DIVERSIFIED HEALTHCARE TRUST 10-K

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion should be read in conjunction with our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. 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 December 31, 2021, we wholly owned 390 properties, including eight closed senior living communities, located in 36 states and Washington, D.C. At December 31, 2021, the gross book value of our real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, was $7.2 billion. As of December 31, 2021, we owned a 20% equity interest in an unconsolidated joint venture that owns a life science property located in Boston, Massachusetts with approximately 1.1 million rentable square feet that was 100% leased with an average (by annualized rental revenues) remaining lease term of 7.0 years. In January 2022, we entered into a joint venture for 10 medical office and life science properties we owned with two unrelated third party global institutional investors. We continue to own a 20% equity interest in this joint venture. 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, including, but not limited to, labor availability and cost pressures from supply chain disruptions and commodity price inflation in our SHOP segment. 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 as a result of the COVID-19 pandemic, which will likely lead to decreased returns to us. 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 all senior living communities in our SHOP segment for residents and staff. As previously disclosed, all of the communities in our SHOP segment completed vaccination clinics and are accepting new residents. On September 13, 2021, Five Star reported full compliance with its previously announced requirement that all of its team members at our communities managed by Five Star be fully vaccinated. 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 year ended December 31, 2021, we recognized $19.6 million in interest and other income in our 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. 62 Table of Contents In the first quarters of 2021 and 2022, 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. 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 to the COVID-19 pandemic and its aftermath on us and our business, see elsewhere in this Annual Report on Form 10-K, including "Warning Concerning Forward-Looking Statements," Part I, Item 1 "Business" and Part I, Item 1A "Risk Factors". PORTFOLIO OVERVIEW The following tables present an overview of our portfolio (dollars in thousands, except investment per square foot or unit data): (As of December 31, 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) 2021 Revenues (3) % of 2021 Revenues 2021 NOI (3)(4) % of 2021 NOI Office Portfolio (5) 116 9,793,022 sq. ft. $ 2,629,561 36.4 % $ 269 $ 367,597 26.6 % $ 240,284 82.5 % SHOP 235 25,345 units 4,162,340 57.6 % $ 164,227 974,623 70.5 % 10,124 3.5 % Other triple net leased senior living communities 29 2,327 units 250,396 3.5 % $ 107,605 26,874 1.9 % 26,874 9.2 % Wellness centers 10 812,000 sq. ft. 178,110 2.5 % $ 219 14,118 1.0 % 14,118 4.8 % Total 390 $ 7,220,407 100.0 % $ 1,383,212 100.0 % $ 291,400 100.0 % Occupancy As of and for the Year Ended December 31, 2021 2020 Office Portfolio (6) 91.3 % 91.4 % SHOP 71.1 % 77.2 % Other triple net leased senior living communities (7)(8) 76.5 % 83.4 % 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 December 31, 2021. (3) Includes $3,592 of revenues and $2,963 of NOI from properties that we sold during the year ended December 31, 2021. (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 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. 63 Table of Contents (6) Medical office and life science property occupancy data is as of December 31, 2021 and 2020 and includes (i) out of service assets undergoing redevelopment, (ii) space which is leased but is not occupied or is being offered for sublease by tenants and (iii) space being fitted out for occupancy. (7) Excludes data for periods prior to our ownership of certain properties, data for properties sold or classified as held for sale, 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 12 months ended September 30, 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. We operate in, and report financial information for, the following two segments: Office Portfolio and SHOP. 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 managers to operate the communities. In addition, prior to January 1, 2020, our SHOP segment included triple net leased senior living communities that provided short term and long term residential living and in some instances care and other services for residents and from which we received rents from Five Star. Pursuant to the 2020 Restructuring Transaction, effective January 1, 2020, our previously existing master leases and management and pooling agreements with Five Star were terminated and replaced with new management agreements and a related omnibus agreement, which agreements were subsequently replaced in June 2021. We also report “non-segment” operations, which consists of triple net leased senior living communities that are leased to third party operators from which we receive rents and wellness centers. Office Portfolio As of December 31, 2021, we wholly owned 116 medical office and life science properties located in 25 states and Washington, D.C. These properties have a total of 9.8 million square feet. During the year ended December 31, 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 table (dollars and square feet in thousands, except per square foot amounts): Year Ended December 31, 2021 New Leases Renewals Total Square feet leased during the period 489 2,079 2,568 Weighted average rental rate change (by rentable square feet) 24.0 % 6.1 % 11.2 % Weighted average lease term (years) (1) 10.1 8.8 9.2 Total leasing costs and concession commitments (2) $ 72,275 $ 46,868 $ 119,143 Total leasing costs and concession commitments per square foot (2) $ 147.98 $ 22.53 $ 46.38 Total leasing costs and concession commitments per square foot per year (2) $ 14.66 $ 2.55 $ 5.03 (1) Weighted based on annualized rental income pursuant to existing leases as of December 31, 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. 64 Table of Contents As of December 31, 2021, lease expirations at our medical office and life science properties in our Office Portfolio segment are as follows (dollars in thousands): Year Number of Tenants Square Feet Leased Percent of Total Cumulative Percent of Total Annualized Rental Income (1) Percent of Total Cumulative Percent of Total 2022 120 1,133,067 12.7 % 12.7% $ 30,907 11.2% 11.2% 2023 53 664,858 7.4 % 20.1% 18,760 6.8% 18.0% 2024 81 1,146,074 12.8 % 32.9% 32,700 11.8% 29.8% 2025 77 905,105 10.1 % 43.0% 23,881 8.6% 38.4% 2026 72 826,918 9.2 % 52.2% 26,792 9.7% 48.1% 2027 48 663,099 7.4 % 59.6% 16,700 6.0% 54.1% 2028 33 861,884 9.6 % 69.2% 22,186 8.0% 62.1% 2029 36 377,343 4.2 % 73.4% 13,874 5.0% 67.1% 2030 23 568,069 6.4 % 79.8% 13,687 4.9% 72.0% 2031 and thereafter 53 1,798,940 20.2 % 100.0% 77,623 28.0% 100.0% Total 596 8,945,357 100.0 % $ 277,110 100.0% Weighted average remaining lease term (in years) 5.4 5.9 (1) Annualized rental income is based on rents pursuant to existing leases as of December 31, 2021, including straight line rent adjustments and estimated recurring expense reimbursements for certain net and modified gross leases and excluding lease value amortization at certain of our medical office and life science properties. 65 Table of Contents The following table presents information concerning our medical office and life science property tenants that represent 1% or more of total medical office and life science property annualized rental income as of December 31, 2021 (dollars in thousands): Tenant Square Feet Leased Percent of Total Square Feet Leased Annualized Rental Income (1) Percent of Total Annualized Rental Income (1) Lease Expiration Advocate Aurora Health 643,499 7.2% $ 17,534 6.3% 2022 - 2031 Cedars-Sinai Medical Center 149,063 1.7% 17,046 6.2% 2022 - 2031 HCA Holdings Inc. 217,179 2.4% 7,071 2.6% 2022 - 2029 Surgalign Holdings, Inc. (2) 94,457 1.1% 6,694 2.4% 2034 Medtronic, Inc. 376,828 4.2% 5,766 2.1% 2022 - 2023 IQVIA Holdings Inc. 176,839 2.0% 5,365 1.9% 2023 Prometheus Biosciences, Inc. 55,102 0.6% 5,211 1.9% 2033 KSQ Therapeutics, Inc. (3) 54,633 0.6% 4,779 1.7% 2032 Boston Children's Hospital 99,063 1.1% 4,571 1.6% 2028 Sonova Holding AG 146,385 1.6% 4,570 1.6% 2024 Magellan Health Inc. 232,521 2.6% 4,498 1.6% 2025 Seattle Genetics, Inc. 144,900 1.6% 4,204 1.5% 2024 Abbvie Inc. 197,976 2.2% 3,983 1.4% 2027 United Healthcare Services, Inc. 149,719 1.7% 3,918 1.4% 2026 Cigna Holding Co. 219,644 2.5% 3,914 1.4% 2024 Tokio Marine Holdings Inc. 81,072 0.9% 3,840 1.4% 2022 - 2033 Duke University 126,225 1.4% 3,744 1.4% 2024 Caremark, L.L.C. 182,540 2.0% 3,718 1.3% 2022 - 2025 PerkinElmer Health Sciences, Inc. 105,462 1.2% 3,681 1.3% 2028 New York University 109,983 1.2% 3,239 1.2% 2022 - 2027 Stryker Corporation 122,092 1.4% 3,160 1.1% 2030 Hawai'i Pacific Health 85,956 1.0% 3,087 1.1% 2024 - 2029 Ultragenyx Pharmaceutical Inc. 63,048 0.7% 3,083 1.1% 2026 McKesson Corporation 470,991 5.3% 3,027 1.1% 2024 - 2028 Complete Genomics, Inc. 78,979 0.9% 2,990 1.1% 2025 Virginia Premier Health Plan, Inc. 135,375 1.5% 2,932 1.1% 2032 Emory University 126,461 1.4% 2,863 1.0% 2022 - 2023 All other 4,299,365 48.0% 138,622 50.2% 2022 - 2043 Totals 8,945,357 100.0% $ 277,110 100.0% (1) Annualized rental income is based on rents pursuant to existing leases as of December 31, 2021, including straight line rent adjustments and estimated recurring expense reimbursements for certain net and modified gross leases and excluding lease value amortization at certain of our medical office and life science properties. (2) In March 2021, we entered into a 12-year lease with Surgalign Holdings, Inc. The lease relates to a recently redeveloped property we own located in San Diego, CA. The term of the lease commences in the first quarter of 2022. (3) In July 2021, we entered into a 10-year lease with KSQ Therapeutics, Inc. The lease relates to an ongoing redevelopment of a property we own located in Lexington, MA. The term of the lease commences upon our delivery of the completed space, which is estimated to occur in the second quarter of 2022. Senior Housing Operating Portfolio As of December 31, 2019, Five Star operated 244 of our senior living communities in our SHOP segment, of which 166 communities were leased to Five Star and 78 communities were managed by Five Star for our account. Pursuant to the 66 Table of Contents 2020 Restructuring Transaction, effective January 1, 2020, our previously existing master leases and management and pooling agreements with Five Star were terminated and replaced with new management agreements and a related omnibus agreement, which agreements were subsequently replaced in June 2021, as described below. The conversion of our leasing arrangements with Five Star to management arrangements was a significant change in our historical arrangements with Five Star and has resulted, and likely will continue to result in future periods, in our realizing significantly different operating results from our senior living communities, including increased variability. As of December 31, 2021, Five Star managed 120 senior living communities for our account. Also pursuant to the 2020 Restructuring Transaction, for the period beginning February 1, 2019 through December 31, 2019, the aggregate amount of monthly minimum rent payable to us by Five Star was reduced to $11.0 million as of February 1, 2019, which amount was then reduced during such period to approximately $10.8 million as a result of dispositions, and no additional rent was payable to us by Five Star for the period beginning February 1, 2019 through December 31, 2019. In June 2021, we amended our then existing management arrangements with Five Star. The principal changes to the management arrangements included: • that Five Star agreed to cooperate 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 had the right to sell up to an additional $682 million of senior living communities then managed by Five Star and terminate Five Star's management of those communities without our payment of a fee to Five Star; • that Five Star is continuing to manage 120 of our senior living communities, 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, have been closed and are being evaluated 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. 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 have completed the transition of 107 senior living communities from Five Star to new third party managers and we have closed the remaining senior living community. The remaining senior living community was closed and we are assessing opportunities to redevelop that property. We lease nearly all of our senior living communities, including those managed by Five Star and by the new third party managers, to our TRSs. We incurred and expect to continue to incur costs related to retention and other transition costs for these communities. For the year ended December 31, 2021, we recorded $17.4 million of these costs to acquisition and certain other transaction related costs in our consolidated statements of comprehensive income (loss). The terms of the management agreements with the new third party managers 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 applicable communities exceeds the target EBITDA for the applicable communities. The new third party managers can also earn a construction supervision fee ranging between 3% and 5% of construction costs. 67 Table of Contents 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. The following table presents a summary of the new third party managers: Manager Location Number of Communities Number of Units Cedarhurst Senior Living IL/WI 13 785 Charter Senior Living FL/MD/TN/VA 17 1,028 IntegraCare Senior Living PA 2 155 Life Care Services DE 3 519 Navion Senior Solutions SC 5 239 Northstar Senior Living AZ/CA 7 396 Oaks-Caravita Senior Care GA/SC 26 1,483 Omega Senior Living NE 1 69 Phoenix Senior Living AL/AR/KY/MO/NC/SC 23 1,498 Stellar Senior Living CO/TX/WY 10 1,168 Total 107 7,340 For further information regarding the 2020 Restructuring Transaction, the terms of the Master Management Agreement and of the management agreements with the new third party managers and our other business arrangements with Five Star, see Note 6 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K, and for more information about our dealings and relationships with Five Star generally, and the risks which may arise as a result of these related person transactions, see “Risk Factors—Risks Related to Our Relationships with RMR LLC and AlerisLife (including Five Star)” in Part I, Item 1A of this Annual Report on Form 10-K, “—Related Person Transactions” below and Note 8 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. All Other As of December 31, 2021, lease expirations at our other triple net leased senior living communities leased to third party operators and wellness centers are as follows (dollars in thousands): Year Number of Properties Number of Units or Square Feet Annualized Rental Income (1) Percent of Total Cumulative Percent of Total 2022 — — $ — — % — % 2023 — — — — % — % 2024 2 180 units 2,885 6.9 % 6.9 % 2025 — — — — % 6.9 % 2026 — — — — % 6.9 % 2027 4 534 units 4,319 10.3 % 17.2 % 2028 (2) 6 354,000 sq. ft. 6,000 14.3 % 31.5 % 2029 1 155 units 547 1.3 % 32.8 % 2030 3 367 units 5,134 12.2 % 45.0 % 2031 and thereafter 23 1,091 units and 458,000 sq. ft. 23,206 55.0 % 100.0 % Total 39 $ 42,091 100.0 % (1) Annualized rental income is based on rents pursuant to existing leases as of December 31, 2021. Annualized rental income includes estimated percentage rents and straight line rent adjustments and excludes lease value amortization. 68 Table of Contents (2) As a result of the COVID-19 pandemic's impact on operations at our wellness centers, we are negotiating with the tenant of six of our wellness centers with total annualized rental income of approximately $6.0 million. In February 2022, we signed an amendment with this tenant to defer a portion of the rent owed to us for 12 months. GENERAL INDUSTRY TRENDS Our medical office and life science properties have been impacted by at least two major industry trends for the past 10 years which are continuing at this time and that have impacted our investment activities. First, medical practices are being consolidated into hospital systems. This has caused the number of free standing medical practices to decline. At the same time, the number of multi-practice medical office buildings that are anchor leased by hospital systems who employ doctors has increased. We believe hospital systems will continue the trend of providing an increasing amount of services in off campus medical offices away from main hospital campuses in order to reduce costs and serve as many patients as possible, which is reinforced by consumers' preference for healthcare services to be provided away from hospital campuses and closer to their residence or work locations. Second, various advances in medical science have caused a large investment in new bio-medical research companies that require office, lab and medical products manufacturing space. We believe that about 30% of our total investments in our Office Portfolio segment may be considered biotech and life science properties as of December 31, 2021. We believe that the primary market for senior living services is individuals age 80 and older, and, according to U.S. Census data, that group is projected to be among the fastest growing age cohort in the United States over the next 20 years. Also, as a result of medical advances, seniors are living longer. Due to these demographic trends, we expect the demand for senior living services and housing to increase for the foreseeable future. Despite this trend, future economic downturns, softness in the U.S. housing market, higher levels of unemployment among our potential residents' family members, lower levels of consumer confidence, stock market volatility and/or changes in demographics could adversely affect the ability of seniors to afford the resident fees at our senior living communities. The medical advances which are increasing average life spans are also causing some seniors to delay moving to senior living communities until they require greater care or to forgo moving to senior living communities altogether, but we do not believe this factor is sufficient to offset the long term positive demographic trends causing increased demand for senior living communities for the foreseeable future. In recent years, a significant number of new senior living communities have been developed and continue to be developed. Although the rate of newly started developments declined due to the COVID-19 pandemic, the increased supply of senior living communities that has resulted from recent development activity has increased competitive pressures on our managers and tenants, particularly in certain geographic markets where we own senior living communities, and we expect these competitive challenges to continue for at least the next few years. These competitive challenges may prevent our managers and tenants from maintaining or improving occupancy and rates at our senior living communities, which may increase the risk of default under our leases, reduce the rents and returns we may receive and earn from our leased and managed senior living communities and adversely affect the profitability of our senior living communities, and may cause the value of our properties to decline. In response to these competitive pressures, we have invested capital in our existing senior living communities and expect to continue to do so in order that our communities may remain competitive with newer communities. For a discussion of and the risks relating to the COVID-19 pandemic on us and our business, see elsewhere in this Annual Report on Form 10-K, including "Warning Concerning Forward-Looking Statements," Part I, Item 1 "Business" and Part I, Item 1A "Risk Factors". Recently, the costs of insurance have increased significantly, and these increased costs have had an adverse effect on us and our managers and tenants. Increased insurance costs may adversely affect our managers' ability to operate our properties profitably and provide us with desirable returns and our tenants' ability to pay us rent or result in downward pressure on rents we can charge under new or renewed leases. The senior living industry is subject to extensive and frequently changing federal, state and local laws and regulations. For further information regarding these laws and regulations, and possible legislative and regulatory changes, see "Business—Government Regulation and Reimbursement" in Part I, Item 1 of this Annual Report on Form 10-K. 69 Table of Contents RESULTS OF OPERATIONS (dollars and square feet in thousands, unless otherwise noted) The following table summarizes the results of operations of each of our segments for the years ended December 31, 2021 and 2020: For the Year Ended December 31, 2021 2020 Revenues: Office Portfolio $ 367,597 $ 383,365 SHOP 974,623 1,204,811 Non-Segment 40,992 43,850 Total revenues $ 1,383,212 $ 1,632,026 Net income (loss) attributable to common shareholders: Office Portfolio $ 575,836 $ 88,592 SHOP (104,081) (114,693) Non-Segment (297,240) (113,352) Net income (loss) attributable to common shareholders $ 174,515 $ (139,453) The following sections analyze and discuss the results of operations of each of our segments for the periods presented. Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 (dollars and square feet in thousands, except average monthly rate): Unless otherwise indicated, references in this section to changes or comparisons of results, income or expenses refer to comparisons of the results for the year ended December 31, 2021 to the year ended December 31, 2020. Our definition of NOI and our reconciliation of net income (loss) to NOI and a description of why we believe NOI is an appropriate supplemental measure are included below under the heading “Non-GAAP Financial Measures.” For a comparison of consolidated results for the year ended December 31, 2020 compared to the year ended December 31, 2019, see Part II, Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. For the Year Ended December 31, 2021 2020 $ Change % Change NOI by segment: Office Portfolio $ 240,284 $ 253,609 $ (13,325) (5.3) % SHOP 10,124 98,210 (88,086) (89.7) % Non-Segment 40,992 43,850 (2,858) (6.5) % Total NOI 291,400 395,669 (104,269) (26.4) % Depreciation and amortization 271,131 270,147 984 0.4 % General and administrative 34,087 30,593 3,494 11.4 % Acquisition and certain other transaction related costs 17,506 814 16,692 nm Impairment of assets (174) 106,972 (107,146) (100.2) % Gain on sale of properties 492,272 6,487 485,785 nm Gains and losses on equity securities, net (42,232) 34,106 (76,338) (223.8) % Interest and other income 20,635 18,221 2,414 13.2 % Interest expense (255,759) (201,483) (54,276) 26.9 % Gain on lease termination — 22,896 (22,896) (100.0) % Loss on early extinguishment of debt (2,410) (427) (1,983) nm Income (loss) from continuing operations before income tax expense 181,356 (133,057) 314,413 nm Income tax expense (1,430) (1,250) (180) 14.4 % Net income (loss) 179,926 (134,307) 314,233 nm Net income attributable to noncontrolling interest (5,411) (5,146) (265) 5.1 % Net income (loss) attributable to common shareholders $ 174,515 $ (139,453) $ 313,968 nm nm – not meaningful 70 Table of Contents Office Portfolio: Comparable Properties (1) All Properties As of December 31, As of December 31, 2021 2020 2021 2020 Total buildings 110 110 116 123 Total square feet (2) 9,378 9,378 9,793 11,282 Occupancy (3) 92.7 % 93.2 % 91.3 % 91.4 % (1) Consists of medical office and life science properties that we have owned and which have been in service continuously since January 1, 2020; excludes properties classified as held for sale or out of service undergoing redevelopment, if any, and a life science property owned by an unconsolidated joint venture in which we own a 20% equity interest. (2) Prior periods exclude space remeasurements made subsequent to those periods. (3) Medical office and life science all properties 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 and a life science property owned by an unconsolidated joint venture in which we own a 20% equity interest. Year Ended December 31, Comparable (1) Non-Comparable Properties Results Properties Results Consolidated Properties Results 2021 2020 $ Change % Change 2021 2020 2021 2020 $ Change % Change Rental income $ 251,107 $ 250,732 $ 375 0.1 % $ 116,490 $ 132,633 $ 367,597 $ 383,365 $ (15,768) (4.1) % Property operating expenses (95,345) (95,319) 26 0.0 % (31,968) (34,437) (127,313) (129,756) (2,443) (1.9) % NOI $ 155,762 $ 155,413 $ 349 0.2 % $ 84,522 $ 98,196 $ 240,284 $ 253,609 $ (13,325) (5.3) % (1) Consists of medical office and life science properties that we have owned and which have been in service continuously since January 1, 2020; excludes properties classified as held for sale or out of service undergoing redevelopment, if any, and a life science property owned by an unconsolidated joint venture in which we own a 20% equity interest. Rental income. Rental income decreased primarily due to our disposition of 20 properties since January 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 certain 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 higher average rents achieved from our new and renewal leasing activity, partially offset by decreases in occupancy and tax escalation income and other property operating expense reimbursements at certain of our comparable properties. Property operating expenses. Property operating expenses consist of real estate taxes, utility expenses, insurance, management fees, salaries and benefit costs of property level personnel, repairs and maintenance expense, cleaning expense and other direct costs of operating these properties. The decrease in property operating expenses is primarily due to our disposition of 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 utility expenses and landscaping expenses, partially offset by decreases in real estate taxes, repairs and maintenance 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 Year Ended December 31, As of and For the Year Ended December 31, 2021 2020 2021 2020 Total properties 120 120 235 235 Number of units 17,899 17,899 25,345 26,969 Occupancy 73.3 % 80.7 % 71.1 % 77.2 % Average monthly rate (2) $ 3,958 $ 3,982 $ 4,339 $ 4,530 71 Table of Contents (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. Year Ended December 31, 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 $ 668,278 $ 815,437 $ (147,159) (18.0) % $ 306,345 $ 389,374 $ 974,623 $ 1,204,811 $ (230,188) (19.1) % Property operating expenses (635,003) (713,047) (78,044) (10.9) % (329,496) (393,554) (964,499) (1,106,601) (142,102) (12.8) % NOI $ 33,275 $ 102,390 $ (69,115) (67.5) % $ (23,151) $ (4,180) $ 10,124 $ 98,210 $ (88,086) (89.7) % (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 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 and closure of eight properties since January 1, 2020 and decreases in occupancy primarily due to the continued impact of the COVID-19 pandemic at both comparable and non-comparable properties for the year ended December 31, 2021 compared to the year ended December 31, 2020. Additionally, residents fees and services at our comparable properties decreased due to the closure of skilled nursing units during the year ended December 31, 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 costs of operating these communities. Property operating expenses decreased primarily due to our disposition of nine properties and closure of eight 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 continued impact of the COVID-19 pandemic and the closure of skilled nursing units during the year ended December 31, 2021. We continue to have elevated labor costs on a per resident basis. 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 Year Ended December 31, As of and For the Year Ended December 31, 2021 2020 2021 2020 Total properties: Other triple net leased senior living communities 29 29 29 29 Wellness centers 10 10 10 10 Rent coverage: Other triple net leased senior living communities (3) 1.21 x 1.61 x 1.21 x 1.61 x Wellness centers (3) 1.23 x 1.05 x 1.23 x 1.05 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 September 30, 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. 72 Table of Contents Year Ended December 31, Comparable (1) Non-Comparable Properties Results Properties Results Consolidated Properties Results 2021 2020 $ Change % Change 2021 2020 2021 2020 $ Change % Change Rental income $ 40,992 $ 40,753 $ 239 0.6 % $ — $ 3,097 $ 40,992 $ 43,850 $ (2,858) (6.5) % NOI $ 40,992 $ 40,753 $ 239 0.6 % $ — $ 3,097 $ 40,992 $ 43,850 $ (2,858) (6.5) % (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, partially offset by an increase in rental income at our comparable properties and increased rents resulting from our purchase of improvements at our comparable properties since January 1, 2020. Rental income increased at our comparable properties primarily due to a tenant default under leases for six of our wellness centers during the 2020 period, partially offset by decreased rent due to lease renewals with tenants of certain of our wellness centers at lower average rental rates. As a result of the COVID-19 pandemic, in 2020 many of our wellness centers had been ordered closed by state or local executive orders. We have elected to recognize rental income from the previously defaulted tenant of six of our wellness centers as rent payments are received. In February 2022, the leases for these six wellness centers were amended and a portion of the rent due to us was deferred. 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 year ended December 31, 2021, compared to the year ended December 31, 2020. Depreciation and amortization expense. Depreciation and amortization expense increased primarily due to the purchase of capital improvements at certain of our properties since January 1, 2020, partially offset by 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. 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 consolidated indebtedness during 2021 compared to 2020. Acquisition and certain other transaction related costs. For the year ended December 31, 2021, acquisition and certain other transaction related costs primarily represent costs related to the transition of certain senior living communities to new third party managers and costs incurred in connection with the Master Management Agreement. For the year ended December 31, 2020, acquisition and certain other transaction related costs primarily represent costs incurred in connection with the 2020 Restructuring Transaction. For information regarding the Master Management Agreement or the 2020 Restructuring Transaction, see Note 6 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. Impairment of assets. For information about our asset impairment charges, see Note 3 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. Gain on sale of properties. Gain on sale of properties is the net result of our sale of certain of our properties during 2021 and 2020. The gain on sale of properties during the year ended December 31, 2021 primarily reflects our sale of a 35% equity interest from our 55% equity interest in a joint venture that owns a life science property located in Boston, Massachusetts. For further information regarding gain on sale of properties, see Note 3 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. 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 AlerisLife to its fair value. For further information regarding our investment in 73 Table of Contents AlerisLife, see Note 10 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. Interest and other income. The increase in interest and other income is primarily due to $19,554 of funds we received from the U.S. government pursuant to the CARES Act during the year ended December 31, 2021 compared to $17,485 received during the year ended December 31, 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. Gain on lease termination. Gain on lease termination represents the gain recognized in connection with the 2020 Restructuring Transaction. For information regarding the 2020 Restructuring Transaction, see Note 6 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. Loss on early extinguishment of debt. We recorded a loss on early extinguishment of debt in connection with the amendments to our credit agreement and the agreement governing our previously existing $200,000 term loan, 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 year ended December 31, 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 year ended December 31, 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. Non-GAAP Financial Measures (dollars in thousands, except per share amounts) We present certain "non-GAAP financial measures" within the meaning of applicable SEC rules, including FFO attributable to common shareholders, Normalized FFO attributable to common shareholders and NOI for the years ended December 31, 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 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, equity in earnings of an unconsolidated joint venture, loss on impairment of real estate assets, gains or losses on equity securities, net, if any, including adjustments to reflect our proportionate share of FFO of our equity method investment in AlerisLife and our proportionate share of FFO from an unconsolidated joint venture property plus real estate depreciation and amortization of consolidated properties 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 including similar adjustments for our unconsolidated joint venture, if any. 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. Other real 74 Table of Contents 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 years ended December 31, 2021 and 2020 and reconciliations of net income (loss) attributable to common shareholders, the most directly comparable financial measure under GAAP reported in our 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. For the Year Ended December 31, 2021 2020 Net income (loss) attributable to common shareholders $ 174,515 $ (139,453) Depreciation and amortization 271,131 270,147 Gain on sale of properties (492,272) (6,487) Impairment of assets (174) 106,972 Gains and losses on equity securities, net 42,232 (34,106) FFO adjustments attributable to noncontrolling interest (20,584) (21,100) Share of FFO from unconsolidated joint venture 273 — Adjustments to reflect our share of FFO attributable to an equity method investment (6,017) 839 FFO attributable to common shareholders (30,896) 176,812 Acquisition and certain other transaction related costs 17,506 814 Costs and payment obligations related to compliance assessment at one of our senior living communities — 5,770 Gain on lease termination (1) — (22,896) Loss on early extinguishment of debt 2,410 427 Adjustments to reflect our share of Normalized FFO attributable to an equity method investment 3,074 9,187 Normalized FFO attributable to common shareholders $ (7,906) $ 170,114 Weighted average common shares outstanding (basic) 237,967 237,739 Weighted average common shares outstanding (diluted) 237,967 237,739 Per common share data (basic and diluted): Net income (loss) attributable to common shareholders $ 0.73 $ (0.59) FFO attributable to common shareholders $ (0.13) $ 0.74 Normalized FFO attributable to common shareholders $ (0.03) $ 0.72 Distributions declared $ 0.04 $ 0.18 (1) Gain on lease termination represents the gain recognized in connection with the 2020 Restructuring Transaction. For information regarding the 2020 Restructuring Transaction, see Note 6 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. 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. The calculation of NOI by reportable segment is included above in this Item 7. The following table includes the reconciliation of net income (loss) to NOI for the years ended December 31, 2021 and 2020. 75 Table of Contents For the Year Ended December 31, 2021 2020 Reconciliation of Net Income (Loss) to NOI: Net income (loss) $ 179,926 $ (134,307) Income tax expense 1,430 1,250 Income (loss) from continuing operations before income tax expense 181,356 (133,057) Loss on early extinguishment of debt 2,410 427 Gain on lease termination (1) — (22,896) Interest expense 255,759 201,483 Interest and other income (20,635) (18,221) Gains and losses on equity securities, net 42,232 (34,106) Gain on sale of properties (492,272) (6,487) Impairment of assets (174) 106,972 Acquisition and certain other transaction related costs 17,506 814 General and administrative 34,087 30,593 Depreciation and amortization 271,131 270,147 Total NOI $ 291,400 $ 395,669 Office Portfolio NOI $ 240,284 $ 253,609 SHOP NOI 10,124 98,210 Non-Segment NOI 40,992 43,850 Total NOI $ 291,400 $ 395,669 (1) Gain on lease termination represents the gain recognized in connection with the 2020 Restructuring Transaction. For information regarding the 2020 Restructuring Transaction, see Note 6 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. 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, 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, inflation or supply chain challenges; and • our managers' abilities 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. 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 76 Table of Contents 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. In February 2022, we repaid $100.0 million of this borrowing to reduce the borrowing capacity under our revolving credit facility to $700.0 million pursuant to the February 2022 amendment to our credit agreement. In addition, in February 2022, we exercised our option to extend the maturity date of our revolving credit facility by one year to January 2024. Pursuant to our credit agreement, the borrowing capacity under our revolving credit facility will be reduced to $586.4 million as of January 2023 and as such, further repayment of our revolving credit facility may be required. Although we have taken steps to enhance our ability to maintain sufficient liquidity, 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 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 December 31, 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 currently unable to incur additional debt because this ratio is below 1.5x on a pro forma basis. In December 2021, we sold a 35% equity interest from our 55% equity interest in a joint venture that owns a life science property located in Boston, Massachusetts to another third party global institutional investor for $378.0 million, excluding closing costs. Following the sale, we continue to own a 20% equity interest in the joint venture and our pre-existing joint venture partner continues to own its 45% equity interest in the joint venture. The net proceeds of $373.8 million, which include working capital prorations and formation costs, are included in restricted cash in our consolidated balance sheet as of December 31, 2021 pursuant to the terms of our credit agreement. Effective as of the date of the sale, we deconsolidated this joint venture and we now account for this joint venture using the equity method of accounting under the fair value option. In January 2022, we entered into a joint venture for 10 medical office and life science properties we owned with two unrelated third party global institutional investors for aggregate proceeds, before closing costs and other adjustments, of $653.3 million. The investors acquired 41% and 39% equity interests in the joint venture for investments of approximately $100.8 million and $95.9 million, respectively, and we retained a 20% equity interest in the joint venture. The investment amounts are based upon a property valuation of approximately $702.5 million, less approximately $456.6 million of secured debt on the properties incurred by this joint venture. During the year ended December 31, 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 consolidated statements of cash flows (dollars in thousands): Year Ended December 31, 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 (63,323) 158,544 Investing activities 242,696 (40,436) Financing activities 746,723 (79,483) Cash and cash equivalents and restricted cash at end of period $ 1,016,945 $ 90,849 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 change in cash (used in) provided by operating activities for the year ended December 31, 2021 compared to the prior year was primarily due to the continued 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. Additionally, we had increased working capital needs in 2021 as compared to 2020, specifically related our senior living communities. As it relates to our SHOP segment, in September 2021, we paid approximately $22.2 million of payroll taxes reimbursed to Five Star pursuant to 77 Table of Contents our management agreements with Five Star that were deferred as allowed under the CARES Act as previously disclosed. As noted elsewhere in this Annual Report on Form 10-K, the transition of the management of the 107 senior living communities from Five Star to other third party managers was completed as of December 31, 2021 and we have closed the remaining senior living community that we and Five Star agreed to transition and are assessing opportunities to redevelop that property. We have incurred and expect to continue to incur costs related to retention and other transition costs for these communities. For the year ended December 31, 2021, we recorded $17.4 million of these costs to acquisition and certain other transaction related costs in our consolidated statements of comprehensive income (loss). As noted elsewhere in this Annual Report on Form 10-K, the COVID-19 pandemic has had a substantial negative economic impact on our and our tenants', managers' and other operators' businesses, and in particular our senior living community and wellness center operators. 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 some 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. Specifically as it relates to our SHOP segment, we face and may continue to face issues with labor availability and cost pressures from supply chain disruptions and commodity price inflation. Our Investing Liquidity and Resources The change in cash provided by (used in) investing activities for the year ended December 31, 2021 compared to the prior year was primarily due to proceeds from our sale of a 35% equity interest from our 55% equity interest in a joint venture that owns a life science property located in Boston, Massachusetts to another third party global institutional investor, partially offset by less proceeds from the sale of real estate properties and an increase in real estate improvements during 2021 compared to 2020. As described above, in January 2022 we entered into a joint venture for 10 medical office and life science properties we owned with two unrelated third party global institutional investors for aggregate proceeds, before closing costs and other adjustments, of $653.3 million. The following is a summary of capital expenditures, development, redevelopment and other activities for the periods presented (dollars in thousands): For the Year Ended December 31, 2021 2020 Office Portfolio segment capital expenditures: Lease related costs (1) $ 40,253 $ 19,364 Building improvements (2) 15,407 18,119 SHOP segment fixed assets and capital improvements 141,122 64,446 Recurring capital expenditures $ 196,782 $ 101,929 Development, redevelopment and other activities - Office Portfolio segment (3) $ 40,253 $ 55,642 Development, redevelopment and other activities - SHOP segment (3) 17,274 27,098 Total development, redevelopment and other activities $ 57,527 $ 82,740 (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. We plan to continue investing capital in our properties, including redevelopment projects, to better position these properties in their respective markets in order to increase our returns in future years. In 2022, we expect to incur capital expenditures in excess of 2021 levels, up to the $400.0 million limit allowed pursuant to our credit agreement. 78 Table of Contents As of December 31, 2021, we had estimated unspent leasing related obligations at our triple net leased senior living communities and our medical office and life science properties of approximately $76.6 million, of which we expect to spend approximately $54.7 million during calendar year 2022. 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, proceeds from the contributions of certain of our properties to investors in our joint ventures and proceeds from the disposition of certain properties. Our redevelopment in San Diego, CA has been completed and we expect to incur additional lease related costs in 2022. During the year ended December 31, 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 23% higher than the prior rental rate for the same space at this San Diego, CA property. We have executed new leases for 100% of the leasable square footage at this property. We are currently in the process of redeveloping two properties in our Office Portfolio located in Lexington, MA and Tempe, AZ. Our redevelopments in Lexington, MA and Tempe, AZ are currently expected to be completed in the second quarter of 2022 and fourth quarter of 2022, respectively. We have entered into a new ten year lease for the entire building at the Lexington, MA property at a rental rate that is 46% higher than the prior rental rate for the same space. Additionally, in January 2022, we entered into a new 11 year lease for the entire building at the Tempe, AZ property at a rental rate that is 20% higher than the prior rental rate for the same space. We are also currently reviewing strategic alternatives at properties in our Office Portfolio located in Silver Springs, MD and in Decatur, GA, including opportunities to redevelop these properties. We continue to assess opportunities to redevelop other properties in our portfolio. These redevelopment projects may require significant capital expenditures and time to complete. We continue to assess opportunities to redevelop other properties in our portfolio. As noted above, our ability to make capital investments is currently limited pursuant to our credit agreement. Additionally, due to supply chain disruptions and inflation, the capital investments we plan to make may be delayed or cost more than we expect. For further information regarding our acquisitions and dispositions, see Note 3 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. Our Financing Liquidity and Resources The change in cash provided by (used in) financing activities for the year ended December 31, 2021 compared to the prior year 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 4.375% senior notes, decreased term loan repayment amounts in 2021 compared to 2020, and a reduction in distributions paid to our shareholders in 2021, partially offset by increased senior unsecured notes repayment amounts in 2021 compared to 2020 and net proceeds from our issuance in June 2020 of $1.0 billion aggregate principal amount of our 9.75% senior notes. As of December 31, 2021, we had $634.8 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. As of December 31, 2021, the maturity date of our revolving credit facility was January 2023. In February 2022, we exercised our option to extend the maturity date of our revolving credit facility by one year 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 December 31, 2021, our revolving credit facility required interest to be paid on borrowings at the annual rate of 2.9%, plus a facility fee of 30 basis points per annum on the total amount of lending commitments under the facility. The interest rate premium and facility fee are each subject to adjustment based upon changes to our credit ratings. 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. In February 2022, we repaid $100.0 million of this borrowing to reduce the borrowing capacity under our revolving credit facility to $700.0 million pursuant to the February 2022 amendment to our credit agreement. Pursuant to our credit agreement, the borrowing capacity under our revolving credit facility will be reduced to $586.4 million as of January 2023 and as such, further repayment of our revolving credit facility may be required. As of December 31, 2021 and February 21, 2022, we were fully drawn under our revolving credit facility. 79 Table of Contents In January 2021, we and our lenders amended our credit agreement and the agreement governing our previously existing $200.0 million term loan 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 agreement and the agreement governing our previously existing $200.0 million term loan, 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 agreement and the agreement governing our previously existing $200.0 million term loan 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 $1.0 billion as of December 31, 2021 to secure our obligations, which pledges and/or mortgage liens may be removed or new ones may be added during the Amendment Period based on outstanding debt amounts, among other things; • we have the ability to fund $350.0 million of capital expenditures per year and we are restricted in our ability to acquire real property as defined in our credit agreement; • the interest rate premium over LIBOR under our revolving credit facility and our previously existing $200.0 million term loan increased by 30 basis points; • certain covenants and restrictions on distributions to common shareholders, share repurchases, capital expenditures, acquiring additional properties and incurring additional indebtedness (in each case subject to various exceptions), and the minimum liquidity requirement of $200.0 million will remain in place during the Amendment Period; 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. 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 revolving credit facility at such time as LIBOR is no longer available to calculate interest payable on amounts outstanding thereunder. In February 2022, we and our lenders further amended our credit agreement. Pursuant to the amendment: • the waiver of the fixed charge coverage ratio covenant included in our credit agreement has been extended through December 31, 2022; • the revolving credit facility commitments have been reduced from $800.0 million to $700.0 million; • we have the ability to fund $400.0 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 under our revolving credit facility increased by 15 basis points; and • 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. Also in February 2022, we exercised our option to extend the maturity date of our revolving credit facility by one year to January 2024. Pursuant to our credit agreement, the borrowing capacity under our revolving credit facility will be reduced to $586.4 million as of January 2023 and as such, further repayment of our revolving credit facility may be required. 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 80 Table of Contents 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 year ended December 31, 2021, we paid quarterly cash distributions to our shareholders totaling approximately $9.5 million using existing cash balances. For further information regarding the distributions we paid during 2021, see Note 5 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. On January 13, 2022, we declared a quarterly distribution payable to common shareholders of record on January 24, 2022 in the amount of $0.01 per share, or approximately $2.4 million. We paid this distribution on February 17, 2022 using cash on hand. 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 downgraded in 2020, 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 negative impact on the economy or the industries in which our properties and businesses operate resulting from the COVID-19 pandemic 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 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 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. In February 2022, Moody's downgraded our senior unsecured debt rating from B1 to B3, our 9.75% senior notes due 2025 rating from Ba3 to B2 and our 4.375% senior notes due 2031 rating from Ba3 to B2. For further information regarding our outstanding debt, see Note 9 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. Debt Covenants Our principal debt obligations at December 31, 2021 were: (1) outstanding borrowings under our then $800.0 million revolving credit facility; (2) $2.9 billion outstanding principal amount of senior unsecured notes; and (3) $62.5 million aggregate principal amount of mortgage notes (excluding premiums, discounts and net debt issuance costs) secured by six properties. For further information regarding our indebtedness, see Note 9 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. 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 81 Table of Contents 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 December 31, 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 currently unable to incur additional debt because this ratio is below 1.5x on a pro forma basis, 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. The proceeds from this borrowing may be used for general business purposes. In February 2022, we repaid $100.0 million of this borrowing to reduce the borrowing capacity under our revolving credit facility to $700.0 million pursuant to the February 2022 amendment to our credit agreement. As of December 31, 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 Annual Report on Form 10-K, 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. 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 will not be able to satisfy our financial or other covenants, we will seek waivers, amendments, or in the case of our public debt covenants, borrow any undrawn amounts which may become available under our revolving credit facility prior to any covenant violation, consistent with our approach in March 2021, which may lead to increased costs and interest rates, additional restrictive covenants or other lender protections. We cannot assure that we would be able to obtain these waivers or amendments or repay the related debt facilities when due, or that there will be any amounts available to borrow under our revolving credit facility, which may result in an event of default under the agreements governing our debt or the potential acceleration of 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. 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 related to the joint venture for a life science property in Boston, Massachusetts contain customary covenants and provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default. We no longer include this $620.0 million of secured debt financing in our consolidated balance sheet following the deconsolidation of the net assets of this joint venture, as discussed above; however, DHC continues to provide certain guaranties on this debt. Supplemental Guarantor Information 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 December 31, 2021, all $1.0 billion of our 9.75% senior notes due 2025 and all $500.0 million of our 4.375% senior notes due 2031 were fully and unconditionally guaranteed, on a joint and several basis and on a senior unsecured basis, by all of our subsidiaries, except for certain excluded subsidiaries, including pledged subsidiaries under our credit agreement. The notes and the guarantees are effectively subordinated to all of our and the subsidiary guarantors' secured indebtedness, respectively, to the extent of the value of the collateral securing such secured indebtedness, and are structurally subordinated to all indebtedness and other liabilities and any preferred equity of any of our subsidiaries that do not guarantee the notes. Our remaining $1.35 billion of senior unsecured notes do not have the benefit of any guarantees as of December 31, 2021. A subsidiary guarantor's guarantee of our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031, as applicable, and all other obligations of such subsidiary guarantor under the indenture governing the notes will automatically 82 Table of Contents 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): December 31, 2021 Real estate properties, net $ 3,822,547 Other assets, net 1,424,994 Total assets $ 5,247,541 Indebtedness, net $ 3,613,447 Other liabilities 259,670 Total liabilities $ 3,873,117 Year Ended December 31, 2021 Revenues $ 1,074,108 Expenses 1,212,487 Loss from continuing operations (393,418) Net loss (394,848) Net loss attributable to DHC (394,848) Related Person Transactions We have relationships and historical and continuing transactions with RMR LLC, RMR Inc., AlerisLife (including Five Star) and others related to them. For further information about these and other such relationships and related person transactions, see Notes 3, 6, 7 and 8 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K, which are incorporated herein by reference and our other filings with the SEC including our definitive Proxy Statement for our 2022 Annual Meeting of Shareholders, or our definitive Proxy Statement, to be filed with the SEC within 120 days after the fiscal year ended December 31, 2021. For further information about the risks that may arise as a result of these and other related person transactions and relationships, see elsewhere in this Annual Report on Form 10-K, including “Warning Concerning Forward-Looking Statements,” Part I, Item 1, “Business” and Part I, Item 1A, “Risk Factors.” We may engage in additional transactions with related persons, including businesses to which RMR LLC or its subsidiaries provide management services. 83 Table of Contents Critical Accounting Estimates Our critical accounting policies are those that will have the most impact on the reporting of our financial condition and results of operations and those requiring significant judgments and estimates. We believe that our judgments and estimates have been and will be consistently applied and produce financial information that fairly presents our results of operations. Our most critical accounting policies involve our investments in real property. These policies affect our: • allocation of purchase prices among various asset categories, including allocations to above and below market leases, and the related impact on the recognition of rental income and depreciation and amortization expenses; and • assessment of the carrying values and impairments of long lived assets. We allocate the purchase prices of our properties to land, building and improvements based on determinations of the fair values of these assets assuming the properties are vacant. We determine the fair value of each property using methods similar to those used by independent appraisers, which may involve estimated cash flows that are based on a number of factors, including capitalization rates and discount rates, among others. In some circumstances, we engage independent real estate appraisal firms to provide market information and evaluations which are relevant to our purchase price allocations and determinations of depreciable useful lives; however, we are ultimately responsible for the purchase price allocations and determinations of useful lives. We allocate a portion of the purchase price to above market and below market leases based on the present value (using an interest rate which reflects the risks associated with acquired in place leases at the time each property was acquired by us) of the difference, if any, between (i) the contractual amounts to be paid pursuant to the acquired in place leases and (ii) our estimates of fair market lease rates for the corresponding leases, measured over a period equal to the terms of the respective leases. The terms of below market leases that include bargain renewal options, if any, are further adjusted if we determine that renewal is probable. We allocate a portion of the purchase price to acquired in place leases and tenant relationships based upon market estimates to lease up the property based on the leases in place at the time of purchase. In making these allocations, we consider factors such as estimated carrying costs during the expected lease up periods, including real estate taxes, insurance and other operating income and expenses and costs, such as leasing commissions, legal and other related expenses, to execute similar leases in current market conditions at the time a property was acquired by us. We allocate this aggregate value between acquired in place lease values and tenant relationships based on our evaluation of the specific characteristics of each tenant's lease. However, we have not separated the value of tenant relationships from the value of acquired in place leases because such value and related amortization expense is immaterial to our consolidated financial statements. If the value of tenant relationships becomes material in the future, we may separately allocate those amounts and amortize the allocated amount over the estimated life of the relationships. We regularly evaluate our properties for indicators of impairment. Impairment indicators may include declining tenant or resident occupancy, weak or declining profitability from the property, decreasing tenant cash flows or liquidity, our decision to dispose of an asset before the end of its estimated useful life, and legislative, market or industry changes that could permanently reduce the value of a property. If indicators of impairment are present, we evaluate the carrying value of the related property by comparing it to the expected future cash flows to be generated from that property. If the sum of these expected future cash flows is less than the carrying value, we reduce the net carrying value of the property to its estimated fair value. This analysis requires us to judge whether indicators of impairment exist and to estimate likely future cash flows. The future cash flows are subjective and are based in part on assumptions regarding hold periods, market rents and terminal capitalization rates. If we misjudge or estimate incorrectly or if future tenant operations, market or industry factors differ from our expectations we may record an impairment charge that is inappropriate or fail to record a charge when we should have done so, or the amount of any such charges may be inaccurate. These accounting policies involve significant judgments made based upon our experience and the experience of our management and our Board of Trustees, including judgments about current valuations, ultimate realizable value, estimated useful lives, salvage or residual value, the ability and willingness of our tenants to perform their obligations to us, and the current and likely future operating and competitive environments in which our properties are operated. In the future, we may need to revise our carrying value assessments to incorporate information which is not now known, and such revisions could increase or decrease our depreciation expense or impairment charges related to properties we own, result in the classification of our leases as other than operating leases or decrease the carrying values of our assets. Impact of Government Reimbursement For the year ended December 31, 2021, substantially all of our NOI was generated from properties where a majority of the revenues are derived from our tenants' and residents' private resources, and a small amount of our NOI was generated from properties where a majority of the revenues are derived from Medicare and Medicaid payments. Nonetheless, we own, and our 84 Table of Contents 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. Because of shifting policy priorities, the current and projected federal budget deficit, other federal spending priorities and challenging fiscal conditions in some states, there have been numerous recent legislative and regulatory actions or proposed actions with respect to federal Medicare rates, state Medicaid rates and federal payments to states for Medicaid programs, as well as existing regulations that impact these matters. Further, there are other existing and recently enacted legislation, and related litigation, related to government payments, insurance and healthcare delivery. Examples of these, and other information regarding such matters and developments, are provided under the caption “Business-Government Regulation and Reimbursement” above in this Annual Report on Form 10-K. We cannot currently predict the type and magnitude of the potential Medicare and Medicaid policy changes, rate changes or other changes that may be implemented, but we believe that some of these changes will cause these government funded healthcare programs to fail to provide rates that match our and our tenants' increasing expenses and that such changes may be material and adverse to our future financial results. During the year ended December 31, 2021, we recognized $19.6 million in interest and other income in our consolidated statement of comprehensive income (loss) related to funds received under the CARES Act. Seasonality Senior housing operations have historically reflected modest seasonality. During fourth quarter holiday periods, residents at such facilities are sometimes discharged to spend time with family and admission decisions are often deferred. The first quarter of each calendar year usually coincides with increased illness among residents which can result in increased costs or discharges to hospitals. As a result of these and other factors, these operations sometimes produce greater earnings in the second and third quarters of a calendar year and lesser earnings in the fourth and first calendar quarters. We do not expect these seasonal differences to have a material impact upon the ability of our tenants to pay our rent or our ability to fund our managed senior living operations or our other businesses. Our medical office and life science properties and wellness centers do not typically experience seasonality. Impact of Climate Change Concerns about climate change have resulted in various treaties, laws and regulations that are intended to limit carbon emissions and address other environmental concerns. These and other laws may cause energy or other costs at our properties to increase. We do not expect the direct impact of these increases to be material to our results of operations, because the increased costs either would be the responsibility of our tenants directly or in the longer term, passed through and paid by tenants of our properties. Although we do not believe it is likely in the foreseeable future, laws enacted to mitigate climate change may make some of our buildings obsolete or cause us to make material investments in our properties, which could materially and adversely affect our financial condition or the financial condition of our tenants or managers and their ability to pay rent or returns to us. In an effort to reduce the effects of any increased energy costs in the future, we continuously study ways to improve the energy efficiency at all of our properties. Our property manager, RMR LLC, is a member of the ENERGY STAR program, a joint program of the U.S. Environmental Protection Agency and the U.S. Department of Energy that is focused on promoting energy efficiency at commercial properties through its “ENERGY STAR” partner program, and a member of the U.S. Green Building Council, a nonprofit organization focused on promoting energy efficiency at commercial properties through its leadership in energy and environmental design, or LEED®, green building program. Some observers believe severe weather in different parts of the world over the last few years is evidence of global climate change. Severe weather may have an adverse effect on certain properties we own. Rising sea levels could cause flooding at some of our properties, which may have an adverse effect on individual properties we own. We mitigate these risks by procuring, or requiring our tenants to procure, insurance coverage we believe adequate to protect us from material damages and losses resulting from the consequences of losses caused by climate change. However, we cannot be sure that our mitigation efforts will be sufficient or that future storms, rising sea levels or other changes that may occur due to future climate change could not have a material adverse effect on our financial results. 85 Table of Contents