-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Cjj6W1+o6k5VkPZ19yGAYQqmpmZyux7lA4t9AhlecIUdu7WTgdnnvX6Xrqfps7G8 27EEMlPV/i2Do3TjpWaLlw== 0001104659-10-028727.txt : 20100514 0001104659-10-028727.hdr.sgml : 20100514 20100514170033 ACCESSION NUMBER: 0001104659-10-028727 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20100514 DATE AS OF CHANGE: 20100514 GROUP MEMBERS: ADAM D. PORTNOY GROUP MEMBERS: BARRY M. PORTNOY GROUP MEMBERS: REIT MANAGEMENT & RESEARCH LLC GROUP MEMBERS: REIT MANAGEMENT & RESEARCH TRUST FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SENIOR HOUSING PROPERTIES TRUST CENTRAL INDEX KEY: 0001075415 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 043445278 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 400 CENTRE STREET CITY: NEWTON STATE: MA ZIP: 02458 BUSINESS PHONE: 6173323990 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: FIVE STAR QUALITY CARE INC CENTRAL INDEX KEY: 0001159281 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 043516029 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-62369 FILM NUMBER: 10834502 BUSINESS ADDRESS: STREET 1: 400 CENTRE STREET CITY: NEWTON STATE: MA ZIP: 02458 BUSINESS PHONE: 617 796 8387 MAIL ADDRESS: STREET 1: 400 CENTRE ST CITY: NEWTON STATE: MA ZIP: 02458 SC 13D 1 a10-10186_1sc13d.htm SC 13D

	SECURITIES AND EXCHANGE COMMISSION
	Washington, DC 20549

	SCHEDULE 13D

Under the Securities Exchange Act of 1934
(Amendment No. )*

FIVE STAR QUALITY CARE, INC.

(Name of Issuer)

Common Stock

(Title of Class of Securities)

33832D106

(CUSIP Number)

Richard A. Doyle

Senior Housing Properties Trust

400 Centre Street

Newton, MA 02458

(617) 796-8350

(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)

May 12, 2010

(Date of Event Which Requires Filing of this Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. x

Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See § 240.13d-7 for other parties to whom copies are to be sent.

* The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

SCHEDULE 13D

CUSIP No. 33832D106						Page 2 of 14 Pages

	1	Names of Reporting Persons Senior Housing Properties Trust

	2	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			o
		(b)			o

	3	SEC Use Only

	4	Source of Funds (See Instructions) WC, OO

	5	Check if Disclosure of Legal Proceedings Is Required Pursuant to Item 2(d) or 2(e) o

	6	Citizenship or Place of Organization Maryland

Number of Shares Beneficially Owned by Each Reporting Person With			7	Sole Voting Power 3,235,000

			8	Shared Voting Power 0

			9	Sole Dispositive Power 3,235,000

			10	Shared Dispositive Power 0

	11	Aggregate Amount Beneficially Owned by Each Reporting Person 3,235,000

	12	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) o

	13	Percent of Class Represented by Amount in Row (11) 9.1%

	14	Type of Reporting Person (See Instructions) OO

SCHEDULE 13D

CUSIP No. 33832D106						Page 3 of 14 Pages

	1	Names of Reporting Persons Reit Management & Research LLC

	2	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			o
		(b)			o

	3	SEC Use Only

	4	Source of Funds (See Instructions) N/A

	5	Check if Disclosure of Legal Proceedings Is Required Pursuant to Item 2(d) or 2(e) o

	6	Citizenship or Place of Organization Delaware

Number of Shares Beneficially Owned by Each Reporting Person With			7	Sole Voting Power 0

			8	Shared Voting Power 0

			9	Sole Dispositive Power 0

			10	Shared Dispositive Power 0

	11	Aggregate Amount Beneficially Owned by Each Reporting Person 0

	12	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) x

	13	Percent of Class Represented by Amount in Row (11) 0%

	14	Type of Reporting Person (See Instructions) OO

SCHEDULE 13D

CUSIP No. 33832D106						Page 4 of 14 Pages

	1	Names of Reporting Persons Reit Management & Research Trust

	2	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			o
		(b)			o

	3	SEC Use Only

	4	Source of Funds (See Instructions) N/A

	5	Check if Disclosure of Legal Proceedings Is Required Pursuant to Item 2(d) or 2(e) o

	6	Citizenship or Place of Organization Massachusetts

Number of Shares Beneficially Owned by Each Reporting Person With			7	Sole Voting Power 0

			8	Shared Voting Power 0

			9	Sole Dispositive Power 0

			10	Shared Dispositive Power 0

	11	Aggregate Amount Beneficially Owned by Each Reporting Person 0

	12	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) x

	13	Percent of Class Represented by Amount in Row (11) 0%

	14	Type of Reporting Person (See Instructions) OO

SCHEDULE 13D

CUSIP No. 33832D106						Page 5 of 14 Pages

	1	Names of Reporting Persons Barry M. Portnoy

	2	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			o
		(b)			o

	3	SEC Use Only

	4	Source of Funds (See Instructions) AF, OO

	5	Check if Disclosure of Legal Proceedings Is Required Pursuant to Item 2(d) or 2(e) o

	6	Citizenship or Place of Organization United States

Number of Shares Beneficially Owned by Each Reporting Person With			7	Sole Voting Power 179,122

			8	Shared Voting Power 0

			9	Sole Dispositive Power 179,122

			10	Shared Dispositive Power 0

	11	Aggregate Amount Beneficially Owned by Each Reporting Person 179,122

	12	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) x

	13	Percent of Class Represented by Amount in Row (11) Less than 1%

	14	Type of Reporting Person (See Instructions) IN

SCHEDULE 13D

CUSIP No. 33832D106						Page 6 of 14 Pages

	1	Names of Reporting Persons Adam D. Portnoy

	2	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)			o
		(b)			o

	3	SEC Use Only

	4	Source of Funds (See Instructions) AF, OO

	5	Check if Disclosure of Legal Proceedings Is Required Pursuant to Item 2(d) or 2(e) o

	6	Citizenship or Place of Organization United States

Number of Shares Beneficially Owned by Each Reporting Person With			7	Sole Voting Power 32,000

			8	Shared Voting Power 0

			9	Sole Dispositive Power 32,000

			10	Shared Dispositive Power 0

	11	Aggregate Amount Beneficially Owned by Each Reporting Person 32,000

	12	Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) x

	13	Percent of Class Represented by Amount in Row (11) Less than 1%

	14	Type of Reporting Person (See Instructions) IN

SCHEDULE 13D

CUSIP No. 33832D106

Page 7 of 14 Pages

ITEM 1. SECURITY AND ISSUER.

The class of equity securities to which this Schedule 13D relates is the Common Stock, par value $0.01 per share (the “Shares”), of Five Star Quality Care, Inc., a Maryland corporation (the “Issuer”), with its principal executive offices located at 400 Centre Street, Newton, Massachusetts 02458.

ITEM 2. IDENTITY AND BACKGROUND.

The persons filing this statement are Senior Housing Properties Trust, a Maryland real estate investment trust (“Senior Housing”); Reit Management & Research LLC, a Delaware limited liability company (“RMR”); Reit Management & Research Trust, a Massachusetts business trust (“RMR Trust”); Barry M. Portnoy; and Adam D. Portnoy (individually a “Reporting Person”, and together, the “Reporting Persons”).

Senior Housing’s principal business is to operate as a real estate investment trust (“REIT”). The principal business office of Senior Housing is located at 400 Centre Street, Newton, Massachusetts 02458. The Managing Trustees of Senior Housing are Adam D. Portnoy and Barry M. Portnoy, and the Independent Trustees of Senior Housing are John L. Harrington, Jeffrey P. Somers and Frederick N. Zeytoonjian. The executive officers of Senior Housing are David J. Hegarty, President and Chief Operating Officer, and Richard A. Doyle, Treasurer and Chief Financial Officer.

RMR’s principal business is providing management services to companies, including Senior Housing. The principal business office of RMR is located at 400 Centre Street, Newton, Massachusetts 02458. The directors of RMR are David J. Hegarty, Gerard M. Martin, Adam D. Portnoy and Barry M. Portnoy. The executive officers of RMR are Barry M. Portnoy, Chairman, Adam D. Portnoy, President and Chief Executive Officer, Jennifer B. Clark, Executive Vice President and General Counsel, David J. Hegarty, Executive Vice President, Mark L. Kleifges, Executive Vice President, John G. Murray, Executive Vice President, Thomas M. O’Brien, Executive Vice President, John C. Popeo, Executive Vice President, Treasurer and Chief Financial Officer, David M. Blackman, Senior Vice President, Ethan S. Bornstein, Senior Vice President, Richard A. Doyle, Senior Vice President, Paul V. Hoagland, Senior Vice President, Bruce J. Mackey Jr., Senior Vice President, John A. Mannix, Senior Vice President, Andrew J. Rebholz, Senior Vice President, and David M. Lepore, Senior Vice President. The sole member of RMR is RMR Trust.

RMR Trust’s principal business is to act as the sole member of RMR. The principal business office of RMR Trust is located at 400 Centre Street, Newton, Massachusetts 02458. The trustees of RMR Trust are David J. Hegarty, Adam D. Portnoy and Barry M. Portnoy. The executive officers of RMR Trust are Barry M. Portnoy, Chairman, Adam D. Portnoy, President and Chief Executive Officer, and John C. Popeo, Treasurer and Chief Financial Officer. Messrs. Adam and Barry Portnoy own all of the outstanding capital of RMR Trust.

SCHEDULE 13D

CUSIP No. 33832D106

Page 8 of 14 Pages

To the Reporting Persons’ knowledge, each of the individuals listed above (i) is a United States citizen, (ii) except for Messrs. Harrington, O’Brien, Rebholz, Somers and Zeytoonjian, has a business address at 400 Centre Street, Newton, Massachusetts 02458 and (iii) except for Messrs. Harrington, Hoagland, Mackey, Martin, O’Brien, Rebholz, Somers and Zeytoonjian, is principally employed by RMR in the capacities specified above. Mr. Harrington is the Chairman of the Board of the Yawkey Foundations and has a business address at 990 Washington Street, Suite 315, Dedham, Massachusetts 02026. Mr. Mackey and Mr. Hoagland are principally employed as the President and Treasurer, respectively, of the Issuer. Mr. Martin is principally employed as a private investor. Mr. O’Brien and Mr. Rebholz are principally employed as the President and Treasurer, respectively, of TravelCenters of America LLC and have their principal offices at 24601 Center Ridge Road, Suite 200, Westlake, Ohio 44145. Mr. Somers is Of Counsel to the law firm of Morse, Barnes-Brown & Pendleton, PC and has a business address at Reservoir Place, 1601 Trapelo Road, Suite 205, Waltham, Massachusetts 02451. Mr. Zeytoonjian is Chairman and Chief Executive Officer of Turf Products, LLC and has a business address at 157 Moody Road, Enfield, Connecticut 06083. Other executive officers of RMR identified above also serve as executive officers of other companies managed by RMR.

No Reporting Persons or the other individuals specified above, during the last five years, has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors), or been party to any civil proceeding which resulted in a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.

ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.

In August 2009, a special purpose subsidiary of Senior Housing closed a $512.9 million mortgage financing with the Federal National Mortgage Association (“FNMA”) and in connection with the FNMA transaction, Senior Housing realigned its leases with the Issuer. Pursuant to the terms of the lease realignment agreement, entered into on August 4, 2009, (1) four leases, or the Leases, between Senior Housing and the Issuer were reconfigured, (2) Senior Housing acquired certain personal property located at 28 properties in 16 states, or the Properties, from subsidiaries of the Issuer and pledged that property to FNMA, (3) Senior Housing purchased 3,200,000 Shares, (4) the Issuer agreed to undertake certain reporting and other operating obligations required by FNMA and (5) subsidiaries of the Issuer 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 their obligations under the Leases for the Properties and certain of their obligations relating to the $512.9 million secured term loan. To compensate the Issuer for the sale of its personal property, the sale of the 3,200,000 Shares, the pledge of intangible assets and for the services and obligations that the Issuer assumed, Senior Housing, among other things, (1) reduced the annual rent payable to it under one of the Leases, but not the lease under which the Properties are leased, by $2.0 million per year for the term of that Lease, which will expire in 2026, (2) paid the Issuer a total of $18.6 million, and (3) agreed to reimburse the Issuer for its out of pocket expenses incurred in connection with the negotiation and closing of this transaction. The Issuer granted certain registration rights to Senior Housing with regard to the 3,200,000 Shares issued. For further information about the FNMA transaction and the purchase of these shares, see Part II, Item 5 of Senior Housing’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, filed with the Securities and Exchange Commission (the “SEC”) on August 10, 2009.

SCHEDULE 13D

CUSIP No. 33832D106

Page 9 of 14 Pages

Senior Housing owns an additional 35,000 Shares of the Issuer, which were retained by Senior Housing following its December 31, 2001 spinoff of the Issuer.

Mr. Adam Portnoy acquired the Shares he owns pursuant to several grants by the Issuer pursuant to the Issuer’s stock option and stock incentive plan for services rendered by him to RMR, which provides management and other services to the Issuer pursuant to a business management agreement.

Mr. Barry Portnoy acquired the Shares he owns pursuant to several grants by the Issuer for services rendered by him as a Managing Director of the Issuer pursuant to the Issuer’s stock option and stock incentive plan, and in connection with the formation of the Issuer and the spinoff of the Issuer from Senior Housing on December 31, 2001. He also received a portion of his Shares of the Issuer in 2008 as a result of a liquidation distribution of such Shares held through the Portnoy Family Corporation, of which Mr. Barry Portnoy was the sole stockholder. The Portnoy Family Corporation had acquired its Shares in connection with the formation of the Issuer and the spinoff of the Issuer from Senior Housing on December 31, 2001.

To the Reporting Persons’ knowledge, the other individuals named in Item 2 above beneficially own an aggregate of approximately 537,735 Shares. These 537,735 Shares were acquired either pursuant to the Issuer’s stock option and stock incentive plan for services to RMR or the Issuer or in connection with the formation of the Issuer and the spinoff of the Issuer from Senior Housing on December 31, 2001.

ITEM 4. PURPOSE OF TRANSACTION.

Senior Housing and other Reporting Persons acquired the Shares reported in this Schedule 13D for investment purposes. The Reporting Persons previously reported their beneficial ownership of the Shares on Schedule 13G, initially filed on August 12, 2009 and amended on January 20, 2010.

The Issuer was Senior Housing’s wholly owned subsidiary until December 31, 2001, when the Issuer’s Shares were spun off to Senior Housing’s shareholders. Senior Housing’s primary reason for the spinoff related to certain requirements under Federal income tax laws for Senior Housing’s maintenance of its status as a REIT. Among other things, to remain a REIT, Senior Housing, in most cases, was required to derive a substantial majority of its revenues from real estate rents and mortgage interest. For tax years beginning in 2009, there was a change in the REIT qualification requirements in the Internal Revenue Code which permits REITs to receive

SCHEDULE 13D

CUSIP No. 33832D106

Page 10 of 14 Pages

the financial results of health care facilities’ operations, as well as rents from those operations, provided these results are received by a taxable REIT subsidiary (a “TRS”).

Since the time of the spinoff, Senior Housing and the Issuer have engaged in a number of transactions and have developed several contractual relationships. Information about current transactions between Senior Housing and the Issuer appears in Senior Housing’s Annual Report on Form 10-K for its fiscal year ended December 31, 2009 (the “Senior Housing Annual Report”) and its other filings made with the SEC. In particular, the Reporting Persons refer to (i) the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Related Person Transactions” in the Senior Housing Annual Report, (ii) the section captioned “Related Person Transactions and Company Review of Such Transactions” in Senior Housing’s Proxy Statement dated February 22, 2010 relating to its 2010 Annual Meeting of Shareholders, (iii) Item 1.01 in Senior Housing’s Current Report on Form 8-K filed with the SEC on January 13, 2010, and (iv) the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Related Person Transactions” in Senior Housing’s Quarterly Report on Form 10-Q for its fiscal quarter ended March 31, 2010. Copies of the information contained in such sections are filed as Exhibit 99.2 in Item 7 and such Exhibit 99.2 is incorporated herein by reference. The information contained in Exhibit 99.2 is presented as of the respective dates the related reports, as identified in such Exhibit, were filed with the SEC.

On May 12, 2010, Senior Housing’s Board of Trustees appointed a special committee consisting of its Independent Trustees and requested that the Issuer’s Board of Directors appoint a special committee consisting of its Independent Directors to consider, in light of the tax law changes described above and uncertainties created by recent changes in the market for healthcare services, including the recent adoption of the Patient Protection and Affordable Care Act and expected Medicare and Medicaid rate changes, whether Senior Housing and the Issuer should: (i) change one or more of the existing leases between Senior Housing, as lessor, and the Issuer, as lessee, to a management arrangement between a Senior Housing owned TRS and the Issuer as manager; (ii) combine the Issuer into a Senior Housing owned TRS; or (iii) otherwise change one or more of the contractual arrangements between Senior Housing and the Issuer or take other actions. On May 12, 2010, the Issuer advised Senior Housing that the Issuer’s Board of Directors appointed a special committee consisting of its Independent Directors with authority to join such a dialogue.

Although the possible transactions described above are presently expected by the Reporting Persons to be considered by the special committees of Senior Housing and the Issuer, the topics to be considered may change at any time. Also, because of their close business relationships, the Reporting Persons and the Issuer are in discussions from time to time on a variety of matters, and in the future these discussions may implicate the actions described in clauses (a) through (j) of Item 4. There can be no assurance that any of the potential actions referred to above will be undertaken or that other types of actions will, or will not, be undertaken.

SCHEDULE 13D

CUSIP No. 33832D106

Page 11 of 14 Pages

ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.

(a) Amount beneficially owned and percentage of class:

As described in Item 3 above, Senior Housing beneficially owns 3,235,000 Shares.

Neither RMR nor RMR Trust holds any Shares. RMR, as manager of Senior Housing, and RMR Trust, as the sole member of RMR, may, under applicable regulatory definitions, be deemed to beneficially own (and have shared voting and dispositive power over) the 3,235,000 Shares beneficially owned by Senior Housing, but each disclaims such beneficial ownership.

Mr. Barry Portnoy beneficially owns 179,122 Shares. Mr. Adam Portnoy beneficially owns 32,000 Shares (of which 16,000 are subject to vesting requirements and will become fully vested, subject to the lapse of certain contingencies, annually through 2013). In their respective positions with RMR and RMR Trust described in Item 2 above, Mr. Barry Portnoy and Mr. Adam Portnoy may also be deemed to beneficially own (and have shared voting and dispositive power over) the 3,235,000 Shares beneficially owned by Senior Housing, but each disclaims such beneficial ownership.

To the Reporting Persons’ knowledge, the other individuals named in Item 2 above beneficially own an aggregate of approximately 537,735 Shares (a portion of which are subject to vesting requirements). The Reporting Persons disclaim any beneficial ownership or voting control of these Shares.

Senior Housing beneficially owns approximately 9.1% of the Issuer’s Shares.

Messrs. Adam and Barry Portnoy each beneficially owns less than 1% of the Issuer’s Shares, and RMR and RMR Trust beneficially own none of the Issuer’s Shares. Reference is made to Item 5(a) above as to the Issuer’s Shares beneficially owned by Senior Housing that may, under applicable regulatory definitions, be deemed to be beneficially owned by RMR, RMR Trust, Mr. Barry Portnoy or Mr. Adam Portnoy. If all such Shares were beneficially owned by such persons, their respective percentage beneficial ownership of the Issuer’s Shares would be approximately 9.1%, 9.1%, 9.6% and 9.2%.

To the Reporting Persons’ knowledge, the other individuals named in Item 2 above beneficially own an aggregate of approximately 1.5% of the Issuer’s Shares, which are not included in the percentages owned by the Reporting Persons.

(b) Number of Shares as to which such person has:

(i) Sole power to vote or direct the vote:

Senior Housing:		3,235,000

RMR:		0

RMR Trust:		0

Barry M. Portnoy:		179,122

Adam D. Portnoy:		32,000

SCHEDULE 13D

CUSIP No. 33832D106

Page 12 of 14 Pages

(ii) Shared power to vote or direct the vote:

Senior Housing:		0

RMR:		0

RMR Trust:		0

Barry M. Portnoy:		0

Adam D. Portnoy:		0

(iii) Sole power to dispose or to direct the disposition of:

Senior Housing:		3,235,000

RMR:		0

RMR Trust:		0

Barry M. Portnoy:		179,122

Adam D. Portnoy:		32,000

(iv) Shared power to dispose or to direct the disposition of:

Senior Housing:		0

RMR:		0

RMR Trust:		0

Barry M. Portnoy:		0

Adam D. Portnoy:		0

Reference is made to Item 5(a) above as to the Issuer’s Shares beneficially owned by Senior Housing which may, under applicable regulatory definitions, be deemed to be beneficially owned by RMR, RMR Trust, Mr. Barry Portnoy or Mr. Adam Portnoy.

To the Reporting Persons’ knowledge, the other individuals named in Item 2 above have sole power to vote or to direct the vote, and to dispose or direct the disposition of, all of the Shares they beneficiall y own.

SCHEDULE 13D

CUSIP No. 33832D106

Page 13 of 14 Pages

On May 10, 2010, following the Issuer’s Annual Meeting of Shareholders Mr. Barry Portnoy and Mr. Martin each received an annual grant of 11,000 Sha res pursuant to the Issuer’s stock option and stock incentive plan for his service as a director of the Issuer.

(d) No other person is known to have the right to receive, or the power to direct the receipt of dividends from, or the proceeds from the sale of, the securities covered by this Schedule 13D.

(e) Not applicable.

ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER.

See Items 3 and 5 above.

As described in Item 3 above, in connection with the August 2009 FNMA transaction, the Issuer and Senior Housing entered into a lease realignment agreement whereby, among other things, Senior Housing purchased 3,200,000 Shares. In connection therewith, the Issuer and Senior Housing entered a registration rights agreement whereby Senior Housing was granted certain registration rights with respect to such 3,200,000 Shares.

Certain Shares owned by Mr. Adam Portnoy and other individuals named in Item 2 above are subject to vesting pursuant to restricted share agreements entered into at the time of the grant of such Shares. In addition, Mr. Barry Portnoy and Mr. Martin, as directors of the Issuer, and the other directors and executive officers of RMR named in Item 2 above are each e ligible to receive future grants under the Issuer’s stock option and stock incentive plan.

ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.

Exhibit 99.1	Joint Filing Agreement, dated as of May 14, 2010, by and among Senior Housing, RMR, RMR Trust, Barry M. Portnoy and Adam D. Portnoy. (Filed herewith.)

Exhibit 99.2	Selected sections from Senior Housing’s filings with the Securities and Exchange Commission as incorporated by reference into Item 4 of this Schedule 13D. (Filed herewith.)

Exhibit 99.3	Letter, dated May 12, 2010, from the Board of Trustees of Senior Housing to the Board of Directors of the Issuer. (Filed herewith.)

Exhibit 99.4	Registration Rights Agreement, dated as of August 4, 2009, between the Issuer and Senior Housing. (Incorporated by reference to the Issuer’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009.)

SCHEDULE 13D

CUSIP No. 33832D106

Page 14 of 14 Pages

SIGNATURES

After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

	May 14, 2010
	(Date)


	SENIOR HOUSING PROPERTIES TRUST


	/s/ Richard A. Doyle
	(Signature)

	Richard A. Doyle, Treasurer and Chief Financial Officer
	(Name/Title)


	REIT MANAGEMENT & RESEARCH LLC


	/s/ Adam D. Portnoy
	(Signature)

	Adam D. Portnoy, President and Chief Executive Officer
	(Name/Title)


	REIT MANAGEMENT & RESEARCH TRUST


	/s/ Adam D. Portnoy
	(Signature)

	Adam D. Portnoy, President and Chief Executive Officer
	(Name/Title)


	BARRY M. PORTNOY


	/s/ Barry M. Portnoy
	(Signature)

	ADAM D. PORTNOY


	/s/ Adam D. Portnoy
	(Signature)

Attention. Intentional misstatements or omissions of fact constitute Federal criminal violations (see 18 U.S.C. 1001).

EX-99.1 2 a10-10186_1ex99d1.htm EX-99.1

Exhibit 99.1

JOINT FILING AGREEMENT

The undersigned hereby agree that the Schedule 13D with respect to the Common Stock, $.01 par value per share, of Five Star Quality Care, Inc., dated as of May 14, 2010, is, and any amendments thereto signed by each of the undersigned shall be, filed on behalf of each of us pursuant to and in accordance with the provisions of Rule 13d-1(k) under the Securities Exchange Act of 1934, as amended.

	May 14, 2010
	(Date)


	SENIOR HOUSING PROPERTIES TRUST


	/s/ Richard A. Doyle
	(Signature)

	Richard A. Doyle, Treasurer and Chief Financial Officer
	(Name/Title)


	REIT MANAGEMENT & RESEARCH LLC


	/s/ Adam D. Portnoy
	(Signature)

	Adam D. Portnoy, President and Chief Executive Officer
	(Name/Title)


	REIT MANAGEMENT & RESEARCH TRUST


	/s/ Adam D. Portnoy
	(Signature)

	Adam D. Portnoy, President and Chief Executive Officer
	(Name/Title)


	BARRY M. PORTNOY


	/s/ Barry M. Portnoy
	(Signature)


	ADAM D. PORTNOY


	/s/ Adam D. Portnoy
	(Signature)

EX-99.2 3 a10-10186_1ex99d2.htm EX-99.2

Exhibit 99.2

Selected sections from Senior Housing Properties Trust’s (“Senior Housing”) filings (individually, a “Filing”) with the Securities and Exchange Commission (the “SEC”) and incorporated by reference into Item 4 of the Schedule 13D, filed by Senior Housing with the SEC on May 14, 2010 (the “Schedule 13D”) by the Reporting Persons (as defined in the Schedule 13D).

All defined terms used in the selected sections herein without definition shall have the meanings ascribed to such terms in the respective Period Report from which such selected section is excerpted.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Related Person Transactions” appearing in Senior Housing’s Annual Report on Form 10-K for the year ended December 31, 2009, filed with the SEC on February 19, 2010.

Five Star is our largest tenant. Five Star is our former subsidiary. We beneficially own more than 9% of Five Star’s common shares. RMR provides management services to both us and Five Star. Five Star pays us rent based on minimum annual rent amounts plus percentage rent based on increases in gross revenues at certain properties. As of December 31, 2009, we leased 190 senior living communities and two rehabilitation hospitals to Five Star. Five Star’s total minimum annual rent payable to us under those leases as of December 31, 2009 was $184.4 million, excluding percentage rent based on increases in gross revenues at certain properties. Total rent recognized by us from Five Star for the year ended December 31, 2009 amounted to $178.9 million. Our leases with Five Star also include arbitration provisions for the resolution of certain disputes, claims and controversies. Additional information regarding our leases with Five Star appears in Item 1 of this Annual Report on Form 10-K under the captions “Business—Tenants” and “Business—Lease Terms”.

Since January 1, 2009, we have had several transactions with Five Star including:

· In August 2009, we closed a $512.9 million mortgage financing with FNMA. This mortgage loan is secured by first liens on 28 senior living properties, or the Properties, with 5,618 living units located in 16 states that we own and lease to Five Star. In connection with the FNMA transaction, we realigned our leases with Five Star. Lease No. 1 expires in 2024 and now includes 89 properties (including 10 properties acquired and excluding one property sold in the fourth quarter of 2009), including independent living communities, assisted living communities and skilled nursing facilities. Lease No. 2 expires in 2026 and now includes 49 properties (excluding one property sold in the fourth quarter of 2009), including independent living communities, assisted living communities, skilled nursing facilities and two rehabilitation hospitals. Lease No. 3 expires in 2028 and now includes the 28 FNMA financed properties, including independent living communities and assisted living communities. Lease No. 4 expires in 2017 and now includes 26 properties (including one property acquired in the fourth quarter of 2009), including independent living communities, assisted living communities and skilled nursing facilities. 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 were reconfigured as described above, (2) we acquired certain personal property located at the Properties from subsidiaries of Five Star and pledged that personal property to FNMA, (3) we purchased 3,200,000 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 its 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 $2.0 million per year; (2) we paid Five Star $18.6 million; and (3) we reimbursed Five Star for its out of pocket expenses incurred in connection with the negotiation and closing of this transaction. Five Star also has granted certain registration rights to us with regard to its shares we acquired and our future transfer of those shares is subject to certain restrictions.

· In October 2009, we acquired one senior living property with a total of 259 living units for approximately $20.2 million, excluding closing costs, from an unaffiliated party. We leased this property to Five Star under Lease No. 4 described above and increased annual rent under that lease by $1.8 million. Percentage rent, based on increases in gross revenues at this property, will commence in 2011.

· Also in October 2009, we sold a skilled nursing facility with a total of 62 beds to an unaffiliated party for net proceeds of approximately $473,000 and the annual rent payable to us by Five Star under Lease No. 1 described above decreased by approximately $47,300.

· In November 2009, we sold a skilled nursing facility with a total of 75 beds to an unaffiliated party for net proceeds of approximately $1.2 million and the annual rent payable to us by Five Star under Lease No. 2 described above decreased by approximately $124,700.

· Also in November 2009, we acquired nine senior living properties with a total of 558 living units for approximately $91.8 million, excluding closing costs, from an unaffiliated party. We leased these properties to Five Star under Lease No. 1 and increased rent under that lease by $8.1 million per year. Percentage rent, based on increases in gross revenues at these properties, will commence in 2011.

· In December 2009, we acquired one senior living property with a total of 53 living units for approximately $4.9 million, excluding closing costs, from an unaffiliated party. We leased this property to Five Star under Lease No. 1 and increased rent under that lease by $436,000 per year. Percentage rent, based on increases in gross revenues at this property, will commence in 2011.

· During 2009, pursuant to the terms of our leases with Five Star, we purchased approximately $36.7 million of improvements made to our properties leased by Five Star, and, as a result, the annual rent payable to us by Five Star increased by approximately $2.9 million in aggregate for the affected leases.

In May 2008, we entered into various purchase agreements to acquire 48 MOBs from HRP for an aggregate purchase price of approximately $565.0 million. We acquired 47 of these MOBs containing 2.2 million square feet for an aggregate purchase price of approximately $562.0 million, excluding closing costs. The one remaining building with an allocated value of $3.0 million 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 these MOB properties for approximately $3.2 million, 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 $558.2 million, excluding closing costs. Our purchase agreements with HRP include arbitration provisions for the resolution of certain disputes, claims and controversies.

HRP was formerly our parent and both we and HRP are managed by RMR. We were spun off to HRP’s shareholders in 1999 and, at the time of this spin off, we and HRP entered into a transaction agreement which, among other things, prohibited us from purchasing MOBs. Concurrently with the execution and delivery of the purchase agreements described above, we and HRP entered into an amendment to that transaction agreement to permit us, rather than HRP, to invest in MOBs. Also, concurrently with the execution and delivery of the purchase agreements, we entered into a right of first refusal agreement under which we were granted a right of first refusal to purchase up to 45 additional identified properties (containing approximately 4.6 million square feet of rental space) HRP owns which are leased to tenants in medical related businesses in the event HRP determines to sell such properties or in the event of an indirect sale as a result of HRP’s change of control or a change of control of HRP’s subsidiary which owns those properties.

management agreement and the property management agreement are effective until December 31, 2010, and will be automatically renewed for successive one year terms thereafter unless we or RMR give notice of non-renewal before the end of an applicable term. We or RMR may terminate either agreement upon 60 days prior written notice. RMR may also terminate the property management agreement upon five business days notice if we undergo a change of control, as defined in the property management agreement. Our Board has given our Compensation Committee, which is comprised of our Independent Trustees, authority to act on our behalf with respect to these agreements. The charter of the Compensation Committee requires the Committee to review the terms of the agreements and evaluate RMR’s performance under the agreements annually. The aggregate business management and property management fees we paid RMR for 2009 were $17.2 million, including $550,000 as an incentive fee which we expect to be paid in our common shares in March 2010. We are generally responsible for all of our operating expenses, including certain expenses incurred by RMR on our behalf. We are not responsible for payment of RMR’s employment, office or administration expenses incurred to provide management services to us, except for our pro rata portion of the employment and related expenses of RMR employees who provide on site property management services and of the staff employed by RMR who conduct our internal audit. Under our business management agreement with RMR, we acknowledge that RMR manages other businesses, including HRP, HPT, GOV, TA and Five Star, and will not be required to present us with opportunities to invest in properties that are primarily of a type that are within the investment focus of another business now or in the future managed by RMR. Under our business management agreement, RMR has also agreed not to provide business management services to any other REIT which is principally engaged in the business of owning senior apartments, congregate communities, assisted living facilities, nursing homes or MOBs, without the consent of a majority of our Independent Trustees. Each of the business management agreement and property management agreement also includes arbitration provisions for the resolution of certain disputes, claims and controversies. Any termination of our business management agreement with RMR would cause a default under our revolving credit facility, if not approved by a majority of our lenders. RMR also provides the internal audit function for us and for other publicly owned companies to which it provides management services. Our Audit Committee appoints our Director of Internal Audit, and our Compensation Committee approves his salary and the costs we pay with respect to our internal audit function. Our pro rata share of RMR’s costs in providing that function was $220,000 in 2009.

Messrs. Barry M. Portnoy and his son Adam D. Portnoy beneficially own RMR and are our Managing Trustees. Barry Portnoy is the Chairman of RMR; Adam Portnoy is the President, Chief Executive Officer and a Director of RMR. Each of our executive officers is also an officer of RMR. Additionally, Mr. Barry Portnoy’s son-in-law, who is Mr. Adam Portnoy’s brother-in-law, is an officer of RMR. Transactions between us and RMR are approved by our Compensation Committee which is comprised of Independent Trustees.

The other companies to which RMR provides management services also have certain other relationships with each other, such as lease arrangements for properties. In addition, officers of RMR serve as officers of those companies. Further information regarding those relationships is provided in the applicable periodic reports and proxy statements filed by those other companies with the SEC. In addition, our Independent Trustees also serve as directors or trustees of certain of those other companies, and directors and trustees of certain of those other companies serve as directors or trustees of the other companies. Mr. Barry Portnoy is one of our Managing Trustees and serves as a Managing Director or Trustee of each of those other companies, including Five Star and HRP. Mr. Adam Portnoy is our other Managing Trustee and serves as Managing Trustee of HRP, HPT and GOV. Frederick Zeytoonjian is an Independent Trustee of both us and HRP.

We, RMR and other companies to which RMR provides management services formed AIC, which is an insurance company, in the State of Indiana in November 2008. AIC received its certificate of authority to transact insurance business in the State of Indiana from the Indiana Department of Insurance in May 2009. All of our Trustees currently serve on the Board of Directors of AIC. RMR, in addition to being a shareholder, entered a management agreement with AIC pursuant to which RMR provides AIC certain management and administrative services. In addition, AIC entered an investment advisory agreement with RMR Advisors Inc., or RMR Advisors, pursuant to which RMR Advisors acts as AIC’s investment advisor. The same persons who own and control RMR, including Messrs. Barry and Adam Portnoy, our Managing Trustees, own and control RMR Advisors. Our Governance Guidelines provide that any material transaction between us and AIC shall be reviewed, authorized and approved or ratified by both the affirmative vote of a majority of our entire Board and the affirmative vote of a majority of our Independent Trustees. As of February 19, 2010, we have invested $5.2 million in AIC. On December 16, 2009, GOV purchased 20,000 shares of AIC from AIC, which represented a 14.29% interest in AIC.

In connection with that purchase by GOV, we, the other previous shareholders of AIC, AIC and GOV entered an amended and restated shareholders agreement. The amended and restated shareholders agreement also includes arbitration provisions for the resolution of certain disputes, claims and controversies. We and the other shareholders of AIC each currently own approximately 14.29% of AIC. We may invest additional amounts in AIC in the future if the expansion of this insurance business requires additional capital, but we are not obligated to do so. Over time we expect to obtain some or all of our insurance coverage from AIC. By participating in this insurance business with RMR and the other companies to which RMR provides management services, we expect that we may benefit financially by possibly reducing our insurance expenses and/or by realizing our pro-rata share of any profits of this insurance business. All transactions between us and AIC have been approved pursuant to our Governance Guidelines.

The foregoing descriptions of our agreements with HRP, Five Star, RMR and AIC are summaries and are qualified in their entirety by the terms of the agreements which are among the exhibits listed in Item 15 of this Annual Report on Form 10-K and incorporated herein by reference. In addition, copies of those agreements are filed with the SEC and may be obtained from the SEC’s website at www.sec.gov.

We believe that our agreements with HRP, Five Star, RMR and AIC are on commercially reasonable terms. We also believe that our relationships with HRP, Five Star, RMR and AIC benefit us, and, in fact, provide us with competitive advantages in operating and growing our business. Nonetheless, because of our various relationships with HRP, Five Star, RMR and AIC it is possible that some investors may assert otherwise.

“Related Person Transactions and Company Review of Such Transactions” appearing in Senior Housing’s Proxy Statement on Schedule 14A dated February 22, 2010 relating to its 2010 Annual Meeting of Shareholders, filed with the SEC on February 22, 2010.

We have adopted written Governance Guidelines which address, among other things, the consideration and approval of any related person transactions. Under these Governance Guidelines, we may not enter into any transaction in which any Trustee or executive officer, any member of the immediate family of any Trustee or executive officer or any other related person, has or will have a direct or indirect material interest unless that transaction has been disclosed or made known to our Board and our Board reviews, authorizes, approves or ratifies the transaction by the affirmative vote of a majority of the disinterested Trustees, even if the disinterested Trustees constitute less than a quorum. If there are no disinterested Trustees, the transaction shall be reviewed, authorized and approved or ratified by both (1) the affirmative vote of a majority of our entire Board and (2) the affirmative vote of a majority of our Independent Trustees. The Governance Guidelines further provide that, in determining whether to approve or ratify a transaction, our Board, or disinterested or Independent Trustees, as the case may be, shall act in accordance with any applicable provisions of our declaration of trust, consider all of the relevant facts and circumstances, and approve only those transactions that are fair and reasonable to us. All related person transactions described below were reviewed and approved or ratified by a majority of the disinterested Trustees or otherwise in accordance with our policies described above.

Since January 1, 2009, we have had several transactions with Five Star including:

rehabilitation hospitals. Lease No. 3 expires in 2028 and now includes the 28 FNMA financed properties, including independent living communities and assisted living communities. Lease No. 4 expires in 2017 and now includes 26 properties (including one property acquired in the fourth quarter of 2009), including independent living communities, assisted living communities and skilled nursing facilities. 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 were reconfigured as described above, (2) we acquired certain personal property located at the Properties, from subsidiaries of Five Star and pledged that personal property to FNMA, (3) we purchased 3,200,000 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 its 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 $2.0 million per year; (2) we paid Five Star $18.6 million; and (3) we reimbursed Five Star for its out of pocket expenses incurred in connection with the negotiation and closing of this transaction. Five Star also has granted certain registration rights to us with regard to its shares we acquired and our future transfer of those shares is subject to certain restrictions.

$558.2 million, excluding closing costs. Our purchase agreements with HRP include arbitration provisions for the resolution of certain disputes, claims and controversies.

We have two agreements with RMR to provide management and administrative services to us: a business management agreement and a property management agreement. The business management agreement provides for compensation to RMR at an annual rate equal to the sum of (a) 0.5% of the average book value of the assets owned by us or our subsidiaries as of October 12, 1999, and (b) 0.7% of the average historical cost of our other real estate investments, as described in the business management agreement, up to the first $250.0 million of such investments, and 0.5% thereafter. In addition, RMR receives an incentive fee based upon increases in our FFO Per Share, as defined in the business management agreement. The incentive fee is paid in our common shares. The property management agreement provides for management fees on our MOB properties equal to 3.0% of gross rents and construction management fees on those properties equal to 5.0% of certain construction costs. Both the business management agreement and the property management agreement are effective until December 31, 2010, and will be automatically renewed for successive one year terms thereafter unless we or RMR give notice of non-renewal before the end of an applicable term. We or RMR may terminate either agreement upon 60 days prior written notice. RMR may also terminate the property management agreement upon five business days notice if we undergo a change of control, as defined in the property management agreement. Our Board has given our Compensation Committee, which is comprised of our Independent Trustees, authority to act on our behalf with respect to these agreements. The charter of the Compensation Committee requires the Committee to review the terms of the agreements and evaluate RMR’s performance under the agreements annually. The aggregate business management and property management fees we paid RMR for 2009 were $17.2 million, including $550,000 as an incentive fee which we expect to be paid in our common shares in March 2010. We are generally responsible for all of our operating expenses, including certain expenses incurred by RMR on our behalf. We are not responsible for payment of RMR’s employment, office or administration expenses incurred to provide management services to us, except for our pro rata portion of the employment and related expenses of RMR employees who provide on site property management services and of the staff employed by RMR who conduct our internal audit. Under our business management agreement with RMR, we acknowledge that RMR manages other businesses, including HRP, HPT, GOV, TA and Five Star, and will not be required to present us with opportunities to invest in properties that are primarily of a type that are within the investment focus of another business now or in the future managed by RMR. Under our business management agreement, RMR has also agreed not to provide business management services to any other REIT which is principally engaged in the business of owning senior apartments, congregate communities, assisted living facilities, nursing homes or MOBs, without the consent of a majority of our Independent Trustees. Each of the business management agreement and the property management agreement also includes arbitration provisions for the resolution of certain disputes, claims and controversies. Any termination of our business management agreement with RMR would cause a default under our revolving credit facility, if not approved by a majority of our lenders. RMR also provides the internal audit function for us and for other publicly owned companies to which it provides management services. Our Audit Committee appoints our Director of Internal Audit, and our Compensation Committee approves his salary and the costs we pay with respect to our internal audit function. Our pro rata share of RMR’s costs in providing that function was $220,000 in 2009.

Messrs. Barry M. Portnoy and his son Adam D. Portnoy beneficially own RMR and are our Managing Trustees. Barry Portnoy is the Chairman of RMR; Adam Portnoy is the President, Chief Executive Officer and a director of RMR. Each of our executive officers is also an officer of RMR. Additionally, Mr. Barry Portnoy’s son-in-law, who is Mr. Adam Portnoy’s brother-in-law, is an officer of RMR. Transactions between us and RMR are approved by our Compensation Committee which is comprised of Independent Trustees.

We, RMR and other companies to which RMR provides management services formed Affiliates Insurance Company, or Affiliates Insurance, which is an insurance company, in the State of Indiana in November 2008. Affiliates Insurance received its certificate of authority to transact insurance business in the State of Indiana from the Indiana Department of Insurance in May 2009. All of our Trustees currently serve on the board of directors of Affiliates Insurance. RMR, in addition to being a shareholder, entered a management agreement with Affiliates Insurance pursuant to which RMR provides Affiliates Insurance certain management and administrative services. In addition, Affiliates Insurance entered an investment advisory agreement with RMR Advisors pursuant to which RMR Advisors acts as Affiliates Insurance’s investment advisor. The same persons who own and control RMR, including Messrs. Barry and Adam Portnoy, our Managing Trustees, own and control RMR Advisors. Our Governance Guidelines provide that any material transaction between us and Affiliates Insurance shall be reviewed, authorized and approved or ratified by both the affirmative vote of a majority of our entire Board and the affirmative vote of a majority of our Independent Trustees. As of the date of this proxy statement, we have invested $5.2 million in Affiliates Insurance. On December 16, 2009, GOV purchased 20,000 shares of Affiliates Insurance from Affiliates Insurance, which represented a 14.29% interest in Affiliates Insurance. In connection with that purchase by GOV, we, the other previous shareholders of Affiliates Insurance, Affiliates Insurance and GOV entered an amended and restated shareholders agreement. The amended and restated shareholders agreement also includes arbitration provisions for the resolution of certain disputes, claims and controversies. We and the other shareholders of Affiliates Insurance each currently own approximately 14.29% of Affiliates Insurance. We may invest additional amounts in Affiliates Insurance in the future if the expansion of this insurance business requires additional capital, but we are not obligated to do so. Over time we expect to obtain some or all of our insurance coverage from Affiliates Insurance. By participating in this insurance business with RMR and the other companies to which RMR provides management services, we expect that we may benefit financially by possibly reducing our insurance expenses and/or by realizing our pro-rata share of any profits of this insurance business. All transactions between us and Affiliates Insurance have been approved pursuant to our Governance Guidelines.

The foregoing descriptions of our agreements with HRP, Five Star, RMR and Affiliates Insurance are summaries and are qualified in their entirety by the terms of the agreements. A further description of the terms of those agreements is included in our annual report to shareholders and our Annual Report on Form 10-K filed with the SEC, in each case for the year ended December 31, 2009. In addition, copies of those agreements are filed with the SEC and may be obtained from the SEC’s website at www.sec.gov.

We believe that our agreements with HRP, Five Star, RMR and Affiliates Insurance are on commercially reasonable terms. We also believe that our relationships with HRP, Five Star, RMR and Affiliates Insurance benefit us, and, in fact, provide us with competitive advantages in operating and growing our business. Nonetheless, because of our various relationships with HRP, Five Star, RMR and Affiliates Insurance it is possible that some investors may assert otherwise.

Item 1.01 appearing in Senior Housing’s Current Report on Form 8-K filed with the SEC on January 13, 2010.

Business Management Agreement

On January 7, 2010, Senior Housing Properties Trust, or the Trust, entered into a business management agreement with Reit Management & Research LLC, or Reit Management, and certain individuals who are the current or former owners of Reit Management (Barry M. Portnoy, Gerard M. Martin and Adam D. Portnoy), which

agreement amended and restated the prior amended and restated agreement between the Trust, Reit Management and those individuals.

Under the business management agreement, the Trust continues to engage Reit Management to provide the Trust with business management services substantially consistent with the business management services provided to the Trust by Reit Management historically. The fees payable by the Trust to Reit Management under the business management agreement continue to be determined in a manner consistent with past determinations under the prior agreement.

The business management agreement provides that none of Reit Management, Barry M. Portnoy, Gerard M. Martin or Adam D. Portnoy shall provide management services to, make competitive direct investment in or, in the case of Barry M. Portnoy, Gerard M. Martin and Adam D. Portnoy, serve as a director or officer of, any other real estate investment trust which is principally engaged in the business of ownership of specified types of senior living and health care related properties without the consent of a majority of the Independent Trustees of the Trust. Under the business management agreement, Reit Management is not required to present the Trust with opportunities to invest in properties that are primarily of a type that are the investment focus of another person or entity now or in the future managed by Reit Management.

The term of the business management agreement expires on December 31, 2010, and automatically renews for successive one year terms annually thereafter unless notice of non-renewal is given by the Trust or Reit Management before the end of an applicable term. Either party may terminate the business management agreement upon 60 days prior written notice.

The business management agreement includes arbitration provisions for the resolution of certain disputes, claims and controversies and provides that neither party may assign the business management agreement without the written consent of the other party, except that Reit Management may assign the business management agreement to certain successors which remain under the control of one or more persons who controlled the operations of Reit Management immediately prior to the assignment.

The terms of the business management agreement described above were reviewed, approved and adopted by the compensation committee of the board of trustees of the Trust, which is comprised solely of Independent Trustees.

The foregoing description of the business management agreement is not complete and is subject to and qualified in its entirety by reference to the business management agreement, a copy of which is attached as Exhibit 10.1 and is incorporated herein by reference.

Property Management Agreement

Also on January 7, 2010, the Trust entered into an amended and restated property management agreement with Reit Management, which agreement amended and restated the prior property management agreement between the Trust and Reit Management.

Under the property management agreement, the Trust continues to engage Reit Management to provide the Trust and its applicable subsidiaries which own certain properties that are subject to the agreement with property management services substantially consistent with the property management services provided to the Trust by Reit Management historically. The fees payable by the Trust to Reit Management under the property management agreement continue to be determined in a manner consistent with past determinations under the prior agreement.

The term of the property management agreement expires on December 31, 2010, and automatically renews for successive one year terms annually thereafter unless notice of non-renewal is given by the Trust or Reit Management before the end of an applicable term. Either party may terminate the property management agreement upon 60 days prior written notice, and Reit Management may terminate the property management agreement upon five business days notice if the Trust undergoes a change of control, as determined under the property management agreement. The property management agreement may also be terminated with respect to less than all of the properties comprising the managed premises to accommodate any sales of properties.

The property management agreement includes arbitration provisions for the resolution of certain disputes, claims and controversies and generally restricts a party’s ability to assign the property management agreement without the written consent of the other party, except that Reit Management may assign the property management agreement to certain successors which remain under the control of one or more persons who controlled the operations of Reit Management immediately prior to the assignment and the Trust and its applicable subsidiaries may assign its rights and obligations under the agreement to a mortgagee with respect to, or certain successor owners of, the managed premises.

Under the property management agreement, unless the Trust, its applicable subsidiaries and Reit Management otherwise agree in writing, all properties of the type covered by the property management agreement from time to time acquired by the Trust or its applicable subsidiaries or their respective affiliates automatically become subject to the property management agreement.

The terms of the property management agreement described above were reviewed, approved and adopted by the compensation committee of the board of trustees of the Trust, which is comprised solely of Independent Trustees.

The foregoing description of the property management agreement is not complete and is subject to and qualified in its entirety by reference to the property management agreement, a copy of which is attached as Exhibit 10.2 and is incorporated herein by reference.

Information Regarding Certain Relationships and Related Transactions

One of the Trust’s Managing Trustees, Barry M. Portnoy, is the Chairman and majority owner of Reit Management. The Trust’s other Managing Trustee, Adam D. Portnoy, owns the remainder of Reit Management and is a director, President and Chief Executive Officer of Reit Management. Gerard M. Martin is a former owner and current director of Reit Management. The Trust’s executive officers are also officers of Reit Management.

The Trust currently owns approximately 14.29% of the outstanding equity of Affiliates Insurance Company, or Affiliates Insurance. The other shareholders of Affiliates Insurance are Reit Management and five other companies to which Reit Management provides management services, and all of the Trust’s trustees are also directors of Affiliates Insurance. Reit Management provides certain management and administrative services to Affiliates Insurance, and an affiliate of Reit Management, RMR Advisors, Inc., acts as Affiliates Insurance’s investment adviser.

The Trust understands that the other companies to which Reit Management provides management services also have certain other relationships with each other, including business and property management agreements and lease arrangements. In addition, officers of Reit Management serve as officers of those companies. The Trust understands that further information regarding those relationships is provided in the applicable periodic reports and proxy statements filed by those other companies with the Securities and Exchange Commission. Barry M. Portnoy is a managing trustee or managing director of each of the other publicly traded companies to which Reit Management provides management services, including Five Star Quality Care, Inc., or Five Star, a tenant of the Trust. Gerard M. Martin is also a managing director of Five Star. Adam D. Portnoy is also a managing trustee or managing director of some of those other companies, but he is not a director of Five Star. In addition, the Trust’s Independent Trustees also serve as directors or trustees of certain of those other companies.

Five Star was formerly a 100% owned subsidiary of the Trust until its spin off from the Trust in 2001. The Trust has numerous continuing relationships with Five Star, including lease arrangements and other commercial arrangements. Five Star currently is the Trust’s principal tenant and the Trust is a significant shareholder of Five Star. Reit Management provides management services to Five Star.

The Trust was formerly a 100% owned subsidiary of HRPT Properties Trust until the Trust’s spin off from HRPT Properties Trust in 1999. Barry M. Portnoy and Adam D. Portnoy are also managing trustees of HRPT Properties Trust. One of the Trust’s Independent Trustees, Frederick N. Zeytoonjian, is also an independent trustee of HRPT Properties Trust. The Trust has in the past engaged in transactions with HRPT Properties Trust since its

spin off, including purchases of properties, which have been previously reported by the Trust. Reit Management provides management services to HRPT Properties Trust.

For further information regarding certain relationships and related transactions with respect to the Trust, its trustees and officers, and Reit Management, please refer to the Trust’s filings with the Securities and Exchange Commission, including the Trust’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (including the sections captioned “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Related Person Transactions”), Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009 (including the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Related Persons Transactions”), and Proxy Statement for the 2009 annual meeting of shareholders of the Trust (including the section captioned “Related Person Transactions and Company Review of Such Transactions”).

“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Related Person Transactions” appearing in Senior Housing’s Quarterly Report on Form 10-Q for its fiscal quarter ended March 31, 2010, filed with the SEC on May 5, 2010.

Five Star is our largest tenant and it is our former subsidiary. We beneficially own more than 9% of Five Star’s common shares. RMR provides management services to both us and Five Star. Five Star pays us rent based on minimum annual rent amounts plus percentage rent based on increases in gross revenues at certain properties. As of March 31, 2010, we leased 190 senior living communities and two rehabilitation hospitals to Five Star. During the three months ended March 31, 2010, we purchased $6.2 million of improvements made to our properties that are leased to Five Star. We used cash on hand to fund this purchase. As a result of this purchase, the annual rent payable to us by Five Star increased by approximately $495,000. Five Star’s total minimum annual rent payable to us under those leases as of March 31, 2010 was $184.9 million, excluding percentage rent based on increases in gross revenues at certain properties. Additional information regarding our leases with Five Star appears in Item 1 of our Annual Report under the captions “Business — Tenants” and “Business — Lease Terms”.

RMR continues to provide both business and property management services to us under a business management agreement and a property management agreement, each as amended in January, 2010. Under the terms of our business management agreement with RMR, on March 25, 2010, we issued 25,142 common shares to RMR in payment of an incentive fee for services rendered by RMR during 2009. During the three months ended March 31, 2010, we invested an additional $20,182 in Affiliates Insurance Company, or Affiliates Insurance, concurrently with RMR and other companies to which RMR provides management services.

For more information about our related person transactions, including our dealings with Five Star, Affiliates Insurance, RMR, our Managing Trustees 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 and our other filings made with the Securities and Exchange Commission, or SEC, and in particular, the sections captioned “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Related Person Transactions” in the Annual Report and the section captioned “Related Person Transactions and Company Review of Such Transactions” in our Proxy Statement dated February 22, 2010 relating to our 2010 Annual Meeting of Shareholders and Item 1.01 in our Current Report on Form 8-K filed with the SEC on January 13, 2010.

EX-99.3 4 a10-10186_1ex99d3.htm EX-99.3

Exhibit 99.3

May 12, 2010

TO:		The Board of Directors
		Five Star Quality Care, Inc.

FROM:		The Board of Trustees
		Senior Housing Properties Trust

The purpose of this letter is to begin a dialogue between Five Star Quality Care, Inc. (“FVE”) and Senior Housing Properties Trust (“SNH”).

As you know, FVE was formerly a 100% owned subsidiary of SNH which was distributed to SNH shareholders on December 31, 2001. The primary motivation for this distribution was the laws which then made it impossible for a real estate investment trust (a “REIT”) to have the profits and losses of health care property operations. For tax years beginning in 2009, these laws were changed to permit REITs to receive the financial results of health care facilities’ operations, as well as rents from those operations, provided these results are received by a taxable REIT subsidiary (a “TRS”).

Also, as you know, the Patient Protection and Affordable Care Act has recently been enacted. We believe this new law will significantly change the marketplace for healthcare services such as those provided at properties owned by SNH which are leased by FVE, including possible reduced payment rates for Medicare and Medicaid services.

Because of the aforesaid tax law changes and because of the uncertainties created by recent changes in the market for healthcare services, including expected Medicare and Medicaid rate changes, we believe now may be the right time for SNH and FVE to consider (i) changing one or more of the existing leases between SNH (as lessor) and FVE (as lessee) to a management arrangement between an SNH owned TRS and FVE, (ii) possibly combining FVE into a SNH owned TRS, or (iii) taking other actions to change the contractual arrangements between SNH and FVE.

We request that the FVE Board consider appointing a committee of FVE Independent Directors to meet with a committee of the SNH’s Independent Trustees to consider these matters further.

We look forward to your response.

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