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Item 1. Financial Statements

2024-11-04 compared with 2024-08-01 · 153 added, 126 removed, 505 unchanged (36% of the section changed)

3 unchanged sentences

(dollars in thousands, except share data)

June 30, December 31,

September 30, December 31,

Real estate properties:

26 unchanged sentences

Cumulative net income 1,495,469 1,778,278

Cumulative other comprehensive loss ( 26 ) —

Cumulative other comprehensive income 8 —

Cumulative distributions ( 4,069,476 ) ( 4,062,262 )

5 unchanged sentences

(amounts in thousands, except per share data)

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

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

2024 2023 2024 2023

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Total expenses 415,951 377,454 1,200,539 1,119,473

(Loss) gain on sale of properties ( 13,213 ) — ( 19,087 ) 1,233

Gains and losses on equity securities, net — — — 8,126

Gain (loss) on sale of properties 111 — ( 18,976 ) 1,233

Gains on equity securities, net — — — 8,126

Interest and other income 2,575 3,243 7,215 12,572

2 unchanged sentences

Loss on modification or early extinguishment of debt — — ( 209 ) ( 1,075 )

Loss before income tax (expense) benefit and equity in net (losses) earnings of investees ( 85,384 ) ( 75,279 ) ( 173,354 ) ( 127,321 )

Loss before income tax expense and equity in net earnings (losses) of investees ( 99,068 ) ( 65,445 ) ( 272,422 ) ( 192,766 )

Income tax expense ( 148 ) ( 189 ) ( 505 ) ( 379 )

Equity in net (losses) earnings of investees ( 12,307 ) 2,929 ( 10,409 ) 2,282

Equity in net earnings (losses) of investees 527 ( 145 ) ( 9,882 ) 2,137

Net loss $ ( 98,689 ) $ ( 65,779 ) $ ( 282,809 ) $ ( 191,008 )

Other comprehensive loss:

Equity in unrealized losses of an investee ( 22 ) — ( 26 ) —

Other comprehensive loss ( 22 ) — ( 26 ) —

Other comprehensive income:

Equity in unrealized gains of an investee 34 — 8 —

Other comprehensive income 34 — 8 —

Comprehensive loss $ ( 98,655 ) $ ( 65,779 ) $ ( 282,801 ) $ ( 191,008 )

1 unchanged sentence

Per common share amounts (basic and diluted):

Net income (loss) $ ( 0.41 ) $ ( 0.30 ) $ ( 0.77 ) $ ( 0.52 )

Net loss $ ( 0.41 ) $ ( 0.28 ) $ ( 1.18 ) $ ( 0.80 )

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

23 unchanged sentences

240,619,470 2,406 4,619,846 1,594,158 ( 26 ) ( 4,067,070 ) 2,149,314

Net loss — — — ( 98,689 ) — — ( 98,689 )

Equity in unrealized gains of an investee — — — — 34 — 34

Distributions — — — — — ( 2,406 ) ( 2,406 )

Share grants 881,767 9 923 — — — 932

Share repurchases ( 219,864 ) ( 2 ) ( 779 ) — — — ( 781 )

Balance at September 30, 2024:

241,281,373 $ 2,413 $ 4,619,990 $ 1,495,469 $ 8 $ ( 4,069,476 ) $ 2,048,404

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

DIVERSIFIED HEALTHCARE TRUST

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)

(dollars in thousands)

Shares Common

Shares Additional

Capital Cumulative

Net Income Cumulative Other Comprehensive Loss Cumulative Distributions Total Shareholders' Equity

Balance at December 31, 2022:

14 unchanged sentences

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

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

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

Share grants 820,000 8 662 — — — 670

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

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

Balance at September 30, 2023:

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

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

2 unchanged sentences

(dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

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(dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental cash flow information:

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

As of June 30,

As of September 30,

Cash and cash equivalents $ 256,527 $ 278,122

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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.

We have been, are currently, and expect in the future to be involved in claims, lawsuits, and regulatory and other governmental audits, investigations and proceedings arising in the ordinary course of our business, some of which may involve material amounts.

Also, the defense and resolution of these claims, lawsuits, and regulatory and other governmental audits, investigations and proceedings may require us to incur significant expense.

We account for claims and litigation losses in accordance with the Financial Accounting Standards Board, or FASB, Accounting Standards Codification Topic 450, Contingencies , or ASC 450.

Under ASC 450, loss contingency provisions are recorded for probable and estimable losses at our best estimate of a loss or, when a best estimate cannot be made, at our estimate of the minimum loss.

These estimates are often developed prior to knowing the amount of the ultimate loss, require the application of considerable judgment, and are refined as additional information becomes known.

Accordingly, we are often initially unable to develop a best estimate of loss and therefore the estimated minimum loss amount, which could be zero, is recorded;

and then, as information becomes known, the minimum loss amount is updated, as appropriate.

A minimum or best estimate amount may be increased or decreased when events result in a changed expectation.

While the outcome of any litigation is inherently uncertain, we do not believe any currently pending litigation or proceedings will have a material adverse effect on our financial condition, results of operations or cash flows.

Recent Accounting Pronouncements

On November 27, 2023, the FASB issued Accounting Standards Update, or ASU, No.

On November 27, 2023, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No.

2023-07, Segment Reporting (Topic 280):

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(i) provide disclosures of significant segment expenses and other segment items if they are regularly provided to the Chief Operating Decision Maker, or the CODM, and included in each reported measure of segment profit or loss;

(ii) provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by ASC 280, Segment Reporting , or ASC 280, in interim periods;

(ii) provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by Accounting Standards Codification Topic 280, Segment Reporting , or ASC 280, in interim periods;

and (iii) disclose the CODM’s title and position, as well as an explanation of how the CODM uses the reported measures and other disclosures.

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Early adoption is permitted.

We are currently evaluating the impact ASU No.

2023-07 will have on our consolidated financial statements and disclosures.

We expect to include additional disclosures as a result of the implementation of ASU No.

however, these changes are not expected to have a material effect on our condensed consolidated financial statements.

On December 14, 2023, the FASB issued ASU No.

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2023-09 should be applied prospectively but entities have the option to apply it retrospectively to all prior periods presented in the financial statements.

2023-09 is effective for annual periods

2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted.

We expect to include additional disclosures in the notes to our condensed consolidated financial statements as a result of the implementation of ASU No.

however, these changes are not expected to have a material effect on our condensed consolidated financial statements.

DIVERSIFIED HEALTHCARE TRUST

1 unchanged sentence

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

beginning after December 15, 2024, with early adoption permitted.

We are currently evaluating the impact ASU No.

2023-09 will have on our consolidated financial statements and disclosures.

Real Estate and Other Investments

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, and we owned an equity interest in each of two unconsolidated joint ventures that own medical office and life science properties located in five states.

As of September 30, 2024, we owned 368 properties located in 36 states and Washington, D.C., including 25 properties classified as held for sale and three closed senior living communities, and we owned an equity interest in each of two unconsolidated joint ventures that own medical office and life science properties located in five states.

Acquisitions and Dispositions:

We did not acquire any properties during the six months ended June 30, 2024.

During the six months ended June 30, 2024, we sold two properties for an aggregate sales price of $ 7,800 , excluding closing costs, as presented in the table below.

We did not acquire any properties during the nine months ended September 30, 2024.

During the nine months ended September 30, 2024, we sold four properties for an aggregate sales price of $ 29,075 , excluding closing costs, as presented in the table below.

The sales of these properties do not represent a significant disposition and we do not believe these sales represent a strategic shift in our business.

1 unchanged sentence

Date of Sale Location Type of Property Number of Properties Sales Price (1)

(Loss) Gain on Sale

March 2024 Arizona Medical Office 1 $ 3,600 $ ( 5,874 )

June 2024 Texas Medical Office 1 4,200 ( 13,213 )

July 2024 Illinois and Minnesota Medical Office 2 21,275 111

4 $ 29,075 $ ( 18,976 )

(1) Sales price excludes closing costs.

As of June 30, 2024, we had five properties classified as held for sale in our condensed consolidated balance sheet as follows:

Type of Property Number of Properties Real Estate Properties, Net

As of September 30, 2024, we had 25 properties classified as held for sale in our condensed consolidated balance sheet as follows:

Segment Number of Properties Real Estate Properties, Net

Medical Office and Life Science 4 $ 33,213

Senior Living 1 1,523

Subsequent to June 30, 2024, we sold two of these properties for an aggregate sales price of $ 21,275 , excluding closing costs, and as of July 31, 2024, we had an additional property under agreement to sell for a sales price of $ 5,500 , excluding closing costs.

Non-Segment (1)

(1) Represents 18 triple net leased senior living communities.

Subsequent to September 30, 2024, we sold one of these properties for a sales price of $ 6,600 , excluding closing costs.

As of November 4, 2024, we had 28 properties under agreements or letters of intent to sell for an aggregate sales price of $ 348,080 , excluding closing costs.

If these sales are completed, approximately $ 302,100 of the proceeds are required to be used to partially redeem our outstanding senior secured notes due 2026.

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

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The future cash flows are subjective and are based in part on assumptions regarding hold periods, market rents and terminal capitalization rates.

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

During the six months ended June 30, 2024, we recorded impairment charges of $ 18,789 related to three medical office properties that were classified as held for sale as of June 30, 2024.

DIVERSIFIED HEALTHCARE TRUST

1 unchanged sentence

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

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

During the nine months ended September 30, 2024, we recorded impairment charges of $ 27,173 related to one medical office property and one life science property that were classified as held for sale as of September 30, 2024.

We also recorded impairment charges of $ 14,545 related to two medical office properties that were sold in 2024.

Equity Method Investments in Unconsolidated Joint Ventures:

As of June 30, 2024, we had equity investments in unconsolidated joint ventures as follows:

Joint Venture DHC Ownership DHC Carrying Value of Investment at June 30, 2024

As of September 30, 2024, we had equity investments in unconsolidated joint ventures as follows:

Joint Venture DHC Ownership DHC Carrying Value of Investment at September 30, 2024

Number of Properties Location Square Feet

3 unchanged sentences

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

Joint Venture Coupon Rate Maturity Date Principal Balance at June 30, 2024 (1)

Joint Venture Coupon Rate Maturity Date Principal Balance at September 30, 2024 (1)

Mortgage Notes Payable (secured by one property in Massachusetts) (2) (3)

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We account for the unconsolidated joint venture for 10 medical office and life science properties in which we own a 20 % equity interest, or the LSMD JV, and the unconsolidated joint venture for a life science property located in Boston, Massachusetts in which we own a 10 % equity interest, or the Seaport JV, using the equity method of accounting under the fair value option.

We recognized changes in the fair value of our investments in our unconsolidated joint ventures of $( 21,493 ) and $ 2,929 during the three months ended June 30, 2024 and 2023, respectively, and $( 19,880 ) and $ 2,282 during the six months ended June 30, 2024 and 2023, respectively.

We recognized changes in the fair value of our investments in our unconsolidated joint ventures of $ 1,707 and $( 145 ) during the three months ended September 30, 2024 and 2023, respectively, and $( 18,173 ) and $ 2,137 during the nine months ended September 30, 2024 and 2023, respectively.

These amounts are included in equity in net earnings (losses) of investees in our condensed consolidated statements of comprehensive income (loss).

1 unchanged sentence

Equity Method Investment in AlerisLife:

As of June 30, 2024, we owned approximately 34.0 % of the outstanding common shares of AlerisLife Inc., or AlerisLife.

As of September 30, 2024, we owned approximately 34.0 % of the outstanding common shares of AlerisLife Inc., or AlerisLife.

We account for our 34.0 % non-controlling interest in AlerisLife using the equity method of accounting.

As of June 30, 2024, our investment in AlerisLife had a carrying value of $ 24,905 .

As of September 30, 2024, our investment in AlerisLife had a carrying value of $ 23,758 .

The cost basis of our investment in AlerisLife exceeded our proportionate share of AlerisLife's total stockholders' equity book value on the date of acquisition of our initial interest in AlerisLife, which was February 16, 2024, by an aggregate of $ 29,500 .

As required under GAAP, we are amortizing this difference to equity in earnings of an investee over 21 years, the weighted average remaining useful life of the real estate assets owned by AlerisLife and the intangible contract asset with us as of the date of acquisition.

We recorded amortization of the basis difference of $ 352 and $ 526 for the three and six months ended June 30, 2024, respectively.

We recognized income of $ 8,834 and $ 8,945 related to our investment in AlerisLife for the three and six months ended June 30, 2024, respectively.

These amounts are included in equity in net earnings (losses) of investees in our condensed consolidated statements of comprehensive income (loss).

See Note 11 for further information regarding our investment in AlerisLife.

DIVERSIFIED HEALTHCARE TRUST

1 unchanged sentence

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

amortization of the basis difference of $ 351 and $ 877 for the three and nine months ended September 30, 2024, respectively.

We recognized income of $( 1,531 ) and $ 7,414 related to our investment in AlerisLife for the three and nine months ended September 30, 2024, respectively.

These amounts are included in equity in net earnings (losses) of investees in our condensed consolidated statements of comprehensive income (loss).

See Note 11 for further information regarding our investment in AlerisLife.

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

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

We increased rental income to record revenue on a straight line basis by $ 656 and $ 947 for the three and six months ended June 30, 2024, respectively, and decreased rental income to record revenue on a straight line basis by $ 4,457 and $ 2,009 for the three and six months ended June 30, 2023, respectively.

Rents receivable, excluding receivables related to our properties classified as held for sale, if any, include $ 74,959 and $ 75,306 of straight line rent receivables at June 30, 2024 and December 31, 2023, respectively, and are included in other assets, net in our condensed consolidated balance sheets.

We increased rental income to record revenue on a straight line basis by $ 658 and $ 676 for the three months ended September 30, 2024 and 2023, respectively, and $ 1,605 for the nine months ended September 30, 2024.

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

Rents receivable, excluding receivables related to our properties classified as held for sale, if any, include $ 74,088 and $ 75,306 of straight line rent receivables at September 30, 2024 and December 31, 2023, respectively, and are included in other assets, net in our condensed consolidated balance sheets.

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

Such payments totaled $ 11,635 and $ 12,575 for the three months ended June 30, 2024 and 2023, respectively, of which tenant reimbursements totaled $ 11,586 and $ 12,525 , respectively, and $ 22,985 and $ 24,561 for the six months ended June 30, 2024 and 2023, respectively, of which tenant reimbursements totaled $ 22,870 and $ 24,449 , respectively.

Such payments totaled $ 11,126 and $ 12,018 for the three months ended September 30, 2024 and 2023, respectively, of which tenant reimbursements totaled $ 11,083 and $ 11,965 , respectively, and $ 34,111 and $ 36,579 for the nine months ended September 30, 2024 and 2023, respectively, of which tenant reimbursements totaled $ 33,953 and $ 36,414 , respectively.

Right of Use Asset and Lease Liability:

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

The values of the right of use assets and related liabilities representing our future obligation under the respective lease arrangements for which we are the lessee were $ 21,701 and $ 22,086 , respectively, as of June 30, 2024, and $ 23,366 and $ 23,748 , respectively, as of December 31, 2023.

The values of the right of use assets and related liabilities representing our future obligation under the respective lease arrangements for which we are the lessee were $ 20,868 and $ 21,254 , respectively, as of September 30, 2024, and $ 23,366 and $ 23,748 , respectively, as of December 31, 2023.

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

1 unchanged sentence

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

Our principal debt obligations, excluding any debt obligations of our joint ventures, at June 30, 2024 were:

Our principal debt obligations, excluding any debt obligations of our joint ventures, at September 30, 2024 were:

(1) $ 2,040,000 outstanding principal amount of senior unsecured notes;

(2) $ 940,534 outstanding principal amount of senior secured notes;

(2) $ 940,534 outstanding principal amount of senior secured notes with an aggregate net book value of $ 1,070,598 ;

and (3) $ 127,889 principal amount of mortgage debt secured by nine properties.

The mortgaged properties had an aggregate net book value of $ 207,801 at June 30, 2024.

We also had two properties subject to finance leases that expire in 2026 with lease obligations totaling $ 3,140 at June 30, 2024;

these two properties had an aggregate net book value of $ 22,182 at June 30, 2024.

The mortgaged properties had an aggregate net book value of $ 205,750 at September 30, 2024.

We also had two properties subject to finance leases that expire in 2026 with lease obligations totaling $ 2,743 at September 30, 2024;

these two properties had an aggregate net book value of $ 21,815 at September 30, 2024.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

The weighted average annual interest rate for borrowings under our former credit facility was 8.1 % and 7.6 % for the three and six months ended June 30, 2023, respectively.

The weighted average annual interest rate for borrowings under our former credit facility was 8.3 % and 7.8 % for the three and nine months ended September 30, 2023, respectively.

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

In February 2023, we reduced the commitments from $ 586,373 to $ 450,000 following our repayment of $ 136,373 in outstanding borrowings under our former credit facility.

As a result of the February 2023 reduction in commitments, we recorded a loss on modification or early extinguishment of debt of $ 1,075 for the six months ended June 30, 2023.

As a result of the February 2023 reduction in commitments, we recorded a loss on modification or early extinguishment of debt of $ 1,075 for the nine months ended September 30, 2023.

In May 2024, we executed a $ 120,000 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 %.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

In June 2024, we redeemed $ 60,000 of our outstanding 9.75 % senior unsecured notes due 2025 using proceeds from the $ 120,000 mortgage loan executed in May 2024.

As a result of this redemption, we recorded a loss on early extinguishment of debt of $ 209 for the six months ended June 30, 2024.

As of June 30, 2024, all $ 940,534 of our senior secured notes due 2026 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 and certain excluded subsidiaries, and all $ 440,000 of our 9.75 % senior notes due 2025 and all $ 500,000 of our 4.375 % senior notes due 2031 were fully and unconditionally guaranteed, on a joint, several and unsecured basis, by all of our subsidiaries except certain excluded subsidiaries.

As a result of this redemption, we recorded a loss on early extinguishment of debt of $ 209 for the nine months ended September 30, 2024.

As of September 30, 2024, all $ 940,534 of our senior secured notes due 2026 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 and certain excluded subsidiaries, and all $ 440,000 of our 9.75 % senior notes due 2025 and all $ 500,000 of our 4.375 % senior notes due 2031 were fully and unconditionally guaranteed, on a joint, several and unsecured basis, by all of our subsidiaries except certain excluded subsidiaries.

The notes and related guarantees (other than our senior secured notes and the guarantees provided by the Collateral Guarantors) 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 the notes and related guarantees 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 $ 1,100,000 of senior unsecured notes do not have the benefit of any guarantees as of June 30, 2024.

Our remaining $ 1,100,000 of senior unsecured notes do not have the benefit of any guarantees as of September 30, 2024.

We are currently under agreements or letters of intent to sell 22 of the properties securing our senior secured notes due 2026 for an aggregate sales price of $ 302,100 , excluding closing costs.

If these sales are completed, the proceeds are required to be used to partially redeem our outstanding senior secured notes due 2026.

Our senior secured notes due 2026 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.

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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, such that the accreted value will equal the principal amount at maturity.

During the three and six months ended June 30, 2024, we recognized discount accretion of $ 21,440 and $ 42,099 , respectively, for our senior secured notes due 2026 in interest expense in our condensed consolidated statements of comprehensive income (loss).

During the three and nine months ended September 30, 2024, we recognized discount accretion of $ 22,034 and $ 64,133 , respectively, for our senior secured notes due 2026 in interest expense in our condensed consolidated statements of comprehensive income (loss).

We have a one-time option to extend the maturity date of these notes by one year , to January 15, 2027, subject to satisfaction of certain conditions and payment of an extension fee.

If we exercise this option, interest payments will be due semiannually during the extension period at an initial interest rate of 11.25 % with increases of 50 basis points every 90 days these notes remain outstanding.

Based on the significant number of unencumbered properties in our senior housing operating portfolio, or SHOP, 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 $ 440,000 outstanding principal amount of our 9.75 % senior unsecured notes due 2025.

Based on the significant number of unencumbered properties in our senior housing operating portfolio, or 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 $ 440,000 outstanding principal amount of our 9.75 % senior unsecured notes due June 2025.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Fair Value of Assets and Liabilities

The following table presents certain of our assets that are measured at fair value at June 30, 2024 and December 31, 2023, categorized by the level of inputs as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.

As of June 30, 2024 As of December 31, 2023

The following table presents certain of our assets that are measured at fair value at September 30, 2024 and December 31, 2023, categorized by the level of inputs as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.

As of September 30, 2024 As of December 31, 2023

Description Carrying Value Carrying Value

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(2) The 20 % equity interest we own in the LSMD JV is included in investments in unconsolidated joint ventures in our condensed consolidated balance sheet, and is reported at fair value, which is based on significant unobservable inputs (Level 3 inputs).

The significant unobservable inputs used in the fair value analysis are discount rates of between 6.50 % and 8.00 %, exit capitalization rates of between 5.25 % and 7.00 %, holding periods of 10 years and market rents.

The assumptions we made in the fair value analysis are based on the location, type and nature of each property, and current and anticipated market conditions.

See Note 3 for further information regarding this joint venture.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

During the three months ended June 30, 2024, we recorded impairment charges of $ 6,647 to reduce the carrying value of one medical office property that is classified as held for sale to its estimated sales price, less estimated costs to sell, of $ 5,859 under an agreement to sell that we have entered into with a third party.

During the three months ended September 30, 2024, we recorded impairment charges of $ 23,031 to reduce the carrying value of one life science property that is classified as held for sale to its estimated sales price, less estimated costs to sell, of $ 6,286 under an agreement to sell that we have entered into with a third party.

See Note 3 for further information about impairment charges and the properties we have classified as held for sale.

In addition to the assets described in the table above, our financial instruments at June 30, 2024 and December 31, 2023 included cash and cash equivalents, restricted cash, certain other assets, senior unsecured notes, senior secured notes, secured debt and finance leases and certain other unsecured obligations and liabilities.

In addition to the assets described in the table above, our financial instruments at September 30, 2024 and December 31, 2023 included cash and cash equivalents, restricted cash, certain other assets, senior unsecured notes, senior secured notes, secured debt and finance leases and certain other unsecured obligations and liabilities.

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

As of June 30, 2024 As of December 31, 2023

As of September 30, 2024 As of December 31, 2023

Description Carrying Amount (1)

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

We estimated the fair values of our two issuances of senior unsecured notes due 2042 and 2046 based on the closing price on The Nasdaq Stock Market LLC, or Nasdaq, as of June 30, 2024 and December 31, 2023 (Level 1 inputs as defined in the fair value hierarchy under GAAP).

We estimated the fair values of our three issuances of senior unsecured notes due 2025, 2028 and 2031 and our issuance of senior secured notes due 2026 using an average of the bid and ask price on Nasdaq on or about June 30, 2024 and December 31, 2023 (Level 2 inputs as defined in the fair value hierarchy under GAAP).

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

We estimated the fair values of our two issuances of senior unsecured notes due 2042 and 2046 based on the closing price on The Nasdaq Stock Market LLC, or Nasdaq, as of September 30, 2024 and December 31, 2023 (Level 1 inputs as defined in the fair value hierarchy under GAAP).

We estimated the fair values of our three issuances of senior unsecured notes due 2025, 2028 and 2031 and our issuance of senior secured notes due 2026 using an average of the bid and ask price on Nasdaq on or about September 30, 2024 and December 31, 2023 (Level 2 inputs as defined in the fair value hierarchy under GAAP).

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

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On May 31, 2024, in accordance with our Trustee compensation arrangements, we awarded to each of our seven Trustees 37,037 of our common shares, valued at $ 2.43 per share, the closing price of our common shares on Nasdaq on that day .

On September 11, 2024, we awarded under our equity compensation plan an aggregate of 881,767 of our common shares, valued at $ 3.35 per share, the closing price of our common shares on Nasdaq on that day, to our officers and certain other employees of The RMR Group LLC, or RMR, and certain employees of AlerisLife.

Common Share Purchases:

During the three and six months ended June 30, 2024, we purchased an aggregate of 17,511 and 47,687 of our common shares, respectively, valued at a weighted average share price of $ 2.38 and $ 2.50 , respectively, from certain former officers and employees of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of prior awards of our common shares.

During the three and nine months ended September 30, 2024, we purchased an aggregate of 219,864 and 267,551 of our common shares, respectively, valued at a weighted average share price of $ 3.52 and $ 3.34 , respectively, from our officers and certain other current and former officers and employees of RMR and certain employees of AlerisLife, in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.

We withheld and purchased these common shares at their fair market values based upon the trading prices of our common shares at the close of trading on Nasdaq on the applicable purchase dates.

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Distributions:

During the six months ended June 30, 2024, we declared and paid quarterly distributions to common shareholders as follows:

During the nine months ended September 30, 2024, we declared and paid quarterly distributions to common shareholders as follows:

Declaration Date Record Date Payment Date Distribution Per Share Total Distributions

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April 11, 2024 April 22, 2024 May 16, 2024 0.01 2,404

July 11, 2024 July 22, 2024 August 15, 2024 0.01 2,406

$ 0.03 $ 7,214

On July 11, 2024, we declared a quarterly distribution to common shareholders of record on July 22, 2024 of $ 0.01 per share, or approximately $ 2,406 .

We expect to pay this distribution on or about August 15, 2024 using cash on hand.

On October 16, 2024, we declared a quarterly distribution to common shareholders of record on October 28, 2024 of $ 0.01 per share, or approximately $ 2,413 .

We expect to pay this distribution on or about November 14, 2024 using cash on hand.

Segment Reporting

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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.

For the Three Months Ended June 30, 2024

DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

to constitute a separate reporting segment, and any other income or expenses that are not attributable to a specific reporting segment.

For the Three Months Ended September 30, 2024

Medical Office and Life Science Portfolio SHOP Non-Segment Consolidated

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Acquisition and certain other transaction related costs

— — 1,826 1,826

Impairment of assets 23,031 — — 23,031

Total expenses 66,878 331,915 17,158 415,951

Loss on sale of properties ( 13,213 ) — — ( 13,213 )

Gain on sale of properties 111 — — 111

Interest and other income — — 2,575 2,575

Interest expense ( 2,319 ) ( 54 ) ( 57,070 ) ( 59,443 )

Loss on modification or early extinguishment of debt — — ( 209 ) ( 209 )

Loss before income tax expense and equity in net (losses) earnings of investees ( 9,354 ) ( 17,988 ) ( 58,042 ) ( 85,384 )

Loss before income tax expense and equity in net earnings (losses) of investees ( 16,185 ) ( 19,964 ) ( 62,919 ) ( 99,068 )

Income tax expense — — ( 148 ) ( 148 )

Equity in net (losses) earnings of investees ( 21,493 ) — 9,186 ( 12,307 )

Equity in net earnings (losses) of investees 1,707 — ( 1,180 ) 527

Net loss $ ( 14,478 ) $ ( 19,964 ) $ ( 64,247 ) $ ( 98,689 )

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

For the Six Months Ended June 30, 2024

For the Nine Months Ended September 30, 2024

Medical Office and Life Science Portfolio SHOP Non-Segment Consolidated

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Net loss $ ( 52,438 ) $ ( 60,232 ) $ ( 170,139 ) $ ( 282,809 )

As of June 30, 2024

As of September 30, 2024

Medical Office and Life Science Portfolio SHOP Non-Segment Consolidated

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

For the Three Months Ended June 30, 2023

For the Three Months Ended September 30, 2023

Medical Office and Life Science Portfolio SHOP Non-Segment Consolidated

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

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

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

Income tax expense — — ( 189 ) ( 189 )

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

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

For the Six Months Ended June 30, 2023

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

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

For the Nine Months Ended September 30, 2023

Medical Office and Life Science Portfolio SHOP Non-Segment Consolidated

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Our Senior Living Communities Managed by Five Star.

Five Star managed 119 of our senior living communities as of both June 30, 2024 and 2023.

Five Star managed 119 of our senior living communities as of both September 30, 2024 and 2023.

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

We incurred management fees payable to Five Star of $ 10,444 and $ 9,890 for the three months ended June 30, 2024 and 2023, respectively, and $ 20,851 and $ 19,904 for the six months ended June 30, 2024 and 2023, respectively.

For the three months ended June 30, 2024 and 2023, $ 9,995 and $ 9,315 , respectively, of the total management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 449 and $ 575 , respectively, were capitalized in our condensed consolidated balance sheets.

For the six months ended June 30, 2024 and 2023, $ 19,993 and $ 18,452 , respectively, of the total management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 858 and $ 1,452 , respectively, were capitalized in our condensed consolidated balance sheets.

We incurred management fees payable to Five Star of $ 10,611 and $ 10,058 for the three months ended September 30, 2024 and 2023, respectively, and $ 31,462 and $ 29,962 for the nine months ended September 30, 2024 and 2023, respectively.

For the three months ended September 30, 2024 and 2023, $ 10,060 and $ 9,457 , respectively, of the total management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 551 and $ 601 , respectively, were capitalized in our condensed consolidated balance sheets.

For the nine months ended September 30, 2024 and 2023, $ 30,053 and $ 27,909 , respectively, of the total management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 1,409 and $ 2,053 , respectively, were capitalized in our condensed consolidated balance sheets.

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

We incurred fees of $ 0 and $ 334 for the three months ended June 30, 2024 and 2023, respectively, and $ 10 and $ 1,213 for the six months ended June 30, 2024 and 2023, respectively, with respect to rehabilitation services Five Star provided at our senior living communities that are payable by us.

We incurred fees of $ 0 and $ 1,213 for the nine months ended September 30, 2024 and 2023, respectively, with respect to rehabilitation services Five Star provided at our senior living communities that are payable by us.

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

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Our Senior Living Communities Managed by Other Third Party Managers.

Several other third party managers managed 111 of our senior living communities as of both June 30, 2024 and 2023.

Several other third party managers managed 111 of our senior living communities as of both September 30, 2024 and 2023.

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

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The terms of the management agreement for these communities are generally consistent with the terms of the existing management agreements with our other third party managers.

We paid transition costs, including termination and other fees, of $ 1,826 during the second quarter of 2024, and expect to incur additional costs during 2024, related to the transition of these communities.

We incurred management fees payable to these third party managers of $ 5,758 and $ 5,357 for the three months ended June 30, 2024 and 2023, respectively, and $ 11,483 and $ 10,595 for the six months ended June 30, 2024 and 2023, respectively.

We paid transition costs, including termination and other fees, of $ 2,042 related to the transition of these communities during the nine months ended September 30, 2024.

We incurred management fees payable to these third party managers of $ 5,858 and $ 5,635 for the three months ended September 30, 2024 and 2023, respectively, and $ 17,341 and $ 16,230 for the nine months ended September 30, 2024 and 2023, respectively.

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

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

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

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

Revenue from contracts with customers:

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See Note 11 for further information regarding our relationship, agreements and transactions with RMR.

We recognized net business management fees of $ 3,128 and $ 3,321 for the three months ended June 30, 2024 and 2023, respectively, and $ 8,006 and $ 6,591 for the six months ended June 30, 2024 and 2023, respectively.

The net business management fees we recognized for the three months ended June 30, 2024 include an $ 849 reversal of estimated incentive fees.

For the six months ended June 30, 2024, we did no t recognize any estimated incentive fee.

The actual amount of annual incentive fees for 2024, if any, will be based on our common share total return as defined in our business management agreement, for the three-year period ending December 31, 2024, and will be payable in January 2025.

We recognized net business management fees of $ 11,249 and $ 3,692 for the three months ended September 30, 2024 and 2023, respectively, and $ 19,255 and $ 10,283 for the nine months ended September 30, 2024 and 2023, respectively.

The net business management fees we recognized for both the three and nine months ended September 30, 2024 include $ 6,934 of estimated incentive fees based on our common share total return, as defined in our business management agreement.

Although we recognized estimated incentive fees in accordance with GAAP, the actual amount of annual incentive fees for 2024, if any, will be based on our common share total return as defined in our business management agreement, for the three-year period ending December 31, 2024, and will be payable in January 2025.

We did not incur any incentive fee payable for the year ended December 31, 2023.

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

We recognized aggregate net property management and construction supervision fees of $ 1,720 and $ 2,202 for the three months ended June 30, 2024 and 2023, respectively, and $ 3,624 and $ 4,194 for the six months ended June 30, 2024 and 2023, respectively.

For the three months ended June 30, 2024 and 2023, $ 1,446 and $ 1,400 , respectively, of the total property management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 274 and $ 802 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets.

For the six months ended June 30, 2024 and 2023, $ 2,984 and $ 2,863 , respectively, of the total property management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 640 and $ 1,331 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets.

We recognized aggregate net property management and construction supervision fees of $ 1,787 and $ 2,209 for the three months ended September 30, 2024 and 2023, respectively, and $ 5,411 and $ 6,403 for the nine months ended September 30, 2024 and 2023, respectively.

For the three months ended September 30, 2024 and 2023, $ 1,358 and $ 1,363 , respectively, of the total property management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 429 and $ 846 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets.

For the nine months ended September 30, 2024 and 2023, $ 4,342 and $ 4,226 , respectively, of the total property management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $ 1,069 and $ 2,177 , respectively, were capitalized as building improvements in our condensed consolidated balance sheets.

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

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

We reimbursed RMR $ 3,713 and $ 3,561 for these expenses and costs for the three months ended June 30, 2024 and 2023, respectively, and $ 7,441 and $ 7,094 for the six months ended June 30, 2024 and 2023, respectively.

We reimbursed RMR $ 4,007 and $ 3,671 for these expenses and costs for the three months ended September 30, 2024 and 2023, respectively, and $ 11,448 and $ 10,765 for the nine months ended September 30, 2024 and 2023, respectively.

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

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We have relationships and historical and continuing transactions with RMR, RMR Inc., AlerisLife (including Five Star) and others related to them, including other companies to which RMR or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers.

is the majority owned subsidiary of RMR.

RMR is a majority owned subsidiary of RMR Inc.

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

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Bilotto, our other Managing Trustee and President and Chief Executive Officer, and Matthew C.

Brown, our Chief Financial Officer and Treasurer, are also employees and officers of RMR.

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

Brown, our Chief Financial Officer and Treasurer, are also officers and employees of RMR.

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

Clark, our Secretary and former Managing Trustee, also serves as a managing director and the executive vice president, general counsel and secretary of RMR Inc., an officer and employee of RMR, an officer of ABP Trust and secretary of AlerisLife and, until March 20, 2023, a managing director of AlerisLife.

Certain of AlerisLife's officers are officers and employees of RMR.

Jeffrey Leer, the president and chief executive officer of AlerisLife, is an executive officer of RMR.

Some of our Independent Trustees also serve as independent trustees of other public companies to which RMR or its subsidiaries provide management services.

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

As of June 30, 2024, ABP Trust and Mr.

As of September 30, 2024, ABP Trust and Mr.

Portnoy owned 9.8 % of our outstanding common shares.

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

On February 16, 2024, we exercised this purchase right and acquired, together with our applicable TRS, approximately 34.0 % of the then outstanding AlerisLife common shares from ABP Trust at the tender offer price, for a total purchase price of $ 14,890 , and we, our applicable TRS, ABP Trust and AlerisLife entered into a stockholders agreement.

On February 16, 2024, we exercised this purchase right and acquired, together with our applicable TRS, approximately 34.0 % of the then outstanding AlerisLife common shares from ABP Trust at the tender offer price, for a total purchase price of $ 14,890 , excluding transaction related costs, and we, our applicable TRS, ABP Trust and AlerisLife entered into a stockholders agreement.

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

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

The remaining costs totaled $ 6,080 as of June 30, 2024 and are included in other assets, net, in our condensed consolidated balance sheet.

The remaining costs totaled $ 6,080 as of September 30, 2024 and are included in other assets, net, in our condensed consolidated balance sheet.

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

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

We recognized rental income from RMR for this leased office space of $ 148 and $ 13 for the three months ended June 30, 2024 and 2023, respectively, and $ 257 and $ 74 for the six months ended June 30, 2024 and 2023, respectively.

We recognized rental income from RMR for this leased office space of $ 97 and $ 58 for the three months ended September 30, 2024 and 2023, respectively, and $ 354 and $ 132 for the nine months ended September 30, 2024 and 2023, respectively.

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

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

For the three months ended June 30, 2024 and 2023, we recognized income tax expense of $ 170 and $ 221 , respectively, and for the six months ended June 30, 2024 and 2023, we recognized income tax expense of $ 357 and $ 190 , respectively.

For the three months ended September 30, 2024 and 2023, we recognized income tax expense of $ 148 and $ 189 , respectively, and for the nine months ended September 30, 2024 and 2023, we recognized income tax expense of $ 505 and $ 379 , respectively.

Weighted Average Common Share s

3 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-Q

Item 1. Financial Statements