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Item 1. Financial Statements

2022-11-02 compared with 2022-08-03 · 181 added, 145 removed, 507 unchanged (39% of the section changed)

3 unchanged sentences

(dollars in thousands, except share data)

June 30, December 31,

September 30, December 31,

Real estate properties:

31 unchanged sentences

(amounts in thousands, except per share data)

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

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

2022 2021 2022 2021

14 unchanged sentences

Loss on modification or early extinguishment of debt — — ( 30,043 ) ( 2,410 )

(Loss) income from continuing operations before income tax benefit (expense) and equity in earnings of investees ( 113,227 ) ( 32,454 ) 125,314 ( 98,399 )

Income tax benefit (expense) 640 ( 191 ) ( 832 ) ( 429 )

(Loss) income from continuing operations before income tax expense and equity in earnings of investees ( 83,606 ) ( 87,409 ) 41,708 ( 185,808 )

Income tax expense ( 13 ) ( 595 ) ( 845 ) ( 1,024 )

Equity in earnings of investees 2,127 — 8,685 —

12 unchanged sentences

Capital Cumulative

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

Interest Total Equity

Net Income Cumulative Distributions Total Equity

Balance at December 31, 2021:

13 unchanged sentences

239,123,496 2,391 4,616,449 2,218,664 ( 4,047,879 ) 2,789,625

Net loss — — — ( 81,492 ) — ( 81,492 )

Distributions — — — — ( 2,391 ) ( 2,391 )

Share grants 707,000 7 470 — — 477

Share repurchases ( 122,403 ) ( 1 ) ( 159 ) — — ( 160 )

Share forfeitures ( 3,600 ) — ( 4 ) — — ( 4 )

Balance at September 30, 2022:

239,704,493 $ 2,397 $ 4,616,756 $ 2,137,172 $ ( 4,050,270 ) $ 2,706,055

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, 2020:

13 unchanged sentences

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.

2 unchanged sentences

(dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

Net income (loss) $ 49,548 $ ( 186,832 )

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

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

Depreciation and amortization 175,927 202,743

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Other liabilities 5,233 ( 9,176 )

Net cash (used in) provided by operating activities ( 31,856 ) 27,046

Net cash used in operating activities ( 36,948 ) ( 13,198 )

Cash flows from investing activities:

Real estate acquisitions ( 75,105 ) —

Real estate improvements ( 189,118 ) ( 126,142 )

2 unchanged sentences

Proceeds from sale of interest in joint venture, net 108,626 —

Net cash provided by investing activities 527,714 19,589

Net cash provided by (used in) investing activities 483,713 ( 22,885 )

Cash flows from financing activities:

18 unchanged sentences

(dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental cash flow information:

4 unchanged sentences

Real estate, net $ ( 355,669 ) $ —

Change in assets resulting from the sale of interest in joint venture:

Investments in unconsolidated joint ventures $ ( 108,246 ) $ —

Other assets, net $ 108,956 $ —

Real estate improvements accrued, not paid $ 24,218 $ 15,751

2 unchanged sentences

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

As of June 30,

As of September 30,

Cash and cash equivalents $ 691,040 $ 794,739

2 unchanged sentences

Total cash and cash equivalents and restricted cash shown in our condensed consolidated statements of cash flows $ 800,805 $ 811,437

(1) As of June 30, 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.

(1) As of September 30, 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 June 30, 2021, restricted cash also included amounts from dispositions held as collateral pursuant to our credit agreement.

In June 2022, we sold an additional 10 % equity interest in our Boston life science property joint venture to an existing joint venture investor for $ 108,000 , before closing costs and other adjustments.

The net proceeds of $ 108,956 , which include working capital prorations and formation costs, are included as a receivable in other assets, net in our condensed consolidated balance sheet as of June 30, 2022.

We received the proceeds from this sale in July 2022, which will be included in restricted cash in our condensed consolidated balance sheet.

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

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

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Real Estate Investments

As of June 30, 2022, we wholly owned 378 properties located in 36 states and Washington, D.C.

As of September 30, 2022, we wholly owned 379 properties located in 36 states and Washington, D.C.

and we owned an 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.

Joint Venture Activities:

As of June 30, 2022, we had equity investments in joint ventures as follows:

Joint Venture DHC Ownership DHC Carrying Value of Investment at June 30, 2022

As of September 30, 2022, we had equity investments in joint ventures as follows:

Joint Venture DHC Ownership DHC Carrying Value of Investment at September 30, 2022

Number of Properties Location Square Feet

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

Joint Venture Coupon Rate Maturity Date Principal Balance at June 30, 2022 (1)

Joint Venture Coupon Rate Maturity Date Principal Balance at September 30, 2022 (1)

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

1 unchanged sentence

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)

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(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 condensed consolidated balance sheet;

(2) Following the deconsolidation in December 2021 of the net assets of the Seaport JV, we no longer include this $ 620,000 of secured debt financing in our condensed 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 an annual rate based on the secured overnight financing rate, or SOFR, plus a premium of 1.90 %.

The interest rate is as of June 30, 2022.

The interest rate is as of September 30, 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 $ 378,000 , before closing costs and other adjustments.

In December 2021, we sold an additional 35 % equity interest from our then remaining 55 % equity interest in the Seaport JV to another third party institutional investor for $ 378,000 , before closing costs and other adjustments.

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.

In June 2022, we sold an additional 10 % equity interest from our then remaining 20 % equity interest in our Boston life science property joint venture to an existing joint venture investor for $ 108,000 , before closing costs and other adjustments.

In June 2022, we sold an additional 10 % equity interest from our then remaining 20 % equity interest in the Seaport JV to an existing joint venture investor for $ 108,000 , before closing costs and other adjustments.

The net proceeds of $ 108,956 , which include working capital prorations and formation costs, were included as a receivable in other assets, net in our condensed consolidated balance sheet as of June 30, 2022.

We received the proceeds from this sale in July 2022.

1 unchanged sentence

After giving effect to these sales, we continue to own a 10 % 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.

Our initial 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 valuation of our investment in 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.

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 the LSMD JV.

We sold equity interests in this joint venture to those investors for aggregate proceeds, before closing costs and other adjustments, of approximately $ 653,300 .

2 unchanged sentences

Following the sale, we 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.

The initial investment amounts were 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 valuation of our investment in this joint venture.

Acquisitions and Dispositions:

In July 2022, we acquired one life science property located in California with approximately 89,000 square feet for a purchase price of approximately $ 82,000 , excluding closing costs.

We did not acquire or dispose of any properties during the six months ended June 30, 2022.

We have accounted for our July 2022 acquisition of a life science property located in California as an acquisition of assets.

We funded this acquisition using cash on hand.

The table below represents the purchase price allocation (including net closing adjustments) of this acquisition:

Date Location Type of Property Number of Properties Square Feet Cash Paid (1)

Land Buildings and Improvements Acquired Real Estate Leases

July 2022 California Life Science 1 88,508 $ 75,105 $ 15,774 $ 45,249 $ 14,082

(1) Cash paid includes closings costs.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

We did not dispose of any properties during the nine months ended September 30, 2022.

We regularly evaluate our assets for indicators of impairment.

3 unchanged sentences

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.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

material impairment charges were recorded on held and used properties during the three or six months ended June 30, 2022 or 2021.

No material impairment charges were recorded on held and used properties during the three or nine months ended September 30, 2022 or 2021.

During the three and nine months ended September 30, 2022, we recorded $ 4,112 of expenses representing insurance deductibles and other costs associated with Hurricane Ian's damage at certain of our managed senior living communities located in Florida and are evaluating additional losses.

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

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

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

We increased rental income to record revenue on a straight line basis by $ 2,710 and $ 1,321 for the three months ended June 30, 2022 and 2021, respectively, and $ 4,455 and $ 2,125 for the six months ended June 30, 2022 and 2021, respectively.

Rents receivable, excluding receivables related to our properties classified as held for sale, if any, include $ 71,902 and $ 82,131 of straight line rent receivables at June 30, 2022 and December 31, 2021, 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 $ 2,738 and $ 1,679 for the three months ended September 30, 2022 and 2021, respectively, and $ 7,193 and $ 3,804 for the nine months ended September 30, 2022 and 2021, respectively.

Rents receivable, excluding receivables related to our properties classified as held for sale, if any, include $ 74,640 and $ 82,131 of straight line rent receivables at September 30, 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 $ 10,430 and $ 18,476 for the three months ended June 30, 2022 and 2021, respectively, of which tenant reimbursements totaled $ 10,350 and $ 18,440 , respectively, and $ 21,138 and $ 36,704 for the six months ended June 30, 2022 and 2021, respectively, of which tenant reimbursements totaled $ 21,013 and $ 36,620 , respectively.

Such payments totaled $ 11,312 and $ 17,930 for the three months ended September 30, 2022 and 2021, respectively, of which tenant reimbursements totaled $ 11,263 and $ 17,875 , respectively, and $ 32,450 and $ 54,634 for the nine months ended September 30, 2022 and 2021, respectively, of which tenant reimbursements totaled $ 32,276 and $ 54,495 , 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 assets and related liabilities representing our future obligation under the respective lease arrangements for which we are the lessee were $ 28,003 and $ 28,382 , respectively, as of June 30, 2022, and $ 4,153 and $ 4,352 , respectively, as of December 31, 2021.

The values of the right of use assets and related liabilities representing our future obligation under the respective lease arrangements for which we are the lessee were $ 27,257 and $ 27,637 , respectively, as of September 30, 2022, and $ 4,153 and $ 4,352 , respectively, as of December 31, 2021.

The right of use assets and related lease liabilities 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, excluding any debt obligations of our joint ventures, at June 30, 2022 were:

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Our principal debt obligations, excluding any debt obligations of our joint ventures, at September 30, 2022 were:

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

(2) $ 2,350,000 outstanding principal amount of senior unsecured notes;

and (3) $ 50,715 aggregate principal amount of mortgage notes secured by five properties.

These five mortgaged properties had a gross book value of $ 87,870 at June 30, 2022.

We also had two properties subject to finance leases with lease obligations totaling $ 5,999 at June 30, 2022;

these two properties had gross book value and accumulated depreciation of $ 37,630 and $ 18,632 , respectively, at June 30, 2022, and $ 36,730 and $ 18,203 , respectively, at December 31, 2021, and the finance leases expire in 2026.

and (3) $ 35,200 aggregate principal amount of mortgage notes secured by three properties.

These three mortgaged properties had a gross book value of $ 65,957 at September 30, 2022.

We also had two properties subject to finance leases with lease obligations totaling $ 5,562 at September 30, 2022;

these two properties had gross book value and accumulated depreciation of $ 38,697 and $ 18,839 , respectively, at September 30, 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.

1 unchanged sentence

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 June 30, 2022, our revolving credit facility required interest to be paid on borrowings at the annual rate of 4.2 %, plus a facility fee of 30 basis points per annum on the total amount of lending commitments under the facility.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

The weighted average annual interest rates for borrowings under our revolving credit facility were 3.3 % and 2.9 % for the three months ended June 30, 2022 and 2021, respectively, and 3.1 % and 2.9 % for the six months ended June 30, 2022 and 2021, respectively.

We are required to pay interest at a rate of LIBOR plus a premium, which was 250 basis points per annum at September 30, 2022, on the amount outstanding under our revolving credit facility.

We also pay a facility fee on the total amount of lender commitments under our revolving credit facility, which was 30 basis points per annum at September 30, 2022.

As of September 30, 2022, our revolving credit facility required interest to be paid on borrowings at the annual rate of 5.6 %.

The weighted average annual interest rates for borrowings under our revolving credit facility were 4.8 % and 2.9 % for the three months ended September 30, 2022 and 2021, respectively, and 3.8 % and 2.9 % for the nine months ended September 30, 2022 and 2021, respectively.

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

As of June 30, 2022 and July 29, 2022, we were fully drawn under our revolving credit facility.

As of September 30, 2022 and October 28, 2022, we were fully drawn under our revolving credit facility.

In February 2022, we and our lenders amended our credit agreement.

1 unchanged sentence

• 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 six months ended June 30, 2022;

• 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;

2 unchanged sentences

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 in January 2023 and as such, further repayment of our revolving credit facility will be required by that time.

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 $ 996,709 as of June 30, 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.

Pursuant to our credit agreement, the borrowing capacity under our revolving credit facility will be reduced to $ 586,373 in January 2023 and, as such, we will be required to repay $ 113,627 under our revolving credit facility by that time.

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 $ 997,724 as of September 30, 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 %, using cash on hand.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

In June 2022, we redeemed $ 500,000 of our outstanding 9.75 % senior notes due 2025 for a redemption price equal to 104.875 % of the $ 500,000 principal amount of the notes being redeemed plus accrued and unpaid interest of $ 1,083 , using restricted cash on hand.

As a result of this redemption, we recorded a loss on early extinguishment of debt of $ 29,576 for the six months ended June 30, 2022.

As a result of this redemption, we recorded a loss on early extinguishment of debt of $ 29,576 for the nine months ended September 30, 2022.

In July 2022, we prepaid a mortgage note secured by two of our senior living communities with an outstanding principal balance of approximately $ 15,273 , a maturity date in October 2022 and an annual interest rate of 5.75 %, using cash on hand.

In October 2022, we repaid a mortgage note secured by one of our life science properties with an outstanding principal balance of approximately $ 10,287 , a maturity date in October 2022 and an annual interest rate of 4.85 %, 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 June 30, 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.

As of September 30, 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.

We believe we were in compliance with the remaining terms and conditions of the respective covenants under our credit agreement and our senior unsecured notes indentures and their supplements at June 30, 2022, subject to the waivers noted above.

Although we have taken steps to enhance our ability to maintain sufficient liquidity, a protracted negative impact on the

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

economy or the industries in which our properties and businesses operate may cause increased pressure on our ability to satisfy financial and other covenants.

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.

If we believe we will not be able to satisfy our financial or other covenants, we expect that we would seek waivers or amendments prior to any covenant violation or seek other financing alternatives.

Fair Value of Assets and Liabilities

The following table presents certain of our assets that are measured at fair value at June 30, 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 June 30, 2022 As of December 31, 2021

The following table presents certain of our assets that are measured at fair value at September 30, 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 September 30, 2022 As of December 31, 2021

Description Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value

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(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 June 30, 2022 and 2021, we recorded unrealized losses of $ 10,157 and $ 3,849 , respectively, and during the six months ended June 30, 2022 and 2021, we recorded unrealized losses of $ 18,710 and $ 12,188 , 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.

During the three months ended September 30, 2022 and 2021, we recorded unrealized losses of $ 2,674 and $ 14,755 , respectively, and during the nine months ended September 30, 2022 and 2021, we recorded unrealized losses of $ 21,384 and $ 26,943 , 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 10 % 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.

(2) The 10 % equity interest we own in the Seaport JV 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

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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).

(3) The 20 % equity interest we own in the LSMD JV 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 5.60 % and 8.00 %, exit capitalization rates of between 5.10 % and 6.25 %, holding periods of approximately 10 years and market rents.

1 unchanged sentence

See Note 2 for further information regarding this joint venture.

In addition to the assets described in the table above, our financial instruments at June 30, 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.

In addition to the assets described in the table above, our financial instruments at September 30, 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:

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

As of June 30, 2022 As of December 31, 2021

As of September 30, 2022 As of December 31, 2021

Description Carrying Amount (1)

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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.

We estimated the fair value of our two issuances of senior unsecured notes due 2042 and 2046 based on the closing price on Nasdaq (Level 1 input) as of June 30, 2022 and December 31, 2021, respectively.

We estimated the fair values of our four issuances of senior unsecured notes due 2024, 2025, 2028 and 2031 using an average of the bid and ask price on Nasdaq on or about June 30, 2022 and December 31, 2021 (Level 2 inputs as defined in the fair value hierarchy under GAAP).

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, 2022 and December 31, 2021, respectively.

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, 2022 and December 31, 2021 (Level 2 inputs as defined in the fair value hierarchy under GAAP).

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

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Noncontrolling Interest

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

In March 2017, we entered into the Seaport JV.

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

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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.

In December 2021, we sold an additional 35 % equity interest in the Seaport JV to another third party institutional investor.

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

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In June 2022, we sold an additional 10 % equity interest from our then remaining 20 % equity interest in this joint venture to an existing joint venture investor and continue to 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 $ 1,577 and $ 2,899 for the three and six months ended June 30, 2021, respectively, 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 $ 5,630 and $ 11,324 for the three and six months ended June 30, 2021, respectively, 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 2, 2022, in accordance with our Trustee compensation arrangements, we awarded to each of our seven Trustees 20,000 of our common shares, valued at $ 2.14 per share, the closing price of our common shares on Nasdaq on that day .

The portion of the joint

DIVERSIFIED HEALTHCARE TRUST

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

venture's net income and comprehensive income not attributable to us, or $ 1,339 and $ 4,238 for the three and nine months ended September 30, 2021, respectively, 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 $ 5,524 and $ 16,848 for the three and nine months ended September 30, 2021, respectively, 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 September 14, 2022, we awarded under our equity compensation plan an aggregate of 707,000 of our common shares, valued at $ 1.30 per share, the closing price of our common shares on Nasdaq on that day, to our officers and certain other employees of RMR.

Common Share Repurchases:

During the six months ended June 30, 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.

During the three and nine months ended September 30, 2022, we purchased an aggregate of 122,403 and 124,101 of our common shares, respectively, valued at a weighted average share price of $ 1.30 and $ 1.33 per share, respectively, from our officers and certain current and former officers and employees of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

Distributions:

During the six months ended June 30, 2022, we declared and paid quarterly distributions to common shareholders as follows:

During the nine months ended September 30, 2022, we declared and paid quarterly distributions to common shareholders as follows:

Declaration Date Record Date Payment Date Distribution Per Share Total Distributions

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April 14, 2022 April 25, 2022 May 19, 2022 0.01 2,390

July 14, 2022 July 25, 2022 August 18, 2022 0.01 2,391

$ 0.03 $ 7,171

On July 14, 2022, we declared a quarterly distribution to common shareholders of record on July 25, 2022 of $ 0.01 per share, or approximately $ 2,391 .

We expect to pay this distribution on or about August 18, 2022.

On October 13, 2022, we declared a quarterly distribution to common shareholders of record on October 24, 2022 of $ 0.01 per share, or approximately $ 2,397 .

We expect to pay this distribution on or about November 17, 2022.

Segment Reporting

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

For the Three Months Ended June 30, 2022

For the Three Months Ended September 30, 2022

Office Portfolio SHOP Non-Segment Consolidated

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Interest expense ( 217 ) ( 298 ) ( 46,421 ) ( 46,936 )

Gain (loss) on modification or early extinguishment of debt 16 — ( 29,576 ) ( 29,560 )

Income (loss) from continuing operations before income tax benefit and equity in earnings of investees 11,161 ( 30,094 ) ( 94,294 ) ( 113,227 )

Income tax benefit — — 640 640

Income (loss) from continuing operations before income tax expense and equity in earnings of investees 6,747 ( 44,389 ) ( 45,964 ) ( 83,606 )

Income tax expense — — ( 13 ) ( 13 )

Equity in earnings of investees 2,127 — — 2,127

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

For the Six Months Ended June 30, 2022

For the Nine Months Ended September 30, 2022

Office Portfolio SHOP Non-Segment Consolidated

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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 $ 959 and $ 18,181 as other income in our condensed consolidated statements of comprehensive income (loss) with respect to our SHOP segment for the six months ended June 30, 2022 and 2021, respectively.

As of June 30, 2022

We have recognized $ 1,084 and $ 18,967 as other income in our condensed consolidated statements of comprehensive income (loss) with respect to our SHOP segment for the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 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 June 30, 2021

For the Three Months Ended September 30, 2021

Office Portfolio SHOP Non-Segment Consolidated

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

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

Income (loss) from continuing operations before income tax expense 20,939 ( 30,899 ) ( 77,449 ) ( 87,409 )

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

For the Six Months Ended June 30, 2021

For the Nine Months Ended September 30, 2021

Office Portfolio SHOP Non-Segment Consolidated

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2021 Amendments to our Management Arrangements with Five Star.

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

The principal changes to the management arrangements 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, 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;

On June 9, 2021, we and Five Star amended our management arrangements, as follows:

• 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;

• 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;

• Five Star continued to manage 120 of our senior living communities, and 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;

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

• 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 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 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.

• 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 for the applicable period;

• 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 any senior living communities that are undergoing a major renovation or repositioning are excluded from the calculation of the incentive fee;

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

• 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.

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 its subsidiaries' 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.

As of December 31, 2021, we had transitioned 107 of the 108 senior living communities, containing 7,340 living units, from Five Star to other third party managers, of which 69 senior living communities with approximately 4,800 living units were transitioned during the three months ended September 30, 2021.

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

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

We recorded $ 517 and $ 11,914 for the three months ended June 30, 2022 and 2021, respectively, and $ 1,445 and $ 11,914 for the six months ended June 30, 2022 and 2021, respectively, of these costs to acquisition and certain other transaction related costs in our condensed consolidated statements of comprehensive income (loss).

We recorded $ 220 and $ 3,123 for the three months ended September 30, 2022 and 2021, respectively, and $ 1,665 and $ 15,037 for the nine months ended September 30, 2022 and 2021, respectively, 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 120 and 235 of our senior living communities as of June 30, 2022 and 2021, respectively.

Five Star managed 120 and 159 of our senior living communities as of September 30, 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 $ 8,971 and $ 12,927 for the three months ended June 30, 2022 and 2021, respectively, and $ 17,903 and $ 26,777 for the six months ended June 30, 2022 and 2021, respectively.

For the three months ended June 30, 2022 and 2021, $ 8,274 and $ 12,212 , respectively, of the total management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 697 and $ 715 , respectively, were capitalized in our condensed consolidated balance sheets.

For the six months ended June 30, 2022 and 2021, $ 16,416 and $ 25,228 , respectively, of the total management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 1,487 and $ 1,549 , respectively, were capitalized in our condensed consolidated balance sheets.

Effective October 31, 2022, Five Star ceased managing an active adult community we own located in Plano, Texas, and effective as of November 1, 2022, RMR assumed management of that community pursuant to our property management agreement with RMR.

We paid Five Star a termination fee of $ 350 in connection with the termination of Five Star's management of this community.

We incurred management fees payable to Five Star of $ 9,477 and $ 11,220 for the three months ended September 30, 2022 and 2021, respectively, and $ 27,380 and $ 37,997 for the nine months ended September 30, 2022 and 2021, respectively.

For the three months ended September 30, 2022 and 2021, $ 8,601 and $ 10,518 , respectively, of the total management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 876 and $ 702 , respectively, were capitalized in our condensed consolidated balance sheets.

For the nine months ended September 30, 2022 and 2021, $ 25,017 and $ 35,746 , respectively, of the total management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 2,363 and $ 2,251 , 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 $ 1,736 and $ 2,630 for the three months ended June 30, 2022 and 2021, respectively, and $ 3,652 and $ 8,071 for the six months ended June 30, 2022 and 2021, respectively, with respect to rehabilitation services Five Star provided at our senior living communities that are payable by us.

We incurred fees of $ 1,590 and $ 1,508 for the three months ended September 30, 2022 and 2021, respectively, and $ 5,242 and $ 9,579 for the nine months ended September 30, 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 $ 379 and $ 398 for the three months ended June 30, 2022 and 2021, respectively, and $ 767 and $ 795 for the six months ended June 30, 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 our other third party managers of $ 5,218 and $ 10,326 for the three and six months ended June 30, 2022, respectively.

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

We recorded $ 380 and $ 399 for the three months ended September 30, 2022 and 2021,

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

respectively, and $ 1,147 and $ 1,194 for the nine months ended September 30, 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 our other third party managers of $ 5,108 and $ 1,678 for the three months ended September 30, 2022 and 2021, respectively, and $ 15,434 and $ 1,678 for the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022 and 2021, respectively, our other third party managers managed 107 and 69 of our senior living communities.

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 June 30, Six Months Ended June 30,

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

Revenue from contracts with customers:

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

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

and (2) a property management agreement, which relates to the property level operations of many of our properties, including our medical office and life science properties, and major renovation or repositioning activities at our senior living communities that we may request RMR to manage from time to time.

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

We recognized net business management fees of $ 4,506 and $ 6,324 for the three months ended June 30, 2022 and 2021, respectively, and $ 9,319 and $ 11,641 for the six months ended June 30, 2022 and 2021, respectively.

Based on our common share total return, as defined in our business management agreement, as of each of June 30, 2022 and 2021, no estimated incentive fees are included in the net business management fees we recognized for the three or six months ended June 30, 2022 or 2021.

We recognized net business management fees of $ 3,763 and $ 5,986 for the three months ended September 30, 2022 and 2021, respectively, and $ 13,082 and $ 17,627 for the nine months ended September 30, 2022 and 2021, respectively.

Based on our common share total return, as defined in our business management agreement, as of each of September 30, 2022 and 2021, no estimated incentive fees are included in the net business management fees we recognized for the three or nine months ended September 30, 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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REIT Healthcare Index.

We recognized aggregate net property management and construction supervision fees of $ 2,518 and $ 3,191 for the three months ended June 30, 2022 and 2021, respectively, and $ 4,909 and $ 6,345 for the six months ended June 30, 2022 and 2021, respectively.

For the three months ended June 30, 2022 and 2021, $ 1,272 and $ 2,465 , respectively, of the total property management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 1,246 and $ 726 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets.

For the six months ended June 30, 2022 and 2021, $ 2,621 and $ 4,950 , respectively, of the total property management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 2,288 and $ 1,395 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets.

We recognized aggregate net property management and construction supervision fees of $ 2,658 and $ 2,931 for the three months ended September 30, 2022 and 2021, respectively, and $ 7,567 and $ 9,276 for the nine months ended September 30, 2022 and 2021, respectively.

For the three months ended September 30, 2022 and 2021, $ 1,521 and $ 2,410 , respectively, of the total property management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 1,137 and $ 521 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets.

For the nine months ended September 30, 2022 and 2021, $ 4,142 and $ 7,360 , respectively, of the total property management fees were expensed to property operating expenses in our condensed consolidated statements of

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

comprehensive income (loss) and $ 3,425 and $ 1,916 , 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.

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

We reimbursed RMR $ 3,111 and $ 3,202 for these expenses and costs for the three months ended June 30,

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

2022 and 2021, respectively, and $ 6,075 and $ 6,499 for the six months ended June 30, 2022 and 2021, respectively.

We reimbursed RMR $ 3,498 and $ 3,121 for these expenses and costs for the three months ended September 30, 2022 and 2021, respectively, and $ 9,573 and $ 9,620 for the nine months ended September 30, 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.

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

See Note 7 for information relating to awards of our common shares we made in September 2022 to our officers and certain other employees of RMR and our repurchase of common shares from our officers and certain current and former officers and employees of RMR in satisfaction of tax withholding and payment obligations owed in connection with the vesting of awards of our common shares to them.

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

We are currently AlerisLife's largest stockholder.

As of June 30, 2022, we owned approximately 32.8 % of AlerisLife's outstanding common shares.

As of September 30, 2022, we owned approximately 32.8 % of AlerisLife's outstanding common shares.

Five Star is an operating division of AlerisLife.

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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 June 30, 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.

As of September 30, 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.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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.

We own a 10 % equity interest in our Boston life science property joint venture and a 20 % equity interest in our 10 medical office and life science properties joint venture;

from January 2022 until June 28, 2022, we owned a 20 % equity interest in our Boston life science property joint venture.

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.

We have two separate joint venture arrangements with two third party institutional investors, the Seaport JV and the LSMD JV.

We own a 10 % equity interest in the Seaport JV and a 20 % equity interest in the LSMD JV;

from January 2022 until June 28, 2022, we owned a 20 % equity interest in the Seaport JV.

We initially entered into the Seaport JV prior to January 1, 2021, and we entered into the LSMD JV 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 the services it provided regarding that joint venture;

Prior to December 23, 2021, the Seaport JV was our consolidated subsidiary and, as such, we were previously obligated to pay management fees to RMR under our management agreements with RMR for 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 June 30, 2022, in connection with the closing of our 10 medical office and life science properties joint venture in January 2022, we paid mortgage escrow amounts and closing costs of $ 11,113 that were payable by that joint venture.

As of September 30, 2022, in connection with entering into the LSMD JV in January 2022, we paid mortgage escrow amounts and closing costs of $ 9,558 that were payable by that joint venture.

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Our Manager, RMR.

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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.

For the three months ended June 30, 2022 and 2021, we recognized income tax benefit of $ 640 and expense of $ 191 , respectively, and for the six months ended June 30, 2022 and 2021, we recognized income tax expense of $ 832 and $ 429 , respectively.

For the three months ended September 30, 2022 and 2021, we recognized income tax expense of $ 13 and $ 595 , respectively, and for the nine months ended September 30, 2022 and 2021, we recognized income tax expense of $ 845 and $ 1,024 , respectively.

Weighted Average Common Share s (share amounts in thousands)

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

For purposes of calculating diluted earnings per share, we did not include 833 and 837 of unvested share awards for the three and six months ended June 30, 2022, respectively, because to do so would have been antidilutive.

For purposes of calculating diluted earnings per share, we did not include 891 and 855 of unvested share awards for the three and nine months ended September 30, 2022, respectively, 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