8-K 1 a2065183z8-k.txt FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15() OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): December 6, 2001 ----------- SENIOR HOUSING PROPERTIES TRUST (Exact name of registrant as specified in charter) MARYLAND 001-15319 04-3445278 (State or other jurisdiction (Commission File Number) (I.R.S. Employer of incorporation) Identification Number) 400 CENTRE STREET, 02458 NEWTON, MASSACHUSETTS (Zip code) (Address of principal executive offices) Registrant's telephone number, including area code: 617-796-8350 ----------- This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including with respect to our offering of notes, our pending acquisition of 31 senior living properties from Crestline Capital Corporation and the pending spin-off of our subsidiary, Five Star Quality Care, Inc. Such forward-looking statements are not guarantees and involve risks and uncertainties. Actual results may differ materially from those contained in or implied by the forward-looking statements as a result of various factors. Such factors include, without limitation, that we may not be able to sell the notes, or may decide not to sell the notes or to sell more or less than the $200 million of notes referred to in this report, due to market conditions or changes in our business, performance or financial condition, that we may not complete the Five Star spin-off on contemplated terms and that we may not acquire the Crestline properties because of Crestline's or our failure to satisfy conditions to the closing. The information contained in our Annual Report on Form 10-K, including information contained in "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our Current Reports on Form 8-K dated September 21, 2001, October 3, 2001, as amended, and November 5, 2001 also identifies important factors that could cause such differences. Item 5. Other Items On December 6, 2001, we filed a preliminary prospectus supplement to our prospectus dated May 21, 2001, which was filed with the Securities and Exchange Commission, concerning a possible sale of $200 million of our senior unsecured notes. This preliminary prospectus supplement is subject to completion. If the notes are issued, we intend to use the net proceeds to partially fund our previously announced planned acquisition of 31 senior living properties and for general business purposes, including other acquisitions. We may ultimately offer and sell a different amount of notes or determine not to sell the notes. This report does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the notes in any state or other jurisdiction in which such offer, solicitation or sale would be unlawful. We have previously reported our issuance of 14,047,000 common shares of beneficial interest, the pending spin-off of our subsidiary, Five Star Quality Care, Inc., our pending acquisition of 31 properties from Crestline Capital Corporation, and related pending transactions. Additional pro forma financial information with respect to these transactions and our offering of notes is contained in Item 7 of this Report. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Pro Forma Financial Information and Other Data (see index on page F-1) (b) Exhibits 12.1 Computation of Ratios of Earnings to Fixed Charges 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 hereunto duly authorized. SENIOR HOUSING PROPERTIES TRUST By: /s/ John R. Hoadley ---------------------------------- Name: John R. Hoadley Title: Chief Financial Officer Date: December 6, 2001 INDEX TO FINANCIAL STATEMENTS
SENIOR HOUSING PROPERTIES TRUST UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Introduction to Unaudited Pro Forma Condensed Consolidated Financial Statements......................................... F-2 Unaudited Pro Forma Condensed Consolidated Balance Sheet at September 30, 2001.......................................... F-3 Unaudited Pro Forma Condensed Consolidated Statement of Income for the year ended December 31, 2000..................... F-4 Unaudited Pro Forma Condensed Consolidated Statement of Income for the nine months ended September 30, 2001............. F-5 Unaudited Pro Forma Condensed Consolidated Statement of Income for the twelve months ended September 30, 2001........... F-6 Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements................................................ F-7
F-1 SENIOR HOUSING PROPERTIES TRUST INTRODUCTION TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS PRO FORMA CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2001 AND PRO FORMA CONSOLIDATED STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2000 AND THE NINE AND TWELVE MONTHS ENDED SEPTEMBER 30, 2001 The following unaudited pro forma consolidated balance sheet gives separate effect to: (1) our expected issuance of $200 million of ___% senior unsecured notes in December 2001 and our issuance of 14,047,000 common shares of beneficial interest in October 2001; (2) our pending spin-off of our subsidiary, Five Star Quality Care, Inc. (Five Star), the lease to Five Star of 56 facilities and related transactions described in the notes thereto; and (3) the pending acquisition of 31 properties from Crestline Capital Corporation (Crestline), for $600 million, the lease of those properties to Five Star and related transactions described in the notes thereto, as though all such transactions had occurred on September 30, 2001. The following unaudited pro forma consolidated statements of income give separate effect to: (1) our sale of four properties in October 2000, financing transactions completed after January 1, 2000, our expected issuance of $200 million of __% senior unsecured notes in December 2001 and certain other transactions described in the notes thereto; (2) our pending Five Star spin-off, the lease to Five Star of 56 properties and related transactions as described in the notes thereto; and (3) the pending acquisition of 31 properties from Crestline, the lease of those properties to Five Star and related transactions described in the notes hereto, as though all such transactions occurred at the beginning of the period presented. The pro forma information is based in part upon (1) our historical financial statements filed on our Form 10-Q for the quarter ended September 30, 2001 and our Form 10-K for the year ended December 31, 2000; (2) the financial statements of CSL Group, Inc. and Subsidiaries as Partitioned For Sale to SNH/CSL Properties Trust filed with our Forms 8-K dated September 21, 2001 and October 3, 2001; and (3) the financial statements of our acquired businesses filed on Form 8-K dated January 30, 2001, as amended, and this pro forma information should be read in conjunction with all of these financial statements and notes thereto. In the opinion of management, all adjustments necessary to reflect the effects of the transactions discussed above have been reflected in the pro forma information. The following unaudited pro forma financial data is not necessarily indicative of what our actual financial position or results of operations would have been as of the date or for the period indicated, nor does it purport to represent our financial position or results of operations for future periods. F-2 SENIOR HOUSING PROPERTIES TRUST Unaudited Pro Forma Condensed Consolidated Balance Sheet September 30, 2001 (DOLLARS IN THOUSANDS)
Pending Pending Financing Spin-off Acquisition Historical Adjustments Subtotal Adjustments Subtotal Adjustments Pro Forma ---------- ----------- ---------- ----------- -------- ----------- ----------- ASSETS Real estate, net....... $476,437 $-- $476,437 $(3,040) (D) $473,397 $600,086 (K) $1,073,483 Cash and cash equivalents......... 8,084 336,385 (A) 344,469 (28,286) (E) 316,183 (315,420)(L) 763 Accounts receivable, net................. 39,133 39,133 (34,511) (F) 4,622 4,622 Other assets........... 37,994 4,250 (B) 42,244 (4,548) (G) 37,696 269 (M) 37,965 ----------- ------------ ----------- ------------ ---------- ------------ ------------- $561,648 $340,635 $902,283 $(70,385) $831,898 $284,935 $1,116,833 =========== ============ =========== ============ ========== ============ ============= LIABILITIES AND SHAREHOLDERS' EQUITY Revolving credit facility............ $31,000 $(31,000)(A) $-- $-- $-- $50,000 (N) $50,000 Unsecured senior debt....... -- 200,000 (B) 200,000 200,000 200,000 Other debt............. 9,100 9,100 9,100 233,386 (N) 242,486 Prepaid and deferred rents............... 9,475 9,475 9,475 9,475 Security deposits...... 1,520 1,520 1,520 1,520 Accounts payable and accrued expenses of facilities' operations.......... 16,113 16,113 (16,113) (H) -- -- Other liabilities...... 7,185 7,185 (4,272) (I) 2,913 1,549 (O) 4,462 ----------- ------------ ----------- ------------ ---------- ------------ ------------- Total liabilities...... 74,393 169,000 243,393 (20,385) 223,008 284,935 507,943 Trust preferred securities.......... 27,394 27,394 27,394 27,394 Shareholders' equity... 459,861 171,635 (C) 631,496 (50,000) (J) 581,496 581,496 ----------- ------------ ----------- ------------ ---------- ------------ ------------- $561,648 $340,635 $902,283 $(70,385) $831,898 $284,935 $1,116,833 =========== ============ =========== ============ ========== ============ =============
F-3 SENIOR HOUSING PROPERTIES TRUST Unaudited Pro Forma Condensed Consolidated Statement of Income For The Year Ended December 31, 2000 (amounts in thousands, except per share amounts)
Financing Pending Pending and Other Spin-off Acquisition Historical Adjustments Subtotal Adjustments Subtotal Adjustments Pro Forma ---------- ----------- ---------- ----------- -------- ----------- ----------- REVENUES: Rental income.............. $64,377 $(9,366) (P) $54,426 $(1,227) (W) $53,199 $63,000 (AA) $116,199 (585) (Q) Other real estate income... 2,520 2,520 (2,520) (X) -- Interest and other income.. 1,520 400 (R) 1,920 (695) (Y) 1,225 1,225 FF&E reserve income........ -- -- -- 6,794 (BB) 6,794 Gain on foreclosures and lease terminations...... 7,105 (7,105) (S) -- -- -- ---------- ------------- ----------- ---------- ------------- ----------- ----------- Total revenues............. 75,522 (16,656) 58,866 (4,442) 54,424 69,794 124,218 EXPENSES: Interest................... 15,366 2,098 (T) 17,464 -- 17,464 25,967 (CC) 43,431 Distributions on trust preferred securities.... -- 2,811 (U) 2,811 2,811 2,811 Depreciation............... 20,140 (1,936)(P) 18,167 (619) (Z) 17,548 17,003 (DD) 34,551 (37)(Q) General and administrative. --Recurring................ 5,475 (424)(P) 4,995 4,995 3,500 (DD) 8,495 (56)(Q) -- Related to foreclosures and lease terminations.. 3,519 (3,519)(S) -- -- -- ---------- ------------- ----------- ---------- ------------- ----------- ----------- Total expenses............. 44,500 (1,063) 43,437 (619) 42,818 46,470 89,288 ---------- ------------- ----------- ---------- ------------- ----------- ----------- Income before gain on sale of properties........... $31,022 $(15,593) $15,429 $(3,823) $11,606 $23,324 $34,930 ========== ============= =========== ========== ============= =========== =========== Weighted average shares outstanding............. 25,958 17,464 (V) 43,422 43,422 43,422 ========== ============= =========== ============= =========== Basic and diluted earnings per share: Net income................. $1.20 $0.36 $0.27 $0.80 ========== =========== ============= ===========
F-4 SENIOR HOUSING PROPERTIES TRUST Unaudited Pro Forma Condensed Consolidated Statement of Income For Nine Months Ended September 30, 2001 (amounts in thousands, except per share amounts) (unaudited)
Financing Pending Pending and Other Spin-off Acquisition Historical Adjustments Subtotal Adjustments Subtotal Adjustments Pro Forma ---------- ----------- ---------- ----------- -------- ----------- ----------- REVENUES: Rental income............... $33,302 $-- $33,302 $5,250 (W) $38,552 $47,250 (AA) $85,802 Facilities' operations...... 170,681 170,681 (170,681)(X) -- -- Interest and other income... 897 897 897 897 FF&E reserve income......... -- -- -- -- 4,293 (BB) 4,293 ---------- ----------- ----------- ------------- --------- ----------- ------------- Total revenues.............. 204,880 204,880 (165,431) 39,449 51,543 90,992 EXPENSES: Interest.................... 4,900 8,082 (T) 12,982 12,982 17,224 (CC) 30,206 Distributions on trust preferred securities..... 749 1,359 (U) 2,108 2,108 2,108 Depreciation................ 14,537 14,537 (1,098) (Z) 13,439 12,752 (DD) 26,191 Facilities' operations...... 166,230 166,230 (166,230) (X) -- -- General and administrative.. --Recurring................. 3,189 3,189 3,189 2,625 (DD) 5,814 --Related to foreclosures and lease terminations....... 4,167 (4,167)(S) -- -- -- ---------- ----------- ----------- ------------- --------- ----------- ------------- Total expenses.............. 193,772 5,274 199,046 (167,328) 31,718 32,601 64,319 ---------- ----------- ----------- ------------- --------- ----------- ------------- Net income.................. $11,108 $(5,274) $5,834 $1,897 $7,731 $18,942 $26,673 ========== =========== =========== ============= ========= =========== ============= Weighted average shares outstanding.............. 27,049 16,373 (V) 43,422 43,422 43,422 ========== =========== =========== ========= ============= Basic and diluted earnings per share: Net income.................. $0.41 $0.13 $0.18 $0.61 ========== =========== ========= =============
F-5 Senior Housing Properties Trust ------------------------------------------------------------------------------ UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME For Twelve Months Ended September 30, 2001 (amounts in thousands, except per share amounts) (unaudited)
Financings Pending Pending and Other Spin-off Acquisition Pro Historical Adjustments Subtotal Adjustments Subtotal Adjustments Forma ---------------------------------------------------------------------------------------------------------------------------- Revenues: Rental income............ $47,799 $(1,050)(P) $46,749 $7,000 (W) $53,749 $63,000 (AA) $116,749 Facilities' operations... 170,681 170,681 (170,681)(X) -- -- Other real estate income................. 1,292 1,292 (1,292)(X) -- Interest and other income................. 1,088 1,088 1,088 1,088 FF&E reserve income...... -- -- -- 5,992 (BB) 5,992 Gain on foreclosures and lease terminations..... 7,105 (7,105)(S) -- -- -- --------- --------- --------- -------- --------- -------- -------- Total revenues........... 227,965 (8,155) 219,810 (164,973) 54,837 68,992 123,829 Expenses: Interest................. 7,671 9,684 (T) 17,355 17,355 23,818 (CC) 41,173 Distributions on trust preferred securities... 749 2,062 (U) 2,811 2,811 2,811 Depreciation............. 19,298 (194)(P) 19,104 (1,253)(Z) 17,851 17,003 (DD) 34,854 Facilities' operations... 166,230 166,230 (166,230)(X) -- -- General and administrative --Recurring.............. 4,273 (43)(P) 4,230 4,230 3,500 (DD) 7,730 --Related to foreclosures and lease terminations........... 6,816 (6,816)(S) -- -- -- --------- --------- --------- -------- --------- -------- -------- Total expenses........... 205,037 4,693 209,730 (167,483) 42,247 44,321 86,568 --------- --------- --------- -------- --------- -------- -------- Income before gain on sale of properties..... $22,928 $12,848 $10,080 $2,510 $12,590 $24,671 $37,261 ========= ========= ========= ======== ========= ======== ======== Weighted average shares outstanding............ 26,766 16,656 (V) 43,422 43,422 43,422 ========= ========= ========= ========= ======== Basic and diluted earnings per share: Income before gain on sale of properties..... $0.86 $0.23 $0.29 $0.86 ========= ========= ========= ========
F-6 SENIOR HOUSING PROPERTIES TRUST CONDENSED CONSOLIDATED BALANCE SHEET ADJUSTMENTS (DOLLARS IN THOUSANDS) A. Represents the net proceeds from our issuance of common shares in October 2001 and our expected issuance of $200 million of __% senior unsecured notes due 2008, a portion of which was used to reduce our revolving credit facility to zero: Net proceeds from issuance of senior unsecured notes (see Note B)...... $195,750 Net proceeds from issuance of common shares (see Note C)............... 171,635 Total net proceeds applied to credit facility.......................... (31,000) -------------- Net cash available..................................................... $336,385 ==============
B. Represents our expected issuance of $200 million of ___% senior unsecured notes due 2008. The underwriters' discount and other issuance costs constitute other assets to be amortized over the term of the notes: Gross proceeds.......................................... $200,000 Underwriters' discount and other issuance costs......... (4,250) ------------- Net proceeds............................................ $195,750 =============
C. Represents our issuance of common shares in October 2001. A portion of the net proceeds was used to reduce our revolving credit facility to zero (see Note A). The remaining net proceeds are held as cash and cash equivalents: Total common shares issued............................. 14,047,000 Price per common share................................. x $12.90 -------------- Gross proceeds......................................... $181,206 Underwriters' discount and other issuance costs........ (9,571) -------------- Net proceeds from issuance of common shares............ $171,635 ==============
D. Represents the real estate and related personal property owned by Five Star at the time of the spin-off. E. Represents cash which will be contributed by us to Five Star as part of its capitalization immediately prior to the spin-off, as follows: Net equity to be contributed................................ $50,000 Real estate and related personal property (See Note D)...... (3,040) Accounts receivable (See Note F)............................ (34,511) Prepaid expenses (See Note G)............................... (4,548) Accounts payable and accrued expenses (See Note H).......... 16,113 Other liabilities (See Note I).............................. 4,272 ------------ Net cash and cash equivalents............................... $28,286 ============
F-7 F. Represents patient accounts receivable arising from 56 nursing home operations which will belong to Five Star at the time of the spin-off. G. Represents primarily prepaid expenses associated with 56 nursing home operations which will belong to Five Star at the time of the spin-off. H. Represents accounts payable and accrued expenses associated with 56 nursing home operations which will belong to Five Star at the time of the spin-off. I. Represents other liabilities associated with the 56 nursing home operations which will be liabilities of Five Star at the time of the spin-off. J. Represents the net equity (assets in excess of liabilities, see Notes D through I) which will be contributed by us to Five Star at the time of the spin-off. K. The purchase of properties from Crestline will be reported using the purchase method of accounting. Estimated closing costs and contractual adjustments are estimated at $2,733, net. When these properties are leased to Five Star, Five Star will assume the operating accounts receivable and operating accounts payable and accrued operating expenses and we will make a payment to Five Star of the amount of these operating liabilities in excess of these operating assets, estimated to be $3,573. Accordingly, using the data as of the end of Crestline's 2001 third fiscal quarter (September 7, 2001), amounts allocated to fixed assets are as follows: Contract purchase price.......................................... $600,000 Estimated closing costs and adjustments, net..................... 2,733 Estimated payment to Five Star at lease commencement............. 3,573 ------------ Subtotal...................................................... 606,306 Monetary assets assumed from Crestline (see Note L).............. (7,769) Monetary liabilities assumed from Crestline other than funded debt (see Note N) ........................................ 1,549 ------------ Total fixed assets............................................... $600,086 ============
L. Represents estimated cash used to complete the purchase from Crestline, as follows: Adjusted contract price, closing costs and payments to Five Star (See Note K).... $606,306 Assumed Crestline debt, including capital leases (See Note N).................... (233,386) Borrowings under our revolving bank credit facility (See Note N)................. (50,000) Deposit applied (See Note M)..................................................... (7,500) ----------- Net cash used.................................................................... $315,420 ===========
M. Amounts allocated to other assets represent cash deposits in restricted accounts for use: (1) servicing future interest payments on assumed mortgage debt; (2) real estate tax escrows; and (3) cash escrow accounts for capital expenditures at the facilities. The assets received in the Crestline transaction are offset by a deposit currently in escrow that will be applied to the purchase price when the Crestline transaction is closed: Assets received......................... $7,769 Deposit to be applied............... (7,500) -------------- Net adjustment to other assets....... $269 ==============
F-8 N. To finance the acquisition from Crestline, we expect to assume certain existing Crestline debts and to draw $50,000 under our revolving bank credit facility, as follows: Assumed Crestline debt, including capital leases... $233,386 Borrowings under our revolving credit facility..... 50,000
O. Other liabilities primarily represent accrued interest related to the assumed Crestline debt. F-9 CONDENSED CONSOLIDATED STATEMENT OF INCOME ADJUSTMENTS (DOLLARS IN THOUSANDS) P. Represents elimination of rental income, depreciation expense and general and administrative expense related to four facilities we sold in October 2000. Q. Represents elimination of rental and interest income, depreciation expense and general and administrative expense related to the period prior to transfer to a former tenant of five facilities and transfer to a former borrower of one mortgage as part of foreclosure settlements, net of impact from one facility transferred to us as part of a foreclosure settlement and leased to a new tenant. R. Represents annualized dividend income on common shares of HRPT Properties Trust conveyed to us as part of a foreclosure settlement. S. Represents the elimination of the gain on foreclosure and lease terminations and the related general and administrative expenses because they are not expected to recur. T. Common equity issuances during the pro forma periods produced net proceeds sufficient to repay our outstanding revolving credit facility balance in full on a pro forma basis. This adjustment represents the elimination of historical interest expense on our revolving credit facility and an adjustment for interest on the $9.1 million of mortgages payable, which we obtained in July 2001, and on the __% senior unsecured notes due 2008 expected to be issued in December 2001, as follows:
Nine Months Twelve Year Ended Ended Months Ended December 31, September 30, September 30, 2000 2001 2001 ---- ---- ---- Elimination of interest expense on revolving bank credit facility........ $(15,366) $(4,792) $(7,563) Adjustment for interest on mortgages payable..................... $857 $419 $640 Adjustment for interest on the ___% senior unsecured notes................ $16,607 $12,455 $16,607 -------------- --------------- ------------- $2,098 $8,082 $9,684 ============== =============== =============
The mortgages require interest to be paid based on prime less a discount. For purposes of this calculation we have assumed the unsecured senior notes expected to be issued bear interest at 8% per annum and that issuance costs total $4,250. The interest expense adjustment was calculated as follows:
YEAR ENDED DECEMBER 31, 2000 Unsecured Mortgages Senior Notes --------- ------------- Debt balance.................................... $9,100 $200,000 Average rate for period......................... 8.2% 8% ------------- ------------- Interest expense................................ 746 16,000 Plus amortization of deferred financing fees.... 111 607 ------------- ------------- Total adjustment................................ 857 16,607 ============= =============
Unsecured Senior NINE MONTHS ENDED SEPTEMBER 30, 2001 Mortgages Notes --------- --------- Debt balance................................. $9,100 $200,000 Average rate for period...................... 6.5% 8% ------------- ------------ Interest expense............................. 444 12,000 Plus amortization of deferred financing fees. 83 455 ------------- ------------ Total expense................................. 527 12,455 Less amount included in historical results ... (108) -- ------------- ------------ Net adjustment................................ 419 12,455 ============= ============
Unsecured Senior TWELVE MONTHS ENDED SEPTEMBER 30, 2001 Mortgages Notes --------- --------- Debt balance................................. $9,100 $200,000 Average rate for period...................... 7% 8% ------------- ------------ Interest expense............................. 637 16,000 Plus amortization of deferred financing fees. 111 607 ------------- ------------ Total expense................................. 748 16,607 Less amount included in historical results ... (108) -- ------------- ------------ Net adjustment................................ 640 16,607 ============= ============
F-10 U. During June and July 2001, we issued trust preferred securities. This adjustment represents distributions on trust preferred securities as follows:
Year Ended Nine Months Ended Twelve Months Ended December 31, 2000 September 30, 2001 September 30, 2001 ------------------- ------------------- ------------------- Gross amount of trust preferred securities...... $27,394 $27,394 $27,394 Distribution rate (10.125% per annum)........... 10.125% 7.59375% 10.125% ---------------- ------------- -------------- Total pro forma distributions for the period.... 2,774 2,080 2,774 Add: amortization of related deferred issuance costs........................................... 37 28 37 ---------------- ------------- -------------- Distributions for period........................ 2,811 2,108 2,811 Less: amount included in historical results..... -- (749) (749) ---------------- ------------- -------------- Net adjustment.................................. $2,811 $1,359 $2,062 ================ ============= ==============
V. Represents the impact of the common equity issuance described in Note C and our July 2001 common equity issuance of 3,445,000 shares on our weighted average common shares outstanding during the periods shown. W. Represents minimum rent expected to be paid by Five Star for our 56 nursing home properties, net of rent received from former tenants prior to foreclosure. Additional rent equal to 3% of Five Star's revenues at these properties in excess of 2003 revenues is due us beginning in 2004.
Year Ended Nine Months Ended Twelve Months Ended December 31, 2000 September 30, 2001 September 30, 2001 ------------------- ------------------ -------------------- Minimum rent for 56 facilities currently owned by us to be leased to Five Star.......... $7,000 $5,250 $7,000 Less rent received from former tenants prior to foreclosure........................... (8,227) -- -- ---------- -------- ------ Net adjustment................................... $(1,227) $5,250 $7,000 ========== ======== ======
X. Represents elimination, for any period subsequent to December 31, 2000, of facilities' operating revenues and expenses, and for any period prior to December 31, 2000, of other real estate income. These amounts were derived from the operations of facilities that were conducted for our own account. The facilities will be leased by Five Star subsequent to the spin-off and no longer operated for our account. Y. Represents elimination of interest income received from a former mortgagee prior to foreclosure. Z. Represents the elimination of historical depreciation expense related to the properties to be transferred to Five Star (see Note D). AA. Represents minimum rent expected to be paid by Five Star for the 31 properties which we expect to acquire in the pending acquisition. Additional rent equal to 5% of revenues at these properties in excess of 2002 revenues is due beginning in 2003. BB. In addition to the minimum rent and additional rent described in Note W and Note AA, our lease with Five Star and the Marriott management agreements for the 31 properties to be acquired from Crestline will require Five Star to deposit a percentage of gross revenues from these properties into an FF&E reserve for capital expenditures at the 31 properties which we expect to acquire in the pending Crestline transaction. The FF&E reserve accounts and improvements and other items purchased with those funds will belong to us. Accordingly, the periodic deposits will be reported as additional rental income to us under GAAP. F-11 CC. To complete the purchase from Crestline, we will assume debts as described in Note N above. These debts bear interest at various rates, including some at floating rates based on LIBOR. The applicable interest rates during the pro forma periods, assuming LIBOR equals its monthly average during the periods presented, were as follows:
Nine Months Twelve Months Year Ended Ended Ended December 31, September 30, September 30, 2000 2001 2001 ---- ---- ---- Assumed term debt including capitalized leases, fixed rates.......................... 9.4% 9.4% 9.4% Assumed term debt, floating rates................ 9.2% 7.1% 7.7% Revolving bank credit facility, floating rate.... 8.4% 6.3% 6.9%
Some of the debt we will assume in the Crestline transaction requires both interest and principal payments. The weighted average outstanding balance for the obligations described above are as follows:
Nine Months Twelve Months Year Ended Ended Ended December 31, September 30, September 30, 2000 2001 2001 ---- ---- ---- Assumed term debt including capitalized leases, fixed rates....................... $142,370 $141,016 $141,016 Assumed term debt, floating rates............. 92,370 92,370 92,370 Revolving bank credit facility, floating rate.......................................... 48,646 50,000 50,000 ---------------- -------------- -------------- Total......................................... $283,386 $283,386 $283,386 ================ ============== ==============
On a pro forma basis, the combination of the average interest rates and the average debt balances set forth above produce interest expense as follows:
Nine Months Twelve Months Ended Ended Year Ended September 30, September 30, December 31, 2000 2001 2001 ----------------- ---- ---- Assumed term debt including capitalized leases, fixed rates....................... $13,383 $9,942 $13,256 Assumed term debt, floating rates............ 8,498 4,919 7,112 Revolving bank credit facility, floating rate......................................... 4,086 2,363 3,450 ------------------- -------------- --------- Total........................................ $25,967 $17,224 $23,818 =================== ============== =========
As outlined above, a portion of the debt we expect to incur as part of the acquisition of properties from Crestline will be at floating rates. A 1/8 percentage point increase in interest rates would produce pro forma interest expense which is $178 higher per annum. DD. Represents the impact of the purchase of the 31 properties from Crestline on depreciation expense and general and administrative expense. F-12