** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

** **

**FORM10-Q**

** **

**ý****                      ****QUARTERLY REPORT PURSUANT TO SECTION13 OR 15(d)**

**OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended March 31, 2005**

 

**OR**

 

**o****                      ****TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934**

 

**Commission File Number 1-15319**

 

**SENIORHOUSING PROPERTIES TRUST**

 
| **Maryland**                                       |   | **04-3445278**                     |
|----------------------------------------------------|--------|------------------------------------|
| (State  of Organization)                           |   | (IRS  Employer Identification No.) |
|                                               |   |                               |
| **400 Centre Street, Newton, Massachusetts 02458** |
|                                               |
| **617-796-8350**                                   |

 

 

Indicate by check mark whether the registrant:  (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months, and (2) has been subject to such filing requirements forthe past 90 days.  Yes ý  No o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act). Yes ý  No o

 

Number of registrant’s common shares outstanding as of May 3,2005:  68,534,927

 

 

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SENIOR HOUSING PROPERTIESTRUST

 

FORM 10-Q

 

March 31, 2005

 

INDEX

 
| PART I   | Financial Information                                                                         |   |
|----------|-----------------------------------------------------------------------------------------------|--------|
|     |                                                                                          |   |
| Item 1.  | Financial Statements  (unaudited)                                                             |   |
|     |                                                                                          |   |
|     | Consolidated Balance Sheet –  March 31, 2005 and December 31, 2004                       |   |
|     |                                                                                          |   |
|     | Consolidated Statement  of Income – Three Months Ended March 31, 2005 and 2004           |   |
|     |                                                                                          |   |
|     | Consolidated  Statement of Cash Flows – Three  Months Ended March 31, 2005 and 2004 |   |
|     |                                                                                          |   |
|     | 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  2. | Unregistered  Sales of Equity Securities and Use of Proceeds                                  |   |
|     |                                                                                          |   |
| 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 PROPERTIESTRUST

 

**PARTI.  Financial Information**

** **

**Item1.**    Financial Statements

CONSOLIDATED BALANCE SHEET

(inthousands, except share amounts)

 
| ** **                                                                                                                      | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|------------------------|------------|
| ** **                                                                                                                      | ** ** | **(unaudited)**     | ** ** | ** **             | ** ** |
| ASSETS                                                                                                                          |       |                |       |                   |       |
| Real estate  properties, at cost:                                                                                               |       |                |       |                   |       |
| Land                                                                                                                            |       | $                   | 178,357    |                   | $          | 178,353 |   |
| Buildings and  improvements                                                                                                     |       | 1,426,336           |       | 1,422,599              |       |
|                                                                                                                            |       | 1,604,693           |       | 1,600,952              |       |
| Less accumulated  depreciation                                                                                                  |       | 209,978             |       | 199,232                |       |
|                                                                                                                            |       | 1,394,715           |       | 1,401,720              |       |
|                                                                                                                            |       |                |       |                   |       |
| Cash and cash  equivalents                                                                                                      |       | 3,564               |       | 3,409                  |       |
| Restricted cash                                                                                                                 |       | 6,527               |       | 6,176                  |       |
| Deferred  financing fees, net                                                                                                   |       | 8,885               |       | 9,367                  |       |
| Other assets                                                                                                                    |       | 23,157              |       | 27,058                 |       |
| Total assets                                                                                                                    |       | $                   | 1,436,848  |                   | $          | 1,447,730 |   |
|                                                                                                                            |       |                |       |                   |       |
| LIABILITIES AND  SHAREHOLDERS’ EQUITY                                                                                      |       |                |       |                   |       |
| Unsecured  revolving bank credit facility                                                                                       |       | $                   | 38,000     |                   | $          | 37,000 |   |
| Senior unsecured  notes due 2012 and 2015, net of discount                                                                      |       | 393,816             |       | 393,775                |       |
| Junior  subordinated debentures due 2041                                                                                        |       | 28,241              |       | 28,241                 |       |
| Secured debt and  capital leases                                                                                                |       | 75,691              |       | 76,162                 |       |
| Accrued interest                                                                                                                |       | 10,582              |       | 12,519                 |       |
| Other  liabilities                                                                                                              |       | 8,826               |       | 9,366                  |       |
| Total  liabilities                                                                                                              |       | 555,156             |       | 557,063                |       |
|                                                                                                                            |       |                |       |                   |       |
| Commitments and  contingencies                                                                                                  |       |                |       |                   |       |
|                                                                                                                            |       |                |       |                   |       |
| Shareholders’  equity:                                                                                                     |       |                |       |                   |       |
| Common shares of  beneficial interest, $0.01 par value: 80,000,000 shares authorized,  68,495,908 shares issued and outstanding |       | 685                 |       | 685                    |       |
| Additional  paid-in capital                                                                                                     |       | 1,034,686           |       | 1,034,686              |       |
| Cumulative net  income                                                                                                          |       | 222,356             |       | 208,491                |       |
| Cumulative  distributions                                                                                                       |       | (381,486            | )          | (359,567               | )          |
| Unrealized gain  on investments                                                                                                 |       | 5,451               |       | 6,372                  |       |
| Total  shareholders’ equity                                                                                                |       | 881,692             |       | 890,667                |       |
| Total  liabilities and shareholders’ equity                                                                                |       | $                   | 1,436,848  |                   | $          | 1,447,730 |   |

 

See accompanying notes

 

1

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SENIOR HOUSING PROPERTIESTRUST

 

CONSOLIDATEDSTATEMENT OF INCOME

(inthousands, except per share amounts)

(unaudited)

 
| ** **                              | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------|------------|-----------------------------------|------------|
| ** **                              | ** ** | **2005**                          | ** ** | **2004** | ** ** |
|                                    |       |                              |       |   |   |
| Revenues:                               |       |                              |       |   |   |
| Rental income                           |       | $                                 | 38,888     |   | $ | 34,829 |   |
| Interest and  other income              |       | 339                               |       | 1,714 |   |
| Total revenues                          |       | 39,227                            |       | 36,543 |   |
|                                    |       |                              |       |   |   |
| Expenses:                               |       |                              |       |   |   |
| Interest                                |       | 11,223                            |       | 10,370 |   |
| Depreciation                            |       | 10,746                            |       | 9,585 |   |
| General and  administrative             |       | 3,393                             |       | 3,319 |   |
| Total expenses                          |       | 25,362                            |       | 23,274 |   |
|                                    |       |                              |       |   |   |
| Net income                              |       | $                                 | 13,865     |   | $ | 13,269 |   |
|                                    |       |                              |       |   |   |
| Weighted average  shares outstanding    |       | 68,496                            |       | 62,354 |   |
|                                    |       |                              |       |   |   |
| Basic and  diluted net income per share |       | $                                 | 0.20       |   | $ | 0.21 |   |

 

See accompanying notes

 

2

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SENIOR HOUSING PROPERTIESTRUST

 

CONSOLIDATED STATEMENT OFCASH FLOWS

(inthousands)

(unaudited)

 
| ** **                                                                     | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                     | ** ** | **2005**                         | ** ** | **2004** | ** ** |
| Cash flows from  operating activities:                                         |       |                             |       |   |   |
| Net income                                                                     |       | $                                | 13,865     |   | $ | 13,269 |   |
| Adjustments to  reconcile net income to cash provided by operating activities: |       |                             |       |   |   |
| Depreciation                                                                   |       | 10,746                           |       | 9,585 |   |
| Amortization of  deferred finance fees and debt discounts                      |       | 531                              |       | 526 |   |
| Changes in  assets and liabilities:                                            |       |                             |       |   |   |
| Restricted cash                                                                |       | (351                             | )          | (2 | ) |
| Other assets                                                                   |       | 2,998                            |       | 2,001 |   |
| Accrued interest                                                               |       | (1,937                           | )          | (2,095 | ) |
| Other  liabilities                                                             |       | (559                             | )          | 1,620 |   |
| Cash provided by  operating activities                                         |       | 25,293                           |       | 24,904 |   |
|                                                                           |       |                             |       |   |   |
| Cash flows from  investing activities:                                         |       |                             |       |   |   |
| Acquisitions                                                                   |       | (3,741                           | )          | (24,466 | ) |
| Cash used for  investing activities                                            |       | (3,741                           | )          | (24,466 | ) |
|                                                                           |       |                             |       |   |   |
| Cash flows from  financing activities:                                         |       |                             |       |   |   |
| Proceeds from  issuance of common shares, net                                  |       | —                           |       | 86,144 |   |
| Proceeds from  borrowings on revolving bank credit facility                    |       | 10,000                           |       | 29,000 |   |
| Repayments of  borrowings on revolving bank credit facility                    |       | (9,000                           | )          | (97,000 | ) |
| Repayment of  debt                                                             |       | (471                             | )          | (192 | ) |
| Deferred  financing fees                                                       |       | (8                               | )          | — |   |
| Distributions to  shareholders                                                 |       | (21,919                          | )          | (18,121 | ) |
| Cash used for  financing activities                                            |       | (21,398                          | )          | (169 | ) |
|                                                                           |       |                             |       |   |   |
| Increase in cash  and cash equivalents                                         |       | 155                              |       | 269 |   |
| Cash and cash  equivalents at beginning of period                              |       | 3,409                            |       | 3,530 |   |
| Cash and cash  equivalents at end of period                                    |       | $                                | 3,564      |   | $ | 3,799 |   |
|                                                                           |       |                             |       |   |   |
| Supplemental  cash flow information:                                           |       |                             |       |   |   |
| Interest paid                                                                  |       | $                                | 12,629     |   | $ | 11,939 |   |

 

See accompanying notes

 

3

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SENIOR HOUSING PROPERTIESTRUST

 

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS

 

**Note 1.****  Basis ofPresentation**

The accompanyingconsolidated financial statements of Senior Housing Properties Trust and ourconsolidated subsidiaries have been prepared without audit.  Certain information and footnote disclosuresrequired by accounting principles generally accepted in the United States forcomplete financial statements have been condensed or omitted.  We believe the disclosures made are adequateto make the information presented not misleading.  However, the accompanying financial statementsshould be read in conjunction with the financial statements and notes containedin our Annual Report on Form 10-K for the year ended December 31, 2004.  In the opinion of our management, alladjustments, which include only normal recurring adjustments considerednecessary for a fair presentation, have been included.  All intercompany transactions and balancesbetween us and our consolidated subsidiaries have been eliminated.  Operating results for interim periods are notnecessarily indicative of the results that may be expected for the fullyear.  Reclassifications have been madeto prior period financial statements to conform to the current periodpresentation.

 

DEFERREDPERCENTAGE RENTS.  We recognize percentage rental incomereceived for the first, second and third quarters in the fourth quarter.  Percentage rent deferred for the three monthsended March 31, 2005 and 2004, was $815,000 and $840,000, respectively.

 

**Note 2.****  RealEstate Properties**

At March 31, 2005, we owned 181 properties located in32 states.

 

During the three months ended March 31, 2005, pursuant to the terms ofour leases with Five Star, we purchased $3.7 million of improvements made toour properties leased by Five Star, and the annual rent payable to us by FiveStar was increased by 10% of the amounts invested, or $374,000.

 

**Note 3.****  UnrealizedGain on Investments**

On March 31, 2005, we owned one million common sharesof HRPT Properties Trust, or HRPT, and 35,000 common shares of Five Star, whichare carried 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 value of these shares of HRPT and Five Star calculated byusing quoted market prices on March 31, 2005 ($11.91 and $8.44 per share,respectively) and on the date they were acquired ($6.50 and $7.26 per share,respectively).

 

**Note 4.**** Comprehensive Income**

The following is areconciliation of net income to comprehensive income for the three months endedMarch 31, 2005 and 2004 (dollars in thousands):

 
| ** **                                | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------------------|------------|-----------------------------------|------------|
| ** **                                | ** ** | **2005**                          | ** ** | **2004** | ** ** |
| Net income                                |       | $                                 | 13,865     |   | $ | 13,269 |   |
| Other  comprehensive income:              |       |                              |       |   |   |
| Change in  unrealized gain on investments |       | (921                              | )          | 1,192 |   |
| Comprehensive  income                     |       | $                                 | 12,944     |   | $ | 14,461 |   |

 

**Note 5.**** Indebtedness**

We have a $250.0 million, interest only, unsecured revolving bankcredit facility. Our revolving bank credit facility matures in November 2005and may be extended at our option to November 2006 upon our payment of anextension fee. The interest rate (4.1% at March 31, 2005) is LIBOR plus amargin. As of March 31, 2005, $38.0 million was outstanding and $212.0 millionwas available under this facility.

 

4

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**Note 6.****  Shareholders’ Equity**

## **On February 22, 2005, we paid a $0.32 per share, or$21.9 million, distribution to our common shareholders for the quarter endedDecember 31, 2004. On April 4, 2005, we declared a distribution of $0.32 pershare,  or $21.9million, to be paid to common shareholders of record on April 20, 2005 withrespect to our results for the quarter ended March 31, 2005. We expect to paythis distribution on or about May 20, 2005.**

 

#### **Note 7.**  Commitments and Contingencies 

As described in our 2004 Annual Report onForm 10-K, we are in litigation with HealthSouth Corporation,  or HealthSouth. In January 2002, HealthSouth settled adefault under its lease with us by exchanging properties. We delivered toHealthSouth title to five nursing homes which HealthSouth leased from us. Inexchange, HealthSouth delivered to us title to two rehabilitation hospitals andwe entered an amended lease, which included extending the lease to December2011 from January 2006, reducing the annual rent from $10.3 million to $8.7million and changing other lease terms between HealthSouth and us. A primaryfactor which caused us to lower the rent for an extended lease term was thepurported credit strength of HealthSouth. In agreeing to lower the rent andextend the lease term, we relied upon statements made by certain officers ofHealthSouth, upon financial statements and other documents provided byHealthSouth, upon public statements made by HealthSouth and its representativesconcerning HealthSouth’s financial condition and upon publicly availabledocuments filed by HealthSouth.

 

InMarch 2003, the SEC accused HealthSouth and some of its executives ofpublishing false financial information; since then, according to publishedreports, at least 15 former HealthSouth executives, including all five of itsformer chief financial officers, have pled guilty to various crimes. In April2003, we commenced a lawsuit against HealthSouth in the Land Court of theCommonwealth of Massachusetts seeking, among other matters, to reform the amendedlease based upon HealthSouth’s fraud by increasing the rent payable to us backto $10.3 million and to change the lease term back to expire on January 1,2006, among other matters. HealthSouth has defended this lawsuit and assertedcounterclaims against us arising from this and unrelated matters. Thislitigation is pending at this time. In June 2004, we declared an event  of defaultunder the amended lease because HealthSouth failed to deliver to us accurateand timely financial information as required by the amended lease. On October26, 2004, we terminated the amended lease because of this event of default bysending a notice of lease termination to HealthSouth. On November 2, 2004,HealthSouth brought a new lawsuit against us in the Massachusetts SuperiorCourt for Middlesex County seeking to prevent our termination of the amendedlease; on November 9, 2004, after a hearing, the court denied HealthSouth’srequest for a preliminary injunction to prevent termination of the amendedlease. We are currently seeking an expedited judicial determination that thelease termination was valid and we are pursuing damages against HealthSouth inthe lawsuit which we brought in 2003. We have also begun work to identify andqualify a new tenant operator for the hospitals. Our lease with HealthSouthrequires that, after termination, HealthSouth manage the hospitals for ouraccount for a management fee during the period of the transition to a newtenant and remit the net cash flow to us. During the pendency of these disputes,HealthSouth has continued to pay us at the disputed rent amount and we haveapplied the payments received against the net cash flow due, but we do not knowhow long HealthSouth may continue to make payments.

 

5

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

 

The following discussion should be read in conjunction with ourconsolidated financial statements and notes thereto included in this quarterlyreport and our Annual Report on Form 10-K for the year ended December 31, 2004.

** **

**PORTFOLIO OVERVIEW**

**The following tables present anoverview of our portfolio:**

 

As of March 31, 2005 (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              |       | $                                     | 902,306    |                 | 56.2       | %                            | $          | 90,612                             |       | 57.0 | % |
| Assisted living  facilities        |       | 81                   |       | 5,337               |       | 438,082                               |       | 27.3                 | %          | 42,452                       |       | 26.7                               | %          |
| Skilled nursing  facilities        |       | 62                   |       | 6,433               |       | 220,752                               |       | 13.8                 | %          | 17,119                       |       | 10.8                               | %          |
| Hospitals                          |       | 2                    |       | 364                 |       | 43,553                                |       | 2.7                  | %          | 8,700                        |       | 5.5                                | %          |
| Total                              |       | 181                  |       | 22,546              |       | $                                     | 1,604,693  |                 | 100.0      | %                            | $          | 158,883                            |       | 100.0 | % |
|                               |       |                 |       |                |       |                                  |       |                 |       |                         |       |                               |       |
| Tenant/Operator                    |       |                 |       |                |       |                                  |       |                 |       |                         |       |                               |       |
| Five  Star/Sunrise (3)             |       | 31                   |       | 7,307               |       | $                                     | 628,892    |                 | 39.2       | %                            | $          | 64,206                             |       | 40.4 | % |
| Five Star                          |       | 98                   |       | 7,731               |       | 408,914                               |       | 25.4                 | %          | 32,005                       |       | 20.1                               | %          |
| Sunrise/Marriott  (4)              |       | 14                   |       | 4,091               |       | 325,473                               |       | 20.3                 | %          | 31,197                       |       | 19.6                               | %          |
| NewSeasons/IBC (5)                 |       | 10                   |       | 1,019               |       | 87,641                                |       | 5.5                  | %          | 9,287                        |       | 5.9                                | %          |
| HealthSouth(6)                     |       | 2                    |       | 364                 |       | 43,553                                |       | 2.7                  | %          | 8,700                        |       | 5.5                                | %          |
| Alterra  Healthcare Corporation    |       | 18                   |       | 894                 |       | 61,126                                |       | 3.8                  | %          | 7,136                        |       | 4.5                                | %          |
| Genesis  HealthCare Corporation    |       | 1                    |       | 156                 |       | 13,007                                |       | 0.8                  | %          | 1,522                        |       | 1.0                                | %          |
| 5 private  companies (combined)    |       | 7                    |       | 984                 |       | 36,087                                |       | 2.3                  | %          | 4,830                        |       | 3.0                                | %          |
| Total                              |       | 181                  |       | 22,546              |       | $                                     | 1,604,693  |                 | 100.0      | %                            | $          | 158,883                            |       | 100.0 | % |
|                                    |            |                      |            |                     |            |                                       |            |                      |            |                              |            |                                    |            |  |  |  |  |  |  |

 

Tenant Operating Statistics (Quarter Ended March 31) (7)

 
| ** **                      | ** ** | ** **        | ** ** | ** **    | ** ** | ** **      | ** ** | ** **   | ** ** | **Percentage of Operating Revenue Sources** | ** ** |
|---------------------------------|------------|-------------------|------------|---------------|------------|-----------------|------------|--------------|------------|---------------------------------------------|------------|
| ** **                      | ** ** | **Rent Coverage** | ** ** | **Occupancy** | ** ** | **Private Pay** | ** ** | **Medicare** | ** ** | **Medicaid**                                | ** ** |
| ** **                      | ** ** | **2005**          | ** ** | **2004**      | ** ** | **2005**        | ** ** | **2004**     | ** ** | **2005**                                    | ** ** | **2004** | ** ** | **2005** | ** ** | **2004** | ** ** | **2005** | ** ** | **2004** | ** ** |
| Five Star/Sunrise (3)           |       | 1.14x             |       | 1.12x         |       | 92              | %          | 90           | %          | 85                                          | %          | 85 | % | 12 | % | 11 | % | 3 | % | 4 | % |
| Five Star (8)                   |       | 1.63x             |       | 1.62x         |       | 87              | %          | 89           | %          | 41                                          | %          | 35 | % | 40 | % | 20 | % | 19 | % | 45 | % |
| Sunrise/Marriott (4)            |       | 1.25x             |       | 1.31x         |       | 90              | %          | 88           | %          | 80                                          | %          | 82 | % | 16 | % | 13 | % | 4 | % | 5 | % |
| NewSeasons/IBC(5)               |       | 1.11x             |       | 0.96x         |       | 79              | %          | 79           | %          | 100                                         | %          | 100 | % | — |   | — |   | — |   | — |   |
| HealthSouth(6) (9)              |       | NA                |       | NA            |       | NA              |       | NA           |       | NA                                          |       | NA |   | NA |   | NA |   | NA |   | NA |   |
| Alterra Healthcare              |       | 1.63x             |       | 1.63x         |       | 84              | %          | 83           | %          | 98                                          | %          | 98 | % | — |   | — |   | 2 | % | 2 | % |
| Genesis HealthCare              |       | 1.71x             |       | 1.56x         |       | 96              | %          | 96           | %          | 23                                          | %          | 22 | % | 29 | % | 33 | % | 48 | % | 45 | % |
| 5 private  companies (combined) |       | 1.87x             |       | 1.95x         |       | 87              | %          | 87           | %          | 24                                          | %          | 24 | % | 21 | % | 23 | % | 55 | % | 53 | % |

** **

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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)**          These31 properties leased to Five Star Quality Care, Inc., or Five Star, are managedby Sunrise Senior Living, Inc., or Sunrise. Sunrise does not guaranty Five Star’slease obligations. Rent coverage is after non-subordinated management fees of$5.6 million and $4.6 million in the quarter ended March 31, 2005 and 2004,respectively.

** **

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

** **

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

 

(6)          Effective January 2, 2002, we entered an amended lease with HealthSouthfor two hospitals. In April 2003, we commenced a lawsuit against HealthSouthseeking, among other matters, to reform the amended lease based uponHealthSouth’s fraud by increasing the rent payable to us from the date ofamendment forward.  This litigation ispending at this time. On October 26, 2004, we terminated the amended lease fordefault because HealthSouth failed to deliver to us accurate and timelyfinancial information as required by the amended lease.  On November 2, 2004, HealthSouth brought anew lawsuit against us seeking to prevent our termination of the amendedlease.  On November 9, 2004, after ahearing, the court denied HealthSouth’s request for a preliminary injunction toprevent the lease termination.  We arecurrently seeking an expedited judicial determination that the leasetermination was valid and we are pursuing damages against HealthSouth in thelawsuit which we brought in 2003.  Wehave also begun work to identify and qualify a new tenant operator for thehospitals.  Our lease with HealthSouthrequires that, after termination, HealthSouth manage the hospitals for ouraccount for a management fee during the period of the transition to a newtenant and remit the net cash flow to us. During the pendency of these disputes, HealthSouth has continued to payus at the disputed rent amount and we have applied the payments receivedagainst the net cash flow due, but we do not know how long HealthSouth may continueto make payments.

 

(7)          All tenant operating data presented are based upon the operating resultsprovided by our tenants for the indicated quarterly periods, or the most recentprior period for which tenant operating results are available to us from ourtenants. Rent coverage is calculated as operating cash flow from our tenants’facility operations, before subordinated charges and capital expenditurereserves, divided by rent payable to us. We have not independently verified ourtenants’ operating data.

 

6

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

** **

**(9)**          During2003, HealthSouth issued a press release stating that its historical financialinformation should not be relied upon. Since that time and through the date ofthis report, HealthSouth has not filed audited financial information with theSEC. Because we have reason to doubt whatever information we have fromHealthSouth we do not disclose any operating data for this tenant.

 

**RESULTS OF OPERATIONS**

 

#### **ThreeMonths Ended March 31, 2005, Compared to Three Months Ended March 31, 2004:**

 
| ** **                           | ** ** | **2005**                                     | ** ** | **2004**   | ** ** | **$  Change** | ** ** | **%  Change** | ** ** |
|--------------------------------------|------------|----------------------------------------------|------------|------------|------------|---------------|------------|---------------|------------|
| ** **                           | ** ** | **(in thousands, except per share amounts)** | ** ** | ** ** | ** ** |
|                                 |       |                                         |       |       |       |          |       |          |       |
| Rental income                        |       | $                                            | 38,888     |       | $          | 34,829        |       | $             | 4,059      |   | 11.7 | % |
| Interest and  other income           |       | 339                                          |       | 1,714      |       | (1,375        | )          | (80.2         | )%         |
|                                 |       |                                         |       |       |       |          |       |          |       |
| Interest expense                     |       | $                                            | 11,223     |       | $          | 10,370        |       | $             | 853        |   | 8.2 | % |
| Depreciation  expense                |       | 10,746                                       |       | 9,585      |       | 1,161         |       | 12.1          | %          |
| General and  administrative expense  |       | 3,393                                        |       | 3,319      |       | 74            |       | 2.2           | %          |
|                                 |       |                                         |       |       |       |          |       |          |       |
| Net income                           |       | $                                            | 13,865     |       | $          | 13,269        |       | $             | 596        |   | 4.5 | % |
| Weighted average  shares outstanding |       | 68,496                                       |       | 62,354     |       | 6,142         |       | 9.9           | %          |
| Net income per  share                |       | $                                            | 0.20       |       | $          | 0.21          |       | $             | (0.01      | ) | (4.8 | )% |
|                                      |            |                                              |            |            |            |               |            |               |            |  |  |  |  |

 

Rental income increased because of the full impact of rents from ourreal estate acquisitions made during 2004 totaling $187.9 million.  Interest and other income for the threemonths ended March 31, 2004, includes a $1.25 million settlement payment we receivedfrom Marriott in January 2004.

 

Interest expense increased due to our assumption of$48.8 million of debt in connection with an acquisition during the fourthquarter of 2004 and higher interest costs associated with our revolving bankcredit facility.  Our weighted averagebalance outstanding and interest rate under our revolving bank credit facilitywas $38.5 million and 4.0% and $46.6 million and 2.7% for the three monthsended March 31, 2005 and 2004, respectively.

 

Depreciation expense for the first quarter of 2005 increased as a resultof depreciation on our real estate acquisitions made during 2004 totaling$187.9 million.  General and administrative expenses include, in 2005,$400,000 of HealthSouth litigation costs, and in 2004, $775,000 of duediligence costs incurred in connection with a failed potentialacquisition.  General and administrative expenses, exclusive of duediligence and litigation costs, increased in 2005 by $449,000, or 17.6%, due toacquisitions during 2004 and accounting and other costs associated with the Sarbanes-OxleyAct of 2002 and related SEC rules.

 

Net income increased because of the changes describedabove in revenues and expenses.  Netincome per share decreased because of the increase in the weighted averagenumber of shares outstanding that resulted from our issuance of common sharesduring 2004.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

Our OperatingLiquidity 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 our operating cash flow will be sufficient to meet our operatingexpenses, debt service and distribution payments for the foreseeable future.

 

7

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Our Investment andFinancing Liquidity and Resources

 

## **In order to fund acquisitions and to accommodatecash needs that may result from timing differences between our receipt of rentsand our need to pay operating expenses and our desire to make distributions toour shareholders, we maintain a revolving bank credit facility with a group ofcommercial banks and other lenders. Our revolving bank credit facility maturesin November 2005, but we may extend it to November 2006 upon payment of anextension fee.  The revolving bank creditfacility permits us to borrow up to $250.0 million and includes a feature underwhich we may expand the maximum borrowing to $500.0 million, in certaincircumstances.  Borrowings under ourrevolving bank credit facility are unsecured. We may borrow, repay and reborrow funds until maturity. No principalrepayment is due until maturity.  We payinterest on borrowings under the revolving bank credit facility at LIBOR plus amargin.  As of the date of this report,we are considering whether to renew or extend our existing revolving bankcredit facility before it expires in November 2005.**

 

In March 2005, we purchased $3.7 million of improvements made to someof our properties.  We borrowed on ourrevolving bank credit facility and used cash on hand to fund these purchases.

 

At March 31, 2005, we had $3.6 million of cash and cash equivalents and$212.0 million available under our revolving bank credit facility. We expect touse cash balances, borrowings under our revolving bank credit facility and netproceeds of offerings of equity or debt securities to fund future propertyacquisitions and expenditures related to the repair, maintenance or renovationof our properties.

 

When significantamounts are outstanding on 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, 2005, we had $1.5 billionavailable on an effective shelf registration statement. An effective shelfregistration statement allows us to issue public securities on an expeditedbasis, but it does not assure that there will be buyers for suchsecurities.  Although there can be noassurance that we will consummate any debt or equity offerings or otherfinancings, we believe we will have access to various types of financing,including debt or equity offerings, with which to finance future acquisitionsand to pay our debts and other obligations.

 

On February 22,2005, we paid a $0.32 per common share, or $21.9 million, distribution to ourcommon shareholders for the quarter ended December 31, 2004.  On April 4, 2005, we declared a distributionof $0.32 per common share, or $21.9 million, to be paid to our commonshareholders of record on April 20, 2005 with respect to our results for thequarter ended March 31, 2005.  We expectto pay this distribution on or about May 20, 2005, using cash on hand and borrowingsunder our revolving bank credit facility.

 

As of March 31,2005, 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) |       | $                          | 529,914    |   | $ | 43,169 |   | $ | 2,200 |   | $ | 2,491 |   | $ | 482,054 |   |
| Capital Lease  Obligations     |       | 7,018                      |       | 644 |   | 1,905 |   | 2,209 |   | 2,260 |   |
| Ground Lease  Obligations      |       | 3,176                      |       | 142 |   | 284 |   | 284 |   | 2,466 |   |
| Total                          |       | $                          | 540,108    |   | $ | 43,955 |   | $ | 4,389 |   | $ | 4,984 |   | $ | 486,780 |   |

 

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(1)          Our term debt maturities areas follows:  $42.2 million in 2005;$282.2 million in 2012; $12.6 million in 2013; $150.0 million in 2015; $14.7million in 2027; and $28.2 million in 2041.

 

Asof May 3, 2005, we have no commercial paper, derivatives, swaps, hedges, jointventures or partnerships.  We have no offbalance sheet arrangements other than our trust preferred securities issued byan unconsolidated subsidiary of ours. The junior subordinated debentures due in2041 which fund these trust preferred securities are included on our balancesheet.

 

8

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**Debt Covenants**

** **

Our principal debt obligations at March 31, 2005, were our unsecuredrevolving bank credit facility, two issues totaling $395.0 million of unsecuredsenior notes and our $28.2 million of junior subordinated debentures.  Our senior notes are governed by anindenture.  This indenture and relatedsupplements and our revolving bank credit facility contain a number offinancial ratio covenants which generally restrict our ability to incur debts,including debts secured by mortgages on our properties in excess of calculatedamounts, require us to maintain a minimum net worth, restrict our ability tomake distributions under certain circumstances and require us to maintain otherratios.  Our junior subordinateddebentures are governed by an indenture which is generally less restrictivethan the indenture governing our senior notes and the terms of our revolvingbank credit facility.  As of March 31,2005, we believe we were in compliance with all of the covenants under ourindentures and related supplements and our revolving bank credit facility.

 

In addition to our unsecured debt obligations, we had $75.7 million ofmortgage debt and secured bonds outstanding at March 31, 2005.  Our mortgage debt and secured bonds aresecured by 22 of our properties.

 

None of our indentures and related supplements, ourrevolving bank credit facility or our other debt obligations containsprovisions for acceleration which could be triggered by our debt ratings.However, our revolving bank credit facility uses our senior debt rating todetermine 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**

** **

During 2005, pursuant to the terms of our leases withFive Star, we purchased $3.7 million of improvements to our properties leasedby Five Star, and the annual rent payable to us by Five Star was increased by10% of the amounts invested, or $374,000.

 

**Item 3.****    Quantitativeand Qualitative Disclosures 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, 2004.  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 2005. As of March 31, 2005, we had $38.0 million outstanding and $212.0million available for borrowing under our revolving bank credit facility.  We may make repayments under our revolvingbank credit facility at any time without penalty.  We borrow in U.S. dollars and borrowingsunder our revolving bank credit facility accrue interest at LIBOR plus amargin.  Accordingly, we are vulnerableto changes in U.S. dollar based short term interest rates, specificallyLIBOR.  A change in interest rates wouldnot affect the value of this floating rate debt but would affect our operatingresults.  For example, the interest ratepayable on our outstanding revolving indebtedness of $38.0 million at March 31,2005, was 4.1% per annum.  The followingtable presents the impact a 10% change in interest rates would have on ourfloating rate interest expense at March 31, 2005 (dollars in thousands):

 

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| ** **         | ** ** | **Impact of Changes in Interest Rates** | ** ** |
|--------------------|------------|-----------------------------------------|------------|
| ** **         | ** ** | **Interest Rate  Per Year**             | ** ** | **Outstanding  Debt** | ** ** | **Total Interest  Expense Per  Year** | ** ** |
| At March 31,  2005 |       | 4.1                                     | %          | $ | 38,000 |   | $ | 1,558 |   |
| 10% reduction      |       | 3.7                                     | %          | $ | 38,000 |   | $ | 1,406 |   |
| 10% increase       |       | 4.5                                     | %          | $ | 38,000 |   | $ | 1,710 |   |

 

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.

 

**Item 4.**** Controls and Procedures**

 

As of the end of theperiod covered by this report, our management carried out an evaluation, underthe supervision and with the participation of our managing trustees, Presidentand Chief Operating Officer and Treasurer and Chief Financial Officer, of theeffectiveness of our disclosure controls and procedures pursuant to ExchangeAct Rules 13a-15 and 15d-15.  Based uponthat evaluation, our managing trustees, President and Chief Operating Officerand Treasurer and Chief Financial Officer concluded that our disclosurecontrols and procedures are effective.

 

There have been no changes in our internal control over financialreporting during the quarter ended March 31, 2005, that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting.

 

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**WARNINGCONCERNING FORWARD LOOKING STATEMENTS**

THIS QUARTERLYREPORT ON FORM 10-Q CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OFTHE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND FEDERAL SECURITIESLAWS.  THESE STATEMENTS REPRESENT OURPRESENT BELIEFS AND EXPECTATIONS, BUT THEY MAY NOT OCCUR FOR VARIOUSREASONS.  FOR EXAMPLE, WE ARE CURRENTLYINVOLVED IN LITIGATION WITH HEALTHSOUTH. WE HAVE SENT HEALTHSOUTH A LEASE TERMINATION NOTICE AND HEALTHSOUTH HASDISPUTED THE LEASE TERMINATION AND CONTINUED TO PAY US MONTHLY AMOUNTS EQUAL TOTHE DISPUTED AMOUNTS DUE UNDER THE TERMINATED LEASE.  WE CANNOT PREDICT HOW OR WHEN OUR DISPUTESWITH HEALTHSOUTH WILL BE RESOLVED. DISCOVERY DURING LAWSUITS OR DECISIONS BY COURTS MAY CREATE RESULTS THATARE DIFFERENT FROM ANY IMPLICATIONS HEREIN.

 

YOU SHOULD NOTPLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS. EXCEPT AS MAY BE REQUIREDBY APPLICABLE LAW, WE DO NOT INTEND TO IMPLY THAT WE WILL RELEASE PUBLICLY THERESULT OF ANY REVISION TO THE FORWARD LOOKING STATEMENTS CONTAINED IN THISQUARTERLY REPORT TO REFLECT THE FUTURE OCCURRENCE OF PRESENTLY UNANTICIPATEDEVENTS.

 

**STATEMENTCONCERNING LIMITED LIABILITY**

THE ARTICLES OFAMENDMENT AND RESTATEMENT 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 ASTRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER,SHAREHOLDER, EMPLOYEE OR AGENT OF SENIOR HOUSING PROPERTIES TRUST SHALL BE HELDTO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, ORCLAIM AGAINST, SENIOR HOUSING PROPERTIES TRUST. ALL PERSONS DEALING WITH SENIOR HOUSING PROPERTIES TRUST, IN ANY WAY,SHALL LOOK ONLY TO THE ASSETS OF SENIOR HOUSING PROPERTIES TRUST FOR THEPAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

 

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**PART II.****                Other Information**

 

**Item 2.****    Unregistered Sales of EquitySecurities and Use of Proceeds**

 

As further described in ourAnnual Report on Form 10-K for the year ended December 31, 2004, we have anagreement with Reit Management & Research LLC, or RMR, whereby RMR providesmanagement services to us.  Under theterms of this agreement, on April 4, 2005, we issued 39,019 common shares inpayment of an incentive fee of $761,000 for services rendered by RMR during2004 based upon a per common share price of $19.50.  These restricted securities were issuedpursuant to an exemption from registration provided under Section 4(2) of theSecurities Act of 1933, as amended.

 

**Item 6.****    Exhibits**

** **
| 10.1   |   | Summary of Trustee Compensation. *(filed herewith.)*                                                                                                                                                       |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                       |
| 12.1   |   | Computation of Ratio of Earnings to Fixed Charges.*(filed herewith.)*                                                                                                                                      |
|   |   |                                                                                                                                                                                                       |
| 31.1   |   | Certification Required by Rule 13a-14(a) / 15d –  14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002.*(filed herewith.)* |
|   |   |                                                                                                                                                                                                       |
| 31.2   |   | Certification Required by Rule 13a-14(a) / 15d –  14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002.*(filed herewith.)* |
|   |   |                                                                                                                                                                                                       |
| 31.3   |   | Certification Required by Rule 13a-14(a) / 15d –  14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002.*(filed herewith.)* |
|   |   |                                                                                                                                                                                                       |
| 31.4   |   | Certification Required by Rule 13a-14(a) / 15d –  14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002.*(filed herewith.)* |
|   |   |                                                                                                                                                                                                       |
| 32     |   | Certification Pursuant to 18 U.S.C. Sec 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*(furnished herewith.)*                                                                |

 

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SIGNATURES

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon 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 5, 2005 |
|   |                            |
|   |                            |
|   | By:                             | /s/ John R. Hoadley |   |
|   |                            | John R. Hoadley |
|   |                            | Treasurer and Chief Financial Officer |
|   |                            | (principal financial officer) |
|   |                            | Dated: May 5, 2005 |

 

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