KEY PRINCIPAL GUARANTY AND INDEMNITY AGREEMENT

Exhibit 10.5

EXECUTION COPY

KEY PRINCIPAL GUARANTY AND INDEMNITY AGREEMENT

This Key Principal Guaranty and Indemnity Agreement (the “Guaranty”) is made and entered into as of August 4, 2009, by Senior Housing Properties Trust, a Maryland real estate investment trust (the “Guarantor”), for the benefit of Citibank, N.A., a national banking association (together with its successors and assigns, the “Lender”).

RECITALS

A.            Lender has agreed to enter into that certain Master Credit Facility Agreement dated as of August 4, 2009 (as amended, restated, modified or supplemented from time to time, the “Master Agreement”), pursuant to which, inter alia, Lender has agreed, subject to the terms, conditions and limitations of the Master Agreement, to make a Term Loan (the “Term Loan”) to SNH FM FINANCING LLC, a Delaware limited liability company, (“Borrower”), which Term Loan is to be evidenced by, among other things, that certain Fixed Facility Note and that certain Variable Facility Note, each dated of even date herewith (collectively, the “Note”).

B.            The repayment of the Term Loan and all of the Obligations of Borrower under the Master Agreement or the other Loan Documents are guaranteed by this Guaranty to the extent of Borrower’s personal liability as provided under Section 14.01(a)(v) and 14.01(a)(vi)of the Master Agreement.

C.            Guarantor owns, directly or indirectly, an ownership interest in Borrower and will receive a direct and material benefit from the Term Loan made to Borrower.

D.            Lender is willing to make the Term Loan to Borrower only if Guarantor agrees to enter into this Guaranty.

NOW, THEREFORE, in order to induce Lender to make the Term Loan to Borrower, and in consideration thereof, Guarantor hereby agrees as follows:

Section 1.              Definitions.  All capitalized terms used but not defined in this Guaranty shall have the meanings ascribed to such terms in the Master Agreement.  In addition, the following terms shall have the following meanings:

“DUS Guide” means the Fannie Mae Delegated Underwriting and Servicing Guide in its present form and as amended, modified, supplemented or reissued from time to time (all references to Parts, Chapters, Sections and other subdivisions of the DUS Guide shall be deemed references to (i) the Parts, Chapters, Sections and other subdivisions in effect on the date of the Master Agreement and (ii) any successor provisions to such Parts, Chapters, Sections and other subdivisions.

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Section 2.              Obligations.

(a)           Guaranty of Payment and Performance.  Guarantor irrevocably, absolutely and unconditionally guarantees to Lender all of the following (collectively, the “Guaranteed Obligations”):  the due and punctual payment when due, whether at maturity or earlier, by reason of acceleration or otherwise, at all times, of all amounts for which Borrower is personally liable under Section 14.01(a)(v) and 14.01(a)(vi) of the Master Agreement.

This Guaranty shall be an unconditional guaranty of payment and performance and not of collection, and is in no way conditioned upon any attempt by Lender to pursue or exhaust any remedy against Borrower.  This Guaranty is a continuing guaranty which shall remain in full force and effect until terminated in accordance with Section 25.

(b)           Indemnification.  Guarantor hereby agrees to indemnify, hold harmless and defend Fannie Mae, Lender and their respective officers, members, directors, shareholders, officials, agents, independent contractors and employees and each of them (each an “indemnified party”) from and against any and all losses, claims, suits, liabilities, actions, debts, damages, costs, obligations, judgments, charges and expenses, including sums paid in settlement of claims and attorneys’ fees, of any nature whatsoever suffered or incurred by Fannie Mae or Lender in any manner as a direct or indirect result of:

(i).           the failure of Master Tenant to pay all (a) reasonable operating expenses of Master Tenant, (b) amounts owing to Borrower under the Master Lease and (c) obligations under the Master Lease and each Subordination, Assignment and Security Agreement (collectively, “Master Tenant Obligations”) prior to making intercompany affiliate loans or distributing funds to its parent, except that such indemnity will not apply to intercompany affiliate loans made in the ordinary course of implementing parent’s cash management system and distributions in any Calendar Quarter if Master Tenant has paid all Master Tenant Obligations in such Calendar Quarter; or

(ii).          the failure of each Operator to pay all (a) reasonable operating expenses of each Mortgaged Property, (b) amounts owing under each Sub-Lease to Master Tenant and (c) obligations of each Operator pursuant to each Sub-Lease and each Subordination, Assignment and Security Agreement (collectively, “Operator Obligations”) prior to making intercompany Affiliate loans or distributing funds to its parent, except that such indemnity will not apply to intercompany Affiliate loans made in the ordinary course of implementing parent’s cash management system and distributions in any Calendar Quarter if Master Tenant has paid all Operator Obligations in such Calendar Quarter.

The obligations under this Section 2(b) are herein referred to as the “Indemnification Obligations.”  The Indemnification Obligations and the Guaranteed Obligations are herein referred to as the “Guaranteed Obligations.”

Section 3.              Form of Payment.  All payments under this Guaranty shall be made to Lender in immediately available funds, without reduction by any recoupment, set-off, counterclaim or cross-claim against Lender.

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Section 4.              Guarantor’s Obligations are Absolute.  The obligations of Guarantor under this Guaranty shall be absolute and unconditional, shall not be subject to any counterclaim, set-off, recoupment, deduction, or defense based upon any claim Guarantor may have against Lender or Borrower and shall remain in full force and effect without regard to, and shall not be released, discharged or terminated or in any other way affected by, any circumstance or condition (whether or not Guarantor shall have any knowledge or notice thereof), including, without limitation:

(a)           any amendment or modification of, or extension of time for payment of any of the principal of, interest on or other amounts payable under the Loan Documents;

(b)           any exercise or non-exercise by Lender of any right, power or remedy under or in respect of the Loan Documents, or any waiver, consent, forbearance, indulgence or other action, inaction or omission by Lender under or in respect of the Loan Documents;

(c)           any assignment, sale or other transfer of Borrower’s interest in all or any part of the real or personal property which at any time constitutes collateral for the payment of the Guaranteed Obligations, including, without limitation, a conveyance of such property by Borrower to Lender by deed in lieu of foreclosure;

(d)           any bankruptcy, insolvency, reorganization, adjustment, dissolution, liquidation or other like proceeding involving or affecting Borrower or Lender or their respective properties or creditors, or any action taken with respect to the Loan Documents by any trustee or receiver of Borrower or Lender, or by any court, in any such proceeding;

(e)           any invalidity or unenforceability, in whole or in part, of any term or provision of the Loan Documents or Borrower’s incapacity or lack of authority to enter into the Loan Documents;

(f)            any release, compromise, settlement or discharge (other than for payment) with respect to all or any portion of Borrower’s Obligations under the Loan Documents;

(g)           any acceptance of additional or substituted collateral for payment of the Guaranteed Obligations or any release or subordination of any collateral held at any time by Lender as security for the payment of the Guaranteed Obligations; or

(h)           any resort to Guarantor for payment of all or any portion of the Guaranteed Obligations, whether or not Lender shall have resorted to any collateral securing the Guaranteed Obligations, if any, or shall have proceeded to pursue or exhaust its remedies against Borrower (or any other Person) primarily or secondarily liable for the Guaranteed Obligations.

No exercise, delay in exercise or non-exercise by Lender of any right hereby given it, no dealing by Lender with Borrower, Guarantor or any other Person, no change, impairment or suspension of any right or remedy of Lender, and no act or thing which, but for this provision, could act as a release or exoneration of the liabilities of Guarantor hereunder, shall in any way affect, decrease, diminish or impair any of the obligations of Guarantor hereunder or give Guarantor or any other Person any recourse or defense against Lender.

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Section 5.              Waiver.  Guarantor unconditionally waives the following:

(a)           notice of acceptance of this Guaranty and notice of any of the matters referred to in Section 4 hereof;

(b)           all notices which may be required by statute, rule of law or otherwise to preserve intact any rights which Lender may have against Guarantor under this Guaranty, including, without limitation, any demand, proof or notice of non-payment of any of the principal of, interest on or other amounts payable under the Loan Documents, and notice of any failure on the part of Borrower to perform and comply with any covenant, agreement, term or condition of the Loan Documents;

(c)           any right to the enforcement, assertion or exercise of any right, power or remedy conferred upon Lender in the Loan Documents or otherwise;

(d)           any requirement that Lender act with diligence in enforcing its rights under the Loan Documents or this Guaranty;

(e)           any right to require Lender to proceed against or exhaust its recourse against Borrower or any security or collateral held by Lender, if any, at any time for the payment of the Guaranteed Obligations or to pursue any other remedy in its power before being entitled to payment from Guarantor under this Guaranty or before proceeding against Guarantor;

(f)            any failure by Lender to file or enforce a claim against the estate (either in administration, bankruptcy or any other proceeding) of Borrower or any other Person;

(g)           any defense based upon an election of remedies by Lender which destroys or otherwise impairs the subrogation rights of Guarantor or the right of Guarantor (after payment of the Guaranteed Obligations) to proceed against Borrower for reimbursement, or both;

(h)           any defense based upon any taking, modification or release of any collateral for the Guaranteed Obligations, if any, or any failure to perfect any security interest in, or the taking of, or failure to take any other action with respect to, any collateral securing payment of the Guaranteed Obligations, if any;

(i)            any defense based upon the addition, substitution or release, in whole or in part, of any Person(s), including, without limitation, another guarantor, primarily or secondarily liable for or in respect of the Guaranteed Obligations;

(j)            any rights or defenses based upon an offset by Guarantor against any obligation now or hereafter owed to Guarantor by Borrower; and

(k)           all other notices which may or might be lawfully waived by Guarantor;

it being the intention hereof that Guarantor shall remain liable as principal, to the extent set forth in this Guaranty, until the payment and performance in full of the Guaranteed Obligations, notwithstanding any act, omission or thing which might otherwise operate as a legal or equitable discharge of Guarantor other than the payment and performance in full of the Guaranteed

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Obligations.  No delay by Lender in exercising any rights and/or powers hereunder or in taking any action to enforce Borrower’s obligations under the Loan Documents shall operate as a waiver as to such rights or powers or in any manner prejudice any and all of Lender’s rights and powers hereunder against Guarantor.  The intention of Guarantor under this Guaranty is that, so long as any of the Guaranteed Obligations remains unsatisfied, the obligations of Guarantor hereunder shall not be discharged except by payment or performance and then only to the extent of such payment or performance.  Guarantor agrees that Guarantor’s obligations hereunder shall not be affected by any circumstances, whether or not referred to in this Guaranty, which might constitute a legal or equitable discharge of a surety or guarantor.

Section 6.              Election of Remedies.  This Guaranty may be enforced from time to time, as often as occasion therefor may arise, and without any requirement that Lender must first pursue or exhaust any remedies available to it against Borrower under the Loan Documents or against any other Person or resort to any collateral at any time held by it for performance of the Guaranteed Obligations, if any, or any other source or means of obtaining payment of any of the Guaranteed Obligations.

Section 7.              Representations and Warranties of Guarantor.  Guarantor hereby represents and warrants to Lender as follows:

(a)           Due Organization; Qualification.  Guarantor is qualified to transact business and is in good standing in the State in which it is organized and in each other jurisdiction in which such qualification and/or standing is necessary to the conduct of its business and where the failure to be so qualified would adversely affect the validity of, the enforceability of, or the ability of Guarantor to perform the Guaranteed Obligations.

(b)           Power and Authority.  Guarantor has the requisite power and authority (i) to own its properties and to carry on its business as now conducted and as contemplated to be conducted in connection with the performance of the Guaranteed Obligations, and (ii) to execute and deliver this Guaranty and to carry out the transactions contemplated by this Guaranty.

(c)           Due Authorization.  The execution, delivery and performance of this Guaranty has been duly authorized by all necessary action and proceedings by or on behalf of Guarantor, and no further approvals or filings of any kind, including any approval of or filing with any Governmental Authority, are required by or on behalf of Guarantor as a condition to the valid execution, delivery and performance by Guarantor of this Guaranty.

(d)           Valid and Binding Obligations.  This Guaranty has been duly executed and delivered by Guarantor and constitutes the legal, valid and binding obligations of Guarantor, enforceable against Guarantor in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles affecting the enforcement of creditors’ rights generally or by equitable principles or by the exercise of discretion by any court.

(e)           Non-contravention: No Liens.  Neither the execution and delivery of this Guaranty by Guarantor, nor the fulfillment of or compliance with the terms and conditions of this

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Guaranty by Guarantor nor the payment or performance of the Guaranteed Obligations by Guarantor, as applicable:

(i)            does or will conflict with or result in any breach or violation of any Applicable Law enacted or issued by any Governmental Authority or other agency having jurisdiction over Guarantor, any of the Mortgaged Properties or any other portion of the Collateral or assets of Guarantor, or any judgment or order applicable to Guarantor or to which Guarantor is subject;

(ii)           does or will conflict with or result in any material breach or violation of, or constitute a default under, any of the terms, conditions or provisions of Guarantor’s Organizational Documents, any indenture, existing agreement or other instrument to which Guarantor is a party or to which Guarantor, any of the Mortgaged Properties or any other portion of the Collateral or other assets of Guarantor is subject; or

(iii)          does or will require the consent or approval of any creditor of Guarantor, any Governmental Authority or any other Person except such consents or approvals which have already been obtained.

(f)            Pending Litigation or Other Proceedings.  There is no pending or, to the knowledge of Guarantor, threatened action, suit, proceeding or investigation, at law or in equity, before any court, board, body or official of any Governmental Authority or arbitrator which, if decided adversely to Guarantor, would have, or may reasonably be expected to have a Material Adverse Effect.

(g)           Solvency.  Guarantor is not insolvent and will not be rendered insolvent by the transaction contemplated by this Guaranty and after giving effect to such transaction, Guarantor will not be left with an unreasonably small amount of capital with which to engage in its business or undertakings, nor will Guarantor have incurred, have intended to incur, or believe that it has incurred, debts beyond its ability to pay such debts as they mature. Guarantor did not receive less than a reasonably equivalent value in exchange for incurrence of the Guaranteed Obligations.  There (i) is no contemplated, pending or, to Guarantor’s knowledge, threatened bankruptcy, reorganization, receivership, insolvency or like proceeding, whether voluntary or involuntary, affecting Guarantor and (ii) has been no assertion or exercise of jurisdiction over Guarantor by any court empowered to exercise bankruptcy powers.

(h)           No Contractual Defaults.  There are no defaults by Guarantor or, to the knowledge of Guarantor, by any other Person under any contract to which Guarantor is a party other than defaults which do not have, and are not reasonably be expected to have, a Material Adverse Effect.  Neither Guarantor nor, to the knowledge of Guarantor, any other Person, has received notice or has any knowledge of any existing circumstances in respect of which it could receive any notice of default or breach in respect of any material contracts.

(i)            Representations True and Correct.  The representations and warranties made by Guarantor in this Guaranty are true, complete and correct in all material respects as of the Initial Closing Date and do not contain any untrue statement of material fact or omit to state a

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material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.

(j)            ERISA.  Guarantor is in compliance in all material respects with all applicable provisions of ERISA and has not incurred any liability to the PBGC on a Plan under Title IV of ERISA.  None of the assets of Guarantor constitute plan assets (within the meaning of Department of Labor Regulation § 2510.3-101) of any employee benefit plan subject to Title I of ERISA.

(k)           Financial Information.  The financial statements of Guarantor which have been furnished to Lender are complete and accurate in all material respects and present fairly the financial condition of Guarantor, as of its date in accordance with GAAP, applied on a consistent basis, and since the date of the most recent of such financial statements no event has occurred which would have, or may reasonably be expected to have a Material Adverse Effect or a material adverse effect on the financial condition of Guarantor, and there has not been any material transaction entered into by Guarantor other than as disclosed in public filings.  Guarantor has no material contingent obligations which are not otherwise required to be disclosed in accordance with GAAP in its most recent financial statements.

(l)            Accuracy of Information. No information, statement or report furnished in writing to Lender by Guarantor in connection with this Guaranty or any other Loan Document or in connection with the consummation of the transactions contemplated hereby and thereby contains any material misstatement of fact or omits to state a material fact necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading.

(m)          No Conflicts of Interest.  No member, officer, agent or employee of Lender has been or is in any manner interested, directly or indirectly, in that Person’s own name, or in the name of any other Person, in the Guaranty, the Loan Documents, or any Mortgaged Property, in any contract for property or materials to be furnished or used in connection with such Mortgaged Property or in any aspect of the transactions contemplated by the Loan Documents.

(n)           Governmental Approvals.  No Governmental Approval not already obtained or made is required for the execution and delivery of this Guaranty or the performance of the terms and provisions hereof by Guarantor.

(o)           Governmental Orders.  Guarantor is not presently under any cease or desist order or other orders of a similar nature, temporary or permanent, of any Governmental Authority which would have the effect of preventing or hindering performance of its duties hereunder, nor are there any proceedings presently in progress or to its knowledge contemplated which would, if successful, lead to the issuance of any such order.

(p)           No Reliance. Guarantor acknowledges, represents and warrants that it understands the nature and structure of the transactions contemplated by this Guaranty and the other Loan Documents; that it is familiar with the provisions of all of the documents and instruments relating to such transactions; that it understands the risks inherent in such

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transactions, including the risk of loss of all or any of the Mortgaged Properties; and that it has not relied on Lender or Fannie Mae for any guidance or expertise in analyzing the financial or other consequences of the transactions contemplated by this Guaranty or any other Loan Document or otherwise relied on Lender or Fannie Mae in any manner in connection with interpreting, entering into or otherwise in connection with this Guaranty, any other Loan Document or any of the matters contemplated hereby or thereby.

(q)           Compliance with Applicable Law.  Guarantor is in compliance with Applicable Law, including all Governmental Approvals, if any, except for such items of noncompliance that, singly or in the aggregate, have not had and are not reasonably expected to cause, a Material Adverse Effect.

(r)            Contracts with Affiliates.  Guarantor has not entered into and is not a party to any contract, lease or other agreement with any Affiliate of Guarantor for the provision of any service, materials or supplies relating to any Mortgaged Property.

(s)           UCC Amendment.                Guarantor represents and warrants that the entities listed on Schedule 1 attached hereto (the “UCC Affiliates”) are Affiliates of Guarantor and that the UCC Affiliates are the only Affiliates of Guarantor that are named as secured parties on UCC financing statements that name Operator, as debtor, and that pledge any of the Collateral under the Loan Documents or any UCC Collateral under the Subordination, Assignment and Security Agreement.  Guarantor represents and warrants that it has the power and authority to authorize, on behalf of the UCC Affiliates, the filing of terminations and/or amendments, as applicable, relating to such UCC financing statements (the “Affiliate UCC Amendments”) with the appropriate Governmental Authorities.  Guarantor hereby authorizes Lender to file the Affiliate UCC Amendments with the appropriate Governmental Authority.

Section 8.              Affirmative Covenants of Guarantor. Guarantor agrees and covenants with Lender that, at all times during the Term of this Guaranty:

(a)           Maintenance of Existence.  Guarantor shall maintain its existence and continue to be a real estate investment trust organized under the laws of the state of its organization (other than as permitted under Section 8.12(b) of the Master Agreement).  Guarantor shall continue to be duly qualified to do business in each jurisdiction in which such qualification is necessary to the conduct of its business and where the failure to be so qualified would adversely affect the validity of, the enforceability of, or the ability to perform, its obligations under this Guaranty.

(b)           Financial Statements; Accountants’ Reports: Other Information. Guarantor shall keep and maintain at all times complete and accurate books of accounts and records in sufficient detail to correctly reflect all of Guarantor’s financial transactions and assets as required by GAAP. In addition, Guarantor shall furnish, or cause to be furnished, to Lender the financial statements required of Guarantor by Section 8.03(a) of the Master Agreement.  In addition, Guarantor shall provide Lender with the following: