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Item 7. Management’s Discussion and Analysis

2023-03-01 compared with 2022-02-24 · 256 added, 301 removed, 462 unchanged (55% of the section changed)

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The following discussion should be read in conjunction with our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

We are a REIT that was organized under Maryland law and which owns medical office and life science properties, senior living communities and other healthcare related properties throughout the United States.

We are a REIT organized under Maryland law and which owns medical office and life science properties, senior living communities and other healthcare related properties throughout the United States.

As of December 31, 2022, we wholly owned 379 properties, including eight closed senior living communities, located in 36 states and Washington, D.C.

At December 31, 2022, the gross book value of our real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, was $7.1 billion.

As of December 31, 2021, we owned a 20% equity interest in an unconsolidated joint venture that owns a life science property located in Boston, Massachusetts with approximately 1.1 million rentable square feet that was 100% leased with an average (by annualized rental revenues) remaining lease term of 7.0 years.

In January 2022, we entered into a joint venture for 10 medical office and life science properties we owned with two unrelated third party global institutional investors.

We continue to own a 20% equity interest in this joint venture.

Our business is focused on healthcare related properties, including medical office and life science properties, senior living communities, wellness centers and other medical and healthcare related properties.

We believe that the healthcare sector and many of our tenants, managers and operators provide essential services across the United States.

Due to restrictions intended to prevent the spread of the virus that causes COVID-19, certain of our medical office and wellness center tenants, which include physician practices that had discontinued non-essential surgeries and procedures and fitness centers, that had been ordered closed by state executive orders experienced disruptions to their businesses.

Our senior living community operators also experienced disruptions, including limitations on in-person tours and new admissions, and experienced challenges in attracting new residents to their communities in addition to experiencing increased expenses due to increased labor costs, including higher health benefits costs, and increased costs and consumption of supplies, including personal protective equipment.

There will be lasting impacts of the COVID-19 pandemic, even as states and municipalities have eased and may further ease restrictions.

Our tenants and their businesses may become increasingly negatively impacted, which may result in our tenants seeking assistance from us regarding their rent obligations owed to us, their being unable or unwilling to pay us rent, their ceasing to pay us rent and their ceasing to continue as going concerns.

We are closely monitoring the impacts of the COVID-19 pandemic on all aspects of our business, including, but not limited to, labor availability and cost pressures from supply chain disruptions and commodity price inflation in our SHOP segment.

With respect to our SHOP segment, we expect that our senior living community managers will be operating our communities at lower average occupancy with higher operating expenses per resident as a result of the COVID-19 pandemic, which will likely lead to decreased returns to us.

Our managers continue to follow federal, state and local health department guidelines and their own infection prevention protocols but we expect to see additional cases of COVID-19 in our senior living communities.

Throughout the first quarter of 2021, Five Star coordinated multiple COVID-19 vaccination clinics at all senior living communities in our SHOP segment for residents and staff.

As previously disclosed, all of the communities in our SHOP segment completed vaccination clinics and are accepting new residents.

On September 13, 2021, Five Star reported full compliance with its previously announced requirement that all of its team members at our communities managed by Five Star be fully vaccinated.

We also believe that we and our managers, operators and impacted tenants have and may continue to benefit from provisions of the CARES Act, signed into law in March 2020 and further supplemented by the Consolidated Appropriations Act, 2021, or other federal or state relief programs allowing them to continue or resume business activity.

During the year ended December 31, 2021, we recognized $19.6 million in interest and other income in our consolidated statement of comprehensive income (loss) related to funds received under the CARES Act.

We believe that we are well positioned to weather the present disruptions facing the real estate industry and, in particular, the real estate healthcare industry, including senior living.

In the first quarters of 2021 and 2022, following the holiday season, the reopening of economies and the easing of restrictions, the United States experienced peak numbers of COVID-19 infections.

In some cases, certain states and municipalities again required the closure of certain business activities and imposed certain other restrictions.

It is unclear whether the number of COVID-19 infections will further increase or amplify in the United States or elsewhere and, if so, what the impact of that would be on human health and safety, the economy, or our managers', operators' and tenants' businesses.

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

For further information and risks relating to the COVID-19 pandemic and its aftermath on us and our business, see elsewhere in this Annual Report on Form 10-K, including "Warning Concerning Forward-Looking Statements," Part I, Item 1 "Business" and Part I, Item 1A "Risk Factors".

As of December 31, 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 were 99% leased with an average (by annualized rental income) remaining lease term of 6.0 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 or sustained high interest rates, supply chain disruptions, geopolitical risks and economic downturns or recessions.

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

In response to inflationary pressures, the U.S.

Federal Reserve has significantly increased the federal funds rate since the beginning of 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 may soon enter an economic downturn or 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 or willingness 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 our 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.

The senior living industry experienced significant disruptions during the COVID-19 pandemic.

Although our and certain of our managers' and other operators' and tenants' businesses have improved from low points experienced during the COVID-19 pandemic, they have not returned to pre-pandemic levels and there is a risk that they may not return to pre-pandemic levels due to changed market practices, delayed returns to prior market practices, current market and economic conditions, such as rising or sustained high interest rates and high inflation, labor market challenges, supply chain challenges, geopolitical instability (such as the war in Ukraine) and economic downturns or recessions, or otherwise.

For example, occupancy in our SHOP segment has generally increased, but not to pre-pandemic levels, and we may continue to face challenges in our SHOP segment with labor availability and wage inflation, along with cost pressures from supply chain disruptions and commodity price inflation.

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 these economic uncertainties, including changes related to the COVID-19 pandemic, and their impact on our business and financial condition, see elsewhere in this Annual Report on Form 10-K, including "Warning Concerning Forward-Looking Statements," Part I, Item 1 "Business" and Part I, Item 1A "Risk Factors".

PORTFOLIO OVERVIEW

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Square Foot or Unit (2)

2021 Revenues (3)

% of 2021 Revenues 2021

2022 Revenues % of 2022 Revenues 2022

Office Portfolio (4)

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(2) Represents gross book value of real estate assets divided by number of rentable square feet or living units, as applicable, at December 31, 2022.

(3) Includes $3,592 of revenues and $2,963 of NOI from properties that we sold during the year ended December 31, 2021.

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

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

In addition, prior to January 1, 2020, our SHOP segment included triple net leased senior living communities that provided short term and long term residential living and in some instances care and other services for residents and from which we received rents from Five Star.

Pursuant to the 2020 Restructuring Transaction, effective January 1, 2020, our previously existing master leases and management and pooling agreements with Five Star were terminated and replaced with new management agreements and a related omnibus agreement, which agreements were subsequently replaced in June 2021.

We also report “non-segment” operations, which consists of triple net leased senior living communities that are leased to third party operators from which we receive rents and wellness centers.

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(2) Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent.

As of December 31, 2021, lease expirations at our medical office and life science properties in our Office Portfolio segment are as follows (dollars in thousands):

As of December 31, 2022, lease expirations at our medical office and life science properties in our Office Portfolio segment were 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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Advocate Aurora Health 631,529 8.5% $ 16,939 7.7% 2026 - 2031

Cedars-Sinai Medical Center 149,063 1.7% 17,046 6.2% 2022 - 2031

HCA Holdings Inc.

217,179 2.4% 7,071 2.6% 2022 - 2029

Surgalign Holdings, Inc.

94,457 1.3% 6,595 3.0% 2034

Medtronic, Inc.

Alamar Biosciences, Inc.

88,508 1.2% 6,149 2.8% 2034

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55,102 0.7% 5,114 2.3% 2033

Medtronic, Inc.

252,025 3.4% 4,879 2.2% 2023 - 2027

KSQ Therapeutics, Inc.

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232,521 3.1% 4,516 2.1% 2025

Seattle Genetics, Inc.

197,976 2.7% 4,014 1.8% 2027

197,976 2.2% 3,983 1.4% 2027

United Healthcare Services, Inc.

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Duke University 126,225 1.7% 3,751 1.7% 2024

Caremark, L.L.C.

182,540 2.0% 3,718 1.3% 2022 - 2025

PerkinElmer Health Sciences, Inc.

105,462 1.4% 3,681 1.7% 2028

New York University 109,983 1.2% 3,239 1.2% 2022 - 2027

Stryker Corporation 122,092 1.4% 3,160 1.1% 2030

Hawai'i Pacific Health 85,956 1.0% 3,087 1.1% 2024 - 2029

Ultragenyx Pharmaceutical Inc.

HCA Holdings Inc.

80,478 1.1% 3,405 1.6% 2023 - 2027

New York University 109,983 1.5% 3,239 1.5% 2023 - 2027

McKesson Corporation 470,991 6.3% 3,143 1.4% 2024 - 2028

Complete Genomics, Inc.

Ultragenyx Pharmaceutical Inc.

63,048 0.8% 3,098 1.4% 2026

Hawaii Pacific Health 85,956 1.2% 3,060 1.4% 2024 - 2029

Virginia Premier Health Plan, Inc.

135,375 1.8% 2,936 1.3% 2032

Emory University 126,461 1.4% 2,863 1.0% 2022 - 2023

The University of Kansas Health System 104,815 1.4% 2,414 1.1% 2027 - 2028

Allergan, Inc.

81,712 1.1% 2,236 1.0% 2027

Cytek Biosciences, Inc.

99,378 1.3% 2,213 1.0% 2029

Organogenesis Holdings Inc.

22,966 0.3% 2,209 1.0% 2031

All Other 3,501,659 46.8% 104,674 47.8% 2023 - 2043

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(1) Annualized rental income is based on rents pursuant to existing leases as of December 31, 2022, including straight line rent adjustments and estimated recurring expense reimbursements for certain net and modified gross leases and excluding lease value amortization at certain of our medical office and life science properties.

(2) In March 2021, we entered into a 12-year lease with Surgalign Holdings, Inc.

The lease relates to a recently redeveloped property we own located in San Diego, CA.

The term of the lease commences in the first quarter of 2022.

(3) In July 2021, we entered into a 10-year lease with KSQ Therapeutics, Inc.

The lease relates to an ongoing redevelopment of a property we own located in Lexington, MA.

The term of the lease commences upon our delivery of the completed space, which is estimated to occur in the second quarter of 2022.

Senior Housing Operating Portfolio

As of December 31, 2019, Five Star operated 244 of our senior living communities in our SHOP segment, of which 166 communities were leased to Five Star and 78 communities were managed by Five Star for our account.

Pursuant to the

2020 Restructuring Transaction, effective January 1, 2020, our previously existing master leases and management and pooling agreements with Five Star were terminated and replaced with new management agreements and a related omnibus agreement, which agreements were subsequently replaced in June 2021, as described below.

Pursuant to a restructuring of our business arrangements with Five Star effective January 1, 2020, or the 2020 Restructuring Transaction, our previously existing master leases and management and pooling agreements with Five Star were terminated and replaced with new management agreements and a related omnibus agreement, which agreements were subsequently replaced in June 2021, as described below.

The conversion of our leasing arrangements with Five Star to management arrangements was a significant change in our historical arrangements with Five Star and has resulted, and likely will continue to result in future periods, in our realizing significantly different operating results from our senior living communities, including increased variability.

As of December 31, 2022, Five Star managed 119 senior living communities for our account.

Also pursuant to the 2020 Restructuring Transaction, for the period beginning February 1, 2019 through December 31, 2019, the aggregate amount of monthly minimum rent payable to us by Five Star was reduced to $11.0 million as of February 1, 2019, which amount was then reduced during such period to approximately $10.8 million as a result of dispositions, and no additional rent was payable to us by Five Star for the period beginning February 1, 2019 through December 31, 2019.

In June 2021, we amended our then existing management arrangements with Five Star.

The principal changes to the management arrangements included:

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

• that we no longer had the right to sell up to an additional $682 million of senior living communities then managed by Five Star and terminate Five Star's management of those communities without our payment of a fee to Five Star;

• that Five Star is continuing to manage 120 of our senior living communities, and that the skilled nursing units in all of our continuing care retirement communities that Five Star is continuing to manage, which then included approximately 1,500 living units, have been closed and are being evaluated and repositioned;

• that beginning in 2025, we will have the right to terminate up to 10% of the senior living communities that Five Star is continuing to manage, based on total revenues per year, for failure to meet 80% of a target EBITDA for the applicable period;

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

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

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

Pursuant to these changes, we and Five Star entered into the Master Management Agreement for the senior living communities that Five Star is continuing to manage.

In June 2021, we amended our then existing management arrangements with Five Star and Five Star agreed to cooperate with us in transitioning 108 of our senior living communities to other third party managers.

We and Five Star entered into an amended and restated master management agreement, or the Master Management Agreement, for the senior living communities that Five Star is continuing to manage.

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

We have completed the transition of 107 senior living communities from Five Star to new third party managers and we have closed the remaining senior living community.

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

We lease nearly all of our senior living communities, including those managed by Five Star and by the new third party managers, to our TRSs.

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

For the year ended December 31, 2021, we recorded $17.4 million of these costs to acquisition and certain other transaction related costs in our consolidated statements of comprehensive income (loss).

The terms of the management agreements with the new third party managers are generally as follows:

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

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

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

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

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

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

The following table presents a summary of the new third party managers:

We completed the transition of 107 senior living communities from Five Star to other third party managers in 2021 and we have closed, and are assessing opportunities to redevelop, the remaining senior living community.

In October 2022, we and one of our operators agreed to terminate the lease agreements for three of these senior living communities and replaced them with management agreements under our TRS structure, and an affiliate of the same operator will continue to operate these properties.

Additionally, effective October 31, 2022, Five Star ceased managing our active adult community, and RMR assumed management of that community.

We lease nearly all of our senior living communities, including those managed by Five Star and by the other third party managers, to our TRSs.

We incurred costs related to retention and other transition costs with respect to these transitioned communities.

For the years ended December 31, 2022 and December 31, 2021, we recorded $2.1 million and $17.4 million, respectively, of these costs to acquisition and certain other transaction related costs in our consolidated statements of comprehensive income (loss).

The terms of the management agreements with the other third party managers are generally as follows:

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

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

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

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

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

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

The following table presents a summary of the other third party managers:

Manager Location Number of Communities Number of Units

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Oaks-Caravita Senior Care GA/SC 26 1,415

Oaks Senior Living GA 3 264

Omega Senior Living NE 1 69

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Total 111 7,623

For further information regarding the 2020 Restructuring Transaction, the terms of the Master Management Agreement and of the management agreements with the new third party managers and our other business arrangements with Five Star, see Note 6 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K, and for more information about our dealings and relationships with Five Star generally, and the risks which may arise as a result of these related person transactions, see “Risk Factors—Risks Related to Our Relationships with RMR LLC and AlerisLife (including Five Star)” in Part I, Item 1A of this Annual Report on Form 10-K, “—Related Person Transactions” below and Note 8 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

As of December 31, 2021, lease expirations at our other triple net leased senior living communities leased to third party operators and wellness centers are as follows (dollars in thousands):

For further information regarding the 2020 Restructuring Transaction, the terms of the Master Management Agreement and of the management agreements with the other third party managers and our other business arrangements with Five Star, see Note 6 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K, and for more information about our dealings and relationships with Five Star generally, and the risks which may arise as a result of these related person transactions, see “Risk Factors—Risks Related to Our Relationships with RMR and AlerisLife (including

Five Star)” in Part I, Item 1A of this Annual Report on Form 10-K, “—Related Person Transactions” below and Note 8 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

As of December 31, 2022, lease expirations at our other triple net leased senior living communities leased to third party operators and wellness centers were as follows (dollars in thousands):

Year Number of Properties Number of Units or Square Feet Annualized Rental Income (1)

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2024 — — — — % — %

2024 2 180 units 2,885 6.9 % 6.9 %

2025 — — — — % — %

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2028 6 354,000 sq.

6,000 14.3 % 31.5 %

2029 1 155 units 547 1.7 % 15.3 %

2030 2 283 units 3,496 10.7 % 26.0 %

2031 1 — — — % 26.0 %

2032 and thereafter 23 1,091 units and 458,000 sq.

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Annualized rental income includes estimated percentage rents and straight line rent adjustments and excludes lease value amortization.

(2) As a result of the COVID-19 pandemic's impact on operations at our wellness centers, we are negotiating with the tenant of six of our wellness centers with total annualized rental income of approximately $6.0 million.

In February 2022, we signed an amendment with this tenant to defer a portion of the rent owed to us for 12 months.

GENERAL INDUSTRY TRENDS

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We believe that about 35% of our total investments in our Office Portfolio segment may be considered biotech and life science properties as of December 31, 2022.

We believe that the primary market for senior living services is individuals age 80 and older, and, according to U.S.

Census data, that group is projected to be among the fastest growing age cohort in the United States over the next 20 years.

We believe that the primary market for senior living services is individuals age 80 and older.

According to U.S.

Census data, the age 75+ demographic is projected to be among the fastest growing age cohorts in the United States over the next 20 years, and according to the CMS, the age 85+ demographic is projected to grow over 30% over the next five years.

Also, as a result of medical advances, seniors are living longer.

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Despite this trend, future economic downturns, softness in the U.S.

housing market, higher levels of unemployment among our potential residents' family members, lower levels of consumer confidence, stock market volatility and/or changes in demographics could adversely affect the ability of seniors to afford the resident fees at our senior living communities.

housing market, higher levels of unemployment among our potential residents' family members, changes in demand and market practices, lower levels of consumer confidence, stock market volatility and/or changes in demographics could adversely affect the ability of seniors to afford the resident fees at our senior living communities.

The medical advances which are increasing average life spans are also causing some seniors to delay moving to senior living communities until they require greater care or to forgo moving to senior living communities altogether, but we do not believe this factor is sufficient to offset the long term positive demographic trends causing increased demand for senior living communities for the foreseeable future.

In recent years, a significant number of new senior living communities have been developed and continue to be developed.

Although the rate of newly started developments declined due to the COVID-19 pandemic, the increased supply of senior living communities that has resulted from recent development activity has increased competitive pressures on our managers and tenants, particularly in certain geographic markets where we own senior living communities, and we expect these competitive challenges to continue for at least the next few years.

Although the rate of newly started developments declined due to the COVID-19 pandemic and its aftermath, the increased supply of senior living communities that has resulted from recent development activity has increased competitive pressures on our managers and tenants, particularly in certain geographic markets where we own senior living communities, and we expect these competitive challenges to continue for at least the next few years.

These competitive challenges may prevent our managers and tenants from maintaining or improving occupancy and rates at our senior living communities, which may increase the risk of default under our leases, reduce the rents and returns we may receive and earn from our leased and managed senior living communities and adversely affect the profitability of our senior living communities, and may cause the value of our properties to decline.

In response to these competitive pressures, we have invested capital in our existing senior living communities and expect to continue to do so in order that our communities may remain competitive with newer communities.

For a discussion of and the risks relating to the COVID-19 pandemic on us and our business, see elsewhere in this Annual Report on Form 10-K, including "Warning Concerning Forward-Looking Statements," Part I, Item 1 "Business" and Part I, Item 1A "Risk Factors".

Recently, the costs of insurance have increased significantly, and these increased costs have had an adverse effect on us and our managers and tenants.

Increased insurance costs may adversely affect our managers' ability to operate our properties profitably and provide us with desirable returns and our tenants' ability to pay us rent or result in downward pressure on rents we can charge under new or renewed leases.

For a discussion of and the risks relating to these economic uncertainties, including changes related to the COVID-19 pandemic, and their impact on us and our business, see elsewhere in this Annual Report on Form 10-K, including "Warning Concerning Forward-Looking Statements," Part I, Item 1 "Business" and Part I, Item 1A "Risk Factors".

The senior living industry is subject to extensive and frequently changing federal, state and local laws and regulations.

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Unless otherwise indicated, references in this section to changes or comparisons of results, income or expenses refer to comparisons of the results for the year ended December 31, 2022 to the year ended December 31, 2021.

Our definition of NOI and our reconciliation of net income (loss) to NOI and a description of why we believe NOI is an appropriate supplemental measure are included below under the heading “Non-GAAP Financial Measures.” For a comparison of consolidated results for the year ended December 31, 2020 compared to the year ended December 31, 2019, see Part II, Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Our definition of NOI and our reconciliation of net income (loss) to NOI and a description of why we believe NOI is an appropriate supplemental measure are included below under the heading “Non-GAAP Financial Measures.” For a comparison of consolidated results for the year ended December 31, 2021 compared to the year ended December 31, 2020, see Part II, Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021.

For the Year Ended December 31,

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General and administrative 26,435 34,087 (7,652) (22.4) %

Acquisition and certain other transaction related costs 17,506 814 16,692 nm

Acquisition and certain other transaction related costs 2,605 17,506 (14,901) (85.1) %

Impairment of assets — (174) 174 (100.0) %

Gain on sale of properties 492,272 6,487 485,785 nm

Gains and losses on equity securities, net (42,232) 34,106 (76,338) (223.8) %

Gain on sale of properties 321,862 492,272 (170,410) (34.6) %

Loss on equity securities, net (25,660) (42,232) 16,572 (39.2) %

Interest and other income 15,929 20,635 (4,706) (22.8) %

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(209,383) (255,759) 46,376 (18.1) %

Gain on lease termination — 22,896 (22,896) (100.0) %

Loss on early extinguishment of debt (2,410) (427) (1,983) nm

Income (loss) from continuing operations before income tax expense 181,356 (133,057) 314,413 nm

Loss on modification or early extinguishment of debt (30,043) (2,410) (27,633) nm

(Loss) income from continuing operations before income tax expense and equity in net earnings of investees (21,119) 181,356 (202,475) nm

Income tax expense (710) (1,430) 720 (50.3) %

Net income (loss) 179,926 (134,307) 314,233 nm

Equity in net earnings of investees 6,055 — 6,055 nm

Net (loss) income (15,774) 179,926 (195,700) nm

Net income attributable to noncontrolling interest — (5,411) 5,411 (100.0) %

Net income (loss) attributable to common shareholders $ 174,515 $ (139,453) $ 313,968 nm

Net (loss) income attributable to common shareholders $ (15,774) $ 174,515 $ (190,289) nm

nm – not meaningful

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Total square feet 7,894 7,895 8,811 9,793

9,378 9,378 9,793 11,282

Occupancy 90.0 % 92.3 % 84.7 % 91.3 %

92.7 % 93.2 % 91.3 % 91.4 %

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

excludes properties classified as held for sale or out of service undergoing redevelopment, if any, and a life science property owned by an unconsolidated joint venture in which we own a 20% equity interest.

(2) Prior periods exclude space remeasurements made subsequent to those periods.

(3) Medical office and life science all properties occupancy includes (i) out of service assets undergoing redevelopment, (ii) space which is leased but is not occupied or is being offered for sublease by tenants, and (iii) space being fitted out for occupancy.

Comparable property occupancy excludes out of service assets undergoing redevelopment and a life science property owned by an unconsolidated joint venture in which we own a 20% equity interest.

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.

Year Ended December 31,

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

Rental income.

Rental income decreased primarily due to our disposition of 20 properties since January 1, 2020 and assets being taken out of service and/or undergoing redevelopment, partially offset by an increase in rental income at our comparable properties.

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

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 certain of our 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 certain of 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.

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

The decrease in property operating expenses is primarily due to our disposition of 20 properties since January 1, 2020, partially offset by an increase in property operating expenses at our comparable properties.

Property operating expenses at our comparable properties increased primarily due to increases in utility expenses and landscaping expenses, partially offset by decreases in real estate taxes, repairs and maintenance and other direct costs at certain of our comparable properties.

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 certain of our 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 certain of 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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$ 4,164 $ 3,985 $ 4,506 $ 4,339

(1) Consists of senior living communities that we have owned and which have been operated by the same operator continuously since January 1, 2020;

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

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

excludes communities classified as held for sale, closed or out of service, 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.

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NOI $ 44,480 $ 35,293 $ 9,187 26.0 % $ (35,754) $ (25,169) $ 8,726 $ 10,124 $ (1,398) (13.8) %

(1) Consists of senior living communities that we have owned and which have been operated by the same operator continuously since January 1, 2020;

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

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

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

Residents fees and services.

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

Residents fees and services decreased primarily due to our disposition of nine properties and closure of eight properties since January 1, 2020 and decreases in occupancy primarily due to the continued impact of the COVID-19 pandemic at both comparable and non-comparable properties for the year ended December 31, 2021 compared to the year ended December 31, 2020.

Additionally, residents fees and services at our comparable properties decreased due to the closure of skilled nursing units during the year ended December 31, 2021.

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 property that was taken out of service due to damage sustained by Hurricane Ian.

Property operating expenses.

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

Property operating expenses decreased primarily due to our disposition of nine properties and closure of eight properties since January 1, 2020 and a decrease in property operating expenses at our comparable properties.

Property operating expenses at our comparable properties decreased primarily due to decreases in costs associated with staffing and dietary expenses primarily due to reduced occupancy at our comparable properties as a result of the continued impact of the COVID-19 pandemic and the closure of skilled nursing units during the year ended December 31, 2021.

We continue to have elevated labor costs on a per resident basis.

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, inflationary cost pressures related to food and energy and increased sales and marketing costs to improve occupancy.

Net operating income.

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1.80 x 1.60 x 1.80 x 1.60 x

(1) Non-segment operations consists of all of our other operations, including certain senior living communities leased to third party operators and wellness centers, which segment we do not consider to be sufficiently material to constitute a separate reporting segment, and any other income or expenses that are not attributable to a specific reporting segment.

(2) Comparable properties consists of properties that we have owned and which have been leased to the same operator continuously since January 1, 2020;

(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 reported in the same segment and leased to the same operator continuously since January 1, 2021;

excludes properties classified as held for sale, if any.

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We have not independently verified tenant operating data.

Excludes data for historical periods prior to our ownership of certain properties, as well as data for properties sold or classified as held for sale, if any, during the periods presented.

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.

Excludes rent coverage for six of our wellness centers, the tenant of which was in default under the applicable leases with us as of December 31, 2022.

Year Ended December 31,

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Rental income $ 36,371 $ 36,471 $ (100) (0.3) % $ 1,979 $ 4,521 $ 38,350 $ 40,992 $ (2,642) (6.4) %

Property operating expenses (671) — 671 nm — — (671) — 671 nm

NOI $ 35,700 $ 36,471 $ (771) (2.1) % $ 1,979 $ 4,521 $ 37,679 $ 40,992 $ (3,313) (8.1) %

(1) Consists of properties that we have owned and which have been leased to the same operator continuously since January 1, 2020;

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

excludes properties classified as held for sale, if any.

Rental income.

Rental income decreased primarily due to the sale of three senior living communities leased to private operators since January 1, 2020, partially offset by an increase in rental income at our comparable properties and increased rents resulting from our purchase of improvements at our comparable properties since January 1, 2020.

Rental income increased at our comparable properties primarily due to a tenant default under leases for six of our wellness centers during the 2020 period, partially offset by decreased rent due to lease renewals with tenants of certain of our wellness centers at lower average rental rates.

As a result of the COVID-19 pandemic, in 2020 many of our wellness centers had been ordered closed by state or local executive orders.

We have elected to recognize rental income from the previously defaulted tenant of six of our wellness centers as rent payments are received.

In February 2022, the leases for these six wellness centers were amended and a portion of the rent due to us was deferred.

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 January 1, 2021.

Rental income decreased at our comparable properties primarily due to lower cash rents received during the year ended December 31, 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 from this tenant.

In January 2023, we agreed to amend the lease for three of these wellness centers and repossess the remaining three wellness centers.

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

An affiliate of the same operator will continue to operate these properties.

The decrease in rental income at comparable properties was partially offset by higher percentage rents recognized in 2022 as compared to 2021.

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.

Pursuant to an agreement with this tenant in January 2023, we expect to continue to incur real estate taxes and other direct costs for three of 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.

Depreciation and amortization expense increased primarily due to the purchase of capital improvements at certain of our properties since January 1, 2020, partially offset by our disposition of 32 properties, certain depreciable leasing related assets becoming fully depreciated and certain of our acquired resident agreements becoming fully amortized since January 1, 2020.

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 January 1, 2021.

Decreases to depreciation and amortization expenses 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 consists of fees paid to RMR LLC under our business management agreement, legal and accounting fees, fees and expenses of our Trustees, equity compensation expense and other costs relating to our status as a publicly traded company.

General and administrative expense increased primarily due to an increase in our base business management fees expense as a result of higher consolidated indebtedness during 2021 compared to 2020.

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 2022 compared to 2021.

Acquisition and certain other transaction related costs.

For the year ended December 31, 2021, acquisition and certain other transaction related costs primarily represent costs related to the transition of certain senior living communities to new third party managers and costs incurred in connection with the Master Management Agreement.

For the year ended December 31, 2020, acquisition and certain other transaction related costs primarily represent costs incurred in connection with the 2020 Restructuring Transaction.

For information regarding the Master Management Agreement or the 2020 Restructuring Transaction, see Note 6 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

For the year ended December 31, 2022, 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 during 2021 and 2020.

The gain on sale of properties during the year ended December 31, 2021 primarily reflects our sale of a 35% equity interest from our 55% equity interest in a joint venture that owns a life science property located in Boston, Massachusetts.

Gain on sale of properties is the net result of our sales of certain of our properties and joint venture equity interests during 2022 and 2021.

The gain on sale of properties during the year ended December 31, 2022 reflects the contribution of 10 medical office and life science properties to the LSMD JV in which we retained a 20% equity interest.

For further information regarding gain on sale of properties, see Note 3 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Gains and losses on equity securities, net.

Gains and losses on equity securities, net, represent the net unrealized gains and losses to adjust our investment in AlerisLife to its fair value.

For further information regarding our investment in

AlerisLife, see Note 10 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Losses on equity securities, net.

Losses on equity securities, net, represent the net unrealized losses to adjust our investment in AlerisLife to its fair value.

For further information regarding our investment in AlerisLife, see Note 10 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Interest and other income.

The increase in interest and other income is primarily due to $19,554 of funds we received from the U.S.

government pursuant to the CARES Act during the year ended December 31, 2021 compared to $17,485 received during the year ended December 31, 2020.

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

government pursuant to the CARES Act and ARPA which were $4,327 during the year ended December 31, 2022 compared to $19,554 received during the year ended December 31, 2021.

Decreases to interest and other income were partially offset by higher interest earned during the year ended December 31, 2022 as a result of higher interest rates compared to the year ended December 31, 2021.

Interest expense.

Interest expense increased primarily due to our issuance in June 2020 of $1,000,000 aggregate principal amount of our 9.75% senior notes due 2025, our issuance in February 2021 of $500,000 aggregate principal amount of our 4.375% senior notes due 2031 and an increase in average borrowings under our revolving credit facility.

This increase was partially offset by our redemption in April 2020 of all $200,000 of our 6.75% senior notes due 2020, our prepayment in June 2020 of our $250,000 term loan, our prepayment in February 2021 of our $200,000 term loan and our redemption in June 2021 of all $300,000 of our 6.75% senior notes due 2021.

Gain on lease termination.

Gain on lease termination represents the gain recognized in connection with the 2020 Restructuring Transaction.

For information regarding the 2020 Restructuring Transaction, see Note 6 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Loss on early extinguishment of debt.

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

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

Loss on modification or early extinguishment of debt.

We recorded a loss on modification or early extinguishment of debt in connection with the amendments to our credit agreement and our redemption of $500,000 of our 9.75% senior notes due 2025 during the year ended December 31, 2022.

We recorded a loss on early extinguishment of debt in connection with the amendments to our credit agreement and the agreement governing our previously existing $200,000 term loan, our prepayment of our $200,000 term loan and our redemption of all $300,000 of our 6.75% senior notes due 2021 during the year ended December 31, 2021.

We recorded a loss on early extinguishment of debt in connection with our prepayment of our $250,000 term loan and mortgage notes during the year ended December 31, 2020.

Income tax expense.

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

Equity in net earnings of investees.

Equity in net earnings of investees is the change in the fair value of our investments in our joint ventures.

Non-GAAP Financial Measures (dollars in thousands, except per share amounts)

We present certain "non-GAAP financial measures" within the meaning of applicable SEC rules, including FFO attributable to common shareholders, Normalized FFO attributable to common shareholders and NOI for the years ended December 31, 2022 and 2021.

These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) or net income (loss) attributable to common shareholders as indicators of our operating performance or as measures of our liquidity.

These measures do not represent cash generated by operating activities in accordance with

GAAP and should not be considered alternatives to net income (loss) or net income (loss) attributable to common shareholders as indicators of our operating performance or as measures of our liquidity.

These measures should be considered in conjunction with net income (loss) and net income (loss) attributable to common shareholders as presented in our consolidated statements of comprehensive income (loss).

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We calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders as shown below.

FFO attributable to common shareholders is calculated on the basis defined by the National Association of Real Estate Investment Trusts, which is net income (loss) attributable to common shareholders, calculated in accordance with GAAP, excluding any gain or loss on sale of properties, equity in earnings of an unconsolidated joint venture, loss on impairment of real estate assets, gains or losses on equity securities, net, if any, including adjustments to reflect our proportionate share of FFO of our equity method investment in AlerisLife and our proportionate share of FFO from an unconsolidated joint venture property plus real estate depreciation and amortization of consolidated properties and minus FFO adjustments attributable to noncontrolling interest, as well as certain other adjustments currently not applicable to us.

In calculating Normalized FFO attributable to common shareholders, we adjust for the items shown below including similar adjustments for our unconsolidated joint venture, if any.

FFO attributable to common shareholders 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 net 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.

FFO attributable to common shareholders and Normalized FFO attributable to common shareholders are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders.

Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in the agreements governing our debt, the availability to us of debt and equity capital, our expectation of our future capital requirements and operating performance, and our expected needs for and availability of cash to pay our obligations.

estate companies and REITs may calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders differently than we do.

Other 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 years ended December 31, 2022 and 2021 and reconciliations of net income (loss) attributable to common shareholders, the most directly comparable financial measure under GAAP reported in our consolidated financial statements, to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders appear in the following table.

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For the Year Ended December 31,

Net income (loss) attributable to common shareholders $ 174,515 $ (139,453)

Net (loss) income attributable to common shareholders $ (15,774) $ 174,515

Depreciation and amortization 239,280 271,131

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Impairment of assets — (174)

Gains and losses on equity securities, net 42,232 (34,106)

Losses on equity securities, net 25,660 42,232

FFO adjustments attributable to noncontrolling interest — (20,584)

Share of FFO from unconsolidated joint venture 273 —

Equity in net earnings of unconsolidated joint ventures (6,055) —

Share of FFO from unconsolidated joint ventures 11,518 273

Adjustments to reflect our share of FFO attributable to an equity method investment (7,715) (6,017)

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Acquisition and certain other transaction related costs 2,605 17,506

Costs and payment obligations related to compliance assessment at one of our senior living communities

Gain on lease termination (1)

Loss on early extinguishment of debt 2,410 427

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

Adjustments to reflect our share of Normalized FFO attributable to an equity method investment 3,975 3,074

Normalized FFO attributable to common shareholders $ (38,325) $ (7,906)

Weighted average common shares outstanding (basic) 237,967 237,739

Weighted average common shares outstanding (diluted) 237,967 237,739

Weighted average common shares outstanding (basic and diluted) 238,314 237,967

Per common share data (basic and diluted):

Net income (loss) attributable to common shareholders $ 0.73 $ (0.59)

Net (loss) income attributable to common shareholders $ (0.07) $ 0.73

FFO attributable to common shareholders $ (0.31) $ (0.13)

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Distributions declared $ 0.04 $ 0.04

(1) Gain on lease termination represents the gain recognized in connection with the 2020 Restructuring Transaction.

For information regarding the 2020 Restructuring Transaction, see Note 6 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Property Net Operating Income (NOI)

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Reconciliation of Net Income (Loss) to NOI:

Net income (loss) $ 179,926 $ (134,307)

Net (loss) income $ (15,774) $ 179,926

Equity in net earnings of investees (6,055) —

Income tax expense 710 1,430

Income (loss) from continuing operations before income tax expense 181,356 (133,057)

Loss on early extinguishment of debt 2,410 427

Gain on lease termination (1)

(Loss) income from continuing operations before income tax expense and equity in net earnings of investees (21,119) 181,356

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

Interest expense 209,383 255,759

Interest and other income (15,929) (20,635)

Gains and losses on equity securities, net 42,232 (34,106)

Losses on equity securities, net 25,660 42,232

Gain on sale of properties (321,862) (492,272)

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Total NOI $ 174,496 $ 291,400

(1) Gain on lease termination represents the gain recognized in connection with the 2020 Restructuring Transaction.

For information regarding the 2020 Restructuring Transaction, see Note 6 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of cash to meet operating and capital expenses, pay debt service obligations and make distributions to our shareholders are the operating cash flows we generate as rental income from our leased properties, residents fees and services revenues from our managed communities, borrowings under our revolving credit facility and proceeds from the disposition of certain properties.

We believe that these sources will be sufficient to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders for the next 12 months and for the foreseeable future thereafter.

Our principal sources of cash to meet operating and capital expenses, pay debt service obligations and make distributions to our shareholders are the operating cash flows we generate as rental income from our leased properties, residents fees and services revenues from our managed communities and proceeds from the disposition of certain properties.

We believe that these sources will be sufficient to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders for at least the next 12 months.

Our future cash flows from operating activities will depend primarily upon:

• our ability to receive rents from our tenants, including in light of the COVID-19 pandemic and its impact on our tenants' businesses;

• our ability to maintain or increase the occupancy of, and the rental rates at, our properties or reduce the extent of the declines in occupancy and rental rates in response to the COVID-19 pandemic, particularly at our senior living communities;

• our ability to control operating expenses and capital expenses at our properties, including increased operating expenses that we may incur in response to the COVID-19 pandemic, inflation or supply chain challenges;

• our managers' abilities to manage our managed senior living communities, including throughout the COVID-19 pandemic, to maintain or increase our returns and to reduce the extent of the declines in our returns.

We continue to carefully monitor the developments of the COVID-19 pandemic and the resulting economic conditions and their impact on our tenants, managers, operators and other stakeholders, including at our senior living communities.

In February 2021, we issued $500.0 million aggregate principal amount of 4.375% senior notes due 2031.

We used net proceeds from this offering to prepay in full our $200.0 million term loan and used the remaining net proceeds and cash on hand to redeem all of our outstanding 6.75% senior notes due 2021 for a redemption price equal to the principal amount of $300.0 million plus accrued and unpaid interest of $10.1 million in June 2021, when these notes became redeemable with no

prepayment premium.

In addition, on March 31, 2021, we borrowed $800.0 million under our revolving credit facility as a precautionary measure to increase our cash position and preserve financial flexibility in light of continued uncertainties related to the COVID-19 pandemic.

In February 2022, we repaid $100.0 million of this borrowing to reduce the borrowing capacity under our revolving credit facility to $700.0 million pursuant to the February 2022 amendment to our credit agreement.

In addition, in February 2022, we exercised our option to extend the maturity date of our revolving credit facility by one year to January 2024.

Pursuant to our credit agreement, the borrowing capacity under our revolving credit facility will be reduced to $586.4 million as of January 2023 and as such, further repayment of our revolving credit facility may be required.

Although we have taken steps to enhance our ability to maintain sufficient liquidity, a protracted negative impact on the economy or the industries in which our properties and businesses operate resulting from the COVID-19 pandemic may cause further increased pressure on our ability to satisfy financial and other covenants.

• 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, limited labor availability 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 credit facility as a precautionary measure to increase our cash position and preserve financial flexibility in light of uncertainties related to the COVID-19 pandemic.

In February 2022, we repaid $100.0 million in outstanding borrowings under our credit facility and the facility commitments were reduced to $700.0 million.

In February 2022, we exercised our option to extend the maturity date of our credit facility by one year to January 2024, and in January 2023, pursuant to the terms of the credit agreement, we repaid $113.6 million in outstanding borrowings under our credit facility and the facility commitments were reduced to $586.4 million.

In February 2023, pursuant to an amendment to our credit agreement, we repaid $136.4 million in outstanding borrowings under our credit facility and the

facility commitments were further reduced to $450.0 million.

We have no additional options to extend the maturity date of our credit facility and, pursuant to the February 2023 amendment to our credit agreement, the feature of our credit facility permitting us to repay and reborrow funds was eliminated.

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

We may fail to satisfy covenants and conditions under our credit agreement or fail to satisfy our public debt covenants.

As of December 31, 2021, our ratio of consolidated income available for debt service to debt service was below the 1.5x incurrence requirement under our revolving credit facility and our public debt covenants as the effects of the COVID-19 pandemic continued to adversely impact our operations.

We are currently unable to incur additional debt because this ratio is below 1.5x on a pro forma basis.

In December 2021, we sold a 35% equity interest from our 55% equity interest in a joint venture that owns a life science property located in Boston, Massachusetts to another third party global institutional investor for $378.0 million, excluding closing costs.

Following the sale, we continue to own a 20% equity interest in the joint venture and our pre-existing joint venture partner continues to own its 45% equity interest in the joint venture.

The net proceeds of $373.8 million, which include working capital prorations and formation costs, are included in restricted cash in our consolidated balance sheet as of December 31, 2021 pursuant to the terms of our credit agreement.

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

In January 2022, we entered into a joint venture for 10 medical office and life science properties we owned with two unrelated third party global institutional investors for aggregate proceeds, before closing costs and other adjustments, of $653.3 million.

The investors acquired 41% and 39% equity interests in the joint venture for investments of approximately $100.8 million and $95.9 million, respectively, and we retained a 20% equity interest in the joint venture.

The investment amounts are based upon a property valuation of approximately $702.5 million, less approximately $456.6 million of secured debt on the properties incurred by this joint venture.

During the year ended December 31, 2021, we sold five properties for an aggregate sales price of $104.5 million, excluding closing costs.

The measures we have taken to enhance our ability to maintain sufficient liquidity may not sufficiently offset the decrease in cash flows from operations and capital investments we make, particularly during the COVID-19 pandemic, in which case our liquidity would be negatively impacted.

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.

As of December 31, 2022, our ratio of consolidated income available for debt service to debt service was below the 1.5x incurrence requirement under our credit facility and our public debt covenants as the effects of the current market conditions continued to adversely impact our operations.

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

In January 2022, we entered into a joint venture with two unrelated third party institutional investors for 10 medical office and life science properties we owned for aggregate proceeds, before closing costs and other adjustments, of $653.3 million.

The equity interests that the investors acquired from us equaled 41% and 39%, respectively, of the total equity interests in the joint venture and we retained a 20% equity interest in the joint venture.

Following the sale, we account for this joint venture using the equity method of accounting under the fair value option.

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 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.

In February 2023, we sold three former senior living communities for an aggregate sales price of $2.8 million, excluding closing costs.

The measures we have taken to enhance our ability to maintain sufficient liquidity may not sufficiently offset the decrease in cash flows from operations 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 consolidated statements of cash flows (dollars in thousands):

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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 year ended December 31, 2021 compared to the prior year was primarily due to the continued impact of the COVID-19 pandemic on the senior living communities in our SHOP segment, along with reduced NOI as a result of dispositions of properties during 2020 and 2021.

Additionally, we had increased working capital needs in 2021 as compared to 2020, specifically related our senior living communities.

As it relates to our SHOP segment, in September 2021, we paid approximately $22.2 million of payroll taxes reimbursed to Five Star pursuant to

our management agreements with Five Star that were deferred as allowed under the CARES Act as previously disclosed.

As noted elsewhere in this Annual Report on Form 10-K, the transition of the management of the 107 senior living communities from Five Star to other third party managers was completed as of December 31, 2021 and we have closed the remaining senior living community that we and Five Star agreed to transition and are assessing opportunities to redevelop that property.

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

As noted elsewhere in this Annual Report on Form 10-K, the COVID-19 pandemic has had a substantial negative economic impact on our and our tenants', managers' and other operators' businesses, and in particular our senior living community and wellness center operators.

Depending on the duration and severity of this pandemic and the resulting economic conditions, our tenants', managers' and operators' businesses may become significantly adversely affected, which may result in some tenants failing to pay rent to us or not renewing their leases upon expiration and in our senior living community managers realizing decreased returns from our senior living communities.

Specifically as it relates to our SHOP segment, we face and may continue to face issues with labor availability and cost pressures from supply chain disruptions and commodity price inflation.

The decrease in cash used in operating activities for the year ended December 31, 2022 compared to the prior year was primarily due to a reduction in interest expense paid during 2022 compared to 2021, cash distributions we received from our unconsolidated joint venture interests and favorable changes in working capital.

These increases were partially offset by reduced NOI as a result of the deconsolidation of joint venture properties during 2021 and 2022, as well as wage inflation and other cost increases at the senior living communities in our SHOP segment, and dispositions of properties during 2021.

Specifically as it relates to our SHOP segment, we 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 change in cash provided by (used in) investing activities for the year ended December 31, 2021 compared to the prior year was primarily due to proceeds from our sale of a 35% equity interest from our 55% equity interest in a joint venture that owns a life science property located in Boston, Massachusetts to another third party global institutional investor, partially offset by less proceeds from the sale of real estate properties and an increase in real estate improvements during 2021 compared to 2020.

As described above, in January 2022 we entered into a joint venture for 10 medical office and life science properties we owned with two unrelated third party global institutional investors for aggregate proceeds, before closing costs and other adjustments, of $653.3 million.

The increase in cash provided by investing activities for the year ended December 31, 2022 compared to the prior year 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 insurance proceeds received in excess of costs incurred for senior living communities located in Florida related to Hurricane Ian , partially offset by less proceeds from our sale of an equity interest in the Seaport JV, less proceeds from the sale of real estate properties, our acquisition of one property in 2022 and an increase in real estate improvements during 2022 compared to 2021.

The following is a summary of capital expenditures, development, redevelopment and other activities for the periods presented (dollars in thousands):

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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.

In 2023, we expect to incur capital expenditures in excess of 2022 levels, but below the $400.0 million limit under our credit agreement.

As of December 31, 2022, we had estimated unspent leasing related obligations at our triple net leased senior living communities and our medical office and life science properties of approximately $39.3 million, of which we expect to spend approximately $33.9 million during calendar year 2023.

We expect to fund these obligations using operating cash flows we generate as rental income from our leased properties, residents fees and services revenues from our managed communities, cash on hand, proceeds from the contributions of certain of our properties to investors in our joint ventures and proceeds from the disposition of certain properties.

Our redevelopment in San Diego, CA has been completed and we expect to incur additional lease related costs in 2022.

During the year ended December 31, 2021, we entered into five leases with a weighted (by annualized rental income) average lease term of approximately 11 years at a weighted average rental rate that is approximately 23% higher than the prior rental rate for the same space at this San Diego, CA property.

We have executed new leases for 100% of the leasable square footage at this property.

We are currently in the process of redeveloping two properties in our Office Portfolio located in Lexington, MA and Tempe, AZ.

Our redevelopments in Lexington, MA and Tempe, AZ are currently expected to be completed in the second quarter of 2022 and fourth quarter of 2022, respectively.

We have entered into a new ten year lease for the entire building at the Lexington, MA property at a rental rate that is 46% higher than the prior rental rate for the same space.

Additionally, in January 2022, we entered into a new 11 year lease for the entire building at the Tempe, AZ property at a rental rate that is 20% higher than the prior rental rate for the same space.

We are also currently reviewing strategic alternatives at properties in our Office Portfolio located in Silver Springs, MD and in Decatur, GA, including opportunities to redevelop these properties.

We expect to fund these obligations using operating cash flows we generate as rental income from our leased properties, residents fees and services revenues from our managed communities, cash on hand, proceeds from the disposition of certain properties and proceeds related to contributions we may make of properties we own to joint ventures.

We are currently in the process of redeveloping four properties in our Office Portfolio.

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

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

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.

In addition, we also have ongoing redevelopments throughout our managed senior living communities.

We continue to assess opportunities to redevelop other properties in our portfolio.

These redevelopment projects may require significant capital expenditures and time to complete.

We continue to assess opportunities to redevelop other properties in our portfolio.

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.

Additionally, due to supply chain disruptions and inflation, the capital investments we plan to make may be delayed or cost more than we expect.

Additionally, due to supply chain disruptions and inflation, the capital investments we plan to make may be delayed or cost

more than we expect.

For further information regarding our acquisitions and dispositions, see Note 3 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Our Financing Liquidity and Resources

The change in cash provided by (used in) financing activities for the year ended December 31, 2021 compared to the prior year was primarily due to increased net borrowings under our revolving credit facility, net proceeds from our issuance in February 2021 of $500.0 million aggregate principal amount of our 4.375% senior notes, decreased term loan repayment amounts in 2021 compared to 2020, and a reduction in distributions paid to our shareholders in 2021, partially offset by increased senior unsecured notes repayment amounts in 2021 compared to 2020 and net proceeds from our issuance in June 2020 of $1.0 billion aggregate principal amount of our 9.75% senior notes.

As of December 31, 2021, we had $634.8 million of cash and cash equivalents and were fully drawn under our revolving credit facility.

We typically use cash balances, borrowings under our revolving credit facility, net proceeds from offerings of debt or equity securities, net proceeds from the disposition of assets and the cash flows from our operations to fund our operations, debt repayments, distributions, property acquisitions, investments, capital expenditures and other general business purposes.

In order to fund investments and to meet cash needs that may result from timing differences between our receipt of rents and our desire or need to make distributions or pay operating or capital expenses, we maintain a revolving credit facility.

As of December 31, 2021, the maturity date of our revolving credit facility was January 2023.

In February 2022, we exercised our option to extend the maturity date of our revolving credit facility by one year to January 2024.

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

At December 31, 2021, our revolving credit facility required interest to be paid on borrowings at the annual rate of 2.9%, plus a facility fee of 30 basis points per annum on the total amount of lending commitments under the facility.

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

On March 31, 2021, we borrowed $800.0 million under our revolving credit facility as a precautionary measure to increase our cash position and preserve financial flexibility in light of continued uncertainties related to the COVID-19 pandemic.

As of December 31, 2021 and February 21, 2022, we were fully drawn under our revolving credit facility.

In January 2021, we and our lenders amended our credit agreement and the agreement governing our previously existing $200.0 million term loan in order to provide us with certain flexibility in light of continued uncertainties related to the COVID-19 pandemic.

Pursuant to the amendments:

• certain of the financial covenants under our credit agreement and the agreement governing our previously existing $200.0 million term loan, including covenants that require us to maintain certain financial ratios, have been waived through the Amendment Period;

• the revolving credit facility commitments have been reduced from $1.0 billion to $800.0 million;

• we pledged certain equity interests of subsidiaries owning properties to secure our obligations under our credit agreement and the agreement governing our previously existing $200.0 million term loan and agreed to provide, and as of September 2021 had provided, first mortgage liens on 61 medical office and life science properties with an aggregate gross book value of real estate assets of $1.0 billion as of December 31, 2021 to secure our obligations, which pledges and/or mortgage liens may be removed or new ones may be added during the Amendment Period based on outstanding debt amounts, among other things;

The change in cash (used in) provided by financing activities for the year ended December 31, 2022 compared to the prior year was primarily due to repayments of borrowings under our credit facility in 2022 compared to our full drawdown of our credit facility in 2021, net proceeds from our issuance in February 2021 of $500.0 million aggregate principal amount of our 4.375% senior notes in 2021, increased senior unsecured notes redemption amounts in 2022 compared to 2021, increased repayment of other debt and a prepayment premium paid in 2022 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 2022 related to our noncontrolling interest that we deconsolidated in 2021.

As of December 31, 2022, we had $658.1 million of cash and cash equivalents and were fully drawn under our credit facility.

We typically use cash balances, net proceeds from offerings of securities or dispositions of assets and cash flows from our operations to fund our operations, debt repayments, distributions, acquisitions, investments, capital expenditures and other general business purposes.

The maturity date of our credit facility is January 15, 2024.

At December 31, 2022, our credit facility required interest to be paid on borrowings at the annual rate of 6.9%, plus a facility fee of 30 basis points per annum on the total amount of lending commitments under the facility.

On March 31, 2021, we borrowed $800.0 million under our credit facility as a precautionary measure to increase our cash position and preserve financial flexibility in light of uncertainties related to the COVID-19 pandemic.

In February 2022, we repaid $100.0 million in outstanding borrowings under our credit facility and the facility commitments were reduced to $700.0 million.

Also in February 2022, we exercised our option to extend the maturity date of our credit facility by one year to January 2024, and in January 2023, pursuant to the terms of our credit agreement, we repaid $113.6 million in outstanding borrowings under our credit facility and the facility commitments were reduced to $586.4 million.

In February 2023, pursuant to an amendment to our credit agreement, we repaid $136.4 million in outstanding borrowings under our credit facility and the facility commitments were further reduced to $450.0 million, and no principal repayment is due until maturity.

We have no additional options to extend the maturity date of our credit facility.

As of December 31, 2022 and February 24, 2023, we were fully drawn under our credit facility.

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

Pursuant to the amendment:

• the waiver of the fixed charge coverage ratio covenant included in our credit agreement was extended through December 31, 2022;

• the facility commitments were reduced from $800.0 million to $700.0 million;

• we have the ability to fund $400.0 million of capital expenditures per year and we are restricted in our ability to acquire real property as defined in our credit agreement;

• the interest rate premium over LIBOR under our revolving credit facility and our previously existing $200.0 million term loan increased by 30 basis points;

• certain covenants and restrictions on distributions to common shareholders, share repurchases, capital expenditures, acquiring additional properties and incurring additional indebtedness (in each case subject to various exceptions), and the minimum liquidity requirement of $200.0 million will remain in place during the Amendment Period;

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

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

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

• the interest rate premium under our credit facility increased by 15 basis points;

• certain financial covenants and restrictions on distributions to common shareholders, share repurchases, capital expenditures, acquiring additional properties and incurring additional indebtedness (in each case subject to various exceptions), and the minimum liquidity requirement of $200.0 million remained in place through December 31, 2022.

In February 2023, we and our lenders further amended our credit agreement.

Pursuant to the amendment:

• the waiver of the fixed charge coverage ratio covenant included in our credit agreement has been extended through December 31, 2022;

• the revolving credit facility commitments have been reduced from $800.0 million to $700.0 million;

• we have the ability to fund $400.0 million of capital expenditures per year and we are restricted in our ability to acquire real property as defined in our credit agreement;

• the interest rate premium under our revolving credit facility increased by 15 basis points;

Also in February 2022, we exercised our option to extend the maturity date of our revolving credit facility by one year to January 2024.

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.

• the waiver of the fixed charge coverage ratio covenant has been extended through the maturity date of our credit facility in January 2024;

• the minimum liquidity requirement was decreased from $200.0 million to $100.0 million;

• the facility commitments were reduced from $586.4 million to $450.0 million;

• the feature of our credit facility permitting us to repay and reborrow funds was eliminated;

• we continue to have the ability to fund $400.0 million of capital expenditures per year and we are restricted in our ability to acquire real property as defined in the credit agreement;

• secured overnight financing rate, or SOFR, was established as the replacement benchmark rate in place of LIBOR to calculate interest payable on amounts outstanding under our credit facility, and the interest rate premium under our credit facility was increased by 40 basis points;

• we are required to repay outstanding amounts under the credit facility with excess cash flow, and certain financial covenants and restrictions on distributions to common shareholders, share repurchases, capital expenditures, acquiring additional properties and incurring additional indebtedness (in each case subject to various exceptions) will remain in place through the maturity date of our credit facility.

Generally, when significant amounts are outstanding under our credit facility, or as the maturities of our indebtedness approach, we intend to explore refinancing alternatives.

Such alternatives may include selling certain properties and issuing new equity securities.

In addition, we may also seek to expand our existing joint venture arrangements or to participate in additional joint ventures or other arrangements that may provide us additional sources of financing.

We currently have an effective shelf registration statement that allows us to issue public securities on an expedited

basis, but it does not assure that there will be buyers for such securities.

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

We currently have an effective shelf registration statement that allows us to issue public securities on an expedited basis, but it does not assure that there will be buyers for such securities.

At such time that we may regain compliance with the incurrence covenant under our debt agreements, we may also incur additional debt, assume debt in connection with our acquisitions of properties or place new debt on properties we already own.

During the year ended December 31, 2022, we paid quarterly cash distributions to our shareholders totaling approximately $9.6 million using existing cash balances.

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We paid this distribution on February 16, 2023 using cash on hand.

We believe we will have access to various types of financings, including debt or equity offerings, to fund our future acquisitions and to pay our debts and other obligations as they become due, subject to limitations on debt offerings in agreements governing our debt.

Our ability to complete, and the costs associated with, future debt transactions depends primarily upon credit market conditions and our then creditworthiness.

We believe we will have access to various types of financings, including debt or equity offerings, to fund our future acquisitions and to repay our debts and other obligations as they become due, subject to limitations on debt offerings in agreements governing our debt.

Our ability to complete, and the costs associated with, future debt or equity transactions depends primarily upon credit market conditions and our then creditworthiness.

We have no control over market conditions.

Our credit and debt ratings, which were downgraded in 2020, depend upon evaluations by credit rating agencies of our business practices and plans, including our ability to maintain our earnings, to stagger our debt maturities and to balance our use of debt and equity capital so that our financial performance and leverage ratios afford us flexibility to withstand any reasonably anticipated adverse changes.

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.

We intend to conduct our business activities in a manner which will afford us reasonable access to capital for investment and financing activities, but we cannot be sure that we will be able to successfully carry out that intention.

It is uncertain what the duration and severity of the COVID-19 pandemic and its economic impact will be.

A protracted negative impact on the economy or the industries in which our properties and businesses operate resulting from the COVID-19 pandemic may have various negative consequences including a decline in financing availability and increased costs for financing.

A protracted negative impact on the economy or the industries in which our properties and businesses operate, high inflation, rising or sustained high interest rates, geopolitical risks or other economic, market or industry conditions, including downturns or recessions, may have various negative consequences including a decline in financing availability and increased costs for financing.

Further, those conditions could also disrupt capital markets and limit our access to financing from public sources, particularly if the global financial markets experience significant disruptions.

In February 2021, we issued $500.0 million aggregate principal amount of our 4.375% senior notes due 2031 in an underwritten public offering.

These notes are guaranteed by all of our subsidiaries, except for certain excluded subsidiaries, including pledged subsidiaries under our credit agreement.

We used the net proceeds from this offering to prepay in full our $200.0 million term loan which was scheduled to mature in September 2022.

In June 2021, we used the remaining net proceeds from this offering and cash on hand to redeem all of our outstanding 6.75% senior notes due 2021 for a redemption price equal to the principal amount of $300.0 million plus accrued and unpaid interest of $10.1 million, when these notes became redeemable with no prepayment premium.

Our next significant debt maturity does not occur until $250.0 million of our senior notes mature in May 2024.

In February 2021, Moody's downgraded our senior unsecured debt rating from Ba2 to B1 and our 9.75% senior notes due 2025 rating from Ba1 to Ba3 and assigned a Ba3 rating to our 4.375% senior notes due 2031, and Standard & Poor's downgraded our senior unsecured debt rating from BB to BB- and our 9.75% senior notes due 2025 rating from BB+ to BB and assigned a BB rating to our 4.375% senior notes due 2031.

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

The senior living industry has been adversely impacted by the current economic and market conditions as well as the continuing impact of the COVID-19 pandemic.

These conditions continue to have a significant negative impact on our results of operations, financial position and cash flows.

Although there have been signs of recovery and increased demand during the year ended December 31, 2022 when compared to the low levels during the COVID-19 pandemic, we cannot be sure when or if the senior housing business will return to historic pre-pandemic levels.

To mitigate the effects of the slow recovery coming from the COVID-19 pandemic and the increased variability in operating cash flows from our SHOP segment, we continue to work with our senior living operators to manage costs, especially labor costs, and to increase rates and occupancy.

As of February 24, 2023, we have approximately $413.0 million of cash and cash equivalents and $450.0 million in outstanding borrowings under our credit facility, which matures on January 15, 2024.

Our credit facility is secured by 61 properties which had an appraised value in excess of $1.3 billion based on appraisals completed to secure the credit facility.

We believe we will have access to various types of financings, including equity offerings, to repay our debts and other obligations as they become due or will be able to extend the maturity of certain debt.

We also have the ability to defer certain capital improvements if we believe we need to preserve liquidity.

We believe that our current financial resources, actions we have taken and are in the process of taking, our expectations as to the future performance of the senior living industry and our fully collateralized credit facility will provide us with sufficient liquidity going forward.

In April 2022, we prepaid a mortgage note secured by one of our medical office properties with an outstanding principal balance of approximately $10.9 million, a maturity date in July 2022 and an annual interest rate of 6.28%, using cash on hand.

In June 2022, we redeemed $500.0 million of our outstanding 9.75% senior notes due 2025 for a redemption price equal to 104.875% of the $500.0 million principal amount of the notes being redeemed plus accrued and unpaid interest of $1.1 million, using restricted cash on hand.

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.

In February 2022, 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.

In November 2022, Standard & Poor's downgraded our 9.75% senior notes due 2025 rating from BB to BB-, our 4.375% senior notes due 2031 rating from BB to BB- and our senior unsecured debt rating from BB- to B.

In January 2023, Moody's downgraded our 9.75% senior notes due 2025 rating from B3 to Caa3, our 4.375% senior notes due 2031 rating from B3 to Caa3 and our senior unsecured debt rating from Caa1 to Ca.

In February 2023, Standard & Poor's downgraded our 9.75% senior notes due 2025 rating from BB- to B, our 4.375% senior notes due 2031 rating from BB- to B and our senior unsecured debt rating from B to CCC+.

For further information regarding our outstanding debt, see Note 9 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

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Our principal debt obligations at December 31, 2022 were:

(1) outstanding borrowings under our then $800.0 million revolving credit facility;

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

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

and (3) $62.5 million aggregate principal amount of mortgage notes (excluding premiums, discounts and net debt issuance costs) secured by six properties.

and (3) $24.7 million aggregate principal amount of mortgage notes (excluding premiums, discounts and net debt issuance costs) secured by two properties.

For further information regarding our indebtedness, see Note 9 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Our senior unsecured notes are governed by our senior unsecured notes indentures and their supplements.

Our credit agreement and our senior unsecured notes indentures and their supplements provide for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a

change of control of us, as defined, which includes RMR LLC ceasing to act as our business and property manager.

Our senior unsecured notes indentures and their supplements and our credit agreement also contain covenants that restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts and require us to maintain various financial ratios, and our credit agreement contains covenants that restrict our ability to make distributions to our shareholders in certain circumstances.

We are currently unable to incur additional debt because this ratio is below 1.5x on a pro forma basis, and as such, prior to falling below the 1.5x incurrence requirement, we borrowed $800.0 million under our revolving credit facility as a precautionary measure to increase our cash position and preserve financial flexibility.

The proceeds from this borrowing may be used for general business purposes.

As of December 31, 2021, we believe we were in compliance with all of the other covenants under our senior unsecured notes indentures and their supplements, our credit agreement and our other debt obligations.

Although we have taken steps to enhance our ability to maintain sufficient liquidity, as noted elsewhere in this Annual Report on Form 10-K, a protracted negative impact on the economy or the industries in which our properties and businesses operate resulting from the COVID-19 pandemic may cause increased pressure on our ability to satisfy financial and other covenants.

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

various financial ratios, and our credit agreement contains covenants that restrict our ability to make distributions to our shareholders in certain circumstances.

As of December 31, 2022, our ratio of consolidated income available for debt service to debt service was below the 1.5x incurrence requirement under our credit agreement and our public debt covenants as the effects of the slow recovery of our SHOP business from the COVID-19 pandemic, high inflation, rising interest rates, geopolitical risks and other economic, market and industry conditions continued to adversely impact our operations.

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

As of December 31, 2022, we believe we were in compliance with all of the other covenants under our senior unsecured notes indentures and their supplements, our credit agreement and our other debt obligations, subject to the waivers described above.

Although we have taken steps to enhance our ability to maintain sufficient liquidity, as noted elsewhere in this Annual Report on Form 10-K, a protracted negative impact on the economy or the industries in which our properties and businesses operate resulting from high inflation, rising or sustained high interest rates, geopolitical risks or other economic, market or industry conditions, including downturns or recessions, may cause increased pressure on our ability to satisfy financial and other covenants.

If our operating results and financial condition are significantly negatively impacted by the economic conditions or otherwise, we may fail to satisfy covenants and conditions under our credit agreement or fail to satisfy our public debt covenants.

Further, if we believe we will not be able to satisfy our financial or other covenants, we will seek waivers, amendments, or in the case of our public debt covenants, borrow any undrawn amounts which may become available under our revolving credit facility prior to any covenant violation, consistent with our approach in March 2021, which may lead to increased costs and interest rates, additional restrictive covenants or other lender protections.

We cannot assure that we would be able to obtain these waivers or amendments or repay the related debt facilities when due, or that there will be any amounts available to borrow under our revolving credit facility, which may result in an event of default under the agreements governing our debt or the potential acceleration of our outstanding debt.

Further, 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, which may lead to increased costs and interest rates, additional restrictive covenants or other lender protections.

We cannot assure that we would be able to obtain these waivers or amendments or repay the related debt facilities when due, which may result in an event of default under the agreements governing our debt or the potential acceleration of our outstanding debt.

Neither our senior unsecured notes indentures and their supplements, nor our credit agreement, contain provisions for acceleration which could be triggered by our debt ratings.

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Accordingly, following our debt ratings downgrades, our interest expense and related costs under our credit agreement has increased.

See "—Our Financing Liquidity and Resources" above for information regarding recent downgrades of our issuer credit rating and senior unsecured debt rating that resulted in a change in the interest rate premiums under our revolving credit facility.

See "—Our Financing Liquidity and Resources" above for information regarding recent downgrades of our issuer credit rating and senior unsecured debt rating.

Our senior unsecured notes indentures and their supplements contain cross default provisions to any other debts of more than $20.0 million ($50.0 million or more in the case of our senior unsecured notes indentures and supplements entered in February 2016, February 2018, June 2020 and February 2021).

Similarly, our credit agreement has cross default provisions to other indebtedness that is recourse of $25.0 million or more and indebtedness that is non-recourse of $75.0 million or more.

The loan agreements governing the aggregate $620.0 million secured debt financing related to the joint venture for a life science property in Boston, Massachusetts contain customary covenants and provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default.

We no longer include this $620.0 million of secured debt financing in our consolidated balance sheet following the deconsolidation of the net assets of this joint venture, as discussed above;

however, DHC continues to provide certain guaranties on this debt.

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 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 the LSMD JV in which we own a 20% equity interest is guaranteed by this joint venture.

Supplemental Guarantor Information

On May 28, 2020, we issued $1.0 billion of our 9.75% senior notes due 2025.

We subsequently redeemed $500.0 million of this debt in June 2022, with $500.0 million remaining outstanding.

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

As of December 31, 2021, all $1.0 billion of our 9.75% senior notes due 2025 and all $500.0 million of our 4.375% senior notes due 2031 were fully and unconditionally guaranteed, on a joint and several basis and on a senior unsecured basis, by all of our subsidiaries, except for certain excluded subsidiaries, including pledged subsidiaries under our credit agreement.

As of December 31, 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 December 31, 2022.

terminate and such subsidiary guarantor will automatically be released from all of its obligations under such subsidiary guarantee and the indenture under certain circumstances, including on or after the date (a) the notes have an investment grade rating from two rating agencies and one of such investment grade ratings is a mid-BBB investment grade rating and (b) no default or event of default has occurred and is continuing under the indenture.

Our non-guarantor subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due on our 9.75% senior notes due 2025 or our 4.375% senior notes due 2031 or the respective guarantees, or to make any funds available therefor, whether by dividend, distribution, loan or other payments.

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.

dividend, distribution, loan or other payments.

The rights of holders of our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031, as applicable, to benefit from any of the assets of our non-guarantor subsidiaries are subject to the prior satisfaction of claims of those subsidiaries' creditors and any preferred equity holders.

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Net loss (382,441)

Net loss attributable to DHC (394,848)

Related Person Transactions

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

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

For further information about these and other such relationships and related person transactions, see Notes 3, 6, 7 and 8 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K, which are incorporated herein by reference and our other filings with the SEC including our definitive Proxy Statement for our 2023 Annual Meeting of Shareholders, or our definitive Proxy Statement, to be filed with the SEC within 120 days after the fiscal year ended December 31, 2022.

For further information about the risks that may arise as a result of these and other related person transactions and relationships, see elsewhere in this Annual Report on Form 10-K, including “Warning Concerning Forward-Looking Statements,” Part I, Item 1, “Business” and Part I, Item 1A, “Risk Factors.” We may engage in additional transactions with related persons, including businesses to which RMR LLC or its subsidiaries provide management services.

Critical Accounting Estimates

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For the year ended December 31, 2022, substantially all of our NOI was generated from properties where a majority of the revenues are derived from our tenants' and residents' private resources, and a small amount of our NOI was generated from properties where a majority of the revenues are derived from Medicare and Medicaid payments.

Nonetheless, we own, and our

tenants, managers and operators operate, facilities in many states that participate in federal and state healthcare payment programs, including the federal Medicare and state Medicaid programs and other federal and state healthcare payment programs.

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.

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Examples of these, and other information regarding such matters and developments, are provided under the caption “Business-Government Regulation and Reimbursement” above in this Annual Report on Form 10-K.

We cannot currently predict the type and magnitude of the potential Medicare and Medicaid policy changes, rate changes or other changes that may be implemented, but we believe that some of these changes will cause these government funded healthcare programs to fail to provide rates that match our and our tenants' increasing expenses and that such changes may be material and adverse to our future financial results.

to fail to provide rates that match our and our tenants' increasing expenses and that such changes may be material and adverse to our future financial results.

During the years ended December 31, 2022, December 31, 2021 and December 31, 2020, we recognized $4.3 million, $19.6 million and $17.5 million, respectively, in interest and other income in our consolidated statements of comprehensive income (loss) related to funds received under the CARES Act and ARPA.

Senior housing operations have historically reflected modest seasonality.

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In an effort to reduce the effects of any increased energy costs in the future, we continuously study ways to improve the energy efficiency at all of our properties.

Our property manager, RMR LLC, is a member of the ENERGY STAR program, a joint program of the U.S.

Our property manager, RMR, is a member of the ENERGY STAR program, a joint program of the U.S.

Environmental Protection Agency and the U.S.

7 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis