What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-01 compared with 2023-08-01 · 228 added, 216 removed, 487 unchanged (48% of the section changed)

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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.

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.

At September 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 $7.2 billion.

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

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

As of September 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 99% leased with an average (by annualized rental income) remaining lease term of 5.5 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, increased insurance costs, 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.

Federal Reserve has significantly increased the federal funds rate since the beginning of 2022 and it is unclear whether there will be additional increases.

These inflationary pressures and rising interest rates in the United States and globally, and global geopolitical hostilities and tensions, have given rise to 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

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.

The senior living industry experienced significant disruptions during, and in the aftermath of, 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 uneven, 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, increased insurance costs, geopolitical risks 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 uneven and increased operating costs resulting from wage and commodity price inflation, limited labor availability and increased insurance costs, among other things, continue to negatively impact margins.

As a result of these uncertainties, we 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.

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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

As of September 30, 2023 Number

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

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Total 376 $ 7,180,946 100.0 % $ 356,524 100.0 % $ 58,092 100.0 %

As of and For the Three Months Ended June 30,

As of and For the Three Months Ended September 30,

Office Portfolio (5)

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(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.

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

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

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

(5) Medical office and life science property occupancy data is as of 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.

(5) Medical office and life science property occupancy data is as of September 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 properties sold or classified as held for sale, if any, and data for which there was a transfer of operations during the periods presented.

(7) Operating data for triple net leased senior living communities leased to third party operators and wellness centers are presented based upon the operating results provided by our tenants for the three months ended June 30, 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.

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

During the three and nine months ended September 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 September 30, 2023

New Leases Renewals Total

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$ 11.87 $ 4.31 $ 6.24

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

New Leases Renewals Total

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$ 7.99 $ 3.55 $ 5.73

(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.

(1) Weighted based on annualized rental income pursuant to existing leases as of September 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):

As of September 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)

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Weighted average remaining lease term (in years) 5.1 5.5

(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

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.

(1) Annualized rental income is based on rents pursuant to existing leases as of September 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.

As of September 30, 2023, lease expirations at our triple net leased senior living communities and wellness centers that are leased to third party operators were as follows (dollars in thousands):

Year Number of Properties Number of Units or Square Feet Annualized Rental Income (1)

Percent of Total Cumulative Percent of Total

2023 — — $ — — % — %

2024 — — — — % — %

2025 3 129,500 sq.

1,458 3.7 % 3.7 %

2026 — — — — % 3.7 %

2027 4 533 units 4,539 11.6 % 15.3 %

2028 — — — — % 15.3 %

2029 1 155 units 547 1.4 % 16.7 %

2030 2 283 units 3,496 8.9 % 25.6 %

1 — — — % 25.6 %

2032 and thereafter 26 1,091 units and 682,500 sq.

29,160 74.4 % 100.0 %

Total 37 $ 39,200 100.0 %

(1) Annualized rental income is based on rents pursuant to existing leases as of September 30, 2023, including estimated percentage rents and straight line rent adjustments and excluding lease value amortization.

(2) Excludes annualized rental income from our lease with a tenant of one closed senior living community.

As of September 30, 2023, the tenant was in default on its obligations to us under this lease.

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

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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,

The following table summarizes the results of operations of each of our segments for the three and nine months ended September 30, 2023 and 2022:

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

2023 2022 2023 2022

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

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.

Three Months Ended September 30, 2023 Compared to Three Months Ended September 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 September 30, 2023 to the three months ended September 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,

Three Months Ended September 30,

2023 2022 $ Change % Change

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Office Portfolio $ 29,274 $ 31,075 $ (1,801) (5.8) %

SHOP 22,887 6,466 16,421 254.0 %

SHOP 20,689 (5,762) 26,451 nm

Non-Segment 8,129 8,511 (382) (4.5) %

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(47,758) (46,936) (822) 1.8 %

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

Loss before income tax expense and equity in net (losses) earnings of investees (65,445) (83,606) 18,161 (21.7) %

Income tax expense (189) (13) (176) nm

Equity in net (losses) earnings of investees (145) 2,127 (2,272) (106.8) %

Net loss $ (65,779) $ (81,492) $ 15,713 (19.3) %

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All Properties

As of June 30, As of June 30,

As of September 30, As of September 30,

2023 2022 2023 2022

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Occupancy 93.0 % 92.2 % 85.8 % 85.9 %

(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,

Three Months Ended September 30,

Comparable (1)

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NOI $ 27,520 $ 29,039 $ (1,519) (5.2) % $ 1,754 $ 2,036 $ 29,274 $ 31,075 $ (1,801) (5.8) %

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

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

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

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.

Rental income decreased primarily due to a tenant default at one of our properties and certain of our properties being taken out of service and/or currently undergoing redevelopment, partially offset by an increase in rental income at certain of our recently redeveloped properties, our acquisition of one property since July 1, 2022 and an increase in rental income at our comparable properties.

Rental income increased at our comparable properties primarily due to an increase in occupancy, higher

average rents resulting from our new and renewal leasing activity, increased parking revenue at certain of our comparable properties and increases in property operating expense reimbursements 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.

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.

The increase in property operating expenses is primarily due to an increase in property operating expenses at our comparable properties and our acquisition of one property since July 1, 2022, partially offset by certain of our properties being taken out of service and/or currently undergoing redevelopment.

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

Net operating income.

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

Ended June 30, Ended June 30,

Ended September 30, Ended September 30,

2023 2022 2023 2022

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$ 4,832 $ 4,538 $ 4,826 $ 4,509

(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,

Three Months Ended September 30,

Comparable (1)

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NOI $ 20,976 $ (1,796) $ 22,772 1,267.9 % $ (287) $ (3,966) $ 20,689 $ (5,762) $ 26,451 459.1 %

(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;

(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 July 1, 2022;

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

Residents fees and services.

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

Residents fees and services increased primarily due to increases in occupancy and average monthly rate at 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.

Residents fees and services increased primarily due to increases in occupancy and average monthly rate at our communities and the transfer of three previously leased communities to our SHOP segment as described below, partially offset by one 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.

Property operating expenses consist of real estate taxes, utility expenses, insurance, wages and benefit costs of community 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, insurance costs, increased sales and marketing costs to improve occupancy and the transfer of three previously leased communities to our SHOP segment as described below, partially offset by one community that was taken out of service due to damage sustained by Hurricane Ian.

Net operating income.

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All Properties

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

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

2023 2022 2023 2022

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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,

Three Months Ended September 30,

Comparable (2)

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Rental income $ 8,332 $ 7,980 $ 352 4.4 % $ — $ 726 $ 8,332 $ 8,706 $ (374) (4.3) %

Property operating expenses (331) — 331 nm — — (331) — 331 nm

Property operating expenses (203) (195) 8 4.1 % — — (203) (195) 8 4.1 %

NOI $ 8,129 $ 7,785 $ 344 4.4 % $ — $ 726 $ 8,129 $ 8,511 $ (382) (4.5) %

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(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;

(2) Consists of properties that we have owned and which have been reported in the same segment and leased to the same operator continuously since July 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.

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 in October 2022, partially offset by an increase in rental income at our comparable properties.

The increase in comparable properties rental income was primarily due to the net leasing activity at our wellness centers.

In January 2023, we agreed to amend the lease for three of our wellness centers and repossess the remaining three wellness centers from a tenant previously in default under leases for six of our 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.

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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.

We will also continue to pay real estate taxes and other direct costs for two wellness centers until the leases commence, which we expect to occur in 2024.

Net operating income.

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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.

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 July 1, 2022.

Increases in depreciation and amortization expenses were partially offset by certain depreciable assets becoming fully depreciated since July 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.

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 September 30, 2023 compared to the three months ended September 30, 2022.

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.

For the three months ended September 30, 2023, acquisition and certain other transaction related costs primarily represent costs incurred in connection with our terminated merger with OPI.

Impairment of assets.

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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.

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

For further information regarding loss 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.

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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.

The decrease in interest and other income is primarily due to lower average invested cash balances, partially offset by increased interest rates on invested cash balances during the three months ended September 30, 2023 compared to the three months ended September 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.

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.

Interest expense increased primarily due to an increase in interest rates under our credit facility, which was partially offset by a decrease in average borrowings under our credit facility in connection with repayments aggregating $250,000 related to amendments of our credit facility.

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 (losses) earnings of investees.

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

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 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 nine months ended September 30, 2023 to the nine months ended September 30, 2022.

Six Months Ended June 30,

Nine Months Ended September 30,

2023 2022 $ Change % Change

1 unchanged sentence

Office Portfolio $ 92,211 $ 93,209 $ (998) (1.1) %

SHOP 40,150 6,619 33,531 506.6 %

SHOP 60,839 857 59,982 nm

Non-Segment 24,983 28,711 (3,728) (13.0) %

2 unchanged sentences

General and administrative 20,111 20,671 (560) (2.7) %

Acquisition and certain other transaction related costs 6,136 1,537 4,599 299.2 %

Acquisition and certain other transaction related costs 9,812 1,826 7,986 nm

Impairment of assets 18,380 — 18,380 nm

13 unchanged sentences

All Properties

As of June 30, As of June 30,

As of September 30, As of September 30,

2023 2022 2023 2022

2 unchanged sentences

Occupancy 93.0 % 92.2 % 85.8 % 85.9 %

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

Six Months Ended June 30,

Nine Months Ended September 30,

Comparable (1)

6 unchanged sentences

(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 properties owned by unconsolidated joint ventures in each of which we own an equity interest.

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 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 a tenant default at one of our properties resulting in a write off of the corresponding unamortized straight line rent receivable, the

deconsolidation of 10 medical office and life science properties currently owned by an unconsolidated joint venture in which we own an equity interest and certain of our properties being taken out of service and/or currently undergoing redevelopment.

Rental income increased at our comparable properties primarily due to increases in occupancy, 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.

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

Net operating income.

2 unchanged sentences

All Properties

As of and For the Six Months Ended June 30, As of and For the Six Months Ended June 30,

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

2023 2022 2023 2022

4 unchanged sentences

$ 4,825 $ 4,516 $ 4,824 $ 4,487

(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.

Six Months Ended June 30,

Nine Months Ended September 30,

Comparable (1)

7 unchanged sentences

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

Residents fees and services.

Property operating expenses.

Net operating income.

3 unchanged sentences

All Properties

As of and For the Six Months Ended June 30, As of and For the Six Months Ended June 30,

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

2023 2022 2023 2022

2 unchanged sentences

Wellness centers 10 10 10 10

(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,

Nine Months Ended September 30,

Comparable (2)

3 unchanged sentences

Rental income $ 25,753 $ 25,919 $ (166) (0.6) % $ — $ 2,987 $ 25,753 $ 28,906 $ (3,153) (10.9) %

Property operating expenses (567) — 567 nm — — (567) — 567 nm

Property operating expenses (770) (195) 575 294.9 % — — (770) (195) 575 294.9 %

NOI $ 24,983 $ 25,724 $ (741) (2.9) % $ — $ 2,987 $ 24,983 $ 28,711 $ (3,728) (13.0) %

nm - not meaningful

(2) 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;

1 unchanged sentence

Rental income.

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.

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 in October 2022 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 nine months ended September 30, 2022 from a tenant previously in default under leases for six of our wellness centers, partially offset by the net leasing activity at 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.

4 unchanged sentences

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 two wellness centers until the leases commence, which we expect to occur in 2024.

Net operating income.

5 unchanged sentences

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.

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 nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, partially offset by an increase in legal fees.

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.

For the nine months ended September 30, 2023, acquisition and certain other transaction related costs primarily represent costs incurred in connection with our terminated merger with OPI.

months ended September 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.

1 unchanged sentence

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.

Gain on sale of properties is the net result of our sales of certain of our properties and joint venture equity interests during the nine months ended September 30, 2023 and 2022.

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

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.

3 unchanged sentences

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.

The increase in interest and other income is primarily due to higher interest earned during the nine months ended September 30, 2023 as a result of higher interest rates compared to the nine months ended September 30, 2022.

The increase in interest and other income is also due to $1,581 of funds we received from certain programs under the CARES Act, ARPA and various state programs during the nine months ended September 30, 2023 compared to $1,084 received during the nine months ended September 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.

Interest expense decreased primarily due to our redemption of $500,000 of our 9.75% senior notes due 2025 in June 2022 and a decrease in average borrowings under our credit facility in connection with repayments aggregating $250,000 related to amendments of 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.

During the nine months ended September 30, 2023 and 2022, we recorded a loss on modification or early extinguishment of debt in connection with amendments to our credit agreement.

During the nine months ended September 30, 2022, we also 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 .

3 unchanged sentences

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.

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

9 unchanged sentences

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.

Our calculations of FFO and Normalized FFO for the three and nine months ended September 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.

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

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

2023 2022 2023 2022

4 unchanged sentences

Gains and losses on equity securities, net — 2,674 (8,126) 21,384

Equity in net earnings of unconsolidated joint ventures (2,929) (3,204) (2,282) (6,558)

Equity in net losses (earnings) of unconsolidated joint ventures 145 (2,127) (2,137) (8,685)

Share of FFO from unconsolidated joint ventures 1,912 2,137 5,808 9,516

19 unchanged sentences

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

The following table includes the reconciliation of net income (loss) to NOI for the three and six months ended June 30, 2023 and 2022.

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

The following table includes the reconciliation of net income (loss) to NOI for the three and nine months ended September 30, 2023 and 2022.

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

2023 2022 2023 2022

1 unchanged sentence

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

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

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

Income tax expense 189 13 379 845

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

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

13 unchanged sentences

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.

2 unchanged sentences

• 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;

• 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 wage and commodity price inflation, limited labor availability and increased insurance costs;

• 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

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.

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 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, wage and commodity price inflation and 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 1.5x 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.

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 1.5x 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.

As of September 30, 2023, we had $278.1 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, including $450.0 million in outstanding borrowings under our credit facility which matures on January 15, 2024 and $250.0 million of senior notes that mature on May 1, 2024.

Our credit facility is secured by 62 properties which had an appraised value of approximately $1.1 billion based on appraisals completed in 2023.

In September 2023, subsequent to the termination of our proposed merger with OPI, we engaged 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 in the pre-marketing stage of a disposition program, which currently includes 66 properties, to increase liquidity to repay maturing debt and to continue to fund capital expenditures.

We are also engaging in discussions with the lenders under our $450.0 million 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 the financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, 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.

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.

3 unchanged sentences

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.

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 and commodity price inflation, rising or sustained high interest rates, increased insurance costs, 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.

In addition, we may be unable to repay the $450.0 million 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.

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.

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.

As of September 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.

6 unchanged sentences

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.

During the nine months ended September 30, 2023, we sold three properties for an aggregate sales price of $2.8 million, excluding closing costs.

In October 2023, we sold three properties for an aggregate sales price of $10.8 million, excluding closing costs.

As of October 27, 2023, we had one property under an agreement to sell for a sales price of approximately $1.8 million, excluding closing costs.

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

1 unchanged sentence

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,

Nine Months Ended September 30,

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

5 unchanged sentences

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.

We generally receive minimum rents from tenants at our Office Portfolio properties, triple net leased senior living communities and wellness centers monthly, 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 nine months ended September 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 of $500,000 of our 9.75% senior notes due 2025 in June 2022.

These increases were partially offset by an increase in costs incurred in connection with our terminated merger with OPI.

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 uneven, 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.

The change in cash (used in) provided by investing activities for the nine months ended September 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 and our sale of a 10% equity interest in the Seaport JV, partially offset by a property acquisition in the 2022 period, a decrease in real estate improvements in the 2023 period compared to the 2022 period and 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 in the 2023 period.

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,

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

2023 2022 2023 2022

4 unchanged sentences

4,036 3,535 7,453 7,439

Recurring capital expenditures - Office Portfolio segment 12,725 7,812 32,174 23,108

Wellness centers lease related costs (1)

3,909 — 4,793 —

SHOP segment fixed assets and capital improvements 25,978 24,724 68,029 70,111

Recurring capital expenditures $ 31,136 $ 33,011 $ 62,384 $ 60,683

Total recurring capital expenditures $ 42,612 $ 32,536 $ 104,996 $ 93,219

Development, redevelopment and other activities - Office Portfolio segment (3)

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(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 generally 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.

However, we have deferred, and may continue to defer, our capital expenditures to preserve liquidity.

As of September 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 $66.9 million, of which we expect to spend approximately $48.4 million during the next 12 months.

We expect to fund these obligations using operating cash flows we generate as rental income from our leased properties, residents fees and services revenues from our managed communities, cash on hand, proceeds 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.

We are currently in the process of redeveloping several properties in our Office Portfolio and a number of our managed senior living communities, which projects are expected to be completed at various times between 2023 and 2025.

We continue to assess opportunities to redevelop other properties in our Office Portfolio and SHOP segment.

These redevelopment projects may require significant capital expenditures and time to complete, and we have deferred, and may continue to defer, certain redevelopment projects to preserve liquidity.

Our ability to make capital investments is currently limited under our credit agreement and may become more limited as we contemplate deferring further capital investments to preserve liquidity.

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.

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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.

The decrease in cash used in financing activities for the nine months ended September 30, 2023 compared to the prior period was primarily due to our redemption of $500,000 of our 9.75% senior notes due 2025 in June 2022, partially offset by higher repayments of borrowings under our credit facility in the 2023 period compared to the 2022 period.

As of September 30, 2023, we had $278.1 million of cash and cash equivalents and were fully drawn under our credit facility.

We typically use cash balances, net proceeds from offerings of securities, debt issuances 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.

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.

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

At 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 $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.

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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.

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

We are currently engaging in discussions with the lenders under our credit facility regarding a possible extension and amendment of that facility, as described elsewhere in this Current Report on Form 10-Q.

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

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• 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;

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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.

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 $1.34 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

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 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.

Generally, when significant amounts are outstanding under our credit facility, or as the maturities of our indebtedness approach, we intend to explore, and are currently exploring, refinancing alternatives, as well as the possible extension of the applicable maturity dates.

Such alternatives 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.

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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.

During the nine months ended September 30, 2023, we paid quarterly cash distributions to our shareholders totaling approximately $7.2 million using existing cash balances.

On October 12, 2023, we declared a quarterly distribution payable to common shareholders of record on October 23, 2023 in the amount of $0.01 per share, or approximately $2.4 million.

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

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 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 and our ability to be in compliance with our debt covenants as discussed below.

We have no control over market conditions.

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

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.

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, increased insurance costs, 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.

In January 2023, Moody's Investors Service, or Moody's, downgraded our 9.75% senior notes due 2025 rating from B3 to Caa3, our 4.375% senior notes due 2031 rating from B3 to Caa3 and our senior unsecured debt rating from Caa1 to Ca.

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 September 2023, Moody's downgraded our 9.75% senior notes due 2025 rating from Caa3 to Ca, our 4.375% senior notes due 2031 rating from Caa3 to Ca and our senior unsecured debt rating from Ca to C.

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

Our next significant debt maturity is our credit facility, which matures in January 2024, followed by $250.0 million of senior unsecured notes that mature in May 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:

Our principal debt obligations at September 30, 2023 were:

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

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

As of 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.

As of September 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 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 1.5x 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.

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, 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 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.

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.

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.

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).

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.

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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.

As of September 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.

Our remaining $1.35 billion of senior unsecured notes do not have the benefit of any guarantees as of September 30, 2023.

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

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

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Real estate properties, net $ 3,967,125 $ 3,991,336

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Total liabilities $ 3,002,811 $ 3,287,790

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Revenues $ 943,002

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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.

For the nine months ended September 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.

During the nine months ended September 30, 2023 and 2022, we recognized $1.6 million and $1.1 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.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis