What changed in this filing

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Item 1. Business

2024-02-26 compared with 2023-03-01 · 172 added, 184 removed, 822 unchanged (30% of the section changed)

We are a real estate investment trust, or REIT, that was organized under Maryland law in 1998.

We own medical office and life science properties, senior living communities and other healthcare related properties throughout the United States.

As of December 31, 2022, we wholly owned 379 properties, including eight closed senior living communities, located in 36 states and Washington, D.C.

We primarily own medical office and life science properties, senior living communities and other healthcare related properties throughout the United States.

As of December 31, 2023, we owned 371 properties, including three closed senior living communities, located in 36 states and Washington, D.C.

On that date, 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.

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Our Business Strategy

The healthcare industry remains one of the most resilient commercial real estate sectors, in part due to the scale of the U.S.

healthcare market, which collectively represents approximately 17% of the U.S.

gross domestic product, or GDP, according to the Centers for Medicare and Medicaid Services, or CMS.

The healthcare sector’s continued expansion has been driven by rising standards of care, increasing life expectancies and other demographic trends, as well as funding from both public and private sources.

We believe that the aging of the U.S.

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population will be age 65 or older, with that demographic projected to grow thereafter by the equivalent of 10,000 people per day.

We believe that this will increase demand for healthcare services and products supplied by the tenants in our medical office and life science properties.

We believe that this will increase demand for our senior living communities (including active adult communities) and for healthcare services and products supplied by the tenants in our medical office and life science properties.

The primary market for senior living services is individuals age 80 and older.

According to U.S.

Census data, the age 75+ demographic is projected to be among the fastest growing age cohorts in the United States over the next 20 years, and according to the Centers for Medicare & Medicaid Services, or CMS, the age 85+ demographic is projected to grow over 30% over the next five years.

Census data, the age 75+ demographic is projected to be among the fastest growing age cohorts in the United States over the next 20 years, and according to CMS, the age 85+ demographic is projected to grow over 30% over the next five years.

Also, as a result of medical advances, seniors are living longer, and CMS reports that healthcare spending is projected to grow at an average rate of 5.4% per year and reach $6.8 trillion by 2030.

In light of these demographic trends, we believe that the aging of the U.S.

population will increase demand for existing medical office and life science properties, senior living communities (including active adult rental properties) and other medical and healthcare related properties.

Although we are currently limited in making acquisitions or other capital investments pursuant to the terms of the agreement governing our credit facility, or our credit agreement, described below, we plan to seek to profit from this demand in the future by, over time, acquiring additional properties and entering into leases and management arrangements with qualified tenants and managers which generate returns to us that exceed our operating and capital costs, including structuring leases that provide for or permit periodic rent increases.

Despite this trend, future economic downturns or recessions, high inflation, rising or sustained high interest rates, softness in the U.S.

housing market, higher levels of unemployment among our potential residents' family members, lower levels of consumer confidence, stock market volatility and/or changes in demographics could adversely affect the ability of seniors to afford the resident fees at our senior living communities.

Further, as discussed elsewhere in this Annual Report on Form 10-K, 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, they have not returned to pre-pandemic levels and there is a risk that they may not return to 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 and high inflation, labor market challenges, supply chain challenges, geopolitical instability (such as the war in Ukraine) and economic downturns or recessions, or otherwise.

For example, occupancy in our senior housing operating portfolio, or SHOP, segment has generally increased, but not to pre-pandemic levels, and we may continue to face challenges in our SHOP segment with labor availability and wage inflation, along with cost pressures from supply chain disruptions and commodity price inflation.

We seek to selectively sell properties from time to time when we determine our continued ownership or ongoing required capital expenditures will not achieve desired returns or when we believe we can successfully pursue more desirable opportunities than retaining these properties.

We also may use future sales proceeds, at such time as we are able to do so under our credit agreement or otherwise, to acquire new properties that we believe will help us reduce the average age of our properties, increase our weighted average lease term, reduce our ongoing capital requirements and/or increase our distributions to shareholders.

We refer to this as our capital recycling program.

Additionally, we seek to selectively develop our properties when we believe the returns will be satisfactory.

We believe there is a favorable mix of increased demand and limited supply for senior living communities which we expect will benefit us and our existing portfolio of senior living communities in the future.

As a result of elevated financing and construction costs over recent years, inventory growth for senior living communities has reached a new low.

According to The National Investment Center for Seniors Housing and Care, or NIC, annual inventory growth was 1.3% across all markets during the fourth quarter of 2023.

Additionally, annual absorption was 4.1% for the fourth quarter of 2023, according to NIC.

We expect improving market fundamentals and constrained supply to continue to result in increased occupancy at our senior living communities over the next 12 to 24 months.

We plan to seek to profit from this demand in the future by, over time, investing in our properties, acquiring additional properties and entering into lease and management arrangements with qualified tenants, managers and operators which enhance our cash flow and generate returns that exceed our operating and capital costs to us, including structuring leases that provide for or permit periodic rent increases.

We also seek to selectively sell properties from time to time when we determine our continued ownership or ongoing required capital expenditures will not achieve desired returns, when we believe we have maximized returns or when we believe we can successfully pursue more desirable opportunities than retaining these properties.

We also may use future sales proceeds to manage our leverage, to invest in our properties and to acquire new properties that we believe will help us reduce the overall average age of our properties, increase our weighted average lease term, reduce our ongoing capital requirements and/or increase our distributions to shareholders.

Additionally, we seek to selectively develop, redevelop or reposition our properties when we believe the returns will be satisfactory.

Office Portfolio

Our portfolio of medical office and life science properties, or our Office Portfolio, consists of commercial properties constructed for use or operated as medical office space for physicians and other healthcare personnel and other businesses in medical related fields, including clinics and life science or laboratory uses.

Some of our medical office properties are occupied as administrative facilities for healthcare companies, such as hospitals and healthcare insurance companies.

Some of our office properties are occupied as administrative facilities, such as hospitals and healthcare insurance companies or similar uses.

As our lease expirations approach, we will seek to renew our leases with existing tenants or to enter into new leases with new tenants, in both circumstances at rental rates equal to or higher than current rental rates for the same space.

Our ability to renew leases with our existing tenants or to enter into new leases with new tenants and the rents we are able to charge will depend in large part upon market conditions, which are beyond our control.

Our ability to renew leases with our existing tenants or to enter into new leases with new tenants and the rents we are able to charge will depend in large part upon market and economic conditions, which are beyond our control.

Senior Living Communities

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In some of our independent living communities, separate parts of the property are dedicated to assisted living and/or nursing services.

We also own an active adult rental property, which we have classified as an independent living community.

We also own an active adult community, which we have classified as an independent living community.

Assisted Living Communities.

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In the past, we have considered investing in real estate different from our existing property types and some properties located outside the United States.

For example, in 2019 we acquired an age restricted active adult rental property, which we have classified as an independent living community, to diversify our portfolio of senior living communities.

We may explore these or other alternative investments in the future.

Our medical office and life science property leases include both “triple net” leases, where the tenant is generally responsible for the payment of property operating expenses and capital expenditures during the lease term, and “net” and “modified gross” leases, where we are responsible for operating and maintaining the properties and we charge the tenants for some or all of the property operating expenses.

A small percentage of our medical office and life science property leases are “full service” leases where we receive fixed rent from the tenants and do not charge the tenants for any property operating expenses.

The leases for some of our senior living communities and all of our wellness centers are “triple net” leases.

Our medical office and life science property leases primarily include both “triple net” leases, where the tenant is generally responsible for the payment of property operating expenses and capital expenditures during the lease term, and “net” and “modified gross” leases, where we are responsible for operating and maintaining the properties and we charge the tenants for some or all of the property operating expenses.

A portion of our medical office and life science property leases are “full service” leases where we receive fixed rent from the tenants and do not charge the tenants for any property operating expenses.

Most of our leases for senior living communities and wellness centers are “triple net” leases.

Senior Housing Operating Portfolio Management Agreements

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For nearly all of our senior living communities, we use a taxable REIT subsidiary, or TRS, structure authorized by the REIT Investment Diversification and Empowerment Act.

