SNH » Topics » Note 6. Indebtedness

This excerpt taken from the SNH 10-Q filed May 7, 2009.

Note 5.  Indebtedness

 

We have an unsecured revolving credit facility that matures in December 2010.  Our revolving credit facility permits borrowings up to $550.0 million.  The annual interest payable for amounts drawn under the facility is LIBOR plus a premium. The weighted average interest rate payable on borrowings under this revolving credit facility was 1.3% and 3.5% at March 31, 2009 and 2008, respectively.  Our revolving credit facility is available for acquisitions, working capital and general business purposes. As of March 31, 2009 and 2008, we had $181.0 million and $115.0 million outstanding under this credit facility, respectively.  Subject to certain conditions, at our option, this credit facility’s maturity date can be extended to December 31, 2011 upon payment of a fee.

 

These excerpts taken from the SNH 10-K filed Mar 2, 2009.
1.51        “Indebtedness”  shall mean all obligations, contingent or otherwise, which in accordance with GAAP should be reflected on the obligor’s balance sheet as liabilities.

 

1.51        “Indebtedness”  shall mean all obligations,
contingent or otherwise, which in accordance with GAAP should be reflected on
the obligor’s balance sheet as liabilities.

 



This excerpt taken from the SNH 10-Q filed Nov 10, 2008.

Note 5.  Indebtedness

 

We have an unsecured revolving credit facility that matures in December 2010, with our option to extend the maturity by one additional year upon payment of a fee.  Our revolving credit facility permits borrowings up to $550.0 million.  The annual interest payable for amounts drawn under the facility is LIBOR plus a premium. The interest rate payable on borrowings under this revolving credit facility was 4.5% and 5.9% at September 30, 2008 and 2007, respectively.  Our revolving credit facility is available for acquisitions, working capital and general business purposes. As of September 30, 2008 and 2007, we had $93.0 million and zero amounts outstanding under this credit facility, respectively.

 

As discussed above in Note 2, during the quarter we assumed $61.3 million of mortgage debt with a weighted average interest rate of 6.6% and a weighted average maturity in 2017 relating to our senior living and MOB acquisitions.  We recorded the assumed mortgages at their fair value which approximated their outstanding principle balances.  Fair value of the assumed mortgages was determined using a market approach based upon level 2 inputs (inputs other than quoted market prices that are observable) in the fair value hierarchy as defined in SFAS No. 157.

 

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Table of Contents

 

SENIOR HOUSING PROPERTIES TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(amounts in thousands, except per share data or as otherwise stated)

 

This excerpt taken from the SNH 10-Q filed Aug 8, 2008.

Note 5.  Indebtedness

 

We have an unsecured revolving credit facility that matures in December 2010, with our option to extend the maturity by one additional year upon payment of a fee.  Our revolving credit facility permits borrowings up to $550.0 million.  The annual interest payable for amounts drawn under the facility is LIBOR plus a premium. The interest rate payable on borrowings under this revolving credit facility was 3.26% and 6.10% at June 30, 2008 and 2007, respectively.  Our revolving credit facility is available for acquisitions, working capital and general business purposes. As of June 30, 2008 and 2007, we had no amounts outstanding under this credit facility.

 

In April 2008, we paid in full a mortgage loan on one of our properties for $12.6 million.  We used cash on hand and borrowings under our revolving credit facility to fund this payment.

 

This excerpt taken from the SNH 8-K filed Jul 7, 2008.
1.55        “Indebtedness”  shall mean (a) with respect to each Senior Housing Property (without duplication), all obligations, contingent or otherwise, which in accordance with GAAP should be reflected on  the obligor’s balance sheet as liabilities and (b) with respect to either Rehabilitation Hospital Property (without duplication), (i) all obligations for borrowed money, (ii) the maximum amount available to be drawn under all surety bonds, letters of credit and bankers’ acceptances issued or created for the account of Tenant and, without duplication, all unreimbursed drafts drawn thereunder, (iii) all obligations to pay the deferred purchase price of property or services, excluding trade payables incurred in the ordinary course of business, but including all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by Tenant, (iv) all leases required, in accordance with GAAP, to be recorded as capital leases on Tenant’s balance sheet, (v) the principal balance outstanding and owing by Tenant under any synthetic lease, tax retention operating lease or similar off-balance sheet financing product, and (vi) all guaranties of or other liabilities with respect to the debt of another Person.

 

This excerpt taken from the SNH 10-Q filed May 7, 2008.

Note 5.  Indebtedness

 

We have an unsecured revolving credit facility that matures in December 2010, with our option to extend the maturity by one additional year upon payment of a fee.  Our revolving credit facility permits borrowings up to $550.0 million.  The annual interest payable for amounts drawn under the facility is LIBOR plus a premium. The interest rate on borrowings under our revolving credit facility was 3.48% and 6.12% at March 31, 2008 and 2007, respectively.  Our revolving credit facility is available for acquisitions, working capital and general business purposes. As of March 31, 2008 and 2007, we had $115.0 million and zero, respectively, outstanding under this credit facility.

 

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SENIOR HOUSING PROPERTIES TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

On April 1, 2008, we paid in full a mortgage loan on one of our properties for $12.6 million.  We used cash on hand and borrowings under our revolving credit facility to fund this payment.

 

In January 2007, we purchased and retired $20.0 million of our 8 5/8% senior notes due 2012 and paid a premium of $1.8 million and wrote off $276,000 of deferred financing fees and unamortized discount related to these senior notes.

 

This excerpt taken from the SNH 10-Q filed Nov 1, 2007.

Note 6. Indebtedness

 

We have a $550.0 million, interest only, unsecured revolving credit facility. Our revolving credit facility matures in December 2010 and may be extended at our option to December 2011 upon our payment of an extension fee. The interest rate is LIBOR plus a premium (5.9% at September 30, 2007). As of September 30, 2007, we had no amounts outstanding and $550.0 million was available for borrowing under this credit facility and as of October 31, 2007, we had $30.0 million outstanding under this credit facility.

 

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Note 7. Shareholders’ Equity

 

On August 16, 2007, we paid a $0.34 per share, or $28.4 million, distribution to our common shareholders for the quarter ended June 30, 2007. On October 11, 2007, we declared a distribution of $0.35 per share, or $29.3 million, to be paid to common shareholders of record on October 22, 2007, with respect to our results for the quarter ended September 30, 2007. We expect to pay this distribution on or about November 15, 2007.

 

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This excerpt taken from the SNH 10-Q filed Jul 30, 2007.

Note 7.  Indebtedness

We have a $550.0 million, interest only, unsecured revolving credit facility. Our revolving credit facility matures in December 2010 and may be extended at our option to December 2011 upon our payment of an extension fee. The interest rate (6.1% at June 30, 2007) is LIBOR plus a premium. As of June 30, 2007, we have no amounts outstanding under this credit facility.

This excerpt taken from the SNH 10-Q filed May 2, 2007.

Note  6.  Indebtedness

We have a $550.0 million, interest only, unsecured revolving credit facility. Our revolving credit facility matures in December 2010 and may be extended at our option to December 2011 upon our payment of an extension fee. The interest rate (6.12% at March 31, 2007) is LIBOR plus a premium.  As of March 31, 2007, we have no amounts outstanding under this credit facility.

In January 2007, we purchased and retired $20.0 million of our 8 5/8% senior notes due 2012 and recognized a loss on early extinguishment of $2.0 million. The loss on early extinguishment of debt includes a $1.8 million premium and a $276,000 write off of deferred financing fees and unamortized discounts related to these senior notes. We funded this purchase with borrowings under our revolving credit facility.

This excerpt taken from the SNH 10-Q filed Feb 2, 2007.

Note  5.  Indebtedness

We have a $550.0 million, interest only, unsecured revolving bank credit facility. Our revolving bank credit facility matures in November 2009 and may be extended at our option to November 2010 upon our payment of an extension fee. The interest rate (6.35% at June 30, 2006) is LIBOR plus a premium. As of June 30, 2006, $141.0 million was outstanding and $409.0 million was available under this facility.

On January 9, 2006, we redeemed $52.5 million of our 7 7¤8% senior unsecured notes. As a result, we recognized a loss on early extinguishment of debt of $5.2 million, which included a redemption premium of $4.1 million and a $1.1 million write off of deferred financing fees and unamortized discount related to these notes.

On June 15, 2006, we redeemed all $28.2 million of our junior subordinated debentures at par plus accrued, but unpaid interest.  As a result, we recognized a loss on early extinguishment of debt of $1.3 million, which was the unamortized deferred finance costs related to the debentures.

We have two properties that we lease from an unrelated third party and account for as capital leases.  During the second quarter, we amended these leases to extend the lease terms from 2016 to 2026 and to add a purchase option.  Also, the current rent payable did not change, but scheduled increases will take effect beginning in 2012. The amended lease meets the criteria of a capital lease and, as a result, the capital lease asset and liability included in our Consolidated Balance Sheet were increased by $10.0 million to reflect the present value of the amended future minimum lease payments.  These capital lease assets and obligations will be amortized over the amended lease term.

Note  6.  Shareholders’ Equity

On May 18, 2006, we paid a $0.32 per share, or $23.0 million, distribution to our common shareholders for the quarter ended March 31, 2006.  On July 6, 2006, we declared a distribution of $0.33 per share, or $23.7 million, to be paid to common shareholders of record on July 20, 2006, with respect to our results for the quarter ended June 30, 2006. We expect to pay this distribution on or about August 18, 2006.

Note 7.  Commitments and Contingencies

As described in our Annual Report on Form 10-K for the year ended December 31, 2005, we are in litigation with HealthSouth. In January 2002, HealthSouth settled a default under its lease with us by exchanging properties.  We delivered to HealthSouth title to five nursing homes which HealthSouth leased from us.  In exchange, HealthSouth delivered to us title to two rehabilitation hospitals and we

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entered into an amended lease, reducing the annual rent we received from $10.25 million to $8.7 million, extending the lease term and changing other lease terms between HealthSouth and us. A primary factor which caused us to lower the rent for an extended lease term was the purported credit strength of HealthSouth.  In agreeing to lower the rent and extend the lease term, we relied upon statements made by certain officers of HealthSouth, upon financial statements and other documents provided by HealthSouth, upon public statements made by HealthSouth and its representatives concerning HealthSouth’s financial condition and upon publicly available documents of HealthSouth.

In March 2003, the Securities and Exchange Commission, or SEC, accused HealthSouth and some of its executives of publishing false financial information; since then, according to published reports, at least 17 former HealthSouth executives, including all five of its former chief financial officers, have been convicted of, or pled guilty to, various crimes.  In April 2003, we commenced a lawsuit against HealthSouth in the Massachusetts Land Court seeking, among other matters, to reform the amended lease, based upon HealthSouth’s fraud by increasing the rent payable to us back to $10.25 million from January 2, 2002 until the termination of the amended lease.  HealthSouth has defended this lawsuit and asserted counterclaims against us arising from this and unrelated matters.  This litigation is pending at this time.  In June 2004, we declared an event of default under the amended lease because HealthSouth failed to deliver to us accurate and timely financial information as required by the amended lease.  On October 26, 2004, we terminated the amended lease because of these defaults. On November 2, 2004, HealthSouth brought a second lawsuit against us in the Massachusetts Superior Court seeking to prevent our termination of the amended lease.  On September 25, 2005, the Superior Court ruled that our termination was proper.  On January 13, 2006, the Superior Court ordered HealthSouth to cooperate with us in licensing a new tenant for our two hospitals and to pay us the hospitals’ net patient revenues, after a 5% management fee and payment of costs and expenses of operation, since October 26, 2004.

HealthSouth has appealed the Superior Court’s decisions; however, HealthSouth’s motions for a stay of the court’s decisions during the appeal have been denied by both the trial court and the appeals court. HealthSouth has filed various motions to modify these decisions which also have been denied. During the pendency of these disputes, HealthSouth continued to pay us at the disputed rent amount of $725,000 per month through January 2006. In 2006, HealthSouth paid us $8.5 million, which includes amounts HealthSouth represented to be due from October 26, 2004 to June 30, 2006.  The supporting data for the calculations of amounts due to us provided by HealthSouth appears to be incomplete and contradictory. We have attempted to obtain accurate data and clarifications from HealthSouth, but HealthSouth has been unwilling or unable to provide such data. Pending the resolution of HealthSouth’s appeal and the verification or correction of HealthSouth’s calculations of amounts due to us, we have recognized in income $2.2 million and $4.4 million for the quarter and six months ended June 30, 2006, respectively, which represents the minimum amount we are entitled to if HealthSouth prevails in its appeal and HealthSouth’s lease is reinstated. We have deferred recognition of the remaining $4.1 million of cash payments received from HealthSouth. Under Internal Revenue Code laws and regulations applicable to real estate investment trusts, or REITs, a portion of the payments received from HealthSouth may be subject to income tax at corporate rates.  We have also deferred recognition of $3.2 million of estimated tax expense, pending the recognition in income of the deferred payments received. The financial and operating data included in HealthSouth’s Annual Report on Form 10-K for the year ended December 31, 2005, and Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, show a substantial negative net worth and a history of substantial operating losses. Also, HealthSouth’s management identified several material weaknesses in its internal control over financial reporting and stated that it did not maintain effective internal control over financial reporting as of December 31, 2005, and March 31, 2006.  To date we have been unable to obtain reliable current financial information about the operations of HealthSouth or our hospitals. Accordingly, we do not know if we will be able to collect any additional amounts which the courts may determine to be owed to us by HealthSouth.  Legal expenses incurred related to our disputes with HealthSouth were $320,000 and $500,000 for the quarters ended June 30, 2006 and 2005, respectively, and $710,000 and $900,000 for the six months ended June 30, 2006 and 2005, respectively, and are included in general and administrative expense. We expect these legal expenses to continue so long as our litigations with HealthSouth continue, but we cannot predict the amount of these future expenses. We have filed a motion seeking an order requiring HealthSouth to reimburse some of our legal fees. HealthSouth has opposed this motion and we do not know when or how this request will be decided.

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This excerpt taken from the SNH 10-Q filed Feb 2, 2007.

Note  5.  Indebtedness

 

We have a $550.0 million, interest only, unsecured revolving bank credit facility. Our revolving bank credit facility matures in November 2009 and may be extended at our option to November 2010 upon our payment of an extension fee. The interest rate (5.6% at March 31, 2006) is LIBOR plus a premium. As of March 31, 2006, $106.0 million was outstanding and $444.0 million was available under this facility.

 

On January 9, 2006, we redeemed $52.5 million of our 7 7¤8% senior unsecured notes. As a result, we recognized a loss on extinguishment of debt of $5.2 million, which included a redemption premium of $4.1 million, and a $1.1 million write off of deferred financing fees and unamortized discount related to these notes.

 

This excerpt taken from the SNH 10-Q filed Feb 2, 2007.

Note  5.  Indebtedness

We have a $550.0 million, interest only, unsecured revolving bank credit facility. Our revolving bank credit facility matures in November 2009 and may be extended at our option to November 2010 upon our payment of an extension fee. The interest rate (6.32% at September 30, 2006) is LIBOR plus a premium. As of September 30, 2006, $222.0 million was outstanding and $328.0 million was available under this facility.

On January 9, 2006, we redeemed $52.5 million of our 7 7¤8% senior unsecured notes.  As a result, we recognized a loss on early extinguishment of debt of $5.2 million, which included a redemption premium of $4.1 million and a $1.1 million write off of deferred financing fees and unamortized discount related to these notes.

On June 15, 2006, we redeemed all $28.2 million of our junior subordinated debentures at par plus accrued, but unpaid interest.  As a result, we recognized a loss on early extinguishment of debt of $1.3 million, which was the unamortized deferred finance costs related to the debentures.

We have two properties that we lease from an unaffiliated third party and account for as capital leases.  During the second quarter, we amended these leases to extend the lease terms from 2016 to 2026 and to add a purchase option.  The current rent payable did not change, but scheduled increases will take effect beginning in 2012. The amended lease meets the criteria of a capital lease and, as a result, the capital lease asset and liability included in our Consolidated Balance Sheet were increased by $10.0 million as of May 1, 2006 to reflect the present value of the amended future minimum lease payments.  These capital lease assets and obligations will be amortized over the amended lease term.

Note  6.  Shareholders’ Equity

On August 18, 2006, we paid a $0.33 per share, or $23.7 million, distribution to our common shareholders for the quarter ended June 30, 2006.  On October 6, 2006, we declared a distribution of $0.33 per share, or $23.7 million, to be paid to common shareholders of record on October 20, 2006, with respect to our results for the quarter ended September 30, 2006. We expect to pay this distribution on or about November 17, 2006.

Note 7.  Commitments and Contingencies

As described in our Annual Report on Form 10-K for the year ended December 31, 2005, since 2003 we have been in two separate litigations with HealthSouth Corporation, or HealthSouth, seeking to increase the annual rent due under an amended lease with HealthSouth and to terminate the amended lease and repossess the hospitals.  During the pendency of the litigations, we have recognized rental income at the $8.7 million annual rate set forth in the amended lease, which represents the minimum amount we would have been entitled to if HealthSouth prevailed in the litigations and we have deferred recognition in income of $2.2 million of cash payments received from HealthSouth that are in excess of the minimum rent required by the amended lease.

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On November 8, 2006, we and HealthSouth agreed to settle our litigations, reinstate HealthSouth’s lease until September 30, 2006 and to increase the annual rent due under the lease from $8.7 million to $9.9 million for the period from January 2, 2002 to September 30, 2006.  As a result of the settlement, HealthSouth owes us an additional rent of $3.5 million for that period.  We collected that amount on November 8, 2006.  We will recognize this $3.5 million and the $2.2 million of previously deferred income as rental income in the fourth quarter of 2006.  There are no taxes payable with respect to the additional rent income collected from HealthSouth.

Expenses incurred related to our disputes with HealthSouth were $700,000 and $350,000 for the quarters ended September 30, 2006 and 2005, respectively, and $1.4 million and $1.3 million for the nine months ended September 30, 2006  and 2005, respectively, and are included in General and Administrative expense.

Effective October 1, 2006, Five Star began to operate these hospitals and to lease them from us for annual rent of $10.25 million for an initial lease term through 2026.

We have agreed to purchase one assisted living property with 48 units for a purchase price of $4.6 million.  The purchase of this property is subject to satisfactory completion of diligence by us and customary closing conditions, and we can provide no assurances that we will purchase this property in the future.

This excerpt taken from the SNH 10-Q filed Nov 9, 2006.

Note  5.  Indebtedness

We have a $550.0 million, interest only, unsecured revolving bank credit facility. Our revolving bank credit facility matures in November 2009 and may be extended at our option to November 2010 upon our payment of an extension fee. The interest rate (6.32% at September 30, 2006) is LIBOR plus a premium. As of September 30, 2006, $222.0 million was outstanding and $328.0 million was available under this facility.

On January 9, 2006, we redeemed $52.5 million of senior notes and paid a redemption premium of $4.1 million, which had been accrued as of December 31, 2005, plus accrued, but unpaid interest.

On June 15, 2006, we redeemed all $28.2 million of our junior subordinated debentures at par plus accrued, but unpaid interest.  As a result, we recognized a loss on early extinguishment of debt of $1.3 million, which was the unamortized deferred finance costs related to the debentures.

We have two properties that we lease from an unaffiliated third party and account for as capital leases.  During the second quarter, we amended these leases to extend the lease terms from 2016 to 2026 and to add a purchase option.  The current rent payable did not change, but scheduled increases will take effect beginning in 2012. The amended lease meets the criteria of a capital lease and, as a result, the capital lease asset and liability included in our Consolidated Balance Sheet were increased by $10.0 million as of May 1, 2006 to reflect the present value of the amended future minimum lease payments.  These capital lease assets and obligations will be amortized over the amended lease term.

Note  6.  Shareholders’ Equity

On August 18, 2006, we paid a $0.33 per share, or $23.7 million, distribution to our common shareholders for the quarter ended June 30, 2006.  On October 6, 2006, we declared a distribution of $0.33 per share, or $23.7 million, to be paid to common shareholders of record on October 20, 2006, with respect to our results for the quarter ended September 30, 2006. We expect to pay this distribution on or about November 17, 2006.

Note 7.  Commitments and Contingencies

As described in our Annual Report on Form 10-K for the year ended December 31, 2005, since 2003 we have been in two separate litigations with HealthSouth Corporation, or HealthSouth, seeking to increase the annual rent due under an amended lease with HealthSouth and to terminate the amended lease and repossess the hospitals.  During the pendency of the litigations, we have recognized rental income at the $8.7 million annual rate set forth in the amended lease, which represents the minimum amount we would have been entitled to if HealthSouth prevailed in the litigations and we have deferred recognition in income of $2.2 million of cash payments received from HealthSouth that are in excess of the minimum rent required by the amended lease.

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On November 8, 2006, we and HealthSouth agreed to settle our litigations, reinstate HealthSouth’s lease until September 30, 2006 and to increase the annual rent due under the lease from $8.7 million to $9.9 million for the period from January 2, 2002 to September 30, 2006.  As a result of the settlement, HealthSouth owes us an additional rent of $3.5 million for that period.  We collected that amount on November 8, 2006.  We will recognize this $3.5 million and the $2.2 million of previously deferred income as rental income in the fourth quarter of 2006.  There are no taxes payable with respect to the additional rent income collected from HealthSouth.

Expenses incurred related to our disputes with HealthSouth were $700,000 and $350,000 for the quarters ended September 30, 2006 and 2005, respectively, and $1.4 million and $1.3 million for the nine months ended September 30, 2006  and 2005, respectively, and are included in General and Administrative expense.

Effective October 1, 2006, Five Star began to operate these hospitals and to lease them from us for annual rent of $10.25 million for an initial lease term through 2026.

We have agreed to purchase one assisted living property with 48 units for a purchase price of $4.6 million.  The purchase of this property is subject to satisfactory completion of diligence by us and customary closing conditions, and we can provide no assurances that we will purchase this property in the future.

This excerpt taken from the SNH 10-Q filed Aug 3, 2006.

Note  5.  Indebtedness

We have a $550.0 million, interest only, unsecured revolving bank credit facility. Our revolving bank credit facility matures in November 2009 and may be extended at our option to November 2010 upon our payment of an extension fee. The interest rate (6.35% at June 30, 2006) is LIBOR plus a premium. As of June 30, 2006, $141.0 million was outstanding and $409.0 million was available under this facility.

On January 9, 2006, we redeemed $52.5 million of senior notes and paid a redemption premium of $4.1 million, which had been accrued as of December 31, 2005, plus accrued but unpaid interest.

On June 15, 2006, we redeemed all $28.2 million of our junior subordinated debentures at par plus accrued, but unpaid interest.  As a result, we recognized a loss on early extinguishment of debt of $1.3 million, which was the unamortized deferred finance costs related to the debentures.

We have two properties that we lease from an unrelated third party and account for as capital leases.  During the second quarter, we amended these leases to extend the lease terms from 2016 to 2026 and to add a purchase option.  Also, the current rent payable did not change, but scheduled increases will take effect beginning in 2012. The amended lease meets the criteria of a capital lease and, as a result, the capital lease asset and liability included in our Consolidated Balance Sheet were increased by $10.0 million to reflect the present value of the amended future minimum lease payments.  These capital lease assets and obligations will be amortized over the amended lease term.

Note  6.  Shareholders’ Equity

On May 18, 2006, we paid a $0.32 per share, or $23.0 million, distribution to our common shareholders for the quarter ended March 31, 2006.  On July 6, 2006, we declared a distribution of $0.33 per share, or $23.7 million, to be paid to common shareholders of record on July 20, 2006, with respect to our results for the quarter ended June 30, 2006. We expect to pay this distribution on or about August 18, 2006.

Note 7.  Commitments and Contingencies

As described in our Annual Report on Form 10-K for the year ended December 31, 2005, we are in litigation with HealthSouth. In January 2002, HealthSouth settled a default under its lease with us by exchanging properties.  We delivered to HealthSouth title to five nursing homes which HealthSouth leased from us.  In exchange, HealthSouth delivered to us title to two rehabilitation hospitals and we

5




entered into an amended lease, reducing the annual rent we received from $10.25 million to $8.7 million, extending the lease term and changing other lease terms between HealthSouth and us. A primary factor which caused us to lower the rent for an extended lease term was the purported credit strength of HealthSouth.  In agreeing to lower the rent and extend the lease term, we relied upon statements made by certain officers of HealthSouth, upon financial statements and other documents provided by HealthSouth, upon public statements made by HealthSouth and its representatives concerning HealthSouth’s financial condition and upon publicly available documents of HealthSouth.

In March 2003, the Securities and Exchange Commission, or SEC, accused HealthSouth and some of its executives of publishing false financial information; since then, according to published reports, at least 17 former HealthSouth executives, including all five of its former chief financial officers, have been convicted of, or pled guilty to, various crimes.  In April 2003, we commenced a lawsuit against HealthSouth in the Massachusetts Land Court seeking, among other matters, to reform the amended lease, based upon HealthSouth’s fraud by increasing the rent payable to us back to $10.25 million from January 2, 2002 until the termination of the amended lease.  HealthSouth has defended this lawsuit and asserted counterclaims against us arising from this and unrelated matters.  This litigation is pending at this time.  In June 2004, we declared an event of default under the amended lease because HealthSouth failed to deliver to us accurate and timely financial information as required by the amended lease.  On October 26, 2004, we terminated the amended lease because of these defaults. On November 2, 2004, HealthSouth brought a second lawsuit against us in the Massachusetts Superior Court seeking to prevent our termination of the amended lease.  On September 25, 2005, the Superior Court ruled that our termination was proper.  On January 13, 2006, the Superior Court ordered HealthSouth to cooperate with us in licensing a new tenant for our two hospitals and to pay us the hospitals’ net patient revenues, after a 5% management fee and payment of costs and expenses of operation, since October 26, 2004.

HealthSouth has appealed the Superior Court’s decisions; however, HealthSouth’s motions for a stay of the court’s decisions during the appeal have been denied by both the trial court and the appeals court. HealthSouth has filed various motions to modify these decisions which also have been denied. During the pendency of these disputes, HealthSouth continued to pay us at the disputed rent amount of $725,000 per month through January 2006. In 2006, HealthSouth paid us $8.5 million, which includes amounts HealthSouth represented to be due from October 26, 2004 to June 30, 2006.  The supporting data for the calculations of amounts due to us provided by HealthSouth appears to be incomplete and contradictory. We have attempted to obtain accurate data and clarifications from HealthSouth, but HealthSouth has been unwilling or unable to provide such data. Pending the resolution of HealthSouth’s appeal and the verification or correction of HealthSouth’s calculations of amounts due to us, we have recognized in income $2.2 million and $4.4 million for the quarter and six months ended June 30, 2006, respectively, which represents the minimum amount we are entitled to if HealthSouth prevails in its appeal and HealthSouth’s lease is reinstated. We have deferred recognition of the remaining $4.1 million of cash payments received from HealthSouth. Under Internal Revenue Code laws and regulations applicable to real estate investment trusts, or REITs, a portion of the payments received from HealthSouth may be subject to income tax at corporate rates.  We have also deferred recognition of $3.2 million of estimated tax expense, pending the recognition in income of the deferred payments received. The financial and operating data included in HealthSouth’s Annual Report on Form 10-K for the year ended December 31, 2005, and Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, show a substantial negative net worth and a history of substantial operating losses. Also, HealthSouth’s management identified several material weaknesses in its internal control over financial reporting and stated that it did not maintain effective internal control over financial reporting as of December 31, 2005, and March 31, 2006.  To date we have been unable to obtain reliable current financial information about the operations of HealthSouth or our hospitals. Accordingly, we do not know if we will be able to collect any additional amounts which the courts may determine to be owed to us by HealthSouth.  Legal expenses incurred related to our disputes with HealthSouth were $320,000 and $500,000 for the quarters ended June 30, 2006 and 2005, respectively, and $710,000 and $900,000 for the six months ended June 30, 2006 and 2005, respectively, and are included in general and administrative expense. We expect these legal expenses to continue so long as our litigations with HealthSouth continue, but we cannot predict the amount of these future expenses. We have filed a motion seeking an order requiring HealthSouth to reimburse some of our legal fees. HealthSouth has opposed this motion and we do not know when or how this request will be decided.

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This excerpt taken from the SNH 10-Q filed May 3, 2006.

Note  5.  Indebtedness

 

We have a $550.0 million, interest only, unsecured revolving bank credit facility. Our revolving bank credit facility matures in November 2009 and may be extended at our option to November 2010 upon our payment of an extension fee. The interest rate (5.6% at March 31, 2006) is LIBOR plus a premium. As of March 31, 2006, $106.0 million was outstanding and $444.0 million was available under this facility.

 

On January 9, 2006, we redeemed $52.5 million of senior notes and paid a redemption premium of $4.1 million, which had been accrued as of December 31, 2005, plus accrued but unpaid interest.

 

This excerpt taken from the SNH 10-Q filed Nov 2, 2005.

Note 5.  Indebtedness

 

On July 29, 2005, we amended our unsecured revolving bank credit facility to increase the available borrowing amount from $250.0 million to $550.0 million and extend the maturity date from November 2005 to November 2009, with an option to extend the maturity by one additional year upon payment of a fee. The annual interest payable for amounts drawn under the facility was reduced from LIBOR plus 1.45% to LIBOR plus 1.00%.  In certain circumstances, the amount of unsecured borrowings available under this facility may be increased to $1.1 billion.  Certain financial and other covenants in the facility were also amended to reflect current market conditions.  The interest rate on this facility averaged 4.7% and 4.5% for the three and nine months ended September 30, 2005, respectively, and 2.9% and 2.6% for the three and nine months ended September 30, 2004.

 

As discussed in Note 2, we sold a property to Five Star on May 18, 2005. Simultaneous with this sale, we repaid the $4.2 million mortgage note that was secured by this property.  This mortgage note was also secured by $4.3 million of restricted cash, which became unrestricted when the mortgage note was prepaid.

 

Note 6.  Shareholders’ Equity

 

On August 19, 2005, we paid a $0.32 per share, or $21.9 million, distribution to our common shareholders for the quarter ended June 30, 2005.  On October 6, 2005, we declared a distribution of $0.32 per share, or $21.9 million, to be paid to common shareholders of record on October 20, 2005 with respect to our results for the quarter ended September 30, 2005. We expect to pay this distribution on or about November 18, 2005.

 

Under the terms of our advisory agreement with Reit Management and Research, LLC, or RMR, on April 4, 2005, we issued 39,019 common shares in payment of an incentive fee for services rendered by RMR during 2004.  These restricted securities were issued pursuant to an exemption from registration provided under Section 4(2) of the Securities Act of 1933, as amended.

 

5



 

Note 7.  Commitments and Contingencies

 

As described in our 2004 Annual Report on Form 10-K, we are in litigation with HealthSouth Corporation, or HealthSouth. In January 2002, HealthSouth settled a default under its lease with us by exchanging properties. We delivered to HealthSouth title to five nursing homes which HealthSouth leased from us. In exchange, HealthSouth delivered to us title to two rehabilitation hospitals and we entered an amended lease, reducing the annual rent from $10.3 million to $8.7 million, extending the lease term and changing other lease terms between HealthSouth and us.  A primary factor which caused us to lower the rent for an extended lease term was the purported credit strength of HealthSouth. In agreeing to lower the rent and extend the lease term, we relied upon statements made by certain officers of HealthSouth, upon financial statements and other documents provided by HealthSouth, upon public statements made by HealthSouth and its representatives concerning HealthSouth’s financial condition and upon publicly available documents filed by HealthSouth.

 

In March 2003, the SEC accused HealthSouth and some of its executives of publishing false financial information; since then, according to published reports, at least 15 former HealthSouth executives, including all five of its former chief financial officers, have pled guilty to various crimes. In April 2003, we commenced a lawsuit against HealthSouth in the Massachusetts Land Court seeking, among other matters, to reform the amended lease, based upon HealthSouth’s fraud, by increasing the rent payable to us back to $10.3 million from January 2, 2002 until the termination or expiration of the amended lease and to change the lease term to its historical expiration on January 1, 2006, among other matters. HealthSouth has defended this lawsuit and asserted counterclaims against us arising from this and unrelated matters. This litigation is pending at this time. In June 2004, we declared an event of default under the amended lease because HealthSouth failed to deliver to us accurate and timely financial information as required by the amended lease. On October 26, 2004, we terminated the amended lease because of this event of default by sending a notice of lease termination to HealthSouth. On November 2, 2004, HealthSouth brought a second lawsuit against us in the Massachusetts Superior Court seeking to prevent our termination of the amended lease. On September 25, 2005, the court ruled that our termination was proper and we have begun work to identify and qualify a new tenant operator for the hospitals. HealthSouth will likely appeal the court’s decision that our lease termination was proper. We believe our lease with HealthSouth requires that, after termination, HealthSouth manage the hospitals for our account for a management fee during the period of the transition to a new tenant and remit the net cash flow to us. During the pendency of these disputes, HealthSouth has continued to pay us at the disputed rent amount and we have applied the payments received against the net cash flow due, but we do not know how long HealthSouth may continue to make payments. According to affidavits submitted during this litigation by HealthSouth, the leased hospitals produced cash flow in prior periods of approximately $14 million per year in excess of amounts paid by HealthSouth to us. We do not know the cash flow currently being produced by these hospitals. The court has also granted our request to sequester the net cash proceeds of the hospitals and appointed a receiver to calculate and hold these amounts until the litigation is concluded. HealthSouth disputes that the court order requires the sequestration of cash flow from the date of the lease termination to the present.  On June 27, 2005, HealthSouth filed with the SEC a restated Annual Report on Form 10-K for periods ending December 31, 2003. HealthSouth’s restated Form 10-K includes financial data which shows HealthSouth to have a substantial negative net worth and a history of substantial operating losses. To date we have been unable to obtain reliable current financial information about the operations of HealthSouth or our hospitals. Accordingly, we do not know if we will be able to collect any amounts which the courts may determine to be owed to us by HealthSouth. If we ultimately prevail in our litigation and are entitled to receive the cash flows, net of a management fee, from the hospitals’ operations, and if, as a result, under Internal Revenue Code laws and regulations applicable to REITs these properties are foreclosure properties, the cash flows received would be subject to income tax at corporate rates. Based on the 2004 cash flow amount disclosed by HealthSouth, we estimate that the potential tax due for the period from the date of the lease termination through September 30, 2005, could range between $3.0 million and $6.0 million, and is largely dependent upon the actual cash flow that we receive. Legal expenses incurred related to this matter were approximately $350,000 and $1,240,000, respectively, for the quarter and nine months ended September 30, 2005 and $75,000 and $125,000, respectively, for the quarter and nine months ended September 30, 2004, and are included in general and administrative expenses. We expect these legal expenses to continue so long as our litigations with HealthSouth continue, but we cannot predict the amount of these future expenses at this time.

 

6



 

This excerpt taken from the SNH 10-Q filed Aug 3, 2005.

Note 5.  Indebtedness

 

On July 29, 2005, we amended our unsecured revolving bank credit facility to increase the available borrowing amount from $250.0 million to $550.0 million and extend the maturity date from November 2005 to November 2009, with an option to extend the maturity by one additional year upon payment of a fee. The annual interest payable for amounts drawn under the facility was reduced from LIBOR plus 1.45% to LIBOR plus 1.00%.  In certain circumstances, the amount of unsecured borrowings available under this facility may be increased to $1.1 billion.  Certain financial and other covenants in the facility were also amended to reflect current market conditions.  The interest rate on this facility averaged 4.6% and 4.4% for the three and six months ended June 30, 2005, respectively, and 2.7% for the three and six months ended June 30, 2004.

 

As discussed in Note 2, we sold a property to Five Star on May 18, 2005. Simultaneous with this sale, we repaid the $4.2 million mortgage note that was secured by this property.  This mortgage note was also secured by $4.3 million of restricted cash, which became unrestricted when the mortgage note was prepaid.

 

Note 6.  Shareholders’ Equity

 

On May 20, 2005, we paid a $0.32 per share, or $21.9 million, distribution to our common shareholders for the quarter ended March 31, 2005. On July 5, 2005, we declared a distribution of $0.32 per share, or $21.9 million, to be paid to common shareholders of record on July 20, 2005 with respect to our results for the quarter ended June 30, 2005. We expect to pay this distribution on or about August 19, 2005.

 

Under the terms of our advisory agreement with Reit Management and Research, LLC, or RMR, on April 4, 2005, we issued 39,019 common shares in payment of an incentive fee for services rendered by RMR during 2004.  These restricted securities were issued pursuant to an exemption from registration provided under Section 4(2) of the Securities Act of 1933, as amended.

 

Note 7.  Commitments and Contingencies

 

As described in our 2004 Annual Report on Form 10-K, we are in litigation with HealthSouth Corporation, or HealthSouth. In January 2002, HealthSouth settled a default under its lease with us by exchanging properties. We delivered to HealthSouth title to five nursing homes which HealthSouth leased from us.  In exchange, HealthSouth delivered to us title to two rehabilitation hospitals and we entered an amended lease, reducing the annual rent from $10.3 million to $8.7 million, extending the lease term and changing other lease terms between HealthSouth and us. A primary factor which caused us to lower the rent for an extended lease term was the purported credit strength of HealthSouth. In agreeing to lower the rent and extend the lease term,

 

5



 

we relied upon statements made by certain officers of HealthSouth, upon financial statements and other documents provided by HealthSouth, upon public statements made by HealthSouth and its representatives concerning HealthSouth’s financial condition and upon publicly available documents filed by HealthSouth.

 

In March 2003, the SEC accused HealthSouth and some of its executives of publishing false financial information; since then, according to published reports, at least 15 former HealthSouth executives, including all five of its former chief financial officers, have pled guilty to various crimes. In April 2003, we commenced a lawsuit against HealthSouth in the Massachusetts Land Court seeking, among other matters, to reform the amended lease based upon HealthSouth’s fraud by increasing the rent payable to us back to $10.3 million and to change the lease term to its historical expiration on January 1, 2006, among other matters. HealthSouth has defended this lawsuit and asserted counterclaims against us arising from this and unrelated matters. This litigation is pending at this time. In June 2004, we declared an event of default under the amended lease because HealthSouth failed to deliver to us accurate and timely financial information as required by the amended lease. On October 26, 2004, we terminated the amended lease because of this event of default by sending a notice of lease termination to HealthSouth. On November 2, 2004, HealthSouth brought a new lawsuit against us in the Massachusetts Superior Court seeking to prevent our termination of the amended lease; on November 9, 2004, after a hearing, the court denied HealthSouth’s request for a preliminary injunction to prevent termination of the amended lease. We are currently seeking an expedited judicial determination that the lease termination was valid and we are pursuing damages against HealthSouth in the lawsuit which we brought in 2003. We have also begun work to identify and qualify a new tenant operator for the hospitals. Our lease with HealthSouth requires that, after termination, HealthSouth manage the hospitals for our account for a management fee during the period of the transition to a new tenant and remit the net cash flow to us. During the pendency of these disputes, HealthSouth has continued to pay us at the disputed rent amount and we have applied the payments received against the net cash flow due, but we do not know how long HealthSouth may continue to make payments.  On June 27, 2005, HealthSouth filed with the SEC a restated Report 10-K for the periods ending December 31, 2003.  This restated Report 10-K includes financial data which shows HealthSouth to have a substantial negative net worth and a history of substantial operating losses.  To date we have been unable to obtain current financial or operating data concerning HealthSouth or our hospitals upon which we believe we can rely.

 

6



 

This excerpt taken from the SNH 8-K filed Aug 1, 2005.

Section 9.2. Indebtedness.

The Borrower shall not, and shall not permit any Subsidiary or any other Loan Party to, create, incur, assume, or permit or suffer to exist, any Indebtedness other than the following:

 

(a)

the Obligations;

 

(b)

Indebtedness set forth on Schedule 6.1.(g);

 

(c)               intercompany Indebtedness among the Borrower and its Wholly Owned Subsidiaries; provided, however, that the obligations of the Borrower, each Guarantor and each Unleveraged Non-Domestic Subsidiary in respect of such intercompany Indebtedness shall be subordinate to the Obligations; and

 

(d)               any other Indebtedness of a type not described above in this Section and created, incurred or assumed after the Agreement Date so long as immediately prior to the creation, incurring or assumption thereof, and immediately thereafter and after giving effect thereto, no Default or Event of Default is or would be in existence, including without limitation, a Default or Event of Default resulting from a violation of any of the covenants contained in Section 9.1.

 

This excerpt taken from the SNH 10-Q filed May 6, 2005.

Note 5.  Indebtedness

We have a $250.0 million, interest only, unsecured revolving bank credit facility. Our revolving bank credit facility matures in November 2005 and may be extended at our option to November 2006 upon our payment of an extension fee. The interest rate (4.1% at March 31, 2005) is LIBOR plus a margin. As of March 31, 2005, $38.0 million was outstanding and $212.0 million was available under this facility.

 

4



 

This excerpt taken from the SNH 10-K filed Mar 9, 2005.
Indebtedness  shall mean all obligations, contingent or otherwise, which in accordance with GAAP should be reflected on the obligor’s balance sheet as liabilities.

 

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