What changed in this filing

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Item 4. Controls and Procedures

2023-05-08 compared with 2022-11-02 · 56 added, 106 removed, 15 unchanged (92% of the section changed)

2 unchanged sentences

Based upon that evaluation, our President and Chief Executive Officer and our Chief Financial Officer and Treasurer concluded that our disclosure controls and procedures are effective.

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Warning Concerning Forward-Looking Statements

This Quarterly Report on Form 10-Q contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws.

Also, whenever we use words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, “will”, “may” and negatives or derivatives of these or similar expressions, we are making forward-looking statements.

These forward-looking statements are based upon our present intent, beliefs or expectations, but forward-looking statements are not guaranteed to occur and may not occur.

Forward-looking statements in this Quarterly Report on Form 10-Q relate to various aspects of our business, including:

• The duration and severity of the COVID-19 pandemic and its continuing impact on us and our managers' and other operators' and tenants' businesses,

• The ability of our senior living community managers to minimize negative economic impacts, including the current inflationary conditions and rising interest rates, supply chain challenges and a possible recession, on our senior living communities and to manage them profitably and increase our returns,

• Our belief that we are well positioned to weather the present disruptions facing the real estate industry and, in particular, the real estate healthcare industry, including the senior living industry,

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws that are subject to risks and uncertainties.

These statements may include words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, “will”, “may” and negatives or derivatives of these or similar expressions.

These forward-looking statements include, among others, statements about:

our ability to continue as a going concern;

the combined company's compliance with its financial covenants and access to debt capital;

demand for medical office and life science leased space;

our future leasing activity;

market demand for healthcare services for older adults and senior living communities;

our leverage levels;

the sufficiency of our liquidity;

our liquidity needs and sources;

our capital expenditure plans and commitments;

our capital recycling program, acquisitions and dispositions;

our redevelopment and construction activities and plans;

and the amount and timing of future distributions.

Forward-looking statements reflect our current expectations, are based on judgments and assumptions, are inherently uncertain and are subject to risks, uncertainties and other factors, which could cause our actual results, performance or achievements to differ materially from expected future results, performance or achievements expressed or implied in those forward-looking statements.

Some of the risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, but are not limited to, the following:

• The likelihood that we will complete the Merger and related transactions, including our and OPI's ability to obtain shareholder approval, consents or approvals required in connection with the Merger, and that we will benefit from the Merger,

• Our ability to successfully take actions to address the current substantial doubt as to our ability to continue as a going concern,

• The impact of increasing or sustained high interest rates, inflation, labor market challenges, dislocation and volatility in the public equity and debt markets, conditions in the real estate industry generally and in the sectors we operate, geopolitical instability and economic downturns or recession on us and our managers and other operators and tenants,

• Our senior living operators' abilities to successfully and profitably operate the communities they manage for us,

• The continuing impact of changed market practices that arose or intensified during the COVID-19 pandemic on us and our managers and other operators and tenants, such as reduced demand for leased office space and residencies at senior living communities, increased operating costs, labor availability constraints and supply chain disruptions,

• Our ability to comply with the financial covenants under our debt agreements,

• The financial strength of our managers and other operators and tenants,

• Whether the aging U.S.

population and increasing life spans of seniors will increase the demand for senior living communities and other medical and healthcare related properties and healthcare services,

• Our ability to retain our existing tenants, attract new tenants and maintain or increase current rental rates on terms as favorable to us as our prior leases,

• The credit qualities of our tenants,

• Our ability to compete for tenancies and acquisitions effectively,

• Our expectation regarding our plans to pursue and complete redevelopment projects at our properties, the cost and timing to complete those projects and the benefits we may realize from those projects,

• Our capital expenditures and capital investing plans and our expectations of the benefits we will realize as a result,

• Our acquisitions and sales of properties,

• Our closures and repositioning of senior living communities,

• The impact of increasing labor costs and shortages and commodity and other price inflation due to supply chain challenges or other market conditions,

• Our ability to raise debt or equity capital,

• Our ability to complete dispositions,

• Our ability to maintain sufficient liquidity and satisfy financial covenants under our debt agreements,

• The future availability of borrowings under our revolving credit facility,

• Our policies and plans regarding investments, financings and dispositions,

• Our ability to pay distributions to our shareholders and to sustain the amount of such distributions,

• Whether we may contribute additional properties to our joint ventures and receive proceeds from the other investors in our joint ventures in connection with any such contributions or enter into new joint venture arrangements,

• Our ability to pay interest on and principal of our debt,

• Our ability to appropriately balance our use of debt and equity capital,

• Whether our tenants will renew or extend their leases or that we will obtain replacement tenants on terms as favorable to us as our prior leases,

• Our ability to successfully recycle and deploy capital,

• The likelihood that our tenants and residents will pay rent or be negatively impacted by cyclical economic conditions,

• Our ability to pay distributions to our shareholders and to maintain or increase the amount of such distributions,

• Our ability to increase or maintain occupancy at our properties on terms desirable to us,

• Our managers' abilities to increase or maintain rates charged to residents of our senior living communities and manage operating costs for those communities,

• Our ability to increase rents when our leases expire or renew,

• Risk and uncertainties regarding the costs and timing of development, redevelopment and repositioning activities, including as a result of inflation, cost overruns, supply chain challenges, labor shortages, construction delays or inability to obtain necessary permits,

• Our ability to manage our capital expenditures and other operating costs effectively and to maintain and enhance our properties and their appeal to tenants and residents,

• Costs we incur and concessions we grant to lease our properties,

• Our ability to sell properties at prices we target,

• Our ability to effectively raise and balance our use of debt and equity capital,

• Our ability to make required payments on our debt,

• Our ability to maintain sufficient liquidity and otherwise manage leverage,

• Our credit ratings,

• Our expectation that we benefit from our relationships with RMR,

• Our qualification for taxation as a REIT, and

• Other matters.

Our actual results may differ materially from those contained in or implied by our forward-looking statements.

Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond our control.

Risks, uncertainties and other factors that could have a material adverse effect on our forward-looking statements and upon our business, results of operations, financial condition, FFO attributable to common shareholders, Normalized FFO attributable to common shareholders, NOI, cash flows, liquidity and prospects include, but are not limited to:

• The impacts of the COVID-19 pandemic on us and our managers and other operators and tenants,

• The impacts of economic conditions, including high inflation, rising interest rates, geopolitical risks or a possible recession, on us and our managers and other operators and tenants,

• Our ability to sell additional equity interests in, or contribute additional properties to, our existing joint ventures, or enter into additional, real estate joint ventures or to attract co-venturers and benefit from our existing joint ventures or any real estate joint ventures we may enter into,

• Our ability to acquire properties that realize our targeted returns,

• The ability of RMR to successfully manage us,

• Our qualification for taxation as a REIT,

• Changes in federal or state tax laws,

• Competition in the real estate industry, particularly in those markets in which our properties are located,

• Government regulations affecting Medicare and Medicaid rate reimbursement rates and operational requirements,

• Compliance with, and changes to, federal, state and local laws and regulations, accounting rules, tax laws and similar matters,

• Limitations imposed on our business and our ability to satisfy complex rules in order for us to maintain our qualification for taxation as a REIT for U.S.

federal income tax purposes,

• Competition within the healthcare and real estate industries, particularly in those markets in which our properties are located,

• Actual and potential conflicts of interest with our related parties, including our Managing Trustees, AlerisLife (including Five Star), RMR and others affiliated with them, and

• Acts of terrorism, outbreaks of pandemics, including the COVID-19 pandemic, or other manmade or natural disasters beyond our control.

• Under the current economic conditions for the industries in which our properties and businesses operate or otherwise, our managers and other operators and tenants may not be able to profitably operate their businesses at our properties, our tenants may become unable or unwilling to pay their rent obligations to us, or our senior living community managers may be unable to generate our minimum returns for sustained periods.

Additionally, if we default under our credit facility or other debt obligations, we may be required to repay our outstanding borrowings and other debt.

Further, although we have taken steps to enhance our ability to maintain sufficient liquidity, unanticipated events may require us to expend amounts not currently planned,

• Our senior living community managers and other operators may experience operating and financial challenges resulting from a number of factors, some of which are beyond their control, and which challenges impact our operating results, including, but not limited to:

• Fluctuations in occupancy,

• Competition within the senior living and other health and wellness related service businesses,

• Older adults delaying or forgoing moving into senior living communities or purchasing health and wellness services,

• Increased labor costs, decreased labor availability and staffing turnover at our senior living communities or increases in costs paid for goods and services, due in part to supply chain constraints and commodity price inflation,

• The availability and increases in cost of general and professional liability insurance coverage,

• Medicare or Medicaid policies and regulations, as well as federal, state, local, and industry-regulated licensure, certification and inspection laws, regulations and standards that could affect our senior living community managers' services or impose requirements, costs and administrative burdens that may reduce our managers' ability to profitably operate their businesses,

• Imposition of civil, criminal and administrative penalties resulting from any noncompliance with healthcare laws and regulations at our senior living communities, including suspension of or non-payment for new admission or the loss or suspension of accreditation, licenses or certificates of need, among other things, and

• Exposure to litigation and regulatory and government proceedings due to the nature of the senior living and other health and wellness related service businesses,

• We own a significant number of AlerisLife common shares and we expect to own these shares for the foreseeable future.

However, we may sell some or all of our AlerisLife common shares, or our ownership interest in AlerisLife may otherwise be diluted in the future,

• Our distribution rate may be set and reset from time to time by our Board of Trustees.

Our Board of Trustees will consider many factors when setting or resetting our distribution rate, including our historical and projected net income, Normalized FFO, 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, our expected needs for and availability of cash to pay our obligations and other factors deemed relevant by our Board of Trustees in its discretion.

Further, our projected cash available for distribution may change and may vary from our expectations.

Accordingly, future distributions to our shareholders may be increased or decreased and we cannot be sure as to the rate at which future distributions will be paid,

• Our ability to make future distributions to our shareholders and to make payments of principal and interest on our debt depends upon a number of factors, including our future earnings, the capital costs we incur to lease and operate our properties and our working capital requirements.

We may be unable to pay our debt obligations when they become due or to maintain our current rate of distributions on our common shares and future distributions may be reduced or eliminated,

• We intend to conduct our business activities in a manner that will afford us reasonable access to capital for investment and financing activities.

However, we may not succeed in this regard and we may not have reasonable access to capital,

• Subject to limitations on acquisitions in agreements governing our debt, we plan to selectively sell certain properties from time to time to fund future acquisitions, manage leverage and strategically update, rebalance and reposition our investment portfolio, which we refer to as our capital recycling program.

We cannot be sure we will sell any of these properties or what the terms or timing of any such sales may be.

In addition, any updating, rebalancing or repositioning of our portfolio may not result in the benefits we expect, and properties we may sell may be at prices that are less than expected and less than their carrying values,

• Contingencies in our acquisition and sale agreements that we may enter may not be satisfied and any acquisitions and sales pursuant to such agreements and any related management arrangements we may expect to enter may not occur, may be delayed or the terms of such transactions or arrangements may change,

• The capital investments we are making at our senior living communities and our plan to invest significant additional capital in our senior living communities to better position them in their respective markets in order to increase our future returns may not be successful and may not achieve our expected results.

Our senior living communities may not be competitive, despite these capital investments, or these capital investments may be delayed or may cost more than expected due to supply chain disruptions, market inflation, labor shortages or other conditions,

• Our redevelopment projects may not be successful and may cost more or take longer to complete than we currently expect.

In addition, we may not realize the returns we expect from these projects and we may incur losses from these projects, and potential leasing arrangements related to our redevelopment projects may not materialize,

• We may spend more for capital expenditures or redevelopment projects than we currently expect,

• Our existing joint ventures and any additional joint ventures we may enter into in the future may not be successful,

• Our tenants may experience losses and default on their rent obligations to us,

• Some of our tenants may not renew expiring leases, and we may be unable to obtain new tenants to maintain or increase the historical occupancy rates of, or rents from, our properties.

In addition, we may incur significant costs to reposition or re-lease a vacant property for a new operator and vacancies may reduce the value of the property,

• Our ability to grow our business and maintain or increase our distributions to shareholders depends in large part upon our ability to buy properties and arrange for their profitable operation or lease them for rents, less their property operating expenses, that exceed our capital costs.

We are currently generally limited in making acquisitions pursuant to our credit agreement.

In addition, even after these restrictions expire, we may be unable to identify properties that we want to acquire, and we may fail to reach agreement with the sellers and complete the purchase of any properties we do want to acquire.

In addition, we may not realize the returns we expect on any properties we acquire,

• Rents that we receive from our properties may decline upon renewals or expirations of our leases because of changing market conditions or otherwise,

• Although we have obtained a waiver from compliance with the fixed charge coverage ratio covenant included in our credit agreement through December 2022, if our operating results and financial condition are further adversely impacted by current economic conditions or otherwise, or our operating results do not sufficiently and timely improve, we may fail to comply with the terms of the waiver and other requirements under our credit agreement, and we may also fail to satisfy certain financial requirements under the agreements governing our public debt.

For example, 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 September 30, 2022, and we cannot be certain how long this ratio will remain below 1.5x.

We are unable to incur additional debt until this ratio is at or above 1.5x on a pro forma basis, but we are not required to repay outstanding debt as a result of failure to comply with this financial requirement.

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;

however, we may fail to obtain any such waivers or amendments or financing alternatives on acceptable terms or at all,

• We are currently fully drawn under our revolving credit facility and could also be required to repay our outstanding debt in the event of non-compliance with certain other requirements of our credit agreement or the agreements governing our public debt.

In addition, 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.

We may therefore experience future liquidity constraints, as we are currently unable to incur additional debt under our credit agreement or otherwise for failure to comply with the requirements of our credit agreement and the agreements governing our public debt, and we will be limited to our cash on hand or be forced to raise additional sources of capital or take other measures to maintain adequate liquidity.

Actual costs under our revolving credit facility or other floating rate debt will be higher than the stated rates because of fees and expenses associated with such debt,

• The premiums used to determine the interest rate payable on our revolving credit facility and the facility fee payable on our revolving credit facility are based on our credit ratings, which are subject to change,

• For the three 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.

This may imply that we will maintain or increase the percentage of our NOI generated from private resources at our senior living communities.

However, our residents and patients may become unable to fund our charges with private resources and we may be required or may elect for business reasons to accept or pursue revenues from government sources, which could result in an increased part of our NOI and revenue being generated from government payments and our becoming more dependent on government payments.

If the government fails to pay us or our managers or other operators amounts due to us or them because of government defaults, shutdowns, budgetary constraints or otherwise, we and they may be significantly negatively impacted,

• Circumstances that adversely affect the ability of seniors or their families to pay for our managers' or other operators' services, such as economic downturns or a possible recession, weak housing market conditions, higher levels of unemployment among our residents' family members, lower levels of consumer confidence, high inflation, rising interest rates, stock market volatility and/or changes in demographics generally could affect the profitability of our senior living communities,

• It is difficult to accurately estimate tenant space preparation costs.

Our unspent leasing related obligations may cost more or less and may take longer to complete than we currently expect, and we may incur increasing amounts for these and similar purposes in the future,

• We expect that we will benefit from RMR's Environmental, Social and Governance, or ESG, program and initiatives.

However, we may not realize the benefits we expect from such program and initiatives and we or RMR may not succeed in meeting existing or future standards regarding ESG,

• We believe that our relationships with our related parties, including AlerisLife (including Five Star) and RMR and others affiliated with them may benefit us and provide us with competitive advantages in operating and growing our business.

However, the advantages we believe we may realize from these relationships may not materialize, and

• The business and property management agreements between us and RMR have continuing 20 year terms.

However, those agreements permit early termination in certain circumstances.

Accordingly, we cannot be sure that these agreements will remain in effect for continuing 20 year terms.

Currently unexpected results could occur due to many different circumstances, some of which are beyond our control, such as economic conditions, including high inflation, rising interest rates and a possible recession, other changes in capital markets or the economy generally, the COVID-19 pandemic and its aftermath, new legislation or regulations affecting our business or the businesses of our managers or other operators or tenants, changes in our managers' or other operators' or tenants' revenues or costs, worsening or lack of improvement of the financial condition or changes in our managers' or other operators' or tenants' financial conditions, deficiencies in operations by a manager or other operator of one or more of our senior living communities, acts of terrorism, war, other hostilities or other geopolitical risks, pandemics, natural disasters or climate change and climate related events.

The information contained elsewhere in this Quarterly Report on Form 10-Q or in our other filings with the SEC, including under the caption “Risk Factors”, or incorporated herein or therein, identifies other important factors that could cause differences from our forward-looking statements.

Our other filings with the SEC are available on the SEC's website at www.sec.gov.

• Actual and potential conflicts of interest with our related parties, including our Managing Trustees, RMR, ABP Trust, AlerisLife and others affiliated with them,

• Limitations imposed by and our ability to satisfy complex rules to maintain our qualification for taxation as a REIT for U.S.

federal income tax purposes,

• Acts of terrorism, outbreaks or continuation of pandemics, including the COVID-19 pandemic, or other public health safety events or conditions, war or other hostilities, material or prolonged disruption to supply chains, climate change or other manmade or natural disasters beyond our control,

• Our ability to comply with Nasdaq listing standards and maintain the listing of our common shares on Nasdaq, and

• Other matters.

These risks, uncertainties and other factors are not exhaustive and should be read in conjunction with other cautionary statements that are included in our periodic filings.

The information contained in our filings with the SEC, including under the caption “Risk Factors” in this Quarterly Report on Form 10-Q and other periodic reports, or incorporated herein or therein,

identifies important factors that could cause differences from our forward-looking statements in this Quarterly Report on Form 10-Q.

Our filings with the SEC are available on the SEC's website at www.sec.gov.

You should not place undue reliance upon our forward-looking statements.

4 unchanged sentences

Other Information

Risk Factors.

There have been no material changes to risk factors from those we previously disclosed in our Annual Report.

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

What changed 10-Q

Item 4. Controls and Procedures