UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2004

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

For the transition period from ______________ to ______________

Commission File Number 001-16817

FIVE STAR QUALITY CARE, INC.

Maryland

(State or Other Jurisdiction of Incorporation or Organization)

04-3516029

(IRS Employer Identification No.)

400 Centre Street, Newton, Massachusetts 02458

617-796-8387

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

Number of Common Shares outstanding at May 10, 2004: 8,514,634 shares of common stock, $0.01 par value.

FIVE STAR QUALITY CARE, INC.

FORM 10-Q

MARCH 31, 2004

INDEX

		Page
PART I	Financial Information

Item 1.	Consolidated Financial Statements (unaudited)

	Consolidated Balance Sheet - March 31, 2004 and December 31, 2004	1

	Consolidated Statement of Operations - Three Months Ended March 31, 2004 and 2003	2

	Consolidated Statement of Cash Flows - Three Months Ended March 31, 2004 and 2003	3

	Notes to Consolidated Financial Statements	4

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	8

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	12

Item 4.	Controls and Procedures	12

PART II	Other Information

Item 1.	Legal Proceedings	14

Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	14

Item 6.	Exhibits and Reports on Form 8-K	14

	Signatures	16

As used herein the terms “we”, “us”, “our” and “Five Star” include Five Star Quality Care, Inc. and its consolidated subsidiaries unless otherwise expressly stated or the context otherwise requires.

Part I. Financial Information

Item 1. Financial Statements

FIVE STAR QUALITY CARE, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except share amounts)

	March 31, 2004 (unaudited)	December 31, 2003
ASSETS
Current assets:
Cash and cash equivalents	$ 21,969	$ 21,236
Accounts receivable, net of allowance of $4,960 and $4,305 March 31, 2004 and December 31, 2003, respectively	31,613	30,581
Due from Senior Housing Properties Trust	--	544
Due from Sunrise Senior Living Services, Inc.	1,632	--
Prepaid expenses	4,246	4,305
Assets held for sale	3,245	--
Other current assets	3,012	3,022
Total current assets	65,717	59,688

Property and equipment, net	31,717	55,484
Restricted cash, insurance arrangements	8,431	8,431
Restricted cash, other	18,992	15,338
Mortgage notes receivable	6,067	6,143
Other long term assets	2,303	2,286
	$ 133,227	$ 147,370
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued expenses	$ 24,824	$ 23,984
Accrued compensation and benefits	11,075	8,936
Due to Senior Housing Properties Trust	6,050	6,605
Due to Sunrise Senior Living Services, Inc.	--	6,134
Mortgage note payable	--	54
Secured revolving credit facility	--	4,000
Accrued real estate taxes	3,354	5,142
Continuing care contracts	2,271	2,221
Other current liabilities	1,914	1,069
Total current liabilities	49,488	58,145

Long term liabilities:
Mortgage note payable	--	6,381
Continuing care contracts	10,116	10,164
Other long term liabilities	8,682	8,253
Total long term liabilities	18,798	24,798
Commitments and contingencies:
Shareholders' equity:
Preferred stock, par value $0.01: 1,000,000 shares authorized, none issued	--	--
Common stock, par value $0.01: 10,000,000 shares authorized, 8,514,634 and 8,513,634 shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively	85	85
Additional paid-in capital	86,251	86,244
Accumulated deficit	(21,395)	(21,902)
Total shareholders' equity	64,941	64,427
	$ 133,227	$ 147,370

See accompanying notes.

FIVE STAR QUALITY CARE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(dollars in thousands, except per share amounts)
(unaudited)

	Three months ended March 31,
	2004	2003
Revenues:
Net revenues from residents	$ 147,974	$ 141,597
Pharmacy revenue	2,167	--
Interest and other income	1,350	75
Total revenues	151,491	141,672

Expenses:
Wages and benefits	81,426	77,574
Other operating expenses	38,110	37,296
Management fee to Sunrise Senior Living Services, Inc.	4,633	4,306
Rent to Senior Housing Properties Trust	20,127	18,955
General and administrative	5,118	4,343
Depreciation and amortization	973	819
Interest expense	146	286
Total expenses	150,533	143,579
Income (loss) from continuing operations before income taxes	958	(1,907)

Provision for income taxes	--	--
Income (loss) from continuing operations	958	(1,907)

Loss from discontinued operations	(451)	(348)
Net income (loss)	$ 507	$ (2,255)
Weighted average shares outstanding	8,514	8,452
Income (loss) per share from:
Continuing operations	$ 0.11	$ (0.23)
Discontinued operations	(0.05)	(0.04)

Net income (loss) per share	$ 0.06	$ (0.27)

See accompanying notes.

FIVE STAR QUALITY CARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
(unaudited)

	Three months ended March 31,
	2004	2003
Cash flows from operating activities:
Net income (loss)	$ 507	$(2,255)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization	973	819
Loss from discontinued operations	451	348
Provision for bad debt expense	655	(640)
Changes in assets and liabilities:
Accounts receivable	(1,687)	3,457
Prepaid expenses and other current assets	45	(1,118)
Accounts payable and accrued expenses	230	(1,339)
Accrued compensation and benefits	2,139	484
Due to / from Sunrise Senior Living Services, Inc.	(7,766)	--
Due from Senior Housing Properties Trust	(10)	62
Other current and long term liabilities	98	(621)
Cash used in operating activities	(4,365)	(803)
Net cash used in discontinued operations	(451)	(306)
Cash flows from investing activities:
Deposits into restricted cash accounts	(4,254)	(4,209)
Withdrawals from restricted cash for purchases of furniture, fixture and equipment	600	--
Real estate sales	22,512	--
Change in assets held for sale	(2,479)	--
Furniture, fixtures and equipment purchases	(394)	(1,606)
Cash provided by (used in) investing activities	15,985	(5,815)
Cash flows from financing activities:
Repayments of mortgage payable	(6,436)	--
Repayments of borrowings on revolving credit facility	(19,500)	--
Proceeds from borrowings on revolving credit facility	15,500	3,000
Cash (used in) provided by financing activities	(10,436)	3,000
Change in cash and cash equivalents	733	(3,924)
Cash and cash equivalents at beginning of period	21,236	10,270
Cash and cash equivalents at end of period	$ 21,969	$ 6,346
Supplemental cash flow information
Cash paid for interest	$ 158	$ 487

Non-cash investing and financing activities:
Issuance of common stock	7	--

See accompanying notes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(unaudited)

Note 1. Basis of Presentation and Organization

The accompanying condensed consolidated financial statements of Five Star Quality Care, Inc. and all of our subsidiaries have been prepared without audit. Certain information and footnote disclosures required by generally accepted accounting principles for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying financial statements should be read in conjunction with the financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2003. In the opinion of our management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, have been included. All intercompany transactions and balances between us and our subsidiaries have been eliminated. Our operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. Reclassifications have been made to the prior year’s financial statements to conform to the current year’s presentation.

At March 31, 2004, our business included 100 communities containing 13,832 living units, including 47 primarily independent and assisted living communities containing 9,056 living units and 53 nursing homes containing 4,776 living units. Our business also includes an institutional pharmacy that services 12 communities with 1,425 residents.

During the first quarter of 2004, we closed one assisted living community that was managed by Sunrise Senior Living Services, Inc., or SLS, a wholly owned subsidiary of Sunrise Senior Living, Inc., or Sunrise (see Note 6.)

Note 2. Income Taxes

We have a short operating history and have historically generated no taxable income. Consequently, we have fully reserved the value of our net deferred tax assets arising from tax loss carryforwards due to the uncertainty of their future realization. Should we continue to generate income in the future, income tax expense will not be recorded until our tax loss carryforwards are utilized.

Note 3. Per Common Share Amounts

Net income (loss) per share for the periods ended March 31, 2004 and 2003 is computed using the weighted average number of shares outstanding during the periods. We have no common share equivalents, instruments convertible into common shares or other dilutive instruments.

Note 4. Accounts Related to Management Agreements with SLS

Under the terms of the management agreements for our 30 communities managed for us by SLS we provide SLS with working capital. The working capital, which consists primarily of cash and cash equivalents, inventories, trade accounts receivable and accounts payable, is controlled and maintained by SLS on our behalf. Accordingly, we include the individual components of working capital for the SLS managed communities in our consolidated balance sheet.

Restricted cash, other as of March 31, 2004, includes $4,308 escrowed for future capital expenditures, as required by the management agreements with SLS and $8,005 escrowed related to resident security deposits for certain SLS managed communities.

At some of our communities that are managed by SLS, residents can enter into continuing care contracts. These contracts require residents to make advance payments some of which are refundable and are carried as liabilities until they are refunded and some of which are not refundable and are carried as liabilities until they are amortized into revenues during the periods we expect to provide the service.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(unaudited)

Note 5. Assets Held for Sale

In accordance with our leases, Senior Housing Properties Trust, or Senior Housing, has agreed to fund amounts needed for capital improvements that we make to facilities that we lease from them. When Senior Housing provides such funds, our rent payable to Senior Housing is increased in accordance with the leases. Assets held for sale are those amounts we have spent on capital improvements that we have made to our leased facilities for which we will seek funding from Senior Housing.

Note 6. Indebtedness

We have a $12,500 revolving credit facility that is secured by some of our accounts receivable. The amount which we may borrow is subject to limitations based upon qualifying collateral. The interest rate on borrowings, which was 4.7% as of March 31, 2004, is LIBOR plus a spread. The facility is available for acquisitions, working capital and general business purposes until October 24, 2005, its maturity date. As of March 31, 2004 and May 10, 2004, no amounts were outstanding under the facility. Interest expense related to this facility was $114 for the quarter ended March 31, 2004.

One of the properties acquired by one of our subsidiaries in October 2002 was encumbered by two mortgage notes secured by first and second deeds of trust. In accordance with the prepayment provisions of the first mortgage, in December 2003, we prepaid the first mortgage note for $9,323. The remaining deed of trust mortgage for $6,435 was prepaid on March 1, 2004.

Note 7. Discontinued Operations

During 2003, we ceased operating one nursing home that was leased from Senior Housing. In August 2003, we sold an assisted living community and we received $3,500, consisting of $350 of cash and a $3,150 six-year mortgage note at 8% interest. We deferred the $1,100 gain on the sale and we expect to recognize the gain as income over the life of the note in proportion to note principal payments that we receive. In December 2003, we sold five assisted living communities and we received $3,550, consisting of $440 of cash and a $3,110 fifteen year mortgage note at 9% interest. We deferred the $1,200 gain on the sale and we expect to recognize the gain as income when the buyer demonstrates it has the ability to pay the mortgage note. These deferred gains are included in other long term liabilities on our consolidated balance sheet.

During the first quarter of 2004, we ceased operations at one assisted living community managed for us by SLS that we lease from Senior Housing. We and Senior Housing are exploring other uses for that property as well as its potential sale.

As of March 31, 2004, we have disposed of substantially all of our assets and settled all liabilities related to these closed communities. We have reclassified the income statements for all periods presented to present the results of operations of these communities as discontinued. Below is a summary of the operating results of these discontinued operations included in the financial statements for quarters ended March 31, 2004 and 2003:

	Three months ended March 31,
	2004	2003
Revenues	$ 285	$ 2,294
Expenses	736	2,642
Net loss	$(451)	$ (348)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(unaudited)

Note 8. Commitments and Contingencies

Connecticut Strike Costs. During 2001, we incurred costs to hire temporary staff and to provide security services for residents and temporary employees during a Connecticut labor strike. At the time of this strike, the Governor of Connecticut and the Connecticut Department of Social Services agreed to adjust Medicaid rates to compensate for a portion of these increased costs. The striking union brought litigation against the Governor and Commissioner of the Department of Social Services, and, on September 13, 2002, the United States District Court for Connecticut issued a declaratory ruling that Medicaid subsidies other than those to reimburse costs incurred to protect the health and safety of residents are violations of federal labor law. The Connecticut Department of Social Services continues to review and process our claims for these adjustments, totaling approximately $1,500 as of March 31, 2004. In the event that the Connecticut Department of Social Services determines not to make payments or seeks reimbursement of payments previously made, and our defenses and claims are not fully successful, the uncollected amounts, net of applicable reserves will be recorded as a loss in future periods. We intend to pursue these claims.

Receivables from Integrated Health Services, Inc. and the United States Department of Health and Human Services. During 2000, we assumed the operations of 40 nursing homes from Integrated Health Services, Inc. and certain related entities, collectively, IHS, a company then in bankruptcy, pursuant to a court approved settlement agreement. Because of complex legal and governmental processes necessary to transfer nursing home licenses and Medicare and Medicaid payments, arrangements were agreed upon for IHS to continue to receive payments from Medicare and Medicaid third party payors for services provided at the nursing homes following our assumption of operations, including an agreement among us, IHS and the Secretary of the United States Department of Health and Human Services, or HHS. These arrangements were approved by the bankruptcy court and generally honored by IHS with respect to approximately $42,000 received by IHS for our account. We initially believed IHS had received an additional $2,000 which was due to us. When IHS refused to pay this amount we commenced suit against IHS in the bankruptcy court in August 2002. Following the filing of the suit, settlement discussions were started. In December 2002, IHS paid approximately $700 of the receivable balance. IHS has asserted that it is only obligated to deliver funds it received from third-party payors, including HHS, and that HHS has withheld payments which are due to us. In March 2003, we commenced suit against IHS, HHS and the State of Colorado Department of Healthcare Policy and Financing concerning the remaining receivable balance. Shortly after filing, settlement was reached with the State of Colorado providing us a payment of approximately $400. In December 2003, the court granted a motion to dismiss HHS, but took no action on IHS’s motion to dismiss. In January 2004, we appealed the courts decision to dismiss HHS. On February 24, 2004, the court denied in all material respects IHS’s motion to dismiss. We intend to pursue these claims, but we cannot predict the outcome of this litigation.

SLS Management Agreements. During 2002, about the time Marriott International Inc., or Marriott, decided to sell Marriott Senior Living Services, Inc., or MSLS, to Sunrise, we and Senior Housing became involved in litigation with Marriott and MSLS. On January 7, 2004, we and Senior Housing settled the pending litigation with Marriott and MSLS. Under the terms of the settlement we and Senior Housing, and Marriott and MSLS, agreed to dismiss all claims and counterclaims asserted in the litigation. Also under the terms of the settlement, Marriott paid to us and Senior Housing $1,250 each. The settlement was a compromise of the parties’ disputes entered into to avoid the expense and inconvenience of litigation and neither us or Senior Housing, nor Marriott or MSLS, has admitted any liability, violation of law or wrongdoing in connection with the matters in the litigation. We believe the settlement resolves all of our litigation with Marriott. This settlement does not affect our or Senior Housing’s rights vis-à-vis SLS or Sunrise which arise by reason of events after Sunrise purchased MSLS. This settlement is included in other income for the quarter ended March 31, 2004.

Note 9. Related Party Transactions

On March 1, 2004, Senior Housing purchased from us one independent and assisted living community with 229 units located in Maryland. The purchase price was $24,100, the appraised value of the property. The sale resulted in a gain of $1,426 which will be recognized over the term of the lease as described below. Simultaneous with this purchase, our existing leases with Senior Housing were modified as follows:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(unaudited)

Note 9. Related Party Transactions (continued)

•

the lease for 53 nursing homes and the lease for 13 independent and assisted living communities were combined into one lease and the property acquired on March 1, 2004 was added to this combined lease;

•

the combined lease expiration date was changed to December 31, 2020 from December 31, 2018 and 2019 for the separate leases;

•

our minimum rent for the combined lease of 53 nursing homes and 14 independent living communities was increased by $2,410 per year;

•

for all of our leases with Senior Housing, the amount of additional rent to be paid to Senior Housing was changed to 4% of the increase in revenues at the leased properties beginning in 2006. Prior to the lease combination, the percentage and the beginning time period for the nursing home lease and the independent and assisted living community lease was 3% and 2004 and 4% and 2005, respectively; and

All other lease terms remain substantially unchanged.

On April 19, 2004, we purchased one property from Senior Housing for its appraised value of $5,900 that was previously leased to us from Senior Housing. We financed this transaction with proceeds we received from a new Department of Housing and Urban Development, or HUD, insured mortgage in the amount of $5,015 and by using cash on hand. We also have an agreement to purchase one additional property from Senior Housing. We expect to finance this transaction with proceeds that we receive from the new HUD insured mortgage and using cash on hand.

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

RESULTS OF OPERATIONS

Key Statistical Data (for the three months ended March 31, 2004 and 2003):

The following tables present an overview of our portfolio for the quarters ended March 31, 2004 and 2003:

	2004		2003		Change
Revenues from residents (in 000s)	$147,974		$141,597		+5	%
Community expenses (in 000s)	$119,536		$114,870		+4	%
Total expenses (in 000s)	$150,533		$143,579		+5	%
No. of communities (end of period)	100		97		+3
No. of living units (end of period)	13,832		13,689		+1	%
Occupancy	88	%	90	%	-2	%
Average daily rate	$ 135		$ 128		+5	%
Revenue per day per available unit	$ 119		$ 114		+4	%
Percent of revenues from Medicare and Medicaid	40	%	40	%	--
Percent of revenues from private and other	60	%	60	%	--

"Same Store" Communities (communities that we operated continuously since 1/1/03):
	2004		2003		Change
Revenues from residents (in 000s)	$147,056		$141,597		+4	%
Community expenses (in 000s)	$116,743		$114,870		+2	%
No. of communities (end of period)	97		97		--
No. of living units (end of period)	13,689		13,689		--
Occupancy	88	%	90	%	-2	%
Average daily rate	$ 134		$ 128		+5	%
Revenue per day per available unit	$ 118		$ 114		+4	%
Percent of revenues from Medicare and Medicaid	40	%	40	%	--
Percent of revenues from private and other	60	%	60	%	--

Total revenues from residents for the three months ended March 31, 2004 were $148.0 million, an increase of 5% over revenues from residents of $141.6 million for the three months ended March 31, 2003. This increase is due primarily to higher per diem charges to residents and three additional communities that we began to operate on May 30, 2003 somewhat offset by a decrease in occupancy. Revenues from residents at the communities we operated continuously since January 1, 2003, were $147.1 million and $141.6 million, for the three months ended March 31, 2004 and March 31, 2003, respectively, an increase of 4%. This increase is due primarily to higher per diem charges to residents somewhat offset by a decrease in occupancy. About 40% of our revenues from residents in the three months ended March 31, 2004 and 2003 were received from Medicare and Medicaid. Revenues from our pharmacy, which was acquired in September 2003, were $2.2 million for the three months ended March 31, 2004.

Interest and other income increased by $1.3 million in three months ended March 31, 2004 to $1.4 million compared to $75,000 in the three months ended March 31, 2003 due to our settlement with Marriott and MSLS. On January 7, 2004, we and Senior Housing settled the pending litigation with Marriott and MSLS. Under the terms of the settlement we and Senior Housing, and Marriott and MSLS, agreed to dismiss all claims and counterclaims asserted in the litigation. Also under the terms of the settlement, Marriott paid to us and Senior Housing $1,250 each.

Expenses for the three months ended March 31, 2004 were $150.5 million, an increase of 5% over expenses of $143.6 million for the three months ended March 31, 2003. Our wages and benefits costs increased from $77.6 million to $81.4 million, or 5%, primarily due to wage increases as well as wages related to three communities we began to operate on May 30, 2003 and the pharmacy we acquired in September 2003. Other operating expenses, which include utilities, housekeeping, dietary, maintenance, insurance and community level administrative costs, increased $814,000 to $38.1 million, or 2%, primarily as a result of increased charges from third parties, our lease of three additional properties on May 30, 2003 and our pharmacy acquisition in September 2003. Management fees related to the 30 communities managed for us by SLS for the three months ended March 31, 2004 and 2003, were $4.6 million and $4.3

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

million, respectively. The increase in fees at these 30 communities are based upon contractual calculations of fees based primarily upon increased revenues. Rent expense to Senior Housing increased from $19.0 million to $20.1 million, or 6%, primarily due to the addition of three communities we began to lease since May 2003, and additional rent for capital improvements at properties we lease that were funded by Senior Housing in 2003. Community level operating expenses related to the communities we operated throughout the three months ended March 31, 2004 and March 31, 2003 were $116.7 million and $114.9 million, respectively, an increase of 2%. This increase is primarily due to wage increases.

Our general and administrative expenses for the three months ended March 31, 2004 were $5.1 million, an increase of 19% over expenses for the three months ended March 31, 2003 of $4.3 million, primarily due to costs resulting from our increased operations and to legal costs incurred in connection with our litigation with Marriott and MSLS and other matters.

Depreciation expense for the three months ended March 31, 2004 was $973,000 an increase of 19% over depreciation expense of $819,000 for the three months ended March 31, 2003. The increase is primarily attributable to our purchase of furniture and fixtures related to the 30 communities which SLS began to manage in the second half of 2003 offset by our sale of six communities in the second half of 2003 as well as our sale of previously capitalized improvements to Senior Housing at some of our communities.

Loss from discontinued operations for the three months ended March 31, 2004 was $451,000, an increase of $103,000 over the loss for the three months ended March 31, 2003. This increase is primarily the result of closing costs and losses in the first quarter of 2004 at one assisted living community that was managed by SLS.

As a result of the factors described above, our net income for the three months ended March 31, 2004 was $507,000 compared to a loss of $2.3 million for the three months ended March 31, 2003. Our net income per share for the three months ended March 31, 2004 was $0.06 compared to a loss per share of $0.27 for the three months ended March 31, 2003.

LIQUIDITY AND CAPITAL RESOURCES

Our total current assets at March 31, 2004, were $65.7 million compared to $59.7 million at December 31, 2003. At March 31, 2004, we had cash and cash equivalents of $22.0 million.

Our total current liabilities were $49.5 million at March 31, 2004 compared to $58.1 million at December 31, 2003. This decrease was due primarily to our repayment of amounts outstanding under our revolving credit facility and the payment of amounts due to SLS during the quarter ended March 31, 2004.

Currently, we lease 98 communities from Senior Housing under two leases. Our leases with Senior Housing require us to pay a total of $82.0 million of minimum rent annually. Percentage rent on the leases begins in 2006. At May 10, 2004, we believe we were in compliance with the terms of these leases.

In accordance with our leases with Senior Housing, Senior Housing will reimburse funds spent on capital improvements to our leased facilities. We have expended $3.2 million on capital improvements made to these leased facilities for which we anticipate Senior Housing reimbursing us in the second quarter of 2004. When Senior Housing provides such funds to us, our rent payable to Senior Housing will increase in accordance with the terms of these leases.

Our primary source of cash to fund operating expenses, including rent and routine capital expenditures, is our revenues from services to residents at our communities. At some of our communities, operating revenues for nursing home services are received from the Medicare and Medicaid programs. Through March 31, 2004, 40% of our total revenues were derived from these programs. Medicare and Medicaid revenues were earned primarily from the 51 nursing home communities we lease from Senior Housing. Since 1998, a Medicare prospective payment system has generally lowered Medicare rates paid to senior living communities including many of those that we operate. In October 2002, temporary increases in Medicare payment rates expired. In October 2003, Medicare rates increased by approximately 6%. Our Medicare revenues totaled $22.2 million and $19.1 million during the three months ended March 31, 2004

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

and 2003, respectively. Our Medicaid revenues totaled $37.7 million and $36.7 million during the three months ended March 31, 2004 and 2003, respectively. Some of the states in which we operate have not raised rates by amounts sufficient to offset increasing costs or are expected to reduce Medicaid funding. The magnitude of the potential combined Medicare and Medicaid rate reductions cannot currently be estimated, but it may be material and may affect our future results of operations. Further Medicare and Medicaid rate declines may have a dramatic negative impact on our revenues and may produce losses.

We expect recent increases in the costs of insurance, especially tort liability insurance, workers compensation and employee health insurance, which are affecting the senior living industry, will continue to have a material adverse impact upon our future results of operations. As discussed in Note 7 to our financial statements, a failure by IHS, HHS or the State of Connecticut to make payments that we believe are due to us would have a material adverse impact upon our future financial results. Also, we believe Marriott’s sale of MSLS to Sunrise has had, and may continue to have, an adverse impact on our financial results and increase our working capital requirements.

Our revolving credit facility limits our ability to incur debt as more fully described below. The terms of our leases with Senior Housing contain provisions whereby our rights under these agreements may be cancelled by Senior Housing upon the acquisition by any person or group of more than 9.8% of our voting stock, and upon other change of control events. These leases also limit our ability to create, incur, assume or guarantee indebtedness.

As is further discussed below in “Related Party Transactions,” on March 1, 2004, Senior Housing purchased from us one independent and assisted living community with 229 units located in Maryland. The purchase price was $24.1 million, the appraised value of the property. The sale resulted in a gain of $1.4 million which will be recognized over the term of our lease of this community.

During 2003, Senior Housing agreed to sell us two nursing homes in Michigan that we leased from Senior Housing. The purchase price is $10.5 million, the appraised value of the properties. These two properties are leased from Senior Housing on a combined basis with 65 other properties. Under the terms of our lease with Senior Housing, upon consummation of the sale, the annual rent payable under the combined lease will be reduced by 10% of the net proceeds that we receive from the sale. On April 19, 2004, we purchased one of these properties from Senior Housing for $5.9 million. We financed this acquisition with proceeds we received from a new HUD insured mortgage and by using cash on hand. We expect the second sale to occur later in 2004 and we intend to finance the second sale with proceeds that we receive from a second HUD insured mortgage and with available cash.

Despite the commitments, contingencies and limitations described above, we believe that a combination of our efforts to increase revenues and contain costs, our ability to borrow on our revolving credit facility, our ability to sell to Senior Housing certain capital improvements made to communities leased from Senior Housing and the possibility of sales or financings of our owned communities will be sufficient to meet our working capital needs, operating expenses, rent payments to Senior Housing, debt service and capital expenditures for the next 12 months and the foreseeable future.

Debt Instruments and Covenants

In October 2002, we entered into a revolving credit facility. The interest rate on borrowings on this facility is LIBOR plus a spread. The maximum amount available under this facility is $12.5 million, and borrowings are subject to limitations based upon qualifying collateral. The facility is available for acquisitions, working capital and general business purposes. The facility contains covenants and events of default requiring the maintenance of collateral, minimum net worth and certain other financial ratios, among other customary provisions. In certain circumstances, and subject to available collateral and lender approvals, the maximum amounts that we may draw under this credit agreement may be increased to $25.0 million. As of March 31, 2004, no amounts were outstanding under the facility. At May 10, 2004, we believe we were in compliance with all applicable covenants under this revolving credit agreement and no amounts are outstanding.

In connection with our October 2002 acquisition of a community, we assumed two HUD insured mortgages totaling approximately $15.7 million. In December 2003, we prepaid one $9.3 million mortgage. In March 2004, the second $6.4 million mortgage was prepaid.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Seasonality

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

Related Party Transactions

On March 1, 2004, Senior Housing purchased from us one independent and assisted living community with 229 units located in Maryland. The purchase price was $24.1 million, the appraised value of the property. Simultaneous with this purchase, our existing leases with Senior Housing were modified as follows:

•

the combined lease expiration date was changed to December 31, 2020 from December 31, 2018 and 2019 for the separate leases;

•

our minimum rent for the combined lease of 53 nursing homes and 14 independent living communities was increased by $2.41 million per year;

•

All other lease terms remain substantially unchanged.

As discussed above in “Liquidity and Capital Resources,” on April 19, 2004, we purchased one property from Senior Housing for its appraised value of $5.9 million that was previously leased to us. We financed this transaction with proceeds we received from a new HUD insured mortgage in the amount of $5.0 million and by using cash on hand. We have an agreement to purchase one additional property from Senior Housing and also expect to finance this transaction with proceeds from a second HUD insured mortgage and by using cash on hand.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to risks associated with market changes in interest rates. We manage our exposure to this market risk through our monitoring of available financing alternatives. Our strategy to manage exposure to changes in interest rates is unchanged since December 31, 2003. However, our exposure to fluctuations in interest rates may increase in the future if we incur debt to fund acquisitions or otherwise. As of May 10, 2004, we have no commercial paper, derivatives, swaps, hedges, joint ventures or partnerships.

Item 4. Controls and Procedures

As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our President and Chief Executive Officer and our Treasurer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934. Based upon that evaluation, our President and Chief Executive Officer and our Treasurer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.

There have been no significant changes in our internal controls over financial reporting during the quarter ended March 31, 2004 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, including any corrective actions with regard to significant deficiencies and material weaknesses.

WARNING CONCERNING FORWARD LOOKING STATEMENTS

THIS QUARTERLY REPORT ON FORM 10-Q AND OUR ANNUAL REPORT ON FORM 10-K, REFERRED TO HEREIN, CONTAIN FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND FEDERAL SECURITIES LAWS. THESE STATEMENTS REGARD OUR INTENT, BELIEF OR EXPECTATIONS, OR THE INTENT, BELIEF OR EXPECTATIONS OF OUR DIRECTORS AND OFFICERS, BUT THEY ARE NOT GUARANTEED TO OCCUR. FOR EXAMPLE:

•

INCREASES IN INSURANCE COSTS AND IN INSURANCE RESERVE CALCULATIONS MAY HAVE A GREATER ADVERSE IMPACT ON OUR BUSINESS THAN WE CURRENTLY ANTICIPATE;

•

WE MAY BE UNABLE TO CARRY OUT OUR BUSINESS PLAN TO EXPAND OUR OPERATIONS OF COMMUNITIES WHERE RESIDENTS PAY FOR SERVICES WITH PRIVATE RESOURCES BECAUSE WE ARE UNABLE TO LOCATE SUCH EXPANSION OPPORTUNITIES AT PRICES WE ARE WILLING OR ABLE TO PAY;

•

WE MAY BE UNABLE TO COLLECT ACCOUNTS RECEIVABLE WHICH WE BELIEVE ARE DUE FROM IHS, FROM HHS, OR FROM THE STATE OF CONNECTICUT MEDICAID PROGRAM;

•

THE SALE OF MSLS BY MARRIOTT TO SUNRISE SEEMS TO HAVE ADVERSELY AFFECTED THE OPERATIONS OF THE SENIOR LIVING COMMUNITIES WHICH SLS NOW MANAGES FOR OUR ACCOUNT. THE REVENUES AT THESE COMMUNITIES MAY DECLINE, THE EXPENSES AT THESE COMMUNITIES MAY INCREASE AND OUR INCOME FROM THESE COMMUNITIES MAY DECLINE; AND

•

WE MAY BE UNABLE TO COMPLETE OUR PURCHASE OF THE FACILITY LOCATED IN MICHIGAN FROM SENIOR HOUSING.

ALSO, WHENEVER WE USE WORDS SUCH AS “BELIEVE”, “EXPECT”, “ANTICIPATE”, “INTEND”, “PLAN”, “ESTIMATE”, “PREDICT” OR SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD LOOKING STATEMENTS. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY THESE FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. SUCH FACTORS INCLUDE, WITHOUT LIMITATION THOSE DESCRIBED ABOVE AND:

•

CHANGES IN THE ECONOMY AND THE CAPITAL MARKETS (INCLUDING PREVAILING INTEREST RATES);

•

COMPLIANCE WITH AND CHANGES TO REGULATIONS AND PAYMENT POLICIES WITHIN THE SENIOR HOUSING AND HEALTHCARE INDUSTRIES;

•

CHANGES IN OUR FINANCING TERMS;

•

COMPETITION WITHIN THE SENIOR HOUSING AND HEALTHCARE INDUSTRIES; AND

•

CHANGES IN FEDERAL, STATE AND LOCAL LEGISLATION.

FORWARD LOOKING STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q AND IN OUR ANNUAL REPORT ON FORM 10-K MAY IMPLY THAT WE EXPECT TO OPERATE PROFITABLY IN THE FUTURE. HOWEVER, WE MAY BE UNABLE TO OPERATE PROFITABLY FOR THE REASONS SET FORTH ABOVE OR FOR OTHER REASONS. ALTHOUGH WE BELIEVE OUR LIQUIDITY AND CAPITAL RESOURCES ARE SUFFICIENT TO MEET OUR BUSINESS NEEDS FOR THE NEXT 12 MONTHS, IN FACT THEY MIGHT NOT BE SUFFICIENT FOR US TO CONTINUE IN BUSINESS. AN INVESTMENT IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK OF LOSS, AND INVESTORS SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS WHICH IMPLY OTHERWISE.

Part II. Other Information

Item 1. Legal Proceedings

During 2002, about the time Marriott determined to sell MSLS to Sunrise, we and Senior Housing became involved in litigation with Marriott International and MSLS which has been previously described in our 2002 and 2003 Annual Reports on Form 10-K and our quarterly reports on Form 10-Q for the quarters ended March 31, 2003, June 30, 2003 and September 30, 2003. On January 7, 2004, we and Senior Housing settled our pending litigation with Marriott and MSLS. Under the terms of the settlement we and Senior Housing, and Marriott and MSLS, agreed to dismiss all claims and counterclaims asserted in the litigation. Also under the terms of the settlement, Marriott paid to us and Senior Housing $1.25 million each. The settlement was a compromise of the parties’ disputes entered into to avoid the expense and inconvenience of litigation and neither we or Senior Housing, nor Marriott or MSLS, has admitted any liability, violation of law or wrongdoing in connection with the matters in the litigation. We believe the settlement settles all of our litigation with Marriott. This settlement does not affect our or Senior Housing’s rights vis-à-vis Sunrise or SLS which arise by reason of events after Sunrise purchased MSLS.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

On March 10, 2004, our board of directors adopted a shareholder protection rights plan, or the Plan, pursuant to which our board of directors created a class of authorized but unissued junior participating preferred stock, par value $.01 per share, and declared a dividend of one preferred stock purchase right for each of our outstanding shares of common stock of beneficial interest. The terms of the junior participating preferred stock and the Plan are described in our Current Report on Form 8-K dated March 10, 2004, which is hereby incorporated herein by reference.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

3.2 Composite copy of Amended and Restated Bylaws of the Registrant. (Incorporated by reference to the Company’s Current Report on Form 8-K dated March 10, 2004.)

3.3 Articles Supplementary. (Incorporated by reference to the Company's Form 8A dated March 19, 2004.)

3.4 Certificate of Correction dated March 19, 2004. (Filed herewith.)

4.1 Rights Agreement, dated as of March 10, 2004, by and between the Company and EquiServe Trust Company, N.A. (Incorporated by reference to the Company’s Current Report on Form 8-K dated March 10, 2004.)

10.1 Second Amendment to Amended Master Lease Agreement, dated March 1, 2004, by and among certain affiliates of Senior Housing Properties Trust, as Landlord, and FS Tenant Holding Company Trust and FS Tenant Pool III Trust, collectively as Tenant. (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.)

10.2 Amended and Restated Lease Agreement, dated March 1, 2004, by and among certain affiliates of Senior Housing Properties Trust, as Landlord, and Five Star Quality Care Trust, as Tenant. (Incorporated by reference to the Company’s Current Report on Form 8-K dated March 1, 2004.)

10.3 Amendment No. 2 to Shared Services Agreement, dated as of March 10, 2004, by and between the Company and Reit Management & Research LLC. (Incorporated by reference to the Company’s Current Report on Form 8-K dated March 10, 2004.)

10.4 Purchase and Sale Agreement, dated March 1, 2004, by and among Ellicott City Land I, LLC and Ellicott City Land II, LLC, collectively as Sellers and SNH CHS Properties Trust, as Purchaser. (Incorporated by reference to the Company’s Current Report on Form 8-K dated March 1, 2004.)

10.5 Form of Indemnification Agreement. (Incorporated by reference to the Company’s Current Report on Form 8-K dated March 10, 2004.)

10.6 Partial Termination and Amendment of Lease dated as of April 19, 2004, by and among certain subsidiaries of Senior Housing Properties Trust and the Company. (Filed herewith.)

10.7 Amended and Restated Purchase and Sale Agreement dated as of April 19, 2004, by and between SPT-Michigan Trust and Five Star Quality Care-Howell, LLC. (Filed herewith.)

10.8 Mortgage dated as of April 19, 2004, between Five Star Quality Care-Howell, LLC and Love Funding Corporation. (Filed herewith.)

31.1 Certification required by Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended. (Filed herewith.)

31.2 Certification required by Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended. (Filed herewith.)

32.1 Certification required by 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002). (Furnished herewith.)

(b) Reports on Form 8-K:

Current Report on Form 8-K dated March 1, 2004, filing information regarding the sale of an independent and assisted living facility to a subsidiary of Senior Housing and the amendment of our leases with Senior Housing (Items 2 and 7).

Current Report on Form 8-K dated March 10, 2004, filing information with respect to the adoption of a shareholder protection rights plan and filing various exhibits (Items 5 and 7).

Current Report on Form 8-K dated March 26, 2004, furnishing our press release containing our results of operations and financial condition for the quarter and year ended December 31, 2003 (Items 7 and 12).

SIGNATURES

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

FIVE STAR QUALITY CARE, INC.

By: /s/ Evrett W. Benton
Evrett W. Benton
President and Chief Executive Officer
Dated: May 10, 2004

By: /s/ Bruce J. Mackey Jr.
Bruce J. Mackey Jr.
Treasurer and Chief Financial Officer
Dated: May 10, 2004

EXHIBIT 3.4

CERTIFICATE OF CORRECTION

TO CORRECT AN ERROR

ARTICLES SUPPLEMENTARY

Pursuant to the provisions of Section 1-207 of Corporations and Associations Articles, Annotated Code of Maryland, the undersigned executes the following Certificate of Correction.

1. The name of the party to the document being corrected is Five Star Quality Care, Inc.

2. That an Articles Supplementary was filed with the Department of Assessments and Taxation of the State of Maryland on March 16, 2004 and that said document requires correction as permitted under the provisions of Section 1-207 of the Corporations and Associations Article of Annotated Code of Maryland.

3. The error or defect in said document to be corrected is as follows:

Section 3(c)

(i) If at any time dividends on any Junior Participating Preferred Stock shall be in arrears in an amount equal to six (6) quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (a “Default Period”) which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all Junior Participating Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each Default Period, all holders of Preferred Stock (including holders of the Junior Participating Preferred Stock) with dividends in arrears in an amount equal to six (6) quarterly dividends thereon, voting as a class, irrespective of series, shall have the right to elect two (2) Directors.

(ii) During any Default Period, such voting right of the holders of Junior Participating Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3I or at an annual meeting of stockholders, and thereafter at annual meetings of stockholders, provided that neither such voting right nor the right of the

holders of any other series of Preferred Stock, if any, to increase, in certain cases, the authorized number of Directors shall be exercised unless the holders of ten percent (10%) in number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of Preferred Stock of such voting right. At any meeting at which the holders of Preferred Stock shall exercise such voting right initially during an existing Default Period, they shall have the right, voting as a class, to elect Directors to fill up to two (2) vacancies, if any, in the Board or, if such right is exercised at an annual meeting, to elect two (2) Directors. The holders of Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them at any special meeting of two (2) Directors. After the holders of Preferred Stock shall have exercised their right to elect Directors in any Default Period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Junior Participating Preferred Stock, if any.

(iii) Unless the holders of Preferred Stock shall, during an existing Default Period, have previously exercised their right to elect Directors, the Board may order, or any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding, irrespective of series, may request, the calling of a special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the Board or the President, any Vice President or the Secretary of the Company. The Secretary of the Company shall give notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this paragraph I(iii) to each holder of record of Preferred Stock by mailing a copy of such notice to him at his last address as the same appears on the books of the Company. Such meeting shall be called for a time not earlier than fifteen (15) days and not later than sixty (60) days after such order or request. If such meeting is not called within sixty (60) days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding. Notwithstanding the provisions of this paragraph I(iii), no such special meeting shall be called during the period within sixty (60) days immediately preceding the date fixed for the next annual meeting of the stockholders.

to elect the whole number of Directors until the holders of Preferred Stock shall have exercised their rights to elect two (2) Directors voting as a class, after the exercise of which right, (X) the Directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the Default Period, and (Y) any vacancy in the Board shall (except as provided in paragraph I(ii) of this Section 3) be filled by vote of a majority of the remaining Directors theretofore elected by the holders of the class or classes of Stock which elected the Director whose office shall have become vacant. References in this paragraph I to Directors elected by the holders of a particular class of Stock shall include Directors elected by such Directors to fill vacancies as provided in clause (Y) of the foregoing sentence.

(v) Immediately upon the expiration of a Default Period, (X) the right of the holders of Preferred Stock as a class to elect Directors shall cease, (Y) the term of any Directors elected by the holders of Preferred Stock as a class shall terminate, and (Z) the number of Directors shall be such number as may be provided for in the Articles, any Article Supplementary or the By-Laws of the Company, irrespective of any increase made pursuant to the provisions of paragraph I(ii) of this Section 3 such number being subject, however, to change thereafter in any manner provided by law, or in the Articles of Incorporation, any Article Supplementary or the By-Laws of the Company). Any vacancies in the Board effected by the provisions of clauses (Y) and (Z) in the preceding sentence may be filled by a majority of the remaining Directors.

4. The foregoing inaccuracy or defect in the document is corrected to read as follows:

Section 3(c)

(ii) During any Default Period, such voting right of the holders of Junior

Participating Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(c) or at an annual meeting of stockholders, and thereafter at annual meetings of stockholders, provided that neither such voting right nor the right of the holders of any other series of Preferred Stock, if any, to increase, in certain cases, the authorized number of Directors shall be exercised unless the holders of ten percent (10%) in number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of Preferred Stock of such voting right. At any meeting at which the holders of Preferred Stock shall exercise such voting right initially during an existing Default Period, they shall have the right, voting as a class, to elect Directors to fill up to two (2) vacancies, if any, in the Board or, if such right is exercised at an annual meeting, to elect two (2) Directors. The holders of Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them at any special meeting of two (2) Directors. After the holders of Preferred Stock shall have exercised their right to elect Directors in any Default Period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Junior Participating Preferred Stock, if any.

(iii) Unless the holders of Preferred Stock shall, during an existing Default Period, have previously exercised their right to elect Directors, the Board may order, or any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding, irrespective of series, may request, the calling of a special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the Board or the President, any Vice President or the Secretary of the Company. The Secretary of the Company shall give notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this paragraph (c)(iii) to each holder of record of Preferred Stock by mailing a copy of such notice to him at his last address as the same appears on the books of the Company. Such meeting shall be called for a time not earlier than fifteen (15) days and not later than sixty (60) days after such order or request. If such meeting is not called within sixty (60) days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding. Notwithstanding the provisions of this paragraph (c)(iii), no such special meeting shall be called during the period within sixty (60) days immediately preceding the date fixed for the next annual meeting of the stockholders.

(iv) In any Default Period, the holders of Common Stock, and (if applicable) other classes of stock of beneficial interest of the Company (all Company stock being referred to as “Stock”), shall continue to be entitled to elect the whole number of Directors until the holders of Preferred Stock shall have exercised their rights to elect two (2) Directors voting as a class, after the exercise of which right, (X) the Directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the Default Period, and (Y) any vacancy in the Board shall (except as provided in paragraph (c)(ii) of this Section 3) be filled by vote of a majority of the remaining Directors

(v) Immediately upon the expiration of a Default Period, (X) the right of the holders of Preferred Stock as a class to elect Directors shall cease, (Y) the term of any Directors elected by the holders of Preferred Stock as a class shall terminate, and (Z) the number of Directors shall be such number as may be provided for in the Articles, any Article Supplementary or the By-Laws of the Company, irrespective of any increase made pursuant to the provisions of paragraph (c)(ii) of this Section 3 such number being subject, however, to change thereafter in any manner provided by law, or in the Articles of Incorporation, any Article Supplementary or the By-Laws of the Company). Any vacancies in the Board effected by the provisions of clauses (Y) and (Z) in the preceding sentence may be filled by a majority of the remaining Directors.

[Remainder of page intentionally left blank]

IN WITNESS WHEREOF, FIVE STAR QUALITY CARE, INC. has caused this Certificate of Correction to be signed in its name and on its behalf by a majority of its entire Board of Trustees and witnessed by its Secretary on March 19, 2004.

WITNESS:

/s/ Bruce J. Mackey

FIVE STAR QUALITY CARE, INC.

By: /s/ Evrett W. Benton
       Evrett W. Benton
       President, Chief Executive
       Officer and Secretary

THE UNDERSIGNED, ASSISTANT SECRETARY OF FIVE STAR QUALITY CARE, INC., with respect to the foregoing Certificate of Correction of which this Certificate is made a part, hereby acknowledges in the name and on behalf of said Trust, the foregoing Certificate of Correction to be the act of said Trust and hereby certifies that the matters and facts set forth herein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury.

/s/ Jennifer B. Clark
Jennifer B. Clark
Assistant Secretary

EXHIBIT 10.6

PARTIAL TERMINATION AND AMENDMENT OF LEASE

THIS PARTIAL TERMINATION AND AMENDMENT OF LEASE , is made and entered into as of April 19, 2004 by and among (i) each of the parties identified on the signature page hereof as landlord (collectively, “ Landlord ”), and (ii) FIVE STAR QUALITY CARE TRUST , a Maryland business trust, as tenant (“ Tenant ”).

W I T N E S S E T H:

WHEREAS , pursuant to the terms of that certain Amended and Restated Lease Agreement, dated as of March 1, 2004 (the “ Amended Lease ”), Landlord leases to Tenant and Tenant leases from Landlord certain premises at various locations, including those premises as more particularly described on Exhibit A attached hereto (the “Howell Premises ”); and

WHEREAS , Landlord and Tenant now wish to terminate the Amended Lease with respect to the Howell Premises and to amend the Amended Lease, subject to and upon the terms and conditions hereinafter provided;

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

1. Tenant represents and warrants that Tenant has not assigned the Amended Lease with respect to the Howell Premises or sublet all or any portion of the Howell Premises or otherwise granted the right to occupy all or any portion of the Howell Premises to any person or entity, other than pursuant to that certain Sublease Agreement dated as of December 31, 2001, by and between Tenant and Five Star Quality Care-MI, LLC (“ Subtenant ”), as amended by that certain Letter Agreement dated as of March 1, 2004, by and between Tenant and Certain Affiliates of Five Star Quality Care, Inc., including Subtenant, which Sublease Agreement is being terminated with respect to the Howell Premises by that certain Amended and Restated Sublease Agreement of even date herewith, by and between Tenant and Subtenant.

2. Effective as of the date hereof, the Amended Lease is terminated with respect to the Howell Premises and no party shall have any further rights or liabilities thereunder with respect to the Howell Premises, except those rights and liabilities which by their terms survive termination of the Amended Lease.

3. The definition of “ Minimum Rent ” set forth in Section 1.67 of the Amended Lease is hereby amended by deleting the existing definition and inserting the following in place thereof:

“ Minimum Rent ” shall mean Seventeen Million Seven Hundred Thousand Two Hundred Sixty-Nine Dollars ($17,700,269) per annum.

4. Exhibit A-31 of the Amended Lease is hereby amended by deleting it in its entirety and inserting “ [INTENTIONALLY DELETED] ” in its place.

5. As partially terminated and amended hereby, the Amended Lease is hereby ratified and confirmed.

[SIGNATURE PAGES FOLLOW]

IN WITNESS WHEREOF , Landlord and Tenant have caused this Partial Termination and Amendment of Lease to be duly executed, as a sealed instrument, as of the date first set forth above.

LANDLORD:

ELLICOTT CITY LAND I LLC, ELLICOTT CITY LAND II LLC,
HRES2 PROPERTIES TRUST, SNH CHS PROPERTIES TRUST,
SPTIHS PROPERTIES TRUST, SPT-MICHIGAN TRUST , and
SPTMNR PROPERTIES TRUST

By: /s/ John R. Hoadley
       John R. Hoadley
       Treasurer of each of the foregoing entities

TENANT:

FIVE STAR QUALITY CARE TRUST

By: /s/ Rosemary Esposito
        Rosemary Esposito, R.N.
        Senior Vice President, Chief Operating Officer and
        Chief Clinical Officer

OMITTED EXHIBIT

	EXHIBIT NUMBER	TITLE
	A	The Howell Premises Legal Description

The Registrant agrees to furnish supplementally a copy of the foregoing omitted exhibit to the Securities and Exchange Commission upon request.

EXHIBIT 10.7

AMENDED AND RESTATED
PURCHASE AND SALE AGREEMENT

by and between

SPT-MICHIGAN TRUST,
as Seller,

and

FIVE STAR QUALITY CARE-HOWELL, LLC,
as Purchaser

_________________

April 19, 2004

_________________

		Page
ARTICLE 1	DEFINITIONS	1
1.1	Affiliated Persons	1
1.2	Agreement	2
1.3	Assets	2
1.4	Business Day	2
1.5	Closing	2
1.6	Closing Date	2
1.7	Facility	2
1.8	FF&E	2
1.9	Five Star	2
1.10	HUD Financing	2
1.11	Improvements	2
1.12	Intangible Personal Property	3
1.13	Lease	3
1.14	Original Agreement	3
1.15	Permitted Encumbrances	3
1.16	Property	3
1.17	Purchase Price	3
1.18	Purchaser	3
1.19	Real Property	3
1.20	Seller	4
1.21	Tangible Personal Property	4
1.22	Tenant Leases	4
ARTICLE 2	PURCHASE AND SALE; CLOSING	4
2.1	Purchase and Sale	4
2.2	Closing	4
2.3	Purchase Price	4
ARTICLE 3	CONDITIONS TO PURCHASER'S OBLIGATION TO CLOSE	5
3.1	Closing Documents	5
3.2	HUD Financing	5
ARTICLE 4	CONDITIONS TO SELLER' OBLIGATION TO CLOSE	5
4.1	Purchase Price	6
4.2	Closing Documents	6
4.3	HUD Financing	6
ARTICLE 5	REPRESENTATIONS AND WARRANTIES OF THE SELLER	6
5.1	Status and Authority of the Seller	6
5.2	Action of the Seller	6
5.3	No Violations of Agreements	7
5.4	Litigation	7
5.5	Not A Foreign Person	7
ARTICLE 6	REPRESENTATIONS AND WARRANTIES OF PURCHASER	8
6.1	Status and Authority of the Purchaser	8
6.2	Action of the Purchaser	8
6.3	No Violations of Agreements	9

-i-

TABLE OF CONTENTS
(continued)

		Page
6.4	Litigation	9
ARTICLE 7	APPORTIONMENTS	9
7.1	Real Property Apportionments	9
7.2	Closing Costs	9
ARTICLE 8	Default	10
8.1	Default by the Seller	10
8.2	Default by the Purchaser	10
ARTICLE 9	MISCELLANEOUS	10
9.1	Brokerage Commissions	10
9.2	Publicity	11
9.3	Notices	11
9.4	Waivers, Etc.	12
9.5	Assignment; Successors and Assigns	12
9.6	Severability	13
9.7	Counterparts, Etc.	13
9.8	Governing Law	13
9.9	Performance on Business Days	14
9.10	Attorneys' Fees	14
9.11	Section and Other Headings	14

Schedule A: Legal Description of Property

-ii-

AMENDED AND RESTATED
PURCHASE AND SALE AGREEMENT

THIS AMENDED AND RESTATED PURCHASE AND SALE AGREEMENT is made as of April 14, 2004, by and between SPT-MICHIGAN TRUST , a Maryland business trust (the “ Seller ”), and FIVE STAR QUALITY CARE-HOWELL, LLC , a Delaware limited liability company (the “ Purchaser ”).

WITNESSETH:

WHEREAS , the Seller is the owner of the Property (this and other capitalized terms used and not otherwise defined herein shall have the meanings given such terms in Article 1 ); and

WHEREAS , the Purchaser desires to purchase the Property, as more fully set forth below; and

WHEREAS , the Seller and the Purchaser, among others, entered into that certain Purchase and Sale Agreement, dated as of July 23, 2003, with respect to the Property (the “ Original Agreement ”); and

WHEREAS , the obligations of the Seller and the Purchaser under the Original Agreement have expired pursuant to the express terms of the Original Agreement; and

WHEREAS, the Seller and the Purchaser have agreed to amend and restate the Original Agreement in order to reinstate the same and to correct certain scrivener’s errors in the identity of the Seller;

ARTICLE 1

DEFINITIONS

Capitalized terms used in this Agreement shall have the meanings set forth below or in the Section of this Agreement referred to below:

1.1 “ Affiliated Persons ” shall have the meaning given such term in the Lease.

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1.2 “ Agreement ” shall mean this Amended and Restated Purchase and Sale Agreement, together with Schedule A attached hereto, as it and they may be amended from time to time as herein provided.

1.3 “ Assets ” shall mean, collectively, all of the Real Property, the FF&E, the Improvements, the Tangible Personal Property, the Intangible Personal Property and the Tenant Leases owned by the Seller in connection with or relating to the Facility.

1.4 “ Business Day ” shall mean any day other than a Saturday, Sunday or any other day on which banking institutions in The Commonwealth of Massachusetts authorized by law or executive action to close.

1.5 “ Closing ” shall have the meaning given such term in Section 2.2.

1.6 “ Closing Date ” shall have the meaning given such term in Section 2.2.

1.7 “ Facility ” shall mean the skilled nursing and rehabilitation facility currently being operated on the Property.

1.8 “ FF&E ” shall mean all machinery, equipment, furniture, furnishings, moveable walls or partitions, computers or trade fixtures or other personal property of any kind or description, owned by the Seller, used in the conduct of the Property or the Facility located thereon, and located on or in the Property or the Facility, and all modifications, replacements, alterations and additions to such personal property.

1.9 “ Five Star ” shall mean Five Star Quality Care Trust, a Maryland business trust.

1.10 “ HUD Financing ” shall mean a loan in the original principal amount of Five Million Fifteen Thousand Dollars ($5,015,000) to be obtained by the Purchaser from Love Funding Corporation, which loan is insured by the U.S. Department of Housing and Urban Development, to finance the Purchaser’s acquisition of the Property.

1.11 “ Improvements ” shall mean all buildings, fixtures, walls, fences, landscaping and other structures and improvements situated on, affixed or appurtenant to, the Real Property.

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1.12 “ Intangible Personal Property ” shall mean (i) all agreements, service contracts, equipment leases, booking agreements and other arrangements or agreements owned by the Seller affecting the ownership, repair, maintenance, management, leasing or operation of the Property, or the Facility located thereon, (ii) all books, records and files of the Seller relating to the leasing, maintenance, management or operation of the Property, or the Facility located thereon, or any portion thereof, (iii) all transferable or assignable permits, certificates of occupancy, operating permits, sign permits, development rights and approvals, certificates, licenses, warranties and guarantees, trade names and service marks owned by the Seller with respect to the Property, or the Facility located thereon, and (iv) all other transferable intangible property, miscellaneous rights, benefits and privileges of any kind or character belonging to the Seller with respect to the Property, or the Facility located thereon.

1.13 “ Lease ” shall mean the Amended and Restated Lease Agreement, dated as of March 1, 2004, by and among certain Affiliated Persons of Senior Housing Properties Trust, as landlord, and certain Affiliated Persons of Five Star, as tenant, as the same may have been, or hereafter be, amended, restated, supplemented or otherwise modified from time to time.

1.14 “ Original Agreement ” shall have the meaning given such term in the recitals to this Agreement.

1.15 “ Permitted Encumbrances ” shall mean all liens, encumbrances and other matters affecting title to the Property other than those created by the landlord under the Lease in violation of the terms thereof.

1.16 “ Property ” shall mean, collectively, all of the Assets relating to the Real Property.

1.17 “ Purchase Price ” shall mean Five Million Nine Hundred Thousand Dollars ($5,900,000).

1.18 “ Purchaser ” shall have the meaning given such term in the first paragraph of this Agreement.

1.19 “ Real Property ” shall mean the real property described in Schedule A , together with all easements, rights of way, privileges, licenses and appurtenances which the Seller may own with respect thereto.

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1.20 “ Seller ” shall have the meaning given such term in the first paragraph of this Agreement.

1.21 “ Tangible Personal Property ” shall mean all motor vehicles and consumable inventory and supplies, furniture, furnishings, equipment, movable walls and partitions, equipment and machinery and all other tangible personal property owned by the Seller, of any kind or description, used in the conduct of the Facility and located on the Property, and all modifications, replacements, alterations and additions thereto.

1.22 “ Tenant Leases ” shall mean all leases, rental agreements or other agreements (including all amendments or modifications thereto) which entitle any person to have rights with respect to the use or occupancy of any portion of the Property.

ARTICLE 2

PURCHASE AND SALE; CLOSING

2.1 Purchase and Sale . In consideration of the mutual covenants herein contained, the Purchaser hereby agrees to purchase from the Seller, and the Seller hereby agrees to sell to the Purchaser, all of the Seller’s right, title and interest in and to the Property for the Purchase Price, subject to and in accordance with the terms and conditions of this Agreement.

2.2 Closing . The purchase and sale of the Property shall be consummated at a closing (the “ Closing ”) to be held at the offices of Sullivan &Worcester LLP, One Post Office Square, Boston, Massachusetts, or at such other location as the Seller and the Purchaser may agree, at 10:00 a.m. local time, on a date (the “ Closing Date ”) which is the later to occur of (i) April 16, 2004, and (ii) the date as of which all conditions precedent to the Closing herein set forth have either been satisfied or waived by the party in whose favor such conditions run. In the event that the Closing shall not have occurred on or before April 30, 2004, any party shall have the right, by the giving of written notice, to terminate this Agreement.

2.3 Purchase Price . The Purchase Price for the Property shall be payable, subject to adjustment as provided in Article 7 , by the Purchaser to or at the direction of the Seller at the Closing. The Purchase Price shall be payable in immediately available federal funds by wire transfer to an account or accounts to be designated by the Seller.

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ARTICLE 3

CONDITIONS TO PURCHASER’S OBLIGATION TO CLOSE

The obligation of the Purchaser to acquire the Property on the Closing Date shall be subject to the satisfaction of the following conditions precedent on and as of such Closing Date:

3.1 Closing Documents . The Seller shall have delivered to the Purchaser:

(a) A good and sufficient warranty deed with covenants against grantor’s acts, or its local equivalent, in proper statutory form for recording, duly executed and acknowledged by the Seller, conveying good and marketable title to the Property, free from all liens and encumbrances other than the Permitted Encumbrances;

(b) A bill of sale and assignment agreement, in form and substance reasonably satisfactory to the Seller and the Purchaser, duly executed and acknowledged by the Seller, with respect to all of the Seller’s right, title and interest in, to and under the FF&E, the Tangible Personal Property, the Intangible Personal Property and the Tenant Leases, with respect the Property;

(c) An amendment of lease, in form and substance reasonably satisfactory to the Seller and the Purchaser, duly executed and acknowledged by the Seller and Five Star, removing the Property from the Lease;

(d) Certified copies of all charter documents, applicable corporate resolutions and certificates of incumbency with respect to the Seller; and

(e) Such other conveyance documents, certificates, deeds, affidavits and other instruments as the Purchaser may reasonably require to effectuate the transactions contemplated by this Agreement.

3.2 HUD Financing . The HUD Financing shall simultaneously close and fund.

ARTICLE 4

CONDITIONS TO SELLER’ OBLIGATION TO CLOSE

The obligation of the Seller to convey the Property on the Closing Date to the Purchaser is subject to the satisfaction of

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the following conditions precedent on and as of the Closing Date:

4.1 Purchase Price . The Purchaser shall deliver to the Seller the Purchase Price as provided in Section 2.3.

4.2 Closing Documents . The Purchaser shall have delivered to the Seller:

(a) Duly executed and acknowledged counterparts of the documents described in Section 3.1 , where applicable;

(b) Certified copies of all charter documents, applicable resolutions and certificates of incumbency with respect to the Purchaser; and

(c) Such other conveyance documents, certificates, deeds, affidavits and other instruments as the Seller may reasonably require to effectuate the transactions contemplated by this Agreement.

4.3 HUD Financing . The HUD Financing shall simultaneously close and fund.

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF THE SELLER

To induce the Purchaser to enter into this Agreement, the Seller represents and warrants to the Purchaser as follows:

5.1 Status and Authority of the Seller . The Seller is a business trust duly organized, validly existing and in good standing under the laws of the State of Maryland, and has all requisite power and authority under the laws of such state and under its charter documents to enter into and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. The Seller has duly qualified and is in good standing as a trust in each jurisdiction in which the nature of the business conducted by it requires such qualification, except where the failure to do so could not reasonably be expected to have a material adverse effect.

5.2 Action of the Seller . The Seller has taken all necessary action to authorize the execution, delivery and performance of this Agreement, and upon the execution and delivery of any document to be delivered by it on or prior to the Closing Date, such document shall constitute its valid and binding obligation and agreement, enforceable against the Seller

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in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of general application affecting the rights and remedies of creditors.

5.3 No Violations of Agreements . Neither the execution, delivery or performance of this Agreement, nor compliance with the terms and provisions hereof, will result in any breach of the terms, conditions or provisions of, or conflict with or constitute a default under, or result in the creation of any lien, charge or encumbrance upon the Seller’s property pursuant to the terms of any indenture, mortgage, deed of trust, note, evidence of indebtedness or any other agreement or instrument by which it is bound.

5.4 Litigation . The Seller has not received written notice of and, to the Seller’ knowledge, no action or proceeding is pending or threatened and no investigation looking toward such an action or proceeding has begun, which (a) questions the validity of this Agreement or any action taken or to be taken pursuant hereto, (b) will result in any material adverse change in the business, operation, affairs or condition of the Seller’s property, (c) will result in or subject the Seller’s property to a material liability, or (d) involves condemnation or eminent domain proceedings against any material part of the Seller’s property.

5.5 Not A Foreign Person . The Seller is not a “foreign person” within the meaning of Section 1445 of the United States Internal Revenue Code of 1986, as amended, and the treasury regulations promulgated thereunder.

The representations and warranties made in this Agreement by the Seller are made as of the date hereof and shall be deemed remade by the Seller as of the Closing Date with the same force and effect as if made on, and as of, such date.

Except as otherwise expressly provided in this Agreement or any documents to be delivered to the Purchaser at the Closing, the Seller disclaims the making of any representations or warranties, express or implied, regarding the Property or matters affecting the Property, including, without limitation, the physical condition of the Property, title to or the boundaries of the Real Property, pest control matters, soil conditions, the presence, existence or absence of hazardous wastes, toxic substances or other environmental matters, compliance with building, health, safety, land use and zoning laws, regulations and orders, structural and other engineering

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characteristics, traffic patterns, market data, economic conditions or projections, and any other information pertaining to the Property or the market and physical environments in which they are located. The Purchaser acknowledges (i) that the Purchaser has entered into this Agreement with the intention of making and relying upon its own investigation or that of third parties with respect to the physical, environmental, economic and legal condition of the Property, and (ii) that the Purchaser is not relying upon any statements, representations or warranties of any kind, other than those specifically set forth in this Agreement or in any document to be delivered to the Purchaser at the Closing. The Purchaser further acknowledges that it has not received from or on behalf of the Seller any accounting, tax, legal, architectural, engineering, management or other advice with respect to this transaction and is relying solely upon the advice of third party accounting, tax, legal, architectural, engineering, management and other advisors. The Purchaser shall purchase the Property in its “as is” condition on the Closing Date.

ARTICLE 6

REPRESENTATIONS AND WARRANTIES OF PURCHASER

To induce the Seller to enter in this Agreement, the Purchaser represents and warrants to the Seller as follows:

6.1 Status and Authority of the Purchaser . The Purchaser is a limited liability company duly organized, validly existing and in good standing under the laws of its state of formation, and has all requisite power and authority under the laws of such state and its charter documents to enter into and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. The Purchaser has duly qualified to transact business in each jurisdiction in which the nature of the business conducted by it requires such qualification, except where failure to do so could not reasonably be expected to have a material adverse effect.

6.2 Action of the Purchaser . The Purchaser has taken all necessary action to authorize the execution, delivery and performance of this Agreement, and upon the execution and delivery of any document to be delivered by the Purchaser on or prior to the Closing Date such document shall constitute the valid and binding obligation and agreement of the Purchaser, enforceable against the Purchaser in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws of

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general application affecting the rights and remedies of creditors.

6.3 No Violations of Agreements . Neither the execution, delivery or performance of this Agreement by the Purchaser, nor compliance with the terms and provisions hereof, will result in any breach of the terms, conditions or provisions of, or conflict with or constitute a default under, or result in the creation of any lien, charge or encumbrance upon any property or assets of the Purchaser pursuant to the terms of any indenture, mortgage, deed of trust, note, evidence of indebtedness or any other agreement or instrument by which the Purchaser is bound.

6.4 Litigation . No investigation, action or proceeding is pending and, to the Purchaser’s knowledge, no action or proceeding is threatened and no investigation looking toward such an action or proceeding has begun, which questions the validity of this Agreement or any action taken or to be taken pursuant hereto.

The representations and warranties made in this Agreement by the Purchaser shall be continuing and shall be deemed remade by the Purchaser as of the Closing Date with the same force and effect as if made on, and as of, such date.

ARTICLE 7

APPORTIONMENTS

7.1 Real Property Apportionments . Representatives of the Purchaser and the Seller shall perform any and all of the adjustments and apportionments which are appropriate and usual for a transaction of this nature and taking into account the applicable provisions of the Lease. The adjustments hereunder shall be calculated or paid in an amount based upon a fair and reasonable estimated accounting performed and agreed to by representatives of the Purchaser and the Seller at or prior to the Closing. Subsequent final adjustments and payments shall be made in cash or other immediately available funds as soon as practicable after the Closing Date and in any event within ninety (90) days after the Closing Date, based upon an agreed accounting performed by representatives of the Seller and the Purchaser.

7.2 Closing Costs . The Purchaser shall pay all costs and expenses associated with the transactions contemplated hereby, including, without limitation, recording costs, title insurance premiums, the costs and expenses of preparing engineering and

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environmental reports, market studies and appraisals and the reasonable costs and expenses of legal counsel retained by the Purchaser.

The obligations of the parties under this Article 7 shall survive the Closing.

ARTICLE 8

Default

8.1 Default by the Seller . If the Seller shall have made any representation or warranty herein which shall be untrue or misleading in any material respect, or if the Seller shall fail to perform any of the material covenants and agreements contained herein to be performed by the Seller and such failure continues for a period of five (5) days after notice thereof from the Purchaser, the Purchaser may, as its sole remedy, either (x) terminate this Agreement, or (y) pursue a suit for specific performance.

8.2 Default by the Purchaser . If the Purchaser shall have made any representation or warranty herein which shall be untrue or misleading in any material respect, or if the Purchaser shall fail to perform any of the covenants and agreements contained herein to be performed by it and such failure shall continue for a period of five (5) days after notice thereof from the Seller, or if the Purchaser shall default in its obligations under the Lease and such default shall continue beyond the expiration of any applicable cure period, the Seller may, as its sole and exclusive remedy at law and in equity, terminate this Agreement.

ARTICLE 9

MISCELLANEOUS

9.1 Brokerage Commissions . Each of the parties hereto represents to the other parties that it dealt with no broker, finder or like agent in connection with this Agreement or the transactions contemplated hereby. The Purchaser shall be solely responsible for and shall indemnify and hold harmless the Seller and its respective legal representatives, heirs, successors and assigns from and against any loss, liability or expense, including, reasonable attorneys’ fees, arising out of any claim or claims for commissions or other compensation for bringing about this Agreement or the transactions contemplated hereby made by any broker, finder or like agent other than such loss, liability or expense arising from the Purchaser’s breach of its

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representation made in this Section 9.1. The provisions of this Section 9.1 shall survive the Closing and any termination of this Agreement.

9.2 Publicity . The parties agree that no party shall, with respect to this Agreement and the transactions contemplated hereby, contact or conduct negotiations with public officials, make any public pronouncements, issue press releases or otherwise furnish information regarding this Agreement or the transactions contemplated to any third party without the consent of the other parties, which consent shall not be unreasonably withheld, delayed or conditioned, except as required by law or unless such action is taken based on advice of counsel given in good faith. No party, or its employees shall trade in the securities of any parent or affiliate of the Seller or of the Purchaser until a public announcement of the transactions contemplated by this Agreement has been made. No party shall record this Agreement or any notice thereof, except as required by law or unless such action is taken based on advice of counsel given in good faith.

9.3 Notices . (a) Any and all notices, demands, consents, approvals, offers, elections and other communications required or permitted under this Agreement shall be deemed adequately given if in writing and the same shall be delivered either in hand, by telecopier with written acknowledgment of receipt, or by mail or Federal Express or similar expedited commercial carrier, addressed to the recipient of the notice, postpaid and registered or certified with return receipt requested (if by mail), or with all freight charges prepaid (if by Federal Express or similar carrier).

(b) All notices required or permitted to be sent hereunder shall be deemed to have been given for all purposes of this Agreement upon the date of acknowledged receipt, in the case of a notice by telecopier, and, in all other cases, upon the date of receipt or refusal, except that whenever under this Agreement a notice is either received on a day which is not a Business Day or is required to be delivered on or before a specific day which is not a Business Day, the day of receipt or required delivery shall automatically be extended to the next Business Day.

if to the Seller to:

c/o Senior Housing Properties Trust
400 Centre Street

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Newton, Massachusetts 02458
Attn: Mr. David J. Hegarty
[Telecopier No. (617) 796-8349]

If to the Purchaser, to:

c/o Five Star Quality Care, Inc.
400 Centre Street
Newton, Massachusetts 02458
Attn: Mr. Evrett W. Benton
[Telecopier No. (617) 796-8349]

(d) By notice given as herein provided, the parties hereto and their respective successors and assigns shall have the right from time to time and at any time during the term of this Agreement to change their respective addresses effective upon receipt by the other parties of such notice and each shall have the right to specify as its address any other address within the United States of America.

9.4 Waivers, Etc . Any waiver of any term or condition of this Agreement, or of the breach of any covenant, representation or warranty contained herein, in any one instance, shall not operate as or be deemed to be or construed as a further or continuing waiver of any other breach of such term, condition, covenant, representation or warranty or any other term, condition, covenant, representation or warranty, nor shall any failure at any time or times to enforce or require performance of any provision hereof operate as a waiver of or affect in any manner such party’s right at a later time to enforce or require performance of such provision or any other provision hereof. This Agreement may not be amended, nor shall any waiver, change, modification, consent or discharge be effected, except by an instrument in writing executed by or on behalf of the party against whom enforcement of any amendment, waiver, change, modification, consent or discharge is sought.

9.5 Assignment; Successors and Assigns . This Agreement and all rights and obligations hereunder shall not be assignable by any party without the written consent of the other parties. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective legal representatives, successors and permitted assigns. This Agreement is not intended and shall not be construed to create any rights in or to be enforceable in any part by any other persons.

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9.6 Severability . If any provision of this Agreement shall be held or deemed to be, or shall in fact be, invalid, inoperative or unenforceable as applied to any particular case in any jurisdiction or jurisdictions, or in all jurisdictions or in all cases, because of the conflict of any provision with any constitution or statute or rule of public policy or for any other reason, such circumstance shall not have the effect of rendering the provision or provisions in question invalid, inoperative or unenforceable in any other jurisdiction or in any other case or circumstance or of rendering any other provision or provisions herein contained invalid, inoperative or unenforceable to the extent that such other provisions are not themselves actually in conflict with such constitution, statute or rule of public policy, but this Agreement shall be reformed and construed in any such jurisdiction or case as if such invalid, inoperative or unenforceable provision had never been contained herein and such provision reformed so that it would be valid, operative and enforceable to the maximum extent permitted in such jurisdiction or in such case.

9.7 Counterparts, Etc . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and shall supersede and take the place of any other instruments purporting to be an agreement of the parties hereto relating to the subject matter hereof.

9.8 Governing Law . This Agreement shall be interpreted, construed, applied and enforced in accordance with the laws of The Commonwealth of Massachusetts applicable to contracts between residents of Massachusetts which are to be performed entirely within Massachusetts, regardless of (i) where this Agreement is executed or delivered; or (ii) where any payment or other performance required by this Agreement is made or required to be made; or (iii) where any breach of any provision of this Agreement occurs, or any cause of action otherwise accrues; or (iv) where any action or other proceeding is instituted or pending; or (v) the nationality, citizenship, domicile, principal place of business, or jurisdiction of organization or domestication of any party; or (vi) whether the laws of the forum jurisdiction otherwise would apply the laws of a jurisdiction other than The Commonwealth of Massachusetts; or (vii) any combination of the foregoing. Notwithstanding the foregoing, the laws of the State of Michigan shall apply to the perfection and priority of liens upon and the disposition of and disposition with respect to the Property.

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To the maximum extent permitted by applicable law, any action to enforce, arising out of, or relating in any way to, any of the provisions of this Agreement may be brought and prosecuted in such court or courts located in The Commonwealth of Massachusetts as is provided by law; and the parties consent to the jurisdiction of said court or courts located in The Commonwealth of Massachusetts and to service of process by registered mail, return receipt requested, or by any other manner provided by law.

9.9 Performance on Business Days . In the event the date on which performance or payment of any obligation of a party required hereunder is other than a Business Day, the time for payment or performance shall automatically be extended to the first Business Day following such date.

9.10 Attorneys’Fees . If any lawsuit or arbitration or other legal proceeding arises in connection with the interpretation or enforcement of this Agreement, the prevailing party therein shall be entitled to receive from the other party the prevailing party’s costs and expenses, including reasonable attorneys’ fees incurred in connection therewith, in preparation therefor and on appeal therefrom, which amounts shall be included in any judgment therein.

9.11 Section and Other Headings . The headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

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IN WITNESS WHEREOF , the parties have caused this Agreement to be executed as a sealed instrument as of the date first above written.

SELLER :

SPT-MICHIGAN TRUST, a Maryland business trust

By: /s/ John R. Hoadley
       John R. Hoadley
       Treasurer

PURCHASER:

FIVE STAR QUALITY CARE - HOWELL, LLC,
a Delaware limited liability company

By: /s/ Rosemary Esposito, R.N.
       Rosemary Esposito, R.N.
       Authorized Agent

OMITTED SCHEDULE

	SCHEDULE NUMBER	TITLE
	A	Legal Description of Property

The Registrant agrees to furnish supplementally a copy of the foregoing omitted schedule to the Securities and Exchange Commission upon request.

EXHIBIT 10.8

MORTGAGE

THIS MORTGAGE , dated as of the 19 ^th day of April, 2004, between Five Star Quality Care-Howell, LLC , a Delaware limited liability company, and having a mailing address c/o Five Star Quality Care Trust, 400 Centre Street, Newton, MA 02458, Mortgagor, and Love Funding Corporation , a Virginia corporation, and having a mailing address at 1250 Connecticut Avenue, NW, Washington, DC 20036, Mortgagee.

WITNESSETH : That whereas the Mortgagor is justly indebted to the Mortgagee in the principal sum of FIVE MILLION FIFTEEN THOUSAND AND NO/100THS DOLLARS ($5,015,000.00) , evidenced by its note dated April 19, 2004, bearing interest from date on outstanding balances at Five and 55/100ths per centum (5.55%) per annum, said principal and interest being payable in monthly installments as provided in said note with a final maturity of May 1, 2039, which note is identified as being secured hereby by a certificate thereon. Said note and all of its items are incorporated herein by reference and this conveyance shall secure any and all extensions thereof, however evidenced.

NOW, THEREFORE , the said Mortgagor, for tile better securing of the payment of the said principal sum of money and interest and the performance of the covenants and agreements herein contained does by these presents, MORTGAGE, AND WARRANT unto the Mortgagee, its successors or assigns, the lands, premises and property situate, lying, and being in Howell Township, Livingston County, Michigan, described as follows, to wit:

See Exhibit “A” attached hereto and made a part hereof.

TOGETHER with the privileges and appurtenances to the same belonging, and all of the rents, issues, and profits which may arise or be had there from; and

TOGETHER with all buildings and improvements of every hind and description now or hereafter erected or placed thereon, and all fixtures, including but not limited to all gas and electric fixtures, engines and machinery, radiators, heaters, furnaces, heating equipment, steams and hot water boilers, stoves, ranges, elevators and motors, bathtubs, sinks, water closets, basins pipes, faucets and other plumbing and heating equipment, and all cabinets, mantels, refrigerating plant and refrigerators, whether mechanical or otherwise, cooking apparatus and appurtenance, and all furniture, shades, awnings, screens, venetian blinds and other furnishings; and

TOGETHER with all building materials and equipment located on the premises and intended to be incorporated its the buildings or other improvements; and

TOGETHER with all articles of personal property now or hereafter attached to or used in and about the building or buildings now erected or hereafter to be erected on the lands herein described which are necessary to the complete and comfortable use and occupancy of such building or buildings for the purposes for which they were or are to be erected including all goods and chattels and personal property as are ever used or furnished in operating a building or the activities conducted therein, similar to the one herein described and referred to, and all renewals or replacements thereof or articles in substitution therefor, whether or not the same are,

or shall be attached to said building or buildings in any manner. All of the foregoing shall be deemed to be, remain and form part of the realty and are covered under this mortgage.

TO HAVE AND TO HOLD the above mortgaged premises, together with the appurtenances thereunto appertaining unto the said Mortgagee forever, provided that if the Mortgagor shall pay the principal and all interest as provided in a certain promissory note executed by said Mortgagor to said Mortgagee of even date herewith and shall pay all other sums hereinafter provided for, and shall well and truly keep and perform all of the covenants herein contained, then this mortgage and the aforesaid note shall be null and void; otherwise to remain in full effect.

AND THE MORTGAGOR HEREBY COVENANTS AS FOLLOWS:

That the Mortgagor will pay the note at the times and in the manner provided therein.

That, in order more fully to protect the security of this mortgage, the Mortgagor, together with and in addition to, the monthly payments of interest or principal and interest under the terms of the note secured hereby, will pay the Mortgagee on the first day of each month after date until the indebtedness secured hereby is fully paid, the following sums:

(a) An amount sufficient to provide the Mortgagee with funds to pay the next mortgage insurance premium if this mortgage and the note secured hereby are insured, or a monthly service charge if they are held by the Secretary of Housing and Urban Development as follows:

(I) If and so long as said note of even date and this mortgage are insured or are reinsured under the provisions of the National Housing Act, an amount sufficient to accumulate in the hands of the Mortgagee one month prior to its due date the annual mortgage insurance premium, in order to provide the Mortgagee with funds to pay such premium to the Secretary of Housing and Urban Development pursuant to the National Housing Act, as amended, and applicable Regulations thereunder, or

(II) Beginning with the first day of the month following an assignment of this mortgage and the note secured hereby to the Secretary of Housing and Urban Development, a monthly service charge which shall be an amount equal to 1/12 of 1/2% of the average outstanding principal balance due on the note computed for each successive year beginning with the first of the month following such assignment, without taking into account delinquencies or prepayments.

(b) A sum equal to the ground rents, if any, next due, plus the premiums that will next become due and payable on policies of fire and other insurances covering the premises covered hereby, plus water rates, taxes and assessments next due on the premises covered hereby (all as estimated by the Mortgagee) less all sums already paid therefor divided by the number of months to elapse before one month prior to the date when such ground rents, premiums, water rates, taxes and assessments will become delinquent, such sums to

be held by, the Mortgagee in trust to pay said ground rents, premiums, water rates, taxes and special assessments.

(c) All payments mentioned in the two preceding subsections of this paragraph and all payments to be made under the note secured hereby shall be added together and the aggregate amount thereof shall be paid by the Mortgagor each month in a single payment to be applied by the Mortgagee to the following items in the order set forth:

(I) premium charges under the contract of insurance with the Secretary of Housing and Urban Development or the service charge as the case may be;

(II) ground rents, taxes, assessments, water rates, fire and other insurance premiums;

(III) interest on the note secured hereby; and

(IV) amortization of the principal of said note.

Any deficiency in the amount of any such aggregate monthly payment shall, unless made good by the Mortgagor prior to the due date of the next such payment, constitute on event of default under this mortgage.

That any excess funds accumulated under paragraph (b) above remaining after payment of the items therein mentioned, shall be credited to subsequent monthly payments of the same nature required thereunder; but if any such item shall exceed the estimate therefor, the Mortgagor shall without demand forthwith make good the deficiency. Failure to do so before the due date of such item shall be a default thereunder. In case of termination of the contract of mortgage insurance by prepayment of the mortgage in full, or otherwise (except as hereinafter provided), accumulations under paragraph (a) above not required to meet payments due under the Contract of Mortgage Insurance, shall be credited to the Mortgagor. If the property is sold under foreclosure or is otherwise acquired by the Mortgagee after default, any remaining balance of the accumulations under paragraph (b) above shall be credited to the principal of the mortgage as of the date of commencement of foreclosure proceedings or as of the date the property is otherwise acquired; and accumulations under paragraph (a) above shall be similarly applied unless required to pay sums due the Secretary under the Contract of Mortgage Insurance.

That it will pay before the same become delinquent or subject to interest or penalties, all ground rents, taxes, assessments, water rates, and all other charges and encumbrances which now are or shall hereafter be or appear to be a lien upon the said premises or any part thereof, and for which provision has not been made by monthly payments as hereinbefore provided, and will make payments on account of the taxes and assessments levied or to be levied against the premises in the manner provided in subsection (b) of the above paragraph and that in default thereof the Mortgagee may, without demand or notice, pay the said taxes, assessments, charges, or encumbrances, and pay such sum of money as the Mortgagee may deem to be necessary therefor, and shall be the sole judge

of the legality or validity thereof and of the amount necessary to be paid in satisfaction thereof.

That the Mortgagor will keep the improvements now existing or hereafter erected on the mortgaged property insured against loss by fire and such other hazards, casualties, and contingencies, as may be stipulated by the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner upon the insurance of the Mortgage and other insurance as may be required from time to time by the Mortgagee, and all such insurance shall be evidenced by standard Fire and Extended Coverage Insurance Policy or Policies, in amounts not less than necessary to comply with the applicable Coinsurance Clause percentage, but in no event shall the amounts of coverage be less than 80% of the Insurable Values or not less than the unpaid balance of the insured mortgage, whichever is the lesser, and in default thereof the Mortgagee shall have the right to effect insurance. Such policies shall be endorsed with standard Mortgagee clause with loss payable to the Mortgagee and the Secretary of Housing and Urban Development as interest may appear, and shall be deposited with the Mortgagee. That insurance company providing such coverage shall be selected by the Mortgagor subject to approval by Mortgagee, which approval shall not be unreasonably withheld.

That if the premises covered hereby, or any part thereof, shall be damaged by fire or other hazard against which insurance is held as hereinbefore provided, the amounts paid by any insurance company pursuant to the contract of insurance shall, to the extent of the indebtedness then remaining unpaid, be paid to the Mortgagee, and, at its option, may be applied to the debt or released for the repairing or rebuilding of the premises.

That at the option of the Mortgagor the principal balance secured hereby may be reamortized on terms acceptable to the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner if a partial prepayment results from an award in condemnation in accordance with the provisions of Paragraph 9 herein, or from an insurance payment made in accordance with provisions of Paragraph 7 herein, where there is a resulting loss of project income.

That all awards of compensation in connection with condemnation for public use of or a taking of any of that property, shall be paid to the Mortgagee to be applied to the amount due under the note secured hereby in (1) amounts equal to the next maturing installment or installments of principal and (2) with any balance to be credited to the next payment due under the note. That all awards of damages in connection with any condemnation for public use of or injury to any residue of that property, shall be paid to the Mortgagee to be applied to a fund held for and on behalf of the Mortgagor which fund shall, at the option of the Mortgagee, and with the prior approval of the Secretary of Housing and Urban Development, either be applied to the amount due under the note as specified in the preceding sentence, or be disbursed for the restoration or repair of the damaged residue. No amount applied to the reduction of the principal amount due in accordance with (1) shall be considered an optional prepayment as the term is used in this mortgage and the note secured hereby, nor relieve the Mortgagor from making regular monthly payments commencing on the first day of the first month following the date of receipt of

the award. The Mortgagee is hereby authorized in the name of the Mortgagor to execute and deliver valid acquittances for such awards and to appeal from such awards.

10.

That it will not permit or commit any waste on said premises and will keep the buildings thereon and all equipment therein mortgaged in good repair, and promptly comply with all laws, ordinances, regulations, and requirements of any governmental body affecting the said mortgaged premises, and should said premises or any part thereof require inspection, repair, care or attention of any kind or nature not provided by the Mortgagor, the Mortgagee, being hereby made sole judge of the necessity therefor, may, after notice to the Mortgagor, enter or cause entry to be made upon said property, and inspect, repair, protect, care for or maintain said property as the Mortgagee may deem necessary, and may pay such sum of money as the Mortgagee may deem to be necessary therefor, and shall be the sole judge of the amount necessary to be paid.

11.

That it will not permit or suffer the use of any of the property for any purpose other than that for which the same is now agreed upon to be used; nor will it permit to suffer any alteration of or addition to the buildings or improvements hereafter constructed in or upon said property without the consent of the Mortgagee.

12.

That should any default be made in the covenants of this mortgage, the Mortgagee may cause the abstract or abstracts of title and the tax histories of said premises to be certified to date, or may procure new abstracts of title and tax histories or title search in case none were furnished to the Mortgagee, and may pay therefor such sums as it may deem to be necessary to be paid therefor.

13.

That it will pay to the Mortgagee forthwith the amounts of all sums of money which the Mortgagee, shall pay or expend pursuant to the provisions, or any of them, including any amount required to pay mortgage insurance not provided for by payments made by the Mortgagor hereinbefore contained, together with interest, upon each of said amounts until paid from the time of the payment thereof at the rate of Five and fifty-five one-hundredths per centum (5.55%) per annum, and such payments shall be a further lien on the premises under this mortgage.

14.

That so long as this mortgage and the said note secured hereby are insured under the provisions of the National Housing Act, or held by the Secretary of Housing and Urban Development, it will not execute or file for record any instrument which imposes a restriction upon the sale or occupancy of the mortgaged property on the basis of race, color, creed, or national origin.

15.

The Mortgagor covenants and agrees that so long as this mortgage and the note secured hereby are insured under the provisions of the National Housing Act, or held by the Secretary of Housing and Urban Development it will not rent dwelling accommodations in the mortgaged premises at rental rates in excess of the rates permitted under its Regulatory Agreement or for periods of less than one month or in excess of three years, nor rent the premises as an entirety.

16.

That should any default be made in the payment of principal or interest or of any sum payable under subparagraphs (a) or (b) above, which is not made good before the due date of the next such payment, or should default be made in the performance of any other covenant of this mortgage or the note secured hereby or any part thereof, when the same is payable or the time of performance has arrived, as above provided, then all the remainder of the aforesaid sum with all sums due hereunder shall at the option of the Mortgagee without notice become immediately payable thereafter, although the period above limited for the payment thereof may not have expired, anything hereinbefore or in said note contained to the contrary notwithstanding, and any failure to exercise said option shall not constitute a waiver of the right to exercise the same at any other time.

17.

That no sale of the premises hereby mortgaged and no forbearances on the part of the Mortgagee and no extension of the time for the payment of the debt hereby secured given by the Mortgagee shall operate to release, discharge, modify, change or affect the original liability of the Mortgagor herein either in whole or in part.

18.

That upon default being made in the payment of the sums of money herein agreed to be paid or in the performance of any of the covenants or agreements herein contained according to the terms hereof or of the note secured hereby the Mortgagee is hereby authorized and empowered to sell or cause to be sold the property hereby mortgaged, and to convey the same to the purchaser, pursuant to the statute in such case made and provided, and out of the proceeds of such sale to retain the moneys due under the terms of this mortgage, the costs and charges of such sale and also the attorney’s fee provided by statute, rendering the surplus moneys (if any there should be) to the said Mortgagor. In the event of public sale, the mortgaged premises may, at the option of the Mortgagee, be sold in one parcel.

19.

That the Regulatory Agreement of even date herewith executed by the Mortgagor herein, which is being recorded simultaneously herein, is incorporated in and made a part of this mortgage. Upon default under the Regulatory Agreement and upon request by the Secretary of Housing and Urban Development, acting by and through the Federal Housing Commissioner, the Mortgagee may declare this mortgage in default and may declare the whole of the indebtedness secured hereby to be due and payable.

20.

That it is hereby stipulated and agreed by and between the parties hereto, that if default shall be made in the payment of said principal sum or interest or any other sum secured hereby, or any part thereof, or in the payment of taxes, assessments, water rates, liens, insurance or other charges upon said premises, or any part thereof, at the time and in the manner herein specified for the payment thereof, or in the performance of any of the covenants and agreements herein contained, the Mortgagor in such case does hereby bargain, sell, assign and set over to the Mortgagee all the rents, income and profits which, whether before or after foreclosure of this mortgage or during the period of redemption, shall accrue and be owing for the use or occupation of said premises and the buildings thereon, or any part thereof, and does hereby constitute and appoint the Mortgagee, attorney in fact of the Mortgagor, irrevocable, with full power and authority to at once enter upon and take full possession of said premises and buildings, lease and control the same, and to receive, collect and receipt for all sums due or owing for such use or

occupation as the same accrue, and out of the amount so collected to pay all taxes, assessments, water rates, liens, insurance, repairs or other charges upon said premises, and the payments accrued and accruing on said note or under this mortgage, and the costs of collecting said rents, income and profits so far as the sums so collected by the Mortgagee shall be sufficient for that purpose, paying the surplus from time to time, if any, to the Mortgagor. That the holder of this mortgage, in any action to foreclose, shall be entitled to the appointment of a receiver of the mortgaged premises as a matter of right and without notice, with power to collect the rents, issues and profits of said mortgaged premises, due and becoming due, during the pendancy of such foreclosure suit, such rents and profits being hereby expressly assigned and pledged as additional security for the payment of the indebtedness secured by this mortgage, and with power to manage the mortgaged premises during security for the payment of the indebtedness secured by this mortgage, and with power to manage the mortgaged premises during the pendency of such foreclosure suit. The Mortgagor for himself and any subsequent owner hereby waives any and all defenses to the application for a receiver as above and hereby specifically consents to such appointment without notice, but nothing herein contained is to be construed to deprive the holder of the mortgage of any other right, remedy, or privilege it may now have under the law to have a receiver appointed.

21.

That it will not voluntarily create or permit to be created against the property subject to this mortgage any lien or liens inferior or superior to the lien of this mortgage, and further that it will keep and maintain the same free from the claim of all persons supplying labor or materials which will enter into the construction of any and all buildings now being erected or to be erected on said premises, and on the failure of the Mortgagor to perform these covenants or any part thereof, thereupon the principal and all arrears of interest shall, at the option of the Mortgagee or any holder of the note secured by this mortgage, become due and payable, anything contained herein to the contrary notwithstanding.

22.

That the improvements about to be made upon the premises above described and all plans and specifications comply with all municipal ordinances and regulations made or promulgated by lawful authority, and that the same will upon completion comply with all such municipal ordinances and regulations and with the rules of the Board of Fire Underwriters having jurisdiction. In the event the Mortgagor shall at any time fail to comply with such rules, regulations and ordinances which are now or may hereafter become applicable to the premises above described, after due notice and demand by the Mortgagee, thereupon the principal sum and all arrears of interest and other charges provided for herein, shall at the option of the Mortgagee become due and payable. Whenever used, the singular number shall include the plural, the plural the singular, and the use of any gender shall be applicable to all genders.

24.

See Rider attached hereto and made a part hereof.

The covenants herein contained shall bind, and the benefits and advantages shall inure to, the respective successors and assigns of the parties hereto. Whenever used, the singular number shall include the plural, the plural the singular, and the use of any gender shall be applicable to all genders.

IN WITNESS WHEREOF, the said Mortgagor has caused these presents to be signed in its name as of the day and year first above written.

	MORTGAGOR: Five Star Quality Care-Howell, LLC, a Delaware limited liability company By: /s/ Rosemary Esposito, R.N. Name: Rosemary Esposito, R.N. Title: Authorized Agent
State of Massachusetts ) ):ss County of Middlesex )

On this 15 day of April, 2004, before me appeared Rosemary Esposito, to me personally known, who, being by me duly sworn, did say that s/he is the Authorized Agent of Five Star Quality Care-Howell, LLC, a limited liability company organized under the laws of the State of Delaware, and that said instrument was signed and sealed on behalf of said limited liability company by authority of its Board of Managers, and s/he acknowledged said instrument to be the free act and deed of said limited liability company.

Witness my hand and official seal.

[seal]

/s/ Linda Mscisz
Notary Public

My commission expires: July 31, 2009

(NOTE: The name of each person who executed this instrument and of each witness thereto and the name of the notary taking the acknowledgment shall be legibly typewritten or stamped immediately beneath the signature of such person.) See Public Acts 1945 (Michigan), No. 212, pp. 2825, 286, with reference to recording requirements.

After recording return to:
Christine Waldmann Carmody, Esq.
Pepper Hamilton LLP
600 Fourteenth Street, NW
Washington, DC 20005

	STATE OF MICHIGAN LOAN NO. 044-22017 MORTGAGE Five Star Quality Care-Howell, LLC TO Love Funding Corporation Project No. 044-22017
	REGISTER'S OFFICE ] ] ss: Livingston County ] Received for Record the day of April A.D. 2004 at o'clock M, and Recorded in of Mortgages on Page __________________________ Register

EXHIBIT A

Land in the Township of Howell, Livingston County, Michigan, described as follows:

PARCEL A:

Lots 14 and 15 of BROADACRE ESTATES, according to the plat thereof recorded in Liber 2 of Plats, page 47, Livingston County Records.

PARCEL B:

Also that part of the Southeast 1/4 of Section 28, Town 3 North, Range 4 East, Howell Township, Livingston County, Michigan, described as: Beginning at a point on the East line of said Section 28 at the Southwest corner of BROADACRE ESTATES, according to the plat thereof recorded in Liber 2 of Plats, page 47, Livingston County Records, thence South 01 degrees 37 minutes East along the East line of said Section 28, 183.06 feet; thence North 54 degrees West 500.00 feet; thence North 38 degrees 16 minutes East 622.27 feet; thence South 51 degrees 44 minutes East along the Southerly right-of-way line of Grand River Road (100 feet wide) 27.81 feet to the Northwest corner of said BROADACRE ESTATES; thence South 00 degrees 45 minutes West along the West line of said Subdivision 582.5 feet to the point of beginning.

PARCEL C: Also that part of the Southwest 1/4 of Section 27, Town 3 North, Range 4 East, Howell Township, Livingston County, Michigan, described as: Beginning at the most Southerly point of Lot 14 of BROADACRE ESTATES, according to the plat thereof recorded in Liber 2 of Plats, page 47, Livingston County Records, thence South 38 degrees 00 minutes 18 seconds West 145.09 feet to a point in the West line of said Section 27; thence North 01 degrees 37 minutes West along said West line 183.06 feet to the Southwest corner of BROADACRE ESTATES; thence South 54 degrees 00 minutes East along the Southwesterly line of Lot 14 of said Subdivision 116.8 feet to the point of beginning.

EXCEPT: From said above Parcels, those portions thereof described as follows: Part of the Southeast 1/4 of Section 28, and part of the Southwest 1/4 of Section 27, Town 3 North, Range 4 East Howell Township, Livingston County, Michigan, more particularly described as follows: Commencing at the East 1/4 corner of said Section 28; thence along the East-West 1/4 line of said Section, South 89 degrees 16 minutes 58 seconds West, 564.51 feet to a point on the Southerly right-of-way line of Grand River Avenue (100 feet wide); thence along the Southerly right-of-way line of Grand River Avenue Southeast on an arc right, having a length of 474.85 feet; a radius of 42921.84 feet, a central angle of 00 degrees 38 minutes 02 seconds and a long chord which bears South 52 degrees 28 minutes 56 seconds East, 474.85 feet; thence continuing along the Southerly right-of-way line of Grand River Avenue, South 52 degrees 07 minutes 35 seconds East, 223.17 feet to the point of beginning of the Parcel to be described; thence continuing along the Southerly right-of-way line of Grand River Avenue, South 52 degrees 07 minutes 35 seconds East, 50.00 feet; thence South 36 degrees 57 minutes 01 seconds West, 100.00 feet; thence South 51 degrees 02 minutes 08 seconds West, 205.42 feet; thence North 36 degrees 57 minutes 01 seconds East, 300.05 feet, to the point of beginning.

PARCEL D: Part of the Southeast 1/4 of Section 28, Town 3 North, Range 4 East, Howell Township, Livingston County, Michigan more particularly described as follows; Commencing at the East 1/4 corner of said Section 28; thence along the East-West 1/4 line of said Section, South 89 degrees 16 minutes 58 seconds West, 564.51 feet to a point on the Southerly right-of-way line of Grand River Avenue (100 feet wide); thence along the Southerly right-of-way line of Grand River Avenue Southeast on arc right, having a length of 474.85 feet, a radius of 42921.84 feet, a central angle of 00 degrees 38 minutes 02 seconds and a long chord which bears South 52 degrees 28 minutes 56 seconds East, 474.85 feet thence continuing along the Southerly right-of-way line of Grand River Avenue, South 52 degrees 07 minutes 35 seconds East, 223.17 feet, thence South 36 degrees 57 minutes 0 1 seconds West, 622.27 feet to the point of beginning of the Parcel to be described; thence South 55 degrees 30 minutes 13 seconds East, 500.00 feet; thence South 36 degrees 57 minutes 01 seconds West, 50.00 feet; thence North 55 degrees 30 minutes 13 seconds West, 500.00 feet; thence North 36 degrees 57 minutes 01 seconds East, 50.00 feet, to the point of beginning.

Tax Item No.: 06-27-300-014-47070, as to Parcels A and C, Tax Item No.: 06-28-400-010-47070, covers more land, as to Parcels B and D

Howell Health Care Center
Howell, Michigan
FHA No. 044-22017

RIDER TO MORTGAGE

1. Notwithstanding any other provisions contained herein or ion the Mortgage Note (hereinafter, “Note”), it is agreed that the execution of the Note shall impose no personal liability upon the Mortgagor for the payment of the indebtedness evidenced by the Note and secured by this Mortgage, and the holder of the Note shall look solely to the property subject to this Mortgage and to the rents, issues and profits thereof in satisfaction of the indebtedness evidenced by the Note and secured by this Mortgage and will not seek or obtain any deficiency or personal judgment against the Mortgagor except such judgment or decree as may be necessary to foreclose or bar its interest in the property subject to this Mortgage and all other property granted, pledged, conveyed or assigned to secure payment of the Note; provided, however, that nothing in this condition and no action taken under this provision shall operate to impair any obligation of the Mortgagor under the Regulatory Agreement herein referred to and made a part hereof.

IN WITNESS WHEREOF, the said Mortgagor has caused these presents to be signed in its name as of the day and year first above written.

	MORTGAGOR: Five Star Quality Care-Howell, LLC, a Delaware limited liability company By: /s/ Rosemary Esposito, R.N. Name: Rosemary Esposito, R.N. Title: Authorized Agent
State of Massachusetts ) ):ss County of Middlesex )

Witness my hand and official seal.

[seal]

/s/ Linda Mscisz
Notary Public

My commission expires: July 31, 2009

EXHIBIT 31.1

I, Evrett W. Benton, certify that:

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

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

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

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

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

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

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

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

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

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

Date: May 10, 2004

/s/ Evrett W. Benton
Evrett W. Benton
President and Chief Executive Officer

EXHIBIT 31.2

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

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

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

Date: May 10, 2004

/s/ Bruce J. Mackey Jr.
Bruce J. Mackey Jr.
Treasurer and Chief Financial Officer

EXHIBIT 32.1

Certification Pursuant to 18 U.S.C. Sec. 1350
(Section 906 of the Sarbanes – Oxley Act of 2002)

In connection with the filing by Five Star Quality Care, Inc. (the “Company”) of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 (the “Report”), each of the undersigned hereby certifies, to the best of his knowledge:

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

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

/s/ Evrett W. Benton
Evrett W. Benton
President and Chief Executive Officer

/s/ Bruce J. Mackey Jr.
Bruce J. Mackey Jr.
Treasurer and Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Five Star Quality Care, Inc., and will be retained by Five Star Quality Care, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549

FORM 10-Q

FIVE STAR QUALITY CARE, INC.

Part I. Financial Information

Item 1. Financial Statements

Note 1. Basis of Presentation and Organization

Note 2. Income Taxes

Note 3. Per Common Share Amounts

Note 4. Accounts Related to Management Agreements with SLS

Note 5. Assets Held for Sale

Note 6. Indebtedness

Note 7. Discontinued Operations

Note 8. Commitments and Contingencies

Note 9. Related Party Transactions

Note 9. Related Party Transactions (continued)

RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

Debt Instruments and Covenants

Seasonality

Related Party Transactions

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Item 4. Controls and Procedures

WARNING CONCERNING FORWARD LOOKING STATEMENTS

Part II. Other Information

Item 1. Legal Proceedings

Item 6. Exhibits and Reports on Form 8-K

SIGNATURES

PARTIAL TERMINATION AND AMENDMENT OF LEASE

W I T N E S S E T H:

[SIGNATURE PAGES FOLLOW]

AMENDED AND RESTATED PURCHASE AND SALE AGREEMENT

TABLE OF CONTENTS

AMENDED AND RESTATED PURCHASE AND SALE AGREEMENT

WITNESSETH:

ARTICLE 1 DEFINITIONS

ARTICLE 2 PURCHASE AND SALE; CLOSING

ARTICLE 3 CONDITIONS TO PURCHASER’S OBLIGATION TO CLOSE

ARTICLE 4 CONDITIONS TO SELLER’ OBLIGATION TO CLOSE

ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE SELLER

ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF PURCHASER

ARTICLE 7 APPORTIONMENTS

ARTICLE 8 Default

ARTICLE 9 MISCELLANEOUS

MORTGAGE

EXHIBIT A

RIDER TO MORTGAGE

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

AMENDED AND RESTATED
PURCHASE AND SALE AGREEMENT

AMENDED AND RESTATED
PURCHASE AND SALE AGREEMENT

ARTICLE 1

DEFINITIONS

ARTICLE 2

PURCHASE AND SALE; CLOSING

ARTICLE 3

CONDITIONS TO PURCHASER’S OBLIGATION TO CLOSE

ARTICLE 4

CONDITIONS TO SELLER’ OBLIGATION TO CLOSE

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF THE SELLER

ARTICLE 6

REPRESENTATIONS AND WARRANTIES OF PURCHASER

ARTICLE 7

APPORTIONMENTS

ARTICLE 8

Default

ARTICLE 9

MISCELLANEOUS