What changed in this filing

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Item 1. Financial Statements

2023-05-08 compared with 2022-11-02 · 240 added, 340 removed, 348 unchanged (63% of the section changed)

3 unchanged sentences

(dollars in thousands, except share data)

September 30, December 31,

March 31, December 31,

Real estate properties:

5 unchanged sentences

Investments in unconsolidated joint ventures 153,419 155,477

Assets of properties held for sale — 385

Cash and cash equivalents 380,117 658,065

4 unchanged sentences

Liabilities and Shareholders' Equity

Revolving credit facility $ 700,000 $ 800,000

Credit facility $ 450,000 $ 700,000

Senior unsecured notes, net 2,318,907 2,317,700

1 unchanged sentence

Accrued interest 31,957 29,417

Assumed real estate lease obligations, net 1,205 2,556

Other liabilities 252,473 286,188

13 unchanged sentences

(amounts in thousands, except per share data)

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

2022 2021 2022 2021

Three Months Ended March 31,

Rental income $ 66,438 $ 65,285

7 unchanged sentences

Total expenses 362,771 334,214

(Loss) gain on sale of properties ( 5,044 ) 200 322,064 30,838

Losses on equity securities, net ( 2,674 ) ( 14,755 ) ( 21,384 ) ( 26,943 )

Gain on sale of properties 1,233 327,794

Gains and losses on equity securities, net 8,126 ( 8,553 )

Interest and other income 4,195 395

2 unchanged sentences

Loss on modification or early extinguishment of debt ( 1,075 ) ( 483 )

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

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

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

(Loss) income before income tax benefit (expense) and equity in net (losses) earnings of investees ( 52,042 ) 238,541

Income tax benefit (expense) 31 ( 1,472 )

Equity in net (losses) earnings of investees ( 647 ) 3,354

Net (loss) income $ ( 52,658 ) $ 240,423

Net income attributable to noncontrolling interest — ( 1,339 ) — ( 4,238 )

Net (loss) income attributable to common shareholders $ ( 81,492 ) $ ( 89,343 ) $ 49,548 $ ( 191,070 )

Weighted average common shares outstanding (basic and diluted) 238,344 238,008 238,231 237,905

Weighted average common shares outstanding (basic) 238,589 238,149

Weighted average common shares outstanding (diluted) 238,589 238,198

Per common share amounts (basic and diluted):

Net (loss) income attributable to common shareholders $ ( 0.34 ) $ ( 0.38 ) $ 0.21 $ ( 0.80 )

Net (loss) income $ ( 0.22 ) $ 1.01

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

8 unchanged sentences

239,694,842 $ 2,397 $ 4,617,031 $ 2,071,850 $ ( 4,052,667 ) $ 2,638,611

Net income — — — 240,423 — 240,423

Distributions — — — — ( 2,390 ) ( 2,390 )

Share grants — — 318 — — 318

Share repurchases ( 1,698 ) — ( 5 ) — — ( 5 )

Share forfeitures ( 4,900 ) — ( 3 ) — — ( 3 )

Balance at March 31, 2022:

238,988,296 2,390 4,615,785 2,328,047 ( 4,045,489 ) 2,900,733

Net loss — — — ( 52,658 ) — ( 52,658 )

1 unchanged sentence

Share grants — — 270 — — 270

Share forfeitures ( 4,800 ) — ( 4 ) — — ( 4 )

Balance at June 30, 2022:

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

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

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

Share grants 707,000 7 470 — — 477

Share repurchases ( 5,975 ) — ( 6 ) — — ( 6 )

Share forfeitures ( 6,400 ) — ( 1 ) — — ( 1 )

Balance at September 30, 2022:

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

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

DIVERSIFIED HEALTHCARE TRUST

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)

(dollars in thousands)

Shares Common

Shares Additional

Capital Cumulative

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

Interest Total Equity

Balance at December 31, 2020:

238,268,478 $ 2,383 $ 4,613,904 $ 1,913,109 $ ( 4,033,559 ) $ 2,495,837 $ 123,385 $ 2,619,222

Net (loss) income — — — ( 67,505 ) — ( 67,505 ) 1,322 ( 66,183 )

Distributions — — — — ( 2,383 ) ( 2,383 ) — ( 2,383 )

Share grants — — 228 — — 228 — 228

Distributions to noncontrolling interest — — — — — — ( 5,694 ) ( 5,694 )

Balance at March 31, 2023:

239,682,467 $ 2,397 $ 4,617,294 $ 2,019,192 $ ( 4,055,064 ) $ 2,583,819

Net (loss) income — — — ( 34,222 ) — ( 34,222 ) 1,577 ( 32,645 )

Distributions — — — — ( 2,383 ) ( 2,383 ) — ( 2,383 )

Share grants 120,000 1 675 — — 676 — 676

Share repurchases ( 13,906 ) — ( 59 ) — — ( 59 ) — ( 59 )

Distributions to noncontrolling interest — — — — — — ( 5,630 ) ( 5,630 )

Balance at June 30, 2021:

Balance at December 31, 2021:

238,994,894 $ 2,390 $ 4,615,475 $ 2,087,624 $ ( 4,043,099 ) 2,662,390

Net (loss) income — — — ( 89,343 ) — ( 89,343 ) 1,339 ( 88,004 )

Net income — — — 240,423 — 240,423

Distributions — — — — ( 2,390 ) ( 2,390 )

2 unchanged sentences

Share forfeitures ( 4,900 ) — ( 3 ) — — ( 3 )

Distributions to noncontrolling interest — — — — — — ( 5,524 ) ( 5,524 )

Balance at September 30, 2021:

Balance at March 31, 2022:

238,988,296 $ 2,390 $ 4,615,785 $ 2,328,047 $ ( 4,045,489 ) $ 2,900,733

3 unchanged sentences

(dollars in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

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

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

Net (loss) income $ ( 52,658 ) $ 240,423

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

Depreciation and amortization 64,800 57,259

5 unchanged sentences

Gain on sale of properties ( 1,233 ) ( 327,794 )

Losses on equity securities, net 21,384 26,943

Gains and losses on equity securities, net ( 8,126 ) 8,553

Other non-cash adjustments, net ( 674 ) ( 628 )

Unconsolidated joint venture distributions 1,411 2,720

Equity in earnings of investees ( 8,685 ) —

Equity in net losses (earnings) of investees 647 ( 3,354 )

Change in assets and liabilities:

3 unchanged sentences

Other liabilities ( 20,525 ) ( 20,250 )

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

Net cash provided by (used in) operating activities 6,042 ( 7,264 )

Cash flows from investing activities:

Real estate acquisitions ( 75,105 ) —

Real estate improvements ( 60,292 ) ( 55,791 )

1 unchanged sentence

Proceeds from sale of properties to joint venture, net — 643,892

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

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

Net cash (used in) provided by investing activities ( 56,744 ) 588,353

Cash flows from financing activities:

Proceeds from issuance of senior unsecured notes, net — 492,500

Proceeds from borrowings on revolving credit facility — 800,000

Repayments of borrowings on revolving credit facility ( 100,000 ) —

Redemption of senior unsecured notes ( 500,000 ) ( 300,000 )

Repayment of term loan — ( 200,000 )

Repayments of borrowings on credit facility ( 250,000 ) ( 100,000 )

Repayment of other debt ( 538 ) ( 838 )

Loss on early extinguishment of debt settled in cash ( 24,375 ) —

Payment of debt issuance costs ( 1,990 ) ( 2,805 )

Repurchase of common shares ( 6 ) ( 5 )

Distributions to noncontrolling interest — ( 16,848 )

Distributions to shareholders ( 2,397 ) ( 2,390 )

Net cash (used in) provided by financing activities ( 662,905 ) 756,671

Net cash used in financing activities ( 254,931 ) ( 106,038 )

(Decrease) increase in cash and cash equivalents and restricted cash ( 305,633 ) 475,051

5 unchanged sentences

(dollars in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Supplemental cash flow information:

2 unchanged sentences

Non-cash investing activities:

Receivable from AlerisLife Inc.

tender offer $ 14,006 $ —

Decrease in assets resulting from the deconsolidation of investments that were previously consolidated:

1 unchanged sentence

Real estate improvements accrued, not paid $ 20,195 $ 20,645

Capitalized interest $ — $ 1,089

Supplemental disclosure of cash and cash equivalents and restricted cash:

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

As of September 30,

As of March 31,

Cash and cash equivalents $ 380,117 $ 732,058

2 unchanged sentences

Total cash and cash equivalents and restricted cash shown in our condensed consolidated statements of cash flows $ 382,669 $ 1,491,996

(1) As of September 30, 2022, restricted cash consists of proceeds from the sale of joint venture interests and proceeds from the sale of properties to joint ventures held as collateral pursuant to the agreement governing our revolving credit facility, or our credit agreement.

We may use these funds to pay for approved expenditures in accordance with our credit agreement.

(1) As of March 31, 2022, restricted cash consisted of proceeds from the sale of joint venture interests and proceeds from the sale of properties to joint ventures held as collateral pursuant to the agreement governing our credit facility, or our credit agreement.

Subsequently, these funds were used to pay for approved expenditures in accordance with our credit agreement.

Restricted cash also consists of amounts escrowed for real estate taxes, insurance and capital expenditures at certain of our mortgaged properties.

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

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

22 unchanged sentences

A minimum or best estimate amount may be increased or decreased when events result in a changed expectation.

Going Concern

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

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 recently 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 senior housing operating portfolio, or SHOP, segment, we continue to work with our senior living operators to manage costs, especially labor costs, and to increase rates and occupancy.

In order to increase the probability of a recovery of our cash flows, we have continued to invest capital in our SHOP segment, which has reduced our cash balances since the filing of our Annual Report on March 1, 2023.

Our ratio of consolidated income available for debt service to debt service was below the 1.5 x incurrence requirement under our credit agreement and our public debt covenants as of March 31, 2023, and we cannot be certain how long this ratio will remain below 1.5 x.

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

As of March 31, 2023, we had $ 380,117 of cash and cash equivalents and $ 700,000 of outstanding debt due within one year from the date of issuance of these financial statements, or May 8, 2023.

This included $ 450,000 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 $ 1,300,000 based on appraisals completed to secure our credit facility.

In addition to our credit facility maturity in January of 2024, we also have $ 250,000 of senior notes that mature on May 1, 2024.

Based on the challenges described above, as well as our reduced cash balances, additional capital commitments in both our Office Portfolio and SHOP segments and upcoming debt maturities, we have concluded that there is substantial doubt about our ability to continue as a going concern for at least one year from the date of issuance of these financial statements, or May 8,

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

As described below, we have entered into an agreement to merge with and into Office Properties Income Trust, or OPI.

The combined company is expected to be in compliance with its financial covenants following the closing of the merger, which is expected to provide the combined company with increased access to debt capital.

While we believe this transaction will alleviate the substantial doubt about our ability to continue as a going concern, we cannot provide assurance that the merger will close on the contemplated terms or timeline or at all.

If the merger does not close, we will seek to raise additional capital, but we are limited in the type of financings we can pursue as we cannot issue any debt, as described above.

Due to deteriorating capital market conditions, we do not believe it is probable as of the date of issuance of these financial statements, or May 8, 2023, that we will raise sufficient capital to meet our upcoming contractual commitments.

As of May 8, 2023, we cannot demonstrate that our management's plans to alleviate substantial doubt about our ability to continue as a going concern will be probable in mitigating the conditions that raise the substantial doubt because our plan to merge with OPI is subject to shareholder and other customary approvals and our potential plan to raise rescue capital is subject to market conditions beyond our control.

Our condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

Pending Merger with Office Properties Income Trust

On April 11, 2023, we and OPI entered into an Agreement and Plan of Merger, or the Merger Agreement, pursuant to which, on the terms and subject to the satisfaction or waiver of the conditions thereof, we will be merged with and into OPI, with OPI continuing as the surviving entity in the merger, or the Merger.

Pursuant to the terms and subject to the conditions and limitations set forth in the Merger Agreement, at the date and time the Merger becomes effective, or the Effective Time, each of our common shares of beneficial interest, $ .01 par value per share, or our common shares, issued and outstanding as of immediately prior to the Effective Time will be automatically converted into the right to receive 0.147 (such ratio, the Exchange Ratio) common shares of beneficial interest, $ .01 par value per share, of OPI, or the OPI Common Shares, subject to adjustment for certain reclassifications, distributions, recapitalizations or similar transactions and other exceptional distributions as described in the Merger Agreement, with cash paid in lieu of fractional shares.

At the Effective Time, any outstanding unvested common share awards under our equity compensation plan will be converted into an award under OPI’s equity compensation plan, subject to substantially similar vesting requirements and other terms and conditions, of a number of OPI Common Shares determined by multiplying the number of our unvested common shares subject to such award by the Exchange Ratio (rounded down to the nearest whole number).

Other than as provided in the Merger Agreement, the Exchange Ratio is fixed and will not be adjusted to reflect changes in the market price of our common shares or the OPI Common Shares prior to the Effective Time.

The OPI Common Shares issued and outstanding immediately prior to the Effective Time will remain issued and outstanding common shares of beneficial ownership of the surviving entity following the Merger.

OPI expects to change its name from “Office Properties Income Trust” to “Diversified Properties Trust” at the Effective Time.

The transactions contemplated by the Merger Agreement and the terms thereof were evaluated, negotiated and recommended to our Board of Trustees, or our Board, by a special committee of our Board, or the DHC Special Committee, and to OPI’s board of trustees, or the OPI Board, by a special committee of OPI’s Board, or the OPI Special Committee, each consisting of disinterested, independent trustees of us and OPI, respectively.

Following the recommendations of the DHC Special Committee and the OPI Special Committee, our Board and the OPI Board each approved the Merger Agreement and the transactions contemplated thereby and resolved to recommend that our and OPI's shareholders, respectively, vote in favor of approval of the Merger and the transactions contemplated thereby.

Our shareholders will be asked to vote on the approval of the Merger and related matters at a special meeting of our shareholders.

The consummation of the Merger is subject to the satisfaction or waiver of certain closing conditions, including, among others:

(1) the approval of the Merger by the affirmative vote of at least a majority of all the votes entitled to be cast by holders of our outstanding common shares at the meeting held for that purpose;

(2) the approval of the Merger by the affirmative vote of at least a majority of all the votes entitled to be cast by holders of outstanding OPI Common Shares at the meeting held for that purpose;

(3) the approval of the issuance of the OPI Common Shares to be issued in the Merger, or the Share Issuance, by the affirmative vote of at least a majority of all votes cast by holders of outstanding OPI Common Shares at the meeting held for that purpose;

(4) the absence of any statute, rule or regulation by any governmental entity of competent jurisdiction or any temporary, preliminary or permanent judgment, order or decree by any court of competent jurisdiction which would prohibit or

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

make illegal or prevent the consummation of the Merger or any of the transactions contemplated by the Merger Agreement;

(5) the effectiveness of the registration statement on Form S-4, or the Form S-4, to be filed by OPI with the Securities and Exchange Commission, or the SEC, in connection with the Share Issuance;

(6) the approval (subject to notice of issuance) of The Nasdaq Stock Market LLC, or Nasdaq, of the listing of the OPI Common Shares to be issued in the Merger;

(7) the extension or replacement of OPI’s existing revolving credit facility, on terms that, among other things, would not be reasonably likely to be materially adverse to the business, operations or financial condition of OPI after giving effect to the Merger and would not delay or prevent the consummation of the Merger;

(8) the receipt of certain tax opinions by us and OPI;

and (9) the other party’s representations and warranties being accurate (subject to certain customary materiality exceptions) and the other party having performed or complied in all material respects with its agreements and covenants in the Merger Agreement.

The Merger Agreement contains certain customary representations, warranties and covenants, including covenants providing that we and OPI will use reasonable best efforts to conduct our and its respective businesses in all material respects in the ordinary course during the period between the execution of the Merger Agreement and the earlier of the Effective Time or the termination of the Merger Agreement, and to refrain from taking certain types of actions without the other party’s consent during the period between the execution of the Merger Agreement and the earlier of the Effective Time or the termination of the Merger Agreement, subject in each case to specified exceptions.

Real Estate Investments

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

and we owned an equity interest in each of two unconsolidated joint ventures that own medical office and life science properties located in five states with an aggregate of approximately 2.2 million rentable square feet.

As of March 31, 2023, we wholly owned 376 properties located in 36 states and Washington, D.C.

and we owned an equity interest in each of two unconsolidated joint ventures that own medical office and life science properties located in five states.

Joint Venture Activities:

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

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

As of March 31, 2023, we had equity investments in joint ventures as follows:

Joint Venture DHC Ownership DHC Carrying Value of Investment at March 31, 2023

Number of Properties Location Square Feet

2 unchanged sentences

$ 153,419 11 2,203,242

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

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

Joint Venture Coupon Rate Maturity Date Principal Balance at March 31, 2023 (1)

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

6 unchanged sentences

(1) Amounts are not adjusted for our minority equity interest.

(2) Following the deconsolidation in December 2021 of the net assets of the Seaport JV, we no longer include this $ 620,000 of secured debt financing in our condensed consolidated balance sheet;

(2) Following the deconsolidation in December 2021 of the net assets of an unconsolidated joint venture that owns a life science property located in Boston, Massachusetts, or the Seaport JV, we no longer include this $ 620,000 of secured debt financing in our condensed consolidated balance sheet;

however, we continue to provide certain guaranties on this debt.

(3) The debt securing these properties is non-recourse to us.

(4) The maturity date of February 9, 2024 is subject to three , one year extension options and requires interest to be paid at an annual rate based on the secured overnight financing rate, or SOFR, plus a premium of 1.90 %.

The interest rate is as of September 30, 2022.

The interest rate is as of March 31, 2023.

This joint venture has also purchased an interest rate cap through February 2024 with a SOFR strike rate equal to 4.00 %.

2 unchanged sentences

Prior to the deconsolidation of the net assets of this joint venture, the joint venture investor's interest in this consolidated entity was reflected as noncontrolling interest in our consolidated financial statements.

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

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

We received the proceeds from this sale in July 2022.

We recognized a net loss on sale of $ 1,226 related to this transaction, which is included in (loss) gain on sale of properties in our condensed consolidated statements of comprehensive income (loss).

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

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

3 unchanged sentences

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

We deconsolidated the net assets of these properties effective as of the date of the sale and recognized a net gain on sale of $ 322,468 related to this transaction, which is included in (loss) gain on sale of properties in our condensed consolidated statements of comprehensive income (loss).

We deconsolidated the net assets of these properties effective as of the date of the sale and recognized a net gain on sale of $ 327,542 related to this transaction during the three months ended March 31, 2022, which is included in gain on sale of properties in our condensed consolidated statements of comprehensive income (loss).

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.

3 unchanged sentences

Acquisitions and Dispositions:

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

We funded this acquisition using cash on hand.

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

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

Land Buildings and Improvements Acquired Real Estate Leases

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

(1) Cash paid includes closings costs.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

During the three months ended March 31, 2023, we sold three properties for an aggregate sales price of $ 2,800 , excluding closing costs, as presented in the table below.

The sales of these properties do not represent significant dispositions, individually or in the aggregate, and we do not believe these sales represent a strategic shift in our business.

As a result, the results of operations for these properties are included in continuing operations through the date of sale of such properties in our condensed consolidated statements of comprehensive income (loss).

Date of Sale Location Type of Property Number of Properties Sales Price (1)

February 2023 Pennsylvania and South Carolina Senior Living 3 $ 2,800 $ 293

(1) Sales price excludes closing costs.

During the three months ended March 31, 2023, we recognized a gain of $ 940 related to the sales of skilled nursing bed licenses at certain of our senior living communities.

We did not acquire any properties during the three months ended March 31, 2023.

We regularly evaluate our assets 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 an asset.

If indicators of impairment are present, we evaluate the carrying value of the affected assets by comparing it to the expected future cash flows to be generated from those assets.

If indicators of impairment are present, we evaluate the carrying value of the affected assets by comparing it to the expected future undiscounted cash flows to be generated from those assets.

The future cash flows are subjective and are based in part on assumptions regarding hold periods, market rents and terminal capitalization rates.

If the sum of these expected future cash flows is less than the carrying value, we reduce the net carrying value of the asset to its estimated fair value.

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

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

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

During the three months ended March 31, 2023, we recorded impairment charges of $ 2,308 to adjust the carrying value of one medical office property and $ 3,617 to adjust the carrying value of one senior living community to their respective estimated fair value.

No material impairment charges were recorded on held and used properties during the three months ended March 31, 2022.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

1 unchanged sentence

therefore, we have determined to evaluate our leases as lease arrangements.

Certain of our leases provide for base rent payments and in addition, may include variable payments.

Our leases provide for base rent payments and, in addition, may include variable payments.

Rental income from operating leases, including any payments derived by index or market based indices, is recognized on a straight line basis over the lease term when we have determined that the collectability of substantially all of the lease payments is probable.

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

We increased rental income to record revenue on a straight line basis by $ 2,738 and $ 1,679 for the three months ended September 30, 2022 and 2021, respectively, and $ 7,193 and $ 3,804 for the nine months ended September 30, 2022 and 2021, respectively.

Rents receivable, excluding receivables related to our properties classified as held for sale, if any, include $ 74,640 and $ 82,131 of straight line rent receivables at September 30, 2022 and December 31, 2021, respectively, and are included in other assets, net in our condensed consolidated balance sheets.

We increased rental income to record revenue on a straight line basis by $ 2,448 and $ 1,745 for the three months ended March 31, 2023 and 2022, respectively.

Rents receivable, excluding receivables related to our properties classified as held for sale, if any, include $ 78,811 and $ 76,363 of straight line rent receivables at March 31, 2023 and December 31, 2022, respectively, and are included in other assets, net in our condensed consolidated balance sheets.

We do not include in our measurement of our lease receivables certain variable payments, including changes in the index or market based indices after the inception of the lease, certain tenant reimbursements and other income until the specific events that trigger the variable payments have occurred.

Such payments totaled $ 11,312 and $ 17,930 for the three months ended September 30, 2022 and 2021, respectively, of which tenant reimbursements totaled $ 11,263 and $ 17,875 , respectively, and $ 32,450 and $ 54,634 for the nine months ended September 30, 2022 and 2021, respectively, of which tenant reimbursements totaled $ 32,276 and $ 54,495 , respectively.

Such payments totaled $ 11,986 and $ 10,708 for the three months ended March 31, 2023 and 2022, respectively, of which tenant reimbursements totaled $ 11,924 and $ 10,663 , respectively.

Right of Use Asset and Lease Liability .

For leases where we are the lessee, we recognized a right of use asset and a lease liability equal to the present value of the minimum lease payments with rental payments being applied to the lease liability and the right of use asset being amortized over the term of the lease.

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

The values of the right of use assets and related liabilities representing our future obligation under the respective lease arrangements for which we are the lessee were $ 25,729 and $ 26,110 , respectively, as of March 31, 2023, and $ 26,508 and $ 26,889 , respectively, as of December 31, 2022.

The right of use assets and related lease liabilities are included within other assets, net and other liabilities , respectively, within our condensed consolidated balance sheets.

1 unchanged sentence

These leases are short term in nature, are cancelable with no fee or do not result in an annual expense in excess of our capitalization policy and, as a result, are not recorded on our condensed consolidated balance sheets.

Our principal debt obligations, excluding any debt obligations of our joint ventures, at March 31, 2023 were:

(1) $ 450,000 of outstanding borrowings under our credit facility;

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

and (3) $ 24,539 aggregate principal amount of mortgage notes secured by two properties.

These two mortgaged properties had a gross book value of $ 43,803 at March 31, 2023.

We also had two properties subject to finance leases with lease obligations totaling $ 4,991 at March 31, 2023;

these two properties had gross book value and accumulated depreciation of $ 42,235 and $ 19,353 , respectively, at March 31, 2023, and $ 41,543 and $ 19,196 , respectively, at December 31, 2022, and the finance leases expire in 2026.

We have a $ 450,000 credit facility that is used for general business purposes.

The maturity date of our credit facility is January 2024.

As of March 31, 2023, our credit facility required interest to be paid on borrowings at the annual rate of 7.8 %, plus a facility fee of $ 338 per quarter.

The weighted average annual interest rates for borrowings under our credit facility were 7.6 % and 2.9 % for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023 and May 3, 2023, we were fully drawn under our credit facility.

DIVERSIFIED HEALTHCARE TRUST

1 unchanged sentence

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

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

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

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

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

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

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

these two properties had gross book value and accumulated depreciation of $ 38,697 and $ 18,839 , respectively, at September 30, 2022, and $ 36,730 and $ 18,203 , respectively, at December 31, 2021, and the finance leases expire in 2026.

We have a $ 700,000 revolving credit facility that is used for general business purposes.

The maturity date of our revolving credit facility is January 2024.

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

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

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

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

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

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

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

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

In January 2023, pursuant to our credit agreement, we repaid $ 113,627 in outstanding borrowings under our credit facility and the facility commitments were reduced to $ 586,373 .

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

Pursuant to the amendment:

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

• the revolving credit facility commitments have been reduced from $ 800,000 to $ 700,000 following our repayment of $ 100,000 , and as a result of the reduction in commitments, we recorded a loss on modification or early extinguishment of debt of $ 483 for the nine months ended September 30, 2022;

• we have the ability to fund $ 400,000 of capital expenditures per year and we are restricted in our ability to acquire real property as defined in our credit agreement;

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

• certain covenants and restrictions on distributions to common shareholders, share repurchases, capital expenditures, acquiring additional properties and incurring additional indebtedness (in each case subject to various exceptions), and the minimum liquidity requirement of $ 200,000 will remain in place during the Amendment Period.

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

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

Pursuant to our credit agreement, we pledged certain equity interests of subsidiaries owning properties to secure our obligations under our credit agreement and agreed to provide, and as of September 2021 had provided, first mortgage liens on 61 medical office and life science properties with an aggregate gross book value of real estate assets of $ 997,724 as of September 30, 2022 to secure our obligations, which pledges and/or mortgage liens may be removed or new ones may be added during the Amendment Period based on outstanding debt amounts, among other things.

In April 2022, we prepaid a mortgage note secured by one of our medical office properties with an outstanding principal balance of approximately $ 10,934 , a maturity date in July 2022 and an annual interest rate of 6.28 %, using cash on hand.

• the waiver of the fixed charge coverage ratio covenant has been extended through the maturity date of our credit facility, or January 15, 2024;

• the minimum liquidity requirement was decreased from $ 200,000 to $ 100,000 ;

• the facility commitments were reduced from $ 586,373 to $ 450,000 following our repayment of $ 136,373 in then outstanding borrowings, and as a result of the reduction in commitments, we recorded a loss on modification or early extinguishment of debt of $ 1,075 for the three months ended March 31, 2023;

• the feature of our credit facility permitting us to reborrow any repaid funds was eliminated;

• we continue to have the ability to fund $ 400,000 of capital expenditures per year and we are restricted in our ability to acquire real property as defined in the credit agreement;

• 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 premium under our credit facility was increased by 40 basis points;

• we are required to repay outstanding amounts under our 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.

Pursuant to our credit agreement, we pledged certain equity interests of subsidiaries owning properties to secure our obligations under our credit agreement and agreed to provide, and as of September 2021 had provided, first mortgage liens on 61 medical office and life science properties with an aggregate gross book value of real estate assets of $ 1,003,805 as of March 31, 2023 to secure our obligations, which pledges and/or mortgage liens may be removed or new ones may be added based on outstanding debt amounts, among other things.

In April 2023, we prepaid a mortgage note secured by one of our senior living communities with an outstanding principal balance of approximately $ 14,565 , a maturity date in June 2023 and an annual interest rate of 6.64 %, using cash on hand.

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 The RMR Group LLC, or RMR, ceasing to act as our business and property manager.

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

As of March 31, 2023, our ratio of consolidated income available for debt service to debt service was below the 1.5 x 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 issue any debt until this ratio is at or above 1.5 x on a pro forma basis.

As of March 31, 2023, 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, including entering into the Merger Agreement, a delay in the completion of the Merger or failure to complete the Merger, and 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 economic conditions or otherwise, we may fail to satisfy covenants and conditions under our credit agreement or

DIVERSIFIED HEALTHCARE TRUST

1 unchanged sentence

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

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

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

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

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

Our credit agreement and our senior unsecured notes indentures and their supplements provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, as defined, which includes The RMR Group LLC, or RMR, ceasing to act as our business and property manager.

Our credit agreement and our senior unsecured notes indentures and their supplements also contain covenants, including covenants that restrict our ability to incur debts, and generally require us to maintain certain financial ratios, and our credit agreement restricts our ability to make distributions under certain circumstances.

As of September 30, 2022, our ratio of consolidated income available for debt service to debt service was below the 1.5 x incurrence requirement under our revolving credit facility and our public debt covenants as the effects of the COVID-19 pandemic continued to adversely impact our operations.

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

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

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

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

If 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.

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.

Fair Value of Assets and Liabilities

The following table presents certain of our assets that are measured at fair value at September 30, 2022 and December 31, 2021, categorized by the level of inputs as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.

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

The following table presents certain of our assets that are measured at fair value at March 31, 2023 and December 31, 2022, categorized by the level of inputs as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.

As of March 31, 2023 As of December 31, 2022

Description Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value

6 unchanged sentences

$ 48,655 $ 48,655 $ 50,780 $ 50,780

(1) Our 10,691,658 shares of common stock of AlerisLife Inc., or AlerisLife, are included in other assets, net in our condensed consolidated balance sheets, and are reported at fair value, which is based upon quoted market prices on The Nasdaq Stock Market LLC, or Nasdaq, (Level 1 inputs).

During the three months ended September 30, 2022 and 2021, we recorded unrealized losses of $ 2,674 and $ 14,755 , respectively, and during the nine months ended September 30, 2022 and 2021, we recorded unrealized losses of $ 21,384 and $ 26,943 , respectively, which are included in losses on equity securities, net in our condensed consolidated statements of comprehensive income (loss), to adjust the carrying value of our investment in AlerisLife common shares to their fair value.

Non-Recurring Fair Value Measurements Assets:

Real estate properties at fair value (Level 3) (4)

$ 6,000 $ 6,000 $ — $ —

(1) On February 2, 2023, in connection with the proposed acquisition of AlerisLife Inc., or AlerisLife, by a subsidiary of ABP Trust, which is the controlling shareholder of The RMR Group Inc., or RMR Inc., we agreed to tender all of the 10,691,658 shares of common stock of AlerisLife, we owned at a price of $ 1.31 per share, and the acquisition was completed on March 20, 2023.

Prior to March 20, 2023, these AlerisLife common shares were included in other assets, net in our condensed consolidated balance sheets, and were reported at fair value, which was based upon quoted market prices on Nasdaq (Level 1 inputs).

During the three months ended March 31, 2023 and 2022, we recorded an unrealized gain of $ 8,126 and an unrealized loss of $ 8,553 , respectively, which are included in gains and losses on equity securities, net in our condensed consolidated statements of comprehensive income (loss), to adjust the carrying value of our former investment in AlerisLife common shares to their fair value.

See Note 10 for further information about our investment in AlerisLife.

(2) The 10 % equity interest we own in the Seaport JV is included in investments in unconsolidated joint ventures in our condensed consolidated balance sheet, and is reported at fair value, which is based on significant unobservable inputs (Level 3 inputs).

The significant unobservable inputs used in the fair value analysis are a discount rate of 5.58 %, an

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

exit capitalization rate of 5.25 %, a holding period of approximately 10 years and market rents.

The assumptions made in the fair value analysis are based on the location, type and nature of the property, and current and anticipated market conditions, which are derived from appraisers, industry publications and our experience.

The significant unobservable inputs used in the fair value analysis are a discount rate of 7.00 %, an exit capitalization rate of 6.00 %, a holding period of 10 years and market rents.

The assumptions made in the fair value analysis are based on the location, type and nature of the property, and current and anticipated market conditions, which are derived from appraisers.

See Note 2 for further information regarding this joint venture.

(3) The 20 % equity interest we own in the LSMD JV is included in investments in unconsolidated joint ventures in our condensed consolidated balance sheet, and is reported at fair value, which is based on significant unobservable inputs (Level 3 inputs).

The significant unobservable inputs used in the fair value analysis are discount rates of between 5.60 % and 8.00 %, exit capitalization rates of between 5.10 % and 6.25 %, holding periods of approximately 10 years and market rents.

The assumptions we made in the fair value analysis are based on the location, type and nature of each property, and current and anticipated market conditions, which are derived from appraisers, industry publications and our experience.

The significant unobservable inputs used in the fair value analysis are discount rates of between 6.00 % and 7.25 %, exit capitalization rates of between 4.50 % and 7.00 %, holding periods of 10 years and market rents.

The assumptions we made in the fair value analysis are based on the location, type and nature of each property, and current and anticipated market conditions, which are derived from appraisers.

See Note 2 for further information regarding this joint venture.

In addition to the assets described in the table above, our financial instruments at September 30, 2022 and December 31, 2021 included cash and cash equivalents, restricted cash, other assets, our revolving credit facility, senior unsecured notes, secured debt and finance leases and other unsecured obligations and liabilities.

(4) During the three months ended March 31, 2023, we recorded impairment charges of $ 3,617 to reduce the carrying value of one of our senior living communities to its estimated fair value of $ 3,500 based upon the market comparison approach, which utilizes recent transactions.

During the three months ended March 31, 2023, we also recorded impairment charges of $ 2,308 to reduce the carrying value of one of our medical office properties to its estimated fair value of $ 2,500 based upon the income approach and unobservable inputs such as estimated market rent, operating expense assumptions, vacancy data and capitalization rates.

The valuation techniques and significant unobservable inputs used in the valuation of these properties are considered Level 3 inputs as defined in the fair value hierarchy under GAAP.

In addition to the assets described in the table above, our financial instruments at March 31, 2023 and December 31, 2022 included cash and cash equivalents, restricted cash, certain other assets, our credit facility, senior unsecured notes, secured debt and finance leases and certain other unsecured obligations and liabilities.

The fair values of these financial instruments approximated their carrying values in our condensed consolidated financial statements as of such dates, except as follows:

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

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

As of March 31, 2023 As of December 31, 2022

Description Carrying Amount (1)

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We recorded the assumed mortgage notes at estimated fair value on the date of acquisition and we are amortizing the fair value adjustments, if any, to interest expense over the respective terms of the mortgage notes to adjust interest expense to the estimated market interest rates as of the date of acquisition.

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

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

We estimated the fair values of our two issuances of senior unsecured notes due 2042 and 2046 based on the closing price on Nasdaq (Level 1 inputs) as of March 31, 2023 and December 31, 2022.

We estimated the fair values of our four issuances of senior unsecured notes due 2024, 2025, 2028 and 2031 using an average of the bid and ask price on Nasdaq on or about March 31, 2023 and December 31, 2022 (Level 2 inputs as defined in the fair value hierarchy under GAAP).

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

Because Level 3 inputs are unobservable, our estimated fair values may differ materially from the actual fair values.

Noncontrolling Interest

In March 2017, we entered into the Seaport JV.

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

We determined that, while we owned a 55 % equity interest in this joint venture, this joint venture was a variable interest entity, or VIE, and that we controlled the activities that most significantly impacted the economic performance of this entity;

we therefore consolidated the results of this joint venture in our financial statements.

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

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

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

In June 2022, we sold an additional 10 % equity interest from our then remaining 20 % equity interest in this joint venture to an existing joint venture investor and continue to account for this joint venture using the equity method of accounting under the fair value option.

The portion of the joint

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

venture's net income and comprehensive income not attributable to us, or $ 1,339 and $ 4,238 for the three and nine months ended September 30, 2021, respectively, is reported as a noncontrolling interest in our condensed consolidated statements of comprehensive income (loss).

This joint venture made aggregate cash distributions to the other joint venture investor of $ 5,524 and $ 16,848 for the three and nine months ended September 30, 2021, respectively, which are reflected as a decrease in total equity attributable to noncontrolling interest in our condensed consolidated statement of shareholders' equity.

Shareholders' Equity

Common Share Awards:

On June 2, 2022, in accordance with our Trustee compensation arrangements, we awarded to each of our seven Trustees 20,000 of our common shares, valued at $ 2.14 per share, the closing price of our common shares on Nasdaq on that day .

On September 14, 2022, we awarded under our equity compensation plan an aggregate of 707,000 of our common shares, valued at $ 1.30 per share, the closing price of our common shares on Nasdaq on that day, to our officers and certain other employees of RMR.

Common Share Repurchases:

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

Common Share Purchases:

During the three months ended March 31, 2023, we purchased an aggregate of 5,975 of our common shares, valued at a weighted average share price of $ 0.92 per common share, from certain former officers and employees of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of prior awards of our common shares.

Distributions:

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

During the three months ended March 31, 2023, we declared and paid quarterly distributions to common shareholders as follows:

Declaration Date Record Date Payment Date Distribution Per Share Total Distributions

January 12, 2023 January 23, 2023 February 16, 2023 $ 0.01 $ 2,397

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

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

$ 0.03 $ 7,171

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

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

On April 13, 2023, we declared a quarterly distribution to common shareholders of record on April 24, 2023 of $ 0.01 per share, or approximately $ 2,397 .

We expect to pay this distribution on or about May 18, 2023.

Segment Reporting

We operate in, and report financial information for, the following two segments:

Office Portfolio and senior housing operating portfolio, or SHOP.

Office Portfolio and SHOP.

We aggregate each of these two reporting segments based on their similar operating and economic characteristics.

1 unchanged sentence

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

We also report “non-segment” operations, consisting of triple net leased senior living communities and wellness centers that are leased to third party operators from which we receive rents, which we do not consider to be sufficiently material to constitute a separate reporting segment, and any other income or expenses that are not attributable to a specific reporting segment.

DIVERSIFIED HEALTHCARE TRUST

1 unchanged sentence

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

For the Three Months Ended September 30, 2022

Office Portfolio SHOP Non-Segment Consolidated

Rental income $ 55,254 $ — $ 8,706 $ 63,960

Residents fees and services — 258,960 — 258,960

Total revenues 55,254 258,960 8,706 322,920

Property operating expenses 24,179 264,722 195 289,096

Depreciation and amortization 19,037 38,484 2,886 60,407

General and administrative — — 6,179 6,179

Acquisition and certain other transaction related costs

Total expenses 43,216 303,206 9,549 355,971

(Loss) gain on sale of properties ( 5,074 ) 30 — ( 5,044 )

Losses on equity securities, net — — ( 2,674 ) ( 2,674 )

Interest and other income — 125 3,974 4,099

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

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

Income tax expense — — ( 13 ) ( 13 )

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

Net income (loss) $ 8,874 $ ( 44,389 ) $ ( 45,977 ) $ ( 81,492 )

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

For the Nine Months Ended September 30, 2022

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, which we do not consider to be sufficiently material to constitute a separate reporting segment, and any other income or expenses that are not attributable to a specific reporting segment.

For the Three Months Ended March 31, 2023

Office Portfolio SHOP Non-Segment Consolidated

6 unchanged sentences

Acquisition and certain other transaction related costs

— — 1,826 1,826

Impairment of assets 2,308 3,617 — 5,925

Total expenses 45,858 308,098 8,815 362,771

Gain on sale of properties — 1,233 — 1,233

Losses on equity securities, net — — ( 21,384 ) ( 21,384 )

Gains on equity securities, net — — 8,126 8,126

Interest and other income — — 4,195 4,195

Interest expense ( 109 ) ( 271 ) ( 47,400 ) ( 47,780 )

Gain (loss) on modification or early extinguishment of debt 16 — ( 30,059 ) ( 30,043 )

Income (loss) from continuing operations before income tax expense and equity in earnings of investees 358,245 ( 110,356 ) ( 206,181 ) 41,708

Income tax expense — — ( 845 ) ( 845 )

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

Loss on modification or early extinguishment of debt — — ( 1,075 ) ( 1,075 )

Income (loss) before income tax benefit and equity in net losses of investees 11,055 ( 27,544 ) ( 35,553 ) ( 52,042 )

Income tax benefit — — 31 31

Equity in net losses of investees ( 647 ) — — ( 647 )

Net income (loss) $ 10,408 $ ( 27,544 ) $ ( 35,522 ) $ ( 52,658 )

Under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, the U.S.

Department of Health and Human Services, or HHS, established a Provider Relief Fund.

Retention and use of the funds received under the CARES Act are subject to certain terms and conditions.

The terms and conditions require that the funds be utilized to compensate for lost revenues that are attributable to the COVID-19 pandemic and for eligible costs to prevent, prepare for and respond to the COVID-19 pandemic that are not covered by other sources.

Further, fund recipients are required to be participating in Medicare at the time of distribution and are subject to certain other terms and conditions, including quarterly reporting requirements.

In addition, fund recipients are required to have billed Medicare during 2019 and to continue to provide care after January 31, 2020 for diagnosis, testing or care for individuals with possible or actual COVID-19 cases.

Any funds not used in accordance with the terms and conditions must be returned to HHS.

We recognize income from government grants on a systematic and rational basis over the period in which we recognize the related expenses or loss of revenues for which the grants are intended to compensate when there is reasonable assurance that we will comply with the applicable terms and conditions of the grant and there is reasonable assurance that the grant will be received.

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

As of September 30, 2022

As of March 31, 2023

Office Portfolio SHOP Non-Segment Consolidated

3 unchanged sentences

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

For the Three Months Ended September 30, 2021

Office Portfolio SHOP Non-Segment Consolidated

Rental income $ 91,520 $ — $ 9,883 $ 101,403

Residents fees and services — 236,013 — 236,013

Total revenues 91,520 236,013 9,883 337,416

Property operating expenses 32,386 233,687 — 266,073

Depreciation and amortization 32,142 33,688 2,872 68,702

General and administrative — — 8,870 8,870

Acquisition and certain other transaction related costs

— — 3,108 3,108

Total expenses 64,528 267,375 14,850 346,753

Gain on sale of properties — 200 — 200

Losses on equity securities, net — — ( 14,755 ) ( 14,755 )

Interest and other income — 786 190 976

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

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

Income tax expense — — ( 595 ) ( 595 )

Net income (loss) 20,939 ( 30,899 ) ( 78,044 ) ( 88,004 )

Net income attributable to noncontrolling interest

( 1,339 ) — — ( 1,339 )

Net income (loss) attributable to common shareholders

$ 19,600 $ ( 30,899 ) $ ( 78,044 ) $ ( 89,343 )

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

For the Nine Months Ended September 30, 2021

For the Three Months Ended March 31, 2022

Office Portfolio SHOP Non-Segment Consolidated

6 unchanged sentences

Acquisition and certain other transaction related costs

— — 15,179 15,179

Impairment of assets — ( 174 ) — ( 174 )

Total expenses 41,837 281,278 11,099 334,214

4 unchanged sentences

Loss on modification or early extinguishment of debt — — ( 483 ) ( 483 )

Income (loss) from continuing operations before income tax expense 98,724 ( 62,992 ) ( 221,540 ) ( 185,808 )

Income (loss) before income tax expense and equity in net earnings of investees 340,337 ( 35,873 ) ( 65,923 ) 238,541

Income tax expense — — ( 1,472 ) ( 1,472 )

Equity in net earnings of investees 3,354 — — 3,354

Net income (loss) $ 343,691 $ ( 35,873 ) $ ( 67,395 ) $ 240,423

Net income attributable to noncontrolling interest

( 4,238 ) — — ( 4,238 )

Net income (loss) attributable to common shareholders

$ 94,486 $ ( 62,992 ) $ ( 222,564 ) $ ( 191,070 )

As of December 31, 2022

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Our managed senior living communities are operated by third parties pursuant to management agreements.

Five Star Senior Living, or Five Star, which is an operating division of AlerisLife, manages certain of our SHOP communities.

2021 Amendments to our Management Arrangements with Five Star.

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

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

• We no longer have the right to sell up to an additional $ 682,000 of senior living communities currently managed by Five Star and terminate Five Star's management of those communities without our payment of a fee to Five Star upon sale;

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

Five Star Senior Living, or Five Star, which is an operating division of AlerisLife, manages many of our SHOP communities.

Five Star manages these communities pursuant to an amended and restated master management agreement, or the Master Management Agreement, that we and Five Star are party to.

AlerisLife guarantees the payment and performance of each of its applicable subsidiary's obligations under the applicable management agreements pursuant to an amended and restated guaranty agreement.

In February 2022, we closed a senior living community that had previously been managed by Five Star.

We are assessing opportunities to redevelop that property.

This community was one of the 108 communities that we and Five Star agreed in 2021 to transition to other third party managers or close.

As of December 31, 2021, we had transitioned the other 107 senior living communities, containing 7,340 living units, from Five Star to other third party managers.

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

For the three months ended March 31, 2022, we recorded $ 928 of these costs to acquisition and certain other transaction related costs in our condensed consolidated statements of comprehensive income (loss).

In connection with ABP Trust’s acquisition of AlerisLife, as described in Note 10, we entered into a Consent and Amendment Agreement, or the Consent Agreement, on February 2, 2023, pursuant to which, among other things, we agreed to amend the Master Management Agreement.

See Note 10 for further information regarding the acquisition of AlerisLife, including the related amendment to the Master Management Agreement.

DIVERSIFIED HEALTHCARE TRUST

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

• Beginning in 2025, we will have the right to terminate up to 10 % of the senior living communities that Five Star is continuing to manage, based on total revenues per year for failure to meet 80 % of a target earnings before interest, taxes, depreciation and amortization for the applicable period;

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

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

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

Pursuant to these changes, we and Five Star entered into an amended and restated master management agreement, or the Master Management Agreement, for the senior living communities that Five Star is continuing to manage and interim management agreements for the senior living communities that we and Five Star agreed to transition to other third party managers.

These agreements replaced our prior master leases and management and pooling agreements with Five Star.

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

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

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

We continue to lease our senior living communities that have been transitioned to new managers to our taxable REIT subsidiaries, or TRSs.

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

We recorded $ 220 and $ 3,123 for the three months ended September 30, 2022 and 2021, respectively, and $ 1,665 and $ 15,037 for the nine months ended September 30, 2022 and 2021, respectively, of these costs to acquisition and certain other transaction related costs in our condensed consolidated statements of comprehensive income (loss).

Our Senior Living Communities Managed by Five Star.

Five Star managed 120 and 159 of our senior living communities as of September 30, 2022 and 2021, respectively.

We lease our senior living communities that are managed by Five Star to our TRSs.

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

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

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

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

For the nine months ended September 30, 2022 and 2021, $ 25,017 and $ 35,746 , respectively, of the total management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 2,363 and $ 2,251 , respectively, were capitalized in our condensed consolidated balance sheets.

Five Star managed 119 and 120 of our senior living communities as of March 31, 2023 and 2022, respectively.

We lease our senior living communities that are managed by Five Star to our taxable REIT subsidiaries, or TRSs.

We incurred management fees payable to Five Star of $ 10,014 and $ 8,932 for the three months ended March 31, 2023 and 2022, respectively.

For the three months ended March 31, 2023 and 2022, $ 9,137 and $ 8,142 , respectively, of the total management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 877 and $ 790 , respectively, were capitalized in our condensed consolidated balance sheets.

The amounts capitalized are being depreciated over the estimated useful lives of the related capital assets.

We incurred fees of $ 1,590 and $ 1,508 for the three months ended September 30, 2022 and 2021, respectively, and $ 5,242 and $ 9,579 for the nine months ended September 30, 2022 and 2021, respectively, with respect to rehabilitation services Five Star provided at our senior living communities that are payable by us.

We incurred fees of $ 879 and $ 1,916 for the three months ended March 31, 2023 and 2022, respectively, with respect to rehabilitation services Five Star provided at our senior living communities that are payable by us.

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

We lease to Five Star space at certain of our senior living communities, which it uses to provide certain outpatient rehabilitation and wellness services.

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

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

respectively, and $ 1,147 and $ 1,194 for the nine months ended September 30, 2022 and 2021, respectively, with respect to these leases.

Our Senior Living Communities Managed by Other Third Party Managers.

We incurred management fees payable to our other third party managers of $ 5,108 and $ 1,678 for the three months ended September 30, 2022 and 2021, respectively, and $ 15,434 and $ 1,678 for the nine months ended September 30, 2022 and 2021, respectively.

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

Several other third party managers managed 111 and 107 of our senior living communities as of March 31, 2023 and 2022, respectively.

We lease our senior living communities that are managed by these third party managers to our TRSs.

We incurred management fees payable to these third party managers of $ 5,238 and $ 5,108 for the three months ended March 31, 2023 and 2022, respectively.

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

The following table presents residents fees and services revenue from all of our managed senior living communities disaggregated by the type of contract and payer:

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

Three Months Ended March 31,

Revenue from contracts with customers:

2022 2021 2022 2021

Basic housing and support services $ 222,187 $ 192,874

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See Note 10 for further information regarding our relationship, agreements and transactions with RMR.

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

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

We recognized net business management fees of $ 3,270 and $ 4,813 for the three months ended March 31, 2023 and 2022, respectively.

Based on our common share total return, as defined in our business management agreement, as of each of March 31, 2023 and 2022, no estimated incentive fees are included in the net business management fees we recognized for the three months ended March 31, 2023 or 2022.

The actual amount of annual incentive fees for 2023, if any, will be based on our common share total return as defined in our business management agreement, for the three-year period ending December 31, 2023, and will be payable in January 2024.

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We recognize business management and incentive fees in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss).

RMR provides management services to our joint ventures.

See Note 11 for further information regarding our joint ventures' management arrangements with RMR and the related impact on our management fees payable to RMR.

We and RMR amended our business management agreement effective August 1, 2021 to provide that (i) for periods beginning on and after August 1, 2021, the MSCI U.S.

REIT/Health Care REIT Index will be used to calculate benchmark returns per share for purposes of determining any incentive management fee payable by us to RMR, and (ii) for periods prior to August 1, 2021, the SNL U.S.

REIT Healthcare Index will continue to be used.

This change of index was due to S&P Global ceasing to publish the SNL U.S.

REIT Healthcare Index.

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

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

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

DIVERSIFIED HEALTHCARE TRUST

1 unchanged sentence

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

comprehensive income (loss) and $ 3,425 and $ 1,916 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets.

We recognized aggregate net property management and construction supervision fees of $ 1,992 and $ 2,391 for the three months ended March 31, 2023 and 2022, respectively.

Of those amounts, for the three months ended March 31, 2023 and 2022, $ 1,463 and $ 1,349 , respectively, of the total property management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 529 and $ 1,042 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets.

The amounts capitalized are being depreciated over the estimated useful lives of the related capital assets.

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

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

We reimbursed RMR $ 3,533 and $ 2,964 for these expenses and costs for the three months ended March 31, 2023 and 2022, respectively.

These amounts are included in property operating expenses or general and administrative expenses, as applicable, in our condensed consolidated statements of comprehensive income (loss) for these periods.

On June 9, 2021, we and RMR amended our property management agreement to, among other things, provide for RMR's oversight of any major capital projects and repositionings at our senior living communities, including our senior living communities which Five Star is continuing to manage, and that RMR receives the same fee previously paid to Five Star for such services, which is equal to 3 % of the cost of any such major capital project or repositioning.

Management Agreements Between Our Joint Ventures and RMR.

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

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

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

We initially entered into the Seaport JV in March 2017, and we entered into the LSMD JV in January 2022.

RMR provides management services to both of these joint ventures.

Our joint ventures are not our consolidated subsidiaries and, as a result, we are not obligated to pay management fees to RMR under our management agreements with RMR for the services it provides regarding the joint ventures.

We wholly owned the 10 medical office and life science properties included in the LSMD JV until the contribution of these properties to the LSMD JV in January 2022, and we paid management fees to RMR for the management services it provided to us for those properties until the contribution of those properties to the LSMD JV.

Related Person Transactions

We have relationships and historical and continuing transactions with RMR, The RMR Group Inc., or RMR Inc., AlerisLife (including Five Star) and others related to them, including other companies to which RMR or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers.

We have relationships and historical and continuing transactions with RMR, RMR Inc., AlerisLife (including Five Star) and others related to them, including other companies to which RMR or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers.

is the managing member of RMR.

The Chair of our Board and one of our Managing Trustees, Adam D.

Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., the chair of the board of directors, a managing director and the president and chief executive officer of RMR Inc., an officer and employee of RMR and the chair of the board of directors and a managing director of AlerisLife.

Francis, our other Managing Trustee and our President and Chief Executive Officer, and our Chief Financial Officer and Treasurer are also employees and officers of RMR.

Clark, our Secretary and former Managing Trustee, also serves as a managing director and the executive vice president, general counsel and secretary of RMR Inc., an officer and employee of RMR, an officer of ABP Trust and a managing director and the secretary of AlerisLife.

Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc.

and AlerisLife, the chair of the board of directors, a managing director and the president and chief executive officer of RMR Inc., an officer and employee of RMR and, until the acquisition of AlerisLife by ABP Trust on March 20, 2023, the chair of the board of directors and a managing director of AlerisLife, and currently the sole director of AlerisLife.

Francis, our other Managing Trustee and our President and Chief Executive Officer, and our Chief Financial Officer and Treasurer are also officers and employees of RMR.

Clark, our Secretary and former Managing Trustee, also serves as a managing director and the executive vice president, general counsel and secretary of RMR Inc., an officer and employee of RMR, an officer of ABP Trust, secretary of AlerisLife and, until March 20, 2023, a managing director of AlerisLife.

Certain of AlerisLife's officers are officers and employees of RMR.

Some of our Independent Trustees also serve as independent trustees or independent directors of other public companies to which RMR or its subsidiaries provide management services.

Adam Portnoy serves as the chair of the board and as a managing director or managing trustee of these companies.

Portnoy serves as the chair of the board and as a managing director or managing trustee of these companies.

Other officers of RMR, including Ms.

Clark and certain of our officers, serve as managing trustees, managing directors or officers of certain of these companies.

Clark, serve as managing trustees, managing directors or officers of certain of these companies.

In addition, officers of RMR and RMR Inc.

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

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

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

We are currently AlerisLife's largest stockholder.

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

Until March 20, 2023, we were AlerisLife's largest stockholder, owning 10,691,658 of AlerisLife's common shares, or approximately 31.9 % of AlerisLife's outstanding common shares, and ABP Acquisition LLC, or ABP Acquisition, a subsidiary of ABP Trust, together with ABP Trust, owned approximately 6.1 % of AlerisLife's outstanding common shares.

Five Star is an operating division of AlerisLife.

1 unchanged sentence

RMR provides management services to both us and AlerisLife.

See Note 9 for further information regarding our relationships, agreements and transactions with AlerisLife (including Five Star) and Note 5 for further information regarding our investment in AlerisLife.

As of September 30, 2022, ABP Acquisition LLC, a subsidiary of ABP Trust, the controlling shareholder of RMR Inc., together with ABP Trust, owned approximately 6.2 % of AlerisLife's outstanding common shares.

On February 2, 2023, AlerisLife entered into an Agreement and Plan of Merger, or the ALR Merger Agreement, with ABP Acquisition and its wholly owned subsidiary, ABP Acquisition 2 LLC, or ABP Acquisition 2.

Pursuant to the ALR Merger

DIVERSIFIED HEALTHCARE TRUST

1 unchanged sentence

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

Agreement, ABP Acquisition 2 commenced a tender offer to acquire all of the outstanding AlerisLife common shares (other than the AlerisLife common shares held by ABP Trust, ABP Acquisition or their subsidiaries), at a price of $ 1.31 per share, net to the seller in cash, without interest, subject to any withholding of taxes, or the AlerisLife Transaction.

Following the consummation of the tender offer, on March 20, 2023, ABP Acquisition 2 merged with and into AlerisLife, with AlerisLife as the surviving entity.

In connection with the ALR Merger Agreement, on February 2, 2023, we entered into the Consent Agreement with the ABP Acquisition 2, ABP Acquisition, ABP Trust and Adam D.

Portnoy, or, collectively, the ABP Parties.

Pursuant to the Consent Agreement, we:

(1) consented to AlerisLife’s granting of certain exceptions to the ownership restrictions set forth in its charter to the ABP Parties in connection with the AlerisLife Transaction, (2) waived any default under our Master Management Agreement arising or resulting from the AlerisLife Transaction, (3) agreed to tender all of the 10,691,658 AlerisLife common shares that we and our subsidiary owned, into the tender offer at the tender offer price, subject to the right, but not the obligation, to purchase, in a single private transaction, on or before December 31, 2023, a number of shares of common stock of the surviving entity in the AlerisLife Transaction constituting a percentage up to 31.9 % of the then issued and outstanding shares of the common stock of the surviving entity based on the tender offer price and otherwise pursuant to a stockholders agreement to be entered into at the time of any such purchase on such terms as are negotiated and mutually agreed by the parties, and (4) agreed to amend the Master Management Agreement to eliminate any change of control default or event of default provisions effective upon the consummation of the AlerisLife Transaction.

See Note 8 for further information regarding our relationships, agreements and transactions with AlerisLife (including Five Star) and Note 5 for further information regarding our investment in AlerisLife.

Our Joint Ventures.

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

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

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

We initially entered into the Seaport JV prior to January 1, 2021, and we entered into the LSMD JV in January 2022.

RMR provides management services to both of these joint ventures.

Prior to December 23, 2021, the Seaport JV was our consolidated subsidiary and, as such, we were previously obligated to pay management fees to RMR under our management agreements with RMR for the services it provided regarding that joint venture;

however, that joint venture paid management fees directly to RMR, and any such fees paid by that joint venture were credited against the fees payable by us to RMR.

In addition, we wholly owned the 10 medical office and life science properties until the contribution of these properties to the applicable joint venture in January 2022 and we paid management fees to RMR for the management services it provided to us for those properties up until that time.

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

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

In connection with our entering into the LSMD JV in January 2022, we paid mortgage escrow amounts and closing costs that were payable by that joint venture.

Those costs totaled $ 8,612 as of March 31, 2023 and are included in other assets, net, in our condensed consolidated balance sheet.

RMR provides management services to each of the Seaport JV and the LSMD JV.

See Note 9 for further information regarding those management agreements with RMR.

Our Manager, RMR.

1 unchanged sentence

See Note 9 for further information regarding our management agreements with RMR.

Leases with RMR.

We lease office space to RMR in certain of our properties for RMR’s property management offices.

Pursuant to our lease agreements with RMR, we recognized rental income from RMR for leased office space of $ 61 and $ 70 for the three months ended March 31, 2023 and 2022, respectively.

For further information about these and other such relationships and certain other related person transactions, see our Annual Report.

3 unchanged sentences

Our current income tax expense (or benefit) fluctuates from period to period based primarily on the timing of our income, including gains on the disposition of properties or losses in a particular quarter.

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

For the three months ended March 31, 2023 and 2022, we recognized income tax benefit of $ 31 and expense of $ 1,472 , respectively.

Weighted Average Common Share s (share amounts in thousands)

2 unchanged sentences

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

For purposes of calculating diluted earnings per share, we did not include 891 and 855 of unvested share awards for the three and nine months ended September 30, 2022, respectively, because to do so would have been antidilutive.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements