** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC  20549**

 

**FORM 10-Q**

 

**ý****   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**For the quarterly period ended March 31, 2006**

 

**OR**

 

**o****   TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**Commission File Number 1-15319**

 

**SENIOR HOUSING PROPERTIES TRUST**

 
| **Maryland**            | ** ** | **04-3445278**                     |
|-------------------------|------------|------------------------------------|
| (State of Organization) |       | (IRS Employer  Identification No.) |

 

**400 Centre Street, Newton,Massachusetts 02458**

 

**617-796-8350**

 

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, and (2) hasbeen subject to such filing requirements for the past 90 days.  Yes ý No o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.  See definition of“accelerated filer” and “large accelerated filer” in Rule 12b-2 of the ExchangeAct.         (Check one):

 

Large Accelerated Filer ý                 Accelerated Filer o                   Non-AcceleratedFiler o

 

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

 

Number of registrant’scommon shares outstanding as of May 2, 2006:  71,812,227.

 

 

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SENIOR HOUSING PROPERTIES TRUST

 

FORM 10-Q

 

March 31, 2006

 

INDEX

 
| PART I  | Financial  Information                                                                      |   |
|--------------|---------------------------------------------------------------------------------------------|--------|
|         |                                                                                        |   |
| Item 1.      | Financial Statements (unaudited)                                                            |   |
|         |                                                                                        |   |
|         | Consolidated Balance Sheet – March 31, 2006 and  December 31, 2005           |   |
|         |                                                                                        |   |
|         | Consolidated Statement of Income – Three Months Ended March 31, 2006 and 2005     |   |
|         |                                                                                        |   |
|         | Consolidated  Statement of Cash Flows – Three Months Ended March 31, 2006 and 2005     |   |
|         |                                                                                        |   |
|         | Notes to Consolidated Financial Statements                                                  |   |
|         |                                                                                        |   |
| Item 2.      | Management’s Discussion and  Analysis of Financial Condition and Results of Operations |   |
|         |                                                                                        |   |
| Item 3.      | Quantitative and Qualitative Disclosures about Market  Risk                                 |   |
|         |                                                                                        |   |
| Item 4.      | Controls and Procedures                                                                     |   |
|         |                                                                                        |   |
|         | Warning Concerning Forward  Looking Statements                                              |   |
|         |                                                                                        |   |
|         | Statement Concerning Limited  Liability                                                     |   |
|         |                                                                                        |   |
| PART II | Other Information                                                                           |   |
|         |                                                                                        |   |
| Item 1.      | Legal Proceedings                                                                           |   |
|         |                                                                                        |   |
| Item 6.      | Exhibits                                                                                    |   |
|         |                                                                                        |   |
|         | Signatures                                                                                  |   |

 

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

 

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SENIOR HOUSING PROPERTIES TRUST

 
| **PART I.** | ** ** | **Financial  Information** |
|------------------|------------|----------------------------|
|             |       |                       |
| **Item 1.**      | ** ** | **Financial Statements**   |

 

CONSOLIDATED BALANCE SHEET

(in thousands, except share amounts)

 
| ** **                                                                                                                      | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                      | ** ** | **2006**           | ** ** | **2005**              | ** ** |
| ** **                                                                                                                      | ** ** | **(unaudited)**    | ** ** | ** **            | ** ** |
| ASSETS                                                                                                                          |       |               |       |                  |       |
| Real estate properties, at cost:                                                                                                |       |               |       |                  |       |
| Land                                                                                                                            |       | $                  | 185,819    |                  | $          | 185,819 |   |
| Buildings and  improvements                                                                                                     |       | 1,505,680          |       | 1,500,350             |       |
|                                                                                                                            |       | 1,691,499          |       | 1,686,169             |       |
| Less accumulated  depreciation                                                                                                  |       | 249,763            |       | 239,031               |       |
|                                                                                                                            |       | 1,441,736          |       | 1,447,138             |       |
|                                                                                                                            |       |               |       |                  |       |
| Cash and cash equivalents                                                                                                       |       | 1,247              |       | 14,642                |       |
| Restricted cash                                                                                                                 |       | 1,858              |       | 2,529                 |       |
| Deferred financing fees, net                                                                                                    |       | 9,551              |       | 9,968                 |       |
| Other assets                                                                                                                    |       | 26,165             |       | 25,371                |       |
| Total assets                                                                                                                    |       | $                  | 1,480,557  |                  | $          | 1,499,648 |   |
|                                                                                                                            |       |               |       |                  |       |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                       |       |               |       |                  |       |
| Unsecured revolving bank credit facility                                                                                        |       | $                  | 106,000    |                  | $          | 64,000 |   |
| Senior unsecured notes due 2012 and 2015, net of  discount                                                                      |       | 341,556            |       | 394,018               |       |
| Junior subordinated debentures due 2041                                                                                         |       | 28,241             |       | 28,241                |       |
| Secured debt and capital leases                                                                                                 |       | 69,647             |       | 70,141                |       |
| Accrued interest                                                                                                                |       | 8,829              |       | 13,089                |       |
| Other liabilities                                                                                                               |       | 14,125             |       | 12,182                |       |
| Total liabilities                                                                                                               |       | 568,398            |       | 581,671               |       |
|                                                                                                                            |       |               |       |                  |       |
| Commitments and contingencies                                                                                                   |       |               |       |                  |       |
|                                                                                                                            |       |               |       |                  |       |
| Shareholders’ equity:                                                                                                      |       |               |       |                  |       |
| Common shares of  beneficial interest, $0.01 par value: 80,000,000 shares authorized,  71,812,227 shares issued and outstanding |       | 718                |       | 718                   |       |
| Additional paid-in  capital                                                                                                     |       | 1,093,480          |       | 1,093,480             |       |
| Cumulative net  income                                                                                                          |       | 282,863            |       | 267,196               |       |
| Cumulative  distributions                                                                                                       |       | (470,269           | )          | (447,289              | )          |
| Unrealized gain  on investments                                                                                                 |       | 5,367              |       | 3,872                 |       |
| Total  shareholders’ equity                                                                                                |       | 912,159            |       | 917,977               |       |
| Total  liabilities and shareholders’ equity                                                                                |       | $                  | 1,480,557  |                  | $          | 1,499,648 |   |

 

*See accompanying notes.*

 

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SENIOR HOUSING PROPERTIES TRUST

 

CONSOLIDATED STATEMENT OF INCOME

(in thousands, except per share amounts)

(unaudited)

 
| ** **                            | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------------|------------|----------------------------------------|------------|
| ** **                            | ** ** | **2006**                               | ** ** | **2005** | ** ** |
| Revenues:                             |       |                                   |       |   |   |
| Rental income                         |       | $                                      | 40,823     |   | $ | 38,888 |   |
| Interest and  other income            |       | 346                                    |       | 339 |   |
| Total revenues                        |       | 41,169                                 |       | 39,227 |   |
|                                  |       |                                   |       |   |   |
| Expenses:                             |       |                                   |       |   |   |
| Interest                              |       | 11,371                                 |       | 11,223 |   |
| Depreciation                          |       | 10,731                                 |       | 10,746 |   |
| General and  administrative           |       | 3,400                                  |       | 3,393 |   |
| Total expenses                        |       | 25,502                                 |       | 25,362 |   |
|                                  |       |                                   |       |   |   |
| Net income                            |       | $                                      | 15,667     |   | $ | 13,865 |   |
|                                  |       |                                   |       |   |   |
| Weighted average shares outstanding   |       | 71,812                                 |       | 68,496 |   |
|                                  |       |                                   |       |   |   |
| Basic and diluted earnings per share: |       |                                   |       |   |   |
| Net income                            |       | $                                      | 0.22       |   | $ | 0.20 |   |

 

*Seeaccompanying notes*.

 

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SENIOR HOUSING PROPERTIES TRUST

 

CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

(unaudited)

 
| ** **                                                                     | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                     | ** ** | **2006**                               | ** ** | **2005** | ** ** |
| Cash flows from  operating activities:                                         |       |                                   |       |   |   |
| Net income                                                                     |       | $                                      | 15,667     |   | $ | 13,865 |   |
| Adjustments to  reconcile net income to cash provided by operating activities: |       |                                   |       |   |   |
| Depreciation                                                                   |       | 10,731                                 |       | 10,746 |   |
| Amortization of  deferred finance fees and debt discounts                      |       | 455                                    |       | 531 |   |
| Change in assets  and liabilities:                                             |       |                                   |       |   |   |
| Restricted cash                                                                |       | 671                                    |       | (351 | ) |
| Other assets                                                                   |       | 702                                    |       | 2,998 |   |
| Accrued interest                                                               |       | (4,260                                 | )          | (1,937 | ) |
| Other  liabilities                                                             |       | 1,943                                  |       | (559 | ) |
| Cash provided by  operating activities                                         |       | 25,909                                 |       | 25,293 |   |
|                                                                           |       |                                   |       |   |   |
| Cash flows from  investing activity:                                           |       |                                   |       |   |   |
| Acquisitions                                                                   |       | (5,330                                 | )          | (3,741 | ) |
| Cash used for  investing activity                                              |       | (5,330                                 | )          | (3,741 | ) |
|                                                                           |       |                                   |       |   |   |
| Cash flows from  financing activities:                                         |       |                                   |       |   |   |
| Proceeds from  borrowings on revolving bank credit facility                    |       | 47,000                                 |       | 10,000 |   |
| Repayments of  borrowings on revolving bank credit facility                    |       | (5,000                                 | )          | (9,000 | ) |
| Repayment of  senior notes                                                     |       | (52,500                                | )          | — |   |
| Repayment of  other debt                                                       |       | (494                                   | )          | (471 | ) |
| Deferred  financing fees                                                       |       | —                                 |       | (8 | ) |
| Distributions to  shareholders                                                 |       | (22,980                                | )          | (21,919 | ) |
| Cash used for  financing activities                                            |       | (33,974                                | )          | (21,398 | ) |
|                                                                           |       |                                   |       |   |   |
| Decrease in cash  and cash equivalents                                         |       | (13,395                                | )          | 155 |   |
| Cash and cash  equivalents at beginning of period                              |       | 14,642                                 |       | 3,409 |   |
| Cash and cash  equivalents at end of period                                    |       | $                                      | 1,247      |   | $ | 3,564 |   |
|                                                                           |       |                                   |       |   |   |
| Supplemental  cash flow information:                                           |       |                                   |       |   |   |
| Interest paid                                                                  |       | $                                      | 15,176     |   | $ | 12,629 |   |

 

*See accompanying notes.*

 

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SENIOR HOUSING PROPERTIES TRUST

 

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

 

**Note  1. Basis of Presentation**

 

The accompanying consolidated financial statements ofSenior Housing Properties Trust and our consolidated subsidiaries have beenprepared without audit.  Certaininformation and footnote 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 notmisleading.  However, the accompanyingconsolidated 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, 2005. 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.

 

**Note  2.  RealEstate Properties**

 

At March 31,2006, we owned 188 properties located in 32 states.

 

Asdescribed below in Note 7, we are in litigation with HealthSouth Corporation,or HealthSouth, regarding two rehabilitation hospitals we own.  On February 28, 2006, we agreed to leasethe two hospitals involved in the HealthSouth litigation to Five Star QualityCare, Inc., or Five Star, conditioned upon Five Star’s obtaining thehealth regulatory approvals required to operate the hospitals. Five Star is currentlypursuing the required approvals. When the new lease becomes effective, theannual rent will be $10.25 million per year. In 2008, when we believe accurate financial information based uponstabilized operations will be available and that the litigation withHealthSouth may be concluded, either Five Star or we may request that the rentbe reset effective July 1, 2008.

 

During the three monthsended March 31, 2006, pursuant to the terms of our existing leases withFive Star, we purchased $5.3 million of improvements made to our propertiesleased by Five Star, and, as a result, the annual rent payable to us by FiveStar increased by an average of 10% of the amounts invested, or $525,000.

 

**Note  3.  Unrealized Gain on Investments**

 

On March 31, 2006, we owned one million common shares of HRPTProperties Trust, or HRPT, and 35,000 common shares of Five Star, which arecarried at fair market value in Other Assets on our Consolidated BalanceSheet.  The Unrealized Gain onInvestments shown on our Consolidated Balance Sheet represents the differencebetween the market prices of such shares on March 31, 2006 ($11.74 and $10.89per share, respectively) and on the dates they were acquired ($6.50 and $7.26per share, respectively).

 

**Note 4.  Comprehensive Income**

 

The following is a reconciliation of net income to comprehensive incomefor the three months ended March 31, 2006 and 2005 (dollars in thousands):

 
| ** **                                | ** ** | **Three Months Ended March 31,** | ** ** |
|-------------------------------------------|------------|---------------------------------------|------------|
| ** **                                | ** ** | **2006**                              | ** ** | **2005** | ** ** |
| Net income                                |       | $                                     | 15,394     |   | $ | 13,865 |   |
| Other comprehensive income:               |       |                                  |       |   |   |
| Change in  unrealized gain on investments |       | 1,495                                 |       | (921 | ) |
| Comprehensive income                      |       | $                                     | 16,889     |   | $ | 12,994 |   |

 

4

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**Note 5.  Indebtedness**

 

We have a $550.0 million,interest only, unsecured revolving bank credit facility. Our revolving bankcredit facility matures in November 2009 and may be extended at our optionto November 2010 upon our payment of an extension fee. The interest rate(5.6% at March 31, 2006) is LIBOR plus a premium. As of March 31,2006, $106.0 million was outstanding and $444.0 million was available underthis facility.

 

On January 9, 2006,we redeemed $52.5 million of senior notes and paid a redemption premium of $4.1million, which had been accrued as of December 31, 2005, plus accrued butunpaid interest.

 

**Note 6.  Shareholders’ Equity**

 

## **On February 21,2006, we paid a $0.32 per share, or $23.0 million, distribution to our commonshareholders for the quarter ended December 31, 2005.  On April 4, 2006, we declared adistribution of $0.32 per share, or $23.0 million, to be paid to commonshareholders of record on April 20, 2006, with respect to our results forthe quarter ended March 31, 2006. We expect to pay this distribution on orabout May 18, 2006.**

## ** **

**Note 7. Commitments and Contingencies**

 

Asdescribed in our Annual Report on Form 10-K for the year ended December 31,2005, we are in litigation with HealthSouth. In January 2002, HealthSouthsettled a default under its lease with us by exchanging properties.  We delivered to HealthSouth title to fivenursing homes which HealthSouth leased from us. In exchange, HealthSouth delivered to us title to two rehabilitationhospitals and we entered into an amended lease, reducing the annual rent wereceived from $10.25 million to $8.7 million, extending the lease term andchanging other lease terms between HealthSouth and us. A primary factor whichcaused us to lower the rent for an extended lease term was the purported creditstrength of HealthSouth.  In agreeing tolower the rent and extend the lease term, we relied upon statements made bycertain officers of HealthSouth, upon financial statements and other documentsprovided by HealthSouth, upon public statements made by HealthSouth and itsrepresentatives concerning HealthSouth’s financial condition and upon publiclyavailable documents of HealthSouth.

 

In March 2003, the Securities and ExchangeCommission, or SEC, accused HealthSouth and some of its executives ofpublishing false financial information; since then, according to publishedreports, at least 17 former HealthSouth executives, including all five of itsformer chief financial officers, have been convicted of, or pled guilty to,various crimes.  In April 2003, wecommenced a lawsuit against HealthSouth in the Massachusetts Land Courtseeking, among other matters, to reform the amended lease, based uponHealthSouth’s fraud, by increasing the rent payable to us back to $10.25million from January 2, 2002 until the termination of the amended lease,among other matters.  HealthSouth hasdefended this lawsuit and asserted counterclaims against us arising from thisand unrelated matters.  This litigationis pending at this time.  In June 2004,we declared an event of default under the amended lease because HealthSouthfailed to deliver to us accurate and timely financial information as requiredby the amended lease.  On October 26,2004, we terminated the amended lease because of these defaults. On November 2,2004, HealthSouth brought a second lawsuit against us in the MassachusettsSuperior Court seeking to prevent our termination of the amended lease.  On September 25, 2005, the Superior Courtruled that our termination was proper. On January 18, 2006, the Superior Court ordered HealthSouth tocooperate with us in licensing a new tenant for our two hospitals and to pay usthe hospitals’ net patient revenues, after a 5% management fee and payment ofcosts and expenses of operation, since October 26, 2004.  HealthSouth has filed an appeal of the court’sdecisions; however, HealthSouth’s motions for a stay of the court’s decisionsduring the appeal have been denied by both the trial court and the appealscourt. During the pendency of these disputes, HealthSouth continued to pay usat the disputed rent amount of $725,000 per month through January 2006. FromFebruary 1, 2006 to April 30, 2006, HealthSouth paid us an additional$6.0 million which HealthSouth represented to be amounts due from October 26,2004 to

 

5

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March 31, 2006. The supporting data for the calculations of amounts due to us providedby HealthSouth appears to be incomplete and contradictory. We have attempted toobtain accurate data and clarifications from HealthSouth, but HealthSouth hasbeen unwilling or unable to provide such data. Pending the resolution ofHealthSouth’s appeal and the conclusion of our review of HealthSouth’scalculations of amounts due to us, we have recognized in income only $2.2million, which represents the minimum amount we are entitled to, even ifHealthSouth prevailed in its appeal and HealthSouth’s lease was reinstated. Wehave deferred recognition of the remaining $4.5 million of cash paymentsreceived from HealthSouth. Under Internal Revenue Code laws and regulationsapplicable to real estate investment trusts, or REITs, a portion of thepayments received from HealthSouth will be subject to income tax at corporaterates.  We have also deferred recognitionof $2.3 million of estimated tax expense, pending the recognition in income ofthe deferred payments received. In March 2006, HealthSouth filed late anAnnual Report on Form 10-K for the period ending December 31, 2005.The financial and operating data included in HealthSouth’s Form 10-K showa substantial negative net worth and a history of substantial operating losses.Also, HealthSouth’s management identified several material weaknesses in itsinternal control over financial reporting and stated that it did not maintaineffective internal control over financial reporting as of December 31,2005.  To date we have been unable toobtain reliable current financial information about the operations ofHealthSouth or our hospitals. Accordingly, we do not know if we will be able tocollect any additional amounts which the courts may determine to be owed to usby HealthSouth.  Legal expenses incurredrelated to our disputes with HealthSouth were $390,000 and $400,000 for thethree months ended March 31,2006 and 2005, respectively, and are included in general and administrativeexpense. We expect these legal expenses to continue so long as our litigationswith HealthSouth continue, but we cannot predict the amount of these futureexpenses. We have filed a motion seeking an order requiring HealthSouth to reimbursesome of our legal fees. HealthSouth has opposed this motion and we do not knowwhen or how this request will be decided.

 

**Note 8. Subsequent Events**

 

InApril 2006, we agreed to purchase, from an unaffiliated third party, oneindependent living community with resident capacity of 194 for $19.1million.  Simultaneous with our purchaseof this property, Five Star will lease it from us for annual rent of $1.6million plus a percentage of future revenue increases at this community.  Substantially all of the revenues at thiscommunity are paid by residents from their own resources.  We expect to fund this acquisition using cashon hand, borrowings under our revolving bank credit facility and by theassumption of $13.0 million of mortgage debt.

 

6

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**Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations**

 

The following discussionshould be read in conjunction with our consolidated financial statements andnotes thereto included in this quarterly report and our Annual Report on Form 10-Kfor the year ended December 31, 2005.

 

**PORTFOLIO OVERVIEW**

** **

**The following tables present an overview of our portfolio:**

** **
| **As of March 31, 2006  (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)                   |       | 36                   |       | 10,412              |       | $                                      | 908,977    |                | 53.7       | %                            | $          | 90,522                              |       | 54.3 | % |
| Assisted living  facilities                           |       | 89                   |       | 6,197               |       | 516,674                                |       | 30.6                | %          | 50,272                       |       | 30.1                                | %          |
| Skilled nursing  facilities                           |       | 61                   |       | 6,309               |       | 222,295                                |       | 13.1                | %          | 17,334                       |       | 10.4                                | %          |
| Hospitals                                             |       | 2                    |       | 364                 |       | 43,553                                 |       | 2.6                 | %          | 8,700                        |       | 5.2                                 | %          |
| Total                                                 |       | 188                  |       | 23,282              |       | $                                      | 1,691,499  |                | 100.0      | %                            | $          | 166,828                             |       | 100.0 | % |
|                                                  |       |                 |       |                |       |                                   |       |                |       |                         |       |                                |       |
| Tenant/Operator                                       |       |                 |       |                |       |                                   |       |                |       |                         |       |                                |       |
| Five  Star/Sunrise (3)                                |       | 30                   |       | 7,307               |       | $                                      | 634,222    |                | 37.5       | %                            | $          | 64,246                              |       | 38.5 | % |
| Five Star                                             |       | 106                  |       | 8,467               |       | 490,390                                |       | 29.0                | %          | 39,780                       |       | 23.8                                | %          |
| Sunrise/Marriott  (4)                                 |       | 14                   |       | 4,091               |       | 325,473                                |       | 19.2                | %          | 31,087                       |       | 18.6                                | %          |
| NewSeasons/IBC  (5)                                   |       | 10                   |       | 1,019               |       | 87,641                                 |       | 5.2                 | %          | 9,287                        |       | 5.6                                 | %          |
| HealthSouth (6)                                       |       | 2                    |       | 364                 |       | 43,553                                 |       | 2.6                 | %          | 8,700                        |       | 5.2                                 | %          |
| Alterra/Brookdale  (7)                                |       | 18                   |       | 894                 |       | 61,126                                 |       | 3.6                 | %          | 7,232                        |       | 4.3                                 | %          |
| Genesis  HealthCare Corporation                       |       | 1                    |       | 156                 |       | 13,007                                 |       | 0.8                 | %          | 1,535                        |       | 1.0                                 | %          |
| 5 private  companies (combined)                       |       | 7                    |       | 984                 |       | 36,087                                 |       | 2.1                 | %          | 4,961                        |       | 3.0                                 | %          |
| Total                                                 |       | 188                  |       | 23,282              |       | $                                      | 1,691,499  |                | 100.0      | %                            | $          | 166,828                             |       | 100.0 | % |

 

**Tenant Operating Statistics (Quarter Ended March 31)(8)**

 
| ** **                      | ** ** | ** **        | ** ** | ** **    | ** ** | ** **      | ** ** | ** **   | ** ** | **Percentage of Operating Revenue Sources** | ** ** |
|---------------------------------|------------|-------------------|------------|---------------|------------|-----------------|------------|--------------|------------|---------------------------------------------|------------|
| ** **                      | ** ** | **Rent Coverage** | ** ** | **Occupancy** | ** ** | **Private Pay** | ** ** | **Medicare** | ** ** | **Medicaid**                                | ** ** |
| ** **                      | ** ** | **2006**          | ** ** | **2005**      | ** ** | **2006**        | ** ** | **2005**     | ** ** | **2006**                                    | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Five  Star/Sunrise (3)          | ** ** | 1.33              | x     | 1.41          | x          | 93              | %          | 92           | %          | 82                                          | %          | 85 | % | 14 | % | 12 | % | 4 | % | 3 | % |
| Five Star (9)                   | ** ** | 1.49              | x     | 1.77          | x          | 91              | %          | 87           | %          | 48                                          | %          | 41 | % | 16 | % | 19 | % | 36 | % | 40 | % |
| Sunrise/Marriott  (4)           | ** ** | 1.26              | x     | 1.25          | x          | 92              | %          | 90           | %          | 80                                          | %          | 80 | % | 16 | % | 16 | % | 4 | % | 4 | % |
| NewSeasons/IBC  (5)             | ** ** | 1.16              | x     | 1.11          | x          | 85              | %          | 79           | %          | 100                                         | %          | 100 | % | — |   | — |   | — |   | — |   |
| HealthSouth (6)                 | ** ** | NA                |       | NA            |       | NA              |       | NA           |       | NA                                          |       | NA |   | NA |   | NA |   | NA |   | NA |   |
| Alterra/Brookdale  (7)          | ** ** | 2.04              | x     | 1.63          | x          | 90              | %          | 84           | %          | 98                                          | %          | 98 | % | — |   | — |   | 2 | % | 2 | % |
| Genesis  HealthCare             | ** ** | 1.77              | x     | 1.71          | x          | 97              | %          | 96           | %          | 17                                          | %          | 23 | % | 40 | % | 29 | % | 43 | % | 48 | % |
| 5 private  companies (combined) | ** ** | 1.56              | x     | 1.87          | x          | 90              | %          | 87           | %          | 26                                          | %          | 24 | % | 20 | % | 21 | % | 54 | % | 55 | % |

** **

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**(1)**          Amountsare before depreciation, but after impairment write downs.

** **

**(2)**          Propertieswhere the majority of units are independent living apartments are classified asindependent living communities.

** **

**(3)**          These30 properties are leased to Five Star and 17 were managed by Sunrise SeniorLiving, Inc., or Sunrise, at March 31, 2006. As of March 31,2006, Five Star operated 13 of these 30 properties and intends to beginoperating 10 additional properties during the second quarter of 2006. Sunrisedoes not guaranty Five Star’s lease obligations. The rent that Five Star paysto us is subordinate to the management fees that Five Star pays to Sunrise, butis not subordinate to Five Star’s internal management costs.  The rent coverage presented for this leasehas been adjusted to exclude management fees paid to Sunrise during the periodspresented for the 23 properties that Five Star currently manages and expects tomanage in the second quarter of 2006. Rent coverage is after non-subordinatedmanagement fees of $1.4 million and $1.3 million in the quarter ended March 31,2006 and 2005, respectively, related to the remaining seven properties thatSunrise will manage.

** **

**(4)**          MarriottInternational, Inc., or Marriott, guarantees the lease for the 14properties leased to Sunrise.

** **

**(5)**          IndependenceBlue Cross, or IBC, a Pennsylvania health insurer, guarantees the lease for the10 properties leased to NewSeasons Assisted Living Communities, Inc., orNewSeasons.

** **

(6)          Because we do not have reliable informationabout HealthSouth’s operations, we do not disclose any operating or financialdata for these hospitals or this operator. See Note 7 to our consolidated financial statements regarding ourlitigation with HealthSouth and the income we are recognizing with respect tothese two hospitals.

 

(7)          Brookdale Senior Living, Inc., or Brookdale,guarantees the lease for the 18 properties leased to Alterra HealthcareCorporation, or Alterra.

 

(8)          All tenant operating data presented are basedupon the operating results provided by our tenants for the indicated quarterlyperiods, or the most recent prior period for which tenant operating results areavailable to us from our tenants. Rent coverage is calculated as operating cashflow from our tenants’ facility operations, before subordinated charges andcapital expenditure reserves, divided by rent payable to us. We have notindependently verified our tenants’ operating data.

 

**(9)**          Includesdata for periods prior to our ownership of certain properties included in thislease.

 

7

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**RESULTS OF OPERATIONS**

** **

**Three Months Ended March 31,2006, Compared to Three Months Ended March 31, 2005:**

 
| ** **                          | ** **   | **2006**                                     | ** **   | **2005** | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
|-------------------------------------|--------------|----------------------------------------------|--------------|----------|------------|-------------------|------------|--------------|------------|
| *** ***                        | *** *** | **(in thousands, except per share amounts)** | *** *** |
| Rental income                       |         | $                                            | 40,823       |     | $          | 38,888            |       | $            | 1,935      |   | 5.0 | % |
| Interest and other income           |         | 346                                          |         | 339      |       | 7                 |       | 2.1          | %          |
|                                |         |                                         |         |     |       |              |       |         |       |
| Interest expense                    |         | 11,371                                       |         | 11,223   |       | 148               |       | 1.3          | %          |
| Depreciation expense                |         | 10,731                                       |         | 10,746   |       | (15               | )          | (0.1         | )%         |
| General and administrative expense  |         | 3,400                                        |         | 3,393    |       | 7                 |       | 0.2          | %          |
| Impairment of assets                |         |                                         |         |     |       |              |       |         |       |
|                                |         |                                         |         |     |       |              |       |         |       |
| Net income                          |         | $                                            | 15,667       |     | $          | 13,865            |       | $            | 1,802      |   | 13.0 | % |
| Weighted average shares outstanding |         | 71,812                                       |         | 68,496   |       | 3,316             |       | 4.9          | %          |
| Net income per share                |         | $                                            | 0.22         |     | $          | 0.20              |       | $            | 0.02       |   | 10.0 | % |

 

Rental income increased because of rents from our real estateacquisitions totaling $97.5 million, offset by rent reductions resulting fromthe sale of three properties for $12.5 million during 2005. See Note 7 to ourconsolidated financial statements for an explanation of our recognition of rentalincome from HealthSouth.

 

Interest expense increased due to higher interest costs associated withour revolving bank credit facility offset by a decrease in interest on oursenior notes as a result of our repayment of $52.5 million of these notes in January 2006.  Our weighted average balance outstanding andinterest rate under our revolving bank credit facility was $101.9 million and 5.6%and $38.5 million and 4.0% for the three months ended March 31, 2006 and2005, respectively.

 

Depreciation expense for the first quarter of 2006 decreased as aresult of the sale of three properties and the cessation of depreciationexpense on $14.7 million of furniture, fixtures and equipment that became fullydepreciated in 2005.  These decreases wereoffset by increased depreciation on our real estate acquisitions totaling $97.5million in 2005.  General and administrative expenses increased in 2006 dueto acquisitions since April 1, 2005. General and administrative expensesinclude $390,000 and $400,000 of HealthSouth litigation costs in the first quartersof 2006 and 2005, respectively.

 

Net income and net income per share increased because of the changes inrevenues and expenses described above. The weighted average number of sharesoutstanding increased as a result of our issuance of common shares in December 2005.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

Our Operating Liquidity and Resources

 

Rents from our properties are our principal sources of funds forcurrent expenses and distributions to shareholders.  We generally receive minimum rents monthly orquarterly from our tenants and we receive percentage rents monthly, quarterlyor annually.  This flow of funds hashistorically been sufficient for us to pay our operating expenses, debt serviceand distributions to shareholders.  Webelieve that this operating cash flow will be sufficient to meet our operatingexpenses, debt service and distribution payments for the foreseeable future.

 

8

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Our Investment and Financing Liquidity and Resources

 

## **In order to fund acquisitions andto accommodate cash needs that may result from timing differences between ourreceipt of rents and our need or desire to pay operating expenses anddistributions to our shareholders, we maintain a revolving bank credit facilitywith a group of commercial banks and other lenders. Our revolving bank creditfacility matures in November 2009, and we may extend it to November 2010upon payment of an extension fee. The revolving bank credit facility permits usto borrow up to $550.0 million, and includes a feature under which we mayexpand the maximum borrowing to $1.1 billion, in certain circumstances.  Borrowings under our revolving bank creditfacility are unsecured.  We may borrow,repay and reborrow funds until maturity. No principal repayment is due untilmaturity.  We pay interest on borrowingsunder the revolving bank credit facility at LIBOR plus a premium. At March 31,2006, the annual interest rate payable on our revolving bank credit facilitywas 5.6%.**

## ** **

On January 9, 2006, we redeemed $52.5 million of senior notes andpaid a redemption premium of $4.1 million plus accrued but unpaidinterest.  We funded these amounts with aportion of the net proceeds from our December 2005 equity offering, whichhad been temporarily used to repay borrowings outstanding under our revolvingbank credit facility.

 

During 2006, we purchased $5.3 million of improvements made to some ofour properties. We used cash on hand to fund these purchases.

 

At March 31, 2006, we had $1.2 million of cash and cash equivalentsand $444.0 million available under our revolving bank credit facility.  We expect to use cash balances, borrowingsunder our revolving bank credit facility and net proceeds of offerings ofequity or debt securities to fund future property acquisitions and expendituresrelated to the repair, maintenance or renovation of our properties.

 

In April 2006, we agreed to purchase a property for $19.1million.  We expect to use cash on hand,borrowings under our revolving bank credit facility and the assumption of $13.0million of mortgage debt to fund this acquisition. The sale is expected toclose in the second half of 2006.

 

When significantamounts are outstanding under our revolving bank credit facility or as thematurity dates of our revolving bank credit facility and term debts approach,we will explore alternatives for the repayment of amounts due.  Such alternatives may include incurringadditional debt and issuing new equity securities.  As of March 31, 2006, we had $1.4billion available on an effective shelf registration statement. An effectiveshelf registration statement allows us to issue public securities on anexpedited basis, but it does not assure that there will be buyers for suchsecurities.  Although there can be noassurance that we will complete any debt or equity offerings or otherfinancings, we believe we will have access to various types of financings,including debt or equity offerings, to finance future acquisitions and to payour debts and other obligations.

 

On February 21,2006, we paid a $0.32 per common share, or $23.0 million, distribution to ourcommon shareholders for the quarter ended December 31, 2005.  On April 4, 2006, we declared adistribution of $0.32 per common share, or $23.0 million, to be paid to ourcommon shareholders of record on April 20, 2006 with respect to ourresults for the quarter ended March 31, 2006.  We expect to pay this distribution on orabout May 18, 2006, using cash on hand and borrowings under our revolvingbank credit facility.

 

9

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As of March 31, 2006, our contractual obligations were as follows(dollars in thousands):

 
| ** **                     | ** ** | **Payments due by period** | ** ** |
|--------------------------------|------------|----------------------------|------------|
| **Contractual Obligations**    | ** ** | **Total**                  | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **More than   5 years** | ** ** |
| Long-Term Debt Obligations(1)  |       | $                          | 434,237    |   | $ | 794 |   | $ | 2,336 |   | $ | 2,664 |   | $ | 428,443 |   |
| Revolving Bank Credit Facility |       | 106,000                    |       | — |   | — |   | 106,000 |   | — |   |
| Capital Lease Obligations      |       | 6,151                      |       | 694 |   | 2,052 |   | 1,778 |   | 1,627 |   |
| Ground Lease Obligations       |       | 3,034                      |       | 142 |   | 284 |   | 284 |   | 2,324 |   |
| Total                          |       | $                          | 549,422    |   | $ | 1,630 |   | $ | 4,672 |   | $ | 110,726 |   | $ | 432,394 |   |

 

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(1)          Our term debt maturities areas follows:  $281.4 million in 2012; $12.4million in 2013; $97.5 million in 2015; $14.7 million in 2027; and $28.2million in 2041.

 

Asof May 2, 2006, we have no commercial paper, derivatives, swaps, hedges,joint ventures or partnerships. We have no off balance sheet arrangements otherthan our trust preferred securities issued by an unconsolidated subsidiary ofours. The junior subordinated debentures due in 2041 which fund these trustpreferred securities are included on our balance sheet.

 

## **Debt Covenants**

## ** **

Our principal debt obligations at March 31, 2006, were ourunsecured revolving bank credit facility, two issues totaling $342.5 million ofunsecured senior notes, our $28.2 million of junior subordinated debentures and$63.5 million of mortgage debt and bonds secured by 21 of our properties. Oursenior notes are governed by an indenture. This indenture and related supplements and our revolving bank creditfacility contain a number of financial ratio covenants which generally restrictour ability to incur debts, including debts secured by mortgages on ourproperties in excess of calculated amounts, require us to maintain a minimumnet worth, restrict our ability to make distributions under certaincircumstances and require us to maintain other ratios.  Our junior subordinated debentures aregoverned by an indenture which is generally less restrictive than the indenturegoverning our senior notes and the terms of our revolving bank creditfacility.  As of March 31, 2006, webelieve we were in compliance with all of the covenants under our indenturesand related supplements and our revolving bank credit facility.

 

None of our indentures and related supplements, ourrevolving bank credit facility or our other debt obligations contain provisionsfor acceleration which could be triggered by our debt ratings. However, incertain circumstances our revolving bank credit facility uses our senior debtrating to determine the fees and the interest rate payable.

 

Our public debt indenture and related supplementscontain cross default provisions with any other debts of $10.0 million ormore.  Similarly, a default on our publicdebt or junior subordinated debentures indenture would be a default under ourrevolving bank credit facility.

 

## **Related Party Transactions**

## ** **

On February 28,2006, we agreed to lease the two hospitals involved in the HealthSouthlitigation described above in Note 7 to our consolidated financial statements toFive Star, conditioned upon Five Star’s obtaining the health regulatoryapprovals required to operate the hospitals. Five Star has applied for therequired regulatory approvals, but the regulatory authorities have made apreliminary determination that an agreement from HealthSouth may be required. Weand Five Star have asked these authorities to reconsider this determination. Whenthe new lease with Five Star becomes effective, the annual rent will be $10.25million per year. In 2008, when we believe accurate financial information basedupon stabilized operations will be available and that the litigation withHealthSouth may be concluded, either Five Star or we may request that the rentbe reset effective July 1, 2008.

 

10

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Duringthe three months ended March 31, 2006, pursuant to the terms of our existingleases with Five Star, we purchased $5.3 million of improvements made to ourproperties leased by Five Star, and, as a result, the annual rent payable to usby Five Star increased by an average of 10% of the amounts invested, or $525,000.

 

In April 2006, weagreed to purchase, from an unaffiliated third party, one independent livingcommunity with resident capacity of 194 for $19.1 million.  Simultaneous with our purchase of thisproperty, Five Star will lease it from us for annual rent of $1.6 million plusa percentage of future revenue increases at this community.  Substantially all of the revenues at thiscommunity are paid by residents from their own resources.  We expect to fund this acquisition using cashon hand, borrowings under our revolving bank credit facility and by theassumption of $13.0 million of mortgage debt.

 

**Item3.  Quantitative and QualitativeDisclosures about Market Risk**

 

We are exposed to risks associated with market changes in interestrates.  We manage our exposure to thismarket risk by monitoring available financing alternatives.  Our strategy to manage exposure to changes ininterest rates is unchanged since December 31, 2005.  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.

 

Our unsecured revolving bank credit facility accrues interest atfloating rates and matures in November 2009.  At March 31, 2006, we had $106.0 millionoutstanding and $444.0 million available for borrowing under our revolving bankcredit facility. We may make repayments and drawings under our revolving bankcredit facility at any time without penalty. We borrow in U.S. dollars and borrowings under our revolving bank creditfacility accrue interest at LIBOR plus a premium. Accordingly, we arevulnerable to changes in U.S. dollar based short term interest rates,specifically LIBOR.  A change in interestrates would not affect the value of this floating rate debt but would affectour operating results.  For example, theinterest rate payable on our outstanding revolving indebtedness of $106.0million at March 31, 2006, was 5.69% per annum.  The following table presents the impact a 10%change in interest rates would have on our floating rate interest expense at March 31,2006 (dollars in thousands):

 
| ** **             | ** ** | **Impact of Changes in Interest Rates** | ** ** |
|------------------------|------------|-----------------------------------------|------------|
| ** **             | ** ** | **Interest Rate   Per Year**            | ** ** | **Outstanding   Debt** | ** ** | **Total Interest   Expense Per   Year** | ** ** |
| At March 31, 2006 |       | 5.69                                    | %          | $ | 106,000 |   | $ | 6,031 |   |
| 10% reduction          |       | 5.12                                    | %          | $ | 106,000 |   | $ | 5,427 |   |
| 10% increase           |       | 6.26                                    | %          | $ | 106,000 |   | $ | 6,636 |   |

 

The foregoing table shows the impact of animmediate change in floating interest rates. If interest rates were to change gradually over time, the impact wouldbe spread over time.  Our exposure tofluctuations in floating interest rates will increase or decrease in the futurewith increases or decreases in the outstanding amount under our revolving bankcredit facility or other floating rate obligations.

 

11

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**Item4.  Controls and Procedures**

 

As of the end of the period covered by this report,our management carried out an evaluation, under the supervision and with theparticipation of our managing trustees, President and Chief Operating Officerand Treasurer and Chief Financial Officer, of the effectiveness of ourdisclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and15d-15.  Based upon that evaluation, ourmanaging trustees, President and Chief Operating Officer and Treasurer andChief Financial Officer concluded that our disclosure controls and proceduresare effective.

 

There have been no changes in our internal control over financialreporting during the quarter ended March 31, 2006, that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

 

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**WARNING CONCERNINGFORWARD LOOKING STATEMENTS**

** **

THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD LOOKINGSTATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACTOF 1995 AND OTHER FEDERAL SECURITIES LAWS. THESE STATEMENTS REPRESENT OUR PRESENT BELIEFS AND EXPECTATIONS, BUTTHEY MAY NOT OCCUR FOR VARIOUS REASONS. FOR EXAMPLE:

 

•                  A MASSACHUSETTS TRIAL COURT HAS RULED THAT OUR TERMINATION OFHEALTHSOUTH CORPORATION’S LEASE OF TWO HOSPITALS WAS PROPER AND ORDEREDHEALTHSOUTH TO PAY US THE NET PATIENT REVENUES, LESS A MANAGEMENT FEE ANDOPERATION COSTS, SINCE OCTOBER 26, 2004. HOWEVER, HEALTHSOUTH HAS FILED A NOTICE OF APPEAL OF THESE DECISIONS ANDHEALTHSOUTH’S APPEAL MAY BE SUCCESSFUL.

 

•                  A MASSACHUSETTS TRIAL COURT HAS ORDERED HEALTHSOUTH TO COOPERATE WITHUS TO LICENSE A NEW TENANT FOR OUR HOSPITALS OPERATED BY HEALTHSOUTH.  HEALTHSOUTH HAS FILED A NOTICE TO APPEAL THISDECISION AND THAT APPEAL HAS NOT BEEN DECIDED, ALTHOUGH A STAY PENDING APPEALSOUGHT BY HEALTHSOUTH WAS DENIED. HEALTHSOUTH RECENTLY FILED A MOTION IN THE TRIAL COURT SEEKING TO LIMITITS COOPERATION WITH THE LICENSING PROCESS AND FOR OTHER RELIEF.  FUTURE ACTIONS BY HEALTHSOUTH, FUTUREDECISIONS BY COURTS WITH JURISDICTION OVER THESE MATTERS OR DECISIONS BY HEALTHREGULATORY AUTHORITIES MAY DELAY OR PREVENT OUR ENTERING A LEASE WITH ANEW TENANT FOR OUR HOSPITALS DESPITE THE EXISTING COURT ORDERS.

 

•                  THE COURT HAS ORDERED HEALTHSOUTH TO CONTINUE OPERATIONS OF OURHOSPITALS DURING THE PERIOD OF TRANSITION TO A NEW TENANT. HEALTHSOUTH MAY BEUNWILLING OR UNABLE TO CONTINUE ITS OPERATIONS. IN SUCH CIRCUMSTANCES, WE MAY SEEKDAMAGES FROM HEALTHSOUTH AND TO CONTINUE THE HOSPITALS’ OPERATIONS WITHAPPROPRIATE REGULATORY APPROVALS, BUT WE MAY BE UNABLE TO COLLECT SUCHDAMAGES FROM HEALTHSOUTH OR TO CONTINUE THE HOSPITALS’ OPERATIONS.

 

•                  IN A SECOND LITIGATION, WE ARE SEEKING TO COLLECT INCREASED RENT FROMHEALTHSOUTH SINCE JANUARY 2002.  THEFACT THAT WE HAVE RECEIVED A FAVORABLE RULING IN A SEPARATE LITIGATION MAY IMPLYTHAT WE WILL ALSO SUCCEED IN THIS INCREASED RENT LITIGATION.  HOWEVER, THE ISSUES IN THESE TWO LITIGATIONSARE SOMEWHAT DIFFERENT AND ARE PENDING IN DIFFERENT COURTS.  WE BELIEVE ALL OF OUR CLAIMS ARE VALID.  HOWEVER, NOT ALL OF OUR CLAIMS HAVE BEENFINALLY DETERMINED AND THE FACT THAT WE HAVE RECEIVED FAVORABLE RULINGS IN ONECASE DOES NOT MEAN WE WILL SUCCEED IN THE OTHER CASE.

 

•                  WE HAVE ENTERED AN AGREEMENT TO LEASE TO FIVE STAR THE TWO HOSPITALSINVOLVED IN THE HEALTHSOUTH LITIGATION, CONDITIONED UPON REGULATORYAPPROVALS.  THE IMPLICATION OF THISSTATEMENT IS THAT THE REGULATORY APPROVALS WILL BE FORTHCOMING AND THE LEASEWILL BECOME EFFECTIVE.  HOWEVER, THEREGULATORY AUTHORITIES HAVE MADE A PRELIMINARY DETERMINATION THAT FIVE STAR’SAPPLICATIONS FOR APPROVAL REQUIRE AN AGREEMENT FROM HEALTHSOUTH AND WE AND FIVESTAR MAY BE UNABLE TO OBTAIN THAT AGREEMENT. WE HAVE NO ABILITY TO ENSURETHAT REGULATORY APPROVALS WILL BE OBTAINED, AND THEY MAY NOT BEOBTAINED.  IF SUCH APPROVALS ARE NOTOBTAINED, THE LEASE MAY NEVER BECOME EFFECTIVE.

 

•                  IF THE NEW HOSPITALS’ LEASE BECOMES EFFECTIVE, EITHER WE OR FIVE STAR MAY REQUESTTHAT THE RENT BE RESET EFFECTIVE JULY 1, 2008, BY WHICH TIME WE EXPECT THEFINANCIAL OPERATIONS OF THESE HOSPITALS TO BECOME STABILIZED, ACCURATE FINANCIALINFORMATION TO BE KNOWN, AND THE LITIGATION WITH HEALTHSOUTH TO BECONCLUDED.  THE IMPLICATION OF THISSTATEMENT IS THAT WE MAY BE ABLE TO RAISE THE RENT EFFECTIVE JULY 1,2008.  IN FACT, IT MAY TAKE LONGERTO STABILIZE THE FINANCIAL AFFAIRS AND ACCOUNTS OF THE HOSPITALS AND THELITIGATION WITH HEALTHSOUTH MAY CONTINUE BEYOND JULY 1, 2008.  MOREOVER, A RENT RESET MAY RESULT IN ARENT DECLINE.  ALSO, IF WE AND FIVE STARARE UNABLE TO AGREE UPON A RESET RENT EFFECTIVE JULY 1, 2008, WE MAY DECIDETO IDENTIFY A NEW TENANT FOR THESE HOSPITALS.

 

13

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•                  THE IMPLICATION OF THE FORWARDLOOKING STATEMENTS IN THIS REPORT REGARDING OUR LITIGATIONS WITH HEALTHSOUTH MAY BETHAT WE WILL EVENTUALLY RECOGNIZE MORE INCOME FROM OUR OWNERSHIP OF THE TWOHOSPITALS THAN $725,000 PER MONTH. HOWEVER, THIS IMPLICATION MAY NOT BEREALIZED FOR MANY DIFFERENT REASONS:  OURREVIEW OF HEALTHSOUTH’S CALCULATIONS OF AMOUNTS DUE TO US MAY RESULT INADJUSTMENTS THAT DECREASE OR INCREASE THE FINAL AMOUNTS DUE TO US. HEALTHSOUTH MAY BECOMEUNABLE TO PAY THE INCREASED AMOUNTS, IF ANY, DUE TO US.  WE MAY BE UNABLE TO IDENTIFY A NEWTENANT FOR THESE HOSPITALS WHO OBTAINS APPROPRIATE LICENSES AND WHO IS WILLINGOR ABLE TO PAY INCREASED RENTS.  HEALTHSOUTH’SAPPEAL MAY BE SUCCESSFUL AND ITS LEASE MAY BE REINSTATED.  THE FINANCIAL RESULTS OF THE HOSPITALS’OPERATIONS MAY DECLINE AND THIS DECLINE MAY BE MATERIAL.  IN FACT, HEALTHSOUTH MAY CEASE PAYINGAMOUNTS DUE TO US UNTIL A NEW TENANT IS INSTALLED AT THE HOSPITALS.

 

•                  LITIGATION IS EXPENSIVE. SINCE THE CURRENT LITIGATIONS BETWEEN US ANDHEALTHSOUTH BEGAN IN APRIL 2003, WE HAVE SPENT APPROXIMATELY $2.7 MILLIONIN LITIGATION COSTS.  WE EXPECT THATTHESE EXPENSES WILL CONTINUE AND MAY INCREASE SO LONG AS THE LITIGATIONSCONTINUE.  MOREOVER, WE ARE UNABLE TOPROVIDE ANY PROJECTIONS AS TO WHEN THESE LITIGATIONS MAY END OR THEAMOUNTS OF FUTURE LITIGATION COSTS. WEHAVE REQUESTED THAT THE COURT ORDER HEALTHSOUTH TO PAY SOME OF OUR LITIGATIONCOSTS.  HEALTHSOUTH HAS OPPOSED THISREQUEST AND WE DO NOT KNOW HOW THE COURTS WILL RULE OR WHETHER HEALTHSOUTH WILLBE WILLING OR ABLE TO HONOR ANY AWARD WHICH MAY BE MADE.

 

•                  OTHER RISKS MAY ADVERSELY IMPACT US, ASDESCRIBED MORE FULLY UNDER “ITEM 1A. RISK FACTORS” IN OUR ANNUAL REPORT ON FORM 10-KFOR THE YEAR ENDED DECEMBER 31, 2005.

 

YOU SHOULD NOTPLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS.  EXCEPT AS MAY BE REQUIRED BY APPLICABLELAW, WE UNDERTAKE NO OBLIGATION TO UPDATE OR REVISE ANY FORWARD LOOKING STATEMENTSAS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

 

**STATEMENT CONCERNING LIMITEDLIABILITY**

 

THE ARTICLES OFAMENDMENT AND RESTATEMENT OF THE DECLARATION OF TRUST ESTABLISHING SENIORHOUSING PROPERTIES TRUST, DATED SEPTEMBER 20, 1999, A COPY OF WHICH,TOGETHER WITH ALL AMENDMENTS AND SUPPLEMENTS THERETO, IS DULY FILED IN THEOFFICE OF THE STATE DEPARTMENT OF ASSESSMENTS AND TAXATION OF MARYLAND,PROVIDES THAT THE NAME “SENIOR HOUSING PROPERTIES TRUST” REFERS TO THE TRUSTEESUNDER THE DECLARATION OF TRUST AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY,AND THAT 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 1.      LegalProceedings**

** **

Ourlitigation with HealthSouth, as described in our Annual Report 10-K for theyear ending December 31, 2005 and elsewhere in this Quarterly Report onForm 10-Q, is continuing.

 

**Item 6.      Exhibits**

** **
| 12.1     |     | Computation  of Ratio of Earnings to Fixed Charges. *(Filed herewith.)* |
|----------|----------|-------------------------------------------------------------------------|
|     |     |                                                                    |
| 31.1     |     | Rule 13a-14(a) Certification.  *(Filed herewith.)*            |
|     |     |                                                                    |
| 31.2     |     | Rule 13a-14(a) Certification.  *(Filed herewith.)*            |
| * * | * * | * *                                                                |
| 31.3     |     | Rule 13a-14(a) Certification.  *(Filed herewith.)*            |
| * * | * * | * *                                                                |
| 31.4     |     | Rule 13a-14(a) Certification.  *(Filed herewith.)*            |
| * * | * * | * *                                                                |
| 32.1     |     | Section 1350 Certification. *(Furnished herewith.)*                |

 

15

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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 3, 2006 |
|   |                             |   |
|   |                             |   |
|   | By:                              | /s/ John R.  Hoadley |   |
|   |                             | John R. Hoadley |
|   |                             | Treasurer and  Chief Financial Officer |
|   |                             | (principal  financial officer) |
|   |                             | Dated:   May 3, 2006 |
|        |                                  |  |  |  |

 

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