Edgar Filing: SENIOR HOUSING PROPERTIES TRUST

The information in this preliminary prospectus supplement is not complete and
may be changed. This prospectus supplement and the accompanying prospectus are
not an offer to sell these securities and we are not soliciting offers to buy
these securities in any state where the offer or sale is not permitted.

Filed pursuant to Rule 424(b)(5)
Registration No. 333-60392

SUBJECT TO COMPLETION, DATED DECEMBER 6, 2001
PROSPECTUS SUPPLEMENT
(To prospectus dated May 21, 2001)
--------------------------------------------------------------------------------

$200,000,000

[LOGO]

Senior Housing Properties Trust

% Senior Notes Due 2008
-------------------------------------------------------------------------

Company

- We are a real estate investment trust, or REIT, which invests in senior
housing real estate, including apartment buildings for aged residents,
independent living properties, assisted living facilities and nursing homes.

Notes

- We are offering $200,000,000 aggregate principal amount of our % senior
notes due 2008.

- Interest on the notes will be payable semi-annually on June 15 and
December 15 each year, beginning June 15, 2002.

- The notes are redeemable in whole or in part at any time. The redemption
price will equal the outstanding principal of the notes being redeemed, plus
accrued interest and the make-whole amount described on page S-30.

- There is no sinking fund.

- The notes are Senior Housing Properties Trust's senior unsecured obligations
and will rank equally with all of its other existing and future unsecured
senior indebtedness. The notes will be effectively subordinated to all
liabilities of our subsidiaries and to our secured indebtedness.

- The notes will not be listed on any national securities exchange or traded
on the Nasdaq system.

Investment in our notes involves risks. You should read carefully the entire
prospectus and this prospectus supplement including the section entitled "Risk
factors" that begins on page S-7 of this prospectus supplement.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.

Per
Note Total

--------------------------------------------------------------------------------------
Price to public % $
--------------------------------------------------------------------------------------
Underwriting discounts % $
--------------------------------------------------------------------------------------
Proceeds, before expenses, to Senior Housing Properties
Trust % $
--------------------------------------------------------------------------------------

The price of the notes will also include accrued interest, if any, from
December , 2001.

The underwriters are offering our notes as described in "Underwriting". The
notes will be ready for delivery in book-entry form only through The Depository
Trust Company on or about December , 2001.

UBS Warburg
----------

Dresdner Kleinwort Wasserstein

Wachovia Securities

BMO Nesbitt Burns

CIBC World Markets

PNC Capital Markets

SG Cowen

The date of this prospectus supplement is December , 2001.

Inside Front Cover -- Description of Colorwork

Properties to Be Acquired

Photograph of Photograph of
Leisure Park Forwood Manor
Lakewood, NJ Wilmington, DE
416 Units 243 Units

Photograph of Photograph of
Deer Creek The Forum at Tucson
Deerfield Beach, FL Tucson, AZ
291 Untis 326 Units

Photograph of Photograph of
Memorial Woods The Crossing
Houston, TX Indianapolis, IN
415 Units 221 Units

Photograph of Photograph of
Montebello on Academy Knightsbridge
Albuquerque, NM Columbus, OH
208 Units 315 Units

TABLE OF CONTENTS
--------------------------------------------------------------------------------

Page
--------

Prospectus supplement

Documents incorporated by
reference.......................... ii
Where you can find more
information........................ ii
Prospectus supplement summary........ S-1
Summary unaudited pro forma financial
data............................... S-3
Risk factors......................... S-7
Use of proceeds...................... S-14
Capitalization....................... S-15
Selected historical consolidated
financial data..................... S-16
Our Company.......................... S-18
Our tenants and property
operations......................... S-22
Management........................... S-26
Description of notes................. S-29
Description of other indebtedness.... S-37
Material federal income tax
consequences....................... S-39
Underwriting......................... S-43
Legal matters........................ S-45
Experts.............................. S-45
Glossary............................. S-46
Index to pro forma financial
statements......................... P-1

Page
--------

Prospectus

Senior Housing Properties Trust...... 1
SNH Capital Trusts................... 1
Risk factors......................... 3
Use of proceeds...................... 3
Ratio of earnings to fixed charges... 3
Description of debt securities....... 4
Description of common shares......... 12
Description of preferred shares...... 13
Description of depositary shares..... 18
Description of warrants.............. 22
Description of trust preferred
securities and trust guarantee..... 23
Description of certain provisions of
Maryland law and our declaration of
trust and bylaws................... 27
Plan of distribution................. 35
Validity of the offered securities... 36
Experts.............................. 36
Where you can find more
information........................ 36
Documents incorporated by
reference.......................... 37

--------------------------------------------------------------------------------

REFERENCES IN THIS PROSPECTUS SUPPLEMENT TO "WE," "US," "OUR," "SENIOR HOUSING"
OR THE "COMPANY" MEAN SENIOR HOUSING PROPERTIES TRUST AND ALL OF ITS
SUBSIDIARIES, UNLESS OTHERWISE NOTED OR THE CONTEXT OTHERWISE REQUIRES.
REFERENCES IN THIS PROSPECTUS SUPPLEMENT TO "FIVE STAR" MEAN FIVE STAR QUALITY
CARE, INC., ONE OF OUR WHOLLY-OWNED SUBSIDIARIES, AND ALL OF ITS SUBSIDIARIES.
REFERENCES IN THIS PROSPECTUS SUPPLEMENT TO "CRESTLINE" MEAN CRESTLINE CAPITAL
CORPORATION AND ALL OF ITS SUBSIDIARIES. REFERENCES IN THIS PROSPECTUS
SUPPLEMENT TO "MARRIOTT" MEAN MARRIOTT SENIOR LIVING SERVICES, INC., A 100%
OWNED SUBSIDIARY OF MARRIOTT INTERNATIONAL, INC., AND ITS SUBSIDIARIES.
REFERENCES IN THIS PROSPECTUS SUPPLEMENT TO "NOTES" MEAN THE % SENIOR NOTES
DUE 2008 OFFERED HEREBY.

---------

--------------------------------------------------------------------------------
i

--------------------------------------------------------------------------------

You should rely only on the information contained or incorporated in this
prospectus supplement and the accompanying prospectus. We have not, and the
underwriters have not, authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent information,
you should not rely on it. We are not, and the underwriters are not, making an
offer to sell these securities in any jurisdiction where the offer or sale is
not permitted. You should assume that the information appearing in this
prospectus supplement, the accompanying prospectus and the documents
incorporated by reference is accurate only as of their respective dates or on
other dates which are specified in those documents. Our business, financial
condition, results of operations and prospects may have changed since those
dates.

A registration statement relating to the Five Star spin-off has been filed with
the Securities and Exchange Commission but has not yet become effective. The
Five Star common shares being registered in such registration statement may not
be sold nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus supplement shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be any sale
of Five Star common shares in any state in which such offer, solicitation or
sale would be unlawful prior to registration or qualification under the
securities laws of any such state. If and when the spin-off occurs, a prospectus
relating to the Five Star common shares will be distributed and available at its
office.

Documents incorporated by reference

In addition to the documents incorporated by reference or deemed incorporated by
reference in the accompanying prospectus, the following documents, which have
been filed with the SEC pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), are hereby incorporated into this prospectus
supplement and specifically made a part hereof:

- our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2001 and
September 30, 2001; and

- our Current Reports on Form 8-K dated August 10, 2001, September 21, 2001,
October 3, 2001, as amended, November 5, 2001, December 6, 2001 and
December , 2001.

We also incorporate by reference each of the following documents that we file
with the SEC after the date of this prospectus supplement but before the end of
this offering:

- Reports filed under Sections 13(a) and (c) of the Exchange Act;

- Definitive proxy or information statements filed under Section 14 of the
Exchange Act in connection with any subsequent shareholders' meeting; and

- Any reports filed under Section 15(d) of the Exchange Act.

You may request a copy of any of these filings (excluding exhibits), at no cost,
by writing or telephoning us at the following address:

Investor Relations
Senior Housing Properties Trust
400 Centre Street
Newton, Massachusetts 02458
(617) 796-8350

Where you can find more information

You may read and copy any material that we file with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. You may also access our SEC filings over the internet at the
SEC's site at http://www.sec.gov.

--------------------------------------------------------------------------------
ii

Prospectus supplement summary

THIS DOCUMENT MAY NOT CONTAIN ALL OF THE INFORMATION IMPORTANT TO YOU. YOU
SHOULD READ THIS ENTIRE PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS.
YOU SHOULD ALSO READ THE DOCUMENTS REFERRED TO IN "DOCUMENTS INCORPORATED BY
REFERENCE".

OUR COMPANY

We are a real estate investment trust (REIT) which invests in senior housing
properties. We own 86 properties located in 23 states. At September 30, 2001,
our properties had combined book value before depreciation of $593 million. Our
largest tenant is Marriott, which operates properties representing 55% of our
total investments. Assuming the completion of the pending transactions described
in "Recent developments", we will own 117 properties located in 28 states with a
book value before depreciation of $1.2 billion, and our properties will be
leased as follows (dollars in thousands):

Senior Housing Investments by Lease

After Pending Transactions

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

TENANT / OPERATOR AFTER PENDING TRANSACTIONS

Marriott International, Inc. $325,472 27%
Five Star Quality Care, Inc. (56 properties) $144,834 12%
Five Star Quality Care, Inc. (31 Marriott properties) $600,000 50%
Five private company tenants $21,062 2%
Integrated Health Services, Inc. $15,598 2%
Genesis Health Ventures, Inc. $13,007 1%
HEALTHSOUTH Corporation $73,422 6%

RECENT DEVELOPMENTS

- AGREEMENT TO ACQUIRE 31 MARRIOTT SENIOR LIVING FACILITIES FOR $600 MILLION.
In August 2001, we agreed to acquire 31 senior living communities from
Crestline for $600 million. These senior living properties are managed by
Marriott under long-term agreements. The closing of this acquisition is
subject to conditions, including approval by shareholders of Crestline and
by Marriott under its management agreements. While we cannot be certain that
we will be able to complete this acquisition, we expect this acquisition to
be completed in January 2002.

- SPIN-OFF OF FIVE STAR QUALITY CARE, INC. In November 2001, Five Star filed
an amended registration statement for a distribution to our shareholders of
substantially all of our share ownership of Five Star. The registration
statement has not yet been declared effective by the SEC. While we cannot be
certain that we will be able to complete this spin-off, we expect the
spin-off to be completed in December 2001. Upon completion of this spin-off,
Five Star will lease 56 senior living properties which are now operated for
our account. The minimum rent for these properties will be $7 million per
year. If we complete our acquisition of the 31 Marriott properties from
Crestline, we expect to lease these properties to Five Star for minimum rent
of $63 million per year.

- SALE OF 14 MILLION COMMON SHARES. In October 2001, we issued 14,047,000
common shares. The net proceeds of $172 million from this sale were used to
repay all of the outstanding borrowings under our revolving bank credit
facility and the remainder is expected to be used partially to capitalize
Five Star in connection with its spin-off and partially to fund the
acquisition of the 31 senior living communities from Crestline.

S-1

OUR PROPERTIES

Most of our investments are in up market senior housing properties which derive
a majority of their revenues from private pay residents and are not dependent
upon government Medicare and Medicaid programs. Assuming the completion of the
acquisition described in "Recent developments", 79% of our total investments
will be in properties which derive a majority of their revenues from residents'
private resources (dollars in thousands):

Senior Housing Investments by Source of
Revenues After Pending Transactions

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Private $947,015 79%
Medicare / Medicaid $246,380 21%

CAPITAL STRUCTURE

At September 30, 2001, our debts totaled $40 million, or 8% of our total
capitalization. At September 30, 2001, and after giving effect to our
October 2001 equity offering and this offering of notes, our debts will total
$209 million, or 24% of our total capitalization. Assuming the completion of
this offering and the pending transactions described in "Recent developments",
our pro forma adjusted capitalization will be as follows (dollars in thousands):

Senior Housing Adjusted Pro Forma
Capitalization After Pending Transactions

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

common equity $581,496 53%
trust preferred securities $27,394 2%
revolving bank credit facility $50,000 5%
senior notes $200,000 18%
mortgages and capital leases $242,486 22%

ORGANIZATION AND PRINCIPAL PLACE OF BUSINESS

We are organized as a Maryland real estate investment trust. Our principal place
of business is 400 Centre Street, Newton, Massachusetts 02458 and our telephone
number is (617) 796-8350.

S-2

Summary unaudited pro forma financial data

The following chart shows certain unaudited pro forma financial data and ratios
related to the twelve months ended September 30, 2001, as adjusted for this
offering and the October 2001 equity offering and giving further pro forma
effect to the pending transactions described in "Recent developments". This
table should be reviewed in connection with our audited and unaudited financial
statements and our unaudited pro forma financial statements which are included
or incorporated by reference in this prospectus supplement.

As of or for the
Twelve Months Ended September 30, 2001
---------------------------------------------------------
As Adjusted for As Adjusted for the
the October 2001 October 2001 equity
equity offering offering, this offering
Actual and this offering and pending transactions
---------- ----------------- ------------------------
(dollars in thousands)

Statement of income data (1):
Rental income.......................................... $ 47,799 $ 46,749 $ 116,749
Facilities' operations revenue......................... 170,681 170,681 --
Other income........................................... 9,485 2,380 7,080
-------- ----------------- ------------------------
Total revenues....................................... 227,965 219,810 123,829
Interest expense....................................... 7,671 17,355 41,173
Distributions on trust preferred securities............ 749 2,811 2,811
Facilities' operations expense......................... 166,230 166,230 --
Depreciation expense................................... 19,298 19,104 34,854
Other expense.......................................... 11,089 4,230 7,730
-------- ----------------- ------------------------
Total expenses....................................... 205,037 209,730 86,568
Income before gain on sale of properties............... 22,928 10,080 37,261

Other data:
EBIDA (1)(2)........................................... 50,646 49,350 116,099
Number of properties................................... 86 86 117

Balance sheet data:
Cash and cash equivalents.............................. 8,084 344,469 763
Real estate properties, at cost........................ 597,865 597,865 1,193,479
Total assets........................................... 561,648 902,283 1,116,833
Total debt............................................. 40,100 209,100 492,486
Trust preferred securities............................. 27,394 27,394 27,394
Total shareholders' equity............................. 459,861 631,496 581,496

Selected ratios:
Debt/Adjusted Total Assets............................. 6.2% 21.2% 40.0%
Secured Debt/Adjusted Total Assets..................... 6.2% 0.9% 23.7%
Consolidated Income Available for Debt Service/Debt
Service for the last twelve months (1)............... 6.6x 3.0x 2.9x

----------

(1) Also gives pro forma effect to our October 2000 sale of four properties.

(2) EBIDA represents earnings before gain on sale of properties, interest,
distributions on trust preferred securities and depreciation. We understand
that some industry analysts and investors consider EBIDA to be useful in
analyzing the operating performance of a company and its ability to service
debt. EBIDA, however, is not a measure of financial performance under
generally accepted accounting principles and should not be considered an
alternative to, or more meaningful than, net income as a measure of
operating performance or to cash flows from operating, investing or
financing activities or as a measure of liquidity. Since EBIDA is not a
measure determined in accordance with generally accepted accounting
principles and is thus susceptible to varying interpretations and
calculations, EBIDA, as presented, may not be comparable to other similarly
titled measures of other companies. EBIDA does not represent an amount of
funds that is available for our discretionary use.

S-3

The offering

Issuer.................................... Senior Housing Properties Trust.

Securities offered........................ $200,000,000 aggregate principal amount of % senior
notes due 2008.

Maturity.................................. December 15, 2008.

Interest rate............................. % per annum.

Interest payment dates.................... Semi-annually on June 15 and December 15 of each year,
commencing June 15, 2002.

Ranking................................... The notes will be senior unsecured obligations and will
rank equally with all of our future unsecured senior
indebtedness.

The notes will be effectively subordinated to all
existing and future indebtedness of our subsidiaries. The
notes will also be effectively subordinated to our
existing and future secured indebtedness.

The notes will be senior to our trust preferred
obligations.

Optional redemption....................... We may redeem all or a portion of the notes at any time
at a redemption price equal to the sum of (i) the
principal amount being redeemed, (ii) accrued interest to
the redemption date and (iii) the make-whole amount, if
any, with respect to the notes being redeemed, as
described below in "Description of notes--Optional
redemption".

Certain covenants......................... The notes indenture contains various covenants, including
the following:

- We will not be able to incur additional Debt if the
aggregate principal amount of our outstanding Debt is
greater than 60% of Adjusted Total Assets.

- We will not be able to incur additional Debt if the
aggregate principal amount of our outstanding Secured
Debt is greater than 40% of Adjusted Total Assets.

- We will not be able to incur additional Debt unless
our Consolidated Income Available for Debt Service
is at least 2.0 times our Annual Debt Service.

- Generally, our distributions to shareholders and
payments to purchase our shares or to prepay
subordinated debt may not exceed 95% of our Funds
from Operations plus future equity raised or
contributed.

These covenants are complex and are described below in
more detail at "Description of notes--certain covenants".

S-4

Sinking fund.............................. The notes are not entitled to any sinking fund payments.

Form and denomination..................... Each note will be initially issued in book-entry form
only. Each note issued in book-entry form will be
represented by one or more fully registered global
securities deposited with or on behalf of The Depository
Trust Company and registered in the name of The
Depository Trust Company or its nominee. Interests in the
global securities will be shown on, and transfers thereof
will be effected only through, records maintained by The
Depository Trust Company (with respect to its
participants) and its participants (with respect to
beneficial owners). Except in limited circumstances,
notes issued in book-entry form will not be exchangeable
for notes issued in registered certificated form.

Trustee, registrar and paying agent....... State Street Bank and Trust Company.

Use of proceeds........................... To partially fund our pending acquisition of 31 senior
living properties or for general business purposes,
including other acquisitions.

S-5

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

We have made statements in this prospectus supplement and the accompanying
prospectus, including the documents that are incorporated by reference, that are
not historical facts but are forward-looking statements as defined in the
Private Securities Litigation Reform Act of 1995. These statements concern:

- our ability to conclude our pending acquisition of 31 senior living
properties from Crestline;

- our ability to complete the spin-off of Five Star;

- the possible expansion of our portfolio;

- the performance of our tenants and properties;

- our ability to make interest and principal payments;

- our policies and plans regarding investments, financings and other matters;

- our tax status as a real estate investment trust;

- our ability to appropriately balance the use of debt and equity; and

- our ability to access capital markets or other sources of funds.

Also, when we use any of the words "believe," "expect," "anticipate," "intend,"
"plan," "estimate," or similar expressions, we are making forward-looking
statements. You are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties. Actual
results may differ materially from those contained in or implied by the forward-
looking statements as a result of various factors. Such factors include, without
limitation:

- whether we complete the Five Star spin-off on contemplated terms;

- the ability of Crestline and us to satisfy conditions to closing our
acquisition of 31 senior living properties;

- the impact of changes in the economy and the capital markets on us and our
tenants;

- compliance with and changes to regulations and payment policies within the
real estate, senior housing and healthcare industries;

- changes in financing terms;

- competition within the real estate, senior housing and healthcare
industries; and

- changes in law.

The information contained in "Risk factors", our Annual Report on Form 10-K
which is incorporated by reference in the accompanying prospectus, including the
information contained in "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations", and our Current Reports on
Form 8-K incorporated by reference in this prospectus supplement identify other
important factors that could cause such differences.

S-6

--------------------------------------------------------------------------------

Risk factors

An investment in the notes involves various risks. Investors should carefully
consider the following risk factors, as well as the other information contained
in this prospectus supplement and the accompanying prospectus, including the
documents incorporated by reference.

RISK FACTORS RELATING TO OUR COMPANY

The Crestline transaction may not close.

We expect to acquire 31 Marriott senior living properties from Crestline and
lease them to Five Star. The rent from this lease is expected to represent 54%
of our pro forma annual rents. The closing of the Crestline transaction is
subject to conditions, including approval by Crestline's shareholders and by
Marriott under its operating agreements. The closing of the Crestline
transaction is also subject to healthcare regulatory approvals. We expect to
hold a substantial portion of the net proceeds from this offering in cash or
short-term investments until our expected closing of the Crestline transaction
in January 2002. During the period that we have substantial cash balances on
hand, our consolidated income available for debt service will be substantially
less than the pro forma amounts which give effect to the pending acquisition
presented in this prospectus supplement. If the Crestline acquisition does not
close, we expect to use these cash balances including the proceeds of this
offering to seek alternative investments, but we will have broad discretion and
you will be relying upon our judgment in these matters. If the Crestline
acquisition does not close, our consolidated income available for debt service
may be adversely affected.

We may be unable to complete the spin-off.

Five Star filed a registration statement for a distribution of substantially all
of our ownership of Five Star to our shareholders. We cannot complete the Five
Star spin-off until the SEC declares this registration statement effective. The
Five Star spin-off is also subject to various healthcare regulatory approvals.
Although we expect the Five Star spin-off will occur in December 2001, it may
not occur by that time or at all. Final terms of the Five Star spin-off may be
different from those we now expect. Upon completion of the Five Star spin-off,
we expect to lease 56 properties currently operated for our account to Five Star
for minimum rent of $7 million per year. If we cannot complete the Five Star
spin-off or if the Five Star spin-off terms are changed, we may realize rent or
income from these properties which may be less than the pro forma amounts which
give effect to the pending spin-off presented in this prospectus supplement.
Also, if we cannot complete the Five Star spin-off, we will need to make
alternate arrangements to find a tenant for the 31 Marriott properties we intend
to acquire from Crestline. Any of these events could have a material adverse
impact upon our business, our status as a REIT and could make it difficult or
impossible for us to pay debt service due noteholders.

Financial difficulties at Five Star could adversely affect us.

If we complete the Five Star spin-off and the Crestline transaction, Five Star
will be our largest tenant, responsible for $70 million in our annual rent
(including $63 million in rents from the properties to be acquired from
Crestline and $7 million in rents from the 56 properties currently operated for
our account), or 60% of our total annual rents. Five Star's initial equity
capital will be $50 million. Although we expect Five Star's initial
capitalization will be adequate to support its current business plan, Five Star
will have limited resources and, if the Five Star operations decline, Five Star
may default on its lease obligations to us.

--------------------------------------------------------------------------------
S-7

Risk factors
--------------------------------------------------------------------------------

Changes at Marriott could adversely affect us.

Rents from Marriott for 14 of our present properties produce over half our
current total rent. On a pro forma basis assuming the completion of the Five
Star spin-off and the Crestline transaction, 26% of our pro forma total rent
will be produced by these 14 properties. In addition, Marriott will operate the
31 senior living properties which we expect to acquire from Crestline and lease
to Five Star for rents which will represent 54% of our pro forma total rent. We
regard Marriott as a strong credit tenant and competent manager of senior living
properties. Nonetheless, the Marriott leases for the 14 properties we currently
own extend to 2013, the Marriott operating agreements for the 31 senior living
properties we expect to acquire from Crestline extend to 2027, and Marriott's
financial condition and the performance of its leased and managed properties may
change. Because our investment in properties leased to or operated by Marriott
is expected to generate a large percentage of our income, any adverse change in
Marriott's financial condition or its operation of these properties may
adversely affect our cash flow and our ability to meet our obligations to
noteholders.

We may be unable to access the capital necessary to repay debt principal or to
grow.

Because we are a REIT, we are required to distribute 90% of our taxable income
to shareholders and we generally cannot use income from operations to repay debt
principal or to fund our growth. Accordingly, our financing and growth
strategies depend, in large part, upon our ability to raise additional capital
at reasonable costs to meet our principal debt obligations and to fund new
investments. We expect to assume or incur a substantial amount of debt in
completing the Crestline transaction. We believe we will be able to raise
additional debt and equity capital at reasonable costs to refinance the debt we
incur at or prior to its maturity and to invest at yields which exceed our cost
of capital. However, our ability to raise reasonably priced capital is not
guaranteed. We may be unable to raise reasonably priced capital because of
reasons related to our business or for reasons beyond our control, such as
market conditions. If we cannot access capital on reasonable terms we may be
unable to repay the notes at their maturity or to grow.

One of our tenants is in bankruptcy.

One of our properties is currently leased to a tenant that is in bankruptcy.
This lease provides us rent of $1.2 million per year. Although this tenant is
paying this rent to us, it may cease to do so in the future or may otherwise
exercise rights available to it pursuant to the United States Bankruptcy Code.
Also, because of the financial difficulties facing the nursing home industry
generally, some of our other nursing home tenants may file for bankruptcy or
stop paying rent to us.

HEALTHSOUTH has committed a non-monetary default.

On September 6, 2001, HEALTHSOUTH notified us that it intends to close one of
our five healthcare properties which it leases, but that it expects to continue
paying rent to us for this property through the remainder of the lease term. We
have notified HEALTHSOUTH that its closure of this property is a default under
its lease even if the rent is continuously paid. We believe that the closure of
this property may have a negative effect upon the value of this property. If
HEALTHSOUTH's default matures into an event of default under the lease, we may
have the right, among other actions, to assert a cross default under our other
leases with HEALTHSOUTH, to accelerate all rents due to us from HEALTHSOUTH and
to seek damages from HEALTHSOUTH. We do not know how HEALTHSOUTH would respond
to our exercise of any of these rights. We have engaged counsel and are
undertaking a dialogue with HEALTHSOUTH about this matter, but we cannot predict
the outcome of HEALTHSOUTH's action or of the present dialogue.

--------------------------------------------------------------------------------
S-8

Risk factors
--------------------------------------------------------------------------------

Operations at repossessed properties may be unprofitable.

As a result of tenant bankruptcies, we repossessed or acquired properties from
bankrupt former tenants. The former tenants surrendered these properties to us
because they were unwilling or unable to pay us their contractual rent. Tax laws
applicable to REITs restrict the types of activities and investments we can make
to improve the operations of repossessed properties. These continuing operations
have been producing less operating profit than the rent which we previously
received for these properties and we expect that this will continue. Prior to
completion of the Five Star spin-off, we are exposed to these risks directly. If
we complete the Five Star spin-off, these risks will primarily impact Five Star,
but may also adversely affect Five Star's ability to pay rent to us.

Our repossessed properties may not be managed effectively.

Tax laws applicable to REITs required us to hire a manager for repossessed
nursing homes. Our managing trustees organized FSQ, Inc., or FSQ, to perform
this service. Five Star expects to acquire FSQ upon completion of the Five Star
spin-off. Although we believe that there are advantages to us in employing a
manager which is not burdened by other nursing home operations, FSQ is, and Five
Star will be, a new company with a limited operating history and a staff that
has been assembled for less than two years which does not have extensive
experience working together. Accordingly, FSQ or Five Star may be unable to
effectively manage our repossessed properties or execute their business plans
effectively.

Our properties and their operations are subject to complex regulations.

Physical characteristics of senior housing properties are mandated by various
governmental authorities. Changes in these regulations may require significant
expenditures. Our triple net leases require our tenants to maintain our
properties in compliance with applicable laws and we generally try to monitor
their doing so. However, when our tenants suffer financial distress, maintenance
of our properties may be neglected. The properties which we repossessed or
acquired from former tenants required significant expenditures to address
deferred maintenance and make them attractive to residents. From the time we
repossessed these properties through September 30, 2001, we expended $6 million
in an effort to correct deferred maintenance issues and we expect to fund
additional amounts prior to the Five Star spin-off. We expect that as part of
the spin-off, Five Star will undertake to complete these projects with the cash
we provide to Five Star on the spin-off date. After the Five Star spin-off has
occurred, we may finance additional projects in exchange for increased rents
from Five Star. Our available financial resources may be insufficient to fund
additional expenditures required to keep these properties operating in
accordance with regulations, or Five Star's financial resources may be
insufficient to meet any increased rental obligations to us.

State licensing and Medicare and Medicaid laws require nursing home operators to
comply with extensive standards governing nursing home operations. During the
past three years, the Federal Centers for Medicare and Medicaid Services, or the
Federal Centers, have increased their efforts to enforce Medicare and Medicaid
standards and their oversight of state agencies which survey nursing homes and
investigate complaints. When deficiencies are identified, sanctions and remedies
such as denials of payment for new Medicare and Medicaid admissions, civil money
penalties, state oversight and loss of Medicare and Medicaid participation, may
be imposed. The Federal Centers and the states are increasingly using such
sanctions and remedies when deficiencies, especially those involving findings of
substandard care or repeat violations, are identified. Such sanctions and
remedies have been imposed on some of our nursing homes and may be imposed in
the future. Failure of our operators or tenants, including FSQ or Five Star, to
maintain compliance with applicable laws and regulations or to correct
deficiencies at nursing home properties in a timely manner could result in
sanctions or remedies

--------------------------------------------------------------------------------
S-9

Risk factors
--------------------------------------------------------------------------------

being imposed in the future, and our or our tenants' financial results may be
adversely affected by these sanctions.

The operations of some of our properties are dependent upon payments from the
Medicare and Medicaid programs.

At many of our properties, other than those leased to or operated by Marriott, a
substantial majority of the operating revenues are received from the Medicare
and Medicaid programs. Since 1998, the federal government has been implementing
a prospective payment system which has lowered Medicare rates paid to nursing
homes. Many state Medicaid programs also have adopted rate setting formulas to
limit Medicaid rates. As a result, in some instances Medicare and Medicaid rates
no longer cover costs incurred by operators of our properties. At present there
is an active debate within the federal government and within many state
governments between advocates who want to raise Medicare and Medicaid rates and
others who want to retain or lower current Medicare and Medicaid rates. We
cannot predict the outcome of this debate. Some of the individual properties
which we repossessed from bankrupt former tenants do not earn revenues in excess
of their operating expenses. However, we believe that all of our tenants except
HEALTHSOUTH presently derive operating income from our leased properties in
excess of our rents. Tenants or operators who cannot cover their operating costs
may cease to pay our rent.

Healthcare operations are subject to litigation risks and increasing insurance
costs.

There are various federal and state laws prohibiting fraud by healthcare
providers, including criminal provisions that prohibit filing false claims for
Medicare and Medicaid payments and laws that govern patient referrals. The state
and federal governments seem to be devoting increasing resources to anti-fraud
initiatives against healthcare providers. In some states, advocacy groups have
been created to monitor the quality of care at senior housing properties, and
these groups have brought litigation against operators. Also, in several
instances private litigation by nursing home patients has succeeded in winning
very large damage awards for alleged abuses. The effect of this litigation and
potential litigation has been to materially increase the costs of monitoring and
reporting quality of care compliance incurred by our tenants and incurred by us
for the repossessed operations. In addition, the cost of liability and medical
malpractice insurance has increased and may continue to increase so long as the
present litigation environment affecting the operations of nursing homes and
other senior housing properties continues. Continued cost increases could
adversely effect our tenants' abilities to pay our rents and our earnings from
repossessed properties.

Competition has adversely affected some of our properties.

During the 1990s a large number of new assisted living facilities were
developed. In most states these properties are subject to less stringent
regulations than nursing homes and can operate with comparatively fewer
personnel and at comparatively lower costs. As a result of offering newer
accommodations at equal or lower costs, these assisted living facilities and
other senior living alternatives, including home healthcare, often attract those
who would have previously become nursing home residents; and our nursing home
properties now generally have lower occupancies than five years ago. Moreover,
many of the residents attracted to new assisted living facilities were the most
profitable nursing home patients, being those who paid higher private pay rates
rather than Medicaid or Medicare rates and those who required lesser amounts of
care.

Historically, nursing homes have been somewhat protected from competition by
state requirements of obtaining certificates of need to develop new properties;
however, these barriers are being eliminated in many states. Also, there are few
regulatory barriers to competition for home healthcare or for independent and
assisted living services. These competitive factors have caused some of the
nursing

--------------------------------------------------------------------------------
S-10

Risk factors
--------------------------------------------------------------------------------

homes which we own to decline in value. This decline may continue as assisted
living facilities or providers of other elderly care alternatives such as home
healthcare expand their businesses. Similar risks face each of our tenants and
operators. These risks and competition from businesses which may be larger or
have greater financial resources may have the impact of preventing our tenants
and operators from maintaining or improving occupancy at our properties, which
will increase the risks of defaults under our leases.

We may be unable to remain a REIT.

As a REIT we generally do not pay federal and state income taxes. However, our
continued qualification as a REIT is dependent upon our compliance with complex
provisions of the amended Internal Revenue Code of 1986, for which there are
available only limited judicial or administrative interpretations. For example,
one of our bankrupt former tenants delivered to us several nursing homes, which
it owned free of debt, in partial satisfaction of its default obligations to us,
and we took possession of these properties through subsidiaries. We have
treated, and will continue to treat prior to the Five Star spin-off, these
subsidiaries as so-called taxable REIT subsidiaries, as provided under
applicable tax code provisions, in reliance on our belief and an opinion from
our counsel that although the matter is not free from doubt, it is more likely
than not that these subsidiaries qualify for this treatment. We cannot assure
you that, upon review or audit, the IRS will agree with our approach. Also, a
REIT may not have retained C corporation "earnings and profits", as defined in
the Internal Revenue Code, as of the end of any calendar year. To acquire the
31 Marriott properties from Crestline we have agreed to purchase certain
Crestline subsidiaries. Some of these subsidiaries have multi-year historical
operations as subsidiaries of different parent companies. Our investigation of
the historical operations of these Crestline subsidiaries indicates that these
entities do not have historical retained earnings and profits which will
jeopardize our status as a REIT. However, we may learn new facts between now and
December 31, 2002, or, upon review or audit, the IRS may disagree with our
conclusion. If we find we have succeeded to undistributed earnings and profits
from the acquired Crestline subsidiaries, to preserve our status as a REIT we
will need to distribute any or all of these undistributed earnings and profits
not later than December 31, 2002. If we cease to be a REIT, we would violate a
covenant in our revolving bank credit facility, our ability to raise capital
could be adversely affected and we may be subject to material amounts of federal
and state income taxes.

Our business dealings with our managing trustees may create conflicts of
interest.

We have no employees. Personnel and other services which we require are provided
to us under contract by our investment manager, REIT Management & Research LLC,
or RMR. RMR is owned by our managing trustees, Barry Portnoy and Gerard Martin.
Similarly, the operations of the properties which we repossessed or acquired
from bankrupt former tenants are managed for us currently by FSQ, and FSQ is
owned by Messrs. Portnoy and Martin. If the Five Star spin-off is completed,
Messrs. Portnoy and Martin will each receive shares of Five Star as
consideration for Five Star's acquisition of FSQ. We pay RMR a fee based in
large part upon the amount of our investments in properties. This fee
arrangement could encourage RMR and Messrs. Portnoy and Martin to advocate
acquisitions and discourage sales by us. RMR also acts as the investment manager
for two other publicly owned REITs: HRPT Properties Trust, or HRPT, which owns
and operates office buildings, and Hospitality Properties Trust, or HPT, which
owns and leases hotels. HRPT is our largest shareholder. If the Five Star merger
with FSQ is completed, we expect that RMR will provide services to Five Star
under a shared services agreement for which it will receive a fee.
Messrs. Portnoy and Martin also serve as managing trustees of HRPT and HPT and
are directors of Five Star. These multiple responsibilities could create
competition among these companies for the time and efforts of RMR and
Messrs. Portnoy and Martin.

--------------------------------------------------------------------------------
S-11

Risk factors
--------------------------------------------------------------------------------

All of the contractual arrangements between us and RMR or FSQ have been, and all
of the arrangements between Five Star and FSQ and Five Star and RMR will be,
approved by our trustees or the directors of Five Star other than
Messrs. Portnoy and Martin. We believe that the quality and depth of management
available to us by contracting with RMR and FSQ could not be duplicated by our
being a self-advised company or by our contracting with unrelated third parties
without considerable cost increases. However, the fact that we believe these
relationships have been beneficial to us in the past does not guarantee that
these related party transactions may not be detrimental to us in the future.

Real estate ownership creates risks and liabilities.

Our business is subject to the following risks associated with real estate
ownership:

- casualty losses, some of which may be uninsured;

- defaults and bankruptcies by our tenants and operators;

- the illiquid nature of real estate, which may limit our ability to sell our
assets rapidly to respond to changing economic conditions;

- lease expirations which are not renewed or for properties which can only be
relet at lower rents;

- costs which may be incurred relating to maintenance and repair, and the need
to make expenditures due to changes in governmental regulations, including
the Americans with Disabilities Act; and

- environmental hazards, including those created by prior owners or occupants,
existing tenants, abutters or other persons for which we may be liable.

RISK FACTORS RELATING TO THE NOTES

We will have substantial outstanding debt and will be able to incur additional
debt.

At September 30, 2001, our debt after giving effect to our October 2001 equity
offering and this offering of notes is 24% of our total capitalization. Giving
further pro forma effect to the Crestline acquisition and the Five Star
spin-off, our debt is 45% of our total capitalization. The notes indenture
permits us and our subsidiaries to incur additional debt, including secured
debt.

The notes will be effectively subordinated to the debts of our subsidiaries and
to our secured debt.

We conduct substantially all of our business through, and all of our properties
are owned by, subsidiaries. Consequently, our ability to pay debt service on the
notes will be dependent upon the cash flow of our subsidiaries and payments by
those subsidiaries to us as dividends or otherwise. Our subsidiaries are
separate legal entities and have their own liabilities. In addition, some of our
subsidiaries have guaranteed our obligations under our revolving bank credit
facility, and some or all of our subsidiaries in the future may guaranty other
obligations. Therefore payments due to you on the notes are effectively
subordinated to liabilities of our subsidiaries, including guaranty liabilities.
The notes are also effectively subordinated to our secured debt. At
September 30, 2001: our total debt was $40 million, all of which was subsidiary
debt and secured; as adjusted to give effect to our October 2001 equity offering
and this offering, total debt of our subsidiaries was $9 million which was
secured by two mortgages; giving further effect to the Crestline acquisition and
the Five Star spin-off, total debt of our subsidiaries will be $292 million, all
of which will be secured by mortgages.

--------------------------------------------------------------------------------
S-12

Risk factors
--------------------------------------------------------------------------------

The notes may be redeemed before maturity, and you may be unable to reinvest
proceeds at the same or a higher rate.

We may redeem all or a portion of the notes at any time. The redemption price
will equal the principal amount being redeemed, plus accrued interest to the
redemption date, plus in some circumstances a make-whole amount, as described
under "Description of notes". If a redemption occurs, you may be unable to
reinvest the money you receive in the redemption at a rate that is equal to or
higher than the rate of return on the notes.

There is currently no public market for the notes and one may not develop.

The notes are a new issue for which no trading market currently exists. We do
not intend to list the notes on any securities exchange or to seek approval for
quotation through any automated quotation system. We can give no assurance that
an active trading market for the notes will exist in the future. Even if a
market does develop, the liquidity of the trading market in the notes and the
market price quoted for the notes may be adversely affected by changes in the
overall market for fixed income securities, by changes in our financial
performance or prospects, or by changes in the prospects for REITs or for the
senior living industry generally.

--------------------------------------------------------------------------------
S-13

--------------------------------------------------------------------------------

Use of proceeds

We estimate that the net proceeds of this offering, after paying underwriting
discounts and other expenses, will be $196 million. We expect to apply
substantially all of the net proceeds from this offering to fund the pending
acquisition described in "Recent developments" in early 2002. Unless and until
we use the net proceeds of this offering to close the pending acquisition, the
net proceeds of this offering may be deposited in interest-bearing accounts or
invested in short-term securities, including securities that may not be
investment grade rated. Because we expect that there may be several weeks
between this offering and the closing of the pending acquisition, some or all of
the net proceeds of this offering may be used in the interim for our general
business purposes, including possible new acquisitions; and in that event we
expect to draw funds under our bank credit facility to complete the pending
acquisition. If the pending acquisition does not occur, we will use the net
proceeds of this offering for general business purposes, including other
acquisitions.

--------------------------------------------------------------------------------
S-14

--------------------------------------------------------------------------------

Capitalization

The following table describes our actual capitalization as of September 30,
2001, our capitalization as adjusted to give effect to our October 2001 equity
offering and to this offering and further adjustments to reflect the pending
Five Star spin-off and the Crestline transactions, each described in "Recent
developments", which we expect to occur. We cannot assure you that we will
complete the Five Star spin-off or the Crestline transaction. This offering is
not conditioned upon completion of either the Five Star spin-off or the
Crestline transaction. In addition, neither the pending Five Star spin-off nor
the pending Crestline transaction is conditioned upon completion of the other
pending transaction.

As Adjusted for
As Adjusted for the October 2001
At the October 2001 equity offering,
September equity offering this offering and
30, 2001 and this offering pending transactions
-------------------------------------------------------------------------------------------------------------------
(dollars in thousands)

Cash and cash equivalents.............................. $ 8,084 $ 344,469 $ 763
Debt:
Revolving bank credit facility....................... $ 31,000 $ -- $ 50,000
% Senior notes due 2008............................ -- 200,000 200,000
Mortgages and capital leases......................... 9,100 9,100 242,486
-------- --------------------- --------------------
Total debt........................................... 40,100 209,100 492,486
-------- --------------------- --------------------
Trust preferred securities............................. 27,394 27,394 27,394
-------- --------------------- --------------------
Shareholders' equity................................... 459,861 631,496 581,496
-------- --------------------- --------------------
Total capitalization................................... $527,355 $ 867,990 $ 1,101,376
======== ===================== ====================

--------------------------------------------------------------------------------
S-15

--------------------------------------------------------------------------------

Selected historical consolidated financial data

Set forth below is selected financial data for the periods and dates indicated.
Prior to October 12, 1999, we and our properties were owned by HRPT. The
following data is presented as if we were a separate entity from HRPT for all
periods. This financial data has been derived from HRPT's historical financial
statements for periods prior to October 12, 1999. Per share data has been
presented as if our shares were outstanding for all periods prior to
October 12, 1999. The following table includes pro rata allocations of HRPT's
interest expense and general and administrative expenses for periods prior to
October 12, 1999. In the opinion of our management, the methods used for
allocating interest and general and administrative expenses are reasonable.
However, it is impossible to estimate all operating costs that we would have
incurred as a public company separate from HRPT. Accordingly, the net income
shown is not necessarily indicative of results that we would have realized as a
separate company. Additionally, year to year comparisons are impacted by
property acquisitions and dispositions during historical periods, including our
repossession of certain facilities in 2000 in connection with two tenant
bankruptcies. The data for the nine month periods ended September 30, 2001 and
2000, are derived from our unaudited financial statements which, in the opinion
of our management, include all adjustments necessary for a fair presentation of
our results of operations and financial position for such periods. The results
of operations for the nine months ended September 30, 2001, are not necessarily
indicative of the results that may be expected for the year ending December 31,
2001. This data should be read in conjunction with, and is qualified in its
entirety by reference to, the consolidated financial statements and accompanying
notes included in our 2000 Annual Report on Form 10-K and our Quarterly Report
on Form 10-Q for the period ended September 30, 2001. In addition, you should
review our pro forma financial statements contained herein and in our Current
Report on Form 8-K dated December 6, 2001.

--------------------------------------------------------------------------------
S-16

Selected historical consolidated financial data
--------------------------------------------------------------------------------

Nine Months
Year Ended December 31, Ended September 30,
---------------------------------------------------- ---------------------
Income statement data: 1996 1997 1998 1999 2000 2000 2001
---------------------------------------------------------------------------------------------- ---------------------
(dollars in thousands, except per share)

Rental and mortgage interest income..... $70,442 $83,213 $86,757 $89,076 $64,438 $49,880 $ 33,302
Facilities' operations revenue(1)....... -- -- -- -- -- -- 170,681
Other income............................ -- 958 1,549 1,714 11,084 2,557 897
------- ------- ------- ------- ------- ------- --------
Total revenues........................ $70,442 $84,171 $88,306 $90,790 $75,522 $52,437 $204,880
Depreciation............................ 15,383 17,826 18,297 22,247 20,140 15,379 14,537
Interest expense........................ 14,719 16,958 19,293 18,768 15,366 12,595 4,900
Distributions on trust preferred
securities............................ -- -- -- -- -- -- 749
Facilities' operations expenses(1)...... -- -- -- -- -- -- 166,230
Other expenses.......................... 3,899 4,664 4,480 34,941 8,994 5,261 7,356
------- ------- ------- ------- ------- ------- --------
Total expenses........................ $34,001 $39,448 $42,070 $75,956 $44,500 $33,235 $193,772
Income before gain on sale of
properties............................ 36,441 44,723 46,236 14,834 31,022 19,202 11,108
Net income.............................. 36,441 44,723 46,236 14,834 58,437 19,202 11,108
Per share:
Income before gain on sale of
properties.......................... $ 1.40 $ 1.72 $ 1.78 $ 0.57 $ 1.20 $ 0.74 $ 0.41
Net income............................ 1.40 1.72 1.78 0.57 2.25 0.74 0.41
Other data:
Number of facilities at period end:
Leased or mortgaged by us............. 83 88 93 93 28 32 28
Operated for our account.............. -- -- -- -- 58 57 58
EBIDA(2)................................ 66,543 79,507 83,826 85,849 66,528 47,176 30,545
Ratio of earnings to fixed charges...... 3.5x 3.6x 3.4x 1.8x 4.8x 2.5x 3.0x

At December 31,
--------------------------------------------------------- At September 30,
Balance sheet data: 1996 1997 1998 1999 2000 2001
------------------------------------------------------------------------------------------------ -----------------
(dollars in thousands, except per share)

Real estate properties, at cost...... $692,034 $720,987 $732,393 $708,739 $593,395 $597,865
Real estate mortgages receivable,
net................................ 38,270 38,134 37,826 22,939 -- --
Total assets......................... 679,201 692,586 686,296 654,000 530,573 561,648
Total debt........................... -- -- -- 200,000 97,000 40,100
Trust preferred securities........... -- -- -- -- -- 27,394
Total shareholders' equity........... 664,492 646,938 642,069 409,406 422,310 459,861

----------

(1) During 2001, our investments in properties formerly leased to Mariner and
Integrated began to be operated for our account and as a result we began to
account for facilities operating revenues and expenses.

--------------------------------------------------------------------------------
S-17

--------------------------------------------------------------------------------

Our Company

We are a REIT which invests in senior housing real estate, including apartment
buildings for aged residents, independent living properties, assisted living
facilities and nursing homes.

Most of our properties derive a majority of their revenues from private pay
residents. The following chart shows our investments by their majority revenue
source as of September 30, 2001, and after pending acquisition described in
"Recent developments".

At September After pending
Payor Source 30, 2001 acquisition
--------------------------------------------------------------------------------------
Private $347,015 58% $ 947,015 79%

Medicare/Medicaid 246,380 42% 246,380 21%
-------- ---- ---------- ----
$593,395 100% $1,193,395 100%

PROPERTIES

At September 30, 2001, we owned 86 properties located in 23 states which had a
combined book value, before depreciation, of $593 million. Assuming completion
of the pending acquisition described in "Recent developments", we will own 117
properties located in 28 states with combined book value, before depreciation,
of $1.2 billion.

Location of Senior Housing Properties After Pending Acquisition

[MAP]

--------------------------------------------------------------------------------
S-18

Our Company
--------------------------------------------------------------------------------

At September 30, 2001 After acquisition
-------------------------------- --------------------------------
Location of properties by state Number of Book value before Number of Book value before
------------------------------- properties depreciation properties depreciation
--------------------------------------------------------------------------------------------------------------------
(in thousands) (in thousands)

Arizona........................................ 5 $28,012 8 $92,377
California..................................... 7 48,991 9 111,379
Colorado....................................... 7 27,805 7 27,805
Connecticut.................................... 3 14,710 3 14,710
Delaware....................................... - - 5 57,745
Florida........................................ 5 131,990 11 217,193
Georgia........................................ 4 12,308 4 12,308
Illinois....................................... 1 36,742 1 36,742
Indiana........................................ - - 1 18,976
Iowa........................................... 7 11,377 7 11,377
Kansas......................................... 1 1,320 2 18,843
Kentucky....................................... - - 3 41,112
Maryland....................................... 1 33,080 1 33,080
Massachusetts.................................. 5 73,422 6 95,386
Michigan....................................... 2 9,086 2 9,086
Missouri....................................... 2 3,788 2 3,788
Nebraska....................................... 15 13,437 15 13,437
New Jersey..................................... 1 13,007 2 46,343
New Mexico..................................... - - 1 26,125
Ohio........................................... 1 3,445 2 30,933
Pennsylvania................................... 1 15,598 1 15,598
South Carolina................................. - - 1 3,706
South Dakota................................... 3 7,589 3 7,589
Texas.......................................... 1 12,410 6 152,479
Virginia....................................... 3 57,666 3 57,666
Washington..................................... 1 5,192 1 5,192
Wisconsin...................................... 8 25,175 8 25,175
Wyoming........................................ 2 7,245 2 7,245
----------- ------------------ ----------- ------------------
Total.......................................... 86 $593,395 117 $1,193,395
=========== ================== =========== ==================

--------------------------------------------------------------------------------
S-19

Our Company
--------------------------------------------------------------------------------

PROPERTIES TO BE ACQUIRED FROM CRESTLINE

The following table provides additional information about the 31 Marriott
managed properties which we expect to acquire from Crestline:

Independent
Living Assisted Special Skilled
Location Apartments Living Units Care Beds Nursing Beds Total
-------- ------------ ------------ ---------- ------------- --------

1 Peoria AZ 155 79 -- 57 291
2 Scottsdale AZ 167 33 -- 96 296
3 Tucson AZ 202 30 27 67 326
4 San Diego CA 146 -- -- 59 205
5 San Diego CA 100 100 -- -- 200
6 Newark DE 62 26 -- 110 198
7 Wilmington DE 140 37 -- 66 243
8 Wilmington DE 71 44 -- 46 161
9 Wilmington DE -- 51 26 31 108
10 Wilmington DE 62 15 -- 82 159
11 Coral Springs FL 184 62 -- 35 281
12 Deerfield Beach FL 198 33 -- 60 291
13 Ft. Lauderdale FL -- 109 -- -- 109
14 Ft. Myers FL -- 85 -- -- 85
15 Palm Harbor FL 230 87 -- -- 317
16 West Palm Beach FL 276 64 -- -- 340
17 Indianapolis IN 117 -- 30 74 221
18 Overland Park KS 117 30 -- 60 207
19 Lafayette KY 149 -- -- -- 149
20 Lexington KY -- 22 -- 111 133
21 Louisville KY 240 24 -- 60 324
22 Winchester MA -- 125 -- -- 125
23 Lakewood NJ 217 108 31 60 416
24 Albuquerque NM 114 34 -- 60 208
25 Columbus OH 143 87 25 60 315
26 Myrtle Beach SC -- 60 36 68 164
27 Dallas TX 190 38 -- 90 318
28 El Paso TX 123 -- 15 120 258
29 Houston TX 197 71 60 87 415
30 San Antonio TX 151 30 28 60 269
31 Woodlands TX 239 100 16 -- 355
------------ ------------ ---------- ------------- ------
31 properties 3,990 1,584 294 1,619 7,487
13 States (53%) (21%) (4%) (22%) (100%)

--------------------------------------------------------------------------------
S-20

Our Company
--------------------------------------------------------------------------------

TYPES OF FACILITIES

Our present business plan contemplates investments in properties which offer
four types of senior housing accommodations, including some properties that
combine more than one type in a single building or campus.

SENIOR APARTMENTS. Senior apartments are marketed to residents who are
generally capable of caring for themselves. Residence is usually restricted on
the basis of age. Purpose built properties may have special function rooms,
concierge services, high levels of security and assistance call systems for
emergency use. Residents at these properties who need healthcare or assistance
with the activities of daily living are expected to contract independently for
these services with homemakers or home healthcare companies.

INDEPENDENT LIVING PROPERTIES. Independent living properties, or congregate
communities, also provide high levels of privacy to residents and require
residents to be capable of relatively high degrees of independence. Unlike a
senior apartment property, an independent living property usually bundles
several services as part of a regular monthly charge--for example, one or two
meals per day in a central dining room, weekly maid service or a social director
may be offered. Additional services are generally available from staff employees
on a fee-for-service basis. In some independent living properties, separate
parts of the property are dedicated to assisted living or nursing services.

ASSISTED LIVING FACILITIES. Assisted living facilities are typically comprised
of one bedroom suites which include private bathrooms and efficiency kitchens.
Services bundled within one charge usually include three meals per day in a
central dining room, daily housekeeping, laundry, medical reminders and 24 hour
availability of assistance with the activities of daily living such as dressing
and bathing. Professional nursing and healthcare services are usually available
at the property on call or at regularly scheduled times. Since the early 1990s
there has been significant growth in the number of purpose built assisted living
facilities.

NURSING HOMES. Nursing homes generally provide extensive nursing and healthcare
services similar to those available in hospitals, without the high costs
associated with operating theaters, emergency rooms or intensive care units. A
typical purpose built nursing home includes mostly two-bed units with a separate
bathroom in each unit and shared dining and bathing facilities. Some private
rooms are often available for those residents who pay higher rates or for
patients whose medical conditions require segregation. Nursing homes are
generally staffed by licensed nursing professionals 24 hours per day.

During the past few years, nursing home owners and operators have faced two
significant business challenges. First, the rapid expansion of the assisted
living industry which started in the early 1990s has attracted a number of
residents away from nursing homes. This was especially significant because the
residents who chose assisted living facilities previously had often been the
most profitable residents in the nursing homes. These residents required a
lesser amount of care and were able to pay higher private rates rather than
government rates.

The second major challenge arose as a result of Medicare and Medicaid cost
containment laws, particularly 1997 federal legislation that required the
Medicare program to implement a prospective payment program for various subacute
services provided in nursing homes. Implementation of this Medicare prospective
payment program began on July 1, 1998. Prior to the prospective payment program,
Medicare generally paid nursing home operators based upon audited costs for
services provided. The prospective payment system sets Medicare rates based upon
government estimated costs of treating specified medical conditions. Although it
is possible that a nursing home may increase its profit if it is able to provide
quality services at below average costs, we believe that the effect of the new
Medicare rate setting methodology has been and will be to reduce the
profitability of Medicare services in nursing homes. This belief is based upon
our observation of the impact of similar Medicare changes that were implemented
for hospitals during the 1980s and the large number of bankruptcies which have
occurred in the nursing home industry since the implementation of the Medicare
prospective payment system began.

--------------------------------------------------------------------------------
S-21

--------------------------------------------------------------------------------

Our tenants and property operations

Our financial condition depends, in part, on the financial condition of our
tenants and upon our properties' operations. The following table shows our
investments by tenant/operator at September 30, 2001, and assuming completion of
pending transactions described in "Recent developments" (dollars in thousands):

At September 30, After pending
Tenant/Operator 2001 transactions
--------------- ----------------- -----------------------------------

Five Star Quality Care/Marriott $ 0 0% $ 600,000 50%
Marriott International 325,472 55% 325,472 27%
Five Star Quality Care 144,834 24% 144,834 12%
HEALTHSOUTH 73,422 12% 73,422 6%
Private Companies 21,062 4% 21,062 2%
Integrated Health 15,598 3% 15,598 2%
Genesis Health 13,007 2% 13,007 1%
-------- ---- ---------- ----
$593,395 100% $1,193,395 100%

The following table lists our total pro forma rent for the 12 month period ended
September 30, 2001, assuming completion of pending transactions described in
"Recent developments".

Senior Housing Rents After
Pending Transactions

Annual rent Current lease
Tenant: (dollars in thousands) expiration
---------------------------------------------------------------------------------------------------------

Five Star/Marriott.......................................... $ 63,000 12/31/17
Marriott.................................................... 30,665 12/31/13
HEALTHSOUTH................................................. 10,044 1/1/06
Five Star................................................... 7,000 12/31/18
Genesis..................................................... 1,471 12/31/05
Integrated Health........................................... 1,200 12/31/10

Private companies:

Huron & Sioux Falls, SD (3 properties).................... 986 1/31/13
Fresno, CA................................................ 900 9/30/15
Seattle, WA............................................... 801 12/31/05
Grove City, OH............................................ 375 12/31/03
St. Joseph, MO............................................ 307 12/31/01
-------- ------------------
$116,749 7/12/15
14 years average
(weighted by rent)

MARRIOTT. Marriott is our most important tenant. Our historical investment in
the 14 properties (4,030 units) which we lease to Marriott is $325 million,
which represents 55% of our total investments before depreciation at
September 30, 2001. Our depreciated book value of these properties at
September 30, 2001, was $272 million. If we complete the Crestline transaction,
our total investment in properties operated by Marriott will represent 77% of
our pro forma investments before depreciation. These properties predominately
offer independent and assisted living services, and 89% of revenues at these
properties are paid by residents from private resources. Our lease to Marriott
expires in 2013. Marriott has four all or none renewal options for five years
each. The lease requires

--------------------------------------------------------------------------------
S-22

Our tenants and property operations
--------------------------------------------------------------------------------

minimum annual rent of $28 million, plus increases equal to 4.5% of net patient
revenue increases at these properties since 1994. The rent paid in 2000 was
$30 million. Marriott International, Inc. has guaranteed our lease for these 14
properties. If we complete the Crestline transaction and the Five Star spin-off,
we expect to lease the 31 Marriott properties which we acquire from Crestline to
Five Star for minimum rent of $63 million per year plus 5% of net patient
revenues increases at these properties after 2002. Marriott International will
not guaranty this lease to Five Star. Marriott International is a NYSE listed
company whose major businesses are developing, operating and managing hotels,
senior living properties and timeshare resorts. At September 7, 2001, Marriott
International reported total assets of $9.0 billion and stockholders' equity of
$3.6 billion and its unsecured senior debt is investment grade rated.

HEALTHSOUTH. We lease five nursing homes (762 beds) to HEALTHSOUTH Corporation.
Our historical investment in these properties is $73 million, which represents
12% of our total investments before depreciation at September 30, 2001. Our
depreciated book value of these properties at September 30, 2001, was
$44 million. If we complete the Crestline transaction and the Five Star
spin-off, this investment in properties leased to HEALTHSOUTH will represent 6%
of our pro forma investments before depreciation. These leases expire in
January 2006. HEALTHSOUTH has several renewal options, but we do not expect that
these renewal options will be exercised. The lease requires minimum annual rent
of $10 million plus increases equal to 3% of the increase in revenues at the
leased properties in excess of revenues for the year ended May 31, 2000. Based
upon information provided to us by HEALTHSOUTH, we believe that the net
operating income of these properties is less than the rent paid to us.
HEALTHSOUTH is a NYSE listed company whose principal businesses are in-hospital
rehabilitation services, outpatient rehabilitation services and outpatient
surgery services. At September 30, 2001, HEALTHSOUTH reported total assets of
$7.4 billion and stockholders' equity of $3.7 billion and its senior unsecured
long-term debt is currently rated Ba1 by Moody's Investors Service and BBB- by
Standard & Poor's Ratings Services. As stated above in "Risk factors--
HEALTHSOUTH has committed a non-monetary default", we have recently begun a
dialogue with HEALTHSOUTH concerning its decision to cease operations at one of
our leased properties while it continues to pay rent during the lease term. We
and HEALTHSOUTH are now considering various proposals to avoid litigation
concerning this matter, including the possibility that we may exchange our
properties for others which we would lease to HEALTHSOUTH on mutually acceptable
terms. Our current negotiations with HEALTHSOUTH are preliminary and we do not
know if they will be successfully concluded or if the results of this dialogue
will materially change our relationship with HEALTHSOUTH.

INTEGRATED HEALTH. We lease one nursing home (140 beds) to Integrated Health
Services, Inc. Our historical investment in this property is $16 million, which
represents 3% of our total investments before depreciation at September 30,
2001. If we complete the Crestline transaction and the Five Star spin-off, our
investment in this property will represent 2% of our total pro forma investments
before depreciation. Our depreciated book value of this property was $9 million
at September 30, 2001. This lease expires in 2010, and Integrated has three
renewal options for a total of 30 years. The annual rent payable to us for this
lease is $1.2 million plus annual increases beginning in 2004 based upon the
Consumer Price Index. Integrated is a large, publicly owned, nursing home and
home health services company. Integrated filed for bankruptcy in 2000, but the
lease for this property was amended pursuant to an agreement of the parties, and
our lease payments have remained current since then.

GENESIS. We lease one nursing home (150 beds) to a subsidiary of Genesis Health
Ventures, Inc. Our historical investment in this property is $13 million, which
represents 2% of our total investments before depreciation at September 30,
2001. If we complete the Crestline transaction and the Five Star spin-off, our
investment in this property will represent 1% of our total pro forma investments
before

--------------------------------------------------------------------------------
S-23

Our tenants and property operations
--------------------------------------------------------------------------------

depreciation. Our depreciated book value of this property was $11 million at
September 30, 2001. This lease expires in 2005, and Genesis has three renewal
options totaling an additional 25 years. The lease currently requires annual
rent of $2 million which increases annually by $13,000. Genesis Health
Ventures, Inc., is a large, publicly owned, nursing home company. Genesis and
its subsidiary which is our tenant filed for bankruptcy in 2000. A plan of
reorganization was confirmed and both Genesis and its subsidiary which is our
tenant were discharged from bankruptcy on October 2, 2001. Despite these
bankruptcy filings, we have continued to receive rent on a current basis.

OTHER TENANTS. As of September 30, 2001, and continuing through the date of
this prospectus supplement, we lease seven properties to five privately owned
tenants as follows (dollars in thousands):

Historical
Type of investment Book
property/no. of before value after Current Current
Location beds or units depreciation depreciation rent/year lease expiration
--------------------------------------------------------------------------------------------------------------------------

Huron and Sioux Falls, SD 2 nursing homes and $ 7,589 $ 5,732 $ 986 January 31, 2013
(3 properties) 1 assisted living
facility; 361 beds/units

Seattle, WA nursing home; 5,192 3,986 801 December 31, 2005
103 beds

Fresno, CA nursing home; 3,503 2,634 900 September 30, 2015
180 beds

Grove City (Columbus), OH nursing home; 3,445 2,801 375 December 31, 2003
200 beds
St. Joseph, MO nursing home; 1,333 1,094 307 December 31, 2001
120 beds
--------------------------------------------------------------------------------------------------------------------------
7 properties, in 5 states, 6 nursing homes and $ 21,062 $ 16,247 $ 3,369 2001 to 2015
leased to 5 tenants 1 assisted living
facility; 964 beds/units

All of the leases provide for renewal options except for the lease for the
Missouri property. The lease for the Missouri property expired during 2001, but
was extended to December 31, 2001. We continue to have discussions with this
tenant regarding a possible purchase of this property.

FSQ AND FIVE STAR. In 2000, two of our tenants, Integrated and Mariner
Post-Acute Network, Inc., filed for bankruptcy. Effective July 1, 2000, we
entered settlements with these tenants. Pursuant to the Integrated settlement,
we assumed the financial responsibility for 41 nursing homes, operations for
five nursing homes formerly managed by Integrated were assumed by the primary
tenant, HEALTHSOUTH, and the lease for one nursing home was amended as described
above. Pursuant to the Mariner settlement, we assumed financial responsibility
for 17 nursing homes. Since July 1, 2000, we closed operations at two of these
nursing homes, and we purchased an assisted living facility in the vicinity of a
nursing home formerly leased to Mariner. As a result of these activities, at
September 30, 2001, 56 healthcare properties, including 54 nursing homes and two
assisted living facilities, located in 12 states, with 5,270 beds were managed
for our account. Our historical investment in these properties, after impairment
write-downs, is $145 million, which represents 24% of our total investments
before depreciation at September 30, 2001. If we complete the spin-off and the
Crestline transaction, our investment in these 56 properties will represent 12%
of our total pro forma investments before depreciation. Our depreciated book
value of these properties was $120 million at September 30, 2001.

--------------------------------------------------------------------------------
S-24

Our tenants and property operations
--------------------------------------------------------------------------------

Tax laws applicable to REITs require that we engage a manager to operate
repossessed properties, and our managing trustees organized FSQ, Inc., or FSQ,
for this purpose. FSQ has assembled a staff of 87 personnel in our home office
and in six regional offices who supervise a staff of 5,100 full time equivalent
employees at these healthcare properties. Since July 1, 2000, we and FSQ have
obtained all of the healthcare licenses and entered various Medicare and
Medicaid contracts necessary to operate these properties for our account. Our
present business plan is to operate these properties through FSQ until we
consummate the Five Star spin-off. At that time, we expect Five Star will
acquire FSQ. As part of the Five Star spin-off we will contribute to Five Star
operating assets and liabilities of the 56 operating properties and cash with a
combined net book value of $50 million.

For the five quarterly periods that FSQ has operated the properties which we
repossessed or acquired from former tenants, our net operating income before
depreciation from these operations was as follows (dollars in thousands):

NOI
Quarter ended NOI annualized
-----------------------------------------------------------------------------------

September 30, 2000.......................................... $1,228 $ 4,912
December 31, 2000........................................... 1,292 5,168
March 31, 2001.............................................. 1,376 5,504
June 30, 2001............................................... 1,519 6,076
September 30, 2001.......................................... 1,556 6,224

After the Five Star spin-off, we expect that these 56 properties will be leased
to Five Star. We expect that the lease will expire in 2018 and that Five Star
will have one renewal option for all, and not less than all, of the properties
for 15 years. We expect the annual rent payable to us under this lease to be
$7 million plus increases beginning in 2004 equal to 3% of revenues at each
property during a year in excess of revenues at each property during 2003.

If we acquire the 31 Marriott properties from Crestline, Five Star will
simultaneously acquire the operating assets and liabilities of these properties.
Any excess of operating liabilities over operating assets will be funded to Five
Star by us. On a pro forma basis at September 30, 2001, this excess was
$3.6 million. Upon closing of the Crestline transaction we also expect to lease
these 31 properties to Five Star. This lease will expire in 2017, and Five Star
will have two renewal options for all, and not less than all, of these
properties totaling an additional 15 years. We expect the annual rent payable to
us will be $63 million plus increases beginning 2003 equal to 5% of revenues at
each property during a year in excess of revenues at each property during 2002.

Assuming completion of the Five Star spin-off and the Crestline transaction and
the leases to Five Star of the 56 nursing homes and the 31 Marriott properties
acquired from Crestline, Five Star will be our tenant for properties in which we
have invested $745 million, or 62% of our total pro forma investments before
depreciation.

--------------------------------------------------------------------------------
S-25

--------------------------------------------------------------------------------

Management

Our trustees and executive officers are as follows:

Name Age Position
-----------------------------------------------------------------------------------------------------------

Barry M. Portnoy............................... 56 Managing Trustee (term expires in 2003)
Gerard M. Martin............................... 67 Managing Trustee (term expires in 2004)
Bruce M. Gans, M.D............................. 54 Independent Trustee (term expires in 2003)
John L. Harrington............................. 65 Independent Trustee (term expires in 2004)
Arthur G. Koumantzelis......................... 71 Independent Trustee (term expires in 2002)
David J. Hegarty............................... President, Chief Operating Officer and
44 Secretary
John R. Hoadley................................ 30 Treasurer and Chief Financial Officer

BARRY M. PORTNOY is one of our managing trustees and has been since our
formation in 1998. He is also a managing trustee of HRPT Properties Trust, or
HRPT, and Hospitality Properties Trust, or HPT, and has been since they began
business in 1986 and 1995, respectively. Mr. Portnoy is also a director and 50%
owner of Reit Management & Research LLC, or RMR, our investment manager. From
1978 through March 1997, Mr. Portnoy was a partner of the law firm of
Sullivan & Worcester LLP, our counsel, and was chairman of that firm from 1994
through 1997. Mr. Portnoy is and will remain a director of Five Star.

GERARD M. MARTIN is one of our managing trustees and has been since our
formation in 1998. Mr. Martin is also a managing trustee of HRPT and HPT and has
been since they began business in 1986 and 1995 respectively. Mr. Martin is also
a director and 50% owner of RMR. Mr. Martin is and will remain a director of
Five Star.

BRUCE M. GANS, M.D. has been Executive Vice President and Chief Medical Officer
at Kessler Rehabilitation Corporation, a healthcare services provider
headquartered in West Orange, New Jersey, since June 1, 2001. From April 1999 to
May 31, 2001, Dr. Gans was Senior Vice President for Continuing Care and
Chairman of Physical Medicine and Rehabilitation at North Shore Long Island
Jewish Health System, a healthcare services provider headquartered in New Hyde
Park, New York and Professor of Physical Medicine and Rehabilitation at the
Albert Einstein College of Medicine in New York City. From 1989 through March
1999, Dr. Gans was a Professor and Chairman of the Department of Physical
Medicine and Rehabilitation at Wayne State University and a Senior Vice
President of the Detroit Medical Center, both located in Detroit, Michigan.
Dr. Gans was a trustee of HRPT from October 1995 through October 1999. Dr. Gans
has been one of our trustees since we became a separate public company in
October 1999. When the Five Star spin-off is completed, Dr. Gans will resign as
one of our trustees and will become a director of Five Star.

JOHN L. HARRINGTON has been the Chief Executive Officer of the Boston Red Sox
Baseball Club, Executive Director and Trustee of the Yawkey Foundation and a
Trustee of the JRY Trust for over five years. The Yawkey Foundation and JRY
Trust are not-for-profit charitable foundations headquartered in Dedham,
Massachusetts. Mr. Harrington was a trustee of HRPT from 1991 to 1995 and a
trustee of HPT and Senior Housing since those companies became publicly owned in
1995 and 1999, respectively. Mr. Harrington will become a director of Five Star
when the Five Star spin-off is completed.

ARTHUR G. KOUMANTZELIS has been the President and Chief Executive Officer of
Gainesborough Investments LLC, a private investment company, located in
Lexington, Massachusetts since June 1998. Since April 2000, he has served as the
President, Chief Executive Officer and a member of the Board of Directors of
Peponi Investments, LLC, a private company, also located in Lexington,
Massachusetts. In addition, Mr. Koumantzelis has served as Treasurer and has
been a 33% stockholder of Mosaic

--------------------------------------------------------------------------------
S-26

Management
--------------------------------------------------------------------------------

Communications Group, LLC, a media company, since December 2000. He is also a
Trustee of Milo Trust and Lemoni Trust and a member of the Board of Directors of
Wang Healthcare Information Systems, Inc.; all of which are private companies
headquartered in Massachusetts. From 1990 until February 1998, Mr. Koumantzelis
was Senior Vice President and Chief Financial Officer of Cumberland
Farms, Inc., a private company headquartered in Canton, Massachusetts, engaged
in the convenience store business and the distribution and retail sale of
gasoline. Mr. Koumantzelis was a trustee of HRPT from 1992 to 1995, and he has
been a trustee of HPT and Senior Housing since they became publicly owned in
1995 and 1999, respectively. Mr. Koumantzelis will become a director of Five
Star when the Five Star spin-off is completed.

DAVID J. HEGARTY has been our President, Chief Operating Officer and Secretary
since our organization in 1998. From August 2000 to October 2001 he has also
been our acting Treasurer and Chief Financial Officer and the acting Treasurer
of Five Star. Since January 1998, Mr. Hegarty has been a Director, President and
Secretary of RMR. Mr. Hegarty was the President and Chief Operating Officer of
HRPT from April 1994 through October 1999. Mr. Hegarty has served RMR and its
affiliates in various capacities since 1987. Prior to 1987, Mr. Hegarty was an
audit manager with Ernst & Young LLP. Mr. Hegarty is a certified public
accountant.

JOHN R. HOADLEY has been our Treasurer and Chief Financial Officer since October
2001. He was our Controller from May 2000 to October 2001 and the Controller of
Five Star from October 2000 to October 2001, and the Controller of HPT from
October 1999 to October 2001. Since March 1998, Mr. Hoadley has served in
various capacities for RMR and its affiliated companies. Prior to March 1998,
Mr. Hoadley was employed by Arthur Andersen LLP as a senior auditor.
Mr. Hoadley is a certified public accountant.

There are no family relationships among any of our trustees or executive
officers. Executive officers serve at the discretion of our board of trustees.

Our declaration of trust provides that a majority of our board of trustees will
be composed of independent trustees who are neither affiliated with Senior
Housing's investment manager nor serve as officers of Senior Housing. Dr. Gans
and Messrs. Harrington and Koumantzelis are Senior Housing's independent
trustees. The board of trustees makes all major investment and policy decisions
affecting Senior Housing.

RMR provides management services and investment advice to us. RMR also acts as
an investment manager to HRPT and HPT and has other business interests.
Messrs. Portnoy and Martin own RMR. Messrs. Portnoy and Martin and Mr. David J.
Hegarty are the directors of RMR. The officers of RMR are Mr. Hegarty, President
and Secretary, John G. Murray, Executive Vice President, Evrett W. Benton,
Jennifer B. Clark, John R. Hoadley, David M. Lepore, Bruce J. Mackey Jr., John
A. Mannix, Thomas M. O'Brien, Vice Presidents and John C. Popeo, Treasurer.

Under the terms of our agreement with RMR, we pay RMR an annual advisory fee
calculated on the basis of total assets under management (0.7% of $250 million
plus 0.5% of additional assets) plus an incentive fee for each year equal to 15%
of the annual increase and funds from operations per common share multiplied by
the weighted average number of common shares outstanding in each year, but in no
event more than $0.02 per common share multiplied by the weighted average number
of common shares outstanding in each year. Incentive fees are paid in our common
shares.

We do not have any employees separate from RMR. Employees of RMR provide
services which might otherwise be provided by our employees. Similarly, RMR
provides our office space. Although we do not have significant general and
administrative operating expenses in addition to fees payable to RMR, we are
required to pay various other expenses relating to our activities, including the
costs and

--------------------------------------------------------------------------------
S-27

Management
--------------------------------------------------------------------------------

expenses of acquiring, owning and disposing of our real estate (including taxes,
appraisals, third party diligence, brokerage, audit and legal fees), our cost of
borrowing money and our cost of securities listing, transfer, registration and
compliance with public reporting requirements. Also, we pay the fees and
expenses of our independent trustees.

We have entered into management agreements with FSQ, Inc. under which FSQ
manages healthcare facilities for us. FSQ is owned by Messrs. Martin and
Portnoy. FSQ receives a fee equal to 5% of the net patient revenues at managed
facilities.

Messrs. Martin and Portnoy each have material interests in the transactions
between us and each of FSQ and RMR. All business transactions between us, on the
one hand, and RMR and FSQ on the other hand, have been approved by our
independent trustees.

--------------------------------------------------------------------------------
S-28

--------------------------------------------------------------------------------

Description of notes

The following description of the particular terms of the notes supplements and,
to the extent inconsistent with, replaces the description of the general terms
and provisions of debt securities set forth under "Description of Debt
Securities" in the accompanying prospectus. We have provided a Glossary at the
end of this prospectus supplement to define certain capitalized words used in
discussing the terms of the notes. References in this section to "we," "us,"
"our," "Senior Housing" and the "Company" mean Senior Housing and not its
subsidiaries.

GENERAL

We will issue the notes under an indenture dated as of December , 2001 and a
supplemental indenture dated as of December , 2001, (together, the Indenture)
between us and State Street Bank and Trust Company, as Trustee. The Indenture is
subject to, and governed by, the Trust Indenture Act of 1939, as amended. This
prospectus supplement briefly outlines some of the provisions of the Indenture.
These summaries are not complete. If you would like more information on these
provisions, review the copy of the Indenture that we have filed with the SEC.
See "Where you can find more information". You may also review the Indenture at
the trustee's corporate trust office at Two International Place, Boston,
Massachusetts 02110.

The notes will be a separate series under the Indenture, initially in the
aggregate principal amount of $200 million. This series may be reopened and we
may from time to time issue additional notes of the same series. The notes will
mature (unless previously redeemed) on December 15, 2008. The notes will be
issued only in fully registered form without coupons, in denominations of $1,000
and integral multiples thereof. The notes will be evidenced by a global note in
book-entry form, except under the limited circumstances described under "--Book
entry system and form of notes."

The notes will be senior unsecured obligations of Senior Housing and will rank
equally with each other and with all of our other unsecured and unsubordinated
indebtedness outstanding from time to time. The notes will not be guaranteed by
our subsidiaries. The notes will be effectively subordinated to our mortgages
and other secured indebtedness, and to all liabilities of our subsidiaries.
Accordingly, such prior indebtedness will have to be satisfied in full before
you will be able to realize any value from our encumbered or indirectly held
properties. As of September 30, 2001, on an as adjusted basis giving effect to
this offering, our October 2001 equity offering and pending transactions
described in "Recent developments", the total indebtedness of our subsidiaries
will be $292 million. In addition, one of our subsidiaries is the borrower under
our bank credit facility, and we and all of our other subsidiaries are
guarantors of our bank credit facility and may be guarantors of future credit
facilities. Our outstanding other indebtedness is described below under
"--Description of other indebtedness."

We and our subsidiaries may also incur additional indebtedness, including
secured indebtedness, subject to the provisions described below under "--Certain
covenants--limitations on incurrence of debt".

Except as described below under "--Certain covenants" and "--Merger,
consolidation or sale" and under "Description of Debt Securities--Merger,
Consolidation or Sale" and "--Certain Covenants" in the accompanying Prospectus,
the Indenture does not contain any other provisions that would limit our ability
to incur indebtedness or that would afford you protection in the event of (1) a
highly leveraged or similar transaction involving us or any of our affiliates,
(2) a change of control, or (3) a reorganization, restructuring, merger or
similar transaction involving us that may adversely affect you. In addition,
subject to the limitations set forth below under "--Certain covenants" and
"--Merger, consolidation or sale" or under "Description of Debt
Securities--Merger, Consolidation or Sale" and

--------------------------------------------------------------------------------
S-29

Description of notes
--------------------------------------------------------------------------------

"--Certain Covenants" in the accompanying Prospectus, we may, in the future,
enter into transactions such as the sale of all or substantially all of our
assets or a merger or consolidation that would increase the amount of our
indebtedness or substantially reduce or eliminate our assets, which might have
an adverse effect on our ability to service our indebtedness, including the
notes. We have no present intention of engaging in a highly leveraged or similar
transaction.

INTEREST AND MATURITY

The notes will bear interest at the rate per annum set forth on the cover page
of this prospectus supplement from December 15, 2001, or from the immediately
preceding interest payment date to which interest has been paid. Interest is
payable semi-annually in arrears on June 15 and December 15 of each year,
commencing June 15, 2002, to the persons in whose names the notes are registered
at the close of business on June 1 and December 1, as the case may be,
immediately before the interest payment dates. Accrued interest is also payable
on the date of maturity or earlier redemption of the notes. Interest on the
notes will be computed on the basis of a 360-day year of twelve 30-day months.

OPTIONAL REDEMPTION

The notes may be redeemed at any time at our option, in whole or from time to
time in part, at a redemption price equal to the sum of (i) the principal amount
of the notes being redeemed, (ii) accrued interest thereon to the redemption
date and (iii) the Make-Whole Amount (as defined below), if any, with respect to
the notes, upon terms and conditions described in the Indenture.

After notice of optional redemption has been given as provided in the Indenture,
if funds for the redemption of any notes called for redemption have been made
available on the redemption date, notes called for redemption will cease to bear
interest on the date fixed for the redemption specified in the redemption notice
and the only right of the holders of the notes will be to receive payment of the
redemption price.

Notice of any optional redemption of any notes will be given to holders at their
addresses, as shown in the notes register, not more than 60 nor less than
30 days prior to the date fixed for redemption. The notice of redemption will
specify, among other items, the redemption price and the principal amount of the
notes held by the holder to be redeemed.

We will notify the Trustee at least 45 days prior to the redemption date (or
such shorter period as is satisfactory to the Trustee) of the aggregate
principal amount of notes to be redeemed and the redemption date. If less than
all the notes are to be redeemed, the Trustee shall select, pro rata or by lot
or by any other method that the Trustee considers fair and appropriate under the
circumstances, notes to be redeemed. Notes may be redeemed in part in the
minimum authorized denomination for notes or in any integral multiple thereof.

As used herein:

"MAKE-WHOLE AMOUNT" means, in connection with any optional redemption or
accelerated payment of the notes, the excess, if any, of:

(i) the aggregate present value as of the date of such redemption or
accelerated payment of each dollar of principal being redeemed or paid
and the amount of interest (exclusive of interest accrued to the date
of redemption or accelerated payment) that would have been payable in
respect of each such dollar if such redemption or accelerated payment
had not been made, determined by discounting, on a semi-annual basis,
such principal and interest at the Reinvestment Rate (determined on the
third business day preceding the date a notice of

--------------------------------------------------------------------------------
S-30

Description of notes
--------------------------------------------------------------------------------

redemption is given or declaration of acceleration is made) from the
respective dates on which such principal and interest would have been
payable if such redemption or payment had not been made, over

(ii) the aggregate principal amount of the notes being redeemed or paid.

"REINVESTMENT RATE" means 0.50% plus the arithmetic mean of the yields under the
respective heading Week Ending published in the most recent Statistical Release
under the caption Treasury Constant Maturities for the maturity (rounded to the
nearest month) corresponding to the remaining life to maturity, as of the date
of the principal being redeemed or paid. If no maturity exactly corresponds to
such maturity, yields for the two published maturities most closely
corresponding to such maturity shall be calculated pursuant to the immediately
preceding sentence and the Reinvestment Rate shall be interpolated or
extrapolated from such yields on a straight-line basis, rounding in each of such
relevant periods to the nearest month. For the purpose of calculating the
Reinvestment Rate, the most recent Statistical Release published prior to the
date of determination of the Make-Whole Amount shall be used.

"STATISTICAL RELEASE" means that statistical release designated H.15(519) or any
successor publication that is published weekly by the Federal Reserve System and
that establishes annual yields on actively traded United States government
securities adjusted to constant maturities, or, if such statistical release is
not published at the time of any determination under the Indenture, then such
other reasonably comparable index we designate.

CERTAIN COVENANTS

LIMITATIONS ON INCURRENCE OF DEBT. We will not, and will not permit any
Subsidiary to, incur any additional Debt if, immediately after giving effect to
the incurrence of such additional Debt and the application of the proceeds
thereof, the aggregate principal amount of all of our outstanding Debt on a
consolidated basis determined in accordance with generally accepted accounting
principles (GAAP) is greater than 60% of the sum (Adjusted Total Assets) of
(without duplication):

(1) our Total Assets as of the end of the calendar quarter covered by our
Annual Report on Form 10-K, or the Quarterly Report on Form 10-Q, as the
case may be, most recently filed with the SEC (or, if such filing is not
permitted under the Exchange Act, with the Trustee) prior to the
incurrence of such additional Debt; and

(2) the purchase price of any real estate assets or mortgages receivable
acquired, and the amount of any securities offering proceeds received (to
the extent that such proceeds were not used to acquire real estate assets
or mortgages receivable or used to reduce Debt), by us since the end of
such calendar quarter, including those proceeds obtained in connection
with the incurrence of such additional Debt.

In addition to the above limitations on the incurrence of Debt, we will not, and
will not permit any Subsidiary to, incur any Secured Debt if, immediately after
giving effect to the incurrence of such additional Secured Debt and the
application of the proceeds thereof, the aggregate principal amount of all our
outstanding Secured Debt on a consolidated basis is greater than 40% of Adjusted
Total Assets.

In addition to the above limitations on the incurrence of Debt, we will not, and
will not permit any Subsidiary to, incur any Debt if the ratio of Consolidated
Income Available for Debt Service to the Annual Debt Service for the four
consecutive fiscal quarters most recently ended prior to the date on which such
additional Debt is to be incurred shall have been less than 2.0x, on a pro forma
basis after

--------------------------------------------------------------------------------
S-31

Description of notes
--------------------------------------------------------------------------------

giving effect thereto and to the application of the proceeds therefrom, and
calculated on the assumption that:

(1) such Debt and any other Debt incurred by us since the first day of such
four-quarter period and the application of the proceeds therefrom,
including to refinance other Debt, had occurred at the beginning of such
period;

(2) the repayment or retirement of any other Debt by us since the first date
of such four-quarter period had been repaid or retired at the beginning
of such period (except that, in making such computation, the amount of
Debt under any revolving credit facility shall be computed based upon the
average daily balance of such Debt during such period);

(3) in the case of Acquired Debt or Debt incurred in connection with any
acquisition since the first day of such four-quarter period, the related
acquisition had occurred as of the first day of such period with
appropriate adjustments with respect to such acquisition being included
in such pro forma calculation; and

(4) in the case of any acquisition or disposition by us of any asset or
group of assets since the first day of such four-quarter period, whether
by merger, stock purchase or sale, or asset purchase or sale, such
acquisition or disposition or any related repayment of Debt had occurred
as of the first day of such period with the appropriate adjustments with
respect to such acquisition or disposition being included in such pro
forma calculation.

If the Debt giving rise to the need to make the foregoing calculation or any
other Debt incurred after the first day of the relevant four-quarter period
bears interest at a floating rate then, for purposes of calculating the Annual
Debt Service, the interest rate on such Debt will be computed on a pro forma
basis as if the average interest rate which would have been in effect during the
entire such four-quarter period had been the applicable rate for the entire such
period.

LIMITATIONS ON DISTRIBUTIONS. We will not, and we will not permit any of our
Subsidiaries to, make any distribution with respect to our capital stock;
purchase, redeem, retire or otherwise acquire for value any shares of our
capital stock; or make any voluntary or optional principal payment, or voluntary
or optional redemption, repurchase, defeasance, or other acquisition or
retirement for value, of Subordinated Debt; unless, immediately after giving pro
forma effect to such distribution:

(1) no default under the Indenture shall have occurred and be continuing;

(2) we and our Subsidiaries could incur at least $1.00 of Debt under the
terms of the Indenture; and

(3) the aggregate sum of all distributions and other restricted payments
made after the date of the supplemental indenture shall not exceed the
sum of:

(a) 95% of our aggregate cumulative Funds from Operations accrued on a
cumulative basis from the date of the beginning of the first fiscal
quarter which includes the date of the supplemental indenture;

(b) the aggregate proceeds or values received after the date of the
supplemental indenture from the issuance or sale of our equity
securities, net of underwriting discounts, commissions, legal fees
and the like; and

Notwithstanding the foregoing, the limitations on distributions described above
shall not apply to (i) any distribution or other action which is necessary to
distribute 100% of our REIT taxable income

--------------------------------------------------------------------------------
S-32

Description of notes
--------------------------------------------------------------------------------

or to maintain our status as a REIT under the amended Internal Revenue Code of
1986, if in either case the aggregate principal amount of our outstanding Debt
on a consolidated basis determined in accordance with GAAP is less than 60% of
Adjusted Total Assets; (ii) any distribution payable in our equity securities;
or (iii) the pending Five Star spin-off. Also, we will not be prohibited from
making the payment of any distribution within 60 days of the declaration thereof
if at the date of declaration such payment would have complied with the
provisions of the immediately preceding paragraph.

See "Description of Debt Securities--Certain Covenants" in the accompanying
prospectus for a description of additional covenants applicable to us.

MERGER, CONSOLIDATION OR SALE

Under the Indenture related to the notes, we are generally permitted to
consolidate or merge with another company. We are also permitted to sell
substantially all of our assets, or to buy substantially all of the assets of
another company. However, we may not take any of these actions unless the
following conditions are met:

- If we merge out of existence or sell substantially all our assets, the
surviving company must be an entity organized under the laws of the United
States, any state or the District of Columbia and must agree to be legally
responsible for the notes;

- Immediately after the merger, sale of assets or other transaction, we may
not be in default under the Indenture. A default for this purpose would
include any event that would be an event of default if the requirements for
giving us default notice or our default having to exist for a specific
period of time were disregarded; and

- Immediately after the merger, sale of assets or other transaction, we or the
successor entity could incur at least $1.00 of Debt in accordance with the
Indenture covenants limiting the incurrence of Debt.

EVENTS OF DEFAULT, NOTICE AND WAIVER

The Indenture for the notes provides that the term "event of default" for the
notes means any of the following:

- We do not pay the principal or any premium on the notes when due and
payable;

- We do not pay interest on notes within 30 days after the applicable due
date;

- We remain in breach of any other term of the Indenture (other than a term
added to the Indenture solely for the benefit of series of debt other than
the notes we are offering) for 60 days after we receive a notice of default
stating we are in breach. Either the trustee or holders of more than 50% in
principal amount of the notes may send the notice;

- Final judgments aggregating in excess of $10 million (exclusive of amounts
covered by insurance) are entered against us or our Subsidiaries and are not
paid, discharged or stayed for a period of 60 days;

- We default under any of our other indebtedness in an aggregate principal
amount exceeding $10 million after the expiration of any applicable grace
period, which default results in the acceleration of the maturity of such
indebtedness. Such default is not an event of default if the other
indebtedness is discharged, or the acceleration is rescinded or annulled,
within a period of 10 days after we receive notice specifying the default
and requiring that we discharge the other

--------------------------------------------------------------------------------
S-33

Description of notes
--------------------------------------------------------------------------------

indebtedness or cause the acceleration to be rescinded or annulled. Either
the trustee or the holders of more than 25% in principal amount of the notes
may send the notice; or

- We or one of our "Significant Subsidiaries," if any, files for bankruptcy or
certain other events in bankruptcy, insolvency or reorganization occur.

The term "Significant Subsidiary" means each of our significant subsidiaries, if
any, as defined in Regulation S-X under the Securities Act of 1933, as amended.

MODIFICATION OF THE INDENTURE

The prospectus contains a description of our ability to modify the Indenture or
the notes under the heading "Description of Debt Securities--Modification of an
Indenture". Some types of changes require the consent of all holders of the
notes, other types require the consent of the holders of a majority of the
outstanding notes, and other types require no noteholder approval.

SINKING FUND

The notes are not entitled to any sinking fund payments.

THE REGISTRAR AND PAYING AGENT

We have initially designated State Street Bank and Trust Company as the
registrar and paying agent for the notes. Payments of interest and principal
will be made, and the notes will be transferable, at the office of the paying
agent, or at such other place or places as may be designated pursuant to the
Indenture. For notes which we issue in book-entry form represented by a global
security, payments will be made to a nominee of the depository.

DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE

The provisions of the Indenture relating to defeasance and covenant defeasance
described under "Description of Debt Securities--Discharge, Defeasance and
Covenant Defeasance" in the accompanying prospectus will apply to the notes.

BOOK ENTRY SYSTEM AND FORM OF NOTES

The notes will be issued in the form of a single fully registered global note
without coupons that will be deposited with The Depository Trust Company, New
York, New York, or DTC, and registered in the name of its nominee, Cede & Co.
This means that we will not issue certificates to each owner of notes. One
global note will be issued to DTC, which will keep a computerized record of its
participants (for example, your broker) whose clients have purchased the notes.
The participant will then keep a record of its clients who purchased the notes.
Unless it is exchanged in whole or in part for a certificated note, the global
note may not be transferred, except that DTC, its nominees, and their successors
may transfer the global note as a whole to one another.

DTC has provided us with the following information: DTC is a limited-purpose
trust company organized under the New York Banking Law, a banking organization
within the meaning of the New York Banking Law, a member of the United States
Federal Reserve System, a clearing corporation within the meaning of the New
York Uniform Commercial Code and a clearing agency registered under the
provisions of Section 17A of the Exchange Act. DTC holds securities that its
participants

--------------------------------------------------------------------------------
S-34

Description of notes
--------------------------------------------------------------------------------

(Direct Participants) deposit with DTC. DTC also records the settlement among
Direct Participants of securities transactions, such as transfers and pledges,
in deposited securities through computerized records for Direct Participants'
accounts. This eliminates the need to exchange certificates. Direct Participants
include securities brokers and dealers (including the Underwriters), banks,
trust companies, clearing corporations and certain other organizations.

DTC's book-entry system is also used by other organizations such as securities
brokers and dealers, banks and trust companies that work through a Direct
Participant. The rules that apply to DTC and its Direct Participants are on file
with the SEC.

DTC is owned by a number of its Direct Participants and by the NYSE, the
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc.

We expect that, pursuant to procedures established by DTC, ownership of
beneficial interests in the notes evidenced by the global note will be shown on,
and the transfer of that ownership will be effected only through, records
maintained by DTC or its nominee (with respect to beneficial interests of Direct
Participants) and records of Direct Participants (with respect to beneficial
interests of persons who hold through Direct Participants). Neither we nor the
Trustee will have any responsibility or liability for any aspect of the records
of DTC or for maintaining, supervising or reviewing any records of DTC or any of
its Direct Participants relating to beneficial ownership interests in the notes.
The laws of some states require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and laws
may impair your ability to own, pledge or transfer beneficial interests in the
global note.

So long as DTC or its nominee is the registered owner of the global note, DTC or
such nominee, as the case may be, will be considered the sole owner or holder of
the notes represented by the global note for all purposes under the Indenture.
Except as described below, as an owner of a beneficial interest in notes
evidenced by the global note you will not be entitled to have any of the
individual notes represented by such global note registered in your name, you
will not receive or be entitled to receive physical delivery of any such notes
in definitive form and you will not be considered the owner or holder thereof
under the Indenture for any purpose, including with respect to the giving of any
direction, instructions or approvals to the Trustee thereunder. Accordingly, you
must rely on the procedures of DTC and, if you are not a Direct Participant, on
the procedures of the Direct Participant through which you own your interest, to
exercise any rights of a holder under the Indenture. We understand that, under
existing industry practice, if we request any action of holders or if an owner
of a beneficial interest in a global note desires to give or take any action
which a holder is entitled to give or take under the Indenture, DTC would
authorize the Direct Participants holding the relevant beneficial interest to
give or take such action, and such Direct Participants would authorize
beneficial owners through such Direct Participants to give or take such actions
or would otherwise act upon the instructions of beneficial owners holding
through them.

Payments of principal of, any premium, if any, and any interest or additional
amount on, individual notes represented by a global note registered in the name
of the holder of the global note or its nominee will be made by the Trustee to
or at the direction of the holder of the global note or its nominee, as the case
may be, as the registered owner of the global note under the Indenture. Under
the terms of the Indenture, we and the Trustee may treat the persons in whose
name notes, including a global note, are registered as the owners thereof for
the purpose of receiving such payments. Consequently, neither we nor the Trustee
has or will have any responsibility or liability for the payment of such amounts
to beneficial owners of notes (including principal, premium, if any, and
interest or additional amount).

--------------------------------------------------------------------------------
S-35

Description of notes
--------------------------------------------------------------------------------

We believe, however, that it is currently the policy of DTC to immediately
credit the accounts of relevant Direct Participants with such payments in
amounts proportionate to their respective holdings of beneficial interests in
the relevant security as shown on the records of DTC. Payments by Direct
Participants to the beneficial owners of notes will be governed by standing
instructions and customary practice and will be the responsibility of DTC's
Direct Participants. Redemption notices with respect to any notes will be sent
to the holder of the global note (i.e, DTC, its nominee or any subsequent
holder). If less than all of the notes of any series are to be redeemed, we
expect the holder of the global note to determine the amount of interest of each
Direct Participant in the notes to be redeemed by lot. Neither we, the Trustee,
any paying agent nor the security registrar for such notes will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global note
for such notes.

Neither we nor the Trustee will be liable for any delay by the holder of a
global note or DTC in identifying the beneficial owners of notes and we and the
Trustee may conclusively rely on, and will be protected in relying on,
instructions from the holder of a global note or DTC for all purposes.

The notes, which are represented by the global note, will be exchangeable for
certificate notes with the same terms in authorized denominations only if:

- DTC notifies us that it is unwilling or unable to continue as depository or
if DTC ceases to be a clearing agency registered under applicable law and a
successor depository is not appointed by us within 90 days; or

- we determine not to require all of the notes to be represented by a global
note and notify the Trustee of our decision, in which case we will issue
individual notes in denominations of $1,000 and integral multiples thereof.

SAME DAY SETTLEMENT AND PAYMENT

The Underwriters will make settlement for the notes in immediately available
funds. We will make all payments of principal and interest in respect of the
notes in immediately available funds.

The notes will trade in DTC's Same-Day Funds Settlement System until maturity or
until the notes are issued in certificated form, and secondary market trading
activity in the notes will therefore be required by DTC to settle in immediately
available funds. We expect that secondary trading in the certificated
securities, if any, will also be settled in immediately available funds. No
assurance can be given as to the effect, if any, of settlement in immediately
available funds on trading activity in the notes.

--------------------------------------------------------------------------------
S-36

--------------------------------------------------------------------------------

Description of other indebtedness

On a consolidated basis at September 30, 2001, we had $31 million outstanding on
our revolving bank credit facility and $9 million in mortgage notes secured by
two of our nursing home properties. Our outstanding balance on the revolving
bank credit facility was repaid in October 2001. As of September 30, 2001,
assuming the completion of the spin-off, the acquisition of 31 senior living
communities from Crestline and our October 2001 sale of 14 million common
shares, each as described in "Recent developments" and in more detail in our pro
forma financial statements included elsewhere in this prospectus supplement and
in our Form 8-K dated December 6, 2001, which is incorporated herein by
reference, the following table summarizes our other debts (dollars in
thousands):

Revolving bank credit facility.............................. $ 50,000
Mortgage and other notes payable............................ 232,688
Capital lease obligations................................... 9,798
--------
Total................................................... $292,486
========

EXISTING CREDIT FACILITY

During 1999, we entered into a revolving credit facility with a group of
commercial banks. This facility carries interest at a spread above LIBOR and has
a maximum availability of $270 million. The interest rate at September 30, 2001
was 4.67%. As of September 30, 2001, $31 million was outstanding and
$239 million was available for drawing under this credit facility. The credit
facility borrower is our subsidiary which owns the existing 14 Marriott
properties and the credit facility is guaranteed by us and all of our other
subsidiaries. The credit facility contains customary affirmative and restrictive
covenants regarding, among other things, indebtedness, liabilities, liens,
dividends, loans, investments, purchases and fundamental changes to our
corporate structure and line of business. The facility matures in
September 2002, and is secured by our existing 14 Marriott properties which have
a book value before depreciation of $325 million at September 30, 2001.

MORTGAGE AND OTHER NOTES PAYABLE

The mortgage and other notes payable shown above includes $9 million of
mortgages secured by two of our nursing homes which have a book value before
depreciation of $9 million at September 30, 2001. This debt carries interest at
prime less a spread, requires no principal amortization payments prior to its
maturity in July 2002. The maturity is subject to extension by us for up to one
year to July 2003.

--------------------------------------------------------------------------------
S-37

Description of other indebtedness
--------------------------------------------------------------------------------

The mortgage and other notes payable shown above also include the following
debts which are secured by properties which we expect to acquire as part of the
pending Crestline transaction (dollars in thousands):

Crestline
transaction
purchase price
Balance at allocated to
September 30, Interest Required principal mortgaged
2001 Maturity Rate amortization Secured by properties
-------------------------------------------------------------------------------------------------------------------

$116,518 December 31, 2006 10% (fixed) $1,600 per year 8 properties $ 209,365
$ 92,370 July 3, 2005 LIBOR + 2.75% None 8 properties $ 125,988
$ 14,700 December 1, 2027 5.87% (fixed) None 1 property $ 33,336

CAPITAL LEASE OBLIGATIONS

Two of the properties we expect to acquire in the pending Crestline transaction
are leased under agreements which are accounted for as capital leases under
generally accepted accounting principles, or GAAP. The material financial terms
of these leases are as follows (dollars in thousands):

Crestline
transaction
Balance at purchase price
September 30, Existing term Required Number of allocated to
2001 ending payments in 2001 leased property leased properties
-------------------------------------------------------------------------------------------------

$7,654 May 31, 2016 $969 1 property $10,735
$2,144 May 31, 2016 $271 1 property $ 6,327

TRUST PREFERRED SECURITIES

Our subsidiary, SNH Capital Trust I, has issued 1,095,750 trust preferred
securities. These trust preferred securities have a liquidation value of $25 per
security (total $27.4 million), require periodic payments of distributions at
the rate of 10.125% per year and mature on June 15, 2041. In connection with the
issuance of the trust preferred securities, we issued to SNH Capital Trust I
junior subordinated debentures and guaranteed the payment and performance by SNH
Capital Trust I of its obligations relating to the trust preferred securities.
Both the trust preferred securities and the debentures are unsecured and mature
on June 15, 2041. The notes will be senior to our obligations under the
debentures and under the guaranty.

--------------------------------------------------------------------------------
S-38

--------------------------------------------------------------------------------

Material federal income tax consequences

The following summary of federal income tax considerations is based upon the
amended Internal Revenue Code of 1986 or the Tax Code, Treasury regulations, and
rulings and decisions now in effect, all of which are subject to change,
possibly with retroactive effect, or possible differing interpretations. We have
not sought a ruling from the Internal Revenue Service, or IRS, with respect to
any matter described in this summary. The summary applies to you only if you
hold our notes as a capital asset. The summary does not discuss the particular
tax consequences that might be relevant to you if you are subject to special
rules under the federal income tax law, for example, if you are:

- a bank, life insurance company, regulated investment company or other
financial institution;

- a broker or dealer in securities or foreign currency;

- a person that has a functional currency other than the U.S. dollar;

- a person who acquires our notes in connection with his employment or other
performance of services;

- a person subject to alternative minimum tax;

- a person who owns our notes as part of a straddle, hedging transaction,
conversion transaction or constructive sale transaction;

- a tax-exempt entity; or

- an expatriate.

In addition, the following summary does not address all possible tax
considerations, and in particular does not discuss any estate, gift,
generation-skipping transfer, state, local or foreign tax considerations. For
all these reasons, we urge you to consult with your tax advisor about the
federal income tax and other tax consequences of your acquisition, ownership and
disposition of our notes.

For purposes of this summary, you are a "U.S. holder" if you are a beneficial
owner of our notes and for federal income tax purposes are:

- a citizen or resident of the United States, including an alien individual
who is a lawful permanent resident of the United States or meets the
substantial presence residency test under the federal income tax laws;

- a corporation, partnership or other entity treated as a corporation or
partnership for federal income tax purposes, that is created or organized in
or under the laws of the United States, any state thereof or the District of
Columbia, unless otherwise provided by Treasury regulations;

- an estate, the income of which is subject to federal income taxation
regardless of its source; or

- a trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of
the trust, or electing trusts in existence on August 20, 1996, to the extent
provided in Treasury regulations;

and if your status as a U.S. holder is not overridden pursuant to the provisions
of an applicable tax treaty. Conversely, you are a "non-U.S. holder" if you are
a beneficial owner of our notes and are not a U.S. holder.

--------------------------------------------------------------------------------
S-39

Material federal income tax consequences
--------------------------------------------------------------------------------

TAX CONSEQUENCES FOR U.S. HOLDERS

If you are a U.S. holder:

PAYMENTS OF INTEREST. You must generally include interest on a note in your
gross income as ordinary interest income:

- when you receive it, if you use the cash method of accounting for federal
income tax purposes or

- when it accrues, if you use the accrual method of accounting for federal
income tax purposes.

Purchase price for a note that is allocable to prior accrued interest may be
treated as offsetting a portion of the interest income from the next scheduled
interest payment on the note. Any interest income so offset is not taxable.

MARKET DISCOUNT. If you acquire a note and your adjusted tax basis in it upon
acquisition is less than its principal amount, you will be treated as having
acquired the note at a "market discount" unless the amount of this market
discount is less than the DE MINIMIS amount (generally 0.25% of the principal
amount of the note multiplied by the number of remaining whole years to maturity
of the note). Under the market discount rules, you will be required to treat any
gain on the sale, exchange, redemption, retirement, or other taxable disposition
of a note, or any appreciation in a note in the case of a nontaxable disposition
such as a gift, as ordinary income to the extent of the market discount which
has not previously been included in your income and which is treated as having
accrued on the note at the time of the disposition. In addition, you may be
required to defer, until the maturity of the note or earlier taxable
disposition, the deduction of all or a portion of the interest expense on any
indebtedness incurred or continued to purchase or carry the note. Any market
discount will be considered to accrue ratably during the period from the date of
your acquisition to the maturity date of the note, unless you elect to accrue
the market discount on a constant yield method. In addition, you may elect to
include market discount in income currently as it accrues, on either a ratable
or constant yield method, in which case the rule described above regarding
deferral of interest deductions will not apply. This election to include market
discount in income currently, once made, applies to all market discount
obligations acquired during or after the first taxable year to which the
election applies and may not be revoked without the consent of the IRS. You
should consult with your tax advisor regarding these elections.

AMORTIZABLE BOND PREMIUM. If you acquire a note and your adjusted tax basis in
it upon acquisition is greater than its principal amount, you will be treated as
having acquired the note with "bond premium." You generally may elect to
amortize this bond premium over the remaining term of the note on a constant
yield method, and the amount amortized in any year will be treated as a
reduction of your interest income from the note for that year. If you do not
make an election to amortize bond premium, your bond premium on a note will
decrease the gain or increase the loss that you otherwise recognize on a
disposition of that note. Any election to amortize bond premium applies to all
debt obligations, other than debt obligations the interest on which is
excludable from gross income, that you hold at the beginning of the first
taxable year to which the election applies and that you thereafter acquire. You
may not revoke an election to amortize bond premium without the consent of the
IRS. You should consult with your tax advisor regarding this election.

DISPOSITION OF A NOTE. Upon the sale, exchange, redemption, retirement or other
disposition of a note, you generally will recognize taxable gain or loss in an
amount equal to the difference, if any, between (1) the amount you receive in
cash or in property, valued at its fair market value, upon this sale, exchange,
redemption, retirement or other disposition, other than amounts representing
accrued and unpaid interest which will be taxable as interest income, and
(2) your adjusted tax basis in the note.

--------------------------------------------------------------------------------
S-40

Material federal income tax consequences
--------------------------------------------------------------------------------

Your adjusted tax basis in the note will, in general, equal your acquisition
cost for the note, exclusive of any amount paid allocable to prior accrued
interest, as increased by any market discount you have included in income in
respect of the note, and as decreased by any amortized bond premium on the note.
Except with respect to accrued market discount, your gain or loss will be
capital gain or loss, and will be long-term capital gain or loss if you have
held the note for more than one year at the time of disposition. For
noncorporate U.S. holders, preferential rates of tax may apply to long-term
capital gains.

TAX CONSEQUENCES FOR NON-U.S. HOLDERS

If you are a non-U.S. holder:

GENERALLY. You will not be subject to federal income taxes on payments of
principal, premium, if any, or interest on a note, or upon the sale, exchange,
redemption, retirement or other disposition of a note, if:

- you do not own directly or indirectly 10% or more of the total voting power
of all classes of our voting stock;

- your income and gain in respect of the note is not effectively connected
with the conduct of a United States trade or business;

- you are not a controlled foreign corporation that is related to or under
common control with us;

- we or the applicable paying agent (the "Withholding Agent") have received
from you a properly executed, applicable IRS Form W-8 or substantially
similar form in the year in which a payment of interest, principal or
premium occurs, or in a previous calendar year to the extent provided for in
the instructions to the applicable IRS Form W-8; and

- in the case of gain upon the sale, exchange, redemption, retirement or other
disposition of a note recognized by an individual non-U.S. holder, you were
present in the United States for less than 183 days during the taxable year
in which the gain was recognized.

The IRS Form W-8 or a substantially similar form must be signed by you under
penalties of perjury certifying that you are a non-U.S. holder and providing
your name and address, and you must inform the Withholding Agent of any change
in the information on the statement within 30 days of the change. If you hold a
note through a securities clearing organization or other qualified financial
institution, the organization or institution may provide a signed statement to
the Withholding Agent. However, in that case, the signed statement must
generally be accompanied by a statement containing the relevant information from
the executed IRS Form W-8 or substantially similar form that you provided to the
organization or institution. If you are a partner in a partnership holding our
notes, both you and the partnership must comply with applicable certification
requirements.

Except in the case of income or gain in respect of a note that is effectively
connected with the conduct of a United States trade or business, discussed
below, interest received or gain recognized by you which does not qualify for
exemption from taxation will be subject to federal income tax and withholding at
a rate of 30% unless reduced or eliminated by an applicable tax treaty. You must
generally use an applicable IRS Form W-8, or a substantially similar form, to
claim tax treaty benefits. If you are a non-U.S. holder claiming benefits under
an income tax treaty, you should be aware that you may be required to obtain a
taxpayer identification number and to certify your eligibility under the
applicable treaty's limitations on benefits in order to comply with the
applicable certification requirements of the Treasury regulations.

--------------------------------------------------------------------------------
S-41

Material federal income tax consequences
--------------------------------------------------------------------------------

EFFECTIVELY CONNECTED INCOME AND GAIN. If you are a non-U.S. holder whose
income and gain in respect of a note is effectively connected with the conduct
of a United States trade or business, you will be subject to regular federal
income tax on income and gain in generally the same manner as U.S. holders, and
general federal income tax return filing requirements will apply. In addition,
if you are a corporation, you may be subject to a branch profits tax equal to
30% of your effectively connected adjusted earnings and profits for the taxable
year, unless you qualify for a lower rate under an applicable tax treaty. To
obtain an exemption from withholding on interest on the notes, you must
generally supply to the Withholding Agent an applicable IRS Form W-8, or a
substantially similar form.

INFORMATION REPORTING AND BACKUP WITHHOLDING

Information reporting and backup withholding may apply to interest and other
payments to you under the circumstances discussed below. Amounts withheld under
backup withholding are generally not an additional tax and may be refunded or
credited against your federal income tax liability, provided that you furnish
the required information to the IRS. The backup withholding rate is currently
30.5%, but recently enacted legislation will reduce this rate to 28% over the
next several years.

IF YOU ARE A U.S. HOLDER. You may be subject to backup withholding when you
receive interest payments on a note or proceeds upon the sale, exchange,
redemption, retirement or other disposition of a note. In general, you can avoid
this backup withholding if you properly execute under penalties of perjury an
IRS Form W-9 or a substantially similar form on which you:

- provide your correct taxpayer identification number; and

- certify that you are exempt from backup withholding because (a) you are a
corporation or come within another enumerated exempt category, (b) you have
not been notified by the IRS that you are subject to backup withholding, or
(c) you have been notified by the IRS that you are no longer subject to
backup withholding.

If you do not provide your correct taxpayer identification number on the IRS
Form W-9 or a substantially similar form, you may be subject to penalties
imposed by the IRS.

Unless you have established on a properly executed IRS Form W-9 or a
substantially similar form that you are a corporation or come within another
enumerated exempt category, interest and other payments on the notes paid to you
during the calendar year, and the amount of tax withheld, if any, will be
reported to you and to the IRS.

IF YOU ARE A NON-U.S. HOLDER. The amount of interest paid to you on a note
during each calendar year, and the amount of tax withheld, if any, will
generally be reported to you and to the IRS. This information reporting
requirement applies regardless of whether you were subject to withholding or
whether withholding was reduced or eliminated by an applicable tax treaty. Also,
interest paid to you on a note may be subject to backup withholding, at the
current 30.5% rate or subsequent reduced rate, unless you properly certify your
non-U.S. holder status on an IRS Form W-8 or a substantially similar form in the
manner described above, under "Tax consequences for non-U.S. holders."
Similarly, information reporting and backup withholding will not apply to
proceeds you receive upon the sale, exchange, redemption, retirement or other
disposition of a note, if you properly certify that you are a non-U.S. holder on
an IRS Form W-8 or a substantially similar form. Even without having executed an
IRS Form W-8 or a substantially similar form, however, in some cases information
reporting and backup withholding may not apply to proceeds you receive upon the
sale, exchange, redemption, retirement or other disposition of a note, if you
receive those proceeds through a broker's foreign office.

--------------------------------------------------------------------------------
S-42

--------------------------------------------------------------------------------

Underwriting

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated December , 2001, each of the Underwriters named below has
severally agreed to purchase, and we have agreed to sell to each of the
Underwriters, the respective principal amount of notes listed opposite its name:

Principal
amount of
Underwriter notes
---------------------------------------------------------------------------

UBS Warburg LLC.............................................
Dresdner Kleinwort Wasserstein -- Grantchester, Inc.........
First Union Securities, Inc. (1)............................
BMO Nesbitt Burns Corp......................................
CIBC World Markets Corp.....................................
PNC Capital Markets, Inc....................................
SG Cowen Securities Corporation.............................
------------
Total....................................................... $200,000,000
============

---------

(1) First Union Securities, Inc. is acting under the trade name of Wachovia
Securities.

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the notes are subject to the
approval of specified legal matters by their counsel and to other conditions. In
the Underwriting Agreement, the several Underwriters have agreed, subject to the
terms and conditions described in the Underwriting Agreement, to purchase all
the notes offered in this prospectus supplement, if any are purchased. In the
event of default by an Underwriter, the Underwriting Agreement provides that, in
some circumstances, the purchase commitments of the non-defaulting Underwriters
may be increased or the Underwriting Agreement may be terminated.

The Underwriters propose to offer the notes directly to the public at the public
offering price set forth on the cover page of this prospectus supplement and to
dealers at that price less a concession not in excess of % of the principal
amount thereof. The Underwriters may allow, and the dealers may reallow, a
concession not in excess of % of the principal amount thereof to other
dealers. After the initial offering of the notes, the public offering price,
concession and other selling terms may be changed.

We will pay the Underwriters $ in total underwriting discounts per
note and $ in total.

We estimate that the total expenses of this offering payable by us, excluding
underwriting discounts, will be $250,000.

The notes constitute a new issue of securities with no established trading
market. We do not intend to list the notes on any national securities exchange.
No assurance can be given as to whether or not a trading market for the notes
will develop or as to the liquidity of any trading market for the notes which
may develop.

Until the distribution of the notes is completed, rules of the SEC may limit the
ability of the Underwriters to bid for and purchase the notes. As an exception
to these rules, the Underwriters are permitted to engage in certain transactions
that stabilize the price of the notes. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
notes.

--------------------------------------------------------------------------------
S-43

Underwriting
--------------------------------------------------------------------------------

If the Underwriters create a short position in the notes in connection with this
offering, i.e., they sell more notes than are set forth on the cover page of
this Prospectus Supplement, the Underwriters may reduce that short position by
purchasing notes in the open market.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.

Neither we nor any of the Underwriters make any representation or prediction as
to the direction or magnitude of any effect that the transactions described
above may have on the price of the notes. In addition, neither we nor any of the
Underwriters make any representation that the Underwriters will engage in such
transactions or that such transactions, once commenced, will not be discontinued
without notice.

We have agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended, or to
contribute to payments the Underwriters may be required to make in respect
thereof.

We expect that delivery of the notes will be made against payment therefor on
the closing date specified on the cover page of this prospectus supplement,
which is the fifth business day following the date of this prospectus supplement
(this settlement cycle being referred to as "T+5"). Under Rule 15c6-1 of the
Exchange Act, trades in the secondary market generally are required to settle in
three business days, unless the parties to any such trade expressly agree
otherwise. Accordingly, purchasers who wish to trade the notes on the date of
this prospectus supplement or the next two succeeding business days will be
required, by virtue of the fact that the notes initially will settle in T+5, to
specify an alternate settlement cycle at the time of any such trade to prevent a
failed settlement. Purchasers of notes who wish to trade notes on the date
hereof or the next two succeeding business days should consult their own
advisor.

Some of the Underwriters engage in transactions with, and from time to time have
performed services for, us and our subsidiaries in the ordinary course of
business. UBS Warburg LLC is our financial advisor in connection with the
Crestline transaction and the Five Star spin-off. Dresdner Kleinwort Wasserstein
and First Union Securities, Inc., two of the underwriters, are affiliated with
lenders under our revolving bank credit facility. Dresdner Bank A.G., an
affiliate of Dresdner Kleinwort Wasserstein, is the administrative agent and a
lender under the facility.

--------------------------------------------------------------------------------
S-44

--------------------------------------------------------------------------------

Legal matters

Sullivan & Worcester LLP, Boston, Massachusetts, our lawyers, will issue an
opinion about the validity of the notes. Dewey Ballantine LLP, New York, New
York, is counsel to the Underwriters in connection with this offering.
Sullivan & Worcester LLP and Dewey Ballantine LLP will rely, as to certain
matters of Maryland law, upon an opinion of Ballard Spahr Andrews & Ingersoll,
LLP, Baltimore, Maryland. Barry M. Portnoy was a partner in the firm of
Sullivan & Worcester LLP until March 31, 1997 and is one of our managing
trustees, a managing trustee of HRPT, our 29% shareholder, a director and 50%
owner of RMR, our investment manager, and a director and 50% owner of FSQ, our
property operator. Sullivan & Worcester LLP represents HRPT, RMR, FSQ and their
affiliates on various matters.

Experts

Arthur Andersen LLP, independent public accountants, have audited the
consolidated financial statements of CSL Group, Inc. and subsidiaries (a
business unit wholly owned by Crestline Capital Corporation) as partitioned for
sale to SNH/CSL Properties Trust included in our Current Report on Form 8-K
dated September 21, 2001, as set forth in their report, which is incorporated by
reference in this prospectus supplement, the accompanying prospectus and
elsewhere in the registration statement. These consolidated financial statements
are incorporated by reference herein in reliance upon the authority of said firm
as experts in accounting and auditing in giving their report. See also "Experts"
in the accompanying prospectus.

---------

The Articles of Amendment and Restatement establishing Senior Housing Properties
Trust, dated September 20, 1999, a copy of which, together with all amendments
thereto, is duly filed in the office of the Department of Assessments and
Taxation of the State of Maryland, provides that the name "Senior Housing
Properties Trust" refers to the trustees under the Declaration of Trust, but not
individually or personally, and that no trustee, officer, shareholder, employee
or agent of Senior Housing Properties Trust shall be held to any personal
liability, for any obligation of, or claim against, Senior Housing Properties
Trust. All persons dealing with Senior Housing Properties Trust, shall look only
to the assets of Senior Housing Properties Trust for the payment of any sum or
the performance of any obligation.

--------------------------------------------------------------------------------
S-45

--------------------------------------------------------------------------------

Glossary

"ACQUIRED DEBT" means Debt of a person or entity (1) existing at the time such
person becomes a Subsidiary or (2) assumed in connection with the acquisition of
assets from such person or entity, in each case, other than Debt incurred in
connection with, or in contemplation of, such person or entity becoming a
Subsidiary or such acquisition. Acquired Debt is deemed to be incurred on the
date of the related acquisition of assets from any person or entity or the date
the acquired entity becomes a Subsidiary.

"ANNUAL DEBT SERVICE" as of any date means the maximum amount which is expensed
in any 12-month period for interest on Debt of Senior Housing and its
Subsidiaries excluding amortization of debt discount and deferred financing
cost.

"BUSINESS DAY" means any day other than a Saturday or Sunday or a day on which
banking institutions in The City of New York are required or authorized to
close.

"CAPITAL STOCK" means, with respect to any entity, any capital stock (including
preferred stock), shares, interests, participation or other ownership interests
(however designated) of such entity and any rights (other than debt securities
convertible into or exchangeable for capital stock), warrants or options to
purchase any thereof.

"CONSOLIDATED INCOME AVAILABLE FOR DEBT SERVICE" for any period means Earnings
from Operations of Senior Housing and its Subsidiaries plus amounts which have
been deducted, and minus amounts which have been added, for the following
(without duplication): (1) interest or distributions on Debt of Senior Housing
and its Subsidiaries, (2) provision for taxes of Senior Housing and its
Subsidiaries based on income, (3) amortization of debt discount and deferred
financing costs, (4) provisions for gains and losses on properties and property
depreciation and amortization, (5) the effect of any noncash charge resulting
from a change in accounting principles in determining Earnings from Operations
for such period and (6) amortization of deferred charges.

"DEBT" of Senior Housing or any Subsidiary means, without duplication, any
indebtedness of Senior Housing or any Subsidiary, whether or not contingent, in
respect of:

(1) borrowed money or evidenced by bonds, notes, debentures or similar
instruments,

(2) indebtedness for borrowed money secured by any encumbrance existing on
property owned by Senior Housing or any Subsidiary, to the extent of the
lesser of (x) the amount of indebtedness so secured or (y) the fair
market value of the property subject to such encumbrance,

(3) the reimbursement obligations, contingent or otherwise, in connection
with any letters of credit actually issued (other than letters of credit
issued to provide credit enhancement or support with respect to other
indebtedness of Senior Housing or any Subsidiary otherwise reflected as
Debt hereunder) or amounts representing the balance deferred and unpaid
of the purchase price of any property or services, except any such
balance that constitutes an accrued expense, trade payable, conditional
sale obligations or obligations under any title retention agreement,

(4) the principal amount of all obligations of Senior Housing or any
Subsidiary with respect to redemption, repayment or other repurchase of
any Disqualified Stock, or

(5) any lease of property by Senior Housing or any Subsidiary as lessee
which is reflected on Senior Housing's consolidated balance sheet as a
capitalized lease in accordance with GAAP, to the extent, in the case of
items of indebtedness under (1) through (3) above, that any such

--------------------------------------------------------------------------------
S-46

Glossary
--------------------------------------------------------------------------------

items (other than letters of credit) would appear as a liability on
Senior Housing's consolidated balance sheet in accordance with GAAP.

Debt also includes, to the extent not otherwise included, any obligation by
Senior Housing or any Subsidiary to be liable for, or to pay, as obligor,
guarantor or otherwise (other than for purposes of collection in the ordinary
course of business), Debt of another Person (other than Senior Housing or any
Subsidiary); it being understood that Debt shall be deemed to be incurred by
Senior Housing or any Subsidiary whenever Senior Housing or such Subsidiary
shall create, assume, guarantee or otherwise become liable in respect thereof.

"DISQUALIFIED STOCK" means, with respect to any entity, any Capital Stock of
such entity which by the terms of such Capital Stock (or by the terms of any
security into which it is convertible or for which it is exchangeable or
exercisable), upon the happening of any event or otherwise (1) matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise
(other than Capital Stock which is redeemable solely in exchange for Capital
Stock which is not Disqualified Stock or for Subordinated Debt), (2) is
convertible into or exchangeable or exercisable for Debt, other than
Subordinated Debt, or Disqualified Stock, or (3) is redeemable at the option of
the holder thereof, in whole or in part (other than Capital Stock which is
redeemable solely in exchange for Capital Stock which is not Disqualified Stock
or for Subordinated Debt); in each case on or prior to the stated maturity of
the notes.

"EARNINGS FROM OPERATIONS" for any period means net earnings excluding gains and
losses on sales of investments, extraordinary items, distributions on equity
securities and property valuation losses, as reflected in the financial
statements of Senior Housing and its Subsidiaries for such period, determined on
a consolidated basis in accordance with GAAP.

"FUNDS FROM OPERATIONS" for any period means Earnings from Operations for such
period plus amounts which have been deducted, and minus amounts that have been
added, for the following (without duplication): (1) provision for taxes of
Senior Housing and its Subsidiaries based on income, (2) amortization of debt
discount and deferred financing costs, (3) provisions for gains and losses on
properties and property depreciation and amortization, (4) the effect of any
noncash charge resulting from a change in accounting principles in determining
Earnings from Operations for such period and (5) amortization of deferred
charges.

"SUBORDINATED DEBT" means Debt which by the terms of such Debt is subordinated
in right of payment to the principal of and interest and premium, if any, on the
notes.

"SUBSIDIARY" means any corporation or other entity of which a majority of
(1) the voting power of the voting equity securities or (2) the outstanding
equity interests of which are owned, directly or indirectly, by Senior Housing
or one or more other Subsidiaries of Senior Housing. For the purposes of this
definition, voting equity securities means equity securities having voting power
for the election of directors or similar functionaries, whether at all times or
only so long as no senior class of security has such voting power by reason of
any contingency.

"TOTAL ASSETS" as of any date means the sum of (1) the Undepreciated Real Estate
Assets and (2) all other assets of Senior Housing and its Subsidiaries
determined in accordance with GAAP (but excluding accounts receivable and
intangibles).

"UNDEPRECIATED REAL ESTATE ASSETS" as of any date means the cost (original cost
plus capital improvements less adjustments to carrying value in accordance with
GAAP made prior to January 1, 2001) of real estate and associated tangible
personal property used in connection with the real estate assets of Senior
Housing and its Subsidiaries on such date, before depreciation and amortization
determined on a consolidated basis in accordance with GAAP.

--------------------------------------------------------------------------------
S-47

--------------------------------------------------------------------------------

INDEX TO PRO FORMA FINANCIAL STATEMENTS

----------------------------------------------------------------------
Introduction to Unaudited Pro Forma Condensed Consolidated
Financial Statements...................................... P-2

Unaudited Pro Forma Condensed Consolidated Balance Sheet at
September 30, 2001........................................ P-3

Unaudited Pro Forma Condensed Consolidated Statement of
Income for the nine months ended September 30, 2001....... P-4

Unaudited Pro Forma Condensed Consolidated Statement of
Income for the twelve months ended September 30, 2001..... P-5

Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements...................................... P-6

--------------------------------------------------------------------------------
P-1

Senior Housing Properties Trust
--------------------------------------------------------------------------------

Introduction to Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 2001, and Pro Forma Condensed Consolidated Statements
of Income for the Nine and Twelve Months Ended September 30, 2001

The following unaudited pro forma condensed consolidated balance sheet as of
September 30, 2001, gives separate effect to: (1) our issuance of 14,047,000
common shares of beneficial interest in October 2001; (2) this offering;
(3) the pending Five Star spin-off, the lease to Five Star of 56 properties and
related transactions described in the notes thereto; and (4) the proposed
acquisition of 31 properties from Crestline, the lease of those properties to
Five Star and related transactions described in the notes thereto, as though all
such transactions had occurred on September 30, 2001.

The following unaudited pro forma condensed consolidated statements of income
give separate effect to: (1) our sale of four properties in October 2000,
financing transactions completed after October 1, 2000, and certain other
transactions described in the notes thereto; (2) this offering; (3) the pending
Five Star spin-off, the lease to Five Star of 56 properties and related
transactions as described in the notes thereto; and (4) the proposed acquisition
of 31 properties from Crestline, the lease of those properties to Five Star and
related transactions described in the notes hereto, as though all such
transactions occurred at the beginning of the periods indicated.

The pro forma information is based in part upon (1) our historical financial
statements filed on our Form 10-Q for the quarter ended September 30, 2001 and
our Form 10-K for the year ended December 31, 2000; and (2) the financial
statements of CSL Group, Inc. and Subsidiaries as Partitioned For Sale to
SNH/CSL Properties Trust filed on our Forms 8-K incorporated herein by
reference. This pro forma information should be read in conjunction with all of
these financial statements and related notes. In the opinion of management, all
adjustments necessary to reflect the effects of the transactions described above
have been made in the pro forma information.

The following unaudited pro forma financial information is not necessarily
indicative of what our actual financial position or results of operations would
have been as of the date or for the period indicated, nor does it purport to
represent our financial position or results of operations for future periods.

--------------------------------------------------------------------------------
P-2

Senior Housing Properties Trust
--------------------------------------------------------------------------------

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 2001
(dollars in thousands)
(unaudited)

October
2001 Pending Pending
Equity This Spin-off Acquisition
Historical Offering Offering Subtotal Adjustments Subtotal Adjustments
----------------------------------------------------------------------------------------------------------------------

Assets (A) (B)
Real estate, net.......... $476,437 $-- $-- $476,437 $(3,040)(C) $473,397 $600,086 (J)
Cash and cash
equivalents............. 8,084 140,635 195,750 344,469 (28,286)(D) 316,183 (315,420)(K)
Accounts receivable,
net..................... 39,133 39,133 (34,511)(E) 4,622
Other assets.............. 37,994 4,250 42,244 (4,548)(F) 37,696 269 (L)
--------- -------- -------- --------- ------------ --------- ------------
$561,648 $140,635 $200,000 $902,283 $(70,385) $831,898 $284,935
========= ======== ======== ========= ============ ========= ============

Liabilities and
Shareholders' Equity
Revolving credit
facility................ $31,000 $(31,000) $-- $-- $-- $-- $50,000 (M)
% senior unsecured notes
due 2008................ -- 200,000 200,000 200,000
Other debt................ 9,100 9,100 9,100 233,386 (M)
Prepaid and deferred
rents................... 9,475 9,475 9,475
Security deposits......... 1,520 1,520 1,520
Accounts payable and
accrued expenses........ 16,113 16,113 (16,113)(G)
Other liabilities......... 7,185 7,185 (4,272)(H) 2,913 1,549 (N)
--------- -------- -------- --------- ------------ --------- ------------
Total liabilities......... 74,393 (31,000) 200,000 243,393 (20,385) 223,008 284,935
Trust preferred
securities.............. 27,394 27,394 27,394
Shareholders' equity...... 459,861 171,635 631,496 (50,000)(I) 581,496
--------- -------- -------- --------- ------------ --------- ------------
$561,648 $140,635 $200,000 $902,283 $(70,385) $831,898 $284,935
========= ======== ======== ========= ============ ========= ============

Pro Forma
-------------------------- -----------

Assets
Real estate, net.......... $1,073,483
Cash and cash
equivalents............. 763
Accounts receivable,
net..................... 4,622
Other assets.............. 37,965
-----------
$1,116,833
===========
Liabilities and
Shareholders' Equity
Revolving credit
facility................ $50,000
% senior unsecured notes
due 2008................ 200,000
Other debt................ 242,486
Prepaid and deferred
rents................... 9,475
Security deposits......... 1,520
Accounts payable and
accrued expenses........ --
Other liabilities......... 4,462
-----------
Total liabilities......... 507,943
Trust preferred
securities.............. 27,394
Shareholders' equity...... 581,496
-----------
$1,116,833
===========

--------------------------------------------------------------------------------
P-3

Senior Housing Properties Trust
--------------------------------------------------------------------------------

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For Nine Months Ended September 30, 2001
(amounts in thousands, except per share amounts)
(unaudited)

Pending Pending
Financing This Spin-off Acquisition
Historical Adjustments Offering Subtotal Adjustments Subtotal Adjustments
----------------------------------------------------------------------------------------------------------------------------

Revenues:
Rental income............ $33,302 $-- $-- $33,302 $5,250 (U) $38,552 $47,250 (X)
Facilities' operations... 170,681 170,681 (170,681)(V) --
Interest and other
income................. 897 897 897
FF&E reserve income...... -- -- -- 4,293 (Y)
--------- ------------ -------- --------- ------------ --------- ------------
Total revenues........... 204,880 204,880 (165,431) 39,449 51,543
Expenses:
Interest................. 4,900 (4,373)(O) 12,455 (T) 12,982 -- 12,982 17,224 (Z)
Distributions on trust
preferred securities... 749 1,359 (P) 2,108 2,108
Depreciation............. 14,537 14,537 (1,098)(W) 13,439 12,752 (AA)
Facilities' operations... 166,230 166,230 (166,230)(V) --
General and
administrative
--Recurring.............. 3,189 3,189 3,189 2,625 (AA)
--Related to foreclosures
and lease
terminations........... 4,167 (4,167)(S) -- --
--------- ------------ -------- --------- ------------ --------- ------------
Total expenses........... 193,772 (7,181) 12,455 199,046 (167,328) 31,718 32,601
--------- ------------ -------- --------- ------------ --------- ------------
Income before gain on
sale of properties..... $11,108 $3,181 $(12,455) $5,834 $1,897 $7,731 $18,942
========= ============ ======== ========= ============ ========= ============
Weighted average shares
outstanding............ 27,049 16,373 (Q) 43,422 43,422
========= ============ ========= =========
Basic and diluted
earnings per share:
Net income............... $0.41 $0.13 $0.18
========= ========= =========
Other Data:
EBIDA(1)............. $31,294 $35,461 $40,693
========= ========= =========

Pro
Forma
------------------------- ---------

Revenues:
Rental income............ $85,802
Facilities' operations... --
Interest and other
income................. 897
FF&E reserve income...... 4,293
---------
Total revenues........... 90,992
Expenses:
Interest................. 30,206
Distributions on trust
preferred securities... 2,108
Depreciation............. 26,191
Facilities' operations... --
General and
administrative
--Recurring.............. 5,814
--Related to foreclosures
and lease
terminations........... --
---------
Total expenses........... 64,320
---------
Income before gain on
sale of properties..... $26,672
=========
Weighted average shares
outstanding............ 43,422
=========
Basic and diluted
earnings per share:
Net income............... $0.61
=========
Other Data:
EBIDA(1)............. $85,177
=========

-------------

(1) EBIDA represents earnings before gain on sale of properties, interest,
distributions on trust preferred securities and depreciation. We understand
that some industry analysts and investors consider EBIDA to be useful in
analyzing the operating performance of a company and its ability to service
debt. EBIDA, however, is not a measure of financial performance under
generally accepted accounting principles and should not be considered an
alternative to, or more meaningful than, net income as a measure of
operating performance or to cash flows from operating, investing or
financing activities or as a measure of liquidity. Since EBIDA is not a
measure determined in accordance with generally accepted accounting
principles and is thus susceptible to varying interpretations and
calculations, EBIDA, as presented, may not be comparable to other similarly
titled measures of other companies. EBIDA does not represent an amount of
funds that is available for our discretionary use.

--------------------------------------------------------------------------------
P-4

Senior Housing Properties Trust
--------------------------------------------------------------------------------

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For Twelve Months Ended September 30, 2001
(amounts in thousands, except per share amounts)
(unaudited)

Financing Pending Pending
and Other This Spin-off Acquisition
Historical Adjustments Offering Subtotal Adjustments Subtotal Adjustments
----------------------------------------------------------------------------------------------------------------------------

Revenues:
Rental income............ $47,799 $(1,050)(R) $-- $46,749 $7,000 (U) $53,749 $63,000 (X)
Facilities' operations... 170,681 170,681 (170,681)(V) --
Other real estate
income................. 1,292 1,292 (1,292)(V) --
Interest and other
income................. 1,088 1,088 1,088
FF&E reserve income...... -- -- -- 5,992 (Y)
Gain on foreclosures and
lease terminations..... 7,105 (7,105)(S) -- --
--------- ------------ -------- --------- ------------ --------- ------------
Total revenues........... 227,965 (8,155) 219,810 (164,973) 54,837 68,992
Expenses:
Interest................. 7,671 (6,923)(O) 16,607 (T) 17,355 17,355 23,818 (Z)
Distributions on trust
preferred securities... 749 2,062 (P) 2,811 2,811
Depreciation............. 19,298 (194)(R) 19,104 (1,253)(W) 17,851 17,003 (AA)
Facilities' operations... 166,230 166,230 (166,230)(V) --
General and
administrative
--Recurring.............. 4,273 (43)(R) 4,230 4,230 3,500 (AA)
--Related to foreclosures
and lease
terminations........... 6,816 (6,816)(S) -- --
--------- ------------ -------- --------- ------------ --------- ------------
Total expenses........... 205,037 (11,914) 16,607 209,730 (167,483) 42,247 44,321
--------- ------------ -------- --------- ------------ --------- ------------
Income before gain on
sale of properties..... $22,928 $3,759 $(16,607) $10,080 $2,510 $12,590 $24,671
========= ============ ======== ========= ============ ========= ============
Weighted average shares
outstanding............ 26,766 16,656 (Q) 43,422 43,422
========= ============ ========= =========
Basic and diluted
earnings per share:
Income before gain on
sale of properties..... $0.86 $0.23 $0.29
========= ========= =========
Other Data:
EBIDA(1)............... $50,646 $49,350 $50,607
========= ========= =========

Pro
Forma
------------------------- ---------

Revenues:
Rental income............ $116,749
Facilities' operations... --
Other real estate
income................. --
Interest and other
income................. 1,088
FF&E reserve income...... 5,992
Gain on foreclosures and
lease terminations..... --
---------
Total revenues........... 123,829
Expenses:
Interest................. 41,173
Distributions on trust
preferred securities... 2,811
Depreciation............. 34,854
Facilities' operations... --
General and
administrative
--Recurring.............. 7,730
--Related to foreclosures
and lease
terminations........... --
---------
Total expenses........... 86,568
---------
Income before gain on
sale of properties..... $37,261
=========
Weighted average shares
outstanding............ 43,422
=========
Basic and diluted
earnings per share:
Income before gain on
sale of properties..... $0.86
=========
Other Data:
EBIDA(1)............... $116,099
=========

-------------

--------------------------------------------------------------------------------
P-5

Senior Housing Properties Trust
--------------------------------------------------------------------------------

NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(dollars in thousands)

A. Represents our issuance of common shares in October 2001. A portion of the
net proceeds was used to reduce our revolving credit facility to zero. The
remaining net proceeds are held as cash and cash equivalents:

Total common shares issued.................................. 14,047,000
Price per common share...................................... x $12.90
----------
Gross proceeds.............................................. $181,206
Underwriters' discount and other issuance costs............. (9,571)
----------
Net proceeds from issuance of common shares................. 171,635
Net proceeds applied to credit facility..................... (31,000)
----------
Net cash and cash equivalents............................... $140,635
==========

B. Represents our issuance of $200 million of % senior unsecured notes due
2008 in this offering. The estimated underwriters' discount and other
issuance costs constitute other assets to be amortized over the term of the
notes.

Gross proceeds.............................................. $200,000
Underwriters' discount and other issuance costs............. (4,250)
--------
Net cash proceeds........................................... $195,750
========

C. Represents the real estate and related personal property owned by Five Star
at the time of the spin-off.

D. Represents cash which will be contributed by us to Five Star as part of its
capitalization immediately prior to the spin-off, as follows:

Net equity to be contributed................................ $50,000
Real estate and related personal property (See Note C)...... (3,040)
Accounts receivable (See Note E)............................ (34,511)
Prepaid expenses (See Note F)............................... (4,548)
Accounts payable and accrued expenses (See Note G).......... 16,113
Other liabilities (See Note H).............................. 4,272
--------
Net cash and cash equivalents............................... $28,286
========

E. Represents patient accounts receivable arising from 56 nursing home
operations which will belong to Five Star at the time of the spin-off.

F. Represents primarily prepaid expenses associated with the 56 nursing home
operations which will belong to Five Star at the time of the spin-off.

G. Represents accounts payable and accrued expenses associated with the 56
nursing home operations which will belong to Five Star at the time of the
spin-off.

H. Represents other liabilities associated with the 56 nursing home operations
which will be liabilities of Five Star at the time of the spin-off.

I. Represents the net equity (assets in excess of liabilities, see Notes C
through H) which will be contributed by us to Five Star at the time of the
spin-off.

--------------------------------------------------------------------------------
P-6

Senior Housing Properties Trust
--------------------------------------------------------------------------------

NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(continued)
(dollars in thousands)

J. The purchase of properties from Crestline will be reported using the
purchase method of accounting. Estimated closing costs and contractual
adjustments are estimated at $2,733, net. When these properties are leased
to Five Star, Five Star will assume the operating accounts receivable and
operating accounts payable and accrued operating expenses and we will make a
payment to Five Star of the amount of these operating liabilities in excess
of these operating assets, estimated to be $3,573. Accordingly, using the
data as of the end of Crestline's 2001 third fiscal quarter (September 7,
2001), amounts allocated to fixed assets are as follows:

Contract purchase price..................................... $600,000
Estimated closing costs and adjustments, net................ 2,733
Estimated payment to Five Star at lease commencement........ 3,573
--------
Subtotal.................................................. 606,306
Monetary assets assumed from Crestline (see Note L)......... (7,769)
Monetary liabilities assumed from Crestline other than
funded debt (see Note N).................................. 1,549
--------
Total fixed assets.......................................... $600,086
========

K. Represents estimated cash used to complete the purchase from Crestline, as
follows:

Adjusted contract price, closing costs and payments to Five
Star (See Note J)......................................... $606,306
Assumed Crestline debt, including capital leases (See
Note M)................................................... (233,386)
Borrowings under our revolving bank credit facility (See
Note M)................................................... (50,000)
Deposit applied (See Note L)................................ (7,500)
--------
Net cash used............................................... $315,420
========

L. Amounts allocated to other assets represent cash deposits in restricted
accounts for use: (1) servicing future interest payments on assumed mortgage
debt; (2) real estate tax escrows; and (3) cash escrow accounts for capital
expenditures at the facilities. The assets received in the Crestline
transaction are offset by a deposit currently in escrow that will be applied
to the purchase price when the Crestline transaction is closed:

Assets received............................................. $7,769
Deposit to be applied....................................... (7,500)
--------
Net adjustment to other assets.............................. $269
========

M. To finance the acquisition from Crestline, we expect to assume certain
existing Crestline debts and to draw $50,000 under our revolving bank credit
facility, as follows:

Assumed Crestline debt, including capital leases............ $233,386
Borrowings under our revolving credit facility.............. 50,000

N. Other liabilities primarily represent accrued interest related to the assumed
Crestline debt.

O. Common equity issuances during the pro forma periods produced net proceeds
sufficient to repay our outstanding revolving credit facility balance in
full on a pro forma basis. This adjustment represents the elimination of
historical interest expense on our revolving credit facility and an
adjustment for interest on $9,100 of mortgages payable, which we obtained in
July 2001. The

--------------------------------------------------------------------------------
P-7

Senior Housing Properties Trust
--------------------------------------------------------------------------------

NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(continued)
(dollars in thousands)

mortgages require interest to be paid based on prime less a discount. The
interest expense adjustment was calculated as follows:

Nine Months Twelve Months
Ended Ended
September 30, September 30,
2001 2001
----------------------------------------------------------------------------------------------

Mortgage balance............................................ $9,100 $9,100
Average rate for period (6.5% per annum for nine month
period; 7.0% per annum for the 12 month period)........... 4.88% 7.0%
-------------- ---------------
Interest accrued or paid.................................... 444 637
Add: Amortization of deferred mortgage financing fees....... 83 111
-------------- ---------------
Pro forma mortgage interest................................. 527 748
Less: historical interest expense........................... (4,900) (7,671)
-------------- ---------------
Net adjustment.............................................. $(4,373) $(6,923)
============== ===============

P. During June and July 2001, we issued trust preferred securities. This
adjustment represents distributions on the trust preferred securities as
follows:

Nine Months Twelve Months
Ended Ended
September 30, September 30,
2001 2001
----------------------------------------------------------------------------------------------

Gross amount of trust preferred securities.................. $27,394 $27,394
Distribution rate (10.125% per annum)....................... 7.59375% 10.125%
-------------- ---------------
Total pro forma distributions for the period................ 2,080 2,773
Add: Amortization of related deferred issuance costs........ 28 38
-------------- ---------------
Distributions for period.................................... 2,108 2,811
Less: Amount included in historical results................. (749) (749)
-------------- ---------------
Net adjustment.............................................. $1,359 $2,062
============== ===============

Q. Represents the impact of the common equity issuance described in Note A and
our July 2001 common equity issuance of 3,445,000 shares on our weighted
average common shares outstanding during the periods shown.

R. Represents elimination of rental income, depreciation expense and general
and administrative expense related to four facilities we sold in
October 2000.

S. Represents the elimination of the gain on foreclosure and lease terminations
and the related general and administrative expenses because they are not
expected to recur.

--------------------------------------------------------------------------------
P-8

Senior Housing Properties Trust
--------------------------------------------------------------------------------

NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(continued)
(dollars in thousands)

T. Represents the interest expense related to the % senior notes due 2008
being issued in this offering. For purposes of this calculation we have
assumed the notes bear interest at 8% per annum and that issuance costs
total $4,250.

Nine Months Twelve Months
Ended Ended
September 30, September 30,
2001 2001
----------------------------------------------------------------------------------------------

Total issuance.............................................. $200,000 $200,000
Average rate for period (8% per annum)...................... 6.0% 8.0%
-------------- ---------------
Interest accrued............................................ 12,000 16,000
Add: amortization of related deferred financing fees........ 455 607
-------------- ---------------
Total adjustment............................................ $12,455 $16,607
============== ===============

U. Represents minimum rent expected to be paid by Five Star for our 56 nursing
home properties. Additional rent equal to 3% of Five Star's revenues at
these properties in excess of 2003 revenues is due us beginning in 2004.

V. Represents elimination, for the nine months ended September 30, 2001, of
facilities' operating revenues and expenses, and for the twelve months ended
September 30, 2001, of facilities' operating revenues and expenses and other
real estate income. These amounts were derived from the operations of
facilities that were conducted for our own account. These facilities will be
leased by Five Star subsequent to the spin-off and no longer operated for
our account.

W. Represents the elimination of historical depreciation expense related to the
property which will belong to Five Star at the time of the spin-off (see
Note C).

X. Represents minimum rent expected to be paid by Five Star for the 31
properties which we expect to acquire in the pending Crestline transaction.
Additional rent equal to 5% of revenues at these properties in excess of
2002 revenues is due beginning in 2003.

Y. In addition to the minimum rent and additional rent described in Note U and
Note X, our lease with Five Star and the Marriott management agreements for
the 31 properties to be acquired from Crestline will require Five Star to
deposit a percentage of gross revenues from these properties into an FF&E
reserve for capital expenditures at the 31 properties which we expect to
acquire in the pending Crestline transaction. The FF&E reserve accounts and
improvements and other items purchased with those funds will belong to us.
Accordingly, the periodic deposits will be reported as additional rental
income to us under GAAP.

--------------------------------------------------------------------------------
P-9

Senior Housing Properties Trust
--------------------------------------------------------------------------------

NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(continued)
(dollars in thousands)

Z. To complete the purchase from Crestline, we will assume debts as described
in Note M above. These debts bear interest at various rates, including some
at floating rates based on LIBOR. The applicable interest rates during the
pro forma periods, assuming LIBOR equals its monthly average during the
periods presented, were as follows:

Nine Months Twelve Months
Ended Ended
September 30, September 30,
2001 2001
----------------------------------------------------------------------------------------------

Assumed term debt including capitalized leases, fixed
rates..................................................... 9.4% 9.4%
Assumed term debt, floating rates........................... 7.1% 7.7%
Revolving bank credit facility, floating rate............... 6.3% 6.9%

The outstanding balance for the obligations described above are as follows
as of September 30, 2001:

Assumed term debt including capitalized leases, fixed
rates..................................................... $141,016
Assumed term debt, floating rates........................... 92,370
Revolving bank credit facility, floating rate............... 50,000
--------
Total....................................................... $283,386
========

On a pro forma basis, the combination of the average interest rates and the
debt balances set forth above produce interest expense as follows:

Nine Months Twelve Months
Ended Ended
September 30, September 30,
2001 2001
----------------------------------------------------------------------------------------------

Assumed term debt including capitalized leases, fixed
rates..................................................... $9,942 $13,256
Assumed term debt, floating rates........................... 4,919 7,112
Revolving bank credit facility, floating rate............... 2,363 3,450
-------------- ---------------
Total....................................................... $17,224 $23,818
============== ===============

AA. Represents the impact of the purchase of the 31 properties from Crestline on
depreciation expense and general and administrative expense.

--------------------------------------------------------------------------------
P-10

Inside Back Cover -- Description of Colorwork

Current Properties

Photograph of Photograph of
Stratford Court of Boca Raton Villa Valencia
Boca Raton, FL Laguna Hills, CA
412 Units 403 Units

Photograph of Photograph of
the Colonnades Bedford Court
Charlottesville, VA Silver Spring, MD
316 Units 354 Units

Photograph of Photograph of
Marcella Nursing La Mesa Healthcare Center
Burlington, NJ Yuma, AZ
150 Units 125 Units

Photograph of Photograph of
Willow Tree Care Center Woodlands Healthcare Center
Delta, CO Brookfield, WI
100 Units 226 Units

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

$200,000,000

[LOGO]

% Senior Notes due 2008

------------------------

PROSPECTUS SUPPLEMENT
, 2001
----------------------------

UBS Warburg
----------

Dresdner Kleinwort Wasserstein

Wachovia Securities

BMO Nesbitt Burns

CIBC World Markets

PNC Capital Markets

SG Cowen

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------