UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 001-15319
SENIOR HOUSING PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
Maryland 04-3445278
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
400 Centre Street, Newton, Massachusetts 02458
(Address of principal executive offices) (Zip Code)
617-796-8350
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Number of Common Shares outstanding at May 10, 2000:
26,001,500 shares of beneficial interest, $0.01 par value.
SENIOR HOUSING PROPERTIES TRUST
FORM 10-Q
MARCH 31, 2000
INDEX
Page
PART I Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - March 31, 2000 and December 31, 1999 1
Consolidated Statements of Income - Three Months Ended March 31, 2000 and 1999 2
Consolidated Statements of Cash Flows - Three Months Ended March 31, 2000 and 1999 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 9
PART II Other Information
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 13
Certain Important Factors 14
Signatures 15
SENIOR HOUSING PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share)
(unaudited)
March 31, December 31,
2000 1999
----------- ------------
ASSETS
Real estate properties at cost (including properties leased to affiliates
with a cost of $20,422):
Land $ 69,126 $ 69,673
Buildings and improvements 624,066 639,066
--------- ---------
693,192 708,739
Accumulated depreciation (108,340) (108,709)
--------- ---------
584,852 600,030
Real estate mortgages receivable, net of loan loss reserve of $14,500 22,939 22,939
Cash and cash equivalents 12,870 17,091
Other assets 15,817 13,940
--------- ---------
$ 636,478 $ 654,000
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank notes payable $ 188,000 $ 200,000
Deferred rents and other deferred revenues 26,398 26,715
Security deposits 15,235 15,235
Other liabilities 5,479 2,644
Shareholders' equity:
Common shares of beneficial interest, $0.01 par value:
50,000,000 shares authorized, 26,001,500 shares issued and
outstanding 260 260
Additional paid-in capital 444,511 444,511
Cumulative net loss (12,204) (19,764)
Distributions (31,201) (15,601)
--------- ---------
Total shareholder's equity 401,366 409,406
--------- ---------
$ 636,478 $ 654,000
========= =========
See accompanying notes
1
SENIOR HOUSING PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share)
(unaudited)
Three Months Ended March 31,
---------------------------------
2000 1999
-------- -------
Revenues:
Rental income $18,060 $21,226
Interest and other income 537 1,442
------- -------
Total revenues 18,597 22,668
------- -------
Expenses:
Interest 4,475 4,976
Depreciation 5,175 5,607
General and administrative 1,387 1,114
------- -------
Total expenses 11,037 11,697
------- -------
Net income $ 7,560 $10,971
======= =======
Weighted average shares outstanding (Note 2) 26,002 26,000
======= =======
Basic and diluted earnings per share data:
Net income $ 0.29 $ 0.42
======= =======
See accompanying notes
2
SENIOR HOUSING PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Three Months Ended March 31,
-------------------------------
2000 1999
-------- --------
Cash flows from operating activities:
Net income $ 7,560 $ 10,971
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation 5,175 5,607
Changes in assets and liabilities:
Other assets (2,482) 1,723
Deferred rents and other deferred revenues (317) (481)
Other liabilities 1,265 15
-------- --------
Cash provided by operating activities 11,201 17,835
-------- --------
Cash flows from investing activities:
Proceeds from sale of real estate 12,178 --
Repayments of mortgage loans -- 93
-------- --------
Cash provided by investing activities 12,178 93
-------- --------
Cash flows from financing activities:
Repayment of credit facility (12,000) --
Owner's net distribution -- (17,900)
Distributions (15,600) --
-------- --------
Cash used for financing activities (27,600) (17,900)
-------- --------
(Decrease) increase in cash and cash equivalents (4,221) 28
Cash and cash equivalents at beginning of period 17,091 139
-------- --------
Cash and cash equivalents at end of period $ 12,870 $ 167
======== ========
Supplemental cash flow information:
Cash paid for interest $ 4,227 --
======== ========
See accompanying notes
3
SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization
Senior Housing Properties Trust ("Senior Housing"), a Maryland real estate
investment trust, was organized on December 16, 1998 as a 100% owned subsidiary
of HRPT Properties Trust ("HRPT").
At March 31, 2000, Senior Housing owned 75 properties and 12 mortgages
receivable in 26 states and operates in a single segment.
On October 12, 1999, HRPT distributed 49.3% of its ownership in Senior Housing
to HRPT shareholders (the "Spin-Off"). Prior to the Spin-Off the properties and
mortgages were owned by HRPT. These consolidated financial statements are
presented as if Senior Housing was a separate legal entity from HRPT prior to
the Spin-Off, although no such entity existed until October 12, 1999.
