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, 2001
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 of incorporation) (IRS Employer 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 11, 2001:
25,917,600 shares of beneficial interest, $0.01 par value.
SENIOR HOUSING PROPERTIES TRUST
FORM 10-Q
MARCH 31, 2001
INDEX
Page
----
PART I Financial Information
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets - March 31, 2001 and December 31, 2000 1
Consolidated Statements of Income - Three Months Ended March 31, 2001 and 2000 2
Consolidated Statements of Cash Flows - Three Months Ended March 31, 2001 and 2000 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II Other Information
Item 5. Other Items 13
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 amounts)
March 31, December 31,
2001 2000
------------- -------------
(unaudited) (Note 2)
ASSETS
Real estate properties, at cost:
Land $ 60,060 $ 60,060
Buildings and improvements 536,837 533,335
--------- ---------
596,897 593,395
Less accumulated depreciation 111,633 106,681
--------- ---------
485,264 486,714
Cash and cash equivalents 13,718 515
Accounts receivable, net 56,736 3,166
Net investment in facilities' operations -- 29,046
Other assets 13,585 11,132
--------- ---------
$ 569,303 $ 530,573
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank notes payable $ 105,000 $ 97,000
Prepaid rent 7,681 56
Security deposits 1,135 235
Distribution payable -- 7,775
Accounts payable and accrued expenses of facilities' operations 17,385 --
Other liabilities 12,239 3,197
Commitments and contingencies -- --
Shareholders' equity:
Common shares of beneficial interest, $0.01 par value:
25,916,100 shares issued and outstanding 259 259
Additional paid-in capital 444,638 444,638
Cumulative net income 41,509 38,673
Cumulative distributions (62,323) (62,323)
Unrealized gain on investment 1,780 1,063
--------- ---------
Total shareholders' equity 425,863 422,310
--------- ---------
$ 569,303 $ 530,573
========= =========
See accompanying notes
1
SENIOR HOUSING PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share amounts)
(unaudited)
Three Months Ended March 31,
----------------------------
2001 2000
------------- -----------
Revenues:
Rental income $11,131 $18,060
Facilities' operations 57,354 --
Interest and other income 237 537
------- -------
Total revenues 68,722 18,597
------- -------
Expenses:
Interest 2,160 4,475
Depreciation 4,742 5,175
Facilities' operations 55,978 --
General and administrative
- Recurring 1,045 1,387
- Related to foreclosures
and lease terminations 1,961 --
------- -------
Total expenses 65,886 11,037
------- -------
Net income $ 2,836 $ 7,560
======= =======
Weighted average shares outstanding 25,916 26,002
======= =======
Basic and diluted earnings per share:
Net income $ 0.11 $ 0.29
======= =======
See accompanying notes
2
SENIOR HOUSING PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Three Months Ended March 31,
----------------------------
2001 2000
----------- ----------
Cash flows from operating activities:
Net income $ 2,836 $ 7,560
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation 4,742 5,175
Changes in assets and liabilities:
Other assets (489) (2,482)
Accounts receivable, net (6,047) --
Prepaid rent 7,625 (317)
Security deposits 900 --
Accounts payable and accrued expenses of facilities' operations (1,925) --
Other liabilities (949) 1,265
-------- --------
Cash provided by operating activities 6,693 11,201
-------- --------
Cash flows from investing activities:
Proceeds from sale of real estate, net -- 12,178
Equipment purchases (893) --
-------- --------
Cash (used for) provided by investing activities (893) 12,178
-------- --------
Cash flows from financing activities:
Repayments on borrowings (5,000) (12,000)
Proceeds from borrowings 13,000 --
Distributions to shareholders (7,775) (15,600)
-------- --------
Cash provided by (used for) financing activities 225 (27,600)
-------- --------
Increase (decrease) in cash and cash equivalents 6,025 (4,221)
Cash and cash equivalents at beginning of period 515 17,091
Cash and cash equivalents at facilities' operations, beginning of period 7,178 --
-------- --------
Cash and cash equivalents at end of period $ 13,718 $ 12,870
======== ========
Supplemental cash flow information:
Interest paid $ 2,892 $ 4,227
======== ========
See accompanying notes
3
SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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"). On October 12, 1999, HRPT distributed 50.7%
of its ownership in Senior Housing to HRPT shareholders. At March 31, 2001,
Senior Housing and its subsidiaries (collectively the "Company") owned 86
properties in 23 states. Of these properties, 28 were leased to third party
operators, 57 were operated for the Company's account and one property was
closed.
Note 2. Interim Financial Statements
These quarterly financial statements 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, 2000, included in the Annual Report
on Form 10-K. In the opinion of management, all adjustments 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. The balance sheet at December 31, 2000, has been derived from the
December 31, 2000, audited financial statement.
Note 3. Summary of Significant Accounting Policies
BASIS OF PRESENTATION. In January and February 2000, two of the Company's larger
tenants, Mariner Post-Acute Network, Inc. ("Mariner") and Integrated Health
Services, Inc. ("IHS"), filed for bankruptcy. During 2000, the Company entered
settlements with these tenants pursuant to which the operations of nursing homes
were transferred from Mariner and IHS to the Company. Although the settlements
as approved by the Bankruptcy Courts in the Mariner and IHS cases have financial
effect as of July 1, 2000, the implementation of these settlements was subject
to material conditions subsequent, including the Company's obtaining health
regulatory licenses and Medicare and Medicaid provider contracts necessary to
operate these nursing homes. Because the majority of the licenses and provider
contracts had not been received prior to December 31, 2000, the Company reported
the results of these nursing home operations using the equity method of
accounting through December 31, 2000. Working capital invested in these nursing
home operations was included in Net Investment in Facilities' Operations in the
Company's Consolidated Balance Sheets and net income from these nursing homes
was reported as Other Real Estate Income in the Company's Consolidated
Statements of Income.
4
SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
During the first quarter of 2001, the Company obtained substantially all of the
healthcare regulatory licenses and Medicare and Medicaid provider agreements
necessary for these nursing home operations. Accordingly, the Company
consolidated the nursing home operations effective January 1, 2001. On a
proforma basis, assuming the nursing home operations had been consolidated with
the Company's other subsidiaries as of December 31, 2000, the consolidated
comparative balance sheets would have been (dollars in thousands):
March 31, December 31,
2001 2000
------------ ------------
Assets
Real estate properties, at cost $596,897 $596,004
Less accumulated depreciation 111,633 106,891
-------- --------
485,264 489,113
Cash and cash equivalents 13,718 7,693
Accounts receivable, net 56,736 50,690
Other assets 13,585 12,367
-------- --------
$569,303 $559,863
======== ========
Liabilities and Shareholders' Equity
Bank notes payable $105,000 $ 97,000
Prepaid rent 7,681 56
Security deposits 1,135 235
Distribution payable -- 7,775
Accounts payable and accrued expenses of facilities'
operations 17,385 19,310
Other liabilities 12,239 13,177
Total shareholders' equity 425,863 422,310
-------- --------
$569,303 $559,863
======== ========
EARNINGS PER COMMON SHARE. Earnings per common share is 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.
NEW ACCOUNTING PRONOUNCEMENTS. In June 1998 and June 2000, the Financial
Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133") and SFAS No. 138 "Accounting for
Certain Derivative Instruments and Hedging Activities" ("FAS 138"), which are
effective for fiscal years beginning after June 15, 2000. These statements
require companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives will be reported in the statement of operations
or as a deferred item, depending on the use of the derivatives and whether they
qualify for hedge accounting. The key criterion for hedge accounting is that the
derivative must be highly effective in achieving offsetting changes in fair
value or cash flows of the hedged items during the term of the hedge. Effective
January 1, 2001, the Company adopted the provisions of FAS 133, as amended by
FAS 138. As required by its revolving bank credit facility, the Company
purchased an interest rate cap agreement on its current debt. At March 31, 2001,
the value of the agreement was zero and the adoption of FAS 133 has had no
effect on the Company's financial statements.
RECLASSIFICATIONS. Reclassifications have been made to the prior years'
financial statements to conform to the current year's presentation.
5
SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Note 4. Comprehensive Income
The following is a reconciliation of net income to comprehensive income for the
three months ended March 31, 2001 and 2000 (dollars in thousands):
Three Months Ended March 31,
----------------------------
2001 2000
----------- -----------
Net income $2,836 $7,560
Other comprehensive income:
Change in unrealized gain on
investment 717 --
------ ------
Comprehensive income $3,553 $7,560
====== ======
Note 5. Tenant Default
The Company previously leased a nursing facility to Sun Healthcare Group, Inc.
("Sun"), which was subleased to a regional operator in Washington State. Sun
filed for bankruptcy in October 1999. Sun and this subtenant both defaulted on
their rental obligations to the Company. The Company entered a new lease
directly with the regional operator during the second quarter of 2001, effective
as of March 1, 2001. The new lease arrangement with this regional operator
requires that accumulated rental arrearages be paid over two years with interest
and that current rent be paid at the rate of approximately $800,000 per year.
Note 6. Bankrupt Tenants
On June 22, 2000, Multicare, Inc., a non-consolidated subsidiary of Genesis
Health Ventures, Inc. ("Multicare"), filed for bankruptcy. Multicare leases one
property from the Company and the annual rent from this property is $1.5
million. As part of the Company's settlement with IHS described in Note 3 above,
IHS remained a tenant for one property at annual rent of $1.2 million. IHS is
currently in bankruptcy proceedings and the continuation of this rental
arrangement has been approved by the Bankruptcy Court. As of April 30, 2001,
both Multicare and IHS are current on their rent obligations to the Company.
Note 7. Unrealized Gain on Investment
As of March 31, 2001, the Company owned one million HRPT common shares, which
are carried at fair market value in Other Assets. The Unrealized Gain On
Investment shown on the balance sheet represents the difference between their
market prices on the date they were received from a former tenant ($6.50 per
share) and on March 31, 2001 ($8.28 per share).
Note 8. Segment Information
As a result of transactions with bankrupt former tenants and the Company's
receipt of the applicable licenses and contracts to operate the facilities
discussed in Note 3, the Company now has two reportable segments; leasing and
facility operations. Revenues of the leasing activities are derived from rental
agreements for properties that are triple net leased to third party operators.
Revenues of the facility operations are derived from services provided to
patients at the healthcare facilities operated for the Company's account.
Performance is measured based on the return on investments for the leased
properties and on contribution margin of the facilities' operations. The
following table is a summary of these reportable segments as of and for the
period ended
6
SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
March 31, 2001. Because the Company only operated in one segment for the three
months ended March 31, 2000, a comparative table is not presented (dollars in
thousands):
Three Months Ended March 31, 2001
------------------------------------------------------
Facilities'
Leasing Operations Unallocated Total
------------------------------------------------------
Revenues $ 11,131 $ 57,354 $ 237 $ 68,722
Interest expense -- -- 2,160 2,160
Depreciation 3,282 1,460 -- 4,742
Facilities' operations -- 55,978 -- 55,978
General administrative
- Recurring 1,045 -- -- 1,045
- Related to foreclosures
and lease terminations -- -- 1,961 1,961
------------------------------------------------------
Net income $ 6,804 (84) $ (3,884) $ 2,836
======================================================
Real estate investments $448,562 $148,335 $596,897
Cash 9,149 4,569 13,718
Accounts receivable, net 1,314 55,422 56,736
Other assets 12,483 1,102 13,585
Note 9. Indebtedness
The Company has a $270 million, interest only, revolving, secured bank credit
facility. The credit facility matures in 2002. The interest rate is LIBOR plus a
premium (7.17% at March 31, 2001). The credit facility is available for
acquisitions, working capital and for general business purposes. As of March 31,
2001, $105 million was outstanding and $165 million was available for drawing
under the credit facility.
Note 10. Shareholders' Equity
On January 24, 2001, the Company paid a distribution to shareholders of $0.30
per share, or $7.8 million. On April 3, 2001, the Company declared a
distribution of $0.30 per share, or $7.8 million, which will be paid to
shareholders on or about May 20, 2001.
Note 11. Contingencies
A substantial majority of the revenues at the nursing homes now operated for the
Company's account is received from the Federal Medicare program and from various
state Medicaid programs. Until the Company received the required licenses and
contracts to operate these nursing homes, billings for patients at these
facilities were made through Mariner and IHS as licensees, respectively. As of
March 31, 2001, approximately $19 million received by IHS and Mariner since July
1, 2000, which is due to the Company is included on the Company's Consolidated
Balance Sheets in Accounts Receivable. At May 10, 2001, a receivable balance of
approximately $14 million remained due from IHS and Mariner. The Company
believes these funds will be paid by Mariner and IHS pursuant to their
contractual obligations approved by the Bankruptcy Courts. However, IHS and
Mariner remain in bankruptcy proceedings and their record keeping and payment
processing has not always been timely.
Eight nursing homes delivered to the Company by IHS in 2000 were not previously
owned or mortgaged by the Company. These properties were transferred to the
Company by IHS as partial compensation for its defaults under leases and
mortgages. Because these properties were not owned or mortgaged by the Company
they do not constitute foreclosure property under Internal Revenue Code ("IRC")
provisions which permit REITs to operate nursing homes. To comply with laws
applicable to REITs, these nursing homes were operated during 2000 by
corporations which were 99% beneficially owned by the Company and 1%
beneficially owned by the Company's Managing Trustees, Barry M. Portnoy and
Gerard M. Martin, who also controlled 100% of the voting power of these
corporations. On January 1, 2001, the laws concerning the Company's ability to
own and operate these
7
SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
properties changed and the Company purchased Messrs. Portnoy and Martin's
ownership interests in these entities. The Company has applied for an Internal
Revenue Service ruling in order to clarify its ability to continue operating
these properties which were received as compensation for losses it suffered as a
result of IHS' bankruptcy. If this revenue ruling is denied, the Company may
have to lease or sell these properties with possible adverse financial
consequences.
Under IRC laws applicable to REITs, after a 90 day transition period, the
Company is required to engage a third party contractor to manage the nursing
home operations which it acquired from Mariner and IHS. Also, under IRC laws
applicable to REITs, the Company may continue to operate nursing homes which are
categorized as "foreclosure properties" for up to three years (subject to
extensions in certain circumstances). Messrs. Martin and Portnoy organized Five
Star Quality Care, Inc. ("Five Star") to serve as an independent contractor to
operate nursing homes for the Company. If Five Star is unable to continue
managing these nursing homes, the Company may be unable to find a qualified
operator to assume these management responsibilities, and, in those
circumstances, the Company may lose its IRC status as a REIT or otherwise suffer
adverse financial consequences. Similarly, if the Company is unable to sell or
lease these properties to a financially qualified operator within applicable
time periods, the Company may cease to be a REIT or otherwise suffer adverse
financial consequences.
8
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 our results of operations for
the three months ended March 31, 2001 and 2000. This discussion includes
references to Funds from Operations ("FFO"). FFO is net income computed in
accordance with Generally Accepted Accounting Principles ("GAAP"), before
extraordinary and non-recurring items, plus depreciation and amortization and
expected percentage rents. 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. The way we
calculate FFO may not be comparable to FFO reported by other REITs that define
the term differently. For example, we do not include proceeds of land sales in
FFO although some REITs do, and we add expected percentage rent to FFO in
certain periods although some REITs do not. 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, as a measure of liquidity.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2001, Compared to Three Months Ended March 31, 2000
The increases in total revenues and total expenses for the three months ended
March 31, 2001, compared to the three months ended March 31, 2000, are primarily
the result of the required account for facilities' operations which, during the
2001 period were operated for our account. During the first quarter of 2000, we
owned only properties leased to third parties and mortgage investments and
therefore we only had rental and interest income and expenses related to
investments in leased and mortgaged properties.
For the three months ended March 31, 2001, compared to the three months ended
March 31, 2000, rental income decreased to $11.1 million from $18.1 million.
This decrease is primarily due to the sale of seven properties in 2000 and the
tenant bankruptcies and the settlements which terminated leases and assigned
operations to us or our nominees.
Interest expense was $2.3 million lower in 2001 compared to 2000 because the
average balance outstanding and the weighted average interest rates on our
credit facility were lower during the 2001 period. Depreciation expense
decreased in 2001 by $443,000 due to the sale of seven properties in 2000, a
reduction in asset values as a result of impairment losses recorded in 2000 and
the net effect of the assets disposed of versus the assets acquired from the
settlement agreements with our bankrupt former tenants. Recurring general and
administrative expense decreased by $342,000 primarily due to the impact of the
sale of properties in 2000. During 2001, we incurred nonrecurring general and
administrative costs totaling approximately $2 million in connection with the
establishment of operating systems for foreclosed properties. Similar types of
start-up charges are expected in the second quarter of 2001, but are expected to
materially decline thereafter.
9
SENIOR HOUSING PROPERTIES TRUST
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
The following chart summarizes changes to our portfolio of leased properties and
to our rental revenues resulting from property sales, tenant bankruptcies and
the settlements during the three months ended March 31, 2001, and the comparable
period in 2000:
Three Months Ended March 31,
(dollars in thousands)
2001 2000
-----------------------------------------------------
No. of No. of
Tenant Properties Revenues Properties Revenues
------ ---------- -------- ---------- --------
Marriott International, Inc. 14 $7,013 14 $7,011
Brookdale Living Communities, Inc. -- -- 4 2,782
Genesis Health Ventures,
Inc./Multicare Companies, Inc. 1 370 1 364
Two private company tenants 2 175 2 164
Sun Healthcare Group, Inc.:
- Frontier Group (subtenant) -- -- 3 360
- One subtenant 1 202 1 171
Mariner Post-Acute Network, Inc. -- -- 26(1) 3,906
- Two subtenants 4 553 -- --
Integrated Health Services, Inc. 1 300 39(1) 3,302
HEALTHSOUTH Corporation 5 2,518 -- --
----------------------------------------------------
Totals 28 $11,131 90 $18,060
----------------------------------------------------
<FN>
(1)Some of the Mariner and IHS facilities that were leased in 2000 are now
being operated for our account.
</FN>
With regard to facilities' operations, there are no comparative results to the
first quarter of 2000 since no facilities were operated for our account during
the earlier period. However, our net operating income, calculated as Facilities'
Operations Revenues less Facilities' Operations Expenses has increased from the
fourth quarter of 2000 by $84,000. In the fourth quarter of 2000, our net
operating income was presented as Other Real Estate Income. The table below
shows these comparable results of the operations (dollars in thousands):
Three Months Ended
March 31, 2001 December 31, 2000
---------------- --------------------
Facilities' operations revenues $57,354 $58,944
Facilities' operations expenses 55,978 57,652
---------------- --------------------
Net $1,376 $1,292
================ ====================
The decreases in net patient revenues and patient operating expenses are
primarily due to there being two less days of operations for the three months
ended March 31, 2001, as compared to the three months ended December 31, 2000
and the closure of one nursing home during the fourth quarter of 2000.
Net income was $2.8 million ($0.11 per share) in the three months ended March
31, 2001, as compared to $7.6 million ($0.29 per share) in the three months
ended March 31, 2000. This decrease in net income is primarily the consequence
of the changes in revenues and expenses resulting from the tenant bankruptcies,
settlements and sales of properties in 2000.
FFO for the three months ended March 31, 2001, was $10.3 million, or $0.40 per
share, compared to $13.3 million, or $0.51 per share, for the same period in
2000. The decrease of $3 million, or $0.11 per share, is due to the factors
discussed above. Cash flows provided by operating activities and cash available
for distribution may not necessarily
10
SENIOR HOUSING PROPERTIES TRUST
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
equal funds from operations as cash flows are affected by factors not included
in the funds from operations calculation, such as changes in assets and
liabilities.
LIQUIDITY AND CAPITAL RESOURCES
We have a $270 million, interest only, secured, revolving bank credit facility.
The interest rate is LIBOR plus a premium (7.17% per annum at March 31, 2001).
The credit facility is available for acquisitions, working capital and for
general business purposes. We have the ability to repay and redraw amounts under
this credit facility until its maturity in September 2002. At March 31, 2001,
there was $105 million drawn under this facility and $165 million available for
borrowing.
On May 7, 2001, we filed a shelf registration statement for the issuance of up
to $500 million of equity and debt securities. When this becomes effective, we
may be able to raise capital on an expedited basis in the future.
At March 31, 2001, we had cash and cash equivalents of $13.7 million. For the
three months ended March 31, 2001 and 2000: cash provided by operating
activities was $6.7 million and $11.2 million, respectively; cash (used for)
provided by investing activities was ($893,000) and $12.2 million, respectively;
and cash provided by (used for) financing activities was $225,000 and ($27.6
million), respectively. The working capital required for our operations,
including facilities' operations, has been provided by our operations and by
drawings under our credit facility. We believe that our current cash, cash
equivalents, future cash from operating activities and availability under our
credit facility will be sufficient to meet our short-term and long-term capital
requirements, including the distribution to shareholders of $7.8 million, or
$0.30 per share, for the quarter ended March 31, 2001, which we will pay on or
about May 20, 2001.
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. In
an inflationary environment, the percentage rents which we receive based upon a
percentage of our tenants' revenues should increase. Similarly, inflation may
tend to increase patient revenues and Medicare and Medicaid rates at the
facilities which are operated for our account. Offsetting these benefits,
inflation might cause our costs of equity and debt capital to increase and wages
and other operating costs at the operated facilities to increase. An increase in
our capital costs or in our operating costs will result in decreased earnings
unless it is offset by increased revenues. In periods of rapid inflation,
nursing home operating costs usually increase faster than revenues and this fact
has an adverse impact upon operating income. We do not believe it will be
possible to eliminate the adverse impact of rapid inflation upon the results of
the facilities' operations conducted for our account. To mitigate the adverse
impact of increased costs of debt capital in the event of material inflation we
have purchased an interest rate cap agreement and we may enter into similar
interest rate hedge arrangements in the future. The decision to enter into these
arrangements was and will be based on the amount of our floating rate debt
outstanding, our belief that material interest rate increases are likely to
occur and upon requirements of our borrowing arrangements.
Seasonality
Nursing home operations have historically reflected modest seasonality. During
calendar fourth quarter holiday periods nursing home patients are sometimes
discharged to join in family celebrations and admission decisions are often
deferred. The first quarter of each calendar year usually coincides with
increased illness among nursing home residents which can result in increased
costs or discharges to hospitals. As a result of these factors and others,
nursing home operations sometimes produce greater earnings in the second and
third quarters of each calendar year and lesser earnings in the fourth and first
calendar quarters. We do not expect these seasonal differences to have any
impact upon the ability of our tenants to pay our rent. We do not expect these
seasonal differences to have a material impact on the financial results at the
nursing homes operated for our account, but such seasonable differences may be
noticed.
11
SENIOR HOUSING PROPERTIES TRUST
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 $105 million at March 31, 2001, was
7.17% per annum. An immediate 10% change in that interest rate, or 71.7 basis
points, would increase or decrease our costs by approximately $756,000, or $0.03
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, 2001 7.17% $105,000 $7,529
10% reduction 6.45% $105,000 $6,773
10% increase 7.89% $105,000 $8,285
The foregoing table presents a so-called "shock" analysis, which assumes that
the interest rate change by 10%, or 71.7 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 year, short-term U.S. dollar based interest rates have
fluctuated. We are unable to predict the direction or amount of interest rate
changes during the next year. As required by our revolving bank credit facility,
we have purchased an interest rate cap agreement for a notional amount of $200
million to protect against LIBOR increases above 8% through December 10, 2001.
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.
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SENIOR HOUSING PROPERTIES TRUST
Part II. Other Information
Item 5. Other Items
Ratio of Earnings to Fixed Charges - Our consolidated ratio of earnings to fixed
charges for the quarter ended March 31, 2001 was 2.3x.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
12.1 Computation of Ratio of Earnings to Fixed Charges
(b) Reports on Form 8-K:
Current Report on Form 8-K dated February 12, 2001, as amended by
Current Report on Form 8-K/A dated February 14, 2001 (Items 2 and 7).
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SENIOR HOUSING PROPERTIES TRUST
CERTAIN IMPORTANT FACTORS
THIS QUARTERLY REPORT ON FORM 10Q CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE FORWARD LOOKING STATEMENTS
INCLUDE REFERENCES TO OUR ABILITY TO SUCCESSFULLY OPERATE NURSING HOMES, OUR
ABILITY TO CONTINUE OPERATING NURSING HOMES AND REMAIN A REIT AND TO PAY
DISTRIBUTIONS, OUR ABILITY TO GENERATE SUFFICIENT REVENUES TO MEET OUR OPERATING
EXPENSES, INTEREST AND TO MAKE DISTRIBUTIONS, THE IMPACT OF SEASONAL FACTORS ON
OUR BUSINESS AND OTHER MATTERS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON
OUR CURRENT BELIEFS AND EXPECTATIONS, BUT THEY ARE NOT GUARANTEED. WE MAY BE
UNABLE TO OPERATE NURSING HOMES IN A FINANCIALLY SUCCESSFUL MANNER, TO CONTINUE
TO QUALIFY AS A REIT OR TO MAKE FUTURE DISTRIBUTIONS. READERS ARE CAUTIONED NOT
TO PLACE UNDUE RELIANCE UPON OUR FORWARD LOOKING STATEMENTS.
THE AMENDED AND RESTATED DECLARATION OF TRUST ESTABLISHING THE COMPANY, 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 THE
COMPANY, 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.
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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, Chief Operating Officer and
Chief Financial Officer
Dated: May 14, 2001
By: /s/ John R. Hoadley
John R. Hoadley
Controller and Chief Accounting Officer
Dated: May 14, 2001
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