DIVERSIFIED HEALTHCARE TRUST 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and with our Annual Report. OVERVIEW We are a REIT organized under Maryland law that primarily owns medical office and life science properties, senior living communities and other healthcare related properties throughout the United States. As of June 30, 2024, we owned 370 properties located in 36 states and Washington, D.C., including five properties classified as held for sale and two closed senior living communities. At June 30, 2024, 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 June 30, 2024, 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 5.1 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, high interest rates, prolonged high inflation, labor market challenges, volatility in the public equity and debt markets, geopolitical risks, economic downturns or a possible recession and changes in real estate utilization. We expect to experience continued variability in labor, insurance and food costs in our SHOP segment. In response to significant and prolonged increases in inflation, the U.S. Federal Reserve has raised interest rates multiple times since the beginning of 2022. Although the U.S. Federal Reserve has indicated that it may lower interest rates in 2024, we cannot be sure that it will do so, and interest rates may remain at the current high levels or continue to increase. These inflationary pressures in the United States, as well as global geopolitical instability and tensions, have given rise to uncertainty regarding economic downturns or a possible recession and potential disruptions in the financial markets. An economic recession, or continued or intensified disruptions in the financial markets, could adversely affect our financial condition and that of our managers, operators and tenants, could adversely impact the ability or willingness of our managers, operators, tenants or residents to pay amounts owed to us, could impair our ability to effectively deploy our capital or realize our target returns on our investments, may restrict our access to, and would likely increase our cost of, capital, and may cause the values of our properties and of our securities to decline. We are encouraged by positive trends, including increases in rates and occupancy, in our SHOP segment. Additionally, we expect that favorable supply and demand dynamics in the senior living industry will enable our managers to generate better returns at our communities than we 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, which will provide our managers the opportunity to increase rates in excess of increases in costs, resulting in improving returns to us. For further information and risks relating to these economic uncertainties, including changes related to the COVID-19 pandemic, and their impact on our business and financial condition, see Part I, Item 1, "Business" and Part I, Item 1A, "Risk Factors" in our Annual Report. PORTFOLIO OVERVIEW The following tables present an overview of our portfolio (dollars in thousands, except investment per square foot or unit data): As of June 30, 2024 Number of Properties Square Feet or Number of Units Gross Book Value of Real Estate Assets (1) % of Total Gross Book Value of Real Estate Assets Investment per Square Foot or Unit (2) Q2 2024 Revenues % of Q2 2024 Revenues Q2 2024 NOI (3) % of Q2 2024 NOI Medical Office and Life Science Portfolio (4) 101 8,396,945 sq. ft. $ 2,238,985 31.1 % $ 267 $ 54,555 14.7 % $ 30,273 45.0 % SHOP 232 25,230 units 4,557,303 63.3 % $ 180,630 308,522 83.1 % 28,984 43.0 % Triple net leased senior living communities 27 2,062 units 202,766 2.8 % $ 98,335 5,234 1.4 % 5,233 7.8 % Wellness centers 10 812,000 sq. ft. 199,007 2.8 % $ 245 3,081 0.8 % 2,837 4.2 % Total 370 $ 7,198,061 100.0 % $ 371,392 100.0 % $ 67,327 100.0 % 19 Table of Contents Occupancy As of and For the Three Months Ended June 30, 2024 2023 Medical Office and Life Science Portfolio (5) 81.5 % 85.8 % SHOP 79.0 % 77.8 % Triple net leased senior living communities 100.0 % 100.0 % Wellness centers 100.0 % 100.0 % (1) Represents gross book value of real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, if any. (2) Represents gross book value of real estate assets divided by number of rentable square feet or living units, as applicable. (3) We calculate our NOI on a consolidated basis and by reportable segment. Our definition of NOI and our reconciliation of net income (loss) to NOI are included below under the heading “Non-GAAP Financial Measures”. (4) Our medical office and life science property leases include some triple net leases where, in addition to paying fixed rents, the tenants assume the obligation to operate and maintain the properties at their expense, and some net and modified gross leases where we are responsible for the operation and maintenance of the properties and we charge tenants for some or all of the property operating costs. A 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 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. During the three and six months ended June 30, 2024, we entered into new and renewal leases in our Medical Office and Life Science Portfolio segment as summarized in the following table (dollars and square feet in thousands, except per square foot amounts): Three Months Ended June 30, 2024 New Leases Renewals Total Square feet leased during the quarter 37 64 101 Weighted average rental rate change (by rentable square feet) 17.5 % 9.2 % 12.1 % Weighted average lease term (years) 7.9 4.2 5.6 Total leasing costs and concession commitments (1) $ 3,302 $ 822 $ 4,124 Total leasing costs and concession commitments per square foot (1) $ 89.48 $ 12.82 $ 40.81 Total leasing costs and concession commitments per square foot per year (1) $ 11.30 $ 3.06 $ 7.32 Six Months Ended June 30, 2024 New Leases Renewals Total Square feet leased during the quarter 62 140 202 Weighted average rental rate change (by rentable square feet) 23.1 % 8.0 % 11.8 % Weighted average lease term (years) 7.4 3.5 4.6 Total leasing costs and concession commitments (1) $ 4,720 $ 1,518 $ 6,238 Total leasing costs and concession commitments per square foot (1) $ 76.13 $ 10.85 $ 30.89 Total leasing costs and concession commitments per square foot per year (1) $ 10.34 $ 3.13 $ 6.77 (1) Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent. 20 Table of Contents During the six months ended June 30, 2024, we entered into renewal leases at three of our wellness centers totaling 129,600 square feet at rates that were 7.5% higher than prior rents for the same space at a weighted average lease term of five years. We did not incur any leasing costs or concessions commitments for these renewals. Lease Expiration Schedules As of June 30, 2024, lease expirations in our Medical Office and Life Science Portfolio segment were as follows (dollars in thousands): Year Number of Tenants Square Feet Leased Percent of Total Cumulative Percent of Total Annualized Rental Income (1) Percent of Total Cumulative Percent of Total 2024 42 222,370 3.2 % 3.2 % $ 6,950 3.2 % 3.2 % 2025 79 621,026 9.1 % 12.3 % 17,565 8.1 % 11.3 % 2026 59 743,245 10.9 % 23.2 % 23,507 10.9 % 22.2 % 2027 66 971,503 14.2 % 37.4 % 24,293 11.3 % 33.5 % 2028 55 1,168,501 17.1 % 54.5 % 35,354 16.4 % 49.9 % 2029 61 630,072 9.2 % 63.7 % 18,721 8.7 % 58.6 % 2030 26 318,779 4.7 % 68.4 % 8,435 3.9 % 62.5 % 2031 21 830,835 12.1 % 80.5 % 25,199 11.7 % 74.2 % 2032 17 355,648 5.2 % 85.7 % 13,527 6.3 % 80.5 % 2033 and thereafter 46 984,378 14.3 % 100.0 % 42,077 19.5 % 100.0 % Total 472 6,846,357 100.0 % $ 215,628 100.0 % Weighted average remaining lease term (in years) 5.0 5.4 (1) Annualized rental income is based on rents pursuant to existing leases as of June 30, 2024, 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. 21 Table of Contents As of June 30, 2024, 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) Percent of Total Cumulative Percent of Total 2024 — — $ — — % — % 2025 — — — — % — % 2026 — — — — % — % 2027 4 533 units 4,628 11.8 % 11.8 % 2028 — — — — % 11.8 % 2029 1 155 units 547 1.4 % 13.2 % 2030 5 283 units and 129,500 sq. ft. 5,046 12.9 % 26.1 % 2031 — — — — % 26.1 % 2032 18 876 units 9,836 25.0 % 51.1 % 2033 and thereafter 9 215 units and 682,500 sq. ft. 19,210 48.9 % 100.0 % Total 37 $ 39,267 100.0 % $ — Weighted average remaining lease term (in years) (2) 9.7 10.5 (1) Annualized rental income is based on rents pursuant to existing leases as of June 30, 2024. Annualized rental income includes estimated percentage rents and straight line rent adjustments and excludes lease value amortization. (2) Weighted average lease term is calculated based on square feet and annualized rental income. 22 RESULTS OF OPERATIONS (dollars and square feet in thousands, unless otherwise noted) We operate in, and report financial information for, the following two segments: Medical Office and Life Science Portfolio and SHOP. We aggregate the operating results of our properties in these two reporting segments based on their similar operating and economic characteristics. Our Medical Office and Life Science Portfolio segment primarily consists of medical office properties leased to medical providers and other medical related businesses, as well as life science properties primarily leased to biotech laboratories and other similar tenants. Our SHOP segment consists of managed senior living communities that provide short term and long term residential living and, in some instances, care and other services for residents where we pay fees to managers to operate the communities on our behalf. We also report “non-segment” operations, which consists of triple net leased senior living communities and wellness centers that are leased to third party operators from which we receive rents, which we do not consider to be sufficiently material to constitute a separate reporting segment, and any other income or expenses that are not attributable to a specific reporting segment. The following table summarizes the results of operations of each of our segments for the three and six months ended June 30, 2024 and 2023: Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Revenues: Medical Office and Life Science Portfolio $ 54,555 $ 53,368 $ 108,704 $ 110,390 SHOP 308,522 284,846 616,648 564,438 Non-Segment 8,315 8,005 16,816 17,421 Total revenues $ 371,392 $ 346,219 $ 742,168 $ 692,249 Net income (loss): Medical Office and Life Science Portfolio $ (30,847) $ (1,911) $ (37,960) $ 8,497 SHOP (17,988) (18,951) (40,268) (46,495) Non-Segment (49,026) (51,709) (105,892) (87,231) Net loss $ (97,861) $ (72,571) $ (184,120) $ (125,229) The following section analyzes and discusses the results of operations of each of our segments for the periods presented. 23 Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023 (dollars and square feet in thousands, except average monthly rate): Unless otherwise indicated, references in this section to changes or comparisons of results, income or expenses refer to comparisons of the results for the three months ended June 30, 2024 to the three months ended June 30, 2023. Our definition of net operating income, or NOI, and our reconciliation of net income (loss) to NOI and a description of why we believe NOI is an appropriate supplemental measure are included below under the heading “Non-GAAP Financial Measures.” Three Months Ended June 30, 2024 2023 $ Change % Change NOI by segment: Medical Office and Life Science Portfolio $ 30,273 $ 29,430 $ 843 2.9 % SHOP 28,984 22,887 6,097 26.6 % Non-Segment 8,070 7,674 396 5.2 % Total NOI 67,327 59,991 7,336 12.2 % Depreciation and amortization 68,357 68,394 (37) (0.1) % General and administrative 6,262 7,284 (1,022) (14.0) % Acquisition and certain other transaction related costs 1,826 6,043 (4,217) (69.8) % Impairment of assets 6,545 11,299 (4,754) (42.1) % Loss on sale of properties (13,213) — (13,213) (100.0) % Gains and losses on equity securities, net — — — nm Interest and other income 2,403 5,134 (2,731) (53.2) % Interest expense (58,702) (47,384) (11,318) 23.9 % Loss on modification or early extinguishment of debt (209) — (209) (100.0) % Loss before income tax expense and equity in net (losses) earnings of investees (85,384) (75,279) (10,105) 13.4 % Income tax expense (170) (221) 51 (23.1) % Equity in net (losses) earnings of investees (12,307) 2,929 (15,236) nm Net loss $ (97,861) $ (72,571) $ (25,290) 34.8 % nm - not meaningful Medical Office and Life Science Portfolio : Comparable Properties (1) All Properties As of June 30, As of June 30, 2024 2023 2024 2023 Total properties 92 92 101 105 Total square feet 7,590 7,580 8,396 8,797 Occupancy 87.4 % 94.0 % 81.5 % 85.8 % Three Months Ended June 30, Comparable (1) Non-Comparable Properties Results Properties Results Consolidated Properties Results $ % $ % 2024 2023 Change Change 2024 2023 2024 2023 Change Change Rental income $ 52,971 $ 53,895 $ (924) (1.7) % $ 1,584 $ (527) $ 54,555 $ 53,368 $ 1,187 2.2 % Property operating expenses (21,893) (21,000) 893 4.3 % (2,389) (2,938) (24,282) (23,938) 344 1.4 % NOI $ 31,078 $ 32,895 $ (1,817) (5.5) % $ (805) $ (3,465) $ 30,273 $ 29,430 $ 843 2.9 % (1) Consists of medical office and life science properties that we have owned and which have been in service continuously since April 1, 2023; 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 at our comparable properties primarily due to vacancies at certain of our properties, partially offset by increased parking revenue at one of our properties. Rental income increased at our non-comparable properties 24 primarily due to a tenant default at one of our properties in the 2023 period and an increase in rental income at one of our recently redeveloped properties, partially offset by dispositions since April 1, 2023. Property operating expenses. Property operating expenses consist of real estate taxes, utility expenses, insurance, management fees, salaries and benefit costs of property level personnel, repairs and maintenance expense, cleaning expense and other direct costs of operating these properties. The increase in property operating expenses at our comparable properties is primarily due to increased insurance costs recorded in the 2024 period, partially offset by a decrease in real estate taxes due to refunds realized and a reduction in assessed values as a result of successful appeals in the 2024 period. Property operating expenses decreased at our non-comparable properties primarily due to dispositions since April 1, 2023. Net operating income. The change in NOI reflects the net changes in rental income and property operating expenses described above. SHOP : Comparable Properties (1) All Properties As of and For the Three Months As of and For the Three Months Ended June 30, Ended June 30, 2024 2023 2024 2023 Total properties 217 217 232 234 Number of units 24,446 24,446 25,230 25,322 Occupancy 79.6 % 78.0 % 79.0 % 77.8 % Average monthly rate (2) $ 5,171 $ 4,877 $ 5,161 $ 4,862 Three Months Ended June 30, Comparable (1) Non-Comparable Properties Results Properties Results Consolidated Properties Results $ % $ % 2024 2023 Change Change 2024 2023 2024 2023 Change Change Residents fees and services $ 301,948 $ 278,290 $ 23,658 8.5 % $ 6,574 $ 6,556 $ 308,522 $ 284,846 $ 23,676 8.3 % Property operating expenses (271,570) (254,327) 17,243 6.8 % (7,968) (7,632) (279,538) (261,959) 17,579 6.7 % NOI $ 30,378 $ 23,963 $ 6,415 26.8 % $ (1,394) $ (1,076) $ 28,984 $ 22,887 $ 6,097 26.6 % (1) Consists of senior living communities that we have owned and which have been in service, reported in the same segment and operated by the same operator continuously since April 1, 2023; excludes communities classified as held for sale, closed or out of service, if any. (2) Average monthly rate reflects the average monthly residents fees and services per occupied unit for the period presented. The average monthly rate is calculated based on the actual number of days during the period. Residents fees and services. Residents fees and services are the revenues earned at our managed senior living communities. We recognize these revenues as services are provided and related fees are accrued. Residents fees and services increased at our comparable properties primarily due to increases in occupancy and average monthly rate at our communities. The activity for our non-comparable properties reflects the 13 communities transitioned to an existing third party manager during the 2024 period. Property operating expenses. Property operating expenses consist of real estate taxes, utility expenses, insurance, wages and benefit costs of community level personnel, repairs and maintenance expense, management fees, cleaning expense and other direct costs of operating these communities. Property operating expenses increased at our comparable properties primarily due to increases in labor costs, insurance costs, repairs and maintenance, dietary expenses and other direct costs, partially offset by reduced contract labor. The activity for our non-comparable properties reflects the 13 communities transitioned to an existing third party manager during the 2024 period. Net operating income. The change in NOI reflects the net changes in residents fees and services and property operating expenses described above. 25 Non-Segment (1) : Comparable Properties (2) All Properties As of and For the Three Months Ended June 30, As of and For the Three Months Ended June 30, 2024 2023 2024 2023 Total properties: Triple net leased senior living communities 26 26 27 27 Wellness centers 10 10 10 10 Rent coverage: Triple net leased senior living communities (3) 1.89 x 1.80 x 1.89 x 1.80 x Wellness centers (3) 1.80 x 1.67 x 1.80 x 1.67 x Three Months Ended June 30, Comparable (2) Non-Comparable Properties Results Properties Results Consolidated Properties Results $ % $ % 2024 2023 Change Change 2024 2023 2024 2023 Change Change Rental income $ 8,315 $ 8,005 $ 310 3.9 % $ — $ — $ 8,315 $ 8,005 $ 310 3.9 % Property operating expenses (245) (330) (85) (25.8) % — (1) (245) (331) (86) (26.0) % NOI $ 8,070 $ 7,675 $ 395 5.1 % $ — $ (1) $ 8,070 $ 7,674 $ 396 5.2 % (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) Consists of properties that we have owned and which have been reported in the same segment and leased to the same operator continuously since April 1, 2023; excludes properties classified as held for sale, if any. (3) All tenant operating data presented are based upon the operating results provided by our tenants for the most recent prior period for which tenant operating results are available to us. Rent coverage is calculated using the annualized operating cash flows from our triple net lease tenants' operations of our properties, before subordinated charges, if any, divided by annualized rental income. 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 one of our closed senior living communities, the tenant of which was in default under the applicable lease with us as of June 30, 2024. Rental income. Rental income increased at our comparable properties primarily due to a new lease at one of our wellness centers. Property operating expenses. Property operating expenses consist of real estate taxes, insurance and other expenses that are not paid directly by our tenants. Net operating income. The change in NOI reflects the net changes in rental income and property operating expenses described above. Consolidated : 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 the reversal of $849 of estimated business management incentive fees as of June 30, 2024 as a result of our total shareholder return no longer exceeding the returns for the MSCI U.S. REIT/Health Care REIT Index over the applicable measurement period and a decrease in legal and other professional fees, partially offset by an increase in our business management fees of $656. Acquisition and certain other transaction related costs. Acquisition and certain other transaction related costs primarily represent costs incurred with acquisitions and non-recurring transactions that we expensed under GAAP. We incurred transition costs, including termination and other fees, during the 2024 period as a result of our transition of 13 communities to an existing third party manager. For more information about such transition of communities, see Note 9 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. 26 Impairment of assets. For information about our asset impairment charges, see Note 3 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and Note 3 to our consolidated financial statements included in Part IV, Item 15 of our Annual Report. Loss on sale of properties. For information regarding loss on sale of properties, see Note 3 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and Note 3 to our consolidated financial statements included in Part IV, Item 15 of our Annual Report. Interest and other income. The decrease in interest and other income is primarily due to $1,466 of funds we received from certain programs under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, the American Rescue Plan Act, or ARPA, and various state programs in the 2023 period and lower average invested cash balances during the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Interest expense. Interest expense increased primarily due to the issuance of $940,534 of our senior secured notes due 2026 in December 2023, resulting in discount accretion of $21,440 in the 2024 period. Additionally, we executed a $120,000 mortgage loan in May 2024 at a fixed interest rate of 6.864% per annum. The increase was partially offset by the repayment and termination of our former credit facility and the redemption of $250,000 of our senior notes that were scheduled to mature in May 2024. The net proceeds from our $940,534 senior secured notes due 2026 were used to make these repayments aggregating $700,000 in December 2023. Loss on modification or early extinguishment of debt . During the three months ended June 30, 2024, we recorded a loss on early extinguishment of debt in connection with the redemption of $60,000 of our outstanding 9.75% senior unsecured notes due 2025 using proceeds from the $120,000 mortgage loan executed in May 2024. Income tax expense . Income tax expense is the result of operating income we earned in certain jurisdictions where we are subject to state income taxes. Equity in net (losses) earnings of investees. Equity in net (losses) earnings of investees is the change in the fair value of our investments in our joint ventures and also represents our proportionate share of the earnings of our equity method investment in AlerisLife. For further information regarding our investment in AlerisLife, see Notes 3 and 11 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. 27 Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023 (dollars and square feet in thousands, except average monthly rate): Unless otherwise indicated, references in this section to changes or comparisons of results, income or expenses refer to comparisons of the results for the six months ended June 30, 2024 to the six months ended June 30, 2023. Our definition of NOI and our reconciliation of net income (loss) to NOI and a description of why we believe NOI is an appropriate supplemental measure are included below under the heading “Non-GAAP Financial Measures.” Six Months Ended June 30, 2024 2023 $ Change % Change NOI by segment: Medical Office and Life Science Portfolio $ 60,525 $ 62,937 $ (2,412) (3.8) % SHOP 53,694 40,150 13,544 33.7 % Non-Segment 16,280 16,854 (574) (3.4) % Total NOI 130,499 119,941 10,558 8.8 % Depreciation and amortization 138,490 133,194 5,296 4.0 % General and administrative 13,830 13,157 673 5.1 % Acquisition and certain other transaction related costs 1,912 6,136 (4,224) (68.8) % Impairment of assets 18,687 17,224 1,463 8.5 % Loss (gain) on sale of properties (19,087) 1,233 (20,320) nm Gains and losses on equity securities, net — 8,126 (8,126) (100.0) % Interest and other income 4,640 9,329 (4,689) (50.3) % Interest expense (116,278) (95,164) (21,114) 22.2 % Loss on modification or early extinguishment of debt (209) (1,075) 866 (80.6) % Loss before income tax expense and equity in net (losses) earnings of investees (173,354) (127,321) (46,033) 36.2 % Income tax expense (357) (190) (167) 87.9 % Equity in net (losses) earnings of investees (10,409) 2,282 (12,691) nm Net loss $ (184,120) $ (125,229) $ (58,891) 47.0 % nm - not meaningful Medical Office and Life Science Portfolio : Comparable Properties (1) All Properties As of June 30, As of June 30, 2024 2023 2024 2023 Total properties 92 92 101 105 Total square feet 7,590 7,580 8,396 8,797 Occupancy 87.4 % 94.0 % 81.5 % 85.8 % Six Months Ended June 30, Comparable (1) Non-Comparable Properties Results Properties Results Consolidated Properties Results $ % $ % 2024 2023 Change Change 2024 2023 2024 2023 Change Change Rental income $ 105,047 $ 107,216 $ (2,169) (2.0) % $ 3,657 $ 3,174 $ 108,704 $ 110,390 $ (1,686) (1.5) % Property operating expenses (43,481) (41,509) 1,972 4.8 % (4,698) (5,944) (48,179) (47,453) 726 1.5 % NOI $ 61,566 $ 65,707 $ (4,141) (6.3) % $ (1,041) $ (2,770) $ 60,525 $ 62,937 $ (2,412) (3.8) % (1) Consists primarily of medical office and life science properties that we have owned and which have been in service continuously since January 1, 2023; 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 at our comparable properties primarily due to vacancies at certain of our properties, partially offset by increased parking revenue at one of our properties. Rental income increased at our non-comparable properties 28 primarily due to a tenant default at one of our properties in the 2023 period and an increase in rental income at one of our recently redeveloped properties, partially offset by dispositions since January 1, 2023. Property operating expenses. The increase in property operating expenses at our comparable properties is primarily due to increased insurance costs recorded in the 2024 period and increases in utility expenses and cleaning costs, partially offset by a decrease in real estate taxes due to refunds realized and a reduction in assessed values as a result of successful appeals in the 2024 period. Property operating expenses decreased at our non-comparable properties primarily due to dispositions since January 1, 2023. Net operating income. The change in NOI reflects the net changes in rental income and property operating expenses described above. SHOP : Comparable Properties (1) All Properties As of and For the Six Months Ended June 30, As of and For the Six Months Ended June 30, 2024 2023 2024 2023 Total properties 217 217 232 234 Number of units 24,446 24,446 25,230 25,322 Occupancy 79.5 % 77.6 % 78.9 % 77.4 % Average monthly rate (2) $ 5,173 $ 4,867 $ 5,163 $ 4,850 Six Months Ended June 30, Comparable (1) Non-Comparable Properties Results Properties Results Consolidated Properties Results $ % $ % 2024 2023 Change Change 2024 2023 2024 2023 Change Change Residents fees and services $ 603,264 $ 551,281 $ 51,983 9.4 % $ 13,384 $ 13,157 $ 616,648 $ 564,438 $ 52,210 9.2 % Property operating expenses (546,979) (508,971) 38,008 7.5 % (15,975) (15,317) (562,954) (524,288) 38,666 7.4 % NOI $ 56,285 $ 42,310 $ 13,975 33.0 % $ (2,591) $ (2,160) $ 53,694 $ 40,150 $ 13,544 33.7 % (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, 2023; excludes communities classified as held for sale, closed or out of service, if any. (2) Average monthly rate reflects the average monthly residents fees and services per occupied unit for the period presented. The average monthly rate is calculated based on the actual number of days during the period. Residents fees and services. Residents fees and services increased at our comparable properties primarily due to increases in occupancy and average monthly rate at our communities. The activity for our non-comparable properties reflects the 13 communities transitioned to an existing third party manager during the 2024 period. Property operating expenses. Property operating expenses increased at our comparable properties primarily due to increases in labor costs, insurance costs, dietary expenses and other direct costs, partially offset by reduced contract labor. The activity for our non-comparable properties reflects the 13 communities transitioned to an existing third party manager during the 2024 period. Net operating income. The change in NOI reflects the net changes in residents fees and services and property operating expenses described above. 29 Non-Segment (1) : Comparable Properties (2) All Properties As of and For the Six Months Ended June 30, As of and For the Six Months Ended June 30, 2024 2023 2024 2023 Total properties: Triple net leased senior living communities 26 26 27 27 Wellness centers 10 10 10 10 Rent coverage: Triple net leased senior living communities (3) 1.89 x 1.80 x 1.89 x 1.80 x Wellness centers (3) 1.80 x 1.67 x 1.80 x 1.67 x Six Months Ended June 30, Comparable (2) Non-Comparable Properties Results Properties Results Consolidated Properties Results $ % $ % 2024 2023 Change Change 2024 2023 2024 2023 Change Change Rental income $ 16,676 $ 17,421 $ (745) (4.3) % $ 140 $ — $ 16,816 $ 17,421 $ (605) (3.5) % Property operating expenses (493) (567) (74) (13.1) % (43) — (536) (567) (31) (5.5) % NOI $ 16,183 $ 16,854 $ (671) (4.0) % $ 97 $ — $ 16,280 $ 16,854 $ (574) (3.4) % (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) 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, 2023; excludes properties classified as held for sale, if any. (3) All tenant operating data presented are based upon the operating results provided by our tenants for the most recent prior period for which tenant operating results are available to us. Rent coverage is calculated using the annualized operating cash flows from our triple net lease tenants' operations of our properties, before subordinated charges, if any, divided by annualized rental income. 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 one of our closed senior living communities, the tenant of which was in default under the applicable lease with us as of June 30, 2024. Rental income. Rental income decreased at our comparable properties primarily due to a cash settlement and higher cash rents received during the 2023 period from a tenant previously in default under leases for six of our wellness centers. In January 2023, we agreed to amend the lease for three of these wellness centers and repossess the remaining three wellness centers. The three wellness centers we repossessed were subsequently re-leased to other tenants. Property operating expenses. Property operating expenses consist of real estate taxes, insurance and other expenses that are not paid directly by our tenants. Net operating income. The change in NOI reflects the net changes in rental income and property operating expenses described above. Consolidated : Depreciation and amortization expense. Depreciation and amortization expense increased primarily due to the purchase of capital improvements at certain of our properties, partially offset by certain depreciable assets becoming fully depreciated and dispositions since January 1, 2023. General and administrative expense . General and administrative expense increased primarily due to an increase in our business management fees of $1,416, partially offset by a reduction in legal and other professional fees. Acquisition and certain other transaction related costs. We incurred transition costs, including termination and other fees, during the 2024 period as a result of our transition of 13 communities to an existing third party manager. For more information about such transition of communities, see Note 9 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. 30 Impairment of assets. For information about our asset impairment charges, see Note 3 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and Note 3 to our consolidated financial statements included in Part IV, Item 15 of our Annual Report. Loss (gain) on sale of properties. For information regarding loss (gain) on sale of properties, see Note 3 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q and Note 3 to our consolidated financial statements included in Part IV, Item 15 of our Annual Report. Gains and losses on equity securities, net. Gains and losses on equity securities, net, represent the net unrealized losses to adjust our investment in AlerisLife to its fair value. For further information regarding our investment in AlerisLife, see Note 11 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Interest and other income. The decrease in interest and other income is primarily due to lower average invested cash balances during the six months ended June 30, 2024 compared to the six months ended June 30, 2023 and $1,466 of funds we received from certain programs under the CARES Act, ARPA and various state programs in the 2023 period. Interest expense. Interest expense increased primarily due to the issuance of $940,534 of our senior secured notes due 2026 in December 2023, resulting in discount accretion of $42,099 in the 2024 period. Additionally, we executed a $120,000 mortgage loan in May 2024 at a fixed interest rate of 6.864% per annum. The increase was partially offset by the repayment and termination of our former credit facility and the redemption of $250,000 of our senior notes that were scheduled to mature in May 2024. The net proceeds from our $940,534 senior secured notes due 2026 were used to make these repayments in December 2023 aggregating $700,000. Loss on modification or early extinguishment of debt . During the six months ended June 30, 2024, we recorded a loss on early extinguishment of debt in connection with the redemption of $60,000 of our outstanding 9.75% senior unsecured notes due 2025 using proceeds from the $120,000 mortgage loan executed in May 2024. During the six months ended June 30, 2023, we recorded a loss on modification or early extinguishment of debt in connection with an amendment to our then credit agreement. Income tax expense . Income tax expense is the result of operating income we earned in certain jurisdictions where we are subject to state income taxes. Equity in net (losses) earnings of investees. Equity in net (losses) earnings of investees is the change in the fair value of our investments in our joint ventures and also represents our proportionate share of the earnings of our equity method investment in AlerisLife. For further information regarding our investment in AlerisLife, see Notes 3 and 11 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. 31 Non-GAAP Financial Measures (dollars in thousands, except per share amounts) We present certain "non-GAAP financial measures" within the meaning of applicable rules of the Securities and Exchange Commission, or the SEC, including funds from operations, or FFO, normalized funds from operations, or Normalized FFO, and NOI for the three and six months ended June 30, 2024 and 2023. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with net income (loss) as presented in our condensed consolidated statements of comprehensive income (loss). We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss). We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization, they may facilitate a comparison of our operating performance between periods and with other REITs and, in the case of NOI, reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of our properties. Funds From Operations and Normalized Funds From Operations We calculate FFO and Normalized FFO as shown below. FFO is calculated on the basis defined by the National Association of Real Estate Investment Trusts, which is net income (loss), calculated in accordance with GAAP, excluding any gain or loss on sale of properties, equity in net earnings or losses of investees, 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 equity method investees, 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, and include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as an expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year. FFO and Normalized FFO are among the factors considered by our Board of Trustees 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 and Normalized FFO differently than we do. Our calculations of FFO and Normalized FFO for the three and six months ended June 30, 2024 and 2023 and reconciliations of net income (loss), the most directly comparable financial measure under GAAP reported in our condensed consolidated financial statements, to FFO and Normalized FFO appear in the following table. This table also provides a comparison of distributions to shareholders, FFO and Normalized FFO and net income (loss) per share for these periods. 