Note 2. Summary of Significant Accounting Policies
BASIS OF PRESENTATION. Prior to the Spin-Off, Senior Housing, including its
properties and mortgages, were owned by HRPT, and transactions in those periods
have been presented on HRPT's historical basis. Prior to the Spin-Off
substantially all the rental income and mortgage interest income received by
HRPT from the tenants and mortgagors of Senior Housing was deposited in and
commingled with HRPT's general funds. Funds for capital investments and other
cash required by Senior Housing were provided by HRPT. Prior to September 1,
1999, interest expense was allocated based on HRPT's historical interest expense
as a percentage of HRPT's average historical costs of real estate investments.
General and administrative costs of HRPT for the periods prior to the Spin-Off
were allocated to Senior Housing based on HRPT's investment advisory agreement
formula and other costs were allocated based on historical costs as a percentage
of HRPT's average historical costs of real estate investments. In the opinion of
management, the methods for allocating interest and general and administrative
expenses were reasonable. It was not practicable to estimate additional costs
that would have been incurred by Senior Housing as a separate entity.
In December 1999 the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Accounting for Contingent Rent in Interim Financial Periods"
("SAB 101"). Senior Housing has adopted the provisions of SAB 101 prospectively
as of January 1, 2000. If Senior Housing had elected the adoption retroactively
to January 1, 1999, for the three months ended March 31, 1999, net income would
have been $10.0 million ($0.38/share). SAB 101 will have no impact on Senior
Housing's annual results of operations, rather the accounting changes required
by SAB 101 are expected to, in general, defer recognition of certain percentage
rental income from the first, second and third quarters to the fourth quarter
within a fiscal year.
EARNINGS PER COMMON SHARE. Because Senior Housing's operations were included in
the consolidated financial statements of HRPT prior to the Spin-Off, there were
no shareholder equity accounts for Senior Housing prior to 1999. Common shares
outstanding of 26.0 million at October 12, 1999, have been included in the
earnings per share calculation as if the shares were outstanding for all periods
prior to October 12, 1999. Earnings per common share are computed using the
weighted average number of shares outstanding during the period. Senior Housing
has no common share equivalents, instruments convertible into common shares or
other dilutive instruments.
Note 3. Interim Financial Statements
The financial statements of Senior Housing have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements
and should be read in conjunction with the audited consolidated financial
statements for the year ended December 31, 1999, included in the Annual Report
on Form 10-K. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for interim periods are not necessarily
indicative of the results that may be expected for the full year.
4
SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Real Estate Properties
In February 2000 Senior Housing sold all of the properties that were leased to
The Frontier Group, Inc. ("Frontier") for $13.0 million. Senior Housing is
pursuing claims against Frontier and other parties for breach of its leases and
for rental arrearages. The amount of net gain, if any, which may be realized
from the sale of the Frontier properties will depend upon the outcome of these
claims. The amount of gain or loss to be realized as a result of this
transaction is not expected to be material. The net proceeds of $12.2 million
were used to repay, in part, a portion of the outstanding balance on the bank
credit facility.
Note 5. Report of Tenants' Financial Condition
Two of Senior Housing tenants, Mariner Post-Acute Network, Inc. ("Mariner") and
Integrated Health Services, Inc. ("IHS") have filed for protection under Chapter
11 of the U.S. Bankruptcy Code. Mariner filed in January 2000 and IHS filed in
February 2000.
In March 2000 Senior Housing reached an agreement in principle with
Mariner as follows:
o Mariner's lease obligations for all 26 properties will be terminated.
o Approximately $24.0 million of cash and securities which secure
Mariner's obligations will be retained by Senior Housing.
o Senior Housing will assume operation responsibilities for 17 of these
26 properties. Title to five of these properties will be transferred
to Mariner which will continue the operations. The remaining four
nursing homes are now subleased to two private companies and Senior
Housing expects to negotiate with these two subtenants for their
continued operation of those properties.
o Mariner will continue to pay its contractual obligations to Senior
Housing until the agreement is consummated.
The agreement with Mariner has been approved by Mariner's creditors committee
and the Delaware Bankruptcy Court, before which this bankruptcy is pending. This
agreement still requires regulatory approvals from various states where affected
properties are located. If this agreement is approved, Senior Housing expects
its future earnings and cash flows may be less than the rent previously earned
from the Mariner lease, at least on a short term basis. If and when this
agreement is implemented additional gains or losses may result.
In April 2000 Senior Housing reached an agreement in principle with IHS
as follows:
o The lease for one property will be amended to provide a new ten year
term at $1.2 million per year, effective January 1, 2000.
o Senior Housing's mortgage investment secured by one property will be
cancelled and IHS will continue to own and operate the property.
o IHS's lease and mortgage obligations for 37 properties will be
terminated.
o IHS will pay Senior Housing $500,000 per month for use and occupancy
of Senior Housing's properties from the date of IHS's bankruptcy
filing until this transaction is closed.
o IHS will convey nine properties to Senior Housing which are currently
owned and operated by IHS.
o Senior Housing will assume operating responsibility for 41 properties.
