** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION****WASHINGTON, DC  20549**

 

**FORM 10-Q**

 

**x****        QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thequarterly period ended March 31, 2008**

 

**OR**

 

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

 

**CommissionFile Number 1-15319**

 

**SENIORHOUSING PROPERTIES TRUST**

(Exact Name ofRegistrant as Specified in Its Charter)

 

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

 

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

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company.  See thedefinitions of “large accelerated filer”, “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.  (Check One):

 

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

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).          Yes oNo x

 

Number of registrant’scommon shares outstanding as of May 6, 2008: 94,928,559.

 

 

----

 

SENIOR HOUSING PROPERTIES TRUST

 

FORM 10-Q

 

March 31, 2008

 

INDEX

 
|         | ** **                                                                                    | **Page** |
|--------------|-----------------------------------------------------------------------------------------------|----------|
| PART I  | Financial Information                                                                         |     |
|         |                                                                                          |     |
| Item 1.      | Financial Statements (unaudited)                                                              | 1        |
|         |                                                                                          |     |
|         | Consolidated  Balance Sheet – March 31, 2008  and December 31, 2007            | 1        |
|         |                                                                                          |     |
|         | Consolidated  Statement of Income – Three Months Ended March 31, 2008 and 2007      | 2        |
|         |                                                                                          |     |
|         | Consolidated  Statement of Cash Flows – Three  Months Ended March 31, 2008 and 2007 | 3        |
|         |                                                                                          |     |
|         | Notes  to Consolidated Financial Statements                                                   | 4        |
|         |                                                                                          |     |
| Item 2.      | Management’s  Discussion and Analysis of Financial Condition and Results of Operations   | 8        |
|         |                                                                                          |     |
| Item 3.      | Quantitative  and Qualitative Disclosures about Market Risk                                   | 13       |
|         |                                                                                          |     |
| Item 4.      | Controls and  Procedures                                                                      | 13       |
|         |                                                                                          |     |
|         | Warning Concerning Forward Looking Statements                                                 | 14       |
|         |                                                                                          |     |
|         | Statement Concerning Limited Liability                                                        | 14       |
|         |                                                                                          |     |
| PART II | Other Information                                                                             |     |
|         |                                                                                          |     |
| Item 2.      | Unregistered  Sales of Equity Securities and Use of Proceeds                                  | 15       |
|         |                                                                                          |     |
| Item  6.     | Exhibits                                                                                      | 15       |
|         |                                                                                          |     |
|         | Signatures                                                                                    | 16       |

 

*In thisQuarterly Report on Form 10-Q, the terms “SNH”, “Senior Housing”, “theCompany”, “we”, “us” and “our” refer to Senior Housing Properties Trust, andits consolidated subsidiaries, unless otherwise noted.*

* *

----

 

SENIOR HOUSING PROPERTIESTRUST

 

**PART I.  Financial Information**

 

**Item 1.    Financial Statements**

** **

CONSOLIDATED BALANCE SHEET

(in thousands,except share amounts)

(unaudited)

 
| ** **                                                                                                                                              | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                              | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| ASSETS                                                                                                                                                  |       |               |       |                  |       |
| Real estate  properties, at cost:                                                                                                                       |       |               |       |                  |       |
| Land                                                                                                                                                    |       | $                  | 238,296    |                  | $          | 217,236 |   |
| Buildings and  improvements                                                                                                                             |       | 1,990,995          |       | 1,723,111             |       |
|                                                                                                                                                    |       | 2,229,291          |       | 1,940,347             |       |
| Less accumulated  depreciation                                                                                                                          |       | 336,914            |       | 323,891               |       |
|                                                                                                                                                    |       | 1,892,377          |       | 1,616,456             |       |
|                                                                                                                                                    |       |               |       |                  |       |
| Cash and cash  equivalents                                                                                                                              |       | 5,192              |       | 43,521                |       |
| Restricted cash                                                                                                                                         |       | 3,957              |       | 3,642                 |       |
| Deferred  financing fees, net                                                                                                                           |       | 5,486              |       | 5,974                 |       |
| Other assets                                                                                                                                            |       | 29,960             |       | 32,301                |       |
| Total assets                                                                                                                                            |       | $                  | 1,936,972  |                  | $          | 1,701,894 |   |
|                                                                                                                                                    |       |               |       |                  |       |
| LIABILITIES AND  SHAREHOLDERS’ EQUITY                                                                                                              |       |               |       |                  |       |
| Unsecured  revolving credit facility                                                                                                                    |       | $                  | 115,000    |                  | $          | — |   |
| Senior unsecured  notes due 2012 and 2015, net of discount                                                                                              |       | 321,909            |       | 321,873               |       |
| Secured debt and  capital leases                                                                                                                        |       | 104,465            |       | 104,979               |       |
| Accrued interest                                                                                                                                        |       | 8,129              |       | 10,849                |       |
| Other  liabilities                                                                                                                                      |       | 17,435             |       | 14,783                |       |
| Total  liabilities                                                                                                                                      |       | 566,938            |       | 452,484               |       |
|                                                                                                                                                    |       |               |       |                  |       |
| Commitments and  contingencies                                                                                                                          |       |               |       |                  |       |
|                                                                                                                                                    |       |               |       |                  |       |
| Shareholders’  equity:                                                                                                                             |       |               |       |                  |       |
| Common shares of  beneficial interest, $0.01 par value:                                                                                                 |       |               |       |                  |       |
| 99,700,000 shares  authorized, 94,901,249 and 88,691,892 shares issued and outstanding at  March 31, 2008 and December 31, 2007, respectively |       | 949                |       | 887                   |       |
| Additional  paid-in capital                                                                                                                             |       | 1,606,031          |       | 1,476,675             |       |
| Cumulative net  income                                                                                                                                  |       | 447,123            |       | 423,807               |       |
| Cumulative  distributions                                                                                                                               |       | (684,267           | )          | (653,225              | )          |
| Unrealized gain  on investments                                                                                                                         |       | 198                |       | 1,266                 |       |
| Total  shareholders’ equity                                                                                                                        |       | 1,370,034          |       | 1,249,410             |       |
| Total  liabilities and shareholders’ equity                                                                                                        |       | $                  | 1,936,972  |                  | $          | 1,701,894 |   |

 

*Seeaccompanying notes.*

 

1

----

 

SENIORHOUSING PROPERTIES TRUST

 

CONSOLIDATEDSTATEMENT OF INCOME

(in thousands,except per share amounts)

(unaudited)

 
| ** **                             | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------------|------------|--------------------------------------------------|------------|
| ** **                             | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| Revenues:                              |       |                                             |       |   |   |
| Rental income                          |       | $                                                | 48,983     |   | $ | 44,301 |   |
| Interest and  other income             |       | 570                                              |       | 451 |   |
| Total revenues                         |       | 49,553                                           |       | 44,752 |   |
|                                   |       |                                             |       |   |   |
| Expenses:                              |       |                                             |       |   |   |
| Interest                               |       | 9,518                                            |       | 9,893 |   |
| Depreciation                           |       | 13,023                                           |       | 11,595 |   |
| General and  administrative            |       | 3,696                                            |       | 3,716 |   |
| Loss on early  extinguishment of debt  |       | —                                           |       | 2,026 |   |
| Total expenses                         |       | 26,237                                           |       | 27,230 |   |
|                                   |       |                                             |       |   |   |
| Net income                             |       | $                                                | 23,316     |   | $ | 17,522 |   |
|                                   |       |                                             |       |   |   |
| Weighted average  shares outstanding   |       | 91,080                                           |       | 80,815 |   |
|                                   |       |                                             |       |   |   |
| Basic and  diluted earnings per share: |       |                                             |       |   |   |
| Net income                             |       | $                                                | 0.26       |   | $ | 0.22 |   |

 

*See accompanying notes*.

 

2

----

 

SENIORHOUSING PROPERTIES TRUST

 

CONSOLIDATEDSTATEMENT OF CASH FLOWS

(in thousands) (unaudited)

 
| ** **                                                                     | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                     | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| Cash flows from  operating activities:                                         |       |                                             |       |   |   |
| Net income                                                                     |       | $                                                | 23,316     |   | $ | 17,522 |   |
| Adjustments to  reconcile net income to cash provided by operating activities: |       |                                             |       |   |   |
| Depreciation                                                                   |       | 13,023                                           |       | 11,595 |   |
| Amortization of  deferred financing fees and debt discounts                    |       | 524                                              |       | 542 |   |
| Amortization of  acquired real estate assets                                   |       | (29                                              | )          | — |   |
| Loss on early  extinguishment of debt                                          |       | —                                           |       | 2,026 |   |
| Change in assets  and liabilities:                                             |       |                                             |       |   |   |
| Restricted cash                                                                |       | (315                                             | )          | (185 | ) |
| Other assets                                                                   |       | 1,193                                            |       | 3,171 |   |
| Accrued interest                                                               |       | (2,720                                           | )          | (3,763 | ) |
| Other  liabilities                                                             |       | 2,761                                            |       | (517 | ) |
| Cash provided by  operating activities                                         |       | 37,753                                           |       | 30,391 |   |
|                                                                           |       |                                             |       |   |   |
| Cash flows from  investing activities:                                         |       |                                             |       |   |   |
| Acquisitions                                                                   |       | (288,944                                         | )          | (9,644 | ) |
| Cash used for  investing activities                                            |       | (288,944                                         | )          | (9,644 | ) |
|                                                                           |       |                                             |       |   |   |
| Cash flows from  financing activities:                                         |       |                                             |       |   |   |
| Proceeds from  issuance of common shares, net                                  |       | 129,418                                          |       | 151,720 |   |
| Proceeds from  borrowings on revolving credit facility                         |       | 176,000                                          |       | 22,000 |   |
| Repayments of  borrowings on revolving credit facility                         |       | (61,000                                          | )          | (134,000 | ) |
| Redemption of  senior notes                                                    |       | —                                           |       | (21,750 | ) |
| Repayment of  other debt                                                       |       | (514                                             | )          | (434 | ) |
| Distributions to  shareholders                                                 |       | (31,042                                          | )          | (26,389 | ) |
| Cash provided by  (used for) financing activities                              |       | 212,862                                          |       | (8,853 | ) |
|                                                                           |       |                                             |       |   |   |
| (Decrease)  increase in cash and cash equivalents                              |       | (38,329                                          | )          | 11,894 |   |
| Cash and cash  equivalents at beginning of period                              |       | 43,521                                           |       | 5,464 |   |
| Cash and cash  equivalents at end of period                                    |       | $                                                | 5,192      |   | $ | 17,358 |   |
|                                                                           |       |                                             |       |   |   |
| Supplemental  cash flow information:                                           |       |                                             |       |   |   |
| Interest paid                                                                  |       | $                                                | 11,714     |   | $ | 13,114 |   |
|                                                                           |       |                                             |       |   |   |
| Non-cash  financing activities:                                                |       |                                             |       |   |   |
| Issuance of  common shares                                                     |       | $                                                | —     |   | $ | 784 |   |

 

*Seeaccompanying notes.*

 

3

----

 

SENIOR HOUSING PROPERTIESTRUST

NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS (UNAUDITED)

 

**Note 1.  Basis of Presentation**

 

Theaccompanying consolidated financial statements of Senior Housing PropertiesTrust and its subsidiaries, or the Company, have been prepared withoutaudit.  Certain information and footnotedisclosures required by accounting principles generally accepted in the UnitedStates for complete financial statements have been condensed or omitted.  We believe the disclosures made are adequateto make the information presented not misleading.  However, the accompanying consolidatedfinancial statements should be read in conjunction with the consolidatedfinancial statements and notes contained in our Annual Report on Form 10-Kfor the year ended December 31, 2007. In the opinion of our management, all adjustments, which include onlynormal recurring adjustments, considered necessary for a fair presentation havebeen included.  All intercompanytransactions and balances between us and our consolidated subsidiaries havebeen eliminated.  Operating results forinterim periods are not necessarily indicative of the results that may beexpected for the full year. Reclassifications have been made to the prior year’s financialstatements to conform to the current year’s presentation.  These reclassifications had no effect on netincome or shareholders’ equity.

 

In September 2006, the Financial AccountingStandards Board, or FASB, issued Statement of Financial Accounting Standards No. 157,“Fair Value Measurement”, or SFAS No. 157, which defines fair value,establishes a framework for measuring fair value, and expands disclosures aboutfair value measurement.  This statementis effective for financial statements issued for fiscal years beginning after November 15,2007, and interim periods within those fiscal years.  The adoption of this standard did not have amaterial impact on the Company’s financial position, operations or cash flow.

 

In December 2007, the FASB issued Statement ofFinancial Accounting Standards No. 141 (revised 2007), “BusinessCombinations”, or SFAS No. 141(R). SFAS No. 141(R) establishesprinciples and requirements for how an acquirer shall recognize and measure inits financial statements the identifiable assets acquired, liabilities assumed,any noncontrolling interest in the acquiree and goodwill acquired in a businesscombination.  SFAS No. 141(R) iseffective for business combinations for which the acquisition date is on orafter the beginning of the first annual reporting period beginning on or after December 15,2008.  The Company is currentlyevaluating the effect that the adoption of SFAS No. 141(R) will haveon our consolidated financial statements.

 

**Note 2.  Real Estate Properties**

 

At March 31, 2008, we owned 221properties located in 32 states.

 

During the three months ended March 31, 2008,we purchased 19 senior living properties with a total of 1,692 units forapproximately $272.3 million from five unaffiliated parties. We leased theseproperties to Five Star Quality Care Inc., or Five Star, for initial rent of$21.8 million and added them to the combined lease for 114 properties with FiveStar, which has a current term expiring in 2020.  Percentage rent, based on increases in grossrevenues at these properties, will commence in 2010. We funded theseacquisitions using cash on hand, proceeds from equity issuances and borrowingsunder our revolving credit facility.

 

During2007, we agreed to purchase, from an unaffiliated party, two senior livingproperties with a total of 112 units for approximately $14.1 million.  This acquisition has not occurred as of the dateof this 

 

4

----

 

SENIOR HOUSING PROPERTIESTRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

report.  We intend to lease these properties to FiveStar and to add them to our combined lease of 133 properties (including the 19communities described above) with Five Star, which has a current term expiringin 2020 and we expect the annual rent under this combined lease will increaseby $1.1 million.  We expect percentagerent, based on increases in gross revenues at these properties, will commencein 2010.  We expect to fund thisacquisition using cash on hand, borrowings under our revolving credit facilityand by assuming two mortgages, one for $3.6 million at 5.7% per annum and onefor $3.6 million at 6.2% per annum.  Bothmortgages mature in 2041 and are prepayable beginning in 2008.  The purchase of these properties iscontingent upon completion of our diligence, other customary closing conditionsand the approval of mortgage lenders. We can provide no assurance that we willpurchase these properties.

 

As of March 31,2008, two of our properties are classified as held for sale as we intend tosell them in 2008.  These two propertiesmet the held for sale criteria at December 31, 2007, for which we recordedan impairment charge of $1.4 million related to one of these properties toreduce the carrying value to its estimated fair value, less costs to sell.These two properties are included in real estate properties on our consolidatedbalance sheet and have a carrying value of $9.5 million at March 31, 2008.

 

Duringthe three monthsended March 31, 2008 and 2007, pursuant to the terms of our existingleases with Five Star, we purchased $16.6 million and $9.6 million,respectively, of improvements made to our properties leased to Five Star, and,as a result, the annual rent payable to us by Five Star was increased byapproximately $1.6 million and $945,000, respectively.

 

**Note3.  Unrealized Gain on Investments**

 

On March 31, 2008,we owned 1,000,000 common shares of HRPT Properties Trust and 35,000 commonshares of Five Star, which are carried at fair market value in other assets onour consolidated balance sheet. The net unrealized gain on investments shown onour consolidated balance sheet represents the difference between the marketprices of such shares on March 31, 2008 ($6.73 and $6.35 per share,respectively) and their cost on the dates they were acquired ($6.50 and $7.26per share, respectively).

 

**Note4.  Comprehensive Income**

 

The following is areconciliation of net income to comprehensive income for the three months endedMarch 31, 2008 and 2007 (dollars in thousands):

 
| ** **                                    | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                    | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| Net income                                    |       | $                                                | 23,316     |   | $ | 17,522 |   |
| Other  comprehensive income:                  |       |                                             |       |   |   |
| Change in net  unrealized gain on investments |       | (1,068                                           | )          | (80 | ) |
| Comprehensive  income                         |       | $                                                | 22,248     |   | $ | 17,442 |   |

 

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

 

We have an unsecured revolving credit facility thatmatures in December 2010, with our option to extend the maturity by oneadditional year upon payment of a fee. Our revolving credit facility permits borrowings up to $550.0million.  The annual interest payable foramounts drawn under the facility is LIBOR plus a premium. The interest rate onborrowings under our revolving credit facility was****3.48%and 6.12% at March 31, 2008 and 2007, respectively.  Our revolving credit facility is availablefor acquisitions, working capital and general business purposes. As of March 31,2008 and 2007, we had $115.0 million and zero, respectively, outstanding underthis credit facility.

 

5

----

 

SENIOR HOUSING PROPERTIESTRUST

NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

On April 1, 2008, we paid in full a mortgage loanon one of our properties for $12.6 million. We used cash on hand and borrowings under our revolving credit facilityto fund this payment.

 

In January 2007, we purchased and retired $20.0million of our 8 5/8% senior notes due 2012 and paid a premium of $1.8 millionand wrote off $276,000 of deferred financing fees and unamortized discountrelated to these senior notes.

 

**Note 6.  Shareholders Equity**

 

In February 2008, we issued 6.2 million of ourcommon shares in a public offering, raising net proceeds of $129.4 million. Weused the net proceeds from this offering to repay borrowings outstanding on ourrevolving credit facility and for general business purposes, including funding,in part, the acquisitions described above.

 

On February 15, 2008, we paid a $0.35 per share,or $31.0 million, distribution to our common shareholders for the quarter endedDecember 31, 2007.  On April 3,2008, we declared a distribution of $0.35 per share, or $33.2 million, to bepaid to common shareholders of record on April 18, 2008, with respect toour results for the quarter ended March 31, 2008. We expect to pay thisdistribution on or about May 15, 2008.

 

Under the terms of ourmanagement agreement with Reit Management and Research LLC, or RMR, on April 11,2008, we issued 27,310 common shares in payment of an incentive fee ofapproximately $624,000 for services rendered by RMR during 2007. Theserestricted securities were issued pursuant to an exemption from registrationprovided under Section 4(2) of the Securities Act of 1933, asamended.

 

**Note 7.  Segment Reporting**

** **

Wehave one reportable operating segment: short term and long term residentialfacilities that offer dining for residents. Properties in this segment include independent living facilities,assisted living facilities, skilled nursing facilities and rehabilitationhospitals.  The “All Other” category inthe following table includes amounts related to corporate business activitiesand the operating results of our specialized facilities that offer fitness,wellness and spa service to members operating segment. Prior to October 2007,our only operating segment was short and long term residential facilities thatoffer dining for residents.

 
| ** **                            | ** ** | **For the three months ended March 31, 2008** | ** ** |
|---------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                            | ** ** | **Short and Long  Term Residential  Facilities**                  | ** ** | **All Other** | ** ** | **Consolidated** | ** ** |
| Rental income                         |       | $                                                                                | 47,353     |   | $ | 1,630 |   | $ | 48,983 |   |
| Interest and other income             |       | —                                                                           |       | 570 |   | 570 |   |
| Total revenues                        |       | 47,353                                                                           |       | 2,200 |   | 49,553 |   |
|                                  |       |                                                                             |       |   |   |   |   |
| Interest expense                      |       | 1,449                                                                            |       | 8,069 |   | 9,518 |   |
| Depreciation and amortization expense |       | 12,640                                                                           |       | 383 |   | 13,023 |   |
| General and administrative expense    |       | —                                                                           |       | 3,696 |   | 3,696 |   |
| Total expenses                        |       | 14,089                                                                           |       | 12,148 |   | 26,237 |   |
|                                  |       |                                                                             |       |   |   |   |   |
| Net income (loss)                     |       | $                                                                                | 33,264     |   | $ | (9,948 | ) | $ | 23,316 |   |
|                                  |       |                                                                             |       |   |   |   |   |
| Total assets                          |       | $                                                                                | 1,831,412  |   | $ | 105,560 |   | $ | 1,936,972 |   |

 

6

----

 

SENIOR HOUSING PROPERTIESTRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)

 

**Note 8.  Subsequent Events**

 

**On May 6, 2008, we announced that we have entered intoa series of agreements to acquire 48 medical office, clinic and biotechlaboratory buildings from HRPT Properties Trust, or HRPT, for approximately$565.0 million.  These buildings arecurrently 98.3% leased to more than 370 unaffiliated tenants for an averageterm of 6.7 years.  We expect theclosings of these acquisitions to occur over the next 12 months. **Ourobligation to complete these purchases is subject to various conditions typicalof commercial real estate purchases including, with respect to certain of theseproperties, obtaining consents from mortgagees and waivers of rights of firstrefusal from tenants.  Also, we have afinancing contingency relating to certain properties.  We can provide no assurance that we willpurchase any or all of these buildings or that the purchases will be completedin the next 12 months.  In addition, we also acquired a right of first refusal topurchase any of 45 additional buildings (approximately 4.6 million square feet)that are leased by HRPT to tenants in medical related business which HRPT willcontinue to own after this transaction. Because we and HRPT are both managed by RMR, the purchase prices for theproperties to be acquired were established by reference to an appraisal reportand the final terms of these transactions were negotiated by special committeesof our and HRPT’s Boards composed solely of Independent Trustees representingeach company.

** **

**7**

----

 

**Item 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

The following discussion should be read inconjunction with our consolidated financial statements and notes theretoincluded in this quarterly report and our Annual Report on Form 10-K forthe year ended December 31, 2007.

 

**PORTFOLIO OVERVIEW**

** **

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

 
| **As of March 31, 2008  (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)                                            |       | 41                        |       | 11,213                        |       | $                                                        | 1,035,000  |                      | 46.4%      |                              | $          | 102,765                                      |       | 47.3% |   |
| Assisted living  facilities                                                    |       | 114                       |       | 8,227                         |       | 839,771                                                  |       | 37.7%                     |       | 78,179                            |       | 36.0%                                        |       |
| Skilled nursing  facilities                                                    |       | 58                        |       | 5,869                         |       | 225,080                                                  |       | 10.1%                     |       | 19,268                            |       | 8.9%                                         |       |
| Rehabilitation  hospitals                                                      |       | 2                         |       | 364                           |       | 49,468                                                   |       | 2.2%                      |       | 10,723                            |       | 4.9%                                         |       |
| Wellness centers  (3)                                                          |       | 6                         |       | —                        |       | 79,972                                                   |       | 3.6%                      |       | 6,519                             |       | 2.9%                                         |       |
| Total                                                                          |       | 221                       |       | 25,673                        |       | $                                                        | 2,229,291  |                      | 100.0%     |                              | $          | 217,454                                      |       | 100.0% |   |
|                                                                           |       |                      |       |                          |       |                                                     |       |                      |       |                              |       |                                         |       |
| Tenant/Operator                                                                |       |                      |       |                          |       |                                                     |       |                      |       |                              |       |                                         |       |
| Five Star (Lease  No. 1)                                                  |       | 133                       |       | 11,036                        |       | $                                                        | 899,899    |                      | 40.4%      |                              | $          | 75,192                                       |       | 34.6% |   |
| Five Star (Lease  No. 2) (4)                                              |       | 30                        |       | 7,275                         |       | 676,930                                                  |       | 30.4%                     |       | 69,003                            |       | 31.7%                                        |       |
| Five Star  rehabilitation hospitals (5)                                        |       | 2                         |       | 364                           |       | 49,468                                                   |       | 2.2%                      |       | 10,723                            |       | 4.9%                                         |       |
| Sunrise/Marriott  (6)                                                          |       | 14                        |       | 4,091                         |       | 325,165                                                  |       | 14.6%                     |       | 31,746                            |       | 14.6%                                        |       |
| NewSeasons/IBC (7)                                                             |       | 10                        |       | 873                           |       | 87,641                                                   |       | 3.9%                      |       | 9,298                             |       | 4.3%                                         |       |
| Alterra/Brookdale  (8)                                                         |       | 18                        |       | 894                           |       | 61,122                                                   |       | 2.7%                      |       | 7,873                             |       | 3.6%                                         |       |
| 6 private  companies (combined)                                                |       | 8                         |       | 1,140                         |       | 49,094                                                   |       | 2.2%                      |       | 7,100                             |       | 3.4%                                         |       |
| Starmark (3)                                                                   |       | 6                         |       | —                        |       | 79,972                                                   |       | 3.6%                      |       | 6,519                             |       | 2.9%                                         |       |
| Total                                                                          |       | 221                       |       | 25,673                        |       | $                                                        | 2,229,291  |                      | 100.0%     |                              | $          | 217,454                                      |       | 100.0% |   |

 
| Tenant Operating Statistics (Quarter Ended December 31, 2007) **(9)** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Percentage of Operating Revenue Sources** | ** ** |
| ** **                                                                                                    | ** ** | **Rent Coverage** | ** ** | **Occupancy** | ** ** | **Private Pay** | ** ** | **Medicare** | ** ** | **Medicaid** | ** ** |
| ** **                                                                                                    | ** ** | **2007** | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Five Star (Lease  No. 1) (10)                                                                            | ** ** | 1.41x |   | 1.46x |   | 89% |   | 88% |   | 53% |   | 53% |   | 16% |   | 15% |   | 31% |   | 32% |   |
| Five Star (Lease  No. 2) (4)                                                                             | ** ** | 1.66x |   | 1.58x |   | 91% |   | 92% |   | 79% |   | 80% |   | 18% |   | 16% |   | 3% |   | 4% |   |
| Five Star  Rehabilitation Hospitals (5)                                                                       | ** ** | 0.92x |   | 1.52x |   | 62% |   | 60% |   | 33% |   | 28% |   | 64% |   | 59% |   | 3% |   | 13% |   |
| Sunrise/Marriott (6)                                                                                          | ** ** | NA |   | NA |   | NA |   | NA |   | NA |   | NA |   | NA |   | NA |   | NA |   | NA |   |
| NewSeasons/IBC (7)                                                                                            | ** ** | 0.94x |   | 0.66x |   | 81% |   | 84% |   | 100% |   | 100% |   | — |   | — |   | — |   | — |   |
| Alterra/Brookdale  (8)                                                                                        | ** ** | 1.85x |   | 2.01x |   | 91% |   | 88% |   | 98% |   | 98% |   | — |   | — |   | 2% |   | 2% |   |
| 6 private  companies (combined)                                                                               | ** ** | 1.94x |   | 1.98x |   | 88% |   | 89% |   | 24% |   | 26% |   | 24% |   | 23% |   | 52% |   | 52% |   |
| Starmark(3)                                                                                                   | ** ** | 1.95x |   | NA |   | NA |   | NA |   | 100% |   | NA |   | — |   | NA |   | — |   | NA |   |
|                                                                                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tenant Operating Statistics (Year Ended December 31, 2007) (9)        | ** ** |
| ** **                                                                                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Percentage of Operating Revenue Sources** | ** ** |
| ** **                                                                                                    | ** ** | **Rent Coverage** | ** ** | **Occupancy** | ** ** | **Private Pay** | ** ** | **Medicare** | ** ** | **Medicaid** | ** ** |
| ** **                                                                                                    | ** ** | **2007** | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Five Star (Lease  No. 1) (10)                                                                            |       | 1.43x |   | 1.42x |   | 89% |   | 89% |   | 54% |   | 50% |   | 16% |   | 16% |   | 30% |   | 34% |   |
| Five Star (Lease  No. 2) (4)                                                                             |       | 1.61x |   | 1.50x |   | 91% |   | 93% |   | 80% |   | 81% |   | 17% |   | 15% |   | 3% |   | 4% |   |
| Five Star  Rehabilitation Hospitals (5)                                                                       |       | 0.91x |   | 1.52x |   | 61% |   | 60% |   | 32% |   | 28% |   | 64% |   | 59% |   | 4% |   | 13% |   |
| Sunrise/Marriott (6)                                                                                          |       | NA |   | NA |   | NA |   | NA |   | NA |   | NA |   | NA |   | NA |   | NA |   | NA |   |
| NewSeasons/IBC (7)                                                                                            |       | 0.96x |   | 1.04x |   | 82% |   | 85% |   | 100% |   | 100% |   | — |   | — |   | — |   | — |   |
| Alterra/Brookdale  (8)                                                                                        |       | 2.00x |   | 2.06x |   | 89% |   | 88% |   | 98% |   | 98% |   | — |   | — |   | 2% |   | 2% |   |
| 6 private companies  (combined)                                                                               |       | 1.82x |   | 1.89x |   | 88% |   | 89% |   | 24% |   | 26% |   | 24% |   | 21% |   | 52% |   | 53% |   |
| Starmark (3)                                                                                                  |       | NA |   | NA |   | NA |   | NA |   | NA |   | NA |   | NA |   | NA |   | NA |   | NA |   |

** **

----

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

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

**(3)**         InOctober and November 2007, we acquired six wellness centers that areleased to affiliates of Starmark Holdings, LLC, or Starmark.  The carrying value of this investment includesproperty and intangible assets before depreciation.

**(4)**         Historically,some of these properties were managed by Sunrise Senior Living, Inc., orSunrise, until November 30, 2006. The rent coverage presented for thislease has been adjusted to exclude management fees paid to Sunrise during theperiods presented.

**(5)**         OnOctober 1, 2006, Five Star assumed the operations of these rehabilitationhospitals. These hospitals were formerly operated by HealthSouth Corporation,or HealthSouth.

**(6)**         MarriottInternational, Inc., or Marriott, guarantees this lease. Sunrise has notfiled its Annual Report on Form 10-K for 2007 or Quarterly Reports on Form 10-Qfor the three quarters of 2007 with the Securities and Exchange Commission dueto accounting issues. Because we do not know what impact the resolution ofthese accounting issues may have on the reported performance of our properties,we do not report operating data for this tenant.

**(7)**         IndependenceBlue Cross, or IBC, a Pennsylvania health insurer, guarantees this lease.

**(8)**         BrookdaleSenior Living, Inc., or Brookdale, guarantees this lease.

(9)         All tenant operating data presented are basedupon the operating results provided by our tenants for the indicated quarterlyperiods, or the most recent prior period for which tenant operating results areavailable to us from our tenants. Rent coverage is calculated as operating cashflow from our tenants’ operations of our properties, before subordinatedcharges, divided by rent payable to us. We have not independently verified ourtenants’

** **

**8**

----

** **

 operating data.

**(10) ** Includes data for periodsprior to our ownership of certain properties included in this lease.

** **

**RESULTS OF OPERATIONS**

 

#### **Three Months Ended March 31,2008, Compared to Three Months Ended March 31, 2007:**

 
| ** **                            | ** ** | **2008**                                                              | ** ** | **2007**   | ** ** | **Change** | ** ** | **% Change** | ** ** |
|---------------------------------------|------------|-----------------------------------------------------------------------|------------|------------|------------|------------|------------|-------------------|------------|
| ** **                            | ** ** | **(in thousands, except per share amounts)** | ** ** | ** ** | ** ** |
|                                  |       |                                                                  |       |       |       |       |       |              |       |
| Rental income                         |       | $                                                                     | 48,983     |       | $          | 44,301     |       | $                 | 4,682      |   | 10.6% |   |
| Interest and  other income            |       | 570                                                                   |       | 451        |       | 119        |       | 26.4%             |       |
|                                  |       |                                                                  |       |       |       |       |       |              |       |
| Interest expense                      |       | 9,518                                                                 |       | 9,893      |       | (375       | )          | (3.8)%            |       |
| Depreciation  expense                 |       | 13,023                                                                |       | 11,595     |       | 1,428      |       | 12.3%             |       |
| General and  administrative expense   |       | 3,696                                                                 |       | 3,716      |       | (20        | )          | (0.5)%            |       |
| Loss on early  extinguishment of debt |       | —                                                                |       | 2,026      |       | (2,026     | )          | (100.0)%          |       |
|                                  |       |                                                                  |       |       |       |       |       |              |       |
| Net income                            |       | $                                                                     | 23,316     |       | $          | 17,522     |       | $                 | 5,794      |   | 33.1% |   |
|                                  |       |                                                                  |       |       |       |       |       |              |       |
| Weighted average  shares outstanding  |       | 91,080                                                                |       | 80,815     |       | 10,265     |       | 12.7%             |       |
|                                  |       |                                                                  |       |       |       |       |       |              |       |
| Net income per  share                 |       | $                                                                     | 0.26       |       | $          | 0.22       |       | $                 | 0.04       |   | 18.2% |   |

 

Rentalincome increased because of rents earned from our real estate acquisitionsduring the first quarter of 2008 and the full quarter impact of rents from ouracquisitions in 2007. Interest and other income increased as a result ofhigher levels of investable cash in money market funds.

 

Interestexpense decreased because of lower rates and lesser amounts outstanding underour revolving credit facility. It also decreased due to our pay down of amountsoutstanding under our revolving credit facility in February 2008 with theproceeds of an equity issuance. Our weighted average balance outstanding andinterest rate under our revolving credit facility was $24.0 million and 4.6%and $53.5 million and 6.1% for the three months ended March 31, 2008 and2007, respectively.

 

Depreciationexpense for the first quarter of 2008 increased because of acquisitions duringthe first quarter of 2008 and the full quarter impact of depreciation from ouracquisitions in 2007. General and administrative expenses decreased in2008 due to higher legal expenses, state taxes and stock grants in the firstquarter of 2007 than in 2008 offset by an increase resulting from acquisitionssince April 1, 2007.

 

InJanuary 2007, we purchased and retired $20.0 million of our 8 5/8% seniornotes due 2012 and recognized a loss on early retirement of debt of $2.0million in connection with this purchase.

 

Net income increased because of the changes inrevenues and expenses described above. Net income per share increased becauseof the changes in revenues and expenses described above offset by an increasein the weighted average number of shares outstanding resulting from ourissuance of common shares in December 2007 and February 2008.

 

9

----

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

OurOperating Liquidity and Resources

 

Rents from our properties are our principal source offunds for current expenses, debt service and distributions toshareholders.  We generally receiveminimum rents monthly or quarterly from our tenants and we receive percentagerents monthly, quarterly or annually. This flow of funds has historically been sufficient for us to pay ouroperating expenses, debt service and distributions to shareholders.  We believe that this operating cash flow willbe sufficient to meet our operating expenses, debt service and distributionpayments for the foreseeable future.

 

OurInvestment and Financing Liquidity and Resources

 

## **In order to fund acquisitions andto accommodate cash needs that may result from timing differences between ourreceipts of rents and our need or desire to pay operating expenses anddistributions to our shareholders, we maintain a revolving credit facility witha group of institutional lenders. Our revolving credit facility matures in December 2010,and we may extend it to December 2011 upon payment of an extension fee.The revolving credit facility permits us to borrow up to $550.0 million, andincludes a feature which may permit us to increase the maximum borrowing to$1.1 billion, in certain circumstances. Borrowings under our revolving creditfacility are unsecured. We may borrow, repay and reborrow funds until maturity.No principal repayment is due until maturity. We pay interest on borrowingsunder the revolving credit facility at LIBOR plus a premium. At March 31,2008, the annual interest rate payable on our revolving credit facility was3.48%.  As of March 31, 2008, we had$115.0 million outstanding under this credit facility.**

## ** **

In February 2008, we issued 6.2 million commonshares in a public offering, raising net proceeds of $129.4 million. We usedthe net proceeds from this offering to repay borrowings outstanding on ourrevolving credit facility and for general business purposes, including funding,in part, the acquisitions described below.

 

Duringthe three months ended March 31, 2008, we purchased 19 senior livingproperties with a total of 1,692 units for approximately $272.3 million fromfive unaffiliated parties. We leased these properties to Five Star for initialrent of $21.8 million and added them to the combined lease for 114 propertieswith Five Star, which has a current term expiring in 2020.  Percentage rent, based on increases in grossrevenues at these properties, will commence in 2010. We funded theseacquisitions using cash on hand, proceeds from equity issuances and borrowingsunder our revolving credit facility.

 

During 2007, we agreed topurchase, from an unaffiliated party, two senior living properties with a totalof 112 units for approximately $14.1 million. This acquisition has not occurred as of the date of this report.  We intend to lease these properties to FiveStar and to add them to our combined lease of 133 properties (including the 19communities described above) with Five Star, which has a current term expiringin 2020 and we expect the annual rent under this combined lease will increaseby $1.1 million.  We expect percentagerent, based on increases in gross revenues at these properties, will commencein 2010.  We expect to fund thisacquisition using cash on hand, borrowings under our revolving credit facilityand by assuming two mortgages, one for $3.6 million at 5.7% per annum and onefor $3.6 million at 6.2% per annum.  Bothmortgages mature in 2041 and are prepayable beginning in 2008.  The purchase of these properties iscontingent upon completion of our diligence, other customary closing conditionsand the approval of mortgage lenders. We can provide no assurance that we willpurchase these properties.

 

OnMay 6, 2008, we announced that we have entered into a series of agreementsto acquire 48 medical office, clinic and biotech laboratory buildings from HRPTProperties Trust, or HRPT, for approximately $565.0 million.  These buildings are currently 98.3% leased tomore than 370 unaffiliated tenants for an average term of 6.7 years.  We expect the closings of these acquisitionsto occur over the next 12 months.  Weexpect to initially fund these acquisitions using a combination of cash onhand, borrowings under our revolving credit facility, and assumption of threemortgages that encumber two of the properties, one for $4.5 

 

10

----

 

millionat 6.5% per annum, one for $2.1 million at 7.85% per annum and one for $4.4 millionat 7.31% per annum.  The mortgages maturein January, 2013, January, 2022 and January, 2022, respectively, and areprepayable subject to a prepayment fee. We expect to eventually fund these purchases with a mix of long termcapital determined based upon market conditions.  Ourobligation to complete these purchases is subject to various conditions typicalof commercial real estate purchases including, with respect to certain of theseproperties, obtaining consents from mortgagees and waivers of rights of firstrefusal from tenants.  Also, we have afinancing contingency relating to certain properties for an aggregate ofapproximately $245 million.  We canprovide no assurance that we will purchase any or all of these buildings orthat the purchases will be completed in the next 12 months.  In addition, we also acquired a right offirst refusal to purchase any of 45 additional buildings (approximately 4.6million square feet) that are leased by HRPT to tenants in medical relatedbusiness which HRPT will continue to own after this transaction.

 

At March 31, 2008, we had $5.2 million of cashand cash equivalents and $435.0 million available under our revolving creditfacility.  We expect to use cashbalances, borrowings under our revolving credit facility and net proceeds ofofferings of equity or debt securities to fund future working capitalrequirements, property acquisitions and expenditures related to the repair,maintenance or renovation of our properties.

 

Whensignificant amounts are outstanding under our revolving credit facility or asthe maturity dates of our revolving credit facility and term debts approach, weexplore alternatives for the repayment of amounts due. Such alternatives mayinclude incurring additional debt and issuing new equity securities. We have aneffective shelf registration statement that allows us to issue publicsecurities on an expedited basis, but it does not assure that there will bebuyers for such securities.  Also, we maybe unable to raise reasonably priced capital because of reasons related to ourbusiness or for reasons beyond our control, such as the current downturn in thereal estate markets which has restricted the availability of debt in thecapital markets. Although there can be no assurance that we will complete anydebt or equity offerings or other financings, we believe we will have access tovarious types of financings, including debt or equity offerings, to financefuture acquisitions and to pay our debts and other obligations.

 

On February 15, 2008, we paid a $0.35 per commonshare, or $31.0 million, distribution to our common shareholders for thequarter ended December 31, 2007.  OnApril 3, 2008, we declared a distribution of $0.35 per common share, or$33.2 million, to be paid to our common shareholders of record on April 18,2008 with respect to our results for the quarter ended March 31, 2008. Weexpect to pay this distribution on or about May 15, 2008, using cash onhand and borrowings under our revolving credit facility.

 

On April 1, 2008, we paid in full a mortgage loanon one of our properties for $12.6 million. We used cash on hand and borrowings under our revolving credit facilityto fund this payment.

 

As of May 6, 2008, we have no off balance sheetarrangements, commercial paper, derivatives, swaps, hedges, joint ventures orpartnerships.

 

## **Debt Covenants**

## ** **

Our principal debt obligations at March 31, 2008,were our unsecured revolving credit facility, two public issues totaling $322.5million of unsecured senior notes and $89.0 million of mortgage debts and bondssecured by 24 of our properties. Our senior notes are governed by an indenture.This indenture and related supplements and our revolving credit facilitycontain a number of financial ratio covenants which generally restrict ourability to incur debts, including debts secured by mortgages on our propertiesin excess of calculated amounts, require us to maintain a minimum net worth,restrict our ability to make distributions under certain circumstances andrequire us to maintain various financial ratios.  As of March 31, 2008 we believe we werein compliance with all of the covenants under our indenture and relatedsupplements and our revolving credit facility.

 

11

----

 

None of our indenture andrelated supplements, our revolving credit facility or our other debtobligations contains provisions for acceleration which could be triggered byour debt ratings. However, in certain circumstances our revolving creditfacility uses our senior debt rating to determine the fees and the interestrate payable.

 

Our public debt indentureand related supplements contain cross default provisions to any other debts of$10.0 million or more. Similarly, a default on our public debt indenture wouldbe a default under our revolving credit facility.

 

## **Related Person Transactions**

## ** **

Five Star is our formersubsidiary. During thethree months ended March 31, 2008, we purchased 19 senior livingproperties with a total of 1,692 units for approximately $272.3 million fromfive unaffiliated parties. We leased these properties to Five Star for initialrent of $21.8 million and added them to the combined lease for 114 propertieswith Five Star, which has a current term expiring in 2020.  Percentage rent, based on increases in grossrevenues at these properties, will commence in 2010.

 

During 2007, we agreed topurchase, from an unaffiliated party, two senior living properties with a totalof 112 units for approximately $14.1 million. This acquisition has not occurred as of the date of this report.  We intend to lease these properties to FiveStar and to add them to our combined lease of 133 properties (including the 19communities described above) with Five Star, which has a current  term expiring in 2020 and we expect the annualrent under this combined lease will increase by $1.1 million.  We expect percentage rent, based on increasesin gross revenues at these properties, will commence in 2010.  The purchase of these properties iscontingent upon completion of our diligence, other customary closing conditionsand the approval of mortgage lenders. We can provide no assurance that we willpurchase these properties.

 

Under the terms of our management agreement withRMR, on April 11, 2008, we issued 27,310 common shares in payment of anincentive fee of approximately $624,000 for services rendered by RMR during2007.

 

During the three months ended March 31, 2008, pursuant to theterms of our existing leases with Five Star, we purchased $16.6 million ofimprovements made to our properties leased to Five Star, and, as a result, theannual rent payable to us by Five Star increased by approximately $1.6 million.

 

OnMay 6, 2008, we announced that we have entered into a series of agreementsto acquire 48 medical office, clinic and biotech laboratory buildings from HRPTfor approximately $565.0 million.  Thesebuildings are currently 98.3% leased to more than 370 unaffiliated tenants foran average term of 6.7 years.  We expectthe closings of these acquisitions to occur over the next 12 months.  We were formerly a 100% owned subsidiary ofHRPT until we were spun off to HRPT shareholders in 1999.  At the time of this spin off, we and HRPTentered an agreement which prohibited us from investing in medical propertiesin competition with HRPT.  One of theagreements entered into amends that 1999 agreement to permit us, rather thanHRPT, to invest in medical office, clinic and biotech laboratorybuildings.  We expect to enter into a new property managementagreement with RMR with respect to the buildings acquired and to amend ouradvisory agreement with RMR.  Barry M.Portnoy and Adam D. Portnoy, our Managing Trustees, are the owners of RMR andare trustees of HRPT.  RMR is also HRPT’smanager.  In addition, another of ourtrustees, Frederick N. Zeytoonjian, is also a trustee of HRPT.  The purchase prices for the properties to beacquired was established by reference to an appraisal report by a nationallyrecognized real estate appraisal firm and the terms of the sales werenegotiated by special committees of each company’s board composed solely ofindependent trustees representing each company. Also, while the management fees payable by us to our manager,RMR, are principally based on our historical cost of properties, fees withrespect to these 48 properties will be based on HRPT’s historical cost ratherthan our higher purchase prices and so will be the same lower fees that arecurrently being paid by HRPT with respect to these properties.  Ourobligation to complete these purchases is subject to various conditions typicalof 

 

12

----

 

commercial real estate purchases, including, withrespect to certain of these properties, obtaining consents from mortgagees andwaivers of rights of first refusal from tenants.  We can provide no assurance that we willpurchase any or all of these buildings or that the purchases will be completedin the next 12 months.  In addition, wealso acquired a right of first refusal to purchase any of 45 additionalbuildings (approximately 4.6 million square feet) that are leased by HRPT totenants in medical related business which HRPT will continue to own after thistransaction.

 

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

 

We are exposed to risksassociated with market changes in interest rates.  We manage our exposure to this market risk bymonitoring available financing alternatives. Our strategy to manage exposure to changes in interest rates isunchanged from December 31, 2007. 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.

 

Ourunsecured revolving credit facility accrues interest at floating rates andmatures in December 2010, with our option to extend the maturity by oneadditional year upon payment of a fee. At March 31, 2008, we had $115.0million outstanding and $435.0 million available for borrowing under ourrevolving credit facility. We may make repayments and drawings under ourrevolving credit facility at any time without penalty.  We borrow in U.S. dollars and borrowingsunder our revolving credit facility accrue interest at LIBOR plus a premium.Accordingly, we are vulnerable to changes in U.S. dollar based short terminterest rates, specifically LIBOR.  Achange in interest rates would not affect the value of this floating rate debtbut would affect our operating results. For example, the interest rate payable on our outstanding revolvingindebtedness of $115.0 million at March 31, 2008 was 3.48% per annum.  The following table presents the impact a 10%change in interest rates would have on our floating rate interest expense at March 31,2008 (dollars in thousands):

 
| ** **              | ** ** | **Impact of Changes in Interest Rates** | ** ** |
|-------------------------|------------|------------------------------------------------------------------|------------|
| ** **              | ** ** | **Interest Rate  Per Year**                            | ** ** | **Outstanding  Debt** | ** ** | **Total Interest  Expense Per  Year** | ** ** |
| At  March 31, 2008 |       | 3.48%                                                            |       | $ | 115,000 |   | $ | 4,002 |   |
| 10% reduction           |       | 3.13%                                                            |       | $ | 115,000 |   | $ | 3,600 |   |
| 10% increase            |       | 3.83%                                                            |       | $ | 115,000 |   | $ | 4,405 |   |

 

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

 

**Item 4.  Controls and Procedures**

 

As of the end of the period covered by this report,our management carried out an evaluation, under the supervision and with 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-15and 15d-15.  Based upon that evaluation,our managing 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 March 31, 2008 that havematerially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

 

13

----

** **

**WARNING CONCERNING FORWARD LOOKING STATEMENTS**

** **

THISQUARTERLY REPORT CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THEPRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER FEDERALSECURITIES LAWS. ALSO, WHENEVER WE USE WORDS SUCH AS “BELIEVE”, “EXPECT”,“ANTICIPATE”, “INTEND”, “PLAN”, “ESTIMATE” OR SIMILAR EXPRESSIONS, WE AREMAKING FORWARD LOOKING STATEMENTS.  THESEFORWARD LOOKING STATEMENTS ARE BASED UPON OUR PRESENT INTENT, BELIEFS OREXPECTATIONS, BUT FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOTOCCUR. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN ORIMPLIED BY OUR FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS.  FOR EXAMPLE:

 

·                  THISQUARTERLY REPORT STATES THAT WE HAVE AGREED TO PURCHASE TWO PROPERTIES FOR$14.1 MILLION AND TO LEASE THEM TO FIVE STAR. OUR DILIGENCE REGARDING THESETRANSACTIONS HAS NOT YET BEEN COMPLETED AND WE MAY DECIDE NOT TO PROCEEDWITH THESE PURCHASES FOR THIS OR OTHER REASONS. AS A RESULT, THESE PROPOSEDPURCHASES AND LEASES MAY NOT OCCUR.

 

·                  THISQUARTERLY REPORT STATES THAT WE HAVE AGREED TO PURCHASE 48 MEDICAL OFFICE,CLINIC AND BIOTECH LABORATORY BUILDINGS FOR $565 MILLION AND THAT THESE SALESARE EXPECTED TO BE COMPLETED DURING THE NEXT 12 MONTHS.  HOWEVER, OUR OBLIGATION TO COMPLETE THESEPURCHASES IS SUBJECT TO VARIOUS CONDITIONS TYPICAL OF COMMERCIAL REAL ESTATE PURCHASES,INCLUDING, WITH RESPECT TO CERTAIN PROPERTIES, OBTAINING CONSENTS FROM MORTGAGEESAND WAIVERS OF RIGHTS OF FIRST REFUSAL FROM TENANTS.  ALSO, WE HAVE A FINANCING CONTINGENCYRELATING TO CERTAIN PROPERTIES FOR AN AGGREGATE PURCHASE PRICE OF APPROXIMATELY$245 MILLION.  AS A RESULT OF ANY FAILUREOF THESE CONDITIONS, SOME OR ALL OF THE PROPERTIES MAY NOT BE PURCHASED,THE PURCHASE PRICES PAYABLE BY SNH MAY BE CHANGED OR SOME OF THESEPURCHASES MAY BE ACCELERATED OR DELAYED.

 

OTHERIMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROMTHOSE IN FORWARD LOOKING STATEMENTS ARE DESCRIBEDMORE FULLY UNDER “ITEM 1A. RISK FACTORS” IN OUR ANNUAL REPORT ON FORM 10-KFOR THE YEAR ENDED DECEMBER 31, 2007.

 

YOU SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARDLOOKING STATEMENTS.

 

EXCEPT AS REQUIRED BY LAW, WE UNDERTAKE NO OBLIGATIONTO UPDATE OR REVISE ANY FORWARD LOOKING STATEMENTS AS A RESULT OF NEWINFORMATION, FUTURE EVENTS OR OTHERWISE.

 

**STATEMENT CONCERNING LIMITEDLIABILITY**

 

THEARTICLES OF AMENDMENT AND RESTATEMENT OF THE DECLARATION OF TRUST ESTABLISHINGSENIOR HOUSING PROPERTIES TRUST, DATED SEPTEMBER 20, 1999, A COPY OF WHICH,TOGETHER WITH ALL AMENDMENTS AND SUPPLEMENTS THERETO, IS DULY FILED IN THEOFFICE OF THE STATE DEPARTMENT OF ASSESSMENTS AND TAXATION OF MARYLAND,PROVIDES THAT THE NAME “SENIOR HOUSING PROPERTIES TRUST” REFERS TO THE TRUSTEESUNDER THE DECLARATION OF TRUST, AS AMENDED AND SUPPLEMENTED, AS TRUSTEES, BUTNOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER,EMPLOYEE OR AGENT OF SENIOR HOUSING PROPERTIES TRUST SHALL BE HELD TO ANY PERSONALLIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST,SENIOR HOUSING PROPERTIES TRUST.  ALLPERSONS DEALING WITH SENIOR HOUSING PROPERTIES TRUST, IN ANY WAY, SHALL LOOKONLY TO THE ASSETS OF SENIOR HOUSING PROPERTIES TRUST FOR THE PAYMENT OF ANYSUM OR THE PERFORMANCE OF ANY OBLIGATION.

 

14

----

 

**PART II.   Other Information**

 

**Item 2.**                 Unregistered Sales of Equity Securities and Use ofProceeds

** **

As further described inour Annual Report on Form 10-K for the year ended December 31, 2007,RMR provides management services to us.  Under the terms of our agreementwith RMR, on April 11, 2008, we issued 27,310 common shares to RMR inpayment of an incentive fee of approximately $624,000 for services rendered byRMR during 2007. These restricted securities were issued pursuant to anexemption from registration provided under Section 4(2) of theSecurities Act of 1933, as amended.

 

**Item 6.**                 Exhibits

** **

3.1                                 Composite Copy of Amended and Restated Declarationof Trust, dated September 20, 1999, as amended to date. (Incorporated byreference to the Company’s Current Report on Form 8-K dated February 21,2008.)

 

3.2                                 Composite Copy of the Company’s Amended andRestated Bylaws, dated March 14, 2003, as amended to date. (Incorporatedby reference to the Company’s Current Report on Form 8-K dated March 28,2008.)

 

10.1                           Thirteenth Amendment to Second Amended and Restated Master LeaseAgreement, dated as of January 4, 2008, by and among certain subsidiariesof the Company, as Landlord, and Five Star Quality Care Trust, as Tenant.  (Incorporated by reference to the Company’sAnnual Report on Form 10-K for the year ended December 31, 2007.)

 

10.2                           Fourteenth Amendment to Second Amended and Restated Master Lease Agreement,dated as of February 7, 2008, by and among certain subsidiaries of theCompany, as Landlord, and Five Star Quality Care Trust, as Tenant.  (Incorporated by reference to the Company’sAnnual Report on Form 10-K for the year ended December 31, 2007.)

 

10.3                           Fifteenth Amendment to Second Amended and Restated Master LeaseAgreement, dated as of February 17, 2008, by and among certainsubsidiaries of the Company, as Landlord, and Five Star Quality Care Trust, asTenant.  (Incorporated by reference tothe Company’s Annual Report on Form 10-K for the year ended December 31,2007.)

 

10.4                           Sixteenth Amendment to Second Amended and Restated Master LeaseAgreement, dated as of March 1, 2008, by and among certain subsidiaries ofthe Company, as Landlord, and Five Star Quality Care Trust, as Tenant.  *(Filed herewith.)*

 

10.5                           Seventeenth Amendment to Second Amended and Restated Master LeaseAgreement, dated as of March 31, 2008, by and among certain subsidiariesof the Company, as Landlord, and Five Star Quality Care Trust, as Tenant.  *(Filed herewith.)*

 

12.1                           Computation ofRatio of Earnings to Fixed Charges. *(Filed herewith.)*

 

31.1                           Rule 13a-14(a) Certification.*(Filed herewith.)*

 

31.2                           Rule 13a-14(a) Certification.*(Filed herewith.)*

 

31.3                           Rule 13a-14(a) Certification.*(Filed herewith.)*

 

31.4                           Rule 13a-14(a) Certification.*(Filed herewith.)*

 

32.1                           Section 1350Certification. *(Furnished herewith.)*

 

15

----

 

SIGNATURES

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 

 
|   | SENIOR HOUSING  PROPERTIES TRUST |
|--------|----------------------------------|
|   |                             |
|   |                             |   |
|   | By:                              | /s/ David J. Hegarty |
|   |                             | David J. Hegarty |
|   |                             | President and Chief  Operating Officer |
|   |                             | Dated: May 7, 2008 |
|   |                             |   |
|   |                             |   |
|   | By:                              | /s/ Richard A. Doyle |
|   |                             | Richard A. Doyle |
|   |                             | Treasurer and Chief  Financial Officer |
|   |                             | (principal financial  and accounting officer) |
|   |                             | Dated:  May 7, 2008 |

 

16

----