UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
OR
o
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission File Number 1-15319
SENIOR HOUSING PROPERTIES TRUST
(Exact Name of Registrant as Specified in Its Charter)
Maryland
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04-3445278
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(State or Other Jurisdiction of Incorporation or
Organization)
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(IRS Employer Identification No.)
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400 Centre Street, Newton, Massachusetts 02458
(Address of Principal Executive Offices) (Zip Code)
617-796-8350
(Registrants Telephone Number, Including Area Code)
Indicate
by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes
x
No
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes
x
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2
of the Exchange Act. (Check One):
Large Accelerated Filer
x
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Accelerated Filer
o
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Non Accelerated Filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes
o
No
x
Number
of registrants common shares outstanding as of November 1, 2010:
127,479,657.
SENIOR HOUSING PROPERTIES
TRUST
FORM 10-Q
September 30, 2010
INDEX
In this Quarterly Report on Form 10-Q, the terms
the Company, we, us and our refer to Senior Housing Properties Trust
and its consolidated subsidiaries, unless otherwise noted.
PART I.
Financial
Information
Item 1. Financial
Statements.
SENIOR HOUSING PROPERTIES
TRUST
CONDENSED CONSOLIDATED
BALANCE SHEETS
(amounts in thousands, except share data)
(unaudited)
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September 30,
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December 31,
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2010
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2009
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ASSETS
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Real estate properties:
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Land
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$
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371,662
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$
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365,576
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Buildings and improvements
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3,006,956
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2,952,407
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3,378,618
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3,317,983
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Less accumulated depreciation
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516,860
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454,317
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2,861,758
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2,863,666
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Cash and cash equivalents
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8,513
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10,494
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Restricted cash
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5,363
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4,222
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Deferred financing fees, net
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15,985
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14,882
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Acquired real estate leases, net
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44,743
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42,769
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Other assets
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63,350
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51,893
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Total assets
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$
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2,999,712
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$
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2,987,926
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LIABILITIES AND SHAREHOLDERS EQUITY
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Unsecured revolving credit facility
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$
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12,000
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$
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60,000
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Senior unsecured notes due 2012, 2015 and 2020,
net of discount
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422,794
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322,160
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Secured debt and capital leases
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656,223
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660,059
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Accrued interest
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13,358
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13,693
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Acquired real estate lease obligations, net
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9,404
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9,687
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Other liabilities
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33,161
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21,677
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Total liabilities
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1,146,940
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1,087,276
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Commitments and contingencies
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Shareholders equity:
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Common shares of beneficial interest, $0.01 par
value: 149,700,000 shares authorized, 127,479,657 and 127,377,665 shares
issued and outstanding at September 30, 2010 and December 31, 2009,
respectively
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1,275
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1,273
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Additional paid in capital
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2,228,520
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2,226,474
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Cumulative net income
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722,654
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640,033
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Cumulative distributions
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(1,106,700
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)
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(969,111
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)
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Unrealized gain on investments
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7,023
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1,981
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Total shareholders equity
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1,852,772
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1,900,650
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Total liabilities and shareholders equity
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$
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2,999,712
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$
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2,987,926
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See accompanying notes.
1
SENIOR HOUSING PROPERTIES
TRUST
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share data)
(unaudited)
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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2010
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2009
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2010
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2009
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Rental income
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$
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80,961
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$
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72,010
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$
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242,173
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$
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209,785
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Expenses:
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Depreciation
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22,505
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19,689
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67,139
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56,713
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General and administrative
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5,549
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5,192
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16,463
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14,999
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Property operating expenses
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4,595
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4,112
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13,114
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10,286
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Acquisition related costs
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286
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517
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725
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1,911
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Total expenses
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32,935
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29,510
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97,441
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83,909
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Operating income
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48,026
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42,500
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144,732
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125,876
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Interest and other income
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203
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355
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703
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750
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Interest expense
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(20,226
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)
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(15,949
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)
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(59,155
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(37,432
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Loss on early extinguishment of debt
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(2,433
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Impairment of assets
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(11,249
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)
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(1,095
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(11,249
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Gain on sale of properties
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109
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109
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Equity in earnings (losses) of an investee
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35
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(23
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)
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(17
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(132
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Income before income tax expense
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28,147
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15,634
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82,844
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77,813
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Income tax expense
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(69
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)
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(69
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(223
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)
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(204
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Net income
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$
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28,078
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$
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15,565
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$
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82,621
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$
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77,609
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Weighted average shares outstanding
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127,423
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121,665
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127,404
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120,005
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Net income per share
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$
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0.22
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$
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0.13
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$
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0.65
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$
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0.65
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See accompanying notes
.
2
SENIOR HOUSING PROPERTIES
TRUST
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
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Nine Months Ended
September 30,
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2010
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2009
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Cash flows from operating activities:
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Net income
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$
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82,621
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$
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77,609
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Adjustments to reconcile net income to cash
provided by operating activities:
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Depreciation
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67,139
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56,713
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Amortization of deferred financing fees and debt
discounts
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1,847
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1,809
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Amortization of acquired real estate leases
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755
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712
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Loss on early extinguishment of debt
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2,433
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Impairment of assets
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1,095
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11,249
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Gain on sale of properties
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(109
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)
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Equity in losses of an investee
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17
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132
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Change in assets and liabilities:
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Restricted cash
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(1,141
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)
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(384
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Other assets
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(6,444
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)
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(6,580
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)
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Accrued interest
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(335
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)
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(227
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)
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Other liabilities
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13,533
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19,506
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Cash provided by operating activities
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161,411
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160,539
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Cash flows from investing activities:
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Acquisitions
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(68,136
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)
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(423,866
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)
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Investment in Five Star Quality Care, Inc.
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(8,960
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)
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Investment in Affiliates Insurance Company
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(75
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)
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(5,110
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)
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Proceeds from sale of properties
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1,450
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3,171
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Cash used for investing activities
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(66,761
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)
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(434,765
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)
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Cash flows from financing activities:
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Proceeds from issuance of common shares, net
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223,974
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Proceeds from issuance of unsecured senior notes,
net
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195,352
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Proceeds from borrowings on revolving credit
facility
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45,000
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134,000
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Repayments of borrowings on revolving credit
facility
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(93,000
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)
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(391,000
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)
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Proceeds from issuance of mortgage debt
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512,934
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Redemption of senior notes
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(98,780
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)
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Repayment of other debt
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(6,293
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)
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(2,234
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Payment of deferred financing fees
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(1,321
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)
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(11,335
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)
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Distributions to shareholders
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(137,589
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)
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(125,616
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)
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Cash (used for) provided by financing activities
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(96,631
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)
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340,723
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(Decrease) increase in cash and cash equivalents
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(1,981
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)
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66,497
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Cash and cash equivalents at beginning of period
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10,494
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5,990
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Cash and cash equivalents at end of period
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$
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8,513
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$
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72,487
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Supplemental cash flow information:
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Interest paid
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$
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57,643
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$
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35,850
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Non-cash investing activities:
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Acquisitions funded by assumed debt
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(2,458
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)
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Non-cash financing activities:
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Assumption of mortgage notes payable
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2,458
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Issuance of common shares
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2,048
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1,763
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See accompanying notes.
3
SENIOR HOUSING PROPERTIES
TRUST
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in
thousands, except per share data or as otherwise stated)
Note
1. Basis of Presentation
The
accompanying condensed consolidated financial statements of Senior Housing
Properties Trust and its subsidiaries, or we, us, or our, have been prepared
without audit. Certain information and
disclosures required by U.S. generally accepted accounting principles, or GAAP,
for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate
to make the information presented not misleading. However, the accompanying condensed consolidated
financial statements should be read in conjunction with the consolidated financial
statements and notes contained in our Annual Report on Form 10-K for the
year ended December 31, 2009, or our Annual Report. In the opinion of our management, all
adjustments, which include only normal recurring adjustments, considered
necessary for a fair presentation have been included. All intercompany transactions and balances
between us and our consolidated subsidiaries have been eliminated. Operating results for interim periods are not
necessarily indicative of the results that may be expected for the full
year. Reclassifications have been made
to the prior years financial statements to conform to the current years
presentation. These reclassifications
were made to separately state on our condensed consolidated statements of
income our (i) equity in earnings (losses) of an investee and (ii) income
tax expense, which were both previously included in general and administrative
expenses. These reclassifications had no
effect on net income or shareholders equity.
Note
2. Recent Accounting Pronouncements
In
January 2010, the Financial Accounting Standards Board, or FASB, issued an
accounting standards update requiring additional disclosures regarding fair
value measurements. The update requires entities to disclose additional
information regarding assets and liabilities that are transferred between
levels within the fair value hierarchy. The update also clarifies the level of
disaggregation at which fair value disclosures should be made and the
requirements to disclose information about the valuation techniques and inputs
used in estimating Level 2 and Level 3 fair values. The update is
effective for interim and annual reporting periods beginning after
December 15, 2009 except for the requirement to separately disclose purchases,
sales, issuances and settlements in the Level 3 roll forward that becomes
effective for fiscal periods beginning after December 15, 2010.
In
February 2010, the FASB issued an update to the disclosure requirements
relating to subsequent events to exclude the requirement to disclose the date
through which an entity has evaluated subsequent events and whether that date
represents the date the financial statements were issued or available to be
issued.
The
adoption of these updates did not, and is not expected to, cause any material
changes to the disclosures in our condensed consolidated financial statements.
Note
3. Real Estate Properties
At September 30, 2010, we owned 298 properties located in 35
states and Washington, D.C.
In August 2010, we sold four skilled nursing facilities in
Nebraska with an aggregate 196 licensed beds for an aggregate sales price of
$1,450. We recognized a gain on sale of
these properties of approximately $109.
These properties were leased to Five Star Quality Care, Inc., or
Five Star.
In September 2010, we acquired one medical office building, or
MOB, with 64,860 square feet located in Buffalo Grove (Chicago), IL for
approximately $18,400, excluding closing costs.
We recorded intangible lease assets of approximately $3,144 related to
this acquisition. This property is 88%
leased to seven tenants for weighted (by rents) average lease term of
approximately 7.5 years. We funded this
acquisition using cash on hand.
4
SENIOR HOUSING PROPERTIES
TRUST
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in
thousands, except per share data or as otherwise stated)
In September 2010, we acquired another MOB with 38,030 square feet
located in Conyers (Atlanta), GA for approximately $9,800, excluding closing
costs. We recorded intangible lease
assets and liabilities of approximately $1,428 and $164, respectively, related
to this acquisition. This property is
91% leased to seven tenants for weighted (by rents) average lease term of
approximately 8.3 years. We funded this
acquisition using cash on hand and borrowings under our revolving credit
facility.
Subsequent to September 30, 2010, we acquired one MOB with 58,605
square feet located in Conroe (Houston), TX for approximately $15,000,
excluding closing costs. This property
is 100% leased to Montgomery County Management Company, LLC for approximately
13.8 years. We funded this acquisition
using cash on hand and borrowings under our revolving credit facility.
During the three and nine months ended September 30, 2010,
pursuant to the terms of our existing leases with Five Star, we purchased
$7,958 and $23,768, respectively, of improvements made to our properties leased
to Five Star, and, as a result, the annual rent payable to us by Five Star was
increased by approximately $638 and $1,905, respectively.
As of September 30, 2010, two of our properties are classified as
held for sale located in Pennsylvania with an aggregate 173 licensed
units. These two properties are operated
and leased by Five Star. These two
properties are included in real estate properties on our
condensed consolidated balance sheets and have a net carrying value of
approximately
$1,900 at September 30,
2010.
We periodically evaluate our properties for impairment. Impairment
indicators may include declining tenant occupancy, weak or declining tenant
profitability, cash flow or liquidity, our decision to dispose of an asset
before the end of its estimated useful life and legislative, market or industry
changes that could permanently reduce the value of a property. If indicators of
impairment are present, we evaluate the carrying value of the effected property
by comparing it to the expected future undiscounted cash flows to be generated
from that property. If the sum of these expected future cash flows is less than
the carrying value, we reduce the net carrying value of the property to its
estimated fair value. During the nine
months ended September 30, 2010, we recorded impairment of assets charges
of $1,095 to reduce the carrying value of five of our properties to their
estimated sales price less costs to sell.
Note
4. Unrealized Gain on Investments
On
September 30, 2010, we owned 250,000 common shares of CommonWealth REIT,
or CWH, and 3,235,000 common shares of Five Star, which are carried at fair
market value in other assets on our condensed consolidated balance sheets. The
net unrealized gain on investments shown on our condensed consolidated balance
sheets represents the difference between the value at quoted market prices of
our CWH and Five Star shares on September 30, 2010 ($25.60 and $5.05 per
share, respectively) and our weighted average costs on the dates we acquired
these shares ($26.00 and $2.85 per share, respectively).
Note 5. Indebtedness
Our
principal debt obligations at September 30, 2010 were our unsecured
revolving credit facility, two public issues of unsecured senior notes totaling
$422,794 and $641,562 of mortgages secured by 62 of our properties. These 62 collateralized properties had a
carrying value of $738,459 at September 30, 2010. We also have two properties recorded under
capital leases totaling $14,662 at September 30, 2010. These two properties had a carrying value of
$18,516 at September 30, 2010.
5
SENIOR HOUSING PROPERTIES
TRUST
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in
thousands, except per share data or as otherwise stated)
We
have an unsecured revolving credit facility that matures on December 31,
2010. Our revolving credit facility
permits borrowings up to $550,000. The
interest rate for amounts drawn under the facility is LIBOR plus a premium. We can borrow, repay and reborrow until
maturity, and no principal repayment is due until maturity. The interest rate payable on borrowings under
this revolving credit facility was 1.1% at September 30, 2010 and
2009. In addition to interest, we pay
certain fees to maintain this credit facility and we amortize certain
arrangement costs. Our revolving credit
facility is available for acquisitions, working capital and general business
purposes. As of September 30, 2010 and 2009, we had $12,000 and zero
amounts, respectively, outstanding under this credit facility and $538,000 and
$550,000, respectively, available under this credit facility. We currently intend to exercise our option to
extend the maturity date of this facility to December 31, 2011. Our revolving credit facility contains
financial covenants and requires us to maintain financial ratios and a minimum
net worth. We believe we were in
compliance with these covenants during the periods presented.
In April 2010, we sold
$200,000 of senior unsecured notes. The
notes require interest at a fixed rate of 6.75% per annum and are due in
2020. Net proceeds from the sale of the
notes, after underwriting discounts and before other expenses, were
approximately $195,352. We incurred approximately
$400 of additional third party costs that are deferred and amortized over the
term of the debt. Interest on the notes
is payable semi-annually in arrears. No
principal payments are due until maturity.
We used a portion of the net proceeds of this offering to repay $58,000
in borrowings under our revolving credit facility, to fund the redemption of
all $97,500 of our outstanding 7.875% senior notes due 2015 and for general
business purposes, including funding the acquisitions described in Note 3
above.
As described above, in April 2010,
we called all of our outstanding 7.875% senior notes due 2015 for redemption on
May 17, 2010. As a result of this
redemption, we recorded a loss on early extinguishment of debt of $2,433
consisting of the debt prepayment premium of approximately $1,280 and the write
off of unamortized deferred financing fees and debt discount of approximately
$1,153.
Note
6. Shareholders Equity
On
August 12, 2010, we paid a $0.36 per share, or $45,869, distribution to
our common shareholders for the quarter ended June 30, 2010. On October 4, 2010, we declared a
distribution of $0.37 per share, or $47,167, to be paid to common shareholders
of record on October 15, 2010, with respect to our results for the quarter
ended September 30, 2010. We expect to pay this distribution on or about November 12,
2010. On November 16, 2009, we paid
a $0.36 per share, or $45,856, distribution to our common shareholders for the
quarter ended September 30, 2009.
On
September 17, 2010, pursuant to our equity compensation plan, we granted
an aggregate of 66,850 common shares of beneficial interest, par value $0.01
per share, valued at $24.31 per share, the closing price of our common shares
on the New York Stock Exchange, or the NYSE, on that day, to our officers and
certain employees of our manager, Reit Management & Research LLC, or
RMR. We made these grants pursuant to an
exemption from registration contained in Section 4(2) of the
Securities Act of 1933, as amended, or the Securities Act.
Note
7. Comprehensive Income
The
following is a reconciliation of net income to comprehensive income for the
three and nine months ended September 30, 2010 and 2009:
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
Net income
|
|
$
|
28,078
|
|
$
|
15,565
|
|
$
|
82,621
|
|
$
|
77,609
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gain on investments
|
|
6,757
|
|
6,273
|
|
5,042
|
|
6,977
|
|
Comprehensive income
|
|
$
|
34,835
|
|
$
|
21,838
|
|
$
|
87,663
|
|
$
|
84,586
|
|
6
SENIOR HOUSING PROPERTIES
TRUST
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in
thousands, except per share data or as otherwise stated)
Note
8. Fair Value of Assets and Liabilities
The
table below presents certain of our assets and liabilities measured at fair
value at September 30, 2010 categorized by the level of inputs used in the
valuation of each asset or liability.
Description
|
|
Total
|
|
Quoted Prices in Active
Markets for Identical
Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale
(1)
|
|
$
|
1,900
|
|
$
|
|
|
$
|
1,900
|
|
$
|
|
|
Investments in available for sale securities
(2)
|
|
22,737
|
|
22,737
|
|
|
|
|
|
Senior notes
(3)
|
|
444,125
|
|
|
|
444,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Assets
held for sale consist of two of our properties that we expect to sell that are
reported at fair value. We used offers
to purchase the properties made by third parties or comparable sales
transactions (level 2 inputs) to determine the fair value of these
properties. We have recorded cumulative
impairments of approximately $9,051 to these properties in order to reduce
their carrying value to fair value, or $1,900, at September 30, 2010.
(2) Our
investments in available for sale securities include our 250,000 common shares of
CWH and 3,235,000 common shares of Five Star. The fair values of these shares
are based on quoted prices at September 30, 2010 in active markets (level
1 inputs).
(3) We
estimate the fair values of our senior notes by using an average of their bid
and ask prices (level 2 inputs). As of September 30, 2010, the carrying
value of our senior notes was $422,794.
In
addition to the assets and liabilities described in the above table, our
financial instruments include rents receivable, cash and cash equivalents,
restricted cash, secured and unsecured debt and other liabilities. The fair
values of these additional financial instruments approximate their carrying
values at September 30, 2010 based upon their liquidity, short term
maturity and / or variable rate pricing.
Note 9. Segment Reporting
We have two reportable operating segments: (i) short term and long
term residential care facilities that offer dining for residents and (ii) properties
where medical related activities occur but where residential overnight stays or
dining services are not provided, or MOBs.
Properties in the short term and long term residential care facilities
segment include independent living facilities, assisted living facilities,
skilled nursing facilities and rehabilitation hospitals. Properties in the MOB segment include medical
office, clinic and biotech laboratory buildings. The All Other category in the following
table includes amounts related to corporate business activities and the
operating results of certain properties that offer fitness, wellness and spa
services to members.
7
SENIOR HOUSING PROPERTIES
TRUST
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in
thousands, except per share data or as otherwise stated)
|
|
For the Three Months Ended September 30, 2010
|
|
|
|
Short and
Long Term
Residential
Care Facilities
|
|
MOB
|
|
All Other
|
|
Consolidated
|
|
Rental income
|
|
$
|
57,315
|
|
$
|
19,743
|
|
$
|
3,903
|
|
$
|
80,961
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
16,597
|
|
4,986
|
|
922
|
|
22,505
|
|
General and administrative
|
|
|
|
|
|
5,549
|
|
5,549
|
|
Property operating expenses
|
|
|
|
4,595
|
|
|
|
4,595
|
|
Acquisition related costs
|
|
|
|
286
|
|
|
|
286
|
|
Total expenses
|
|
16,597
|
|
9,867
|
|
6,471
|
|
32,935
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
40,718
|
|
9,876
|
|
(2,568
|
)
|
48,026
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
|
|
|
203
|
|
203
|
|
Interest expense
|
|
(10,574
|
)
|
(234
|
)
|
(9,418
|
)
|
(20,226
|
)
|
Gain on sale of properties
|
|
109
|
|
|
|
|
|
109
|
|
Equity in earnings of an investee
|
|
|
|
|
|
35
|
|
35
|
|
Income (loss) before income tax expense
|
|
30,253
|
|
9,642
|
|
(11,748
|
)
|
28,147
|
|
Income tax expense
|
|
|
|
|
|
(69
|
)
|
(69
|
)
|
Net income (loss)
|
|
$
|
30,253
|
|
$
|
9,642
|
|
$
|
(11,817
|
)
|
$
|
28,078
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,933,822
|
|
$
|
776,126
|
|
$
|
289,764
|
|
$
|
2,999,712
|
|
8
SENIOR HOUSING PROPERTIES
TRUST
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in
thousands, except per share data or as otherwise stated)
|
|
For the Three Months Ended September 30, 2009
|
|
|
|
Short and
Long Term
Residential
Care Facilities
|
|
MOB
|
|
All Other
|
|
Consolidated
|
|
Rental income
|
|
$
|
54,401
|
|
$
|
13,706
|
|
$
|
3,903
|
|
$
|
72,010
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
15,348
|
|
3,419
|
|
922
|
|
19,689
|
|
General and administrative
|
|
|
|
|
|
5,192
|
|
5,192
|
|
Property operating expenses
|
|
|
|
4,112
|
|
|
|
4,112
|
|
Acquisition related costs
|
|
|
|
517
|
|
|
|
517
|
|
Total expenses
|
|
15,348
|
|
8,048
|
|
6,114
|
|
29,510
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
39,053
|
|
5,658
|
|
(2,211
|
)
|
42,500
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
|
|
|
355
|
|
355
|
|
Interest expense
|
|
(7,475
|
)
|
(185
|
)
|
(8,289
|
)
|
(15,949
|
)
|
Impairment of assets
|
|
(3,784
|
)
|
(7,465
|
)
|
|
|
(11,249
|
)
|
Equity in losses of an investee
|
|
|
|
|
|
(23
|
)
|
(23
|
)
|
Income (loss) before income tax expense
|
|
27,794
|
|
(1,992
|
)
|
(10,168
|
)
|
15,634
|
|
Income tax expense
|
|
|
|
|
|
(69
|
)
|
(69
|
)
|
Net income (loss)
|
|
$
|
27,794
|
|
$
|
(1,992
|
)
|
$
|
(10,237
|
)
|
$
|
15,565
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,866,832
|
|
$
|
746,218
|
|
$
|
341,986
|
|
$
|
2,955,036
|
|
9
SENIOR HOUSING PROPERTIES
TRUST
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in
thousands, except per share data or as otherwise stated)
|
|
For the Nine Months Ended September 30, 2010
|
|
|
|
Short and
Long Term
Residential
Care Facilities
|
|
MOB
|
|
All Other
|
|
Consolidated
|
|
Rental income
|
|
$
|
171,479
|
|
$
|
58,986
|
|
$
|
11,708
|
|
$
|
242,173
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
49,640
|
|
14,762
|
|
2,737
|
|
67,139
|
|
General and administrative
|
|
|
|
|
|
16,463
|
|
16,463
|
|
Property operating expenses
|
|
|
|
13,114
|
|
|
|
13,114
|
|
Acquisition related costs
|
|
20
|
|
705
|
|
|
|
725
|
|
Total expenses
|
|
49,660
|
|
28,581
|
|
19,200
|
|
97,441
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
121,819
|
|
30,405
|
|
(7,492
|
)
|
144,732
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
|
|
|
703
|
|
703
|
|
Interest expense
|
|
(31,304
|
)
|
(636
|
)
|
(27,215
|
)
|
(59,155
|
)
|
Loss on early extinguishment of debt
|
|
|
|
|
|
(2,433
|
)
|
(2,433
|
)
|
Impairment of assets
|
|
(1,095
|
)
|
|
|
|
|
(1,095
|
)
|
Gain on sale of properties
|
|
109
|
|
|
|
|
|
109
|
|
Equity in losses of an investee
|
|
|
|
|
|
(17
|
)
|
(17
|
)
|
Income (loss) before income tax expense
|
|
89,529
|
|
29,769
|
|
(36,454
|
)
|
82,844
|
|
Income tax expense
|
|
|
|
|
|
(223
|
)
|
(223
|
)
|
Net income (loss)
|
|
$
|
89,529
|
|
$
|
29,769
|
|
$
|
(36,677
|
)
|
$
|
82,621
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,933,822
|
|
$
|
776,126
|
|
$
|
289,764
|
|
$
|
2,999,712
|
|
10
SENIOR HOUSING PROPERTIES
TRUST
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in
thousands, except per share data or as otherwise stated)
|
|
For the Nine Months Ended September 30, 2009
|
|
|
|
Short and
Long Term
Residential
Care Facilities
|
|
MOB
|
|
All Other
|
|
Consolidated
|
|
Rental income
|
|
$
|
162,920
|
|
$
|
35,157
|
|
$
|
11,708
|
|
$
|
209,785
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
45,203
|
|
8,743
|
|
2,767
|
|
56,713
|
|
General and administrative
|
|
|
|
|
|
14,999
|
|
14,999
|
|
Property operating expenses
|
|
|
|
10,286
|
|
|
|
10,286
|
|
Acquisition related costs
|
|
|
|
1,911
|
|
|
|
1,911
|
|
Total expenses
|
|
45,203
|
|
20,940
|
|
17,766
|
|
83,909
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
117,717
|
|
14,217
|
|
(6,058
|
)
|
125,876
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
|
|
|
750
|
|
750
|
|
Interest expense
|
|
(11,544
|
)
|
(560
|
)
|
(25,328
|
)
|
(37,432
|
)
|
Impairment of assets
|
|
(3,784
|
)
|
(7,465
|
)
|
|
|
(11,249
|
)
|
Equity in losses of an investee
|
|
|
|
|
|
(132
|
)
|
(132
|
)
|
Income (loss) before income tax expense
|
|
102,389
|
|
6,192
|
|
(30,768
|
)
|
77,813
|
|
Income tax expense
|
|
|
|
|
|
(204
|
)
|
(204
|
)
|
Net income (loss)
|
|
$
|
102,389
|
|
$
|
6,192
|
|
$
|
(30,972
|
)
|
$
|
77,609
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,866,832
|
|
$
|
746,218
|
|
$
|
341,986
|
|
$
|
2,955,036
|
|
Note 10. Significant Tenant
Rent
from Five Star is 56% of our total rents as of September 30, 2010. The following tables present summary
financial information for Five Star for the three and nine months ended September 30,
2010 and 2009, as reported in its Quarterly Report on Form 10-Q.
Summary Financial Information of Five Star Quality
Care, Inc.
(unaudited)
|
|
For the Three Months Ended September 30,
|
|
|
|
2010
|
|
2009
|
|
Operations
|
|
|
|
|
|
Total revenues
|
|
$
|
315,060
|
|
$
|
295,304
|
|
Operating income
|
|
5,754
|
|
1,441
|
|
Income from continuing operations
|
|
5,610
|
|
4,411
|
|
Net income
|
|
5,158
|
|
4,108
|
|
|
|
|
|
|
|
|
|
11
SENIOR HOUSING PROPERTIES
TRUST
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise
stated)
|
|
For the Nine Months Ended
September 30,
|
|
|
|
2010
|
|
2009
|
|
Total revenues
|
|
$
|
935,272
|
|
$
|
882,450
|
|
Operating income
|
|
19,312
|
|
9,386
|
|
Income from continuing operations
|
|
18,226
|
|
38,935
|
|
Net income
|
|
17,396
|
|
38,058
|
|
|
|
|
|
|
|
Cash Flows
|
|
|
|
|
|
Cash provided by operating activities
|
|
109,997
|
|
32,845
|
|
Net cash (used in) provided by discontinued
operations
|
|
(830
|
)
|
275
|
|
Cash used in investing activities
|
|
(25,972
|
)
|
(15,956
|
)
|
Cash used in financing activities
|
|
(51,503
|
)
|
(11,790
|
)
|
Change in cash and cash equivalents
|
|
31,692
|
|
5,374
|
|
Cash and cash equivalents at beginning of period
|
|
5,017
|
|
16,138
|
|
Cash and cash equivalents at end of period
|
|
36,709
|
|
21,512
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
|
2010
|
|
2009
|
|
Financial Position
|
|
|
|
|
|
Current assets
|
|
$
|
136,575
|
|
$
|
195,763
|
|
Non-current assets
|
|
251,116
|
|
223,825
|
|
Total indebtedness
|
|
48,922
|
|
103,725
|
|
Current liabilities
|
|
141,019
|
|
180,054
|
|
Non-current liabilities
|
|
87,332
|
|
101,199
|
|
Total shareholders equity
|
|
159,340
|
|
138,335
|
|
|
|
|
|
|
|
|
|
The
summary financial information of Five Star is presented to comply with
applicable accounting regulations of the Securities and Exchange Commission, or
SEC. References in these financial
statements to the Quarterly Report on Form 10-Q for Five Star are included
as textual references only, and the information in Five Stars Quarterly Report
is not incorporated by reference into these financial statements.
Note
11. Related Person Transactions
Five Star is our largest tenant and it is our former subsidiary. We beneficially own more than 9% of Five Stars
common shares. RMR provides management
services to both us and Five Star. Five
Star pays us minimum rent amounts plus percentage rent based on increases in
gross revenues at certain properties. As
of September 30, 2010, we leased 186 senior living communities and two
rehabilitation hospitals to Five Star.
Five Stars total minimum annual rent payable to us under those leases
as of September 30, 2010 was $186,137, excluding percentage rent based on
increases in gross revenues at certain properties.
We
recognized rent from Five
Star in the amount of $138,698 and $130,429 for the nine months ended September 30,
2010 and 2009, respectively, and as of September 30, 2010 and December 31,
2009, our rents receivable from Five Star were $16,573 and $16,468,
respectively, and are included in other assets on our condensed consolidated
balance sheets. During the three and
nine months ended September 30, 2010, pursuant to the terms of our
existing leases with Five Star, we purchased $7,958 and $23,768, respectively,
of improvements made to our properties leased to Five Star, and, as a result,
the annual rent payable to us by Five Star was increased by approximately $638
and $1,905, respectively. In August 2010,
we sold four skilled nursing facilities located in Nebraska with an aggregate 196
licensed beds for $1,450 that were leased to Five Star and recognized a gain on
sale of approximately $109.
12
SENIOR HOUSING PROPERTIES
TRUST
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in
thousands, except per share data or as otherwise stated)
In
connection with our business management agreement with RMR, we recognized
expenses of $4,317 and $12,715, and $3,778 and $11,705 for the three and nine
months ended September 30, 2010 and 2009, respectively. These amounts are included in general and
administrative expenses in our condensed consolidated statements of
income. In connection with our property
management agreement with RMR, we recognized expenses of $561 and $1,665, and
$388 and $993 for the three and nine months ended September 30, 2010 and
2009, respectively. These amounts are
included in property operating expenses in our condensed consolidated statements
of income.
As
of September 30, 2010, we have invested $5,209 in Affiliates Insurance
Company, or Affiliates Insurance, with RMR and other companies to which RMR
provides management services. All of our
trustees serve on the board of directors of Affiliates Insurance. At September 30, 2010, we owned
approximately 14.29% of Affiliates Insurance.
Although we own less than 20% of Affiliates Insurance, we use the equity
method to account for this investment because we believe that we have significant
influence over Affiliates Insurance because each of our trustees is a director
of Affiliates Insurance. We carry this
investment on our condensed consolidated balance sheets in other assets and at
$5,058 and $5,000 as of September 30, 2010 and December 31, 2009,
respectively. During the three and nine
months ended September 30, 2010, we invested an additional $32 and $76,
respectively, in Affiliates Insurance.
During the three and nine months ended September 30, 2010, we
recognized earnings and losses of approximately $35 and $(17), respectively,
related to this investment. In June 2010,
we, RMR and other companies to which RMR provides management services purchased
property insurance pursuant to an insurance program arranged by Affiliates
Insurance. Our annual premiums for this
property insurance are expected to be approximately $275. We are currently investigating the
possibilities to expand our insurance relationships with Affiliates Insurance
to include other types of insurance.
For
more information about our related person transactions, including our dealings
with Five Star, RMR, Affiliates Insurance, our Managing Trustees and their
affiliates and about the risks which may arise as a result of these and other
related person transactions, please see our Annual Report and our other filings
made with the SEC, and, in particular, the sections captioned Risk Factors
and Managements Discussion and Analysis of Financial Condition and Results of
Operations Related Person Transactions in our Annual Report, and the section
captioned Related Person Transactions and the Company Review of Such
Transactions in our Proxy Statement dated February 22, 2010 relating to
our 2010 Annual Meeting of Shareholders and in Item 1.01 in our Current Report
on Form 8-K filed with the SEC on January 13, 2010.
13
Item 2.
Managements Discussion and Analysis of Financial Condition and Results
of Operations.
The
following discussion should be read in conjunction with our condensed
consolidated financial statements and notes thereto included in this Quarterly
Report on Form 10-Q and our Annual Report.
PORTFOLIO OVERVIEW
The
following tables present an overview of our portfolio (dollars in thousands
except per unit/square foot):
(As of September 30, 2010)
|
|
Number of
Properties
|
|
Number of
Units/Beds or
Square Feet
|
|
Investment
Carrying Value
(1)
|
|
% of
Investment
|
|
Annualized
Current Rent
(2)
|
|
% of
Annualized
Current Rent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent living communities
(3)
|
|
43
|
|
11,524
|
|
$
|
1,133,275
|
|
33.5%
|
|
$
|
112,715
|
|
33.4%
|
|
Assisted living facilities
(3)
|
|
131
|
|
9,342
|
|
1,033,319
|
|
30.6%
|
|
95,490
|
|
28.2%
|
|
Skilled nursing facilities
(3)
|
|
52
|
|
5,514
|
|
225,354
|
|
6.7%
|
|
20,058
|
|
5.9%
|
|
Rehabilitation hospitals
|
|
2
|
|
364
|
|
67,577
|
|
2.0%
|
|
10,203
|
|
3.0%
|
|
Wellness centers
|
|
10
|
|
812,000
|
sq. ft.
|
180,017
|
|
5.3%
|
|
17,069
|
|
5.0%
|
|
MOBs
|
|
60
|
|
3,037,874
|
sq. ft.
|
739,076
|
|
21.9%
|
|
83,047
|
|
24.5%
|
|
Total
|
|
298
|
|
|
|
$
|
3,378,618
|
|
100.0%
|
|
$
|
338,582
|
|
100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tenant / Operator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Five Star (Lease No. 1)
|
|
88
|
|
6,421
|
|
$
|
631,183
|
|
18.7%
|
|
$
|
54,140
|
|
16.1%
|
|
Five Star (Lease No. 2)
|
|
46
|
|
5,885
|
|
510,466
|
|
15.1%
|
|
50,222
|
|
14.8%
|
|
Five Star (Lease No. 3)
|
|
28
|
|
5,618
|
|
628,919
|
|
18.6%
|
|
62,805
|
|
18.5%
|
|
Five Star (Lease No. 4)
|
|
26
|
|
2,720
|
|
253,576
|
|
7.5%
|
|
23,234
|
|
6.9%
|
|
Sunrise / Marriott
(4)
|
|
14
|
|
4,091
|
|
325,165
|
|
9.6%
|
|
32,684
|
|
9.7%
|
|
Brookdale
|
|
18
|
|
894
|
|
61,122
|
|
1.8%
|
|
8,449
|
|
2.5%
|
|
6 private companies (combined)
|
|
8
|
|
1,115
|
|
49,094
|
|
1.5%
|
|
6,932
|
|
2.0%
|
|
Wellness centers
|
|
10
|
|
812,000
|
sq. ft.
|
180,017
|
|
5.3%
|
|
17,069
|
|
5.0%
|
|
Multi-tenant MOBs
|
|
60
|
|
3,037,874
|
sq. ft.
|
739,076
|
|
21.9%
|
|
83,047
|
|
24.5%
|
|
Total
|
|
298
|
|
|
|
$
|
3,378,618
|
|
100.0%
|
|
$
|
338,582
|
|
100.0%
|
|
Tenant Operating Statistics
(5)
|
|
Rent Coverage
|
|
Occupancy
|
|
Annualized Rental Income per
Living Unit, Bed or Square Foot
(6)
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Five
Star (Lease No. 1)
|
|
1.32x
|
|
1.25x
|
|
88%
|
|
88%
|
|
$
|
8,432
|
|
$
|
7,649
|
|
Five
Star (Lease No. 2)
(7)
|
|
1.32x
|
|
1.28x
|
|
82%
|
|
84%
|
|
$
|
7,249
|
|
$
|
6,904
|
|
Five
Star (Lease No. 3)
|
|
1.49x
|
|
1.58x
|
|
88%
|
|
91%
|
|
$
|
11,179
|
|
$
|
10,958
|
|
Five
Star (Lease No. 4)
|
|
1.11x
|
|
1.13x
|
|
84%
|
|
87%
|
|
$
|
8,542
|
|
$
|
8,592
|
|
Sunrise
/ Marriott
(4)
|
|
1.35x
|
|
1.43x
|
|
89%
|
|
90%
|
|
$
|
7,989
|
|
$
|
7,924
|
|
Brookdale
|
|
2.13x
|
|
2.10x
|
|
92%
|
|
93%
|
|
$
|
9,451
|
|
$
|
9,142
|
|
6
private companies (combined)
|
|
2.15x
|
|
1.87x
|
|
83%
|
|
82%
|
|
$
|
6,217
|
|
$
|
6,187
|
|
Wellness
centers
(8)
|
|
2.21x
|
|
2.36x
|
|
100%
|
|
100%
|
|
NA
|
|
NA
|
|
Multi-tenant
MOBs
(9)
|
|
NA
|
|
NA
|
|
97%
|
|
99%
|
|
$
|
27
|
|
$
|
28
|
|
14
Item
2. Managements Discussion and Analysis
of Financial Condition and Results of Operations (continued)
Tenant Operating Statistics (continued)
(5)
|
|
Short and Long Term Residential Care Facilities
|
|
|
|
Percentage of Operating Revenue Sources
|
|
|
|
Private Pay
(10)
|
|
Medicare
|
|
Medicaid
|
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Five Star (Lease
No. 1)
|
|
64%
|
|
61%
|
|
12%
|
|
14%
|
|
24%
|
|
25%
|
|
Five Star (Lease
No. 2)
|
|
52%
|
|
53%
|
|
33%
|
|
32%
|
|
15%
|
|
15%
|
|
Five Star (Lease
No. 3)
|
|
87%
|
|
87%
|
|
12%
|
|
12%
|
|
1%
|
|
1%
|
|
Five Star (Lease
No. 4)
|
|
66%
|
|
68%
|
|
14%
|
|
13%
|
|
20%
|
|
19%
|
|
Sunrise / Marriott
(4)
|
|
74%
|
|
66%
|
|
22%
|
|
30%
|
|
4%
|
|
4%
|
|
Brookdale
|
|
99%
|
|
99%
|
|
|
|
|
|
1%
|
|
1%
|
|
6 private companies
(combined)
|
|
23%
|
|
24%
|
|
24%
|
|
23%
|
|
53%
|
|
53%
|
|
(1)
Amounts are before depreciation, but after impairment write downs, if
any.
(2)
Annualized rent is as of September 30, 2010.
(3)
Properties are categorized by the type of living units or beds which
constitute a majority of the living units or beds at the property.
(4)
Marriott International, Inc. guarantees this lease.
(5)
All tenant
operating data presented are based upon the operating results provided by our
tenants for the 12 months ended June 30, 2010 and 2009, or the most recent
prior period for which tenant operating results are available to us. Rent coverage is calculated as operating cash
flow from our tenants operations of our properties, before subordinated
charges, divided by minimum rents payable to us. We have not independently verified our
tenants operating data. The table
excludes data for periods prior to our ownership of some of these properties.
(6)
Represents
annualized rent by lease divided by the number of living units, beds or square
feet leased at September 30, 2010 and 2009.
(7)
Annualized
rental income per living unit, bed or square foot excludes the two
rehabilitation hospitals because these properties have extensive clinic space
for services to both overnight patients and patients who receive treatment and
do not stay overnight, and these properties are not comparable to residential
senior living properties.
(8)
Annualized
rental income per living unit, bed or square foot excludes the wellness centers
because these properties have extensive indoor and outdoor recreation space
which is not comparable to properties where rent is based on interior space
only.
(9)
Our MOB leases
include both triple net leases where, in addition to paying fixed rents, the
tenants assume the obligation to operate and maintain the properties at their
expense, and net and modified gross leases where we are responsible to operate
and maintain the properties and we charge tenants for some or all of the
property operating costs. A small
percentage of our MOB leases are so-called full-service leases where we
receive fixed rent from our tenants and no reimbursement for our property
operating costs.
(10)
Private pay excludes
revenues from the Medicare and Medicaid programs.
15
Item
2. Managements Discussion and Analysis
of Financial Condition and Results of Operations (continued)
The following tables set
forth information regarding our lease expirations as of September 30, 2010
(dollars in thousands):
|
|
Annualized Rent
|
|
Percent of
Total
|
|
Cumulative
Percentage
of
Annualized
|
|
Year
|
|
Short and Long
Term Residential
Care Facilities
|
|
MOBs
|
|
Wellness
Centers
|
|
Total
|
|
Annualized
Current Rent
Expiring
|
|
Current
Rent
Expiring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
|
|
$
|
282
|
|
$
|
|
|
$
|
282
|
|
0.1%
|
|
0.1%
|
|
2011
|
|
|
|
2,228
|
|
|
|
2,228
|
|
0.7%
|
|
0.8%
|
|
2012
|
|
|
|
6,097
|
|
|
|
6,097
|
|
1.8%
|
|
2.6%
|
|
2013
|
|
32,684
|
|
3,754
|
|
|
|
36,438
|
|
10.7%
|
|
13.3%
|
|
2014
|
|
|
|
4,357
|
|
|
|
4,357
|
|
1.3%
|
|
14.6%
|
|
2015
|
|
3,437
|
|
6,248
|
|
|
|
9,685
|
|
2.9%
|
|
17.5%
|
|
2016
|
|
2,895
|
|
6,995
|
|
|
|
9,890
|
|
2.9%
|
|
20.4%
|
|
2017
|
|
31,682
|
|
1,753
|
|
|
|
33,435
|
|
9.9%
|
|
30.3%
|
|
2018
|
|
|
|
3,500
|
|
|
|
3,500
|
|
1.0%
|
|
31.3%
|
|
2019 and thereafter
|
|
167,768
|
|
47,833
|
|
17,069
|
|
232,670
|
|
68.7%
|
|
100.0%
|
|
Total
|
|
$
|
238,466
|
|
$
|
83,047
|
|
$
|
17,069
|
|
$
|
338,582
|
|
100.0%
|
|
|
|
Average remaining lease term
for all properties (weighted by rent):
12.0 years
|
|
Number of Tenants
|
|
|
|
Cumulative
|
|
Year
|
|
Short and
Long Term
Residential
Care Facilities
|
|
MOBs
|
|
Wellness
Centers
|
|
Total
|
|
Percent of
Total Number
of Tenants
Expiring
|
|
Percentage
of Number
of Tenants
Expiring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
12
|
|
|
|
12
|
|
5.1%
|
|
5.1%
|
|
2011
|
|
|
|
24
|
|
|
|
24
|
|
10.3%
|
|
15.4%
|
|
2012
|
|
|
|
39
|
|
|
|
39
|
|
16.7%
|
|
32.1%
|
|
2013
|
|
1
|
|
20
|
|
|
|
21
|
|
9.0%
|
|
41.1%
|
|
2014
|
|
|
|
28
|
|
|
|
28
|
|
12.0%
|
|
53.1%
|
|
2015
|
|
3
|
|
25
|
|
|
|
28
|
|
12.0%
|
|
65.1%
|
|
2016
|
|
2
|
|
19
|
|
|
|
21
|
|
9.0%
|
|
74.1%
|
|
2017
|
|
2
|
|
14
|
|
|
|
16
|
|
6.8%
|
|
80.9%
|
|
2018
|
|
|
|
12
|
|
|
|
12
|
|
5.1%
|
|
86.0%
|
|
2019 and thereafter
|
|
4
|
|
27
|
|
2
|
|
33
|
|
14.0%
|
|
100.0%
|
|
Total
|
|
12
|
|
220
|
|
2
|
|
234
|
|
100.0%
|
|
|
|
16
Item
2. Managements Discussion and Analysis
of Financial Condition and Results of Operations (continued)
Number
of Living Units or Beds or Square Feet with Leases Expiring
|
|
Living Units or Beds
|
|
Square Feet
|
|
Year
|
|
Short and
Long Term
Residential
Care
Facilities
(Units/Beds)
|
|
Percent
of Total
Living
Units or
Beds
Expiring
|
|
Cumulative
Percentage
of Total
Living
Units or
Beds
Expiring
|
|
MOBs
(Square
Feet)
|
|
Wellness
Centers
(Square
Feet)
|
|
Total
Square
Feet
|
|
Percent
of Total
Square
Feet
Expiring
|
|
Cumulative
Percent of
Total
Square
Feet
Expiring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
0.0%
|
|
0.0%
|
|
7,328
|
|
|
|
7,328
|
|
0.2%
|
|
0.2%
|
|
2011
|
|
|
|
0.0%
|
|
0.0%
|
|
65,949
|
|
|
|
65,949
|
|
1.7%
|
|
1.9%
|
|
2012
|
|
|
|
0.0%
|
|
0.0%
|
|
291,480
|
|
|
|
291,480
|
|
7.7%
|
|
9.6%
|
|
2013
|
|
4,091
|
|
15.3%
|
|
15.3%
|
|
143,819
|
|
|
|
143,819
|
|
3.8%
|
|
13.4%
|
|
2014
|
|
|
|
0.0%
|
|
15.3%
|
|
137,915
|
|
|
|
137,915
|
|
3.7%
|
|
17.1%
|
|
2015
|
|
423
|
|
1.6%
|
|
16.9%
|
|
266,106
|
|
|
|
266,106
|
|
7.1%
|
|
24.2%
|
|
2016
|
|
517
|
|
1.9%
|
|
18.8%
|
|
331,414
|
|
|
|
331,414
|
|
8.8%
|
|
33.0%
|
|
2017
|
|
3,614
|
|
13.5%
|
|
32.3%
|
|
48,361
|
|
|
|
48,361
|
|
1.3%
|
|
34.3%
|
|
2018
|
|
|
|
0.0%
|
|
32.3%
|
|
101,197
|
|
|
|
101,197
|
|
2.7%
|
|
37.0%
|
|
2019
and thereafter
|
|
18,099
|
|
67.7%
|
|
100.0%
|
|
1,568,536
|
|
812,000
|
|
2,380,536
|
|
63.0%
|
|
100.0%
|
|
Total
|
|
26,744
|
|
100.0%
|
|
|
|
2,962,105
|
|
812,000
|
|
3,774,105
|
|
100.0%
|
|
|
|
17
Item
2. Managements Discussion and Analysis
of Financial Condition and Results of Operations (continued)
RESULTS OF OPERATIONS
Three Months Ended September 30,
2010 Compared to Three Months Ended September 30, 2009:
|
|
2010
|
|
2009
|
|
Change
|
|
% Change
|
|
|
|
(dollars in thousands, except per share amounts)
|
|
|
|
Rental Income:
|
|
|
|
|
|
|
|
|
|
Short and long term residential care facilities
|
|
$
|
57,315
|
|
$
|
54,401
|
|
$
|
2,914
|
|
5.4%
|
|
MOB
|
|
19,743
|
|
13,706
|
|
6,037
|
|
44.0%
|
|
All Other
|
|
3,903
|
|
3,903
|
|
|
|
|
|
Total rental income
|
|
80,961
|
|
72,010
|
|
8,951
|
|
12.4%
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
22,505
|
|
19,689
|
|
2,816
|
|
14.3%
|
|
General and administrative
|
|
5,549
|
|
5,192
|
|
357
|
|
6.9%
|
|
Property operating expenses
|
|
4,595
|
|
4,112
|
|
483
|
|
11.7%
|
|
Acquisition related costs
|
|
286
|
|
517
|
|
(231
|
)
|
(44.7)%
|
|
Total expenses
|
|
32,935
|
|
29,510
|
|
3,425
|
|
11.6%
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
48,026
|
|
42,500
|
|
5,526
|
|
13.0%
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
203
|
|
355
|
|
(152
|
)
|
(42.8)%
|
|
Interest expense
|
|
(20,226
|
)
|
(15,949
|
)
|
(4,277
|
)
|
(26.8)%
|
|
Impairment of assets
|
|
|
|
(11,249
|
)
|
11,249
|
|
|
|
Gain on sale of properties
|
|
109
|
|
|
|
109
|
|
|
|
Equity in earnings (losses) of an investee
|
|
35
|
|
(23
|
)
|
58
|
|
252.2%
|
|
Income before income tax expense
|
|
28,147
|
|
15,634
|
|
12,513
|
|
80.0%
|
|
Income tax expense
|
|
(69
|
)
|
(69
|
)
|
|
|
|
|
Net income
|
|
$
|
28,078
|
|
$
|
15,565
|
|
$
|
12,513
|
|
80.4%
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
127,423
|
|
121,665
|
|
5,758
|
|
4.7%
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
|
|
$
|
0.22
|
|
$
|
0.13
|
|
$
|
0.09
|
|
69.2%
|
|
Rental income.
Rental
income for our short and long term residential care facilities segment
increased because of rents from 11 facilities we acquired since July 1,
2009, offset by a reduction in rental income resulting from the sale of six
facilities since July 1, 2009. Rental income for our MOB segment increased
because of rents from 21 MOBs we acquired since July 1, 2009, offset by a
reduction in rental income resulting from the sale of one MOB since July 1,
2009.
Total expenses.
Depreciation expense for the period increased because of our property
acquisitions since July 1, 2009.
General and administrative expenses also increased in the third quarter
of 2010 principally due to our acquisitions since July 1, 2009. The
increase in property operating expenses for the quarter ended September 30,
2010 is the result of our acquisitions of 21 MOBs since July 1, 2009 and
principally includes expenses related to real estate taxes, utilities,
insurance, cleaning costs and property management fees paid to RMR.
18
Item
2. Managements Discussion and Analysis
of Financial Condition and Results of Operations (continued)
Interest expense.
Interest
expense increased because of interest on our $512.9 million Federal National
Mortgage Association, or FNMA, mortgage financing entered in August 2009,
the amortization of $13.6 million of deferred financing fees incurred in
connection with this mortgage financing and the sale of $200.0 million of
unsecured senior notes with an interest rate of 6.75% in April 2010. These
increases were offset by reduced interest because of the redemption of all
$97.5 million of our 7.875% unsecured senior notes due 2015 in May 2010
and lesser amounts outstanding under our revolving credit facility. Our weighted average balance outstanding and
interest rate under our revolving credit facility was $261,000 and 1.1%, and
$90.4 million and 1.1%, for the three months ended September 30, 2010 and
2009, respectively.
Impairment of assets
. During the three months ended September 30,
2009, we recognized an impairment of assets charge of approximately $11.2
million related to eight properties to reduce the carrying value of these
properties to their estimated sales price less costs to sell.
Gain on sale of properties
.
In August 2010, we sold
four skilled nursing facilities for an aggregate sales price of approximately
$1.5 million. We recognized a gain on
sale of these properties of approximately $109,000. These properties were leased to Five Star.
Net income.
Net income and net income per share increased
because of the changes in revenues and expenses described above.
19
Item
2. Managements Discussion and Analysis
of Financial Condition and Results of Operations (continued)
Nine Months Ended September 30,
2010 Compared to Nine Months Ended September 30, 2009:
|
|
2010
|
|
2009
|
|
Change
|
|
% Change
|
|
|
|
(dollars in thousands, except per share amounts)
|
|
|
|
Rental Income:
|
|
|
|
|
|
|
|
|
|
Short and long term residential care facilities
|
|
$
|
171,479
|
|
$
|
162,920
|
|
$
|
8,559
|
|
5.3%
|
|
MOB
|
|
58,986
|
|
35,157
|
|
23,829
|
|
67.8%
|
|
All Other
|
|
11,708
|
|
11,708
|
|
|
|
|
|
Total rental income
|
|
242,173
|
|
209,785
|
|
32,388
|
|
15.4%
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
67,139
|
|
56,713
|
|
10,426
|
|
18.4%
|
|
General and administrative
|
|
16,463
|
|
14,999
|
|
1,464
|
|
9.8%
|
|
Property operating expenses
|
|
13,114
|
|
10,286
|
|
2,828
|
|
27.5%
|
|
Acquisition related costs
|
|
725
|
|
1,911
|
|
(1,186
|
)
|
(62.1)%
|
|
Total expenses
|
|
97,441
|
|
83,909
|
|
13,532
|
|
16.1%
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
144,732
|
|
125,876
|
|
18,856
|
|
15.0%
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
703
|
|
750
|
|
(47
|
)
|
(6.3)%
|
|
Interest expense
|
|
(59,155
|
)
|
(37,432
|
)
|
(21,723
|
)
|
(58.0)%
|
|
Loss on early extinguishment of debt
|
|
(2,433
|
)
|
|
|
(2,433
|
)
|
|
|
Impairment of assets
|
|
(1,095
|
)
|
(11,249
|
)
|
10,154
|
|
90.3%
|
|
Gain on sale of properties
|
|
109
|
|
|
|
109
|
|
|
|
Equity in losses of an investee
|
|
(17
|
)
|
(132
|
)
|
115
|
|
87.1%
|
|
Income before income tax expense
|
|
82,844
|
|
77,813
|
|
5,031
|
|
6.5%
|
|
Income tax expense
|
|
(223
|
)
|
(204
|
)
|
(19
|
)
|
(9.3)%
|
|
Net income
|
|
$
|
82,621
|
|
$
|
77,609
|
|
$
|
5,012
|
|
6.5%
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
127,404
|
|
120,005
|
|
7,399
|
|
6.2%
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
|
|
$
|
0.65
|
|
$
|
0.65
|
|
|
|
|
|
Rental income.
Rental
income for our short and long term residential care facilities segment
increased because of rents from 11 facilities we acquired since January 1,
2009, offset by a reduction in rental income resulting from the sale of two facilities
during 2009 and four facilities during 2010. Rental income for our MOB segment
increased because of rents from 24 MOBs we acquired since January 1, 2009,
offset by a reduction in rental income resulting from the sale of two MOBs
during 2009.
Total expenses.
Depreciation expense for the period increased because of our property
acquisitions since January 1, 2009.
General and administrative expenses also increased during the nine
months ended September 30, 2010 principally due to our acquisitions since January 1,
2009. The increase in property operating expenses for the nine months ended September 30,
2010 is the result of our acquisition of 24 MOBs since January 1, 2009 and
principally includes expenses related to real estate taxes, utilities, insurance,
cleaning costs and property management fees paid to RMR.
20
Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Interest expense.
Interest
expense increased because of interest on our $512.9 million FNMA mortgage
financing entered in August 2009, the amortization of $13.6 million of
deferred financing fees incurred in connection with this mortgage financing and
the sale of $200.0 million of unsecured senior notes with an interest rate of
6.75% in April 2010. These
increases were offset by reduced interest because of the redemption of all
$97.5 million of our 7.875% unsecured senior notes due 2015 in May 2010
and lesser amounts outstanding under our revolving credit facility at lower
interest rates. Our weighted average
balance outstanding and interest rate under our revolving credit facility was $22.2
million and 1.1%, and $169.2 million and 1.3%, for the nine months ended September 30,
2010 and 2009, respectively.
Loss on early extinguishment of
debt
. In May 2010,
we redeemed all $97.5 million of our outstanding 7.875% senior notes due
2015. As a result of this redemption, we
recorded a loss on early extinguishment of debt of $2.4 million consisting of
the debt prepayment premium of approximately $1.3 million and the write off of
unamortized deferred financing fees of approximately $1.1 million.
Impairment of assets
. During the nine months ended September 30,
2010, we recognized an impairment of assets charge of approximately $1.1
million related to five properties, four of which were sold in August 2010,
to reduce the carrying value of these properties to their estimated
sale prices less costs to sell. During the nine months ended September 30,
2009, we recognized an impairment of assets charge of approximately $11.2
million related to eight properties to reduce the carrying value of these
properties to their estimated sales price less costs to sell.
Gain on sale of properties
.
In August 2010, we sold
four skilled nursing facilities for an aggregate sales price of approximately
$1.5 million. We recognized a gain on
sale of these properties of approximately $109,000. These properties were leased to Five Star.
Net income.
Net income increased because of the changes
in revenues and expenses described above. Net income per share did not change
since both our weighted average number of shares outstanding (resulting from
our issuances of common shares in February and September 2009) and
our net income increased.
LIQUIDITY AND CAPITAL RESOURCES
Our principal source of
funds to pay operating expenses, debt service and distributions to shareholders
is rental income from our properties. We
believe that our operating cash flow will be sufficient to meet our operating
expenses and debt service and pay distributions on our shares for the
foreseeable future. Our future cash
flows from operating activities will depend primarily upon our ability to:
·
maintain or improve the occupancy of, and the
current rental rates at, our properties;
·
control operating cost increases at our MOB
properties; and
·
purchase additional properties of any type
which produce cash flows in excess of our cost of acquisition capital and
property operating expenses.
Our
Operating Liquidity and Resources
We
generally receive minimum rents monthly or quarterly from our tenants and we
receive percentage rents from our residential facility tenants monthly,
quarterly or annually. During the nine months ended September 30, 2010, we
generated $161.4 million of cash from operations and at September 30,
2010, we had $8.5 million of cash and cash equivalents.
Our
Investment and Financing Liquidity and Resources
At September 30, 2010, we had $8.5 million of cash and cash
equivalents and $538.0 million available under our revolving credit
facility. We expect to use cash
balances, borrowings under our revolving credit facility and net proceeds of
offerings of equity or debt securities to fund future working capital
requirements, property acquisitions and expenditures related to the repair,
maintenance or renovation of our properties.
21
Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
In order to fund acquisitions and to accommodate cash needs that may
result from timing differences between our receipts of rents and our need or
desire to pay operating expenses and distributions to our shareholders, we
maintain a revolving credit facility with a group of institutional
lenders. This revolving credit facility
permits us to borrow up to $550.0 million.
Borrowings under our revolving credit facility are unsecured. We may borrow, repay and reborrow funds until
maturity, and no principal repayment is due until maturity. We pay interest on borrowings under the
revolving credit facility at LIBOR plus a premium. This facility matures in December 2010. Subject to certain conditions, this credit
facilitys maturity date can be extended at our option to December 31,
2011 upon our payment of a fee. We
currently intend to exercise this one year extension option. At September 30, 2010, the weighted
average interest rate payable on our revolving credit facility was 1.1%. As of September 30, 2010 and November 1,
2010, we had $12.0 million and $15.0 million, respectively, outstanding
under this credit facility.
When
significant amounts are outstanding under our revolving credit facility or as
the maturity dates of our revolving credit facility and term debts approach, we
will explore alternatives for the repayment of amounts due. Such alternatives may include incurring
additional debt and issuing new equity securities. We have an effective shelf registration
statement that allows us to issue public securities on an expedited basis, but
it does not assure that there will be buyers for such securities.
In
April 2010, we sold $200.0 million of senior unsecured notes. The notes require interest at a fixed rate of
6.75% per annum and are due in 2020. Net
proceeds from the sale of the notes, after underwriting discounts and other
expenses, were approximately $195.0 million.
Interest on the notes is payable semi-annually in arrears. No principal payments are due until
maturity. We used a portion of the net
proceeds of this offering to repay $58.0 million in borrowings under our
revolving credit facility, to fund the redemption of all $97.5 million of our
outstanding 7.875% senior notes due 2015 and for general business purposes,
including funding the acquisitions described below.
As
described above, in April 2010, we called all of our outstanding 7.875%
senior notes due 2015 for redemption on May 17, 2010. As a result of this redemption, we recorded a
loss on early extinguishment of debt of approximately $2.4 million consisting
of the debt prepayment premium of approximately $1.3 million and the write off
of unamortized deferred financing fees of approximately $1.1 million.
In
April 2010, we acquired an MOB with 14,695 square feet located in Colorado
for approximately $4.5 million, excluding closing costs. This property is 100% leased to Clear Creek
Surgery Center LLC for approximately 9.8 years.
We funded this acquisition using cash on hand and by assuming a mortgage
loan for approximately $2.5 million at interest of 6.73% per annum.
In
June 2010, we acquired an MOB with 55,800 square feet located in Texas for
approximately $12.2 million, excluding closing costs. This property is 100% leased to Covenant
Health System for approximately 14.0 years.
We funded this acquisition using cash on hand.
In August 2010, we sold four skilled nursing facilities located in
Nebraska with an aggregate 196 licensed beds for an aggregate sales price of
approximately $1.5 million. We
recognized a gain on sale of these properties of approximately $109,000. These properties were leased to Five Star.
In September 2010, we acquired one MOB with 64,860 square feet
located in Buffalo Grove (Chicago), IL for approximately $18.4 million,
excluding closing costs. This property
is 88% leased to seven tenants for weighted (by rents) average lease term of
approximately 7.5 years. We funded this
acquisition using cash on hand.
22
Item 2.
Managements Discussion and Analysis of Financial Condition and Results
of Operations (continued)
In September 2010, we acquired another MOB with 38,030 square feet
located in Conyers (Atlanta), GA for approximately $9.8 million, excluding
closing costs. This property is 91%
leased to seven tenants for weighted (by rents) average lease term of
approximately 8.3 years. We funded this
acquisition using cash on hand and borrowings under our revolving credit
facility.
During the three and nine months ended September 30, 2010,
pursuant to the terms of our existing leases with Five Star, we purchased $8.0
million and $23.8 million, respectively, of improvements made to our properties
leased to Five Star, and, as a result, the annual rent payable to us by Five
Star was increased by approximately $638,300 and $1.9 million, respectively.
Subsequent to September 30, 2010, we acquired one MOB with 58,605
square feet located in Conroe (Houston), TX for approximately $15.0 million, excluding
closing costs. This property is 100%
leased to Montgomery County Management Company, LLC for approximately 13.8
years. We funded this acquisition using
cash on hand and borrowings under our revolving credit facility.
While we believe we will have access to various types of financings,
including debt or equity, to fund our future acquisitions and to pay our debts
and other obligations, there can be no assurance that we will be able to
complete any debt or equity offerings or that our cost of any future financings
will be reasonable. Also, the current
market conditions have led to increased credit spreads which, if they continue,
may result in increased interest costs when we renew our revolving credit facility. These interest cost increases could have a
material and adverse impact on our results of operations and financial
condition.
On
October 4, 2010, we declared a quarterly distribution of $0.37 per common
share, or $47.2 million, to our common shareholders for the quarter ended September 30,
2010. This distribution will be paid to
shareholders on or about November 12, 2010, using cash on hand and
borrowings under our revolving credit facility, if necessary.
As of November 1, 2010, we have no off balance
sheet arrangements, commercial paper, derivatives, swaps, hedges, joint
ventures or partnerships,
other than
interest rate caps in connection with our FNMA mortgage loan.
Debt Covenants
Our
principal debt obligations at September 30, 2010 were our unsecured
revolving credit facility, two public issues of unsecured senior notes totaling
$422.8 million and $641.6 million of mortgages secured by 62 of our
properties. Our unsecured senior notes
are governed by an indenture. The
indenture for our unsecured senior notes and related supplements and our
revolving credit facility contain a number of covenants which restrict our
ability to incur debts, including debts secured by mortgages on our properties
in excess of calculated amounts, require us to maintain a minimum net worth,
restrict our ability to make distributions under certain circumstances and
generally require us to maintain certain other financial ratios. As of September 30,
2010, we believe we were in compliance with all of the covenants under our
indenture and related supplements, our revolving credit facility and our other
debt obligations.
None
of our indenture and related supplements, our revolving credit facility or our
other debt obligations contain provisions for acceleration which could be
triggered by our debt ratings. However,
in certain circumstances, our revolving credit facility uses our senior debt
rating to determine the fees and the interest rate payable.
23
Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations
(continued)
Our
public debt indenture and related supplements contain cross default provisions
to any other debts of at least $10.0 million or, with respect to certain notes
under such indenture and supplements, higher amounts. Similarly, our revolving credit facility
contains a cross default provision to any other debts of $25.0 million or more
that are recourse debts and to any other debts of $75.0 million or more that
are non-recourse debts. Any termination
of our business management agreement with RMR would cause a default under our
revolving credit facility, if not approved by a majority of our lenders.
Related Person Transactions
Five
Star is our largest tenant and it is our former subsidiary. We beneficially own more than 9% of Five Stars
common shares. RMR provides management
services to both us and Five Star. Five
Star pays us minimum rent plus percentage rent based on increases in gross
revenues at certain properties. As of September 30,
2010, we leased 186 senior living communities and two rehabilitation hospitals
to Five Star. Five Stars total minimum
annual rent payable to us under those leases as of September 30, 2010 was
$186.1 million, excluding percentage rent based on increases in gross revenues
at certain properties.
We
recognized rent from Five
Star in the amount of $138.7 million and $130.4 million for the nine months
ended September 30, 2010 and 2009, respectively, and as of September 30,
2010 and December 31, 2009, our rents receivable from Five Star were $16.6
million and $16.5 million, respectively, and are included in other assets on
our condensed consolidated balance sheets.
During the three and nine months ended September 30, 2010, we
purchased $8.0 million and $23.8 million, respectively, of improvements made to
our properties that are leased to Five Star.
We used cash on hand to fund these purchases. As a result of these purchases, the annual
rent payable to us by Five Star increased by approximately $638,300 and $1.9
million, respectively. In August 2010,
we sold four skilled nursing facilities located in Nebraska with an aggregate 196
licensed beds for $1.5 million that were leased to Five Star and recognized a
gain on sale of approximately $109,000.
Additional information regarding our leases with Five Star appears in
our Annual Report under the captions Business Tenants and Business Lease
Terms.
We
have no employees. Instead, services
that might be provided to us by employees are provided to us by RMR. RMR provides both business and property
management services to us under a business management agreement and a property
management agreement. There have been no
changes in the terms of our agreements with RMR as described in our Annual
Report. During the three months ended September 30,
2010 and 2009, our fees to RMR under these agreements were $4.9 million and
$4.2 million, respectively. During the
nine month periods ended September 30, 2010 and 2009, these fees totaled
$14.4 million and $12.7 million, respectively.
As
of September 30, 2010, we have invested approximately $5.2 million in
Affiliates Insurance, an Indiana licensed insurance company organized by RMR
and other companies to which RMR provides management services. We own 14.29% of Affiliates Insurance. All of our trustees are also directors of
Affiliates Insurance and RMR provides certain management services to Affiliates
Insurance. During the three and nine
months ended September 30, 2010, we recognized earnings and losses of
approximately $35,000 and $(17,000), respectively, related to this
investment. In June 2010, we, RMR
and other companies to which RMR provides management services purchased
property insurance pursuant to an insurance program arranged by Affiliates
Insurance. Our annual premiums for this
property insurance are expected to be approximately $275,000. We are currently investigating the
possibilities to expand our insurance relationships with Affiliates Insurance.
For
more information about our related person transactions, including our dealings
with Five Star, Affiliates Insurance, RMR, our Managing Trustees and their
affiliates and about the risks which may arise as a result of these and other
related person transactions, please see our Annual Report and our other filings
made with the SEC, and in particular, the sections captioned Risk Factors and
Managements Discussion and Analysis of Financial Condition and Results of
Operations Related Person
24
Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Transactions
in the Annual Report and the section captioned Related Person Transactions and
Company Review of Such Transactions in our Proxy Statement dated February 22,
2010 relating to our 2010 Annual Meeting of Shareholders and Item 1.01 in our
Current Report on Form 8-K filed with the SEC on January 13, 2010.
Impact of
Government Reimbursement
Approximately 87% of our current
rents at our senior living properties come from properties where approximately
80% or more of the operating revenues are derived from residents who pay with
their own private resources. The remaining 13% of our rents from our senior
living properties come from properties where the revenues are more dependent
upon Medicare and Medicaid programs. The operations of these Medicare and
Medicaid dependent senior living properties currently produce sufficient cash
flow to support our rent. However, as discussed in our Annual Report under the
caption, Business Government Regulation and Reimbursement, we expect that
Medicare and Medicaid rates paid to our tenants may not increase in amounts
sufficient to pay our tenants increased operating costs, or that they may even
decline. Also, the hospitals we lease to Five Star are heavily dependent upon
Medicare revenues.
The Patient Protection and
Affordable Care Act, or PPACA, enacted in March 2010, contains insurance
changes, payment changes and healthcare delivery systems changes intended to
expand access to health insurance coverage and reduce the growth of healthcare
expenditures while simultaneously maintaining or improving the quality of
healthcare. It is unclear how or if
these somewhat contradictory goals can be achieved. Under PPACA, beginning in fiscal year 2012,
the Medicare skilled nursing facility, or SNF, and inpatient rehabilitation
facility, or IRF, market basket adjustments for inflation will be reduced by a
productivity adjustment that may result in payment rates for a fiscal year
being less than for the preceding fiscal year. PPACA also reduced the Medicare
IRF market basket adjustment for inflation by 0.25% for fiscal year 2010,
effective for discharges between April 1, 2010 and September 30,
2010, and for fiscal year 2011, which began October 1, 2010. Future
IRF Medicare market basket adjustments will also be reduced by amounts ranging
from 0.1% to 0.3% for fiscal years 2012 through 2016, and by 0.75% for fiscal
years 2017 through 2019. PPACA also establishes
an Independent Payment Advisory Board to submit legislative proposals to
Congress and take other actions with a goal of reducing Medicare spending
growth and includes various other provisions affecting Medicare and Medicaid
providers, including enforcement reforms and increased funding for Medicare and
Medicaid program integrity control initiatives.
The Centers for Medicare &
Medicaid Services, or CMS, has adopted rules that took effect on October 1,
2010 that it estimates will increase aggregate Medicare payment rates for SNFs
by approximately 1.7% overall in federal fiscal year 2011, as the result of an
annual market basket increase of approximately 2.3% to account for inflation,
reduced by a forecast error adjustment of 0.6%.
CMS has also adopted rules that took effect on October 1, 2010
that it estimates will increase aggregate Medicare payment rates for IRFs by
approximately 2.2% overall in federal fiscal year 2011, as the result of an
annual market basket increase of approximately 2.5% to account for inflation,
reduced by 0.25% in accordance with PPACA, and reduced by an 0.1% estimated
decrease in IRF outlier payments for high cost cases.
Certain increases in federal
payments to states for Medicaid programs, in effect from October 1, 2008,
through December 31, 2010, pursuant to the American Recovery and
Reinvestment Act of 2009, have been extended for six months through June 30,
2011, but at substantially reduced levels.
The current increase is 6.2% for all states, with additional funds for
states with increased unemployment. On August 10,
2010, President Obama signed the Education, Jobs and Medicaid Assistance Act,
P.L. 111-226, which extends the payments at reduced levels of 3.2% for the
three months that begin on January 1, 2011, and
25
Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations (continued)
1.2% for the three months that
begin on March 1, 2011. The phasing
out of these federal payments, combined with the anticipated slow recovery of state
revenues, is expected to result in continued difficult state fiscal
conditions. Some state budget deficits
are likely to increase, and it is possible that certain states will reduce
Medicaid payments to healthcare service providers like some of our tenants as
part of an effort to balance their budgets.
We are unable to predict the impact
on our tenants of the productivity adjustments or other PPACA provisions on
future Medicare rates for SNFs and IRFs or the insurance, payment and
healthcare delivery systems changes contained in and to be developed pursuant
to PPACA. The changes implemented or to be implemented under PPACA could result
in the failure of Medicare, Medicaid or private payment reimbursement rates to
cover our tenants increasing costs or other circumstances that could have a
material adverse effect on our tenants abilities to pay rent to us.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to risks associated with market changes in interest
rates. We manage our exposure to this
market risk by monitoring available financing alternatives. Our strategy to manage exposure to changes in
interest rates is unchanged since December 31, 2009. Other than as
described below, we do not foresee any significant changes in our exposure to
fluctuations in interest rates or in how we manage this exposure in the future.
At
September 30, 2010, our outstanding fixed rate debt included the following
(dollars in thousands):
Debt
|
|
Principal
Balance
|
|
Annual
Interest
Rate
|
|
Annual
Interest
Expense
|
|
Maturity
|
|
Interest
Payments Due
|
|
Unsecured senior notes
|
|
$
|
225,000
|
|
8.625%
|
|
$
|
19,406
|
|
2012
|
|
Semi-Annually
|
|
Unsecured senior notes
|
|
200,000
|
|
6.75%
|
|
13,500
|
|
2020
|
|
Semi-Annually
|
|
Mortgages
(1)
|
|
304,747
|
|
6.71%
|
|
20,449
|
|
2019
|
|
Monthly
|
|
Mortgages
|
|
48,775
|
|
6.54%
|
|
3,190
|
|
2017
|
|
Monthly
|
|
Mortgages
|
|
32,111
|
|
6.97%
|
|
2,238
|
|
2012
|
|
Monthly
|
|
Mortgage
|
|
14,545
|
|
6.91%
|
|
1,005
|
|
2013
|
|
Monthly
|
|
Mortgages
|
|
11,244
|
|
6.11%
|
|
687
|
|
2013
|
|
Monthly
|
|
Mortgage
|
|
4,327
|
|
6.50%
|
|
281
|
|
2013
|
|
Monthly
|
|
Mortgage
|
|
3,797
|
|
7.31%
|
|
278
|
|
2022
|
|
Monthly
|
|
Mortgage
|
|
2,434
|
|
6.73%
|
|
164
|
|
2012
|
|
Monthly
|
|
Mortgage
|
|
1,859
|
|
7.85%
|
|
146
|
|
2022
|
|
Monthly
|
|
Bonds
|
|
14,700
|
|
5.875%
|
|
864
|
|
2027
|
|
Semi-Annually
|
|
|
|
$
|
863,539
|
|
|
|
$
|
62,208
|
|
|
|
|
|
(1)
Consists of fixed rate portion of our FNMA loan.
No
principal payments are due under our unsecured notes or bonds until maturity.
Our mortgages require principal and interest payments through maturity pursuant
to amortization schedules. Because these debts bear interest at a fixed rate,
changes in market interest rates during the term of these debts will not affect
our operating results. If these debts
are refinanced at interest rates which are 10% higher or lower than shown
above, our per annum interest cost would increase or decrease by approximately
$6.2 million.
26
Item 3. Quantitative
and Qualitative Disclosures About Market Risk (continued)
Changes
in market interest rates affect the fair value of our fixed rate debt
obligations; increases in market interest rates decrease the fair value of our
fixed rate debt, while decreases in market interest rates increase the fair
value of our fixed rate debt. Based on
the balances outstanding at September 30, 2010, and discounted cash flow
analysis through the maturity date of our fixed rate debt obligations, a
hypothetical immediate 10% change in interest rates would change the fair value
of those obligations by approximately $28.7 million.
Our
unsecured senior notes and mortgages generally contain provisions that allow us
to make repayment at par plus premiums which is generally designed to preserve
a stated yield to the debt holder. Also, as we have previously done on
occasion, we occasionally have the opportunity to purchase our outstanding debt
by open market purchases. These prepayment rights and purchases may afford us
the opportunity to mitigate the risks arising from changes in interest rates.
Our
unsecured revolving credit facility accrues interest at floating rates and
matures in December 2010. Subject to
certain conditions, we can extend the maturity for one year upon payment of a
fee. At September 30 and November 1,
2010, we had $12.0 million and $15.0 million, respectively, outstanding
and $538.0 million and $535.0 million, respectively, available for borrowing
under our revolving credit facility. We
may make repayments and drawings under our revolving credit facility at any
time without penalty. We borrow in U.S.
dollars and borrowings under our revolving credit facility accrue interest at
LIBOR plus a spread. Accordingly, we are
vulnerable to changes in U.S. dollar based short term rates, specifically
LIBOR. In addition, upon renewal or
refinancing of our revolving credit facility, we are vulnerable to increases in
credit spreads due to market conditions.
Generally, a change in interest rates would not affect the value of our
floating rate debt but would affect our operating results. If interest rates were to change gradually
over time, the impact would be spread over time. Our exposure to fluctuations in floating
interest rates will increase or decrease in the future with increases or
decreases in the outstanding amount under our revolving credit facility or
other floating rate debt. For example,
the interest rate payable on our outstanding revolving indebtedness of $12.0
million at September 30, 2010, was 1.05%.
The following table presents the impact a 10% change in interest rates
would have on our annual floating rate interest expense at September 30, 2010
(dollars in thousands):
|
|
Impact of Changes in Interest Rates
|
|
|
|
Interest Rate
|
|
Outstanding
Debt
|
|
Total Interest
Expense Per
Year
|
|
At September 30, 2010
|
|
1.05%
|
|
$
|
12,000
|
|
$
|
126
|
|
10% reduction
|
|
0.95%
|
|
$
|
12,000
|
|
$
|
114
|
|
10% increase
|
|
1.16%
|
|
$
|
12,000
|
|
$
|
139
|
|
The foregoing table shows the impact of an immediate change in floating
interest rates. If interest rates were
to change gradually over time, the impact would be spread over time. Our exposure to fluctuations in floating
interest rates will increase or decrease in the future with increases or
decreases in the outstanding amount under our revolving credit facility or
other floating rate debt. The following
table presents the impact a 10% change in interest rates would have on our
annual floating rate interest expense at September 30, 2010 if we had fully
drawn our revolving credit facility (dollars in thousands):
|
|
Impact of Changes in Interest Rates
|
|
|
|
Interest Rate
|
|
Outstanding
Debt
|
|
Total Interest
Expense Per
Year
|
|
At September 30, 2010
|
|
1.05%
|
|
$
|
550,000
|
|
$
|
5,775
|
|
10% reduction
|
|
0.95%
|
|
$
|
550,000
|
|
$
|
5,225
|
|
10% increase
|
|
1.16%
|
|
$
|
550,000
|
|
$
|
6,380
|
|
27
Item 3. Quantitative
and Qualitative Disclosures About Market Risk (continued)
On August 4, 2009, we closed a FNMA mortgage
financing for approximately $512.9 million.
A part of this borrowing is at a fixed interest rate, with a balance of
$304.7 million at September 30, 2010, and a part is at a floating rate
calculated as a spread above LIBOR, with a balance of $203.0 million at
September 30, 2010. Generally, a change
in market interest rates will not change the value of the floating rate part of
this loan but will change the interest expense on the floating rate part of
this loan. For example, at September 30,
2010, our effective weighted average annual interest rate payable on the
outstanding variable amount of this loan was 6.41%. If interest rates increase by 10% of current
rates, the impact upon us would be to change our interest expense as shown in
the following table (dollars in thousands):
|
|
Impact of Changes in Interest Rates
|
|
|
|
Interest
Rate
(1)
|
|
Outstanding
Debt
|
|
Total Interest
Expense Per
Year
|
|
At September 30, 2010
|
|
6.41%
|
|
$
|
203,022
|
|
$
|
13,014
|
|
10% reduction
|
|
6.38%
|
|
$
|
203,022
|
|
$
|
12,953
|
|
10% increase
|
|
6.43%
|
|
$
|
203,022
|
|
$
|
13,054
|
|
(1)
Our variable rate at September 30, 2010 consists of the one month LIBOR
rate of 0.25% at September 30, 2010 plus a fixed premium. This table assumes a 10% interest rate change
on the one month LIBOR rate.
Also, we have arranged with FNMA to cap, or limit,
the interest rate increases which will impact the interest expense we will pay
on the floating rate part of this loan.
The net effect of this arrangement is that the maximum effective
interest rate we may be required to pay on the full amount of this loan is
7.79% per annum.
We also have the option to prepay our FNMA
obligations in order to mitigate the risks of refinancing or for other
reasons. The fixed rate portion of this
loan may be prepaid during the first 96 months of the loan term subject to our
paying a standard make whole premium and thereafter for a declining fixed
percent premium of the amount prepaid which is reduced to zero in the last six
months of this ten year loan. The
floating rate portion may be prepaid after one year for a fixed premium percent
of the amount prepaid which is also reduced to zero in the last six months of
this ten year loan. We may exercise
these prepayment options to mitigate the risks inherent in this FNMA loan
arising from changes in interest rates.
Item 4. Controls
and Procedures.
As of the end of the period covered by this report, our management
carried out an evaluation, under the supervision and with the participation of
our Managing Trustees, President and Chief Operating Officer and Treasurer and
Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures pursuant to the Securities Exchange Act of 1934, as amended, Rules
13a-15 and 15d-15. Based upon that
evaluation, our Managing Trustees, President and Chief Operating Officer and
Treasurer and Chief Financial Officer concluded that our disclosure controls
and procedures are effective.
There have been no changes in our internal control over financial
reporting during the quarter ended September 30, 2010 that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
28
WARNING CONCERNING FORWARD
LOOKING STATEMENTS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS STATEMENTS
WHICH CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER FEDERAL SECURITIES
LAWS. WHENEVER WE USE WORDS SUCH AS BELIEVE,
EXPECT, ANTICIPATE, INTEND, PLAN, ESTIMATE OR SIMILAR EXPRESSIONS, WE
ARE MAKING FORWARD LOOKING STATEMENTS.
THESE FORWARD LOOKING STATEMENTS AND THEIR IMPLICATIONS ARE BASED UPON
OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD LOOKING STATEMENTS AND
THEIR IMPLICATIONS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. FORWARD LOOKING STATEMENTS IN THIS REPORT
RELATE TO VARIOUS ASPECTS OF OUR BUSINESS, INCLUDING
:
·
OUR ABILITY TO PURCHASE OR SELL PROPERTIES,
·
OUR ABILITY TO RAISE DEBT OR EQUITY CAPITAL,
·
OUR ABILITY TO PAY INTEREST AND DEBT
PRINCIPAL AND MAKE DISTRIBUTIONS, AND PAY THE AMOUNT OF ANY SUCH DISTRIBUTIONS,
·
OUR ABILITY TO RETAIN OUR EXISTING TENANTS
AND MAINTAIN CURRENT RENTAL RATES,
·
OUR POLICIES AND PLANS REGARDING INVESTMENTS
AND FINANCINGS,
·
THE FUTURE AVAILABILITY OF BORROWINGS UNDER,
AND OUR ABILITY TO RENEW OR REFINANCE, OUR REVOLVING CREDIT FACILITY,
·
OUR TAX STATUS AS A REAL ESTATE INVESTMENT
TRUST, OR REIT,
·
OUR BELIEF THAT FIVE STAR, OUR FORMER
SUBSIDIARY, WHICH IS RESPONSIBLE FOR 56% OF OUR CURRENT ANNUALIZED RENTS, HAS
ADEQUATE FINANCIAL RESOURCES AND LIQUIDITY TO MEET ITS OBLIGATIONS TO US,
·
OUR EXPECTATION THAT WE WILL BENEFIT
FINANCIALLY BY PARTICIPATING IN THE INSURANCE COMPANY WITH RMR AND COMPANIES TO
WHICH RMR PROVIDES MANAGEMENT SERVICES, AND
·
OTHER MATTERS.
OUR
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY OUR
FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. FACTORS THAT COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR FORWARD LOOKING STATEMENTS AND UPON OUR BUSINESS, RESULTS OF
OPERATIONS, FINANCIAL CONDITION, FUNDS FROM OPERATIONS, CASH AVAILABLE FOR
DISTRIBUTION, CASH FLOWS, LIQUIDITY AND PROSPECTS INCLUDE, BUT ARE NOT LIMITED
TO:
·
THE IMPACT OF CHANGES IN THE ECONOMY AND THE
CAPITAL MARKETS ON US AND OUR TENANTS,
·
THE IMPACT OF PPACA PROVISIONS ON OUR TENANTS
AND THEIR ABILITY TO PAY RENT,
·
ACTUAL AND POTENTIAL CONFLICTS OF INTEREST
WITH FIVE STAR, OUR MANAGING TRUSTEES, AND RMR AND THEIR AFFILIATES,
·
COMPLIANCE WITH, AND CHANGES TO, FEDERAL,
STATE AND LOCAL LAWS AND REGULATIONS, ACCOUNTING RULES, TAX RATES AND SIMILAR
MATTERS,
29
·
LIMITATIONS IMPOSED ON OUR BUSINESS AND OUR ABILITY
TO SATISFY COMPLEX RULES IN ORDER FOR US TO QUALIFY AS A REIT FOR U.S. FEDERAL
INCOME TAX PURPOSES, AND
·
COMPETITION WITHIN THE HEALTHCARE AND REAL
ESTATE INDUSTRIES.
FOR
EXAMPLE:
·
FIVE STAR MAY EXPERIENCE FINANCIAL
DIFFICULTIES AS A RESULT OF A NUMBER OF FACTORS, INCLUDING, BUT NOT LIMITED TO:
·
CHANGES IN MEDICARE AND MEDICAID PAYMENTS,
INCLUDING THOSE RESULTING FROM PPACA, WHICH COULD RESULT IN A REDUCTION OF
RATES OR A FAILURE OF THESE RATES TO MATCH FIVE STARS COST INCREASES,
·
CHANGES IN REGULATIONS EFFECTING ITS
OPERATIONS,
·
CHANGES IN THE ECONOMY GENERALLY OR
GOVERNMENTAL POLICIES WHICH REDUCE THE DEMAND FOR THE SERVICES FIVE STAR
OFFERS,
·
INCREASES IN INSURANCE AND TORT LIABILITY
COSTS, AND
·
INEFFECTIVE INTEGRATION OF NEW ACQUISITIONS.
·
IF FIVE STARS OPERATIONS BECOME
UNPROFITABLE, FIVE STAR MAY BECOME UNABLE TO PAY OUR RENTS,
·
OUR OTHER TENANTS MAY EXPERIENCE LOSSES AND
BECOME UNABLE TO PAY OUR RENTS,
·
OUR PARTICIPATION IN AFFILIATES INSURANCE
INVOLVES POTENTIAL FINANCIAL RISKS AND REWARDS TYPICAL OF ANY START UP BUSINESS
VENTURE AS WELL AS OTHER FINANCIAL RISKS AND REWARDS SPECIFIC TO INSURANCE
COMPANIES. ACCORDINGLY, OUR EXPECTED
FINANCIAL BENEFITS FROM OUR INITIAL OR FUTURE INVESTMENTS IN AFFILIATES
INSURANCE MAY BE DELAYED OR MAY NOT OCCUR,
·
IF THE AVAILABILITY OF
DEBT CAPITAL BECOMES RESTRICTED, WE MAY BE UNABLE TO RENEW, REFINANCE OR REPAY
OUR REVOLVING CREDIT FACILITY OR OUR OTHER DEBT OBLIGATIONS WHEN THEY BECOME
DUE OR ON TERMS WHICH ARE AS FAVORABLE AS WE NOW HAVE,
·
OUR ABILITY TO MAKE FUTURE DISTRIBUTIONS
DEPENDS UPON A NUMBER OF FACTORS, INCLUDING OUR FUTURE EARNINGS. WE MAY BE UNABLE TO MAINTAIN OUR CURRENT RATE
OF DISTRIBUTIONS AND FUTURE DISTRIBUTIONS MAY BE SUSPENDED OR PAID AT A LESSER
RATE THAN THE DISTRIBUTIONS WE NOW PAY,
·
OUR ABILITY TO GROW OUR BUSINESS AND INCREASE
OUR DISTRIBUTIONS DEPENDS IN LARGE PART UPON OUR ABILITY TO BUY PROPERTIES AND
LEASE THEM FOR RENTS WHICH EXCEED OUR CAPITAL COSTS. WE MAY BE UNABLE TO IDENTIFY PROPERTIES THAT
WE WANT TO ACQUIRE OR TO NEGOTIATE ACCEPTABLE PURCHASE PRICES, ACQUISITION
FINANCING OR LEASE TERMS FOR NEW PROPERTIES,
·
SOME OF OUR TENANTS MAY NOT RENEW EXPIRING
LEASES, AND WE MAY BE UNABLE TO LOCATE NEW TENANTS TO MAINTAIN THE HISTORICAL
OCCUPANCY RATES OF, OR RENTS FROM, OUR PROPERTIES, AND
·
RENTS THAT WE CAN CHARGE AT OUR PROPERTIES
MAY DECLINE.
30
THESE
RESULTS COULD OCCUR DUE TO MANY DIFFERENT CIRCUMSTANCES, SOME OF WHICH ARE
BEYOND OUR CONTROL, SUCH AS THE APPLICATION AND INTERPRETATION OF RECENTLY
PASSED OR NEW LAWS AFFECTING OUR BUSINESS, NATURAL DISASTERS OR CHANGES IN OUR
TENANTS REVENUES OR COSTS, OR CHANGES IN CAPITAL MARKETS OR THE ECONOMY
GENERALLY.
THE INFORMATION CONTAINED
ELSEWHERE IN OUR ANNUAL REPORT AND SUBSEQUENT DOCUMENTS FILED WITH THE SEC
IDENTIFIES OTHER FACTORS THAT COULD CAUSE DIFFERENCES FROM OUR FORWARD LOOKING
STATEMENTS. ALSO, OTHER IMPORTANT
FACTORS THAT COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN
OUR FORWARD LOOKING STATEMENTS ARE DESCRIBED MORE FULLY UNDER RISK FACTORS IN
OUR QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2010 AND IN
OUR ANNUAL REPORT.
YOU
SHOULD NOT PLACE UNDUE RELIANCE UPON OUR FORWARD LOOKING STATEMENTS.
EXCEPT AS REQUIRED BY LAW, WE DO NOT INTEND TO UPDATE OR
CHANGE ANY FORWARD LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE.
STATEMENT
CONCERNING LIMITED LIABILITY
THE AMENDED
AND RESTATED DECLARATION OF TRUST ESTABLISHING SENIOR HOUSING PROPERTIES TRUST,
DATED SEPTEMBER 20, 1999, AS AMENDED AND SUPPLEMENTED, AS FILED WITH THE STATE
DEPARTMENT OF ASSESSMENTS AND TAXATION OF MARYLAND, PROVIDES THAT NO TRUSTEE,
OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF SENIOR HOUSING PROPERTIES TRUST
SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY
OBLIGATION OF, OR CLAIM AGAINST, SENIOR HOUSING PROPERTIES TRUST. ALL PERSONS DEALING WITH SENIOR HOUSING
PROPERTIES TRUST IN ANY WAY SHALL LOOK ONLY TO THE ASSETS OF SENIOR HOUSING
PROPERTIES TRUST FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY
OBLIGATION.
31
PART
II.
Other Information
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
As previously reported, on September 17, 2010, pursuant to our equity
compensation plan, we granted an aggregate of 66,850 common shares of
beneficial interest, par value $0.01 per share, valued at $24.31 per share, the
closing price of our common shares on the NYSE on that day, to our officers and
certain employees of our manager, RMR.
We made these grants pursuant to an exemption from registration
contained in Section 4(2) of the Securities Act.
Item 6. Exhibits.
10.1
Form of Restricted Share
Agreement. (Incorporated by reference to
Exhibit 10.1 to the Companys Current Report on Form 8-K dated September 21,
2010, filed with the SEC on September 21, 2010, File No. 001-15319)
10.2
Partial Termination of and
Fourth Amendment to Amended and Restated Master Lease Agreement (Lease No. 1),
dated as of August 1, 2010, among certain subsidiaries of the Company, as
Landlord, and Five Star Quality Care Trust, as Tenant.
(Filed
herewith)
10.3
Partial Termination of and
Second Amendment to Amended and Restated Master Lease Agreement (Lease No. 2),
dated as of August 1, 2010, among certain subsidiaries of the Company, as
Landlord, and certain subsidiaries of Five Star Quality Care, Inc., jointly and
severally, as Tenant.
(Filed herewith)
12.1
Computation of Ratio of
Earnings to Fixed Charges.
(Filed herewith)
31.1
Rule 13a-14(a)
Certification.
(Filed herewith)
31.2
Rule 13a-14(a)
Certification.
(Filed herewith)
31.3
Rule 13a-14(a)
Certification.
(Filed herewith)
31.4
Rule 13a-14(a)
Certification.
(Filed herewith)
32.1
Section 1350 Certification.
(Furnished herewith)
101.1
The following materials from
the Companys Quarterly Report on Form 10-Q for the quarter ended September 30,
2010 formatted in XBRL (eXtensible Business Reporting Language): (i) the
Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii)
the Consolidated Statements of Cash Flows, and (iv) related notes to these
financial statements, tagged as blocks of text.
(Furnished
herewith)
32
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
SENIOR
HOUSING PROPERTIES TRUST
|
|
|
|
|
|
|
|
By:
|
/s/
David J. Hegarty
|
|
|
David
J. Hegarty
|
|
|
President
and Chief Operating Officer
|
|
|
Dated: November 1, 2010
|
|
|
|
|
|
|
|
By:
|
/s/
Richard A. Doyle
|
|
|
Richard
A. Doyle
|
|
|
Treasurer
and Chief Financial Officer
|
|
|
(principal
financial and accounting officer)
|
|
|
Dated:
November 1, 2010
|
33
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