over the applicable measurement period compared to the $14.0 million of business management incentive fee expense recognized for the six months ended June 30, 2017. Normalized FFO attributable to common shareholders were $212.0 million and $212.0 million, or $0.89 and $0.89 per diluted share, respectively, for the six months ended June 30, 2018 and 2017.

Reconciliations of net income attributable to common shareholders determined in accordance with GAAP to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the six months ended June 30, 2018 and 2017 appear later in this press release.

Portfolio Operating Results:

For the quarter ended June 30, 2018, consolidated cash basis net operating income, or Cash Basis NOI, at properties owned continuously since April 1, 2017, or same property, increased 0.9% compared to the quarter ended June 30, 2017.

For the quarter ended June 30, 2018, 43.5% of net operating income, or NOI, came from 129 properties leased to medical providers, medical related businesses, clinics and biotech laboratory tenants, or MOBs, with 12.6 million leasable square feet. As of June 30, 2018, 95.7% of MOB square feet were leased compared to 96.5% as of June 30, 2017. Same property occupancy was 95.6% as of June 30, 2018 compared to 96.5% as of June 30, 2017. Same property Cash Basis NOI from MOBs increased 1.8% for the quarter ended June 30, 2018 compared to the quarter ended June 30, 2017.

For the quarter ended June 30, 2018, 39.6% of NOI came from 229 triple net leased senior living communities with 24,318 living units. The weighted average rent coverage for triple net leased senior living communities decreased to 1.18x for the 12 month period ended March 31, 2018 compared to 1.24x for the 12 month period ended March 31, 2017(1)(2). Same property Cash Basis NOI from triple net leased senior living communities increased 1.9% for the quarter ended June 30, 2018 compared to the quarter ended June 30, 2017.

For the quarter ended June 30, 2018, 14.2% of NOI came from 75 managed senior living communities with 9,510 living units. Occupancy at managed senior living communities was 86.1% for the quarter ended June 30, 2018 compared to 85.7% for the quarter ended June 30, 2017. Same property occupancy at managed senior living communities was 85.8% for the quarter ended June 30, 2018 compared to 85.7% for the quarter ended June 30, 2017. Same property average monthly rates at managed senior living communities were $4,282 for the quarter ended June 30, 2018 compared to $4,298 for the quarter ended June 30, 2017. Same property Cash Basis NOI from managed senior living communities decreased 4.6% for the quarter ended June 30, 2018 compared to the quarter ended June 30, 2017. The primary reason for the decrease in same property Cash Basis NOI was an increase in expenses.

SNH's 10 wellness centers remained 100% leased as of June 30, 2018 and June 30, 2017, and provided SNH with Cash Basis NOI of $4.4 million in each of the three months ended June 30, 2018 and 2017.

Reconciliations of net income determined in accordance with GAAP to consolidated NOI, Cash Basis NOI and same property NOI and Cash Basis NOI by operating segment for the quarters ended June 30, 2018 and 2017 appear later in this press release.

Investment Activities:

In November 2017, SNH agreed to acquire six senior living communities from Five Star Senior Living Inc. (Nasdaq: FVE), or Five Star, for an aggregate purchase price of approximately $104.0 million, including SNH’s assumption of approximately $33.7 million of mortgage debt secured by certain of these senior living communities and excluding closing costs. In December 2017, SNH acquired two of these communities for an aggregate purchase price of approximately $39.2 million, excluding closing costs. In January 2018, SNH acquired one of these communities for approximately $19.7 million, excluding closing costs. In February 2018, SNH acquired one of these communities for approximately $22.2 million, including the assumption of approximately $16.8 million of mortgage debt principal and excluding closing costs. In June 2018, SNH acquired the remaining two of these communities for an aggregate purchase price of approximately $23.3 million, including the assumption of approximately $16.6 million of mortgage debt principal and excluding closing costs. In connection with these acquisitions, SNH entered management and pooling agreements with Five Star for Five Star to manage these senior living communities for SNH.

During the quarter ended June 30, 2018, SNH invested approximately $10.1 million in improvements at its senior living communities that has generated or will generate additional rent under the terms of the applicable leases. In addition, SNH regularly makes additional investments at its MOBs and its managed senior living communities that it expects may maintain or enhance the competitive positions of those properties and may increase its operating revenue from those properties.

Disposition Activities:

In May 2018, SNH sold one senior living community that was leased to Sunrise Senior Living, LLC for a sales price of approximately $96.0 million, excluding closing costs, resulting in a gain of approximately $78.9 million.

In June 2018, SNH sold one skilled nursing facility that was leased to Five Star and one senior living community that was leased to a private operator, where the tenant exercised its purchase option, for a combined sales price of approximately $21.9 million, excluding closing costs, resulting in a net gain of approximately $1.9 million.

Financing Activities:

In July 2018, SNH prepaid approximately $90.6 million of secured debts encumbering 12 senior living communities with a weighted average annual interest rate of 5.0% and maturity dates in October 2018.

In July 2018, SNH gave notice of its intention to prepay approximately $6.4 million of secured debt encumbering one senior living community with an annual interest rate of 4.7% and a maturity date in January 2019. SNH expects to make this prepayment in September 2018.

SNH is a real estate investment trust, or REIT, that owns medical office and life science properties, senior living communities and wellness centers throughout the United States. SNH is managed by the operating subsidiary of The RMR Group Inc. (Nasdaq: RMR), or RMR Inc., an alternative asset management company that is headquartered in Newton, MA.