What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-05 compared with 2020-08-06 · 314 added, 233 removed, 522 unchanged (51% of the section changed)

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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.

States and municipalities across the United States have generally allowed most businesses to re-open and have generally eased certain restrictions they had previously implemented in response to the COVID-19 pandemic, often in stages that are phased in over time, although some states and municipalities have imposed or re-imposed certain restrictions in response to increases in COVID-19 infections experienced since then.

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.

economy has increasingly improved since the lowest periods experienced in March and April 2020, although the U.S.

gross domestic product remains below pre-pandemic levels.

It is unclear whether the increases in the number of COVID-19 infections will continue or amplify 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.

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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 senior living community 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 expenses due to increased labor costs, including higher health benefits costs, and increased costs and consumption of supplies, including personal protective equipment.

There will be lasting impacts of the COVID-19 pandemic, even as states and municipalities have eased and may further ease restrictions.

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 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.

We expect that our senior living community 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 October 31, 2020, we have been notified that 1.0% of residents in our senior living communities have active COVID-19 cases.

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.

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• 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;

• As of November 2, 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.

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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 .

As of November 2, 2020, we granted requests to 74 of our tenants to defer rent payments totaling $2.2 million with respect to leases that represent, as of September 30, 2020, approximately 5.3% of our annualized rental income.

Those 74 of our tenants consist of 73 tenants in our Office Portfolio segment, which accounted for $1.8 million of deferrals, and one triple net senior living tenant .

As of September 30, 2020, we recognized an increase in our accounts receivable balance related to these deferred rent payments of $4.5 million.

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

For the three months ended September 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 nine months ended September 30, 2020.

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

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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.

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 the spread of COVID-19 infections.

Included among these protocols and measures are the following:

focusing on sanitizing high touch points in common areas and restrooms;

shutting down certain building amenities;

prudently managing the execution or deferment of tenant work orders to limit RMR LLC staff and tenant interactions at our properties.

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

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:

With respect to our properties where property management is provided by RMR LLC, all RMR LLC property management and engineering personnel have been trained on COVID-19 precaution procedures.

As states and local communities across the United States 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.

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.

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

As stay at home orders were and may be lifted or loosened across the United States, RMR LLC has implemented additional procedures at our properties 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;

• focusing on sanitizing high touch points in common areas and restrooms;

• shutting down certain building amenities;

• prudently managing the execution or deferment of tenant work orders to limit RMR LLC staff and tenant interactions at our properties;

• installing signage throughout our properties with social distancing reminders;

• changing certain building HVAC systems and equipment, including adjusting outdoor air control programs to increase the amount of outside air delivered to interior spaces and to adjust control sequences to maintain space relative humidity in order to help minimize the concentration of the virus;

• 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;

• requiring vendors to follow best practices under COVID-19 pandemic conditions, including providing RMR LLC with documented preventative measures for their employees and requiring staff to 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.

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

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:

• restricting access to our senior living communities to essential visitors and team members and only reopening communities when it is determined safe to do so in accordance with applicable federal, state and local regulations and guidelines, and Five Star's internal criteria;

• enhancing infectious disease prevention and control policies, procedures and protocols;

• providing additional and enhanced training to team members at all levels of the organization;

• working with vendors to provide adequate supplies and personal protective equipment to our senior living communities;

• effectively transitioning to virtual sales and marketing activities and thoughtfully proceeding with resident move-ins, when appropriate.

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.

During the nine months ended September 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.

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• 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.

• the responses of governments, businesses and the general public to any increased level or rates of COVID-19 infections.

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 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.

As of September 30, 2020, we owned 407 properties, including 22 properties classified as held for sale and 10 properties scheduled for closure and/or sale, located in 37 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 September 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 $8.2 billion, including $172.1 million of gross book value classified as held for sale in our condensed consolidated balance sheet.

For the three months ended September 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, including increased variability.

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

As of September 30, 2020, Five Star managed 239 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 June 30, 2020)

of Properties

Square Feet or Number of Units

Gross Book Value of Real Estate Assets (1)

% of Total Gross Book Value of Real Estate Assets

Investment per Square Foot or Unit (2)

Q2 2020 Revenues (3)

(As of September 30, 2020) Number

of Properties Square Feet or Number of Units Gross Book Value of Real Estate Assets (1)

% of Total Gross Book Value of Real Estate Assets Investment per Square Foot or Unit (2)

Q3 2020 Revenues (3)

Q2 2020 NOI (3)(4)

Q3 2020 Revenues Q3 2020 NOI (3)(4)

% of Q3 2020 NOI

Office Portfolio (5)

Other triple net leased senior living communities

Wellness centers

As of and For the Twelve Months Ended June 30,

126 11,572,503 sq.

$ 3,749,460 45.5 % $ 324 $ 94,235 23.9 % $ 60,787 77.2 %

239 28,232 units 4,014,777 48.7 % $ 142,207 290,101 73.6 % 7,899 10.0 %

Other triple net leased senior living communities 32 2,605 units 296,337 3.6 % $ 113,757 7,114 1.8 % 7,114 9.0 %

Wellness centers 10 812,000 sq.

178,110 2.2 % $ 219 2,889 0.7 % 2,889 3.8 %

Total 407 $ 8,238,684 100.0 % $ 394,339 100.0 % $ 78,689 100.0 %

As of and For the Twelve Months Ended September 30,

Office Portfolio (8)

91.3 % 92.3 %

80.0 % 84.6 %

Other triple net leased senior living communities (9)(10)

85.4 % 87.2 %

Wellness centers 100.0 % 100.0 %

(1) 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 $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.

Amounts include $172,126 of gross book value of 22 properties classified as held for sale as of September 30, 2020, which amounts are included in assets of properties held for sale in our condensed consolidated balance sheet.

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

(3) Includes $551 of revenues and $(215) of NOI from properties that we sold and $19,434 of revenues and $904 of NOI from properties classified as held for sale in our condensed consolidated balance sheet as of September 30, 2020.

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

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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 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.

(6) Includes 920 units for communities scheduled for closure and/or sale.

(7) Residents fees and services for the three and nine months ended September 30, 2020 for our SHOP segment is net of a $4,005 reserve for an estimated Medicare refund we expect to pay.

Property operating expenses for the three and nine months ended September 30, 2020 for our SHOP segment includes $2,167 of estimated penalties, compliance costs and professional fees, net of management fees reimbursable by Five Star, related to the Medicare refund we expect to pay.

(8) Medical office and life science property occupancy data is as of September 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.

(9) 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 March 31, 2020 and 2019, or the most recent prior period for which tenant operating results are made available to us.

(10) 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 June 30, 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.

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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.

During the three months ended September 30, 2020, we entered into lease renewals for 135,177 square feet and new leases for 66,544 square feet at our medical office and life science properties.

The weighted average annual rental rate for leases entered during the quarter was $33.21 per square foot, which was 4.12% 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 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).

Weighted (by annualized rental income) average lease term for leases entered during the third quarter of 2020 was 7.0 years.

Commitments for tenant improvements, leasing commission costs and concessions for leases we entered during the third quarter of 2020 totaled $5.0 million, or $24.60 per square foot on average (approximately $3.51 per square foot per year of the lease term).

Lease Expiration Schedules

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

Percent of Total

Cumulative Percent of Total

Annualized Rental Income (1)

Percent of Total

Cumulative Percent of Total

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

Year Number of Tenants Square Feet Percent of Total Cumulative Percent of Total Annualized Rental Income (1)

Percent of Total Cumulative Percent of Total

2020 62 385,486 3.6 % 3.6 % $ 14,246 3.8 % 3.8 %

2021 99 855,884 8.1 % 11.7 % 29,212 7.8 % 11.6 %

2022 103 1,143,413 10.8 % 22.5 % 34,122 9.1 % 20.7 %

2023 58 1,068,905 10.1 % 32.6 % 20,856 5.6 % 26.3 %

2024 77 1,831,904 17.3 % 49.9 % 50,093 13.4 % 39.7 %

2025 78 1,201,443 11.4 % 61.3 % 26,687 7.1 % 46.8 %

2026 45 718,298 6.8 % 68.1 % 21,774 5.8 % 52.6 %

2027 28 476,458 4.5 % 72.6 % 11,826 3.2 % 55.8 %

2028 19 1,444,954 13.7 % 86.3 % 115,003 30.7 % 86.5 %

2029 and thereafter 67 1,434,989 13.7 % 100.0 % 50,919 13.5 % 100.0 %

Total 636 10,561,734 100.0 % $ 374,738 100.0 %

Weighted average remaining lease term (in years) 5.2 6.0

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.

(1) Annualized rental income is based on rents pursuant to existing leases as of September 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.

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.

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, except for (i) the renewal of a lease for four of our wellness centers for a 12 year term, expiring in August 2040, and (ii) the sale of three senior living communities.

As a result of the COVID-19 pandemic's impact on operations at our wellness centers, we are evaluating our options with respect to the tenant of six of our wellness centers with total annualized rental income of approximately $7.9 million and, which tenant was in default under the applicable leases with us as of September 30, 2020.

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

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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 and six months ended June 30, 2020 and 2019 :

Three Months Ended June 30,

Six Months Ended June 30,

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Office Portfolio $ 94,235 $ 100,010 $ 288,515 $ 307,616

290,101 140,554 926,174 430,218

Non-Segment 10,003 15,263 32,428 46,282

Total revenues $ 394,339 $ 255,827 $ 1,247,117 $ 784,116

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Office Portfolio $ 19,300 $ 2,488 $ 66,399 $ 61,808

(87,133) 13,451 (102,375) 70,194

Non-Segment (39,055) (45,329) (87,249) (168,539)

Net income (loss) attributable to common shareholders $ (106,888) $ (29,390) $ (123,225) $ (36,537)

(1) Residents fees and services for the three and nine months ended September 30, 2020 for our SHOP segment is net of a $4,005 reserve for an estimated Medicare refund we expect to pay.

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

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 .

Three Months Ended September 30, 2020 Compared to Three Months Ended September 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 September 30, 2020 to the three months ended September 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,

Three Months Ended September 30,

2020 2019 $ Change % Change

NOI by segment:

Office Portfolio $ 60,787 $ 65,826 $ (5,039) (7.7) %

7,899 49,655 (41,756) (84.1) %

Non-Segment 10,003 15,263 (5,260) (34.5) %

Total NOI 78,689 130,744 (52,055) (39.8) %

Depreciation and amortization 67,211 73,368 (6,157) (8.4) %

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(Loss) gain on sale of properties (211) 4,183 4,394 105.0 %

Dividend income

Gains and losses on equity securities, net

Gains on equity securities, net 12,510 40 12,470 nm

Interest and other income 134 238 (104) (43.7) %

Interest expense

Loss on early extinguishment of debt

(58,091) (44,817) 13,274 29.6 %

Loss from continuing operations before income tax (expense) benefit and equity in earnings of an investee (105,423) (28,175) 77,248 274.2 %

Income tax (expense) benefit

Income tax (expense) benefit (365) 146 511 nm

Equity in earnings of an investee — 83 (83) (100.0) %

Net loss (105,788) (27,946) 77,842 278.5 %

Net income attributable to noncontrolling interest (1,100) (1,444) (344) (23.8) %

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nm - not meaningful

(1) Residents fees and services for the three months ended September 30, 2020 for our SHOP segment is net of a $4,005 reserve for an estimated Medicare refund we expect to pay.

Property operating expenses for the three months ended September 30, 2020 for our SHOP segment includes $2,167 of estimated penalties, compliance costs and professional fees, net of management fees reimbursable by Five Star, related to the Medicare refund we expect to pay.

Office Portfolio :

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All Properties

As of June 30,

As of September 30, As of September 30,

2020 2019 2020 2019

Total buildings 116 116 126 140

Total square feet (2)

10,923 10,923 11,573 12,179

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;

93.3 % 93.7 % 91.3 % 92.3 %

(1) Consists of medical office and life science properties that we have owned and which have been in service continuously since July 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.

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Comparable property occupancy excludes out of service assets undergoing redevelopment.

Three Months Ended June 30,

Three Months Ended September 30,

Comparable (1)

Non-Comparable

Properties Results

Consolidated Properties Results

Properties Results Properties Results Consolidated Properties Results

2020 2019 Change Change 2020 2019 2020 2019 Change Change

Rental income $ 90,736 $ 92,588 $ (1,852) (2.0) % $ 3,499 $ 7,422 $ 94,235 $ 100,010 $ (5,775) (5.8) %

Property operating expenses (32,417) (31,964) 453 1.4 % (1,031) (2,220) (33,448) (34,184) (736) (2.2) %

NOI $ 58,319 $ 60,624 $ (2,305) (3.8) % $ 2,468 $ 5,202 $ 60,787 $ 65,826 $ (5,039) (7.7) %

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.

