Attached files

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EX-3.1 - EX-3.1 - SENIOR HOUSING PROPERTIES TRUSTa09-30828_1ex3d1.htm
EX-3.2 - EX-3.2 - SENIOR HOUSING PROPERTIES TRUSTa09-30828_1ex3d2.htm
EX-10.2 - EX-10.2 - SENIOR HOUSING PROPERTIES TRUSTa09-30828_1ex10d2.htm
EX-32.1 - EX-32.1 - SENIOR HOUSING PROPERTIES TRUSTa09-30828_1ex32d1.htm
EX-31.3 - EX-31.3 - SENIOR HOUSING PROPERTIES TRUSTa09-30828_1ex31d3.htm
EX-12.1 - EX-12.1 - SENIOR HOUSING PROPERTIES TRUSTa09-30828_1ex12d1.htm
EX-31.4 - EX-31.4 - SENIOR HOUSING PROPERTIES TRUSTa09-30828_1ex31d4.htm
EX-31.1 - EX-31.1 - SENIOR HOUSING PROPERTIES TRUSTa09-30828_1ex31d1.htm
EX-31.2 - EX-31.2 - SENIOR HOUSING PROPERTIES TRUSTa09-30828_1ex31d2.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

 

FORM 10-Q

 

x

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

 

For the quarterly period ended September 30, 2009

 

OR

 

o

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

 

Commission File Number 1-15319

 

SENIOR HOUSING PROPERTIES TRUST

(Exact Name of Registrant as Specified in Its Charter)

 

Maryland

 

04-3445278

(State or Other Jurisdiction of Incorporation or
Organization)

 

(IRS Employer Identification No.)

 

400 Centre Street, Newton, Massachusetts 02458

(Address of Principal Executive Offices)  (Zip Code)

 

617-796-8350

(Registrant’s Telephone Number, Including Area Code)

 

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

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting 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 a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

Number of registrant’s common shares outstanding as of November 4, 2009: 127,377,665.

 

 

 



 

SENIOR HOUSING PROPERTIES TRUST

 

FORM 10-Q

 

September 30, 2009

 

INDEX

 

 

 

Page

PART I

Financial Information

 

 

 

 

Item 1.

Financial Statements (unaudited)

1

 

 

 

 

Condensed Consolidated Balance Sheets – September 30, 2009 and December 31, 2008

1

 

 

 

 

Condensed Consolidated Statements of Income – Three and Nine Months Ended September 30, 2009 and 2008

2

 

 

 

 

Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2009 and 2008

3

 

 

 

 

Notes to Condensed Consolidated Financial Statements

4

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

 

 

 

Item 4.

Controls and Procedures

27

 

 

 

 

Warning Concerning Forward Looking Statements

28

 

 

 

 

Statement Concerning Limited Liability

31

 

 

 

PART II

Other Information

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

 

 

 

Item 5.

Other Items

32

 

 

 

Item 6.

Exhibits

32

 

 

 

 

Signatures

34

 

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

 



 

PART I.  Financial Information

 

Item 1.    Financial Statements

 

SENIOR HOUSING PROPERTIES TRUST

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share data)

(unaudited)

 

 

 

September 30,

 

December 31,

 

 

 

2009

 

2008

 

ASSETS

 

 

 

 

 

Real estate properties:

 

 

 

 

 

Land

 

$

357,508

 

$

319,591

 

Buildings and improvements

 

2,844,036

 

2,487,665

 

 

 

3,201,544

 

2,807,256

 

Less accumulated depreciation

 

435,310

 

381,339

 

 

 

2,766,234

 

2,425,917

 

 

 

 

 

 

 

Cash and cash equivalents

 

72,487

 

5,990

 

Restricted cash

 

4,728

 

4,344

 

Deferred financing fees, net

 

14,703

 

5,068

 

Acquired real estate leases, net

 

44,554

 

30,546

 

Other assets

 

52,330

 

25,009

 

Total assets

 

$

2,955,036

 

$

2,496,874

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Unsecured revolving credit facility

 

$

 

$

257,000

 

Senior unsecured notes due 2012 and 2015, net of discount

 

322,124

 

322,017

 

Secured debt and capital leases

 

662,116

 

151,416

 

Accrued interest

 

10,894

 

11,121

 

Acquired real estate lease obligations, net

 

10,071

 

7,974

 

Other liabilities

 

33,766

 

15,988

 

Total liabilities

 

1,038,971

 

765,516

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Common shares of beneficial interest, $0.01 par value: 149,700,000 shares authorized, 127,377,665 and 114,542,584 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively

 

1,274

 

1,145

 

Additional paid in capital

 

2,226,473

 

2,000,865

 

Cumulative net income

 

607,927

 

530,318

 

Cumulative distributions

 

(923,255

)

(797,639

)

Unrealized gain on investments

 

3,646

 

(3,331

)

Total shareholders’ equity

 

1,916,065

 

1,731,358

 

Total liabilities and shareholders’ equity

 

$

2,955,036

 

$

2,496,874

 

 

See accompanying notes.

 

1



 

SENIOR HOUSING PROPERTIES TRUST

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(amounts in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

Revenues:

 

 

 

 

 

 

 

 

 

Rental income

 

$

72,010

 

$

58,844

 

$

209,785

 

$

160,591

 

Interest and other income

 

355

 

829

 

750

 

2,025

 

Total revenues

 

72,365

 

59,673

 

210,535

 

162,616

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

Property operating expenses

 

4,112

 

1,024

 

10,286

 

1,124

 

Interest

 

15,949

 

9,606

 

37,432

 

28,934

 

Depreciation

 

19,689

 

15,859

 

56,713

 

43,235

 

Acquisition costs

 

517

 

 

1,911

 

 

General and administrative

 

5,284

 

4,303

 

15,335

 

12,506

 

Impairment of assets

 

11,249

 

 

11,249

 

2,940

 

Total expenses

 

56,800

 

30,792

 

132,926

 

88,739

 

 

 

 

 

 

 

 

 

 

 

Income before gain on sale of properties

 

15,565

 

28,881

 

77,609

 

73,877

 

Gain on sale of properties

 

 

266

 

 

266

 

Net income

 

$

15,565

 

$

29,147

 

$

77,609

 

$

74,143

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

121,665

 

114,493

 

120,005

 

102,004

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Income before gain on sale of properties

 

$

0.13

 

$

0.25

 

$

0.65

 

$

0.72

 

Net income

 

$

0.13

 

$

0.25

 

$

0.65

 

$

0.73

 

 

See accompanying notes.

 

2



 

SENIOR HOUSING PROPERTIES TRUST

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

 

 

 

Nine Months Ended
September 30,

 

 

 

2009

 

2008

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

77,609

 

$

74,143

 

Adjustments to reconcile net income to cash provided by operating activities:

 

 

 

 

 

Depreciation

 

56,713

 

43,235

 

Amortization

 

2,521

 

953

 

Impairment of assets

 

11,249

 

2,940

 

Gain on sale of properties

 

 

(266

)

Equity in losses of Affiliates Insurance Company

 

133

 

 

Change in assets and liabilities:

 

 

 

 

 

Restricted cash

 

(384

)

(801

)

Other assets

 

(6,580

)

1,181

 

Accrued interest

 

(227

)

(2,751

)

Other liabilities

 

19,505

 

15,091

 

Cash provided by operating activities

 

160,539

 

133,725

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Acquisitions

 

(423,866

)

(688,821

)

Investment in Five Star Quality Care, Inc.

 

(8,960

)

 

Investment in Affiliates Insurance Company

 

(5,110

)

 

Proceeds from sale of real estate

 

3,171

 

21,336

 

Cash used for investing activities

 

(434,765

)

(667,485

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from issuance of common shares, net

 

223,974

 

522,907

 

Proceeds from issuance of mortgage debt

 

512,934

 

 

Proceeds from borrowings on revolving credit facility

 

134,000

 

314,000

 

Repayments of borrowings on revolving credit facility

 

(391,000

)

(221,000

)

Repayment of other debt

 

(2,234

)

(14,149

)

Deferred financing fees

 

(11,335

)

 

Distributions to shareholders

 

(125,616

)

(104,328

)

Cash provided by financing activities

 

340,723

 

497,430

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

66,497

 

(36,330

)

Cash and cash equivalents at beginning of period

 

5,990

 

43,521

 

Cash and cash equivalents at end of period

 

$

72,487

 

$

7,191

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

Interest paid

 

$

35,850

 

$

30,737

 

 

 

 

 

 

 

Non-cash investing activities:

 

 

 

 

 

Acquisitions funded by assumed debt

 

 

(61,282

)

 

 

 

 

 

 

Non-cash financing activities:

 

 

 

 

 

Assumption of mortgage notes payable

 

 

61,282

 

Issuance of common shares pursuant to our incentive share award plan

 

1,763

 

1,497

 

 

See accompanying notes.

 

3



 

SENIOR HOUSING PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

 

Note 1.  Basis of Presentation

 

The accompanying condensed consolidated financial statements of Senior Housing Properties Trust and its subsidiaries, or the Company, have been prepared without audit.  Certain information and disclosures required by generally accepted accounting principles, or GAAP, in the United States for complete financial statements have been condensed or omitted.  We believe the disclosures made are adequate to make the information presented not misleading.  However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2008.  In the opinion of our management, all adjustments, which include only normal recurring adjustments, considered necessary for a fair presentation have been included.  All intercompany transactions and balances between us and our consolidated subsidiaries have been eliminated.  Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.  Reclassifications have been made to the prior year’s financial statements to conform to the current year’s presentation.  These reclassifications had no effect on net income or shareholders’ equity.  In preparing these condensed consolidated financial statements, we evaluated events that occurred through November 4, 2009 for potential recognition or disclosure, the date these financial statements are issued.

 

In June 2009, the Financial Accounting Standards Board, or FASB, issued The FASB Accounting Standards CodificationTM, or the Codification.  The Codification is the single source of authoritative non-governmental U.S. GAAP and is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  The adoption of the Codification did not cause any change to our current accounting practices.

 

Effective June 30, 2009, we adopted the Subsequent Events Topic of the Codification.  This topic establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued.  It requires the disclosure of the date through which an entity has evaluated subsequent events and whether that date represents the date the financial statements are issued or are available to be issued.

 

The Business Combinations Topic of the Codification establishes principles and requirements for how an acquirer will recognize and measure in its financial statements the identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquiree and goodwill acquired in a business combination principally by expanding the definition of what constitutes a business combination, making it more likely that our acquisitions will be accounted for as business combinations, and by requiring the immediate expensing of acquisition costs incurred in connection with such transactions.  This topic is effective for fiscal years beginning after December 15, 2008 and the adoption affects our consolidated financial statements, principally by requiring us to expense acquisition costs.

 

Effective June 30, 2009, we adopted the Interim Disclosures about Fair Value of Financial Instruments subtopic of the Financial Instruments Topic of the Codification.  Please see Note 7, “Fair Value of Assets and Liabilities” for relevant disclosures.

 

In April 2009, the FASB issued the following topics: Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly; Recognition and Presentation of Other-Than-Temporary Impairments; and Interim Disclosures about Fair Value of Financial Instruments.  The first topic provides additional guidance for estimating fair value when the volume and level of activity for the assets or liabilities have significantly decreased.  This topic also includes guidance on identifying circumstances that indicate a transaction is not orderly.  The Other-Than-Temporary Impairments Topic amends existing other than temporary impairment guidance related to debt securities to make the guidance more operational and to improve the presentation and disclosure of other than temporary impairments of debt and equity securities.  The

 

4



 

SENIOR HOUSING PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

 

Interim Disclosures about Fair Value of Financial Instruments Topic requires disclosure about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements.  Each of these topics was effective for interim and annual reporting periods ending after June 15, 2009.  The adoption of these topics did not cause any significant changes to our disclosures in our consolidated financial statements.

 

Note 2.  Real Estate Properties

 

At September 30, 2009, we owned 289 properties located in 35 states and Washington, D.C.

