DHC filing — read by section

Item 2. Management’s Discussion and Analysis

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 
 The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and with our Annual Report. 
 OVERVIEW 
 We are a REIT organized under Maryland law and which owns medical office and life science properties, senior living communities and other healthcare related properties throughout the United States. As of June 30, 2023, we wholly owned 376 properties, including four properties classified as held for sale and five closed senior living communities, located in 36 states and Washington, D.C. At June 30, 2023, the gross book value of our real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, was $7.1 billion. 
 On April 11, 2023, we and OPI entered into the Merger Agreement, pursuant to which, on the terms and subject to the satisfaction or waiver of the conditions thereof, we will be merged with and into OPI, with OPI continuing as the surviving entity. Pursuant to the terms and subject to the conditions and limitations set forth in the Merger Agreement, at the Effective Time, each of our common shares issued and outstanding as of immediately prior to the Effective Time will be automatically converted into the right to receive 0.147 of a newly issued OPI Common Share, subject to adjustment for certain reclassifications, distributions, recapitalizations or similar transactions and other exceptional distributions as described in the Merger Agreement, with cash paid in lieu of fractional shares. At the Effective Time, any outstanding unvested common share awards under our equity compensation plan will be converted into an award under OPI’s equity compensation plan, subject to substantially similar vesting requirements and other terms and conditions, of a number of OPI Common Shares determined by multiplying the number of our unvested common shares subject to such award by the Exchange Ratio (rounded down to the nearest whole number). Other than as provided in the Merger Agreement, the Exchange Ratio is fixed and will not be adjusted to reflect changes in the market price of our common shares or the OPI Common Shares prior to the Effective Time. The OPI Common Shares issued and outstanding immediately prior to the Effective Time will remain issued and outstanding common shares of beneficial ownership of the surviving entity following the Merger. OPI expects to change its name from “Office Properties Income Trust” to “Diversified Properties Trust” at the Effective Time and, following the Effective Time, will change its ticker symbol to "DPT". For more information and risks regarding the Merger, see Note 1 to our condensed consolidated financial statements included in Part 1, Item 1, and Part II, Item 1A "Risk Factors," of this Quarterly Report on Form 10-Q. 
 As of June 30, 2023, we owned an equity interest in each of the Seaport JV and the LSMD JV that own medical office and life science properties located in five states with an aggregate of approximately 2.2 million rentable square feet that were 98% leased with an average (by annualized rental income) remaining lease term of 5.6 years. 
 We are closely monitoring the impacts of the current economic and market conditions on all aspects of our business, including, but not limited to, labor availability constraints, wage and commodity price inflation, rising or sustained high interest rates, geopolitical risks and economic downturns or recessions. We expect labor, insurance and food costs to continue to increase with respect to our SHOP segment. 
 In response to inflationary pressures, the U.S. Federal Reserve has significantly increased the federal funds rate since the beginning of 2022 and has indicated that there may be additional increases. These inflationary pressures and rising interest rates in the United States and globally have given rise to increasing concerns that the U.S. economy may soon enter an economic downturn or recession and they have caused disruptions in the financial markets. An economic recession, or continued or intensified disruptions in the financial markets, could adversely affect our financial condition and that of our managers, operators and tenants, could adversely impact the ability or willingness of our managers, operators, tenants or residents to pay the contractual amounts of returns, rents or other obligations due to us, could impair our ability to effectively deploy our capital or realize our target returns on our investments, may restrict our access to, and would likely increase our cost of, capital and may cause the values of our properties and of our securities to decline. 
 The senior living industry experienced significant disruptions during the COVID-19 pandemic. Although our and certain of our managers' and other operators' and tenants' businesses have improved from low points experienced during the COVID-19 pandemic, the recovery of our 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 due to changed market practices, delayed returns to prior market practices, current market and economic conditions, such as rising or sustained high interest rates, wage and commodity price inflation, limited labor availability, geopolitical instability (such as the war in Ukraine) and economic downturns or recessions, or otherwise. For example, although occupancy in our SHOP segment has increased, the rate of occupancy growth has been slower than previously anticipated and increased operating costs resulting from wage and commodity price inflation and limited labor availability, among other things, continue to negatively impact margins. As a result of these uncertainties, we 
 23 

 Table of Contents 

 are unable to determine what the ultimate impacts of the COVID-19 pandemic will be on our, our managers', operators', our tenants' and other stakeholders' businesses, operations, financial results and financial position. For further information and risks relating to these economic uncertainties, including changes related to the COVID-19 pandemic, and their impact on our business and financial condition, see Part I, Item 1, "Business" and Part I, Item 1A, "Risk Factors" in our Annual Report. 
 
 PORTFOLIO OVERVIEW 
 The following tables present an overview of our portfolio (dollars in thousands, except investment per square foot or unit data): 
 
 As of June 30, 2023 Number
of Properties Square Feet or Number of Units Gross Book Value of Real Estate Assets (1) 
 % of Total Gross Book Value of Real Estate Assets Investment per Square Foot or Unit (2) 
 Q2 2023 Revenues % of
Q2 2023 Revenues Q2 2023 NOI (3) 
 % of Q2 2023 NOI 
 
 Office Portfolio (4) 
 105 8,796,541 sq. ft. $ 2,293,360 32.2 % $ 261 $ 53,368 15.4 % $ 29,430 49.1 % 
 SHOP 234 25,322 units 4,448,414 62.4 % $ 175,674 284,846 82.3 % 22,887 38.2 % 
 Triple net leased senior living communities 27 2,062 units 202,737 2.8 % $ 98,321 5,198 1.5 % 5,198 8.7 % 
 Wellness centers 10 812,000 sq. ft. 179,025 2.6 % $ 220 2,807 0.8 % 2,476 4.0 % 
 Total 376 $ 7,123,536 100.0 % $ 346,219 100.0 % $ 59,991 100.0 % 

 
 Occupancy 
 As of and For the Three Months Ended June 30, 
 2023 2022 
 Office Portfolio (5) 
 85.8 % 88.1 % 
 SHOP 77.8 % 73.6 % 
 Triple net leased senior living communities (6)(7) 
 80.8 % 78.7 % 
 Wellness centers 100.0 % 100.0 % 
 

 (1) Represents gross book value of real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, if any. 
 (2) Represents gross book value of real estate assets divided by number of rentable square feet or living units, as applicable, at June 30, 2023. 
 (3) We calculate our NOI on a consolidated basis and by reportable segment. Our definition of NOI and our reconciliation of net income (loss) to NOI are included below under the heading “Non-GAAP Financial Measures”. 
 (4) Our medical office and life science property leases include some triple net leases where, in addition to paying fixed rents, the tenants assume the obligation to operate and maintain the properties at their expense, and some net and modified gross leases where we are responsible for the operation and maintenance of the properties and we charge tenants for some or all of the property operating costs. A small percentage of our medical office and life science property leases are full-service leases where we receive fixed rent from our tenants and no reimbursement for our property operating costs. 
 (5) Medical office and life science property occupancy data is as of June 30, 2023 and 2022 and includes (i) out of service assets undergoing redevelopment, (ii) space which is leased but is not occupied or is being offered for sublease by tenants and (iii) space being fitted out for occupancy. 
 (6) Excludes data for periods prior to our ownership of certain properties, data for properties sold or classified as held for sale, if any, and data for which there was a transfer of operations during the periods presented. 
 (7) Operating data for other triple net leased senior living communities leased to third party operators and wellness centers are presented based upon the operating results provided by our tenants for the three months ended March 31, 2023 and 2022, or the most recent prior period for which tenant operating results are made available to us. We have not independently verified tenant operating data. 
 24 

 Table of Contents 

 During the three and six months ended June 30, 2023, we entered into new and renewal leases at our medical office and life science properties in our Office Portfolio segment as summarized in the following tables (dollars and square feet in thousands, except per square foot amounts): 
 
 Three Months Ended June 30, 2023 
 New Leases Renewals Total 
 Square feet leased during the quarter 163 161 324 
 Weighted average rental rate change (by rentable square feet) 0.5 % 2.1 % 1.3 % 
 Weighted average lease term (years) (1) 
 8.2 5.7 6.9 
 Total leasing costs and concession commitments (2) 
 $ 8,602 $ 2,038 $ 10,640 
 Total leasing costs and concession commitments per square foot (2) 
 $ 52.84 $ 12.66 $ 32.86 
 Total leasing costs and concession commitments per square foot per year (2) 
 $ 6.47 $ 2.23 $ 4.78 

 
 Six Months Ended June 30, 2023 
 New Leases Renewals Total 
 Square feet leased during the period 201 195 396 
 Weighted average rental rate change (by rentable square feet) 5.1 % 3.9 % 4.5 % 
 Weighted average lease term (years) (1) 
 9.1 5.6 7.3 
 Total leasing costs and concession commitments (2) 
 $ 12,772 $ 2,764 $ 15,536 
 Total leasing costs and concession commitments per square foot (2) 
 $ 63.69 $ 14.13 $ 39.22 
 Total leasing costs and concession commitments per square foot per year (2) 
 $ 7.04 $ 2.51 $ 5.35 