In addition, Horizon/CMS Corporation, a subsidiary of HEALTHSOUTH Corporation,
(together "HEALTHSOUTH") is a guarantor of the lease obligations for four
properties owned by Senior Housing and leased to IHS. Senior Housing and
HEALTHSOUTH have reached an understanding, conditional upon implementation of
the agreement between Senior Housing and IHS, whereby HEALTHSOUTH will assume
operating responsibility for these four properties and lease and operate one
property that will be conveyed to Senior Housing by IHS. Annual rents under
these five leases total approximately $10.0 million.
5
SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The agreement with IHS is contingent upon approval by IHS's creditors committees
and the Delaware Bankruptcy Court before which this bankruptcy is pending and
requires regulatory approvals from various states where affected properties are
located. If this agreement is approved, Senior Housing expects its future
earnings and cash flows may be less than the rent previously earned from the IHS
leases, at least on a short term basis. If and when this agreement is
implemented additional gains or losses may result.
Note 6. Transactions with Affiliates
Senior Housing entered into an investment advisory agreement with REIT
Management & Research, Inc. ("REIT Management") to provide investment,
management and administrative services. REIT Management is owned by Gerard M.
Martin and Barry M. Portnoy, who serve as managing trustees of Senior Housing.
Note 7. Indebtedness
Senior Housing has a $350.0 million, three-year, interest only, bank credit
facility. The bank credit facility is secured by 18 properties, with a net book
value of $377.7 million at March 31, 2000, and matures in 2002. The interest
rate is LIBOR plus a premium (7.96% at March 31, 2000). The bank credit facility
is available for acquisitions, working capital and for general business
purposes. As of March 31, 2000, $188.0 million was outstanding and $162.0
million was available under the credit facility.
Note 8. Shareholders' Equity
Senior Housing has reserved 1,300,000 shares of Senior Housing's common shares
under the terms of the 1999 Incentive Share Award Plan (the "Award Plan").
During 1999 the three Independent Trustees, as part of their annual fee, were
each granted 500 common shares from this plan. The shares granted to the
Trustees vest immediately. At March 31, 2000, 1,298,500 of Senior Housing's
common shares remain reserved for issuance under the Award Plan.
In February 2000 Senior Housing paid a distribution of $0.60 per share, or $15.6
million. In April 2000 Senior Housing declared a distribution of $0.30 per
share, or $7.8 million, which will be distributed to shareholders on or about
May 25, 2000.
6
SENIOR HOUSING PROPERTIES TRUST
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion presents an analysis of the results of operations of
the properties and mortgages we owned for the three months ended March 31, 2000
and 1999. This discussion includes references to funds from operations. Funds
from operations, or "FFO", as defined in the white paper on funds from
operations which was approved by the Board of Governors of NAREIT in March 1995
and as clarified from time to time, is net income computed in accordance with
GAAP, before extraordinary items, plus depreciation and amortization and after
adjustment for unconsolidated partnerships and joint ventures. We consider FFO
to be an appropriate measure of performance for an equity REIT, along with cash
flow from operating activities, financing activities and investing activities,
because it provides investors with an indication of an equity REIT's ability to
incur and service debt, make capital expenditures, pay distributions and fund
other cash needs. We compute FFO in accordance with the standards established by
NAREIT adjusted for the impact of Staff Accounting Bulletin No. 101, "Accounting
for Contingent Rent in Interim Financial Periods", issued by the Securities and
Exchange Commission in December 1999, and non cash items, which may not be
comparable to FFO reported by other REITs that define the term differently. FFO
does not represent cash generated by operating activities in accordance with
GAAP and should not be considered as an alternative to net income, determined in
accordance with GAAP, as an indication of financial performance or the cash flow
from operating activities, determined in accordance with GAAP, or as a measure
of liquidity.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 Compared to March 31, 1999
For the three months ended March 31, 2000, compared to the three months ended
March 31, 1999, total revenues decreased by $4.1 million, total expenses
decreased by $660,000 and net income decreased by $3.4 million. Revenues
decreased because no rent was received after the sale date from three properties
formerly owned by Senior Housing which have been sold and because reduced rent
and interest was accrued from the properties pursuant to the work out agreements
described below. Total expenses decreased due to a decrease in interest expense
of $501,000 and depreciation expense of $432,000, offset by an increase in
general and administrative expenses of $273,000. The decrease in interest
expense is primarily due to lower interest expense actually incurred during 2000
as compared to HRPT's allocated interest expense in 1999. The decrease in
depreciation expense is primarily due to the write down for the impairment of
assets at December 31, 1999, and the sale of three properties in February 2000.
General and administrative expenses increased in 2000 over 1999 because Senior
Housing's expenses were higher than the allocable portion of HRPT's expenses and
because of costs arising from the work out agreements described below. Net
income was $7.6 million and $11.0 million for the three months ended March 31,
2000 and 1999, respectively.
Two of our tenants, Mariner Post-Acute Network, Inc. ("Mariner") and Integrated
Health Services, Inc. ("IHS") have filed for protection under Chapter 11 of the
U.S. Bankruptcy Code. Mariner filed in January 2000 and IHS filed in February
2000.
In March 2000 we reached an agreement in principle with Mariner as
follows:
o Mariner's lease obligations for all 26 properties will be terminated.
o Approximately $24.0 million of cash and securities which secure
Mariner's obligations will be retained by us.
o We will assume operation responsibilities for 17 of these 26
properties. Title to five of these properties will be transferred to
Mariner which will continue the operations. The remaining four nursing
homes are now subleased to two private companies and we expect to
negotiate with these two subtenants for their continued operations of
these properties.
o Mariner will continue to pay its historical contractual obligations to
us until this agreement is consummated.
The agreement with Mariner has been approved by Mariner's creditors committee
and the Delaware Bankruptcy Court, before which this bankruptcy is pending. This
agreement still requires regulatory approvals from various states where affected
properties are located. If this agreement is approved we expect our future
earnings and cash flows may be less than the rent previously earned from the
Mariner lease, at least on a short term basis. If and when this agreement is
implemented additional material gains or losses may result.
7
SENIOR HOUSING PROPERTIES TRUST
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations - continued
In April 2000 we reached an agreement in principle with IHS as follows:
o The lease for one property will be amended to provide a new ten year
term at $1.2 million per year, effective January 1, 2000.
o Our mortgage investment secured by one property will be cancelled and
IHS will continue to own and operate and mortgage the property.
o IHS's lease and mortgage obligations for 37 properties will be
terminated.
o IHS will pay us $500,000 per month for use and occupancy of Senior
Housing's properties from the date of IHS's bankruptcy filing until
this transaction is closed.
o IHS will convey nine properties to us.
o We will assume operating responsibility for 41 properties.
In addition, Horizon/CMS Corporation, a subsidiary of HEALTHSOUTH Corporation,
(together "HEALTHSOUTH") is a guarantor of the lease obligations for four
properties leased to IHS. We have reached an understanding with HEALTHSOUTH
whereby HEALTHSOUTH will assume operating responsibility for these four
properties and one property that will be conveyed to us by IHS. Annual rents
under these five leases total approximately $10.0 million.
The agreement with IHS is contingent upon approval by IHS's creditors committees
and the Delaware Bankruptcy Court before which this bankruptcy is pending and
requires regulatory approvals from various states where affected properties are
located. If this agreement is approved we expect our future earnings and cash
flows may be less than the rent previously earned from the IHS leases, at least
on a short term basis. If and when this agreement is implemented additional
material gains or losses may result.
FFO for the three months ended March 31, 2000, was $13.3 million, or $0.51 per
share, compared to $16.6 million, or $0.64 per share for the same period in
1999. The decrease of $3.3 million is due to the factors discussed above. Cash
flow provided by operating activities and cash available for distribution may
not necessarily equal funds from operations as cash flow is affected by other
factors not included in the funds from operations calculation, such as changes
in assets and liabilities.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, we had cash and cash equivalents of $12.9 million. For the
three months ended March 31, 2000 and 1999, cash flows provided by operating
activities were $11.2 million and $17.8 million, respectively; cash flows
provided by investing activities were $12.2 million and $93,000, respectively;
and cash used for financing activities was $27.6 million and $17.9 million,
respectively. We expect that our current cash, cash equivalents, future cash
flows from operating activities and availability under our bank credit facility
will be sufficient to meet our short-term and long-term working capital
requirements, including our distribution of $7.8 million, or $0.30 per share,
for the quarter ending on March 31, 2000, which we will pay on or about May 25,
2000.
We have a $350.0 million, three-year, interest only, bank credit facility
secured by first mortgages on 18 properties. The interest rate is LIBOR plus a
premium per annum. The bank credit facility is available for acquisitions,
working capital and for general business purposes. We have the ability to repay
and redraw amounts under this bank credit facility until its maturity in 2002.
Our bank credit facility documentation has customary representations,
warranties, covenants and event of default provisions.
During the first quarter of 2000 we repaid $12.0 million of amounts outstanding
under our bank credit facility with the proceeds from the sale of three
properties. Subsequent to March 31, 2000 we repaid an additional $10.0 million.
We currently have $178.0 million outstanding and $172.0 million available under
this credit facility.
Total assets decreased by $17.5 million from $654.0 million as of December 31,
1999, to $636.5 million as of March 31, 2000. The decrease is primarily due to
depreciation on real estate properties and the sale of the three properties in
February 2000.
8
SENIOR HOUSING PROPERTIES TRUST
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations -continued
Year 2000
We experienced no disruptions in our information and non-information technology
systems and incurred no costs with respect to year 2000 issues. We are not aware
of any material problems resulting from year 2000 issues by our systems or the
systems of our tenants or their material vendors and our material vendors, but
will continue to monitor these systems throughout the year to ensure that any
late year 2000 issues that may arise are addressed promptly.
Impact of Inflation
Inflation might have both positive and negative impacts upon our business.
Inflation might cause the value of our real estate investments to increase.
Similarly, in an inflationary environment, the percentage rents which we receive
based upon CPI increases or as a percentage of our tenants' revenues should
increase. Also, rent yields we could charge for new investments would likely
increase. Offsetting these benefits, inflation might cause our costs of equity
and debt capital to increase. To mitigate the adverse impact of increased costs
of debt capital in the event of material inflation we may purchase interest rate
cap agreements. The decision to enter into these agreements will be based on the
amount of floating rate debt outstanding and our belief that material interest
rate increases are likely to occur. We do not believe inflation in the U.S.
economy during the next few years will have any material effect on our business.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market changes in interest rates. Because interest on all our
outstanding debt is at a floating rate, changes in interest rates will not
affect the value of our outstanding debt instruments. However, changes in
interest rates will affect our operating results. For example, the interest rate
payable on our outstanding indebtedness of $188.0 million at March 31, 2000, was
7.96% per annum. An immediate 10% change in that interest rate or 79.6 basis
points, would increase or decrease our costs by approximately $1.5 million, or
$0.06 per share per year:
Impact of Changes in Interest Rates
(dollars in thousands)
Total
Interest
Interest Rate Outstanding Expense Per
Per Year Debt Year
--------------- -------------- ---------------
At March 31, 2000 7.96% $188,000 $14,965
10% reduction 7.16% 188,000 13,461
10% increase 8.76% 188,000 16,469
The foregoing table presents a so-called "shock" analysis, which assumes that
the interest rate change by 10%, or 79.6 basis points, is in effect for a whole
year. If interest rates were to change gradually over one year, the impact would
be less.
We borrow in U.S. dollars and all of our current borrowings are subject to
interest at LIBOR plus a premium. Accordingly, we are vulnerable to changes in
U.S. dollar based short-term rates, specifically LIBOR.
During the past few months, short-term U.S. dollar based interest rates have
tended to rise. We are unable to predict the direction or amount of interest
rate changes during the next year. We purchased an interest rate cap agreement
on our current debt to protect against rate increases above 8%. However, we may
incur additional debt at floating or fixed rates in the future which would
increase our exposure to market changes in interest rates.
We currently own real estate mortgages receivable with a carrying value of $22.9
million. When comparable term market interest rates decline, the value of these
receivables increases; when comparable term market interest rates rise, the
value of these receivables declines. Using discounted cash flow analyses at a
weighted average estimated per year market rate for March 31, 2000, of 10.75%,
the estimated fair value of our mortgage receivables was $23.7 million.
9
SENIOR HOUSING PROPERTIES TRUST
Item 3. Quantitative and Qualitative Disclosures About Market Risk - continued
An immediate 10% change in the market rate of interest, or 108 basis points,
applicable to our mortgage receivables at March 31, 2000, would affect the fair
value of those receivables as follows:
Carrying Value
Interest of Mortgages Estimated
Rate Per Year Receivable Fair Value
-------------- ----------------- ---------------
(dollars in thousands)
Estimated market 10.75% $22,939 $23,722
10% reduction 9.68% 22,939 25,256
10% increase 11.83% 22,939 22,328
If the market rate changes occurred gradually over time, the effect of these
changes would be realized gradually. Because our mortgages receivable are fixed
rate instruments, changes in market interest rates will have no effect on our
operating results unless these receivables are sold.
The interest rate changes that affect the valuations of our mortgages are U.S.
dollar long-term rates for corporate obligations of companies with ratings
similar to our mortgagors.
Item 5. Other Information
(a) On May 11, 2000, the Board of Trustees elected John R. Hoadley as
Controller of the Company. Mr. Hoadley is also the Controller of Hospitality
Properties Trust, a position he has held since October 1999. From 1998 until
October 1999, Mr. Hoadley served as the Assistant Controller of REIT Management
& Research, Inc., the Company's investment advisor. Mr. Hoadley was employed by
Arthur Andersen LLP from 1993 to 1998, most recently as a senior auditor, with
clients primarily in the real estate and utilities industries. Mr. Hoadley is a
certified public accountant.
(b) See Item 2 above for information with respect to the Company's
previously disclosed agreements in principle with Mariner Post-Acute Network,
Inc. and its affiliates and with Integrated Health Services, Inc. and its
affiliates.
(c) The Company's Board of Trustees has amended and restated the Company's
Bylaws. The following is a summary of certain provisions of the Bylaws, as
amended. Because it is a summary, it does not contain all of the information
which may be important to a shareholder or other investor. For more information,
the Company refers to the full text of its amended and restated Bylaws which are
being filed as an exhibit to this Quarterly Report on Form 10-Q.
o The Company has elected to be subject to Section 3-804(b) and (c) and
Section 3-805 of Title 3, Subtitle 8 of the Maryland General Corporation
Law. Those sections:
o provide that the number of trustees may be fixed only by a vote of the
Board of Trustees; and
o provide that vacancies on the Board of Trustees may be filled only by
the affirmative vote of a majority of the remaining trustees in
office, even if the remaining trustees do not constitute a quorum.
o The amended Bylaws provide that nomination of persons for election to the
Board of Trustees at an annual meeting of shareholders and business to be
transacted by the shareholders at an annual meeting of shareholders may be
properly brought before the meeting only (1) pursuant to the Company's
notice of meeting, (2) by or at the direction of the Board of Trustees, or
(3) by any shareholder who is a shareholder of record both at the time of
giving of the advance notice described below and at the time of the annual
meeting, who is entitled to vote at the meeting and who complies with the
advance notice and other applicable terms and provisions set forth in the
Bylaws. No business may be transacted at a special meeting of shareholders
except as specifically designated in the notice of the meeting. Nominations
of persons for election to the Board of Trustees at a special meeting of
10
SENIOR HOUSING PROPERTIES TRUST
shareholders at which trustees are to be elected may be made only (1)
pursuant to the Company's notice of meeting; (2) by or at the direction of
the Board of Trustees, or (3) by any shareholder who is a shareholder of
record both at the time of giving of the advance notice described below and
at the time of the special meeting, who is entitled to vote at the meeting
and who complies with the advance notice and other applicable terms and
provisions set forth in the Bylaws.
o The amended Bylaws require a shareholder who is nominating a person for
election to the Board of Trustees at an annual meeting or proposing
business to be transacted at an annual meeting to give notice of such
nomination or proposal to the secretary of the Company at the principal
executive offices of the Company not later than the close of business on
the 90th day nor earlier than the close of business on the 120th day prior
to the first anniversary of the date of mailing of the notice for the
preceding year's annual meeting. If the date of mailing of the notice for
the annual meeting is advanced or delayed by more than 30 days from the
anniversary date of the date of mailing of the notice for the preceding
year's annual meeting, notice by the shareholder to be timely must be so
delivered not earlier than the close of business on the 120th day prior to
the date of mailing of the notice for such annual meeting and not later
than the close of business on the later of: (1) the 90th day prior to the
date of mailing of the notice for such annual meeting or (2) the 10th day
following the day on which public announcement of the date of mailing of
the notice for such meeting is first made by the Company. The public
announcement of a postponement of the mailing of the notice for such annual
meeting or of an adjournment or postponement of an annual meeting to a
later date or time will not commence a new time period for the giving of a
shareholder's notice. If the number of Trustees to be elected to the Board
of Trustees is increased and there is no public announcement by the Company
of such action or specifying the size of the increased Board of Trustees at
least one hundred (100) days prior to the first anniversary of the date of
mailing of notice for the preceding year's annual meeting, a shareholder's
notice also shall be considered timely, but only with respect to nominees
for any new positions created by such increase, if the notice is delivered
to the secretary at the Company's principal executive offices not later
than the close of business on the 10th day immediately following the day on
which such public announcement first is made by the Company.
o The amended Bylaws require a shareholder who is nominating a person for
election to the Board of Trustees at a special meeting at which trustees
are to be elected to give notice of such nomination to the secretary of the
Company at its principal executive offices not earlier than the close of
business on the 120th day prior to such special meeting and not later than
the close of business on the later of (1) the 90th day prior to such
special meeting or (2) the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Trustees to be elected at such meeting. The public
announcement of a postponement or adjournment of a special meeting to a
later date or time will not commence a new time period for the giving of a
shareholder's notice as described above.
o The amended Bylaws provide that a shareholder's notice of a nomination for
election to the Board of Trustees or of a proposal of business to be
transacted at a shareholders meeting must be in writing and must include:
o as to each person whom the shareholder proposes to nominate for
election or reelection as a Trustee, (1) the person's name, age,
business address and residence address, (2) the class and number of
shares of beneficial interest of the Company that are beneficially
owned or owned of record by such person and (3) all other information
relating to such person that is required to be disclosed in
solicitations of proxies for election of Trustees in an election
contest, or is otherwise required, in each case pursuant to Regulation
14A or any successor provision under the Securities Exchange Act of
1934, including such person's written consent to being named in the
proxy statement as a nominee and to serving as a Trustee if elected;
o as to any business that the shareholder proposes to bring before the
meeting, a description of the business desired to be brought before
the meeting, the reasons for conducting such business at the meeting
and any interest of such shareholder in such business (including any
anticipated benefit to the shareholder therefrom) and of each
beneficial owner, if any, on whose behalf the proposal is made; and
o as to the shareholder giving the notice and each beneficial owner, if
any, on whose behalf the nomination or proposal is made, (1) the name
and address of such shareholder, as they appear on the Company's share
ledger and current name and address, if different, of any such
beneficial owner and (2) the class and number of shares of the Company
which are owned beneficially and of record by such shareholder and any
such beneficial owner.
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SENIOR HOUSING PROPERTIES TRUST
o The amended Bylaws provide that, at the same time as or prior to the
submission to the Board of Trustees of any shareholder proposal of business
to be conducted at an annual or special meeting of the shareholders that,
if approved or implemented, would cause the Company to be in breach of a
covenant under any existing or proposed debt instrument or agreement with
any lender, the proponent shareholder must submit to the secretary of the
Company at the principal executive offices of the Company evidence
satisfactory to the Board of Trustees of the lender's willingness to waive
the breach or a plan for repayment of affected indebtedness which is
satisfactory to the Board of Trustees and which specifically identifies the
source of funds to be used in the repayment and presents evidence
satisfactory to the Board of Trustees that the identified funds could be
applied by the Company to the repayment.
o The amended Bylaws provide that, at the same time as or prior to the
submission to the Board of Trustees of any shareholder proposal of business
to be conducted at an annual or special meeting of the shareholders that,
if approved, could not be implemented by the Company without notifying or
obtaining the consent or approval of any regulatory body, the proponent
shareholder must submit to the secretary of the Company at the principal
executive offices of the Company evidence satisfactory to the Board of
Trustees that any and all required notices, consents or approvals have been
given or obtained or a plan, satisfactory to the Board of Trustees, for
making the requisite notices or obtaining the requisite consents or
approvals, as applicable, prior to the implementation of the proposal.
o The amended Bylaws provide that the Company is not required to include in
its proxy statement a shareholder nomination of persons for election to the
Board of Trustees or a shareholder proposal of business to be brought
before an annual or special meeting of shareholders, unless the proponent
shareholder has complied with (1) all applicable requirements of state and
federal law and the rules and regulations thereunder, including Rule 14a-8
or any successor provision under the Securities Exchange Act of 1934, and
(2) the advance notice and the other applicable procedures and requirements
set forth in the Bylaws. This Bylaw provision does not affect any right of
the Company to omit a shareholder proposal from the Company's proxy
statement under the Securities Exchange Act of 1934, including nominations
of persons for election to the Board of Trustees and business to be brought
before the shareholders at an annual or special meeting of shareholders.
o The amended Bylaws include provisions to clarify the organization and
conduct of meetings of shareholders. These include, among other things,
that
o meetings of shareholders will be conducted by an individual appointed
by the Trustees to be chairperson of the meeting or, in the absence of
such appointment or the absence of the appointed individual, by
specified officers of the Company or, in the absence of such officers,
a chairperson chosen by the shareholders by the vote of holders of
shares of beneficial interest representing a majority of the votes
cast by shareholders present in person or represented by proxy;
o the order of business and all other matters of procedure at any
meeting of shareholders will be determined by the chairperson of the
meeting;
o the chairperson of the meeting may prescribe such rules, regulations
and procedures and take such actions as, in the discretion of such
chairperson, are appropriate for the proper conduct of the meeting,
including, without limitation: (1) restricting admission to the time
set for the commencement of the meeting; (2) limiting attendance at
the meeting to shareholders of record of the Company, their duly
authorized proxies or other such persons as the chairperson of the
meeting may determine; (3) limiting participation at the meeting on
any matter to shareholders of record of the Company entitled to vote
on such matter, their duly authorized proxies or other such persons as
the chairperson of the meeting may determine; (4) limiting the time
allotted to questions or comments by participants; (5) maintaining
order and security at the meeting; (6) removing any shareholder or
other person who refuses to comply with meeting procedures, rules or
guidelines as set forth by the chairperson of the meeting; and (7)
recessing or adjourning the meeting to a later date and time and place
announced at the meeting; and
o unless otherwise determined by the chairperson of the meeting,
meetings of shareholders are not required to be held in accordance
with the rules of parliamentary procedure or any established rules of
order.
As stated in the Company's proxy statement dated March 23, 2000
relating to the annual meeting of shareholders held on May 9, 2000, shareholder
proposals intended to be presented at the Company's 2001 Annual
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SENIOR HOUSING PROPERTIES TRUST
Meeting of Shareholders pursuant to Rule 14a-8 under the Securities Exchange Act
of 1934 must be received by the Company at its principal executive offices not
later than December 1, 2000.
Under the amended Bylaws, in order to be considered "timely" within the
meaning of Rule 14a-4(c) under the Securities Exchange Act of 1934, notice of a
shareholder proposal intended for presentation at the Company's 2001 Annual
Meeting of Shareholders made outside of Rule 14a-8 under the Securities Exchange
Act of 1934 must be received by the Company no later than January 2, 2001 and no
earlier than December 1, 2000, rather than respective dates which were specified
in the Company's proxy statement dated March 31, 2000, and must be made in
accordance with the provisions, requirements and procedures set forth in the
Company's amended Bylaws.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Articles Supplementary of the Company. (Filed herewith.)
3.2 Amended and Restated Bylaws of the Company. (Filed herewith.)
10.1 Settlement Agreement, dated as of March 20th, 2000, among the
Company, SPTMNR Properties Trust, Five Star Quality Care, Inc.,
SHOPCO-AZ, LLC, SHOPCO-CA, LLC, SHOPCO-COLORADO, LLC, SHOPCO-WI,
LLC, Mariner Post-Acute Network, Inc., GranCare, Inc., AMS
Properties, Inc. and GCI Health Care Centers, Inc. (Filed
herewith.)
10.2 Settlement Agreement, dated as of April 11, 2000, among the
Company, SPTIHS Properties Trust, HRES1 Properties Trust, HRES2
Properties Trust, SHOPCO-COLORADO, LLC, SHOPCO-CT, LLC,
SHOPCO-GA, LLC, SHOPCO-IA, LLC, SHOPCO-KS, LLC, SHOPCO-MA, LLC,
SHOPCO-MI, LLC, SHOPCO-MO, LLC, SHOPCO-NE, LLC, SHOPCO-WY, LLC,
SNH-NEBRASKA, INC., SNH-IOWA, INC., SNH-MASSACHUSETTS, INC.,
SNH-MICHIGAN, INC., Five Star Quality Care, Inc., Advisors
Healthcare Group, Inc., Integrated Health Services, Inc.,
Community Care of America, Inc., ECA Holdings, Inc., Community
Care of Nebraska, Inc., W.S.T. Care, Inc., Quality Care of Lyons,
Inc., CCA Acquisition I, Inc., MARIETTA/SCC, Inc., Glenwood/SCC,
Inc., Dublin/SCC, Inc., College Park/SCC, Inc., IHS Acquisition
No. 108, Inc., IHS Acquisition No. 112, Inc., IHS Acquisition No.
113, Inc., IHS Acquisition No. 135, Inc., IHS Acquisition No.
148, Inc., IHS Acquisition No. 152, Inc., IHS Acquisition No.
153, Inc., IHS Acquisition 154, Inc., IHS Acquisition No. 155,
Inc., IHS Acquisition No. 175, Inc., Integrated Health Services
at Grandview Care Center, Inc., ECA Properties, Inc., CCA of
Midwest, Inc. and Quality Care of Columbus, Inc. (Filed
herewith.)
27. Financial Data Schedule. (Filed herewith.)
(b) Reports on Form 8-K:
None.
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SENIOR HOUSING PROPERTIES TRUST
CERTAIN IMPORTANT FACTORS
This Quarterly Report on Form 10-Q contains statements which constitute
forward-looking statements within the meaning of the Securities Exchange Act of
1934, as amended. Those statements appear in a number of places on this Form
10-Q and include statements regarding our beliefs, intent or expectation
concerning projections, plans, future events and performance. The estimates,
assumptions and statements, such as those relating to the approval and
consummation of the Mariner and IHS agreements, our ability to operate and
stabilize operations at the Mariner and IHS properties, our ability to
successfully negotiate with Mariner's subtenants and our ability to make future
distributions, depend upon various factors over some of which we and/or our
lessees have or may have limited or no control. Readers are cautioned that any
such forward looking statements are not guarantees of future performance and
involve risks and uncertainties, and that actual results may differ materially
from those contained in the forward looking statements. Material changes could
occur as a result of numerous factors. Those factors include, without
limitation, our ability to successfully operate the Mariner and IHS properties
whose operations we assume, the status of the economy, status of the capital
markets (including prevailing interest rates), compliance with the changes to
regulations within the healthcare industry, competition in both the real estate
and healthcare industries, changes to federal, state, and local legislation and
other factors. We cannot predict the impact of these factors, if any. However,
these factors could cause our actual results for subsequent periods to be
different from those stated, estimated or assumed in this discussion and
analysis of our financial condition and results of operations. We believe that
our estimates and assumptions are reasonable and prudent at this time. The
information contained in this Form 10-Q, including the information under the
heading "Management's Discussion and Analysis of Financial Condition and Results
of Operations", identifies other important factors that could cause differences.
THE AMENDED AND RESTATED DECLARATION OF TRUST ESTABLISHING THE COMPANY, DATED
SEPTEMBER 20, 1999, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE
"DECLARATION"), IS DULY FILED IN THE OFFICE OF THE STATE DEPARTMENT OF
ASSESSMENTS AND TAXATION OF MARYLAND, PROVIDES THAT THE NAME "SENIOR HOUSING
PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS
TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER,
SHAREHOLDER, EMPLOYEE OR AGENT OF THE COMPANY SHALL BE HELD TO ANY PERSONAL
LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE
COMPANY. ALL PERSONS DEALING WITH US, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS
OF SENIOR HOUSING PROPERTIES TRUST FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE
OF ANY OBLIGATION.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SENIOR HOUSING PROPERTIES TRUST
By:/s/ David J. Hegarty
David J. Hegarty
President and Chief Operating Officer
Dated: May 12, 2000
By:/s/ Ajay Saini
Ajay Saini
Treasurer and Chief Financial Officer
Dated: May 12, 2000
15