DIVERSIFIED HEALTHCARE TRUST 10-K

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 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. OVERVIEW 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. 58 Table of Contents 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 The following tables present an overview of our portfolio (dollars in thousands, except investment per square foot or unit data): (As of December 31, 2022) Number of Properties Square Feet or Number of Units Gross Book Value of Real Estate Assets (1) % of Total Gross Book Value of Real Estate Assets Investment per Square Foot or Unit (2) 2022 Revenues % of 2022 Revenues 2022 NOI (3) % of 2022 NOI Office Portfolio (4) 105 8,811,373 sq. ft. $ 2,298,305 32.4 % $ 261 $ 222,390 17.3 % $ 128,091 73.4 % SHOP 237 25,346 units 4,403,572 62.2 % $ 173,738 1,022,826 79.7 % 8,726 5.0 % Other triple net leased senior living communities 27 2,062 units 202,671 2.9 % $ 98,289 25,647 2.0 % 25,647 14.7 % Wellness centers 10 812,000 sq. ft. 178,135 2.5 % $ 219 12,703 1.0 % 12,032 6.9 % Total 379 $ 7,082,683 100.0 % $ 1,283,566 100.0 % $ 174,496 100.0 % 59 Table of Contents Occupancy As of and for the Year Ended December 31, 2022 2021 Office Portfolio (5) 84.7 % 91.3 % SHOP 74.4 % 71.1 % Other triple net leased senior living communities (6)(7) 79.9 % 75.5 % Wellness centers 100.0 % 100.0 % (1) Represents gross book value of real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, if any. (2) Represents gross book value of real estate assets divided by number of rentable square feet or living units, as applicable, at December 31, 2022. (3) We calculate our NOI on a consolidated basis and by reportable segment. Our definition of NOI and our reconciliation of net income (loss) to NOI are included below under the heading “Non-GAAP Financial Measures”. (4) Our medical office and life science property leases include some triple net leases where, in addition to paying fixed rents, the tenants assume the obligation to operate and maintain the properties at their expense, and some net and modified gross leases where we are responsible for the operation and maintenance of the properties and we charge tenants for some or all of the property operating costs. A small percentage of our medical office and life science property leases are full-service leases where we receive fixed rent from our tenants and no reimbursement for our property operating costs. (5) Medical office and life science property occupancy data is as of December 31, 2022 and 2021 and includes (i) out of service assets undergoing redevelopment, (ii) space which is leased but is not occupied or is being offered for sublease by tenants and (iii) space being fitted out for occupancy. (6) Excludes data for periods prior to our ownership of certain properties, data for properties sold or classified as held for sale, if any, and data for which there was a transfer of operations during the periods presented. (7) Operating data for other triple net leased senior living communities leased to third party operators and wellness centers are presented based upon the operating results provided by our tenants for the 12 months ended September 30, 2022 and 2021, or the most recent prior period for which tenant operating results are made available to us. We have not independently verified tenant operating data. We operate in, and report financial information for, the following two segments: Office Portfolio and SHOP. Our Office Portfolio segment consists of medical office properties leased to medical providers and other medical related businesses, as well as life science properties leased to biotech laboratories and other similar tenants. Our SHOP segment consists of managed senior living communities that provide short term and long term residential living and in some instances care and other services for residents where we pay fees to managers to operate the communities. We also report “non-segment” operations, which consists of triple net leased senior living communities that are leased to third party operators from which we receive rents and wellness centers. Office Portfolio As of December 31, 2022, we wholly owned 105 medical office and life science properties located in 24 states and Washington, D.C. These properties have a total of 8.8 million square feet. 60 Table of Contents During the year ended December 31, 2022, we entered into new and renewal leases at our medical office and life science properties in our Office Portfolio segment as summarized in the following table (dollars and square feet in thousands, except per square foot amounts): Year Ended December 31, 2022 New Leases Renewals Total Square feet leased during the period 248 619 867 Weighted average rental rate change (by rentable square feet) 13.1 % 4.8 % 7.2 % Weighted average lease term (years) (1) 7.5 6.7 7.0 Total leasing costs and concession commitments (2) $ 17,917 $ 10,965 $ 28,882 Total leasing costs and concession commitments per square foot (2) $ 72.25 $ 17.72 $ 33.32 Total leasing costs and concession commitments per square foot per year (2) $ 9.62 $ 2.63 $ 4.77 (1) Weighted based on annualized rental income pursuant to existing leases as of December 31, 2022, including straight line rent adjustments and estimated recurring expense reimbursements, and excluding lease value amortization. (2) Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent. 