What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-02 compared with 2022-08-03 · 190 added, 190 removed, 517 unchanged (42% of the section changed)

2 unchanged sentences

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 June 30, 2022, we wholly owned 378 properties, including eight closed senior living communities, located in 36 states and Washington, D.C.

At June 30, 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 $6.9 billion.

As of June 30, 2022, 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 that was 98% leased with an average (by annualized rental income) remaining lease term of 6.5 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.

Federal Reserve has recently raised interest rates in an effort to combat high inflation, which could result in negative consequences in the U.S.

economy, and concerns about a potential recession are becoming more pronounced.

It is unclear whether the U.S.

economy will be able to withstand such challenges and realize continued sustained growth.

A recession could adversely affect our financial condition and that of our managers, operators and tenants, could adversely impact the ability of our managers, tenants or residents to pay the contractual amounts of returns, rents or other obligations due to us, could impair our ability to effectively deploy our capital or realize upon investments on favorable terms and may cause the values of our properties and other investments and of our securities to decline.

We could also be affected by any overall weakening of, or disruptions in, the financial markets, including an adverse impact on our ability to raise capital and the cost thereof.

As of September 30, 2022, we wholly owned 379 properties, including eight closed senior living communities, located in 36 states and Washington, D.C.

At September 30, 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 $7.0 billion.

As of September 30, 2022, we owned an equity interest in each of the Seaport JV and the LSMD JV 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 6.2 years.

We are closely monitoring the impacts of the current economic and market conditions on all aspects of our business, including, but not limited to, labor availability, high inflation, rising interest rates, supply chain disruptions, geopolitical risks and possible economic recession.

We expect to continue to have elevated labor, utility and food costs on a per resident basis with respect to our SHOP segment.

In response to inflationary pressures, the U.S.

Federal Reserve increased the federal funds rate by 300 basis points over five consecutive meetings from March 2022 to September 2022 and has signaled that further significant increases are likely to occur.

These inflationary pressures and rising interest rates in the United States and globally have given rise to increasing concerns that the U.S.

economy is now in, or may soon enter, an economic recession and they have caused disruptions in the financial markets.

An economic recession, or continued or intensified disruptions in the financial markets could adversely affect our financial condition and that of our managers, operators and tenants, could adversely impact the ability of our managers, operators, tenants or residents to pay the contractual amounts of returns, rents or other obligations due to us, could impair our ability to effectively deploy our capital or realize upon investments on favorable terms, may restrict our access to, and would likely increase our cost of capital, and may cause the values of our properties and of our securities to decline.

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.

However, 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.

However, it is unclear whether COVID-19 infection rates will surge again in the future or if other variants of that virus or other public health events will arise 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.

It is also uncertain what the impact of changing market and economic conditions would be on our and 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.

As a result of these uncertainties, we are unable to determine what the ultimate impacts will be on our, our managers', operators', our tenants' and other stakeholders' businesses, operations, financial results and financial position.

For further information and risks relating to the COVID-19 pandemic and the economic uncertainty, and their impact on our business and financial condition, 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 June 30, 2022 Number

As of September 30, 2022 Number

of Properties Square Feet or Number of Units Gross Book Value of Real Estate Assets (1)

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Total 379 $ 6,990,098 100.0 % $ 322,920 100.0 % $ 33,824 100.0 %

As of and For the Three Months Ended June 30,

As of and For the Three Months Ended September 30,

Office Portfolio (5)

3 unchanged sentences

81.1 % 75.7 %

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 June 30, 2022.

(2) Represents gross book value of real estate assets divided by number of rentable square feet or living units, as applicable, at September 30, 2022.

(3) We calculate our NOI on a consolidated basis and by reportable segment.

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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 June 30, 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.

(5) Medical office and life science property occupancy data is as of September 30, 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 March 31, 2022 and 2021, or the most recent prior period for which tenant operating results are made available to us.

(7) Operating data for triple net leased senior living communities leased to third party operators is presented based upon the operating results provided by our tenants for the three months ended June 30, 2022 and 2021, 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 and six months ended June 30, 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 tables (dollars and square feet in thousands, except per square foot amounts):

Three Months Ended June 30, 2022

During the three and nine months ended September 30, 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 tables (dollars and square feet in thousands, except per square foot amounts):

Three Months Ended September 30, 2022

New Leases Renewals Total

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$ 10.95 $ 2.49 $ 3.89

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

New Leases Renewals Total

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$ 9.95 $ 2.47 $ 5.38

(1) Weighted based on annualized rental income pursuant to existing leases as of June 30, 2022, including straight line rent adjustments and estimated recurring expense reimbursements, and excluding lease value amortization.

(1) Weighted based on annualized rental income pursuant to existing leases as of September 30, 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.

Lease Expiration Schedules

As of June 30, 2022, lease expirations at our medical office and life science properties in our Office Portfolio segment are as follows (dollars in thousands):

As of September 30, 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)

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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 June 30, 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.

(1) Annualized rental income is based on rents pursuant to existing leases as of September 30, 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 and wellness centers that are leased to third party operators has not been provided because there were no changes to the lease expiration schedules from those reported in our Annual Report, except that in October 2022, we and a private operator agreed to terminate lease agreements for three of our senior living communities originally scheduled to expire in 2024 and 2030 and replace them with management agreements under our TRS structure.

RESULTS OF OPERATIONS (dollars and square feet in thousands, unless otherwise noted)

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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 and six months ended June 30, 2022 and 2021:

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

The following table summarizes the results of operations of each of our segments for the three and nine months ended September 30, 2022 and 2021:

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

2022 2021 2022 2021

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The following sections analyze and discuss the results of operations of each of our segments for the periods presented.

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 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 June 30, 2022 to the three months ended June 30, 2021.

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 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 September 30, 2022 to the three months ended September 30, 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 June 30,

Three Months Ended September 30,

2022 2021 $ Change % Change

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Acquisition and certain other transaction related costs 289 3,108 (2,819) (90.7) %

(Loss) gain on sale of properties (686) 30,760 (31,446) (102.2) %

(Loss) gain on sale of properties (5,044) 200 (5,244) nm

Losses on equity securities, net (2,674) (14,755) 12,081 (81.9) %

Interest and other income 2,266 16,038 (13,772) (85.9) %

Interest and other income 4,099 976 3,123 nm

Interest expense

(46,936) (64,493) 17,557 (27.2) %

Loss on modification or early extinguishment of debt (29,560) (370) (29,190) nm

Loss from continuing operations before income tax benefit (expense) and equity in earnings of investees (113,227) (32,454) (80,773) 248.9 %

Income tax benefit (expense) 640 (191) 831 nm

Loss from continuing operations before income tax expense and equity in earnings of investees (83,606) (87,409) 3,803 (4.4) %

Income tax expense (13) (595) 582 (97.8) %

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

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All Properties

As of June 30, As of June 30,

As of September 30, As of September 30,

2022 2021 2022 2021

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90.2 % 91.4 % 85.9 % 91.3 %

(1) Consists of medical office and life science properties that we have owned and which have been in service continuously since April 1, 2021;

(1) Consists of medical office and life science properties that we have owned and which have been in service continuously since July 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.

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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.

Three Months Ended June 30,

Three Months Ended September 30,

Comparable (1)

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NOI $ 28,635 $ 27,616 $ 1,019 3.7 % $ 2,440 $ 31,518 $ 31,075 $ 59,134 $ (28,059) (47.4) %

(1) Consists of medical office and life science properties that we have owned and which have been in service continuously since April 1, 2021;

(1) Consists of medical office and life science properties that we have owned and which have been in service continuously since July 1, 2021;

Rental income.

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.

Rental income decreased primarily due to the deconsolidation of 11 medical office and life science properties currently owned by two unconsolidated joint ventures in each of which we own an equity interest and properties being taken out of service and/or currently undergoing redevelopment, partially offset by our acquisition of one property since July 1, 2021 and an increase in rental income at our comparable properties and at our recently redeveloped properties.

Rental income increased at our comparable properties primarily due to higher average rents resulting from our new and renewal leasing activity and increases in property operating expense reimbursements at certain of our comparable properties, partially offset by decreases in occupancy 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 two unconsolidated joint ventures in each of which we own an equity interest and our disposition of four properties since April 1, 2021, partially offset by an increase in property operating expenses at our comparable properties, which increased primarily due to increases in real estate taxes and other direct costs at certain of our comparable properties.

The decrease in property operating expenses is primarily due to the deconsolidation of 11 medical office and life science properties currently owned by two unconsolidated joint ventures in each of which we own an equity interest and properties being taken out of service and/or currently undergoing redevelopment, partially offset by our acquisition of one property since July 1, 2021 and an increase in property operating expenses at our comparable properties and at our recently redeveloped properties.

Property operating expenses at our comparable properties increased primarily due to increases in utility expenses and other direct costs at certain of our comparable properties.

The increase in utility expenses for our comparable properties is primarily due to higher energy rates and increased building utilization levels at certain of our properties.

Net operating income.

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As of and For the Three Months As of and For the Three Months

Ended June 30, Ended June 30,

Ended September 30, Ended September 30,

2022 2021 2022 2021

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$ 4,158 $ 3,937 $ 4,509 $ 4,234

(1) Consists of senior living communities that we have owned and which have been operated by the same operator continuously since April 1, 2021;

(1) Consists of senior living communities that we have owned and which have been operated by the same operator continuously since July 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 June 30,

Three Months Ended September 30,

Comparable (1)

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NOI $ 5,368 $ 7,326 $ (1,958) (26.7) % $ (11,130) $ (5,000) $ (5,762) $ 2,326 $ (8,088) (347.7) %

(1) Consists of senior living communities that we have owned and which have been operated by the same operator continuously since April 1, 2021;

(1) Consists of senior living communities that we have owned and which have been operated by the same operator continuously since July 1, 2021;

excludes communities classified as held for sale or closed, if any.

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We recognize these revenues as services are provided and related fees are accrued.

Residents fees and services increased primarily due to increases in occupancy and average monthly rate at both comparable and non-comparable properties, partially offset by our closure of one property since April 1, 2021.

Residents fees and services at our comparable properties decreased due to the closure of skilled nursing units during the three months ended June 30, 2021.

Property operating expenses.

Property operating expenses consist of real estate taxes, utility expenses, insurance, salaries and benefit costs of property level personnel, repairs and maintenance expense, management fees, cleaning expense and other direct costs of operating these communities.

Property operating expenses increased primarily due to increases in labor costs, variable costs resulting from higher occupancy at certain of our properties and increases to our insurance premiums for certain of our properties.

These increases were partially offset by the closure of skilled nursing units at certain of our comparable properties during the three months ended June 30, 2021 and our closure of one property since April 1, 2021.

Property operating expenses consist of wages and benefit costs of property level personnel, real estate taxes, utility expenses, insurance, repairs and maintenance expense, management fees, cleaning expense and other direct costs

of operating these communities.

Property operating expenses increased primarily due to increases in labor costs, insurance deductibles and other costs associated with Hurricane Ian's damage at certain of our managed senior living communities in Florida, inflationary cost pressures related to food and energy and increased sales and marketing costs to improve occupancy.

These increases were partially offset by our closure of one property since July 1, 2021.

Net operating income.

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All Properties

As of and For the Three Months Ended June 30, As of and For the Three Months Ended June 30,

As of and For the Three Months Ended September 30, As of and For the Three Months Ended September 30,

2022 2021 2022 2021

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1.72 x 1.51 x 1.72 x 1.51 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 April 1, 2021;

(1) Non-segment operations consists of all of our other operations, including certain senior living communities and wellness centers that are leased to third party operators, 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 July 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 March 31, 2022 and 2021 or the most recent prior period for which tenant operating results are available to us.

(3) All tenant operating data presented is based upon the operating results provided by our tenants for the 12 months ended June 30, 2022 and 2021 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.

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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 June 30,

Excludes rent coverage for six of our wellness centers, the tenant of which was in default under the applicable leases with us as of September 30, 2022.

Three Months Ended September 30,

Comparable (1)

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Rental income $ 8,706 $ 9,883 $ (1,177) (11.9) % $ — $ — $ 8,706 $ 9,883 $ (1,177) (11.9) %

Property operating expenses (195) — 195 nm — — (195) — 195 nm

NOI $ 8,511 $ 9,883 $ (1,372) (13.9) % $ — $ — $ 8,511 $ 9,883 $ (1,372) (13.9) %

(1) Consists of properties that we have owned and which have been leased to the same operator continuously since April 1, 2021;

nm - not meaningful

(1) Consists of properties that we have owned and which have been leased to the same operator continuously since July 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 and as a result of our purchase of improvements at our comparable properties since April 1, 2021.

Rental income increased at our comparable properties primarily due to higher cash rents received during the three months ended June 30, 2022 from a tenant that previously defaulted under leases for six of our wellness centers.

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.

Increases in rental income were partially offset by rents being reserved for a defaulted tenant at one of our senior living communities.

Rental income decreased primarily due to a decrease in rental income at our comparable properties, partially offset by an increase in rental income as a result of our purchase of improvements at our comparable properties since July 1, 2021.

Rental income decreased at our comparable properties primarily due to lower cash rents received during the three months ended September 30, 2022 from a tenant in default under leases for six of our wellness centers.

We have elected to recognize rental income as rent payments are received and we continue to evaluate our options with respect to this tenant default.

In October 2022, we and one of our private operators agreed to terminate lease agreements for three of our senior living communities and replace them with management agreements under our TRS structure.

The same private operator will continue to operate these properties.

Property operating expenses.

Property operating expenses consist of real estate taxes and other expenses we paid on behalf of a tenant in default under leases for six of our wellness centers.

Since this tenant is currently in default under leases for six of our wellness centers, we expect to continue to incur real estate taxes and other direct costs of operating these properties.

Net operating income.

The change in NOI reflects the net changes in rental income described above.

The change in NOI reflects the net changes in rental income and property operating expenses described above.

Consolidated :

Depreciation and amortization expense.

Depreciation and amortization expense decreased primarily due to the deconsolidation of 11 medical office and life science properties owned by two unconsolidated joint ventures in each of which we own an equity interest, our disposition of four properties and certain depreciable assets becoming fully depreciated since April 1, 2021.

Decreases to depreciation and amortization expense were partially offset by the purchase of capital improvements at certain of our properties since April 1, 2021.

Depreciation and amortization expense decreased primarily due to the deconsolidation of 11 medical office and life science properties owned by two unconsolidated joint ventures in each of which we own an equity interest and certain depreciable assets becoming fully depreciated since July 1, 2021.

Decreases to depreciation and amortization expense were partially offset by the purchase of capital improvements at certain of our properties and our acquisition of one property since July 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 June 30, 2022 compared to the three months ended June 30, 2021.

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 September 30, 2022 compared to the three months ended September 30, 2021.

Acquisition and certain other transaction related costs.

For the three months ended June 30, 2022 and 2021, acquisition and certain other transaction related costs primarily represent costs related to the transition of certain senior living communities to new third party managers.

For the three months ended September 30, 2022 and 2021, acquisition and certain other transaction related costs primarily represent costs related to the transition of certain senior living communities to other third party managers.

(Loss) gain on sale of properties.

(Loss) gain on sale of properties is the net result of our sale of certain of our properties and joint venture equity interests during the three months ended June 30, 2022 and 2021.

The loss on sale of properties during the three months ended June 30, 2022 reflects our sale of a 10% equity interest in our Boston life science property joint venture.

(Loss) gain on sale of properties is the net result of our sale of certain of our properties and joint venture equity interests during the three months ended September 30, 2022 and 2021.

The loss on sale of properties during the three months ended September 30, 2022 reflects final proration adjustments related to the sale of 10 medical office and life science properties to the LSMD JV in which we retained a 20% equity interest.

For further information regarding (loss) gain 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.

3 unchanged sentences

Interest and other income.

The decrease in interest and other income is primarily due to $760 of funds we received from the U.S.

government pursuant to the CARES Act during the three months ended June 30, 2022 compared to $15,748 received during the three months ended June 30, 2021.

The increase in interest and other income is primarily due to higher interest earned during the three months ended September 30, 2022 as a result of higher interest rates compared to the three months ended September 30, 2021.

Increases to interest and other income were partially offset by $125 of funds we received from the U.S.

government pursuant to the CARES Act during the three months ended September 30, 2022 compared to $786 received during the three months ended September 30, 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.

Additionally, interest expense decreased due to our redemption in June 2021 of all $300,000 of our 6.75% senior notes due 2021, our redemption in June 2022 of $500,000 of our 9.75% senior notes due 2025 and a decrease in average borrowings under our revolving credit facility.

Interest expense decreased primarily due to the deconsolidation of the debt secured by one life science property owned by the Seaport JV and due to our redemption in June 2022 of $500,000 of our 9.75% senior notes due 2025.

These decreases were partially offset by an increase in interest rates under our revolving credit facility during the 2022 period.

Loss on modification or early extinguishment of debt.

During the three months ended June 30, 2022, we recorded a loss on early extinguishment of debt in connection with our redemption of $500,000 of our 9.75% senior notes due 2025, partially offset by a gain on early extinguishment of debt in connection with our prepayment of a mortgage note.

We also recorded a loss in connection with our redemption of all $300,000 of our 6.75% senior notes due 2021 during the three months ended June 30, 2021.

Income tax benefit (expense) .

Income tax benefit (expense) is the result of operating income we earned in certain jurisdictions where we are subject to state income taxes.

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.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 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 six months ended June 30, 2022 to the six months ended June 30, 2021.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 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 nine months ended September 30, 2022 to the nine months ended September 30, 2021.

Six Months Ended June 30,

Nine Months Ended September 30,

2022 2021 $ Change % Change

24 unchanged sentences

All Properties

As of June 30, As of June 30,

As of September 30, As of September 30,

2022 2021 2022 2021

9 unchanged sentences

Six Months Ended June 30,

Nine Months Ended September 30,

Comparable (1)

8 unchanged sentences

Rental income.

Rental income decreased primarily due to the deconsolidation of 11 medical office and life science properties currently owned by two unconsolidated joint ventures in each of which we own an equity interest, our disposition of five properties since January 1, 2021 and properties being taken out of service and/or currently undergoing redevelopment, partially offset by our acquisition of one property since January 1, 2021 and an increase in rental income at our comparable properties and at our recently redeveloped properties.

Rental income increased at our comparable properties primarily due to higher average rents resulting from our new and renewal leasing activity, increased parking revenue at certain of our comparable properties as certain states and municipalities have eased restrictions related to the COVID-19 pandemic since January 1, 2021, tenants' employees have increasingly returned to the office and commercial activity has increased and increases in property operating expense reimbursements at certain of our comparable properties, partially offset by decreases in occupancy at certain of our comparable properties.

Property operating expenses.

The decrease in property operating expenses is primarily due to the deconsolidation of 11 medical office and life science properties currently owned by two unconsolidated joint ventures in each of which we own an equity interest and our disposition of five properties since January 1, 2021, partially offset by an increase in property operating expenses at our comparable properties, which increased primarily due to increases in utility expenses, landscaping expenses and other direct costs at certain of our comparable properties.

The decrease in property operating expenses is primarily due to the deconsolidation of 11 medical office and life science properties currently owned by two unconsolidated joint ventures in each of which we own an equity interest, our disposition of five properties since January 1, 2021 and properties being taken out of service and/or currently undergoing redevelopment, partially offset by our acquisition of one property since January 1, 2021 and an increase in property operating expenses at our comparable properties and at our recently redeveloped properties.

Property operating expenses at our comparable properties increased primarily due to increases in utility expenses and other direct costs at certain of our comparable properties.

The increase in utility expenses for our comparable properties is primarily due to higher energy rates and increased building utilization levels at certain of our properties.

Net operating income.

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All Properties

As of and For the Six Months Ended June 30, As of and For the Six Months Ended June 30,

As of and For the Nine Months Ended September 30, As of and For the Nine Months Ended September 30,

2022 2021 2022 2021

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Six Months Ended June 30,

Nine Months Ended September 30,

Comparable (1)

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Residents fees and services.

Residents fees and services decreased primarily due to the closure of skilled nursing units at certain of our comparable properties during the six months ended June 30, 2021 and 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 both comparable and non-comparable properties.

Residents fees and services at our comparable properties decreased due to the closure of skilled nursing units at certain of our comparable properties during the nine months ended September 30, 2021.

Property operating expenses.

Property operating expenses decreased primarily due to the closure of skilled nursing units at certain of our comparable properties during the six 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.

Additionally, property operating expenses increased due to increases to our insurance premiums for certain of our properties.

These increases were partially offset by our closure of one property since January 1, 2021.

Property operating expenses at our comparable properties decreased primarily due to the closure of skilled nursing units at certain of our comparable properties during the nine months ended September 30, 2021, partially offset by the increased property operating expenses referenced above.

Net operating income.

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All Properties

As of and For the Six Months Ended June 30, As of and For the Six Months Ended June 30,

As of and For the Nine Months Ended September 30, As of and For the Nine Months Ended September 30,

2022 2021 2022 2021

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1.72 x 1.51 x 1.72 x 1.51 x

(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.

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Six Months Ended June 30,

Excludes rent coverage for six of our wellness centers, the tenant of which was in default under the applicable leases with us as of September 30, 2022.

Nine Months Ended September 30,

Comparable (1)

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Rental income $ 28,906 $ 28,908 $ (2) 0.0 % $ — $ — $ 28,906 $ 28,908 $ (2) 0.0 %

Property operating expenses (195) — 195 nm — — (195) — 195 nm

NOI $ 28,711 $ 28,908 $ (197) (0.7) % $ — $ — $ 28,711 $ 28,908 $ (197) (0.7) %

nm - not meaningful

(1) Consists of properties that we have owned and which have been leased to the same operator continuously since January 1, 2021;

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Rental income.

Rental income increased primarily due to an increase in rental income at our comparable properties as a result of our purchase of improvements 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 during the six months ended June 30, 2022 from a tenant that previously defaulted under leases for six of our wellness centers.

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.

There were no meaningful changes to rental income during the nine months ended September 30, 2022 compared to the 2021 period.

Property operating expenses.

Property operating expenses consist of real estate taxes and other expenses we paid on behalf of a tenant in default under leases for six of our wellness centers.

Since this tenant is currently in default under leases for six of our wellness centers, we expect to continue to incur real estate taxes and other direct costs of operating these properties.

Net operating income.

The change in NOI reflects the net changes in rental income described above.

The change in NOI reflects the net changes in rental income and property operating expenses described above.

Consolidated :

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Depreciation and amortization expense decreased primarily due to the deconsolidation of 11 medical office and life science properties owned by two unconsolidated joint ventures in each of which we own an 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.

Decreases to depreciation and amortization expense were partially offset by the purchase of capital improvements at certain of our properties and our acquisition of one property since January 1, 2021.

General and administrative expense .

General and administrative expense decreased primarily due to a decrease in our base business management fees expense as a result of lower trading prices for our common shares and lower consolidated indebtedness during the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

General and administrative expense decreased primarily due to a decrease in our base business management fees expense as a result of lower trading prices for our common shares and lower consolidated indebtedness during the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021.

Acquisition and certain other transaction related costs.

For the six months ended June 30, 2022 and 2021, acquisition and certain other transaction related costs primarily represent costs related to the transition of certain senior living communities to new third party managers.

For the nine months ended September 30, 2022 and 2021, acquisition and certain other transaction related costs primarily represent costs related to the transition of certain senior living communities to other third party managers.

Impairment of assets.

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Gain on sale of properties.

Gain on sale of properties is the net result of our sale of certain of our properties and joint venture equity interests during the six months ended June 30, 2022 and 2021.

The gain on sale of properties during the six months ended June 30, 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 and our sale of a 10% equity interest in our Boston life science property joint venture.

Gain on sale of properties is the net result of our sale of certain of our properties and joint venture equity interests during the nine months ended September 30, 2022 and 2021.

The gain on sale of properties during the nine months ended September 30, 2022 reflects our sale of 10 medical office and the LSMD JV in which we retained a 20% equity interest and our sale of a 10% equity interest in the Seaport JV.

For further information regarding gain 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.

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The decrease in interest and other income is primarily due to $1,084 of funds we received from the U.S.

government pursuant to the CARES Act during the six months ended June 30, 2022 compared to $18,181 received during the six months ended June 30, 2021.

government pursuant to the CARES Act during the nine months ended September 30, 2022 compared to $18,967 received during the nine months ended September 30, 2021.

Decreases to interest and other income were partially offset by higher interest earned during the nine months ended September 30, 2022 as a result of higher interest rates compared to the nine months ended September 30, 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.

Additionally, interest expense decreased due to our prepayment in February 2021 of our $200,000 term loan, our redemption in June 2021 of all $300,000 of our 6.75% senior notes due 2021 and our redemption in June 2022 of $500,000 of our 9.75% senior notes due 2025.

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 interest rates under our revolving credit facility during the 2022 period.

Interest expense decreased primarily due to the deconsolidation of the debt secured by one life science property owned by the Seaport JV and due to our prepayment in February 2021 of our $200,000 term loan, our redemption in June 2021 of all $300,000 of our 6.75% senior notes due 2021 and our redemption in June 2022 of $500,000 of our 9.75% senior notes due 2025.

These decreases were partially offset by an increase in average borrowings under our revolving credit facility, our issuance in February 2021 of $500,000 aggregate principal amount of our 4.375% senior notes due 2031 and an increase in interest rates under our revolving credit facility during the 2022 period.

Loss on modification or early extinguishment of debt.

During the six months ended June 30, 2022, we recorded a loss on modification or early extinguishment of debt in connection with the amendment to our credit agreement and our redemption of $500,000 of our 9.75% senior notes due 2025, partially offset by a gain on early extinguishment of debt in connection with our prepayment of a mortgage note.

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, our prepayment of our $200,000 term loan and our redemption of all $300,000 of our 6.75% senior notes due 2021 during the six months ended June 30, 2021.

During the nine months ended September 30, 2022, we recorded a loss on modification or early extinguishment of debt in connection with the amendment to our credit agreement and our redemption of $500,000 of our 9.75% senior notes due 2025, partially offset by a gain on early extinguishment of debt in connection with our prepayment of a mortgage note.

Income tax expense .

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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 and six months ended June 30, 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.

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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.

In calculating Normalized FFO attributable to common shareholders, we adjust for the items shown below.

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.

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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 and six months ended June 30, 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.

Our calculations of FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the three and nine months ended September 30, 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.

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

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

2022 2021 2022 2021

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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 and six months ended June 30, 2022 and 2021.

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

The following table includes the reconciliation of net income (loss) to NOI for the three and nine months ended September 30, 2022 and 2021.

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

2022 2021 2022 2021

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

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

(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 expense 13 595 845 1,024

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

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

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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;

• our ability to receive rents from our tenants;

• our ability to maintain or increase the occupancy of, and the 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 high inflation or supply chain challenges;

• our managers' abilities to maintain or increase our returns from our managed senior living communities.

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 and reduced the borrowing capacity under our revolving credit

facility to $700.0 million pursuant to the February 2022 amendment to our credit agreement.

In February 2022, we repaid $100.0 million of this borrowing and reduced 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 in January 2023 and as such, further repayment of our revolving credit facility will be required by that time.

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, increasing interest rates, a possible recession or other economic, market or industry conditions may cause further increased pressure on our ability to satisfy financial and other covenants.

Pursuant to our

credit agreement, the borrowing capacity under our revolving credit facility will be reduced to $586.4 million in January 2023 and, as such, we will be required to repay $113.6 million under our revolving credit facility by that time.

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, high inflation, rising interest rates, geopolitical risks or other economic, market or industry conditions, including a possible recession, 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 June 30, 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.

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.

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

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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 $702.5 million, less approximately $456.6 million of secured debt on the properties incurred by this joint venture.

In June 2022, we sold an additional 10% equity interest in our Boston life science property joint venture to an existing joint venture investor.

The net proceeds of $109.0 million, 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.

The initial investment amounts were 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.

In June 2022, we sold an additional 10% equity interest in the Seaport JV to an existing joint venture investor for aggregate proceeds, before closing costs and other adjustments, of $108.0 million.

After giving effect to this sale, we continue to own a 10% equity interest in this joint venture.

Our investment amount was based on a property valuation of $1.7 billion, less $620.0 million of existing mortgage debts on the property that this joint venture assumed.

Our initial investment amount was based on a property valuation of $1.7 billion, less $620.0 million of existing mortgage debts on the property that this joint venture assumed.

The measures we have taken to enhance our ability to maintain sufficient liquidity may not sufficiently offset the decrease in cash flows from operations as a result of the properties we have sold, operating losses we may experience 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):

Six Months Ended June 30,

Nine Months Ended September 30,

Cash and cash equivalents and restricted cash at beginning of period $ 1,016,945 $ 90,849

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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 six months ended June 30, 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.

These decreases were partially offset by the cash distributions we received from our unconsolidated joint venture interests.

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.

The increase in cash used in operating activities for the nine months ended September 30, 2022 compared to the prior period was primarily due to reduced NOI as a result of the deconsolidation of joint venture properties during 2021 and 2022, as well as wage inflation and other cost pressures in the senior living communities in our SHOP segment, and dispositions of properties during 2021.

These decreases were partially offset by the cash distributions we received from our unconsolidated joint venture interests and increased NOI as a result of our acquisition of one property during 2022.

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.

Our Investing Liquidity and Resources

The increase in cash provided by investing activities for the six months ended June 30, 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 change in cash provided by (used in) investing activities for the nine months ended September 30, 2022 compared to the prior period was primarily due to proceeds from our sale of 10 medical office and life science properties to the LSMD JV in which we retained a 20% equity interest and our sale of a 10% equity interest in the Seaport JV, partially offset by less proceeds from the sale of real estate properties, an increase in real estate acquisitions 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 June 30, Six Months Ended June 30,

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

2022 2021 2022 2021

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(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.

(2) Office Portfolio segment building improvements generally include capital 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.

We also expect to purchase additional properties that we believe will enhance our portfolio and provide future returns.

As of June 30, 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 $53.6 million, of which we expect to spend approximately $36.8 million during the next 12 months.

In 2022, we expect to incur capital expenditures in excess of 2021 levels, but below the $400.0 million limit allowed pursuant to our credit agreement.

As of September 30, 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 $46.4 million, of which we expect to spend approximately $32.4 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 related to contributions we may make of properties we own to 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.

Our redevelopment in Decatur, GA is currently expected to be completed in 2022.

Our redevelopments at our properties in Tempe, AZ, Irving, TX, Mansfield, MA and Washington, D.C.

are expected to be completed at various times between 2023 and 2025.

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 Spring, 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.

In July 2022, we acquired one life science property located in California with approximately 89,000 square feet for a purchase price of approximately $82.0 million, excluding closing costs.

In July 2022, we acquired one life science property located in California with approximately 88,508 square feet for approximately $75.1 million, including closing costs and credits.

We funded this acquisition using cash on hand.

As noted above, our ability to make capital investments is currently limited pursuant to our credit agreement.

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Our Financing Liquidity and Resources

The change in cash (used in) provided by financing activities for the six months ended June 30, 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 in the 2021 period, 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, increased senior unsecured notes redemption amounts in the 2022 period compared to the 2021 period and a prepayment premium paid in the 2022 period for the redemption of $500.0 million of our outstanding 9.75% senior notes due 2025, partially offset by our repayment in February 2021 of our $200.0 million term loan.

Additionally, our Boston life science property joint venture did not pay distributions during the 2022 period related to our noncontrolling interest that we deconsolidated in 2021.

As of June 30, 2022, we had $705.2 million of cash and cash equivalents and were fully drawn under our revolving credit facility.

The change in cash (used in) provided by financing activities for the nine months ended September 30, 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 in the 2021 period, 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, increased senior unsecured notes redemption amounts in the 2022 period compared to the 2021 period, increased repayment of other debt and a prepayment premium paid in the 2022 period for the redemption of $500.0 million of our outstanding 9.75% senior notes due 2025, partially offset by our repayment in February 2021 of our $200.0 million term loan.

Additionally, the Seaport JV did not pay distributions during the 2022 period related to our noncontrolling interest that we deconsolidated in 2021.

As of September 30, 2022, we had $691.0 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.

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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 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.

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

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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 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.

Pursuant to our credit agreement, the borrowing capacity under our revolving credit facility will be further reduced to $586.4 million in January 2023 and, as such, we will be required to repay $113.6 million under our revolving credit facility by that time.

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

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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.

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.

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We may also assume debt in connection with our acquisitions of properties or place new debt on properties we own.

During the six months ended June 30, 2022, we paid quarterly cash distributions to our shareholders totaling approximately $4.8 million using existing cash balances.

On July 14, 2022, we declared a quarterly distribution payable to common shareholders of record on July 25, 2022 in the amount of $0.01 per share, or approximately $2.4 million.

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

During the nine months ended September 30, 2022, we paid quarterly cash distributions to our shareholders totaling approximately $7.2 million using existing cash balances.

On October 13, 2022, we declared a quarterly distribution payable to common shareholders of record on October 24, 2022 in the amount of $0.01 per share, or approximately $2.4 million.

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

For further information regarding the distribution we paid 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.

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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.

Our credit and debt ratings 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.

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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, including a possible recession, may have various negative consequences including a decline in financing availability and increased costs for financing.

A protracted negative impact on the economy or the industries in which our properties and businesses operate resulting from the COVID-19 pandemic, high inflation, rising interest rates, geopolitical risks or other economic, market or industry conditions, including a possible recession, 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.

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In July 2022, we prepaid a mortgage note secured by two of our senior living communities with an outstanding principal balance of approximately $15.3 million, 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 $10.3 million, a maturity date in October 2022 and an annual interest rate of 4.85%, using cash on hand.

Pursuant to our credit agreement, the borrowing capacity under our revolving credit facility will be reduced to $586.4 million in January 2023 and, as such, we will be required to repay $113.6 million under our revolving credit facility by that time.

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.

In February 2022, Moody's Investors Service, or Moody's, downgraded our 9.75% senior notes due 2025 rating from Ba3 to B2, our 4.375% senior notes due 2031 rating from Ba3 to B2 and our senior unsecured debt rating from B1 to B3.

In September 2022, Moody's downgraded our 9.75% senior notes due 2025 rating from B2 to B3, our 4.375% senior notes due 2031 rating from B2 to B3 and our senior unsecured debt rating from B3 to Caa1.

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.

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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.

Further, those plans may be further impacted by the COVID-19 pandemic, high inflation, rising interest rates, geopolitical risks or other economic, market or industry conditions, including a possible recession.

Debt Covenants

Our principal debt obligations at June 30, 2022 were:

Our principal debt obligations at September 30, 2022 were:

(1) outstanding borrowings under our $700.0 million revolving credit facility;

(2) $2.4 billion outstanding principal amount of senior unsecured notes;

and (3) $50.7 million aggregate principal amount of mortgage notes (excluding premiums, discounts and net debt issuance costs) secured by five properties.

and (3) $35.2 million aggregate principal amount of mortgage notes (excluding premiums, discounts and net debt issuance costs) secured by three 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.

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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 September 30, 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, high inflation, rising interest rates, geopolitical risks or other economic, market or industry conditions, including a possible recession, 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.

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As of June 30, 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, subject to the waivers noted above.

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, including a possible recession, may cause increased pressure on our ability to satisfy financial and other covenants.

As of September 30, 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, subject to the waivers noted above.

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, high inflation, rising interest rates, geopolitical risks or other economic, market or industry conditions, including a possible recession, may cause increased pressure on our ability to satisfy financial and other covenants.

Continued availability of borrowings under our revolving credit facility is subject to our satisfying certain financial covenants and other credit facility conditions.

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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.

The loan agreements governing the aggregate $620.0 million secured debt financing related to the Seaport JV 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.

The debt secured by the properties included in the LSMD JV in which we own a 20% equity interest is guaranteed by this joint venture.

Supplemental Guarantor Information

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On February 3, 2021, we issued $500.0 million of our 4.375% senior notes due 2031.

As of June 30, 2022, all $500.0 million 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.

As of September 30, 2022, all $500.0 million 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 June 30, 2022.

Our remaining $1.35 billion of senior unsecured notes do not have the benefit of any guarantees as of September 30, 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.

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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):

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Real estate properties, net $ 3,971,422 $ 3,865,170

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Total liabilities $ 3,308,630 $ 3,900,652

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Revenues $ 840,159

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We have relationships and historical and continuing transactions with RMR, RMR Inc., AlerisLife (including Five Star) and others related to them.

Form 10-Q, our Annual Report, our definitive Proxy Statement for our 2022 Annual Meeting of Shareholders and our other filings with the SEC.

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.

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Impact of Government Reimbursement

For the six months ended June 30, 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.

For the nine months ended September 30, 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 six months ended June 30, 2022 and 2021, we recognized $1.0 million and $18.2 million, respectively, in interest and other income in our condensed consolidated statements of comprehensive income (loss) related to funds received under the CARES Act.

During the nine months ended September 30, 2022 and 2021, we recognized $1.1 million and $19.0 million, respectively, in interest and other income in our condensed consolidated statements 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.

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 2. Management’s Discussion and Analysis