What changed in this filing

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Item 1. Financial Statements

2021-11-03 compared with 2021-08-04 · 167 added, 116 removed, 525 unchanged (35% of the section changed)

3 unchanged sentences

(dollars in thousands, except share data)

June 30, December 31,

September 30, December 31,

Real estate properties:

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(amounts in thousands, except per share data)

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

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

2021 2020 2021 2020

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

Net (loss) income — — — ( 89,343 ) — ( 89,343 ) 1,339 ( 88,004 )

Distributions — — — — ( 2,384 ) ( 2,384 ) — ( 2,384 )

Share grants 718,000 7 738 — — 745 — 745

Share repurchases ( 94,937 ) ( 1 ) ( 321 ) — — ( 322 ) — ( 322 )

Share forfeitures ( 2,200 ) — ( 3 ) — — ( 3 ) — ( 3 )

Distributions to noncontrolling interest — — — — — — ( 5,524 ) ( 5,524 )

Balance at September 30, 2021:

238,995,435 $ 2,390 $ 4,615,162 $ 1,722,039 $ ( 4,040,709 ) $ 2,298,882 $ 110,775 $ 2,409,657

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

DIVERSIFIED HEALTHCARE TRUST

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)

(dollars in thousands)

Shares Common

Shares Additional

Capital Cumulative

Net Income Cumulative Distributions Total Equity Attributable to Common Shareholders Total Equity Attributable to Noncontrolling

Interest Total Equity

Balance at December 31, 2019:

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

Net (loss) income — — — ( 106,888 ) — ( 106,888 ) 1,100 ( 105,788 )

Distributions — — — — ( 2,380 ) ( 2,380 ) — ( 2,380 )

Share grants 360,000 3 503 — — 506 — 506

Share repurchases ( 42,180 ) — ( 142 ) — — ( 142 ) — ( 142 )

Share forfeitures ( 1,310 ) — ( 6 ) — — ( 6 ) — ( 6 )

Distributions to noncontrolling interest — — — — — — ( 5,324 ) ( 5,324 )

Balance at September 30, 2020:

238,268,478 $ 2,383 $ 4,613,501 $ 1,929,337 $ ( 4,031,177 ) $ 2,514,044 $ 127,662 $ 2,641,706

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

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(dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

Net loss $ ( 186,832 ) $ ( 119,387 )

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

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

Depreciation and amortization 202,743 204,466

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Other liabilities ( 9,176 ) 23,089

Net cash provided by operating activities 27,046 110,673

Net cash (used in) provided by operating activities ( 13,198 ) 158,979

Cash flows from investing activities:

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Distributions in excess of earnings from Affiliates Insurance Company — 287

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

Net cash used in investing activities ( 22,885 ) ( 42,136 )

Cash flows from financing activities:

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(dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental cash flow information:

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

As of June 30,

As of September 30,

Cash and cash equivalents $ 794,739 $ 82,241

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Total cash and cash equivalents and restricted cash shown in our condensed consolidated statements of cash flows $ 811,437 $ 98,375

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

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

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

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

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

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

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

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

The assets of this VIE were $ 935,340 and $ 970,142 as of September 30, 2021 and December 31, 2020, respectively, and consist primarily of the net real estate owned by the joint venture.

The liabilities of this VIE were $ 690,714 and $ 697,129 as of September 30, 2021 and December 31, 2020, respectively, and consist primarily of mortgage debts secured by the property.

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

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Real Estate Properties

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.

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

We regularly evaluate our assets for indicators of impairment.

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

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

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

Acquisitions and Dispositions:

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

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

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

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(1) Sales price excludes closing costs.

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

During the nine months ended September 30, 2021, we recognized a gain of $ 200 related to the sales of skilled nursing bed licenses at certain of our senior living communities.

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

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

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

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

We increased rental income to record revenue on a straight line basis by $ 1,679 and $ 491 for the three months ended September 30, 2021 and 2020, respectively, and $ 3,804 and $ 3,029 for the nine months ended September 30, 2021 and 2020, respectively.

Rents receivable, excluding receivables related to our properties classified as held for sale, if any, include $ 108,180 and $ 104,803 of straight line rent receivables at September 30, 2021 and December 31, 2020, respectively, and are included in other assets, net in our condensed consolidated balance sheets.

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

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

Such payments totaled $ 17,930 and $ 18,501 for the three months ended September 30, 2021 and 2020, respectively, of which tenant reimbursements totaled $ 17,875 and $ 18,550 , respectively, and $ 54,634 and $ 56,792 for the nine months ended September 30, 2021 and 2020, respectively, of which tenant reimbursements totaled $ 54,495 and $ 56,742 , respectively.

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

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

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

As of September 30, 2021 and December 31, 2020, deferred payments totaling $ 84 and $ 1,486 , respectively, are included in other assets, net in our condensed consolidated

DIVERSIFIED HEALTHCARE TRUST

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balance sheets.

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

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

Right of Use Asset and Lease Liability .

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

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

The values of the right of use asset and related liability representing our future obligation under the lease arrangement for which we are the lessee were $ 4,174 and $ 4,366 , respectively, as of September 30, 2021, and $ 4,237 and $ 4,410 , respectively, as of December 31, 2020.

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

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

Our principal debt obligations at June 30, 2021 were:

Our principal debt obligations at September 30, 2021 were:

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

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and (3) $ 683,008 aggregate principal amount of mortgage notes secured by seven properties, of which $ 620,000 is related to the life science property owned by a joint venture arrangement in which we own a 55 % equity interest.

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

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

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

These seven mortgaged properties had a gross book value of $ 948,813 at September 30, 2021.

We also had two properties subject to finance leases with lease obligations totaling $ 6,937 at September 30, 2021;

these two properties had gross book value and accumulated depreciation of $ 36,319 and $ 18,014 , respectively, at September 30, 2021, and $ 35,676 and $ 17,579 , respectively, at December 31, 2020, and the finance leases expire in 2026.

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

The maturity date of our revolving credit facility is January 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.

As of September 30, 2021, the maturity date of our revolving credit facility was January 2022.

In October 2021, we exercised our option to extend the maturity date of our revolving credit facility by one year to January 2023.

Subject to the payment of an extension fee and meeting other conditions, we have an additional option to extend the maturity date of the facility by one year to January 2024.

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

As of June 30, 2021, our revolving credit facility required interest to be paid on borrowings at the annual rate of 2.9 %, plus a facility fee of 30 basis points per annum on the total amount of lending commitments under the facility.

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

As of September 30, 2021, our revolving credit facility required interest to be paid on borrowings at the annual rate of 2.9 %, plus a facility fee of 30 basis points per annum on the total amount of lending commitments under the facility.

The weighted average annual interest rates for borrowings under our revolving credit facility were 2.9 % and 2.6 % for the three months ended September 30, 2021 and 2020, respectively, and 2.9 % and 2.2 % for the nine months ended September 30, 2021 and 2020, respectively.

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

On March 31, 2021, we borrowed $ 800,000 under our revolving credit facility as a precautionary measure to increase our cash position and preserve financial flexibility in light of continued 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.

As of September 30, 2021 and November 1, 2021, we were fully drawn under our revolving credit facility.

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

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

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

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

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

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

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

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

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

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

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

DIVERSIFIED HEALTHCARE TRUST

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

In January 2021, we amended the agreements governing our revolving credit facility and our $ 200,000 term loan, or collectively, our credit and term loan agreements, in order to provide us with certain flexibility in light of continued uncertainties related to the COVID-19 pandemic.

In January 2021, we and our lenders amended the agreements governing our revolving credit facility and our $ 200,000 term loan, or collectively, our credit and term loan agreements, in order to provide us with certain flexibility in light of continued uncertainties related to the COVID-19 pandemic.

Pursuant to the amendments:

• certain of the financial covenants under our credit and term loan agreements, including covenants that require us to maintain certain financial ratios, have been waived through June 2022, or the Amendment Period;

• the revolving credit facility commitments have been reduced from $ 1,000,000 to $ 800,000 , and as a result of the reduction in commitments, we recorded a loss on early extinguishment of debt of $ 563 for the six months ended June 30, 2021;

• we pledged certain equity interests of subsidiaries owning properties to secure our obligations under our credit and term loan agreements and agreed to provide first mortgage liens on 62 medical office and life science properties with an aggregate gross book value of real estate assets of $ 1,038,174 as of June 30, 2021 to secure our obligations, which pledges and/or mortgage liens may be removed or new ones may be added during the Amendment Period based on outstanding debt amounts, among other things;

• we pledged certain equity interests of subsidiaries owning properties to secure our obligations under our credit and term loan agreements and agreed to provide, and as of September 2021 had provided, first mortgage liens on 61 medical office and life science properties with an aggregate gross book value of real estate assets of $ 991,074 as of September 30, 2021 to secure our obligations, which pledges and/or mortgage liens may be removed or new ones may be added during the Amendment Period based on outstanding debt amounts, among other things;

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

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• 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.

In September 2021, we and our lenders further amended our credit agreement.

Among other things, the amendment sets forth the mechanics for establishing a replacement benchmark rate under our credit agreement at such time as LIBOR is no longer available to calculate interest payable on amounts outstanding thereunder.

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

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

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

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

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

Although we have taken steps to enhance our ability to maintain sufficient liquidity, as noted elsewhere in this Quarterly Report on Form 10-Q, a protracted negative economic impact resulting from the COVID-19 pandemic may cause increased pressure on our ability to satisfy financial and other covenants.

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

We are not allowed to incur additional debt while this ratio is below 1.5 x on a pro forma basis.

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 impact on the economy or the industries in which our properties and businesses operate 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.

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Fair Value of Assets and Liabilities

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

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

Fair Value at Reporting Date Using

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

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

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

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

During the three months ended September 30, 2021 and 2020, we recorded an unrealized loss of $ 14,755 and an unrealized gain of $ 12,510 , respectively, and during the nine months ended September 30, 2021 and 2020, we recorded an unrealized loss of $ 26,943 and an unrealized gain of $ 14,541 , respectively, which are included in gains and losses on equity securities, net in our condensed consolidated statements of comprehensive income (loss), to adjust the carrying value of our investment in Five Star common shares to their fair value.

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

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

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

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

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

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

Description Carrying Amount (1)

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

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

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

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

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

We estimated the fair values of our four issuances of senior unsecured notes due 2024, 2025, 2028 and 2031 using an average of the bid and ask price on Nasdaq on or about September 30, 2021

DIVERSIFIED HEALTHCARE TRUST

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

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

(Level 2 inputs as defined in the fair value hierarchy under GAAP).

We estimated the fair values of our secured debts by using discounted cash flows analyses and currently prevailing market terms as of the measurement date (Level 3 inputs as defined in the fair value hierarchy under GAAP).

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

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

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

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

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

The portion of the joint venture's net income and comprehensive income not attributable to us, or $ 1,339 and $ 1,100 for the three months ended September 30, 2021 and 2020, respectively, and $ 4,238 and $ 3,838 for the nine months ended September 30, 2021 and 2020, respectively, is reported as a noncontrolling interest in our condensed consolidated statements of comprehensive income (loss).

The joint venture made aggregate cash distributions to the other joint venture investor of $ 5,524 and $ 5,324 for the three months ended September 30, 2021 and 2020, respectively, and $ 16,848 and $ 16,707 for the nine months ended September 30, 2021 and 2020, respectively, which are reflected as a decrease in total equity attributable to noncontrolling interest in our condensed consolidated balance sheets.

As of September 30, 2021, this joint venture held real estate assets with an aggregate net book value of $ 690,382 , subject to mortgage notes of $ 620,000 .

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

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

On September 15, 2021, we awarded under our equity compensation plan an aggregate of 718,000 of our common shares, valued at $ 3.41 per share, the closing price of our common shares on Nasdaq on that day, to our officers and certain other employees of RMR LLC .

Common Share Repurchases:

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

During the three and nine months ended September 30, 2021, we purchased an aggregate of 94,937 and 108,843 of our common shares, respectively, valued at a weighted average share price of $ 3.39 and $ 3.49 per share, respectively, from our officers and certain current and former officers and employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

Distributions:

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

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

Declaration Date Record Date Payment Date Distribution Per Share Total Distributions

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

July 15, 2021 July 26, 2021 August 19, 2021 0.01 2,384

$ 0.03 $ 7,150

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

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

DIVERSIFIED HEALTHCARE TRUST

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

On October 14, 2021, we declared a quarterly distribution to common shareholders of record on October 25, 2021 of $ 0.01 per share, or approximately $ 2,390 in aggregate.

We expect to pay this distribution on or about November 18, 2021.

Segment Reporting

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

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

For the Three Months Ended June 30, 2021

For the Three Months Ended September 30, 2021

Office Portfolio SHOP Non-Segment Consolidated

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Interest expense ( 6,053 ) ( 523 ) ( 57,917 ) ( 64,493 )

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

Income (loss) from continuing operations before income tax expense

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

For the Six Months Ended June 30, 2021

For the Nine Months Ended September 30, 2021

Office Portfolio SHOP Non-Segment Consolidated

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

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

We have recognized $ 18,967 and $ 7,346 as other income with respect to our SHOP segment for the nine months ended September 30, 2021 and 2020, respectively.

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

however, we may not receive any additional funding.

As of June 30, 2021

As of September 30, 2021

Office Portfolio SHOP Non-Segment Consolidated

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

For the Three Months Ended June 30, 2020

For the Three Months Ended September 30, 2020

Office Portfolio SHOP Non-Segment Consolidated

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Interest expense ( 6,068 ) ( 552 ) ( 51,471 ) ( 58,091 )

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

Income (loss) from continuing operations before income tax expense 20,400 ( 87,133 ) ( 38,690 ) ( 105,423 )

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

For the Six Months Ended June 30, 2020

For the Nine Months Ended September 30, 2020

Office Portfolio SHOP Non-Segment Consolidated

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

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

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

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

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

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

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

2021 Amendments to our Management Arrangements with Five Star.

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

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

The principal changes to the management arrangements include:

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• that we no longer have the right to sell up to an additional $ 682,000 of senior living communities currently managed by Five Star and terminate Five Star's management of those communities without our payment of a fee to Five Star upon sale;

• that Five Star is continuing to manage 120 of our senior living communities with approximately 18,000 living units, and that the skilled nursing units in all of our continuing care retirement communities that Five Star is continuing to manage, which then included approximately 1,500 living units, are being closed and repositioned;

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

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

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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.

As of September 30, 2021, we transitioned 69 of the 108 senior living communities containing 4,755 living units to new third party managers.

From September 30, 2021 to November 3, 2021, we completed the transition of 30 senior living communities containing 1,845 living units to new third party managers.

As of November 3, 2021, we have entered into agreements to transition eight of the remaining nine senior living communities to be transitioned containing 819 living units to new third party managers.

We expect to complete the transition of 107 senior living communities from Five Star by December 31, 2021 and we currently intend to close the remaining senior living community that we and Five Star agreed to transition and are assessing opportunities to redevelop that community.

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

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

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

We have incurred and expect to continue to incur costs related to

DIVERSIFIED HEALTHCARE TRUST

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

retention and other transition costs for these communities.

For the three and nine months ended September 30, 2021, we recorded $ 3,123 and $ 15,037 , respectively, of these costs to acquisition and certain other transaction related costs in our condensed consolidated statements of comprehensive income (loss).

Pursuant to the terms of the management agreements with the new third party managers, the terms are generally as follows:

the new third party managers will receive a management fee equal to 5 % to 6 % of the gross revenues realized at the applicable senior living communities plus reimbursement for direct costs and expenses related to such communities.

These agreements generally also provide for the new third party managers to earn a minimum base fee for a portion of the term of the agreement.

Additionally, the new third party managers have the ability to earn incentive fees equal to 15 % to 25 % of the amount by which EBITDA of the communities exceeds the target EBITDA.

The new third party managers can also earn a construction supervision fee ranging between 3 % and 5 % of construction costs.

The initial terms of the management agreements with the new third party managers are generally five years, subject to automatic extensions of successive terms of two years each unless earlier terminated or timely notice of nonrenewal is delivered.

The management agreements with the new third party managers also generally provide us with the right to terminate the management agreements for communities that do not earn 70 % to 80 % of the target EBITDA for such communities, after an agreed upon stabilized period.

Our Senior Living Communities Managed by Five Star .

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

Five Star managed 159 and 239 of our senior living communities as of September 30, 2021 and 2020, respectively.

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

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

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

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

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

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

Revenue from contracts with customers:

2021 2020 2021 2020

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

Medicare and Medicaid programs 24,907 42,910 60,855 92,578

Private pay and other third party payer SNF services 30,871 42,411 66,860 93,196

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

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

We incurred management fees payable to Five Star of $ 11,220 and $ 15,182 for the three months ended September 30, 2021 and 2020, respectively, and $ 37,997 and $ 47,937 for the nine months ended September 30, 2021 and 2020, respectively.

For the three months ended September 30, 2021 and 2020, $ 10,518 and $ 14,609 , respectively, of the total management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 702 and $ 573 , respectively, were capitalized in our condensed consolidated balance sheets.

For the nine months ended September 30, 2021 and 2020, $ 35,746 and $ 46,458 , respectively, of the total management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 2,251 and $ 1,479 , respectively, were capitalized in our condensed consolidated balance sheets.

The amounts capitalized are being depreciated over the estimated useful lives of the related capital assets.

We incurred fees of $ 1,508 and $ 5,972 for the three months ended September 30, 2021 and 2020, respectively, and $ 9,579 and $ 19,843 for the nine months ended September 30, 2021 and 2020, respectively, with respect to rehabilitation services Five Star provided at senior living communities that are payable by us.

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

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

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

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

We lease to Five Star space at certain of our senior living communities, which it uses to provide certain outpatient rehabilitation and wellness services.

We recorded $ 399 and $ 393 for the three months ended September 30, 2021 and 2020, respectively, and $ 1,194 and $ 1,175 for the nine months ended September 30, 2021 and 2020, respectively, with respect to these leases.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

The following table presents residents fees and services revenue from our managed senior living communities disaggregated by type of contract and payer:

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

Revenue from contracts with customers:

2021 2020 2021 2020

Basic housing and support services $ 188,381 $ 208,941 $ 564,579 $ 659,240

Medicare and Medicaid programs 18,948 38,882 79,803 131,460

Private pay and other third party payer SNF services 28,684 42,278 95,544 135,474

Total residents fees and services $ 236,013 $ 290,101 $ 739,926 $ 926,174

Business and Property Management Agreements with RMR LLC

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

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

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

and (2) a property management agreement, which relates to the property level operations of our medical office and life science properties and major renovation or repositioning activities at our senior living communities.

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

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

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

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

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

We recognized net business management fees of $ 5,986 and $ 5,004 for the three months ended September 30, 2021 and 2020, respectively, and $ 17,627 and $ 15,614 for the nine months ended September 30, 2021 and 2020, respectively.

The net business management fees we recognized include $ 725 and $ 2,175 of management fees related to our subsidiary level management agreement with RMR LLC entered in connection with our joint venture arrangement for the three and nine months ended September 30, 2021 and 2020, respectively.

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

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

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

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

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

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

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

We and RMR LLC amended our business management agreement effective August 1, 2021 to replace the benchmark index used in the calculation of incentive management fees.

Pursuant to the amendment, for periods beginning on and after August 1, 2021, the MSCI U.S.

REIT/Health Care REIT Index will replace the discontinued SNL U.S.

REIT Healthcare Index and be used to calculate benchmark returns per share for purposes of determining any incentive management fee payable by us to RMR LLC.

For periods prior to August 1, 2021, the SNL U.S.

REIT Healthcare Index will continue to be used.

Accordingly, the calculation of incentive management fees for the next three measurement periods will continue to use the SNL U.S.

REIT Healthcare Index in calculating the benchmark returns for periods through July 31, 2021.

This change of index was due to S&P Global ceasing to publish the SNL U.S.

REIT Healthcare Index.

We recognized aggregate net property management and construction supervision fees of $ 2,931 and $ 3,477 for the three months ended September 30, 2021 and 2020, respectively.

Of those amounts, for the three months ended September 30, 2021 and 2020, $ 2,410 and $ 2,496 , respectively, of property management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 521 and $ 981 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets.

We recognized aggregate net property management and construction supervision fees of $ 9,276 and $ 10,076 for the nine months ended September 30, 2021 and 2020, respectively.

Of those amounts, for the nine months ended September 30, 2021 and 2020, $ 7,360 and $ 7,573 , respectively, of property management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 1,916 and $ 2,503 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets.

The amounts capitalized are being depreciated over the estimated useful lives of the related capital assets.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

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

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

We reimbursed RMR LLC $ 3,121 and $ 3,571 for these expenses and costs for the three months ended September 30, 2021 and 2020, respectively, and $ 9,620 and $ 10,433 for the nine months ended September 30, 2021 and 2020, respectively.

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

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

Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., a managing director and the president and chief executive officer of RMR Inc., an officer and employee of RMR LLC and the chair of the board of directors

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

and a managing director of Five Star.

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

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Some of our Independent Trustees also serve as independent trustees or independent directors of other public companies to which RMR LLC or its subsidiaries provide management services.

Adam Portnoy serves as the chair of the boards of trustees or boards of directors of several of these public companies and as a managing director or managing trustee of these companies.

Adam Portnoy serves as the chair of the boards of trustees or boards of directors and as a managing trustee or managing director of those companies.

Other officers of RMR LLC, including Ms.

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serve as our officers and officers of other companies to which RMR LLC or its subsidiaries provide management services.

See Note 7 for information relating to the annual share awards we made in September 2021 to our officers and certain other employees of RMR LLC and common shares we purchased from our officers and certain current and former officers and employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares to them.

We include amounts recognized as expense for share awards to RMR LLC employees in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss).

We are currently Five Star's largest stockholder.

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

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

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

Five Star manages certain of the senior living communities we own.

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

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

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

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

Our Manager, RMR LLC.

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See Note 10 for further information regarding our management agreements with RMR LLC.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

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

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

During the three months ended September 30, 2021 and 2020, we recognized income tax expense of $ 595 and $ 365 , respectively, and during the nine months ended September 30, 2021 and 2020, we recognized income tax expense of $ 1,024 and $ 1,048 , respectively.

Weighted Average Common Share s (share amounts in thousands)

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

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

For the three months ended September 30, 2021 and 2020, 39 and 237 unvested common shares, respectively, and for the nine months ended September 30, 2021 and 2020, 25 and 235 unvested common shares, respectively, were not included in the calculation of diluted earnings per share because to do so would have been antidilutive.

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

What changed 10-Q

Item 1. Financial Statements