10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-16817

FIVE STAR QUALITY CARE, INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland	04-3516029
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)

400 Centre Street, Newton, Massachusetts 02458

(Address of Principal Executive Offices) (Zip Code)

(Registrant’s Telephone Number, Including Area Code): 617-796-8387

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

Number of registrant’s shares of common stock, $.01 par value, outstanding as of October 29, 2012: 47,924,472.

FIVE STAR QUALITY CARE, INC.

FORM 10-Q

SEPTEMBER 30, 2012

INDEX

		Page
PART I	Financial Information
Item 1.	Condensed Consolidated Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets — September 30, 2012 and December 31, 2011	1
	Condensed Consolidated Statements of Income — Three and Nine Months Ended September 30, 2012 and 2011	2
	Condensed Consolidated Statements of Comprehensive Income — Three and Nine Months Ended September 30, 2012 and 2011	3
	Condensed Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2012 and 2011	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
	Warning Concerning Forward Looking Statements	32
PART II	Other Information
Item 5.	Other Information	35
Item 6.	Exhibits	36
	Signatures	38

As used herein the terms “we”, “us” and “our” refer to Five Star Quality Care, Inc. and its consolidated subsidiaries, unless otherwise noted.

Part I.    Financial Information

Item 1.  Condensed Consolidated Financial Statements

FIVE STAR QUALITY CARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

	September 30, 2012			December 31, 2011
ASSETS
Current assets:
Cash and cash equivalents	$	14,295		$	28,374
Accounts receivable, net of allowance of $3,475 and $3,957 atSeptember 30, 2012 and December 31, 2011, respectively	54,880			56,509
Investments in available for sale securities, of which $5,200 and $5,905are restricted as of September 30, 2012 and December 31, 2011, respectively	14,942			9,114
Restricted cash	5,904			4,838
Prepaid expenses and other current assets	25,441			20,395
Assets of discontinued operations	13,003			29,022
Total current assets	128,465			148,252
Property and equipment, net	336,889			332,185
Equity investment in Affiliates Insurance Company	5,558			5,291
Restricted cash	9,262			4,092
Restricted investments in available for sale securities	11,904			13,115
Goodwill and other intangible assets	28,081			29,414
Other long term assets	43,347			51,128
	$	563,506		$	583,477
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Revolving credit facility, secured, principally by real estate	$	—		$	—
Revolving credit facility, secured, principally by accounts receivable	—			—
Accounts payable	24,500			22,736
Accrued expenses	20,840			21,698
Accrued compensation and benefits	48,118			38,975
Due to related persons	12,791			18,659
Mortgage notes payable	1,076			1,027
Bridge loan from Senior Housing Properties Trust	—			38,000
Accrued real estate taxes	14,909			11,466
Security deposit liability	9,948			10,606
Other current liabilities	16,958			15,745
Liabilities of discontinued operations, of which $7,583 and $7,690 relate tomortgage notes payable at September 30, 2012 and December 31, 2011, respectively	8,764			10,419
Total current liabilities	157,904			189,331
Long term liabilities:
Mortgage notes payable	37,900			38,714
Convertible senior notes	24,872			37,282
Continuing care contracts	1,820			2,045
Accrued self insurance obligations	31,868			28,496
Other long term liabilities	6,415			7,415
Total long term liabilities	102,875			113,952
Commitments and contingencies
Shareholders’ equity:
Common stock, par value $.01; 47,924,472 and 47,899,312 shares issuedand outstanding at September 30, 2012 and December 31, 2011, respectively	479			479
Additional paid in capital	353,468			352,819
Accumulated deficit	(53,136		)	(74,582		)
Cumulative other comprehensive income	1,916			1,478
Total shareholders’ equity	302,727			280,194
	$	563,506		$	583,477

See accompanying notes.

1

FIVE STAR QUALITY CARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Revenues:
Senior living revenue	$	277,568		$	275,605		$	831,864		$	803,647
Rehabilitation hospital revenue	26,328			26,273			79,501			78,235
Management fee revenue	1,277			359			3,666			383
Reimbursed costs incurred on behalf of managedcommunities	27,247			8,324			76,750			8,887
Total revenues	332,420			310,561			991,781			891,152
Operating expenses:
Senior living wages and benefits	137,816			136,135			412,808			398,975
Other senior living operating expenses	66,858			68,669			200,062			193,123
Costs incurred on behalf of managedcommunities	27,247			8,324			76,750			8,887
Rehabilitation hospital expenses	23,734			23,300			71,725			70,798
Rent expense	50,523			50,138			151,043			145,474
General and administrative	14,602			14,418			45,445			42,242
Depreciation and amortization	6,324			5,497			18,631			13,705
Total operating expenses	327,104			306,481			976,464			873,204
Operating income	5,316			4,080			15,317			17,948
Interest and other income	199			355			638			975
Interest and other expense	(1,762		)	(1,034		)	(4,793		)	(2,405		)
Acquisition related costs	(100		)	(226		)	(100		)	(1,530		)
Equity in earnings of Affiliates InsuranceCompany	115			28			236			111
Gain on settlement	—			—			3,365			—
Gain on early extinguishment of debt	—			—			45			1
Gain on sale of available for sale securitiesreclassified from other comprehensive income	63			529			62			656
Income from continuing operations beforeincome taxes	3,831			3,732			14,770			15,756
Provision for income taxes	(426		)	(186		)	(4,835		)	(1,006		)
Income from continuing operations	3,405			3,546			9,935			14,750
Income (loss) from discontinued operations	13,034			(4,074		)	11,511			(5,950		)
Net income (loss)	$	16,439		$	(528	)	$	21,446		$	8,800
Weighted average shares outstanding - basic	47,927			47,557			47,913			40,294
Weighted average shares outstanding - diluted	50,388			47,557			47,913			43,169
Basic income (loss) per share from:
Continuing operations	$	0.07		$	0.08		$	0.21		$	0.37
Discontinued operations	0.27			(0.09		)	0.24			(0.15		)
Net income (loss) per share — basic	$	0.34		$	(0.01	)	$	0.45		$	0.22
Diluted income (loss) per share from:
Continuing operations	$	0.07		$	0.08		$	0.21		$	0.36
Discontinued operations	0.26			(0.09		)	0.24			(0.14		)
Net income (loss) per share - diluted	$	0.33		$	(0.01	)	$	0.45		$	0.22

See accompanying notes.

2

FIVE STAR QUALITY CARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Net income (loss)	$	16,439		$	(528	)	$	21,446		$	8,800
Other comprehensive income (loss):
Unrealized gain (loss) on investments inavailable for sale securities	188			(906		)	469			(103		)
Less: Realized gain on investments inavailable for sale securities reclassified andincluded in net income	(63		)	(529		)	(62		)	(656		)
Unrealized gains on equity investment inAffiliates Insurance Company	35			15			31			58
Other comprehensive income (loss)	160			(1,420		)	438			(701		)
Comprehensive income (loss)	$	16,599		$	(1,948	)	$	21,884		$	8,099

See accompanying notes.

3

FIVE STAR QUALITY CARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine months ended September 30,
	2012			2011
Cash flows from operating activities:
Net income	$	21,446		$	8,800
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	18,631			13,705
Gain on early extinguishment of debt	(45		)	(1		)
(Gain) loss from discontinued operations	(11,511		)	5,950
Gain on sale of available for sale securities	(62		)	(656		)
Equity in earnings of Affiliates Insurance Company	(236		)	(111		)
Stock-based compensation	649			949
Provision for losses on receivables	3,949			5,178
Changes in assets and liabilities:
Accounts receivable	(2,320		)	(2,118		)
Prepaid expenses and other assets	2,408			(2,735		)
Accounts payable and accrued expenses	906			7,028
Accrued compensation and benefits	9,143			6,096
Due to related persons	(5,868		)	(1,535		)
Other current and long term liabilities	6,145			5,407
Cash provided by operating activities	43,235			45,957
Net cash (used in) provided by discontinued operations	(8,317		)	652
Cash flows from investing activities:
Acquisition of property and equipment	(40,251		)	(44,562		)
Acquisition of senior living communities, net of working capital assumed	—			(107,165		)
Payments from restricted cash and investment accounts, net	(6,236		)	(3,117		)
Purchase of available for sale securities	(5,076		)	—
Proceeds from sale of pharmacy business	34,298			—
Proceeds from disposition of property and equipment held for sale	18,249			25,877
Proceeds from sale of available for sale securities	928			2,504
Cash provided by (used in) investing activities	1,912			(126,463		)
Cash flows from financing activities:
Net proceeds from the issuance of common stock	—			53,953
Proceeds from borrowings on credit facilities	47,500			12,000
Repayments of borrowings on credit facilities	(47,500		)	(12,000		)
Proceeds from borrowings on bridge loan from Senior Housing Properties Trust	—			80,000
Repayments of borrowings on bridge loan from Senior Housing Properties Trust	(38,000		)	(32,000		)
Purchase and retirement of convertible senior notes	(12,038		)	(623		)
Repayments of mortgage notes payable	(871		)	(300		)
Cash (used in) provided by financing activities	(50,909		)	101,030
Change in cash and cash equivalents during the period	(14,079		)	21,176
Cash and cash equivalents at beginning of period	28,374			20,770
Cash and cash equivalents at end of period	$	14,295		$	41,946
Supplemental cash flow information:
Cash paid for interest	$	3,711		$	1,454
Cash paid for income taxes	$	1,552		$	1,257
Non-cash activities:
Issuance of common stock	$	114		$	298
Real estate acquisition	$	—		$	(40,289	)
Assumption of mortgage notes payable	$	—		$	40,289

See accompanying notes.

4

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

Note 1.  Basis of Presentation and Organization

The accompanying condensed consolidated financial statements of Five Star Quality Care, Inc. and its subsidiaries, which we refer to as we, us or our, have been prepared without audit.  Certain information and disclosures required by U.S. generally accepted accounting principles for complete financial statements have been condensed or omitted.  We believe the disclosures made are adequate to make the information presented not misleading.  However, the accompanying financial statements should be read in conjunction with the financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2011, or our Annual Report.  In the opinion of our management, all adjustments, which include only normal recurring adjustments, considered necessary for a fair presentation have been included.  All material intercompany transactions and balances have been eliminated.  Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.  Reclassifications have been made to the prior year’s condensed consolidated financial statements to conform to the current year’s presentation.

We operate senior living communities, including independent living communities, assisted living communities and skilled nursing facilities, or SNFs.  As of September 30, 2012, we operated 252 senior living communities located in 30 states containing 28,262 living units, including 214 primarily independent and assisted living communities with 24,839 living units and 38 SNFs with 3,423 living units.  As of September 30, 2012, we owned and operated 31 communities (2,952 living units), we leased and operated 191 communities (20,812 living units) and we managed 30 communities (4,498 living units).  Our 252 senior living communities included 9,160 independent living apartments, 13,579 assisted living suites and 5,523 skilled nursing units.  We have classified as discontinued operations two SNFs owned and operated by us containing 271 living units and one assisted living community leased from Senior Housing Properties Trust or its subsidiaries, or SNH, and operated by us containing 103 living units, and have excluded such SNFs and assisted living community from all the preceding data in this paragraph.

We also lease and operate two rehabilitation hospitals with 321 beds that provide inpatient rehabilitation services to patients at the two hospitals and at three satellite locations.  In addition, we lease and operate 13 outpatient clinics affiliated with these rehabilitation hospitals.

Note 2. Recent Accounting Pronouncements

In July 2012, the Financial Accounting Standards Board issued an accounting standards update 2012-01, Health Care Entities (Topic 954), Continuing Care Retirement Communities — Refundable Advance Fees, or ASU 2012-01.  ASU 2012-01 affects continuing care retirement communities, or CCRCs, that have resident contracts that provide for a payment of a refundable advance fee upon reoccupancy of that unit by a subsequent resident.  The amendments in ASU 2012-01 clarify that an entity should classify an advance fee as deferred revenue when a CCRC has a resident contract that provides for payment of the refundable advance fee upon reoccupancy by a subsequent resident, which is limited to the proceeds of reoccupancy.  Refundable advance fees that are contingent upon reoccupancy by a subsequent resident but are not limited to the proceeds of reoccupancy should be accounted for as a liability.  ASU 2012-01 is effective for fiscal periods beginning after December 15, 2012 and we are currently evaluating its impact on our condensed consolidated financial statements.

Note 3. Property and Equipment

Property and equipment, at cost, consists of the following:

	September 30,2012			December 31, 2011
Land	$	21,901		$	21,234
Buildings and improvements	278,760			271,311
Furniture, fixtures and equipment	101,395			91,493
	402,056			384,038
Accumulated depreciation	(65,167		)	(51,853		)
	$	336,889		$	332,185

5

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

As of December 31, 2011, we had assets of $7,076 included in our property and equipment that we subsequently sold during the nine months ended September 30, 2012 to SNH for increased rent pursuant to the terms of our leases with SNH.  As of September 30, 2012, we had $11,772 of assets included in our property and equipment that we currently expect to request that SNH purchase from us for an increase in future rent; however, we are not obligated to make these sales and SNH is not obligated to purchase such assets.

Note 4.  Financial Data by Segment

We have one reportable segment which consists of our senior living community business.  In the senior living community segment, we operate for our own account and manage for the account of SNH independent living communities, assisted living communities and SNFs that are subject to centralized oversight and provide housing and services to elderly residents.  We do not consider our rehabilitation hospital operations to be a material, separately reportable segment of our business.  Consequently, we report our rehabilitation hospital operations within our corporate and other activities.  All of our operations and assets are located in the United States, except for the operations of our captive insurance company subsidiary, which participates in our workers’ compensation, professional liability and automobile insurance programs and which is organized in the Cayman Islands.

We use segment operating profit as a means to evaluate our performance and for our business decision making purposes.  Segment operating profit for our one reportable segment excludes certain interest and other income, certain interest and other expense, provision for income taxes, equity in earnings of Affiliates Insurance Company, or AIC, gain on settlement of litigation, sales of securities, and corporate income and expenses.

Our revenues by segment and a reconciliation of segment operating profit (loss) to income (loss) from continuing operations for the three and nine months ended September 30, 2012 and 2011 are as follows:

	Senior Living Communities			Corporate and Other(1)			Total
Three months ended September 30, 2012
Segment revenues:
Senior living and rehabilitation hospital	$	277,568		$	26,328		$	303,896
Management fee revenue	1,277			—			1,277
Reimbursed costs incurred on behalf ofmanaged communities	27,247			—			27,247
Total segment revenues	306,092			26,328			332,420
Segment expenses:
Operating expenses	204,674			23,734			228,408
Costs incurred on behalf of managedcommunities	27,247			—			27,247
Rent expense	47,844			2,679			50,523
Depreciation and amortization	5,741			583			6,324
Total segment expenses	285,506			26,996			312,502
Segment operating profit (loss)	20,586			(668		)	19,918
General and administrative expenses(2)	—			(14,602		)	(14,602		)
Operating income (loss)	20,586			(15,270		)	5,316
Interest and other income	22			177			199
Interest and other expense	(601		)	(1,161		)	(1,762		)
Acquisition related costs	—			(100		)	(100		)
Equity in earnings of Affiliates InsuranceCompany	—			115			115
Gain on sale of available for sale securities	—			63			63
Provision for income taxes	—			(426		)	(426		)
Income (loss) from continuing operations	$	20,007		$	(16,602	)	$	3,405
Total Assets as of September 30, 2012	$	447,455		$	116,051		$	563,506

6

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

	Senior Living Communities			Corporate and Other(1)			Total
Three months ended September 30, 2011
Segment revenues:
Senior living and rehabilitation hospital	$	275,605		$	26,273		$	301,878
Management fee revenue	359			—			359
Reimbursed costs incurred on behalf ofmanaged communities	8,324			—			8,324
Total segment revenues	284,288			26,273			310,561
Segment expenses:
Operating expenses	204,804			23,300			228,104
Costs incurred on behalf of managedcommunities	8,324			—			8,324
Rent expense	47,541			2,597			50,138
Depreciation and amortization	4,923			574			5,497
Total segment expenses	265,592			26,471			292,063
Segment operating profit (loss)	18,696			(198		)	18,498
General and administrative expenses(2)	—			(14,418		)	(14,418		)
Operating profit (loss)	18,696			(14,616		)	4,080
Interest and other income	19			336			355
Interest and other expense	(294		)	(740		)	(1,034		)
Acquisition related costs	—			(226		)	(226		)
Equity in earnings of Affiliates InsuranceCompany	—			28			28
Gain on sale of available for sale securities	—			529			529
Provision for income taxes	—			(186		)	(186		)
Income (loss) from continuing operations	$	18,421		$	(14,875	)	$	3,546

(1)	Corporate and Other includes operations that we do not consider a material, separately reportable segment of our business and income and expenses that are not attributable to a specific reportable segment.
(2)	General and administrative expenses are not attributable to a specific reportable segment and include items such as corporate payroll and benefits and expenses of our home office activities.

7

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

	Senior Living Communities			Corporate and Other(1)			Total
Nine months ended September 30, 2012
Segment revenues:
Senior living and rehabilitation hospital	$	831,864		$	79,501		$	911,365
Management fee revenue	3,666			—			3,666
Reimbursed costs incurred on behalf of managedcommunities	76,750			—			76,750
Total segment revenues	912,280			79,501			991,781
Segment expenses:
Operating expenses	612,870			71,725			684,595
Costs incurred on behalf of managedcommunities	76,750			—			76,750
Rent expense	143,092			7,951			151,043
Depreciation and amortization	16,893			1,738			18,631
Total segment expenses	849,605			81,414			931,019
Segment operating profit (loss)	62,675			(1,913		)	60,762
General and administrative expenses(2)	—			(45,445		)	(45,445		)
Operating income (loss)	62,675			(47,358		)	15,317
Interest and other income	61			577			638
Interest and other expense	(1,807		)	(2,986		)	(4,793		)
Acquisition related costs	—			(100		)	(100		)
Equity in earnings of Affiliates InsuranceCompany	—			236			236
Gain on settlement	—			3,365			3,365
Gain on early extinguishment of debt	—			45			45
Gain on sale of available for sale securities	—			62			62
Provision for income taxes	—			(4,835		)	(4,835		)
Income (loss) from continuing operations	$	60,929		$	(50,994	)	$	9,935

	Senior Living Communities			Corporate and Other(1)			Total
Nine months ended September 30, 2011
Segment revenues:
Senior living, rehabilitation hospital andinstitutional pharmacy revenues	$	803,647		$	78,235		$	881,882
Management fee revenue	383			—			383
Reimbursed costs incurred on behalf of managedcommunities	8,887			—			8,887
Total segment revenues	812,917			78,235			891,152
Segment expenses:
Operating expenses	592,098			70,798			662,896
Costs incurred on behalf of managedcommunities	8,887			—			8,887
Rent expense	137,716			7,758			145,474
Depreciation and amortization	12,159			1,546			13,705
Total segment expenses	750,860			80,102			830,962
Segment operating profit (loss)	62,057			(1,867		)	60,190
General and administrative expenses(2)	—			(42,242		)	(42,242		)
Operating income (loss)	62,057			(44,109		)	17,948
Interest and other income	100			875			975
Interest and other expense	(509		)	(1,896		)	(2,405		)
Acquisition related costs	—			(1,530		)	(1,530		)
Equity in earnings of Affiliates InsuranceCompany	—			111			111
Gain on early extinguishment of debt	—			1			1
Gain on sale of available for sale securities	—			656			656
Provision for income taxes	—			(1,006		)	(1,006		)
Income (loss) from continuing operations	$	61,648		$	(46,898	)	$	14,750

(1)	Corporate and Other includes operations that we do not consider a material, separately reportable segment of our business and income and expenses that are not attributable to a specific reportable segment.
(2)	General and administrative expenses are not attributable to a specific reportable segment and include items such as corporate payroll and benefits and expenses of our home office activities.

8

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

Note 5. Goodwill and Other Intangible Assets

The goodwill and other intangible assets balance are attributable to our Senior Living Communities segment and relate to management agreements and trademarks we acquired in connection with a lease we entered into with SNH in 2009, goodwill and resident agreements we acquired in connection with our purchase of six senior living communities in 2011 (See Note 9) and goodwill we recorded in connection with our other senior living community acquisitions in previous years.  The changes in the carrying amount of goodwill and other intangible assets from January 1, 2012 to September 30, 2012 are as follows:

	Total
Balance as of January 1, 2012	$	29,414
Amortization of intangibles	(1,333		)
Balance as of September 30, 2012	$	28,081

Note 6.  Income Taxes

During the fourth quarter of 2011, we evaluated the realizability of our deferred tax assets, which include, among other things, our net operating losses, or NOL, and tax credits, and determined that it is more likely than not that we will realize the benefit of our deferred tax assets, and as a result, we realized in the fourth quarter of 2011, the full amount of the valuation allowance we had previously maintained against these deferred tax assets of $52,111.  For the nine months ended September 30, 2012, we recognized tax expense from continuing operations of $4,835.  We also recognized tax expense from discontinued operations of $7,135.  Our effective income tax rate increased during the nine months ended September 30, 2012 to 32.7% compared to 8.4% in the prior year period primarily because our previous rate had been reduced from the statutory rate due to the full utilization of the previously maintained valuation allowance against our NOL carry forwards.  As of December 31, 2011, our federal NOL carry forward, which begins to expire in 2025 if unused, was approximately $97,822, and our tax credit carry forward, which begins to expire in 2022 if unused, was approximately $8,787.  Our NOL carry forwards and tax credit carry forwards are subject to audit and adjustments by the Internal Revenue Service.

During the third quarter of 2012, we released a valuation allowance of $752 related to capital losses which were used to offset a capital gain incurred in the sale of our pharmacy business.  We maintain a partial valuation allowance against certain deferred tax assets related to impaired investments.  When we believe that we will more likely than not realize the benefit of these deferred tax assets, we will record deferred tax assets as an income tax benefit in our condensed consolidated statements of income, which will affect our results of operations.

Note 7.  Earnings Per Share

We computed basic earnings per common share, or EPS, for the three and nine months ended September 30, 2012 and 2011 using the weighted average number of shares outstanding during the periods.  Diluted EPS for the periods ended September 30, 2012 and 2011 reflects additional shares of our common stock, $.01 par value per share, or our common shares, related to our convertible senior notes due in 2026, or the Notes, that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income applicable to common shareholders that would result from their assumed issuance.  The weighted average shares outstanding used to calculate basic and diluted EPS include 553 and 486 unvested common shares as of September 30, 2012 and 2011, respectively, issued to our officers and others under our equity compensation plan, or our Share Award Plan.  Unvested shares issued under our Share Award Plan are deemed participating securities because they participate equally in earnings with all of our other common shares.

The following table provides a reconciliation of income from continuing operations and income (loss) from discontinued operations and the number of common shares used in the computations of diluted EPS:

9

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

	Three Months Ended September 30,
	2012					2011
	Income		Shares	Per Share		Income (loss)			Shares	Per Share
Income from continuing operations	$	3,405	47,927	$	0.07	$	3,546		47,557	$	0.08
Effect of the Notes	166		2,461			—			—
Diluted income from continuing operations	$	3,571	50,388	$	0.07	$	3,546		47,557	$	0.08
Diluted income (loss) from discontinuedoperations	$	13,034	50,388	$	0.26	$	(4,074	)	47,557	$	(0.09	)

	Nine Months Ended September 30,
	2012					2011
	Income		Shares	Per Share		Income (loss)			Shares	Per Share
Income from continuing operations	$	9,935	47,913	$	0.21	$	14,750		40,294	$	0.37
Effect of the Notes	—		—			1,007			2,875
Diluted income from continuing operations	$	9,935	47,913	$	0.21	$	15,757		43,169	$	0.36
Diluted income (loss) from discontinuedoperations	$	11,511	47,913	$	0.24	$	(5,950	)	43,169	$	(0.14	)

Note 8.  Fair Values of Assets and Liabilities

The information below presents the assets and liabilities that are measured at fair value on a recurring and non recurring basis at September 30, 2012, categorized by the level of inputs used in the valuation of each asset and liability.

Description	Total		Quoted Prices in Active Markets for Identical Assets(Level 1)		Significant Other  Observable Inputs(Level 2)
Long lived assets held for sale (1)	$	11,772	$	—	$	11,772
Long lived assets of discontinued operations (2)	8,644		—		8,644
Cash equivalents (3)	18,102		18,102		—
Available for sale securities (4)
Equity securities
Financial services industry	6,587		6,587		—
REIT industry	504		504		—
Other	792		792		—
Total equity securities	7,883		7,883		—
Debt securities
International bond fund	2,337		2,337		—
High yield fund	2,094		2,094
Industrial bonds	7,165		7,165		—
Government bonds	5,501		5,501		—
Financial bonds	993		993		—
Other	873		873		—
Total debt securities	18,963		18,963		—
Total available for sale securities	26,846		26,846		—
Total	$	65,364	$	44,948	$	20,416

10

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

(1) Long lived assets held for sale consist of property and equipment we intend to sell to SNH for increased rent pursuant to the terms of our leases with SNH; however, we are not obligated to make these sales and SNH is not obligated to purchase the property and equipment.  We have either recently acquired the assets or the assets are part of active construction projects and we expect that any sale of these assets to SNH would be for an amount equal to their recorded cost.  Accordingly, the cost of these assets approximates their fair value.

(2) In September 2012 and 2011, we recorded an asset impairment charge of $294 and $3,938, respectively, to reduce the carrying value of two SNFs we own that we have classified as discontinued operations to their estimated fair value based upon expected sales prices less costs to sell. In September 2012, in connection with the sale of our pharmacy business to Omnicare, Inc., or Omnicare, Omnicare did not acquire the real estate associated with one pharmacy.  We have decided to pursue the sale of this real estate and during the third quarter of 2012 we recorded a $350 asset impairment charge to reduce the carrying value of this property to its estimated fair value less costs to sell.  The estimated fair value of long-lived assets of discontinued operations was determined based on offers to purchase the properties and appraisals made by third parties (Level 2 inputs).

(3) Cash equivalents, consisting of money market funds held principally for obligations arising from our self insurance programs.

(4) Investments in available for sale securities are reported in our balance sheet as current and long term investments in available for sale securities and are reported at fair value of $14,942 and $11,904, respectively, at September 30, 2012.  We estimate the fair value of our investments in available for sale securities by reviewing each security’s current market price, the ratings of the security, the financial condition of the issuer and our intent and ability to retain the investment during temporary market price fluctuations or until maturity.  In evaluating the factors described above, we presume a decline in value to be an “other than temporary impairment” if the quoted market price of the security is below the security’s cost basis for an extended period.  However, this presumption may be overcome if there is persuasive evidence indicating the value decline is temporary in nature, such as when the operating performance of the obligor is strong or if the market price of the security is historically volatile.  Additionally, there may be instances in which impairment losses are recognized even if the decline in value does not fall within the criteria described above, such as if we plan to sell the security in the near term and the fair value is below our cost basis.  When we believe that a change in fair value of an available for sale security is temporary, we record a corresponding credit or charge to other comprehensive income for any unrealized gains and losses.  When we determine that an impairment in the fair value of an available for sale security is an “other than temporary impairment”, we record a charge to earnings.

Our investments in available for sale securities had amortized costs of $25,036 and $20,827 as of September 30, 2012 and December 31, 2011, respectively, had unrealized gains of $2,050 and $1,586 as of September 30, 2012 and December 31, 2011, respectively, and had unrealized losses of $240 and $185 as of September 30, 2012 and December 31, 2011, respectively.  At September 30, 2012, seven of the securities we hold, with a fair value of $5,928, have been in a loss position for less than 12 months.  At September 30, 2012, three of the securities we hold, with a fair value of $3,667, have been in a loss position for greater than 12 months.  Since these securities have not been in a loss period for an extended period of time, or we believe other factors support a conclusion that the loss is temporary, we do not believe these securities are impaired.  During the nine months ended September 30, 2012, we received gross proceeds of $928 in connection with the sales of available for sale securities and recorded gross realized gains totaling $65 and gross realized losses totaling $3.

During the nine months ended September 30, 2012, we did not change the type of inputs used to determine the fair value of any of our assets and liabilities that we measure at fair value.  Accordingly, there were no transfers of assets or liabilities between levels of the fair value hierarchy during the nine months ended September 30, 2012.

The carrying values of accounts receivable, available for sale securities, accounts payable, mortgage notes payable and the bridge loan from SNH, or the Bridge Loan (see Note 10), approximate fair value as of September 30, 2012 and December 31, 2011.  The carrying value and fair value of the Notes were $24,872 and $24,499, respectively, as of September 30, 2012 and $37,282 and $33,181, respectively, as of December 31, 2011 and are categorized in level one of the fair value hierarchy in their entirety.  We estimate the fair value of the Notes using quoted market data for these securities. We measured the fair value of our equity investment in AIC, which is an Indiana insurance company that we currently own in equal proportion as each of the other seven shareholders of that company (see Note 12), categorized in level two of the fair hierarchy in its entirety, by considering, among other things, the individual assets and liabilities held by AIC, AIC’s overall financial condition and earning trends, and the financial condition and prospects for the insurance industry generally.

11

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

Note 9.  Acquisitions

In May 2011, we agreed to purchase certain assets of six senior living communities located in Indiana, or the Indiana Communities, containing 738 living units for a total purchase price, excluding closing costs, of $122,760.  The Indiana Communities primarily offer independent and assisted living services, which are currently primarily paid by residents from their private resources.  During 2011, we completed our acquisitions of the assets of the Indiana Communities and funded the acquisitions with proceeds of a public offering, or the Public Offering, of our common shares, proceeds of the Bridge Loan, by assuming approximately $19,260 of mortgage notes secured by three of the Indiana Communities, by assuming net working capital liabilities of the Indiana Communities and with cash on hand.

We completed the purchase accounting of the fair value of the assets acquired after we considered the results from a third party valuation report, and, as a result, made adjustments to property and equipment, goodwill and other intangible assets.  The amounts previously reported as of December 31, 2011 that have been restated to reflect these adjustments, are as follows:

	As of December 31, 2011
	Preliminary Amounts Recorded		Measurement Period Adjustment			Revised Amounts Recorded
Land	$	4,715	$	(510	)	$	4,205
Building and improvements	106,240		(15,200		)	91,040
Furniture, fixtures and equipment	11,805		(2,099		)	9,706
Property and equipment	$	122,760	$	(17,809	)	$	104,951
Goodwill related to home health services	$	—	$	14,565		$	14,565
Other intangible assets related to resident agreements	$	—	$	3,244		$	3,244

For the nine months ended September 30, 2012 and 2011, we incurred acquisition related costs of $100 and $1,530, respectively.  These costs include transaction closing costs, professional fees (legal and accounting) and other acquisition related expenses.

Note 10.  Indebtedness

We have a $35,000 revolving secured line of credit, or our Credit Agreement, that matures on March 18, 2013 when all amounts outstanding will be due. Borrowings under our Credit Agreement are available for acquisitions, working capital and general business purposes.  Funds available under our Credit Agreement may be drawn, repaid and redrawn until maturity and no principal payment is due until maturity.  We borrow in U.S. dollars and borrowings under our Credit Agreement bear interest at LIBOR (with a floor of 2% per annum) plus a spread.  As of September 30, 2012, the interest rate payable on borrowings under our Credit Agreement was 6% and we had $0 outstanding and $35,000 available under our Credit Agreement.  We are the borrower under our Credit Agreement and certain of our subsidiaries guarantee our obligations under our Credit Agreement, which is secured by our and our guarantor subsidiaries’ accounts receivable and related collateral. Our Credit Agreement contains covenants requiring us to maintain certain financial ratios, places limits on our ability to incur or assume debt or create liens with respect to certain of our properties and has other customary provisions. Our Credit Agreement also provides for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, including a change of control of us.  As of September 30, 2012, we believe we were in compliance with all applicable covenants under our Credit Agreement. We incurred interest expense and other associated costs related to our Credit Agreement of $154 and $185 for the three months ended September 30, 2012 and 2011, respectively, and $509 and $548 for the nine months ended September 30, 2012 and 2011, respectively.

In April 2012, we entered into a new $150,000 secured revolving credit facility with a syndicate of lenders, or our New Credit Facility, which is in addition to our Credit Agreement.  The maturity date of our New Credit Facility is April 13, 2015, and, subject to our payment of extension fees and meeting certain other conditions, we have options to extend the

12

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

maturity date for two, one year periods.  The proceeds of our New Credit Facility are available for general business purposes, including the repayment of debt.  Borrowings under our New Credit Facility bear interest at LIBOR plus a spread.  As of September 30, 2012, the interest rate payable on borrowings under our New Credit Facility was 2.73% and we had $0 outstanding and $149,370 available under our New Credit Facility.  Borrowings under our New Credit Facility are guaranteed by certain of our subsidiaries and secured by real estate mortgages on 15 senior living communities with 1,549 living units owned by our guarantor subsidiaries and our guarantor subsidiaries’ accounts receivable and related collateral.  Funds available under our New Credit Facility may be drawn, repaid and redrawn until maturity and there are no scheduled principal payments prior to maturity.  Our New Credit Facility provides for acceleration of payment of all amounts payable upon the occurrence and continuation of certain events of default, including a change of control of us.  Our New Credit Facility contains a number of financial covenants which generally restrict our ability to incur debts in excess of calculated amounts, require us to maintain a minimum net worth and require us to maintain various financial ratios.  As of September 30, 2012, we believe we were in compliance with all applicable covenants under our New Credit Facility.  We incurred interest expense and other associated costs related to our New Credit Facility of $762 and $1,287 for the three and nine months ended September 30, 2012, respectively.

In May 2011, we entered into the Bridge Loan agreement with SNH under which SNH agreed to lend us up to $80,000 to fund a part of the purchase price for our acquisitions of certain assets of the Indiana Communities.  During 2011, we completed our acquisitions of the assets of the Indiana Communities and, in connection with the acquisitions, borrowed $80,000 under the Bridge Loan.  During 2011, we repaid $42,000 of this advance with proceeds from the Public Offering and cash generated by operations.  In April 2012, we repaid in full the principal amount then outstanding under the Bridge Loan, resulting in termination of the Bridge Loan.  We funded the April 2012 repayment of the Bridge Loan with borrowings under our New Credit Facility and cash on hand.  We incurred interest expense and other associated costs related to the Bridge Loan of $0 and $187 for the three months ended September 30, 2012 and 2011, respectively, and $314 and $245 for the nine months ended September 30, 2012 and 2011, respectively.

In October 2006, we issued $126,500 principal amount of the Notes.  Our net proceeds from this issuance were approximately $122,600.  The Notes bear interest at a rate of 3.75% per annum and are convertible into our common shares at any time.  The initial conversion rate, which is subject to adjustment, is 76.9231 common shares per $1 principal amount of the Notes, which represents an initial conversion price of $13.00 per share.  The Notes are guaranteed by certain of our wholly owned subsidiaries.  The Notes mature on October 15, 2026.  We may prepay the Notes at any time and the holders may require that we purchase all or a portion of these Notes on each of October 15 of 2013, 2016 and 2021 at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest.  If a “fundamental change”, as defined in the indenture governing the Notes, occurs, holders of the Notes may require us to repurchase all or a portion of their Notes for cash at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest and, in certain circumstances, plus a make whole premium as defined in the indenture governing the Notes.  Interest expense and other associated costs related to the Notes were $245 and $366 for the three months ended September 30, 2012 and 2011, respectively, and $876 and $1,102 for the nine months ended September 30, 2012 and 2011, respectively.  We issued the Notes pursuant to an indenture which contains various customary covenants.  As of September 30, 2012, we believe we were in compliance with all applicable covenants of the indenture governing the Notes.

During the nine months ended September 30, 2012, we purchased and retired $12,410 par value of the outstanding Notes and recorded a gain of $45, net of related unamortized costs, on early extinguishment of debt.  We funded this purchase principally with borrowings under our New Credit Facility and cash on hand.  During the nine months ended September 30, 2011, we purchased and retired $623 par value of the outstanding Notes and recorded a gain of $1, net of related unamortized costs, on early extinguishment of debt.  We funded this purchase principally with cash on hand.  As a result of these purchases and other purchases we made in prior years, $24,872 in principal amount of the Notes remain outstanding.  We may purchase additional outstanding principal amounts of the Notes from time to time.

At September 30, 2012, six of our senior living communities were encumbered by mortgage notes totaling $46,559: (1) two of our communities, which we have classified as discontinued operations, were encumbered by United States Department of Housing and Urban Development, or HUD, insured mortgage notes; (2) one of our communities was encumbered by a Federal National Mortgage Associate, or FNMA, mortgage note and; (3) three of our communities

13

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

were encumbered by Federal Home Loan Mortgage Corporation, or FMCC, mortgage notes.  These mortgages contain HUD, FNMA and FMCC standard mortgage covenants.  We recorded a mortgage premium in connection with our assumption of the FNMA and FMCC mortgage notes in order to record the assumed mortgage notes at their estimated fair value.  We are amortizing the mortgage premiums as a reduction of interest expense until the maturity of the respective mortgage notes.  The weighted average interest rate on these notes was 6.68% as of September 30, 2012.  Payments of principal and interest are due monthly until maturities at varying dates ranging from June 2023 to May 2039.  We incurred mortgage interest expense, including premium amortization, of $709 and $405 for the three months ended September 30, 2012 and 2011, respectively, and $2,134 and $842 for the nine months ended September 30, 2012 and 2011, respectively.  As of September 30, 2012, we believe we were in compliance with all applicable covenants under these mortgages.

Note 11. Off Balance Sheet Arrangements

We have pledged certain of our assets, such as accounts receivable, with a carrying value, as of September 30, 2012, of $13,542 arising from our operation of 45 properties owned by SNH and leased to us which secures SNH’s borrowings from its lender, FNMA.  As of September 30, 2012, we had no other off balance sheet arrangements that have had or that we expect would be reasonably likely to have a future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Note 12. Related Person Transactions

We were formerly a 100% owned subsidiary of SNH.  In 2001, SNH distributed substantially all of our then outstanding common shares to its shareholders.  SNH is our largest stockholder and, as of the date of this report, SNH owned 4,235 of our common shares, or approximately 8.8% of our outstanding common shares.  SNH is our largest landlord and we manage several senior living communities for SNH.  As of September 30, 2012, we leased 188 senior living communities (including one that we have classified as discontinued operations) and two rehabilitation hospitals from SNH and managed 30 senior living communities for the account of SNH.  One of our Managing Directors, Mr. Barry Portnoy, is also a managing trustee of SNH.  Mr. Barry Portnoy’s son, Mr. Adam Portnoy, serves as a managing trustee of SNH.

Under our leases with SNH, we generally pay SNH rent based on minimum annual rent amounts plus percentage rent based on increases in gross revenues at certain properties.  Our total minimum annual rent payable to SNH as of September 30, 2012 was $196,704, excluding percentage rent.  Our total rent expense under all of our leases with SNH, net of lease inducement amortization, was $50,119 and $50,456 for the three months ended September 30, 2012 and 2011, respectively, and $149,842 and $144,988 for the nine months ended September 30, 2012 and 2011, respectively.  During the nine months ended September 30, 2012, pursuant to the terms of our leases with SNH, we sold $18,249 of improvements made to properties leased from SNH, and, as a result, our annual rent payable to SNH increased by approximately $1,472.  As of September 30, 2012, our property and equipment included $11,772 for similar improvements we have made to properties we lease from SNH that we currently expect to request that SNH purchase from us for an increase in future rent; however, we are not obligated to make these sales and SNH is not obligated to purchase such assets.

We began managing communities for SNH’s account in June 2011 in connection with SNH’s acquisition of certain senior living communities at that time.  We have since begun managing additional communities that SNH has acquired.  We manage the SNH managed communities pursuant to long term management agreements on substantially consistent terms.  In connection with these management agreements, we and SNH have entered into three pooling agreements, two pooling agreements which pool our management agreements with SNH for communities that include assisted living units, or the AL Pooling Agreements, and a third pooling agreement, which pools our management agreements with SNH for communities consisting only of independent living units, or the IL Pooling Agreement.  We entered into the initial AL Pooling Agreement in May 2011 and the second AL Pooling Agreement in October 2012.  In connection with entering into the second AL Pooling Agreement, we and SNH amended and restated the initial AL Pooling Agreement so that it includes only the management agreements for 20 of the communities that include assisted living units that we and SNH agreed we would manage for SNH’s account.  The second AL Pooling Agreement includes the

14

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

management agreements for the remaining communities that include assisted living units that we currently manage for SNH’s account (other than with respect to the senior living community in New York described below).  We entered into the IL Pooling Agreement in August 2012 and that agreement currently includes management agreements for two communities consisting only of independent living units.  Each of the AL Pooling Agreements and the IL Pooling Agreement aggregates the determinations of fees and expenses of the various communities that are subject to each such pooling agreement, including determinations of our incentive fees and SNH’s return of its invested capital.  We earned management fee revenue of $1,284 and $3,431, respectively, for the three and nine months ended September 30, 2012, and $326 and $351 for the three and nine months ended September 30, 2011, respectively, with respect to the communities we manage for the account of SNH.  We expect that we may enter into additional management arrangements with SNH for senior living communities that SNH may acquire in the future on terms similar to those management arrangements we currently have with SNH, including, as further disclosed below, with respect to two senior living communities SNH is currently leasing to Sunrise Senior Living, Inc., or Sunrise.  Our management of those two communities is subject to conditions, including receipt of regulatory approvals, and may not occur.  Also, there can be no assurances that we will manage any additional senior living communities for SNH’s account in the future.

In February 2012, we entered into a long term management agreement with SNH, on terms substantially consistent with the terms of our other management agreements that we have previously entered into with SNH for communities that include assisted living units, to manage for SNH’s account a senior living community in Alabama with 92 living units. This management agreement is included in the second AL Pooling Agreement.

In May 2012, we entered into a long term management agreement with SNH, on terms substantially consistent with the terms of our other management agreements that we have previously entered into with SNH for communities that include assisted living units, to manage for SNH’s account a senior living community in South Carolina with 59 living units, which community we had been managing for the prior owner’s account pending SNH’s acquisition.  This management agreement is included in the second AL Pooling Agreement.

Also in May 2012, we and SNH entered into an operations transfer agreement, or the Operations Transfer Agreement, with Sunrise.  Pursuant to the Operations Transfer Agreement, SNH and Sunrise agreed to accelerate the December 31, 2013 termination date of Sunrise’s leases for 10 senior living communities, or the 10 Communities, owned by SNH, and we agreed to operate the 10 Communities as a manager for SNH’s account pursuant to long term management agreements.  The Operations Transfer Agreement provides that these transactions will occur when we and SNH have obtained regulatory approvals to operate the affected 10 Communities.  As of October 30, 2012, we have entered into long term management agreements with SNH for eight of the 10 Communities, on terms substantially consistent with the terms of our other management agreements that we have previously entered into with SNH for communities that include assisted living units.  These management agreements are included in the second AL Pooling Agreement.  We currently expect that, following the termination of the leases for the remaining two of the 10 Communities, we will enter into long term management agreements with SNH, on terms substantially consistent with the terms of our other management agreements that we have previously entered into with SNH for communities that include assisted living units, to manage those communities for SNH’s account and that those communities will also be added to the second AL Pooling Agreement.  The termination of the leases for those remaining two communities and our management of those communities for SNH’s account are subject to conditions, including receipt of regulatory approvals, and may not occur.

In July 2012, we entered into a long term management agreement with SNH, on terms substantially consistent with the terms of our other management agreements that we have previously entered into with SNH for communities that include assisted living units, to manage for SNH’s account a senior living community in South Carolina with 232 living units, which community we had previously been managing for the prior owner’s account pending SNH’s acquisition.  This management agreement was added to our second AL Pooling Agreement.

In August 2012, we entered into a long term management agreement with SNH, on terms substantially consistent with the terms of our other management agreement that we have previously entered into with SNH for communities consisting only of independent living units, to manage for SNH’s account a senior living community in Missouri with 87 living units.  This management agreement was added to our IL Pooling Agreement.

15

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

Also in August 2012, we entered into a long term management agreement with SNH to manage for SNH’s account a portion of a senior living community in New York that is not subject to the requirements of New York healthcare licensing laws, consisting of 198 living units, on terms substantially consistent with the terms of our other management agreements that we have previously entered into with SNH for communities that include assisted living units, except that the management fee payable to us is equal to 5% of the gross revenues realized at that portion of the community, instead of 3% of gross revenues as is typically provided under our management agreements with SNH, and there is no incentive fee payable to us under this management agreement.  In order to accommodate certain requirements of New York healthcare licensing laws, SNH subleased the portion of this senior living community that is subject to such requirements, consisting of 111 living units, to an entity, D&R Yonkers LLC, which is owned by SNH’s president and chief operating officer and its treasurer and chief financial officer, and we entered into a long term management agreement with D&R Yonkers LLC to manage that portion of the community for D&R Yonkers LLC’s account.  Pursuant to that management agreement, D&R Yonkers LLC pays us a management fee equal to 3% of the gross revenues realized at that portion of the community and we are not entitled to any incentive fee under that agreement.

As discussed above in Notes 9 and 10, in May 2011, we and SNH entered into the Bridge Loan, under which SNH agreed to lend us up to $80,000 to help fund our purchase of the Indiana Communities.  In April 2012, we repaid in full the then outstanding principal amount under the Bridge Loan, resulting in termination of the Bridge Loan.  We incurred interest expense on the Bridge Loan of $0 and $314, respectively, for the three and nine months ended September 30, 2012, and $187 and $245, respectively, for the three and nine months ended September 30, 2011, which amounts are included in interest and other expense in our condensed consolidated statements of income.

In August 2012, SNH prepaid certain outstanding debt it had borrowed from FNMA, which debt was secured by certain properties we lease from SNH and other assets relating to those properties.  As a result of this prepayment, 11 of the 28 properties securing that debt were released from the mortgage and, in connection with that release, we entered into amendments to our leases with SNH so that these 11 properties were removed from the lease that exists to accommodate this debt and added to our other leases with SNH.

Reit Management & Research LLC, or RMR, provides us with certain business management and shared services under a business management and shared services agreement, or our business management agreement.  RMR also provides management services to SNH.  One of our Managing Directors, Mr. Barry Portnoy, is Chairman, majority owner and an employee of RMR.  Our other Managing Director, Mr. Gerard Martin, is a director of RMR.  Our President and Chief Executive Officer and our Treasurer and Chief Financial Officer are officers of RMR.  Mr. Barry Portnoy’s son, Mr. Adam Portnoy, is an owner, President, Chief Executive Officer and a director of RMR and serves as a managing trustee of SNH.  SNH’s executive officers are officers of RMR and SNH’s president and chief operating officer is a director of RMR.  Our Independent Directors also serve as independent directors or independent trustees of other public companies to which RMR provides management services.  Mr. Barry Portnoy serves as a managing director or managing trustee of those companies and his son serves as a managing trustee of a majority of those companies.  Pursuant to our business management agreement with RMR, we incurred expenses of $3,218 and $3,021 for the three months ended September 30, 2012 and 2011, respectively, and $9,696 and $8,668 for the nine months ended September 30, 2012 and 2011, respectively.  These amounts are included in general and administrative expenses in our condensed consolidated statements of income.  We lease our headquarters from an affiliate of RMR for annual rent of approximately $748.  We incurred rent of $187 and $183 for the three months ended September 30, 2012 and 2011, respectively, and $552 and $718 for the nine months ended September 30, 2012 and 2011, respectively, which amounts include rent for an office space lease we had with an affiliate of RMR during the six months ended June 30, 2011.  In connection with these leases we incurred utilities expense and real estate taxes of $172 and $142 for the three months ended September 30, 2012 and 2011, respectively, and $515 and $206 for the nine months ended September 30, 2012 and 2011.

We, SNH, RMR and five other companies to which RMR provides management services each currently own 12.5% of AIC, an Indiana insurance company.  All of our Directors, all of the trustees and directors of the other publicly held AIC shareholders and nearly all of the directors of RMR currently serve on the board of directors of AIC.  RMR provides management and administrative services to AIC pursuant to a management and administrative services agreement with AIC.  Although we own less than 20% of AIC, we use the equity method to account for this investment because we believe that we have significant influence over AIC because all of our Directors are also directors of AIC.  We

16

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

recognized income of $115 and $28 for the three months ended September 30, 2012 and 2011, respectively, and $236 and $111 for the nine months ended September 30, 2012 and 2011, respectively, related to this investment.  We and the other shareholders of AIC have purchased property insurance providing $500,000 of coverage pursuant to an insurance program arranged by AIC and with respect to which AIC is a reinsurer of certain coverage amounts.  This program was modified and extended in June 2012 for a one year term and we paid a premium, including taxes and fees, of $6,264 in connection with that renewal, which amount may be adjusted from time to time as we acquire or dispose of properties that are included in that program.  We are also currently investigating the possibilities to expand our insurance relationships with AIC to include other types of insurance.  We may invest additional amounts in AIC in the future if the expansion of this insurance business requires additional capital, but we are not obligated to do so.  By participating in this insurance business with RMR and the other companies to which RMR provides management services, we expect that we may benefit financially by possibly reducing our insurance expenses or by realizing our pro-rata share of any profits of this insurance business.

For further information about these and other such relationships and related person transactions, please see elsewhere in this Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Related Person Transactions” in Part I, Item 2, “Warning Concerning Forward Looking Statements” in Part I, and “Other Information” in Part II, Item 5, and our Annual Report, our Proxy Statement for our 2012 Annual Meeting of Shareholders dated February 21, 2012, or our Proxy Statement, and our other filings with the Securities and Exchange Commission, or the SEC, including Note 15 to our Consolidated Financial Statements included in our Annual Report, the sections captioned “Business”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Related Person Transactions” and “Warning Concerning Forward Looking Statements” of our Annual Report and the section captioned “Related Person Transactions and Company Review of Such Transactions” and the information regarding our Directors and executive officers in our Proxy Statement.  In addition, please see the section captioned “Risk Factors” of our Annual Report for a description of risks that may arise from these transactions and relationships.  Our filings with the SEC, including our Annual Report and our Proxy Statement, are available at the SEC’s website at www.sec.gov.  Copies of certain of our agreements with our related parties, including our leases, forms of management agreements and related pooling agreements and Bridge Loan agreement with SNH, our management agreement with D&R Yonkers LLC, our business management agreement with RMR, our headquarters lease with an affiliate of RMR and our shareholders agreement with AIC and its shareholders, are also publicly available as exhibits to our public filings with the SEC and accessible at the SEC’s website.

Note 13.  Discontinued Operations

In 2011, we decided to offer for sale two SNFs we own that are located in Michigan with a total of 271 living units.  In October 2012, we entered into an agreement to sell these two SNFs for a sale price of $8,000, including the transfer of $7,583 of HUD mortgage debt to the buyer.  In connection with this agreement, we recorded a $294 asset impairment charge to reduce the carrying value of these properties to their estimated fair value less costs to sell.  Completion of this sale is subject to customary closing conditions and we can provide no assurance that a sale of these SNFs will be completed.

In August 2011, we agreed with SNH that SNH should sell one assisted living community located in Pennsylvania with 103 living units, which we lease from SNH.  We and SNH are in the process of offering this assisted living community for sale and, if sold, our annual minimum rent payable to SNH will decrease by 9.0% of the net proceeds of the sale to SNH, in accordance with the terms of our lease with SNH.

In September 2012, we completed the sale of our pharmacy business to Omnicare. We received $34,298 in sale proceeds from Omnicare, which included $3,789 in working capital.  Further, we retained certain additional items of net working capital invested in the pharmacy business of $3,501.  Accordingly, we expect to receive a total of $37,799 (before taxes and transaction costs) in net cash receipts resulting from the sale.  We recorded a pre-tax capital gain on sale of the pharmacy business of $23,347.  In connection with the sale, Omnicare did not acquire the real estate associated with one pharmacy located in South Carolina.  We have decided to pursue the sale of this real estate and we recorded a $350 asset impairment charge during the third quarter of 2012 to reduce the carrying value of this property to its estimated fair value less costs to sell.

17

FIVE STAR QUALITY CARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

We have reclassified the condensed consolidated balance sheets and the condensed consolidated statements of income for all periods presented to show the financial position and results of operations of our pharmacies and the communities which have been sold or are expected to be sold as discontinued.  Below is a summary of the operating results of these discontinued operations included in the condensed consolidated financial statements for the three and nine months ended September 30, 2012 and 2011:

	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Revenues	$	17,583		$	25,208		$	64,505		$	83,032
Expenses	(20,256		)	(29,282		)	(69,206		)	(88,982		)
Gain on sale	23,347			—			23,347			—
Provision for income taxes	(7,640		)	—			(7,135		)	—
Net income (loss)	$	13,034		$	(4,074	)	$	11,511		$	(5,950	)

18

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

We have one reportable segment which consists of our senior living community business.  In the senior living community segment, we operate for our own account and manage for the account of SNH independent living communities, assisted living communities and SNFs that are subject to centralized oversight and provide housing and services to elderly residents.  We do not consider our rehabilitation hospital operations to be a material, separately reportable segment of our business.  Consequently, we report our rehabilitation hospital operations within our corporate and other activities.  All of our operations and assets are located in the United States, except for the operations of our captive insurance company subsidiary, which participates in our workers’ compensation, professional liability and automobile insurance programs and is organized in the Cayman Islands.

We use segment operating profit as a means to evaluate our performance and for our business decision making purposes.  Segment operating profit for our one reportable segment excludes certain interest and other income, certain interest and other expense, provision for income taxes, equity in earnings of AIC, gain on settlement of litigation, sales of securities, and corporate income and expenses.

Key Statistical Data For the Three Months Ended September 30, 2012 and 2011:

The following tables present a summary of our operations for the three months ended September 30, 2012 and 2011:

Senior living communities:

	Three months ended September 30,
(dollars in thousands, except average daily rate)	2012			2011			$ Change			% Change
Senior living revenue	$	277,568		$	275,605		$	1,963		0.7	%
Management fee revenue	1,277			359			918			255.6	%
Reimbursed costs incurred on behalf ofmanaged communities	27,247			8,324			18,923			227.3	%
Total revenue	306,092			284,288			21,804			7.7	%
Senior living wages and benefits	(137,816		)	(136,135		)	(1,681		)	(1.2	)%
Other senior living operating expenses	(66,858		)	(68,669		)	1,811			2.6	%
Costs incurred on behalf of managed communities	(27,247		)	(8,324		)	(18,923		)	(227.3	)%
Rent expense	(47,844		)	(47,541		)	(303		)	(0.6	)%
Depreciation and amortization expense	(5,741		)	(4,923		)	(818		)	(16.6	)%
Interest and other expense	(601		)	(294		)	(307		)	(104.4	)%
Interest and other income	22			19			3			(15.8	)%
Senior living income from continuing operations	$	20,007		$	18,421		$	1,586		8.6	%
Total number of communities (end of period):
Owned and leased communities	222			222			—			—
Managed communities	30			14			16			114.3	%
Number of total communities	252			236			16			6.8	%
Total number of living units (end of period):
Owned and leased living units	23,764			23,764			—			—
Managed living units	4,498			1,415			3,083			217.9	%
Number of total living units	28,262			25,179			3,083			12.2	%
Owned and leased communities:
Occupancy %	85.7		%	86.0		%	n/a			(0.3	)%
Average daily rate	$	145.56		$	147.46		$	(1.90	)	(1.3	)%
Percent of senior living revenue from Medicaid	12.4		%	12.3		%	n/a			0.1	%
Percent of senior living revenue from Medicare	12.6		%	14.7		%	n/a			(2.1	)%
Percent of senior living revenue from private and other sources	75.0		%	73.0		%	n/a			2.0	%

19

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Comparable senior living communities     (senior living communities that we have owned, leased or managed and operated continuously since July 1, 2011):

	Three months ended September 30,
(dollars in thousands, except average daily rate)	2012			2011			$ Change			% Change
Senior living revenue	$	274,414		$	275,054		$	(640	)	(0.2	)%
Management fee revenue	259			245			14			5.7	%
Senior living wages and benefits	(136,887		)	(135,821		)	(1,066		)	(0.8	)%
Other senior living operating expenses	(65,880		)	(68,437		)	2,557			3.7	%
No. of communities (end of period)
Owned and leased communities	218			218			—			—
Managed communities	10			10			—			—
Number of total communities	228			228			—			—
No. of living units (end of period)
Owned and leased living units	23,278			23,278			—			—
Managed living units	934			934			—			—
Number of total living units	24,212			24,212			—			—
Occupancy %	85.7		%	86.0		%	n/a			(0.3	)%
Average daily rate	$	146.88		$	147.65		$	(0.77	)	(0.5	)%
Percent of senior living revenue from Medicaid	12.6		%	12.4		%	n/a			0.2	%
Percent of senior living revenue from Medicare	12.7		%	14.7		%	n/a			(2.0	)%
Percent of senior living revenue from private and other sources	74.7		%	72.9		%	n/a			1.8	%

Corporate and Other:(1)

	Three months ended September 30,
(dollars in thousands)	2012			2011			$ Change			% Change
Rehabilitation hospital revenues	$	26,328		$	26,273		$	55		0.2	%
Rehabilitation hospital expenses	(23,734		)	(23,300		)	(434		)	(1.9	)%
Rehabilitation hospital rent expense	(2,679		)	(2,597		)	(82		)	(3.2	)%
Depreciation and amortization expense	(583		)	(574		)	(9		)	(1.6	)%
General and administrative expense(2)	(14,602		)	(14,418		)	(184		)	(1.3	)%
Equity in earnings of Affiliates Insurance Company	115			28			87			310.7	%
Gain on sale of available for sale securities	63			529			(466		)	(88.1	)%
Interest and other income	177			336			(159		)	(47.3	)%
Interest and other expense	(1,161		)	(740		)	(421		)	(56.9	)%
Acquisition related costs	(100		)	(226		)	126			55.8	%
Provision for income taxes	(426		)	(186		)	(240		)	(129.0	)%
Corporate and Other loss from continuing operations	$	(16,602	)	$	(14,875	)	$	(1,727	)	(11.6	)%

(1)	Corporate and Other includes operations that we do not consider a material, separately reportable segment of our business and income and expenses that are not attributable to a specific reportable segment.
(2)	General and administrative expenses are not attributable to a specific reportable segment and include items such as corporate payroll and benefits and expenses of our home office activities.

Consolidated:

	Three months ended September 30,
(dollars in thousands)	2012		2011		$ Change		% Change
Summary of revenue:
Senior living communities	$	306,092	$	284,288	$	21,804	7.7	%
Corporate and other	26,328		26,273		55		0.2	%
Total revenue	$	332,420	$	310,561	$	21,859	7.0	%

20

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Summary of income (loss) from continuing operations:
Senior living communities	$	20,007		$	18,421		$	1,586		8.6	%
Corporate and other	(16,602		)	(14,875		)	(1,727		)	(11.6	)%
Income from continuing operations	$	3,405		$	3,546		$	(141	)	(4.0	)%

Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011

Senior living communities:

Our senior living revenue increased by 0.7% for the three months ended September 30, 2012 compared to the same period in 2011 primarily due to an increase from 218 to 222 in the number of communities that we owned and leased since July 1, 2011, partially offset by a 7.5% reduction in aggregate Medicare payment rates for SNFs.  Our senior living revenue at the communities that we operated continuously since July 1, 2011, or our current quarter comparable communities, decreased 0.2% for the three months ended September 30, 2012 compared to the same period in 2011, primarily due to decreased per diem charges to residents and a 7.5% reduction in aggregate Medicare payment rates for our SNFs, partially offset by an increase in Medicaid payment rates in certain states.

In the third quarter of 2011, we began managing four senior living communities for SNH’s account and for the account of another owner pending SNH’s acquisition of that other owner’s community.  These four managed senior living communities were in addition to the 10 we began managing in the second quarter of 2011 for SNH.  Our management fee revenue and reimbursed costs incurred at these communities increased significantly during the three months ended September 30, 2012 compared to the same period in the previous year due to an increase from 14 to 30 in the number of communities we manage and because we managed these communities for the full quarter in 2012 and began managing four of them in the third quarter of 2011.

Our senior living wages and benefits increased 1.2% for the three months ended September 30, 2012 compared to the same period in 2011 primarily due to an increase from 218 to 222 in the number of communities that we owned and leased during these periods, respectively, and to wage increases at our current quarter comparable communities.  Our other senior living operating expenses, which include utilities, housekeeping, dietary, maintenance, insurance and community level administrative costs, decreased by 2.6% due to net decreased charges for purchased services and decreased utility and various medical supply expenses at our current quarter comparable communities, partially offset by an increase in the number of communities that we owned and leased from 218 to 222, plus increased service provider fees at our current quarter comparable communities.  Our senior living wages and benefits at our current quarter comparable communities increased by 0.8% primarily due to wage increases.  Our other senior living operating expenses at our current quarter comparable communities decreased by 3.7% primarily due to net decreased charges for purchased services and decreased utility and various medical supplies, partially offset by increased service provider fees.  Our senior living rent expense increased by 0.6% compared to the same period in 2011 primarily due to our payment of additional rent for senior living community capital improvements purchased by SNH at our request since July 1, 2011.

Our senior living depreciation and amortization expense increased by 16.6% for the three months ended September 30, 2012 compared to the same period in 2011 primarily due to additional depreciation and amortization resulting from the three owned senior living communities that we acquired in the third quarter of 2011 and capital expenditures (net of sales of capital improvements to SNH), including depreciation costs arising from our purchase of furniture and fixtures for our owned communities.

Interest and other expense attributable to our senior living communities increased by 104.4% for the three months ended September 30, 2012 compared to the same period in 2011 primarily due to our assumption of three mortgage notes in connection with our acquisition of three of the Indiana Communities during the third quarter of 2011.

21

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Corporate and Other:

Our rehabilitation hospital revenues increased by 0.2% for the three months ended September 30, 2012 compared to the same period in 2011 primarily due to higher Medicare rates and an increase in occupancy, partially offset by a decrease in managed care revenue.

Our rehabilitation hospital expenses increased by 1.9% for the three months ended September 30, 2012 compared to the same period in 2011 primarily due to increases in labor and benefit costs.

Our rehabilitation hospital rent expense increased by 3.2% for the three months ended September 30, 2012 compared to the same period in 2011 due to our payment of additional rent for rehabilitation hospital capital improvements purchased by SNH at our request since July 1, 2011.

General and administrative expenses increased by 1.3% for the three months ended September 30, 2012 compared to the same period in 2011 primarily due to increased personnel and information technology costs resulting from our acquisitions of additional communities during 2011 and wage increases.

Our interest and other income decreased by 47.3% for the three months ended September 30, 2012 compared to the same period in 2011 due to less investable cash and lower yields realized on our investments.

Our interest and other expense increased by 56.9% for the three months ended September 30, 2012 compared to the same period in 2011 primarily due to interest paid on the New Credit Facility, partially offset by our purchase and retirement of $12.4 million par value of the outstanding Notes since September 30, 2011.

For the three months ended September 30, 2012, we recognized tax expense from continuing operations of $426,000.  Our effective income tax rate increased during the three months ended September 30, 2012 to 32.7% compared to 8.4% in the prior year period primarily because our previous rate had been reduced from the statutory rate due to our previous valuation allowance for our deferred tax asset relating to our NOL carry forwards which we reversed as of December 31, 2011. During the fourth quarter of 2011 we evaluated the realizability of certain of our deferred tax assets, which include, among other things, our NOLs and tax credits, and determined that it was more likely than not that we will realize the benefit of such deferred tax assets.  As of December 31, 2011, our federal NOL carry forward, which will begin to expire in 2025 if unused, was approximately $97.8 million, and our tax credit carry forward, which will begin to expire in 2022 if unused, was approximately $8.8 million.

Discontinued operations:

Income from discontinued operations for the three months ended September 30, 2012 increased $17.1 million to $13.0 million, compared to a loss of $4.1 million for the three months ended September 30, 2011.  Income from discontinued operations for the three months ended September 30, 2012 is primarily due to the $23.3 million gain on sale, before income tax expense of $7.6 million, we recorded relating to the sale of our pharmacy business, partially offset by losses we incurred at assisted living communities and SNFs that we have sold or expect to sell.  The loss from discontinued operations for the three months ended September 30, 2011 is primarily due to an impairment charge of $3.9 million to reduce the carrying value of two SNFs we own to their estimated fair value.

Key Statistical Data For the Nine Months Ended September 30, 2012 and 2011:

The following tables present a summary of our operations for the nine months ended September 30, 2012 and 2011:

Senior living communities:

	Nine months ended September 30,
(dollars in thousands, except average daily rate)	2012			2011			$ Change			% Change
Senior living revenue	$	831,864		$	803,647		$	28,217		3.5	%
Management fee revenue	3,666			383			3,283			857.2	%
Reimbursed costs incurred on behalf ofmanaged communities	76,750			8,887			67,863			763.6	%
Total revenue	912,280			812,917			99,363			12.2	%
Senior living wages and benefits	(412,808		)	(398,975		)	(13,833		)	(3.5	)%
Other senior living operating expenses	(200,062		)	(193,123		)	(6,939		)	(3.6	)%
Costs incurred on behalf of managed communities	(76,750		)	(8,887		)	(67,863		)	(763.6	)%
Rent expense	(143,092		)	(137,716		)	(5,376		)	(3.9	)%
Depreciation and amortization expense	(16,893		)	(12,159		)	(4,734		)	(38.9	)%
Interest and other expense	(1,807		)	(509		)	(1,298		)	(255.0	)%
Interest and other income	61			100			(39		)	(39.0	)%
Senior living income from continuing operations	$	60,929		$	61,648		$	(719	)	(1.2	)%
Total number of communities (end of period):
Owned and leased communities	222			222			—			—
Managed communities	30			14			16			114.3	%
Number of total communities	252			236			16			6.8	%
Number of living units:
Owned and leased living units	23,764			23,764			—			—
Managed living units	4,498			1,415			3,083			217.9	%
Number of total living units	28,262			25,179			3,083			12.2	%
Owned and leased communities:
Occupancy %	85.7		%	85.6		%	n/a			0.1	%
Average daily rate	$	146.64		$	150.15		$	(3.51	)	(2.3	)%
Percent of senior living revenue from Medicaid	12.7		%	12.6		%	n/a			0.1	%
Percent of senior living revenue from Medicare	12.8		%	15.4		%	n/a			(2.6	)%
Percent of senior living revenue from private and other sources	74.5		%	72.0		%	n/a			2.5	%

22

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Comparable senior living communities     (senior living communities that we have owned or leased and operated continuously since January 1, 2011):

	Nine months ended September 30,
(dollars in thousands, except average daily rate)	2012			2011			$ Change			% Change
Senior living revenue	$	794,096		$	791,717		$	2,379		0.3	%
Senior living wages and benefits	(400,310		)	(394,724		)	(5,586		)	(1.4	)%
Other senior living operating expenses	(190,316		)	(190,096		)	(220		)	(0.1	)%
No. of communities (end of period)	209			209			—			—
No. of living units (end of period)	22,175			22,175			—			—
Occupancy %	85.4		%	85.5		%	—			(0.1	)%
Average daily rate	$	150.79		$	151.48		$	(0.69	)	(0.5	)%
Percent of senior living revenue from Medicaid	13.2		%	12.7		%	n/a			0.5	%
Percent of senior living revenue from Medicare	13.4		%	15.6		%	n/a			(2.2	)%
Percent of senior living revenue from private and other sources	73.4		%	71.7		%	n/a			1.7	%

Corporate and other:(1)

	Nine months ended September 30,
(dollars in thousands)	2012			2011			$ Change			% Change
Rehabilitation hospital revenues	$	79,501		$	78,235		$	1,266		1.6	%
Rehabilitation hospital expenses	(71,725		)	(70,798		)	(927		)	(1.3	)%
Rehabilitation hospital rent expense	(7,951		)	(7,758		)	(193		)	(2.5	)%
Depreciation and amortization expense	(1,738		)	(1,546		)	(192		)	(12.4	)%
General and administrative(2)	(45,445		)	(42,242		)	(3,203		)	(7.6	)%
Equity in earnings of Affiliates Insurance Company	236			111			125			112.6	%
Gain on settlement	3,365			—			3,365			100.0	%
Gain on early extinguishment of debt	45			1			44			4,400.0	%
Gain on sale of available for sale securities	62			656			(594		)	(90.5	)%
Interest and other income	577			875			(298		)	(34.1	)%
Interest and other expense	(2,986		)	(1,896		)	(1,090		)	(57.5	)%
Acquisition related costs	(100		)	(1,530		)	1,430			93.5	%
Provision for income taxes	(4,835		)	(1,006		)	(3,829		)	(380.6	)%
Corporate and Other loss from continuing operations	$	(50,994	)	$	(46,898	)	$	(4,096	)	(8.7	)%

(1)	Corporate and Other includes operations that we do not consider material, separately reportable segments of our business, and income and expenses that are not attributable to a specific reportable segment.
(2)	General and administrative expenses are not attributable to a specific reportable segment and include items such as corporate payroll and benefits and expenses of our home office activities.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Consolidated:

	Nine months ended September 30,
(dollars in thousands)	2012			2011			$ Change			% Change
Summary of revenue:
Senior living communities	$	912,280		$	812,917		$	99,363		12.2	%
Corporate and Other	79,501			78,235			1,266			1.6	%
Total revenue	$	991,781		$	891,152		$	100,629		11.3	%
Summary of income (loss) from continuing operations:
Senior living communities	$	60,929		$	61,648		$	(719	)	(1.2	)%
Corporate and Other	(50,994		)	(46,898		)	(4,096		)	(8.7	)%
Income from continuing operations	$	9,935		$	14,750		$	(4,815	)	(32.6	)%

Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011

Senior living communities:

Our senior living revenue increased by 3.5% for the nine months ended September 30, 2012 compared to the same period in 2011 primarily due to an increase from 209 to 222 in the number of communities that we owned and leased during these periods, respectively, partially offset by a 7.5% reduction in aggregate Medicare payment rates for SNFs.  Our senior living revenue at the communities that we operated continuously since January 1, 2011, or our comparable communities, increased 0.3% for the nine months ended September 30, 2012 compared to the same period in 2011, primarily due to an increase in Medicaid payment rates in certain states, partially offset by a 7.5% reduction in aggregate Medicare payment rates for our SNFs.

In June 2011, we began managing 10 senior living communities for SNH.  In the third quarter of 2011 we began managing four additional senior living communities for SNH’s account and for the account of another owner pending SNH’s acquisition of that other owner’s community.  Our management fee revenue and reimbursed costs incurred at these communities increased significantly during the nine months ended September 30, 2012 due to an increase from 14 to 30 in the number of communities we manage and because we managed these communities for the full nine months in 2012 versus our beginning to manage 10 of them in June 2011 and four in the third quarter of 2011.

Our senior living wages and benefits increased 3.5% for the nine months ended September 30, 2012 compared to the same period in 2011 primarily due to an increase from 209 to 222 in the number of communities that we owned and leased during these periods, respectively, and to wage increases at our comparable communities.  Our other senior living operating expenses, which include utilities, housekeeping, dietary, maintenance, insurance and community level administrative costs, increased by 3.6% due to an increase in the number of communities that we owned and leased from 209 to 222, plus increased service provider fees at our comparable communities, partially offset by a decrease in various medical supplies and decreased utility costs as a result of mild weather experienced throughout the U.S. during the first quarter of 2012.  Our senior living wages and benefits at our comparable communities increased by 1.4% primarily due to wage increases.  Our other senior living operating expenses at our comparable communities increased by 0.1%

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

primarily due to an increase in service provider fees, partially offset by a decrease in various medical supplies and decreased utility costs as a result of mild weather experienced throughout the U.S. during the first quarter of 2012.  Our senior living rent expense increased by 3.9% compared to the same period in 2011 primarily due to the addition of six communities we began to lease during the second quarter of 2011 and our payment of additional rent for senior living community capital improvements purchased by SNH at our request since January 1, 2011.

Our senior living depreciation and amortization expense increased by 38.9% for the nine months ended September 30, 2012 compared to the same period in 2011 primarily due to additional depreciation and amortization resulting from the seven owned senior living communities that we acquired in the second and third quarters of 2011 and capital expenditures (net of sales of capital improvements to SNH), including depreciation costs arising from our purchase of furniture and fixtures for our owned communities.

Interest and other expense attributable to our senior living communities increased by 255.0% for the nine months ended September 30, 2012 compared to the same period in 2011 primarily due to our assumption of four mortgage notes in connection with our acquisition of four senior living communities during the second and third quarters of 2011.

Corporate and Other:

Our rehabilitation hospital revenues increased by 1.6% for the nine months ended September 30, 2012 compared to the same period in 2011 primarily due to higher Medicare and third party payer rates, partially offset by a decrease in occupancy.

Our rehabilitation hospital expenses increased by 1.3% for the nine months ended September 30, 2012 compared to the same period in 2011 primarily due to increases in labor and benefit costs, partially offset by a decrease in purchases relating to ancillary supplies.

Our rehabilitation hospital rent expense increased by 2.5% for the nine months ended September 30, 2012 compared to the same period in 2011 due to our payment of additional rent for rehabilitation hospital capital improvements purchased by SNH at our request since January 1, 2011.

General and administrative expenses increased by 7.6% for the nine months ended September 30, 2012 compared to the same period in 2011 primarily due to increased regional personnel and information technology costs resulting from our acquisitions of additional communities during 2011 and wage increases.

Our interest and other income decreased by 34.1% for the nine months ended September 30, 2012 compared to the same period in 2011 due to less investable cash and lower yields realized on our investments.

Our interest and other expense increased by 57.5% for the nine months ended September 30, 2012 compared to the same period in 2011 primarily due to interest paid on the New Credit Facility and the Bridge Loan, partially offset by our purchase and retirement of $12.4 million par value of the outstanding Notes since September 30, 2011.

During the nine months ended September 30, 2012, we recorded a gain of $3.4 million, net of legal fees, pursuant to a litigation settlement with Sunrise.

During the nine months ended September 30, 2012 and 2011, we incurred $100,000 and $1.5 million, respectively, of acquisition related costs in connection with our acquisition activity.

For the nine months ended September 30, 2012, we recognized tax expense from continuing operations of $4.8 million.  Our effective income tax rate increased during the nine months ended September 30, 2012 to 32.7% compared to 8.4% in the prior year period primarily because our previous rate had been reduced from the statutory rate due to our previous valuation allowance for our deferred tax asset relating to our NOL carry forwards which we reversed as of December 31, 2011. During the fourth quarter of 2011 we evaluated the realizability of certain of our deferred tax assets, which include, among other things, our NOLs and tax credits, and determined that it is more likely than not that we will realize the benefit of such deferred tax assets.  As of December 31, 2011, our federal NOL carry forward, which will begin to expire in 2025 if unused, was approximately $97.8 million, and our tax credit carry forward, which will begin to expire in 2022 if unused, was approximately $8.8 million.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Discontinued operations:

Income from discontinued operations for the nine months ended September 30, 2012 increased $17.5 million to $11.5 million, compared to a loss of $6.0 million for the nine months ended September 30, 2011.  Income from discontinued operations for the nine months ended September 30, 2012 is primarily due to the $23.3 million gain on sale, before income tax expense of $7.1 million, we recorded relating to the sale of our pharmacy business, partially offset by losses we incurred at assisted living communities and SNFs that we have sold or expect to sell.  The loss from discontinued operations for the three months ended September 30, 2011 is primarily due to an impairment charge of $3.9 million to reduce the carrying value of two SNFs we own to their estimated fair value and losses we incurred at assisted living communities and these SNFs.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2012, we had unrestricted cash and cash equivalents of $14.3 million, $35.0 million available to borrow under our Credit Agreement and $149.4 million available to borrow under our New Credit Facility.

We believe that a combination of our existing cash, cash equivalents, net cash from operations and our ability to borrow under our Credit Agreement and our New Credit Facility, as described in Note 10 to our Condensed Consolidated Financial Statements in Item 1 above, will provide us with adequate cash flow to fund our debt obligations and run our business, invest in and maintain our properties and fund future acquisitions, if any, for the next 12 months and for the foreseeable future thereafter.  If, however, our occupancies decline from historic levels or if the non-government rates we receive for our services decline, if government reimbursement rates are reduced, and we are unable to generate positive cash flow for an extended period, we expect that we would explore alternatives to fund our operations.  Such alternatives may include further reducing our costs, incurring debt under, and perhaps in addition to, our Credit Agreement and our New Credit Facility, engaging in sale leaseback transactions of our owned communities, mortgage financing our communities that are not subject to existing mortgages and issuing new equity or debt securities.  We have an effective shelf registration statement that allows us to issue public securities on an expedited basis, but this registration statement does not assure that there will be buyers for such securities.

Assets and Liabilities

Our total current assets at September 30, 2012 were $128.5 million, compared to $148.3 million at December 31, 2011.  At September 30, 2012, we had cash and cash equivalents of $14.3 million compared to $28.4 million at December 31, 2011.  Our current liabilities were $157.9 million at September 30, 2012 compared to $189.3 million at December 31, 2011.  The decrease in our cash and cash equivalents results from part of our repayment of our New Credit Facility, the Bridge Loan and a portion of the outstanding Notes during 2012 with cash on hand, partially offset by cash received from the sale of our pharmacy business.  The decrease in current liabilities results from the repayment of the Bridge Loan, partially offset by timing of payment and accrual differences.

We had net cash flows from continuing operations of $43.2 million for the nine months ended September 30, 2012 compared to $46.0 million for the same period in 2011.  Acquisitions of property plant and equipment on a net basis after considering the proceeds from sales of fixed assets to SNH, were $22.0 million and $18.7 million for the nine months ended September 30, 2012 and 2011, respectively.

Our Leases and Management Agreements with SNH

As of September 30, 2012, we leased 188 senior living communities (including one that we classify as discontinued operations) and two rehabilitation hospitals from SNH under four leases and we managed 30 senior living communities for the account of SNH.  Our total minimum annual rent payable to SNH under those leases as of September 30, 2012 was $196.7 million, excluding percentage rent.  We paid approximately $1.2 million and $1.3 million in percentage rent to SNH for the three months ended September 30, 2012 and 2011, respectively, and $3.6 million and $3.8 million in percentage rent to SNH for the nine months ended September 30, 2012 and 2011, respectively.

Upon our request, SNH may purchase capital improvements made at the properties we lease from SNH and increase our rent pursuant to contractual formulas; however, SNH is not obligated to purchase these improvements from us and we are not obligated to sell them to SNH.  During the nine months ended September 30, 2012, pursuant to the terms of our

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

existing leases with SNH, we sold $18.2 million of improvements made to properties leased from SNH, and, as a result, our annual rent payable to SNH increased by approximately $1.5 million. As of September 30, 2012, our property and equipment included $11.8 million for similar improvements we have made to properties we lease from SNH that we currently expect to request that SNH purchase from us for an increase in future rent.

As of September 30, 2012, we managed 30 senior living communities for SNH’s account pursuant to long term management agreements, which, subject to certain exceptions, generally provide us with a management fee equal to 3% of the gross revenues realized at the communities, plus reimbursement for our direct costs and expenses related to the communities and an incentive fee equal to 35% of the annual net operating income of the communities after SNH realizes an annual return equal to 8% of its invested capital.  We have entered into three pooling agreements with SNH, which combine our management agreements with SNH and aggregate the determinations of fees and expenses of the various communities that are subject to each such pooling agreement, including determinations of our incentive fees and SNH’s return of its invested capital.  We earned management fee revenue of $1.3 million and $3.4 million, respectively, for the three and nine months ended September 30, 2012, and $326,000 and $351,000, respectively, for the three and nine months ended September 30, 2011, with respect to the communities we managed for the account of SNH during those periods.

For further information regarding our leases and management agreements with SNH , please see Note 12 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Pharmacy Sale

In September 2012, we completed the sale of our pharmacy business.  We received $34.3 million in sale proceeds, which included $3.8 million in working capital.  Further, we retained certain additional items of net working capital invested in the pharmacy business of $3.5 million.  Accordingly, we expect to receive a total of $37.8 million (before taxes and transaction costs) in net cash receipts resulting from the sale.  We recorded a pre-tax capital gain on sale of the pharmacy business of $23.3 million.

Other Disposition Activity

In October 2012, we entered into an agreement to sell two SNFs with a total of 271 living units that we own which are located in Michigan for a sale price of $8.0 million, including the transfer of $7.6 million of HUD mortgage debt to the buyer.  Completion of this sale is subject to customary closing conditions and we can provide no assurance that a sale of these SNFs will be completed.

Our Revenues

Our revenues from services to residents at our senior living communities and patients of our rehabilitation hospitals and clinics, sales of capital expenditures to SNH for increased rent and borrowings under our credit facilities are our primary source of cash to fund our operating expenses, including rent, principal and interest payments on our debt and capital expenditures.

During the past four years, weak economic conditions throughout the country have negatively affected our occupancy.  These conditions have impacted many companies both within and outside of our industry and it is unclear when current economic conditions, especially the housing market, may materially improve.  Although many of the services we provide are needs driven, some of those needs may be deferred during recessions; for example, relocating to a senior living community may be delayed when sales of houses are delayed.

At some of our senior living communities, Medicare and Medicaid programs provide operating revenues for skilled nursing and rehabilitation services.  These programs are discussed in Part I of our Annual Report under the caption “Government Regulation and Reimbursement”, and in Part 1, Item 2 of our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012 and June 30, 2012, under the caption “Our Revenues”.  Medicare and Medicaid revenues were earned primarily at our SNFs and our two rehabilitation hospitals.  We derived 29.4% and 31.5% of our total revenues from these programs during the nine months ended September 30, 2012 and 2011, respectively.

Our net Medicare revenues from services to senior living community residents and at our rehabilitation hospitals totaled $157.8 million and $173.0 million during the nine months ended September 30, 2012 and 2011, respectively.  Our net

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Medicaid revenues from services to senior living community residents and at our rehabilitation hospitals totaled $105.9 million and $102.0 million during the nine months ended September 30, 2012 and 2011, respectively.

Effective October 1, 2011, the Federal Centers for Medicare and Medicaid Services, or CMS, adopted a rule that updated Medicare prospective payment rates for SNFs, which affects the 5,356 skilled nursing units we operate.  As discussed in Part I of our Annual Report under the caption “Government Regulation and Reimbursement”, CMS estimates that the final rule will result in a net reduction of approximately 11.1% in aggregate Medicare payment rates for SNFs in federal fiscal year 2012.  The impact on our SNF Medicare revenues in the nine months ended September 30, 2012 was a reduction of approximately $7.9 million.  CMS also issued updated Medicare prospective payment rates for SNFs effective October 1, 2012, which CMS estimates will result in a net increase of approximately 1.8% in aggregate Medicare payment rates for SNFs in federal fiscal year 2013.  Despite this increase, Medicare payment rates for SNFs in federal fiscal year 2013 continue to be lower than rates two years ago in federal fiscal year 2011.  We expect Medicare payment rates for SNFs to continue to have a material and adverse effect on our future financial results of operations in federal fiscal year 2013.

Also effective October 1, 2011, CMS adopted a rule that updated Medicare prospective payment rates for inpatient rehabilitation facilities, or IRFs, which affects the two rehabilitation hospitals we operate.  This rule includes an increase in the Medicare payment rates for IRFs that CMS estimates to be approximately 2.2% in federal fiscal year 2012.  However, as discussed in Part I of our Annual Report under the caption “Government Regulation and Reimbursement”, we estimate that the increase in our rehabilitation hospitals’ Medicare payment rates may be approximately 1.0%.  The rule also establishes a new quality reporting program that provides for a 2% reduction in the annual payment update beginning in 2014 for failure to report required quality data to the Secretary of Health and Human Services.  Medicare revenues realized at our IRFs in the year ended December 31, 2011 and the nine months ended September 30, 2012, were approximately $68.6 million and $52.8 million, respectively.  CMS also issued updated Medicare prospective payment rates for IRFs effective October 1, 2012, which CMS estimates will result in a net increase of approximately 2.1% in aggregate Medicare payment rates for IRFs in federal fiscal year 2013.  However, due to a number of factors, we again estimate that the increase in our hospitals’ Medicare payment rates may be approximately 1.0%. The calculation of Medicare rate adjustments applicable at our IRFs is complex and will depend upon patient case mixes.  Accordingly, we cannot predict the final impact of the Medicare rate adjustments to our IRF results at this time.

Some of the states in which we operate either have not raised Medicaid rates by amounts sufficient to offset increasing costs or have frozen or reduced, or are expected to freeze or reduce, Medicaid rates.  Also, effective June 30, 2011, Congress ended certain temporary increases in federal payments to states for Medicaid programs which had been in effect since October 1, 2008.  We expect the ending of these temporary federal payments, combined with the anticipated slow recovery of state tax revenues since the recent recession, to result in continued difficult state fiscal conditions.  As a result, some state budget deficits likely will increase, and certain states may reduce Medicaid payments to healthcare services providers like us as part of an effort to balance their budgets.

We cannot currently predict the type and magnitude of the potential Medicare and Medicaid policy changes, rate reductions or other changes and the impact on us of the possible failure of these programs to increase rates to match our increasing expenses, but they may be adverse and material to our operations and to our future financial results of operations.  Similarly, we are unable to predict the impact on us of the insurance changes, payment changes, and healthcare delivery systems changes contained in and to be developed pursuant to the Patient Protection and Affordable Care Act, or PPACA, or the impact the various remaining challenges and potential changes to PPACA may have on its implementation.  If the changes to be implemented under PPACA result in reduced payments for our services, or the failure of Medicare, Medicaid or insurance payment rates to cover our costs of providing required services to residents, our future financial results could be materially and adversely affected.

Debt Financings and Covenants

We have a $35.0 million Credit Agreement that matures on March 18, 2013 when all amounts outstanding will be due. Borrowings under our Credit Agreement are available for acquisitions, working capital and general business purposes.  Funds available under our Credit Agreement may be drawn, repaid and redrawn until maturity and no principal payment is due until maturity.  We borrow in U.S. dollars and borrowings under our Credit Agreement bear interest at LIBOR (with a floor of 2% per annum) plus a spread.  As of September 30, 2012, the interest rate payable on borrowings under our Credit Agreement was 6% and we had $0 outstanding and $35.0 million available under our Credit Agreement.  We are the borrower under our Credit Agreement and certain of our subsidiaries guarantee our obligations under our Credit

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Agreement, which is secured by our and our guarantor subsidiaries’ accounts receivable and related collateral. Our Credit Agreement contains covenants requiring us to maintain certain financial ratios, places limits on our ability to incur or assume debt or create liens with respect to certain of our properties and has other customary provisions. Our Credit Agreement also provides for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, including a change of control of us.  As of September 30, 2012, we believe we were in compliance with all applicable covenants under our Credit Agreement.

In April 2012, we entered into our $150.0 million New Credit Facility.  The maturity date of our New Credit Facility is April 13, 2015, and, subject to our payment of extension fees and meeting certain other conditions, we have options to extend the maturity date for two, one year periods.  The proceeds of our New Credit Facility are available for general business purposes, including the repayment of debt.  Borrowings under our New Credit Facility bear interest at LIBOR plus a spread.  As of September 30, 2012, the interest rate payable on borrowings under our New Credit Facility was 2.73% and we had $0 outstanding and $149.4 million available under our New Credit Facility.  Borrowings under our New Credit Facility are guaranteed by certain of our subsidiaries and secured by real estate mortgages on 15 senior living communities with 1,549 living units owned by our guarantor subsidiaries and our guarantor subsidiaries’ accounts receivable and related collateral.  Funds available under our New Credit Facility may be drawn, repaid and redrawn until maturity and there are no scheduled principal payments prior to maturity.  Our New Credit Facility provides for acceleration of payment of all amounts payable upon the occurrence and continuation of certain events of default, including a change of control of us.  Our New Credit Facility contains a number of financial covenants which generally restrict our ability to incur debts in excess of calculated amounts, require us to maintain a minimum net worth and require us to maintain various financial ratios.  As of September 30, 2012, we believe we were in compliance with all applicable covenants under our New Credit Facility.

There have been recent governmental inquiries regarding the setting of LIBOR, which may result in changes to that process that could have the general effect of increasing LIBOR.  Increases in LIBOR would increase the amount of interest we pay under our Credit Agreement and our New Credit Facility.

In October 2006, we issued $126.5 million principal amount of the Notes.  Our net proceeds from this issuance were approximately $122.6 million.  The Notes bear interest at a rate of 3.75% per annum and are convertible into our common shares at any time.  The initial conversion rate, which is subject to adjustment, is 76.9231 common shares per $1,000 principal amount of the Notes, which represents an initial conversion price of $13.00 per share.  The Notes are guaranteed by certain of our wholly owned subsidiaries.  The Notes mature on October 15, 2026.  We may prepay the Notes at any time and the holders may require that we purchase all or a portion of these Notes on each of October 15 of 2013, 2016 and 2021 at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest.  If a “fundamental change”, as defined in the indenture governing the Notes, occurs, holders of the Notes may require us to repurchase all or a portion of their Notes for cash at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest and, in certain circumstances, plus a make whole premium as defined in the indenture governing the Notes.  We issued the Notes pursuant to an indenture which contains various customary covenants.  As of September 30, 2012, we believe we were in compliance with all applicable covenants of the indenture governing the Notes.

During the nine months ended September 30, 2012, we purchased and retired $12.4 million par value of the outstanding Notes and recorded a gain of $45,000, net of related unamortized costs, on early extinguishment of debt.  We funded this purchase principally with borrowings under our New Credit Facility and cash on hand.  During the nine months ended September 30, 2011, we purchased and retired $623,000 par value of the outstanding Notes and recorded a gain of $1,000, net of related unamortized costs, on early extinguishment of debt.  We funded this purchase principally with cash on hand.  As a result of these purchases and other purchases we made in prior years, $24.9 million in principal amount of the Notes remain outstanding.  We may purchase additional outstanding principal amounts of the Notes from time to time.

At September 30, 2012, six of our senior living communities were encumbered by mortgage notes totaling $46.6 million: (1) two of our communities, which we have classified as discontinued operations, were encumbered by HUD insured mortgage notes; (2) one of our communities was encumbered by a FNMA mortgage note; and (3) three of our communities were encumbered by FMCC mortgage notes.  These mortgages contain HUD, FNMA and FMCC standard mortgage covenants.  The weighted average interest rate on these notes was 6.68% as of September 30, 2012.  Payments of principal and interest are due monthly until maturities at varying dates ranging from June 2023 to May 2039.  As of September 30, 2012, we believe we were in compliance with all applicable covenants under these mortgages.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Off Balance Sheet Arrangements

We have pledged certain of our assets, such as accounts receivable, with a carrying value, as of September 30, 2012, of $13.5 million arising from our operation of 45 properties owned by SNH and leased to us which secures SNH’s borrowings from its lender, FNMA.  As of September 30, 2012, we had no other off balance sheet arrangements that have had or that we expect would be reasonably likely to have a future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Related Person Transactions

We have relationships and historical and continuing transactions with our Directors, our executive officers, SNH, RMR and AIC and other companies to which RMR provides management services and others affiliated with or related to them.  For example: we have or had relationships with other companies to which RMR provides management services and which have trustees, directors and officers who are also directors or officers of ours or RMR, including SNH, which is our former parent, our largest landlord and our largest stockholder; D&R Yonkers LLC, which is owned by SNH’s executive officers and for which we manage that portion of a senior living community which it subleases from SNH in order to accommodate certain requirements of New York healthcare licensing laws; we, SNH, RMR and five other companies to which RMR provides management services each currently own 12.5% of AIC, an Indiana insurance company, and we and the other shareholders of AIC have property insurance in place providing $500.0 million of coverage pursuant to an insurance program arranged by AIC and with respect to which AIC is a reinsurer of certain coverage amounts.  Also, as a further example, RMR assists us with various aspects of our business pursuant to a business management agreement.  For further information about these and other such relationships and related person transactions, please see Note 12 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.  In addition, for more information about these transactions and relationships, please see elsewhere in this Quarterly Report on Form 10-Q, including “Warning Concerning Forward Looking Statements” in Part I, and “Other Information” in Part II, Item 5, and our Annual Report, our Proxy Statement and our other filings with the SEC, including Note 15 to our Consolidated Financial Statements included in our Annual Report, the sections captioned “Business”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Related Person Transactions” and “Warning Concerning Forward Looking Statements” of our Annual Report and the section captioned “Related Person Transactions and Company Review of Such Transactions” and the information regarding our Directors and executive officers in our Proxy Statement.  In addition, please see the section captioned “Risk Factors” of our Annual Report for a description of risks that may arise from these transactions and relationships.  Our filings with the SEC, including our Annual Report and our Proxy Statement, are available at the SEC’s website at www.sec.gov.  Copies of certain of our agreements with these related parties, including our leases, forms of management agreements and related pooling agreements and Bridge Loan agreement with SNH, our management agreement with D&R Yonkers LLC, our business management agreement with RMR, our headquarters lease with an affiliate of RMR and our shareholders agreement with AIC and its shareholders, are also publicly available as exhibits to our public filings with the SEC and accessible at the SEC’s website.

We believe that our agreements with SNH, RMR, D&R Yonkers LLC and AIC are on commercially reasonable terms.  We also believe that our relationships with SNH, RMR and AIC and their affiliated and related persons and entities benefit us and, in fact, provide us with competitive advantages in operating and growing our business.

Seasonality

Our senior living business is subject to modest effects of seasonality. During the calendar fourth quarter holiday periods, nursing home and assisted living residents are sometimes discharged to join family celebrations and relocations and admission decisions are often deferred. The first quarter of each calendar year usually coincides with increased illness among nursing home and assisted living residents which can result in increased costs or discharges to hospitals. As a result of these factors, nursing home and assisted living operations sometimes produce greater earnings in the second and third quarters of a calendar year and lesser earnings in the first and fourth quarters. We do not believe that this seasonality will cause fluctuations in our revenues or operating cash flow to such an extent that we will have difficulty paying our expenses, including rent, which do not fluctuate seasonally.

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk

We are exposed to risks associated with market changes in interest rates.  We manage our exposure to this market risk by monitoring available financing alternatives.  Our strategy to manage exposure to changes in interest rates has not materially changed from December 31, 2011.  Other than as described below, we do not foresee any significant changes in our exposure to fluctuations in interest rates or in how we manage this exposure in the near future.

Changes in market interest rates affect the fair value of our fixed rate debt; increases in market interest rates decrease the fair value of our fixed rate debt, while decreases in market interest rates increase the fair value of our fixed rate debt.  For example, based upon discounted cash flow analysis, if prevailing interest rates were to increase by 10% of current interest rates and other credit market considerations remained unchanged, the aggregate market value of our $46.6 million aggregate principal amount of outstanding mortgage debt and $24.9 million aggregate principal amount of the outstanding Notes on September 30, 2012 would decline by approximately $3.2 million; and, similarly, if prevailing interest rates were to decline by 10% of current interest rates and other credit market considerations remained unchanged, the aggregate market value of our $46.6 million aggregate principal amount of outstanding mortgage debt and $24.9 million aggregate principal amount of the outstanding Notes on September 30, 2012, would increase by approximately $3.4 million.

Borrowings under our Credit Agreement bear interest at floating rates and our Credit Agreement matures on March 18, 2013.  As of September 30, 2012, we had $0 outstanding and $35.0 million available under our Credit Agreement.  We borrow in U.S. dollars and borrowings under our Credit Agreement bear interest at LIBOR (with a floor of 2% per annum) plus a spread.  Accordingly, we are vulnerable to changes in U.S. dollar based short term interest rates, specifically LIBOR.  A change in interest rates, all other credit market conditions remaining unchanged, would not affect the value of our Credit Agreement but could affect our operating results.  For example, if the maximum amount of $35.0 million were drawn under our Credit Agreement and interest rates above the floor or minimum rate decreased or increased by 1% per annum, our annual interest expense would decrease or increase by $350,000, or $0.01 per share, based on our outstanding common shares.  If interest rates were to change gradually over time, the impact would occur over time.

Borrowings under our New Credit Facility bear interest at floating rates and our New Credit Facility matures on April 13, 2015.  As of September 30, 2012, we had $0 outstanding and $149.4 million available under our New Credit Facility.  We borrow in U.S. dollars and borrowings under our New Credit Facility bear interest at LIBOR plus a spread.  Accordingly, we are vulnerable to changes in U.S. dollar based short term interest rates.  A change in interest rates, all other credit market conditions remaining unchanged, would not affect the value of our New Credit Facility but could affect our operating results.  For example, if the maximum amount of $149.4 million were drawn under our New Credit Facility and interest rates decreased or increased by 1% per annum, our annual interest expense would decrease or increase by $1.5 million, or $0.03 per share, based on our outstanding common shares.  If interest rates were to change gradually over time, the impact would occur over time.

Our exposure to fluctuations in interest rates may increase in the future if we incur additional debt to fund acquisitions or otherwise.

Item 4.  Controls and Procedures

As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our President and Chief Executive Officer and our Treasurer and Chief Financial Officer of the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15.  Based upon that evaluation, our President and Chief Executive Officer and our Treasurer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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WARNING CONCERNING FORWARD LOOKING STATEMENTS

THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS STATEMENTS THAT CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER SECURITIES LAWS.  ALSO, WHENEVER WE USE WORDS SUCH AS “BELIEVE”, “EXPECT”, “ANTICIPATE”, “INTEND”, “PLAN”, “ESTIMATE” OR SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD LOOKING STATEMENTS.  THESE FORWARD LOOKING STATEMENTS ARE BASED UPON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR.  FORWARD LOOKING STATEMENTS IN THIS REPORT RELATE TO VARIOUS ASPECTS OF OUR BUSINESS, INCLUDING:

·OUR ABILITY TO OPERATE OUR SENIOR LIVING COMMUNITIES AND REHABILITATION HOSPITALS PROFITABLY,

·OUR ABILITY TO COMPLY AND TO REMAIN IN COMPLIANCE WITH APPLICABLE MEDICARE, MEDICAID AND OTHER RATE SETTING AND REGULATORY REQUIREMENTS,

·OUR ABILITY TO MEET OUR DEBT AND RENT OBLIGATIONS,

·OUR EXPECTATION THAT WE WILL BENEFIT FINANCIALLY BY PARTICIPATING IN AIC WITH RMR AND COMPANIES TO WHICH RMR PROVIDES MANAGEMENT SERVICES, AND

·OTHER MATTERS.

OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY OUR FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. FACTORS THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FORWARD LOOKING STATEMENTS AND UPON OUR BUSINESS, RESULTS OF OPERATIONS, FINANCIAL CONDITION, CASH FLOWS, LIQUIDITY AND PROSPECTS INCLUDE, BUT ARE NOT LIMITED TO:

·CHANGES IN MEDICARE AND MEDICAID POLICIES WHICH COULD RESULT IN REDUCED RATES OF PAYMENT,

·THE IMPACT OF CHANGES IN THE ECONOMY AND THE CAPITAL MARKETS ON US AND OUR RESIDENTS AND OTHER CUSTOMERS,

·COMPETITION WITHIN THE SENIOR LIVING INDUSTRY AND OUR OTHER BUSINESSES,

·INCREASES IN INSURANCE AND TORT LIABILITY COSTS,

·ACTUAL AND POTENTIAL CONFLICTS OF INTEREST WITH OUR MANAGING DIRECTORS, SNH, RMR, AIC AND THEIR RELATED PERSONS AND ENTITIES, AND

·COMPLIANCE WITH, AND CHANGES TO FEDERAL, STATE AND LOCAL LAWS AND REGULATIONS THAT COULD AFFECT OUR SERVICES OR IMPOSE REQUIREMENTS, COSTS AND ADMINISTRATIVE BURDENS THAT REDUCE OUR ABILITY TO PROFITABLY OPERATE OUR BUSINESS.

FOR EXAMPLE:

·THE VARIOUS GOVERNMENTS WHICH PAY US FOR THE SERVICES WE PROVIDE TO OUR RESIDENTS AND PATIENTS ARE CURRENTLY EXPERIENCING SEVERE BUDGET SHORTFALLS AND MAY LOWER THE MEDICARE, MEDICAID AND OTHER RATES THEY PAY US.  BECAUSE WE OFTEN CANNOT ETHICALLY LOWER THE QUALITY OF THE SERVICES WE PROVIDE TO MATCH THE AVAILABLE MEDICARE, MEDICAID AND OTHER RATES WE ARE PAID, WE MAY EXPERIENCE LOSSES AND SUCH LOSSES MAY BE MATERIAL,

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·THIS QUARTERLY REPORT ON FORM 10-Q STATES THAT WE EXPECT THAT WE MAY ENTER INTO ADDITIONAL MANAGEMENT ARRANGEMENTS WITH SNH SIMILAR TO THOSE CURRENTLY IN EFFECT FOR US TO MANAGE ADDITIONAL SENIOR LIVING COMMUNITIES SNH MAY ACQUIRE IN THE FUTURE.  HOWEVER, THERE CAN BE NO ASSURANCE THAT SNH WILL ACQUIRE OTHER COMMUNITIES OR THAT WE AND SNH WILL ENTER INTO ANY ADDITIONAL MANAGEMENT ARRANGEMENTS,

·THIS QUARTERLY REPORT ON FORM 10-Q STATES THAT WE EXPECT TO BEGIN MANAGING THE REMAINING TWO COMMUNITIES OWNED BY SNH AND CURRENTLY LEASED BY SUNRISE BEFORE YEAR END 2012 AND AFTER ALL APPROPRIATE REGULATORY APPROVALS ARE OBTAINED.  THE TRANSFER OF OPERATING CONTROL OF THESE TWO COMMUNITIES IS SUBJECT TO REGULATORY APPROVALS IN THE STATE WHERE EACH COMMUNITY IS LOCATED.  WE CANNOT CONTROL THE RESULTS OR TIMING OF THESE APPROVAL PROCESSES.  ACCORDINGLY, SOME OF THESE APPROVALS MAY BE DELAYED OR NOT OCCUR AND OUR MANAGEMENT OF THESE COMMUNITIES MAY BE DELAYED OR MAY NOT OCCUR,

·OUR ABILITY TO OPERATE AND MANAGE NEW SENIOR LIVING COMMUNITIES PROFITABLY DEPENDS UPON MANY FACTORS, INCLUDING OUR ABILITY TO INTEGRATE NEW COMMUNITIES INTO OUR EXISTING OPERATIONS AND SOME FACTORS WHICH ARE BEYOND OUR CONTROL SUCH AS THE DEMAND FOR OUR SERVICES ARISING FROM ECONOMIC CONDITIONS GENERALLY.  WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE NEW COMMUNITIES OR OPERATE AND MANAGE NEW COMMUNITIES PROFITABLY,

·THIS QUARTERLY REPORT ON FORM 10-Q STATES THAT AT SEPTEMBER 30, 2012, WE HAD $14.3 MILLION OF CASH AND CASH EQUIVALENTS, THAT THERE WERE NO AMOUNTS OUTSTANDING UNDER OUR CREDIT FACILITIES, THAT WE HAD $184.4 MILLION AVAILABLE TO BORROW UNDER OUR CREDIT FACILITIES, AND THAT WE HAVE IN THE PAST SOLD IMPROVEMENTS TO SNH AND INTEND TO REQUEST TO SELL ADDITIONAL IMPROVEMENTS TO SNH FOR INCREASED RENT PURSUANT TO OUR LEASES WITH SNH; ALL OF WHICH MAY IMPLY THAT WE HAVE ABUNDANT CASH LIQUIDITY.  HOWEVER, OUR OPERATIONS AND BUSINESS REQUIRE SIGNIFICANT AMOUNTS OF WORKING CASH AND REQUIRE US TO MAKE SIGNIFICANT CAPITAL EXPENDITURES TO MAINTAIN OUR COMPETITIVENESS.  ACCORDINGLY, WE MAY NOT HAVE SUFFICIENT CASH LIQUIDITY,

·OUR RESIDENTS AND PATIENTS WHO PAY FOR OUR SERVICES WITH THEIR PRIVATE RESOURCES MAY BECOME UNABLE TO AFFORD OUR SERVICES WHICH COULD RESULT IN DECREASED OCCUPANCY AND DECREASED REVENUES AT OUR SENIOR LIVING COMMUNITIES AND REHABILITATION HOSPITALS AND INCREASED RELIANCE ON LOWER RATES FROM GOVERNMENT AND OTHER PAYERS,

·WE INTEND TO OPERATE OUR REHABILITATION HOSPITALS PROFITABLY.  HOWEVER, WE HAVE HISTORICALLY EXPERIENCED LOSSES FROM OUR REHABILITATION HOSPITALS AND WE MAY BE UNABLE TO OPERATE OUR REHABILITATION HOSPITALS PROFITABLY,

·WE MAY BE UNABLE TO REPAY OUR DEBT OBLIGATIONS WHEN THEY BECOME DUE,

·CONTINUED AVAILABILITY OF BORROWINGS UNDER OUR CREDIT AGREEMENT AND UNDER OUR NEW CREDIT FACILITY IS SUBJECT TO OUR SATISFYING CERTAIN FINANCIAL COVENANTS AND MEETING OTHER CUSTOMARY CONDITIONS,

·THE AMOUNT OF AVAILABLE BORROWINGS UNDER OUR CREDIT AGREEMENT AND OUR NEW CREDIT FACILITY IS SUBJECT TO OUR HAVING QUALIFIED COLLATERAL, WHICH IS PRIMARILY BASED ON THE VALUE OF OUR ACCOUNTS RECEIVABLES AND INVENTORY SECURING OUR CREDIT AGREEMENT AND THE VALUE OF THE PROPERTIES SECURING OUR NEW CREDIT FACILITY.  ACCORDINGLY, THE AVAILABILITY OF BORROWINGS UNDER OUR CREDIT AGREEMENT AND UNDER OUR NEW CREDIT FACILITY AT ANY TIME MAY BE LESS THAN $35.0 MILLION AND $150.0 MILLION, RESPECTIVELY; FURTHER, OUR CREDIT AGREEMENT IS SCHEDULED TO EXPIRE IN MARCH 2013,

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·THIS QUARTERLY REPORT ON FORM 10-Q DISCUSSES THE INTEREST TO BE PAID ON BORROWINGS UNDER OUR CREDIT AGREEMENT AND UNDER OUR NEW CREDIT FACILITY.  HOWEVER, ACTUAL COSTS UNDER OUR CREDIT AGREEMENT AND UNDER OUR NEW CREDIT FACILITY WILL BE HIGHER THAN LIBOR PLUS A SPREAD BECAUSE OF OTHER FEES AND EXPENSES ASSOCIATED WITH OUR CREDIT AGREEMENT AND OUR NEW CREDIT FACILITY,

·THIS QUARTERLY REPORT ON FORM 10-Q STATES THAT WE MAY PURCHASE ADDITIONAL OUTSTANDING PRINCIPAL AMOUNTS OF THE NOTES FROM TIME TO TIME.  HOWEVER, THERE CAN BE NO ASSURANCE WE WILL DO SO,

·THIS QUARTERLY REPORT ON FORM 10-Q STATES THAT OUR EXPECTED NET CASH RECEIPTS RESULTING FROM THE SALE OF OUR PHARMACY BUSINESS ARE $37.8 MILLION, BEFORE TRANSACTION COSTS.  THESE EXPECTED NET CASH RECEIPTS INCLUDE ACCOUNTS RECEIVABLE THAT WE RETAINED.  FURTHER, THE PURCHASE AGREEMENT INCLUDES CUSTOMARY INDEMNIFICATION OBLIGATIONS AND REQUIRES US TO ESCROW A PORTION OF THE PURCHASE PRICE IN CONNECTION WITH THE INDEMNIFICATION OBLIGATIONS.  IF WE ARE UNABLE TO COLLECT ACCOUNTS RECEIVABLE THAT WE HAVE RETAINED OR ARE REQUIRED TO PAY AMOUNTS (INCLUDING WITH ESCROWED PROCEEDS) TO SATISFY INDEMNIFICATION OBLIGATIONS IN THE FUTURE, THE ACTUAL NET CASH RECEIPTS WE MAY REALIZE FROM THIS SALE, AND ANY CORRESPONDING CAPITAL GAIN, MAY BE REDUCED,

·THIS QUARTERLY REPORT ON FORM 10-Q STATES THAT WE HAVE ENTERED INTO AN AGREEMENT TO SELL TWO SNFs THAT WE OWN LOCATED IN MICHIGAN.  THIS SALE IS SUBJECT TO CUSTOMARY CLOSING CONDITIONS.  SOME OF THESE CONDITIONS MAY NOT BE MET, THE SALE MAY NOT OCCUR OR THE SALE MAY BE DELAYED,

·THIS QUARTERLY REPORT ON FORM 10-Q STATES THAT WE AND SNH ARE OFFERING FOR SALE AN ASSISTED LIVING COMMUNITY IN PENNSYLVANIA THAT WE LEASE FROM SNH.  WE AND SNH MAY NOT BE ABLE TO SELL THIS PROPERTY ON ACCEPTABLE TERMS OR OTHERWISE, AND

·THIS QUARTERLY REPORT ON FORM 10-Q STATES THAT WE BELIEVE THAT OUR RELATIONSHIPS WITH SNH, RMR AND AIC AND THEIR AFFILIATED AND RELATED PERSONS AND ENTITIES MAY BENEFIT US AND PROVIDE US WITH ADVANTAGES IN OPERATING AND GROWING OUR BUSINESS. IN FACT, THE ADVANTAGES WE BELIEVE WE MAY REALIZE FROM THESE RELATIONSHIPS MAY NOT MATERIALIZE.

THESE RESULTS COULD OCCUR DUE TO MANY DIFFERENT CIRCUMSTANCES, SOME OF WHICH ARE BEYOND OUR CONTROL, SUCH AS CHANGED MEDICARE AND MEDICAID RATES, NEW LEGISLATION AFFECTING OUR BUSINESS, CHANGES IN OUR REVENUES OR COSTS, OR CHANGES IN CAPITAL MARKETS OR THE ECONOMY GENERALLY.

THE INFORMATION CONTAINED ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q OR IN OUR ANNUAL REPORT, INCLUDING UNDER THE CAPTION “RISK FACTORS”, OR INCORPORATED HEREIN OR THEREIN IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE DIFFERENCES FROM OUR FORWARD LOOKING STATEMENTS.  OUR FILINGS WITH THE SEC ARE AVAILABLE ON THE SEC’S WEBSITE AT WWW.SEC.GOV.

YOU SHOULD NOT PLACE UNDUE RELIANCE UPON OUR FORWARD LOOKING STATEMENTS.

EXCEPT AS REQUIRED BY LAW, WE DO NOT INTEND TO UPDATE OR CHANGE ANY FORWARD LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

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Part II.   Other Information

Item 5.  Other Information

As discussed elsewhere in this Quarterly Report on Form 10-Q, in May 2011, we and SNH entered into an AL Pooling Agreement which pools our management agreements with SNH for communities that include assisted living units.  On October 30, 2012, we and SNH entered into an amendment and restatement of the initial AL Pooling Agreement so that it includes only the management agreements for 20 of the communities that include assisted living units that we and SNH agreed we would manage for SNH’s account.  Also on October 30, 2012, we and SNH entered into a second AL Pooling Agreement which pools our management agreements with SNH for the remaining communities that include assisted living units that we currently manage for SNH’s account (other than with respect to the senior living community in New York described in Note 12 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report).

The terms of the second AL Pooling Agreement are substantially similar to the terms of the amended and restated initial AL Pooling Agreement.  Descriptions of the first AL Pooling Agreement appear in Note 15 to our Consolidated Financial Statements included in our Annual Report and in the sections of our Annual Report captioned “Properties — Our SNH Leases and Management Agreements — Management Contracts” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Our Leases and Management Agreements with SNH” and “—Related Person Transactions,” which descriptions are hereby incorporated by reference.

For more information about the AL Pooling Agreements and the management agreements pooled under the AL Pooling Agreements, please see the descriptions of those agreements elsewhere in this Quarterly Report on Form 10-Q, including Note 12 to our Condensed Consolidated Financial Statements included in Part I, Item 1 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Our Leases and Management Agreements with SNH” and “—Related Person Transactions” in Part I, Item 2, and in our Annual Report, including the sections of the Annual Report referred to in the preceding paragraph.

The foregoing descriptions of the AL Pooling Agreements and the management agreements pooled under the AL Pooling Agreements are not complete and are subject to and qualified in their entirety by reference to the copy of the first AL Pooling Agreement filed as Exhibit 10.18 to our Current Report on Form 8-K dated May 13, 2011, or our May 2011 Current Report, the copy of the related representative form of accession agreement filed as Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, the copies of the initial AL Pooling Agreement, as amended and restated, and the second AL Pooling Agreement filed as Exhibits 10.2 and 10.3, respectively, to this Quarterly Report on Form 10-Q and the copy of the representative form of management agreement for assisted living communities filed as Exhibit 10.17 to our May 2011 Current Report, each of which is incorporated herein by reference.

The terms of the initial AL Pooling Agreement, as amended and restated, and the second AL Pooling Agreement were approved by our Independent Directors and Board of Directors and by the independent trustees and board of trustees of SNH.

For more information about our relationships and transactions with SNH, RMR and other companies to which RMR provides management services and others affiliated with or related to them, please see Part I of this Quarterly Report on Form 10-Q, including Note 12 to our Condensed Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Related Person Transactions.”

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Item 6.  Exhibits

3.1	Composite Copy of Articles of Amendment and Restatement of Five Star Quality Care, Inc., dated as of December 5, 2001, as amended to date. (Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.)
3.2	Articles Supplementary, as corrected by Certificate of Correction, dated as of March 19, 2004. (Incorporated by reference to our Form 8-A dated March 19, 2004 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2004, respectively.)
3.3	Amended and Restated Bylaws of Five Star Quality Care, Inc., adopted February 14, 2012. (Incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 2011.)
4.1	Form of Common Share Certificate. (Filed herewith.)
4.2	Rights Agreement, dated as of March 10, 2004, between Five Star Quality Care, Inc. and EquiServe Trust Company, N.A. (Incorporated by reference to our Current Report on Form 8-K dated March 10, 2004.)
4.3	Appointment of Successor Rights Agent, dated as of December 13, 2004, between Five Star Quality Care, Inc. and Wells Fargo Bank, National Association. (Incorporated by reference to our Current Report on Form 8-K dated December 13, 2004.)
10.1	Representative form of Indemnification Agreement. (Filed herewith.)
10.2	Amended and Restated Pooling Agreement No. 1, dated October 30, 2012, between FVE Managers, Inc. and certain subsidiaries of Senior Housing Properties Trust, amending the Pooling Agreement, dated as of May 12, 2011, between such parties. (Filed herewith.)
10.3	Pooling Agreement No. 2, dated October 30, 2012, between FVE Managers, Inc. and certain subsidiaries of Senior Housing Properties Trust. (Filed herewith.)
10.4	Eighth Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of August 31, 2012, among certain subsidiaries of Senior Housing Properties Trust, as Landlord, and Five Star Quality Care Trust, as Tenant. (Filed herewith.)
10.5	Fifth Amendment to Amended and Restated Master Lease Agreement (Lease No. 2), dated as of August 31, 2012, among certain affiliates of Senior Housing Properties Trust, as Landlord, and certain affiliates of Five Star Quality Care, Inc., as Tenant. (Filed herewith.)
10.6	Fourth Amendment to Amended and Restated Master Lease Agreement (Lease No. 4), dated as of August 31, 2012, among certain subsidiaries of Senior Housing Properties Trust, as Landlord, and certain subsidiaries of Five Star Quality Care, Inc., as Tenant. (Filed herewith.)
10.7	Partial Termination of and Amendment No. 2 to Amended and Restated Master Lease Agreement, dated as of August 31, 2012, among SNH FM Financing LLC, SNH FM Financing Trust and Ellicott City Land I, LLC, as Landlord, and FVE FM Financing, Inc., as Tenant. (Filed herewith.)
31.1	Rule 13a-14(a) Certification of Chief Executive Officer. (Filed herewith.)
31.2	Rule 13a-14(a) Certification of Chief Financial Officer. (Filed herewith.)

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32.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer. (Furnished herewith.)
99.1	Pooling Agreement, dated August 31, 2012, between FVE IL Managers, Inc. and certain subsidiaries of Senior Housing Properties Trust. (Filed herewith.)
99.2	Management Agreement, dated as of August 31, 2012, between FVE Managers, Inc., as Manager, and D&R Yonkers LLC, as Licensee. (Filed herewith.)
99.3	Joinder to, Amendment and Confirmation of Guarantees and Security Agreements, dated as of August 31, 2012, by and among certain subsidiaries of Senior Housing Properties Trust, Five Star Quality Care, Inc. and certain subsidiaries of Five Star Quality Care, Inc. (Filed herewith.)
99.4	Joinder to, Amendment and Confirmation of Guarantees and Security Agreements, dated as of August 31, 2012, by and among certain subsidiaries of Senior Housing Properties Trust, Five Star Quality Care, Inc. and certain subsidiaries of Five Star Quality Care, Inc. (Filed herewith.)
99.5	Joinder to, Amendment and Confirmation of Guarantees and Security Agreements, dated as of August 31, 2012, by and among certain subsidiaries of Senior Housing Properties Trust, Five Star Quality Care, Inc. and certain subsidiaries of Five Star Quality Care, Inc. (Filed herewith.)
101.1	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) related notes to these financial statements, tagged as blocks of text. (Furnished herewith.)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FIVE STAR QUALITY CARE, INC.

/s/ Bruce J. Mackey Jr.

Bruce J. Mackey Jr.

President and Chief Executive Officer

Dated: October 30, 2012

/s/ Paul V. Hoagland

Paul V. Hoagland

Treasurer and Chief Financial Officer

(Principal Financial and Accounting Officer)

Dated: October 30, 2012

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EX-4.1

Exhibit 4.1

COMMON COUNTERSIGNED AND REGISTERED: WELLS FARGO BANK, N.A. TRANSFER AGENT AND REGISTRAR BY AUTHORIZED SIGNATURE AMERICAN FINANCIAL PRINTING INCORPORATED – MINNEAPOLIS COMMON A CORPORATION FORMED UNDER THE LAWS OF THE STATE OF MARYLAND CUSIP 33832D 10 6 THIS CERTIFIES THAT is the owner of FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE PER SHARE, OF FIVE STAR QUALITY CARE, INC. (the “Corporation”) transferable on the books of the Corporation by the holder hereof in person or by its duly authorized attorney, upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby are issued and shall be held subject to all of the provisions of the Charter and Bylaws of the Corporation and any amendments thereto. The holder of this Certificate and every transferee or assignee hereof by accepting or holding the same agrees to be bound by all of the provisions of the Charter and Bylaws of the Corporation, as amended from time to time.This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be executed on its behalf by its duly authorized officers. Dated: TREASURER AMERICAN FINANCIAL PRINTING INCORPORATED – MINNEAPOLIS PRESIDENT SEE REVERSE FOR IMPORTANT NOTICE ON TRANSFER RESTRICTIONS AND OTHER INFORMATION

FIVE STAR QUALITY CARE, INC. IMPORTANT NOTICE PURSUANT AND SUBJECT TO THE TERMS OF THE CHARTER OF THE CORPORATION (TOGETHER WITH ALL AMENDMENTS THERETO, THE “CHARTER”), THE CORPORATION HAS THE AUTHORITY TO CREATE ONE OR MORE ADDITIONAL CLASSES OR SERIES OF SHARES AND ISSUE ADDITIONAL SHARES OF ANY EXISTING CLASS OR SERIES OF SHARES. THE CORPORATION WILL FURNISH A FULL STATEMENT OF (i) THE AUTHORITY OF THE CORPORATION TO CREATE ADDITIONAL CLASSES OR SERIES OF SHARES AND ISSUE ADDITIONAL SHARES OF ANY EXISTING CLASS OR SERIES OF SHARES, (ii) THE TERMS OF ANY EXISTING CLASS OR SERIES OF SHARES, AND (iii) SUCH OTHER INFORMATION AS IS REQUIRED BY SECTION 2-211(b) OF THE MARYLAND GENERAL CORPORATION LAW, WITHOUT CHARGE TO ANY SHAREHOLDER UPON REQUEST TO THE SECRETARY OF THE CORPORATION. THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON OWNERSHIP AND TRANSFER WHICH ARE OR MAY HEREAFTER BE CONTAINED IN THE CHARTER OR IN THE BYLAWS OF THE CORPORATION, AS AMENDED FROM TIME TO TIME (THE “BYLAWS”), INCLUDING PROVISIONS OF THE CHARTER WHICH PROHIBIT THE OWNERSHIP OF MORE THAN 9.8% OF ANY CLASS OR SERIES OF THE CORPORATION’S SECURITIES BY ANY PERSON OR GROUP AND PROVISIONS OF THE BYLAWS PROHIBITING, FOR PURPOSES OF PRESERVING CERTAIN TAX BENEFITS OF THE CORPORATION, TRANSFERS OF THE CORPORATION’S SHARES TO THE EXTENT THAT, AS A RESULT OF SUCH TRANSFER, EITHER A PERSON, ENTITY OR GROUP WOULD OWN 5% OR MORE OF THE CORPORATION’S OUTSTANDING SHARES OR THE PERCENTAGE OWNERSHIP OF ANY PERSON, ENTITY OR GROUP THEN OWNING 5% OR MORE OF THE CORPORATION’S OUTSTANDING SHARES WOULD INCREASE AS A RESULT. THIS DESCRIPTION OF THE RESTRICTIONS UPON OWNERSHIP OR TRANSFER OF THE CORPORATION’S SECURITIES IS NOT COMPLETE. A MORE COMPLETE DESCRIPTION OF THESE RESTRICTIONS APPEARS IN THE CORPORATION’S CHARTER OR BYLAWS, AS APPLICABLE, COPIES OF WHICH WILL BE SENT WITHOUT CHARGE TO ANY SHAREHOLDER UPON REQUEST TO THE SECRETARY OF THE CORPORATION. THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO CERTAIN RIGHTS AS SET FORTH IN THE RIGHTS AGREEMENT DATED AS OF MARCH 10, 2004 BETWEEN THE CORPORATION AND WELLS FARGO BANK, NATIONAL ASSOCIATION, AS SUCCESSOR RIGHTS AGENT, AND ANY AMENDMENTS OR RENEWALS THEREOF (THE “RIGHTS AGREEMENT”), THE TERMS OF WHICH ARE HEREBY INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF THE CORPORATION. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS WILL BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED BY THIS CERTIFICATE. THE CORPORATION WILL MAIL TO THE HOLDER OF THIS CERTIFICATE A COPY OF THE RIGHTS AGREEMENT, AS IN EFFECT ON THE DATE OF MAILING, WITHOUT CHARGE PROMPTLY AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR. UNDER CERTAIN CIRCUMSTANCES SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS BENEFICIALLY OWNED (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) BY ANY PERSON WHO IS, WAS OR BECOMES AN ACQUIRING PERSON, OR ANY AFFILIATE OR ASSOCIATE THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT), WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY ANY SUBSEQUENT HOLDER MAY BECOME NULL AND VOID. THE RIGHTS SHALL NOT BE EXERCISABLE AND SHALL BE VOID SO LONG AS HELD, BY A HOLDER IN ANY JURISDICTION WHERE THE REQUISITE QUALIFICATION TO THE ISSUANCE TO SUCH HOLDER, OR THE EXERCISE BY SUCH HOLDER, OF THE RIGHTS IN SUCH JURISDICTION SHALL NOT HAVE BEEN OBTAINED OR BE OBTAINABLE. The following abbreviations, when used in the inscription on the face of this Certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM – as tenants in common UTMA – ____________ Custodian ____________ (Cust) (Minor) TEN ENT – as tenants by entireties under Uniform Transfers to Minors JT TEN – as joint tenants with right of survivorship Act ________________________________ and not as tenants in common (State) Additional abbreviations may also be used though not in above list. For value received ________________________________________________ hereby sell, assign, and transfer unto (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE) Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated ________________ X X NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. SIGNATURE GUARANTEED ALL GUARANTEES MUST BE MADE BY A FINANCIAL INSTITUTION (SUCH AS A BANK OR BROKER) WHICH IS A PARTICIPANT IN THE SECURITIES TRANSFER AGENTS MEDALLION PROGRAM (“STAMP”), THE NEW YORK STOCK EXCHANGE, INC. MEDALLION SIGNATURE PROGRAM (“MSP”), OR THE STOCK EXCHANGES MEDALLION PROGRAM (“SEMP”) AND MUST NOT BE DATED. GUARANTEES BY A NOTARY PUBLIC ARE NOT ACCEPTABLE. PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE

EX-10.1

Exhibit 10.1

INDEMNIFICATION AGREEMENT

THIS INDEMNIFICATION AGREEMENT (this “Agreement”) is made and entered March 10, 2004 (the “Effective Date”), by and between Five Star Quality Care, Inc., a Maryland Corporation (the “Company”), and Rosemary Esposito, R.N. (“Indemnitee”).

WHEREAS Indemnitee currently serves as an officer of the Company and may, in connection therewith, be subjected to claims, suits or proceedings arising from such service; and

WHEREAS, as an inducement to Indemnitee to continue to serve as such officer, the Company has agreed to indemnify and to advance expenses and costs incurred by Indemnitee in connection with any such claims, suits or proceedings, to the fullest extent permitted by law as hereinafter provided; and

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

Section 1.Definitions.  For purposes of this Agreement:

(a)“Change in Control” means a change in control of the Company occurring after the Effective Date of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended (the “Act”), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if after the Effective Date (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 10% or more of the combined voting power in the election of directors of the Company’s then outstanding securities without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person attaining such percentage interest; (ii) there occurs a proxy contest, or the Company is a party to a merger, consolidation, sale of assets, plan of liquidation or other reorganization not approved by at least two-thirds of the members of the Board of Directors then in office, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iii) during any period of two consecutive years, other than as a result of an event described in clause (a)(ii) of this Section 1, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors.

(b)“Corporate Status” means the status of a person who is or was a director, trustee, officer or agent of the Company.

(c)“Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

(d)“Expenses” means all expenses, including, but not limited to, all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding.

(e)“Independent Counsel” means a law firm, or a member of a law firm, that is retained by Indemnitee and is not serving as counsel to the Company.

(f)“Proceeding” means any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding, whether civil, criminal, administrative or investigative (including on appeal), except one initiated by an Indemnitee pursuant to Section 9.

Section 2.Indemnification - General.  The Company shall indemnify, and advance Expenses to, Indemnitee (a) as provided in this Agreement and (b) otherwise to the fullest extent permitted by Maryland law in effect on the date hereof and as amended from time to time; provided, however, that no change in Maryland law shall have the effect of reducing the benefits available to Indemnitee hereunder based on Maryland law as in effect on the date hereof.  The rights of Indemnitee provided in this Section 2 shall include, without limitation, the rights set forth in the other sections of this Agreement, including any additional indemnification permitted by Section 2-418(g) of the Maryland General Corporation Law (“MGCL”).

Section 3.Proceedings Other Than Proceedings by or in the Right of the Company.  Indemnitee shall be entitled to the rights of indemnification provided in this Section 3 if, by reason of his Corporate Status, he is, or is threatened to be, made a party to any threatened, pending, or completed Proceeding, other than a Proceeding by or in the right of the Company.  Pursuant to this Section 3, Indemnitee shall be indemnified against all judgments, penalties, fines and amounts paid in settlement and all Expenses incurred by him or on his behalf in connection with a Proceeding by reason of Indemnitee’s Corporate Status unless it is established that (i) the act or omission of Indemnitee was material to the matter giving rise to the Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty, (ii) Indemnitee actually received an improper personal benefit in money, property or services, or (iii) in the case of any criminal Proceeding, Indemnitee had reasonable cause to believe that his conduct was unlawful.

Section 4.Proceedings by or in the Right of the Company.  Indemnitee shall be entitled to the rights of indemnification provided in this Section 4 if, by reason of his Corporate Status, he is, or is threatened to be, made a party to any threatened, pending or completed Proceeding brought by or in the right of the Company to procure a judgment in its favor.  Pursuant to this Section 4, Indemnitee shall be indemnified against all amounts paid in settlement and all Expenses incurred by him or on his behalf in connection with such Proceeding unless it is established that (i) the act or omission of Indemnitee was material to the matter giving rise to such a Proceeding and (a) was committed in bad faith or (b) was the result of active and

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deliberate dishonesty or (ii) Indemnitee actually received an improper personal benefit in money, property or services.

Section 5.Indemnification for Expenses of a Party Who is Partly Successful.  Without limitation on Section 3 and Section 4, if Indemnitee is not wholly successful in any Proceeding covered by this Agreement, but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee under this Section 5 for all Expenses incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter, allocated on a reasonable and proportionate basis.  For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

Section 6.Advance of Expenses.  The Company shall advance all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding to which Indemnitee is, or is threatened to be, made a party or a witness, within ten days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding.  Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by a written affirmation by Indemnitee of Indemnitee’s good faith belief that the standard of conduct necessary for indemnification by the Company as authorized by law and by this Agreement has been met and a written undertaking by or on behalf of Indemnitee, in substantially the form attached hereto as Exhibit A or in such form as may be required under applicable law as in effect at the time of the execution thereof, to reimburse the portion of any Expenses advanced to Indemnitee relating to claims, issues or matters in the Proceeding as to which it shall ultimately be established that the standard of conduct has not been met and which have not been successfully resolved as described in Section 5.  To the extent that Expenses advanced to Indemnitee do not relate to a specific claim, issue or matter in the Proceeding, such Expenses shall be allocated on a reasonable and proportionate basis.  The undertaking required by this Section 6 shall be an unlimited general obligation by or on behalf of Indemnitee and shall be accepted without reference to Indemnitee’s financial ability to repay such advanced Expenses and without any requirement to post security therefor.

Section 7.Procedure for Determination of Entitlement to Indemnification.

(a)To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification.  The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification.

(b)Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 7(a) hereof, a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall promptly be made in the specific case: (i) if a Change in Control shall have occurred, by Independent Counsel in a written opinion to the Board of

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Directors, a copy of which shall be delivered to Indemnitee; or (ii) if a Change of Control shall not have occurred or if after a Change of Control Indemnitee shall so request, (A) by the Board of Directors (or a duly authorized committee thereof) by a majority vote of a quorum consisting of Disinterested Directors (as herein defined), or (B) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee, or (C) if so directed by a majority of the members of the Board of Directors, by the stockholders of the Company; and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten days after such determination.  Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination.  Any Expenses incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company shall indemnify and hold Indemnitee harmless therefrom.

Section 8.Presumptions and Effect of Certain Proceedings.

(a)In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 7(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making of any determination contrary to that presumption.

(b)The termination of any Proceeding by judgment, order, settlement, conviction, a plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, does not create a presumption that Indemnitee did not meet the requisite standard of conduct described herein for indemnification.

Section 9.Remedies of Indemnitee.

(a)If (i) a determination is made pursuant to Section 7 that Indemnitee is not entitled to indemnification under this Agreement, (ii) advance of Expenses is not timely made pursuant to Section 6, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 7(b) within 30 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 5 within ten days after receipt by the Company of a written request therefor, or (v) payment of indemnification is not made within ten days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Maryland, or in any other court of competent jurisdiction, of his entitlement to such indemnification or advance of Expenses.  Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the commercial

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Arbitration Rules of the American Arbitration Association.  Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 9(a); provided, however, that the foregoing clause shall not apply in respect of a proceeding brought by Indemnitee to enforce his rights under Section 5.

(b)In any judicial proceeding or arbitration commenced pursuant to this Section 9, the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advance of Expenses, as the case may be.

(c)If a determination shall have been made pursuant to Section 7(b) that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 9, absent a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification.

(d)In the event that Indemnitee, pursuant to this Section 9, seeks a judicial adjudication of or an award in arbitration to enforce his rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company for, any and all Expenses incurred by him in such judicial adjudication or arbitration.  If it shall be determined in such judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advance of Expenses sought, the Expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated.

Section 10.Defense of the Underlying Proceeding.

(a)Indemnitee shall notify the Company promptly upon being served with or receiving any summons, citation, subpoena, complaint, indictment, information, notice, request or other document relating to any Proceeding which may result in the right to indemnification or the advance of Expenses hereunder; provided, however, that the failure to give any such notice shall not disqualify Indemnitee from the right, or otherwise affect in any manner any right of Indemnitee, to indemnification or the advance of Expenses under this Agreement unless the Company’s ability to defend in such Proceeding or to obtain proceeds under any insurance policy is materially and adversely prejudiced thereby, and then only to the extent the Company is thereby actually so prejudiced.

(b)Subject to the provisions of the last sentence of this Section 10(b) and of Section 10(c) below, the Company shall have the right to defend Indemnitee in any Proceeding which may give rise to indemnification hereunder; provided, however, that the Company shall notify Indemnitee of any such decision to defend within 15 calendar days following receipt of notice of any such Proceeding under Section 10(a) above.  The Company shall not, without the prior written consent of Indemnitee, which shall not be unreasonably withheld or delayed, consent to the entry of any judgment against Indemnitee or enter into any settlement or compromise which (i) includes an admission of fault of Indemnitee or (ii) does not include, as an unconditional term thereof, the full release of Indemnitee from all liability in respect of such Proceeding, which

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release shall be in form and substance reasonably satisfactory to Indemnitee.  This Section 10(b) shall not apply to a Proceeding brought by Indemnitee under Section 9 above or Section 14.

(c)Notwithstanding the provisions of Section 10(b), if in a Proceeding to which Indemnitee is a party by reason of Indemnitee’s Corporate Status, (i) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld, that he may have separate defenses or counterclaims to assert with respect to any issue which may not be consistent with other defendants in such Proceeding, (ii) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld, that an actual or apparent conflict of interest or potential conflict of interest exists between Indemnitee and the Company, or (iii) the Company fails to assume the defense of such Proceeding in a timely manner, Indemnitee shall be entitled to be represented by separate legal counsel of Indemnitee’s choice, subject to the prior approval of the Company, which shall not be unreasonably withheld, at the expense of the Company.  In addition, if the Company fails to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any Proceeding to deny or to recover from Indemnitee the benefits intended to be provided to Indemnitee hereunder, Indemnitee shall have the right to retain counsel of Indemnitee’s choice, subject to the prior approval of the Company, which shall not be unreasonably withheld, at the expense of the Company (subject to Section 9(d)), to represent Indemnitee in connection with any such matter.

Section 11.Non-Exclusivity; Survival of Rights.

(a)The rights of indemnification and advance of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Articles of Incorporation or Bylaws of the Company, any agreement or a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors, or otherwise.  No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal.

(b)In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

(c)The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

Section 12.Duration of Agreement; Binding Effect.

(a)This Agreement shall continue until and terminate ten years after the date that Indemnitee shall have ceased to serve as a director, trustee, officer, employee, or agent of the

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Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which Indemnitee served at the request of the Company; provided, however, that the rights of Indemnitee hereunder shall continue until the final termination of any Proceeding then pending in respect of which Indemnitee is granted rights of indemnification or advance of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 9 relating thereto.

(b)The indemnification and advance of Expenses provided by, or granted pursuant to, this Agreement shall be binding upon and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, trustee, officer, employee or agent of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the written request of the Company, and shall inure to the benefit of Indemnitee and his or her spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.

(c)The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

Section 13.Severability.  If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

Section 14.Limitation and Exception to Right of Indemnification or Advance of Expenses.  Notwithstanding any other provision of this Agreement, (a) any indemnification or advance of Expenses to which Indemnitee is otherwise entitled under the terms of this Agreement shall be made only to the extent such indemnification or advance of Expenses does not conflict with applicable Maryland law and (b) Indemnitee shall not be entitled to indemnification or advance of Expenses under this Agreement with respect to any Proceeding brought by Indemnitee, unless (i) the Proceeding is brought to enforce indemnification under this Agreement or otherwise or (ii) the Company’s Bylaws, as amended, the Articles of Incorporation, a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors or an agreement approved by the Board of Directors to which the Company is a party expressly provide otherwise.

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Section 15.Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement.  One such counterpart signed by the party against whom enforceability is sought shall be sufficient to evidence the existence of this Agreement.

Section 16.Headings.  The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

Section 17.Modification and Waiver.  No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

Section 18.Notices.  Any notice, report or other communication required or permitted to be given hereunder shall be in writing unless some other method of giving such 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:

(a)If to Indemnitee, to:  The address set forth on the signature page hereto.

(b)If to the Company to:

Five Star Quality Care, Inc.

400 Centre Street

Newton, Massachusetts 02458

Attn:  Secretary

or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.

Section 19.Governing Law.  The parties agree that this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Maryland, without regard to its conflicts of laws rules.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.

ATTEST:	FIVE STAR QUALITY CARE, INC.
/s/ Jennifer B. Clark	By:	/s/ Bruce J. Mackey Jr.	(SEAL)
	Name:	Bruce J. Mackey Jr.
	Title:	Treasurer, Chief Financial Officer and Assistant Secretary
WITNESS:	INDEMNITEE
/s/ Judith A. Stapleton	/s/ Rosemary Esposito, R.N.
	Name:  Rosemary Esposito, R.N.
	Address: [address omitted]

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EXHIBIT A

FORM OF UNDERTAKING TO REPAY EXPENSES ADVANCED

The Board of Directors of Five Star Quality Care, Inc.

Re:  Undertaking to Repay Expenses Advanced

Ladies and Gentlemen:

This undertaking is being provided pursuant to that certain Indemnification Agreement dated                           , 2004, by and between Five Star Quality Care, Inc. (the “Company”) and the undersigned Indemnitee (the “Indemnification Agreement”), pursuant to which I am entitled to advance of expenses in connection with [Description of Proceeding] (the “Proceeding”).

Terms used herein and not otherwise defined shall have the meanings specified in the Indemnification Agreement.

I am subject to the Proceeding by reason of my Corporate Status or by reason of alleged actions or omissions by me in such capacity.  I hereby affirm that at all times, insofar as I was involved as [a director] [an officer] of the Company, in any of the facts or events giving rise to the Proceeding, I (1) acted in good faith and honestly, (2) did not receive any improper personal benefit in money, property or services and (3) in the case of any criminal proceeding, had no reasonable cause to believe that any act or omission by me was unlawful.

In consideration of the advance of expenses by the Company for reasonable attorney’s fees and related expenses incurred by me in connection with the Proceeding (the “Advanced Expenses”), I hereby agree that if, in connection with the Proceeding, it is established that (1) an act or omission by me was material to the matter giving rise to the Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty or (2) I actually received an improper personal benefit in money, property or services or (3) in the case of any criminal proceeding, I had reasonable cause to believe that the act or omission was unlawful, then I shall promptly reimburse the portion of the Advanced Expenses relating to the claims, issues or matters in the Proceeding as to which the foregoing findings have been established and which have not been successfully resolved as described in Section 5 of the Indemnification Agreement.  To the extent that Advanced Expenses do not relate to a specific claim, issue or matter in the Proceeding, I agree that such Expenses shall be allocated on a reasonable and proportionate basis.

IN WITNESS WHEREOF, I have executed this Affirmation and Undertaking on this         day of                                         , 200    .

WITNESS:

(SEAL)

Schedule to Exhibit 10. 1

The following individuals are parties to Indemnification Agreements with the Company which are substantially identical in all material respects to the representative Indemnification Agreement filed herewith and are dated as of the respective dates listed below.  The other Indemnification Agreements are omitted pursuant to Instruction 2 to Item 601 of Regulation S-K.

Name of Signatory	Date
Evrett W. Benton	March 10, 2004
Rosemary Esposito, R.N.	March 10, 2004
Bruce M. Gans, M.D.	March 10, 2004
Barbara D. Gilmore	March 10, 2004
Maryann Hughes	March 10, 2004
Arthur G. Koumantzelis	March 10, 2004
Bruce J. Mackey Jr.	March 10, 2004
Gerard M. Martin	March 10, 2004
Barry M. Portnoy	March 10, 2004
William J. Sheehan	May 7, 2004
Travis K. Smith	February 27, 2008
Francis R. Murphy III	May 1, 2008
Paul V. Hoagland	November 11, 2009
Donna D. Fraiche	November 22, 2010
Vern D. Larkin	September 6, 2011
Jennifer B. Clark	February 27, 2012
Katherine E. Potter	February 27, 2012
R. Scott Herzig	September 4, 2012

EX-10.2

Exhibit 10.2

AMENDED AND RESTATED POOLING AGREEMENT No. 1

THIS AMENDED AND RESTATED POOLING AGREEMENT No. 1 (this “Agreement”) is made as of October 30, 2012, by and among FVE Managers, Inc. (“Manager”) and the parties listed on Schedule A (each a “TRS” and collectively, “TRSes”).

RECITALS:

Each TRS has entered into a Management Agreement with Manager (each a “Management Agreement” and collectively, the “Management Agreements”) with respect to certain real estate and personal property which is licensed as an assisted living facility and/or a skilled nursing facility (each a “Facility” and collectively, the “Facilities”).

Manager and the TRSes are parties to a Pooling Agreement dated as of May 12, 2011 (the “Original Agreement”).

Under the Original Agreement, working capital of each of the Facilities and all revenues from operation of each of the Facilities are pooled for purposes of paying operating expenses of the Facilities, fees and other amounts due to Manager and the TRSes under the Management Agreements.

Manager and the TRSes have determined that the number of Facilities subject to a single pooling agreement should be limited and desire to amend and restate the Original Agreement to remove the Facilities listed on Schedule B to this Agreement, and upon such removal, each of SNH SE Daniel Island Tenant LLC and SNH SG Tenant LLC shall be deemed to have withdrawn as parties.

NOW, THEREFORE, the parties agree as follows:

ARTICLE I
DEFINED TERMS

1.01.Definitions.  Capitalized terms used, but not otherwise defined in this Agreement shall have the meanings given to such terms in the Management Agreements. The following capitalized terms as used in this Agreement shall have the meanings set forth below:

“Additional Facility” is defined in Section 7.01.

“Additional Management Agreement” is defined in Section 7.01.

“Additional TRS” is defined in Section 7.01.

“Aggregate Annual Statement” means the Aggregate Monthly Statement for the month of December in each year.

“Aggregate Base Fee” means an amount equal to 3% of the Aggregate Gross Revenues.

“Aggregate Facility Expenses” means the sum of Facility Expenses of the Facilities.

“Aggregate Gross Revenues” means the sum of Gross Revenues of the Facilities.

“Aggregate Incentive Fee” means an amount that is equal to thirty-five percent (35%) of Aggregate Net Operating Income remaining after payment of the Aggregate TRS Priority Return.

“Aggregate Invested Capital” means the sum of the Invested Capital for each of the Facilities, including each Additional Facility.

“Aggregate Monthly Statement” is defined in Section 4.01(a).

“Aggregate Net Operating Income” means an amount equal to Aggregate Gross Revenues less Aggregate Facility Expenses.

“Aggregate TRS Priority Return” means an annual amount equal to eight percent of Aggregate Invested Capital.

“Aggregate TRS Residual Payment” means an amount equal to 65% of the Aggregate Net Operating Income after payment of the Aggregate TRS Priority Return.

“Agreement” is defined in the Preamble.

“Facility” and “Facilities” is defined in the Recitals and as of close of business on the date of this Agreement, the Facilities subject to this Agreement are those listed on Schedule C.

“Management Agreement” and “Management Agreements” is defined in the Recitals and as of close of business on the date of this Agreement, the Management Agreements for the Facilities subject to this Agreement are those listed on Schedule D.

“Manager” is defined in the Preamble.

“Manager Shortfall Advance” is defined in Section 5.01.

“Non-Economic Facilities” is defined in Section 5.02.

“Priority Return Shortfall” is defined in Section 5.01.

“TRS” is defined in the Preamble.

ARTICLE II
GENERAL

2.01.Removal of Facilities.  Effective as of the close of business on the date of this Agreement, the Facilities listed on Schedule B shall be removed from, and no longer subject to, this Agreement.

2.02.General.  The parties agree that so long as a Facility is subject to this Agreement, all Working Capital and all Gross Revenues of such Facility shall be pooled pursuant to this Agreement and disbursed to pay all Aggregate Facility Expenses, fees and other amounts due

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Manager and TRSes (not including amounts due pursuant to Section 15.05 of the Management Agreements) with respect to the Facilities and that the corresponding provisions of each Management Agreement shall be superseded as provided in Section 3.03.  The parties further agree that if Manager gives a notice of non-renewal of the Term with respect to any Facility, it shall be deemed to be a notice of non-renewal of the Term with respect to all the Facilities.

ARTICLE III
PRIORITIES FOR
DISTRIBUTION OF AGGREGATE GROSS REVENUES

3.01.Priorities for Distribution of Aggregate Gross Revenues.  Aggregate Gross Revenues shall be distributed in the following order of priority:

(1)First, to pay Aggregate Facility Expenses (which shall not include the Aggregate Base Fee).

(2)Second, to Manager to pay the Aggregate Base Fee and any interest that may have accrued pursuant to Section 3.02.

(3)Third, to TRS in an amount equal to the Aggregate TRS Priority Return and any interest that may have accrued pursuant to Section 3.02.

(4)Fourth, to Manager to reimburse it for payment of any Manager Shortfall Advance, plus applicable interest calculated at the Interest Rate.

(5)Fifth, to Manager, in an amount equal to the Aggregate Incentive Fee.

(6)Sixth, to TRS, in an amount equal to the Aggregate TRS Residual Payment.

3.02.Timing of Payments.  Payment of the Aggregate Facility Expenses, excluding the Aggregate Base Fee, shall be made in the ordinary course of business.  The Aggregate Base Fee and accrued interest, if any, shall be paid on the first Business Day of each calendar month, in advance, based upon Manager’s then estimate of the prior month’s Aggregate Gross Revenues.  The Aggregate TRS Priority Return and accrued interest, if any, shall be paid on the first Business Day of each calendar month, in advance in approximately equal monthly installments, based upon Aggregate Invested Capital most recently reported to Manager by TRS. The Aggregate Base Fee and Aggregate TRS’s Priority Return shall be subject to adjustment by increasing or decreasing the payment due in the following month based upon Aggregate Gross Revenues reflected in the Aggregate Monthly Financial Statements and increases or decreases in Aggregate Invested Capital reported to Manager by TRS, as the case may be.  If any installment of the Aggregate Base Fee or the Aggregate TRS Priority Return is not paid when due, it shall accrue and bear interest at the Interest Rate. The Aggregate Incentive Fee and Aggregate TRS Residual Payment shall be paid on the last Business Day of the calendar month following the month to which such Aggregate Incentive Fee and Aggregate TRS Residual Payment relate, in arrears, and shall be based upon the Aggregate Monthly Statements.  Additional adjustments to all payments will be made on an annual basis based upon the Aggregate Monthly Statements for the full calendar year and any audits conducted pursuant to Section 6.03 of the Management

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Agreements.  The Aggregate TRS Priority Return and Aggregate TRS Residual Payment shall be allocated among TRSes as the TRSes shall determine in their sole discretion and Manager shall have no responsibility or liability in connection therewith.

3.03.Relationship with Management Agreements.  For as long as this Agreement is in effect with respect to a Facility, the provisions of Section 3.01 and 3.02 shall supersede Sections 5.01 and 5.02 of the Management Agreement then in effect with the applicable Facility.

ARTICLE IV
FINANCIAL STATEMENTS

Manager shall prepare and deliver the following financial statements to the TRSes:

(a)not later than ten Business Days after the end of each calendar month, a consolidated balance sheet and related statement of income and expense of all of the Facilities for such calendar month and for the then current calendar year to date, certified by Manager’s Controller on a monthly basis and by Manager’s Chief Financial Officer on a quarterly basis as being true and correct to the best of his/her knowledge (“Aggregate Monthly Statement”).

(b)Manager shall also prepare and deliver such other statements or reports as any TRS may, from time to time, reasonably request.

The financial statements delivered pursuant to this Article IV are in addition to any financial statements required to be prepared and delivered pursuant to the Management Agreements.

ARTICLE V
SHORTFALL; NON-ECONOMIC FACILITIES

5.01.Shortfall.  If in each of three consecutive calendar years the Aggregate TRS Priority Return (together with any accrued interest) has not been paid in full (a “Priority Return Shortfall”), by notice given after December 31, 2017, within sixty (60) days after receipt of the Aggregate Annual Statement for such third year, the TRSes may terminate all, but not less than all, of the Management Agreements.  Prior to exercising the right to terminate, TRSes shall give Manager notice and if within ten (10) days thereafter, Manager funds the Priority Return Shortfall (a “Manager Shortfall Advance”), TRSes shall not exercise the right to terminate, provided Manger may not exercise its right to fund the Priority Return Shortfall more frequently than once every four (4) years.  Manager may recover any amounts paid by it as a Manager Shortfall Advance as provided in Section 3.01, provided that amounts not recovered during the four (4) calendar years following the year in which payment of a Manager Shortfall Advance was made shall be deemed waived and shall not be payable in any subsequent year.

5.02.Non-Economic Facilities.  If the Gross Revenues of any Facility are insufficient to pay all Facility Expenses and the Base Fee of such Facility in full during each of two (2) consecutive calendar years, Manager shall, upon thirty (30) days notice to the relevant TRS, be entitled to designate such Facility a “Non-Economic Facility.”  Notwithstanding the foregoing, Manager shall not be entitled without the Owner’s consent to designate Facilities for which the

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Invested Capital in the aggregate would exceed twenty percent (20%) of Aggregate Invested Capital and further provided for purposes of this Section 5.02 only, Aggregate Invested Capital shall be determined without giving effect to the termination of the Management Agreement of a Non-Economic Facility and without reduction for proceeds from the sale, or deemed sale, of any Non-Economic Facility.  Manager may request an increase in the foregoing twenty percent (20%) threshold at any time, which Owner may accept or reject in its sole discretion.

Manager shall market a Facility designated as a Non-Economic Facility for sale and any costs incurred by the Manager in connection with such marketing activities and the sale of such Facility shall be paid out of the net proceeds of such sale.  The relevant TRS and Owner shall cooperate with Manager in compiling any relevant information, preparing marketing materials and otherwise in connection with the sale of a Non-Economic Facility.

5.03.Sale Process.  If a Non-Economic Facility is marketed for sale in accordance with Section 5.02 and Manager receives an offer therefor which it wishes to accept on behalf of the TRS and Owner, Manager shall give the relevant TRS prompt notice thereof, which notice shall include a copy of the offer and any other information reasonably requested by such TRS.  If the relevant TRS, on behalf of the relevant Owner, shall fail to accept or reject such offer within seven (7) Business Days after receipt of such notice and other information from Manager, such offer shall be deemed to be accepted.  If the offer is rejected by the relevant TRS on behalf of the relevant Owner and, if the Manager elects to continue marketing the Facility by providing written notice to the relevant TRS within seven (7) days of such rejection and the Manager does not obtain another offer within ninety (90) days that is accepted by the relevant TRS, the Non-Economic Facility shall be deemed to have been sold to the relevant TRS on the date, at the price and on the other terms contained in the offer.  If a Non-Economic Facility is sold to a third party or deemed to have been sold to the relevant Owner pursuant to such offer, effective as of the date of sale or deemed sale: (i) the Management Agreement shall terminate with respect to such Non-Economic Facility; (ii) the Aggregate Invested Capital shall be reduced by an amount equal to the net proceeds of sale after reduction for the costs and expenses of the relevant TRS, relevant Owner and/or Manager (or, in the case of a deemed sale, the net proceeds of sale determined by reference to such offer, after reduction for any amounts actually expended and any amounts which would reasonably have been expected to have been expended if the sale had been consummated, by the relevant TRS, relevant Owner and/or Manager).  If the reduction of Aggregate Invested Capital is less than the Invested Capital of the Non-Economic Facility sold or deemed sold, the difference shall be proportionately reallocated to the Invested Capital of the remaining Facilities.

ARTICLE VI
ACCOUNTS

All Working Capital and all Gross Revenues of each of the Facilities may be pooled and deposited in one or more bank accounts in the name(s) of the TRSes designated by Manager, which accounts may, except as required by any Mortgage and related loan documentation or applicable law, be commingled accounts containing other funds owned by or managed by Manager.  Manager shall be authorized to access the accounts without the approval of TRSes, subject to any limitation on the maximum amount of any check, if any, established between Manager and TRSes as part of the Annual Operating Budgets.  One or more TRSes shall be a

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signatory on all accounts maintained with respect to the Facility, and TRSes shall have the right to require that one or more TRS’s signature be required on all checks/withdrawals after the occurrence of an Event of Default by Manager under this Agreement.  The TRSes shall provide such instructions to the applicable bank(s) as are necessary to permit Manager to implement the Manager’s rights and obligations under this Agreement.  The failure of any TRS to provide such instructions shall relieve Manager of its obligations hereunder until such time as such failure is cured.

ARTICLE VII
ADDITION AND REMOVAL OF FACILITIES

7.01.Addition of Facilities.  At any time and from time to time, Manager and any TRS or any Affiliate of TRS (an “Additional TRS”) which enters into a management agreement with Manager (an “Additional Management Agreement”) for the operation of an additional assisted living facility or skilled nursing facility (an “Additional Facility”), the Additional TRS may become a party to this Agreement by signing an accession agreement confirming the applicability of this Agreement to such Additional Facility.  If an Additional Facility is made subject to this Agreement other than on the first day of a calendar month, the parties shall include such prorated amounts of the Gross Revenues and Facility Expenses (and other amounts as may be necessary) applicable to the Additional Facility for such calendar month, as mutually agreed in their reasonable judgment, in the calculation of Aggregate Gross Revenues and Aggregate Facility Expenses (and other amounts as may be necessary) for the calendar month in which the Additional Facility became subject to this Agreement and shall make any other prorations, adjustments, allocations and changes required.  Additionally, any amounts held as Working Capital or for Capital Replacements at the Additional Facility, if any, shall be held by Manager under this Agreement.

7.02.Removal of Facilities.  From and after the date of termination of any Management Agreement, the Facility managed thereunder shall no longer be subject to this Agreement.  If the termination occurs on a day other than the last day of a calendar month, the parties shall exclude such prorated amounts of the Gross Revenues and Facility Expenses (and other amounts as may be necessary) applicable to such Facility for such calendar month, as mutually agreed in their reasonable judgment, in the calculation of Aggregate Gross Revenues and Aggregate Facility Expenses (and other amounts as may be necessary) for the calendar month in which the termination occurred.  Additionally, the relevant TRS and Manager, both acting reasonably, shall mutually agree to the portion of the Working Capital and Aggregate Gross Revenues and any amounts being held by Manager for Capital Replacements allocable to the Facility being removed from this Agreement and the amount of the Working Capital, Aggregate Gross Revenues and amounts being held by Manager for Capital Replacements, if any, so allocated shall be remitted to the relevant TRS and the relevant TRS and Manager shall make any other prorations, adjustments, allocations and changes required.

ARTICLE VIII
TERM AND TERMINATION

8.01.Term.  This Agreement shall continue and remain in effect indefinitely unless terminated pursuant to Section 8.02.

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8.02.Termination.  This Agreement may be terminated as follows:

(a)By the mutual consent of Manager and TRSes which are parties to the Agreement.

(b)Automatically, if all Management Agreements terminate or expire for any reason.

(c)By Manager, if any or all TRSes do not cure a material breach of this Agreement by any TRS or Owner within thirty (30) days of written notice of such breach from Manager and if such breach is not cured, it shall be an Event of Default under the Management Agreements.

(d)By TRSes, if Manager does not cure a material breach of this Agreement by Manager within thirty (30) days of written notice of such breach from any TRS.

8.03.Effect of Termination.  Upon the termination of this Agreement, except as otherwise provided in Section 12.02(i) or 14.04 of the Management Agreements, Manager shall be compensated for its services only through the date of termination and all amounts remaining in any accounts maintained by Manager pursuant to Article VI, after payment of such amounts as may be due to Manager hereunder, shall be distributed to TRSes.  Notwithstanding the foregoing, upon the termination of any single Management Agreement, pooled funds shall be allocated as described in Section 7.02.

8.04.Survival.  The following Sections of this Agreement shall survive the termination of this Agreement:  8.03 and Article IX.

ARTICLE IX
MISCELLANEOUS PROVISIONS

9.01.Notices.  All notices, demands, consents, approvals, and requests given by any party to another party hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, upon confirmation of receipt when transmitted by facsimile transmission, or on the next business day if transmitted by nationally recognized overnight courier, to the parties at the following addresses:

To TRS:

c/o SNH SE Tenant TRS, Inc.

Two Newton Place

225 Washington Street

Newton, Massachusetts 02458

Attn:  David J. Hegarty

Telephone: (617) 796-8104

Facsimile: (617) 796-8349

To Manager:

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FVE Managers, Inc.

400 Centre Street

Newton, Massachusetts 02458

Attn:  Bruce J. Mackey

Telephone: (617) 796-8214

Facsimile: (617) 796-8243

9.02.Applicable Law; Arbitration.  This Agreement shall be interpreted, construed, applied and enforced in accordance with the laws of the Commonwealth of Massachusetts, with regard to its “choice of law” rules.  Any “Dispute” (as such term is defined in the Management Agreements) under this Agreement shall be resolved through final and binding arbitration conducted in accordance with the procedures and with the effect of, arbitration as provided for in the Management Agreements.

9.03.Severability.  If any term or provision of this Agreement or the application thereof in any circumstance is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.

9.04.Gender and Number.  Whenever the context of this Agreement requires, the gender of all words herein shall include the masculine, feminine, and neuter, and the number of all words herein shall include the singular and plural.

9.05.Headings and Interpretation.  The descriptive headings in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement.  References to “Section” in this Agreement shall be a reference to a Section of this Agreement unless otherwise indicated.  Whenever the words “include”, “includes” or “including” are used in this Agreement they shall be deemed to be followed by “without limitation.”  The words “hereof,” “herein,” “hereby,” and “hereunder, when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision unless otherwise indicated.  The word “or” shall not be exclusive.  This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting.

9.06.Confidentiality of Information.  Any information exchanged between the Manager and each TRS pursuant to the terms and conditions of this Agreement shall be subject to Sections 17.06 or 17.07 of the Management Agreement and the Business Associate Agreement entered into between the Manager and each TRS.

9.07.Assignment.  Neither Manager nor any TRS may assign its rights and obligations under this Agreement to any other Person without the prior written consent of the other parties.

9.08.Entire Agreement; Construction; Amendment.  With respect to the subject matter hereof, this Agreement supersedes all previous contracts and understandings between the parties and constitutes the entire Agreement between the parties with respect to the subject matter

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hereof.  Accordingly, in the event of any conflict between the provisions of this Agreement and the Management Agreements, the provisions of this Agreement shall control, and the provisions of the Management Agreements are deemed amended and modified, in each case as required to give effect to the intent of the parties in this Agreement.  All other terms and conditions of the Management Agreements shall remain in full force and effect; provided that, to the extent that compliance with this Agreement shall cause a default, breach or other violation of the Management Agreement by one party, the other party waives any right of termination, indemnity, arbitration or otherwise under the Management Agreement related to that specific default, breach or other violations, to the extent caused by compliance with this Agreement.  This Agreement may not be modified, altered or amended in any manner except by an amendment in writing, duly executed by the parties hereto.

9.09.Third Party Beneficiaries.  The terms and conditions of this Agreement shall inure to the benefit of, and be binding upon, the respective successors, heirs, legal representatives or permitted assigns of each of the parties hereto and except for Owners, which are intended third party beneficiaries, no Person other than the parties hereto and their successors and permitted assigns is intended to be a beneficiary of this Agreement.

[Signatures begin on the following page.]

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IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement with the intention of creating an instrument under seal.

FVE Managers, Inc.
By:	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President
SNH SE Tenant TRS, Inc.
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	President
SNH SE Burlington Tenant LLC
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	President
SNH SE Kings Mtn Tenant LLC
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	President
SNH SE Mooresville Tenant LLC
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	President
SNH SE Ashley River Tenant LLC
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	President

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SNH SE N. Myrtle Beach Tenant LLC
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	President
SNH SE Barrington Boynton Tenant LLC
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	President
SNH SE Holly Hill Tenant LLC
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	President
SNH SE Habersham Savannah Tenant LLC
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	President
SNH CALI Tenant LLC
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	President
SNH BRFL Tenant LLC
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	President

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SNH CCMD Tenant LLC
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	President
SNH PLFL LLC
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	President
SNH Teaneck Tenant LLC
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	President
SNH SE Daniel Island Tenant LLC
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	President
SNH SE SG Tenant LLC
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	President

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Schedule A

TRSes

SNH SE Tenant TRS, Inc.

SNH SE Burlington Tenant LLC

SNH SE Kings Mtn Tenant LLC

SNH SE Mooresville Tenant LLC

SNH SE Ashley River Tenant LLC

SNH SE N. Myrtle Beach Tenant LLC

SNH SE Barrington Boynton Tenant LLC

SNH SE Holly Hill Tenant LLC

SNH SE Habersham Savannah Tenant LLC

SNH CALI Tenant LLC

SNH BRFL Tenant LLC

SNH CCMD Tenant LLC

SNH PLFL Tenant LLC

SNH Teaneck Tenant LLC

SNH SE Daniel Island Tenant LLC

SNH SE SG Tenant LLC

Schedule B

Removed Facilities

Cooper Hall and Savannah Grace, Mt. Pleasant, SC

Summit Place of Daniel Island, Charleston, SC

Five Star Premier Residence of Pompano Beach, Pompano Beach, FL

The Terrace at Priceville, Priceville, AL

Stratford Court of Palm Harbor, Palm Harbor, FL

The Gardens of Scottsdale, Scottsdale, AZ

The Gardens of Bellaire, Bellaire, TX

The Gardens of Sun City, Sun City, AZ

The Gardens of Port St. Lucie, Port St. Lucie, FL

The Gardens of Virginia Beach, Virginia Beach, VA

The Horizon Club, Deerfield Beach, FL

Calusa Harbour, Fort Myers, FL

Schedule C

Facilities

Palms of Lake Spivey, Jonesboro, GA

Seasons at Southpoint, Durham, NC

Summit Place of South Park, Charlotte, NC

Summit Place of Beaufort, Beaufort, SC

Seasons by Riviera, Ormond Beach, FL and Riviera, Holly Hill, FL

Lexington Manor, Port Charlotte, FL

Home Place of Burlington, Burlington, NC

Summit Place of Kings Mountain, Kings Mountain, NC

Summit Place of Mooresville, Mooresville, NC

Ashley River Plantation, Charleston, SC

Summit Place of N. Myrtle Beach, Little River, SC

Barrington Terrace at Boynton Beach, Boynton Beach, FL

Habersham House, Savannah, GA

Tiffany Court, Walnut Creek, CA

Five Star Premier Residences of Boca Raton, Boca Raton, FL

Five Star Premier Residences of Chevy Chase, Chevy Chase, MD

Five Star Premier Residences of Plantation, Plantation, FL

Five Star Premier Residences of Teaneck, Teaneck, NJ

Five Star Premier Residences of Hollywood, Hollywood, FL

Five Star Premier Residences of Reno, Reno, NV

Schedule D

Management Agreements

Management Agreement dated May 12, 2011 between FVE Managers, Inc. and SNH SE Tenant TRS, Inc. (Palms of Lake Spivey)

Management Agreement dated May 12, 2011 between FVE Managers, Inc. and SNH SE Tenant TRS, Inc. (Seasons at Southpoint)

Management Agreement dated May 12, 2011 between FVE Managers, Inc. and SNH SE Tenant TRS, Inc. (Summit Place of South Park)

Management Agreement dated May 12, 2011 between FVE Managers, Inc. and SNH SE Tenant TRS, Inc. (Summit Place of Beaufort)

Management Agreement dated May 12, 2011 between FVE Managers, Inc. and SNH SE Tenant TRS, Inc. (Seasons by Riviera)

Management Agreement dated May 12, 2011 between FVE Managers, Inc. and SNH SE Tenant TRS, Inc. (Lexington Manor)

Management Agreement dated May 12, 2011 between FVE Managers, Inc. and SNH SE Burlington Tenant LLC (Home Place of Burlington)

Management Agreement dated May 12, 2011 between FVE Managers, Inc. and SNH SE Kings Mtn Tenant LLC (Summit Place of Kings Mountain)

Management Agreement dated May 12, 2011 between FVE Managers, Inc. and SNH SE Mooresville Tenant LLC (Summit Place of Mooresville)

Management Agreement dated May 12, 2011 between FVE Managers, Inc. and SNH SE Ashley River Tenant LLC (Ashley River Plantation)

Management Agreement dated May 12, 2011 between FVE Managers, Inc. and SNH SE N. Myrtle Beach Tenant LLC (Summit Place of North Myrtle Beach)

Management Agreement dated May 12, 2011 between FVE Managers, Inc. and SNH SE Barrington Boynton Tenant LLC (Barrington Terrace at Boynton Beach)

Management Agreement dated May 12, 2011 between FVE Managers, Inc. and SNH SE Holly Hill Tenant LLC (Riviera)

Management Agreement dated May 12, 2011 between FVE Managers, Inc. and SNH SE Habersham Savannah Tenant LLC (Habersham House)

Management Agreement dated December 1, 2011 between FVE Managers, Inc. and SNH CALI Tenant LLC (Tiffany Court)

Management Agreement dated December 15, 2011 between FVE Managers, Inc. and SNH BRFL Tenant LLC (Five Star Premier Residences of Boca Raton)

Management Agreement dated December 15, 2011 between FVE Managers, Inc. and SNH CCMD Tenant LLC (Five Star Premier Residences of Chevy Chase)

Management Agreement dated December 15, 2011 between FVE Managers, Inc. and SNH PLFL Tenant LLC (Five Star Premier Residences of Plantation)

Management Agreement dated December 15, 2011 between FVE Managers, Inc. and SNH Teaneck Tenant LLC (Five Star Premier Residences of Teaneck)

Management Agreement dated December 15, 2011 between FVE Managers, Inc. and SNH SE Tenant TRS, Inc. (Five Star Premier Residences of Hollywood)

Management Agreement dated December 15, 2011 between FVE Managers, Inc. and SNH SE Tenant TRS, Inc. (Five Star Premier Residences of Reno)

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EX-10.3

Exhibit 10.3

POOLING AGREEMENT No. 2

THIS POOLING AGREEMENT No. 2 (this “Agreement”) is made as of October 30, 2012, by and among FVE Managers, Inc. (“Manager”) and the parties listed on Schedule A (each a “TRS” and collectively, “TRSes”).

RECITALS:

Each TRS has entered into a Management Agreement with Manager (each a “Management Agreement” and collectively, the “Management Agreements”) with respect to the real estate and personal property described in Schedule B opposite such Tenant’s name which is licensed as an assisted living facility and/or a skilled nursing facility (each a “Facility” and collectively, the “Facilities”), which Management Agreements are listed on Schedule C.

The parties desire that working capital of each of the Facilities and all revenues from operation of each of the Facilities be pooled for purposes of paying operating expenses of the Facilities, fees and other amounts due to Manager and TRSes.

NOW, THEREFORE, the parties agree as follows:

ARTICLE I
DEFINED TERMS

1.01.Definitions.  Capitalized terms used, but not otherwise defined in this Agreement shall have the meanings given to such terms in the Management Agreements. The following capitalized terms as used in this Agreement shall have the meanings set forth below:

“Additional Facility” is defined in Section 7.01.

“Additional Management Agreement” is defined in Section 7.01.

“Additional TRS” is defined in Section 7.01.

“Aggregate Annual Statement” means the Aggregate Monthly Statement for the month of December in each year.

“Aggregate Base Fee” means an amount equal to 3% of the Aggregate Gross Revenues.

“Aggregate Facility Expenses” means the sum of Facility Expenses of the Facilities.

“Aggregate Gross Revenues” means the sum of Gross Revenues of the Facilities.

“Aggregate Incentive Fee” means an amount that is equal to thirty-five percent (35%) of Aggregate Net Operating Income remaining after payment of the Aggregate TRS Priority Return.

“Aggregate Invested Capital” means the sum of the Invested Capital for each of the Facilities, including each Additional Facility.

“Aggregate Monthly Statement” is defined in Section 4.01(a).

“Aggregate Net Operating Income” means an amount equal to Aggregate Gross Revenues less Aggregate Facility Expenses.

“Aggregate TRS Priority Return” means an annual amount equal to eight percent of Aggregate Invested Capital.

“Aggregate TRS Residual Payment” means an amount equal to 65% of the Aggregate Net Operating Income after payment of the Aggregate TRS Priority Return.

“Agreement” is defined in the Preamble.

“Facility” and “Facilities” is defined in the Recitals.

“Management Agreement” and “Management Agreements” is defined in the Recitals.

“Manager” is defined in the Preamble.

“Manager Shortfall Advance” is defined in Section 5.01.

“Non-Economic Facilities” is defined in Section 5.02.

“Priority Return Shortfall” is defined in Section 5.01.

“TRS” is defined in the Preamble.

ARTICLE II
GENERAL

The parties agree that so long as a Facility is subject to this Agreement, all Working Capital and all Gross Revenues of such Facility shall be pooled pursuant to this Agreement and disbursed to pay all Aggregate Facility Expenses, fees and other amounts due Manager and TRSes (not including amounts due pursuant to Section 15.05 of the Management Agreements) with respect to the Facilities and that the corresponding provisions of each Management Agreement shall be superseded as provided in Section 3.03.  The parties further agree that if Manager gives a notice of non-renewal of the Term with respect to any Facility, it shall be deemed to be a notice of non-renewal of the Term with respect to all the Facilities.

ARTICLE III
PRIORITIES FOR
DISTRIBUTION OF AGGREGATE GROSS REVENUES

3.01.Priorities for Distribution of Aggregate Gross Revenues.  Aggregate Gross Revenues shall be distributed in the following order of priority:

(1)First, to pay Aggregate Facility Expenses (which shall not include the Aggregate Base Fee).

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(2)Second, to Manager to pay the Aggregate Base Fee and any interest that may have accrued pursuant to Section 3.02.

(3)Third, to TRS in an amount equal to the Aggregate TRS Priority Return and any interest that may have accrued pursuant to Section 3.02.

(4)Fourth, to Manager to reimburse it for payment of any Manager Shortfall Advance, plus applicable interest calculated at the Interest Rate.

(5)Fifth, to Manager, in an amount equal to the Aggregate Incentive Fee.

(6)Sixth, to TRS, in an amount equal to the Aggregate TRS Residual Payment.

3.02.Timing of Payments.  Payment of the Aggregate Facility Expenses, excluding the Aggregate Base Fee, shall be made in the ordinary course of business.  The Aggregate Base Fee and accrued interest, if any, shall be paid on the first Business Day of each calendar month, in advance, based upon Manager’s then estimate of the prior month’s Aggregate Gross Revenues.  The Aggregate TRS Priority Return and accrued interest, if any, shall be paid on the first Business Day of each calendar month, in advance in approximately equal monthly installments, based upon Aggregate Invested Capital most recently reported to Manager by TRS. The Aggregate Base Fee and Aggregate TRS’s Priority Return shall be subject to adjustment by increasing or decreasing the payment due in the following month based upon Aggregate Gross Revenues reflected in the Aggregate Monthly Financial Statements and increases or decreases in Aggregate Invested Capital reported to Manager by TRS, as the case may be.  If any installment of the Aggregate Base Fee or the Aggregate TRS Priority Return is not paid when due, it shall accrue and bear interest at the Interest Rate. The Aggregate Incentive Fee and Aggregate TRS Residual Payment shall be paid on the last Business Day of the calendar month following the month to which such Aggregate Incentive Fee and Aggregate TRS Residual Payment relate, in arrears, and shall be based upon the Aggregate Monthly Statements.  Additional adjustments to all payments will be made on an annual basis based upon the Aggregate Monthly Statements for the full calendar year and any audits conducted pursuant to Section 6.03 of the Management Agreements.  The Aggregate TRS Priority Return and Aggregate TRS Residual Payment shall be allocated among TRSes as the TRSes shall determine in their sole discretion and Manager shall have no responsibility or liability in connection therewith.

3.03.Relationship with Management Agreements.  For as long as this Agreement is in effect with respect to a Facility, the provisions of Section 3.01 and 3.02 shall supersede Sections 5.01 and 5.02 of the Management Agreement then in effect with the applicable Facility.

ARTICLE IV
FINANCIAL STATEMENTS

Manager shall prepare and deliver the following financial statements to the TRSes:

(a)not later than ten Business Days after the end of each calendar month, a consolidated balance sheet and related statement of income and expense of all of the Facilities for such calendar month and for the then current calendar year to date, certified

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by Manager’s Controller on a monthly basis and by Manager’s Chief Financial Officer on a quarterly basis as being true and correct to the best of his/her knowledge (“Aggregate Monthly Statement”).

(b)Manager shall also prepare and deliver such other statements or reports as any TRS may, from time to time, reasonably request.

The financial statements delivered pursuant to this Article IV are in addition to any financial statements required to be prepared and delivered pursuant to the Management Agreements.

ARTICLE V
SHORTFALL; NON-ECONOMIC FACILITIES

5.01.Shortfall.  If in each of three consecutive calendar years the Aggregate TRS Priority Return (together with any accrued interest) has not been paid in full (a “Priority Return Shortfall”), by notice given after December 31 of the fifth calendar year following the year in which the last Facility or Additional Facility became subject to this Agreement, within sixty (60) days after receipt of the Aggregate Annual Statement for such third year, the TRSes may terminate all, but not less than all, of the Management Agreements.  Prior to exercising the right to terminate, TRSes shall give Manager notice and if within ten (10) days thereafter, Manager funds the Priority Return Shortfall (a “Manager Shortfall Advance”), TRSes shall not exercise the right to terminate, provided Manger may not exercise its right to fund the Priority Return Shortfall more frequently than once every four (4) years.  Manager may recover any amounts paid by it as a Manager Shortfall Advance as provided in Section 3.01, provided that amounts not recovered during the four (4) calendar years following the year in which payment of a Manager Shortfall Advance was made shall be deemed waived and shall not be payable in any subsequent year.

5.02.Non-Economic Facilities.  If the Gross Revenues of any Facility are insufficient to pay all Facility Expenses and the Base Fee of such Facility in full during each of two (2) consecutive calendar years, Manager shall, upon thirty (30) days notice to the relevant TRS, be entitled to designate such Facility a “Non-Economic Facility.”  Notwithstanding the foregoing, Manager shall not be entitled without the Owner’s consent to designate Facilities for which the Invested Capital in the aggregate would exceed twenty percent (20%) of Aggregate Invested Capital and further provided for purposes of this Section 5.02 only, Aggregate Invested Capital shall be determined without giving effect to the termination of the Management Agreement of a Non-Economic Facility and without reduction for proceeds from the sale, or deemed sale, of any Non-Economic Facility.  Manager may request an increase in the foregoing twenty percent (20%) threshold at any time, which Owner may accept or reject in its sole discretion.

Manager shall market a Facility designated as a Non-Economic Facility for sale and any costs incurred by the Manager in connection with such marketing activities and the sale of such Facility shall be paid out of the net proceeds of such sale.  The relevant TRS and Owner shall cooperate with Manager in compiling any relevant information, preparing marketing materials and otherwise in connection with the sale of a Non-Economic Facility.

5.03.Sale Process.  If a Non-Economic Facility is marketed for sale in accordance with Section 5.02 and Manager receives an offer therefor which it wishes to accept on behalf of the

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TRS and Owner, Manager shall give the relevant TRS prompt notice thereof, which notice shall include a copy of the offer and any other information reasonably requested by such TRS.  If the relevant TRS, on behalf of the relevant Owner, shall fail to accept or reject such offer within seven (7) Business Days after receipt of such notice and other information from Manager, such offer shall be deemed to be accepted.  If the offer is rejected by the relevant TRS on behalf of the relevant Owner and, if the Manager elects to continue marketing the Facility by providing written notice to the relevant TRS within seven (7) days of such rejection and the Manager does not obtain another offer within ninety (90) days that is accepted by the relevant TRS, the Non-Economic Facility shall be deemed to have been sold to the relevant TRS on the date, at the price and on the other terms contained in the offer.  If a Non-Economic Facility is sold to a third party or deemed to have been sold to the relevant Owner pursuant to such offer, effective as of the date of sale or deemed sale: (i) the Management Agreement shall terminate with respect to such Non-Economic Facility; (ii) the Aggregate Invested Capital shall be reduced by an amount equal to the net proceeds of sale after reduction for the costs and expenses of the relevant TRS, relevant Owner and/or Manager (or, in the case of a deemed sale, the net proceeds of sale determined by reference to such offer, after reduction for any amounts actually expended and any amounts which would reasonably have been expected to have been expended if the sale had been consummated, by the relevant TRS, relevant Owner and/or Manager).  If the reduction of Aggregate Invested Capital is less than the Invested Capital of the Non-Economic Facility sold or deemed sold, the difference shall be proportionately reallocated to the Invested Capital of the remaining Facilities.

ARTICLE VI
ACCOUNTS

All Working Capital and all Gross Revenues of each of the Facilities may be pooled and deposited in one or more bank accounts in the name(s) of the TRSes designated by Manager, which accounts may, except as required by any Mortgage and related loan documentation or applicable law, be commingled accounts containing other funds owned by or managed by Manager.  Manager shall be authorized to access the accounts without the approval of TRSes, subject to any limitation on the maximum amount of any check, if any, established between Manager and TRSes as part of the Annual Operating Budgets.  One or more TRSes shall be a signatory on all accounts maintained with respect to the Facility, and TRSes shall have the right to require that one or more TRS’s signature be required on all checks/withdrawals after the occurrence of an Event of Default by Manager under this Agreement.  The TRSes shall provide such instructions to the applicable bank(s) as are necessary to permit Manager to implement the Manager’s rights and obligations under this Agreement.  The failure of any TRS to provide such instructions shall relieve Manager of its obligations hereunder until such time as such failure is cured.

ARTICLE VII
ADDITION AND REMOVAL OF FACILITIES

7.01.Addition of Facilities.  At any time and from time to time, Manager and any TRS or any Affiliate of TRS (an “Additional TRS”) which enters into a management agreement with Manager (an “Additional Management Agreement”) for the operation of an additional assisted living facility or skilled nursing facility (an “Additional Facility”), the Additional TRS may

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become a party to this Agreement by signing an accession agreement confirming the applicability of this Agreement to such Additional Facility.  If an Additional Facility is made subject to this Agreement other than on the first day of a calendar month, the parties shall include such prorated amounts of the Gross Revenues and Facility Expenses (and other amounts as may be necessary) applicable to the Additional Facility for such calendar month, as mutually agreed in their reasonable judgment, in the calculation of Aggregate Gross Revenues and Aggregate Facility Expenses (and other amounts as may be necessary) for the calendar month in which the Additional Facility became subject to this Agreement and shall make any other prorations, adjustments, allocations and changes required.  Additionally, any amounts held as Working Capital or for Capital Replacements at the Additional Facility, if any, shall be held by Manager under this Agreement.

7.02.Removal of Facilities.  From and after the date of termination of any Management Agreement, the Facility managed thereunder shall no longer be subject to this Agreement.  If the termination occurs on a day other than the last day of a calendar month, the parties shall exclude such prorated amounts of the Gross Revenues and Facility Expenses (and other amounts as may be necessary) applicable to such Facility for such calendar month, as mutually agreed in their reasonable judgment, in the calculation of Aggregate Gross Revenues and Aggregate Facility Expenses (and other amounts as may be necessary) for the calendar month in which the termination occurred.  Additionally, the relevant TRS and Manager, both acting reasonably, shall mutually agree to the portion of the Working Capital and Aggregate Gross Revenues and any amounts being held by Manager for Capital Replacements allocable to the Facility being removed from this Agreement and the amount of the Working Capital, Aggregate Gross Revenues and amounts being held by Manager for Capital Replacements, if any, so allocated shall be remitted to the relevant TRS and the relevant TRS and Manager shall make any other prorations, adjustments, allocations and changes required.

ARTICLE VIII
TERM AND TERMINATION

8.01.Term.  This Agreement shall continue and remain in effect indefinitely unless terminated pursuant to Section 8.02.

8.02.Termination.  This Agreement may be terminated as follows:

(a)By the mutual consent of Manager and TRSes which are parties to the Agreement.

(b)Automatically, if all Management Agreements terminate or expire for any reason.

(c)By Manager, if any or all TRSes do not cure a material breach of this Agreement by any TRS or Owner within thirty (30) days of written notice of such breach from Manager and if such breach is not cured, it shall be an Event of Default under the Management Agreements.

(d)By TRSes, if Manager does not cure a material breach of this Agreement by Manager within thirty (30) days of written notice of such breach from any TRS.

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8.03.Effect of Termination.  Upon the termination of this Agreement, except as otherwise provided in Section 12.02(i) or 14.04 of the Management Agreements, Manager shall be compensated for its services only through the date of termination and all amounts remaining in any accounts maintained by Manager pursuant to Article VI, after payment of such amounts as may be due to Manager hereunder, shall be distributed to TRSes.  Notwithstanding the foregoing, upon the termination of any single Management Agreement, pooled funds shall be allocated as described in Section 7.02.

8.04.Survival.  The following Sections of this Agreement shall survive the termination of this Agreement:  8.03 and Article IX.

ARTICLE IX
MISCELLANEOUS PROVISIONS

9.01.Notices.  All notices, demands, consents, approvals, and requests given by any party to another party hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, upon confirmation of receipt when transmitted by facsimile transmission, or on the next business day if transmitted by nationally recognized overnight courier, to the parties at the following addresses:

To TRS:

c/o SNH SE Tenant TRS, Inc.

Two Newton Place

225 Washington Street

Newton, Massachusetts 02458

Attn:  David J. Hegarty

Telephone: (617) 796-8104

Facsimile: (617) 796-8349

To Manager:

FVE Managers, Inc.

400 Centre Street

Newton, Massachusetts 02458

Attn:  Bruce J. Mackey

Telephone: (617) 796-8214

Facsimile: (617) 796-8243

9.02.Applicable Law; Arbitration.  This Agreement shall be interpreted, construed, applied and enforced in accordance with the laws of the Commonwealth of Massachusetts, with regard to its “choice of law” rules.  Any “Dispute” (as such term is defined in the Management Agreements) under this Agreement shall be resolved through final and binding arbitration conducted in accordance with the procedures and with the effect of, arbitration as provided for in the Management Agreements.

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9.03.Severability.  If any term or provision of this Agreement or the application thereof in any circumstance is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.

9.04.Gender and Number.  Whenever the context of this Agreement requires, the gender of all words herein shall include the masculine, feminine, and neuter, and the number of all words herein shall include the singular and plural.

9.05.Headings and Interpretation.  The descriptive headings in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement.  References to “Section” in this Agreement shall be a reference to a Section of this Agreement unless otherwise indicated.  Whenever the words “include”, “includes” or “including” are used in this Agreement they shall be deemed to be followed by “without limitation.”  The words “hereof,” “herein,” “hereby,” and “hereunder, when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision unless otherwise indicated.  The word “or” shall not be exclusive.  This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting.

9.06.Confidentiality of Information.  Any information exchanged between the Manager and each TRS pursuant to the terms and conditions of this Agreement shall be subject to Sections 17.06 or 17.07 of the Management Agreement and the Business Associate Agreement entered into between the Manager and each TRS.

9.07.Assignment.  Neither Manager nor any TRS may assign its rights and obligations under this Agreement to any other Person without the prior written consent of the other parties.

9.08.Entire Agreement; Construction; Amendment.  With respect to the subject matter hereof, this Agreement supersedes all previous contracts and understandings between the parties and constitutes the entire Agreement between the parties with respect to the subject matter hereof.  Accordingly, in the event of any conflict between the provisions of this Agreement and the Management Agreements, the provisions of this Agreement shall control, and the provisions of the Management Agreements are deemed amended and modified, in each case as required to give effect to the intent of the parties in this Agreement.  All other terms and conditions of the Management Agreements shall remain in full force and effect; provided that, to the extent that compliance with this Agreement shall cause a default, breach or other violation of the Management Agreement by one party, the other party waives any right of termination, indemnity, arbitration or otherwise under the Management Agreement related to that specific default, breach or other violations, to the extent caused by compliance with this Agreement.  This Agreement may not be modified, altered or amended in any manner except by an amendment in writing, duly executed by the parties hereto.

9.09.Third Party Beneficiaries.  The terms and conditions of this Agreement shall inure to the benefit of, and be binding upon, the respective successors, heirs, legal representatives or

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permitted assigns of each of the parties hereto and except for Owners, which are intended third party beneficiaries, no Person other than the parties hereto and their successors and permitted assigns is intended to be a beneficiary of this Agreement.

[Signatures begin on the following page.]

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IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement with the intention of creating an instrument under seal.

FVE Managers, Inc.
By:	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President
SNH SE Tenant TRS, Inc.
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	President
SNH SE Daniel Island Tenant LLC
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	President
SNH SE SG Tenant LLC
By:	/s/ Richard A. Doyle
	Richard A. Doyle
	President

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Schedule A

TRSes

SNH SE Tenant TRS, Inc.

SNH SE Daniel Island Tenant LLC

SNH SE SG Tenant LLC

Schedule B

Facilities

Five Star Premier Residences of Pompano Beach, Pompano Beach, FL

The Terrace at Priceville, Priceville, AL

Summit Place of Daniel Island, Charleston, SC

Savannah Grace and Cooper Hall, Mt. Pleasant SC

The Gardens at Sun City, Sun City, AZ

The Gardens at Scottsdale, Scottsdale, AZ

The Gardens at Virginia Beach, Virginia Beach, VA

The Gardens at Bellaire, Bellaire, TX

The Horizon Club, Deerfield Beach, Deerfield, FL

Calusa Harbour, Fort Myers, FL

Stratford Court of Palm Harbor, Palm Harbor, FL

The Gardens of Port St. Lucie, Port St. Lucie, FL

Schedule C

Management Agreements

Management Agreement dated December 15, 2011 between FVE Managers, Inc. and SNH SE Tenant TRS, Inc. (Five Star Premier Residences of Pompano Beach)

Management Agreement dated February 1, 2012 between FVE Managers, Inc. and SNH SE Tenant TRS, Inc. (The Terrace at Priceville)

Management Agreement dated May 29, 2012, 2012 between FVE Managers, Inc. and SNH SE Daniel Island Tenant LLC (Summit Place of Daniel Island)

Management Agreement dated July 1, 2012, 2012 between FVE Managers, Inc. and SNH SE SG Tenant LLC (Cooper Hall and Savannah Grace)

Management Agreement dated September 1, 2012 between FVE Managers, Inc. and SNH SE Tenant TRS, Inc. (The Gardens of Sun City)

Management Agreement dated September 1, 2012 between FVE Managers, Inc. and SNH SE Tenant TRS, Inc. (The Gardens of Scottsdale)

Management Agreement dated September 1, 2012 between FVE Managers, Inc. and SNH SE Tenant TRS, Inc. (The Gardens of Virginia Beach)

Management Agreement dated October 1, 2012 between FVE Managers, Inc. and SNH SE Tenant TRS, Inc. (The Gardens of Bellaire)

Management Agreement dated October 1, 2012 between FVE Managers, Inc. and SNH SE Tenant TRS, Inc. (The Horizon Club)

Management Agreement dated October 1, 2012 between FVE Managers, Inc. and SNH SE Tenant TRS, Inc. (Calusa Harbour)

Management Agreement dated October 1, 2012 between FVE Managers, Inc. and SNH SE Tenant TRS, Inc. (Stratford Court of Palm Harbor)

Management Agreement dated October 1, 2012 between FVE Managers, Inc. and SNH SE Tenant TRS, Inc. (The Gardens of Port St. Lucie)

EX-10.4

Exhibit 10.4

EIGHTH AMENDMENT TO
AMENDED AND RESTATED MASTER LEASE AGREEMENT
(LEASE NO. 1)

THIS EIGHTH AMENDMENT TO AMENDED AND RESTATED MASTER LEASE AGREEMENT (LEASE NO. 1) (this “Amendment”) is made and entered into as of August 31, 2012 by and among each of the parties identified on the signature pages hereof as a landlord (collectively, “Landlord”) and FIVE STAR QUALITY CARE TRUST, a Maryland business trust (“Tenant”).

W I T N E S S E T H:

WHEREAS, pursuant to the terms of that certain Amended and Restated Master Lease Agreement (Lease No. 1), dated as of August 4, 2009, as amended by that certain Partial Termination of and First Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of October 1, 2009, that certain Second Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of November 17, 2009, that certain Third Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of December 10, 2009, that certain Partial Termination of and Fourth Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of August 1, 2010, that certain Fifth Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of May 1, 2011, that certain Partial Termination of and Sixth Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of June 1, 2011 and that certain Seventh Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of June 20, 2011 (as so amended, “Amended Lease No. 1”), Landlord leases to Tenant, and Tenant leases from Landlord, the Leased Property (this and other capitalized terms used but not otherwise defined herein having the meanings given such terms in Amended Lease No. 1), all as more particularly described in Amended Lease No. 1; and

WHEREAS, simultaneously herewith, SNH/LTA Properties Trust (“SNH/LTA”) has acquired the real property and related improvements comprising: (i) the senior living facility known as Aspenwood and located at 14400 Homecrest Road, Silver Spring, MD 20906, as more particularly described on Exhibit A-64 attached hereto (the “Aspenwood Property”); and (ii) the senior living facility known as HeartFields at Easton and located at 700 Port Street, Easton, MD 21601, as more particularly described on Exhibit A-65 attached hereto (the “Easton Property”); and

WHEREAS, SNH/LTA wishes to lease the Aspenwood Property and the Easton Property to Tenant and Tenant wishes to lease the Aspenwood Property and the Easton Property from SNH/LTA; and

WHEREAS, SNH/LTA and the other entities comprising Landlord, and Tenant, wish to amend Amended Lease No. 1 to include the Aspenwood Property and the Easton Property;

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree that, effective as of the date hereof, Amended Lease No. 1 is hereby amended as follows:

1.Definition of Minimum Rent.  The defined term “Minimum Rent” set forth in Section 1.68 of Amended Lease No. 1 is deleted in its entirety and replaced with the following:

“Minimum Rent”  shall mean the sum of Fifty-Eight Million, Five Hundred Forty-Seven Thousand, Two Hundred Twenty-One and 50/100 Dollars ($58,547,221.50) per annum.

2.Leased Property.  Section 2.1 of Amended Lease No. 1 is hereby amended by deleting subsection (a) therefrom in its entirety and replacing it with the following:

(a)  those certain tracts, pieces and parcels of land as more particularly described on Exhibits A-1 through A-65 attached hereto and made a part hereof (the “Land”);

3.Arbitration.  Article 22 of Amended Lease No. 1 is deleted in its entirety and replaced with the following:

ARTICLE 22

ARBITRATION

(a)Any disputes, claims or controversies between or among the parties hereto (i) arising out of or relating to this Agreement, or (ii) brought by or on behalf of any shareholder of the parties hereto (which, for purposes of this Article 22, shall mean any shareholder of record or any beneficial owner of shares of the parties hereto, or any former shareholder of record or beneficial owner of shares of the parties hereto), either on his, her or its own behalf, on behalf of the parties hereto or on behalf of any series or class of shares of the parties hereto or shareholders of the parties hereto against the parties hereto or any trustee, director, officer, manager (including Reit Management & Research LLC or its successor), agent or employee of the parties hereto, including disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of this Agreement, including this arbitration agreement, the declaration of trust, limited liability company agreement, partnership agreement or analogous governing instruments, as applicable, of the parties hereto, or the bylaws of the parties hereto (all of which are referred to as “Disputes”), or relating in any way to such a Dispute or Disputes, shall on the demand of any party to such Dispute be resolved through binding and final arbitration in accordance with the Commercial Arbitration Rules (the “Rules”) of the American Arbitration Association (“AAA”) then in effect, except as those Rules may be modified in this Article 22.  For the avoidance of doubt, and not as a limitation, Disputes are intended to include derivative actions against trustees, directors, officers or managers of the parties hereto and class actions by a shareholder against those individuals or entities and the parties hereto.  For the avoidance of doubt, a Dispute shall include a Dispute made derivatively on behalf of one party against another party.

(b)There shall be three arbitrators.  If there are only two parties to the Dispute (with, for purposes of this Article 22, any and all parties involved in the Dispute and owned by the same ultimate parent entity treated as one party), each party shall select one arbitrator within 15 days after receipt by respondent of a copy of the demand for arbitration.  Such arbitrators may be affiliated or interested persons of such parties.  If either party fails to timely select an arbitrator,

2

the other party to the Dispute shall select the second arbitrator who shall be neutral and impartial and shall not be affiliated with or an interested person of either party. If there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, shall each select, by the vote of a majority of the claimants or the respondents, as the case may be, one arbitrator. Such arbitrators may be affiliated or interested persons of the claimants or the respondents, as the case may be.  If either all claimants or all respondents fail to timely select an arbitrator then such arbitrator (who shall be neutral, impartial and unaffiliated with any party) shall be appointed by the AAA.  The two arbitrators so appointed shall jointly appoint the third and presiding arbitrator (who shall be neutral, impartial and unaffiliated with any party) within 15 days of the appointment of the second arbitrator.  If the third arbitrator has not been appointed within the time limit specified herein, then the AAA shall provide a list of proposed arbitrators in accordance with the Rules, and the arbitrator shall be appointed by the AAA in accordance with a listing, striking and ranking procedure, with each party having a limited number of strikes, excluding strikes for cause.

(c)The place of arbitration shall be Boston, Massachusetts unless otherwise agreed by the parties.

(d)There shall be only limited documentary discovery of documents directly related to the issues in dispute, as may be ordered by the arbitrators.

(e)In rendering an award or decision (the “Award”), the arbitrators shall be required to follow the laws of the Commonwealth of Massachusetts.  Any arbitration proceedings or Award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq.  The Award shall be in writing and may, but shall not be required to, briefly state the findings of fact and conclusions of law on which it is based.

(f)Except to the extent expressly provided by Article 22 or as otherwise agreed by the parties, each party involved in a Dispute shall bear its own costs and expenses (including attorneys’ fees), and the arbitrators shall not render an award that would include shifting of any such costs or expenses (including attorneys’ fees) or, in a derivative case or class action, award any portion of Assignor’s or Assignee’s award to the claimant or the claimant’s attorneys.  Except to the extent otherwise agreed by the parties, each party (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, respectively) shall bear the costs and expenses of its (or their) selected arbitrator and the parties (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand) shall equally bear the costs and expenses of the third appointed arbitrator.

(g)An Award shall be final and binding upon the parties thereto and shall be the sole and exclusive remedy between such parties relating to the Dispute, including any claims, counterclaims, issues or accounting presented to the arbitrators.  Judgment upon the Award may be entered in any court having jurisdiction.  To the fullest extent permitted by law, no application or appeal to any court of competent jurisdiction may be made in connection with any question of law arising in the course of arbitration or with respect to any award made except for actions relating to enforcement of this agreement to arbitrate or any arbitral award issued hereunder and

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except for actions seeking interim or other provisional relief in aid of arbitration proceedings in any court of competent jurisdiction.

(h)Any monetary award shall be made and payable in U.S. dollars free of any tax, deduction or offset.  Each party against which the Award assesses a monetary obligation shall pay that obligation on or before the 30th day following the date of the Award or such other date as the Award may provide.

(i)This Article 22 is intended to benefit and be enforceable by the shareholders, trustees, directors, officers, managers (including Reit Management & Research LLC or its successor), agents or employees of any party and the parties and shall be binding on the shareholders of any party and the parties, as applicable, and shall be in addition to, and not in substitution for, any other rights to indemnification or contribution that such individuals or entities may have by contract or otherwise.

4.Schedule 1.  Schedule 1 to Amended Lease No. 1 is deleted in its entirety and replaced with Schedule 1 attached hereto.

5.Exhibit A.  Exhibit A to Amended Lease No. 1 is amended by adding Exhibit A-64 and Exhibit A-65 attached hereto immediately following Exhibit A-63 to Amended Lease No. 1.

6.Ratification.  As amended hereby, Amended Lease No. 1 is hereby ratified and confirmed.

[Remainder of page intentionally left blank; signature pages follow]

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IN WITNESS WHEREOF, the parties have executed this Amendment as a sealed instrument as of the date above first written.

LANDLORD:
SNH SOMERFORD PROPERTIES TRUST
By:	/s/ David J. Hegarty
	David J. Hegarty
	President
SPTMNR PROPERTIES TRUST
By:	/s/ David J. Hegarty
	David J. Hegarty
	President
SNH/LTA PROPERTIES TRUST
By:	/s/ David J. Hegarty
	David J. Hegarty
	President
SPTIHS PROPERTIES TRUST
By:	/s/ David J. Hegarty
	David J. Hegarty
	President
SNH CHS PROPERTIES TRUST
By:	/s/ David J. Hegarty
	David J. Hegarty
	President
SNH/LTA PROPERTIES GA LLC
By:	/s/ David J. Hegarty
	David J. Hegarty
	President

TENANT:
FIVE STAR QUALITY CARE TRUST
By:	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President

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SCHEDULE 1

PROPERTY-SPECIFIC INFORMATION

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)		Commencement Date	Interest Rate
A-1	La Mesa Healthcare Center 2470 South Arizona Avenue Yuma, AZ 85364	2005	$	6,333,157	12/31/2001	10	%
A-2	SunQuest Village of Yuma 265 East 24th Street Yuma, AZ 85364	2005	$	543,595	12/31/2001	10	%
A-3	Somerford Place - Encinitas 1350 South El Camino Real Encinitas, CA 92024	2009	N/A		03/31/2008	8	%
A-4	Somerford Place - Fresno 6075 North Marks Avenue Fresno, CA 93711	2009	N/A		03/31/2008	8	%
A-5	Lancaster Healthcare Center 1642 West Avenue J Lancaster, CA 93534	2005	$	6,698,648	12/31/2001	10	%
A-6	Somerford Place — Redlands 1319 Brookside Avenue Redlands, CA 92373	2009	N/A		03/31/2008	8	%
A-7	Somerford Place - Roseville 110 Sterling Court Roseville, CA 95661	2009	N/A		03/31/2008	8	%
A-8	Leisure Pointe 1371 Parkside Drive San Bernardino, CA 92404	2007	$	1,936,220	09/01/2006	8.25	%
A-9	Van Nuys Health Care Center 6835 Hazeltine Street Van Nuys, CA 91405	2005	$	3,626,353	12/31/2001	10	%
A-10	Mantey Heights Rehabilitation & Care Center 2825 Patterson Road Grand Junction, CO 81506	2005	$	5,564,949	12/31/2001	10	%
A-11	Cherrelyn Healthcare Center 5555 South Elati Street Littleton, CO 80120	2005	$	12,574,200	12/31/2001	10	%
A-12	Somerford House and Somerford Place — Newark I & II 501 South Harmony Road and 4175 Ogletown Road Newark, DE 19713	2009	N/A		03/31/2008	8	%
A-13	Tuscany Villa Of Naples (aka Buena Vida) 8901 Tamiami Trail East Naples, FL 34113	2008	$	2,157,675	09/01/2006	8.25	%
A-14	Intentionally Deleted.	N/A	N/A		N/A	N/A
A-15	Morningside of Columbus 7100 South Stadium Drive Columbus, GA 31909	2006	$	1,381,462	11/19/2004	9	%
A-16	Morningside of Dalton 2470 Dug Gap Road Dalton, GA 30720	2006	$	1,196,357	11/19/2004	9	%
A-17	Morningside of Evans 353 North Belair Road Evans, GA 30809	2006	$	1,433,421	11/19/2004	9	%

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)		Commencement Date	Interest Rate
A-18	Vacant Land Adjacent to Morningside of Macon 6191 Peake Road Macon, GA 31220	2006	N/A		11/19/2004	9	%
A-19	Intentionally Deleted.	N/A	N/A		N/A	N/A
A-20	Union Park Health Services 2401 East 8th Street Des Moines, IA 50316	2005	$	4,404,678	12/31/2001	10	%
A-21	Park Place 114 East Green Street Glenwood, IA 51534	2005	$	8,109,512	12/31/2001	10	%
A-22	Prairie Ridge Care & Rehabilitation 608 Prairie Street Mediapolis, IA 52637	2005	$	3,234,505	12/31/2001	10	%
A-23	Ashwood Place 102 Leonardwood Frankfort, KY 40601	2007	$	1,769,726	09/01/2006	8.25	%
A-24	Somerford Place - Annapolis 2717 Riva Road Annapolis, MD 21401	2009	N/A		03/31/2008	8	%
A-25	Somerford Place - Columbia 8220 Snowden River Parkway Columbia, MD 21045	2009	N/A		03/31/2008	8	%
A-26	Somerford Place - Frederick 2100 Whittier Drive Frederick, MD 21702	2009	N/A		03/31/2008	8	%
A-27	Somerford Place - Hagerstown 10114 & 10116 Sharpsburg Pike Hagerstown, MD 21740	2009	N/A		03/31/2008	8	%
A-28	The Wellstead of Rogers 20500 and 20600 South Diamond Lake Road Rogers, MN 55374	2009	N/A		03/01/2008	8	%
A-29	Arbor View Healthcare & Rehabilitation (aka Beverly Manor) 1317 North 36th St St. Joseph, MO 64506	2005	$	4,339,882	12/31/2001	10	%
A-30	Hermitage Gardens of Oxford 1488 Belk Boulevard Oxford, MS 38655	2007	$	1,816,315	10/01/2006	8.25	%
A-31	Hermitage Gardens of Southaven 108 Clarington Drive Southaven, MS 38671	2007	$	1,527,068	10/01/2006	8.25	%
A-32	Ashland Care Center 1700 Furnace Street Ashland, NE 68003	2005	$	4,513,891	12/31/2001	10	%
A-33	Blue Hill Care Center 414 North Wilson Street Blue Hill, NE 68930	2005	$	2,284,065	12/31/2001	10	%
A-34	Central City Care Center 2720 South 17th Avenue Central City, NE 68462	2005	$	2,005,732	12/31/2001	10	%
A-35	Intentionally deleted.	N/A	N/A		N/A	N/A
A-36	Gretna Community Living Center 700 South Highway 6 Gretna, NE 68028	2005	$	3,380,356	12/31/2001	10	%

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)		Commencement Date	Interest Rate
A-37	Sutherland Care Center 333 Maple Street Sutherland, NE 69165	2005	$	2,537,340	12/31/2001	10	%
A-38	Waverly Care Center 11041 North 137th Street Waverly, NE 68462	2005	$	3,066,135	12/31/2001	10	%
A-39	Intentionally deleted.	N/A	N/A		N/A	N/A
A-40	Ridgepointe 5301 Brownsville Road Pittsburgh, PA 15236	2006	$	1,944,499	10/31/2005	9	%
A-41	Mount Vernon of South Park 1400 Riggs Road South Park, PA 15129	2006	$	2,718,057	10/31/2005	9	%
A-42	Morningside of Gallatin 1085 Hartsville Pike Gallatin, TN 37066	2006	$	1,343,801	11/19/2004	9	%
A-43	Walking Horse Meadows 207 Uffelman Drive Clarksville, TN 37043	2007	$	1,471,410	01/01/2007	8.25	%
A-44	Morningside of Belmont 1710 Magnolia Boulevard Nashville, TN 37212	2006	$	3,131,648	06/03/2005	9	%
A-45	Dominion Village at Chesapeake 2856 Forehand Drive Chesapeake, VA 23323	2005	$	1,416,951	05/30/2003	10	%
A-46	Dominion Village at Williamsburg 4132 Longhill Road Williamsburg, VA 23188	2005	$	1,692,753	05/30/2003	10	%
A-47	Heartfields at Richmond 500 North Allen Avenue Richmond, VA 23220	2005	$	1,917,765	10/25/2002	10	%
A-48	Brookfield Rehabilitation and Specialty Care (aka Woodland Healthcare Center) 18741 West Bluemound Road Brookfield, WI 53045	2005	$	13,028,846	12/31/2001	10	%
A-49	Meadowmere - Southport Assisted Living 8350 and 8351 Sheridan Road Kenosha, WI 53143	2009	N/A		01/04/2008	8	%
A-50	Meadowmere - Madison Assisted Living 5601 Burke Road Madison, WI 53718	2009	N/A		01/04/2008	8	%
A-51	Sunny Hill Health Care Center 4325 Nakoma Road Madison, WI 53711	2005	$	3,237,633	12/31/2001	10	%
A-52	Mitchell Manor Senior Living 5301 West Lincoln Avenue West Allis, WI 53219	2009	N/A		01/04/2008	8	%
A-53	Laramie Care Center 503 South 18th Street Laramie, WY 82070	2005	$	4,473,949	12/31/2001	10	%

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)		Commencement Date	Interest Rate
A-54	Haven in Highland Creek 5920 McChesney Drive Charlotte, NC 28269 Laurels in Highland Creek 6101 Clark Creek Parkway Charlotte, NC 28269	2010	N/A		11/17/2009	8.75	%
A-55	Haven in the Village at Carolina Place 13150 Dorman Road Pineville, NC 28134 Laurels in the Village at Carolina Place 13180 Dorman Road Pineville, NC 28134	2010	N/A		11/17/2009	8.75	%
A-56	Haven in the Summit 3 Summit Terrace Columbia, SC 29229	2010	N/A		11/17/2009	8.75	%
A-57	Haven in the Village at Chanticleer 355 Berkmans Lane Greenville, SC 29605	2010	N/A		11/17/2009	8.75	%
A-58	Haven in the Texas Hill Country 747 Alpine Drive Kerrville, TX 78028	2010	N/A		11/17/2009	8.75	%
A-59	Haven in Stone Oak 511 Knights Cross Drive San Antonio, TX 78258 Laurels in Stone Oak 575 Knights Cross Drive San Antonio, TX 78258	2010	N/A		11/17/2009	8.75	%
A-60	Eastside Gardens 2078 Scenic Highway North Snellville, GA 30078	2010	N/A		12/10/2009	8.75	%
A-61	Crimson Pointe 7130 Crimson Ridge Drive Rockford, IL 61107	2012	N/A		05/01/2011	8	%
A-62	Talbot Park 6311 Granby Street Norfolk, VA 23305	2012	N/A		06/20/2011	7.5	%
A-63	The Landing at Parkwood Village 1720 Parkwood Boulevard Wilson, NC 27893	2012	N/A		06/20/2011	7.5	%
A-64	Aspenwood 14400 Homecrest Road Silver Spring, MD 20906	2005	$	4,470,354	10/25/2002	10	%
A-65	HeartFields at Easton 700 Port Street Easton, MD 21601	2005	$	2,545,887	10/25/2002	10	%

Exhibit A-64

Aspenwood

14400 Homecrest Road
Silver Spring, MD 20906

(See attached copy.)

Exhibit A-65

HeartFields at Easton

700 Port Street

Easton, MD 21601

(See attached copy.)

EX-10.5

Exhibit 10.5

FIFTH AMENDMENT TO
AMENDED AND RESTATED MASTER LEASE AGREEMENT
(LEASE NO. 2)

THIS FIFTH AMENDMENT TO AMENDED AND RESTATED MASTER LEASE AGREEMENT (LEASE NO. 2) (this “Amendment”) is made and entered into as of August 31, 2012, by and among each of the parties identified on the signature pages hereof as a landlord (collectively, “Landlord”) and each of the parties identified on the signature pages hereof as a tenant (jointly and severally, “Tenant”).

W I T N E S S E T H:

WHEREAS, pursuant to the terms of that certain Amended and Restated Master Lease Agreement (Lease No. 2), dated as of August 4, 2009, as amended by that certain Partial Termination of and First Amendment to Amended and Restated Master Lease Agreement (Lease No. 2), dated as of November 1, 2009, that certain Partial Termination of and Second Amendment to Amended and Restated Master Lease Agreement (Lease No. 2), dated as of August 1, 2010, that certain Third Amendment to Amended and Restated Master Lease Agreement (Lease No. 2), dated as of June 20, 2011, and that certain Fourth Amendment to Amended and Restated Master Lease Agreement (Lease No. 2), dated as of July 22, 2011 (as so amended, “Amended Lease No. 2”), Landlord leases to Tenant, and Tenant leases from Landlord, the Leased Property (this and other capitalized terms used but not otherwise defined herein having the meanings given such terms in Amended Lease No. 2), all as more particularly described in Amended Lease No. 2; and

WHEREAS, simultaneously herewith, SNH/LTA Properties Trust (“SNH/LTA”) has acquired certain senior living facilities known as: (i) Forum at Desert Harbor, located at 13840 North Desert Harbor Drive, Peoria, AZ 85381, as more particularly described on Exhibit A-53 attached hereto (“Desert Harbor”); (ii) Forum at Tucson, located at 2500 North Rosemont Blvd., Tucson, AZ 85712, as more particularly described on Exhibit A-54 attached hereto (“Tucson”); (iii) Park Summit at Coral Springs, located at 8500 Royal Palm Blvd., Coral Springs, FL 33065, as more particularly described on Exhibit A-55 attached hereto (“Coral Springs”); (iv) Gables at Winchester, located at 299 Cambridge Street, Winchester, MA 01890, as more particularly described on Exhibit A-56 attached hereto (“Winchester”); and (v) Forum at Memorial Woods, located at 777 North Post Oak Road, Houston, TX 77024, as more particularly described on Exhibit A-57 attached hereto (“Memorial Woods” and together with Desert Harbor, Tucson, Coral Springs and Winchester, the “Acquired Properties”); and

WHEREAS, SNH/LTA wishes to lease the Acquired Properties to Five Star Quality Care Trust (“FSQC Trust”) and FSQC Trust wishes to lease the Acquired Properties from SNH/LTA; and

WHEREAS, SNH/LTA and the other entities comprising Landlord, and FSQC Trust and the other entities comprising Tenant, wish to amend Amended Lease No. 2 to include the Acquired Properties;

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the mutual receipt and legal sufficiency of which are

hereby acknowledged, Landlord and Tenant hereby agree that, effective from and after the date hereof, Amended Lease No. 2 is hereby amended as follows:

1.Definition of Minimum Rent.  The defined term “Minimum Rent” set forth in Section 1.67 of Amended Lease No. 2 is deleted in its entirety and replaced with the following:

“Minimum Rent”  shall mean the sum of Sixty-Nine Million Eight Hundred Ninety Thousand Two Hundred Sixty and 00/100 Dollars ($69,890,260.00) per annum.

