Item 2. Management’s Discussion and Analysis
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
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.
OVERVIEW
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 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. At June 30, 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.
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, managers and operators 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 experienced disruptions to their businesses. 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 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 managers 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 managers 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.
Throughout the first quarter of 2021, Five Star coordinated multiple COVID-19 vaccination clinics at senior living communities in our SHOP segment for residents and staff. As previously disclosed, all of the communities in our SHOP segment have completed vaccination clinics and are accepting new residents. On June 1, 2021, Five Star announced that all of its team members at our communities will be required to be fully vaccinated against COVID-19 by September 1, 2021 in order to protect Five Star's team members and residents at our communities from the ongoing threat posed by the COVID-19 virus. Both Five Star's team members and residents at our communities continue to have access to vaccines.
We also believe that we and our managers, operators and 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 six months ended June 30, 2021, we recognized $18.2 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. The conditions in the United States significantly improved since those periods during the pandemic; however, certain areas of the United States have recently experienced increasing COVID-19 infections. It is unclear whether the number of COVID-19 infections will further increase 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, or our managers', operators' and tenants' businesses. As a result of these uncertainties, we are unable to determine what the ultimate impacts will be on our, our tenants', our managers', our operators' and other stakeholders' businesses, operations, financial results and financial position. For further information and risks relating
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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 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 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 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; and
• 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 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 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 $11.9 million of these costs to acquisition and certain other transaction related costs in our condensed consolidated statements of comprehensive income (loss).
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The following table presents a pro forma breakout of communities that Five Star is continuing to manage and communities that we are in the process of transitioning from Five Star to other third party managers (dollars in thousands):
As of and For the Three Months Ended
June 30, 2021 As of and For the Six Months Ended
June 30, 2021
Five Star Retained Communities Operator Transition Communities Total Five Star Retained Communities Operator Transition Communities Total
Communities (1)
120 108 228 120 108 228
Number of units (2)
17,898 7,525 25,423 17,898 7,525 25,423
Occupancy 72.9 % 66.5 % 71.0 % 72.8 % 66.1 % 70.8 %
Residents fees and services $ 168,655 $ 75,266 $ 243,921 $ 353,972 $ 149,736 $ 503,708
NOI (3)
$ 12,509 $ (1,257) $ 11,252 $ 23,050 $ (7,426) $ 15,624
(1) Excludes seven closed senior living communities.
(2) Excludes skilled nursing units that have been closed or are being closed and repositioned.
(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 June 30, 2021) Number
of Properties Square Feet or Number of Units Gross Book Value of Real Estate Assets (1)
% of Total Gross Book Value of Real Estate Assets Investment per Square Foot or Unit (2)
Q2 2021 Revenues (3)
% of
Q2 2021 Revenues Q2 2021 NOI (3)(4)
% of Q2 2021 NOI
Office Portfolio (5)
118 10,926,678 sq. ft. $ 3,720,717 45.3 % $ 341 $ 92,804 26.8 % $ 61,483 75.2 %
SHOP 235 25,423 units 4,069,382 49.5 % $ 160,067 243,947 70.4 % 10,636 13.0 %
Other triple net leased senior living communities 29 2,327 units 250,073 3.0 % $ 107,466 6,213 1.8 % 6,213 7.6 %
Wellness centers 10 812,000 sq. ft. 178,110 2.2 % $ 219 3,377 1.0 % 3,377 4.2 %
Total 392 $ 8,218,282 100.0 % $ 346,341 100.0 % $ 81,709 100.0 %
Occupancy
As of and For the Three Months Ended June 30,
2021 2020
Office Portfolio (6)
91.0 % 92.0 %
SHOP 70.9 % 78.7 %
Other triple net leased senior living communities (7)(8)
74.3 % 86.1 %
Wellness centers 100.0 % 100.0 %
(1) Represents gross book value of real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, if any.
(2) Represents gross book value of real estate assets divided by number of rentable square feet or living units, as applicable, at June 30, 2021.
(3) Includes $772 of revenues and $579 of NOI from properties that we sold.
(4) We calculate our NOI on a consolidated basis and by reportable segment. Our definition of NOI and our reconciliation of net income (loss) to NOI are included below under the heading “Non-GAAP Financial Measures”.
(5) Our medical office and life science property leases include some triple net leases where, in addition to paying fixed rents, the tenants assume the obligation to operate and maintain the properties at their expense, and some net and
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modified gross leases where we are responsible for the operation and maintenance of the properties and we charge tenants for some or all of the property operating costs. A small percentage of our medical office and life science property leases are full-service leases where we receive fixed rent from our tenants and no reimbursement for our property operating costs.
(6) Medical office and life science property occupancy data is as of June 30, 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, if any, and data for which there was a transfer of operations during the periods presented.
(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 March 31, 2021 and 2020, or the most recent prior period for which tenant operating results are made available to us. We have not independently verified tenant operating data.
During the three and six months ended June 30, 2021, we entered into new and renewal leases at our medical office and life science properties in our Office Portfolio segment as summarized in the following tables (dollars and square feet in thousands, except per square foot amounts):
Three Months Ended June 30, 2021
New Leases Renewals Total
Square feet leased during the quarter 65 567 632
Weighted average rental rate change (by rentable square feet) 13.1 % 5.0 % 5.9 %
Weighted average lease term (years) (1)
9.3 9.1 9.1
Total leasing costs and concession commitments (2)
$ 5,191 $ 21,241 $ 26,432
Total leasing costs and concession commitments per square foot (2)
$ 80.38 $ 37.43 $ 41.82
Total leasing costs and concession commitments per square foot per year (2)
$ 8.60 $ 4.13 $ 4.60
Six Months Ended June 30, 2021
New Leases Renewals Total
Square feet leased during the quarter 217 627 844
Weighted average rental rate change (by rentable square feet) 20.1 % 4.9 % 9.9 %
Weighted average lease term (years) (1)
10.6 9.0 9.6
Total leasing costs and concession commitments (2)
$ 37,441 $ 21,799 $ 59,240
Total leasing costs and concession commitments per square foot (2)
$ 172.73 $ 34.72 $ 70.14
Total leasing costs and concession commitments per square foot per year (2)
$ 16.28 $ 3.85 $ 7.31
(1) Weighted based on annualized rental income pursuant to existing leases as of June 30, 2021, including straight line rent adjustments and estimated recurring expense reimbursements, and excluding lease value amortization.
(2) Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent.
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Lease Expiration Schedules
As of June 30, 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
2021 63 340,153 3.4 % 3.4 % $ 13,008 3.5 % 3.5 %
2022 103 1,220,308 12.3 % 15.7 % 30,540 8.3 % 11.8 %
2023 54 982,724 9.9 % 25.6 % 18,959 5.2 % 17.0 %
2024 81 1,787,991 18.0 % 43.6 % 49,578 13.5 % 30.5 %
2025 75 909,556 9.1 % 52.7 % 24,360 6.6 % 37.1 %
2026 65 775,788 7.8 % 60.5 % 24,972 6.8 % 43.9 %
2027 33 583,200 5.9 % 66.4 % 14,354 3.9 % 47.8 %
2028 29 1,471,488 14.8 % 81.2 % 115,781 31.5 % 79.3 %
2029 27 338,497 3.4 % 84.6 % 12,671 3.5 % 82.8 %
2030 and thereafter 60 1,533,087 15.4 % 100.0 % 62,863 17.2 % 100.0 %
Total 590 9,942,792 100.0 % $ 367,086 100.0 %
Weighted average remaining lease term (in years) 5.0 6.0
(1) Annualized rental income is based on rents pursuant to existing leases as of June 30, 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.
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RESULTS OF OPERATIONS (dollars and square feet in thousands, unless otherwise noted)
We operate in, and report financial information for, the following two segments: Office Portfolio and SHOP. We aggregate each of these two reporting segments based on their similar operating and economic characteristics. Our Office Portfolio segment consists of medical office properties leased to medical providers and other medical related businesses, as well as life science properties leased to biotech laboratories and other similar tenants. 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 a manager to operate the communities.
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 and six months ended June 30, 2021 and 2020:
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Revenues:
Office Portfolio $ 92,804 $ 95,510 $ 186,127 $ 194,280
SHOP 243,947 304,104 503,913 636,073
Non-Segment 9,590 10,697 19,025 22,425
Total revenues $ 346,341 $ 410,311 $ 709,065 $ 852,778
Net income (loss) attributable to common shareholders:
Office Portfolio $ 52,177 $ 24,340 $ 74,886 $ 47,099
SHOP (6,679) (24,710) (32,093) (15,242)
Non-Segment (79,720) (25,702) (144,520) (48,194)
Net income (loss) attributable to common shareholders $ (34,222) $ (26,072) $ (101,727) $ (16,337)
The following sections analyze and discuss the results of operations of each of our segments for the periods presented.
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Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 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 June 30, 2021 to the three months ended June 30, 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 June 30,
2021 2020 $ Change % Change
NOI by segment:
Office Portfolio $ 61,483 $ 64,617 $ (3,134) (4.9) %
SHOP 10,636 33,082 (22,446) (67.8) %
Non-Segment 9,590 10,697 (1,107) (10.3) %
Total NOI 81,709 108,396 (26,687) (24.6) %
Depreciation and amortization 67,888 68,825 (937) (1.4) %
General and administrative 9,126 7,312 1,814 24.8 %
Acquisition and certain other transaction related costs 12,071 87 11,984 nm
Impairment of assets — 31,175 (31,175) (100.0) %
Gain (loss) on sale of properties 30,760 (168) 30,928 nm
Gains and losses on equity securities, net (3,849) 11,974 (15,823) (132.1) %
Interest and other income 16,038 7,736 8,302 107.3 %
Interest expense
(67,657) (43,974) (23,683) 53.9 %
Loss on early extinguishment of debt (370) (181) (189) 104.4 %
Loss from continuing operations before income tax expense (32,454) (23,616) (8,838) 37.4 %
Income tax expense (191) (1,126) 935 (83.0) %
Net loss (32,645) (24,742) (7,903) 31.9 %
Net income attributable to noncontrolling interest (1,577) (1,330) (247) 18.6 %
Net loss attributable to common shareholders $ (34,222) $ (26,072) $ (8,150) 31.3 %
nm - not meaningful
Office Portfolio :
Comparable Properties (1)
All Properties
As of June 30, As of June 30,
2021 2020 2021 2020
Total buildings 113 113 118 129
Total square feet (2)
10,604 10,599 10,927 11,668
Occupancy (3)
92.3 % 93.4 % 91.0 % 92.0 %
(1) Consists of medical office and life science properties that we have owned and which have been in service continuously since April 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) 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 June 30,
Comparable (1)
Non-Comparable
Properties Results Properties Results Consolidated Properties Results
$ % $ %
2021 2020 Change Change 2021 2020 2021 2020 Change Change
Rental income $ 91,511 $ 90,337 $ 1,174 1.3 % $ 1,293 $ 5,173 $ 92,804 $ 95,510 $ (2,706) (2.8) %
Property operating expenses (30,725) (29,456) 1,269 4.3 % (596) (1,437) (31,321) (30,893) 428 1.4 %
NOI $ 60,786 $ 60,881 $ (95) (0.2) % $ 697 $ 3,736 $ 61,483 $ 64,617 $ (3,134) (4.9) %
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(1) Consists of medical office and life science properties that we have owned and which have been in service continuously since April 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.
Rental income. Rental income decreased primarily due to our disposition of 12 properties since April 1, 2020 and assets being taken out of service and/or undergoing redevelopment, partially offset by an increase in rental income at our comparable properties. Rental income increased at our comparable properties primarily due to increased parking revenue at certain of our comparable properties as states and municipalities have eased restrictions related to the COVID-19 pandemic and tenants' employees have increasingly returned to the office and commercial activity has increased and increases in tax escalation income and other property operating expense reimbursements at certain of our comparable properties, partially offset by a decrease in occupancy 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 increase in property operating expenses is primarily due to an increase in property operating expenses at our comparable properties, partially offset by our disposition of 12 properties since April 1, 2020. Property operating expenses at our comparable properties increased primarily due to increases in utility expenses, real estate taxes 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.
SHOP :
Comparable Properties (1)
All Properties
As of and For the Three Months As of and For the Three Months
Ended June 30, Ended June 30,
2021 2020 2021 2020
Total properties 228 228 235 241
Number of units 25,423 25,423 25,423 28,348
Occupancy 71.0 % 80.7 % 70.9 % 78.7 %
Average monthly rate (2)
$ 4,279 $ 4,207 $ 4,307 $ 4,496
(1) Consists of senior living communities that we have owned and which have been operated by the same operator continuously since April 1, 2020; excludes communities classified as held for sale or closed, if any.
(2) Average monthly rate is calculated by taking the average daily rate, which is defined as total residents fees and services divided by occupied units during the period, and multiplying it by 30 days.
Three Months Ended June 30,
Comparable (1)
Non-Comparable
Properties Results Properties Results Consolidated Properties Results
$ % $ %
2021 2020 Change Change 2021 2020 2021 2020 Change Change
Residents fees and services $ 243,921 $ 291,049 $ (47,128) (16.2) % $ 26 $ 13,055 $ 243,947 $ 304,104 $ (60,157) (19.8) %
Property operating expenses (232,669) (255,820) (23,151) (9.0) % (642) (15,202) (233,311) (271,022) (37,711) (13.9) %
NOI $ 11,252 $ 35,229 $ (23,977) (68.1) % $ (616) $ (2,147) $ 10,636 $ 33,082 $ (22,446) (67.8) %
(1) Consists of senior living communities that we have owned and which have been operated by the same operator continuously since April 1, 2020; excludes communities classified as held for sale or closed, if any.
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 decreased primarily due to our disposition of nine properties since April 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 June 30, 2021 compared to the three months ended June 30, 2020, partially offset by increases in average monthly rates at certain of our comparable properties. Additionally, residents fees and services at our comparable properties decreased due to the closure of skilled nursing units during the three months ended June 30, 2021.
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
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costs of operating these communities. Property operating expenses decreased primarily due to our disposition of nine properties since April 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 reduced occupancy at our comparable properties as a result of the impact of the COVID-19 pandemic and the closure of skilled nursing units during the three months ended June 30, 2021.
Net operating income. The change in NOI reflects the net changes in residents fees and services and property operating expenses described above.
Non-Segment (1) :
Comparable Properties (2)
All Properties
As of and For the Three Months Ended June 30, As of and For the Three Months Ended June 30,
2021 2020 2021 2020
Total properties:
Other triple net leased senior living communities 29 29 29 32
Wellness centers 10 10 10 10
Rent coverage:
Other triple net leased senior living communities (3)
1.38 x 1.66 x 1.38 x 1.66 x
Wellness centers (3)
0.94 x 1.73 x 0.94 x 1.73 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 April 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 March 31, 2021 and 2020 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, if any, during the periods presented.
Three Months Ended June 30,
Comparable (1)
Non-Comparable
Properties Results Properties Results Consolidated Properties Results
$ % $ %
2021 2020 Change Change 2021 2020 2021 2020 Change Change
Rental income $ 9,590 $ 9,737 $ (147) (1.5) % $ — $ 960 $ 9,590 $ 10,697 $ (1,107) (10.3) %
NOI $ 9,590 $ 9,737 $ (147) (1.5) % $ — $ 960 $ 9,590 $ 10,697 $ (1,107) (10.3) %
(1) Consists of properties that we have owned and which have been leased to the same operator continuously since April 1, 2020; excludes properties classified as held for sale, if any.
Rental income. Rental income decreased primarily due to the sale of three senior living communities leased to private operators since April 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 April 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 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. The change in NOI reflects the net changes in rental income described above.
Consolidated :
References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended June 30, 2021, compared to the three months ended June 30, 2020.
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Depreciation and amortization expense. Depreciation and amortization expense decreased primarily due to our disposition of 24 properties, certain depreciable leasing related assets becoming fully depreciated and certain of our acquired resident agreements becoming fully amortized since April 1, 2020, partially offset by the purchase of capital improvements at certain of our properties since April 1, 2020.
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 increased primarily due to an increase in our base business management fees expense as a result of higher trading prices for our common shares during the three months ended June 30, 2021 compared to the three months ended June 30, 2020.
Acquisition and certain other transaction related costs. For the three months ended June 30, 2021, acquisition and certain other transaction related costs primarily represent costs incurred in connection with the Master Management Agreement. For the three months ended June 30, 2020, 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 Master Management Agreement or 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 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.
Gain (loss) on sale of properties. Gain (loss) on sale of properties is the net result of our sale of certain of our properties during the three months ended June 30, 2021 and 2020. For further information regarding gain (loss) 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.
Gains and losses on equity securities, net. Gains and losses on equity securities, net, represent the net unrealized gains and losses to adjust our investment in Five Star 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 $15,748 of funds we received from the U.S. government pursuant to the CARES Act during the three months ended June 30, 2021 compared to $7,346 received during the three months ended June 30, 2020.
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 2025, our issuance in February 2021 of $500,000 aggregate principal amount of our 4.375% senior notes due 2031 and an increase in average borrowings under our revolving credit facility. This increase was partially offset by our redemption in April 2020 of all $200,000 of our 6.75% senior notes due 2020, our prepayment in June 2020 of our $250,000 term loan, our prepayment in February 2021 of our $200,000 term loan and our redemption in June 2021 of all $300,000 of our 6.75% senior notes due 2021.
Loss on early extinguishment of debt. We recorded a loss on early extinguishment of debt in connection with our redemption of all $300,000 of our 6.75% senior notes due 2021 during the three months ended June 30, 2021. We recorded a loss on early extinguishment of debt in connection with our prepayment of our $250,000 term loan and of a mortgage note during the three months ended June 30, 2020.
Income tax expense . Income tax expense is the result of operating income we earned in certain jurisdictions where we are subject to state income taxes.
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Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 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 six months ended June 30, 2021 to the six months ended June 30, 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.”
Six Months Ended June 30,
2021 2020 $ Change % Change
NOI by segment:
Office Portfolio $ 123,513 $ 130,681 $ (7,168) (5.5) %
SHOP 14,504 81,172 (66,668) (82.1) %
Non-Segment 19,025 22,425 (3,400) (15.2) %
Total NOI 157,042 234,278 (77,236) (33.0) %
Depreciation and amortization 134,041 137,255 (3,214) (2.3) %
General and administrative 16,668 16,144 524 3.2 %
Acquisition and certain other transaction related costs 12,071 750 11,321 nm
Impairment of assets (174) 42,409 (42,583) (100.4) %
Gain on sale of properties 30,638 2,614 28,024 nm
Gains and losses on equity securities, net (12,188) 2,031 (14,219) nm
Interest and other income 18,873 7,874 10,999 139.7 %
Interest expense
(127,748) (85,624) (42,124) 49.2 %
Gain on lease termination
— 22,896 (22,896) (100.0) %
Loss on early extinguishment of debt (2,410) (427) (1,983) nm
Loss from continuing operations before income tax expense (98,399) (12,916) (85,483) nm
Income tax expense (429) (683) 254 (37.2) %
Net loss (98,828) (13,599) (85,229) nm
Net income attributable to noncontrolling interest (2,899) (2,738) (161) 5.9 %
Net loss attributable to common shareholders $ (101,727) $ (16,337) $ (85,390) nm
nm - not meaningful
Office Portfolio :
Comparable Properties (1)
All Properties
As of June 30, As of June 30,
2021 2020 2021 2020
Total buildings 113 113 118 129
Total square feet (2)
10,604 10,599 10,927 11,668
Occupancy (3)
92.3 % 93.4 % 91.0 % 92.0 %
(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) 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.
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Six Months Ended June 30,
Comparable (1)
Non-Comparable
Properties Results Properties Results Consolidated Properties Results
$ % $ %
2021 2020 Change Change 2021 2020 2021 2020 Change Change
Rental income $ 182,124 $ 183,068 $ (944) (0.5) % $ 4,003 $ 11,212 $ 186,127 $ 194,280 $ (8,153) (4.2) %
Property operating expenses (61,217) (60,329) 888 1.5 % (1,397) (3,270) (62,614) (63,599) (985) (1.5) %
NOI $ 120,907 $ 122,739 $ (1,832) (1.5) % $ 2,606 $ 7,942 $ 123,513 $ 130,681 $ (7,168) (5.5) %
(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.
Rental income. Rental income decreased primarily due to our disposition of 20 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 decreases in occupancy and tax escalation income, partially offset by increased parking revenue at certain of our comparable properties as states and municipalities have eased restrictions related to the COVID-19 pandemic and tenants' employees have increasingly returned to the office and commercial activity has increased.
Property operating expenses. The decrease in property operating expenses is primarily due to our disposition of 20 properties since January 1, 2020, 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 landscaping expenses, utility expenses and other direct costs, partially offset by decreases in real estate taxes 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.
SHOP :
Comparable Properties (1)
All Properties
As of and For the Six Months Ended June 30, As of and For the Six Months Ended June 30,
2021 2020 2021 2020
Total properties 228 228 235 241
Number of units 25,423 25,423 25,423 28,348
Occupancy 70.8 % 82.5 % 70.2 % 80.7 %
Average monthly rate (2)
$ 4,299 $ 4,223 $ 4,467 $ 4,535
(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 closed, 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.
Six Months Ended June 30,
Comparable (1)
Non-Comparable
Properties Results Properties Results Consolidated Properties Results
$ % $ %
2021 2020 Change Change 2021 2020 2021 2020 Change Change
Residents fees and services $ 503,708 $ 603,350 $ (99,642) (16.5) % $ 205 $ 32,723 $ 503,913 $ 636,073 $ (132,160) (20.8) %
Property operating expenses (488,084) (517,781) (29,697) (5.7) % (1,325) (37,120) (489,409) (554,901) (65,492) (11.8) %
NOI $ 15,624 $ 85,569 $ (69,945) (81.7) % $ (1,120) $ (4,397) $ 14,504 $ 81,172 $ (66,668) (82.1) %
(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 closed, if any.
Residents fees and services. 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 six months ended June 30, 2021 compared to the six months ended June 30, 2020, partially offset by
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increases in average monthly rates at certain of our comparable properties. Additionally, residents fees and services at our comparable properties decreased due to the closure of skilled nursing units during the six months ended June 30, 2021.
Property operating expenses. 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 reduced occupancy at our comparable properties as a result of the impact of the COVID-19 pandemic and the closure of skilled nursing units during the six months ended June 30, 2021.
Net operating income. The change in NOI reflects the net changes in residents fees and services and property operating expenses described above.
Non-Segment (1) :
Comparable Properties (2)
All Properties
As of and For the Six Months Ended June 30, As of and For the Six Months Ended June 30,
2021 2020 2021 2020
Total properties:
Other triple net leased senior living communities 29 29 29 32
Wellness centers 10 10 10 10
Rent coverage:
Other triple net leased senior living communities (3)
1.38 x 1.66 x 1.38 x 1.66 x
Wellness centers (3)
0.94 x 1.73 x 0.94 x 1.73 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 March 31, 2021 and 2020 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, if any, during the periods presented.
Six Months Ended June 30,
Comparable (1)
Non-Comparable
Properties Results Properties Results Consolidated Properties Results
$ % $ %
2021 2020 Change Change 2021 2020 2021 2020 Change Change
Rental income $ 19,025 $ 20,505 $ (1,480) (7.2) % $ — $ 1,920 $ 19,025 $ 22,425 $ (3,400) (15.2) %
NOI $ 19,025 $ 20,505 $ (1,480) (7.2) % $ — $ 1,920 $ 19,025 $ 22,425 $ (3,400) (15.2) %
(1) 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.
Rental income. 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 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. The change in NOI reflects the net changes in rental income described above.
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Consolidated :
References to changes in the income and expense categories below relate to the comparison of consolidated results for the six months ended June 30, 2021, compared to the six months ended June 30, 2020.
Depreciation and amortization expense. Depreciation and amortization expense decreased primarily due to our disposition of 32 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 increased primarily due to an increase in our base business management fees expense as a result of higher trading prices for our common shares during the six months ended June 30, 2021 compared to the six months ended June 30, 2020.
Acquisition and certain other transaction related costs. For the six months ended June 30, 2021, acquisition and certain other transaction related costs primarily represent costs incurred in connection with the Master Management Agreement. For the six months ended June 30, 2020, acquisition and certain other transaction related costs primarily represent costs incurred in connection with the Restructuring Transaction. For information regarding the Master Management Agreement or 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 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.
Gain on sale of properties. Gain on sale of properties is the net result of our sale of certain of our properties during the six months ended June 30, 2021 and 2020. For further information regarding 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.
Gains and losses on equity securities, net. Gains and losses on equity securities, net, represent the net unrealized gains and losses to adjust our investment in Five Star 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 $18,181 of funds we received from the U.S. government pursuant to the CARES Act during the six months ended June 30, 2021 compared to $7,346 received during the six months ended June 30, 2020.
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 2025 and our issuance in February 2021 of $500,000 aggregate principal amount of our 4.375% senior notes due 2031. 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 June 2020 of our $250,000 term loan, our prepayment in February 2021 of our $200,000 term loan and our redemption in June 2021 of all $300,000 of our 6.75% senior notes due 2021.
Gain on lease termination. Gain on lease termination represents the gain recognized in connection with 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.
Loss on early extinguishment of debt. We recorded a loss on early extinguishment of debt in connection with the amendments to our credit and term loan agreements, our prepayment of our $200,000 term loan and our redemption of all $300,000 of our 6.75% senior notes due 2021 during the six months ended June 30, 2021. We recorded a loss on early extinguishment of debt in connection with our prepayment of our $250,000 term loan and mortgage notes during the six months ended June 30, 2020.
Income tax expense . Income tax expense is the result of operating income we earned in certain jurisdictions where we are subject to state income taxes.
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Non-GAAP Financial Measures (dollars in thousands, except per share amounts)
We present certain "non-GAAP financial measures" within the meaning of applicable rules of the Securities and Exchange Commission, or SEC, including funds from operations attributable to common shareholders, or FFO attributable to common shareholders, normalized funds from operations attributable to common shareholders, or Normalized FFO attributable to common shareholders, and NOI for the three and six months ended June 30, 2021 and 2020. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) or net income (loss) attributable to common shareholders as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with net income (loss) and net income (loss) attributable to common shareholders as presented in our condensed consolidated statements of comprehensive income (loss). We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss) and net income (loss) attributable to common shareholders. We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization, they may facilitate a comparison of our operating performance between periods and with other REITs and, in the case of NOI, reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of our properties.
Funds From Operations and Normalized Funds From Operations Attributable to Common Shareholders
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, 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. Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in the agreements governing our debt, the availability to us of debt and equity capital, our expectation of our future capital requirements and operating performance, and our expected needs for and availability of cash to pay our obligations. O ther real estate companies and REITs may calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders differently than we do.
Our calculations of FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the three and six months ended June 30, 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.
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Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Net loss attributable to common shareholders $ (34,222) $ (26,072) $ (101,727) $ (16,337)
Depreciation and amortization 67,888 68,825 134,041 137,255
(Gain) loss on sale of properties (30,760) 168 (30,638) (2,614)
Impairment of assets — 31,175 (174) 42,409
Losses (gains) on equity securities, net 3,849 (11,974) 12,188 (2,031)
FFO adjustments attributable to noncontrolling interest (5,275) (5,275) (10,548) (10,550)
Adjustments to reflect our share of FFO attributable to an equity method investment (3,005) 1,601 (969) (2,814)
FFO attributable to common shareholders (1,525) 58,448 2,173 145,318
Acquisition and certain other transaction related costs 12,071 87 12,071 750
Gain on lease termination — — — (22,896)
Loss on early extinguishment of debt 370 181 2,410 427
Adjustments to reflect our share of Normalized FFO attributable to an equity method investment 1,299 993 1,384 9,127
Normalized FFO attributable to common shareholders $ 12,215 $ 59,709 $ 18,038 $ 132,726
Weighted average common shares outstanding (basic) 237,871 237,700 237,853 237,684
Weighted average common shares outstanding (diluted) 237,871 237,700 237,853 237,684
Per common share data (basic and diluted):
Net loss attributable to common shareholders $ (0.14) $ (0.11) $ (0.43) $ (0.07)
FFO attributable to common shareholders $ (0.01) $ 0.25 $ 0.01 $ 0.61
Normalized FFO attributable to common shareholders $ 0.05 $ 0.25 $ 0.08 $ 0.56
Distributions declared $ 0.01 $ 0.01 $ 0.02 $ 0.16
Property Net Operating Income (NOI)
We calculate NOI as shown below. The calculation of NOI excludes certain components of net income (loss) in order to provide results that are more closely related to our property level results of operations. We define NOI as income from our real estate less our property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions that we record as depreciation and amortization. We use NOI to evaluate individual and company-wide property level performance. Other real estate companies and REITs may calculate NOI differently than we do.
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The calculation of NOI by reportable segment is included above in this Item 2. The following table includes the reconciliation of net income (loss) to NOI for the three and six months ended June 30, 2021 and 2020, respectively.
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Reconciliation of Net Income (Loss) to NOI:
Net loss $ (32,645) $ (24,742) $ (98,828) $ (13,599)
Income tax expense 191 1,126 429 683
Loss from continuing operations before income tax expense (32,454) (23,616) (98,399) (12,916)
Loss on early extinguishment of debt 370 181 2,410 427
Gain on lease termination — — — (22,896)
Interest expense 67,657 43,974 127,748 85,624
Interest and other income (16,038) (7,736) (18,873) (7,874)
Losses (gains) on equity securities, net 3,849 (11,974) 12,188 (2,031)
(Gain) loss on sale of properties (30,760) 168 (30,638) (2,614)
Impairment of assets — 31,175 (174) 42,409
Acquisition and certain other transaction related costs 12,071 87 12,071 750
General and administrative 9,126 7,312 16,668 16,144
Depreciation and amortization 67,888 68,825 134,041 137,255
Total NOI $ 81,709 $ 108,396 $ 157,042 $ 234,278
Office Portfolio NOI $ 61,483 $ 64,617 $ 123,513 $ 130,681
SHOP NOI 10,636 33,082 14,504 81,172
Non-Segment NOI 9,590 10,697 19,025 22,425
Total NOI $ 81,709 $ 108,396 $ 157,042 $ 234,278
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of cash to meet operating and capital expenses, pay debt service obligations and make distributions to our shareholders are the operating cash flows we generate as rental income from our leased properties, residents fees and services revenues from our managed communities, borrowings under our revolving credit facility and proceeds from the disposition of certain properties. We believe that these sources will be sufficient to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders for the next 12 months and for the foreseeable future thereafter. Our future cash flows from operating activities will depend primarily upon:
• our ability to receive rents from our tenants, including in light of the COVID-19 pandemic and its impact on our tenants' businesses;
• 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 current economic conditions, particularly at our senior living communities;
• our ability to control operating expenses and capital expenses at our properties, including increased operating expenses that we may incur in response to the COVID-19 pandemic; and
• each manager's ability to manage our managed senior living communities, including throughout the COVID-19 pandemic, to maintain or increase our returns and to reduce the extent of the declines in our returns.
We continue to carefully monitor the developments of the COVID-19 pandemic and the resulting economic conditions and their impact on our tenants, managers, operators and other stakeholders, including at our senior living communities.
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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 used the remaining net proceeds 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 $300.0 million plus accrued and unpaid interest of $10.1 million in June 2021, when these notes became redeemable with no prepayment premium. 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 uncertainties related to the COVID-19 pandemic. Although we have taken steps to enhance our ability to maintain sufficient liquidity, a protracted negative economic impact resulting from the COVID-19 pandemic may cause further 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. As of June 30, 2021, our ratio of consolidated income available for debt service to debt service was below the 1.5x 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 1.5x. 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 six months ended June 30, 2021, we sold five properties for an aggregate sales price of $104.5 million, excluding closing costs. The measures we have taken to enhance our ability to maintain sufficient liquidity may not sufficiently offset the decrease in cash flows from operations and capital investments we make, particularly during the COVID-19 pandemic, in which case our liquidity would be negatively impacted.
The following is a summary of our sources and uses of cash flows for the periods presented, as reflected in our condensed consolidated statements of cash flows (dollars in thousands):
Six Months Ended June 30,
2021 2020
Cash and cash equivalents and restricted cash at beginning of period $ 90,849 $ 52,224
Net cash provided by (used in):
Operating activities 27,046 110,673
Investing activities 19,589 (7,397)
Financing activities 770,605 (61,732)
Cash and cash equivalents and restricted cash at end of period $ 908,089 $ 93,768
Our Operating Liquidity and Resources
We generally receive minimum rents from our tenants monthly or quarterly, we receive residents fees and services revenues, net of expenses, from our managed senior living communities monthly and we receive percentage rents from certain of our senior living community tenants monthly, quarterly or annually.
The decrease in cash provided by operating activities for the six months ended June 30, 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 previously disclosed, 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. 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 $11.9 million of these costs to acquisition and certain other transaction related costs in our condensed consolidated statements of comprehensive income (loss).
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 industries. Depending on the duration and severity of this pandemic and the resulting economic conditions, our tenants', managers' and operators' businesses may become significantly adversely affected, which may result in our tenants failing to pay rent to us or not renewing their leases upon expiration and in our senior living community managers realizing decreased returns from our senior living communities. As of August 2, 2021, we granted requests for certain of our tenants to defer rent payments totaling $1.8 million. As of June 30, 2021, we recognized an increase in our accounts receivable balance related to these deferred rent payments of $0.4 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 June 30, 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
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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 June 30, 2021 and we expect to pay these deferred taxes in the second half of 2021.
Our Investing Liquidity and Resources
The change in cash provided by (used in) investing activities for the six months ended June 30, 2021 compared to the prior period was primarily due to higher proceeds from the sale of real estate properties in the 2021 period compared to the 2020 period, partially offset by 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 June 30, Six Months Ended June 30,
2021 2020 2021 2020
Office Portfolio segment capital expenditures:
Lease related costs (1)
$ 10,044 $ 3,918 $ 18,402 $ 8,882
Building improvements (2)
4,437 3,708 6,613 6,373
SHOP segment fixed assets and capital improvements 19,283 8,505 41,813 21,423
Recurring capital expenditures $ 33,764 $ 16,131 $ 66,828 $ 36,678
Development, redevelopment and other activities - Office Portfolio segment (3)
$ 9,689 $ 14,941 $ 22,407 $ 23,155
Development, redevelopment and other activities - SHOP segment (3)
5,345 6,570 11,437 14,999
Total development, redevelopment and other activities $ 15,034 $ 21,511 $ 33,844 $ 38,154
(1) Office Portfolio segment lease related costs generally include capital expenditures to improve tenants' space or amounts paid directly to tenants to improve their space and other leasing related costs, such as brokerage commissions and tenant inducements.
(2) Office Portfolio segment building improvements generally include expenditures to replace obsolete building components that extend the useful life of existing assets or other improvements to increase the marketability of the property.
(3) Development, redevelopment and other activities generally include capital expenditures that reposition a property or result in new sources of revenue.
During the three and six months ended June 30, 2021, we invested $0.6 million and $0.8 million, respectively, in revenue producing capital improvements at certain of our triple net leased senior living communities leased to private operators, and, as a result, annual rent payable to us increased by approximately $0.04 million and $0.05 million, respectively, 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.
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 to $350.0 million per year pursuant to our credit agreement through the Amendment Period.
As of June 30, 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 $49.6 million, of which we expect to spend approximately $43.4 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.
Our redevelopment in San Diego, CA has been substantially completed and we expect to incur additional leasing costs in 2021 to lease the remaining available space. During the six months ended June 30, 2021, we entered into five leases with a weighted (by annualized rental income) average lease term of approximately 11 years at a weighted average rental rate that is approximately 22% higher than the prior rental rate for the same space at this San Diego, CA property. As of August 2, 2021,
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we have executed new leases for an aggregate 85% of the leasable square footage at this property. 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. We have continued to progress on our redevelopments during 2021 and continue to assess opportunities to redevelop other properties in our portfolio.
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.
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.
Our Financing Liquidity and Resources
The change in cash provided by (used in) financing activities for the six months ended June 30, 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, decreased term loan repayment amounts in the 2021 period compared to the 2020 period, and a reduction in distributions paid to our shareholders in the 2021 period, partially offset by increased senior unsecured notes repayment amounts in the 2021 period compared to the 2020 period and net proceeds from our issuance in June 2020 of $1.0 billion aggregate principal amount of our 9.75% senior notes.
As of June 30, 2021, we had $849.1 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, investments, capital expenditures and other general business purposes.
In order to fund investments 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 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 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 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 interest rate premium and facility fee are each subject to adjustment based upon changes to our credit ratings. On March 31, 2021, we borrowed $800.0 million under our revolving credit facility as a precautionary measure to increase our cash position and preserve financial flexibility in light of continued uncertainties related to the COVID-19 pandemic. As of June 30, 2021 and August 2, 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 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 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 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 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;
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• 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; and
• 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.
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. In addition, we may also seek to expand our existing joint venture arrangements or to participate in additional joint ventures or other arrangements that may provide us additional sources of financing. We currently have an effective shelf registration statement that allows us to issue public securities on an expedited basis, but it does not assure that there will be buyers for such securities. We may also assume debt in connection with our acquisitions of properties or place new debt on properties we own.
During the six months ended June 30, 2021, we paid quarterly cash distributions to our shareholders totaling approximately $4.8 million using existing cash balances. On July 15, 2021, we declared a quarterly distribution payable to common shareholders of record on July 26, 2021 in the amount of $0.01 per share, or approximately $2.4 million. We expect to pay this distribution on or about August 19, 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.
We believe we will have access to various types of financings, including debt or equity offerings, to fund our future acquisitions and to pay our debts and other obligations as they become due, subject to limitations on debt offerings in agreements governing our debt. Our ability to complete, and the costs associated with, future debt transactions depends primarily upon credit market conditions and our then creditworthiness. We have no control over market conditions. Our credit and debt ratings, which were recently downgraded, depend upon evaluations by credit rating agencies of our business practices and plans, including our ability to maintain our earnings, to stagger our debt maturities and to balance our use of debt and equity capital so that our financial performance and leverage ratios afford us flexibility to withstand any reasonably anticipated adverse changes. 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. It is uncertain what the duration and severity of the COVID-19 pandemic and its economic impact will be. A protracted economic downturn may have various negative consequences including a decline in financing availability and increased costs for financing. Further, those 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 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. 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 $300.0 million plus accrued and unpaid interest of $10.1 million, when these notes became redeemable with no prepayment premium. Our next significant debt maturity does not occur until $250.0 million of our senior notes mature in May 2024.
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 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, those plans may be further impacted by the COVID-19 pandemic.
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Debt Covenants
Our principal debt obligations at June 30, 2021 were: (1) outstanding borrowings under our $800.0 million revolving credit facility; (2) $2.9 billion outstanding principal amount of senior unsecured notes; and (3) $683.5 million aggregate principal amount of mortgage notes (excluding premiums, discounts and net debt issuance costs) secured by seven properties. For further information regarding our indebtedness, see Note 4 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Our senior unsecured notes are governed by our senior unsecured notes indentures and their supplements. Our 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 June 30, 2021, our ratio of consolidated income available for debt service to debt service was below the 1.5x 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 1.5x, and as such, prior to falling below the 1.5x incurrence requirement, 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 uncertainties related to the COVID-19 pandemic. The proceeds from this borrowing may be used for general business purposes. As of June 30, 2021, we believe we were in compliance with all of the other covenants under our senior unsecured notes indentures and their supplements, our credit agreement and our other debt obligations. Although we have taken steps to enhance our ability to maintain sufficient liquidity, as noted elsewhere in this Quarterly Report on Form 10-Q, a protracted negative economic impact resulting from the COVID-19 pandemic may cause increased pressure on our ability to satisfy financial and other covenants. 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 economic conditions or otherwise, we may fail to satisfy covenants and conditions under our credit agreement or fail to satisfy our public debt covenants. 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, June 2020 and February 2021). 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.
Supplemental Guarantor Information
In March 2020, the SEC released Release No. 33-10762, Financial Disclosures About Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant's Securities, or Release 33-10762. Release 33-10762 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
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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 June 30, 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 $1.35 billion of senior unsecured notes do not have the benefit of any guarantees as of June 30, 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):
As of June 30, 2021 As of December 31, 2020
Real estate properties, net $ 4,092,063 $ 4,097,573
Other assets, net 1,105,632 285,747
Total assets $ 5,197,695 $ 4,383,320
Indebtedness, net $ 3,610,731 $ 2,815,049
Other liabilities 285,967 252,956
Total liabilities $ 3,896,698 $ 3,068,005
Six Months Ended June 30, 2021
Revenues $ 575,540
Expenses 625,053
Loss from continuing operations (160,716)
Net loss (161,145)
Net loss attributable to DHC (161,145)
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Related Person Transactions
We have relationships and historical and continuing transactions with RMR LLC, RMR Inc., Five Star and others related to them. 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 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 six months ended June 30, 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, managers and operators 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 $18,181 as other income with respect to our SHOP segment for the six months ended June 30, 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.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.