What changed in this filing

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Item 1. Financial Statements

2022-05-03 compared with 2021-11-03 · 260 added, 390 removed, 302 unchanged (68% of the section changed)

3 unchanged sentences

(dollars in thousands, except share data)

September 30, December 31,

March 31, December 31,

Real estate properties:

4 unchanged sentences

Total real estate properties, net 4,723,503 5,075,749

Assets of properties held for sale — 112,437

Investments in unconsolidated joint ventures 266,741 215,127

Cash and cash equivalents 732,058 634,848

3 unchanged sentences

Total assets $ 6,775,379 $ 6,623,514

Liabilities and Equity

Liabilities and Shareholders' Equity

Revolving credit facility $ 700,000 $ 800,000

Term loan, net — 199,049

Senior unsecured notes, net 2,808,467 2,806,811

Secured debt and finance leases, net 68,731 69,713

Liabilities of properties held for sale — 3,525

Accrued interest 45,579 29,845

3 unchanged sentences

Commitments and contingencies

Equity attributable to common shareholders:

Shareholders' equity:

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

3 unchanged sentences

Cumulative distributions ( 4,045,489 ) ( 4,043,099 )

Total equity attributable to common shareholders

2,298,882 2,495,837

Noncontrolling interest:

Total equity attributable to noncontrolling interest

110,775 123,385

Total equity 2,409,657 2,619,222

Total liabilities and equity $ 7,066,048 $ 6,476,424

Total shareholders' equity 2,900,733 2,662,390

Total liabilities and shareholders' equity $ 6,775,379 $ 6,623,514

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

2 unchanged sentences

(amounts in thousands, except per share data)

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

2021 2020 2021 2020

Three Months Ended March 31,

Rental income $ 65,285 $ 102,758

8 unchanged sentences

Gain (loss) on sale of properties 327,794 ( 122 )

Gains and losses on equity securities, net ( 14,755 ) 12,510 ( 26,943 ) 14,541

Losses on equity securities, net ( 8,553 ) ( 8,339 )

Interest and other income 395 2,835

1 unchanged sentence

( 57,131 ) ( 60,091 )

Gain on lease termination — — — 22,896

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

Loss from continuing operations before income tax expense ( 87,409 ) ( 105,423 ) ( 185,808 ) ( 118,339 )

Loss on modification or early extinguishment of debt ( 483 ) ( 2,040 )

Income (loss) from continuing operations before income tax expense and equity in earnings of investees 238,541 ( 65,945 )

Income tax expense ( 1,472 ) ( 238 )

Net loss ( 88,004 ) ( 105,788 ) ( 186,832 ) ( 119,387 )

Equity in earnings of investees 3,354 —

Net income (loss) 240,423 ( 66,183 )

Net income attributable to noncontrolling interest — ( 1,322 )

Net loss attributable to common shareholders $ ( 89,343 ) $ ( 106,888 ) $ ( 191,070 ) $ ( 123,225 )

Net income (loss) attributable to common shareholders $ 240,423 $ ( 67,505 )

Weighted average common shares outstanding (basic) 238,149 237,834

1 unchanged sentence

Per common share amounts (basic and diluted):

Net loss attributable to common shareholders $ ( 0.38 ) $ ( 0.45 ) $ ( 0.80 ) $ ( 0.52 )

Net income (loss) attributable to common shareholders $ 1.01 $ ( 0.28 )

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

9 unchanged sentences

238,994,894 $ 2,390 $ 4,615,475 $ 2,087,624 $ ( 4,043,099 ) $ 2,662,390 $ — $ 2,662,390

Net (loss) income — — — ( 67,505 ) — ( 67,505 ) 1,322 ( 66,183 )

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

Share grants — — 228 — — 228 — 228

Distributions to noncontrolling interest — — — — — — ( 5,694 ) ( 5,694 )

Balance at March 31, 2021:

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

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

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

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

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

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

Balance at June 30, 2021:

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

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

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

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

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

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

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

Balance at September 30, 2021:

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

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

DIVERSIFIED HEALTHCARE TRUST

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)

(dollars in thousands)

Shares Common

Shares Additional

Capital Cumulative

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

Interest Total Equity

Balance at December 31, 2019:

237,897,163 $ 2,379 $ 4,612,511 $ 2,052,562 $ ( 3,930,933 ) $ 2,736,519 $ 140,531 $ 2,877,050

Net income — — — 240,423 — 240,423 — 240,423

Distributions — — — — ( 2,390 ) ( 2,390 ) — ( 2,390 )

Distribution to common shareholders of the right to receive Five Star Senior Living Inc.

common stock — — — — ( 59,801 ) ( 59,801 ) — ( 59,801 )

Share grants — — 318 — — 318 — 318

Share repurchases ( 1,698 ) — ( 5 ) — — ( 5 ) — ( 5 )

Distributions to noncontrolling interest — — — — — — ( 5,767 ) ( 5,767 )

Share forfeitures ( 4,900 ) — ( 3 ) — — ( 3 ) — ( 3 )

Balance at March 31, 2022:

238,988,296 $ 2,390 $ 4,615,785 $ 2,328,047 $ ( 4,045,489 ) $ 2,900,733 $ — $ 2,900,733

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

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

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

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

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

Balance at June 30, 2020:

Balance at December 31, 2020:

238,268,478 $ 2,383 $ 4,613,904 $ 1,913,109 $ ( 4,033,559 ) $ 2,495,837 $ 123,385 $ 2,619,222

2 unchanged sentences

Share grants — — 228 — — 228 — 228

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

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

Distributions to noncontrolling interest — — — — — — ( 5,694 ) ( 5,694 )

Balance at September 30, 2020:

Balance at March 31, 2021:

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

3 unchanged sentences

(dollars in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

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

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

Net income (loss) $ 240,423 $ ( 66,183 )

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

Depreciation and amortization 57,259 66,153

2 unchanged sentences

Amortization of acquired real estate leases 105 ( 1,866 )

Loss on early extinguishment of debt 2,410 51

Gain on lease termination — ( 22,896 )

Loss on modification or early extinguishment of debt 483 2,040

Impairment of assets — ( 174 )

Gain on sale of properties ( 30,838 ) ( 2,403 )

Gains and losses on equity securities, net 26,943 ( 14,541 )

(Gain) loss on sale of properties ( 327,794 ) 122

Losses on equity securities, net 8,553 8,339

Other non-cash adjustments, net ( 628 ) ( 715 )

Unconsolidated joint venture distributions 2,720 —

Equity in earnings of investees ( 3,354 ) —

Change in assets and liabilities:

5 unchanged sentences

Cash flows from investing activities:

Real estate acquisitions and deposits — ( 2,526 )

Real estate improvements ( 55,791 ) ( 44,005 )

Proceeds from sale of properties, net 252 8,702

Distributions in excess of earnings from Affiliates Insurance Company — 287

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

Proceeds from sale of properties to joint venture, net 643,892 —

Net cash provided by (used in) investing activities 588,353 ( 35,303 )

Cash flows from financing activities:

2 unchanged sentences

Repayments of borrowings on revolving credit facility ( 100,000 ) —

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

Repayment of term loan — ( 200,000 )

Repayment of other debt ( 838 ) ( 779 )

Loss on early extinguishment of debt settled in cash — ( 376 )

Payment of debt issuance costs ( 2,805 ) ( 4,007 )

2 unchanged sentences

Distributions to shareholders ( 2,390 ) ( 2,383 )

Net cash provided by (used in) financing activities 756,671 ( 70,692 )

Net cash (used in) provided by financing activities ( 106,038 ) 1,079,637

Increase in cash and cash equivalents and restricted cash 475,051 1,079,156

5 unchanged sentences

(dollars in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Supplemental cash flow information:

2 unchanged sentences

Non-cash investing activities:

Five Star Senior Living Inc.

common stock $ — $ 97,896

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

Decrease in assets resulting from the deconsolidation of investments that were previously consolidated:

Real estate, net $ ( 355,669 ) $ —

Real estate improvements accrued, not paid $ 20,645 $ 18,513

Capitalized interest $ — $ 827

Non-cash financing activities:

Distribution to common shareholders of the right to receive Five Star Senior Living Inc.

common stock $ — $ ( 59,801 )

Supplemental disclosure of cash and cash equivalents and restricted cash:

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

As of September 30,

As of March 31,

Cash and cash equivalents $ 732,058 $ 843,237

2 unchanged sentences

Total cash and cash equivalents and restricted cash shown in our condensed consolidated statements of cash flows $ 1,491,996 $ 1,170,005

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

(1) As of March 31, 2022, restricted cash consists of proceeds from the sale of joint venture interests and proceeds from the sale of properties to joint ventures held as collateral pursuant to the agreement governing our revolving credit facility, or our credit agreement.

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

Restricted cash also consists of amounts escrowed for real estate taxes, insurance and capital expenditures at certain of our mortgaged properties.

Prior to the deconsolidation of the joint venture that owns a life science property located in Boston, Massachusetts, or our Boston life science property joint venture, restricted cash also consisted of cash held for the operations of this joint venture.

As of March 31, 2021, restricted cash also included amounts we used to redeem all $ 300,000 of our then outstanding 6.75 % senior notes due 2021 in June 2021, when these notes became redeemable with no prepayment premium.

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

16 unchanged sentences

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

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

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

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

3 unchanged sentences

A minimum or best estimate amount may be increased or decreased when events result in a changed expectation.

We are party to a joint venture arrangement with an institutional investor.

This joint venture arrangement owns a life science property located in Boston, Massachusetts.

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

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

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

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

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

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

See Note 6 for further information about this joint venture.

Real Estate Properties

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

We regularly evaluate our assets for indicators of impairment.

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 an asset.

If indicators of impairment are present, we evaluate the carrying value of the affected assets by

Real Estate Investments

As of March 31, 2022, we wholly owned 378 properties located in 36 states and Washington, D.C.

and we owned a 20 % equity interest in each of two unconsolidated joint ventures that own medical office and life science properties located in five states with an aggregate of approximately 2.2 million rentable square feet that were 98 % leased with an average (by annualized rental income) remaining lease term of 6.6 years.

Joint Venture Activities:

As of March 31, 2022, we had equity investments in joint ventures as follows:

Joint Venture DHC Ownership DHC Carrying Value of Investment at March 31, 2022

Number of Properties Location Square Feet

Seaport Innovation LLC 20 % $ 216,416 1 MA 1,134,479

The LSMD Fund REIT LLC 20 % 50,325 10 CA, MA, NY, TX, WA 1,068,763

$ 266,741 11 2,203,242

DIVERSIFIED HEALTHCARE TRUST

1 unchanged sentence

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

comparing it to the expected future cash flows to be generated from those assets.

The following table provides a summary of the mortgage debts of these joint ventures:

Joint Venture Coupon Rate Maturity Date Principal Balance at March 31, 2022 (1)

Mortgage Notes Payable (secured by one property in Massachusetts) (2)

3.53 % 8/6/2026 $ 620,000

Mortgage Notes Payable (secured by nine properties in five states) 3.46 % 2/11/2032 189,800

Mortgage Notes Payable (secured by one property in California) (3)

2.20 % 2/9/2024 266,825

3.19 % $ 1,076,625

(1) Amounts are not adjusted for our minority equity interest.

(2) Following the deconsolidation in December 2021 of the net assets of our Boston life science property joint venture, we no longer include this $ 620,000 of secured debt financing in our consolidated balance sheet;

however, we continue to provide certain guaranties on this debt.

(3) The maturity date of February 9, 2024 is subject to three , one year extension options and requires interest to be paid at SOFR plus a premium of 1.90 %.

The interest rate is as of March 31, 2022.

This joint venture has also purchased an interest rate cap through February 2024 with a SOFR strike rate equal to 4.00 %.

In December 2021, we sold an additional 35 % equity interest from our then remaining 55 % equity interest in our Boston life science property joint venture to another third party institutional investor for $ 373,847 , which includes certain costs associated with the formation of this joint venture.

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.

Prior to the deconsolidation of the net assets of this joint venture, the joint venture investor's interest in this consolidated entity was reflected as noncontrolling interest in our consolidated financial statements.

After giving effect to the sale, we continue to own a 20 % equity interest in this joint venture.

Our investment amount was based on a property valuation of $ 1,700,000 , less $ 620,000 of existing mortgage debts on the property that this joint venture assumed.

See Note 5 for more information regarding the use of the equity method for this joint venture.

In January 2022, we entered into a joint venture with two unrelated third party institutional investors for 10 medical office and life science properties we owned, or our 10 medical office and life science properties joint venture, for aggregate proceeds, before closing costs and other adjustments, of approximately $ 653,300 .

We deconsolidated the net assets of these properties and recognized a net gain on sale of $ 327,542 related to this transaction, which is included in gain on sale of properties in our consolidated statements of comprehensive income (loss).

The investors acquired a 41 % and 39 % equity interest in the joint venture and we retained a 20 % equity interest in the joint venture.

Effective as of the date of the sale, we deconsolidated these properties and we now account for this joint venture using the equity method of accounting under the fair value option.

The investment amounts are based upon a property valuation of approximately $ 702,500 , less approximately $ 456,600 of secured debt on the properties incurred by this joint venture.

See Note 5 for more information regarding the use of the equity method for this joint venture.

Acquisitions and Dispositions:

We did not acquire or dispose of any properties during the three months ended March 31, 2022.

We regularly evaluate our assets for indicators of impairment.

If indicators of impairment are present, we evaluate the carrying value of the affected assets by comparing it to the expected future cash flows to be generated from those assets.

The future cash flows are subjective and are based in part on assumptions regarding hold periods, market rents and terminal capitalization rates.

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

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

Acquisitions and Dispositions:

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

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

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

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

Gain (Loss) on Sale

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

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

5 $ 104,500 $ 30,638

(1) Sales price excludes closing costs.

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

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

1 unchanged sentence

therefore, we have determined to evaluate our leases as lease arrangements.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Certain of our leases provide for base rent payments and in addition, may include variable payments.

1 unchanged sentence

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

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

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

We increased rental income to record revenue on a straight line basis by $ 1,745 and $ 804 for the three months ended March 31, 2022 and 2021, respectively.

Rents receivable, excluding receivables related to our properties classified as held for sale, if any, include $ 69,192 and $ 82,131 of straight line rent receivables at March 31, 2022 and December 31, 2021, respectively, and are included in other assets, net in our condensed consolidated balance sheets.

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

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

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

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

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

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

balance sheets.

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

Such payments totaled $ 10,708 and $ 18,228 for the three months ended March 31, 2022 and 2021, respectively, of which tenant reimbursements totaled $ 10,663 and $ 18,180 , respectively.

Right of Use Asset and Lease Liability .

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

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

The values of the right of use asset and related liability representing our future obligation under the lease arrangement for which we are the lessee were $ 28,740 and $ 29,074 , respectively, as of March 31, 2022, and $ 4,153 and $ 4,352 , respectively, as of December 31, 2021.

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

1 unchanged sentence

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

Our principal debt obligations at September 30, 2021 were:

Our principal debt obligations, excluding any debt obligations of our joint ventures, at March 31, 2022 were:

(1) outstanding borrowings under our $ 700,000 revolving credit facility;

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

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

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

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

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

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

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

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

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

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

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

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

and (3) $ 61,976 aggregate principal amount of mortgage notes secured by six properties.

These six mortgaged properties had a gross book value of $ 115,874 at March 31, 2022.

We also had two properties subject to finance leases with lease obligations totaling $ 6,321 at March 31, 2022;

these two properties had gross book value and accumulated depreciation of $ 37,024 and $ 18,418 , respectively, at March 31, 2022, and $ 36,730 and $ 18,203 , respectively, at December 31, 2021, and the finance leases expire in 2026.

We have a $ 700,000 revolving credit facility that is used for general business purposes.

The maturity date of our revolving credit facility is 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.

As of March 31, 2022, our revolving credit facility required interest to be paid on borrowings at the annual rate of 3.0 %, plus a facility fee of 30 basis points per annum on the total amount of lending commitments under the facility.

The weighted average annual interest rates for borrowings under our revolving credit facility were 2.9 % for each of the three months ended March 31, 2022 and 2021.

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

On March 31, 2021, we borrowed $ 800,000 under our revolving credit facility as a precautionary measure to increase our cash position and preserve financial flexibility in light of continued uncertainties related to the COVID-19 pandemic.

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

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

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

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

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

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

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

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

As of March 31, 2022 and April 29, 2022, we were fully drawn under our revolving credit facility.

In February 2022, we and our lenders 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, or the Amendment Period;

• the revolving credit facility commitments have been reduced from $ 800,000 to $ 700,000 following our repayment of $ 100,000 , and as a result of the reduction in commitments, we recorded a loss on modification or early extinguishment of debt of $ 483 for the three months ended March 31, 2022;

DIVERSIFIED HEALTHCARE TRUST

1 unchanged sentence

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

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

Pursuant to the amendments:

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

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

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

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

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

• we have the ability to fund $ 400,000 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;

• certain covenants and restrictions on distributions to common shareholders, share repurchases, capital expenditures, acquiring additional properties and incurring additional indebtedness (in each case subject to various exceptions), and the minimum liquidity requirement of $ 200,000 will remain in place during the Amendment Period.

• we are generally required to apply the net cash proceeds from the disposition of assets, capital markets transactions, and debt financings to the repayment of any amounts outstanding under our revolving credit facility.

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

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

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

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 $ 586,373 as of January 2023 and as such, further repayment of our revolving credit facility may be required.

Pursuant to our credit agreement, we pledged certain equity interests of subsidiaries owning properties to secure our obligations under our credit agreement 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 $ 994,281 as of March 31, 2022 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.

In April 2022, we prepaid a mortgage note secured by one of our medical office properties with an outstanding principal balance of approximately $ 10,934 , a maturity date in July 2022 and an annual interest rate of 6.28 %.

We prepaid this mortgage using cash on hand.

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

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

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

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

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

Although we have taken steps to enhance our ability to maintain sufficient liquidity, as noted elsewhere in this Quarterly Report on Form 10-Q, a protracted negative 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.

As of March 31, 2022, our ratio of consolidated income available for debt service to debt service was below the 1.5 x incurrence requirement under our revolving credit facility and our public debt covenants as the effects of the COVID-19 pandemic continued to adversely impact our operations.

We are unable to incur additional debt until this ratio is at or above 1.5 x on a pro forma basis.

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

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Fair Value of Assets and Liabilities

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

Fair Value at Reporting Date Using

Quoted Prices in

Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs

Description Total (Level 1) (Level 2) (Level 3)

The following table presents certain of our assets that are measured at fair value at March 31, 2022 and December 31, 2021, categorized by the level of inputs as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.

As of March 31, 2022 As of December 31, 2021

Description Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value

Recurring Fair Value Measurements Assets:

Investment in Five Star (1)

Investment in AlerisLife (Level 1) (1)

$ 22,987 $ 22,987 $ 31,540 $ 31,540

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

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

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

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

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

Investment in unconsolidated joint venture (Level 3) (2)

$ 216,416 $ 216,416 $ 215,127 $ 215,127

Investment in unconsolidated joint venture (Level 3) (3)

$ 50,325 $ 50,325 $ — $ —

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

During the three months ended March 31, 2022 and 2021, we recorded unrealized losses of $ 8,553 and $ 8,339 , respectively, which are included in losses on equity securities, net in our condensed consolidated statements of comprehensive income (loss), to adjust the carrying value of our investment in AlerisLife common shares to their fair value.

See Note 11 for further information about our investment in AlerisLife.

(2) The 20 % equity interest we own in our Boston life science property joint venture is included in investments in unconsolidated joint ventures in our condensed consolidated balance sheet, and is reported at fair value, which is based on significant unobservable inputs (Level 3 inputs).

The significant unobservable inputs used in the fair value analysis are a discount rate of 5.58 %, an exit capitalization rate of 5.25 %, a holding period of approximately 10 years and market rents.

The assumptions made in the fair value analysis are based on the location, type and nature of the property, and current and anticipated market conditions, which are derived from appraisers, industry publications and our experience.

See Note 2 for further information regarding this joint venture.

(3) The 20 % equity interest we own in our 10 medical office and life science properties joint venture is included in investments in unconsolidated joint ventures in our condensed consolidated balance sheet, and is reported at fair value, which is based on significant unobservable inputs (Level 3 inputs).

The significant unobservable inputs used in the fair value analysis are discount rates of between 5.67 % and 8.93 %, exit capitalization rates of between 4.75 % and 6.00 %, holding periods of approximately 10 years and market rents.

The assumptions we made in the fair value analysis are based on the location, type and nature of each property, and current and anticipated market conditions, which are derived from appraisers, industry publications and our experience.

See Note 2 for further information regarding this joint venture.

In addition to the assets described in the table above, our financial instruments at March 31, 2022 and December 31, 2021 included cash and cash equivalents, restricted cash, other assets, our revolving credit facility, senior unsecured notes, secured debt and finance leases and other unsecured obligations and liabilities.

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

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

As of March 31, 2022 As of December 31, 2021

Description Carrying Amount (1)

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243,121 198,400 243,051 226,500

Senior unsecured notes, 6.250 % coupon rate, due 2046

242,977 250,300 242,762 245,000

Secured debts (2)

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We recorded the assumed mortgage notes at estimated fair value on the date of acquisition and we are amortizing the fair value adjustments, if any, to interest expense over the respective terms of the mortgage notes to adjust interest expense to the estimated market interest rates as of the date of acquisition.

(3) Includes secured debts for the life science property owned by a joint venture arrangement in which we own a 55 % equity interest.

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

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

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

We estimated the fair value of our two issuances of senior unsecured notes due 2042 and 2046 based on the closing price on Nasdaq (Level 1 input) as of March 31, 2022.

We estimated the fair values of our four issuances of senior unsecured notes due 2024, 2025, 2028 and 2031 using an average of the bid and ask price on Nasdaq on or about March 31, 2022 (Level 2 inputs as defined in the fair value hierarchy under GAAP).

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

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

DIVERSIFIED HEALTHCARE TRUST

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

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

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

Noncontrolling Interest

We are party to a joint venture arrangement with an institutional investor for one of our life science properties located in Boston, Massachusetts.

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

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

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

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

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

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

In March 2017, we entered into our Boston life science property joint venture.

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

We determined that, while we owned a 55 % equity interest in this joint venture, this joint venture was a variable interest entity, or VIE, and that we controlled the activities that most significantly impacted the economic performance of this entity;

we therefore consolidated the results of this joint venture in our financial statements.

In December 2021, we sold an additional 35 % equity interest in our Boston life science property joint venture to another third party institutional investor.

After giving effect to the sale, we continue to own a 20 % equity interest in this joint venture, but have determined that we are no longer the primary beneficiary.

Effective as of the date of the sale, we deconsolidated these properties and we now account for this joint venture using the equity method of accounting under the fair value option.

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

This joint venture made aggregate cash distributions to the other joint venture investor of $ 5,694 for the three months ended March 31, 2021, which are reflected as a decrease in total equity attributable to noncontrolling interest in our condensed consolidated statement of shareholders' equity.

Shareholders' Equity

Common Share Awards:

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

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

Common Share Repurchases:

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

During the three months ended March 31, 2022, we purchased 1,698 of our common shares, valued at $ 3.20 per common share, from a former employee of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of prior awards of our common shares.

Distributions:

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

During the three months ended March 31, 2022, we declared and paid a quarterly distribution to common shareholders as follows:

Declaration Date Record Date Payment Date Distribution Per Share Total Distributions

January 13, 2022 January 24, 2022 February 17, 2022 $ 0.01 $ 2,390

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

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

$ 0.03 $ 7,150

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

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

On April 14, 2022, we declared a quarterly distribution to common shareholders of record on April 25, 2022 of $ 0.01 per share, or approximately $ 2,390 .

We expect to pay this distribution on or about May 19, 2022.

Segment Reporting

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

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

For the Three Months Ended September 30, 2021

Office Portfolio SHOP Non-Segment Consolidated

Rental income $ 91,520 $ — $ 9,883 $ 101,403

Residents fees and services — 236,013 — 236,013

Total revenues 91,520 236,013 9,883 337,416

Property operating expenses 32,386 233,687 — 266,073

Depreciation and amortization 32,142 33,688 2,872 68,702

General and administrative — — 8,870 8,870

Acquisition and certain other transaction related costs

— — 3,108 3,108

Total expenses 64,528 267,375 14,850 346,753

Gain on sale of properties — 200 — 200

Losses on equity securities, net — — ( 14,755 ) ( 14,755 )

Interest and other income — 786 190 976

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

Income (loss) from continuing operations before income tax expense

20,939 ( 30,899 ) ( 77,449 ) ( 87,409 )

Income tax expense — — ( 595 ) ( 595 )

Net income (loss) 20,939 ( 30,899 ) ( 78,044 ) ( 88,004 )

Net income attributable to noncontrolling interest ( 1,339 ) — — ( 1,339 )

Net income (loss) attributable to common shareholders

$ 19,600 $ ( 30,899 ) $ ( 78,044 ) $ ( 89,343 )

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

DIVERSIFIED HEALTHCARE TRUST

1 unchanged sentence

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

For the Nine Months Ended September 30, 2021

For the Three Months Ended March 31, 2022

Office Portfolio SHOP Non-Segment Consolidated

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Acquisition and certain other transaction related costs

— — 15,179 15,179

Impairment of assets — ( 174 ) — ( 174 )

Total expenses 41,837 281,278 11,099 334,214

3 unchanged sentences

Interest expense ( 365 ) ( 494 ) ( 56,272 ) ( 57,131 )

Loss on early extinguishment of debt — — ( 2,410 ) ( 2,410 )

Income (loss) from continuing operations before income tax expense

98,724 ( 62,992 ) ( 221,540 ) ( 185,808 )

Loss on modification or early extinguishment of debt — — ( 483 ) ( 483 )

Income (loss) from continuing operations before income tax expense and equity in earnings of investees 340,337 ( 35,873 ) ( 65,923 ) 238,541

Income tax expense — — ( 1,472 ) ( 1,472 )

Equity in earnings of investees 3,354 — — 3,354

Net income (loss) $ 343,691 $ ( 35,873 ) $ ( 67,395 ) $ 240,423

Net income attributable to noncontrolling interest ( 4,238 ) — — ( 4,238 )

Net income (loss) attributable to common shareholders

$ 94,486 $ ( 62,992 ) $ ( 222,564 ) $ ( 191,070 )

Under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, the U.S.

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

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

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

however, we may not receive any additional funding.

As of September 30, 2021

We recognize income from government grants on a systematic and rational basis over the period in which we recognize the related expenses or loss of revenues for which the grants are intended to compensate when there is reasonable assurance that we will comply with the applicable terms and conditions of the grant and there is reasonable assurance that the grant will be received.

We have recognized $ 199 and $ 2,433 as other income in our condensed consolidated statements of comprehensive income (loss) with respect to our SHOP segment for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022

Office Portfolio SHOP Non-Segment Consolidated

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

For the Three Months Ended September 30, 2020

For the Three Months Ended March 31, 2021

Office Portfolio SHOP Non-Segment Consolidated

5 unchanged sentences

General and administrative — — 7,542 7,542

Acquisition and certain other transaction related costs

Impairment of assets — ( 174 ) — ( 174 )

1 unchanged sentence

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

Gains on equity securities, net — — 12,510 12,510

Interest and other income — — 134 134

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

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

Income tax expense — — ( 365 ) ( 365 )

Net income (loss) 20,400 ( 87,133 ) ( 39,055 ) ( 105,788 )

Net income attributable to noncontrolling interest

( 1,100 ) — — ( 1,100 )

Net income (loss) attributable to common shareholders

$ 19,300 $ ( 87,133 ) $ ( 39,055 ) $ ( 106,888 )

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

For the Nine Months Ended September 30, 2020

Office Portfolio SHOP Non-Segment Consolidated

Rental income $ 288,515 $ — $ 32,428 $ 320,943

Residents fees and services — 926,174 — 926,174

Total revenues 288,515 926,174 32,428 1,247,117

Property operating expenses 97,047 837,103 — 934,150

Depreciation and amortization 97,213 98,385 8,868 204,466

General and administrative — — 23,132 23,132

Acquisition and certain other transaction related costs

Impairment of assets 8,090 98,521 — 106,611

Total expenses 202,350 1,034,009 32,803 1,269,162

Gain (loss) on sale of properties 2,613 ( 210 ) — 2,403

Gains on equity securities, net — — 14,541 14,541

Losses on equity securities, net — — ( 8,339 ) ( 8,339 )

Interest and other income — 2,433 402 2,835

Interest expense ( 5,939 ) ( 528 ) ( 53,624 ) ( 60,091 )

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

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

Loss on modification or early extinguishment of debt — — ( 2,040 ) ( 2,040 )

Income (loss) from continuing operations before income tax expense 24,031 ( 25,414 ) ( 64,562 ) ( 65,945 )

8 unchanged sentences

Total assets $ 2,282,652 $ 2,995,819 $ 1,345,043 $ 6,623,514

Leases and Management Agreements with Five Star

2020 Restructuring of our Business Arrangements with Five Star.

Effective as of January 1, 2020:

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

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

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

• as consideration for these share issuances, we provided Five Star with $ 75,000 of additional consideration by assuming certain of Five Star's working capital liabilities and through cash payments, resulting in a gain on lease termination of

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

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

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

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

Senior Living Community Management Agreements

Our managed senior living communities are operated by third parties pursuant to management agreements.

Five Star Senior Living, or Five Star, which is an operating division of AlerisLife, manages certain of our SHOP communities.

2021 Amendments to our Management Arrangements with Five Star.

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

The principal changes to the management arrangements include:

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

On June 9, 2021, we amended our 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 have the right to sell up to an additional $ 682,000 of senior living communities currently managed by Five Star and terminate Five Star's management of those communities without our payment of a fee to Five Star upon sale;

• that Five Star is continuing to manage 120 of our senior living communities with approximately 18,000 living units, and that the skilled nursing units in all of our continuing care retirement communities that Five Star is continuing to manage, which then included approximately 1,500 living units, have been closed and are in the process of 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 earnings before interest, taxes, depreciation and amortization, or EBITDA, for the applicable period;

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

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

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

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

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

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

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

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

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

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

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

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

• 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, were closed and are being evaluated and repositioned;

DIVERSIFIED HEALTHCARE TRUST

1 unchanged sentence

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

retention and other transition costs for these communities.

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

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

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

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

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

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

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

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

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

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

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

These agreements replaced our prior master leases and management and pooling agreements with Five Star.

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

As of December 31, 2021, we had transitioned 107 of the 108 senior living communities, containing 7,340 living units, from Five Star to new third party managers.

The remaining senior living community was closed in February 2022 and we are assessing opportunities to redevelop that property.

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

We incurred and expect to continue to incur costs related to retention and other transition costs for these communities.

For the three months ended March 31, 2022, we recorded $ 928 of these costs to acquisition and certain other transaction related costs in our condensed consolidated statements of comprehensive income (loss).

Our Senior Living Communities Managed by Five Star.

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

Five Star managed 120 and 235 of our senior living communities as of March 31, 2022 and 2021, respectively.

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

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

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

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

We incurred management fees payable to Five Star of $ 8,932 and $ 13,850 for the three months ended March 31, 2022 and 2021, respectively.

For the three months ended March 31, 2022 and 2021, $ 8,142 and $ 13,016 , respectively, of the total management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 790 and $ 834 , respectively, were capitalized in our condensed consolidated balance sheets.

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

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

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

As a result of routine monitoring protocols that are a part of Five Star's compliance program activities related to Medicare billing, Five Star discovered potentially inadequate documentation at one of our senior living communities that Five Star manages.

This monitoring was not initiated in response to any specific complaint or allegation but rather was of the type that Five Star periodically undertakes to test its compliance with applicable Medicare billing rules.

We and Five Star voluntarily disclosed this matter to the United States Department of Health and Human Services, Office of the Inspector General, or the OIG, pursuant to the OIG’s Provider Self-Disclosure Protocol.

In January 2021, we and Five Star settled this matter with the OIG and we agreed to pay approximately $ 5,763 in exchange for a customary release, but we and Five Star did not admit any liability.

We recognized that amount in our consolidated statement of comprehensive income (loss) during the year ended December 31, 2020 and paid that amount to the OIG in January 2021.

Five Star refunded to us approximately $ 115 of management fees it previously received relating to the Medicare payments we refunded to the OIG.

Since January 1, 2020, we sold certain senior living communities that were then managed by Five Star.

We and Five Star terminated our management agreements for these senior living communities in connection with these sales.

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

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

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

DIVERSIFIED HEALTHCARE TRUST

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

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

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

We incurred fees of $ 1,916 and $ 5,441 for the three months ended March 31, 2022 and 2021, respectively, with respect to rehabilitation services Five Star provided at our senior living communities that are payable by us.

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

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

We recorded $ 388 and $ 397 for the three months ended March 31, 2022 and 2021, respectively, with respect to these leases.

Our Senior Living Communities Managed by Other Third Party Managers.

We incurred management fees payable to the new third party managers of $ 5,108 for the three months ended March 31, 2022.

These amounts are included in property operating expenses in our condensed consolidated financial statements.

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

Three Months Ended March 31,

Revenue from contracts with customers:

2021 2020 2021 2020

Basic housing and support services $ 192,874 $ 188,029

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Total residents fees and services $ 245,448 $ 259,966

Business and Property Management Agreements with RMR LLC

Business and Property Management Agreements with RMR

We have no employees.

The personnel and various services we require to operate our business are provided to us by RMR LLC.

We have two agreements with RMR LLC to provide management services to us:

The personnel and various services we require to operate our business are provided to us by RMR.

We have two agreements with RMR to provide management services to us:

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

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

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

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

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

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

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

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

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

We recognized net business management fees of $ 4,813 and $ 5,317 for the three months ended March 31, 2022 and 2021, respectively.

Based on our common share total return, as defined in our business management agreement, as of each of March 31, 2022 and 2021, no estimated incentive fees are included in the net business management fees we recognized for the three months ended March 31, 2022 or 2021.

The actual amount of annual incentive fees for 2022, if any, will be based on our common share total return as defined in our business management agreement, for the three-year period ending December 31, 2022, and will be payable in January 2023.

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

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

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

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

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

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

RMR provides management services to our joint ventures.

See Note 11 for further information regarding our joint ventures' management arrangements with RMR and the related impact on our management fees payable to RMR.

We and RMR amended our business management agreement effective August 1, 2021 to provide that (i) for periods beginning on and after August 1, 2021, the MSCI U.S.

REIT/Health Care REIT Index will be used to calculate benchmark returns per share for purposes of determining any incentive management fee payable by us to RMR, and (ii) for periods prior to August 1, 2021, the SNL U.S.

REIT Healthcare Index will continue to be used.

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

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

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

REIT Healthcare Index.

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

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

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

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

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

We recognized aggregate net property management and construction supervision fees of $ 2,391 and $ 3,154 for the three months ended March 31, 2022 and 2021, respectively.

Of those amounts, for the three months ended March 31, 2022 and 2021, $ 1,349 and $ 2,485 , respectively, of property management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 1,042 and $ 669 , respectively, were capitalized as building

DIVERSIFIED HEALTHCARE TRUST

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

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

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

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

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

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

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

improvements in our condensed consolidated balance sheets.

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

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

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

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

We reimbursed RMR $ 2,964 and $ 3,297 for these expenses and costs for the three months ended March 31, 2022 and 2021, respectively.

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

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

Related Person Transactions

We have relationships and historical and continuing transactions with RMR LLC, The RMR Group Inc., or RMR Inc., Five Star and others related to them, including other companies to which RMR LLC or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers.

is the managing member of RMR LLC.

We have relationships and historical and continuing transactions with RMR, The RMR Group Inc., or RMR Inc., AlerisLife (including Five Star) and others related to them, including other companies to which RMR or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers.

is the managing member of RMR.

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

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

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

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

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

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

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

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

Other officers of RMR LLC, including Ms.

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

Francis, our other Managing Trustee and our President and Chief Executive Officer, and our Chief Financial Officer and Treasurer are also employees and officers of RMR.

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

Certain of AlerisLife's officers are officers and employees of RMR.

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

Adam Portnoy serves as the chair of the board and as a managing director or managing trustee of these companies.

Other officers of RMR, including Ms.

Clark and certain of our officers, serve as managing trustees, managing directors or officers of certain of these companies.

In addition, officers of RMR LLC and RMR Inc.

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

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

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

We are currently Five Star's largest stockholder.

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

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

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

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

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

Our Manager, RMR LLC.

We have two agreements with RMR LLC to provide management services to us.

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

In addition, officers of RMR and RMR Inc.

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

We are currently AlerisLife's largest stockholder.

As of March 31, 2022, we owned 10,691,658 of AlerisLife's common shares, or approximately 32.8 % of AlerisLife's outstanding common shares.

Five Star is an operating division of AlerisLife.

Five Star manages certain of the senior living communities we own pursuant to the Master Management Agreement.

RMR provides management services to both us and Five Star.

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

As of March 31, 2022, ABP Acquisition LLC, a subsidiary of ABP Trust, the controlling shareholder of RMR Inc., together with ABP Trust, owned approximately 6.2 % of AlerisLife's outstanding common shares.

Our Joint Ventures.

We have two separate joint venture arrangements with two third party institutional investors, our Boston life science property joint venture and our 10 medical office and life science properties joint venture, each in which we own a 20 % equity interest.

We initially entered into our Boston life science property joint venture prior to January 1, 2021, and we entered into our 10 medical office and life science properties joint venture in January 2022.

RMR provides management services to both of these joint ventures.

Our joint ventures are not our consolidated subsidiaries and, as a result, we are not obligated to pay management fees to RMR under our management agreements with RMR for the services it provides regarding the joint ventures.

Prior to December 23, 2021, our Boston life science property joint venture was our consolidated subsidiary and, as such, we were previously obligated to pay management fees to RMR under our management agreements with RMR for

DIVERSIFIED HEALTHCARE TRUST

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

the services it provided regarding that joint venture;

however, that joint venture paid management fees directly to RMR, and any such fees paid by that joint venture were credited against the fees payable by us to RMR.

In addition, we wholly owned the 10 medical office and life science properties until the contribution of these properties to the applicable joint venture in January 2022 and we paid management fees to RMR for the management services it provided to us for those properties up until that time.

As of March 31, 2022, we owed $ 185 to our 10 medical office and life science properties joint venture for rents that we collected on behalf of that joint venture.

In addition, in connection with the closing of our 10 medical office and life science properties joint venture, we paid mortgage escrow amounts and closing costs of $ 11,113 that were payable by that joint venture.

Those costs are presented as other assets, net, in our condensed consolidated balance sheet.

Our Manager, RMR.

We have two agreements with RMR to provide management services to us.

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

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

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

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

Our current income tax expense (or benefit) fluctuates from period to period based primarily on the timing of our income, including gains on the disposition of properties or losses in a particular quarter.

During the three months ended March 31, 2022 and 2021, we recognized income tax expense of $ 1,472 and $ 238 , respectively.

Weighted Average Common Share s (share amounts in thousands)

We calculate basic earnings per common share by dividing net income (loss) by the weighted average number of our common shares outstanding during the period.

We calculate diluted earnings per share using the more dilutive of the two class method or the treasury stock method.

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

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

The following table provides a reconciliation of the weighted average number of common shares used in the calculation of basic and diluted earnings per share (in thousands):

Three Months Ended March 31,

Weighted average common shares for basic earnings per share 238,149 237,834

Effect of dilutive securities:

unvested share awards 49 —

Weighted average common shares for diluted earnings per share (1)

238,198 237,834

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

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

What changed 10-Q

Item 1. Financial Statements