What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-05 compared with 2020-11-05 · 268 added, 531 removed, 305 unchanged (72% of the section changed)

1 unchanged sentence

The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and with our Annual Report.

Impact of COVID-19

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

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

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

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

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

economy are in a recession.

States and municipalities across the United States have 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 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.

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

As of March 31, 2021, we owned 396 properties located in 36 states and Washington, D.C., including four properties classified as held for sale and one life science property owned in a joint venture arrangement in which we own a 55% equity interest.

At March 31, 2021, 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 $66.1 million of gross book value classified as held for sale in our condensed consolidated balance sheet.

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

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

Due to restrictions intended to prevent the spread of the virus 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 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.

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

Our senior living community operators also experienced disruptions, including limitations on in-person tours and new admissions, and experienced 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 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.

We are closely monitoring the impacts of the COVID-19 pandemic on all aspects of our business.

With respect to our SHOP segment, we expect that our senior living community operators will be operating our communities at lower average occupancy with higher operating expenses per resident, which will likely lead to decreased returns to us as a result of the COVID-19 pandemic.

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

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

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

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

• our operations, liquidity and capital needs and resources;

• conducting financial modeling and sensitivity analyses;

• actively communicating with our tenants, our operators and other key constituents and stakeholders in order to help assess market conditions, opportunities, best practices and mitigate risks and potential adverse impacts;

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

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

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

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

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

• As of 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.

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

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

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

As of 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.

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

RMR LLC has implemented enhanced cleaning protocols and social distancing guidelines at its corporate headquarters and 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, 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;

• implementing energy reduction protocols for lighting and HVAC systems;

• reducing non-essential building services and staff;

• reducing the frequency of trash removal.

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

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.

• 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 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 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 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.

These uncertainties include, among others:

• the duration and severity of the negative economic impact;

• the strength and sustainability of any economic recovery;

• 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;

• 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.

For further information and risks relating to the COVID-19 pandemic and its aftermath on us and our business, see Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q.

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 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

As of December 31, 2019, Five Star operated 244 of our senior living communities in our SHOP segment, of which 166 communities were leased to Five Star and 78 communities were managed by Five Star for our account.

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 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.

Throughout the first quarter, Five Star coordinated multiple COVID-19 vaccination clinics at our SHOP communities for residents and staff.

At the conclusion of the vaccination clinics, over 96% of residents had received a vaccine.

All of our communities are now open to admissions.

We also believe that we, Five Star and our impacted tenants have and may continue to benefit from provisions of the CARES Act, signed into law in March 2020 and further supplemented by the Consolidated Appropriations Act, 2021, or other federal or state relief programs allowing them to continue or resume business activity.

During the three months ended March 31, 2021, we recognized $2.4 million in interest and other income in our condensed consolidated statement of comprehensive income (loss) related to funds received under the CARES Act.

We believe that we are well positioned to weather the present disruptions facing the real estate industry and, in particular, the real estate healthcare industry, including senior living.

In the first quarter of 2021, following the holiday season, the reopening of economies and the easing of restrictions, the United States experienced peak numbers of COVID-19 infections.

In some cases, certain states and municipalities again required the closure of certain business activities and imposed certain other restrictions.

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

For further information and risks relating to the COVID-19 pandemic and its aftermath on us and our business, see Part I, Item 1, “Business—COVID-19 Pandemic” and Part I, Item 1A, “Risk Factors” in our Annual Report.

2021 Amendments to our Management Arrangements with Five Star

On April 9, 2021, we announced that we have agreed to amend our management arrangements with Five Star.

The principal changes to the management arrangements will include:

• that Five Star will cooperate with us in transitioning 108 of our senior living communities with approximately 7,500 living units to other third party operators without our payment of any termination fee to Five Star, and that we will no longer have the right to sell up to an additional $682 million of senior living communities currently managed by Five Star and terminate Five Star’s management of those communities without our payment of a fee to Five Star upon sale;

• that Five Star will continue to manage 120 of our senior living communities, with approximately 18,000 living units, for our account, and that the skilled nursing units in all of our continuing care retirement communities that Five Star will continue to manage for our account, which currently includes approximately 1,500 living units, will be closed and repositioned;

• that our performance termination rights pursuant to our existing management agreements with Five Star will be amended for the senior living communities that Five Star will continue to manage for our account, such that, commencing in 2025, we can terminate up to 10% of the senior living communities managed by Five Star for our account, based on total revenues, per year without our payment of any termination fee to Five Star for failure to meet 80% of a target EBITDA in prior years;

• that the incentive fee calculation included in our existing management agreements with Five Star will be amended for the senior living communities that Five Star will continue to manage for our account such that there will no longer be a cap placed on any incentive fee earned by Five Star in any calendar year and that any senior living communities that are undergoing a major renovation or repositioning will be excluded from the calculation;

• that RMR LLC will assume control of any major renovation or repositioning activities at the senior living communities that Five Star will continue to manage for our account;

• that the term of our existing management agreements with Five Star will be extended by two years to December 31, 2036.

We expect that the transition of the management of the 108 senior living communities to other third party operators will be completed before year end 2021.

We also expect to incur costs related to retention, temporary labor and other transition costs for these communities, which costs may be significant.

The following table presents a pro forma breakout of communities that Five Star will continue to manage and communities that will transition to other third party operators (dollars in thousands):

As of and For the Three Months Ended March 31, 2021

Five Star Retained Communities Operator Transition Communities Total

Communities (1)

Number of units (2)

17,906 7,525 25,431

Occupancy 71.0 % 65.6 % 69.5 %

Residents fees and services $ 185,317 $ 74,470 $ 259,787

$ 10,541 $ (6,169) $ 4,372

(1) Excludes seven closed senior living communities.

(2) Excludes 1,532 skilled nursing facility units that are scheduled for closure and/or repositioning.

(3) 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.”

See Notes 9 and 11 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information regarding our management arrangements with Five Star.

PORTFOLIO OVERVIEW

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

(As of September 30, 2020) Number

(As of March 31, 2021) Number

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

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$ 3,771,963 45.7 % $ 337 $ 93,323 25.7 % $ 62,030 82.3 %

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

SHOP 235 26,963 units 4,049,693 49.1 % $ 150,194 259,966 71.7 % 3,868 5.1 %

Other triple net leased senior living communities 29 2,366 units 249,328 3.0 % $ 105,380 6,179 1.7 % 6,179 8.3 %

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Total 396 $ 8,249,094 100.0 % $ 362,724 100.0 % $ 75,333 100.0 %

As of and For the Twelve Months Ended September 30,

As of and For the Three Months Ended March 31,

Office Portfolio (6)

92.3 % 92.6 %

80.0 % 84.6 %

SHOP 69.5 % 82.7 %

Other triple net leased senior living communities (7)(8)

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(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 $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.

Amounts include $66,988 of gross book value of four properties classified as held for sale as of March 31, 2021, 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 March 31, 2021.

(3) Includes $370 of revenues and $374 of NOI from properties that we sold and $2,460 of revenues and $2,226 of NOI from properties classified as held for sale in our condensed consolidated balance sheet as of March 31, 2021.

(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.

(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.

(6) Medical office and life science property occupancy data is as of March 31, 2021 and 2020 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.

(7) 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.

(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.

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

We have not independently verified tenant operating data.

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

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

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

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

During the three months ended 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 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).

During the three months ended March 31, 2021, we entered into lease renewals for 60,420 square feet and new leases for 152,171 square feet at our medical office and life science properties.

The weighted average annual rental rate for leases entered

during the quarter was $57.89 per square foot, which was 18.68% higher than the previous weighted average annual rental rate for the same space.

Weighted (by annualized rental income) average lease term for leases entered during the first quarter of 2021 was 10.6 years.

Commitments for tenant improvements, leasing commission costs and concessions for leases entered during the first quarter of 2021 totaled $32.8 million, or $154.32 per square foot on average (approximately $14.57 per square foot per year of the lease term).

Lease Expiration Schedules

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)

As of March 31, 2021, 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 Leased Percent of Total Cumulative Percent of Total Annualized Rental Income (1)

Percent of Total Cumulative Percent of Total

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Weighted average remaining lease term (in years) 5.0 5.9

(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.

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.

(1) Annualized rental income is based on rents pursuant to existing leases as of March 31, 2021, including straight line rent adjustments and 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 the life science property owned in a joint venture arrangement in which we own a 55% equity interest.

Lease expiration data for our other triple net leased senior living communities leased to third party operators and wellness centers has not been provided because there were no changes to the lease expiration schedules from those reported in our Annual Report, except for the renewal of leases with the tenant of six of our wellness centers for a five year term expiring in 2028.

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

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Our SHOP segment consists of managed senior living communities that provide short term and long term residential living and in some instances care and other services for residents where we pay fees to the operator to manage the communities for our account.

In addition, prior to January 1, 2020, our SHOP segment included triple net leased senior living communities that provided short term and long term residential living and in some instances care and other services for residents and from which we received rents from Five Star.

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

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

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

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

The following table summarizes the results of operations of each of our segments for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

Office Portfolio $ 93,323 $ 98,770

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

SHOP 259,966 331,969

Non-Segment 9,435 11,728

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Office Portfolio $ 22,709 $ 22,759

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

SHOP (25,414) 9,468

Non-Segment (64,800) (22,492)

Net income (loss) attributable to common shareholders $ (67,505) $ 9,735

(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 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.

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020 (dollars and square feet in thousands, except average monthly rate):

Unless otherwise indicated, references in this section to changes or comparisons of results, income or expenses refer to comparisons of the results for the three months ended March 31, 2021 to the three months ended March 31, 2020.

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 September 30,

Three Months Ended March 31,

2021 2020 $ Change % Change

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Office Portfolio $ 62,030 $ 66,064 $ (4,034) (6.1) %

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

SHOP 3,868 48,090 (44,222) (92.0) %

Non-Segment 9,435 11,728 (2,293) (19.6) %

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(Loss) gain on sale of properties (122) 2,782 (2,904) (104.4) %

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

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

Interest expense

(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 (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) %

Net loss attributable to common shareholders $ (106,888) $ (29,390) $ 77,498 263.7 %

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 :

Comparable Properties (1)

All Properties

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 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.

(2) Prior periods exclude space remeasurements made subsequent to those periods.

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

Comparable property occupancy excludes out of service assets undergoing redevelopment.

Three Months Ended September 30,

Comparable (1)

Non-Comparable

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 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 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.

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

Comparable Properties (1)

All Properties

As of and For the Three Months 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)

$ 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 September 30,

Comparable (1)

Non-Comparable

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) %

Residents fees and services 267,141 101,223 165,918 163.9 % 22,960 6,593 290,101 107,816 182,285 169.1 %

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

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.

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

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

Residents fees and services.

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

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

Residents fees and services increased primarily due to the Restructuring Transaction and the resulting change to our management arrangement with Five Star for all of our senior living communities that it operates, 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 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.

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

Non-Segment (1) :

Comparable Properties (2)

All Properties

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

2020 2019 2020 2019

Total properties:

Other triple net leased senior living communities 29 29 32 43

Wellness centers 10 10 10 10

Rent coverage:

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.

(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.

(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.

We have not independently verified tenant operating data.

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

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 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) %

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 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 had 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 which commenced in September 2020.

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.

Net operating income.

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

Consolidated :

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

Acquisition and certain other transaction related costs.

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

Impairment of assets.

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

(Loss) gain on sale of properties.

(Loss) gain on sale of properties is the result of our sale of certain 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.

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.

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

Interest expense.

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 .

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

Equity in earnings of an investee.

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

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

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.

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) %

General and administrative 23,132 28,287 (5,155) (18.2) %

Acquisition and certain other transaction related costs 803 11,209 (10,406) (92.8) %

Impairment of assets 106,611 41,518 65,093 156.8 %

Gain on sale of properties 2,403 21,893 (19,490) (89.0) %

Dividend income — 1,846 (1,846) (100.0) %

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

Losses on equity securities, net (8,339) (9,943) 1,604 (16.1) %

Interest and other income 2,835 138 2,697 nm

2 unchanged sentences

Gain on lease termination

22,896 — 22,896 nm

— 22,896 (22,896) (100.0) %

Loss on early extinguishment of debt (2,040) (246) (1,794) 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 %

(Loss) income from continuing operations before income tax (expense) benefit (65,945) 10,700 (76,645) nm

Income tax (expense) benefit (238) 443 (681) (153.7) %

Net (loss) income (66,183) 11,143 (77,326) nm

Net income attributable to noncontrolling interest (1,322) (1,408) 86 (6.1) %

Net loss attributable to common shareholders $ (123,225) $ (36,537) $ 86,688 237.3 %

Net (loss) income attributable to common shareholders $ (67,505) $ 9,735 $ (77,240) nm

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 September 30, As of September 30,

As of March 31, As of March 31,

2021 2020 2021 2020

4 unchanged sentences

93.6 % 93.7 % 92.3 % 92.6 %

(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;

(1) Consists of medical office and life science properties that we have owned and which have been in service continuously since January 1, 2020, including the 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.

2 unchanged sentences

Comparable property occupancy excludes out of service assets undergoing redevelopment.

Nine Months Ended September 30,

Three Months Ended March 31,

Comparable (1)

5 unchanged sentences

NOI $ 60,121 $ 61,859 $ (1,738) (2.8) % $ 1,909 $ 4,205 $ 62,030 $ 66,064 $ (4,034) (6.1) %

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 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.

Rental income decreased primarily due to our disposition of 16 properties since January 1, 2020, assets being taken out of service and/or undergoing redevelopment 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 and decreases in tax escalation income and other property operating expense reimbursements 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 and insurance expense, partially offset by decreases in utility expenses and other direct costs at certain of our comparable properties.

The decrease in property operating expenses is primarily due to our disposition of 16 properties since January 1, 2020 and a decrease in property operating expenses at our comparable properties.

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

Net operating income.

2 unchanged sentences

All Properties

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

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

Ended March 31, Ended March 31,

2021 2020 2021 2020

Total properties 228 228 235 244

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

Number of units 26,963 26,963 26,963 28,960

Occupancy 69.5 % 83.5 % 69.5 % 82.7 %

2 unchanged sentences

(1) Consists of senior living communities that we have owned and which have been operated by the same operator continuously since January 1, 2020;

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

excludes communities classified as held for sale or closed, if any.

Nine Months Ended September 30,

Three Months Ended March 31,

Comparable (1)

2 unchanged sentences

2021 2020 Change Change 2021 2020 2021 2020 Change Change

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

Residents fees and services $ 259,787 $ 312,301 $ (52,514) (16.8) % $ 179 $ 19,668 $ 259,966 $ 331,969 $ (72,003) (21.7) %

2 unchanged sentences

(1) Consists of senior living communities that we have owned and which have been operated by the same operator continuously since January 1, 2020;

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.

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.

excludes communities classified as held for sale or closed, if any.

Residents fees and services.

1 unchanged sentence

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 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.

Residents fees and services decreased primarily due to our disposition of nine properties since January 1, 2020 and 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 March 31, 2021 compared to the three months ended March 31, 2020, partially offset by increases in average monthly rates at both comparable and non-comparable properties.

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 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.

Property operating expenses decreased primarily due to our disposition of nine properties since January 1, 2020 and a decrease in property operating expenses at our comparable properties.

Property operating expenses at our comparable properties decreased primarily due to decreases in costs associated with staffing and dietary expenses primarily due to the impact of the COVID-19 pandemic, partially offset by increased property operating expenses at certain of our comparable properties related to the February 2021 winter storms, which impacted Texas and certain other states.

Net operating income.

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

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

Non-Segment (1) :

1 unchanged sentence

All Properties

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

As of and For the Three Months Ended March 31, As of and For the Three Months Ended March 31,

2021 2020 2021 2020

7 unchanged sentences

0.91 x 1.82 x 0.91 x 1.82 x

(1) Non-segment operations consists of all of our other operations, including certain senior living communities leased to third party operators 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.

(2) Comparable properties consists of properties that we have owned and which have been leased to the same operator continuously since January 1, 2020;

excludes properties classified as held for sale, if any.

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

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

Nine Months Ended September 30,

(4) Wellness centers' rent coverage does not include the impacts of lease amendments that we entered into during the first quarter of 2021 with Starmark Holdings, LLC.

Three Months Ended March 31,

Comparable (1)

7 unchanged sentences

Rental income.

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

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

Rental income decreased primarily due to the sale of three senior living communities leased to private operators since January 1, 2020 and a decrease in rental income at our comparable properties, partially offset by increased rents resulting from our purchase of improvements at our comparable properties since January 1, 2020.

Rental income decreased at our comparable properties primarily due to lease renewals with tenants of our wellness centers at lower average rental rates.

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.

In February 2021, we entered into lease renewals with the tenant of six of our wellness centers for a five year term at lower cash rental rates until deferred rents become due.

We have elected to recognize rental income from this tenant as rent payments are received.

In October 2020, the lease for our other four wellness centers was renewed for a 12 year term at a lower average rental rate.

Net operating income.

1 unchanged sentence

Consolidated :

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.

References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended March 31, 2021, compared to the three months ended March 31, 2020.

Depreciation and amortization expense.

Depreciation and amortization expense decreased primarily due to our disposition of 63 properties, certain depreciable leasing related assets becoming fully depreciated and certain of our acquired resident agreements becoming fully amortized since January 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 January 1, 2019.

Depreciation and amortization expense decreased primarily due to our disposition of 28 properties, certain depreciable leasing related assets becoming fully depreciated and certain of our acquired resident agreements becoming fully amortized since January 1, 2020, partially offset by the purchase of capital improvements at certain of our properties since January 1, 2020.

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

General and administrative expense decreased primarily due to a decrease in our base business management fees expense as a result of lower trading prices for our common shares during the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

Acquisition and certain other transaction related costs.

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

Acquisition and certain other transaction related costs primarily represent costs incurred in connection with the 2020 restructuring of our business arrangements with Five Star, or the Restructuring Transaction.

For information regarding the Restructuring Transaction, see Note 9 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Impairment of assets.

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

Gain on sale of properties.

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.

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 gains and losses to adjust our investment in Five Star and former investment in RMR Inc.

to their fair values.

For further information about our asset impairment charges, see Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and Note 3 to our consolidated financial statements included in Part IV, Item 15 of our Annual Report.

(Loss) gain on sale of properties.

(Loss) gain on sale of properties is the net result of our sale of certain of our properties during the three months ended March 31, 2021 and 2020.

For further information regarding (loss) gain on sale of properties, see Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and Note 3 to our consolidated financial statements included in Part IV, Item 15 of our Annual Report.

Losses on equity securities, net.

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

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

Interest and other income.

The increase in interest and other income is primarily due to $2,433 of funds we received from the U.S.

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

government pursuant to the CARES Act during the three months ended March 31, 2021.

Interest expense.

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.

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 and our issuance in February 2021 of $500,000 aggregate principal amount of our 4.375% senior notes due in 2031.

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 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.

We recorded a loss on early extinguishment of debt in connection with the amendments to our credit and term loan agreements and our prepayment of our $200,000 term loan during the three months ended March 31, 2021.

We recorded a loss on early extinguishment of debt in connection with our prepayment of a mortgage debt during the three months ended March 31, 2020.

Income tax (expense) benefit .

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

Equity in earnings of an investee.

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

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

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 nine months ended September 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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We calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders as shown below.

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

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

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

In calculating Normalized FFO attributable to common shareholders, we adjust for the items shown below.

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

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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 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.

Our calculations of FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the three months ended March 31, 2021 and 2020 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 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)

Three Months Ended March 31,

Net (loss) income attributable to common shareholders $ (67,505) $ 9,735

Depreciation and amortization 66,153 68,430

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Impairment of assets (174) 11,234

Gains and losses on equity securities, net (12,510) (40) (14,541) 41,476

Losses on equity securities, net 8,339 9,943

FFO adjustments attributable to noncontrolling interest (5,273) (5,275)

Adjustments to reflect our share of FFO attributable to an equity method investment 2,036 (4,415)

FFO attributable to common shareholders 3,698 86,870

Acquisition and certain other transaction related costs — 663

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)

Loss on early extinguishment of debt 2,040 246

Adjustments to reflect our share of Normalized FFO attributable to an equity method investment 85 8,134

Normalized FFO attributable to common shareholders $ 5,823 $ 73,017

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Per common share data (basic and diluted):

Net loss attributable to common shareholders $ (0.45) $ (0.12) $ (0.52) $ (0.15)

Net (loss) income attributable to common shareholders $ (0.28) $ 0.04

FFO attributable to common shareholders $ 0.02 $ 0.37

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Distributions declared $ 0.01 $ 0.15

(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 nine months ended September 30, 2020 and 2019, respectively.

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

2020 2019 2020 2019

The following table includes the reconciliation of net income (loss) to NOI for the three months ended March 31, 2021 and 2020, respectively.

Three Months Ended March 31,

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)

Net (loss) income $ (66,183) $ 11,143

Income tax expense (benefit) 238 (443)

Loss from continuing operations before income tax (expense) benefit and equity in earnings of an investee (105,423) (28,175) (118,339) (32,922)

(Loss) income from continuing operations before income tax (expense) benefit (65,945) 10,700

Loss on early extinguishment of debt 2,040 246

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Interest and other income (2,835) (138)

Gains and losses on equity securities, net (12,510) (40) (14,541) 41,476

Dividend income — — — (1,846)

Losses on equity securities, net 8,339 9,943

Loss (gain) on sale of properties 122 (2,782)

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Office Portfolio NOI $ 62,030 $ 66,064

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

SHOP NOI 3,868 48,090

Non-Segment NOI 9,435 11,728

Total NOI $ 75,333 $ 125,882

(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 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 receive rents from our tenants in light of the COVID-19 pandemic and its 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 its 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 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.

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 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.

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

• each 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 its 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 its 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 February 2021, we issued $500.0 million aggregate principal amount of 4.375% senior notes due 2031.

We used net proceeds from this offering to prepay in full our $200.0 million term loan and will use the remaining net proceeds to redeem all of our outstanding 6.75% senior notes due 2021 in June 2021, when these notes become redeemable with no prepayment premium.

In April 2021, we delivered a notice of redemption to U.S.

Bank National Association, as trustee, with respect to these senior notes for a redemption price equal to the principal amount plus accrued and unpaid interest.

In addition, on March 31, 2021, we borrowed $800.0 million under our revolving credit facility as a precautionary measure to increase our cash position and preserve financial flexibility in light of continued uncertainty resulting from the COVID-19 pandemic.

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.

We may fail to satisfy covenants and conditions under our credit agreement or fail to satisfy our public debt covenants.

We expect the ratio of consolidated income available for debt service to debt service could fall below the 1.5x requirement under our revolving credit facility and our public debt covenants in 2021 as the continued effects of the COVID-19 pandemic adversely impact our operations.

We will not be allowed to incur additional debt while this ratio is below 1.5x.

For additional responses and measures taken relating to the COVID-19 pandemic, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in our Annual Report and Note 4 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

During the three months ended March 31, 2021, we sold one property for a sales price of $9.0 million, excluding closing costs.

In April 2021, we sold four properties for a sales price of $95.5 million, excluding closing costs.

The impacts of the COVID-19 pandemic and the resulting economic conditions are likely to cause any future property sales to be delayed or occur over a protracted period of time or not at all.

The measures noted above may not sufficiently offset the decrease in cash flows from operations and capital investments we make during the COVID-19 pandemic, which may negatively impact our liquidity.

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):

Nine Months Ended September 30,

Three Months Ended March 31,

Cash and cash equivalents and restricted cash at beginning of period $ 90,849 $ 52,224

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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 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.

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

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

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

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

The decrease in cash provided by operating activities for the three months ended March 31, 2021 compared to the prior period was primarily due to the impact of the COVID-19 pandemic on the senior living communities in our SHOP segment, along with reduced NOI as a result of dispositions of properties during 2020 and 2021.

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

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

As of May 3, 2021, we granted requests for certain of our tenants to defer rent payments totaling $1.9 million.

As of March 31, 2021, we recognized an increase in our accounts receivable balance related to these deferred rent payments of $0.9 million.

These tenants are obligated to pay, in most cases, the deferred rents in 12 equal monthly installments, which payments have commenced.

For the three months ended March 31, 2021, we collected approximately 99% of our contractual rents due from tenants in our Office Portfolio segment.

While these deferred amounts have not negatively impacted

our results of operations, the deferred rents have temporarily reduced our operating cash flows.

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

As it relates to our SHOP segment, we have also deferred approximately $22.2 million of payroll taxes as allowed under the CARES Act.

These deferred payroll taxes were included in other liabilities in our condensed consolidated balance sheet as of March 31, 2021 and we expect to pay these deferred taxes in the second half of 2021.

We also believe that, other than in our SHOP segment, overall tenant retention levels may increase as a result of the COVID-19 pandemic.

Our Investing Liquidity and Resources

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 September 30, Nine Months Ended September 30,

2020 2019 2020 2019

The increase in cash used in investing activities for the three months ended March 31, 2021 compared to the prior year period was primarily due to less proceeds from the sale of real estate properties in the 2021 period compared to the 2020 period and an increase in real estate improvements in the 2021 period compared to the 2020 period.

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

Three Months Ended March 31,

Office Portfolio segment capital expenditures:

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Building improvements (2)

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

SHOP segment fixed assets and capital improvements 22,530 12,918

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

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

Total development, redevelopment and other activities $ 18,810 $ 16,643

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

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

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.

During the three months ended March 31, 2021, we invested $0.2 million in revenue producing capital improvements at certain of our triple net leased senior living communities leased to private operators, and, as a result, annual rent payable to us increased by approximately $0.01 million pursuant to the terms of the applicable leases.

We used cash on hand to fund these purchases.

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

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):

During the three months ended March 31, 2021, 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

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Weighted average lease term (years) (2)

11.0 8.7 10.6

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

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

(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.

(2) Weighted based on annualized rental income pursuant to existing leases as of March 31, 2021, including straight line rent adjustments and estimated recurring expense reimbursements, and excluding lease value amortization.

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

Our ability to make capital investments is currently limited pursuant to our credit agreement through the Amendment Period.

As of March 31, 2021, 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 $38.6 million, of which we expect to spend approximately $36.4 million during the next 12 months.

We expect to fund these obligations using operating cash flows we generate as rental income from our leased properties, residents fees and services revenues from our managed communities, cash on hand and proceeds from the disposition of certain properties.

We are currently in the process of redeveloping two properties in our Office Portfolio located in Tempe, AZ 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.

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

Physical improvements at our redevelopment in San Diego, CA have been substantially completed and we expect to incur additional leasing costs in 2021 to lease the available space.

During the three months ended March 31, 2021, we entered into two leases with a weighted (by annualized rental income) average lease term of approximately 12 years at a weighted average rental rate that is approximately 20% higher than the prior rental rate for the same space at this San Diego, CA property.

As of May 3, 2021, we have executed new leases and received a letter of intent for an aggregate 83% of the square footage at this property.

We have continued to progress on our redevelopments during 2021 and continue to assess opportunities to redevelop other properties in our portfolio.

In April 2021, we entered into an agreement to acquire a property which is adjacent to one of our existing properties located in Silver Springs, Maryland for a purchase price of $19.6 million, excluding acquisition related costs.

This acquisition is expected to close during the third quarter of 2021.

However, this acquisition is subject to conditions;

accordingly, we cannot be sure that we will complete this acquisition, that this acquisition will not be delayed or that the terms will not change.

As noted above, our ability to make capital investments is currently limited pursuant to our credit agreement through the Amendment Period.

For further information regarding our acquisitions and dispositions, see Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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

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

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

Our Financing Liquidity and Resources

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.

The increase in cash provided by financing activities for the three months ended March 31, 2021 compared to the prior period was primarily due to increased net borrowings under our revolving credit facility, net proceeds from our issuance in February 2021 of $500.0 million aggregate principal amount of our 4.75% senior notes, and a reduction in distributions paid to our shareholders in the 2021 period, partially offset by our prepayment in February 2021 of our $200.0 million term loan.

As of March 31, 2021, we had $843.2 million of cash and cash equivalents and were fully drawn 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.

In order to fund acquisitions and to meet cash needs that may result from timing differences between our receipt of rents and our desire or need to make distributions or pay operating or capital expenses, we maintain a $1.0 billion unsecured revolving credit facility.

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

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

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 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 maturity date of our revolving credit facility is January 15, 2022, and, subject to the payment of an extension fee and meeting other conditions, we have two, one year options to extend the maturity date of the facility to January 2024.

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

At March 31, 2021, our revolving credit facility required interest to be paid on borrowings at the annual rate of 2.9%, 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 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.

The amendments modify certain of the financial covenants under these agreements through the Amendment Period, during which, subject to certain conditions, we will continue to have access to undrawn amounts under our revolving credit facility.

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

During the Amendment Period:

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

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

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

• we will be required to maintain unrestricted liquidity (unrestricted cash and undrawn availability under our revolving credit facility) of not less than $200.0 million;

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

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

On March 31, 2021, we borrowed $800.0 million under our revolving credit facility as a precautionary measure to increase our cash position and preserve financial flexibility in light of continued uncertainty resulting from the COVID-19 pandemic.

As of March 31, 2021 and May 3, 2021, we were fully drawn under our revolving credit facility.

In January 2021, we amended our credit and term loan agreements in order to provide us with certain flexibility in light of the uncertainties related to the COVID-19 pandemic.

Pursuant to the amendments:

• certain of the financial covenants under our credit and term loan agreements, including covenants that require us to maintain certain financial ratios, have been waived through the Amendment Period;

• the revolving credit facility commitments have been reduced from $1.0 billion to $800.0 million;

• we pledged certain equity interests of subsidiaries owning properties to secure our obligations under our credit and term loan agreements and agreed to provide first mortgage liens on 62 medical office and life science properties with an aggregate gross book value of real estate assets of $1.0 billion as of March 31, 2021 to secure our obligations, which pledges and/or mortgage liens may be removed or new ones may be added during the Amendment Period based on outstanding debt amounts, among other things;

• we have the ability to fund $350.0 million of capital expenditures per year and we are restricted in our ability to acquire real property as defined in our credit agreement;

• the interest rate premium over LIBOR under our revolving credit facility and term loan increased by 30 basis points;

• certain covenants and restrictions on distributions to common shareholders, share repurchases, capital expenditures, acquiring additional properties and incurring additional indebtedness (in each case subject to various exceptions), and the minimum liquidity requirement of $200.0 million will remain in place during the Amendment Period;

• we are generally required to apply the net cash proceeds from the disposition of assets, capital markets transactions, and debt financings to the repayment of our $300.0 million senior notes due in 2021, or maintain sufficient cash for such payment of these senior notes until they can be paid at par, our $200.0 million term loan and any amounts outstanding under our revolving credit facility.

In February 2021, we prepaid in full our $200.0 million term loan using proceeds from our February 2021 issuance of $500.0 million aggregate principal amount of 4.375% senior notes due 2031.

We will use the remaining net proceeds from this offering and cash on hand to redeem all of our outstanding 6.75% senior notes due 2021 in June 2021, when these notes become redeemable with no prepayment premium.

In April 2021, we delivered a notice of redemption to U.S.

Bank National Association, as trustee, with respect to these senior notes for a redemption price equal to the principal amount plus accrued and unpaid interest.

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

Such alternatives may include incurring additional debt, selling certain properties and issuing new equity securities.

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

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

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

At 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 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.

During the three months ended March 31, 2021, we paid a quarterly cash distribution to our shareholders totaling approximately $2.4 million using existing cash balances.

On April 15, 2021, we declared a quarterly distribution payable to common shareholders of record on April 26, 2021 in the amount of $0.01 per share, or approximately $2.4 million.

We expect to pay this distribution on or about May 20, 2021 using cash on hand.

For further information regarding the distribution we paid during 2021, see Note 7 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.

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

A protracted economic downturn may have various negative

consequences including a decline in financing availability and increased costs for financing.

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

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

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

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

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

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

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

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

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

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

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

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

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

In February 2021, we issued $500.0 million aggregate principal amount of our 4.375% senior notes due 2031 in an underwritten public offering.

These notes are guaranteed by all of our subsidiaries, except for certain excluded subsidiaries, including pledged subsidiaries under our credit agreement.

We used the net proceeds from this offering to prepay in full our $200.0 million term loan which was scheduled to mature in September 2022.

We will use the remaining net proceeds and cash on hand to redeem all $300.0 million of our outstanding 6.75% senior notes due 2021 in June 2021, when these notes become redeemable with no prepayment premium.

In April 2021, we delivered a notice of redemption to U.S.

Bank National Association, as trustee, with respect to these senior notes for a redemption price equal to the principal amount plus accrued and unpaid interest.

In February 2021, Moody's Investors Service downgraded our senior unsecured debt rating from Ba2 to B1 and our 9.75% senior notes due 2025 rating from Ba1 to Ba3 and assigned a Ba3 rating to our 4.375% senior notes due 2031, and Standard & Poor's Ratings Services downgraded our senior unsecured debt rating from BB to BB- and our 9.75% senior notes due 2025 rating from BB+ to BB and assigned a BB rating to our 4.375% senior notes due 2031.

For further information regarding our outstanding debt, see Note 4 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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

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

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

Further, such plans may continue to be impacted by the scope and duration of the COVID-19 pandemic.

Off Balance Sheet Arrangements

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 September 30, 2020 were:

Our principal debt obligations at March 31, 2021 were:

(1) outstanding borrowings under our $800.0 million revolving credit facility;

(2) $3.2 billion outstanding principal amount of senior unsecured notes;

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

and (3) $684.0 million aggregate principal amount of mortgage notes (excluding premiums, discounts and net debt issuance costs) secured by seven properties.

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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.

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 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.

Our credit agreement 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 agreement, a change of control of us, as defined, which includes RMR LLC ceasing to act as our business and property manager.

Our senior unsecured notes indentures and their supplements and our credit agreement 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 agreement contains covenants that restrict our ability to make distributions to our shareholders in certain circumstances.

As of March 31, 2021, we believe we were in compliance with all of the covenants under our senior unsecured notes indentures and their supplements, our credit agreement and our other debt obligations.

If we believe we would not be able to satisfy our financial or other covenants, we would seek waivers or amendments prior to any covenant violation, which may lead to increased costs and interest rates, additional restrictive covenants or other lender protections.

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

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

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

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

Continued availability of borrowings under our revolving credit facility is subject to our satisfying certain financial covenants and other credit facility conditions.

If our operating results and financial condition are significantly negatively impacted by the current economic conditions or otherwise, we may fail to satisfy covenants and conditions under our credit agreement or fail to satisfy our public debt covenants.

We expect our ratio of consolidated income available for debt service to debt service could fall below the 1.5x requirement under our revolving credit facility and our public debt covenants in 2021 as the continued effects of the COVID-19 pandemic adversely impact our operations.

We will not be allowed to incur additional debt while this ratio is below 1.5x, and as a result, we borrowed $800.0 million under our revolving credit facility as a precautionary measure to increase our cash position and preserve financial flexibility in light of continued uncertainty resulting from the COVID-19 pandemic.

The proceeds from this borrowing may be used for general business purposes.

Further, if we believe we would not be able to satisfy our financial or other covenants, we would seek waivers, amendments, or in the case of our public debt covenants, draw upon any undrawn amounts if again available from our revolving credit facility prior to any covenant violation, consistent with our previous approach in March 2021, which may lead to increased costs and interest rates, additional restrictive covenants or other lender protections.

We can provide no assurance that

we would be able to obtain these waivers or amendments or repay the related debt facilities when due, which would lead to an event of default or potential acceleration of amounts due on our outstanding debt.

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

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

Accordingly, following our debt ratings downgrades, our interest expense and related costs under our credit agreement has increased.

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

Our senior unsecured notes indentures and their supplements contain cross default provisions to any other debts of more than $20.0 million ($50.0 million or more in the case of our senior unsecured notes indentures and supplements entered in February 2016, February 2018 and June 2020).

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

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

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

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

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

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

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

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

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

Our remaining $1.65 billion of senior unsecured notes do not have the benefit of any guarantees.

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

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

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

As a result, our 9.75% senior notes due 2025 and the guarantees will be structurally subordinated to all indebtedness, guarantees and other liabilities of our subsidiaries that do not guarantee our 9.75%

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

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

September 30, 2020 December 31, 2019

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

On May 28, 2020, we issued $1.0 billion of our 9.75% senior notes due 2025.

On February 3, 2021, we issued $500.0 million of our 4.375% senior notes due 2031.

As of March 31, 2021, all $1.0 billion of our 9.75% senior notes due 2025 and all $500.0 million of our 4.375% senior notes due 2031 were fully and unconditionally guaranteed, on a joint and several basis and on a senior unsecured basis, by all of our subsidiaries, except for certain excluded subsidiaries, including pledged subsidiaries under our credit agreement.

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

Our remaining $1.65 billion of senior unsecured notes do not have the benefit of any guarantees as of March 31, 2021.

A subsidiary guarantor's guarantee of our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031, as applicable, and all other obligations of such subsidiary guarantor under the indenture governing the notes will automatically terminate and such subsidiary guarantor will automatically be released from all of its obligations under such subsidiary guarantee and the indenture under certain circumstances, including on or after the date (a) the notes have an investment grade rating from two rating agencies and one of such investment grade ratings is a mid-BBB investment grade rating and (b) no default or event of default has occurred and is continuing under the indenture.

Our non-guarantor subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due on our 9.75% senior notes due 2025 or our 4.375% senior notes due 2031 or the respective guarantees, or to make any funds available therefor, whether by dividend, distribution, loan or other payments.

The rights of holders of our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031, as applicable, 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 our 4.375% senior notes due 2031 and the respective guarantees are structurally subordinated to all indebtedness, guarantees and other liabilities of our subsidiaries that do not guarantee our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031, 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 and issuer, 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 (dollars in thousands):

March 31, 2021 December 31, 2020

Real estate properties, net $ 4,155,440 $ 4,155,400

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Total liabilities $ 4,210,317 $ 3,065,805

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

Three Months Ended March 31, 2021 Three Months Ended March 31, 2020

Revenues $ 297,735 $ 357,861

Expenses 316,380 330,162

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

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

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

(Loss) income from continuing operations (80,085) 5,318

Net (loss) income (80,324) 5,761

Net (loss) income attributable to DHC (80,324) 5,761

Related Person Transactions

We have relationships and historical and continuing transactions with RMR LLC, RMR Inc., Five Star and others related to them.

we have no employees and the personnel and various services we require to operate our business are provided to us by RMR LLC pursuant to our business and property management agreements with RMR LLC;

is the managing member of RMR LLC;

Adam Portnoy, the Chair of our Board of Trustees and one of our Managing Trustees, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., and he is also a managing director and the president and chief executive officer of RMR Inc., an officer and employee of RMR LLC and the chair of the board of directors and a managing director of Five Star;

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

and each of our officers is also an officer and employee of RMR LLC.

We have relationships and historical and continuing transactions with other companies to which RMR LLC or its subsidiaries provide management services, and some of which have trustees, directors or officers who are also trustees, directors or officers of us, RMR LLC or RMR Inc.

and some of our Trustees and officers serve as trustees, directors or officers of these companies.

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 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 9, 10 and 11 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 2021 Annual Meeting of Shareholders and our other filings with the SEC.

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

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

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

We may engage in additional transactions with related persons, including businesses to which RMR LLC or its subsidiaries provide management services.

Impact of Government Reimbursement

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.

For the three months ended March 31, 2021, 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 a small amount 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.

Also, some of our medical office and life science property tenants participate in federal Medicare and state Medicaid programs and other government healthcare payment programs.

Under the CARES Act, HHS established a Provider Relief Fund as noted elsewhere in this Quarterly Report on Form 10-Q.

We have recognized $2,433 as other income with respect to our SHOP segment for the three months ended March 31, 2021.

For more information regarding the government healthcare funding and regulation of our business, please see the section captioned “Business—Government Regulation and Reimbursement” in our Annual Report and the section captioned “Management's Discussion and Analysis of Financial Condition and Results of Operations—Impact of Government Reimbursement” in our Annual Report.

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