 

In May 2008, we entered into a series of agreements to acquire 48 medical office, clinic and biotech laboratory buildings, or MOBs, from HRPT Properties Trust, or HRP, for an aggregate purchase price of approximately $565,000.  As of September 1, 2009, we completed these transactions with HRP.  During 2009, we acquired 10 of these MOBs containing 617,000 square feet for an aggregate purchase price of approximately $214,585, plus closing costs.  We recorded intangible lease assets of $19,281 and intangible lease liabilities of $3,553 for these MOBs acquired during the nine months ended September 30, 2009.  The allocation of the purchase price of our third quarter 2009 acquisitions is based upon preliminary estimates of the fair value of assets acquired and liabilities assumed.  Consequently, amounts preliminarily allocated to assets acquired and liabilities assumed could change significantly from those used in these condensed consolidated financial statements.  One of the remaining buildings with an allocated value of $3,000 is no longer subject to our purchase agreement.  At the request of a tenant for two properties subject to a multi-property lease, in May and September 2009 we sold two of our MOB properties for approximately $3,190, which was their approximate net book value, to two unaffiliated parties.  We now own 45 of these properties containing 2.1 million square feet for an aggregate cost of approximately $558,150, plus closing costs.  We funded these acquisitions using cash on hand, proceeds from our mortgage financing, proceeds from equity issuances, borrowings under our revolving credit facility and by assuming three mortgage loans, on two properties, totaling $10,800 with a weighted average interest rate of 7.1% per annum and a weighted average maturity in 2018.  As of September 30, 2009, the MOBs that we acquired from HRP and continue to own were 98% leased to approximately 200 tenants for an average lease term of 9.2 years.  HRP was formerly our parent company, and both we and HRP are managed by Reit Management & Research LLC, or RMR.  Because we and HRP have three trustees in common and we are both managed by RMR, the terms of these transactions were negotiated by special committees of our and HRP’s boards of trustees composed of trustees who were not also trustees of both companies. For more information about our dealings with HRP and RMR and their affiliates and about the risks which may arise as a result of these and other related person transactions, please see our Annual Report on Form 10-K for the year ended December 31, 2008, or the Annual Report, our Quarterly Report on Form 10-Q for the quarters ended March 31, 2009 and June 30, 2009, or the Quarterly Reports, the Other Items in this Quarterly Report on Form 10-Q, and our other filings made with the SEC, and in particular, the section captioned “Risk Factors” in the Annual Report, the sections captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Related Person Transactions” in the Annual Report, Quarterly Reports and this Quarterly Report on Form 10-Q and the section captioned “Related Person Transactions and Company Review of Such Transactions” in our Proxy Statement dated March 30, 2009 relating to our 2009 Annual Shareholders Meeting.

 

On September 30, 2009, we acquired 10 MOBs with a total of 643,000 square feet for approximately $169,000, plus closing costs, from an unaffiliated party.  These buildings are currently 100% leased to one tenant for a lease term of 15 years plus renewal options.  We funded this acquisition using cash on

 

5



 

SENIOR HOUSING PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

 

hand, proceeds from our mortgage financing in August 2009 described in Note 5 below and proceeds from our equity offering in September 2009 described in Note 6 below.

 

In October 2009, we acquired one senior living property for approximately $21,000, plus closing costs, from an unaffiliated party.  We leased this property to Five Star Quality Care, Inc., or Five Star, and added this property to Five Star Lease No. 4, which has a current term expiring in 2017.  Percentage rent, based on increases in gross revenues at this property, will commence in 2011.  We funded this acquisition using cash on hand, proceeds from our mortgage financing in August 2009 described in Note 5 below and proceeds from our equity offering in September 2009 described in Note 6 below.

 

In October 2009, we agreed to acquire 10 senior living properties for approximately $97,250 from two unaffiliated parties.  We intend to lease these properties to Five Star.  We expect percentage rent, based on increases in gross revenues at these properties, will commence in 2011.  We expect to fund these acquisitions using cash on hand, proceeds from our equity offering in September 2009 described in Note 6 below and borrowings under our revolving credit facility.  The purchase of these properties is contingent upon completion of our diligence and other customary closing conditions. We can provide no assurance that we will purchase these properties.

 

For the three and nine months ended September 30, 2009, we recognized an impairment of assets charge of $11,249 related to eight of our properties, including six skilled nursing facilities and one assisted living property leased to Five Star and one MOB leased entirely to a single tenant.  Two of these properties are classified as held for sale as described below.  For the nine months ended September 30, 2008, we recognized an impairment of assets charge of $2,940 related to one of our assisted living properties classified as held for sale.

 

As of September 30, 2009, four of our properties are classified as held for sale.  These four properties are included in real estate properties on our condensed consolidated balance sheets and have a net carrying value of approximately $3,927 at September 30, 2009.  These properties are currently leased to Five Star.  On October 1, 2009, we sold one of these properties to an unaffiliated party for $500 and on November 1, 2009, we sold another one of these properties to an unaffiliated party for $1,350.  The two sold properties had been included in Five Star Lease No. 1 and Five Star Lease No. 2, respectively.

 

During the nine months ended September 30, 2009, pursuant to the terms of our existing leases with Five Star, we purchased $30,350 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 by approximately $2,430.

 

Note 3.  Net Unrealized Gain on Investments

 

On September 30, 2009, we owned 1,000,000 common shares of HRP and 3,235,000 common shares of Five Star, which are carried at fair market value in other assets on our condensed consolidated balance sheets. The net unrealized gain on investments shown on our condensed consolidated balance sheets represents the difference between the quoted market prices of our HRP and Five Star shares on September 30, 2009 ($7.52 and $3.66 per share, respectively) and our weighted costs on the dates we acquired these shares ($6.50 and $2.85 per share, respectively).

 

6



 

SENIOR HOUSING PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

 

Note 4.  Comprehensive Income

 

The following is a reconciliation of net income to comprehensive income for the three and nine months ended September 30, 2009 and 2008:

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

Net income

 

$

15,565

 

$

29,147

 

$

77,609

 

$

74,143

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Change in net unrealized gain / (loss) on investments

 

6,273

 

86

 

6,977

 

(999

)

Comprehensive income

 

$

21,838

 

$

29,233

 

$

84,586

 

$

73,144

 

 

Note 5.  Indebtedness

 

We have an unsecured revolving credit facility that matures on December 31, 2010.  Our revolving credit facility permits borrowings up to $550,000.  The annual interest payable for amounts drawn under the facility is LIBOR plus a premium. The weighted average interest rate payable on borrowings under this revolving credit facility was 1.1% and 4.5% at September 30, 2009 and 2008, respectively.  In addition to interest, we pay certain fees to maintain this credit facility and we amortize certain set up costs.  Our revolving credit facility is available for acquisitions, working capital and general business purposes. As of September 30, 2009 and 2008, we had zero and $93,000 amounts outstanding under this credit facility, respectively, and $550,000 and $457,000 available under this credit facility, respectively.  Subject to certain conditions, this credit facility’s maturity date can be extended at our option to December 31, 2011 upon payment of a fee.

 

On August 4, 2009, a special purpose subsidiary of ours closed a $512,900 mortgage financing with the Federal National Mortgage Association, or FNMA. This mortgage loan is secured by first liens on 28 senior living properties that we own and lease to Five Star with 5,618 living units / beds located in 16 states. We used the proceeds from this mortgage financing to repay amounts outstanding under our revolving credit facility, to purchase the remaining seven MOBs from HRP and to acquire 10 MOBs and one senior living property from unaffiliated parties as described in Note 2 above.  In connection with the FNMA transaction, we realigned our four leases with Five Star.  Lease No. 1 (which is comprised of four separate leases) now includes 79 properties (excluding one property sold subsequent to September 30, 2009 as described in Note 2 above), including independent living communities, assisted living communities and skilled nursing facilities, and expires in 2024.  Lease No. 2 now includes 49 properties (excluding one property sold subsequent to September 30, 2009 as described in Note 2 above), including independent living communities, assisted living communities, skilled nursing facilities and two rehabilitation hospitals, and expires in 2026.  Lease No. 3 now includes the 28 FNMA financed properties, including independent living communities and assisted living communities, and expires in 2028.  Lease No. 4 now includes 26 properties (including one property acquired subsequent to September 30, 2009 as described in Note 2 above), including independent living communities, assisted living communities and skilled nursing facilities, and expires in 2017.  In connection with the lease realignment and the FNMA financing, we entered into a lease realignment agreement with Five Star, or the Lease Realignment Agreement.  Pursuant to the terms of the Lease Realignment Agreement, (1) the four leases, or the Leases, were reconfigured as described above, (2) we acquired certain personal property located at 28 properties in 16 states, or the Properties, from subsidiaries of Five Star and pledged that personal property to FNMA, (3) we purchased 3,200,000 shares, or the Shares, of Five Star common stock, $.01 par value per share, which represent approximately 9% of its total common stock outstanding, (4) Five Star assumed certain reporting and other operating obligations required by FNMA and (5) subsidiaries of Five Star pledged certain tangible and intangible personal property, such as accounts receivable and contract rights, located at, or arising from the operations of, the Properties to secure certain obligations to us and arising under the FNMA loan.  To compensate Five Star for its sale of personal property to us, its sale of the Shares to us, the pledge of Five Star’s intangible assets and for the services and obligations that Five Star has assumed, (1) we reduced the annual rent payable to us under Lease No. 2 by $2,000 per year for the term of that Lease; (2) we paid Five Star $18,600; and (3) we reimbursed Five Star for its out of

 

7



 

SENIOR HOUSING PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

 

pocket expenses incurred in connection with the negotiation and closing of this transaction.  Five Star has granted certain registration rights to us with regard to the Shares and our future transfer of the Shares are subject to certain restrictions. For more information about this FNMA financing and the agreement we entered with Five Star to facilitate this financing, please see Part II, Item 5 of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2009.

 

Note 6.  Shareholders’ Equity

 

In September 2009, we issued 6.9 million common shares in a public offering, raising net proceeds of approximately $127,160.  We used a portion of the net proceeds from this offering to acquire the 10 MOBs and one senior living property from unaffiliated parties as described in Note 2 above.  We intend to use the balance of these proceeds for general business purposes, including funding pending acquisitions and for possible future acquisitions.

 

On August 14, 2009, we paid a $0.36 per share, or $43,400, distribution to our common shareholders for the quarter ended June 30, 2009.  On October 5, 2009, we declared a distribution of $0.36 per share, or $45,856, to be paid to common shareholders of record on October 15, 2009, with respect to our results for the quarter ended September 30, 2009. We expect to pay this distribution on or about November 17, 2009.

 

On September 17, 2009, pursuant to our incentive share award plan, we granted 63,450 common shares of beneficial interest, par value $0.01 per share, valued at $19.36 per share, the closing price of our common shares on the New York Stock Exchange on that day, to our officers and certain employees of our manager, RMR.  We made these grants pursuant to an exemption from registration contained in Section 4(2) of the Securities Act.

 

Note 7.  Fair Value of Assets and Liabilities

 

The table below presents certain of our assets and liabilities measured at fair value at September 30, 2009 categorized by the level of inputs used in the valuation of each asset or liability.

 

Description

 

Total

 

Quoted Prices in Active
Markets for Identical
Assets

(Level 1)

 

Significant Other
Observable Inputs

(Level 2)

 

Significant
Unobservable

Inputs
(Level 3)

 

 

 

 

 

 

 

 

 

 

 

Assets held for sale (1)

 

$

3,927

 

$

 

$

3,927

 

$

 

Long-lived assets held and used (2)

 

 

16,857

 

 

 

 

16,857

 

 

 

Investments in available for sale securities (3)

 

19,360

 

19,360

 

 

 

Senior notes (4)

 

322,543

 

 

322,543

 

 

 


(1) Assets held for sale consist of four of our properties that we expect to sell that are reported at fair value.  We used offers to purchase the properties made by third parties or comparable sales transactions (level 2 inputs) to determine fair value of these properties.  As of September 30, 2009, the net carrying value of these properties was approximately $3,927 and we recorded an impairment charge of $1,621 for the three and nine months ended September 30, 2009 related to two of these properties.  We have recorded cumulative impairments of approximately $9,953 to these properties in order to reduce their carrying value to fair value.

 

(2) Long-lived assets held and used consist of six of our properties with a carrying amount of $26,485 that were written down to their fair value of $16,857, resulting in an impairment charge of $9,628, which was included in earnings for the period.  We used broker information and comparable sales transactions (level 2 inputs) to determine fair value of these properties.

 

(3) Our investments in available for sale securities include our 1,000,000 common shares of HRP and 3,235,000 common shares of Five Star. The fair values of these shares are based on quoted prices in active markets (level 1 inputs).

 

8



 

SENIOR HOUSING PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

 

(4) We estimate the fair values of our senior notes using as average of the bid and ask price of our two issues of senior notes at the balance sheet date (level 2 inputs). As of September 30, 2009, the historic book value of our senior notes was $322,124.

 

In addition to the assets and liabilities described in the above table, our additional financial instruments include rents receivable, cash and cash equivalents, restricted cash, secured and unsecured debt and other liabilities. The fair values of these additional financial instruments approximate their carrying values at September 30, 2009 based upon their liquidity, short term maturity, variable rate pricing or our estimate of fair value using discounted cash flows analyses and prevailing interest rates.

 

Note 8. Segment Reporting

 

We have two reportable operating segments: (i) short term and long term residential care facilities that offer dining for residents and (ii) properties where medical related activities occur but where residential overnight stays or dining services are not provided, or MOBs.  Properties in the short term and long term residential care facilities segment include independent living facilities, assisted living facilities, skilled nursing facilities and rehabilitation hospitals.  Properties in the MOB segment include medical office, clinic and biotech laboratory buildings.  The “All Other” category in the following table includes amounts related to corporate business activities and the operating results of certain properties that offer fitness, wellness and spa services to members.  Prior to June 2008, our only operating segments were short term and long term residential care facilities that offer dining for residents and properties that offer fitness, wellness and spa services to members included in the “All Other” category.

 

 

 

For the Three Months Ended September 30, 2009

 

 

 

Short and
Long Term
Residential
Care Facilities

 

MOB

 

All Other

 

Consolidated

 

Rental income

 

$

54,401

 

$

13,706

 

$

3,903

 

$

72,010

 

Interest and other income

 

 

 

355

 

355

 

Total revenues

 

54,401

 

13,706

 

4,258

 

72,365

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

 

4,112

 

 

4,112

 

Interest expense

 

7,475

 

185

 

8,289

 

15,949

 

Depreciation expense

 

15,348

 

3,419

 

922

 

19,689

 

Acquisition costs

 

 

517

 

 

517

 

General and administrative

 

 

 

5,284

 

5,284

 

Impairment of assets

 

3,784

 

7,465

 

 

11,249

 

Total expenses

 

26,607

 

15,698

 

14,495

 

56,800

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

27,794

 

$

(1,992

)

$

(10,237

)

$

15,565

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,866,832

 

$

746,218

 

$

341,986

 

$

2,955,036

 

 

9



 

SENIOR HOUSING PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

 

 

 

For the Three Months Ended September 30, 2008

 

 

 

Short and
Long Term
Residential
Care Facilities

 

MOB

 

All Other

 

Consolidated

 

Rental income

 

$

51,434

 

$

4,767

 

$

2,643

 

$

58,844

 

Interest and other income

 

 

 

829

 

829

 

Total revenues

 

51,434

 

4,767

 

3,472

 

59,673

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

 

1,024

 

 

1,024

 

Interest expense

 

1,243

 

173

 

8,190

 

9,606

 

Depreciation expense

 

14,025

 

1,181

 

653

 

15,859

 

General and administrative

 

 

 

4,303

 

4,303

 

Total expenses

 

15,268

 

2,378

 

13,146

 

30,792

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before gain on sale of properties

 

36,166

 

2,389

 

(9,674

)

28,881

 

Gain on sale of properties

 

266

 

 

 

266

 

Net income (loss)

 

$

36,432

 

$

2,389

 

$

(9,674

)

$

29,147

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,856,097

 

$

262,525

 

$

230,420

 

$

2,349,042

 

 

 

 

For the Nine Months Ended September 30, 2009

 

 

 

Short and
Long Term
Residential
Care Facilities

 

MOB

 

All Other

 

Consolidated

 

Rental income

 

$

162,920

 

$

35,157

 

$

11,708

 

$

209,785

 

Interest and other income

 

 

 

750

 

750

 

Total revenues

 

162,920

 

35,157

 

12,458

 

210,535

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

 

10,286

 

 

10,286

 

Interest expense

 

11,544

 

560

 

25,328

 

37,432

 

Depreciation expense

 

45,203

 

8,743

 

2,767

 

56,713

 

Acquisition costs

 

 

1,911

 

 

1,911

 

General and administrative

 

 

 

15,335

 

15,335

 

Impairment of assets

 

3,784

 

7,465

 

 

11,249

 

Total expenses

 

60,531

 

28,965

 

43,430

 

132,926

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

102,389

 

$

6,192

 

$

(30,972

)

$

77,609

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,866,832

 

$

746,218

 

$

341,986

 

$

2,955,036

 

 

10



 

SENIOR HOUSING PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

 

 

 

For the Nine Months Ended September 30, 2008

 

 

 

Short and
Long Term
Residential
Care Facilities

 

MOB

 

All Other

 

Consolidated

 

Rental income

 

$

149,687

 

$

5,000

 

$

5,904

 

$

160,591

 

Interest and other income

 

 

 

2,025

 

2,025

 

Total revenues

 

149,687

 

5,000

 

7,929

 

162,616

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

 

1,124

 

 

1,124

 

Interest expense

 

3,909

 

173

 

24,852

 

28,934

 

Depreciation expense

 

40,541

 

1,275

 

1,419

 

43,235

 

General and administrative

 

 

 

12,506

 

12,506

 

Impairment of assets

 

2,940

 

 

 

2,940

 

Total expenses

 

47,390

 

2,572

 

38,777

 

88,739

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before gain on sale of properties

 

102,297

 

2,428

 

(30,848

)

73,877

 

Gain on sale of properties

 

266

 

 

 

266

 

Net income (loss)

 

$

102,563

 

$

2,428

 

$

(30,848

)

$

74,143

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,856,097

 

$

262,525

 

$

230,420

 

$

2,349,042

 

 

Note 9. Significant Tenant

 

Five Star is the lessee of 59% of our investments, at cost, as of September 30, 2009.  The following tables present summary financial information for Five Star for the three and nine months ended September 30, 2009 and 2008, as reported in its Quarterly Report on Form 10-Q.

 

Summary Financial Information of Five Star Quality Care, Inc.

(unaudited)

 

 

 

For the Three Months Ended September 30,

 

Operations

 

2009

 

2008

 

Total revenues

 

$

297,208

 

$

280,619

 

Operating income

 

1,392

 

2,957

 

Income (loss) from continuing operations

 

4,362

 

(1,587

)

Net income (loss)

 

4,108

 

(2,250

)

 

11



 

SENIOR HOUSING PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

 

 

 

For the Nine Months Ended
September 30,

 

 

 

2009

 

2008

 

Total revenues

 

$

887,731

 

$

808,006

 

Operating income

 

9,020

 

16,495

 

Income from continuing operations

 

38,569

 

7,177

 

Net income

 

38,058

 

2,856

 

 

 

 

 

 

 

Cash Flows

 

 

 

 

 

Cash provided by operating activities

 

32,509

 

44,593

 

Net cash provided by (used in) discontinued operations

 

611

 

(1,136

)

Cash used in investing activities

 

(11,036

)

(31,842

)

Cash used in financing activities

 

(11,790

)

(2,642

)

Change in cash and cash equivalents

 

10,294

 

8,973

 

Cash and cash equivalents at beginning of period

 

16,138

 

30,999

 

Cash and cash equivalents at end of period

 

26,432

 

39,972

 

 

 

 

As of September 30,

 

Financial Position

 

2009

 

2008

 

Current assets

 

$

195,763

 

$

131,424

 

Non-current assets

 

223,825

 

258,096

 

Total indebtedness

 

103,725

 

139,125

 

Current liabilities

 

180,054

 

127,492

 

Non-current liabilities

 

101,199

 

175,824

 

Total shareholders’ equity

 

138,335

 

86,204

 

 

The summary financial information of Five Star is presented to comply with applicable accounting regulations of the SEC.  References in these financial statements to the Quarterly Report on Form 10-Q for Five Star are included as textual references only, and the information in Five Star’s Quarterly Report is not incorporated by reference into these financial statements.

 

Five Star is our former subsidiary and both we and Five Star have management contracts with RMR.  For information about our dealings with Five Star and RMR and about the risks which may arise as a result of these related person transactions, please see our Annual Report on Form 10-K for the year ended December 31, 2008, especially the section titled “Risk Factors”.

 

Note 10.  Pro Forma Information

 

During the three months ended September 30, 2009, we purchased 17 MOBs for approximately $313,565, sold one MOB for $100 and, pursuant to the terms of our existing leases with Five Star, we purchased $6,114 of improvements made to our properties leased to Five Star.  During the nine months ended September 30, 2009, we purchased 20 MOBs for approximately $383,585, sold two MOBs for $3,190 and, pursuant to the terms of our existing leases with Five Star, we purchased $30,350 of improvements made to our properties leased to Five Star.  During the three and nine months ended September 30, 2009, we recognized an impairment of assets charge of $11,249 related to eight properties.  In August 2009, we closed on a $512,900 mortgage financing with FNMA, acquired $8,497 of personal property at the FNMA leased properties, acquired 3.2 million shares of Five Star common stock, reduced the annual rent payable to us under Five Star Lease No. 2 by $2,000 per year for the term of that Lease and incurred $11,815 of deferred financing fees related to this mortgage financing.  During 2008, we purchased 30

 

12



 

SENIOR HOUSING PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

 

senior living properties, four wellness centers and 38 MOBs for an aggregate of $842,900; we purchased $69,400 of improvements made to our properties leased to Five Star; we repaid in full a mortgage loan on one of our properties for $12,600 in April 2008; we assumed $61,300 of mortgage debt in conjunction with our 2008 acquisitions; we recorded an impairment charge on four of our properties for $8,380; and we sold three assisted living facilities to Five Star for $21,350 and realized a gain on sale of approximately $266 in July 2008.  During 2009 and 2008, we also issued 12,704 and 25,759 of our common shares, respectively.  The following table presents our pro forma results of operations as if all of these acquisitions, dispositions and financing transactions were completed on January 1, 2008.  This pro forma data is not necessarily indicative of what actual results of operations would have been for the periods presented, nor does it represent the results of operations for any future period.  Differences could result from, but are not limited to, additional property sales or investments, changes in interest rates and changes in our debt or equity capital structure.

 

 

 

Pro Forma Results

 

 

 

For the Three Months Ended
September 30,

 

For the Nine Months Ended
September 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

Total revenues

 

$

77,985

 

$

77,891

 

$

233,224

 

$

233,408

 

Income before gain on sale of properties

 

$

15,798

 

$

10,577

 

$

69,769

 

$

65,533

 

Net income

 

$

15,798

 

$

10,843

 

$

69,769

 

$

65,799

 

 

 

 

 

 

 

 

 

 

 

Per common share data:

 

 

 

 

 

 

 

 

 

Income before gain on sale of properties

 

$

0.12

 

$

0.08

 

$

0.56

 

$

0.51

 

Net income

 

$

0.12

 

$

0.09

 

$

0.56

 

$

0.52

 

 

Note 11.  Affiliates Insurance Company

 

As of September 30, 2009, we have invested $5,110 in Affiliates Insurance Company, or AIC, an insurance company, that is owned by RMR and other companies to which RMR provides management services.  We own 16.67% of the common shares of AIC which has a current carrying value of $4,977.  This investment is included in other assets on our condensed consolidated balance sheets.  Although we own less than 20% of AIC, we use the equity method to account for our investment in AIC because we believe that we have significant influence over AIC since each of our trustees is a director of AIC and since we expect to procure some of our insurance from AIC.  Under the equity method, we record our percentage share of net earnings from AIC in our consolidated statements of income.  For the three and nine month periods, our share of AIC’s net losses totaled $23 and $133, respectively, and are included in general and administrative expenses on our condensed consolidated statements of income.  If we determine there is an “other than temporary” decline in the fair value of this investment, we would record a charge to earnings.  In evaluating the fair value of this investment, we consider, among other things, the assets and liabilities held by AIC, AIC’s overall financial condition and earning trends, and the financial condition and prospects for the insurance industry generally.  Subsequent to September 30, 2009, we invested an additional $24 in order to fund our share of formation and licensing costs for AIC.

 

13



 

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

 

The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included in this quarterly report and our Annual Report on Form 10-K for the year ended December 31, 2008.

 

PORTFOLIO OVERVIEW

 

The following tables present an overview of our portfolio (dollars in thousands except per unit/square foot):

 

(As of September 30, 2009)

 

Number of
Properties

 

Number of
Units/Beds or
Square Feet

 

Investment
Carrying Value 
(1)

 

% of
Investment

 

Annualized
Current Rent

 

% of
Annualized
Current
Rent

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Facility Type

 

 

 

 

 

 

 

 

 

 

 

 

 

Independent living communities (2)

 

43

 

11,524

 

$

1,119,530

 

35.1%

 

$

109,878

 

34.2%

 

Assisted living facilities (2)

 

120

 

8,472

 

910,129

 

28.4%

 

84,822

 

26.4%

 

Skilled nursing facilities (2)

 

58

 

5,844

 

228,536

 

7.1%

 

20,413

 

6.4%

 

Rehabilitation hospitals

 

2

 

364

 

61,025

 

1.9%

 

9,648

 

3.0%

 

Wellness centers

 

10

 

812,000

 sq. ft.

180,017

 

5.6%

 

17,069

 

5.3%

 

MOBs

 

56

 

2,867,862

 sq. ft.

702,307

 

21.9%

 

79,124

 

24.7%

 

Total

 

289

 

 

 

$

3,201,544

 

100.0%

 

$

320,954

 

100.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant / Operator

 

 

 

 

 

 

 

 

 

 

 

 

 

Five Star (Lease No. 1) (3)

 

80

 

5,919

 

$

533,304

 

16.7%

 

$

45,273

 

14.1%

 

Five Star (Lease No. 2) (3)

 

50

 

6,106

 

502,738

 

15.7%

 

49,294

 

15.4%

 

Five Star (Lease No. 3) (3)

 

28

 

5,618

 

617,161

 

19.3%

 

61,564

 

19.2%

 

Five Star (Lease No. 4) (3)

 

25

 

2,461

 

230,636

 

7.2%

 

21,144

 

6.6%

 

Sunrise / Marriott (4)

 

14

 

4,091

 

325,165

 

10.2%

 

32,416

 

10.1%

 

Brookdale

 

18

 

894

 

61,122

 

1.9%

 

8,173

 

2.5%

 

6 private companies (combined)

 

8

 

1,115

 

49,094

 

1.5%

 

6,897

 

2.1%

 

Wellness centers

 

10

 

812,000

 sq. ft

180,017

 

5.6%

 

17,069

 

5.3%

 

Multi-tenant MOBs

 

56

 

2,867,862

 sq. ft

702,307

 

21.9%

 

79,124

 

24.7%

 

Total

 

289

 

 

 

$

3,201,544

 

100.0%

 

$

320,954

 

100.0%

 

 

Tenant Operating Statistics (Quarter Ended June 30) (5)

 

 

 

Rent Coverage

 

Occupancy

 

Annualized Rental Income per Living Unit,
Bed or Square Foot 
(6)

 

 

 

2009

 

2008

 

2009

 

2008

 

2009

 

2008

 

Five Star (Lease No. 1) (3)

 

1.37x

 

1.23x

 

87%

 

88%

 

$

7,649

 

$

7,520

 

Five Star (Lease No. 2) (3) (7)

 

1.37x

 

1.44x

 

82%

 

84%

 

$

6,905

 

$

6,520

 

Five Star (Lease No. 3) (3)

 

1.52x

 

1.56x

 

89%

 

91%

 

$

10,958

 

$

10,670

 

Five Star (Lease No. 4) (3)

 

1.06x

 

1.38x

 

85%

 

90%

 

$

8,592

 

$

8,280

 

Sunrise / Marriott (4)

 

1.44x

 

1.43x

 

89%

 

90%

 

$

7,924

 

$

7,817

 

Brookdale

 

2.14x

 

2.19x

 

90%

 

91%

 

$

9,142

 

$

8,965

 

6 private companies (combined)

 

1.96x

 

1.92x

 

81%

 

83%

 

$

6,186

 

$

6,134

 

Wellness centers (8)

 

2.36x

 

2.37x

 

100%

 

100%

 

NA

 

NA

 

Multi-tenant MOBs (9)

 

NA

 

NA

 

98%

 

99%

 

$

28

 

$

22

 

 

 

 

Short and Long Term Residential Care Facilities
Percentage of Operating Revenue Sources

 

 

 

Private Pay (10)

 

Medicare

 

Medicaid

 

 

 

2009

 

2008

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Five Star (Lease No. 1) (3)

 

60%

 

60%

 

14%

 

14%

 

26%

 

26%

 

Five Star (Lease No. 2) (3)

 

52%

 

51%

 

32%

 

32%

 

16%

 

17%

 

Five Star (Lease No. 3) (3)

 

87%

 

88%

 

12%

 

11%

 

1%

 

1%

 

Five Star (Lease No. 4) (3)

 

67%

 

69%

 

14%

 

14%

 

19%

 

17%

 

Sunrise / Marriott (4)

 

69%

 

81%

 

27%

 

16%

 

4%

 

3%

 

Brookdale

 

100%

 

99%

 

 

 

 

1%

 

6 private companies (combined)

 

24%

 

26%

 

24%

 

23%

 

52%

 

51%

 

 

14



 

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

 

Tenant Operating Statistics (Six Months Ended June 30) (5)

 

 

 

Rent Coverage

 

Occupancy

 

Annualized Rental Income per Living Unit,

 

 

 

2009

 

2008

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Five Star (Lease No. 1) (3)

 

1.35x

 

1.34x

 

87%

 

88%

 

$

7,649

 

$

7,520

 

Five Star (Lease No. 2) (3) (7)

 

1.33x

 

1.47x

 

81%

 

85%

 

$

6,905

 

$

6,520

 

Five Star (Lease No. 3) (3)

 

1.58x

 

1.59x

 

89%

 

92%

 

$

10,958

 

$

10,670

 

Five Star (Lease No. 4) (3)

 

1.03x

 

1.43x

 

85%

 

90%

 

$

8,592

 

$

8,280

 

Sunrise / Marriott (4)

 

1.45x

 

1.52x

 

90%

 

91%

 

$

7,924

 

$

7,817

 

Brookdale

 

2.18x

 

2.21x

 

91%

 

91%

 

$

9,142

 

$

8,965

 

6 private companies (combined)

 

1.89x

 

2.08x

 

81%

 

85%

 

$

6,186

 

$

6,134

 

Wellness centers (8)

 

1.86x

 

1.99x

 

100%

 

100%

 

NA

 

NA

 

Multi-tenant MOBs (9)

 

NA

 

NA

 

98%

 

99%

 

$

28

 

$

22

 

 

 

 

Short and Long Term Residential Care Facilities

 

 

 

Percentage of Operating Revenue Sources

 

 

 

Private Pay (10)

 

Medicare

 

Medicaid

 

 

 

2009

 

2008

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Five Star (Lease No. 1) (3)

 

49%

 

50%

 

18%

 

18%

 

33%

 

32%

 

Five Star (Lease No. 2) (3)

 

50%

 

51%

 

33%

 

34%

 

17%

 

16%

 

Five Star (Lease No. 3) (3)

 

86%

 

88%

 

13%

 

11%

 

1%

 

1%

 

Five Star (Lease No. 4) (3)

 

68%

 

69%

 

13%

 

4%

 

19%

 

17%

 

Sunrise / Marriott (4)

 

67%

 

67%

 

29%

 

29%

 

4%

 

4%

 

Brookdale

 

100%

 

99%

 

 

 

 

1%

 

6 private companies (combined)

 

23%

 

27%

 

25%

 

24%

 

52%

 

49%

 

 


(1)          Amounts are before depreciation, but after impairment write downs, if any.

(2)          Properties are categorized by the type of living units / beds which constitute a majority of the living units / beds at the property.

(3)          On August 4, 2009, in connection with the Federal National Mortgage Association, or FNMA, transaction, we realigned our four leases with Five Star Quality Care, Inc., or Five Star.  The data presented reflects this realignment.

(4)          Marriott International, Inc. guarantees this lease.

(5)          All tenant operating data presented are based upon the operating results provided by our tenants for the indicated quarterly or six month periods, or the most recent prior period for which tenant operating results are available to us. Rent coverage is calculated as operating cash flow from our tenants’ operations of our properties, before subordinated charges, divided by minimum rents payable to us.  We have not independently verified our tenants’ operating data.  The table excludes data for periods prior to our ownership of some of these properties.

(6)          Represents annualized rent by lease divided by the number of living units, beds or square feet leased at September 30, 2009 and 2008.

(7)          Annualized rental income per living unit, bed or square foot excludes the two rehabilitation hospitals because these properties have extensive clinic space for services to both overnight patients and patients who receive treatment and do not stay overnight, and these properties are not comparable to residential senior living properties.

(8)          Annualized rental income per living unit, bed or square foot excludes the wellness centers because these properties have extensive indoor and outdoor recreation space which is not comparable to properties where rent is based on interior space only.

(9)          Our medical office, clinic and biotech laboratory building, or MOB, leases include both triple net leases where, in addition to paying fixed rents, the tenants assume the obligation to operate and maintain the properties at their expense and net and modified leases where we are responsible to operate and maintain the properties and we charge tenants for some or all of the property operating costs.  A minority of our MOB leases are so-called “full-service” leases where we receive fixed rent from our tenants and no reimbursement for our property operating costs.

(10)    Private pay excludes revenues from the Medicare and Medicaid programs.

 

15



 

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

 

The following tables set forth information regarding lease expirations as of September 30, 2009 (dollars in thousands):

 

 

 

Annualized Rent

 

Percent of
Total

 

Cumulative
Percentage
of
Annualized

 

Year

 

Short and Long
Term Residential
Care Facilities

 

MOBs

 

Wellness
Centers

 

Total

 

Annualized
Current Rent
Expiring

 

Current
Rent
Expiring

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2009

 

$

 

$

997

 

$

 

$

997

 

0.3%

 

0.3%

 

2010

 

1,333

 

2,392

 

 

3,725

 

1.2%

 

1.5%

 

2011

 

 

2,047

 

 

2,047

 

0.6%

 

2.1%

 

2012

 

 

5,951

 

 

5,951

 

1.9%

 

4.0%

 

2013

 

32,416

 

3,658

 

 

36,074

 

11.2%

 

15.2%

 

2014

 

 

6,167

 

 

6,167

 

1.9%

 

17.1%

 

2015

 

2,072

 

5,324

 

 

7,396

 

2.3%

 

19.4%

 

2016

 

2,888

 

6,760

 

 

9,648

 

3.0%

 

22.4%

 

2017

 

29,317

 

1,308

 

 

30,625

 

9.5%

 

31.9%

 

2018

 

 

1,896

 

 

1,896

 

0.6%

 

32.5%

 

2019 and after

 

156,735

 

42,624

 

17,069

 

216,428

 

67.5%

 

100.0%

 

Total

 

$

224,761

 

$

79,124

 

$

17,069

 

$

320,954

 

100.0%

 

 

 

 

Average remaining lease term for all properties (weighted by rent) 12.8 years

 

 

 

Number of Tenants

 

 

 

Cumulative

 

Year

 

Short and
Long Term
Residential
Care Facilities

 

MOBs

 

Wellness
Centers

 

Total

 

Percent of
Total Number
of Tenants
Expiring

 

Percentage
of Number
of Tenants
Expiring

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2009

 

 

15

 

 

15

 

6.8%

 

6.8%

 

2010

 

1

 

23

 

 

24

 

10.9%

 

17.7%

 

2011

 

 

22

 

 

22

 

10.0%

 

27.7%

 

2012

 

 

38

 

 

38

 

17.2%

 

44.9%

 

2013

 

1

 

21

 

 

22

 

10.0%

 

54.9%

 

2014

 

 

22

 

 

22

 

10.0%

 

64.9%

 

2015

 

2

 

18

 

 

20

 

9.0%

 

73.9%

 

2016

 

2

 

18

 

 

20

 

9.0%

 

82.9%

 

2017

 

2

 

12

 

 

14

 

6.3%

 

89.2%

 

2018

 

 

6

 

 

6

 

2.7%

 

91.9%

 

2019 and after

 

4

 

12

 

2

 

18

 

8.1%

 

100.0%

 

Total

 

12

 

207

 

2

 

221

 

100.0%

 

 

 

 

16



 

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

 

Number of Living Units or Beds or Square Feet with Leases Expiring

 

Year

 

Short and
Long Term
Residential
Care
Facilities
(Units/Beds)

 

Percent
of Total
Living
Units or
Beds
Expiring

 

Cumulative
Percentage
of Total
Living
Units or
Beds
Expiring

 

MOBs
(Square
Feet)

 

Wellness
Centers
(Square
Feet)

 

Total
Square
Feet

 

Percent
of Total
Square
Feet
Expiring

 

Cumulative
Percent of
Total
Square
Feet
Expiring

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2009

 

 

0.0%

 

0.0%

 

26,716

 

 

26,716

 

0.7%

 

0.7%

 

2010

 

140

 

0.5%

 

0.5%

 

73,408

 

 

73,408

 

2.0%

 

2.7%

 

2011

 

 

0.0%

 

0.5%

 

63,458

 

 

63,458

 

1.7%

 

4.4%

 

2012

 

 

0.0%

 

0.5%

 

296,708

 

 

296,708

 

8.2%

 

12.6%

 

2013

 

4,091

 

15.6%

 

16.1%

 

143,974

 

 

143,974

 

4.0%

 

16.6%

 

2014

 

 

0.0%

 

16.1%

 

157,987

 

 

157,987

 

4.4%

 

21.0%

 

2015

 

283

 

1.1%

 

17.2%

 

232,520

 

 

232,520

 

6.4%

 

27.4%