What changed in this filing

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Item 1. Financial Statements

2023-08-01 compared with 2023-05-08 · 250 added, 142 removed, 446 unchanged (47% of the section changed)

3 unchanged sentences

(dollars in thousands, except share data)

March 31, December 31,

June 30, December 31,

Real estate properties:

15 unchanged sentences

Secured debt and finance leases, net 14,390 30,177

Liabilities of properties held for sale 305 —

Accrued interest 28,215 29,417

14 unchanged sentences

(amounts in thousands, except per share data)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Rental income $ 61,373 $ 62,522 $ 127,811 $ 127,807

7 unchanged sentences

Total expenses 379,248 332,143 742,019 666,357

Gain on sale of properties 1,233 327,794

(Loss) gain on sale of properties — ( 686 ) 1,233 327,108

Gains and losses on equity securities, net — ( 10,157 ) 8,126 ( 18,710 )

3 unchanged sentences

Loss on modification or early extinguishment of debt — ( 29,560 ) ( 1,075 ) ( 30,043 )

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

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

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

(Loss) income before income tax (expense) benefit and equity in net earnings of investees ( 75,279 ) ( 113,227 ) ( 127,321 ) 125,314

Income tax (expense) benefit ( 221 ) 640 ( 190 ) ( 832 )

Equity in net earnings of investees 2,929 3,204 2,282 6,558

Net (loss) income $ ( 72,571 ) $ ( 109,383 ) $ ( 125,229 ) $ 131,040

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

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

Weighted average common shares outstanding (basic and diluted) 238,682 238,197 238,636 238,173

Per common share amounts (basic and diluted):

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

Net loss — — — ( 72,571 ) — ( 72,571 )

Distributions — — — — ( 2,397 ) ( 2,397 )

Share grants 140,000 1 567 — — 568

Share repurchases ( 24,513 ) — ( 27 ) — — ( 27 )

Share forfeitures ( 5,600 ) — ( 3 ) — — ( 3 )

Balance at June 30, 2023:

239,792,354 $ 2,398 $ 4,617,831 $ 1,946,621 $ ( 4,057,461 ) $ 2,509,389

Balance at December 31, 2021:

7 unchanged sentences

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

Net loss — — — ( 109,383 ) — ( 109,383 )

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

Share grants 140,000 1 668 — — 669

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

Balance at June 30, 2022:

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

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

2 unchanged sentences

(dollars in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

11 unchanged sentences

Unconsolidated joint venture distributions 2,640 5,660

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

Equity in net earnings of investees ( 2,282 ) ( 6,558 )

Change in assets and liabilities:

8 unchanged sentences

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

Proceeds from sale of interest in joint venture, net — ( 330 )

Proceeds from AlerisLife Inc.

tender offer 14,006 —

Net cash (used in) provided by investing activities ( 90,380 ) 527,714

1 unchanged sentence

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

Redemption of senior unsecured notes — ( 500,000 )

Repayment of other debt ( 15,678 ) ( 12,421 )

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

Payment of debt issuance costs ( 2,057 ) ( 2,820 )

2 unchanged sentences

Net cash used in financing activities ( 272,562 ) ( 644,401 )

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

Decrease in cash and cash equivalents and restricted cash ( 331,219 ) ( 148,543 )

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

4 unchanged sentences

(dollars in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Supplemental cash flow information:

2 unchanged sentences

Non-cash investing activities:

Receivable from AlerisLife Inc.

tender offer $ 14,006 $ —

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

Real estate, net $ — $ ( 355,669 )

Change in assets resulting from the sale of interest in joint venture:

Investments in unconsolidated joint ventures $ — $ ( 108,246 )

Other assets, net $ — $ 108,956

Real estate improvements accrued, not paid $ 26,154 $ 24,325

1 unchanged sentence

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

As of March 31,

As of June 30,

Cash and cash equivalents $ 338,431 $ 705,160

2 unchanged sentences

Total cash and cash equivalents and restricted cash shown in our condensed consolidated statements of cash flows $ 357,083 $ 868,402

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

(1) As of June 30, 2023 and 2022, restricted cash consisted of proceeds from the sale of assets and proceeds from the sale of joint venture interests held as collateral pursuant to the agreement governing our credit facility, or our credit agreement.

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

27 unchanged sentences

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

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

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

Although there have been signs of recovery and increased demand when compared to the low levels during the COVID-19 pandemic, the recovery of our senior housing operating portfolio, or SHOP, segment has been slower than previously anticipated, and 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 communities, we continue to work with our senior living operators to manage costs, especially labor costs, and to increase rates and occupancy.

However, increased operating costs resulting from difficult labor market conditions and wage and commodity price inflation, among other things, continue to negatively impact margins.

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

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

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

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

Our ratio of consolidated income available for debt service to debt service was below the 1.5 x incurrence requirement under our credit agreement and our public debt covenants as of June 30, 2023, and we cannot be certain how long this ratio will remain below 1.5 x.

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

As of June 30, 2023, we had $ 338,431 of cash and cash equivalents and $ 700,000 of outstanding debt due within one year from the date of issuance of these financial statements, August 1, 2023.

This included $ 450,000 in outstanding borrowings under our credit facility, which matures on January 15, 2024.

Our credit facility is secured by 61 properties which had an appraised value in excess of $ 1,300,000 based on appraisals completed to secure our credit facility.

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

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

Our credit facility is secured by 61 properties which had an

DIVERSIFIED HEALTHCARE TRUST

1 unchanged sentence

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

appraised value of approximately $ 1,046,770 based on appraisals completed in June 2023.

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

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

1 unchanged sentence

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.

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 refinance existing or maturing debt or issue new debt, as described above.

Due to challenging capital market conditions, we do not believe it is probable as of the date of issuance of these financial statements, August 1, 2023, that we will raise sufficient capital to meet our upcoming contractual commitments.

As of August 1, 2023, we cannot demonstrate that our management's plans to alleviate substantial doubt about our ability to continue as a going concern will be probable in mitigating the conditions that raise the substantial doubt because our plan to merge with OPI is subject to shareholder and other customary approvals and our potential plan to raise rescue capital is subject to market conditions beyond our control.

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

1 unchanged sentence

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

Subject to the satisfaction or waiver of closing conditions, the Merger is expected to close during the third quarter of 2023.

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

2 unchanged sentences

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.

OPI expects to change its name from “Office Properties Income Trust” to “Diversified Properties Trust” and, following the Effective Time, will change its ticker symbol to "DPT".

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

1 unchanged sentence

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

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

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

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

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

DIVERSIFIED HEALTHCARE TRUST

1 unchanged sentence

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

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

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

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

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

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

(4) the absence of any statute, rule or regulation by any governmental entity of competent jurisdiction or any temporary, preliminary or permanent judgment, order or decree by any court of competent jurisdiction which would prohibit or make illegal or prevent the consummation of the Merger or any of the transactions contemplated by the Merger Agreement;

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

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

4 unchanged sentences

Real Estate Investments

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

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

As of June 30, 2023, we wholly owned 376 properties located in 36 states and Washington, D.C., including four properties classified as held for sale and five closed senior living communities, and we owned an equity interest in each of two unconsolidated joint ventures that own medical office and life science properties located in five states.

Joint Venture Activities:

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

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

As of June 30, 2023, we had equity investments in joint ventures as follows:

Joint Venture DHC Ownership DHC Carrying Value of Investment at June 30, 2023

Number of Properties Location Square Feet

3 unchanged sentences

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

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

Joint Venture Coupon Rate Maturity Date Principal Balance at June 30, 2023 (1)

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

8 unchanged sentences

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

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

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

The interest rate is as of March 31, 2023.

The interest rate is as of June 30, 2023.

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

2 unchanged sentences

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

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

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

We recognized a net loss on sale of $ 1,226 related to this transaction during the six months ended June 30, 2022, which is included in (loss) gain on sale of properties in our condensed consolidated statements of comprehensive income (loss).

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

3 unchanged sentences

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

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

We deconsolidated the net assets of these properties effective as of the date of the sale and recognized a net gain on sale of $ 327,542 related to this transaction during the six months ended June 30, 2022, which is included in (loss) gain on sale of properties in our condensed consolidated statements of comprehensive income (loss).

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

3 unchanged sentences

Acquisitions and Dispositions:

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

During the six months ended June 30, 2023, we sold three properties for an aggregate sales price of $ 2,800 , excluding closing costs, as presented in the table below.

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

3 unchanged sentences

(1) Sales price excludes closing costs.

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

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

During the six months ended June 30, 2023, we recognized a gain of $ 940 related to the sales of skilled nursing bed licenses at certain of our senior living communities.

As of June 30, 2023, we had four properties classified as held for sale in our condensed consolidated balance sheet as follows:

Type of Property Number of Properties Real Estate Properties, Net

Life Science and Medical Office 4 $ 21,786

As of July 27, 2023, these properties were under agreements to sell for an aggregate sales price of approximately $ 23,400 , excluding closing costs.

We may not complete the sales of any or all of the properties we currently plan to sell.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

sell some or all of these properties at amounts that are less than currently expected and/or less than the carrying values of such properties and we may incur losses on any such sales as a result.

We did not acquire any properties during the six months ended June 30, 2023.

We regularly evaluate our assets for indicators of impairment.

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

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

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

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

During the six months ended June 30, 2023, we recorded impairment charges of $ 11,299 related to four life science and medical office properties that were classified as held for sale as of June 30, 2023.

We also recorded impairment charges of $ 2,308 to adjust the carrying value of one medical office property and $ 3,617 to adjust the carrying value of one senior living community to their respective estimated fair value.

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

4 unchanged sentences

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

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

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

We decreased rental income to record revenue on a straight line basis by $ 4,457 and $ 2,009 for the three and six months ended June 30, 2023, respectively, and we increased rental income to record revenue on a straight line basis by $ 2,710 and $ 4,455 for the three and six months ended June 30, 2022, respectively.

Rents receivable, excluding receivables related to our properties classified as held for sale, if any, include $ 74,197 and $ 76,363 of straight line rent receivables at June 30, 2023 and December 31, 2022, respectively, and are included in other assets, net in our condensed consolidated balance sheets.

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

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

Such payments totaled $ 12,575 and $ 10,430 for the three months ended June 30, 2023 and 2022, respectively, of which tenant reimbursements totaled $ 12,525 and $ 10,350 , respectively, and $ 24,561 and $ 21,138 for the six months ended June 30, 2023 and 2022, respectively, of which tenant reimbursements totaled $ 24,449 and $ 21,013 , respectively.

Right of Use Asset and Lease Liability .

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

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

The values of the right of use assets and related liabilities representing our future obligation under the respective lease arrangements for which we are the lessee were $ 24,950 and $ 25,331 , respectively, as of June 30, 2023, and $ 26,508 and $ 26,889 , respectively, as of December 31, 2022.

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

1 unchanged sentence

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

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

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Our principal debt obligations, excluding any debt obligations of our joint ventures, at June 30, 2023 were:

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

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

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

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

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

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

and (3) $ 9,872 principal amount of a mortgage note secured by one property.

This mortgaged property had a gross book value of $ 14,925 at June 30, 2023.

We also had two properties subject to finance leases with lease obligations totaling $ 4,518 at June 30, 2023;

these two properties had gross book value and accumulated depreciation of $ 43,026 and $ 19,580 , respectively, at June 30, 2023, and $ 41,543 and $ 19,196 , respectively, at December 31, 2022, and the finance leases expire in 2026.

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

The maturity date of our credit facility is January 2024.

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

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

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

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

As of June 30, 2023, our credit facility required interest to be paid on borrowings at the annual rate of 8.1 %, plus a facility fee of $ 338 per quarter.

The weighted average annual interest rates for borrowings under our credit facility were 8.1 % and 3.3 % for the three months ended June 30, 2023 and 2022, respectively, and 7.6 % and 3.1 % for the six months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023 and July 27, 2023, we were fully drawn under our credit facility.

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

3 unchanged sentences

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

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

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

2 unchanged sentences

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

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

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

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

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

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

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

As of March 31, 2023, we believe we were in compliance with all of the other covenants under our senior unsecured notes indentures and their supplements, our credit agreement and our other debt obligations, subject to the waivers described above.

