What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-06 compared with 2020-05-07 · 424 added, 205 removed, 331 unchanged (66% of the section changed)

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Impact of COVID-19

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, and the United States and many states and municipalities declared public health emergencies due to this pandemic.

The COVID-19 virus has continued to spread throughout the United States and the world.

However, the COVID-19 pandemic and various governmental and market responses intended to contain and mitigate the spread of the virus and its detrimental public health impact, have and continue to severely negatively impact the global economy, including the U.S.

As a result, most market observers believe the global economy is currently, or will imminently be, in a recession.

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic and, in response to the outbreak, the U.S.

Health and Human Services Secretary declared a public health emergency in the United States and many states and municipalities declared public health emergencies.

The virus that causes COVID-19 has continued to spread throughout the United States and the world.

Various governmental and market responses attempting to contain and mitigate the spread of the virus have negatively impacted, and continue to negatively impact, the global economy, including the U.S.

As a result, most market observers believe the global economy and the U.S.

economy are in a recession.

States and municipalities across the United States have been allowing certain businesses to re-open and easing certain restrictions they had previously implemented in response to the COVID-19 pandemic, often in stages that are phased in over time.

Recently, economic data have indicated that the U.S.

economy has improved since the lowest periods experienced in March and April 2020.

However, certain areas of the United States have experienced increased numbers of COVID-19 infections following the re-openings of their economies and easing of restrictions or otherwise and, in some cases, certain states have imposed or re-imposed closings of certain business activities and other restrictions in response.

It is unclear whether the increases in the number of COVID-19 infections will continue or amplify or whether any “second wave” of COVID-19 infection outbreaks will occur in the United States or elsewhere and, if so, what the impact of that would be on human health and safety, the economy, our manager and tenants or our business.

Our business is focused on healthcare related properties, including medical office and life science properties, senior living communities, wellness centers and other medical and healthcare related properties.

We believe that the healthcare sector and many of our tenants provide essential services across the United States.

Due to restrictions intended to prevent the spread of the virus, certain of our medical office and wellness center tenants, which include physician practices that have discontinued non-essential surgeries and procedures and fitness centers, that have been ordered closed by state executive orders, have experienced disruptions to their businesses.

Our senior living operators have also experienced disruptions, including limitations on in person tours, and are experiencing challenges in attracting new residents to their communities in addition to experiencing increased expense levels due to increased labor costs and higher costs and consumption of supplies, including personal protective equipment.

Due to restrictions intended to prevent the spread of the virus that causes COVID-19, certain of our medical office and wellness center tenants, which include physician practices that had discontinued non-essential surgeries and procedures and fitness centers, that had been ordered closed by state executive orders have experienced disruptions to their businesses.

Our senior living operators have also experienced disruptions, including limitations on in-person tours and new admissions, and are experiencing challenges in attracting new residents to their communities in addition to experiencing increased expense levels due to increased labor costs and higher costs and consumption of supplies, including personal protective equipment.

There will be lasting impacts of the COVID-19 pandemic, even as states and municipalities re-open their economies.

Our tenants and their businesses may become increasingly negatively impacted, which may result in our tenants seeking assistance from us regarding their rent obligations owed to us, their being unable or unwilling to pay us rent, their ceasing to pay us rent and their ceasing to continue as going concerns.

We expect that our senior living operators will be operating our communities at lower average occupancy with higher operating expenses, which will likely lead to decreased returns to us as a result of this pandemic.

As of April 30, 2020, we have been notified that 46 of our properties, primarily in our SHOP segment, have had confirmed resident COVID-19 cases, including 350 residents and tenants, and approximately 196 operator or tenant employees.

As of July 31, 2020, we have been notified that 4.5% of residents in our senior living communities have tested positive for COVID-19 since the pandemic began.

Our operators continue to follow federal, state and local health department guidelines and their own infection prevention protocols but we expect to see additional cases of COVID-19 in our senior living communities.

We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including:

our tenants and their ability to withstand the current economic conditions and continue to pay us rent;

our senior living community operators' ability to operate our communities, mitigate and contain the spread of the COVID-19 virus at our communities and to keep the residents and our operators' employees at our communities safe and healthy;

our senior living community operators' ability to operate our communities, mitigate and contain the spread of the virus that causes COVID-19 at our communities and to keep the residents and our operators' employees at our communities safe and healthy;

our operations, liquidity and capital needs and resources;

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monitoring, with the assistance of counsel and other specialists, possible government relief funding sources and other programs that may be available to us, our tenants, or our operators to enable us and them to operate through the current economic conditions and enhance our tenants' ability to pay us rent or our operators' ability to operate our communities.

We believe that our current financial position and the capital conservation activities we have implemented will enable us to withstand the COVID-19 pandemic and its aftermath:

On April 2, 2020, we announced that we reduced our quarterly cash distribution rate on our common shares to $0.01 per share, conserving approximately $33.3 million of cash per calendar quarter;

We have deferred certain previously planned non-essential capital investments, which we expect to save up to $150.0 million in calendar year 2020;

As of May 6, 2020 , we had $225.0 million of availability under our revolving credit facility;

Our next debt maturity is our $250.0 million term loan that matures in June 2020, which can be extended for six-months at our option in exchange for paying a fee of 10 basis points and meeting certain other conditions, and the subsequent maturity of our debt does not occur until our $300.0 million senior notes mature in December 2021.

We believe that our current financial position and recent financing activities will enable us to withstand the COVID-19 pandemic and its aftermath due in part to the following:

On June 2, 2020, we issued $1.0 billion aggregate principal amount of our 9.75% senior notes due 2025.

We used the net proceeds from this offering to prepay in full our $250.0 million unsecured term loan that was scheduled to mature on June 12, 2020 and to reduce amounts outstanding under our revolving credit facility;

Beginning in the second quarter of 2020, we reduced our quarterly cash distribution rate on our common shares to $0.01 per share, conserving approximately $33.3 million of cash per calendar quarter compared to our prior quarterly distribution rate;

As of August 3, 2020 , we had $1.0 billion of availability under our revolving credit facility;

Our next debt maturity does not occur until our $300.0 million senior unsecured notes mature in December 2021.

In light of the above actions, resources, expectations and conditions, we believe that we are well positioned to weather the present disruptions facing the real estate industry and, in particular, the real estate healthcare industry, including senior living.

However, as a result of the COVID-19 pandemic, some of our tenants have requested relief from their obligation to pay rent due to us in response of the current economic conditions.

We are evaluating these requests on a tenant by tenant basis.

As of May 4, 2020, we granted requests for certain of our tenants to defer rent payments totaling $4.8 million with respect to leases that represent, as of March 31, 2020, approximately 8.5% of our annualized rental income.

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

These deferred rent amounts did not impact our 2020 first quarter results and will be reflected in our financial results in the applicable future reporting periods.

We also believe that we, Five Star and our impacted tenants may benefit from provisions of the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, signed into law in March 2020, or other federal or state assistance allowing them to continue or resume business activity.

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

While the number and value of these monthly requests have been declining, we continue to evaluate these requests as they are made on a tenant-by-tenant basis.

As of August 3, 2020 , we granted requests to 106 of our tenants to defer rent payments totaling $5.5 million with respect to leases that represent, as of June 30, 2020, approximately 9.4% of our annualized rental income.

Those 106 of our tenants consist of 104 tenants in our Office Portfolio segment, one wellness center tenant and one triple net senior living tenant .

As of June 30, 2020 , we recognized an increase in our accounts receivable balance related to these deferred rent payments of $3.5 million.

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

For the three months ended June 30, 2020, we collected approximately 99% of our contractual rents due from tenants in our Office Portfolio segment.

These deferred amounts did not negatively impact our results for the three and six months ended June 30, 2020 .

However, the deferred rents have temporarily reduced our operating cash flows.

We do not have any employees and the personnel and various services we require to operate our business are provided to us by RMR LLC pursuant to our business and property management agreements with RMR LLC for our Office Portfolio.

RMR LLC has implemented enhanced cleaning protocols and social distancing guidelines at its corporate headquarters and its regional offices, as well as business continuity plans to ensure RMR LLC employees remain safe and able to support us and RMR LLC’s other managed companies, including providing appropriate information technology such as notebook computers, smart phones, computer applications, information technology security applications and technology support.

With respect to our properties where property management is provided by RMR LLC, RMR LLC has implemented enhanced cleaning protocols and has taken measures to reduce the possibility of persons gathering in groups and in close proximity to each other, for the purpose of mitigating the potential for spreading of COVID-19 infections.

RMR LLC has implemented enhanced cleaning protocols and social distancing guidelines at its corporate headquarters and regional offices, as well as business continuity plans to ensure that RMR LLC employees remain safe and able to support us and other companies managed by RMR LLC or its subsidiaries, including providing appropriate information technology such as notebook computers, smart phones, computer applications, information technology security applications and technology support.

Included among these protocols and measures are the following:

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All RMR LLC property management and engineering personnel have been trained on COVID-19 precaution procedures.

As states and local communities across the country have moved to shelter in place orders, RMR LLC has worked to reduce and optimize our operating costs at our properties by:

As states and local communities across the country moved to stay at home orders, RMR LLC worked to reduce and optimize our operating costs at our properties by:

deferring non-emergency work;

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RMR LLC's property management teams have also established business continuity plans to ensure operational stability at our properties.

RMR LLC has suspended all non-essential work travel, its regional leadership personnel have not been allowed to work in the same locations at the same time, and RMR LLC requires its employees who work at our properties to use personal protective equipment and business continuity bonus pay has been provided to those individuals.

As stay at home orders have been lifted or loosened across the United States, RMR LLC has implemented additional procedures at our properties that RMR LLC manages based on recommended guidelines from the U.S.

Centers for Disease Control and Prevention and other regulatory agencies.

installing signage throughout our managed properties with social distancing reminders;

making changes to certain building HVAC systems and equipment, including adjusting indoor air control programs to increase the amount of outside air delivered to interior spaces and to adjust control sequences to maintain relative humidity levels in order to help minimize the concentration of the virus that causes COVID-19;

flushing domestic water systems to prepare for re-occupancy;

performing service calls and preventative maintenance after business hours to limit social interactions;

requiring vendors to follow best practices under COVID-19 pandemic conditions, including providing RMR LLC with documented preventative measures for their employees and requiring that staff wear appropriate personal protective equipment when working at our properties;

altering cleaning schedules to perform vacuuming at times intended to reduce the potential airborne spread of the virus.

RMR LLC has significantly reduced non-essential work travel and its regional leadership personnel have not been allowed to work in the same locations at the same time.

RMR LLC also requires its employees who work at our properties to use personal protective equipment and business continuity bonus payments have been provided to certain essential workers at our properties.

RMR LLC regional management offices are currently limiting walk-in visitors and maintain maximum office occupancy limits as required by state and local guidelines, including weekly rotations of employees as needed.

With respect to our SHOP segment, Five Star has taken a number of proactive measures to protect the health and safety of their staff and our residents and patients, including barring all nonessential visitors from our senior living communities and, in certain cases, limiting new resident admissions, enhancing their established flu and infectious disease prevention and control protocols and providing additional training for their staff in infectious disease prevention and control.

Additionally, federal, state or local health departments may ban or limit admissions to our senior living communities as a precautionary measure.

We also believe that we, Five Star and our impacted tenants may benefit from provisions of the CARES Act, signed into law in March 2020, or other federal or state relief programs allowing them to continue or resume business activity.

During the three and six months ended June 30, 2020, we recognized other income of $7.3 million related to funds received under the CARES Act.

There are extensive uncertainties surrounding the COVID-19 pandemic and its aftermath.

These uncertainties include, among others:

the duration and severity of the current economic downturn;

the duration and severity of the negative economic impact;

the strength and sustainability of any economic recovery;

the timing and process for how the government and other market participants may oversee and conduct the return of economic activity when the COVID-19 pandemic abates, such as what continuing restrictions and protective measures may remain in place or be added and what restrictions and protective measures may be lifted or reduced in order to foster a return of increased economic activity in the United States.

the timing and process for how federal, state and local governments and other market participants may oversee and conduct the return of economic activity when the COVID-19 pandemic abates, such as what continuing restrictions and protective measures may remain in place or be added and what restrictions and protective measures may be lifted or reduced in order to foster a return of increased economic activity in the United States;

whether, following a recommencing of more normal levels of economic activities, the United States or other countries experience any “second wave” of COVID-19 infection outbreaks and, if so, the responses of governments, businesses and the general public to those events.

As a result of these uncertainties, we are unable to determine what the ultimate impact will be on our, our tenants', our operators' and other stakeholders' businesses, operations, financial results and financial position.

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We are a REIT organized under Maryland law and own medical office and life science properties, senior living communities and other healthcare related properties throughout the United States.

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

At March 31, 2020 , the gross book value of our real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, was $8.4 billion , including $287.4 million of gross book value classified as held for sale in our condensed consolidated balance sheet.

For the three months ended March 31, 2020 , approximately 99% of our net operating income, or NOI, came from properties where a majority of the revenues are derived from our tenants' and residents’ private resources.

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

At June 30, 2020 , the gross book value of our real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, was $8.3 billion , including $112.6 million of gross book value classified as held for sale in our condensed consolidated balance sheet.

For the three months ended June 30, 2020 , substantially all of our net operating income, or NOI, came from properties where a majority of the revenues are derived from our tenants' and residents' private resources.

RESTRUCTURING OF BUSINESS ARRANGEMENTS WITH FIVE STAR

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The Conversion was a significant change in our historical arrangements with Five Star and has resulted, and likely will continue to result in future periods, in our realizing significantly different operating results from our senior living communities in the future, including increased variability.

As of March 31, 2020 , Five Star managed 244 senior living communities for our account.

As of June 30, 2020 , Five Star managed 241 senior living communities for our account.

For further information regarding the Restructuring Transaction, the Transaction Agreement and our other business arrangements with Five Star, see Notes 10 and 12 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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The following tables present an overview of our portfolio (dollars in thousands, except investment per square foot or unit data):

(As of March 31, 2020)

(As of June 30, 2020)

of Properties

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Wellness centers

As of and For the Twelve Months Ended March 31,

As of and For the Twelve Months Ended June 30,

Office Portfolio (6)

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Represents gross book value of real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, if any.

Amounts include $287,397 of gross book value of 24 properties classified as held for sale as of March 31, 2020, which amounts are included in assets of properties held for sale in our condensed consolidated balance sheet.

Represents gross book value of real estate assets divided by number of rentable square feet or living units, as applicable, at March 31, 2020.

Includes $333 of revenues and $168 of NOI from properties sold during the three months ended March 31, 2020 and $25,190 of revenues and $4,801 of NOI from properties classified as held for sale in our condensed consolidated balance sheet as of March 31, 2020.

NOI is defined and calculated by reportable segment.

Our definition of NOI and our reconciliation of net income to NOI are included below under the heading “Non-GAAP Financial Measures.”

Amounts include $112,631 of gross book value of 21 properties classified as held for sale as of June 30, 2020, which amounts are included in assets of properties held for sale in our condensed consolidated balance sheet.

Represents gross book value of real estate assets divided by number of rentable square feet or living units, as applicable, at June 30, 2020.

Includes $301 of revenues and $(573) of NOI from properties that we sold and $16,683 of revenues and $(1,062) of NOI from properties classified as held for sale in our condensed consolidated balance sheet as of June 30, 2020.

We calculate our NOI on a consolidated basis and by reportable segment.

Our definition of NOI and our reconciliation of net income (loss) to NOI are included below under the heading “Non-GAAP Financial Measures.”

Our medical office and life science property leases include some triple net leases where, in addition to paying fixed rents, the tenants assume the obligation to operate and maintain the properties at their expense, and some net and modified gross leases where we are responsible for the operation and maintenance of the properties and we charge tenants for some or all of the property operating costs.

A small percentage of our medical office and life science property leases are full-service leases where we receive fixed rent from our tenants and no reimbursement for our property operating costs.

Medical office and life science property occupancy data is as of March 31, 2020 and 2019 and includes (i) out of service assets undergoing redevelopment, (ii) space which is leased but is not occupied or is being offered for sublease by tenants and (iii) space being fitted out for occupancy.

Medical office and life science property occupancy data is as of June 30, 2020 and 2019 and includes (i) out of service assets undergoing redevelopment, (ii) space which is leased but is not occupied or is being offered for sublease by tenants and (iii) space being fitted out for occupancy.

Excludes data for periods prior to our ownership of certain properties, data for properties sold or classified as held for sale and data for which there was a transfer of operations during the periods presented.

Operating data for other triple net leased senior living communities leased to third party operators other than Five Star and wellness centers are presented based upon the operating results provided by our tenants for the 12 months ended December 31, 2019 and 2018, or the most recent prior period for which tenant operating results are made available to us.

Operating data for other triple net leased senior living communities leased to third party operators other than Five Star and wellness centers are presented based upon the operating results provided by our tenants for the 12 months ended March 31, 2020 and 2019, or the most recent prior period for which tenant operating results are made available to us.

We have not independently verified tenant operating data.

Due to the COVID-19 pandemic, we anticipate that leasing activity may slow at our leased properties and that we may be prevented from, or impeded in, pursuing or accepting additional residents at our senior living communities due to restrictions intended to prevent the spread of the virus, including barring nonessential visitors from some of our senior living communities and reducing on-site visits at some of our medical office and life science properties.

As a result, we expect to experience further decreases in occupancy at our senior living communities, along with higher operating costs at our senior living communities, resulting in substantial decreases in income or returns from those properties.

During the three months ended March 31, 2020 , we entered into lease renewals for 229,057 square feet and new leases for 73,179 square feet at our medical office and life science properties.

Due to the COVID-19 pandemic, we anticipate that leasing activity may remain slow in our Office Portfolio and that we may continue to be prevented from, or impeded in, pursuing or accepting additional residents at our senior living communities due to restrictions intended to prevent the spread of the virus that causes COVID-19, including restricting nonessential visitors from some of our senior living communities.

As a result, we expect to experience further decreases in occupancy at our senior living communities.

Further, as noted above, we expect to continue to incur higher operating costs at our senior living communities as a result of the COVID-19 pandemic.

These expected declines in occupancy and increases in operating costs at our senior living communities are expected to result in further decreases in income or returns from those properties.

During the three months ended June 30, 2020 , we entered into lease renewals for 51,772 square feet and new leases for 7,550 square feet at our medical office and life science properties.

The weighted average annual rental rate for leases entered during the quarter was $37.70 per square foot, which was 5.18% higher than the previous weighted average annual rental rate for the same space.

Weighted (by annualized rental income) average lease term for leases entered during the first quarter of 2020 was 7.7 years.

Commitments for tenant improvements, leasing commission costs and concessions for leases we entered during the first quarter of 2020 totaled $7.2 million , or $23.77 per square foot on average (approximately $3.07 per square foot per year of the lease term).

Weighted (by annualized rental income) average lease term for leases entered during the second quarter of 2020 was 6.0 years.

Commitments for tenant improvements, leasing commission costs and concessions for leases we entered during the second quarter of 2020 totaled $0.7 million , or $12.16 per square foot on average (approximately $2.02 per square foot per year of the lease term).

Lease Expiration Schedules

As of March 31, 2020 , lease expirations at our medical office and life science properties in our Office Portfolio segment are as follows (dollars in thousands):

As of June 30, 2020 , lease expirations at our medical office and life science properties in our Office Portfolio segment are as follows (dollars in thousands):

Number of Tenants

Square Feet (1)

Percent of Total

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Weighted average remaining lease term (in years)

Includes 100% of square feet from our life science property owned in a joint venture arrangement in which we own a 55% equity interest.

Annualized rental income is based on rents pursuant to existing leases as of March 31, 2020 , including straight line rent adjustments, estimated recurring expense reimbursements for certain net and modified gross leases and excluding lease value amortization at certain of our medical office and life science properties.

Annualized rental income is based on rents pursuant to existing leases as of June 30, 2020 , including straight line rent adjustments, estimated recurring expense reimbursements for certain net and modified gross leases and excluding lease value amortization at certain of our medical office and life science properties.

Annualized rental income also includes 100% of rental income as reported under GAAP from our life science property owned in a joint venture arrangement in which we own a 55% equity interest.

Lease expiration data for our other triple net leased senior living communities leased to third party operators and wellness centers has not been provided because there were no changes to the lease expiration schedules from those reported in our Annual Report.

As a result of the COVID-19 pandemic's impact on operations at wellness centers, we are evaluating our options with respect to a tenant of six of our wellness centers.

Annualized rental income from our leases with the tenant of these wellness centers totals approximately $7.9 million and, as of June 30, 2020, the applicable tenant was in default on its obligations to us under the applicable leases.

RESULTS OF OPERATIONS (dollars and square feet in thousands, unless otherwise noted)

We report under the following two segments:

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

Office Portfolio and SHOP.

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

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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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.

The following table summarizes the results of operations of each of our segments for the three months ended March 31, 2020 and 2019 :

Three Months Ended March 31,

The following table summarizes the results of operations of each of our segments for the three and six months ended June 30, 2020 and 2019 :

Three Months Ended June 30,

Six Months Ended June 30,

Office Portfolio

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Office Portfolio

Net (loss) income attributable to common shareholders

Net income (loss) attributable to common shareholders

The following sections analyze and discuss the results of operations of each of our segments for the periods presented.

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019 (dollars in thousands, except average monthly rate):

Unless otherwise indicated, references in this section to changes or comparisons of results, income or expenses refer to comparisons of the results for the three months ended March 31, 2020 to the three months ended March 31, 2019 .

Our definition of NOI and our reconciliation of net income to NOI and a description of why we believe NOI is an appropriate supplemental measure are included below under the heading “Non-GAAP Financial Measures.”

Three Months Ended March 31,

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019 (dollars in thousands, except average monthly rate):

Unless otherwise indicated, references in this section to changes or comparisons of results, income or expenses refer to comparisons of the results for the three months ended June 30, 2020 to the three months ended June 30, 2019 .

Our definition of NOI and our reconciliation of net income (loss) to NOI and a description of why we believe NOI is an appropriate supplemental measure are included below under the heading “Non-GAAP Financial Measures.”

Three Months Ended June 30,

NOI by segment:

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Impairment of assets

Gain (loss) on sale of properties

(Loss) gain on sale of properties

Dividend income

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Interest expense

Loss on early extinguishment of debt

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 loss attributable to common shareholders

nm - not meaningful

Office Portfolio :

Comparable Properties (1)

All Properties

As of June 30,

Total buildings

Total square feet (2)

Occupancy (3)

Consists of medical office and life science properties that we have owned and which have been in service continuously since April 1, 2019 , including our life science property owned in a joint venture arrangement in which we own a 55% equity interest;

excludes properties classified as held for sale or out of service undergoing redevelopment, if any.

Prior periods exclude space remeasurements made subsequent to those periods.

Medical office and life science property occupancy includes (i) out of service assets undergoing redevelopment, (ii) space which is leased but is not occupied or is being offered for sublease by tenants, and (iii) space being fitted out for occupancy.

Comparable property occupancy excludes out of service assets undergoing redevelopment.

Three Months Ended June 30,

Comparable (1)

Non-Comparable

Properties Results

Consolidated Properties Results

Rental income

Property operating expenses

excludes properties classified as held for sale or out of service undergoing redevelopment, if any.

Rental income.

Rental income decreased primarily due to our disposition of 24 properties since April 1, 2019 and a decrease in rental income at our comparable properties.

Rental income decreased at our comparable properties primarily due to reduced parking revenue and occupancy at certain of our comparable properties related to the COVID-19 pandemic, partially offset by higher average rents achieved from our new and renewal leasing activity at certain of our comparable properties.

Property operating expenses.

Property operating expenses consist of real estate taxes, utility expenses, insurance, management fees, salaries and benefit costs of property level personnel, repairs and maintenance expense, cleaning expense and other direct costs of operating these properties.

The decrease in property operating expenses is primarily due to our disposition of 24 properties since April 1, 2019 and a decrease in property operating expenses at our comparable properties.

Property operating expenses at our comparable properties decreased primarily due to decreases in utility expenses and other direct costs, partially offset by increases in real estate taxes and insurance expense at certain of our comparable properties.

Net operating income.

The change in NOI reflects the net changes in rental income and property operating expenses described above.

Comparable Properties (1)

All Properties

As of and For the Three Months

Ended June 30,

Total properties

Average monthly rate (2)

Consists of senior living communities that we have owned and which have been operated by the same operator continuously since April 1, 2019 ;

excludes communities classified as held for sale, if any.

Average monthly rate is calculated by taking the average daily rate, which is defined as total residents fees and services divided by occupied units during the period, and multiplying it by 30 days.

Three Months Ended June 30,

Comparable (1)

Non-Comparable

Properties Results

Consolidated Properties Results

Rental income

Residents fees and services

Property operating expenses

Consists of senior living communities that we have owned and which have been operated by the same operator continuously since April 1, 2019 ;

excludes communities classified as held for sale, if any.

Rental income.

Rental income decreased due to the termination of our previously existing master leases with Five Star.

See Note 10 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information regarding the Restructuring Transaction.

Residents fees and services.

Residents fees and services are the revenues earned at our managed senior living communities.

We recognize these revenues as services are provided and related fees are accrued.

Residents fees and services increased primarily due to the Restructuring Transaction and the resulting change to our management arrangement with Five Star for all of our senior living communities that it operates and our acquisition of one active adult rental property since April 1, 2019 , partially offset by decreases in occupancy and average monthly rates primarily due to the impact of the COVID-19 pandemic at both comparable and non-comparable properties for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 .

We expect to experience continued downward pressure on our occupancy and average monthly rates as normal resident move-outs may not be replaced by new resident move-ins and potential residents may increasingly delay or forgo moving into senior living communities as a result of the COVID-19 pandemic.

Property operating expenses.

Property operating expenses consist of real estate taxes, utility expenses, insurance, salaries and benefit costs of property level personnel, repairs and maintenance expense, management fees, cleaning expense and other direct costs of operating these communities.

Property operating expenses increased primarily due to the Restructuring Transaction and the resulting change to our management arrangement with Five Star for all of our senior living communities that it operates, our acquisition of one active adult rental property since April 1, 2019 and increased costs associated with staffing and supplies due to the COVID-19 pandemic at both comparable and non-comparable properties for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 .

As a result of the COVID-19 pandemic, we expect to continue experiencing higher operating expenses primarily driven by increased labor costs and increased cost and consumption of supplies, including personal protective equipment.

Net operating income.

The change in NOI reflects the net changes in rental income, residents fees and services and property operating expenses described above.

Non-Segment (1) :

Comparable Properties (2)

All Properties

As of and For the Three Months Ended June 30,

Total properties:

Other triple net leased senior living communities

Wellness centers

Rent coverage:

Other triple net leased senior living communities (3)

Wellness centers (3)

Non-segment operations consists of all of our other operations, including certain senior living communities leased to third party operators other than Five Star and wellness centers, which segment 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.

Comparable properties consists of properties that we have owned and which have been leased to the same operator continuously since April 1, 2019 ;

excludes properties classified as held for sale, if any.

All tenant operating data presented is based upon the operating results provided by our tenants for the 12 months ended March 31, 2020 and 2019 or the most recent prior period for which tenant operating results are available to us.

Rent coverage is calculated using the operating cash flows from our triple net lease tenants' operations of our properties, before subordinated charges, if any, divided by triple net lease minimum rents payable to us.

We have not independently verified tenant operating data.

Excludes data for historical periods prior to our ownership of certain properties, as well as data for properties sold or classified as held for sale during the periods presented.

Three Months Ended June 30,

Comparable (1)

Non-Comparable

Properties Results

Consolidated Properties Results

Rental income

Consists of properties that we have owned and which have been leased to the same operator continuously since April 1, 2019 ;

excludes properties classified as held for sale, if any.

Rental income.

Rental income decreased primarily due to the sale of 11 senior living communities leased to private operators since April 1, 2019 and a decrease in rental income at our comparable properties, partially offset by increased rents resulting from our purchase of improvements at our comparable properties since April 1, 2019 .

Rental income decreased at our comparable properties primarily due to a tenant default under leases for six of our wellness centers.

As a result of the COVID-19 pandemic, many of our wellness centers have been ordered closed by state or local executive orders.

In April 2020, we agreed to defer rent payments for four wellness centers in the second quarter of 2020 in exchange for the tenant agreeing to pay the deferred rents in 12 equal monthly installments beginning later in 2020.

We continue to evaluate our options for our wellness centers operated by tenants in default of their lease obligations.

Net operating income.

The change in NOI reflects the net changes in rental income described above.

Consolidated :

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended June 30, 2020 , compared to the three months ended June 30, 2019 .

Depreciation and amortization expense.

Depreciation and amortization expense decreased primarily due to our disposition of 56 properties, certain depreciable leasing related assets becoming fully depreciated and certain of our acquired resident agreements becoming fully amortized since April 1, 2019 , partially offset by our acquisition of an active adult rental property and the purchase of capital improvements at certain of our properties since April 1, 2019 .

General and administrative expense .

General and administrative expense consists of fees paid to RMR LLC under our business management agreement, legal and accounting fees, fees and expenses of our Trustees, equity compensation expense and other costs relating to our status as a publicly traded company.

General and administrative expense decreased primarily due to a decrease in our business management fees expense as a result of lower trading prices for our common shares during the three months ended June 30, 2020 compared to the three months ended June 30, 2019 .

Acquisition and certain other transaction related costs.

Acquisition and certain other transaction related costs primarily represent costs incurred in connection with the Restructuring Transaction.

Impairment of assets.

For further information about our asset impairment charges, see Note 3 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

(Loss) gain on sale of properties .

(Loss) gain on sale of properties is the result of our sale of certain senior living communities and medical office properties during the three months ended June 30, 2020 and 2019.

For further information regarding (loss) gain on sale of properties, see Note 3 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Dividend income .

The decrease in dividend income is the result of our sale on July 1, 2019 of all of the RMR Inc.

class A common stock that we owned.

Gains and losses on equity securities, net.

Gains and losses on equity securities, net, represent the net unrealized gains and losses to adjust our investment in Five Star and former investment in RMR Inc.

to their fair values.

Interest and other income.

The increase in interest and other income is primarily due to $7,346 of funds we received from the U.S.

Government pursuant to the CARES Act during the three months ended June 30, 2020.

Interest expense.

Interest expense increased primarily due to an increase in average borrowings under our revolving credit facility and our issuance in June 2020 of $1,000,000 aggregate principal amount of our 9.75% senior notes due in 2025.

These increases were partially offset by our redemption in May 2019 of all $400,000 of our 3.25% senior notes due 2019, our prepayment in December 2019 of our $350,000 term loan, a lower interest rate on our new $250,000 term loan we obtained in December 2019, which we subsequently repaid in June 2020, and decreases in LIBOR, resulting in a decrease in interest expense with respect to our floating rate debt.

Loss on early extinguishment of debt.

We recorded a loss on early extinguishment of debt in connection with our prepayment of our $250,000 term loan and of a mortgage note during the three months ended June 30, 2020 .

We recorded a loss on early extinguishment of debt in connection with our prepayment of mortgage notes during the three months ended June 30, 2019 .

Income tax (expense) benefit .

Income tax (expense) benefit is the result of operating income we earned in certain jurisdictions where we are subject to state income taxes.

Equity in earnings of an investee.

Equity in earnings of an investee represents our proportionate share of earnings from our investment in AIC.

The decrease in equity in earnings of an investee is due to the dissolution of AIC in February 2020.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019 (dollars in thousands, except average monthly rate):

Unless otherwise indicated, references in this section to changes or comparisons of results, income or expenses refer to comparisons of the results for the six months ended June 30, 2020 to the six months ended June 30, 2019 .

Six Months Ended June 30,

NOI by segment:

Office Portfolio

Depreciation and amortization

General and administrative

Acquisition and certain other transaction related costs

Impairment of assets

Gain on sale of properties

Dividend income

Gains and losses on equity securities, net

Interest and other income

Interest expense

Gain on lease termination

Loss on early extinguishment of debt

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

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

Income tax expense

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Net income attributable to noncontrolling interest

Net income attributable to common shareholders

Net loss attributable to common shareholders

nm - not meaningful

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All Properties

As of March 31,

As of June 30,

Total buildings

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Consists of medical office and life science properties that we have owned and which have been in service continuously since January 1, 2019 , including our life science property owned in a joint venture arrangement in which we own a 55% equity interest;

excluding properties classified as held for sale or in redevelopment, if any.

excludes properties classified as held for sale or out of service undergoing redevelopment, if any.

Prior periods exclude space remeasurements made subsequent to those periods.

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Comparable property occupancy excludes out of service assets undergoing redevelopment.

Three Months Ended March 31,

Six Months Ended June 30,

Comparable (1)

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excluding properties classified as held for sale or in redevelopment, if any.

excludes properties classified as held for sale or out of service undergoing redevelopment, if any.

Rental income.

Rental income decreased primarily due to our disposition of 26 properties since January 1, 2019, partially offset by an increase in rental income at our comparable properties.

Rental income increased at our comparable properties primarily due to increases in tax escalation income and other expense reimbursement income and higher average rents achieved from our new and renewal leasing activity at certain of our comparable properties.

Property operating expenses.

Property operating expenses consist of management fees, real estate taxes, utility expenses, insurance, salaries and benefit costs of property level personnel, repairs and maintenance expense, cleaning expense and other direct costs of operating these properties.

The decrease in property operating expenses is primarily due to our disposition of 26 properties since January 1, 2019, partially offset by increases in property operating expenses at our comparable properties.

Property operating expenses at our comparable properties increased primarily due to increases in real estate taxes, insurance expense and other direct costs of operating our comparable properties.

Property operating expenses at our comparable properties increased primarily due to increases in real estate taxes, insurance expense and other direct costs, partially offset by decreases in utility expenses at certain of our comparable properties.

Net operating income.

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All Properties

As of and For the Three Months

Ended March 31,

As of and For the Six Months Ended June 30,

Total properties

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Average monthly rate is calculated by taking the average daily rate, which is defined as total residents fees and services divided by occupied units during the period, and multiplying it by 30 days.

Three Months Ended March 31,

Six Months Ended June 30,

Comparable (1)

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Rental income.

Rental income decreased due to the termination of our previously existing master leases with Five Star and our disposition of 18 properties since January 1, 2019 .

Rental income decreased due to the termination of our previously existing master leases with Five Star.

Pursuant to the Restructuring Transaction, effective January 1, 2020, our previously existing master leases and management and pooling

agreements with Five Star were terminated and replaced with the New Management Agreements for all of our senior living communities operated by Five Star.

See Note 10 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information regarding the Restructuring Transaction.

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We recognize these revenues as services are provided and related fees are accrued.

Residents fees and services increased primarily due to the Restructuring Transaction and our acquisition of one active adult rental property since January 1, 2019 , partially offset by decreases in occupancy and average monthly rates in part due to the impact of the COVID-19 pandemic at both comparable and non-comparable properties for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 .

We expect to experience continued downward pressure on our occupancy and average monthly rates as normal resident move-outs may not be replaced by new resident move-ins and potential residents may increasingly delay or forego moving into senior living communities as a result of the COVID-19 pandemic.

Residents fees and services increased primarily due to the Restructuring Transaction and the resulting change to our management arrangement with Five Star for all of our senior living communities that it operates and our acquisition of one active adult rental property since January 1, 2019, partially offset by decreases in occupancy and average monthly rates primarily due to the impact of the COVID-19 pandemic at both comparable and non-comparable properties for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 .

Property operating expenses.

Property operating expenses increased primarily due to the Transaction Agreement, our acquisition of one active adult rental property since January 1, 2019 and increased costs associated with staffing and supplies due to the COVID-19 pandemic at both comparable and non-comparable properties for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 .

As a result of the COVID-19 pandemic we expect to experience higher operating expenses primarily driven by increased labor costs and increased cost and consumption of supplies, including personal protective equipment.

Property operating expenses increased primarily due to the Restructuring Transaction and the resulting change to our management arrangement with Five Star for all of our senior living communities that it operates, our acquisition of one active adult rental property since January 1, 2019 and increased costs associated with staffing and supplies due to the COVID-19 pandemic at both comparable and non-comparable properties for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 .

Net operating income.

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All Properties

As of and For the Three Months Ended March 31,

As of and For the Six Months Ended June 30,

Total properties:

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excludes properties classified as held for sale, if any.

All tenant operating data presented is based upon the operating results provided by our tenants for the 12 months ended December 30, 2019 and 2018 or the most recent prior period for which tenant operating results are available to us.

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Excludes data for historical periods prior to our ownership of certain properties, as well as data for properties sold or classified as held for sale during the periods presented.

Three Months Ended March 31,

Six Months Ended June 30,

Comparable (1)

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Rental income.

Rental income decreased primarily due to the sale of 11 senior living communities leased to private operators and the transfer of one senior living community we own from a triple net leased senior living community to a managed senior living community now included in our SHOP segment since January 1, 2019 , partially offset by increased rents resulting from our purchase of improvements at our comparable properties since January 1, 2019 .

Rental income decreased primarily due to the sale of 11 senior living communities leased to private operators, the transfer of one senior living community we own from a triple net leased senior living community to a managed senior living community now included in our SHOP segment since January 1, 2019 and a decrease in rental income at our comparable properties, partially offset by increased rents resulting from our purchase of improvements at our comparable properties since January 1, 2019.

Rental income decreased at our comparable properties primarily due to a tenant default under leases for six of our wellness centers.

As a result of the COVID-19 pandemic, many of our wellness centers have been ordered closed by state or local executive orders.

We were in the process of evaluating our options with our wellness center tenants as of March 31, 2020 and, in April 2020, we agreed to defer rent payments for certain wellness centers in the second quarter of 2020 in exchange for the tenant agreeing to pay the deferred rents in 12 equal monthly installments later in 2020.

We continue to evaluate our options for our wellness centers operated by tenants in default of their lease obligations.

Net operating income.

The change in NOI reflects the net changes in rental income described above.

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended March 31, 2020 , compared to the three months ended March 31, 2019 .

Consolidated :

References to changes in the income and expense categories below relate to the comparison of consolidated results for the six months ended June 30, 2020 , compared to the six months ended June 30, 2019 .

Depreciation and amortization expense.

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General and administrative expense .

General and administrative expense decreased primarily due to a decrease in our base business management fees expense as a result of lower trading prices for our common shares during the three months ended March 31, 2020 compared to the three months ended March 31, 2019 .

General and administrative expense decreased primarily due to a decrease in our business management fees expense as a result of lower trading prices for our common shares during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 .

Acquisition and certain other transaction related costs.

Acquisition and certain other transaction related costs primarily represents costs incurred in connection with the Restructuring Transaction.

Acquisition and certain other transaction related costs primarily represent costs incurred in connection with the Restructuring Transaction.

Impairment of assets.

For further information about our asset impairment charges, see Note 3 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Gain (loss) on sale of properties.

Gain (loss) on sale of properties is the result of our sale of certain office properties during the three months ended March 31, 2020 and 2019 .

For further information regarding gain (loss) on sale of properties, see Note 3 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Gain on sale of properties.

Gain on sale of properties is the net result of our sale of certain senior living communities and office properties during the six months ended June 30, 2020 and 2019 .

For further information regarding gain on sale of properties, see Note 3 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Dividend income .

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Interest and other income.

The increase in interest and other income is primarily due to an increase in average investable cash on hand and restricted cash.

The increase in interest and other income is primarily due to $7,346 of funds we received from the U.S.

Government pursuant to the CARES Act during the six months ended June 30, 2020.

Interest expense.

Interest expense decreased primarily due to the redemption in May 2019 of our $400,000 of 3.25% senior unsecured notes due 2019, our prepayment in December 2019 of our $350,000 term loan, a lower interest rate on our new $250,000 term loan obtained in December 2019 and decreases in LIBOR, resulting in a decrease in interest expense with respect to our floating rate debt.

These decreases were partially offset by an increase in borrowings under our revolving credit facility.

Interest expense decreased primarily due to our redemption in May 2019 of all $400,000 of our 3.25% senior notes due 2019, our prepayment in December 2019 of our $350,000 term loan, a lower interest rate on our new $250,000 term loan we obtained in December 2019, which we subsequently repaid in June 2020, and decreases in LIBOR, resulting in a decrease in interest expense with respect to our floating rate debt.

These decreases were partially offset by an increase in average borrowings under our revolving credit facility and our issuance in June 2020 of $1,000,000 aggregate principal amount of our 9.75% senior notes due in 2025.

Gain on lease termination.

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Loss on early extinguishment of debt.

We recognized a loss on early extinguishment of debt in connection with our prepayment of a mortgage debt in February 2020.

We recorded a loss on early extinguishment of debt in connection with our prepayment of our $250,000 term loan and mortgage notes during the six months ended June 30, 2020 .

We recorded a loss on early extinguishment of debt in connection with our prepayment of mortgage notes during the six months ended June 30, 2019 .

Income tax expense .

Income tax expense is the result of operating income we earned in certain jurisdictions that is subject to state income taxes.

Income tax expense is the result of operating income we earned in certain jurisdictions where we are subject to state income taxes.

Equity in earnings of an investee.

Equity in earnings of an investee represents our proportionate share of earnings from our former investment in AIC, which was dissolved on February 13, 2020.

Equity in earnings of an investee represents our proportionate share of earnings from our investment in AIC.

The decrease in equity in earnings of an investee is due to the dissolution of AIC in February 2020.

Non-GAAP Financial Measures (dollars in thousands, except per share amounts)

We present certain "non-GAAP financial measures" within the meaning of applicable rules of the Securities and Exchange Commission, or SEC, including funds from operations attributable to common shareholders, or FFO attributable to common shareholders, normalized funds from operations attributable to common shareholders, or Normalized FFO attributable to common shareholders, and NOI for the three months ended March 31, 2020 and 2019 .

These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income or net income attributable to common shareholders as indicators of our operating performance or as measures of our liquidity.

These measures should be considered in conjunction with net income and net income attributable to common shareholders as presented in our condensed consolidated statements of comprehensive income.

We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income and net income attributable to common shareholders.

These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) or net income (loss) attributable to common shareholders as indicators of our operating performance or as measures of our liquidity.

These measures should be considered in conjunction with net income (loss) and net income (loss) attributable to common shareholders as presented in our condensed consolidated statements of comprehensive income (loss).

We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss) and net income (loss) attributable to common shareholders.

We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization, they may facilitate a comparison of our operating performance between periods and with other REITs and, in the case of NOI, reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of our properties.

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We calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders as shown below.

FFO attributable to common shareholders is calculated on the basis defined by the National Association of Real Estate Investment Trusts, which is net income attributable to common shareholders, calculated in accordance with GAAP, excluding any gain or loss on sale of properties, loss on impairment of real estate assets and gains or losses on equity securities, net, if any, plus real estate depreciation and amortization and minus FFO adjustments attributable to noncontrolling interest, as well as certain other adjustments currently not applicable to us.

FFO attributable to common shareholders is calculated on the basis defined by the National Association of Real Estate Investment Trusts, which is net income (loss) attributable to common shareholders, calculated in accordance with GAAP, excluding any gain or loss on sale of properties, loss on impairment of real estate assets and gains or losses on equity securities, net, if any, plus real estate depreciation and amortization and minus FFO adjustments attributable to noncontrolling interest, as well as certain other adjustments currently not applicable to us.

In calculating Normalized FFO attributable to common shareholders, we adjust for the items shown below and include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as an expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year.

FFO attributable to common shareholders and Normalized FFO attributable to common shareholders are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders.

Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in our revolving credit facility and term loan agreements and our public debt covenants, the availability to us of debt and equity capital, our expectation of our future capital requirements and operating performance, and our expected needs for and availability of cash to pay our obligations.

Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in the agreements governing our debt, the availability to us of debt and equity capital, our expectation of our future capital requirements and operating performance, and our expected needs for and availability of cash to pay our obligations.

O ther real estate companies and REITs may calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders differently than we do.

Our calculations of FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the three months ended March 31, 2020 and 2019 and reconciliations of net income attributable to common shareholders, the most directly comparable financial measure under GAAP reported in our condensed consolidated financial statements, to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders appear in the following table.

This table also provides a comparison of distributions to shareholders, FFO attributable to common shareholders and Normalized FFO attributable to common shareholders and net income attributable to common shareholders per share for these periods.

Three Months Ended March 31,

Net income attributable to common shareholders

Our calculations of FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the three and six months ended June 30, 2020 and 2019 and reconciliations of net income (loss) attributable to common shareholders, the most directly comparable financial measure under GAAP reported in our condensed consolidated financial statements, to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders appear in the following table.

This table also provides a comparison of distributions to shareholders, FFO attributable to common shareholders and Normalized FFO attributable to common shareholders and net income (loss) attributable to common shareholders per share for these periods.

Three Months Ended June 30,

Six Months Ended June 30,

Net loss attributable to common shareholders

Depreciation and amortization

(Gain) loss on sale of properties

Loss (gain) on sale of properties

Impairment of assets

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Per common share data (basic and diluted):

Net income attributable to common shareholders

Net loss attributable to common shareholders

FFO attributable to common shareholders

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We calculate NOI as shown below.

The calculation of NOI excludes certain components of net income in order to provide results that are more closely related to our property level results of operations.

The calculation of NOI excludes certain components of net income (loss) in order to provide results that are more closely related to our property level results of operations.

We define NOI as income from our real estate less our property operating expenses.

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The calculation of NOI by reportable segment is included above in this Item 2.

The following table includes the reconciliation of net income to NOI for the three months ended March 31, 2020 and 2019 , respectively.

Three Months Ended March 31,

Reconciliation of Net Income to NOI:

The following table includes the reconciliation of net income (loss) to NOI for the three and six months ended June 30, 2020 and 2019 , respectively.

Three Months Ended June 30,

Six Months Ended June 30,

Reconciliation of Net Income (Loss) to NOI:

Equity in earnings of an investee

Income tax expense

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

Income tax expense (benefit)

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

Loss on early extinguishment of debt

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Interest and other income

Losses (gains) on equity securities, net

Gains and losses on equity securities, net

Dividend income

(Gain) loss on sale of properties

Loss (gain) on sale of properties

Impairment of assets

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LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of cash to meet operating and capital expenses, pay debt service obligations and make distributions to our shareholders are the operating cash flows we generate as rental income from our leased properties, residents fees and services revenues from our managed communities, proceeds from the disposition of certain properties and borrowings under our revolving credit facility.

To reduce our leverage, we have sold properties and other assets and have identified additional properties to sell, with a focus on the sale of non-core senior living communities and other properties.

Our principal sources of cash to meet operating and capital expenses, pay debt service obligations and make distributions to our shareholders are the operating cash flows we generate as rental income from our leased properties, residents fees and services revenues from our managed communities, borrowings under our revolving credit facility and proceeds from the disposition of certain properties.

We believe that these sources will be sufficient to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders for the next 12 months and for the foreseeable future thereafter.

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our ability to receive rents from our tenants in light of the COVID-19 pandemic and generally;

our ability to maintain or increase the occupancy of, and the rental rates at, our properties;

our ability to control operating expenses and capital expenses at our properties;

our manager's ability to operate our managed senior living communities during the COVID-19 pandemic and generally so as to maintain or increase our returns;

our ability to purchase additional properties which produce cash flows in excess of our cost of acquisition capital and the related property operating expenses.

We are carefully monitoring the developments of the COVID-19 pandemic and its impact on our tenants, operators and other stakeholders, including at our senior living communities.

In response to the operating challenges and uncertain economic challenges as a result of the COVID-19 pandemic, in April 2020, we announced certain capital conservation measures, including reducing our quarterly cash distribution rate on our common shares to $0.01 per share, and that we are deferring approximately $150.0 million of certain non-essential capital investments planned for calendar year 2020.

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

During the three months ended March 31, 2020, we sold eight properties for an aggregate sales price of $17.6 million , excluding closing costs, and as of May 6, 2020, we had 27 properties under agreements to sell for an aggregate sales price of approximately $164.0 million , excluding closing costs.

our ability to maintain or increase the occupancy of, and the rental rates at, our properties or reduce the extent of the declines in occupancy and rental rates in response to the COVID-19 pandemic, particularly at our senior living communities;

our ability to control operating expenses and capital expenses at our properties, including increased operating expenses in response to the COVID-19 pandemic;

our manager's ability to operate our managed senior living communities during the COVID-19 pandemic and generally so as to maintain or increase our returns or, during the COVID-19 pandemic, to reduce the extent of the declines in our returns.

We continue to carefully monitor the developments of the COVID-19 pandemic and its impact on our tenants, operators and other stakeholders, including at our senior living communities.

In response to the operating challenges and uncertain economic challenges as a result of the COVID-19 pandemic, in June 2020, we issued $1.0 billion aggregate principal amount of our 9.75% senior notes due 2025.

Additionally, beginning in the second quarter of 2020, we reduced our quarterly cash distribution rate on our common shares to $0.01 per share.

As of August 3, 2020 , we granted requests for certain of our tenants to defer rent payments totaling $5.5 million with respect to leases that represent, as of June 30, 2020, approximately 9.4% of our annualized rental income.

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

For the three months ended June 30, 2020, we collected approximately 99% of our contractual rents due from tenants in our Office Portfolio segment.

During the six months ended June 30, 2020 , we sold 12 properties for an aggregate sales price of $68.2 million , excluding closing costs.

In July and August 2020, we sold four properties for an aggregate sales price of $5.2 million , excluding closing costs, and as of August 3, 2020 , we had 24 properties under agreements to sell for an aggregate sales price of approximately $231.7 million , excluding closing costs.

The impact of the COVID-19 pandemic and the resulting economic conditions is likely to cause many of these property sales to be delayed or occur over a protracted period of time or not at all.

The capital conservation measures noted above and anticipated sales of our properties may not sufficiently offset the decrease in cash flows from operations and essential capital investments we make during the COVID-19 pandemic, which may negatively impact our liquidity and result in increased borrowings under our revolving credit facility.

Pursuant to the Restructuring Transaction, on January 1, 2020, Five Star issued 10,268,158 Five Star common shares to us and an aggregate of 16,118,849 Five Star common shares to our shareholders of record as of December 13, 2019.

In consideration of these share issuances, we provided Five Star with $75.0 million of additional consideration.

For further information regarding the Restructuring Transaction, see Note 10 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The following is a summary of our sources and uses of cash flows for the periods presented (dollars in thousands):

Three Months Ended March 31,

The measures noted above and anticipated sales of our properties may not sufficiently offset the decrease in cash flows from operations and essential capital investments we make during the COVID-19 pandemic, which may negatively impact our liquidity and result in increased borrowings under our revolving credit facility.

The following is a summary of our sources and uses of cash flows for the periods presented, as reflected in our condensed consolidated statements of cash flows (dollars in thousands):

Six Months Ended June 30,

Cash and cash equivalents and restricted cash at beginning of period

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We generally receive minimum rents from our tenants monthly or quarterly, we receive residents fees and services revenues, net of expenses, from our managed senior living communities monthly and we receive percentage rents from certain of our senior living community tenants monthly, quarterly or annually.

The increase in cash provided by operating activities for the three months ended March 31, 2020 compared to the prior period was primarily due to the Restructuring Transaction and resulting change in our working capital assets and liabilities from the converted managed communities which are now included in our condensed consolidated balance sheets commencing in the 2020 period.

The decrease in cash provided by operating activities for the six months ended June 30, 2020 compared to the prior period was primarily due to the Restructuring Transaction and the results from the converted managed communities for the 2020 period being less than our rental income for these communities in the 2019 period, as well as reduced NOI as a result of dispositions of properties during 2019 and 2020 and resulting changes in our working capital assets and liabilities from the converted managed communities which are now included in our condensed consolidated balance sheets commencing in the 2020 period.

Pursuant to the Restructuring Transaction, effective January 1, 2020, our previously existing master leases and management and pooling agreements with Five Star were terminated and replaced with the New Management Agreements for all of our senior living communities operated by Five Star, as described in Note 10 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

The increase in operating activities also reflects a decrease in business management fee expenses in the 2020 period compared to the 2019 period, driven by the favorable impact of no business management incentive fee expense being paid in the 2020 period.

Increases in operating activities were partially offset by the Restructuring Transaction and the results from the converted managed communities for the 2020 period being less than our rental income for these communities in the 2019 period, as well as reduced NOI as a result of dispositions of properties during 2019 and 2020.

As noted elsewhere in this Quarterly Report on Form 10-Q, the COVID-19 pandemic has had a devastating impact on the global economy.

The decreases noted above are partially offset by a decrease in business management fee expenses in the 2020 period compared to the 2019 period, particularly as a result of no business management incentive fee expense having been paid in the 2020 period.

As noted elsewhere in this Quarterly Report on Form 10-Q, the COVID-19 pandemic has had a substantial adverse impact on the global economy.

Depending on the duration and severity of this pandemic and the resulting economic downturn, our tenants' and operators' businesses may become significantly adversely impacted, which may result in their failing to pay rent to us or to renew their leases upon expiration, and we will realize decreased returns from our senior living communities.

We have granted

requests for certain of our tenants to defer rent payments totaling $4.8 million .

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

We have granted requests for certain of our tenants to defer rent payments totaling $5.5 million .

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

For the three months ended June 30, 2020, we collected approximately 99% of our contractual rents due from tenants in our Office Portfolio segment.

As of June 30, 2020 , we recognized an increase in our accounts receivable balance related to these deferred rent payments of $3.5 million.

We are handling requests from our tenants for relief on an individual basis.

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Our Investing Liquidity and Resources

The decrease in cash used in investing activities for the three months ended March 31, 2020 compared to the prior year period was primarily due to higher proceeds from the sale of real estate properties in the 2020 period compared to the 2019 period.

The decrease in cash used in investing activities for the six months ended June 30, 2020 compared to the prior year period was primarily due to higher proceeds from the sale of real estate properties in the 2020 period compared to the 2019 period.

The following is a summary of cash used for capital expenditures, development, redevelopment and other activities for the periods presented (dollars in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Office Portfolio segment capital expenditures:

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Office Portfolio segment lease related costs generally include capital expenditures to improve tenants' space or amounts paid directly to tenants to improve their space and other leasing related costs, such as brokerage commissions and tenant inducements.

Office Portfolio segment building improvements generally include expenditures to replace obsolete building components that extend the useful life of existing assets or cosmetic improvements to increase the marketability of the property.

Office Portfolio segment building improvements generally include expenditures to replace obsolete building components that extend the useful life of existing assets or other improvements to increase the marketability of the property.

Development, redevelopment and other activities generally include capital expenditures that reposition a property or result in new sources of revenue.

Prior period includes capital improvements for communities that were previously leased to Five Star.

During the three months ended March 31, 2020 , we invested $0.3 million in revenue producing capital improvements at certain of our triple net leased senior living communities leased to private operators, and, as a result, annual rents payable to us increased by approximately $0.02 million pursuant to the terms of the applicable leases.

During the three and six months ended June 30, 2020 , we invested $0.5 million and $0.8 million, respectively, in revenue producing capital improvements at certain of our triple net leased senior living communities leased to private operators, and, as a result, annual rents payable to us increased by approximately $0.02 million and $0.04 million, respectively, pursuant to the terms of the applicable leases.

We used cash on hand and borrowings under our revolving credit facility to fund these purchases.

These capital improvement amounts are not included in the table above.

During the three months ended March 31, 2020 , commitments made for expenditures in connection with leasing space in our medical office and life science properties, such as tenant improvements and leasing costs, were as follows (dollars and square feet in thousands, except per square foot amounts):

During the three months ended June 30, 2020 , commitments made for expenditures in connection with leasing space in our medical office and life science properties, such as tenant improvements and leasing costs, were as follows (dollars and square feet in thousands, except per square foot amounts):

Square feet leased during the quarter

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Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent.

Weighted based on annualized rental income pursuant to existing leases as of March 31, 2020 , including straight line rent adjustments and estimated recurring expense reimbursements, and excluding lease value amortization.

In response to the operating challenges and uncertain economic challenges as a result of the COVID-19 pandemic, we expect to conserve capital by deferring approximately $150.0 million of certain previously planned non-essential capital investments.

We will re-evaluate all deferred 2020 capital projects later in 2020 if and when there is greater clarity as to the impact of the COVID-19 pandemic and the overall economic environment on our financial condition.

We plan to continue investing essential capital in our senior living communities to better position these communities in their respective markets in order to increase our returns in future years.

As of March 31, 2020 , we have estimated unspent leasing related obligations at our triple net leased senior living communities and our medical office and life science properties of approximately $22.0 million .

In July 2019, a tenant in our Office Portfolio segment vacated three buildings with an aggregate of 164,091 square feet in California.

We are currently engaged in a full redevelopment of these buildings.

The redevelopment of these buildings may take significant capital expenditures and time.

We have continued to progress on this redevelopment during 2020.

We expect disruptions to future acquisition and disposition activity due to uncertain market conditions as a result of the COVID-19 pandemic and resulting economic conditions.

Weighted based on annualized rental income pursuant to existing leases as of June 30, 2020 , including straight line rent adjustments and estimated recurring expense reimbursements, and excluding lease value amortization.

We plan to continue investing essential capital in our senior living communities to better position these communities in their respective markets in order to increase our returns in future years but certain projects have been delayed and may continue

to be delayed in the future due to COVID-19 related community access restrictions and other state and local ordinances that may limit our ability to proceed with these projects on a timely basis.

As of June 30, 2020 , we have estimated unspent leasing related obligations at our triple net leased senior living communities and our medical office and life science properties of approximately $18.9 million .

We are currently in the process of redeveloping four properties in our Office Portfolio located in Tempe, AZ, San Diego, CA, Lexington, MA and Washington D.C.

These redevelopment projects may require significant capital expenditures and time to complete.

We have continued to progress on these redevelopments during 2020.

We expect disruptions to future disposition activity due to uncertain market conditions as a result of the COVID-19 pandemic and resulting economic conditions.

For further information regarding our acquisitions and dispositions, see Note 3 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

In consideration of these share issuances, we provided Five Star with $75.0 million of additional consideration.

For further information regarding the Restructuring Transaction, see Note 10 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Our Financing Liquidity and Resources

The change in cash provided by (used in) financing activities for the three months ended March 31, 2020 compared to the prior period was primarily due to a reduction in distributions paid to our shareholders in the 2020 period, partially offset by reduced net proceeds from borrowings under our revolving credit facility in the 2020 period compared to the 2019 period.

As of March 31, 2020 , we had $69.5 million of cash and cash equivalents and $415.0 million available to borrow under our revolving credit facility.

The increase in cash used in financing activities for the six months ended June 30, 2020 compared to the prior period was primarily due to our repayment in June 2020 of our $250.0 million senior unsecured term loan and increased repayments of borrowings under our revolving credit facility in the 2020 period compared to the 2019 period, partially offset by net proceeds from our issuance in June 2020 of $1.0 billion aggregate principal amount of our 9.75% senior notes and a reduction in distributions paid to our shareholders in the 2020 period.

As of June 30, 2020 , we had $78.5 million of cash and cash equivalents and $1.0 billion available to borrow under our revolving credit facility.

We typically use cash balances, borrowings under our revolving credit facility, net proceeds from offerings of debt or equity securities, net proceeds from the disposition of assets and the cash flows from our operations to fund our operations, debt repayments, distributions, property acquisitions, capital expenditures and other general business purposes.

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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.

The facility also includes a feature pursuant to which in certain circumstances maximum borrowings under the facility may be increased to up to $2.0 billion.

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.

The facility also includes a feature pursuant to which, following the termination of the Amendment Period, in certain circumstances maximum borrowings under the facility may be increased to up to $2.0 billion.

At 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 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 required on borrowings under our revolving credit facility was 1.8% .

As of March 31, 2020 and May 6, 2020 , we had $585.0 million and $775.0 million outstanding under our revolving credit facility, respectively.

As of June 30, 2020 and August 3, 2020 , we had no outstanding borrowings under our revolving credit facility.

In June 2020, we amended our credit and term loan agreements.

The amendments modify certain of the financial covenants under these agreements through 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 our 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 $200.0 million;

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 REIT and to avoid the payment of certain income and excise taxes.

When significant amounts are outstanding under our revolving credit facility, or as the maturities of our indebtedness approach, we intend to explore refinancing alternatives.

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We may also assume debt in connection with our acquisitions of properties or place new debt on properties we own.

We have a $250.0 million unsecured term loan that matures on June 12, 2020.

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 loan premium for this term loan

increased to 165 basis points per annum due to a downgrade of our credit rating.

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

We also have a $200.0 million unsecured term loan that matures on September 28, 2022.

We have a $200.0 million unsecured term loan that matures on September 28, 2022.

This term loan includes a feature under which maximum borrowings may be increased to up to $400.0 million in certain circumstances.

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 loan premium for this term loan increased to 175 basis points per annum due to a downgrade of our credit rating.

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

During the three months ended March 31, 2020 , we paid a quarterly cash distribution to our shareholders totaling approximately $35.7 million using existing cash balances and borrowings under our revolving credit facility.

At June 30, 2020 , this term loan required interest to be paid at the annual rate of 2.4%.

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

During the six months ended June 30, 2020 , we paid quarterly cash distributions to our shareholders totaling approximately $38.1 million using existing cash balances and borrowings under our revolving credit facility.

On July 16, 2020 , we declared a quarterly distribution payable to common shareholders of record on July 27, 2020 , of $0.01 per share, or approximately $2.4 million .

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

For further information regarding the distribution we paid during 2020, see Note 8 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

On April 2, 2020, we declared a quarterly distribution payable to common shareholders of record on April 13, 2020, of $0.01 per share, or approximately $2.4 million .

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

We believe we will have access to various types of financings, including debt or equity offerings, to fund our future acquisitions and to pay our debts and other obligations as they become due.

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We intend to conduct our business activities in a manner which will afford us reasonable access to capital for investment and financing activities, but we cannot be sure that we will be able to successfully carry out that intention.

However, as noted elsewhere in this Quarterly Report on Form 10-Q, it is uncertain what the duration and severity of the current economic downturn resulting from the COVID-19 pandemic will be.

As noted elsewhere in this Quarterly Report on Form 10-Q, it is uncertain what the duration and severity of the current economic downturn resulting from the COVID-19 pandemic will be.

A protracted economic downturn may have various negative consequences including a decline in financing availability and increased costs for financing.

Further, such conditions could also disrupt capital markets and limit our access to financing from public sources, particularly if the global financial markets experience significant disruptions.

In March 2020, our issuer credit rating was downgraded from BB+ to BB by S&P Global, or S&P, following our fourth quarter 2019 earnings release and the beginning of the awareness of the possible impact of the COVID-19 pandemic in the United States.

Our unsecured debt rating was downgraded from BBB- to BB+ by S&P and, as a result, the interest rate premiums under our revolving credit facility and term loans increased effective April 1, 2020.

Also in March 2020, Moody's Investors Service, or Moody's, placed our senior unsecured debt rating under review for downgrade.

Previously, in May 2019, our senior unsecured debt rating was downgraded from Baa3 to Ba1 by Moody's following our announcement of the Restructuring Transaction.

In February 2020, we prepaid a mortgage note secured by one of our life science properties with an outstanding principal balance of approximately $1.6 million, a maturity date in March 2026 and an annual interest rate of 6.25%.

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

Our unsecured debt rating was downgraded below BBB- by S&P and, as a result, the interest rate premiums under our revolving credit facility and then existing term loans increased effective April 1, 2020.

In April 2020, we redeemed all of our outstanding 6.75% senior notes due 2020 for a redemption price equal to the principal amount of $200.0 million plus accrued and unpaid interest of $6.75 million.

We funded this redemption with cash on hand and borrowings under our revolving credit facility.

In May 2020, we prepaid a mortgage note secured by one of our medical office properties with an outstanding principal balance of approximately $1.2 million, a maturity date in January 2022 and an annual interest rate of 7.49%.

In May 2020, Moody's Investors Service, or Moody's, downgraded our senior unsecured debt rating from Ba1 to Ba2.

However, Moody's assigned a Ba1 rating to our recently issued 9.75% senior notes due 2025.

Also in May 2020, we prepaid a mortgage note secured by one of our medical office properties with an outstanding principal balance of approximately $1.2 million, a maturity date in January 2022 and an annual interest rate of 7.49%.

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

In June 2020, we issued $1.0 billion aggregate principal amount of our 9.75% senior notes due 2025 in an underwritten public offering.

These notes are guaranteed by all of our subsidiaries, except for certain excluded subsidiaries.

For further information regarding our outstanding debt, see Note 5 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Except as described above, our strategy related to property acquisitions and dispositions is materially unchanged from that disclosed in our Annual Report.

We continue to explore and evaluate for possible acquisition of additional properties primarily for income and secondarily for appreciation potential;

however, we cannot be sure that we will reach any agreement to acquire such properties, or that if we do reach any such agreement, that we will complete any acquisitions.

Generally, we identify properties for sale based on changes in market conditions in the area where the property is located, our expectations regarding the property's future financial performance, our expectation regarding lease renewals, our plans with regard to particular properties or alternative opportunities we may wish to pursue.

Except for the limitations in the amendments to our credit and term loan agreements described above, our strategy related to property acquisitions and dispositions is materially unchanged from that disclosed in our Annual Report.

Our plans for particular properties and other strategic considerations may cause us to change our acquisition and disposition strategies, and we may do so at any time and without shareholder approval.

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Off Balance Sheet Arrangements

As of March 31, 2020 , we had no off balance sheet arrangements that have had or that we expect would be reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

As of June 30, 2020 , we had no off balance sheet arrangements that have had or that we expect would be reasonably likely to have a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Debt Covenants

Our principal debt obligations at March 31, 2020 were:

(1) outstanding borrowings under our $1.0 billion unsecured revolving credit facility;

Our principal debt obligations at June 30, 2020 were:

(1) $2.7 billion outstanding principal amount of senior unsecured notes;

(3) $450.0 million outstanding principal amount under two term loans;

and (4) $687.2 million aggregate principal amount of mortgages (excluding premiums, discounts and net debt issuance costs) secured by eight properties.

(2) $200.0 million outstanding principal amount under our term loan;

and (3) $685.4 million aggregate principal amount of mortgage notes (excluding premiums, discounts and net debt issuance costs) secured by seven properties.

For further information regarding our indebtedness, see Note 5 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Our senior unsecured notes are governed by our senior unsecured notes indentures and their supplements.

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 outstanding 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 RMR LLC ceasing to act as our business and property manager.

Our senior unsecured notes indentures and their supplements and our revolving credit facility and term loan agreements also contain covenants that restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts and require us to maintain various financial ratios, and our revolving credit facility and term loan agreements contain covenants that restrict our ability to make distributions to our shareholders in certain circumstances.

As of March 31, 2020 , we believe we were in compliance with all of the covenants under our senior unsecured notes indentures and their supplements, our revolving credit facility and term loan agreements and our other debt obligations.

Our credit and term loan agreements and our senior unsecured notes indentures and their supplements provide for acceleration of payment of all amounts outstanding 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 RMR LLC ceasing to act as our business and property manager.

Our senior unsecured notes indentures and their supplements and our credit and term loan agreements also contain covenants that restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts and require us to maintain various financial ratios, and our credit and term loan agreements contain covenants that restrict our ability to make distributions to our shareholders in certain circumstances.

As of June 30, 2020 , we believe we were in compliance with all of the covenants under our senior unsecured notes indentures and their supplements, our credit and term loan agreements and our other debt obligations.

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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We can provide no assurance that we would be able to obtain these waivers or amendments or repay the related debt facilities, which would lead to an event of default or potential acceleration of amounts due on our outstanding debt.

Neither our senior unsecured notes indentures and their supplements, nor our revolving credit facility and term loan agreements, contain provisions for acceleration which could be triggered by our debt ratings.

However, under our revolving credit facility and term loan agreements, our senior unsecured debt ratings are used to determine the fees and interest rates we pay.

Accordingly, following our debt ratings downgrades, our interest expense and related costs under our revolving credit facility and term loan agreements have increased.

See "—Our Financing Liquidity and Resources" above for information regarding recent downgrades of our issuer credit rating and senior unsecured debt rating that resulted in a change in the interest rate premiums under our revolving credit facility and term loans.

Our senior unsecured notes indentures and their supplements contain cross default provisions to any other debts of more than $20.0 million ($50.0 million or more in the case of our senior unsecured notes indentures and supplements entered in February 2016 and February 2018).

Similarly, our revolving credit facility and term loan agreements have cross default provisions to other indebtedness that is recourse of $25.0 million or more and indebtedness that is non-recourse of $75.0 million or more.

Neither our senior unsecured notes indentures and their supplements, nor our credit and term loan agreements, contain provisions for acceleration which could be triggered by our debt ratings.

However, under our credit and term loan agreements, our senior unsecured debt ratings are used to determine the fees and interest rates we pay.

Accordingly, following our debt ratings downgrades, our interest expense and related costs under our credit and term loan agreements have increased.

Similarly, our credit and term loan agreements have cross default provisions to other indebtedness that is recourse of $25.0 million or more and indebtedness that is non-recourse of $75.0 million or more.

The loan agreements governing the aggregate $620.0 million secured debt financing on the property owned by our joint venture contain customary covenants and provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default.

Supplemental Guarantor Information

In March 2020, the SEC released Release No.

33-10762, Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant's Securities, or Release 33-10762.

Release 33-10762 amends the disclosure requirements related to certain registered securities under SEC Regulation S-X, Rules 3-10 and 3-16, permitting registrants to provide certain alternative financial disclosures and non-financial disclosures in lieu of separate consolidating financial statements for subsidiary issuers and guarantors of registered debt securities if certain conditions are met.

The amendments in Release 33-10762 are generally effective for filings on or after January 4, 2021, with early adoption permitted.

We adopted the new disclosure requirements permitted under Release 33-10762 effective for the period ended March 31, 2020.

All $1.0 billion of our 9.75% senior notes due 2025 are fully and unconditionally guaranteed, on a joint and several basis and on a senior unsecured basis, by all of our subsidiaries, except for certain excluded subsidiaries.

The notes and the guarantees will be effectively subordinated to all of our and the subsidiary guarantors' secured indebtedness, respectively, to the extent of the value of the collateral securing such secured indebtedness, and will be structurally subordinated to all indebtedness and other liabilities and any preferred equity of any of our subsidiaries that do not guarantee the notes.

Our remaining $1.85 billion of senior unsecured notes do not have the benefit of any guarantees.

A subsidiary guarantor's guarantee of our 9.75% senior notes due 2025 and all other obligations of such subsidiary guarantor under the indenture governing the notes will automatically terminate and such subsidiary guarantor will automatically be released from all of its obligations under such subsidiary guarantee and the indenture under certain circumstances, including on or after the date (a) the notes have an investment grade rating from two rating agencies and one of such investment grade ratings is a mid-BBB investment grade rating and (b) no default or event of default has occurred and is continuing under the indenture.

Our non-guarantor subsidiaries are separate and distinct legal entities and will have no obligation, contingent or otherwise, to pay any amounts due on our 9.75% senior notes due 2025 or the guarantees, or to make any funds available therefor, whether by dividend, distribution, loan or other payments.

The rights of holders of our 9.75% senior notes due 2025 to benefit from any of the assets of our non-guarantor subsidiaries are subject to the prior satisfaction of claims of those subsidiaries' creditors and any preferred equity holders.

As a result, our 9.75% senior notes due 2025 and the guarantees will be structurally subordinated to all indebtedness, guarantees and other liabilities of our subsidiaries that do not guarantee our 9.75% senior notes due 2025, including guarantees of other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity.

The following tables present summarized financial information for guarantor entities, on a combined basis after eliminating (i) intercompany transactions and balances among the guarantor entities and (ii) equity in earnings from, and any investments in, any subsidiary that is a non-guarantor:

December 31, 2019

June 30, 2020

Real estate properties, net

Other assets, net

Indebtedness, net

Other liabilities

Total liabilities

Year Ended December 31, 2019

Six Months Ended June 30, 2020

Loss from continuing operations

Net loss attributable to DHC

Related Person Transactions

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For example, Five Star is our former subsidiary and former largest tenant, and it currently manages most of our senior living communities and we and Five Star restructured our business arrangements as of January 1, 2020.

We and Adam Portnoy, directly and indirectly through ABP Trust and its subsidiaries, are significant stockholders of Five Star, owning, as of March 31, 2020 , 33.9% and 6.3% , respectively, of outstanding Five Star common shares.

We and Adam Portnoy, directly and indirectly through ABP Trust and its subsidiaries, are significant stockholders of Five Star, owning, as of June 30, 2020 , 33.9% and 6.4% , respectively, of outstanding Five Star common shares.

For further information about these and other such relationships and related person transactions, see Notes 10, 11 and 12 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our Annual Report, our definitive Proxy Statement for our 2020 Annual Meeting of Shareholders and our other filings with the SEC.

In addition, see the section captioned “Risk Factors” of our Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships.

In addition, see the section captioned “Risk Factors” of our Annual Report and in this Quarterly Report on Form 10-Q for a description of risks that may arise as a result of these and other related person transactions and relationships.

Our filings with the SEC and copies of certain of our agreements with these related persons, including our business and property management agreements with RMR LLC and our various agreements with Five Star, are available as exhibits to our filings with the SEC and accessible at the SEC's website, www.sec.gov.

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Impact of Government Reimbursement

For the three months ended March 31, 2020 , approximately 99% of our NOI was generated from properties where a majority of the revenues are derived from our tenants’ and residents’ private resources, and the remaining 1% of our NOI was generated from properties where a majority of the revenues are derived from Medicare and Medicaid payments.

For the six months ended June 30, 2020 , substantially all of our NOI was generated from properties where a majority of the revenues are derived from our tenants' and residents' private resources, and the remainder of our NOI was generated from properties where a majority of the revenues are derived from Medicare and Medicaid payments.

Nonetheless, we own, and our tenants and manager operate, facilities in many states that participate in federal and state healthcare payment programs, including the federal Medicare and state Medicaid programs and other federal and state healthcare payment programs.

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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 2. Management’s Discussion and Analysis