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 September 30, 2002
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 (IRS Employer
jurisdiction 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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
Number of Common Shares outstanding at November 7, 2002:
58,436,900 shares of beneficial interest, $0.01 par value.
SENIOR HOUSING PROPERTIES TRUST
FORM 10-Q
SEPTEMBER 30, 2002
INDEX
PART I Financial Information Page
--------------------- ----
Item 1. Consolidated Financial Statements (unaudited).................................................... 1
Consolidated Balance Sheets - September 30, 2002 and December 31, 2001........................... 1
Consolidated Statements of Income - Three and Nine Months Ended September 30, 2002 and 2001...... 2
Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2002 and 2001............ 3
Notes to Consolidated Financial Statements....................................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 14
Item 4. Controls and Procedures.......................................................................... 14
PART II Other Information
Item 5. Other Information................................................................................ 15
Item 6. Exhibits and Reports on Form 8-K................................................................. 15
Certain Important Factors........................................................................ 16
Signatures....................................................................................... 17
Certifications................................................................................... 18
SENIOR HOUSING PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
September 30, December 31,
2002 2001
---------------- -----------------
(unaudited) (audited)
ASSETS
Real estate properties, at cost:
Land $140,070 $59,308
Buildings and improvements 1,032,269 533,891
---------------- -----------------
1,172,339 593,199
Less accumulated depreciation 116,658 124,252
---------------- -----------------
1,055,681 468,947
Cash and cash equivalents 14,054 352,026
Restricted cash 14,253 10,201
Other assets 28,421 36,129
---------------- -----------------
$1,112,409 $867,303
================ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Unsecured revolving bank credit facility $33,000 $--
Senior unsecured notes, net of discount 243,712 243,607
Secured debt and capital leases 32,637 9,100
Prepaid rent 7,372 7,114
Security deposits 1,520 1,520
Other liabilities 11,157 3,944
---------------- -----------------
Total liabilities 329,398 265,285
Commitments and contingencies
Trust preferred securities 27,394 27,394
Shareholders' equity:
Common shares of beneficial interest, $0.01 par
value: 58,436,900 and 43,421,700 shares issued
and outstanding, respectively 584 434
Additional paid-in capital 853,637 658,348
Cumulative net income 91,049 55,691
Cumulative distributions (191,189) (141,936)
Unrealized gain on investments 1,536 2,087
---------------- -----------------
Total shareholders' equity 755,617 574,624
---------------- -----------------
$1,112,409 $867,303
================ =================
See accompanying notes
1
SENIOR HOUSING PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2002 2001 2002 2001
---- ---- ---- ----
Revenues:
Rental income $28,244 $11,087 $83,040 $33,302
FF&E reserve income 1,843 -- 5,345 --
Facilities' operations -- 56,319 -- 167,428
Interest and other income 290 408 1,077 897
------------- ----------- ----------- --------------
Total revenues 30,377 67,814 89,462 201,627
------------- ----------- ----------- --------------
Expenses:
Interest 6,607 900 20,428 4,900
Depreciation 7,989 4,825 23,215 14,464
Facilities' operations -- 54,453 -- 162,347
General and administrative
- Recurring 1,936 1,081 5,861 3,189
- Related to foreclosures and lease terminations -- -- -- 4,167
------------- ----------- ----------- --------------
Total 16,532 61,259 49,504 189,067
------------- ----------- ----------- --------------
Income from continuing operations before
distributions on trust preferred securities 13,845 6,555 39,958 12,560
Distributions on trust preferred securities 703 687 2,109 749
------------- ----------- ----------- --------------
Income from continuing operations 13,142 5,868 37,849 11,811
Loss from discontinued operations -- 346 2,491 703
------------- ----------- ----------- --------------
Net income $13,142 $5,522 $35,358 $11,108
============= =========== =========== ==============
Weighted average shares outstanding 58,437 29,277 55,735 27,049
============= =========== =========== ==============
Basic and diluted earnings per share:
Basic and diluted earnings per share:
Income from continuing operations $0.22 $0.20 $0.68 $0.44
============= =========== =========== ==============
Loss from discontinued operations $-- $0.01 $0.05 $0.03
============= =========== =========== ==============
Net income $0.22 $0.19 $0.63 $0.41
============= =========== =========== ==============
See accompanying notes
2
SENIOR HOUSING PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Nine Months Ended September 30,
-------------------------------------
2002 2001
--------------- -----------------
Cash flows from operating activities:
Net income $35,358 $11,108
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation expense 23,215 14,464
Loss from discontinued operations 2,491 703
Amortization of deferred finance costs and debt discounts 876 --
FF&E reserve income (5,345) --
Changes in assets and liabilities:
Other assets 3,305 (11,734)
Prepaid rent 258 9,419
Other liabilities 4,276 (8,534)
--------------- -----------------
Cash provided by operating activities 64,434 15,426
--------------- -----------------
Cash flows from investing activities:
Real estate acquired (552,277) --
Equipment purchases -- (1,861)
--------------- -----------------
Cash used for investing activities (552,277) (1,861)
--------------- -----------------
Cash flows from financing activities:
Proceeds from issuance of common shares, net 195,210 42,277
Proceeds from issuance of trust preferred securities -- 27,394
Proceeds from borrowings on credit facility 347,000 43,000
Proceeds from issuance of mortgage debt -- 9,100
Repayments of credit facility (314,000) (109,000)
Repayment of debt (25,000) --
Deferred finance costs (4,086) (1,583)
Distributions to shareholders (49,253) (24,362)
--------------- -----------------
Cash provided by (used for) financing activities 149,871 (13,174)
--------------- -----------------
Decrease in cash and cash equivalents (337,972) 391
Cash and cash equivalents at beginning of period 352,026 515
Cash and cash equivalents at facilities' operations, beginning of period -- 7,178
--------------- -----------------
Cash and cash equivalents at end of period $14,054 $8,084
=============== =================
Supplemental cash flow information:
Cash paid for interest $16,500 $5,887
Non-cash investing and financing activities:
Debt assumed in acquisition 49,055 --
Real estate acquired in a property exchange (43,308) --
Real estate disposed of in a property exchange, net 43,308 --
Capital expenditure deposits in restricted cash 4,319 --
Purchases of fixed assets with restricted cash (5,163) --
See accompanying notes
3
SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying consolidated financial statements of Senior Housing Properties
Trust and its subsidiaries (the "Company") have been prepared without audit.
Certain information and footnote disclosures required by generally accepted
accounting principles for complete financial statements have been condensed or
omitted. The Company believes the disclosures made are adequate to make the
information presented not misleading. However, the accompanying financial
statements should be read in conjunction with the financial statements and notes
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001. In the opinion of management, all adjustments, which include
only normal recurring adjustments considered necessary for a fair presentation,
have been included. All intercompany transactions and balances between Senior
Housing Properties Trust and its subsidiaries have been eliminated. Operating
results for interim periods are not necessarily indicative of the results that
may be expected for the full year.
Note 2. Spin-Off of Five Star Quality Care, Inc. ("Five Star")
On December 31, 2001, the Company distributed substantially all of its ownership
of Five Star Quality Care, Inc., one of its wholly-owned subsidiaries which
operated facilities prior to that date for the Company's account, to the
Company's shareholders (the "Five Star Spin-Off"). At the time of the Five Star
Spin-Off, the Company entered a lease with Five Star for facilities previously
operated by Five Star for the Company's account. Prior to the Five Star
Spin-Off, the Company recognized facilities' operations revenues and facilities'
operations expenses on a consolidated basis as well as rental income from third
parties. Subsequent to the Five Star Spin-Off, the Company recognizes only
rental income.
Note 3. Summary of Significant Accounting Policies
EARNINGS PER COMMON SHARE. Earnings per common share is computed using the
weighted average number of shares outstanding during the period. The Company has
no common share equivalents, instruments convertible into common shares or other
dilutive instruments.
NEW ACCOUNTING PRONOUNCEMENTS. In 2001, the Financial Accounting Standards Board
(the "FASB") issued SFAS No. 142 "Goodwill and Other Intangible Assets" ("FAS
142") and SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("FAS 144"). The Company's adoption of FAS 142 and FAS 144 on January 1,
2002, had no effect on the Company's financial position or results of operations
at that time. In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB
Statements No. 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" ("FAS 145"). The provisions of this standard eliminate the
requirement that a gain or loss from the extinguishment of debt be classified as
a extraordinary item, unless it can be considered unusual in nature and
infrequent in occurrence. The Company will implement FAS 145 on January 1, 2003,
which implementation is expected to have no impact on the Company's financial
position or results of operations.
DEFERRED PERCENTAGE RENTS. The Securities and Exchange Commission Staff
Accounting Bulletin No. 101 ("SAB 101") generally requires the Company to
recognize percentage rental income received for the first, second and third
quarters in the fourth quarter. Percentage rent deferred for the three and nine
months ended September 30, 2002 and 2001, were $791,000 and $832,000, and $2.3
million and $2.1 million, respectively.
RECLASSIFICATIONS. Reclassifications have been made to the prior year's
financial statements to conform to the current year's presentation.
Note 4. Real Estate Properties
At September 30, 2002, the Company owned 111 properties in 28 states all of
which were leased to third party operators.
During the second quarter of 2002, Five Star closed a nursing home facility it
leases from the Company under a multi facility lease. Under the terms of the
lease, the annual rent payable to the
4
SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Company will be reduced by 10% of the net proceeds from the sale if this
property is sold. The Company has classified this real estate asset as held for
sale and has recorded a loss from discontinued operations related to this
property, which includes historical depreciation expense as well as an
impairment loss write down of $2.5 million based on the Company's estimate of
fair value, net of selling costs, of the real estate associated with this
property.
Note 5. Comprehensive Income
The following is a reconciliation of net income to comprehensive income for the
three and nine months ended September 30, 2002 and 2001 (dollars in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------ -----------------------------------
2002 2001 2002 2001
---- ---- ---- ----
Net income $13,142 $5,522 $35,358 $11,108
Other comprehensive income:
Change in unrealized gain on investments (755) (1,590) (551) 577
----------- ---------------- --------------- -----------------
Comprehensive income $12,387 $3,932 $34,807 $11,685
=========== ================ =============== =================
Note 6. Unrealized Gain on Investments
As of September 30, 2002, the Company owned one million HRPT Properties Trust
("HRPT") common shares and 35,000 shares of Five Star, which are carried at fair
market value in Other Assets. The Unrealized Gain On Investments shown on the
Consolidated Balance Sheets represents the difference between HRPT's and Five
Star's quoted market prices on the date they were acquired ($6.50 and $7.26 per
share, respectively) and on September 30, 2002 ($8.25 and $1.15 per share,
respectively).
Note 7. Segment Information
After the Five Star Spin-Off, the Company has one reportable segment, leasing.
During 2001, the Company had two reportable segments, leasing and facilities'
operations. The following table is a summary of these reportable segments as of
and for the three and nine months ended September 30, 2001. Because the Company
only operated in one segment for the three and nine months ended September 30,
2002, a comparative table is not presented (dollars in thousands):
Three Months Ended September 30, 2001
------------ -------------- --------------- --------------
Facilities'
Leasing Operations Unallocated Total
------------ -------------- --------------- --------------
Revenues $11,087 $56,319 $408 $67,814
Interest expense -- -- 900 900
Depreciation expense 3,284 1,541 -- 4,825
Facilities' operations expense -- 54,453 -- 54,453
General and administrative expenses
- Recurring 1,081 -- -- 1,081
- Related to foreclosures and lease terminations -- -- -- --
------------ -------------- --------------- --------------
Income before distributions on trust preferred securities $6,722 $325 $(492) $6,555
============ ============== =============== ==============
5
SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Nine Months Ended September 30, 2001
------------ -------------- --------------- --------------
Facilities'
Leasing Operations Unallocated Total
------------ -------------- --------------- --------------
Revenues $33,302 $167,428 $897 $201,627
Interest expense -- -- 4,900 4,900
Depreciation expense 9,850 4,614 -- 14,464
Facilities' operations expense -- 162,347 -- 162,347
General and administrative expenses
- Recurring 3,189 -- -- 3,189
- Related to foreclosures and lease terminations -- -- 4,167 4,167
------------ -------------- --------------- --------------
Income before distributions on trust preferred securities $20,263 $467 $(8,170) $12,560
============ ============== =============== ==============
Real estate properties, at cost $448,562 $149,303 -- $597,865
Note 8. Indebtedness and Capital Lease Obligations
On June 27, 2002, the Company entered into a new revolving bank credit facility
to replace its previous credit facility which had been scheduled to mature in
September 2002. The new credit facility matures in November 2005 and may be
extended to November 2006 upon the payment of an extension fee. The new credit
facility permits borrowings up to $250.0 million, which amount may be expanded
to $500.0 million in certain circumstances. Drawings under the new credit
facility are unsecured. Funds may be drawn, repaid and redrawn until maturity,
and no principal repayment is due until maturity. The interest rate (3.26% at
September 30, 2002) on borrowings under the new credit facility are calculated
as a spread above LIBOR or the prime rate. The new credit facility is available
for acquisitions, working capital and general business purposes. As of September
30, 2002, $33.0 million was outstanding and $217.0 million was available for
drawing under the new credit facility.
The Company's secured debt and capital leases totaled $32.6 million at September
30, 2002. This debt consists of $9.1 million of mortgages due in July 2003
secured by two properties, $14.7 million of bonds due in December 2027 secured
by one property and capital lease obligations of $8.8 million affecting two
properties leased to May 2016.
Note 9. Commitments and Contingencies
In connection with obtaining regulatory approval for the acquisition and lease
of one senior living property, the Company provided a guaranty and a security
interest in that property for certain prepaid service obligations to residents;
and the Company is contingently liable in the event the tenant (Five Star) or
operator (Marriott) of this property fail to provide these future services. In
addition, the Company guarantees approximately $11.4 million of surety bonds and
insurance premiums for this tenant.
Note 10. Shareholders' Equity
On August 22, 2002, the Company paid a distribution to shareholders of $0.31 per
share, or $18.1 million. On October 8, 2002, the Company declared a distribution
of $0.31 per share, or $18.1 million, which will be paid to shareholders on or
about November 21, 2002.
Note 11. Subsequent Events
On October 25, 2002, the Company acquired nine senior living properties for
approximately $62.9 million. These properties contain 750 independent and
assisted living units. Simultaneously, the Company leased these nine properties
to Five Star through December 2019, plus a renewal option term of 15 years
thereafter, for annual minimum rent of $6.3 million, plus percentage rent
starting in 2005 equal to four percent (4%) of gross revenues at each facility
in excess of gross revenues at such facility in 2004. The Company funded this
acquisition by drawing under its revolving bank credit facility and cash on
hand. In addition to this new lease transaction, Five Star and the Company
amended the existing lease for the 31 properties owned by the Company, leased to
Five Star and managed
6
SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
by Marriott Senior Living Services, Inc. Under that lease, Marriott, as manager,
periodically deposits into escrow accounts a percentage of the gross revenues at
the leased properties as a capital expense reserve. Historically, these escrow
accounts have been owned by the Company but controlled by Marriott and Five
Star. As a result of the lease amendment, the escrow accounts will be owned by
Five Star and the Company will have security and remainder interests in these
accounts and in property purchased with funding from these accounts. Payments
into these escrow accounts were previously reported by the Company as FF&E
reserve income. Effective October 1, 2002, the Company will not longer have any
FF&E reserve income. The amount of funding in these escrow accounts will not be
changed, and all of the escrowed funds will continue to be used for capital
expenditures at these leased properties.
7
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 and nine months ended September 30, 2002 and 2001. This discussion
includes references to funds from operations, or FFO. We compute FFO as net
income plus depreciation and amortization, non-recurring items and results from
discontinued operations. In calculating FFO, we also add percentage rents
deferred pursuant to SAB 101 described in Note 3 to our financial statements.
Our method of computing FFO may not be comparable to FFO reported by other REITs
that define the terms differently. We consider FFO to be an appropriate measure
of performance for a REIT, along with cash flow from operating activities,
financing activities and investing activities, because it provides investors
with an indication of a REIT's operating performance and its ability to incur
and service debt, make capital expenditures, pay distributions and fund other
cash needs. Our FFO is an important factor considered by our Board of Trustees
in determining the amount of our distributions to shareholders. FFO does not
represent cash generated by operating activities in accordance with generally
accepted accounting principles, or GAAP, and should not be considered as an
alternative to net income or cash flow from operating activities as a measure of
financial performance or liquidity.
The following discussion should be read in conjunction with our Annual Report on
Form 10-K.
PORTFOLIO OVERVIEW
The following tables present an overview of our portfolio as of September 30,
2002, except when different periods are specifically indicated:
Current % of Current
# of Dollars % of Dollars Annual Rent Annual Rent
Properties # Units/Beds Invested Invested Revenues Revenues
---------- ------------ -------- -------- -------- ---------
Facility Type(1)
- ----------------
IL Communities 45 11,521 $937,698 79.9% $94,137 81.2%
Stand alone SNF 61 6,168 186,872 16.0% 13,049 11.2%
Hospitals 2 364 43,553 3.7% 8,700 7.5%
Stand alone AL 3 196 4,216 0.4% 164 0.1%
---------------------------------------------------------------------------------------
Total 111 18,249 $1,172,339 100.0% $116,050 100.0%
=======================================================================================
Rent
Coverage
--------
Tenant/Operator (2)
- ---------------
Five Star/Marriott 31 7,491 $612,226 52.2% $63,000 54.3% 1.1x
Marriott Senior Living Services 14 4,030 325,472 27.8% 31,137 26.8% 1.5x
HEALTHSOUTH 2 364 43,553 3.7% 8,700 7.5% 3.3x(3)
Five Star Quality Care 55 5,110 141,421 12.1% 7,000 6.1% 2.3x
Genesis Health Ventures 1 150 13,007 1.1% 1,483 1.3% 1.9x
Integrated Health Services 1 140 15,598 1.3% 1,200 1.0% 2.0x
5 private companies 7 964 21,062 1.8% 3,530 3.0% 2.5x
---------------------------------------------------------------------------------------
Total
111 18,249 $1,172,339 100.0% $116,050 100.0%
=======================================================================================
Last 12 Months Ended August 31, 2002
------------------------------------------------------------------------
Rent
Occupancy Coverage(2) % Private Pay % Medicare % Medicaid
------------ ------------ --------------- ------------ --------------
Total Portfolio 89.0% 1.5x 76% 15% 9%
(weighted average by rent)
(1) IL communities means senior living properties where the majority of living
units are independent living apartments. Stand alone SNF means skilled nursing
facilities. Stand alone AL means assisted living facilities.
8
SENIOR HOUSING PROPERTIES TRUST
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
(2) Rent coverage is calculated as operating cash flow from facility operations,
before subordinated charges and capex reserves, divided by rent payable to us.
Coverage is calculated based upon the last twelve months ended August 31, 2002,
operating results or the most recent tenant operating results available to us.
(3) The rent coverage for HEALTHSOUTH presented is the most recent data
available to us from HEALTHSOUTH. In August 2002, HEALTHSOUTH announced that a
new interpretation of Medicare billing requirements will result in a reduction
of its income. We have requested that HEALTHSOUTH provide a calculation of the
impact of the new Medicare billing requirements upon the income received at the
two hospitals owned by us and leased by HEALTHSOUTH. Based upon statements made
by HEALTHSOUTH, we do not believe that these new billing requirements will
result in a material decline in rent coverage at our owned hospitals; however,
the requested calculations have not yet been provided by HEALTHSOUTH.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2002, Compared to Three Months Ended September
30, 2001
Total revenues for the three months ended September 30, 2002, were $30.4
million, compared to total revenues of $67.8 million for the three months ended
September 30, 2001. Included in total revenues for the three months ended
September 30, 2001, are revenues from facilities' operations of $56.3 million.
During 2001, Five Star Quality Care, Inc., one of our wholly owned subsidiaries,
operated facilities for our account. On December 31, 2001, we distributed
substantially all of our ownership of Five Star to our shareholders and Five
Star became a separate public company (the "Five Star Spin-Off"). In connection
with the Five Star Spin-Off, Five Star leased the facilities from us which it
previously operated for our account; and, as a result, after the Five Star
Spin-Off, we do not have facilities' operations revenues or expenses.
Rental income for the three months ended September 30, 2002, was $28.2 million
compared to rental income of $11.1 million for the three months ended September
30, 2001, an increase of $17.1 million. This increase is due to our acquisition
and lease of 31 properties on January 11, 2002, for annual rent of $63.0 million
and our lease to Five Star of facilities which had been previously operated for
our account for annual rent of $7.0 million. This increase was partially offset
by a decrease in annual rent from HEALTHSOUTH of $10.3 million to $8.7 million
effective January 2, 2002, in connection with a property exchange and lease
extension.
FF&E reserve income for the three months ended September 30, 2002, was $1.8
million compared to zero for the three months ended September 30, 2001. The
lease for certain properties acquired in January 2002 required a varying
percentage of gross revenues be paid to us as additional rent which is escrowed
for future capital expenditures at these leased facilities. This lease was
modified, effective October 1, 2002, as described in Note 11 to the accompanying
financial statements.
Total expenses for the three months ended September 30, 2002, were $16.5
million, compared to total expenses of $61.3 million for the three months ended
September 30, 2001, a decrease of $44.8 million. Total expenses for the three
months ended September 30, 2001, include expenses from facilities' operations of
$54.5 million. Subsequent to the Five Star Spin-Off, we no longer have any
facilities' operations expenses.
Interest expense for the three months ended September 30, 2002, was $6.6 million
compared to interest expense for the three months ended September 30, 2001, of
$900,000, an increase of $5.7 million. This increase was primarily due to our
issuance of $245.0 million of 8 5/8% senior unsecured notes in December 2001 and
our assumption of debt in connection with the January 2002 acquisition of
properties. The increase was partially offset by a decrease in the weighted
average interest rate on our revolving bank credit facility.
Depreciation expense for the three months ended September 30, 2002, was $8.0
million compared to depreciation expense for the three months ended September
30, 2001, of $4.8 million, an increase of $3.2 million. Recurring general and
administrative expense for the three months ended September 30, 2002, was $1.9
million compared to recurring general and administrative expense for the three
months ended September 30, 2001, of $1.1 million, an increase of $855,000. These
increases were primarily due to our acquisition of properties in January 2002.
9
SENIOR HOUSING PROPERTIES TRUST
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Distributions on trust preferred securities for the three months ended September
30, 2002 were $703,000 compared to $687,000 for the three months ended September
30, 2001. The increase is due to our issuance of the trust preferred securities
in July 2001.
Net income was $13.1 million, or $0.22 per share, for the three months ended
September 30, 2002, compared to $5.5 million, or $0.19 per share, for the three
months ended September 30, 2001, an increase of $7.6 million, or $0.03 per
share. This increase is primarily the consequence of the net changes in revenues
and expenses resulting from the January 2002 acquisition, the Five Star Spin-Off
and our issuance of senior notes and trust preferred securities in 2001, as
described above, and the increase in the weighted average number of our shares
outstanding between the 2001 and 2002 periods. FFO for the three months ended
September 30, 2002, was $21.9 million compared to $11.6 million for the three
months ended September 30, 2001. The increase in FFO of $10.3 million is due
primarily to the same factors that created the increase in net income.
FFO for the three months ended September 30, 2002 and 2001, are calculated as
follows (dollars in thousands):
2002 2001
-------------------- -------------
Net income $ 13,142 $ 5,522
Add: Depreciation expense 7,989 4,825
Deferred percentage rents 791 832
Non-cash charges -- 61
Loss from discontinued operations -- 346
-------------------- -------------
Funds From Operations(1) $21,922 $ 11,586
==================== =============
<FN>
(1) For periods after October 1, 2002, we will change our historical method
of calculating FFO. Through the quarter ended September 30, 2002, our
FFO included FF&E reserve income which was historically paid to us but
escrowed for future capital expenditures at certain leased properties.
As described in Note 11 to the accompanying financial statements, we
entered into an agreement to amend the lease pursuant to which our
tenant, Five Star, will retain title to the FF&E escrow accounts while
we retain security and remainder interests in the escrow accounts and
in property purchased with funding from those accounts. Accordingly,
effective October 1, 2002, our FFO will no longer include FF&E reserve
income. In order to facilitate comparison of future FFO with historical
results, the historical FFO presentation in future periods will
eliminate FF&E reserve income. If this change were implemented in the
results presented above, FFO for the three months ended September 30,
2002, would have been $20.1 million.
</FN>
Nine Months Ended September 30, 2002, Compared to Nine Months Ended September
30, 2001
Total revenues for the nine months ended September 30, 2002, were $89.5 million,
compared to total revenues of $201.6 million for the nine months ended September
30, 2001. Included in total revenues for the nine months ended September 30,
2001, are revenues from facilities' operations of $167.4 million. During 2001,
Five Star, one of our wholly owned subsidiaries, operated facilities for our
account. On December 31, 2001, we distributed substantially all of our ownership
of Five Star to our shareholders and Five Star became a separate public company.
In connection with the Five Star Spin-Off, Five Star leased the facilities from
us which it previously operated for our account; and, as a result, after the
Five Star Spin-Off, we do not have facilities' operations revenues or expenses.
Rental income for the nine months ended September 30, 2002, was $83.0 million
compared to rental income of $33.3 million for the nine months ended September
30, 2001, an increase of $49.7 million. This increase is due to our acquisition
and lease of 31 properties on January 11, 2002, for annual rent of $63.0 million
and our lease to Five Star of facilities which had been previously operated for
our account for annual rent of $7.0 million. This increase was partially offset
by a decrease in annual rent from HEALTHSOUTH of $10.3 million to $8.7 million
effective January 2, 2002, as described above.
10
SENIOR HOUSING PROPERTIES TRUST
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
FF&E reserve income for the nine months ended September 30, 2002, was $5.3
million compared to zero for the nine months ended September 30, 2001. The lease
for certain properties acquired in January 2002 required a varying percentage of
gross revenues be paid to us as additional rent which is escrowed for future
capital expenditures at these leased facilities. This lease was modified,
effective October 1, 2002, as described in Note 11 to the accompanying financial
statements.
Total expenses for the nine months ended September 30, 2002, were $49.5 million,
compared to total expenses of $189.1 million for the nine months ended September
30, 2001, a decrease of $139.6 million. Total expenses for the nine months ended
September 30, 2001, include expenses from facilities' operations of $162.3
million. Subsequent to the Five Star Spin-Off, we no longer have any facilities'
operations expenses.
Interest expense for the nine months ended September 30, 2002, was $20.4 million
compared to interest expense for the nine months ended September 30, 2001, of
$4.9 million, an increase of $15.5 million. This increase was primarily due to
our issuance of $245.0 million of 8 5/8% senior unsecured notes in December 2001
and our assumption of debt in connection with our purchase of properties in
January 2002. The increase was partially offset by a decrease in the weighted
average interest rate on our revolving bank credit facility.
Depreciation expense for the nine months ended September 30, 2002, was $23.2
million compared to depreciation expense for the nine months ended September 30,
2001, of $14.5 million, an increase of $8.7 million. Recurring general and
administrative expense for the nine months ended September 30, 2002, was $5.9
million compared to recurring general and administrative expense for the nine
months ended September 30, 2001, of $3.2 million, an increase of $2.7 million.
These increases were primarily due to our acquisition of properties in January
2002.
During the nine months ended September 30, 2001, we incurred nonrecurring
general and administrative costs totaling approximately $4.2 million. These
costs were incurred in connection with the establishment of operating systems
for foreclosed and repossessed properties, which systems were distributed to
shareholders in the Five Star Spin-Off.
Distributions on trust preferred securities for the nine months ended September
30, 2002, were $2.1 million compared to $749,000 for the nine months ended
September 30, 2001. The increase is due to our issuance of the trust preferred
securities in June and July 2001.
During the nine months ended September 30, 2002, we recorded a loss from
discontinued operations of $2.5 million related to a facility leased to Five
Star under a multi property lease which was closed during the second quarter and
is held for sale. The loss includes historical depreciation expense as well as
an impairment write down of the real estate associated with this property. For
the 2001 period, amounts were reclassified from depreciation expense and
facilities' operations revenues and expenses to the loss from discontinued
operations. Under the terms of this lease, the annual rent will be reduced by
10% of the net proceeds which we receive when this facility is sold.
Net income was $35.4 million, or $0.63 per share, for the nine months ended
September 30, 2002, compared to $11.1 million, or $0.41 per share, for the nine
months ended September 30, 2001, an increase of $24.3 million, or $0.23 per
share. This increase is primarily the result of the changes in revenues and
expenses resulting from the January 2002 acquisition and the Five Star Spin-Off
and the issuance of senior notes and trust preferred securities in 2001, as
described above, and the increase in weighted average number of shares
outstanding between the 2001 and 2002 periods. FFO for the nine months ended
September 30, 2002, was $63.4 million compared to $32.9 million for the nine
months ended September 30, 2001. The increase in FFO of $30.5 million is due
primarily to the same factors that created the increase in net income.
11
SENIOR HOUSING PROPERTIES TRUST
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
FFO for the nine months ended September 30, 2002 and 2001, are calculated as
follows (dollars in thousands):
2002 2001
--------------- ---------------
Net income $ 35,358 $ 11,108
Add: Depreciation expense 23,215 14,464
Deferred percentage rents 2,313 2,365
Non-cash charges -- 125
General and administrative expenses related
to foreclosures and lease terminations -- 4,167
Loss from discontinued operations 2,491 703
--------------- ---------------
Funds From Operations(1) $ 63,377 $ 32,932
=============== ===============
<FN>
(1) For periods after October 1, 2002, we will change our historical
method of calculating FFO. Through the quarter ended September 30, 2002,
our FFO included FF&E reserve income which was historically paid to us
but escrowed for future capital expenditures at certain leased
properties. As described in Note 11 to the accompanying financial
statements, we entered into an agreement to amend the lease pursuant to
which our tenant, Five Star, will retain title to the FF&E escrow
accounts while we retain security and remainder interests in the escrow
accounts and in property purchased with funding from those accounts.
Accordingly, effective October 1, 2002, our FFO will no longer include
FF&E reserve income. In order to facilitate comparison of future FFO with
historical results, the historical FFO presentation in future periods
will eliminate FF&E reserve income. If this change were implemented in
the results presented above, FFO for the nine months ended September 30,
2002, would have been $58.0 million.
</FN>
LIQUIDITY AND CAPITAL RESOURCES
On January 11, 2002, we acquired 31 senior living communities. The purchase
price was $600.0 million and the total acquisition cost, after closing costs and
purchase price adjustments, was $607.1 million. The funding for this acquisition
was as follows: $24.1 million of assumed debt; a $25.0 million purchase note;
approximately $350.0 million from our available cash; and the balance from
borrowings under our revolving bank credit facility.
In February 2002, we issued 15,000,000 common shares of beneficial interest,
raising net proceeds of $195.2 million. These net proceeds were used to repay
the $25.0 million purchase note arising from our acquisition of 31 properties in
January 2002, and the remainder was used to repay part of the borrowings
outstanding under our revolving bank credit facility.
On June 27, 2002, we entered into a new revolving bank credit facility to
replace our previous credit facility which was scheduled to mature in September
2002. The new credit facility matures in November 2005 and may be extended by us
to November 2006 upon the payment of an extension fee. The new credit facility
permits borrowings up to $250.0 million, which amount may be increased to $500.0
million in certain circumstances. Drawings under the new credit facility are
unsecured. Funds may be drawn, repaid and redrawn until maturity, and no
principal repayment is due until maturity. The interest rates (3.26% at
September 30, 2002) on borrowings under the new credit facility are calculated
as spreads above LIBOR or the prime rate which vary with the amounts of our debt
outstanding and credit ratings. The new credit facility is available for
acquisitions, working capital and for general business purposes. As of September
30, 2002, $33.0 million was outstanding and $217.0 million was available for
drawing under the new credit facility.
As described in Note 11 to the accompanying financial statements, in October
2002 we acquired nine properties for approximately $62.9 million which was
funded by drawing under our revolving bank credit facility and cash on hand,
and, at November 7, 2002, there was $80.0 million outstanding and $170.0 million
available for drawing under our revolving bank credit facility.
12
SENIOR HOUSING PROPERTIES TRUST
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Funding for our current expenses and distributions to shareholders is provided
primarily by our leasing operations. Minimum rents are generally received
monthly or quarterly, from our tenants and percentage rents are received
monthly, quarterly or annually. We believe that our current cash, cash
equivalents, future cash from leasing activities and availability under our
revolving bank credit facility will be sufficient to meet our short term and
long term capital requirements, including the distribution to shareholders of
$18.1 million, or $0.31 per share, for the quarter ended September 30, 2002,
which we declared on October 8, 2002 and will pay on or about November 21, 2002.
To the extent we borrow on our bank credit facility and, as the maturity dates
of our credit facility and term debt approach over the longer term, we will
explore alternatives for the repayment of amounts due. Such alternatives may
include incurring new debt and issuing new equity securities. On January 30,
2002, our shelf registration statement for the issuance of up to $2.0 billion of
equity and debt securities was declared effective by the SEC. As of September
30, 2002, $1.8 billion was available under this effective shelf registration
statement. An effective shelf registration statement allows us to issue public
securities on an expedited basis, but it does not assure that there will be
buyers for such securities. Although there can be no assurance that we will
consummate any securities offering or other financing, we believe we will have
access to various types of financing with which to finance acquisitions and to
pay our debt and other obligations.
Debt and Trust Preferred Covenants
Our principal debt obligations at September 30, 2002, were our unsecured
revolving bank credit facility and our $245.0 million of publicly held unsecured
debt. Our public debt is governed by an indenture. This indenture and our bank
credit agreement contain a number of financial ratio covenants which generally
restrict our ability to incur debts, including debts secured by mortgages on our
properties in excess of calculated amounts, require us to maintain a minimum net
worth, as defined, restrict our ability to make distributions under certain
circumstances and require us to maintain other ratios, as defined. Our trust
preferred securities are governed by an indenture which is generally less
restrictive than the indenture governing our public debt and the terms of our
revolving bank credit facility. At September 30, 2002, we were in compliance
with all of the covenants under our indentures and our credit agreement.
None of our indentures, our revolving bank credit facility or our other debt
obligations contain provisions for acceleration or otherwise which would be
triggered by a change in our debt ratings. However, the interest rate payable
under the revolving bank credit facility may change as our debt ratings change.
Our public debt indenture contains cross default provisions to any other debts
equal to or in excess of $10.0 million; and similarly, a default on any of our
public indentures would constitute a default under our bank credit agreement. As
of September 30, 2002, we have no commercial paper, derivatives, swaps, hedges,
joint ventures or partnerships.
Seasonality
Nursing home and assisted living operations have historically reflected modest
seasonality. During calendar fourth quarter holiday periods residents at such
facilities 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 residents which can result in increased
costs or discharges to hospitals. As a result of these factors and others, these
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 a material impact
upon the ability of our tenants to pay our rent.
13
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in our exposure to market risk since
December 31, 2001, other than an increase in the amount outstanding on our
revolving credit facility. The following table shows the impact a 10% change in
interest rates would have on our interest expense for our floating rate debt:
Total
Interest Rate Outstanding Interest
Per Year Debt Expense Per
Year
--------------- -------------- ---------------
At September 30, 2002 3.26% $33,000 $1,076
10% reduction 2.93% $33,000 $ 967
10% increase 3.59% $33,000 $1,185
The foregoing table shows the impact of an immediate change in floating interest
rates. If interest rates were to change gradually over time, the impact would be
spread over time. Our exposure to fluctuations in interest rates has increased
since September 30, 2002, and it may increase further in the future if we incur
debt to fund acquisitions or otherwise.
Item 4. Controls and Procedures
a) Within the 90 days prior to the date of this report, management of the
Company carried out an evaluation, under the supervision and with the
participation of our Managing Trustees, President and Chief Operating Officer
and Treasurer and Chief Financial Officer, of the effectiveness of the design
and operation of our disclosure controls and procedures pursuant to Exchange Act
Rule 13a-14 and 15d-14. Based upon that evaluation, our Managing Trustees,
President and Chief Operating Officer and Treasurer and Chief Financial Officer
concluded that our disclosure controls and procedures are effective in timely
alerting them to material information required to be included in our periodic
SEC filings.
b) There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect those controls
since the Company's evaluation of these controls, including any corrective
actions with regard to significant deficiencies and material weaknesses.
14
SENIOR HOUSING PROPERTIES TRUST
Part II. Other Information
Item 5. Other Information
We currently own 45 senior living communities which are operated by Marriott
Senior Living Services, Inc. ("Marriott"). Fourteen of these communities with
4,030 living units are leased to Marriott to 2013 and that lease is guaranteed
by Marriott International, Inc. ("Marriott International"). The remaining 31
communities with 7,491 living units are leased to Five Star to 2017 and managed
by Marriott. Marriott International has not guaranteed Five Star's lease to us.
The financial results and rent coverage realized at the 31 communities which are
leased to Five Star and managed by Marriott have declined during 2002. Recently,
however, Marriott International has stated that its profits from its senior
living business in 2002 have been improving and that it is considering divesting
its senior living business. Also, we are aware that some owners of hotels
managed by Marriott International have brought litigation to challenge cost
allocations to their hotels and to capture certain profits realized by Marriott
International from their hotels. As a result, we and Five Star have asked
Marriott to explain allocation formulas for costs shared by our communities and
other businesses operated by affiliates of Marriott International, to justify
certain charges to these communities, to detail profits made by affiliates of
Marriott International from purchases directed by Marriott for the account of
these communities and for additional information and actions. In response to the
first inquiry Marriott paid $409,337 to Five Star and provided some of the
requested information. We are continuing to pursue these inquiries. We intend to
monitor Marriott International's divestment efforts and the responses we receive
to our inquiries, and to enforce our rights and remedies relative to these 31
communities. All rent obligations due to us from Five Star for these 31
communities are current, and we do not believe that cancellation of the Marriott
management contracts would materially jeopardize our ability to collect rent for
these communities.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
12.1 Computation of Ratios of Earnings to Interest (before
distributions on trust preferred securities) and Earnings to
Fixed Charges.
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 [18 U.S.C. Sec. 1350].
(b) Reports on Form 8-K:
During the third quarter of 2002, we did not file any Current
Reports on Form 8-K.
15
SENIOR HOUSING PROPERTIES TRUST
CERTAIN IMPORTANT FACTORS
THIS QUARTERLY REPORT CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND THE FEDERAL
SECURITIES LAWS. THESE FORWARD LOOKING STATEMENTS INCLUDE REFERENCES TO OUR
TENANTS' ABILITY TO PAY OUR RENTS, OUR ABILITY TO PURCHASE ADDITIONAL PROPERTIES
AND OUR ABILITY TO RAISE CAPITAL AND OTHER MATTERS. HOWEVER, OUR TENANTS MAY
EXPERIENCE LOSSES AND BECOME UNABLE TO PAY OUR RENTS; WE MAY BE UNABLE TO
IDENTIFY PROPERTIES WHICH WE WANT TO BUY OR TO NEGOTIATE ACCEPTABLE PURCHASE
PRICES OR LEASE TERMS FOR NEW PROPERTIES; AND WE MAY BE UNABLE TO RAISE CAPITAL.
THESE UNEXPECTED RESULTS COULD OCCUR BECAUSE OF MANY DIFFERENT REASONS, SOME OF
WHICH, SUCH AS CHANGES IN OUR TENANTS' INSURANCE COSTS OR THEIR MEDICARE AND
MEDICAID RATES, OR CHANGES IN THE CAPITAL MARKETS OR THE ECONOMY GENERALLY, ARE
BEYOND OUR CONTROL. SIMILARLY, WE DO NOT BELIEVE THAT A TERMINATION OF THE
MARRIOTT MANAGEMENT CONTRACTS WILL JEOPARDIZE OUR ABILITY TO COLLECT RENTS FOR
THE 31 SENIOR LIVING COMMUNITIES MANAGED BY MARRIOTT. HOWEVER, FIVE STAR MAY BE
UNABLE TO EFFECTIVELY MANAGE THESE COMMUNITIES WITHOUT ASSISTANCE FROM MARRIOTT,
THE MANAGEMENT CONTRACT TERMINATIONS COULD RESULT IN LITIGATION BETWEEN MARRIOTT
AND FIVE STAR OR US, OR MARRIOTT MAY SEEK LARGE TERMINATION PAYMENTS OR DAMAGES
WHICH MAKE IT DIFFICULT FOR FIVE STAR TO OPERATE OR OTHERWISE ADVERSELY AFFECT
US. FORWARD LOOKING STATEMENTS ARE ONLY EXPRESSIONS OF OUR PRESENT EXPECTATIONS
AND INTENTIONS. FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR, AND THEY
MAY NOT OCCUR. INVESTORS SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD LOOKING
STATEMENTS.
THE ARTICLES OF AMENDMENT AND RESTATEMENT ESTABLISHING SENIOR HOUSING
PROPERTIES TRUST, DATED SEPTEMBER 20, 1999, TOGETHER WITH ALL AMENDMENTS
THERETO, AS 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 OF TRUST AS TRUSTEES, BUT NOT
INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE
OR AGENT OF SENIOR HOUSING PROPERTIES TRUST SHALL BE HELD TO ANY PERSONAL
LIABILITY FOR ANY OBLIGATION OF, OR CLAIM AGAINST, SENIOR HOUSING PROPERTIES
TRUST. ALL PERSONS DEALING WITH SENIOR HOUSING PROPERTIES TRUST, 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.
16
SENIOR HOUSING PROPERTIES TRUST
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: November 8, 2002
By: /s/John R. Hoadley
John R. Hoadley
Treasurer and Chief Financial Officer
Dated: November 8, 2002
17
I, Barry M. Portnoy, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Senior
Housing Properties Trust;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
1. designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;
2. evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
3. presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
1. all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
2. any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 8, 2002 /s/Barry M. Portnoy
Barry M. Portnoy
Managing Trustee
18
I, Gerard M. Martin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Senior
Housing Properties Trust;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
1. designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;
2. evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
3. presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
1. all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
2. any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 8, 2002 /s/Gerard M. Martin
Gerard M. Martin
Managing Trustee
19
I, David J. Hegarty, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Senior
Housing Properties Trust;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
1. designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;
2. evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
3. presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
1. all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
2. any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 8, 2002 /s/David J. Hegarty
David J. Hegarty
President
and Chief Operating Officer
20
I, John R. Hoadley, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Senior
Housing Properties Trust;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
1. designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;
2. evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
3. presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
1. all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
2. any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 8, 2002 /s/John R. Hoadley
John R. Hoadley
Treasurer
and Chief Financial Officer
21