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**UNITEDSTATES**

**SECURITIESAND 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 March 31,  2009** |
| ** **                                              |
| **OR**                                                  |
| ** **                                              | ** ** | ** **                                                                                              |
| **o**                                                   | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**Commission File Number 1-15319**

 

**SENIORHOUSING PROPERTIES TRUST**

(Exact Name of Registrant as Specified in Its Charter)

 

| **Maryland**                                                    | ** ** | **04-3445278**                    |
|-----------------------------------------------------------------|------------|-----------------------------------|
| (State or Other Jurisdiction of Incorporation or  Organization) |       | (IRS Employer Identification No.) |
|                                                            |       |                              |
| **400 Centre Street, Newton, Massachusetts 02458**              |
| (Address of Principal Executive Offices) (Zip Code)             |
|                                                            |       |                              |
| **617-796-8350**                                                |
| (Registrant’s Telephone Number, Including Area Code)       |

 

Indicate by check markwhether the registrant:  (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes x   No o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  Yes o   No o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company.  See the definitions of “large acceleratedfiler”, “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.  (Check One):

 
| Large Accelerated Filer x                      |   | Accelerated Filer o         |
|------------------------------------------------|--------|-----------------------------|
|                                           |   |                        |
| Non –Accelerated Filer o                  |   | Smaller reporting company o |
| (Do not check if a smaller  reporting company) |   |                        |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  Yes o No x

 

Numberof registrant’s common shares outstanding as of May 6, 2009: 120,454,198.

 

 

 

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SENIOR HOUSING PROPERTIES TRUST

 

FORM 10-Q

 

March 31, 2009

 

INDEX

 
| ** **   | ** **                                                                                              | **Page** |
|--------------|---------------------------------------------------------------------------------------------------------|----------|
| PART I  | Financial  Information                                                                                  |     |
|         |                                                                                                    |     |
| Item 1.      | Financial  Statements (unaudited)                                                                       | 1        |
|         |                                                                                                    |     |
|         | Condensed Consolidated Balance Sheets – March 31,  2009 and December 31, 2008            | 1        |
|         |                                                                                                    |     |
|         | Condensed Consolidated Statements of Income – Three  Months Ended March 31, 2009 and 2008     | 2        |
|         |                                                                                                    |     |
| ** **   | Condensed Consolidated Statements of Cash Flows –  Three Months Ended March 31, 2009 and 2008 | 3        |
|         |                                                                                                    |     |
|         | Notes to Condensed Consolidated Financial Statements                                                    | 4        |
|         |                                                                                                    |     |
| Item 2.      | Management’s  Discussion and Analysis of Financial Condition and Results of Operations             | 11       |
|         |                                                                                                    |     |
| Item 3.      | Quantitative  and Qualitative Disclosures about Market Risk                                             | 16       |
|         |                                                                                                    |     |
| Item 4.      | Controls and  Procedures                                                                                | 18       |
|         |                                                                                                    |     |
|         | Warning Concerning Forward Looking Statements                                                           | 19       |
|         |                                                                                                    |     |
|         | Statement Concerning Limited Liability                                                                  | 21       |
|         |                                                                                                    |     |
| PART II | Other Information                                                                                       |     |
|         |                                                                                                    |     |
| Item 2.      | Unregistered  Sales of Equity Securities and Use of Proceeds                                            | 22       |
|         |                                                                                                    |     |
| Item  6.     | Exhibits                                                                                                | 22       |
|         |                                                                                                    |     |
|         | Signatures                                                                                              | 23       |

 

*In this Quarterly Report on Form 10-Q,the terms “SNH”, “Senior Housing”, “the Company”, “we”, “us” and “our” refer toSenior Housing Properties Trust and its consolidated subsidiaries, unless otherwisenoted.*

 

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**PART I.  Financial Information**

 

**Item 1.    FinancialStatements**

** **

SENIOR HOUSING PROPERTIESTRUST

 

CONDENSED CONSOLIDATEDBALANCE SHEETS

(amounts in thousands, except share data)

(unaudited)

 
| ** **                                                                                                                                                                                                         | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                         | ** ** | **2009**           | ** ** | **2008**              | ** ** |
| ASSETS                                                                                                                                                                                                             |       |               |       |                  |       |
| Real estate  properties, at cost:                                                                                                                                                                                  |       |               |       |                  |       |
| Land                                                                                                                                                                                                               |       | $                  | 324,491    |                  | $          | 319,591 |   |
| Buildings and  improvements                                                                                                                                                                                        |       | 2,514,260          |       | 2,487,665             |       |
|                                                                                                                                                                                                               |       | 2,838,751          |       | 2,807,256             |       |
| Less accumulated  depreciation                                                                                                                                                                                     |       | 398,946            |       | 381,339               |       |
|                                                                                                                                                                                                               |       | 2,439,805          |       | 2,425,917             |       |
|                                                                                                                                                                                                               |       |               |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                                                         |       | 5,566              |       | 5,990                 |       |
| Restricted cash                                                                                                                                                                                                    |       | 4,777              |       | 4,344                 |       |
| Deferred  financing fees, net                                                                                                                                                                                      |       | 5,303              |       | 5,068                 |       |
| Acquired real  estate leases, net                                                                                                                                                                                  |       | 30,636             |       | 30,546                |       |
| Other assets                                                                                                                                                                                                       |       | 22,455             |       | 25,009                |       |
| Total assets                                                                                                                                                                                                       |       | $                  | 2,508,542  |                  | $          | 2,496,874 |   |
|                                                                                                                                                                                                               |       |               |       |                  |       |
| LIABILITIES AND  SHAREHOLDERS’ EQUITY                                                                                                                                                                         |       |               |       |                  |       |
| Unsecured  revolving credit facility                                                                                                                                                                               |       | $                  | 181,000    |                  | $          | 257,000 |   |
| Senior unsecured  notes due 2012 and 2015, net of discount                                                                                                                                                         |       | 322,053            |       | 322,017               |       |
| Secured debt and  capital leases                                                                                                                                                                                   |       | 150,665            |       | 151,416               |       |
| Accrued interest                                                                                                                                                                                                   |       | 8,180              |       | 11,121                |       |
| Acquired real  estate lease obligations, net                                                                                                                                                                       |       | 8,166              |       | 7,974                 |       |
| Other  liabilities                                                                                                                                                                                                 |       | 19,079             |       | 15,988                |       |
| Total  liabilities                                                                                                                                                                                                 |       | 689,143            |       | 765,516               |       |
|                                                                                                                                                                                                               |       |               |       |                  |       |
| Commitments and  contingencies                                                                                                                                                                                     |       |               |       |                  |       |
|                                                                                                                                                                                                               |       |               |       |                  |       |
| Shareholders’  equity:                                                                                                                                                                                        |       |               |       |                  |       |
| Common shares of  beneficial interest, $0.01 par value: 149,700,000 shares authorized,  120,398,384 and 114,542,584 shares issued and outstanding at March 31,  2009 and December 31, 2008, respectively |       | 1,204              |       | 1,145                 |       |
| Additional  paid-in capital                                                                                                                                                                                        |       | 2,097,601          |       | 2,000,865             |       |
| Cumulative net  income                                                                                                                                                                                             |       | 561,851            |       | 530,318               |       |
| Cumulative distributions                                                                                                                                                                                           |       | (837,729           | )          | (797,639              | )          |
| Unrealized gain  on investments                                                                                                                                                                                    |       | (3,528             | )          | (3,331                | )          |
| Total  shareholders’ equity                                                                                                                                                                                   |       | 1,819,399          |       | 1,731,358             |       |
| Total  liabilities and shareholders’ equity                                                                                                                                                                   |       | $                  | 2,508,542  |                  | $          | 2,496,874 |   |

 

*See accompanying notes.*

 

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SENIOR HOUSING PROPERTIESTRUST

 

CONDENSEDCONSOLIDATED STATEMENTS OF INCOME

(amounts in thousands, except per share data)

(unaudited)

 
| ** **                             | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------------|------------|----------------------------------------|------------|
| ** **                             | ** ** | **2009**                               | ** ** | **2008** | ** ** |
| Revenues:                              |       |                                   |       |   |   |
| Rental income                          |       | $                                      | 68,377     |   | $ | 49,039 |   |
| Interest and  other income             |       | 208                                    |       | 514 |   |
| Total revenues                         |       | 68,585                                 |       | 49,553 |   |
|                                   |       |                                   |       |   |   |
| Expenses:                              |       |                                   |       |   |   |
| Property  operating expenses           |       | 2,955                                  |       | — |   |
| Interest                               |       | 10,776                                 |       | 9,518 |   |
| Depreciation                           |       | 18,389                                 |       | 13,023 |   |
| Acquisition  costs                     |       | 112                                    |       | — |   |
| General and  administrative            |       | 4,820                                  |       | 3,696 |   |
| Total expenses                         |       | 37,052                                 |       | 26,237 |   |
|                                   |       |                                   |       |   |   |
| Net income                             |       | $                                      | 31,533     |   | $ | 23,316 |   |
|                                   |       |                                   |       |   |   |
| Weighted average  shares outstanding   |       | 117,853                                |       | 91,080 |   |
|                                   |       |                                   |       |   |   |
| Basic and  diluted earnings per share: |       |                                   |       |   |   |
| Net income                             |       | $                                      | 0.27       |   | $ | 0.26 |   |

 

*Seeaccompanying notes*.

 

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SENIORHOUSING PROPERTIES TRUST

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

 
| ** **                                                                     | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                     | ** ** | **2009**                               | ** ** | **2008** | ** ** |
| Cash flows from  operating activities:                                         |       |                                   |       |   |   |
| Net income                                                                     |       | $                                      | 31,533     |   | $ | 23,316 |   |
| Adjustments to  reconcile net income to cash provided by operating activities: |       |                                   |       |   |   |
| Depreciation                                                                   |       | 18,389                                 |       | 13,023 |   |
| Amortization of  deferred financing fees and debt discounts                    |       | 540                                    |       | 524 |   |
| Amortization of  acquired real estate leases                                   |       | 160                                    |       | (29 | ) |
| Change in assets  and liabilities:                                             |       |                                   |       |   |   |
| Restricted cash                                                                |       | (433                                   | )          | (315 | ) |
| Other assets                                                                   |       | 2,274                                  |       | 1,193 |   |
| Accrued interest                                                               |       | (2,941                                 | )          | (2,720 | ) |
| Other  liabilities                                                             |       | 3,119                                  |       | 2,761 |   |
| Cash provided by  operating activities                                         |       | 52,641                                 |       | 37,753 |   |
|                                                                           |       |                                   |       |   |   |
| Cash flows from  investing activities:                                         |       |                                   |       |   |   |
| Acquisitions                                                                   |       | (32,252                                | )          | (288,944 | ) |
| Cash used for  investing activities                                            |       | (32,252                                | )          | (288,944 | ) |
|                                                                           |       |                                   |       |   |   |
| Cash flows from  financing activities:                                         |       |                                   |       |   |   |
| Proceeds from  issuance of common shares, net                                  |       | 96,767                                 |       | 129,418 |   |
| Proceeds from  borrowings on revolving credit facility                         |       | 32,000                                 |       | 176,000 |   |
| Repayments of  borrowings on revolving credit facility                         |       | (108,000                               | )          | (61,000 | ) |
| Repayment of  other debt                                                       |       | (751                                   | )          | (514 | ) |
| Deferred  financing fees                                                       |       | (739                                   | )          | — |   |
| Distributions to  shareholders                                                 |       | (40,090                                | )          | (31,042 | ) |
| Cash (used for)  provided by financing activities                              |       | (20,813                                | )          | 212,862 |   |
|                                                                           |       |                                   |       |   |   |
| Decrease in cash  and cash equivalents                                         |       | (424                                   | )          | (38,329 | ) |
| Cash and cash  equivalents at beginning of period                              |       | 5,990                                  |       | 43,521 |   |
| Cash and cash  equivalents at end of period                                    |       | $                                      | 5,566      |   | $ | 5,192 |   |
|                                                                           |       |                                   |       |   |   |
| Supplemental  cash flow information:                                           |       |                                   |       |   |   |
| Interest paid                                                                  |       | $                                      | 13,717     |   | $ | 11,714 |   |
|                                                                           |       |                                   |       |   |   |
| Non-cash  financing activities:                                                |       |                                   |       |   |   |
| Issuance of  common shares pursuant to our incentive share award plan          |       | 28                                     |       | — |   |

 

*See accompanying notes.*

 

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SENIOR HOUSING PROPERTIESTRUST

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(amounts in thousands,except per share data or as otherwise stated)

 

**Note1.  Basis of Presentation**

 

The accompanying condensed consolidated financialstatements of Senior Housing Properties Trust and its subsidiaries, or theCompany, have been prepared without audit. Certain information and disclosures required by accounting principlesgenerally accepted in the United States for complete financial statements havebeen condensed or omitted.  We believethe disclosures made are adequate to make the information presented not misleading.  However, the accompanying condensedconsolidated financial statements should be read in conjunction with theconsolidated financial statements and notes contained in our Annual Report on Form 10-Kfor the year ended December 31, 2008. In the opinion of our management, all adjustments, which include onlynormal recurring adjustments, considered necessary for a fair presentation havebeen included.  All intercompanytransactions and balances between us and our consolidated subsidiaries havebeen eliminated.  Operating results forinterim periods are not necessarily indicative of the results that may beexpected for the full year. Reclassifications have been made to the prior year’s financialstatements to conform to the current year’s presentation.  These reclassifications had no effect on netincome or shareholders’ equity.

 

In May 2008, the Financial Accounting StandardsBoard, or FASB, issued Statement of Financial Accounting Standards No. 162,“The Hierarchy of Generally Accepted Accounting Principles”, or SFAS 162.  SFAS 162 identifies sources of accountingprinciples and a framework for selecting principles to be used in preparationof financial statements of nongovernmental entities that are prepared inconformity with generally accepted accounting principles in the United States(the GAAP Hierarchy).  SFAS 162 iseffective 60 days following the Securities and Exchange Commission’s, or SEC’s,approval of the Public Company Accounting Oversight Board’s amendments toauditing standard AU Section 411, “The Meaning of Present Fairly in ConformityWith Generally Accepted Accounting Principles”. We do not expect this standard will result in any change to our currentaccounting practices.

 

In December 2007, the FASB issued Statement ofFinancial Accounting Standards No. 141(R), “Business Combinations”, orSFAS No. 141(R).  SFAS No. 141(R) establishesprinciples and requirements for how the acquirer shall recognize and measure inits financial statements the identifiable assets acquired, liabilities assumed,any noncontrolling interest in the acquiree and goodwill acquired in a businesscombination.  SFAS No. 141(R) iseffective for fiscal years beginning after December 15, 2008.  The adoption of SFAS No. 141(R) doesaffect our consolidated financial statements, principally by requiring us toexpense acquisition costs.

 

On January 1, 2008, we adopted Statement ofFinancial Accounting Standards No. 157, “Fair Value Measurements”, or SFASNo. 157, for our financial assets and liabilities, primarily investmentsin available for sale securities and senior notes (see Note 7).  The provisions of SFAS No. 157 relatingto non-financial assets and liabilities that are not required or permitted tobe measured at fair value on a recurring basis was delayed in February 2008with the issuance of Financial Accounting Standards Board Staff Position No. 157-2,“Effective Date of FASB Statement No. 157”, or FSP FASB No. 157-2.  Fair value measurements identified in FSPFASB No. 157-2 were effective for our fiscal year beginning January 1,2009.  The adoption of FSP FASB No. 157-2primarily resulted in additional disclosures in our consolidated financialstatements with respect to our properties classified as held for sale.

 

In April 2009, the FASBissued FASB Staff Position No. FAS 157-4 “Determining Fair Value When theVolume and Level of Activity for the Asset or Liability Have SignificantlyDecreased and Identifying Transactions That Are Not Orderly”, or FSP FAS 157-4,FASB Staff Position No. FAS 115-2 and FAS 124-2, “Recognition andPresentation of Other-Than-Temporary Impairments”, or FSP FAS 115-2 and FAS124-2, and FASB Staff Position No. FAS 107-1 and APB 28-1 “InterimDisclosures about Fair Value of Financial Instruments”, or FSP FAS 107-1 andAPB 28-1.  FSP FAS 157-4 providesadditional guidance for estimating fair value in accordance with SFAS No. 157,when the volume and level of activity for the assets or liabilities havesignificantly decreased. FSP FAS 157-4 also includes guidance on

 

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SENIOR HOUSING PROPERTIESTRUST

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(amountsin thousands, except per share data or as otherwise stated)

 

identifying circumstancesthat indicate a transaction is not orderly. FSP FAS 115-2 and FAS 124-2 amend the other-than-temporary impairmentguidance in U.S. GAAP for debt securities to make the guidance more operationaland to improve the presentation and disclosure of other-than-temporaryimpairments on debt and equity securities. FSP FAS 107-2 and APB 28-1 amend FASB Statement No. 107, “Disclosuresabout Fair Value of Financial Instruments” to require disclosures about fairvalue of financial instruments for interim reporting periods of publicly tradedcompanies as well as in annual financial statements, and also amend APB OpinionNo. 28, “Interim Financial Reporting” to require those disclosures insummarized financial information at interim reporting periods.   Each of these FSPs is effective for interimand annual reporting periods ending after June 15, 2009. We are currentlyevaluating the impact, if any, that these FSPs will have on our consolidatedfinancial statements.

 

**Note2.  Real Estate Properties**

 

AtMarch 31, 2009, we owned 272 properties located in 34 states andWashington, D.C.

 

InMay 2008, we entered into a series of agreements to acquire 48 medicaloffice, clinic and biotech laboratory buildings, or MOBs, from HRPT PropertiesTrust, or HRP, for an aggregate purchase price of approximately $565.0million.  To date, we have acquired 38 ofthese properties containing 1.6 million square feet for approximately $366.0million, excluding closing costs.  One ofthe remaining buildings with an allocated value of $3.0 million is no longersubject to our purchase agreement.  Weexpect the closings of the remaining nine buildings to occur in 2010. We andHRP may mutually agree to accelerate the closings of these acquisitions.  We funded these acquisitions using cash onhand, proceeds from equity issuances, borrowings under our revolving creditfacility and by assuming three mortgage loans on two properties totaling $10.8million with a weighted average interest rate of 7.1% per annum and a weightedaverage maturity in 2018.  Ourobligations to complete the remaining purchases from HRP are subject to variousconditions typical of commercial real estate purchases.  We can provide no assurance that we willpurchase all of these buildings or that the remaining purchases will becompleted in 2010 or sooner.  As of March 31,2009, the 47 buildings acquired and to be acquired were 98% leased toapproximately 210 tenants for an average lease term of 7.8 years.  As part of this transaction, we also acquiredrights of first refusal to purchase any of 45 additional buildings (containingapproximately 4.6 million square feet of rental space) from HRP that are leasedto tenants in medical related businesses. HRP was formerly our parent company, and both we and HRP are managed byReit Management & Research LLC, or RMR.  Because we and HRP are both managed by RMR,the terms of these transactions were negotiated by special committees of ourand HRP’s boards of trustees composed solely of independent trustees who werenot also independent trustees of both companies.  For more information about our dealings withHRP and RMR and about the risks which may arise as a result of these relatedparty transactions, please see our Annual Report on Form 10-K for the yearended December 31, 2008.

 

Asof March 31, 2009, four of our properties are classified as held forsale.  These four properties are includedin real estate properties on our condensed consolidated balance sheets and havea net carrying value of approximately****$8.7 millionat March 31, 2009.  In 2008, weentered into an agreement to sell one of these properties to an unaffiliatedparty for approximately $1.2 million.  InApril 2009, we entered into another agreement to sell one of theseproperties to an unaffiliated party for approximately $3.1 million. The salesof these properties are subject to various contingencies, and we can provide noassurance that we will sell these properties.

 

Duringthe three months ended March 31, 2009, pursuant to the terms of ourexisting leases with Five Star Quality Care, Inc., or Five Star, wepurchased $12.7 million of improvements made to our properties leased to FiveStar, and, as a result, the annual rent payable to us by Five Star wasincreased by approximately $1.0 million.

 

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SENIOR HOUSING PROPERTIESTRUST

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(amountsin thousands, except per share data or as otherwise stated)

 

**Note3.  Net Unrealized Loss on Investments**

 

OnMarch 31, 2009, we owned 1,000,000 common shares of HRP and 35,000 commonshares of Five Star, which are carried at fair market value in other assets onour condensed consolidated balance sheets. The net unrealized loss oninvestments shown on our condensed consolidated balance sheets represents thedifference between the quoted market prices of such shares on March 31,2009 ($3.19 and $1.04 per share, respectively) and their cost on the dates theywere acquired ($6.50 and $7.26 per share, respectively).

 

**Note4.  Comprehensive Income**

 

Thefollowing is a reconciliation of net income to comprehensive income for thethree months ended March 31, 2009 and 2008:

 
| ** **                                    | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------|------------|----------------------------------------|------------|
| ** **                                    | ** ** | **2009**                               | ** ** | **2008** | ** ** |
| Net income                                    |       | $                                      | 31,533     |   | $ | 23,316 |   |
| Other  comprehensive income:                  |       |                                   |       |   |   |
| Change in net  unrealized loss on investments |       | (197                                   | )          | (1,068 | ) |
| Comprehensive  income                         |       | $                                      | 31,336     |   | $ | 22,248 |   |

 

**Note5.  Indebtedness**

 

We have an unsecuredrevolving credit facility that matures in December 2010.  Our revolving credit facility permitsborrowings up to $550.0 million.  Theannual interest payable for amounts drawn under the facility is LIBOR plus apremium. The weighted average interest rate payable on borrowings under thisrevolving credit facility was****1.3% and 3.5%at March 31, 2009 and 2008, respectively. Our revolving credit facility is available for acquisitions, workingcapital and general business purposes. As of March 31, 2009 and 2008, wehad $181.0 million and $115.0 million outstanding under this credit facility,respectively.  Subject to certainconditions, at our option, this credit facility’s maturity date can be extendedto December 31, 2011 upon payment of a fee.

 

**Note6.  Shareholders’ Equity**

 

On February 13, 2009,we paid a $0.35 per share, or $40.1 million, distribution to our commonshareholders for the quarter ended December 31, 2008.  On April 7, 2009, we declared adistribution of $0.35 per share, or $42.2 million, to be paid to commonshareholders of record on April 17, 2009, with respect to our results forthe quarter ended March 31, 2009. We expect to pay this distribution on orabout May 15, 2009.

 

In February 2009, we issued 5.9 million common shares in a publicoffering, raising net proceeds of approximately $96.8 million.  We used the net proceeds from this offeringto repay borrowings outstanding on our revolving credit facility, to fund theacquisitions described above and for general business purposes.

 

On February 24, 2009,pursuant to our incentive share award plan, we granted 2,000 common****shares of beneficial interest, par value $0.01 per share,valued at $14.23****per share, the closing price ofour common shares on the New York Stock Exchange on that day, as compensationto Jeffrey P. Somers, one of our Independent Trustees, who was appointed as atrustee effective January 30, 2009. We made this grant pursuant to an exemption from registration containedin Section 4(2) of the Securities Act of 1933, as amended.

 

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SENIOR HOUSING PROPERTIESTRUST

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(amountsin thousands, except per share data or as otherwise stated)

 

Under the terms of ourbusiness management agreement with RMR, on April 8, 2009 we issued 55,814common shares in payment of an incentive fee of approximately $789 for servicesrendered by RMR during 2008. We issued these shares pursuant to an exemptionfrom registration contained in Section 4(2) of the Securities Act of1933, as amended.

 

**Note 7.  Fair Value of Assets and Liabilities**

 

Thetable below presents the assets and liabilities measured at fair value at March 31,2009 categorized by the level of inputs used in the valuation of each asset, inaccordance with SFAS No. 157.

 
| **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)                         |       | $         | 8,671      |                                                                  | $          | —                                              |       | $                                                | 8,671      |   | $ | — |   |
| Investments in  available for sale securities (2) |       | 3,226     |       | 3,226                                                                 |       | —                                              |       | —                                           |       |
| Senior notes (3)                                  |       | 282,107   |       | —                                                                |       | 282,107                                             |       | —                                           |       |
|                                                   |            |           |            |                                                                       |            |                                                     |            |                                                  |            |  |  |  |  |

 

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(1) Assets held forsale consist of four of our properties we expect to sell that are reported atfair value.  Level 2 inputs used todetermine fair value include offers to purchase the properties made by thirdparties, or comparable sales transactions. As of March 31, 2009, the net carrying value of these propertieswas approximately $8.7 million.  We haverecorded impairments to these properties subsequent to their acquisition by usof approximately $8.6 million in order to reduce their carrying value to fairvalue.

 

(2) Investments in availablefor sale securities include our 1,000,000 common shares of HRP and 35,000common shares of Five Star. The fair values of the common shares are based onquoted prices in active markets.  We haveevaluated the near-term prospects of HRP and Five Star in relation to theseverity and duration of the decline in fair value of their common shares.  Based on that evaluation and our ability andintent to hold these investments for a reasonable period of time sufficient fora recovery of fair value, we do not consider these investments to beother-than-temporarily impaired at March 31, 2009.

 

(3) We estimate thefair values of our senior notes using discounted cash flow analyses andcurrently prevailing interest rates. As of March 31, 2009, the book valuecarrying amount of our senior notes was $322.1 million.

 

In addition to the assetsand liabilities described in the above table, additional financial instrumentsof ours include rents receivable, cash and cash equivalents, restricted cash,secured and unsecured debt and other liabilities. The fair values of theseadditional financial instruments approximate their carrying value at March 31,2009 based upon their liquidity, short term maturity, variable rate pricing orour estimate of fair value using discounted cash flows analyses and prevailinginterest rates.

 

**Note 8.  Segment Reporting**

 

Wehave two reportable operating segments: (i) short term and long termresidential care facilities that offer dining for residents and (ii) propertieswhere medical related services are offered but where residential overnightstays or dining services are not provided, or MOBs.  Properties in the short term and long termresidential care facilities segment include independent living facilities,assisted living facilities, skilled nursing facilities and rehabilitationhospitals.  Properties in the MOB segmentinclude medical office, clinic and biotech laboratory buildings.  The “All Other” category in the followingtable includes amounts related to corporate business activities and theoperating results of certain properties that offer

 

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Tableof Contents

 

SENIOR HOUSING PROPERTIESTRUST

NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (UNAUDITED)

(amountsin thousands, except per share data or as otherwise stated)

 

fitness,wellness and spa service to members. Prior to June 2008, our only operating segments were short term andlong term residential care facilities that offer dining for residents andproperties that offer fitness, wellness and spa services to members included inthe “All Other” category.

 
| ** **                          | ** ** | **For the Three Months Ended March 31, 2009**          | ** ** |
|-------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                          | ** ** | **Short and  Long Term  Residential  Care Facilities** | ** ** | **MOB** | ** ** | **All Other** | ** ** | **Consolidated** | ** ** |
| Rental income                       |       | $                                                      | 54,037     |   | $ | 10,446 |   | $ | 3,894 |   | $ | 68,377 |   |
| Interest and  other income          |       | —                                                 |       | 13 |   | 195 |   | 208 |   |
| Total revenues                      |       | 54,037                                                 |       | 10,459 |   | 4,089 |   | 68,585 |   |
|                                |       |                                                   |       |   |   |   |   |   |   |
| Property  operating expenses        |       | —                                                 |       | 2,955 |   | — |   | 2,955 |   |
| Interest expense                    |       | 2,030                                                  |       | 184 |   | 8,562 |   | 10,776 |   |
| Depreciation  expense               |       | 14,873                                                 |       | 2,594 |   | 922 |   | 18,389 |   |
| Acquisition  costs                  |       | —                                                 |       | 112 |   | — |   | 112 |   |
| General and  administrative expense |       | —                                                 |       | — |   | 4,820 |   | 4,820 |   |
| Total expenses                      |       | 16,903                                                 |       | 5,845 |   | 14,304 |   | 37,052 |   |
|                                |       |                                                   |       |   |   |   |   |   |   |
| Net income  (loss)                  |       | $                                                      | 37,134     |   | $ | 4,614 |   | $ | (10,215 | ) | $ | 31,533 |   |
|                                |       |                                                   |       |   |   |   |   |   |   |
| Total assets                        |       | $                                                      | 1,885,213  |   | $ | 392,770 |   | $ | 230,559 |   | $ | 2,508,542 |   |

 
| ** **                          | ** ** | **For the Three Months Ended March 31, 2008**          | ** ** |
|-------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                          | ** ** | **Short and  Long Term  Residential  Care Facilities** | ** ** | **MOB** | ** ** | **All Other** | ** ** | **Consolidated** | ** ** |
| Rental income                       |       | $                                                      | 47,353     |   | $ | — |   | $ | 1,686 |   | $ | 49,039 |   |
| Interest and  other income          |       | —                                                 |       | — |   | 514 |   | 514 |   |
| Total revenues                      |       | 47,353                                                 |       | — |   | 2,200 |   | 49,553 |   |
|                                |       |                                                   |       |   |   |   |   |   |   |
| Interest expense                    |       | 1,449                                                  |       | — |   | 8,069 |   | 9,518 |   |
| Depreciation  expense               |       | 12,640                                                 |       | — |   | 383 |   | 13,023 |   |
| General and  administrative expense |       | —                                                 |       | — |   | 3,696 |   | 3,696 |   |
| Total expenses                      |       | 14,089                                                 |       | — |   | 12,148 |   | 26,237 |   |
|                                |       |                                                   |       |   |   |   |   |   |   |
| Net income  (loss)                  |       | $                                                      | 33,264     |   | $ | — |   | $ | (9,948 | ) | $ | 23,316 |   |
|                                |       |                                                   |       |   |   |   |   |   |   |
| Total assets                        |       | $                                                      | 1,831,412  |   | $ | — |   | $ | 105,560 |   | $ | 1,936,972 |   |

 

**Note 9.  Significant Tenant**

 

FiveStar is the lessee of 66% of our investments, at cost, as of March 31,2009.  The following tables presentsummary financial information for Five Star for the three months ended March 31,2009 and 2008, as reported in its Quarterly Report on Form 10-Q.

 

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SENIOR HOUSING PROPERTIESTRUST

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(amountsin thousands, except per share data or as otherwise stated)

 

**Summary Financial Information of Five Star QualityCare, Inc.**

 
| ** **                                                | ** ** | **As of and for the Three Months  Ended  March 31,** | ** ** |
|-----------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                | ** ** | **2009**                                             | ** ** | **2008** | ** ** |
| Total revenues                                            |       | $                                                    | 295,165    |   | $ | 258,877 |   |
| Operating income                                          |       | 3,361                                                |       | 7,355 |   |
| Income from  continuing operations                        |       | 24,962                                               |       | 4,419 |   |
| Net income                                                |       | 25,372                                               |       | 1,617 |   |
|                                                      |       |                                                 |       |   |   |
| Current assets                                            |       | 116,305                                              |       | 146,314 |   |
| Non-current  assets                                       |       | 298,535                                              |       | 240,156 |   |
| Total  indebtedness                                       |       | 129,679                                              |       | 142,452 |   |
| Current  liabilities                                      |       | 135,797                                              |       | 124,980 |   |
| Non-current  liabilities                                  |       | 167,272                                              |       | 172,210 |   |
| Total  shareholders’ equity                          |       | 111,771                                              |       | 89,280 |   |
|                                                      |       |                                                 |       |   |   |
| Net cash  provided by operating activities                |       | 23,090                                               |       | 21,689 |   |
| Net cash  provided by (used in) discontinued operations   |       | 1,532                                                |       | (58 | ) |
| Net cash used in  investing activities                    |       | (6,173                                               | )          | (543 | ) |
| Net cash used in  financing activities                    |       | (6,161                                               | )          | (58 | ) |
| Net increase in  cash                                     |       | 12,288                                               |       | 21,030 |   |
| Cash and cash  equivalents at the beginning of the period |       | 16,138                                               |       | 30,999 |   |
| Cash and cash  equivalents at the end of the period       |       | 28,426                                               |       | 52,029 |   |
|                                                           |            |                                                      |            |  |  |  |  |

 

The summary financialinformation of Five Star is presented to comply with applicable accountingregulations of the SEC.

 

References in thesefinancial statements to the Quarterly Report on Form 10-Q for Five Starare included as textual references only, and the information in such QuarterlyReport is not incorporated by reference into these financial statements.

 

FiveStar is our former subsidiary and both we and Five Star have managementcontracts with RMR.  For informationabout our dealings with Five Star and about the risks which may arise as aresult of these related party transactions, please see our Annual Report on Form 10-Kfor the year ended December 31, 2008.

 

**Note10.  Pro Forma Information**

 

Duringthe three months ended March 31, 2009, we purchased one MOB for $19.3million and, pursuant to the terms of our existing leases with Five Star, wepurchased $12.7 million of improvements made to our properties leased to FiveStar.  During 2008, we purchased 30senior living properties, four wellness centers and 38 MOBs for an aggregate of$842.9 million and $69.4 million of improvements made to our properties leasedto Five Star; repaid in full a mortgage loan on one of our properties for $12.6million in April 2008; assumed $61.3 million of mortgage debt inconjunction with our 2008 acquisitions; recorded an impairment charge on fourof our properties for $8.4 million; and sold three assisted living facilitiesto Five Star for $21.4 million for a gain on sale of approximately $266 in July 2008.  During 2009 and 2008, we issued 5.9 millionand 25.8 million of our common shares, respectively.  Thefollowing table presents our pro forma results of operations as if all of theseacquisitions and related financings were completed on

 

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SENIOR HOUSING PROPERTIESTRUST

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(amountsin thousands, except per share data or as otherwise stated)

 

January 1, 2008.  This pro forma data is not necessarilyindicative of what actual results of operations would have been for the periodspresented, nor does it represent the results of operations for any futureperiod.  Differences could result from,but are not limited to, additional property sales or investments, changes ininterest rates and changes in our debt or equity structure.

 
| ** **                                | ** ** | **Pro Forma Information  For the Three Months Ended March 31,** | ** ** |
|-------------------------------------------|------------|----------------------------------------------------------------------|------------|
| ** **                                | ** ** | **2009**                                                             | ** ** | **2008** | ** ** |
| Total revenues                            |       | $                                                                    | 68,934     |   | $ | 69,166 |   |
| Income before  gain on sale of properties |       | $                                                                    | 31,742     |   | $ | 25,031 |   |
| Net income                                |       | $                                                                    | 31,742     |   | $ | 25,297 |   |
|                                      |       |                                                                 |       |   |   |
| Per common share  data:                   |       |                                                                 |       |   |   |
| Income before  gain on sale of properties |       | $                                                                    | 0.26       |   | $ | 0.21 |   |
| Net income                                |       | $                                                                    | 0.26       |   | $ | 0.21 |   |

 

**Note11.  Affiliates Insurance Company**

 

In February 2009 weinvested $25 in an insurance company with RMR and other companies to which RMRprovides management services, and in April 2009 we invested an additional$5.0 million in this insurance company. We currently own approximately 16.67% of this insurance company.

 

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**Item 2.  Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

The following discussion should be read inconjunction with our consolidated financial statements and notes theretoincluded in this quarterly report and our Annual Report on Form 10-K forthe year ended December 31, 2008.

 

**PORTFOLIOOVERVIEW**

** **

**Thefollowing tables present an overview of our portfolio:**

 
| As of March 31, 2009  (dollars in thousands) | ** ** | **# of  Properties** | ** ** | **# of Units/Beds** | ** ** | **Carrying Value  of Investment (1)** | ** ** | **% of  Investment** | ** ** | **Annualized  Current Rent** | ** ** | **% of  Annualized  Current Rent** | ** ** |
|----------------------------------------------------------------------------|------------|---------------------------|------------|-------------------------------|------------|------------------------------------------------------|------------|---------------------------|------------|-----------------------------------|------------|----------------------------------------------|------------|
| Facility Type                                                              |       |                      |       |                          |       |                                                 |       |                      |       |                              |       |                                         |       |
| Independent living communities (2)                                         |       | 42                        |       | 11,465                        |       | $                                                    | 1,101,141  |                      | 38.8%      |                              | $          | 108,029                                      |       | 38.0% |   |
| Assisted living facilities                                                 |       | 121                       |       | 8,531                         |       | 908,621                                              |       | 32.0%                     |       | 85,162                            |       | 30.0%                                        |       |
| Skilled nursing facilities                                                 |       | 58                        |       | 5,844                         |       | 229,798                                              |       | 8.1%                      |       | 19,954                            |       | 7.1%                                         |       |
| Rehabilitation hospitals                                                   |       | 2                         |       | 364                           |       | 57,279                                               |       | 2.0%                      |       | 11,348                            |       | 4.0%                                         |       |
| Wellness centers (3)                                                       |       | 10                        |       | —                        |       | 180,017                                              |       | 6.3%                      |       | 17,069                            |       | 6.0%                                         |       |
| MOBs (4)                                                                   |       | 39                        |       | —                        |       | 361,895                                              |       | 12.8%                     |       | 42,355                            |       | 14.9%                                        |       |
| Total                                                                      |       | 272                       |       | 26,204                        |       | $                                                    | 2,838,751  |                      | 100.0%     |                              | $          | 283,917                                      |       | 100.0% |   |
|                                                                       |       |                      |       |                          |       |                                                 |       |                      |       |                              |       |                                         |       |
| Tenant/Operator                                                            |       |                      |       |                          |       |                                                 |       |                      |       |                              |       |                                         |       |
| Five Star (Lease No. 1)                                               |       | 100                       |       | 8,600                         |       | $                                                    | 718,621    |                      | 25.3%      |                              | $          | 63,764                                       |       | 22.4% |   |
| Five Star (Lease No. 2)                                               |       | 32                        |       | 7,639                         |       | 765,062                                              |       | 27.0%                     |       | 81,942                            |       | 28.9%                                        |       |
| Five Star (Lease No. 3)                                               |       | 44                        |       | 3,251                         |       | 311,167                                              |       | 11.0%                     |       | 23,746                            |       | 8.4%                                         |       |
| Five Star (Lease No. 4)                                               |       | 7                         |       | 614                           |       | 66,608                                               |       | 2.3%                      |       | 7,596                             |       | 2.7%                                         |       |
| Sunrise/Marriott (5)                                                       |       | 14                        |       | 4,091                         |       | 325,165                                              |       | 11.5%                     |       | 32,547                            |       | 11.5%                                        |       |
| Brookdale Senior Living, Inc.                                         |       | 18                        |       | 894                           |       | 61,122                                               |       | 2.2%                      |       | 8,000                             |       | 2.8%                                         |       |
| 6 private companies (combined)                                             |       | 8                         |       | 1,115                         |       | 49,094                                               |       | 1.6%                      |       | 6,898                             |       | 2.4%                                         |       |
| Starmark (3)                                                               |       | 6                         |       | —                        |       | 80,008                                               |       | 2.8%                      |       | 6,519                             |       | 2.3%                                         |       |
| Life Time Fitness (3)                                                      |       | 4                         |       | —                        |       | 100,009                                              |       | 3.5%                      |       | 10,550                            |       | 3.7%                                         |       |
| Multi-tenant MOBs (4)                                                      |       | 39                        |       | —                        |       | 361,895                                              |       | 12.8%                     |       | 42,355                            |       | 14.9%                                        |       |
| Total                                                                      |       | 272                       |       | 26,204                        |       | $                                                    | 2,838,751  |                      | 100.0%     |                              | $          | 283,917                                      |       | 100.0% |   |

 

TenantOperating Statistics (Quarter Ended December 31, 2008) (6)

 
| ** **                         | ** ** | ** **             | ** ** | ** **    | ** ** | ** **           | ** ** | ** **   | ** ** | **Percentage of Operating Revenue Sources** | ** ** |
|------------------------------------|------------|------------------------|------------|---------------|------------|----------------------|------------|--------------|------------|-----------------------------------------------------------------|------------|
| ** **                         | ** ** | **Rent Coverage** | ** ** | **Occupancy** | ** ** | **Private Pay** | ** ** | **Medicare** | ** ** | **Medicaid**                                                    | ** ** |
| ** **                         | ** ** | **2008**               | ** ** | **2007**      | ** ** | **2008**             | ** ** | **2007**     | ** ** | **2008**                                                        | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** |
| Five Star (Lease No. 1) (7)   |       | 1.22x                  |       | 1.37x         |       | 89%                  |       | 90%          |       | 65%                                                             |       | 63% |   | 13% |   | 13% |   | 22% |   | 24% |   |
| Five Star (Lease No. 2)       |       | 1.40x                  |       | 1.56x         |       | 87%                  |       | 90%          |       | 68%                                                             |       | 69% |   | 29% |   | 28% |   | 3% |   | 3% |   |
| Five Star (Lease No. 3) (7)   |       | 1.19x                  |       | 2.07x         |       | 85%                  |       | 85%          |       | 55%                                                             |       | 23% |   | 14% |   | 24% |   | 31% |   | 53% |   |
| Five Star (Lease No. 4)       |       | 0.83x                  |       | 1.36x         |       | 83%                  |       | 81%          |       | 98%                                                             |       | 100% |   | — |   | — |   | 2% |   | — |   |
| Sunrise/Marriott (5)               |       | 1.31x                  |       | 1.90x         |       | 91%                  |       | 90%          |       | 77%                                                             |       | 79% |   | 19% |   | 17% |   | 4% |   | 4% |   |
| Brookdale Senior Living, Inc. |       | 2.01x                  |       | 1.85x         |       | 95%                  |       | 91%          |       | 99%                                                             |       | 98% |   | — |   | — |   | 1% |   | 2% |   |
| 6 private companies (combined)     |       | 1.97x                  |       | 2.09x         |       | 83%                  |       | 88%          |       | 23%                                                             |       | 24% |   | 24% |   | 24% |   | 53% |   | 52% |   |
| Starmark (3)                       |       | 1.91x                  |       | 1.93x         |       | 100%                 |       | 100%         |       | NA                                                              |       | NA |   | NA |   | NA |   | NA |   | NA |   |
| Life Time Fitness (3)              |       | 2.59x                  |       | NA            |       | 100%                 |       | NA           |       | NA                                                              |       | NA |   | NA |   | NA |   | NA |   | NA |   |
| Multi-tenant MOBs (4)              |       | NA                     |       | NA            |       | 99%                  |       | NA           |       | NA                                                              |       | NA |   | NA |   | NA |   | NA |   | NA |   |

 

TenantOperating Statistics (Twelve Months Ended December 31, 2008) (6)

 
| ** **                         | ** ** | ** **             | ** ** | ** **    | ** ** | ** **           | ** ** | ** **   | ** ** | **Percentage of Operating Revenue Sources** | ** ** |
|------------------------------------|------------|------------------------|------------|---------------|------------|----------------------|------------|--------------|------------|-----------------------------------------------------------------|------------|
| ** **                         | ** ** | **Rent Coverage** | ** ** | **Occupancy** | ** ** | **Private Pay** | ** ** | **Medicare** | ** ** | **Medicaid**                                                    | ** ** |
| ** **                         | ** ** | **2008**               | ** ** | **2007**      | ** ** | **2008**             | ** ** | **2007**     | ** ** | **2008**                                                        | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** |
| Five Star (Lease No. 1) (7)   |       | 1.27x                  |       | 1.33x         |       | 89%                  |       | 90%          |       | 65%                                                             |       | 64% |   | 13% |   | 13% |   | 22% |   | 23% |   |
| Five Star (Lease No. 2)       |       | 1.46x                  |       | 1.53x         |       | 88%                  |       | 90%          |       | 69%                                                             |       | 69% |   | 28% |   | 28% |   | 3% |   | 3% |   |
| Five Star (Lease No. 3) (7)   |       | 1.41x                  |       | 2.73x         |       | 85%                  |       | 86%          |       | 45%                                                             |       | 24% |   | 17% |   | 24% |   | 38% |   | 52% |   |
| Five Star (Lease No. 4)       |       | 1.10x                  |       | 1.40x         |       | 84%                  |       | 88%          |       | 99%                                                             |       | 100% |   | — |   | — |   | 1% |   | — |   |
| Sunrise/Marriott (5)               |       | 1.47x                  |       | 1.42x         |       | 91%                  |       | 89%          |       | 79%                                                             |       | 79% |   | 17% |   | 18% |   | 4% |   | 3% |   |
| Brookdale Senior Living, Inc. |       | 2.11x                  |       | 2.05x         |       | 93%                  |       | 89%          |       | 99%                                                             |       | 98% |   | — |   | — |   | 1% |   | 2% |   |
| 6 private companies (combined)     |       | 1.95x                  |       | 1.92x         |       | 84%                  |       | 88%          |       | 26%                                                             |       | 24% |   | 23% |   | 24% |   | 51% |   | 52% |   |
| Starmark (3)                       |       | 2.00x                  |       | NA            |       | 100%                 |       | NA           |       | NA                                                              |       | NA |   | NA |   | NA |   | NA |   | NA |   |
| Life Time Fitness (3)              |       | NA                     |       | NA            |       | NA                   |       | NA           |       | NA                                                              |       | NA |   | NA |   | NA |   | NA |   | NA |   |
| Multi-tenant MOBs (4)              |       | NA                     |       | NA            |       | NA                   |       | NA           |       | NA                                                              |       | NA |   | NA |   | NA |   | NA |   | NA |   |

** **

** **

----

| **(1)** | **Amounts  are before depreciation, but after impairment write downs, if any.**                                                                                                                                                                                                                                                                                                                                                                                                                              |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **(2)** | **Properties  where the majority of units are independent living apartments are classified  as independent living communities.**                                                                                                                                                                                                                                                                                                                                                                             |
| **(3)** | **The  Starmark and Life Time Fitness wellness centers have a total of 812,000 square  feet.**                                                                                                                                                                                                                                                                                                                                                                                                               |
| **(4)** | **Since  June 2008, we have acquired a total of 39 medical office, clinic and  biotech laboratory buildings, or MOBs. The carrying value of these  investments is before depreciation and includes intangible lease assets and  liabilities. These MOBs have a total of approximately 1.7 million square  feet.**                                                                                                                                                                                       |
| **(5)** | **Marriott  International, Inc., or Marriott, guarantees this lease.**                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| **(6)** | **All  tenant operating data presented are based upon the operating results provided  by our tenants for the indicated quarterly or annual periods, or the most  recent prior period for which tenant operating results are available to us  from our tenants. Rent coverage is calculated as operating cash flow from our  tenants’ operations of our properties, before subordinated charges, divided  by rent payable to us. We have not independently verified our tenants’  operating data.** |
| (7)     | Excludes data for periods  prior to our ownership of certain properties included in this lease.                                                                                                                                                                                                                                                                                                                                                                                                              |

** **

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**Table of Contents**

 

**RESULTSOF OPERATIONS**

 

#### **Three Months Ended March 31,2009 Compared to Three Months Ended March 31, 2008:**

 

| ** **                           | ** ** | **2009**                                                              | ** ** | **2008** | ** ** | **Change** | ** ** | **% Change** | ** ** |
|--------------------------------------|------------|-----------------------------------------------------------------------|------------|----------|------------|------------|------------|-------------------|------------|
| ** **                           | ** ** | **(in thousands, except per share amounts)** | ** ** |
| Rental income                        |       | $                                                                     | 68,377     |     | $          | 49,039     |       | $                 | 19,338     |   | 39.4 | % |   |
| Interest and  other income           |       | 208                                                                   |       | 514      |       | (306       | )          | (59.5             | )%         |   |
|                                 |       |                                                                  |       |     |       |       |       |              |       |   |
| Property  operating expenses         |       | 2,955                                                                 |       | —   |       | 2,955      |       | —            |       |   |
| Interest expense                     |       | 10,776                                                                |       | 9,518    |       | 1,258      |       | 13.2              | %          |   |
| Depreciation  expense                |       | 18,389                                                                |       | 13,023   |       | 5,366      |       | 41.2              | %          |   |
| Acquisition  costs                   |       | 112                                                                   |       | —   |       | 112        |       | —            |       |   |
| General and  administrative expense  |       | 4,820                                                                 |       | 3,696    |       | 1,124      |       | 30.4              | %          |   |
|                                 |       |                                                                  |       |     |       |       |       |              |       |   |
| Net income                           |       | $                                                                     | 31,533     |     | $          | 23,316     |       | $                 | 8,217      |   | 35.2 | % |   |
|                                 |       |                                                                  |       |     |       |       |       |              |       |   |
| Weighted average  shares outstanding |       | 117,853                                                               |       | 91,080   |       | 26,773     |       | 29.4              | %          |   |
|                                 |       |                                                                  |       |     |       |       |       |              |       |   |
| Net income per  share                |       | $                                                                     | 0.27       |     | $          | 0.26       |       | $                 | 0.01       |   | 3.8 | % |   |

 

Rentalincome increased because of rents earned from our real estate acquisitionssince April 1, 2008, including $10.4 million of rental income in the firstquarter of 2009 due to our acquisition of 39 MOBs, offset by rent reductionsresulting from the sale of three properties during the third quarter of2008.  Interest and other income decreasedas a result of lower levels of investable cash in money market funds and lowerinterest rates.

 

Propertyoperating expenses for the quarter ended March 31, 2009 is the result ofour acquisition of 39 MOBs since June 2008 and principally includes expenses related to real estate taxes, utilities,cleaning costs and property management fees paid to Reit Management &Research LLC, or RMR.

 

Interestexpense increased because of greater amounts outstanding under our revolvingcredit facility offset by lower interest rates under our revolving creditfacility. Our weighted average balanceoutstanding and interest rate under our revolving credit facility was $216.2million and 1.3% and $24.0 million and 4.6% for the three months ended March 31,2009 and 2008, respectively.  Thisincrease was also due to $61.3 million of debt assumed as part of our thirdquarter 2008 acquisitions offset by our prepayment of a mortgage of $12.6million on April 1, 2008.

 

Depreciationexpense for the first quarter of 2009 increased because of acquisitions since April 1,2008. Acquisition costs represent the closing costs associated with ouracquisitions that are expensed under Statement of Financial AccountingStandards No. 141(R), “Business Combinations”, commencing January 1,2009.  General and administrative expensesincreased in 2009 principally due to our acquisitions since April 1, 2008,and higher legal fees and accounting fees.

 

Net income increased because of the changes inrevenues and expenses described above. Net income per share increased becauseof the changes in revenues and expenses described above offset by the effect ofan increase in the weighted average number of shares outstanding resulting fromour issuance of common shares in February and June 2008 and February 2009.

 

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**LIQUIDITY AND CAPITAL RESOURCES**

 

Our principal source offunds to meet operating expenses, debt service and pay planned distributions onour shares is rental income from our properties. This flow of funds hashistorically been sufficient to pay operating expenses and debt servicerelating to our properties. We believe that our operating cash flow will besufficient to meet our operating expenses, debt service and planneddistributions on our shares for the foreseeable future. Our future cash flowsfrom operating activities will depend primarily upon our ability to:

 

·                  maintain or improve theoccupancy of and the current rent rates at our properties;

 

·                  control operating costincreases at our properties; and

 

·                  purchase additionalproperties which produce positive cash flows from operations.

 

OurOperating Liquidity and Resources

 

Rents from our properties are our principal sources offunds for current expenses, debt service and distributions to shareholders. Wegenerally receive minimum rents monthly or quarterly from our tenants and wereceive percentage rents monthly, quarterly or annually. This flow of funds hashistorically been sufficient for us to pay our operating expenses, debt serviceand distributions to shareholders. During the three months ended March 31,2009, we generated $52.6 million of cash from operations and at March 31,2009, we had $5.6 million of cash and cash equivalents.  We believe that our operating cash flow willbe sufficient to meet our operating expenses, debt service and expecteddistribution payments for the foreseeable future.

 

Our Investment and Financing Liquidity and Resources

 

## **In orderto fund acquisitions and to accommodate cash needs that may result from timingdifferences between our receipts of rents and our need or desire to payoperating expenses and distributions to our shareholders, we maintain arevolving credit facility with a group of institutional lenders. The facilitymatures in December 2010. The revolving credit facility permits us toborrow up to $550.0 million.  Borrowingsunder our revolving credit facility are unsecured.  We may borrow, repay and reborrow funds untilmaturity. No principal repayment is due until maturity.  We pay interest on borrowings under therevolving credit facility at LIBOR plus a premium.  At March 31, 2009, the weighted averageinterest rate payable on our revolving credit facility was 1.3%.  As of March 31, 2009, we had $181.0million outstanding under this credit facility and as of May 6, 2009, wehad $165.0 million outstanding under this credit facility.**  Subject to certainconditions, at our option, this credit facility’s maturity date can be extendedto December 31, 2011 upon payment of a fee.

## ** **

In May 2008, we entered into a series ofagreements to acquire 48 MOBs from HRPT Properties Trust, or HRP, for anaggregate purchase price of approximately $565.0 million.  To date, we have acquired 38 of theseproperties containing 1.6 million square feet for approximately $366.0 million,excluding closing costs.  One of theremaining buildings with an allocated value of $3.0 million is no longer subjectto our purchase agreement.  We expect theclosings of the remaining nine buildings to occur in 2010. We and HRP maymutually agree to accelerate the closings of these acquisitions.  We funded these acquisitions using cash onhand, proceeds from equity issuances, borrowings under our revolving creditfacility and by assuming three mortgage loans on two properties totaling $10.8million with a weighted average interest rate of 7.1% per annum and a weightedaverage maturity in 2018.  Ourobligations to complete the remaining purchases from HRP are subject to variousconditions typical of commercial real estate purchases.  We can provide no assurance that we willpurchase all of these buildings or that the remaining purchases will becompleted in 2010 or sooner.  As of March 31,2009, the 47 buildings acquired and to be acquired were 98% leased toapproximately 210 tenants for an average lease term of 7.8 years.  As part of this transaction, we also acquiredrights of first refusal to purchase any of 45 additional buildings (containingapproximately 4.6 million square feet of rental space) from HRP that are leasedto tenants in medical related businesses. HRP was formerly our parent company, and both we and HRP are managed byRMR.  Because we and

 

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**Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations (continued)**

 

HRP are both managed by RMR, the terms of these transactions werenegotiated by special committees of our and HRP’s boards of trustees composedsolely of independent trustees who were not also independent trustees of bothcompanies.

 

In February 2009, we issued 5.9 millioncommon shares in a public offering, raising net proceeds of approximately $96.8million.  We used the net proceeds fromthis offering to repay borrowings outstanding on our revolving credit facility,to fund the real estate acquisitions described above and for general businesspurposes.

 

During the three months ended March 31,2009, we purchased $12.7 million of improvements made to our properties thatare leased to Five Star Quality Care, Inc., or Five Star.  We used cash on hand and borrowings under ourrevolving credit facility to fund these purchases.

 

At March 31, 2009, we had $5.6 million of cash and cashequivalents and $369.0 million available under our revolving creditfacility.  We expect to use cashbalances, borrowings under our revolving credit facility and net proceeds ofofferings of equity or debt securities to fund future working capitalrequirements, property acquisitions and expenditures related to the repair,maintenance or renovation of our properties.

 

In2008, we entered into an agreement to sell one of our properties to anunaffiliated party for approximately $1.2 million.  In April 2009, we entered into anotheragreement to sell one of our properties to an unaffiliated party forapproximately $3.1 million.  Theseproperties are classified as held for sale as of March 31, 2009.  The sales of these properties are subject tovarious contingencies, and we can provide no assurance that we will sell theseproperties.

 

Whensignificant amounts are outstanding under our revolving credit facility or asthe maturity dates of our revolving credit facility and term debts approach, wewill explore alternatives for the repayment of amounts due.  Such alternatives may include incurringadditional debt and issuing new equity securities.  We have an effective shelf registrationstatement that allows us to issue public securities on an expedited basis, butit does not assure that there will be buyers for such securities.

 

Recentcapital markets conditions have been challenging.  The availability and cost of credit have beenand may continue to be adversely affected by illiquid capital markets and widecredit rate spreads, and equity markets have been extremely volatile.  While we believe we will have access to varioustypes of financings, including debt or equity, to fund our future acquisitionsand to pay our debts and other obligations, there can be no assurance that wewill be able to complete any debt or equity offerings or that our cost of anyfuture financings will be reasonable.  Ifcurrent market conditions continue or worsen, one or more lenders under ourrevolving credit facility may be unable or unwilling to fund advances which werequest, our lenders may be unable or unwilling to renew our credit facilitiesand we may not be able to access additional capital.  Ourability to continue to access capital could be impacted by various factors,including general market conditions and the continuing slowdown in the economy,interest rates, credit ratings on our securities, the market price of our capitalstock and the financial performance of our tenants.  Also, the current market conditions have ledto materially increased credit spreads which, if they continue, may result inmaterial increases in the interest costs under our floating rate debts and ourfixed rate debts when we refinance or when we incur new debt.  These interest cost increases could havematerial and adverse impact on our results of operations and financialconditions.

 

On February 13, 2009,we paid a $0.35 per common share, or $40.1 million, distribution to our commonshareholders for the quarter ended December 31, 2008.  On April 7, 2009, we declared adistribution of $0.35 per common share, or $42.2 million, to be paid to ourcommon shareholders of record on April 17, 2009 with respect to ourresults for the quarter ended March 31, 2009. We expect to pay thisdistribution on or about May 15, 2009, using cash on hand and borrowingsunder our revolving credit facility.

 

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**Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations (continued)**

 

We arecurrently negotiating terms of a mortgage financing that may be sold to FannieMae in the amount of approximately $500.0 million.  We may determine not to continue to pursuethis financing or to pursue other financings, in this amount or in materiallyhigher or lower amounts, and in any event there can be no assurance that thisfinancing will occur, especially in view of current conditions in the debtcapital markets.

 

As of May 6, 2009, we have no off balance sheetarrangements, commercial paper, derivatives, swaps, hedges, joint ventures orpartnerships.

 

## **DebtCovenants**

 

Our principal debt obligations at March 31, 2009,were our unsecured revolving credit facility, two public issues totaling $322.5million of unsecured senior notes and $136.0 million of mortgage debt and bondssecured by 33 of our properties.  Our seniornotes are governed by an indenture.  Theindenture for our unsecured senior notes and related supplements and ourrevolving credit facility contain a number of financial ratio covenants whichgenerally restrict our ability to incur debts, including debts secured bymortgages on our properties in excess of calculated amounts, require us tomaintain a minimum net worth, restrict our ability to make distributions undercertain circumstances and require us to maintain other ratios. As of March 31,2009, we were in compliance with all of the covenants under our indenture andrelated supplements, our revolving credit facility and other debt obligations.

 

None of our indenturesand related supplements, our revolving credit facility or our other debtobligations contains provisions for acceleration which could be triggered byour debt ratings.  However, in certaincircumstances, our revolving credit facility uses our senior debt rating todetermine the fees and the interest rate payable.

 

Ourpublic debt indenture and related supplements contain cross default provisionsto any other debts of $10.0 million or more. Similarly, our revolving credit facility contains a cross-defaultprovision to any other debts of $25.0 million or more that are recourse debtsand to any other debts of $75.0 million or more that are non-recourse debts.

 

**Related Person Transactions**

 

In May 2008, we entered into a series ofagreements to acquire 48 MOBs from HRP for an aggregate purchase price ofapproximately $565.0 million.  To date, wehave acquired 38 of these properties containing 1.6 million square feet forapproximately $366.0 million, excluding closing costs. One of the remainingbuildings with an allocated value of $3.0 million is no longer subject to ourpurchase agreement.  We expect theclosings of the remaining nine buildings to occur in 2010. We and HRP maymutually agree to accelerate the closings of these acquisitions**. **Our obligations tocomplete our outstanding purchases from HRP are subject to various conditionstypical of commercial real estate purchases. We can provide no assurance that we will purchase all of these buildingsor that the remaining purchases will be completed in 2010 or sooner.  As of March 31, 2009, the 47 buildingsacquired and to be acquired were 98% leased to approximately 210 tenants for anaverage lease term of 7.8 years.

 

HRP wasformerly our parent.  We were spun off toHRP’s shareholders in 1999 and, at the time of this spin off, we and HRPentered into a transaction agreement which, among other things, prohibited usfrom purchasing MOBs.  Concurrently withthe execution and delivery of the purchase agreements described above, we andHRP entered into an amendment to that transaction agreement, or the firstamendment agreement, to permit us, rather than HRP, to invest in medicaloffice, clinic and

 

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**Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations (continued)**

 

biomedical,pharmaceutical and laboratory buildings. The first amendment agreement is subject, in the case of mixed usebuildings, to HRP’s retaining the right to invest in any mixed use building forwhich the rentable square footage is less than 50% medical office, clinic andbiomedical, pharmaceutical and laboratory use. Also, concurrently with the execution and delivery of the purchaseagreements, we entered into a right of first refusal agreement under which wewere granted a right of first refusal to purchase up to 45 additionalidentified other properties (containing approximately 4.6 million square feetof rental space) HRP owns which are leased to tenants in medical relatedbusinesses in the event HRP determines to sell such properties or in the eventof an indirect sale as a result of HRP’s change of control or a change ofcontrol of HRP’s subsidiary which owns such properties.

 

Both we and HRP are managed by RMR, BarryPortnoy and Adam Portnoy are managing trustees of both us and HRP and FrederickZeytoonjian is an Independent Trustee of both us and HRP.  Because of these relationships, the terms ofour agreements entered in 2008 with HRP were negotiated and approved by specialcommittees of our and HRP’s boards composed of independent trustees of eachcompany who are not independent trustees of both. For more information aboutthe terms of the purchase agreements, the first amendment agreement and theright of first refusal agreement between us and HRP, please read theseagreements, copies of which are filed as exhibits to our Current Report on Form 8-Kdated May 9, 2008.

 

Five Star is our largest tenant.  Five Star is our former subsidiary.  In addition to being our manager, RMR alsoprovides management services to Five Star. One of our trustees, Mr. Barry Portnoy, is currently a ManagingDirector of Five Star.  Because of theseand other relationships we and Five Star may be considered relatedpersons.  As of March 31, 2009, weleased 181****senior living communities and tworehabilitation hospitals to Five Star for total annual minimum rent of $177.0million.  Because of the relationshipsbetween us and Five Star, all of our transactions with Five Star are separatelyapproved by our Independent Trustees and Five Star’s independent directors.

 

 During the three months ended March 31, 2009, pursuant to theterms of our existing leases with Five Star, we purchased $12.7 million ofimprovements made to our properties leased to Five Star, and, as a result, theannual rent payable to us by Five Star was increased by approximately $1.0million.

 

Under the terms ofour business management agreement with RMR, on April 8, 2009 we issued55,814 common shares in payment of an incentive fee of approximately $789,000for services rendered by RMR during 2008.

 

In February 2009 we invested $25,000 in aninsurance company with RMR and other companies to which RMR provides managementservices, and in April 2009 we invested an additional $5.0 million in thisinsurance company.  We currently ownapproximately 16.67% of this insurance company.

 

For more information about our dealings with ourmanaging trustees, Five Star, HRP and their affiliates and the insurancecompany in which we have invested and about the risks which may arise as aresult of these related party transactions please see our Annual Report on Form 10-Kfor the year ended December 31, 2008.

 

**Item 3.  Quantitative and Qualitative Disclosuresabout Market Risk**

 

We are exposed to risksassociated with market changes in interest rates.  We manage our exposure to this market risk bymonitoring available financing alternatives. Our strategy to manage exposure to changes in interest rates isunchanged since December 31, 2008. Other than as described below, we do notforesee any significant changes in our exposure to fluctuations in interestrates or in how we manage this exposure in the future.

 

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**Item 3.  Quantitativeand Qualitative Disclosures about Market Risk (continued)**

 

AtMarch 31, 2009, 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 |       | 97,500                 |       | 7.875%                     |       | 7,678                         |       | 2015         |       | Semi-Annually              |       |
| Mortgages               |       | 49,968                 |       | 6.54%                      |       | 3,268                         |       | 2017         |       | Monthly                    |       |
| Mortgages               |       | 33,682                 |       | 6.97%                      |       | 2,348                         |       | 2012         |       | Monthly                    |       |
| Mortgage                |       | 14,962                 |       | 6.91%                      |       | 1,034                         |       | 2013         |       | Monthly                    |       |
| Mortgages               |       | 11,659                 |       | 6.11%                      |       | 712                           |       | 2013         |       | Monthly                    |       |
| Mortgage                |       | 4,436                  |       | 6.50%                      |       | 288                           |       | 2013         |       | Monthly                    |       |
| Mortgage                |       | 4,103                  |       | 7.31%                      |       | 300                           |       | 2022         |       | Monthly                    |       |
| Mortgage                |       | 2,002                  |       | 7.85%                      |       | 157                           |       | 2022         |       | Monthly                    |       |
| Bonds                   |       | 14,700                 |       | 5.875%                     |       | 864                           |       | 2027         |       | Semi-Annually              |       |
|                    |       | $                      | 458,012    |                       |       |                          | $          | 36,055       |       |                       |       |   |   |

 

Noprincipal payments are due under our unsecured notes or bonds until maturity.Our mortgages require principal and interest payments through maturity pursuantto amortization schedules. Because these debts bear interest at a fixed rate,changes in market interest rates during the term of these debts will not affectour operating results.  If these debtsare refinanced at interest rates which are 10% higher or lower than shownabove, our per annum interest cost would increase or decrease by approximately$2.7 million.  Changes in market interestrates also affect the fair value of our fixed rate debt obligations; increasesin market interest rates decrease the fair value of our fixed rate debt, whiledecreases in market interest rates increase the fair value of our fixed ratedebt.  Based on the balances outstandingat March 31, 2009, and discounted cash flow analysis through the maturitydate of our fixed rate debt obligations, a hypothetical immediate 10% change ininterest rates would change the fair value of those obligations byapproximately $13.2 million.

 

We are allowed to make prepayments of our unsecuredsenior notes, in whole or in part, at par plus a premium, as defined. Ourmortgages contain provisions that allow us to make repayment at par pluspremiums which is generally designed to preserve a stated yield to the mortgageholder. Also, as we did in January 2007, we occasionally have theopportunity to purchase our outstanding debt by open market purchases. Theseprepayment rights may afford us the opportunity to mitigate the risk ofrefinancing at maturity.

 

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**Item 3.  Quantitativeand Qualitative Disclosures about Market Risk (continued)**

 

Our unsecured revolving credit facility accruesinterest at floating rates and matures in December 2010.  Subject to certain conditions, at our option,this credit facility’s maturity date can be extended to December 31, uponpayment of a fee. At March 31, 2009, we had $181.0 million outstanding and$369.0 million available for borrowing under our revolving creditfacility.  At May 6, 2009, we had$165.0 million outstanding and $385.0 million available for borrowing under ourrevolving credit facility. We may make repayments and drawings under ourrevolving credit facility at any time without penalty.  We borrow in U.S. dollars and borrowingsunder our revolving credit facility accrue interest at LIBOR plus a premium.Accordingly, we are vulnerable to changes in U.S. dollar based short terminterest rates, specifically LIBOR.  Achange in interest rates would not affect the value of this floating rate debtbut would affect our operating results. For example, the weighted average interest rate payable on ouroutstanding revolving indebtedness of $181.0 million at March 31, 2009 was1.31% per annum.  The following tablepresents the impact a 10% change in interest rates would have on our floatingrate interest expense at March 31, 2009 (dollars in thousands):

 
| ** **              | ** ** | **Impact of Changes in Interest Rates** | ** ** |
|-------------------------|------------|------------------------------------------------------------------|------------|
| ** **              | ** ** | **Interest Rate  Per Year**                            | ** ** | **Outstanding  Debt** | ** ** | **Total Interest  Expense Per  Year** | ** ** |
| At  March 31, 2009 |       | 1.31%                                                            |       | $ | 181,000 |   | $ | 2,371 |   |
| 10% reduction           |       | 1.18%                                                            |       | $ | 181,000 |   | $ | 2,136 |   |
| 10% increase            |       | 1.44%                                                            |       | $ | 181,000 |   | $ | 2,606 |   |

 

The foregoing table showsthe impact of an immediate change in floating interest rates.  If interest rates were to change graduallyover time, the impact would be spread over time.  Our exposure to fluctuations in floatinginterest rates will increase or decrease in the future with increases ordecreases in the outstanding amount under our revolving credit facility orother floating rate debt.  The following table presents the impact a 10%change in interest rates would have on our floating rate interest expense at March 31,2009 if we were fully drawn on our revolving credit facility (dollars inthousands):

 
| ** **              | ** ** | **Impact of Changes in Interest Rates** | ** ** |
|-------------------------|------------|------------------------------------------------------------------|------------|
| ** **              | ** ** | **Interest Rate  Per Year**                            | ** ** | **Outstanding  Debt** | ** ** | **Total Interest  Expense Per  Year** | ** ** |
| At  March 31, 2009 |       | 1.31%                                                            |       | $ | 550,000 |   | $ | 7,205 |   |
| 10% reduction           |       | 1.18%                                                            |       | $ | 550,000 |   | $ | 6,490 |   |
| 10% increase            |       | 1.44%                                                            |       | $ | 550,000 |   | $ | 7,920 |   |

 

**Item 4.  Controls andProcedures**

 

As of the end of the periodcovered by this report, our management carried out an evaluation, under thesupervision and with the participation of our Managing Trustees, President andChief Operating Officer and Treasurer and Chief Financial Officer, of theeffectiveness of our disclosure controls and procedures pursuant to theSecurities Exchange Act of 1934, as amended, Rules 13a-15 and 15d-15.  Based upon that evaluation, our ManagingTrustees, President and Chief Operating Officer and Treasurer and ChiefFinancial Officer concluded that our disclosure controls and procedures areeffective.

 

There have been no changesin our internal control over financial reporting during the quarter ended March 31,2009 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 

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**WARNING CONCERNING FORWARD LOOKING STATEMENTS**

** **

THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS STATEMENTS WHICH CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THEMEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHERFEDERAL SECURITIES LAWS.  WHENEVER WE USEWORDS SUCH AS “BELIEVE”, “EXPECT”, “ANTICIPATE”, “INTEND”, “PLAN”, “ESTIMATE”OR SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD LOOKING STATEMENTS.  THESE FORWARD LOOKINGSTATEMENTS ARE BASED UPON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUTFORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOTOCCUR.  FORWARD LOOKING STATEMENTS INTHIS 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 DEBTPRINCIPAL AND MAKE DISTRIBUTIONS;

 

·                  OUR ABILITY TO RETAIN OUR EXISTING TENANTSAND MAINTAIN CURRENT RENTAL RATES;

 

·                  OUR AGREEMENTS TO PURCHASE CERTAIN MOBS;

 

·                  OUR ENTRY INTO AGREEMENTS TO SELL PROPERTIESCLASSIFIED AS HELD FOR SALE ON OUR CONSOLIDATED BALANCE SHEET;

 

·                  OUR PARTICIPATING IN THE INSURANCE COMPANYBEING FORMED AND LICENSED IN THE STATE OF INDIANA WITH RMR AND COMPANIES TOWHICH RMR PROVIDES MANAGEMENT SERVICES;

 

·                  OUR CURRENT NEGOTIATIONS WITH RESPECT TO THETERMS OF A MORTGAGE FINANCING THAT WILL BE SOLD TO FANNIE MAE IN AN AMOUNT OFAPPROXIMATELY $500.0 MILLION; AND

 

·                  OTHERMATTERS.

 

OURACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BYOUR FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS.  FACTORS THAT COULD HAVE AMATERIAL ADVERSE EFFECT ON OUR FORWARD LOOKING STATEMENTS AND UPON OURBUSINESS, RESULTS OF OPERATIONS, FINANCIAL CONDITION, FUNDS FROM OPERATIONS,CASH FLOWS, LIQUIDITY AND PROSPECTS INCLUDE, BUT ARE NOT LIMITED TO:

 

·                  THE IMPACT OF CHANGES IN THE ECONOMY AND THECAPITAL MARKETS, INCLUDING THE RECENT CHANGES IN THE CAPITAL MARKETS, ON US ANDOUR TENANTS;

 

·                  ACTUAL AND POTENTIAL CONFLICTS OF INTERESTWITH OUR MANAGING TRUSTEES, FIVE STAR, RMR AND THEIR AFFILIATES;

 

·                  CHANGES IN FEDERAL, STATE AND LOCALLEGISLATION, GOVERNMENTAL REGULATIONS, ACCOUNTING RULES, TAX LAWS AND SIMILARMATTERS; AND

 

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·                  COMPETITION WITHIN THE REAL ESTATE INDUSTRYOR THOSE INDUSTRIES IN WHICH OUR TENANTS OPERATE.

 

FOREXAMPLE:

 

·                  OUR OBLIGATIONSTO COMPLETE THE CURRENTLY PENDING MOB PURCHASES ARE SUBJECT TO VARIOUSCONDITIONS TYPICAL OF LARGE COMMERCIAL REAL ESTATE PURCHASES.  AS A RESULT OF ANY FAILURE OF THESECONDITIONS, SOME OF THE PROPERTIES MAY NOT BE PURCHASED OR SOME OF THESEPURCHASES MAY BE ACCELERATED OR DELAYED;

 

·                  WE MAY NOTPROCEED WITH OUR PENDING PROPERTY SALES DUE TO MARKET CONDITIONS, FAILURE TOSATISFY CONTINGENCIES OR OTHER REASONS;

 

·                  OURPARTICIPATION IN THE INSURANCE BUSINESS WITH RMR AND ITS AFFILIATES INVOLVESPOTENTIAL FINANCIAL RISKS AND REWARDS TYPICAL OF ANY START UP BUSINESS VENTUREAS WELL AS OTHER FINANCIAL RISKS AND REWARDS SPECIFIC TO INSURANCE COMPANIES.AMONG THE RISKS THAT ARE SPECIFIC TO INSURANCE COMPANIES IS THE RISK THAT THEINSURANCE COMPANY MAY NOT BE ABLE TO ADEQUATELY PAY CLAIMS WHICH COULDLEAVE OUR COMPANY UNDERINSURED AND INCREASE ITS FUNDING EXPOSURE FOR CLAIMSTHAT MIGHT OTHERWISE HAVE BEEN FUNDED IF INSURANCE WAS PURCHASED FROMFINANCIALLY MORE SECURE INSURERS. ACCORDINGLY, OUR EXPECTED FINANCIAL BENEFITS FROM OUR INITIAL OR FUTUREINVESTMENTS IN THIS INSURANCE COMPANY MAY BE DELAYED OR MAY NOT OCCURAND THE INSURANCE COMPANY MAY REQUIRE A LARGER INVESTMENT THAN WE EXPECT;

 

·                  WE MAY DETERMINENOT TO CONTINUE TO PURSUE MORTGAGE FINANCING OR TO PURSUE OTHER FINANCINGS, INAN AMOUNT OF $500.0 MILLION OR IN A MATERIALLY HIGHER OR LOWER AMOUNT, AND INANY EVENT THERE CAN BE NO ASSURANCE THAT THE FINANCING WILL OCCUR;

 

·                  IF THE AVAILABILITY OF DEBT CAPITAL REMAINS RESTRICTED OR BECOMES MORERESTRICTED, WE MAY BE UNABLE TO REFINANCE OR REPAY OUR DEBT OBLIGATIONSWHEN THEY BECOME DUE OR ON TERMS WHICH ARE AS FAVORABLE AS WE NOW HAVE;

 

·                  OUR ABILITY TOMAKE FUTURE DISTRIBUTIONS DEPENDS UPON OUR FUTURE EARNINGS.  WE MAY BE UNABLE TO MAINTAIN OUR CURRENTRATE OF DISTRIBUTIONS AND FUTURE DISTRIBUTIONS MAY BE SUSPENDED OR PAID ATA LESSER RATE THAN THE DISTRIBUTIONS WE NOW PAY;

 

·                  OUR ABILITY TOGROW OUR BUSINESS AND PAY OUR DISTRIBUTIONS DEPENDS IN LARGE PART UPON OURABILITY TO BUY PROPERTIES AND LEASE THEM FOR RENTS WHICH EXCEED OUR CAPITALCOSTS.  WE MAY BE UNABLE TO IDENTIFYPROPERTIES 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 RENEWEXPIRING LEASES, AND WE MAY BE UNABLE TO LOCATE NEW TENANTS TO MAINTAINTHE HISTORICAL OCCUPANCY RATES OF OUR PROPERTIES;

 

·                  RENTS THAT WE CAN CHARGE AT OUR PROPERTIES MAY DECLINE;AND

 

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·                  OUR TENANTS MAY EXPERIENCELOSSES AND BECOME UNABLE TO PAY OUR RENTS.

 

THESERESULTS COULD OCCUR DUE TO MANY DIFFERENT REASONS, SOME OF WHICH, SUCH ASNATURAL DISASTERS OR CHANGES IN OUR MANAGERS’ OR TENANTS’ REVENUES OR COSTS, ORCHANGES IN CAPITAL MARKETS OR THE ECONOMY GENERALLY, ARE BEYOND OUR CONTROL.

 

OTHER IMPORTANT FACTORS THATCOULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN OUR FORWARDLOOKING STATEMENTS ARE DESCRIBED MORE FULLY UNDER “ITEM 1A. RISK FACTORS” INOUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2008.

 

YOUSHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS.

 

EXCEPT AS REQUIRED BY LAW, WE DO NOT INTEND TO UPDATE ORCHANGE ANY FORWARD LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTUREEVENTS OR OTHERWISE.

 

**STATEMENTCONCERNING LIMITED LIABILITY**

 

THE ARTICLES OF AMENDMENT AND RESTATEMENT OF THEDECLARATION OF TRUST ESTABLISHING SENIOR HOUSING PROPERTIES TRUST, DATEDSEPTEMBER 20, 1999, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS ANDSUPPLEMENTS THERETO, IS DULY FILED IN THE OFFICE OF THE STATE DEPARTMENT OFASSESSMENTS AND TAXATION OF MARYLAND, PROVIDES THAT THE NAME “SENIOR HOUSINGPROPERTIES TRUST” REFERS TO THE TRUSTEES UNDER THE DECLARATION OF TRUST, ASAMENDED AND SUPPLEMENTED, AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, ANDTHAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF SENIOR HOUSINGPROPERTIES 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 HOUSINGPROPERTIES TRUST, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF SENIOR HOUSINGPROPERTIES TRUST FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANYOBLIGATION.

 

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**PART II.   Other Information**

 

**Item 2.    UnregisteredSales of Equity Securities and Use of Proceeds**

 

On February 24, 2009, pursuant to our incentiveshare award plan, we granted 2,000 common****shares ofbeneficial interest, par value $0.01 per share, valued at $14.23****per share, the closing price of our common shares on theNew York Stock Exchange on that day, as compensation to Jeffrey P. Somers, oneof our Independent Trustees, who was appointed as a trustee effective January 30,2009.  We made this grant pursuant to anexemption from registration contained in Section 4(2) of theSecurities Act of 1933, as amended.

 

Asfurther described in our Annual Report on Form 10-K for the year ended December 31,2008, RMR provides management services to us.  Under the terms of ourbusiness management agreement with RMR, on April 8, 2009, we issued 55,814common shares to RMR in payment of an incentive fee for services rendered byRMR during 2008. We issued these shares pursuant to an exemption fromregistration contained in Section 4(2) of the Securities Act of 1933,as amended.

 

**Item 6.    Exhibits**

** **

12.1                           Computation ofRatio 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)*

 

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SIGNATURES

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly 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:   May 7, 2009 |
|   |   |                             |   |
|   |   |                             |   |
|   |   | By:                              | /s/  Richard A. Doyle |
|   |   |                             | Richard  A. Doyle |
|   |   |                             | Treasurer  and Chief Financial Officer |
|   |   |                             | (principal  financial and accounting officer) |
|   |   |                             | Dated:   May 7, 2009 |

 

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