** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,DC 20549**

 

**FORM10-Q**

 

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

 

**For the quarterly period ended June 30, 2004**

 

**OR**

 

**o****  TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE 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 mark whetherthe registrant:  (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months, and (2) has been subjectto such filing requirements for the past 90 days.  Yes ý  No o

 

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

 

Number of registrant’s commonshares outstanding as of August 2, 2004: **63,471,909**

 

 

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SENIOR HOUSING PROPERTIES TRUST

 

FORM 10-Q

 

June 30, 2004

 

INDEX

 
| PART I  | Financial Information                                                                                                  |   |
|---------|------------------------------------------------------------------------------------------------------------------------|--------|
|    |                                                                                                                   |   |
| Item 1. | Financial Statements  (unaudited)                                                                                      |   |
|    |                                                                                                                   |   |
|    | Consolidated  Balance Sheet –  June 30, 2004 and December 31, 2003                                      |   |
|    |                                                                                                                   |   |
|    | Consolidated Statement of  Income – Three and Six Months  Ended June 30, 2004  and 2003                 |   |
|    |                                                                                                                   |   |
|    | Consolidated Statement of  Cash Flows –  Three  and Six Months Ended June 30, 2004  and  2003 |   |
|    |                                                                                                                   |   |
|    | 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. | Changes  in Securities and Use of Proceeds and Issuer Purchases of Equity Securities                                   |   |
|    |                                                                                                                   |   |
| Item 4. | Submission  of Matters to a Vote of Security Holders                                                                   |   |
|    |                                                                                                                   |   |
| Item 6. | Exhibits  and Reports on Form 8-K                                                                                      |   |
|    |                                                                                                                   |   |
|    | Signatures                                                                                                             |   |

 

*References in this Quarterly Reporton Form 10-Q to “the Company”, “we”, “us”, “our” and “Senior Housing” refer toSenior Housing Properties Trust and its consolidated subsidiaries, unlessotherwise noted.*

 

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SENIOR HOUSING PROPERTIES TRUST

 

**PARTI.  FinancialInformation**

 

**Item1.****            Financial Statements**

 

CONSOLIDATED BALANCE SHEET(in thousands, except share amounts)

 
| ** **                                                                                                                                                   | ** ** | **June 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                   | ** ** | **(unaudited)**         | ** ** | ** **                  | ** ** |
|                                                                                                                                                         |       |                    |       |                        |       |
| ASSETS                                                                                                                                                       |       |                    |       |                        |       |
| Real estate properties, at cost:                                                                                                                             |       |                    |       |                        |       |
| Land                                                                                                                                                         |       | $                       | 166,828    |                        | $          | 162,512 |   |
| Buildings and improvements                                                                                                                                   |       | 1,278,885               |       | 1,255,729                   |       |
|                                                                                                                                                         |       | 1,445,713               |       | 1,418,241                   |       |
| Less accumulated depreciation                                                                                                                                |       | 179,203                 |       | 160,426                     |       |
|                                                                                                                                                         |       | 1,266,510               |       | 1,257,815                   |       |
|                                                                                                                                                         |       |                    |       |                        |       |
| Cash and cash equivalents                                                                                                                                    |       | 4,814                   |       | 3,530                       |       |
| Restricted cash                                                                                                                                              |       | 5,181                   |       | 10,108                      |       |
| Deferred financing fees, net                                                                                                                                 |       | 10,340                  |       | 11,311                      |       |
| Other assets                                                                                                                                                 |       | 21,442                  |       | 21,336                      |       |
| Total assets                                                                                                                                                 |       | $                       | 1,308,287  |                        | $          | 1,304,100 |   |
|                                                                                                                                                         |       |                    |       |                        |       |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                                    |       |                    |       |                        |       |
| Unsecured revolving bank credit facility                                                                                                                     |       | $                       | 33,000     |                        | $          | 102,000 |   |
| Senior unsecured notes due 2012 and 2015,  net of discount                                                                                                   |       | 393,693                 |       | 393,612                     |       |
| Junior subordinated debentures due 2041                                                                                                                      |       | 28,241                  |       | 27,394                      |       |
| Secured debt and capital leases                                                                                                                              |       | 26,499                  |       | 31,817                      |       |
| Accrued interest                                                                                                                                             |       | 12,517                  |       | 12,468                      |       |
| Other liabilities                                                                                                                                            |       | 10,546                  |       | 8,903                       |       |
| Total liabilities                                                                                                                                            |       | 504,496                 |       | 576,194                     |       |
|                                                                                                                                                         |       |                    |       |                        |       |
| Commitments and contingencies                                                                                                                                |       |                    |       |                        |       |
|                                                                                                                                                         |       |                    |       |                        |       |
| Shareholders’ equity:                                                                                                                                   |       |                    |       |                        |       |
| Common shares of beneficial interest, $0.01  par value: 80,000,000 shares authorized, 63,471,909 and 58,453,338 shares  issued and outstanding, respectively |       | 635                     |       | 585                         |       |
| Additional paid-in capital                                                                                                                                   |       | 940,259                 |       | 853,858                     |       |
| Cumulative net income                                                                                                                                        |       | 179,059                 |       | 151,749                     |       |
| Cumulative distributions                                                                                                                                     |       | (319,572                | )          | (281,776                    | )          |
| Unrealized gain on investments                                                                                                                               |       | 3,410                   |       | 3,490                       |       |
| Total shareholders’ equity                                                                                                                              |       | 803,791                 |       | 727,906                     |       |
| Total liabilities and shareholders’ equity                                                                                                              |       | $                       | 1,308,287  |                        | $          | 1,304,100 |   |

 

See accompanying notes

 

1

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SENIOR HOUSING PROPERTIES TRUST

 

CONSOLIDATEDSTATEMENT OF INCOME

(in thousands, except per share amounts)

(unaudited)

 
| ** **                            | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                            | ** ** | **2004**                             | ** ** | **2003**                           | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                  |       |                                 |       |                               |       |   |   |   |   |
| Revenues:                             |       |                                 |       |                               |       |   |   |   |   |
| Rental income                         |       | $                                    | 35,189     |                               | $          | 31,568 |   | $ | 70,018 |   | $ | 61,842 |   |
| Interest and other income             |       | 317                                  |       | 274                                |       | 2,031 |   | 1,350 |   |
| Total revenues                        |       | 35,506                               |       | 31,842                             |       | 72,049 |   | 63,192 |   |
|                                  |       |                                 |       |                               |       |   |   |   |   |
| Expenses:                             |       |                                 |       |                               |       |   |   |   |   |
| Interest                              |       | 10,255                               |       | 9,663                              |       | 20,625 |   | 17,512 |   |
| Depreciation                          |       | 9,687                                |       | 8,891                              |       | 19,272 |   | 17,544 |   |
| General and administrative            |       | 2,742                                |       | 2,327                              |       | 6,061 |   | 5,116 |   |
| Total expenses                        |       | 22,684                               |       | 20,881                             |       | 45,958 |   | 40,172 |   |
|                                  |       |                                 |       |                               |       |   |   |   |   |
| Income from continuing operations     |       | 12,822                               |       | 10,961                             |       | 26,091 |   | 23,020 |   |
| Gain (loss) on sale of property       |       | 1,219                                |       | (1,160                             | )          | 1,219 |   | (1,160 | ) |
| Net income                            |       | $                                    | 14,041     |                               | $          | 9,801 |   | $ | 27,310 |   | $ | 21,860 |   |
|                                  |       |                                 |       |                               |       |   |   |   |   |
| Weighted average shares outstanding   |       | 63,471                               |       | 58,439                             |       | 62,913 |   | 58,438 |   |
|                                  |       |                                 |       |                               |       |   |   |   |   |
| Basic and diluted earnings per share: |       |                                 |       |                               |       |   |   |   |   |
| Income from continuing operations     |       | $                                    | 0.20       |                               | $          | 0.19 |   | $ | 0.41 |   | $ | 0.39 |   |
| Gain (loss) on sale of property       |       | 0.02                                 |       | (0.02                              | )          | 0.02 |   | (0.02 | ) |
| Net income                            |       | $                                    | 0.22       |                               | $          | 0.17 |   | $ | 0.43 |   | $ | 0.37 |   |

 

See accompanying notes

 

2

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SENIOR HOUSING PROPERTIES TRUST

 

CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

(unaudited)

 
| ** **                                                                     | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                     | ** ** | **2004**                           | ** ** | **2003** | ** ** |
| Cash flows from operating activities:                                          |       |                               |       |   |   |
| Net income                                                                     |       | $                                  | 27,310     |   | $ | 21,860 |   |
| Adjustments to reconcile net income to cash  provided by operating activities: |       |                               |       |   |   |
| Depreciation                                                                   |       | 19,272                             |       | 17,544 |   |
| Loss (gain) on sale of property                                                |       | (1,219                             | )          | 1,160 |   |
| Amortization of deferred finance fees and  debt discounts                      |       | 1,052                              |       | 978 |   |
| Changes in assets and liabilities:                                             |       |                               |       |   |   |
| Restricted cash                                                                |       | (3                                 | )          | — |   |
| Other assets                                                                   |       | 2,140                              |       | (10,209 | ) |
| Accrued interest                                                               |       | 49                                 |       | 2,351 |   |
| Other liabilities                                                              |       | 471                                |       | 1,540 |   |
| Cash provided by operating activities                                          |       | 49,072                             |       | 35,224 |   |
|                                                                           |       |                               |       |   |   |
| Cash flows from investing activities:                                          |       |                               |       |   |   |
| Real estate acquisitions                                                       |       | (32,648                            | )          | (67,570 | ) |
| Proceeds from sale of real estate                                              |       | 5,900                              |       | 288 |   |
| Mortgage financing provided                                                    |       | —                             |       | (6,900 | ) |
| Mortgage financing repaid by mortgagor                                         |       | —                             |       | 849 |   |
| Cash used for investing activities                                             |       | (26,748                            | )          | (73,333 | ) |
|                                                                           |       |                               |       |   |   |
| Cash flows from financing activities:                                          |       |                               |       |   |   |
| Proceeds from issuance of common shares,  net                                  |       | 86,144                             |       | — |   |
| Proceeds from issuance of senior notes, net  of discount                       |       | —                             |       | 149,709 |   |
| Proceeds from borrowings on revolving bank  credit facility                    |       | 43,000                             |       | 93,000 |   |
| Repayments of borrowings on revolving bank  credit facility                    |       | (112,000                           | )          | (168,000 | ) |
| Repayment of debt                                                              |       | (388                               | )          | (39 | ) |
| Deferred financing fees                                                        |       | —                             |       | (3,524 | ) |
| Distributions to shareholders                                                  |       | (37,796                            | )          | (36,231 | ) |
| Cash (used for) provided by financing  activities                              |       | (21,040                            | )          | 34,915 |   |
|                                                                           |       |                               |       |   |   |
| Increase (decrease) in cash and cash  equivalents                              |       | 1,284                              |       | (3,194 | ) |
| Cash and cash equivalents at beginning of  period                              |       | 3,530                              |       | 8,654 |   |
| Cash and cash equivalents at end of period                                     |       | $                                  | 4,814      |   | $ | 5,460 |   |
|                                                                           |       |                               |       |   |   |
| Supplemental cash flow information:                                            |       |                               |       |   |   |
| Interest paid                                                                  |       | $                                  | 19,524     |   | $ | — |   |
|                                                                           |       |                               |       |   |   |
| Non-cash investing and financing  activities:                                  |       |                               |       |   |   |
| Purchases of fixed assets with FF&E  reserve                               |       | —                             |       | (1,914 | ) |
| Issuance of common shares                                                      |       | 307                                |       | 215 |   |
| Release of restricted cash to us                                               |       | 4,930                              |       | — |   |
| Repayment of debt with cash previously  restricted                             |       | (4,930                             | )          | — |   |

 

See accompanying notes

 

3

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SENIOR HOUSING PROPERTIES TRUST

 

NOTES TOCONSOLIDATED FINANCIAL STATEMENTS

 

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

 

The accompanying consolidatedfinancial statements of Senior Housing Properties Trust and our subsidiarieshave been prepared without audit. Certain information and footnote disclosures required by accountingprinciples generally accepted in the United States for complete financialstatements have been condensed or omitted. We believe the disclosures made are adequate to make the informationpresented not misleading.  However, the accompanyingfinancial statements should be read in conjunction with the financialstatements and notes contained in our Annual Report on Form 10-K for the yearended December 31, 2003.  In theopinion of our management, all adjustments, which include only normal recurringadjustments considered necessary for a fair presentation, have beenincluded.  All intercompany transactionsand balances between us and our 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.

