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Item 7. Management’s Discussion and Analysis

2024-02-26 compared with 2023-03-01 · 265 added, 276 removed, 442 unchanged (55% of the section changed)

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The following discussion should be read in conjunction with our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

We are a REIT organized under Maryland law and which owns medical office and life science properties, senior living communities and other healthcare related properties throughout the United States.

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

We are a REIT organized under Maryland law that primarily owns 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 located in 36 states and Washington, D.C., including one property classified as held for sale and three closed senior living communities.

At December 31, 2023, the gross book value of our real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, was $7.2 billion.

As of December 31, 2023, we owned an equity interest in each of the Seaport JV and the LSMD JV that own medical office and life science properties located in five states with an aggregate of approximately 2.2 million rentable square feet that were 98% leased with an average (by annualized rental income) remaining lease term of 5.3 years.

We are closely monitoring the impacts of the current economic and market conditions on all aspects of our business, including, but not limited to, labor availability, 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 with respect to our SHOP segment.

In response to inflationary pressures, the U.S.

Federal Reserve has significantly increased the federal funds rate since the beginning of 2022 and has signaled that further significant increases are likely to occur.

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

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

An economic recession, or continued or intensified disruptions in the financial markets, could adversely affect our financial condition and that of our managers, operators and tenants, could adversely impact the ability or willingness of our managers, operators, tenants or residents to pay the contractual amounts of returns, rents or other obligations due to us, could impair our ability to effectively deploy our capital or realize our 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.

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 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.

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

For further information and risks relating to these economic uncertainties, including changes related to the COVID-19 pandemic, and their impact on our business and financial condition, see elsewhere in this Annual Report on Form 10-K, including "Warning Concerning Forward-Looking Statements," Part I, Item 1 "Business" and Part I, Item 1A "Risk Factors".

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 SHOP segment.

For further information and risks relating to these economic uncertainties 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 1, "Business" and Part I, Item 1A, "Risk Factors".

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.

We are encouraged by positive trends, including increases in rates and occupancy, in our SHOP segment.

Additionally, we also expect favorable supply and demand dynamics in the senior living industry to enable our operators to generate better returns at our communities than we have experienced in the years following the COVID-19 pandemic.

While certain costs, primarily labor, insurance and food costs, have increased, we expect these cost increases to moderate and decline, which will provide our operators the opportunity to increase rates in excess of increases in costs, resulting in improving returns to us.

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

On September 1, 2023, we and OPI mutually terminated the Merger Agreement, effective September 1, 2023.

Neither we nor OPI were required to pay any termination fee as a result of the mutual decision to terminate the Merger Agreement, and we and OPI bore our and its respective costs and expenses related to the Merger Agreement in accordance with the terms of the Merger Agreement.

We recorded $9.9 million of expenses during the year ended December 31, 2023 related to the terminated merger with OPI, which is included in acquisition and certain other transaction related costs in our consolidated statement of operations.

For more information regarding the merger, see Note 8 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

PORTFOLIO OVERVIEW

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SHOP 232 25,209 units 4,535,435 62.9 % $ 179,913 1,151,908 81.7 % 76,817 32.5 %

Other triple net leased senior living communities 27 2,062 units 202,671 2.9 % $ 98,289 25,647 2.0 % 25,647 14.7 %

Triple net leased senior living communities 27 2,062 units 202,908 2.8 % $ 98,403 24,588 1.7 % 24,583 10.4 %

Wellness centers 10 812,000 sq.

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SHOP 78.1 % 74.4 %

Other triple net leased senior living communities (6)(7)

Triple net leased senior living communities (6)(7)

80.7 % 79.9 %

Wellness centers (7)

100.0 % 100.0 %

(1) Represents gross book value of real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, if any.

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(4) Our medical office and life science property leases include some triple net leases where, in addition to paying fixed rents, the tenants assume the obligation to operate and maintain the properties at their expense, and some net and modified gross leases where we are responsible for the operation and maintenance of the properties and we charge tenants for some or all of the property operating costs.

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

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

(5) Medical office and life science property occupancy data is as of December 31, 2023 and 2022 and includes (i) out of service assets undergoing redevelopment, (ii) space which is leased but is not occupied or is being offered for sublease by tenants and (iii) space being fitted out for occupancy.

(6) Excludes data for periods prior to our ownership of certain properties, data for properties sold or classified as held for sale, if any, and data for which there was a transfer of operations during the periods presented.

(7) Operating data for other triple net leased senior living communities leased to third party operators and wellness centers are presented based upon the operating results provided by our tenants for the 12 months ended September 30, 2022 and 2021, or the most recent prior period for which tenant operating results are made available to us.

(7) Operating data for our triple net leased senior living communities leased to third party operators and wellness centers are presented based upon the operating results provided by our tenants for the 12 months ended September 30, 2023 and 2022, or the most recent prior period for which tenant operating results are made available to us.

We have not independently verified tenant operating data.

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Office Portfolio

As of December 31, 2022, we wholly owned 105 medical office and life science properties located in 24 states and Washington, D.C.

As of December 31, 2023, we owned 102 medical office and life science properties located in 24 states and Washington, D.C.

These properties have a total of 8.6 million square feet.

During the year ended December 31, 2022, we entered into new and renewal leases at our medical office and life science properties in our Office Portfolio segment as summarized in the following table (dollars and square feet in thousands, except per square foot amounts):

During the year ended December 31, 2023, we entered into new and renewal leases in our Office Portfolio segment as summarized in the following table (dollars and square feet in thousands, except per square foot amounts):

Year Ended December 31, 2023

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$ 8.24 $ 3.20 $ 5.42

(1) Weighted based on annualized rental income pursuant to existing leases as of December 31, 2022, including straight line rent adjustments and estimated recurring expense reimbursements, and excluding lease value amortization.

(1) Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent.

As of December 31, 2022, lease expirations at our medical office and life science properties in our Office Portfolio segment were as follows (dollars in thousands):

As of December 31, 2023, lease expirations in our Office Portfolio segment were as follows (dollars in thousands):

Year Number of Tenants Square Feet Leased Percent of Total Cumulative Percent of Total Annualized Rental Income (1)

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(1) Annualized rental income is based on rents pursuant to existing leases as of December 31, 2023, including straight line rent adjustments and estimated recurring expense reimbursements for certain net and modified gross leases and excluding lease value amortization at certain of our medical office and life science properties.

The following table presents information concerning our medical office and life science property tenants that represent 1% or more of total medical office and life science property annualized rental income as of December 31, 2022 (dollars in thousands):

The following table presents information concerning our Office Portfolio tenants that represent 1% or more of total Office Portfolio annualized rental income as of December 31, 2023 (dollars in thousands):

Tenant Square Feet

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Advocate Aurora Health 631,529 8.7% $ 16,939 7.9% 2026 - 2031

Surgalign Holdings, Inc.

94,457 1.3% 6,595 3.0% 2034

Alamar Biosciences, Inc.

88,508 1.2% 6,194 2.9% 2034

IQVIA Holdings Inc.

176,839 2.4% 5,344 2.4% 2023

Prometheus Biosciences, Inc.

55,102 0.7% 5,114 2.3% 2033

Medtronic, Inc.

252,025 3.4% 4,879 2.2% 2023 - 2027

KSQ Therapeutics, Inc.

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Boston Children's Hospital 99,063 1.4% 5,573 2.6% 2028

Merck & Co., Inc.

55,102 0.8% 5,290 2.5% 2033

Sonova Holding AG 116,444 1.6% 4,875 2.3% 2033

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232,521 3.2% 4,643 2.2% 2025

Medtronic, Inc.

201,522 2.8% 4,512 2.1% 2027 - 2028

Tokio Marine Holdings Inc.

81,072 1.1% 3,982 1.9% 2024 - 2033

197,976 2.7% 3,972 1.8% 2027

United Healthcare Services, Inc.

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219,644 3.0% 3,914 1.8% 2024

Tokio Marine Holdings Inc.

81,072 1.1% 3,802 1.7% 2023 - 2033

Duke University 126,225 1.7% 3,751 1.7% 2024

PerkinElmer Health Sciences, Inc.

105,462 1.5% 3,681 1.7% 2028

McKesson Corporation 475,204 6.6% 3,556 1.7% 2025 - 2029

HCA Holdings Inc.

80,478 1.1% 3,490 1.6% 2024 - 2027

Duke University 126,225 1.7% 3,359 1.6% 2024

Hawaii Pacific Health 85,956 1.2% 3,289 1.5% 2024 - 2029

New York University 109,983 1.5% 3,248 1.5% 2024 - 2028

McKesson Corporation 470,991 6.3% 3,143 1.4% 2024 - 2028

Ultragenyx Pharmaceutical Inc.

63,048 0.9% 3,123 1.5% 2026

Hawaii Pacific Health 85,956 1.2% 3,060 1.4% 2024 - 2029

Virginia Premier Health Plan, Inc.

Virginia Commonwealth University Health System 135,375 1.9% 2,920 1.4% 2032

WRA Management, Inc.

35,067 0.5% 2,609 1.2% 2025 - 2045

The University of Kansas Health System 104,815 1.4% 2,462 1.1% 2027 - 2028

Allergan, Inc.

Organogenesis Holdings Inc.

22,966 0.3% 2,431 1.1% 2031

Covenant Health System 55,807 0.8% 2,376 1.1% 2034

Warner Chilcott Limited 81,712 1.1% 2,280 1.1% 2027

Cytek BioSciences, Inc.

99,378 1.4% 2,241 1.0% 2029

Organogenesis Holdings Inc.

22,966 0.3% 2,209 1.0% 2031

All Other 3,501,659 46.8% 104,674 47.8% 2023 - 2043

All Other Tenants 3,525,338 48.7% 104,293 48.5% 2024 - 2043

Totals 7,234,547 100.0% $ 214,794 100.0%

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Senior Housing Operating Portfolio

Pursuant to a restructuring of our business arrangements with Five Star effective January 1, 2020, or the 2020 Restructuring Transaction, our previously existing master leases and management and pooling agreements with Five Star were terminated and replaced with new management agreements and a related omnibus agreement, which agreements were subsequently replaced in June 2021, as described below.

The conversion of our leasing arrangements with Five Star to management arrangements was a significant change in our historical arrangements with Five Star and has resulted, and likely will continue to result in future periods, in our realizing significantly different operating results from our senior living communities, including increased variability.

As of December 31, 2022, Five Star managed 119 senior living communities for our account.

Our managed senior living communities are operated by third parties pursuant to management agreements.

Five Star, which is an operating division of AlerisLife, manages many of our SHOP communities, and we lease nearly all of our senior living communities, including those managed by third party managers, to our TRSs.

In June 2021, we amended our then existing management arrangements with Five Star and Five Star agreed to cooperate with us in transitioning 108 of our senior living communities to other third party managers.

We and Five Star entered into an amended and restated master management agreement, or the Master Management Agreement, for the senior living communities that Five Star is continuing to manage.

Pursuant to the Master Management Agreement, Five Star receives a

management fee equal to 5% of the gross revenues realized at the applicable senior living communities plus reimbursement for its direct costs and expenses related to such communities.

Five Star may receive an annual incentive fee equal to 15% of the amount by which the annual EBITDA of all communities on a combined basis exceeds the target EBITDA for all communities on a combined basis for such calendar year.

The target EBITDA for those senior living communities on a combined basis is increased annually based on the greater of the annual increase of the consumer price index, or CPI, or 2%, plus 6% of any capital investments funded at the managed senior living communities on a combined basis in excess of the target capital investment.

Unless otherwise agreed, the target capital investment increases annually based on the greater of the annual increase of CPI or 2%.

Any senior living communities that are undergoing a major renovation or repositioning are excluded from the calculation of the incentive fee.

The Master Management Agreement expires in 2036, subject to Five Star's right to extend for two consecutive five year terms if Five Star achieves certain performance targets for the combined managed communities portfolio, unless earlier terminated.

Pursuant to the Master Management Agreement, beginning in 2025, we have the right to terminate up to 10% of the senior living communities that Five Star is continuing to manage, based on total revenues per year for failure to meet 80% of a target EBITDA for the applicable period.

In addition, Five Star delivered to us a related amended and restated guaranty agreement pursuant to which Five Star is continuing to guarantee the payment and performance of each of its applicable subsidiary's obligations under the applicable management agreements.

We completed the transition of 107 senior living communities from Five Star to other third party managers in 2021 and we have closed, and are assessing opportunities to redevelop, the remaining senior living community.

As of December 31, 2023, Five Star managed 119 senior living communities for our account.

We completed the transition of 107 senior living communities from Five Star to other third party managers in 2021 and we have closed the remaining senior living community.

In October 2022, we and one of our operators agreed to terminate the lease agreements for three of these senior living communities and replaced them with management agreements under our TRS structure, and an affiliate of the same operator will continue to operate these properties.

Additionally, effective October 31, 2022, Five Star ceased managing our active adult community, and RMR assumed management of that community.

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.

We incurred costs related to retention and other transition costs with respect to these transitioned communities.

For the years ended December 31, 2022 and December 31, 2021, we recorded $2.1 million and $17.4 million, respectively, of these costs to acquisition and certain other transaction related costs in our consolidated statements of comprehensive income (loss).

For the years ended December 31, 2023, 2022 and 2021, we recorded $0, $2.1 million and $17.4 million, respectively, of costs that we incurred related to retention and other transition costs to acquisition and certain other transaction related costs in our consolidated statements of operations.

The terms of the management agreements with the other third party managers are generally as follows:

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The management agreements with the other third party managers also generally provide us with the right to terminate the management agreements for communities that do not earn 70% to 80% of the target EBITDA for such communities, after an agreed upon stabilized period.

The following table presents a summary of the other third party managers:

In December 2023, we notified one of our third party managers, Cedarhurst Senior Living, which manages certain of our communities located in Wisconsin and Illinois, that we will be terminating our management agreement with respect to these communities.

We expect to transition these communities during the first half of 2024 to another third party manager, Charter Senior Living, which we have an existing relationship with.

We expect the terms of the management agreement for these communities to be generally consistent with the terms outlined above.

We expect to pay a termination fee of approximately $1.0 million in connection with this transition.

The following table presents a summary of the other third party managers as of December 31, 2023:

Manager Location Number of Communities Number of Units

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Total 111 7,554

For further information regarding the 2020 Restructuring Transaction, the terms of the Master Management Agreement and of the management agreements with the other third party managers and our other business arrangements with Five Star, see Note 6 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K, and for more information about our dealings and relationships with Five Star generally, and the risks which may arise as a result of these related person transactions, see “Risk Factors—Risks Related to Our Relationships with RMR and AlerisLife (including

Five Star)” in Part I, Item 1A of this Annual Report on Form 10-K, “—Related Person Transactions” below and Note 8 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

As of December 31, 2022, lease expirations at our other triple net leased senior living communities leased to third party operators and wellness centers were as follows (dollars in thousands):

For further information regarding the terms of the Master Management Agreement and of the management agreements with the other third party managers and our other business arrangements with Five Star, see Note 6 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K, and for more information about our dealings and relationships with Five Star generally, and the risks which may arise as a result of these related person transactions, see “Risk Factors—Risks Related to Our Relationships with RMR and AlerisLife (including Five Star)” in Part I, Item 1A of this Annual Report on Form 10-K, “—Related Person Transactions” below and Note 8 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

As of December 31, 2023, lease expirations at our triple net leased senior living communities leased to third party operators and wellness centers were as follows (dollars in thousands):

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

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2024 — — $ — — % — %

2024 — — — — % — %

2025 3 129,500 sq.

1,458 3.7 % 3.7 %

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2027 4 533 units 4,612 11.8 % 15.5 %

2028 6 354,000 sq.

2028 — — — — % 15.5 %

2029 1 155 units 547 1.4 % 16.9 %

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2031 1 — — — % 25.8 %

2032 18 876 units 9,836 25.1 % 50.9 %

2033 and thereafter 8 215 units and 682,500 sq.

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Annualized rental income includes estimated percentage rents and straight line rent adjustments and excludes lease value amortization.

During the year ended December 31, 2023 we entered into new leases at certain of our wellness centers in our "non-segment" operations as summarized in the following table (dollars and square feet in thousands, except per square foot amounts):

Year Ended December 31, 2023

Square feet leased during the period 225

Weighted average rental rate change (by rentable square feet) (9.9) %

Weighted average lease term (years)

Total leasing costs and concession commitments (1)

Total leasing costs and concession commitments per square foot (1)

Total leasing costs and concession commitments per square foot per year (1)

(1) Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent.

GENERAL INDUSTRY TRENDS

Our medical office and life science properties have been impacted by at least two major industry trends for the past 10 years which are continuing at this time and that have impacted our investment activities.

First, medical practices are being consolidated into hospital systems.

This has caused the number of free standing medical practices to decline.

At the same time, the number of multi-practice medical office buildings that are anchor leased by hospital systems who employ doctors has increased.

We believe hospital systems will continue the trend of providing an increasing amount of services in off campus medical offices away from main hospital campuses in order to reduce costs and serve as many patients as possible, which is reinforced by consumers' preference for healthcare services to be provided away from hospital campuses and closer to their residence or work locations.

Second, various advances in medical science have caused a large investment in new bio-medical research companies that require office, lab and medical products manufacturing space.

We believe that about 35% of our total investments in our Office Portfolio segment may be considered biotech and life science properties as of December 31, 2022.

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.

GDP, according to 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.

In the medical office sector, the industry has been trending toward a greater proportion of outpatient care resulting in an increasing number of multi-practice medical office buildings, anchor leased by hospital systems, and a decline in free-standing medical practices, a potential benefit to our Office Portfolio.

The pandemic further accelerated this trend because of stronger consumer preference for off-campus care in more convenient locations.

Costs within the industry continue to be in focus with health system operating margins being under pressure in recent years, which is, while moderating, a theme that may continue in 2024.

In the life science sector, particularly with properties that provide laboratory or medical manufacturing space, over the years there has been significant capital invested across the bio-medical research space, driving a large increase in demand for laboratory and research space.

Venture capital funding reached an all-time high in 2021;

however, such funding significantly declined in 2022 and 2023.

Funding in the past two years has been increasingly concentrated on companies located in the top three markets of Boston, San Francisco and San Diego with more stringent requirements.

New construction of life science properties hit record levels in 2021 and 2023 across major markets, and the construction pipeline, while decreasing, remains elevated into 2024.

This has been met by softening demand from tenants and resulted in rising vacancy rates across the major life science markets.

We believe that 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 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.

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The medical advances which are increasing average life spans are also causing some seniors to delay moving to senior living communities until they require greater care or to forgo moving to senior living communities altogether, but we do not believe this factor is sufficient to offset the long term positive demographic trends causing increased demand for senior living communities for the foreseeable future.

In recent years, a significant number of new senior living communities have been developed and continue to be developed.

Although the rate of newly started developments declined due to the COVID-19 pandemic and its aftermath, the increased supply of senior living communities that has resulted from recent development activity has increased competitive pressures on our managers and tenants, particularly in certain geographic markets where we own senior living communities, and we expect these competitive challenges to continue for at least the next few years.

These competitive challenges may prevent our managers and tenants from maintaining or improving occupancy and rates at our senior living communities, which may increase the risk of default under our leases, reduce the rents and returns we may receive and earn from our leased and managed senior living communities and adversely affect the profitability of our senior living communities, and may cause the value of our properties to decline.

In response to these competitive pressures, we have invested capital in our existing senior living communities and expect to continue to do so in order that our communities may remain competitive with newer communities.

For a discussion of and the risks relating to these economic uncertainties, including changes related to the COVID-19 pandemic, and their impact on us and our business, see elsewhere in this Annual Report on Form 10-K, including "Warning Concerning Forward-Looking Statements," Part I, Item 1 "Business" and Part I, Item 1A "Risk Factors".

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 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.

The senior living industry is subject to extensive and frequently changing federal, state and local laws and regulations.

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Total revenues $ 1,410,308 $ 1,283,566

Net income (loss) attributable to common shareholders:

Net income (loss):

Office Portfolio $ (12,183) $ 378,282

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Non-Segment (181,769) (254,467)

Net income (loss) attributable to common shareholders $ (15,774) $ 174,515

Net income (loss) $ (293,572) $ (15,774)

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

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Office Portfolio $ 122,566 $ 128,091 $ (5,525) (4.3) %

SHOP 8,726 10,124 (1,398) (13.8) %

SHOP 76,817 8,726 68,091 nm

Non-Segment 36,774 37,679 (905) (2.4) %

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General and administrative 26,131 26,435 (304) (1.1) %

Acquisition and certain other transaction related costs 2,605 17,506 (14,901) (85.1) %

Acquisition and certain other transaction related costs 10,853 2,605 8,248 nm

Impairment of assets 18,380 — 18,380 100.0 %

Gain on sale of properties 1,205 321,862 (320,657) (99.6) %

Loss on equity securities, net (25,660) (42,232) 16,572 (39.2) %

Gains and losses on equity securities, net 8,126 (25,660) 33,786 (131.7) %

Interest and other income 15,536 15,929 (393) (2.5) %

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(191,775) (209,383) 17,608 (8.4) %

Loss on modification or early extinguishment of debt (30,043) (2,410) (27,633) nm

(Loss) income from continuing operations before income tax expense and equity in net earnings of investees (21,119) 181,356 (202,475) nm

Loss on modification or early extinguishment of debt (2,468) (30,043) 27,575 (91.8) %

Loss before income tax expense and equity in net (losses) earnings of investees (272,666) (21,119) (251,547) nm

Income tax expense (445) (710) 265 (37.3) %

Equity in net earnings of investees 6,055 — 6,055 nm

Net (loss) income (15,774) 179,926 (195,700) nm

Net income attributable to noncontrolling interest — (5,411) 5,411 (100.0) %

Net (loss) income attributable to common shareholders $ (15,774) $ 174,515 $ (190,289) nm

Equity in net (losses) earnings of investees (20,461) 6,055 (26,516) nm

Net loss $ (293,572) $ (15,774) $ (277,798) nm

nm – not meaningful

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Occupancy 92.1 % 92.1 % 86.9 % 84.7 %

(1) Consists of medical office and life science properties that we have owned and which have been in service continuously since January 1, 2021;

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

Year Ended December 31,

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

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

Rental income.

Rental income decreased primarily due to the deconsolidation of 11 medical office and life science properties currently owned by two unconsolidated joint ventures in each of which we own an equity interest, our disposition of five properties since January 1, 2021 and certain of our properties being taken out of service and/or currently undergoing redevelopment, partially offset by our acquisition of one property since January 1, 2021 and an increase in rental income at our comparable properties and at certain of our recently redeveloped properties.

Rental income increased at our comparable properties primarily due to higher average rents resulting from our new and renewal leasing activity, increased parking revenue at certain of our comparable properties as certain states and municipalities have eased restrictions related to the COVID-19

pandemic since January 1, 2021, tenants' employees have increasingly returned to the office and commercial activity has increased and increases in property operating expense reimbursements at certain of our comparable properties, partially offset by decreases in occupancy at certain of our comparable properties.

Rental income decreased due to a tenant default at one of our properties resulting in a write off of the corresponding unamortized straight line rent receivable, the deconsolidation of 10 medical office and life science properties currently owned by an unconsolidated joint venture in which we own an equity interest and certain of our properties being taken out of service and/or currently undergoing redevelopment, partially offset by the acquisition of one property since January 1, 2022 and an increase in rental income at our comparable properties and at certain of our recently redeveloped properties.

Rental income increased at our comparable properties primarily due to higher average rents resulting from our new and renewal leasing activity, increases in property operating expense reimbursements at certain of our comparable properties, an early termination fee recognized at one of our properties and increased parking revenue at certain of our comparable properties.

Property operating expenses.

Property operating expenses consist of real estate taxes, utility expenses, insurance, management fees, salaries and benefit costs of property level personnel, repairs and maintenance expense, cleaning expense and other direct costs of operating these properties.

The decrease in property operating expenses is primarily due to the deconsolidation of 11 medical office and life science properties currently owned by two unconsolidated joint ventures in each of which we own an equity interest, our disposition of five properties since January 1, 2021 and certain of our properties being taken out of service and/or currently undergoing redevelopment, partially offset by our acquisition of one property since January 1, 2021 and an increase in property operating expenses at our comparable properties and at certain of our recently redeveloped properties.

Property operating expenses at our comparable properties increased primarily due to increases in utility expenses and other direct costs at certain of our comparable properties.

The increase in utility expenses for our comparable properties is primarily due to higher energy rates and increased building utilization levels at certain of our properties.

The increase in property operating expenses is primarily due to an increase in property operating expenses at our comparable properties and at certain of our recently developed properties, and our acquisition of one property since January 1, 2022, partially offset by the deconsolidation of 10 medical office and life science properties currently owned by an unconsolidated joint venture in which we own an equity interest.

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

Net operating income.

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$ 4,824 $ 4,527 $ 4,821 $ 4,506

(1) Consists of senior living communities that we have owned and which have been in service, reported in the same segment and operated by the same operator continuously since January 1, 2021;

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

(2) Average monthly rate is calculated by taking the average daily rate, which is defined as total residents fees and services divided by occupied units during the period, and multiplying it by 30 days.

Year Ended December 31,

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

Residents fees and services.

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

Residents fees and services increased primarily due to increases in occupancy and average monthly rate at both comparable and non-comparable properties, partially offset by our property that was taken out of service due to damage sustained by Hurricane Ian.

Residents fees and services increased primarily due to increases in occupancy and average monthly rate at our communities and the transfer of three previously leased communities to our SHOP segment in October 2022 as described below, partially offset by one community that was taken out of service due to damage sustained by Hurricane Ian.

Property operating expenses.

Property operating expenses consist of wages and benefit costs of property level personnel, real estate taxes, utility expenses, insurance, repairs and maintenance expense, management fees, cleaning expense and other direct costs of operating these communities.

Property operating expenses increased primarily due to increases in labor costs, inflationary cost pressures related to food and energy and increased sales and marketing costs to improve occupancy.

Property operating expenses consist of wages and benefit costs of community level personnel, real estate taxes, utility expenses, insurance, repairs and maintenance expense, management fees, cleaning expense and other direct costs of operating these communities.

Property operating expenses increased primarily due to increases in labor costs, dietary expenses, insurance costs, increased sales and marketing costs to improve occupancy and the transfer of three previously leased communities to our SHOP segment as described below, partially offset by one community that was taken out of service due to damage sustained by Hurricane Ian.

Net operating income.

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Total properties:

Other triple net leased senior living communities 26 26 27 29

Wellness centers 10 10 10 10

Rent coverage:

Other triple net leased senior living communities (3)

1.23 x 1.26 x 1.23 x 1.26 x

Triple net leased senior living communities 26 26 27 27

Wellness centers 10 10 10 10

1.80 x 1.60 x 1.80 x 1.60 x

(1) Non-segment operations consists of all of our other operations, including certain senior living communities and wellness centers that are leased to third party operators, which segment we do not consider to be sufficiently material to constitute a separate reporting segment, and any other income or expenses that are not attributable to a specific reporting segment.

(2) Comparable properties consists of properties that we have owned and which have been reported in the same segment and leased to the same operator continuously since January 1, 2021;

excludes properties classified as held for sale, if any.

(3) All tenant operating data presented is based upon the operating results provided by our tenants for the 12 months ended September 30, 2022 and 2021 or the most recent prior period for which tenant operating results are available to us.

Rent coverage is calculated using the operating cash flows from our triple net lease tenants' operations of our properties, before subordinated charges, if any, divided by triple net lease minimum rents payable to us.

We have not independently verified tenant operating data.

Excludes data for historical periods prior to our ownership of certain properties, as well as data for properties sold or classified as held for sale, if any, or for which there was a transfer of operations during the periods presented.

Excludes rent coverage for six of our wellness centers, the tenant of which was in default under the applicable leases with us as of December 31, 2022.

Year Ended December 31,

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Rental income $ 37,033 $ 36,371 $ 662 1.8 % $ 837 $ 1,979 $ 37,870 $ 38,350 $ (480) (1.3) %

Property operating expenses (671) — 671 nm — — (671) — 671 nm

Property operating expenses (1,096) (671) 425 63.3 % — — (1,096) (671) 425 63.3 %

NOI $ 35,937 $ 35,700 $ 237 0.7 % $ 837 $ 1,979 $ 36,774 $ 37,679 $ (905) (2.4) %

(2) Consists of properties that we have owned and which have been reported in the same segment and leased to the same operator continuously since January 1, 2022;

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Rental income.

Rental income decreased primarily due to a decrease in rental income at our comparable properties, partially offset by an increase in rental income as a result of our purchase of improvements at our comparable properties since January 1, 2021.

Rental income decreased at our comparable properties primarily due to lower cash rents received during the year ended December 31, 2022 from a tenant in default under leases for six of our wellness centers.

We have elected to recognize rental income as rent payments are received from this tenant.

Rental income decreased primarily due to the termination of the lease agreements for three of our senior living communities which were replaced with management agreements under our TRS structure in October 2022, partially offset by an increase in rental income at our comparable properties.

The increase in comparable properties rental income was primarily due to net leasing activity and increased property operating expense reimbursements at our wellness centers.

In January 2023, we agreed to amend the lease for three of these wellness centers and repossess the remaining three wellness centers.

In October 2022, we and one of our operators agreed to terminate the lease agreement for three of our senior living communities and replace them with management agreements under our TRS structure.

An affiliate of the same operator will continue to operate these properties.

The decrease in rental income at comparable properties was partially offset by higher percentage rents recognized in 2022 as compared to 2021.

In February 2023, we entered into a 15 year lease, which commenced in June 2023, with a private operator for

one of these repossessed wellness centers.

In March 2023, we entered into two separate 20 year leases, which are expected to commence in 2024, with an operator for the remaining two repossessed wellness centers.

Property operating expenses.

Property operating expenses consist of real estate taxes and other expenses we paid on behalf of a tenant in default under leases for six of our wellness centers.

Pursuant to an agreement with this tenant in January 2023, we expect to continue to incur real estate taxes and other direct costs for three of these properties.

Property operating expenses consist of real estate taxes and other direct costs of operating certain of our wellness centers.

Pursuant to an agreement with a previously defaulted tenant in January 2023, we expect to continue to incur real estate taxes and other direct costs for three of these wellness centers.

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

Net operating income.

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Depreciation and amortization expense.

Depreciation and amortization expense decreased primarily due to the deconsolidation of 11 medical office and life science properties owned by two unconsolidated joint ventures in each of which we own an equity interest and certain depreciable assets becoming fully depreciated since January 1, 2021.

Decreases to depreciation and amortization expenses were partially offset by the purchase of capital improvements at certain of our properties and our acquisition of one property since January 1, 2021.

Depreciation and amortization expense increased primarily due to the purchase of capital improvements at certain of our properties, the write off of unamortized assets as a result of a tenant default at one property in our Office Portfolio and the acquisition of one property since January 1, 2022.

Increases in depreciation and amortization expenses were partially offset by the deconsolidation of 10 medical office and life science properties owned by an unconsolidated joint venture in which we own an equity interest and certain depreciable assets becoming fully depreciated since January 1, 2022.

General and administrative expense .

General and administrative expense consists of fees paid to RMR under our business management agreement, legal and accounting fees, fees and expenses of our Trustees, equity compensation expense and other costs relating to our status as a publicly traded company.

General and administrative expense decreased primarily due to a decrease in our base business management fees expense as a result of lower consolidated indebtedness and lower trading prices for our common shares during 2022 compared to 2021.

Acquisition and certain other transaction related costs.

For the year ended December 31, 2022, acquisition and certain other transaction related costs primarily represent costs related to the transition of certain senior living communities to other third party managers.

For the year ended December 31, 2023, acquisition and certain other transaction related costs primarily represent costs incurred in connection with our terminated merger with OPI and costs incurred for financial advisory services regarding our then 2024 debt maturities.

For the years ended December 31, 2023 and 2022, acquisition and certain other transaction related costs also include costs related to the transition of certain senior living communities to other third party managers.

Impairment of assets.

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Gain on sale of properties is the net result of our sales of certain of our properties and joint venture equity interests during 2023 and 2022.

The gain on sale of properties during the year ended December 31, 2022 reflects the contribution of 10 medical office and life science properties to the LSMD JV in which we retained a 20% equity interest.

Our aggregate gain on sale of properties during 2023 was not significant.

The gain on sale of properties during the year ended December 31, 2022 reflects our sale of 10 medical office and life science properties to the LSMD JV in which we retained a 20% equity interest and our sale of a 10% equity interest in the Seaport JV.

For further information regarding gain on sale of properties, see Note 3 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Losses on equity securities, net.

Losses on equity securities, net, represent the net unrealized losses to adjust our investment in AlerisLife to its fair value.

For further information regarding our investment in AlerisLife, see Note 10 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Gains and losses on equity securities, net.

Gains and losses on equity securities, net, represent the net realized and unrealized gains and losses to adjust our former investment in AlerisLife to its fair value.

For further information regarding our former investment in AlerisLife, see Note 10 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Interest and other income.

The decrease in interest and other income is primarily due to a decrease of funds we received from the U.S.

government pursuant to the CARES Act and ARPA which were $4,327 during the year ended December 31, 2022 compared to $19,554 received during the year ended December 31, 2021.

Decreases to interest and other income were partially offset by higher interest earned during the year ended December 31, 2022 as a result of higher interest rates compared to the year ended December 31, 2021.

The decrease in interest and other income is primarily due to $1,581 of funds we received from certain programs under the CARES Act, ARPA and various state programs during the year ended December 31, 2023 compared to $4,327 received during the year ended December 31, 2022, partially offset by higher interest earned during the year ended December 31, 2023, as a result of higher interest rates compared to the year ended December 31, 2022.

Interest expense.

Interest expense decreased primarily due to our redemption in June 2022 of $500,000 of our 9.75% senior notes due 2025, the deconsolidation of the debt secured by one life science property owned by the Seaport JV and due to our redemption in June 2021 of all $300,000 of our 6.75% senior notes due 2021.

These decreases were partially offset by an increase in interest rates under our credit facility and our issuance in February 2021 of $500,000 aggregate principal amount of our 4.375% senior notes due 2031.

Interest expense decreased primarily due to our redemption in June 2022 of $500,000 of our 9.75% senior notes due 2025 and a decrease in average borrowings under our former credit facility in connection with repayments aggregating $700,000 during 2023 related to amendments to and repayment in full of such credit facility in December 2023.

This decrease was partially offset by an increase in interest rates under our former credit facility during 2023 and the issuance of $940,534 of our senior secured notes due 2026 in December 2023, resulting in accretion of the discount totaling $2,720 in the 2023 period.

Loss on modification or early extinguishment of debt.

We recorded a loss on modification or early extinguishment of debt in connection with the amendments to our credit agreement and our redemption of $500,000 of our 9.75% senior notes due 2025 during the year ended December 31, 2022.

We recorded a loss on early extinguishment of debt in connection with the amendments to our credit agreement and the agreement governing our previously existing $200,000 term loan, our prepayment of our $200,000 term loan and our redemption of all $300,000 of our 6.75% senior notes due 2021 during the year ended December 31, 2021.

During the year ended December 31, 2023, we recorded a loss on modification or early extinguishment of debt in connection with amendments to and repayment in full of our then credit facility as well as redemption of $250,000 of our 4.750% senior notes due May 2024.

During the year ended December 31, 2022, we also recorded a loss on early extinguishment of debt in connection with our redemption of $500,000 of our 9.75% senior notes due 2025, partially offset by a gain on early extinguishment of debt in connection with our prepayment of a mortgage note in April 2023.

Income tax expense.

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Equity in net earnings of investees.

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

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

Non-GAAP Financial Measures (dollars in thousands, except per share amounts)

We present certain "non-GAAP financial measures" within the meaning of applicable SEC rules, including FFO attributable to common shareholders, Normalized FFO attributable to common shareholders and NOI for the years ended December 31, 2022 and 2021.

These measures do not represent cash generated by operating activities in accordance with

GAAP and should not be considered alternatives to net income (loss) or net income (loss) attributable to common shareholders as indicators of our operating performance or as measures of our liquidity.

These measures should be considered in conjunction with net income (loss) and net income (loss) attributable to common shareholders as presented in our consolidated statements of comprehensive income (loss).

We present certain "non-GAAP financial measures" within the meaning of applicable SEC rules, including FFO, Normalized FFO and NOI for the years ended December 31, 2023 and 2022.

These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) or net income (loss) attributable to common shareholders as indicators of our operating performance or as measures of our liquidity.

These measures should be considered in conjunction with net income (loss) and net income (loss) attributable to common shareholders as presented in our consolidated statements of operations.

We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss) and net income (loss) attributable to common shareholders.

We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization, they may facilitate a comparison of our operating performance between periods and with other REITs and, in the case of NOI, reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of our properties.

Funds From Operations and Normalized Funds From Operations Attributable to Common Shareholders

We calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders as shown below.

FFO attributable to common shareholders is calculated on the basis defined by the National Association of Real Estate Investment Trusts, which is net income (loss) attributable to common shareholders, calculated in accordance with GAAP, excluding any gain or loss on sale of properties, equity in net earnings or losses of unconsolidated joint ventures, loss on impairment of real estate assets, gains or losses on equity securities, net, if any, including adjustments to reflect our proportionate share of FFO of our equity method investment in AlerisLife and our proportionate share of FFO from our unconsolidated joint ventures, plus real estate depreciation and amortization of consolidated properties and minus FFO adjustments attributable to noncontrolling interest, as well as certain other adjustments currently not applicable to us.

In calculating Normalized FFO attributable to common shareholders, we adjust for the items shown below.

FFO attributable to common shareholders and Normalized FFO attributable to common shareholders are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders.

Funds From Operations and Normalized Funds From Operations

We calculate FFO and Normalized FFO as shown below.

FFO is calculated on the basis defined by the National Association of Real Estate Investment Trusts, which is net income (loss) attributable to common shareholders, calculated in accordance with GAAP, excluding any gain or loss on sale of properties, equity in net earnings or losses of unconsolidated joint ventures, loss on impairment of real estate assets, gains or losses on equity securities, net, if any, and including adjustments to reflect our proportionate share of FFO of our former equity method investment in AlerisLife for the periods we had an equity investment in AlerisLife that we accounted for as an equity method investment and our proportionate share of FFO from our unconsolidated joint ventures, plus real estate depreciation and amortization of consolidated properties, as well as certain other adjustments currently not applicable to us.

In calculating Normalized FFO, we adjust for the items shown below including similar adjustments for our unconsolidated joint ventures, if any.

FFO and Normalized FFO are among the factors considered by our Board when determining the amount of distributions to our shareholders.

Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in the agreements governing our debt, the availability to us of debt and equity capital, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations.

Other real estate companies and REITs may calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders differently than we do.

Our calculations of FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the years ended December 31, 2022 and 2021 and reconciliations of net income (loss) attributable to common shareholders, the most directly comparable financial measure under GAAP reported in our consolidated financial statements, to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders appear in the following table.

This table also provides a comparison of distributions to shareholders, FFO attributable to common shareholders and Normalized FFO attributable to common shareholders and net income (loss) attributable to common shareholders per share for these periods.

Other real estate companies and REITs may calculate FFO and Normalized FFO differently than we do.

Our calculations of FFO and Normalized FFO for the years ended December 31, 2023 and 2022 and reconciliations of net income (loss), the most directly comparable financial measure under GAAP reported in our consolidated financial statements, to FFO and Normalized FFO appear in the following table.

This table also provides a comparison of distributions to shareholders, FFO and Normalized FFO and net income (loss) per share for these periods.

For the Year Ended December 31,

Net (loss) income attributable to common shareholders $ (15,774) $ 174,515

Net loss $ (293,572) $ (15,774)

Depreciation and amortization 284,083 239,280

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Impairment of assets 18,380 —

Losses on equity securities, net 25,660 42,232

FFO adjustments attributable to noncontrolling interest — (20,584)

Equity in net earnings of unconsolidated joint ventures (6,055) —

Gains and losses on equity securities, net (8,126) 25,660

Equity in net losses (earnings) of unconsolidated joint ventures 20,461 (6,055)

Share of FFO from unconsolidated joint ventures 7,738 11,518

Adjustments to reflect our share of FFO attributable to an equity method investment (1,586) (7,715)

FFO attributable to common shareholders (74,948) (30,896)

FFO 26,173 (74,948)

Acquisition and certain other transaction related costs 10,853 2,605

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Adjustments to reflect our share of Normalized FFO attributable to an equity method investment 1,576 3,975

Normalized FFO attributable to common shareholders $ (38,325) $ (7,906)

Normalized FFO $ 41,070 $ (38,325)

Weighted average common shares outstanding (basic and diluted) 238,836 238,314

Per common share data (basic and diluted):

Net (loss) income attributable to common shareholders $ (0.07) $ 0.73

FFO attributable to common shareholders $ (0.31) $ (0.13)

Normalized FFO attributable to common shareholders $ (0.16) $ (0.03)

Net loss $ (1.23) $ (0.07)

FFO $ 0.11 $ (0.31)

Normalized FFO $ 0.17 $ (0.16)

Distributions declared $ 0.04 $ 0.04

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The calculation of NOI by reportable segment is included above in this Item 7.

The following table includes the reconciliation of net income (loss) to NOI for the years ended December 31, 2022 and 2021.

The following table includes the reconciliation of net loss to NOI for the years ended December 31, 2023 and 2022.

For the Year Ended December 31,

Reconciliation of Net Income (Loss) to NOI:

Net (loss) income $ (15,774) $ 179,926

Equity in net earnings of investees (6,055) —

Reconciliation of Net Loss to NOI:

Net loss $ (293,572) $ (15,774)

Equity in net losses (earnings) of investees 20,461 (6,055)

Income tax expense 445 710

(Loss) income from continuing operations before income tax expense and equity in net earnings of investees (21,119) 181,356

Loss from continuing operations before income tax expense and equity in net (losses) earnings of investees (272,666) (21,119)

Loss on modification or early extinguishment of debt 2,468 30,043

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Interest and other income (15,536) (15,929)

Losses on equity securities, net 25,660 42,232

Gains and losses on equity securities, net (8,126) 25,660

Gain on sale of properties (1,205) (321,862)

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Our principal sources of cash to meet operating and capital expenses, pay debt service obligations and make distributions to our shareholders are the operating cash flows we generate as rental income from our leased properties, residents fees and services revenues from our managed communities and proceeds from the disposition of certain properties.

We believe that these sources will be sufficient to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders for at least the next 12 months.

We believe that these sources of funds will be sufficient to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders for at least the next 12 months.

Our future cash flows from operating activities will depend primarily upon:

• our ability to receive rents from our tenants;

• our ability to maintain or increase the occupancy of, and the rates at, our properties, particularly at our senior living communities;

• our and our managers' abilities to control operating expenses and capital expenses at our properties, including increased operating expenses that we may incur in response to high inflation, limited labor availability or supply chain challenges;

• our ability to maintain or increase the occupancy of, and the rates at, our properties;

• our and our managers' abilities to control operating expenses and capital expenses at our properties, including increased operating expenses that we may incur in response to wage and commodity price inflation, limited labor availability and increased insurance costs;

• our managers' abilities to maintain or increase our returns from our managed senior living communities.

In March 2021, we borrowed $800.0 million under our credit facility as a precautionary measure to increase our cash position and preserve financial flexibility in light of uncertainties related to the COVID-19 pandemic.

In February 2022, we repaid $100.0 million in outstanding borrowings under our credit facility and the facility commitments were reduced to $700.0 million.

In February 2022, we exercised our option to extend the maturity date of our credit facility by one year to January 2024, and in January 2023, pursuant to the terms of the credit agreement, we repaid $113.6 million in outstanding borrowings under our credit facility and the facility commitments were reduced to $586.4 million.

In February 2023, pursuant to an amendment to our credit agreement, we repaid $136.4 million in outstanding borrowings under our credit facility and the

facility commitments were further reduced to $450.0 million.

We have no additional options to extend the maturity date of our credit facility and, pursuant to the February 2023 amendment to our credit agreement, the feature of our credit facility permitting us to repay and reborrow funds was eliminated.

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

We may fail to satisfy covenants and conditions under our credit agreement or fail to satisfy our public debt covenants.

If we believe we will not be able to satisfy our financial or other covenants, we expect that we would seek waivers or amendments prior to any covenant violation or seek other financing alternatives.

As of 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 facility and our public debt covenants as the effects of the current market 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.

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

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

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

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

However, increased operating costs resulting from difficult labor market conditions, wage and

commodity price inflation and increased insurance costs, among other things, continue to negatively impact margins.

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

In order to increase the probability of a recovery of our cash flows, we have continued to invest capital in our SHOP segment.

As a result of the slow recovery of our SHOP segment and having $700.0 million of outstanding debt then becoming due within one year and only $338.4 million in cash and cash equivalents as of June 30, 2023, we concluded as of May 8, 2023 that there was a substantial doubt about our ability to continue as a going concern for at least one year from the date of issuance of those condensed consolidated financial statements.

Additionally, as of November 1, 2023 we were unable to demonstrate that our plans to alleviate the substantial doubt about our ability to continue as a going concern would be probable in mitigating the conditions that raised the substantial doubt given our plans were beyond our control.

On December 21, 2023, we completed a private offering of $940.5 million in aggregate principal amount at maturity of senior secured notes due January 2026, with a one-year extension option.

The net proceeds from the offering were approximately $730.4 million after deducting initial purchaser discounts and estimated offering costs.

We used a portion of the net proceeds to repay in full the $450.0 million outstanding under our then secured credit facility and to redeem $250.0 million of our senior notes that were scheduled to mature in May 2024.

As a result of these transactions, we have no significant debt maturities until June 2025 when $500.0 million of our senior notes will become due, and as of December 31, 2023, we had $245.9 million of cash and cash equivalents.

Additionally, as of December 31, 2023, our ratio of consolidated income available for debt service to debt service is above the 1.5x incurrence requirement under our senior notes, on a pro forma basis.

As a result, we are able to refinance existing or maturing debt and issue new debt as long as this ratio is at or above 1.5x on a pro forma basis at the time of such refinancing or issuance.

Our management has concluded that these transactions have successfully alleviated the conditions that raised the substantial doubt about our ability to continue as a going concern and that no substantial doubt about our ability to continue as going concern exists as of February 26, 2024.

Until its repayment in full and termination on December 21, 2023, we had a $450.0 million credit facility that was fully drawn.

In January 2022, we entered into a joint venture with two unrelated third party institutional investors for 10 medical office and life science properties we owned for aggregate proceeds, before closing costs and other adjustments, of $653.3 million.

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Our initial investment amount was based on a property valuation of $1.7 billion, less $620.0 million of existing mortgage debts on the property that this joint venture assumed.

In February 2023, we sold three former senior living communities for an aggregate sales price of $2.8 million, excluding closing costs.

The measures we have taken to enhance our ability to maintain sufficient liquidity may not sufficiently offset the decrease in cash flows from operations as a result of the properties we have sold, operating losses we may experience and capital investments we make, in which case our liquidity would be negatively impacted.

In February 2023, we sold three properties for an aggregate sales price of $2.8 million, excluding closing costs.

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

In November 2023, we sold one property for $1.8 million, excluding closing costs.

In December 2023, we sold one property for $3.5 million, excluding closing costs.

The following is a summary of our sources and uses of cash flows for the periods presented, as reflected in our consolidated statements of cash flows (dollars in thousands):

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Our Operating Liquidity and Resources

We generally receive minimum rents from our tenants monthly or quarterly, we receive residents fees and services revenues, net of expenses, from our managed senior living communities monthly and we receive percentage rents from certain of our senior living community tenants monthly, quarterly or annually.

The decrease in cash used in operating activities for the year ended December 31, 2022 compared to the prior year was primarily due to a reduction in interest expense paid during 2022 compared to 2021, cash distributions we received from our unconsolidated joint venture interests and favorable changes in working capital.

These increases were partially offset by reduced NOI as a result of the deconsolidation of joint venture properties during 2021 and 2022, as well as wage inflation and other cost increases at the senior living communities in our SHOP segment, and dispositions of properties during 2021.

Specifically as it relates to our SHOP segment, we may continue to face issues with labor availability and wage inflation along with cost pressures from supply chain disruptions and commodity price inflation.

We generally receive minimum rents from tenants at our Office Portfolio properties, triple net leased senior living communities and wellness centers monthly, we receive residents fees and services revenues, net of expenses, from our managed senior living communities monthly and we receive percentage rents from tenants at certain of our senior living communities monthly, quarterly or annually.

The change in cash provided by (used in) operating activities for the year ended December 31, 2023 compared to the prior year was primarily due to increased NOI as a result of increased rates and occupancy at the senior living communities in our SHOP segment.

Additionally, interest payments decreased in 2023 compared to 2022 primarily due to our redemption of $500,000 of our 9.75% senior notes due 2025 in June 2022.

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

Although we have seen signs of recovery as it relates to our SHOP segment, the recovery of our SHOP segment has been slower than previously anticipated and uneven, and we face and may continue to face issues with limited labor availability and wage inflation along with cost pressures from increased insurance premiums and commodity price inflation and possible reduced demand for senior living communities.

Our Investing Liquidity and Resources

The increase in cash provided by investing activities for the year ended December 31, 2022 compared to the prior year was primarily due to proceeds from our sale of 10 medical office and life science properties to the LSMD JV in which we retained a 20% equity interest and insurance proceeds received in excess of costs incurred for senior living communities located in Florida related to Hurricane Ian , partially offset by less proceeds from our sale of an equity interest in the Seaport JV, less proceeds from the sale of real estate properties, our acquisition of one property in 2022 and an increase in real estate improvements during 2022 compared to 2021.

The change in cash (used in) provided by investing activities for the year ended December 31, 2023 compared to the prior year was primarily due to proceeds in 2022 from our sale of 10 medical office and life science properties to the LSMD JV in which we retained a 20% equity interest and our sale of a 10% equity interest in the Seaport JV, partially offset by a property acquisition in 2022, a decrease in real estate improvements in 2023 compared to 2022, additional proceeds from the sale of properties in 2023 as compared to 2022 and the proceeds received from the tender of all of the 10,691,658 AlerisLife common shares we owned at a price of $1.31 per share in 2023.

The following is a summary of capital expenditures, development, redevelopment and other activities for the periods presented (dollars in thousands):

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12,984 11,955

SHOP segment fixed assets and capital improvements 109,529 141,122

Recurring capital expenditures - Office Portfolio segment 51,054 37,182

SHOP fixed assets and capital improvements

100,981 109,529

Wellness centers lease related costs (1)

Recurring capital expenditures $ 161,756 $ 146,711

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Total development, redevelopment and other activities $ 91,451 $ 166,991

(1) Office Portfolio segment lease related costs generally include capital expenditures to improve tenants' space or amounts paid directly to tenants to improve their space and other leasing related costs, such as brokerage commissions and tenant inducements.

(2) Office Portfolio segment building improvements generally include capital expenditures to replace obsolete building components that extend the useful life of existing assets or other improvements to increase the marketability of the property.

(1) Lease related costs generally include capital expenditures to improve tenants' space or amounts paid directly to tenants to improve their space and other leasing related costs, such as brokerage commissions and tenant inducements.

(2) Building improvements generally include capital expenditures to replace obsolete building components that extend the useful life of existing assets or other improvements to increase the marketability of the property.

(3) Development, redevelopment and other activities generally include capital expenditures that reposition a property or result in new sources of revenue.

We plan to continue investing capital in our properties, including redevelopment projects, to better position these properties in their respective markets in order to increase our returns in future years.

In 2023, we expect to incur capital expenditures in excess of 2022 levels, but below the $400.0 million limit under our credit agreement.

As of December 31, 2022, we had estimated unspent leasing related obligations at our triple net leased senior living communities and our medical office and life science properties of approximately $39.3 million, of which we expect to spend approximately $33.9 million during calendar year 2023.

We expect to fund these obligations using operating cash flows we generate as rental income from our leased properties, residents fees and services revenues from our managed communities, cash on hand, proceeds from the disposition of certain properties and proceeds related to contributions we may make of properties we own to joint ventures.

We are currently in the process of redeveloping four properties in our Office Portfolio.

Our redevelopments at our properties in Irving, TX, Tempe, AZ, Mansfield, MA and Washington, D.C.

are expected to be completed at various times between 2023 and 2025.

We are also currently reviewing strategic alternatives at a property in our Office Portfolio located in Silver Spring, MD, including opportunities to redevelop this property.

In addition, we also have ongoing redevelopments throughout our managed senior living communities.

We continue to assess opportunities to redevelop other properties in our portfolio.

These redevelopment projects may require significant capital expenditures and time to complete.

We generally plan to continue investing capital in our properties, including redevelopment projects, to better position these properties in their respective markets in order to increase our returns in future years.

However, we have deferred, and may in the future defer, our capital expenditures to preserve liquidity.

As of December 31, 2023, we had estimated unspent leasing related obligations at our triple net leased wellness centers and our medical office and life science properties of approximately $54.1 million, of which we expect to spend approximately $43.3 million during calendar year 2024.

We expect to fund these obligations using operating cash flows we generate as rental income from our leased properties, residents fees and services revenues from our managed communities, cash on hand, proceeds from the disposition of certain properties, future financing activities with unencumbered properties and proceeds related to distributions from our two unconsolidated joint ventures.

We are currently in the process of redeveloping certain properties in our Office Portfolio and a number of our managed senior living communities, which projects are expected to be completed at various times between 2024 and 2025.

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

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

In July 2022, we acquired one life science property located in California with approximately 88,508 square feet for approximately $75.1 million, including closing costs and credits.

We funded this acquisition using cash on hand.

As noted above, our ability to make capital investments is currently limited pursuant to our credit agreement.

Additionally, due to supply chain disruptions and inflation, the capital investments we plan to make may be delayed or cost

more than we expect.

Due to labor availability constraints and wage and commodity price inflation, the capital investments we plan to make may be delayed or cost more than we expect.

For further information regarding our acquisitions and dispositions, see Note 3 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Our Financing Liquidity and Resources

The change in cash (used in) provided by financing activities for the year ended December 31, 2022 compared to the prior year was primarily due to repayments of borrowings under our credit facility in 2022 compared to our full drawdown of our credit facility in 2021, net proceeds from our issuance in February 2021 of $500.0 million aggregate principal amount of our 4.375% senior notes in 2021, increased senior unsecured notes redemption amounts in 2022 compared to 2021, increased repayment of other debt and a prepayment premium paid in 2022 for the redemption of $500.0 million of our outstanding 9.75% senior notes due 2025, partially offset by our repayment in February 2021 of our $200.0 million term loan.

Additionally, the Seaport JV did not pay distributions during 2022 related to our noncontrolling interest that we deconsolidated in 2021.

As of December 31, 2022, we had $658.1 million of cash and cash equivalents and were fully drawn under our credit facility.

We typically use cash balances, net proceeds from offerings of securities or dispositions of assets and cash flows from our operations to fund our operations, debt repayments, distributions, acquisitions, investments, capital expenditures and other general business purposes.

In order to fund investments and to meet cash needs that may result from timing differences between our receipt of rents and our desire or need to make distributions or pay operating or capital expenses, we maintain a credit facility.

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

At December 31, 2022, our credit facility required interest to be paid on borrowings at the annual rate of 6.9%, plus a facility fee of 30 basis points per annum on the total amount of lending commitments under the facility.

On March 31, 2021, we borrowed $800.0 million under our credit facility as a precautionary measure to increase our cash position and preserve financial flexibility in light of uncertainties related to the COVID-19 pandemic.

In February 2022, we repaid $100.0 million in outstanding borrowings under our credit facility and the facility commitments were reduced to $700.0 million.

Also in February 2022, we exercised our option to extend the maturity date of our credit facility by one year to January 2024, and in January 2023, pursuant to the terms of our credit agreement, we repaid $113.6 million in outstanding borrowings under our credit facility and the facility commitments were reduced to $586.4 million.

In February 2023, pursuant to an amendment to our credit agreement, we repaid $136.4 million in outstanding borrowings under our credit facility and the facility commitments were further reduced to $450.0 million, and no principal repayment is due until maturity.

We have no additional options to extend the maturity date of our credit facility.

As of December 31, 2022 and February 24, 2023, we were fully drawn under our credit facility.

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

Pursuant to the amendment:

• the waiver of the fixed charge coverage ratio covenant included in our credit agreement was extended through December 31, 2022;

• the facility commitments were reduced from $800.0 million to $700.0 million;

• we have the ability to fund $400.0 million of capital expenditures per year and we are restricted in our ability to acquire real property as defined in our credit agreement;

• the interest rate premium under our credit facility increased by 15 basis points;

• certain financial covenants and restrictions on distributions to common shareholders, share repurchases, capital expenditures, acquiring additional properties and incurring additional indebtedness (in each case subject to various exceptions), and the minimum liquidity requirement of $200.0 million remained in place through December 31, 2022.

In February 2023, we and our lenders further amended our credit agreement.

Pursuant to the amendment:

• the waiver of the fixed charge coverage ratio covenant has been extended through the maturity date of our credit facility in January 2024;

• the minimum liquidity requirement was decreased from $200.0 million to $100.0 million;

• the facility commitments were reduced from $586.4 million to $450.0 million;

• the feature of our credit facility permitting us to repay and reborrow funds was eliminated;

• we continue to have the ability to fund $400.0 million of capital expenditures per year and we are restricted in our ability to acquire real property as defined in the credit agreement;

• secured overnight financing rate, or SOFR, was established as the replacement benchmark rate in place of LIBOR to calculate interest payable on amounts outstanding under our credit facility, and the interest rate premium under our credit facility was increased by 40 basis points;

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

Generally, when significant amounts are outstanding under our credit facility, or as the maturities of our indebtedness approach, we intend to explore refinancing alternatives.

Such alternatives may include selling certain properties and issuing new equity securities.

In addition, we may also seek to expand our existing joint venture arrangements or to participate in additional joint ventures or other arrangements that may provide us additional sources of financing.

We currently have an effective shelf registration statement that allows us to issue public securities on an expedited basis, but it does not assure that there will be buyers for such securities.

At such time that we may regain compliance with the incurrence covenant under our debt agreements, we may also incur additional debt, assume debt in connection with our acquisitions of properties or place new debt on properties we already own.

The change in cash used in financing activities for the year ended December 31, 2023 compared to the prior year was primarily due to the issuance of $940.5 million in aggregate principal amount at maturity of our senior secured notes due 2026 in a private offering, raising net proceeds of $730.4 million, after deducting initial purchaser discounts and estimated offering costs.

Additionally, we redeemed in June 2022 $500.0 million of our outstanding 9.75% senior notes due 2025.

We also made repayments under our former credit facility aggregating $700.0 million during 2023 as compared to $100.0 million during 2022, and we redeemed in December 2023 all $250.0 million of our outstanding 4.750% senior notes due May 2024.

As of December 31, 2023, we had $245.9 million of cash and cash equivalents.

We typically use cash balances, net proceeds from offerings of securities, debt issuances or dispositions of assets and cash flows from our operations to fund our operations, debt repayments, distributions, acquisitions, investments, capital expenditures and other general business purposes.

Until its repayment in full and termination on December 21, 2023, we had a $450,000 credit facility that was fully drawn.

At December 21, 2023, our former credit facility required interest to be paid on borrowings at the annual rate of 8.4%, plus a facility fee of $0.3 million per quarter.

During the year ended December 31, 2023, we paid quarterly cash distributions to our shareholders totaling approximately $9.6 million using existing cash balances.

For further information regarding the distributions we paid during 2022, see Note 5 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

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

On January 11, 2024, we declared a quarterly distribution to common shareholders of record on January 22, 2024 of $0.01 per share, or approximately $2.4 million in aggregate.

We paid this distribution on February 15, 2024, using cash on hand.

We believe we will have access to various types of financings, including debt or equity offerings, to fund our future acquisitions and to repay our debts and other obligations as they become due, subject to limitations on debt offerings in agreements governing our debt.

Our ability to complete, and the costs associated with, future debt or equity transactions depends primarily upon credit market conditions and our then creditworthiness.

We believe we may have access to certain types of financings, including debt or equity offerings, to fund our operations and to repay our debts and other obligations as they become due.

Our ability to complete, and the costs associated with, future debt or equity transactions depends primarily upon credit market conditions and our then creditworthiness and our ability to be in compliance with our debt covenants as discussed below.

We have no control over market conditions.

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

A protracted negative impact on the economy or the industries in which our properties and businesses operate, high inflation, rising or sustained high interest rates, geopolitical risks or other economic, market or industry conditions, including downturns or recessions, may have various negative consequences including a decline in financing availability and increased costs for financing.

A protracted negative impact on the economy or the industries in which our properties and businesses operate, wage and commodity price inflation, high interest rates, increased insurance costs, geopolitical risks or other economic, market or industry conditions, including the delayed recovery of the senior housing industry, economic downturns and a possible recession, may have various negative consequences including a decline in financing availability and

increased costs for financing.

Further, those conditions could also disrupt capital markets and limit our access to financing from public sources, particularly if the global financial markets experience significant disruptions.

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

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

Although there have been signs of recovery and increased demand during the year ended December 31, 2022 when compared to the low levels during the COVID-19 pandemic, we cannot be sure when or if the senior housing business will return to historic pre-pandemic levels.

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

As of February 24, 2023, we have approximately $413.0 million of cash and cash equivalents and $450.0 million in outstanding borrowings under our credit facility, which matures on January 15, 2024.

Our credit facility is secured by 61 properties which had an appraised value in excess of $1.3 billion based on appraisals completed to secure the credit facility.

We believe we will have access to various types of financings, including equity offerings, to repay our debts and other obligations as they become due or will be able to extend the maturity of certain debt.

We also have the ability to defer certain capital improvements if we believe we need to preserve liquidity.

We believe that our current financial resources, actions we have taken and are in the process of taking, our expectations as to the future performance of the senior living industry and our fully collateralized credit facility will provide us with sufficient liquidity going forward.

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

Pursuant to the amendment, among other things, the facility commitments were reduced from $800.0 million to $700.0 million following our repayment of $100.0 million.

In February 2022, we exercised our option to extend the maturity date of our former credit facility by one year to January 2024.

In January 2023, pursuant to our credit agreement, we repaid $113.6 million in outstanding borrowings under our former credit facility and the facility commitments were reduced to $586.4 million.

In February 2023, we and our lenders further amended our credit agreement.

Pursuant to the amendment the facility commitments were reduced from $586.4 million to $450.0 million following our repayment of $136.4 million in then outstanding borrowings.

In April 2022, we prepaid a mortgage note secured by one of our medical office properties with an outstanding principal balance of approximately $10.9 million, a maturity date in July 2022 and an annual interest rate of 6.28%, using cash on hand.

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In July 2022, we prepaid a mortgage note secured by two of our senior living communities with an outstanding principal balance of approximately $15.3 million, a maturity date in October 2022 and an annual interest rate of 5.75%, using cash on hand.

In October 2022, we repaid a mortgage note secured by one of our life science properties with an outstanding principal balance of approximately $10.3 million, a maturity date in October 2022 and an annual interest rate of 4.85%, using cash on hand.

In February 2022, Moody's downgraded our 9.75% senior notes due 2025 rating from Ba3 to B2, our 4.375% senior notes due 2031 rating from Ba3 to B2 and our senior unsecured debt rating from B1 to B3.

In September 2022, Moody's downgraded our 9.75% senior notes due 2025 rating from B2 to B3, our 4.375% senior notes due 2031 rating from B2 to B3 and our senior unsecured debt rating from B3 to Caa1.

In November 2022, Standard & Poor's downgraded our 9.75% senior notes due 2025 rating from BB to BB-, our 4.375% senior notes due 2031 rating from BB to BB- and our senior unsecured debt rating from BB- to B.

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

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

In October 2022, we repaid at maturity a mortgage note secured by one of our life science properties with an outstanding principal balance of approximately $10.3 million and an annual interest rate of 4.85%, using cash on hand.

In April 2023, we prepaid a mortgage note secured by one of our senior living communities with an outstanding principal balance of approximately $14.6 million, a maturity date in June 2023 and an annual interest rate of 6.64% using cash on hand.

In December 2023, we issued $940.5 million in aggregate principal amount at maturity of our senior secured notes due 2026 in a private offering, raising net proceeds of $730.4 million, after deducting initial purchaser discounts and estimated offering costs.

These notes are fully and unconditionally guaranteed, on a joint, several and senior secured basis, by certain of our subsidiaries that own 95 properties, or the Collateral Guarantors, and on a joint, several and unsecured basis, by all our subsidiaries other than the Collateral Guarantors, except for certain excluded subsidiaries.

These notes and the guarantees provided by the Collateral Guarantors are secured by a first priority lien and security interest on each of the collateral properties and 100% of the equity interests in each of the Collateral Guarantors.

These notes require no cash interest payments to accrue prior to maturity.

The accreted value of these secured notes will increase at a rate of 11.25% per annum compounded semiannually on January 15 and July 15 of each year.

We used the net proceeds from this offering to repay in full and terminate our then $450.0 million secured credit facility and to redeem $250.0 million of our senior notes which were scheduled to mature in May 2024.

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

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

In January 2024, Moody's upgraded our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031 ratings from Ca to Caa3 and our senior unsecured debt rating from C to Ca, and Moody's also assigned a Caa2 rating to our senior secured notes due 2026.

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

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

In January 2024, Standard & Poor's upgraded our 9.75% senior notes due 2025 rating from CCC+ to B, our 4.375% senior notes due 2031 rating from CCC+ to B and our senior unsecured debt rating from CCC- to CCC, and Standard & Poor's also assigned a B rating to our senior secured notes due 2026.

Our next significant debt maturity is $500.0 million of senior unsecured notes that mature in June 2025.

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

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Our principal debt obligations at December 31, 2023 were:

(1) $700.0 million of outstanding borrowings under our credit facility;

(1) $2.1 billion outstanding principal amount of senior unsecured notes;

and (3) $24.7 million aggregate principal amount of mortgage notes (excluding premiums, discounts and net debt issuance costs) secured by two properties.

(2) $940.5 million outstanding principal amount of senior secured notes;

and (3) $9.1 million aggregate principal amount of mortgage notes (excluding premiums, discounts and net debt issuance costs) secured by one property.

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

Our senior unsecured notes are governed by our senior unsecured notes indentures and their supplements.

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

Our senior unsecured notes indentures and their supplements and our credit agreement also contain covenants that restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts and require us to maintain

various financial ratios, and our credit agreement contains covenants that restrict our ability to make distributions to our shareholders in certain circumstances.

As of 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 interest rates, geopolitical risks and other economic, market and 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 December 31, 2022, we believe we were in compliance with all of the other covenants under our senior unsecured notes indentures and their supplements, our credit agreement and our other debt obligations, subject to the waivers described above.

Although we have taken steps to enhance our ability to maintain sufficient liquidity, as noted elsewhere in this Annual Report on Form 10-K, a protracted negative impact on the economy or the industries in which our properties and businesses operate resulting from high inflation, rising or sustained high interest rates, geopolitical risks or other economic, market or industry conditions, including downturns or recessions, may cause increased pressure on our ability to satisfy financial and other covenants.

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

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

We cannot assure that we would be able to obtain these waivers or amendments or repay the related debt facilities when due, which may result in an event of default under the agreements governing our debt or the potential acceleration of our outstanding debt.

Neither our senior unsecured notes indentures and their supplements, nor our credit agreement, contain provisions for acceleration which could be triggered by our debt ratings.

However, under our credit agreement, our senior unsecured debt ratings are used to determine the fees and interest rates we pay.

Accordingly, following our debt ratings downgrades, our interest expense and related costs under our credit agreement has increased.

See "—Our Financing Liquidity and Resources" above for information regarding recent downgrades of our issuer credit rating and senior unsecured debt rating.

Our senior unsecured notes indentures and their supplements contain cross default provisions to any other debts of more than $20.0 million ($50.0 million or more in the case of our senior unsecured notes indentures and supplements entered in February 2016, February 2018, June 2020 and February 2021).

Similarly, our credit agreement has cross default provisions to other indebtedness that is recourse of $25.0 million or more and indebtedness that is non-recourse of $75.0 million or more.

Our senior notes are governed by our senior notes indentures and their supplements.

Our senior notes indentures and their supplements provide for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default.

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

As of December 31, 2023, we believe we were in compliance with all of the covenants under our senior notes indentures and their supplements and our other debt obligations.

Although we continue to take steps to enhance our ability to maintain sufficient liquidity, as noted elsewhere in this Annual Report on Form 10-K, a protracted negative impact on the economy or the industries in which our properties and businesses operate resulting from wage or commodity price inflation, high interest rates, geopolitical risks or other economic, market or industry conditions, including the delayed recovery of the senior housing industry, economic downturns or a possible recession, may cause increased pressure on our ability to satisfy financial and other covenants.

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

Our senior notes indentures and their supplements do not contain provisions for acceleration which could be triggered by our debt ratings.

See "—Our Financing Liquidity and Resources" above for information regarding recent changes to our issuer credit rating and senior debt ratings.

Our senior unsecured notes indentures and their supplements contain cross default provisions to any other debts of more than $20.0 million ($50.0 million or more in the case of our senior notes indentures and supplements entered in February 2016, February 2018, June 2020, February 2021 and December 2023).

The loan agreements governing the aggregate $620.0 million secured debt financing related to the Seaport JV contain customary covenants and provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default.

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

The debt secured by the properties included in the LSMD JV in which we own a 20% equity interest is guaranteed by this joint venture.

The debt secured by the properties included in the LSMD JV in which we own a 20% equity interest is guaranteed by this joint venture and is non-recourse to us.

Supplemental Guarantor Information

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On February 3, 2021, we issued $500.0 million of our 4.375% senior notes due 2031.

As of December 31, 2022, all $500.0 million of our 9.75% senior notes due 2025 and all $500.0 million of our 4.375% senior notes due 2031 were fully and unconditionally guaranteed, on a joint and several basis and on a senior unsecured basis, by all of our subsidiaries, except for certain excluded subsidiaries, including pledged subsidiaries under our credit agreement.

As of December 31, 2023, all $500.0 million of our 9.75% senior notes due 2025 and all $500.0 million of our 4.375% senior notes due 2031 were fully and unconditionally guaranteed, on a joint, several and unsecured basis, by all of our subsidiaries, except for certain excluded subsidiaries.

The notes and the guarantees are effectively subordinated to all of our and the subsidiary guarantors' secured indebtedness, respectively, to the extent of the value of the collateral securing such secured indebtedness, and are structurally subordinated to all indebtedness and other liabilities and any preferred equity of any of our subsidiaries that do not guarantee the notes.

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Further, there are other existing and recently enacted legislation, and related litigation, related to government payments, insurance and healthcare delivery.

Examples of these, and other information regarding such matters and developments, are provided under the caption “Business-Government Regulation and Reimbursement” above in this Annual Report on Form 10-K.

We cannot currently predict the type and magnitude of the potential Medicare and Medicaid policy changes, rate changes or other changes that may be implemented, but we believe that some of these changes will cause these government funded healthcare programs

to fail to provide rates that match our and our tenants' increasing expenses and that such changes may be material and adverse to our future financial results.

During the years ended December 31, 2022, December 31, 2021 and December 31, 2020, we recognized $4.3 million, $19.6 million and $17.5 million, respectively, in interest and other income in our consolidated statements of comprehensive income (loss) related to funds received under the CARES Act and ARPA.

Examples of these, and other information regarding such matters and developments, are provided under the caption “Business—Government Regulation and Reimbursement” above in Part I, Item 1 of this Annual Report on Form 10-K.

healthcare programs to fail to provide rates that match our and our tenants' increasing expenses and that such changes may be material and adverse to our future financial results.

During the years ended December 31, 2023, December 31, 2022 and December 31, 2021, we recognized $1.6 million, $4.3 million and $19.6 million, respectively, in interest and other income in our consolidated statements of operations related to funds received under the CARES Act and ARPA.

Senior housing operations have historically reflected modest seasonality.

During fourth quarter holiday periods, residents at such facilities are sometimes discharged to spend time with family and admission decisions are often deferred.

During fourth quarter holiday periods, residents at such communities are sometimes discharged to spend time with family and admission decisions are often deferred.

The first quarter of each calendar year usually coincides with increased illness among residents which can result in increased costs or discharges to hospitals.

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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.

RMR's annual Sustainability Report summarizes the ESG initiatives RMR and its clients, including DHC, employ.

RMR'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 "Business—Corporate Sustainability" in Part I, Item 1 of this Annual Report on Form 10-K.

Some observers believe severe weather in different parts of the world over the last few years is evidence of global climate change.

4 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis