10-Q 1 a13-13800_110q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2013

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 July 31, 2013: 188,085,568.

SENIOR HOUSING PROPERTIES TRUST

FORM 10-Q

June 30, 2013

INDEX

		Page
PART I	Financial Information

Item 1.	Financial Statements (unaudited)	1

	Condensed Consolidated Balance Sheets — June 30, 2013 and December 31, 2012	1

	Condensed Consolidated Statements of Income and Comprehensive Income — Three and Six Months Ended June 30, 2013 and 2012	2

	Condensed Consolidated Statements of Cash Flows — Six Months Ended June 30, 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	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53

Item 4.	Controls and Procedures	56

	Warning Concerning Forward Looking Statements	57

	Statement Concerning Limited Liability	61

PART II	Other Information

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62

Item 6.	Exhibits	62

	Signatures	64

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)

	June 30,			December 31,
	2013			2012
ASSETS
Real estate properties:
Land	$	618,391		$	615,623
Buildings and improvements	4,583,354			4,567,684
	5,201,745			5,183,307
Less accumulated depreciation	(811,182		)	(750,903		)
	4,390,563			4,432,404
Cash and cash equivalents	37,336			42,382
Restricted cash	12,405			9,432
Deferred financing fees, net	27,221			29,410
Acquired real estate leases and other intangible assets, net	111,924			115,837
Other assets	169,182			118,537
Total assets	$	4,748,631		$	4,748,002

LIABILITIES AND SHAREHOLDERS’ EQUITY
Unsecured revolving credit facility	$	30,000		$	190,000
Senior unsecured notes, net of discount	1,092,695			1,092,053
Secured debt and capital leases	720,231			724,477
Accrued interest	15,694			15,757
Assumed real estate lease obligations, net	14,165			13,692
Other liabilities	63,629			65,455
Total liabilities	1,936,414			2,101,434

Commitments and contingencies

Shareholders’ equity:
Common shares of beneficial interest, $.01 par value: 199,700,000 shares authorized, 188,085,568 and 176,553,600 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively	1,880			1,765
Additional paid in capital	3,495,982			3,233,354
Cumulative net income	1,084,654			1,043,821
Cumulative other comprehensive income	8,841			4,562
Cumulative distributions	(1,779,140		)	(1,636,934		)
Total shareholders’ equity	2,812,217			2,646,568
Total liabilities and shareholders’ equity	$	4,748,631		$	4,748,002

See accompanying notes.

SENIOR HOUSING PROPERTIES TRUST

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(amounts in thousands, except per share data)

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Revenues:
Rental income	$	112,297		$	108,407		$	224,150		$	215,435
Residents fees and services	74,631			35,986			149,687			71,554
Total revenues	186,928			144,393			373,837			286,989

Expenses:
Property operating expenses	74,484			39,818			148,163			78,304
Depreciation	38,296			34,624			75,999			67,397
General and administrative	8,168			8,068			16,816			15,753
Acquisition related costs	292			1,829			2,187			2,694
Impairment of assets	4,371			—			5,675			3,071
Total expenses	125,611			84,339			248,840			167,219

Operating income	61,317			60,054			124,997			119,770

Interest and other income	397			227			570			709
Interest expense	(29,567		)	(28,120		)	(59,131		)	(57,009		)
Loss on early extinguishment of debt	(105		)	—			(105		)	—
Equity in earnings of an investee	79			76			155			121
Income before income tax expense	32,121			32,237			66,486			63,591
Income tax expense	(140		)	(43		)	(280		)	(247		)
Income from continuing operations	31,981			32,194			66,206			63,344
Discontinued operations:
Income from discontinued operations	1,513			1,057			2,523			2,259
Impairment of assets from discontinued operations	(27,896		)	—			(27,896		)	—
Net income	$	5,598		$	33,251		$	40,833		$	65,603

Other comprehensive income:
Change in net unrealized gain / loss on investments	(4,404		)	(1,315		)	4,360			916
Share of comprehensive income of an investee	(73		)	(3		)	(81		)	(4		)
Comprehensive income	$	1,121		$	31,933		$	45,112		$	66,515

Weighted average shares outstanding	188,081			162,670			186,350			162,659

Income from continuing operations per share	0.17			0.20			0.36			0.39
(Loss) income from discontinued operations per share	(0.14		)	—			(0.14		)	0.01
Net income per share	$	0.03		$	0.20		$	0.22		$	0.40

See accompanying notes.

SENIOR HOUSING PROPERTIES TRUST

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

	Six Months Ended June 30,
	2013			2012
Cash flows from operating activities:
Net income	$	40,833		$	65,603
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	76,798			68,607
Amortization of deferred financing fees and debt discounts	2,068			3,024
Straight line rental income	(3,698		)	(6,062		)
Amortization of acquired real estate leases and other intangible assets	1,935			(170		)
Loss on early extinguishment of debt	105			—
Impairment of assets	33,571			3,071
Equity in earnings of an investee	(155		)	(121		)
Change in assets and liabilities:
Restricted cash	(2,973		)	(2,916		)
Other assets	1,135			10,719
Accrued interest	(63		)	(8,966		)
Other liabilities	1,376			13,740
Cash provided by operating activities	150,932			146,529

Cash flows from investing activities:
Real estate acquisitions and deposits	(76,006		)	(123,867		)
Real estate improvements	(22,669		)	(20,015		)
Principal payments on loan receivable	—			38,000
Cash used for investing activities	(98,675		)	(105,882		)

Cash flows from financing activities:
Proceeds from issuance of common shares, net	261,813			—
Proceeds from borrowings on revolving credit facility	45,000			434,000
Repayments of borrowings on revolving credit facility	(205,000		)	(74,000		)
Redemption of senior notes	—			(225,000		)
Repayment of other debt	(16,662		)	(54,889		)
Payment of deferred financing fees	(248		)	(294		)
Distributions to shareholders	(142,206		)	(123,619		)
Cash used for financing activities	(57,303		)	(43,802		)

Decrease in cash and cash equivalents	(5,046		)	(3,155		)
Cash and cash equivalents at beginning of period	42,382			23,560
Cash and cash equivalents at end of period	$	37,336		$	20,405
Supplemental cash flow information:
Interest paid	$	57,126		$	62,951
Income taxes paid	516			378

Non-cash investing activities:
Acquisitions funded by assumed debt	(12,266		)	(56,789		)

Non-cash financing activities:
Assumption of mortgage notes payable	12,266			56,789
Issuance of common shares	929			657

See accompanying notes.

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, 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, discontinued operations, 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 June 30, 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:

SENIOR HOUSING PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

		Number														Premium
		of	Units/	Purchase				Buildings and				Intangible		Assumed		on Assumed
Date	Location	Properties	Beds	Price (1)		Land		Improvements		FF&E		Assets		Debt		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.

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. In July 2013, we entered into an agreement to acquire one senior living community for approximately $10,000, excluding closing costs. The senior living community is located in Jefferson City, TN and includes 60 private pay assisted living units. In July 2013, we entered into an agreement to acquire two senior living communities for approximately $19,100, excluding closing costs. The senior living communities are located in Canton and Ellijay, GA and include 153 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 these communities for our account pursuant to a long term management agreement. The closings of these acquisitions are contingent upon completion of our diligence and other customary closing conditions; accordingly, we can provide no assurance that we will purchase these properties, that our purchases will not be delayed or that the terms will not change. As of June 30, 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 another 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:

SENIOR HOUSING PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

MOB Acquisitions since January 1, 2013:

												Acquired
		Number								Acquired		Real Estate
		of	Square	Purchase				Buildings and		Real Estate		Lease
Date	Location	Properties	Feet	Price (1)		Land		Improvements		Leases		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 July 2013, we entered into an agreement to acquire a MOB for approximately $49,500, excluding closing costs. The MOB is located in Boston, MA and includes 105,462 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, that our purchase will not be delayed or that the terms will not change.

Impairment

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 six months ended June 30, 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.

As of June 30, 2013, we had 18 properties held for sale, including 11 senior living communities with 856 units and seven MOBs with 831,499 square feet. During the six months ended June 30, 2013, we recorded impairment of assets charges of $32,267 to reduce the carrying value of 11of these 18 properties to their aggregate estimated net sale price. These properties are included in other assets in our condensed consolidated balance sheets and have a net book value (after impairment) of approximately $42,551 at June 30, 2013. As of December 31, 2012, we had one senior living community with 120 units held for sale (which is included within the 11 senior living communities held for sale as of June 30, 2013). This property is included in other assets in our condensed consolidated balance sheets and had a net book value (after impairment) of approximately $850 at December 31, 2012. We decided to sell these properties due to underlying conditions in the markets where these properties are located. We classify all properties that meet the criteria outlined in the Property, Plant and Equipment Topic of the FASB Accounting Standards Codification, or the Codification, as held for sale in our condensed consolidated balance sheets.

Results of operations for properties sold or held for sale are included in discontinued operations in our condensed consolidated statements of operations once the criteria for discontinued operations in the Presentation of Financial Statements Topic of the Codification are met. Summarized income statement

SENIOR HOUSING PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

information for the seven MOBs that meet the criteria for discontinued operations is included in discontinued operations as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Rental income	$	2,574		$	2,579		$	5,095		$	5,056
Property operating expenses	(862		)	(916		)	(1,773		)	(1,587		)
Depreciation and amortization	(199		)	(606		)	(799		)	(1,210		)
Income from discontinued operations	$	1,513		$	1,057		$	2,523		$	2,259

One of the 11 senior living communities, a skilled nursing facility with 112 units, is held for sale under an agreement to be sold for $2,600. Completion of this sale is subject to customary closing conditions and we can provide no assurance that a sale of this community will occur, or will be completed at all or that the terms for the sale will not change.

Note 4. Unrealized Gain / Loss on Investments

As of June 30, 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 June 30, 2013 ($23.12 and $5.61 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 $39 and $314 for the three and six months ended June 30, 2012, respectively, which is included in interest and other income in our condensed consolidated statements of income and comprehensive income.

Note 6. Indebtedness

Our principal debt obligations at June 30, 2013 were: (1) outstanding borrowings under our $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

SENIOR HOUSING PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

rate of 6.75% and (d) $350,000 principal amount due 2042 at an annual interest rate of 5.625%; and (3) $701,094 aggregate principal amount of mortgages secured by 53 of our properties with maturity dates from 2013 to 2043. The 53 mortgaged properties had a carrying value of $977,692 at June 30, 2013. We also had two properties subject to capital leases totaling $13,557 at June 30, 2013; these two properties had a carrying value of $17,984 at June 30, 2013.

In connection with the acquisitions discussed in Note 3 above, during the six months ended June 30, 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.

In June 2013, we repaid mortgage notes that encumbered four of our properties that had an aggregate principal balance of $10,377, a weighted average interest rate of 6.1% and maturity dates later in 2013. As a result, we recognized a loss on early extinguishment of debt of $105 for the three months ended June 30, 2013.

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 June 30, 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 1.85% for the six months ended June 30, 2013. We incurred interest expense and other associated costs related to our revolving credit facility of $74 and $305 for the three and six months ended June 30, 2013. As of June 30, 2013 and July 31, 2013, we had $30,000 and $10,000 outstanding and $720,000 and $740,000 available under our revolving credit facility, respectively.

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 May 21, 2013, we paid a $0.39 per share, or $73,349, distribution to our common shareholders with respect to our operating results for the quarter ended March 31, 2013. On July 3, 2013, we declared a quarterly distribution of $0.39 per share, or $73,353, to our common shareholders of record on July 17, 2013, with respect to our operating results for the quarter ended June 30, 2013; we expect to pay this distribution on or about August 21, 2013.

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

SENIOR HOUSING PROPERTIES TRUST

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.

On May 9, 2013, we granted 2,000 common shares of beneficial interest, par value $.01 per share, valued at $28.64 per share, the closing price of our common shares on the New York Stock Exchange, or the NYSE, on that day, to each of our five Trustees.

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 June 30, 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)	$	42,551	$	—	$	42,551	$	—
Long-lived assets held and used(2)	$	653	$	—	$	653	$	—
Investments in available for sale securities(3)	$	29,538	$	29,538	$	—	$	—
Unsecured senior notes(4)	$	1,139,302	$	1,139,302	$	—	$	—
Secured debt(5)	$	773,974	$	—	$	—	$	773,974

(1) Assets held for sale consist of eighteen of our properties that we expect to sell that are reported at fair value less costs to sell. We used offers to purchase these properties made by third parties or comparable sales transactions (Level 2 inputs) to determine the fair value of these properties. We have recorded cumulative impairments of approximately $38,005 to these properties in order to reduce their 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 six months ended June 30, 2013 and 2012, respectively, for 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 June 30, 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 June 30, 2013. The fair values of these senior note obligations exceed their aggregate book values of $1,092,695 by $46,607 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 June 30, 2013 (Level 3 inputs). Because Level 3 inputs are unobservable, our estimated fair value may differ materially from the actual fair value.

SENIOR HOUSING PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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 June 30, 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.

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 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.

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 June 30, 2013
	Triple Net Senior Living Communities			Managed Senior Living Communities			MOBs			All Other Operations			Consolidated

Revenues:
Rental income	$	56,957		$	—		$	50,899		$	4,441		$	112,297
Residents fees and services	—			74,631			—			—			74,631
Total revenues	56,957			74,631			50,899			4,441			186,928

Expenses:
Property operating expenses	—			58,231			16,253			—			74,484
Depreciation	17,019			7,028			13,301			948			38,296
General and administrative	—			—			—			8,168			8,168
Acquisition related costs	—			—			—			292			292
Impairment of assets	4,371			—			—			—			4,371
Total expenses	21,390			65,259			29,554			9,408			125,611

Operating income (loss)	35,567			9,372			21,345			(4,967		)	61,317

Interest and other income	—			—			—			397			397
Interest expense	(6,596		)	(3,073		)	(1,387		)	(18,511		)	(29,567		)
Loss on early extinguishment of debt	—			—			—			(105		)	(105		)
Equity in earnings of an investee	—			—			—			79			79
Income (loss) before income tax expense	28,971			6,299			19,958			(23,107		)	32,121
Income tax expense	—			—			—			(140		)	(140		)
Income (loss) from continuing operations	28,971			6,299			19,958			(23,247		)	31,981
Discontinued operations:
Income from discontinued operations	—			—			1,513			—			1,513
Impairment of assets from discontinued operations	—			—			(27,896		)	—			(27,896		)
Net income (loss)	$	28,971		$	6,299		$	(6,425	)	$	(23,247	)	$	5,598

Total assets	$	1,829,372		$	964,610		$	1,742,120		$	212,529		$	4,748,631

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 June 30, 2012
	Triple Net Senior Living Communities			Managed Senior Living Communities			MOBs			All Other Operations			Consolidated

Revenues:
Rental income	$	59,643		$	—		$	44,306		$	4,458		$	108,407
Residents fees and services	—			35,986			—			—			35,986
Total revenues	59,643			35,986			44,306			4,458			144,393

Expenses:
Property operating expenses	—			26,244			13,574			—			39,818
Depreciation	17,191			3,874			12,611			948			34,624
General and administrative	—			—			—			8,068			8,068
Acquisition related costs	—			—			—			1,829			1,829
Total expenses	17,191			30,118			26,185			10,845			84,339

Operating income (loss)	42,452			5,868			18,121			(6,387		)	60,054

Interest and other income	—			—			—			227			227
Interest expense	(10,163		)	(2,813		)	(381		)	(14,763		)	(28,120		)
Equity in earnings of an investee	—			—			—			76			76
Income (loss) before income tax expense	32,289			3,055			17,740			(20,847		)	32,237
Income tax expense	—			—			—			(43		)	(43		)
Income (loss) from continuing operations	32,289			3,055			17,740			(20,890		)	32,194
Discontinued operations:
Income from discontinued operations	—			—			1,057			—			1,057
Net income (loss)	$	32,289		$	3,055		$	18,797		$	(20,890	)	$	33,251

Total assets	$	1,756,892		$	623,653		$	1,885,994		$	200,013		$	4,466,552

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 Six Months Ended June 30, 2013
	Triple Net Senior Living Communities			Managed Senior Living Communities			MOBs			All Other Operations			Consolidated

Revenues:
Rental income	$	113,723		$	—		$	101,582		$	8,845		$	224,150
Residents fees and services	—			149,687			—			—			149,687
Total revenues	113,723			149,687			101,582			8,845			373,837

Expenses:
Property operating expenses	—			116,135			32,028			—			148,163
Depreciation	33,936			13,877			26,290			1,896			75,999
General and administrative	—			—			—			16,816			16,816
Acquisition related costs	—			—			—			2,187			2,187
Impairment of assets	4,371			—			1,304			—			5,675
Total expenses	38,307			130,012			59,622			20,899			248,840

Operating income (loss)	75,416			19,675			41,960			(12,054		)	124,997

Interest and other income	—			—			—			570			570
Interest expense	(13,060		)	(6,141		)	(2,734		)	(37,196		)	(59,131		)
Loss on early extinguishment of debt	—			—			—			(105		)	(105		)
Equity in earnings of an investee	—			—			—			155			155
Income (loss) before income tax expense	62,356			13,534			39,226			(48,630		)	66,486
Income tax expense	—			—			—			(280		)	(280		)
Income (loss) from continuing operations	62,356			13,534			39,226			(48,910		)	66,206
Discontinued operations:
Income from discontinued operations	—			—			2,523			—			2,523
Impairment of assets from discontinued operations	—			—			(27,896		)	—			(27,896		)
Net income (loss)	$	62,356		$	13,534		$	13,853		$	(48,910	)	$	40,833

Total assets	$	1,829,372		$	964,610		$	1,742,120		$	212,529		$	4,748,631

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 Six Months Ended June 30, 2012
	Triple Net Senior Living Communities			Managed Senior Living Communities			MOBs			All Other Operations			Consolidated

Revenues:
Rental income	$	118,467		$	—		$	88,090		$	8,878		$	215,435
Residents fees and services	—			71,554			—			—			71,554
Total revenues	118,467			71,554			88,090			8,878			286,989

Expenses:
Property operating expenses	—			51,743			26,561			—			78,304
Depreciation	34,383			7,580			23,538			1,896			67,397
General and administrative	—			—			—			15,753			15,753
Acquisition related costs	—			—			—			2,694			2,694
Impairment of assets	—			—			3,071			—			3,071
Total expenses	34,383			59,323			53,170			20,343			167,219

Operating income (loss)	84,084			12,231			34,920			(11,465		)	119,770

Interest and other income	—			—			—			709			709
Interest expense	(20,287		)	(5,866		)	(793		)	(30,063		)	(57,009		)
Equity in earnings of an investee	—			—			—			121			121
Income (loss) before income tax expense	63,797			6,365			34,127			(40,698		)	63,591
Income tax expense	—			—			—			(247		)	(247		)
Income (loss) from continuing operations	63,797			6,365			34,127			(40,945		)	63,344
Discontinued operations:
Income from discontinued operations	—			—			2,259			—			2,259
Net income (loss)	$	63,797		$	6,365		$	36,386		$	(40,945	)	$	65,603

Total assets	$	1,756,892		$	623,653		$	1,885,994		$	200,013		$	4,466,552

Note 10. Significant Tenant

Five Star is our former subsidiary. Rental income from Five Star represented 44.0% of our annualized rental income and the properties Five Star leases from us represented 41.9% of our investments, at cost, as of June 30, 2013. As of June 30, 2013, Five Star also managed 39 senior living communities for our account.

SENIOR HOUSING PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Additional financial information about Five Star may be found on the Securities and Exchange Commission, or the SEC’s, website by entering Five Star’s name at http://www.sec.gov/edgar/searchedgar/companysearch.html. Reference to Five Star’s financial information on this external website is presented to comply with applicable accounting regulations of the SEC. Except for such financial information contained therein as is required to be included herein under such regulations, Five Star’s public filings and other information located in external websites are not incorporated by reference into these financial statements. See Note 11 for further information relating to our leases and management arrangements with Five Star.

Note 11. Related Person Transactions

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 June 30, 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 June 30, 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 June 30, 2013 was $198,984, excluding percentage rent. We recognized total rental income from Five Star of $49,595 and $48,942 for the three months ended June 30, 2013 and 2012, respectively, and $99,027 and $97,753 for the six months ended June 30, 2013 and 2012, respectively. As of June 30, 2013 and December 31, 2012, our rents receivable from Five Star were $17,804 and $17,680, respectively, and those amounts are included in other assets in our condensed consolidated balance sheets. We had deferred percentage rent under our Five Star leases of $1,268 and $1,201 for the three months ended June 30, 2013 and 2012, respectively, and $2,517 and $2,412 for the six months ended June 30, 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 six months ended June 30, 2013, pursuant to the terms of our leases with Five Star, we purchased $15,901 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 $1,272.

As of June 30, 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 these 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 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

SENIOR HOUSING PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

the various communities that are subject to the applicable pooling agreement, including determinations of our return on our invested capital and Five Star’s incentive fees. We incurred management fees of $2,281 and $4,576 for the three and six months ended June 30, 2013, respectively, and $1,080 and $2,148 for the three and six months ended June 30, 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, as noted in Note 3, we have entered into agreements to acquire five senior living communities. If these acquisitions are completed, we will lease these communities to one or more of our TRSs and we expect to enter into long term management agreements with Five Star to manage these communities on terms similar to those management arrangements we currently have with Five Star for communities that include assisted living units and that these management agreements would be added to the second AL Pooling Agreement or a new pooling agreement after the number of communities included in the second AL Pooling Agreement equals 20. These acquisitions are subject to due diligence and other conditions and there can be no assurance that these acquisitions will be completed, that they will not be delayed or that their 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 to Five Star. 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 $39 and $314 for the three and six months ended June 30, 2012, respectively.

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 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

SENIOR HOUSING PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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 of $6,691 and $6,367 for the three months ended June 30, 2013 and 2012, respectively, and $13,241 and $12,727 for the six months ended June 30, 2013 and 2012, 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 an incentive fee payable to RMR for 2012 services, 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 of $1,659 and $1,424 for the three months ended June 30, 2013 and 2012, respectively, and $3,259 and $2,770 for the six months ended June 30, 2013 and 2012, respectively. These amounts are included in property operating expenses or have been capitalized, as appropriate, in our condensed consolidated balance sheets.

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.

As of June 30, 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 $5,703 and $5,629 as of June 30, 2013 and December 31, 2012, respectively, which amounts are include in other assets on our condensed consolidated balance sheets. We recognized income of $79 and $76 for the three months ended June 30, 2013 and 2012, respectively, and $155 and $121 for the six months ended June 30, 2013 and 2012, 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 2013 for a one year term, and we paid a premium, including taxes and fees, of $4,748 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.

SENIOR HOUSING PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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 REIT status. During the three and six months ended June 30, 2013, we recognized current income tax expense of $140 and $280, respectively. During the three and six months ended 2012, we recognized current income tax expense of $43 and $247, respectively.

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 (1)

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

(As of June 30, 2013)	Number of Properties	Number of Units/Beds or Square Feet		Investment Carrying Value(2)		% of Total Investment	Investment per Unit / Bed or Square Foot(3)		Q2 2013 NOI(4)		% of Q2 2013 NOI

Facility Type
Independent living(5)	62	15,176		$	1,864,628	35.6%	$	122,867	$	33,228	29.6%
Assisted living(5)	151	11,158		1,284,412		24.5%	$	115,111	33,040		29.4%
Nursing homes(5)	48	5,024		210,348		4.0%	$	41,869	4,359		3.9%
Rehabilitation hospitals	2	364		78,382		1.5%	$	215,335	2,730		2.4%
Subtotal senior living communities	263	31,722		3,437,770		65.6%	$	108,372	73,357		65.3%
MOBs	115	7,714,000	sq. ft.	1,599,417		30.8%	$	207	34,646		30.8%
Wellness centers	10	812,000	sq. ft.	180,017		3.6%	$	222	4,441		3.9%
Total	388			$	5,217,204	100.0%			$	112,444	100.0%

Tenant / Operator / Managed Properties(8)

Five Star (Lease No. 1)	91	6,731		699,268		13.3%	$	103,888	14,712		13.1%
Five Star (Lease No. 2)	53	7,564		755,440		14.4%	$	99,873	17,730		15.7%
Five Star (Lease No. 3)	17	3,281		350,993		6.7%	$	106,977	8,518		7.5%
Five Star (Lease No. 4)	29	3,335		387,361		7.4%	$	116,150	8,634		7.7%
Subtotal Five Star	190	20,911		2,193,062		41.8%	$	104,876	49,594		44.0%
Sunrise / Marriott(6)	4	1,619		126,326		2.4%	$	78,027	3,133		2.9%
Brookdale	18	894		61,122		1.2%	$	68,369	1,754		1.5%
6 private senior living companies (combined)	12	1,620		94,170		1.8%	$	58,130	2,476		2.2%
Managed senior living communities(7)	39	6,678		963,090		18.4%	$	144,218	16,400		14.7%
Subtotal senior living communities	263	31,722		3,437,770		65.6%	$	108,372	73,357		65.3%
Multi-tenant MOBs	115	7,714,000	sq. ft.	1,599,417		30.8%	$	207	34,646		30.8%
Wellness centers	10	812,000	sq. ft.	180,017		3.6%	$	222	4,441		3.9%
Total	388			$	5,217,204	100.0%			$	112,444	100.0%

Tenant / Managed Property Operating Statistics(8)

	Rent Coverage		Occupancy
	2013	2012	2013	2012

Five Star (Lease No. 1)	1.21x	1.18x	84.7%	84.1%
Five Star (Lease No. 2)	1.17x	1.27x	81.2%	81.9%
Five Star (Lease No. 3)	1.67x	1.71x	88.8%	89.6%
Five Star (Lease No. 4)	1.18x	1.17x	85.7%	85.4%
Subtotal Five Star	1.27x	1.30x	84.2%	84.4%
Sunrise / Marriott(6)	1.89x	1.97x	93.2%	93.0%
Brookdale	2.48x	2.24x	95.2%	92.7%
6 private senior living companies (combined)	2.12x	2.78x	83.6%	83.8%
Managed senior living communities(7)	NA	NA	87.3%	86.6%
Subtotal senior living communities	1.38x	1.41x	85.6%	85.4%
Multi-tenant MOBs	NA	NA	94.1%	93.9%
Wellness centers	2.21x	2.16x	100.0%	100.0%
Total	1.44x	1.46x

(1) Excludes properties classified in discontinued operations.

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

(3) Represents investment carrying value divided by the number of living units, beds or leased square feet at June 30, 2013.

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

(5) 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.

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

(7) 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 June 30, 2013 was 87.3%.

(8) Operating data for multi-tenant MOBs are presented as of June 30, 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 March 31, 2013 and 2012, 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.

The following tables set forth information regarding our lease expirations as of June 30, 2013 (dollars in thousands):

									Percent of	Cumulative
	Annualized Rental Income(1) (2)								Total	Percentage of
Year	Triple Net Senior Living Communities		MOBs		Wellness Centers		Total		Annualized Rental Income Expiring	Annualized Rental Income Expiring

2013	$	—	$	11,905	$	—	$	11,905	2.6%	2.6%
2014	—		18,167		—		18,167		4.0%	6.6%
2015	3,039		20,571		—		23,610		5.1%	11.8%
2016	—		21,314		—		21,314		4.6%	16.4%
2017	44,392		25,594		—		69,986		15.2%	31.6%
2018	14,477		20,606		—		35,083		7.6%	39.2%
2019	599		29,691		—		30,290		6.6%	45.8%
2020	—		11,849		—		11,849		2.6%	48.3%
2021	1,424		5,131		—		6,555		1.4%	49.7%
Thereafter	173,572		39,289		17,536		230,397		50.3%	100.0%
Total	$	237,503	$	204,117	$	17,536	$	459,156	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 June 30, 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. Excludes properties classified in discontinued operations.

(2) Excludes rent received from our managed senior living communities leased to our TRSs. If the NOI from our TRSs (three months ended June 30, 2013, annualized) were included in the foregoing table, the percent of total annualized rental income expiring would be: 2013 – 2.3%; 2014 – 3.5%; 2015 – 4.5%, 2016 – 4.1%; 2017 – 13.3%; 2018 – 6.7%; 2019 – 5.8%; 2020 – 2.3%; 2021 – 1.2% and thereafter – 56.5%.

Cumulative