What changed in this filing

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Item 1. Financial Statements

2020-08-06 compared with 2020-05-07 · 270 added, 162 removed, 406 unchanged (52% of the section changed)

17 unchanged sentences

Senior unsecured notes, net

Secured debt and capital leases, net

Secured debt and finance leases, net

Liabilities of properties held for sale

6 unchanged sentences

Common shares of beneficial interest, $.01 par value:

300,000,000 shares authorized, 237,893,725 and 237,897,163 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

300,000,000 shares authorized, 237,951,968 and 237,897,163 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

Additional paid in capital

7 unchanged sentences

DIVERSIFIED HEALTHCARE TRUST

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(amounts in thousands, except per share data)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Rental income

7 unchanged sentences

Total expenses

Gain (loss) on sale of properties

(Loss) gain on sale of properties

Dividend income

4 unchanged sentences

Loss on early extinguishment of debt

Income from continuing operations before income tax expense and equity in earnings of an investee

Income tax expense

Loss from continuing operations before income tax (expense) benefit and equity in earnings of an investee

Income tax (expense) benefit

Equity in earnings of an investee

Net income attributable to noncontrolling interest

Net income attributable to common shareholders

Net loss attributable to common shareholders

Other comprehensive income:

1 unchanged sentence

Other comprehensive income

Comprehensive income

Comprehensive loss

Comprehensive income attributable to noncontrolling interest

Comprehensive income attributable to common shareholders

Comprehensive loss attributable to common shareholders

Weighted average common shares outstanding (basic)

1 unchanged sentence

Per common share amounts (basic and diluted):

Net income attributable to common shareholders

Net loss attributable to common shareholders

See accompanying notes.

14 unchanged sentences

Balance at March 31, 2020:

Net (loss) income

Distributions

Share repurchases

Distributions to noncontrolling interest

Balance at June 30, 2020:

Balance at December 31, 2018:

3 unchanged sentences

Balance at March 31, 2019:

Net (loss) income

Other comprehensive income

Distributions

Share repurchases

Distributions to noncontrolling interest

Balance at June 30, 2019:

See accompanying notes.

2 unchanged sentences

(amounts in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

Adjustments to reconcile net income to cash provided by operating activities:

Adjustments to reconcile net loss to cash provided by operating activities:

Depreciation and amortization

5 unchanged sentences

Impairment of assets

(Gain) loss on sale of properties

Gain on sale of properties

Gains and losses on equity securities, net

9 unchanged sentences

Proceeds from sale of properties, net

Distributions in excess of earnings from Affiliates Insurance Company

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from issuance of senior unsecured notes, net

Proceeds from borrowings on revolving credit facility

Repayments of borrowings on revolving credit facility

Repayment of senior unsecured notes

Repayment of unsecured term loan

Repayment of other debt

Loss on early extinguishment of debt settled in cash

Payment of debt issuance costs

Repurchase of common shares

1 unchanged sentence

Distributions to shareholders

Net cash provided by (used in) financing activities

Net cash used in financing activities

Increase (decrease) in cash and cash equivalents and restricted cash

5 unchanged sentences

(amounts in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Supplemental cash flow information:

9 unchanged sentences

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within our condensed consolidated balance sheets to the amount shown in our condensed consolidated statements of cash flows:

As of March 31,

As of June 30,

Cash and cash equivalents

19 unchanged sentences

We have made reclassifications to the financial statements of prior periods to conform to the current period presentation.

These reclassifications had no effect on net income or equity.

These reclassifications had no effect on net income (loss) or equity.

We have a joint venture arrangement with an institutional investor for one of our life science properties located in Boston, Massachusetts.

2 unchanged sentences

We concluded that we must consolidate this VIE because we are the entity with the power to direct the activities that most significantly impact the VIE's economic performance and we have the obligation to absorb losses of, and the right to receive benefits from, the VIE that could be significant to the VIE, and therefore are the primary beneficiary of the VIE.

The assets of this VIE were $ 1,004,119 and $ 1,015,661 as of March 31, 2020 and December 31, 2019 , respectively, and consist primarily of the net real estate owned by the joint venture.

The liabilities of this VIE were $ 702,544 and $ 704,344 as of March 31, 2020 and December 31, 2019 , respectively, and consist primarily of the secured debts on the property.

The assets of this VIE were $ 991,730 and $ 1,015,661 as of June 30, 2020 and December 31, 2019 , respectively, and consist primarily of the net real estate owned by the joint venture.

The liabilities of this VIE were $ 699,761 and $ 704,344 as of June 30, 2020 and December 31, 2019 , respectively, and consist primarily of the secured debts on the property.

The investor's interest in this consolidated entity is reflected as a noncontrolling interest in our condensed consolidated financial statements.

8 unchanged sentences

Real Estate Properties

As of March 31, 2020 , we owned 416 properties located in 38 states and Washington, D.C., including 24 properties classified as held for sale and one life science property owned in a joint venture arrangement in which we own a 55 % equity interest.

We regularly evaluate our assets for indications of impairment.

Impairment indicators may include declining tenant or resident occupancy, weak or declining profitability from the property, decreasing tenant cash flows or liquidity, our decision to

As of June 30, 2020 , we owned 412 properties located in 38 states and Washington, D.C., including 21 properties classified as held for sale and one life science property owned in a joint venture arrangement in which we own a 55 % equity interest.

We regularly evaluate our assets for indicators of impairment.

Impairment indicators may include declining tenant or resident occupancy, weak or declining profitability from the property, decreasing tenant cash flows or liquidity, our decision to dispose of an asset before the end of its estimated useful life, and legislative, market or industry changes that could permanently reduce the value of an asset.

If indicators of impairment are present, we evaluate the carrying value of the affected assets by comparing it to the expected future cash flows to be generated from those assets.

The future cash flows are subjective and are

DIVERSIFIED HEALTHCARE TRUST

1 unchanged sentence

(dollar amounts in thousands, except per share data or as otherwise stated)

dispose of an asset before the end of its estimated useful life, and legislative, market or industry changes that could permanently reduce the value of an asset.

If indicators of impairment are present, we evaluate the carrying value of the affected assets by comparing it to the expected future undiscounted net cash flows to be generated from those assets.

The future net undiscounted cash flows are subjective and are based in part on assumptions regarding hold periods, market rents and terminal capitalization rates.

If the sum of these expected future net cash flows is less than the carrying value, we reduce the net carrying value of the asset to its estimated fair value.

During the three months ended March 31, 2020 , we recorded impairment charges of $ 5,581 to adjust the carrying values of five senior living communities to their aggregate estimated fair value less estimated costs to sell.

These five senior living communities are classified as held for sale in our condensed consolidated balance sheet as of March 31, 2020.

During the three months ended March 31, 2020 , we also recorded a reversal of impairment charges of $ 565 related to two senior living communities that were classified as held for sale as of December 31, 2019 and changed the status of those communities from held for sale to held and used as of March 31, 2020.

During the three months ended March 31, 2020 , we recorded impairment charges of $ 6,505 to adjust the carrying value of seven medical office properties to their aggregate estimated fair value less estimated costs to sell.

We sold one of these medical office properties in February 2020 and the remaining six medical office properties are classified as held for sale in our condensed consolidated balance sheet as of March 31, 2020.

During the three months ended March 31, 2020 , we also recorded a reversal of impairment charges of $ 287 related to two medical office properties that were classified as held for sale as of December 31, 2019 and changed the status of those properties from held for sale to held and used as of March 31, 2020.

These impairment charges, in aggregate, are included in impairment of assets in our condensed consolidated statements of comprehensive income.

Acquisitions:

In January 2020, we acquired a vacant land parcel adjacent to a property we own in our portfolio of medical office and life science properties, or our Office Portfolio, segment located in Tempe, Arizona for $ 2,600 , excluding closing costs.

Dispositions:

During the three months ended March 31, 2020 , we sold eight properties for an aggregate sales price of $ 17,604 , excluding closing costs, as presented in the table below.

based in part on assumptions regarding hold periods, market rents and terminal capitalization rates.

If the sum of these expected future cash flows is less than the carrying value, we reduce the net carrying value of the asset to its estimated fair value.

Acquisition Activities:

Disposition Activities:

During the six months ended June 30, 2020 , we sold 12 properties for an aggregate sales price of $ 68,154 , excluding closing costs, as presented in the table below.

The sales of these properties do not represent significant dispositions individually or in the aggregate, nor do we believe they represent a strategic shift in our business.

As a result, the results of the operation for these properties are included in continuing operations through the date of sale of such properties in our condensed consolidated statements of comprehensive income.

Type of Property

Number of Properties

Square Feet or Number of Units

Sales Price (1)

Gain (loss) on Sale

Impairment of Assets

Medical Office

2 unchanged sentences

Medical Office

Managed Senior Living

South Carolina

Medical Office

Sales price excludes closing costs.

As of March 31, 2020 , we had ten properties in our Office Portfolio segment and 14 senior living communities in our senior housing operating portfolio, or SHOP, segment with an aggregate undepreciated carrying value of $ 287,397 classified as held for sale in our condensed consolidated balance sheet as of March 31, 2020 .

Subsequent to March 31, 2020 , we sold three of these properties for an aggregate sales price of $ 47,000 , excluding closing costs.

As of May 6, 2020 , we had 27 properties under agreements to sell for an aggregate sales price of approximately $ 164,047 , excluding closing costs.

As of June 30, 2020 , we had 21 properties classified as held for sale in our condensed consolidated balance sheet as follows:

Type of Property

Number of Properties

Undepreciated Carrying Value

Impairment of Assets (1)

Managed Senior Living

Medical Office

Triple Net Leased, Senior Living

We recorded an aggregate of $ 31,167 impairment of real estate during the six months ended June 30, 2020 to adjust the carrying values of certain of these properties to their estimated fair values less costs to sell.

Subsequent to June 30, 2020 , two of the three medical office properties and two of the 15 managed senior living communities classified as held for sale in the table above were sold for an aggregate sales price of $ 5,197 , excluding closing costs.

We also recorded impairment charges of $ 3,071 related to seven medical office properties and two senior living communities that were classified as held for sale during the three months ended March 31, 2020.

These properties were subsequently reclassified to held and used as of June 30, 2020 .

As of August 3, 2020 , we had 24 properties under agreements to sell for an aggregate sales price of approximately $ 231,725 , excluding closing costs.

We may not complete the sales of any or all of the properties we currently plan to sell.

9 unchanged sentences

Some of our leases have options to extend or terminate the lease exercisable at the option of our tenants, which are considered when determining the lease term.

We increased rental income to record revenue on a straight line basis by $ 1,153 and $ 1,934 for the three months ended March 31, 2020 and 2019, respectively.

Rents receivable, excluding properties classified as held for sale, include $ 103,340 and $ 99,297 of straight line rent receivables at March 31, 2020 and December 31, 2019, respectively, and are included in other assets, net in our condensed consolidated balance sheets.

We increased rental income to record revenue on a straight line basis by $ 1,385 and $ 430 for the three months ended June 30, 2020 and 2019 , respectively, and $ 2,538 and $ 2,364 for the six months ended June 30, 2020 and 2019 , respectively.

Rents receivable, excluding properties classified as held for sale, include $ 107,178 and $ 99,297 of straight line rent receivables at June 30, 2020 and December 31, 2019, respectively, and are included in other assets, net in our condensed consolidated balance sheets.

We do not include in our measurement of our lease receivables certain variable payments, including changes in the index or market based indices after the inception of the lease, certain tenant reimbursements and other income until the specific events that trigger the variable payments have occurred.

We recognized such payments totaling $ 20,028 and $ 18,845 for the three months ended March 31, 2020 and 2019, respectively, of which tenant reimbursements totaled $ 1,020 and $ 1,197 , respectively.

As a result of market disruptions due to the COVID-19 pandemic, some of our tenants have requested relief from their obligation to pay rent due to us.

As of May 4, 2020, we granted requests for certain of our tenants to defer rent payments totaling $ 4,822 .

These tenants will be obligated to pay, in most cases, the deferred rents in 12 equal monthly installments commencing in September 2020.

We recognized such payments totaling $ 18,263 and $ 19,525 for the three months ended June 30, 2020 and 2019 , respectively, of which tenant reimbursements totaled $ 1,074 and $ 1,203 , respectively, and $ 38,291 and $ 38,370 for the six months ended June 30, 2020 and 2019 , respectively, of which tenant reimbursements totaled $ 2,094 and $ 2,400 , respectively.

As a result of the COVID-19 pandemic, some of our tenants have requested relief from their obligations to pay rent due to us.

As of August 3, 2020 , we granted requests for certain of our tenants to defer rent payments totaling $ 5,474 .

These tenants are obligated to pay, in most cases, the deferred rents in 12 equal monthly installments commencing in September 2020.

We have elected to use the FASB relief package regarding the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic.

The FASB relief package provides entities with the option to account for lease concessions resulting from the COVID-19 pandemic outside of the existing lease modification guidance if the resulting cash flows from the modified lease are substantially the same as the original lease.

Because the majority of the deferred rents referenced above will generally be repaid over a 12-month period, the cash flows from the respective leases are substantially the same as before the rent deferrals.

These deferred amounts did not negatively impact our results for the three and six months ended June 30, 2020 and, as of June 30, 2020 , we recognized an increase in our accounts receivable related to these deferred amounts of $ 3,504 .

Right of Use Asset and Lease Liability .

For leases where we are the lessee, we recognized a right of use asset and a lease liability equal to the present value of the minimum lease payments with rental payments being applied to the lease liability and the right of use asset being amortized over the term of the lease.

The value of the right of use asset and related liability representing our future obligation under the lease arrangement for which we are the lessee were $ 4,299 and $ 4,449 , respectively, as of March 31, 2020, and $ 4,319 and $ 4,461 , respectively, as of December 31, 2019.

The value of the right of use asset and related liability representing our future obligation under the lease arrangement for which we are the lessee were $ 4,278 and $ 4,437 , respectively, as of June 30, 2020 , and $ 4,319 and $ 4,461 , respectively, as of December 31, 2019.

The right of use asset and related lease liability are included within other assets, net and other liabilities, respectively, within our condensed consolidated balance sheets.

1 unchanged sentence

These leases are short term in nature, are cancelable with no fee or do not result in an annual expense in excess of our capitalization policy and, as a result, are not recorded on our condensed consolidated balance sheets.

Our principal debt obligations at March 31, 2020 were:

(1) outstanding borrowings under our $ 1,000,000 unsecured revolving credit facility;

(2) $ 1,850,000 outstanding principal amount of senior unsecured notes;

(3) $ 450,000 outstanding principal amount under two term loans;

and (4) $ 687,154 aggregate principal amount of mortgages (excluding premiums, discounts and net debt issuance costs) secured by eight properties, of which $ 620,000 is related to a joint venture arrangement in which we own a 55 % equity interest.

These eight mortgaged properties had a gross book value of real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs of $ 1,271,352 at March 31, 2020 .

We also had two properties subject to capital leases with lease obligations totaling $ 8,615 at March 31, 2020 ;

these two properties had gross book value of real estate assets of $ 35,627 at March 31, 2020 , and the capital leases expire in 2026.

As of March 31, 2020 , $ 1,267 of principal mortgage obligations, secured by one property, are included in liabilities of properties held for sale in our condensed consolidated balance sheet.

We have a $ 1,000,000 unsecured revolving credit facility that is available for general business purposes, including acquisitions.

The maturity date of our revolving credit facility is January 15, 2022, and, subject to the payment of an extension fee and meeting other conditions, we have the option to extend the maturity date of the facility for an additional year.

Our revolving credit facility provides that we can borrow, repay and re-borrow funds available under our revolving credit facility

DIVERSIFIED HEALTHCARE TRUST

1 unchanged sentence

(dollar amounts in thousands, except per share data or as otherwise stated)

until maturity, and no principal repayment is due until maturity.

At March 31, 2020 , our revolving credit facility required interest to be paid on borrowings at the annual rate of LIBOR plus a premium of 120 basis points, plus a facility fee of 25 basis points per annum on the total amount of lending commitments under the facility.

Our principal debt obligations at June 30, 2020 were:

(1) $ 2,650,000 outstanding principal amount of senior unsecured notes;

(2) $ 200,000 outstanding principal amount under our term loan;

and (3) $ 685,428 aggregate principal amount of mortgage notes (excluding premiums, discounts and net debt issuance costs) secured by seven properties, of which $ 620,000 is related to a joint venture arrangement in which we own a 55 % equity interest.

These seven mortgaged properties had a gross book value of real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs of $ 1,258,457 at June 30, 2020 .

We also had two properties subject to finance leases with lease obligations totaling $ 8,352 at June 30, 2020 ;

these two properties had gross book value of real estate assets of $ 35,708 at June 30, 2020 , and the finance leases expire in 2026.

We have a $ 1,000,000 unsecured revolving credit facility that is available for general business purposes.

Our revolving credit facility provides that we can borrow, repay and re-borrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity.

As of June 30, 2020 , our revolving credit facility required interest to be paid on borrowings at the annual rate of 2.6 % , plus a facility fee of 30 basis points per annum on the total amount of lending commitments under the facility.

The weighted average annual interest rates for borrowings under our revolving credit facility were 1.8 % and 3.6 % for the three months ended June 30, 2020 and 2019 , respectively, and 2.2 % and 3.6 % for the six months ended June 30, 2020 and 2019 , respectively.

The interest rate premium and facility fee are each subject to adjustment based upon changes to our credit ratings.

Effective April 1, 2020, our revolving credit facility premium and facility fee increased to 155 and 30 basis points per annum, respectively, due to a downgrade of our credit rating.

As of March 31, 2020 , the annual interest rate payable on borrowings under our revolving credit facility was 1.8 % .

The weighted average annual interest rates for borrowings under our revolving credit facility were 2.6 % and 3.6 % for the three months ended March 31, 2020 and 2019 , respectively.

As of March 31, 2020 , we had $ 585,000 outstanding and $ 415,000 available for borrowing, and as of May 6, 2020 , we had $ 775,000 outstanding and $ 225,000 available for borrowing under our revolving credit facility.

We have a $ 250,000 unsecured term loan that matures in June 2020 and is prepayable without penalty at any time.

Subject to the satisfaction of certain conditions, including the payment of an extension fee, we have the option to extend the maturity date by six months.

At March 31, 2020 , this term loan required interest to be paid at the annual rate of LIBOR plus a premium of 125 basis points that is subject to adjustment based upon changes to our credit ratings.

Effective April 1, 2020, the interest rate premium for this term loan increased to 165 basis points per annum due to a downgrade of our credit rating.

At March 31, 2020 , the annual interest rate payable on amounts outstanding under this term loan was 1.9 % .

The weighted average annual interest rate for amounts outstanding under this term loan was 2.7 % for the three months ended March 31, 2020 .

We obtained this term loan in December 2019.

As of June 30, 2020 and August 3, 2020, we had no outstanding borrowings and $ 1,000,000 available for borrowing under our revolving credit facility.

We have a $ 200,000 unsecured term loan that matures in September 2022 and is prepayable without penalty at any time.

At March 31, 2020 , this term loan required interest to be paid at the annual rate of LIBOR plus a premium of 135 basis points that is subject to adjustment based upon changes to our credit ratings.

Effective April 1, 2020, the interest rate premium for this term loan increased to 175 basis points per annum due to a downgrade of our credit rating.

At March 31, 2020 , the annual interest rate payable on amounts outstanding under this term loan was 2.3 % .

The weighted average annual interest rate for amounts outstanding under this term loan was 3.1 % and 3.9 % for the three months ended March 31, 2020 and 2019 , respectively.

At June 30, 2020 , the annual interest rate payable on amounts outstanding under this term loan was 2.4 % .

The weighted average annual interest rate for amounts outstanding under this term loan was 2.3 % and 3.9 % for the three months ended June 30, 2020 and 2019 , respectively, and 2.7 % and 3.9 % for the six months ended June 30, 2020 and 2019 , respectively.

The interest rate premium is subject to adjustment based upon changes to our credit ratings.

In February 2020, we prepaid a mortgage note secured by one of our life science properties with an outstanding principal balance of approximately $ 1,554 , a maturity date in March 2026 and an annual interest rate of 6.25 % .

As a result of this prepayment, we recorded a loss on early extinguishment of debt of $ 246 for the three months ended March 31, 2020 .

As a result of this prepayment, we recorded a loss on early extinguishment of debt of $ 246 for the six months ended June 30, 2020 .

We prepaid this mortgage using cash on hand and borrowings under our revolving credit facility.

2 unchanged sentences

In May 2020, we prepaid a mortgage note secured by one of our medical office properties with an outstanding principal balance of approximately $ 1,213 , a maturity date in January 2022 and an annual interest rate of 7.49 % .

As a result of the prepayment of this mortgage note, we recorded a loss on early extinguishment of debt of $ 155 for both the three and six months ended June 30, 2020 .

We prepaid this mortgage using cash on hand and borrowings under our revolving credit facility.

Our revolving credit facility and term loan agreements and our senior unsecured notes indentures and their supplements provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, such as, in the case of our revolving credit facility and term loan agreements, a change of control of us, as defined, which includes The RMR Group LLC, or RMR LLC, ceasing to act as our business and property manager.

Our revolving credit facility and term loan agreements and our senior unsecured notes indentures and their supplements also contain covenants, including covenants that restrict our ability to incur debts, and generally require us to maintain certain financial ratios, and our revolving credit facility and term loan agreements restrict our ability to make distributions under certain circumstances.

We believe we were in compliance with the terms and conditions of the respective covenants under our revolving credit facility and term loan agreements and our senior unsecured notes indentures and their supplements at March 31, 2020 .

In June 2020, we issued $ 1,000,000 aggregate principal amount of our 9.75 % senior notes due 2025 in an underwritten public offering raising net proceeds of $ 983,500 , after deducting estimated offering expenses and underwriters' discounts.

These notes are guaranteed by all of our subsidiaries, except for certain excluded subsidiaries, and require semi-annual interest payments through maturity.

Prior to June 15, 2022, we may, at our option, redeem all or a portion of these notes at a redemption price equal to the outstanding principal amount of these notes, plus accrued and unpaid interest, plus the make-whole amount set forth in the indenture which governs these notes, as supplemented, or our 2025 Notes Indenture.

Prior to June 15, 2022, we may also, at our option, redeem up to 40 % of the aggregate principal amount of these notes with the net proceeds of certain equity offerings at the redemption price set forth in the 2025 Notes Indenture, so long as at least 50 % of the original aggregate principal amount of these notes remains outstanding after each such redemption.

In addition, we have the option to redeem all or a portion of these notes at any time on or after June 15, 2022 at the redemption prices set forth in the 2025 Notes Indenture.

We used the net proceeds from this offering to prepay in full our $ 250,000 unsecured term loan which was scheduled to mature

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollar amounts in thousands, except per share data or as otherwise stated)

in June 2020 and to reduce amounts outstanding under our revolving credit facility.

The weighted average interest rate under our $ 250,000 senior unsecured term loan was 1.9 % and 2.4 % for the periods from April 1, 2020 to June 2, 2020 and January 1, 2020 to June 2, 2020, respectively.

As a result of the repayment of our $ 250,000 senior unsecured term loan, we recorded a loss on early extinguishment of debt of $ 26 for the three and six months ended June 30, 2020 .

In June 2020, we amended the agreements governing our $ 1,000,000 unsecured revolving credit facility and $ 200,000 unsecured term loan, or collectively, our credit and term loan agreements.

The amendments modify certain of the financial covenants under our credit and term loan agreements through June 30, 2021, or the Amendment Period, during which, subject to certain conditions, we will continue to have access to undrawn amounts under our revolving credit facility.

We have the right to terminate the Amendment Period prior to June 30, 2021, subject to certain conditions.

During the Amendment Period:

our interest rate premium over LIBOR under our revolving credit facility and term loan increased by 50 basis points;

we will generally be required to apply the net cash proceeds from the disposition of assets, capital markets transactions, debt financings or COVID-19 government stimulus programs, if allowed, to the repayment of outstanding loans under the revolving credit facility, if any;

we will be subject to certain additional covenants, including additional restrictions on our ability to incur indebtedness (with exceptions for borrowings under our revolving credit facility and certain other categories of secured and unsecured indebtedness), and to acquire real property or make other investments (with exceptions for, among other things, certain categories of capital expenditures and costs);

we will be required to maintain unrestricted liquidity (unrestricted cash and undrawn availability under our revolving credit facility) of not less than $ 200,000 ;

our ability to pay distributions on our common shares will be limited to paying a cash dividend of $ 0.01 per common share per quarter and amounts required to maintain our qualification for taxation as a real estate investment trust, or REIT, and to avoid the payment of certain income and excise taxes.

Our credit and term loan agreements and our senior unsecured notes indentures and their supplements provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, such as, in the case of our credit and term loan agreements, a change of control of us, as defined, which includes The RMR Group LLC, or RMR LLC, ceasing to act as our business and property manager.

Our credit and term loan agreements and our senior unsecured notes indentures and their supplements also contain covenants, including covenants that restrict our ability to incur debts, and generally require us to maintain certain financial ratios, and our credit and term loan agreements restrict our ability to make distributions under certain circumstances.

We believe we were in compliance with the terms and conditions of the respective covenants under our credit and term loan agreements and our senior unsecured notes indentures and their supplements at June 30, 2020 .

Although we have taken steps to enhance our ability to maintain sufficient liquidity, as noted elsewhere in this Quarterly Report on Form 10-Q, a protracted negative economic impact resulting from the COVID-19 pandemic may cause increased pressure on our ability to satisfy financial and other covenants.

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Fair Value of Assets and Liabilities

The following table presents certain of our assets that are measured at fair value at March 31, 2020 , categorized by the level of inputs as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.

The following table presents certain of our assets that are measured at fair value at June 30, 2020 , categorized by the level of inputs as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.

Fair Value at Reporting Date Using

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The fair value and initial cost basis of the Five Star common shares issued to us on January 1, 2020 was $ 38,095 .

Our adjusted cost basis inclusive of the 423,500 Five Star common shares we owned as of December 31, 2019 and the 10,268,158 Five Star common shares issued to us on January 1, 2020 was $ 44,448 as of March 31, 2020 .

During the three months ended March 31, 2020 , we recorded an unrealized loss of $ 9,943 , which is included in gains and losses on equity securities, net in our condensed consolidated statements of comprehensive income, to adjust the carrying value of our investment in Five Star common shares to their fair value.

During the three and six months ended June 30, 2020 , we recorded unrealized gains of $ 11,974 and $ 2,031 , respectively, which is included in gains and losses on equity securities, net in our condensed consolidated statements of comprehensive income (loss), to adjust the carrying value of our investment in Five Star common shares to their fair value.

See Note 12 for further information about our investment in Five Star.

We have assets in our condensed consolidated balance sheets that are measured at fair value on a nonrecurring basis.

During the three months ended March 31, 2020 , we recorded impairment charges of $ 6,544 to reduce the carrying value of six medical office properties that are classified as held for sale to their estimated sales price, less estimated costs to sell of $ 1,658 , based on purchase and sale agreements that we have entered into with third party buyers for these medical office properties of $ 51,640 .

We also recorded impairment charges of $ 5,581 to reduce the carrying value of five senior living communities that are classified as held for sale to their estimated sales price, less estimated costs to sell of $ 655 , based on purchase and sale agreements that we have entered into with third party buyers for these senior living communities of $ 49,600 .

