UNITED STATESSECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC  20549

FORM 10-Q

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

For the quarterly period ended March 31, 2013

OR

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

Commission File Number 1-15319

SENIOR HOUSING PROPERTIES TRUST

(Exact Name of Registrant as Specified in Its Charter)

Maryland	04-3445278
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)

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 x  No o

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

Number of registrant’s common shares outstanding as of May 1, 2013:  188,075,568.

SENIOR HOUSING PROPERTIES TRUST

FORM 10-Q

March 31, 2013

INDEX

		Page
PART I	Financial Information
Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets – March 31, 2013 and December 31, 2012	1
	Condensed Consolidated Statements of Income and Comprehensive Income – Three Months Ended March 31, 2013 and 2012	2
	Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2013 and 2012	3
	Notes to Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	41
	Warning Concerning Forward Looking Statements	43
	Statement Concerning Limited Liability	47
PART II	Other Information
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 6.	Exhibits	48
	Signatures	50

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

PART I.  Financial Information

Item 1.   Financial Statements.

SENIOR HOUSING PROPERTIES TRUST

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share and per share data)

(unaudited)

	March 31,			December 31,
	2013			2012
ASSETS
Real estate properties:
Land	$	627,696		$	615,623
Buildings and improvements	4,633,644			4,567,684
	5,261,340			5,183,307
Less accumulated depreciation	782,111			750,903
	4,479,229			4,432,404
Cash and cash equivalents	38,989			42,382
Restricted cash	11,876			9,432
Deferred financing fees, net	28,409			29,410
Acquired real estate leases and other intangible assets, net	120,732			115,837
Other assets	132,034			118,537
Total assets	$	4,811,269		$	4,748,002
LIABILITIES AND SHAREHOLDERS’ EQUITY
Unsecured revolving credit facility	$	—		$	190,000
Senior unsecured notes, net of discount	1,092,374			1,092,053
Secured debt and capital leases	734,227			724,477
Accrued interest	21,595			15,757
Assumed real estate lease obligations, net	15,121			13,692
Other liabilities	63,807			65,455
Total liabilities	1,927,124			2,101,434
Commitments and contingencies
Shareholders’ equity:
Common shares of beneficial interest, $.01 par value: 199,700,000 shares authorized, 188,075,568 and 176,553,600 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively	1,880			1,765
Additional paid in capital	3,495,681			3,233,354
Cumulative net income	1,079,056			1,043,821
Cumulative other comprehensive income	13,318			4,562
Cumulative distributions	(1,705,790		)	(1,636,934		)
Total shareholders’ equity	2,884,145			2,646,568
Total liabilities and shareholders’ equity	$	4,811,269		$	4,748,002

See accompanying notes.

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(amounts in thousands, except per share data)

(unaudited)

	Three Months Ended March 31,
	2013			2012
Revenues:
Rental income	$	114,373		$	109,505
Residents fees and services	75,056			35,568
Total revenues	189,429			145,073
Expenses:
Property operating expenses	74,582			39,334
Depreciation	38,302			33,377
General and administrative	8,648			7,685
Acquisition related costs	1,903			688
Impairment of assets	1,304			3,071
Total expenses	124,739			84,155
Operating income	64,690			60,918
Interest and other income	173			482
Interest expense	(29,564		)	(28,889		)
Equity in earnings of an investee	76			45
Income before income tax expense	35,375			32,556
Income tax expense	(140		)	(204		)
Net income	35,235			32,352
Other comprehensive income:
Change in net unrealized gain / loss on investments	8,764			2,231
Share of comprehensive income of an investee	(8		)	(1		)
Comprehensive income	$	43,991		$	34,582
Weighted average shares outstanding	184,605			162,647
Net income per share	$	0.19		$	0.20

See accompanying notes.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

	Three Months Ended March 31,
	2013			2012
Cash flows from operating activities:
Net income	$	35,235		$	32,352
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	38,302			33,377
Amortization of deferred financing fees and debt discounts	1,065			1,555
Straight line rental income	(1,833		)	(2,858		)
Amortization of acquired real estate leases and other intangible assets	995			546
Impairment of assets	1,304			3,071
Equity in earnings of an investee	(76		)	(45		)
Change in assets and liabilities:
Restricted cash	(2,444		)	(3,168		)
Other assets	(3,822		)	2,987
Accrued interest	5,838			(2,677		)
Other liabilities	(868		)	7,234
Cash provided by operating activities	73,696			72,374
Cash flows from investing activities:
Real estate acquisitions and deposits	(73,406		)	(30,273		)
Real estate improvements	(3,265		)	(2,577		)
Cash used for investing activities	(76,671		)	(32,850		)
Cash flows from financing activities:
Proceeds from issuance of common shares, net	261,859			—
Proceeds from borrowings on revolving credit facility	—			284,000
Repayments of borrowings on revolving credit facility	(190,000		)	(19,000		)
Redemption of senior notes	—			(225,000		)
Repayment of other debt	(3,199		)	(15,907		)
Payment of deferred financing fees	(221		)	(69		)
Distributions to shareholders	(68,857		)	(61,806		)
Cash used for financing activities	(418		)	(37,782		)
(Decrease) increase in cash and cash equivalents	(3,393		)	1,742
Cash and cash equivalents at beginning of period	42,382			23,560
Cash and cash equivalents at end of period	$	38,989		$	25,302
Supplemental cash flow information:
Interest paid	$	22,660		$	30,011
Income taxes paid	81			—
Non-cash investing activities:
Acquisitions funded by assumed debt	(12,266		)	—
Non-cash financing activities:
Assumption of mortgage notes payable	12,266			—
Issuance of common shares	582			453

See accompanying notes.

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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, 2012, or our Annual Report.  In the opinion of our management, all adjustments, which include only normal recurring adjustments, considered necessary for a fair presentation have been included.  All material intercompany transactions and balances among us and our consolidated subsidiaries have been eliminated.  Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.  Reclassifications have been made to the prior year’s financial statements to conform to the current year’s presentation.  These reclassifications were made to conform the prior periods’ rental income, property operating expenses, general and administrative expenses, interest and other income and impairment of assets to the current classification.  These reclassifications had no effect on net income or shareholders’ equity.

Note 2.  Recent Accounting Pronouncements

In January 2013, we adopted Financial Accounting Standards Board, or FASB, Accounting Standards Update No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This update is the culmination of the FASB’s deliberation on reporting reclassification adjustments from accumulated other comprehensive income, or AOCI. This standard does not change the current requirements for reporting net income or other comprehensive income. However, it requires disclosure of amounts reclassified out of AOCI in their entirety, by component, on the face of the statement of operations or in the notes thereto. Amounts that are not required to be reclassified in their entirety to net income must be cross referenced to other disclosures that provide additional detail. This standard is effective prospectively for annual and interim reporting periods beginning after December 15, 2012. This update has not caused any material changes to the disclosures in, or the presentation of, our condensed consolidated financial statements.

Note 3.  Real Estate Properties

At March 31, 2013, we owned 395 properties located in 40 states and Washington, D.C.

Triple Net Senior Living Communities Acquisitions:

In January 2013, we acquired a senior living community located in Redmond, WA with 150 living units for approximately $22,350, excluding closing costs.  We funded this acquisition using cash on hand, borrowings under our revolving credit facility, and by assuming approximately $12,266 of mortgage debt which was recorded at a fair value of $13,306.  Details of this acquisition are as follows:

Triple Net Senior Living Communities Acquisitions since January 1, 2013:

Date	Location	Number of Properties	Units/ Beds	Purchase Price (1)		Land		Buildings and Improvements		FF&E		Intangible Assets		Assumed Debt		Premium on Assumed Debt
January 2013 (2)	Redmond, WA	1	150	$	22,350	$	5,120	$	16,562	$	669	$	1,039	$	12,266	$	1,040

(1)Purchase price includes the assumption of mortgage debt and excludes closing costs.  The allocation of the purchase price of our acquisition shown above is based upon preliminary estimates of the fair value of assets acquired and liabilities assumed.  Consequently, amounts preliminarily allocated to assets acquired and liabilities assumed could change significantly from those used in these condensed consolidated financial statements.

(2)We leased this property to a subsidiary of Stellar Senior Living, LLC for an initial term expiring in 2028 for initial rent of approximately $1,732 per year.  Percentage rent, based on an increase in gross revenues at this property, will commence in 2016.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Managed Senior Living Communities Acquisitions:

In April 2013, we entered into an agreement to acquire one senior living community for approximately $22,030, excluding closing costs.  The senior living community is located in Cumming, GA and includes 93 private pay assisted living units. We expect that a subsidiary of Five Star Quality Care, Inc., which together with its subsidiaries, we refer to in this report as Five Star, will manage this community for our account pursuant to a long term management agreement. The closing of this acquisition is contingent upon completion of our diligence and other customary closing conditions; accordingly, we can provide no assurance that we will purchase this property. As of March 31, 2013, we own 39 communities that are managed by Five Star. We use the taxable REIT subsidiary, or TRS, structures authorized by the Real Estate Investment Trust Investment Diversification and Empowerment Act for our managed senior living communities, which we began acquiring in June 2011. See Note 11 for more information regarding our management arrangements with Five Star.

MOB Acquisitions:

In February 2013, we acquired two properties leased to medical providers, medical related businesses, clinics and biotech laboratory tenants, or MOBs, with a total of 144,900 square feet located in Bothell, WA for approximately $38,000, excluding closing costs.  We funded this acquisition using cash on hand. In March 2013, we acquired a MOB with 71,824 square feet located in Hattiesburg, MS for approximately $14,600, excluding closing costs. We funded this acquisition using cash on hand. Details of these acquisitions are as follows:

MOB Acquisitions since January 1, 2013:

Date	Location	Number of Properties	Square Feet	Purchase Price (1)		Land		Buildings and Improvements		Acquired Real Estate Leases		Acquired Real Estate Lease Obligations
February 2013	Bothell, WA	2	145	$	38,000	$	5,639	$	25,239	$	8,442	$	1,539
March 2013	Hattiesburg, MS	1	72	$	14,600	$	1,269	$	11,691	$	2,323	$	683
		3	217	$	52,600	$	6,908	$	36,930	$	10,765	$	2,222

(1)Purchase price excludes closing costs.  The allocation of the purchase price of our acquisitions shown above is based upon preliminary estimates of the fair value of assets acquired and liabilities assumed.  Consequently, amounts preliminarily allocated to assets acquired and liabilities assumed could change significantly from those used in these condensed consolidated financial statements.

In April 2013, we entered into an agreement to acquire an MOB, which has not yet closed, for approximately $21,500, excluding closing costs. The MOB is located in Cherry Hill, NJ and includes

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

53,976 square feet. The closing of this acquisition is contingent upon completion of our diligence and other customary closing conditions; accordingly, we can provide no assurance that we will purchase this property.

We periodically evaluate our properties for impairments. Impairment indicators may include declining tenant occupancy, weak or declining tenant profitability, cash flow 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 a property. If indicators of impairment are present, we evaluate the carrying value of the affected property by comparing it to the expected future undiscounted net cash flows to be generated from that property. If the sum of these expected future net cash flows is less than the carrying value, we reduce the net carrying value of the property to its estimated fair value.  During the three months ended March 31, 2013 and 2012, we recorded impairment of assets charges of $1,304 and $3,071, respectively, to reduce the carrying value of one of our properties to its estimated net sale price.

At March 31, 2013, one of our senior living communities located in Pittsburgh, PA is classified as held for sale.  This property is included in real estate properties in our condensed consolidated balance sheets and has a net book value of approximately $850 at March 31, 2013 and December 31, 2012, respectively.

During the three months ended March 31, 2013, pursuant to the terms of our existing leases with Five Star, we purchased $8,171 of improvements made to our properties leased to Five Star, and, as a result, the annual rent payable to us by Five Star increased by approximately $656.

Note 4.  Unrealized Gain / Loss on Investments

As of March 31, 2013, we owned 250,000 common shares of CommonWealth REIT, or CWH, and 4,235,000 common shares of Five Star, which are carried at fair market value in other assets in our condensed consolidated balance sheets. Cumulative other comprehensive income shown in our condensed consolidated balance sheets includes the net unrealized gain or loss on investments determined as the net difference between the value at quoted market prices of our CWH and Five Star shares as of March 31, 2013 ($22.44 and $6.69 per share, respectively) and our weighted average costs at the time we acquired these shares, as adjusted to reflect any share splits or combinations ($26.00 and $3.36 per share, respectively).

Note 5.  Loan Receivable

In May 2011, we and Five Star entered into a loan agreement, or the Bridge Loan, under which we agreed to lend Five Star up to $80,000 to fund a portion of Five Star’s purchase of a portfolio of six senior living communities.  By September 30, 2011, Five Star had completed its acquisition of these communities and had borrowed all $80,000 of this Bridge Loan.  By December 31, 2011, Five Star had repaid $42,000 of those borrowings.  In April 2012, Five Star paid the remaining balance of $38,000, resulting in the termination of this Bridge Loan.  The Bridge Loan was secured by mortgages on three of the senior living communities that Five Star acquired and on four other senior living communities owned by Five Star.  The Bridge Loan required interest payable to us at a rate equal to the annual rates of interest applicable to our borrowings under our revolving credit facility, plus 1%.  We recognized interest income from this Bridge Loan of $275 for the three months ended March 31, 2012, which is included in interest and other income in our condensed consolidated statements of income and comprehensive income.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Note 6.  Indebtedness

Our principal debt obligations at March 31, 2013 were: our (1) $750,000 unsecured revolving credit facility; (2) four public issuances of unsecured senior notes, including: (a) $250,000 principal amount due 2016 at an annual interest rate of 4.30%, (b) $200,000 principal amount due 2020 at an annual interest rate of 6.75%, (c) $300,000 principal amount due 2021 at an annual interest rate of 6.75% and (d) $350,000 principal amount due 2042 at an annual interest rate of 5.625%; and (3) $714,439 aggregate principal amount of mortgages secured by 57 of our properties with maturity dates from 2013 to 2043.  The 57 mortgaged properties had a carrying value of $983,479 at March 31, 2013.  We also have two properties subject to capital leases totaling $13,676 at March 31, 2013; these two properties had a carrying value of $18,124 at March 31, 2013.

In connection with the acquisitions discussed in Note 3 above, during the three months ended March 31, 2013, we assumed $12,266 of mortgage debt, which was recorded at a fair value of $13,306.  This mortgage has a contractual interest rate of 6.25% and matures in May 2015.  We recorded the assumed mortgage at its fair value, which exceeded its outstanding principal balance by $1,040.  We determined the fair value of the assumed mortgages using a market approach based upon Level 3 inputs (significant other unobservable inputs) in the fair value hierarchy.

We have a $750,000 unsecured revolving credit facility that is available for general business purposes, including acquisitions.  The maturity date of our revolving credit facility is June 24, 2015 and, subject to the payment of an extension fee and meeting certain other conditions, includes an option for us to extend the stated maturity date of our revolving credit facility by one year to June 24, 2016.  In addition, our revolving credit facility includes a feature under which maximum borrowings may be increased to up to $1,500,000 in certain circumstances.  Borrowings under our revolving credit facility bear interest at LIBOR plus a premium, which was 160 basis points as of March 31, 2013.  We also pay a facility fee of 35 basis points per annum on the total amount of lending commitments under our revolving credit facility.  Both the interest rate premium and the facility fee are subject to adjustment based upon changes to our credit ratings.  We can borrow, repay and reborrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity.  The weighted average annual interest rate for borrowings under our revolving credit facility was 1.7% for the three months ended March 31, 2013.  We incurred interest expense and other associated costs related to our revolving credit facility of $231 for the three months ended March 31, 2013.  As of March 31, 2013, we had no borrowings outstanding and $750,000 available under our revolving credit facility.

Note 7.  Shareholders’ Equity

On February 19, 2013, we paid a $0.39 per share, or $68,857, distribution to our common shareholders with respect to our operating results for the quarter ended December 31, 2012.  On April 2, 2013, we declared a quarterly distribution of $0.39 per share, or $73,349, to our common shareholders of record on April 17, 2013, with respect to our operating results for the quarter ended March 31, 2013; we expect to pay this distribution on or about May 21, 2013.  On February 9, 2012, we paid a $0.38 per share, or $61,806, distribution to our common shareholders with respect to our operating results for the quarter ended December 31, 2011.  On May 9, 2012, we paid a $0.38 per share, or $61,813, distribution to our common shareholders with respect to our operating results for the quarter ended March 31, 2012.

In January 2013, we issued 11,500,000 common shares in a public offering, raising net proceeds of approximately $262,068 after underwriting discounts but before expenses. We used the net proceeds from this offering to repay borrowings outstanding under our revolving credit facility and for general business

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

purposes, including the partial funding of the acquisitions described above with the remainder to be used for general business purposes, including possible future acquisitions.

Under the terms of our business management agreement with Reit Management & Research LLC, or RMR, on March 27, 2013, we issued 21,968 common shares in payment of an incentive fee of approximately $582 for services rendered to us by RMR during 2012.

Note 8.  Fair Value of Assets and Liabilities

The following table presents certain of our assets and liabilities that are measured at fair value on a recurring and non recurring basis at March 31, 2013 categorized by the level of inputs used in the valuation of each asset or liability.

			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)
Assets held for sale(1)	$	850	$	—	$	850	$	—
Long-lived assets held and used(2)	$	653	$	—	$	653	$	—
Investments in available for sale securities(3)	$	33,942	$	33,942	$	—	$	—
Unsecured senior notes(4)	$	1,196,030	$	1,196,030	$	—	$	—
Secured debt(5)	$	818,510	$	—	$	—	$	818,510

(1)Assets held for sale consist of one of our properties that we expect to sell that is reported at fair value.  We used offers to purchase the property made by third parties or comparable sales transactions (Level 2 inputs) to determine the fair value of this property.  We have previously recorded cumulative impairments of approximately $5,738 to this property in order to reduce its book value to fair value.

(2)Long-lived assets held and used consist of one of our properties.  We used broker information and comparable sales transactions (Level 2 inputs) to determine the fair value of this property.  We have previously recorded impairment of assets charges of $1,304 and $3,071 for the three months ended March 31, 2013 and 2012, respectively, to this property in order to reduce its carrying value to the amount stated.

(3)Our investments in available for sale securities include our 250,000 common shares of CWH and 4,235,000 common shares of Five Star. The fair values of these shares are based on quoted prices at March 31, 2013 in active markets (Level 1 inputs).

(4)We estimate the fair values of our unsecured senior notes using an average of the bid and ask price of our then outstanding four issuances of senior notes (Level 1 inputs) on or about March 31, 2013.  The fair values of these senior note obligations exceed their aggregate book values of $1,092,374 by $103,656 because these notes were trading at a premium to their face amounts.

(5)We estimate the fair values of our secured debt by using discounted cash flow analyses and currently prevailing market terms at March 31, 2013 (Level 3 inputs).  Because Level 3 inputs are unobservable, our estimated fair value may differ materially from the actual fair value.

In addition to the assets and liabilities described in the above table, our additional financial instruments include rents receivable, cash and cash equivalents, restricted cash, unsecured debt and other liabilities. The fair values of these additional financial instruments approximate their carrying values at March 31, 2013 based upon their liquidity, short term maturity, variable rate pricing or our estimate of fair value using discounted cash flow analyses and prevailing interest rates.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Note 9.  Segment Reporting

We have four operating segments, of which three are reportable operating segments: (i) triple net senior living communities that provide short term and long term residential care and dining services for residents, (ii) managed senior living communities leased to our TRSs that provide short term and long term residential care and dining services for residents and (iii) MOBs. Our triple net and managed senior living communities include independent living communities and assisted living communities, skilled nursing facilities, or SNFs, and two rehabilitation hospitals.  Properties in the MOB segment include medical office, clinic and biotech laboratory buildings.  The “All Other” category in the following table includes amounts related to corporate business activities and the operating results of certain properties that offer fitness, wellness and spa services to members.

Following the transfer of the ten properties formerly leased to Sunrise Senior Living, Inc., or Sunrise, to one of our TRSs and management by Five Star for our account, which will be effective for the full year 2013, we determined that the segregation of our managed senior living communities into its own reporting segment is appropriate because this is the way our management began to assess the performance of this part of our business and to make operating decisions for these properties. We previously operated through two reportable segments: short and long term residential care communities and MOBs. We also renamed our short and long term residential care communities segment to triple net senior living communities. Prior year amounts have been restated to reflect the segregation of our managed senior living communities into a reportable business segment.

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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, 2013
	Triple Net Senior Living Communities			Managed Senior Living Communities			MOBs			All Other Operations			Consolidated
Revenues:
Rental income	$	56,765		$	—		$	53,204		$	4,404		$	114,373
Residents fees and services	—			75,056			—			—			75,056
Total revenues	56,765			75,056			53,204			4,404			189,429
Expenses:
Depreciation	16,917			6,849			13,588			948			38,302
Property operating expenses	—			57,904			16,678			—			74,582
General and administrative	—			—			—			8,648			8,648
Acquisition related costs	—			—			—			1,903			1,903
Impairment of assets	—			—			1,304			—			1,304
Total expenses	16,917			64,753			31,570			11,499			124,739
Operating income (loss)	39,848			10,303			21,634			(7,095		)	64,690
Interest and other income	—			—			—			173			173
Interest expense	(6,463		)	(3,068		)	(1,348		)	(18,685		)	(29,564		)
Equity in earnings of an investee	—			—			—			76			76
Income (loss) before income tax expense	33,385			7,235			20,286			(25,531		)	35,375
Income tax expense	—			—			—			(140		)	(140		)
Net income (loss)	$	33,385		$	7,235		$	20,286		$	(25,671	)	$	35,235
Total assets	$	1,910,293		$	954,155		$	1,522,646		$	424,175		$	4,811,269

10

SENIOR HOUSING PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

	For the Three Months Ended March 31, 2012
	Triple Net Senior Living Communities			Managed Senior Living Communities			MOBs			All Other Operations			Consolidated
Revenues:
Rental income	$	58,824		$	—		$	46,261		$	4,420		$	109,505
Residents fees and services	—			35,568			—			—			35,568
Total revenues	58,824			35,568			46,261			4,420			145,073
Expenses:
Depreciation	17,191			3,706			11,532			948			33,377
Property operating expenses	—			25,499			13,835			—			39,334
General and administrative	—			—			—			7,685			7,685
Acquisition related costs	—			—			—			688			688
Impairment of assets	—			—			3,071			—			3,071
Total expenses	17,191			29,205			28,438			9,321			84,155
Operating income (loss)	41,633			6,363			17,823			(4,901		)	60,918
Interest and other income	—			—			—			482			482
Interest expense	(10,245		)	(2,933		)	(412		)	(15,299		)	(28,889		)
Equity in earnings of an investee	—			—			—			45			45
Income (loss) before income tax expense	31,388			3,430			17,411			(19,673		)	32,556
Income tax expense	—			—			—			(204		)	(204		)
Net income (loss)	$	31,388		$	3,430		$	17,411		$	(19,877	)	$	32,352
Total assets	$	2,003,386		$	730,879		$	644,811		$	1,004,745		$	4,383,821

Note 10. Significant Tenant

Five Star is our former subsidiary.  Rental income from Five Star represented 43.4% of our annualized rental income and the properties Five Star leases from us represented 41.5% of our investments, at cost, as of March 31, 2013.  As of March 31, 2013, Five Star also managed 39 senior living communities for our account.  The following tables present summary financial information for Five Star for the three months ended March 31, 2013, as reported in its Quarterly Report on Form 10-Q for the quarterly period ending March 31, 2013.

11

SENIOR HOUSING PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

	For the Three Months Ended March 31,
Operations	2013		2012
Total revenues	$	360,052	$	327,150
Operating income	2,405		3,001
Income from continuing operations	2,314		1,222
Net income	1,935		369

	For the Three Months Ended March 31,
Cash Flows	2013			2012
Cash provided by operating activities	$	2,011		$	7,392
Net cash (used in) provided by discontinued operations	(2,161		)	107
Cash provided by (used in) investing activities	(9,028		)	(8,942		)
Cash (used in) provided by financing activities	(304		)	(286		)
Change in cash and cash equivalents	(9,482		)	(1,729		)
Cash and cash equivalents at beginning of period	24,638			28,374
Cash and cash equivalents at end of period	15,156			26,645

	As of March 31,
Financial Position	2013		2012
Current assets	$	140,178	$	144,195
Non-current assets	428,475		434,042
Total indebtedness	62,209		62,493
Current liabilities	183,006		190,841
Non-current liabilities	76,696		80,591
Total shareholders’ equity	308,951		306,805

The summary financial information of Five Star is presented to comply with applicable accounting regulations of the Securities and Exchange Commission, or SEC.  References in these financial statements to the Quarterly Report on Form 10-Q for Five Star are included to show the source of the information only, and the other information in Five Star’s Quarterly Report on Form 10-Q is not incorporated by reference into these financial statements.  See Note 11 for further information regarding our leases and management arrangements with Five Star.

Note 11. Related Person Transactions

We have no employees.  Personnel and various services we require to operate our business are provided to us by RMR.  We have two agreements with RMR to provide management and administrative 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.

Under our business management agreement with RMR, we acknowledge that RMR also provides management services to other companies, which include Five Star.  One of our Managing Trustees, Mr. Barry Portnoy, is Chairman, majority owner and an employee of RMR.  Our other Managing Trustee, Mr. Adam Portnoy, is the son of Mr. Barry Portnoy, and an owner, President, Chief Executive Officer and a director of RMR.  Each of our executive officers is also an officer of RMR, and our President and Chief

12

SENIOR HOUSING PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Operating Officer, Mr. David Hegarty, is a director of RMR.  Five Star’s President and Chief Executive Officer and its Chief Financial Officer and Treasurer are officers of RMR.  Our Independent Trustees also serve as independent directors or independent trustees of other public companies to which RMR provides management services.  Mr. Barry Portnoy serves as a managing director or managing trustee of those companies, including Five Star, and Mr. Adam Portnoy serves as a managing trustee of a majority of those companies, but not Five Star.  In addition, officers of RMR serve as officers of those companies.

Pursuant to our business management agreement with RMR, we recognized business management fees for the three months ended March 31, 2013 and 2012 of $6,550 and $6,360, respectively.  These amounts are included in general and administrative expenses in our condensed consolidated statements of income and comprehensive income.  In March 2013, we issued 21,968 of our common shares to RMR for the incentive fee payable to RMR for 2012, in accordance with the terms of our business management agreement.

In connection with our property management agreement with RMR, we recognized aggregate property management and construction supervision fees for the three months ended March 31, 2013 and 2012 were $1,600 and $1,399, respectively.  These amounts are included in property operating expenses or have been capitalized, as appropriate, in our condensed consolidated balance sheets.

Five Star was formerly our 100% owned subsidiary.  Five Star is our largest tenant, we are Five Star’s largest stockholder and Five Star manages several senior living communities for us.  In 2001, we distributed substantially all of Five Star’s then outstanding common shares to our shareholders.  As of March 31, 2013, we owned 4,235,000 shares of common stock of Five Star, or approximately 8.8% of Five Star’s outstanding shares of common stock.  One of our Managing Trustees, Mr. Barry Portnoy, is also a managing director of Five Star.  RMR provides management services to both us and Five Star.

As of March 31, 2013, we leased 188 senior living communities and two rehabilitation hospitals to Five Star.  Under Five Star’s leases with us, Five Star pays us rent consisting of minimum annual rent amounts plus percentage rent based on increases in gross revenues at certain properties.  Five Star’s total minimum annual rent payable to us as of March 31, 2013 was $198,357, excluding percentage rent.  We recognized total rental income from Five Star of $49,444 and $48,811 for the three months ended March 31, 2013 and 2012, respectively.  As of March 31, 2013 and December 31, 2012, our rents receivable from Five Star were $17,620 and $17,680, respectively, and those amounts are included in due from affiliate in our condensed consolidated balance sheets.  We had deferred percentage rent under our Five Star leases of $1,254 and $1,211 for the three months ended March 31, 2013 and 2012, respectively.  We determine percentage rent due under our Five Star leases annually and recognize it at year end when all contingencies are met.  During the three months ended March 31, 2013, pursuant to the terms of our leases with Five Star, we purchased $8,171 of improvements made to properties leased to Five Star, and, as a result, the annual rent payable to us by Five Star increased by approximately $654.

As of March 31, 2013, Five Star managed 39 senior living communities for our account.  We lease our senior living communities that are managed by Five Star that include assisted living units to our TRSs, and Five Star manages our communities pursuant to long term management agreements on substantially similar terms.  In connection with the management agreements, we and Five Star have entered into three pooling agreements: two pooling agreements which pool our management agreements for communities that include assisted living units, or the AL Pooling Agreements, and a third pooling agreement, which pools our management agreements for communities consisting only of independent living units, or the IL Pooling Agreement.  We entered into the initial AL Pooling Agreement in May 2011 and the second AL Pooling Agreement in October 2012.  In connection with entering into the second AL Pooling Agreement, we and Five Star amended and restated the initial AL Pooling Agreement

13

SENIOR HOUSING PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

so that it includes only the management agreements for 20 identified communities.  The second AL Pooling Agreement includes the management agreements for the remaining communities that include assisted living units that Five Star currently manages (other than with respect to the senior living community in New York described below).  We entered into the IL Pooling Agreement in August 2012 and that agreement currently includes management agreements for two communities that have only independent living units.  Each of the AL Pooling Agreements and the IL Pooling Agreement aggregates the determination of fees and expenses of the various communities that are subject to the applicable pooling agreement, including determinations of our return of our invested capital and Five Star’s incentive fees.  We incurred management fees of $2,295 and $1,068 for the three months ended March 31, 2013 and 2012, respectively, with respect to the communities Five Star manages.  These amounts are included in property operating expenses in our condensed consolidated statements of income and comprehensive income.  We expect that we may enter into additional management arrangements with Five Star for senior living communities that we may acquire in the future on terms similar to those management arrangements we currently have with Five Star.  For example, on April 16, 2013, we entered an agreement to acquire a senior living community located in Cumming, GA with 93 assisted living units, for approximately $22,030, excluding closing costs.  If this acquisition is completed, we will lease this community to one of our TRSs and we expect to enter into a long term management agreement with Five Star to manage this community on terms similar to those management arrangements we currently have with Five Star for communities that include assisted living units and that this management agreement would be added to the second AL Pooling Agreement.  This acquisition is subject to due diligence and other conditions and there can be no assurance that the acquisition will be completed, that it will not be delayed or that its terms will not change.

We own a senior living community in New York with 310 living units, a portion of which is managed by Five Star pursuant to a long term management agreement with us with respect to the living units at this community that are not subject to the requirements of New York healthcare licensing laws.  The terms of this management agreement are substantially consistent with the terms of our other management agreements with Five Star for communities that include assisted living units, except the management fee we pay is equal to 5% of the gross revenues realized at that portion of the community and there is no incentive fee payable by us.  In order to accommodate certain requirements of New York healthcare licensing laws, one of our TRSs subleases the portion of this community that is subject to those requirements to an entity, D&R Yonkers LLC, which is owned by our President and Chief Operating Officer and our Treasurer and Chief Financial Officer.  Five Star manages this portion of the community pursuant to a long term management agreement with D&R Yonkers LLC.  Under the sublease agreement, D&R Yonkers LLC is obligated to pay rent only from available revenues generated by the subleased community and our TRS is obligated to advance any rent shortfalls to D&R Yonkers LLC.

As discussed above in Note 5, in May 2011, we and Five Star entered into the Bridge Loan, under which we lent to Five Star $80,000 to fund a portion of Five Star’s purchase of six senior living communities.  In April 2012, Five Star repaid in full the $38,000 principal amount then outstanding under the Bridge Loan, resulting in the termination of the Bridge Loan.  We recognized interest income from the Bridge Loan of $275 for the three months ended March 31, 2012.

We, RMR, Five Star and five other companies to which RMR provides management services each currently own 12.5% of Affiliates Insurance Company, or AIC, an Indiana insurance company.  All of our Trustees, all of the trustees and directors of the other publicly held AIC shareholders and nearly all of the directors of RMR currently serve on the board of directors of AIC.  RMR provides management and administrative services to AIC pursuant to a management and administrative services agreement with AIC.

14

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, 2013, we have invested $5,209 in AIC since its formation in November 2008.  Although we own less than 20% of AIC, we use the equity method to account for this investment because we believe that we have significant influence over AIC because all of our Trustees are also directors of AIC.  Our investment in AIC had a carrying value of $5,697 and $5,629 as of March 31, 2013 and December 31, 2012, respectively, which amounts are include in other assets on our condensed consolidated balance sheets.  For the three months ended March 31, 2013 and 2012, we recognized income of $76 and $45, respectively, related to our investment in AIC.  We and the other shareholders of AIC have purchased property insurance providing $500,000 of coverage pursuant to an insurance program arranged by AIC and with respect to which AIC is a reinsurer of certain coverage amounts.  This program was modified and extended in June 2012 for a one year term, and we paid a premium, including taxes and fees, of $4,438 in connection with that renewal, which amount may be adjusted from time to time as we acquire or dispose of properties that are included in this program.  We periodically consider the possibilities for expanding our insurance relationships with AIC to include other types of insurance and may in the future participate in additional insurance offerings AIC may provide or arrange.  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.  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 or by realizing our pro rata share of any profits of this insurance business.

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 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 REIT status.  During the three months ended March 31, 2013 and 2012, we recognized current income tax expense of $140 and $204, respectively.

15

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 our Annual Report. We are a REIT organized under Maryland law.

PORTFOLIO OVERVIEW

The following tables present an overview of our portfolio (dollars in thousands, except living unit / bed or square foot data):

(As of March 31, 2013)	Number of Properties	Number of Units/Beds or Square Feet		Investment Carrying Value(1)		% of Total Investment	Investment per Unit / Bed or Square Foot(2)		Q1 2013 NOI(3)		% of Q1 2013 NOI
Facility Type
Independent living(4)	62	15,180		$	1,855,007	35.2%	$	122,201	$	34,022	29.7%
Assisted living(4)	151	11,158		1,285,493		24.3%	$	115,208	32,875		28.6%
Nursing homes(4)	48	5,024		210,394		4.0%	$	41,878	4,303		3.7%
Rehabilitation hospitals	2	364		76,463		1.5%	$	210,063	2,717		2.4%
Subtotal senior living communities	263	31,726		3,427,357		65.0%	$	108,030	73,917		64.4%
MOBs	122	8,543,000	sq. ft.	1,653,966		31.5%	$	194	36,526		31.8%
Wellness centers	10	812,000	sq. ft.	180,017		3.5%	$	222	4,404		3.8%
Total	395			$	5,261,340	100.0%			$	114,847	100.0%
Tenant / Operator / Managed Properties(7)
Five Star (Lease No. 1)	91	6,731		703,069		13.3%	$	104,452	14,708		12.8%
Five Star (Lease No. 2)	53	7,564		750,202		14.2%	$	99,181	17,618		15.3%
Five Star (Lease No. 3)	17	3,281		350,690		6.7%	$	106,885	8,500		7.4%
Five Star (Lease No. 4)	29	3,335		385,642		7.3%	$	115,635	8,618		7.5%
Subtotal Five Star	190	20,911		2,189,603		41.5%	$	104,711	49,444		43.0%
Sunrise / Marriott(5)	4	1,619		126,326		2.4%	$	78,027	3,133		2.8%
Brookdale	18	894		61,122		1.2%	$	68,369	1,754		1.5%
6 private senior living companies (combined)	12	1,620		93,977		1.8%	$	58,010	2,434		2.1%
Managed senior living communities(6)	39	6,682		956,329		18.1%	$	143,120	17,152		15.0%
Subtotal senior living communities	263	31,726		3,427,357		65.0%	$	108,030	73,917		64.4%
Multi-tenant MOBs	122	8,543,000	sq. ft.	1,653,966		31.5%	$	194	36,526		31.8%
Wellness centers	10	812,000	sq. ft.	180,017		3.5%	$	222	4,404		3.8%
Total	395			$	5,261,340	100.0%			$	114,847	100.0%

Tenant / Managed Property Operating Statistics(7)

	Rent Coverage		Occupancy
	2012	2011	2012	2011
Five Star (Lease No. 1)	1.22x	1.22x	85.0%	84.1%
Five Star (Lease No. 2)	1.20x	1.29x	81.5%	81.8%
Five Star (Lease No. 3)	1.67x	1.74x	88.9%	90.0%
Five Star (Lease No. 4)	1.20x	1.16x	85.9%	84.6%
Subtotal Five Star	1.29x	1.32x	84.5%	84.3%
Sunrise / Marriott(5)	1.91x	1.96x	93.4%	92.6%
Brookdale	2.41x	2.23x	94.8%	92.1%
6 private senior living companies (combined)	2.28x	2.80x	83.1%	84.0%
Managed senior living communities(6)	NA	NA	87.4%	86.5%
Subtotal senior living communities	1.40x	1.43x	85.7%	85.3%
Multi-tenant MOBs	NA	NA	93.3%	95.9%
Wellness centers	2.21x	2.15x	100.0%	100.0%
Total	1.45x	1.48x

16

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

(2)Represents investment carrying value divided by the number of living units, beds or leased square feet at March 31, 2013.

(3)Net operating income, or NOI, is defined and calculated by reportable segment and reconciled to net income below in this Item 2.

(4)Senior living properties are categorized by the type of living units or beds which constitute a majority of the living units or beds at the property.

(5)Marriott International, Inc. guarantees the lessee’s obligations under these leases.

(6)These 39 managed senior living communities are leased to our TRSs and managed by Five Star.  The occupancy for the twelve month period ended, or, if shorter, from the date of acquisitions through March 31, 2013 was 87.3%.

(7)Operating data for multi-tenant MOBs are presented as of March 31, 2013 and 2012; operating data for other properties, tenants and managers are presented based upon the operating results provided by our tenants and managers for the 12 months ended December 31, 2012 and 2011, or the most recent prior period for which tenant operating results are available to us.  Rent coverage is calculated as operating cash flow from our tenants’ operations of our properties, before subordinated charges, if any, divided by rents payable to us.  We have not independently verified our tenants’ operating data.  The table excludes data for periods prior to our ownership of some of these properties.

17

The following tables set forth information regarding our lease expirations as of March 31, 2013 (dollars in thousands):

	Annualized Rental Income(1) (2)								Percent of Total	Cumulative Percentage of
Year	Triple Net Senior Living Communities		MOBs		Wellness Centers		Total		Annualized Rental Income Expiring	Annualized Rental Income Expiring
2013	$	—	$	17,631	$	—	$	17,631	3.8%	3.8%
2014	—		25,134		—		25,134		5.4%	9.2%
2015	3,039		20,802		—		23,841		5.1%	14.3%
2016	—		19,685		—		19,685		4.2%	18.5%
2017	43,998		25,038		—		69,036		14.7%	33.2%
2018	14,540		20,264		—		34,804		7.4%	40.6%
2019	599		29,612		—		30,211		6.4%	47.0%
2020	—		11,865		—		11,865		2.5%	49.5%
2021	1,424		5,121		—		6,545		1.4%	50.9%
Thereafter	173,021		39,246		17,536		229,803		49.1%	100.0%
Total	$	236,621	$	214,398	$	17,536	$	468,555	100.0%

Average remaining lease term for all properties (weighted by annualized rental income):  8.5 years

(1)Annualized rental income is rents pursuant to existing leases as of March 31, 2013, including estimated percentage rents, 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 and wellness centers.

(2)Excludes rent received from our managed senior living communities leased to our TRSs.  If the NOI from our TRSs (three months ended March 31, 2013, annualized) were included in the foregoing table, the percent of total annualized rental income expiring would be: 2013 – 3.3%; 2014 – 4.7%; 2015 – 4.4%, 2016 – 3.7%; 2017 – 12.9%; 2018 – 6.5%; 2019 – 5.6%; 2020 – 2.2%; 2021 – 1.2% and thereafter – 55.5%.

18

	Number of Tenants				Percent of Total Number of	Cumulative Percentage of Number of
Year	Senior Living Communities(1)	MOBs	Wellness Centers	Total	Tenancies Expiring	Tenancies Expiring
2013	—	96	—	96	15.9%	15.9%
2014	—	108	—	108	17.9%	33.8%
2015	3	96	—	99	16.3%	50.1%
2016	—	69	—	69	11.4%	61.5%
2017	2	75	—	77	12.7%	74.2%
2018	1	51	—	52	8.6%	82.8%
2019	1	32	—	33	5.4%	88.2%
2020	—	22	—	22	3.6%	91.8%
2021	1	12	—	13	2.1%	93.9%
Thereafter	4	31	2	37	6.1%	100.0%
Total	12	592	2	606	100.0%

(1)Excludes our managed senior living communities leased to our TRSs as tenants.

19

	Number of Living Units / Beds or Square Feet with Leases Expiring
	Living Units / Beds(1)			Square Feet
Year	Triple Net Senior Living Communities (Units / Beds)	Percent of Total Living Units / Beds Expiring	Cumulative Percentage of Living Units / Beds Expiring	MOBs (Square Feet)	Wellness Centers (Square Feet)	Total Square Feet	Percent of Total Square Feet Expiring	Cumulative Percent of Total Square Feet Expiring
2013	—	0.0%	0.0%	576,108	—	576,108	6.5%	6.5%
2014	—	0.0%	0.0%	1,234,062	—	1,234,062	13.8%	20.3%
2015	423	1.7%	1.7%	853,124	—	853,124	9.6%	29.9%
2016	—	0.0%	1.7%	879,061	—	879,061	9.8%	39.7%
2017	4,229	16.9%	18.6%	1,001,432	—	1,001,432	11.2%	50.9%
2018	1,619	6.5%	25.1%	626,867	—	626,867	7.0%	57.9%
2019	175	0.7%	25.8%	939,676	—	939,676	10.5%	68.4%
2020	—	0.0%	25.8%	519,671	—	519,671	5.8%	74.2%
2021	361	1.4%	27.2%	201,360	—	201,360	2.4%	76.6%
Thereafter	18,237	72.8%	100.0%	1,281,570	812,000	2,093,570	23.4%	100.0%
Total	25,044	100.0%		8,112,931	812,000	8,924,931	100.0%

(1)Excludes 6,682 living units from our managed senior living communities leased to our TRSs. If the number of living units included in our TRS leases were included in the foregoing table, the percent of total living units / beds expiring would be: 2013, 2014 – 0.0%; 2015 – 1.3%; 2016 – 0.0%; 2017 – 13.3%; 2018 – 5.1%; 2019 – 0.6%; 2020 – 0.0%; 2021 – 1.1% and thereafter – 78.6%.

During the three months ended March 31, 2013, we entered into MOB lease renewals for 288,000 square feet and new leases for 45,000 square feet, at weighted average rental rates that were 3.6% above rents previously charged for the same space.  These leases produce average net rent of $12.91 per square foot.  Average lease terms for leases entered into during the first quarter of 2013 were 5.3 years.  Commitments for tenant improvement, leasing commission costs and concessions for leases we entered into during the first quarter of 2013 totaled $2.5 million, or $7.50 per square foot on average (approximately $1.42 per square foot per year of the lease term).

RESULTS OF OPERATIONS (dollars and square feet in thousands, unless otherwise noted)

We have four operating segments, of which three are reportable operating segments: (i) triple net senior living communities that provide short term and long term residential care and dining services for residents, (ii) managed senior living communities leased to our TRSs that provide short term and long term residential care and dining services for residents and (iii) MOBs. Our triple net and managed senior living communities include independent living communities, assisted living communities, SNFs and two rehabilitation hospitals.  Properties in the MOB segment include medical office, clinic and biotech laboratory buildings.  The “All Other” category in the following table includes amounts related to corporate business activities and the operating results of certain properties that offer fitness, wellness and spa services to members.

20

	Three Months Ended March 31,
	2013			2012
Revenues:
Triple net senior living communities	$	56,765		$	58,824
Managed senior living communities	75,056			35,568
MOBs	53,204			46,261
All other operations	4,404			4,420
Total revenues	$	189,429		$	145,073
Net income:
Triple net senior living communities	$	33,385		$	31,388
Managed senior living communities	7,235			3,430
MOBs	20,286			17,411
All other operations	(25,671		)	(19,877		)
Net income	$	35,235		$	32,352

The following sections analyze and discuss the results of operations of each of our segments for the periods presented.

Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012 (dollars in thousands):

Unless otherwise indicated, references in this section to changes or comparisons of results, income or expenses refer to comparisons of the first quarter 2013 results against the comparable 2012 period.

Triple net senior living communities:

	All Properties				Comparable Properties (1)
	As of and for the Three Months Ended March 31,				As of and for the Three Months Ended March 31,
	2013		2012		2013		2012
Total properties(2)	224		229		219		219
# of units / beds	25,044		30,134		24,383		24,383
Occupancy:	85.6%		85.3%		85.2%		86.2%
Rent coverage(3)	1.40x		1.43x		1.38x		1.28x
Rental income(3)	$	56,765	$	58,824	$	55,583	$	54,960

(1)Consists of triple net senior living communities we have owned continuously since January 1, 2012.

(2)Reflects the transfer of ten communities previously triple net leased to Sunrise in the third and fourth quarter of 2012 to our TRS and managed by Five Star, partially offset by additional triple net leased properties we acquired since April 1, 2012.

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(3)All tenant operating data presented are based upon the operating results provided by our tenants for the 12 months ended December 31, 2012 and 2011 or the most recent prior period for which tenant operating results are available to us.  Rent coverage is calculated as operating cash flow from our triple-net lease tenants’ operations of our properties, before subordinated charges, if any, divided by triple-net lease minimum rents payable to us.  We have not independently verified our tenants’ operating data.  The table excludes data for periods prior to our ownership of some of these properties.

Triple net senior living communities, all properties:

	Three Months Ended March 31,
	2013			2012			Change			% Change
Rental income	$	56,765		$	58,824		$	(2,059	)	(3.5%	)
Net operating income (NOI)	56,765			58,824			(2,059		)	(3.5%	)
Depreciation expense	(16,917		)	(17,191		)	274			1.6%
Operating income	39,848			41,633			(1,785		)	(4.3%	)
Interest expense	(6,463		)	(10,245		)	3,782			36.9%
Net income	$	33,385		$	31,388		$	1,997		6.4%

Except as noted below under “Rental income”, we have not included a discussion and analysis of the results of our comparable properties data for the triple net senior living communities segment as we believe that a comparison of the results for our comparable properties for our triple net senior living communities segment is generally consistent from quarter to quarter and a comparison is not meaningful.

Rental income.  Rental income decreased due to the transfer in the third and fourth quarter of 2012 of ten communities previously triple net leased to our managed senior living communities. This decrease was partially offset by our acquisition of four triple net leased communities during the third quarter of 2012 for approximately $36,500 and one community acquired in January 2013 for $22,350 which are leased by a private tenant and our purchase of approximately $38,691 of improvements made to our properties which are leased by Five Star since January 1, 2012. Rental income increased year over year on a comparable property basis primarily as a result of the improvement purchases from Five Star at certain of the 219 communities we have owned continuously since January 1, 2012.

Net operating income.  NOI decreased because of the changes in rental income described above.  We do not incur property operating expenses at our triple net senior living communities, as these expenses are paid by our tenants. Accordingly, rental income is the same as NOI. The reconciliation of NOI to net income for our triple net senior living communities segment is shown in the table above.  Our definition of NOI and our consolidated reconciliation of NOI to net income are included below in “Non-GAAP Financial Measures”.

Depreciation expense.  Depreciation expense decreased as a result of the transfer in the third and fourth quarter of 2012 of ten communities previously triple net leased to our TRSs. This decrease was partially offset as a result of our acquisition of four triple net leased communities since January 1, 2012 and our purchase of improvements made to our properties which are leased by Five Star since January 1, 2012.

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Interest expense.  Interest expense for our triple net senior living communities arises from mortgage debt secured by certain of these properties.  The decrease in interest expense is the result of the repayment of 17 mortgage loans in the second quarter of 2012 that had a total principal balance of $33,381 and a weighted average interest rate of 6.89%, the prepayment of $199,197 of our Federal National Mortgage Association secured term loan in August 2012 that had an interest rate of 6.4%, as well as the regularly scheduled amortization of our mortgage debt, partially offset by mortgage debt we assumed in connection with our acquisition of a senior living community in January 2013 triple net leased to a privately owned operator.

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Managed senior living communities:

	All Properties						Comparable Properties (1)
	As of and for the Three Months Ended March 31,						As of and for the Three Months Ended March 31,
	2013			2012			2013			2012
Total properties	39			23			22			22
# of units / beds	6,682			3,416			3,324			3,324
Occupancy:	87.1%			87.5%			91.5%			87.2%
Residents fees and services	$	75,056		$	35,568		$	36,246		$	34,992
Property operating expenses	$	(57,904	)	(25,499		)	(25,989		)	(25,053		)

(1)Consists of managed senior living communities we have owned continuously since January 1, 2012.

Managed senior living communities, all properties:

	Three Months Ended March 31,
	2013			2012			Change			% Change
Residents fees and services	$	75,056		$	35,568		$	39,488		111.0%
Property operating expenses	(57,904		)	(25,499		)	(32,405		)	(127.1%	)
Net operating income (NOI)	17,152			10,069			7,083			70.3%
Depreciation expense	(6,849		)	(3,706		)	(3,143		)	(84.8%	)
Operating income	10,303			6,363			3,940			61.9%
Interest expense	(3,068		)	(2,933		)	(135		)	(4.6%	)
Net income	$	7,235		$	3,430		$	3,805		110.9%

Residents fees and services.  Residents fees and services are the revenues earned at our managed senior living communities. We recognize these revenues as services are provided.  The increase in residents fees and services primarily relate to the acquisition of seven managed senior living communities since January 1, 2012 and the revenues earned at the ten senior living communities that were formerly leased to Sunrise where the leaseholds were transferred to our TRS during the third and fourth quarters of 2012.

Property operating expenses.  Property operating expenses include expenses incurred at our managed senior living communities and they consist of management fees, real estate taxes, utility expense, salaries and benefits of property level personnel, repairs and maintenance expense, cleaning expense and other direct costs of these operating properties. The increase in property operating expenses primarily relates to the acquisition of seven managed senior living communities since January 1, 2012 including the expenses incurred at the ten senior living communities that were formerly leased to Sunrise where the leaseholds were transferred to our TRS during the third and fourth quarters of 2012.

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Net operating income.  NOI increased because of the changes in residents fees and services and property operating expenses described above.  The reconciliation of NOI to net income for our managed senior living communities segment is shown in the table above.  Our definition of NOI and our consolidated reconciliation of NOI to net income are included below in “Non-GAAP Financial Measures”.

Depreciation expense.  Depreciation expense increased as a result of acquisitions of managed senior living communities since January 1, 2012 and the transfer of ten senior living communities that were formerly triple net leased to Sunrise to one of our TRSs in the third and fourth quarters of 2012.

Interest Expense. Interest expense for our managed senior living communities arises from mortgage debt secured by certain of these properties.  The increase in interest expense is the result of our assumption of $41,814 of mortgage debt with a weighted average interest rate of 5.8% we assumed in connection with our acquisition of three communities in 2012, partially offset by the repayment of one mortgage loan in February 2012 that had a principal balance of approximately $12,400.

Managed senior living communities, comparable properties (managed senior living communities we have owned continuously since January 1, 2012):

Three Months Ended March 31,
2013	2012	Change	% Change