 (1) Weighted based on annualized rental income pursuant to existing leases as of June 30, 2023, including straight line rent adjustments and estimated recurring expense reimbursements, and excluding lease value amortization. 
 (2) Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent. 
 Lease Expiration Schedules 
 As of June 30, 2023, lease expirations at our medical office and life science properties in our Office Portfolio segment were as follows (dollars in thousands): 
 
 Year Number of Tenants Square Feet Leased Percent of Total Cumulative Percent of Total Annualized Rental Income (1) 
 Percent of Total Cumulative Percent of Total 
 2023 40 493,363 6.5 % 6.5 % $ 15,076 6.8 % 6.8 % 
 2024 67 809,109 10.7 % 17.2 % 19,359 8.8 % 15.6 % 
 2025 76 709,745 9.4 % 26.6 % 17,732 8.1 % 23.7 % 
 2026 61 776,502 10.3 % 36.9 % 24,064 10.9 % 34.6 % 
 2027 59 874,557 11.6 % 48.5 % 21,580 9.8 % 44.4 % 
 2028 54 1,085,878 14.4 % 62.9 % 29,628 13.5 % 57.9 % 
 2029 39 490,707 6.5 % 69.4 % 14,468 6.6 % 64.5 % 
 2030 23 293,026 3.9 % 73.3 % 7,419 3.4 % 67.9 % 
 2031 17 896,062 11.9 % 85.2 % 25,982 11.8 % 79.7 % 
 2032 and thereafter 51 1,118,154 14.8 % 100.0 % 44,953 20.3 % 100.0 % 
 Total 487 7,547,103 100.0 % $ 220,261 100.0 % 
 
 Weighted average remaining lease term (in years) 5.1 5.4 

 (1) Annualized rental income is based on rents pursuant to existing leases as of June 30, 2023, including straight line rent adjustments and estimated recurring expense reimbursements for certain net and modified gross leases and excluding lease value amortization at certain of our medical office and life science properties. 
 Lease expiration data for our triple net leased senior living communities and wellness centers that are leased to third party operators has not been provided because there were no changes to the lease expiration schedules from those reported in our Annual Report, except that (i) in February 2023, we entered into a 15 year lease, which commenced in June 2023, with a private operator for one of our wellness centers, (ii) in March 2023, we entered into two separate 20 year leases, which are expected to 
 25 

 Table of Contents 

 commence in 2024, with an operator for two of our wellness centers and (iii) we have renewed our leases with a tenant of three of our wellness centers for a two year term expiring in 2025. 
 26 

 
 
 

 RESULTS OF OPERATIONS (dollars and square feet in thousands, unless otherwise noted) 
 We operate in, and report financial information for, the following two segments: Office Portfolio and SHOP. We aggregate each of these two reporting segments based on their similar operating and economic characteristics. 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 on our behalf. 
 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. 
 The following table summarizes the results of operations of each of our segments for the three and six months ended June 30, 2023 and 2022: 
 
 Three Months Ended June 30, Six Months Ended June 30, 
 2023 2022 2023 2022 
 Revenues: 
 Office Portfolio $ 53,368 $ 52,610 $ 110,390 $ 107,607 
 SHOP 284,846 250,506 564,438 495,954 
 Non-Segment 8,005 9,912 17,421 20,200 
 Total revenues $ 346,219 $ 313,028 $ 692,249 $ 623,761 
 
 Net income (loss): 
 Office Portfolio $ (1,911) $ 14,365 $ 8,497 $ 358,056 
 SHOP (18,951) (30,094) (46,495) (65,967) 
 Non-Segment (51,709) (93,654) (87,231) (161,049) 
 Net income (loss) $ (72,571) $ (109,383) $ (125,229) $ 131,040 

 The following sections analyze and discuss the results of operations of each of our segments for the periods presented. 
 27 

 
 

 Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022 (dollars and square feet in thousands, except average monthly rate): 
 Unless otherwise indicated, references in this section to changes or comparisons of results, income or expenses refer to comparisons of the results for the three months ended June 30, 2023 to the three months ended June 30, 2022. Our definition of NOI and our reconciliation of net income (loss) to NOI and a description of why we believe NOI is an appropriate supplemental measure are included below under the heading “Non-GAAP Financial Measures.” 
 
 Three Months Ended June 30, 
 2023 2022 $ Change % Change 
 NOI by segment: 
 Office Portfolio $ 29,430 $ 30,584 $ (1,154) (3.8) % 
 SHOP 22,887 6,466 16,421 254.0 % 
 Non-Segment 7,674 9,912 (2,238) (22.6) % 
 Total NOI 59,991 46,962 13,029 27.7 % 
 
 Depreciation and amortization 68,394 58,261 10,133 17.4 % 
 General and administrative 7,284 7,207 77 1.1 % 
 Acquisition and certain other transaction related costs 6,043 609 5,434 nm 
 Impairment of assets 11,299 — 11,299 nm 
 Loss on sale of properties — (686) 686 (100.0) % 
 Losses on equity securities, net — (10,157) 10,157 (100.0) % 
 Interest and other income 5,134 2,266 2,868 126.6 % 
 Interest expense 
 (47,384) (55,975) 8,591 (15.3) % 
 
 Loss on modification or early extinguishment of debt — (29,560) 29,560 (100.0) % 
 Loss before income tax (expense) benefit and equity in net earnings of investees (75,279) (113,227) 37,948 nm 
 Income tax (expense) benefit (221) 640 (861) (134.5) % 
 Equity in net earnings of investees 2,929 3,204 (275) (8.6) % 
 
 
 Net loss $ (72,571) $ (109,383) $ 36,812 nm 

 nm - not meaningful 
 Office Portfolio : 
 
 Comparable Properties (1) 
 All Properties 
 As of June 30, As of June 30, 
 2023 2022 2023 2022 
 Total buildings 91 91 105 104 
 Total square feet 7,677 7,689 8,797 8,723 
 Occupancy 93.0 % 93.1 % 85.8 % 88.1 % 

 (1) Consists of medical office and life science properties that we have owned and which have been in service continuously since April 1, 2022; excludes properties classified as held for sale or out of service undergoing redevelopment, if any, and medical office and life science properties owned by unconsolidated joint ventures in each of which we own an equity interest. 
 
 Three Months Ended June 30, 
 Comparable (1) 
 Non-Comparable 
 Properties Results Properties Results Consolidated Properties Results 
 $ % $ % 
 2023 2022 Change Change 2023 2022 2023 2022 Change Change 
 Rental income $ 49,607 $ 48,036 $ 1,571 3.3 % $ 3,761 $ 4,574 $ 53,368 $ 52,610 $ 758 1.4 % 
 Property operating expenses (20,000) (19,171) 829 4.3 % (3,938) (2,855) (23,938) (22,026) 1,912 8.7 % 
 NOI $ 29,607 $ 28,865 $ 742 2.6 % $ (177) $ 1,719 $ 29,430 $ 30,584 $ (1,154) (3.8) % 

 (1) Consists of medical office and life science properties that we have owned and which have been in service continuously since April 1, 2022; excludes properties classified as held for sale or out of service undergoing redevelopment, if any, and medical office and life science properties owned by unconsolidated joint ventures in each of which we own an equity interest. 
 28 

 
 

 Rental income. Rental income increased primarily due to an increase in rental income at our comparable properties, at certain of our recently redeveloped properties and our acquisition of one property since April 1, 2022, partially offset by a tenant default at one of our properties resulting in a write off of the corresponding unamortized straight line rent receivable and certain of our properties being taken out of service and/or currently undergoing redevelopment. Rental income increased at our comparable properties primarily due to higher average rents resulting from our new and renewal leasing activity, increases in property operating expense reimbursements at certain of our comparable properties and increased parking revenue at certain of our comparable properties. 
 Property operating expenses. Property operating expenses consist of real estate taxes, utility expenses, insurance, management fees, salaries and benefit costs of property level personnel, repairs and maintenance expense, cleaning expense and other direct costs of operating these properties. The increase in property operating expenses is primarily due to an increase in property operating expenses at our comparable properties, at certain of our recently redeveloped properties and our acquisition of one property since April 1, 2022. Property operating expenses at our comparable properties increased primarily due to increases in real estate taxes and other direct costs at certain of our comparable properties, partially offset by decreases in utility expenses. 
 Net operating income. The change in NOI reflects the net changes in rental income and property operating expenses described above. 
 SHOP : 
 
 Comparable Properties (1) 
 All Properties 
 As of and For the Three Months As of and For the Three Months 
 Ended June 30, Ended June 30, 
 2023 2022 2023 2022 
 Total properties 225 225 234 234 
 Number of units 24,612 24,612 25,322 25,075 
 Occupancy 78.0 % 73.6 % 77.8 % 73.6 % 
 Average monthly rate (2) 
 $ 4,808 $ 4,510 $ 4,809 $ 4,480 

 (1) Consists of senior living communities that we have owned and which have been in service, reported in the same segment and operated by the same operator continuously since April 1, 2022; excludes communities classified as held for sale, closed or out of service, if any. 
 (2) Average monthly rate is calculated by taking the average daily rate, which is defined as total residents fees and services divided by occupied units during the period, and multiplying it by 30 days. 
 
 Three Months Ended June 30, 
 Comparable (1) 
 Non-Comparable 
 Properties Results Properties Results Consolidated Properties Results 
 $ % $ % 
 2023 2022 Change Change 2023 2022 2023 2022 Change Change 
 Residents fees and services $ 280,176 $ 247,866 $ 32,310 13.0 % $ 4,670 $ 2,640 $ 284,846 $ 250,506 $ 34,340 13.7 % 
 Property operating expenses (257,215) (240,038) 17,177 7.2 % (4,744) (4,002) (261,959) (244,040) 17,919 7.3 % 
 NOI $ 22,961 $ 7,828 $ 15,133 193.3 % $ (74) $ (1,362) $ 22,887 $ 6,466 $ 16,421 254.0 % 

 (1) Consists of senior living communities that we have owned and which have been in service, reported in the same segment and operated by the same operator continuously since April 1, 2022; excludes communities classified as held for sale, closed or out of service, if any. 
 Residents fees and services. Residents fees and services are the revenues earned at our managed senior living communities. We recognize these revenues as services are provided and related fees are accrued. Residents fees and services increased primarily due to increases in occupancy and average monthly rate at our comparable properties and the transfer of three previously leased properties to our SHOP segment as described below, partially offset by our community that was taken out of service due to damage sustained by Hurricane Ian. 
 Property operating expenses. Property operating expenses consist of real estate taxes, utility expenses, insurance, wages and benefit costs of property level personnel, repairs and maintenance expense, management fees, cleaning expense and other direct costs of operating these communities. Property operating expenses increased primarily due to increases in labor costs, increased sales and marketing costs to improve occupancy and the transfer of three previously leased properties to our SHOP segment as described below, partially offset by our community that was taken out of service due to damage sustained by Hurricane Ian. 
 Net operating income. The change in NOI reflects the net changes in residents fees and services and property operating expenses described above. 
 29 

 
 

 Non-Segment (1) : 
 
 Comparable Properties (2) 
 All Properties 
 As of and For the Three Months Ended June 30, As of and For the Three Months Ended June 30, 
 2023 2022 2023 2022 
 Total properties: 
 Triple net leased senior living communities 26 26 27 30 
 Wellness centers 10 10 10 10 
 
 
 

 (1) Non-segment operations consists of all of our other operations, including certain senior living communities and wellness centers that are leased to third party operators, which segment we do not consider to be sufficiently material to constitute a separate reporting segment, and any other income or expenses that are not attributable to a specific reporting segment. 
 (2) Comparable properties consists of properties that we have owned and which have been reported in the same segment and leased to the same operator continuously since April 1, 2022; excludes properties classified as held for sale, if any. 
 
 Three Months Ended June 30, 
 Comparable (1) 
 Non-Comparable 
 Properties Results Properties Results Consolidated Properties Results 
 $ % $ % 
 2023 2022 Change Change 2023 2022 2023 2022 Change Change 
 Rental income $ 8,005 $ 8,977 $ (972) (10.8) % $ — $ 935 $ 8,005 $ 9,912 $ (1,907) (19.2) % 
 Property operating expenses (331) — 331 nm — — (331) — 331 nm 
 NOI $ 7,674 $ 8,977 $ (1,303) (14.5) % $ — $ 935 $ 7,674 $ 9,912 $ (2,238) (22.6) % 

 nm - not meaningful 
 (1) Consists of properties that we have owned and which have been reported in the same segment and leased to the same operator continuously since April 1, 2022; excludes properties classified as held for sale, if any. 
 Rental income. Rental income decreased primarily due to the termination of the lease agreements for three of our senior living communities which were replaced with management agreements under our TRS structure and a decrease in rental income at our comparable properties. The decrease in comparable properties rental income was primarily due to cash rents received during the three months ended June 30, 2022 from a tenant previously in default under leases for six of our wellness centers. In January 2023, we agreed to amend the lease for three of these wellness centers and repossess the remaining three wellness centers. In February 2023, we entered into a 15 year lease, which commenced in June 2023, with a private operator for one of these repossessed wellness centers. In March 2023, we entered into two separate 20 year leases, which are expected to commence in 2024, with an operator for the remaining two repossessed wellness centers. 
 Property operating expenses. Property operating expenses consist of real estate taxes and other expenses we paid on behalf of a tenant previously in default under leases for six of our wellness centers. Pursuant to an agreement with this tenant in January 2023, we expect to continue to incur real estate taxes and other direct costs for three of these wellness centers. We will also continue to pay real estate taxes and other direct costs for the three wellness centers leased in February and March 2023, until the expenses become the tenants' responsibility pursuant to the leases. 
 Net operating income. The change in NOI reflects the net changes in rental income and property operating expenses described above. 
 Consolidated : 
 Depreciation and amortization expense. Depreciation and amortization expense increased primarily due to the purchase of capital improvements at certain of our properties and our acquisition of one property since April 1, 2022. Increases in depreciation and amortization expenses were partially offset by certain depreciable assets becoming fully depreciated since April 1, 2022. 
 General and administrative expense . General and administrative expense consists of fees paid to RMR under our business management agreement, legal and accounting fees, fees and expenses of our Trustees, equity compensation expense and other costs relating to our status as a publicly traded company. General and administrative expense increased primarily due to an increase in legal fees, partially offset by a decrease in our base business management fees expense as a result of lower consolidated indebtedness and lower trading prices for our common shares during the three months ended June 30, 2023 compared to the three months ended June 30, 2022. 
 30 

 
 

 Acquisition and certain other transaction related costs. For the three months ended June 30, 2023, acquisition and certain other transaction related costs primarily represent costs incurred in connection with the Merger. For the three months ended June 30, 2022, acquisition and certain other transaction related costs primarily represent costs related to the transition of certain senior living communities to other third party managers. 
 Impairment of assets. For information about our asset impairment charges, see Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. 
 Loss on sale of properties. Loss on sale of properties is the net result of our sales of certain of our properties and joint venture equity interests during the three months ended June 30, 2022. For further information regarding loss on sale of properties, see Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and Note 3 to our consolidated financial statements included in Part IV, Item 15 of our Annual Report. 
 Losses on equity securities, net. Losses on equity securities, net, represent the net unrealized losses to adjust our former investment in AlerisLife to its fair value. For further information regarding our former investment in AlerisLife, see Notes 5 and 10 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. 
 Interest and other income. The increase in interest and other income is primarily due to higher interest earned during the three months ended June 30, 2023 as a result of higher interest rates compared to the three months ended June 30, 2022. The increase in interest and other income is also due to $1,466 of funds we received from certain programs under the CARES Act, ARPA and various state programs during the three months ended June 30, 2023 compared to $760 received during the three months ended June 30, 2022. 
 Interest expense. Interest expense decreased primarily due to our redemption in June 2022 of $500,000 of our 9.75% senior notes due 2025 and a decrease in average borrowings under our credit facility. These decreases were partially offset by an increase in interest rates under our credit facility. 
 Loss on modification or early extinguishment of debt. During the three months ended June 30, 2022, we recorded a loss on early extinguishment of debt in connection with our redemption of $500,000 of our 9.75% senior notes due 2025, partially offset by a gain on early extinguishment of debt in connection with our prepayment of a mortgage note. 
 Income tax (expense) benefit . Income tax (expense) benefit is the result of operating income we earned in certain jurisdictions where we are subject to state income taxes. 
 Equity in net earnings of investees. Equity in net earnings of investees is the change in the fair value of our investments in our joint ventures. 
 31 

 
 
 

 Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022 (dollars and square feet in thousands, except average monthly rate): 
 Unless otherwise indicated, references in this section to changes or comparisons of results, income or expenses refer to comparisons of the results for the six months ended June 30, 2023 to the six months ended June 30, 2022. Our definition of NOI and our reconciliation of net income (loss) to NOI and a description of why we believe NOI is an appropriate supplemental measure are included below under the heading “Non-GAAP Financial Measures.” 
 
 Six Months Ended June 30, 
 2023 2022 $ Change % Change 
 NOI by segment: 
 Office Portfolio $ 62,937 $ 62,134 $ 803 1.3 % 
 SHOP 40,150 6,619 33,531 506.6 % 
 Non-Segment 16,854 20,200 (3,346) (16.6) % 
 Total NOI 119,941 88,953 30,988 34.8 % 
 
 Depreciation and amortization 133,194 115,520 17,674 15.3 % 
 General and administrative 13,157 14,492 (1,335) (9.2) % 
 Acquisition and certain other transaction related costs 6,136 1,537 4,599 299.2 % 
 Impairment of assets 17,224 — 17,224 nm 
 Gain on sale of properties 1,233 327,108 (325,875) (99.6) % 
 Gains and losses on equity securities, net 8,126 (18,710) 26,836 (143.4) % 
 Interest and other income 9,329 2,661 6,668 250.6 % 
 Interest expense 
 (95,164) (113,106) 17,942 (15.9) % 
 
 Loss on modification or early extinguishment of debt (1,075) (30,043) 28,968 (96.4) % 
 (Loss) income before income tax expense and equity in net earnings of investees (127,321) 125,314 (252,635) nm 
 Income tax expense (190) (832) 642 (77.2) % 
 Equity in net earnings of investees 2,282 6,558 (4,276) (65.2) % 
 
 
 Net (loss) income $ (125,229) $ 131,040 $ (256,269) nm 

 nm - not meaningful 
 Office Portfolio : 
 
 Comparable Properties (1) 
 All Properties 
 As of June 30, As of June 30, 
 2023 2022 2023 2022 
 Total buildings 91 91 105 104 
 Total square feet 7,677 7,689 8,797 8,723 
 Occupancy 93.0 % 93.1 % 85.8 % 88.1 % 

 (1) Consists of medical office and life science properties that we have owned and which have been in service continuously since January 1, 2022; excludes properties classified as held for sale or out of service undergoing redevelopment, if any, and medical office and life science properties owned by unconsolidated joint ventures in each of which we own an equity interest. 
 
 Six Months Ended June 30, 
 Comparable (1) 
 Non-Comparable 
 Properties Results Properties Results Consolidated Properties Results 
 $ % $ % 
 2023 2022 Change Change 2023 2022 2023 2022 Change Change 
 Rental income $ 98,858 $ 95,781 $ 3,077 3.2 % $ 11,532 $ 11,826 $ 110,390 $ 107,607 $ 2,783 2.6 % 
 Property operating expenses (39,695) (38,367) 1,328 3.5 % (7,758) (7,106) (47,453) (45,473) 1,980 4.4 % 
 NOI $ 59,163 $ 57,414 $ 1,749 3.0 % $ 3,774 $ 4,720 $ 62,937 $ 62,134 $ 803 1.3 % 

 (1) Consists of medical office and life science properties that we have owned and which have been in service continuously since January 1, 2022; excludes properties classified as held for sale or out of service undergoing redevelopment, if any, and medical office and life science properties owned by unconsolidated joint ventures in each of which we own an equity interest. 
 32 

 
 

 Rental income. Rental income increased primarily due to our acquisition of one property since January 1, 2022 and an increase in rental income at our comparable properties and at certain of our recently redeveloped properties, partially offset by the deconsolidation of 10 medical office and life science properties currently owned by an unconsolidated joint venture in which we own an equity interest, a tenant default at one of our properties resulting in a write off of the corresponding unamortized straight line rent receivable and certain of our properties being taken out of service and/or currently undergoing redevelopment. Rental income increased at our comparable properties primarily due to higher average rents resulting from our new and renewal leasing activity, increases in property operating expense reimbursements at certain of our comparable properties and increased parking revenue at certain of our comparable properties. 
 Property operating expenses. The increase in property operating expenses is primarily due to an increase in property operating expenses at our comparable properties, at certain of our recently redeveloped properties and our acquisition of one property since January 1, 2022, partially offset by the deconsolidation of 10 medical office and life science properties currently owned by an unconsolidated joint venture in which we own an equity interest. Property operating expenses at our comparable properties increased primarily due to increases in insurance expense, real estate taxes and other direct costs at certain of our comparable properties, partially offset by decreases in landscaping expenses. 
 Net operating income. The change in NOI reflects the net changes in rental income and property operating expenses described above. 
 SHOP : 
 
 Comparable Properties (1) 
 All Properties 
 As of and For the Six Months Ended June 30, As of and For the Six Months Ended June 30, 
 2023 2022 2023 2022 
 Total properties 225 225 234 234 
 Number of units 24,612 24,612 25,322 25,075 
 Occupancy 77.6 % 73.3 % 77.4 % 73.3 % 
 Average monthly rate (2) 
 $ 4,822 $ 4,505 $ 4,823 $ 4,476 

 (1) Consists of senior living communities that we have owned and which have been in service, reported in the same segment and operated by the same operator continuously since January 1, 2022; excludes communities classified as held for sale, closed or out of service, if any. 
 (2) Average monthly rate is calculated by taking the average daily rate, which is defined as total residents fees and services divided by occupied units during the period, and multiplying it by 30 days. 
 
 Six Months Ended June 30, 
 Comparable (1) 
 Non-Comparable 
 Properties Results Properties Results Consolidated Properties Results 
 $ % $ % 
 2023 2022 Change Change 2023 2022 2023 2022 Change Change 
 Residents fees and services $ 555,165 $ 490,697 $ 64,468 13.1 % $ 9,273 $ 5,257 $ 564,438 $ 495,954 $ 68,484 13.8 % 
 Property operating expenses (514,705) (481,194) 33,511 7.0 % (9,583) (8,141) (524,288) (489,335) 34,953 7.1 % 
 NOI $ 40,460 $ 9,503 $ 30,957 325.8 % $ (310) $ (2,884) $ 40,150 $ 6,619 $ 33,531 506.6 % 

 (1) Consists of senior living communities that we have owned and which have been in service, reported in the same segment and operated by the same operator continuously since January 1, 2022; excludes communities classified as held for sale, closed or out of service, if any. 
 Residents fees and services. Residents fees and services increased primarily due to increases in occupancy and average monthly rate at our comparable properties and the transfer of three previously leased properties to our SHOP segment as described below, partially offset by our community that was taken out of service due to damage sustained by Hurricane Ian. 
 Property operating expenses. Property operating expenses increased primarily due to increases in labor costs, increased sales and marketing costs to improve occupancy and the transfer of three previously leased properties to our SHOP segment as described below, partially offset by our community that was taken out of service due to damage sustained by Hurricane Ian. 
 Net operating income. The change in NOI reflects the net changes in residents fees and services and property operating expenses described above. 
 33 

 
 

 Non-Segment (1) : 
 
 Comparable Properties (2) 
 All Properties 
 As of and For the Six Months Ended June 30, As of and For the Six Months Ended June 30, 
 2023 2022 2023 2022 
 Total properties: 
 Triple net leased senior living communities 26 26 27 30 
 Wellness centers 10 10 10 10 
 
 
 

 (1) Non-segment operations consists of all of our other operations, including certain senior living communities and wellness centers that are leased to third party operators, which segment we do not consider to be sufficiently material to constitute a separate reporting segment, and any other income or expenses that are not attributable to a specific reporting segment. 
 (2) Comparable properties consists of properties that we have owned and which have been reported in the same segment and leased to the same operator continuously since January 1, 2022; excludes properties classified as held for sale, if any. 
 
 Six Months Ended June 30, 
 Comparable (1) 
 Non-Comparable 
 Properties Results Properties Results Consolidated Properties Results 
 $ % $ % 
 2023 2022 Change Change 2023 2022 2023 2022 Change Change 
 Rental income $ 17,421 $ 17,938 $ (517) (2.9) % $ — $ 2,262 $ 17,421 $ 20,200 $ (2,779) (13.8) % 
 Property operating expenses (567) — 567 nm — — (567) — 567 nm 
 NOI $ 16,854 $ 17,938 $ (1,084) (6.0) % $ — $ 2,262 $ 16,854 $ 20,200 $ (3,346) (16.6) % 

 nm - not meaningful 
 (1) Consists of properties that we have owned and which have been reported in the same segment and leased to the same operator continuously since January 1, 2022; excludes properties classified as held for sale, if any. 
 Rental income. Rental income decreased primarily due to the termination of the lease agreements for three of our senior living communities which were replaced with management agreements under our TRS structure and a decrease in rental income at our comparable properties. The decrease in comparable properties rental income was primarily due to cash rents received during the six months ended June 30, 2022 from a tenant previously in default under leases for six of our wellness centers. In January 2023, we agreed to amend the lease for three of these wellness centers and repossess the remaining three wellness centers. In February 2023, we entered into a 15 year lease, which commenced in June 2023, with a private operator for one of these repossessed wellness centers. In March 2023, we entered into two separate 20 year leases, which are expected to commence in 2024, with an operator for the remaining two repossessed wellness centers. 
 Property operating expenses. Property operating expenses consist of real estate taxes and other expenses we paid on behalf of a tenant previously in default under leases for six of our wellness centers. Pursuant to an agreement with this tenant in January 2023, we expect to continue to incur real estate taxes and other direct costs for three of these wellness centers. We will also continue to pay real estate taxes and other direct costs for the three wellness centers leased in February and March 2023, until the expenses become the tenants' responsibility pursuant to the leases. 
 Net operating income. The change in NOI reflects the net changes in rental income and property operating expenses described above. 
 Consolidated : 
 Depreciation and amortization expense. Depreciation and amortization expense increased primarily due to the purchase of capital improvements at certain of our properties and our acquisition of one property since January 1, 2022. Increases in depreciation and amortization expenses were partially offset by the deconsolidation of 10 medical office and life science properties owned by an unconsolidated joint venture in which we own an equity interest and certain depreciable assets becoming fully depreciated since January 1, 2022. 
 General and administrative expense . General and administrative expense decreased primarily due to a decrease in our base business management fees expense as a result of lower consolidated indebtedness and lower trading prices for our common shares during the six months ended June 30, 2023 compared to the six months ended June 30, 2022, partially offset by an increase in legal fees. 
 34 

 
 

 Acquisition and certain other transaction related costs. For the six months ended June 30, 2023, acquisition and certain other transaction related costs primarily represent costs incurred in connection with the Merger. For the six months ended June 30, 2023 and 2022, acquisition and certain other transaction related costs also include costs related to the transition of certain senior living communities to other third party managers. 
 Impairment of assets. For information about our asset impairment charges, see Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. 
 Gain on sale of properties. Gain on sale of properties is the net result of our sales of certain of our properties and joint venture equity interests during the six months ended June 30, 2023 and 2022. For further information regarding gain on sale of properties, see Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and Note 3 to our consolidated financial statements included in Part IV, Item 15 of our Annual Report. 
 Gains and losses on equity securities, net. Gains and losses on equity securities, net, represent the net realized and unrealized gains and losses to adjust our former investment in AlerisLife to its fair value. For further information regarding our former investment in AlerisLife, see Notes 5 and 10 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. 
 Interest and other income. The increase in interest and other income is primarily due to higher interest earned during the six months ended June 30, 2023 as a result of higher interest rates compared to the six months ended June 30, 2022. The increase in interest and other income is also due to $1,466 of funds we received from certain programs under the CARES Act, ARPA and various state programs during the six months ended June 30, 2023 compared to $959 received during the six months ended June 30, 2022. 
 Interest expense. Interest expense decreased primarily due to our redemption in June 2022 of $500,000 of our 9.75% senior notes due 2025 and a decrease in average borrowings under our credit facility. This decrease was partially offset by an increase in interest rates under our credit facility. 
 Loss on modification or early extinguishment of debt. During the six months ended June 30, 2023, we recorded a loss on modification or early extinguishment of debt in connection with the amendment to our credit agreement. During the six months ended June 30, 2022, we recorded a loss on modification or early extinguishment of debt in connection with the amendment to our credit agreement and our redemption of $500,000 of our 9.75% senior notes due 2025, partially offset by a gain on early extinguishment of debt in connection with our prepayment of a mortgage note. 
 Income tax expense . Income tax expense is the result of operating income we earned in certain jurisdictions where we are subject to state income taxes. 
 Equity in net earnings of investees. Equity in net earnings of investees is the change in the fair value of our investments in our joint ventures. 
 35 

 
 
 

 Non-GAAP Financial Measures (dollars in thousands, except per share amounts) 
 We present certain "non-GAAP financial measures" within the meaning of applicable rules of the SEC, including funds from operations, or FFO, normalized funds from operations, or Normalized FFO, and NOI for the three and six months ended June 30, 2023 and 2022. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with net income (loss) as presented in our condensed consolidated statements of comprehensive income (loss). We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss). We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization, they may facilitate a comparison of our operating performance between periods and with other REITs and, in the case of NOI, reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of our properties. 
 Funds From Operations and Normalized Funds From Operations 
 We calculate FFO and Normalized FFO as shown below. FFO is calculated on the basis defined by the National Association of Real Estate Investment Trusts, which is net income (loss), calculated in accordance with GAAP, excluding any gain or loss on sale of properties, equity in net earnings or losses of unconsolidated joint ventures, loss on impairment of real estate assets, gains or losses on equity securities, net, if any, and including adjustments to reflect our proportionate share of FFO of our former equity method investment in AlerisLife for the periods we had an equity investment in AlerisLife that we accounted for as an equity method investment and our proportionate share of FFO from our unconsolidated joint ventures, plus real estate depreciation and amortization of consolidated properties, as well as certain other adjustments currently not applicable to us. In calculating Normalized FFO, we adjust for the items shown below including similar adjustments for our unconsolidated joint ventures, if any. FFO and Normalized FFO are among the factors considered by our Board when determining the amount of distributions to our shareholders. Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in the agreements governing our debt, the availability to us of debt and equity capital, our expectation of our future capital requirements and operating performance, and our expected needs for and availability of cash to pay our obligations. O ther real estate companies and REITs may calculate FFO and Normalized FFO differently than we do. 
 Our calculations of FFO and Normalized FFO for the three and six months ended June 30, 2023 and 2022 and reconciliations of net income (loss), the most directly comparable financial measure under GAAP reported in our condensed consolidated financial statements, to FFO and Normalized FFO appear in the following table. This table also provides a comparison of distributions to shareholders, FFO and Normalized FFO and net income (loss) per share for these periods. 
 36 

 
 

 
 Three Months Ended June 30, Six Months Ended June 30, 
 2023 2022 2023 2022 
 Net (loss) income $ (72,571) $ (109,383) $ (125,229) $ 131,040 
 Depreciation and amortization 68,394 58,261 133,194 115,520 
 Loss (gain) on sale of properties — 686 (1,233) (327,108) 
 Impairment of assets 11,299 — 17,224 — 
 Gains and losses on equity securities, net — 10,157 (8,126) 18,710 
 
 Equity in net earnings of unconsolidated joint ventures (2,929) (3,204) (2,282) (6,558) 
 Share of FFO from unconsolidated joint ventures 1,897 3,704 3,896 7,379 
 Adjustments to reflect our share of FFO attributable to an equity method investment — (1,466) (1,586) (3,398) 
 FFO 6,090 (41,245) 15,858 (64,415) 
 
 
 Acquisition and certain other transaction related costs 6,043 609 6,136 1,537 
 
 
 Loss on modification or early extinguishment of debt — 29,560 1,075 30,043 
 Adjustments to reflect our share of Normalized FFO attributable to an equity method investment — 681 1,576 539 
 Normalized FFO $ 12,133 $ (10,395) $ 24,645 $ (32,296) 
 
 Weighted average common shares outstanding (basic and diluted) 238,682 238,197 238,636 238,173 
 
 
 Per common share data (basic and diluted): 
 Net (loss) income $ (0.30) $ (0.46) $ (0.52) $ 0.55 
 FFO $ 0.03 $ (0.17) $ 0.07 $ (0.27) 
 Normalized FFO $ 0.05 $ (0.04) $ 0.10 $ (0.14) 
 Distributions declared $ 0.01 $ 0.01 $ 0.02 $ 0.02 

 Property Net Operating Income (NOI) 
 We calculate NOI as shown below. The calculation of NOI excludes certain components of net income (loss) in order to provide results that are more closely related to our property level results of operations. We define NOI as income from our real estate less our property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions that we record as depreciation and amortization. We use NOI to evaluate individual and company-wide property level performance. Other real estate companies and REITs may calculate NOI differently than we do. 
 37 

 
 

 The calculation of NOI by reportable segment is included above in this Item 2. The following table includes the reconciliation of net income (loss) to NOI for the three and six months ended June 30, 2023 and 2022. 
 
 Three Months Ended June 30, Six Months Ended June 30, 
 2023 2022 2023 2022 
 Reconciliation of Net Income (Loss) to NOI: 
 Net (loss) income $ (72,571) $ (109,383) $ (125,229) $ 131,040 
 
 Equity in net earnings of investees (2,929) (3,204) (2,282) (6,558) 
 Income tax expense (benefit) 221 (640) 190 832 
 (Loss) income before income tax (expense) benefit and equity in net earnings of investees (75,279) (113,227) (127,321) 125,314 
 Loss on modification or early extinguishment of debt — 29,560 1,075 30,043 
 
 Interest expense 47,384 55,975 95,164 113,106 
 Interest and other income (5,134) (2,266) (9,329) (2,661) 
 Gains and losses on equity securities, net — 10,157 (8,126) 18,710 
 Loss (gain) on sale of properties — 686 (1,233) (327,108) 
 Impairment of assets 11,299 — 17,224 — 
 Acquisition and certain other transaction related costs 6,043 609 6,136 1,537 
 General and administrative 7,284 7,207 13,157 14,492 
 Depreciation and amortization 68,394 58,261 133,194 115,520 
 Total NOI $ 59,991 $ 46,962 $ 119,941 $ 88,953 
 
 Office Portfolio NOI $ 29,430 $ 30,584 $ 62,937 $ 62,134 
 SHOP NOI 22,887 6,466 40,150 6,619 
 Non-Segment NOI 7,674 9,912 16,854 20,200 
 Total NOI $ 59,991 $ 46,962 $ 119,941 $ 88,953 

 
 
 
 LIQUIDITY AND CAPITAL RESOURCES 
 Under the Merger Agreement, we have agreed to conduct our business in all material respects in the ordinary course of business consistent with past practice. The Merger Agreement contains certain operating covenants that could affect our liquidity and capital resources, but we do not expect any material changes to our liquidity and capital resources prior to the consummation of the Merger, or if applicable, the termination of the Merger Agreement. 
 Our principal sources of cash to meet operating and capital expenses, pay debt service obligations and make distributions to our shareholders are the operating cash flows we generate as rental income from our leased properties, residents fees and services revenues from our managed communities and proceeds from the disposition of certain properties. Our future cash flows from operating activities will depend primarily upon: 
 • our ability to receive rents from our tenants; 
 • our ability to maintain or increase the occupancy of, and the rates at, our properties; 
 • our and our managers' abilities to control operating expenses and capital expenses at our properties, including increased operating expenses that we may incur in response to limited labor availability and wage and commodity price inflation; and 
 • our managers' abilities to maintain or increase our returns from our managed senior living communities. 
 The senior living industry has been adversely affected by the continuing impact of the COVID-19 pandemic as well as the current economic and market conditions. These conditions continue to have a significant negative impact on our results of 
 38 

 Table of Contents 

 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, the recovery of our 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 segment, we continue to work with our senior living operators to manage costs, especially labor costs, and to increase rates and occupancy. In order to increase the probability of a recovery of our cash flows, we have continued to invest capital in our SHOP segment, which has reduced our cash balances since the filing of our Annual Report on March 1, 2023. Our ratio of consolidated income available for debt service to debt service was below the 1.5x incurrence requirement under our credit agreement and our public debt covenants as of June 30, 2023, and we cannot be certain how long this ratio will remain below 1.5x. We are unable to refinance existing or maturing debt or issue new debt until this ratio is at or above 1.5x on a pro forma basis. As of June 30, 2023, we had $338.4 million of cash and cash equivalents and $700.0 million of outstanding debt due within one year from the date of issuance of the financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, August 1, 2023. This included $450.0 million in outstanding borrowings under our credit facility, which matures on January 15, 2024. Our credit facility is secured by 61 properties which had an appraised value of approximately $1.0 billion based on appraisals completed in July 2023. In addition to our credit facility maturity in January of 2024, we also have $250.0 million of senior notes that mature on May 1, 2024. 
 Based on the challenges described above, as well as our reduced cash balances, additional capital commitments in both our Office Portfolio and SHOP segments and upcoming debt maturities, we have concluded that there is substantial doubt about our ability to continue as a going concern for at least one year from the date of issuance of the financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, August 1, 2023. As described below, we have entered into an agreement to merge with and into OPI. The combined company is expected to be in compliance with its financial covenants following the closing of the Merger, which is expected to provide the combined company with increased access to debt capital. While we believe this transaction will alleviate the substantial doubt about our ability to continue as a going concern, we cannot provide assurance that the Merger will close on the contemplated terms or timeline or at all. If the Merger does not close, we will seek to raise additional capital, but we are limited in the type of financings we can pursue as we cannot 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 the financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, 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 included in Part I, Item 1 of this Quarterly Report on Form 10-Q do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. 
 In March 2021, we borrowed $800.0 million under our credit facility as a precautionary measure to increase our cash position and preserve financial flexibility in light of uncertainties related to the COVID-19 pandemic. In February 2022, we repaid $100.0 million in outstanding borrowings under our credit facility and the facility commitments were reduced to $700.0 million. In February 2022, we exercised our option to extend the maturity date of our credit facility by one year to January 2024, and in January 2023, pursuant to the terms of the credit agreement, we repaid $113.6 million in outstanding borrowings under our credit facility and the facility commitments were reduced to $586.4 million. In February 2023, pursuant to an amendment to our credit agreement, we repaid $136.4 million in outstanding borrowings under our credit facility and the facility commitments were further reduced to $450.0 million. We have no additional options to extend the maturity date of our credit facility and, pursuant to the February 2023 amendment to our credit agreement, the feature of our credit facility permitting us to reborrow any repaid funds was eliminated. Although we have taken steps to enhance our ability to maintain sufficient liquidity, a protracted negative impact on the economy or the industries in which our properties and businesses operate resulting from wage and 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 further increased pressure on our ability to satisfy financial and other covenants. We may fail to satisfy covenants and conditions under our credit agreement or fail to satisfy our public debt covenants. If we believe we will not be able to satisfy our financial or other covenants, we expect that we would seek waivers or amendments prior to any covenant violation or seek other financing alternatives. As of June 30, 2023, our ratio of consolidated income available for debt service to debt service was below the 1.5x incurrence requirement under our credit facility and our public debt covenants as the effects of the current market conditions continued to adversely impact our operations. We are unable to refinance existing or maturing debt or issue new debt until this ratio is at or above 1.5x on a pro forma basis. 
 39 

 Table of Contents 

 In January 2022, we entered into a joint venture with two unrelated third party institutional investors for 10 medical office and life science properties we owned for aggregate proceeds, before closing costs and other adjustments, of $653.3 million. The equity interests that the investors acquired from us equaled 41% and 39%, respectively, of the total equity interests in the joint venture and we retained a 20% equity interest in the joint venture. Following the sale, we account for this joint venture using the equity method of accounting under the fair value option. The initial investment amounts were based upon a property valuation of approximately $702.5 million, less approximately $456.6 million of secured debt on the properties incurred by this joint venture. 
 In June 2022, we sold an additional 10% equity interest in the Seaport JV to an existing joint venture investor for aggregate proceeds, before closing costs and other adjustments, of $108.0 million. After giving effect to this sale, we continue to own a 10% equity interest in this joint venture. Our initial investment amount was based on a property valuation of $1.7 billion, less $620.0 million of existing mortgage debts on the property that this joint venture assumed. 
 In February 2023, we sold three former senior living communities for an aggregate sales price of $2.8 million, excluding closing costs. As of July 27, 2023, we had four properties under agreements to sell for an aggregate sales price of approximately $23.4 million, excluding closing costs. We may not complete the sales of any or all of the properties we currently plan to sell. Also, we may 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. 
 The following is a summary of our sources and uses of cash flows for the periods presented, as reflected in our condensed consolidated statements of cash flows (dollars in thousands): 
 
 Six Months Ended June 30, 
 2023 2022 
 Cash and cash equivalents and restricted cash at beginning of period $ 688,302 $ 1,016,945 
 Net cash provided by (used in): 
 Operating activities 31,723 (31,856) 
 Investing activities (90,380) 527,714 
 Financing activities (272,562) (644,401) 
 Cash and cash equivalents and restricted cash at end of period $ 357,083 $ 868,402 

 Our Operating Liquidity and Resources 
 We generally receive minimum rents from tenants at our Office Portfolio properties, triple net leased senior living communities and wellness centers monthly or quarterly, we receive residents fees and services revenues, net of expenses, from our managed senior living communities monthly and we receive percentage rents from tenants at certain of our senior living communities monthly, quarterly or annually. 
 The change in cash provided by (used in) operating activities for the six months ended June 30, 2023 compared to the prior period was primarily due to increased NOI as a result of increased rates and occupancy at the senior living communities in our SHOP segment. Additionally, interest payments decreased in the 2023 period compared to the 2022 period primarily due to our redemption in June 2022 of $500,000 of our 9.75% senior notes due 2025. 
 Although we have seen signs of recovery as it relates to our SHOP segment, the recovery of our SHOP segment has been slower than previously anticipated, and we face and may continue to face issues with limited labor availability and wage inflation along with cost pressures from increased insurance premiums and commodity price inflation and possible reduced demand for senior living communities. 
 Our Investing Liquidity and Resources 
 The change in cash (used in) provided by investing activities for the six months ended June 30, 2023 compared to the prior period was primarily due to proceeds in the 2022 period from our sale of 10 medical office and life science properties to the LSMD JV in which we retained a 20% equity interest, partially offset by the proceeds received from the tender of all of the 10,691,658 AlerisLife common shares we owned at a price of $1.31 per share and a decrease in real estate improvements in the 2023 period compared to the 2022 period. 
 40 

 Table of Contents 

 The following is a summary of capital expenditures, development, redevelopment and other activities for the periods presented (dollars in thousands): 
 
 Three Months Ended June 30, Six Months Ended June 30, 
 2023 2022 2023 2022 
 Office Portfolio segment capital expenditures: 
 Lease related costs (1) 
 $ 9,284 $ 4,633 $ 16,032 $ 11,392 
 Building improvements (2) 
 2,561 3,319 3,417 3,904 
 Wellness centers lease related costs (1) 
 884 — 884 — 
 SHOP segment fixed assets and capital improvements 18,407 25,059 42,051 45,387 
 Recurring capital expenditures $ 31,136 $ 33,011 $ 62,384 $ 60,683 
 
