On October 31, 2005, we entered into a sale-leaseback transaction with Senior Housing Properties Trust, or Senior Housing, whereby we sold the six assisted living communities that we recently acquired in June 2005 from Gordon Health Ventures, LLC, or Gordon, to Senior Housing for $56.7 million and Senior Housing leased these communities back to us for initial rent of approximately $5.2 million per annum. During the quarter ended September 30, 2005, we recognized an impairment loss of $2.3 million, to reduce the carrying value of these communities to the amount realized upon their sale to Senior Housing. The purchase price paid to us by Senior Housing is the same purchase price we paid to the seller of the Gordon communities. The impairment loss which we recognized relates principally to transaction costs which we previously capitalized. Beginning in 2007, we may be required to pay additional rent calculated as a percentage of revenue increases at the leased communities. In connection with this sale-leaseback transaction, we amended one of our existing leases with Senior Housing to add all of the properties subject to the sale-leaseback transaction. We also amended certain documents securing our obligations under the lease in order to account for the additional properties subject to the sale-leaseback transaction. Please see our Annual Report on Form 10-K for the year ended December 31, 2004 for a description of the material terms of the lease and the security documents relating to the lease, which remain unchanged by the amendments discussed above except for changes to reflect the additional properties subject to the sale-leaseback transaction.

We were a subsidiary of Senior Housing prior to its spin-off in 2001, and Senior Housing owns and is the landlord of 137 of our 155 communities. We have material relationships with Senior Housing that are more fully described in paragraphs one through five of the section titled “Certain Relationships and Related Transactions” of our Definitive Proxy Statement for our annual meeting of shareholders held May 11, 2005, as filed with the Securities and Exchange Commission, or the SEC, and the section titled “Related Party Transactions” of Item 2 of our Quarterly Reports on Form 10-Q filed with the SEC for the quarters ended March 31, 2005 and June 30, 2005, which parts of such filings we collectively incorporate by reference into these Items 1.01 and 2.01.

In connection with the sale-leaseback transaction described above, we and Senior Housing terminated the $43.5 million line of credit that Senior Housing had previously provided to us pursuant to a Promissory Note and a Loan Agreement, both dated June 3, 2005. This line of credit was secured by mortgages on the six Gordon communities, and our obligations under the line of credit were guaranteed by certain of our subsidiaries who were also party to the Loan Agreement. The line of credit had an interest rate of 9% per annum, and no principal payment on the line of credit was due until maturity, which was June 30, 2007. Our material relationships with Senior Housing are more fully described in the parts of the SEC filings described above, which we collectively incorporate by reference into this Item 1.02.

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