What changed in this filing

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Item 1. Financial Statements

2023-11-01 compared with 2023-08-01 · 190 added, 171 removed, 525 unchanged (41% of the section changed)

3 unchanged sentences

(dollars in thousands, except share data)

June 30, December 31,

September 30, December 31,

Real estate properties:

12 unchanged sentences

Liabilities and Shareholders' Equity

Credit facility $ 450,000 $ 700,000

Secured credit facility $ 450,000 $ 700,000

Senior unsecured notes, net 2,321,320 2,317,700

17 unchanged sentences

(amounts in thousands, except per share data)

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

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

2023 2022 2023 2022

14 unchanged sentences

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

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

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

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

(Loss) income before income tax expense and equity in net (losses) earnings of investees ( 65,445 ) ( 83,606 ) ( 192,766 ) 41,708

Income tax expense ( 189 ) ( 13 ) ( 379 ) ( 845 )

Equity in net (losses) earnings of investees ( 145 ) 2,127 2,137 8,685

Net (loss) income $ ( 65,779 ) $ ( 81,492 ) $ ( 191,008 ) $ 49,548

26 unchanged sentences

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

Net loss — — — ( 65,779 ) — ( 65,779 )

Distributions — — — — ( 2,398 ) ( 2,398 )

Share grants 820,000 8 662 — — 670

Share repurchases ( 151,405 ) ( 1 ) ( 352 ) — — ( 353 )

Share forfeitures ( 3,400 ) — ( 3 ) — — ( 3 )

Balance at September 30, 2023:

240,457,549 $ 2,405 $ 4,618,138 $ 1,880,842 $ ( 4,059,859 ) $ 2,441,526

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

DIVERSIFIED HEALTHCARE TRUST

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)

(dollars in thousands)

Shares Common

Shares Additional

Capital Cumulative

Net Income Cumulative Distributions Total Equity

Balance at December 31, 2021:

13 unchanged sentences

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

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

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

Share grants 707,000 7 470 — — 477

Share repurchases ( 122,403 ) ( 1 ) ( 159 ) — — ( 160 )

Share forfeitures ( 3,600 ) — ( 4 ) — — ( 4 )

Balance at September 30, 2022:

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

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

2 unchanged sentences

(dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

19 unchanged sentences

Cash flows from investing activities:

Real estate acquisitions — ( 75,105 )

Real estate improvements ( 168,400 ) ( 189,118 )

21 unchanged sentences

(dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental cash flow information:

2 unchanged sentences

Non-cash investing activities:

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

Real estate, net $ — $ ( 355,669 )

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

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

Other assets, net $ — $ 108,956

Decrease in real estate, net resulting from the deconsolidation of investments that were previously consolidated $ — $ ( 355,669 )

Real estate improvements accrued, not paid $ 29,560 $ 24,218

Capitalized interest $ 17 $ —

Supplemental disclosure of cash and cash equivalents and restricted cash:

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

As of June 30,

As of September 30,

Cash and cash equivalents $ 278,122 $ 691,040

Restricted cash (1)

18,652 163,242

Total cash and cash equivalents and restricted cash shown in our condensed consolidated statements of cash flows $ 279,105 $ 800,805

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

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

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

25 unchanged sentences

Going Concern

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

The senior living industry has been adversely affected by a slow recovery from the COVID-19 pandemic, as well as economic and market conditions.

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

Although there have been signs of recovery and increased demand when compared to the low levels during the COVID-19 pandemic, the recovery of our senior housing operating portfolio, or SHOP, segment has been slower than previously anticipated, and we cannot be sure when or if the senior housing business will return to historic pre-pandemic levels.

Although there have been signs of recovery and increased demand when compared to the low levels during the COVID-19 pandemic, the recovery of our senior housing operating portfolio, or SHOP, segment has been slower than previously anticipated and uneven, and we cannot be sure when or if the senior living business will return to historic pre-pandemic levels.

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

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

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

Additionally, while our senior living operators have increased rates, those rates are increasing gradually and are not increasing at the same pace as our costs, putting further pressure on our margins.

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

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

As a result of our decreased cash balances, we have deferred, and may continue to defer, future capital expenditures to preserve liquidity, which may slow the pace of any recovery of our cash flows.

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

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

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

Our credit facility is secured by 61 properties which had an

As of September 30, 2023, we had $ 278,122 of cash and cash equivalents and $ 700,000 of outstanding debt due within one year from the date of issuance of these financial statements, including $ 450,000 in outstanding borrowings under our credit facility, which matures on January 15, 2024, and $ 250,000 of senior notes that mature

DIVERSIFIED HEALTHCARE TRUST

1 unchanged sentence

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

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

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

Based on the challenges described above, as well as our reduced cash balances, additional capital commitments in both our Office Portfolio and SHOP segments and upcoming debt maturities, we have concluded that there is substantial doubt about our ability to continue as a going concern for at least one year from the date of issuance of these financial statements, August 1, 2023.

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

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

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

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

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

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

on May 1, 2024.

Our credit facility is secured by 62 properties which had an appraised value of approximately $ 1,114,270 based on appraisals completed in 2023.

In September 2023, subsequent to the termination of our proposed merger with Office Properties Income Trust, or OPI, we engaged B.

Riley Securities, Inc., or B.

Riley, as a financial advisor to help us evaluate our options to address our near term capital needs, including the upcoming debt maturities described above.

Among the alternatives being considered to address our near term capital needs are raising permissible new capital, including by selling assets, as well as seeking an extension of the maturity date of our credit facility.

Regarding any new capital that may be raised, we are limited in the type of financings we can pursue as we cannot currently refinance existing or maturing debt or issue new debt, as described above.

We are also engaging in discussions with the lenders under our $ 450,000 credit facility regarding an amendment to our credit agreement to extend the maturity date of the facility, amend certain covenants and allow us to repay maturing debt, among other things.

While we believe that the new capital we expect to raise, including proceeds from our planned asset sales, and the possible extension of the maturity date of our credit facility, will alleviate the substantial doubt about our ability to continue as a going concern, we cannot provide assurance that we will raise new capital or sell assets or that any new capital raised, including proceeds from our planned asset sales, will be sufficient to repay our maturing debt or that our lenders will agree to an extension of the maturity date of our credit facility.

Due to challenging capital market conditions, in particular with respect to commercial real estate, we do not believe that it is probable, as of the date of issuance of these financial statements, that we will raise sufficient new capital, including proceeds from our planned asset sales, to meet our upcoming contractual commitments.

As of November 1, 2023, we cannot demonstrate that our management's plans to alleviate the 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 raise permissible new capital, including proceeds from our planned asset sales, and to extend the maturity date of our credit facility, is subject to market conditions and lender approvals, among other things, which are beyond our control.

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

Pending Merger with Office Properties Income Trust

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

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

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

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” and, following the Effective Time, will change its ticker symbol to "DPT".

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

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

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

Termination of Merger Agreement with Office Properties Income Trust

On April 11, 2023, we and OPI entered into an Agreement and Plan of Merger, or the Merger Agreement, pursuant to which we and OPI agreed that we would merge with and into OPI, with OPI as the surviving entity in the merger, subject to the terms and conditions of the Merger Agreement.

On September 1, 2023, we and OPI mutually agreed to terminate the Merger Agreement and entered into a termination agreement, or the Termination Agreement.

The mutual termination of the Merger Agreement was separately recommended by special committees of our and OPI’s respective board of trustees and approved by our and OPI’s respective board of trustees.

Pursuant to the Termination Agreement, the termination of the Merger Agreement was effective as of September 1, 2023.

Neither we nor OPI are required to pay any termination fee as a result of the mutual decision to terminate the Merger Agreement.

We and OPI will bear our and its respective costs and expenses related to the Merger Agreement and the transactions contemplated thereby in accordance with the terms of the Merger Agreement.

DIVERSIFIED HEALTHCARE TRUST

1 unchanged sentence

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

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

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

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

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

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

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

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

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

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

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

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

Real Estate Investments

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

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

Joint Venture Activities:

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

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

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

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

Number of Properties Location Square Feet

3 unchanged sentences

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

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

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

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

8 unchanged sentences

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

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

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

The interest rate is as of June 30, 2023.

The interest rate is as of September 30, 2023.

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

1 unchanged sentence

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

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

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

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

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

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

3 unchanged sentences

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

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

We deconsolidated the net assets of these properties effective as of the date of the sale and recognized a net gain on sale of $ 322,468 related to this transaction during the nine months ended September 30, 2022, which is included in (loss) gain on sale of properties in our condensed consolidated statements of comprehensive income (loss).

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

2 unchanged sentences

See Note 5 for more information regarding the valuation of our investment in this joint venture.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Acquisitions and Dispositions:

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

We did not acquire any properties during the nine months ended September 30, 2023.

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

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

3 unchanged sentences

(1) Sales price excludes closing costs.

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

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

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

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

Type of Property Number of Properties Real Estate Properties, Net

Life Science and Medical Office 4 $ 21,372

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

Senior Living 2 2,740

In October 2023, two of the four life science and medical office properties, and one of the two senior living communities, which were classified as held for sale in the table above, were sold for an aggregate sales price of $ 10,830 , excluding closing costs.

As of October 27, 2023, we had one property under an agreement to sell for a sales price of approximately $ 1,800 , excluding closing costs.

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

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

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

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.

We regularly evaluate our assets for indicators of impairment.

3 unchanged sentences

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

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

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

During the nine months ended September 30, 2023, we recorded impairment charges of $ 14,763 related to four life science and medical office properties and one senior living community that were classified as held for sale as of September 30, 2023.

We also recorded impairment charges of $ 3,617 to adjust the carrying value of one senior living community to its estimated fair value.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

4 unchanged sentences

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

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

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

We increased rental income to record revenue on a straight line basis by $ 676 and $ 2,738 for the three months ended September 30, 2023 and 2022, respectively, and $ 7,193 for the nine months ended September 30, 2022.

We decreased rental income to record revenue on a straight line basis by $ 1,333 for the nine months ended September 30, 2023.

Rents receivable, excluding receivables related to our properties classified as held for sale, if any, include $ 74,884 and $ 76,363 of straight line rent receivables at September 30, 2023 and December 31, 2022, respectively, and are included in other assets, net in our condensed consolidated balance sheets.

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

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

Such payments totaled $ 12,018 and $ 11,312 for the three months ended September 30, 2023 and 2022, respectively, of which tenant reimbursements totaled $ 11,965 and $ 11,263 , respectively, and $ 36,579 and $ 32,450 for the nine months ended September 30, 2023 and 2022, respectively, of which tenant reimbursements totaled $ 36,414 and $ 32,276 , respectively.

Right of Use Asset and Lease Liability:

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

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

The values of the right of use assets and related liabilities representing our future obligation under the respective lease arrangements for which we are the lessee were $ 24,163 and $ 24,545 , respectively, as of September 30, 2023, and $ 26,508 and $ 26,889 , respectively, as of December 31, 2022.

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

1 unchanged sentence

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

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

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

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

1 unchanged sentence

and (3) $ 9,504 principal amount of a mortgage note secured by one property.

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

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

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

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

The maturity date of our credit facility is January 2024.

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

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

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

This mortgaged property had a net book value of $ 12,962 at September 30, 2023.

We also had two properties subject to finance leases that expire in 2026 with lease obligations totaling $ 4,156 at September 30, 2023;

these two properties had a net book value of $ 23,140 and $ 22,347 at September 30, 2023 and December 31, 2022, respectively.

We have a $ 450,000 credit facility that is used for general business purposes and matures in January 2024.

We are required to pay interest on the amount outstanding under our credit facility at a rate of SOFR plus a premium, which was 290 basis points per annum at September 30, 2023.

As of September 30, 2023, our credit facility required interest to be paid on borrowings at the annual rate of 8.3 %, plus a facility fee of $ 338 per quarter.

The weighted average annual interest rates for borrowings under our credit facility were 8.3 % and 4.8 % for the three months ended September 30, 2023 and 2022, respectively, and 7.8 % and 3.8 % for the nine months ended September 30, 2023 and 2022, respectively.

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

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

As of September 30, 2023, all $ 500,000 of our 9.75 % senior notes due 2025 and all $ 500,000 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 $ 1,350,000 of senior unsecured notes do not have the benefit of any guarantees as of September 30, 2023.

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

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

• the facility commitments were reduced from $ 586,373 to $ 450,000 following our repayment of $ 136,373 in then outstanding borrowings, and as a result of the reduction in commitments, we recorded a loss on modification or early extinguishment of debt of $ 1,075 for the six months ended June 30, 2023;

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

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

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

Pursuant to our credit agreement, we pledged certain equity interests of subsidiaries owning properties to secure our obligations under our credit agreement and have provided first mortgage liens on 62 medical office and life science properties with an aggregate net book value of $ 826,780 as of September 30, 2023 to secure our obligations, which pledges and/or mortgage liens may be removed or new ones may be added based on outstanding debt amounts, among other things.

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

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

On June 23, 2023, the Administrative Agent notified us that the reappraised value of the then 61 medical office and life science properties securing our credit facility since September 2021 had declined from $ 1,337,200 to $ 1,046,770 , below the $ 1,090,909 threshold required under our credit agreement.

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

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

In September 2023, we pledged the equity interests of an additional subsidiary owning one medical office property to secure our obligations under our credit agreement and provided a first mortgage lien on such medical office property.

As of September 30, 2023, we believe we were in compliance with this covenant.

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

DIVERSIFIED HEALTHCARE TRUST

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

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

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

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

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

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

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

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

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

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

As of September 30, 2023, we believe we were in compliance with all of the other covenants under our senior unsecured notes indentures and their supplements, our credit agreement and our other debt obligations, subject to the waivers described above.

Although we continue to take 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 or commodity price inflation, rising or sustained high interest rates, increased insurance costs, geopolitical risks or other economic, market or industry conditions, including the delayed and uneven 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 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.

In addition, we may be unable to repay the $ 450,000 in outstanding borrowings under our credit facility if we do not succeed in realizing our plan to address the uncertainty of our ability to continue as a going concern or if that plan is not successful.

Any such waiver or amendment may result in increased costs and interest rates, additional restrictive covenants or other lender protections imposed on us.

For example, we are currently engaging in discussions with the lenders under our credit facility regarding a possible extension and amendment of that facility, as described above.

Fair Value of Assets and Liabilities

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

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

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

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

Description Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value

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

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

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

During the three months ended September 30, 2022, we recorded an unrealized loss of $ 2,674 , and during the nine months ended September 30, 2023 and 2022, we recorded an unrealized gain of $ 8,126 and an unrealized loss of $ 21,384 , respectively, which are included in gains and losses on equity securities, net in our condensed consolidated statements of comprehensive income (loss), to adjust the carrying value of our former investment in AlerisLife common shares to their fair value.

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

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

DIVERSIFIED HEALTHCARE TRUST

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

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

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

(Level 3 inputs).

The significant unobservable inputs used in the fair value analysis are a discount rate of 6.50 %, an exit capitalization rate of 6.00 %, a holding period of 10 years and market rents.

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

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

During the three months ended September 30, 2023, we recorded impairment charges of $ 427 to reduce the carrying value of one life science property that is classified as held for sale to its estimated sales price, less estimated costs to sell, of $ 5,845 under an agreement to sell that we have entered into with a third party.

During the three months ended September 30, 2023, we also recorded impairment charges of $ 729 to reduce the carrying value of one senior living community that is classified as held for sale to its estimated sales price, less estimated costs to sell, of $ 741 under an agreement to sell that we have entered into with a third party.

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

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

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

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

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

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

Description Carrying Amount (1)

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

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

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

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

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

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

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Common Share Awards:

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

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

On September 13, 2023, we awarded under our equity compensation plan an aggregate of 800,000 of our common shares, valued at $ 2.33 per share, the closing price of our common shares on Nasdaq on that day, to our officers and certain other employees of RMR.

On September 26, 2023, in accordance with our Trustee compensation arrangements, we awarded 20,000 of our common shares in connection with the election of one of our Trustees in September 2023, valued at $ 2.23 per share, the closing price of our common shares on Nasdaq on that day .

Common Share Purchases:

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

During the three and nine months ended September 30, 2023, we purchased an aggregate of 151,405 and 181,893 of our common shares, respectively, valued at a weighted average share price of $ 2.33 and $ 2.12 per common share, respectively, from our officers and certain current and former officers and employees of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

Distributions:

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

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

Declaration Date Record Date Payment Date Distribution Per Share Total Distributions

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

July 13, 2023 July 24, 2023 August 17, 2023 0.01 2,398

$ 0.03 $ 7,192

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

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

On October 12, 2023, we declared a quarterly distribution to common shareholders of record on October 23, 2023 of $ 0.01 per share, or approximately $ 2,405 .

We expect to pay this distribution on or about November 16, 2023.

Segment Reporting

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

For the Three Months Ended June 30, 2023

For the Three Months Ended September 30, 2023

Office Portfolio SHOP Non-Segment Consolidated

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Interest expense ( 119 ) ( 79 ) ( 47,560 ) ( 47,758 )

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

Income (loss) before income tax expense and equity in net losses of investees 8,553 ( 24,591 ) ( 49,407 ) ( 65,445 )

Income tax expense — — ( 189 ) ( 189 )

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

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

Equity in net losses of investees ( 145 ) — — ( 145 )

Net income (loss) $ 8,408 $ ( 24,591 ) $ ( 49,596 ) $ ( 65,779 )

DIVERSIFIED HEALTHCARE TRUST

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

For the Six Months Ended June 30, 2023

For the Nine Months Ended September 30, 2023

Office Portfolio SHOP Non-Segment Consolidated

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

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

As of June 30, 2023

We have recognized $ 1,581 and $ 1,084 with respect to those funds we received as interest and other income in our condensed consolidated statements of comprehensive income (loss) with respect to our SHOP segment for the nine months ended September 30, 2023 and 2022, respectively.

As of September 30, 2023

Office Portfolio SHOP Non-Segment Consolidated

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

For the Three Months Ended June 30, 2022

For the Three Months Ended September 30, 2022

Office Portfolio SHOP Non-Segment Consolidated

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

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

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

Income tax benefit — — 640 640

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

Income tax expense — — ( 13 ) ( 13 )

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

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

For the Six Months Ended June 30, 2022

For the Nine Months Ended September 30, 2022

Office Portfolio SHOP Non-Segment Consolidated

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

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

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

Five Star manages these communities pursuant to a master management agreement that we and Five Star are party to.

AlerisLife guarantees the payment and performance of each of its applicable subsidiary's obligations under the applicable management agreements.

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

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

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

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

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

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

In connection with ABP Trust’s acquisition of AlerisLife, as described in Note 10, we entered into a consent and amendment agreement on February 2, 2023, pursuant to which, among other things, we agreed to amend our master management agreement with Five Star.

See Note 10 for further information regarding ABP Trust's acquisition of AlerisLife, including the related amendment to the master management agreement.

Our Senior Living Communities Managed by Five Star.

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

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

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

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

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

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

We incurred management fees payable to Five Star of $ 10,058 and $ 9,477 for the three months ended September 30, 2023 and 2022, respectively, and $ 29,962 and $ 27,380 for the nine months ended September 30, 2023 and 2022, respectively.

For the three months ended September 30, 2023 and 2022, $ 9,457 and $ 8,601 , respectively, of the total management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 601 and $ 876 , respectively, were capitalized in our condensed consolidated balance sheets.

For the nine months ended September 30, 2023 and 2022, $ 27,909 and $ 25,017 , respectively, of the total management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 2,053 and $ 2,363 , respectively, were capitalized in our condensed consolidated balance sheets.

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

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

We incurred fees of $ 0 and $ 1,590 for the three months ended September 30, 2023 and 2022, respectively, and $ 1,213 and $ 5,242 for the nine months ended September 30, 2023 and 2022, respectively, with respect to rehabilitation services Five Star provided at our senior living communities that are payable by us.

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

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Our Senior Living Communities Managed by Other Third Party Managers.

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

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

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

We incurred management fees payable to these third party managers of $ 5,635 and $ 5,108 for the three months ended September 30, 2023 and 2022, respectively, and $ 16,230 and $ 15,434 for the nine months ended September 30, 2023 and 2022, respectively.

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

DIVERSIFIED HEALTHCARE TRUST

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

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

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

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

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

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

Revenue from contracts with customers:

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

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

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

We recognized net business management fees of $ 3,692 and $ 3,763 for the three months ended September 30, 2023 and 2022, respectively, and $ 10,283 and $ 13,082 for the nine months ended September 30, 2023 and 2022, respectively.

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

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

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

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

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

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

We recognized aggregate net property management and construction supervision fees of $ 2,209 and $ 2,658 for the three months ended September 30, 2023 and 2022, respectively, and $ 6,403 and $ 7,567 for the nine months ended September 30, 2023 and 2022, respectively.

For the three months ended September 30, 2023 and 2022, $ 1,363 and $ 1,521 , respectively, of the total property management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 846 and $ 1,137 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets.

For the nine months ended September 30, 2023 and 2022, $ 4,226 and $ 4,142 , respectively, of the total property management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 2,177 and $ 3,425 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets.

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

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

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

We reimbursed RMR $ 3,671 and $ 3,498 for these expenses and costs for the three months ended September 30, 2023 and 2022, respectively, and $ 10,765 and $ 9,573 for the nine months ended September 30, 2023 and 2022, respectively.

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

In connection with the Merger Agreement, we, OPI and RMR entered into a letter agreement pursuant to which we and RMR acknowledged and agreed that, effective upon consummation of the merger, we shall have terminated our business and property management agreements with RMR for convenience, and RMR shall have waived its right to receive payment of the

DIVERSIFIED HEALTHCARE TRUST

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

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

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

termination fee pursuant to each such agreement upon such termination.

On September 1, 2023, we and OPI mutually agreed to terminate the Merger Agreement.

Since the merger was not consummated, our business and property management agreements with RMR were not terminated and remain in effect.

Management Agreements Between Our Joint Ventures and RMR.

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

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

See Note 6 for information relating to awards of our common shares we made in September 2023 to our officers and certain other employees of RMR and our repurchase of common shares from our officers and certain current and former officers and employees of RMR in satisfaction of tax withholding and payment obligations owed in connection with the vesting of awards of our common shares to them.

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

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

Five Star is an operating division of AlerisLife.

Five Star manages certain of the senior living communities we own pursuant to the Master Management Agreement.

Five Star manages certain of the senior living communities we own.

RMR provides management services to both us and AlerisLife.

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

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

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

Portnoy, or, collectively, the ABP Parties.

Pursuant to the consent agreement, we:

(1) consented to AlerisLife’s granting of certain exceptions to the ownership restrictions set forth in its charter to the ABP Parties in connection with the AlerisLife Transaction, (2) waived any default under our Master Management Agreement arising or resulting from the AlerisLife Transaction, (3) agreed to tender all of the 10,691,658 AlerisLife common shares that we and our subsidiary owned, into the tender offer at the tender offer price, subject to the right, but not the

(1) consented to AlerisLife’s granting of certain exceptions to the ownership restrictions set forth in its charter

DIVERSIFIED HEALTHCARE TRUST

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

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

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

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

Merger Agreement with Office Properties Income Trust.

As described further in Note 1, on April 11, 2023, we and OPI entered into the Merger Agreement, pursuant to which, on the terms and subject to the satisfaction or waiver of the conditions thereof, we will be merged with and into OPI, with OPI continuing as the surviving entity in the Merger.

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

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

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

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

Termination of the Merger Agreement with Office Properties Income Trust.

As described further in Note 1, on September 1, 2023, we and OPI mutually agreed to terminate the Merger Agreement and entered into the Termination Agreement.

Neither we nor OPI are required to pay any termination fee as a result of the mutual decision to terminate the Merger Agreement.

We and OPI will bear our and its respective costs and expenses related to the Merger Agreement and the transactions contemplated thereby in accordance with the terms of the Merger Agreement.

Our Joint Ventures.

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

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

The remaining costs totaled $ 6,080 as of September 30, 2023 and are included in other assets, net, in our condensed consolidated balance sheet.

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

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

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

Pursuant to our lease agreements with RMR, we recognized rental income from RMR for leased office space of $ 58 and $ 77 for the three months ended September 30, 2023 and 2022, respectively, and $ 132 and $ 225 for the nine months ended September 30, 2023 and 2022, respectively.

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

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

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

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

For the three months ended September 30, 2023 and 2022, we recognized income tax expense of $ 189 and $ 13 , respectively, and for the nine months ended September 30, 2023 and 2022, we recognized income tax expense of $ 379 and $ 845 , respectively.

Weighted Average Common Share s (share amounts in thousands)

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

What changed 10-Q

Item 1. Financial Statements