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) Percent of Total Cumulative Percent of Total 2023 62 624,956 8.4 % 8.4% $ 18,390 8.4% 8.4% 2024 73 951,894 12.7 % 21.1% 23,121 10.5% 18.9% 2025 78 724,036 9.7 % 30.8% 17,339 7.9% 26.8% 2026 65 795,514 10.7 % 41.5% 23,922 10.9% 37.7% 2027 57 873,061 11.7 % 53.2% 21,256 9.7% 47.4% 2028 44 1,009,373 13.5 % 66.7% 26,712 12.2% 59.6% 2029 37 389,394 5.2 % 71.9% 11,463 5.2% 64.8% 2030 19 268,806 3.6 % 75.5% 6,419 2.9% 67.7% 2031 14 781,742 10.5 % 86.0% 23,229 10.6% 78.3% 2032 and thereafter 43 1,048,745 14.0 % 100.0% 47,479 21.7% 100.0% Total 492 7,467,521 100.0 % $ 219,330 100.0% Weighted average remaining lease term (in years) 5.2 5.8 (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. 61 Table of Contents The following table presents information concerning our medical office and life science property tenants that represent 1% or more of total medical office and life science property annualized rental income as of December 31, 2022 (dollars in thousands): Tenant Square Feet Leased Percent of Total Square Feet Leased Annualized Rental Income (1) Percent of Total Annualized Rental Income (1) Lease Expiration Advocate Aurora Health 631,529 8.5% $ 16,939 7.7% 2026 - 2031 Surgalign Holdings, Inc. 94,457 1.3% 6,595 3.0% 2034 Alamar Biosciences, Inc. 88,508 1.2% 6,149 2.8% 2034 IQVIA Holdings Inc. 176,839 2.4% 5,344 2.4% 2023 Prometheus Biosciences, Inc. 55,102 0.7% 5,114 2.3% 2033 Medtronic, Inc. 252,025 3.4% 4,879 2.2% 2023 - 2027 KSQ Therapeutics, Inc. 54,633 0.7% 4,776 2.2% 2032 Boston Children's Hospital 99,063 1.3% 4,736 2.2% 2028 Sonova Holding AG 146,385 2.0% 4,569 2.1% 2023 - 2033 Magellan Health Inc. 232,521 3.1% 4,516 2.1% 2025 Abbvie Inc. 197,976 2.7% 4,014 1.8% 2027 United Healthcare Services, Inc. 149,719 2.0% 3,924 1.8% 2026 Cigna Holding Co. 219,644 2.9% 3,914 1.8% 2024 Tokio Marine Holdings Inc. 81,072 1.1% 3,802 1.7% 2023 - 2033 Duke University 126,225 1.7% 3,751 1.7% 2024 PerkinElmer Health Sciences, Inc. 105,462 1.4% 3,681 1.7% 2028 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 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 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 Totals 7,467,521 100.0% $ 219,330 100.0% (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. Senior Housing Operating Portfolio 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. 62 Table of Contents 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 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 Cedarhurst Senior Living IL/WI 13 785 Charter Senior Living FL/MD/TN/VA 17 977 IntegraCare Senior Living PA 2 143 Life Care Services DE 3 517 Navion Senior Solutions SC 5 235 Northstar Senior Living AZ/CA 7 418 Oaks-Caravita Senior Care GA/SC 26 1,415 Oaks Senior Living GA 3 264 Omega Senior Living NE 1 69 Phoenix Senior Living AL/AR/KY/MO/NC/SC 23 1,462 RMR TX 1 169 Stellar Senior Living CO/TX/WY 10 1,169 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 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 63 Table of Contents 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. All Other 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) Percent of Total Cumulative Percent of Total 2023 — — $ — — % — % 2024 — — — — % — % 2025 — — — — % — % 2026 — — — — % — % 2027 4 533 units 4,469 13.6 % 13.6 % 2028 6 354,000 sq. ft. — — % 13.6 % 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. ft. 24,295 74.0 % 100.0 % Total 37 $ 32,807 100.0 % (1) Annualized rental income is based on rents pursuant to existing leases as of December 31, 2022. Annualized rental income includes estimated percentage rents and straight line rent adjustments and excludes lease value amortization. GENERAL INDUSTRY TRENDS Our medical office and life science properties have been impacted by at least two major industry trends for the past 10 years which are continuing at this time and that have impacted our investment activities. First, medical practices are being consolidated into hospital systems. This has caused the number of free standing medical practices to decline. At the same time, the number of multi-practice medical office buildings that are anchor leased by hospital systems who employ doctors has increased. We believe hospital systems will continue the trend of providing an increasing amount of services in off campus medical offices away from main hospital campuses in order to reduce costs and serve as many patients as possible, which is reinforced by consumers' preference for healthcare services to be provided away from hospital campuses and closer to their residence or work locations. Second, various advances in medical science have caused a large investment in new bio-medical research companies that require office, lab and medical products manufacturing space. 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. 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. Due to these demographic trends, we expect the demand for senior living services and housing to increase for the foreseeable future. Despite this trend, future economic downturns, softness in the U.S. 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. 64 Table of Contents 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 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 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. For further information regarding these laws and regulations, and possible legislative and regulatory changes, see "Business—Government Regulation and Reimbursement" in Part I, Item 1 of this Annual Report on Form 10-K. 65 Table of Contents RESULTS OF OPERATIONS (dollars and square feet in thousands, unless otherwise noted) The following table summarizes the results of operations of each of our segments for the years ended December 31, 2022 and 2021: For the Year Ended December 31, 2022 2021 Revenues: Office Portfolio $ 222,390 $ 367,597 SHOP 1,022,826 974,623 Non-Segment 38,350 40,992 Total revenues $ 1,283,566 $ 1,383,212 Net income (loss) attributable to common shareholders: Office Portfolio $ 378,282 $ 575,836 SHOP (139,589) (104,081) Non-Segment (254,467) (297,240) Net income (loss) attributable to common shareholders $ (15,774) $ 174,515 The following sections analyze and discuss the results of operations of each of our segments for the periods presented. Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 (dollars and square feet in thousands, except average monthly rate): Unless otherwise indicated, references in this section to changes or comparisons of results, income or expenses refer to comparisons of the results for the 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, 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. 66 Table of Contents For the Year Ended December 31, 2022 2021 $ Change % Change NOI by segment: Office Portfolio $ 128,091 $ 240,284 $ (112,193) (46.7) % SHOP 8,726 10,124 (1,398) (13.8) % Non-Segment 37,679 40,992 (3,313) (8.1) % Total NOI 174,496 291,400 (116,904) (40.1) % Depreciation and amortization 239,280 271,131 (31,851) (11.7) % General and administrative 26,435 34,087 (7,652) (22.4) % 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 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) % Interest expense (209,383) (255,759) 46,376 (18.1) % 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) % 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 (loss) income attributable to common shareholders $ (15,774) $ 174,515 $ (190,289) nm nm – not meaningful Office Portfolio: Comparable Properties (1) All Properties As of December 31, As of December 31, 2022 2021 2022 2021 Total buildings 94 94 105 116 Total square feet 7,894 7,895 8,811 9,793 Occupancy 90.0 % 92.3 % 84.7 % 91.3 % (1) Consists of medical office and life science properties that we have owned and which have been in service continuously since January 1, 2021; excludes properties classified as held for sale or out of service undergoing redevelopment, if any, and medical office and life science properties owned by unconsolidated joint ventures in each of which we own an equity interest. Year Ended December 31, Comparable (1) Non-Comparable Properties Results Properties Results Consolidated Properties Results 2022 2021 $ Change % Change 2022 2021 2022 2021 $ Change % Change Rental income $ 194,923 $ 190,353 $ 4,570 2.4 % $ 27,467 $ 177,244 $ 222,390 $ 367,597 $ (145,207) (39.5) % Property operating expenses (81,788) (77,072) 4,716 6.1 % (12,511) (50,241) (94,299) (127,313) (33,014) (25.9) % NOI $ 113,135 $ 113,281 $ (146) (0.1) % $ 14,956 $ 127,003 $ 128,091 $ 240,284 $ (112,193) (46.7) % (1) Consists of medical office and life science properties that we have owned and which have been in service continuously since January 1, 2021; excludes properties classified as held for sale or out of service undergoing redevelopment, if any, and medical office and life science properties owned by unconsolidated joint ventures in each of which we own an equity interest. Rental income. Rental income decreased primarily due to the deconsolidation of 11 medical office and life science properties currently owned by 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 67 Table of Contents 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 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. The change in NOI reflects the net changes in rental income and property operating expenses described above. SHOP: Comparable Properties (1) All Properties As of and For the Year Ended December 31, As of and For the Year Ended December 31, 2022 2021 2022 2021 Total properties 119 119 237 235 Number of units 17,512 17,512 25,346 25,345 Occupancy 75.1 % 73.2 % 74.4 % 71.1 % Average monthly rate (2) $ 4,164 $ 3,985 $ 4,506 $ 4,339 (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. Year Ended December 31, Comparable (1) Non-Comparable Properties Results Properties Results Consolidated Properties Results 2022 2021 $ Change % Change 2022 2021 2022 2021 $ Change % Change Residents fees and services $ 666,738 $ 656,369 $ 10,369 1.6 % $ 356,088 $ 318,254 $ 1,022,826 $ 974,623 $ 48,203 4.9 % Property operating expenses (622,258) (621,076) 1,182 0.2 % (391,842) (343,423) (1,014,100) (964,499) 49,601 5.1 % 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 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. Residents fees and services are the revenues earned at our managed senior living communities. We recognize these revenues as services are provided and related fees are accrued. Residents fees and services 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 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. The change in NOI reflects the net changes in residents fees and services and property operating expenses described above. 68 Table of Contents Non-Segment (1) : Comparable Properties (2) All Properties As of and For the Year Ended December 31, As of and For the Year Ended December 31, 2022 2021 2022 2021 Total properties: Other triple net leased senior living communities 26 26 27 29 Wellness centers 10 10 10 10 Rent coverage: Other triple net leased senior living communities (3) 1.23 x 1.26 x 1.23 x 1.26 x Wellness centers (3) 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 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. (3) All tenant operating data presented is based upon the operating results provided by our tenants for the 12 months ended September 30, 2022 and 2021 or the most recent prior period for which tenant operating results are available to us. Rent coverage is calculated using the operating cash flows from our triple net lease tenants' operations of our properties, before subordinated charges, if any, divided by triple net lease minimum rents payable to us. We have not independently verified tenant operating data. Excludes data for historical periods prior to our ownership of certain properties, as well as data for properties sold or classified as held for sale, if any, or for which there was a transfer of operations during the periods presented. 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, Comparable (1) Non-Comparable Properties Results Properties Results Consolidated Properties Results 2022 2021 $ Change % Change 2022 2021 2022 2021 $ Change % Change 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 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 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 and property operating expenses described above. Consolidated: References to changes in the income and expense categories below relate to the comparison of consolidated results for the year ended December 31, 2022, compared to the year ended December 31, 2021. 69 Table of Contents Depreciation and amortization expense. Depreciation and amortization expense decreased primarily due to the deconsolidation of 11 medical office and life science properties owned by two unconsolidated joint ventures in each of which we own an equity interest 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 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, 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. For information about our asset impairment charges, see Note 3 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. Gain on sale of properties. 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. 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 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 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. 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 70 Table of Contents 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). We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss) and net income (loss) attributable to common shareholders. We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization, they may facilitate a comparison of our operating performance between periods and with other REITs and, in the case of NOI, reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of our properties. Funds From Operations and Normalized Funds From Operations Attributable to Common Shareholders We calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders as shown below. FFO attributable to common shareholders is calculated on the basis defined by the National Association of Real Estate Investment Trusts, which is net income (loss) attributable to common shareholders, calculated in accordance with GAAP, excluding any gain or loss on sale of properties, equity in 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. 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. This table also provides a comparison of distributions to shareholders, FFO attributable to common shareholders and Normalized FFO attributable to common shareholders and net income (loss) attributable to common shareholders per share for these periods. 71 Table of Contents For the Year Ended December 31, 2022 2021 Net (loss) income attributable to common shareholders $ (15,774) $ 174,515 Depreciation and amortization 239,280 271,131 Gain on sale of properties (321,862) (492,272) Impairment of assets — (174) Losses on equity securities, net 25,660 42,232 FFO adjustments attributable to noncontrolling interest — (20,584) 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) FFO attributable to common shareholders (74,948) (30,896) Acquisition and certain other transaction related costs 2,605 17,506 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 and diluted) 238,314 237,967 Per common share data (basic and diluted): Net (loss) income attributable to common shareholders $ (0.07) $ 0.73 FFO attributable to common shareholders $ (0.31) $ (0.13) Normalized FFO attributable to common shareholders $ (0.16) $ (0.03) Distributions declared $ 0.04 $ 0.04 Property Net Operating Income (NOI) We calculate NOI as shown below. The calculation of NOI excludes certain components of net income (loss) in order to provide results that are more closely related to our property level results of operations. We define NOI as income from our real estate less our property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions that we record as depreciation and amortization. We use NOI to evaluate individual and company-wide property level performance. Other real estate companies and REITs may calculate NOI differently than we do. 72 Table of Contents The calculation of NOI by reportable segment is included above in this Item 7. The following table includes the reconciliation of net income (loss) to NOI for the years ended December 31, 2022 and 2021. For the Year Ended December 31, 2022 2021 Reconciliation of Net Income (Loss) to NOI: Net (loss) income $ (15,774) $ 179,926 Equity in net earnings of investees (6,055) — Income tax expense 710 1,430 (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) Losses on equity securities, net 25,660 42,232 Gain on sale of properties (321,862) (492,272) Impairment of assets — (174) Acquisition and certain other transaction related costs 2,605 17,506 General and administrative 26,435 34,087 Depreciation and amortization 239,280 271,131 Total NOI $ 174,496 $ 291,400 Office Portfolio NOI $ 128,091 $ 240,284 SHOP NOI 8,726 10,124 Non-Segment NOI 37,679 40,992 Total NOI $ 174,496 $ 291,400 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 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; • 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; and • 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 73 Table of Contents 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. 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): Year Ended December 31, 2022 2021 Cash and cash equivalents and restricted cash at beginning of period $ 1,016,945 $ 90,849 Net cash provided by (used in): Operating activities (40,353) (63,323) Investing activities 387,708 242,696 Financing activities (675,998) 746,723 Cash and cash equivalents and restricted cash at end of period $ 688,302 $ 1,016,945 Our Operating Liquidity and Resources We generally receive minimum rents from our tenants monthly or quarterly, we receive residents fees and services revenues, net of expenses, from our managed senior living communities monthly and we receive percentage rents from certain of our senior living community tenants monthly, quarterly or annually. The 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. 74 Table of Contents Our Investing Liquidity and Resources 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): For the Year Ended December 31, 2022 2021 Office Portfolio segment capital expenditures: Lease related costs (1) $ 25,227 $ 40,253 Building improvements (2) 11,955 15,407 SHOP segment fixed assets and capital improvements 109,529 141,122 Recurring capital expenditures $ 146,711 $ 196,782 Development, redevelopment and other activities - Office Portfolio segment (3) $ 48,390 $ 40,253 Development, redevelopment and other activities - SHOP segment (3) 118,601 17,274 Total development, redevelopment and other activities $ 166,991 $ 57,527 (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 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 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 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. 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 75 Table of Contents 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 (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. 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 credit facility. 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 under our credit facility increased by 15 basis points; 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), 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 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; 76 Table of Contents • 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; and • 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. 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. For further information regarding the distributions we paid during 2022, see Note 5 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. On January 12, 2023, we declared a quarterly distribution payable to common shareholders of record on January 23, 2023 in the amount of $0.01 per share, or approximately $2.4 million. 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 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 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. 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. 77 Table of Contents 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. Debt Covenants Our principal debt obligations at December 31, 2022 were: (1) $700.0 million of outstanding borrowings under our credit facility; (2) $2.4 billion outstanding principal amount of senior unsecured notes; 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 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 78 Table of Contents 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 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. However, under our credit agreement, our senior unsecured debt ratings are used to determine the fees and interest rates we pay. Accordingly, following our debt ratings downgrades, our interest expense and related costs under our credit agreement has increased. See "—Our Financing Liquidity and Resources" above for information regarding recent downgrades of our issuer credit rating and senior unsecured debt rating. 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 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, 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. A subsidiary guarantor's guarantee of our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031, as applicable, and all other obligations of such subsidiary guarantor under the indenture governing the notes will automatically terminate and such subsidiary guarantor will automatically be released from all of its obligations under such subsidiary guarantee and the indenture under certain circumstances, including on or after the date (a) the notes have an investment grade rating from two rating agencies and one of such investment grade ratings is a mid-BBB investment grade rating and (b) no default or event of default has occurred and is continuing under the indenture. Our non-guarantor subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due on our 9.75% senior notes due 2025 or our 4.375% senior notes due 2031 or the respective guarantees, or to make any funds available therefor, whether by 79 Table of Contents dividend, distribution, loan or other payments. The rights of holders of our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031, as applicable, to benefit from any of the assets of our non-guarantor subsidiaries are subject to the prior satisfaction of claims of those subsidiaries' creditors and any preferred equity holders. As a result, our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031 and the respective guarantees are structurally subordinated to all indebtedness, guarantees and other liabilities of our subsidiaries that do not guarantee our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031, including guarantees of other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity. The following tables present summarized financial information for guarantor entities and issuer, on a combined basis after eliminating (i) intercompany transactions and balances among the guarantor entities and (ii) equity in earnings from, and any investments in, any subsidiary that is a non-guarantor (dollars in thousands): December 31, 2022 Real estate properties, net $ 4,027,071 Other assets, net 1,052,538 Total assets $ 5,079,609 Indebtedness, net $ 3,023,039 Other liabilities 298,300 Total liabilities $ 3,321,339 Year Ended December 31, 2022 Revenues $ 1,143,354 Expenses 1,280,812 Loss from continuing operations (387,786) Net loss (382,441) Related Person Transactions We have relationships and historical and continuing transactions with RMR, RMR Inc., AlerisLife (including Five Star) and others related to them. For further information about these and other such relationships and related person transactions, see Notes 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 or its subsidiaries provide management services. Critical Accounting Estimates Our critical accounting policies are those that will have the most impact on the reporting of our financial condition and results of operations and those requiring significant judgments and estimates. We believe that our judgments and estimates have been and will be consistently applied and produce financial information that fairly presents our results of operations. Our most critical accounting policies involve our investments in real property. These policies affect our: • allocation of purchase prices among various asset categories, including allocations to above and below market leases, and the related impact on the recognition of rental income and depreciation and amortization expenses; and • assessment of the carrying values and impairments of long lived assets. 80 Table of Contents We allocate the purchase prices of our properties to land, building and improvements based on determinations of the fair values of these assets assuming the properties are vacant. We determine the fair value of each property using methods similar to those used by independent appraisers, which may involve estimated cash flows that are based on a number of factors, including capitalization rates and discount rates, among others. In some circumstances, we engage independent real estate appraisal firms to provide market information and evaluations which are relevant to our purchase price allocations and determinations of depreciable useful lives; however, we are ultimately responsible for the purchase price allocations and determinations of useful lives. We allocate a portion of the purchase price to above market and below market leases based on the present value (using an interest rate which reflects the risks associated with acquired in place leases at the time each property was acquired by us) of the difference, if any, between (i) the contractual amounts to be paid pursuant to the acquired in place leases and (ii) our estimates of fair market lease rates for the corresponding leases, measured over a period equal to the terms of the respective leases. The terms of below market leases that include bargain renewal options, if any, are further adjusted if we determine that renewal is probable. We allocate a portion of the purchase price to acquired in place leases and tenant relationships based upon market estimates to lease up the property based on the leases in place at the time of purchase. In making these allocations, we consider factors such as estimated carrying costs during the expected lease up periods, including real estate taxes, insurance and other operating income and expenses and costs, such as leasing commissions, legal and other related expenses, to execute similar leases in current market conditions at the time a property was acquired by us. We allocate this aggregate value between acquired in place lease values and tenant relationships based on our evaluation of the specific characteristics of each tenant's lease. However, we have not separated the value of tenant relationships from the value of acquired in place leases because such value and related amortization expense is immaterial to our consolidated financial statements. If the value of tenant relationships becomes material in the future, we may separately allocate those amounts and amortize the allocated amount over the estimated life of the relationships. We regularly evaluate our properties for indicators of impairment. Impairment indicators may include declining tenant or resident occupancy, weak or declining profitability from the property, decreasing tenant cash flows or liquidity, our decision to dispose of an asset before the end of its estimated useful life, and legislative, market or industry changes that could permanently reduce the value of a property. If indicators of impairment are present, we evaluate the carrying value of the related property by comparing it to the expected future cash flows to be generated from that property. If the sum of these expected future cash flows is less than the carrying value, we reduce the net carrying value of the property to its estimated fair value. This analysis requires us to judge whether indicators of impairment exist and to estimate likely future cash flows. The future cash flows are subjective and are based in part on assumptions regarding hold periods, market rents and terminal capitalization rates. If we misjudge or estimate incorrectly or if future tenant operations, market or industry factors differ from our expectations we may record an impairment charge that is inappropriate or fail to record a charge when we should have done so, or the amount of any such charges may be inaccurate. These accounting policies involve significant judgments made based upon our experience and the experience of our management and our Board of Trustees, including judgments about current valuations, ultimate realizable value, estimated useful lives, salvage or residual value, the ability and willingness of our tenants to perform their obligations to us, and the current and likely future operating and competitive environments in which our properties are operated. In the future, we may need to revise our carrying value assessments to incorporate information which is not now known, and such revisions could increase or decrease our depreciation expense or impairment charges related to properties we own, result in the classification of our leases as other than operating leases or decrease the carrying values of our assets. Impact of Government Reimbursement 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. 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. Because of shifting policy priorities, the current and projected federal budget deficit, other federal spending priorities and challenging fiscal conditions in some states, there have been numerous recent legislative and regulatory actions or proposed actions with respect to federal Medicare rates, state Medicaid rates and federal payments to states for Medicaid programs, as well as existing regulations that impact these matters. Further, there are other existing and recently enacted legislation, and related litigation, related to government payments, insurance and healthcare delivery. 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 81 Table of Contents 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. Seasonality Senior housing operations have historically reflected modest seasonality. During fourth quarter holiday periods, residents at such facilities are sometimes discharged to spend time with family and admission decisions are often deferred. The first quarter of each calendar year usually coincides with increased illness among residents which can result in increased costs or discharges to hospitals. As a result of these and other factors, these operations sometimes produce greater earnings in the second and third quarters of a calendar year and lesser earnings in the fourth and first calendar quarters. We do not expect these seasonal differences to have a material impact upon the ability of our tenants to pay our rent or our ability to fund our managed senior living operations or our other businesses. Our medical office and life science properties and wellness centers do not typically experience seasonality. Impact of Climate Change Concerns about climate change have resulted in various treaties, laws and regulations that are intended to limit carbon emissions and address other environmental concerns. These and other laws may cause energy or other costs at our properties to increase. We do not expect the direct impact of these increases to be material to our results of operations, because the increased costs either would be the responsibility of our tenants directly or in the longer term, passed through and paid by tenants of our properties. Although we do not believe it is likely in the foreseeable future, laws enacted to mitigate climate change may make some of our buildings obsolete or cause us to make material investments in our properties, which could materially and adversely affect our financial condition or the financial condition of our tenants or managers and their ability to pay rent or returns to us. 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, is a member of the ENERGY STAR program, a joint program of the U.S. Environmental Protection Agency and the U.S. Department of Energy that is focused on promoting energy efficiency at commercial properties through its “ENERGY STAR” partner program, and a member of the U.S. Green Building Council, a nonprofit organization focused on promoting energy efficiency at commercial properties through its leadership in energy and environmental design, or LEED®, green building program. Some observers believe severe weather in different parts of the world over the last few years is evidence of global climate change. Severe weather may have an adverse effect on certain properties we own. Rising sea levels could cause flooding at some of our properties, which may have an adverse effect on individual properties we own. We mitigate these risks by procuring, or requiring our tenants to procure, insurance coverage we believe adequate to protect us from material damages and losses resulting from the consequences of losses caused by climate change. However, we cannot be sure that our mitigation efforts will be sufficient or that future storms, rising sea levels or other changes that may occur due to future climate change could not have a material adverse effect on our financial results.