During the six months ended June 30, 2020 , we recorded impairment charges of $ 267 to reduce the carrying value of one medical office property that is classified as held for sale to its estimated sales price, less estimated costs to sell of $ 84 , based on the sales price under a purchase and sale agreement that we have entered into with a third party buyer for this medical office property of $ 625 .

We also recorded impairment charges of $ 30,752 to reduce the carrying value of 15 senior living communities that are classified as held for sale to their estimated sales price, less estimated costs to sell of $ 1,184 , based on the aggregate sales prices under the purchase and sale agreements that we have entered into with third party buyers for these senior living communities of $ 53,600 .

See Note 3 for further information about impairment charges and these and other properties we have classified as held for sale.

In addition to the assets described in the table above, our financial instruments at March 31, 2020 and December 31, 2019 included cash and cash equivalents, restricted cash, other assets, our revolving credit facility, term loans, senior unsecured notes, secured debt and capital leases and other unsecured obligations and liabilities.

In addition to the assets described in the table above, our financial instruments at June 30, 2020 and December 31, 2019 included cash and cash equivalents, restricted cash, other assets, our revolving credit facility, term loans, senior unsecured notes, secured debt and finance leases and other unsecured obligations and liabilities.

The fair values of these financial instruments approximated their carrying values in our condensed consolidated financial statements as of such dates, except as follows:

As of March 31, 2020

As of June 30, 2020

As of December 31, 2019

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Includes unamortized debt issuance costs, premiums and discounts.

We assumed certain of these secured debts in connection with our acquisition of certain properties.

We recorded the assumed mortgage notes at estimated fair value on the date of acquisition and we are amortizing the fair value

DIVERSIFIED HEALTHCARE TRUST

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(dollar amounts in thousands, except per share data or as otherwise stated)

adjustments, if any, to interest expense over the respective terms of the mortgage notes to adjust interest expense to the estimated market interest rates as of the date of acquisition.

Includes $ 1,267 of principal mortgage obligations for a property classified as held for sale as of March 31, 2020 .

This mortgage is included in liabilities of properties held for sale in our condensed consolidated balance sheet as of March 31, 2020 .

We estimated the fair value of our two issuances of senior unsecured notes due 2042 and 2046 based on the closing price on Nasdaq (Level 1 input) as of March 31, 2020 .

We estimated the fair values of our four issuances of senior unsecured notes due 2020, 2021, 2024 and 2028 using an average of the bid and ask price on Nasdaq on or about March 31, 2020 (Level 2 inputs as defined in the fair value hierarchy under GAAP).

We assumed certain of these secured debts in connection with our acquisition of certain properties.

We recorded the assumed mortgage notes at estimated fair value on the date of acquisition and we are amortizing the fair value adjustments, if any, to interest expense over the respective terms of the mortgage notes to adjust interest expense to the estimated market interest rates as of the date of acquisition.

We estimated the fair value of our two issuances of senior unsecured notes due 2042 and 2046 based on the closing price on Nasdaq (Level 1 input) as of June 30, 2020 .

We estimated the fair values of our four issuances of senior unsecured notes due 2021, 2024, 2025 and 2028 using an average of the bid and ask price on Nasdaq on or about June 30, 2020 (Level 2 inputs as defined in the fair value hierarchy under GAAP).

We estimated the fair values of our secured debts by using discounted cash flows analyses and currently prevailing market terms as of the measurement date (Level 3 inputs as defined in the fair value hierarchy under GAAP).

Because Level 3 inputs are unobservable, our estimated fair values may differ materially from the actual fair values.

Realized and unrealized gains and losses for our equity securities for the three months ended March 31, 2020 and 2019 were as follows:

Three Months Ended March 31,

Realized and unrealized gains and losses for our equity securities for the three and six months ended June 30, 2020 and 2019 were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Realized gains and losses on equity securities sold (1)

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Gains and losses on equity securities, net

For further information about our former investment in The RMR Group Inc., or RMR Inc., that we sold on July 1, 2019, see our Annual Report.

This amount relates to our sale of our former investment in The RMR Group Inc., or RMR Inc., on July 1, 2019.

For further information about our former investment in RMR Inc.

see our Annual Report.

Noncontrolling Interest

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We continue to control this property and therefore continue to account for this property on a consolidated basis in our condensed consolidated financial statements under the VIE model.

The portion of the joint venture's net income and comprehensive income not attributable to us, or $ 1,408 and $ 1,422 for the three months ended March 31, 2020 and 2019 , respectively, is reported as a noncontrolling interest in our condensed consolidated statements of comprehensive income.

The joint venture made aggregate cash distributions of $ 5,767 and $ 5,503 to the other joint venture investor for the three months ended March 31, 2020 and 2019 , respectively, which are reflected as a decrease in total equity attributable to noncontrolling interest in our condensed consolidated balance sheets.

As of March 31, 2020 , this joint venture held real estate assets with an aggregate net book value of $ 719,811 , subject to mortgage notes of $ 620,000 .

The portion of the joint venture's net income and comprehensive income not attributable to us, or $ 1,330 and $ 1,413 for the three months ended June 30, 2020 and 2019 , respectively, and $ 2,738 and $ 2,835 for the six months ended June 30, 2020 and 2019 , respectively, is reported as a noncontrolling interest in our condensed consolidated statements of comprehensive income (loss).

The joint venture made aggregate cash distributions to the other joint venture investor of $ 5,616 and $ 5,684 for the three months ended June 30, 2020 and 2019 , respectively, and $ 11,383 and $ 11,187 for the six months ended June 30, 2020 and 2019 , respectively, which are reflected as a decrease in total equity attributable to noncontrolling interest in our condensed consolidated balance sheets.

As of June 30, 2020 , this joint venture held real estate assets with an aggregate net book value of $ 714,906 , subject to mortgage notes of $ 620,000 .

In assessing whether we have a controlling interest in this joint venture arrangement and are required to consolidate the accounts of the joint venture entity, we considered the members' rights to residual gains and obligations to absorb losses, which activities most significantly impact the economic performance of the entity and which member has the power to direct those activities.

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Shareholders' Equity

Common Share Awards:

On May 19, 2020, in accordance with our Trustee compensation arrangements, we awarded to each of our six Trustees 10,000 of our common shares, valued at $ 2.94 per share, the closing price of our common shares on Nasdaq on that day.

Common Share Purchases:

During the three months ended March 31, 2020, we purchased our common shares from certain former officers and employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares, valued at the closing price of our common shares on Nasdaq on the purchase dates, as follows:

During the six months ended June 30, 2020 , we purchased our common shares from certain former officers and employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares, valued at the closing price of our common shares on Nasdaq on the purchase dates, as follows:

Date Purchased

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Distributions:

During the three months ended March 31, 2020 , we declared and paid a quarterly distribution to common shareholders as follows:

During the six months ended June 30, 2020 , we declared and paid quarterly distributions to common shareholders as follows:

Distribution Per Share

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February 20, 2020

April 13, 2020

As described in Note 10, pursuant to the Transaction Agreement, on January 1, 2020, Five Star issued an aggregate of 16,118,849 of its common shares, with a value of $ 59,801 , to our shareholders of record as of December 13, 2019.

We recorded this issuance as a non-cash distribution in our condensed consolidated financial statements.

On April 2, 2020, we declared a quarterly distribution payable to our common shareholders of record on April 13, 2020 in the amount of $ 0.01 per share, or approximately $ 2,379 .

We expect to pay this distribution on or about May 21, 2020.

On July 16, 2020 , we declared a quarterly distribution payable to our common shareholders of record on July 27, 2020 in the amount of $ 0.01 per share, or approximately $ 2,380 .

We expect to pay this distribution on or about August 20, 2020 .

Segment Reporting

We report under the following two segments:

Office Portfolio and SHOP.

We aggregate these two reporting segments based on their similar operating and economic characteristics.

We operate in, and report financial information for, the following two segments:

Office Portfolio and senior housing operating portfolio, or SHOP.

We aggregate each of these two reporting segments based on their similar operating and economic characteristics.

Our Office Portfolio segment consists of medical office properties leased to medical providers and other medical related businesses, as well as life science properties leased to biotech laboratories and other similar tenants.

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Prior periods have been recast to reflect these reportable segments for all periods presented.

We also report “non-segment” operations, which consists of triple net leased senior living communities that are leased to operators other than Five Star from which we receive rents and wellness centers, which we do not consider to be sufficiently material to constitute a separate reporting segment, and any other income or expenses that are not attributable to a specific reporting segment.

We also report “non-segment” operations, which consists of triple net leased senior living communities, which are leased to operators other than Five Star from which we receive rents, and wellness centers, which we do not consider to be sufficiently

DIVERSIFIED HEALTHCARE TRUST

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(dollar amounts in thousands, except per share data or as otherwise stated)

For the Three Months Ended March 31, 2020

material to constitute a separate reporting segment, and any other income or expenses that are not attributable to a specific reporting segment.

For the Three Months Ended June 30, 2020

Office Portfolio

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Total expenses

Gain on sale of properties

Losses on equity securities, net

Loss on sale of properties

Gains on equity securities, net

Interest and other income

Interest expense

Loss on early extinguishment of debt

Income (loss) from continuing operations before income tax expense

Income tax expense

Net income (loss)

Net income attributable to noncontrolling interest

Net income (loss) attributable to common shareholders

Under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, the U.S.

Department of Health and Human Services, or HHS, established the Provider Relief Fund.

Retention and use of the funds received under the CARES Act are subject to certain terms and conditions.

The terms and conditions require that the funds be utilized to compensate for lost revenues that are attributable to the COVID-19 pandemic and for eligible costs to prevent, prepare for and respond to the COVID-19 pandemic that are not covered by other sources.

Further, fund recipients are required to be participating in Medicare at the time of distribution and are subject to certain other terms and conditions, including quarterly reporting requirements.

In addition, fund recipients are required to have billed Medicare during 2019 and to continue to provide care after January 31, 2020 for diagnosis, testing or care for individuals with possible or actual COVID-19 cases.

Any funds not used in accordance with the terms and conditions must be returned to HHS.

As of June 30, 2020, we had received $ 10,133 in funds from the Provider Relief Fund to be used to support the operations of our managed senior living communities;

we have currently determined that $ 7,346 of such funds meet the required terms and conditions and have therefore recognized such amount as other income with respect to our SHOP segment for the three and six months ended June 30, 2020.

We currently expect to return the remaining $ 2,787 of such funds to HHS in August 2020 unless we determine that such funds meet the required terms and conditions and have therefore included that amount in other liabilities in our condensed consolidated financial statements as of June 30, 2020.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollar amounts in thousands, except per share data or as otherwise stated)

For the Six Months Ended June 30, 2020

Office Portfolio

Rental income

Residents fees and services

Total revenues

Property operating expenses

Depreciation and amortization

General and administrative

Acquisition and certain other transaction related costs

Impairment of assets

Total expenses

Gain (loss) on sale of properties

Gains on equity securities, net

Interest and other income

Interest expense

Gain on lease termination

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Net income (loss) attributable to common shareholders

As of March 31, 2020

During the six months ended June 30, 2020, interest and other income for our SHOP segment includes $ 7,346 of funds we received pursuant to the CARES Act.

As of June 30, 2020

Office Portfolio

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(dollar amounts in thousands, except per share data or as otherwise stated)

For the Three Months Ended March 31, 2019

For the Three Months Ended June 30, 2019

Office Portfolio

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Total expenses

Loss on sale of properties

Gain on sale of properties

Dividend income

Gains on equity securities, net

Losses on equity securities, net

Interest and other income

Interest expense

Loss on early extinguishment of debt

Income (loss) from continuing operations before income tax benefit and equity in earnings of an investee

Income tax benefit

Equity in earnings of an investee

Net income (loss)

Net income attributable to noncontrolling interest

Net income (loss) attributable to common shareholders

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollar amounts in thousands, except per share data or as otherwise stated)

For the Six Months Ended June 30, 2019

Office Portfolio

Rental income

Residents fees and services

Total revenues

Property operating expenses

Depreciation and amortization

General and administrative

Acquisition and certain other transaction related costs

Impairment of assets

Total expenses

Gain on sale of properties

Dividend income

Losses on equity securities, net

Interest and other income

Interest expense

Loss on early extinguishment of debt

Income (loss) from continuing operations before income tax expense and equity in earnings of an investee

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As of December 31, 2019, we leased 166 senior living communities to Five Star.

As of that date, we also leased to our taxable REIT subsidiaries, or TRSs, 78 communities that we owned and which were managed by Five Star for our account.

Restructuring our Business Arrangements with Five Star

As of that date, we also leased to our taxable REIT subsidiaries, or TRSs, 78 communities that we owned and that were managed by Five Star for our account.

Restructuring of our Business Arrangements with Five Star

The Transaction Agreement with Five Star .

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Five Star issued to us 10,268,158 Five Star common shares and an aggregate of 16,118,849 Five Star common shares to our shareholders of record as of December 13, 2019;

as consideration for these share issuances, we provided Five Star with $ 75,000 of additional consideration, primarily by assuming certain of Five Star's working capital liabilities, resulting in a gain on lease termination of $ 22,896 for the three months ended March 31, 2020 in our condensed consolidated statements of comprehensive income.

as consideration for these share issuances, we provided Five Star with $ 75,000 of additional consideration by assuming certain of Five Star's working capital liabilities and through cash payments, resulting in a gain on lease termination of $ 22,896 for the six months ended June 30, 2020 in our condensed consolidated statements of comprehensive income (loss).

Also pursuant to the Transaction Agreement:

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Under our previously existing leases with Five Star, Five Star paid us annual rent plus percentage rent equal to 4.0 % of the increase in gross revenues at certain of our senior living communities over base year gross revenues as specified in the applicable leases.

We recognized rental income payable by Five Star of $ 39,313 (excluding percentage rent of $ 538 ) for the three months ended March 31, 2019 .

Rental income from Five Star represented 14.8 % of our total revenues for the three months ended March 31, 2019 , and the properties Five Star leased from us represented 26.5 % , excluding properties held for sale, if any, of our real estate investments, at cost, as of March 31, 2019 .

We recognized rental income payable by Five Star of $ 33,400 and $ 72,713 (including percentage rent of $ 538 for each applicable period) for the three and six months ended June 30, 2019 , respectively.

Rental income from Five Star represented 12.7 % and 13.8 % of our total revenues for the three and six months ended June 30, 2019 , respectively, and the properties Five Star leased from us represented 26.4 % , excluding properties held for sale, of our real estate investments, at cost, as of June 30, 2019 .

Pursuant to the Transaction Agreement, commencing February 1, 2019, no percentage rent was payable to us by Five Star.

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Our previously existing leases with Five Star were “triple net” leases, which generally required Five Star to pay rent and all property operating expenses, to indemnify us from liability which may arise by reason of our ownership of the properties, to maintain the properties at Five Star's expense, to remove and dispose of hazardous substances on the properties in compliance with applicable law and to maintain insurance on the properties for Five Star's and our benefit.

For the three months ended March 31, 2019 , we funded $ 22,579 of improvements to communities leased to Five Star.

Pursuant to the Transaction Agreement, Five Star’s rent did not increase as a result of these purchases.

For the six months ended June 30, 2019 , we funded $ 86,288 of improvements to communities leased to Five Star, including $ 49,155 of fixed assets and improvements that we purchased pursuant to the Transaction Agreement as discussed above.

Also pursuant to the Transaction Agreement, Five Star's rent did not increase as a result of these purchases.

Our Senior Living Communities Managed by Five Star .

Five Star managed 244 and 76 senior living communities for our account as of March 31, 2020 and 2019 , respectively.

Five Star managed 241 and 77 senior living communities for our account as of June 30, 2020 and 2019 , respectively.

We lease our senior living communities that are managed by Five Star to our TRSs, and Five Star manages these communities pursuant to long term management agreements.

As described above, pursuant to the Transaction Agreement, effective January 1, 2020, we replaced our long term management and pooling agreements with Five Star with the New Management Agreements, the terms of which are described above.

We incurred management fees payable to Five Star of $ 16,588 and $ 3,789 for the three months ended March 31, 2020 and 2019 , respectively.

We incurred management fees payable to Five Star of $ 15,262 and $ 3,871 for the three months ended June 30, 2020 and 2019 , respectively, and $ 31,850 and $ 7,660 for the six months ended June 30, 2020 and 2019 , respectively.

These amounts are included in property operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.

The following table presents residents fees and services revenue disaggregated by type of contract and payer:

Three Months Ended June 30,

Six Months Ended June 30,

Revenue from contracts with customers:

Three Months Ended March 31, 2020

Three Months Ended March 31, 2019

Basic housing and support services

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At senior living communities Five Star manages for us where Five Star provides both inpatient and outpatient rehabilitation services, we generally pay Five Star for those rehabilitation services and charges for these services are included in amounts charged to residents, third party payers or government programs.

We incurred fees of $ 8,057 and $ 1,675 for the three months ended March 31, 2020 and 2019 , respectively, with respect to rehabilitation services Five Star provided at senior living communities it manages for us that are payable by us.

These amounts are included in property operating expenses in our condensed consolidated statements of comprehensive income.

We incurred fees of $ 5,814 and $ 1,513 for the three months ended June 30, 2020 and 2019 , respectively, and $ 13,871 and $ 3,188 for the six months ended June 30, 2020 and 2019 , respectively, with respect to rehabilitation services Five Star provided at senior living communities it manages for us that are payable by us.

These amounts are included in property operating expenses in our condensed consolidated statements of comprehensive income (loss).

Since January 1, 2020, we sold certain senior living communities that were then managed by Five Star.

We and Five Star terminated our management agreements for these senior living communities in connection with these sales.

We have also identified additional senior living communities for sale that are currently managed by Five Star.

If these sales are consummated, we and Five Star will terminate the management agreements for these senior living communities.

See Note 3 for further information regarding these sales.

We lease to Five Star space at certain of our senior living communities that Five Star manages, which it uses to provide certain inpatient and outpatient rehabilitation and wellness services.

We recognized rental income of $ 488 and $ 782 for the three and six months ended June 30, 2020, respectively, with respect to these leases.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollar amounts in thousands, except per share data or as otherwise stated)

Business and Property Management Agreements with RMR LLC

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See Note 12 for further information regarding our relationship, agreements and transactions with RMR LLC.

Pursuant to our business management agreement with RMR LLC, we recognized net business management fees of $ 5,769 and $ 7,719 for the three months ended March 31, 2020 and 2019 , respectively.

The net business management fees we

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollar amounts in thousands, except per share data or as otherwise stated)

recognized include $ 725 of management fees related to our subsidiary level management agreement with RMR LLC entered in connection with our joint venture arrangement for both the three months ended March 31, 2020 and 2019 .

Based on our common share total return, as defined in our business management agreement, as of each of March 31, 2020 and 2019 , no estimated incentive fees are included in the net business management fees we recognized for the three months ended March 31, 2020 or 2019 .

Pursuant to our business management agreement with RMR LLC, we recognized net business management fees of $ 4,841 and $ 6,582 for the three months ended June 30, 2020 and 2019 , respectively, and $ 10,610 and $ 14,301 for the six months ended June 30, 2020 and 2019 , respectively.

The net business management fees we recognized include $ 725 and $ 1,450 of management fees related to our subsidiary level management agreement with RMR LLC entered in connection with our joint venture arrangement for the three and six months ended June 30, 2020 and 2019 , respectively.

Based on our common share total return, as defined in our business management agreement, as of each of June 30, 2020 and 2019 , no estimated incentive fees are included in the net business management fees we recognized for the three or six months ended June 30, 2020 or 2019 .

The actual amount of annual incentive fees for 2020, if any, will be based on our common share total return as defined in our business management agreement, for the three-year period ending December 31, 2020, and will be payable in 2021.

We did not incur any incentive fee payable for the year ended December 31, 2019.

We recognize business management and incentive fees in general and administrative expenses in our condensed consolidated statements of comprehensive income.

Pursuant to our property management agreement with RMR LLC, we recognized aggregate net property management and construction supervision fees of $ 3,192 and $ 3,064 for the three months ended March 31, 2020 and 2019 , respectively.

We recognize business management and incentive fees in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss).

Pursuant to our property management agreement with RMR LLC, we recognized aggregate net property management and construction supervision fees of $ 3,407 and $ 3,491 for the three months ended June 30, 2020 and 2019 , respectively, and $ 6,599 and $ 6,555 for the six months ended June 30, 2020 and 2019 , respectively.

These amounts are included in property operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.

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Our property level operating expenses are generally incorporated into the rents charged to our tenants, including certain payroll and related costs incurred by RMR LLC.

We reimbursed RMR LLC $ 3,443 and $ 3,374 for these expenses and costs for the three months ended March 31, 2020 and 2019 , respectively.

These amounts are included in other operating expenses and general and administrative expenses, as applicable, in our condensed consolidated statements of comprehensive income.

We reimbursed RMR LLC $ 3,419 and $ 3,352 for these expenses and costs for the three months ended June 30, 2020 and 2019 , respectively, and $ 6,862 and $ 6,726 for the six months ended June 30, 2020 and 2019 , respectively.

These amounts are included in other operating expenses and general and administrative expenses, as applicable, in our condensed consolidated statements of comprehensive income (loss).

Related Person Transactions

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Jennifer Clark, our other Managing Trustee and our Secretary, also serves as a managing director and the executive vice president, general counsel and secretary of RMR Inc., an officer and employee of RMR LLC, an officer of ABP Trust and a managing director and the secretary of Five Star, and each of our officers is also an officer and employee of RMR LLC.

Our Independent Trustees also serve as independent trustees or independent directors of other public companies to which RMR LLC or its subsidiaries provide management services.

Some of our Independent Trustees also serve as independent trustees or independent directors of other public companies to which RMR LLC or its subsidiaries provide management services.

Adam Portnoy serves as the chair of the boards of trustees or boards of directors of several of these public companies and as a managing director or managing trustee of these companies.

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Clark and certain of our other officers, serve as managing trustees, managing directors or officers of certain of these companies.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollar amounts in thousands, except per share data or as otherwise stated)

We are currently Five Star's largest stockholder.

As of March 31, 2020 , we owned 10,691,658 Five Star common shares, or approximately 33.9 % of Five Star's outstanding common shares.

As of June 30, 2020 , we owned 10,691,658 Five Star common shares, or approximately 33.9 % of Five Star's outstanding common shares.

Five Star manages for us most of the senior living communities we own.

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See Note 10 for further information regarding our relationships, agreements and transactions with Five Star and Note 6 for further information regarding our investment in Five Star.

As of March 31, 2020 , ABP Acquisition LLC, a subsidiary of ABP Trust, the controlling shareholder of RMR Inc., together with ABP Trust, owned approximately 6.3 % of Five Star's outstanding common shares.

As of June 30, 2020 , ABP Acquisition LLC, a subsidiary of ABP Trust, the controlling shareholder of RMR Inc., together with ABP Trust, owned approximately 6.4 % of Five Star's outstanding common shares.

RMR LLC provides management services to both us and Five Star and Adam Portnoy is the chair of the board of directors and a managing director of Five Star.

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Five Star's president and chief executive officer and executive vice president, chief financial officer and treasurer are officers and employees of RMR LLC.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollar amounts in thousands, except per share data or as otherwise stated)

Our Manager, RMR LLC.

1 unchanged sentence

See Note 11 for further information regarding our management agreements with RMR LLC.

See Note 8 for information relating to common shares we purchased from certain former officers and employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares to them.

We include the value of the purchased shares in general and administrative expenses in our condensed consolidated statements of comprehensive income.

Until its dissolution on February 13, 2020, we, ABP Trust, Five Star and four other companies to which RMR LLC provides management services owned Affiliates Insurance Company, or AIC, an Indiana insurance company, in equal amounts.

Until its dissolution in February 2020, we, ABP Trust, Five Star and four other companies to which RMR LLC provides management services owned Affiliates Insurance Company, or AIC, an Indiana insurance company, in equal amounts.

Certain of our Trustees and certain directors or trustees of the other AIC shareholders served on the board of directors of AIC until its dissolution.

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we have instead purchased standalone property insurance coverage with unrelated third party insurance providers.

As of each of March 31, 2020 and December 31, 2019 , our investment in AIC had a carrying value of $ 298 .

This amount is included in other assets, net in our condensed consolidated balance sheets.

We did not recognize any income related to our investment in AIC for the three months ended March 31, 2020 and recognized $ 404 related to our investment in AIC for the three months ended March 31, 2019, which amount is presented as equity in earnings of an investee in our condensed consolidated statements of comprehensive income.

As of each of June 30, 2020 and December 31, 2019 , our investment in AIC had a carrying value of $ 11 and $ 298 , respectively.

These amounts are included in other assets, net in our condensed consolidated balance sheets.

In June 2020, we received an additional liquidating distribution of approximately $ 287 from AIC in connection with its dissolution.

We did not recognize any income related to our investment in AIC for the three and six months ended June 30, 2020 and recognized $ 130 and $ 534 related to our investment in AIC for the three and six months ended June 30, 2019, respectively.

These amounts are presented as equity in earnings of an investee in our condensed consolidated statements of comprehensive income (loss).

Our other comprehensive income included our proportionate share of unrealized gains on securities that were owned by AIC, related to our investment in AIC.

For further information about these and other such relationships and certain other related person transactions, see our Annual Report.

We have elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, and as such, are generally not subject to federal and most state income taxation on our operating income provided we distribute our taxable income to our shareholders and meet certain organization and operating requirements.

We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, and, as such, are generally not subject to federal and most state income taxation on our operating income provided we distribute our taxable income to our shareholders and meet certain organization and operating requirements.

We do, however, lease our managed senior living communities to our wholly owned TRSs that, unlike most of our subsidiaries, file a separate consolidated federal corporate income tax return and are subject to federal and state income taxes.

Our consolidated income tax provision includes the income tax provision related to the operations of our TRSs and certain state income taxes we incur despite our taxation as a REIT.

During the three months ended March 31, 2020 , we recognized an income tax benefit of $ 443 and during the three months ended March 31, 2019 , we recognized an income tax expense of $ 134 .

During the three months ended June 30, 2020 and 2019 , we recognized income tax expense of $ 1,126 and benefit of $ 35 , respectively, and during the six months ended June 30, 2020 and 2019 , we recognized income tax expense of $ 683 and $ 99 , respectively.

Weighted Average Common Shares

The following table provides a reconciliation of the weighted average number of common shares used in the calculation of basic and diluted earnings per share (in thousands):

Three Months Ended March 31,

Weighted average common shares for basic earnings per share

Effect of dilutive securities:

unvested share awards

Weighted average common shares for diluted earnings per share (1)

(1) For the three months ended March 31, 2020 , 123 of our unvested common shares were not included in the calculation of diluted earnings per share because to do so would have been antidilutive.

We calculate basic earnings per common share by dividing net income (loss) by the weighted average number of our common shares outstanding during the period.

We calculate diluted earnings per share using the more dilutive of the two class method or the treasury stock method.

Unvested share awards and other potentially dilutive common shares, and the related

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(dollar amounts in thousands, except per share data or as otherwise stated)

impact on earnings, are considered when calculating diluted earnings per share.

For the three months ended June 30, 2020 and 2019, 346 and 68 unvested common shares, respectively, and for the six months ended June 30, 2020 and 2019, 234 and 18 unvested common shares, respectively, were not included in the calculation of diluted earnings per share because to do so would have been antidilutive.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements