10-Q 1 snh_033119x10qxdocument.htm 10-Q Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC  20549 
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended March 31, 2019  
OR 
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.)
 
Two Newton Place, 255 Washington Street, Suite 300, Newton, MA 02458-1634
(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 ☒  No ☐ 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  Yes ☒  No ☐ 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filer ☒
 
Accelerated filer ☐
Non-accelerated filer ☐
 
Smaller reporting company ☐
Emerging growth company ☐
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No ☒ 
Securities registered pursuant to Section 12(b) of the Act:
Title Of Each Class
Trading Symbols(s)
Name Of Each Exchange On Which Registered
Common Shares of Beneficial Interest
SNH
The Nasdaq Stock Market LLC
5.625% Senior Notes due 2042
SNHNI
The Nasdaq Stock Market LLC
6.25% Senior Notes due 2046
SNHNL
The Nasdaq Stock Market LLC
Number of registrant’s common shares outstanding as of May 8, 2019: 237,726,371




SENIOR HOUSING PROPERTIES TRUST
FORM 10-Q
 
March 31, 2019
 
INDEX
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
References in this Quarterly Report on Form 10-Q to the Company, we, us or our include Senior Housing Properties Trust and its consolidated subsidiaries unless otherwise expressly stated or the context indicates otherwise.




PART I.  Financial Information
 
Item 1.  Financial Statements.
 
SENIOR HOUSING PROPERTIES TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
(unaudited)
 
 
 
March 31,
 
December 31,
 
 
2019
 
2018
ASSETS
 
 

 
 

Real estate properties:
 
 

 
 

Land
 
$
837,575

 
$
844,567

Buildings and improvements
 
7,022,101

 
7,031,733

Total real estate properties, gross
 
7,859,676

 
7,876,300

Accumulated depreciation
 
(1,560,690
)
 
(1,534,392
)
Total real estate properties, net
 
6,298,986

 
6,341,908

 
 
 
 
 
Cash and cash equivalents
 
39,875

 
54,976

Restricted cash
 
14,877

 
15,095

Acquired real estate leases and other intangible assets, net
 
401,209

 
419,244

Other assets, net
 
390,953

 
329,203

Total assets
 
$
7,145,900

 
$
7,160,426

 
 
 
 
 
LIABILITIES AND EQUITY
 
 

 
 

Unsecured revolving credit facility
 
$
225,000

 
$
139,000

Unsecured term loans, net
 
548,493

 
548,286

Senior unsecured notes, net
 
2,217,989

 
2,216,945

Secured debt and capital leases, net
 
742,883

 
744,186

Accrued interest
 
35,241

 
26,182

Assumed real estate lease obligations, net
 
83,919

 
86,304

Other liabilities
 
178,937

 
219,653

Total liabilities
 
4,032,462

 
3,980,556

 
 
 
 
 
Commitments and contingencies
 


 


 
 
 
 
 
Equity:
 
 

 
 

Equity attributable to common shareholders:
 
 
 
 
Common shares of beneficial interest, $.01 par value: 300,000,000 shares authorized, 237,729,900 shares issued and outstanding at March 31, 2019 and December 31, 2018
 
2,377

 
2,377

Additional paid in capital
 
4,611,634

 
4,611,419

Cumulative net income
 
2,170,878

 
2,140,796

Cumulative other comprehensive loss
 
(200
)
 
(266
)
Cumulative distributions
 
(3,823,928
)
 
(3,731,214
)
Total equity attributable to common shareholders
 
2,960,761

 
3,023,112

Noncontrolling interest:
 
 
 
 
Total equity attributable to noncontrolling interest
 
152,677

 
156,758

Total equity
 
3,113,438

 
3,179,870

Total liabilities and equity
 
$
7,145,900

 
$
7,160,426

 See accompanying notes.

1


SENIOR HOUSING PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(amounts in thousands, except per share data)
(unaudited)
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Revenues:
 
 

 
 

Rental income
 
$
158,241

 
$
173,728

Residents fees and services
 
108,045

 
102,042

Total revenues
 
266,286

 
275,770

 
 
 
 
 
Expenses:
 
 

 
 

Property operating expenses
 
117,222

 
108,098

Depreciation and amortization
 
72,230

 
70,339

General and administrative
 
9,816

 
25,118

Acquisition and certain other transaction related costs
 
7,814

 
20

Impairment of assets
 
6,206

 

Total expenses
 
213,288

 
203,575

 
 
 
 
 
(Loss) gain on sale of properties
 
(122
)
 
181,154

Dividend income
 
923

 
659

Unrealized gains and losses on equity securities, net
 
22,932

 
27,241

Interest and other income
 
114

 
54

Interest expense (including net amortization of debt premiums, discounts and issuance costs of $1,652 and $1,411, respectively)
 
(45,611
)
 
(43,552
)
Loss on early extinguishment of debt
 

 
(130
)
Income from continuing operations before income tax expense and equity in earnings of an investee
 
31,234

 
237,621

Income tax expense
 
(134
)
 
(260
)
Equity in earnings of an investee
 
404

 
44

Net income
 
31,504

 
237,405

Net income attributable to noncontrolling interest
 
(1,422
)
 
(1,383
)
Net income attributable to common shareholders
 
$
30,082

 
$
236,022

 
 
 
 
 
Other comprehensive income:
 
 

 
 

Equity in unrealized gain (loss) of an investee
 
66

 
(93
)
Other comprehensive income (loss)
 
66

 
(93
)
Comprehensive income
 
31,570

 
237,312

Comprehensive income attributable to noncontrolling interest
 
(1,422
)
 
(1,383
)
Comprehensive income attributable to common shareholders
 
$
30,148

 
$
235,929

 
 
 
 
 
Weighted average common shares outstanding (basic)
 
237,568

 
237,478

Weighted average common shares outstanding (diluted)
 
237,600

 
237,493

 
 
 
 
 
Per common share amounts (basic and diluted):
 
 

 
 

Net income attributable to common shareholders
 
$
0.13

 
$
0.99

 
See accompanying notes.

2


SENIOR HOUSING PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(amounts in thousands, except per share data)
(unaudited)
 
 
Number of
Shares
 
Common
Shares
 
Additional
Paid-in
Capital
 
Cumulative
Net Income
 
Cumulative Other
Comprehensive
Income (Loss)
 
Cumulative Distributions
 
Total Equity Attributable to Common Shareholders
 
Total Equity Attributable to Noncontrolling
Interest
 
Total Equity
Balance at December 31, 2018:
 
237,729,900

 
$
2,377

 
$
4,611,419

 
$
2,140,796

 
$
(266
)
 
$
(3,731,214
)
 
$
3,023,112

 
$
156,758

 
$
3,179,870

Comprehensive income (loss)
 

 

 

 
30,082

 
66

 

 
30,148

 
1,422

 
31,570

Distributions
 

 

 

 

 

 
(92,714
)
 
(92,714
)
 

 
(92,714
)
Share grants
 

 

 
215

 

 

 

 
215

 

 
215

Distributions to noncontrolling interest
 

 

 

 

 

 

 

 
(5,503
)
 
(5,503
)
Balance at March 31, 2019:
 
237,729,900

 
$
2,377

 
$
4,611,634

 
$
2,170,878

 
$
(200
)
 
$
(3,823,928
)
 
$
2,960,761

 
$
152,677

 
$
3,113,438

 
 


 


 


 


 


 


 


 


 


Balance at December 31, 2017:
 
237,630,409

 
$
2,376

 
$
4,609,316

 
$
1,766,495

 
$
87,231

 
$
(3,360,468
)
 
$
3,104,950

 
$
172,238

 
$
3,277,188

Cumulative adjustment upon adoption of ASU No. 2016-01
 

 

 

 
87,429

 
(87,429
)
 

 

 

 

Balance at January 1, 2018:
 
237,630,409

 
2,376

 
4,609,316

 
1,853,924

 
(198
)
 
(3,360,468
)
 
3,104,950

 
172,238

 
3,277,188

Comprehensive income (loss)
 

 

 

 
236,022

 
(93
)
 

 
235,929

 
1,383

 
237,312

Distributions
 

 

 

 

 

 
(92,674
)
 
(92,674
)
 

 
(92,674
)
Share grants
 
3,000

 

 
47

 

 

 

 
47

 

 
47

Share repurchases
 
(4,628
)
 

 
(89
)
 

 

 

 
(89
)
 

 
(89
)
Distributions to noncontrolling interest
 

 

 

 

 

 

 

 
(5,667
)
 
(5,667
)
Balance at March 31, 2018:
 
237,628,781

 
$
2,376

 
$
4,609,274

 
$
2,089,946

 
$
(291
)
 
$
(3,453,142
)
 
$
3,248,163

 
$
167,954

 
$
3,416,117



3


SENIOR HOUSING PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Cash flows from operating activities:
 
 

 
 

Net income
 
$
31,504

 
$
237,405

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

 
 

Depreciation and amortization
 
72,230

 
70,339

Amortization of debt issuance costs and debt discounts and premiums
 
1,652

 
1,411

Straight line rental income
 
(1,934
)
 
(2,993
)
Amortization of acquired real estate leases and other intangible assets
 
(1,525
)
 
(1,381
)
Loss on early extinguishment of debt
 

 
130

Impairment of assets
 
6,206

 

Loss (gain) on sale of properties
 
122

 
(181,154
)
Unrealized gains and losses on equity securities, net
 
(22,932
)
 
(27,241
)
Other non-cash adjustments
 
(943
)
 
(943
)
Equity in earnings of an investee
 
(404
)
 
(44
)
Change in assets and liabilities:
 
 

 
 

Other assets
 
(5,862
)
 
3,097

Accrued interest
 
9,059

 
17,088

Other liabilities
 
(45,658
)
 
(31,680
)
Net cash provided by operating activities
 
41,515

 
84,034

 
 
 
 
 
Cash flows from investing activities:
 
 

 
 

Real estate acquisitions and deposits
 

 
(122,221
)
Real estate improvements
 
(46,237
)
 
(13,443
)
Proceeds from sale of properties
 
2,929

 
216,013

Net cash (used in) provided by investing activities
 
(43,308
)
 
80,349

 
 
 
 
 
Cash flows from financing activities:
 
 

 
 

Proceeds from issuance of senior unsecured notes, net
 

 
491,560

Proceeds from borrowings on revolving credit facility
 
178,000

 
316,000

Repayments of borrowings on revolving credit facility
 
(92,000
)
 
(857,000
)
Repayment of other debt
 
(1,309
)
 
(6,166
)
Loss on early extinguishment of debt settled in cash
 

 
(130
)
Payment of debt issuance costs
 

 
(4,296
)
Repurchase of common shares
 

 
(90
)
Distributions to noncontrolling interest
 
(5,503
)
 
(5,667
)
Distributions to shareholders
 
(92,714
)
 
(92,674
)
Net cash used in financing activities
 
(13,526
)
 
(158,463
)
 
 
 
 
 
(Decrease) increase in cash and cash equivalents and restricted cash
 
(15,319
)
 
5,920

Cash and cash equivalents and restricted cash at beginning of period
 
70,071

 
47,321

Cash and cash equivalents and restricted cash at end of period
 
$
54,752

 
$
53,241

 
 
 
 
 

See accompanying notes.

4


SENIOR HOUSING PROPERTIES TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(amounts in thousands)
(unaudited)
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Supplemental cash flows information:
 
 
 
 
Interest paid
 
$
35,034

 
$
25,053

Income taxes paid
 
$
31

 
$

 
 
 
 
 
Non-cash investing activities:
 
 
 
 
Acquisitions funded by assumed debt
 
$

 
$
(27,798
)
 
 
 
 
 
Non-cash financing activities:
 
 
 
 
Assumption of mortgage notes payable
 
$

 
$
27,798

Supplemental disclosure of cash and cash equivalents and restricted cash:
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amount shown in the condensed consolidated statements of cash flows:
 
 
As of March 31,
 
 
2019
 
2018
Cash and cash equivalents
 
$
39,875

 
$
39,161

Restricted cash (1)
 
14,877

 
14,080

Total cash and cash equivalents and restricted cash shown in the statements of cash flows
 
$
54,752

 
$
53,241

(1) Restricted cash consists of amounts escrowed for real estate taxes, insurance and capital expenditures at certain of our mortgaged properties, security deposits for residents of our managed senior living communities and cash held for the operations of our joint venture MOB.

See accompanying notes.



5

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 we, us, or our, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, 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, 2018, or our Annual Report.  
In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included. All intercompany transactions and balances with or among 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.

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in our condensed consolidated financial statements include purchase price allocations, useful lives of fixed assets and impairment of real estate and intangible assets. We have made reclassifications to the financial statements of prior periods to conform to the current period presentation. These reclassifications had no effect on net income or equity.
We have a joint venture arrangement with a sovereign investor for one of our properties (two buildings) leased to medical providers, medical related business, clinics and biotech laboratory tenants, or MOBs, located in Boston, Massachusetts. The investor owns a 45% equity interest in the joint venture, and we own the remaining 55% equity interest in the joint venture. We have determined that this joint venture is a variable interest entity, or VIE, as defined under the Consolidation Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification. We concluded that we must consolidate this VIE because we have the power to direct the activities that most significantly impact the VIE’s economic performance and we have the obligation to absorb losses of, and the right to receive benefits from, the VIE that could be significant to the VIE, and therefore are the primary beneficiary of the VIE. The assets of this VIE were $1,050,254 and $1,061,593 as of March 31, 2019 and December 31, 2018, respectively, and consist primarily of the net real estate owned by the joint venture. The liabilities of this VIE were $711,792 and $714,226 as of March 31, 2019 and December 31, 2018, respectively, and consist primarily of the debt securing the property. The sovereign investor's interest in this consolidated entity is reflected as noncontrolling interest in our condensed consolidated financial statements. See Note 6 for further information about this joint venture.
Note 2.  Recent Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update, or ASU, No. 2016-02, Leases. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. In December 2018, the FASB issued ASU No. 2018-20 Leases (Topic 842), Narrow-Scope Improvements for Lessors. Collectively, these standards set out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). ASU No. 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease. ASU No. 2016-02 requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales type leases, direct financing leases and operating leases. These standards were effective as of January 1, 2019. Upon adoption, we applied the package of practical expedients that has allowed us to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases and (iii) initial direct costs for any expired or existing leases. Furthermore, we applied the optional transition method in ASU No. 2018-11, which has allowed us to initially apply the new leases standard at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the adoption period, although we did not have an adjustment. Additionally, our leases met the criteria in ASU No. 2018-11 to not separate non-lease components from the related lease component; therefore, the accounting for these leases remained largely unchanged from the previous standard. The adoption of ASU No. 2016-02 and the related improvements did not have a material impact in our condensed consolidated financial statements. Upon adoption, (i) allowances for bad debts are now recognized as a direct reduction of rental income, and (ii) legal costs associated with the execution of our leases, which were previously capitalized and amortized over the life of their respective leases, are expensed as

6

SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)

incurred. Subsequent to January 1, 2019, provisions for credit losses are now included in rental income in our condensed consolidated financial statements. Provisions for credit losses prior to January 1, 2019 were previously included in property operating expenses in our condensed consolidated financial statements and prior periods are not reclassified to conform to the current presentation. We completed our assessment of predominance as it relates to our contracts with residents for housing services at properties leased to our taxable REIT subsidiaries, or TRSs, and have recognized revenue from these properties under ASC 606, which did not have any impact to the timing or amount of our revenue recognized.
For leases in which we are the lessee, we recognized a right of use asset and a lease liability equal to the present value of the minimum lease payments with rental payments being applied to the lease liability and the right of use asset being amortized over the term of the lease. The adoption of this standard resulted in an increase in total assets and liabilities of $4,507. The right of use asset and related lease liability are included within other assets, net and other liabilities, respectively, within our condensed consolidated balance sheets. In addition, we lease equipment at certain of our managed senior living communities. These leases are short term in nature, are cancelable with no fee or do not result in an annual expense in excess of our capitalization policy and, as a result, will not be recorded on our condensed consolidated balance sheets.
The adoption of ASU No. 2016-02 and the related ASU improvements did not have a material impact in our condensed consolidated financial statements.
Revenue Recognition. We are a lessor of MOBs, senior living communities and wellness centers. Our leases provide our tenants with the contractual right to use and economically benefit from all of the premises demised under the leases; therefore, we have determined to evaluate our leases as lease arrangements.
Certain of our leases provide for base rent payments and in addition may include variable payments. Rental income from operating leases, including any payments derived by index or market based indices, is recognized on a straight line basis over the lease term when we have determined that the collectability of substantially all of the lease payments is probable. Some of our leases have options to extend or terminate the lease exercisable at the option of our tenants, which are considered when determining the lease term. We do not include in our measurement of our lease receivables certain variable payments, including changes in the index or market based indices after the inception of the lease, certain tenant reimbursements and other income until the specific events that trigger the variable payments have occurred. Such payments totaled $18,845 for the three months ended March 31, 2019.
Certain of our leases contain non-lease components, such as property level operating expenses and capital expenditures reimbursed by our tenants as well as other required lease payments. We have determined that all of our leases qualify for the practical expedient to not separate the lease and non-lease components because (i) the lease components are operating leases and (ii) the timing and pattern of recognition of the non-lease components are the same as those of the lease components. We apply Accounting Standards Codification Topic 842, Leases, to the combined component. Income derived by our leases is recorded in rental income in our condensed consolidated statements of comprehensive income.
Certain tenants are obligated to pay directly their obligations under their leases for insurance, real estate taxes and certain other expenses. These obligations, which have been assumed by the tenants under the terms of their respective leases, are not reflected in our condensed consolidated financial statements. To the extent any tenant responsible for any such obligations under the applicable lease defaults on such lease or if it is deemed probable that the tenant will fail to pay for such obligations, we would record a liability for such obligations.

7

SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)

The following table presents our operating lease maturity analysis as of March 31, 2019:
Year
 
Amount
2019
 
$
373,701

2020
 
347,718

2021
 
324,230

2022
 
302,712

2023
 
279,407

Thereafter
 
1,105,830

Total
 
$
2,733,598

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that entities use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. We are currently assessing the potential impact the adoption of ASU No. 2016-13 will have in our condensed consolidated financial statements although lease related receivables are governed by the lease standards referred to above and are not subject to ASU No. 2016-13. We currently expect to adopt this standard using the modified retrospective approach.
Note 3.  Real Estate Properties
At March 31, 2019, we owned 467 properties, including 30 properties classified as held for sale, located in 42 states and Washington, D.C., including one MOB (two buildings) owned by a joint venture in which we own a 55% equity interest.
Impairment:
We periodically evaluate our assets for impairments. Impairment indicators may include declining tenant or resident occupancy, weak or declining profitability from the property, decreasing tenant cash flows or liquidity, our decision to dispose of an asset before the end of its estimated useful life, and legislative, market or industry changes that could permanently reduce the value of an asset. If indicators of impairment are present, we evaluate the carrying value of the affected assets by comparing it to the expected future undiscounted net cash flows to be generated from those assets. If the sum of these expected future net cash flows is less than the carrying value, we reduce the net carrying value of the asset to its estimated fair value.
During the three months ended March 31, 2019, we recorded impairment charges of $6,206 to adjust the carrying values of 15 skilled nursing facilities, or SNFs, located in Kansas, Iowa and Nebraska, to their aggregate estimated fair value. These SNFs are classified as held for sale in our condensed consolidated balance sheet as of March 31, 2019, and the associated impairment charges are included in impairment of assets in our condensed consolidated statements of comprehensive income as of March 31, 2019.
Dispositions:
During the three months ended March 31, 2019, we sold two MOBs with an aggregate of 64,796 rentable square feet for an aggregate sales price of $2,975, excluding closing costs, as presented in the following table. We recognized rental income of $123 during the three months ended March 31, 2019 related to these MOBs.
Date of Sale
 
Location
 
Type of Property
 
Number of Properties
 
Gross Sales Price (1)
February 2019
 
Florida
 
MOB
 
1
 
$
2,900

March 2019
 
Massachusetts
 
MOB
 
1
 
75

 
 
 
 
 
 
2
 
$
2,975

(1)
Gross sales price excludes closing costs.


8

SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)

As of March 31, 2019, we had 10 MOBs under agreements to sell for an aggregate sales price of approximately $15,609, excluding closing costs, which have an aggregate undepreciated carrying value of $17,347. These 10 MOBs are classified as held for sale in our condensed consolidated balance sheet as of March 31, 2019.
As of March 31, 2019, we had 20 SNFs under agreements to sell for an aggregate sales price of approximately $40,500, excluding closing costs, which have an aggregate undepreciated carrying value of $44,342. These 20 SNFs are classified as held for sale in our condensed consolidated balance sheet as of March 31, 2019. In May 2019, we sold three of these SNFs located in California for an aggregate sales price of $21,500, excluding closing costs.
Subsequent to March 31, 2019, we entered into agreements to sell three MOBs located in Massachusetts for an aggregate sales price of approximately $4,955, excluding closing costs. These three MOBs are not classified as held for sale in our condensed consolidated balance sheet as of March 31, 2019.
Note 4.  Indebtedness
Our principal debt obligations at March 31, 2019 were: (1) outstanding borrowings under our $1,000,000 unsecured revolving credit facility; (2) seven public issuances of senior unsecured notes, including: (a) $400,000 principal amount at an annual interest rate of 3.25% due 2019, (b) $200,000 principal amount at an annual interest rate of 6.75% due 2020, (c) $300,000 principal amount at an annual interest rate of 6.75% due 2021, (d) $250,000 principal amount at an annual interest rate of 4.75% due 2024, (e) $500,000 principal amount at an annual interest rate of 4.75% due 2028, (f) $350,000 principal amount at an annual interest rate of 5.625% due 2042 and (g) $250,000 principal amount at an annual interest rate of 6.25% due 2046; (3) our $350,000 principal amount unsecured term loan due 2020; (4) our $200,000 principal amount unsecured term loan due 2022; and (5) $733,672 aggregate principal amount of mortgages (excluding premiums, discounts and net debt issuance costs) secured by 14 properties with maturity dates between 2019 and 2043. These 14 mortgaged properties had a carrying value (before accumulated depreciation) of $1,035,640 at March 31, 2019. We also had two properties subject to capital leases with lease obligations totaling $9,599 at March 31, 2019; these two properties had a carrying value (before accumulated depreciation) of $34,828 at March 31, 2019, and the capital leases expire in 2026.
We have a $1,000,000 revolving credit facility that is available for general business purposes, including acquisitions. The maturity date of our revolving credit facility is January 15, 2022, and, subject to the payment of an extension fee and meeting other conditions, we have the option to extend the maturity date of the facility for an additional year. Our revolving credit facility provides that we can borrow, repay and re-borrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity. Our revolving credit facility requires annual interest to be paid on borrowings at the rate of LIBOR plus a premium of 120 basis points, plus a facility fee of 25 basis points per annum on the total amount of lending commitments under the facility. The interest rate premium and facility fee are each subject to adjustment based upon changes to our credit ratings. The facility also includes a feature pursuant to which in certain circumstances maximum borrowings under the facility may be increased to up to $2,000,000.
As of March 31, 2019, the annual interest rate payable on borrowings under our revolving credit facility was 3.6%. The weighted average annual interest rates for borrowings under our revolving credit facility were 3.6% and 2.7% for the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019, we had $225,000 outstanding and $775,000 available for borrowing, and as of May 8, 2019, we had $628,000 outstanding and $372,000 available for borrowing under our revolving credit facility.
We have a $350,000 term loan that matures in January 2020 and is prepayable without penalty at any time. This term loan requires annual interest to be paid at the rate of LIBOR plus a premium of 140 basis points that is subject to adjustment based upon changes to our credit ratings. At March 31, 2019, the annual interest rate payable on amounts outstanding under this term loan was 3.9%. The weighted average annual interest rate for amounts outstanding under this term loan was 4.0% and 3.1% for the three months ended March 31, 2019 and 2018, respectively. This term loan includes an accordion feature under which maximum borrowings may be increased to up to $700,000 in certain circumstances.
We have a $200,000 term loan that matures in September 2022 and is prepayable without penalty at any time. This term loan requires annual interest to be paid at the rate of LIBOR plus a premium of 135 basis points that is subject to adjustment based upon changes to our credit ratings. At March 31, 2019, the annual interest rate payable on amounts outstanding under this term loan was 3.8%. The weighted average annual interest rate for amounts outstanding under this term loan was 3.9% and

9

SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)

3.0% for the three months ended March 31, 2019 and 2018, respectively. This term loan includes an accordion feature under which maximum borrowings may be increased to up to $400,000 in certain circumstances.
In May 2019, we redeemed at par all of our outstanding 3.25% senior notes due 2019 for a redemption price equal to the principal amount of $400,000, plus accrued and unpaid interest of $6,500. We funded this redemption with cash on hand and borrowings under our revolving credit facility.
In April 2019, we gave notice of our intention to prepay, at par plus accrued interest, a mortgage note secured by four of our senior living communities with an outstanding principal balance of approximately $42,211, a maturity date in July 2019 and an annual interest rate of 3.79%. We expect to make this prepayment in May 2019 using cash on hand and borrowings under our revolving credit facility.
Our revolving credit facility and term loan agreements and our senior unsecured notes indentures and their supplements provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, such as, in the case of our revolving credit facility and term loan agreements, a change of control of us, as defined, which includes The RMR Group LLC, or RMR LLC, ceasing to act as our business and property manager. Our revolving credit facility and term loan agreements and our senior unsecured notes indentures and their supplements also contain covenants, including those that restrict our ability to incur debts, and generally require us to maintain certain financial ratios, and our revolving credit facility and term loan agreements restrict our ability to make distributions under certain circumstances. We believe we were in compliance with the terms and conditions of the respective covenants under our revolving credit facility and term loan agreements and our senior unsecured notes indentures and their supplements at March 31, 2019.    
Note 5.  Fair Value of Assets and Liabilities
Items Measured at Fair Value on a Recurring Basis:
The following table presents certain of our assets that are measured at fair value on a recurring basis at March 31, 2019, categorized by the level of inputs as defined in the fair value hierarchy under GAAP, used in the valuation of each asset or liability. 
 
 
 
 
Fair Value at Reporting Date Using
 
 
 
 
Quoted Prices in 
Active Markets for Identical Assets
 
Significant Other Observable Inputs
 
Significant Unobservable Inputs
Description
 
Total
 
(Level 1)
 
(Level 2)
 
(Level 3)
Recurring Fair Value Measurements
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Investment in RMR Inc. (1)
 
$
160,830

 
$
160,830

 
$

 
$

Investment in Five Star (2)
 
$
4,129

 
$
4,129

 
$

 
$

(1)
Our 2,637,408 shares of class A common stock of The RMR Group Inc., or RMR Inc., which are included in other assets in our condensed consolidated balance sheets, are reported at fair value which is based on quoted market prices (Level 1 inputs). Our historical cost basis for these shares is $69,826 as of March 31, 2019. During the three months ended March 31, 2019, we recorded an unrealized gain of $20,836 to adjust the carrying value of our investment in RMR Inc. class A common shares to their fair value.
(2)
Our 4,235,000 common shares of Five Star Senior Living Inc., or Five Star, which are included in other assets in our condensed consolidated balance sheets, are reported at fair value which is based on quoted market prices (Level 1 inputs). Our adjusted cost basis for these shares is $6,353 as of March 31, 2019. During the three months ended March 31, 2019, we recorded an unrealized gain of $2,096 to adjust the carrying value of our investment in Five Star common shares to their fair value.

10

SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)

Items Measured at Fair Value on a Nonrecurring Basis:
In addition to items that are measured at fair value on a recurring basis, we also have assets in our condensed consolidated balance sheets that are measured at fair value on a nonrecurring basis. During the three months ended March 31, 2019, we recorded impairment charges of $6,206 to reduce the carrying value of 15 SNFs that are classified as held for sale to their estimated sales price, based on a letter of intent, less estimated costs to sell of $7,489. See Note 3 for further information about impairment charges and these and other properties we have classified as held for sale. The estimated fair value of these 15 SNFs as of March 31, 2019 was as follows:
 
 
 
 
Quoted Prices in 
Active Markets for Identical Assets
 
Significant Other Observable Inputs
 
Significant Unobservable Inputs
Description
 
Total
 
(Level 1)
 
(Level 2)
 
(Level 3)
Non-Recurring Fair Value Measurements
 
 
 
 
 
 
Real estate properties held for sale
 
$
7,489

 
$

 
$
7,489

 
$

In addition to the assets described in the tables above, our financial instruments at March 31, 2019 and December 31, 2018 included cash and cash equivalents, restricted cash, other assets, our revolving credit facility, term loans, senior unsecured notes, secured debt and capital leases and other unsecured obligations and liabilities. The fair values of these financial instruments approximated their carrying values in our condensed consolidated financial statements as of such dates, except as follows: 
 
 
As of March 31, 2019
 
As of December 31, 2018
Description
 
Carrying Amount (1)
 
Estimated Fair Value
 
Carrying Amount (1)
 
Estimated Fair Value
Senior unsecured notes
 
$
2,217,989

 
$
2,225,390

 
$
2,216,945

 
$
2,138,202

Secured debts(2)
 
742,883

 
720,339

 
744,186

 
723,003

 
 
$
2,960,872

 
$
2,945,729

 
$
2,961,131

 
$
2,861,205

(1)
Includes unamortized debt issuance costs, premiums and discounts.
(2)
We assumed certain of these secured debts in connection with our acquisitions of certain properties. We recorded the assumed mortgage notes debts at estimated fair value on the date of acquisition and we are amortizing the fair value adjustments, if any, to interest expense over the respective terms of the mortgage notes to reduce interest expense to the estimated market interest rates as of the date of acquisition.
We estimated the fair value of our two issuances of senior unsecured notes due 2042 and 2046 based on the closing price on The Nasdaq Stock Market LLC, or Nasdaq, (a Level 1 input) as of March 31, 2019. We estimated the fair values of our five issuances of senior unsecured notes due 2019, 2020, 2021, 2024 and 2028 using an average of the bid and ask price on or about March 31, 2019 (Level 2 inputs as defined in the fair value hierarchy under GAAP). We estimated the fair values of our secured debts by using discounted cash flows analyses and currently prevailing market terms as of the measurement date (Level 3 inputs as defined in the fair value hierarchy under GAAP). Because Level 3 inputs are unobservable, our estimated fair value may differ materially from the actual fair value.

11

SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)

Note 6. Noncontrolling Interest
We have a joint venture arrangement with a sovereign investor for one of our MOBs (two buildings) located in Boston, Massachusetts. The investor owns a 45% equity interest in the joint venture, and we own the remaining 55% equity interest in the joint venture. We continue to control this property and therefore continue to account for this property on a consolidated basis in our condensed consolidated financial statements under the VIE model. The portion of the joint venture's net income and comprehensive income not attributable to us, or $1,422 and $1,383 for the three months ended March 31, 2019 and 2018, respectively, is reported as noncontrolling interest in our condensed consolidated statements of comprehensive income. We made aggregate cash distributions to our joint venture partner of $5,503 and $5,667 for the three months ended March 31, 2019 and 2018, respectively, which are reflected as a decrease in total equity attributable to noncontrolling interest in our condensed consolidated balance sheets. As of March 31, 2019, this joint venture held real estate assets with an aggregate net book value of $740,105, subject to mortgage notes of $620,000.
In assessing whether we have a controlling interest in this joint venture arrangement and are required to consolidate the accounts of the joint venture entity, we considered the members' rights to residual gains and obligations to absorb losses, which activities most significantly impact the economic performance of the entity and which member has the power to direct those activities.
Note 7.  Shareholders’ Equity
Share Purchases:
On April 5, 2019, we purchased 3,529 of our common shares, valued at $9.47 per share, the closing price of our common shares on Nasdaq on that day, from a former employee of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.
Distributions:
On February 21, 2019, we paid a regular quarterly distribution to common shareholders of $0.39 per share, or approximately $92,714, that was declared on January 18, 2019 and was payable to shareholders of record on January 28, 2019.
On April 18, 2019, we declared a regular quarterly distribution payable to common shareholders of record on April 29, 2019, of $0.15 per share, or approximately $35,659. We expect to pay this distribution on or about May 16, 2019.
Note 8.  Segment Reporting
As of March 31, 2019, we have four operating segments, of which three are separate reporting segments. We aggregate the reporting units in each of our MOBs, our triple net leased senior living communities and our managed senior living communities into three reporting segments, based on their similar operating and economic characteristics. The first reporting segment includes MOBs where the tenants pay us rent. The second reporting segment includes triple net leased senior living communities that provide short term and long term residential care and other services for residents and from which we receive rents from the operators. The third reporting segment includes managed senior living communities that provide short term and long term residential care and other services for residents where we pay fees to the operator to manage the communities for our account. Our fourth segment includes all of our other operations, including certain properties that offer wellness, fitness and spa services to members and with respect to which we receive rents from operators, which we do not consider to be sufficiently material to constitute a separate reporting segment.

12

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 March 31, 2019
 
 
MOBs
 
Triple Net Leased Senior Living Communities
 
Managed Senior Living Communities
 
All Other Operations
 
Consolidated
Revenues:
 
 

 
 

 
 

 
 

 
 

Rental income
 
$
103,221

 
$
50,320

 
$

 
$
4,700

 
$
158,241

Residents fees and services
 

 

 
108,045

 

 
108,045

Total revenues
 
103,221

 
50,320

 
108,045

 
4,700

 
266,286

 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 

 
 

 
 

 
 

 
 

Property operating expenses
 
32,177

 

 
85,045

 

 
117,222

Depreciation and amortization
 
36,101

 
19,422

 
15,760

 
947

 
72,230

General and administrative
 

 

 

 
9,816

 
9,816

Acquisition and certain other transaction related costs
 

 

 

 
7,814

 
7,814

Impairment of assets
 

 
6,206

 

 

 
6,206

Total expenses
 
68,278

 
25,628

 
100,805

 
18,577

 
213,288

 
 
 
 
 
 
 
 
 
 
 
Loss on sale of properties
 
(122
)
 

 

 

 
(122
)
Dividend income
 

 

 

 
923

 
923

Unrealized gains on equity securities
 

 

 

 
22,932

 
22,932

Interest and other income
 

 

 

 
114

 
114

Interest expense
 
(6,030
)
 
(238
)
 
(820
)
 
(38,523
)
 
(45,611
)
Income (loss) from continuing operations before income tax expense and equity in earnings of an investee
 
28,791

 
24,454

 
6,420

 
(28,431
)
 
31,234

Income tax expense
 

 

 

 
(134
)
 
(134
)
Equity in earnings of an investee
 

 

 

 
404

 
404

Net income (loss)
 
28,791

 
24,454

 
6,420

 
(28,161
)
 
31,504

Net income attributable to noncontrolling interest
 
(1,422
)
 

 

 

 
(1,422
)
Net income (loss) attributable to common shareholders
 
$
27,369

 
$
24,454

 
$
6,420

 
$
(28,161
)
 
$
30,082


 
 
As of March 31, 2019
 
 
MOBs
 
Triple Net Leased Senior Living Communities
 
Managed Senior Living Communities
 
All Other Operations
 
Consolidated
Total assets
 
$
3,325,184

 
$
2,030,946

 
$
1,388,949

 
$
400,821

 
$
7,145,900



13

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 March 31, 2018
 
 
MOBs
 
Triple Net Leased Senior Living Communities
 
Managed Senior Living Communities
 
All Other Operations
 
Consolidated
Revenues:
 
 

 
 

 
 

 
 

 
 

Rental income
 
$
101,151

 
$
67,975

 
$

 
$
4,602

 
$
173,728

Residents fees and services
 

 

 
102,042

 

 
102,042

Total revenues
 
101,151

 
67,975

 
102,042

 
4,602

 
275,770

 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 

 
 

 
 

 
 

 
 

Property operating expenses
 
30,938

 

 
77,160

 

 
108,098

Depreciation and amortization
 
34,385

 
20,195

 
14,811

 
948

 
70,339

General and administrative
 

 

 

 
25,118

 
25,118

Acquisition and certain other transaction related costs
 

 

 

 
20

 
20

Total expenses
 
65,323

 
20,195

 
91,971

 
26,086

 
203,575

 
 
 
 
 
 
 
 
 
 
 
Gain on sale of properties
 

 
181,154

 

 

 
181,154

Dividend income
 

 

 

 
659

 
659

Unrealized gains and losses on equity securities, net
 

 

 

 
27,241

 
27,241

Interest and other income
 

 

 

 
54

 
54

Interest expense
 
(5,909
)
 
(571
)
 
(1,327
)
 
(35,745
)
 
(43,552
)
Loss on early extinguishment of debt
 

 

 
(130
)
 

 
(130
)
Income (loss) from continuing operations before income tax expense and equity in earnings of an investee
 
29,919

 
228,363

 
8,614

 
(29,275
)
 
237,621

Income tax expense
 

 

 

 
(260
)
 
(260
)
Equity in earnings of an investee
 

 

 

 
44

 
44

Net income (loss)
 
29,919

 
228,363

 
8,614

 
(29,491
)
 
237,405

Net income attributable to noncontrolling interest
 
(1,383
)
 

 

 

 
(1,383
)
Net income (loss) attributable to common shareholders
 
$
28,536

 
$
228,363

 
$
8,614

 
$
(29,491
)
 
$
236,022

 
As of December 31, 2018
 
MOBs
 
Triple Net Leased Senior Living Communities
 
Managed Senior Living Communities
 
All Other Operations
 
Consolidated
Total assets
$
3,344,581

 
$
2,044,939

 
$
1,395,657

 
$
375,249

 
$
7,160,426


Note 9. Leases and Management Agreements with Five Star
Our Senior Living Communities Leased by Five Star. We are Five Star’s largest landlord and Five Star is our largest tenant. As of March 31, 2019 and 2018, we leased 184 and 185 senior living communities to Five Star, respectively. We lease senior living communities to Five Star pursuant to five master leases.
Five Star has announced that, due to current senior living industry conditions, its recurring operating losses and the risk that it may not be able to obtain sufficient funding for its operating requirements, a substantial doubt existed regarding Five Star's ability to continue as a going concern. On March 11, 2019, we entered into a letter agreement with Five Star, pursuant to which, with respect to our master leases with Five Star, we agreed to defer, until March 31, 2019, payment of the aggregate minimum rent due and payable by Five Star to us under the lease agreements for February 2019. On April 1, 2019, we entered into a transaction agreement with Five Star, or the Transaction Agreement, pursuant to which we agreed to modify our existing business arrangements with Five Star, subject to certain conditions and the receipt of various approvals, as further described in

14

SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)

Note 14. We cannot be sure whether the transactions contemplated by the Transaction Agreement will be completed or whether Five Star will be able to continue as a going concern.
We recognized rental income payable by Five Star of $39,313 and $51,759 for the three months ended March 31, 2019 and 2018, respectively. These amounts exclude variable payments we received from Five Star of $538 and $1,374 for the three months ended March 31, 2019 and 2018, respectively. We determine actual variable payments due under our Five Star leases annually and recognize any resulting amount as rental income at year end when all contingencies are met. As of March 31, 2019 and December 31, 2018, we had rents receivable from Five Star of $22,000 and $18,697, respectively, which amounts are included in other assets in our condensed consolidated balance sheets. Rental income from Five Star represented 14.8% of our total revenues for the three months ended March 31, 2019, and the properties Five Star leases from us represented 26.5% of our real estate investments, at cost, as of March 31, 2019.
Pursuant to the terms of our leases with Five Star, for the three months ended March 31, 2019, we funded $22,579 of improvements to communities leased to Five Star. We did not fund any capital improvements at communities leased to Five Star for the three months ended March 31, 2018.
Our Senior Living Communities Managed by Five Star. As of March 31, 2019 and 2018, Five Star managed 76 and 72 senior living communities for our account, respectively. We lease our senior living communities that are managed by Five Star and include assisted living units or SNF units to our TRSs, and Five Star manages these communities pursuant to long term management and pooling agreements. As further described in Note 14, pursuant to the Transaction Agreement we have agreed to replace our long term management and pooling agreements with Five Star with new management agreements, subject to certain conditions and the receipt of various approvals.
We incurred management fees payable to Five Star of $3,789 and $3,494 for the three months ended March 31, 2019 and 2018, respectively. These amounts are included in property operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.
The following table presents residents fees and services revenue disaggregated by type of contract and payer:
Revenue from contracts with customers:
 
Three Months Ended March 31, 2019
Basic housing and support services
 
$
87,412

Medicare and Medicaid programs
 
8,745

Private pay and other third party payer SNF services
 
11,888

Total residents fees and services
 
$
108,045

Five Star also provides certain other services directly to residents at some of the senior living communities it manages for our account, such as rehabilitation services. At senior living communities Five Star manages for us where Five Star provides rehabilitation services on an outpatient basis, the residents, third party payers or government programs pay Five Star for those rehabilitation services. At senior living communities Five Star manages for us where Five Star provides both inpatient and outpatient rehabilitation services, we generally pay Five Star for these services and charges for these services are included in amounts charged to residents, third party payers or government programs. We incurred fees payable to Five Star of $1,675 and $1,699 for the three months ended March 31, 2019 and 2018, respectively, for rehabilitation services Five Star provided at senior living communities it manages for us; we include these amounts in property operating expenses in our condensed consolidated statement of comprehensive income.    
Note 10. Business and Property Management Agreements with RMR LLC
We have no employees. The personnel and various services we require to operate our business are provided to us by RMR LLC. We have two agreements with RMR LLC to provide management services to us: (1) a business management agreement, which relates to our business generally; and (2) a property management agreement, which relates to the property level operations of our MOBs. We also have a subsidiary level management agreement with RMR LLC related to one of our MOBs located in Boston, Massachusetts, which we entered in connection with the joint venture arrangement for that MOB. Under that agreement, our subsidiary pays RMR LLC certain business management fees directly, which fees are credited against the business management fees payable by us to RMR LLC.

15

SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)

Pursuant to our business management agreement with RMR LLC, we recognized net business management fees of $7,719 and $23,323 for the three months ended March 31, 2019 and 2018, respectively. The net business management fees we recognized for the three months ended March 31, 2019 include $725 of management fees related to our subsidiary level management agreement with RMR LLC entered in connection with our joint venture arrangement. Based on our common share total return, as defined in our business management agreement, as of March 31, 2019, no estimated 2019 incentive fees are included in the net business management fees we recognized for the three months ended March 31, 2019. The actual amount of annual incentive fees for 2019, if any, will be based on our common share total return as defined in our business management agreement, for the three-year period ending December 31, 2019, and will be payable in 2020. The net business management fees for the three months ended March 31, 2018 included $725 of management fees related to our subsidiary level management agreement with RMR LLC and $14,347 of estimated 2018 incentive fees based on our common share total return, as defined in our business management agreement, as of March 31, 2018. In January 2019, we paid RMR LLC an incentive fee of $40,642 for 2018. We include business management fee amounts in general and administrative expenses in our condensed consolidated statements of comprehensive income. 
Pursuant to our property management agreement with RMR LLC, we recognized aggregate net property management and construction supervision fees of $3,064 and $2,821 for the three months ended March 31, 2019 and 2018, respectively. These amounts are included in property operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.
We are generally responsible for all our operating expenses, including certain expenses incurred or arranged by RMR LLC on our behalf. We are generally not responsible for payment of RMR LLC’s employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR LLC’s employees assigned to work exclusively or partly at our MOBs, our share of the wages, benefits and other related costs of RMR LLC's centralized accounting personnel, our share of RMR LLC’s costs for providing our internal audit function, or as otherwise agreed. Our property level operating expenses are generally incorporated into the rents charged to our tenants, including certain payroll and related costs incurred by RMR LLC. We reimbursed RMR LLC $3,374 and $2,779 for these expenses and costs for the three months ended March 31, 2019 and 2018, respectively. We included these amounts in other operating expenses and general and administrative expenses, as applicable, in our condensed consolidated statements of comprehensive income.
Note 11. Related Person Transactions
 
We have relationships and historical and continuing transactions with Five Star, RMR LLC, RMR Inc., Affiliates Insurance Company, or AIC, and others related to them, including other companies to which RMR LLC provides management services and which have trustees, directors and officers who are also our Trustees or officers. 
Five Star.  We are currently one of Five Star’s largest stockholders. As of March 31, 2019, we owned 4,235,000 of Five Star’s common shares, or approximately 8.3% of Five Star’s outstanding common shares. Five Star is our largest tenant and the manager of our managed senior living communities. RMR LLC provides management services to both us and Five Star. As of March 31, 2019, ABP Acquisition LLC, a subsidiary of ABP Trust, the controlling shareholder of RMR Inc., owned 35.4% of Five Star's outstanding common shares. Adam D. Portnoy, one of our Managing Trustees, is the sole trustee of ABP Trust and a managing director of Five Star. Five Star’s president and chief executive officer and executive vice president, chief financial officer and treasurer are officers and employees of RMR LLC. On April 1, 2019, we entered into the Transaction Agreement, pursuant to which we agreed to modify our existing business arrangements with Five Star, subject to certain conditions and the receipt of various approvals. See Notes 9 and 14 for further information regarding our relationships, agreements and transactions with Five Star and Note 5 for further information regarding our investment in Five Star.
Our Manager, RMR LLC. We have two agreements with RMR LLC to provide management services to us. See Note 10 for further information regarding our management agreements with RMR LLC.
RMR Inc. RMR LLC is a majority owned subsidiary of RMR Inc. and RMR Inc. is the managing member of RMR LLC. Adam D. Portnoy, one of our Managing Trustees, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., a managing director, president and chief executive officer of RMR Inc., and an officer and employee of RMR LLC. Jennifer B. Clark, our other Managing Trustee, also serves as a managing director and as executive vice president, general counsel and secretary of RMR Inc. and an officer of ABP Trust and RMR LLC. Other officers and employees of RMR LLC also serve as our officers. As of March 31, 2019, we owned 2,637,408 shares of class A common stock of RMR Inc.  See Note 5 for further information regarding our investment in RMR Inc.

16

SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)

AIC. We, ABP Trust, Five Star and four other companies to which RMR LLC provides management services currently own AIC in equal amounts. We (including our consolidated joint venture) and the other AIC shareholders participate in a combined property insurance program arranged and reinsured in part by AIC.
As of March 31, 2019 and December 31, 2018, our investment in AIC had a carrying value of $9,102 and $8,632, respectively. These amounts are included in other assets in our condensed consolidated balance sheets. We recognized income related to our investment in AIC, which is presented as equity in earnings of an investee in our condensed consolidated statements of comprehensive income. Our other comprehensive income includes our proportionate part of unrealized gains on securities that are owned by AIC related to our investment in AIC.
For further information about these and other such relationships and certain other related person transactions, refer to our Annual Report.
Note 12.  Income Taxes
We have elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, and as such, are generally not subject to federal and most state income taxation on our operating income provided we distribute our taxable income to our shareholders and meet certain organization and operating requirements. We do, however, lease certain managed senior living communities to our wholly owned TRSs that, unlike most of our subsidiaries, file a separate consolidated federal corporate income tax return and are subject to federal and state income taxes. Our consolidated income tax provision includes the income tax provision related to the operations of our TRSs and certain state income taxes we incur despite our taxation as a REIT. During the three months ended March 31, 2019 and 2018, we recognized income tax expense of $134 and $260, respectively.
Note 13. Weighted Average Common Shares
The following table provides a reconciliation of the weighted average number of common shares used in the calculation of basic and diluted earnings per share (in thousands): 
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Weighted average common shares for basic earnings per share
 
237,568

 
237,478

Effect of dilutive securities: unvested share awards
 
32

 
15

Weighted average common shares for diluted earnings per share
 
237,600

 
237,493

Note 14. Subsequent Events
In April 2019, Five Star began managing for our account a senior living community we own located in Oregon with 318 living units, pursuant to a management agreement with Five Star on terms substantially similar to those of existing management agreements between us and Five Star, after the previous tenant defaulted on its lease with us.
The April 2019 Transaction Agreement with Five Star. In April 2019, we entered into the Transaction Agreement. Among other things, the Transaction Agreement provides that, subject to approval by Five Star’s stockholders of the Five Star Share Issuances (as defined below) and receipt of other required approvals, effective January 1, 2020 (or January 1, 2021 if extended under the Transaction Agreement), or the Conversion Time:
our five existing master leases with Five Star for all of our senior living communities that are leased by Five Star, as well as our existing management agreements and pooling agreements with Five Star for our senior living communities that are operated by Five Star, will be terminated and replaced, or the Conversion, with new management agreements for all of these senior living communities, or collectively, the New Management Agreements;
Five Star will issue to us such number of Five Star common shares as is necessary to cause us to own, when considered together with our then owned Five Star common shares, approximately 34% of the then outstanding Five Star common shares, and we will declare a pro rata distribution to holders of our common shares of beneficial interest

17

SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)

of the right to receive, and Five Star will issue on a pro rata basis to such holders, a number of Five Star common shares which equals approximately 51% of the then outstanding Five Star common shares, or, together, the Five Star Share Issuances; the noted percentage ownership amounts are post-issuance, giving effect to the Five Star Share Issuances; and
as consideration for the Five Star Share Issuances, we will provide to Five Star $75,000 of additional consideration, or, collectively with the Conversion and the Five Star Share Issuances, the Five Star Restructuring Transactions.
Also pursuant to the Transaction Agreement: (1) commencing February 1, 2019 through December 31, 2019, the aggregate amount of monthly minimum rent payable to us by Five Star under our master leases with Five Star is $11,000, subject to adjustment and extension, and no additional rent is payable to us by Five Star from such date to the Conversion Time; and (2) on April 1, 2019, we purchased from Five Star approximately $50,000 of unencumbered Qualifying PP&E (as defined in the Transaction Agreement) related to our senior living communities leased and operated by Five Star, which amount is subject to adjustment but will not exceed $60,000.
The Five Star Restructuring Transactions are subject to conditions, including, among others: (1) approval of the Five Star Share Issuances by at least a majority of the votes cast, in person or by proxy, by the holders of outstanding Five Star common shares at any meeting of Five Star’s stockholders held for that purpose, or the Five Star Stockholder Approval; (2) the receipt of all Required Licenses (as defined in the Transaction Agreement) and any other third party consent or approval required for the consummation of the Five Star Restructuring Transactions; (3) the effectiveness of the registration statement on Form S-1 to be filed by Five Star with the Securities and Exchange Commission, or SEC, to register the Five Star common shares to be issued pursuant to the Five Star Share Issuances; and (4) approval by Nasdaq of the listing of the Five Star common shares to be issued pursuant to the Five Star Share Issuances, subject to official notice of issuance.
If any required approval (other than the Five Star Stockholder Approval) is not obtained by December 31, 2019, and the failure to obtain such approval is not the result of a breach or default by Five Star under the Transaction Agreement, we and Five Star have agreed to work in good faith to determine an alternative to allow the Restructuring Transactions to occur on January 1, 2020; provided we are not required to agree to any alternative that would adversely affect our qualification for taxation as a REIT under the Internal Revenue Code of 1986, as amended. If we and Five Star do not agree to any such alternative, and, as of January 1, 2020, the failure to obtain a required approval is the only remaining condition under the Transaction Agreement, the Conversion Time will be automatically extended to January 1, 2021.
If the Five Star Stockholder Approval is not obtained by December 31, 2019, and we do not elect to extend the Transaction Agreement, the Transaction Agreement will terminate, our existing master leases and management agreements and pooling agreements with Five Star will remain in effect, and the amount of monthly minimum rent payable to us by Five Star under our existing master leases with Five Star will return to the rate provided for therein and additional rent again will be payable to us by Five Star in accordance therewith. If the Five Star Stockholder Approval is obtained by December 31, 2019, our existing master leases with Five Star will remain at $11,000 per month, subject to adjustment, regardless of whether the Transaction Agreement is extended and/or is terminated.
Five Star has agreed to, within six months following the Conversion Time, expand its board of directors to add an independent director (as defined in Five Star’s bylaws) reasonably satisfactory to us. In addition, we and ABP Trust, on behalf of ABP Acquisition LLC, a wholly owned subsidiary of ABP Trust and Five Star’s largest stockholder, have each agreed to vote all the Five Star common shares that we and ABP Trust beneficially own in favor of approval of the Five Star Share Issuances at any meeting of Five Star’s stockholders held for that purpose.
Pursuant to the New Management Agreements, Five Star will receive a management fee equal to 5% of the gross revenues realized at the applicable senior living communities plus reimbursement for its direct costs and expenses related to such communities, as well as an annual incentive fee equal to 15% of the amount by which the annual earnings before interest, taxes, depreciation and amortization, or EBITDA, of all communities on a combined basis exceeds the target EBITDA for all communities on a combined basis for such calendar year, provided that in no event shall the incentive fee be greater than 1.5% of the gross revenues realized at all communities on a combined basis for such calendar year.
The New Management Agreements provide for 15 year terms, subject to Five Star’s right to extend for two consecutive five year terms if it achieves certain performance targets for the combined managed communities portfolio. The New Management Agreements also provide us with the right to terminate the New Management Agreement for any community that

18

SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)

does not earn 90% of the target EBITDA for such community for two consecutive calendar years or in any two of three consecutive calendar years, with the measurement period commencing January 1, 2021 (and the first termination not possible until the beginning of calendar year 2023), provided we may not in any calendar year terminate communities representing more than 20% of the combined revenues for all communities for the calendar year prior to such termination.
In connection with the Transaction Agreement, we entered into a credit agreement with Five Star, pursuant to which we extended to Five Star a $25,000 line of credit, or the Five Star credit facility. The Five Star credit facility matures on January 1, 2020, or January 1, 2021 if the Conversion Time is extended pursuant to the Transaction Agreement. The Five Star credit facility provides for interest to be paid on borrowed amounts at a rate of 6% per year and is secured by real estate mortgages on six senior living communities owned by certain of Five Star’s subsidiaries that guarantee Five Star’s obligations under the Five Star credit facility, and certain personal property owned by those and certain other Five Star subsidiaries. The Five Star credit facility provides for acceleration of payment of all amounts outstanding under the Five Star credit facility upon the occurrence and continuation of certain events of default, including a default by Five Star under the Transaction Agreement and certain other agreements. The agreement governing the Five Star credit facility contains covenants, including those that restrict Five Star’s ability to incur debt or to pay dividends or make other distributions to its stockholders in certain circumstances.

19


Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and with our Annual Report.
We are a REIT organized under Maryland law. At March 31, 2019, we owned 467 properties, including 30 properties classified as held for sale, located in 42 states and Washington, D.C. At March 31, 2019, the undepreciated carrying value of our properties, which represents the gross book value of our real estate assets before depreciation and purchase price allocations, less impairment write downs, was $8.4 billion, excluding properties classified as held for sale. For the three months ended March 31, 2019, 97% of our net operating income, or NOI, came from properties where a majority of the revenues are derived from our tenants' and residents’ private resources. 
RESTRUCTURING OF BUSINESS ARRANGEMENTS WITH FIVE STAR
In April 2019, we entered into the Transaction Agreement, pursuant to which, subject to certain conditions and the receipt of various approvals, effective January 1, 2020 (or January 1, 2021 if extended under the Transaction Agreement), our existing five master leases with Five Star for our senior living communities that are leased to Five Star, as well as our existing management agreements and pooling agreements with Five Star for our senior living communities that are managed by Five Star for our account, will be terminated and replaced with new management agreements between us and Five Star for all of these senior living communities.
Also pursuant to the Transaction Agreement, in addition to other transactions, commencing February 1, 2019 through December 31, 2019, the aggregate amount of monthly minimum rent payable to us by Five Star was reduced to $11.0 million, subject to adjustment and extension, and no additional rent is payable to us by Five Star starting from such date to the Conversion Time. For further information regarding the Transaction Agreement, see Notes 9 and 14 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

20


PORTFOLIO OVERVIEW
The following tables present an overview of our portfolio (dollars in thousands, except investment per unit or square foot data):
(As of March 31, 2019)
 
Number
of Properties
 
Square Feet or Number of Units
 
 
 
Carrying Value of Investment(1)
 
% of
Total Investment
 
Investment per Square Foot or Unit(2)
 
Q1 2019 Revenues (3)
 
% of
Q1 2019 Revenues
 
Q1 2019 NOI (3)(4)
 
% of Q1 2019 NOI 
Facility Type
 
 

 
 

 
 
 
 

 
 

 
 

 
 
 
 
 
 

 
 

MOBs (5)
 
153

 
12,546,791

 
sq. ft.
 
$
3,746,171

 
44.6
%
 
$
299

 
$
103,098

 
38.7
%
 
$
71,024

 
47.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Independent living (6)
 
68

 
15,090

 
 
 
2,281,288

 
27.1
%
 
$
151,179

 
85,151

 
32.0
%
 
35,991

 
24.1
%
Assisted living (6)
 
198

 
14,766

 
 
 
2,085,099

 
24.8
%
 
$
141,209

 
68,730

 
25.8
%
 
32,845

 
22.1
%
Skilled nursing facilities (6)
 
38

 
3,763

 
 
 
118,230

 
1.4
%
 
$
31,419

 
4,484

 
1.7
%
 
4,484

 
3.0
%
Subtotal senior living communities
 
304

 
33,619

 
 
 
4,484,617

 
53.3
%
 
$
133,395

 
158,365

 
59.5
%
 
73,320

 
49.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wellness centers
 
10

 
812,000

 
sq. ft.
 
178,109

 
2.1
%
 
$
219

 
4,700

 
1.8
%
 
4,700

 
3.2
%
Total
 
467

 
 
 
 
 
$
8,408,897

 
100.0
%
 
 

 
$
266,163

 
100.0
%
 
$
149,044

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tenant / Operator / Managed Properties
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MOBs (5)
 
153

 
12,546,791

 
sq. ft.
 
$
3,746,171

 
44.6
%
 
$
299

 
$
103,098

 
38.7
%
 
$
71,024

 
47.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Five Star (leased) (7)
 
184

 
19,918

 
 
 
2,225,885

 
26.5
%
 
$
111,752

 
39,313

 
14.8
%
 
39,313

 
26.4
%
Brookdale
 
18

 
940

 
 
 
65,912

 
0.8
%
 
$
70,119

 
2,015

 
0.7
%
 
2,015

 
1.4
%
10 private senior living companies (combined)
 
26

 
2,995

 
 
 
464,525

 
5.5
%
 
$
155,100

 
8,992

 
3.4
%
 
8,992

 
6.0
%
Subtotal triple net leased senior living communities
 
228

 
23,853

 
 
 
2,756,322

 
32.8
%
 
$
115,555

 
50,320

 
18.9
%
 
50,320

 
33.8
%
Managed senior living communities (8)
 
76

 
9,766

 
 
 
1,728,295

 
20.5
%
 
$
176,971

 
108,045

 
40.6
%
 
23,000

 
15.4
%
Subtotal senior living communities
 
304

 
33,619

 
 
 
4,484,617

 
53.3
%
 
$
133,395

 
158,365

 
59.5
%
 
73,320

 
49.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wellness centers
 
10

 
812,000

 
sq. ft.
 
178,109

 
2.1
%
 
$
219

 
4,700

 
1.8
%
 
4,700

 
3.2
%
Total
 
467

 
 
 
 
 
$
8,408,897

 
100.0
%
 
 
 
$
266,163

 
100.0
%
 
$
149,044

 
100.0
%

21


Tenant / Managed Property Operating Statistics(9) 
 
 
Rent Coverage
 
Occupancy
 
 
2019
 
2018
 
2019
 
2018
MOBs (5)
 
N/A

 
N/A

 
94.0
%
 
95.1
%
 
 
 
 
 
 
 
 
 
Five Star (10)
 
0.99
x
 
1.15
x
 
82.7
%
 
82.3
%
Brookdale
 
2.05
x
 
2.30
x
 
84.6
%
 
84.0
%
9 private senior living companies (combined) (11)
 
1.25
x
 
1.27
x
 
86.0
%
 
87.9
%
Subtotal triple net leased senior living communities
 
1.06
x
 
1.21
x
 
83.2
%
 
83.1
%
Managed senior living communities (8)
 
N/A

 
N/A

 
86.1
%
 
85.8
%
Subtotal senior living communities
 
1.06
x
 
1.21
x
 
84.0
%
 
83.9
%
 
 
 
 
 
 
 
 
 
Wellness centers
 
1.99
x
 
1.78
x
 
100.0
%
 
100.0
%
Total
 
1.12
x
 
1.24
x
 
 

 
 
(1)
Represents the gross book value of real estate assets before depreciation and purchase price allocations, less impairment write downs, if any. Amounts exclude investment carrying value of properties classified as held for sale as of March 31, 2019, which are included in other assets in our condensed consolidated balance sheet.
(2)
Represents carrying value of investment divided by number of rentable square feet or living units, as applicable, at March 31, 2019.
(3)
Excludes $123 of revenues and $20 of NOI from properties sold or for which there was a transfer of operations during the three months ended March 31, 2019.
(4)
NOI is defined and calculated by reportable segment. Our definition of NOI and our reconciliation of net income to consolidated NOI are included below under the heading “Non-GAAP Financial Measures.”
(5)
Our MOB leases include some 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 some net and modified gross leases where we are responsible for the operation and maintenance of the properties and we charge tenants for some or all of the property operating costs. A small percentage of our MOB leases are "full-service" leases where we receive fixed rent from our tenants and no reimbursement for our property operating costs.
(6)
Senior living communities are categorized by the type of living units which constitute a majority of the living units at the community.
(7)
See Notes 9 and 14 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information on our restructuring arrangements with Five Star pursuant to the Transaction Agreement.
(8)
These senior living communities are managed by Five Star. The occupancy for the 12 month period ended, or, if shorter, from the date of acquisitions through, March 31, 2019 was 86.2%.
(9)
Operating data for MOBs are presented as of March 31, 2019 and 2018 and include (i) space being fitted out for occupancy and (ii) space which is leased but is not occupied or is being offered for sublease by tenants; operating data for other properties, tenants and managers are presented based upon the operating results provided by our tenants and manager for the 12 months ended December 31, 2018 and 2017, or the most recent prior period for which tenant operating results are made available to us. Rent coverage is calculated as operating cash flows from our tenants’ facility operations of our properties, before subordinated charges, if any, divided by rents payable to us. We have not independently verified tenant operating data. Excludes data for periods prior to our ownership of certain properties, as well as data for properties sold or classified as held for sale during the periods presented.
(10)
Rent coverage is calculated based on annualized rental income as of December 31, 2018. If the terms of the Transaction Agreement had been in effect as of December 31, 2018, based on the $132,000 of annualized rental

22


income payable to us by Five Star under the Transaction Agreement, rent coverage for the 12 months ended December 31, 2018 would have been 1.55x.
(11)
Excludes data for one senior living community for which we transferred the operations of the community to our TRS and entered into a management agreement with Five Star for Five Star to manage the community for our account in April 2019.
There have been no material changes to trends affecting the MOB and senior living industry from those we previously disclosed in our Annual Report.
During the three months ended March 31, 2019, we entered into MOB lease renewals for 446,897 leasable square feet and new leases for 51,179 leasable square feet. The weighted average annual rental rate for leases entered during the quarter was $25.01 per square foot. Weighted (by annualized rental income) average lease terms for leases entered during the first quarter of 2019 were 8.5 years. Commitments for tenant improvements, leasing commission costs and concessions for leases we entered during the first quarter of 2019 totaled $14.4 million, or $28.86 per square foot on average (approximately $3.40 per square foot per year of the lease term).
Lease Expiration Schedules
The following tables set forth information regarding our MOB lease expirations as of March 31, 2019 (dollars in thousands):
Year
 
Annualized Rental Income(1)
 
Percent of Total Annualized Rental Income Expiring
 
Cumulative Percentage of Annualized Rental Income Expiring
2019 (2)
 
$
34,707

 
8.6
%
 
8.6
%
2020
 
34,911

 
8.7
%
 
17.3
%
2021
 
28,490

 
7.1
%
 
24.4
%
2022
 
33,404

 
8.3
%
 
32.7
%
2023
 
21,995

 
5.5
%
 
38.2
%
2024
 
46,877

 
11.6
%
 
49.8
%
2025
 
18,174

 
4.5
%
 
54.3
%
2026
 
25,786

 
6.4
%
 
60.7
%
2027
 
10,359

 
2.6
%
 
63.3
%
2028 and thereafter
 
148,160

 
36.7
%
 
100.0
%
Total
 
$
402,863

 
100.0
%
 
 
 
Average remaining lease term for our MOBs (weighted by annualized rental income): 6.2 years.
(1)
Annualized rental income is based on rents pursuant to existing leases as of March 31, 2019, including straight line rent adjustments, estimated recurring expense reimbursements for certain net and modified gross leases and excluding lease value amortization at certain of our MOBs. Rental income amounts also include 100% of rental income as reported under GAAP from a property owned by a joint venture in which we own a 55% equity interest.
(2)
Includes two MOB tenants with aggregate annualized rental income of $17,698 that we expect to vacate during the second quarter of 2019.

23


Year
 
Number of Tenants 
 
Percent of Total Number of Tenancies Expiring
 
Cumulative Percentage of Number of Tenancies Expiring
2019 (1)
 
114

 
16.9
%
 
16.9
%
2020
 
105

 
15.5
%
 
32.4
%
2021
 
94

 
13.9
%
 
46.3
%
2022
 
97

 
14.3
%
 
60.6
%
2023
 
59

 
8.7
%
 
69.3
%
2024
 
61

 
9.0
%
 
78.3
%
2025
 
40

 
5.9
%
 
84.2
%
2026
 
33

 
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