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

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

Pursuant to our credit agreement, we pledged certain equity interests of subsidiaries owning properties to secure our obligations under our credit agreement and agreed to provide, and as of September 2021 had provided, first mortgage liens on 61 medical office and life science properties with an aggregate gross book value of real estate assets of $ 1,004,700 as of June 30, 2023 to secure our obligations, which pledges and/or mortgage liens may be removed or new ones may be added based on outstanding debt amounts, among other things.

Our credit agreement requires us to maintain collateral properties with an aggregate appraised value of at least $ 1,090,909 , and allows Wells Fargo Bank, National Association, as administrative agent under our credit facility, or the Administrative Agent, to periodically reappraise the collateral properties.

On June 23, 2023, the Administrative Agent notified us that the reappraised value of the 61 medical office and life science properties securing our credit facility had declined from $ 1,337,200

DIVERSIFIED HEALTHCARE TRUST

1 unchanged sentence

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

fail to satisfy our public debt covenants.

to $ 1,046,770 , below the $ 1,090,909 threshold required under our credit agreement.

Failure to meet the required threshold constitutes a non-monetary event of default under our credit agreement.

In July 2023, we obtained a limited waiver from the Administrative Agent and requisite lenders under our credit facility, which waived the event of default and decreased the required appraised value of the collateral properties through September 30, 2023, the outside closing date for the Merger.

As of June 30, 2023, our ratio of consolidated income available for debt service to debt service was below the 1.5 x incurrence requirement under our credit agreement and our public debt covenants as the effects of the slower than anticipated recovery of our SHOP business from the COVID-19 pandemic, wage and commodity price inflation, rising interest rates, geopolitical risks and other economic, market and industry conditions continued to adversely impact our operations.

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

As of June 30, 2023, other than the non-monetary event of default and subject to the waivers discussed above, we believe we were in compliance with all of the other covenants under our senior unsecured notes indentures and their supplements, our credit agreement and our other debt obligations.

Although we have taken steps to enhance our ability to maintain sufficient liquidity, including entering into the Merger Agreement, a delay in the completion of the Merger or failure to complete the Merger, and a protracted negative impact on the economy or the industries in which our properties and businesses operate resulting from wage or commodity price inflation, rising or sustained high interest rates, geopolitical risks or other economic, market or industry conditions, including the delayed recovery of the senior housing industry, downturns or recessions, may cause increased pressure on our ability to satisfy financial and other covenants.

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

Fair Value of Assets and Liabilities

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

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

The following table presents certain of our assets that are measured at fair value at June 30, 2023 and December 31, 2022, categorized by the level of inputs as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.

As of June 30, 2023 As of December 31, 2022

Description Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value

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Non-Recurring Fair Value Measurements Assets:

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

Real estate properties held for sale (Level 2) (4)

$ 22,004 $ 22,004 $ — $ —

1 unchanged sentence

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

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

During the three months ended June 30, 2022, we recorded an unrealized loss of $ 10,157 , and during the six months ended June 30, 2023 and 2022, we recorded an unrealized gain of $ 8,126

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

and an unrealized loss of $ 18,710 , respectively, which are included in gains and losses on equity securities, net in our condensed consolidated statements of comprehensive income (loss), to adjust the carrying value of our former investment in AlerisLife common shares to their fair value.

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

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See Note 2 for further information regarding this joint venture.

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

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

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

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

(4) We have assets in our condensed consolidated balance sheets that are measured at fair value on a non-recurring basis.

During the three months ended June 30, 2023, we recorded impairment charges of $ 11,299 to reduce the carrying value of four medical office and life science properties that are classified as held for sale to their estimated sales price, less estimated costs to sell, based on the aggregate sales prices of $ 22,004 under agreements to sell that we have entered into with third parties for these medical office and life science properties.

See Note 2 for further information about impairment charges and the properties we have classified as held for sale.

In addition to the assets described in the table above, our financial instruments at June 30, 2023 and December 31, 2022 included cash and cash equivalents, restricted cash, certain other assets, our credit facility, senior unsecured notes, secured debt and finance leases and certain other unsecured obligations and liabilities.

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

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

As of June 30, 2023 As of December 31, 2022

Description Carrying Amount (1)

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

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

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

We estimated the fair values of our two issuances of senior unsecured notes due 2042 and 2046 based on the closing price on Nasdaq (Level 1 inputs) as of June 30, 2023 and December 31, 2022.

We estimated the fair values of our four issuances of senior unsecured notes due 2024, 2025, 2028 and 2031 using an average of the bid and ask price on Nasdaq on or about June 30, 2023 and December 31, 2022 (Level 2 inputs as defined in the fair value hierarchy under GAAP).

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

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

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Shareholders' Equity

Common Share Awards:

On June 5, 2023, in accordance with our Trustee compensation arrangements, we awarded to each of our seven Trustees 20,000 of our common shares, valued at $ 1.74 per share, the closing price of our common shares on Nasdaq on that day .

Common Share Purchases:

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

During the three and six months ended June 30, 2023, we purchased an aggregate of 24,513 and 30,488 of our common shares, respectively, valued at a weighted average share price of $ 1.14 and $ 1.09 per common share, respectively, from certain former officers and employees of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

Distributions:

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

During the six months ended June 30, 2023, we declared and paid quarterly distributions to common shareholders as follows:

Declaration Date Record Date Payment Date Distribution Per Share Total Distributions

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

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

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

April 13, 2023 April 24, 2023 May 18, 2023 0.01 2,397

$ 0.02 $ 4,794

On July 13, 2023, we declared a quarterly distribution to common shareholders of record on July 24, 2023 of $ 0.01 per share, or approximately $ 2,398 .

We expect to pay this distribution on or about August 17, 2023.

Segment Reporting

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Our Office Portfolio segment consists of medical office properties leased to medical providers and other medical related businesses, as well as life science properties leased to biotech laboratories and other similar tenants.

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

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

DIVERSIFIED HEALTHCARE TRUST

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

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

For the Three Months Ended March 31, 2023

For the Three Months Ended June 30, 2023

Office Portfolio SHOP Non-Segment Consolidated

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Acquisition and certain other transaction related costs

— — 6,043 6,043

Impairment of assets 11,299 — — 11,299

Total expenses 58,092 305,111 16,045 379,248

Interest and other income — 1,466 3,668 5,134

Interest expense ( 116 ) ( 152 ) ( 47,116 ) ( 47,384 )

Loss before income tax expense and equity in net earnings of investees ( 4,840 ) ( 18,951 ) ( 51,488 ) ( 75,279 )

Income tax expense — — ( 221 ) ( 221 )

Equity in net earnings of investees 2,929 — — 2,929

Net loss $ ( 1,911 ) $ ( 18,951 ) $ ( 51,709 ) $ ( 72,571 )

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

For the Six Months Ended June 30, 2023

Office Portfolio SHOP Non-Segment Consolidated

Rental income $ 110,390 $ — $ 17,421 $ 127,811

Residents fees and services — 564,438 — 564,438

Total revenues 110,390 564,438 17,421 692,249

Property operating expenses 47,453 524,288 567 572,308

Depreciation and amortization 42,890 85,304 5,000 133,194

General and administrative — — 13,157 13,157

Acquisition and certain other transaction related costs

— — 6,136 6,136

Impairment of assets 13,607 3,617 — 17,224

Total expenses 103,950 613,209 24,860 742,019

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

3 unchanged sentences

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

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

Income tax benefit — — 31 31

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

Income (loss) before income tax expense and equity in net earnings of investees 6,215 ( 46,495 ) ( 87,041 ) ( 127,321 )

Income tax expense — — ( 190 ) ( 190 )

Equity in net earnings of investees 2,282 — — 2,282

Net income (loss) $ 8,497 $ ( 46,495 ) $ ( 87,231 ) $ ( 125,229 )

As of March 31, 2023

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

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

Subsequently, the American Rescue Plan Act, or ARPA, was enacted.

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

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

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

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

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

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

We have received funds related to certain programs under the CARES Act, ARPA and various state programs in which certain of our communities in our SHOP segment are located.

We have recognized $ 1,466 and $ 959 with respect to those funds we received as interest and other income in our condensed consolidated statements of comprehensive income (loss) with respect to our SHOP segment for the six months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023

Office Portfolio SHOP Non-Segment Consolidated

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

For the Three Months Ended March 31, 2022

For the Three Months Ended June 30, 2022

Office Portfolio SHOP Non-Segment Consolidated

7 unchanged sentences

Total expenses 40,023 281,409 10,711 332,143

(Loss) gain on sale of properties ( 1,226 ) 540 — ( 686 )

Losses on equity securities, net — — ( 10,157 ) ( 10,157 )

Interest and other income — 760 1,506 2,266

Interest expense ( 216 ) ( 491 ) ( 55,268 ) ( 55,975 )

Gain (loss) on modification or early extinguishment of debt 16 — ( 29,576 ) ( 29,560 )

Income (loss) before income tax benefit and equity in net earnings of investees 11,161 ( 30,094 ) ( 94,294 ) ( 113,227 )

Income tax benefit — — 640 640

Equity in net earnings of investees 3,204 — — 3,204

Net income (loss) $ 14,365 $ ( 30,094 ) $ ( 93,654 ) $ ( 109,383 )

For the Six Months Ended June 30, 2022

Office Portfolio SHOP Non-Segment Consolidated

Rental income $ 107,607 $ — $ 20,200 $ 127,807

Residents fees and services — 495,954 — 495,954

Total revenues 107,607 495,954 20,200 623,761

Property operating expenses 45,473 489,335 — 534,808

Depreciation and amortization 36,387 73,352 5,781 115,520

General and administrative — — 14,492 14,492

Acquisition and certain other transaction related costs

— — 1,537 1,537

Total expenses 81,860 562,687 21,810 666,357

Gain on sale of properties 326,316 792 — 327,108

2 unchanged sentences

Interest expense ( 581 ) ( 985 ) ( 111,540 ) ( 113,106 )

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

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

Income (loss) before income tax expense and equity in net earnings of investees 351,498 ( 65,967 ) ( 160,217 ) 125,314

2 unchanged sentences

Net income (loss) $ 358,056 $ ( 65,967 ) $ ( 161,049 ) $ 131,040

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

As of December 31, 2022

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

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

We recorded $ 517 and $ 1,445 for the three and six months ended June 30, 2022, respectively, of these costs to acquisition and certain other transaction related costs in our condensed consolidated statements of comprehensive income (loss).

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

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

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Our Senior Living Communities Managed by Five Star.

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

Five Star managed 119 and 120 of our senior living communities as of June 30, 2023 and 2022, respectively.

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

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

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

We incurred management fees payable to Five Star of $ 9,890 and $ 8,971 for the three months ended June 30, 2023 and 2022, respectively, and $ 19,904 and $ 17,903 for the six months ended June 30, 2023 and 2022, respectively.

For the three months ended June 30, 2023 and 2022, $ 9,315 and $ 8,274 , respectively, of the total management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 575 and $ 697 , respectively, were capitalized in our condensed consolidated balance sheets.

For the six months ended June 30, 2023 and 2022, $ 18,452 and $ 16,416 , respectively, of the total management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 1,452 and $ 1,487 , respectively, were capitalized in our condensed consolidated balance sheets.

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

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

We incurred fees of $ 334 and $ 1,736 for the three months ended June 30, 2023 and 2022, respectively, and $ 1,213 and $ 3,652 for the six months ended June 30, 2023 and 2022, respectively, with respect to rehabilitation services Five Star provided at our senior living communities that are payable by us.

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

1 unchanged sentence

Our Senior Living Communities Managed by Other Third Party Managers.

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

Several other third party managers managed 111 and 107 of our senior living communities as of June 30, 2023 and 2022, respectively.

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

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

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

We incurred management fees payable to these third party managers of $ 5,357 and $ 5,218 for the three months ended June 30, 2023 and 2022, respectively, and $ 10,595 and $ 10,326 for the six months ended June 30, 2023 and 2022, respectively.

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

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

Revenue from contracts with customers:

2023 2022 2023 2022

Basic housing and support services $ 226,606 $ 196,999 $ 448,793 $ 389,873

9 unchanged sentences

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

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

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

We recognized net business management fees of $ 3,321 and $ 4,506 for the three months ended June 30, 2023 and 2022, respectively, and $ 6,591 and $ 9,319 for the six months ended June 30, 2023 and 2022, respectively.

Based on our common share total return, as defined in our business management agreement, as of each of June 30, 2023 and 2022, no estimated incentive fees are included in the net business management fees we recognized for the three or six months ended June 30, 2023 or 2022.

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

1 unchanged sentence

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

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

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

We recognized aggregate net property management and construction supervision fees of $ 2,202 and $ 2,518 for the three months ended June 30, 2023 and 2022, respectively, and $ 4,194 and $ 4,909 for the six months ended June 30, 2023 and 2022, respectively.

For the three months ended June 30, 2023 and 2022, $ 1,400 and $ 1,272 , respectively, of the total property management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 802 and $ 1,246 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets.

For the six months ended June 30, 2023 and 2022, $ 2,863 and $ 2,621 , respectively, of the total property management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 1,331 and $ 2,288 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets.

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

2 unchanged sentences

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

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

We reimbursed RMR $ 3,561 and $ 3,111 for these expenses and costs for the three months ended June 30, 2023 and 2022, respectively, and $ 7,094 and $ 6,075 for the six months ended June 30, 2023 and 2022, respectively.

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

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

As described in Note 10 below, contemporaneously with the execution of the Merger Agreement, we, OPI and RMR entered into a letter agreement pursuant to which, on the terms and subject to conditions contained therein, we and RMR have acknowledged and agreed that, effective upon consummation of the Merger, we shall have terminated our business and property management agreements with RMR for convenience, and RMR shall have waived its right to receive payment of the termination fee pursuant to each such agreement upon such termination.

The foregoing terminations and waivers apply only in respect of the Merger and do not apply to any other transaction or arrangement.

Management Agreements Between Our Joint Ventures and RMR.

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

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

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

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

RMR provides management services to both of these joint ventures.

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

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

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

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

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

Other officers of RMR, including Ms.

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

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

In addition, officers of RMR and RMR Inc.

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

Pursuant to the ALR Merger

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

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

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

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

We refer to the transactions contemplated by the ALR Merger Agreement as the AlerisLife Transaction.

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

Portnoy, or, collectively, the ABP Parties.

Pursuant to the Consent Agreement, we:

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

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

obligation, to purchase, in a single private transaction, on or before December 31, 2023, a number of shares of common stock of the surviving entity in the AlerisLife Transaction constituting a percentage up to 31.9 % of the then issued and outstanding shares of the common stock of the surviving entity based on the tender offer price and otherwise pursuant to a stockholders agreement to be entered into at the time of any such purchase on such terms as are negotiated and mutually agreed by the parties, and (4) agreed to amend the Master Management Agreement to eliminate any change of control default or event of default provisions effective upon the consummation of the AlerisLife Transaction.

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

Merger Agreement with Office Properties Income Trust.

As described further in Note 1, 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 in the Merger.

Subject to the satisfaction or waiver of closing conditions, the Merger is expected to close during the third quarter of 2023.

RMR serves as our and OPI’s manager and will continue to manage the surviving entity following the Merger.

Contemporaneously with the execution of the Merger Agreement, we, OPI and RMR entered into a letter agreement pursuant to which, on the terms and subject to conditions contained therein, we and RMR have acknowledged and agreed that, effective upon consummation of the Merger, we shall have terminated our business and property management agreements with RMR for convenience, and RMR shall have waived its right to receive payment of the termination fee pursuant to each such agreement upon such termination.

The foregoing terminations and waivers apply only in respect of the Merger and do not apply to any other transaction or arrangement.

Our Joint Ventures.

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

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

Those costs totaled $ 6,040 as of June 30, 2023 and are included in other assets, net, in our condensed consolidated balance sheet.

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

5 unchanged sentences

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

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

Pursuant to our lease agreements with RMR, we recognized rental income from RMR for leased office space of $ 13 and $ 78 for the three months ended June 30, 2023 and 2022, respectively, and $ 74 and $ 148 for the six months ended June 30, 2023 and 2022, respectively.

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

3 unchanged sentences

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

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

For the three months ended June 30, 2023 and 2022, we recognized income tax expense of $ 221 and benefit of $ 640 , respectively, and for the six months ended June 30, 2023 and 2022, we recognized income tax expense of $ 190 and $ 832 , respectively.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Weighted Average Common Share s (share amounts in thousands)

3 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements