Greetings, ladies and gentlemen. And welcome to the Senior Housing Properties Trust Third Quarter 2014 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Kim Brown, Director of Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. I apologize for the delayed start today. I understand we had some issues with the toll-free number, so again, apologies for starting late here. 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, November 3, 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 Securities and Exchange Commission. 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 or goof morning, as applicable to everyone. And thank you for joining us on today’s earnings call. Earlier this morning, we were pleased to report normalized funds from operations or normalized FFO of $0.44 per share for the third quarter, up nearly 5% from $0.42 per share for the same period last year. Our portfolio performed well during the quarter, particularly our medical office buildings and triple net leased senior living segments. I’d like to begin by discussing our medical office building portfolio, which now account for 42% of our net operating income or NOI. Although, our MOB segment is comprised of 98 properties with 122 buildings, we have over 9.1 million square feet generating quarterly NOI of approximately $56 million. Overall, occupancy was up an impressive 60 basis points to an industry leading 95.6%, compared to the same period last year. At our 92 same-store medical office properties, cash NOI for the third quarter, compared to the same period last year increased to healthy 2.6% to $34 million, with occupancy remaining at 94.9% year-over-year. With our high occupancy and retention rate, there was limited leasing activity during the third quarter. We executed new leases and renewals of only 78,000 square feet for an average net annual rent of approximately $38 per square foot on a GAAP basis, but the weighted average lease term of over six years. We are very pleased with the recent leasing activity and the overall performance of our MOB. Now turning to our senior living portfolio, our triple net leased senior living properties continue to perform well, as same-store rental income increased 2.3% year-over-year. The increase is due to improvement financings, increased rents at some of our smaller tenants and increases in percentage rent. As expected, overall rental income…

Thank you, Dave, and good afternoon everyone. For the third quarter of 2014, we generated normalized FFO of $89.6 million, up from $78.8 million in the third quarter of last year. On a per share basis, normalized FFO for the quarter increased 4.8% to $0.44 per share up from $0.42 per share for the same period last year. Rental income for the quarter increased $26 million to $138 million. The increase is primarily due to external growth from investments in six medical office buildings for approximately $1.2 billion, offset by reduction of rental income due to the sale of the two inpatient rehab hospitals and four senior living communities since July 1, 2013. $55 million of rental income was derived from our senior living leased communities while $78 million was derived from our medical office buildings. Looking at our managed senior living portfolio, residence fees and services increased nearly 6% to $79 million during the third quarter. The increase primarily relates to acquiring five managed senior living communities for approximately $60 million since July 1, 2013. Property operating expenses for the quarter increased to $82.7 million due to external growth from acquisitions of $1.3 billion as we added five managed senior living communities of six MOBs to our portfolio, offset by $110 million of dispositions since July 1, 2013. Approximately $22 million of property operating expenses were derived from our medical office buildings and approximately $61 million was derived from our managed senior living communities. As Dave mentioned, our property operating expenses at our managed communities increased this past quarter, primarily due to troughs on realty taxes and a spike of self-insurance claims. We expect our managed expenses to decrease sequentially and show improvement in our same-store results for the fourth quarter. General and administrative expenses for the quarter were…

Thank you. (Operator Instructions) Our first question comes from the line of Juan Sanabria with Bank of America. Please proceed with your question.

Hi. Good afternoon, guys. I was just hoping -- on the MOB side, I noticed you took out some disclosure on the releasing results. Could you just give us the results on new leases renewals and the weighted average for the quarter on a cash basis that you used to provide?

Yes, Juan, we did provide that in prior quarters and actually indicated in our earnings call that we weren’t really comparing apples-to-apples and it wasn’t indicative of our MOB portfolio as a whole. We thought reporting the increase on the cash basis there was more indicative of our portfolio and we’re very happy with our results for the quarter. As you can see, we had positive results on our MOBs for the third quarter.

Did you -- on the stuff you had to release, did you get a positive spread, negative spread on a cash or GAAP basis whatever you can share?

If we’re doing up with the calculations as we did it in the past, it would still go down a couple of percentage points, but once again it’s 78,000 square feet or 9.8 million square feet of our portfolio.

Could you just remind us what the issue was it? You don’t think that is indicative of the market-to-market or the portfolio.

Well, we were comparing what the new rates were, while the old rates were the base rate, plus escalations was one of the calculations that we weren’t comparing apples-to-apples, the old rates had escalations in there.

Right.

Plus this quarter we had a situation to where a tenant took over more space, but their rental rate on a per square foot base went down, but overall they took over several more thousands square feet in the building that was vacant. And actually, it’s a positive to us that the building is more occupied. But just on its surface, it would indicate a couple percent decline in per square foot rent.

Okay. And then on the acquisitions you’ve announced you’ve agreed to that you’re going to do under the right deal of structure, but haven’t yet closed. Can you just give us the sense of the cap rates you are going to pay on a cash basis?

Right. The cap rates are in the low-7s for that after a 3% management fee.

Okay. And do you expect those to close before year end?

We do.

Okay. And then just a last question. Just on the development and redevelopment spend, I think you noted you had about $4 million of spend this quarter. How much is left to spend and over how long? And what’s your view I guess in addition to on the dividend and when we could expect an increase, given the accretion that you guys are expecting on Vertex? But on an FFO per share it doesn’t seem to have increase that much at least on a quarterly basis.

So I will start with the CapEx first. Yes, we did redevelopment and development CapEx of about $4.2 million here in the third quarter. We expect that to be probably a pretty good run rate over the next few quarters as we are continuously looking at our managed senior living communities and to any improvements when we see necessary to keep up in the marketplace. In regards to the dividend, Board still reviews our dividend on quarterly basis. And then looking at the payout ratios on an FFO basis as well as a CAD basis, we don’t believe -- we believe that the CapEx one of the properties are going to improve the bottomline, if not hurt any chances of the Board increasing the dividend. So we expect the Board to review the dividend at the end of the fourth quarter, beginning of next year and just looking at as they always do.

So the CapEx would not necessarily you think impact the decision to increase or hold…

Not on the run rate that we’re on, not on the run rate that we’re on. We feel the CapEx that we’re putting in here will help out the bottomline. And also like you mentioned Vertex, we closed that in the middle of the second quarter and that should also help on the accretion of our bottomline.

Okay, great. Thank you.

Thank you. Our next question comes from the line of Vikram Malhotra with Morgan Stanley. Please proceed with your question.

Hi, this is Landon Park on for Vikram. Really just a couple questions. So, on the CCIT deal, are there any concerns around the closing of that deal just given share price? And on the assets that you are acquiring, are you going to keep all the assets or are there some that you think are maybe non-core to your business that you might dispose of?

Yeah. Well, currently everything is on as scheduled. We’re looking forward to acquiring these assets. Our deal is definitely contingent upon SIR and Cole’s transaction getting consummated. But everything we've seen is that Cole is representing that they have their own separate accounting department, auditors, corporate systems and every thing else. So I guess, there is no reason to believe that they would not consummate their transaction. So we expect to acquire all these assets that were 23 that were previously disclosed. And we’re pleased with them because of the credit quality of the long-term leases and the quality of the buildings. So I don't really see anything change in that.

Okay. So none that you’ve earmarked yet. And then just on the MOB side, it looks that the leasing costs maybe jumped up a little bit this quarter on the new leases especially? And I was just wondering is there anything driving that in particular?

Well, one of things that put into those cost is leasing commissions. And when we execute the leases, you book 100% of that into that cost. The TI dollars actually have not been spent for the most part, it’s still some spent, but I’d say commission is the biggest component.

But is there reason that it went from an average of about $4 to $8 this quarter?

I think good part of it is I know probably we have in New York that expanded and added more space to and extended the lease term by significant amount.

Okay.

And I think that’s the main reason I’d say.

All right. Perfect. Well, thank you very much and congrats on the quarter.

Thank you.

(Operator Instructions) Our next question comes from the line of Nick Yulico with UBS. Please proceed with your question.

Yeah. Hey, guys. It’s Ross Nussbaum here with Nick. I just want to follow up on the question that one Sanabria asked, because I’m frankly perplexed by your answer, which is you took out the disclosure on the re-leasing spreads in your MOB portfolio because you thought it was apples and oranges, but that doesn’t sound like apples and oranges to me. It sounds like exactly how every single read that I'm aware of reports cash re-leasing spreads. They look at the prior, the final year cash rent. They look at the first year cash rent on the new lease. What am I missing, is that what you guys were doing before?

Well, good part of it is the fact that operating expenses and so on are in the old numbers and not in the new numbers that shows the decline. A lot of times too when we buy the buildings, we’re buying them, but with a little bit of term left. And then if we do a lease -- say the 10-year lease, we may take a dip down to end up with the total GAAP return with the steps in the lease that will exceed the old rent, but it would appear that as the step down. And we just found that there was so many components to that that the story of the picture like our end of that -- we’re very pleased with this quarter’s growth and the MOB portfolio and it's NOI. But we just found that if you were to look at just that statistic on a standalone basis, it’s going to show that our performance is declining and when in reality it’s actually doing quite well.

And it’s usually a very small piece of the pie. This quarter was 78,000 square feet.

On a 9.1 million square foot portfolio.

I mean, I get that.

We just got it.

Every other REIT in the industry finds a way to report that statistic and you guys take it out which doesn’t seem frankly very investor friendly, if every other REIT feels similar-ish.

I mean, we’ll be happy to revisit ourselves internally and look at it. Again, we could come back to it, that it’s -- we didn’t single indicative of the quality of the portfolio in our real activity so. And frankly, if you look at our healthcare peers, I don't believe and generally in our healthcare peers that they have provided in this data. I think you do find in an office REITs and maybe one of the medical office REITs. But I don't believe in general, you’d find in most of healthcare REITs.

Well, I’d encourage you to take another look at it. Thank you.

Okay. Thank you.

Thank you. Our next question is a follow-up from Vikram Malhotra. Please proceed with your question.

Hi. Yeah. It’s Landon again. I just have a quick follow-up just on your TRS. I mean, what do you feel of the outlook for that part of the portfolio? I know you had a difficult comp this quarter and it looks like you have a difficult one next quarter. So just getting a sense of, are there any markets you are concerned about or what you think on that side?

Well, I think we are very pleased with the performance on the revenue side of the equation. And so we’ve really beefed up the asset management side of things to stay on top of the expense side and then work those expenses down. So we're constantly on the top of the manager on that. But as far as markets fill, particular like in Florida, we expect to significantly push rates down in Florida, which should further enhance the revenue side of the equation.

Sorry, you said push rates are down.

No, push rate is up.

I’m sorry.

I’d you say I’m not -- there is no market -- if you were to ask about any markets where I have any concern is Phoenix. I’d say amongst the TRS assets, the Phoenix market is the weakest of the portfolio and that s going to take a longer time to improve from here. But everything else in the portfolio looks to be doing very well.

And how do you expect the growth rate, I guess, to trend over the next 12-months?

Over the longer term, same-store growth rate in this portfolio should be probably in the more 4% to 6% range. And I expect the expenses to improve in this next quarter, and the revenues will continue to improve. So, I expect certainly, we’ll get back to more of that mid to higher single-digit range.

All right. Great. Thank you very much.

You are welcome.

Thank you. Our next question comes from the line of Collin Mings with Raymond James. Please proceed with your question.

Hey, good afternoon. Thanks for taking my question. Just going back really quickly to the MOB portfolio in the VC environment there, can you talk a little bit more about may be what type of escalators you are getting now, recognizing that again, what’s kind of turning over in the portfolio is still a small percentage, may be the type of escalators you are getting on the leases now versus what’s in the existing portfolio or just given kind of again the positive commentary around the MOB portfolio and the same store NOI growth. I think it would be useful to get little bit more color on what you are seeing on the ground especially again given that those metrics were taken out of the supplemental?

Yeah, we’d got to go about 2%to 2.5% increases at the MOBs. Right -- there is definitely the demand -- so the -- I’d say the occupancies are holding up very strongly. And we’re trying to execute as long as leases as possible. And so we’re typically in the -- ending up in the five to seven year range for leases. Again, it’s across the whole portfolio in million square feet, so its ought to generalize but if you would take the multi-tenanted medical office buildings like the Cedars-Sinai, there you tend to be more in the three to five year range and the escalator is there up, close to the 1.5% to 2%, some of the other properties we have, we’re able to achieve a little better increases. But I think from occupancy’s standpoint, we are very strong and we are trying to push rates.

Okay. And then may be just in context of the Vertex deal and the pending MOB deal you have. How much do you see as far as like to the portfolio, how much of the mix could come from MOB assets looking forward as part from an NOI perspective. I mean, is there a level that you are comfortable with, that you would like to bring the portfolio to on that front?

Yeah. We are at 42% this past quarter. I think with the other transaction -- at the portfolio we’ll be taking on, that will bring us up into the high 40s. But I think, 50-50 is the nice planned between the single living as well as the medical assets. I don’t want to balance it one way or the other too much of that.

Okay. And then just real quickly guys, can you maybe touch on again we’ve see a lot of cap rate compression across the health care REIT sector, obviously over the last 6, 12 months. Can you just put a little bit more color on that and what you guys are seeing and how you think that is by a kind of property type?

Well, for what I can tell that cap rates are staying pretty low and there -- I don’t see them really changing that much. Given that there is still considerable amount of capital, on the side lines still trying to participate investing in the space. So I would say, again, for Class A product, you are -- in the high 5 to mid 6s, I think, you have portfolio premium senior living, again, truly Class A large properties will command that high 5s low 6 cap rate, I think, individual assets, you still can achieve cap rates in the 7 to 8. And the medical office building, yes, pretty much the same thing cap rate is staying down there. Again, there are obviously a number of transactions that have occurred out there, even on the skill nursing side that new levels have being achieved with the Omega transaction of the mid to high 6s, skilled nursing. And we are seeing senior living in the holiday portfolios that are trading again over 5 to 6s. So it’s pretty aggressive out there right now.

Okay. Does that lead you guys think about being a little bit more aggressive on the capital recycling front or I mean, I know, again, keep you pending sales and few assets held for sale? But could we see acceleration in that or just any thoughts on what that maybe means for your strategy as far as acquisition or disposition going forward?

Right. Well, we’re always monitoring the portfolio. Historically, we’ve been selling out the assets that either are experiencing trouble today or we foresee down the road trouble, and those are now in discontinued ops. We are going to continue to monitor that portfolio. I think, there will be some opportunistic opportunities to sell off some of the nice performing properties. But, again, that is case by case and we’re looking for opportunities like that.

Okay. No. Thank you for the additional details and I’d just reiterate the comment that it would be great to see that rent roll disclosure back in the supplemental.

Okay.

Thanks.

Thank you.

Thank you. Ladies and gentleman, at this time I would like to turn the floor back to management for closing comments.

All right. Well, really, I want to thank you all for joining us today and we will be at NAREIT the rest of this week. So I hope to see a lot of you there. In the meantime have a good day. See you then. Bye.