 

DEFERRED PERCENTAGE RENTS.  We are generally required to recognizepercentage rental income received for the first, second and third quarters inthe fourth quarter.  Percentage rentdeferred for the three and six months ended June 30, 2004 and 2003, was$794,000 and $1.6 million, and $720,000 and $1.5 million, respectively.

 

**Note 2.**  Summary of New Accounting Pronouncements

 

During the first quarter of2004, we adopted Revised Financial Accounting Standards Board, or FASB,Interpretation No. 46, “Consolidation of Variable Interest Entities” that wasissued by the FASB in December 2003. As a result, we no longer consolidate our wholly owned subsidiary thatissued our trust preferred securities, or the trust preferred issuer, and we nolonger present the trust preferred securities on our Consolidated BalanceSheet.  Instead, we present our juniorsubordinated debentures issued by us to, and held by, the trust preferredissuer as debt.  These debentures hadpreviously been eliminated in our consolidated financial statements.  In addition, distributions on the trustpreferred securities are no longer presented in our Consolidated Statement ofIncome, but interest on the debentures, which is equal to the distributions onthe trust preferred securities, is included in interest expense.

 

**Note 3.****  RealEstate Properties**

 

At June 30, 2004, we owned 150 properties locatedin 31 states.

 

During 2003, we agreed to sell toFive Star Quality Care, Inc., or Five Star, two nursing homes in Michigan thatwe leased to Five Star.  The purchaseprice is $10.5 million, the appraised value of the properties.  These two properties are leased on a combinedbasis with 65 other properties leased to Five Star.  Under the terms of our lease with Five Star,upon consummation of the sale of each property, the annual rent payable underthe combined lease will be reduced by 10% of the net proceeds that we receivefrom the sale.  On April 19, 2004,we sold one of these properties to Five Star for $5.9 million and recognized again of $1.2 million.  We expect the saleof the second property to occur later in 2004. However, this sale is contingent upon Five Star’s obtaining Departmentof Housing and Urban Development, or HUD, insured financing for its purchase.This sale may not close because of a failure of this condition or for someother reason.

 

In 2003, we evicted a nursinghome tenant that had defaulted its obligations tous.  Until May 2004, Five Star managedthis nursing home for our account. Effective on May 1, 2004, we and Five Star agreed to add this nursinghome to the Five Star lease of independent and assisted living facilities andnursing homes and to increase the annual rent by $180,000.  All other lease terms remained unchanged.

 

4

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SENIOR HOUSING PROPERTIES TRUST

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

One of our properties leased toFive Star was subject to a ground lease with an unaffiliated third party.  Five Star has beenresponsible for paying the ground rent of $307,000 per year.  On June 3, 2004, we exercised an optionto purchase this land for $3.6 million and we acquired the landlord’s rightsand obligations under the ground lease. Five Star remains obligated for the ground lease payments to us.

 

During 2004, pursuant to theterms of our leases with Five Star we purchased $4.3 million of improvementsmade to our properties leased by Five Star and the annual rent payable to us byFive Star was increased by 10% of the amounts invested, or $432,000.

 

#### **Note 4.** Unrealized Gain on Investments

 

On June 30, 2004, we ownedone million common shares of HRPT Properties Trust, or HRPT, and 35,000 commonshares of Five Star, which are carried at fair market value in Other Assets onour Consolidated Balance Sheet.  TheUnrealized Gain On Investments shown on our Consolidated Balance Sheetrepresents the difference between the market value of these shares of HRPT andFive Star calculated by using quoted market prices on June 30, 2004($10.01 and $4.40 per share, respectively) and on the date they were acquired($6.50 and $7.26 per share, respectively).

 

**Note 5.**** Comprehensive Income**

 

The following is a reconciliation of net income tocomprehensive income for the three and six months ended June 30, 2004 and2003 (dollars in thousands):

 
| ** **                               | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                               | ** ** | **2004**                             | ** ** | **2003**                           | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                     |       |                                 |       |                               |       |   |   |   |   |
| Net income                               |       | $                                    | 14,041     |                               | $          | 9,801 |   | $ | 27,310 |   | $ | 21,860 |   |
| Other comprehensive income:              |       |                                 |       |                               |       |   |   |   |   |
| Change in unrealized gain on investments |       | (1,272                               | )          | 701                                |       | (80 | ) | 965 |   |
| Comprehensive income                     |       | $                                    | 12,769     |                               | $          | 10,502 |   | $ | 27,230 |   | $ | 22,825 |   |

 

**Note 6.**  Indebtedness 

 

We have a $250.0 million, interest only, unsecuredrevolving bank credit facility.  Ourrevolving bank credit facility matures in November 2005 and may beextended at our option to November 2006 upon our payment of an extensionfee.  The interest rate (2.6% atJune 30, 2004) is LIBOR plus a spread. As of June 30, 2004, $33.0 million was outstanding and $217.0million was available for acquisitions, working capital and for generalbusiness purposes.

 

As discussed in Note 3, we sold a property to FiveStar on April 19, 2004. Simultaneous with this sale, we repaid the $4.9 million mortgage notethat was secured by this property using $4.9 million of our cash previouslyrestricted for that purpose.

 

**Note 7.****  Shareholders’Equity**

 

On May 20, 2004, we paid a$0.31 per share, or $19.7 million, distribution to our common shareholders forthe quarter ended March 31, 2004. On July 1, 2004, we declared a distribution of $0.31 per share, or$19.7 million, to be paid to common shareholders of record on July 20,2004.  We plan to pay this distributionon or about August 20, 2004.

 

5

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SENIOR HOUSING PROPERTIES TRUST

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

**Note8.****  Commitments and Contingencies**

 

As more fully described in our 2003 AnnualReport on Form 10-K, on April 16, 2003, we filed a complaint in the LandCourt of the Commonwealth of Massachusetts, seeking that our lease withHEALTHSOUTH Corporation, or HEALTHSOUTH, be reformed to increase the rentpayable to us under this lease, among other matters.  This litigation remains pending and no trialdate has been set, but we have had settlement discussions with the newmanagement of HEALTHSOUTH.  Althoughthese discussions seem to be making progress, we do not know whether a finalsettlement will be achieved.

 

In December 2003, weagreed to purchase four properties from NewSeasons Assisted Living Communities,Inc., subject to certain conditions. These four properties are encumbered by mortgage debts.  We were unable to reach mutually acceptable termsto assume or prepay the debt on these properties and, consequently, we havedetermined not to proceed with these purchases.

 

As discussed in Note 3, we haveagreed to sell one nursing home to Five Star if and when Five Star is able tosecure HUD insured financing for its purchase.

 

6

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**Item 2.**  Management’s Discussion and Analysisof Financial Condition and Results of Operations

** **

The following discussion should be read in conjunctionwith our consolidated financial statements and notes thereto included in thisquarterly report and our 2003 Annual Report on Form 10-K.

 

**PORTFOLIOOVERVIEW**

 

**RESULTSOF OPERATIONS**

 

The following tables present anoverview of our portfolio as of June 30, 2004 (dollars in thousands).

 
| ** **                        | ** ** | **# of  Properties** | ** ** | **# of Units/Beds** | ** ** | **Investment:  carrying value  before  depreciation** | ** ** | **% of  Investment** | ** ** | **Annualized  Current Rent** | ** ** | **% of  Annualized  Current Rent** | ** ** |
|-----------------------------------|------------|----------------------|------------|---------------------|------------|-------------------------------------------------------|------------|----------------------|------------|------------------------------|------------|------------------------------------|------------|
| Facility Type                     |       |                 |       |                |       |                                                  |       |                 |       |                         |       |                               |       |
| Independent living communities(1) |       | 36                   |       | 10,485              |       | $                                                     | 897,847    |                 | 62.1       | %                            | $          | 90,185                             |       | 62.4 | % |
| Assisted living facilities        |       | 51                   |       | 3,706               |       | 286,658                                               |       | 19.8                 | %          | 29,054                       |       | 20.1                               | %          |
| Skilled nursing facilities        |       | 61                   |       | 6,551               |       | 217,655                                               |       | 15.1                 | %          | 16,653                       |       | 11.5                               | %          |
| Hospitals                         |       | 2                    |       | 364                 |       | 43,553                                                |       | 3.0                  | %          | 8,700                        |       | 6.0                                | %          |
| Total                             |       | 150                  |       | 21,106              |       | $                                                     | 1,445,713  |                 | 100.0      | %                            | $          | 144,592                            |       | 100.0 | % |
|                              |       |                 |       |                |       |                                                  |       |                 |       |                         |       |                               |       |
| Tenant/Operator                   |       |                 |       |                |       |                                                  |       |                 |       |                         |       |                               |       |
| Five Star/Sunrise (2)             |       | 31                   |       | 7,491               |       | $                                                     | 624,889    |                 | 43.2       | %                            | $          | 63,809                             |       | 44.1 | % |
| Sunrise/Marriott (3)              |       | 14                   |       | 4,091               |       | 325,473                                               |       | 22.5                 | %          | 31,204                       |       | 21.6                               | %          |
| Five Star                         |       | 67                   |       | 6,107               |       | 254,059                                               |       | 17.5                 | %          | 18,178                       |       | 12.6                               | %          |
| NewSeasons/IBC (4)                |       | 10                   |       | 1,019               |       | 87,641                                                |       | 6.1                  | %          | 9,287                        |       | 6.4                                | %          |
| HEALTHSOUTH                       |       | 2                    |       | 364                 |       | 43,553                                                |       | 3.0                  | %          | 8,700                        |       | 6.0                                | %          |
| Alterra Healthcare                |       | 18                   |       | 894                 |       | 61,126                                                |       | 4.2                  | %          | 7,225                        |       | 5.0                                | %          |
| Genesis HealthCare                |       | 1                    |       | 156                 |       | 13,007                                                |       | 1.0                  | %          | 1,509                        |       | 1.0                                | %          |
| 5 private companies (combined)    |       | 7                    |       | 984                 |       | 35,965                                                |       | 2.5                  | %          | 4,680                        |       | 3.3                                | %          |
| Total                             |       | 150                  |       | 21,106              |       | $                                                     | 1,445,713  |                 | 100.0      | %                            | $          | 144,592                            |       | 100.0 | % |

 

QuarterEnded June 30,

 
| ** **                          | ** ** | ** **        | ** ** | ** **    | ** ** | ** **      | ** ** | ** **   | ** ** | **Percentage of Operating Revenue Sources** | ** ** |
|-------------------------------------|------------|-------------------|------------|---------------|------------|-----------------|------------|--------------|------------|---------------------------------------------|------------|
| ** **                          | ** ** | **Rent Coverage** | ** ** | **Occupancy** | ** ** | **Private Pay** | ** ** | **Medicare** | ** ** | **Medicaid**                                | ** ** |
| **Tenant Operating Statistics (5)** | ** ** | **2004**          | ** ** | **2003**      | ** ** | **2004**        | ** ** | **2003**     | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2004** | ** ** | **2003** | ** ** | **2004** | ** ** | **2003** | ** ** |
| Five Star/Sunrise (2)               |       | 1.1               | x     | 1.0           | x          | 90              | %          | 91           | %          | 85                                          | %          | 86 | % | 11 | % | 11 | % | 4 | % | 3 | % |
| Sunrise/Marriott (3)                |       | 1.4               | x          | 1.2           | x          | 89              | %          | 87           | %          | 81                                          | %          | 82 | % | 14 | % | 14 | % | 5 | % | 4 | % |
| Five Star (6)                       |       | 1.9               | x          | 1.6           | x          | 88              | %          | 90           | %          | 31                                          | %          | 34 | % | 22 | % | 17 | % | 47 | % | 49 | % |
| NewSeasons/IBC(4) (6)               |       | 1.1               | x          | 1.1           | x          | 78              | %          | 79           | %          | 100                                         | %          | 100 | % | — |   | — |   | — |   | — |   |
| HEALTHSOUTH(7)                      |       | NA                |       | NA            |       | NA              |       | NA           |       | NA                                          |       | NA |   | NA |   | NA |   | NA |   | NA |   |
| Alterra Healthcare(6)               |       | 1.7               | x          | 1.5           | x          | 80              | %          | 86           | %          | 98                                          | %          | 98 | % | — |   | — |   | 2 | % | 2 | % |
| Genesis HealthCare                  |       | 2.1               | x          | 1.3           | x          | 97              | %          | 97           | %          | 24                                          | %          | 24 | % | 35 | % | 33 | % | 41 | % | 43 | % |
| 5 private companies (combined)      |       | 1.8               | x          | 1.9           | x          | 85              | %          | 87           | %          | 26                                          | %          | 23 | % | 23 | % | 19 | % | 53 | % | 59 | % |

 

Six Months Ended June 30,

 
| ** **                          | ** ** | ** **        | ** ** | ** **    | ** ** | ** **      | ** ** | ** **   | ** ** | **Percentage of Operating Revenue Sources** | ** ** |
|-------------------------------------|------------|-------------------|------------|---------------|------------|-----------------|------------|--------------|------------|---------------------------------------------|------------|
| ** **                          | ** ** | **Rent Coverage** | ** ** | **Occupancy** | ** ** | **Private Pay** | ** ** | **Medicare** | ** ** | **Medicaid**                                | ** ** |
| **Tenant Operating Statistics (5)** |       | **2004**          | ** ** | **2003**      | ** ** | **2004**        | ** ** | **2003**     | ** ** | **2004**                                    | ** ** | **2003** | ** ** | **2004** | ** ** | **2003** | ** ** | **2004** | ** ** | **2003** |   |
| Five Star/Sunrise (2)               |       | 1.1               | x     | 1.0           | x          | 90              | %          | 91           | %          | 85                                          | %          | 86 | % | 11 | % | 10 | % | 4 | % | 4 | % |
| Sunrise/Marriott (3)                |       | 1.3               | x          | 1.2           | x          | 89              | %          | 87           | %          | 81                                          | %          | 83 | % | 14 | % | 13 | % | 5 | % | 4 | % |
| Five Star (6)                       |       | 1.9               | x          | 1.6           | x          | 89              | %          | 90           | %          | 30                                          | %          | 33 | % | 22 | % | 18 | % | 48 | % | 49 | % |
| NewSeasons/IBC(4) (6)               |       | 1.0               | x          | 1.0           | x          | 79              | %          | 79           | %          | 100                                         | %          | 100 | % | — |   | — |   | — |   | — |   |
| HEALTHSOUTH(7)                      |       | NA                |       | NA            |       | NA              |       | NA           |       | NA                                          |       | NA |   | NA |   | NA |   | NA |   | NA |   |
| Alterra Healthcare(6)               |       | 1.6               | x          | 1.6           | x          | 81              | %          | 87           | %          | 98                                          | %          | 98 | % | — |   | — |   | 2 | % | 2 | % |
| Genesis HealthCare                  |       | 1.8               | x          | 1.2           | x          | 96              | %          | 97           | %          | 23                                          | %          | 22 | % | 34 | % | 35 | % | 43 | % | 43 | % |
| 5 private companies (combined)      |       | 1.9               | x          | 2.0           | x          | 86              | %          | 88           | %          | 25                                          | %          | 22 | % | 22 | % | 19 | % | 53 | % | 59 | % |

 

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

(2)          These31 properties leased to Five Star Quality Care, Inc., or Five Star, are managedby Sunrise Senior Living, Inc., or Sunrise. Sunrise does not guaranty our lease with Five Star.  Rent coverage is after non-subordinatedmanagement fees of $4.6 million and $9.2 million and $4.2 million and $8.3million in the quarter and six months ended June 30, 2004 and 2003, respectively.

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

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

(5)          Alltenant operating data presented are based upon the operating results providedby our tenants for the indicated periods ending June 30, 2004, or the mostrecent prior period tenant operating results available to us from ourtenants.  Rent coverage is calculated asoperating cash flow from our tenants’ facility operations, before subordinatedcharges and capital expenditure reserves, divided by rent payable to us.   We have not independently verified ourtenants’ operating data.

(6)          Includesdata for periods prior to our ownership of these properties.

(7)          During2003, HEALTHSOUTH issued a press release stating that its historical financialinformation should not be relied upon. In 2004, HEALTHSOUTH issued a press release stating that auditedfinancial information would not be available until 2005.  Because we have reason to doubt the financialinformation we have from HEALTHSOUTH we do not disclose any operating data forthis tenant.

 

7

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**Item2.****  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations (Continued)**

 

Three MonthsEnded June 30, 2004, Compared to Three Months Ended June 30, 2003

 

Rental income for the threemonths ended June 30, 2004, was $35.2 million compared to rental income of$31.6 million for the three months ended June 30, 2003, an increase of$3.6 million, or 11.4%.  This increase isthe result of our acquisition and lease of 15 properties since April 1,2003.

 

Interest and other income forthe three months ended June 30, 2004 and 2003, each include $200,000 ofdividend income from one million shares of HRPT that we own.

 

Interest expense for the threemonths ended June 30, 2004, was $10.3 million compared to interest expensefor the three months ended June 30, 2003, of $9.7 million, an increase of$600,000, or 6.2%.  The increase wascaused by our issuance of $150.0 million of 7 7/8% senior unsecured notes inApril 2003, partially offset by interest on reduced amounts outstandingunder our revolving bank credit facility during the three months endedJune 30, 2004.

 

Depreciation expense for the three months endedJune 30, 2004, was $9.7 million compared to depreciation expense for thethree months ended June 30, 2003, of $8.9 million, an increase of$800,000, or 9.0%.  General andadministrative expense for the three months ended June 30, 2004, was $2.7million compared to general and administrative expense for the three monthsended June 30, 2003, of $2.3 million, an increase of $400,000 or17.4%.  These increases were primarilydue to our investment in 15 properties since April 1, 2003 and werepartially offset by lower legal expenses.

 

Income from continuingoperations was $12.8 million, or $0.20 per share, for the three months endedJune 30, 2004, compared to $11.0 million, or $0.19 per share, for thethree months ended June 30, 2003, an increase of $1.8 million, or $0.01per share.  Net income was $14.0 million,or $0.22 per share, for the three months ended June 30, 2004, compared to$9.8 million, or $0.17 per share, for the three months ended June 30,2003, an increase of $4.2 million, or $0.05 per share.  These changes are primarily the result of thechanges described above in revenues and expenses resulting from ouracquisitions since April 1, 2003, our sale of two properties, our debtissuance in April 2003 and the 5.0 million share increase in the weightedaverage number of shares outstanding between the 2004 and 2003 periods whichresulted from our sale of our common shares in January 2004.

 

Six MonthsEnded June 30, 2004, Compared to Six Months Ended June 30, 2003

 

Rental income for the sixmonths ended June 30, 2004, was $70.0 million compared to rental income of$61.8 million for the six months ended June 30, 2003, an increase of $8.2million, or 13.3%.  This increase is theresult of our acquisition and lease of 33 properties since January 1,2003.

 

Interest and other income forthe six months ended June 30, 2004 and 2003, each include $400,000 ofdividend income from one million shares of HRPT that we own.  For the six months ended June 30, 2004,it also includes the $1.25 million settlement payment we received from Marriottin January 2004.  For the six monthsended June 30, 2003, it includes $750,000 of proceeds from the sale of amortgage note.

 

Interest expense for the sixmonths ended June 30, 2004, was $20.6 million compared to interest expensefor the six months ended June 30, 2003, of $17.5 million, an increase of$3.1 million, or 17.7%.  The increase wascaused by our issuance of $150.0 million of 7 7/8% senior unsecured notes inApril 2003, partially offset by interest on reduced amounts outstandingunder our revolving bank credit facility during the six months endedJune 30, 2004.

 

8

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**Item2.****  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations (Continued)**

 

Depreciation expense for the six months endedJune 30, 2004, was $19.3 million compared to depreciation expense for thesix months ended June 30, 2003, of $17.5 million, an increase of $1.8million, or 10.3%.  General andadministrative expense for the six months ended June 30, 2004, was $6.1million compared to general and administrative expense for the six months endedJune 30, 2003, of $5.1 million, an increase of $1.0 million or 19.6%.  These increases were primarily due to ourinvestment in 33 properties since January 1, 2003, and were partiallyoffset by lower legal expenses.  During the six months ended June 30,2004, we incurred $775,000 of due diligence costs in connection with a failedpotential acquisition.

 

Income from continuingoperations was $26.1 million, or $0.41 per share, for the six months endedJune 30, 2004 compared to $23.0 million, or  $0.39 per share, for the six months endedJune 30, 2003, an increase of $3.1 million, or $0.02 per share.  Net income was $27.3 million, or $0.43 pershare, for the six months ended June 30, 2004, compared to $21.9 million,or $0.37 per share, for the six months ended June 30, 2003, an increase of$5.4 million, or $0.06 per share.  Thesechanges are primarily the result of the changes described above in revenues andexpenses resulting from our acquisitions since January 1, 2003, our saleof two properties, our debt issuance in April 2003 and the 4.5 millionshare increase in the weighted average number of shares outstanding between the2004 and 2003 periods which resulted from our sale of our common shares inJanuary 2004.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

Our OperatingLiquidity and Resources

 

Our principal sources of fundsfor current expenses and distributions to shareholders are rents from ourproperties.  Minimum rents are generallyreceived monthly or quarterly from our tenants and percentage rents are receivedmonthly, quarterly or annually.  Thisflow of funds has historically been sufficient for us to pay our operatingexpenses, debt service and distributions. We believe that our operating cash flow will be sufficient to meet ouroperating expenses, debt service and distributions payments for the foreseeablefuture.

 

Our Investmentand Financing Liquidity and Resources

 

In order to fund acquisitionsand to accommodate cash needs that may result from timing differences betweenour receipt of rents and the need to make distributions or pay operatingexpenses, we maintain a revolving bank credit facility with a group ofcommercial banks.  Our revolving bankcredit facility matures in November 2005 but we are permitted to extend itto November 2006 upon payment of an extension fee.  The revolving bank credit facility permits usto borrow up to $250.0 million and includes a feature under which the maximumborrowing may be expanded to $500.0 million, in certain circumstances.  Borrowings under our revolving bank creditfacility are unsecured.  Funds may beborrowed, repaid and reborrowed until maturity, and no principal repayment isdue until maturity.  Interest onborrowings under the revolving bank credit facility is payable at a spreadabove LIBOR.

 

9

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**Item2.****  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations (Continued)**

 

In January 2004, we issuedfive million of our common shares in a public offering.  We used the net proceeds of $86.1 million torepay borrowings outstanding on our revolving bank credit facility.

 

In April 2004, we sold oneof our nursing home properties for $5.9 million.  The proceeds were used to repay borrowingsoutstanding on our revolving bank credit facility and for general businesspurposes.

 

In June 2004, wepurchased, for $3.6 million, the land under one of our properties which wepreviously leased.  During 2004, wepurchased $4.3 million of improvements made to some of our properties.  We borrowed on our revolving bank creditfacility and used cash on hand to fund these purchases.

 

At June 30, 2004, we had $4.8 million of cash andcash equivalents and $217.0 million available under our revolving bank creditfacility.  We expect to use cashbalances, borrowings under our revolving bank credit facility and net proceedsof offerings of equity or debt securities to fund future property acquisitionsand expenditures related to the repair, maintenance or renovation of ourproperties.

 

When significant amounts are outstanding on ourrevolving bank credit facility or as the maturity dates of our revolving bankcredit facility and term debts approach, we will explore alternatives for therepayment of amounts due.  Such alternativesmay include incurring additional debt and issuing new equity securities.  As of June 30, 2004, we had $1.6 billionavailable on an effective shelf registration statement.  An effective shelf registration statementallows us to issue public securities on an expedited basis, but it does notassure that there will be buyers for such securities.  Although there can be no assurance that wewill consummate any debt or equity offerings or other financings, we believe wewill have access to various types of financing, including debt or equity offerings,with which to finance future acquisitions and to pay our debts and otherobligations.

 

On May 20, 2004, we paid a $0.31 per share, or $19.7million, distribution to our common shareholders for the quarter endedMarch 31, 2004.  On July 1,2004, we declared a distribution of $0.31 per common share with respect to our2004 second quarter results.  We plan topay this distribution to shareholders on or about August 20, 2004, usingcash on hand and borrowings under our revolving bank credit facility.

 

As of June 30, 2004, our contractual obligationswere 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) |       | $                          | 442,111    |   | $ | 4,170 |   | $ | — |   | $ | — |   | $ | 437,941 |   |
| Capital Lease Obligations     |       | 7,629                      |       | 821 |   | 1,836 |   | 2,034 |   | 2,938 |   |
| Ground Lease Obligations      |       | 3,313                      |       | 142 |   | 284 |   | 284 |   | 2,603 |   |
| Total                         |       | $                          | 453,053    |   | $ | 5,133 |   | $ | 2,120 |   | $ | 2,318 |   | $ | 443,482 |   |

 

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(1)          Ourterm debt maturities are as follows: $4.2 million in 2005; $245.0 million in 2012; $150.0 million in 2015;$14.7 million in 2027; and $28.2 million in 2041.

 

10

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**Item2.****  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations (Continued)**

 

**DebtCovenants**

 

Our principal debt obligationsat June 30, 2004, were our unsecured revolving bank credit facility, twoissues totaling $395.0 million of unsecured senior notes and our $28.2 millionof junior subordinated debentures.  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 June 30, 2004, wewere in compliance with all of the covenants under our indentures and relatedsupplements and our revolving bank credit facility.

 

None of our indentures andrelated supplements, our revolving bank credit facility or our other debtobligations contain provisions for acceleration whichcould be triggered by our debt ratings. However, under our revolving bank credit facility, our senior debtrating is used to determine the fees and the interest rate payable.

 

Our public debt indenture andrelated supplements contain cross default provisions to any other debts of $10.0million or more.  Similarly, a default onour public debt or junior subordinated debentures indenture would be a defaultunder our revolving bank credit facility.

 

As of June 30, 2004, wehave no commercial paper, derivatives, swaps, hedges, joint ventures orpartnerships.

 

**RelatedParty Transactions**

 

OnApril 19, 2004, we sold one of two properties that we had agreed to sellto Five Star for net proceeds of $5.9 million and recognized a gain of $1.2million.  The sale of the second propertyis expected to occur later in 2004, but remains contingent upon Five Starobtaining HUD insured financing for its purchase.  Under the terms of our lease with Five Star,the annual rent payable to us will be reduced by 10% of the net proceeds wereceive from the sale.

 

In 2003, we evicted a nursinghome tenant that had defaulted its obligations tous.  Until May 2004, Five Star managedthis nursing home for our account. Effective on May 1, 2004, we and Five Star agreed to add this nursinghome to the Five Star lease of independent and assisted living facilities andnursing homes and to increase the annual rent by $180,000.  All other lease terms remained unchanged.

 

One of our properties leased toFive Star was subject to a ground lease with an unaffiliated third party.  Five Star has beenresponsible for paying the ground rent of $307,000 per year.  On June 3, 2004, we exercised an optionto purchase this land for $3.6 million and we acquired the landlord’s rightsand obligations under the ground lease. Five Star remains obligated for the ground lease payments to us.

 

During 2004, pursuant to theterms of our leases with Five Star, we purchased $4.3 million of improvementsmade to our properties leased by Five Star, and the annual rent payable to usby Five Star was increased by 10% of the amounts invested, or $432,000.

 

11

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

 

We are exposed to risks associated with market changesin interest rates.  We manage ourexposure to this market risk by monitoring available financingalternatives.  Our strategy to manageexposure to changes in interest rates is unchanged since December 31,2003.  Other than as described below, wedo not foresee any significant changes in our exposure to fluctuations ininterest rates or in how we may manage this exposure in the future.

 

Our unsecured revolving bankcredit facility requires interest at floating rates and matures inNovember 2005.  At June 30,2004, we had $33.0 million outstanding and $217.0 million available forborrowing under our revolving bank credit facility.  Repayments under our revolving bank creditfacility may be made at any time without penalty.  We borrow in U.S. dollars and borrowingsunder our revolving bank credit facility require interest at LIBOR plus aspread.  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 indebtedness of $33.0 million at June 30, 2004,was 2.6% per annum.  The following tablepresents the impact a 10% change in interest rates would have on our floatingrate interest expense at June 30, 2004 (dollars in thousands):

 

| ** **            | ** ** | **Impact of Changes in Interest Rates** | ** ** |
|-----------------------|------------|-----------------------------------------|------------|
| ** **            | ** ** | **Interest Rate  Per Year**             | ** ** | **Outstanding  Debt** | ** ** | **Total Interest  Expense Per  Year** | ** ** |
| At June 30, 2004 |       | 2.6                                     | %          | $ | 33,000 |   | $ | 858 |   |
| 10% reduction         |       | 2.3                                     | %          | $ | 33,000 |   | $ | 759 |   |
| 10% increase          |       | 2.9                                     | %          | $ | 33,000 |   | $ | 957 |   |

 

The foregoing table shows theimpact of an immediate change in floating interest rates.  If interest rates were to change graduallyover time, the impact would be spread over time.  Our exposure to fluctuations in floatinginterest rates will increase or decrease in the future with increases ordecreases in the outstanding amount under our revolving bank credit facility orother floating rate obligations.

 

**Item4.****  Controls andProcedures**

 

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 controlover financial reporting during the quarter ended June 30, 2004, that havematerially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting, including any corrective actionswith regard to significant deficiencies and material weaknesses.

 

12

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**WARNINGCONCERNING FORWARD LOOKING STATE**MENTS

 

THIS QUARTERLY REPORT ON FORM 10-Q AND OUR ANNUALREPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2003, REFERRED TOHEREIN, CONTAIN FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATESECURITIES LITIGATION REFORM ACT OF 1995 AND FEDERAL SECURITIES LAWS.  THESE STATEMENTS REGARD OUR INTENT, BELIEF OREXPECTATIONS, OR THE INTENT, BELIEF OR EXPECTATIONS OF OUR TRUSTEES ANDOFFICERS CONCERNING:

 

•                       OURTENANTS’ ABILITY TO PAY OUR RENTS,

•                       OUR ABILITYTO PURCHASE ADDITIONAL PROPERTIES,

•                       OUR ABILITYTO MAKE INTEREST AND PRINCIPAL PAYMENTS ON OUR DEBT,

•                       OUR ABILITYTO MAKE DISTRIBUTIONS ON OUR SHARES,

•                       OURPOLICIES AND PLANS REGARDING INVESTMENTS, FINANCING AND OTHER MATTERS,

•                       OUR TAXSTATUS AS A REAL ESTATE INVESTMENT TRUST,

•                       OUR ABILITYTO APPROPRIATELY BALANCE THE USE OF DEBT AND EQUITY,

•                       OUR ABILITYTO ACCESS CAPITAL MARKETS OR OTHER SOURCES OF FUNDS, AND

•                       OURLITIGATION WITH HEALTHSOUTH.

 

ALSO, WHENEVER WE USE WORDS SUCH AS “BELIEVE”,“EXPECT”, “ANTICIPATE”, “INTEND”, “PLAN”, “ESTIMATE”, “PREDICT” OR SIMILAREXPRESSIONS, WE ARE MAKING FORWARD LOOKING STATEMENTS.  ACTUAL RESULTS MAY DIFFER MATERIALLY FROMTHOSE CONTAINED IN OR IMPLIED BY OUR FORWARD LOOKING STATEMENTS AS A RESULT OFVARIOUS FACTORS.  SUCH FACTORS INCLUDE,WITHOUT LIMITATION:

 

•                       CHANGES INTHE ECONOMY AND THE CAPITAL MARKETS (INCLUDING PREVAILING INTEREST RATES),

•                       COMPLIANCEWITH AND CHANGES TO REGULATIONS AND PAYMENT POLICIES WITHIN THE REAL ESTATE,SENIOR HOUSING AND HEALTHCARE INDUSTRIES,

•                       CHANGES INFINANCING TERMS,

•                       COMPETITIONWITHIN THE REAL ESTATE, SENIOR HOUSING AND HEALTHCARE INDUSTRIES, AND

•                       CHANGES INFEDERAL, STATE AND LOCAL LEGISLATION.

 

FOR EXAMPLE, OUR TENANTS MAY EXPERIENCE LOSSES ANDBECOME UNABLE TO PAY OUR RENTS, OR WE MAY BE UNABLE TOIDENTIFY PROPERTIES WHICH WE WANT TO BUY OR TO NEGOTIATE ACCEPTABLE PURCHASEPRICES OR LEASE TERMS FOR THOSE PROPERTIES. THESE UNEXPECTED RESULTS COULDOCCUR DUE TO MANY DIFFERENT CIRCUMSTANCES, SOME OF WHICH, SUCH AS CHANGES INOUR TENANTS’ COSTS OR THEIR REVENUES INCLUDING MEDICARE AND MEDICAID REVENUESOR CHANGES IN THE CAPITAL MARKETS OR THE ECONOMY GENERALLY, ARE BEYOND OURCONTROL.

 

FORWARD LOOKING STATEMENTS ARE ONLY EXPRESSIONS OF OURPRESENT EXPECTATIONS AND INTENTIONS. FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR, AND THEY MAY NOTOCCUR.  YOU SHOULD NOT PLACE UNDUERELIANCE UPON FORWARD LOOKING STATEMENTS.

 

13

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**STATEMENT CONCERNING LIMITED LIABILITY**

 

THE ARTICLES OF AMENDMENT AND RESTATEMENT ESTABLISHINGSENIOR HOUSING PROPERTIES TRUST, DATED SEPTEMBER 20, 1999, TOGETHER WITHALL AMENDMENTS THERETO, AS 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 FOR ANY OBLIGATION OF, OR CLAIM AGAINST, SENIOR HOUSINGPROPERTIES TRUST.  ALL PERSONS DEALINGWITH SENIOR HOUSING PROPERTIES TRUST, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETSOF SENIOR HOUSING PROPERTIES TRUST FOR THE PAYMENT OF ANY SUM OR THEPERFORMANCE OF ANY OBLIGATION.

 

14

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

 

**Item 2.**           Changes in Securities and Use ofProceeds and Issuer Purchases of Equity Securities

** **

**On May 11, 2004, we granted each of our threeindependent trustees 1,000 common shares of beneficial interest, par value$0.01 per share, valued at $14.79 per share, the closing price of our commonshares on the New York Stock Exchange on that day.  We made these grants pursuant to an exemptionfrom registration contained in section 4(2) of the Securities Act of 1933,as amended.**

** **

**Item 4.****           Submission of Matters to a Vote ofSecurity Holders**

 

At our regular annual meeting held on May 11, 2004,our shareholders re-elected John L. Harrington and Gerard M. Martin as trustees(59,161,343 shares voted for and 729,232 shares withheld for Mr. Harrington and58,985,563 shares voted for and 905,013 shares withheld for Mr. Martin).  The terms of office of Messrs. Harrington andMartin will extend until our annual meeting of shareholders in 2007.  Messrs. Frederick N. Zeytoonjian, Frank J.Bailey and Barry M. Portnoy continue to serve as trustees with terms of officeexpiring in 2005, 2006 and 2006, respectively.

 

**Item6.**           Exhibits and Report onForm 8-K

** **

(a)                                                          Exhibits:

 
| 10.1   |   | Partial Termination and  Amendment to Lease by and among certain subsidiaries of the Company, as  Landlord, and Five Star Quality Care Trust, as Tenant, dated April 19,  2004.  *(filed herewith.)*                                                                                                                                                                                                      |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.2   |   | First Amendment to Amended  and Restated Lease Agreement by and among certain subsidiaries of the  Company, as Landlord, and Five Star Quality Care Trust, as Tenant, dated  June 23, 2004.  *(filed herewith.)*                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.3   |   | Guaranty Agreement made by  Five Star Quality Care, Inc., as Guarantor, for the benefit of the Company  and certain subsidiaries of the Company, dated October 25, 2002,  relating to the Amended and Restated Master Lease Agreement by and among  certain subsidiaries of the Company, as Landlord, and Five Star Quality Care  Trust, as Tenant, dated March 1, 2004, as amended. *(filed  herewith.)* |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.4   |   | Representative  Indemnification Agreement. *(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.)*                                                                                                                                                                                                                                                                   |

 

15

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(b)                                 Reportson Form 8-K:

 

During the second quarter of2004, we filed or furnished the following Current Report on Form 8-K:

 

(i)                                                   CurrentReport on Form 8-K dated May 3, 2004, furnishing our press release containingour results of operations and financial condition for the quarter endedMarch 31, 2004 (Item 12).

 

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SIGNATURES

 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto 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:  August 3, 2004 |
|   |                            |   |
|   |                            |   |
|   | By:                             | /s/ John R.  Hoadley |   |
|   |                            | John R.  Hoadley |
|   |                            | Treasurer  and Chief Financial Officer |
|   |                            | Dated:   August 3, 2004 |

 

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