SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 1, 2000
SENIOR HOUSING PROPERTIES TRUST
(Exact name of registrant as specified in charter)
Maryland 001-15319 04-3445278
(State or other (Commission file number) (IRS employer
jurisdiction of identification no.)
incorporation)
400 Centre Street, Newton, Massachusetts 02458
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 617-796-8350
<PAGE>
Item 5. Other Events.
Senior Housing Properties Trust, with certain of its wholly-owned
subsidiaries (collectively, the "Company"), have closed their separate
bankruptcy settlement transactions with Mariner Post-Acute Networks, Inc. and
its subsidiaries (collectively, "Mariner") and with Integrated Health Services,
Inc. and its subsidiaries (collectively, "IHS"). The Mariner settlement
transaction was approved by the bankruptcy court in Mariner's Chapter 11
proceeding on June 29, 2000, and was closed on July 5, 2000. The IHS settlement
transaction was approved by the bankruptcy court in IHS' Chapter 11 proceeding
on July 7, 2000, and was closed on July 13, 2000. The full implementation of
each of these transactions, however, awaits receipt by the Company of healthcare
licenses permitting the Company to operate the affected facilities.
Description of the Mariner settlement:
-------------------------------------
The principal features of the settlement transaction with Mariner are
as follows:
o Mariner has assigned and surrendered to the Company its interest in all of
the leases between the Company, as lessor, and Mariner, as lessee. This
affects 26 nursing facilities. The Company has transferred five of these
properties to Mariner outright. Mariner will continue to operate these
properties for its own account. 17 properties will (subject to receipt of
necessary healthcare licenses) be operated for the account of the Company
(with economic effect from July 1, 2000). Of the remaining four properties,
Mariner had previously subleased three properties to Healthquest, Inc., and
had subleased the other property to Covenant Care California, Inc. These
subtenants continue to occupy these properties under their respective
subleases and to operate the related nursing facilities. The following
table identifies the Mariner properties being transferred to Mariner or
returned to the Company:
Location Property Type
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Transferred to Mariner:
Concord, NC Nursing Home
Wilson, NC Nursing Home
Winston-Salem, NC Nursing Home
Newport Beach, CA Nursing Home
Tarzana, CA Nursing Home
Returned to Company:
Phoenix, AZ Nursing Home
Yuma, AZ Nursing Home
Yuma, AZ Congregate Care
Fresno, CA (1) Nursing Home
Lancaster, CA Nursing Home
Stockton, CA Nursing Home
Thousand Oaks, CA Nursing Home
Van Nuys, CA Nursing Home
Lakewood, CO Nursing Home
Littleton, CO Nursing Home
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Location Property Type
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Huron, SD (2) Nursing Home
Huron, SD (2) Congregate Care
Sioux Falls, SD (2) Nursing Home
Brookfield, WI Nursing Home
Clintonville, WI Nursing Home
Clintonville, WI Nursing Home
Madison, WI Nursing Home
Milwaukee, WI Nursing Home
Milwaukee, WI Nursing Home
Pewaukee, WI Nursing Home
Waukesha, WI Nursing Home
---------------------------------
(1) Subject to a sublease with Covenant Care California, Inc., as
sublessee
(2) Subject to subleases with Healthquest, Inc., as sublessee
o The Company retained for its own account $15 million of cash, 1,000,000
shares of common shares of beneficial interest, $0.01 par value, of HRPT
Properties Trust, a Maryland real estate investment trust, and 100,000 of
the Company's common shares, which had previously been pledged to the
Company to secure Mariner's lease obligations and related guarantees.
o The Company released Mariner from its obligations under all existing leases
and related documents (including unpaid rent and liquidated damages payable
under the Mariner leases). In addition, the Company released Mariner from
all claims by the Company (and Mariner in turn released the Company from
all claims by Mariner), to the extent such claims arise out of an event or
condition that occurred or was in existence prior to the closing of the
Mariner settlement.
o The Company has agreed to pay Mariner a monthly fee in respect of certain
management/transition services that Mariner has agreed to provide in
respect of the operation of each of the facilities. For each facility, the
fee is equal to a certain percentage of net patient revenues. The
percentage for each facility is initially 5%, but this percentage will
reduce, pursuant to a schedule, as the Company (or Five Star Quality Care,
Inc. (see below) on the Company's behalf) takes over responsibility for
these services from Mariner. Mariner's servicing fee will be paid through a
dollar-for-dollar reduction of the Company's agreed claim in Mariner's
Chapter 11 proceeding ($1,200,000), until that claim is reduced to zero.
The parties have agreed that Mariner's servicing fee will not be less than
$400,000 in each of the first three months of the term of this servicing
arrangement, and that the aggregate amount of the servicing fee will not,
in any event, be less than the Company's agreed claim.
Mariner holds the healthcare licenses for 17 of the 21 nursing
facilities that it is relinquishing to the Company in the settlement
transaction. The Company is in the process of applying for new healthcare
licenses to permit it to operate these facilities. No assurance can be given
that all such licenses can be obtained. Pending re-licensing, these properties
are being operated by Mariner and managed on behalf of Mariner by Five Star
Quality Care, Inc.,
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<PAGE>
a Delaware corporation ("Five Star") pursuant to interim lease and management
agreements with the existing Mariner licenseholders. The Company also intends to
enter into a management agreement with Five Star pursuant to which, among other
things, Five Star will manage the properties for the Company following
relicensing. Information regarding Five Star and a summary of the proposed
management agreement between the Company and Five Star are set out below under
the caption "Management of Properties by Five Star."
Description of the IHS settlement:
---------------------------------
The IHS settlement affects the 27 nursing facilities owned by the
Company and originally leased to (or for the account of) IHS, and the 12 nursing
facilities originally owned by IHS and mortgaged to the Company. The principal
features of the settlement transaction with IHS are as follows:
o The leases for 22 of the nursing facilities leased to (or for the account
of) IHS have been terminated, and these properties will (subject to receipt
of necessary healthcare licenses) be operated for the account of the
Company (with economic effect from July 1, 2000). Three of these facilities
are located in Connecticut and were leased to Advisors Healthcare Group,
Inc., a Delaware corporation ("Advisors"), which holds the healthcare
licenses for these facilities. IHS managed the Connecticut facilities on
behalf of Advisors pursuant to management agreements with Advisors. IHS
also guaranteed the obligations of Advisors under its leases with the
Company. All of the capital stock of Advisors is owned by Gerard Martin and
Barry Portnoy, each of whom is a Managing Trustee of Senior Housing
Properties Trust and also a Director and 50% owner of REIT Management &
Research Inc., the Company's advisor. Both the management agreements with
IHS and the leases with Advisors were terminated in connection with the
closing of the settlement transaction.
o IHS is relinquishing its right to operate four nursing facilities located
in Massachusetts that it had operated under leases from the Company. IHS
had assumed the obligations of Horizon/CMS HealthCare Corporation, as
tenant of the Company under these leases. Horizon/CMS HealthCare
Corporation, however, was not released from its obligations under these
leases by virtue of such assumption, and will continue as tenant.
HEALTHSOUTH Corporation has guaranteed the obligations of Horizon/CMS
HealthCare Corporation under these leases.
o One of the original 27 leased facilities (located in Canonsburg,
Pennsylvania) will continue to be leased by IHS from the Company pursuant
to an amended lease agreement between IHS, as tenant and the Company, as
landlord. IHS will continue to operate this property for its own account.
This lease will have a ten-year term, and will be renewable for three
additional ten-year terms at fair market rent. Rent is set at $1.2 million
a year during the initial ten-year term (adjusted for increases in CPI
after January 1, 2003). Rent was payable from January 1, 2000, and IHS paid
rental installments for the months January through July at the closing of
the settlement transaction.
o IHS has conveyed to the Company title to 11 of the 12 nursing facilities
that it had mortgaged to the Company. These 11 nursing facilities will
(subject to receipt of necessary healthcare licenses) be operated for the
account of the Company (with economic effect from
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<PAGE>
July 1, 2000). The Company released its mortgage (securing a $19,500,000
original principal amount note) on the remaining mortgaged facility
(located in Slidell, Louisiana). IHS will continue to own and operate that
property for its own account.
o The Company released IHS from its obligations under all existing leases,
management agreements and mortgage documents (including unpaid rent and
interest, the principal amounts of the mortgage loans secured by the IHS
mortgaged properties and liquidated damages payable under the IHS leases).
In addition, the Company released IHS from all claims by the Company (and
IHS in turn released the Company from all claims by IHS), to the extent
such claims arise out of an event or condition that occurred or was in
existence prior to the closing of the IHS settlement.
o As additional consideration, IHS conveyed title to six skilled nursing
facilities located in Nebraska and a skilled nursing facility and an
intermediate care facility located in Iowa (plus an improved but unlicensed
property located in Aurora, Nebraska) to subsidiaries of the Company. Due
to REIT tax considerations, each of these new properties have been acquired
by corporations that are 99% owned (on a non-voting basis) by the Company.
Gerard Martin and Barry Portnoy own the remaining 1% of the (voting)
capital stock of each of these corporations. In addition, IHS also conveyed
to the Company title to a skilled nursing facility located in North
Andover, Massachusetts, together with IHS' interest as landlord of the
North Andover property under a lease with Horizon/CMS HealthCare
Corporation, as tenant. The initial term of this lease extends to June 30,
2005, with two optional renewal terms of 10 years each. Minimum Rent under
this lease is payable in monthly installments of $130,297. Percentage rent
is payable under this lease in an amount equal to 3% of the excess of net
patient revenues for the twelve months ending May 31 of each year over net
patient revenues for the twelve months ended May 31, 2000.
o IHS also paid the Company a total of approximately $3 million for its use
and occupancy of the Company leased and mortgaged properties and other
claims arising from the date of the IHS bankruptcy filing (February 2,
2000) until June 30, 2000.
o IHS also agreed with the Company to perform management/transition services
for a period of up to five months with respect to the nursing facilities
formerly operated by IHS, at no additional cost to the Company.
The following table identifies the IHS properties (existing and new)
affected by the bankruptcy settlement:
<TABLE>
<CAPTION>
Location Property Type
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<S> <C>
Leased Properties Returned to Company:
Canon City, CO (1) Nursing Home/Senior Apartments
Colorado Springs, CO Nursing Home
Delta, CO Nursing Home
Grand Junction, CO Nursing Home
Grand Junction, CO Nursing Home
Cheshire, CT Nursing Home
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<CAPTION>
Location Property Type
-------- -------------
<S> <C>
Waterbury, CT Nursing Home
New Haven, CT Nursing Home
College Park, GA Nursing Home
Dublin, GA Nursing Home
Glenwood, GA Nursing Home
Marietta, GA Nursing Home
Clarinda, IA Nursing Home
Council Bluffs, IA Nursing Home
Mediapolis, IA Nursing Home
Pacific Junction, IA Nursing Home
Winterset, IA (1) Nursing Home/Senior Apartments
Ellinwood, KS Nursing Home
Tarkio, MO Nursing Home
Grand Island, NE Nursing Home
Laramie, WY Nursing Home
Worland, WY (1) Nursing Home/Senior Apartments
<CAPTION>
Leased by the Company to Horizon/CMS HealthCare Corporation:
<S> <C>
Middleboro, MA Nursing Home
Worcester, MA Nursing Home
Boston, MA Nursing Home
Hyannis, MA Nursing Home
<CAPTION>
Leased by the Company to Horizon/CMS HealthCare Corporation:
<S> <C>
Leased by Company to IHS:
Canonsburg, PA Nursing Home
<CAPTION>
Mortgaged Properties Conveyed to Company:
<S> <C>
Howell, MI Nursing Home
Farmington, MI Nursing Home
Ainsworth, NE Nursing Home
Ashland, NE Nursing Home
Blue Hill, NE Nursing Home
Edgar, NE Nursing Home
Gretna, NE Nursing Home
Lyons, NE Nursing Home
Milford, NE Nursing Home
Sutherland, NE Nursing Home
Waverly, NE Nursing Home
<CAPTION>
Mortgaged Property Released by Company:
<S> <C>
Slidell, LA Nursing Home
<CAPTION>
New Properties Conveyed to Company:
<S> <C>
Campbell, NE Nursing Home
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<PAGE>
<CAPTION>
Location Property Type
-------- -------------
<S> <C>
Central City, NE Nursing Home
Columbus, NE Nursing Home
Exeter, NE Nursing Home
Palmer, NE Nursing Home
Utica, NE Nursing Home
Des Moines, IA Nursing Home
Glenwood, IA Nursing Home for Mentally Retarded
North Andover, MA (2) Nursing Home
<FN>
------------------------------------------------
(1) Two properties are located at each of these locations.
(2) Subject to lease to Horizon/CMS HealthCare Corporation, as tenant.
</FN>
</TABLE>
IHS holds healthcare licenses for 38 of the 46 nursing facilities that
have been transferred or relinquished by it in the settlement transaction. The
Company is in the process of applying for new healthcare licenses to operate
these 38 facilities, as well as the licenses to operate the three Connecticut
facilities now licensed to Advisors. No assurance can be given that all such
licenses can be obtained. Pending re-licensing, these properties are being
operated by IHS and managed on behalf of IHS and Advisors by Five Star pursuant
to interim lease and management agreements with the existing IHS licenseholders
and Advisors. Information regarding Five Star and a summary of the proposed
management agreement between the Company and Five Star are set out below under
the caption "Management of Properties by Five Star."
Management of Properties by Five Star:
-------------------------------------
Five Star. Five Star Quality Care, Inc. is a Delaware corporation that
was organized in January 2000. Its principal place of business is 400 Centre
Street, Newton, Massachusetts, and its telephone number is 617-796-8387. All of
the capital stock of Five Star is owned by Gerard Martin and Barry Portnoy, and
Messrs. Martin and Portnoy are the sole directors of Five Star. Gerard Martin
and Barry Portnoy are each a Managing Trustee of Senior Housing Properties Trust
and also a Director and 50% owner of REIT Management & Research Inc., the
Company's advisor.
In the immediate future, the principal activity of Five Star is
expected to be to serve as the manager and operator of nursing homes and other
properties that are turned over to the Company by its lessees and mortgagors.
Five Star is expected to hire, as additional employees, most of the personnel
employed in the operation of each nursing facility taken over by it. The
principal officers of Five Star are currently Evrett W. Benton, President and
Secretary and Ajay Saini, Treasurer. A biographical summary for Messrs. Benton
and Saini follows:
Evrett W. Benton is the President of Five Star. From December 1991
through January 1998, Mr. Benton was the Executive Vice President, Chief
Administrative Officer and General Counsel for GranCare, Inc., a publicly-traded
long-term healthcare company, which was acquired by Mariner Post-Acute Networks,
Inc. in 1998. Prior to December 1991, Mr. Benton was the Managing Partner of the
Los Angeles, California office of the law firm Andrews & Kurth.
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<PAGE>
Ajay Saini is the Treasurer of Five Star. Mr. Saini has also been the
Treasurer and Chief Financial Officer of the Company since its spin-off from
HRPT Properties Trust in October 1999. Mr. Saini is also a Vice President of
REIT Management & Research, Inc. Mr. Saini has served HRPT Properties Trust,
REIT Management & Research, Inc. and their affiliates in various capacities
since June 1990, prior to which he was employed by Ernst & Young LLP. Mr. Saini
is a certified public accountant.
Summary of Management Arrangements. The Company intends to enter into a
management agreement with Five Star pursuant to which, among other things, Five
Star will coordinate and oversee the activities of the applicable licensee at
each relevant facility prior to relicensing, and manage the relevant facility
for the Company following the relicensing of the facility. The terms of Five
Star's management arrangement with the Company will not be exclusive. Five Star
may manage third party facilities that compete with the Company's facilities,
and the Company may use other managers as it determines.
The term of the proposed management agreement will continue through
December 31, 2001, subject to termination by either party on 30 days' notice. If
neither party terminates, the agreement will automatically renew for successive
one-year periods. The termination option may also be exercised on a
property-by-property basis.
For the first 90 days of this management arrangement, Five Star will be
entitled to reimbursement of its out of pocket expenses in connection with the
performance of its duties, including previously incurred start-up costs.
Thereafter, Five Star's fee will equal 5% of net patient revenues at each
managed facility. The Company has agreed to reimburse Five Star for the
operating expenses incurred by Five Star (including salaries and benefits of
employees located at the nursing facilities, allocable regional staff costs
(and, during the first 90 days of the arrangement, salaries and benefits of home
office personnel), and the costs of insurance) in connection with its management
of each facility. The Company will license and pay for all accounting, clinical
procurement and employee time management systems for each managed facility. All
accounts receivable of each managed facility will belong to the Company. The
Company has agreed to indemnify Five Star for any liabilities incurred by it in
connection with its management of the Company facilities, unless arising from
the gross negligence or willful misconduct of Five Star. Five Star has agreed to
indemnify the Company for any liabilities incurred by the Company arising from
the gross negligence or willful misconduct of Five Star in connection with its
management of the Company facilities.
FORWARD LOOKING STATEMENTS
This Current Report on Form 8-K contains statements and information that
constitute forward looking statements within the meaning of the Securities
Exchange Act of 1934, as amended. These statements appear in a number of places
in this Form 8-K and include statements regarding the Company's expectations
regarding licenses required to operate the facilities described herein and its
proposed management arrangements with Five Star, the Company's and Five Star's
ability to successfully operate the facilities described herein and other
strategies, plans, beliefs and current expectations of the Company's management.
These are forward-looking statements and not guaranteed. They are based on our
present intentions and on our present expectations and assumptions. These
statements, intentions, expectations and
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assumptions involve risks and uncertainties, some of which are beyond our
control, that could cause actual results or events to differ materially from
those we anticipate. For example, our ability to be licensed to operate the
facilities is dependent on actions by governmental agencies over which we have
no control, and operation of the facilities will involve number of risks, such
as meeting complex governmental regulations and our ability to obtain
governmental reimbursements, many of which are beyond our control. Readers
should not place undue reliance on these forward-looking statements, as events
described or implied in such statements may not occur. We undertake no
obligation to update or revise any forward-looking statements as a result of new
information, future events or otherwise.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SENIOR HOUSING PROPERTIES TRUST
By: /s/ Ajay Saini,
Ajay Saini, Treasurer and Chief Financial
Officer
Date: July 31, 2000
