What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-08 compared with 2022-11-02 · 238 added, 408 removed, 299 unchanged (68% of the section changed)

1 unchanged sentence

The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and with our Annual Report.

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

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

At September 30, 2022, the gross book value of our real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, was $7.0 billion.

As of September 30, 2022, we owned an equity interest in each of the Seaport JV and the LSMD JV that own medical office and life science properties located in five states with an aggregate of approximately 2.2 million rentable square feet that was 98% leased with an average (by annualized rental income) remaining lease term of 6.2 years.

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

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

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

As of March 31, 2023, we wholly owned 376 properties, including five closed senior living communities, located in 36 states and Washington, D.C.

At March 31, 2023, the gross book value of our real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, was $7.1 billion.

On April 11, 2023, we and OPI entered into 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.

Pursuant to the terms and subject to the conditions and limitations set forth in the Merger Agreement, at the Effective Time, each of 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 of a newly issued OPI Common Share, 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.

For more information and risks regarding the Merger, see Note 1 to our condensed consolidated financial statements included in Part 1, Item 1, and Part II, Item 1A "Risk Factors," of this Quarterly Report on Form 10-Q.

As of March 31, 2023, we owned an equity interest in each of the Seaport JV and the LSMD JV that own medical office and life science properties located in five states with an aggregate of approximately 2.2 million rentable square feet that were 99% leased with an average (by annualized rental income) remaining lease term of 5.8 years.

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

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

In response to inflationary pressures, the U.S.

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

Federal Reserve has significantly increased the federal funds rate since the beginning of 2022 and has signaled that further significant increases are likely to occur.

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

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

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

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

However, it is unclear whether COVID-19 infection rates will surge again in the future or if other variants of that virus or other public health events will arise in the United States or elsewhere and, if so, what the impact of that would be on human health and safety, the economy, or our managers', operators' and tenants' businesses.

It is also uncertain what the impact of changing market and economic conditions would be on our and our managers', operators' and tenants' businesses.

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

For further information and risks relating to the COVID-19 pandemic and the economic uncertainty, and their impact on our business and financial condition, see Part I, Item 1, "Business" and Part I, Item 1A, "Risk Factors" in our Annual Report.

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

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

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

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

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

As a result of these uncertainties, we are unable to determine what the ultimate impacts will be on our, our managers',

operators', our tenants' and other stakeholders' businesses, operations, financial results and financial position.

For further information and risks relating to these economic uncertainties, including changes related to the COVID-19 pandemic, and their impact on our business and financial condition, see Part I, Item 1, "Business" and Part I, Item 1A, "Risk Factors" in our Annual Report.

PORTFOLIO OVERVIEW

The following tables present an overview of our portfolio (dollars in thousands, except investment per square foot or unit data):

As of September 30, 2022 Number

As of March 31, 2023 Number

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

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Total 376 $ 7,113,225 100.0 % $ 346,030 100.0 % $ 59,950 100.0 %

As of and For the Three Months Ended September 30,

As of and For the Three Months Ended March 31,

Office Portfolio (5)

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82.2 % 79.0 %

Wellness centers 100.0 % 100.0 %

(1) Represents gross book value of real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, if any.

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

(2) Represents gross book value of real estate assets divided by number of rentable square feet or living units, as applicable, at March 31, 2023.

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

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A small percentage of our medical office and life science property leases are full-service leases where we receive fixed rent from our tenants and no reimbursement for our property operating costs.

(5) Medical office and life science property occupancy data is as of September 30, 2022 and 2021 and includes (i) out of service assets undergoing redevelopment, (ii) space which is leased but is not occupied or is being offered for sublease by tenants and (iii) space being fitted out for occupancy.

(5) Medical office and life science property occupancy data is as of March 31, 2023 and 2022 and includes (i) out of service assets undergoing redevelopment, (ii) space which is leased but is not occupied or is being offered for sublease by tenants and (iii) space being fitted out for occupancy.

(6) Excludes data for periods prior to our ownership of certain properties, data for properties sold or classified as held for sale, if any, and data for which there was a transfer of operations during the periods presented.

(7) Operating data for triple net leased senior living communities leased to third party operators is presented based upon the operating results provided by our tenants for the three months ended June 30, 2022 and 2021, or the most recent prior period for which tenant operating results are made available to us.

(7) Operating data for other triple net leased senior living communities leased to third party operators and wellness centers are presented based upon the operating results provided by our tenants for the three months ended December 31, 2022 and 2021, or the most recent prior period for which tenant operating results are made available to us.

We have not independently verified tenant operating data.

During the three and nine months ended September 30, 2022, we entered into new and renewal leases at our medical office and life science properties in our Office Portfolio segment as summarized in the following tables (dollars and square feet in thousands, except per square foot amounts):

Three Months Ended September 30, 2022

During the three months ended March 31, 2023, we entered into new and renewal leases at our medical office and life science properties in our Office Portfolio segment as summarized in the following table (dollars and square feet in thousands, except per square foot amounts):

Three Months Ended March 31, 2023

New Leases Renewals Total

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$ 9.32 $ 3.83 $ 7.56

Nine Months Ended September 30, 2022

New Leases Renewals Total

Square feet leased during the period 215 470 685

Weighted average rental rate change (by rentable square feet) 13.2 % 3.3 % 6.6 %

Weighted average lease term (years) (1)

Total leasing costs and concession commitments (2)

$ 16,650 $ 6,230 $ 22,880

Total leasing costs and concession commitments per square foot (2)

$ 77.43 $ 13.25 $ 33.39

Total leasing costs and concession commitments per square foot per year (2)

$ 9.95 $ 2.47 $ 5.38

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

(1) Weighted based on annualized rental income pursuant to existing leases as of March 31, 2023, including straight line rent adjustments and estimated recurring expense reimbursements, and excluding lease value amortization.

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

Lease Expiration Schedules

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

As of March 31, 2023, lease expirations at our medical office and life science properties in our Office Portfolio segment were as follows (dollars in thousands):

Year Number of Tenants Square Feet Leased Percent of Total Cumulative Percent of Total Annualized Rental Income (1)

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Weighted average remaining lease term (in years) 5.1 5.6

(1) Annualized rental income is based on rents pursuant to existing leases as of September 30, 2022, including straight line rent adjustments and estimated recurring expense reimbursements for certain net and modified gross leases and excluding lease value amortization at certain of our medical office and life science properties.

Lease expiration data for our triple net leased senior living communities and wellness centers that are leased to third party operators has not been provided because there were no changes to the lease expiration schedules from those reported in our Annual Report, except that in October 2022, we and a private operator agreed to terminate lease agreements for three of our senior living communities originally scheduled to expire in 2024 and 2030 and replace them with management agreements under our TRS structure.

(1) Annualized rental income is based on rents pursuant to existing leases as of March 31, 2023, including straight line rent adjustments and estimated recurring expense reimbursements for certain net and modified gross leases and excluding lease value amortization at certain of our medical office and life science properties.

Lease expiration data for our triple net leased senior living communities and wellness centers that are leased to third party operators has not been provided because there were no changes to the lease expiration schedules from those reported in our Annual Report, except that (i) in February 2023, we entered into a 15 year lease, which is expected to commence in 2023, with a private operator for one of our wellness centers, (ii) in March 2023, we entered into two separate 20 year leases, which are expected to commence in 2024, with a private operator for two of our wellness centers, and (iii) we have renewed our leases with a tenant of three of our wellness centers for a two year term expiring in 2025.

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

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

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

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

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

2022 2021 2022 2021

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

The following table summarizes the results of operations of each of our segments for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

Office Portfolio $ 57,022 $ 54,997

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Total revenues $ 346,030 $ 310,733

Net income (loss) attributable to common shareholders:

Net income (loss):

Office Portfolio $ 10,408 $ 343,691

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Non-Segment (35,522) (67,395)

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

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

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

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021 (dollars and square feet in thousands, except average monthly rate):

Unless otherwise indicated, references in this section to changes or comparisons of results, income or expenses refer to comparisons of the results for the three months ended September 30, 2022 to the three months ended September 30, 2021.

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022 (dollars and square feet in thousands, except average monthly rate):

Unless otherwise indicated, references in this section to changes or comparisons of results, income or expenses refer to comparisons of the results for the three months ended March 31, 2023 to the three months ended March 31, 2022.

Our definition of NOI and our reconciliation of net income (loss) to NOI and a description of why we believe NOI is an appropriate supplemental measure are included below under the heading “Non-GAAP Financial Measures.”

Three Months Ended September 30,

Three Months Ended March 31,

2023 2022 $ Change % Change

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Office Portfolio $ 33,507 $ 31,550 $ 1,957 6.2 %

SHOP (5,762) 2,326 (8,088) (347.7) %

SHOP 17,263 153 17,110 nm

Non-Segment 9,180 10,288 (1,108) (10.8) %

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Acquisition and certain other transaction related costs 93 928 (835) (90.0) %

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

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

Impairment of assets 5,925 — 5,925 nm

Gain on sale of properties 1,233 327,794 (326,561) (99.6) %

Gains and losses on equity securities, net 8,126 (8,553) 16,679 (195.0) %

Interest and other income 4,195 395 3,800 nm

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(47,780) (57,131) 9,351 (16.4) %

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

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

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

Net loss (81,492) (88,004) 6,512 (7.4) %

Net income attributable to noncontrolling interest — (1,339) 1,339 (100.0) %

Net loss attributable to common shareholders $ (81,492) $ (89,343) $ 7,851 (8.8) %

Loss on modification or early extinguishment of debt (1,075) (483) (592) 122.6 %

(Loss) income before income tax benefit (expense) and equity in net (losses) earnings of investees (52,042) 238,541 (290,583) nm

Income tax benefit (expense) 31 (1,472) 1,503 (102.1) %

Equity in net (losses) earnings of investees (647) 3,354 (4,001) (119.3) %

Net (loss) income $ (52,658) $ 240,423 $ (293,081) nm

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All Properties

As of September 30, As of September 30,

As of March 31, As of March 31,

2023 2022 2023 2022

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Total square feet 7,894 7,895 8,809 8,724

7,894 7,895 8,811 10,927

Occupancy 90.1 % 92.4 % 85.1 % 89.3 %

90.2 % 91.4 % 85.9 % 91.3 %

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

(1) Consists of medical office and life science properties that we have owned and which have been in service continuously since January 1, 2022;

excludes properties classified as held for sale or out of service undergoing redevelopment, if any, and medical office and life science properties owned by unconsolidated joint ventures in each of which we own an equity interest.

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

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

Comparable property occupancy excludes out of service assets undergoing redevelopment and medical office and life science properties owned by unconsolidated joint ventures in each of which we own an equity interest.

Three Months Ended September 30,

Three Months Ended March 31,

Comparable (1)

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NOI $ 29,198 $ 28,216 $ 982 3.5 % $ 4,309 $ 3,334 $ 33,507 $ 31,550 $ 1,957 6.2 %

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

(1) Consists of medical office and life science properties that we have owned and which have been in service continuously since January 1, 2022;

Rental income.

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

Rental income increased at our comparable properties primarily due to higher average rents resulting from our new and renewal leasing activity and increases in property operating expense reimbursements at certain of our comparable properties, partially offset by decreases in occupancy at certain of our comparable properties.

Rental income increased primarily due to an increase in rental income at our comparable properties, at certain of our recently redeveloped properties and our acquisition of one property since January 1, 2022, partially offset by the deconsolidation of 10 medical office and life science properties currently owned by an unconsolidated joint venture in which we own an equity interest and certain of our properties being taken out of service and/or currently undergoing redevelopment.

Rental income increased at our comparable properties primarily due to higher average rents resulting from our new and renewal leasing activity, increases in property operating expense reimbursements at certain of our comparable properties and increased parking revenue at certain of our comparable properties, partially offset by decreases in occupancy at certain of our comparable properties.

Property operating expenses.

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

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

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

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

The increase in property operating expenses is primarily due to an increase in property operating expenses at our comparable properties, at certain of our recently redeveloped properties and our acquisition of one property since January 1, 2022, partially offset by the deconsolidation of 10 medical office and life science properties currently owned by an unconsolidated joint venture in which we own an equity interest and certain of our properties being taken out of service and/or currently undergoing redevelopment.

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

The increase in utility expenses for our comparable properties is primarily due to higher energy rates at our properties.

Net operating income.

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

Ended September 30, Ended September 30,

Ended March 31, Ended March 31,

2023 2022 2023 2022

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$ 4,836 $ 4,501 $ 4,837 $ 4,472

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

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

(1) Consists of senior living communities that we have owned and which have been in service, reported in the same segment and operated by the same operator continuously since January 1, 2022;

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

(2) Average monthly rate is calculated by taking the average daily rate, which is defined as total residents fees and services divided by occupied units during the period, and multiplying it by 30 days.

Three Months Ended September 30,

Three Months Ended March 31,

Comparable (1)

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NOI $ 17,291 $ 1,465 $ 15,826 1,080.3 % $ (28) $ (1,312) $ 17,263 $ 153 $ 17,110 11,183.0 %

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

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

(1) Consists of senior living communities that we have owned and which have been in service, reported in the same segment and operated by the same operator continuously since January 1, 2022;

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

Residents fees and services.

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

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

Residents fees and services increased primarily due to increases in occupancy and average monthly rate at both comparable and non-comparable properties and the transfer of three previously leased properties to our SHOP segment as described below, partially offset by our community that was taken out of service due to damage sustained by Hurricane Ian.

Property operating expenses.

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

of operating these communities.

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

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

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

Property operating expenses increased primarily due to increases in labor costs, inflationary cost pressures related to food and energy, increased sales and marketing costs to improve occupancy and the transfer of three previously leased properties to our SHOP segment as described below.

Net operating income.

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All Properties

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

As of and For the Three Months Ended March 31, As of and For the Three Months Ended March 31,

2023 2022 2023 2022

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Wellness centers 10 10 10 10

Rent coverage:

Triple net leased senior living communities (3)

1.17 x 1.27 x 1.17 x 1.27 x

Wellness centers (3)

1.72 x 1.51 x 1.72 x 1.51 x

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

(2) Comparable properties consists of properties that we have owned and which have been leased to the same operator continuously since July 1, 2021;

(2) Comparable properties consists of properties that we have owned and which have been reported in the same segment and leased to the same operator continuously since January 1, 2022;

excludes properties classified as held for sale, if any.

(3) All tenant operating data presented is based upon the operating results provided by our tenants for the 12 months ended June 30, 2022 and 2021 or the most recent prior period for which tenant operating results are available to us.

Rent coverage is calculated using the operating cash flows from our triple net lease tenants' operations of our properties, before subordinated charges, if any, divided by triple net lease minimum rents payable to us.

We have not independently verified tenant operating data.

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

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

Three Months Ended September 30,

Three Months Ended March 31,

Comparable (1)

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

(1) Consists of properties that we have owned and which have been reported in the same segment and leased to the same operator continuously since January 1, 2022;

excludes properties classified as held for sale, if any.

Rental income.

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

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

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

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

The same private operator will continue to operate these properties.

Rental income decreased primarily due to the termination of the lease agreements for three of our senior living communities which were replaced with management agreements under our TRS structure, partially offset by an increase in rental income at our comparable properties.

The increase in comparable properties rental income was primarily due to a cash settlement and higher cash rents received during the three months ended March 31, 2023 from a tenant previously in default under leases for six of our wellness centers.

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

In February 2023, we entered into a 15 year lease, which is expected to commence in 2023, with a private operator for one of these repossessed wellness centers.

In March 2023, we entered into two separate 20 year leases, which are expected to commence in 2024, with a private operator for the remaining two repossessed wellness centers.

Property operating expenses.

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

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

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

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

We will also continue to pay real estate taxes and other direct costs for the three wellness centers leased in February and March 2023, until the expenses become the tenants' responsibility pursuant to the leases.

Net operating income.

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Depreciation and amortization expense.

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

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

Depreciation and amortization expense increased primarily due to the purchase of capital improvements at certain of our properties and our acquisition of one property since January 1, 2022.

Increases in depreciation and amortization expenses were partially offset by the deconsolidation of 10 medical office and life science properties owned by an unconsolidated joint venture in which we own an equity interest and certain depreciable assets becoming fully depreciated since January 1, 2022.

General and administrative expense .

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

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

Acquisition and certain other transaction related costs.

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

(Loss) gain on sale of properties.

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

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

For further information regarding (loss) gain on sale of properties, see Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and Note 3 to our consolidated financial statements included in Part IV, Item 15 of our Annual Report.

Losses on equity securities, net.

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

For further information regarding our investment in AlerisLife, see Note 5 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Interest and other income.

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

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

government pursuant to the CARES Act during the three months ended September 30, 2022 compared to $786 received during the three months ended September 30, 2021.

Interest expense.

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

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

Income tax expense .

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

Equity in earnings of investees.

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

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021 (dollars and square feet in thousands, except average monthly rate):

Unless otherwise indicated, references in this section to changes or comparisons of results, income or expenses refer to comparisons of the results for the nine months ended September 30, 2022 to the nine months ended September 30, 2021.

Nine Months Ended September 30,

2022 2021 $ Change % Change

NOI by segment:

Office Portfolio $ 93,209 $ 182,647 $ (89,438) (49.0) %

SHOP 857 16,830 (15,973) (94.9) %

Non-Segment 28,711 28,908 (197) (0.7) %

Total NOI 122,777 228,385 (105,608) (46.2) %

Depreciation and amortization 175,927 202,743 (26,816) (13.2) %

General and administrative 20,671 25,538 (4,867) (19.1) %

Acquisition and certain other transaction related costs 1,826 15,179 (13,353) (88.0) %

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

Gain on sale of properties 322,064 30,838 291,226 nm

Losses on equity securities, net (21,384) (26,943) 5,559 (20.6) %

Interest and other income 6,760 19,849 (13,089) (65.9) %

Interest expense

(160,042) (192,241) 32,199 (16.7) %

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

Income (loss) from continuing operations before income tax expense and equity in earnings of investees 41,708 (185,808) 227,516 nm

Income tax expense (845) (1,024) 179 (17.5) %

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

Net income (loss) 49,548 (186,832) 236,380 nm

Net income attributable to noncontrolling interest — (4,238) 4,238 (100.0) %

Net income (loss) attributable to common shareholders $ 49,548 $ (191,070) $ 240,618 nm

nm - not meaningful

Office Portfolio :

Comparable Properties (1)

All Properties

As of September 30, As of September 30,

2022 2021 2022 2021

Total buildings 94 94 105 118

Total square feet (2)

7,894 7,895 8,811 10,927

Occupancy (3)

90.2 % 91.4 % 85.9 % 91.3 %

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

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

Nine Months Ended September 30,

Comparable (1)

Non-Comparable

Properties Results Properties Results Consolidated Properties Results

2022 2021 Change Change 2022 2021 2022 2021 Change Change

Rental income $ 145,946 $ 142,390 $ 3,556 2.5 % $ 16,915 $ 135,257 $ 162,861 $ 277,647 $ (114,786) (41.3) %

Property operating expenses (60,592) (57,511) 3,081 5.4 % (9,060) (37,489) (69,652) (95,000) (25,348) (26.7) %

NOI $ 85,354 $ 84,879 $ 475 0.6 % $ 7,855 $ 97,768 $ 93,209 $ 182,647 $ (89,438) (49.0) %

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

Rental income.

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

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

Property operating expenses.

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

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

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

Net operating income.

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

Comparable Properties (1)

All Properties

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

2022 2021 2022 2021

Total properties 120 120 234 235

Number of units 17,889 17,889 25,078 25,424

Occupancy 74.5 % 73.0 % 73.8 % 70.6 %

Average monthly rate (2)

$ 4,117 $ 4,001 $ 4,487 $ 4,389

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

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

Nine Months Ended September 30,

Comparable (1)

Non-Comparable

Properties Results Properties Results Consolidated Properties Results

2022 2021 Change Change 2022 2021 2022 2021 Change Change

Residents fees and services $ 499,421 $ 512,484 $ (13,063) (2.5) % $ 255,493 $ 227,442 $ 754,914 $ 739,926 $ 14,988 2.0 %

Property operating expenses (471,691) (482,336) (10,645) (2.2) % (282,366) (240,760) (754,057) (723,096) 30,961 4.3 %

NOI $ 27,730 $ 30,148 $ (2,418) (8.0) % $ (26,873) $ (13,318) $ 857 $ 16,830 $ (15,973) (94.9) %

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

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

Residents fees and services.

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

Property operating expenses.

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

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

Net operating income.

The change in NOI reflects the net changes in residents fees and services and property operating expenses described above.

Non-Segment (1) :

Comparable Properties (2)

All Properties

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

2022 2021 2022 2021

Total properties:

Triple net leased senior living communities 29 29 30 29

Wellness centers 10 10 10 10

Rent coverage:

Triple net leased senior living communities (3)

1.17 x 1.27 x 1.17 x 1.27 x

Wellness centers (3)

1.72 x 1.51 x 1.72 x 1.51 x

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

excludes properties classified as held for sale, if any.

We have not independently verified tenant operating data.

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

Nine Months Ended September 30,

Comparable (1)

Non-Comparable

Properties Results Properties Results Consolidated Properties Results

2022 2021 Change Change 2022 2021 2022 2021 Change Change

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

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

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

nm - not meaningful

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

excludes properties classified as held for sale, if any.

Rental income.

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

Property operating expenses.

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

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

Net operating income.

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

Consolidated :

Depreciation and amortization expense.

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

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

General and administrative expense .

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

General and administrative expense decreased primarily due to a decrease in our

base business management fees expense as a result of lower consolidated indebtedness and lower trading prices for our common shares during the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

Acquisition and certain other transaction related costs.

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

For the three months ended March 31, 2023 and 2022, acquisition and certain other transaction related costs primarily represent costs related to the transition of certain senior living communities to other third party managers.

Impairment of assets.

For information about our asset impairment charges, see Note 3 to our consolidated financial statements included in Part IV, Item 15 of our Annual Report.

For information about our asset impairment charges, see Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Gain on sale of properties.

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

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

Gain on sale of properties is the net result of our sales of certain of our properties and joint venture equity interests during the three months ended March 31, 2023 and 2022.

For further information regarding gain on sale of properties, see Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and Note 3 to our consolidated financial statements included in Part IV, Item 15 of our Annual Report.

Losses on equity securities, net.

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

For further information regarding our investment in AlerisLife, see Note 5 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Gains and losses on equity securities, net.

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

For further information regarding our former investment in AlerisLife, see Notes 5 and 10 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Interest and other income.

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

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

Decreases to interest and other income were partially offset by higher interest earned during the nine months ended September 30, 2022 as a result of higher interest rates compared to the nine months ended September 30, 2021.

The increase in interest and other income is primarily due to higher interest earned during the three months ended March 31, 2023 as a result of higher interest rates compared to the three months ended March 31, 2022.

Interest expense.

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

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

Interest expense decreased primarily due to our redemption in June 2022 of $500,000 of our 9.75% senior notes due 2025.

This decrease was partially offset by an increase in interest rates under our credit facility.

Loss on modification or early extinguishment of debt.

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

We also recorded a loss in connection with the amendments to our credit agreement and the agreement governing our previously existing $200,000 term loan, our prepayment of our $200,000 term loan and our redemption of all $300,000 of our 6.75% senior notes due 2021 during the nine months ended September 30, 2021.

Income tax expense .

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

Equity in earnings of investees.

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

We recorded a loss on modification or early extinguishment of debt in connection with the amendments to our credit agreement during the three months ended March 31, 2023 and March 31, 2022.

Income tax benefit (expense) .

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

Equity in net (losses) earnings of investees.

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

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

We present certain "non-GAAP financial measures" within the meaning of applicable rules of the Securities and Exchange Commission, or SEC, including funds from operations attributable to common shareholders, or FFO attributable to common shareholders, normalized funds from operations attributable to common shareholders, or Normalized FFO attributable to common shareholders, and NOI for the three and nine months ended September 30, 2022 and 2021.

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

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

We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss) and net income (loss) attributable to common shareholders.

We present certain "non-GAAP financial measures" within the meaning of applicable rules of the SEC, including funds from operations, or FFO, normalized funds from operations, or Normalized FFO, and NOI for the three months ended March 31, 2023 and 2022.

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

These measures should be considered in conjunction with net income (loss) as presented in our condensed consolidated statements of comprehensive income (loss).

We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss).

We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization, they may facilitate a comparison of our operating performance between periods and with other REITs and, in the case of NOI, reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of our properties.

Funds From Operations and Normalized Funds From Operations Attributable to Common Shareholders

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

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

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

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

Funds From Operations and Normalized Funds From Operations

We calculate FFO and Normalized FFO as shown below.

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

In calculating Normalized FFO, we adjust for the items shown below including similar adjustments for our unconsolidated joint ventures, if any.

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

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

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

Our calculations of FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the three and nine months ended September 30, 2022 and 2021 and reconciliations of net income (loss) attributable to common shareholders, the most directly comparable financial measure under GAAP reported in our condensed consolidated financial statements, to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders appear in the following table.

This table also provides a comparison of distributions to shareholders, FFO attributable to common shareholders and Normalized FFO attributable to common shareholders and net income (loss) attributable to common shareholders per share for these periods.

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

2022 2021 2022 2021

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

O ther real estate companies and REITs may calculate FFO and Normalized FFO differently than we do.

Our calculations of FFO and Normalized FFO for the three months ended March 31, 2023 and 2022 and reconciliations of net income (loss), the most directly comparable financial measure under GAAP reported in our condensed consolidated financial statements, to FFO and Normalized FFO appear in the following table.

This table also provides a comparison of distributions to shareholders, FFO and Normalized FFO and net income (loss) per share for these periods.

Three Months Ended March 31,

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

Depreciation and amortization 64,800 57,259

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

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

Impairment of assets 5,925 —

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

FFO adjustments attributable to noncontrolling interest — (5,273) — (15,821)

Equity in earnings of unconsolidated joint ventures (2,127) — (8,685) —

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

Equity in net losses (earnings) of unconsolidated joint ventures 647 (3,354)

Share of FFO from unconsolidated joint ventures 1,999 3,675

Adjustments to reflect our share of FFO attributable to an equity method investment (1,586) (1,932)

FFO attributable to common shareholders (14,996) (13,799) (79,411) (11,626)

FFO 9,768 (23,170)

Acquisition and certain other transaction related costs 93 928

1 unchanged sentence

Adjustments to reflect our share of Normalized FFO attributable to an equity method investment 1,576 (142)

Normalized FFO attributable to common shareholders $ (14,167) $ (9,449) $ (46,463) $ 8,589

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

Normalized FFO $ 12,512 $ (21,901)

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

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

Per common share data (basic and diluted):

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

FFO attributable to common shareholders $ (0.06) $ (0.06) $ (0.33) $ (0.05)

Normalized FFO attributable to common shareholders $ (0.06) $ (0.04) $ (0.20) $ 0.04

Net (loss) income $ (0.22) $ 1.01

FFO $ 0.04 $ (0.10)

Normalized FFO $ 0.05 $ (0.09)

Distributions declared $ 0.01 $ 0.01

7 unchanged sentences

The calculation of NOI by reportable segment is included above in this Item 2.

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

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

2022 2021 2022 2021

The following table includes the reconciliation of net income (loss) to NOI for the three months ended March 31, 2023 and 2022.

Three Months Ended March 31,

Reconciliation of Net Income (Loss) to NOI:

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

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

Income tax expense 13 595 845 1,024

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

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

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

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

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

1 unchanged sentence

Interest and other income (4,195) (395)

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

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

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

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

Impairment of assets 5,925 —

8 unchanged sentences

LIQUIDITY AND CAPITAL RESOURCES

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

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

Under the Merger Agreement, we have agreed to conduct our business in all material respects in the ordinary course of business consistent with past practice.

The Merger Agreement contains certain operating covenants that could affect our liquidity and capital resources, but we do not expect any material changes to our liquidity and capital resources prior to the consummation of the Merger, or if applicable, the termination of the Merger Agreement.

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

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

• our ability to receive rents from our tenants;

• our ability to maintain or increase the occupancy of, and the rates at, our properties, particularly at our senior living communities;

• our and our managers' abilities to control operating expenses and capital expenses at our properties, including increased operating expenses that we may incur in response to high inflation or supply chain challenges;

• our ability to maintain or increase the occupancy of, and the rates at, our properties;

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

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

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

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

Pursuant to our

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

Although we have taken steps to enhance our ability to maintain sufficient liquidity, a protracted negative impact on the economy or the industries in which our properties and businesses operate resulting from the COVID-19 pandemic, high inflation, rising interest rates, geopolitical risks or other economic, market or industry conditions, including a possible recession, may cause further increased pressure on our ability to satisfy financial and other covenants.

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 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 1.5x 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 1.5x.

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

As of March 31, 2023, we had $380.1 million of cash and cash equivalents and $700.0 million of outstanding debt due within one year from the date of issuance of these financial statements, or May 8, 2023.

This included $450.0 million in outstanding borrowings under our credit facility, which matures on January 15, 2024.

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

In addition to our credit facility maturity in January of 2024, we also have $250.0 million 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, 2023.

As described below, we have entered into an agreement to merge with and into 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 included in Part I, Item 1 of this Quarterly Report on Form 10-Q 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.

For further information, see Note 1 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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

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

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

In February 2023, pursuant to an amendment to our credit agreement, we repaid $136.4 million in outstanding borrowings under our credit facility and the facility commitments were further reduced to $450.0 million.

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

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

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

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

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

For additional responses and measures taken relating to the COVID-19 pandemic, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" in our Annual Report.

As of March 31, 2023, our ratio of consolidated income available for debt service to debt service was below the 1.5x incurrence requirement under our credit facility and our public debt covenants as the effects of the current market conditions continued to adversely impact our operations.

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

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

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

The measures we have taken to enhance our ability to maintain sufficient liquidity may not sufficiently offset the decrease in cash flows from operations as a result of the properties we have sold, operating losses we may experience and capital investments we make, in which case our liquidity would be negatively impacted.

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

The following is a summary of our sources and uses of cash flows for the periods presented, as reflected in our condensed consolidated statements of cash flows (dollars in thousands):

Nine Months Ended September 30,

Three Months Ended March 31,

Cash and cash equivalents and restricted cash at beginning of period $ 688,302 $ 1,016,945

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Our Operating Liquidity and Resources

We generally receive minimum rents from our tenants monthly or quarterly, we receive residents fees and services revenues, net of expenses, from our managed senior living communities monthly and we receive percentage rents from certain of our senior living community tenants monthly, quarterly or annually.

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

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

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

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

We generally receive minimum rents from tenants at our Office Portfolio properties, triple net leased senior living communities and wellness centers monthly or quarterly, we receive residents fees and services revenues, net of expenses, from our managed senior living communities monthly and we receive percentage rents from tenants at certain of our senior living communities monthly, quarterly or annually.

The increase in cash provided by operating activities for the three months ended March 31, 2023 compared to the prior period was primarily due to increased NOI as a result of increased rates and occupancy at the senior living communities in our SHOP segment.

These increases were partially offset by increased interest payments on our floating rate debt as a result of higher interest rates in the 2023 period compared to the 2022 period.

Although we have seen signs of recovery as it relates to our SHOP segment, we face and may continue to face issues with labor availability and wage inflation along with cost pressures from supply chain disruptions and commodity price inflation and possible reduced demand for senior living communities.

Our Investing Liquidity and Resources

The change in cash provided by (used in) investing activities for the nine months ended September 30, 2022 compared to the prior period was primarily due to proceeds from our sale of 10 medical office and life science properties to the LSMD JV in which we retained a 20% equity interest and our sale of a 10% equity interest in the Seaport JV, partially offset by less proceeds from the sale of real estate properties, an increase in real estate acquisitions and an increase in real estate improvements in the 2022 period compared to the 2021 period.

The change in cash (used in) provided by investing activities for the three months ended March 31, 2023 compared to the prior period was primarily due to proceeds in the 2022 period from our sale of 10 medical office and life science properties to the LSMD JV in which we retained a 20% equity interest and an increase in real estate improvements in the 2023 period compared to the 2022 period, partially offset by more proceeds from the sale of real estate properties.

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

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

2022 2021 2022 2021

Three Months Ended March 31,

Office Portfolio segment capital expenditures:

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Building improvements (2)

3,535 3,332 7,439 9,945

SHOP segment fixed assets and capital improvements 23,644 20,328

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We plan to continue investing capital in our properties, including redevelopment projects, to better position these properties in their respective markets in order to increase our returns in future years.

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

As of September 30, 2022, we had estimated unspent leasing related obligations at our triple net leased senior living communities and our medical office and life science properties of approximately $46.4 million, of which we expect to spend approximately $32.4 million during the next 12 months.

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

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

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

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

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

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

We are also currently reviewing strategic alternatives at a property in our Office Portfolio located in Silver Spring, MD, including opportunities to redevelop this property.

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

However, we may be required to decrease our capital expenditures to preserve liquidity if the completion of the Merger is delayed or does not occur or for other reasons.

As of March 31, 2023, we had estimated unspent leasing related obligations at our triple net leased wellness centers and our medical office and life science properties of approximately $68.0 million, of which we expect to spend approximately $53.7 million during the next 12 months.

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

We are currently in the process of redeveloping several properties in our Office Portfolio that are expected to be completed at various times between 2023 and 2025.

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

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

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

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

We funded this acquisition using cash on hand.

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

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

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

For further information regarding our acquisitions and dispositions, see Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

For further information regarding our dispositions, see Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Our Financing Liquidity and Resources

The change in cash (used in) provided by financing activities for the nine months ended September 30, 2022 compared to the prior period was primarily due to repayments of borrowings under our revolving credit facility in the 2022 period compared to our full drawdown of our revolving credit facility in the 2021 period, net proceeds from our issuance in February 2021 of $500.0 million aggregate principal amount of our 4.375% senior notes in the 2021 period, increased senior unsecured notes redemption amounts in the 2022 period compared to the 2021 period, increased repayment of other debt and a prepayment premium paid in the 2022 period for the redemption of $500.0 million of our outstanding 9.75% senior notes due 2025, partially offset by our repayment in February 2021 of our $200.0 million term loan.

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

As of September 30, 2022, we had $691.0 million of cash and cash equivalents and were fully drawn under our revolving credit facility.

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

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

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

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

At September 30, 2022, our revolving credit facility required interest to be paid on borrowings at the annual rate of 5.6%, plus a facility fee of 30 basis points per annum on the total amount of lending commitments under the facility.

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

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

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

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

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

The change in cash used in financing activities for the three months ended March 31, 2023 compared to the prior period was primarily due to higher repayments of borrowings under our credit facility in the 2023 period compared to the 2022 period.

As of March 31, 2023, we had $380.1 million of cash and cash equivalents and were fully drawn under our credit facility.

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

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

At 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 $0.3 million per quarter.

On March 31, 2021, we borrowed $800.0 million under

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

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

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

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

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

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

Pursuant to the amendment:

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

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

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

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

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

• the interest rate premium under our 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 $200.0 million will remain in place during the Amendment Period.

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

Such alternatives may include incurring additional debt,

selling certain properties and issuing new equity securities.

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

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

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

Pursuant to the amendment:

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

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

• the facility commitments were reduced from $586.4 million to $450.0 million following our repayment of $136.4 million 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 $1.1 million 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 $400.0 million 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.

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

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

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

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

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

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

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

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

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

During the three months ended March 31, 2023, we paid quarterly cash distributions to our shareholders totaling approximately $2.4 million using existing cash balances.

On April 13, 2023, we declared a quarterly distribution payable to common shareholders of record on April 24, 2023 in the amount of $0.01 per share, or approximately $2.4 million.

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

Pursuant to the Merger Agreement, we have agreed not to pay any distribution exceeding an annual rate of $0.04 per common share, and we have agreed to certain limitations with respect to our ability to make any other distribution.

For further information regarding the distribution we paid during 2022, see Note 6 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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

In the event the Merger is not completed, we believe we will have access to certain types of financings to fund our operations and repay our debts and other obligations as they become due.

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

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

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

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

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

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

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

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

In July 2022, we prepaid a mortgage note secured by two of our senior living communities with an outstanding principal balance of approximately $15.3 million, a maturity date in October 2022 and an annual interest rate of 5.75%, using cash on hand.

In October 2022, we repaid a mortgage note secured by one of our life science properties with an outstanding principal balance of approximately $10.3 million, a maturity date in October 2022 and an annual interest rate of 4.85%, using cash on hand.

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

Our next significant debt maturity does not occur until our revolving credit facility becomes due in January 2024.

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

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

In April 2023, we prepaid a mortgage note secured by one of our senior living communities with an outstanding principal balance of approximately $14.6 million, a maturity date in June 2023 and an annual interest rate of 6.64%, using cash on hand.

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

In April 2023, both Moody's Investors Service and Standard & Poor's placed our corporate credit rating, our 9.75% senior notes due 2025 rating, our 4.375% senior notes due 2031 rating and our senior unsecured debt rating under review for possible upgrade following the announcement of the Merger with OPI.

Our next significant debt maturity is our credit facility, which matures in January 2024.

For further information regarding our outstanding debt, see Note 4 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Except for the limitations in the amendments to our credit agreement described above, our strategy related to property acquisitions and dispositions is materially unchanged from that disclosed in our Annual Report.

Our plans for particular properties and other strategic considerations may cause us to change our acquisition and disposition strategies, and we may do so at any time and without shareholder approval.

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

Debt Covenants

Our principal debt obligations at September 30, 2022 were:

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

Our principal debt obligations at March 31, 2023 were:

(1) $450.0 million of outstanding borrowings under our credit facility;

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

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

and (3) $24.5 million aggregate principal amount of mortgage notes (excluding premiums, discounts and net debt issuance costs) secured by two properties.

For further information regarding our indebtedness, see Note 4 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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

As of September 30, 2022, our ratio of consolidated income available for debt service to debt service was below the 1.5x incurrence requirement under our revolving credit facility and our public debt covenants as the effects of the COVID-19 pandemic, high inflation, rising interest rates, geopolitical risks or other economic, market or industry conditions, including a possible recession, continued to adversely impact our operations.

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

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

As of September 30, 2022, we believe we were in compliance with all of the other covenants under our senior unsecured notes indentures and their supplements, our credit agreement and our other debt obligations, subject to the waivers noted above.

Although we have taken steps to enhance our ability to maintain sufficient liquidity, as noted elsewhere in this Quarterly Report on Form 10-Q, a protracted negative impact on the economy or the industries in which our properties and businesses operate resulting from the COVID-19 pandemic, high inflation, rising interest rates, geopolitical risks or other economic, market or industry conditions, including a possible recession, may cause increased pressure on our ability to satisfy financial and other covenants.

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

As of March 31, 2023, our ratio of consolidated income available for debt service to debt service was below the 1.5x incurrence requirement under our credit agreement and our public debt covenants as the effects of the slow recovery of our SHOP business from the COVID-19 pandemic, high inflation, rising interest rates, geopolitical risks and other economic, market and industry conditions continued to adversely impact our operations.

We are unable to issue any debt until this ratio is at or above 1.5x 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, as noted elsewhere in this Quarterly Report on Form 10-Q, a protracted negative impact on the economy or the industries in which our properties and businesses operate resulting from high inflation, rising or sustained high interest rates, geopolitical risks or other economic, market or industry conditions, including downturns or recessions, may cause increased pressure on our ability to satisfy financial and other covenants.

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

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

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

Further, if we believe we will not be able to satisfy our financial or other covenants, we expect that we would seek waivers or amendments prior to any covenant violation or seek other financing alternatives, which may lead to increased costs and interest rates, additional restrictive covenants or other lender protections.

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

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

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

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

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

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

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

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

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

Supplemental Guarantor Information

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

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

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

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

As of September 30, 2022, all $500.0 million of our 9.75% senior notes due 2025 and all $500.0 million of our 4.375% senior notes due 2031 were fully and unconditionally guaranteed, on a joint and several basis and on a senior unsecured basis, by all of our subsidiaries, except for certain excluded subsidiaries, including pledged subsidiaries under our credit agreement.

As of March 31, 2023, all $500.0 million of our 9.75% senior notes due 2025 and all $500.0 million of our 4.375% senior notes due 2031 were fully and unconditionally guaranteed, on a joint and several basis and on a senior unsecured basis, by all of our subsidiaries, except for certain excluded subsidiaries, including pledged subsidiaries under our credit agreement.

The notes and the guarantees are effectively subordinated to all of our and the subsidiary guarantors' secured indebtedness, respectively, to the extent of the value of the collateral securing such secured indebtedness, and are structurally subordinated to all indebtedness and other liabilities and any preferred equity of any of our subsidiaries that do not guarantee the notes.

Our remaining $1.35 billion of senior unsecured notes do not have the benefit of any guarantees as of September 30, 2022.

Our remaining $1.35 billion of senior unsecured notes do not have the benefit of any guarantees as of March 31, 2023.

A subsidiary guarantor's guarantee of our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031, as applicable, and all other obligations of such subsidiary guarantor under the indenture governing the notes will automatically terminate and such subsidiary guarantor will automatically be released from all of its obligations under such subsidiary guarantee and the indenture under certain circumstances, including on or after the date (a) the notes have an investment grade rating from two rating agencies and one of such investment grade ratings is a mid-BBB investment grade rating and (b) no default or event of default has occurred and is continuing under the indenture.

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The following tables present summarized financial information for guarantor entities and issuer, on a combined basis after eliminating (i) intercompany transactions and balances among the guarantor entities and (ii) equity in earnings from, and any investments in, any subsidiary that is a non-guarantor (dollars in thousands):

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Real estate properties, net $ 4,013,510 $ 4,024,679

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Total liabilities $ 3,041,838 $ 3,321,700

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Revenues $ 311,927

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Impact of Government Reimbursement

For the nine months ended September 30, 2022, substantially all of our NOI was generated from properties where a majority of the revenues are derived from our tenants' and residents' private resources, and a small amount of our NOI was generated from properties where a majority of the revenues are derived from Medicare and Medicaid payments.

For the three months ended March 31, 2023, substantially all of our NOI was generated from properties where a majority of the revenues are derived from our tenants' and residents' private resources, and a small amount of our NOI was generated from properties where a majority of the revenues are derived from Medicare and Medicaid payments.

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

Also, some of our medical office and life science property tenants participate in federal Medicare and state Medicaid programs and other government healthcare payment programs.

During the nine months ended September 30, 2022 and 2021, we recognized $1.1 million and $19.0 million, respectively, in interest and other income in our condensed consolidated statements of comprehensive income (loss) related to funds received under the CARES Act.

During the three months ended March 31, 2022, we recognized $0.2 million in interest and other income in our condensed consolidated statements of comprehensive income (loss) related to funds received under the Coronavirus Aid, Relief, and Economic Security Act and American Rescue Plan Act.

For more information regarding the government healthcare funding and regulation of our business, please see the section captioned “Business—Government Regulation and Reimbursement” in our Annual Report and the section captioned “Management's Discussion and Analysis of Financial Condition and Results of Operations—Impact of Government Reimbursement” in our Annual Report.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis