Item 2. Management’s Discussion and Analysis
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and with our Annual Report.
OVERVIEW
We are a REIT that is organized under Maryland law and which owns medical office and life science properties, senior living communities and other healthcare related properties throughout the United States. As of March 31, 2022, we wholly owned 378 properties, including seven closed senior living communities, located in 36 states and Washington, D.C. At March 31, 2022, the gross book value of our real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, was $6.8 billion.
As of March 31, 2022, 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 was 98% leased with an average (by annualized rental income) remaining lease term of 6.6 years.
Our business is focused on healthcare related properties, including medical office and life science properties, senior living communities, wellness centers and other medical and healthcare related properties. We believe that the healthcare sector and many of our tenants, managers and operators provide essential services across the United States. Due to restrictions intended to prevent the spread of the virus that causes COVID-19, certain of our medical office and wellness center tenants, which include physician practices that had discontinued non-essential surgeries and procedures and fitness centers that had been ordered closed by state executive orders, experienced disruptions to their businesses. Our senior living community operators also experienced disruptions, including limitations on in-person tours and new admissions, and experienced challenges in attracting new residents to their communities in addition to experiencing increased expenses due to increased labor costs, including higher health benefits costs, and increased costs and consumption of supplies, including personal protective equipment.
We are closely monitoring the impacts of the COVID-19 pandemic and the current inflationary market conditions on all aspects of our business, including, but not limited to, labor availability, wage inflation and cost pressures from supply chain disruptions and commodity price inflation in our SHOP segment. We expect to continue to have elevated labor costs on a per resident basis.
We believe that we are well positioned to weather the present disruptions facing the real estate industry and, in particular, the real estate healthcare industry, including senior living.
In the first quarter of 2021, following the holiday season, the reopening of economies and the easing of restrictions, the United States experienced peak numbers of COVID-19 infections. In some cases, certain states and municipalities again required the closure of certain business activities and imposed certain other restrictions. It is unclear whether the number of COVID-19 infections will further increase or amplify in the United States or elsewhere and, if so, what the impact of that would be on human health and safety, the economy, or our managers', operators' and tenants' businesses. As a result of these uncertainties, we are unable to determine what the ultimate impacts will be on our, our tenants', our managers', our operators' and other stakeholders' businesses, operations, financial results and financial position. For further information and risks relating to the COVID-19 pandemic and its aftermath on us and our business, see Part I, Item 1, "Business" and Part I, Item 1A, "Risk Factors" in our Annual Report.
PORTFOLIO OVERVIEW
The following tables present an overview of our portfolio (dollars in thousands, except investment per square foot or unit data):
As of March 31, 2022 Number
of Properties Square Feet or Number of Units Gross Book Value of Real Estate Assets (1)
% of Total Gross Book Value of Real Estate Assets Investment per Square Foot or Unit (2)
Q1 2022 Revenues % of
Q1 2022 Revenues Q1 2022 NOI (3)
% of Q1 2022 NOI
Office Portfolio (4)
104 8,724,331 sq. ft. $ 2,170,756 32.0 % $ 249 $ 54,997 17.7 % $ 31,550 75.1 %
SHOP 234 25,088 units 4,190,563 61.7 % $ 167,035 245,448 79.0 % 153 0.4 %
Triple net leased senior living communities 30 2,424 units 252,906 3.7 % $ 104,334 6,470 2.1 % 6,470 15.4 %
Wellness centers 10 812,000 sq. ft. 178,110 2.6 % $ 219 3,818 1.2 % 3,818 9.1 %
Total 378 $ 6,792,335 100.0 % $ 310,733 100.0 % $ 41,991 100.0 %
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Table of Contents
Occupancy
As of and For the Three Months Ended March 31,
2022 2021
Office Portfolio (5)
89.3 % 92.3 %
SHOP 73.0 % 69.5 %
Triple net leased senior living communities (6)(7)
80.1 % 76.4 %
Wellness centers (7)
100.0 % 100.0 %
(1) Represents gross book value of real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, if any.
(2) Represents gross book value of real estate assets divided by number of rentable square feet or living units, as applicable, at March 31, 2022.
(3) We calculate our NOI on a consolidated basis and by reportable segment. Our definition of NOI and our reconciliation of net income (loss) to NOI are included below under the heading “Non-GAAP Financial Measures”.
(4) Our medical office and life science property leases include some triple net leases where, in addition to paying fixed rents, the tenants assume the obligation to operate and maintain the properties at their expense, and some net and modified gross leases where we are responsible for the operation and maintenance of the properties and we charge tenants for some or all of the property operating costs. A small percentage of our medical office and life science property leases are full-service leases where we receive fixed rent from our tenants and no reimbursement for our property operating costs.
(5) Medical office and life science property occupancy data is as of March 31, 2022 and 2021 and includes (i) out of service assets undergoing redevelopment, (ii) space which is leased but is not occupied or is being offered for sublease by tenants and (iii) space being fitted out for occupancy.
(6) Excludes data for periods prior to our ownership of certain properties, data for properties sold or classified as held for sale, if any, and data for which there was a transfer of operations during the periods presented.
(7) Operating data for triple net leased senior living communities leased to third party operators and wellness centers are presented based upon the operating results provided by our tenants for the three months ended December 31, 2021 and 2020, or the most recent prior period for which tenant operating results are made available to us. We have not independently verified tenant operating data.
During the three months ended March 31, 2022, we entered into new and renewal leases at our medical office and life science properties in our Office Portfolio segment as summarized in the following table (dollars and square feet in thousands, except per square foot amounts):
Three Months Ended March 31, 2022
New Leases Renewals Total
Square feet leased during the quarter 120 81 201
Weighted average rental rate change (by rentable square feet) 15.1 % 0.5 % 8.2 %
Weighted average lease term (years) (1)
9.9 4.1 7.4
Total leasing costs and concession commitments (2)
$ 11,330 $ 1,208 $ 12,538
Total leasing costs and concession commitments per square foot (2)
$ 94.34 $ 14.91 $ 62.35
Total leasing costs and concession commitments per square foot per year (2)
$ 9.52 $ 3.62 $ 8.45
(1) Weighted based on annualized rental income pursuant to existing leases as of March 31, 2022, including straight line rent adjustments and estimated recurring expense reimbursements, and excluding lease value amortization.
(2) Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent.
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Table of Contents
Lease Expiration Schedules
As of March 31, 2022, lease expirations at our medical office and life science properties in our Office Portfolio segment are as follows (dollars in thousands):
Year Number of Tenants Square Feet Leased Percent of Total Cumulative Percent of Total Annualized Rental Income (1)
Percent of Total Cumulative Percent of Total
2022 71 758,676 9.7 % 9.7 % $ 19,222 8.7 % 8.7 %
2023 46 658,560 8.5 % 18.2 % 17,185 7.8 % 16.5 %
2024 73 978,491 12.6 % 30.8 % 26,620 12.1 % 28.6 %
2025 67 692,919 8.9 % 39.7 % 16,337 7.4 % 36.0 %
2026 63 792,127 10.2 % 49.9 % 23,588 10.7 % 46.7 %
2027 51 682,386 8.8 % 58.7 % 17,089 7.8 % 54.5 %
2028 31 861,190 11.1 % 69.8 % 21,717 9.9 % 64.4 %
2029 32 321,870 4.1 % 73.9 % 10,206 4.6 % 69.0 %
2030 18 388,369 5.0 % 78.9 % 7,710 3.5 % 72.5 %
2031 and thereafter 47 1,653,451 21.1 % 100.0 % 60,586 27.5 % 100.0 %
Total 499 7,788,039 100.0 % $ 220,260 100.0 %
Weighted average remaining lease term (in years) 5.3 5.8
(1) Annualized rental income is based on rents pursuant to existing leases as of March 31, 2022, including straight line rent adjustments and estimated recurring expense reimbursements for certain net and modified gross leases and excluding lease value amortization at certain of our medical office and life science properties.
Lease expiration data for our triple net leased senior living communities leased to third party operators and wellness centers has not been provided because there were no changes to the lease expiration schedules from those reported in our Annual Report, except for the transfer of operations of one senior living community previously managed by Five Star under our TRS structure to a third party operator in January 2022 for a 10 year lease term expiring in 2031.
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RESULTS OF OPERATIONS (dollars and square feet in thousands, unless otherwise noted)
We operate in, and report financial information for, the following two segments: Office Portfolio and SHOP. We aggregate each of these two reporting segments based on their similar operating and economic characteristics. Our Office Portfolio segment consists of medical office properties leased to medical providers and other medical related businesses, as well as life science properties leased to biotech laboratories and other similar tenants. Our SHOP segment consists of managed senior living communities that provide short term and long term residential living and, in some instances, care and other services for residents where we pay fees to managers to operate the communities.
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.
The following table summarizes the results of operations of each of our segments for the three months ended March 31, 2022 and 2021:
Three Months Ended March 31,
2022 2021
Revenues:
Office Portfolio $ 54,997 $ 93,323
SHOP 245,448 259,966
Non-Segment 10,288 9,435
Total revenues $ 310,733 $ 362,724
Net income (loss) attributable to common shareholders:
Office Portfolio $ 343,691 $ 22,709
SHOP (35,873) (25,414)
Non-Segment (67,395) (64,800)
Net income (loss) attributable to common shareholders $ 240,423 $ (67,505)
The following sections analyze and discuss the results of operations of each of our segments for the periods presented.
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Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021 (dollars and square feet in thousands, except average monthly rate):
Unless otherwise indicated, references in this section to changes or comparisons of results, income or expenses refer to comparisons of the results for the three months ended March 31, 2022 to the three months ended March 31, 2021. Our definition of NOI and our reconciliation of net income (loss) to NOI and a description of why we believe NOI is an appropriate supplemental measure are included below under the heading “Non-GAAP Financial Measures.”
Three Months Ended March 31,
2022 2021 $ Change % Change
NOI by segment:
Office Portfolio $ 31,550 $ 62,030 $ (30,480) (49.1) %
SHOP 153 3,868 (3,715) (96.0) %
Non-Segment 10,288 9,435 853 9.0 %
Total NOI 41,991 75,333 (33,342) (44.3) %
Depreciation and amortization 57,259 66,153 (8,894) (13.4) %
General and administrative 7,285 7,542 (257) (3.4) %
Acquisition and certain other transaction related costs 928 — 928 nm
Impairment of assets — (174) 174 (100.0) %
Gain (loss) on sale of properties 327,794 (122) 327,916 nm
Losses on equity securities, net (8,553) (8,339) (214) 2.6 %
Interest and other income 395 2,835 (2,440) (86.1) %
Interest expense
(57,131) (60,091) 2,960 (4.9) %
Loss on modification or early extinguishment of debt (483) (2,040) 1,557 (76.3) %
Income (loss) from continuing operations before income tax expense and equity in earnings of investees 238,541 (65,945) 304,486 nm
Income tax expense (1,472) (238) (1,234) nm
Equity in earnings of investees 3,354 — 3,354 nm
Net income (loss) 240,423 (66,183) 306,606 nm
Net income attributable to noncontrolling interest — (1,322) 1,322 (100.0) %
Net income (loss) attributable to common shareholders $ 240,423 $ (67,505) $ 307,928 nm
nm - not meaningful
Office Portfolio :
Comparable Properties (1)
All Properties
As of March 31, As of March 31,
2022 2021 2022 2021
Total buildings 95 95 104 122
Total square feet (2)
8,020 8,020 8,724 11,190
Occupancy (3)
92.5 % 92.8 % 89.3 % 92.3 %
(1) Consists of medical office and life science properties that we have owned and which have been in service continuously since January 1, 2021; excludes properties classified as held for sale or out of service undergoing redevelopment, if any, and medical office and life science properties owned by unconsolidated joint ventures in each of which we own an equity interest.
(2) Prior periods exclude space remeasurements made subsequent to those periods.
(3) All property occupancy for medical office and life science properties includes (i) out of service assets undergoing redevelopment, (ii) space which is leased but is not occupied or is being offered for sublease by tenants, and (iii) space being fitted out for occupancy. Comparable property occupancy excludes out of service assets undergoing redevelopment and medical office and life science properties owned by unconsolidated joint ventures in each of which we own an equity interest.
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Three Months Ended March 31,
Comparable (1)
Non-Comparable
Properties Results Properties Results Consolidated Properties Results
$ % $ %
2022 2021 Change Change 2022 2021 2022 2021 Change Change
Rental income $ 48,428 $ 48,123 $ 305 0.6 % $ 6,569 $ 45,200 $ 54,997 $ 93,323 $ (38,326) (41.1) %
Property operating expenses (19,868) (19,174) 694 3.6 % (3,579) (12,119) (23,447) (31,293) (7,846) (25.1) %
NOI $ 28,560 $ 28,949 $ (389) (1.3) % $ 2,990 $ 33,081 $ 31,550 $ 62,030 $ (30,480) (49.1) %
(1) Consists of medical office and life science properties that we have owned and which have been in service continuously since January 1, 2021; excludes properties classified as held for sale or out of service undergoing redevelopment, if any, and medical office and life science properties owned by unconsolidated joint ventures in each of which we own an equity interest.
Rental income. Rental income decreased primarily due to the deconsolidation of 11 medical office and life science properties currently owned by unconsolidated joint ventures in each of which we own a 20% equity interest and our disposition of five properties since January 1, 2021 and assets being taken out of service and/or undergoing redevelopment, partially offset by an increase in rental income at our comparable properties. Rental income increased at our comparable properties primarily due to higher average rents achieved from our new and renewal leasing activity and increased parking revenue at certain of our comparable properties as certain states and municipalities have eased restrictions related to the COVID-19 pandemic, tenants' employees have increasingly returned to the office and commercial activity has increased, partially offset by decreases in tax escalation income and other property operating expense reimbursements at certain of our comparable properties.
Property operating expenses. Property operating expenses consist of real estate taxes, utility expenses, insurance, management fees, salaries and benefit costs of property level personnel, repairs and maintenance expense, cleaning expense and other direct costs of operating these properties. The decrease in property operating expenses is primarily due to the deconsolidation of 11 medical office and life science properties currently owned by unconsolidated joint ventures in each of which we own a 20% equity interest and our disposition of five properties since January 1, 2021 and assets being taken out of service and/or undergoing redevelopment, partially offset by an increase in property operating expenses at our comparable properties. Property operating expenses at our comparable properties increased primarily due to increases in utility expenses, landscaping expenses and other direct costs, partially offset by decreases in real estate taxes at certain of our comparable properties.
Net operating income. The change in NOI reflects the net changes in rental income and property operating expenses described above.
SHOP :
Comparable Properties (1)
All Properties
As of and For the Three Months As of and For the Three Months
Ended March 31, Ended March 31,
2022 2021 2022 2021
Total properties 120 120 234 235
Number of units 17,899 17,899 25,088 26,963
Occupancy 74.1 % 72.7 % 73.0 % 69.5 %
Average monthly rate (2)
$ 4,084 $ 4,051 $ 4,472 $ 4,623
(1) Consists of senior living communities that we have owned and which have been operated by the same operator continuously since January 1, 2021; excludes communities classified as held for sale or closed, if any.
(2) Average monthly rate is calculated by taking the average daily rate, which is defined as total residents fees and services divided by occupied units during the period, and multiplying it by 30 days.
Three Months Ended March 31,
Comparable (1)
Non-Comparable
Properties Results Properties Results Consolidated Properties Results
$ % $ %
2022 2021 Change Change 2022 2021 2022 2021 Change Change
Residents fees and services $ 162,540 $ 185,317 $ (22,777) (12.3) % $ 82,908 $ 74,649 $ 245,448 $ 259,966 $ (14,518) (5.6) %
Property operating expenses (153,055) (174,960) (21,905) (12.5) % (92,240) (81,138) (245,295) (256,098) (10,803) (4.2) %
NOI $ 9,485 $ 10,357 $ (872) (8.4) % $ (9,332) $ (6,489) $ 153 $ 3,868 $ (3,715) (96.0) %
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(1) Consists of senior living communities that we have owned and which have been operated by the same operator continuously since January 1, 2021; excludes communities classified as held for sale or closed, if any.
Residents fees and services. Residents fees and services are the revenues earned at our managed senior living communities. We recognize these revenues as services are provided and related fees are accrued. Residents fees and services decreased primarily due to the closure of skilled nursing units at certain of our comparable properties during the three months ended June 30, 2021. Additionally, residents fees and services decreased due to our closure of one property since January 1, 2021. Decreases to residents fees and services were partially offset by increases in occupancy and average monthly rate at certain of our comparable properties.
Property operating expenses. Property operating expenses consist of real estate taxes, utility expenses, insurance, salaries and benefit costs of property level personnel, repairs and maintenance expense, management fees, cleaning expense and other direct costs of operating these communities. Property operating expenses decreased primarily due to the closure of skilled nursing units at certain of our comparable properties during the three months ended June 30, 2021. Additionally, property operating expenses decreased due to our closure of one property since January 1, 2021. Decreases to property operating expenses were partially offset by increased labor costs on a per resident basis for both permanent and agency labor. We expect to continue to have elevated labor costs on a per resident basis.
Net operating income. The change in NOI reflects the net changes in residents fees and services and property operating expenses described above.
Non-Segment (1) :
Comparable Properties (2)
All Properties
As of and For the Three Months Ended March 31, As of and For the Three Months Ended March 31,
2022 2021 2022 2021
Total properties:
Triple net leased senior living communities 29 29 30 29
Wellness centers 10 10 10 10
Rent coverage:
Triple net leased senior living communities (3)
1.21 x 1.48 x 1.21 x 1.48 x
Wellness centers (3)
1.12 x 0.91 x 1.12 x 0.91 x
(1) Non-segment operations consists of all of our other operations, including certain senior living communities leased to third party operators and wellness centers, which segment we do not consider to be sufficiently material to constitute a separate reporting segment, and any other income or expenses that are not attributable to a specific reporting segment.
(2) Comparable properties consists of properties that we have owned and which have been leased to the same operator continuously since January 1, 2021; excludes properties classified as held for sale, if any.
(3) All tenant operating data presented is based upon the operating results provided by our tenants for the 12 months ended December 31, 2021 and 2020 or the most recent prior period for which tenant operating results are available to us. Rent coverage is calculated using the operating cash flows from our triple net lease tenants' operations of our properties, before subordinated charges, if any, divided by triple net lease minimum rents payable to us. We have not independently verified tenant operating data. Excludes data for historical periods prior to our ownership of certain properties, as well as data for properties sold or classified as held for sale, if any, or for which there was a transfer of operations during the periods presented.
Three Months Ended March 31,
Comparable (1)
Non-Comparable
Properties Results Properties Results Consolidated Properties Results
$ % $ %
2022 2021 Change Change 2022 2021 2022 2021 Change Change
Rental income $ 10,092 $ 9,435 $ 657 7.0 % $ 196 $ — $ 10,288 $ 9,435 $ 853 9.0 %
NOI $ 10,092 $ 9,435 $ 657 7.0 % $ 196 $ — $ 10,288 $ 9,435 $ 853 9.0 %
(1) Consists of properties that we have owned and which have been leased to the same operator continuously since January 1, 2021; excludes properties classified as held for sale, if any.
Rental income. Rental income increased primarily due to an increase in rental income at our comparable properties, the transfer of one senior living community we own from managed senior living communities to triple net leased senior living communities, and increased rents resulting from our purchase of improvements at our comparable properties since January 1, 2021. Rental income increased at our comparable properties primarily due to higher cash rents received from a tenant that previously defaulted under leases for six of our wellness centers during the three months ended March 31, 2022. We have elected to recognize rental income from this previously defaulted tenant as rent payments are received. In February 2022, the leases for these six wellness centers were amended and a portion of the rent due to us was deferred.
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Net operating income. The change in NOI reflects the net changes in rental income described above.
Consolidated :
References to changes in the income and expense categories below relate to the comparison of consolidated results for the three months ended March 31, 2022, compared to the three months ended March 31, 2021.
Depreciation and amortization expense. Depreciation and amortization expense decreased primarily due to the deconsolidation of 11 medical office and life science properties owned by unconsolidated joint ventures in each of which we own a 20% equity interest, our disposition of five properties and certain depreciable assets becoming fully depreciated since January 1, 2021. Decreases to depreciation and amortization expense were partially offset by the purchase of capital improvements at certain of our properties since January 1, 2021.
General and administrative expense . General and administrative expense consists of fees paid to RMR under our business management agreement, legal and accounting fees, fees and expenses of our Trustees, equity compensation expense and other costs relating to our status as a publicly traded company. General and administrative expense decreased primarily due to a decrease in our base business management fees expense as a result of lower consolidated indebtedness and lower trading prices for our common shares during the three months ended March 31, 2022 compared to the three months ended March 31, 2021.
Acquisition and certain other transaction related costs. For the three months ended March 31, 2022, acquisition and certain other transaction related costs primarily represent costs related to the transition of certain senior living communities to new third party managers.
Impairment of assets. For information about our asset impairment charges, see Note 3 to our consolidated financial statements included in Part IV, Item 15 of our Annual Report.
Gain (loss) on sale of properties. Gain (loss) on sale of properties is the net result of our sale of certain of our properties during the three months ended March 31, 2022 and 2021. The gain on sale of properties during the three months ended March 31, 2022 reflects our sale of 10 medical office and life science properties to our 10 medical office and life science properties joint venture in which we retained a 20% equity interest. For further information regarding gain (loss) on sale of properties, see Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and Note 3 to our consolidated financial statements included in Part IV, Item 15 of our Annual Report.
Losses on equity securities, net. Losses on equity securities, net, represent the net unrealized losses to adjust our investment in AlerisLife to its fair value. For further information regarding our investment in AlerisLife, see Note 5 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Interest and other income. The decrease in interest and other income is primarily due to $199 of funds we received from the U.S. government pursuant to the CARES Act during the three months ended March 31, 2022 compared to $2,433 received during the three months ended March 31, 2021.
Interest expense. Interest expense decreased primarily due to the deconsolidation of the debt secured by one life science property owned by our Boston life science property joint venture in which we own a 20% equity interest. Additionally, interest expense decreased due to our redemption in June 2021 of all $300,000 of our 6.75% senior notes due 2021 and our prepayment in February 2021 of our $200,000 term loan. These decreases were partially offset by an increase in average borrowings under our revolving credit facility and our issuance in February 2021 of $500,000 aggregate principal amount of our 4.375% senior notes due 2031 and an increase in the interest rate premium under our revolving credit facility.
Loss on modification or early extinguishment of debt. We recorded a loss on modification or early extinguishment of debt in connection with the amendment to our credit agreement during the three months ended March 31, 2022. We also recorded a loss in connection with the amendments to our credit agreement and the agreement governing our previously existing $200,000 term loan and our prepayment of our $200,000 term loan during the three months ended March 31, 2021.
Income tax expense . Income tax expense is the result of operating income we earned in certain jurisdictions where we are subject to state income taxes.
Equity in earnings of investees. Equity in earnings of investees is the change in the fair value of our investments in our joint ventures.
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Non-GAAP Financial Measures (dollars in thousands, except per share amounts)
We present certain "non-GAAP financial measures" within the meaning of applicable rules of the Securities and Exchange Commission, or SEC, including funds from operations attributable to common shareholders, or FFO attributable to common shareholders, normalized funds from operations attributable to common shareholders, or Normalized FFO attributable to common shareholders, and NOI for the three months ended March 31, 2022 and 2021. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) or net income (loss) attributable to common shareholders as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with net income (loss) and net income (loss) attributable to common shareholders as presented in our condensed consolidated statements of comprehensive income (loss). We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss) and net income (loss) attributable to common shareholders. We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization, they may facilitate a comparison of our operating performance between periods and with other REITs and, in the case of NOI, reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of our properties.
Funds From Operations and Normalized Funds From Operations Attributable to Common Shareholders
We calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders as shown below. FFO attributable to common shareholders is calculated on the basis defined by the National Association of Real Estate Investment Trusts, which is net income (loss) attributable to common shareholders, calculated in accordance with GAAP, excluding any gain or loss on sale of properties, equity in earnings or losses of unconsolidated joint ventures, loss on impairment of real estate assets, gains or losses on equity securities, net, if any, including adjustments to reflect our proportionate share of FFO of our equity method investment in AlerisLife and our proportionate share of FFO from our unconsolidated joint ventures, plus real estate depreciation and amortization of consolidated properties and minus FFO adjustments attributable to noncontrolling interest, as well as certain other adjustments currently not applicable to us. In calculating Normalized FFO attributable to common shareholders, we adjust for the items shown below including similar adjustments for our unconsolidated joint ventures, if any. FFO attributable to common shareholders and Normalized FFO attributable to common shareholders are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders. Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in the agreements governing our debt, the availability to us of debt and equity capital, our expectation of our future capital requirements and operating performance, and our expected needs for and availability of cash to pay our obligations. O ther real estate companies and REITs may calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders differently than we do.
Our calculations of FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the three months ended March 31, 2022 and 2021 and reconciliations of net income (loss) attributable to common shareholders, the most directly comparable financial measure under GAAP reported in our condensed consolidated financial statements, to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders appear in the following table. This table also provides a comparison of distributions to shareholders, FFO attributable to common shareholders and Normalized FFO attributable to common shareholders and net income (loss) attributable to common shareholders per share for these periods.
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Three Months Ended March 31,
2022 2021
Net income (loss) attributable to common shareholders $ 240,423 $ (67,505)
Depreciation and amortization 57,259 66,153
(Gain) loss on sale of properties (327,794) 122
Impairment of assets — (174)
Losses on equity securities, net 8,553 8,339
FFO adjustments attributable to noncontrolling interest — (5,273)
Equity in earnings of unconsolidated joint ventures (3,354) —
Share of FFO from unconsolidated joint ventures 3,675 —
Adjustments to reflect our share of FFO attributable to an equity method investment (1,932) 2,036
FFO attributable to common shareholders (23,170) 3,698
Acquisition and certain other transaction related costs 928 —
Loss on modification or early extinguishment of debt 483 2,040
Adjustments to reflect our share of Normalized FFO attributable to an equity method investment (142) 85
Normalized FFO attributable to common shareholders $ (21,901) $ 5,823
Weighted average common shares outstanding (basic) 238,149 237,834
Weighted average common shares outstanding (diluted) 238,198 237,834
Per common share data (basic and diluted):
Net income (loss) attributable to common shareholders $ 1.01 $ (0.28)
FFO attributable to common shareholders $ (0.10) $ 0.02
Normalized FFO attributable to common shareholders $ (0.09) $ 0.02
Distributions declared $ 0.01 $ 0.01
Property Net Operating Income (NOI)
We calculate NOI as shown below. The calculation of NOI excludes certain components of net income (loss) in order to provide results that are more closely related to our property level results of operations. We define NOI as income from our real estate less our property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions that we record as depreciation and amortization. We use NOI to evaluate individual and company-wide property level performance. Other real estate companies and REITs may calculate NOI differently than we do.
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The calculation of NOI by reportable segment is included above in this Item 2. The following table includes the reconciliation of net income (loss) to NOI for the three months ended March 31, 2022 and 2021.
Three Months Ended March 31,
2022 2021
Reconciliation of Net Income (Loss) to NOI:
Net income (loss) $ 240,423 $ (66,183)
Equity in earnings of investees (3,354) —
Income tax expense 1,472 238
Income (loss) from continuing operations before income tax expense and equity in earnings of investees 238,541 (65,945)
Loss on modification or early extinguishment of debt 483 2,040
Interest expense 57,131 60,091
Interest and other income (395) (2,835)
Losses on equity securities, net 8,553 8,339
(Gain) loss on sale of properties (327,794) 122
Impairment of assets — (174)
Acquisition and certain other transaction related costs 928 —
General and administrative 7,285 7,542
Depreciation and amortization 57,259 66,153
Total NOI $ 41,991 $ 75,333
Office Portfolio NOI $ 31,550 $ 62,030
SHOP NOI 153 3,868
Non-Segment NOI 10,288 9,435
Total NOI $ 41,991 $ 75,333
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of cash to meet operating and capital expenses, pay debt service obligations and make distributions to our shareholders are the operating cash flows we generate as rental income from our leased properties, residents fees and services revenues from our managed communities, borrowings under our revolving credit facility and proceeds from the disposition of certain properties. We believe that these sources will be sufficient to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders for the next 12 months and for the foreseeable future thereafter. Our future cash flows from operating activities will depend primarily upon:
• our ability to receive rents from our tenants, including in light of the COVID-19 pandemic and its impact on our tenants' businesses;
• our ability to maintain or increase the occupancy of, and the rental rates at, our properties, particularly at our senior living communities;
• our and our managers' abilities to control operating expenses and capital expenses at our properties, including increased operating expenses that we may incur in response to inflation, supply chain challenges or in response to the COVID-19 pandemic; and
• our managers' abilities to maintain or increase our returns from our managed senior living communities.
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In March 2021, we borrowed $800.0 million under our revolving credit facility as a precautionary measure to increase our cash position and preserve financial flexibility in light of continued uncertainties related to the COVID-19 pandemic. In February 2022, we repaid $100.0 million of this borrowing to reduce the borrowing capacity under our revolving credit facility to $700.0 million pursuant to the February 2022 amendment to our credit agreement. In addition, in February 2022, we exercised our option to extend the maturity date of our revolving credit facility by one year to January 2024. Pursuant to our credit agreement, the borrowing capacity under our revolving credit facility will be reduced to $586.4 million as of January 2023 and as such, further repayment of our revolving credit facility may be required. Although we have taken steps to enhance our ability to maintain sufficient liquidity, a protracted negative impact on the economy or the industries in which our properties and businesses operate resulting from the COVID-19 pandemic, inflation or other economic, market or industry conditions may cause further increased pressure on our ability to satisfy financial and other covenants. We may fail to satisfy covenants and conditions under our credit agreement or fail to satisfy our public debt covenants. As of March 31, 2022, our ratio of consolidated income available for debt service to debt service was below the 1.5x incurrence requirement under our revolving credit facility and our public debt covenants as the effects of the COVID-19 pandemic continued to adversely impact our operations. We are unable to incur additional debt until this ratio is at or above 1.5x on a pro forma basis. For additional responses and measures taken relating to the COVID-19 pandemic, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” in our Annual Report.
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 for aggregate proceeds, before closing costs and other adjustments, of $653.3 million. The investors acquired 41% and 39% equity interests in the joint venture and we retained a 20% equity interest in the joint venture. The investment amounts are based upon a property valuation of approximately $702.5 million, less approximately $456.6 million of secured debt on the properties incurred by this joint venture. The net proceeds of $643.9 million, which include working capital prorations and formation costs, are included in restricted cash in our condensed consolidated balance sheet as of March 31, 2022 pursuant to the terms of our credit agreement. Effective as of the date of the sale, we deconsolidated these properties and we account for this joint venture using the equity method of accounting under the fair value option.
The measures we have taken to enhance our ability to maintain sufficient liquidity may not sufficiently offset the decrease in cash flows from operations and capital investments we make, in which case our liquidity would be negatively impacted.
The following is a summary of our sources and uses of cash flows for the periods presented, as reflected in our condensed consolidated statements of cash flows (dollars in thousands):
Three Months Ended March 31,
2022 2021
Cash and cash equivalents and restricted cash at beginning of period $ 1,016,945 $ 90,849
Net cash provided by (used in):
Operating activities (7,264) 34,822
Investing activities 588,353 (35,303)
Financing activities (106,038) 1,079,637
Cash and cash equivalents and restricted cash at end of period $ 1,491,996 $ 1,170,005
Our Operating Liquidity and Resources
We generally receive minimum rents from our tenants monthly or quarterly, we receive residents fees and services revenues, net of expenses, from our managed senior living communities monthly and we receive percentage rents from certain of our senior living community tenants monthly, quarterly or annually.
The change in cash (used in) provided by operating activities for the three months ended March 31, 2022 compared to the prior period was primarily due to the continued impact of the COVID-19 pandemic and wage inflation in the senior living communities in our SHOP segment, along with reduced NOI as a result of the deconsolidation of joint venture properties during 2021 and 2022 and dispositions of properties during 2021. Additionally, we had increased working capital needs in 2022 as compared to 2021, specifically related to our senior living communities. We also paid more interest on our debt in 2022 as compared to 2021. As noted elsewhere in this Quarterly Report on Form 10-Q, the transition of the management of the 107 senior living communities from Five Star to other third party managers was completed as of December 31, 2021 and we have closed the remaining senior living community that we and Five Star agreed to transition and are assessing opportunities to redevelop that property.
Specifically as it relates to our SHOP segment, we face and may continue to face issues with labor availability and wage inflation along with cost pressures from supply chain disruptions and commodity price inflation.
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Our Investing Liquidity and Resources
The change in cash provided by (used in) investing activities for the three months ended March 31, 2022 compared to the prior period was primarily due to proceeds from our sale of 10 medical office and life science properties to our 10 medical office and life science properties joint venture in which we retained a 20% equity interest, partially offset by less proceeds from the sale of real estate properties and an increase in real estate improvements in the 2022 period compared to the 2021 period.
The following is a summary of capital expenditures, development, redevelopment and other activities for the periods presented (dollars in thousands):
Three Months Ended March 31,
2022 2021
Office Portfolio segment capital expenditures:
Lease related costs (1)
$ 6,759 $ 8,358
Building improvements (2)
585 2,176
SHOP segment fixed assets and capital improvements 20,328 22,530
Recurring capital expenditures $ 27,672 $ 33,064
Development, redevelopment and other activities - Office Portfolio segment (3)
$ 16,617 $ 12,718
Development, redevelopment and other activities - SHOP segment (3)
16,114 6,092
Total development, redevelopment and other activities $ 32,731 $ 18,810
(1) Office Portfolio segment lease related costs generally include capital expenditures to improve tenants' space or amounts paid directly to tenants to improve their space and other leasing related costs, such as brokerage commissions and tenant inducements.
(2) Office Portfolio segment building improvements generally include expenditures to replace obsolete building components that extend the useful life of existing assets or other improvements to increase the marketability of the property.
(3) Development, redevelopment and other activities generally include capital expenditures that reposition a property or result in new sources of revenue.
We plan to continue investing capital in our properties, including redevelopment projects, to better position these properties in their respective markets in order to increase our returns in future years. In 2022, we expect to incur capital expenditures in excess of 2021 levels, up to the $400.0 million limit allowed pursuant to our credit agreement.
As of March 31, 2022, we had estimated unspent leasing related obligations at our triple net leased senior living communities and our medical office and life science properties of approximately $62.5 million, of which we expect to spend approximately $44.7 million during the next 12 months. We expect to fund these obligations using operating cash flows we generate as rental income from our leased properties, residents fees and services revenues from our managed communities, cash on hand, proceeds from the contributions of certain of our properties to investors in our joint ventures and proceeds from the disposition of certain properties.
We are currently in the process of redeveloping five properties in our Office Portfolio. Our redevelopments in Lexington, MA, Decatur, GA and Tempe, AZ are currently expected to be completed in the second half of 2022. Our redevelopments at our properties in Irving, TX and Washington, D.C. are expected to be completed in 2023 and 2025, respectively. We have entered into a new ten year lease for the entire building at the Lexington, MA property at a rental rate that is 46% higher than the prior rental rate for the same space. Additionally, in January 2022, we entered into a new 11 year lease for the entire building at the Tempe, AZ property at a rental rate that is 20% higher than the prior rental rate for the same space. We are also currently reviewing strategic alternatives at a property in our Office Portfolio located in Silver Springs, MD, including opportunities to redevelop this property. We continue to assess opportunities to redevelop other properties in our portfolio. These redevelopment projects may require significant capital expenditures and time to complete.
As noted above, our ability to make capital investments is currently limited pursuant to our credit agreement. Additionally, due to supply chain disruptions and inflation, the capital investments we plan to make may be delayed or cost more than we expect. For further information regarding our acquisitions and dispositions, see Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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Our Financing Liquidity and Resources
The change in cash (used in) provided by financing activities for the three months ended March 31, 2022 compared to the prior period was primarily due to repayments of borrowings under our revolving credit facility in the 2022 period compared to our full drawdown of our revolving credit facility and net proceeds from our issuance in February 2021 of $500.0 million aggregate principal amount of our 4.375% senior notes in the 2021 period, partially offset by our repayment in February 2021 of our $200.0 million term loan. Additionally, we did not pay distributions during the 2022 period related to our noncontrolling interest in our Boston life science property joint venture that we deconsolidated in 2021.
As of March 31, 2022, we had $732.1 million of cash and cash equivalents and were fully drawn under our revolving credit facility. We typically use cash balances, borrowings under our revolving credit facility, net proceeds from offerings of debt or equity securities, net proceeds from the disposition of assets and the cash flows from our operations to fund our operations, debt repayments, distributions, property acquisitions, investments, capital expenditures and other general business purposes.
In order to fund investments and to meet cash needs that may result from timing differences between our receipt of rents and our desire or need to make distributions or pay operating or capital expenses, we maintain a revolving credit facility. The maturity date of our revolving credit facility is January 15, 2024. Our revolving credit facility generally provides that we can borrow, repay and re-borrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity. At 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 interest rate premium and facility fee are each subject to adjustment based upon changes to our credit ratings. On March 31, 2021, we borrowed $800.0 million under our revolving credit facility as a precautionary measure to increase our cash position and preserve financial flexibility in light of continued uncertainties related to the COVID-19 pandemic. In February 2022, we repaid $100.0 million of this borrowing to reduce the borrowing capacity under our revolving credit facility to $700.0 million pursuant to the February 2022 amendment to our credit agreement. Pursuant to our credit agreement, the borrowing capacity under our revolving credit facility will be reduced to $586.4 million as of January 2023 and as such, further repayment of our revolving credit facility may be required. Also in February 2022, we exercised our option to extend the maturity date of our revolving credit facility by one year to January 2024. 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;
• the revolving credit facility commitments have been reduced from $800.0 million to $700.0 million;
• we have the ability to fund $400.0 million of capital expenditures per year and we are restricted in our ability to acquire real property as defined in our credit agreement;
• the interest rate premium under our revolving credit facility increased by 15 basis points; and
• certain covenants and restrictions on distributions to common shareholders, share repurchases, capital expenditures, acquiring additional properties and incurring additional indebtedness (in each case subject to various exceptions), and the minimum liquidity requirement of $200.0 million will remain in place during the Amendment Period.
Generally, when significant amounts are outstanding under our revolving credit facility, or as the maturities of our indebtedness approach, we intend to explore refinancing alternatives. Such alternatives may include incurring additional debt, selling certain properties and issuing new equity securities. In addition, we may also seek to expand our existing joint venture arrangements or to participate in additional joint ventures or other arrangements that may provide us additional sources of financing. We currently have an effective shelf registration statement that allows us to issue public securities on an expedited basis, but it does not assure that there will be buyers for such securities. We may also assume debt in connection with our acquisitions of properties or place new debt on properties we own.
During the three months ended March 31, 2022, we paid a quarterly cash distribution to our shareholders totaling approximately $2.4 million using existing cash balances. On April 14, 2022, we declared a quarterly distribution payable to common shareholders of record on April 25, 2022 in the amount of $0.01 per share, or approximately $2.4 million. We expect to pay this distribution on or about May 19, 2022 using cash on hand. For further information regarding the distribution we paid
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during 2022, see Note 7 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
We believe we will have access to various types of financings, including debt or equity offerings, to fund our future acquisitions and to pay our debts and other obligations as they become due, subject to limitations on debt offerings in agreements governing our debt. Our ability to complete, and the costs associated with, future debt or equity transactions depends primarily upon credit market conditions and our then creditworthiness. We have no control over market conditions. Our credit and debt ratings, which were most recently downgraded in February 2022, depend upon evaluations by credit rating agencies of our business practices and plans, including our ability to maintain our earnings, to stagger our debt maturities and to balance our use of debt and equity capital so that our financial performance and leverage ratios afford us flexibility to withstand any reasonably anticipated adverse changes. Similarly, our ability to raise equity capital in the future will depend primarily upon equity capital market conditions and our ability to conduct our business to maintain and grow our operating cash flows. We intend to conduct our business activities in a manner which will afford us reasonable access to capital for investment and financing activities, but we cannot be sure that we will be able to successfully carry out that intention. It is uncertain what the duration and severity of the COVID-19 pandemic and its economic impact will be. A protracted negative impact on the economy or the industries in which our properties and businesses operate resulting from the COVID-19 pandemic, inflation or other economic, market or industry conditions may have various negative consequences including a decline in financing availability and increased costs for financing. Further, those conditions could also disrupt capital markets and limit our access to financing from public sources, particularly if the global financial markets experience significant disruptions.
In April 2022, we prepaid a mortgage note secured by one of our medical office properties with an outstanding principal balance of approximately $10.9 million, a maturity date in July 2022 and an annual interest rate of 6.28%. We prepaid this mortgage using cash on hand. Our next significant debt maturity does not occur until our revolving credit facility becomes due in January 2024.
In February 2022, Moody's Investors Service downgraded our senior unsecured debt rating from B1 to B3, our 9.75% senior notes due 2025 rating from Ba3 to B2 and our 4.375% senior notes due 2031 rating from Ba3 to B2.
For further information regarding our outstanding debt, see Note 4 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Except for the limitations in the amendments to our credit agreement described above, our strategy related to property acquisitions and dispositions is materially unchanged from that disclosed in our Annual Report. Our plans for particular properties and other strategic considerations may cause us to change our acquisition and disposition strategies, and we may do so at any time and without shareholder approval. Further, those plans may be further impacted by the COVID-19 pandemic, inflation or other economic, market or industry conditions.
Debt Covenants
Our principal debt obligations at March 31, 2022 were: (1) outstanding borrowings under our $700.0 million revolving credit facility; (2) $2.9 billion outstanding principal amount of senior unsecured notes; and (3) $62.0 million aggregate principal amount of mortgage notes (excluding premiums, discounts and net debt issuance costs) secured by six properties. For further information regarding our indebtedness, see Note 4 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Our senior unsecured notes are governed by our senior unsecured notes indentures and their supplements. Our credit agreement and our senior unsecured notes indentures and their supplements provide for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, as defined, which includes RMR ceasing to act as our business and property manager. Our senior unsecured notes indentures and their supplements and our credit agreement also contain covenants that restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts and require us to maintain various financial ratios, and our credit agreement contains covenants that restrict our ability to make distributions to our shareholders in certain circumstances. As of March 31, 2022, our ratio of consolidated income available for debt service to debt service was below the 1.5x incurrence requirement under our revolving credit facility and our public debt covenants as the effects of the COVID-19 pandemic, inflation and other economic, market or industry conditions continued to adversely impact our operations. We are unable to incur additional debt until this ratio is at or above 1.5x on a pro forma basis, and as such, prior to falling below the 1.5x incurrence requirement, we borrowed $800.0 million under our revolving credit facility as a precautionary measure to increase our cash position and preserve financial flexibility. The proceeds from this borrowing may be used for general business purposes. In February 2022, we repaid $100.0 million of this borrowing to reduce the borrowing
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capacity under our revolving credit facility to $700.0 million pursuant to the February 2022 amendment to our credit agreement. As of March 31, 2022, we believe we were in compliance with all of the other covenants under our senior unsecured notes indentures and their supplements, our credit agreement and our other debt obligations. Although we have taken steps to enhance our ability to maintain sufficient liquidity, as noted elsewhere in this Quarterly Report on Form 10-Q, a protracted negative impact on the economy or the industries in which our properties and businesses operate resulting from the COVID-19 pandemic, inflation and other economic, market or industry conditions may cause increased pressure on our ability to satisfy financial and other covenants. Continued availability of borrowings under our revolving credit facility is subject to our satisfying certain financial covenants and other credit facility conditions. If our operating results and financial condition are significantly negatively impacted by the economic conditions or otherwise, we may fail to satisfy covenants and conditions under our credit agreement or fail to satisfy our public debt covenants. Further, if we believe we will not be able to satisfy our financial or other covenants, we will seek waivers, amendments, or in the case of our public debt covenants, borrow any undrawn amounts which may become available under our revolving credit facility prior to any covenant violation, consistent with our approach in March 2021, which may lead to increased costs and interest rates, additional restrictive covenants or other lender protections. We cannot assure that we would be able to obtain these waivers or amendments or repay the related debt facilities when due, or that there will be any amounts available to borrow under our revolving credit facility, which may result in an event of default under the agreements governing our debt or the potential acceleration of our outstanding debt.
Neither our senior unsecured notes indentures and their supplements, nor our credit agreement, contain provisions for acceleration which could be triggered by our debt ratings. However, under our credit agreement, our senior unsecured debt ratings are used to determine the fees and interest rates we pay. Accordingly, following our debt ratings downgrades, our interest expense and related costs under our credit agreement has increased. See "—Our Financing Liquidity and Resources" above for information regarding recent downgrades of our issuer credit rating and senior unsecured debt rating that resulted in a change in the interest rate premiums under our revolving credit facility.
Our senior unsecured notes indentures and their supplements contain cross default provisions to any other debts of more than $20.0 million ($50.0 million or more in the case of our senior unsecured notes indentures and supplements entered in February 2016, February 2018, June 2020 and February 2021). Similarly, our credit agreement has cross default provisions to other indebtedness that is recourse of $25.0 million or more and indebtedness that is non-recourse of $75.0 million or more.
The loan agreements governing the aggregate $620.0 million secured debt financing related to our Boston life science property joint venture contain customary covenants and provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default. We no longer include this $620.0 million of secured debt financing in our condensed consolidated balance sheet following the deconsolidation of the net assets of this joint venture; however, we continue to provide certain guaranties on this debt. The debt secured by the properties included in our 10 medical office and life science properties joint venture in which we own a 20% equity interest is guaranteed by this joint venture.
Supplemental Guarantor Information
On May 28, 2020, we issued $1.0 billion of our 9.75% senior notes due 2025. On February 3, 2021, we issued $500.0 million of our 4.375% senior notes due 2031. As of March 31, 2022, all $1.0 billion of our 9.75% senior notes due 2025 and all $500.0 million of our 4.375% senior notes due 2031 were fully and unconditionally guaranteed, on a joint and several basis and on a senior unsecured basis, by all of our subsidiaries, except for certain excluded subsidiaries, including pledged subsidiaries under our credit agreement. The notes and the guarantees are effectively subordinated to all of our and the subsidiary guarantors' secured indebtedness, respectively, to the extent of the value of the collateral securing such secured indebtedness, and are structurally subordinated to all indebtedness and other liabilities and any preferred equity of any of our subsidiaries that do not guarantee the notes. Our remaining $1.35 billion of senior unsecured notes do not have the benefit of any guarantees as of March 31, 2022.
A subsidiary guarantor's guarantee of our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031, as applicable, and all other obligations of such subsidiary guarantor under the indenture governing the notes will automatically terminate and such subsidiary guarantor will automatically be released from all of its obligations under such subsidiary guarantee and the indenture under certain circumstances, including on or after the date (a) the notes have an investment grade rating from two rating agencies and one of such investment grade ratings is a mid-BBB investment grade rating and (b) no default or event of default has occurred and is continuing under the indenture. Our non-guarantor subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due on our 9.75% senior notes due 2025 or our 4.375% senior notes due 2031 or the respective guarantees, or to make any funds available therefor, whether by dividend, distribution, loan or other payments. The rights of holders of our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031, as applicable, to benefit from any of the assets of our non-guarantor subsidiaries are subject to the prior satisfaction of claims of those subsidiaries' creditors and any preferred equity holders. As a result, our 9.75% senior notes due
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2025 and our 4.375% senior notes due 2031 and the respective guarantees are structurally subordinated to all indebtedness, guarantees and other liabilities of our subsidiaries that do not guarantee our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031, including guarantees of other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity.
The following tables present summarized financial information for guarantor entities and issuer, on a combined basis after eliminating (i) intercompany transactions and balances among the guarantor entities and (ii) equity in earnings from, and any investments in, any subsidiary that is a non-guarantor (dollars in thousands):
March 31, 2022 December 31, 2021
Real estate properties, net $ 3,831,645 $ 3,822,547
Other assets, net 1,960,063 1,424,994
Total assets $ 5,791,708 $ 5,247,541
Indebtedness, net $ 3,514,788 $ 3,613,447
Other liabilities 277,441 259,670
Total liabilities $ 3,792,229 $ 3,873,117
Three Months Ended March 31, 2022
Revenues $ 271,060
Expenses 307,497
Loss from continuing operations (97,986)
Net loss (96,104)
Related Person Transactions
We have relationships and historical and continuing transactions with RMR, RMR Inc., AlerisLife (including Five Star) and others related to them. For further information about these and other such relationships and related person transactions, see Notes 9, 10 and 11 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our Annual Report, our definitive Proxy Statement for our 2022 Annual Meeting of Shareholders and our other filings with the SEC. In addition, see the section captioned “Risk Factors” of our Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships. We may engage in additional transactions with related persons, including businesses to which RMR or its subsidiaries provide management services.
Impact of Government Reimbursement
For the three months ended March 31, 2022, substantially all of our NOI was generated from properties where a majority of the revenues are derived from our tenants' and residents' private resources, and a small amount of our NOI was generated from properties where a majority of the revenues are derived from Medicare and Medicaid payments. Nonetheless, we own, and our tenants, managers and operators operate, facilities in many states that participate in federal and state healthcare payment programs, including the federal Medicare and state Medicaid programs and other federal and state healthcare payment programs. Also, some of our medical office and life science property tenants participate in federal Medicare and state Medicaid programs and other government healthcare payment programs.
During the three months ended March 31, 2022, we recognized $0.2 million in interest and other income in our condensed consolidated statement of comprehensive income (loss) related to funds received under the CARES Act.
For more information regarding the government healthcare funding and regulation of our business, please see the section captioned “Business—Government Regulation and Reimbursement” in our Annual Report and the section captioned “Management's Discussion and Analysis of Financial Condition and Results of Operations—Impact of Government Reimbursement” in our Annual Report.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.