Rental income decreased primarily due to our disposition of 19 properties since July 1, 2019 and a decrease in rental income at our comparable properties.

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

The decrease in property operating expenses is primarily due to our disposition of 19 properties since July 1, 2019, partially offset by an increase in property operating expenses at our comparable properties.

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

Net operating income.

2 unchanged sentences

All Properties

As of and For the Three Months

Ended June 30,

As of and For the Three Months As of and For the Three Months

Ended September 30, Ended September 30,

2020 2019 2020 2019

Total properties 214 214 239 243

# of units 25,656 25,656 28,232 28,844

Occupancy 76.3 % 85.4 % 75.2 % 86.0 %

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.

$ 4,515 $ 4,508 $ 4,508 $ 4,549

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

excludes communities classified as held for sale or scheduled for closure and/or sale, if any.

(2) 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,

Three Months Ended September 30,

Comparable (1)

Non-Comparable

Properties Results

Consolidated Properties Results

Properties Results Properties Results Consolidated Properties Results

2020 2019 Change Change 2020 2019 2020 2019 Change Change

Rental income $ — $ 31,376 $ (31,376) (100.0) % $ — $ 1,362 $ — $ 32,738 $ (32,738) (100.0) %

1 unchanged sentence

Property operating expenses (252,931) (84,182) 168,749 200.5 % (29,271) (6,717) (282,202) (90,899) 191,303 210.5 %

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.

NOI $ 14,210 $ 48,417 $ (34,207) (70.7) % $ (6,311) $ 1,238 $ 7,899 $ 49,655 $ (41,756) (84.1) %

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

excludes communities classified as held for sale or scheduled for closure and/or sale, if any.

As a result of routine monitoring protocols that are a part of Five Star's compliance program activities related to Medicare billing, Five Star discovered potentially inadequate documentation at a skilled nursing facility at one of our senior living communities that Five Star manages.

This monitoring was not initiated in response to any specific complaint or allegation but rather

was of the type that Five Star periodically undertakes to test its compliance with applicable Medicare billing rules.

As a result of this discovery, we and Five Star made an initial voluntary disclosure to the OIG pursuant to the OIG’s Provider Self-Disclosure Protocol.

Five Star has since completed its review and assessment of these matters and we and Five Star will submit a final supplemental disclosure to the OIG in November 2020.

At September 30, 2020, we had accrued a revenue reserve of $4,005 for historical Medicare payments we received that we expect to repay as a result of the inadequate documentation Five Star identified.

In addition, we have recorded expenses for additional costs incurred or expected to be incurred, including OIG-imposed penalties, as a result of this matter totaling $2,167 for the three and nine months ended September 30, 2020, of which the entire $2,167 remains accrued and not paid at September 30, 2020.

Rental income.

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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 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 .

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, our acquisition of one active adult rental property since July 1, 2019 and increased average monthly rates at our comparable properties, partially offset by decreases in occupancy primarily due to the impact of the COVID-19 pandemic at both comparable and non-comparable properties for the three months ended September 30, 2020 compared to the three months ended September 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.

Residents fees and services for the three months ended September 30, 2020 is net of a $4,005 reserve for an estimated Medicare refund we expect to pay.

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 .

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 July 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 September 30, 2020 compared to the three months ended September 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.

Property operating expenses for the three months ended September 30, 2020 includes $2,167 of estimated penalties, compliance costs and professional fees, net of management fees reimbursable by Five Star, related to the Medicare refund we expect to pay.

Net operating income.

3 unchanged sentences

All Properties

As of and For the Three Months Ended June 30,

As of and For the Three Months Ended September 30, As of and For the Three Months Ended September 30,

2020 2019 2020 2019

Total properties:

3 unchanged sentences

Other triple net leased senior living communities (3)

1.63 x 1.76 x 1.63 x 1.76 x

Wellness centers (3)

1.59 x 2.36 x 1.59 x 2.36 x

(1) 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 ;

(2) Comparable properties consists of properties that we have owned and which have been leased to the same operator continuously since July 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.

(3) All tenant operating data presented is based upon the operating results provided by our tenants for the 12 months ended June 30, 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.

1 unchanged sentence

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,

Excludes rent coverage for our six wellness centers that are in default under the applicable leases with us.

Three Months Ended September 30,

Comparable (1)

Non-Comparable

Properties Results

Consolidated Properties Results

Properties Results Properties Results Consolidated Properties Results

2020 2019 Change Change 2020 2019 2020 2019 Change Change

Rental income $ 9,044 $ 10,788 $ (1,744) (16.2) % $ 959 $ 4,475 $ 10,003 $ 15,263 $ (5,260) (34.5) %

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

NOI $ 9,044 $ 10,788 $ (1,744) (16.2) % $ 959 $ 4,475 $ 10,003 $ 15,263 $ (5,260) (34.5) %

(1) Consists of properties that we have owned and which have been leased to the same operator continuously since July 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 primarily due to the sale of 11 senior living communities leased to private operators since July 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 July 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.

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

In October 2020, the lease for these four wellness centers was renewed for a 12-year term.

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

2 unchanged sentences

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 .

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

Depreciation and amortization expense decreased primarily due to our disposition of 50 properties, certain depreciable leasing related assets becoming fully depreciated and certain of our acquired resident agreements becoming fully amortized since July 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 July 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 .

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 September 30, 2020 compared to the three months ended September 30, 2019.

Acquisition and certain other transaction related costs.

3 unchanged sentences

(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.

(Loss) gain on sale of properties is the result of our sale of certain of our properties during the three months ended September 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.

Gains on equity securities, net.

Gains on equity securities, net, represent the net unrealized gains to adjust our investment in Five Star to its fair value.

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 and other income represents interest earned on investable cash on hand and restricted cash.

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 .

Interest expense increased primarily due to our issuance in June 2020 of $1,000,000 aggregate principal amount of our 9.75% senior notes due in 2025.

This increase was partially offset by a decrease in average borrowings under our revolving credit facility, our redemption in April 2020 of all $200,000 of our 6.75% senior notes due 2020, our prepayment in December 2019 of our $350,000 term loan, a lower interest rate, as compared to our $350,000 term loan, 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.

Income tax (expense) benefit .

3 unchanged sentences

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 .

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 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 nine months ended September 30, 2020 to the nine months ended September 30, 2019.

Six Months Ended June 30,

Nine Months Ended September 30,

2020 2019 $ Change % Change

NOI by segment:

Office Portfolio $ 191,468 $ 208,730 $ (17,262) (8.3) %

89,071 166,606 (77,535) (46.5) %

Non-Segment 32,428 46,282 (13,854) (29.9) %

Total NOI 312,967 421,618 (108,651) (25.8) %

Depreciation and amortization 204,466 219,522 (15,056) (6.9) %

5 unchanged sentences

Gains and losses on equity securities, net 14,541 (41,476) 56,017 135.1 %

Interest and other income

Interest and other income 8,008 590 7,418 nm

Interest expense

(143,715) (136,840) 6,875 5.0 %

Gain on lease termination

Loss on early extinguishment of debt

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

Income tax expense

22,896 — 22,896 nm

Loss on early extinguishment of debt (427) (17) 410 nm

Loss from continuing operations before income tax (expense) benefit and equity in earnings of an investee (118,339) (32,922) 85,417 259.5 %

Income tax (expense) benefit (1,048) 47 1,095 nm

Equity in earnings of an investee — 617 (617) (100.0) %

Net loss (119,387) (32,258) 87,129 270.1 %

Net income attributable to noncontrolling interest (3,838) (4,279) (441) (10.3) %

1 unchanged sentence

nm - not meaningful

(1) Residents fees and services for the nine months ended September 30, 2020 for our SHOP segment is net of a $4,005 reserve for an estimated Medicare refund we expect to pay.

Property operating expenses for the nine months ended September 30, 2020 for our SHOP segment includes $2,167 of estimated penalties, compliance costs and professional fees, net of management fees reimbursable by Five Star, related to the Medicare refund we expect to pay.

Office Portfolio :

1 unchanged sentence

All Properties

As of June 30,

As of September 30, As of September 30,

2020 2019 2020 2019

Total buildings 116 116 126 140

Total square feet (2)

10,923 10,923 11,573 12,179

Occupancy (3)

93.3 % 93.7 % 91.3 % 92.3 %

(1) 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;

3 unchanged sentences

Comparable property occupancy excludes out of service assets undergoing redevelopment.

Six Months Ended June 30,

Nine Months Ended September 30,

Comparable (1)

Non-Comparable

Properties Results

Consolidated Properties Results

Properties Results Properties Results Consolidated Properties Results

2020 2019 Change Change 2020 2019 2020 2019 Change Change

Rental income $ 275,318 $ 277,163 $ (1,845) (0.7) % $ 13,197 $ 30,453 $ 288,515 $ 307,616 $ (19,101) (6.2) %

Property operating expenses (93,373) (92,028) 1,345 1.5 % (3,674) (6,858) (97,047) (98,886) (1,839) (1.9) %

NOI $ 181,945 $ 185,135 $ (3,190) (1.7) % $ 9,523 $ 23,595 $ 191,468 $ 208,730 $ (17,262) (8.3) %

1 unchanged sentence

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, partially offset by reduced parking revenue and occupancy related to the COVID-19 pandemic.

Rental income decreased primarily due to our disposition of 29 properties since January 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 at certain of our comparable properties related to the COVID-19 pandemic, partially offset by 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.

The decrease in property operating expenses is primarily due to our disposition of 29 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, partially offset by decreases in utility expenses at certain of our comparable properties.

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

Net operating income.

2 unchanged sentences

All Properties

As of and For the Six Months Ended June 30,

As of and For the Nine Months Ended September 30, As of and For the Nine Months Ended September 30,

2020 2019 2020 2019

Total properties 213 213 239 243

# of units 25,338 25,338 28,232 28,844

Occupancy 80.3 % 85.7 % 78.9 % 84.8 %

Average monthly rate (2)

$ 4,546 $ 4,584 $ 4,526 $ 4,635

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

excludes communities classified as held for sale, if any.

excludes communities classified as held for sale or scheduled for closure and/or sale, if any.

Six Months Ended June 30,

Nine Months Ended September 30,

Comparable (1)

Non-Comparable

Properties Results

Consolidated Properties Results

Properties Results Properties Results Consolidated Properties Results

2020 2019 Change Change 2020 2019 2020 2019 Change Change

Rental income $ — $ 99,296 $ (99,296) (100.0) % $ — $ 6,155 $ — $ 105,451 $ (105,451) (100.0) %

1 unchanged sentence

Property operating expenses (739,580) (238,777) 500,803 209.7 % (97,523) (24,835) (837,103) (263,612) 573,491 217.6 %

NOI $ 100,919 $ 159,532 $ (58,613) (36.7) % $ (11,848) $ 7,074 $ 89,071 $ 166,606 $ (77,535) (46.5) %

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

excludes communities classified as held for sale, if any.

excludes communities classified as held for sale or scheduled for closure and/or sale, if any.

Rental income.

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.

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.

2 unchanged sentences

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 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 .

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 nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Residents fees and services for the nine months ended September 30, 2020 is net of a $4,005 reserve for an estimated Medicare refund we expect to pay.

Property operating expenses.

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 .

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 nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Property operating expenses for the nine months ended September 30, 2020 includes $2,167 of estimated penalties, compliance costs and professional fees, net of management fees reimbursable by Five Star, related to the Medicare refund we expect to pay.

Net operating income.

3 unchanged sentences

All Properties

As of and For the Six Months Ended June 30,

As of and For the Nine Months Ended September 30, As of and For the Nine Months Ended September 30,

2020 2019 2020 2019

Total properties:

3 unchanged sentences

Other triple net leased senior living communities (3)

1.63 x 1.76 x 1.63 x 1.76 x

Wellness centers (3)

1.59 x 2.36 x 1.59 x 2.36 x

1 unchanged sentence

excludes properties classified as held for sale, if any.

1 unchanged sentence

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.

Six Months Ended June 30,

Excludes rent coverage for our six wellness centers that are in default under the applicable leases with us.

Nine Months Ended September 30,

Comparable (1)

Non-Comparable

Properties Results

Consolidated Properties Results

Properties Results Properties Results Consolidated Properties Results

2020 2019 Change Change 2020 2019 2020 2019 Change Change

Rental income $ 29,549 $ 32,390 $ (2,841) (8.8) % $ 2,879 $ 13,892 $ 32,428 $ 46,282 $ (13,854) (29.9) %

NOI $ 29,549 $ 32,390 $ (2,841) (8.8) % $ 2,879 $ 13,892 $ 32,428 $ 46,282 $ (13,854) (29.9) %

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

3 unchanged sentences

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.

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

In October 2020, the lease for these four wellness centers was renewed for a 12-year term.

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

2 unchanged sentences

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 .

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

Depreciation and amortization expense.

1 unchanged sentence

General and administrative expense .

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 .

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 nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

Acquisition and certain other transaction related costs.

3 unchanged sentences

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 .

Gain on sale of properties is the net result of our sale of certain of our properties during the nine months ended September 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.

3 unchanged sentences

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.

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

to their fair values.

1 unchanged sentence

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.

Government pursuant to the CARES Act during the nine months ended September 30, 2020.

Interest expense.

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.

Interest expense increased primarily due to our issuance in June 2020 of $1,000,000 aggregate principal amount of our 9.75% senior notes due in 2025.

This increase was 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, as compared to our $350,000 term loan, on our new $250,000 term loan we obtained in December 2019, which we subsequently repaid in June 2020, our redemption in April 2020 of all $200,000 of our 6.75% senior notes due 2020, a decrease in average borrowings under our revolving credit facility and decreases in LIBOR, resulting in a decrease in interest expense with respect to our floating rate debt.

Gain on lease termination.

2 unchanged sentences

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 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 where we are subject to state income taxes.

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 nine months ended September 30, 2020.

We recorded a loss on early extinguishment of debt in connection with our prepayment of mortgage notes during the nine months ended September 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.

2 unchanged sentences

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 and six months ended June 30, 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 (loss) or net income (loss) attributable to common shareholders as indicators of our operating performance or as measures of our liquidity.

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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 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.

Our calculations of FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the three and nine months ended September 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,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Net loss attributable to common shareholders $ (106,888) $ (29,390) $ (123,225) $ (36,537)

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Acquisition and certain other transaction related costs 53 2,492 803 11,209

Costs and payment obligations related to compliance assessment at one of our senior living communities (1)

6,172 — 6,172 —

Gain on lease termination — — (22,896) —

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Distributions declared $ 0.01 $ 0.15 $ 0.17 $ 0.69

(1) Costs and payment obligations related to compliance assessment at one of DHC’s senior living communities consist of residents fees and services as well as property operating expenses.

Residents fees and services for the three and nine months ended September 30, 2020 for our SHOP segment is net of a $4,005 reserve for an estimated Medicare refund we expect to pay.

Property Net Operating Income (NOI)

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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 (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,

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Reconciliation of Net Income (Loss) to NOI:

Net loss $ (105,788) $ (27,946) $ (119,387) $ (32,258)

Equity in earnings of an investee — (83) — (617)

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Depreciation and amortization 67,211 73,368 204,466 219,522

Total NOI $ 78,689 $ 130,744 $ 312,967 $ 421,618

Office Portfolio NOI $ 60,787 $ 65,826 $ 191,468 $ 208,730

7,899 49,655 89,071 166,606

Non-Segment NOI 10,003 15,263 32,428 46,282

Total NOI $ 78,689 $ 130,744 $ 312,967 $ 421,618

(1) Residents fees and services for the three and nine months ended September 30, 2020 for our SHOP segment is net of a $4,005 reserve for an estimated Medicare refund we expect to pay.

LIQUIDITY AND CAPITAL RESOURCES

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Our future cash flows from operating activities will depend primarily upon:

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 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 receive rents from our tenants in light of the COVID-19 pandemic and resulting economic downturn and generally;

• 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 and resulting economic downturn, 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.

• 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 and resulting economic downturn, to reduce the extent of the declines in our returns.

We continue to carefully monitor the developments of the COVID-19 pandemic and resulting economic downturn and their 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.

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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.

As of November 2, 2020, we granted requests for certain of our tenants to defer rent payments totaling $2.2 million with respect to leases that represent, as of September 30, 2020, approximately 5.3% of our annualized rental income.

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

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

During the nine months ended September 30, 2020, we sold 17 properties for an aggregate sales price of $80.6 million, excluding closing costs.

In October and November 2020, we sold four properties for an aggregate sales price of $49.0 million, excluding closing costs, and as of November 2, 2020, we had 21 properties under agreements to sell for an aggregate sales price of approximately $167.4 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.

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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,

Nine Months Ended September 30,

Cash and cash equivalents and restricted cash at beginning of period $ 52,224 $ 70,071

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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 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.

The decrease in cash provided by operating activities for the nine months ended September 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.

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We have granted requests for certain of our tenants to defer rent payments totaling $2.2 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.

As of September 30, 2020, we recognized an increase in our accounts receivable balance related to these deferred rent payments of $4.5 million.

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

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

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 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 increase in cash used in investing activities for the nine months ended September 30, 2020 compared to the prior year period was primarily due to proceeds from our sale of all of the RMR Inc.

class A common stock that we owned in the 2019 period, partially offset by a decrease in real estate improvements and 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 June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Office Portfolio segment capital expenditures:

Lease related costs (1)

$ 4,411 $ 4,622 $ 13,293 $ 16,906

Building improvements (2)

4,990 5,673 11,363 9,597

SHOP segment fixed assets and capital improvements 15,988 4,997 37,411 11,796

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Development, redevelopment and other activities - Office Portfolio segment (3)

$ 14,832 $ 8,220 $ 37,987 $ 23,564

Development, redevelopment and other activities - SHOP segment (3)(4)

4,927 7,509 19,926 26,386

Total development, redevelopment and other activities $ 19,759 $ 15,729 $ 57,913 $ 49,950

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

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.

During the three and nine months ended September 30, 2020, we invested $0.5 million and $1.3 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 rent payable to us increased by approximately $0.03 million and $0.07 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 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):

During the three months ended September 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):

New Leases Renewals Total

Square feet leased during the quarter 67 135 202

Total leasing costs and concession commitments (1)

$ 3,632 $ 1,331 $ 4,963

Total leasing costs and concession commitments per square foot (1)

$ 54.57 $ 9.85 $ 24.60

Weighted average lease term (years) (2)

Total leasing costs and concession commitments per square foot per year (1)

$ 6.20 $ 1.73 $ 3.51

(1) 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 June 30, 2020 , including straight line rent adjustments and estimated recurring expense reimbursements, and excluding lease value amortization.

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.

(2) Weighted based on annualized rental income pursuant to existing leases as of September 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 September 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 $18.4 million.

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

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

During the three months ended September 30, 2020, we entered into a new 10-year lease at a rental rate that is approximately 20% higher than the prior rental rate for the same space at one of these buildings located in San Diego, CA.

We have continued to progress on these redevelopments during 2020.

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Our Financing Liquidity and Resources

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.

The decrease in cash used in financing activities for the nine months ended September 30, 2020 compared to the prior period was primarily due to net proceeds from our issuance in June 2020 of $1.0 billion aggregate principal amount of our 9.75% senior notes, decreased repayments of senior unsecured notes in the 2020 period and a reduction in distributions paid to our shareholders in the 2020 period, partially offset by 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.

As of September 30, 2020, we had $82.2 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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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.

At September 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.

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

As of September 30, 2020 and November 2, 2020, we had no outstanding borrowings under our revolving credit facility.

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

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• 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 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;

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

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

At September 30, 2020, this term loan required interest to be paid at the annual rate of 2.8%.

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.

During the nine months ended September 30, 2020, we paid quarterly cash distributions to our shareholders totaling approximately $40.4 million using existing cash balances and borrowings under our revolving credit facility.

On October 15, 2020, we declared a quarterly distribution payable to common shareholders of record on October 26, 2020, of $0.01 per share, or approximately $2.4 million.

We expect to pay this distribution on or about November 19, 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.

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Similarly, our ability to raise equity capital in the future will depend primarily upon equity capital market conditions and our ability to conduct our business to maintain and grow our operating cash flows.

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.

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.

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.

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Off Balance Sheet Arrangements

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.

As of September 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 June 30, 2020 were:

Our principal debt obligations at September 30, 2020 were:

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

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

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.

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.

As of September 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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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

senior notes due 2025, including guarantees of other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity.

September 30, 2020 December 31, 2019

Real estate properties, net $ 5,062,743 $ 5,212,252

Other assets, net 380,278 260,169

Total assets $ 5,443,021 $ 5,472,421

Indebtedness, net $ 2,813,547 $ 2,815,796

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Total liabilities $ 3,125,293 $ 2,997,888

Year Ended December 31, 2019

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020 Year Ended December 31, 2019

Revenues $ 1,149,167 $ 888,704

Expenses 1,195,697 819,054

Loss from continuing operations (123,492) (84,136)

Net loss (124,540) (84,172)

Net loss attributable to DHC (124,540) (84,172)

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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 June 30, 2020 , 33.9% and 6.4% , 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 September 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.

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Impact of Government Reimbursement

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.

For the nine months ended September 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