32 Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Net loss $ (97,861) $ (72,571) $ (184,120) $ (125,229) Depreciation and amortization 68,357 68,394 138,490 133,194 Loss (gain) on sale of properties 13,213 — 19,087 (1,233) Impairment of assets 6,545 11,299 18,687 17,224 Gains on equity securities, net — — — (8,126) Equity in net losses (earnings) of investees 12,307 (2,929) 10,409 (2,282) Share of FFO from unconsolidated joint ventures 2,047 1,897 4,061 3,896 Adjustments to reflect our share of FFO attributable to an equity method investment 9,955 — 10,537 (1,586) FFO 14,563 6,090 17,151 15,858 Business management incentive fees (1) (849) — — — Acquisition and certain other transaction related costs 1,826 6,043 1,912 6,136 Loss on modification or early extinguishment of debt 209 — 209 1,075 Adjustments to reflect our share of Normalized FFO attributable to an equity method investment (8,919) — (8,919) 1,576 Normalized FFO $ 6,830 $ 12,133 $ 10,353 $ 24,645 Weighted average common shares outstanding (basic and diluted) 239,326 238,682 239,259 238,636 Per common share data (basic and diluted): Net loss $ (0.41) $ (0.30) $ (0.77) $ (0.52) FFO $ 0.06 $ 0.03 $ 0.07 $ 0.07 Normalized FFO $ 0.03 $ 0.05 $ 0.04 $ 0.10 Distributions declared $ 0.01 $ 0.01 $ 0.02 $ 0.02 (1) Incentive fees under our business management agreement are payable after the end of each calendar year, are calculated based on common share total return, as defined, and are included in general and administrative expense in our condensed consolidated statements of comprehensive income (loss). In calculating net income (loss) in accordance with GAAP, we recognize estimated business management incentive fee expense, if any, in the first, second and third quarters. Although we recognize this expense, if any, in the first, second and third quarters for purposes of calculating net income (loss), we do not include these amounts in the calculation of Normalized FFO until the fourth quarter, when the amount of the business management incentive fee expense for the calendar year, if any, is determined. Property Net Operating Income (NOI) We calculate NOI as shown below. The calculation of NOI excludes certain components of net income (loss) in order to provide results that are more closely related to our property level results of operations. We define NOI as income from our real estate less our property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions that we record as depreciation and amortization. We use NOI to evaluate individual and company-wide property level performance. Other real estate companies and REITs may calculate NOI differently than we do. 33 The calculation of NOI by reportable segment is included above in this Item 2. The following table includes the reconciliation of net loss to NOI for the three and six months ended June 30, 2024 and 2023. Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Reconciliation of Net Loss to NOI: Net loss $ (97,861) $ (72,571) $ (184,120) $ (125,229) Equity in net losses (earnings) of investees 12,307 (2,929) 10,409 (2,282) Income tax expense 170 221 357 190 Loss before income tax expense and equity in net losses (earnings) of investees (85,384) (75,279) (173,354) (127,321) Loss on modification or early extinguishment of debt 209 — 209 1,075 Interest expense 58,702 47,384 116,278 95,164 Interest and other income (2,403) (5,134) (4,640) (9,329) Gains on equity securities, net — — — (8,126) Losses (gains) on sale of properties 13,213 — 19,087 (1,233) Impairment of assets 6,545 11,299 18,687 17,224 Acquisition and certain other transaction related costs 1,826 6,043 1,912 6,136 General and administrative 6,262 7,284 13,830 13,157 Depreciation and amortization 68,357 68,394 138,490 133,194 Total NOI $ 67,327 $ 59,991 $ 130,499 $ 119,941 Medical Office and Life Science Portfolio NOI $ 30,273 $ 29,430 $ 60,525 $ 62,937 SHOP NOI 28,984 22,887 53,694 40,150 Non-Segment NOI 8,070 7,674 16,280 16,854 Total NOI $ 67,327 $ 59,991 $ 130,499 $ 119,941 LIQUIDITY AND CAPITAL RESOURCES Our principal sources of cash to meet operating and capital expenses, pay our 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 of funds will be sufficient to meet our operating and capital expenses, pay our 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; • 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; and • our managers' abilities to maintain or increase our returns from our managed senior living communities. Although the senior living industry has been adversely affected by a slow recovery from the COVID-19 pandemic, as well as economic and market conditions, there have been signs of recovery. While we are encouraged by positive trends, including increases in rates and occupancy in our SHOP segment and favorable supply and demand dynamics in the senior living industry, generally, we cannot be sure that these trends will continue to benefit us and any benefits we do realize may be uneven. While we continue to experience variability in labor, insurance and food costs in our SHOP segment, we expect increases in these costs to moderate and we continue to work with our senior living operators to manage these costs and to increase rates and occupancy at our communities, which we believe will enable our managers to generate better returns to us. 34 Table of Contents We also continue to invest capital in our SHOP segment in order to capitalize on these positive trends and increase the probability of higher cash flows to us. 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. Until its repayment in full and termination on December 21, 2023, we had a $450.0 million credit facility that was fully drawn. On May 30, 2024, we executed a $120.0 million fixed rate, interest only mortgage loan secured by eight medical office and life science properties. This mortgage loan matures in June 2034 and requires that interest be paid at an annual rate of 6.864%. The net proceeds from this mortgage loan were approximately $117.1 million after deducting estimated closing costs, and we used $60.0 million of the net proceeds to partially redeem our then outstanding $500.0 million senior notes due 2025. As a result of these transactions, we have no significant debt maturities until June 2025 when $440.0 million of our senior notes will become due, and as of June 30, 2024, we had $265.6 million of cash and cash equivalents. Additionally, as of June 30, 2024, 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. 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. Based on the significant number of unencumbered properties in our SHOP segment and our demonstrated ability to execute debt financings, we believe we will likely be able to obtain additional debt financing that will allow us to satisfy the $440.0 million outstanding principal amount of our 9.75% senior unsecured notes due 2025. During the six months ended June 30, 2024, we sold two properties for an aggregate sales price of $7.8 million, excluding closing costs. Subsequent to June 30, 2024, we sold two properties for an aggregate sales price of $21.3 million, excluding closing costs, and as of July 31, 2024, we had an additional property under agreement to sell for a sales price of $5.5 million, excluding closing costs. We may not complete the sales of any or all of the properties we currently plan to sell. Also, we may sell some or all of these properties at amounts that are less than currently expected and/or less than the carrying values of such properties and we may incur losses on any such sales as a result. For further information regarding our dispositions, see Note 3 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. The following is a summary of our sources and uses of cash flows for the periods presented, as reflected in our condensed consolidated statements of cash flows (dollars in thousands): Six Months Ended June 30, 2024 2023 Cash and cash equivalents and restricted cash at beginning of period $ 246,961 $ 688,302 Net cash provided by (used in): Operating activities 72,894 31,723 Investing activities (95,691) (90,380) Financing activities 45,921 (272,562) Cash and cash equivalents and restricted cash at end of period $ 270,085 $ 357,083 Our Operating Liquidity and Resources We generally receive minimum rents from tenants at our medical office and life science 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 increase in cash provided by operating activities for the six months ended June 30, 2024 compared to the prior period was primarily due to increased NOI as a result of increased rates and occupancy at the senior living communities in our SHOP segment. Additionally, cash interest payments decreased in the 2024 period compared to the 2023 period primarily due to the repayment and termination of our former credit facility and the redemption of $250.0 million of our senior notes in December 2023. 35 Table of Contents Our Investing Liquidity and Resources The increase in cash used in investing activities for the six months ended June 30, 2024 compared to the prior period was primarily due to our purchase on February 16, 2024 of approximately 34.0% of the then outstanding AlerisLife common shares from ABP Trust at the tender offer price of $1.31 per share for a total purchase price, including transaction related costs, of $15.5 million. In the 2023 period, we tendered all of our AlerisLife common shares at $1.31 per share. The increase was partially offset by a decrease in real estate improvements and an increase in proceeds from the sale of properties in the 2024 period compared to the 2023 period. The following is a summary of capital expenditures, development, redevelopment and other activities for the periods presented (dollars in thousands): Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Medical Office and Life Science Portfolio capital expenditures: Lease related costs (1) $ 6,409 $ 9,284 $ 12,438 $ 16,032 Building improvements (2) 1,852 2,561 2,771 3,417 Recurring capital expenditures - Medical Office and Life Science Portfolio 8,261 11,845 15,209 19,449 Wellness centers lease related costs (1) 4,591 884 11,514 884 SHOP segment fixed assets and capital improvements 21,623 18,407 31,714 42,051 Total recurring capital expenditures $ 34,475 $ 31,136 $ 58,437 $ 62,384 Development, redevelopment and other activities - Medical Office and Life Science Portfolio (3) $ 1,112 $ 4,792 $ 1,825 $ 6,714 Development, redevelopment and other activities - SHOP segment (3) 5,705 20,405 6,894 36,628 Total development, redevelopment and other activities $ 6,817 $ 25,197 $ 8,719 $ 43,342 Capital expenditures by segment: Medical Office and Life Science Portfolio $ 9,373 $ 16,637 $ 17,034 $ 26,163 SHOP 27,328 38,812 38,608 78,679 Wellness centers 4,591 884 11,514 884 Total capital expenditures $ 41,292 $ 56,333 $ 67,156 $ 105,726 (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 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. As of June 30, 2024, we had estimated unspent leasing related obligations at our triple net leased wellness centers and our medical office and life science properties of approximately $37.9 million, of which we expect to spend approximately $26.7 million during the next 12 months. We expect to fund these obligations using operating cash flows we generate as rental income from our leased properties, residents fees and services revenues from our managed communities, cash on hand, proceeds from the disposition of certain properties and future financing activities. We are currently in the process of redeveloping certain properties, primarily 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 Medical Office and Life Science Portfolio and SHOP segment. These redevelopment projects may require significant capital expenditures and time to complete, and we may defer certain redevelopment projects to preserve liquidity. 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. 36 Table of Contents Our Financing Liquidity and Resources The change in cash provided by financing activities for the six months ended June 30, 2024 compared to cash used in financing activities for the prior period was primarily due to our execution of a $120.0 million mortgage loan in the 2024 period and our redemption of $250.0 million of our senior notes in the 2023 period, partially offset by the redemption of $60.0 million of our senior notes in the 2024 period. As of June 30, 2024, we had $265.6 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. During the six months ended June 30, 2024, we paid quarterly cash distributions to our shareholders totaling approximately $4.8 million using existing cash balances. On July 11, 2024, we declared a quarterly distribution payable to common shareholders of record on July 22, 2024 in the amount of $0.01 per share, or approximately $2.4 million. We expect to pay this distribution on or about August 15, 2024 using cash on hand. For further information regarding the distribution we paid during 2023, see Note 7 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. We believe we may have access to certain types of financings, including debt or equity offerings, to fund our operations and repay our debts and other obligations as they become due. Our ability to complete, and the costs associated with, future debt or equity transactions depends primarily upon credit market conditions and our then creditworthiness and our ability to be in compliance with our debt covenants as discussed below. We have no control over market conditions. Our credit and debt ratings depend upon evaluations by credit rating agencies of our business practices and plans, including our ability to maintain our earnings, to stagger our debt maturities and to balance our use of debt and equity capital so that our financial performance and leverage ratios afford us flexibility to withstand any reasonably anticipated adverse changes. Similarly, our ability to raise equity capital in the future will depend primarily upon equity capital market conditions and our ability to conduct our business to maintain and grow our operating cash flows. We intend to conduct our business activities in a manner which will afford us reasonable access to capital for investment and financing activities, but we cannot be sure that we will be able to successfully carry out that intention. A protracted negative impact on the economy or the industries in which our properties and businesses operate resulting from wage and 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 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. In January 2023, we repaid $113.6 million in outstanding borrowings under our former credit facility and the commitments were reduced to $586.4 million. In February 2023, we reduced the commitments from $586.4 million to $450.0 million following our repayment of $136.4 million in outstanding borrowings under our former credit facility. Until its repayment in full and termination on December 21, 2023, we had a $450.0 million credit facility that was fully drawn. At December 21, 2023, our former credit facility required interest to be paid on borrowings at an annual rate of 8.4%, plus a facility fee of $0.3 million per quarter. Our $940.5 million in outstanding senior secured notes due 2026 are fully and unconditionally guaranteed, on a joint, several and senior secured basis, by the Collateral Guarantors, and on a joint, several and unsecured basis, by all our subsidiaries other than the Collateral Guarantors and certain excluded subsidiaries. These notes and the guarantees provided by the Collateral Guarantors are secured by a first priority lien and security interest in each of the collateral properties and 100% of the equity interests in each of the Collateral Guarantors. No cash interest will accrue on these notes prior to maturity. The accreted value of these notes will increase at a rate of 11.25% per annum compounded semiannually on January 15 and July 15 of each year. In January 2024, Moody's Investors Service, or 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 January 2024, Standard & Poor's Rating Services, or 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. 37 Table of Contents For further information regarding our outstanding debt, see Note 5 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Debt Covenants Our principal debt obligations at June 30, 2024 were: (1) $2.0 billion outstanding principal amount of senior unsecured notes; (2) $940.5 million outstanding principal amount of senior secured notes; and (3) $128.3 million aggregate principal amount of mortgage notes (excluding discounts, premiums and net debt issuance costs) secured by nine properties. For further information regarding our indebtedness, see Note 5 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. 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 June 30, 2024, 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 Quarterly Report on Form 10-Q, a protracted negative impact on the economy or the industries in which our properties and businesses operate resulting from wage or commodity price inflation, 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. We no longer include this $620.0 million of secured debt financing in our condensed consolidated balance sheet following the deconsolidation of the net assets of this joint venture; however, we continue to provide certain guaranties on this debt. The debt secured by the properties included in the LSMD JV in which we own a 20% equity interest is guaranteed by this joint venture and is non-recourse to us. Supplemental Guarantor Information On May 28, 2020, we issued $1.0 billion of our 9.75% senior notes due 2025. We subsequently redeemed $500.0 million and $60.0 million of this debt in June 2022 and June 2024, respectively, with $440.0 million remaining outstanding. On February 3, 2021, we issued $500.0 million of our 4.375% senior notes due 2031. As of June 30, 2024, all $440.0 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 certain excluded subsidiaries. The notes and related guarantees are effectively subordinated to all of our and the subsidiary guarantors' secured indebtedness, respectively, to the extent of the value of the applicable collateral, and are structurally subordinated to all indebtedness and other liabilities and any preferred equity of any of our subsidiaries that do not guarantee the notes. Our remaining $1.1 billion of senior unsecured notes do not have the benefit of any guarantees. A subsidiary guarantor's guarantee of our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031, as applicable, and all other obligations of such subsidiary guarantor under the indenture governing the notes will automatically terminate and such subsidiary guarantor will automatically be released from all of its obligations under such subsidiary guarantee and the indenture under certain circumstances, including on or after the date (a) the notes have an investment grade rating from two rating agencies and one of such investment grade ratings is a mid-BBB investment grade rating and (b) no default or event of default has occurred and is continuing under the indenture. Our non-guarantor subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due on our 9.75% senior notes due 2025 or our 4.375% senior notes due 2031 or the respective guarantees, or to make any funds available therefor, whether by 38 Table of Contents dividend, distribution, loan or other payments. The rights of holders of our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031, as applicable, to benefit from any of the assets of our non-guarantor subsidiaries are subject to the prior satisfaction of claims of those subsidiaries' creditors and any preferred equity holders. As a result, our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031 and the respective guarantees are structurally subordinated to all indebtedness, guarantees and other liabilities of our subsidiaries that do not guarantee our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031, including guarantees of other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity. The following tables present summarized financial information for guarantor entities and issuer, on a combined basis after eliminating (i) intercompany transactions and balances among the guarantor entities and (ii) equity in earnings from, and any investments in, any subsidiary that is a non-guarantor (dollars in thousands): June 30, 2024 December 31, 2023 Real estate properties, net $ 3,391,406 $ 3,667,818 Other assets, net 473,059 502,532 Total assets $ 3,864,465 $ 4,170,350 Indebtedness, net $ 2,791,355 $ 2,803,829 Other liabilities 213,770 241,517 Total liabilities $ 3,005,125 $ 3,045,346 Six Months Ended June 30, 2024 Revenues $ 635,495 Expenses 708,689 Loss from continuing operations (183,801) Net loss (194,567) Related Person Transactions We have relationships and historical and continuing transactions with RMR, RMR Inc., AlerisLife (including Five Star) and others related to them. For further information about these and other such relationships and related person transactions, see Notes 9, 10 and 11 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, our Annual Report, our definitive Proxy Statement for our 2024 Annual Meeting of Shareholders and our other filings with the SEC. In addition, see the section captioned “Risk Factors” of our Annual Report for a description of risks that may arise as a result of these and other related person transactions and relationships. We may engage in additional transactions with related persons, including businesses to which RMR or its subsidiaries provide management services. Critical Accounting Estimates The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in our condensed consolidated financial statements include purchase price allocations, useful lives of fixed assets and impairments of real estate and intangible assets. A discussion of our critical accounting estimates is included in our Annual Report. There have been no significant changes in our critical accounting estimates since the year ended December 31, 2023. Impact of Government Reimbursement For the six months ended June 30, 2024, substantially all of our NOI was generated from properties where a majority of the revenues are derived from our tenants' and residents' private resources, and a small amount of our NOI was generated from properties where a majority of the revenues are derived from Medicare and Medicaid payments. Nonetheless, we own, and our 39 Table of Contents tenants, managers and operators operate, facilities in many states that participate in federal and state healthcare payment programs, including the federal Medicare and state Medicaid programs and other federal and state healthcare payment programs. Also, some of our medical office and life science property tenants participate in federal Medicare and state Medicaid programs and other government healthcare payment programs. For more information regarding the government healthcare funding and regulation of our business, please see the section captioned “Business—Government Regulation and Reimbursement” in our Annual Report and the section captioned “Management's Discussion and Analysis of Financial Condition and Results of Operations—Impact of Government Reimbursement” in our Annual Report.