 Development, redevelopment and other activities - Office Portfolio segment (3) 
 $ 4,792 $ 17,593 $ 6,714 $ 34,210 
 Development, redevelopment and other activities - SHOP segment (3) 
 20,405 14,282 36,628 30,396 
 Total development, redevelopment and other activities $ 25,197 $ 31,875 $ 43,342 $ 64,606 

 (1) Lease related costs generally include capital expenditures to improve tenants' space or amounts paid directly to tenants to improve their space and other leasing related costs, such as brokerage commissions and tenant inducements. 
 (2) Building improvements generally include capital expenditures to replace obsolete building components that extend the useful life of existing assets or other improvements to increase the marketability of the property. 
 (3) Development, redevelopment and other activities generally include capital expenditures that reposition a property or result in new sources of revenue. 
 We plan to continue investing capital in our properties, including redevelopment projects, to better position these properties in their respective markets in order to increase our returns in future years. In 2023, we expect to incur capital expenditures in excess of 2022 levels, but below the $400.0 million limit under our credit agreement. However, we may be required to decrease our capital expenditures to preserve liquidity if the completion of the Merger is delayed or does not occur or for other reasons. 
 As of June 30, 2023, we had estimated unspent leasing related obligations at our triple net leased wellness centers and our medical office and life science properties of approximately $66.2 million, of which we expect to spend approximately $53.2 million during the next 12 months. We expect to fund these obligations using operating cash flows we generate as rental income from our leased properties, residents fees and services revenues from our managed communities, cash on hand, proceeds from the disposition of certain properties and proceeds related to contributions we may make of properties we own to joint ventures. 
 We are currently in the process of redeveloping several properties in our Office Portfolio and throughout our managed senior living communities that are expected to be completed at various times between 2023 and 2025. We continue to assess opportunities to redevelop other properties in our portfolio. These redevelopment projects may require significant capital expenditures and time to complete. 
 As noted above, our ability to make capital investments is currently limited. Additionally, due to labor availability constraints and wage and commodity price inflation, the capital investments we plan to make may be delayed or cost more than we expect. For further information regarding our dispositions, see Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. 
 Our Financing Liquidity and Resources 
 The decrease in cash used in financing activities for the six months ended June 30, 2023 compared to the prior period was primarily due to our redemption in June 2022 of $500,000 of our 9.75% senior notes due 2025, partially offset by higher repayments of borrowings under our credit facility in the 2023 period compared to the 2022 period. 
 As of June 30, 2023, we had $338.4 million of cash and cash equivalents and were fully drawn under our credit facility. We typically use cash balances, net proceeds from offerings of securities or dispositions of assets and cash flows from our operations to fund our operations, debt repayments, distributions, acquisitions, investments, capital expenditures and other general business purposes. 
 In order to fund investments and to meet cash needs that may result from timing differences between our receipt of rents and our desire or need to make distributions or pay operating or capital expenses, we maintain a credit facility. The maturity 
 41 

 Table of Contents 

 date of our credit facility is January 15, 2024. At 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 $0.3 million per quarter. On March 31, 2021, we borrowed $800.0 million under our credit facility as a precautionary measure to increase our cash position and preserve financial flexibility in light of uncertainties related to the COVID-19 pandemic. In February 2022, we repaid $100.0 million in outstanding borrowings under our credit facility and the facility commitments were reduced to $700.0 million. Also in February 2022, we exercised our option to extend the maturity date of our credit facility by one year to January 2024, and in January 2023, pursuant to the terms of our credit agreement, we repaid $113.6 million in outstanding borrowings under our credit facility and the facility commitments were reduced to $586.4 million. In February 2023, pursuant to an amendment to our credit agreement, we repaid $136.4 million in outstanding borrowings under our credit facility and the facility commitments were further reduced to $450.0 million. We have no additional options to extend the maturity date of our credit facility. As of June 30, 2023 and July 27, 2023, we were fully drawn under our credit facility. 
 In February 2022, we and our lenders amended our credit agreement. Pursuant to the amendment: 
 • the waiver of the fixed charge coverage ratio covenant included in our credit agreement was extended through December 31, 2022; 
 • the facility commitments were reduced from $800.0 million to $700.0 million; 
 • we have the ability to fund $400.0 million of capital expenditures per year and we are restricted in our ability to acquire real property as defined in our credit agreement; 
 • the interest premium under our credit facility increased by 15 basis points; and 
 • certain financial covenants and restrictions on distributions to common shareholders, share repurchases, capital expenditures, acquiring additional properties and incurring additional indebtedness (in each case subject to various exceptions), and the minimum liquidity requirement of $200.0 million remained in place through December 31, 2022. 
 In February 2023, we and our lenders further amended our credit agreement. Pursuant to the amendment: 
 • the waiver of the fixed charge coverage ratio covenant has been extended through the maturity date of our credit facility, or January 15, 2024; 
 • the minimum liquidity requirement was decreased from $200.0 million to $100.0 million; 
 • the facility commitments were reduced from $586.4 million to $450.0 million following our repayment of $136.4 million in then outstanding borrowings, and as a result of the reduction in commitments, we recorded a loss on modification or early extinguishment of debt of $1.1 million for the six months ended June 30, 2023; 
 • the feature of our credit facility permitting us to reborrow any repaid funds was eliminated; 
 • we continue to have the ability to fund $400.0 million of capital expenditures per year and we are restricted in our ability to acquire real property as defined in the credit agreement; 
 • SOFR was established as the replacement benchmark rate in place of LIBOR to calculate interest payable on amounts outstanding under our credit facility, and the interest premium under our credit facility was increased by 40 basis points; and 
 • 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. 
 Our credit agreement requires us to maintain collateral properties with an aggregate appraised value of at least $1.09 billion, and allows 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 $1.34 billion to $1.05 billion, below the $1.09 billion 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 
 42 

 Table of Contents 

 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 pending Merger with OPI. 
 Generally, when significant amounts are outstanding under our credit facility, or as the maturities of our indebtedness approach, we intend to explore refinancing alternatives. Such alternatives may include selling certain properties and issuing new equity securities. In addition, we may also seek to expand our existing joint venture arrangements or to participate in additional joint ventures or other arrangements that may provide us additional sources of financing. We currently have an effective shelf registration statement that allows us to issue public securities on an expedited basis, but it does not assure that there will be buyers for such securities. Also, we are currently limited in the type of financings we can pursue as we cannot refinance existing or maturing debt or issue new debt due to our non-compliance with our debt incurrence covenants, as discussed elsewhere in this Quarterly Report on Form 10-Q. 
 During the six months ended June 30, 2023, we paid quarterly cash distributions to our shareholders totaling approximately $4.8 million using existing cash balances. On July 13, 2023, we declared a quarterly distribution payable to common shareholders of record on July 24, 2023 in the amount of $0.01 per share, or approximately $2.4 million. We expect to pay this distribution on or about August 17, 2023 using cash on hand. Pursuant to the Merger Agreement, we have agreed not to pay any distribution exceeding an annual rate of $0.04 per common share, and we have agreed to certain limitations with respect to our ability to make any other distribution. For further information regarding the distribution we paid during 2022, see Note 6 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. 
 In the event the Merger is not completed, we believe we may have access to certain types of financings to fund our operations and repay our debts and other obligations as they become due. Our ability to complete, and the costs associated with, future debt or equity transactions depends primarily upon credit market conditions and our then creditworthiness. We have no control over market conditions. Our credit and debt ratings depend upon evaluations by credit rating agencies of our business practices and plans, including our ability to maintain our earnings, to stagger our debt maturities and to balance our use of debt and equity capital so that our financial performance and leverage ratios afford us flexibility to withstand any reasonably anticipated adverse changes. Similarly, our ability to raise equity capital in the future will depend primarily upon equity capital market conditions and our ability to conduct our business to maintain and grow our operating cash flows. We intend to conduct our business activities in a manner which will afford us reasonable access to capital for investment and financing activities, but we cannot be sure that we will be able to successfully carry out that intention. A protracted negative impact on the economy or the industries in which our properties and businesses operate, wage and 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 and recessions, may have various negative consequences including a decline in financing availability and increased costs for financing. Further, those conditions could also disrupt capital markets and limit our access to financing from public sources, particularly if the global financial markets experience significant disruptions. 
 In April 2023, we prepaid a mortgage note secured by one of our senior living communities with an outstanding principal balance of approximately $14.6 million, a maturity date in June 2023 and an annual interest rate of 6.64%, using cash on hand. 
 In February 2023, Standard & Poor's Rating Services, or Standard & Poor's, downgraded our 9.75% senior notes due 2025 rating from BB- to B, our 4.375% senior notes due 2031 rating from BB- to B and our senior unsecured debt rating from B to CCC+. In April 2023, following the announcement of the Merger with OPI, Standard & Poor's placed our corporate credit rating, our 9.75% senior notes due 2025 rating, our 4.375% senior notes due 2031 rating and our senior unsecured debt rating on CreditWatch with a positive outlook and Moody's Investors Service placed our corporate credit rating, our 9.75% senior notes due 2025 rating, our 4.375% senior notes due 2031 rating and our senior unsecured debt rating under review for possible upgrade. 
 Our next significant debt maturity is our credit facility, which matures in January 2024. 
 For further information regarding our outstanding debt, see Note 4 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. 
 Debt Covenants 
 Our principal debt obligations at June 30, 2023 were: (1) $450.0 million of outstanding borrowings under our credit facility; (2) $2.4 billion outstanding principal amount of senior unsecured notes; and (3) $9.9 million aggregate principal amount of mortgage notes (excluding premiums, discounts and net debt issuance costs) secured by one property. For further information regarding our indebtedness, see Note 4 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. 
 43 

 Table of Contents 

 Our senior unsecured notes are governed by our senior unsecured notes indentures and their supplements. Our credit agreement and our senior unsecured notes indentures and their supplements provide for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, as defined, which includes RMR ceasing to act as our business and property manager. Our senior unsecured notes indentures and their supplements and our credit agreement also contain covenants that restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts and require us to maintain various financial ratios, and our credit agreement contains covenants that restrict our ability to make distributions to our shareholders in certain circumstances. As of June 30, 2023, our ratio of consolidated income available for debt service to debt service was below the 1.5x incurrence requirement under our credit agreement and our public debt covenants as the effects of the 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 1.5x on a pro forma basis. As of June 30, 2023, other than the non-monetary event of default and subject to 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, as noted elsewhere in this Quarterly Report on Form 10-Q, a protracted negative impact on the economy or the industries in which our properties and businesses operate resulting from wage and 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. If our operating results and financial condition are significantly negatively impacted by the economic conditions or otherwise, we may fail to satisfy covenants and conditions under our credit agreement or fail to satisfy our public debt covenants. Further, if we believe we will not be able to satisfy our financial or other covenants, we expect that we would seek waivers or amendments prior to any covenant violation or seek other financing alternatives, which may lead to increased costs and interest rates, additional restrictive covenants or other lender protections. We cannot assure that we would be able to obtain these waivers or amendments or repay the related debt facilities when due, which may result in an event of default under the agreements governing our debt or the potential acceleration of our outstanding debt. 
 Neither our senior unsecured notes indentures and their supplements, nor our credit agreement, contain provisions for acceleration which could be triggered by our debt ratings. However, under our credit agreement, our senior unsecured debt ratings are used to determine the fees and interest rates we pay. Accordingly, following our debt ratings downgrades, our interest expense and related costs under our credit agreement has increased. See "—Our Financing Liquidity and Resources" above for information regarding recent downgrades of our issuer credit rating and senior unsecured debt rating. 
 Our senior unsecured notes indentures and their supplements contain cross default provisions to any other debts of more than $20.0 million ($50.0 million or more in the case of our senior unsecured notes indentures and supplements entered in February 2016, February 2018, June 2020 and February 2021). Similarly, our credit agreement has cross default provisions to other indebtedness that is recourse of $25.0 million or more and indebtedness that is non-recourse of $75.0 million or more. 
 The loan agreements governing the aggregate $620.0 million secured debt financing related to the Seaport JV contain customary covenants and provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default. We no longer include this $620.0 million of secured debt financing in our condensed consolidated balance sheet following the deconsolidation of the net assets of this joint venture; however, we continue to provide certain guaranties on this debt. The debt secured by the properties included in the LSMD JV in which we own a 20% equity interest is guaranteed by this joint venture and is non-recourse to us. 
 Supplemental Guarantor Information 
 On May 28, 2020, we issued $1.0 billion of our 9.75% senior notes due 2025. We subsequently redeemed $500.0 million of this debt in June 2022, with $500.0 million remaining outstanding. On February 3, 2021, we issued $500.0 million of our 4.375% senior notes due 2031. As of June 30, 2023, all $500.0 million of our 9.75% senior notes due 2025 and all $500.0 million of our 4.375% senior notes due 2031 were fully and unconditionally guaranteed, on a joint and several basis and on a senior unsecured basis, by all of our subsidiaries, except for certain excluded subsidiaries, including pledged subsidiaries under our credit agreement. The notes and the guarantees are effectively subordinated to all of our and the subsidiary guarantors' secured indebtedness, respectively, to the extent of the value of the collateral securing such secured indebtedness, and are structurally subordinated to all indebtedness and other liabilities and any preferred equity of any of our subsidiaries that do not guarantee the notes. Our remaining $1.35 billion of senior unsecured notes do not have the benefit of any guarantees as of June 30, 2023. 
 44 

 Table of Contents 

 A subsidiary guarantor's guarantee of our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031, as applicable, and all other obligations of such subsidiary guarantor under the indenture governing the notes will automatically terminate and such subsidiary guarantor will automatically be released from all of its obligations under such subsidiary guarantee and the indenture under certain circumstances, including on or after the date (a) the notes have an investment grade rating from two rating agencies and one of such investment grade ratings is a mid-BBB investment grade rating and (b) no default or event of default has occurred and is continuing under the indenture. Our non-guarantor subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due on our 9.75% senior notes due 2025 or our 4.375% senior notes due 2031 or the respective guarantees, or to make any funds available therefor, whether by dividend, distribution, loan or other payments. The rights of holders of our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031, as applicable, to benefit from any of the assets of our non-guarantor subsidiaries are subject to the prior satisfaction of claims of those subsidiaries' creditors and any preferred equity holders. As a result, our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031 and the respective guarantees are structurally subordinated to all indebtedness, guarantees and other liabilities of our subsidiaries that do not guarantee our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031, including guarantees of other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity. 
 The following tables present summarized financial information for guarantor entities and issuer, on a combined basis after eliminating (i) intercompany transactions and balances among the guarantor entities and (ii) equity in earnings from, and any investments in, any subsidiary that is a non-guarantor (dollars in thousands): 
 
 
 June 30, 2023 December 31, 2022 
 Real estate properties, net $ 4,023,890 $ 4,049,324 
 Other assets, net 679,627 1,053,050 
 Total assets $ 4,703,517 $ 5,102,374 
 
 Indebtedness, net $ 2,774,632 $ 3,037,879 
 Other liabilities 273,856 299,291 
 Total liabilities $ 3,048,488 $ 3,337,170 

 
 Six Months Ended June 30, 2023 
 
 Revenues $ 626,582 
 Expenses 696,832 
 Loss from continuing operations (147,850) 
 Net loss (145,758) 
 

 Related Person Transactions 
 We have relationships and historical and continuing transactions with RMR, RMR Inc., AlerisLife (including Five Star) and others related to them. For further information about these and other such relationships and related person transactions, see Notes 8, 9 and 10 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our Annual Report, our definitive Proxy Statement for our 2023 Annual Meeting of Shareholders and our other filings with the SEC. In addition, see the section captioned “Risk Factors” of our Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships. We may engage in additional transactions with related persons, including businesses to which RMR or its subsidiaries provide management services. 
 Critical Accounting Estimates 
 The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in our condensed consolidated financial statements include purchase price allocations, useful lives of fixed assets and impairments of real estate and intangible assets. 
 45 

 Table of Contents 

 A discussion of our critical accounting estimates is included in our Annual Report. There have been no significant changes in our critical accounting estimates since the year ended December 31, 2022. 
 Impact of Government Reimbursement 
 For the six months ended June 30, 2023, substantially all of our NOI was generated from properties where a majority of the revenues are derived from our tenants' and residents' private resources, and a small amount of our NOI was generated from properties where a majority of the revenues are derived from Medicare and Medicaid payments. Nonetheless, we own, and our tenants, managers and operators operate, facilities in many states that participate in federal and state healthcare payment programs, including the federal Medicare and state Medicaid programs and other federal and state healthcare payment programs. Also, some of our medical office and life science property tenants participate in federal Medicare and state Medicaid programs and other government healthcare payment programs. 
 During the six months ended June 30, 2023 and 2022, we recognized $1.5 million and $1.0 million, respectively, in interest and other income in our condensed consolidated statements of comprehensive income (loss) related to funds received under the CARES Act, ARPA and various state programs in which certain of our communities in our SHOP segment are located. 
 For more information regarding the government healthcare funding and regulation of our business, please see the section captioned “Business—Government Regulation and Reimbursement” in our Annual Report and the section captioned “Management's Discussion and Analysis of Financial Condition and Results of Operations—Impact of Government Reimbursement” in our Annual Report.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.
DIVERSIFIED HEALTHCARE TRUST 10-Q

Item 2. Management’s Discussion and Analysis