Under this structure, we lease certain of our communities to our TRSs and our TRSs enter into management agreements with third parties for the operation of such communities.

Under this structure, we lease certain of our communities to

our TRSs, and our TRSs enter into management agreements with third parties for the operation of such communities.

These management agreements generally provide the managers with a management fee, which is a percentage of the gross revenues realized at the communities, plus reimbursement for the managers' direct costs and expenses related to the communities.

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As of December 31, 2023, Five Star Senior Living, or Five Star, which is an operating division of AlerisLife Inc., or AlerisLife, managed 119 of our senior living communities.

Also as of December 31, 2022, 118 of our senior living communities were managed by other third party managers, 107 of which were transitioned from Five Star in 2021.

We lease nearly all of our senior living communities, including those managed by Five Star and by the other third party managers, to our TRSs.

Although we have various rights as owner under our senior living management agreements, we rely on the managers' personnel, good faith, expertise, performance, technical resources, operating efficiencies, information systems, proprietary information and judgment to manage our managed senior living communities efficiently and effectively.

We also rely on the managers to set resident fees and otherwise operate our managed senior living communities in compliance with the applicable management agreements.

Under our senior living management agreements, we assume the operational risks and fund the operations and capital and maintenance requirements for our senior living communities.

As a result, we are required to maintain sufficient funding for these purposes.

Further, any funding we maintain for these purposes will not be available for other business purposes, which may limit our ability to pursue other business opportunities and could limit the amount of distributions we can pay to our shareholders.

Also as of December 31, 2023, 113 of our senior living communities were managed by other third party managers.

We lease nearly all of our senior living communities to our TRSs.

For more information about the terms of the management agreements with Five Star and the other third party managers, see Note 6 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Economic and Market Conditions

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, high inflation, rising or sustained high interest rates, supply chain disruptions, geopolitical risks and economic downturns or recessions.

We expect labor, utility and food costs to continue to increase on a per resident basis in 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 signaled that further significant increases are likely to occur.

These inflationary pressures and rising and sustained high interest rates in the United States and globally have given rise to increasing concerns that the U.S.

economy may soon enter, an economic recession and they have caused disruptions in the financial markets.

Economic downturns or recessions, 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 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 upon investments on favorable terms, 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.

We believe that we are well positioned to weather the present disruptions in the real estate industry and, in particular, the healthcare real estate industry, including senior living.

However, it is unclear what the long term impacts of changing market and economic conditions, including the impact of the changed market practices that arose or increased in response to the COVID-19 pandemic, will be on our and our managers', operators' and tenants' businesses.

As a result of these uncertainties, we are unable to determine what the ultimate impacts will be on our, our managers', operators', tenants' and other stakeholders' businesses, operations, financial results and financial position.

For further information and risks relating to these economic uncertainties, including as related to the COVID-19 pandemic, and their impact on our business and financial condition, see elsewhere in this Annual Report on Form 10-K, including “Warning Concerning Forward-Looking Statements”, Part I, Item

1A, “Risk Factors” and Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations".

We are closely monitoring the impacts of the current economic and market conditions on all aspects of our business, including, but not limited to, high interest rates, prolonged high inflation, labor market challenges, supply chain disruptions, volatility in the public equity and debt markets, geopolitical risks, economic downturns or a possible recession and changes in real estate utilization.

We expect continued volatility in labor, insurance and food costs in our Senior Housing Operating Portfolio, or SHOP segment.

In response to significant and prolonged increases in inflation, the U.S.

Federal Reserve has raised interest rates multiple times since the beginning of 2022.

Although the U.S.

Federal Reserve has indicated that it may lower interest rates in 2024, we cannot be sure that it will do so, and interest rates may remain at the current high levels or continue to increase.

These inflationary pressures in the United States, as well as global geopolitical instability and tensions, have given rise to uncertainty regarding economic downturns or a possible recession and potential 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 amounts owed 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.

For further information and risks relating to these economic uncertainties, see elsewhere in this Annual Report on Form 10-K, including “Warning Concerning Forward-Looking Statements”, Part I, Item 1A, “Risk Factors” and Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations".

Our Investment and Operating Policies

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maintain a strong capital base of shareholders' equity;

invest in strong credit quality properties with strong credit quality tenants and managers;

invest in properties with strong market fundamentals and high credit quality tenants and managers;

use leverage to fund additional investments which increase cash flow from operations because of positive spreads between our cost of investment capital and investment yields;

structured investments, including joint venture arrangements, which generate a minimum return and provide an opportunity to participate in operating growth at our properties;

when market conditions permit, refinance debt with additional equity or long term debt;

make structured investments, including joint venture arrangements, which generate a minimum return and provide an opportunity to participate in operating growth at our properties;

when market conditions permit, refinance maturing debt with new equity or debt;

and pursue diversification so that our cash flow from operations comes from diverse properties and tenants.

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Acquisition Policies

Subject to the current limitations on acquisitions imposed by our credit agreement discussed elsewhere in this Annual Report on Form 10-K, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 and Note 9 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K, our acquisition strategy is to seek to acquire additional properties primarily for income and secondarily for appreciation potential.

Our acquisition strategy is to seek to acquire additional properties primarily for income and secondarily for appreciation potential.

We may purchase individual properties or multiple properties in one portfolio.

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• the use and size of the property;

• our cost of capital compared to projected returns we may realize by owning the property;

• the location of the property;

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• the existing or proposed lease or management terms;

• the existence of alternative sources, uses or needs for our capital and our leverage;

• the availability and reputation of experienced and financially qualified tenants, managers or guarantors;

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• the strategic fit of the property with the rest of our portfolio;

• our cost of capital compared to projected returns we may realize by owning the property;

• the level of permitted services and regulatory history of the property and its historical tenants and managers.

• the existence of alternative sources, uses or needs for our capital and our leverage.

An important part of our acquisition strategy is to identify and select qualified, experienced and financially stable tenants and managers.

Disposition Policies

We plan to selectively sell certain properties from time to time to manage our leverage, to fund future acquisitions and to strategically update, rebalance and reposition our investment portfolio with a goal of (1) reducing our leverage, (2) improving the asset quality of our portfolio by reducing the average age of our properties, lengthening the weighted average term of our leases and increasing the likelihood of retaining our tenants and (3) increasing our distributions to shareholders.

We plan to selectively sell certain properties from time to time to manage our leverage and improve our liquidity, to fund future acquisitions and to strategically update, rebalance and reposition our investment portfolio with a goal of (1) reducing our leverage, (2) improving the asset quality of our portfolio by reducing the overall average age of our properties and increasing the weighted average term of our leases and the likelihood of retaining our tenants and (3) increasing our distributions to shareholders.

Other than as described, we generally consider ourselves to be a long term owner of properties and are more interested in the long term earnings potential of our properties and stability of our portfolio than selling properties for short term gains.

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• our ability to lease or operate the affected property on terms acceptable to us or have the affected property managed with our realizing acceptable returns;

• the manager's or tenant's desire to operate the affected property;

• the manager's or tenant's desire to dispose of or cease operating the affected property;

• the proposed sale price;

• the proposed sale price or targeted returns;

• the existence of alternative sources, uses or needs for our capital and our leverage;

• the remaining length of the lease relating to the property and its other terms;

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• the expected benefits that can be achieved from contributing additional properties to our existing or any new joint ventures;

• the existence of alternative sources, uses or needs for our capital and our leverage;

• the tax implications to us and our shareholders for any proposed disposition.

• the tax implications to us and our shareholders.

Other Investments

We have no policies which specifically limit the percentage of our assets that may be invested in any individual property, in any one type of property, in properties leased to any one tenant or to an affiliated group of tenants or in properties operated by any one tenant or manager or by an affiliated group of tenants or managers or in securities of one or more persons.

We own 10,691,658 common shares of AlerisLife, or approximately 31.9% of AlerisLife's outstanding common shares.

