UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE
ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 001-15319
SENIOR HOUSING PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
Maryland 04-3445278
(State or other jurisdiction of incorporation) (IRS Employer Identification No.)
400 Centre Street, Newton, Massachusetts 02458
(Address of principal executive offices) (Zip Code)
617-796-8350
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Shares of Beneficial Interest New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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The aggregate market value of the voting stock of the registrant held
by non-affiliates was $129.0 million based on the $9 7/8 closing price per share
for such stock on the New York Stock Exchange on March 27, 2000. For purposes of
this calculation, 12,809,237 held by HRPT Properties Trust and an aggregate of
128,458 held by the trustees and executive officers of the registrant have been
included in the number of shares held by affiliates.
Number of the registrant's Common Shares of Beneficial Interest, $.01
par value ("Shares"), outstanding as of March 27, 2000: 26,001,500.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K is incorporated by
reference from our definitive Proxy Statement for the annual meeting of
shareholders currently scheduled to be held on May 11, 2000.
IMPORTANT FACTORS
This Annual Report on Form 10-K contains statements which constitute
forward looking statements within the meaning of the Securities Litigation
Reform Act of 1995. These statements appear in a number of places in this Form
10-K regarding our intent, belief or expectations with respect to the outcome of
current agreements and negotiations with certain of our tenants which are in
bankruptcy proceedings, our ability to obtain requisite approvals for any
agreements reached, our ability to successfully operate properties which we take
back from financially troubled tenants, possible expansion of our portfolio,
performance of our assets, our ability to make distributions, policies and plans
regarding investments, financings and other matters, the effect of the year 2000
issue, our ability to successfully negotiate with some of our tenants in
bankruptcy, our tax status as a real estate investment trust, our ability to
appropriately balance the use of debt and equity and to access capital markets
or other sources of funds and statements of assumptions underlying such
statements as to intent, belief or expectations. Readers are cautioned that any
such forward looking statements are not guarantees of future performance and
involve risks and uncertainties and that actual results may differ materially
from those contained in the forward looking statements as a result of various
factors. Such factors include without limitation the status of the economy and
the capital markets (including prevailing interest rates), compliance with and
changes to regulations and payment and reimbursement policies within the health
care industry, changes in financing terms, competition within the health care
industry, and changes in federal, state and local legislation. The accompanying
information contained in this Annual Report on Form 10-K, including under the
headings "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," identifies other important factors that
could cause such differences.
THE AMENDED AND RESTATED DECLARATION OF TRUST ESTABLISHING SENIOR
HOUSING PROPERTIES TRUST, DATED SEPTEMBER 20, 1999, A COPY OF WHICH, TOGETHER
WITH ALL AMENDMENTS THERETO, IS DULY FILED IN THE OFFICE OF THE STATE DEPARTMENT
OF ASSESSMENTS AND TAXATION OF MARYLAND, PROVIDES THAT THE NAME "SENIOR HOUSING
PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION 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 SHALL LOOK ONLY TO THE ASSETS OF SENIOR HOUSING PROPERTIES TRUST FOR THE
PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.
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SENIOR HOUSING PROPERTIES TRUST
1999 FORM 10-K ANNUAL REPORT
Table of Contents
Part I
Page
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Item 1. Business................................................................................ 1
Item 2. Properties.............................................................................. 30
Item 3. Legal Proceedings....................................................................... 33
Item 4. Submission of Matters to a Vote of Security Holders..................................... 33
Part II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters.................... 34
Item 6. Selected Financial Data................................................................. 34
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................... 36
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.............................. 40
Item 8. Financial Statements and Supplementary Data............................................. 41
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................................. 41
Part III
Item 10. Directors and Executive Officers of the Registrant...................................... *
Item 11. Executive Compensation.................................................................. *
Item 12. Security Ownership of Certain Beneficial Owners and Management.......................... *
Item 13. Certain Relationships and Related Transactions.......................................... *
* Incorporated by reference from our Proxy Statement for
the Annual Meeting of Shareholders currently scheduled
to be held on May 11, 2000, to be filed pursuant to
Regulation 14A.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................... 42
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References in this Annual Report on Form 10-K to the "Company" or
"Senior Housing" include consolidated subsidiaries, unless the context indicates
otherwise.
PART I
Item 1. Business
The Company. Senior Housing Properties Trust ("Senior Housing") is a
Maryland real estate investment trust ("REIT") that invests in senior housing
income producing real estate, including senior apartments and assisted living,
congregate care and nursing home properties. Senior Housing was organized on
December 16, 1998 as a 100% owned subsidiary of HRPT Properties Trust ("HRPT"),
a REIT which invests principally in office buildings. On October 12, 1999, HRPT
distributed 13.2 million common shares of Senior Housing to HRPT shareholders to
create Senior Housing as a separate public REIT. Senior Housing's principal
executive offices are located at 400 Centre Street, Newton, Massachusetts 02458,
and its telephone number is (617) 796-8350.
As of December 31, 1999, we owned 81 properties for a total investment
of $708.8 million and had mortgage investments in 12 properties aggregating
$22.9 million, net of loan loss reserve, for total real estate investments of
$731.7 million in 26 states. The properties are described in greater detail in
"Item 2. Properties."
Number of Total Investments
State Properties at December 31, 1999
- - ----- ---------- --------------------
(in thousands)
Arizona 6 $42,861
California 8 53,879
Colorado 8 34,348
Connecticut (1) 6 35,914
Florida 5 131,990
Georgia 4 12,308
Illinois 2 98,742
Iowa 6 8,207
Kansas 1 1,320
Louisiana 1 4,277
Maryland 1 33,080
Massachusetts 4 69,562
Michigan 2 9,086
Missouri 2 3,788
Nebraska 10 10,627
New Jersey 1 13,007
New York 1 10,700
North Carolina 3 6,389
Ohio 1 3,445
Pennsylvania 1 15,598
South Dakota 3 7,589
Texas 1 12,410
Virginia 3 57,666
Washington 2 19,542
Wisconsin 8 28,098
Wyoming 3 7,245
---- --------
Total Investments 93 $731,678
==== ========
(1) Three of these properties were sold after December 31, 1999.
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We believe that the aging of the United States population will increase
the demand for existing senior apartments, congregate communities, assisting
living properties and nursing homes and encourage development of new properties.
Our basic business plan is to profit from this increasing demand in two ways.
First, we intend to purchase additional properties and lease them at initial
rents that are greater than our costs of acquisition capital. Second, we intend
to structure leases that provide for periodic rental increases based in part on
gross operating revenue increases at our properties. Our current operating
environment, though, is challenging. The long term care industry has been
financially devastated by Medicare payment reductions, increased governmental
regulation, rapid growth of the competing assisting living industry and tight
capital markets. The current difficulties being faced by the healthcare industry
have severely affected some of our tenants.
Our business plan contemplates investment in properties which offer
four types of senior housing accommodations, including some properties that
combine more than one type in a single building or campus.
Senior Apartments. Senior apartments are marketed to residents who are
generally capable of caring for themselves. Residence is generally restricted on
the basis of age. Purpose built properties may have special function rooms,
concierge services, high levels of security and centralized call buttons for
emergency use. Tenants at these properties who need healthcare or assistance
with the activities of daily living are expected to contract independently for
those services with homemakers or home healthcare companies.
Congregate Communities. Congregate communities also provide a high
level of privacy to residents and require residents to be capable of relatively
high degrees of independence. Unlike a senior apartment property, a congregate
community usually bundles several services as part of a regular monthly
charge--for example, one or two meals per day in a central dining room, weekly
maid service or a social director. Additional services are generally available
from staff employees on a fee-for-service charge basis. In some congregate
communities, separate parts of the property are dedicated to assisted living or
nursing services.
Assisted Living Properties. Assisted living properties are typically
comprised of one bedroom suites which include private bathrooms and efficiency
kitchens. Services provided usually include three meals per day in a central
dining room, daily housekeeping, laundry, medical reminders and 24 hour
availability of assistance with the activities of daily living such as dressing
and bathing. Professional nursing and healthcare services are usually available
at the facility on call or at regularly scheduled times. Since the early 1990s
there has been explosive growth in the number of small public companies
developing purpose built assisted living properties. Many of those properties
have recently been completed and are now fully occupied and appropriate
investments for us.
Nursing Homes. Nursing homes generally provide extensive nursing and
healthcare services similar to those available in hospitals, without the high
costs associated with operating theaters, emergency rooms or intensive care
units. A typical purpose built nursing home includes mostly two-bed rooms with a
separate toilet in each room and shared dining and bathing facilities. Some
private rooms are often available for those residents who can afford to pay
higher rates or for patients whose medical conditions require segregation.
Nursing homes are generally staffed by licensed nursing professionals 24 hours
per day.
During the past few years nursing home owners and operators have faced
two significant business challenges. First, the rapid expansion of the assisted
living industry which started in the early 1990s has attracted a number of
residents away from nursing homes. This was especially significant because the
residents who elected assisted living facilities had often previously been the
most profitable residents in the nursing homes--residents who required a lesser
amount of care and who were able to pay higher private rates rather than
government rates.
The second major challenge arose as a result of Medicare and Medicaid
cost containment laws beginning in 1994, particularly 1997 federal legislation
that required the Medicare program to implement a prospective payment program
for various subacute services provided in skilled nursing homes. Implementation
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of this Medicare prospective payment program began on July 1, 1998. Prior to the
prospective payment program Medicare paid nursing home operators based upon
audited costs for services provided. The prospective payment system sets
Medicare rates based upon government estimated costs of treating specified
medical conditions. Although it is possible that a nursing home may increase its
profit if it is able to provide quality services at below average costs, we
believe that the effect of the new Medicare rate setting methodology will be to
reduce the profitability of Medicare services in nursing homes. This belief is
based on similar Medicare changes that were implemented for hospitals during the
1980s.
Tenants and Leases. Our financial condition depends, in part, on the
financial condition of our tenants. About 46% of our historical rents are
received from Marriott International, Inc. and some of its subsidiaries
("Marriott") and Brookdale Living Communities, Inc. and some of its subsidiaries
("Brookdale"). Our properties leased to these operators predominantly offer
independent and assisted living services; and almost all of the revenues of
these properties are paid by residents from private resources. As previously
announced, our other large tenants, Integrated Health Services, Inc. ("IHS") and
Mariner Post-Acute Network, Inc. ("Mariner"), which on a combined basis
represent about 48% of our historical rents, filed for bankruptcy in early 2000.
More information concerning those tenants is set forth below under "Business
Developments--Tenant Financial Condition." Properties leased to IHS and Mariner
are predominantly nursing homes.
Our leases are so called "triple net" leases which require the tenants
to maintain our properties during the lease terms and to indemnify us for
liability which may arise by reason of our ownership of the properties.
We own 14 congregate care communities and assisted living properties
located in seven states with 3,950 units that are leased to subsidiaries of
Marriott. Marriott is a NYSE listed company whose major businesses are
developing, operating and managing hotels, senior housing properties and time
share resorts. The annual rent under this lease is $30.9 million, which is 34%
of our historical total annual rent, and the lease provides for rent increases
equal to 4.5% of increases in gross revenues of the properties. Marriott has
guaranteed all of these lease obligations. Our historic investment in these
properties is $325.5 million. The current lease expiration is 2013, and Marriott
has four all-or-none renewal options for five years each.
The following table presents summary financial information of Marriott
from its Annual Report on 10-K for the year ended December 31, 1999.
Summary Financial Information of Marriott International, Inc.
(in millions)
As of or for the year ended
----------------------------------------------
January 2, January 1, December 31,
1998 1999 1999
----------- ---------- ------------
Sales.......................... $7,236 $7,968 $8,739
Net income..................... 324 390 400
Total assets................... 5,161 6,233 7,324
Debt........................... 422 1,267 1,676
We own four congregate care communities located in four states with 829
units that are leased to a subsidiary of Brookdale. Brookdale is a Nasdaq listed
company whose principal business is operating senior housing and congregate care
communities. The annual rent under this lease is $11.2 million, which is 12% of
our historical total annual rent, and the lease provides for rent increases
equal to 10% of increases in gross revenues of the properties starting in 1999.
Brookdale has guaranteed all of these lease obligations. Our historic investment
in these properties is $101.9 million. The current lease expiration is 2019, and
Brookdale has two all-or-none renewal options for twenty-five years each.
We own one nursing home with 150 units that is leased to a subsidiary
of Genesis Health Ventures, Inc. ("Genesis"). Genesis is a NYSE listed company
whose major businesses are operating nursing homes,
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congregate care communities and assisting living properties. The annual rent
under this lease is $1.4 million, which is two percent of our historical total
annual rent, and the lease provides for annual rent increases of $13,000. Our
historic investment in this property is $13.0 million. The current lease
expiration is 2005, and Genesis has two all-or-none renewal options for ten
years each and one for five years.
In addition to the tenants described above, we currently lease three
nursing homes located in three states with 423 units to three separate private
companies. These leases require total annual rent of $1.3 million.
We currently own 27 nursing homes and three senior apartments with
3,205 units located in nine states that are leased to subsidiaries of IHS. In
addition, we have mortgage investments secured by 12 nursing homes with 1,070
units located in three states that are operated by IHS. IHS's major businesses
are operating nursing homes and providing home healthcare services. These 42
properties are divided into two pools, and the obligations under leases and
mortgages within each pool are subject to cross default and collateralization
covenants with all other properties in the same pool. The annual rent under
these leases of $22.8 million and the interest of $4.1 totaled 30% of our
historical total annual rent. IHS has guaranteed all of these leases and
mortgage obligations. IHS and its subsidiaries which are our tenants or
mortgagors are subject to bankruptcy proceedings. See "Business
Developments--Tenant Financial Condition." The current lease expirations are
2006 in the case of one pool and 2010 in the case of the other (in each case
with renewal options), subject to the effect of the bankruptcy proceedings. Our
investment in these properties, after an impairment loss write-down and loan
loss reserve, is $185.2 million.
The following table present summary financial information of IHS for
the latest period available from its Annual Report on Form 10-K for the year
ended December 31, 1998, and Quarterly Report on Form 10-Q for the period ended
September 30, 1999.
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Summary Financial Information of Integrated Health Services, Inc.
(in millions)
As of or for the nine
As of or for the year ended months ended
December 31, September 30,
----------------------------- ---------------------
1996 1997 1998 1998 1999
------- -------- -------- -------- --------
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Total revenue ............................ $ 1,204 $ 1,403 $ 2,972 $ 2,253 $ 1,904
Earnings (loss) from continuing operations 48 3 137 126 (1,831)
Net earnings (loss) ...................... 46 (34) (68) (79) (1,831)
Total assets ............................. 5,002 5,393 3,596
Debt ..................................... 3,219 3,383 3,536
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We currently own 24 nursing homes and two congregate care communities
with 3,482 units located in six states leased to subsidiaries of Mariner.
Mariner's principal business is operating nursing homes. The $16.7 million
annual rent under this lease represents about 18% of our historical total annual
rent. Mariner has guaranteed all of the lease obligations. Our investment in
these properties after an impairment loss write-down is $80.7 million. Mariner
and its subsidiaries which are our tenants are subject to bankruptcy
proceedings. See "Business Developments--Tenant Financial Condition." The
current lease term with Mariner expires in 2013 (with renewal options), subject
to the effect of the bankruptcy proceedings. We have reached an agreement in
principle with Mariner involving, among other things, the termination of the
lease of the properties, our assumption of operating responsibilities for 17 of
the properties and our conveyance of title to the remaining five properties to
Mariner. The remaining four nursing homes are now subleased to two private
companies and we expect to negotiate with these two subtenants for their
continued operations of those properties. Our agreement is contingent upon
approval of Mariner's creditors committee and the bankruptcy court and required
regulatory approvals.
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Other terms of our leases have included and may in the future generally
include the following:
Cross Default. When we lease more than one property to a single tenant
or a group of affiliated tenants all those leases are cross defaulted.
All or None Renewal Options. When we lease more than one property to a
single tenant or a group of affiliated tenants, lease renewal options may only
be exercised on an all or none basis.
Maintenance and Alterations. Our tenants are required to maintain, at
their expense, the leased properties in good order and repair, including
structural and nonstructural maintenance. Except in the case of properties
leased to Marriott, capital alterations and additions to any leased property
which exceed a threshold amount of aggregate cost may only be made with our
prior consent. Any alterations or improvements made to any leased property
during the terms of the leases become our property, subject to our obligation to
pay to the tenants unamortized costs at lease termination. At the end of the
leases, our tenants are required to surrender their leased properties in
substantially the same condition as existed on the commencement dates of the
leases, subject to any permitted alterations and subject to ordinary wear and
tear.
Assignment. Our consent is generally required for any assignment or
sublease of our properties. In the event of a subletting, the initial tenant
remains liable under the lease and all guarantees and other security remain in
place.
Environmental Matters. Our tenants are required, at their expense, to
remove and dispose of any hazardous substance at the leased properties in
compliance with all applicable environmental laws and regulations and to pay any
costs we incur in connection with removal and disposal. Each tenant has
indemnified us for any claims asserted as a result of the presence of hazardous
substances at any property and from a violation or alleged violation of any
applicable environmental law or regulation.
Indemnification and Insurance. Each tenant has agreed to indemnify us
from all claims arising from our ownership or their use of our properties. Each
tenant is required to maintain insurance on our properties covering:
o comprehensive general liability for damage to property or bodily
injury arising out of the ownership, use, occupancy or maintenance of
the properties;
o commercial property "all risk" liability for damage to improvements,
merchandise, trade fixtures, furnishings, equipment and personal
property;
o workers' compensation liability;
o business interruption loss;
o in some cases, medical malpractice; and
o other losses customarily insured by businesses similar to the business
conducted at our properties.
The leases require that we be named as an additional insured under these
policies.
Damage, Destruction or Condemnation. In the event any of our properties
is damaged by fire, or other casualty or is taken for a public use, we receive
all insurance or taking proceeds and our tenants are required to pay any
difference between the amount of proceeds and the historical investment by us or
HRPT in the affected property. In the event of material destruction or
condemnation, some tenants have a right to purchase the affected property for
amounts at least equal to our or HRPT's historical investment in the property.
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Events of Default Events of default include:
o the failure of the tenant to pay rent when due;
o the failure of the tenant to perform key terms, covenants or
conditions of its lease and the continuance thereof for a specified
period after written notice;
o the occurrence of events of insolvency with respect to the tenant;
o the failure of the tenant to maintain required insurance coverages; or
o the revocation of any material license necessary for the tenant's
operation of our property.
Remedies. Upon the occurrence of any event of default, we may (subject
to applicable law):
o terminate the affected lease and accelerate the rent;
o terminate the tenant's rights to the affected property, relet the
property and recover from the tenant the difference between the amount
of rent which would have been due under the applicable lease and the
rent received under the reletting; and
o make any payment or perform any act required to be performed by the
tenant under its lease.
The defaulting tenant is obligated to reimburse us for all payments made and all
costs and expenses incurred in connection with any exercise of the foregoing
remedies.
Ground Lease Terms. The land underlying two of our properties is
leased. Our leases require our tenants to pay and perform all obligations
arising under these ground leases. These ground leases terminate on 2086 and
2079. The annual rents payable under the ground leases in 1999 totaled $138,100.
If our tenants fail to pay the applicable ground rent, we may have to do so in
order to protect our investment in these properties.
The following discussion sets forth our policies regarding investments,
dispositions, financings and other activities. The board of trustees has set
these policies and although there is no current intention to do so, the board of
trustees may amend or revise these policies at any time without a vote of
shareholders.
Investment Policies
Acquisitions. Our investment goals are to acquire additional senior
apartments, congregate communities, assisted living properties and nursing
homes, primarily for income and secondarily for their appreciation potential. In
making future acquisitions, we will consider a range of factors including:
o the acquisition price of the proposed property;
o the estimated replacement cost of the proposed property;
o proposed lease terms;
o the financial strength and operating reputation of the proposed
tenant;
o historical and projected cash flows of the property to be acquired;
o the location and competitive market environment of the proposed
property;
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o the physical condition of the proposed property and its potential for
redevelopment or expansion; and
o the price segment and payment sources in which the proposed property
is operated.
We intend to acquire properties which will enhance the diversity of our
portfolio in respect to tenants, types of services provided and locations. We
have no policies which specifically limit the percentage of our assets which may
be invested in any individual property, in any one type of property, in
properties leased to any one tenant or in properties leased to an affiliated
group of tenants.
Other Investment in Real Estate. We emphasize direct wholly owned
investments in fee interests. However, circumstances may arise in which we may
invest in leaseholds, joint ventures, mortgages and other real estate interests.
We may invest in real estate joint ventures if we conclude that by doing so we
may benefit from the participation of co-venturers or that our opportunity to
participate in the investment is contingent on the use of a joint venture
structure. We may invest in participating, convertible or other types of
mortgages if we conclude that by doing so we may benefit from the cash flow or
appreciation in the value of a property which is not available for purchase.
Disposition Policies
From time to time we may consider the sale of one or more properties.
Future disposition decisions, if any, will be made based on a number of factors
including the following:
o the proposed sale price;
o the strategic fit of the property with the rest of our portfolio;
o potential opportunities to increase revenues by reinvesting sale
proceeds;
o the potential for, or the existence of, any environmental or
regulatory problems affecting a particular property;
o our alternative capital needs; and
o the maintenance of our qualification as a REIT under the Internal
Revenue Code.
We contemplate certain dispositions in connection with our negotiations
with two tenants which are in bankruptcy proceedings. See "Business
Developments--Tenant Financial Condition."
Financing Policies
We have a $350 million bank credit facility. The facility requires
payment of interest only at LIBOR plus a premium prior to maturity on September
15, 2002. Outstanding borrowings under the facility were $200 million at
December 31, 1999. This bank credit facility is secured by first mortgages upon,
and a collateral assignment of leases from, 18 properties. This bank credit
facility has several covenants typically found in revolving loan facilities
including covenants to maintain a minimum net worth and minimum collateral value
and which prohibit us from incurring debt in excess of 60% of its total capital.
We use this bank credit facility to fund acquisitions and for working
capital. Periodically, we expect to repay amounts drawn under the bank credit
facility with proceeds of equity and long term debt offerings. Our
organizational documents do not limit the amount of indebtedness we may incur.
At present we expect to maintain a capital structure in which our debt will not
exceed 60% of our total capital. We will consider future equity offerings when,
in our judgment, doing so will improve our capital structure without materially
adversely
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affecting the market value of its shares. Unless we achieve an investment grade
rating at some future date, we expect that the least costly debt capital
available to us will be secured debt and that most of our debt will be secured.
In the future, we may modify our current financing policies in light of then
current economic conditions, relative costs of debt and equity capital,
acquisition opportunities and other factors; and our intended ratio of debt to
total capital may change.
Policies with Respect to Other Activities
We operate in a manner that will not subject us to regulation under the
Investment Company Act of 1940. Except for the possible acquisition of other
REITs which are engaged in similar businesses, we do not currently intend to
invest in the securities of other companies for the purpose of exercising
control, to underwrite securities of other companies or to trade actively in
loans or other investments.
We may make investments other than as previously described, although we
do not currently intend to do so. We have authority to repurchase or otherwise
reacquire our shares or other securities we issue and may do so in the future.
In the future, we may issue shares or other securities in exchange for property.
Also, although we have no current intention to do so, we may make loans to third
parties, including to our trustees and officers and to joint ventures in which
we participate.
Business Developments
Spin-Off
In September 1999, our registration statement on Form S-11 was declared
effective by the Securities and Exchange Commission. As a result, on October 12,
1999, a majority ownership of our shares were distributed to HRPT shareholders
through a special distribution (the "Spin-Off"). Subsequently, both companies
trade separately on the New York Stock Exchange.
Tenant Financial Condition
Three of our tenants, The Frontier Group, Inc. ("Frontier"), Mariner
and IHS, have filed for protection under bankruptcy laws. Frontier filed in July
1999, Mariner filed in January 2000 and IHS filed in February 2000. Bankruptcy
laws may allow our tenants relief or discharge them from their financial
obligations to us. For 1999, rental income and mortgage interest related to
Frontier, Mariner and IHS was $2.2 million, $15.4 million and $26.6 million,
respectively. At December 31, 1999, our historical investments, before
impairment loss recognition and net of accumulated depreciation in properties
operated by these three tenants, were $10.0 million, $68.3 million and $136.9
million, respectively. We also had mortgage investments, before loss reserves,
related to properties operated by IHS of $36.6 million at December 31, 1999.
We have concluded that impairment indicators are present with respect
to properties operated by these tenants and have prepared undiscounted cash flow
projections for each of the properties. For purposes of these projections, we
have assumed that rents on some properties may be modified and that some of the
leases may be terminated after which we will operate the properties for a period
of time and, ultimately, sell them. In addition, a third party not in bankruptcy
is responsible for the lease obligations of some of the properties operated by
IHS. We have assumed that the guarantor will honor these lease obligations. The
undiscounted cash flow projections reflect the expected rents to be earned over
the lease term and the expected cash flows earned from operating the properties
for a period of time plus the proceeds from assumed future sales of the
properties. Cash flows during the period in which we may operate the properties
are estimated based on the historical performance of each property, excluding
rent paid to us. Projected sale prices are based on an estimated per bed value
consistent with industry practice and reflect prices that we have observed in
recent transactions. Based on these undiscounted cash flow projections, we have
concluded that some of our real estate and mortgage investments were impaired as
of December 31, 1999. Based on our estimated fair values net of selling costs,
we have written down the carrying value of these real estate investments,
including investments leased to an affiliate,
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Advisors Healthcare Group, Inc., and operated by IHS, as of December 31, 1999,
by recording an impairment loss write-down in the accompanying consolidated
statement of income of $15.5 million. In addition, we have recorded a loan loss
reserve of $14.5 million related to the mortgage investment we considered
impaired. At December 31, 1999 after impairment losses, loan loss reserves and
net of accumulated depreciation, the net book value of the properties operated
by Frontier, IHS and Mariner were $10.0 million, $147.5 million and $65.2
million, respectively. It is reasonably possible that estimates of future cash
flows could be reduced significantly depending on the outcome of the bankruptcy
proceedings or if the non-bankrupt third party should fail to honor its
obligations. As a result, additional losses could be recognized in future
periods and these amounts could be material.
In February 2000, we sold all of the properties that were leased to
Frontier for $13.0 million. We are continuing pursuing claims against Frontier
and other parties for breach of its leases and for rental arrearages. The amount
of net gain, if any, which may be realized from the sale of the Frontier
properties will depend upon the outcome of these claims. The amount of gain or
loss to be realized as a result of this transaction is not expected to be
material. Because these properties have been sold, we will no longer receive
rental income from these properties.
In March 2000, we reached an agreement in principle with Mariner as
follows:
o Mariner's lease obligations for all 26 properties which we own and
lease to Mariner will be terminated.
o Approximately $24.0 million of cash and securities which we hold to
secure Mariner's obligations will be retained by us.
o We will assume operating responsibilities for 17 of these 26
properties. Title to five of these properties will be transferred to
Mariner which will continue the operations. The remaining four nursing
homes are now subleased to two private companies and we expect to
negotiate with these two subtenants for their continued operations of
those properties.
Our agreement with Mariner is contingent upon approval by Mariner's
creditors committee and the Delaware Bankruptcy Court before which Mariner's
bankruptcy is pending and required regulatory approvals from various states
where affected nursing homes are located. If this agreement is approved we
expect that we may realize gains and that our future earnings and cash flows may
be less than the rent previously earned from the Mariner leases, at least on a
short term basis. This agreement is contingent upon third party approvals beyond
our control. If and when this agreement is implemented it may result in
additional material gains or losses.
We are currently in negotiations with IHS. The current negotiations
include, but are not limited to, the possibilities that we will sell some of the
properties, that lease or mortgage terms may be changed, that new tenants may
begin operations of properties, that properties may be operated by us for our
own account or that mortgage obligations due to us may be released for other
compensation. We may recognize additional gains or losses when these
negotiations are completed and the additional gains or losses may be material.
Investments
There were no new investments made during 1999.
The Investment Manager
REIT Management & Research, Inc. ("REIT Management") is a Delaware
corporation owned by Gerard M. Martin and Barry M. Portnoy. REIT Management's
principal executive offices are located at 400 Centre Street, Newton,
Massachusetts 02458, and its telephone number is (617) 332-3990. Simultaneous
with
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the Spin-Off, we entered into a new investment advisory agreement with REIT
Management, pursuant to which REIT Management provides investment, management
and administrative services to us. The agreement has been renewed through
December 31, 2000. REIT Management also acts as the investment manager to HRPT
and has other business interests. The Directors of REIT Management are Gerard M.
Martin, Barry M. Portnoy and David J. Hegarty. The officers of REIT Management
are David J. Hegarty, President and Secretary, John G. Murray, Executive Vice
President, John Popeo, Treasurer, and Ajay Saini, John A. Mannix, David M.
Lepore, Thomas M. O'Brien and Jennifer B. Clark, Vice Presidents. Gerard M.
Martin and Barry M. Portnoy are our managing trustees, and David J. Hegarty and
Ajay Saini are our officers.
Employees
As of March 27, 2000, we had no employees. REIT Management, which
administers our day-to-day operations, had about 200 full-time employees.
Regulation and Reimbursement
The tenants and borrowers who operate our properties, including
long-term care facilities, congregate communities, assisted living centers and
senior apartments, must comply with federal, state and local statutes and
regulations in order to operate the properties. The health care industry depends
significantly upon federal and federal/state programs for revenues and, as a
result, is vulnerable to the budgetary policies of both the federal and state
governments.
Government Regulations and Rate Setting
Senior Apartments. Generally, government programs do not pay for
housing in senior apartments. Rents are paid from the residents' private
resources. Accordingly, the government regulations that apply to these types of
properties are generally limited to zoning, building and fire codes, Americans
with Disabilities Act requirements and other life safety type regulations
applicable to residential real estate. Government rent subsidies and government
assisted development financing for low income senior housing are exceptions to
these general statements. The development and operation of subsidized senior
housing properties are subject to numerous governmental regulations. While it is
possible that we may purchase and lease some subsidized senior apartment
properties, we do not expect these investments to be a major part of our future
business, and today we own no properties where rent subsidies are applicable.
Congregate Communities. We understand that generally government
benefits are not available to congregate communities and the resident charges in
these properties are paid from private resources. However, a number of Federal
Supplemental Security Income program benefits pay housing costs for elderly or
disabled residents to live in these types of residential facilities. The Social
Security Act requires states to certify that they will establish and enforce
standards for any category of group living arrangement in which a significant
number of supplemental security income residents reside or are likely to reside.
Categories of living arrangements which may be subject to these state standards
include congregate facilities and assisted living properties. Because congregate
communities usually offer common dining facilities, in many locations they are
required to obtain licenses applicable to food service establishments in
addition to complying with land use and life safety requirements. In many
states, congregate communities are licensed by state health departments, social
service agencies, or offices on aging with jurisdiction over group residential
facilities for seniors. To the extent that congregate communities maintain units
in which assisted living or nursing services are provided, these units are
subject to applicable state regulations. In some states, insurance or consumer
protection agencies regulate congregate communities in which residents pay
entrance fees or prepay other costs.
Assisted Living. According to the National Academy for State Health
Policy, 39 states provide Medicaid payments for residents in some assisted
living properties under waivers granted by the Health Care Finance
Administration of the U.S. Department of Health and Human Services or under
Medicaid state plans and three other states are planning to do so. Because rates
paid to assisted living property operators are lower
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than rates paid to nursing home operators some states use this waiver program as
a means of lowering the cost of services for residents who may not need the
higher intensity of medical care provided in nursing homes. States that
administer Medicaid programs for assisted living facilities are responsible for
monitoring the services at and physical conditions of the participating
properties. Different states apply different standards in these matters, but
generally we believe these monitoring processes are similar to the concerned
states' inspection processes for nursing homes.
Because of the large number of states using Medicaid to purchase
services at assisted living properties, it is not surprising that a majority of
states have adopted licensing standards applicable to assisted living
facilities. The National Academy for State Health Policy reported in November of
1999 that 29 states had implemented licensing standards specifically for
assisted living, rules were being drafted in another three states and another 11
states were currently studying the regulation of assisted living facilities.
State regulatory models vary; there is no national consensus on a definition of
assisted living, and no uniform approach by the states to regulating assisted
living facilities. Some state licensing standards apply to assisted living
facilities whether or not they accept Medicaid funding. Moreover, a 1998 study
by the National Academy for State Health Policy found that several states
require certificates of need from state health planning authorities before new
assisted living properties may be developed, and three states have adopted
moratoria on the development of new assisted living facilities. Based on our
analysis of current economic and regulatory trends, we believe that assisted
living properties that become dependent upon Medicaid payments for a majority of
their revenues will decline in value because Medicaid rates will fail to keep up
with increasing costs. For the same reason, we also believe that assisted living
properties located in states that adopt certificate of need requirements or
otherwise restrict the development of new assisted living properties will
increase in value because these limitations upon development will help ensure
higher occupancy and higher non-governmental rates. Accordingly, we intend to
focus new investments in assisted living properties that are not overly
dependent upon governmental revenues and that are in areas where there are
barriers to competition created by certificate of need laws or otherwise.
Two federal government studies were recently completed to provide
background information and make recommendations regarding the regulation of, and
the possibility of increased governmental funding for, the assisted living
industry. In April 1999, the General Accounting Office issued a report to the
Senate Special Committee on Aging and the Committee held hearings on consumer
protection and quality of care issues in assisted living facilities. The GAO
studied assisted living facilities in four states and found a variety of
residential settings serving a wide range of resident health and care needs. The
GAO found that providers often give consumers insufficient information to
determine whether a particular facility can meet their needs and that state
licensing and oversight approaches vary widely. The GAO anticipates that as the
states increase the use of Medicaid to pay for assisted living, federal
financing will likewise grow, and these trends will focus more public attention
on the place of assisted living in the continuum of long-term care and upon
state standards and compliance approaches. The second study, a national survey
of assisted living facilities, was funded by the Department of Health and Human
Services' Assistant Secretary for Planning and Evaluation and is expected to
result in additional reports which will touch upon all aspects of the assisted
living industry including quality of care and financing. The 1998 National
Academy for State Health Policy study referenced above and an April 1999 report
on the national survey of assisted living facilities are part of this second
study. We cannot predict whether these studies will result in governmental
policy changes or new legislation, or what impact any changes may have. Based
upon our analysis of current economic and regulatory trends, we do not believe
that the federal government is likely to have a material impact upon the current
regulatory environment in which the assisted living industry operates unless it
also undertakes expanded funding obligations; and we do not believe a materially
increased financial commitment from the federal government is presently likely.
However, we do anticipate that assisted living facilities will increasingly be
licensed and regulated by the various states, and that with the absence of
federal standards, the states' policies will continue to vary widely.
Nursing Homes. About 67% of all nursing home revenues in 1997 came from
government Medicare and Medicaid programs. Nursing homes are also among the most
highly regulated businesses in the country. The federal and state governments
regularly monitor the quality of care provided at nursing homes and regularly
inspect the physical condition of nursing home properties. These periodic
inspections and occasional changes in
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life safety and physical plant requirements sometimes require nursing home
owners to spend money for capital improvements. These mandated capital
improvements have in the past usually resulted in Medicare and Medicaid rate
adjustments, albeit on the basis of amortization of expenditures over extended
useful lives of the improvements. However, under the new Medicare prospective
payment system, which began being phased in over three years starting in 1998,
capital costs are part of the prospective rate and will not be facility
specific. Other recent legislative and regulatory actions with respect to state
Medicaid rates and the Medicare prospective payment system are limiting the
reimbursement levels for some nursing home and other eldercare services. At the
same time federal enforcement and oversight of nursing homes is increasing,
thereby making licensing and certification of these facilities more rigorous.
These actions have adversely affected the revenues and increased the expenses of
many nursing home operators, including several of our tenants.
The federal Health Care Financing Administration, HCFA, has begun to
implement an initiative to increase the effectiveness of Medicare/Medicaid
nursing facility survey and enforcement activities. HCFA's initiative follows
its July 1998 report to Congress on the effectiveness of the survey and
enforcement system, several March 1999 reports by HCFA's Office of Inspector
General concerning quality of care in nursing homes, a July 1998 General
Accounting Office investigation which found inadequate care in a significant
proportion of California nursing homes, and a March 1999 GAO report which
recommended that HCFA and the states strengthen their compliance and enforcement
practices to better ensure that nursing homes provide adequate care. In 1998 and
1999, the Senate Special Committee on Aging held hearings on these issues. HCFA
is taking steps to focus survey and enforcement efforts at nursing homes with
repeat violations of Medicare/Medicaid standards, including chain-operated
facilities with patterns of noncompliance. HCFA also is requiring state agencies
to use enforcement sanctions and remedies more promptly and effectively when
substandard care is identified. HCFA is increasing its oversight of state survey
agencies. In addition HCFA has adopted new regulations expanding federal and
state authority to impose civil money penalties in instances of noncompliance.
Medicare/Medicaid survey results for each nursing home are being posted on the
internet. Federal efforts to target fraud and abuse by Medicare and Medicaid
providers have also increased. An adverse determination concerning any tenant's
license or eligibility for Medicare or Medicaid reimbursement or its compliance
with applicable federal or state regulation may adversely affect such operator
and its affiliates and may restrict its ability to pay rent and mortgage
interest.
Most states also limit the number of nursing homes by requiring
developers to obtain certificates of need before new facilities may be built.
Even in those states such as California and Texas that have eliminated
certificate of need laws, the state health authorities usually have retained
other means of limiting new nursing home development. Examples of these other
means are the use of moratoria, licensing laws or limitations upon participation
in the state Medicaid program. We believe that these governmental limitations
generally make nursing home properties more valuable by extending their useful
lives and limiting competition.
A number of legislative proposals that would affect major reforms of
the health care system have been introduced in Congress, such as additional
Medicare and Medicaid reforms and cost containment measures. We cannot predict
whether any of these legislative proposals will be adopted or, if adopted, what
effect, if any, these proposals would have on our business, lessees or
mortgagors.
Competition.
We compete with other real estate investment trusts which regularly
seek attractive investment opportunities in senior housing facilities. We also
compete with banks, non-bank finance companies, leasing companies and insurance
companies which invest in this type of real estate. Some of these competitors
have resources that are greater than ours and have lower costs of capital.
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FEDERAL INCOME TAX CONSIDERATIONS
The following summary of federal income tax and ERISA consequences is
based on existing law, and is limited to investors who own our shares as
investment assets rather than as inventory or as property used in a trade or
business. The summary does not discuss the particular tax consequences that
might be relevant to you if you are subject to special rules under the federal
income tax law, for example if you are:
o a bank, life insurance company, regulated investment company, or other
financial institution,
o a broker or dealer in securities or foreign currency,
o a person who has a functional currency other than the U.S. dollar,
o a person who acquires our shares in connection with employment or
other performance of services,
o a person subject to alternative minimum tax,
o a person who owns our shares as part of a straddle, hedging
transaction, constructive sale transaction, or conversion transaction,
or
o except as specifically described in the following summary, a
tax-exempt entity or a foreign person.
The sections of the Internal Revenue Code that govern the federal income tax
qualification and treatment of a REIT and its shareholders are complex. This
presentation is a summary of applicable Internal Revenue Code provisions,
related rules and regulations and administrative and judicial interpretations,
all of which are subject to change, possibly with retroactive effect. Future
legislative, judicial, or administrative actions or decisions could affect the
accuracy of statements made in this summary. We have not sought a ruling from
the IRS with respect to any matter described in this summary, and we cannot
assure you that the IRS or a court will agree with the statements made in this
summary. In addition, the following summary is not exhaustive of all possible
tax consequences, and does not discuss any estate, gift, state, local, or
foreign tax consequences. For all these reasons, we urge you and any prospective
acquiror of our shares to consult with a tax advisor about the federal income
tax and other tax consequences of the acquisition, ownership and disposition of
our shares.
Federal income tax consequences may differ depending on whether or not
you are a "U.S. shareholder." For purposes of this summary, a U.S. shareholder
for federal income tax purposes is:
o a citizen or resident of the United States, including an alien
individual who is a lawful permanent resident of the United States or
meets the substantial presence residency test under the federal income
tax laws,
o a corporation, partnership or other entity treated as a corporation or
partnership for federal income tax purposes, that is created or
organized in or under the laws of the United States, any state thereof
or the District of Columbia, unless otherwise provided by Treasury
regulations,
o an estate the income of which is subject to federal income taxation
regardless of its source, or
o a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or
more United States persons have the authority to control all
substantial decisions of the trust, or electing trusts in existence on
August 20, 1996 to the extent provided in Treasury regulations,
whose status as a U.S. shareholder is not overridden by an applicable tax
treaty. Conversely, a "non-U.S. shareholder" is a beneficial owner of our shares
who is not a U.S. shareholder.
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Taxation as a REIT
We will elect to be taxed as a REIT under Sections 856 through 860 of
the Internal Revenue Code commencing with our 1999 taxable year. Our 1999
taxable year began when we ceased to be wholly-owned by HRPT in October 1999 and
ended on December 31, 1999. Our REIT election, assuming continuing compliance
with the federal income tax qualification tests summarized below, continues in
effect for subsequent taxable years. Although no assurance can be given, we
believe that we are organized, have operated, and will continue to operate in a
manner that qualifies us to be taxed under the Internal Revenue Code as a REIT.
As a REIT, we generally will not be subject to federal income tax on
our net income distributed as dividends to our shareholders. Distributions to
our shareholders generally will be includable in their income as dividends to
the extent of our current or accumulated earnings and profits. A portion of
these dividends may be treated as capital gain dividends, as explained below. No
portion of any dividends will be eligible for the dividends received deduction
for corporate shareholders. Distributions in excess of current or accumulated
earnings and profits generally will be treated for federal income tax purposes
as a return of capital to the extent of a recipient shareholder's basis in our
shares, and will reduce this basis. Our current or accumulated earnings and
profits will generally be allocated first to distributions on our outstanding
preferred shares, if any, and thereafter to distributions on our common shares.
Our counsel, Sullivan & Worcester LLP, has opined that we have been
organized and have qualified as a REIT under the Internal Revenue Code for our
1999 taxable year, and that our current investments and plan of operation will
enable us to meet the requirements for qualification and taxation as a REIT
under the Internal Revenue Code. Our actual qualification and taxation as a REIT
will depend upon our ability to meet the various REIT qualification tests
imposed under the Internal Revenue Code and summarized below. While we believe
that we will operate in a manner to satisfy the various REIT qualification
tests, our counsel has not reviewed and will not review compliance with these
tests on a continuing basis. If we fail to qualify as a REIT in any year, we
will be subject to federal income taxation as if we were a domestic corporation,
and our shareholders will be taxed like shareholders of ordinary corporations.
In this event, we could be subject to significant tax liabilities, and the
amount of cash available for distribution to our shareholders may be reduced or
eliminated.
If we qualify for taxation as a REIT and meet the annual distribution
tests described below, we generally will not be subject to federal corporate
income taxes on the amount distributed. However, even if we qualify for federal
income taxation as a REIT, we may be subject to federal tax in the following
circumstances:
o We will be taxed at regular corporate rates on any undistributed "real
estate investment trust taxable income," including our undistributed
net capital gains.
o If our alternative minimum taxable income exceeds our taxable income,
we may be subject to the corporate alternative minimum tax on our
items of tax preference.
o If we have net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in
the ordinary course of business or other nonqualifying income from
foreclosure property, we will be subject to tax on this net income
from foreclosure property at the highest regular corporate rate, which
is currently 35%. REITs may elect to operate foreclosure property
which is, in general, property acquired or reduced to possession after
a default or imminent default on a loan secured by the property or on
a lease of the property. We anticipate operating several facilities as
foreclosure property in the manner prescribed by applicable Internal
Revenue Code provisions.
o If we have net income from prohibited transactions, including sales or
other dispositions of inventory or property held primarily for sale to
customers in the ordinary course of business other than foreclosure
property, we will be subject to tax on this income at a 100% rate.
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o If we fail to satisfy the 75% gross income test or the 95% gross
income test discussed below, but nonetheless maintain our
qualification as a REIT, we will be subject to tax at a 100% rate on
the greater of the amount by which we fail the 75% or the 95% test,
multiplied by a fraction intended to reflect our profitability.
o If we fail to distribute for any calendar year at least the sum of 85%
of our REIT ordinary income for that year, 95% of our REIT capital
gain net income for that year, and any undistributed taxable income
from prior periods, we will be subject to a 4% excise tax on the
excess of the required distribution over the amounts actually
distributed.
o If we acquire an asset from a corporation in a transaction in which
our basis in the asset is determined by reference to the basis of the
asset in the hands of a present or former C corporation, and if we
subsequently recognize gain on the disposition of this asset during
the ten-year period beginning on the date on which the asset ceased to
be owned by the C corporation, then we will pay tax at the highest
regular corporate tax rate, which is currently 35%, on the lesser of
the excess of the fair market value of the asset over the C
corporation's basis in the asset on the date the asset ceased to be
owned by the C corporation, or the gain recognized in the disposition.
If we invest in properties in foreign countries, our profits from those
investments will generally be subject to tax in the countries where those
properties are located. The nature and amount of this taxation will depend on
the laws of the countries where the properties are located. If we operate as we
currently intend, then we will distribute our taxable income to our shareholders
and we will not pay federal income tax, and thus we generally cannot recover the
cost of foreign taxes imposed on our foreign investments by claiming foreign tax
credits against our federal income tax liability. Also, we cannot pass through
to our shareholders any foreign tax credits.
If we fail to qualify for federal income taxation as a REIT in any
taxable year, then we will be subject to federal tax in the same manner as an
ordinary corporation. Distributions to our shareholders in any year in which we
fail to qualify as a REIT will not be deductible, nor will these distributions
be required to be made. In that event, to the extent of our current and
accumulated earnings and profits, all distributions to our shareholders will be
taxable as ordinary dividend income and, subject to limitations in the Internal
Revenue Code, will be eligible for the dividends received deduction for
corporate recipients. Also in that event, we will generally be disqualified from
federal income taxation as a REIT for the four taxable years following
disqualification. Failure to qualify for federal income taxation as a REIT for
even one year could result in our incurring substantial indebtedness or
liquidating substantial investments in order to pay the resulting
corporate-level taxes.
REIT Qualification Requirements
General Requirements. Section 856(a) of the Internal Revenue Code
defines a REIT as a corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable
shares or by transferable certificates of beneficial interest;
(3) that would be taxable, but for Sections 856 through 859 of the
Internal Revenue Code, as an ordinary domestic corporation;
(4) that is not a financial institution or an insurance company subject
to special provisions of the Internal Revenue Code;
(5) the beneficial ownership of which is held by 100 or more persons;
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(6) that is not "closely held" as defined under the personal holding
company stock ownership test, as described below; and
(7) that meets other tests regarding income, assets and distributions,
all as described below.
Section 856(b) of the Internal Revenue Code provides that conditions (1) to (4),
inclusive, must be met during the entire taxable year and that condition (5)
must be met during at least 335 days of a taxable year of 12 months, or during a
pro rata part of a taxable year of less than 12 months. Section 856(h)(2) of the
Internal Revenue Code provides that conditions (5) and (6) need not be met for
our first taxable year as a REIT. We believe that we have satisfied conditions
(1) to (6), inclusive, during each of the requisite periods ending on or before
December 31, 1999, and that we will continue to satisfy those conditions in
future taxable years. There can, however, be no assurance in this regard.
By reason of condition (6) above, we will fail to qualify as a REIT for
a taxable year if at any time during the last half of the year more than 50% in
value of our outstanding shares is owned directly or indirectly by five or fewer
individuals. To help comply with condition (6), our declaration of trust
contains provisions restricting transfers of our shares. In addition, if we
comply with applicable Treasury regulations for ascertaining the ownership of
our outstanding shares and do not know, or by exercising reasonable diligence
would not have known, that we failed condition (6), then we will be treated as
satisfying condition (6). Also, our failure to comply with these applicable
Treasury regulations for ascertaining ownership of our outstanding shares may
result in a penalty of $25,000, or $50,000 for intentional violations.
Accordingly, we intend to comply with these Treasury regulations, and to request
annually from record holders of significant percentages of our shares
information regarding the ownership of our shares. Under our declaration of
trust, our shareholders are required to respond to these requests for
information.
For purposes of condition (6) above, shares in a REIT held by a pension
trust are treated as held directly by the pension trust's beneficiaries in
proportion to their actuarial interests in the pension trust. Consequently, five
or fewer pension trusts could own more than 50% of the interests in an entity
without jeopardizing that entity's federal income tax qualification as a REIT.
However, as discussed below, if a REIT is a "pension-held REIT," each pension
trust owning more than 10% of the REIT's shares by value generally will be taxed
on a portion of the dividends received from the REIT, based on the ratio of:
(1) the REIT's gross income for the year that would be unrelated trade
or business income if the REIT were a qualified pension trust, to
(2) the REIT's total gross income for the year.
Our Wholly-Owned Subsidiaries and Our Investments through Partnerships.
Section 856(i) of the Internal Revenue Code provides that any corporation 100%
of whose stock is held by a REIT is a qualified REIT subsidiary and shall not be
treated as a separate corporation. The assets, liabilities and items of income,
deduction and credit of a qualified REIT subsidiary are treated as the REIT's.
We believe that each of our direct and indirect wholly-owned subsidiaries will
either be a qualified REIT subsidiary within the meaning of Section 856(i) of
the Internal Revenue Code, or a noncorporate entity that for federal income tax
purposes is not treated as separate from its owner under regulations issued
under Section 7701 of the Internal Revenue Code. Thus, in applying all the
federal income tax REIT qualification requirements described in this summary,
all assets, liabilities and items of income, deduction and credit of our direct
and indirect wholly-owned subsidiaries are treated as ours.
We may invest in real estate through one or more limited or general
partnerships or limited liability companies that are treated as partnerships for
federal income tax purposes. In the case of a REIT that is a partner in a
partnership, regulations under the Internal Revenue Code provide that, for
purposes of the REIT qualification requirements regarding income and assets
discussed below, the REIT is deemed to own its proportionate share of the assets
of the partnership corresponding to the REIT's proportionate capital interest in
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the partnership and is deemed to be entitled to the income of the partnership
attributable to this proportionate share. In addition, for these purposes, the
character of the assets and gross income of the partnership generally retain the
same character in the hands of the REIT. Accordingly, our proportionate share of
the assets, liabilities, and items of income of each partnership in which we are
a partner is treated as ours for purposes of the income tests and asset tests
discussed below. In contrast, for purposes of the distribution requirement
discussed below, we must take into account as a partner our distributive share
of the partnership's income as determined under the general federal income tax
rules governing partners and partnerships under Sections 701 through 777 of the
Internal Revenue Code.
Income Tests. There are two gross income requirements for qualification
as a REIT under the Internal Revenue Code:
o At least 75% of our gross income, excluding gross income from sales or
other dispositions of property held primarily for sale, must be
derived from investments relating to real property, including "rents
from real property" as defined under Section 856 of the Internal
Revenue Code, mortgages on real property, or shares in other REITs.
When we receive new capital in exchange for our shares or in a public
offering of five-year or longer debt instruments, income attributable
to the temporary investment of this new capital in stock or a debt
instrument, if received or accrued within one year of our receipt of
the new capital, is generally also qualifying income under the 75%
test.
o At least 95% of our gross income, excluding gross income from sales or
other dispositions of property held primarily for sale, must be
derived from a combination of items of real property income that
satisfy the 75% test described above, dividends, interest, payments
under interest rate swap or cap agreements, options, futures
contracts, forward rate agreements, or similar financial instruments,
and gains from the sale or disposition of stock, securities, or real
property.
For purposes of these two requirements, income derived from a "shared
appreciation provision" in a mortgage loan is generally treated as gain
recognized on the sale of the property to which it relates. Although we will use
our best efforts to ensure that the income generated by our investments will be
of a type which satisfies both the 75% and 95% gross income tests, there can be
no assurance in this regard.
In order to qualify as "rents from real property" under Section 856 of
the Internal Revenue Code, several requirements must be met:
o The amount of rent received generally must not be based on the income
or profits of any person, but may be based on receipts or sales.
o Rents do not qualify if the REIT owns 10% or more by vote or value of
the tenant, whether directly or after application of attribution
rules. While we intend not to lease property to any party if rents
from that property would not qualify as rents from real property,
application of the 10% ownership rule is dependent upon complex
attribution rules and circumstances that may be beyond our control.
For example, an unaffiliated third party's ownership directly or by
attribution of 10% or more by value of our shares, or 10% or more by
value of HRPT Properties Trust's shares for so long as HRPT Properties
Trust owns 10% or more by value of us, as well as 10% or more by vote
or value of the stock of one of our lessees, would result in that
lessee's rents not qualifying as rents from real property. Our
declaration of trust disallows transfers or purported acquisitions,
directly or by attribution, of our shares that could result in
disqualification as a REIT under the Internal Revenue Code and permits
our trustees to repurchase the shares to the extent necessary to
maintain our status as a REIT under the Internal Revenue Code.
Nevertheless, there can be no assurance that these provisions in our
declaration of trust will be effective to prevent REIT status under
the Internal Revenue Code from being jeopardized under the 10% lessee
affiliate rule. Furthermore, there can be no assurance that we will be
able to monitor and enforce these restrictions, nor will our
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shareholders necessarily be aware of ownership of shares attributed to
them under the Internal Revenue Code's attribution rules.
o In order for rents to qualify, we generally must not manage the
property or furnish or render services to the tenants of the property,
except through an independent contractor from whom we derive no
income. There is an exception to this rule permitting a REIT to
perform customary tenant services of the sort which a tax-exempt
organization could perform without being considered in receipt of
"unrelated business taxable income" as defined in Section 512(b)(3) of
the Internal Revenue Code. In addition, a de minimis amount of
noncustomary services will not disqualify income as "rents from real
property" so long as the value of the impermissible services does not
exceed 1% of the gross income from the property.
o If rent attributable to personal property leased in connection with a
lease of real property is 15% or less of the total rent received under
the lease, then the rent attributable to personal property will
qualify as rents from real property; if this 15% threshold is
exceeded, the rent attributable to personal property will not so
qualify. The portion of rental income treated as attributable to
personal property is determined according to the ratio of the tax
basis of the personal property to the total tax basis of the real and
personal property which is rented. For taxable years after 2000, the
ratio will be determined by reference to fair market values rather
than tax bases.
We believe that all or substantially all our rents have qualified and will
qualify as rents from real property for purposes of Section 856 of the Internal
Revenue Code.
In order to qualify as mortgage interest on real property for purposes
of the 75% test, interest must derive from a mortgage loan secured by real
property with a fair market value, at the time the loan is made, at least equal
to the amount of the loan. If the amount of the loan exceeds the fair market
value of the real property, the interest will be treated as interest on a
mortgage loan in a ratio equal to the ratio of the fair market value of the real
property to the total amount of the mortgage loan.
Other than sales of foreclosure property, any gain we realize on the
sale of property held as inventory or other property held primarily for sale to
customers in the ordinary course of business will be treated as income from a
prohibited transaction that is subject to a penalty tax at a 100% rate. This
prohibited transaction income also may have an adverse effect upon our ability
to satisfy the 75% and 95% gross income tests for federal income tax
qualification as a REIT. We cannot provide assurances as to whether or not the
IRS might successfully assert that one or more of our dispositions is subject to
the 100% penalty tax. However, we believe that dispositions of assets that we
might make will not be subject to the 100% penalty tax, because we intend to:
o own our assets for investment with a view to long-term income
production and capital appreciation;
o engage in the business of developing, owning and operating our
existing properties and acquiring, developing, owning and operating
new properties; and
o make occasional dispositions of our assets consistent with our
long-term investment objectives.
If we fail to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, we may nevertheless qualify as a REIT for that year if:
o our failure to meet the test was due to reasonable cause and not due
to willful neglect;
o we report the nature and amount of each item of our income included in
the 75% or 95% gross income tests for that taxable year on a schedule
attached to our tax return; and
o any incorrect information on the schedule was not due to fraud with
intent to evade tax.
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It is impossible to state whether in all circumstances we would be entitled to
the benefit of this relief provision for the 75% and 95% gross income tests.
Even if this relief provision did apply, a special tax equal to 100% is imposed
upon the greater of the amount by which we failed the 75% test or the 95% test,
multiplied by a fraction intended to reflect our profitability.
Asset Tests. At the close of each quarter of each taxable year, we must
also satisfy three percentage tests relating to the nature of our assets:
o At least 75% of our total assets must consist of real estate assets,
cash and cash items, shares in other REITs, government securities, and
stock or debt instruments purchased with proceeds of a stock offering
or an offering of our debt with a term of at least five years, but
only for the one-year period commencing with our receipt of the
offering proceeds.
o Not more than 25% of our total assets may be represented by securities
other than those securities that count favorably toward the preceding
75% asset test.
o Of the investments included in the preceding 25% asset class, the
value of any one issuer's securities that we own may not exceed 5% of
the value of our total assets, and we may not own more than 10% of any
one non-REIT issuer's outstanding voting securities. For taxable years
after 2000, we may not own more than 10% of the vote or value of any
one non-REIT issuer's outstanding securities, unless that issuer is
our taxable REIT subsidiary or the securities are straight debt
securities.
When a failure to satisfy the above asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. We intend to maintain records of the value of our assets to
document our compliance with the above three asset tests, and to take actions as
may be required to cure any failure to satisfy the tests within 30 days after
the close of any quarter.
Annual Distribution Requirements. In order to qualify for taxation as a
REIT under the Internal Revenue Code, we are required to make annual
distributions other than capital gain dividends to our shareholders in an amount
at least equal to the excess of:
(A) the sum of 95% of our "real estate investment trust taxable
income," as defined in Section 857 of the Internal Revenue Code, computed by
excluding any net capital gain and before taking into account any dividends paid
deduction for which we are eligible, and 95% of our net income after tax, if
any, from property received in foreclosure, over
(B) the sum of our qualifying noncash income, e.g., imputed rental
income or income from transactions inadvertently failing to qualify as like-kind
exchanges.
For our taxable years after 2000, the preceding 95% percentages are reduced to
90%. The distributions must be paid in the taxable year to which they relate, or
in the following taxable year if declared before we timely file our tax return
for the earlier taxable year and if paid on or before the first regular
distribution payment after that declaration. Dividends declared in October,
November, or December and paid during the following January will be treated as
having been both paid and received on December 31 of the prior taxable year. A
distribution which is not pro rata within a class of our beneficial interests
entitled to a distribution, or which is not consistent with the rights to
distributions among our classes of beneficial interests, is a preferential
distribution that is not taken into consideration for purposes of the
distribution requirements, and accordingly the payment of a preferential
distribution could affect our ability to meet the distribution requirements.
Taking into account our distribution policies, including the dividend
reinvestment plan we have adopted, we expect that we will not make any
preferential distributions. The distribution requirements may be waived by the
IRS if a REIT establishes that it failed to meet them by reason of distributions
previously made to meet the requirements of the
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4% excise tax discussed below. To the extent that we do not distribute all of
our net capital gain and all of our real estate investment trust taxable income,
as adjusted, we will be subject to tax on undistributed amounts.
In addition, we will be subject to a 4% excise tax to the extent we
fail within a calendar year to make required distributions to our shareholders
of 85% of our ordinary income and 95% of our capital gain net income plus the
excess, if any, of the "grossed up required distribution" for the preceding
calendar year over the amount treated as distributed for that preceding calendar
year. For this purpose, the term "grossed up required distribution" for any
calendar year is the sum of our taxable income for the calendar year without
regard to the deduction for dividends paid and all amounts from earlier years
that are not treated as having been distributed under the provision.
If we do not have enough cash or other liquid assets to meet the 95%
distribution requirements, we may find it necessary to arrange for new debt or
equity financing to provide funds for required distributions, or else our REIT
status for federal income tax purposes could be jeopardized. We can provide no
assurance that financing would be available for these purposes on favorable
terms.
If we fail to distribute sufficient dividends for any year, we may be
able to rectify this failure by paying "deficiency dividends" to shareholders in
a later year. These deficiency dividends may be included in our deduction for
dividends paid for the earlier year, but an interest charge would be imposed
upon us for the delay in distribution. Although we may be able to avoid being
taxed on amounts distributed as deficiency dividends, we will remain liable for
the 4% excise tax discussed above.
Recent Federal Taxation Changes. The Tax Relief Extension Act of 1999
was enacted late in 1999 and is effective for taxable years after 2000. This
legislation contained several tax provisions regarding REITs, including a
reduction of the annual distribution requirement for real estate investment
trust taxable income from 95% to 90%, as mentioned above. The Act also changed
the 10% voting securities test under current law to a 10% vote or value test.
Thus, subject to exceptions, a REIT will no longer be allowed to own more that
10% by vote or value of the outstanding securities of any issuer, other than a
qualified REIT subsidiary or another REIT. Another exception to this new test,
which is also an exception to the 5% asset test under current law, allows a REIT
to own any or all of the securities of an electing "taxable REIT subsidiary,"
provided that no more than 20% of the REIT's assets is represented by the stock
or securities of taxable REIT subsidiaries. A taxable REIT subsidiary can
perform noncustomary services for tenants of a REIT without disqualifying rents
received from the tenants for purposes of the REIT's gross income tests and can
also undertake third-party management and development activities and activities
that are not related to real estate. A taxable REIT subsidiary cannot directly
or indirectly operate or manage a health care facility. A taxable REIT
subsidiary will be taxed as a subchapter C corporation but will be subject to
earnings stripping limitations on the deductibility of interest paid to the
REIT. In addition, a REIT will be subject to a 100% excise tax on certain excess
amounts to ensure that:
o tenants who pay a taxable REIT subsidiary for services are charged an
arm's length amount by the taxable REIT subsidiary for these services;
o shared expenses of a REIT and its taxable REIT subsidiary are
allocated fairly between the two; and
o interest paid by a taxable REIT subsidiary to the REIT that owns it is
commercially reasonable.
In connection with foreclosure actions, we anticipate operating health
care properties through taxable subsidiaries in which we own less than 10% of
the vote but most of the value, all in accordance with current laws. For taxable
years after 2000, we will restructure our affairs as appropriate to comply with
the requirements of applicable law.
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Depreciation and Federal Income Tax Treatment of Leases
Our initial tax bases in our assets will generally be our acquisition
cost. We will generally depreciate our real property on a straight-line basis
over 40 years and our personal property over 12 years. These depreciation
schedules may vary for properties that we acquire through tax-free or carryover
basis acquisitions.
The initial tax bases and depreciation schedules for our assets we held
immediately after we ceased to be wholly-owned by HRPT Properties Trust depends
upon whether the deemed exchange that resulted from the spin-off was an exchange
under Section 351(a) of the Internal Revenue Code. We believe that Section
351(a) treatment was appropriate, and we carried over HRPT Properties Trust's
tax basis and depreciation schedule in each of the assets, and to the extent
that HRPT Properties Trust recognized gain on an asset in the deemed exchange,
we have additional tax basis in that asset which we depreciate in the same
manner as we depreciate newly purchased assets. In contrast, if Section 351(a)
treatment was not appropriate for the deemed exchange, then we will be treated
as though we acquired all our assets at the time of the spin-off in a fully
taxable acquisition, thereby acquiring aggregate tax bases in these assets equal
to the aggregate amount realized by HRPT Properties Trust in the deemed
exchange, and we will depreciate these tax bases in the same manner as we
depreciate newly purchased assets. We believe, and Sullivan & Worcester LLP has
opined, that it is likely that the deemed exchange was an exchange under Section
351(a), and we will perform all our tax reporting accordingly. We may be
required to amend these tax reports, including those sent to our shareholders,
if the IRS successfully challenges our position that the deemed exchange is an
exchange under Section 351(a). We intend to comply with the annual REIT
distribution requirements regardless of whether the deemed exchange was an
exchange under Section 351(a).
We will be entitled to depreciation deductions from our facilities only
if we are treated for federal income tax purposes as the owner of the
facilities. This means that the leases of the facilities must be classified for
federal income tax purposes as true leases, rather than as sales or financing
arrangements, and we believe this to be the case. In the case of sale-leaseback
arrangements, the IRS could assert that we realized prepaid rental income in the
year of purchase to the extent that the value of a leased property, at the time
of purchase, exceeded the purchase price for that property. While we believe
that the value of leased property at the time of purchase did not exceed
purchase prices, because of the lack of clear precedent we cannot provide
assurances as to whether the IRS might successfully assert the existence of
prepaid rental income in any of our sale-leaseback transactions.
Additionally, Section 467 of the Internal Revenue Code, which concerns
leases with increasing rents, may apply to those of our leases which provide for
rents that increase from one period to the next. Section 467 of the Internal
Revenue Code provides that in the case of a so-called "disqualified leaseback
agreement" rental income must be accrued at a constant rate. Where constant rent
accrual is required, we could recognize rental income from a lease in excess of
cash rents and, as a result, encounter difficulty in meeting the annual
distribution requirement. Disqualified leaseback agreements include leaseback
transactions where a principal purpose for providing increasing rent under the
agreement is the avoidance of federal income tax. Recently issued Treasury
regulations provide that rents will not be treated as increasing for tax
avoidance purposes where the increases are based upon a fixed percentage of
lessee receipts. Therefore, the additional rent provisions in our leases that
are based on a fixed percentage of lessee receipts generally should not cause
the leases to be disqualified leaseback agreements under Section 467.
Taxation of U.S. Shareholders
As long as we qualify as a REIT for federal income tax purposes, a
distribution to our U.S. shareholders that we do not designate as a capital gain
dividend will be treated as an ordinary income dividend to the extent that it is
made out of current or accumulated earnings and profits. Distributions made out
of our current or accumulated earnings and profits that we properly designate as
capital gain dividends will be taxed as long-term capital gains, as discussed
below, to the extent they do not exceed our actual net capital gain for the
taxable
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year. However, corporate shareholders may be required to treat up to 20% of any
capital gain dividend as ordinary income under Section 291 of the Internal
Revenue Code.
In addition, we may elect to retain net capital gain income and treat
it as constructively distributed. In that case:
(1) we will be taxed at regular corporate capital gains tax rates on
retained amounts,
(2) each U.S. shareholder will be taxed on its designated proportionate
share of our retained net capital gains as though that amount were distributed
and designated a capital gain dividend,
(3) each U.S. shareholder will receive a credit for its designated
proportionate share of the tax that we pay,
(4) each U.S. shareholder will increase its adjusted basis in our
shares by the excess of the amount of its proportionate share of these retained
net capital gains over its proportionate share of this tax that we pay, and
(5) both we and our corporate shareholders will make commensurate
adjustments in our respective earnings and profits for federal income tax
purposes.
If we elect to retain our net capital gains in this fashion, we will notify our
U.S. shareholders of the relevant tax information within 60 days after the close
of the affected taxable year.
For noncorporate U.S. shareholders, long-term capital gains are
generally taxed at maximum rates of 20% or 25%, depending upon the type of
property disposed of and the previously claimed depreciation with respect to
this property. If for any taxable year we designate as capital gain dividends
any portion of the dividends paid or made available for the year to our U.S.
shareholders, including our retained capital gains treated as capital gain
dividends, then the portion of the capital gain dividends so designated that
will be allocated to the holders of a particular class of shares will on a
percentage basis equal the ratio of the amount of the total dividends paid or
made available for the year to the holders of that class of shares to the total
dividends paid or made available for the year to holders of all classes of our
shares. We will similarly designate the portion of any capital gain dividend
that is to be taxed to noncorporate U.S. shareholders at the maximum rates of
20% or 25% so that the designations will be proportional among all classes of
our shares.
Distributions in excess of current or accumulated earnings and profits
will not be taxable to a U.S. shareholder to the extent that they do not exceed
the shareholder's adjusted basis in the shareholder's shares, but will reduce
the shareholder's basis in those shares. To the extent that these excess
distributions exceed the adjusted basis of a U.S. shareholder's shares, they
will be included in income as capital gain, with long-term gain generally taxed
to noncorporate U.S. shareholders at a maximum rate of 20%. No U.S. shareholder
may include on his federal income tax return any of our net operating losses or
any of our capital losses.
Dividends that we declare in October, November or December of a taxable
year to U.S. shareholders of record on a date in those months will be deemed to
have been received by shareholders on December 31 of that taxable year, provided
we actually pay these dividends during the following January. Also, items that
are treated differently for regular and alternative minimum tax purposes are to
be allocated between a REIT and its shareholders under Treasury regulations
which are to be prescribed. It is possible that these Treasury regulations will
require tax preference items to be allocated to our shareholders with respect to
any accelerated depreciation or other tax preference items that we claim.
A U.S. shareholder's sale or exchange of our shares will result in
recognition of gain or loss in an amount equal to the difference between the
amount realized and the shareholder's adjusted basis in the shares sold or
exchanged. This gain or loss will be capital gain or loss, and will be long-term
capital gain or loss if the
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shareholder's holding period in the shares exceeds one year. In addition, any
loss upon a sale or exchange of our shares held for six months or less will
generally be treated as a long-term capital loss to the extent of our long-term
capital gain dividends during the holding period.
Noncorporate U.S. shareholders who borrow funds to finance their
acquisition of our shares could be limited in the amount of deductions allowed
for the interest paid on the indebtedness incurred. Under Section 163(d) of the
Internal Revenue Code, interest paid or accrued on indebtedness incurred or
continued to purchase or carry property held for investment is generally
deductible only to the extent of the investor's net investment income. A U.S.
shareholder's net investment income will include ordinary income dividend
distributions received from us and, if an appropriate election is made by the
shareholder, capital gain dividend distributions received from us; however,
distributions treated as a nontaxable return of the shareholder's basis will not
enter into the computation of net investment income.
Taxation of Tax-Exempt Shareholders
In Revenue Ruling 66-106, the IRS ruled that amounts distributed by a
REIT to a tax-exempt employees' pension trust did not constitute "unrelated
business taxable income," even though the REIT may have financed some its
activities with acquisition indebtedness. Although revenue rulings are
interpretive in nature and subject to revocation or modification by the IRS,
based upon the analysis and conclusion of Revenue Ruling 66-106, our
distributions made to shareholders that are tax-exempt pension plans, individual
retirement accounts, or other qualifying tax-exempt entities should not
constitute unrelated business taxable income, unless the shareholder has
financed its acquisition of our shares with "acquisition indebtedness" within
the meaning of the Internal Revenue Code.
Special rules apply to tax-exempt pension trusts, including so-called
401(k) plans but excluding individual retirement accounts or government pension
plans, that own more than 10% by value of a "pension-held REIT" at any time
during a taxable year. The pension trust may be required to treat a percentage
of all dividends received from the pension-held REIT during the year as
unrelated business taxable income. This percentage is equal to the ratio of:
(1) the pension-held REIT's gross income derived from the conduct of
unrelated trades or businesses, determined as if the pension-held REIT were a
tax-exempt pension fund, less direct expenses related to that income, to
(2) the pension-held REIT's gross income from all sources, less direct
expenses related to that income,
except that this percentage shall be deemed to be zero unless it would otherwise
equal or exceed 5%. A REIT is a pension-held REIT if:
o the REIT is "predominantly held" by tax-exempt pension trusts, and
o the REIT would otherwise fail to satisfy the "closely held" ownership
requirement discussed above if the stock or beneficial interests in
the REIT held by tax-exempt pension trusts were viewed as held by
tax-exempt pension trusts rather than by their respective
beneficiaries.
A REIT is predominantly held by tax-exempt pension trusts if at least one
tax-exempt pension trust owns more than 25% by value of the REIT's stock or
beneficial interests, or if one or more tax-exempt pension trusts, each owning
more than 10% by value of the REIT's stock or beneficial interests, own in the
aggregate more than 50% by value of the REIT's stock or beneficial interests.
Because of the restrictions in our declaration of trust regarding the ownership
concentration of our shares, we believe that we are not and will not be a
pension-held REIT. However, because our shares are publicly traded, we cannot
completely control whether or not we are or will become a pension-held REIT.
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Taxation of Non-U.S. Shareholders
The rules governing the United States federal income taxation of
non-U.S. shareholders are complex, and the following discussion is intended only
as a summary of these rules. If you are a non-U.S. shareholder, we urge you to
consult with your own tax advisor to determine the impact of United States
federal, state, local, and foreign tax laws, including any tax return filing and
other reporting requirements, with respect to your investment in our shares.
In general, a non-U.S. shareholder will be subject to regular United
States federal income tax in the same manner as a U.S. shareholder with respect
to its investment in our shares if that investment is effectively connected with
the non-U.S. shareholder's conduct of a trade or business in the United States.
In addition, a corporate non-U.S. shareholder that receives income that is or is
deemed effectively connected with a trade or business in the United States may
also be subject to the 30% branch profits tax under Section 884 of the Internal
Revenue Code, which is payable in addition to regular United States federal
corporate income tax. The balance of this discussion on the United States
federal income taxation of non-U.S. shareholders addresses only those non-U.S.
shareholders whose investment in our shares is not effectively connected with
the conduct of a trade or business in the United States.
A distribution by us to a non-U.S. shareholder that is not attributable
to gain from the sale or exchange of a United States real property interest and
that is not designated as a capital gain dividend will be treated as an ordinary
income dividend to the extent that it is made out of current or accumulated
earnings and profits. A distribution of this type will generally be subject to
United States federal income tax and withholding at the rate of 30%, or the
lower rate that may be specified by a tax treaty if the non-U.S. shareholder has
in the manner prescribed by the IRS demonstrated its entitlement to benefits
under a tax treaty. Because we cannot determine our current and accumulated
earnings and profits until the end of the taxable year, withholding at the rate
of 30% or applicable lower treaty rate will be imposed on the gross amount of
any distribution to a non-U.S. shareholder that we make and do not designate a
capital gain dividend. Notwithstanding this withholding on distributions in
excess of our current and accumulated earnings and profits, these distributions
are a nontaxable return of capital to the extent that they do not exceed the
non-U.S. shareholder's adjusted basis in our shares, and the nontaxable return
of capital will reduce the adjusted basis in these shares. To the extent that
distributions in excess of current and accumulated earnings and profits exceed
the non-U.S. shareholder's adjusted basis in our shares, the distributions will
give rise to tax liability if the non-U.S. shareholder would otherwise be
subject to tax on any gain from the sale or exchange of these shares, as
discussed below. A non-U.S. shareholder may seek a refund from the IRS of
amounts withheld on distributions to him in excess of our current and
accumulated earnings and profits.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from the sale or exchange of a United States real property
interest are taxed to a non-U.S. shareholder as if these distributions were
gains effectively connected with a trade or business in the United States
conducted by the non-U.S. shareholder. Accordingly, a non-U.S. shareholder will
be taxed on these amounts at the normal capital gain rates applicable to a U.S.
shareholder, subject to any applicable alternative minimum tax and to a special
alternative minimum tax in the case of nonresident alien individuals; the
non-U.S. shareholder will be required to file a United States federal income tax
return reporting these amounts, even if applicable withholding is imposed as
described below; and corporate non-U.S. shareholders may owe the 30% branch
profits tax under Section 884 of the Internal Revenue Code in respect of these
amounts. We will be required to withhold from distributions to non-U.S.
shareholders, and remit to the IRS, 35% of the maximum amount of any
distribution that could be designated as a capital gain dividend. In addition,
for purposes of this withholding rule, if we designate prior distributions as
capital gain dividends, then subsequent distributions up to the amount of the
designated prior distributions will be treated as capital gain dividends. The
amount of any tax withheld is creditable against the non-U.S. shareholder's
United States federal income tax liability, and any amount of tax withheld in
excess of that tax liability may be refunded provided that an appropriate claim
for refund is filed with the IRS. If for any taxable year we designate as
capital gain dividends any portion of the dividends paid or made available for
the year to our shareholders, including our retained capital gains treated as
capital gain
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dividends, then the portion of the capital gain dividends so designated that
will be allocated to the holders of a particular class of shares will on a
percentage basis equal the ratio of the amount of the total dividends paid or
made available for the year to the holders of that class of shares to the total
dividends paid or made available for the year to holders of all classes of our
shares.
Tax treaties may reduce the withholding obligations on our
distributions. Under some treaties, however, rates below 30% generally
applicable to ordinary income dividends from United States corporations may not
apply to ordinary income dividends from a REIT. If the amount of tax withheld by
us with respect to a distribution to a non-U.S. shareholder exceeds the
shareholder's United States federal income tax liability with respect to the
distribution, the non-U.S. shareholder may file for a refund of the excess from
the IRS. In this regard, note that the 35% withholding tax rate on capital gain
dividends corresponds to the maximum income tax rate applicable to corporate
non-U.S. shareholders but is higher than the 20% and 25% maximum rates on
capital gains generally applicable to noncorporate non-U.S. shareholders.
Generally effective with respect to distributions paid after December 31, 2000,
new Treasury regulations alter the information reporting and backup withholding
rules applicable to non-U.S. shareholders and provide presumptions under which a
non-U.S. shareholder is subject to backup withholding and information reporting
until we or the applicable withholding agent receives certification from the
shareholder of its non-U.S. shareholder status. In some instances, these
certification requirements are more burdensome than those applicable under
current Treasury regulations. These new Treasury regulations also provide
special rules to determine whether, for purposes of determining the
applicability of a tax treaty, our distributions to a non-U.S. shareholder that
is an entity should be treated as paid to the entity or to those owning an
interest in that entity, and whether the entity or its owners are entitled to
benefits under the tax treaty. These new Treasury regulations encourage non-U.S.
shareholders and withholding agents to use the new IRS Forms W-8 series, rather
than the predecessor IRS Forms W-8, 1001, and 4224, and require use of the IRS
Forms W-8 series for payments made after December 31, 2000.
If our shares are not "United States real property interests" within
the meaning of Section 897 of the Internal Revenue Code, a non-U.S.
shareholder's gain on sale of these shares generally will not be subject to
United States federal income taxation, except that a nonresident alien
individual who was present in the United States for 183 days or more during the
taxable year will be subject to a 30% tax on this gain. Our shares will not
constitute a United States real property interest if we are a "domestically
controlled REIT." A domestically controlled REIT is a REIT in which at all times
during the preceding five-year period less than 50% in value of its shares is
held directly or indirectly by foreign persons. We believe that we are and will
be a domestically controlled REIT and thus a non-U.S. shareholder's gain on sale
of our shares will not be subject to United States federal income taxation.
However, because our shares are publicly traded, we can provide no assurance
that we will be a domestically controlled REIT. If we are not a domestically
controlled REIT, a non-U.S. shareholder's gain on sale of our shares will not be
subject to United States federal income taxation as a sale of a United States
real property interest, if that class of shares is "regularly traded," as
defined by applicable Treasury regulations, on an established securities market
like the New York Stock Exchange, and the non-U.S. shareholder has at all times
during the preceding five years owned 5% or less by value of that class of
shares. If the gain on the sale of our shares were subject to United States
federal income taxation, the non-U.S. shareholder will generally be subject to
the same treatment as a U.S. shareholder with respect to its gain, will be
required to file a United States federal income tax return reporting that gain,
and in the case of corporate non-U.S. shareholders might owe branch profits tax
under Section 884 of the Internal Revenue Code. A purchaser of our shares from a
non-U.S. shareholder will not be required to withhold on the purchase price if
the purchased shares are regularly traded on an established securities market or
if we are a domestically controlled REIT. Otherwise, a purchaser of our shares
from a non-U.S. shareholder may be required to withhold 10% of the purchase
price paid to the non-U.S. shareholder and to remit the withheld amount to the
IRS.
Backup Withholding and Information Reporting
Information reporting and backup withholding may apply to distributions
or proceeds paid to our shareholders under the circumstances discussed below.
Amounts withheld under backup withholding are
25
<PAGE>
generally not an additional tax and may be refunded or credited against the REIT
shareholder's federal income tax liability.
A U.S. shareholder will be subject to backup withholding at a 31% rate
when it receives distributions on our shares or proceeds upon the sale,
exchange, redemption, retirement or other disposition of our shares, unless the
U.S. shareholder properly executes under penalties of perjury an IRS Form W-9 or
substantially similar form that:
o provides the U.S. shareholder's correct taxpayer identification
number; and
o certifies that the U.S. shareholder is exempt from backup withholding
because it is a corporation or comes within another exempt category,
it has not been notified by the IRS that it is subject to backup
withholding, or it has been notified by the IRS that it is no longer
subject to backup withholding.
If the U.S. shareholder does not provide its correct taxpayer identification
number on the IRS Form W-9 or substantially similar form, it may be subject to
penalties imposed by the IRS and the REIT or other applicable withholding agent
may also have to withhold a portion of any capital gain distributions paid to
it. Unless the U.S. shareholder has established on a properly executed IRS Form
W-9 or substantially similar form that it is a corporation or comes within
another exempt category, distributions on our shares paid to it during the
calendar year, and the amount of tax withheld if any, will be reported to it and
to the IRS.
Distributions on our shares to a non-U.S. shareholder during each
calendar year and the amount of tax withheld, if any, will generally be reported
to the non-U.S. shareholder and to the IRS. This information reporting
requirement applies regardless of whether the non-U.S. shareholder is subject to
withholding on distributions on our shares or whether the withholding was
reduced or eliminated by an applicable tax treaty. Also, distributions paid to a
non-U.S. shareholder on our shares may be subject to backup withholding at a 31%
rate, unless the non-U.S. shareholder properly certifies its non-U.S.
shareholder status on an IRS Form W-8 or substantially similar form in the
manner described above. Similarly, information reporting and 31% backup
withholding will not apply to proceeds a non-U.S. shareholder receives upon the
sale, exchange, redemption, retirement or other disposition of our shares, if
the non-U.S. shareholder properly certifies its non-U.S. shareholder status on
an IRS Form W-8 or substantially similar form. Even without having executed an
IRS Form W-8 or substantially similar form, however, in some cases information
reporting and 31% backup withholding will not apply to proceeds that a non-U.S.
shareholder receives upon the sale, exchange, redemption, retirement or other
disposition of our shares if the non-U.S. shareholder receives those proceeds
through a broker's foreign office. As described above, new Treasury regulations
alter the information reporting and backup withholding rules applicable to
non-U.S. shareholders for payments made after December 31, 2000, and in general
these new Treasury Regulations replace IRS Forms W-8, 1001, and 4224 with the
new IRS Forms W-8 series. For a non-U.S. shareholder whose income and gain on
our shares is effectively connected to the conduct of a United States trade or
business, a slightly different rule may apply to proceeds received upon the
sale, exchange, redemption, retirement or other disposition of our shares. Until
the non-U.S. shareholder complies with the new Treasury regulations, information
reporting and 31% backup withholding may apply in the same manner as to a U.S.
shareholder, and thus the non-U.S. shareholder may have to execute an IRS Form
W-9 or substantially similar form to prevent the backup withholding.
Other Tax Consequences
You should recognize that our and our shareholders' federal income tax
treatment may be modified by legislative, judicial, or administrative actions at
any time, which actions may be retroactive in effect. The rules dealing with
federal income taxation are constantly under review by the Congress, the IRS and
the Treasury Department, and statutory changes as well as promulgation of new
regulations, revisions to existing regulations, and revised interpretations of
established concepts occur frequently. No prediction can be made as to the
likelihood of passage of new tax legislation or other provisions either directly
or indirectly affecting us and our
26
<PAGE>
shareholders. Revisions in federal income tax laws and interpretations of these
laws could adversely affect the tax consequences of an investment in our shares.
We and our shareholders may also be subject to state or local taxation in
various state or local jurisdictions, including those in which we or our
shareholders transact business or reside. State and local tax consequences may
not be comparable to the federal income tax consequences discussed above.
27
<PAGE>
ERISA PLANS, KEOGH PLANS AND INDIVIDUAL RETIREMENT ACCOUNTS
General Fiduciary Obligations
Fiduciaries of a pension, profit-sharing or other employee benefit plan
subject to Title I of the Employee Retirement Income Security Act of 1974,
ERISA, must consider whether:
o their investment in our shares satisfies the diversification
requirements of ERISA;
o the investment is prudent in light of possible limitations on the
marketability of our shares;
o they have authority to acquire our shares under the applicable
governing instrument and Title I of ERISA; and
o the investment is otherwise consistent with their fiduciary
responsibilities.
Trustees and other fiduciaries of an ERISA plan may incur personal
liability for any loss suffered by the plan on account of a violation of their
fiduciary responsibilities. In addition, these fiduciaries may be subject to a
civil penalty of up to 20% of any amount recovered by the plan on account of a
violation. Fiduciaries of any IRA, Roth IRA, Keogh Plan or other qualified
retirement plan not subject to Title I of ERISA, referred to as "non-ERISA
plans," should consider that a plan may only make investments that are
authorized by the appropriate governing instrument. Fiduciary shareholders
should consult their own legal advisors if they have any concern as to whether
the investment is consistent with the foregoing criteria.
Prohibited Transactions
Fiduciaries of ERISA plans and persons making the investment decision
for an IRA or other non-ERISA plan should consider the application of the
prohibited transaction provisions of ERISA and the Internal Revenue Code in
making their investment decision. Sales and other transactions between an ERISA
plan or a non-ERISA plan, and persons related to it are prohibited transactions.
The particular facts concerning the sponsorship, operations and other
investments of an ERISA plan or non-ERISA plan may cause a wide range of other
persons to be treated as disqualified persons or parties in interest with
respect to it. A prohibited transaction, in addition to imposing potential
personal liability upon fiduciaries of ERISA plans, may also result in the
imposition of an excise tax under the Internal Revenue Code or a penalty under
ERISA upon the disqualified person or party in interest with respect to the
plan. If the disqualified person who engages in the transaction is the
individual on behalf of whom an IRA or Roth IRA is maintained or his
beneficiary, the IRA or Roth IRA may lose its tax-exempt status and its assets
may be deemed to have been distributed to the individual in a taxable
distribution on account of the prohibited transaction, but no excise tax will be
imposed. Fiduciary shareholders should consult their own legal advisors as to
whether the ownership of our shares involves a prohibited transaction.
Special Fiduciary and Prohibited Transactions Consequences
The Department of Labor, which has administrative responsibility over
ERISA plans as well as non-ERISA plans, has issued a regulation defining "plan
assets." The regulation generally provides that when an ERISA or non-ERISA plan
acquires a security that is an equity interest in an entity and that security is
neither a "publicly offered security" nor a security issued by an investment
company registered under the Investment Company Act of 1940, the ERISA plan's or
non-ERISA plan's assets include both the equity interest and an undivided
interest in each of the underlying assets of the entity, unless it is
established either that the entity is an operating company or that equity
participation in the entity by benefit plan investors is not significant.
Each class of our shares that is, our common shares and any class of
preferred shares that we may issue must be analyzed separately to ascertain
whether it is a publicly offered security. The regulation defines a
28
<PAGE>
publicly offered security as a security that is "widely held," "freely
transferable" and either part of a class of securities registered under the
Securities Exchange Act of 1934, or sold under an effective registration
statement under the Securities Act of 1933, provided the securities are
registered under the Securities Exchange Act of 1934 within 120 days after the
end of the fiscal year of the issuer during which the offering occurred. All our
outstanding shares have been registered under the Securities Exchange Act of
1934.
The regulation provides that a security is "widely held" only if it is
part of a class of securities that is owned by 100 or more investors independent
of the issuer and of one another. However, a security will not fail to be
"widely held" because the number of independent investors falls below 100
subsequent to the initial public offering as a result of events beyond the
issuer's control. Our common shares have been widely held and we expect our
common shares to continue to be widely held. We expect the same to be true of
any class of preferred stock that we may issue, but we can give no assurance in
that regard.
The regulation provides that whether a security is "freely
transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. The regulation further provides that, where a
security is part of an offering in which the minimum investment is $10,000 or
less, some restrictions on transfer ordinarily will not, alone or in
combination, affect a finding that these securities are freely transferable. The
restrictions on transfer enumerated in the regulation as not affecting that
finding include:
o any restriction on or prohibition against any transfer or assignment
which would result in a termination or reclassification for federal or
state tax purposes, or would otherwise violate any state or federal
law or court order;
o any requirement that advance notice of a transfer or assignment be
given to the issuer and any requirement that either the transferor or
transferee, or both, execute documentation setting forth
representations as to compliance with any restrictions on transfer
which are among those enumerated in the regulation as not affecting
free transferability, including those described in the preceding
clause of this sentence;
o any administrative procedure which establishes an effective date, or
an event prior to which a transfer or assignment will not be
effective; and
o any limitation or restriction on transfer or assignment which is not
imposed by the issuer or a person acting on behalf of the issuer.
We believe that the restrictions imposed under our declaration of trust
on the transfer of shares do not result in the failure of our shares to be
"freely transferable." Furthermore, we believe that at present there exist no
other facts or circumstances limiting the transferability of our shares which
are not included among those enumerated as not affecting their free
transferability under the regulation, and we do not expect or intend to impose
in the future, or to permit any person to impose on our behalf, any limitations
or restrictions on transfer which would not be among the enumerated permissible
limitations or restrictions.
Assuming that each class of our shares will be "widely held" and that
no other facts and circumstances exist which restrict transferability of these
shares, we have received an opinion of our counsel Sullivan & Worcester LLP that
our shares will not fail to be "freely transferable" for purposes of the
regulation due to the restrictions on transfer of the shares under our
declaration of trust and that under the regulation the shares are publicly
offered securities and our assets will not be deemed to be "plan assets" of any
ERISA plan or non-ERISA plan that invests in our shares.
29
<PAGE>
Item 2. Properties
At December 31, 1999, we had real estate investments totaling $731.7
million, at cost, after an impairment loss write-down and loan loss reserve, in
93 properties that were leased to or operated by nine tenants or mortgagors. We
believe that the physical plant of the facilities in which we have invested is
suitable and adequate for our present and any proposed uses. At December 31,
1999, 18 properties with an aggregate cost of $427.4 million were mortgaged to
secure our bank credit facility.
The following table summarizes some information about our properties as
of December 31, 1999. All dollar figures are in thousands. Certain tenants'
obligations to pay the rents or interest stated below may be affected by
bankruptcy proceedings affecting those tenants. See "Item 1. Business--Business
Developments--Tenant Financial Condition."
<TABLE>
<CAPTION>
Built/
Location Property Type Renovated(1) Units/Beds(2) Investment (3)
- - --------------------------------------- ---------------------- ---------------- ---------------- --------------
(000s)
<S> <C> <C> <C> <C>
Marriott International, Inc.
Scottsdale, AZ Assisted Living 1990 148 $9,926
Sun City, AZ Assisted Living 1990 148 11,916
Laguna Hills, CA Congregate Care 1991 402 31,791
Boca Raton, FL Congregate Care 1999 347 44,836
Deerfield Beach, FL Congregate Care 1986 288 16,935
Fort Myers, FL Congregate Care 1987 463 23,905
Palm Harbor, FL Congregate Care 1992 319 33,863
Port St. Lucie, FL Assisted Living 1993 128 12,451
Arlington Heights, IL Congregate Care 1986 363 36,742
Silver Spring, MD Congregate Care 1992 351 33,080
Bellaire, TX Assisted Living 1991 145 12,410
Arlington, VA Congregate Care 1992 419 18,889
Charlottesville, VA Congregate Care 1991 315 29,829
Virginia Beach, VA Assisted Living 1990 114 8,948
---------------- --------------
3,950 325,521
Brookdale Living Communities, Inc.
Mesa, AZ Congregate Care 1985 185 14,800
Chicago, IL Congregate Care 1990 341 62,000
Brighton, NY Congregate Care 1988 103 10,700
Spokane, WA Congregate Care 1993 200 14,350
---------------- --------------
829 101,850
Mariner Post-Acute Network, Inc. (4)
Phoenix, AZ Nursing Home 1984 127 3,185
Yuma, AZ Nursing Home 1984 128 2,326
Yuma, AZ Congregate Care 1984 65 708
Fresno, CA Nursing Home 1985 180 3,503
Lancaster, CA Nursing Home 1994 99 3,488
Newport Beach, CA Nursing Home 1994 167 4,128
Stockton, CA Nursing Home 1991 122 3,136
Tarzana, CA Nursing Home 1969 192 3,060
Thousand Oaks, CA Nursing Home 1970 124 3,454
Van Nuys, CA Nursing Home 1984 58 1,319
Lakewood, CO Nursing Home 1985 175 4,721
Littleton, CO Nursing Home 1965 230 5,576
30
<PAGE>
<CAPTION>
Built/
Location Property Type Renovated(1) Units/Beds(2) Investment (3)
- - --------------------------------------- ---------------------- ---------------- ---------------- --------------
(000s)
<S> <C> <C> <C> <C>
Concord, NC Nursing Home 1990 110 $2,216
Wilson, NC Nursing Home 1990 119 2,402
Winston-Salem, NC Nursing Home 1990 80 1,771
Huron, SD Nursing Home 1977 163 3,256
Huron, SD Congregate Care 1968 59 1,014
Sioux Falls, SD Nursing Home 1979 139 3,319
Brookfield, WI Nursing Home 1995 226 6,891
Clintonville, WI Nursing Home 1965 78 1,761
Clintonville, WI Nursing Home 1969 109 1,747
Madison, WI Nursing Home 1987 73 1,887
Milwaukee, WI Nursing Home 1983 215 5,043
Milwaukee, WI Nursing Home 1997 102 1,601
Pewaukee, WI Nursing Home 1969 237 3,416
Waukesha, WI Nursing Home 1995 105 5,752
---------------- --------------
3,482 80,680
Integrated Health Services, Inc. (Lease No. 1) (4)
Canon City, CO (5) Nursing Home/ Senior
Apartments 1984 157 6,520
Colorado Springs, CO Nursing Home 1996 132 5,481
Delta, CO Nursing Home 1978 100 3,737
Grand Junction, CO Nursing Home 1986 120 4,408
Grand Junction, CO Nursing Home 1995 82 3,905
College Park, GA Nursing Home 1985 100 3,025
Dublin, GA Nursing Home 1968 130 4,504
Glenwood, GA Nursing Home 1972 62 1,742
Marietta, GA Nursing Home 1973 109 3,037
Clarinda, IA Nursing Home 1968 117 1,823
Council Bluffs, IA Nursing Home 1963 62 1,217
Mediapolis, IA Nursing Home 1973 62 2,121
Pacific Junction, IA Nursing Home 1978 12 343
Winterset, IA (5) Nursing Home/ Senior
Apartments 1995 118 2,703
Ellinwood, KS Nursing Home 1972 59 1,320
Tarkio, MO Nursing Home 1996 95 2,455
Ainsworth, NE (6) Nursing Home 1995 50 445
Ashland, NE (6) Nursing Home 1996 101 1,851
Blue Hill, NE (6) Nursing Home 1996 81 1,119
Edgar, NE (6) Nursing Home 1995 54 139
Grand Island, NE Nursing Home 1996 80 1,934
Gretna, NE (6) Nursing Home 1995 62 940
Lyons, NE (6) Nursing Home 1974 84 810
Milford, NE (6) Nursing Home 1970 66 904
Sutherland, NE (6) Nursing Home 1995 62 1,270
Waverly, NE (6) Nursing Home 1995 50 1,215
Laramie, WY Nursing Home 1986 144 4,022
Worland, WY (5) Nursing Home/ Senior
Apartments 1996 99 3,223
---------------- --------------
2,450 66,213
31
<PAGE>
<CAPTION>
Built/
Location Property Type Renovated(1) Units/Beds(2) Investment(3)
- - --------------------------------------- ---------------------- ---------------- ---------------- --------------
(000s)
<S> <C> <C> <C> <C>
Integrated Health Services, Inc. (Lease No. 2) (4)
Cheshire, CT (7) Nursing Home 1971 210 $9,459
Waterbury, CT (7) Nursing Home 1974 180 5,247
New Haven, CT (7) Nursing Home 1971 195 5,716
Slidell, LA (6) Nursing Home 1989 118 4,277
Middleboro, MA Nursing Home 1987 124 17,523
Worcester, MA Nursing Home 1990 173 18,769
Boston, MA Nursing Home 1985 201 24,978
Hyannis, MA Nursing Home 1982 142 8,292
Howell, MI (6) Nursing Home 1985 189 4,930
Farmington, MI (6) Nursing Home 1991 153 4,156
Canonsburg, PA Nursing Home 1990 140 15,598
---------------- --------------
Burlington, NJ Nursing Home 1994 150 13,007
---------------- --------------
150 13,007
Private Company Tenants
St. Joseph, MO Nursing Home 1976 120 1,333
Seattle, WA Nursing Home 1964 103 5,192
Waterford, CT (8) Nursing Home 1989 148 5,253
Killingly, CT (8) Nursing Home 1989 190 6,060
Willimantic, CT (8) Nursing Home 1989 124 4,179
Grove City, OH Nursing Home 1965 200 3,445
---------------- --------------
885 25,462
---------------- --------------
Total Portfolio 13,571 $731,678
================ ==============
<FN>
(1) The dates presented are the later of the date of original construction or the date of substantial renovation as evidenced by
capital expenditures in excess of 20% of HRPT's historical investment.
(2) Units/beds are a customary measure of property values used in the senior housing industry.
(3) Represents HRPT's carryforward historical costs before depreciation and, in some cases is net of impairment loss write-down and
loan loss reserve.
(4) Tenant or mortgagors subject to bankruptcy proceedings.
(5) Two properties are located at each of these locations.
(6) These properties are mortgage investments.
(7) These three properties are managed by IHS. Under this management agreement, IHS has guaranteed the rent for these properties.
(8) These properties were sold in February 2000.
</FN>
</TABLE>
32
<PAGE>
Item 3. Legal Proceedings
Although in the ordinary course of business we are or may become
involved in legal proceedings, we have a limited operating history and are not
aware of any material pending legal proceedings affecting any of our properties
for which we might become liable. However, as discussed above in "Item 1.
Business--Business Developments--Tenant Financial Condition," several of our
tenants have filed for bankruptcy, and we are pursuing claims and negotiations
in those bankruptcy proceedings. The amounts at stake in these tenant bankruptcy
proceedings are material.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of shareholders during the fourth
quarter of the year covered by this Annual Report on Form 10-K.
33
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters
Our Shares began trading on the New York Stock Exchange (symbol: SNH)
on October 12, 1999. The following table sets forth for the period indicated the
high and low closing sale prices for the Shares as reported in the New York
Stock Exchange Composite Transactions reports.
High Low
---- ---
Fourth Quarter 1999 (since October 12, 1999) $16 5/16 $11 1/16
The closing price of the Shares on the New York Stock Exchange on March
27, 2000 was $9 7/8.
As of March 27, 2000, there were approximately 5,229 holders of record
of the Shares, and we estimate that as of such date there were in excess of
100,000 beneficial owners of the Shares.
The following table sets forth the amount of distributions paid in 1999
and the respective annualized rates.
Distribution Annualized
Per Share Distribution Rate
--------- -----------------
November 22, 1999 $0.60 $2.40
All distributions have been paid and 100% of the 1999 distribution was
classified as ordinary income and there was no return of capital. As previously
discussed, two of our largest tenants, IHS and Mariner have experienced
significant operating losses in 1999. Earlier this year they both filed for
bankruptcy. These two tenants are responsible for approximately 48% of our
revenues. We have reached a tentative agreement with Mariner, which is
contingent upon third party approvals and we continue to negotiate with IHS
regarding our future business relationships. A smaller tenant, Frontier Group,
Inc., which represents 2% of our revenues filed for bankruptcy during 1999 and,
in February 2000 we sold these three properties for $13.0 million. See "Item 1.
Business--Business Developments--Tenant Financial Condition." The level of
distributions to be made by us will depend, in part, on the final outcome of the
negotiations with these tenants.
In order to qualify for the beneficial tax treatment accorded to REITs
by Sections 856 through 860 of the Internal Revenue Code, we are required to
make distributions to shareholders which annually will be at least 95% of our
taxable income. All distributions will be made by us at the discretion of the
Trustees and will depend on our earnings, our cash flow available for
distribution, our financial condition and other factors that the Trustees deem
relevant. We have in the past distributed, and intend to continue to distribute,
substantially all of our real estate investment trust taxable income to our
shareholders.
In October 1999, pursuant to our Incentive Share Award Plan, our two
independent trustees at the time of our Spin-Off from HRPT each received a grant
of 500 Shares valued at $16.50 per Share, the average price of the Shares on the
NYSE on October 12, 1999 and our third independent trustee, who was subsequently
elected to the fill the vacancy on our Board of Trustees, received a grant of
500 Shares valued at $12.75 per Share, the closing price of the Shares on the
NYSE on October 21, 1999. The grants were made pursuant to the exemption from
registration contained in Section 4(2) of the Securities Act of 1933, as
amended.
34
<PAGE>
Item 6. Selected Financial Data
Prior to October 12, 1999, we and our properties were owned by HRPT.
The following data is presented as if we were a separate entity from HRPT. Set
forth below is selected financial data for the periods and dates indicated. This
financial data has been derived from HRPT's historical financial statements for
periods prior to October 12, 1999. Per share data has been presented as if the
shares were outstanding for all periods prior to October 12, 1999. The following
table includes pro rata allocations of interest expense and general and
administrative expenses for periods prior to October 12, 1999. In the opinion of
our management, the methods used for allocating interest and general and
administrative expenses are reasonable. However, it is impossible to estimate
all operating costs that we would have incurred as a separate public company
from HRPT. Accordingly, the net income and funds from operations shown are not
necessarily indicative of results that we may realize as a separate company.
Additionally, year to year comparisions are impacted by property acquisitions
during historical periods. This data should be read in conjunction with, and is
qualified in its entirety by reference to, the consolidated financial statements
and accompanying notes included herein in Item 14 of this Annual Report on Form
10-K. Amounts are in thousands, except per share information.
<TABLE>
<CAPTION>
Income Statement Data: Year Ended December 31,
------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 90,790 $ 88,306 $ 84,171 $ 70,442 $ 66,604
Net income(1) 14,834 46,236 44,723 36,441 31,062
Funds from operations (2) 67,091 64,533 62,549 51,824 45,810
Distributions 15,601 -- -- -- --
Weighted average shares
outstanding 26,000 26,000 26,000 26,000 26,000
Per share:
Net income(1) $ 0.57 $ 1.78 $ 1.72 $ 1.40 $ 1.19
Funds from operations (2) 2.58 2.48 2.41 1.99 1.76
Distributions 0.60 -- -- -- --
<CAPTION>
Balance Sheet Data: At December 31,
------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate properties, at cost $708,739 $732,393 $720,987 $692,034 $586,940
Real estate mortgages, net 22,939 37,826 38,134 38,270 37,798
Total assets 654,000 686,296 692,586 679,201 587,701
Total indebtedness 200,000 -- -- -- --
Total shareholders' equity 409,406 642,069 646,938 664,492 573,793
<FN>
(1) Includes an impairment loss write-down and loan loss reserve totaling
$30.0 million ($1.15 per share) for 1999.
(2) Funds from operations or "FFO," as defined in the white paper on funds from operations
which was approved by the Board of Governors of NAREIT in March 1995, is net income
computed in accordance with GAAP, before gains or losses from sales of properties and
extraordinary items, plus depreciation and amortization and after adjustment for
unconsolidated partnerships and joint ventures. Senior Housing considers FFO to be an
appropriate measure of performance for an equity REIT, along with cash flow from
operating activities, financing activities and investing activities, because it
provides investors with an indication of an equity REIT's ability to incur and service
debt, make capital expenditures, pay distributions and fund other cash needs. Senior
Housing computes FFO in accordance with the standards established by NAREIT which may
not be comparable to FFO reported by other REITs that do not define the term in
35
<PAGE>
accordance with the current NAREIT definition or that interpret the current NAREIT
definition differently. FFO does not represent cash generated by operating activities
in accordance with GAAP and should not be considered as an alternative to net income,
determined in accordance with GAAP, as an indication of financial performance or the
cash flow from operating activities, determined in accordance with GAAP, as a measure
of liquidity.
</FN>
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following information is provided in connection with, and should be
read in conjunction with, the Consolidated Financial Statements included herein
as Item 14 of this Annual Report on Form 10-K.
RESULTS OF OPERATIONS
Year Ended December 31, 1999, Compared to 1998
For the year ended December 31, 1999, compared to the year ended
December 31, 1998, total revenues increased by $2.5 million, total expenses
increased by $33.9 million and net income decreased by $31.4 million. Total
revenues increased due to the full year impact of the rent generated from five
properties acquired during 1998. Total expenses increased primarily due to a
$30.0 million charge to income consisting of a write-down for the impairment of
assets and a loan loss reserve. In addition, depreciation expense increased by
$4.0 million, due to a change in the estimated useful lives of some real estate
properties and the full year impact of five properties acquired during 1998. Net
income was $14.8 million, or $0.57 per share, for the period ending December 31,
1999. During the period ending December 31, 1998, net income was $46.2 million,
and on a pro forma 26.0 million average shares outstanding net income was $1.78
per share.
As previously announced, three of our tenants, Frontier, Mariner and
IHS have filed for protection under the bankruptcy laws. Frontier filed in July
1999, Mariner filed in January 2000 and IHS filed in February 2000. Bankruptcy
laws may allow our tenants relief or discharge them from their financial
obligations to us. For 1999, rental and mortgage interest income related to
Frontier, Mariner and IHS was $2.2 million, $15.4 million and $26.6 million,
respectively. At December 31, 1999 real estate investments, before impairment
loss recognition and net of accumulated depreciation, for these three tenants
were $10.0 million, $68.3 million and $136.9 million, respectively. We also had
mortgage investments, before loss reserves, related to IHS of $36.6 million at
December 31, 1999. Based on estimates of future cash flows from properties
leased to Mariner and IHS, we recognized an impairment in the carrying value of
properties totaling $30.0 million.
In February 2000, all of the properties that were leased to Frontier
were sold for $13.0 million. In March 2000, we repaid $12.0 million on our bank
credit facility.
In March 2000, we reached a conditional agreement with Mariner as
follows:
o Mariner's lease obligations for all 26 properties which we own and
lease to Mariner will be terminated.
o Approximately $24.0 million of cash and securities which we hold to
secure Mariner's obligations will be retained by us.
o We will assume operating responsibilities for 17 of these 26
properties. Title to five of these properties will be transferred to
Mariner which will continue the operations. The remaining four nursing
homes are now subleased to two private companies and we expect to
negotiate with these two subtenants for their continued operations of
those properties.
36
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations - continued
Our agreement with Mariner is contingent upon approval by Mariner's creditors
committee and the Delaware Bankruptcy Court before which Mariner's bankruptcy is
pending and required regulatory approvals from various states where affected
nursing homes are located.
The three Frontier properties which have been sold and the five Mariner
properties which may be transferred for retention of the security deposits which
we hold have been owned by us and our predecessor, HRPT since 1987 and 1990,
respectively. Because of previously recorded depreciation and other accounting
requirements we expect to realize accounting and tax gains as a result of these
transactions during the first half of 2000. At the same time, future interest
savings from the repayment of our bank credit facility with the proceeds from
the sale of the Frontier properties and operating earnings from the former
Mariner properties is expected to be less than the rent which we previously
received from Mariner and Frontier, at least until the operations of the Mariner
properties which are assumed by us are stabilized and those properties are sold
or re-leased. Because we are still pursuing claims for breach of lease and
rental arrearages for the former Frontier properties and because the Mariner
agreement is contingent and subject to possible changes, the amount of gains or
reduced cash flow which we will realize cannot be accurately estimated at this
time.
We are currently in negotiations with IHS. The current negotiations
include, but are not limited to, the possibilities that we will sell the
properties now leased to IHS, that lease terms may be changed, that new tenants
may begin operations of these properties, that properties may be operated by us
for our own account or mortgage obligations due to us may be released for other
compensation. No assurances can be made as to if, when and how these
negotiations will be concluded. We may recognize additional gains or losses when
these negotiations are completed.
Funds from operations for the year ended December 31, 1999, were $67.1
million, or $2.58 per share, compared to $64.5 million, or $2.48 per share, in
1998. The increase is due to the full year impact of income from five properties
acquired during 1998. Non-recurring and non-cash losses excluded from the 1999
calculation of funds from operations aggregated $30.0 million. Distributions for
the year ended December 31, 1999, were $15.6 million or $0.60 per share. Cash
flow provided by operating activities and cash available for distribution may
not necessarily equal funds from operations as cash flow is affected by other
factors not included in the funds from operations calculation, such as changes
in assets and liabilities.
Year Ended December 31, 1998, Compared to 1997
For the year ended December 31, 1998, compared to the year ended
December 31, 1997, total revenues increased by $4.1 million, total expenses
increased by $2.6 million and net income increased by $1.5 million. Total
revenues increased due to rent generated from the acquisition of five properties
during 1998 and the full year impact of the rent generated from five properties
acquired during 1997. Total expenses increased primarily because of higher
allocated interest expense of $2.3 million, which resulted from increased
borrowings. Net income was $46.2 million and $44.7 million for the year ended
December 31, 1998 and 1997, respectively. There were no shares outstanding
during these periods. On a pro forma 26.0 million average shares outstanding,
net income per share would have been $1.78 and $1.72 for the year ended December
31, 1998 and 1997, respectively.
Funds from operations increased by $2.0 million for the year ended
December 31, 1998, compared to the prior period due to income from five
properties acquired during 1998 and the full year impact of income from five
properties acquired during 1997.
37
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations - continued
LIQUIDITY AND CAPITAL RESOURCES
In September 1999, our registration statement on Form S-11, relating to
the distribution of 13.2 million of our common shares to HRPT's shareholders
(the "Spin-Off") was declared effective by the Securities and Exchange
Commission. Prior to the Spin-Off, we had 26.0 million common shares
outstanding, all of which were owned by HRPT. On October 12, 1999, HRPT
distributed 13.2 million of our common shares to HRPT's shareholders of record
on October 8, 1999.
At December 31, 1999, we had cash and cash equivalents of $17.1
million. For the years ended December 31, 1999 and 1998, cash flows from
operating activities were $64.1 million and $60.2 million, respectively, cash
flows from investing activities were $387,000 and $306,000, respectively, and
cash used for financing activities was $47.5 million and $60.4 million,
respectively. We expect that our current cash, cash equivalents, future cash
flows from operating and financing activities will be sufficient to meet our
short-term and long-term working capital requirements.
Total assets decreased by $32.3 million from $686.3 million as of
December 31, 1998, to $654.0 million as of December 31, 1999. The decrease was
primarily due to the write-down resulting from impairment of assets, a loan loss
reserve provision and depreciation.
On September 1, 1999, we agreed to pay HRPT $200 million (the
"Formation Debt") in connection with the transfer to us of HRPT's 100% ownership
in one of the subsidiaries that own some of our properties. The Formation Debt
bore interest at HRPT's weighted average cost of debt, (7.1%), and was paid to
HRPT on October 13, 1999.
In September 1999, we entered into an agreement for a $350 million,
three-year, interest only bank credit facility secured by first mortgages on 18
properties. The interest rate is LIBOR plus 2.0% per annum and will increase by
0.25% if our debt to total capital, as defined, exceeds 50%. The bank credit
facility is available for acquisitions, working capital and for general business
purposes. We have the ability to repay and redraw amounts under this bank credit
facility until its maturity in 2002. Our bank credit facility documentation has
customary representations, warranties, covenants and event of default
provisions. The material restrictive financial covenants require us to:
o limit debt to no more than 60% of total capital, as defined;
o maintain a ratio of net income plus interest expense and depreciation
to interest expense of at least 1.5; and
o maintain a tangible net worth, as defined, of $450 million, subject to
increases based on equity issuances.
After the Spin-Off, we borrowed $200 million under this bank credit
facility which we used to pay the Formation Debt to HRPT. At December 31, 1999,
we had $150 million available under the bank credit facility. In March 2000, we
used $12 million of proceeds from the sale of the three former Frontier
properties to reduce amounts outstanding under the bank credit facility to $188
million, leaving $162 million available to be borrowed.
In the short-term, we expect to use the bank credit facility to fund
our working capital needs for operations of the Mariner properties which we will
assume if the Mariner agreement described above is approved.
38
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations - continued
In both the short-term and the long-term, we intend to acquire
additional senior housing properties. These purchases will be initially funded
with excess working capital, if any, and proceeds of borrowings under the bank
credit facility. We expect to repay bank credit facility borrowings periodically
with long-term debt or equity capital. We believe that we will have sufficient
access to capital markets to meet our working capital needs, our growth
objectives and refinance our debt as needed. However, access to capital will
depend upon numerous factors, including some beyond our control. We can provide
no assurance that we will be able to raise additional capital in sufficient
amounts, or at appropriate costs, to meet our working capital needs, to fund
growth or to repay debt in both the short-term and the long-term.
Impact of Inflation
Inflation might have both positive and negative impact upon our
business. Inflation might cause the value of our real estate investments to
increase. Similarly, in an inflationary environment, the percentage rents which
we receive based upon CPI increases or as a percentage of our tenants' revenues
should increase. Also, rent yields we could charge for new investments would
likely increase. Offsetting these benefits, inflation might cause the costs of
equity and debt capital to increase. To mitigate the adverse impact of increased
costs of debt capital in the event of material inflation we may purchase
interest rate cap agreements. The decision to enter into these agreements will
be based on the amount of floating rate debt outstanding and our belief that
material interest rate increases are likely to occur. We do not believe
inflation in the U.S. economy during the next few years will have any material
effect on our business.
Year 2000
We experienced no disruptions in our information and non-information
technology systems and incurred no costs with respect to year 2000 issues. We
are not aware of any material problems resulting from year 2000 issues by our
systems or the systems of our tenants or their material vendors and our material
vendors, but will continue to monitor these systems throughout the year to
ensure that any late year 2000 issues that may arise are addressed promptly.
Certain Considerations
The discussion and analysis of our financial condition and results of
operations requires us to make estimates and assumptions and contains statements
of our beliefs, intent or expectation concerning projections, plans, future
events and performance. The estimates, assumptions and statements, such as those
relating to the approval of the Mariner agreement, our ability to operate and
stabilize operations at the Mariner properties, our ability to successfully
negotiate with Mariner's subtenants, our ability to successfully negotiate with
IHS, our ability to expand our portfolio, performance of our assets, the ability
to make distributions, our tax status as a "real estate investment trust," the
ability to appropriately balance the use of debt and equity and to access
capital markets, depend upon various factors over which we and/or our lessees
have or may have limited or no control. Those factors include, without
limitation, the status of the economy, status of the capital markets (including
prevailing interest rates), compliance with the changes to regulations within
the healthcare industry, competition, changes to federal, state, and local
legislation and other factors. We cannot predict the impact of these factors, if
any. However, these factors could cause our actual results for subsequent
periods to be different from those stated, estimated or assumed in this
discussion and analysis of our financial condition and results of operations. We
believe that our estimates and assumptions are reasonable and prudent at this
time.
39
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market changes in interest rates. Because interest on
all our outstanding debt is at a floating rate, changes in interest rates will
not affect the value of our outstanding debt instruments. However, changes in
interest rates will affect our operating results. For example, the interest rate
payable on our outstanding indebtedness of $200 million at December 31, 1999, is
8.17% per annum. An immediate 10% change in that interest rate or 81.7 basis
points, would increase or decrease our costs by $1.6 million, or $0.06 per share
per year:
Impact of Changes in Interest Rates
(dollars in thousands)
Total Interest
Interest Rate Outstanding Expense
Per Year Debt Per Year
-------------- ----------- -----------
At December 31, 1999 8.17% $200,000 $ 16,340
10% reduction 7.35% 200,000 14,700
10% increase 8.99% 200,000 17,980
The foregoing table presents a so-called "shock" analysis, which
assumes that the interest rate change by 10%, or 81.7 basis points, is in effect
for a whole year. If interest rates were to change gradually over one year, the
impact would be less.
We borrow in U.S. dollars and all of our current borrowings are subject
to interest at LIBOR plus a premium. Accordingly, we are vulnerable to changes
in U.S. dollar based short-term rates, specifically LIBOR.
During the past few months, short-term U.S. dollar based interest rates
have tended to rise. We are unable to predict the direction or amount of
interest rate changes during the next year. We purchased an interest rate cap
agreement on our current debt to protect against rate increases above 8%.
However, we may incur additional debt at floating or fixed rates in the future,
which would increase our exposure to market changes in interest rates.
We currently own real estate mortgages receivable inclusive of a loan
loss reserve with a carrying value of $22.9 million. When comparable term market
interest rates decline, the value of these receivables increases; when
comparable term market interest rates rise, the value of these receivables
declines. Using discounted cash flow analyses at a weighted average estimated
per year market rate for December 31, 1999 of 10.75%, the estimated fair value
of our mortgages receivable was $23.7 million.
An immediate 10% change in the market rate of interest, or 108 basis
points, applicable to our real estate mortgages receivable at December 31,1999,
would affect the fair value of those receivables as follows:
Carrying Value of
Real Estate
Interest Rate Mortgages Estimated Fair
Per Year Receivable Value
------------- ----------------- --------------
(dollars in thousands)
Estimated market 10.75% $22,939 $23,722
10% reduction 9.67% 22,939 25,256
10% increase 11.83% 22,939 22,328
40
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk - continued
If the market rate changes occurred gradually over time, the effect of
these changes would be realized gradually. Because our real estate mortgages
receivable are fixed rate instruments, changes in market interest rates will
have no effect on our operating results unless these receivables are sold. At
this time, we expect to hold our existing mortgages to their maturity and not to
realize any profit or loss from trading these mortgages. Also, we do not
presently expect to expand our mortgage investments.
The interest rate changes that affect the valuations of our mortgages
are U.S. dollar long-term rates for corporate obligations of companies with
ratings similar to our mortgagors.
Item 8. Financial Statements and Supplementary Data
The information required by this item is included herein in Item 14 of
this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable
PART III
The information in Part III (Items 10 11, 12 and 13) is incorporated by
reference to our definitive Proxy Statement, which will be filed not later than
120 days after the end of our fiscal year.
41
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Index to Financial Statements and Financial Statement Schedules
<TABLE>
<CAPTION>
SENIOR HOUSING PROPERTIES TRUST
Page
<S> <C>
The following consolidated financial statements and financial statement schedules of Senior
Housing Properties Trust are included herein on the pages indicated:
Report of Ernst and Young LLP, Independent Public Accountants F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-2
Consolidated Statements of Income for each of the three years in the periods ended
December 31, 1999 F-3
Consolidated Statements of Shareholders' Equity for each of the three years in the periods
ended December 31, 1999 F-4
Consolidated Statements of Cash Flows for each of the three years in the periods ended
December 31, 1999 F-5
Notes to Consolidated Financial Statements F-6
Schedule III - Real Estate and Accumulated Depreciation S-1
Schedule IV - Mortgage Loans on Real Estate S-5
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions, or are inapplicable, and therefore have
been omitted.
(b) Reports on Form 8-K
During the fourth quarter of 1999, we filed the following Current
Reports on Form 8-K:
(i) Current Report on Form 8-K dated October 21, 1999, relating to the
election of a new trustee (Item 5).
(c) Exhibits
2.1 Transaction Agreement, dated September 21, 1999, between HRPT
Properties Trust and the Company. (Incorporated by reference
to the Current Report on Form 8-K filed on October 26, 1999 by
HRPT Properties Trust.)
3.1 Amended and Restated Declaration of Trust. (Filed herewith.)
3.2 Amended and Restated Bylaws, as amended to date. (Filed
herewith.)
4.1 Form of temporary common share certificate. (Incorporated by
reference to the Company's Registration Statement on Form
S-11, File No. 333-69703.)
8.1 Opinion of Sullivan & Worcester LLP as to certain tax matters.
(Filed herewith.)
10.1 Advisory Agreement, dated as of October 12, 1999, between the
Company and REIT Management & Research, Inc. (+) (Filed
herewith.)
42
<PAGE>
10.2 1999 Incentive Share Award Plan. (+) (Incorporated by
reference to the Company's Registration Statement on Form
S-11, File No. 333-69703.)
10.3 Promissory Note, dated September 1, 1999, from the Company and
SPTMRT Properties Trust, as makers, to HRPT Properties Trust,
as holder. (Incorporated by reference to the Current Report on
Form 8-K filed on October 26, 1999 by HRPT Properties Trust.)
10.4 Revolving Loan Agreement, dated as of September 15, 1999,
among the Company, Dresdner Bank AG, the Other Lenders Party
Thereto, SPTMRT Properties Trust and SPTBrook Properties
Trust, together with Exhibits and Form of Mortgage, Form of
Deed of Trust and Form of Pledge Agreement. (Incorporated by
reference to the Company's Registration Statement on Form
S-11, File No. 333-69703.)
10.5 Master Lease Agreement, dated as of December 27, 1996, between
Health and Retirement Properties Trust and BLC Property, Inc.
(Incorporated by reference to the Company's Registration
Statement on Form S-11, File No. 333-69703.)
10.6 Guaranty Agreement, dated as of December 27, 1996, by
Brookdale Living Communities, Inc., Brookdale Living
Communities of Illinois, Inc., Brookdale Living Communities of
New York, Inc., and Brookdale Living Communities of Arizona,
Inc. in favor of Health and Retirement Properties Trust.
(Incorporated by reference to the Company's Registration
Statement on Form S-11, File No. 333-69703.)
10.7 First Amendment to Master Lease Agreement and Incidental
Documents, dated as of May 7, 1997, by and among Health and
Retirement Properties Trust, BLC Property, Inc., Brookdale
Living Communities of Washington, Inc., Brookdale Living
Communities of Arizona, Inc., Brookdale Living Communities of
Illinois, Inc., Brookdale Living Communities of New York,
Inc., Brookdale Living Communities, Inc, The Prime Group,
Inc., Prime International, Inc., PGLP, Inc., Prime Group
Limited Partnership, and Prime Group II, L.P. (Incorporated by
reference to the Company's Registration Statement on Form
S-11, File No. 333-69703.)
10.8 Representative Lease for properties leased to subsidiaries of
Marriott International, Inc. (Incorporated by reference to the
Company's Registration Statement on Form S-11, File No.
333-69703.)
10.9 Representative Guaranty of Tenant Obligations, dated as of
October 8, 1993, by Marriott International, Inc. in favor of
HMC Retirement Properties, Inc. (Incorporated by reference to
the Company's Registration Statement on Form S-11, File No.
333-69703.)
10.10 Representative First Amendment to Lease for properties leased
to subsidiaries of Marriott International, Inc. (Incorporated
by reference to the Company's Registration Statement on Form
S-11, File No. 333-69703.)
10.11 Representative Assignment and Assumption of Leases, Guarantees
and Permits for properties leased to subsidiaries of Marriott
International, Inc. (Incorporated by reference to the
Company's Registration Statement on Form S-11, File No.
333-69703.)
10.12 Representative Second Amendment of Lease for properties leased
to subsidiaries of Marriott International, Inc. (Incorporated
by reference to the Company's Registration Statement on Form
S-11, File No. 333-69703.)
43
<PAGE>
10.13 Representative First Amendment of Guaranty by Marriott
International, Inc., dated as of May 16, 1994, in favor of HMC
Retirement Properties, Inc. (Incorporated by reference to the
Company's Registration Statement on Form S-11, File No.
333-69703.)
10.14 Assignment of Lease, dated as of June 16, 1994, by HMC
Retirement Properties, Inc. in favor of Health and
Rehabilitation Properties Trust. (Incorporated by reference to
the Company's Registration Statement on Form S-11, File No.
333-69703.)
10.15 Third Amendment to Facilities Lease, dated as of June 30,
1994, between HMC Retirement Properties, Inc. and Marriott
Senior Living Services, Inc. (Incorporated by reference to the
Company's Registration Statement on Form S-11, File No.
333-69703.)
10.16 Third Amendment to Facilities Lease, dated as of June 30,
1994, between HMC Retirement Properties, Inc. and Marriott
Senior Living Services, Inc. (Incorporated by reference to the
Company's Registration Statement on Form S-11, File No.
333-69703.)
10.17 Consent and Modification Agreement, dated as of October 10,
1997, between Marriott International, Inc., Marriott Senior
Living Services, Inc., New Marriott MI, Inc., Health and
Retirement Properties Trust, and Church Creek Corporation.
(Incorporated by reference to the Company's Registration
Statement on Form S-11, File No. 333-69703.)
10.18 Master Lease Document, General Terms and Conditions dated as
of December 28, 1990, between Health and Rehabilitation
Properties Trust and AMS Properties, Inc. (Incorporated by
reference to the Company's Registration Statement on Form
S-11, File No. 333-69703.)
10.19 Representative Lease for properties leased to Mariner
Post-Acute Network, Inc. (Incorporated by reference to the
Company's Registration Statement on Form S-11, File No.
333-69703.)
10.20 Lease dated as of March 27, 1992, between Health and
Rehabilitation Properties Trust and AMS Properties, Inc.
(Incorporated by reference to the Company's Registration
Statement on Form S-11, File No. 333-69703.)
10.21 Amendment to Master Lease Document dated as of December 29,
1993 between Health and Rehabilitation Properties Trust and
AMS Properties, Inc. (Incorporated by reference to the
Company's Registration Statement on Form S-11, File No.
333-69703.)
10.22 Amendment to AMS Properties, Inc. Facility Leases dated as of
October 1, 1994 between Health and Retirement Properties Trust
and AMS Properties, Inc. (Incorporated by reference to the
Company's Registration Statement on Form S-11, File No.
333-69703.)
10.23 Amendment to AMS Properties, Inc. Facility Leases dated
October 31, 1997 between Health and Retirement Properties
Trust and AMS Properties, Inc. (Incorporated by reference to
the Company's Registration Statement on Form S-11, File No.
333-69703.)
10.24 Representative Lease for properties leased to Mariner
Post-Acute Network, Inc. (Incorporated by reference to the
Company's Registration Statement on Form S-11, File No.
333-69703.)
10.25 Master Lease Agreement dated as of June 30, 1992 by and
between Health and Rehabilitation Properties Trust and GCI
Health Care Centers, Inc. (Incorporated by reference to the
Company's Registration Statement on Form S-11, File No.
333-69703.)
44
<PAGE>
10.26 Amended and Restated HRP Shares Pledge Agreement, dated as of
June 30, 1992, between Health and Retirement Properties Trust
and AMS Properties, Inc. (Incorporated by reference to the
Company's Registration Statement on Form S-11, File No.
333-69703.)
10.27 Amended and Restated Voting Trust Agreement, dated as of June
30, 1992 from AMS Properties, Inc. to HRPT Advisors, Inc., as
voting trustee. (Incorporated by reference to the Company's
Registration Statement on Form S-11, File No. 333-69703.)
10.28 Representative Lease for properties leased to Mariner
Post-Acute Network, Inc. (Incorporated by reference to the
Company's Registration Statement on Form S-11, File No.
333-69703.)
10.29 Representative Lease for properties leased to Mariner
Post-Acute Network, Inc. (Incorporated by reference to the
Company's Registration Statement on Form S-11, File No.
333-69703.)
10.30 Amendment to Master Lease Document dated as of December 29,
1993 between Health and Rehabilitation Properties Trust and
GCI Health Care Centers, Inc. (Incorporated by reference to
the Company's Registration Statement on Form S-11, File No.
333-69703.)
10.31 Amendment to GCI Health Care Centers, Inc., Master Lease
Document and Facility Leases dated as of October 1, 1994
between Health and Retirement Properties Trust and GCI Health
Care Centers, Inc. (Incorporated by reference to the Company's
Registration Statement on Form S-11, File No. 333-69703.)
10.32 Amendment to GCI Health Care Centers, Inc. Facility Leases
dated October 31, 1997 between Health and Retirement
Properties Trust and GCI Health Care Centers, Inc.
(Incorporated by reference to the Company's Registration
Statement on Form S-11, File No. 333-69703.)
10.33 Guaranty, Cross Default and Cross Collateralization Agreement,
dated as of June 30, 1992, by and among AMS Properties, Inc.,
CGI Health Care Centers, Inc. and Health and Rehabilitation
Properties Trust. (Incorporated by reference to the Company's
Registration Statement on Form S-11, File No. 333-69703.)
10.34 Guaranty, dated as of October 31, 1997, by Grancare Inc. in
favor of Health and Retirement Properties Trust. (Incorporated
by reference to the Company's Registration Statement on Form
S-11, File No. 333-69703.)
10.35 Guaranty, dated as of October 31, 1997, by Paragon Health
Network, Inc. in favor of Health and Retirement Properties
Trust. (Incorporated by reference to the Company's
Registration Statement on Form S-11, File No. 333-69703.)
10.36 Amended, Restated and Consolidated Master Lease Document,
dated as of September 24, 1997, between Health and Retirement
Properties Trust and ECA Holdings, Inc., Marietta/SCC, Inc.,
Glenwood/SCC, Inc., Dublin/SCC, Inc., and College Park/SCC,
Inc. (Incorporated by reference to the Company's Registration
Statement on Form S-11, File No. 333-69703.)
10.37 Guaranty By Integrated Health Services, Inc., dated as of
September 24, 1997, by Integrated Health Services, Inc., in
favor of Health and Retirement Properties Trust (Incorporated
by reference to the Company's Registration Statement on Form
S-11, File No. 333-69703.)
10.38 Representative Lease Agreement for properties leased to
Integrated Health Services, Inc. (Incorporated by reference to
the Company's Registration Statement on Form S-11, File No.
333-69703.)
45
<PAGE>
10.39 Representative Lease Agreement for properties leased to
Integrated Health Services, Inc. (Incorporated by reference to
the Company's Registration Statement on Form S-11, File No.
333-69703.)
10.40 Guaranty, dated as of February 11 1994, by Horizon Healthcare
Corporation in favor of Health and Rehabilitation Properties
Trust. (Incorporated by reference to the Company's
Registration Statement on Form S-11, File No. 333-69703.)
10.41 Consent, Assumption and Guaranty Agreement, dated as of
December 31, 1997, by and among Integrated Health Services,
Inc., IHS Acquisition No. 108, Inc., IHS Acquisition No. 112,
Inc., IHS Acquisition No. 113, Inc., IHS Acquisition No. 135,
Inc., IHS Acquisition No. 148, Inc., IHS Acquisition No. 152,
Inc., IHS Acquisition No. 153, Inc., IHS Acquisition No. 154,
Inc., IHS Acquisition No. 155, Inc., IHS Acquisition No. 175,
Inc., Healthsouth Corporation, Horizon Healthcare Corporation,
Health and Retirement Properties Trust, and Indemnity
Collection Corporation. (Incorporated by reference to the
Company's Registration Statement on Form S-11, File No.
333-69703.)
12.1 Statement regarding computation of ratio of earnings to fixed
charges. (Filed herewith.)
21.1 List of Subsidiaries. (Filed herewith.)
23.1 Consent of Sullivan & Worcester LLP. (Contained In Exhibit
8.1.)
27.1 Financial Data Schedule. (Filed herewith.)
----------------------
(+) Management contract or compensatory plan or arrangement.
46
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of Senior Housing Properties Trust
We have audited the accompanying consolidated balance sheets of Senior Housing
Properties Trust as of December 31, 1999 and 1998, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1999. Our audits also included the
financial statements and schedules listed in the Index at Item 14(a). These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Senior Housing Properties Trust
and subsidiaries as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 17, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
SENIOR HOUSING PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
December 31,
---------------------------------------
1999 1998
----------------- ----------------
<S> <C> <C>
ASSETS
Real estate properties, at cost, (including properties leased to affiliates
with a cost of $20,422 in 1999 and $38,270 in 1998):
Land $69,673 $69,673
Buildings and improvements 639,066 662,720
----------------- ----------------
708,739 732,393
Accumulated depreciation (108,709) (94,616)
----------------- ----------------
600,030 637,777
Real estate mortgages receivable, net of loan loss reserve of $14,500
in 1999 22,939 37,826
Cash and cash equivalents 17,091 139
Other assets 13,940 10,554
----------------- ----------------
$654,000 $686,296
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank notes payable $200,000 $--
Deferred rents and other deferred revenues 26,715 28,266
Security deposits 15,235 15,235
Other liabilities 2,317 726
Due to affiliate 327 --
Commitments and contingencies -- --
Shareholders' equity:
Common shares of beneficial interest, $0.01 par value:
50,000,000 shares authorized, 26,001,500 shares and 26,374,760
shares issued and outstanding, respectively 260 264
Additional paid-in capital 444,511 --
Cumulative net loss (19,764) --
Distributions (15,601) --
Ownership interest of HRPT Properties Trust -- 641,805
----------------- ----------------
Total shareholders' equity 409,406 642,069
----------------- ----------------
$654,000 $686,296
================= ================
</TABLE>
See accompanying notes
F-2
<PAGE>
<TABLE>
<CAPTION>
SENIOR HOUSING PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year Ended December 31,
-----------------------------------------------------------
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues:
Rental income $84,881 $82,542 $78,463
Interest and other income 5,909 5,764 5,708
----------------- ----------------- -----------------
Total revenues 90,790 88,306 84,171
----------------- ----------------- -----------------
Expenses:
Interest 18,768 19,293 16,958
Depreciation 22,247 18,297 17,826
General and administrative 4,941 4,480 4,664
Loan loss reserve 14,500 -- --
Impairment of assets 15,500 -- --
----------------- ----------------- -----------------
Total expenses 75,956 42,070 39,448
----------------- ----------------- -----------------
Net income $14,834 $46,236 $44,723
================= ================= =================
Weighted average shares outstanding (note 2) 26,000 26,000 26,000
================= ================= =================
Basic and diluted earnings per share data:
Net income $0.57 $1.78 $1.72
================= ================= =================
</TABLE>
See accompanying notes
F-3
<PAGE>
<TABLE>
<CAPTION>
SENIOR HOUSING PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
Ownership
Interest of
Additional HRPT
Number of Common Paid-in Cumulative Properties
Shares Shares Capital Net Loss Distributions Trust Total
------------ ----------- ------------ ------------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 -- $-- $-- $-- $-- $664,492 $664,492
Net income -- -- -- -- -- 44,723 44,723
Owner distribution, net -- -- -- -- -- (62,277) (62,277)
------------ ----------- ------------ ------------- --------------- ------------- ------------
Balance at
December 31, 1997 -- -- -- -- -- 646,938 646,938
Net income -- -- -- -- -- 46,236 46,236
Owner distribution, net -- -- -- -- -- (51,369) (51,369)
Issuance of shares 26,374,760 264 -- -- -- -- 264
------------ ----------- ------------ ------------- --------------- ------------- ------------
Balance at
December 31, 1998 26,374,760 264 -- -- -- 641,805 642,069
Net income (January 1 to
October 11) -- -- -- -- -- 34,598 34,598
Owner distribution, net -- -- -- -- -- (31,919) (31,919)
Cancellation of shares (374,760) (4) -- -- -- 4 --
Distribution of shares to
HRPT shareholders -- -- 444,488 -- -- (644,488) (200,000)
Net loss (October 12 to
December 31) -- -- -- (19,764) -- -- (19,764)
Distributions -- -- -- -- (15,601) -- (15,601)
Issuance of shares 1,500 -- 23 -- -- -- 23
------------ ----------- ------------ ------------- --------------- ------------- ------------
Balance at
December 31, 1999 26,001,500 $260 $444,511 $(19,764) $(15,601) $-- $409,406
============ =========== ============ ============= =============== ============= ============
</TABLE>
See accompanying notes
F-4
<PAGE>
<TABLE>
<CAPTION>
SENIOR HOUSING PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Year Ended December 31,
-----------------------------------------------------
1999 1998 1997
---------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $14,834 $46,236 $44,723
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 22,247 18,297 17,826
Impairment of assets and loan loss reserve 30,000 -- --
Changes in assets and liabilities:
Other assets (3,363) (2,876) (2,394)
Deferred rents and other deferred revenues (1,551) (1,455) 22,087
Security deposits -- -- 8,815
Other liabilities 1,591 34 37
Due to affiliate 327 -- --
---------------- -------------- --------------
Cash provided by operating activities 64,085 60,236 91,094
---------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate acquisitions and improvements -- (2) (19,799)
Investments in mortgage loans -- -- (124)
Repayments of mortgage loans 387 308 260
---------------- -------------- --------------
Cash provided by (used for) investing activities 387 306 (19,663)
---------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Owner's net distribution (31,919) (60,403) (71,431)
Distributions (15,601) -- --
Proceeds from borrowing 200,000 -- --
Repayment of Formation Debt due to HRPT
Properties Trust (200,000) -- --
---------------- -------------- --------------
Cash used for financing activities (47,520) (60,403) (71,431)
---------------- -------------- --------------
Increase in cash and cash equivalents 16,952 139 --
Cash and cash equivalents at beginning of period 139 -- --
---------------- -------------- --------------
Cash and cash equivalents at end of period $17,091 $139 $--
================ ============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $2,446 $-- $--
NON-CASH INVESTING ACTIVITIES:
Real estate acquisitions -- (9,298) (9,154)
NON-CASH FINANCING ACTIVITIES:
Formation Debt due to HRPT Properties Trust 200,000 -- --
Owner's contribution -- 9,298 9,154
Issuance of common shares 23 -- --
</TABLE>
See accompanying notes
F-5
<PAGE>
SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization
The consolidated financial statements of Senior Housing Properties
Trust include the accounts of 81 properties and 12 mortgages receivable (the
"Properties") and of Senior Housing Properties Trust ("Senior Housing Trust").
The Properties and Senior Housing Trust are collectively referred to as "Senior
Housing". These consolidated financial statements are presented as if Senior
Housing was a legal entity separate from HRPT Properties Trust ("HRPT");
although no such entity existed until October 12, 1999. Senior Housing operates
in a single segment.
HRPT organized Senior Housing Trust, a 100% owned subsidiary through
October 11, 1999, as a Maryland real estate investment trust on December 16,
1998. At the time of its organization, Senior Housing Trust issued 26.4 million
shares to HRPT for consideration of $263,748. Subsequently, 0.4 million shares
were cancelled and 26.0 million shares are currently issued and outstanding.
For a substantial part of the periods presented, the Properties were
owned by HRPT. On or about June 30, 1999, the Properties were transferred by
HRPT to several of its 100% owned subsidiaries. Effective as of September 1,
1999, HRPT transferred 100% ownership of the several subsidiaries, which own the
Properties, to Senior Housing Trust. On October 12, 1999, HRPT distributed 13.2
million shares of its 26.0 million Senior Housing Trust shares to HRPT
shareholders (the "Spin-Off").
Note 2. Summary of Significant Accounting Policies
BASIS OF PRESENTATION. Prior to the Spin-Off, all of Senior Housing was owned by
HRPT, and transactions have been presented at HRPT's historical basis. Prior to
the Spin-Off substantially all the rental income and mortgage interest income
received by HRPT from the tenants and mortgagors of Senior Housing was deposited
in and commingled with HRPT's general funds. Funds for capital investments and
other cash required by Senior Housing was provided by HRPT. Prior to September
1, 1999, interest expense was allocated based on HRPT's historical interest
expense as a percentage of HRPT's average historical costs of real estate
investments. General and administrative costs of HRPT for the periods prior to
the Spin-Off were allocated to Senior Housing based on HRPT's investment
advisory agreement formula and other costs were allocated based on historical
costs as a percentage of HRPT's average historical costs of real estate
investments. In the opinion of management, the methods for allocating interest
and general and administrative expenses were reasonable. It was not practicable
to estimate additional costs that would have been incurred by Senior Housing as
a separate entity.
REAL ESTATE PROPERTIES AND MORTGAGE INVESTMENTS. Depreciation on real estate
properties is expensed on a straight-line basis over estimated useful lives of
up to 40 years for buildings and improvements and up to 12 years for personal
property. During 1999, the estimated useful lives of certain real estate
properties were changed. The effect reduced net income and earnings per share,
for the period ending December 31, 1999, $3.8 million and $0.15 per share,
respectively. Impairment losses on properties are recognized when indicators of
impairment are present and the estimated, undiscounted cash flows to be
generated by the properties are less than the carrying amount of concerned
properties.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents consisting of overnight
repurchase agreements and short-term investments with original maturities of
three months or less at the date of purchase are carried at cost plus accrued
interest which approximates market.
INTEREST RATE CAP AGREEMENTS. Senior Housing has entered into an interest rate
cap agreement to limit exposure to the risk of rising interest rates. This
arrangement, which expires in December 2001, has a notional amount of $200
million. Senior Housing will be entitled to receive payments by a counterparty
should LIBOR increase above a threshold amount.
F-6
<PAGE>
SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REVENUE RECOGNITION. Rental income from operating leases is recognized on a
straight-line basis over the life of the lease agreements. Interest income is
recognized as earned over the terms of the real estate mortgages. Percentage
rent and supplemental mortgage interest income are recognized as earned. For
interim periods, percentage rent and supplemental mortgage interest income are
accrued prior to achievement of specified targets when the achievement of the
targets is probable. For the years ended December 31, 1999, 1998 and 1997,
percentage rent and supplemental mortgage interest income aggregated $4.0
million, $2.9 million and $2.9 million, respectively.
EARNINGS PER COMMON SHARE. Because Senior Housing's operations were included in
the consolidated financial statements of HRPT prior to the Spin-Off, there are
no shareholder equity accounts for Senior Housing prior to 1999. Common shares
outstanding of 26.0 million at October 12, 1999 have been included in the
earnings per share calculation as if the shares were outstanding for all periods
prior to October 12, 1999. Earnings per common share are computed using the
weighted average number of shares outstanding during the period. Senior Housing
has no common share equivalents, instruments convertible into common shares or
other dilutive instruments.
USE OF ESTIMATES. Preparation of these financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that may affect the amounts reported in these financial
statements and related notes. The actual results could differ from these
estimates.
INCOME TAXES. Prior to the Spin-Off, Senior Housing's operations were included
in HRPT's income tax returns. Senior Housing and HRPT qualify as real estate
investment trusts under the Internal Revenue Code of 1986, as amended.
Accordingly, they are not expected to be subject to federal income taxes
provided they distribute their taxable income and continue to meet the other
requirements for qualifying as a real estate investment trust. However, they are
subject to state and local taxes on their income and property.
NEW ACCOUNTING PRONOUNCEMENTS. The Financial Accounting Standards Board issued
Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities"
("FAS 133") in 1998, which was further amended by Statement No. 137 "Accounting
for Derivative Instruments and Hedging Activities - Deferral of Effective Date
of FASB Statement No. 133" in 1999. FAS 133 must be adopted for the 2001
financial statements. Senior Housing believes adoption of FAS 133 is not
expected to have a significant impact on its reported financial condition or
results of operations.
Note 3. Report of Tenants' Financial Condition
Three of Senior Housing's tenants, The Frontier Group, Inc.
("Frontier"), Mariner Post-Acute Network, Inc. ("Mariner") and Integrated Health
Services, Inc. ("IHS") have filed for protection under bankruptcy laws. Frontier
filed in July 1999, Mariner filed in January 2000 and IHS filed in February
2000. For 1999, rental income and mortgage interest related to Frontier, Mariner
and IHS was $2.2 million, $15.4 million and $26.6 million, respectively. At
December 31, 1999 real estate investments, before impairment loss recognition
and net of accumulated depreciation, for these three tenants were $10.0 million,
$68.3 million and $136.9 million, respectively. Senior Housing also had mortgage
investments, before loss reserves, related to IHS of $36.6 million at December
31, 1999.
Senior Housing has concluded that impairment indicators are present
with respect to properties operated by these tenants and has prepared
undiscounted cash flow projections for each of the properties. For purposes of
these projections, Senior Housing has assumed that rents on some properties may
be modified and that some of the leases may be terminated after which Senior
Housing will operate the properties for a period of time and, ultimately, sell
them. In addition, a third party not in bankruptcy has guaranteed the lease
obligations of some of the properties operated by one of the tenants. Senior
Housing has assumed that the guarantor will honor the lease obligations. The
undiscounted cash flow projections reflect the expected rents to be earned over
the lease term and the expected cash flows earned from operating the properties
for a period of time plus the proceeds
F-7
<PAGE>
SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
from assumed future sales of the properties. Cash flows during the period in
which Senior Housing may operate the properties are estimated based on the
historical performance of each property, excluding rent paid to Senior Housing.
Projected sale prices are based on an estimated per bed value consistent with
industry practice and reflect prices that Senior Housing has observed in recent
transactions. Based on these undiscounted cash flow projections, Senior Housing
has concluded that certain of its real estate and mortgage investments are
impaired as of December 31, 1999. Based on its estimates of fair values net of
selling costs, Senior Housing has written down the carrying value of these real
estate investments, including investments leased to an affiliate, Advisors
Healthcare Group, Inc. ("Advisors Health"), as of December 31, 1999 by recording
an impairment loss write-down in the accompanying consolidated statement of
income of $15.5 million. In addition, Senior Housing has recorded a loan loss
reserve of $14.5 million related to the mortgage investment it considered
impaired. It is reasonably possible that estimates of future cash flows could be
reduced significantly depending on the outcome of the bankruptcy proceedings or
if the third party should fail to honor its guarantee. As a result, additional
losses could be recognized in future periods and the amounts could be material.
In February 2000, Senior Housing sold all of the properties that were
leased to Frontier for $13.0 million. Senior Housing is continuing to pursue
claims against Frontier and other parties for breach of its leases and for
rental arrearages. The amount of net gain, if any, which may be realized from
the sale of the Frontier properties will depend upon the outcome of these
claims. The amount of gain or loss to be realized as a result of this
transaction is not expected to be material. Because these properties have been
sold, Senior Housing will no longer receive rental income from these properties.
In March 2000, Senior Housing reached an agreement in principle with
Mariner whereby Mariner may be released from its lease obligations, certain
security deposits held by Senior Housing may be retained by Senior Housing,
certain properties now operated by Mariner will in the future be operated by
Senior Housing, and other properties now owned by Senior Housing will be
conveyed to Mariner. If this agreement is approved Senior Housing expects that
it may realize gains and that its future earnings and cash flows may be less
than the rent previously earned from the Mariner leases, at least on a short
term basis. This agreement is contingent upon third party approvals beyond
Senior Housing's control. If and when this agreement is implemented it may
result in additional material gains or losses.
Senior Housing is currently in negotiations with IHS. The current
negotiations include, but are not limited to, the possibilities that Senior
Housing will sell some of the properties, that lease or mortgage terms may be
changed, that new tenants may begin operations of properties, that properties
may be operated by Senior Housing for its own account or that mortgage
obligations due to Senior Housing may be released for other compensation. Senior
Housing may recognize additional gains or losses when these negotiations are
completed and the additional gains or losses may be material.
Note 4. Real Estate Properties
The owned Properties are generally leased on a triple net basis,
pursuant to noncancellable, fixed term operating leases expiring between 2001 to
2019. Generally, the leases to a single tenant or group of affiliated tenants
are cross-defaulted and cross-guaranteed, and provide for all or none tenant
renewal options at existing rates followed by several market rate renewal terms.
These triple net leases generally require the lessee to pay all property
operating costs.
The future minimum lease payments to be received during the current
terms of the leases, as of December 31, 1999, were approximately $78.3 million
in 2000, $78.0 million in 2001, $79.4 million in 2002, $79.6 million in 2003,
$79.4 million in 2004 and $602.7 million thereafter. These future payments
include minimum lease payments from IHS and Mariner of $36.3 million in 2000,
$36.5 million in 2001, $36.6 million in 2002, $36.8 million in 2003, $36.9
million in 2004, and $179.9 million thereafter.
F-8
<PAGE>
SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Real Estate Mortgages Receivable
December 31,
------------------------------------
1999 1998
----------------- ---------------
(dollars in thousands)
Mortgage notes receivable due December 2016 $8,693 $8,769
Mortgage note receivable due January 2013 883 883
Mortgage note receivable due December 2010 18,777 18,992
Mortgage note receivable due January 2006 9,086 9,182
----------------- ---------------
37,439 37,826
Loan loss reserve (14,500) --
----------------- ---------------
$22,939 $37,826
================= ===============
At December 31, 1999, the interest rates on these notes receivable
ranged from 10.3% to 13.75% per annum. In 1999 Senior Housing established an
allowance of $14.5 million for the impairment of a real estate mortgage loan
with a face value of $18.8 million.
Note 6. Shareholders' Equity
Senior Housing has reserved 1,300,000 shares of Senior Housing's
common shares under the terms of the 1999 Incentive Share Award Plan (the "Award
Plan"). During 1999, the three Independent Trustees, as part of their annual
fee, were each granted 500 common shares from this plan. The shares granted to
the Trustees vest immediately. At December 31, 1999, 1,298,500 of Senior
Housing's common shares remain reserved for issuance under the Award Plan.
In January 2000, Senior Housing declared a distribution of $0.60 per
share which was distributed on February 24, 2000. Distributions per share paid
by Senior Housing for 1999 were $0.60 per share, or approximately $15.6 million.
Note 7. Commitments and Contingencies
At December 31, 1999 and 1998, Senior Housing had total commitments
aggregating $3.7 million to fund or finance improvements to the Properties.
Note 8. Transactions with Affiliates
Senior Housing has entered into an agreement with REIT Management &
Research, Inc. ("REIT Management") to provide investment, management and
administrative services. Gerard M. Martin and Barry M. Portnoy, who serve as
managing trustees of Senior Housing and HRPT, own REIT Management. REIT
Management is paid by Senior Housing based on a formula amount of gross invested
assets in the properties. Investment advisory fees for 1999, 1998 and 1997 with
respect to Senior Housing's invested assets were $3.9 million, $3.8 million and
$3.7 million, respectively. Beginning with the year ending December 31, 2000,
REIT Management will also be entitled to an incentive fee, paid in restricted
shares, based on a formula.
Messrs. Martin and Portnoy are principal shareholders of Advisors
Health (formerly known as Connecticut Subacute Corporation II), which is a
lessee of Senior Housing. The lease with Advisors Health is based on market
terms and is generally similar to Senior Housing's leases with unaffiliated
companies. These properties are managed by IHS. Senior Housing recorded rental
income of $4.5 million as a result of this lease during each of the years ending
December 31, 1999, 1998 and 1997.
F-9
<PAGE>
SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. Indebtedness
In September 1999, Senior Housing entered into an agreement for a $350
million, three-year, interest only, bank credit facility. The bank credit
facility is secured by 18 properties, with a net book value of $380.2 million at
December 31, 1999, and matures in 2002. The interest rate is LIBOR plus a
premium (8.17% at December 31, 1999) and will increase if Senior Housing's debt
to total capital, as defined, meets or exceeds 50%. The bank credit facility is
available for acquisitions, working capital and for general business purposes.
On October 13, 1999, $200 million, used to pay the formation debt due to HRPT,
was outstanding under the bank credit facility.
Note 10. Fair Value of Financial Instruments and Commitments
The financial statements presented include mortgage investments, rents
receivable, other liabilities and security deposits. Except as follows, the fair
values of the financial instruments and commitments to fund improvements were
not materially different from their carrying values at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
-------------------------------- -------------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
--------------- ------------- -------------- -------------
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C>
Real estate mortgages receivable, net $22,939 $23,722 $37,826 $40,525
Commitments to fund improvements -- 3,707 -- 3,707
Interest rate cap agreement -- 341 -- --
</TABLE>
The fair values of the real estate mortgages and interest rate cap
agreement are based on estimates using discounted cash flow analyses and
currently prevailing market rates. The fair value of the commitments represent
the actual amounts committed.
F-10
<PAGE>
SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Concentration of Credit Risk
The assets included in these financial statements are primarily income
producing senior housing real estate located throughout the United States. The
following is a summary of the significant lessees and mortgagors as of and for
the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Year Ending
December 31, 1999 December 31, 1999
------------------------------- -----------------------------
% of % of
Investment Total Revenue Total
--------------- ------------ ------------- ------------
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C>
Marriott International, Inc. $325,521 45% $30,893 35%
Integrated Health Services, Inc. 185,158 25 26,615 30
Brookdale Living Communities, Inc. 101,850 14 11,174 13
Mariner Post-Acute Network, Inc. 80,680 11 15,449 17
Frontier Group, Inc. 15,492 2 2,160 2
All others 22,977 3 2,786 3
--------------- ------------ ------------- ------------
$731,678 100% $89,077 100%
=============== ============ ============= ============
<CAPTION>
Year Ending
December 31, 1998 December 31, 1998
--------------- -- ------------ ------------- -- ------------
% of % of
Investment Total Revenue Total
--------------- ------------ ------------- ------------
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C>
Marriott International, Inc. $325,521 42% $30,270 35%
Integrated Health Services, Inc. 217,893 29 26,841 31
Brookdale Living Communities, Inc. 101,850 13 11,074 13
Mariner Post-Acute Network, Inc. 86,486 11 13,620 16
Frontier Group, Inc. 15,492 2 2,160 2
All others 22,977 3 2,792 3
--------------- ------------ ------------- ------------
$770,219 100% $86,757 100%
=============== ============ ============= ============
</TABLE>
F-11
<PAGE>
SENIOR HOUSING PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12. Selected Quarterly Financial Data (unaudited)
The following is a summary of the quarterly results of operations of
Senior Housing for 1999 and 1998. The dollars are in thousands except per share
amounts.
1999
------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------ ------------ --------------- ------------
Revenues $22,668 $22,622 $22,621 $22,879
Net income (loss) (1) 10,971 10,861 11,176 (18,174)
Per share data:
Net income (loss) 0.42 0.42 0.43 (0.70)
1998
------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------ ------------ --------------- ------------
Revenues $21,496 $21,714 $21,711 $23,385
Net income 11,134 11,537 11,012 12,553
Per share data:
Net income 0.43 0.44 0.42 0.48
(1) Reflects an impairment loss, as described in note 3, during the Fourth
Quarter
F-12
<PAGE>
<TABLE>
<CAPTION>
SENIOR HOUSING PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(Dollars in thousands)
Initial Cost Gross Amount Carried at Close
to Company of Period 12/31/99
---------------- ---------------------------
Buildings Costs Capitalized Buildings Original
and Subsequent to and Accumulated Date Construction
Location State Land Equipment Acquisition Impairment Land Equipment Total(1) Depreciation(2) Aquired Date
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Yuma AZ $103 $604 $1 $-- $103 $605 $708 $129 06/30/92 1984
Phoenix AZ 655 2,525 5 -- 655 2,530 3,185 544 06/30/92 1963
Yuma AZ 223 2,100 3 -- 223 2,103 2,326 445 06/30/92 1984
Scottsdale AZ 979 8,807 140 -- 990 8,936 9,926 1,256 05/16/94 1990
Sun City AZ 1,174 10,569 173 -- 1,189 10,727 11,916 1,486 06/17/94 1990
Mesa AZ 1,480 13,320 - -- 1,480 13,320 14,800 1,013 12/27/96 1985
Newport Beach CA 1,176 1,729 1,223 -- 1,176 2,952 4,128 676 12/28/90 1962
Fresno CA 738 2,577 188 -- 738 2,765 3,503 727 12/28/90 1963
Van Nuys CA 716 378 225 -- 718 601 1,319 175 12/28/90 1969
Thousand Oaks CA 622 2,522 310 -- 622 2,832 3,454 721 12/28/90 1965
Tarzana CA 1,277 977 806 -- 1,278 1,782 3,060 456 12/28/90 1969
Lancaster CA 601 1,859 1,028 -- 601 2,887 3,488 695 12/28/90 1969
Stockton CA 382 2,750 4 -- 382 2,754 3,136 585 06/30/92 1968
Laguna Hills CA 3,132 28,184 475 -- 3,172 28,619 31,791 3,788 09/09/94 1975
Littleton CO 185 5,043 348 -- 185 5,391 5,576 1,378 12/28/90 1965
Lakewood CO 232 3,766 723 -- 232 4,489 4,721 1,094 12/28/90 1972
Grand Junction CO 204 3,875 329 -- 204 4,204 4,408 781 12/30/93 1968
Grand Junction CO 6 2,583 1,316 -- 136 3,769 3,905 624 12/30/93 1978
Colorado Springs CO 245 5,236 - -- 245 5,236 5,481 300 09/26/97 1972
Delta CO 167 3,570 - -- 167 3,570 3,737 204 09/26/97 1963
Canon City CO 292 6,228 - -- 292 6,228 6,520 357 09/26/97 1970
Killingly CT 240 5,360 460 -- 240 5,820 6,060 2,123 05/15/87 1972
Willimantic CT 134 3,566 479 -- 166 4,013 4,179 1,411 05/15/87 1965
Waterford CT 86 4,714 453 -- 86 5,167 5,253 1,952 05/15/87 1965
Cheshire CT 520 7,380 1,559 -- 520 8,939 9,459 3,204 11/01/87 1963
Waterbury CT 1,003 9,023 915 (5,694) 1,003 4,244 5,247 445 05/11/92 1974
New Haven CT 1,681 14,953 1,236 (12,154) 1,681 4,035 5,716 667 05/11/92 1971
Deerfield Beach FL 1,664 14,972 299 -- 1,690 15,245 16,935 2,143 05/16/94 1986
Palm Harbor FL 3,327 29,945 591 -- 3,379 30,484 33,863 4,285 05/16/94 1992
Boca Raton FL 4,404 39,633 799 -- 4,474 40,362 44,836 5,673 05/20/94 1994
Port St. Lucie FL 1,223 11,009 219 -- 1,242 11,209 12,451 1,575 05/20/94 1993
Fort Myers FL 2,349 21,137 419 -- 2,385 21,520 23,905 2,892 08/16/94 1984
S-1
<PAGE>
<CAPTION>
SENIOR HOUSING PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(Dollars in thousands)
Initial Cost Gross Amount Carried at Close
to Company of Period 12/31/99
---------------- ---------------------------
Buildings Costs Capitalized Buildings Original
and Subsequent to and Accumulated Date Construction
Location State Land Equipment Acquisition Impairment Land Equipment Total(1) Depreciation(2) Aquired Date
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Marietta GA 300 2,702 35 -- 300 2,737 3,037 292 05/15/96 1967
Dublin GA 442 3,982 80 -- 442 4,062 4,504 432 05/15/96 1968
Glenwood GA 174 1,564 4 -- 174 1,568 1,742 160 05/15/96 1972
College Park GA 300 2,702 23 -- 300 2,725 3,025 304 05/15/96 1985
Mediapolis IA 94 1,776 251 -- 94 2,027 2,121 366 12/30/93 1973
Winterset IA 111 2,099 493 -- 111 2,592 2,703 454 12/30/93 1973
Clarinda IA 77 1,453 293 -- 77 1,746 1,823 308 12/30/93 1968
Pacific Junction IA 32 306 5 -- 32 311 343 40 04/01/95 1978
Council Bluffs IA 225 893 99 -- 225 992 1,217 189 04/01/95 1963
Arlington Heights IL 3,621 32,587 534 -- 3,665 33,077 36,742 4,377 09/09/94 1986
Chicago IL 6,200 55,800 - -- 6,200 55,800 62,000 4,243 12/27/96 1990
Ellinwood KS 130 1,137 53 -- 130 1,190 1,320 155 04/01/95 1972
Middleboro MA 1,771 15,752 - -- 1,771 15,752 17,523 4,676 05/01/88 1970
Worcester MA 1,829 15,071 1,869 -- 1,829 16,940 18,769 6,608 05/01/88 1970
Boston MA 2,164 20,836 1,978 -- 2,164 22,814 24,978 8,345 05/01/89 1968
Hyannis MA 829 7,463 - -- 829 7,463 8,292 2,240 05/11/92 1972
Silver Spring MD 3,229 29,065 786 -- 3,301 29,779 33,080 4,063 07/25/94 1992
St. Joseph MO 111 1,027 195 -- 111 1,222 1,333 185 06/04/93 1976
Tarkio MO 102 1,938 415 -- 102 2,353 2,455 408 12/30/93 1970
Concord NC 90 2,126 - -- 90 2,126 2,216 544 09/10/98 1990
Wilson NC 27 2,375 - -- 27 2,375 2,402 606 09/10/98 1990
Winston-Salem NC 75 1,696 - -- 75 1,696 1,771 429 09/10/98 1990
Grand Island NE 119 1,446 369 -- 119 1,815 1,934 195 04/01/95 1963
Burlington NJ 1,300 11,700 7 -- 1,300 11,707 13,007 1,245 09/29/95 1994
Brighton NY 1,070 9,630 - -- 1,070 9,630 10,700 732 12/27/96 1988
Grove City OH 332 3,081 32 -- 332 3,113 3,445 508 06/04/93 1965
Canonsburg PA 1,499 13,493 606 -- 1,518 14,080 15,598 4,675 03/01/91 1985
Huron SD 45 968 1 -- 45 969 1,014 204 06/30/92 1968
Sioux Falls SD 253 3,062 4 -- 253 3,066 3,319 647 06/30/92 1960
Huron SD 144 3,108 4 -- 144 3,112 3,256 654 06/30/92 1968
S-2
<PAGE>
<CAPTION>
SENIOR HOUSING PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(Dollars in thousands)
Initial Cost Gross Amount Carried at Close
to Company of Period 12/31/99
---------------- ---------------------------
Buildings Costs Capitalized Buildings Original
and Subsequent to and Accumulated Date Construction
Location State Land Equipment Acquisition Impairment Land Equipment Total(1) Depreciation(2) Aquired Date
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bellaire TX 1,223 11,010 177 -- 1,238 11,172 12,410 1,570 05/16/94 1991
Virginia Beach VA 881 7,926 141 -- 893 8,055 8,948 1,132 05/16/94 1990
Charlottesville VA 2,936 26,422 471 -- 2,976 26,853 29,829 3,719 06/17/94 1991
Arlington VA 1,859 16,734 296 -- 1,885 17,004 18,889 2,320 07/25/94 1992
Seattle WA 256 4,869 67 -- 256 4,936 5,192 938 11/01/93 1964
Spokane WA 1,035 13,315 - -- 1,035 13,315 14,350 938 05/07/97 1993
Brookfield WI 834 3,849 8,014 (5,806) 834 6,057 6,891 470 12/28/90 1964
Clintonville WI 49 1,625 87 -- 30 1,731 1,761 436 12/28/90 1965
Clintonville WI 14 1,695 38 -- 14 1,733 1,747 438 12/28/90 1960
Madison WI 144 1,633 110 -- 144 1,743 1,887 439 12/28/90 1920
Waukesha WI 68 3,452 2,232 -- 68 5,684 5,752 1,189 12/28/90 1958
Milwaukee WI 277 3,883 - -- 277 3,883 4,160 883 03/27/92 1969
Milwaukee WI 232 1,368 1 -- 232 1,369 1,601 319 09/10/98 1970
Pewaukee WI 984 2,432 - -- 984 2,432 3,416 589 09/10/98 1963
Worland WY 132 2,503 588 -- 132 3,091 3,223 526 12/30/93 1970
Laramie WY 191 3,632 199 -- 191 3,831 4,022 715 12/30/93 1964
-------- --------- -------- ---------- -------- --------- --------- ---------
Grand Total $69,030 $628,080 $35,283 ($23,654) $69,673 $639,066 $708,739 $108,709
======== ========= ======== ========== ======== ========= ========= =========
<FN>
(1) Aggregate cost for federal income tax purposes is approximately $770,860.
(2) Depreciation is provided for on buildings and improvements for periods ranging up to 40 years and on equipment up to 12 years.
(3) Represents acquisition dates of HRPT Properties Trust.
</FN>
S-3
<PAGE>
<CAPTION>
SENIOR HOUSING PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(Dollars in thousands)
Initial Cost Gross Amount Carried at Close
to Company of Period 12/31/99
---------------- ---------------------------
Buildings Costs Capitalized Buildings Original
and Subsequent to and Accumulated Date Construction
Location State Land Equipment Acquisition Impairment Land Equipment Total(1) Depreciation(2) Aquired Date
- - ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Reconciliation of the carrying amount of real estate and
equipment and accumulated depreciation at the beginning of the
period:
Real Estate and Accumulated
Equipment Depreciation
-------------------- ----------------
<S> <C> <C>
Balance at January 1, 1997 $692,034 $56,387
Additions 28,953 17,826
-------------------- ----------------
Balance at December 31, 1997 720,987 74,213
Additions 11,406 20,403
-------------------- ----------------
Balance at December 31, 1998 732,393 94,616
Additions - 22,247
Impairment (23,654) (8,154)
-------------------- ----------------
Balance at December 31, 1999 $708,739 $108,709
==================== ================
</TABLE>
S-4
<PAGE>
<TABLE>
<CAPTION>
SENIOR HOUSING PROPERTIES TRUST
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
December 31, 1999
(Dollars in thousands)
Principal Amount of
Loans Subject to
Carrying Delinquent
Final Face Value of Value of Principal
Location Interest Rate Maturity Date Periodic Payment Terms Mortgage (1) Mortgage or Interest
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Farmington, MI 11.50% 1/1/06 Principal and interest, payable monthly in $4,156 $4,156 $--
arrears. $3.8 million due at maturity.
Howell, MI 11.50% 1/1/06 Principal and interest, payable monthly in 4,930 4,930 --
arrears. $4.5 million due at maturity.
Lyons, NE 10.30% 12/31/16 Principal and interest, payable monthly in 1,549 1,549
Milford, NE arrears. $926 due at maturity.
Ainsworth, NE 10.86% 12/31/16 Principal and interest, payable monthly in 5,109 5,109 --
Ashland, NE arrears. $3.1 million due at maturity.
Blue Hill, NE
Gretna, NE
Sutherland, NE
Waverly, NE
Ainsworth, NE 11.23% 12/31/16 Principal and interest, payable monthly in 2,035 2,035 --
Ashland, NE arrears. $1.3 million due at maturity.
Blue Hill, NE
Edgar, NE
Gretna, NE
Sutherland, NE
Waverly, NE
Lyons, NE
Milford, NE
Slidell, LA 11.00% 12/31/10 Principal and interest, payable monthly in 18,777 4,277 --
arrears. $13.9 million due at maturity.
Milwaukee, WI 13.75% 1/31/13 Interest only, payable monthly in advance. 883 883 --
$883 due at maturity.
-------------- ------------- ----------
$37,439 $22,939 $--
============== ============= ==========
<FN>
(1) Also represents cost for federal income tax purposes.
</FN>
</TABLE>
S-5
<PAGE>
SENIOR HOUSING PROPERTIES TRUST
SCHEDULE IV-continued
MORTGAGE LOANS ON REAL ESTATE
December 31, 1999
(Dollars in thousands)
Reconciliation of the carrying amount of mortgage loans at the
beginning of the period:
Balance at January 1, 1997 $38,270
New mortgage loans 124
Collections of principal (260)
----------------
Balance at December 31, 1997 38,134
Collections of principal (308)
----------------
Balance at December 31, 1998 37,826
Collections of principal (387)
Loan loss reserve (14,500)
----------------
Balance at December 31, 1999 $22,939
================
S-6
<PAGE>
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: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons, or by their
attorney-in-fact, in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David J. Hegarty President and Chief Operating Officer March 30, 2000
David J. Hegarty
/s/ Ajay Saini Treasurer and Chief Financial Officer March 30, 2000
Ajay Saini
/s/ Bruce M. Gans, M.D. Trustee March 30, 2000
Bruce M. Gans, M.D.
/s/ Arthur G. Koumantzelis Trustee March 30, 2000
Arthur G. Koumantzelis
/s/ John L. Harrington Trustee March 30, 2000
John L. Harrington
/s/ Gerard M. Martin Trustee March 30, 2000
Gerard M. Martin
/s/ Barry M. Portnoy Trustee March 30, 2000
Barry M. Portnoy
</TABLE>
Exhibit 3.1
SENIOR HOUSING PROPERTIES TRUST
ARTICLES OF AMENDMENT AND RESTATEMENT
FIRST: Senior Housing Properties Trust, a Maryland real estate
investment trust (the "Trust") formed under Title 8 of the Corporations and
Associations Article of the Annotated Code of Maryland (as amended and in effect
from time to time, and including any successor title thereto, "Title 8"),
desires to amend and restate its Declaration of Trust as currently in effect and
as hereinafter amended. All references in the Declaration of Trust to specific
sections of Title 8 shall include applicable successor provisions.
SECOND: The following provisions are all the provisions of the
Declaration of Trust currently in effect and as hereinafter amended:
ARTICLE I
FORMATION
The Trust is a real estate investment trust within the meaning of Title
8. It is also intended that the Trust shall carry on a business as a "qualified
REIT subsidiary" as described in the REIT provisions of the Code (as defined in
Article VII below), for so long as it is wholly owned by HRPT Properties Trust
and thereafter shall qualify and carry on business as a "real estate investment
trust" as described therein. The Trust shall not be deemed to be a general
partnership, limited partnership, joint venture, joint stock company or a
corporation, but nothing herein shall preclude the Trust from being treated for
tax purposes as an association under the Code; nor shall the Trustees or
shareholders or any of them for any purpose be, nor be deemed to be, nor be
treated in any way whatsoever as, liable or responsible hereunder as partners or
joint venturers.
ARTICLE II
NAME
The name of the Trust is:
Senior Housing Properties Trust
Under circumstances in which the Board of Trustees of the Trust (the
"Board of Trustees" or "Board") determines that the use of the name of the Trust
is not practicable, the Trust may use any other designation or name for the
Trust. To the extent permitted by Maryland law, the Board of Trustees may amend
the Declaration of Trust to change the name of the Trust without any action by
the shareholders.
<PAGE>
ARTICLE III
PURPOSES AND POWERS
Section 3.1 Purposes. The purposes for which the Trust is formed are to
invest in and to acquire, hold, manage, administer, control and dispose of
property and interests in property, including, without limitation or obligation,
engaging in business as a real estate investment trust under the Code.
Section 3.2 Powers. The Trust shall have all of the powers granted to
real estate investment trusts by Title 8 and all other powers set forth in the
Declaration of Trust which are not inconsistent with law and are appropriate to
promote and attain the purposes set forth in the Declaration of Trust.
ARTICLE IV
RESIDENT AGENT
The name of the resident agent of the Trust in the State of Maryland is
James J. Hanks, Jr., whose post office address is c/o Ballard Spahr Andrews &
Ingersoll, LLP, 300 East Lombard Street, Baltimore, Maryland 21202. The resident
agent is a citizen of and resides in the State of Maryland. The Trust may change
such resident agent from time to time as the Board of Trustees shall determine.
The Trust may have such offices or places of business within or outside the
State of Maryland as the Board of Trustees may from time to time determine.
ARTICLE V
BOARD OF TRUSTEES
Section 5.1 Powers. Subject to any express limitations contained in the
Declaration of Trust or in the Bylaws, (a) the business and affairs of the Trust
shall be managed under the direction of the Board of Trustees and (b) the Board
shall have full, exclusive and absolute power, control and authority over any
and all property of the Trust. The Board may take any action as in its sole
judgment and discretion is necessary or appropriate to conduct the business and
affairs of the Trust. The Declaration of Trust shall be construed with the
presumption in favor of the grant of power and authority to the Board. Any
construction of the Declaration of Trust or determination made in good faith by
the Board concerning its powers and authority hereunder shall be conclusive. The
enumeration and definition of particular powers of the Trustees included in the
Declaration of Trust or in the Bylaws shall in no way be construed or deemed by
inference or otherwise in any manner to exclude or limit the powers conferred
upon the Board or the Trustees under the general laws of the State of Maryland
or any other applicable laws.
The Board, without any action by the shareholders of the Trust, shall
have and may exercise, on behalf of the Trust, without limitation, the power to
terminate the status of the Trust as a real estate investment trust under the
Code; to determine that compliance with any restriction or limitations on
ownership and transfers of shares of the Trust's beneficial interest set forth
in Article
-2-
<PAGE>
VII of the Declaration of Trust is no longer required in order for the Trust to
qualify as a real estate investment trust; to adopt, amend and repeal Bylaws not
inconsistent with law or this Declaration of Trust; to elect officers in the
manner prescribed in the Bylaws; to solicit proxies from holders of shares of
beneficial interest of the Trust; and to do any other acts and deliver any other
documents necessary or appropriate to the foregoing powers.
Section 5.2 Number and Classification.
Section 5.2.1 The number of trustees of the Trust (hereinafter
the "Trustees") initially shall be two (2). On the first date on which the Trust
shall have more than one shareholder of record, the number of the Trustees shall
automatically and without further action by the Board of Trustees increase to
five (5), which number may thereafter be increased or decreased pursuant to the
Bylaws of the Trust; provided, however, that no such increase or decrease shall
result in the Trust having fewer than three (3) or more than seven (7) Trustees.
Any vacancies in the Board of Trustees shall be filled by a majority of the
Trustees then in office, except that a majority of the entire Board of Trustees
must fill a vacancy resulting from an increase in the number of Trustees.
Section 5.2.2 On the first date on which the Trust shall have
more than one shareholder of record, the Board of Trustees shall be classified
into three groups: Group I, Group II and Group III. The number of Trustees in
each group shall be determined by the Board in accordance with the Bylaws;
provided that the number of Trustees in any one group shall not exceed the
number of Trustees in any other group by more than one. The Trustees in Group I
shall serve for a term ending at the first annual meeting of shareholders
following the end of the Trust's fiscal year ending December 31, 1999, each
Trustee in Group II shall serve for a term ending at the following annual
meeting of shareholders and the Trustee in Group III shall serve for a term
ending at the second following annual meeting of shareholders. After the
respective terms of the groups indicated, each such group of Trustees shall be
elected for successive terms ending at the annual meeting of shareholders held
during the third year after election.
Section 5.2.3 The names and business addresses of the initial
Trustees who shall serve as Trustees are as follows:
Name Address
- - ---- -------
Gerard M. Martin c/o Reit Management & Research, Inc.
400 Centre Street
Newton, Massachusetts 02458
Barry M. Portnoy c/o Reit Management & Research, Inc.
400 Centre Street
Newton, Massachusetts 02458
Section 5.2.4 The Trustees may fill any vacancy, whether
resulting from an increase in the number of Trustees or otherwise, on the Board
in the manner provided in the Bylaws. It shall not be necessary to list in the
Declaration of Trust the names and addresses of any Trustees hereinafter
elected. No reduction in the number of Trustees shall have the effect of
removing any Trustee from office prior to the expiration of his or her term.
Subject to the provisions of Section
-3-
<PAGE>
5.3, each Trustee shall hold office until the election and qualification of his
or her successor. There shall be no cumulative voting in the election of
Trustees.
Section 5.3 Resignation or Removal. Any Trustee may resign by written
notice to the Board, effective upon execution and delivery to the Trust of such
written notice or upon any future date specified in the notice. A Trustee may be
removed at any time with or without cause, at a meeting of the shareholders, by
the affirmative vote of the holders of not less than two-thirds (2/3) of the
Shares (as defined in Section 6.1 below) then outstanding and entitled to vote
generally in the election of Trustees. A Trustee judged incompetent or for whom
a guardian or conservator has been appointed shall be deemed to have resigned as
of the date of such adjudication or appointment.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
Section 6.1 Authorized Shares. The beneficial interest of the Trust
shall be divided into shares of beneficial interest (the "Shares"). The Trust
has authority to issue 50,000,000 Shares, all of which are initially comprised
of common shares of beneficial interest, $.01 par value per share ("Common
Shares"). If shares of one class are classified or reclassified into shares of
another class of shares pursuant to this Article VI, the number of authorized
shares of the former class shall be automatically decreased and the number of
shares of the latter class shall be automatically increased, in each case by the
number of shares so classified or reclassified, so that the aggregate number of
shares of beneficial interest of all classes that the Trust has authority to
issue shall not be more than the total number of shares of beneficial interest
set forth in the second sentence of this paragraph. The Board of Trustees,
without any action by the shareholders of the Trust, may amend the Declaration
of Trust from time to time to increase or decrease the aggregate number of
Shares or the number of Shares of any class or series, including preferred
shares of beneficial interest ("Preferred Shares"), that the Trust has authority
to issue.
Section 6.2 Common Shares. Subject to the provisions of Article VII,
each Common Share shall entitle the holder thereof to one vote on each matter
upon which holders of Common Shares are entitled to vote. The Board of Trustees
may reclassify any unissued Common Shares from time to time in one or more
classes or series of Shares.
Section 6.3 Preferred Shares. The Board of Trustees may classify any
unissued Preferred Shares and reclassify any previously classified but unissued
Preferred Shares of any series from time to time, in one or more series of
Shares.
Section 6.4 Classified or Reclassified Shares. Prior to issuance of
classified or reclassified Shares of any class or series, the Board of Trustees
by resolution shall (a) designate that class or series; (b) specify the number
of Shares to be included in the class or series; (c) set, subject to the
provisions of Article VII, the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms and conditions of redemption for each class or series;
and (d) cause the Trust to file articles supplementary with the State Department
of Assessments and Taxation of Maryland (the "SDAT"). Any of the terms of any
class or series of Shares set pursuant to clause (c) of this Section 6.4 may be
made dependent upon
-4-
<PAGE>
facts ascertainable outside the Declaration of Trust (including the occurrence
of any event, determination or action by the Trust or any other person or body)
and may vary among holders thereof, provided that the manner in which such facts
or variations shall operate upon the terms of such class or series of Shares is
clearly and expressly set forth in the articles supplementary filed with the
SDAT.
Section 6.5 Authorization by Board of Share Issuance. The Board of
Trustees may authorize the issuance from time to time of Shares of any class or
series, whether now or hereafter authorized, or securities or rights convertible
into Shares of any class or series, whether now or hereafter authorized, for
such consideration (whether in cash, property, past or future services,
obligation for future payment or otherwise) as the Board of Trustees may deem
advisable (or without consideration), subject to such restrictions or
limitations, if any, as may be set forth in this Declaration of Trust or the
Bylaws of the Trust.
Section 6.6 Dividends and Distributions. The Board of Trustees may from
time to time authorize and declare to shareholders such dividends or
distributions, in cash or other assets of the Trust or in securities of the
Trust or from any other source as the Board of Trustees in its discretion shall
determine. Shareholders shall have no right to any dividend or distribution
unless and until authorized and declared by the Board. The exercise of the
powers and rights of the Board of Trustees pursuant to this Section 6.6 shall be
subject to the provisions of any class or series of Shares at the time
outstanding.
Section 6.7 General Nature of Shares. All Shares shall be personal
property entitling the shareholders only to those rights provided in the
Declaration of Trust. The shareholders shall have no interest in the property of
the Trust and shall have no right to compel any partition, division, dividend or
distribution of the Trust or of the property of the Trust. The death of a
shareholder shall not terminate the Trust or affect its continuity nor give his
or her legal representative any rights whatsoever, whether against or in respect
of other shareholders, the Trustees or the trust estate or otherwise, except the
sole right to demand and, subject to the provisions of the Declaration of Trust,
the Bylaws and any requirements of law, to receive a new certificate for Shares
registered in the name of such legal representative, in exchange for the
certificate held by such shareholder. The Trust is entitled to treat as
shareholders only those persons in whose names Shares are registered as holders
of Shares on the beneficial interest ledger of the Trust.
Section 6.8 Fractional Shares. The Trust may, without the consent or
approval of any shareholder, issue fractional Shares, eliminate a fraction of a
Share by rounding up or down to a full Share, arrange for the disposition of a
fraction of a Share by the person entitled to it or pay cash for the fair value
of a fraction of a Share.
Section 6.9 Declaration and Bylaws. All shareholders are subject to the
provisions of the Declaration of Trust and the Bylaws of the Trust.
Section 6.10 Divisions and Combinations of Shares. Subject to an
express provision to the contrary in the terms of any class or series of
beneficial interest hereafter authorized, the Board of Trustees shall have the
power to divide or combine the outstanding shares of any class or series of
beneficial interest, without a vote of shareholders.
-5-
<PAGE>
ARTICLE VII
RESTRICTION ON TRANSFER AND OWNERSHIP OF SHARES
Section 7.1 Definitions. For the purpose of this Article VII, the
following terms shall have the following meanings:
Affiliate. The term "Affiliate" shall mean, with respect to any Person,
another Person controlled by, controlling or under common control with such
Person.
Aggregate Share Ownership Limit. The term "Aggregate Share Ownership
Limit" shall mean 9.8 percent in value or in number of the aggregate of the
outstanding Equity Shares. The value of the outstanding Equity Shares shall be
determined by the Board of Trustees in good faith, which determination shall be
conclusive for all purposes hereof.
Beneficial Ownership. The term "Beneficial Ownership" shall mean
ownership of Equity Shares by a Person, whether the interest in Equity Shares is
held directly or indirectly (including by a nominee), and shall include, but not
be limited to, interests that would be treated as owned through the application
of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The
terms "Beneficial Owner," "Beneficially Owns" and "Beneficially Owned" shall
have the correlative meanings.
Business Day. The term "Business Day" shall mean any day, other than a
Saturday or Sunday, that is neither a legal holiday nor a day on which banking
institutions in New York City are authorized or required by law, regulation or
executive order to close.
Charitable Beneficiary. The term "Charitable Beneficiary" shall mean
one or more beneficiaries of the Charitable Trust as determined pursuant to
Section 7.3.6, provided that each such organization must be described in Section
501(c)(3) of the Code and contributions to each such organization must be
eligible for deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the
Code. If the Code shall cease to define a charitable organization, "Charitable
Beneficiary" shall mean an entity organized to do work for charitable purposes
and not for profit.
Charitable Trust. The term "Charitable Trust" shall mean any trust
provided for in Section 7.3.1.
Code. The term "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time. All references to specific sections of the Code shall
include applicable successor provisions.
Common Share Ownership Limit. The term "Common Share Ownership Limit"
shall mean 9.8 percent (in value or in number of shares, whichever is more
restrictive) of the aggregate outstanding Common Shares. The number and value of
outstanding Common Shares shall be determined by the Board of Trustees in good
faith, which determination shall be conclusive for all purposes.
-6-
<PAGE>
Constructive Ownership. The term "Constructive Ownership" shall mean
ownership of Equity Shares by a Person, whether the interest in Equity Shares is
held directly or indirectly (including by a nominee), and shall include, but not
be limited to, interests that would be treated as owned through the application
of Section 318(a) of the Code, as modified by Section 856(d)(5) of the Code. The
terms "Constructive Owner," "Constructively Owns" and "Constructively Owned"
shall have the correlative meanings.
Declaration of Trust. The term "Declaration of Trust" shall mean these
Articles of Amendment and Restatement as accepted for record by the SDAT, and
any amendments thereto.
Equity Shares. The term "Equity Shares" shall mean Shares of all
classes or series, including, without limitation, Common Shares and Preferred
Shares.
Excepted Holder. The term "Excepted Holder" shall mean a shareholder of
the Trust for whom an Excepted Holder Limit is created by this Article VII or by
the Board of Trustees pursuant to Section 7.2.7.
Excepted Holder Limit. The term "Excepted Holder Limit" shall mean,
provided that the affected Excepted Holder agrees to comply with the
requirements established by the Board of Trustees pursuant to Section 7.2.7, and
subject to adjustment pursuant to Section 7.2.8, the percentage limit
established by the Board of Trustees pursuant to Section 7.2.7.
HRPT. The term "HRPT" shall mean HRPT Properties Trust, a Maryland real
estate investment trust, or any successor thereto by merger or consolidation, or
any transferee of all or substantially all of its assets.
Initial Date. The term "Initial Date" shall mean the date upon which
these Articles of Amendment and Restatement containing this Article VII is
accepted for record by the SDAT.
Market Price. The term "Market Price" on any date shall mean, with
respect to any class or series of outstanding Equity Shares, the Closing Price
for such Equity Shares on such date. The "Closing Price" on any date shall mean
the last sale price for such Equity Shares, regular way, or, in case no such
sale takes place on such day, the average of the closing bid and asked prices,
regular way, for such Equity Shares, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the NYSE or, if such Equity Shares are not listed or
admitted to trading on the NYSE, as reported on the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which such Equity Shares are listed or admitted
to trading or, if such Equity Shares are not listed or admitted to trading on
any national securities exchange, the last quoted price, or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or, if such system is no longer in use, the principal other
automated quotation system that may then be in use or, if such Equity Shares are
not quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in such
Equity Shares selected by the Board of Trustees or, in the event that no trading
price is available for such Equity Shares, the fair market value of Equity
Shares, as determined in good faith by the Board of Trustees.
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NYSE. The term "NYSE" shall mean the New York Stock Exchange.
Person. The term "Person" shall mean an individual, corporation,
partnership, estate, trust (including, but not limited to, a trust qualified
under Sections 401(a) or 501(c)(17) of the Code), a portion of a trust
permanently set aside for or to be used exclusively for the purposes described
in Section 642(c) of the Code, association, private foundation within the
meaning of Section 509(a) of the Code, joint stock company or other entity and
also includes a group as that term is used for purposes of Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended, and a group to which an
Excepted Holder Limit applies.
Prohibited Owner. The term "Prohibited Owner" shall mean, with respect
to any purported Transfer, any Person who, but for the provisions of Section
7.2.1, would Beneficially Own or Constructively Own Equity Shares, and if
appropriate in the context, shall also mean any Person who would have been the
record owner of Equity Shares that the Prohibited Owner would have so owned.
REIT. The term "REIT" shall mean a real estate investment trust within
the meaning of Section 856 of the Code.
Restriction Termination Date. The term "Restriction Termination Date"
shall mean the first day after the Initial Date on which the Board of Trustees
determines that it is no longer in the best interests of the Trust for the
restrictions and limitations on Beneficial Ownership, Constructive Ownership and
Transfers of Equity Shares set forth herein to apply.
RMR. The term "RMR" shall mean REIT Management & Research, Inc., the
Trust's investment advisor, or any successor investment advisor to the Trust.
SDAT. The term "SDAT" shall mean the State Department of Assessments
and Taxation of Maryland.
Transfer. The term "Transfer" shall mean any issuance, sale, transfer,
gift, assignment, devise or other disposition, as well as any other event that
causes any Person to acquire Beneficial Ownership or Constructive Ownership, or
any agreement to take any such actions or cause any such events, of Equity
Shares or the right to vote or receive dividends on Equity Shares, including (a)
the granting or exercise of any option (or any disposition of any option), (b)
any disposition of any securities or rights convertible into or exchangeable for
Equity Shares or any interest in Equity Shares or any exercise of any such
conversion or exchange right and (c) Transfers of interests in other entities
that result in changes in Beneficial or Constructive Ownership of Equity Shares;
in each case, whether voluntary or involuntary, whether owned of record,
Constructively Owned or Beneficially Owned and whether by operation of law or
otherwise. The terms "Transferring" and "Transferred" shall have the correlative
meanings.
Trustee. The term "Trustee" shall mean the Person unaffiliated with the
Trust and a Prohibited Owner, that is appointed by the Trust to serve as trustee
of the Charitable Trust.
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Section 7.2 Equity Shares.
Section 7.2.1 Ownership Limitations. During the period
commencing on the Initial Date and prior to the Restriction Termination Date:
(a) Basic Restrictions.
(i) (1) No Person, other than an Excepted Holder and other
than HRPT, RMR and their affiliates, shall Beneficially Own or Constructively
Own Equity Shares in excess of the Aggregate Share Ownership Limit, (2) no
Person, other than an Excepted Holder and other than HRPT, RMR and their
affiliates, shall Beneficially Own or Constructively Own Common Shares in excess
of the Common Share Ownership Limit and (3) no Excepted Holder shall
Beneficially Own or Constructively Own Equity Shares in excess of the Excepted
Holder Limit for such Excepted Holder.
(ii) No Person shall Beneficially or Constructively Own
Equity Shares to the extent that such Beneficial or Constructive Ownership of
Equity Shares would result in the Trust being "closely held" within the meaning
of Section 856(h) of the Code (without regard to whether the ownership interest
is held during the last half of a taxable year), or otherwise failing to qualify
as a REIT (including, but not limited to, Beneficial or Constructive Ownership
that would result in the Trust owning (actually or Constructively) an interest
in a tenant that is described in Section 856(d)(2)(B) of the Code if the income
derived by the Trust from such tenant would cause the Trust to fail to satisfy
any of the gross income requirements of Section 856(c) of the Code).
(iii) Subject to Section 7.4, notwithstanding any other
provisions contained herein, any Transfer of Equity Shares (whether or not such
Transfer is the result of a transaction entered into through the facilities of
the NYSE or any other national securities exchange or automated inter-dealer
quotation system) that, if effective, would result in Equity Shares being
beneficially owned by less than 100 Persons (determined under the principles of
Section 856(a)(5) of the Code) shall be void ab initio, and the intended
transferee shall acquire no rights in such Equity Shares.
(b) Transfer in Trust. If any Transfer of Equity Shares occurs
which, if effective, would result in any Person Beneficially Owning or
Constructively Owning Equity Shares in violation of Section 7.2.1(a)(i) or (ii),
(i) then that number of Equity Shares the Beneficial or
Constructive Ownership of which otherwise would cause such Person to violate
Section 7.2.1(a)(i) or (ii) (rounded up to the nearest whole share) shall be
automatically transferred to a Charitable Trust for the benefit of a Charitable
Beneficiary, as described in Section 7.3, effective as of the close of business
on the Business Day prior to the date of such Transfer, and such Person shall
acquire no rights in such Equity Shares; or
(ii) if the transfer to the Charitable Trust described in
clause (i) of this sentence would not be effective for any reason to prevent the
violation of Section 7.2.1(a)(i) or (ii), then the Transfer of that number of
Equity Shares that otherwise would cause any Person to violate
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Section 7.2.1(a)(i) or (ii) shall be void ab initio, and the intended transferee
shall acquire no rights in such Equity Shares.
Section 7.2.2 Remedies for Breach. If the Board of Trustees or
any duly authorized committee thereof shall at any time determine in good faith
that a Transfer or other event has taken place that results in a violation of
Section 7.2.1 or that a Person intends to acquire or has attempted to acquire
Beneficial or Constructive Ownership of any Equity Shares in violation of
Section 7.2.1 (whether or not such violation is intended), the Board of Trustees
or a committee thereof shall take such action as it deems advisable to refuse to
give effect to or to prevent such Transfer or other event, including, without
limitation, causing the Trust to redeem Equity Shares, refusing to give effect
to such Transfer on the books of the Trust or instituting proceedings to enjoin
such Transfer or other event; provided, however, that any Transfers or attempted
Transfers or other events in violation of Section 7.2.1 shall automatically
result in the transfer to the Charitable Trust described above, and, where
applicable, such Transfer (or other event) shall be void ab initio as provided
above irrespective of any action (or non-action) by the Board of Trustees or a
committee thereof.
Section 7.2.3 Notice of Restricted Transfer. Any Person who
acquires or attempts or intends to acquire Beneficial Ownership or Constructive
Ownership of Equity Shares that will or may violate Section 7.2.1(a), or any
Person who would have owned Equity Shares that resulted in a transfer to the
Charitable Trust pursuant to the provisions of Section 7.2.1(b), shall
immediately give written notice to the Trust of such event, or in the case of
such a proposed or attempted transaction, give at least 15 days prior written
notice, and shall provide to the Trust such other information as the Trust may
request in order to determine the effect, if any, of such Transfer.
Section 7.2.4 Owners Required To Provide Information. From the
Initial Date and prior to the Restriction Termination Date:
(a) every owner of more than five percent (or such lower
percentage as required by the Code or the Treasury Regulations promulgated
thereunder) of the outstanding Equity Shares, within 30 days after the end of
each taxable year, shall give written notice to the Trust stating the name and
address of such owner, the number of Equity Shares and other Equity Shares
Beneficially Owned and a description of the manner in which such shares are
held. Each such owner shall provide to the Trust such additional information as
the Trust may request in order to determine the effect, if any, of such
Beneficial Ownership on the Trust's status as a REIT and to ensure compliance
with the Aggregate Share Ownership Limit.
(b) each Person who is a Beneficial or Constructive Owner of
Equity Shares and each Person (including the shareholder of record) who is
holding Equity Shares for a Beneficial or Constructive Owner shall provide to
the Trust such information as the Trust may request, in good faith, in order to
determine the Trust's status as a REIT and to comply with requirements of any
taxing authority or governmental authority or to determine such compliance.
Section 7.2.5 Remedies Not Limited. Subject to Section 5.1 of
the Declaration of Trust, nothing contained in this Section 7.2 shall limit the
authority of the Board of Trustees to take such other action as it deems
necessary or advisable to protect the Trust and the interests of its
shareholders in preserving the Trust's status as a REIT.
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Section 7.2.6 Ambiguity. In the case of an ambiguity in the
application of any of the provisions of this Section 7.2, Section 7.3 or any
definition contained in Section 7.1, the Board of Trustees shall have the power
to determine the application of the provisions of this Section 7.2 or Section
7.3 with respect to any situation based on the facts known to it. In the event
Section 7.2 or 7.3 requires an action by the Board of Trustees and the
Declaration of Trust fails to provide specific guidance with respect to such
action, the Board of Trustees shall have the power to determine the action to be
taken so long as such action is not contrary to the provisions of Sections 7.1,
7.2 or 7.3.
Section 7.2.7 Exceptions.
(a) Subject to Section 7.2.1(a)(ii), the Board of Trustees, in
its sole discretion, may exempt a Person from the Aggregate Share Ownership
Limit and the Common Share Ownership Limit, as the case may be, and may (but is
not required to) establish or increase an Excepted Holder Limit for such Person
if:
(i) the Board of Trustees obtains such representations and
undertakings from such Person as are reasonably necessary to ascertain that no
individual's Beneficial or Constructive Ownership of such Equity Shares will
violate Section 7.2.1(a)(ii);
(ii) such Person does not and represents that it will not
own, actually or Constructively, an interest in a tenant of the Trust (or a
tenant of any entity owned or controlled by the Trust) that would cause the
Trust to own, actually or Constructively, more than a 9.9% interest (as set
forth in Section 856(d)(2)(B) of the Code) in such tenant and the Board of
Trustees obtains such representations and undertakings from such Person as are
reasonably necessary to ascertain this fact (for this purpose, a tenant from
whom the Trust (or an entity owned or controlled by the Trust) derives (and is
expected to continue to derive) a sufficiently small amount of revenue such
that, in the opinion of the Board of Trustees, rent from such tenant would not
adversely affect the Trust's ability to qualify as a REIT, shall not be treated
as a tenant of the Trust); and
(iii) such Person agrees that any violation or attempted
violation of such representations or undertakings (or other action which is
contrary to the restrictions contained in Sections 7.2.1 through 7.2.6) will
result in such Equity Shares being automatically transferred to a Charitable
Trust in accordance with Sections 7.2.1(b) and 7.3.
(b) Prior to granting any exception pursuant to Section
7.2.7(a), the Board of Trustees may require a ruling from the Internal Revenue
Service, or an opinion of counsel, in either case in form and substance
satisfactory to the Board of Trustees in its sole discretion, as it may deem
necessary or advisable in order to determine or ensure the Trust's status as a
REIT. Notwithstanding the receipt of any ruling or opinion, the Board of
Trustees may impose such conditions or restrictions as it deems appropriate in
connection with granting such exception.
(c) In determining whether to grant any exemption pursuant to
Section 7.2.7(a), the Board of Trustees may consider, among other factors, (i)
the general reputation and moral character of the person requesting an
exemption, (ii) whether ownership of shares would be direct or through ownership
attribution, (iii) whether the person's ownership of shares would adversely
affect the Trust's ability to acquire additional properties or engage in other
business and (iv) whether
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granting an exemption for the person requesting an exemption would adversely
affect any of the Trust's existing contractual arrangements.
(d) Subject to Section 7.2.1(a)(ii), an underwriter which
participates in a public offering or a private placement of Equity Shares (or
securities convertible into or exchangeable for Equity Shares) may Beneficially
Own or Constructively Own Equity Shares (or securities convertible into or
exchangeable for Equity Shares) in excess of the Aggregate Share Ownership
Limit, the Common Share Ownership Limit or both such limits, but only to the
extent necessary to facilitate such public offering or private placement.
(e) The Board of Trustees may only reduce the Excepted Holder
Limit for an Excepted Holder: (1) with the written consent of such Excepted
Holder at any time, or (2) pursuant to the terms and conditions of the
agreements and undertakings entered into with such Excepted Holder in connection
with the establishment of the Excepted Holder Limit for that Excepted Holder. No
Excepted Holder Limit shall be reduced to a percentage that is less than the
Common Share Ownership Limit for an Excepted Holder without the written consent
of such Excepted Holder.
Section 7.2.8 Increase in Aggregate Share Ownership and Common
Share Ownership Limits. The Board of Trustees may from time to time increase the
Common Share Ownership Limit and the Aggregate Share Ownership Limit.
Section 7.2.9 Legend. Each certificate for Equity Shares shall
bear substantially the following legend:
The shares evidenced by this certificate are subject to
restrictions on Beneficial and Constructive Ownership and
Transfer for the purpose, among others, of the Trust's
maintenance of its status as a Real Estate Investment Trust (a
"REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"). Subject to certain further restrictions and
except as expressly provided in the Trust's Declaration of
Trust, (i) no Person may Beneficially or Constructively Own
Common Shares of the Trust in excess of 9.8 percent (in value
or number of shares) of the outstanding Common Shares of the
Trust unless such Person is an Excepted Holder (in which case
the Excepted Holder Limit shall be applicable); (ii) no Person
may Beneficially or Constructively Own Equity Shares of the
Trust in excess of 9.8 percent of the value of the total
outstanding Equity Shares of the Trust, unless such Person is
an Excepted Holder (in which case the Excepted Holder Limit
shall be applicable); (iii) no Person may Beneficially or
Constructively Own Equity Shares that would result in the
Trust being "closely held" under Section 856(h) of the Code or
otherwise cause the Trust to fail to qualify as a REIT; and
(iv) no Person may Transfer Equity Shares if such Transfer
would result in Equity Shares of the Trust being owned by
fewer than 100 Persons. Any Person who Beneficially or
Constructively Owns or attempts to Beneficially or
Constructively Own Equity Shares which cause or will cause a
Person to Beneficially or Constructively Own Equity Shares in
excess or in violation of the above limitations must
immediately notify the Trust. If any of the restrictions on
transfer or ownership are violated, the Equity
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Shares represented hereby will be automatically transferred to
a Trustee of a Charitable Trust for the benefit of one or more
Charitable Beneficiaries. In addition, upon the occurrence of
certain events, attempted Transfers in violation of the
restrictions described above may be void ab initio. All
capitalized terms in this legend have the meanings defined in
the Trust's Declaration of Trust, as the same may be amended
from time to time, a copy of which, including the restrictions
on transfer and ownership, will be furnished to each holder of
Equity Shares of the Trust on request and without charge.
Instead of the foregoing legend, the certificate may state
that the Trust will furnish a full statement about certain restrictions on
transferability to a shareholder on request and without charge.
Section 7.3 Transfer of Equity Shares in Trust.
Section 7.3.1 Ownership in Trust. Upon any purported Transfer
or other event described in Section 7.2.1(b) that would result in a transfer of
Equity Shares to a Charitable Trust, such Equity Shares shall be deemed to have
been transferred to the Trustee as trustee of a Charitable Trust for the
exclusive benefit of one or more Charitable Beneficiaries. Such transfer to the
Trustee shall be deemed to be effective as of the close of business on the
Business Day prior to the purported Transfer or other event that results in the
transfer to the Charitable Trust pursuant to Section 7.2.1(b). The Trustee shall
be appointed by the Trust and shall be a Person unaffiliated with the Trust and
any Prohibited Owner. Each Charitable Beneficiary shall be designated by the
Trust as provided in Section 7.3.6.
Section 7.3.2 Status of Shares Held by the Trustee. Equity
Shares held by the Trustee shall be issued and outstanding Equity Shares of the
Trust. The Prohibited Owner shall have no rights in the shares held by the
Trustee. The Prohibited Owner shall not benefit economically from ownership of
any shares held in trust by the Trustee, shall have no rights to dividends or
other distributions and shall not possess any rights to vote or other rights
attributable to the shares held in the Charitable Trust.
Section 7.3.3 Dividend and Voting Rights. The Trustee shall
have all voting rights and rights to dividends or other distributions with
respect to Equity Shares held in the Charitable Trust, which rights shall be
exercised for the exclusive benefit of the Charitable Beneficiary. Any dividend
or other distribution paid prior to the discovery by the Trust that Equity
Shares have been transferred to the Trustee shall be paid with respect to such
Equity Shares to the Trustee upon demand and any dividend or other distribution
authorized but unpaid shall be paid when due to the Trustee. Any dividends or
distributions so paid over to the Trustee shall be held in trust for the
Charitable Beneficiary. The Prohibited Owner shall have no voting rights with
respect to shares held in the Charitable Trust and, subject to Maryland law,
effective as of the date that Equity Shares have been transferred to the
Trustee, the Trustee shall have the authority (at the Trustee's sole discretion)
(i) to rescind as void any vote cast by a Prohibited Owner prior to the
discovery by the Trust that Equity Shares have been transferred to the Trustee
and (ii) to recast such vote in accordance with the desires of the Trustee
acting for the benefit of the Charitable Beneficiary; provided, however, that if
the Trust has already taken irreversible trust action, then the Trustee shall
not have the authority
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to rescind and recast such vote. Notwithstanding the provisions of this Article
VII, until the Trust has received notification that Equity Shares have been
transferred into a Charitable Trust, the Trust shall be entitled to rely on its
share transfer and other shareholder records for purposes of preparing lists of
shareholders entitled to vote at meetings, determining the validity and
authority of proxies and otherwise conducting votes of shareholders.
Section 7.3.4 Sale of Shares by Trustee. Within 20 days of
receiving notice from the Trust that Equity Shares have been transferred to the
Charitable Trust, the Trustee of the Charitable Trust shall sell the shares held
in the Charitable Trust to a person, designated by the Trustee, whose ownership
of the shares will not violate the ownership limitations set forth in Section
7.2.1(a). Upon such sale, the interest of the Charitable Beneficiary in the
shares sold shall terminate and the Trustee shall distribute the net proceeds of
the sale to the Prohibited Owner and to the Charitable Beneficiary as provided
in this Section 7.3.4. The Prohibited Owner shall receive the lesser of (1) the
price paid by the Prohibited Owner for the shares or, if the Prohibited Owner
did not give value for the shares in connection with the event causing the
shares to be held in the Charitable Trust (e.g., in the case of a gift, devise
or other such transaction), the Market Price of the shares on the day of the
event causing the shares to be held in the Charitable Trust and (2) the price
per share received by the Trustee from the sale or other disposition of the
shares held in the Charitable Trust. Any net sales proceeds in excess of the
amount payable to the Prohibited Owner shall be immediately paid to the
Charitable Beneficiary. If, prior to the discovery by the Trust that Equity
Shares have been transferred to the Trustee, such shares are sold by a
Prohibited Owner, then (i) such shares shall be deemed to have been sold on
behalf of the Charitable Trust and (ii) to the extent that the Prohibited Owner
received an amount for such shares that exceeds the amount that such Prohibited
Owner was entitled to receive pursuant to this Section 7.3.4, such excess shall
be paid to the Trustee upon demand.
Section 7.3.5 Purchase Right in Shares Transferred to the
Trustee. Equity Shares transferred to the Trustee shall be deemed to have been
offered for sale to the Trust, or its designee, at a price per share equal to
the lesser of (i) the price per share in the transaction that resulted in such
transfer to the Charitable Trust (or, in the case of a devise or gift, the
Market Price at the time of such devise or gift) and (ii) the Market Price on
the date the Trust, or its designee, accepts such offer. The Trust shall have
the right to accept such offer until the Trustee has sold the shares held in the
Charitable Trust pursuant to Section 7.3.4. Upon such a sale to the Trust, the
interest of the Charitable Beneficiary in the shares sold shall terminate and
the Trustee shall distribute the net proceeds of the sale to the Prohibited
Owner.
Section 7.3.6 Designation of Charitable Beneficiaries. By
written notice to the Trustee, the Trust shall designate one or more nonprofit
organizations to be the Charitable Beneficiary of the interest in the Charitable
Trust such that Equity Shares held in the Charitable Trust would not violate the
restrictions set forth in Section 7.2.1(a) in the hands of such Charitable
Beneficiary.
Section 7.4 NYSE Transactions. Nothing in this Article VII shall
preclude the settlement of any transaction entered into through the facilities
of the NYSE or any other national securities exchange or automated inter-dealer
quotation system. The fact that the settlement of any transaction occurs shall
not negate the effect of any other provision of this Article VII and any
transferee in such a transaction shall be subject to all of the provisions and
limitations set forth in this Article VII.
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Section 7.5 Enforcement. The Trust is authorized specifically to seek
equitable relief, including injunctive relief, to enforce the provisions of this
Article VII.
Section 7.6 Non-Waiver. No delay or failure on the part of the Trust or
the Board of Trustees in exercising any right hereunder shall operate as a
waiver of any right of the Trust or the Board of Trustees, as the case may be,
except to the extent specifically waived in writing.
ARTICLE VIII
SHAREHOLDERS
Section 8.1 Meetings. There shall be an annual meeting of the
shareholders, to be held on proper notice at such time (after the delivery of
the annual report) and convenient location as shall be determined by or in the
manner prescribed in the Bylaws, for the election of the Trustees, if required,
and for the transaction of any other business within the powers of the Trust.
Except as otherwise provided in the Declaration of Trust, special meetings of
shareholders may be called in the manner provided in the Bylaws. Shareholders
meetings, including the annual meeting and any special meetings, may be called
only by the Board of Trustees. If there are no Trustees, the officers of the
Trust shall promptly call a special meeting of the shareholders entitled to vote
for the election of successor Trustees. Any meeting may be adjourned and
reconvened as the Trustees determine or as provided in the Bylaws.
Section 8.2 Voting Rights. Subject to the provisions of any class or
series of Shares then outstanding, the shareholders shall be entitled to vote
only on the following matters: (a) election of Trustees as provided in Section
5.2 and the removal of Trustees as provided in Section 5.3; (b) amendment of the
Declaration of Trust as provided in Article X; (c) termination of the Trust as
provided in Section 12.2; (d) merger or consolidation of the Trust to the extent
required by Title 8, or the sale or disposition of substantially all of the
Trust Property, as provided in Article XI; and (e) such other matters with
respect to which the Board of Trustees has adopted a resolution declaring that a
proposed action is advisable and directing that the matter be submitted to the
shareholders for approval or ratification. Except with respect to the foregoing
matters, no action taken by the shareholders at any meeting shall in any way
bind the Board of Trustees.
Section 8.3 Preemptive and Appraisal Rights. Except as may be provided
by the Board of Trustees in setting the terms of classified or reclassified
Shares pursuant to Section 6.4, or as may otherwise be provided by contract, no
holder of Shares shall, as such holder, (a) have any preemptive right to
purchase or subscribe for any additional Shares of the Trust or any other
security of the Trust which it may issue or sell or (b) have any right to
require the Trust to pay him the fair value of his Shares in an appraisal or
similar proceeding.
Section 8.4 Extraordinary Actions. Except as specifically provided in
Section 5.3 (relating to removal of Trustees) and subject to Section 8.5,
notwithstanding any provision of law permitting or requiring any action to be
taken or authorized by the affirmative vote of the holders of a greater number
of votes, any such action shall be effective and valid if taken or approved by
(i) the affirmative vote of holders of Shares entitled to cast a majority of all
the votes entitled to be cast on
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the matter, or (ii) if Maryland law hereafter permits the effectiveness of a
vote described in this clause (ii), the affirmative vote of a majority of the
votes cast on the matter.
Section 8.5 Board Approval. The submission of any action to the
shareholders for their consideration shall first be approved or advised by the
Board of Trustees, and the shareholders shall not otherwise be entitled to act
thereon.
Section 8.6 Action By Shareholders Without a Meeting. To the extent, if
any, permitted by the Bylaws of the Trust, any action required or permitted to
be taken by the shareholders may be taken without a meeting by the written
consent of the shareholders entitled to cast a sufficient number of votes to
approve the matter as required by statute, the Declaration of Trust or the
Bylaws of the Trust, as the case may be.
ARTICLE IX
LIABILITY LIMITATION, INDEMNIFICATION
AND TRANSACTIONS WITH THE TRUST
Section 9.1 Limitation of Shareholder Liability. No shareholder shall
be liable for any debt, claim, demand, judgment or obligation of any kind of,
against or with respect to the Trust by reason of his being a shareholder, nor
shall any shareholder be subject to any personal liability whatsoever, in tort,
contract or otherwise, to any person in connection with the property or the
affairs of the Trust by reason of his being a shareholder.
Section 9.2 Limitation of Trustee and Officer Liability. To the maximum
extent that Maryland law in effect from time to time permits limitation of the
liability of trustees and officers of a real estate investment trust, no current
or former Trustee or officer of the Trust shall be liable to the Trust or to any
shareholder for money damages. Neither the amendment nor repeal of this Section
9.2, nor the adoption or amendment of any other provision of the Declaration of
Trust inconsistent with this Section 9.2, shall apply to or affect in any
respect the applicability of the preceding sentence with respect to any act or
failure to act which occurred prior to such amendment, repeal or adoption. In
the absence of any Maryland statute limiting the liability of trustees and
officers of a Maryland real estate investment trust for money damages in a suit
by or on behalf of the Trust or by any shareholder, or arising by reason of his
or her action on behalf of the Trust, no Trustee or officer of the Trust shall
be liable to the Trust or to any shareholder for money damages except to the
extent that (a) the Trustee or officer actually received an improper benefit or
profit in money, property or services, for the amount of the benefit or profit
in money, property or services actually received, or (b) a judgment or other
final adjudication adverse to the Trustee or officer is entered in a proceeding
based on a finding in the proceeding that the Trustee's or officer's action or
failure to act was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding.
Section 9.3 Express Exculpatory Clauses and Instruments. Any written
instrument creating an obligation of the Trust shall, to the extent practicable,
include a reference to this Declaration and provide that neither the
shareholders nor the Trustees nor any officers, employees or agents (including
the Trust's advisor, the "Advisor") of the Trust shall be liable thereunder and
that all
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persons shall look solely to the trust estate for the payment of any claim
thereunder or for the performance thereof; however, the omission of such
provision from any such instrument shall not render the shareholders, any
Trustee, or any officer, employee or agent (including the Advisor) of the Trust
liable, nor shall the shareholders, any Trustee or any officer, employee or
agent (including the Advisor) of the Trust be liable to anyone for such
omission.
Section 9.4 Indemnification. The Trust shall, to the maximum extent
permitted by Maryland law in effect from time to time, indemnify, and pay or
reimburse reasonable expenses in advance of final disposition of a proceeding
to, (a) any individual who is a present or former shareholder, Trustee or
officer of the Trust or (b) any individual who, while a Trustee of the Trust and
at the request of the Trust, serves or has served as a trustee, director,
officer, partner, employee or agent of another real estate investment trust,
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise from and against any claim or liability to which such person
may become subject or which such person may incur by reason of his status as a
present or former shareholder, Trustee or officer of the Trust. The Trust shall
have the power, with the approval of its Board of Trustees, to provide such
indemnification and advancement of expenses to a person who served a predecessor
of the Trust in any of the capacities described in (a) or (b) above and to any
employee or agent of the Trust or a predecessor of the Trust.
Section 9.5 Transactions Between the Trust and its Trustees, Officers,
Employees and Agents. (a) Subject to any express restrictions adopted by the
Trustees in the Bylaws or by resolution, the Trust may enter into any contract
or transaction of any kind, whether or not any of its Trustees, officers,
employees or agents has a financial interest in such transaction, with any
person, including any Trustee, officer, employee or agent of the Trust or any
person affiliated with a Trustee, officer, employee or agent of the Trust or in
which a Trustee, officer, employee or agent of the Trust has a material
financial interest.
(b) To the extent permitted by Maryland law, a contract or other
transaction between the Trust and any Trustee or between the Trust and RMR or
any other corporation, trust, firm, or other entity in which any Trustee is a
director or trustee or has a material financial interest shall not be void or
voidable if:
(i) The fact of the common directorship, trusteeship or
interest is disclosed or known to:
(A) The Board of Trustees or a proper committee
thereof, and the Board of Trustees or such Committee
authorizes, approves or ratifies the contract or transaction
by the affirmative vote of a majority of disinterested
Trustees, even if the disinterested Trustees constitute less
than a quorum; or
(B) The shareholders entitled to vote, and the
contract or transaction is authorized, approved, or ratified
by a majority of the votes cast by the shareholders entitled
to vote other than the votes of shares owned of record or
beneficially by the interested trustee, corporation, trust,
firm or other entity; or
(C) The contract or transaction is fair and
reasonable to the Trust.
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<PAGE>
(ii) Common or interested trustees or the shares owned by them
or by an interested corporation, trust, firm or other entity may be
counted in determining the presence of a quorum at a meeting of the
Board of Trustees or a committee thereof or at a meeting of the
shareholders, as the case may be, at which the contract or transaction
is authorized, approved or ratified.
(c) The failure of a contract or other transaction between the Trust
and any Trustee or between the Trust and RMR or any other corporation, trust,
firm, or other entity in which any Trustee is a director or trustee or has a
material financial interest to satisfy the criteria set forth in Section 9.5(b)
shall not create any presumption that such contract or other transaction is
void, voidable or otherwise invalid, and any such contract or other transaction
shall be valid to the fullest extent permitted by Maryland law. To the fullest
extent permitted by Maryland law, (i) the fixing by the Board of Trustees of
compensation for a Trustee (whether as a Trustee or in any other capacity) and
(ii) Section 9.4 of this Declaration of Trust or any provision of the Bylaws or
any contract or transaction requiring or permitting indemnification (including
advancing of expenses) in accordance with terms and procedures not materially
less favorable to the Trust than those described in Section 2-418 (or any
successor section thereto) of the Maryland General Corporation Law (as in effect
at the time such provision was adopted or such contract or transaction was
entered into or as it may thereafter be in effect) shall be deemed to have
satisfied the criteria set forth in Section 9.5(b).
Section 9.6 Right of Trustees, Officers, Employees and Agents to Own
Shares or Other Property and to Engage in Other Business. Subject to any
restrictions which may be adopted by the Trustees in the Bylaws or otherwise:
Any Trustee or officer, employee or agent of the Trust may acquire, own, hold
and dispose of Shares in the Trust, for his or her individual account, and may
exercise all rights of a shareholder to the same extent and in the same manner
as if he or she were not a Trustee or officer, employee or agent of the Trust.
Any Trustee or officer, employee or agent of the Trust may, in his or her
personal capacity or in the capacity of trustee, officer, director, stockholder,
partner, member, advisor or employee of any Person or otherwise, have business
interests and engage in business activities similar to or in addition to those
relating to the Trust, which interests and activities may be similar to and
competitive with those of the Trust and may include the acquisition,
syndication, holding, management, development, operation or disposition, for his
own account, or for the account of such Person or others, of interests in
mortgages, interests in real property, or interests in Persons engaged in the
real estate business. Each Trustee, officer, employee and agent of the Trust
shall be free of any obligation to present to the Trust any investment
opportunity which comes to him or her in any capacity other than solely as
Trustee, officer, employee or agent of the Trust even if such opportunity is of
a character which, if presented to the Trust, could be taken by the Trust. Any
Trustee or officer, employee or agent of the Trust may be interested as trustee,
officer, director, stockholder, partner, member, advisor or employee of, or
otherwise have a direct or indirect interest in, any Person who may be engaged
to render advice or services to the Trust, and may receive compensation from
such Person as well as compensation as Trustee, officer, employee or agent or
otherwise hereunder. None of these activities shall be deemed to conflict with
his or her duties and powers as Trustee or officer, employee or agent of the
Trust.
Section 9.7 Persons Dealing with Trustees, Officers, Employees or
Agents. Any act of the Trustees or of the officers, employees or agents of the
Trust purporting to be done in their capacity as such, shall, as to any Persons
dealing with such Trustees, officers, employees or agents, be
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<PAGE>
conclusively deemed to be within the purposes of this Trust and within the
powers of such Trustees or officers, employees or agents. No Person dealing with
the Board or any of the Trustees or with the officers, employees or agents of
the Trust shall be bound to see to the application of any funds or property
passing into their hands or control. The receipt of the Board or any of the
Trustees, or of authorized officers, employees or agents of the Trust, for
moneys or other consideration, shall be binding upon the Trust.
Section 9.8 Reliance. The Trustees and the officers, employees and
agents of the Trust may consult with counsel and the advice or opinion of such
counsel shall be full and complete personal protection to all the Trustees and
the officers, employees and agents of the Trust in respect of any action taken
or suffered by them in good faith and in reliance on or in accordance with such
advice or opinion. In discharging their duties, Trustees or officers, employees
or agents of the Trust, when acting in good faith, may rely upon financial
statements of the Trust represented to them to fairly present the financial
position or results of operations of the Trust by the chief financial officer of
the Trust or the officer of the Trust having charge of its books of account, or
stated in a written report by an independent certified public accountant fairly
to present the financial position or results of operations of the Trust. The
Trustees and the officers, employees and agents of the Trust may rely, and shall
be personally protected in acting, upon any instrument or other document
believed by them to be genuine.
ARTICLE X
AMENDMENTS
Section 10.1 General. The Trust reserves the right from time to time to
make any amendment to the Declaration of Trust, now or hereafter authorized by
law, including any amendment altering the terms or contract rights, as expressly
set forth in the Declaration of Trust, of any Shares, except that the provisions
governing the personal liability of the shareholders, Trustees and of the
officers, employees and agents of the Trust and the prohibition of assessments
upon shareholders may not be amended in any respect that could increase the
personal liability of such shareholders, Trustees or officers, employees and
agents of the Trust. All rights and powers conferred by the Declaration of Trust
on shareholders, Trustees and officers are granted subject to this reservation.
An amendment to the Declaration of Trust (a) shall be signed and acknowledged by
at least a majority of the Trustees, or an officer duly authorized by at least a
majority of the Trustees, (b) shall be filed for record as provided in Section
13.5 and (c) shall become effective as of the later of the time the SDAT accepts
the amendment for record or the time established in the amendment, not to exceed
thirty (30) days after the amendment is accepted for record. All references to
the Declaration of Trust shall include all amendments thereto.
Section 10.2 By Trustees. The Trustees may amend this Declaration of
Trust from time to time, in the manner provided by Title 8, without any action
by the shareholders, to qualify as a real estate investment trust under the Code
or under Title 8 and as otherwise provided in Section 8-501(e) of Title 8 and
the Declaration of Trust. If permitted by Maryland law as in effect from time to
time, the Trustees may amend this Declaration of Trust from time to time in any
other respect, in accordance with such law, without any action by the
shareholders.
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<PAGE>
Section 10.3 By Shareholders. Except as otherwise provided in Section
10.2 and subject to the following sentence, any amendment to this Declaration of
Trust must first be advised by the Board of Trustees and then shall be valid
only if approved by (i) the affirmative vote of a majority of all the votes
entitled to be cast on the matter or (ii) if Maryland law hereafter permits the
effectiveness of a vote described in this clause (ii), the affirmative vote of a
majority of the votes cast on the matter. Any amendment to Section 5.2.2 or 5.3
or to this sentence of the Declaration of Trust shall be valid only if approved
by the Board of Trustees and then by the affirmative vote of two- thirds (2/3)
of all votes entitled to be cast on the matter.
ARTICLE XI
MERGER, CONSOLIDATION OR SALE OF TRUST PROPERTY
Subject to the provisions of any class or series of Shares at the time
outstanding, the Trust may (a) merge with or into another entity, (b)
consolidate with one or more other entities into a new entity or (c) sell,
lease, exchange or otherwise transfer all or substantially all of the trust
property. Any such action must first be approved by the Board of Trustees and,
after notice to all shareholders entitled to vote on the matter, by (i) the
affirmative vote of a majority of all the votes entitled to be cast on the
matter or (ii) if Maryland law hereafter permits the effectiveness of a vote
described in this clause (ii), the affirmative vote of a majority of the votes
cast on the matter
ARTICLE XII
DURATION AND TERMINATION OF TRUST
Section 12.1 Duration. The Trust shall continue perpetually unless
terminated pursuant to Section 12.2.
Section 12.2 Termination.
(a) Subject to the provisions of any class or series of Shares
at the time outstanding, after approval by a majority of the entire Board of
Trustees, the Trust may be terminated at any meeting of shareholders by (i) the
affirmative vote of a majority of all the votes entitled to be cast on the
matter or (ii) or if hereafter expressly authorized by Title 8, the affirmative
vote of a majority of the votes cast on the matter. Upon the termination of the
Trust:
(i) The Trust shall carry on no business except for the
purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of
the Trust and all of the powers of the Trustees under the Declaration of Trust
shall continue, including the powers to fulfill or discharge the Trust's
contracts, collect its assets, sell, convey, assign, exchange, transfer or
otherwise dispose of all or any part of the remaining property of the Trust to
one or more persons at public or private sale for consideration which may
consist in whole or in part of cash, securities
-20-
<PAGE>
or other property of any kind, discharge or pay its liabilities and do all other
acts appropriate to liquidate its business.
(iii) After paying or adequately providing for the payment
of all liabilities, and upon receipt of such releases, indemnities and
agreements as they deem necessary for their protection, the Trust may distribute
the remaining property of the Trust among the shareholders so that after payment
in full or the setting apart for payment of such preferential amounts, if any,
to which the holders of any Shares at the time outstanding shall be entitled,
the remaining property of the Trust shall, subject to any participating or
similar rights of Shares at the time outstanding, be distributed ratably among
the holders of Common Shares at the time outstanding.
(b) After termination of the Trust, the liquidation of its
business and the distribution to the shareholders as herein provided, a majority
of the Trustees shall execute and file with the Trust's records a document
certifying that the Trust has been duly terminated and the Trustees shall be
discharged from all liabilities and duties hereunder, and the rights and
interests of all shareholders shall cease.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 Governing Law. The Declaration of Trust is executed and
delivered with reference to the laws of the State of Maryland, and the rights of
all parties and the validity, construction and effect of every provision hereof
shall be subject to and construed according to the laws of the State of
Maryland.
Section 13.2 Reliance by Third Parties. Any certificate shall be final
and conclusive as to any person dealing with the Trust if executed by the
Secretary or an Assistant Secretary of the Trust or a Trustee, and if certifying
to: (a) the number or identity of Trustees, officers of the Trust or
shareholders; (b) the due authorization of the execution of any document; (c)
the action or vote taken, and the existence of a quorum, at a meeting of the
Board of Trustees or shareholders; (d) a copy of the Declaration of Trust or of
the Bylaws as a true and complete copy as then in force; (e) an amendment to the
Declaration of Trust; (f) the termination of the Trust; or (g) the existence of
any fact relating to the affairs of the Trust. No purchaser, lender, transfer
agent or other person shall be bound to make any inquiry concerning the validity
of any transaction purporting to be made by the Trust on its behalf or by any
officer, employee or agent of the Trust.
Section 13.3 Severability.
(a) The provisions of the Declaration of Trust are severable,
and if the Board of Trustees shall determine, with the advice of counsel, that
any one or more of such provisions (the "Conflicting Provisions") are in
conflict with the Code, Title 8 or other applicable federal or state laws, the
Conflicting Provisions, to the extent of the conflict, shall be deemed never to
have constituted a part of the Declaration of Trust, even without any amendment
of the Declaration of Trust pursuant to Article X and without affecting or
impairing any of the remaining provisions of the Declaration of Trust or
rendering invalid or improper any action taken or omitted (including but
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<PAGE>
not limited to the election of Trustees) prior to such determination. No Trustee
shall be liable for making or failing to make such a determination. In the event
of any such determination by the Board of Trustees, the Board shall amend the
Declaration of Trust in the manner provided in Section 10.2.
(b) If any provision of the Declaration of Trust shall be held
invalid or unenforceable in any jurisdiction, such holding shall apply only to
the extent of any such invalidity or unenforceability and shall not in any
manner affect, impair or render invalid or unenforceable such provision in any
other jurisdiction or any other provision of the Declaration of Trust in any
jurisdiction.
Section 13.4 Construction. In the Declaration of Trust, unless the
context otherwise requires, words used in the singular or in the plural include
both the plural and singular and words denoting any gender include all genders.
The title and headings of different parts are inserted for convenience and shall
not affect the meaning, construction or effect of the Declaration of Trust. In
defining or interpreting the powers and duties of the Trust and its Trustees and
officers, reference may be made by the Trustees or officers, to the extent
appropriate and not inconsistent with the Code or Title 8, to Titles 1 through 3
of the Corporations and Associations Article of the Annotated Code of Maryland.
In furtherance and not in limitation of the foregoing, in accordance with the
provisions of Title 3, Subtitles 6 and 7, of the Corporations and Associations
Article of the Annotated Code of Maryland, the Trust shall be included within
the definition of "corporation" for purposes of such provisions.
Section 13.5 Recordation. The Declaration of Trust and any amendment
hereto shall be filed for record with the SDAT and may also be filed or recorded
in such other places as the Trustees deem appropriate, but failure to file for
record the Declaration of Trust or any amendment hereto in any office other than
in the State of Maryland shall not affect or impair the validity or
effectiveness of the Declaration of Trust or any amendment hereto. A restated
Declaration of Trust shall, upon filing, be conclusive evidence of all
amendments contained therein and may thereafter be referred to in lieu of the
original Declaration of Trust and the various amendments thereto.
THIRD: The amendment to and restatement of the Declaration of Trust of
the Trust as hereinabove set forth have been duly advised by the Board of
Trustees and approved by the shareholders of the Trust as required by law.
FOURTH: The total number of shares of beneficial interest which the
Trust has authority to issue has not been amended by this amendment and
restatement.
The undersigned President acknowledges these Articles of Amendment and
Restatement to be the trust act of the Trust, and as to all matters or facts
required to be verified under oath, the undersigned President acknowledges, that
to the best of his knowledge, information and belief, these matters and facts
are true in all material respects and that this statement is made under the
penalties for perjury.
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<PAGE>
IN WITNESS WHEREOF, the Trust has caused these Articles of Amendment
and Restatement to be signed in its name and on its behalf by its President and
attested to by its Assistant Secretary on this 20th day of September, 1999.
ATTEST: SENIOR HOUSING PROPERTIES TRUST
/s/ Alexander A. Notopoulos, Jr. /s/ David J. Hegarty (SEAL)
- - -------------------------------- -------------------------------
Alexander A. Notopoulos, Jr. David J. Hegarty
Assistant Secretary President
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Exhibit 3.2
SENIOR HOUSING PROPERTIES TRUST
AMENDED AND RESTATED BYLAWS
As Amended and Restated September 20, 1999
As Further Amended on March 24, 2000
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
ARTICLE I OFFICES...................................................................................1
Section 1.1 Principal Office.............................................................1
Section 1.2 Additional Offices...........................................................1
ARTICLE II MEETINGS OF SHAREHOLDERS..................................................................1
Section 2.1 Place........................................................................1
Section 2.2 Annual Meeting...............................................................1
Section 2.3 Special Meetings.............................................................1
Section 2.4 Notice of Regular or Special Meetings........................................1
Section 2.5 Notice of Adjourned Meetings.................................................2
Section 2.6 Scope of Notice..............................................................2
Section 2.7 Organization of Shareholder Meetings.........................................2
Section 2.8 Quorum.......................................................................2
Section 2.9 Voting.......................................................................2
Section 2.10 Proxies.....................................................................3
Section 2.11 Voting Rights...............................................................3
Section 2.12 Voting of Shares by Certain Holders.........................................3
Section 2.13 Inspectors..................................................................4
Section 2.14 Reports to Shareholders.....................................................4
Section 2.15 Nominations and Proposals by Shareholders...................................4
Section 2.16 No Shareholder Actions by Written Consent...................................6
Section 2.17 Voting by Ballot............................................................6
ARTICLE III TRUSTEES..................................................................................6
Section 3.1 General Powers; Qualifications; Trustees Holding Over........................6
Section 3.2 Independent Trustees.........................................................7
Section 3.3 Managing Trustees............................................................7
Section 3.4 Number.......................................................................7
Section 3.5 Annual and Regular Meetings..................................................7
Section 3.6 Special Meetings.............................................................7
Section 3.7 Notice.......................................................................7
Section 3.8 Quorum.......................................................................7
Section 3.9 Voting.......................................................................8
Section 3.10 Telephone Meetings..........................................................8
Section 3.11 Informal Action by Trustees.................................................8
Section 3.12 Waiver of Notice............................................................8
Section 3.13 Vacancies...................................................................8
Section 3.14 Compensation; Financial Assistance..........................................9
Section 3.15 Removal of Trustees.........................................................9
Section 3.16 Loss of Deposits............................................................9
Section 3.17 Surety Bonds...............................................................10
Section 3.18 Reliance...................................................................10
Section 3.19 Interested Trustee Transactions............................................10
<PAGE>
Section 3.20 Qualifying Shares Not Required.............................................10
Section 3.21 Certain Rights of Trustees, Officers, Employees and Agents.................10
Section 3.22 Certain Transactions.......................................................10
ARTICLE IV COMMITTEES...............................................................................10
Section 4.1 Number; Tenure and Qualifications...........................................10
Section 4.2 Powers......................................................................10
Section 4.3 Meetings....................................................................10
Section 4.4 Telephone Meetings..........................................................11
Section 4.5 Informal Action by Committees...............................................11
Section 4.6 Vacancies...................................................................11
ARTICLE V OFFICERS.................................................................................11
Section 5.1 General Provisions..........................................................11
Section 5.2 Removal and Resignation.....................................................12
Section 5.3 Vacancies...................................................................12
Section 5.4 Chief Executive Officer.....................................................12
Section 5.5 Chief Operating Officer.....................................................12
Section 5.6 Chief Financial Officer.....................................................12
Section 5.7 Chairman and Vice Chairman of the Board.....................................12
Section 5.8 President...................................................................13
Section 5.9 Vice Presidents.............................................................13
Section 5.10 Secretary..................................................................13
Section 5.11 Treasurer..................................................................13
Section 5.12 Assistant Secretaries and Assistant Treasurers.............................13
ARTICLE VI CONTRACTS, LOANS, CHECKS AND DEPOSITS....................................................14
Section 6.1 Contracts...................................................................14
Section 6.2 Checks and Drafts...........................................................14
Section 6.3 Deposits....................................................................14
ARTICLE VII SHARES...................................................................................14
Section 7.1 Certificates................................................................14
Section 7.2 Transfers...................................................................14
Section 7.3 Replacement Certificate.....................................................15
Section 7.4 Closing of Transfer Books or Fixing of Record Date..........................15
Section 7.5 Share Ledger................................................................16
Section 7.6 Fractional Shares; Issuance of Units........................................16
ARTICLE VIII FISCAL YEAR..............................................................................16
ARTICLE IX DISTRIBUTIONS............................................................................16
Section 9.1 Authorization...............................................................16
Section 9.2 Contingencies...............................................................16
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ARTICLE X SEAL.....................................................................................16
Section 10.1 Seal.......................................................................16
Section 10.2 Affixing Seal..............................................................16
ARTICLE XI INDEMNIFICATION AND ADVANCE OF EXPENSES..................................................17
ARTICLE XII WAIVER OF NOTICE.........................................................................18
ARTICLE XIII THE ADVISOR..............................................................................18
Section 13.1 Employment of Advisor......................................................18
Section 13.2 Other Activities of Advisor................................................18
ARTICLE XIV AMENDMENT OF BYLAWS......................................................................19
ARTICLE XV MISCELLANEOUS............................................................................19
Section 15.1 References to Declaration of Trust.........................................19
Section 15.2 Inspection of Bylaws.......................................................19
</TABLE>
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<PAGE>
SENIOR HOUSING PROPERTIES TRUST
AMENDED AND RESTATED BYLAWS
ARTICLE I
OFFICES
Section 1.1 Principal Office. The principal office of the Trust shall
be located at such place or places as the Board of Trustees may designate.
Section 1.2 Additional Offices. The Trust may have additional offices
at such places as the Board of Trustees may from time to time determine or the
business of the Trust may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.1 Place. All meetings of shareholders shall be held at the
principal office of the Trust or at such other place within the United States as
is designated by the Trustees or the Chairman or President, given either before
or after the meeting and filed with the Secretary of the Trust.
Section 2.2 Annual Meeting. An annual meeting of the shareholders for
the election of Trustees and the transaction of any business within the powers
of the Trust shall be held on the second Thursday in May or such other date as
the Board of Trustees may set, after delivery to the shareholders of the annual
report, referred to in Section 2.14, at a convenient location and on proper
notice, and at the time set by the Trustees, beginning with the year 2000.
Failure to hold an annual meeting does not invalidate the Trust's existence or
affect any otherwise valid acts of the Trust.
Section 2.3 Special Meetings. Special meetings of shareholders may be
called only by a majority of the Trustees. If there shall be no Trustees, the
officers of the Trust shall promptly call a special meeting of the shareholders
entitled to vote for the election of successor Trustees. No business shall be
transacted by the shareholders at a special meeting other than business that is
either (i) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Trustees (or any duly authorized committee
thereof) or (ii) otherwise properly brought before the shareholders by or at the
direction of the Trustees.
Section 2.4 Notice of Regular or Special Meetings. Written notice
specifying the place, day and hour of any regular or special meeting, the
purposes of the meeting, and all other matters required by law shall be given to
each shareholder of record entitled to vote, either personally or by sending a
copy thereof by mail, telegraph or telecopier, charges prepaid, to his address
appearing on the books of the Trust or theretofore given by him to the Trust for
the purpose of notice or, if no address appears or has been given, addressed to
the place where the principal office of the Trust is situated. If mailed, such
notice shall be deemed to be given when deposited in the U.S. mail addressed to
the shareholder at his post office address as it appears on the records of the
Trust, with
<PAGE>
postage thereon prepaid. It shall be the duty of the Secretary to give notice of
each Annual Meeting of the Shareholders at least fifteen (15) days and not more
than sixty (60) days before the date on which it is to be held. Whenever an
officer has been duly requested by the Trustees to call a special meeting of
shareholders, it shall be his duty to fix the date and hour thereof, which date
shall be not less than twenty (20) days and not more than sixty (60) days after
the receipt of such request, and to give notice of such special meeting within
ten (10) days after receipt of such request.
Section 2.5 Notice of Adjourned Meetings. It shall not be necessary to
give notice of the time and place of any adjourned meeting or of the business to
be transacted thereat other than by announcement at the meeting at which such
adjournment is taken, except that when a meeting is adjourned for more than 120
days after the original record date, notice of the adjourned meeting shall be
given as in the case of an original meeting.
Section 2.6 Scope of Notice. No business shall be transacted at an
annual or special meeting of shareholders except as specifically designated in
the notice and otherwise properly brought before the shareholders by or at the
direction of the Trustees.
Section 2.7 Organization of Shareholder Meetings. At every meeting of
the shareholders, the chairman of the board, if there be one, shall conduct the
meeting or, in the case of vacancy in office or absence of the chairman of the
board, one of the following officers present shall conduct the meeting in the
order stated: the vice chairman of the board, if there be one, the president,
the vice presidents in their order of rank and seniority, or a chairman chosen
by the shareholders entitled to cast a majority of the votes which all
shareholders present in person or by proxy are entitled to cast. The secretary,
or, in his absence, an assistant secretary, or in the absence of both the
secretary and assistant secretaries, a person appointed by the chairman shall
act as secretary for all shareholder meetings.
Section 2.8 Quorum. At any meeting of shareholders, the presence in
person or by proxy of shareholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a quorum; but this section
shall not affect any requirement under any statute or the Declaration of Trust
for the vote necessary for the adoption of any measure. If, however, such quorum
shall not be present at any meeting of the shareholders, the shareholders
entitled to vote at such meeting, present in person or by proxy, shall have the
power to adjourn the meeting from time to time to a date not more than 120 days
after the original record date. At such adjourned meeting at which a quorum
shall be present, any business may be transacted which might have been
transacted at the meeting as originally notified.
Section 2.9 Voting. A majority of all the votes cast at a meeting of
shareholders duly called and at which a quorum is present shall be sufficient to
elect a Trustee. Each share may be voted for as many individuals as there are
Trustees to be elected and for whose election the share is entitled to be voted.
A majority of the votes cast at a meeting of shareholders duly called and at
which a quorum is present shall be sufficient to approve any other matter which
may properly come before the meeting, unless more than a majority of the votes
cast is required herein or by statute or by the Declaration of Trust.
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<PAGE>
Section 2.10 Proxies. A shareholder may cast the votes entitled to be
cast by the shares owned of record by him either in person or by proxy executed
by the shareholder or by his duly authorized agent in any manner permitted by
law. Such proxy shall be filed with such officer of the Trust as the Trustees
shall have designated for such purpose for verification prior to such meeting.
Any proxy relating to the Trust's shares of beneficial interest shall be valid
until the expiration date therein or, if no expiration is so indicated, for such
period as is permitted pursuant to Maryland law. At a meeting of shareholders,
all questions concerning the qualification of voters, the validity of proxies,
and the acceptance or rejection of votes, shall be decided by the Secretary of
the meeting unless inspectors of election are appointed pursuant to Section 2.13
in which event such inspectors shall pass upon all questions and shall have all
other duties specified in said section.
Section 2.11 Voting Rights. The Board of Trustees shall fix the date
for determination of shareholders entitled to vote at a meeting of shareholders.
If no date is fixed for the determination of the shareholders entitled to vote
at any meeting of shareholders, only persons in whose names shares entitled to
vote stand on the share records of the Trust at the opening of business on the
day of any meeting of shareholders shall be entitled to vote at such meeting.
Section 2.12 Voting of Shares by Certain Holders. Shares of the Trust
registered in the name of a corporation, partnership, trust or other entity, if
entitled to be voted, may be voted by the president or a vice president, a
general partner or trustee thereof, as the case may be, or a proxy appointed by
any of the foregoing individuals, unless some other person who has been
appointed to vote such shares pursuant to a bylaw or a resolution of the
governing board of such corporation or other entity or agreement of the partners
of the partnership presents a certified copy of such bylaw, resolution or
agreement, in which case such person may vote such shares. Any trustee or other
fiduciary may vote shares registered in his name as such fiduciary, either in
person or by proxy.
Shares of the Trust directly or indirectly owned by it shall not be
voted at any meeting and shall not be counted in determining the total number of
outstanding shares entitled to be voted at any given time, unless they are held
by it in a fiduciary capacity, in which case they may be voted and shall be
counted in determining the total number of outstanding shares at any given time.
The Trustees may adopt by resolution a procedure by which a shareholder
may certify in writing to the Trust that any shares registered in the name of
the shareholder are held for the account of a specified person other than the
shareholder. The resolution shall set forth the class of shareholders who may
make the certification, the purpose for which the certification may be made, the
form of certification and the information to be contained in it; if the
certification is with respect to a record date or closing of the share transfer
books, the time after the record date or closing of the share transfer books
within which the certification must be received by the Trust; and any other
provisions with respect to the procedure which the Trustees consider necessary
or desirable. On receipt of such certification, the person specified in the
certification shall be regarded as, for the purposes set forth in the
certification, the shareholder of record of the specified shares in place of the
shareholder who makes the certification.
Notwithstanding any other provision contained herein or in the
Declaration of Trust or these Bylaws, Title 3, Subtitle 7 of the Corporations
and Associations Article of the Annotated Code of Maryland (or any successor
statute) shall not apply to any acquisition by any person of shares of
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beneficial interest of the Trust. This section may be repealed, in whole or in
part, at any time, whether before or after an acquisition of control shares and,
upon such repeal, may, to the extent provided by any successor bylaw, apply to
any prior or subsequent control share acquisition.
Section 2.13 Inspectors. At any meeting of shareholders, the chairman
of the meeting may appoint one or more persons as inspectors for such meeting.
Such inspectors shall ascertain and report the number of shares represented at
the meeting based upon their determination of the validity and effect of
proxies, count all votes, report the results and perform such other acts as are
proper to conduct the election and voting at the meeting.
Each report of an inspector shall be in writing and signed by him or by
a majority of them if there is more than one inspector acting at such meeting.
If there is more than one inspector, the report of a majority shall be the
report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
Section 2.14 Reports to Shareholders. The Trustees shall submit to the
shareholders at or before the annual meeting of shareholders a report of the
business and operations of the Trust during such fiscal year containing
financial statements of the Trust, accompanied by the report of an independent
certified public accountant, and such further information as the Trustees may
determine is required pursuant to any law or regulation to which the Trust is
subject. Within the earlier of twenty (20) days after the annual meeting of
shareholders or 120 days after the end of the fiscal year of the Trust, the
Trustees shall place the annual report on file at the principal office of the
Trust and with any governmental agencies as may be required by law and as the
Trustees may deem appropriate.
Section 2.15 Nominations and Proposals by Shareholders.
Section 2.15.1 Annual Meetings of Shareholders. (a)
Nominations of persons for election to the Board of Trustees and the proposal of
business to be considered by the shareholders may be made at an annual meeting
of shareholders (i) pursuant to the Trust's notice of meeting, (ii) by or at the
direction of the Trustees or (iii) by any shareholder of the Trust who was a
shareholder of record both at the time of giving of notice provided for in this
Section 2.15.1 and at the time of the annual meeting, who is entitled to vote at
the meeting and who complied with the notice procedures set forth in this
Section 2.15.1.
(b) For nominations or other business to be properly brought
before an annual meeting by a shareholder pursuant to Section 2.15.1(a)(iii),
the shareholder must have given timely notice thereof in writing to the
secretary of the Trust at the principal executive offices of the Trust and such
other business must otherwise be a proper matter for action by shareholders as
determined by the Board of Trustees. To be timely, a shareholder's notice shall
be delivered to the secretary at the principal executive offices of the Trust
not later than the close of business on the 90th day nor earlier than the close
of business on the 120th day prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that the date of the
annual meeting is advanced by more than thirty (30) days or delayed by more than
sixty (60) days from such anniversary date or if the Trust has not previously
held an annual meeting, notice by the shareholder
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to be timely must be so delivered not earlier than the close of business on the
120th day prior to such annual meeting and not later than the close of business
on the later of: (i) the 90th day prior to such annual meeting, or (ii) the 10th
day following the day on which public announcement of the date of such meeting
is first made by the Trust. In no event shall the public announcement of a
postponement or adjournment of an annual meeting to a later date or time
commence a new time period for the giving of a shareholder's notice as described
above. A shareholder's notice shall set forth (i) as to each person whom the
shareholder proposes to nominate for election or reelection as a Trustee, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of Trustees in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a Trustee if elected; (ii) as to any other business that the
shareholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
shareholder and of the beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the shareholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made, (x) the name
and address of such shareholder, as they appear on the Trust's books, and of
such beneficial owner and (y) the number of each class of shares of the Trust
which are owned beneficially and of record by such shareholder and such
beneficial owner.
(c) Notwithstanding anything in the second sentence of Section
2.15.1(b) to the contrary, in the event that the number of Trustees to be
elected to the Board of Trustees is increased and there is no public
announcement by the Trust naming all of the nominees for Trustee or specifying
the size of the increased Board of Trustees at least one hundred (100) days
prior to the first anniversary of the preceding year's annual meeting, a
shareholder's notice required by this Section 2.15.1 shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the secretary at the principal executive
offices of the Trust not later than the close of business on the 10th day
following the day on which such public announcement is first made by the Trust.
Section 2.15.2 Special Meetings of Shareholders. Only such
business shall be conducted at a special meeting of shareholders as shall have
been brought before the meeting pursuant to the Trust's notice of meeting.
Nominations of persons for election to the Board of Trustees may be made at a
special meeting of shareholders at which Trustees are to be elected (i) pursuant
to the Trust's notice of meeting, (ii) by or at the direction of the Board of
Trustees or (iii), provided that the Board of Trustees has determined that
Trustees shall be elected at such special meeting, by any shareholder of the
Trust who was a shareholder of record both at the time of giving of notice
provided for in this Section 2.15.2 and at the time of the special meeting, who
is entitled to vote at the meeting and who complied with the notice procedures
set forth in this Section 2.15.2. In the event the Trust calls a special meeting
of shareholders for the purpose of electing one or more Trustees to the Board of
Trustees, any such shareholder may nominate a person or persons (as the case may
be) for election to such position as specified in the Trust's notice of meeting,
if the shareholder's notice containing the information required by Section
2.15.1(b) shall be delivered to the secretary at the principal executive offices
of the Trust not earlier than the close of business on the 120th day prior to
such special meeting and not later than the close of business on the later of:
(i) the 90th day prior to such special meeting, or (ii) the 10th day following
the day on which public
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announcement is first made of the date of the special meeting and of the
nominees proposed by the Trustees to be elected at such meeting. In no event
shall the public announcement of a postponement or adjournment of a special
meeting to a later date or time commence a new time period for the giving of a
shareholder's notice as described above.
Section 2.15.3 General. (1) Only such persons who are
nominated in accordance with the procedures set forth in this Section 2.15 shall
be eligible to serve as Trustees and only such business shall be conducted at a
meeting of shareholders as shall have been brought before the meeting in
accordance with the procedures set forth in this Section 2.15. The chairman of
the meeting shall have the power and duty to determine whether a nomination or
any business proposed to be brought before the meeting was made or proposed, as
the case may be, in accordance with the procedures set forth in this Section
2.15 and, if any proposed nomination or business is not in compliance with this
Section 2.15, to declare that such nomination or proposal shall be disregarded.
(2) For purposes of this Section 2.15, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable news service or in a document publicly filed by
the Trust with the Securities and Exchange Commission pursuant to Section 13, 14
or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section
2.15, a shareholder shall also comply with all applicable requirements of state
law and of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this Section 2.15. Nothing in this Section
2.15 shall be deemed to affect any right of a shareholder to request inclusion
of a proposal in, nor the right of the Trust to omit a proposal from, the
Trust's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section 2.16 No Shareholder Actions by Written Consent. Shareholders
shall not be authorized or permitted to take any action required or permitted to
be taken at a meeting of shareholders by written consent, and may take such
action only at an annual or special meeting as provided by Maryland law and the
Declaration of Trust and hereby.
Section 2.17 Voting by Ballot. Voting on any question or in any
election may be viva voce unless the chairman of the meeting officer shall order
or any shareholder shall demand that voting be by ballot.
ARTICLE III
TRUSTEES
Section 3.1 General Powers; Qualifications; Trustees Holding Over. The
business and affairs of the Trust shall be managed under the direction of its
Board of Trustees. A Trustee shall be an individual at least twenty-one (21)
years of age who is not under legal disability. In case of failure to elect
Trustees at an annual meeting of the shareholders, the Trustees holding over
shall continue to direct the management of the business and affairs of the Trust
until their successors are elected and qualify.
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Section 3.2 Independent Trustees. A majority of the Trustees holding
office shall at all times be Independent Trustees (as defined below); provided,
however, that upon a failure to comply with this requirement as a result of the
creation of a temporary vacancy which must be filled by an Independent Trustee,
whether as a result of enlargement of the Board of Trustees or the resignation,
removal or death of a Trustee who is an Independent Trustee, such requirement
shall not be applicable. An Independent Trustee is one who is not an employee of
the Trust's investment advisor (as defined in Article XIII), and who is not
involved in the Trust's day-to-day activities.
Section 3.3 Managing Trustees. Any Trustee who is not an Independent
Trustee may be designated a Managing Trustee by the Board of Trustees.
Section 3.4 Number. At any regular meeting or at any special meeting
called for that purpose, a majority of the entire Board of Trustees may
establish, increase or decrease the number of Trustees.
Section 3.5 Annual and Regular Meetings. An annual meeting of the
Trustees shall be held immediately after and at the same place as the annual
meeting of shareholders, no notice other than this Bylaw being necessary. The
time and place of the annual meeting of the Trustees may be changed by the Board
of Trustees. The Trustees may provide, by resolution, the time and place, either
within or without the State of Maryland, for the holding of regular meetings of
the Trustees without other notice than such resolution.
Section 3.6 Special Meetings. Special meetings of the Trustees may be
called at any time by the chairman of the board, any Managing Trustee or the
president and shall be called by request of any two (2) Trustees then in office.
The person or persons authorized to call special meetings of the Trustees may
fix any place, either within or without the State of Maryland, as the place for
holding any special meeting of the Trustees called by them.
Section 3.7 Notice. Notice of any special meeting shall be given by
written notice delivered personally, telegraphed, facsimile-transmitted or
mailed to each Trustee at his business or residence address. Personally
delivered or telegraphed notices shall be given at least twenty-four (24) hours
prior to the meeting. Notice by mail shall be deposited in the U.S. mail in the
place in which the principal office of the Trust is located at least seventy-two
(72) hours prior to the meeting. Telephone or facsimile-transmission notice
shall be given at least forty-eight (48) hours prior to the meeting. If mailed,
such notice shall be deemed to be given when deposited in the U.S. mail properly
addressed, with postage thereon prepaid. If given by telegram, such notice shall
be deemed to be given when the telegram is delivered to the telegraph company.
Telephone notice shall be deemed given when the Trustee is personally given such
notice in a telephone call to which he is a party. Facsimile-transmission notice
shall be deemed given upon completion of the transmission of the message to the
number given to the Trust by the Trustee and receipt of a completed answer- back
indicating receipt. Neither the business to be transacted at, nor the purpose
of, any annual, regular or special meeting of the Trustees need be stated in the
notice, unless specifically required by statute or these Bylaws.
Section 3.8 Quorum. A majority of the Trustees shall constitute a
quorum for transaction of business at any meeting of the Trustees, provided
that, if less than a majority of such Trustees are
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present at a meeting, a majority of the Trustees present may adjourn the meeting
from time to time without further notice, and provided further that if, pursuant
to the Declaration of Trust or these Bylaws, the vote of a majority of a
particular group of Trustees is required for action, a quorum must also include
a majority of such group.
The Trustees present at a meeting which has been duly called and
convened may continue to transact business until adjournment, notwithstanding
the withdrawal of enough Trustees to leave less than a quorum.
Section 3.9 Voting. The action of the majority of the Trustees present
at a meeting at which a quorum is present shall be the action of the Trustees,
unless the concurrence of a greater proportion is required for such action by
specific provision of an applicable statute, the Declaration of Trust or these
Bylaws.
Section 3.10 Telephone Meetings. Trustees may participate in a meeting
by means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in person at
the meeting. Such meeting shall be deemed to have been held at a place
designated by the Trustees at the meeting.
Section 3.11 Informal Action by Trustees. Unless specifically otherwise
provided in the Declaration of Trust, any action required or permitted to be
taken at any meeting of the Trustees may be taken without a meeting, if a
majority of the Trustees shall individually or collectively consent in writing
to such action. Such written consent or consents shall be filed with the records
of the Trust and shall have the same force and effect as the affirmative vote of
such Trustees at a duly held meeting of the Trustees at which a quorum was
present.
Section 3.12 Waiver of Notice. The actions taken at any meeting of the
Trustees, however called and noticed or wherever held, shall be as valid as
though taken at a meeting duly held after regular call and notice if a quorum is
present and if, either before or after the meeting, each of the Trustees not
present signs a written waiver of notice, a consent to the holding of such
meeting or an approval of the minutes thereof. All such waivers, consents or
approvals shall be lodged with the Trust records or made a part of the minutes
of the meeting.
Section 3.13 Vacancies; Groups. If for any reason any or all the
Trustees cease to be Trustees, such event shall not terminate the Trust or
affect these Bylaws or the powers of the remaining Trustees hereunder (even if
fewer than three (3) Trustees remain). Any vacancy shall be filled, at any
regular meeting or at any special meeting called for that purpose, by a majority
of the remaining Trustees, except that a vacancy resulting from an increase in
the number of Trustees shall be filled by a majority of the entire Board of
Trustees. Any individual so elected as Trustee shall hold office for the
unexpired term of the Trustee he is replacing.
On the first date on which the Trust shall have more than one
shareholder of record (the "Distribution Date"), the number of Trustees in Group
I shall be one (1), the number of Trustees in Group II shall be two (2), and the
number of Trustees in Group III shall be two (2) (each of Group I, Group II and
Group III being referred to herein as a "Group"). On or prior to the
Distribution
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Date, a majority of the entire Board of Trustees shall designate the Group of
which each Trustee in office on the Distribution Date shall initially be a
member, subject to the limitations contained in Section 5.2.2 of the Declaration
of Trust. The term of a Trustee elected to fill any vacancy on the Board of
Trustees on the Distribution Date or at any time thereafter shall be set by a
majority of the Board of Trustees when the position is created or, in the case
of vacancies existing on the Distribution Date, when such position is filled, by
designating the new position as Group I, Group II or Group III, subject to the
limitations contained in Section 5.2.2 of the Declaration of Trust. In the event
a vacancy on the Board of Trustees is filled by vote of shareholders pursuant to
Article II and the Declaration of Trust rather than by the Board of Trustees
pursuant to this Section 3.13, the term of a Trustee elected to fill such
vacancy shall be set by a majority of the Board of Trustees prior to the date on
which notice of the annual meeting of shareholders at which such vote is to
occur or the special meeting of shareholders called for the purpose of such
vote, as applicable, is given, by designating the new position as Group I, Group
II or Group III, subject to the limitations contained in Section 5.2.2 of the
Declaration of Trust. In the event the Trustees reduce the size of the Board of
Trustees on or after the Distribution Date, the majority of the entire Board of
Trustees shall reduce the size of one or more Group or Groups by the aggregate
reduction in the number of the Trustees, subject to the limitations contained in
Section 5.2.2 of the Declaration of Trust. On or prior to the Distribution Date,
a majority of the entire Board of Trustees shall designate the Group of which
each Trustee in office on the Distribution Date shall initially be a member.
Section 3.14 Compensation; Financial Assistance.
Section 3.14.1 Compensation. The Trustees shall be entitled to
receive such reasonable compensation for their services as Trustees as the
Trustees may determine from time to time. Trustees may be reimbursed for
expenses of attendance, if any, at each annual, regular or special meeting of
the Trustees or of any committee thereof; and for their expenses, if any, in
connection with each property visit and any other service or activity performed
or engaged in as Trustee. The Trustees shall be entitled to receive remuneration
for services rendered to the Trust in any other capacity, and such services may
include, without limitation, services as an officer of the Trust, services as an
employee of the Advisor (as defined in Article XIII), legal, accounting or other
professional services, or services as a broker, transfer agent or underwriter,
whether performed by a Trustee or any person affiliated with a Trustee.
Section 3.14.2 Financial Assistance to Trustees. The Trust may
lend money to, guarantee an obligation of or otherwise assist a Trustee or a
trustee of its direct or indirect subsidiary. The loan, guarantee or other
assistance may be with or without interest, unsecured, or secured in any manner
that the Board of Trustees approves, including a pledge of shares.
Section 3.15 Removal of Trustees. The shareholders may, at any time,
remove any Trustee in the manner provided in the Declaration of Trust.
Section 3.16 Loss of Deposits. No Trustee shall be liable for any loss
which may occur by reason of the failure of the bank, trust company, savings and
loan association, or other institution with whom moneys or shares have been
deposited.
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Section 3.17 Surety Bonds. Unless specifically required by law, no
Trustee shall be obligated to give any bond or surety or other security for the
performance of any of his duties.
Section 3.18 Reliance. Each Trustee, officer, employee and agent of the
Trust shall, in the performance of his duties with respect to the Trust, be
fully justified and protected with regard to any act or failure to act in
reliance in good faith upon the books of account or other records of the Trust,
upon an opinion of counsel or upon reports made to the Trust by any of its
officers or employees or by the Advisor (as defined in Article XIII),
accountants, appraisers or other experts or consultants selected by the Trustees
or officers of the Trust, regardless of whether such counsel or expert may also
be a Trustee.
Section 3.19 Interested Trustee Transactions. Section 2-419 of the
Maryland General Corporation Law (the "MGCL") shall be available for and apply
to any contract or other transaction between the Trust and any of its Trustees
or between the Trust and any other trust, corporation, firm or other entity in
which any of its Trustees is a trustee or director or has a material financial
interest.
Section 3.20 Qualifying Shares Not Required. Trustees need not be
shareholders of the Trust.
Section 3.21 Certain Rights of Trustees, Officers, Employees and
Agents. The Trustees shall have no responsibility to devote their full time to
the affairs of the Trust. Any Trustee or officer, employee or agent of the
Trust, in his personal capacity or in a capacity as an affiliate, employee, or
agent of any other person, or otherwise, may have business interests and engage
in business activities similar or in addition to those of or relating to the
Trust.
Section 3.22 Certain Transactions. Notwithstanding any other provision
in the Bylaws, no determination shall be made by the Trustees nor shall any
transaction be entered into by the Trust which would cause any shares or other
beneficial interest in the Trust not to constitute "transferable shares" or
"transferable certificates of beneficial interest" under Section 856(a)(2) of
the Internal Revenue Code of 1986, as amended (the "Code") or which would cause
any distribution to constitute a preferential dividend as described in Section
562(c) of the Code.
ARTICLE IV
COMMITTEES
Section 4.1 Number; Tenure and Qualifications. The Board of Trustees
may appoint from among its members an audit committee and other committees,
composed of one (1) or more Trustees, to serve at the pleasure of the Board of
Trustees.
Section 4.2 Powers. The Trustees may delegate to committees appointed
under Section 4.1 any of the powers of the Trustees, except as prohibited by
law.
Section 4.3 Meetings. In the absence of any member of any such
committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint another Trustee
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to act in the place of such absent member. Notice of committee meetings shall be
given in the same manner as notice for special meetings of the Board of
Trustees.
One-third, but not less than one, of the members of any committee shall
be present in person at any meeting of such committee in order to constitute a
quorum for the transaction of business at such meeting, and the act of a
majority present at a meeting at the time of such vote if a quorum is then
present shall be the act of such committee. The Board of Trustees may designate
a chairman of any committee, and such chairman or any two members of any
committee may fix the time and place of its meetings unless the Board shall
otherwise provide. In the absence or disqualification of any member of any such
committee, the members thereof present at any meeting and not disqualified from
voting, whether or not they constitute a quorum, may unanimously appoint another
Trustee to act at the meeting in the place of such absent or disqualified
members.
Each committee shall keep minutes of its proceedings and shall report
the same to the Board of Trustees at the next succeeding meeting, and any action
by the committee shall be subject to revision and alteration by the Board of
Trustees, provided that no rights of third persons shall be affected by any such
revision or alteration.
Section 4.4 Telephone Meetings. Members of a committee of the Trustees
may participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means shall
constitute presence in person at the meeting.
Section 4.5 Informal Action by Committees. Any action required or
permitted to be taken at any meeting of a committee of the Trustees may be taken
without a meeting, if a consent in writing to such action is signed by each
member of the committee and such written consent is filed with the minutes of
proceedings of such committee.
Section 4.6 Vacancies. Subject to the provisions hereof, the Board of
Trustees shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members to replace any
absent or disqualified member or to dissolve any such committee.
ARTICLE V
OFFICERS
Section 5.1 General Provisions. The officers of the Trust shall include
a president, a secretary and a treasurer and may include a chairman of the
board, a vice chairman of the board, a chief executive officer, a chief
operating officer, a chief financial officer, one or more vice presidents, one
or more assistant secretaries and one or more assistant treasurers. In addition,
the Trustees may from time to time appoint such other officers with such powers
and duties as they shall deem necessary or desirable. The officers of the Trust
shall be elected annually by the Trustees at the first meeting of the Trustees
held after each annual meeting of shareholders. If the election of officers
shall not be held at such meeting, such election shall be held as soon
thereafter as may be convenient. Each officer shall hold office until his
successor is elected and qualifies or until his death, resignation or removal in
the manner hereinafter provided. Any two or more offices except
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president and vice president may be held by the same person. In their
discretion, the Trustees may leave unfilled any office except that of president
and secretary. Election of an officer or agent shall not of itself create
contract rights between the Trust and such officer or agent.
Section 5.2 Removal and Resignation. Any officer or agent of the Trust
may be removed by the Trustees if in their judgment the best interests of the
Trust would be served thereby, but such removal shall be without prejudice to
the contract rights, if any, of the person so removed. Any officer of the Trust
may resign at any time by giving written notice of his resignation to the
Trustees, the chairman of the board, the president or the secretary. Any
resignation shall take effect at any time subsequent to the time specified
therein or, if the time when it shall become effective is not specified therein,
immediately upon its receipt. The acceptance of a resignation shall not be
necessary to make it effective unless otherwise stated in the resignation. Such
resignation shall be without prejudice to the contract rights, if any, of the
Trust.
Section 5.3 Vacancies. A vacancy in any office may be filled by the
Trustees for the balance of the term.
Section 5.4 Chief Executive Officer. The Trustees may designate a chief
executive officer from among the elected officers. The chief executive officer
shall have responsibility for implementation of the policies of the Trust, as
determined by the Trustees, and for the administration of the business affairs
of the Trust. In the absence of both the chairman and vice chairman of the
board, the chief executive officer shall preside over the meetings of the
Trustees at which he shall be present. The Managing Trustees, or either of them,
may be designated to function as the chief executive officer of the Trust.
Section 5.5 Chief Operating Officer. The Trustees may designate a chief
operating officer from among the elected officers. Said officer will have the
responsibilities and duties as set forth by the Trustees or the chief executive
officer.
Section 5.6 Chief Financial Officer. The Trustees may designate a chief
financial officer from among the elected officers. Said officer will have the
responsibilities and duties as set forth by the Trustees or the chief executive
officer.
Section 5.7 Chairman and Vice Chairman of the Board. The chairman of
the board shall preside over the meetings of the Trustees and of the
shareholders at which he shall be present and shall in general oversee all of
the business and affairs of the Trust. In the absence of the chairman of the
board, the vice chairman of the board shall preside at such meetings at which he
shall be present. The chairman and the vice chairman of the board may execute
any deed, mortgage, bond, contract or other instrument, except in cases where
the execution thereof shall be expressly delegated by the Trustees or by these
Bylaws to some other officer or agent of the Trust or shall be required by law
to be otherwise executed. The chairman of the board and the vice chairman of the
board shall perform such other duties as may be assigned to him or them by the
Trustees. In the absence of a chairman and vice chairman or none is appointed,
the Managing Trustees, or either of them, shall act as chairman.
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Section 5.8 President. The president shall preside over the meetings of
the shareholders at which he shall be present. The president may execute any
deed, mortgage, bond, contract or other instrument, except in cases where the
execution thereof shall be expressly delegated by the Trustees or by these
Bylaws to some other officer or agent of the Trust or shall be required by law
to be otherwise executed; and in general shall perform all duties incident to
the office of president and such other duties as may be prescribed by the
Trustees from time to time.
Section 5.9 Vice Presidents. In the absence of the president or in the
event of a vacancy in such office, the vice president (or in the event there be
more than one vice president, the vice presidents in the order designated at the
time of their election or, in the absence of any designation, then in the order
of their election) shall perform the duties of the president and when so acting
shall have all the powers of and be subject to all the restrictions upon the
president; and shall perform such other duties as from time to time may be
assigned to him by the president or by the Trustees. The Trustees may designate
one or more vice presidents as executive vice president, senior vice president
or as vice president for particular areas of responsibility.
Section 5.10 Secretary. The secretary shall (a) keep the minutes of the
proceedings of the shareholders, the Trustees and committees of the Trustees in
one or more books provided for that purpose; (b) see that all notices are duly
given in accordance with the provisions of these Bylaws or as required by law;
(c) be custodian of the trust records and of the seal of the Trust; (d) keep a
register of the post office address of each shareholder which shall be furnished
to the secretary by such shareholder; (e) maintain at the principal office of
the Trust a share register, showing the ownership and transfers of ownership of
all shares of the Trust, unless a transfer agent is employed to maintain and
does maintain such a share register; and (f) in general perform such other
duties as from time to time may be assigned to him by the chief executive
officer, the president or by the Trustees.
Section 5.11 Treasurer. The treasurer shall have the custody of the
funds and securities of the Trust and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Trust and shall deposit all
moneys and other valuable effects in the name and to the credit of the Trust in
such depositories as may be designated by the Trustees.
He shall disburse the funds of the Trust as may be ordered by the
Trustees, taking proper vouchers for such disbursements, and shall render to the
president and Trustees, at the regular meetings of the Trustees or whenever they
may require it, an account of all his transactions as treasurer and of the
financial condition of the Trust.
Section 5.12 Assistant Secretaries and Assistant Treasurers. The
assistant secretaries and assistant treasurers, in general, shall perform such
duties as shall be assigned to them by the secretary or treasurer, respectively,
or by the president or the Trustees. The assistant treasurers shall, if required
by the Trustees, give bonds for the faithful performance of their duties in such
sums and with such surety or sureties as shall be satisfactory to the Trustees.
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<PAGE>
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 6.1 Contracts. The Trustees may authorize any officer or agent
to enter into any contract or to execute and deliver any instrument in the name
of and on behalf of the Trust and such authority may be general or confined to
specific instances. Any agreement, deed, mortgage, lease or other document
executed by one or more of the Trustees or by an authorized person shall be
valid and binding upon the Trustees and upon the Trust when authorized or
ratified by action of the Trustees.
Section 6.2 Checks and Drafts. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Trust shall be signed by such officer or agent of the Trust in such
manner as shall from time to time be determined by the Treasurer or by the
Trustees.
Section 6.3 Deposits. All funds of the Trust not otherwise employed
shall be deposited from time to time to the credit of the Trust in such banks,
trust companies or other depositories as the Treasurer or the Trustees may
designate.
ARTICLE VII
SHARES
Section 7.1 Certificates. Ownership of shares shall be evidenced by
certificates. Each shareholder shall be entitled to a certificate or
certificates, in such form as the Trustees shall from time to time approve,
which shall represent and certify the number of shares of each class of
beneficial interests held by him in the Trust. Unless otherwise determined by
the Trustees, such certificates shall be signed by the chief executive officer,
the president or a vice president and countersigned by the secretary or an
assistant secretary or the treasurer or an assistant treasurer and may be sealed
with the seal, if any, of the Trust. The signatures may be either manual or
facsimile. Certificates shall be consecutively numbered; and if the Trust shall
from time to time issue several classes of shares, each class may have its own
number series. A certificate is valid and may be issued whether or not an
officer who signed it is still an officer when it is issued. There shall be
filed with each transfer agent a copy of the form of certificate as approved by
the Trustees, certified by the chairman, president or secretary, and such form
shall continue to be used unless and until the Trustees approve some other form.
Each certificate representing shares which are restricted as to their
transferability or voting powers, which are preferred or limited as to their
dividends or as to their allocable portion of the assets upon liquidation or
which are redeemable at the option of the Trust, shall have a statement of such
restriction, limitation, preference or redemption provision, or a summary
thereof, plainly stated on the certificate. In lieu of such statement or
summary, the Trust may set forth upon the face or back of the certificate a
statement that the Trust will furnish to any shareholder, upon request and
without charge, a full statement of such information.
Section 7.2 Transfers. Certificates shall be treated as negotiable and
title thereto and to the shares they represent shall be transferred by delivery
thereof to the same extent as those of a
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Maryland stock corporation. Upon surrender to the Trust or the transfer agent of
the Trust of a share certificate duly endorsed or accompanied by proper evidence
of succession, assignment or authority to transfer, the Trust shall issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
The Trust shall be entitled to treat the holder of record of any share
or shares as the holder in fact thereof and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Maryland.
Notwithstanding the foregoing, transfers of shares of beneficial
interest of the Trust will be subject in all respects to the Declaration of
Trust and all of the terms and conditions contained therein.
Section 7.3 Replacement Certificate. Any officer designated by the
Trustees may direct a new certificate to be issued in place of any certificate
previously issued by the Trust alleged to have been lost, stolen or destroyed
upon the making of an affidavit of that fact by the person claiming the
certificate to be lost, stolen or destroyed. When authorizing the issuance of a
new certificate, an officer designated by the Trustees may, in his discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or the owner's legal representative to
advertise the same in such manner as he shall require and/or to give bond, with
sufficient surety, to the Trust to indemnify it against any loss or claim which
may arise as a result of the issuance of a new certificate.
Section 7.4 Closing of Transfer Books or Fixing of Record Date. The
Trustees may set, in advance, a record date for the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
determining shareholders entitled to receive payment of any dividend or the
allotment of any other rights, or in order to make a determination of
shareholders for any other proper purpose.
In lieu of fixing a record date, the Trustees may provide that the
share transfer books shall be closed for a stated period but not longer than
twenty (20) days. If the share transfer books are closed for the purpose of
determining shareholders entitled to notice of or to vote at a meeting of
shareholders, such books shall be closed for at least ten (10) days before the
date of such meeting.
If no record date is fixed and the share transfer books are not closed
for the determination of shareholders, (a) the record date for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders
shall be at the close of business on the day on which the notice of meeting is
mailed or the 30th day before the meeting, whichever is the closer date to the
meeting; and (b) the record date for the determination of shareholders entitled
to receive payment of a dividend or an allotment of any other rights shall be
the close of business on the day on which the resolution of the Trustees,
declaring the dividend or allotment of rights, is adopted.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof.
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<PAGE>
Section 7.5 Share Ledger. The Trust shall maintain at its principal
office or at the office of its counsel, accountants or transfer agent, a share
ledger containing the name and address of each shareholder and the number of
shares of each class held by such shareholder.
Section 7.6 Fractional Shares; Issuance of Units. The Trustees may
issue fractional shares or provide for the issuance of scrip, all on such terms
and under such conditions as they may determine. Notwithstanding any other
provision of the Declaration of Trust or these Bylaws, the Trustees may issue
units consisting of different securities of the Trust. Any security issued in a
unit shall have the same characteristics as any identical securities issued by
the Trust, except that the Trustees may provide that for a specified period
securities of the Trust issued in such unit may be transferred on the books of
the Trust only in such unit.
ARTICLE VIII
FISCAL YEAR
The Fiscal year of the Trust shall be the calendar year.
ARTICLE IX
DISTRIBUTIONS
Section 9.1 Authorization. Dividends and other distributions upon the
shares of beneficial interest of the Trust may be authorized and declared by the
Trustees, subject to the provisions of law and the Declaration of Trust.
Dividends and other distributions may be paid in cash, property or shares of the
Trust, subject to the provisions of law and the Declaration of Trust.
Section 9.2 Contingencies. Before payment of any dividends or other
distributions, there may be set aside out of any funds of the Trust available
for dividends or other distributions such sum or sums as the Trustees may from
time to time, in their absolute discretion, think proper as a reserve fund for
contingencies or for any other purpose as the Trustees shall determine to be in
the best interest of the Trust, and the Trustees may modify or abolish any such
reserve in the manner in which it was created.
ARTICLE X
SEAL
Section 10.1 Seal. The Trustees may authorize the adoption of a seal by
the Trust. The seal shall have inscribed thereon the name of the Trust and the
year of its formation. The Trustees may authorize one or more duplicate seals
and provide for the custody thereof.
Section 10.2 Affixing Seal. Whenever the Trust is permitted or required
to affix its seal to a document, it shall be sufficient to meet the requirements
of any law, rule or regulation relating to a seal to place the word "(SEAL)"
adjacent to the signature of the person authorized to execute the document on
behalf of the Trust.
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ARTICLE XI
INDEMNIFICATION AND ADVANCE OF EXPENSES
To the maximum extent permitted by Maryland law in effect from time to
time, the Trust shall indemnify (a) any Trustee, officer or shareholder or any
former Trustee, officer or shareholder (including among the foregoing, for all
purposes of this Article XI and without limitation, any individual who, while a
Trustee, officer or shareholder and at the express request of the Trust, serves
or has served another real estate investment trust, corporation, partnership,
joint venture, trust, employee benefit plan or any other enterprise as a
director, officer, shareholder, partner or trustee of such real estate
investment trust, corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) who has been successful, on the merits or
otherwise, in the defense of a proceeding to which he was made a party by reason
of service in such capacity, against reasonable expenses incurred by him in
connection with the proceeding, (b) any Trustee or officer or any former Trustee
or officer against any claim or liability to which he may become liable or
subject by reason of such status or actions in such capacity and (c) each
shareholder or former shareholder against any claim or liability to which he may
become subject by reason of such status. In addition, the Trust shall, without
requiring a preliminary determination of the ultimate entitlement to
indemnification, pay or reimburse, in advance of final disposition of a
proceeding, reasonable expenses incurred by a Trustee, officer or shareholder or
former Trustee, officer or shareholder made a party to a proceeding by reason
such status, provided that, in the case of a Trustee or officer, the Trust shall
have received (i) a written affirmation by the Trustee or officer of his good
faith belief that he has met the applicable standard of conduct necessary for
indemnification by the Trust as authorized by Maryland law and (ii) a written
undertaking by him or on his behalf to repay the amount paid or reimbursed by
the Trust if it shall ultimately be determined that the applicable standard of
conduct was not met. The Trust may, with the approval of its Trustees, provide
such indemnification or payment or reimbursement of expenses to any Trustee,
officer or shareholder or any former Trustee, officer or shareholder who served
a predecessor of the Trust and to any employee or agent of the Trust or a
predecessor of the Trust. Neither the amendment nor repeal of this Article, nor
the adoption or amendment of any other provision of the Declaration of Trust or
these Bylaws inconsistent with this Article, shall apply to or affect in any
respect the applicability of this Article with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.
Any indemnification or payment or reimbursement of the expenses
permitted by these Bylaws shall be furnished in accordance with the procedures
provided for indemnification or payment or reimbursement of expenses, as the
case may be, under Section 2-418 of the MGCL for directors of Maryland
corporations. The Trust may provide to Trustees, officers and shareholders such
other and further indemnification or payment or reimbursement of expenses, as
the case may be, to the fullest extent permitted by the MGCL, as in effect from
time to time, for directors of Maryland corporations.
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<PAGE>
ARTICLE XII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the Declaration
of Trust or Bylaws or pursuant to applicable law, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such
notice. Neither the business to be transacted at nor the purpose of any meeting
need be set forth in the waiver of notice, unless specifically required by
statute. The attendance of any person at any meeting shall constitute a waiver
of notice of such meeting, except where such person attends a meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
ARTICLE XIII
THE ADVISOR
Section 13.1 Employment of Advisor. The Trustees are not and shall not
be required personally to conduct the business of the Trust, and the Trustees
shall have the power to appoint, employ or contract with any person (including
one or more of themselves or any corporation, partnership, or trust in which one
or more of them may be Trustees, officers, stockholders, partners or trustees)
as the Trustees may deem necessary or proper for the transaction of the business
of the Trust. The Trustees may therefore employ or contract with such person
(herein referred to as the "Advisor") and may grant or delegate such authority
to the Advisor as the Trustees may in their sole discretion deem necessary or
desirable without regard to whether such authority is normally granted or
delegated by boards of trustees or boards of directors of business corporations.
The Advisor shall be required to use its best efforts to supervise the operation
of the Trust in a manner consistent with the investment policies and objectives
of the Trust as established from time to time by the Trustees.
The Trustees shall have the power to determine the terms and
compensation of the Advisor or any other person whom it may cause the Trust to
employ or with whom it may cause the Trust to contract for advisory services.
The Trustees may exercise broad discretion in allowing the Advisor to administer
and regulate the operations of the Trust, to act as agent for the Trust, to
execute documents on behalf of the Trustees and to make executive decisions
which conform to general policies and general principles previously established
by the Trustees.
Section 13.2 Other Activities of Advisor. The Advisor shall not be
required to administer the Trust as its sole and exclusive function and may have
other business interests and may engage in other activities similar or in
addition to those relating to the Trust, including the rendering of advice or
services of any kind to other investors or any other persons (including other
real estate investment trusts) and the management of other investments. The
Trustees may request the Advisor to engage in certain other activities which
complement the Trust's investments, and the Advisor may receive compensation or
commissions therefor from the Trust or other persons.
Neither the Advisor nor any affiliate of the Advisor shall be obligated
to present any particular investment opportunities to the Trust, even if such
opportunities are of a character such
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that, if presented to the Trust, they could be taken by the Trust, and, subject
to the foregoing, each of them shall be protected in taking for its own account
or recommending to others any such particular investment opportunity.
ARTICLE XIV
AMENDMENT OF BYLAWS
Except for any change for which the Declaration or these Bylaws require
approval by more than a majority vote of the Trustees, these Bylaws may be
amended or repealed or new or additional Bylaws may be adopted only by the vote
or written consent of a majority of the Trustees.
ARTICLE XV
MISCELLANEOUS
Section 15.1 References to Declaration of Trust. All references to the
Declaration of Trust shall include any amendments thereto.
Section 15.2 Inspection of Bylaws. The Trustees shall keep at the
principal office for the transaction of business of the Trust the original or a
copy of the Bylaws as amended or otherwise altered to date, certified by the
Secretary, which shall be open to inspection by the shareholders at all
reasonable times during office hours.
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Exhibit 8.1
SULLIVAN & WORCESTER LLP
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109
(617) 338-2800
FAX NO. 617-338-2880
IN WASHINGTON, D.C. IN NEW YORK CITY
1025 CONNECTICUT AVENUE, N.W. 767 THIRD AVENUE
WASHINGTON, D.C. 20036 NEW YORK, NEW YORK 10017
(202) 775-8190 (212) 486-8200
FAX NO. 202-293-2275 FAX NO. 212-758-2151
March 30, 2000
Senior Housing Properties Trust
400 Centre Street
Newton, Massachusetts 02458
Ladies and Gentlemen:
In connection with the filing by Senior Housing Properties Trust, a
Maryland real estate investment trust (the "Company"), of its Annual Report on
Form 10-K for the year ended December 31, 1999 (the "Form 10-K"), under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the following
opinion is furnished to you to be filed with the Securities and Exchange
Commission (the "SEC") as Exhibit 8.1 to the Form 10-K.
We have acted as counsel for the Company in connection with the
preparation of its Form 10-K, and we have examined originals or copies,
certified or otherwise identified to our satisfaction, of corporate records,
certificates and statements of officers and accountants of the Company and of
public officials, and such other documents as we have considered relevant and
necessary in order to furnish the opinion hereinafter set forth. Specifically,
and without limiting the generality of the foregoing, we have reviewed: (i) the
declaration of trust, as amended and restated, and the by-laws of the Company,
as amended and restated; and (ii) the sections in the Company's Form 10-K
captioned "Federal Income Tax Considerations" and "ERISA Plans, Keogh Plans and
Individual Retirement Accounts." With respect to all questions of fact on which
such opinions are based, we have assumed the accuracy and completeness of and
have relied on the information set forth in the Form 10-K and in the documents
incorporated therein by reference, and on representations made to us by officers
of the Company. We have not independently verified such information.
The opinion set forth below is based upon the Internal Revenue Code of
1986, as amended, the Treasury Regulations issued thereunder, published
administrative interpretations thereof, and judicial decisions with respect
thereto, all as of the date hereof (collectively, the "Tax Laws"), and upon the
Employee Retirement Income Security Act of 1974, as amended, the Department of
Labor regulations issued thereunder, published administrative interpretations
thereof, and judicial decisions with respect thereto, all as of the date hereof
(collectively, the
<PAGE>
Senior Housing Properties Trust
March 30, 2000
Page 2
"ERISA Laws"). No assurance can be given that the Tax Laws or the ERISA Laws
will not change. In preparing the discussions with respect to Tax Laws and ERISA
Laws matters in the sections of the Annual Report captioned "Federal Income Tax
Considerations" and "ERISA Plans, Keogh Plans and Individual Retirement
Accounts," we have made certain assumptions and expressed certain conditions and
qualifications therein, all of which assumptions, conditions and qualifications
are incorporated herein by reference.
Based upon and subject to the foregoing, we are of the opinion that the
discussions with respect to Tax Laws and ERISA Laws matters in the sections of
the Annual Report captioned "Federal Income Tax Considerations" and "ERISA
Plans, Keogh Plans and Individual Retirement Accounts," in all material respects
are accurate and fairly summarize the Tax Laws issues and ERISA Laws issues
addressed therein, and hereby confirm that the opinions of counsel referred to
in said sections represent our opinions on the subject matter thereof.
We hereby consent to the incorporation of this opinion by reference as
an exhibit to the Form 10-K and to the reference of our firm therein. In giving
such consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Act or under the rules
and regulations of the SEC promulgated thereunder.
Very truly yours,
/s/ SULLIVAN & WORCESTER LLP
SULLIVAN & WORCESTER LLP
Exhibit 10.1
ADVISORY AGREEMENT
THIS AGREEMENT is entered into effective as of October 12, 1999, by and
among Senior Housing Properties Trust, a Maryland real estate investment trust
(the "Company"), Reit Management & Research, Inc., a Delaware corporation (the
"Advisor"), and, solely with respect to certain non-competition covenants in
Section 14 of this Agreement, Barry M. Portnoy and Gerard M. Martin.
WHEREAS, the Advisor is a corporation organized for the purpose of
providing management and administrative services with respect to the ownership
of real property and interests in real property;
WHEREAS, in connection with its investments, the Company desires to
make use of the advice and assistance of the Advisor and information available
to the Advisor, and to have the Advisor undertake the duties and
responsibilities hereinafter set forth, on behalf of and subject to the
supervision of the Company's Board of Trustees (the "Trustees"), all as provided
herein;
WHEREAS, the Advisor is willing to render such services, subject to the
supervision of the Trustees, on the terms and conditions hereinafter set forth;
and
WHEREAS, the Company has qualified and intends to continue to qualify
as a real estate investment trust as defined in the Internal Revenue Code of
1986, as amended (said Code, as in effect from time to time, together with any
regulations and rulings thereunder, being hereinafter referred to as the
"Internal Revenue Code").
NOW, THEREFORE, in consideration of the mutual agreements herein set
forth, the parties hereto agree as follows:
1. General Duties of the Advisor. The Advisor shall use its best
efforts to present to the Company a continuing and suitable investment program
consistent with the investment policies and objectives of the Company. Subject
to the supervision of the Trustees and under their direction, and consistent
with the provisions of the Declaration of Trust, the Advisor shall:
(a) serve as the Company's investment advisor, with its
obligations to include providing research and economic and statistical
data in connection with the Company's investments and recommending
changes in the Company's investment policies, when appropriate;
(b) investigate and evaluate investment, financing and
refinancing opportunities and make recommendations concerning these
opportunities to the Trustees;
<PAGE>
(c) manage the Company's short-term investments, including the
acquisition and sale of money market instruments in accordance with the
Company's policies;
(d) administer the day-to-day operations of the Company;
(e) investigate, negotiate and enter into appropriate
contracts on behalf of the Company with individuals, corporations and
other entities (i) for the purchase, lease or servicing of real estate
and related interests and otherwise in furtherance of the investment
activities of the Company and (ii) for the financing and refinancing of
investments and otherwise in furtherance of the financing activities of
the Company;
(f) upon request of the Trustees, act as attorney-in-fact or
agent in acquiring and disposing of investments and funds of the
Company and in handling, prosecuting and settling any claims of the
Company;
(g) obtain for the Company, when appropriate, the services of
property managers or management firms to perform customary property
management services with regard to the real estate properties owned by
or in the possession of the Company, and perform such supervisory or
monitoring services on behalf of the Company with respect to the
activities of those property managers or management firms as would be
performed by a prudent owner, including but not limited to supervising
the activities of property managers or management firms, visiting the
properties, participating in property management budgeting, reviewing
the accounting of property income and expenses, reporting on the
financial status of the properties and reviewing and approving
marketing plans, but excluding the actual on-site property management
functions performed by said property managers or management firms;
(h) obtain for the Company other services as may be required
for other activities relating to the investment portfolio of the
Company;
(i) administer the day-to-day bookkeeping and accounting
functions as are required for the proper management of the assets of
the Company, contract for audits and prepare or cause to be prepared
reports as may be required by any governmental authority in connection
with the ordinary conduct of the Company's business, including without
limitation, periodic reports, returns or statements required under the
Securities Exchange Act of 1934, as amended, the Internal Revenue Code,
the securities and tax statutes of any jurisdiction in which the
Company is obligated to file such reports, or the rules and regulations
promulgated under any of the foregoing;
(j) provide office space, office equipment and the use of
accounting or computing equipment when required, and provide personnel
necessary for the performance of the foregoing services; and
(k) from time to time, or at any time requested by the
Trustees, make reports to the Trustees of its performance of the
foregoing services to the Company.
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In performing its services under this Agreement, the Advisor may
utilize facilities, personnel and support services of various of its Affiliates
(as defined below). The Advisor shall be responsible for paying such Affiliates
for their personnel and support services and facilities out of its own funds.
Notwithstanding the above, the Company may request, and will pay for the direct
costs of, services provided by Affiliates of the Advisor provided that such
request is approved by a majority vote of the Trustees who are not Affiliates of
the Advisor (the "Independent Trustees").
As used in this Agreement, the term "Affiliate" means, as to the
Advisor, (i) any other Person (as defined below) directly or indirectly
controlling, controlled by or under common control with the Advisor, (ii) any
other Person that owns beneficially, directly or indirectly, five percent (5%)
or more of the outstanding capital stock, shares or equity interests of the
Advisor, or (iii) any officer, director, trustee, employee or general partner of
the Advisor or of any Person controlling, controlled by or under common control
with the Advisor. The term "Person" means and includes individuals,
corporations, limited partnerships, general partnerships, limited liability
companies, joint stock companies or associations, joint ventures, associations,
companies, trusts, banks, trust companies, land trusts, business trusts and
other entities.
2. Bank Accounts. The Advisor shall establish and maintain one or more
bank accounts in its own name or in the name of the Company, and shall collect
and deposit into the account or accounts and disburse therefrom any monies on
behalf of the Company; provided that no funds in any account shall be commingled
with any funds of the Advisor or any other Person. The Advisor shall from time
to time render an appropriate accounting of collections and payments to the
Trustees and to the auditors of the Company.
3. Records. The Advisor shall maintain appropriate books of account and
records relating to services performed pursuant to this Agreement, which books
of account and records shall be available for inspection by representatives of
the Company upon reasonable notice during ordinary business hours.
4. Information Furnished Advisor. The Trustees shall at all times keep
the Advisor fully informed with regard to the investment policies of the
Company, the capitalization policy of the Company, and generally the Trustees'
then-current intentions as to the future of the Company. In particular, the
Company shall notify the Advisor promptly of its intention to sell or otherwise
dispose of any of the Company's investments or to make any new investment. The
Company shall furnish the Advisor with a certified copy of all financial
statements, a signed copy of each report prepared by independent certified
public accountants and other information with regard to its affairs as the
Advisor may from time to time reasonably request. The Company shall retain legal
counsel and accountants to provide legal and accounting advice and services as
the Advisor or the Trustees shall deem necessary or appropriate to adequately
perform the functions of the Company, and shall have legal or accounting
opinions and advice as the Advisor shall reasonably request.
5. REIT Qualification. Anything else in this Agreement to the contrary
notwithstanding, the Advisor shall refrain from any action (including, without
limitation, the furnishing or rendering of services to tenants of property or
managing real property) which, in its judgment made in good faith, or in the
judgment of the Trustees as transmitted to the Advisor in writing, would (a)
adversely
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affect the status of the Company as a real estate investment trust as defined
and limited in the Internal Revenue Code or which would make the Company subject
to the Investment Company Act of 1940, as amended, or (b) violate any law, rule,
regulation or statement of policy or any governmental body or agency having
jurisdiction over the Company or over its securities, or (c) otherwise not be
permitted by the Declaration of Trust or Bylaws of the Company, as in effect
from time to time, except if the action shall be ordered by the Trustees, in
which event the Advisor shall promptly notify the Trustees of the Advisor's
judgment that the action would adversely affect the Company's status or violate
any law, rule or regulation or the Declaration of Trust or Bylaws of the Company
and shall refrain from taking the action pending further clarification or
instructions from the Trustees. In addition, the Advisor shall take affirmative
steps which, in its judgment made in good faith, or in the judgment of the
Trustees as transmitted to the Advisor in writing, would prevent or cure any
action described in (a), (b) or (c) above.
6. Self-Dealing. Neither the Advisor nor any Affiliate of the Advisor
shall, directly or indirectly, sell any property or assets to the Company or
purchase any property or assets from the Company, lease any property from the
Company or borrow any money from the Company, except as approved by a majority
of the Independent Trustees. In addition, except as otherwise provided in
Sections 1, 9 or 10 hereof, or except as approved by a majority of the
Independent Trustees, neither the Advisor nor any Affiliate of the Advisor shall
receive any commission or other remuneration, directly or indirectly, in
connection with the activities of the Company or any joint venture or
partnership in which the Company is a party. The foregoing prohibitions shall
not apply to the leases affecting three nursing homes between the Company and an
Affiliate of the Advisor, which leases were entered into by the Company's
predecessor in interest prior to the date of this Agreement.
7. No Partnership or Joint Venture. The Company and the Advisor are not
partners or joint venturers with each other and neither the terms of this
Agreement nor the fact that the Company and the Advisor have joint interests in
any one or more investments shall be construed so as to make them such partners
or joint venturers or impose any liability on either of them.
8. Fidelity Bond. The Advisor shall not be required to obtain or
maintain a fidelity bond in connection with the performance of its services
hereunder.
9. Compensation. The Advisor shall be paid an advisory fee (the
"Advisory Fee") for the services rendered by it to the Company pursuant to this
Agreement. The Advisory Fee for each full fiscal year of the Company shall equal
the sum of one-half of one percent (0.5%) of the Annual Average Transferred
Assets (as defined below), plus seven-tenths of one percent (0.7%) of the Annual
Average Invested Capital (as defined below) up to $250,000,000, plus one-half of
one percent (0.5%) of the Annual Average Invested Capital equal to or exceeding
$250,000,000. The Advisory Fee shall be prorated for any partial fiscal year of
the Company during the term of this Agreement. In addition, the Advisor shall be
paid an annual incentive fee (the "Incentive Fee") for each fiscal year of the
Company, commencing with the Company's fiscal year ending December 31, 2000,
consisting of a number of shares of the Company's common shares of beneficial
interest ("Common Shares") with an aggregate value (determined as provided
below) equal to fifteen percent (15%) of the product of (i) the weighted average
Common Shares of the Company outstanding on
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a diluted basis during such fiscal year and (ii) the excess if any of FFO Per
Share (as defined below) for such fiscal year over the FFO Per Share for the
preceding fiscal year; provided however, in no event shall the Incentive Fee
payable in respect of any fiscal year exceed $.02 multiplied by the weighted
average number of Common Shares outstanding on a diluted basis during such
fiscal year. (The Advisory Fee and Incentive Fee are hereinafter collectively
referred to as the "Fees"). No Incentive Fee shall be payable for the Company's
fiscal year ending December 31, 1999.
For purposes of this Agreement: "Annual Average Transferred Assets" of
the Company, for any fiscal year, means the daily weighted average during such
fiscal year (or, in the case of the Company's fiscal year ending December 31,
1999, during the period commencing with the date hereof and ending on December
31, 1999) of the aggregate book value of the Transferred Assets, before
depreciation, reserves for bad debts and other similar noncash items. "Annual
Average Invested Capital" of the Company, for any fiscal year, means the daily
weighted average during such fiscal year (or, in the case of the Company's
fiscal year ending December 31, 1999, during the period commencing with the date
hereof and ending on December 31, 1999) of the aggregate book value of the
consolidated assets of the Company, excluding the Transferred Assets, invested,
directly or indirectly, in equity interests in and loans secured by real estate
and personal property owned in connection with such real estate, before
depreciation, reserves for bad debts and other similar noncash items. "FFO Per
Share," for any fiscal year, means (i) the Company's consolidated net income,
computed in accordance with generally accepted accounting principles, before
gain or loss on sale of properties and extraordinary items, depreciation and
other non-cash items, including the Company's pro rata share of the funds from
operations (determined in accordance with this clause) for such fiscal year of
(A) any unconsolidated subsidiary and (B) any entity for which the Company
accounts by the equity method of accounting, divided by (ii) the weighted
average number of Common Shares outstanding on a diluted basis during such
fiscal year; and "Transferred Assets" means the assets owned by the Company and
its subsidiaries on the date hereof. FFO Per Share for the Company's fiscal year
ending December 31, 1999 shall be calculated on a pro forma basis adjusted as if
the transactions described in the notes to the unaudited pro forma consolidated
financial statements of the Company contained in the Company's Registration
Statement No. 333- 69703 filed with the Securities and Exchange Commission (as
amended through the date hereof) had occurred as of January 1, 1999.
The Advisory Fee shall be computed and paid by the Company on a year to
date basis within thirty (30) days following the end of each fiscal month. These
computations shall be based upon the Company's monthly or quarterly financial
statements, as the case may be, and shall be in reasonable detail. The Incentive
Fee shall be computed and paid by the Company within thirty (30) days following
the public availability of the Company's annual audited financial statements for
each fiscal year. A copy of the computations shall promptly be delivered to the
Advisor accompanied by payment of the Fees shown thereon to be due and payable.
The aggregate Fees paid for each fiscal year shall be subject to
adjustment as of the end of each that year. On or before the 30th day after
public availability of the Company's annual audited financial statements for
each fiscal year, the Company shall deliver to the Advisor an Officer's
Certificate (a "Certificate") reasonably acceptable to the Advisor and certified
by an authorized officer of the Company setting forth (i) the Annual Average
Transferred Assets, the Annual Average
-5-
<PAGE>
Invested Capital and FFO Per Share for the Company's fiscal year ended upon the
immediately preceding December 31, and (ii) the Company's computation of the
Fees payable for the fiscal year. The Certificate shall be accompanied by an
examination of the calculation of Annual Average Invested Capital and FFO Per
Share by the Company's independent certified public accountants.
If the aggregate Fees payable for any fiscal year as shown in the
Certificate exceed the aggregate amounts previously paid by the Company, the
Company shall pay the deficit to the Advisor at the time of delivery of the
Certificate.
If the aggregate Fees payable for any fiscal year as shown in the
Certificate are less than the aggregate amounts previously paid by the Company,
the Company shall specify in the Certificate whether the Advisor should (i)
refund to the Company an amount equal to the difference or (ii) grant the
Company a credit against the Fees next coming due in the amount of the
difference until that amount has been fully paid or otherwise discharged.
Payment of the Incentive Fee shall be made by issuance of Common
Shares. The number of shares to be issued in payment of the Incentive Fee shall
be the whole number of shares (disregarding any fraction) equal to the value of
the Incentive Fee, as provided above, divided by the average closing price of
the Common Shares on the New York Stock Exchange during the month before the end
of the fiscal year for which the computation is made.
10. Compensation for Additional Services. If, and to the extent that,
the Company shall request the Advisor to render services on behalf of the
Company other than those required to be rendered by the Advisor in accordance
with the terms of this Agreement, those additional services shall be compensated
separately on terms to be agreed upon between the Advisor and the Company from
time to time. In addition, the Company may make awards to the employees of the
Advisor and others under the Company's 1999 Incentive Share Award Plan or any
plan adopted by the Company from time to time in replacement thereof.
11. Expenses of the Advisor. Without regard to the compensation
received by the Advisor from the Company pursuant to this Agreement, the Advisor
shall bear the following expenses incurred in connection with the performance of
its duties under this Agreement:
(a) employment expenses of the personnel employed by the
Advisor, including but not limited to, salaries, wages, payroll taxes
and the cost of employee benefit plans;
(b) fees and travel and other expenses paid to directors,
officers and employees of the Advisor, except fees and travel and other
expenses of persons who are Trustees or officers of the Company
incurred in their capacities as Trustees or officers of the Company;
(c) rent, telephone, utilities, office furniture, equipment and
machinery (including computers, to the extent utilized) and other
office expenses of the Advisor, except to the extent those expenses may
relate solely to an office maintained by the Company separate from the
office of the Advisor, if any; and
-6-
<PAGE>
(d) miscellaneous administrative expenses incurred in
supervising, monitoring and inspecting real property and other
investments of the Company or relating to performance by the Advisor of
its obligations hereunder.
12. Expenses of the Company. Except as expressly otherwise provided in
this Agreement, the Company shall pay all its expenses not payable by the
Advisor, and, without limiting the generality of the foregoing, it is
specifically agreed that the following expenses of the Company shall be paid by
the Company and shall not be paid by the Advisor:
(a) the cost of borrowed money;
(b) taxes on income and taxes and assessments on real
property, if any, and all other taxes applicable to the Company;
(c) legal, auditing, accounting, underwriting, brokerage,
listing, reporting, registration and other fees, and printing,
engraving and other expenses and taxes incurred in connection with the
issuance, distribution, transfer, trading, registration and stock
exchange listing of the Company's securities, including transfer
agent's, registrar's and indenture trustee's fees and charges;
(d) expenses of organizing, restructuring, reorganizing or
terminating the Company, or of revising, amending, converting or
modifying the Company's organizational documents;
(e) fees and travel and other expenses paid to Trustees and
officers of the Company in their capacities as such (but not in their
capacities as officers or employees of the Advisor) and fees and travel
and other expenses paid to advisors, contractors, mortgage servicers,
consultants, and other agents and independent contractors employed by
or on behalf of the Company;
(f) expenses directly connected with the acquisition,
disposition or ownership of real estate interests or other property
(including the costs of foreclosure, insurance premiums, legal
services, brokerage and sales commissions, maintenance, repair,
improvement and local management of property), other than expenses with
respect thereto of employees of the Advisor, to the extent that those
expenses are to be borne by the Advisor pursuant to Section 11 above;
(g) all insurance costs incurred in connection with the
Company (including officer and trustee liability insurance) or in
connection with any officer and trustee indemnity agreement to which
the Company is a party;
(h) expenses connected with payments of dividends or interest
or contributions in cash or any other form made or caused to be made by
the Trustees to holders of securities of the Company;
-7-
<PAGE>
(i) all expenses connected with communications to holders of
securities of the Company and other bookkeeping and clerical work
necessary to maintaining relations with holders of securities,
including the cost of printing and mailing certificates for securities
and proxy solicitation materials and reports to holders of the
Company's securities;
(j) legal, accounting and auditing fees and expenses; and
(k) expenses relating to any office or office facilities
maintained by the Company separate from the office of the Advisor.
13. Limits of Advisor Responsibility. The Advisor assumes no
responsibility other than to render the services described herein in good faith
and shall not be responsible for any action of the Trustees in following or
declining to follow any advice or recommendation of the Advisor. The Advisor,
its shareholders, directors, officers, employees, agents and Affiliates will not
be liable to the Company, its shareholders, or others, except by reason of acts
constituting bad faith, willful or wanton misconduct or gross negligence. The
Company shall reimburse, indemnify and hold harmless the Advisor, its
shareholders, directors, officers and employees, agents and Affiliates for and
from any and all expenses, losses, damages, liabilities, demands, charges and
claims of any nature whatsoever in respect of or arising from any acts or
omissions of the Advisor undertaken in good faith and in accordance with the
standard set forth above pursuant to the authority granted to it by this
Agreement.
14. Other Activities of the Advisor and its Stockholders. Nothing
herein shall prevent the Advisor from engaging in other activities or businesses
or from acting as advisor to any other Person (including other real estate
investment trusts) even though that Person has investment policies and
objectives similar to those of the Company; provided, however, that neither the
Advisor nor Barry M. Portnoy or Gerard M. Martin shall provide advisory services
to, make competitive direct investment in or, in the case of Messrs. Portnoy and
Martin, serve as a director or officer of, any other real estate investment
trust which is principally engaged in the business of ownership of senior
apartments, congregate communities, assisted living or nursing home properties
without the consent of a majority of the Independent Trustees. The Advisor shall
be free from any obligation to present to the Company any particular investment
opportunity which comes to the Advisor. In addition, except as expressly
provided herein, nothing herein shall prevent any stockholder or Affiliate of
the Advisor from engaging in any other business or from rendering services of
any kind to any other corporation, partnership or other entity (including
competitive business activities). Without limiting the foregoing provisions, the
Advisor agrees, upon the request of any Trustee of the Company, to disclose
certain investment information concerning the Advisor or certain of its
Affiliates, provided, however, that the disclosure shall be required only if it
does not constitute a breach of any fiduciary duty or obligation of Advisor.
Directors, officers, employees and agents of the Advisor or of its
Affiliates may serve as Trustees, officers, employees, agents, nominees or
signatories of the Company. When executing documents or otherwise acting in
capacities for the Company, these persons shall use their respective titles in
the Company.
-8-
<PAGE>
15. Term, Termination. This Agreement shall continue in force and
effect until December 31, 1999 (the "Initial Term"), and is renewable
periodically thereafter by the Company, if a majority of the Independent
Trustees determine that the Advisor's performance has been satisfactory.
Paragraph 18 hereof shall govern the rights, liabilities and
obligations of the parties upon termination of this Agreement; and, except as
provided in paragraph 18, a termination shall be without further liability of
either party to the other than for breach or violation of this Agreement prior
to termination.
16. Assignment. The Company may terminate this Agreement at any time in
the event of its assignment by the Advisor except an assignment to a
corporation, partnership, trust or other successor entity which may take over
the property and carry on the affairs of the Advisor; provided that, following a
permitted assignment, the persons who controlled the operations of the Advisor
immediately prior to the assignment shall control the operation of the
successor, including the performance of its duties under this Agreement, and
this successor shall be bound by the same restrictions by which the Advisor was
bound prior to such assignment. A permitted assignment or any other assignment
of this Agreement by the Advisor shall bind the assignee hereunder in the same
manner as the Advisor is bound hereunder. This Agreement shall not be assignable
by the Company without the prior written consent of the Advisor, except in the
case of any assignment by the Company to a trust, corporation, partnership or
other entity which is the successor to the Company, in which case the successor
shall be bound hereby and by the terms of said assignment in the same manner and
to the same extent as the Company is bound hereby.
17. Default, Bankruptcy, Etc. of the Advisor. At the sole option of the
Company, this Agreement may be terminated immediately by written notice from the
Trustees to the Advisor if any of the following events shall have occurred:
(a) the Advisor shall have violated any provision of this
Agreement and, after written notice from the Trustees of the violation,
shall have failed to cure the default within thirty (30) days;
(b) a petition shall have been filed against the Advisor for an
involuntary proceeding under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, and that petition shall
not have been dismissed within ninety (90) days of filing; or a court
having jurisdiction shall have appointed a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the
Advisor for any substantial portion of its property, or ordered the
winding up or liquidation of its affairs, and that appointment or order
shall not have been rescinded or vacated within ninety (90) days of the
appointment or order; or
(c) the Advisor shall have commenced a voluntary proceeding
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or shall have made any general assignment for the
benefit of creditors, or shall have failed generally to pay its debts
as they became due.
-9-
<PAGE>
The Advisor agrees that, if any of the events specified in paragraphs
(b) or (c) of this Section 17 occur, it will give written notice thereof to the
Trustees within seven (7) days following the occurrence of the event.
18. Action Upon Termination. From and after the effective date of any
termination of this Agreement pursuant to Sections 15, 16 or 17 hereof, the
Advisor shall be entitled to no compensation for services rendered hereunder for
the remainder of the then-current term of this Agreement but shall be paid, on a
pro rata basis, all compensation due for services performed prior to
termination, including, without limitation, a pro rata portion of the then
current year's Incentive Fee. Upon termination, the Advisor immediately shall:
(a) pay over to the Company all monies collected and held for
the account of the Company by it pursuant to this Agreement, after
deducting therefrom any accrued and unpaid Fees (including, without
limitation, a pro rata portion of the then current year's Incentive
Fee, and reimbursements for its expenses to which it is then entitled);
(b) deliver to the Trustees a full and complete accounting,
including a statement showing all sums collected by it and a statement
of all sums held by it for the period commencing with the date
following the date of its last accounting to the Trustees; and
(c) deliver to the Trustees all property and documents of the
Company then in its custody or possession.
The amount of Fees paid to the Advisor upon termination shall be
subject to adjustment pursuant to the following mechanism. On or before the 30th
day after public availability of the Company's annual audited financial
statements for the fiscal year in which termination occurs, the Company shall
deliver to the Advisor a Certificate reasonably acceptable to the Advisor and
certified by an authorized officer of the Company setting forth (i) the Annual
Average Transferred Assets, the Annual Average Invested Capital and FFO Per
Share for the Company's fiscal year ended upon the immediately preceding
December 31, and (ii) the Company's computation of the Fees (including, without
limitation, a pro rata portion of the then current year's Incentive Fee) payable
upon the date of termination. The Certificate shall be accompanied by a review
of the calculation of the Annual Average Transferred Assets, the Annual Average
Invested Capital and FFO Per Share by the Company's independent certified public
accountants.
If the annual Fees owed upon termination as shown in the Certificate
exceed the Fees paid by the Company upon termination, the Company shall include
its check for the deficit and deliver the same to the Advisor with the
Certificate.
The Incentive Fee for any partial fiscal year will be determined by
multiplying the Incentive Fee for such year (assuming this Agreement were in
effect for the entire year) by a fraction, the numerator of which is the number
of days in the portion of such year during which this Agreement was in effect,
and the denominator of which shall be 365.
-10-
<PAGE>
If the annual Fees owed upon termination as shown in the Certificate
are less than the Fees paid by the Company upon termination, the Advisor shall
remit to the Company its check in an amount equal to the difference.
19. Trustee Action. Wherever action on the part of the Trustees is
contemplated by this Agreement, action by a majority of the Trustees, including
a majority of the Independent Trustees, shall constitute the action provided for
herein.
20. Arbitration. The Company and the Advisor agree that any and all
disputes and disagreements arising out of or relating to this Agreement, other
than actions or claims for injunctive relief or claims raised in actions or
proceedings brought by third parties, shall be resolved through negotiations or,
if the dispute is not so resolved, through binding arbitration conducted in
Boston, Massachusetts under the J.A.M.S./Endispute Comprehensive Arbitration
Rules and Procedures, with the following amendments to those rules. First, the
parties agree that in no event shall the arbitration from commencement to
issuance of an award take longer than 180 days. Second, the parties agree that
the arbitration tribunal shall consist of three arbitrators and that the parties
elect not to have the optional appeal procedure provided for in Rule 23. Third,
in lieu of the depositions permitted in Rule 15(E) and (F), the parties agree
that the only depositions shall be a single deposition to last no longer than
one six-hour day that each party may take of the opposing party or an individual
under the control of the opposing party. Judgment on the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof.
21. TRUSTEES AND SHAREHOLDERS NOT LIABLE. THE DECLARATION OF TRUST OF
THE COMPANY, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS, IS DULY FILED IN THE
OFFICE OF THE STATE DEPARTMENT OF ASSESSMENTS AND TAXATION OF MARYLAND PROVIDES
THAT THE NAME SENIOR HOUSING PROPERTIES TRUST REFERS TO THE TRUSTEES
COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY. NO TRUSTEE,
OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF THE COMPANY SHALL BE HELD TO ANY
PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM
AGAINST, THE COMPANY. ALL PERSONS DEALING WITH THE COMPANY, IN ANY WAY, SHALL
LOOK ONLY TO THE ASSETS OF THE COMPANY FOR THE PAYMENT OF ANY SUM OR THE
PERFORMANCE OF ANY OBLIGATION.
22. Notices. Any notice, report or other communication required or
permitted to be given hereunder shall be in writing unless some other method of
giving the notice, report or other communication is accepted by the party to
whom it is given, and shall be given by being delivered at the following
addresses to the parties hereto:
If to the Company:
Senior Housing Properties Trust
400 Centre Street
Newton, Massachusetts 02458
Attention: President
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<PAGE>
If to the Advisor:
Reit Management & Research, Inc.
400 Centre Street
Newton, Massachusetts 02458
Attention: President
Such notice shall be effective upon its receipt by the party to whom it
is directed. Either party hereto may at any time give notice to the other party
in writing of a change of its address for purposes of this paragraph 22.
23. Amendments. The Agreement shall not be amended, changed, modified,
terminated, or discharged in whole or in part except by an instrument in writing
signed by each of the parties hereto, or by their respective successors or
assigns, or otherwise as provided herein.
24. Successors and Assigns. This Agreement shall be binding upon any
successors or permitted assigns of the parties hereto as provided herein.
25. Governing Law. The provisions of this Agreement shall be governed
by and construed in accordance with the laws of The Commonwealth of
Massachusetts.
26. Captions. The captions included herein have been inserted for ease
of reference only and shall not be construed to affect the meaning, construction
or effect of this Agreement.
27. Entire Agreement. This Agreement constitutes the entire agreement
of the parties hereto with respect to the subject matter hereof and supersedes
and cancels any pre-existing agreements with respect to its subject matter.
28. Attorneys' Fees. If any legal action is brought for the enforcement
of this Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party or parties shall be entitled to recover
reasonable attorneys' fees and other costs incurred in that action in addition
to any other relief to which it or they may be entitled.
29. Survival. The provisions of Sections 13, 14, 18, 20, 21, 22 and 28
of this Agreement shall survive the termination hereof.
[Remainder of page intentionally left blank.]
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as an instrument under seal by their duly authorized officers, as of
the day and year first above written.
SENIOR HOUSING PROPERTIES TRUST
By: /s/ David J. Hegarty
Its: President, Chief Operating Officer and
Secretary
REIT MANAGEMENT & RESEARCH, INC.
By: /s/ John Popeo
Its: Treasurer and Chief Financial Officer
SOLELY AS TO SECTION 14 HEREOF:
/s/ Gerard M. Martin
Gerard M. Martin
/s/ Barry M. Portnoy
Barry M. Portnoy
-13-
Exhibit 12.1
<TABLE>
<CAPTION>
SENIOR HOUSING PROPERTIES TRUST
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands, except ratio amounts)
Year Ended December 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------------- --------------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Net income $14,834 $46,236 $44,723 $36,441 $31,062
Fixed charges 18,768 19,293 16,958 14,719 16,937
---------------- --------------- --------------- -------------- ------------
Adjusted Earnings $33,602 $65,529 $61,681 $51,160 $47,999
================ =============== =============== ============== ============
Fixed Charges:
Interest expense $18,768 $19,293 $16,958 $14,719 $16,937
---------------- --------------- --------------- -------------- ------------
Total Fixed Charges $18,768 $19,293 $16,958 $14,719 $16,937
================ =============== =============== ============== ============
Ratio of Earnings to Fixed Charges 1.8x 3.4x 3.6x 3.5x 2.8x
================ =============== =============== ============== ============
</TABLE>
Exhibit 21.1
SENIOR HOUSING PROPERTIES TRUST
SUBSIDIARIES OF THE REGISTRANT
HRES1 Properties Trust (Maryland)
HRES2 Properties Trust (Maryland)
SHOPCO-AZ, LLC (Delaware)
SHOPCO-CA, LLC (Delaware)
SHOPCO-COLORADO, LLC (Delaware)
SHOPCO-CT, LLC (Delaware)
SHOPCO-GA, LLC (Delaware)
SHOPCO-IA, LLC (Delaware)
SHOPCO-KS, LLC (Delaware)
SHOPCO-LA, LLC (Delaware)
SHOPCO-MA, LLC (Delaware)
SHOPCO-MI, LLC (Delaware)
SHOPCO-MO, LLC (Delaware)
SHOPCO-NC, LLC (Delaware)
SHOPCO-NE, LLC (Delaware)
SHOPCO-PA, LLC (Delaware)
(Doing business as SHOPCO-PENNSYLVANIA, LLC in Pennsylvania)
SHOPCO-SD, LLC (Delaware)
SHOPCO-WI, LLC (Delaware)
SHOPCO-WY, LLC (Delaware)
SNH-IOWA, INC. (Delaware)
SNH-MASSACHUSETTS, INC. (Delaware)
(Doing business as MASSACHUSETTS-SNH, INC. in Massachusetts)
SNH-MICHIGAN, INC. (Delaware)
SNH-NEBRASKA, INC. (Delaware)
SPTBROOK Properties Trust (Maryland)
SPTGEN Properties Trust (Maryland)
SPTIHS Properties Trust (Maryland)
SPTMISC Properties Trust (Maryland)
SPTMNR Properties Trust (Maryland)
SPTMRT Properties Trust (Maryland)
SPTSUN Properties Trust (Maryland)
SPTSUN II Properties Trust (Maryland)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 17,091
<SECURITIES> 0
<RECEIVABLES> 22,939
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 708,739
<DEPRECIATION> 108,709
<TOTAL-ASSETS> 654,000
<CURRENT-LIABILITIES> 0
<BONDS> 200,000
0
0
<COMMON> 260
<OTHER-SE> 409,146
<TOTAL-LIABILITY-AND-EQUITY> 654,000
<SALES> 0
<TOTAL-REVENUES> 90,790
<CGS> 0
<TOTAL-COSTS> 75,956
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,768
<INCOME-PRETAX> 14,834
<INCOME-TAX> 0
<INCOME-CONTINUING> 14,834
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,834
<EPS-BASIC> 0.57
<EPS-DILUTED> 0.57
</TABLE>