2.Leased Property.  Section 2.1 of Amended Lease No. 2 is amended by deleting subsection (a) therefrom in its entirety and replacing it with the following:

(a)those certain tracts, pieces and parcels of land as more particularly described on Exhibits A-1 through A-57 attached hereto and made a part hereof (the “Land”);

3.Arbitration.  Article 22 of Amended Lease No. 1 is deleted in its entirety and replaced with the following:

ARTICLE 22

ARBITRATION

(a)Any disputes, claims or controversies between or among the parties hereto (i) arising out of or relating to this Agreement, or (ii) brought by or on behalf of any shareholder of the parties hereto (which, for purposes of this Article 22, shall mean any shareholder of record or any beneficial owner of shares of the parties hereto, or any former shareholder of record or beneficial owner of shares of the parties hereto), either on his, her or its own behalf, on behalf of the parties hereto or on behalf of any series or class of shares of the parties hereto or shareholders of the parties hereto against the parties hereto or any trustee, director, officer, manager (including Reit Management & Research LLC or its successor), agent or employee of the parties hereto, including disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of this Agreement, including this arbitration agreement, the declaration of trust, limited liability company agreement, partnership agreement or analogous governing instruments, as applicable, of the parties hereto, or the bylaws of the parties hereto (all of which are referred to as “Disputes”), or relating in any way to such a Dispute or Disputes, shall on the demand of any party to such Dispute be resolved through binding and final arbitration in accordance with the Commercial Arbitration Rules (the “Rules”) of the American Arbitration Association (“AAA”) then in effect, except as those Rules may be modified in this Article 22.  For the avoidance of doubt, and not as a limitation, Disputes are intended to include derivative actions against trustees, directors, officers or managers of the parties hereto and class actions by a shareholder against those individuals or entities and the parties hereto.  For the avoidance of doubt, a Dispute shall include a Dispute made derivatively on behalf of one party against another party.

2

(b)There shall be three arbitrators.  If there are only two parties to the Dispute (with, for purposes of this Article 22, any and all parties involved in the Dispute and owned by the same ultimate parent entity treated as one party), each party shall select one arbitrator within 15 days after receipt by respondent of a copy of the demand for arbitration.  Such arbitrators may be affiliated or interested persons of such parties.  If either party fails to timely select an arbitrator, the other party to the Dispute shall select the second arbitrator who shall be neutral and impartial and shall not be affiliated with or an interested person of either party. If there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, shall each select, by the vote of a majority of the claimants or the respondents, as the case may be, one arbitrator. Such arbitrators may be affiliated or interested persons of the claimants or the respondents, as the case may be.  If either all claimants or all respondents fail to timely select an arbitrator then such arbitrator (who shall be neutral, impartial and unaffiliated with any party) shall be appointed by the AAA.  The two arbitrators so appointed shall jointly appoint the third and presiding arbitrator (who shall be neutral, impartial and unaffiliated with any party) within 15 days of the appointment of the second arbitrator.  If the third arbitrator has not been appointed within the time limit specified herein, then the AAA shall provide a list of proposed arbitrators in accordance with the Rules, and the arbitrator shall be appointed by the AAA in accordance with a listing, striking and ranking procedure, with each party having a limited number of strikes, excluding strikes for cause.

(c)The place of arbitration shall be Boston, Massachusetts unless otherwise agreed by the parties.

(d)There shall be only limited documentary discovery of documents directly related to the issues in dispute, as may be ordered by the arbitrators.

(e)In rendering an award or decision (the “Award”), the arbitrators shall be required to follow the laws of the Commonwealth of Massachusetts.  Any arbitration proceedings or Award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq.  The Award shall be in writing and may, but shall not be required to, briefly state the findings of fact and conclusions of law on which it is based.

(f)Except to the extent expressly provided by Article 22 or as otherwise agreed by the parties, each party involved in a Dispute shall bear its own costs and expenses (including attorneys’ fees), and the arbitrators shall not render an award that would include shifting of any such costs or expenses (including attorneys’ fees) or, in a derivative case or class action, award any portion of Assignor’s or Assignee’s award to the claimant or the claimant’s attorneys.  Except to the extent otherwise agreed by the parties, each party (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, respectively) shall bear the costs and expenses of its (or their) selected arbitrator and the parties (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand) shall equally bear the costs and expenses of the third appointed arbitrator.

(g)An Award shall be final and binding upon the parties thereto and shall be the sole and exclusive remedy between such parties relating to the Dispute, including any claims,

3

counterclaims, issues or accounting presented to the arbitrators.  Judgment upon the Award may be entered in any court having jurisdiction.  To the fullest extent permitted by law, no application or appeal to any court of competent jurisdiction may be made in connection with any question of law arising in the course of arbitration or with respect to any award made except for actions relating to enforcement of this agreement to arbitrate or any arbitral award issued hereunder and except for actions seeking interim or other provisional relief in aid of arbitration proceedings in any court of competent jurisdiction.

(h)Any monetary award shall be made and payable in U.S. dollars free of any tax, deduction or offset.  Each party against which the Award assesses a monetary obligation shall pay that obligation on or before the 30th day following the date of the Award or such other date as the Award may provide.

(i)This Article 22 is intended to benefit and be enforceable by the shareholders, trustees, directors, officers, managers (including Reit Management & Research LLC or its successor), agents or employees of any party and the parties and shall be binding on the shareholders of any party and the parties, as applicable, and shall be in addition to, and not in substitution for, any other rights to indemnification or contribution that such individuals or entities may have by contract or otherwise.

4.Schedule 1.  Schedule 1 to Amended Lease No. 2 is deleted in its entirety and replaced with Schedule 1 attached hereto.

5.Exhibit A.  Exhibit A to Amended Lease No. 2 is amended by adding Exhibits A-53 through A-57, attached hereto, immediately following Exhibit A-52 to Amended Lease No. 2.

6.Ratification.  As amended hereby, Amended Lease No. 2 is hereby ratified and confirmed.

[Remainder of page intentionally left blank; signature pages follow]

4

IN WITNESS WHEREOF, the parties have executed this Amendment as a sealed instrument as of the date above first written.

LANDLORD:
SPTIHS PROPERTIES TRUST
By:	/s/ David J. Hegarty
	David J. Hegarty
	President
SPTMNR PROPERTIES TRUST
By:	/s/ David J. Hegarty
	David J. Hegarty
	President
SNH/LTA PROPERTIES GA LLC
By:	/s/ David J. Hegarty
	David J. Hegarty
	President
SNH/LTA PROPERTIES TRUST
By:	/s/ David J. Hegarty
	David J. Hegarty
	President
O.F.C. CORPORATION
By:	/s/ David J. Hegarty
	David J. Hegarty
	President
SNH CHS PROPERTIES TRUST
By:	/s/ David J. Hegarty
	David J. Hegarty
	President
CCC OF KENTUCKY TRUST
By:	/s/ David J. Hegarty
	David J. Hegarty
	President

LEISURE PARK VENTURE LIMITED PARTNERSHIP
By:		CCC Leisure Park Corporation,
		its General Partner
		By:	/s/ David J. Hegarty
			David J. Hegarty
			President
CCDE SENIOR LIVING LLC
By:	/s/ David J. Hegarty
	David J. Hegarty
	President
CCOP SENIOR LIVING LLC
By:	/s/ David J. Hegarty
	David J. Hegarty
	President
CCC PUEBLO NORTE TRUST
By:	/s/ David J. Hegarty
	David J. Hegarty
	President
CCC RETIREMENT COMMUNITIES II, L.P.
By:		Crestline Ventures LLC,
		its General Partner
		By:	/s/ David J. Hegarty
			David J. Hegarty
			President
CCC INVESTMENTS I, L.L.C.
By:	/s/ David J. Hegarty
	David J. Hegarty
	President

6

CCC FINANCING I TRUST
By:	/s/ David J. Hegarty
	David J. Hegarty
	President
CCC FINANCING LIMITED, L.P.
By:		CCC Retirement Trust,
		its General Partner
		By:	/s/ David J. Hegarty
			David J. Hegarty
			President
SNH SOMERFORD PROPERTIES TRUST
By:	/s/ David J. Hegarty
	David J. Hegarty
	President
HRES1 PROPERTIES TRUST
By:	/s/ David J. Hegarty
	David J. Hegarty
	President

7

TENANT:
FIVE STAR QUALITY CARE TRUST
By:	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President
FS TENANT HOLDING COMPANY TRUST
By:	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President
FS COMMONWEALTH LLC
By:	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President
FS PATRIOT LLC
By:	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President

8

SCHEDULE 1

PROPERTY-SPECIFIC INFORMATION

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)		Commencement Date	Interest Rate
A-1	Ashton Gables in Riverchase 2184 Parkway Lake Drive Birmingham, AL 35244	2009	N/A		08/01/2008	8	%
A-2	Lakeview Estates 2634 Valleydale Road Birmingham, AL 35244	2009	N/A		08/01/2008	8	%
A-3	Forum at Pueblo Norte 7090 East Mescal Street Scottsdale, AZ 85254	2005	$	11,470,312	01/11/2002	10	%
A-4	La Salette Health and Rehabilitation Center 537 East Fulton Street Stockton, CA 95204	2005	$	7,726,002	12/31/2001	10	%
A-5	Thousand Oaks Health Care Center 93 West Avenida de Los Arboles Thousand Oaks, CA 91360	2005	$	8,087,430	12/31/2001	10	%
A-6	Skyline Ridge Nursing & Rehabilitation Center 515 Fairview Avenue Canon City, CO 81212	2005	$	4,104,100	12/31/2001	10	%
A-7	Springs Village Care Center 110 West Van Buren Street Colorado Springs, CO 80907	2005	$	4,799,252	12/31/2001	10	%
A-8	Willow Tree Care Center 2050 South Main Street Delta, CO 81416	2005	$	4,310,982	12/31/2001	10	%
A-9	Cedars Healthcare Center 1599 Ingalls Street Lakewood, CO 80214	2005	$	6,964,007	12/31/2001	10	%
A-10	Millcroft 255 Possum Park Road Newark, DE 19711	2005	$	11,410,121	01/11/2002	10	%
A-11	Forwood Manor 1912 Marsh Road Wilmington, DE 19810	2005	$	13,446,434	01/11/2002	10	%
A-12	Foulk Manor South 407 Foulk Road Wilmington, DE 19803	2005	$	4,430,251	01/11/2002	10	%
A-13	Shipley Manor 2723 Shipley Road Wilmington, DE 19810	2005	$	9,333,057	01/11/2002	10	%
A-14	Forum at Deer Creek 3001 Deer Creek Country Club Blvd. Deerfield Beach, FL 33442	2005	$	12,323,581	01/11/2002	10	%
A-15	Springwood Court 12780 Kenwood Lane Fort Myers, FL 33907	2005	$	2,577,612	01/11/2002	10	%
A-16	Fountainview 111 Executive Center Drive West Palm Beach, FL 33401	2005	$	7,920,202	01/11/2002	10	%

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)		Commencement Date	Interest Rate
A-17	Morningside of Athens 1291 Cedar Shoals Drive Athens, GA 30605	2006	$	1,560,026	11/19/2004	9	%
A-18	Marsh View Senior Living 7410 Skidaway Road Savannah, GA 31406	2007	$	2,108,378	11/01/2006	8.25	%
A-19	Pacific Place 20937 Kane Avenue Pacific Junction, IA 51561	2005	$	848,447	12/31/2001	10	%
A-20	West Bridge Care & Rehabilitation 1015 West Summit Street Winterset, IA 50273	2005	$	3,157,928	12/31/2001	10	%
A-21	Meadowood Retirement Community 2455 Tamarack Trail Bloomington, IN 47408	2009	N/A		11/01/2008	8	%
A-22	Woodhaven Care Center 510 West 7th Street Ellinwood, KS 67526	2005	$	2,704,674	12/31/2001	10	%
A-23	Lafayette at Country Place 690 Mason Headley Road Lexington, KY 40504	2005	$	4,928,052	01/11/2002	10	%
A-24	Lexington Country Place 700 Mason Headley Road Lexington, KY 40504	2005	$	8,893,947	01/11/2002	10	%
A-25	Braintree Rehabilitation Hospital 250 Pond Street Braintree, MA 02184	N/A	N/A		10/01/2006	9	%
A-26	New England Rehabilitation Hospital 2 Rehabilitation Way Woburn, MA 01801	N/A	N/A		10/01/2006	9	%
A-27	HeartFields at Bowie 7600 Laurel Bowie Road Bowie, MD 20715	2005	$	2,436,102	10/25/2002	10	%
A-28	HeartFields at Frederick 1820 Latham Drive Frederick, MD 21701	2005	$	2,173,971	10/25/2002	10	%
A-29	Intentionally deleted.	N/A	N/A		N/A	N/A
A-30	Intentionally deleted.	N/A	N/A		N/A	N/A
A-31	Morys Haven 1112 15th Street Columbus, NE 68601	2005	$	2,440,714	12/31/2001	10	%
A-32	Intentionally deleted.	N/A	N/A		N/A	N/A
A-33	Wedgewood Care Center 800 Stoeger Drive Grand Island, NE 68803	2005	$	4,000,565	12/31/2001	10	%
A-34	Intentionally deleted.	N/A	N/A		N/A	N/A
A-35	Crestview Healthcare Center 1100 West First Street Milford, NE 68405	2005	$	2,284,407	12/31/2001	10	%
A-36	Utica Community Care Center 1350 Centennial Avenue Utica, NE 68456	2005	$	1,950,325	12/31/2001	10	%
A-37	Leisure Park 1400 Route 70 Lakewood, NJ 08701	2005	$	14,273,446	01/07/2002	10	%

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)		Commencement Date	Interest Rate
A-38	Franciscan Manor 71 Darlington Road Patterson Township Beaver Falls, PA 15010	2006	$	4,151,818	10/31/2005	9	%
A-39	Mount Vernon of Elizabeth 145 Broadlawn Drive Elizabeth, PA 15037	2006	$	2,332,574	10/31/2005	9	%
A-40	Overlook Green 5250 Meadowgreen Drive Whitehall, PA 15236	2006	$	3,878,300	10/31/2005	9	%
A-41	Myrtle Beach Manor 9547 Highway 17 North Myrtle Beach, SC 29572	2005	$	6,138,714	01/11/2002	10	%
A-42	Morningside of Anderson 1304 McLees Road Anderson, SC 29621	2006	$	1,381,775	11/19/2004	9	%
A-43	Heritage Place at Boerne 120 Crosspoint Drive Boerne, TX 78006	2009	N/A		02/07/2008	8	%
A-44	Forum at Park Lane 7831 Park Lane Dallas, TX 75225	2005	$	13,620,931	01/11/2002	10	%
A-45	Heritage Place at Fredericksburg 96 Frederick Road Fredericksburg, TX 78624	2009	N/A		02/07/2008	8	%
A-46	Greentree Health & Rehabilitation Center 70 Greentree Road Clintonville, WI 54929	2005	$	3,038,761	12/31/2001	10	%
A-47	Pine Manor Health Care Center Village of Embarrass 1625 East Main Street Clintonville, WI 54929	2005	$	4,337,113	12/31/2001	10	%
A-48	ManorPointe - Oak Creek Independent Senior Apartments and Meadowmere - Mitchell Manor - Oak Creek 700 East Stonegate Drive and 701 East Puetz Road Oak Creek, WI 53154	2009	N/A		01/04/2008	8	%
A-49	River Hills West Healthcare Center 321 Riverside Drive Pewaukee, WI 53072	2005	$	9,211,765	12/31/2001	10	%
A-50	The Virginia Health & Rehabilitation Center 1451 Cleveland Avenue Waukesha, WI 53186	2005	$	6,128,045	12/31/2001	10	%
A-51	1005 Elysian Place Chesapeake, Virginia	2012	N/A		06/20/2011	7.5	%
A-52	Palms at St. Lucie West 501 N.W. Cashmere Boulevard Port St. Lucie, Florida	2012	N/A		07/22/2011	7.5	%
A-53	Forum at Desert Harbor 13840 North Desert Harbor Drive Peoria, AZ 85381	2005	$	9,830,918	01/11/2002	10.0	%
A-54	Forum at Tucson 2500 North Rosemont Blvd. Tucson, AZ 85712	2005	$	13,258,998	01/11/2002	10.0	%

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)		Commencement Date	Interest Rate
A-55	Park Summit at Coral Springs 8500 Royal Palm Blvd. Coral Springs, FL 33065	2005	$	11,229,677	01/11/2002	10.0	%
A-56	Gables at Winchester 299 Cambridge Street Winchester, MA 01890	2005	$	6,937,852	01/11/2002	10.0	%
A-57	Forum at Memorial Woods 777 North Post Oak Road Houston, TX 77024	2005	$	19,734,400	01/11/2002	10.0	%

EXHIBIT A-53

Forum at Desert Harbor

13840 North Desert Harbor Drive

Peoria, AZ 85381

LEGAL DESCRIPTION

EXHIBIT A-54

Forum at Tucson
2500 North Rosemont Blvd.

Tucson, AZ 85712

LEGAL DESCRIPTION

EXHIBIT A-55

Park Summit at Coral Springs

8500 Royal Palm Blvd.

Coral Springs, FL 33065

LEGAL DESCRIPTION

EXHIBIT A-56

Gables at Winchester

299 Cambridge Street

Winchester, MA 01890

LEGAL DESCRIPTION

EXHIBIT A-57

Forum at Memorial Woods

777 North Post Oak Road

Houston, TX 77024

LEGAL DESCRIPTION

EX-10.6

Exhibit 10.6

FOURTH AMENDMENT TO
AMENDED AND RESTATED MASTER LEASE AGREEMENT
(LEASE NO. 4)

THIS FOURTH AMENDMENT TO AMENDED AND RESTATED MASTER LEASE AGREEMENT (LEASE NO. 4) (this “Amendment”) is made and entered into as of August 31, 2012 by and among each of the parties identified on the signature pages hereof as a landlord (collectively, “Landlord”) and each of the parties identified on the signature pages hereof as a tenant (jointly and severally, “Tenant”).

W I T N E S S E T H:

WHEREAS, pursuant to the terms of that certain Amended and Restated Master Lease Agreement (Lease No. 4), dated as of August 4, 2009, as amended by that certain First Amendment to Amended and Restated Master Lease Agreement (Lease No. 4), dated as of October 1, 2009, that certain Partial Termination of and Second Amendment to Amended and Restated Master Lease Agreement (Lease No. 4), dated as of May 1, 2011, and that certain Third Amendment to Amended and Restated Master Lease Agreement (Lease No. 4), dated as of June 20, 2011 (as so amended, “Amended Lease No. 4”), Landlord leases to Tenant, and Tenant leases from Landlord, the Leased Property (this and other capitalized terms used but not otherwise defined herein having the meanings given such terms in Amended Lease No. 4), all as more particularly described in Amended Lease No. 4; and

WHEREAS, simultaneously herewith, SNH/LTA Properties GA LLC (“SNH/LTA GA”) has acquired the real property and related improvements comprising the senior living facility known as Savannah Square and located at One Savannah Square Drive, Savannah, GA 31406, as more particularly described on Exhibit A-29 attached hereto (the “Savannah Square Property”) and SNH/LTA Properties Trust (“SNH/LTA Trust”) has acquired the real property and related improvements comprising: (i) the senior living facility known as Remington Club I & II, and located at 16925 and 16916 Hierba Drive, San Diego, CA 92128, as more particularly described on Exhibit A-28 attached hereto (the “Remington Property”); and (ii) the senior living facility known as Morningside of Bellgrade and located at 2800 Polo Parkway, Midlothian, VA 23113, as more particularly described on Exhibit A-30 attached hereto (the “Bellgrade Property” and together with the Savannah Square Property and the Remington Property, the “Acquired Properties”); and

WHEREAS, SNH/LTA GA wishes to lease the Savannah Square Property to Five Star Quality Care Trust (“FSQC Trust”) and FSQC Trust wishes to lease the Savannah Square Property from SNH/LTA GA; and

WHEREAS, SNH/LTA Trust wishes to lease the Remington Property and the Bellgrade Property to FSQC Trust and FSQC Trust wishes to lease the Remington Property and the Bellgrade Property from SNH/LTA Trust; and

WHEREAS, SNH/LTA GA, SNH/LTA Trust and the other entities comprising Landlord, and FSQC Trust and the other entities comprising Tenant, wish to amend Amended Lease No. 4 to include the Acquired Properties;

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree that, effective as of the date hereof, Amended Lease No. 4 is hereby amended as follows:

1.Definition of Minimum Rent.  The defined term “Minimum Rent” set forth in Section 1.68 of Amended Lease No. 4 is deleted in its entirety and replaced with the following:

“Minimum Rent”  shall mean the sum of Thirty-Four Million Two Hundred Fifty-Four Thousand Two Hundred Sixty Nine and 56/100 Dollars ($34,254,269.56) per annum.

2.Leased Property.  Section 2.1 of Amended Lease No. 4 is amended by deleting subsection (a) therefrom in its entirety and replacing it with the following:

(a)those certain tracts, pieces and parcels of land as more particularly described on Exhibits A-1 through A-30 attached hereto and made a part hereof (the “Land”);

3.Arbitration.  Article 22 of Amended Lease No. 1 is deleted in its entirety and replaced with the following:

ARTICLE 22

ARBITRATION

(a)Any disputes, claims or controversies between or among the parties hereto (i) arising out of or relating to this Agreement, or (ii) brought by or on behalf of any shareholder of the parties hereto (which, for purposes of this Article 22, shall mean any shareholder of record or any beneficial owner of shares of the parties hereto, or any former shareholder of record or beneficial owner of shares of the parties hereto), either on his, her or its own behalf, on behalf of the parties hereto or on behalf of any series or class of shares of the parties hereto or shareholders of the parties hereto against the parties hereto or any trustee, director, officer, manager (including Reit Management & Research LLC or its successor), agent or employee of the parties hereto, including disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of this Agreement, including this arbitration agreement, the declaration of trust, limited liability company agreement, partnership agreement or analogous governing instruments, as applicable, of the parties hereto, or the bylaws of the parties hereto (all of which are referred to as “Disputes”), or relating in any way to such a Dispute or Disputes, shall on the demand of any party to such Dispute be resolved through binding and final arbitration in accordance with the Commercial Arbitration Rules (the “Rules”) of the American Arbitration Association (“AAA”) then in effect, except as those Rules may be modified in this Article 22.  For the avoidance of doubt, and not as a limitation, Disputes are intended to include derivative actions against trustees, directors, officers or managers of the parties hereto and class actions by a shareholder against those individuals or entities and the parties hereto.  For the

2

avoidance of doubt, a Dispute shall include a Dispute made derivatively on behalf of one party against another party.

(b)There shall be three arbitrators.  If there are only two parties to the Dispute (with, for purposes of this Article 22, any and all parties involved in the Dispute and owned by the same ultimate parent entity treated as one party), each party shall select one arbitrator within 15 days after receipt by respondent of a copy of the demand for arbitration.  Such arbitrators may be affiliated or interested persons of such parties.  If either party fails to timely select an arbitrator, the other party to the Dispute shall select the second arbitrator who shall be neutral and impartial and shall not be affiliated with or an interested person of either party. If there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, shall each select, by the vote of a majority of the claimants or the respondents, as the case may be, one arbitrator. Such arbitrators may be affiliated or interested persons of the claimants or the respondents, as the case may be.  If either all claimants or all respondents fail to timely select an arbitrator then such arbitrator (who shall be neutral, impartial and unaffiliated with any party) shall be appointed by the AAA.  The two arbitrators so appointed shall jointly appoint the third and presiding arbitrator (who shall be neutral, impartial and unaffiliated with any party) within 15 days of the appointment of the second arbitrator.  If the third arbitrator has not been appointed within the time limit specified herein, then the AAA shall provide a list of proposed arbitrators in accordance with the Rules, and the arbitrator shall be appointed by the AAA in accordance with a listing, striking and ranking procedure, with each party having a limited number of strikes, excluding strikes for cause.

(c)The place of arbitration shall be Boston, Massachusetts unless otherwise agreed by the parties.

(d)There shall be only limited documentary discovery of documents directly related to the issues in dispute, as may be ordered by the arbitrators.

(e)In rendering an award or decision (the “Award”), the arbitrators shall be required to follow the laws of the Commonwealth of Massachusetts.  Any arbitration proceedings or Award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq.  The Award shall be in writing and may, but shall not be required to, briefly state the findings of fact and conclusions of law on which it is based.

(f)Except to the extent expressly provided by Article 22 or as otherwise agreed by the parties, each party involved in a Dispute shall bear its own costs and expenses (including attorneys’ fees), and the arbitrators shall not render an award that would include shifting of any such costs or expenses (including attorneys’ fees) or, in a derivative case or class action, award any portion of Assignor’s or Assignee’s award to the claimant or the claimant’s attorneys.  Except to the extent otherwise agreed by the parties, each party (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, respectively) shall bear the costs and expenses of its (or their) selected arbitrator and the parties (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand) shall equally bear the costs and expenses of the third appointed arbitrator.

3

(g)An Award shall be final and binding upon the parties thereto and shall be the sole and exclusive remedy between such parties relating to the Dispute, including any claims, counterclaims, issues or accounting presented to the arbitrators.  Judgment upon the Award may be entered in any court having jurisdiction.  To the fullest extent permitted by law, no application or appeal to any court of competent jurisdiction may be made in connection with any question of law arising in the course of arbitration or with respect to any award made except for actions relating to enforcement of this agreement to arbitrate or any arbitral award issued hereunder and except for actions seeking interim or other provisional relief in aid of arbitration proceedings in any court of competent jurisdiction.

(h)Any monetary award shall be made and payable in U.S. dollars free of any tax, deduction or offset.  Each party against which the Award assesses a monetary obligation shall pay that obligation on or before the 30th day following the date of the Award or such other date as the Award may provide.

(i)This Article 22 is intended to benefit and be enforceable by the shareholders, trustees, directors, officers, managers (including Reit Management & Research LLC or its successor), agents or employees of any party and the parties and shall be binding on the shareholders of any party and the parties, as applicable, and shall be in addition to, and not in substitution for, any other rights to indemnification or contribution that such individuals or entities may have by contract or otherwise.

4.Schedule 1.  Schedule 1 to Amended Lease No. 4 is deleted in its entirety and replaced with Schedule 1 attached hereto.

5.Exhibit A.  Exhibit A to Amended Lease No. 4 is amended by adding Exhibits A-28 through A-30 attached hereto immediately following Exhibit A-27 to Amended Lease No. 4.

6.Ratification.  As amended hereby, Amended Lease No. 4 is hereby ratified and confirmed.

[Remainder of page intentionally left blank; signature pages follow]

4

IN WITNESS WHEREOF, the parties have executed this Amendment as a sealed instrument as of the date above first written.

LANDLORD:
SNH SOMERFORD PROPERTIES TRUST
By:	/s/ David J. Hegarty
	David J. Hegarty
	President
SNH NS PROPERTIES TRUST
By:	/s/ David J. Hegarty
	David J. Hegarty
	President
SNH/LTA PROPERTIES TRUST
By:	/s/ David J. Hegarty
	David J. Hegarty
	President
SPTIHS PROPERTIES TRUST
By:	/s/ David J. Hegarty
	David J. Hegarty
	President
SNH CHS PROPERTIES TRUST
By:	/s/ David J. Hegarty
	David J. Hegarty
	President

SNH/LTA PROPERTIES GA LLC
By:	/s/ David J. Hegarty
	David J. Hegarty
	President
CCOP SENIOR LIVING LLC
By:	/s/ David J. Hegarty
	David J. Hegarty
	President
TENANT:
FIVE STAR QUALITY CARE TRUST
By:	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President
FIVE STAR QUALITY CARE -
NS TENANT, LLC
By:	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President
FS TENANT HOLDING COMPANY TRUST
By:	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President

6

SCHEDULE 1

PROPERTY-SPECIFIC INFORMATION

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)		Commencement Date	Interest Rate
A-1	Somerford Place - Stockton 3530 Deer Park Drive Stockton, CA 95219	2009	N/A		03/31/2008	8	%
A-2	La Villa Grande Care Center 2501 Little Bookcliff Drive Grand Junction, CO 81501	2005	$	5,205,189	12/31/2001	10	%
A-3	Court at Palm-Aire 2701 North Course Drive Pompano Beach, FL 33069	2007	$	12,992,201	09/01/2006	8.25	%
A-4	Intentionally Deleted	N/A	N/A		N/A	N/A
A-5	Intentionally Deleted	N/A	N/A		N/A	N/A
A-6	Northlake Gardens 1300 Montreal Road Tucker, GA 30084	2006	$	2,240,421	06/03/2005	9	%
A-7	Westridge Quality Care & Rehabilitation 600 Manor Drive Clarinda, IA 51632	2005	$	2,933,641	12/31/2001	10	%
A-8	Brenden Gardens 900 Southwind Road Springfield, IL 62703	2007	$	1,802,414	09/01/2006	8.25	%
A-9	Overland Park Place 6555 West 75th Street Overland Park, KS 66204	2005	$	2,539,735	10/25/2002	10	%
A-10	Morningside of Mayfield 1517 West Broadway Mayfield, KY 42066	2006	$	1,197,256	11/19/2004	9	%
A-11	The Neighborhood of Somerset 100 Neighborly Drive Somerset, KY 42503	2007	$	1,893,629	11/05/2006	8.25	%
A-12	Centennial Park Retirement Village 510 Centennial Circle North Platte, NE 69101	2009	N/A		02/17/2008	8	%
A-13	Westgate Assisted Living 3030 South 80th Street Omaha, NE 68124	2006	$	2,210,173	06/03/2005	9	%
A-14	NewSeasons at Cherry Hill 490 Cooper Landing Road Cherry Hill, NJ 08002*	N/A	N/A		12/29/2003	10	%
A-15	NewSeasons at Mount Arlington 2 Hillside Drive Mount Arlington, NJ 07856*	N/A	N/A		12/29/2003	10	%
A-16	NewSeasons at New Britain 800 Manor Drive Chalfont, PA 18914*	N/A	N/A		12/29/2003	10	%
A-17	NewSeasons at Clarks Summit 950 Morgan Highway Clarks Summit, PA 18411*	N/A	N/A		12/29/2003	10	%
A-18	NewSeasons at Exton 600 North Pottstown Pike Exton, PA 19341*	N/A	N/A		12/29/2003	10	%

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)		Commencement Date	Interest Rate
A-19	NewSeasons at Glen Mills (Concordville) 242 Baltimore Pike Glen Mills, PA 19342*	N/A	N/A		12/29/2003	10	%
A-20	NewSeasons at Tiffany Court 700 Northampton Street Kingston, PA 18704*	N/A	N/A		12/29/2003	10	%
A-21	Morningside of Greenwood 116 Enterprise Court Greenwood, SC 29649	2006	$	1,322,836	06/03/2005	9	%
A-22	Montevista at Coronado 1575 Belvidere Street El Paso, TX 79912	2005	$	8,149,609	01/11/2002	10	%
A-23	Dominion Village at Poquoson 531 Wythe Creek Road Poquoson, VA 23662	2005	$	1,359,832	5/30/2003	10	%
A-24	Morningside in the West End 3000 Skipwith Road Richmond, VA 23294	2006	$	3,792,363	11/19/2004	9	%
A-25	Worland Healthcare & Rehabilitation Center 1901 Howell Avenue Worland, WY 82401	2005	$	3,756,035	12/31/2001	10	%
A-26	Brandon Woods at Alvamar 1501 Inverness Drive Lawrence, KS 66047	2010	N/A		10/01/2009	8.75	%
A-27	McCarthy Court II 1325 McCarthy Boulevard New Bern, North Carolina	2012	N/A		06/20/2011	7.5	%
A-28	Remington Club I & II 16925 and 16916 Hierba Drive San Diego, CA 92128	2005	$	20,853,252	01/11/2002	10.0	%
A-29	Savannah Square One Savannah Square Drive Savannah, GA 31406	2007	$	6,931,887	10/01/2006	9.0	%
A-30	Morningside of Bellgrade 2800 Polo Parkway Midlothian, VA 23113	2006	$	4,992,156	11/19/2004	9.0	%

“*” indicates New Seasons Property

EXHIBIT A-28

Remington Club I & II

16925 and 16916 Hierba Drive

San Diego, CA 92128

(See attached copy.)

EXHIBIT A-29

Savannah Square

One Savannah Square Drive

Savannah, GA 31406

(See attached copy.)

EXHIBIT A-30

Morningside of Bellgrade

2800 Polo Parkway

Midlothian, VA 23113

(See attached copy.)

EX-10.7

Exhibit 10.7

PARTIAL TERMINATION OF AND AMENDMENT NO. 2 TO
AMENDED AND RESTATED MASTER LEASE AGREEMENT

THIS PARTIAL TERMINATION OF AND AMENDMENT NO. 2 TO AMENDED AND RESTATED MASTER LEASE AGREEMENT (this “Amendment”) is made as of August 31, 2012 by and among SNH FM FINANCING LLC, a Delaware limited liability company, SNH FM FINANCING TRUST, a Maryland real estate investment trust, and ELLICOTT CITY LAND I, LLC, a Delaware limited liability company, collectively as landlord (“Landlord”), and FVE FM FINANCING, INC., a Maryland corporation, as tenant (“Tenant”).

W I T N E S S E T H:

WHEREAS, pursuant to the terms of that certain Amended and Restated Master Lease Agreement, dated as of August 4, 2009, as amended by that certain Amendment No. 1 to Amended and Restated Master Lease Agreement (as so amended, the “Lease”), Landlord leases to Tenant, and Tenant leases from Landlord, the Leased Property (this and other capitalized terms used but not otherwise defined herein having the meanings given such terms in the Lease), all as more particularly described in the Lease; and

WHEREAS, as of the date hereof, Landlord is conveying to its affiliate certain of the Leased Property known as and located at (i) Forum at Desert Harbor, 13840 North Desert Harbor Drive, Peoria, Arizona, more particularly described on Exhibit A-1 to the Lease; (ii) Forum at Tucson, 2500 North Rosemont Blvd., Tucson, Arizona, more particularly described on Exhibit A-2 to the Lease; (iii) The Remington Club I and II, 16925 and 16916 Hierba Drive, San Diego, California, more particularly described on Exhibit A-3 to the Lease; (iv) Park Summit at Coral Springs, 8500 Royal Palm Blvd., Coral Springs, Florida, more particularly described on Exhibit A-6 to the Lease; (v) Savannah Square, One Savannah Square Drive, Savannah, Georgia, more particularly described on Exhibit A-8 to the Lease; (vi) Gables at Winchester, 299 Cambridge Street, Winchester, Massachusetts, more particularly described on Exhibit A-12 to the Lease; (vii) HeartFields at Easton, 700 Port Street, Easton, Maryland, more particularly described on Exhibit A-13 to the Lease; (viii) Aspenwood, 14400 Homecrest Road, Silver Spring, Maryland, more particularly described on Exhibit A-16 to the Lease; (ix) Forum at Memorial Woods, 777 North Post Oak Road, Houston, Texas, more particularly described on Exhibit A-20 to the Lease; and (x) Morningside of Bellgrade, 2800 Polo Parkway, Midlothian, Virginia, more particularly described on Exhibit A-25 to the Lease (collectively, the “Terminated Properties”); and

WHEREAS, in connection with the conveyance of the Terminated Properties, Landlord and Tenant wish to amend the Lease to terminate the Lease with respect to the Terminated Properties;

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree that, effective as of the date hereof, the Lease is hereby amended as follows:

1.Partial Termination of Lease.  The Lease is terminated with respect to the Terminated Properties and neither Landlord nor Tenant shall have any further rights or liabilities

thereunder with respect to the Terminated Properties from and after the date hereof, except for those rights and liabilities which by their terms survive the termination of the Lease.

2.Definition of Minimum Rent.  The defined term “Minimum Rent” set forth in Section 1.67 of the Lease is deleted in its entirety and replaced with the following:

“Minimum Rent”  shall mean the sum of Thirty-Three Million, Six Hundred Seventy-Nine Thousand, Seven Hundred Sixteen and 55/100 Dollars ($33,679,716.55) per annum.

3.Schedule 1.  Schedule 1 to the Lease is deleted in its entirety and replaced with Schedule 1 attached hereto.

4.Exhibit A.  Exhibit A to the Lease is amended by deleting the text of Exhibits A-1, A-2, A-3, A-6, A-8, A-12, A-13, A-16, A-20 and A-25 attached thereto in their entirety and replacing them with “Intentionally Deleted.”

5.Ratification.  As amended hereby, the Lease is ratified and confirmed.

[Remainder of page intentionally left blank;

signature pages follow]

2

IN WITNESS WHEREOF, the parties have executed this Amendment as a sealed instrument as of the date above first written.

LANDLORD:
SNH FM FINANCING LLC
By:	/s/ David J. Hegarty
	David J. Hegarty
	President
SNH FM FINANCING TRUST
By:	/s/ David J. Hegarty
	David J. Hegarty
	President
ELLICOTT CITY LAND I, LLC
By:	/s/ David J. Hegarty
	David J. Hegarty
	President

3

TENANT:
FVE FM FINANCING, INC.
By:	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President

4

SCHEDULE 1

PROPERTY-SPECIFIC INFORMATION

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)		Commencement Date	Interest Rate
A-1	Intentionally Deleted	N/A	N/A		N/A	N/A
A-2	Intentionally Deleted	N/A	N/A		N/A	N/A
A-3	Intentionally Deleted	N/A	N/A		N/A	N/A
A-4	Rio Las Palmas 877 East March Lane Stockton, CA 95207	2005	$	4,204,464	09/30/2003	10	%
A-5	Foulk Manor North 1212 Foulk Road Wilmington, DE 19803	2005	$	7,666,221	01/11/2002	10	%
A-6	Intentionally Deleted	N/A	N/A		N/A	N/A
A-7	Coral Oaks 900 West Lake Road Palm Harbor, FL 34684	2005	$	9,051,220	01/11/2002	10	%
A-8	Intentionally Deleted	N/A	N/A		N/A	N/A
A-9	Forum at the Crossing 8505 Woodfield Crossing Blvd. Indianapolis, IN 46240	2005	$	11,973,559	01/11/2002	10	%
A-10	Forum at Overland Park 3501 West 95th Street Overland Park, KS 66206	2005	$	9,674,467	01/11/2002	10	%
A-11	Forum at Brookside 200 Brookside Drive Louisville, KY 40243	2005	$	12,831,113	01/11/2002	10	%
A-12	Intentionally Deleted	N/A	N/A		N/A	N/A
A-13	Intentionally Deleted	N/A	N/A		N/A	N/A
A-14	Heartlands at Ellicott City 3004 North Ridge Road Ellicott City, MD 21043	2005	$	7,872,811	03/01/2004	10	%
A-15	Heartlands at Severna Park 715 Benfield Road Severna Park, MD 21146	2005	$	3,521,926	10/25/2002	10	%
A-16	Intentionally Deleted	N/A	N/A		N/A	N/A

Exhibit	Property Address	Base Gross Revenues (Calendar Year)	Base Gross Revenues (Dollar Amount)		Commencement Date	Interest Rate
A-17	HeartFields at Cary 1050 Crescent Green Drive Cary, NC 27511	2005	$	3,092,311	10/25/2002	10	%
A-18	Montebello 10500 Academy Road Albuquerque, NM 87111	2005	$	10,739,724	01/11/2002	10	%
A-19	Forum at Knightsbridge 4590 and 4625 Knightsbridge Blvd. Columbus, OH 43214	2005	$	15,290,522	01/07/2002	10	%
A-20	Intentionally Deleted	N/A	N/A		N/A	N/A
A-21	Forum at Lincoln Heights 311 West Nottingham Road San Antonio, TX 78209	2005	$	12,559,927	01/11/2002	10	%
A-22	Forum at Woodlands 5055 W Panther Creek Drive The Woodlands, TX 77381	2005	$	13,072,902	01/11/2002	10	%
A-23	Morningside of Charlottesville 491 Crestwood Drive Charlottesville, VA 22903	2006	$	3,016,125	11/19/2004	9	%
A-24	HeartFields at Fredericksburg 20 HeartFields Lane Fredericksburg, VA 22405	2005	$	3,654,848	10/25/2002	10	%
A-25	Intentionally Deleted	N/A	N/A		N/A	N/A
A-26	Morningside of Newport News 655 Denbigh Boulevard Newport News, VA 23608	2006	$	3,226,806	11/19/2004	9	%
A-27	Meadowmere - Northshore Assisted Living 10803 North Port Washington Road Mequon, WI 53092	2009	N/A		01/04/2008	8	%

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)

I, Bruce J. Mackey Jr., certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Five Star Quality Care, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))  for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 30, 2012	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)

I, Paul V. Hoagland, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Five Star Quality Care, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))  for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 30, 2012	/s/ Paul V. Hoagland
	Paul V. Hoagland
	Treasurer and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SEC. 1350

In connection with the filing by Five Star Quality Care, Inc. (the “Company”) of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 (the “Report”), each of the undersigned hereby certifies, to the best of his knowledge:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President and Chief Executive Officer
	/s/ Paul V. Hoagland
	Paul V. Hoagland
	Treasurer and Chief Financial Officer
Date:     October 30, 2012

EX-99.1

Exhibit 99.1

POOLING AGREEMENT

THIS POOLING AGREEMENT (this “Agreement”) is made as of August 31, 2012, by and among FVE IL Managers, Inc. (“Manager”) and the parties listed on Schedule A (each an “Owner” and collectively, “Owners”).

RECITALS:

Each Owner has entered into a Management Agreement with Manager (each a “Management Agreement” and collectively, the “Management Agreements”) with respect to the real estate and personal property described in Schedule B opposite such Owner’s name which is operated as an independent living community (each a “Community” and collectively, the “Communities”), which Management Agreements are listed on Schedule C.

The parties desire that working capital of each of the Communities and all revenues from operation of each of the Communities be pooled for purposes of paying operating expenses of the Communities, fees and other amounts due to Manager and Owners.

NOW, THEREFORE, the parties agree as follows:

ARTICLE I
DEFINED TERMS

1.01.Definitions.  Capitalized terms used, but not otherwise defined in this Agreement shall have the meanings given to such terms in the Management Agreements. The following capitalized terms as used in this Agreement shall have the meanings set forth below:

“Additional Community” is defined in Section 7.01.

“Additional Management Agreement” is defined in Section 7.01.

“Additional Owner” is defined in Section 7.01.

“Aggregate Annual Statement” means the Aggregate Monthly Statement for the month of December in each year.

“Aggregate Base Fee” means an amount equal to 3% of the Aggregate Gross Revenues.

“Aggregate Community Expenses” means the sum of Community Expenses of the Communities.

“Aggregate Gross Revenues” means the sum of Gross Revenues of the Communities.

“Aggregate Incentive Fee” means an amount that is equal to thirty-five percent (35%) of Aggregate Net Operating Income remaining after payment of the Aggregate Owner Priority Return.

“Aggregate Invested Capital” means the sum of the Invested Capital for each of the Communities, including each Additional Community.

“Aggregate Monthly Statement” is defined in Article IV.

“Aggregate Net Operating Income” means an amount equal to Aggregate Gross Revenues less Aggregate Community Expenses.

“Aggregate Owner Priority Return” means an annual amount equal to eight percent of Aggregate Invested Capital.

“Aggregate Owner Residual Payment” means an amount equal to 65% of the Aggregate Net Operating Income after payment of the Aggregate Owner Priority Return.

“Agreement” is defined in the Preamble.

“Community” and “Communities” is defined in the Recitals.

“Management Agreement” and “Management Agreements” is defined in the Recitals.

“Manager” is defined in the Preamble.

“Manager Shortfall Advance” is defined in Section 5.01.

“Non-Economic Communities” is defined in Section 5.02.

“Owner” is defined in the Preamble.

“Priority Return Shortfall” is defined in Section 5.01.

ARTICLE II
GENERAL

The parties agree that so long as a Community is subject to this Agreement, all Working Capital and all Gross Revenues of such Community shall be pooled pursuant to this Agreement and disbursed to pay all Aggregate Community Expenses, fees and other amounts due Manager and Owners (not including amounts due pursuant to Section 15.05 of the Management Agreements) with respect to the Communities and that the corresponding provisions of each Management Agreement shall be superseded as provided in Section 3.03.  The parties further agree that if Manager gives a notice of non-renewal of the Term with respect to any Community, it shall be deemed to be a notice of non-renewal of the Term with respect to all the Communities.

ARTICLE III
PRIORITIES FOR
DISTRIBUTION OF AGGREGATE GROSS REVENUES

3.01.Priorities for Distribution of Aggregate Gross Revenues.  Aggregate Gross Revenues shall be distributed in the following order of priority:

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(1)First, to pay Aggregate Community Expenses (which shall not include the Aggregate Base Fee).

(2)Second, to Manager to pay the Aggregate Base Fee and any interest that may have accrued pursuant to Section 3.02.

(3)Third, to Owners in an amount equal to the Aggregate Owner Priority Return and any interest that may have accrued pursuant to Section 3.02.

(4)Fourth, to Manager to reimburse it for payment of any Manager Shortfall Advance, plus applicable interest calculated at the Interest Rate.

(5)Fifth, to Manager, in an amount equal to the Aggregate Incentive Fee.

(6)Sixth, to Owners, in an amount equal to the Aggregate Owner Residual Payment.

3.02.Timing of Payments.  Payment of the Aggregate Community Expenses, excluding the Aggregate Base Fee, shall be made in the ordinary course of business.  The Aggregate Base Fee and accrued interest, if any, shall be paid on the first Business Day of each calendar month, in advance, based upon Manager’s then estimate of the prior month’s Aggregate Gross Revenues.  The Aggregate Owner Priority Return and accrued interest, if any, shall be paid on the first Business Day of each calendar month, in advance in approximately equal monthly installments, based upon Aggregate Invested Capital most recently reported to Manager by Owner. The Aggregate Base Fee and Aggregate Owner Priority Return shall be subject to adjustment by increasing or decreasing the payment due in the following month based upon Aggregate Gross Revenues reflected in the Aggregate Monthly Financial Statements and increases or decreases in Aggregate Invested Capital reported to Manager by Owners, as the case may be.  If any installment of the Aggregate Base Fee or the Aggregate Owner Priority Return is not paid when due, it shall accrue and bear interest at the Interest Rate. The Aggregate Incentive Fee and Aggregate Owner Residual Payment shall be paid on the last Business Day of the calendar month following the month to which such Aggregate Incentive Fee and Aggregate Owner Residual Payment relate, in arrears, and shall be based upon the Aggregate Monthly Statements.  Additional adjustments to all payments will be made on an annual basis based upon the Aggregate Monthly Statements for the full calendar year and any audits conducted pursuant to Section 6.03 of the Management Agreements.  The Aggregate Owner Priority Return and Aggregate Owner Residual Payment shall be allocated among the Owners as the Owners shall determine in their sole discretion and Manager shall have no responsibility or liability in connection therewith.

3.03.Relationship with Management Agreements.  For as long as this Agreement is in effect with respect to a Community, the provisions of Section 3.01 and 3.02 shall supersede Sections 5.01 and 5.02 of the Management Agreement then in effect with the applicable Community.

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ARTICLE IV
FINANCIAL STATEMENTS

Manager shall prepare and deliver the following financial statements to the Owners:

(a)not later than ten Business Days after the end of each calendar month, a consolidated balance sheet and related statement of income and expense of all of the Communities for such calendar month and for the then current calendar year to date, certified by Manager’s Controller on a monthly basis and by Manager’s Chief Financial Officer on a quarterly basis as being true and correct to the best of his/her knowledge (“Aggregate Monthly Statement”).

(b)Manager shall also prepare and deliver such other statements or reports as any Owner may, from time to time, reasonably request.

The financial statements delivered pursuant to this Article IV are in addition to any financial statements required to be prepared and delivered pursuant to the Management Agreements.

ARTICLE V
SHORTFALL; NON-ECONOMIC COMMUNITIES

5.01.Shortfall.  After December 31, 2018, if in each of three consecutive calendar years the Aggregate Owner Priority Return (together with any accrued interest) has not been paid in full (a “Priority Return Shortfall”), by notice given within sixty (60) days after receipt of the Aggregate Annual Statement for such third year, the Owners may terminate all, but not less than all, of the Management Agreements.  Prior to exercising the right to terminate, Owners shall give Manager notice and if within ten (10) days thereafter, Manager funds the Priority Return Shortfall (a “Manager Shortfall Advance”), Owners shall not exercise the right to terminate, provided Manger may not exercise its right to fund the Priority Return Shortfall more frequently than once every four (4) years.  Manager may recover any amounts paid by it as a Manager Shortfall Advance as provided in Section 3.01, provided that amounts not recovered during the four (4) calendar years following the year in which payment of a Manager Shortfall Advance was made shall be deemed waived and shall not be payable in any subsequent year.

5.02.Non-Economic Communities.  If the Gross Revenues of any Community are insufficient to pay all Community Expenses and the Base Fee of such Community in full during each of two (2) consecutive calendar years, Manager shall, upon thirty (30) days notice to the relevant Owner, be entitled to designate such Community a “Non-Economic Community.”  Notwithstanding the foregoing, Manager shall not be entitled without the Owner’s consent to designate Communities for which the Invested Capital in the aggregate would exceed twenty percent (20%) of Aggregate Invested Capital and further provided for purposes of this Section 5.02 only, Aggregate Invested Capital shall be determined without giving effect to the termination of the Management Agreement of a Non-Economic Community and without reduction for proceeds from the sale, or deemed sale, of any Non-Economic Community.  Manager may request an increase in the foregoing twenty percent (20%) threshold at any time, which Owner may accept or reject in its sole discretion.

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Manager shall market a Community designated as a Non-Economic Community for sale and any costs incurred by the Manager in connection with such marketing activities and the sale of such Community shall be paid out of the net proceeds of such sale.  The relevant Owner and Owner shall cooperate with Manager in compiling any relevant information, preparing marketing materials and otherwise in connection with the sale of a Non-Economic Community.

5.03.Sale Process.  If a Non-Economic Community is marketed for sale in accordance with Section 5.02 and Manager receives an offer therefor which it wishes to accept on behalf of Owner, Manager shall give the relevant Owner prompt notice thereof, which notice shall include a copy of the offer and any other information reasonably requested by such Owner.  If the relevant Owner shall fail to accept or reject such offer within seven (7) Business Days after receipt of such notice and other information from Manager, such offer shall be deemed to be accepted.  If the offer is rejected by the relevant Owner and, if the Manager elects to continue marketing the Community by providing written notice to the relevant Owner within seven (7) days of such rejection and the Manager does not obtain another offer within ninety (90) days that is accepted by the relevant Owner, the Non-Economic Community shall be deemed to have been sold to the relevant Owner on the date, at the price and on the other terms contained in the offer.  If a Non-Economic Community is sold to a third party or deemed to have been sold to the relevant Owner pursuant to such offer, effective as of the date of sale or deemed sale: (i) the Management Agreement shall terminate with respect to such Non-Economic Community; (ii) the Aggregate Invested Capital shall be reduced by an amount equal to the net proceeds of sale after reduction for the costs and expenses of the relevant Owner and/or Manager (or, in the case of a deemed sale, the net proceeds of sale determined by reference to such offer, after reduction for any amounts actually expended and any amounts which would reasonably have been expected to have been expended if the sale had been consummated, by the relevant Owner and/or Manager).  If the reduction of Aggregate Invested Capital is less than the Invested Capital of the Non-Economic Community sold or deemed sold, the difference shall be proportionately reallocated to the Invested Capital of the remaining Communities.

ARTICLE VI
ACCOUNTS

All Working Capital and all Gross Revenues of each of the Communities may be pooled and deposited in one or more bank accounts in the name(s) of the Owners designated by Manager, which accounts may, except as required by any Mortgage and related loan documentation or applicable law, be commingled accounts containing other funds owned by or managed by Manager.  Manager shall be authorized to access the accounts without the approval of Owners, subject to any limitation on the maximum amount of any check, if any, established between Manager and Owners as part of the Annual Operating Budgets.  One or more Owners shall be a signatory on all accounts maintained with respect to the Community, and Owners shall have the right to require that one or more Owner’s signature be required on all checks/withdrawals after the occurrence of an Event of Default by Manager under this Agreement.  Owners shall provide such instructions to the applicable bank(s) as are necessary to permit Manager to implement the Manager’s rights and obligations under this Agreement.  The failure of any Owner to provide such instructions shall relieve Manager of its obligations hereunder until such time as such failure is cured.

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ARTICLE VII
ADDITION AND REMOVAL OF COMMUNITIES

7.01.Addition of Communities.  At any time and from time to time, Manager and any Owner or any Affiliate of Owners (an “Additional Owner”) which enters into a management agreement with Manager (an “Additional Management Agreement”) for the operation of an additional independent living community (an “Additional Community”), the Additional Owner may become a party to this Agreement by signing an accession agreement confirming the applicability of this Agreement to such Additional Community.  If an Additional Community is made subject to this Agreement other than on the first day of a calendar month, the parties shall include such prorated amounts of the Gross Revenues and Community Expenses (and other amounts as may be necessary) applicable to the Additional Community for such calendar month, as mutually agreed in their reasonable judgment, in the calculation of Aggregate Gross Revenues and Aggregate Community Expenses (and other amounts as may be necessary) for the calendar month in which the Additional Community became subject to this Agreement and shall make any other prorations, adjustments, allocations and changes required.  Additionally, any amounts held as Working Capital or for Capital Replacements at the Additional Community, if any, shall be held by Manager under this Agreement.

7.02.Removal of Communities.  From and after the date of termination of any Management Agreement, the Community managed thereunder shall no longer be subject to this Agreement.  If the termination occurs on a day other than the last day of a calendar month, the parties shall exclude such prorated amounts of the Gross Revenues and Community Expenses (and other amounts as may be necessary) applicable to such Community for such calendar month, as mutually agreed in their reasonable judgment, in the calculation of Aggregate Gross Revenues and Aggregate Community Expenses (and other amounts as may be necessary) for the calendar month in which the termination occurred.  Additionally, the relevant Owner and Manager, both acting reasonably, shall mutually agree to the portion of the Working Capital and Aggregate Gross Revenues and any amounts being held by Manager for Capital Replacements allocable to the Community being removed from this Agreement and the amount of the Working Capital, Aggregate Gross Revenues and amounts being held by Manager for Capital Replacements, if any, so allocated shall be remitted to the relevant Owner and the relevant Owner and Manager shall make any other prorations, adjustments, allocations and changes required.

ARTICLE VIII
TERM AND TERMINATION

8.01.Term.  This Agreement shall continue and remain in effect indefinitely unless terminated pursuant to Section 8.02.

8.02.Termination.  This Agreement may be terminated as follows:

(a)By the mutual consent of Manager and Owners which are parties to the Agreement.

(b)Automatically, if all Management Agreements terminate or expire for any

6

reason.

(c)By Manager, if any or all Owners do not cure a material breach of this Agreement by any Owner or Owner within thirty (30) days of written notice of such breach from Manager and if such breach is not cured, it shall be an Event of Default under the Management Agreements.

(d)By Owners, if Manager does not cure a material breach of this Agreement by Manager within thirty (30) days of written notice of such breach from any Owner.

8.03.Effect of Termination.  Upon the termination of this Agreement, except as otherwise provided in Section 12.02(i) or 14.04 of the Management Agreements, Manager shall be compensated for its services only through the date of termination and all amounts remaining in any accounts maintained by Manager pursuant to Article VI, after payment of such amounts as may be due to Manager hereunder, shall be distributed to Owners.  Notwithstanding the foregoing, upon the termination of any single Management Agreement, pooled funds shall be allocated as described in Section 7.02.

8.04.Survival.  The following Sections of this Agreement shall survive the termination of this Agreement:  8.03 and Article IX.

ARTICLE IX
MISCELLANEOUS PROVISIONS

9.01.Notices.  All notices, demands, consents, approvals, and requests given by any party to another party hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, upon confirmation of receipt when transmitted by facsimile transmission, or on the next business day if transmitted by nationally recognized overnight courier, to the parties at the following addresses:

To Owners:

c/o SNH IL Properties Trust

Two Newton Place

225 Washington Street

Newton, Massachusetts 02458

Attn:  David J. Hegarty

Telephone: (617) 796-8104

Facsimile: (617) 796-8349

To Manager:

FVE IL Managers, Inc.

400 Centre Street

Newton, Massachusetts 02458

Attn:  Bruce J. Mackey

Telephone: (617) 796-8214

Facsimile: (617) 796-8243

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9.02.Applicable Law; Arbitration.  This Agreement shall be interpreted, construed, applied and enforced in accordance with the laws of the Commonwealth of Massachusetts, with regard to its “choice of law” rules.  Any “Dispute” (as such term is defined in the Management Agreements) under this Agreement shall be resolved through final and binding arbitration conducted in accordance with the procedures and with the effect of, arbitration as provided for in the Management Agreements.

9.03.Severability.  If any term or provision of this Agreement or the application thereof in any circumstance is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.

9.04.Gender and Number.  Whenever the context of this Agreement requires, the gender of all words herein shall include the masculine, feminine, and neuter, and the number of all words herein shall include the singular and plural.

9.05.Headings and Interpretation.  The descriptive headings in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement.  References to “Section” in this Agreement shall be a reference to a Section of this Agreement unless otherwise indicated.  Whenever the words “include”, “includes” or “including” are used in this Agreement they shall be deemed to be followed by “without limitation.”  The words “hereof,” “herein,” “hereby,” and “hereunder, when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision unless otherwise indicated.  The word “or” shall not be exclusive.  This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting.

9.06.Confidentiality of Information.  Any information exchanged between the Manager and each Owner pursuant to the terms and conditions of this Agreement shall be subject to Section 17.06 of the Management Agreement then in effect for the applicable Community.

9.07.Assignment.  Neither Manager nor any Owner may assign its rights and obligations under this Agreement to any other Person without the prior written consent of the other parties.

9.08.Entire Agreement; Construction; Amendment.  With respect to the subject matter hereof, this Agreement supersedes all previous contracts and understandings between the parties and constitutes the entire Agreement between the parties with respect to the subject matter hereof.  Accordingly, in the event of any conflict between the provisions of this Agreement and the Management Agreements, the provisions of this Agreement shall control, and the provisions of the Management Agreements are deemed amended and modified, in each case as required to give effect to the intent of the parties in this Agreement.  All other terms and conditions of the Management Agreements shall remain in full force and effect; provided that, to the extent that compliance with this Agreement shall cause a default, breach or other violation of the Management Agreement by one party, the other party waives any right of termination,

8

indemnity, arbitration or otherwise under the Management Agreement related to that specific default, breach or other violations, to the extent caused by compliance with this Agreement.  This Agreement may not be modified, altered or amended in any manner except by an amendment in writing, duly executed by the parties hereto.

9.09.Third Party Beneficiaries.  The terms and conditions of this Agreement shall inure to the benefit of, and be binding upon, the respective successors, heirs, legal representatives or permitted assigns of each of the parties hereto and no Person other than the parties hereto and their successors and permitted assigns is intended to be a beneficiary of this Agreement.

[Signatures begin on the following page.]

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IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement with the intention of creating an instrument under seal.

FVE IL MANAGERS, INC.
By:	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President
SNH IL PROPERTIES TRUST
By:	/s/ David J. Hegarty
	David J. Hegarty
	President
SNH IL JOPLIN INC.
By:	/s/ David J. Hegarty
	David J. Hegarty
	President

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Schedule A

Owners

SNH IL Properties Trust

SNH IL Joplin Inc.

Schedule B

Communities

SNH IL Properties Trust	5455 La Sierra Drive, Dallas, Texas 75231
SNH IL Joplin Inc.	3828 College View Drive, Joplin, Missouri 64801

Schedule C

Management Agreements

Management Agreement dated December 15, 2011 between FVE IL Managers, Inc. and SNH IL Properties Trust

Management Agreement dated August 31, 2012 between FVE IL Managers, Inc. and SNH IL Joplin Inc.

EX-99.2

Exhibit 99.2

MANAGEMENT AGREEMENT

FOR

FIVE STAR PREMIER RESIDENCES IN YONKERS

AUGUST 31, 2012

Table of Contents

		Page
ARTICLE I DEFINITIONS		1
ARTICLE II APPOINTMENT OF MANAGER		7
Section 2.01.	Appointment of Manager	7
ARTICLE III PAYMENTS TO MANAGER; WORKING CAPITAL; CAPITAL REPLACEMENTS; INSUFFICIENT FUNDS		8
Section 3.01.	Management Fees	8
Section 3.02.	Working Capital	8
Section 3.03.	Capital Replacements	8
Section 3.04.	Insufficient Funds	8
ARTICLE IV MANAGEMENT SERVICES		8
Section 4.01.	Authority of Manager and Management Services	8
Section 4.02.	Hiring and Training of Staff	9
Section 4.03.	Manager’s Home Office Personnel	10
Section 4.04.	Resident Agreements	10
Section 4.05.	Contracts with Affiliates	10
Section 4.06.	Legal Requirements	10
ARTICLE V COLLECTIONS AND PAYMENTS		11
Section 5.01.	Collection and Priorities for Distribution of Gross Revenues	11
Section 5.02.	Timing of Payments	12
Section 5.03.	Credits and Collections	12
Section 5.04.	Depositories for Funds	12
Section 5.05.	Impositions	12
ARTICLE VI ACCOUNTING; FINANCIAL STATEMENTS; AUDIT		13
Section 6.01.	Accounting	13
Section 6.02.	Financial Statements and Reports	13
Section 6.03.	Audit Rights	13
ARTICLE VII ANNUAL OPERATING BUDGET		14
Section 7.01.	Annual Operating Budget	14
ARTICLE VIII TAX MATTERS; REIT QUALIFICATION		14
Section 8.01.	Tax Matters	14
Section 8.02.	Adverse Regulatory Event	15
ARTICLE IX FINANCING; INSPECTION		15
Section 9.01.	Financing of the Licensed Facility	15
Section 9.02.	Licensee’s Right To Inspect	15
ARTICLE X REPAIRS AND MAINTENANCE		15
Section 10.01.	Repairs, Maintenance and Capital Replacements	15
Section 10.02.	Emergency Repairs	16
Section 10.03.	Liens	16
Section 10.04.	Ownership	16
Section 10.05.	Casualty or Condemnation	16
ARTICLE XI INSURANCE		17
Section 11.01.	General Insurance Requirements	17

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Table of Contents

		Page
Section 11.02.	Waiver of Subrogation	17
Section 11.03.	Risk Management	17
ARTICLE XII TERM AND TERMINATION		17
Section 12.01.	Term	17
Section 12.02.	Early Termination	18
ARTICLE XIII TRANSITION ON TERMINATION		18
Section 13.01.	Termination	18
ARTICLE XIV DEFAULTS		19
Section 14.01.	Default by Manager	19
Section 14.02.	Default by Licensee	19
Section 14.03.	Remedies of Licensee	20
Section 14.04.	Remedies of Manager	20
Section 14.05.	No Waiver of Default	20
ARTICLE XV GOVERNING LAW, ARBITRATION, LIABILITY OF MANAGER AND INDEMNITY		20
Section 15.01.	Governing Law, Etc.	20
Section 15.02.	Arbitration	21
Section 15.03.	Consent to Jurisdiction and Forum	23
Section 15.04.	Standard of Care	23
Section 15.05.	Indemnity	23
Section 15.06.	Limitation of Liability	24
Section 15.07.	Licensee’s Independent Authority of Settlements	24
ARTICLE XVI PROPRIETARY MARKS; INTELLECTUAL PROPERTY		24
Section 16.01.	Proprietary Marks	24
Section 16.02.	Ownership of Proprietary Marks	24
Section 16.03.	Intellectual Property	24
ARTICLE XVII MISCELLANEOUS PROVISIONS		25
Section 17.01.	Notices	25
Section 17.02.	Severability	25
Section 17.03.	Gender and Number	25
Section 17.04.	Headings and Interpretation	25
Section 17.05.	Estoppel Certificates	26
Section 17.06.	Confidentiality of Business Information	26
Section 17.07.	Confidentiality of Patient Information	26
Section 17.08.	Assignment	27
Section 17.09.	Entire Agreement/Amendment	27
Section 17.10.	Third Party Beneficiaries	27
Section 17.11.	Survival	27
Section 17.12.	Relationship Between the Parties	27

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MANAGEMENT AGREEMENT

THIS MANAGEMENT AGREEMENT (“Agreement”) is entered into as of August 31, 2012, by and between FVE Managers, Inc., a Maryland corporation (“Manager”), and D&R Yonkers LLC, a Delaware limited liability company (“Licensee”).

RECITALS:

WHEREAS, Licensee is the sublessee and licensee of floors 2 through 5 (the “Licensed Facility”) of the community known as Five Star Premier Residences in Yonkers and located in Yonkers, New York, as further described in Exhibit A, attached hereto; and

WHEREAS, Licensee wishes to appoint Manager as manager of the Licensed Facility and Manager desires to accept such appointment and manage the Licensed Facility;

NOW, THEREFORE, the parties hereto agree as follows:

ARTICLE I
DEFINITIONS

The following terms shall have the following meanings when used in this Agreement:

Section 1.01.  “Accountants” means Ernst & Young LLP, or such other firm of independent certified public accountants as may be approved by Licensee and Manager.

Section 1.02.  “Adverse Regulatory Event” is defined in Section 8.02(b).

Section 1.03.  “Affiliate” means with respect to any Person, (i) any Person who directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with a Person or (ii) any Person of which a Person is the beneficial owner of a twenty-five percent (25%) or greater interest or (iii) any Person who acquires all or substantially all of the assets of a Person. A Person shall be deemed to control another Person if such Person, directly or indirectly, has the power to direct the management, operations or business of such Person. The term “beneficial owner” for this and other definitions, having the meaning given such term in Rule 13d-3 under the Securities Exchange Act of 1934, as amended.

Section 1.04.  “Agreement” means this Management Agreement between Licensee and Manager, and any amendments hereto.

Section 1.05.  “Approved Budget” is defined in Section 7.01.

Section 1.06.  “Bankruptcy” means, with reference to either party:

(a) the filing by a party of a voluntary petition in bankruptcy or insolvency or a petition for reorganization under any bankruptcy law, or the admission by a party that it is unable to pay its debts as they become due, or the institution of any proceeding by a party for its dissolution;

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(b) the consent by a party to an involuntary petition in bankruptcy or the party’s failure to vacate, within ninety (90) days from the date of entry thereof, any order approving an involuntary petition with respect to such party; or

(c) the entering of an order, judgment or decree by any court of competent jurisdiction, on the application of a creditor, adjudicating a party as bankrupt or insolvent or approving a petition seeking reorganization or appointing a receiver, trustee, or liquidator of all or a substantial part of a party’s assets, and such order, judgment or decree’s continuing unstayed and in effect for an aggregate of sixty (60) days (whether or not consecutive) in any 12 month period.

Section 1.07.  “Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks in the Commonwealth of Massachusetts are authorized to close.

Section 1.08.  “Capital Replacements” means replacements and renewals of FF&E at the Licensed Facility and such repairs, maintenance, alterations, improvements, renewals and replacements to the Licensed Facility building and its mechanical systems which are classified as capital expenditures under GAAP.

Section 1.09.  “Change in Control” means (a) the acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission) of 9.8% or more, or rights, options or warrants to acquire 9.8% or more, of the outstanding shares of voting stock or other voting interests of Manager or Licensee, as the case may be (either, a “Relevant Person”) or of any direct or indirect parent of a Relevant Person (“Parent”), or the power to direct the management and policies of a Relevant Person or Parent, directly or indirectly, (b) the merger or consolidation of a Relevant Person or Parent with and into any Person or the merger or consolidation of any Person with and into a Relevant Person or any Parent (other than the merger or consolidation of any Person into a Relevant Person or Parent that does not result in a Change in Control of a Relevant Person or Parent under clauses (a), (c), (d), (e) or (f) of this definition), (c) any one or more sales, conveyances, dividends or distributions to any Person of all or any material portion of the assets (including capital stock or other equity interests) or business of a Relevant Person or Parent, whether or not otherwise a Change in Control, (d) the cessation, for any reason, of the individuals who at the beginning of any twenty-four (24) consecutive month period (commencing on the date hereof) constituted the board of directors of a Relevant Person or any Parent (together with any new directors whose election by such board or whose nomination for election by the shareholders of a Relevant Person or any Parent was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of any such period or whose election or nomination for election was previously so approved, but excluding any individual whose initial nomination for, or assumption of, office as a member of such board of directors occurs as a result of an actual or threatened solicitation of proxies or consents for the election or removal of one or more directors by any Person other than a solicitation for the election of one or more directors by or on behalf of the board of directors) to constitute a majority of the board of directors of a Relevant Person or any Parent then in office, or (e) the adoption of any proposal (other than a precatory proposal) by a Relevant Person or any Parent not approved by vote of a majority of the directors of a Relevant Person or any Parent, as the case may be, in office immediately prior to the making of such proposal, or (f) the election to

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the board of directors of a Relevant Person or any Parent of any individual not nominated or appointed by vote of a majority of the directors of a Relevant Person or any Parent in office immediately prior to the nomination or appointment of such individual.

Section 1.10.  “Code” means the Internal Revenue Code of 1986, as amended.

Section 1.11.  “Condemnation” means a taking by Governmental Authority in an eminent domain, condemnation, compulsory acquisition or similar proceeding for any public or quasi-public use or purpose.

Section 1.12.  “Discount Rate” means the yield reported as of 10:00 A.M. on the Business Day prior to the date of termination of this Agreement on the display designated as “Page PX1” (or such other display as may replace Page PX1 on Bloomberg Financial Markets (“Bloomberg”) or, if Page PX1 (or its successor screen on Bloomberg) is unavailable, the Telerate Access Service screen which corresponds most closely to Page PX1) for the most recently issued actively traded U.S. Treasury securities having a maturity equal to the number of years between the date of termination and the scheduled expiration date of the Term (including any extension of the Term, but not in excess of twenty (20) years in any event), plus 300 basis points, or if such yields shall not be reported as of such time or the yields reported as of such time shall not be ascertainable (including by way of interpolation), the Treasury Constant Maturity Series Yields reported for the latest day for which such yields shall have been so reported as of the Business Day prior to the date of termination of this Agreement in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having the same maturity, plus 300 basis points.  If necessary, U.S. Treasury bill quotations shall be converted to bond equivalent yields in accordance with accepted financial practice and interpolating linearly between reported yields.

Section 1.13.  “DOH” means the New York State Department of Health.

Section 1.14.  “Event of Default” is defined in Section 14.01, as to Manager, and in Section 14.02, as to Licensee.

Section 1.15.  “FF&E” means furniture, fixtures, furnishings, soft goods, case goods, vehicles, systems and equipment.

Section 1.16.  “GAAP” means generally accepted accounting principles as adopted by the American Institute of Certified Public Accountants.

Section 1.17.  “Governmental Authority” means any United States federal, state or local government or political subdivision thereof, or any court, administrative agency or commission or other quasi-governmental authority or instrumentality or any subdivision thereof.

Section 1.18.  “Gross Revenues” means all revenues derived from operating the Licensed Facility, determined in accordance with GAAP, including: income (from both cash and credit transactions, net of any fee therefor and net of any contractual allowances granted to third party payors) from community fees, monthly occupancy fees, health care fees, third party reimbursement or payments and any and all other fees and payments received from or on behalf

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of Residents; income from food and beverage and catering sales; income from vending machines, and proceeds, if any, from business interruption insurance and all other revenues from the operation of the Licensed Facility; provided that, Gross Revenues shall not include: (i) gratuities to employees at the Licensed Facility, (ii) federal, state or municipal excise, sales or use taxes or similar taxes imposed at the point of sale and collected directly from Residents or guests of the Licensed Facility or included as part of the sales price of any goods or services, (iii) proceeds from the sale of FF&E and any other capital asset, (iv) interest received or accrued with respect to the monies in any accounts referred to in Section 5.04, (v) proceeds of any financing or refinancing of the Licensed Facility, (vi) proceeds of any insurance policy (except business interruption insurance) or condemnation or other taking, (vii) any cash refunds, rebates or discounts to Residents of the Licensed Facility, cash discounts and credits of a similar nature, given, paid or returned in the course of obtaining Gross Revenues or components thereof to the extent not reflected in contractual allowances, (viii) proceeds from any sale of the Licensed Facility or any other capital transaction, (ix) Resident funds on deposit or security deposits until such time and to the extent as the same are applied to current fees due for services rendered, (x) awards of damages, settlement proceeds and other payments received by Licensee in respect of any litigation other than litigation to collect fees due for services rendered at the Licensed Facility and (xi) payments under any policy of title insurance. Any community fees or deposits that are refunded to a Resident shall be deducted from Gross Revenues during the month in which such refunds are made, if previously included in Gross Revenues.

Section 1.19.  “Home Office Personnel” is defined in Section 4.03.

Section 1.20.  “Household Replacements” means supply items including linen, china, glassware, silver, uniforms, and similar items.

Section 1.21.  “Impositions” means all levies, assessments and similar charges, including: all water, sewer or similar fees, rents, rates, charges, excises or levies, vault license fees or rentals; license and regulatory approval fees; inspection fees and other authorization fees and other governmental charges of any kind or nature whatsoever (and all interest and penalties thereon), which at any time during or in respect of the Term may be assessed, levied, confirmed or imposed on the Licensed Facility, Licensee or Manager with respect to the Licensed Facility or the operation thereof, or otherwise in respect of or be a lien upon the Licensed Facility (including, on any of the inventories or Household Replacements now or hereafter located therein).  Impositions shall not include (i) any income or franchise taxes payable by Licensee or Manager or (ii) any franchise, corporate, capital levy or transfer tax imposed on Licensee or Manager.

Section 1.22.  “Intellectual Property” means (i) all software developed and owned by Manager or an Affiliate of Manager; and (ii) all written manuals, instructions, policies, procedures and directives issued by Manager to its employees at the Licensed Facility regarding the procedures and techniques to be used in operation of the Licensed Facility.

Section 1.23.  “Interest Rate” means an annual rate of 8%, but not higher than the highest rate permitted by law.

Section 1.24.  “Landlord” means SNH Yonkers Tenant Inc.

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Section 1.25.  “Legal Requirements” means any permit, license, certificate, law, code, rule, ordinance, regulation or order of any Governmental Authority, Board of Fire Underwriters or any body similar to any of the foregoing having jurisdiction over the business or operation of the Licensed Facility or the matters which are the subject of this Agreement, including any Resident care or health care, building, zoning or use laws, ordinances, regulations or orders, environmental protection laws and fire department rules.

Section 1.26.  “Licensed Facility” is defined in the recitals to this Agreement.

Section 1.27.  “Licensed Facility Expenses” means all costs and expenses related to the maintenance, operation, repair, renovation, replacement and staffing of the Licensed Facility that are normally charged as operating expense under GAAP, including: (a) costs of inventory and supplies (including Household Replacements) used in the operation of the Licensed Facility; (b) amounts payable to third parties or expenses otherwise incurred with respect to the marketing, advertising, leasing, use, repair or maintenance of the Licensed Facility and any expense incurred in order to obtain or maintain any operating permits, licenses, approvals or certifications, including any licensing or registration fees and expenses associated therewith; (c) amounts payable to third parties for billing and collections of amounts due for goods and services provided to patients and Residents, including for the collection of delinquent rentals and other costs required in connection with the enforcement of any lease or resident agreement; (d) amounts payable to third parties under service contracts; (e) amounts payable to third parties for auditing (including any audits that may be required pursuant to Section 6.02), tax preparation, accounting and risk management services and legal fees; (f) all Personnel Costs for all personnel employed, and independent contractors who provide services, at the Licensed Facility or whose services are entirely allocable to the Licensed Facility (or a pro rata share of such Personnel Costs in the case of services provided by a regional business manager or a Shared Employee (defined below)); (g) costs of all utilities serving the Licensed Facility; (h) costs of insurance premiums for insurance at the Licensed Facility; (i) the Management Fee payable to Manager; (j) costs incurred by Manager for electronic data processing equipment, systems, software or services used at the Licensed Facility; (k) all Impositions and all related costs (subject to the requirements of Section 5.05); (l) all expenses, including settlement payments, penalties, fines, repayments, consultant or legal fees and any other costs incurred, related to audits, investigations, inquiries or reviews of the Licensed Facility, Licensee, Landlord or Owner by a Governmental Authority, accreditation body or a contractor of a Governmental Authority; (m) any other recoupments, repayments, adjustments, reconciliations or other payments made or returned to Residents or third party payors of the Licensed Facility and any related consultant and legal fees; (n) costs payable to prevent, cure or correct any violation of Legal Requirements with respect to the Licensed Facility, Licensee, Landlord or Owner; and (o) costs incurred to litigate, negotiate and/or settle any civil claim, action or litigation, including any amounts payable pursuant to a settlement, judgment or damages award and related legal fees.

If any Licensed Facility Expenses (e.g., advertising, information technology, reporting and other systems for the operation of the Licensed Facility and personnel training), but not including Personnel Costs, are shared with other senior housing facilities managed or operated by Manager or its Affiliates (the “Shared Expenses”), whether owned by Licensee or its Affiliates or other parties, Manager shall identify such Shared Expenses in the Annual

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Operations Budget and the basis for allocation.  In addition, Manager may allocate as a Licensed Facility Expense a pro rata share of the Personnel Costs Manager incurs with respect to any employee or independent contractor, including for Home Office Personnel to the extent allowed by Section 4.03, who provides services at the Licensed Facility and at other senior housing facilities managed or operated by Manager (a “Shared Employee”) in accordance with an allocation formula approved by Licensee, which approval shall not be unreasonably withheld, conditioned or delayed.

Licensed Facility Expenses shall not include, unless otherwise approved by Licensee: costs for Home Office Personnel (except as allowed by Section 4.03), costs for Manager’s in-house accounting and reporting systems, software or services to the extent used exclusively at Manager’s home office, other home office and corporate level expenses and travel expenses of personnel assigned to work exclusively at the Licensed Facility, except for such Licensed Facility related travel expenses as are generally reimbursed or paid pursuant to the Licensed Facility’s policies and procedures.

Section 1.28.  “Licensee” is defined in the initial paragraph to this Agreement.

Section 1.29.  “Management Fee” is defined in Section 3.01.

Section 1.30.  “Manager” is defined in the initial paragraph of this Agreement.

Section 1.31.  “Mortgage” means any mortgage or deed of trust recorded against the Licensed Facility.

Section 1.32.  “Owner” means SNH Yonkers Properties Trust, the owner of the real estate on which the Licensed Facility is located.

Section 1.33.  “Person” means any natural person, corporation, limited liability company, trust, joint venture, partnership, Governmental Authority or other entity.

Section 1.34.  “Personnel Costs” means total cash compensation, costs of training programs, hiring expenses, severance payments, payroll taxes, workers’ compensation, travel expenses, incentive programs (e.g., workers’ compensation and risk management related incentive programs) and employee fringe benefits payable to such personnel.

Section 1.35.  “Proprietary Marks” means all trademarks, trade names, symbols, logos, slogans, designs, insignia, emblems, devices and service marks which are used by Manager to identify the Licensed Facility, whether they are now or hereafter owned by Manager or any of its Affiliates, and whether or not they are registered under the laws of the United States.

Section 1.36.  “Residents” means the individuals residing at the Licensed Facility.

Section 1.37.  “State” means the state in which the Licensed Facility is located and any regulatory agencies within the State with overview authority or other authority over the Licensed Facility, and any other state that asserts regulatory authority over the Licensed Facility or with respect to its Residents, to the extent thereof.

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Section 1.38.  “Term” is defined in Section 12.01.

Section 1.39.  “Termination Fee” means, if this Agreement is terminated under Section 12.02(i) or 14.04, an amount equal to the present value of the payments that would have been made to Manager between the date of termination and the scheduled expiration date of the Term (including any extension of the Term, but not for a period in excess of twenty (20) years in any event) as Management Fees if this Agreement had not been terminated, calculated based upon the average of the Management Fees earned in each of the three (3) calendar years ended prior to the Termination Date, discounted at an annual rate equal to the Discount Rate.

Section 1.40.  “Unsuitable for Use” means, as a result of damage, destruction or partial Condemnation, the Licensed Facility cannot be reasonably expected to be restored to its prior condition within nine (9) months and/or, in the good faith judgment of Manager, after restoration or partial Condemnation the Licensed Facility cannot be operated on a commercially practicable basis.

Section 1.41.  “Working Capital” means funds used in the day-to-day operation of the Licensed Facility.

ARTICLE II
APPOINTMENT OF MANAGER

Section 2.01.  Appointment of Manager.  Effective on the date hereof, subject to the terms and conditions of this Agreement, Licensee hereby appoints Manager as the sole and exclusive Manager for the daily management of the Licensed Facility.  Manager accepts such appointment and further agrees to:

(a) perform the duties of Manager under this Agreement in compliance with this Agreement, including Section 4.06;

(b) (i) supervise and direct the management of the operations of the Licensed Facility in a financially sound, cost-effective and efficient manner; and (ii) establish and maintain programs to promote the most effective utilization of the Licensed Facility’s services and maximize occupancy and Gross Revenues;

(c) provide quality services to Residents in a manner complying with all Legal Requirements and the form of resident agreement in use at the Licensed Facility;

(d) establish appropriate marketing programs;

(e) maintain well trained, quality staff, in sufficient number, at the Licensed Facility;

(f) institute (i) a sound financial accounting system for the Licensed Facility, (ii) adequate internal fiscal controls through proper budgeting, accountant procedures and timely financial performance and (iii) sound billing and collection procedures and methods; and

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(g) diligently monitor and assure physical plant maintenance and housekeeping consistent with a first class adult home, enriched housing program and assisted living residence with certifications as an enhanced assisted living residence and special needs assisted living residence.

ARTICLE III
PAYMENTS TO MANAGER; WORKING CAPITAL; CAPITAL REPLACEMENTS; INSUFFICIENT FUNDS

Section 3.01.  Management Fees.  As compensation for the services to be rendered by Manager under this Agreement, Manager shall receive a management fee (“Management Fee”) during the Term equal to three percent (3%) of the Gross Revenues of the Licensed Facility.  No amount paid hereunder is intended to be, nor shall it be construed to be, an inducement or payment for referral of patients by either party or any of its Affiliates to the other party or any of its Affiliates.  The compensation being paid constitutes the fair market value of the services being provided in light of the costs being incurred and the time, energy, training, expertise and skills required therefor, and is consistent with amounts that would result from arm’s-length negotiations between unrelated parties.

Section 3.02.  Working Capital.  Upon execution of this Agreement, Licensee will advance to Manager, as Working Capital, an amount equal to $1,500, multiplied by the number of units at the Licensed Facility.  Manager may, from time to time, request Licensee to fund additional amounts as Working Capital to pay Licensed Facility Expenses and if the parties do not agree on such additional amounts, the matter shall be referred to arbitration.

Section 3.03.  Capital Replacements.  The cost of all Capital Replacements in an Approved Budget shall be funded by Licensee.  Funding will be made by Licensee from time to time, after receipt by Licensee of such information from Manager regarding the acquisition, initiation or implementation of any Capital Replacements and the progress and performance thereof as Licensee may reasonably require.

Section 3.04.  Insufficient Funds.  If at any time available Working Capital is insufficient to pay Licensed Facility Expenses and Licensee has not timely funded additional amounts for such purpose or Licensee has not timely funded Capital Replacements, Manager shall have no obligation to advance its own funds therefor and is relieved of any obligation to pay Licensed Facility Expenses or the cost of Capital Replacements to such extent.  If Manager does advance its own funds, at such time as Licensee advances funds to reimburse Manager, whether by agreement or pursuant to an Award, Licensee shall pay Manager interest on such amounts at the Interest Rate from the date of Manager’s advance of funds to the date of reimbursement.  If the Award includes interest, Licensee shall be entitled to offset such interest against its obligation under this Section 3.04.

ARTICLE IV
MANAGEMENT SERVICES

Section 4.01.  Authority of Manager and Management Services.  Subject to the terms of this Agreement, Manager shall have discretion and control in all matters relating to the day-to-

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day management of the operations of the Licensed Facility.  Such discretion and control shall include the authority to negotiate and execute contracts its own name, in the name of and on behalf of Licensee and/or the Licensed Facility, in each case, subject to the terms of this Agreement.  Manager shall manage all aspects of the Licensed Facility in accordance with the terms of this Agreement, and shall have responsibility and commensurate authority for all such activities.  Without limiting the generality of the foregoing, in addition to any other services set forth in this Agreement, Manager shall, consistent with the Approved Budget and the terms of this Agreement:

(a) enter into all contracts, leases and agreements required in the ordinary course of business for the supply, maintenance of and provision of services to the Licensed Facility (including food procurement, building services (including cleaning, trash removal, snow plowing, landscaping, carpet cleaning and pest control), utilities and licenses and concessions for commercial space in the Licensed Facility); provided that, (i) unless specifically set forth in the Approved Budget, Manager shall obtain the written consent of Licensee before entering into any contract, lease or agreement not terminable on ninety (90) days notice without payment of premium or penalty, which consent shall not be unreasonably withheld, conditioned or delayed and (ii) notwithstanding any provision in this Agreement to the contrary, Licensee shall retain at all times independent approval authority over any Licensed Facility contracts for home care or clinical services;

(b) purchase such inventories, provisions, food, supplies, Household Replacements and other expendable items as are necessary to manage the operations of the Licensed Facility in the manner required pursuant to this Agreement;

(c) provide care to Residents in compliance with the resident agreements in use at the Licensed Facility and set all Resident fees and charges including those for accommodation, food services and care services;

(d) in its own name and on behalf of and, with the consent of Licensee, in the name of Licensee, which consent shall not be unreasonably withheld, conditioned or delayed, to institute and/or defend, as the case may be, any and all legal actions or proceedings relating to the management of the Licensed Facility, subject to Section 15.07;

(e) prepare a marketing plan and direct all the marketing efforts; and

(f) oversee, manage and direct all day-to-day operations.

Section 4.02.  Hiring and Training of Staff.  Manager shall have in its employ or under contract at all times a sufficient number of capable employees or independent contractors meeting all Legal Requirements, to enable it to properly, adequately, safely and economically manage, operate, maintain and account for the Licensed Facility.  All matters pertaining to the retention, employment, supervision, compensation, training, promotion and discharge of such employees or independent contractors are the responsibility of Manager, provided however, that notwithstanding any provision herein to the contrary, Licensee shall retain at all times direct, independent authority to determine whether any personnel may begin working or may be allowed to continue to work in the Licensed Facility.  All such individuals shall be employees or

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independent contractors of Manager.  Manager shall comply with all applicable Legal Requirements having to do with employers including, worker’s compensation, unemployment insurance, hours of labor, wages, working conditions and withholding of taxes from employee wages.

Section 4.03.  Manager’s Home Office Personnel.  Manager may, in its discretion, provide its services under this Agreement through its Home Office Personnel, provided that the Personnel Costs for such Home Office Personnel shall not be a Licensed Facility Expense unless agreed to in advance by Licensee.  Manager shall further make its Home Office Personnel available for consultation and advice related to the Licensed Facility without charge other than its Management Fee.  If Licensee requests a type, form or level of service from Manager’s Home Office Personnel of a nature that would otherwise be a Licensed Facility Expense, Manager shall provide such services by Home Office Personnel for an additional cost to be agreed to in advance by Manager and Licensee, which shall be a Licensed Facility Expense.  The term “Home Office Personnel” shall include Manager ‘s home office staff with experience in areas such as accounting, budgeting, finance, legal, human resources, construction, development, marketing, food service and purchasing, among other areas.

Section 4.04.  Resident Agreements.  Manager shall submit any forms of resident agreements or other occupancy agreements used in conjunction with the Licensed Facility for Licensee’s approval and, as applicable, DOH approval, before they are used.  Each Residency Agreement and any disclosures made in connection therewith must include the name of Licensee.  Manager shall act as an authorized representative of Licensee in executing resident agreements and occupancy agreements, but Manager shall not enter into such agreements for a duration of more than one year without the prior consent of Licensee, which consent shall not be unreasonably withheld, conditioned or delayed.

Section 4.05.  Contracts with Affiliates.  Except for those Affiliates listed on Schedule 4.05, Manager shall not engage or pay any compensation to any Affiliate of Manager for the provision of services in connection with this Agreement unless (a) such party is fully qualified and experienced to provide the required services, (b) both the scope of services and the compensation payable to such Affiliate for the services are consistent with then current market standards or comparable arm’s-length transactions, and (c) Manager discloses such engagement to Licensee as a transaction with an Affiliate of Manager.

Section 4.06.  Legal Requirements.

(a) Notwithstanding anything in this Agreement to the contrary, (i) Manager shall provide services under this Agreement subject to Licensee’s retained authority and responsibility; (ii) any powers not specifically granted to Manager in or pursuant to this Agreement remain with Licensee; (iii) Licensee remains responsible at all times for ensuring that any services provided pursuant to this Agreement comply with all Legal Requirements and in no way lessened by the terms and conditions of this Agreement; and (iv) Licensee retains independent authority for the adoption and enforcement of policies affecting the delivery of services to Residents.

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(b) Subject to Section 4.06(c), Manager shall obtain and maintain on behalf of and in the name of the Licensed Facility and/or Licensee (as applicable) all permits, licenses and certificates required by any Governmental Authority for the use, operation by Licensee or management by Manager of the Licensed Facility as a licensed adult home, enriched housing program, assisted living residence with certifications as an enhanced assisted living residence and special needs assisted living residence in the State.

(c) Licensee agrees:  (i) to sign promptly all applications for permits, licenses, and certificates necessary for the use, operation by Licensee and management by Manager of the Licensed Facility required by any Governmental Authority and all cost reports and other submissions for reimbursement or other payments related to the goods and services furnished to patients and Residents at the Licensed Facility and (ii) to provide promptly such information and perform such acts as are required in order for Manager to complete any such application and/or obtain and/or maintain any such permits, licenses, or certificates and/or prepare, complete and/or file any such cost reports or other submissions for payments related to the goods and services furnished to patients and Residents at the Licensed Facility. Notwithstanding any provision in this Agreement to the contrary, Licensee shall at all times retain independent approval authority over any certificate of need or other regulatory application filed by or on behalf of the Licensed Facility.

(d) Manager shall cause all things to be done in and about the Licensed Facility as may be reasonably necessary to comply with all Legal Requirements respecting the use, operation and management of the Licensed Facility.  Manager shall keep its corporate organization in good standing in the State and shall maintain all corporate permits and licenses required by the State.

(e) If either party receives any written notice, report or other correspondence from a Governmental Authority which asserts a deficiency relating to the operation or management of the Licensed Facility or otherwise relates to the actual or threatened suspension, revocation, or any other action adverse to any permit, license or certificate required or necessary to use, operate, manage or maintain the Licensed Facility, such party shall give the other party prompt notice thereof and not later than three (3) Business Days after receipt.  Manager shall provide all information required by DOH and cooperate with DOH in carrying out inspection and enforcement activities.

ARTICLE V
COLLECTIONS AND PAYMENTS

Section 5.01.  Collection and Priorities for Distribution of Gross Revenues.  Manager shall collect all Gross Revenues and shall apply the Gross Revenues in the following order of priority:

First, to pay all Licensed Facility Expenses (excluding the Management Fee),

Second, to pay Manager all accrued but unpaid Management Fee,

Third, to pay the balance to Licensee.

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Section 5.02.  Timing of Payments.  Payment of the Licensed Facility Expenses, excluding the Management Fee, shall be made in the ordinary course of business to the extent of available Gross Revenues and Working Capital.  The Management Fee shall be paid on the first Business Day of each calendar month, in advance, based upon the Manager’s then estimate of the prior month’s Gross Revenues.  The Management Fee shall be subject to adjustment by increasing or decreasing the payment due in the following month based upon the Gross Revenues reflected in the monthly financial statements for the month just ended.  If any installment of the Management Fee is not paid when due, it shall accrue interest at the Interest Rate.  Additional adjustments to all payments will be made on an annual basis based upon the financial statements for the full calendar year and any audits conducted pursuant to Section 6.03.

Section 5.03.  Credits and Collections.  Manager shall adopt credit and collection policies and procedures. Manager shall institute monthly billing by the Licensed Facility and take all steps necessary to collect accounts and monies owed to the Licensed Facility, which may include the institution of legal proceedings.

Section 5.04.  Depositories for Funds.  Manager shall maintain one or more accounts in the name of Licensee in one or more banks selected by Manager and approved by Licensee and may deposit therein all Gross Revenues and other funds collected or received by Manager and due to Licensee.  Manager shall be authorized to access the accounts without the approval of Licensee, subject to any limitation on the maximum amount of any check, if any, established between Manager and Licensee as part of the Annual Operating Budget.  Licensee shall be a signatory on all accounts maintained with respect to the Licensed Facility, and Licensee shall have the right to require that Licensee’s signature be required on all checks/withdrawals after the occurrence of an Event of Default by Manager under this Agreement.  Licensee shall provide such instructions to the applicable bank(s) as are necessary to permit Manager to implement the Manager’s rights and obligations under this Agreement provided, the failure of Licensee to provide such instructions shall relieve Manager of its obligations hereunder until such time as such failure is cured.  Notwithstanding any provision herein to the contrary, beneficial and legal control of any accounts relating to the operation of the Licensed Facility shall remain with Licensee at all times.

Section 5.05.  Impositions.  All Impositions which accrue during the Term (or are properly allocable to such Term under GAAP) shall be paid by Manager before any fine, penalty or interest is added thereto or lien placed upon the Licensed Facility or this Agreement, unless payment thereof is stayed.  Licensee shall within five (5) Business Days after the receipt of any invoice, bill, assessment, notice or other correspondence relating to any Imposition, furnish Manager with a copy thereof.  Either Licensee or Manager may initiate proceedings to contest any Imposition (in which case each party agrees to sign the required applications and otherwise cooperate with the other party in expediting the matter).  Unless part of an Approved Budget, incurrence of all costs by Manager of any negotiations or proceedings with respect to any such contest shall be subject to Licensee’s prior consent, which shall not be unreasonably withheld, conditioned or delayed.  Nothing in this Agreement is intended to modify the respective responsibility that the parties would otherwise have to pay such Impositions as may be due and payable.

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ARTICLE VI
ACCOUNTING; FINANCIAL STATEMENTS; AUDIT

Section 6.01.  Accounting.  Manager shall establish and administer accounting procedures and controls and systems for the development, preparation and safekeeping of records and books of accounting relating to the business and financial affairs of the Licensed Facility, including payroll, accounts receivable and accounts payable.  Notwithstanding any provision in this Agreement to the contrary, Manager’s control over the books and records with respect to the Licensed Facility shall at all times be subject to Licensee’s independent control over the same.

Section 6.02.  Financial Statements and Reports.  Not later than ten Business Days after the end of each calendar month, Manager shall prepare and deliver to Licensee a balance sheet and related statement of income and expense for such calendar month and for the then current calendar year to date, certified by Manager’s Controller on a monthly basis and by Manager’s Chief Financial Officer on a quarterly basis as being true and correct to the best of his/her knowledge, with a comparison to the Approved Budget.

The monthly financial statements shall be in such format as Licensee may reasonably require.  Manager shall provide such other financial statements as Licensee may from time to time reasonably request.  In addition, at the request of Licensee, any or all of the financial statements shall be audited by the Accountants as soon as practicable after such request.

Upon request, Manager shall also provide Licensee with information relating to the Licensed Facility, Manager and its Affiliates that (i) may be required in order for Licensee or its Affiliates to prepare financial statements and to comply with any applicable tax and securities laws and regulations, (ii) may be required for Licensee or any of its Affiliates to prepare federal, state, provincial or local tax returns or (iii) is of the type that Manager customarily prepares for other owners of facilities it manages, and such other or special reports as Manager may from time to time determine are necessary or as Licensee may reasonably request.

Section 6.03.  Audit Rights.

(a) Licensee and its representatives shall have the right at all reasonable times during usual business hours to audit, examine, and make copies of books of account (including copying any records contained in electronic media) maintained by Manager with respect to the Licensed Facility, which audit or examination may cover any time period during the Term at Licensee’s discretion.  Such right may be exercised through any agent or employee designated by Licensee or by an independent public accountant designated by Licensee.

(b) Manager and its representatives shall have the right at all reasonable times during usual business hours to audit, examine, and make copies of books of account (including copying any records contained in electronic media) maintained by Licensee with respect to the Invested Capital and Capital Requirements, which audit or examination may cover any time period during the Term at Manager’s discretion.  Such right may be exercised through any agent or employee designated by Manager or by an independent public accountant designated by Manager.

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ARTICLE VII
ANNUAL OPERATING BUDGET

Section 7.01.  Annual Operating Budget.  Manager shall, on or before December 20 in each calendar year during the Term, deliver to Licensee for Licensee’s approval, an annual operating budget for the Licensed Facility for the next calendar year (the “Annual Operating Budget”) which shall include separate line items for Capital Replacements and set forth an estimate, on a monthly basis, of Gross Revenues and Licensed Facility Expenses, together with an explanation of anticipated changes to Resident charges, payroll rates and positions, non-wage cost increases, the proposed methodology and formula employed by Manager in allocating shared Licensed Facility Expenses, and all other factors differing from the then current calendar year.  The Annual Operating Budget shall be accompanied by a narrative description of operating objectives and assumptions. If Licensee does not approve an Annual Operating Budget or any portion thereof, it shall do so, to the extent practicable, on a line item basis. Manager and Licensee shall cooperate to resolve disputed items, provided if the Annual Operating Budget is not approved by Licensee within thirty (30) days of Licensee’s receipt, Manager shall operate under the expired Annual Operating Budget until a new Annual Operating Budget is approved, provided that line items for Impositions, insurance premiums and utilities shall be the amounts actually incurred for such items. If agreement on the Annual Operating Budget cannot be reached within forty-five (45) days of Licensee’s receipt (which time may be extended upon mutual agreement of the parties), the matter shall be resolved by arbitration.  The Annual Operating Budget as approved by Licensee, or as resolved by arbitration, will be the “Approved Budget” for the applicable calendar year.  Manager will obtain Licensee’s prior approval for any expenditure which will, or is reasonably expected to, result in a variance of 5% or more of any Approved Budget.  Notwithstanding any provision in this Agreement to the contrary, Licensee shall retain independent approval of all operating and capital budgets and Manager’s authority to make expenditures and to incur obligations on behalf of the Licensed Facility shall be at all times subject to and limited by Licensee’s independent authority over the same.

ARTICLE VIII
TAX MATTERS; REIT QUALIFICATION

Section 8.01.  Tax Matters.  Manager shall use commercially reasonable efforts to manage the Licensed Facility in a manner to best assure that Licensee and the Licensed Facility receive all benefits of applicable tax exemptions and/or credits available thereto from any Governmental Authority.  Manager will prepare or cause to be prepared all tax returns required in the operation of the Licensed Facility, which include payroll, sales and use tax returns, personal property tax returns and business, professional and occupational license tax returns. Manager shall timely file or cause to be filed such returns as required by the State; provided that, Licensee shall promptly provide all relevant information to Manager upon request, and any late fees or penalties resulting from delays caused by Licensee shall be borne by Licensee.  Manager shall not be responsible for the preparation of Licensee’s federal or state income tax returns, provided Manager shall cooperate fully with Licensee as may be necessary to enable Licensee to file such federal or state income tax returns, including by preparing data reasonably requested by Licensee and submitting it to Licensee as soon as reasonably practicable following such request.

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Section 8.02.  Adverse Regulatory Event.

(a) In the event of an Adverse Regulatory Event arising from or in connection with this Agreement, Licensee and Manager shall work together in good faith to amend this Agreement to eliminate the impact of such Adverse Regulatory Event; provided, however, Manager shall have no obligation to materially reduce its rights or materially increase its obligations under this Agreement, all taken as a whole, or to bear any out-of-pocket costs or expenses under this Section 8.02.  Manager shall not be liable if any such amendment, once operative, fails to have the desired result of eliminating the impact of an Adverse Regulatory Event.

(b) For purposes of this Agreement, the term “Adverse Regulatory Event” means any time that a new law, statute, ordinance, code, rule, regulation or an administrative or judicial ruling imposes, or could impose in Landlord’s or Licensee’s reasonable opinion, any material threat to Senior Housing Properties Trust’s status as a “real estate investment trust” under the Code or to the treatment of amounts paid to Owner as “rents from real property” under Section 856(d) of the Code.

(c) Licensee shall promptly inform Manager of any Adverse Regulatory Event of which it is aware and which it believes likely to impair compliance with respect to Section 856(d) of the Code.

ARTICLE IX
FINANCING; INSPECTION

Section 9.01.  Financing of the Licensed Facility.  Manager shall cooperate with Owner, Landlord and Licensee in connection with any financing by Owner of the Licensed Facility.

Section 9.02.  Licensee’s Right To Inspect.  Licensee or its employees, representatives, lenders or agents shall have access to the Licensed Facility and the files, books, accounts, and records of Manager related to the Licensed Facility at any and all reasonable times during usual business hours for the purpose of inspection or showing the Licensed Facility to prospective purchasers, investors, Residents or mortgagees.

ARTICLE X
REPAIRS AND MAINTENANCE

Section 10.01. Repairs, Maintenance and Capital Replacements.  Manager shall maintain the Licensed Facility in good, orderly, clean and safe repair and condition consistent with a first class adult home, enriched housing program and assisted living residence with certifications as an enhanced assisted living residence and special needs assisted living residence and in conformity with Legal Requirements.  Manager shall make such routine and preventive maintenance, repairs and minor alterations, the cost of which can be expensed under GAAP, as it, from time to time, deems necessary for such purposes, consistent with the Approved Budget. The cost of such maintenance, repairs and alterations shall be paid from Gross Revenues.  Manager shall make such Capital Replacements as are contemplated by the Approved Budget and funded by Licensee.  The cost of such Capital Replacements shall be funded by Licensee.

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Section 10.02. Emergency Repairs.  If either party has actual knowledge of, or receives a written order or notice from a Governmental Authority, pertaining to a violation or potential violation of any Legal Requirement relating to the physical condition of the Licensed Facility or the continued safe operation of the Licensed Facility, such party shall give the other party prompt notice thereof and not later than three (3) Business Days after obtaining such knowledge or in the case of an order or notice from a Governmental Authority, receipt.  Manager shall recommend appropriate remedial action to Licensee and subject to Licensee’s consent (which shall not be unreasonably withheld, conditioned or delayed), take such remedial action, provided Manager shall be authorized to take appropriate remedial action consisting of repairs or maintenance to the Licensed Facility without receiving Licensee’s prior consent: (a) in an emergency threatening the safety of such Licensed Facility or its Residents, invitees or employees or imminent material physical damage to the Licensed Facility, or (b) if the continuation of the given condition will subject Manager and/or Licensee to regulatory, civil, or criminal liability or result in the suspension or revocation of a material permit, license or certificate.  Any disagreement regarding the necessity of taking such remedial action and/or the funding of the cost thereof that is not resolved by the parties within ten (10) Business Days shall be resolved by arbitration.

Section 10.03. Liens.  Manager shall use commercially reasonable efforts to prevent any liens from being filed against the Licensed Facility which arise from any maintenance, repairs, alterations, improvements, renewals or replacements in or to the Licensed Facility.  Manager shall not file any lien against the Licensed Facility.

Section 10.04. Ownership.  All repairs, replacements, alterations and additions shall be the property of Owner, Landlord or Licensee, as may be provided in the lease of the Licensed Facility and the other real property of which the Licensed Facility is a part from Owner to Landlord and the sublease of the Licensed Facility from Landlord to Licensee.

Section 10.05. Casualty or Condemnation.  If, during the Term, the Licensed Facility is (a) totally destroyed by fire or other casualty or there is a Condemnation or (b) partially destroyed by fire or other casualty or there is a partial Condemnation and as a result the Licensed Facility is Unsuitable for Use, either Manager or Licensee may terminate this Agreement by sixty (60) days written notice to the other and Licensee and/or Landlord shall be entitled to retain the insurance proceeds or Condemnation award, as the case may be.

If, as a result of partial destruction or partial Condemnation, the Licensed Facility is not rendered Unsuitable for Use, Licensee shall (or shall cause the Landlord to) make the insurance proceeds or award received by Licensee and/or Landlord available to Manager as necessary to repair or restore the destroyed or untaken portion of the Licensed Facility to the same condition as existed previously, provided Manager shall have the right to discontinue operating all or a portion of the Licensed Facility pending completion of the repairs or restoration as necessary to comply with Legal Requirements or for the safe and orderly operation of the Licensed Facility.

If the cost of repair or restoration is less than the insurance proceeds or award received by Licensee and/or Landlord, Licensee shall (or shall cause the Landlord to) make available the funds necessary to permit the Licensed Facility or the untaken portion to be repaired and restored.  If the cost of the repair or restoration exceeds the amount of insurance proceeds or award, Manager shall give notice to Licensee and Landlord setting forth in reasonable detail the

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nature of such deficiency, and Licensee and Landlord shall promptly advise Manager whether Licensee and/or Landlord will fund the deficiency.  If neither Licensee nor Landlord elect to fund the deficiency, Manager may terminate this Agreement by notice to Licensee.

Any obligation of Licensee and/or Landlord to make funds available to Manager to repair or restore the Licensed Facility is subject to the requirements of any Mortgage.

Notwithstanding any provisions of this Section 10.05 to the contrary, if partial destruction or a partial Condemnation occurs during the last twelve (12) months of the Term (including any renewal) and if full repair and restoration would not reasonably be expected to be completed prior to the date that is nine (9) months prior to the end of the Term (including any renewal), the provisions of this Section 10.05 shall apply as if the Licensed Facility had been rendered Unsuitable for Use.

ARTICLE XI
INSURANCE

Section 11.01. General Insurance Requirements.  Manager shall, at all times during the Term, keep (or cause to be kept) the Licensed Facility and all property located therein or thereon, insured against the risks and in such amounts as is against such risks and in such amounts as Licensee shall reasonably require and as may be commercially reasonable.  Any disputes regarding such matters not resolved by the parties within ten (10) Business Days (which period may be extended upon mutual agreement of the parties) shall be resolved by arbitration.

Section 11.02. Waiver of Subrogation.  Licensee and Manager agree that (insofar as and to the extent that such agreement may be effective without invalidating or making it impossible to secure insurance coverage from responsible insurance companies doing business in the State) with respect to any property loss which is covered by insurance then being carried by Licensee or Manager, the party carrying such insurance and suffering said loss releases the others of and from any and all claims with respect to such loss; and they further agree that their respective insurance companies (and, if Licensee or Manager shall self insure in accordance with the terms hereof, Licensee or Manager, as the case may be) shall have no right of subrogation against the other on account thereof, even though extra premium may result therefrom.  If any extra premium is payable by Manager as a result of this provision, Licensee shall not be liable for reimbursement to Manager for such extra premium.

Section 11.03. Risk Management.  Manager shall be responsible for the provision of risk management oversight at the Licensed Facility.

ARTICLE XII
TERM AND TERMINATION

Section 12.01. Term.  The Term of this Agreement shall begin on the date hereof and end on August 31, 2017 (“Term”).  The Parties may extend the Term for nine (9) consecutive periods of five (5) years each, each renewal subject to prior written approval by DOH.  Upon sixty (60) days notice given at any time during the final twenty-four (24) months of the then current Term, if Manager has given notice of non-renewal, Licensee may terminate this Agreement.

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Section 12.02. Early Termination.  Without limiting either party’s rights under Article XIV:

(i) Licensee may terminate this Agreement without cause at any time after January 15, 2016, upon sixty (60) days notice to Manager given within thirty (30) days prior to or after an annual anniversary of this Agreement.  Upon termination under this Section 12.02(i) by Licensee, Licensee shall pay Manager the Termination Fee, within sixty (60) days of the effective date of termination, as liquidated damages and in lieu of any other remedy of Manager at law or in equity.

(ii) Manager may terminate this Agreement upon sixty (60) days notice to Licensee given within thirty (30) days following a Change in Control of Licensee.  Upon termination under this Section 12.01(ii) Manager shall be compensated as provided in Section 13.01, but the termination shall otherwise be without recourse to Licensee.

(iii) This Agreement shall terminate immediately upon notice from DOH that the Licensed Facility has provided a severe and persistent substandard level of care as demonstrated by noncompliance with any Legal Requirement.

ARTICLE XIII
TRANSITION ON TERMINATION

Section 13.01. Termination.  Upon any termination of this Agreement, except as otherwise provided in Section 12.02(i) or 14.04, Manager shall be compensated for its services only through the date of termination and all amounts remaining in any accounts maintained by Manager pursuant to Section 5.04, after payment of such amounts as may be due to Manager hereunder, shall be distributed to Licensee.  In the event of any termination, both parties shall fully cooperate with one another to ensure a smooth transition of management.  Upon termination, Manager will deliver to Licensee the following:

(i) a final accounting, reflecting the balance of income and expenses of the Licensed Facility as of the date of termination, to be delivered as soon as reasonably possible but not later than sixty (60) days after such termination,

(ii) after payment of any amounts as may be due to Manager hereunder, any balance of monies of Licensee or Resident deposits, or both, held by Manager with respect to the Licensed Facility, to be delivered as soon as reasonably possible, but not later than sixty (60) days after such termination,

(iii) all records, contracts, leases, resident agreements, tenant correspondence, files, receipts for deposits, unpaid bills and other papers, documents or computer disks or information which pertain in any way to the Licensed Facility to be delivered as soon as reasonably possible, but not later than sixty (60) days after such termination, and

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(iv) Manager shall cooperate reasonably in all respects to achieve a transfer of any license and/or certificate (or to obtain a new license and/or certificate, if necessary) required in connection with the operation or management of the Licensed Facility, but shall not be required to incur any monetary expenditures in connection therewith (unless Licensee agrees to reimburse Manager therefor).

ARTICLE XIV
DEFAULTS

Section 14.01.  Default by Manager.  An Event of Default with respect to Manager shall occur in the event of any of the following:

(a) the Bankruptcy of the Manager,

(b) the gross negligence or willful misconduct of Manager with respect to its duties and obligations under this Agreement,

(c) the permit(s), license(s) or certificate(s) required for use, operation or management of the Licensed Facility are at any time suspended, terminated or revoked and not reinstated within the applicable appeal period, if any, for any reason due solely to the acts or omissions of Manager,

(d) Manager’s failure to keep, observe or perform any material covenant, agreement, term or provision of this Agreement to be kept, observed or performed by Manager, which failure shall continue (i) for a period of five (5) Business Days after Manager receives notice from Licensee in case of monetary defaults or (ii) for a period of twenty (20) Business Days after Manager receives notice from Licensee in the case of non-monetary defaults, in each case, specifying the default; provided, however, that if such non-monetary default cannot be cured within such twenty (20) Business Day period, then Manager shall be entitled to such additional time as shall be reasonable, provided the default is curable and Manager has promptly proceeded to commence cure of such default within said period, and thereafter diligently prosecutes the cure to completion; provided, however, that in no event shall such additional time exceed ninety (90) days,

(e) a Change in Control of Manager to which Licensee does not consent,

(f) a default by Manager or any Affiliate of Manager under any other agreement between Manager or an Affiliate of Manager and Licensee or an Affiliate of Licensee, which continues beyond any applicable notice and cure period.

Section 14.02. Default by Licensee.  An Event of Default with respect to Licensee shall occur in the event of any of the following:

(a) the Bankruptcy of Licensee,

(b) the gross negligence or willful misconduct of Licensee with respect to its obligations under this Agreement,

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(c) the permit(s), license(s) or certificate(s) required for use, operation or management of the Licensed Facility are at any time suspended, terminated or revoked and not reinstated within the applicable appeal period, if any, for any reason due solely to the acts or omissions of Licensee or one of its Affiliates,

(d) Licensee shall fail to (i) timely fund Working Capital or to fund Capital Replacements pursuant to an Approved Budget and such failure shall continue for a period of ten (10) Business Days after notice thereof by Manager or (ii) keep, observe or perform any other material covenant, agreement, term or provision of this Agreement to be kept, observed or performed by Licensee and such failure shall continue (x) for a period of five (5) Business Days after Licensee receives notice from Manager in case of monetary defaults or (y) for a period of twenty (20) Business Days after Licensee receives notice from Manager in the case of non-monetary defaults, in each case specifying the default; provided, however, if such default cannot be cured within such twenty (20) Business Day period, then Licensee shall be entitled to such additional time as shall be reasonable, provided the default is curable, Licensee has promptly proceeded to commence cure of such non-monetary default within said period, and thereafter diligently prosecutes the cure to completion; provided, however, that in no event shall such additional time to cure non-monetary defaults exceed ninety (90) days.

Section 14.03.  Remedies of Licensee.  Upon  the occurrence of an Event of Default by Manager, Licensee may terminate this Agreement immediately upon notice and shall be entitled to exercise any other rights at law or in equity.

Section 14.04.  Remedies of Manager.  Upon the occurrence of an Event of Default by Licensee described in Section 14.02, Manager may terminate this Agreement on thirty (30) days notice and Licensee shall pay Manager the Termination Fee within thirty (30) days of the effective date of termination, as liquidated damages and in lieu of any other remedy of Manager at law or in equity, as well as any accrued but unpaid fees owed to Manager pursuant to Section 5.01.

Section 14.05.  No Waiver of Default.  The failure by Licensee or Manager to insist upon the strict performance of any one of the terms or conditions of this Agreement or to exercise any right, remedy or election herein contained or permitted by law shall not constitute or be construed as a waiver or relinquishment for the future of such term, condition, right, remedy or election, but the same shall continue and remain in full force and effect. All rights and remedies that Licensee or Manager may have at law, in equity or otherwise for any breach of any term or condition of this Agreement shall be distinct, separate and cumulative rights and remedies and no one of them, whether or not exercised by Licensee or Manager, shall be deemed to be in exclusion of any right or remedy of Licensee or Manager.

ARTICLE XV
GOVERNING LAW, ARBITRATION, LIABILITY OF MANAGER AND INDEMNITY

Section 15.01.  Governing Law, Etc.  This Agreement shall be interpreted, construed, applied and enforced in accordance with the laws of the State of New York applicable to contracts between residents of New York which are to be performed entirely within New York, regardless of (i) where this Agreement is executed or delivered; or (ii) where any payment or

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other performance required by this Agreement is made or required to be made; or (iii) where any breach of any provision of this Agreement occurs, or any cause of action otherwise accrues; or (iv) where any action or other proceeding is instituted or pending; or (v) the nationality, citizenship, domicile, principal place of business, or jurisdiction of organization or domestication of any party; or (vi) whether the laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction other than New York; or (vii) any combination of the foregoing.

Section 15.02.  Arbitration.

(a) Any disputes, claims or controversies between the parties (i) arising out of or relating to this Agreement, or (ii) brought by or on behalf of any shareholder of any party or a direct or indirect parent of a party (which, for purposes of this Section 15.02, shall mean any shareholder of record or any beneficial owner of shares of any party, or any former shareholder of record or beneficial owner of shares of any party), either on his, her or its own behalf, on behalf of any party or on behalf of any series or class of shares of any party or shareholders of any party against any party or any member, trustee, officer, manager (including Reit Management & Research LLC or its successor), agent or employee of any party, including disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of this Agreement, including this arbitration provision, or the declarations of trust, limited liability company agreements or bylaws of any party hereto (all of which are referred to as “Disputes”), or relating in any way to such a Dispute or Disputes shall, on the demand of any party to such Dispute be resolved through binding and final arbitration in accordance with the Commercial Arbitration Rules (the “Rules”) of the American Arbitration Association (“AAA”) then in effect, except as those Rules may be modified in this Section 15.02.  For the avoidance of doubt, and not as a limitation, Disputes are intended to include derivative actions against trustees, officers or managers of any party and class actions by a shareholder against those individuals or entities and any party.  For the avoidance of doubt, a Dispute shall include a Dispute made derivatively on behalf of one party against another party. For purposes of this Article XV, the term “party” shall include any direct or indirect parent of a party.

(b) There shall be three arbitrators.  If there are only two parties to the Dispute, each party shall select one arbitrator within fifteen (15) days after receipt of a demand for arbitration.  Such arbitrators may be affiliated or interested persons of such parties.  If there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, shall each select, by the vote of a majority of the claimants or the respondents, as the case may be, one arbitrator within fifteen (15) days after receipt of a demand for arbitration.  Such arbitrators may be affiliated or interested persons of the claimants or the respondents, as the case may be.  If either a claimant (or all claimants) or a respondent (or all respondents) fail to timely select an arbitrator then the party (or parties) who has selected an arbitrator may request the AAA to provide a list of three proposed arbitrators in accordance with the Rules (each of whom shall be neutral, impartial and unaffiliated with any party) and the party (or parties) that failed to timely appoint an arbitrator shall have ten (10) days from the date the AAA provides such list to select one of the three arbitrators proposed by AAA.  If such party (or parties) fail to select such arbitrator by such time, the party (or parties) who have appointed the first arbitrator shall then have ten (10) days to select one of the three arbitrators proposed by AAA to be the second arbitrator; and, if he/they should fail to select such arbitrator by such time, the AAA shall

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select, within fifteen (15) days thereafter, one of the three arbitrators it had proposed as the second arbitrator.  The two arbitrators so appointed shall jointly appoint the third and presiding arbitrator (who shall be neutral, impartial and unaffiliated with any party) within fifteen (15) days of the appointment of the second arbitrator.  If the third arbitrator has not been appointed within the time limit specified herein, then the AAA shall provide a list of proposed arbitrators in accordance with the Rules, and the arbitrator shall be appointed by the AAA in accordance with a listing, striking and ranking procedure, with each party having a limited number of strikes, excluding strikes for cause.

(c) The place of arbitration shall be Boston, Massachusetts unless otherwise agreed by the parties.

(d) There shall be only limited documentary discovery of documents directly related to the issues in dispute, as may be ordered by the arbitrators.

(e) In rendering an award or decision (the “Award”), the arbitrators shall be required to follow the laws of the State of New York.  Any arbitration proceedings or Award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq.  The Award shall be in writing and may, but shall not be required to, briefly state the findings of fact and conclusions of law on which it is based.

(f) Except to the extent expressly provided by this Agreement or as otherwise agreed by the parties, each party involved in a Dispute shall bear its own costs and expenses (including attorneys’ fees), and the arbitrators shall not render an award that would include shifting of any such costs or expenses (including attorneys’ fees) or, in a derivative case or class action, award any portion of a party’s award to the claimant or the claimant’s attorneys.  Each party (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, respectively) shall bear the costs and expenses of its (or their) selected arbitrator and the parties (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand) shall equally bear the costs and expenses of the third appointed arbitrator.

(g) An Award shall be final and binding upon the parties thereto and shall be the sole and exclusive remedy between such parties relating to the Dispute, including any claims, counterclaims, issues or accounting presented to the arbitrators.  Judgment upon the Award may be entered in any court having jurisdiction.  To the fullest extent permitted by law, no application or appeal to any court of competent jurisdiction may be made in connection with any question of law arising in the course of arbitration or with respect to any award made except for actions relating to enforcement of this agreement to arbitrate or any arbitral award issued hereunder and except for actions seeking interim or other provisional relief in aid of arbitration proceedings in any court of competent jurisdiction.

(h) Any monetary award shall be made and payable in U.S. dollars free of any tax, deduction or offset.  Each party against which the Award assesses a monetary obligation shall pay that obligation on or before the 30th day following the date of the Award or such other date as the Award may provide.

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(i) This Section 15.02 is intended to benefit and be enforceable by the shareholders, members, direct and indirect parents, trustees, directors, officers, managers (including Reit Management & Research LLC or its successor), agents or employees of any party and the parties and shall be binding on the shareholders of any party and the parties, as applicable, and shall be in addition to, and not in substitution for, any other rights to indemnification or contribution that such individuals or entities may have by contract or otherwise.

Section 15.03.  Consent to Jurisdiction and Forum.  This Section 15.03 is subject to, and shall not in any way limit the application of, Section 15.02; in case of any conflict between this Section 15.03 and Section 15.02, Section 15.02 shall govern.  Notwithstanding anything to the contrary in Section 15.02, the exclusive jurisdiction and venue in any action brought by any party hereto pursuant to this Agreement shall lie in any federal or state court located in Boston, Massachusetts.  By execution and delivery of this Agreement, each party hereto irrevocably submits to the jurisdiction of such courts for itself and in respect of its property with respect to such action. The parties irrevocably agree that venue would be proper in such court, and hereby waive any objection that such court is an improper or inconvenient forum for the resolution of such action.  The parties further agree and consent to the service of any process required by any such court by delivery of a copy thereof in accordance with Section 17.01 and that any such delivery shall constitute valid and lawful service of process against it, without necessity for service by any other means provided by statute or rule of court.

Section 15.04.  Standard of Care.  Manager shall discharge its duties in good faith, and agrees to exercise, with respect to all services provided by Manager under this Agreement, a standard of care, skill, prudence and diligence under the circumstances then existing as is consistent with the prevailing practices of institutional property managers that manage properties comparable to the Licensed Facility in the same market and in no event with less care, skill, prudence or diligence as Manager would customarily utilize in the conduct of its business, and as is necessary to comply with all Legal Requirements.

Section 15.05.  Indemnity.  In any action, proceeding or claim brought or asserted by a third party, Manager will defend, indemnify and hold Licensee (and any of its Affiliates, their respective directors, trustees, officers, shareholders, employees and agents) harmless from and against any claims, losses, expenses, costs, suits, actions, proceedings, demands or liabilities that are asserted against, or sustained or incurred by them because of Manager’s breach of any  material term of this Agreement, or arising from Manager’s failure to act or not act in accordance with Licensee’s reasonable instructions or gross negligence, fraud, or willful misconduct, except to the extent caused by Licensee’s breach of any material term of this Agreement, gross negligence, fraud or willful misconduct.   Licensee will defend, indemnify, and hold Manager (and any of its Affiliates, their respective directors, trustees, officers, shareholders, employees and agents) harmless, from and against any and all claims, expenses, costs, suits, actions, proceedings, demands, or liabilities that are asserted against, or sustained or incurred by them in connection with the performance of Manager’s duties under this Agreement or otherwise while acting within the scope of the agency established by the parties to this Agreement and in accordance with Section 15.04, or in the case of an action, proceeding or claim brought or asserted by a third party against any of them as a result of Licensee’s breach of any material term

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of this Agreement, violation of Legal Requirements, instructions to Manager to act or not act with respect to the relevant matter or gross negligence, fraud or willful misconduct, except to the extent caused by Manager’s breach of any material term of this Agreement, failure to act or not act in accordance with Licensee’s reasonable instructions, gross negligence, fraud or willful misconduct.   The scope of the foregoing indemnities includes any and all costs and expenses properly incurred in connection with any proceedings to defend any indemnified claim, or to enforce the indemnity, or both.  Recovery upon an indemnity contained in this Agreement shall be reduced dollar-for-dollar by any applicable insurance collected by the indemnified party with respect to the claims covered by such indemnity.  The parties obligations under this Section shall survive the Termination.

Section 15.06.  Limitation of Liability.  To the maximum extent permitted by applicable law, no shareholder, member, officer, director, trustee, employee or agent of any party to this Agreement (and of any Affiliate of such party that is not a party to this Agreement) shall have any personal liability with respect to the liabilities or obligations of such party under this Agreement or any document executed by such party pursuant to this Agreement.

Section 15.07.  Licensee’s Independent Authority of Settlements.  Notwithstanding any provision in this Agreement to the contrary, Licensee shall retain independent approval of settlements of administrative proceedings or litigation to which it is a party.

ARTICLE XVI
PROPRIETARY MARKS; INTELLECTUAL PROPERTY

Section 16.01.  Proprietary Marks.  During the Term of this Agreement, each Licensed Facility shall be known as a “Five Star Senior Living” community, with such additional identification as may be necessary and agreed to by Licensee and Manager to provide local identification or to comply with local licensing or consumer protection laws.

Section 16.02.  Ownership of Proprietary Marks.  The Proprietary Marks shall in all events remain the exclusive property of Manager, and except as expressly set forth in this Agreement, nothing contained herein shall confer on Licensee the right to use the Proprietary Marks. Except as provided below in this section, upon termination, any use of or right to use the Proprietary Marks by Licensee shall cease forthwith, and Licensee shall promptly remove, at Manager’s expense, from the Licensed Facility any signs or similar items that contain the Proprietary Marks. Upon termination, Licensee shall have the right to use any inventory or Household Replacement items marked with the Proprietary Marks exclusively in connection with the Licensed Facility until they are consumed.

Section 16.03.  Intellectual Property.  All Intellectual Property shall at all times be proprietary to Manager or its Affiliates, and shall be the exclusive property of Manager or its Affiliates. During the Term, Manager shall be entitled to take all reasonable steps to ensure that the Intellectual Property remains confidential. Upon termination, all Intellectual Property shall be removed from the Licensed Facility by Manager, without compensation to Licensee.

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ARTICLE XVII
MISCELLANEOUS PROVISIONS

Section 17.01.  Notices.  All notices, demands, consents, approvals, and requests given by either party to the other hereunder shall be in writing and shall be deemed to have been duly given when delivered in person, upon confirmation of receipt when transmitted by facsimile transmission, or on the next business day if transmitted by nationally recognized overnight courier, to the parties at the following addresses:

To Licensee:

D&R Yonkers LLC

Two Newton Place

255 Washington Street, Suite 300

Newton, Massachusetts 02458

Attn:   David J. Hegarty

Richard Doyle

Facsimile: (617) 796-8349

To Manager:

FVE Managers, Inc.

400 Centre Street

Newton, Massachusetts 02458

Attn:  Bruce J. Mackey Jr.

Facsimile: (617) 796-8243

or to such other address and to the attention of such other person as either party may from time to time designate in writing. Notices properly given as described above shall be effective upon receipt.

Section 17.02.  Severability.  If any term or provision of this Agreement or the application thereof in any circumstance is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.

Section 17.03.  Gender and Number.  Whenever the context of this Agreement requires, the gender of all words herein shall include the masculine, feminine, and neuter, and the number of all words herein shall include the singular and plural.

Section 17.04.  Headings and Interpretation.  The descriptive headings in this Agreement are for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement.  References to “Section” in this Agreement shall be a reference to a Section of this Agreement unless otherwise indicated.  Whenever the words “include,” “includes” or “including” are used in this Agreement they shall be deemed to be followed by “without limitation.”   The words “hereof,” “herein,” “hereby” and “hereunder,” when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision unless

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otherwise indicated.  The word “or” shall not be exclusive.  This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting.

Section 17.05.  Estoppel Certificates.  Each party to this Agreement shall at any time and from time to time, upon not less than thirty (30) day’s prior notice from the other party, execute, acknowledge and deliver to such other party, or to any third party specified by such other party, a statement in writing:  (i) certifying that this Agreement is unmodified and in full force and effect (or if there have been modifications, that the same, as modified, is in full force and effect and stating the modifications); (ii) stating whether or not to the best knowledge of the certifying party:  (x) there is a continuing Default by the non-certifying party in the performance or observation of any covenant, agreement or condition contained in this Agreement; or (y) there shall have occurred any event which, with the giving of Notice or the passage of time or both, would become such a Default, and, if so, specifying such Default or occurrence of which the certifying party may have knowledge; and (iii) stating such other information as the non-certifying party may reasonably request.  Such statement shall be binding upon the certifying party and may be relied upon by the non-certifying party and/or such third party specified by the non-certifying party as aforesaid.  The obligations set forth in this Section 17.05 shall survive Termination (that is, each party shall, on request, within the time period described above, execute and deliver to the non-certifying party and to any such third party a statement certifying that this Agreement has been terminated).

Section 17.06.  Confidentiality of Business Information.  Manager and Licensee agree to keep confidential and not to use or to disclose to others, any of their respective secrets or confidential or proprietary information, customer lists, or trade secrets, or any matter or items relating to this Agreement, the management of the Licensed Facility or their association with each other except (a) to their respective Affiliates, which may in turn disclose to any holder of a Mortgage, any prospective lender, purchaser or prospective purchaser of the Licensed Facility, (b) to any rating agencies, lenders, stock analysts, accountants, lawyers and other like professionals, (c) as expressly consented to in writing by the other party, (d) as required by law or the rules of any national securities exchange or automated quotation system to which Licensee or Manager, or any Affiliate of either, is or becomes subject, or (e) as required by law or the applicable regulators with respect to any initial, renewal or other required application for licensure, Medicare or Medicaid participation or other approval or certification of the Licensed Facility.

Section 17.07.  Confidentiality of Patient Information.  The parties shall only use or disclose patient information, including Protected Health Information (as such term is defined by the Standards for Privacy of Individually Identifiable Health Information, 45 C.F.R. Part 160 and Subparts A and E of Part 164, as promulgated from time to time by the Department of Health and Human Services (the “Privacy Standards”)), in compliance with the Privacy Standards and other applicable law.  The parties shall further reasonably safeguard the confidentiality, integrity and availability of patient information, including Protected Health Information, as required by applicable law, including the Privacy Standards and the Security Standards (45 C.F.R. Part 160 and Subparts A and E of Part 164).  In the event that patient information (including Protected Health Information) is disclosed by a party or its agents to the other party, its employees, contractors, subcontractors or agents, such other party agrees to take reasonable steps to maintain, and to require its employees,

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contractors, subcontractors and agents receiving such information to maintain, the privacy and confidentiality of such information consistent with applicable law.  In connection with the Manager’s services hereunder, the parties shall enter into a Business Associate Agreement in a form acceptable to both parties.

Section 17.08. Assignment.  Licensee may assign this Agreement to any Affiliate (but only as such term is defined in Section 1.03(i) or (iii)) of Licensee without Manager’s consent.  Manager shall not assign or transfer its interest in this Agreement without the prior written consent of Licensee which may be withheld in Licensee’s sole and absolute discretion.  If Licensee consents to an assignment of this Agreement by Manager, no further assignment shall be made without the express consent in writing of Licensee.  Any assignment of this Agreement pursuant to this Section 17.08 shall be subject to prior written approval by DOH.

Section 17.09. Entire Agreement/Amendment.  With respect to the subject matter hereof, this Agreement supersedes all previous contracts and understandings between the parties and constitutes the sole and entire Agreement between the parties with respect to the subject matter hereof for the purpose of managing the day-to-day activities of the Licensed Facility.  This Agreement may not be modified, altered or amended in any manner except by an amendment in writing, duly executed by the parties hereto.  Any amendment shall be subject to prior written consent of DOH.

Section 17.10. Third Party Beneficiaries.  The terms and conditions of this Agreement shall inure to the benefit of, and be binding upon, the respective successors, heirs, legal representatives or permitted assigns of each of the parties hereto and except for Owner and Landlord, which are intended third party beneficiaries, and as otherwise provided in Section 15.05, no Person other than the parties hereto and their successors and permitted assigns is intended to be a beneficiary of this Agreement.

Section 17.11. Survival.  The following provisions shall survive termination or expiration of this Agreement:  Sections 11.02, 12.02, 13.01, 14.03, 14.04 and 14.05, Article XV and Article XVII.

Section 17.12. Relationship Between the Parties.  The relationship between Licensee and Manager pursuant to this Agreement shall not be one of general agency, but shall be that of an independent contractor relationship, provided with respect to those specific and limited circumstances in which (a) Manager is holding funds for the account of Licensee or (b) Manager is required or authorized to act as authorized representative for Licensee with respect to agreements with Residents, filings with and applications to governmental bodies or pursuant to licenses or Legal Requirements, the relationship between Licensee and Manager shall be that of trustee and authorized representative (with limited agency), respectively.  Neither this Agreement nor any agreements, instruments, documents or transactions contemplated hereby shall in any respect be interpreted, deemed or construed as making Licensee a partner or joint venturer with Manager or as creating any similar relationship or entity, and each party agrees that it will not make any contrary assertion, contention, claim or counterclaim in any action, suit or other legal proceeding involving the other.

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[Signatures on the following page]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed under seal by their duly authorized officers, all as of the day and year first above written.

			Manager:
			FVE Managers, Inc.
			By:	/s/ Bruce J. Mackey Jr.
				Name:	Bruce J. Mackey Jr.
				Title:	President
			Licensee:
			D&R Yonkers LLC
			By:	/s/ David J. Hegarty
				Name:	David J. Hegarty
				Title:	President and Secretary
CONSENTED TO AND ACKNOWLEDGED BY:
Landlord:
SNH Yonkers Tenant Inc.
By:	/s/ Richard A. Doyle
	Name:	Richard A. Doyle
	Title:	President and Treasurer

[Signature Page to Management Agreement]

Schedule 4.05

Five Star Rehabilitation and Wellness Services, LLC

FSQ Pharmacy Holdings, LLC

Senior Living Insurance Company

Affiliates Insurance Company

Reit Management & Research LLC

Exhibit A

Floors 2-5 of the community located at 537 Riverdale Avenue, Yonkers, New York  10705.

EX-99.3

Exhibit 99.3

JOINDER TO, AMENDMENT AND CONFIRMATION OF GUARANTEES
AND SECURITY AGREEMENTS
(AMENDED LEASE NO. 1)

THIS JOINDER TO, AMENDMENT AND CONFIRMATION OF GUARANTEES AND SECURITY AGREEMENTS (this “Confirmation”) is made and entered into as of August 31, 2012, by and among FIVE STAR QUALITY CARE, INC., a Maryland corporation (“Guarantor”), FIVE STAR QUALITY CARE TRUST, a Maryland business trust (“Tenant”), each of the parties identified on the signature page hereof as a Subtenant (collectively, “Subtenants”) and each of the parties identified on the signature page hereof as a Landlord (collectively, “Landlord”).

W I T N E S S E T H :

WHEREAS, pursuant to the terms of that certain Amended and Restated Master Lease Agreement (Lease No. 1), dated as of August 4, 2009 (as the same has been amended, restated or otherwise modified from time to time, “Amended Lease No. 1”), Landlord leases to Tenant, and Tenant leases from Landlord, certain property, all as more particularly described in Amended Lease No. 1; and

WHEREAS, the payment and performance of all of the obligations of Tenant with respect to Amended Lease No. 1 are guaranteed by (i) that certain Amended and Restated Guaranty Agreement (Lease No. 1), dated as of August 4, 2009, made by Guarantor for the benefit of Landlord (as the same has been amended, restated or otherwise modified or confirmed from time to time, the “Parent Guaranty”); and (ii) that certain Amended and Restated Subtenant Guaranty Agreement (Lease No. 1), dated as of August 4, 2009, made by certain of the Subtenants for the benefit of Landlord (as the same has been amended, restated or otherwise modified or confirmed from time to time, the “Subtenant Guaranty”; and, together with the Parent Guaranty, collectively, the “Guarantees”); and

WHEREAS, the payment and performance of all of the obligations of Tenant with respect to Amended Lease No. 1 are secured by (i) that certain Amended and Restated Subtenant Security Agreement (Lease No. 1), dated as of August 4, 2009, by and among certain of the Subtenants and Landlord (as the same has been amended, restated or otherwise modified or confirmed from time to time, the “Subtenant Security Agreement”); and (ii) that certain Amended and Restated Security Agreement (Lease No. 1), dated as of August 4, 2009, by and among Tenant and Landlord (as the same has been amended, restated or otherwise modified or confirmed from time to time, the “Tenant Security Agreement”; and together with the Subtenant Security Agreement, collectively, the “Security Agreements”); and

WHEREAS, pursuant to that certain Eighth Amendment to Amended and Restated Master Lease Agreement (Lease No. 1), dated as of the date hereof (the “Eighth Amendment”), Amended Lease No. 1 is being amended to add thereto (i) that certain senior living facility known as Aspenwood and located at 14400 Homecrest Road, Silver Spring, MD 20906, and (ii) that certain senior living facility known as HeartFields at Easton and located at 700 Port Street, Easton, MD 21601, all as more particularly described in the Eighth Amendment; and

WHEREAS, in connection with the foregoing, and as a condition precedent to the execution of the Eighth Amendment by Landlord, Landlord has required that certain of the Subtenants join in the Subtenant Guaranty and Subtenant Security Agreement and that the parties hereto confirm that the Guarantees and the Security Agreements remain in full force and effect and apply to Amended Lease No. 1 as amended by the Eighth Amendment;

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, the parties hereto hereby agree, effective as of the date hereof, as follows:

1.Joinder to Subtenant Guaranty.  Five Star Easton Heartfields LLC and Five Star Aspenwood LLC, each a Delaware limited liability company (each a “New Subtenant” and collectively the “New Subtenants”) hereby join in the Subtenant Guaranty as if each New Subtenant had originally executed and delivered the Subtenant Guaranty as a Subtenant Guarantor thereunder.  From and after the date hereof, all references in the Subtenant Guaranty to the Subtenant Guarantors shall include the New Subtenants, and each New Subtenant shall be considered a Subtenant Guarantor for all purposes under the Subtenant Guaranty.

2.Joinder to Subtenant Security Agreement.  The New Subtenants hereby join in the Subtenant Security Agreement as if each New Subtenant had originally executed and delivered the Subtenant Security Agreement as a Subtenant thereunder.  From and after the date hereof, all references in the Subtenant Security Agreement to the Subtenants shall include the New Subtenants and each New Subtenant shall be considered a Subtenant for all purposes under the Subtenant Security Agreement.

3.Amendment to Disputes Provisions in Guarantees.  Each of the Guarantees is amended by deleting Section 15 therefrom in its entirety and replacing it with Section 15 as set forth on Exhibit A attached hereto and made a part hereof.

4.Amendment to Disputes Provisions in Security Agreements.  Each of the Security Agreements is amended by deleting Section 11 therefrom in its entirety and replacing it with Section 11 as set forth on Exhibit B attached hereto and made a part hereof.

5.Amendment of Subtenant Security Agreement.  The Subtenant Security Agreement is hereby amended by (a) replacing Exhibit A attached thereto with Schedule 1 attached hereto; (b) replacing Schedule 1 attached thereto with Schedule 2 attached hereto; and (c) replacing Schedule 2 attached thereto with Schedule 3 attached hereto.

6.Amendment of Tenant Security Agreement.  The Tenant Security Agreement is hereby amended by replacing Schedule 2 attached thereto with Schedule 4 attached hereto.

7.Confirmation of Guarantees and Security Agreements.  Each of the parties to the Guarantees and the Security Agreements (including, without limitation, the New Subtenants) hereby confirms that all references in the Guarantees and the Security Agreements to “Amended Lease No. 1” shall refer to Amended Lease No. 1 as amended by the Eighth Amendment, and the Guarantees, as amended and confirmed hereby, and the Security Agreements, as amended and confirmed hereby, are hereby ratified and confirmed in all respects.

2

8.No Impairment, Etc.  The obligations, covenants, agreements and duties of the parties under the Guarantees and Security Agreements shall not be impaired in any manner by the execution and delivery of the Eighth Amendment or any other amendment, change or modification to Amended Lease No. 1, and in no event shall any ratification or confirmation of such Guarantees or such Security Agreements, or the obligations, covenants, agreements and the duties of the parties under the Guarantees or the Security Agreements, including, without limitation, this Confirmation, be required in connection with any such amendment, change or modification.

[Remainder of page left intentionally blank; Signature pages follow]

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IN WITNESS WHEREOF, the parties hereto have caused this Confirmation to be duly executed, as a sealed instrument, as of the date first set forth above.

GUARANTOR:
FIVE STAR QUALITY CARE, INC.
By:	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President
TENANT:
FIVE STAR QUALITY CARE TRUST
By:	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President

[signatures continued on following page]

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SUBTENANTS:
ANNAPOLIS HERITAGE PARTNERS, LLC,
COLUMBIA HERITAGE PARTNERS, LLC,
ENCINITAS HERITAGE PARTNERS, LLC,
FIVE STAR ASPENWOOD LLC,
FIVE STAR EASTON HEARTFIELDS LLC,
FIVE STAR QUALITY CARE-AZ, LLC,
FIVE STAR QUALITY CARE-CA, LLC,
FIVE STAR QUALITY CARE-COLORADO, LLC,
FIVE STAR QUALITY CARE-FL, LLC,
FIVE STAR QUALITY CARE-GA, LLC,
FIVE STAR QUALITY CARE-GHV, LLC,
FIVE STAR QUALITY CARE-IA, INC.,
FIVE STAR QUALITY CARE-IA, LLC,
FIVE STAR QUALITY CARE-IL, LLC,
FIVE STAR QUALITY CARE-MN, LLC,
FIVE STAR QUALITY CARE-MO, LLC,
FIVE STAR QUALITY CARE-MS, LLC,
FIVE STAR QUALITY CARE-NE, LLC,
FIVE STAR QUALITY CARE-NE, INC.,
FIVE STAR QUALITY CARE-NORTH CAROLINA, LLC,
FIVE STAR QUALITY CARE-TX, LLC,
FIVE STAR QUALITY CARE-VA, LLC,
FIVE STAR QUALITY CARE-WI, LLC,
FIVE STAR QUALITY CARE-WY, LLC,
FREDERICK HERITAGE PARTNERS, LLC,
HAGERSTOWN HERITAGE PARTNERS, LLC,
MORNINGSIDE OF BELMONT, LLC,
MORNINGSIDE OF GALLATIN, LLC,
NEWARK HERITAGE PARTNERS I, LLC,
NEWARK HERITAGE PARTNERS II, LLC, and
REDLANDS HERITAGE PARTNERS, LLC
By:	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President of each of the foregoing entities

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FRESNO HERITAGE PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP, and
ROSEVILLE HERITAGE PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP
By:	Hamilton Place, LLC,
	General Partner of each of the foregoing entities
	By:	/s/ Bruce J. Mackey Jr.
		Bruce J. Mackey Jr.
		President
MORNINGSIDE OF ANDERSON, L.P.,
MORNINGSIDE OF COLUMBUS, L.P.,
MORNINGSIDE OF DALTON, LIMITED PARTNERSHIP,
MORNINGSIDE OF EVANS, LIMITED PARTNERSHIP, and
MORNINGSIDE OF KENTUCKY, LIMITED PARTNERSHIP
By:	LifeTrust America, Inc.,
	General Partner of each of the foregoing entities
	By:	/s/ Bruce J. Mackey Jr.
		Bruce J. Mackey Jr.
		President

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LANDLORD:
SNH CHS PROPERTIES TRUST,
SPTIHS PROPERTIES TRUST,
SPTMNR PROPERTIES TRUST,
SNH/LTA PROPERTIES TRUST,
SNH/LTA PROPERTIES GA LLC, and
SNH SOMERFORD PROPERTIES TRUST
By:	/s/ David J. Hegarty
	David J. Hegarty
	President of each of the foregoing entities

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EXHIBIT A

DISPUTES PROVISION — GUARANTEES

15.Disputes.

(a)Any disputes, claims or controversies between or among the parties (i) arising out of or relating to this Guaranty, or (ii) brought by or on behalf of any shareholder of any party (which, for purposes of this Section 15, shall mean any shareholder of record or any beneficial owner of shares of any party, or any former shareholder of record or beneficial owner of shares of any party), either on his, her or its own behalf, on behalf of any party or on behalf of any series or class of shares of any party or shareholders of any party against any party or any trustee, director, officer, manager (including Reit Management & Research LLC or its successor), agent or employee of any party, including disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of this Guaranty, including this arbitration agreement, the declaration of trust, limited liability company agreement, partnership agreement or analogous governing instruments, as applicable, of any party, or the bylaws of any party (all of which are referred to as “Disputes”), or relating in any way to such a Dispute or Disputes, shall on the demand of any party to such Dispute be resolved through binding and final arbitration in accordance with the Commercial Arbitration Rules (the “Rules”) of the American Arbitration Association (“AAA”) then in effect, except as those Rules may be modified in this Section 15.  For the avoidance of doubt, and not as a limitation, Disputes are intended to include derivative actions against trustees, directors, officers or managers of any party and class actions by a shareholder against those individuals or entities and any party.  For the avoidance of doubt, a Dispute shall include a Dispute made derivatively on behalf of one party against another party.

(b)There shall be three arbitrators.  If there are only two parties to the Dispute (with, for purposes of this Section 15, any and all parties involved in the Dispute and owned by the same ultimate parent entity treated as one party), each party shall select one arbitrator within 15 days after receipt by respondent of a copy of the demand for arbitration.  Such arbitrators may be affiliated or interested persons of such parties.  If either party fails to timely select an arbitrator, the other party to the Dispute shall select the second arbitrator who shall be neutral and impartial and shall not be affiliated with or an interested person of either party. If there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, shall each select, by the vote of a majority of the claimants or the respondents, as the case may be, one arbitrator. Such arbitrators may be affiliated or interested persons of the claimants or the respondents, as the case may be.  If either all claimants or all respondents fail to timely select an arbitrator then such arbitrator (who shall be neutral, impartial and unaffiliated with any party) shall be appointed by the AAA.  The two arbitrators so appointed shall jointly appoint the third and presiding arbitrator (who shall be neutral, impartial and unaffiliated with any party) within 15 days of the appointment of the second arbitrator.  If the third arbitrator has not been appointed within the time limit specified herein, then the AAA shall provide a list of proposed arbitrators in accordance with the Rules, and the arbitrator shall be appointed by the AAA in accordance with a listing, striking and ranking procedure, with each party having a limited number of strikes, excluding strikes for cause.

(c)The place of arbitration shall be Boston, Massachusetts unless otherwise agreed by the parties.

(d)There shall be only limited documentary discovery of documents directly related to the issues in dispute, as may be ordered by the arbitrators.

(e)In rendering an award or decision (the “Award”), the arbitrators shall be required to follow the laws of the Commonwealth of Massachusetts.  Any arbitration proceedings or Award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq.  The Award shall be in writing and may, but shall not be required to, briefly state the findings of fact and conclusions of law on which it is based.

(f)Except to the extent expressly provided by Section 15 or as otherwise agreed by the parties, each party involved in a Dispute shall bear its own costs and expenses (including attorneys’ fees), and the arbitrators shall not render an award that would include shifting of any such costs or expenses (including attorneys’ fees) or, in a derivative case or class action, award any portion of any party’s award to the claimant or the claimant’s attorneys.  Except to the extent otherwise agreed by the parties, each party (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, respectively) shall bear the costs and expenses of its (or their) selected arbitrator and the parties (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand) shall equally bear the costs and expenses of the third appointed arbitrator.

(g)An Award shall be final and binding upon the parties thereto and shall be the sole and exclusive remedy between such parties relating to the Dispute, including any claims, counterclaims, issues or accounting presented to the arbitrators.  Judgment upon the Award may be entered in any court having jurisdiction.  To the fullest extent permitted by law, no application or appeal to any court of competent jurisdiction may be made in connection with any question of law arising in the course of arbitration or with respect to any award made except for actions relating to enforcement of this agreement to arbitrate or any arbitral award issued hereunder and except for actions seeking interim or other provisional relief in aid of arbitration proceedings in any court of competent jurisdiction.

(h)Any monetary award shall be made and payable in U.S. dollars free of any tax, deduction or offset.  Each party against which the Award assesses a monetary obligation shall pay that obligation on or before the 30th day following the date of the Award or such other date as the Award may provide.

(i)This Section 15 is intended to benefit and be enforceable by the shareholders, trustees, directors, officers, managers (including Reit Management & Research LLC or its successor), agents or employees of any party and the parties and shall be binding on the shareholders of any party and the parties, as applicable, and shall be in addition to, and not in substitution for, any other rights to indemnification or contribution that such individuals or entities may have by contract or otherwise.

EXHIBIT B

DISPUTES PROVISION — SECURITY AGREEMENT

Section 11.Disputes.

(a)Any disputes, claims or controversies between or among the parties (i) arising out of or relating to this Agreement, or (ii) brought by or on behalf of any shareholder of any party (which, for purposes of this Section 11, shall mean any shareholder of record or any beneficial owner of shares of any party, or any former shareholder of record or beneficial owner of shares of any party), either on his, her or its own behalf, on behalf of any party or on behalf of any series or class of shares of any party or shareholders of any party against any party or any trustee, director, officer, manager (including Reit Management & Research LLC or its successor), agent or employee of any party, including disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of this Agreement, including this arbitration agreement, the declaration of trust, limited liability company agreement, partnership agreement or analogous governing instruments, as applicable, of any party, or the bylaws of any party (all of which are referred to as “Disputes”), or relating in any way to such a Dispute or Disputes, shall on the demand of any party to such Dispute be resolved through binding and final arbitration in accordance with the Commercial Arbitration Rules (the “Rules”) of the American Arbitration Association (“AAA”) then in effect, except as those Rules may be modified in this Section 11.  For the avoidance of doubt, and not as a limitation, Disputes are intended to include derivative actions against trustees, directors, officers or managers of any party and class actions by a shareholder against those individuals or entities and any party.  For the avoidance of doubt, a Dispute shall include a Dispute made derivatively on behalf of one party against another party.

(b)There shall be three arbitrators.  If there are only two parties to the Dispute (with, for purposes of this Section 11, any and all parties involved in the Dispute and owned by the same ultimate parent entity treated as one party), each party shall select one arbitrator within 15 days after receipt by respondent of a copy of the demand for arbitration.  Such arbitrators may be affiliated or interested persons of such parties.  If either party fails to timely select an arbitrator, the other party to the Dispute shall select the second arbitrator who shall be neutral and impartial and shall not be affiliated with or an interested person of either party. If there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, shall each select, by the vote of a majority of the claimants or the respondents, as the case may be, one arbitrator. Such arbitrators may be affiliated or interested persons of the claimants or the respondents, as the case may be.  If either all claimants or all respondents fail to timely select an arbitrator then such arbitrator (who shall be neutral, impartial and unaffiliated with any party) shall be appointed by the AAA.  The two arbitrators so appointed shall jointly appoint the third and presiding arbitrator (who shall be neutral, impartial and unaffiliated with any party) within 15 days of the appointment of the second arbitrator.  If the third arbitrator has not been appointed within the time limit specified herein, then the AAA shall provide a list of proposed arbitrators in accordance with the Rules, and the arbitrator shall be appointed by the AAA in accordance with a listing, striking and ranking procedure, with each party having a limited number of strikes, excluding strikes for cause.

(c)The place of arbitration shall be Boston, Massachusetts unless otherwise agreed by the parties.

(d)There shall be only limited documentary discovery of documents directly related to the issues in dispute, as may be ordered by the arbitrators.

(e)In rendering an award or decision (the “Award”), the arbitrators shall be required to follow the laws of the Commonwealth of Massachusetts.  Any arbitration proceedings or Award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq.  The Award shall be in writing and may, but shall not be required to, briefly state the findings of fact and conclusions of law on which it is based.

(f)Except to the extent expressly provided by Section 11 or as otherwise agreed by the parties, each party involved in a Dispute shall bear its own costs and expenses (including attorneys’ fees), and the arbitrators shall not render an award that would include shifting of any such costs or expenses (including attorneys’ fees) or, in a derivative case or class action, award any portion of any party’s award to the claimant or the claimant’s attorneys.  Except to the extent otherwise agreed by the parties, each party (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, respectively) shall bear the costs and expenses of its (or their) selected arbitrator and the parties (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand) shall equally bear the costs and expenses of the third appointed arbitrator.

(g)An Award shall be final and binding upon the parties thereto and shall be the sole and exclusive remedy between such parties relating to the Dispute, including any claims, counterclaims, issues or accounting presented to the arbitrators.  Judgment upon the Award may be entered in any court having jurisdiction.  To the fullest extent permitted by law, no application or appeal to any court of competent jurisdiction may be made in connection with any question of law arising in the course of arbitration or with respect to any award made except for actions relating to enforcement of this agreement to arbitrate or any arbitral award issued hereunder and except for actions seeking interim or other provisional relief in aid of arbitration proceedings in any court of competent jurisdiction.

(h)Any monetary award shall be made and payable in U.S. dollars free of any tax, deduction or offset.  Each party against which the Award assesses a monetary obligation shall pay that obligation on or before the 30th day following the date of the Award or such other date as the Award may provide.

(i)This Section 11 is intended to benefit and be enforceable by the shareholders, trustees, directors, officers, managers (including Reit Management & Research LLC or its successor), agents or employees of any party and the parties and shall be binding on the shareholders of any party and the parties, as applicable, and shall be in addition to, and not in substitution for, any other rights to indemnification or contribution that such individuals or entities may have by contract or otherwise.

SCHEDULE 1

EXHIBIT A

SUBLEASES

1.Sublease Agreement, dated December 31, 2001, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-AZ, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated March 1, 2004 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

2.Sublease Agreement, dated December 31, 2001, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-CA, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated March 1, 2004 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

3.Sublease Agreement, dated December 31, 2001, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-Colorado, LLC, Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated March 1, 2004 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

4.Sublease Agreement, dated December 31, 2001, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-IA, Inc., a Delaware corporation, as subtenant, as amended by that certain Letter Agreement dated March 1, 2004 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by

and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

5.Sublease Agreement, dated December 31, 2001, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-WY, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated March 1, 2004 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

6.Sublease Agreement, dated June 23, 2004, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-MO, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

7.Sublease Agreement, dated November 19, 2004, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Morningside of Columbus, L.P., a Delaware limited partnership, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

8.Sublease Agreement, dated November 19, 2004, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Morningside of Dalton, Limited Partnership, a Delaware limited partnership, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

9.Sublease Agreement, dated November 19, 2004, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Morningside of Evans, Limited Partnership, a Delaware limited partnership, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

10.Sublease Agreement, dated November 19, 2004, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Morningside of Gallatin, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

11.Sublease Agreement, dated October 31, 2005, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-GHV, LLC, a Maryland limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Partial Termination of Sublease Agreement, dated May 6, 2011 by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-GHV, LLC, a Maryland limited liability company, as subtenant.

12.Sublease Agreement, dated September 1, 2006, by and between Five Star Quality Care Trust, a Maryland business trust, as Sublandlord, and Five Star Quality Care-FL, LLC, a Delaware limited liability company, as Subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

13.Sublease Agreement, dated October 1, 2006, by and between Five Star Quality Care Trust, a Maryland business trust, as Sublandlord, and Five Star Quality Care-MS, LLC, a Maryland limited liability company, as Subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

14.Second Amended and Restated Sublease Agreement, dated November 6, 2006, by and between Five Star Quality Care Trust, a Maryland business trust, as Sublandlord, and Morningside of Kentucky, Limited Partnership, a Delaware limited partnership, as Subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

15.Amended and Restated Sublease Agreement, dated January 1, 2007, by and between Five Star Quality Care Trust, a Maryland business trust, and Morningside of Belmont, LLC, a Delaware limited liability company, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

16.Sublease Agreement, dated March 1, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-MN, LLC, a Maryland limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

17.Sublease Agreement, dated March 31, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Annapolis Heritage Partners, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

18.Sublease Agreement, dated March 31, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Columbia Heritage Partners, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

19.Sublease Agreement, dated March 31, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Encinitas Heritage Partners, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

20.Sublease Agreement, dated March 31, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Frederick Heritage Partners, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as

sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

21.Sublease Agreement, dated March 31, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Fresno Heritage Partners, A California Limited Partnership, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

22.Sublease Agreement, dated March 31, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Hagerstown Heritage Partners, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

23.Sublease Agreement, dated March 31, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Newark Heritage Partners I, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

24.Sublease Agreement, dated March 31, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Newark Heritage Partners II, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

25.Sublease Agreement, dated March 31, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Redlands Heritage Partners, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

26.Sublease Agreement, dated March 31, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Roseville Heritage Partners, A California Limited Partnership, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

27.Second Amended and Restated Sublease Agreement, dated as of August 4, 2009, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-WI, LLC, a Delaware limited liability company, as subtenant.

28.Sublease Agreement, dated as of August 4, 2009, by and between FVE FM Financing, Inc., a Maryland corporation, as sublandlord, and Five Star Quality Care-MD, LLC, a Delaware limited liability company, as subtenant, as assigned by that certain Bill of Sale, Assignment and Assumption Agreement, dated as of November 1, 2009, by and between Five Star Quality Care-MD, LLC, as assignor, and Five Star Easton Heartfields LLC, a Delaware limited liability company, as assignee, as further assigned by that Bill of Sale, Assignment and Assumption Agreement, dated as of August 31, 2012, by and between FVE FM Financing Inc., as assignor, and Five Star Quality Care Trust, as assignee and joined by Five Star Easton Heartfields LLC, as subtenant.

29.Sublease Agreement, dated as of August 4, 2009, by and between FVE FM Financing, Inc., a Maryland corporation, as sublandlord, and Five Star Quality Care-MD, LLC, a Delaware limited liability company, as subtenant, as assigned by that certain Bill of Sale, Assignment and Assumption Agreement, dated as of November 1, 2009, by and between Five Star Quality Care-MD, LLC, as assignor, and Five Star Aspenwood LLC, a Delaware limited liability company, as assignee, as further assigned by that Bill of Sale, Assignment and Assumption Agreement, dated as of August 31, 2012, by and between FVE FM Financing Inc., as assignor, and Five Star Quality Care Trust, as assignee and joined by Five Star Aspenwood LLC, as subtenant.

30.Amended and Restated Sublease Agreement, dated as of October 1, 2009, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-IA, LLC, as subtenant.

31.Sublease Agreement, dated as of November 17, 2009, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Morningside of Anderson, L.P., a Delaware limited partnership, as subtenant.

32.Sublease Agreement, dated as of November 17, 2009, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-TX, LLC, a Maryland limited liability company, as subtenant.

33.Sublease Agreement, dated as of December 10, 2009, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-GA, LLC, a Delaware limited liability company, as subtenant.

34.Amended and Restated Sublease Agreement, dated August 1, 2010, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-NE, Inc., a Delaware corporation, as subtenant.

35.Amended and Restated Sublease Agreement, dated August 1, 2010, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-NE, LLC, a Delaware limited liability company, as subtenant.

36.Sublease Agreement, dated May 1, 2011, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-IL, LLC, a Maryland limited liability company, as subtenant.

37.Second Amended and Restated Sublease Agreement, dated as of June 20, 2011, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-VA, LLC, a Delaware limited liability company, as subtenant.

38.Amended and Restated Sublease Agreement, dated as of June 20, 2011, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-North Carolina, LLC, a Maryland limited liability company, as subtenant.

SCHEDULE 2

SCHEDULE 1

Subtenant Name, Organizational Structure &  Corporate Identification Number:	Chief Executive Office &  Principal Place of Business:	Other Names
Annapolis Heritage Partners, LLC, a Delaware limited liability company No: DE 3058704	400 Centre Street Newton, MA 02458	None.
Columbia Heritage Partners, LLC, a Delaware limited liability company No: DE 3168953	400 Centre Street Newton, MA 02458	None.
Encinitas Heritage Partners, LLC, a Delaware limited liability company No: DE 2963000	400 Centre Street Newton, MA 02458	None.
Five Star Aspenwood LLC, a Delaware limited liability company No: DE 4707925	400 Centre Street Newton, MA 02458	None.
Five Star Easton Heartfields LLC, a Delaware limited liability company No: DE 4707930	400 Centre Street Newton, MA 02458	None.
Five Star Quality Care-AZ, LLC, a Delaware limited liability company No: DE 3141214	400 Centre Street Newton, MA 02458	SHOPCO-AZ, LLC
Five Star Quality Care-CA, LLC, a Delaware limited liability company No: DE 3141210	400 Centre Street Newton, MA 02458	SHOPCO-CA, LLC
Five Star Quality Care-Colorado, LLC, a Delaware limited liability company No: DE 3141518	400 Centre Street Newton, MA 02458	SHOPCO-Colorado, LLC
Five Star Quality Care-FL, LLC, a Delaware limited liability company No: DE 3487186	400 Centre Street Newton, MA 02458	None.
Five Star Quality Care-GA, LLC, a Delaware limited liability company No: DE 3141197	400 Centre Street Newton, MA 02458	SHOPCO-GA, LLC
Five Star Quality Care-GHV, LLC, a Maryland limited liability company No: MD W10441350	400 Centre Street Newton, MA 02458	None.
Five Star Quality Care-IA, Inc., a Delaware corporation No: DE 3162192	400 Centre Street Newton, MA 02458	SHOPCO-IA, INC.
Five Star Quality Care-IA, LLC, a Delaware limited liability company No: DE 3141200	400 Centre Street Newton, MA 02458	SHOPCO-IA, LLC
Five Star Quality Care-IL, LLC, a Maryland limited liability company No: MD W11464047	400 Centre Street Newton, MA 02458	None.
Five Star Quality Care-MN, LLC, a Maryland limited liability company No: MD W1237583	400 Centre Street Newton, MA 02458	None.

Subtenant Name, Organizational Structure &  Corporate Identification Number:	Chief Executive Office &  Principal Place of Business:	Other Names
Five Star Quality Care-MO, LLC, a Delaware limited liability company No: DE 3155964	400 Centre Street Newton, MA 02458	SHOPCO-MO, LLC
Five Star Quality Care-MS, LLC, a Maryland limited liability company No: MD W11505922	400 Centre Street Newton, MA 02458	None.
Five Star Quality Care-NE, Inc., a Delaware corporation No: DE 3162188	400 Centre Street Newton, MA 02458	SHOPCO-NE, Inc.
Five Star Quality Care-NE, LLC, a Delaware limited liability company No: DE 3141204	400 Centre Street Newton, MA 02458	SHOPCO-NE, LLC
Five Star Quality Care-North Carolina, LLC a Maryland limited liability company No: MD W13279039	400 Centre Street Newton, MA 02458	None.
Five Star Quality Care-TX, LLC, a Maryland limited liability company No: MD W11898319	400 Centre Street Newton, MA 02458	FSQC-TX, LLC.
Five Star Quality Care-VA, LLC, a Delaware limited liability company No: DE 3561214	400 Centre Street Newton, MA 02458	None.
Five Star Quality Care-WI, LLC, a Delaware limited liability company No: DE 3141217	400 Centre Street Newton, MA 02458	SHOPCO-WI, LLC
Five Star Quality Care-WY, LLC, a Delaware limited liability company No: DE 3141207	400 Centre Street Newton, MA 02458	SHOPCO-WY, LLC
Frederick Heritage Partners, LLC, a Delaware limited liability company No: DE 3400641	400 Centre Street Newton, MA 02458	None.
Fresno Heritage Partners, A California Limited Partnership, a California limited partnership No: CA 199514200026	400 Centre Street Newton, MA 02458	None.
Hagerstown Heritage Partners, LLC, a Delaware limited liability company No: DE 3400642	400 Centre Street Newton, MA 02458	None.
Morningside of Anderson, L.P., a Delaware limited partnership No: DE 2926362	400 Centre Street Newton, MA 02458	None.
Morningside of Belmont, LLC, a Delaware limited liability company No: DE 2755738	400 Centre Street Newton, MA 02458	None.
Morningside of Columbus, L.P., a Delaware limited partnership No: DE 27776210	400 Centre Street Newton, MA 02458	None.
Morningside of Dalton, Limited Partnership, a Delaware limited partnership No: DE 3499191	400 Centre Street Newton, MA 02458	None.
Morningside of Evans, Limited Partnership, a Delaware limited partnership No: DE 3499196	400 Centre Street Newton, MA 02458	None.
Morningside of Gallatin, LLC, a Delaware limited liability company	400 Centre Street	None.

Subtenant Name, Organizational Structure &  Corporate Identification Number:	Chief Executive Office &  Principal Place of Business:	Other Names
No: DE 2962705	Newton, MA 02458
Morningside of Kentucky, Limited Partnership, a Delaware limited partnership No: DE 2750276	400 Centre Street Newton, MA 02458	None.
Newark Heritage Partners I, LLC, a Delaware limited liability company No: DE 3400643	400 Centre Street Newton, MA 02458	None.
Newark Heritage Partners II, LLC, a Delaware limited liability company No: DE 3400645	400 Centre Street Newton, MA 02458	None.
Redlands Heritage Partners, LLC, a Delaware limited liability company No: DE 2963010	400 Centre Street Newton, MA 02458	None.
Roseville Heritage Partners, A California Limited Partnership, a California limited partnership No: CA 199616300018	400 Centre Street Newton, MA 02458	None.

SCHEDULE 3

SCHEDULE 2

The Facilities

State:	Facility:	Subtenant:
ARIZONA:	LA MESA HEALTHCARE CENTER 2470 S. Arizona Avenue Yuma, Arizona 85364	Five Star Quality Care-AZ, LLC
	SUNQUEST VILLAGE OF YUMA 265 E. 24th Street Yuma, Arizona 85364	Five Star Quality Care-AZ, LLC
CALIFORNIA:	SOMERFORD PLACE - ENCINITAS 1350 S. El Camino Real Encinitas, California 92024	Encinitas Heritage Partners, LLC
	SOMERFORD PLACE - FRESNO 6075 N. Marks Avenue Fresno, California 93711	Fresno Heritage Partners, A California Limited Partnership
	LANCASTER HEALTHCARE CENTER 1642 West Avenue J Lancaster, CA 93534	Five Star Quality Care-CA, LLC
	LEISURE POINTE 1371 Parkside Drive San Bernardino, CA 92404	Five Star Quality Care-CA, LLC
	VAN NUYS HEALTH CARE CENTER 6835 Hazeltine Street Van Nuys, CA 91405	Five Star Quality Care-CA, LLC
	SOMERFORD PLACE - REDLANDS 1319 Brookside Avenue Redlands, California 92373	Redlands Heritage Partners, LLC
	SOMERFORD PLACE - ROSEVILLE 110 Sterling Court Roseville, California 95661	Roseville Heritage Partners, A California Limited Partnership

State:	Facility:	Subtenant:
COLORADO:	MANTEY HEIGHTS REHABILITATION & CARE CENTER 2825 Patterson Road Grand Junction, CO 81506	Five Star Quality Care-Colorado, LLC
	CHERRELYN HEALTHCARE CENTER 5555 South Elati Street Littleton, CO 80120	Five Star Quality Care-Colorado, LLC
DELAWARE:	SOMERFORD HOUSE AND SOMERFORD PLACE – NEWARK I & II 4175 Ogletown Road and 501 S. Harmony Road Newark, Delaware 19713	Newark Heritage Partners I, LLC and Newark Heritage Partners II, LLC
FLORIDA:	TUSCANY VILLA OF NAPLES (AKA BUENA VISTA) 8901 Tamiami Trail East Naples, Florida 34113	Five Star Quality Care-FL, LLC
GEORGIA:	EASTSIDE GARDENS 2078 Scenic Highway North Snellville, Georgia 30078	Five Star Quality Care-GA, LLC
	MORNINGSIDE OF COLUMBUS 7100 South Stadium Drive Columbus, GA 31909	Morningside of Columbus, L.P.
	MORNINGSIDE OF DALTON 2470 Dug Gap Road Dalton, GA 30720	Morningside of Dalton, Limited Partnership
	MORNINGSIDE OF EVANS 353 N. Belair Road Evans, GA 30809	Morningside of Evans, Limited Partnership
ILLINOIS	CRIMSON POINTE 7130 Crimson Ridge Drive Rockford, Illinois 61107	Five Star Quality Care-IL, LLC
IOWA:	UNION PARK HEALTH SERVICES 2401 E. 8th Street Des Moines, Iowa 50316	Five Star Quality Care-IA, Inc.

State:	Facility:	Subtenant:
	PARK PLACE 114 East Green Street Glenwood, IA 51534	Five Star Quality Care-IA, Inc.
	PRAIRIE RIDGE CARE & REHABILITATION 608 Prairie Street Mediapolis, IA 52637	Five Star Quality Care-IA, LLC
KENTUCKY:	ASHWOOD PLACE 102 Leonardwood Frankfort, KY 40601	Morningside of Kentucky, Limited Partnership
MARYLAND:	SOMERFORD PLACE – ANNAPOLIS 2717 Riva Road Annapolis, Maryland 21401	Annapolis Heritage Partners, LLC
	SOMERFORD PLACE – COLUMBIA 8220 Snowden River Parkway Columbia, Maryland 21405	Columbia Heritage Partners, LLC
	HEARTFIELDS AT EASTON 700 Port Street Easton, MD 21601	Five Star Easton Heartfields LLC
	SOMERFORD PLACE – FREDERICK 2100 Whittier Drive Frederick, Maryland 21702	Frederick Heritage Partners, LLC
	SOMERFORD PLACE – HAGERSTOWN 10114 and 10116 Sharpsburg Pike Hagerstown, Maryland 21740	Hagerstown Heritage Partners, LLC
	ASPENWOOD 14440 Homecrest Road Silver Spring, MD 20906	Five Star Aspenwood LLC
MINNESOTA:	WELLSTEAD OF ROGERS 20500 and 20600 S. Diamond Lake Road Rogers, MN 55374	Five Star Quality Care-MN, LLC

State:	Facility:	Subtenant:
MISSISSIPPI:	HERMITAGE GARDENS OF OXFORD 1488 Belk Boulevard Oxford, MS 38655	Five Star Quality Care-MS, LLC
	HERMITAGE GARDENS OF SOUTHAVEN 108 Clarington Drive Southaven, MS 38671	Five Star Quality Care-MS, LLC
MISSOURI:	ARBOR VIEW HEALTHCARE & REHABILITATION 1317 N. 36th Street St. Joseph, Missouri 64506	Five Star Quality Care-MO, LLC
NEBRASKA:	ASHLAND CARE CENTER 1700 Furnace Street Ashland, NE 68003	Five Star Quality Care-NE, LLC
	BLUE HILL CARE CENTER 414 North Wilson Street Blue Hill, NE 68930	Five Star Quality Care-NE, LLC
	CENTRAL CITY CARE CENTER 2720 South 17th Avenue Central City, NE 68462	Five Star Quality Care-NE, Inc.
	GRETNA COMMUNITY CARE CENTER 700 South Highway 6 Gretna, NE 68028	Five Star Quality Care-NE, LLC
	SUTHERLAND CARE CENTER 333 Maple Street Sutherland, NE 69165	Five Star Quality Care-NE, LLC
	WAVERLY CARE CENTER 11041 North 137th Street Waverly, NE 68462	Five Star Quality Care-NE, LLC
NORTH CAROLINA:	HAVEN IN HIGHLAND CREEK 5920 McChesney Drive Charlotte, NC 28269	Five Star Quality Care-North Carolina, LLC

State:	Facility:	Subtenant:
	LAURELS IN HIGHLAND CREEK 6101 Clark Creek Parkway Charlotte, NC 28269	Five Star Quality Care-North Carolina, LLC
	HAVEN IN THE VILLAGE AT CAROLINA PLACE 13150 Dorman Road Pineville, NC 28134	Five Star Quality Care-North Carolina, LLC
	LAURELS IN THE VILLAGE AT CAROLINA PLACE 13180 Dorman Road Pineville, NC 28134	Five Star Quality Care-North Carolina, LLC
	THE LANDING AT PARKWOOD VILLAGE 1720 Parkwood Boulevard Wilson, NC 27893	Five Star Quality Care-North Carolina, LLC
PENNSYLVANIA:	RIDGEPOINTE ASSISTED LIVING 5301 Brownsville Road Pittsburgh, PA 15236	Five Star Quality Care-GHV, LLC
	MOUNT VERNON OF SOUTH PARK 1400 Riggs Road South Park, PA 15129	Five Star Quality Care-GHV, LLC
SOUTH CAROLINA:	HAVEN IN THE SUMMIT 3 Summit Terrace Columbia, SC 29229	Morningside of Anderson, L.P.
	HAVEN IN THE VILLAGE AT CHANTICLEER 355 Berkmans Lane Greenville, SC 29605	Morningside of Anderson, L.P.
TENNESSEE:	MORNINGSIDE OF GALLATIN 1085 Hartsville Pike Gallatin, TN 37066	Morningside of Gallatin, LLC
	WALKING HORSE MEADOWS 207 Uffelman Drive Clarksville, TN 37043	Morningside of Belmont, LLC

State:	Facility:	Subtenant:
	MORNINGSIDE OF BELMONT 1710 Magnolia Boulevard Nashville, TN 37212	Morningside of Belmont, LLC
TEXAS:	HAVEN IN STONE OAK 511 Knights Cross Drive San Antonio, TX 78258	Five Star Quality Care-TX, LLC
	LAURELS IN STONE OAK 575 Knights Cross Drive San Antonio, TX 78258	Five Star Quality Care-TX, LLC
	HAVEN IN THE TEXAS HILL COUNTRY 747 Alpine Drive Kerrville, TX 78028	Five Star Quality Care-TX, LLC
VIRGINIA:	DOMINION VILLAGE AT CHESAPEAKE 2865 Forehand Drive Chesapeake, VA 23323	Five Star Quality Care-VA, LLC
	DOMINION VILLAGE AT WILLIAMSBURG 4132 Longhill Road Williamsburg, VA 23188	Five Star Quality Care-VA, LLC
	HEARTFIELDS AT RICHMOND 500 North Allen Avenue Richmond, VA 23220	Five Star Quality Care-VA, LLC
	TALBOT PARK 6311 Granby Street Norfolk, VA 23505	Five Star Quality Care-VA, LLC
WISCONSIN:	BROOKFIELD REHAB & SPECIALTY (AKAWOODLAND HEALTHCARE CENTER) 18741 West Bluemound Road Brookfield, WI 53045	Five Star Quality Care-WI, LLC

State:	Facility:	Subtenant:
	MEADOWMERE-SOUTHPORT ASSISTED LIVING 8350 and 8351 Sheridan Road Kenosha, WI 53143	Five Star Quality Care-WI, LLC
	MEADOWMERE-MADISON ASSISTED LIVING 5601 Burke Road Madison, WI 53718	Five Star Quality Care-WI, LLC
	SUNNY HILL HEALTH CARE CENTER 4325 Nakoma Road Madison, Wisconsin 53711	Five Star Quality Care-WI, LLC
	MITCHELL MANOR SENIOR LIVING 5301 West Lincoln Avenue West Allis, WI 53219	Five Star Quality Care-WI, LLC
WYOMING:	LARAMIE CARE CENTER 503 South 18th Street Laramie, WY 82070	Five Star Quality Care-WY, LLC

SCHEDULE 4

SCHEDULE 2

THE FACILITIES

ARIZONA:

LA MESA HEALTHCARE CENTER

2470 S. Arizona Avenue

Yuma, Arizona 85364

SUNQUEST VILLAGE OF YUMA

265 E. 24th Street

Yuma, Arizona 85364

CALIFORNIA:

SOMERFORD PLACE - ENCINITAS

1350 S. El Camino Real

Encinitas, California 92024

SOMERFORD PLACE - FRESNO

6075 N. Marks Avenue

Fresno, California 93711

LANCASTER HEALTHCARE CENTER

1642 West Avenue J

Lancaster, California 93534

SOMERFORD PLACE - REDLANDS

1319 Brookside Avenue

Redlands, California 92373

SOMERFORD PLACE - ROSEVILLE

110 Sterling Court

Roseville, California 95661

LEISURE POINTE

1371 Parkside Drive

San Bernardino, California 92404

VAN NUYS HEALTH CARE CENTER

6835 Hazeltine Street

Van Nuys, California 91405

COLORADO:

MANTEY HEIGHTS REHABILITATION & CARE CENTER

2825 Patterson Road

Grand Junction, Colorado 81506

CHERRELYN HEALTHCARE CENTER

5555 South Elati Street

Littleton, Colorado 80120

DELAWARE:

SOMERFORD HOUSE AND SOMERFORD PLACE — NEWARK I & II

4175 Ogletown Road and 501 S. Harmony Road

Newark, Delaware 19713

FLORIDA:

TUSCANY VILLA OF NAPLES (AKA BUENA VISTA)

8901 Tamiami Trail East

Naples, Florida 34113

GEORGIA:

EASTSIDE GARDENS

2078 Scenic Highway North

Snellville, Georgia 30078

MORNINGSIDE OF COLUMBUS

7100 South Stadium Drive

Columbus, Georgia 31909

MORNINGSIDE OF DALTON

2470 Dug Gap Road

Dalton, Georgia 30720

MORNINGSIDE OF EVANS

353 N. Belair Road

Evans, Georgia 30809

ILLINOIS:

CRIMSON POINTE
7130 Crimson Ridge Drive
Rockford, Illinois 61107

IOWA:

UNION PARK HEALTH SERVICES

2401 E. 8th Street

Des Moines, Iowa 50316

PARK PLACE

114 East Green Street

Glenwood, Iowa 51534

PRAIRIE RIDGE CARE & REHABILITATION

608 Prairie Street

Mediapolis, Iowa 52637

KENTUCKY:

ASHWOOD PLACE

102 Leonardwood

Frankfort, Kentucky 40601

MARYLAND:

SOMERFORD PLACE — ANNAPOLIS

2717 Riva Road

Annapolis, Maryland 21401

SOMERFORD PLACE — COLUMBIA

8220 Snowden River Parkway

Columbia, Maryland 21405

HEARTFIELDS AT EASTON

700 Port Street

Easton, Maryland 21601

SOMERFORD PLACE — FREDERICK

2100 Whittier Drive

Frederick, Maryland 21702

SOMERFORD PLACE — HAGERSTOWN

10114 and 10116 Sharpsburg Pike

Hagerstown, Maryland 21740

ASPENWOOD

14440 Homecrest Road

Silver Spring, Maryland 20906

MINNESOTA:

WELLSTEAD OF ROGERS

20500 and 20600 S. Diamond Lake Road

Rogers, Minnesota 55374

MISSISSIPPI:

HERMITAGE GARDENS OF OXFORD

1488 Belk Boulevard

Oxford, Mississippi 38655

HERMITAGE GARDENS OF SOUTHAVEN

108 Clarington Drive

Southaven, Mississippi 38671

MISSOURI:

ARBOR VIEW HEALTHCARE & REHABILITATION

1317 N. 36th Street

St. Joseph, Missouri 64506

NEBRASKA:

ASHLAND CARE CENTER

1700 Furnace Street

Ashland, Nebraska 68003

BLUE HILL CARE CENTER

414 North Wilson Street

Blue Hill, Nebraska 68930

CENTRAL CITY CARE CENTER

2720 South 17th Avenue

Central City, Nebraska 68826

GRETNA COMMUNITY LIVING CENTER

700 South Highway 6

Gretna, Nebraska 68028

SUTHERLAND CARE CENTER

333 Maple Street

Sutherland, Nebraska 69165

WAVERLY CARE CENTER

11041 North 137th Street

Waverly, Nebraska 68462

NORTH CAROLINA:

HAVEN IN HIGHLAND CREEK

5920 McChesney Drive

Charlotte, North Carolina 28269

LAURELS IN HIGHLAND CREEK

6101 Clark Creek Parkway

Charlotte, North Carolina 28269

HAVEN IN THE VILLAGE AT CAROLINA PLACE

13150 Dorman Road

Pineville, North Carolina 28134

LAURELS IN THE VILLAGE AT CAROLINA PLACE

13180 Dorman Road

Pineville, North Carolina 28134

THE LANDING AT PARKWOOD VILLAGE

1720 Parkwood Boulevard

Wilson, North Carolina 27893

PENNSYLVANIA:

RIDGEPOINTE ASSISTED LIVING

5301 Brownsville Road

Pittsburgh, Pennsylvania 15236

MOUNT VERNON OF SOUTH PARK

1400 Riggs Road

South Park, Pennsylvania 15129

SOUTH CAROLINA:

HAVEN IN THE SUMMIT

3 Summit Terrace

Columbia, South Carolina 29229

HAVEN IN THE VILLAGE AT CHANTICLEER

355 Berkmans Lane

Greenville, South Carolina 29605

TENNESSEE:

MORNINGSIDE OF GALLATIN

1085 Hartsville Pike

Gallatin, Tennessee 37066

WALKING HORSE MEADOWS

207 Uffelman Drive

Clarksville, Tennessee 37043

MORNINGSIDE OF BELMONT

1710 Magnolia Boulevard

Nashville, Tennessee 37212

TEXAS:

HAVEN IN STONE OAK

511 Knights Cross Drive

San Antonio, Texas 78258

LAURELS IN STONE OAK

575 Knights Cross Drive

San Antonio, Texas 78258

HAVEN IN THE TEXAS HILL COUNTRY

747 Alpine Drive

Kerrville, Texas 78028

VIRGINIA:

DOMINION VILLAGE OF CHESAPEAKE

2865 Forehand Drive

Chesapeake, Virginia 23323

DOMINION VILLAGE OF WILLIAMSBURG

4132 Longhill Road

Williamsburg, Virginia 23188

HEARTFIELDS AT RICHMOND

500 North Allen Avenue

Richmond, Virginia 23220

TALBOT PARK

6311 Granby Street

Norfolk, Virginia 23505

WISCONSIN:

BROOKFIELD REHAB & SPECIALTY (AKA WOODLAND HEALTHCARE CENTER)

18741 West Bluemound Road

Brookfield, Wisconsin 53045

MEADOWMERE-SOUTHPORT ASSISTED LIVING

8350 and 8351 Sheridan Road

Kenosha, Wisconsin 53143

MEADOWMERE-MADISON ASSISTED LIVING

5601 Burke Road

Madison, Wisconsin 53718

SUNNY HILL HEALTH CARE CENTER

4325 Nakoma Road

Madison, Wisconsin 53711

MITCHELL MANOR SENIOR LIVING

5301 West Lincoln Avenue

West Allis, Wisconsin 53219

WYOMING:

LARAMIE CARE CENTER

503 South 18th Street

Laramie, Wyoming 82070

EX-99.4

Exhibit 99.4

JOINDER TO, AMENDMENT AND CONFIRMATION OF GUARANTEES
AND SECURITY AGREEMENTS
(Amended Lease No. 2)

THIS JOINDER TO, AMENDMENT AND CONFIRMATION OF GUARANTEES AND SECURITY AGREEMENTS (this “Confirmation”) is made and entered into as of August 31, 2012, by and among FIVE STAR QUALITY CARE, INC., a Maryland corporation (“Guarantor”), each of the parties identified on the signature page hereof as a Tenant (jointly and severally, “Tenant”), each of the parties identified on the signature page hereof as a Subtenant (collectively, “Subtenants”) and each of the parties identified on the signature page hereof as a Landlord (collectively, “Landlord”).

W I T N E S S E T H :

WHEREAS, pursuant to the terms of that certain Amended and Restated Master Lease Agreement (Lease No. 2), dated as of August 4, 2009 (as the same has been amended, restated or otherwise modified from time to time, “Amended Lease No. 2”), Landlord leases to Tenant, and Tenant leases from Landlord, certain property, all as more particularly described in Amended Lease No. 2; and

WHEREAS, the payment and performance of all of the obligations of Tenant with respect to Amended Lease No. 2 are guaranteed by (i) that certain Amended and Restated Guaranty Agreement (Lease No. 2), dated as of August 4, 2009, made by Guarantor for the benefit of Landlord (as the same has been amended, restated or otherwise modified or confirmed from time to time, the “Parent Guaranty”); and (ii) that certain Amended and Restated Subtenant Guaranty Agreement (Lease No. 2), dated as of August 4, 2009, made by certain of the Subtenants for the benefit of Landlord (as the same has been amended, restated or otherwise modified or confirmed from time to time, the “Subtenant Guaranty”; and, together with the Parent Guaranty, collectively, the “Guarantees”); and

WHEREAS, the payment and performance of all of the obligations of Tenant with respect to Amended Lease No. 2 are secured by (i) that certain Amended and Restated Subtenant Security Agreement (Lease No. 2), dated as of August 4, 2009, by and among certain of the Subtenants and Landlord (as the same has been amended, restated or otherwise modified or confirmed from time to time, the “Subtenant Security Agreement”); and (ii) that certain Amended and Restated Security Agreement (Lease No. 2), dated as of August 4, 2009, by and among Tenant and Landlord (as the same has been amended, restated or otherwise modified or confirmed from time to time, the “Tenant Security Agreement”, and together with the Subtenant Security Agreement, collectively, the “Security Agreements”); and

WHEREAS, pursuant to that certain Fifth Amendment to Amended and Restated Master Lease Agreement (Lease No. 2), dated as of the date hereof (the “Fifth Amendment”), Amended Lease No. 2 is being amended to add thereto those certain senior living facilities commonly known as: (i) Forum at Desert Harbor, located at 13840 North Desert Harbor Drive, Peoria, AZ 85381; (ii) Forum at Tucson, located at 2500 North Rosemont Blvd., Tucson, AZ 85712; (iii) Park Summit at Coral Springs, located at 8500 Royal Palm Blvd., Coral Springs, FL 33065; (iv) Gables at Winchester located at 299 Cambridge Street, Winchester, MA 01890; and (v) Forum at Memorial Woods, located at 777 North Post Oak Road, Houston, TX 77024, all as more particularly described in the Fifth Amendment; and

WHEREAS, in connection with the foregoing, and as a condition precedent to the execution of the Fifth Amendment by Landlord, Landlord has required that certain of the Subtenants join in the Subtenant Guaranty and Subtenant Security Agreement, and that the parties hereto confirm that the Guarantees and the Security Agreements remain in full force and effect and apply to Amended Lease No. 2 as amended by the Fifth Amendment;

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, the parties hereto hereby agree, effective as of the date hereof, as follows:

1.Joinder to Subtenant Guaranty.  Five Star Desert Harbor LLC, Five Star Tucson Forum LLC, Five Star Coral Springs LLC, Five Star Gables LLC and Five Star Memorial Woods LLC each a Delaware limited liability company (each, a “New Subtenant” and collectively the “New Subtenants”) hereby join in the Subtenant Guaranty as if each New Subtenant had originally executed and delivered the Subtenant Guaranty as a Subtenant Guarantor thereunder.  From and after the date hereof, all references in the Subtenant Guaranty to the Subtenant Guarantors shall include the New Subtenants, and each New Subtenant shall be considered a Subtenant Guarantor for all purposes under the Subtenant Guaranty.

2.Joinder to Subtenant Security Agreement.  The New Subtenants hereby join in the Subtenant Security Agreement as if each New Subtenant had originally executed and delivered the Subtenant Security Agreement as a Subtenant thereunder.  From and after the date hereof, all references in the Subtenant Security Agreement to the Subtenants shall include the New Subtenants and each New Subtenant shall be considered a Subtenant for all purposes under the Subtenant Security Agreement.

3.Amendment to Disputes Provisions in Guarantees.  Each of the Guarantees is amended by deleting Section 15 therefrom in its entirety and replacing it with Section 15 as set forth on Exhibit A attached hereto and made a part hereof.

4.Amendment to Disputes Provisions in Security Agreements.  Each of the Security Agreements is amended by deleting Section 11 therefrom in its entirety and replacing it with Section 11 as set forth on Exhibit B attached hereto and made a part hereof.

5.Amendment of Subtenant Security Agreement.  The Subtenant Security Agreement is hereby amended by (a) replacing Exhibit A attached thereto with Schedule 1 attached hereto; (b) replacing Schedule 1 attached thereto with Schedule 2 attached hereto; and (c) replacing Schedule 2 attached thereto with Schedule 3 attached hereto.

6.Amendment of Tenant Security Agreement.  The Tenant Security Agreement is hereby amended by replacing Schedule 2 attached thereto with Schedule 4 attached hereto.

7.Confirmation of Guarantees and Security Agreements. Each of the parties to the Guarantees and the Security Agreements (including, without limitation, the New Subtenants) hereby confirms that all references in the Guarantees and the Security Agreements to “Amended Lease No. 2” shall refer to Amended Lease No. 2 as amended by the Fifth Amendment, and the Guarantees, as amended and confirmed hereby, and the Security Agreements, as amended and confirmed hereby, are hereby ratified and confirmed in all respects.

2

8.No Impairment, Etc.  The obligations, covenants, agreements and duties of the parties under the Guarantees and Security Agreements shall not be impaired in any manner by the execution and delivery of the Fifth Amendment or any other amendment, change or modification to Amended Lease No. 2, and in no event shall any ratification or confirmation of such Guarantees or such Security Agreements, or the obligations, covenants, agreements and the duties of the parties under the Guarantees or the Security Agreements, including, without limitation, this Confirmation, be required in connection with any such amendment, change or modification.

[Remainder of page left intentionally blank; Signature pages follow]

3

IN WITNESS WHEREOF, the parties hereto have caused this Confirmation to be duly executed as a sealed instrument as of the date first set forth above.

GUARANTOR:
FIVE STAR QUALITY CARE, INC.
By:	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President
TENANT:
FIVE STAR QUALITY CARE TRUST,
FS TENANT HOLDING COMPANY TRUST,
FS COMMONWEALTH LLC, and
FS PATRIOT LLC
By:	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President of each of the foregoing entities

4

SUBTENANTS:
FIVE STAR CORAL SPRINGS LLC,
FIVE STAR DESERT HARBOR LLC,
FIVE STAR GABLES LLC,
FIVE STAR MEMORIAL WOODS LLC,
FIVE STAR QUALITY CARE-CA II, LLC,
FIVE STAR QUALITY CARE-COLORADO, LLC,
FIVE STAR QUALITY CARE-FL, LLC
FIVE STAR QUALITY CARE-GA, LLC,
FIVE STAR QUALITY CARE-GHV, LLC,
FIVE STAR QUALITY CARE-IA, LLC,
FIVE STAR QUALITY CARE-IN, LLC,
FIVE STAR QUALITY CARE-KS, LLC,
FIVE STAR QUALITY CARE-MD, LLC,
FIVE STAR QUALITY CARE-NE, INC.,
FIVE STAR QUALITY CARE-NE, LLC,
FIVE STAR QUALITY CARE-TX, LLC,
FIVE STAR QUALITY CARE-VA, LLC,
FIVE STAR QUALITY CARE-WI, LLC,
FIVE STAR TUCSON FORUM LLC,
FS LAFAYETTE TENANT TRUST,
FS LEISURE PARK TENANT TRUST,
FS LEXINGTON TENANT TRUST,
FS TENANT POOL I TRUST,
FS TENANT POOL II TRUST,
FS TENANT POOL III TRUST,
FS TENANT POOL IV TRUST, and
FSQC-AL, LLC
By:	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President of each of the foregoing entities
MORNINGSIDE OF ANDERSON, L.P., and MORNINGSIDE OF ATHENS, LIMITED PARTNERSHIP
By:		LifeTrust America, Inc.,
		General Partner of each of
		the foregoing entities
		By:	/s/ Bruce J. Mackey Jr.
			Bruce J. Mackey Jr.
			President

5

LANDLORD:
CCC FINANCING I TRUST,
CCC INVESTMENTS I, L.L.C.,
CCC OF KENTUCKY TRUST,
CCC PUEBLO NORTE TRUST,
CCDE SENIOR LIVING LLC,
CCOP SENIOR LIVING LLC,
HRES1 PROPERTIES TRUST,
O.F.C. CORPORATION,
SNH CHS PROPERTIES TRUST,
SNH SOMERFORD PROPERTIES TRUST,
SNH/LTA PROPERTIES GA LLC,
SNH/LTA PROPERTIES TRUST,
SPTIHS PROPERTIES TRUST, and
SPTMNR PROPERTIES TRUST
By:	/s/ David J. Hegarty
	David J. Hegarty
	President of each of the foregoing entities
LEISURE PARK VENTURE LIMITED PARTNERSHIP
By:		CCC Leisure Park Corporation,
		its General Partner
		By:	/s/ David J. Hegarty
			David J. Hegarty
			President
CCC RETIREMENT COMMUNITIES II, L.P.
By:		Crestline Ventures LLC,
		its General Partner
		By:	/s/ David J. Hegarty
			David J. Hegarty
			President
CCC FINANCING LIMITED, L.P.
By:		CCC Retirement Trust,
		its General Partner
		By:	/s/ David J. Hegarty
			David J. Hegarty
			President

6

EXHIBIT A

DISPUTES PROVISION — GUARANTEES

15.          Disputes.

(a)      Any disputes, claims or controversies between or among the parties (i) arising out of or relating to this Guaranty, or (ii) brought by or on behalf of any shareholder of any party (which, for purposes of this Section 15, shall mean any shareholder of record or any beneficial owner of shares of any party, or any former shareholder of record or beneficial owner of shares of any party), either on his, her or its own behalf, on behalf of any party or on behalf of any series or class of shares of any party or shareholders of any party against any party or any trustee, director, officer, manager (including Reit Management & Research LLC or its successor), agent or employee of any party, including disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of this Guaranty, including this arbitration agreement, the declaration of trust, limited liability company agreement, partnership agreement or analogous governing instruments, as applicable, of any party, or the bylaws of any party (all of which are referred to as “Disputes”), or relating in any way to such a Dispute or Disputes, shall on the demand of any party to such Dispute be resolved through binding and final arbitration in accordance with the Commercial Arbitration Rules (the “Rules”) of the American Arbitration Association (“AAA”) then in effect, except as those Rules may be modified in this Section 15.  For the avoidance of doubt, and not as a limitation, Disputes are intended to include derivative actions against trustees, directors, officers or managers of any party and class actions by a shareholder against those individuals or entities and any party.  For the avoidance of doubt, a Dispute shall include a Dispute made derivatively on behalf of one party against another party.

(b)      There shall be three arbitrators.  If there are only two parties to the Dispute (with, for purposes of this Section 15, any and all parties involved in the Dispute and owned by the same ultimate parent entity treated as one party), each party shall select one arbitrator within 15 days after receipt by respondent of a copy of the demand for arbitration.  Such arbitrators may be affiliated or interested persons of such parties.  If either party fails to timely select an arbitrator, the other party to the Dispute shall select the second arbitrator who shall be neutral and impartial and shall not be affiliated with or an interested person of either party. If there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, shall each select, by the vote of a majority of the claimants or the respondents, as the case may be, one arbitrator. Such arbitrators may be affiliated or interested persons of the claimants or the respondents, as the case may be.  If either all claimants or all respondents fail to timely select an arbitrator then such arbitrator (who shall be neutral, impartial and unaffiliated with any party) shall be appointed by the AAA.  The two arbitrators so appointed shall jointly appoint the third and presiding arbitrator (who shall be neutral, impartial and unaffiliated with any party) within 15 days of the appointment of the second arbitrator.  If the third arbitrator has not been appointed within the time limit specified herein, then the AAA shall provide a list of proposed arbitrators in accordance with the Rules, and the arbitrator shall be appointed by the AAA in accordance with a listing, striking and ranking procedure, with each party having a

limited number of strikes, excluding strikes for cause.

(c)The place of arbitration shall be Boston, Massachusetts unless otherwise agreed by the parties.

(d)There shall be only limited documentary discovery of documents directly related to the issues in dispute, as may be ordered by the arbitrators.

(e)In rendering an award or decision (the “Award”), the arbitrators shall be required to follow the laws of the Commonwealth of Massachusetts.  Any arbitration proceedings or Award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq.  The Award shall be in writing and may, but shall not be required to, briefly state the findings of fact and conclusions of law on which it is based.

(f)Except to the extent expressly provided by Section 15 or as otherwise agreed by the parties, each party involved in a Dispute shall bear its own costs and expenses (including attorneys’ fees), and the arbitrators shall not render an award that would include shifting of any such costs or expenses (including attorneys’ fees) or, in a derivative case or class action, award any portion of any party’s award to the claimant or the claimant’s attorneys.  Except to the extent otherwise agreed by the parties, each party (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, respectively) shall bear the costs and expenses of its (or their) selected arbitrator and the parties (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand) shall equally bear the costs and expenses of the third appointed arbitrator.

(g)An Award shall be final and binding upon the parties thereto and shall be the sole and exclusive remedy between such parties relating to the Dispute, including any claims, counterclaims, issues or accounting presented to the arbitrators.  Judgment upon the Award may be entered in any court having jurisdiction.  To the fullest extent permitted by law, no application or appeal to any court of competent jurisdiction may be made in connection with any question of law arising in the course of arbitration or with respect to any award made except for actions relating to enforcement of this agreement to arbitrate or any arbitral award issued hereunder and except for actions seeking interim or other provisional relief in aid of arbitration proceedings in any court of competent jurisdiction.

(h)Any monetary award shall be made and payable in U.S. dollars free of any tax, deduction or offset.  Each party against which the Award assesses a monetary obligation shall pay that obligation on or before the 30th day following the date of the Award or such other date as the Award may provide.

(i)This Section 15 is intended to benefit and be enforceable by the shareholders, trustees, directors, officers, managers (including Reit Management & Research LLC or its successor), agents or employees of any party and the parties and shall be binding on the shareholders of any party and the parties, as applicable, and shall be in addition to, and not in substitution for, any other rights to indemnification or contribution that such individuals or entities may have by contract or otherwise.

EXHIBIT B

DISPUTES PROVISION — SECURITY AGREEMENT

Section 11.Disputes.

(a)Any disputes, claims or controversies between or among the parties (i) arising out of or relating to this Agreement, or (ii) brought by or on behalf of any shareholder of any party (which, for purposes of this Section 11, shall mean any shareholder of record or any beneficial owner of shares of any party, or any former shareholder of record or beneficial owner of shares of any party), either on his, her or its own behalf, on behalf of any party or on behalf of any series or class of shares of any party or shareholders of any party against any party or any trustee, director, officer, manager (including Reit Management & Research LLC or its successor), agent or employee of any party, including disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of this Agreement, including this arbitration agreement, the declaration of trust, limited liability company agreement, partnership agreement or analogous governing instruments, as applicable, of any party, or the bylaws of any party (all of which are referred to as “Disputes”), or relating in any way to such a Dispute or Disputes, shall on the demand of any party to such Dispute be resolved through binding and final arbitration in accordance with the Commercial Arbitration Rules (the “Rules”) of the American Arbitration Association (“AAA”) then in effect, except as those Rules may be modified in this Section 11.  For the avoidance of doubt, and not as a limitation, Disputes are intended to include derivative actions against trustees, directors, officers or managers of any party and class actions by a shareholder against those individuals or entities and any party.  For the avoidance of doubt, a Dispute shall include a Dispute made derivatively on behalf of one party against another party.

(b)There shall be three arbitrators.  If there are only two parties to the Dispute (with, for purposes of this Section 11, any and all parties involved in the Dispute and owned by the same ultimate parent entity treated as one party), each party shall select one arbitrator within 15 days after receipt by respondent of a copy of the demand for arbitration.  Such arbitrators may be affiliated or interested persons of such parties.  If either party fails to timely select an arbitrator, the other party to the Dispute shall select the second arbitrator who shall be neutral and impartial and shall not be affiliated with or an interested person of either party. If there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, shall each select, by the vote of a majority of the claimants or the respondents, as the case may be, one arbitrator. Such arbitrators may be affiliated or interested persons of the claimants or the respondents, as the case may be.  If either all claimants or all respondents fail to timely select an arbitrator then such arbitrator (who shall be neutral, impartial and unaffiliated with any party) shall be appointed by the AAA.  The two arbitrators so appointed shall jointly appoint the third and presiding arbitrator (who shall be neutral, impartial and unaffiliated with any party) within 15 days of the appointment of the second arbitrator.  If the third arbitrator has not been appointed within the time limit specified herein, then the AAA shall provide a list of proposed arbitrators in accordance with the Rules, and the arbitrator shall be appointed by the AAA in accordance with a listing, striking and ranking procedure, with each party having a

limited number of strikes, excluding strikes for cause.

(c)The place of arbitration shall be Boston, Massachusetts unless otherwise agreed by the parties.

(d)There shall be only limited documentary discovery of documents directly related to the issues in dispute, as may be ordered by the arbitrators.

(e)In rendering an award or decision (the “Award”), the arbitrators shall be required to follow the laws of the Commonwealth of Massachusetts.  Any arbitration proceedings or Award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq.  The Award shall be in writing and may, but shall not be required to, briefly state the findings of fact and conclusions of law on which it is based.

(f)Except to the extent expressly provided by Section 11 or as otherwise agreed by the parties, each party involved in a Dispute shall bear its own costs and expenses (including attorneys’ fees), and the arbitrators shall not render an award that would include shifting of any such costs or expenses (including attorneys’ fees) or, in a derivative case or class action, award any portion of any party’s award to the claimant or the claimant’s attorneys.  Except to the extent otherwise agreed by the parties, each party (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, respectively) shall bear the costs and expenses of its (or their) selected arbitrator and the parties (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand) shall equally bear the costs and expenses of the third appointed arbitrator.

(g)An Award shall be final and binding upon the parties thereto and shall be the sole and exclusive remedy between such parties relating to the Dispute, including any claims, counterclaims, issues or accounting presented to the arbitrators.  Judgment upon the Award may be entered in any court having jurisdiction.  To the fullest extent permitted by law, no application or appeal to any court of competent jurisdiction may be made in connection with any question of law arising in the course of arbitration or with respect to any award made except for actions relating to enforcement of this agreement to arbitrate or any arbitral award issued hereunder and except for actions seeking interim or other provisional relief in aid of arbitration proceedings in any court of competent jurisdiction.

(h)Any monetary award shall be made and payable in U.S. dollars free of any tax, deduction or offset.  Each party against which the Award assesses a monetary obligation shall pay that obligation on or before the 30th day following the date of the Award or such other date as the Award may provide.

(i)This Section 11 is intended to benefit and be enforceable by the shareholders, trustees, directors, officers, managers (including Reit Management & Research LLC or its successor), agents or employees of any party and the parties and shall be binding on the shareholders of any party and the parties, as applicable, and shall be in addition to, and not in substitution for, any other rights to indemnification or contribution that such individuals or entities may have by contract or otherwise.

SCHEDULE 1

EXHIBIT A

SUBLEASES

1.Sublease Agreement, dated December 31, 2001, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-Colorado, LLC, Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated March 1, 2004 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain letter Agreement dated as of August 4, 2009, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

2.Sublease Agreement, dated December 31, 2001, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-KS, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated March 1, 2004 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain letter Agreement dated as of August 4, 2009, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

3.Sublease Agreement, dated January 11, 2002, by and between FS Tenant Holding Company Trust, a Maryland business trust, and FS Leisure Park Tenant Trust, a Maryland business trust, as amended by that certain Letter Agreement dated June 30, 2008 by and among FS Tenant Holding Company Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of August 4, 2009, by and among FS Tenant Holding Company Trust, as sublandlord and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

4.Sublease Agreement, dated January 11, 2002, by and between FS Tenant Holding Company Trust, a Maryland business trust, and FS Lafayette Tenant Trust, a Maryland business trust, as amended by that certain Letter Agreement dated June 30, 2008 by and among FS Tenant Holding Company Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of August 4, 2009, by and among FS Tenant Holding Company Trust, as sublandlord and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

5.Sublease Agreement, dated January 11, 2002, by and between FS Tenant Holding Company Trust, a Maryland business trust, and FS Lexington Tenant Trust, a Maryland business trust, as amended by that certain Letter Agreement dated June 30, 2008 by and among FS Tenant Holding Company Trust, as sublandlord, and Certain Affiliates of Five

Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of August 4, 2009, by and among FS Tenant Holding Company Trust, as sublandlord and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

6.Sublease Agreement, dated January 11, 2002, by and between FS Tenant Holding Company Trust, a Maryland business trust, and FS Tenant Pool IV Trust, a Maryland business trust, as amended by that certain Letter Agreement dated June 30, 2008 by and among FS Tenant Holding Company Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of August 4, 2009, by and among FS Tenant Holding Company Trust, as sublandlord and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

7.Sublease Agreement, dated November 19, 2004, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Morningside of Anderson, L.P., a Delaware limited partnership, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of August 4, 2009, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

8.Sublease Agreement, dated November 19, 2004, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Morningside of Athens, Limited Partnership, a Delaware limited partnership, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of August 4, 2009, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

9.Sublease Agreement, dated May 6, 2005, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-CA II, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of August 4, 2009, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

10.Sublease Agreement, dated October 31, 2005, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-GHV, LLC, a Maryland limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of August 4, 2009, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Partial Termination of Sublease Agreement, dated May 6, 2011 by and between Five Star Quality Care Trust,

a Maryland business trust, as sublandlord, and Five Star Quality Care-GHV, LLC, a Maryland limited liability company, as subtenant.

11.Second Amended and Restated Sublease Agreement, dated November 1, 2006, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-GA, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of August 4, 2009, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Partial Termination of Second Amended and Restated Sublease Agreement, dated as of May 1, 2011, by and between Five Star Quality Care Trust, as sublandlord, and Five Star Quality Care-GA, LLC, as subtenant, as further amended by that certain Partial Termination of Second Amended and Restated Sublease Agreement, dated as of June 1, 2011, by and between Five Star Qualify Care Trust, as sublandlord, and Five Star Quality Care-GA, LLC, as subtenant.

12.Sublease Agreement, dated February 7, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-TX, LLC, a Maryland limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of August 4, 2009, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

13.Sublease Agreement, dated August 1, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and FSQC-AL, LLC, as subtenant, as further amended by that certain Letter Agreement dated as of August 4, 2009, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

14.Sublease Agreement, dated November 1, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-IN, LLC, as subtenant, as further amended by that certain Letter Agreement dated as of August 4, 2009, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

15.Amended and Restated Sublease Agreement, dated as of August 4, 2009, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-MD, LLC, a Delaware limited liability company, as subtenant.

16.Second Amended and Restated Sublease Agreement, dated as of August 4, 2009, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-WI, LLC, a Delaware limited liability company, as subtenant.

17.Amended and Restated Sublease Agreement, dated as of August 4, 2009, by and between FS Tenant Holding Company Trust, a Maryland business trust, as sublandlord and FS Tenant Pool I Trust, a Maryland business trust, as subtenant.

18.Amended and Restated Sublease Agreement, dated as of August 4, 2009, by and between FS Tenant Holding Company Trust, a Maryland business trust, as sublandlord, and FS Tenant Pool II Trust, a Maryland business trust, as subtenant.

19.Amended and Restated Sublease Agreement, dated as of August 4, 2009, by and between FS Tenant Holding Company Trust, a Maryland business trust, as sublandlord, and FS Tenant Pool III Trust, a Maryland business trust, as subtenant.

20.Sublease Agreement, dated as of August 4, 2009, by and between FVE FM Financing, Inc., a Maryland corporation, as sublandlord, and FS Tenant Pool III Trust, a Maryland business trust, as subtenant, as assigned by that certain Bill of Sale, Assignment and Assumption Agreement, dated as of September 1, 2009, by and between FS Tenant Pool III Trust, as assignor, and Five Star Desert Harbor LLC, a Delaware limited liability company, as assignee, as further assigned by that certain Bill of Sale, Assignment and Assumption Agreement, dated as of August 31, 2012, by and between FVE FM Financing, Inc., as assignor, and Five Star Quality Care Trust, a Maryland business trust, as assignee.

21.Sublease Agreement, dated as of August 4, 2009, by and between FVE FM Financing, Inc., a Maryland corporation, as sublandlord, and FS Tenant Pool III Trust, a Maryland business trust, as subtenant, as assigned by that certain Bill of Sale, Assignment and Assumption Agreement, dated as of September 1, 2009, by and between FS Tenant Pool III Trust, as assignor, and Five Star Tucson Forum LLC, a Delaware limited liability company, as assignee, as further assigned by that certain Bill of Sale, Assignment and Assumption Agreement, dated as of August 31, 2012, by and between FVE FM Financing, Inc., as assignor, and Five Star Quality Care Trust, a Maryland business trust, as assignee.

22.Sublease Agreement, dated as of August 4, 2009, by and between FVE FM Financing, Inc., a Maryland corporation, as sublandlord, and FS Tenant Pool I Trust, a Maryland business trust, as subtenant, as assigned by that certain Bill of Sale, Assignment and Assumption Agreement, dated as of January 1, 2010, by and between FS Tenant Pool I Trust, as assignor, and Five Star Coral Springs LLC, a Delaware limited liability company, as assignee, as further assigned by that certain Bill of Sale, Assignment and Assumption Agreement, dated as of August 31, 2012, by and between FVE FM Financing, Inc., as assignor, and Five Star Quality Care Trust, a Maryland business trust, as assignee.

23.Sublease Agreement, dated as of August 4, 2009, by and between FVE FM Financing, Inc., a Maryland corporation, as sublandlord, and FS Tenant Pool II Trust, a Maryland business trust, as subtenant, as assigned by that certain Bill of Sale, Assignment and Assumption Agreement, dated as of November 1, 2009, by and between FS Tenant Pool II Trust, as assignor, and Five Star Gables LLC, a Delaware limited liability company, as assignee, as further assigned by that certain Bill of Sale, Assignment and Assumption

Agreement, dated as of August 31, 2012, by and between FVE FM Financing, Inc., as assignor, and Five Star Quality Care Trust, a Maryland business trust, as assignee.

24.Sublease Agreement, dated as of August 4, 2009, by and between FVE FM Financing, Inc., a Maryland corporation, as sublandlord, and FS Tenant Pool III Trust, a Maryland business trust, as subtenant, as assigned by that certain Bill of Sale, Assignment and Assumption Agreement, dated as of February 1, 2010, by and between FS Tenant Pool III Trust, as assignor, and Five Star Memorial Woods LLC, a Delaware limited liability company, as assignee, as further assigned by that certain Bill of Sale, Assignment and Assumption Agreement, dated as of August 31, 2012, by and between FVE FM Financing, Inc., as assignor, and Five Star Quality Care Trust, a Maryland business trust, as assignee.

25.Amended and Restated Sublease Agreement, dated August 1, 2010, but effective as of October 1, 2009, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-IA, LLC, a Delaware limited liability company, as subtenant.

26.Amended and Restated Sublease Agreement, dated August 1, 2010, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-NE, Inc., a Delaware corporation, as subtenant.

27.Amended and Restated Sublease Agreement, dated August 1, 2010, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-NE, LLC, a Delaware limited liability company, as subtenant.

28.Sublease Agreement, dated June 20, 2011, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-VA, LLC, a Delaware limited liability company, as subtenant.

29.Sublease Agreement, dated July 22, 2011, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-FL, LLC, a Delaware limited liability company, as subtenant.

SCHEDULE 2

SCHEDULE 1

Subtenant Name, Organizational Structure & Corporate Identification Number:	Chief Executive Office & Principal Place of Business:	Other Names
Five Star Coral Springs LLC, a Delaware limited liability company No.  DE 4707938	400 Centre Street Newton, MA 02458	None.
Five Star Desert Harbor LLC, a Delaware limited liability company No.  DE 4707959	400 Centre Street Newton, MA 02458	None.
Five Star Gables LLC, a Delaware limited liability company No.  DE 4707955	400 Centre Street Newton, MA 02458	None.
Five Star Memorial Woods LLC, a Delaware limited liability company No.  DE 4707953	400 Centre Street Newton, MA 02458	None.
Five Star Quality Care-CA II, LLC, a Delaware limited liability company No.  DE 3872799	400 Centre Street Newton, MA 02458	None.
Five Star Quality Care-Colorado, LLC, a Delaware limited liability company No.  DE 3141518	400 Centre Street Newton, MA 02458	SHOPCO-Colorado, LLC
Five Star Quality Care-FL, LLC, a Delaware limited liability company No.  DE 3487186	400 Centre Street Newton, MA 02458	None
Five Star Quality Care-GA, LLC, a Delaware limited liability company No.  DE 3141197	400 Centre Street Newton, MA 02458	SHOPCO-GA, LLC
Five Star Quality Care-GHV, LLC, a Maryland limited liability company No.  MD W10441350	400 Centre Street Newton, MA 02458	None.
Five Star Quality Care-IA, LLC, a Delaware limited liability company No. DE 3141200	400 Centre Street Newton, MA 02458	SHOPCO-IA, LLC
Five Star Quality Care-IN, LLC, a Maryland limited liability company No.  MD W12573952	400 Centre Street Newton, MA 02458	None.
Five Star Quality Care-KS, LLC, a Delaware limited liability company No.  DE 3155963	400 Centre Street Newton, MA 02458	SHOPCO-KS, LLC
Five Star Quality Care-MD, LLC, a Delaware limited liability company No.  DE 3561210	400 Centre Street Newton, MA 02458	None.
Five Star Quality Care-NE, Inc., a Delaware corporation No.  DE 3162188	400 Centre Street Newton, MA 02458	SHOPCO-NE, Inc.
Five Star Quality Care-NE, LLC, a Delaware limited liability company No.  DE 3141204	400 Centre Street Newton, MA 02458	SHOPCO-NE, LLC
Five Star Quality Care-TX, LLC, a Maryland limited liability company No.  MD W11898319	400 Centre Street Newton, MA 02458	None.
Five Star Quality Care-VA, LLC, a Delaware limited liability company No.  DE 3561214	400 Centre Street Newton, MA 02458	None
Five Star Quality Care-WI, LLC, a Delaware limited liability company No.  DE 3141217	400 Centre Street Newton, MA 02458	SHOPCO-WI, LLC

Subtenant Name, Organizational Structure & Corporate Identification Number:	Chief Executive Office & Principal Place of Business:	Other Names
Five Star Tucson Forum LLC, a Delaware limited liability company No.  DE 4707961	400 Centre Street Newton, MA 02458	None.
FS Lafayette Tenant Trust, a Maryland business trust No.  MD B06518989	400 Centre Street Newton, MA 02458	None.
FS Leisure Park Tenant Trust, a Maryland business trust No.  MD B06547053	400 Centre Street Newton, MA 02458	None.
FS Lexington Tenant Trust, a Maryland business trust No.  MD B06519029	400 Centre Street Newton, MA 02458	None.
FS Tenant Pool I Trust, a Maryland business trust No.  MD B06519011	400 Centre Street Newton, MA 02458	None.
FS Tenant Pool II Trust, a Maryland business trust No.  MD B06518146	400 Centre Street Newton, MA 02458	None.
FS Tenant Pool III Trust, a Maryland business trust No.  MD B06519037	400 Centre Street Newton, MA 02458	None.
FS Tenant Pool IV Trust, a Maryland business trust No.  MD B06519045	400 Centre Street Newton, MA 02458	None.
FSQC-AL, LLC, a Maryland limited liability company No.  MD W10831154	400 Centre Street Newton, MA 02458	None.
Morningside of Anderson, L.P., a Delaware limited partnership No.  DE 2926362	400 Centre Street Newton, MA 02458	None.
Morningside of Athens, Limited Partnership, a Delaware limited partnership No.  DE 3499189	400 Centre Street Newton, MA 02458	None.

SCHEDULE 3

SCHEDULE 2

The Facilities

State	Facility	Subtenant
ALABAMA:	ASHTON GABLES IN RIVERCHASE 2184 Parkway Lake Drive Birmingham, Alabama 35244	FSQC-AL, LLC
	LAKEVIEW ESTATES 2634 Valleydale Road Birmingham, Alabama 35244	FSQC-AL, LLC
ARIZONA:	FORUM AT DESERT HARBOR 13840 North Desert Harbor Drive Peoria, Arizona 85381	Five Star Desert Harbor LLC
	THE FORUM AT PUEBLO NORTE 7090 East Mescal Street Scottsdale, Arizona 85254	FS Tenant Pool II Trust
	FORUM AT TUCSON 2500 North Rosemont Blvd. Tucson, Arizona 85712	Five Star Tucson Forum LLC
CALIFORNIA:	LA SALETTE HEALTH AND REHABILITATION CENTER 537 East Fulton Street Stockton, California 95204	Five Star Quality Care-CA II, LLC
	THOUSAND OAKS HEALTHCARE CENTER 93 W. Avenida de Los Arboles Thousand Oaks, California 91360	Five Star Quality Care-CA II, LLC
COLORADO:	SKYLINE RIDGE NURSING & REHABLITATION CENTER 515 Fairview Avenue Canon City, Colorado 81212	Five Star Quality Care-Colorado, LLC
	SPRINGS VILLAGE CARE CENTER 110 West Van Buren Street Colorado Springs, Colorado 80907	Five Star Quality Care-Colorado, LLC

State	Facility	Subtenant
	WILLOW TREE CARE CENTER 2050 South Main Street Delta, Colorado 81416	Five Star Quality Care-Colorado, LLC
	CEDARS HEALTHCARE CENTER 1599 Ingalls Street Lakewood, Colorado 80214	Five Star Quality Care-Colorado, LLC
DELAWARE:	MILLCROFT 225 Possum Park Road Newark, Delaware 19711	FS Tenant Pool I Trust
	FORWOOD MANOR 1912 Marsh Road Wilmington, Delaware 19810	FS Tenant Pool II Trust
	FOULK MANOR SOUTH 407 Foulk Road Wilmington, Delaware 19803	FS Tenant Pool IV Trust
	SHIPLEY MANOR 2733 Shipley Road Wilmington, DE 19810	FS Tenant Pool I Trust
FLORIDA:	PARK SUMMIT AT CORAL SPRINGS 8500 Royal Palm Blvd. Coral Springs, Florida 33065	Five Star Coral Springs LLC
	FORUM AT DEER CREEK 3001 Deer Creek Country Club Boulevard Deerfield Beach, Florida 33442	FS Tenant Pool III Trust
	SPRINGWOOD COURT 12780 Kenwood Lane Fort Myers, Florida 33907	FS Tenant Pool IV Trust
	FOUNTAINVIEW 111 Executive Center Drive West Palm Beach, Florida 33401	FS Tenant Pool II Trust
	PALMS AT ST. LUCIE WEST 501 N.W. Cashmere Boulevard Port St. Lucie, Florida 34986	Five Star Quality Care-FL, LLC
GEORGIA:	MORNINGSIDE OF ATHENS 1291 Cedar Shoals Drive Athens, Georgia 30605	Morningside of Athens, Limited Partnership

State	Facility	Subtenant
	SENIOR LIVING OF MARSH VIEW 7410 Skidway Road Savannah, Georgia 31406	Five Star Quality Care-GA, LLC
INDIANA:	MEADOWOOD RETIREMENT COMMUNITY 2455 Tamarack Trail Bloomington, Indiana 47408	Five Star Quality Care-IN, LLC
IOWA:	PACIFIC PLACE 20937 Kane Avenue Pacific Junction, Iowa 51561	Five Star Quality Care-IA, LLC
	WEST BRIDGE CARE & REHABILITATION 1015 West Summit Street Winterset, Iowa 50273	Five Star Quality Care-IA, LLC
KANSAS:	WOODHAVEN CARE CENTER 510 W. 7th Street Ellinwood, Kansas 67526	Five Star Quality Care-KS, LLC
KENTUCKY:	LAFAYETTE AT COUNTRY PLACE 690 Mason Headley Road Lexington, Kentucky 40504	FS Lafayette Tenant Trust
	LEXINGTON AT COUNTRY PLACE 700 Mason Headley Road Lexington, Kentucky 40504	FS Lexington Tenant Trust
MARYLAND:	HEARTFIELDS AT BOWIE 7600 Laurel Bowie Road Bowie, Maryland 20715	Five Star Quality Care-MD, LLC
	HEARTFIELDS AT FREDERICK 1820 Latham Drive Frederick, Maryland 21701	Five Star Quality Care-MD, LLC
MASSACHUSETTS:	GABLES AT WINCHESTER 299 Cambridge Street Winchester, Massachusetts 01890	Five Star Gables LLC
NEBRASKA:	MORYS HAVEN 1112 15th Street Columbus, Nebraska 68601	Five Star Quality Care-NE, Inc.

State	Facility	Subtenant
	WEDGEWOOD CARE CENTER 800 Stoeger Drive Grand Island, Nebraska 68803	Five Star Quality Care-NE, LLC
	CRESTVIEW HEALTH CARE CENTER 1100 West First Street Milford, Nebraska 68405	Five Star Quality Care-NE, LLC
	UTICA COMMUNITY CARE CENTER 1350 Centennial Avenue Utica, Nebraska 68456	Five Star Quality Care-NE, Inc.
NEW JERSEY:	LEISURE PARK 1400 Route 70 Lakewood, New Jersey 08701	FS Leisure Park Tenant Trust
PENNSYLVANIA:	FRANCISCAN MANOR 71 Darlington Road Patterson Township, Beaver Falls, Pennsylvania 15010	Five Star Quality Care-GHV, LLC
	MOUNT VERNON OF ELIZABETH 145 Broadlawn Drive Elizabeth, Pennsylvania 15037	Five Star Quality Care-GHV, LLC
	OVERLOOK GREEN 5250 Meadowgreen Drive Whitehall, Pennsylvania 15236	Five Star Quality Care-GHV, LLC
SOUTH CAROLINA:	MORNINGSIDE OF ANDERSON 1304 McLees Road Anderson, South Carolina 29621	Morningside of Anderson, L.P.
	MYRTLE BEACH MANOR 9547 Highway 17 North Myrtle Beach, South Carolina 29572	FS Tenant Pool I Trust
TEXAS:	HERITAGE PLACE AT BOERNE 120 Crosspoint Drive Boerne, Texas 78006	Five Star Quality Care-TX, LLC
	FORUM AT PARK LANE 7831 Park Lane Dallas, Texas 75225	FS Tenant Pool III Trust

State	Facility	Subtenant
	HERITAGE PLACE AT FREDERICKSBURG 96 Frederick Road Fredericksburg, Texas 78624	Five Star Quality Care-TX, LLC
	FORUM AT MEMORIAL WOODS 777 North Post Oak Road Houston, Texas 77024	Five Star Memorial Woods LLC
VIRGINIA:	CHESAPEAKE PROPERTY 1005 Elysian Place Chesapeake, Virginia 23320	Five Star Quality Care-VA, LLC
WISCONSIN:	GREENTREE HEALTH & REHABILITATION CENTER 70 Greentree Road Clintonville, Wisconsin 54929	Five Star Quality Care-WI, LLC
	PINE MANOR HEALTH CARE CENTER Village of Embarrass 1625 East Main Street Clintonville, Wisconsin 54929	Five Star Quality Care-WI, LLC
	MANORPOINTE-OAK CREEK INDEPENDENT SENIOR APARTMENTS AND MEADOWMERE/MITCHELL MANOR-OAK CREEK ASSISTED LIVING 700 East Stonegate Drive and 701 East Peutz Road Oak Creek, Wisconsin 53154	Five Star Quality Care-WI, LLC
	RIVER HILLS WEST HEALTHCARE CENTER 321 Riverside Drive Pewaukee, Wisconsin 53072	Five Star Quality Care-WI, LLC
	THE VIRGINIA HEALTH & REHABILITATION CENTER 1451 Cleveland Avenue Waukesha, Wisconsin 53186	Five Star Quality Care-WI, LLC

SCHEDULE 4

SCHEDULE 2

THE FACILITIES

ALABAMA:

ASHTON GABLES IN RIVERCHASE

2184 Parkway Lake Drive

Birmingham, Alabama  35244

LAKEVIEW ESTATES

2634 Valleydale Road

Birmingham, Alabama  35244

ARIZONA:

FORUM AT DESERT HARBOR

13840 North Desert Harbor Drive

Peoria, Arizona  85381

THE FORUM AT PUEBLO NORTE

7090 East Mescal Street

Scottsdale, Arizona  85254

FORUM AT TUCSON

2500 North Rosemont Blvd.

Tucson, Arizona  85712

CALIFORNIA:

LA SALETTE HEALTH AND REHABILITATION CENTER

537 East Fulton Street

Stockton, California  95204

THOUSAND OAKS HEALTHCARE CENTER

93 W. Avenida de Los Arboles

Thousand Oaks, California  91360

COLORADO:

SKYLINE RIDGE NURSING & REHABLITATION CENTER

515 Fairview Avenue

Canon City, Colorado  81212

SPRINGS VILLAGE CARE CENTER

110 West Van Buren Street

Colorado Springs, Colorado  80907

WILLOW TREE CARE CENTER

2050 South Main Street

Delta, Colorado  81416

CEDARS HEALTHCARE CENTER

1599 Ingalls Street

Lakewood, Colorado  80214

DELAWARE:

MILLCROFT

255 Possum Park Road

Newark, Delaware  19711

FORWOOD MANOR

1912 Marsh Road

Wilmington, Delaware  19810

FOULK MANOR SOUTH

407 Foulk Road

Wilmington, Delaware  19803

SHIPLEY MANOR

2723 Shipley Road

Wilmington, Delaware  19810

FLORIDA:

PARK SUMMIT AT CORAL SPRINGS

8500 Royal Palm Blvd.

Coral Springs, Florida  33065

FORUM AT DEER CREEK

3001 Deer Creek Country Club Boulevard

Deerfield Beach, Florida  33442

SPRINGWOOD COURT

12780 Kenwood Lane

Fort Myers, Florida  33907

FOUNTAINVIEW

111 Executive Center Drive

West Palm Beach, Florida  33401

PALMS AT ST. LUCIE WEST

501 N.W. Cashmere Boulevard

Port St. Lucie, Florida  34986

GEORGIA:

MORNINGSIDE OF ATHENS

1291 Cedar Shoals Drive

Athens, Georgia  30605

SENIOR LIVING OF MARSH VIEW

7410 Skidway Road

Savannah, Georgia  31406

INDIANA:

MEADOWOOD RETIREMENT COMMUNITY

2455 Tamarack Trail

Bloomington, Indiana  47408

IOWA:

PACIFIC PLACE

20937 Kane Avenue

Pacific Junction, Iowa  51561

WEST BRIDGE CARE & REHABILITATION

1015 West Summit Street

Winterset, Iowa  50273

KANSAS:

WOODHAVEN CARE CENTER

510 W. 7th Street

Ellinwood, Kansas  67526

KENTUCKY:

LAFAYETTE AT COUNTRY PLACE

690 Mason Headley Road

Lexington, Kentucky  40504

LEXINGTON AT COUNTRY PLACE

700 Mason Headley Road

Lexington, Kentucky  40504

MARYLAND:

HEARTFIELDS AT BOWIE

7600 Laurel Bowie Road

Bowie, Maryland  20715

HEARTFIELDS AT FREDERICK

1820 Latham Drive

Frederick, Maryland  21701

MASSACHUSETTS:

BRAINTREE REHABILITATION HOSPITAL

250 Pond Street

Braintree, Massachusetts  02184

GABLES AT WINCHESTER

299 Cambridge Street

Winchester, Massachusetts  01890

NEW ENGLAND REHABILITATION HOSPITAL

2 Rehabilitation Way

Woburn, Massachusetts  01801

NEBRASKA:

MORYS HAVEN

1112 15th Street

Columbus, Nebraska  68601

WEDGEWOOD CARE CENTER

800 Stoeger Drive

Grand Island, Nebraska  68803

CRESTVIEW HEALTH CARE CENTER

1100 West First Street

Milford, Nebraska  68405

UTICA COMMUNITY CARE CENTER

1350 Centennial Avenue

Utica, Nebraska  68456

NEW JERSEY:

LEISURE PARK

1400 Route 70

Lakewood, New Jersey  08701

PENNSYLVANIA:

FRANCISCAN MANOR

71 Darlington Road

Patterson Township, Beaver Falls, Pennsylvania  15010

MOUNT VERNON OF ELIZABETH

145 Broadlawn Drive

Elizabeth, Pennsylvania  15037

OVERLOOK GREEN

5250 Meadowgreen Drive

Whitehall, Pennsylvania  15236

SOUTH CAROLINA:

MORNINGSIDE OF ANDERSON

1304 McLees Road

Anderson, South Carolina  29621

MYRTLE BEACH MANOR

9547 Highway 17 North

Myrtle Beach, South Carolina  29572

TEXAS:

HERITAGE PLACE AT BOERNE

120 Crosspoint Drive

Boerne, Texas  78006

FORUM AT PARK LANE

7831 Park Lane

Dallas, Texas  75225

HERITAGE PLACE AT FREDERICKSBURG

96 Frederick Road

Fredericksburg, Texas  78624

FORUM AT MEMORIAL WOODS

777 North Post Oak Road

Houston, Texas  77024

VIRGINIA:

CHESAPEAKE PROPERTY

1005 Elysian Place

Chesapeake, Virginia  23320

WISCONSIN:

GREENTREE HEALTH & REHABILITATION CENTER

70 Greentree Road

Clintonville, Wisconsin  54929

PINE MANOR HEALTH CARE CENTER

Village of Embarrass

1625 East Main Street

Clintonville, Wisconsin  54929

MANORPOINTE-OAK CREEK INDEPENDENT SENIOR APARTMENTS AND MEADOWMERE/MITCHELL MANOR-OAK CREEK ASSISTED LIVING

700 East Stonegate Drive and 701 East Peutz Road

Oak Creek, Wisconsin  53154

RIVER HILLS WEST HEALTHCARE CENTER

321 Riverside Drive

Pewaukee, Wisconsin  53072

THE VIRGINIA HEALTH & REHABILITATION CENTER

1451 Cleveland Avenue

Waukesha, Wisconsin  53186

EX-99.5

Exhibit 99.5

JOINDER TO, AMENDMENT AND CONFIRMATION OF GUARANTEES
AND SECURITY AGREEMENTS
(Amended Lease No. 4)

THIS JOINDER TO, AMENDMENT AND CONFIRMATION OF GUARANTEES AND SECURITY AGREEMENTS (this “Confirmation”) is made and entered into as of August 31, 2012, by and among FIVE STAR QUALITY CARE, INC., a Maryland corporation (“Guarantor”), each of the parties identified on the signature page hereof as a Tenant (jointly and severally, “Tenant”), each of the parties identified on the signature page hereof as a Subtenant (collectively, “Subtenants”) and each of the parties identified on the signature page hereof as a Landlord (collectively, “Landlord”).

W I T N E S S E T H :

WHEREAS, pursuant to the terms of that certain Amended and Restated Master Lease Agreement (Lease No. 4), dated as of August 4, 2009 (as the same has been amended, restated or otherwise modified from time to time, “Amended Lease No. 4”), Landlord leases to Tenant, and Tenant leases from Landlord, certain property, all as more particularly described in Amended Lease No. 4; and

WHEREAS, the payment and performance of all of the obligations of Tenant with respect to Amended Lease No. 4 are guaranteed by (i) that certain Amended and Restated Guaranty Agreement (Lease No. 4), dated as of August 4, 2009, made by Guarantor for the benefit of Landlord (as the same has been amended, restated or otherwise modified or confirmed from time to time, the “Parent Guaranty”); and (ii) that certain Amended and Restated Subtenant Guaranty Agreement (Lease No. 4), dated as of August 4, 2009, made by certain of the Subtenants for the benefit of Landlord (as the same has been amended, restated or otherwise modified or confirmed from time to time, the “Subtenant Guaranty”; and, together with the Parent Guaranty, collectively, the “Guarantees”); and

WHEREAS, the payment and performance of all of the obligations of Tenant with respect to Amended Lease No. 4 are secured by (i) that certain Amended and Restated Subtenant Security Agreement (Lease No. 4), dated as of August 4, 2009, by and among certain of the Subtenants and Landlord (as the same has been amended, restated or otherwise modified or confirmed from time to time, the “Subtenant Security Agreement”); and (ii) that certain Amended and Restated Security Agreement (Lease No. 4), dated as of August 4, 2009, by and among Tenant and Landlord (as the same has been amended, restated or otherwise modified or confirmed from time to time, the “Tenant Security Agreement”; and together with the Subtenant Security Agreement, collectively, the “Security Agreements”); and

WHEREAS, pursuant to that certain Fourth Amendment to Amended and Restated Master Lease Agreement (Lease No. 4), dated as of the date hereof (the “Fourth Amendment”), Amended Lease No. 4 is being amended to add thereto those certain senior living facilities commonly known as: (i) Remington Club I & II, located at 16925 and 16916 Hierba Drive, San Diego, CA 92128; (ii) Savannah Square, located at One Savannah Square Drive, Savannah, GA 31406; and (iii) Morningside of Bellgrade, located at 2800 Polo Parkway, Midlothian, VA 23113, all as more particularly described in the Fourth Amendment; and

WHEREAS, in connection with the foregoing, and as a condition precedent to the execution of the Fourth Amendment by Landlord, Landlord has required that certain of the Subtenants join in the Subtenant Guaranty and Subtenant Security Agreement, and that the parties hereto confirm that the Guarantees and the Security Agreements remain in full force and effect and apply to Amended Lease No. 4 as amended by the Fourth Amendment;

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the mutual receipt and legal sufficiency of which are hereby acknowledged, the parties hereto hereby agree, effective as of the date hereof, as follows:

1.Joinder to Subtenant Guaranty.  Five Star Remington Club LLC, Five Star Savannah Square LLC and Five Star Morningside Bellgrade LLC, each a Delaware limited liability company (each, a “New Subtenant” and collectively the “New Subtenants”) hereby join in the Subtenant Guaranty as if each New Subtenant had originally executed and delivered the Subtenant Guaranty as a Subtenant Guarantor thereunder.  From and after the date hereof, all references in the Subtenant Guaranty to the Subtenant Guarantors shall include the New Subtenants, and each New Subtenant shall be considered a Subtenant Guarantor for all purposes under the Subtenant Guaranty.

2.Joinder to Subtenant Security Agreement.  The New Subtenants hereby join in the Subtenant Security Agreement as if each New Subtenant had originally executed and delivered the Subtenant Security Agreement as a Subtenant thereunder.  From and after the date hereof, all references in the Subtenant Security Agreement to the Subtenants shall include the New Subtenants and each New Subtenant shall be considered a Subtenant for all purposes under the Subtenant Security Agreement.

3.Amendment to Disputes Provisions in Guarantees.  Each of the Guarantees is amended by deleting Section 15 therefrom in its entirety and replacing it with Section 15 as set forth on Exhibit A attached hereto and made a part hereof.

4.Amendment to Disputes Provisions in Security Agreements.  Each of the Security Agreements is amended by deleting Section 11 therefrom in its entirety and replacing it with Section 11 as set forth on Exhibit B attached hereto and made a part hereof.

5.Amendment of Subtenant Security Agreement.  The Subtenant Security Agreement is hereby amended by (a) replacing Exhibit A attached thereto with Schedule 1 attached hereto; (b) replacing Schedule 1 attached thereto with Schedule 2 attached hereto; and (c) replacing Schedule 2 attached thereto with Schedule 3 attached hereto.

6.Amendment of Tenant Security Agreement.  The Tenant Security Agreement is hereby amended by replacing Schedule 2 attached thereto with Schedule 4 attached hereto.

7.Confirmation of Guarantees and Security Agreements.  Each of the parties to the Guarantees and the Security Agreements (including, without limitation, the New Subtenants) hereby confirms that all references in the Guarantees and the Security Agreements to “Amended Lease No. 4” shall refer to Amended Lease No. 4 as amended by the Fourth Amendment, and the Guarantees, as amended and confirmed hereby, and the Security Agreements, as amended and confirmed hereby, are hereby ratified and confirmed in all respects.

2

8.No Impairment, Etc.  The obligations, covenants, agreements and duties of the parties under the Guarantees and Security Agreements shall not be impaired in any manner by the execution and delivery of the Fourth Amendment or any other amendment, change or modification to Amended Lease No. 4, and in no event shall any ratification or confirmation of such Guarantees or such Security Agreements, or the obligations, covenants, agreements and the duties of the parties under the Guarantees or the Security Agreements, including, without limitation, this Confirmation, be required in connection with any such amendment, change or modification.

[Remainder of page left intentionally blank; Signature pages follow]

3

IN WITNESS WHEREOF, the parties hereto have caused this Confirmation to be duly executed, as a sealed instrument, as of the date first set forth above.

GUARANTOR:
FIVE STAR QUALITY CARE, INC.
By:	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President
TENANT:
FIVE STAR QUALITY CARE — NS TENANT, LLC,
FIVE STAR QUALITY CARE TRUST, and
FS TENANT HOLDING COMPANY TRUST
By:	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President of each of the foregoing entities

4

SUBTENANTS:
FIVE STAR MORNINGSIDE BELLGRADE LLC,
FIVE STAR QUALITY CARE-COLORADO, LLC,
FIVE STAR QUALITY CARE-FL, LLC,
FIVE STAR QUALITY CARE-GA, LLC,
FIVE STAR QUALITY CARE-GHV, LLC,
FIVE STAR QUALITY CARE-IA, LLC,
FIVE STAR QUALITY CARE-IL, LLC,
FIVE STAR QUALITY CARE-KS, LLC,
FIVE STAR QUALITY CARE-NE, LLC,
FIVE STAR QUALITY CARE-NJ, LLC,
FIVE STAR QUALITY CARE-NORTH CAROLINA, LLC,
FIVE STAR QUALITY CARE-VA, LLC,
FIVE STAR QUALITY CARE-WY, LLC,
FIVE STAR REMINGTON CLUB LLC,
FIVE STAR SAVANNAH SQUARE LLC,
FS TENANT POOL I TRUST, and
STOCKTON HERITAGE PARTNERS, LLC
By:	/s/ Bruce J. Mackey Jr.
	Bruce J. Mackey Jr.
	President of each of the foregoing entities
MORNINGSIDE OF GREENWOOD, L.P., and MORNINGSIDE OF KENTUCKY, LIMITED
	PARTNERSHIP
By:	LifeTrust America, Inc.,
	General Partner of each of
	the foregoing entities
	By:	/s/ Bruce J. Mackey Jr.
		Bruce J. Mackey Jr.
		President
MORNINGSIDE OF SKIPWITH-RICHMOND, LLC
By:	LifeTrust America, Inc.,
	Its Member
	By:	/s/ Bruce J. Mackey Jr.
		Bruce J. Mackey Jr.
		President

5

LANDLORD:
CCOP SENIOR LIVING LLC,
SNH CHS PROPERTIES TRUST,
SNH NS PROPERTIES TRUST,
SNH SOMERFORD PROPERTIES TRUST,
SNH/LTA PROPERTIES GA LLC,
SNH/LTA PROPERTIES TRUST, and
SPTIHS PROPERTIES TRUST
By:	/s/ David J. Hegarty
	David J. Hegarty
	President of each of the foregoing entities

6

EXHIBIT A

DISPUTES PROVISION — GUARANTEES

15.Disputes.

(a)Any disputes, claims or controversies between or among the parties (i) arising out of or relating to this Guaranty, or (ii) brought by or on behalf of any shareholder of any party (which, for purposes of this Section 15, shall mean any shareholder of record or any beneficial owner of shares of any party, or any former shareholder of record or beneficial owner of shares of any party), either on his, her or its own behalf, on behalf of any party or on behalf of any series or class of shares of any party or shareholders of any party against any party or any trustee, director, officer, manager (including Reit Management & Research LLC or its successor), agent or employee of any party, including disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of this Guaranty, including this arbitration agreement, the declaration of trust, limited liability company agreement, partnership agreement or analogous governing instruments, as applicable, of any party, or the bylaws of any party (all of which are referred to as “Disputes”), or relating in any way to such a Dispute or Disputes, shall on the demand of any party to such Dispute be resolved through binding and final arbitration in accordance with the Commercial Arbitration Rules (the “Rules”) of the American Arbitration Association (“AAA”) then in effect, except as those Rules may be modified in this Section 15.  For the avoidance of doubt, and not as a limitation, Disputes are intended to include derivative actions against trustees, directors, officers or managers of any party and class actions by a shareholder against those individuals or entities and any party.  For the avoidance of doubt, a Dispute shall include a Dispute made derivatively on behalf of one party against another party.

(b)There shall be three arbitrators.  If there are only two parties to the Dispute (with, for purposes of this Section 15, any and all parties involved in the Dispute and owned by the same ultimate parent entity treated as one party), each party shall select one arbitrator within 15 days after receipt by respondent of a copy of the demand for arbitration.  Such arbitrators may be affiliated or interested persons of such parties.  If either party fails to timely select an arbitrator, the other party to the Dispute shall select the second arbitrator who shall be neutral and impartial and shall not be affiliated with or an interested person of either party. If there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, shall each select, by the vote of a majority of the claimants or the respondents, as the case may be, one arbitrator. Such arbitrators may be affiliated or interested persons of the claimants or the respondents, as the case may be.  If either all claimants or all respondents fail to timely select an arbitrator then such arbitrator (who shall be neutral, impartial and unaffiliated with any party) shall be appointed by the AAA.  The two arbitrators so appointed shall jointly appoint the third and presiding arbitrator (who shall be neutral, impartial and unaffiliated with any party) within 15 days of the appointment of the second arbitrator.  If the third arbitrator has not been appointed within the time limit specified herein, then the AAA shall provide a list of proposed arbitrators in accordance with the Rules, and the arbitrator shall be appointed by the AAA in accordance with a listing, striking and ranking procedure, with each party having a

limited number of strikes, excluding strikes for cause.

(c)The place of arbitration shall be Boston, Massachusetts unless otherwise agreed by the parties.

(d)There shall be only limited documentary discovery of documents directly related to the issues in dispute, as may be ordered by the arbitrators.

(e)In rendering an award or decision (the “Award”), the arbitrators shall be required to follow the laws of the Commonwealth of Massachusetts.  Any arbitration proceedings or Award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq.  The Award shall be in writing and may, but shall not be required to, briefly state the findings of fact and conclusions of law on which it is based.

(f)Except to the extent expressly provided by Section 15 or as otherwise agreed by the parties, each party involved in a Dispute shall bear its own costs and expenses (including attorneys’ fees), and the arbitrators shall not render an award that would include shifting of any such costs or expenses (including attorneys’ fees) or, in a derivative case or class action, award any portion of any party’s award to the claimant or the claimant’s attorneys.  Except to the extent otherwise agreed by the parties, each party (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, respectively) shall bear the costs and expenses of its (or their) selected arbitrator and the parties (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand) shall equally bear the costs and expenses of the third appointed arbitrator.

(g)An Award shall be final and binding upon the parties thereto and shall be the sole and exclusive remedy between such parties relating to the Dispute, including any claims, counterclaims, issues or accounting presented to the arbitrators.  Judgment upon the Award may be entered in any court having jurisdiction.  To the fullest extent permitted by law, no application or appeal to any court of competent jurisdiction may be made in connection with any question of law arising in the course of arbitration or with respect to any award made except for actions relating to enforcement of this agreement to arbitrate or any arbitral award issued hereunder and except for actions seeking interim or other provisional relief in aid of arbitration proceedings in any court of competent jurisdiction.

(h)Any monetary award shall be made and payable in U.S. dollars free of any tax, deduction or offset.  Each party against which the Award assesses a monetary obligation shall pay that obligation on or before the 30th day following the date of the Award or such other date as the Award may provide.

(i)This Section 15 is intended to benefit and be enforceable by the shareholders, trustees, directors, officers, managers (including Reit Management & Research LLC or its successor), agents or employees of any party and the parties and shall be binding on the shareholders of any party and the parties, as applicable, and shall be in addition to, and not in substitution for, any other rights to indemnification or contribution that such individuals or entities may have by contract or otherwise.

EXHIBIT B

DISPUTES PROVISION — SECURITY AGREEMENT

Section 11.Disputes.

(a)Any disputes, claims or controversies between or among the parties (i) arising out of or relating to this Agreement, or (ii) brought by or on behalf of any shareholder of any party (which, for purposes of this Section 11, shall mean any shareholder of record or any beneficial owner of shares of any party, or any former shareholder of record or beneficial owner of shares of any party), either on his, her or its own behalf, on behalf of any party or on behalf of any series or class of shares of any party or shareholders of any party against any party or any trustee, director, officer, manager (including Reit Management & Research LLC or its successor), agent or employee of any party, including disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of this Agreement, including this arbitration agreement, the declaration of trust, limited liability company agreement, partnership agreement or analogous governing instruments, as applicable, of any party, or the bylaws of any party (all of which are referred to as “Disputes”), or relating in any way to such a Dispute or Disputes, shall on the demand of any party to such Dispute be resolved through binding and final arbitration in accordance with the Commercial Arbitration Rules (the “Rules”) of the American Arbitration Association (“AAA”) then in effect, except as those Rules may be modified in this Section 11.  For the avoidance of doubt, and not as a limitation, Disputes are intended to include derivative actions against trustees, directors, officers or managers of any party and class actions by a shareholder against those individuals or entities and any party.  For the avoidance of doubt, a Dispute shall include a Dispute made derivatively on behalf of one party against another party.

(b)There shall be three arbitrators.  If there are only two parties to the Dispute (with, for purposes of this Section 11, any and all parties involved in the Dispute and owned by the same ultimate parent entity treated as one party), each party shall select one arbitrator within 15 days after receipt by respondent of a copy of the demand for arbitration.  Such arbitrators may be affiliated or interested persons of such parties.  If either party fails to timely select an arbitrator, the other party to the Dispute shall select the second arbitrator who shall be neutral and impartial and shall not be affiliated with or an interested person of either party. If there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, shall each select, by the vote of a majority of the claimants or the respondents, as the case may be, one arbitrator. Such arbitrators may be affiliated or interested persons of the claimants or the respondents, as the case may be.  If either all claimants or all respondents fail to timely select an arbitrator then such arbitrator (who shall be neutral, impartial and unaffiliated with any party) shall be appointed by the AAA.  The two arbitrators so appointed shall jointly appoint the third and presiding arbitrator (who shall be neutral, impartial and unaffiliated with any party) within 15 days of the appointment of the second arbitrator.  If the third arbitrator has not been appointed within the time limit specified herein, then the AAA shall provide a list of proposed arbitrators in accordance with the Rules, and the arbitrator shall be appointed by the AAA in accordance with a listing, striking and ranking procedure, with each party having a

limited number of strikes, excluding strikes for cause.

(c)The place of arbitration shall be Boston, Massachusetts unless otherwise agreed by the parties.

(d)There shall be only limited documentary discovery of documents directly related to the issues in dispute, as may be ordered by the arbitrators.

(e)In rendering an award or decision (the “Award”), the arbitrators shall be required to follow the laws of the Commonwealth of Massachusetts.  Any arbitration proceedings or Award rendered hereunder and the validity, effect and interpretation of this arbitration agreement shall be governed by the Federal Arbitration Act, 9 U.S.C. §1 et seq.  The Award shall be in writing and may, but shall not be required to, briefly state the findings of fact and conclusions of law on which it is based.

(f)Except to the extent expressly provided by Section 11 or as otherwise agreed by the parties, each party involved in a Dispute shall bear its own costs and expenses (including attorneys’ fees), and the arbitrators shall not render an award that would include shifting of any such costs or expenses (including attorneys’ fees) or, in a derivative case or class action, award any portion of any party’s award to the claimant or the claimant’s attorneys.  Except to the extent otherwise agreed by the parties, each party (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand, respectively) shall bear the costs and expenses of its (or their) selected arbitrator and the parties (or, if there are more than two parties to the Dispute, all claimants, on the one hand, and all respondents, on the other hand) shall equally bear the costs and expenses of the third appointed arbitrator.

(g)An Award shall be final and binding upon the parties thereto and shall be the sole and exclusive remedy between such parties relating to the Dispute, including any claims, counterclaims, issues or accounting presented to the arbitrators.  Judgment upon the Award may be entered in any court having jurisdiction.  To the fullest extent permitted by law, no application or appeal to any court of competent jurisdiction may be made in connection with any question of law arising in the course of arbitration or with respect to any award made except for actions relating to enforcement of this agreement to arbitrate or any arbitral award issued hereunder and except for actions seeking interim or other provisional relief in aid of arbitration proceedings in any court of competent jurisdiction.

(h)Any monetary award shall be made and payable in U.S. dollars free of any tax, deduction or offset.  Each party against which the Award assesses a monetary obligation shall pay that obligation on or before the 30th day following the date of the Award or such other date as the Award may provide.

(i)This Section 11 is intended to benefit and be enforceable by the shareholders, trustees, directors, officers, managers (including Reit Management & Research LLC or its successor), agents or employees of any party and the parties and shall be binding on the shareholders of any party and the parties, as applicable, and shall be in addition to, and not in substitution for, any other rights to indemnification or contribution that such individuals or entities may have by contract or otherwise.

SCHEDULE 1

EXHIBIT A

SUBLEASES

1.Sublease Agreement, dated December 31, 2001, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-Colorado, LLC, Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated March 1, 2004 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated as of June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

2.Sublease Agreement, dated December 31, 2001, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-WY, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated March 1, 2004 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

3.Sublease Agreement, dated November 19, 2004, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Morningside of Skipwith-Richmond, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

4.Sublease Agreement, dated June 3, 2005, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Morningside of Greenwood, L.P., a Delaware limited partnership, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

5.Sublease Agreement, dated September 1, 2006, by and between Five Star Quality Care Trust, a Maryland business trust, as Sublandlord, and Five Star Quality Care-FL, LLC, a Delaware limited liability company, as Subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

6.Sublease Agreement, dated September 1, 2006, by and between Five Star Quality Care Trust, a Maryland business trust, as Sublandlord, and Five Star Quality Care-IL, LLC, a Maryland limited liability company, as Subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

7.Second Amended and Restated Sublease Agreement, dated November 1, 2006, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-GA, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Partial Termination of Second Amended and Restated Sublease Agreement, dated as of May 1, 2011, by and among Five Star Quality Care Trust, as sublandlord, and Five Star Quality Care-GA, LLC, as subtenant, as further amended by that certain Partial Termination of Second Amended and Restated Sublease Agreement, dated as of June 1, 2011, by and among Five Star Quality Care Trust, as sublandlord, and Five Star Quality Care-GA, LLC, as subtenant.

8.Second Amended and Restated Sublease Agreement, dated November 6, 2006, by and between Five Star Quality Care Trust, a Maryland business trust, as Sublandlord, and Morningside of Kentucky, Limited Partnership, a Delaware limited partnership, as Subtenant, as amended by that certain Letter Agreement dated June 30, 2008 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

9.Sublease Agreement, dated March 31, 2008, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Stockton Heritage Partners, LLC, a Delaware limited liability company, as subtenant, as amended by that certain Letter Agreement dated June 30, 2008, by and among Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants, as further amended by that certain Letter Agreement dated August 4, 2009 by and among

Five Star Quality Care Trust, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

10.Sublease Agreement, dated as of July 1, 2008, by and between Five Star Quality Care-NS Tenant, LLC, a Maryland limited liability company, as sublandlord, and Five Star Quality Care-GHV, LLC, a Maryland limited liability company, as subtenant, as amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care-NS Tenant, LLC, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

11.Sublease Agreement, dated as of July 1, 2008, by and between Five Star Quality Care-NS Tenant, LLC, a Maryland limited liability company, as sublandlord, and Five Star Quality Care-NJ, LLC, a Maryland limited liability company, as subtenant as amended by that certain Letter Agreement dated August 4, 2009 by and among Five Star Quality Care-NS Tenant, LLC, as sublandlord, and Certain Affiliates of Five Star Quality Care, Inc., as subtenants.

12.Amended and Restated Sublease Agreement, dated as of August 4, 2009, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-VA, LLC, a Delaware limited liability company, as subtenant.

13.Amended and Restated Sublease Agreement, dated as of August 4, 2009, by and between FS Tenant Holding Company Trust, a Maryland business trust, as sublandlord and FS Tenant Pool I Trust, a Maryland business trust, as subtenant.

14.Amended and Restated Sublease Agreement, dated as of October 1, 2009, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-KS, LLC, a Delaware limited liability company, as subtenant.

15.Amended and Restated Sublease Agreement, dated August 1, 2010, but effective as of October 1, 2009, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-IA, LLC, a Delaware limited liability company, as subtenant.

16.Amended and Restated Sublease Agreement, dated August 1, 2010, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-NE, LLC, a Delaware limited liability company, as subtenant.

17.Sublease Agreement, dated June 20, 2011, by and between Five Star Quality Care Trust, a Maryland business trust, as sublandlord, and Five Star Quality Care-North Carolina, LLC, a Maryland limited liability company, as subtenant.

18.Sublease Agreement, dated as of August 4, 2009, by and between FVE FM Financing, Inc., a Maryland corporation, as sublandlord, and Five Star Quality Care-Savannah, LLC, a Delaware limited liability company, as subtenant, as assigned by that certain Bill of Sale, Assignment and Assumption Agreement, dated as of January 1, 2010, by and between Five Star Quality Care-Savannah, LLC, as assignor, and Five Star Savannah Square LLC, a Delaware limited liability company, as assignee, as further assigned by that certain Bill of Sale, Assignment and Assumption Agreement, dated as of August 31,

2012, by and between FVE FM Financing, Inc., as assignor, and Five Star Quality Care Trust, a Maryland business trust, as assignee.

19.Sublease Agreement, dated as of August 4, 2009, by and between FVE FM Financing, Inc., a Maryland corporation, as sublandlord, and FS Tenant Pool II Trust, a Maryland business trust, as subtenant, as assigned by that certain Bill of Sale, Assignment and Assumption Agreement, dated as of March 1, 2010, by and between FS Tenant Pool II Trust, as assignor, and Five Star Remington Club LLC, a Delaware limited liability company, as assignee, as further assigned by that certain Bill of Sale, Assignment and Assumption Agreement, dated as of August 31, 2012, by and between FVE FM Financing, Inc., as assignor, and Five Star Quality Care Trust, a Maryland business trust, as assignee.

20.Sublease Agreement, dated as of August 4, 2009, by and between FVE FM Financing, Inc., a Maryland corporation, as sublandlord, and Morningside of Bellgrade, Richmond, LLC, a Delaware limited liability company, as subtenant, as assigned by that certain Bill of Sale, Assignment and Assumption Agreement, dated as of January 1, 2010, by and between Morningside of Bellgrade, Richmond, LLC, as assignor, and Five Star Morningside Bellgrade LLC, a Delaware limited liability company, as assignee, as further assigned by that certain Bill of Sale, Assignment and Assumption Agreement, dated as of August 31, 2012, by and between FVE FM Financing, Inc., as assignor, and Five Star Quality Care Trust, a Maryland business trust, as assignee.

SCHEDULE 2

SCHEDULE 1

Subtenant Name, Organizational Structure & Corporate Identification Number:	Chief Executive Office & Principal Place of Business:	Other Names
Five Star Morningside Bellgrade LLC, a Delaware limited liability company No: DE 4707927	400 Centre Street Newton, MA 02458	None.
Five Star Quality Care-Colorado, LLC, a Delaware limited liability company No: DE 3141518	400 Centre Street Newton, MA 02458	SHOPCO-Colorado, LLC
Five Star Quality Care-FL, LLC, a Delaware limited liability company No: DE 3487186	400 Centre Street Newton, MA 02458	None.
Five Star Quality Care-GA, LLC, a Delaware limited liability company No: DE 3141197	400 Centre Street Newton, MA 02458	SHOPCO-GA, LLC
Five Star Quality Care-GHV, LLC, a Maryland limited liability company No: MD W10441350	400 Centre Street Newton, MA 02458
Five Star Quality Care-IA, LLC, a Delaware limited liability company No: DE 3141200	400 Centre Street Newton, MA 02458	SHOPCO-IA, LLC
Five Star Quality Care-IL, LLC, a Maryland limited liability company No: MD W11464047	400 Centre Street Newton, MA 02458	None.
Five Star Quality Care-KS, LLC, a Delaware limited liability company No: DE 3155963	400 Centre, St. Newton, MA 02458	None.
Five Star Quality Care-NE, LLC, a Delaware limited liability company No: DE 3141204	400 Centre Street Newton, MA 02458	SHOPCO-NE, LLC
Five Star Quality Care-NJ, LLC, a Maryland limited liability company No: MD W12378956	400 Centre Street Newton, MA 02458	None.
Five Star Quality Care-North Carolina, LLC, a Maryland limited liability company No: MD W132789039	400 Centre Street Newton, MA 02458	None.
Five Star Quality Care-VA, LLC, a Delaware limited liability company No: DE 3561214	400 Centre Street Newton, MA 02458	None.
Five Star Quality Care-WY, LLC, a Delaware limited liability company No: DE 3141207	400 Centre Street Newton, MA 02458	SHOPCO-WY, LLC
Five Star Remington Club LLC, a Delaware limited liability company No: DE 4707942	400 Centre Street Newton, MA 02458	None.
Five Star Savannah Square LLC, a Delaware limited liability company No: DE 4707947	400 Centre Street Newton, MA 02458	None.
FS Tenant Pool I Trust, a Maryland business trust No: MD B06519011	400 Centre Street Newton, MA 02458	None.
Morningside of Greenwood, L.P., a Delaware limited partnership No: DE 2926343	400 Centre Street Newton, MA 02458	None.

Subtenant Name, Organizational Structure & Corporate Identification Number:	Chief Executive Office & Principal Place of Business:	Other Names
Morningside of Kentucky, Limited Partnership, a Delaware limited partnership No: DE 2750276	400 Centre Street Newton, MA 02458	None.
Morningside of Skipwith-Richmond, LLC, a Delaware limited liability company No: DE 3503112	400 Centre Street Newton, MA 02458	None.
Stockton Heritage Partners, LLC, a Delaware limited liability company No: DE 2963009	400 Centre Street Newton, MA 02458	None.

SCHEDULE 3

SCHEDULE 2

The Facilities

State	Facility	Subtenant
CALIFORNIA:	REMINGTON CLUB I & II 16925 and 16916 Hierba Drive San Diego, California 92128	Five Star Remington Club LLC
	SOMERFORD PLACE – STOCKTON 3530 Deer Park Drive Stockton, California 95219	Stockton Heritage Partners, LLC
COLORADO:	LA VILLA GRANDE CARE CENTER 2501 Little Bookcliff Drive Grand Junction, Colorado 81501	Five Star Quality Care-Colorado, LLC
FLORIDA:	COURT AT PALM AIRE 2701 North Course Drive Pompano Beach, Florida 33069	Five Star Quality Care-FL, LLC
GEORGIA:	SAVANNAH SQUARE One Savannah Square Drive Savannah, Georgia 31406	Five Star Savannah Square LLC
	NORTHLAKE GARDENS 1300 Montreal Road Tucker, Georgia 30084	Five Star Quality Care-GA, LLC
IOWA:	WESTRIDGE QUALITY CARE & REHABILITATION 600 Manor Drive Clarinda, Iowa 51632	Five Star Quality Care-IA, LLC
ILLINOIS:	BRENDEN GARDENS 900 Southwind Road Springfield, Illinois 62703	Five Star Quality Care-IL, LLC
KANSAS:	BRANDON WOODS AT ALVAMAR 1501 Inverness Drive Lawrence, Kansas 66047	Five Star Quality Care-KS, LLC

State	Facility	Subtenant
	OVERLAND PARK PLACE 6555 West 75th Street Overland Park, Kansas 66204	Five Star Quality Care-KS, LLC
KENTUCKY:	MORNINGSIDE OF MAYFIELD 1517 West Broadway Mayfield, Kentucky 42066	Morningside of Kentucky, Limited Partnership
	THE NEIGHBORHOOD OF SOMERSET 100 Neighborly Drive Somerset, Kentucky 42503	Morningside of Kentucky, Limited Partnership
NEBRASKA:	CENTENNIAL PARK RETIREMENT VILLAGE 510 Centennial Circle North Platte, Nebraska 69101	Five Star Quality Care-NE, LLC
	WESTGATE ASSISTED LIVING 3030 South 80th Street Omaha, Nebraska 68124	Five Star Quality Care-NE, LLC
NEW JERSEY:	NEWSEASONS AT CHERRY HILL 490 Cooper Landing Road Cherry Hill, New Jersey 08002	Five Star Quality Care-NJ, LLC
	NEWSEASONS AT MOUNT ARLINGTON 2 Hillside Drive Mount Arlington, New Jersey 07856	Five Star Quality Care-NJ, LLC
NORTH CAROLINA:	MCCARTHY COURT II 1325 McCarthy Boulevard New Bern, North Carolina 28562	Five Star Quality Care-North Carolina, LLC
PENNSYLVANIA:	NEWSEASONS AT NEW BRITAIN 800 Manor Drive Chalfont, Pennsylvania 18914	Five Star Quality Care-GHV, LLC
	NEWSEASONS AT CLARKS SUMMIT 950 Morgan Highway Clarks Summit, Pennsylvania 18411	Five Star Quality Care-GHV, LLC
	NEWSEASONS AT EXTON 600 North Pottstown Pike Exton, Pennsylvania 19341	Five Star Quality Care-GHV, LLC

State	Facility	Subtenant
	NEWSEASONS AT GLEN MILLS (CONCORDVILLE) 242 Baltimore Pike Glen Mills, Pennsylvania 19342	Five Star Quality Care-GHV, LLC
	NEWSEASONS AT TIFFANY COURT 700 Northampton Street Kingston, Pennsylvania 18704	Five Star Quality Care-GHV, LLC
SOUTH CAROLINA:	MORNINGSIDE OF GREENWOOD 116 Enterprise Court Greenwood, South Carolina 29649	Morningside of Greenwood, L.P.
TEXAS:	MONTEVISTA AT CORONADO 1575 Belvidere El Paso, Texas 79912	FS Tenant Pool I Trust
VIRGINIA:	MORNINGSIDE OF BELGRADE 2800 Polo Parkway Midlothian, VA 23113	Five Star Morningside Bellgrade LLC
	DOMINION VILLAGE OF POQUOSON 531 Wythe Creek Road Poquoson, Virginia 23662	Five Star Quality Care-VA, LLC
	MORNINGSIDE IN THE WEST END 3000 Skipwith Road Richmond, Virginia 23294	Morningside of Skipwith-Richmond, LLC
WYOMING:	WORLAND HEALTHCARE & REHABILITATION CENTER 1901 Howell Avenue Worland, Wyoming 82401	Five Star Quality Care-WY, LLC

SCHEDULE 4

SCHEDULE 2

THE FACILITIES

CALIFORNIA:

REMINGTON CLUB I & II

16925 and 16916 Hierba Drive

San Diego, California  92128

SOMERFORD PLACE - STOCKTON

3530 Deer Park Drive

Stockton, California  95219

COLORADO:

LA VILLA GRANDE CARE CENTER

2501 Little Bookcliff Drive

Grand Junction, Colorado  81501

FLORIDA:

COURT AT PALM AIRE

2701 North Course Drive

Pompano Beach, Florida  33069

GEORGIA:

SAVANNAH SQUARE

One Savannah Square Drive

Savannah, Georgia  31406

NORTHLAKE GARDENS

1300 Montreal Road

Tucker, Georgia  30084

IOWA:

WESTRIDGE QUALITY CARE & REHABILITATION

600 Manor Drive

Clarinda, Iowa  51632

ILLINOIS:

BRENDEN GARDENS

900 Southwind Road

Springfield, Illinois  62703

KANSAS:

BRANDON WOODS AT ALVAMAR

1501 Inverness Drive

Lawrence, Kansas  66047

OVERLAND PARK PLACE

6555 West 75th Street

Overland Park, Kansas  66204

KENTUCKY:

MORNINGSIDE OF MAYFIELD

1517 West Broadway

Mayfield, Kentucky  42066

THE NEIGHBORHOOD OF SOMERSET

100 Neighborly Drive

Somerset, Kentucky  42503

NEBRASKA:

CENTENNIAL PARK RETIREMENT VILLAGE

510 Centennial Circle

North Platte, Nebraska  69101

WESTGATE ASSISTED LIVING

3030 South 80th Street

Omaha, Nebraska  68124

NEW JERSEY:

NEWSEASONS AT CHERRY HILL

490 Cooper Landing Road

Cherry Hill, New Jersey  08002

NEWSEASONS AT MOUNT ARLINGTON

2 Hillside Drive

Mount Arlington, New Jersey  07856

NORTH CAROLINA:

McCARTHY COURT II

1325 McCarthy Boulevard

New Bern, North Carolina  28562

PENNSYLVANIA:

NEWSEASONS AT NEW BRITAIN

800 Manor Drive

Chalfont, Pennsylvania  18914

NEWSEASONS AT CLARKS SUMMIT

950 Morgan Highway

Clarks Summit, Pennsylvania  18411

NEWSEASONS AT EXTON

600 North Pottstown Pike

Exton, Pennsylvania  19341

NEWSEASONS AT GLEN MILLS (CONCORDVILLE)

242 Baltimore Pike

Glen Mills, Pennsylvania  19342

NEWSEASONS AT TIFFANY COURT

700 Northampton Street

Kingston, Pennsylvania  18704

SOUTH CAROLINA:

MORNINGSIDE OF GREENWOOD

116 Enterprise Court

Greenwood, South Carolina  29649

TEXAS:

MONTEVISTA AT CORONADO

1575 Belvidere

El Paso, Texas  79912

VIRGINIA:

MORNINGSIDE OF BELLGRADE

2800 Polo Parkway

Midlothian, VA 23113

DOMINION VILLAGE OF POQUOSON

531 Wythe Creek Road

Poquoson, Virginia  23662

MORNINGSIDE IN THE WEST END

3000 Skipwith Road

Richmond, Virginia  23294

WYOMING:

WORLAND HEALTHCARE & REHABILITATION CENTER

1901 Howell Avenue

Worland, Wyoming  82401

XML

Related Person Transactions (Details 2) (USD $) In Thousands, unless otherwise specified	1 Months Ended	3 Months Ended		9 Months Ended
	Jun. 30, 2012	Sep. 30, 2012 shareholder	Sep. 30, 2011	Sep. 30, 2012 shareholder	Sep. 30, 2011
Related person transactions
Rent incurred		$ 50,523	$ 50,138	$ 151,043	$ 145,474
Income related to investment		115	28	236	111
RMR
Related person transactions
Number of Managing Directors also serving as Chairman, majority owner and an employee		1		1
Business management agreement expense		3,218	3,021	9,696	8,668
Annual rent expense under leases				748
Rent incurred		187	183	552	718
Utilities and real estate taxes		172	142	515	206
AIC
Related person transactions
Number of other current shareholders of the related party entity		5		5
Ownership percentage		12.50%		12.50%
Income related to investment		115	28	236	111
Coverage of property insurance	500,000
Period for which property insurance program was extended	1 year
Renewal premium, including taxes and fees	$ 6,264

XML

Fair Values of Assets and Liabilities (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended		1 Months Ended			3 Months Ended
	Sep. 30, 2012 security	Dec. 31, 2011	Sep. 30, 2012 SNF	Sep. 30, 2011 SNF property	Sep. 30, 2012 Pharmacy business item	Sep. 30, 2012 Pharmacy business	Sep. 30, 2012 Total	Sep. 30, 2012 Total Equity securities	Sep. 30, 2012 Total Financial services industry	Sep. 30, 2012 Total REIT industry	Sep. 30, 2012 Total Other	Sep. 30, 2012 Total Debt securities	Sep. 30, 2012 Total International bond fund	Sep. 30, 2012 Total High yield fund	Sep. 30, 2012 Total Industrial bonds	Sep. 30, 2012 Total Government bonds	Sep. 30, 2012 Total Financial bonds	Sep. 30, 2012 Total Other	Sep. 30, 2012 Quoted Prices in Active Markets for Identical Assets (Level 1)	Sep. 30, 2012 Quoted Prices in Active Markets for Identical Assets (Level 1) Equity securities	Sep. 30, 2012 Quoted Prices in Active Markets for Identical Assets (Level 1) Financial services industry	Sep. 30, 2012 Quoted Prices in Active Markets for Identical Assets (Level 1) REIT industry	Sep. 30, 2012 Quoted Prices in Active Markets for Identical Assets (Level 1) Other	Sep. 30, 2012 Quoted Prices in Active Markets for Identical Assets (Level 1) Debt securities	Sep. 30, 2012 Quoted Prices in Active Markets for Identical Assets (Level 1) International bond fund	Sep. 30, 2012 Quoted Prices in Active Markets for Identical Assets (Level 1) High yield fund	Sep. 30, 2012 Quoted Prices in Active Markets for Identical Assets (Level 1) Industrial bonds	Sep. 30, 2012 Quoted Prices in Active Markets for Identical Assets (Level 1) Government bonds	Sep. 30, 2012 Quoted Prices in Active Markets for Identical Assets (Level 1) Financial bonds	Sep. 30, 2012 Quoted Prices in Active Markets for Identical Assets (Level 1) Other	Sep. 30, 2012 Significant Other Observable Inputs (Level 2)
Fair Values of Assets and Liabilities
Long Lived assets held for sale							$ 11,772																								$ 11,772
Long lived assets of discontinued operations							8,644																								8,644
Cash equivalents							18,102												18,102
Available for sale securities							26,846	7,883	6,587	504	792	18,963	2,337	2,094	7,165	5,501	993	873	26,846	7,883	6,587	504	792	18,963	2,337	2,094	7,165	5,501	993	873
Total							65,364												44,948												20,416
Asset impairment charge recorded to reduce carrying value of SNFs			294	3,938		350
Number of pharmacies whose real estate was not acquired by Omnicare					1
Number of SNFs classified as discontinued operations				2
Available for sale securities, current	14,942	9,114
Long term investments in available for sale securities	11,904	13,115
Amortized cost of available for sale securities	25,036	20,827
Unrealized gains on available for sale securities	2,050	1,586
Unrealized losses on available for sale securities	240	185
Number of available for sale securities in a loss position	7
Fair value of securities which is in loss position for less than 12 months	5,928
Number of available for sale securities in a loss position greater than 12 months	3
Fair value of securities which is in loss position for greater than 12 months	3,667
Gross proceeds from sale of available for sale securities	928
Gross realized gains recorded on sale of available for sale securities	65
Gross realized losses recorded on sale of available for sale securities	$ 3

XML

Acquisitions (Tables)

9 Months Ended

Sep. 30, 2012

Acquisitions

Schedule of amounts as previously reported and restated to reflect the adjustments made to property and equipment, goodwill and other intangible assets

	As of December 31, 2011
	Preliminary Amounts Recorded		Measurement Period Adjustment			Revised Amounts Recorded
Land	$	4,715	$	(510	)	$	4,205
Building and improvements	106,240		(15,200		)	91,040
Furniture, fixtures and equipment	11,805		(2,099		)	9,706
Property and equipment	$	122,760	$	(17,809	)	$	104,951
Goodwill related to home health services	$	—	$	14,565		$	14,565
Other intangible assets related to resident agreements	$	—	$	3,244		$	3,244

XML

Off Balance Sheet Arrangements (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012 property
Off Balance Sheet Arrangements
Carrying value of accounts receivable pledged	$ 13,542
Number of properties leased from SNH on which pledge arises	45

XML

Property and Equipment

9 Months Ended

Sep. 30, 2012

Property and Equipment

Property and Equipment

Note 3. Property and Equipment

Property and equipment, at cost, consists of the following:

	September 30, 2012			December 31, 2011
Land	$	21,901		$	21,234
Buildings and improvements	278,760			271,311
Furniture, fixtures and equipment	101,395			91,493
	402,056			384,038
Accumulated depreciation	(65,167		)	(51,853		)
	$	336,889		$	332,185

As of December 31, 2011, we had assets of $7,076 included in our property and equipment that we subsequently sold during the nine months ended September 30, 2012 to SNH for increased rent pursuant to the terms of our leases with SNH.  As of September 30, 2012, we had $11,772 of assets included in our property and equipment that we currently expect to request that SNH purchase from us for an increase in future rent; however, we are not obligated to make these sales and SNH is not obligated to purchase such assets.

XML

Financial Data by Segment (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012 item	Sep. 30, 2011	Dec. 31, 2011
Financial Data by Segment
Number of reportable segments			1
Segment revenues:
Senior living and rehabilitation hospital revenues	$ 303,896	$ 301,878	$ 911,365	$ 881,882
Management fee revenue	1,277	359	3,666	383
Reimbursed costs incurred on behalf of managed communities	27,247	8,324	76,750	8,887
Total revenues	332,420	310,561	991,781	891,152
Segment expenses:
Operating expenses	228,408	228,104	684,595	662,896
Costs incurred on behalf of managed communities	27,247	8,324	76,750	8,887
Rent expense	50,523	50,138	151,043	145,474
Depreciation and amortization	6,324	5,497	18,631	13,705
Total segment expenses	312,502	292,063	931,019	830,962
Segment operating profit (loss)	19,918	18,498	60,762	60,190
General and administrative expenses	(14,602)	(14,418)	(45,445)	(42,242)
Operating income	5,316	4,080	15,317	17,948
Interest and other income	199	355	638	975
Interest and other expense	(1,762)	(1,034)	(4,793)	(2,405)
Acquisition related costs	(100)	(226)	(100)	(1,530)
Equity in earnings of Affiliates Insurance Company	115	28	236	111
Gain on settlement			3,365
Gain on early extinguishment of debt			45	1
Gain on sale of available for sale securities	63	529	62	656
Provision for income taxes	(426)	(186)	(4,835)	(1,006)
Income from continuing operations	3,405	3,546	9,935	14,750
TOTAL ASSETS	563,506		563,506		583,477
Senior Living Communities
Segment revenues:
Senior living and rehabilitation hospital revenues	277,568	275,605	831,864	803,647
Management fee revenue	1,277	359	3,666	383
Reimbursed costs incurred on behalf of managed communities	27,247	8,324	76,750	8,887
Total revenues	306,092	284,288	912,280	812,917
Segment expenses:
Operating expenses	204,674	204,804	612,870	592,098
Costs incurred on behalf of managed communities	27,247	8,324	76,750	8,887
Rent expense	47,844	47,541	143,092	137,716
Depreciation and amortization	5,741	4,923	16,893	12,159
Total segment expenses	285,506	265,592	849,605	750,860
Segment operating profit (loss)	20,586	18,696	62,675	62,057
Operating income	20,586	18,696	62,675	62,057
Interest and other income	22	19	61	100
Interest and other expense	(601)	(294)	(1,807)	(509)
Income from continuing operations	20,007	18,421	60,929	61,648
TOTAL ASSETS	447,455		447,455
Corporate and Other
Segment revenues:
Senior living and rehabilitation hospital revenues	26,328	26,273	79,501	78,235
Total revenues	26,328	26,273	79,501	78,235
Segment expenses:
Operating expenses	23,734	23,300	71,725	70,798
Rent expense	2,679	2,597	7,951	7,758
Depreciation and amortization	583	574	1,738	1,546
Total segment expenses	26,996	26,471	81,414	80,102
Segment operating profit (loss)	(668)	(198)	(1,913)	(1,867)
General and administrative expenses	(14,602)	(14,418)	(45,445)	(42,242)
Operating income	(15,270)	(14,616)	(47,358)	(44,109)
Interest and other income	177	336	577	875
Interest and other expense	(1,161)	(740)	(2,986)	(1,896)
Acquisition related costs	(100)	(226)	(100)	(1,530)
Equity in earnings of Affiliates Insurance Company	115	28	236	111
Gain on settlement			3,365
Gain on early extinguishment of debt			45	1
Gain on sale of available for sale securities	63	529	62	656
Provision for income taxes	(426)	(186)	(4,835)	(1,006)
Income from continuing operations	(16,602)	(14,875)	(50,994)	(46,898)
TOTAL ASSETS	$ 116,051		$ 116,051

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Property and Equipment (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Property and Equipment
Property and equipment, gross	$ 402,056	$ 384,038
Accumulated depreciation	(65,167)	(51,853)
Property and equipment, net	336,889	332,185
SNH
Property and Equipment
Assets held for sale for increased rent pursuant to the terms of leases with SNH	11,772	7,076
Land
Property and Equipment
Property and equipment, gross	21,901	21,234
Building and Improvements
Property and Equipment
Property and equipment, gross	278,760	271,311
Furniture, fixtures and equipments
Property and Equipment
Property and equipment, gross	$ 101,395	$ 91,493

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Goodwill and Other Intangible Assets (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011 Senior Living Communities item
Goodwill and Other Intangible Assets
Number of properties acquired		6
Changes in the carrying amount of goodwill and other intangible assets
Balance as of the beginning of the period	$ 29,414
Amortization of intangibles	(1,333)
Balance as of the end of the period	$ 28,081

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Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2012	Sep. 30, 2011
Income Taxes
Valuation allowance maintained against deferred tax assets realized	$ 752	$ 52,111
Tax expense recognized from continuing operations			4,835
Tax expense recognized from discontinued operations	7,640		7,135
Effective income tax rate (as a percent)			32.70%	8.40%
Income Taxes
Tax credit carry forward, which begins to expire in 2022 if unused		8,787
Federal
Income Taxes
Net operating loss carry forward, which begins to expire in 2025 if unused		$ 97,822

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Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2012

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Note 2. Recent Accounting Pronouncements

In July 2012, the Financial Accounting Standards Board issued an accounting standards update 2012-01, Health Care Entities (Topic 954), Continuing Care Retirement Communities — Refundable Advance Fees, or ASU 2012-01.  ASU 2012-01 affects continuing care retirement communities, or CCRCs, that have resident contracts that provide for a payment of a refundable advance fee upon reoccupancy of that unit by a subsequent resident.  The amendments in ASU 2012-01 clarify that an entity should classify an advance fee as deferred revenue when a CCRC has a resident contract that provides for payment of the refundable advance fee upon reoccupancy by a subsequent resident, which is limited to the proceeds of reoccupancy.  Refundable advance fees that are contingent upon reoccupancy by a subsequent resident but are not limited to the proceeds of reoccupancy should be accounted for as a liability.  ASU 2012-01 is effective for fiscal periods beginning after December 15, 2012 and we are currently evaluating its impact on our condensed consolidated financial statements.

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Earnings Per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Earnings Per Share
Par value per share	$ 0.01		$ 0.01		$ 0.01
Unvested common shares included in calculation of weighted average shares outstanding	553	486	553	486
Income (loss)
Income from continuing operations	$ 3,405	$ 3,546	$ 9,935	$ 14,750
Effect of the Notes	166			1,007
Diluted income from continuing operations	3,571	3,546	9,935	15,757
Diluted loss from discontinued operations	$ 13,034	$ (4,074)	$ 11,511	$ (5,950)
Shares
Income from continuing operations (in shares)	47,927	47,557	47,913	40,294
Effect of the Notes (in shares)	2,461			2,875
Diluted income from continuing operations (in shares)	50,388	47,557	47,913	43,169
Diluted loss from discontinued operations (in shares)	50,388	47,557	47,913	43,169
Per Share
Income from continuing operations (in dollars per share)	$ 0.07	$ 0.08	$ 0.21	$ 0.37
Diluted income from continuing operations (in dollars per share)	$ 0.07	$ 0.08	$ 0.21	$ 0.36
Diluted income (loss) from discontinued operations (in dollars per share)	$ 0.26	$ (0.09)	$ 0.24	$ (0.14)

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Discontinued Operations (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended					1 Months Ended			1 Months Ended	3 Months Ended	1 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Sep. 30, 2011 SNF property	Dec. 31, 2011 SNF Michigan unit property	Oct. 31, 2012 SNF Subsequent event	Aug. 31, 2011 Assisted living communities SNH	Aug. 31, 2011 Assisted living communities SNH Pennsylvania property unit	Sep. 30, 2012 Pharmacy business item	Sep. 30, 2012 Pharmacy business	Sep. 30, 2012 Pharmacy business South Carolina item
Discontinued Operations
Number of properties offered for sale						2	2
Number of units in real estate property offered for sale							271
Sale consideration								$ 8,000
HUD mortgage debt	7,583		7,583		7,690			7,583
Asset impairment charge								294			350
Number of properties agreed to be sold by related party entity										1
Number of living units in property agreed to be sold by related party entity										103
Decrease in annual lease rent payable (as a percent)									9.00%
Proceeds from sale of pharmacy business			34,298								34,298
Proceeds from sale of pharmacy business, included in working capital											3,789
Additional items of net working capital retained											3,501
Expected total proceeds from sale of pharmacy business, before taxes and transaction costs											37,799
Number of pharmacies whose real estate was not acquired by Omnicare											1		1
Summary of the operating results of discontinued operations
Revenue	17,583	25,208	64,505	83,032
Expenses	(20,256)	(29,282)	(69,206)	(88,982)
Gain on sale	23,347		23,347									23,347
Provision for income taxes	(7,640)		(7,135)
Net income (loss)	$ 13,034	$ (4,074)	$ 11,511	$ (5,950)

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 14,295	$ 28,374
Accounts receivable, net of allowance of $3,475 and $3,957 at September 30, 2012 and December 31, 2011, respectively	54,880	56,509
Investments in available for sale securities, of which $5,200 and $5,905 are restricted as of September 30, 2012 and December 31, 2011, respectively	14,942	9,114
Restricted cash	5,904	4,838
Prepaid expenses and other current assets	25,441	20,395
Assets of discontinued operations	13,003	29,022
Total current assets	128,465	148,252
Property and equipment, net	336,889	332,185
Equity investment in Affiliates Insurance Company	5,558	5,291
Restricted cash	9,262	4,092
Restricted investments in available for sale securities	11,904	13,115
Goodwill and other intangible assets	28,081	29,414
Other long term assets	43,347	51,128
TOTAL ASSETS	563,506	583,477
Current liabilities:
Revolving credit facility, secured, principally by real estate	0
Revolving credit facility, secured, principally by accounts receivable	0
Accounts payable	24,500	22,736
Accrued expenses	20,840	21,698
Accrued compensation and benefits	48,118	38,975
Due to related persons	12,791	18,659
Mortgage notes payable	1,076	1,027
Bridge loan from Senior Housing Properties Trust		38,000
Accrued real estate taxes	14,909	11,466
Security deposit liability	9,948	10,606
Other current liabilities	16,958	15,745
Liabilities of discontinued operations, of which $7,583 and $7,690 relate to mortgage notes payable at September 30, 2012 and December 31, 2011, respectively	8,764	10,419
Total current liabilities	157,904	189,331
Long term liabilities:
Mortgage notes payable	37,900	38,714
Convertible senior notes	24,872	37,282
Continuing care contracts	1,820	2,045
Accrued self insurance obligations	31,868	28,496
Other long term liabilities	6,415	7,415
Total long term liabilities	102,875	113,952
Commitments and contingencies
Shareholders' equity:
Common stock, par value $.01; 47,924,472 and 47,899,312 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively	479	479
Additional paid in capital	353,468	352,819
Accumulated deficit	(53,136)	(74,582)
Cumulative other comprehensive income	1,916	1,478
Total shareholders' equity	302,727	280,194
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 563,506	$ 583,477

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Cash flows from operating activities:
Net income	$ 21,446	$ 8,800
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	18,631	13,705
Gain on early extinguishment of debt	(45)	(1)
(Gain) loss from discontinued operations	(11,511)	5,950
Gain on sale of available for sale securities	(62)	(656)
Equity in earnings of Affiliates Insurance Company	(236)	(111)
Stock-based compensation	649	949
Provision for losses on receivables	3,949	5,178
Changes in assets and liabilities:
Accounts receivable	(2,320)	(2,118)
Prepaid expenses and other assets	2,408	(2,735)
Accounts payable and accrued expenses	906	7,028
Accrued compensation and benefits	9,143	6,096
Due to related persons	(5,868)	(1,535)
Other current and long term liabilities	6,145	5,407
Cash provided by operating activities	43,235	45,957
Net cash (used in) provided by discontinued operations	(8,317)	652
Cash flows from investing activities:
Acquisition of property and equipment	(40,251)	(44,562)
Acquisition of senior living communities, net of working capital assumed		(107,165)
Payments from restricted cash and investment accounts, net	(6,236)	(3,117)
Purchase of available for sale securities	(5,076)
Proceeds from sale of pharmacy business	34,298
Proceeds from disposition of property and equipment held for sale	18,249	25,877
Proceeds from sale of available for sale securities	928	2,504
Cash provided by (used in) investing activities	1,912	(126,463)
Cash flows from financing activities:
Net proceeds from the issuance of common stock		53,953
Proceeds from borrowings on credit facilities	47,500	12,000
Repayments of borrowings on credit facilities	(47,500)	(12,000)
Proceeds from borrowings on bridge loan from Senior Housing Properties Trust		80,000
Repayments of borrowings on bridge loan from Senior Housing Properties Trust	(38,000)	(32,000)
Purchase and retirement of convertible senior notes	(12,038)	(623)
Repayments of mortgage notes payable	(871)	(300)
Cash (used in) provided by financing activities	(50,909)	101,030
Change in cash and cash equivalents during the period	(14,079)	21,176
Cash and cash equivalents at beginning of period	28,374	20,770
Cash and cash equivalents at end of period	14,295	41,946
Supplemental cash flow information:
Cash paid for interest	3,711	1,454
Cash paid for income taxes	1,552	1,257
Non-cash activities:
Issuance of common stock	114	298
Real estate acquisition		(40,289)
Assumption of mortgage notes payable		$ 40,289

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Acquisitions (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended				9 Months Ended														12 Months Ended	1 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011 Senior Living Communities item	Sep. 30, 2012 Senior Living Communities Mortgage notes item	Sep. 30, 2012 Indiana Communities	Sep. 30, 2011 Indiana Communities	Dec. 31, 2011 Indiana Communities	Dec. 31, 2011 Indiana Communities Land	Dec. 31, 2011 Indiana Communities Building and Improvements	Dec. 31, 2011 Indiana Communities Furniture, fixtures and equipments	Dec. 31, 2011 Indiana Communities Preliminary Amounts Recorded	Dec. 31, 2011 Indiana Communities Preliminary Amounts Recorded Land	Dec. 31, 2011 Indiana Communities Preliminary Amounts Recorded Building and Improvements	Dec. 31, 2011 Indiana Communities Preliminary Amounts Recorded Furniture, fixtures and equipments	Dec. 31, 2011 Indiana Communities Measurement Period Adjustment	Dec. 31, 2011 Indiana Communities Measurement Period Adjustment Land	Dec. 31, 2011 Indiana Communities Measurement Period Adjustment Building and Improvements	Dec. 31, 2011 Indiana Communities Measurement Period Adjustment Furniture, fixtures and equipments	Dec. 31, 2011 Indiana Communities Mortgage notes item	May 31, 2011 Indiana Communities Senior Living Communities item
Acquisitions
Number of properties acquired					6
Number of living units in properties acquired																						738
Aggregate purchase price of properties acquired, excluding closing costs																						$ 122,760
Assumption of mortgage notes payable				40,289																	19,260
Number of real estate properties mortgaged						6															3
Amounts as previously reported and restated to reflect the adjustments made to property and equipment, goodwill and other intangible assets
Property and equipment									104,951	4,205	91,040	9,706	122,760	4,715	106,240	11,805	(17,809)	(510)	(15,200)	(2,099)
Goodwill related to home health services									14,565								14,565
Other intangible assets related to resident agreements									3,244								3,244
Acquisition related costs	$ 100	$ 226	$ 100	$ 1,530			$ 100	$ 1,530

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Goodwill and Other Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2012

Goodwill and Other Intangible Assets

Schedule of the changes in the carrying amount of goodwill and other intangible assets

	Total
Balance as of January 1, 2012	$	29,414
Amortization of intangibles	(1,333		)
Balance as of September 30, 2012	$	28,081

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Indebtedness (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	9 Months Ended			3 Months Ended		9 Months Ended			3 Months Ended		9 Months Ended		12 Months Ended		3 Months Ended	9 Months Ended			9 Months Ended	1 Months Ended	3 Months Ended		9 Months Ended		3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Sep. 30, 2012 Revolving secured line of credit	Sep. 30, 2011 Revolving secured line of credit	Sep. 30, 2012 Revolving secured line of credit	Sep. 30, 2011 Revolving secured line of credit	Sep. 30, 2012 Revolving secured line of credit LIBOR	Sep. 30, 2012 Bridge Loan SNH	Sep. 30, 2011 Bridge Loan SNH	Sep. 30, 2012 Bridge Loan SNH	Sep. 30, 2011 Bridge Loan SNH	Dec. 31, 2011 Bridge Loan SNH	May 31, 2011 Bridge Loan SNH	Sep. 30, 2012 New Credit Facility	Sep. 30, 2012 New Credit Facility extension	Apr. 30, 2012 New Credit Facility	Sep. 30, 2012 New Credit Facility Senior Living Communities unit item	Sep. 30, 2012 New Credit Facility LIBOR	Oct. 31, 2006 Notes	Sep. 30, 2012 Notes	Sep. 30, 2011 Notes	Sep. 30, 2012 Notes	Sep. 30, 2011 Notes	Sep. 30, 2012 Mortgage notes	Sep. 30, 2011 Mortgage notes	Sep. 30, 2012 Mortgage notes	Sep. 30, 2011 Mortgage notes	Sep. 30, 2012 Mortgage notes HUD item	Sep. 30, 2012 Mortgage notes FNMA item	Sep. 30, 2012 Mortgage notes FMCC item	Sep. 30, 2012 Mortgage notes Senior Living Communities item
Indebtedness
Maximum borrowing capacity				$ 35,000		$ 35,000									$ 149,370	$ 149,370	$ 150,000
Variable rate basis								LIBOR											LIBOR
Floor interest rate (as a percent)								2.00%
Interest rate at period end (as a percent)				6.00%		6.00%									2.73%	2.73%
Interest expense and other associated costs incurred				154	185	509	548		0	187	314	245			762	1,287					245	366	876	1,102	709	405	2,134	842
Amount agreed to be lent														80,000
Amount borrowed													80,000							126,500
Repayments of borrowing	38,000	32,000											42,000
Number of extensions to maturity date																2
Extension period available																1 year
Number of real estate properties mortgaged																		15											2	1	3	6
Number of units in real estate properties mortgaged																		1,549
Amount outstanding under credit facility				0		0									0	0
Proceeds from issue of notes																				122,600
Interest rate (as a percent)																					3.75%		3.75%
Conversion ratio, number of common shares per $1,000 principal amount																							76.9231
Initial conversion price of shares (in dollars per share)																					$ 13.00		$ 13.00
Percentage of principal amount at which notes may be required to be repurchased in event of fundamental change																				100.00%			100.00%
Outstanding notes purchased and retired																							12,410	623
Gain, net of related unamortized costs, on early extinguishment of debt	45	1																					45	1
Principal amount outstanding	24,872		37,282																		24,872		24,872
Mortgage notes, total																									$ 46,559		$ 46,559
Weighted average interest rate (as a percent)																									6.68%		6.68%

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Fair Values of Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2012

Fair Values of Assets and Liabilities

Schedule of assets and liabilities measured at fair value on a recurring and non recurring basis, categorized by the level of inputs used in the valuation of each asset and liability

The information below presents the assets and liabilities that are measured at fair value on a recurring and non recurring basis at September 30, 2012, categorized by the level of inputs used in the valuation of each asset and liability.

Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other  Observable Inputs (Level 2)
Long lived assets held for sale (1)	$	11,772	$	—	$	11,772
Long lived assets of discontinued operations (2)	8,644		—		8,644
Cash equivalents (3)	18,102		18,102		—
Available for sale securities (4)
Equity securities
Financial services industry	6,587		6,587		—
REIT industry	504		504		—
Other	792		792		—
Total equity securities	7,883		7,883		—
Debt securities
International bond fund	2,337		2,337		—
High yield fund	2,094		2,094
Industrial bonds	7,165		7,165		—
Government bonds	5,501		5,501		—
Financial bonds	993		993		—
Other	873		873		—
Total debt securities	18,963		18,963		—
Total available for sale securities	26,846		26,846		—
Total	$	65,364	$	44,948	$	20,416

(1) Long lived assets held for sale consist of property and equipment we intend to sell to SNH for increased rent pursuant to the terms of our leases with SNH; however, we are not obligated to make these sales and SNH is not obligated to purchase the property and equipment.  We have either recently acquired the assets or the assets are part of active construction projects and we expect that any sale of these assets to SNH would be for an amount equal to their recorded cost.  Accordingly, the cost of these assets approximates their fair value.

(2) In September 2012 and 2011, we recorded an asset impairment charge of $294 and $3,938, respectively, to reduce the carrying value of two SNFs we own that we have classified as discontinued operations to their estimated fair value based upon expected sales prices less costs to sell. In September 2012, in connection with the sale of our pharmacy business to Omnicare, Inc., or Omnicare, Omnicare did not acquire the real estate associated with one pharmacy.  We have decided to pursue the sale of this real estate and during the third quarter of 2012 we recorded a $350 asset impairment charge to reduce the carrying value of this property to its estimated fair value less costs to sell.  The estimated fair value of long-lived assets of discontinued operations was determined based on offers to purchase the properties and appraisals made by third parties (Level 2 inputs).

(3) Cash equivalents, consisting of money market funds held principally for obligations arising from our self insurance programs.

(4) Investments in available for sale securities are reported in our balance sheet as current and long term investments in available for sale securities and are reported at fair value of $14,942 and $11,904, respectively, at September 30, 2012.  We estimate the fair value of our investments in available for sale securities by reviewing each security’s current market price, the ratings of the security, the financial condition of the issuer and our intent and ability to retain the investment during temporary market price fluctuations or until maturity.  In evaluating the factors described above, we presume a decline in value to be an “other than temporary impairment” if the quoted market price of the security is below the security’s cost basis for an extended period.  However, this presumption may be overcome if there is persuasive evidence indicating the value decline is temporary in nature, such as when the operating performance of the obligor is strong or if the market price of the security is historically volatile.  Additionally, there may be instances in which impairment losses are recognized even if the decline in value does not fall within the criteria described above, such as if we plan to sell the security in the near term and the fair value is below our cost basis.  When we believe that a change in fair value of an available for sale security is temporary, we record a corresponding credit or charge to other comprehensive income for any unrealized gains and losses.  When we determine that an impairment in the fair value of an available for sale security is an “other than temporary impairment”, we record a charge to earnings.

Our investments in available for sale securities had amortized costs of $25,036 and $20,827 as of September 30, 2012 and December 31, 2011, respectively, had unrealized gains of $2,050 and $1,586 as of September 30, 2012 and December 31, 2011, respectively, and had unrealized losses of $240 and $185 as of September 30, 2012 and December 31, 2011, respectively.  At September 30, 2012, seven of the securities we hold, with a fair value of $5,928, have been in a loss position for less than 12 months.  At September 30, 2012, three of the securities we hold, with a fair value of $3,667, have been in a loss position for greater than 12 months.  Since these securities have not been in a loss period for an extended period of time, or we believe other factors support a conclusion that the loss is temporary, we do not believe these securities are impaired.  During the nine months ended September 30, 2012, we received gross proceeds of $928 in connection with the sales of available for sale securities and recorded gross realized gains totaling $65 and gross realized losses totaling $3.

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Basis of Presentation and Organization

9 Months Ended

Sep. 30, 2012

Basis of Presentation and Organization

Basis of Presentation and Organization

Note 1.  Basis of Presentation and Organization

The accompanying condensed consolidated financial statements of Five Star Quality Care, Inc. and its subsidiaries, which we refer to as we, us or our, have been prepared without audit.  Certain information and disclosures required by U.S. generally accepted accounting principles for complete financial statements have been condensed or omitted.  We believe the disclosures made are adequate to make the information presented not misleading.  However, the accompanying financial statements should be read in conjunction with the financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2011, or our Annual Report.  In the opinion of our management, all adjustments, which include only normal recurring adjustments, considered necessary for a fair presentation have been included.  All material intercompany transactions and balances have been eliminated.  Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.  Reclassifications have been made to the prior year’s condensed consolidated financial statements to conform to the current year’s presentation.

We operate senior living communities, including independent living communities, assisted living communities and skilled nursing facilities, or SNFs.  As of September 30, 2012, we operated 252 senior living communities located in 30 states containing 28,262 living units, including 214 primarily independent and assisted living communities with 24,839 living units and 38 SNFs with 3,423 living units.  As of September 30, 2012, we owned and operated 31 communities (2,952 living units), we leased and operated 191 communities (20,812 living units) and we managed 30 communities (4,498 living units).  Our 252 senior living communities included 9,160 independent living apartments, 13,579 assisted living suites and 5,523 skilled nursing units.  We have classified as discontinued operations two SNFs owned and operated by us containing 271 living units and one assisted living community leased from Senior Housing Properties Trust or its subsidiaries, or SNH, and operated by us containing 103 living units, and have excluded such SNFs and assisted living community from all the preceding data in this paragraph.

We also lease and operate two rehabilitation hospitals with 321 beds that provide inpatient rehabilitation services to patients at the two hospitals and at three satellite locations.  In addition, we lease and operate 13 outpatient clinics affiliated with these rehabilitation hospitals.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
CONDENSED CONSOLIDATED BALANCE SHEETS
Accounts receivable, allowance (in dollars)	$ 3,475	$ 3,957
Investments in available for sale securities, restricted (in dollars)	5,200	5,905
Liabilities of discontinued operations, relate to mortgage notes payable (in dollars)	$ 7,583	$ 7,690
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares issued	47,924,472	47,899,312
Common stock, shares outstanding	47,924,472	47,899,312

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Off Balance Sheet Arrangements

9 Months Ended

Sep. 30, 2012

Off Balance Sheet Arrangements

Off Balance Sheet Arrangements

Note 11. Off Balance Sheet Arrangements

We have pledged certain of our assets, such as accounts receivable, with a carrying value, as of September 30, 2012, of $13,542 arising from our operation of 45 properties owned by SNH and leased to us which secures SNH’s borrowings from its lender, FNMA.  As of September 30, 2012, we had no other off balance sheet arrangements that have had or that we expect would be reasonably likely to have a future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Oct. 29, 2012
Document and Entity Information
Entity Registrant Name	FIVE STAR QUALITY CARE INC
Entity Central Index Key	0001159281
Document Type	10-Q
Document Period End Date	Sep. 30, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		47,924,472
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3

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Related Person Transactions

9 Months Ended

Sep. 30, 2012

Related Person Transactions

Related Person Transactions

Note 12. Related Person Transactions

We were formerly a 100% owned subsidiary of SNH.  In 2001, SNH distributed substantially all of our then outstanding common shares to its shareholders.  SNH is our largest stockholder and, as of the date of this report, SNH owned 4,235 of our common shares, or approximately 8.8% of our outstanding common shares.  SNH is our largest landlord and we manage several senior living communities for SNH.  As of September 30, 2012, we leased 188 senior living communities (including one that we have classified as discontinued operations) and two rehabilitation hospitals from SNH and managed 30 senior living communities for the account of SNH.  One of our Managing Directors, Mr. Barry Portnoy, is also a managing trustee of SNH.  Mr. Barry Portnoy’s son, Mr. Adam Portnoy, serves as a managing trustee of SNH.

Under our leases with SNH, we generally pay SNH rent based on minimum annual rent amounts plus percentage rent based on increases in gross revenues at certain properties.  Our total minimum annual rent payable to SNH as of September 30, 2012 was $196,704, excluding percentage rent.  Our total rent expense under all of our leases with SNH, net of lease inducement amortization, was $50,119 and $50,456 for the three months ended September 30, 2012 and 2011, respectively, and $149,842 and $144,988 for the nine months ended September 30, 2012 and 2011, respectively.  During the nine months ended September 30, 2012, pursuant to the terms of our leases with SNH, we sold $18,249 of improvements made to properties leased from SNH, and, as a result, our annual rent payable to SNH increased by approximately $1,472.  As of September 30, 2012, our property and equipment included $11,772 for similar improvements we have made to properties we lease from SNH that we currently expect to request that SNH purchase from us for an increase in future rent; however, we are not obligated to make these sales and SNH is not obligated to purchase such assets.

We began managing communities for SNH’s account in June 2011 in connection with SNH’s acquisition of certain senior living communities at that time.  We have since begun managing additional communities that SNH has acquired.  We manage the SNH managed communities pursuant to long term management agreements on substantially consistent terms.  In connection with these management agreements, we and SNH have entered into three pooling agreements, two pooling agreements which pool our management agreements with SNH for communities that include assisted living units, or the AL Pooling Agreements, and a third pooling agreement, which pools our management agreements with SNH for communities consisting only of independent living units, or the IL Pooling Agreement.  We entered into the initial AL Pooling Agreement in May 2011 and the second AL Pooling Agreement in October 2012.  In connection with entering into the second AL Pooling Agreement, we and SNH amended and restated the initial AL Pooling Agreement so that it includes only the management agreements for 20 of the communities that include assisted living units that we and SNH agreed we would manage for SNH’s account.  The second AL Pooling Agreement includes the management agreements for the remaining communities that include assisted living units that we currently manage for SNH’s account (other than with respect to the senior living community in New York described below).  We entered into the IL Pooling Agreement in August 2012 and that agreement currently includes management agreements for two communities consisting only of independent living units.  Each of the AL Pooling Agreements and the IL Pooling Agreement aggregates the determinations of fees and expenses of the various communities that are subject to each such pooling agreement, including determinations of our incentive fees and SNH’s return of its invested capital.  We earned management fee revenue of $1,284 and $3,431, respectively, for the three and nine months ended September 30, 2012, and $326 and $351 for the three and nine months ended September 30, 2011, respectively, with respect to the communities we manage for the account of SNH.  We expect that we may enter into additional management arrangements with SNH for senior living communities that SNH may acquire in the future on terms similar to those management arrangements we currently have with SNH, including, as further disclosed below, with respect to two senior living communities SNH is currently leasing to Sunrise Senior Living, Inc., or Sunrise.  Our management of those two communities is subject to conditions, including receipt of regulatory approvals, and may not occur.  Also, there can be no assurances that we will manage any additional senior living communities for SNH’s account in the future.

In February 2012, we entered into a long term management agreement with SNH, on terms substantially consistent with the terms of our other management agreements that we have previously entered into with SNH for communities that include assisted living units, to manage for SNH’s account a senior living community in Alabama with 92 living units. This management agreement is included in the second AL Pooling Agreement.

In May 2012, we entered into a long term management agreement with SNH, on terms substantially consistent with the terms of our other management agreements that we have previously entered into with SNH for communities that include assisted living units, to manage for SNH’s account a senior living community in South Carolina with 59 living units, which community we had been managing for the prior owner’s account pending SNH’s acquisition.  This management agreement is included in the second AL Pooling Agreement.

Also in May 2012, we and SNH entered into an operations transfer agreement, or the Operations Transfer Agreement, with Sunrise.  Pursuant to the Operations Transfer Agreement, SNH and Sunrise agreed to accelerate the December 31, 2013 termination date of Sunrise’s leases for 10 senior living communities, or the 10 Communities, owned by SNH, and we agreed to operate the 10 Communities as a manager for SNH’s account pursuant to long term management agreements.  The Operations Transfer Agreement provides that these transactions will occur when we and SNH have obtained regulatory approvals to operate the affected 10 Communities.  As of October 30, 2012, we have entered into long term management agreements with SNH for eight of the 10 Communities, on terms substantially consistent with the terms of our other management agreements that we have previously entered into with SNH for communities that include assisted living units.  These management agreements are included in the second AL Pooling Agreement.  We currently expect that, following the termination of the leases for the remaining two of the 10 Communities, we will enter into long term management agreements with SNH, on terms substantially consistent with the terms of our other management agreements that we have previously entered into with SNH for communities that include assisted living units, to manage those communities for SNH’s account and that those communities will also be added to the second AL Pooling Agreement.  The termination of the leases for those remaining two communities and our management of those communities for SNH’s account are subject to conditions, including receipt of regulatory approvals, and may not occur.

In July 2012, we entered into a long term management agreement with SNH, on terms substantially consistent with the terms of our other management agreements that we have previously entered into with SNH for communities that include assisted living units, to manage for SNH’s account a senior living community in South Carolina with 232 living units, which community we had previously been managing for the prior owner’s account pending SNH’s acquisition.  This management agreement was added to our second AL Pooling Agreement.

In August 2012, we entered into a long term management agreement with SNH, on terms substantially consistent with the terms of our other management agreement that we have previously entered into with SNH for communities consisting only of independent living units, to manage for SNH’s account a senior living community in Missouri with 87 living units.  This management agreement was added to our IL Pooling Agreement.

Also in August 2012, we entered into a long term management agreement with SNH to manage for SNH’s account a portion of a senior living community in New York that is not subject to the requirements of New York healthcare licensing laws, consisting of 198 living units, on terms substantially consistent with the terms of our other management agreements that we have previously entered into with SNH for communities that include assisted living units, except that the management fee payable to us is equal to 5% of the gross revenues realized at that portion of the community, instead of 3% of gross revenues as is typically provided under our management agreements with SNH, and there is no incentive fee payable to us under this management agreement.  In order to accommodate certain requirements of New York healthcare licensing laws, SNH subleased the portion of this senior living community that is subject to such requirements, consisting of 111 living units, to an entity, D&R Yonkers LLC, which is owned by SNH’s president and chief operating officer and its treasurer and chief financial officer, and we entered into a long term management agreement with D&R Yonkers LLC to manage that portion of the community for D&R Yonkers LLC’s account.  Pursuant to that management agreement, D&R Yonkers LLC pays us a management fee equal to 3% of the gross revenues realized at that portion of the community and we are not entitled to any incentive fee under that agreement.

As discussed above in Notes 9 and 10, in May 2011, we and SNH entered into the Bridge Loan, under which SNH agreed to lend us up to $80,000 to help fund our purchase of the Indiana Communities.  In April 2012, we repaid in full the then outstanding principal amount under the Bridge Loan, resulting in termination of the Bridge Loan.  We incurred interest expense on the Bridge Loan of $0 and $314, respectively, for the three and nine months ended September 30, 2012, and $187 and $245, respectively, for the three and nine months ended September 30, 2011, which amounts are included in interest and other expense in our condensed consolidated statements of income.

In August 2012, SNH prepaid certain outstanding debt it had borrowed from FNMA, which debt was secured by certain properties we lease from SNH and other assets relating to those properties.  As a result of this prepayment, 11 of the 28 properties securing that debt were released from the mortgage and, in connection with that release, we entered into amendments to our leases with SNH so that these 11 properties were removed from the lease that exists to accommodate this debt and added to our other leases with SNH.

Reit Management & Research LLC, or RMR, provides us with certain business management and shared services under a business management and shared services agreement, or our business management agreement.  RMR also provides management services to SNH.  One of our Managing Directors, Mr. Barry Portnoy, is Chairman, majority owner and an employee of RMR.  Our other Managing Director, Mr. Gerard Martin, is a director of RMR.  Our President and Chief Executive Officer and our Treasurer and Chief Financial Officer are officers of RMR.  Mr. Barry Portnoy’s son, Mr. Adam Portnoy, is an owner, President, Chief Executive Officer and a director of RMR and serves as a managing trustee of SNH.  SNH’s executive officers are officers of RMR and SNH’s president and chief operating officer is a director of RMR.  Our Independent Directors also serve as independent directors or independent trustees of other public companies to which RMR provides management services.  Mr. Barry Portnoy serves as a managing director or managing trustee of those companies and his son serves as a managing trustee of a majority of those companies.  Pursuant to our business management agreement with RMR, we incurred expenses of $3,218 and $3,021 for the three months ended September 30, 2012 and 2011, respectively, and $9,696 and $8,668 for the nine months ended September 30, 2012 and 2011, respectively.  These amounts are included in general and administrative expenses in our condensed consolidated statements of income.  We lease our headquarters from an affiliate of RMR for annual rent of approximately $748.  We incurred rent of $187 and $183 for the three months ended September 30, 2012 and 2011, respectively, and $552 and $718 for the nine months ended September 30, 2012 and 2011, respectively, which amounts include rent for an office space lease we had with an affiliate of RMR during the six months ended June 30, 2011.  In connection with these leases we incurred utilities expense and real estate taxes of $172 and $142 for the three months ended September 30, 2012 and 2011, respectively, and $515 and $206 for the nine months ended September 30, 2012 and 2011.

We, SNH, RMR and five other companies to which RMR provides management services each currently own 12.5% of AIC, an Indiana insurance company.  All of our Directors, all of the trustees and directors of the other publicly held AIC shareholders and nearly all of the directors of RMR currently serve on the board of directors of AIC.  RMR provides management and administrative services to AIC pursuant to a management and administrative services agreement with AIC.  Although we own less than 20% of AIC, we use the equity method to account for this investment because we believe that we have significant influence over AIC because all of our Directors are also directors of AIC.  We recognized income of $115 and $28 for the three months ended September 30, 2012 and 2011, respectively, and $236 and $111 for the nine months ended September 30, 2012 and 2011, respectively, related to this investment.  We and the other shareholders of AIC have purchased property insurance providing $500,000 of coverage pursuant to an insurance program arranged by AIC and with respect to which AIC is a reinsurer of certain coverage amounts.  This program was modified and extended in June 2012 for a one year term and we paid a premium, including taxes and fees, of $6,264 in connection with that renewal, which amount may be adjusted from time to time as we acquire or dispose of properties that are included in that program.  We are also currently investigating the possibilities to expand our insurance relationships with AIC to include other types of insurance.  We may invest additional amounts in AIC in the future if the expansion of this insurance business requires additional capital, but we are not obligated to do so.  By participating in this insurance business with RMR and the other companies to which RMR provides management services, we expect that we may benefit financially by possibly reducing our insurance expenses or by realizing our pro-rata share of any profits of this insurance business.

For further information about these and other such relationships and related person transactions, please see elsewhere in this Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Related Person Transactions” in Part I, Item 2, “Warning Concerning Forward Looking Statements” in Part I, and “Other Information” in Part II, Item 5, and our Annual Report, our Proxy Statement for our 2012 Annual Meeting of Shareholders dated February 21, 2012, or our Proxy Statement, and our other filings with the Securities and Exchange Commission, or the SEC, including Note 15 to our Consolidated Financial Statements included in our Annual Report, the sections captioned “Business”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Related Person Transactions” and “Warning Concerning Forward Looking Statements” of our Annual Report and the section captioned “Related Person Transactions and Company Review of Such Transactions” and the information regarding our Directors and executive officers in our Proxy Statement.  In addition, please see the section captioned “Risk Factors” of our Annual Report for a description of risks that may arise from these transactions and relationships.  Our filings with the SEC, including our Annual Report and our Proxy Statement, are available at the SEC’s website at www.sec.gov.  Copies of certain of our agreements with our related parties, including our leases, forms of management agreements and related pooling agreements and Bridge Loan agreement with SNH, our management agreement with D&R Yonkers LLC, our business management agreement with RMR, our headquarters lease with an affiliate of RMR and our shareholders agreement with AIC and its shareholders, are also publicly available as exhibits to our public filings with the SEC and accessible at the SEC’s website.

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Revenues:
Senior living revenue	$ 277,568	$ 275,605	$ 831,864	$ 803,647
Rehabilitation hospital revenue	26,328	26,273	79,501	78,235
Management fee revenue	1,277	359	3,666	383
Reimbursed costs incurred on behalf of managed communities	27,247	8,324	76,750	8,887
Total revenues	332,420	310,561	991,781	891,152
Operating expenses:
Senior living wages and benefits	137,816	136,135	412,808	398,975
Other senior living operating expenses	66,858	68,669	200,062	193,123
Costs incurred on behalf of managed communities	27,247	8,324	76,750	8,887
Rehabilitation hospital expenses	23,734	23,300	71,725	70,798
Rent expense	50,523	50,138	151,043	145,474
General and administrative	14,602	14,418	45,445	42,242
Depreciation and amortization	6,324	5,497	18,631	13,705
Total operating expenses	327,104	306,481	976,464	873,204
Operating income	5,316	4,080	15,317	17,948
Interest and other income	199	355	638	975
Interest and other expense	(1,762)	(1,034)	(4,793)	(2,405)
Acquisition related costs	(100)	(226)	(100)	(1,530)
Equity in earnings of Affiliates Insurance Company	115	28	236	111
Gain on settlement			3,365
Gain on early extinguishment of debt			45	1
Gain on sale of available for sale securities reclassified from other comprehensive income	63	529	62	656
Income from continuing operations before income taxes	3,831	3,732	14,770	15,756
Provision for income taxes	(426)	(186)	(4,835)	(1,006)
Income from continuing operations	3,405	3,546	9,935	14,750
Income (loss) from discontinued operations	13,034	(4,074)	11,511	(5,950)
Net income (loss)	$ 16,439	$ (528)	$ 21,446	$ 8,800
Weighted average shares outstanding - basic (in shares)	47,927	47,557	47,913	40,294
Weighted average shares outstanding - diluted (in shares)	50,388	47,557	47,913	43,169
Basic income (loss) per share from:
Continuing operations (in dollars per share)	$ 0.07	$ 0.08	$ 0.21	$ 0.37
Discontinued operations (in dollars per share)	$ 0.27	$ (0.09)	$ 0.24	$ (0.15)
Net income (loss) per share - basic (in dollars per share)	$ 0.34	$ (0.01)	$ 0.45	$ 0.22
Diluted income (loss) per share from:
Continuing operations (in dollars per share)	$ 0.07	$ 0.08	$ 0.21	$ 0.36
Discontinued operations (in dollars per share)	$ 0.26	$ (0.09)	$ 0.24	$ (0.14)
Net income (loss) per share - diluted (in dollars per share)	$ 0.33	$ (0.01)	$ 0.45	$ 0.22

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Income Taxes

9 Months Ended

Sep. 30, 2012

Income Taxes

Income Taxes

Note 6.  Income Taxes

During the fourth quarter of 2011, we evaluated the realizability of our deferred tax assets, which include, among other things, our net operating losses, or NOL, and tax credits, and determined that it is more likely than not that we will realize the benefit of our deferred tax assets, and as a result, we realized in the fourth quarter of 2011, the full amount of the valuation allowance we had previously maintained against these deferred tax assets of $52,111.  For the nine months ended September 30, 2012, we recognized tax expense from continuing operations of $4,835.  We also recognized tax expense from discontinued operations of $7,135.  Our effective income tax rate increased during the nine months ended September 30, 2012 to 32.7% compared to 8.4% in the prior year period primarily because our previous rate had been reduced from the statutory rate due to the full utilization of the previously maintained valuation allowance against our NOL carry forwards.  As of December 31, 2011, our federal NOL carry forward, which begins to expire in 2025 if unused, was approximately $97,822, and our tax credit carry forward, which begins to expire in 2022 if unused, was approximately $8,787.  Our NOL carry forwards and tax credit carry forwards are subject to audit and adjustments by the Internal Revenue Service.

During the third quarter of 2012, we released a valuation allowance of $752 related to capital losses which were used to offset a capital gain incurred in the sale of our pharmacy business.  We maintain a partial valuation allowance against certain deferred tax assets related to impaired investments.  When we believe that we will more likely than not realize the benefit of these deferred tax assets, we will record deferred tax assets as an income tax benefit in our condensed consolidated statements of income, which will affect our results of operations.

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Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2012

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

Note 5. Goodwill and Other Intangible Assets

The goodwill and other intangible assets balance are attributable to our Senior Living Communities segment and relate to management agreements and trademarks we acquired in connection with a lease we entered into with SNH in 2009, goodwill and resident agreements we acquired in connection with our purchase of six senior living communities in 2011 (See Note 9) and goodwill we recorded in connection with our other senior living community acquisitions in previous years.  The changes in the carrying amount of goodwill and other intangible assets from January 1, 2012 to September 30, 2012 are as follows:

	Total
Balance as of January 1, 2012	$	29,414
Amortization of intangibles	(1,333		)
Balance as of September 30, 2012	$	28,081

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Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2012

Earnings Per Share

Reconciliation of income from continuing operations and income (loss) from discontinued operations and the number of common shares used in the computations of diluted EPS

	Three Months Ended September 30,
	2012					2011
	Income		Shares	Per Share		Income (loss)			Shares	Per Share
Income from continuing operations	$	3,405	47,927	$	0.07	$	3,546		47,557	$	0.08
Effect of the Notes	166		2,461			—			—
Diluted income from continuing operations	$	3,571	50,388	$	0.07	$	3,546		47,557	$	0.08
Diluted income (loss) from discontinued operations	$	13,034	50,388	$	0.26	$	(4,074	)	47,557	$	(0.09	)

	Nine Months Ended September 30,
	2012					2011
	Income		Shares	Per Share		Income (loss)			Shares	Per Share
Income from continuing operations	$	9,935	47,913	$	0.21	$	14,750		40,294	$	0.37
Effect of the Notes	—		—			1,007			2,875
Diluted income from continuing operations	$	9,935	47,913	$	0.21	$	15,757		43,169	$	0.36
Diluted income (loss) from discontinued operations	$	11,511	47,913	$	0.24	$	(5,950	)	43,169	$	(0.14	)

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Discontinued Operations

9 Months Ended

Sep. 30, 2012

Discontinued Operations

Discontinued Operations

Note 13.  Discontinued Operations

In 2011, we decided to offer for sale two SNFs we own that are located in Michigan with a total of 271 living units.  In October 2012, we entered into an agreement to sell these two SNFs for a sale price of $8,000, including the transfer of $7,583 of HUD mortgage debt to the buyer.  In connection with this agreement, we recorded a $294 asset impairment charge to reduce the carrying value of these properties to their estimated fair value less costs to sell.  Completion of this sale is subject to customary closing conditions and we can provide no assurance that a sale of these SNFs will be completed.

In August 2011, we agreed with SNH that SNH should sell one assisted living community located in Pennsylvania with 103 living units, which we lease from SNH.  We and SNH are in the process of offering this assisted living community for sale and, if sold, our annual minimum rent payable to SNH will decrease by 9.0% of the net proceeds of the sale to SNH, in accordance with the terms of our lease with SNH.

In September 2012, we completed the sale of our pharmacy business to Omnicare. We received $34,298 in sale proceeds from Omnicare, which included $3,789 in working capital.  Further, we retained certain additional items of net working capital invested in the pharmacy business of $3,501.  Accordingly, we expect to receive a total of $37,799 (before taxes and transaction costs) in net cash receipts resulting from the sale.  We recorded a pre-tax capital gain on sale of the pharmacy business of $23,347.  In connection with the sale, Omnicare did not acquire the real estate associated with one pharmacy located in South Carolina.  We have decided to pursue the sale of this real estate and we recorded a $350 asset impairment charge during the third quarter of 2012 to reduce the carrying value of this property to its estimated fair value less costs to sell.

We have reclassified the condensed consolidated balance sheets and the condensed consolidated statements of income for all periods presented to show the financial position and results of operations of our pharmacies and the communities which have been sold or are expected to be sold as discontinued.  Below is a summary of the operating results of these discontinued operations included in the condensed consolidated financial statements for the three and nine months ended September 30, 2012 and 2011:

	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Revenues	$	17,583		$	25,208		$	64,505		$	83,032
Expenses	(20,256		)	(29,282		)	(69,206		)	(88,982		)
Gain on sale	23,347			—			23,347			—
Provision for income taxes	(7,640		)	—			(7,135		)	—
Net income (loss)	$	13,034		$	(4,074	)	$	11,511		$	(5,950	)

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Acquisitions

9 Months Ended

Sep. 30, 2012

Acquisitions

Acquisitions

Note 9.  Acquisitions

In May 2011, we agreed to purchase certain assets of six senior living communities located in Indiana, or the Indiana Communities, containing 738 living units for a total purchase price, excluding closing costs, of $122,760.  The Indiana Communities primarily offer independent and assisted living services, which are currently primarily paid by residents from their private resources.  During 2011, we completed our acquisitions of the assets of the Indiana Communities and funded the acquisitions with proceeds of a public offering, or the Public Offering, of our common shares, proceeds of the Bridge Loan, by assuming approximately $19,260 of mortgage notes secured by three of the Indiana Communities, by assuming net working capital liabilities of the Indiana Communities and with cash on hand.

We completed the purchase accounting of the fair value of the assets acquired after we considered the results from a third party valuation report, and, as a result, made adjustments to property and equipment, goodwill and other intangible assets.  The amounts previously reported as of December 31, 2011 that have been restated to reflect these adjustments, are as follows:

	As of December 31, 2011
	Preliminary Amounts Recorded		Measurement Period Adjustment			Revised Amounts Recorded
Land	$	4,715	$	(510	)	$	4,205
Building and improvements	106,240		(15,200		)	91,040
Furniture, fixtures and equipment	11,805		(2,099		)	9,706
Property and equipment	$	122,760	$	(17,809	)	$	104,951
Goodwill related to home health services	$	—	$	14,565		$	14,565
Other intangible assets related to resident agreements	$	—	$	3,244		$	3,244

For the nine months ended September 30, 2012 and 2011, we incurred acquisition related costs of $100 and $1,530, respectively.  These costs include transaction closing costs, professional fees (legal and accounting) and other acquisition related expenses.

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Earnings Per Share

9 Months Ended

Sep. 30, 2012

Earnings Per Share

Earnings Per Share

Note 7.  Earnings Per Share

We computed basic earnings per common share, or EPS, for the three and nine months ended September 30, 2012 and 2011 using the weighted average number of shares outstanding during the periods.  Diluted EPS for the periods ended September 30, 2012 and 2011 reflects additional shares of our common stock, $.01 par value per share, or our common shares, related to our convertible senior notes due in 2026, or the Notes, that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income applicable to common shareholders that would result from their assumed issuance.  The weighted average shares outstanding used to calculate basic and diluted EPS include 553 and 486 unvested common shares as of September 30, 2012 and 2011, respectively, issued to our officers and others under our equity compensation plan, or our Share Award Plan.  Unvested shares issued under our Share Award Plan are deemed participating securities because they participate equally in earnings with all of our other common shares.

The following table provides a reconciliation of income from continuing operations and income (loss) from discontinued operations and the number of common shares used in the computations of diluted EPS:

	Three Months Ended September 30,
	2012					2011
	Income		Shares	Per Share		Income (loss)			Shares	Per Share
Income from continuing operations	$	3,405	47,927	$	0.07	$	3,546		47,557	$	0.08
Effect of the Notes	166		2,461			—			—
Diluted income from continuing operations	$	3,571	50,388	$	0.07	$	3,546		47,557	$	0.08
Diluted income (loss) from discontinued operations	$	13,034	50,388	$	0.26	$	(4,074	)	47,557	$	(0.09	)

	Nine Months Ended September 30,
	2012					2011
	Income		Shares	Per Share		Income (loss)			Shares	Per Share
Income from continuing operations	$	9,935	47,913	$	0.21	$	14,750		40,294	$	0.37
Effect of the Notes	—		—			1,007			2,875
Diluted income from continuing operations	$	9,935	47,913	$	0.21	$	15,757		43,169	$	0.36
Diluted income (loss) from discontinued operations	$	11,511	47,913	$	0.24	$	(5,950	)	43,169	$	(0.14	)

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Fair Values of Assets and Liabilities

9 Months Ended

Sep. 30, 2012

Fair Values of Assets and Liabilities

Fair Values of Assets and Liabilities

Note 8.  Fair Values of Assets and Liabilities

The information below presents the assets and liabilities that are measured at fair value on a recurring and non recurring basis at September 30, 2012, categorized by the level of inputs used in the valuation of each asset and liability.

Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other  Observable Inputs (Level 2)
Long lived assets held for sale (1)	$	11,772	$	—	$	11,772
Long lived assets of discontinued operations (2)	8,644		—		8,644
Cash equivalents (3)	18,102		18,102		—
Available for sale securities (4)
Equity securities
Financial services industry	6,587		6,587		—
REIT industry	504		504		—
Other	792		792		—
Total equity securities	7,883		7,883		—
Debt securities
International bond fund	2,337		2,337		—
High yield fund	2,094		2,094
Industrial bonds	7,165		7,165		—
Government bonds	5,501		5,501		—
Financial bonds	993		993		—
Other	873		873		—
Total debt securities	18,963		18,963		—
Total available for sale securities	26,846		26,846		—
Total	$	65,364	$	44,948	$	20,416

(1) Long lived assets held for sale consist of property and equipment we intend to sell to SNH for increased rent pursuant to the terms of our leases with SNH; however, we are not obligated to make these sales and SNH is not obligated to purchase the property and equipment.  We have either recently acquired the assets or the assets are part of active construction projects and we expect that any sale of these assets to SNH would be for an amount equal to their recorded cost.  Accordingly, the cost of these assets approximates their fair value.

(2) In September 2012 and 2011, we recorded an asset impairment charge of $294 and $3,938, respectively, to reduce the carrying value of two SNFs we own that we have classified as discontinued operations to their estimated fair value based upon expected sales prices less costs to sell. In September 2012, in connection with the sale of our pharmacy business to Omnicare, Inc., or Omnicare, Omnicare did not acquire the real estate associated with one pharmacy.  We have decided to pursue the sale of this real estate and during the third quarter of 2012 we recorded a $350 asset impairment charge to reduce the carrying value of this property to its estimated fair value less costs to sell.  The estimated fair value of long-lived assets of discontinued operations was determined based on offers to purchase the properties and appraisals made by third parties (Level 2 inputs).

(3) Cash equivalents, consisting of money market funds held principally for obligations arising from our self insurance programs.

(4) Investments in available for sale securities are reported in our balance sheet as current and long term investments in available for sale securities and are reported at fair value of $14,942 and $11,904, respectively, at September 30, 2012.  We estimate the fair value of our investments in available for sale securities by reviewing each security’s current market price, the ratings of the security, the financial condition of the issuer and our intent and ability to retain the investment during temporary market price fluctuations or until maturity.  In evaluating the factors described above, we presume a decline in value to be an “other than temporary impairment” if the quoted market price of the security is below the security’s cost basis for an extended period.  However, this presumption may be overcome if there is persuasive evidence indicating the value decline is temporary in nature, such as when the operating performance of the obligor is strong or if the market price of the security is historically volatile.  Additionally, there may be instances in which impairment losses are recognized even if the decline in value does not fall within the criteria described above, such as if we plan to sell the security in the near term and the fair value is below our cost basis.  When we believe that a change in fair value of an available for sale security is temporary, we record a corresponding credit or charge to other comprehensive income for any unrealized gains and losses.  When we determine that an impairment in the fair value of an available for sale security is an “other than temporary impairment”, we record a charge to earnings.

Our investments in available for sale securities had amortized costs of $25,036 and $20,827 as of September 30, 2012 and December 31, 2011, respectively, had unrealized gains of $2,050 and $1,586 as of September 30, 2012 and December 31, 2011, respectively, and had unrealized losses of $240 and $185 as of September 30, 2012 and December 31, 2011, respectively.  At September 30, 2012, seven of the securities we hold, with a fair value of $5,928, have been in a loss position for less than 12 months.  At September 30, 2012, three of the securities we hold, with a fair value of $3,667, have been in a loss position for greater than 12 months.  Since these securities have not been in a loss period for an extended period of time, or we believe other factors support a conclusion that the loss is temporary, we do not believe these securities are impaired.  During the nine months ended September 30, 2012, we received gross proceeds of $928 in connection with the sales of available for sale securities and recorded gross realized gains totaling $65 and gross realized losses totaling $3.

During the nine months ended September 30, 2012, we did not change the type of inputs used to determine the fair value of any of our assets and liabilities that we measure at fair value.  Accordingly, there were no transfers of assets or liabilities between levels of the fair value hierarchy during the nine months ended September 30, 2012.

The carrying values of accounts receivable, available for sale securities, accounts payable, mortgage notes payable and the bridge loan from SNH, or the Bridge Loan (see Note 10), approximate fair value as of September 30, 2012 and December 31, 2011.  The carrying value and fair value of the Notes were $24,872 and $24,499, respectively, as of September 30, 2012 and $37,282 and $33,181, respectively, as of December 31, 2011 and are categorized in level one of the fair value hierarchy in their entirety.  We estimate the fair value of the Notes using quoted market data for these securities. We measured the fair value of our equity investment in AIC, which is an Indiana insurance company that we currently own in equal proportion as each of the other seven shareholders of that company (see Note 12), categorized in level two of the fair hierarchy in its entirety, by considering, among other things, the individual assets and liabilities held by AIC, AIC’s overall financial condition and earning trends, and the financial condition and prospects for the insurance industry generally.

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Indebtedness

9 Months Ended

Sep. 30, 2012

Indebtedness

Indebtedness

Note 10.  Indebtedness

We have a $35,000 revolving secured line of credit, or our Credit Agreement, that matures on March 18, 2013 when all amounts outstanding will be due. Borrowings under our Credit Agreement are available for acquisitions, working capital and general business purposes.  Funds available under our Credit Agreement may be drawn, repaid and redrawn until maturity and no principal payment is due until maturity.  We borrow in U.S. dollars and borrowings under our Credit Agreement bear interest at LIBOR (with a floor of 2% per annum) plus a spread.  As of September 30, 2012, the interest rate payable on borrowings under our Credit Agreement was 6% and we had $0 outstanding and $35,000 available under our Credit Agreement.  We are the borrower under our Credit Agreement and certain of our subsidiaries guarantee our obligations under our Credit Agreement, which is secured by our and our guarantor subsidiaries’ accounts receivable and related collateral. Our Credit Agreement contains covenants requiring us to maintain certain financial ratios, places limits on our ability to incur or assume debt or create liens with respect to certain of our properties and has other customary provisions. Our Credit Agreement also provides for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, including a change of control of us.  As of September 30, 2012, we believe we were in compliance with all applicable covenants under our Credit Agreement. We incurred interest expense and other associated costs related to our Credit Agreement of $154 and $185 for the three months ended September 30, 2012 and 2011, respectively, and $509 and $548 for the nine months ended September 30, 2012 and 2011, respectively.

In April 2012, we entered into a new $150,000 secured revolving credit facility with a syndicate of lenders, or our New Credit Facility, which is in addition to our Credit Agreement.  The maturity date of our New Credit Facility is April 13, 2015, and, subject to our payment of extension fees and meeting certain other conditions, we have options to extend the maturity date for two, one year periods.  The proceeds of our New Credit Facility are available for general business purposes, including the repayment of debt.  Borrowings under our New Credit Facility bear interest at LIBOR plus a spread.  As of September 30, 2012, the interest rate payable on borrowings under our New Credit Facility was 2.73% and we had $0 outstanding and $149,370 available under our New Credit Facility.  Borrowings under our New Credit Facility are guaranteed by certain of our subsidiaries and secured by real estate mortgages on 15 senior living communities with 1,549 living units owned by our guarantor subsidiaries and our guarantor subsidiaries’ accounts receivable and related collateral.  Funds available under our New Credit Facility may be drawn, repaid and redrawn until maturity and there are no scheduled principal payments prior to maturity.  Our New Credit Facility provides for acceleration of payment of all amounts payable upon the occurrence and continuation of certain events of default, including a change of control of us.  Our New Credit Facility contains a number of financial covenants which generally restrict our ability to incur debts in excess of calculated amounts, require us to maintain a minimum net worth and require us to maintain various financial ratios.  As of September 30, 2012, we believe we were in compliance with all applicable covenants under our New Credit Facility.  We incurred interest expense and other associated costs related to our New Credit Facility of $762 and $1,287 for the three and nine months ended September 30, 2012, respectively.

In May 2011, we entered into the Bridge Loan agreement with SNH under which SNH agreed to lend us up to $80,000 to fund a part of the purchase price for our acquisitions of certain assets of the Indiana Communities.  During 2011, we completed our acquisitions of the assets of the Indiana Communities and, in connection with the acquisitions, borrowed $80,000 under the Bridge Loan.  During 2011, we repaid $42,000 of this advance with proceeds from the Public Offering and cash generated by operations.  In April 2012, we repaid in full the principal amount then outstanding under the Bridge Loan, resulting in termination of the Bridge Loan.  We funded the April 2012 repayment of the Bridge Loan with borrowings under our New Credit Facility and cash on hand.  We incurred interest expense and other associated costs related to the Bridge Loan of $0 and $187 for the three months ended September 30, 2012 and 2011, respectively, and $314 and $245 for the nine months ended September 30, 2012 and 2011, respectively.

In October 2006, we issued $126,500 principal amount of the Notes.  Our net proceeds from this issuance were approximately $122,600.  The Notes bear interest at a rate of 3.75% per annum and are convertible into our common shares at any time.  The initial conversion rate, which is subject to adjustment, is 76.9231 common shares per $1 principal amount of the Notes, which represents an initial conversion price of $13.00 per share.  The Notes are guaranteed by certain of our wholly owned subsidiaries.  The Notes mature on October 15, 2026.  We may prepay the Notes at any time and the holders may require that we purchase all or a portion of these Notes on each of October 15 of 2013, 2016 and 2021 at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest.  If a “fundamental change”, as defined in the indenture governing the Notes, occurs, holders of the Notes may require us to repurchase all or a portion of their Notes for cash at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus any accrued and unpaid interest and, in certain circumstances, plus a make whole premium as defined in the indenture governing the Notes.  Interest expense and other associated costs related to the Notes were $245 and $366 for the three months ended September 30, 2012 and 2011, respectively, and $876 and $1,102 for the nine months ended September 30, 2012 and 2011, respectively.  We issued the Notes pursuant to an indenture which contains various customary covenants.  As of September 30, 2012, we believe we were in compliance with all applicable covenants of the indenture governing the Notes.

During the nine months ended September 30, 2012, we purchased and retired $12,410 par value of the outstanding Notes and recorded a gain of $45, net of related unamortized costs, on early extinguishment of debt.  We funded this purchase principally with borrowings under our New Credit Facility and cash on hand.  During the nine months ended September 30, 2011, we purchased and retired $623 par value of the outstanding Notes and recorded a gain of $1, net of related unamortized costs, on early extinguishment of debt.  We funded this purchase principally with cash on hand.  As a result of these purchases and other purchases we made in prior years, $24,872 in principal amount of the Notes remain outstanding.  We may purchase additional outstanding principal amounts of the Notes from time to time.

At September 30, 2012, six of our senior living communities were encumbered by mortgage notes totaling $46,559: (1) two of our communities, which we have classified as discontinued operations, were encumbered by United States Department of Housing and Urban Development, or HUD, insured mortgage notes; (2) one of our communities was encumbered by a Federal National Mortgage Associate, or FNMA, mortgage note and; (3) three of our communities were encumbered by Federal Home Loan Mortgage Corporation, or FMCC, mortgage notes.  These mortgages contain HUD, FNMA and FMCC standard mortgage covenants.  We recorded a mortgage premium in connection with our assumption of the FNMA and FMCC mortgage notes in order to record the assumed mortgage notes at their estimated fair value.  We are amortizing the mortgage premiums as a reduction of interest expense until the maturity of the respective mortgage notes.  The weighted average interest rate on these notes was 6.68% as of September 30, 2012.  Payments of principal and interest are due monthly until maturities at varying dates ranging from June 2023 to May 2039.  We incurred mortgage interest expense, including premium amortization, of $709 and $405 for the three months ended September 30, 2012 and 2011, respectively, and $2,134 and $842 for the nine months ended September 30, 2012 and 2011, respectively.  As of September 30, 2012, we believe we were in compliance with all applicable covenants under these mortgages.

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Fair Values of Assets and Liabilities (Details 2) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Carrying value and fair value
Notes	$ 24,872	$ 37,282
AIC
Carrying value and fair value
Number of other current shareholders of the related party entity	5
Level two | AIC
Carrying value and fair value
Number of other current shareholders of the related party entity	7
Carrying value | Level one
Carrying value and fair value
Notes	24,872	37,282
Fair value | Level one
Carrying value and fair value
Notes	$ 24,499	$ 33,181

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Financial Data by Segment (Tables)

9 Months Ended

Sep. 30, 2012

Financial Data by Segment

Schedule of revenues by segment and a reconciliation of segment operating profit (loss) to income (loss) from continuing operations

	Senior Living Communities			Corporate and Other(1)			Total
Three months ended September 30, 2012
Segment revenues:
Senior living and rehabilitation hospital	$	277,568		$	26,328		$	303,896
Management fee revenue	1,277			—			1,277
Reimbursed costs incurred on behalf of managed communities	27,247			—			27,247
Total segment revenues	306,092			26,328			332,420
Segment expenses:
Operating expenses	204,674			23,734			228,408
Costs incurred on behalf of managed communities	27,247			—			27,247
Rent expense	47,844			2,679			50,523
Depreciation and amortization	5,741			583			6,324
Total segment expenses	285,506			26,996			312,502
Segment operating profit (loss)	20,586			(668		)	19,918
General and administrative expenses(2)	—			(14,602		)	(14,602		)
Operating income (loss)	20,586			(15,270		)	5,316
Interest and other income	22			177			199
Interest and other expense	(601		)	(1,161		)	(1,762		)
Acquisition related costs	—			(100		)	(100		)
Equity in earnings of Affiliates Insurance Company	—			115			115
Gain on sale of available for sale securities	—			63			63
Provision for income taxes	—			(426		)	(426		)
Income (loss) from continuing operations	$	20,007		$	(16,602	)	$	3,405
Total Assets as of September 30, 2012	$	447,455		$	116,051		$	563,506

	Senior Living Communities			Corporate and Other(1)			Total
Three months ended September 30, 2011
Segment revenues:
Senior living and rehabilitation hospital	$	275,605		$	26,273		$	301,878
Management fee revenue	359			—			359
Reimbursed costs incurred on behalf of managed communities	8,324			—			8,324
Total segment revenues	284,288			26,273			310,561
Segment expenses:
Operating expenses	204,804			23,300			228,104
Costs incurred on behalf of managed communities	8,324			—			8,324
Rent expense	47,541			2,597			50,138
Depreciation and amortization	4,923			574			5,497
Total segment expenses	265,592			26,471			292,063
Segment operating profit (loss)	18,696			(198		)	18,498
General and administrative expenses(2)	—			(14,418		)	(14,418		)
Operating profit (loss)	18,696			(14,616		)	4,080
Interest and other income	19			336			355
Interest and other expense	(294		)	(740		)	(1,034		)
Acquisition related costs	—			(226		)	(226		)
Equity in earnings of Affiliates Insurance Company	—			28			28
Gain on sale of available for sale securities	—			529			529
Provision for income taxes	—			(186		)	(186		)
Income (loss) from continuing operations	$	18,421		$	(14,875	)	$	3,546

(1)	Corporate and Other includes operations that we do not consider a material, separately reportable segment of our business and income and expenses that are not attributable to a specific reportable segment.
(2)	General and administrative expenses are not attributable to a specific reportable segment and include items such as corporate payroll and benefits and expenses of our home office activities.

	Senior Living Communities			Corporate and Other(1)			Total
Nine months ended September 30, 2012
Segment revenues:
Senior living and rehabilitation hospital	$	831,864		$	79,501		$	911,365
Management fee revenue	3,666			—			3,666
Reimbursed costs incurred on behalf of managed communities	76,750			—			76,750
Total segment revenues	912,280			79,501			991,781
Segment expenses:
Operating expenses	612,870			71,725			684,595
Costs incurred on behalf of managed communities	76,750			—			76,750
Rent expense	143,092			7,951			151,043
Depreciation and amortization	16,893			1,738			18,631
Total segment expenses	849,605			81,414			931,019
Segment operating profit (loss)	62,675			(1,913		)	60,762
General and administrative expenses(2)	—			(45,445		)	(45,445		)
Operating income (loss)	62,675			(47,358		)	15,317
Interest and other income	61			577			638
Interest and other expense	(1,807		)	(2,986		)	(4,793		)
Acquisition related costs	—			(100		)	(100		)
Equity in earnings of Affiliates Insurance Company	—			236			236
Gain on settlement	—			3,365			3,365
Gain on early extinguishment of debt	—			45			45
Gain on sale of available for sale securities	—			62			62
Provision for income taxes	—			(4,835		)	(4,835		)
Income (loss) from continuing operations	$	60,929		$	(50,994	)	$	9,935

	Senior Living Communities			Corporate and Other(1)			Total
Nine months ended September 30, 2011
Segment revenues:
Senior living, rehabilitation hospital and institutional pharmacy revenues	$	803,647		$	78,235		$	881,882
Management fee revenue	383			—			383
Reimbursed costs incurred on behalf of managed communities	8,887			—			8,887
Total segment revenues	812,917			78,235			891,152
Segment expenses:
Operating expenses	592,098			70,798			662,896
Costs incurred on behalf of managed communities	8,887			—			8,887
Rent expense	137,716			7,758			145,474
Depreciation and amortization	12,159			1,546			13,705
Total segment expenses	750,860			80,102			830,962
Segment operating profit (loss)	62,057			(1,867		)	60,190
General and administrative expenses(2)	—			(42,242		)	(42,242		)
Operating income (loss)	62,057			(44,109		)	17,948
Interest and other income	100			875			975
Interest and other expense	(509		)	(1,896		)	(2,405		)
Acquisition related costs	—			(1,530		)	(1,530		)
Equity in earnings of Affiliates Insurance Company	—			111			111
Gain on early extinguishment of debt	—			1			1
Gain on sale of available for sale securities	—			656			656
Provision for income taxes	—			(1,006		)	(1,006		)
Income (loss) from continuing operations	$	61,648		$	(46,898	)	$	14,750

(1)	Corporate and Other includes operations that we do not consider a material, separately reportable segment of our business and income and expenses that are not attributable to a specific reportable segment.
(2)	General and administrative expenses are not attributable to a specific reportable segment and include items such as corporate payroll and benefits and expenses of our home office activities.

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Discontinued Operations (Tables)

9 Months Ended

Sep. 30, 2012

Discontinued Operations

Summary of the operating results of the discontinued operations included in the financial statements

	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Revenues	$	17,583		$	25,208		$	64,505		$	83,032
Expenses	(20,256		)	(29,282		)	(69,206		)	(88,982		)
Gain on sale	23,347			—			23,347			—
Provision for income taxes	(7,640		)	—			(7,135		)	—
Net income (loss)	$	13,034		$	(4,074	)	$	11,511		$	(5,950	)

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Net income (loss)	$ 16,439	$ (528)	$ 21,446	$ 8,800
Other comprehensive income (loss):
Unrealized gain (loss) on investments in available for sale securities	188	(906)	469	(103)
Less: Realized gain on investments in available for sale securities reclassified and included in net income	(63)	(529)	(62)	(656)
Unrealized gains on equity investment in Affiliates Insurance Company	35	15	31	58
Other comprehensive income (loss)	160	(1,420)	438	(701)
Comprehensive income (loss)	$ 16,599	$ (1,948)	$ 21,884	$ 8,099

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Financial Data by Segment

9 Months Ended

Sep. 30, 2012

Financial Data by Segment

Financial Data by Segment

Note 4.  Financial Data by Segment

We have one reportable segment which consists of our senior living community business.  In the senior living community segment, we operate for our own account and manage for the account of SNH independent living communities, assisted living communities and SNFs that are subject to centralized oversight and provide housing and services to elderly residents.  We do not consider our rehabilitation hospital operations to be a material, separately reportable segment of our business.  Consequently, we report our rehabilitation hospital operations within our corporate and other activities.  All of our operations and assets are located in the United States, except for the operations of our captive insurance company subsidiary, which participates in our workers’ compensation, professional liability and automobile insurance programs and which is organized in the Cayman Islands.

We use segment operating profit as a means to evaluate our performance and for our business decision making purposes.  Segment operating profit for our one reportable segment excludes certain interest and other income, certain interest and other expense, provision for income taxes, equity in earnings of Affiliates Insurance Company, or AIC, gain on settlement of litigation, sales of securities, and corporate income and expenses.

Our revenues by segment and a reconciliation of segment operating profit (loss) to income (loss) from continuing operations for the three and nine months ended September 30, 2012 and 2011 are as follows:

	Senior Living Communities			Corporate and Other(1)			Total
Three months ended September 30, 2012
Segment revenues:
Senior living and rehabilitation hospital	$	277,568		$	26,328		$	303,896
Management fee revenue	1,277			—			1,277
Reimbursed costs incurred on behalf of managed communities	27,247			—			27,247
Total segment revenues	306,092			26,328			332,420
Segment expenses:
Operating expenses	204,674			23,734			228,408
Costs incurred on behalf of managed communities	27,247			—			27,247
Rent expense	47,844			2,679			50,523
Depreciation and amortization	5,741			583			6,324
Total segment expenses	285,506			26,996			312,502
Segment operating profit (loss)	20,586			(668		)	19,918
General and administrative expenses(2)	—			(14,602		)	(14,602		)
Operating income (loss)	20,586			(15,270		)	5,316
Interest and other income	22			177			199
Interest and other expense	(601		)	(1,161		)	(1,762		)
Acquisition related costs	—			(100		)	(100		)
Equity in earnings of Affiliates Insurance Company	—			115			115
Gain on sale of available for sale securities	—			63			63
Provision for income taxes	—			(426		)	(426		)
Income (loss) from continuing operations	$	20,007		$	(16,602	)	$	3,405
Total Assets as of September 30, 2012	$	447,455		$	116,051		$	563,506

	Senior Living Communities			Corporate and Other(1)			Total
Three months ended September 30, 2011
Segment revenues:
Senior living and rehabilitation hospital	$	275,605		$	26,273		$	301,878
Management fee revenue	359			—			359
Reimbursed costs incurred on behalf of managed communities	8,324			—			8,324
Total segment revenues	284,288			26,273			310,561
Segment expenses:
Operating expenses	204,804			23,300			228,104
Costs incurred on behalf of managed communities	8,324			—			8,324
Rent expense	47,541			2,597			50,138
Depreciation and amortization	4,923			574			5,497
Total segment expenses	265,592			26,471			292,063
Segment operating profit (loss)	18,696			(198		)	18,498
General and administrative expenses(2)	—			(14,418		)	(14,418		)
Operating profit (loss)	18,696			(14,616		)	4,080
Interest and other income	19			336			355
Interest and other expense	(294		)	(740		)	(1,034		)
Acquisition related costs	—			(226		)	(226		)
Equity in earnings of Affiliates Insurance Company	—			28			28
Gain on sale of available for sale securities	—			529			529
Provision for income taxes	—			(186		)	(186		)
Income (loss) from continuing operations	$	18,421		$	(14,875	)	$	3,546

(1)	Corporate and Other includes operations that we do not consider a material, separately reportable segment of our business and income and expenses that are not attributable to a specific reportable segment.
(2)	General and administrative expenses are not attributable to a specific reportable segment and include items such as corporate payroll and benefits and expenses of our home office activities.

	Senior Living Communities			Corporate and Other(1)			Total
Nine months ended September 30, 2012
Segment revenues:
Senior living and rehabilitation hospital	$	831,864		$	79,501		$	911,365
Management fee revenue	3,666			—			3,666
Reimbursed costs incurred on behalf of managed communities	76,750			—			76,750
Total segment revenues	912,280			79,501			991,781
Segment expenses:
Operating expenses	612,870			71,725			684,595
Costs incurred on behalf of managed communities	76,750			—			76,750
Rent expense	143,092			7,951			151,043
Depreciation and amortization	16,893			1,738			18,631
Total segment expenses	849,605			81,414			931,019
Segment operating profit (loss)	62,675			(1,913		)	60,762
General and administrative expenses(2)	—			(45,445		)	(45,445		)
Operating income (loss)	62,675			(47,358		)	15,317
Interest and other income	61			577			638
Interest and other expense	(1,807		)	(2,986		)	(4,793		)
Acquisition related costs	—			(100		)	(100		)
Equity in earnings of Affiliates Insurance Company	—			236			236
Gain on settlement	—			3,365			3,365
Gain on early extinguishment of debt	—			45			45
Gain on sale of available for sale securities	—			62			62
Provision for income taxes	—			(4,835		)	(4,835		)
Income (loss) from continuing operations	$	60,929		$	(50,994	)	$	9,935

	Senior Living Communities			Corporate and Other(1)			Total
Nine months ended September 30, 2011
Segment revenues:
Senior living, rehabilitation hospital and institutional pharmacy revenues	$	803,647		$	78,235		$	881,882
Management fee revenue	383			—			383
Reimbursed costs incurred on behalf of managed communities	8,887			—			8,887
Total segment revenues	812,917			78,235			891,152
Segment expenses:
Operating expenses	592,098			70,798			662,896
Costs incurred on behalf of managed communities	8,887			—			8,887
Rent expense	137,716			7,758			145,474
Depreciation and amortization	12,159			1,546			13,705
Total segment expenses	750,860			80,102			830,962
Segment operating profit (loss)	62,057			(1,867		)	60,190
General and administrative expenses(2)	—			(42,242		)	(42,242		)
Operating income (loss)	62,057			(44,109		)	17,948
Interest and other income	100			875			975
Interest and other expense	(509		)	(1,896		)	(2,405		)
Acquisition related costs	—			(1,530		)	(1,530		)
Equity in earnings of Affiliates Insurance Company	—			111			111
Gain on early extinguishment of debt	—			1			1
Gain on sale of available for sale securities	—			656			656
Provision for income taxes	—			(1,006		)	(1,006		)
Income (loss) from continuing operations	$	61,648		$	(46,898	)	$	14,750

(1)	Corporate and Other includes operations that we do not consider a material, separately reportable segment of our business and income and expenses that are not attributable to a specific reportable segment.
(2)	General and administrative expenses are not attributable to a specific reportable segment and include items such as corporate payroll and benefits and expenses of our home office activities.

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Basis of Presentation and Organization (Details)	Sep. 30, 2012 state property unit
Senior Living Communities
Real estate properties
Number of properties operated	252
Number of states in which real estate properties are located	30
Number of living units in properties operated	28,262
Number of properties owned and operated	31
Number of living units in properties owned and operated	2,952
Number of properties leased and operated	191
Number of units in properties leased and operated	20,812
Number of properties managed	30
Number of units in properties managed	4,498
Rehabilitation hospitals
Real estate properties
Number of properties leased and operated	2
Number of beds used to provide inpatient rehabilitation services to patients	321
Number of hospital locations where inpatient rehabilitation services are provided	2
Number of satellite locations where inpatient rehabilitation services are provided	3
Independent and assisted living communities
Real estate properties
Number of properties operated	214
Number of living units in properties operated	24,839
Number of real estate properties classified as discontinued operations	1
Number of units in real estate property classified as discontinued operations	103
SNF
Real estate properties
Number of properties operated	38
Number of living units in properties operated	3,423
Number of real estate properties classified as discontinued operations	2
Number of units in real estate property classified as discontinued operations	271
Independent living apartment
Real estate properties
Number of living units in properties operated	9,160
Assisted living suites
Real estate properties
Number of living units in properties operated	13,579
Skilled nursing units
Real estate properties
Number of living units in properties operated	5,523
Outpatient clinics
Real estate properties
Number of units in properties leased and operated	13

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Related Person Transactions (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended			3 Months Ended		9 Months Ended			3 Months Ended		9 Months Ended				1 Months Ended		9 Months Ended	1 Months Ended		1 Months Ended		3 Months Ended	1 Months Ended				1 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012 Senior Living Communities property	Sep. 30, 2012 SNH item director	Sep. 30, 2011 SNH	Sep. 30, 2012 SNH item director	Sep. 30, 2011 SNH	Dec. 31, 2011 SNH	Sep. 30, 2012 SNH Bridge Loan	Sep. 30, 2011 SNH Bridge Loan	Sep. 30, 2012 SNH Bridge Loan	Sep. 30, 2011 SNH Bridge Loan	May 31, 2011 SNH Bridge Loan	Sep. 30, 2012 SNH Senior Living Communities property	Aug. 31, 2012 SNH Senior Living Communities New York property	May 31, 2012 SNH Senior Living Communities Sunrise property	Sep. 30, 2012 SNH Senior Living Communities Sunrise property	Oct. 31, 2012 SNH Senior Living Communities Sunrise Subsequent event property	Oct. 30, 2012 SNH Senior Living Communities Sunrise Subsequent event Second AL Pooling Agreements property	Aug. 31, 2012 SNH Senior Living Communities D&R Yonkers LLC item	Jul. 31, 2012 SNH Assisted living units South Carolina property	Sep. 30, 2012 SNH Assisted living units AL Pooling Agreements item	Feb. 29, 2012 SNH Assisted living units Second AL Pooling Agreements Alabama property	May 31, 2012 SNH Assisted living units Second AL Pooling Agreements South Carolina property	Oct. 31, 2012 SNH Assisted living units Subsequent event First amended AL Pooling Agreements property	Sep. 30, 2012 SNH Rehabilitation hospital property	Aug. 31, 2012 SNH Independent living units IL Pooling Agreement property	Aug. 31, 2012 SNH Independent living units IL Pooling Agreement Missouri property
Related person transactions
Ownership percentage by former parent						100.00%		100.00%
Number of shares owned						4,235		4,235
Percentage of outstanding common shares owned						8.80%		8.80%
Number of real estate properties leased					20,812											188												2
Number of real estate properties classified as discontinued operations																1
Number of properties managed					30											30
Number of managing directors also serving as managing trustees						1		1
Total minimum annual rent payable						$ 196,704		$ 196,704
Rent expense under leases, net of lease inducement amortization						50,119	50,456	149,842	144,988
Real estate improvements sold								18,249
Increase (decrease) in annual lease rent payable								1,472
Assets held for sale for increased rent pursuant to the terms of leases with SNH						11,772		11,772		7,076
Number of pooling agreements						3																		2
Management fee revenue	1,277	359	3,666	383		1,284	326	3,431	351
Number of properties managed under the additional management arrangements																			2		8
Number of properties of which termination date is agreed to be accelerated																		10		2
Number of properties that the entity will begin to operate as a manager																			2
Number of properties that the entity agreed to manage																	198						232		92	59	20		2	87
Amount agreed to be lent															80,000
Management fees receivable under property management agreement as a percentage of gross revenues																	5.00%					3.00%
Management fees previously receivable under property management agreement as a percentage of gross revenues																	3.00%
Number of properties subleased																						111
Interest expense											$ 0	$ 187	$ 314	$ 245
Number of properties securing a debt						28		28
Number of properties securing a debt released as a result of repayment of related debt						11		11

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Property and Equipment (Tables)

9 Months Ended

Sep. 30, 2012

Property and Equipment

Schedule of property and equipment, at cost

	September 30, 2012			December 31, 2011
Land	$	21,901		$	21,234
Buildings and improvements	278,760			271,311
Furniture, fixtures and equipment	101,395			91,493
	402,056			384,038
Accumulated depreciation	(65,167		)	(51,853		)
	$	336,889		$	332,185