SENIOR HOUSING PROPERTIES TRUST
Second Quarter 2005
Supplemental Operating and Financial Data
All amounts in this report are unaudited, except for
the December 31, 2004 Consolidated Balance Sheet.
TABLE OF CONTENTS
Page
CORPORATE INFORMATION
Company Profile 5
Investor Information 6
Research Coverage 7
FINANCIAL INFORMATION
Key Financial Data 9
Consolidated Balance Sheet 10
Consolidated Statement of Income 11
Consolidated Statement of Cash Flows 12
Calculation of EBITDA 13
Calculation of Funds from Operations (FFO) 14
Debt Summary 15
Debt Maturity Schedule 16
Leverage Ratios, Coverage Ratios and Public Debt Covenants 17
Investments Information 18
Financing Activities 19
PORTFOLIO INFORMATION
Portfolio Summary by Facility Type and Tenant 21
Occupancy by Facility Type and Tenant 22
% Private Pay by Facility Type and Tenant 23
Rent Coverage by Tenant 24
Portfolio Lease Expiration Schedule 25
2
WARNING REGARDING FORWARD LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS SUPPLEMENTAL OPERATING AND FINANCIAL DATA
REPORT FOR THE QUARTER AND SIX MONTHS ENDED JUNE 30, 2005 ARE FORWARD LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 AND FEDERAL SECURITIES LAWS. THESE FORWARD LOOKING STATEMENTS ARE BASED
UPON OUR PRESENT BELIEFS AND EXPECTATIONS, BUT THEY ARE NOT GUARANTEED TO OCCUR
AND MAY NOT OCCUR. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN
OR IMPLIED BY OUR FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS.
SUCH FACTORS INCLUDE, WITHOUT LIMITATION, CHANGES IN MEDICARE OR MEDICAID RATES
WHICH MAY AFFECT SOME OF OUR TENANTS' ABILITIES TO PAY RENTS DUE TO US. IN
ADDITION, WE ARE CURRENTLY INVOLVED IN LITIGATION WITH HEALTHSOUTH. WE HAVE SENT
HEALTHSOUTH A LEASE TERMINATION NOTICE AND HEALTHSOUTH HAS DISPUTED THE LEASE
TERMINATION AND CONTINUED TO PAY US MONTHLY AMOUNTS EQUAL TO THE DISPUTED
AMOUNTS DUE UNDER THE TERMINATED LEASE. WE CANNOT PREDICT HOW OR WHEN OUR
DISPUTES WITH HEALTHSOUTH WILL BE RESOLVED. DISCOVERY DURING LAWSUITS OR
DECISIONS BY COURTS MAY CREATE RESULTS THAT ARE DIFFERENT FROM ANY IMPLICATIONS
HEREIN. YOU SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS.
EXCEPT AS MAY BE REQUIRED BY APPLICABLE LAW, WE DO NOT INTEND TO IMPLY THAT WE
WILL RELEASE PUBLICLY THE RESULT OF ANY REVISION TO THE FORWARD LOOKING
STATEMENTS TO REFLECT THE FUTURE OCCURRENCE OF PRESENTLY UNANTICIPATED EVENTS.
CORPORATE INFORMATION
Senior Housing Properties Trust
Supplemental Operating and Financial Data
June 30, 2005
COMPANY PROFILE
- --------------------------------------------------------------------------------
The Company:
- ------------
Senior Housing Properties Trust is a real estate investment trust, or REIT,
which owns independent and assisted living properties, continuing care
retirement communities and nursing homes located throughout the United States.
All of our properties are triple net leased, meaning that each tenant pays us
rent, but remains responsible to pay all operating costs, taxes, insurance and
maintenance costs that arise from the use of our property. Our 184 properties
are leased to eleven tenants under 12 leases. We are included in a number of
stock indices, including the Russell 2000(R), the MSCI US REIT Index, NAREIT
Real Time Index and the S&P REIT Composite Index.
Management:
- -----------
Senior Housing Properties Trust is managed by Reit Management & Research LLC, or
RMR. RMR was founded in 1986 to manage publicly owned investments in real
estate. As of June 30, 2005, RMR managed one of the largest portfolios of
publicly owned real estate in the United States, including approximately 900
properties, with approximately 83.5 million square feet, located in 42 states,
Washington, DC, Puerto Rico and Ontario, Canada. RMR has approximately 400
employees in its headquarters and regional offices located throughout the
Country. In addition to managing SNH, RMR and its affiliates also manage
Hospitality Properties Trust, a publicly traded REIT that owns hotels, HRPT
Properties Trust, a publicly traded REIT that primarily owns office buildings
and four mutual funds which invest in unaffiliated real estate companies. The
public companies managed by RMR had combined total market capitalization of over
$11.5 billion as of June 30, 2005. We believe that being managed by RMR is a
competitive advantage for SNH because RMR provides SNH with a depth of
management and experience which may be unequaled in the real estate industry. We
also believe RMR is able to provide management services to SNH at costs that are
lower than SNH would have to pay for similar quality services.
Strategy:
- ---------
Our present business plan is to maintain an investment portfolio of independent
living properties, assisted living properties and nursing homes and to acquire
additional senior living properties primarily for income and secondarily for
appreciation potential. Our current growth strategy is generally focused on
making portfolio acquisitions of geographically diverse, primarily independent
and assisted senior living properties where the majority of the residents pay
for occupancy and services from private resources rather than through government
programs. We base our acquisition decisions on the historical and projected
operating results of the target properties and the financial strength of the
proposed tenants and their guarantors, among other considerations. Our present
financial strategy is to maintain a conservative capital structure which limits
the amount of debt that we issue. We do not have any investments in joint
ventures or partnerships. Also, the majority of our debt is fixed rate, and we
have no significant debt maturities until 2012.
Stock Exchange Listing: Corporate Headquarters:
- ----------------------- -----------------------
New York Stock Exchange 400 Centre Street
Newton, MA 02458
Trading Symbol: (t) (617) 796-8350
- --------------- (f) (617) 796-8349
Common Shares -- SNH
Senior Unsecured Debt Ratings:
- ------------------------------
Moody's -- Ba2
Standard & Poor's -- BB+
Portfolio Data as of 6/30/05:
- -----------------------------
Total properties 184
Total units / beds 22,721
Percent of rent from private pay properties 84.0% (1)
Portfolio Concentration by facility type (as of 6/30/05):
- ---------------------------------------------------------
Number of Number of Carrying Value of Annualized
Properties Units/Beds Investment (2) Percent Current Rent Percent
---------------------------------------------------------------------------------
Independent Living (IL) (3) 36 10,412 $ 903,575 55.5% $ 90,612 56.3%
Assisted Living (AL) 85 5,636 462,783 28.4% 44,625 27.7%
Nursing Homes 61 6,309 218,320 13.4% 17,042 10.6%
Hospitals 2 364 43,553 2.7% 8,700 5.4%
---------------------------------------------------------------------------------
Total 184 22,721 $ 1,628,231 100.0% $ 160,979 100.0%
=================================================================================
Operating Statistics by tenant (Q2 2005):
- ---------------------------------------------
Number of Number of Annualized Rent Percent
Tenant Properties Units/Beds Current Rent Coverage (4) Occupancy (4) Private Pay (4)
- -----------------------------------------------------------------------------------------------------------------
Five Star / Sunrise (5) 31 7,307 $ 64,333 1.17x 92% 84%
Five Star 101 7,906 33,974 1.68x 87% 42%
Sunrise / Marriott (6) 14 4,091 31,197 1.25x 89% 81%
NewSeasons / IBC (7) 10 1,019 9,287 1.10x 81% 100%
HealthSouth (8) 2 364 8,700 NA NA NA
Alterra Healthcare Corporation 18 894 7,136 1.80x 84% 98%
Genesis HealthCare Corporation 1 156 1,522 2.03x 96% 23%
5 Private Companies (combined) 7 984 4,830 1.89x 87% 24%
--------------------------------------
184 22,721 $ 160,979
======================================
<FN>
(1) Represents the percentage of SNH's rental income that is derived from properties where the underlying operating revenues are
greater than 80% private pay.
(2) Amounts are before depreciation, but after impairment write downs.
(3) Properties where the majority of units are independent living apartments are classified as independent living communities.
(4) All tenant operating data presented are based upon the operating results provided by our tenants for the indicated periods, or
the most recent prior period for which tenant operating results are available to us from our tenants. Rent coverage is
calculated as operating cash flow from our tenants' facility operations, before subordinated charges and capital expenditure
reserves, divided by rent payable to us. We have not independently verified our tenants' operating data.
(5) These 31 properties are leased to Five Star Quality Care, Inc., or Five Star, and 30 are managed by Sunrise Senior Living,
Inc., or Sunrise. Sunrise does not guaranty Five Star's lease obligations.
(6) Marriott International, Inc., or Marriott, guarantees the lease for these 14 properties leased to Sunrise.
(7) Independence Blue Cross, or IBC, a Pennsylvania health insurer, guarantees the lease for the 10 properties leased to NewSeasons
Assisted Living Communities, Inc., or NewSeasons.
(8) During 2003, HealthSouth issued a press release stating that its historical financial information should not be relied upon.
From that time until June 2005, HealthSouth had not filed audited financial information with the SEC. In June 2005, HealthSouth
filed a restated Report 10-K for periods ending December 31, 2003. The financial and operating data included in HealthSouth's
restated Report 10-K show a substantial negative net worth and a history of substantial operating losses. Because we do not
have reliable current information about the operations or financial performance of HealthSouth or our hospitals, we do not show
operating data for this operator. See also Note 3 on page 21 regarding our litigation with HealthSouth.
</FN>
5
Senior Housing Properties Trust
Supplemental Operating and Financial Data
June 30, 2005
INVESTOR INFORMATION
- --------------------------------------------------------------------------------
Board of Trustees
- --------------------------------------------------------------------------------
Barry M. Portnoy Gerard M. Martin
Managing Trustee Managing Trustee
Frank J. Bailey Frederick N. Zeytoonjian
Independent Trustee Independent Trustee
John L. Harrington
Independent Trustee
Senior Management
- --------------------------------------------------------------------------------
David J. Hegarty John R. Hoadley
President, Chief Operating Officer Treasurer and Chief Financial Officer
and Secretary
Contact Information
- --------------------------------------------------------------------------------
Investor Relations Inquiries
Senior Housing Properties Trust Financial inquiries should be directed
400 Centre Street to John R. Hoadley, Treasurer and Chief
Newton, MA 02458 Financial Officer, at (617) 796-8350
(t) (617) 796-8350 or jhoadley@reitmr.com.
(f) (617) 796-8349
(email) info@snhreit.com Investor and media inquiries should be
(website) www.snhreit.com directed to Timothy A. Bonang, Manager
of Investor Relations, at
(617) 796-8149 or tbonang@reitmr.com.
6
Senior Housing Properties Trust
Supplemental Operating and Financial Data
June 30, 2005
RESEARCH COVERAGE
- --------------------------------------------------------------------------------
Equity Research Coverage
- --------------------------------------------------------------------------------
A.G. Edwards & Sons RBC Capital Markets
John Sheehan Jay Leupp
(314) 955-5834 (415) 633-8588
Legg Mason Stifel, Nicolaus
Jerry Doctrow Phillip Martin
(410) 454-5142 (312) 832-2756
Merrill Lynch UBS
David Tsoupros Christopher Pike
(212) 449-9697 (212) 713-2087
Raymond James Wachovia Securities
Paul Puryear Stephen Swett
(727) 573-3800 (212) 909-0954
Debt Research Coverage
- --------------------------------------------------------------------------------
UBS Wachovia Securities
Ray Garson Dan Sullivan
(203) 719-6415 (704) 383-6441
Rating Agencies
- --------------------------------------------------------------------------------
Moody's Investor Service Standard and Poor's
Karen Nickerson George Skoufis
(212) 553-4924 (212) 438-2608
SNH is followed by the analysts and its publicly held debt is rated by the
rating agencies listed above. Please note that any opinions, estimates or
forecasts regarding SNH's performance made by these analysts or agencies do not
represent opinions, forecasts or predictions of SNH or its management. SNH does
not by its reference above imply its endorsement of or concurrence with any
information, conclusions or recommendations provided by any of these analysts or
agencies.
7
FINANCIAL INFORMATION
Senior Housing Properties Trust
Supplemental Operating and Financial Data
KEY FINANCIAL DATA
- --------------------------------------------------------------------------------
(share amounts and dollars in thousands, except per share data)
As of and For the Three Months Ended
-----------------------------------------------------------------
6/30/2005 3/31/2005 12/31/2004 9/30/2004 6/30/2004
------------ ------------ ------------- ------------ ------------
Shares Outstanding:
Common shares outstanding (at end of period) 68,538 68,496 68,496 63,496 63,472
Weighted average common shares outstanding - basic and diluted (1) 68,537 68,496 64,311 63,477 63,471
Common Share Data:
Price at end of period $ 18.91 $ 16.68 $ 18.94 $ 17.82 $ 16.79
High during period $ 19.45 $ 19.10 $ 20.34 $ 18.24 $ 20.05
Low during period $ 16.40 $ 16.20 $ 17.85 $ 16.10 $ 13.50
Annualized dividends paid per share $ 1.28 $ 1.28 $ 1.28 $ 1.28 $ 1.24
Annualized dividend yield (at end of period) 6.8% 7.7% 6.8% 7.2% 7.4%
Market Capitalization:
Total debt (book value) $ 577,175 $ 535,748 $ 535,178 $ 478,274 $ 481,433
Plus: market value of common shares (at end of period) 1,296,054 1,142,513 1,297,314 1,131,499 1,065,695
------------ ------------ ------------- ------------ ------------
Total market capitalization $ 1,873,229 $ 1,678,261 $ 1,832,492 $ 1,609,773 $ 1,547,128
Total debt / total market capitalization 30.8% 31.9% 29.2% 29.7% 31.1%
Book Capitalization:
Total debt $ 577,175 $ 535,748 $ 535,178 $ 478,274 $ 481,433
Plus: total shareholders' equity 875,634 881,692 890,667 798,536 803,791
------------ ------------ ------------- ------------ ------------
Total book capitalization $ 1,452,809 $ 1,417,440 $ 1,425,845 $ 1,276,810 $ 1,285,224
Total debt / total book capitalization 39.7% 37.8% 37.5% 37.5% 37.5%
Selected Balance Sheet Data:
Total assets $ 1,473,413 $ 1,436,848 $ 1,447,730 $ 1,300,173 $ 1,308,287
Total liabilities $ 597,779 $ 555,156 $ 557,063 $ 501,637 $ 504,496
Gross book value of real estate assets (2) $ 1,652,231 $ 1,604,693 $ 1,600,952 $ 1,447,874 $ 1,445,713
Total debt / gross book value of real estate assets (2) 34.9% 33.4% 33.4% 33.0% 33.3%
Selected Income Statement Data:
Total revenues $ 39,605 $ 39,227 $ 40,730 $ 35,744 $ 35,506
EBITDA (3) $ 37,293 $ 36,649 $ 35,316 $ 33,722 $ 33,558
Net income $ 15,033 $ 13,865 $ 16,513 $ 12,919 $ 14,041
Funds from operations (FFO) (4) $ 25,850 $ 25,426 $ 24,390 $ 23,437 $ 23,303
Common distributions paid $ 21,932 $ 21,919 $ 21,919 $ 20,319 $ 19,676
Per Share Data:
Net income $ 0.22 $ 0.20 $ 0.26 $ 0.20 $ 0.22
FFO $ 0.38 $ 0.37 $ 0.38 $ 0.37 $ 0.37
Common distributions paid $ 0.32 $ 0.32 $ 0.32 $ 0.32 $ 0.31
FFO payout ratio 84.2% 86.2% 89.9% 86.7% 84.4%
Coverage Ratios:
EBITDA (3) / interest expense 3.3x 3.3x 3.2x 3.3x 3.3x
<FN>
(1) SNH has no outstanding common share equivalents, such as units, convertible debt or stock options.
(2) Gross book value of real estate assets is real estate properties, at cost, after impairment write downs, including purchase
price allocations relating to FAS 141, plus mortgage investments.
(3) See page 13 for calculation of EBITDA.
(4) See page 14 for calculation of FFO.
</FN>
9
Senior Housing Properties Trust
Supplemental Operating and Financial Data
June 30, 2005
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
(in thousands, except share data)
As of As of
June 30, December 31,
2005 2004
--------------- -----------------
(audited)
ASSETS
Real estate properties, at cost:
Land $ 180,283 $ 178,353
Buildings and improvements 1,447,948 1,422,599
--------------- -----------------
1,628,231 1,600,952
Less accumulated depreciation 220,195 199,232
--------------- -----------------
1,408,036 1,401,720
Mortgage investments 24,000 -
Cash and cash equivalents 7,207 3,409
Restricted cash 2,087 6,176
Deferred financing fees, net 8,396 9,367
Other assets 23,687 27,058
--------------- -----------------
Total assets $ 1,473,413 $ 1,447,730
=============== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Unsecured revolving bank credit facility $ 84,000 $ 37,000
Senior unsecured notes due 2012 and 2015, net of discount 393,857 393,775
Junior subordinated debentures due 2041 28,241 28,241
Secured debt and capital leases 71,077 76,162
Accrued interest 12,702 12,519
Other liabilities 7,902 9,366
--------------- -----------------
Total liabilities 597,779 557,063
--------------- -----------------
Commitments and contingencies
Shareholders' equity:
Common shares of beneficial interest, $0.01 par value:
80,000,000 shares authorized; 68,537,927 shares issued
and outstanding 685 685
Additional paid-in capital 1,035,055 1,034,686
Cumulative net income 237,380 208,491
Cumulative distributions (403,417) (359,567)
Unrealized gain on investments 5,931 6,372
--------------- -----------------
Total shareholders' equity 875,634 890,667
--------------- -----------------
Total liabilities and shareholders' equity $ 1,473,413 $ 1,447,730
=============== =================
10
Senior Housing Properties Trust
Supplemental Operating and Financial Data
June 30, 2005
CONSOLIDATED STATEMENT OF INCOME
- --------------------------------------------------------------------------------
(in thousands, except per share data)
For the Three Months Ended For the Six Months Ended
----------------------------- -----------------------------
6/30/2005 6/30/2004 6/30/2005 6/30/2004
-------------- -------------- -------------- --------------
Revenues:
Rental income (1) $ 39,094 $ 35,189 $ 77,982 $ 70,018
Interest and other income (2) 511 317 850 2,031
-------------- -------------- -------------- --------------
Total revenues 39,605 35,506 78,832 72,049
-------------- -------------- -------------- --------------
Expenses:
Interest 11,443 10,255 22,675 20,625
Depreciation 10,759 9,687 21,505 19,272
General and administrative (1) 3,087 2,742 6,480 6,061
-------------- -------------- -------------- --------------
Total expenses 25,289 22,684 50,660 45,958
-------------- -------------- -------------- --------------
Income from continuing operations 14,316 12,822 28,172 26,091
Gain on sale of property 717 1,219 717 1,219
-------------- -------------- -------------- --------------
Net income $ 15,033 $ 14,041 $ 28,889 $ 27,310
============== ============== ============== ==============
Weighted average common shares outstanding 68,537 63,471 68,516 62,913
============== ============== ============== ==============
Basic and diluted earnings per share:
Income from continuing operations $ 0.21 $ 0.20 $ 0.41 $ 0.41
============== ============== ============== ==============
Net income $ 0.22 $ 0.22 $ 0.42 $ 0.43
============== ============== ============== ==============
Additional Data:
Corporate general and administrative expense $ 3,087 $ 2,742 $ 6,480 $ 6,061
Less: litigation / due diligence costs included in G&A (3) $ 500 $ - $ 900 $ 875
-------------- -------------- -------------- --------------
Adjusted general and administrative expenses $ 2,587 $ 2,742 $ 5,580 $ 5,186
Adjusted general and administrative expenses/ total revenues (4) 6.4% 7.6% 7.1% 7.2%
Adjusted general and administrative expenses/ total assets 0.18% 0.21% 0.38% 0.40%
(at end of period)
Straight-line rent included in rental income (5) $ 107 $ 89 $ 214 $ 179
<FN>
(1) Rental income for the quarter and six months ended June 30, 2005, include $2.2 and $4.4 million, respectively, of income from
two hospitals operated by HealthSouth Corporation, or HealthSouth. Effective January 2, 2002, we entered an amended lease with
HealthSouth for two hospitals. In April 2003, we commenced a lawsuit against HealthSouth seeking, among other matters, to
reform the amended lease based upon HealthSouth's fraud by increasing the rent payable to us from the date of the amendment
forward. This litigation is pending at this time. On October 26, 2004, we terminated the amended lease for default because
HealthSouth failed to deliver to us accurate and timely financial information as required by the amended lease. On November 2,
2004, HealthSouth brought a new lawsuit against us seeking to prevent our termination of the amended lease. On November 9,
2004, after a hearing, the court denied HealthSouth's request for a preliminary injunction to prevent the lease termination. We
are current Our lease with HealthSouth requires that, after termination, HealthSouth manage the hospitals for our account for a
management fee during the period of the transition to a new tenant and remit the net cash flow to us. During the pendency of
these disputes, HealthSouth has continued to pay us at the disputed rent amount and we have applied the payments received
against the net cash flow due, but we do not know how long HealthSouth may continue to make payments. On June 27, 2005,
HealthSouth filed at the SEC restated financial data for periods ending December 31, 2003, which show a substantial negative
net worth and a history of substantial operating losses. We have been unable to obtain reliable current financial information
about the operations of HealthSouth or our hospitals. Legal expenses related to this matter were approximately $500,000 and
$900,000, respectively, for the quarter and six months ended June 30, 2005 and $0 and $50,000, respectively, for the quarter
and six months ended June 30, 2004, and are included in general and administrative expenses.
(2) Included in Other Income for the six months ended June 30, 2004 is $1.25 million received in a settlement of litigation with
Marriott International, Inc.
(3) Includes costs associated with our litigations with HealthSouth (on going) and Marriott (settled in January 2004) and costs
associated with a failed acquisition written off in the first quarter of 2004.
(4) Includes deferred percentage rent (see Note 1 on pages 13 and 14).
(5) We report rental income on a straight line basis over the terms of the respective leases. Rental income includes non-cash
straight line rent adjustments.
</FN>
11
Senior Housing Properties Trust
Supplemental Operating and Financial Data
June 30, 2005
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
(in thousands)
For the Six Months Ended
------------------------------
6/30/2005 6/30/2004
-------------- --------------
Cash flows from operating activities:
Net income $ 28,889 $ 27,310
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation 21,505 19,272
Gain on sale of property (717) (1,219)
Amortization of deferred finance fees and debt discounts 1,061 1,052
Change in assets and liabilities:
Restricted cash 4,089 4,927
Other assets 2,698 2,140
Accrued interest 183 49
Other liabilities (863) 471
-------------- --------------
Cash provided by operating activities 56,845 54,002
-------------- --------------
Cash flows from investing activities:
Acquisitions (31,704) (32,648)
Mortgage financing provided (24,000) -
Proceeds from sale of real estate 4,600 5,900
-------------- --------------
Cash used for investing activities (51,104) (26,748)
-------------- --------------
Cash flows from financing activities:
Proceeds from issuance of common shares, net - 86,144
Proceeds from borrowings on revolving bank credit facility 66,000 43,000
Repayments of borrowings on revolving bank credit facility (19,000) (112,000)
Repayment of debt (5,085) (5,318)
Deferred financing fees (8) -
Distributions to shareholders (43,850) (37,796)
-------------- --------------
Cash used for financing activities (1,943) (25,970)
-------------- --------------
Increase in cash and cash equivalents 3,798 1,284
Cash and cash equivalents at beginning of period 3,409 3,530
-------------- --------------
Cash and cash equivalents at end of period $ 7,207 $ 4,814
============== ==============
Supplemental cash flow information:
Interest paid $ 21,430 $ 19,524
Non cash investing and financing activities:
Issuance of common shares $ 369 $ 307
12
Senior Housing Properties Trust
Supplemental Operating and Financial Data
June 30, 2005
CALCULATION OF EBITDA
- --------------------------------------------------------------------------------
(dollars in thousands)
For the Three Months Ended For the Six Months Ended
--------------------------------- ---------------------------------
6/30/2005 6/30/2004 6/30/2005 6/30/2004
---------------- ---------------- ---------------- ----------------
Income from continuing operations $ 14,316 $ 12,822 $ 28,172 $ 26,091
Plus: interest expense 11,443 10,255 22,675 20,625
Plus: depreciation expense 10,759 9,687 21,505 19,272
Plus: deferred percentage rent adjustment (1) 775 794 1,590 1,634
---------------- ---------------- ---------------- ----------------
EBITDA $ 37,293 $ 33,558 $ 73,942 $ 67,622
================ ================ ================ ================
<FN>
(1) We recognize percentage rental income received during the first, second and
third quarters in the fourth quarter. Although recognition of revenue is
deferred until the fourth quarter for purposes of calculating net income,
our calculation of EBITDA for the first three quarters includes estimated
amounts with respect to those periods. The fourth quarter EBITDA
calculation excludes the amounts recognized during the first three
quarters.
We compute EBITDA as income from continuing operations plus interest
expense, depreciation expense and deferred percentage rent. We consider
EBITDA to be an appropriate measure of performance for a REIT, along with
net income and cash flow from operating, investing and financing
activities. EBITDA does not represent cash generated by operating
activities in accordance with generally accepted accounting principals, or
GAAP, and should not be considered an alternative to net income or cash
flow from operating activities as a measure of financial performance or
liquidity.
</FN>
13
Senior Housing Properties Trust
Supplemental Operating and Financial Data
June 30, 2005
CALCULATION OF FUNDS FROM OPERATIONS (FFO)
- --------------------------------------------------------------------------------
(amounts in thousands, except per share data)
For the Three Months Ended For the Six Months Ended
-------------------------------- ---------------------------------
6/30/2005 6/30/2004 6/30/2005 6/30/2004
--------------- --------------- --------------- ----------------
Income from continuing operations $ 14,316 $ 12,822 $ 28,172 $ 26,091
Plus: depreciation expense 10,759 9,687 21,505 19,272
deferred percentage rent adjustment (1) 775 794 1,590 1,634
--------------- --------------- --------------- ----------------
FFO $ 25,850 $ 23,303 $ 51,267 $ 46,997
=============== =============== =============== ================
Weighted average shares outstanding 68,537 63,471 68,516 62,913
Net income per share $ 0.21 $ 0.20 $ 0.41 $ 0.41
FFO per share $ 0.38 $ 0.37 $ 0.75 $ 0.75
Supplemental data:
Straight-line rent included in rental income (2) $ 107 $ 89 $ 214 $ 179
Amortization of deferred financing fees and debt discounts $ 529 $ 525 $ 1,061 $ 1,052
<FN>
(1) We recognize percentage rental income received during the first, second and
third quarters in the fourth quarter. Although recognition of revenue is
deferred until the fourth quarter for purposes of calculating net income,
the calculation of FFO for the first three quarters includes estimated
amounts with respect to those periods. The fourth quarter FFO calculation
excludes the amounts recognized during the first three quarters.
(2) We report rental income on a straight line basis over the terms of the
respective leases. Rental income includes non-cash straight line rent
adjustments.
We compute FFO as shown in the calculation above. Our calculation of FFO
differs from the National Association of Real Estate Investment Trusts, or
NAREIT, definition of FFO because we include deferred percentage rent in
FFO as discussed in Note 1 above. We consider FFO to be an appropriate
measure of performance for a real estate investment trust, or REIT, along
with net income and cash flow from operating, investing and financing
activities. We believe that FFO provides useful information to investors
because by excluding the effects of certain historical costs, such as
depreciation expense and gain or loss on sale of properties, FFO can
facilitate a comparison of our current operating performance with our past
operating performance and of operating performance among REITs. FFO does
not represent cash generated by operating activities in accordance with
generally accepted accounting principles, or GAAP, and should not be
considered an alternative to net income or cash flow from operating
activities as a measure of financial performance or liquidity. FFO is one
important factor considered by our board of trustees in determining the
amount of distributions to shareholders. Other important factors include,
but are not limited to, requirements to maintain our status as a REIT,
limitations in our revolving bank credit facility and public debt
covenants, the availability of debt and equity capital to us and our
expectation of our future performance.
</FN>
14
Senior Housing Properties Trust
Supplemental Operating and Financial Data
June 30, 2005
DEBT SUMMARY
- --------------------------------------------------------------------------------
(dollars in thousands)
Coupon Interest Principal Maturity Due at Years to
Rate Rate Balance Date Maturity Maturity
------------ ------------- ------------ ---------- ----------- --------
Secured Debt:
Secured Floating Rate Debt:
None
Secured Fixed Rate Debt:
Tax exempt bonds - secured by 1 property 5.875% 5.875% $ 14,700 12/1/27 $ 14,700 22.4
Mortgage - secured by 16 properties (1) 6.970% 6.330% 37,028 6/2/12 30,069 6.9
Mortgage - secured by 4 properties (1) 6.110% 6.420% 12,541 11/30/13 10,218 8.4
Capital leases - 2 properties 7.700% 7.700% 6,808 5/31/16 - 10.9
------------ ------------- ------------ ----------- --------
Total / weighted average secured fixed rate debt 6.662% 6.383% $ 71,077 $ 54,987 10.8
============ ============= ============ =========== ========
Total / weighted average secured debt 6.662% 6.383% $ 71,077 $ 54,987 10.8
============ ============= ============ =========== ========
Unsecured Debt:
Unsecured Floating Rate Debt:
Revolving credit facility (LIBOR + 145 b.p.) (2) 4.750% 4.750% $ 84,000 11/30/05 $ 84,000 0.4
Unsecured Fixed Rate Debt:
Senior notes due 2012 8.625% 8.625% $ 245,000 1/15/12 $ 245,000 6.5
Senior notes due 2015 7.875% 7.875% 150,000 4/15/15 150,000 9.8
Junior subordinated debentures (3) 10.125% 10.125% 28,241 6/15/41 28,241 36.0
------------ ------------- ------------ ----------- --------
Total / weighted average unsecured fixed rate debt 7.784% 7.784% $ 423,241 $ 423,241 7.3
============ ============= ============ =========== ========
Total / weighted average unsecured debt 7.281% 7.281% $ 507,241 $ 507,241 6.1
============ ============= ============ =========== ========
Total / weighted average secured debt fixed rate debt 6.662% 6.383% $ 71,077 $ 54,987 10.8
Total / weighted average unsecured floating rate debt 4.750% 4.750% 84,000 84,000 0.4
Total / weighted average unsecured fixed rate debt 7.784% 7.784% 423,241 423,241 7.3
------------ ------------- ------------ ----------- --------
Total / weighted average debt 7.205% 7.171% $ 578,318 $ 562,228 6.7
============ ============= ============ =========== ========
<FN>
(1) Includes the effect of mark to market accounting for certain assumed mortgages.
(2) On July 29, 2005, our revolving credit facility was amended. The maturity date was extended to November 2009, the available
borrowing capacity was increased to $550.0 million and the LIBOR spread for interest was lowered to 100 b.p.
(3) Our junior subordinated debentures will become prepayable at par in June 2006.
</FN>
15
Senior Housing Properties Trust
Supplemental Operating and Financial Data
June 30, 2005
DEBT MATURITY SCHEDULE
- --------------------------------------------------------------------------------
(dollars in thousands)
Scheduled Principal Payments During Period
-----------------------------------------------------------------------------------------------------
Secured
Fixed Rate Secured Unsecured Unsecured
Debt and Floating Floating Fixed
Year Capital Leases Rate Debt Rate Debt Rate Debt Total
- ------------------------ ----------------- ----------------- ---------------- ----------------- -----------------
2005 $ 937 $ - $ 84,000 (1) $ - $ 84,937 (1)
2006 1,982 - - - 1,982
2007 2,123 - - - 2,123
2008 2,265 - - - 2,265
2009 2,435 - - - 2,435
2010 2,007 - - - 2,007
2011 1,703 - - - 1,703
2012 31,259 - - 245,000 276,259
2013 10,820 - - - 10,820
2014 310 310
2015 and thereafter 15,236 - - 178,241 193,477
----------------- ----------------- ---------------- ----------------- -----------------
$ 71,077 $ - $ 84,000 $ 423,241 $ 578,318
================= ================= ================ ================= =================
<FN>
(1) On July 29, 2005, our revolving bank credit facility was amended and the maturity date was extended to November 2009.
</FN>
16
Senior Housing Properties Trust
Supplemental Operating and Financial Data
June 30, 2005
LEVERAGE RATIOS, COVERAGE RATIOS AND PUBLIC DEBT COVENANTS
- --------------------------------------------------------------------------------
As Of And For The Three Months Ended
------------------------------------------------------------
6/30/2005 3/31/2005 12/31/2004 9/30/2004 6/30/2004
---------- ---------- ---------- ---------- ----------
Leverage Ratios:
Total debt / total assets 39.2% 37.3% 37.0% 36.8% 36.8%
Total debt / gross book value of real estate assets (1) 34.9% 33.4% 33.4% 33.0% 33.3%
Total debt / total market capitalization 30.8% 31.9% 29.2% 29.7% 31.1%
Total debt / total book capitalization 39.7% 37.8% 37.5% 37.5% 37.5%
Secured debt / total assets 4.8% 5.3% 5.3% 2.0% 2.0%
Variable rate debt / total debt 14.6% 7.9% 7.7% 7.1% 7.7%
Coverage Ratios:
EBITDA / interest expense 3.3x 3.3x 3.2x 3.3x 3.3x
Public Debt Covenants (2):
Total debt / adjusted total assets - allowable maximum 60.0% 32.6% 31.0% 30.9% 30.4% 30.6%
Secured debt / adjusted total assets - allowable maximum 40.0% 4.2% 4.6% 4.7% 1.8% 1.8%
Consolidated income available for debt service / debt service
- required minimum 2.00x 3.66x 3.67x 3.65x 3.72x 3.45x
Total unencumbered assets to unsecured debt
- required minimum 1.50x 3.25x 3.48x 3.48x 3.37x 3.33x
<FN>
(1) Gross book value of real estate assets is real estate properties, at cost, less impairment write downs, including purchase
price allocations relating to FAS 141, plus mortgage investments.
(2) Adjusted total assets and unencumbered assets include original cost of real estate assets less impairment write downs and
exclude depreciation and amortization, accounts receivable and intangible assets. Consolidated income available for debt
service is earnings from operations excluding interest expense, depreciation and amortization, taxes, gains and losses on
sales of property and amortization of deferred charges.
</FN>
17
Senior Housing Properties Trust
Supplemental Operating and Financial Data
June 30, 2005
INVESTMENTS INFORMATION
- --------------------------------------------------------------------------------
(dollars in thousands)
Acquisitions:
Purchase
Date Number of Purchase Price Cap
Acquired Tenant Type of Property Properties Units Price (1) Per Unit Rate (2)
- --------- ------------------- --------------------- -------------------- -------------- ----------------- ------------ -----------
There were no acquisitions during the three months ended March 31, 2005.
-----------------------------------------------------------------------------------------------------------------------
Q1 2005 Totals - - $ - $ - -
6/3/05 Five Star Assisted Living 4 299 $ 24,000 $ 80 9.0%
-----------------------------------------------------------------------------------------------------------------------
Q2 2005 Totals 4 299 $ 24,000 $ 80 9.0%
----------------------------------------------------------------------------------------------------------------------
Total 4 299 $ 24,000 $ 80 9.0%
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
<FN>
(1) Represents the gross purchase price and excludes closing costs and purchase price allocations relating to FAS 141.
(2) Represents annual GAAP rent divided by the purchase price.
</FN>
Mortgages:
Transaction Number of Investment Interest
Date Borrower Amount Type of Property Properties Units Per Unit Rate
- -------- ----------------- ----------------------- --------------------- ----------------- ------------------ ------------ --------
There were no mortgage investments during the three months ended Mach 31, 2005.
--------------------------------------------------------------------------------------------------------------------------
Q1 2005 Totals $ - - - - $ - -
6/3/05 Five Star $ 24,000 (1) Assisted Living 6 654 $ 37 9.0%
--------------------------------------------------------------------------------------------------------------------------
Q2 2005 Totals $ 24,000 6 654 $ 37 9.0%
--------------------------------------------------------------------------------------------------------------------------
Total $ 24,000 6 654 $ 37 9.0%
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
<FN>
(1) This mortgage investment is a line of credit for up to $43.5 million; $24.0 million was drawn and outstanding on June 30, 2005.
</FN>
18
Senior Housing Properties Trust
Supplemental Operating and Financial Data
June 30, 2005
FINANCING ACTIVITIES
- --------------------------------------------------------------------------------
(share amounts and dollars in thousands)
For the Three Months Ended
-------------------------------------
6/30/2005 3/31/2005
------------------ ------------------
Debt Transactions (1):
New debt raised $ - $ -
New debt assumed as part of acquisitions - -
------------------ ------------------
Total new debt - -
Debt retired (4,170) -
------------------ ------------------
Net debt $ (4,170) $ -
================== ==================
Equity Transactions:
New common shares issued - -
New common equity raised, net $ - $ -
(1) Exclude drawings and repayments on our revolving credit facility.
19
PORTFOLIO INFORMATION
Senior Housing Properties Trust
Supplemental Operating and Financial Data
June 30, 2005
PORTFOLIO SUMMARY BY FACILITY TYPE AND TENANT
- --------------------------------------------------------------------------------
(dollars in thousands)
Number of Number of Carrying Value of Investment Annualized
Properties Units/Beds Investment (1) Percent per unit Current Rent Percent
---------------------------------------------------------------------------------------------
Facility Type:
Independent Living (IL) (2) 36 10,412 $903,575 55.5% $86.8 $90,612 56.3%
Assisted Living (AL) 85 5,636 462,783 28.4% 82.1 44,625 27.7%
Nursing Homes 61 6,309 218,320 13.4% 34.6 17,042 10.6%
Hospitals (3) 2 364 43,553 2.7% 119.7 8,700 5.4%
---------------------------------------------------------------------------------------------
Total 184 22,721 $1,628,231 100.0% $71.7 $160,979 100.0%
=============================================================================================
Tenant:
Five Star / Sunrise (4) 31 7,307 $630,162 38.7% $86.2 $64,333 40.0%
Five Star 101 7,906 431,182 26.4% 54.5 33,974 21.1%
Sunrise / Marriott (5) 14 4,091 325,473 20.0% 79.6 31,197 19.3%
NewSeasons / IBC (6) 10 1,019 87,641 5.4% 86.0 9,287 5.8%
HealthSouth (3) 2 364 43,553 2.7% 119.7 8,700 5.4%
Alterra Healthcare Corporation 18 894 61,126 3.8% 68.4 7,136 4.4%
Genesis HealthCare Corporation 1 156 13,007 0.8% 83.4 1,522 1.0%
5 Private Companies (combined) 7 984 36,087 2.2% 36.7 4,830 3.0%
---------------------------------------------------------------------------------------------
Total 184 22,721 $1,628,231 100.0% $71.7 $160,979 100.0%
=============================================================================================
<FN>
(1) Amounts are before depreciation, but after impairment write downs.
(2) Properties where the majority of units are independent living apartments are classified as independent living communities.
(3) Effective January 2, 2002, we entered an amended lease with HealthSouth for two hospitals. In April 2003, we commenced a
lawsuit against HealthSouth seeking, among other matters, to reform the amended lease based upon HealthSouth's fraud by
increasing the rent payable to us from the date of the amendment forward. This litigation is pending at this time. On October
26, 2004, we terminated the amended lease for default because HealthSouth failed to deliver to us accurate and timely financial
information as required by the amended lease. On November 2, 2004, HealthSouth brought a new lawsuit against us seeking to
prevent our termination of the amended lease. On November 9, 2004, after a hearing, the court denied HealthSouth's request for
a preliminary injunction to prevent the lease termination. We are currently seeking an expedited judicial determination that
the lease termination was valid and we are pursuing damages against HealthSouth in the lawsuit which we brought in 2003. We
have also begun work to identify and qualify a new tenant operator for the hospitals. Our lease with HealthSouth requires that,
after termination, HealthSouth manage the hospitals for our account for a management fee during the period of the transition to
a new tenant and remit the net cash flow to us. During the pendency of these disputes, HealthSouth has continued to pay us at
the disputed rent amount and we have applied the payments received against the net cash flow due, but we do not know how long
HealthSouth may continue to make payments. On June 27, 2005, HealthSouth filed at the SEC restated financial data for periods
ending December 31, 2003, which show a substantial negative net worth and a history of substantial operating losses. We have
been unable to obtain reliable current financial information about the operations of HealthSouth or our hospitals.
(4) These 31 properties are leased to Five Star Quality Care, Inc., or Five Star, and 30 are managed by Sunrise Senior Living,
Inc., or Sunrise. Sunrise does not guaranty Five Star's lease obligations.
(5) Marriott International, Inc., or Marriott, guarantees the lease for the 14 properties leased to Sunrise.
(6) Independence Blue Cross, or IBC, a Pennsylvania health insurer, guarantees the lease for the 10 properties leased to NewSeasons
Assisted Living Communities, Inc., or NewSeasons.
</FN>
21
Senior Housing Properties Trust
Supplemental Operating and Financial Data
June 30, 2005
OCCUPANCY BY FACILITY TYPE AND TENANT
- --------------------------------------------------------------------------------
For the Three Months Ended
----------------------------------------------------------------------------------
6/30/2005 3/31/2005 12/31/2004 9/30/2004 6/30/2004
-------------- -------------- -------------- -------------- --------------
Facility Type:
Independent Living (IL) 91% 91% 92% 88% 89%
Assisted Living (AL) 84% 84% 82% 89% 83%
Nursing Homes 91% 88% 89% 89% 89%
Hospitals (1) NA NA NA NA NA
Tenant:
Five Star / Sunrise 92% 92% 90% 90% 90%
Five Star (2) 87% 87% 88% 89% 87%
Sunrise / Marriott 89% 90% 91% 91% 89%
NewSeasons / IBC 81% 79% 79% 80% 78%
HealthSouth (1) NA NA NA NA NA
Alterra Healthcare Corporation 84% 84% 85% 82% 81%
Genesis HealthCare Corporation 96% 96% 96% 97% 97%
5 Private Companies (combined) 87% 87% 88% 85% 86%
<FN>
(1) During 2003, HealthSouth issued a press release stating that its historical financial information should not be relied upon.
From that time until June 2005, HealthSouth had not filed audited financial information with the SEC. In June 2005, HealthSouth
filed a restated Report 10-K for periods ending December 31, 2003. The financial and operating data included in HealthSouth's
restated Report 10-K show a substantial negative net worth and a history of substantial operating losses. Because we do not
have reliable current information about the operations or financial performance of HealthSouth or our hospitals, we do not show
operating data for this operator. See also Note 3 on page 21 regarding our litigation with HealthSouth.
(2) Includes data for periods prior to our ownership of certain properties included in this lease.
All tenant operating data presented are based upon the operating results provided by our tenants for the indicated quarterly
periods, or the most recent prior period for which tenant operating results are available to us from our tenants. We have not
independently verified our tenants' operating data.
</FN>
22
Senior Housing Properties Trust
Supplemental Operating and Financial Data
June 30, 2005
% PRIVATE PAY BY FACILITY TYPE AND TENANT
- --------------------------------------------------------------------------------
For the Three Months Ended
-----------------------------------------------------------------------------
6/30/2005 3/31/2005 12/31/2004 9/30/2004 6/30/2004
------------- ------------- ------------- ------------- -------------
Facility Type:
Independent Living (IL) 84% 84% 85% 85% 86%
Assisted Living (AL) 93% 92% 92% 92% 92%
Nursing Homes 26% 18% 22% 20% 20%
Hospitals (1) NA NA NA NA NA
Tenant:
Five Star / Sunrise 84% 85% 85% 85% 85%
Five Star (2) 42% 41% 43% 35% 34%
Sunrise / Marriott 81% 80% 81% 82% 81%
NewSeasons / IBC 100% 100% 100% 100% 100%
HealthSouth (1) NA NA NA NA NA
Alterra Healthcare Corporation 98% 98% 98% 98% 98%
Genesis HealthCare Corporation 23% 23% 23% 21% 24%
5 Private Companies (combined) 24% 24% 24% 25% 25%
<FN>
(1) During 2003, HealthSouth issued a press release stating that its historical financial information should not be relied upon.
From that time until June 2005, HealthSouth had not filed audited financial information with the SEC. In June 2005, HealthSouth
filed a restated Report 10-K for periods ending December 31, 2003. The financial and operating data included in HealthSouth's
restated Report 10-K show a substantial negative net worth and a history of substantial operating losses. Because we do not
have reliable current information about the operations or financial performance of HealthSouth or our hospitals, we do not show
operating data for this operator. See also Note 3 on page 21 regarding our litigation with HealthSouth.
(2) Includes data for periods prior to our ownership of certain properties included in this lease.
All tenant operating data presented are based upon the operating results provided by our tenants for the indicated quarterly
periods, or the most recent prior period for which tenant operating results are available to us from our tenants. We have not
independently verified our tenants' operating data.
</FN>
23
Senior Housing Properties Trust
Supplemental Operating and Financial Data
June 30, 2005
RENT COVERAGE BY TENANT
- --------------------------------------------------------------------------------
For the Three Months Ended
---------------------------------------------------------------------------------------
Tenant 6/30/2005 3/31/2005 12/31/2004 9/30/2004 6/30/2004
- --------------------------------- ---------------- ---------------- ---------------- --------------- ----------------
Five Star / Sunrise (1) 1.17x 1.14x 1.10x 1.06x 1.12x
Five Star (2) 1.68x 1.63x 1.77x 1.78x 1.65x
Sunrise / Marriott 1.25x 1.25x 1.32x 1.26x 1.35x
NewSeasons / IBC 1.10x 1.11x 1.13x 1.19x 1.12x
HealthSouth (3) NA NA NA NA NA
Alterra Healthcare Corporation 1.80x 1.63x 1.63x 1.58x 1.64x
Genesis HealthCare Corporation 2.03x 1.71x 1.85x 1.92x 2.13x
5 Private companies (combined) 1.89x 1.87x 2.11x 1.87x 1.89x
<FN>
(1) Rent coverage is after non-subordinated management fees.
(2) Includes data for periods prior to our ownership of certain properties included in this lease.
(3) During 2003, HealthSouth issued a press release stating that its historical financial information should not be relied upon.
From that time until June 2005, HealthSouth had not filed audited financial information with the SEC. In June 2005, HealthSouth
filed a restated Report 10-K for periods ending December 31, 2003. The financial and operating data included in HealthSouth's
restated Report 10-K show a substantial negative net worth and a history of substantial operating losses. Because we do not
have reliable current information about the operations or financial performance of HealthSouth or our hospitals, we do not show
operating data for this operator. See also Note 3 on page 21 regarding our litigation with HealthSouth.
All tenant operating data presented are based upon the operating results provided by our tenants for the indicated periods, or
the most recent prior period for which tenant operating results are available to us from our tenants. Rent coverage is
calculated as operating cash flow from our tenants' facility operations, before subordinated charges and capital expenditure
reserves, if any, divided by rent payable to us. We have not independently verified our tenants' operating data.
</FN>
24
Senior Housing Properties Trust
Supplemental Operating and Financial Data
June 30, 2005
PORTFOLIO LEASE EXPIRATION SCHEDULE (1)
- --------------------------------------------------------------------------------
(dollars in thousands)
Cumulative %
Annualized % of Annualized of Annuliazed
Current Rent Current Rent Current Rent
---------------- --------------- ----------------
2005 $ - - -
2006 1,522 1.0% 1.0%
2007 - - 1.0%
2008 - - 1.0%
2009 - - 1.0%
2010 1,244 0.8% 1.8%
2011 - - 1.8%
2012 - - 1.8%
2013 32,272 21.2% 23.0%
2014 - - 23.0%
2015 and thereafter 117,241 77.0% 100.0%
--------------- -----------
Total $ 152,279 100.0%
=============== ===========
Weighted average remaining
lease term (in years) 11.8
(1) Excludes the two hospitals operated by HealthSouth. Effective January 2,
2002, we entered an amended lease with HealthSouth for two hospitals. In
April 2003, we commenced a lawsuit against HealthSouth seeking, among other
matters, to reform the amended lease based upon HealthSouth's fraud by
increasing the rent payable to us from the date of the amendment forward.
This litigation is pending at this time. On October 26, 2004, we terminated
the amended lease for default because HealthSouth failed to deliver to us
accurate and timely financial information as required by the amended lease.
On November 2, 2004, HealthSouth brought a new lawsuit against us seeking
to prevent our termination of the amended lease. On November 9, 2004, after
a hearing, the court denied HealthSouth's request for a preliminary
injunction to prevent the lease termination. We are currently seeking an
expedited judicial determination that the lease termination was valid and
we are pursuing damages against HealthSouth in the lawsuit which we brought
in 2003. We have also begun work to identify and qualify a new tenant
operator for the hospitals. Our lease with HealthSouth requires that, after
termination, HealthSouth manage the hospitals for our account for a
management fee during the period of the transition to a new tenant and
remit the net cash flow to us. During the pendency of these disputes,
HealthSouth has continued to pay us at the disputed rent amount and we have
applied the payments received against the net cash flow due, but we do not
know how long HealthSouth may continue to make payments. On June 27, 2005,
HealthSouth filed at the SEC restated financial data for periods ending
December 31, 2003, which show a substantial negative net worth and a
history of substantial operating losses. We have been unable to obtain
reliable current financial information about the operations of HealthSouth
or our hospitals.
25