What changed in this filing

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Item 1. Financial Statements

2021-08-04 compared with 2021-05-05 · 248 added, 164 removed, 393 unchanged (51% of the section changed)

3 unchanged sentences

(dollars in thousands, except share data)

March 31, December 31,

June 30, December 31,

Real estate properties:

23 unchanged sentences

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

300,000,000 shares authorized, 238,268,478 shares issued and outstanding for both periods presented

300,000,000 shares authorized, 238,374,572 and 238,268,478 shares issued and outstanding, respectively

Additional paid in capital 4,614,748 4,613,904

12 unchanged sentences

(amounts in thousands, except per share data)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Rental income $ 102,394 $ 106,207 $ 205,152 $ 216,705

7 unchanged sentences

Total expenses 353,717 409,314 714,629 815,058

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

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

Gain (loss) on sale of properties 30,760 ( 168 ) 30,638 2,614

Gains and losses on equity securities, net ( 3,849 ) 11,974 ( 12,188 ) 2,031

Interest and other income 16,038 7,736 18,873 7,874

3 unchanged sentences

Loss on early extinguishment of debt ( 370 ) ( 181 ) ( 2,410 ) ( 427 )

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

Income tax (expense) benefit ( 238 ) 443

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

Loss from continuing operations before income tax expense ( 32,454 ) ( 23,616 ) ( 98,399 ) ( 12,916 )

Income tax expense ( 191 ) ( 1,126 ) ( 429 ) ( 683 )

Net loss ( 32,645 ) ( 24,742 ) ( 98,828 ) ( 13,599 )

Net income attributable to noncontrolling interest ( 1,577 ) ( 1,330 ) ( 2,899 ) ( 2,738 )

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

Net loss attributable to common shareholders $ ( 34,222 ) $ ( 26,072 ) $ ( 101,727 ) $ ( 16,337 )

Weighted average common shares outstanding (basic) 237,871 237,700 237,853 237,684

1 unchanged sentence

Per common share amounts (basic and diluted):

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

Net loss attributable to common shareholders $ ( 0.14 ) $ ( 0.11 ) $ ( 0.43 ) $ ( 0.07 )

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

15 unchanged sentences

238,268,478 2,383 4,614,132 1,845,604 ( 4,035,942 ) 2,426,177 119,013 2,545,190

Net (loss) income — — — ( 34,222 ) — ( 34,222 ) 1,577 ( 32,645 )

Distributions — — — — ( 2,383 ) ( 2,383 ) — ( 2,383 )

Share grants 120,000 1 675 — — 676 — 676

Share repurchases ( 13,906 ) — ( 59 ) — — ( 59 ) — ( 59 )

Distributions to noncontrolling interest — — — — — — ( 5,630 ) ( 5,630 )

Balance at June 30, 2021:

238,374,572 $ 2,384 $ 4,614,748 $ 1,811,382 $ ( 4,038,325 ) $ 2,390,189 $ 114,960 $ 2,505,149

Balance at December 31, 2019:

9 unchanged sentences

237,893,725 2,379 4,612,739 2,062,297 ( 4,026,418 ) 2,650,997 136,172 2,787,169

Net (loss) income — — — ( 26,072 ) — ( 26,072 ) 1,330 ( 24,742 )

Distributions — — — — ( 2,379 ) ( 2,379 ) — ( 2,379 )

Share grants 60,000 1 415 — — 416 — 416

Share repurchases ( 1,757 ) — ( 8 ) — — ( 8 ) — ( 8 )

Distributions to noncontrolling interest — — — — — — ( 5,616 ) ( 5,616 )

Balance at June 30, 2020:

237,951,968 $ 2,380 $ 4,613,146 $ 2,036,225 $ ( 4,028,797 ) $ 2,622,954 $ 131,886 $ 2,754,840

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2 unchanged sentences

(dollars in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

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

Adjustments to reconcile net (loss) income to cash provided by operating activities:

Net loss $ ( 98,828 ) $ ( 13,599 )

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

Depreciation and amortization 134,041 137,255

5 unchanged sentences

Impairment of assets ( 174 ) 42,409

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

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

Gain on sale of properties ( 30,638 ) ( 2,614 )

Gains and losses on equity securities, net 12,188 ( 2,031 )

Other non-cash adjustments, net ( 982 ) ( 1,885 )

Change in assets and liabilities:

Deferred leasing costs, net ( 8,258 ) ( 4,140 )

Other assets ( 7,937 ) ( 24,441 )

6 unchanged sentences

Proceeds from sale of properties, net 103,057 66,604

Net cash used in investing activities ( 35,303 ) ( 26,641 )

Distributions in excess of earnings from Affiliates Insurance Company — 287

Net cash provided by (used in) investing activities 19,589 ( 7,397 )

Cash flows from financing activities:

2 unchanged sentences

Repayments of borrowings on revolving credit facility — ( 943,000 )

Repayment of senior unsecured notes ( 300,000 ) ( 200,000 )

Repayment of term loan ( 200,000 ) ( 250,000 )

5 unchanged sentences

Distributions to shareholders ( 4,766 ) ( 38,063 )

Net cash provided by financing activities 1,079,637 3,341

Net cash provided by (used in) financing activities 770,605 ( 61,732 )

Increase in cash and cash equivalents and restricted cash 817,240 41,544

5 unchanged sentences

(dollars in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Supplemental cash flow information:

Interest paid $ 113,933 $ 80,131

Income taxes paid $ 1,880 $ —

Non-cash investing activities:

2 unchanged sentences

Restructuring transaction additional consideration $ — $ ( 75,000 )

Real estate improvements accrued, not paid $ 20,860 $ 18,353

Capitalized interest $ 932 $ 718

4 unchanged sentences

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

As of March 31,

As of June 30,

Cash and cash equivalents $ 849,079 $ 78,485

2 unchanged sentences

Total cash and cash equivalents and restricted cash shown in our condensed consolidated statements of cash flows $ 908,089 $ 93,768

(1) As of March 31, 2021, restricted cash includes amounts we will use to redeem all $ 300,000 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 with respect to these senior notes for a redemption price equal to the principal amount plus accrued and unpaid interest.

(1) As of June 30, 2021, restricted cash consists of amounts from dispositions held as collateral pursuant to the agreement governing our revolving credit facility, or our credit agreement.

We may use these funds to pay for approved expenditures in accordance with our credit agreement.

Restricted cash also consists of amounts escrowed for real estate taxes, insurance and capital expenditures at certain of our mortgaged properties and cash held for the operations of the life science property that is owned in a joint venture arrangement in which we own a 55 % equity interest.

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Also, the defense and resolution of these claims, lawsuits, and regulatory and other governmental audits, investigations and proceedings may require us to incur significant expense.

We account for claims and litigation losses in accordance with FASB ASC Topic 450, Contingencies , or ASC 450.

We account for claims and litigation losses in accordance with the Financial Accounting Standards Board, or FASB, Accounting Standards Codification Topic 450, Contingencies , or ASC 450.

Under ASC 450, loss contingency provisions are recorded for probable and estimable losses at our best estimate of a loss or, when a best estimate cannot be made, at our estimate of the minimum loss.

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The investor owns a 45 % equity interest in the joint venture, and we own the remaining 55 % equity interest in the joint venture.

We have determined that this joint venture is a variable interest entity, or VIE, as defined under the Consolidation Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification.

We have determined that this joint venture is a variable interest entity, or VIE, as defined under the Consolidation Topic of the FASB Accounting Standards Codification.

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

The assets of this VIE were $ 958,013 and $ 970,142 as of March 31, 2021 and December 31, 2020, respectively, and consist primarily of the net real estate owned by the joint venture.

The liabilities of this VIE were $ 694,847 and $ 697,129 as of March 31, 2021 and December 31, 2020, respectively, and consist primarily of mortgage debts secured by the property.

The assets of this VIE were $ 946,564 and $ 970,142 as of June 30, 2021 and December 31, 2020, respectively, and consist primarily of the net real estate owned by the joint venture.

The liabilities of this VIE were $ 692,489 and $ 697,129 as of June 30, 2021 and December 31, 2020, respectively, and consist primarily of mortgage debts secured by the property.

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

1 unchanged sentence

Real Estate Properties

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.

As of June 30, 2021, we owned 392 properties located in 36 states and Washington, D.C., including one life science property owned in a joint venture arrangement in which we own a 55 % equity interest.

We regularly evaluate our assets for indicators of impairment.

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

During the three months ended March 31, 2021, we recorded a reversal of impairment charges of $ 174 related to the estimated costs to sell 10 senior living communities that were classified as held for sale as of December 31, 2020 and changed the status of those communities from held for sale to held and used as of March 31, 2021.

During the six months ended June 30, 2021, we recorded a reversal of impairment charges of $ 174 related to the estimated costs to sell 10 senior living communities that were classified as held for sale as of December 31, 2020 and changed the status of those communities from held for sale to held and used as of March 31, 2021.

Acquisitions and Dispositions:

During the three months ended March 31, 2021, we sold one property for a sale price of $ 9,000 , excluding closing costs, as presented in the table below.

The sale of this property does not represent a significant disposition, nor do we believe it represents a strategic shift in our business.

As a result, the results of the operation for this property is included in continuing operations through the date of sale of such property in our condensed consolidated statements of comprehensive income (loss).

Date of Sale Location Type of Property Number of Properties Square Feet Sale Price (1)

During the six months ended June 30, 2021, we sold five properties for an aggregate sales price of $ 104,500 , excluding closing costs, as presented in the table below.

The sales of these properties do not represent significant dispositions, individually or in the aggregate, and we do not believe these sales represent a strategic shift in our business.

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

Date of Sale Location Type of Property Number of Properties Square Feet Sales Price (1)

Gain (Loss) on Sale

February 2021 Pennsylvania Medical Office 1 92,000 $ 9,000 $ ( 122 )

April 2021 Florida Life Science and Medical Office 4 263,656 95,500 30,760

5 $ 104,500 $ 30,638

(1) Sale price excludes closing costs.

As of March 31, 2021, we had four properties classified as held for sale in our condensed consolidated balance sheet as follows:

Type of Property Number of Properties Gross Book Value

Life Science and Medical Office 4 $ 66,113

In April 2021, we sold these four life science and medical office properties for a sales price of $ 95,500 , excluding closing costs.

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 $ 19,600 , 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.

(1) Sales price excludes closing costs.

In June 2021, we terminated a previously announced agreement to acquire a property which is adjacent to one of our existing properties located in Silver Springs, Maryland.

We are a lessor of medical office and life science properties, senior living communities and other healthcare related properties.

4 unchanged sentences

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

We increased rental income to record revenue on a straight line basis by $ 804 and $ 1,153 for the three months ended March 31, 2021 and 2020, respectively.

Rents receivable, excluding receivables related to our properties classified as held for sale, include $ 105,279 and $ 104,803 of straight line rent receivables at March 31, 2021 and December 31, 2020, respectively, and are included in other assets, net in our condensed consolidated balance sheets.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

We increased rental income to record revenue on a straight line basis by $ 1,321 and $ 1,385 for the three months ended June 30, 2021 and 2020, respectively, and $ 2,125 and $ 2,538 for the six months ended June 30, 2021 and 2020, respectively.

Rents receivable, excluding receivables related to our properties classified as held for sale, if any, include $ 106,501 and $ 104,803 of straight line rent receivables at June 30, 2021 and December 31, 2020, respectively, and are included in other assets, net in our condensed consolidated balance sheets.

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

Such payments totaled $ 18,228 and $ 20,028 for the three months ended March 31, 2021 and 2020, respectively, of which tenant reimbursements totaled $ 18,180 and $ 19,983 , respectively.

Such payments totaled $ 18,476 and $ 18,263 for the three months ended June 30, 2021 and 2020, respectively, of which tenant reimbursements totaled $ 18,440 and $ 18,209 , respectively, and $ 36,704 and $ 38,291 for the six months ended June 30, 2021 and 2020, respectively, of which tenant reimbursements totaled $ 36,620 and $ 38,192 , respectively.

Certain of our tenants requested relief from their obligations to pay rent due to us in response to the current economic conditions resulting from the COVID-19 pandemic.

In most cases, these tenants granted deferrals were obligated to pay the deferred rents in 12 equal monthly installments beginning in September 2020.

As of March 31, 2021 and December 31, 2020, deferred payments totaling $ 878 and $ 1,486 , respectively, are included in other assets, net in our condensed consolidated balance sheets.

These deferred amounts did not negatively impact our operating results for the three months ended March 31, 2021 or 2020.

As of June 30, 2021 and December 31, 2020, deferred payments totaling $ 442 and $ 1,486 , respectively, are included in other assets, net in our condensed consolidated

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

balance sheets.

These deferred amounts did not negatively impact our operating results for the three or six months ended June 30, 2021 or 2020.

Right of Use Asset and Lease Liability .

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

The values of the right of use asset and related liability representing our future obligation under the lease arrangement for which we are the lessee were $ 4,216 and $ 4,395 , respectively, as of March 31, 2021, and $ 4,237 and $ 4,410 , respectively, as of December 31, 2020.

The values of the right of use asset and related liability representing our future obligation under the lease arrangement for which we are the lessee were $ 4,195 and $ 4,381 , respectively, as of June 30, 2021, and $ 4,237 and $ 4,410 , respectively, as of December 31, 2020.

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

1 unchanged sentence

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

Our principal debt obligations at March 31, 2021 were:

Our principal debt obligations at June 30, 2021 were:

(1) outstanding borrowings under our $ 800,000 revolving credit facility;

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

and (3) $ 683,990 aggregate principal amount of mortgage notes (excluding premiums, discounts and net debt issuance costs) secured by seven properties, of which $ 620,000 is related to the life science property owned by a joint venture arrangement in which we own a 55 % equity interest.

These seven mortgaged properties had a gross book value of $ 947,085 at March 31, 2021.

We also had two properties subject to finance leases with lease obligations totaling $ 7,525 at March 31, 2021;

these two properties had gross book value and accumulated depreciation of $ 35,893 and $ 17,685 , respectively, at March 31, 2021, and $ 35,676 and $ 17,579 , respectively, at December 31, 2020, and the finance leases expire in 2026.

and (3) $ 683,502 aggregate principal amount of mortgage notes secured by seven properties, of which $ 620,000 is related to the life science property owned by a joint venture arrangement in which we own a 55 % equity interest.

These seven mortgaged properties had a gross book value of $ 948,269 at June 30, 2021.

We also had two properties subject to finance leases with lease obligations totaling $ 7,234 at June 30, 2021;

these two properties had gross book value and accumulated depreciation of $ 35,998 and $ 17,826 , respectively, at June 30, 2021, and $ 35,676 and $ 17,579 , respectively, at December 31, 2020, and the finance leases expire in 2026.

We have a $ 800,000 revolving credit facility that is available for general business purposes.

1 unchanged sentence

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

As of 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 weighted average annual interest rates for borrowings under our revolving credit facility were 2.9 % and 2.6 % for the three months ended March 31, 2021 and 2020, respectively.

As of June 30, 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 weighted average annual interest rates for borrowings under our revolving credit facility were 2.9 % and 1.8 % for the three months ended June 30, 2021 and 2020, respectively, and 2.9 % and 2.2 % for the six months ended June 30, 2021 and 2020, respectively.

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

On March 31, 2021, we borrowed $ 800,000 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.

As of June 30, 2021 and August 2, 2021, we were fully drawn under our revolving credit facility.

In February 2021, we issued $ 500,000 aggregate principal amount of our 4.375 % senior notes due 2031 in an underwritten public offering raising net proceeds of $ 491,357 , after deducting estimated offering expenses and underwriters' discounts.

These notes are guaranteed by all of our subsidiaries, except for certain excluded subsidiaries, including pledged subsidiaries under the agreement governing our revolving credit facility, or our credit agreement, and require semi-annual interest payments through maturity.

We used the net proceeds from this offering to prepay in full our $ 200,000 term loan which was scheduled to mature in September 2022.

The weighted average interest rate under our $ 200,000 term loan was 2.9 % for the period from January 1, 2021 to February 7, 2021.

As a result of the prepayment of our $ 200,000 term loan, we recorded a loss on early extinguishment of debt of $ 1,477 for the three months ended March 31, 2021.

We will use the remaining net proceeds from this

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

We used the net proceeds from this offering to prepay in full in February 2021 our $ 200,000 term loan which was scheduled to mature in September 2022.

The weighted average interest rate under our $ 200,000 term loan was 2.9 % for the period from January 1, 2021 to February 7, 2021 and 2.3 % and 2.7 % for the three and six months ended June 30, 2020, respectively.

As a result of the prepayment of our $ 200,000 term loan, we recorded a loss on early extinguishment of debt of $ 1,477 for the six months ended June 30, 2021.

In June 2021, we used the remaining net proceeds from this offering and cash on hand to redeem all of our outstanding 6.75 % senior notes due 2021 for a redemption price equal to the principal amount of $ 300,000 plus accrued and unpaid interest of $ 10,125 , when these notes became redeemable with no prepayment premium.

In connection with this redemption, we recorded a loss on early extinguishment of debt of $ 370 for the six months ended June 30, 2021.

DIVERSIFIED HEALTHCARE TRUST

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

offering and cash on hand to redeem all $ 300,000 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 January 2021, we amended the agreements governing our revolving credit facility and our $ 200,000 term loan, or collectively, 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.

In January 2021, we amended the agreements governing our revolving credit facility and our $ 200,000 term loan, or collectively, our credit and term loan agreements, in order to provide us with certain flexibility in light of continued 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 June 2022, or the Amendment Period;

• the revolving credit facility commitments have been reduced from $ 1,000,000 to $ 800,000 , and as a result of the reduction in commitments, we recorded a loss on early extinguishment of debt of $ 563 for the three months ended March 31, 2021;

• 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 $ 1,035,255 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 $ 250,000 of capital expenditures per year, which increased to $ 350,000 per year following the repayment of our term loan in February 2021, and are restricted in our ability to acquire real property as defined in our credit agreement;

• 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 $ 1,038,174 as of June 30, 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 had the ability to fund $ 250,000 of capital expenditures per year, which increased to $ 350,000 per year following the repayment of our term loan in February 2021, and 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 $ 200,000 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 $ 300,000 senior notes due in 2021, or maintain sufficient cash for such payment of these senior notes until they can be paid at par, our $ 200,000 term loan and any amounts outstanding under our revolving credit facility.

In February 2021, we prepaid our $ 200,000 term loan using proceeds from our February 2021 issuance of $ 500,000 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.

• 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 any amounts outstanding under our revolving credit facility.

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

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

We believe we were in compliance with the terms and conditions of the respective covenants under our credit agreement and our senior unsecured notes indentures and their supplements at March 31, 2021.

As of June 30, 2021, our ratio of consolidated income available for debt service to debt service was below the 1.5 x incurrence requirement under our revolving credit facility and our public debt covenants as the effects of the COVID-19 pandemic continued to adversely impact our operations.

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

We believe we were in compliance with the remaining terms and conditions of the respective covenants under our credit agreement and our senior unsecured notes indentures and their supplements at June 30, 2021.

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 1.5 x 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 1.5 x.

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 economic conditions or otherwise, we may fail to satisfy covenants and conditions under our credit agreement or fail to satisfy our public debt covenants.

DIVERSIFIED HEALTHCARE TRUST

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Fair Value of Assets and Liabilities

The following table presents certain of our assets that are measured at fair value at March 31, 2021, categorized by the level of inputs as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.

The following table presents certain of our assets that are measured at fair value at June 30, 2021, categorized by the level of inputs as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.

Fair Value at Reporting Date Using

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(1) Our 10,691,658 shares of common stock of Five Star Senior Living Inc., or Five Star, are included in other assets, net in our condensed consolidated balance sheets, and are reported at fair value, which is based upon quoted market prices on The Nasdaq Stock Market LLC, or Nasdaq, (Level 1 inputs).

Our adjusted cost basis for these shares was $ 44,448 as of March 31, 2021.

During the three months ended March 31, 2021 and 2020, we recorded unrealized losses of $ 8,339 and $ 9,943 , respectively, which are included in losses on equity securities, net in our condensed consolidated statements of comprehensive income (loss), to adjust the carrying value of our investment in Five Star common shares to their fair value.

Our adjusted cost basis for these shares was $ 44,448 as of June 30, 2021.

During the three months ended June 30, 2021 and 2020, we recorded an unrealized loss of $ 3,849 and an unrealized gain of $ 11,974 , respectively, and during the six months ended June 30, 2021 and 2020, we recorded an unrealized loss of $ 12,188 and an unrealized gain of $ 2,031 , respectively, which are included in gains and losses on equity securities, net in our condensed consolidated statements of comprehensive income (loss), to adjust the carrying value of our investment in Five Star common shares to their fair value.

See Note 11 for further information about our investment in Five Star.

In addition to the assets described in the table above, our financial instruments at March 31, 2021 and December 31, 2020 included cash and cash equivalents, restricted cash, other assets, our revolving credit facility, term loan, senior unsecured notes, secured debt and finance leases and other unsecured obligations and liabilities.

In addition to the assets described in the table above, our financial instruments at June 30, 2021 and December 31, 2020 included cash and cash equivalents, restricted cash, other assets, our revolving credit facility, term loan, senior unsecured notes, secured debt and finance leases and other unsecured obligations and liabilities.

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

As of March 31, 2021 As of December 31, 2020

As of June 30, 2021 As of December 31, 2020

Description Carrying Amount (1)

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Estimated Fair Value

Senior unsecured notes, 6.750 % coupon rate, due in 2021 (2)

Senior unsecured notes, 6.750 % coupon rate, due 2021

$ — $ — $ 299,273 $ 303,891

Senior unsecured notes, 4.750 % coupon rate, due in 2024

Senior unsecured notes, 4.750 % coupon rate, due 2024

249,208 256,911 249,068 256,258

Senior unsecured notes, 9.750 % coupon rate, due in 2025

Senior unsecured notes, 9.750 % coupon rate, due 2025

986,131 1,112,840 984,359 1,135,800

Senior unsecured notes, 4.750 % coupon rate, due in 2028

Senior unsecured notes, 4.750 % coupon rate, due 2028

491,562 497,425 490,925 502,648

Senior unsecured notes, 4.375 % coupon rate, due in 2031

Senior unsecured notes, 4.375 % coupon rate, due 2031

491,698 479,265 — —

Senior unsecured notes, 5.625 % coupon rate, due in 2042

Senior unsecured notes, 5.625 % coupon rate, due 2042

341,993 338,660 341,802 330,120

Senior unsecured notes, 6.250 % coupon rate, due in 2046

Senior unsecured notes, 6.250 % coupon rate, due 2046

242,905 248,000 242,762 245,000

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(1) Includes unamortized net debt issuance costs, premiums and discounts.

(2) In April 2021, we delivered a notice of redemption to redeem all $ 300,000 of our outstanding 6.75 % senior notes due 2021 in June 2021, when these notes become redeemable with no prepayment premium.

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

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The amounts listed in the table for these debts have not been adjusted to reflect the equity interests in the joint venture that we do not own.

We estimated the fair value of our two issuances of senior unsecured notes due 2042 and 2046 based on the closing price on Nasdaq (Level 1 input) as of March 31, 2021.

We estimated the fair values of our five issuances of senior unsecured notes due 2021, 2024, 2025, 2028 and 2031 using an average of the bid and ask price on Nasdaq on or about March 31, 2021 (Level 2 inputs as defined in the fair value hierarchy under GAAP).

We estimated the fair values of our secured debts by using

We estimated the fair value of our two issuances of senior unsecured notes due 2042 and 2046 based on the closing price on Nasdaq (Level 1 input) as of June 30, 2021.

We estimated the fair values of our four issuances of senior unsecured notes due 2024, 2025, 2028 and 2031 using an average of the bid and ask price on Nasdaq on or about June 30, 2021 (Level 2 inputs as defined in the fair value hierarchy under GAAP).

We estimated the fair values of our secured debts by using discounted cash

DIVERSIFIED HEALTHCARE TRUST

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

discounted cash flows analyses and currently prevailing market terms as of the measurement date (Level 3 inputs as defined in the fair value hierarchy under GAAP).

flows analyses and currently prevailing market terms as of the measurement date (Level 3 inputs as defined in the fair value hierarchy under GAAP).

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

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

The portion of the joint venture's net income and comprehensive income not attributable to us, or $ 1,322 and $ 1,408 for the three months ended March 31, 2021 and 2020, respectively, is reported as a noncontrolling interest in our condensed consolidated statements of comprehensive income (loss).

The joint venture made aggregate cash distributions to the other joint venture investor of $ 5,694 and $ 5,767 for the three months ended March 31, 2021 and 2020, respectively, which are reflected as a decrease in total equity attributable to noncontrolling interest in our condensed consolidated balance sheets.

As of March 31, 2021, this joint venture held real estate assets with an aggregate net book value of $ 700,192 , subject to mortgage notes of $ 620,000 .

The portion of the joint venture's net income and comprehensive income not attributable to us, or $ 1,577 and $ 1,330 for the three months ended June 30, 2021 and 2020, respectively, and $ 2,899 and $ 2,738 for the six months ended June 30, 2021 and 2020, respectively, is reported as a noncontrolling interest in our condensed consolidated statements of comprehensive income (loss).

The joint venture made aggregate cash distributions to the other joint venture investor of $ 5,630 and $ 5,616 for the three months ended June 30, 2021 and 2020, respectively, and $ 11,324 and $ 11,383 for the six months ended June 30, 2021 and 2020, respectively, which are reflected as a decrease in total equity attributable to noncontrolling interest in our condensed consolidated balance sheets.

As of June 30, 2021, this joint venture held real estate assets with an aggregate net book value of $ 695,287 , subject to mortgage notes of $ 620,000 .

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

Shareholders' Equity

Common Share Awards:

On June 3, 2021, in accordance with our Trustee compensation arrangements, we awarded to each of our six Trustees 20,000 of our common shares, valued at $ 3.70 per share, the closing price of our common shares on Nasdaq on that day .

Common Share Repurchases:

During the six months ended June 30, 2021, we purchased an aggregate of 13,906 of our common shares, valued at the closing price of our common shares on Nasdaq on the purchase date, from certain former officers and employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

Distributions:

During the three months ended March 31, 2021, we declared and paid a quarterly distribution to common shareholders as follows:

Record Date Payment Date Distribution Per Share Total Distributions

January 25, 2021 February 18, 2021 $ 0.01 $ 2,383

On April 15, 2021, we declared a quarterly distribution payable to our common shareholders of record on April 26, 2021 in the amount of $ 0.01 per share, or approximately $ 2,383 .

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

During the six months ended June 30, 2021, we declared and paid quarterly distributions to common shareholders as follows:

Declaration Date Record Date Payment Date Distribution Per Share Total Distributions

January 14, 2021 January 25, 2021 February 18, 2021 $ 0.01 $ 2,383

April 15, 2021 April 26, 2021 May 20, 2021 0.01 2,383

$ 0.02 $ 4,766

On July 15, 2021, we declared a quarterly distribution to common shareholders of record on July 26, 2021 of $ 0.01 per share, or approximately $ 2,384 in aggregate.

We expect to pay this distribution on or about August 19, 2021.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Segment Reporting

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

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.

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.

For the Three Months Ended June 30, 2021

Office Portfolio SHOP Non-Segment Consolidated

Rental income $ 92,804 $ — $ 9,590 $ 102,394

Residents fees and services — 243,947 — 243,947

Total revenues 92,804 243,947 9,590 346,341

Property operating expenses 31,321 233,311 — 264,632

Depreciation and amortization 32,497 32,538 2,853 67,888

General and administrative — — 9,126 9,126

Acquisition and certain other transaction related costs

— — 12,071 12,071

Total expenses 63,818 265,849 24,050 353,717

Gain on sale of properties 30,760 — — 30,760

Losses on equity securities, net — — ( 3,849 ) ( 3,849 )

Interest and other income — 15,748 290 16,038

Interest expense ( 5,992 ) ( 525 ) ( 61,140 ) ( 67,657 )

Loss on early extinguishment of debt — — ( 370 ) ( 370 )

Income (loss) from continuing operations before income tax expense

53,754 ( 6,679 ) ( 79,529 ) ( 32,454 )

Income tax expense — — ( 191 ) ( 191 )

Net income (loss) 53,754 ( 6,679 ) ( 79,720 ) ( 32,645 )

Net income attributable to noncontrolling interest ( 1,577 ) — — ( 1,577 )

Net income (loss) attributable to common shareholders

$ 52,177 $ ( 6,679 ) $ ( 79,720 ) $ ( 34,222 )

DIVERSIFIED HEALTHCARE TRUST

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

For the Three Months Ended March 31, 2021

For the Six Months Ended June 30, 2021

Office Portfolio SHOP Non-Segment Consolidated

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General and administrative — — 16,668 16,668

Acquisition and certain other transaction related costs

— — 12,071 12,071

Impairment of assets — ( 174 ) — ( 174 )

Total expenses 127,049 553,134 34,446 714,629

Loss on sale of properties ( 122 ) — — ( 122 )

Gain on sale of properties 30,638 — — 30,638

Losses on equity securities, net — — ( 12,188 ) ( 12,188 )

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

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

We have recognized $ 18,181 and $ 7,346 as other income with respect to our SHOP segment for the six months ended June 30, 2021 and 2020, respectively.

We have applied for additional funds that may be available under the CARES Act Provider Relief Fund;

however, we may not receive any additional funding.

As of March 31, 2021

As of June 30, 2021

Office Portfolio SHOP Non-Segment Consolidated

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

For the Three Months Ended March 31, 2020

For the Three Months Ended June 30, 2020

Office Portfolio SHOP Non-Segment Consolidated

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Total expenses 63,665 335,432 10,217 409,314

Gain on sale of properties 2,782 — — 2,782

Losses on equity securities, net — — ( 9,943 ) ( 9,943 )

Loss on sale of properties — ( 168 ) — ( 168 )

Gains on equity securities, net — — 11,974 11,974

Interest and other income — 7,346 390 7,736

Interest expense ( 6,020 ) ( 560 ) ( 37,394 ) ( 43,974 )

Loss on early extinguishment of debt ( 155 ) — ( 26 ) ( 181 )

Income (loss) from continuing operations before income tax expense 25,670 ( 24,710 ) ( 24,576 ) ( 23,616 )

Income tax expense — — ( 1,126 ) ( 1,126 )

Net income (loss) 25,670 ( 24,710 ) ( 25,702 ) ( 24,742 )

Net income attributable to noncontrolling interest

( 1,330 ) — — ( 1,330 )

Net income (loss) attributable to common shareholders

$ 24,340 $ ( 24,710 ) $ ( 25,702 ) $ ( 26,072 )

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

For the Six Months Ended June 30, 2020

Office Portfolio SHOP Non-Segment Consolidated

Rental income $ 194,280 $ — $ 22,425 $ 216,705

Residents fees and services — 636,073 — 636,073

Total revenues 194,280 636,073 22,425 852,778

Property operating expenses 63,599 554,901 — 618,500

Depreciation and amortization 64,397 66,815 6,043 137,255

General and administrative — — 16,144 16,144

Acquisition and certain other transaction related costs

Impairment of assets 6,756 35,653 — 42,409

Total expenses 134,752 657,369 22,937 815,058

Gain (loss) on sale of properties 2,782 ( 168 ) — 2,614

Gains on equity securities, net — — 2,031 2,031

Interest and other income — 7,346 528 7,874

Interest expense ( 12,072 ) ( 1,124 ) ( 72,428 ) ( 85,624 )

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

Loss on early extinguishment of debt ( 401 ) — ( 26 ) ( 427 )

Income (loss) from continuing operations before income tax benefit 24,167 9,468 ( 22,935 ) 10,700

Income tax benefit — — 443 443

Income (loss) from continuing operations before income tax expense 49,837 ( 15,242 ) ( 47,511 ) ( 12,916 )

Income tax expense — — ( 683 ) ( 683 )

Net income (loss) 49,837 ( 15,242 ) ( 48,194 ) ( 13,599 )

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Effective as of January 1, 2020:

• our previously existing master leases with Five Star for all of our senior living communities that Five Star leased, as well as our previously existing management agreements and pooling agreements with Five Star for our senior living communities that Five Star managed, were terminated and replaced with new management agreements and a related omnibus agreement, or collectively, the Five Star management agreements;

These new management and omnibus agreements were subsequently replaced in June 2021, as described below;

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

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

DIVERSIFIED HEALTHCARE TRUST

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

• pursuant to a guaranty agreement dated as of January 1, 2020 made by Five Star in favor of our applicable subsidiaries, Five Star has guaranteed the payment and performance of each of its applicable subsidiary's obligations under the applicable Five Star management agreements.

Effective January 1, 2020, we determined that Five Star is not a VIE and we will account for our 33.8 % investment in Five Star using the equity method of accounting because we are deemed to exert significant influence, but not control, over Five Star's most significant activities.

$ 22,896 for the six months ended June 30, 2020 in our condensed consolidated statements of comprehensive income (loss);

Effective January 1, 2020, we determined that Five Star was not a VIE and we account for our 33.7 % investment in Five Star using the equity method of accounting because we are deemed to exert significant influence, but not control, over Five Star's most significant activities.

We have elected to use the fair value option to account for our investment in Five Star.

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 $ 682,000 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.

Our Senior Living Communities Managed by Five Star .

Five Star managed 235 , including seven closed senior living communities, and 244 senior living communities for our account as of March 31, 2021 and 2020, respectively.

We lease our senior living communities that are managed by Five Star to our taxable REIT subsidiaries, or TRSs.

We incurred management fees payable to Five Star of $ 13,850 and $ 17,050 for the three months ended March 31, 2021 and 2020, respectively.

For the three months ended March 31, 2021 and 2020, $ 13,016 and $ 16,588 , respectively, of the total management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 834 and $ 462 , respectively, were capitalized in our condensed consolidated balance sheets.

On June 9, 2021, we amended our management arrangements with Five Star.

The principal changes to the management arrangements include:

• that Five Star is cooperating with us in transitioning 108 of our senior living communities with approximately 7,500 living units to other third party managers without our payment of any termination fee to Five Star;

• that we no longer have the right to sell up to an additional $ 682,000 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 is continuing to manage 120 of our senior living communities with approximately 18,000 living units, and that the skilled nursing units in all of our continuing care retirement communities that Five Star is continuing to manage, which then included approximately 1,500 living units, are being closed and repositioned;

• that beginning in 2025, we will have the right to terminate up to 10 % of the senior living communities that Five Star is continuing to manage, based on total revenues per year for failure to meet 80 % of a target EBITDA for the applicable period;

• that the incentive fee that Five Star may earn in any calendar year for the senior living communities that Five Star is continuing to manage is no longer subject to a cap and that any senior living communities that are undergoing a major renovation or repositioning are excluded from the calculation of the incentive fee;

• that RMR LLC will oversee any major renovation or repositioning activities at the senior living communities that Five Star is continuing to manage;

• that the term of our management agreements with Five Star for our senior living communities that Five Star is continuing to manage was extended by two years to December 31, 2036.

Pursuant to these changes, we and Five Star entered into an amended and restated master management agreement, or the Master Management Agreement, for the senior living communities that Five Star is continuing to manage and interim management agreements for the senior living communities that we and Five Star agreed to transition to new operators.

These agreements replaced our prior management and omnibus agreements with Five Star.

In addition, Five Star delivered to us a related amended and restated guaranty agreement pursuant to which Five Star is continuing to guarantee the payment and performance of each of its applicable subsidiary's obligations under the applicable management agreements.

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

As of August 3, 2021, we had executed agreements with four new third party managers to transition 76 senior living communities.

Of these 76 senior living communities, 41 have been transitioned to new third party managers.

We lease our senior living communities that have been transitioned to new managers to our taxable REIT subsidiaries, or TRSs.

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

For the three and six months ended June 30, 2021, we recorded $ 11,914 of these costs to acquisition and certain other transaction related costs in our condensed consolidated statements of comprehensive income (loss).

DIVERSIFIED HEALTHCARE TRUST

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

Our Senior Living Communities Managed by Five Star .

Five Star managed 235 and 241 of our senior living communities as of June 30, 2021 and 2020, respectively, which included seven closed senior living communities for the 2021 period.

We lease our senior living communities that are managed by Five Star to our TRSs.

We incurred management fees payable to Five Star of $ 12,927 and $ 15,706 for the three months ended June 30, 2021 and 2020, respectively, and $ 26,777 and $ 32,756 for the six months ended June 30, 2021 and 2020, respectively.

For the three months ended June 30, 2021 and 2020, $ 12,212 and $ 15,262 , respectively, of the total management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 715 and $ 444 , respectively, were capitalized in our condensed consolidated balance sheets and are being depreciated over the estimated useful lives of the related capital assets.

For the six months ended June 30, 2021 and 2020, $ 25,228 and $ 31,850 , respectively, of the total management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 1,549 and $ 906 , respectively, were capitalized in our condensed consolidated balance sheets and are being depreciated over the estimated useful lives of the related capital assets.

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

Revenue from contracts with customers:

2021 2020 2021 2020

Basic housing and support services $ 188,169 $ 218,783 $ 376,198 $ 450,299

2 unchanged sentences

Total residents fees and services $ 243,947 $ 304,104 $ 503,913 $ 636,073

We incurred fees of $ 5,441 and $ 8,057 for the three months ended March 31, 2021 and 2020, respectively, with respect to rehabilitation services Five Star provided at senior living communities it manages for our account that are payable by us.

We incurred fees of $ 2,630 and $ 5,814 for the three months ended June 30, 2021 and 2020, respectively, and $ 8,071 and $ 13,871 for the six months ended June 30, 2021 and 2020, respectively, with respect to rehabilitation services Five Star provided at our senior living communities it manages that are payable by us.

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

8 unchanged sentences

See Note 3 to the consolidated financial statements contained in our Annual Report for further information regarding these sales.

We lease to Five Star space at certain of our senior living communities that Five Star manages.

Five Star uses this space for outpatient rehabilitation clinics.

We recognized a reduction in property operating expenses of $ 397 and $ 294 for the three months ended March 31, 2021 and 2020, respectively, with respect to these leases.

We lease to Five Star space at certain of our senior living communities that Five Star manages where Five Star provides certain outpatient rehabilitation and wellness services clinics.

We recorded $ 398 and $ 488 for the three months ended June 30, 2021 and 2020, respectively, and $ 795 and $ 782 for the six months ended June 30, 2021 and 2020, respectively, with respect to these leases.

Business and Property Management Agreements with RMR LLC

3 unchanged sentences

(1) a business management agreement, which relates to our business generally;

and (2) a property management agreement, which relates to the property level operations of our medical office and life science properties.

RMR LLC will also provide certain construction supervision services at our senior living communities managed by Five Star.

We also have a subsidiary level management agreement with RMR LLC related to the life science property located in Boston, Massachusetts, which we entered in connection with the joint venture arrangement for that life science property.

Under that agreement, our subsidiary pays RMR LLC certain business management fees directly, which fees are credited against the business management fees payable by us to RMR LLC.

See Note 11 for further information regarding our relationship, agreements and transactions with RMR LLC.

We recognized net business management fees payable to RMR LLC of $ 5,317 and $ 5,769 for the three months ended March 31, 2021 and 2020, respectively.

The net business management fees we recognized include $ 725 of management fees related to our subsidiary level management agreement with RMR LLC entered in connection with our joint venture arrangement for both the three months ended March 31, 2021 and 2020.

Based on our common share total return, as defined in our business management agreement, as of each of March 31, 2021 and 2020, no estimated incentive fees are included in the net business management fees we recognized for the three months ended March 31, 2021 or 2020.

The actual amount of annual incentive fees for 2021, if any, will be based on our common share total return as defined in our business management agreement, for the three-year period ending December 31, 2021, and will be payable in 2022.

We did not incur any incentive fee payable for the

and (2) a property management agreement, which relates to the property level

DIVERSIFIED HEALTHCARE TRUST

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

year ended December 31, 2020.

operations of our medical office and life science properties and major renovation or repositioning activities at our senior living communities.

Under that agreement, our subsidiary pays RMR LLC certain management fees directly, which fees are credited against the business management fees payable by us to RMR LLC.

See Note 11 for further information regarding our relationship, agreements and transactions with RMR LLC.

We recognized net business management fees of $ 6,324 and $ 4,841 for the three months ended June 30, 2021 and 2020, respectively, and $ 11,641 and $ 10,610 for the six months ended June 30, 2021 and 2020, respectively.

The net business management fees we recognized include $ 725 and $ 1,450 of management fees related to our subsidiary level management agreement with RMR LLC entered in connection with our joint venture arrangement for the three and six months ended June 30, 2021 and 2020, respectively.

Based on our common share total return, as defined in our business management agreement, as of each of June 30, 2021 and 2020, no estimated incentive fees are included in the net business management fees we recognized for the three or six months ended June 30, 2021 or 2020.

We did not incur any incentive fee payable for the year ended December 31, 2020.

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

We recognized aggregate net property management and construction supervision fees payable to RMR LLC of $ 3,154 and $ 3,192 for the three months ended March 31, 2021 and 2020, respectively.

Of those amounts, for the three months ended March 31, 2021 and 2020, $ 2,485 and $ 2,596 , respectively, were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 669 and $ 596 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets.

We recognized aggregate net property management and construction supervision fees payable to RMR LLC of $ 3,191 and $ 3,407 for the three months ended June 30, 2021 and 2020, respectively.

Of those amounts, for the three months ended June 30, 2021 and 2020, $ 2,465 and $ 2,481 , respectively, of property management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 726 and $ 926 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets and are being depreciated over the estimated useful lives of the related capital assets.

We recognized aggregate net property management and construction supervision fees of $ 6,345 and $ 6,599 for the six months ended June 30, 2021 and 2020, respectively.

Of those amounts, for the six months ended June 30, 2021 and 2020, $ 4,950 and $ 5,077 , respectively, of property management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 1,395 and $ 1,522 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets and are being depreciated over the estimated useful lives of the related capital assets.

We are generally responsible for all our operating expenses, including certain expenses incurred or arranged by RMR LLC on our behalf.

We are generally not responsible for payment of RMR LLC's employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR LLC's employees assigned to work exclusively or partly at our medical office and life science properties, our share of the wages, benefits and other related costs of RMR LLC's centralized accounting personnel, our share of RMR LLC's costs for providing our internal audit function, or as otherwise agreed.

We are generally not responsible for payment of RMR LLC's employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR LLC's employees assigned to work exclusively or partly at our properties, our share of the wages, benefits and other related costs of RMR LLC's centralized accounting personnel, our share of RMR LLC's costs for providing our internal audit function, or as otherwise agreed.

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

We reimbursed RMR LLC $ 3,297 and $ 3,443 for these expenses and costs for the three months ended March 31, 2021 and 2020, respectively.

We reimbursed RMR LLC $ 3,202 and $ 3,419 for these expenses and costs for the three months ended June 30, 2021 and 2020, respectively, and $ 6,499 and $ 6,862 for the six months ended June 30, 2021 and 2020, respectively.

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

On June 9, 2021, we and RMR LLC amended our property management agreement to, among other things, provide for RMR LLC's oversight of any major capital projects and repositionings at our senior living communities, including our senior living communities which Five Star is continuing to manage, and that RMR LLC will receive the same fee previously paid to Five Star for such services, which is equal to 3 % of the cost of any such major capital project or repositioning.

Related Person Transactions

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The Chair of our Board and one of our Managing Trustees, Adam D.

Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., 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.

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

Francis, our President and Chief Operating Officer is an executive vice president of RMR Inc.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

and a managing director of Five Star.

Francis, our other Managing Trustee and our President and Chief Executive Officer is an executive vice president of RMR Inc.

and she and our Chief Financial Officer and Treasurer are also employees and officers of RMR LLC.

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

Certain of Five Star's officers are officers and employees of RMR LLC.

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We are currently Five Star's largest stockholder.

As of March 31, 2021, we owned 10,691,658 Five Star common shares, or approximately 33.8 % of Five Star's outstanding common shares.

Five Star currently manages for our account most of the senior living communities we own.

As of June 30, 2021, we owned 10,691,658 Five Star common shares, or approximately 33.7 % of Five Star's outstanding common shares.

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

RMR LLC provides management services to both us and Five Star.

See Note 9 for further information regarding our relationships, agreements and transactions with Five Star and Note 5 for further information regarding our investment in Five Star.

As of March 31, 2021, ABP Acquisition LLC, a subsidiary of ABP Trust, the controlling shareholder of RMR Inc., together with ABP Trust, owned approximately 6.3 % of Five Star's outstanding common shares.

As of June 30, 2021, ABP Acquisition LLC, a subsidiary of ABP Trust, the controlling shareholder of RMR Inc., together with ABP Trust, owned approximately 6.4 % of Five Star's outstanding common shares.

Our Manager, RMR LLC.

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

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

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

During the three months ended March 31, 2021 and 2020, we recognized income tax expense of $ 238 and benefit of $ 443 , respectively.

During the three months ended June 30, 2021 and 2020, we recognized income tax expense of $ 191 and $ 1,126 , respectively, and during the six months ended June 30, 2021 and 2020, we recognized income tax expense of $ 429 and $ 683 , respectively.

Weighted Average Common Share s (share amounts in thousands)

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Unvested share awards and other potentially dilutive common shares, and the related impact on earnings, are considered when calculating diluted earnings per share.

For the three months ended March 31, 2021 and 2020, 20 and 123 unvested common shares, respectively, were not included in the calculation of diluted earnings per share because to do so would have been antidilutive.

For the three months ended June 30, 2021 and 2020, 17 and 346 unvested common shares, respectively, and for the six months ended June 30, 2021 and 2020, 19 and 234 unvested common shares, respectively, were not included in the calculation of diluted earnings per share because to do so would have been antidilutive.

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

What changed 10-Q

Item 1. Financial Statements