In February 2023, in connection with the proposed acquisition of AlerisLife by a subsidiary of ABP Trust, which is the controlling shareholder of The RMR Group Inc., or RMR Inc., pursuant to a tender offer for all of the outstanding common shares of AlerisLife (other than the AlerisLife common shares owned by ABP Trust or its applicable subsidiaries), at a price of $1.31 per share, we agreed to tender all of our AlerisLife common shares into the tender offer at the tender offer price, subject to the right, but not the obligation, to purchase, in a single private transaction, on or before December 31, 2023, a number of shares of common stock of the surviving entity in the proposed acquisition constituting a percentage up to 31.9% of the then issued and outstanding shares of the common stock of the surviving entity based on the tender offer price and otherwise pursuant to a stockholders agreement to be entered into at the time of any such purchase on such terms as are negotiated and mutually agreed by the parties.

We may also in the future acquire additional common shares or securities of other entities, including entities engaged in real estate activities.

We may invest in the securities of other entities for the purpose of exercising control, or otherwise,

make loans to other persons or entities, engage in the sale of investments, offer securities in exchange for property or repurchase or reacquire our securities.

On February 2, 2023, AlerisLife entered into an Agreement and Plan of Merger, or the ALR Merger Agreement, with certain subsidiaries of ABP Trust, pursuant to which ABP Trust acquired all of the publicly held outstanding AlerisLife common shares, at a price of $1.31 per share, or the Tender Offer Price, by tender offer, or the AlerisLife Transaction.

In connection with the ALR Merger Agreement, on February 2, 2023, we agreed to tender all the AlerisLife common shares that we and our subsidiary then owned into the tender offer at the Tender Offer Price, subject to the right, but not the obligation, to purchase, on or before December 31, 2023, AlerisLife common shares at the Tender Offer Price, and otherwise pursuant to a stockholders agreement to be entered into at the time of any such purchase.

On December 20, 2023, we and ABP Trust extended our right to purchase AlerisLife common shares until March 31, 2024.

On February 16, 2024, we exercised this purchase right and acquired, together with our applicable TRS, approximately 34.0% of the currently outstanding AlerisLife common shares from ABP Trust at the Tender Offer Price, for a total purchase price of $14.9 million, and we, our applicable TRS, ABP Trust and AlerisLife entered into a stockholders agreement.

Following this acquisition, ABP Trust owns the remaining approximate 66.0% of AlerisLife.

We may in the future acquire additional common shares or securities of other entities, including entities engaged in real estate activities.

We may invest in the securities of other entities for the purpose of exercising control, or otherwise, make loans to other persons or entities, engage in the sale of investments, offer securities in exchange for property or repurchase or reacquire our securities.

Historically, we have primarily owned wholly owned investments in fee interests.

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As of December 31, 2023, we owned a 10% equity interest in an unconsolidated joint venture that owns a life science property located in Boston, Massachusetts, or the Seaport JV, and a 20% equity interest in an unconsolidated joint venture for 10 medical office and life science properties, or the LSMD JV.

Further, we may acquire interests in joint ventures as part of an acquisition of properties or entities or we may contribute wholly owned properties into our existing or new joint ventures.

Further, we may acquire interests in joint ventures as part of an acquisition of properties or entities or we may contribute properties into our existing or new joint ventures.

We also may invest in participating, convertible or other types of mortgages if we conclude that by doing so, we may benefit from the cash flow or appreciation in the value of a property which is not available for purchase.

Mergers and Strategic Combinations

In the past, we have considered the possibility of entering into mergers or strategic combinations with other companies and we may explore such possibilities in the future, subject to the current limitations on acquisitions imposed by our credit agreement discussed further elsewhere in this Annual Report on Form 10-K, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 and Note 9 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Our Financing Policies

Although there are no limitations in our organizational documents on the amount of indebtedness we may incur, our credit agreement and our senior unsecured notes indentures and their supplements contain covenants which, among other things, restrict our ability to incur debts and generally require us to maintain certain financial ratios.

In February 2023, we and our lenders amended our credit agreement to, among other things, extend the waiver of the fixed charge coverage ratio covenant through January 15, 2024, the current maturity date of our credit facility.

Additionally, our facility commitments have been reduced to $450.0 million.

In the future, we may decide to seek an extension of our credit facility.

There is no assurance our lenders will grant an extension, or that the terms of such extension would be satisfactory.

As of December 31, 2022, 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 slow recovery of our SHOP business from the COVID-19 pandemic, high inflation, rising or sustained high interest rates, geopolitical risks and other economic, market or industry conditions, continued to adversely impact our operations.

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

As of February 24, 2023, we were fully drawn under our credit facility.

For further information relating to our indebtedness, see elsewhere in this Annual Report on Form 10-K, including Note 9 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

We may seek additional capital through equity offerings, debt financings, retention of cash flows in excess of distributions to shareholders, sales of properties, or equity interests in properties, or a combination of these methods or other transactions.

To the extent we obtain additional debt financing, we may do so on an unsecured basis or a secured basis.

We may seek to obtain lines of credit or to issue securities senior to our common shares, including preferred shares or debt securities, some of which may be convertible into our common shares or be accompanied by warrants to purchase our common shares.

Although there are no limitations in our organizational documents on the amount of indebtedness we may incur, our senior notes indentures and their supplements contain covenants which, among other things, restrict our ability to incur debts and generally require us to maintain certain financial ratios.

We may seek additional capital through secured or unsecured debt financing or refinancing transactions, sales of properties or equity interests in properties, retention of cash flows in excess of distributions to shareholders, equity offerings or a combination of these methods or other transactions.

We may seek to obtain lines of credit or to issue securities senior to our

common shares, including preferred shares or debt securities, some of which may be convertible into our common shares or be accompanied by warrants to purchase our common shares.

We may also finance acquisitions by assuming debt, through an exchange of properties or through the issuance of equity or other securities.

The proceeds from any of our financings may be used to pay distributions, to provide working capital, to refinance existing indebtedness or to finance acquisitions and improvements of existing or new properties, subject to limitations in agreements governing our debt.

As of December 31, 2022, we had a $700.0 million credit facility.

In February 2022, we and our lenders amended our credit agreement to, among other things, reduce the facility commitments to $700.0 million.

In January 2023 and February 2023, the facility commitments were further reduced to $586.4 million and $450.0 million, respectively.

For more information regarding our financing sources and activities, see “Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Investment and Financing Liquidity and Resources” in Part II, Item 7 of this Annual Report on Form 10-K.

The proceeds from any of our financings may be used to pay distributions, to make investments in our properties, to refinance existing indebtedness or to finance acquisitions, development, redevelopment or repositionings.

For more information regarding our financing sources and activities, see “Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Financing Liquidity and Resources” in Part II, Item 7 of this Annual Report on Form 10-K.

Our Board of Trustees may change our financing policies at any time without a vote of, or notice to, our shareholders.

is a holding company and substantially all of its business is conducted by its majority owned subsidiary, The RMR Group LLC, or RMR.

The RMR Group Inc., or RMR Inc., is a holding company and substantially all of its business is conducted by its majority owned subsidiary, The RMR Group LLC, or RMR.

The Chair of our Board of Trustees and one of our Managing Trustees, Adam D.

Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., is chair of the board of directors, a managing director and the president and chief executive officer of RMR Inc.

Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., chair of the board of directors, a managing director and the president and chief executive officer of RMR Inc.

and an officer and employee of RMR.

Francis, our other Managing Trustee and our President and Chief Executive Officer, also serves as an officer and employee of RMR.

Francis, our other Managing Trustee and our former President and Chief Executive Officer, served as an officer of RMR until December 31, 2023 and will remain an employee of RMR until her retirement on July 1, 2024.

Clark, our Secretary and former Managing Trustee, also serves as a managing director and the executive vice president, general counsel and secretary of RMR Inc., an officer and employee of RMR and an officer of ABP Trust.

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In addition, RMR provides management services to joint ventures, including our existing joint ventures.

As of the date of this Annual Report on Form 10-K, the executive officers of RMR are:

As of February 21, 2024, the executive officers of RMR are:

Portnoy, president and chief executive officer;

Christopher J.

Bilotto, executive vice president;

Clark, executive vice president, general counsel and secretary;

Francis, Executive Vice President;

Jordan, executive vice president, chief financial officer and treasurer;

Murray, executive vice president.

and Jonathan M.

Pertchik, Executive Vice President.

In addition, our Chief Financial Officer and Treasurer, Richard W.

Siedel, Jr., is a Senior Vice President of RMR.

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

We have no employees.

Services which would otherwise be provided to us by employees are provided by RMR and by our Managing Trustees and officers.

As of December 31, 2022, RMR had approximately 600 full time employees in its headquarters and regional offices located throughout the United States.

Bilotto is also our President and Chief Executive Officer, and our Chief Financial Officer and Treasurer, Matthew C.

Brown, is a senior vice president of RMR.

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

Government Regulation and Reimbursement

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In addition, government regulation increased and additional compliance obligations were imposed in response to the COVID-19 pandemic, some of which have since been, or are expected in the near future to be, reduced or removed as a result of the abating of the COVID-19 pandemic.

We are unable to predict the future course of federal, state and local legislation or regulation.

We are unable to predict the future course of federal, state and local legislation or regulations.

Changes in the regulatory framework could have a material adverse effect on the ability of our tenants to pay us rent, the profitability of our managed senior living communities and the values of our properties.

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State health authorities regulate and license clinics and other healthcare facilities.

In most states in which we own properties, we and our tenants and managers are prohibited from providing certain services without first obtaining appropriate licenses.

In addition, most states require a certificate of need, or CON, before an entity may open an assisted living facility or expand services at an existing community.

In most states in which we own properties, we and our tenants and managers are prohibited from providing certain services without first obtaining

appropriate licenses.

In addition, some states require a certificate of need, or CON, before an entity may open an assisted living community or SNF or expand services at an existing facility.

In addition, some states (such as California and Texas) that have eliminated CON laws have retained other means of limiting development of facilities, including moratoria, licensing laws and limitations upon participation in the state Medicaid program.

Senior living communities and certain other healthcare facilities must also comply with applicable state and local building, zoning, fire and food service codes before licensing or Medicare and

Medicaid certification are granted.

Senior living communities and certain other healthcare facilities must also comply with applicable state and local building, zoning, fire and food service codes before licensing or Medicare and Medicaid certification are granted.

These laws and regulatory requirements could affect our ability and that of our tenants and managers to expand into new markets or to expand communities in existing markets.

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Loss, suspension or modification of a license or certification or the imposition of other sanctions or penalties could adversely affect the values of our properties, the ability of our tenants to pay their rents and the profitability of our managed senior living communities.

The Centers for Medicare and Medicaid Services, or CMS, of the U.S.

CMS of the U.S.

Department of Health and Human Services, or HHS, has increased its oversight of state survey agencies in recent years, focusing its enforcement efforts on SNFs and chains of SNF operators with findings of substandard care or repeat and continuing deficiencies and violations.

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In addition, an adverse finding by state officials could serve as the basis for lawsuits by private plaintiffs and lead to investigations under federal and state laws, which could result in civil and/or criminal penalties against the facility as well as a related entity.

For the year ended December 31, 2022, substantially all of our net operating income, or 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 revenue is dependent upon Medicare and Medicaid programs.

For the year ended December 31, 2023, substantially all of our net operating income, or NOI, from our senior living communities 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 our senior living communities where a majority of the revenue is dependent upon Medicare and Medicaid programs.

Our tenants and managers operate facilities in many states and they and we participate in federal and state healthcare payment programs, including the federal Medicare and state Medicaid benefit programs for services in SNFs and other similar facilities and state Medicaid programs for services in assisted living communities.

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The Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, was signed into law on March 27, 2020.

The CARES Act, among other things, provided $2.0 trillion in aid to certain individuals, businesses and state and local governments suffering from the COVID-19 pandemic.

The CARES Act, among other things, provided $2.0 trillion in aid to certain individuals, businesses and state and local governments

suffering from the COVID-19 pandemic.

Additionally, the American Rescue Plan Act, or ARPA, was signed into law on March 11, 2021 to provide additional economic stimulus.

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The CARES Act created a Provider Relief Fund, which allocated financial support to providers who experienced lost revenues and increased expenses as a result of the COVID-19 pandemic.

The terms and conditions of the Provider Relief Fund

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

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

In addition, Provider Relief Fund recipients are subject to other terms and conditions, including certain reporting requirements.

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

We recognized $4.3 million of these funds in interest and other income in our consolidated statement of comprehensive income (loss) for which we believe we have met the required terms and conditions for the year ended December 31, 2022.

In addition to federal measures, many states have taken actions to waive or modify healthcare laws or regulations and Medicaid reimbursement rules.

Both state and federal waivers and other temporary actions in response to the COVID-19 pandemic are expected to last throughout the national emergency, which will expire on May 11, 2023.

Additional measures may be taken prior to and after the conclusion of the national emergency to alleviate the economic impact of the COVID-19 pandemic.

Governmental responses to COVID-19 rapidly evolved since the beginning of the national emergency;

however, many of these responses have been, and will continue to be phased out after the national emergency, and it is not yet known what the duration or impact of such responses will be.

We recognized $1.6 million of these funds in interest and other income in our consolidated statement of operations for which we believe we have met the required terms and conditions for the year ended December 31, 2023.

Government Payers.

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It is unclear whether any adjustments in Medicare rates will compensate for the increased costs our tenants and managers may incur for services to residents whose services are paid for by Medicare.

Medicaid Reimbursement.

Current and future programmatic changes to Medicaid eligibility and rates may also impact us.

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State Medicaid programs and other third party payers are conducting similar medical necessity and compliance audits.

The ACA facilitates the Department of Justice's, or the DOJ's, ability to investigate allegations of wrongdoing or fraud at healthcare facilities, in part because of increased cooperation and data sharing among CMS, the United States Department of Health and Human Services, Office of the Inspector General, or the OIG, the DOJ and the states.

The ACA facilitates the Department of Justice's, or the DOJ's, ability to investigate allegations of wrongdoing or fraud at healthcare facilities, in part because of increased cooperation and data sharing among CMS, HHS, Office of the Inspector General, or the OIG, the DOJ and the states.

In addition, the ACA requires all states to terminate the Medicaid participation of any provider that has been terminated under Medicare or any Medicaid state plan.

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Federal and state laws designed to protect the confidentiality and security of individually identifiable information apply to us, our tenants and our managers.

must comply with rules adopted by HHS governing the privacy, security, use and disclosure of individually identifiable information, including financial information and protected health information, or PHI, and also with security rules for electronic PHI.

Under the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, and the Health Information Technology for Economic and Clinical Health Act, or the HITECH Act, we, our managers and our tenants that are covered entities or business associates within the meaning of HIPAA must comply with rules adopted by HHS governing the privacy, security, use and disclosure of individually identifiable information, including financial information and protected health information, or PHI, and also with security rules for electronic PHI.

There may be both civil monetary penalties and criminal sanctions for noncompliance with such federal laws.

In January 2013, HHS released the HIPAA Omnibus Rule, or the Omnibus Rule, which modified various requirements, including the standard for providing breach notices, which previously required an analysis of the harm of any disclosure, to a more objective analysis relating to whether any PHI was actually acquired or viewed as a result of the breach.

On December 10, 2020, HHS issued a proposed rule that would modify certain standards, definitions and patient rights under the previously-promulgated Standards for Privacy of Individually Identifiable Health Information to address barriers to coordinated care and case management.

On December 10, 2020, HHS

issued a proposed rule that would modify certain standards, definitions and patient rights under the previously promulgated Standards for Privacy of Individually Identifiable Health Information to address barriers to coordinated care and case management.

The effect of this proposed rule, if finalized, upon our operations is unknown at this time.

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If we, our managers, or any of our tenants were subject to an action alleging violations of such laws or to any adverse determination concerning any of our or our tenants' or managers' licenses or eligibility for Medicare or Medicaid reimbursement or any substantial penalties, repayments or sanctions, these actions could materially and adversely affect the ability of our tenants to pay rent to us, the profitability of our managed senior living communities and the values of our properties.

If our managers or any of our tenants becomes unable to operate our properties, or if any of our tenants becomes unable to pay its rent because it has violated government regulations or payment laws, we may experience difficulty in finding a substitute tenant or managers or selling the affected property at a price that provides us with a desirable return, and the value of the affected property may decline materially.

If our managers or any of our tenants becomes unable to operate our properties, or if any of our tenants becomes unable to pay its rent because it has violated government regulations or payment laws, we may experience difficulty in finding a substitute tenant or manager or selling the affected property at a price that provides us with a desirable return, and the value of the affected property may decline materially.

Federal, state and local agencies regulate our medical office and life science property tenants that provide healthcare services.

Many states require medical clinics, ambulatory surgery centers, clinical laboratories and other outpatient healthcare facilities to be licensed and inspected for compliance with licensure regulations concerning professional staffing, services, patient rights and physical plant requirements, among other matters.

Our tenants must comply with the Americans with Disabilities Act and similar state and local laws to the extent that such facilities are “public accommodations” as defined in those statutes.

The obligation to comply with the Americans with Disabilities Act and similar laws is an ongoing obligation, and our tenants expend significant resources to comply with such laws.

Our tenants must comply with the Americans with Disabilities Act, or ADA, and similar state and local laws to the extent that such facilities are “public accommodations” as defined in those statutes.

The obligation to comply with the ADA and similar laws is an ongoing obligation, and our tenants expend significant resources to comply with such laws.

Healthcare providers and suppliers, including physicians and other licensed medical practitioners, that receive federal or state reimbursement under Medicare, Medicaid or other federal or state programs must comply with the requirements for their participation in those programs.

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Further, healthcare providers are experiencing heightened scrutiny under antitrust laws in the United States as integration and consolidation of health care delivery increase and affect competition.

In addition, there has been a movement toward increased scrutiny of private equity and REIT interest in the healthcare industry, including the long-term care sector.

For example, on November 15, 2023, CMS issued a final rule, effective January 16, 2024, that requires SNFs and Medicaid-participating nursing facilities to disclose certain additional data on their owners, operators and management in an effort to increase transparency of nursing facility ownership and to promote competition among nursing facilities by allowing patients to choose facilities based on publicly available data of their owners and operators.

The United States Food and Drug Administration, or FDA, and other federal, state and local authorities extensively regulate our biotechnology laboratory tenants that develop, manufacture, market or distribute new drugs, biologicals or medical devices for human use.

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Preclinical and clinical studies and documentation in connection with FDA approval of new pharmaceuticals or medical devices involve significant time, expense and risks of failure.

Once a product is approved, the FDA maintains oversight of the product and its developer and can withdraw its approval, recall products or suspend their production,

impose or seek to impose civil or criminal penalties on the developer or take other actions for the developer's failure to comply with regulatory requirements, including anti-fraud, false claims, anti-kickback or physician referral laws.

Once a product is approved, the FDA maintains oversight of the product and its developer and can withdraw its approval, recall products or suspend their production, impose or seek to impose civil or criminal penalties on the developer or take other actions for the developer's failure to comply

with regulatory requirements, including anti-fraud, false claims, anti-kickback or physician referral laws.

Other concerns affecting our biotechnology laboratory tenants include the potential for subsequent discovery of safety concerns and related litigation, ensuring that the product qualifies for reimbursement under Medicare, Medicaid or other federal or state programs, cost control initiatives of payment programs, the potential for litigation over the validity or infringement of intellectual property rights related to the product, the eventual expiration of relevant patents and the need to raise additional capital.

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Depending upon what aspects of the laws and regulations are altered, the ability of our biotechnology laboratory tenants to pay rent to us could be adversely and materially affected.

Investing in medical office and life science properties, senior living communities and other healthcare related properties, and their operations, are highly competitive businesses.

Owning and operating medical office and life science properties, senior living communities and other healthcare related properties is a highly competitive business.

We compete against other REITs, numerous financial institutions, individuals and other public and private companies that are actively engaged in this business.

Also, we compete for tenants and residents and for investments based on a number of factors including location, rents, rates, financings offered, underwriting criteria and reputation.

Our ability to successfully compete is also impacted by economic and population trends, availability of acceptable investment opportunities, our ability to negotiate beneficial investment terms, availability and cost of capital, limitations in agreements governing our debt and new and existing laws and regulations.

Our ability to successfully compete is also impacted by current economic and industry conditions, demographic trends, availability of attractive investment opportunities, our ability to negotiate beneficial investment terms, the availability and cost of capital and new and existing laws and regulations.

Some of our competitors are dominant in selected geographic or property markets, including in markets we operate.

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Corporate Sustainability

We are guided by Environmental, Social and Governance, or ESG, principles, and believe corporate sustainability must be a strategic focus alongside our focus on economic performance.

Our manager, RMR, periodically publishes its Sustainability Report, which summarizes the environmental, social and governance, or ESG, initiatives employed by RMR and its client companies, including us.

RMR’s Sustainability Report may be accessed on the RMR Inc.

website at www.rmrgroup.com/corporate-sustainability/default.aspx.

The information on or accessible through RMR Inc.’s website is not incorporated by reference into this Annual Report on Form 10-K.

We believe corporate sustainability is a strategic part of our focus on operational practices, enhancing our competitive position, development and redevelopment efforts and economic performance.

Our sustainability practices which align with those of our manager, RMR — minimizing our impact on the environment, embracing the communities where we operate and attracting top professionals — are critical elements supporting our long-term success.

We recognize our responsibility to minimize the impact of our business on the environment and seek to preserve natural resources and maximize efficiencies in order to reduce the impact the properties we own have on the planet.

Our environmental sustainability strategies and best practices help to mitigate our properties’ environmental footprint, optimize operational efficiency and enhance our competitiveness in the marketplace.

We seek to obtain certifications that measure progress in environmental sustainability, which helps to benchmark performance and mitigate risk.

Our sustainability and community engagement strategies focus on a complementary set of objectives, including the following:

• Responsible Investment.

We seek to invest capital in our properties that both improves environmental performance and enhances asset value.

During the property acquisition due diligence and annual budgeting processes, RMR assesses, among other things, environmental sustainability opportunities and physical and policy driven climate related risks.

• Environmental Stewardship.

We seek to improve the environmental footprint of our properties, including by reducing carbon emissions, energy consumption and water usage, especially when doing so may reduce operating

costs and exposure to policies that call for a carbon tax or other emissions-based penalties and enhance the properties’ competitive position.

Our existing business practices are intended to align with the Task Force on Climate Related Financial Disclosures framework across both the physical and transition risks and opportunities.

With respect to our development and redevelopment activities, RMR considers how to best incorporate sustainability goals as part of the overall goal of any development or redevelopment project at our properties.

In 2022, RMR announced its commitment to a goal of net zero emissions by 2050 with a 50% reduction commitment by 2030 from a 2019 baseline as it relates to Scope 1 and 2 emissions for all properties for which it directly manages energy.

We and our manager, RMR, drive value, manage risk and benchmark the performance of our properties by effectively capturing and managing data through real-time energy monitoring, or RTM.

RTM facilitates advanced data analytics and access to detect faults and inefficiencies in equipment operations faster meanwhile enhancing building system control in a cost-effective and scalable way.

Our energy performance programs drive down energy consumption and reduce carbon emissions of our properties.

Lower energy use and emissions reduce our properties' potential exposure to policies that call for a carbon tax or other emissions-based penalties.

Our existing business practices are intended to align with the Task Force on Climate-related Financial Disclosures framework across both physical and transition risks and opportunities.

In an effort to reduce the effects of any increased energy costs in the future, we continuously study ways to improve the energy efficiency at all of our properties.

Our property manager, RMR, is a member of the ENERGY STAR program, a

joint program of the U.S.

RTM facilitates advanced data analytics and access to detect faults and inefficiencies in equipment operations faster while enhancing building system control in a cost-effective and scalable way.

RMR's RTM program captures 22 of our properties and generated $3.9 million in cumulative savings to date, of which $0.9 million was generated in 2023.

Furthermore, properties that reach specified levels of sustainability and energy efficiency may receive potential environmental designations and certifications, such as Leadership in Energy and Environmental Design, or LEED®, designations and/or “ENERGY STAR” certifications.

LEED designations are administered by the U.S.

Green Building Council.

The ENERGY STAR program is a joint program of the U.S.

Environmental Protection Agency and the U.S.

Department of Energy that is focused on promoting energy efficiency at commercial properties through its “ENERGY STAR” partner program, and a member of the U.S.

Green Building Council, a nonprofit organization focused on promoting energy efficiency at commercial properties through its Leadership in Energy and Environmental Design, or LEED®, green building program.

Properties that reach a specified level of energy efficiency may receive the ENERGY STAR recognition for a period of 12 months before the requirement that they be recertified.

Furthermore, certain properties are not eligible for ENERGY STAR certification.

Department of Energy which is focused on promoting energy efficient products and properties.

Government’s “green lease” policies permit government tenants to require LEED® designation in selecting new premises or renewing leases at existing premises and the General Services Administration gives preference to properties for lease that have received an ENERGY STAR certification.

Our property manager, RMR, is a member of the ENERGY STAR program.

Certain properties are not eligible for ENERGY STAR certification.

For example, lab uses, medical office properties and properties less than 50% occupied cannot be ENERGY STAR certified.

We believe our effort to obtain additional ENERGY STAR labels and/or LEED® designations and manage our properties in a sustainable manner benefits our business while also bettering the environment.

Additionally, RMR Inc.

releases an annual Sustainability Report, which summarizes the ESG initiatives RMR Inc.

and its clients, including us, employ.

RMR Inc.'s Sustainability Report may be accessed on RMR Inc.'s website at www.rmrgroup.com/corporate-sustainability/default.aspx.

The information on or accessible through RMR Inc.'s website is not incorporated by reference into this Annual Report on Form 10-K.

For more information, see “Risk Factors—Risks Related to Our Business—Ownership of real estate is subject to environmental risks and liabilities,” “Risk Factors—Risks Related to Our Business—We are subject to risks from adverse weather, natural disasters and climate change and climate related events, and we incur significant costs and invest significant amounts with respect to these matters” and “Management's Discussion and Analysis of Financial Condition and Results of Operations—Impact of Climate Change”.

As of December 31, 2023, our LEED designations and ENERGY STAR certifications were as follows:

23 of our Office Portfolio properties containing 2.2 million rentable square feet (22.5% and 25.6% of our Office Portfolio properties and rentable square feet, respectively).

• ENERGY STAR:

25 of our properties containing 3.1 million square feet (11.2% and 15.1% of our eligible properties and rentable square feet, respectively).

In April 2021, we were selected by the U.S.

Department of Energy's Better Buildings Alliance and Institute for Market Transformation as a Gold Level Green Lease Leader.

For more information, see “Risk Factors—Risks Related to Our Business—Ownership of real estate is subject to environmental risks and liabilities” and “Risk Factors—Risks Related to Our Business—We are subject to risks from adverse weather, natural disasters and adverse impact from global climate change, and we incur significant costs and invest significant amounts with respect to these matters” in Part I, Item 1A of this Annual Report on Form 10-K and “Management's Discussion and Analysis of Financial Condition and Results of Operations—Impact of Climate Change” in Part II, Item 7 of this Annual Report on Form 10-K.

Environmental Matters

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However, we cannot be sure that conditions are not present at our properties or that costs we may be required to incur in the future to remediate contamination will not have a material adverse effect on our business or financial condition or results of operations.

When major weather or climate-related events, such as hurricanes, floods or wildfires, occur near our properties, we, our tenants or our managers may relocate the residents at our senior living properties to alternative locations for their safety and we, our tenants or our managers may close or limit the operations of the impacted senior living community or office property until the event has ended and the property is then ready for operation.

We or the tenants or managers of our properties may incur significant costs and losses as a result of these activities, both in terms of operating, preparing and repairing our properties in anticipation of, during and after a severe weather or climate-related event and in terms of potential lost business due to the interruption in operating our properties.

When adverse weather, natural disasters and adverse impact from global climate change, such as hurricanes, floods or wildfires, occur near our properties, we, our tenants or our managers may relocate the residents at our senior living properties to alternative locations for their safety and we, our tenants or our managers may close or limit the operations of the impacted senior living community or office property until the event has ended and the property is then ready for operation.

We or the tenants or managers of our properties may incur significant costs and losses as a result of these activities, both in terms of operating, preparing and repairing our properties in anticipation of, during and after adverse weather, natural disasters and adverse impact from global climate change and in terms of potential lost business due to the interruption in operating our properties.

Our insurance and our tenants' and managers' insurance may not adequately compensate us or them for these costs and losses.

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Although we do not believe it is likely in the foreseeable future, laws enacted to mitigate climate change may make some of our buildings obsolete or cause us to make material investments in our properties, which could materially and adversely affect our financial condition or the financial condition of our tenants or managers and their ability to pay rent or returns to us.

Board Diversity

As of December 31, 2022, our Board of Trustees was comprised of seven Trustees, of which five were independent trustees.

Our Board of Trustees is comprised of approximately 29% women and approximately 14% members of underrepresented minorities.

For more information regarding climate change and other environmental matters and their possible adverse impact on us, see “Risk Factors—Risks Related to Our Business—Ownership of real estate is subject to environmental risks” and “Risk Factors—Risks Related to Our Business—We are subject to risks from adverse weather, natural disasters and adverse impact from global climate change, and we incur significant costs and invest significant amounts with respect to these matters" in Part I, Item 1A of this Annual Report on Form 10-K and “Management's Discussion and Analysis of Financial Condition and Results of Operations—Impact of Climate Change” in Part II, Item 7 of this Annual Report on Form 10-K.

Investments in Human Capital

We have no employees.

We rely on our manager, RMR, to hire, train, and develop a workforce that meets the needs of our business, contributes positively to our society and helps reduce our impact on the natural environment.

Corporate Citizenship

We seek to be a responsible corporate citizen and to strengthen the communities in which we own properties.

Our manager, RMR, regularly encourages its employees to engage in a variety of charitable and community programs, including participation in a company-wide service day and a charitable giving matching program.

Diversity and Inclusion

As of December 31, 2023, our Board of Trustees was comprised of six Trustees, of which four were independent trustees.

Our Board of Trustees is comprised of 50% women and approximately 33% members of underrepresented minorities.

We or our tenants are generally responsible for the costs of insurance coverage for our properties and the operations conducted on them, including for casualty, liability, fire, extended coverage and rental or business interruption losses.

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We also have a policy outlining procedures for handling concerns or complaints about accounting, internal accounting controls or auditing matters and a governance hotline accessible on our website that shareholders can use to report concerns or complaints about accounting, internal accounting controls or auditing matters or violations or possible violations of our Code of Conduct.

We make available, free of charge, through the "Investors" section of our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after these forms are filed with, or furnished to, the Securities and Exchange Commission, or SEC.

of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after these forms are filed with, or furnished to, the Securities and Exchange Commission, or SEC.

Any material we file with or furnish to the SEC is also maintained on the SEC website, www.sec.gov.

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For all these reasons, we urge you and any holder of or prospective acquiror of our shares to consult with a tax advisor about the federal income tax and other tax consequences of the acquisition, ownership and disposition of our shares.

Our intentions and beliefs described in this summary are based upon our understanding of applicable laws and regulations that are in effect as of the date of this Annual Report on Form 10-K.

Our intentions and beliefs described in this summary are based upon our understanding of applicable laws and regulations that are in effect as of February 26, 2024.

If new laws or regulations are enacted which impact us directly or indirectly, we may change our intentions or beliefs.

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While we believe that we have satisfied and will satisfy these tests, our counsel does not review compliance with these tests on a continuing basis.

If we fail to qualify for taxation as a REIT in any year, then we will be subject to federal income taxation as if we were a corporation taxed under subchapter C of the IRC, or a C

corporation, and our shareholders will be taxed like shareholders of a regular C corporation, meaning that federal income tax generally will be applied at both the corporate and shareholder levels.

If we fail to qualify for taxation as a REIT in any year, then we will be subject to federal income taxation as if we were a corporation taxed under subchapter C of the IRC, or a C corporation, and our shareholders will be taxed like shareholders of a regular C corporation, meaning that federal income tax generally will be applied at both the corporate and shareholder levels.

In this event, we could be subject to significant tax liabilities, and the amount of cash available for distribution to our shareholders could be reduced or eliminated.

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• If we acquire a corporation in a transaction where we succeed to its tax attributes, to preserve our qualification for taxation as a REIT we must generally distribute all of the C corporation earnings and profits inherited in that acquisition, if any, no later than the end of our taxable year in which the acquisition occurs.

However, if we fail to do so, relief provisions would allow us to maintain our qualification for taxation as a REIT provided we distribute

any subsequently discovered C corporation earnings and profits and pay an interest charge in respect of the period of delayed distribution.

• Our subsidiaries that are C corporations, including our TRSs, generally will be required to pay federal corporate income tax on their earnings, and a 100% tax may be imposed on any transaction between us and one of our TRSs that does not reflect arm's length terms.

However, if we fail to do so, relief provisions would allow us to maintain our qualification for taxation as a REIT provided we distribute any subsequently discovered C corporation earnings and profits and pay an interest charge in respect of the period of delayed distribution.

• Our subsidiaries that are C corporations, including our “taxable REIT subsidiaries”, as defined in Section 856(l) of the IRC, or TRSs, generally will be required to pay federal corporate income tax on their earnings, and a 100% tax may be imposed on any transaction between us and one of our TRSs that does not reflect arm’s length terms.

• As discussed below, we are invested in real estate through subsidiaries that we believe qualify for taxation as REITs.

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Although we cannot be sure, we believe that we have met conditions (1) through (7) during each of the requisite periods ending on or before the close of our most recently completed taxable year, and that we will continue to meet these conditions in our current and future taxable years.

To help comply with condition (6), our declaration of trust restricts transfers of our shares that would otherwise result in concentrated ownership positions.

To help comply with condition (6), our declaration of trust and bylaws restrict transfers of our shares that would otherwise result in concentrated ownership positions.

These restrictions, however, do not ensure that we have previously satisfied, and may not ensure that we will in all cases be able to continue to satisfy, the share ownership requirements described in condition (6).

If we comply with applicable Treasury regulations to ascertain the ownership of our outstanding shares and do not know, or by exercising reasonable diligence would not have known, that we failed condition (6), then we will be treated as having met condition (6).

Accordingly, we have complied and will continue to comply with these regulations, including by requesting annually from holders of significant percentages of our shares

information regarding the ownership of our shares.

Accordingly, we have complied and will continue to comply with these regulations, including by requesting annually from holders of significant percentages of our shares information regarding the ownership of our shares.

Under our declaration of trust, our shareholders are required to respond to these requests for information.

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The assets, liabilities and items of income, deduction and credit of a qualified REIT subsidiary are treated as the REIT’s.

We believe that each of our direct and indirect wholly owned subsidiaries, other than the TRSs discussed below (and entities whose equity is owned in whole or in part by such TRSs), will be either a qualified REIT subsidiary within the meaning of Section 856(i)(2) of the IRC or a noncorporate entity that for federal income tax purposes is not treated as separate from its owner under Treasury regulations issued under Section 7701 of the IRC, each such entity referred to as a QRS.

of Section 856(i)(2) of the IRC or a noncorporate entity that for federal income tax purposes is not treated as separate from its owner under Treasury regulations issued under Section 7701 of the IRC, each such entity referred to as a QRS.

Thus, in applying all of the REIT qualification requirements described in this summary, all assets, liabilities and items of income, deduction and credit of our QRSs are treated as ours, and our investment in the stock and other securities of such QRSs will be disregarded.

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Pursuant to these protective TRS elections, we believe that if one of these subsidiaries is not a REIT for some reason, then that subsidiary would instead be considered one of our TRSs, and as such its value would fit within our REIT gross asset tests described below.

We expect to make similar

protective TRS elections with respect to any other subsidiary REIT that we form or acquire and may implement other protective arrangements intended to avoid a cascading REIT failure if any of our intended subsidiary REITs were not to qualify for taxation as a REIT, but we cannot be sure that such protective elections or other arrangements will be effective to avoid or mitigate the resulting adverse consequences to us.

We expect to make similar protective TRS elections with respect to any other subsidiary REIT that we form or acquire and may implement other protective arrangements intended to avoid a cascading REIT failure if any of our intended subsidiary REITs were not to qualify for taxation as a REIT, but we cannot be sure that such protective elections or other arrangements will be effective to avoid or mitigate the resulting adverse consequences to us.

We do not expect protective TRS elections to impact our compliance with the 75% and 95% gross income tests described below, because we do not expect our gains and dividends from a subsidiary REIT’s shares to jeopardize compliance with these tests even if for some reason the subsidiary is not a REIT.

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In addition, any corporation (other than a REIT and other than a QRS) in which a TRS directly or indirectly owns more than 35% of the voting power or value of the outstanding securities is automatically a TRS (excluding, for this purpose, certain “straight debt” securities).

Subject to the discussion below, we believe that we and each of our TRSs have complied with, and will continue to comply with, the requirements for TRS status at all times during which the subsidiary's TRS election is intended to be in effect, and we believe that the same will be true for any TRS that we later form or acquire.

Subject to the discussion below, we believe that we and each of our TRSs have complied

with, and will continue to comply with, the requirements for TRS status at all times during which the subsidiary’s TRS election is intended to be in effect, and we believe that the same will be true for any TRS that we later form or acquire.

As discussed below, TRSs can perform services for our tenants without disqualifying the rents we receive from those tenants under the 75% gross income test or the 95% gross income test discussed below.

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We generally do not intend to lease property to any party if rents from that property would not qualify as “rents from real property,” but application of the 10% ownership rule is dependent upon complex attribution rules and circumstances that may be beyond our control.

Our declaration of trust generally disallows transfers or purported acquisitions, directly or by attribution, of our shares to the extent necessary to maintain our qualification for taxation as a REIT under the IRC.

Our declaration of trust and bylaws generally disallow transfers or purported acquisitions, directly or by attribution, of our shares to the extent necessary to maintain our qualification for taxation as a REIT under the IRC.

Nevertheless, we cannot be sure that these restrictions will be effective to prevent our qualification for taxation as a REIT from being jeopardized under the 10% affiliated tenant rule.

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however, our counsel, Sullivan & Worcester LLP, is of the opinion that, although the matter is not free from doubt, “rents from real property” also includes charges we receive for services provided by our TRSs when the charges are separately stated, even if the services are not geographically customary.

Accordingly, we believe that our revenues

from TRS-provided services, whether the charges are separately stated or not, qualify as “rents from real property” because the services satisfy the geographically customary standard, because the services have been provided by a TRS, or for both reasons.

Accordingly, we believe that our revenues from TRS-provided services, whether the charges are separately stated or not, qualify as “rents from real property” because the services satisfy the geographically customary standard, because the services have been provided by a TRS, or for both reasons.

We believe that all or substantially all of our rents and related service charges have qualified and will continue to qualify as “rents from real property” for purposes of Section 856 of the IRC.

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• for which the REIT makes a proper election to treat the property as foreclosure property.

Any gain that a REIT recognizes on the sale of foreclosure property held as inventory or primarily for sale to customers, plus any income it receives from foreclosure property that would not otherwise qualify under the 75% gross income test in the absence of foreclosure property treatment, reduced by expenses directly connected with the production of those items of income, would be subject to federal income tax at the highest regular corporate income tax rate under the foreclosure property income tax rules of Section 857(b)(4) of the IRC.

property income tax rules of Section 857(b)(4) of the IRC.

Thus, if a REIT should lease foreclosure property in exchange for rent that qualifies as “rents from real property” as described above, then that rental income is not subject to the foreclosure property income tax.

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but, we cannot be sure whether or not the IRS might successfully assert that we are subject to the 100% penalty tax with respect to any particular transaction.

Gains subject to the 100% penalty tax are excluded from the 75% and 95% gross income tests, whereas real property gains that are not dealer gains

or that are exempted from the 100% penalty tax on account of the safe harbors are considered qualifying gross income for purposes of the 75% and 95% gross income tests.

Gains subject to the 100% penalty tax are excluded from the 75% and 95% gross income tests, whereas real property gains that are not dealer gains or that are exempted from the 100% penalty tax on account of the safe harbors are considered qualifying gross income for purposes of the 75% and 95% gross income tests.

We believe that any gain that we have recognized, or will recognize, in connection with our disposition of assets and other transactions, including through any partnerships, will generally qualify as income that satisfies the 75% and 95% gross income tests, and will not be dealer gains or subject to the 100% penalty tax.

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Our Relationship with AlerisLife .

We currently own (directly and indirectly through one of our TRSs) less than 35% of the outstanding common shares of AlerisLife (which are currently the subject of the tender offer described elsewhere in this Annual Report on Form 10-K).

We currently own (directly and indirectly through one of our TRSs) less than 35% of the outstanding common shares of AlerisLife.

We have not elected to treat AlerisLife as a TRS, and it is not otherwise an automatic TRS because no TRS of ours owns more than 35% of AlerisLife.

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For these purposes, a contractor qualifies as an “eligible independent contractor” if it is less than 35% affiliated with the REIT and, at the time the contractor enters into the agreement with the TRS to operate the qualified health care property, that contractor or any person related to that contractor is actively engaged in the trade or business of operating qualified health care properties for persons unrelated to the TRS or its affiliated REIT.

expenses for that operation and fees payable to the eligible independent contractor, or (c) the REIT receiving income from the eligible independent contractor pursuant to a preexisting or otherwise grandfathered lease of another property.

For these purposes, an otherwise eligible independent contractor is not disqualified from that status on account of (a) the TRS bearing the expenses of the operation of the qualified health care property, (b) the TRS receiving the revenues from the operation of the qualified health care property, net of expenses for that operation and fees payable to the eligible independent contractor, or (c) the REIT receiving income from the eligible independent contractor pursuant to a preexisting or otherwise grandfathered lease of another property.

We have engaged as an intended eligible independent contractor a particular corporate subsidiary of AlerisLife.

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The 90% distribution requirements may be waived by the IRS if a REIT establishes that it failed to meet them by reason of distributions previously made to meet the requirements of the 4% excise tax discussed below.

To the extent that we do

not distribute all of our net capital gain and all of our “real estate investment trust taxable income,” as adjusted, we will be subject to federal income tax at regular corporate income tax rates on undistributed amounts.

To the extent that we do not distribute all of our net capital gain and all of our “real estate investment trust taxable income,” as adjusted, we will be subject to federal income tax at regular corporate income tax rates on undistributed amounts.

In addition, we will be subject to a 4% nondeductible excise tax to the extent we fail within a calendar year to make required distributions to our shareholders of 85% of our ordinary income and 95% of our capital gain net income plus the excess, if any, of the “grossed up required distribution” for the preceding calendar year over the amount treated as distributed for that preceding calendar year.

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These Treasury regulations are written quite broadly, and apply to many routine and simple transactions.

A reportable transaction currently includes, among other things, a sale or exchange of our shares resulting in a tax loss in excess of (a) $10 million in any single year or $20 million in a prescribed combination of taxable years in the case of our shares held by a C corporation or by a partnership with only C corporation partners or (b) $2 million in any single year or $4 million in a prescribed combination of taxable years in the case of our shares held by any other partnership or an S corporation, trust or individual, including losses that flow through pass through entities to individuals.

entities to individuals.

A taxpayer discloses a reportable transaction by filing IRS Form 8886 with its federal income tax return and, in the first year of filing, a copy of Form 8886 must be sent to the IRS's Office of Tax Shelter Analysis.

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trade or business and a non-U.S.

shareholder will

therefore not be subject to the often higher federal tax and withholding rates, branch profits taxes and increased reporting and filing requirements that apply to income effectively connected with a U.S.

shareholder will therefore not be subject to the often higher federal tax and withholding rates, branch profits taxes and increased reporting and filing requirements that apply to income effectively connected with a U.S.

trade or business.

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federal income tax liability only in the unlikely event that the non-U.S.

shareholder would otherwise be subject to tax on any gain from the sale or exchange of these shares, as discussed below under the heading “—Dispositions of Our Shares.” A non-U.S.

shareholder would otherwise be subject to tax on any gain from the sale or exchange of these shares, as discussed

below under the heading “—Dispositions of Our Shares.” A non-U.S.

shareholder may seek a refund from the IRS of amounts withheld on distributions to it in excess of such shareholder’s allocable share of our current and accumulated earnings and profits.

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shareholder’s actual U.S.

federal income tax liability on such deemed

distribution.

federal income tax liability on such deemed distribution.

If we were to designate any portion of our net capital gain as undistributed capital gain, a non-U.S.

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shareholder would generally be subject to the same treatment as a U.S.

shareholder with respect to its gain (subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals), (b) the non-U.S.

shareholder with respect to its gain (subject to any applicable alternative minimum tax

and a special alternative minimum tax in the case of nonresident alien individuals), (b) the non-U.S.

shareholder would also be subject to fulsome U.S.

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shareholder and to the IRS.

This information reporting requirement applies regardless

of whether the non-U.S.

This information reporting requirement applies regardless of whether the non-U.S.

shareholder is subject to withholding on distributions on our shares or whether the withholding was reduced or eliminated by an applicable tax treaty.

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Department of the Treasury requiring, among other things, that it undertake to identify accounts held by “specified United States persons” or “United States owned foreign entities” (each as defined in the IRC and administrative guidance thereunder), annually report information about such accounts, and withhold 30% on applicable payments to noncompliant foreign financial institutions and account holders.

Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States with respect to these requirements may be subject to different rules.

Foreign financial institutions located in

jurisdictions that have an intergovernmental agreement with the United States with respect to these requirements may be subject to different rules.

The foregoing withholding regime generally applies to payments of dividends on our shares.

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• any limitation or restriction on transfer or assignment that is not imposed by the issuer or a person acting on behalf of the issuer.

We believe that the restrictions imposed under our declaration of trust on the transfer of shares do not result in the failure of our shares to be “freely transferable.” Furthermore, we believe that no other facts or circumstances limiting the transferability of our shares exist, other than those that are enumerated under the regulation as not affecting the free transferability of shares.

We believe that the restrictions imposed under our declaration of trust and bylaws on the transfer of shares do not result in the failure of our shares to be “freely transferable.” Furthermore, we believe that no other facts or circumstances limiting the transferability of our shares exist, other than those that are enumerated under the regulation as not affecting the free transferability of shares.

In addition, we do not expect or intend to impose in the future, or to permit any person to impose on our behalf, any limitations or restrictions on transfer that would not be among the enumerated permissible limitations or restrictions.

Assuming that each class of our shares will be “widely held” and that no other facts and circumstances exist that restrict transferability of these shares, our counsel, Sullivan & Worcester LLP, is of the opinion that our shares will not fail to be “freely transferable” for purposes of the regulation due to the restrictions on transfer of our shares in our declaration of trust and that under the regulation each class of our currently outstanding shares is publicly offered and our assets will not be deemed to be “plan assets” of any ERISA Plan or Non-ERISA Plan that acquires our shares in a public offering.

Assuming that each class of our shares will be “widely held” and that no other facts and circumstances exist that restrict transferability of these shares, our counsel, Sullivan & Worcester LLP, is of the opinion that our shares will not fail to be “freely transferable” for purposes of the regulation due to the restrictions on transfer of our shares in our declaration of trust and bylaws and that under the regulation each class of our currently outstanding shares is publicly offered and our assets will not be deemed to be “plan assets” of any ERISA Plan or Non-ERISA Plan that acquires our shares in a public offering.

This opinion is conditioned upon certain assumptions and representations, as discussed above under the heading “Material United States Federal Income Tax Considerations—Taxation as a REIT.”

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

What changed 10-K

Item 1. Business