What changed in this filing

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Item 1. Business

2025-02-25 compared with 2024-02-26 · 114 added, 122 removed, 872 unchanged (21% of the section changed)

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

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

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

As of December 31, 2024, we owned 367 properties, including 32 properties classified as held for sale, located in 36 states and Washington, D.C.

As of December 31, 2024, we owned an equity interest in each of two unconsolidated joint ventures that own medical office and life science properties located in five states with an aggregate of approximately 2.2 million rentable square feet that were 99% leased with an average (by annualized rental income) remaining lease term of 15.1 years.

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

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

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

According to U.S.

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Also, as a result of medical advances, seniors are living longer, and CMS reports that healthcare spending is projected to grow at an average rate of 5.6% per year and reach $7.7 trillion by 2032.

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

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

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

According to The National Investment Center for Seniors Housing and Care, or NIC, annual inventory growth was 1.2% across all markets during the fourth quarter of 2024.

Additionally, annual absorption was 3.7% for the fourth quarter of 2024, according to NIC.

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

We expect improving market fundamentals and constrained supply to continue to result in increased occupancy at our senior living communities.

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

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

Office Portfolio

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

Medical Office and Life Science Portfolio

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

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

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An independent living community usually bundles several services as part of a regular monthly charge.

For example, an independent living community may include one or two meals per day in a central dining room, daily or weekly maid service or a social director in the base charge.

For example, an independent living community may include one or two meals per day in a central dining room, daily or weekly maid service or social programming in the base charge.

Additional services are generally available from staff employees on a fee for service basis.

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

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

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

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Professional nursing and healthcare services are usually available at the property on call or at regularly scheduled times.

These communities may also include Alzheimer's or memory care services.

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

Memory Care Communities.

Memory care communities are a specialized assisted living option designed for individuals with memory loss, such as dementia or Alzheimer's disease.

Services provided include a secure environment with tailored support for activities of daily living, medication management, specially trained staff to manage behavioral challenges and promote cognitive engagement through structured activities and family support.

Bundled services are typically consistent with those offered at standard assisted living communities but provide additional frequency of housekeeping and laundry services.

Apartments are generally studio units, with occasional one bedroom or shared companion units.

Rates at memory care communities are typically higher as they include a base level of care and medication management, with additional levels of care available for a higher fee.

Skilled Nursing Facilities.

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

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

for some or all of the property operating expenses.

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

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

Our leases for senior living communities and wellness centers are “triple net” leases.

Senior Housing Operating Portfolio Management Agreements

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

Under this structure, we lease certain of our communities to

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

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

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

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

Economic and Market Conditions

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

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

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

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

Although the U.S.

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

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

An economic recession, or continued or intensified disruptions in the financial markets, could adversely affect our financial condition and that of our managers, operators and tenants, could adversely impact the ability or willingness of our managers, operators, tenants or residents to pay amounts owed to us, could impair our ability to effectively deploy our capital or realize our target returns on our investments, may restrict our access to, and would likely increase our cost of capital, and may cause the values of our properties and of our securities to decline.

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

Our Investment and Operating Policies

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

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

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

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

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

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

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

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In implementing this acquisition strategy, we consider a range of factors relating to each proposed acquisition, including, but not limited to:

• the use and size of the property;

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

• the use and size of the property;

• the location of the property;

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

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

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

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

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

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

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 $15.5 million, including 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 approximate 66.0% of AlerisLife.

On February 14, 2025, AlerisLife paid an aggregate cash dividend of $50.0 million to its stockholders.

Our pro rata share of this cash dividend was $17.0 million.

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

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

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

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

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

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

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and an officer and employee of RMR.

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

Christopher J.

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

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

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

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

Leer, executive vice president;

Murray, executive vice president.

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

Brown, is a senior vice president of RMR.

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

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

Brown, is a senior vice president of RMR and our Vice President, Anthony Paula, is a vice president of RMR.

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

Government Regulation and Reimbursement

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Medicaid funding is available in some, but not all, states for assisted living services.

State licensure standards for assisted living communities, SNFs, clinics and other healthcare facilities typically address facility policies, staffing, quality of services and care, resident rights, fire safety and physical plant matters, and related matters.

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

State licensure standards for assisted living communities, SNFs, clinics and other healthcare facilities typically address facility policies, staffing, quality of services and care, resident rights, infection control, emergency preparedness, fire safety and physical plant matters, and related matters;

there have also been recent, ongoing legislative and regulatory efforts to increase federal oversight of assisted living and SNF operations, including a federal minimum staffing rule for SNFs published on May 10, 2024.

We have been and may continue to be subject to federal and state laws, regulations and executive orders relating to healthcare providers' response to the COVID-19 pandemic.

While many of the regulatory requirements were temporary and expired with the end of the public health emergency in May 2023, these requirements generally may include mandatory requirements for vaccination of staff, testing of residents and/or staff, providing COVID-19 related paid leave, implementation of infection control standards and procedures, imposition of restrictions on new admissions or readmissions of residents, required screening of all persons entering a community, imposition of restrictions or limitations on who and how residents may be visited, and imposition of mandatory notification requirements to residents, families, staff, and regulatory bodies related to positive COVID-19 cases.

Enhanced or additional penalties may apply for violation of such requirements.

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

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

In addition, to the extent the current administration and the 119th Congress alter these laws and regulations, additional regulatory risks may arise.

Changes in the regulatory

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

State and local health and social service agencies and other regulatory authorities regulate and license many senior living communities.

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

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

appropriate licenses.

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

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

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For the year ended December 31, 2024, substantially all of our net operating income, or NOI, from our senior living communities was generated from properties where a majority of the revenues are derived from our tenants' and residents' private resources, and a small amount of our NOI was generated from our senior living communities where a majority of the revenue is dependent upon Medicare and Medicaid programs.

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

In addition, the Federal government took several measures to address the financial impact of the pandemic.

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

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

suffering from the COVID-19 pandemic.

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

For a description of the governmental funding and subsequent legislation, see our Annual Report on Form 10-K for the year ended December 31, 2021.

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

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

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

Any funds not used in accordance with the terms and conditions must be returned to HHS.

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

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

Our tenants and managers operate facilities in many states and they and we participate in federal and state healthcare payment programs, including the federal Medicare and state Medicaid

benefit programs for services in SNFs and other similar facilities and state Medicaid programs for services in assisted living communities.

Government Payers.

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

On December 10, 2020, HHS

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

On January 21, 2021, HHS issued a proposed rule that would modify certain standards, definitions and patient rights under the previously promulgated Standards for Privacy of Individually Identifiable Health Information to address barriers to coordinated care and case management.

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

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The increasing sophistication of cybersecurity threats presents challenges to the entire healthcare industry.

In addition, many states have enacted their own security and privacy laws relating to individually identifiable information.

In addition, many states have enacted their own security and privacy laws relating to individually identifiable information and consumer health information.

For example, the California Consumer Privacy Act, or the CCPA, became effective in 2020, and was further modified by the California Privacy Rights Act, or the CPRA.

The majority of CPRA provisions went into effect on January 1, 2023, with some requirements applying to data collected beginning on January 1, 2022.

The CPRA significantly expanded the CCPA's data protection obligations.

Failure to comply with the CCPA or CPRA could result in penalties for noncompliance of up to $7,500 per violation.

We expect additional federal and state legislative and regulatory efforts to regulate consumer privacy in the future.

In some states, these laws are more stringent than HIPAA, and we, our tenants and our managers must comply with both the applicable federal and state standards.

A number of other states have enacted similar laws related to the protection and security of individually identifiable information and consumer health information, and we expect additional federal and state legislative and regulatory efforts to regulate consumer privacy in the future.

These laws generally require covered companies to disclose to consumers information regarding, for example, the type of personal information the company collects, the third parties to which it is disclosed and the purpose for disclosure, and whether the company sells any personal information to third parties.

Covered companies are generally also obligated to provide consumers with certain rights regarding their personal information including, for example, the right to know the type of information collected about the consumer and to whom it is disclosed, the right to correct and/or to delete such information, and the right to opt-out of sales of their personal information.

In some states, these laws are more stringent than HIPAA, and we, our tenants and our managers may be required to comply with both the applicable federal and state standards.

These legislative and regulatory developments will continue to influence the design and operation of our business and our privacy and security efforts.

Other Matters.

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

Further, federal legislation has been introduced that, if enacted, would impose significant transparency requirements, federal oversight, and restrictions on private equity and REIT investment in the health care space, including the ability of federal regulators to review and block certain transactions.

Similar laws in some states have also recently been enacted.

To the extent these laws apply to our business, they may impact our ability to enter into transactions involving the sale or acquisition of our properties.

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

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

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

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

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

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

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

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• Environmental Stewardship.

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

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

We seek to improve the environmental footprint of our properties, including by reducing carbon emissions, energy consumption and water usage, especially when doing so may reduce operating costs and exposure to policies that call for a carbon tax or other emissions-based penalties and enhance the properties’ competitive position.

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

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

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

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

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As of December 31, 2024, our LEED® designations and ENERGY STAR certifications were as follows:

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

25 of our Medical Office and Life Science Portfolio properties containing 2.4 million rentable square feet (18.7% and 23.2% of our Medical Office and Life Science Portfolio properties and rentable square feet, respectively).

• Building Owners and Managers Association (BOMA) 360:

16 of our properties containing approximately 1.4 million rentable square feet (11.9% and 13.4% of our eligible properties and eligible rentable square feet, respectively).

• ENERGY STAR:

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

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

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

Environmental Matters

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We reviewed environmental surveys of the properties we own prior to their purchase.

Based upon those surveys, other studies we may have since reviewed and our understanding of the operations of these properties by our tenants and managers, we do not believe that there are environmental conditions at any of our properties that have had or will have a material adverse effect on us.

Based upon those surveys, other studies we may have since reviewed and our understanding of the operations of these properties by our tenants and managers,

we do not believe that there are environmental conditions at any of our properties that have had or will have a material adverse effect on us.

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

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

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

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

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

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

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

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

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

Investments in Human Capital

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Diversity and Inclusion

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

As of December 31, 2024, our Board of Trustees was comprised of seven Trustees, of which five were independent trustees.

Our Board of Trustees is comprised of 43% women and approximately 29% members of underrepresented minorities.

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Copies of our governance guidelines, our code of business conduct and ethics, or our Code of Conduct, and the charters of our audit, compensation and nominating and governance committees are posted on our website and also may be obtained free of charge by writing to our Secretary, Diversified Healthcare Trust, Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634.

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

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

We also have a policy outlining

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

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

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

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Segment Information

As of December 31, 2023, we had two reporting segments:

Office Portfolio and SHOP.

Non-aggregated assets are classified as “non-segment” and include corporate assets and liabilities, certain triple net leased senior living communities and wellness centers.

As of December 31, 2024, we had two reportable segments:

Medical Office and Life Science Portfolio and SHOP.

For further information, see “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Annual Report on Form 10-K and our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

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We have elected to be taxed as a REIT under Sections 856 through 860 of the IRC, commencing with our 1999 taxable year.

Our REIT election, assuming continuing compliance with the then applicable qualification tests, has continued and will continue in effect for subsequent taxable years.

Our REIT election, assuming continuing compliance with the then applicable qualification tests, has continued and will

continue in effect for subsequent taxable years.

Although we cannot be sure, we believe that from and after our 1999 taxable year we have been organized and have operated, and will continue to be organized and to operate, in a manner that qualified us and will continue to qualify us to be taxed as a REIT under the IRC.

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However, even if we continue to qualify for taxation as a REIT, we may still be subject to federal tax in the following circumstances, as described below:

• We will be taxed at regular corporate income tax rates on any undistributed “real estate investment trust taxable income,” determined by including our undistributed ordinary income and net capital gains, if any.

We may elect to retain and pay income tax on our net capital gain.

In addition, if we so elect by making a timely designation to our shareholders, a shareholder would be taxed on its proportionate share of our undistributed capital gain and would generally be expected to receive a credit or refund for its proportionate share of the tax we paid.

• If we have net income from the disposition of “foreclosure property,” as described in Section 856(e) of the IRC, that is held primarily for sale to customers in the ordinary course of a trade or business or other nonqualifying income from foreclosure property, we will be subject to tax on this income at the highest regular corporate income tax rate.

• We will be taxed at regular corporate income tax rates on any undistributed “real estate investment trust taxable income,” including our undistributed ordinary income and net capital gains, if any.

We may elect to retain and pay income tax on our net capital gain, as well as on certain amounts attributable to cancellation of indebtedness income, if any.

income from foreclosure property, we will be subject to tax on this income at the highest regular corporate income tax rate.

• If we have net income from “prohibited transactions”—that is, dispositions at a gain of inventory or property held primarily for sale to customers in the ordinary course of a trade or business other than dispositions of foreclosure property and other than dispositions excepted by statutory safe harbors—we will be subject to tax on this income at a 100% rate.

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Further, as a regular C corporation, distributions to our shareholders will not be deductible by us, nor will distributions be required under the IRC.

Also, to the extent of our current and accumulated earnings and profits, all distributions to our shareholders will generally be taxable as ordinary dividends potentially eligible for the preferential tax rates discussed below under the heading “—Taxation of Taxable U.S.

rates discussed below under the heading “—Taxation of Taxable U.S.

Shareholders” and, subject to limitations in the IRC, will be potentially eligible for the dividends received deduction for corporate shareholders.

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

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

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

A shareholder that fails or refuses to comply with the request is required by Treasury regulations to submit a statement with its federal income tax return disclosing its actual ownership of our shares and other information.

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Each such excused failure will result in the imposition of a $50,000 penalty instead of REIT disqualification.

This relief provision may apply to a failure of the applicable conditions even if the failure first occurred in a year prior to the taxable year in which the failure was discovered.

This relief provision may

apply to a failure of the applicable conditions even if the failure first occurred in a year prior to the taxable year in which the failure was discovered.

Our Wholly Owned Subsidiaries and Our Investments Through Partnerships.

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

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

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

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

We have invested and may in the future invest in real estate through one or more entities that are treated as partnerships for federal income tax purposes.

In the case of a REIT that is a partner in a partnership, Treasury regulations under the IRC provide that, for purposes of the REIT qualification requirements regarding income and assets described below, the REIT is generally deemed to own its proportionate share, based on respective capital interests, of the income and assets of the partnership (except that for purposes of the 10% value test, described below, the REIT’s proportionate share of the partnership’s assets is based on its proportionate interest in the equity and specified debt securities issued by the partnership).

In the case of a REIT that is a partner in a partnership, Treasury regulations under the IRC provide that, for purposes of the REIT qualification requirements regarding income and assets described below, the REIT is generally deemed to own its proportionate share, based on respective capital interests (including any preferred equity interests in the partnership), of the income and assets of the partnership (except that for purposes of the 10% value test, described below, the REIT’s proportionate share of the partnership’s assets is based on its proportionate interest in the equity and specified debt securities issued by the partnership).

In addition, for these purposes, the character of the assets and items of gross income of the partnership generally remains the same in the hands of the REIT.

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Among other requirements, a TRS of ours must:

(1) not directly or indirectly operate or manage a lodging facility or a health care facility;

(2) not directly or indirectly provide to any person, under a franchise, license or otherwise, rights to any brand name under which any lodging facility or health care facility is operated, except that in limited circumstances a subfranchise, sublicense or similar right can be granted to an independent contractor to operate or manage a lodging facility or a health care facility.

(1) not directly or indirectly operate or manage a health care facility or a lodging facility;

(2) not directly or indirectly provide to any person, under a franchise, license or otherwise, rights to any brand name under which any health care facility or lodging facility is operated, except that in limited circumstances a subfranchise, sublicense or similar right can be granted to an independent contractor to operate or manage a health care facility or a lodging facility.

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

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

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

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

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

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• Rents generally do not qualify if the REIT owns 10% or more by vote or value of stock of the tenant (or 10% or more of the interests in the assets or net profits of the tenant, if the tenant is not a corporation), whether directly or after application of attribution rules.

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

We generally do not intend to lease property to any party if rents from that property

would not qualify as “rents from real property,” but application of the 10% ownership rule is dependent upon complex attribution rules and circumstances that may be beyond our control.

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

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

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

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

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

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and (b) after we identify the failure, we file a schedule describing each item of our gross income included in the 75% gross income test or the 95% gross income test for that taxable year.

Even if this relief provision does apply, a 100% tax is imposed upon the greater of the amount by which we failed the 75% gross income test or the amount by which we failed the 95% gross income test, with adjustments, multiplied by a fraction intended to reflect our profitability for the taxable year.

Even if this relief provision does apply, a 100% tax is imposed upon the greater of the amount by which we failed the 75% gross income

test or the amount by which we failed the 95% gross income test, with adjustments, multiplied by a fraction intended to reflect our profitability for the taxable year.

This relief provision may apply to a failure of the applicable income tests even if the failure first occurred in a year prior to the taxable year in which the failure was discovered.

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If the relief provision were to apply to us, we would be subject to tax at a 100% rate upon the greater of the amount by which we failed the 75% gross income test or the amount by which we failed the 95% gross income test, with adjustments, multiplied by a fraction intended to reflect our profitability for the taxable year;

even though we have little or no nonqualifying income from other sources in a typical taxable year, imposition of this 100% tax in this circumstance would be material because a significant number of the properties leased to our TRSs are managed for the TRSs by this contractor.

even though we have little or no nonqualifying income from other sources in a

typical taxable year, imposition of this 100% tax in this circumstance would be material because a significant number of the properties leased to our TRSs are managed for the TRSs by this contractor.

As explained above, we will be subject to a 100% tax on the rents paid to us by any of our TRSs if the IRS successfully asserts that those rents exceed an arm’s length rental rate.

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(1) the sum of 90% of our “real estate investment trust taxable income” and 90% of our net income after tax, if any, from property received in foreclosure, over

(2) the amount by which our noncash income (e.g., imputed rental income or income from transactions inadvertently failing to qualify as like-kind exchanges) exceeds 5% of our “real estate investment trust taxable income.”

(2) the amount by which our noncash income (e.g., cancellation of indebtedness income, imputed rental income or income from transactions inadvertently failing to qualify as like-kind exchanges) exceeds 5% of our “real estate investment trust taxable income.”

For these purposes, our “real estate investment trust taxable income” is as defined under Section 857 of the IRC and is computed without regard to the dividends paid deduction and our net capital gain and will generally be reduced by specified corporate-level income taxes that we pay (e.g., taxes on built-in gains or foreclosure property income).

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In addition to the other distribution requirements above, to preserve our qualification for taxation as a REIT we are required to timely distribute all C corporation earnings and profits that we inherit from acquired corporations, as described below.

We may elect to retain, rather than distribute, some or all of our net capital gain and pay income tax on such gain.

We may elect to retain, rather than distribute, some or all of our net capital gain and certain of our cancellation of indebtedness income, and pay income tax on such retained amounts.

In addition, if we so elect by making a timely designation to our shareholders, our shareholders would include their proportionate share of such undistributed capital gain in their taxable income, and they would receive a corresponding credit for their share of the federal corporate income tax that we pay thereon.

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In addition, any loss upon a sale or exchange of our shares held for six months or less will generally be treated as a long-term capital loss to the extent of any long-term capital gain dividends we paid on such shares during the holding period.

shareholders who are individuals, estates or trusts are generally required to pay a 3.8% Medicare tax on their net investment income (including dividends on our shares (without regard to any deduction allowed by Section 199A of the IRC) and gains from the sale or other disposition of our shares), or in the case of estates and trusts on their net investment income that is not distributed, in each case to the extent that their total adjusted income exceeds applicable thresholds.

that is not distributed, in each case to the extent that their total adjusted income exceeds applicable thresholds.

shareholders are urged to consult their tax advisors regarding the application of the 3.8% Medicare tax.

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

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

entities to individuals.

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

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shareholder that is not designated as a capital gain dividend will be treated as an ordinary income dividend to the extent that it is made out of our current or accumulated earnings and profits.

A distribution of this type will generally be subject to U.S.

distribution of this type will generally be subject to U.S.

federal income tax and withholding at the rate of 30%, or at a lower rate if the non-U.S.

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

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

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

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

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

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federal income taxation as a sale of a USRPI.

Second, our shares will not constitute USRPIs if we are a “domestically controlled” REIT.

Second, our shares will not

constitute USRPIs if we are a “domestically controlled” REIT.

We will be a “domestically controlled” REIT if less than 50% of the value of our shares (including any future class of shares that we may issue) is held, directly or indirectly, by non-U.S.

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

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

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

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

shareholder would also be subject to fulsome U.S.

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shareholder status on an applicable IRS Form W-8 or substantially similar form.

Even without having executed an applicable IRS Form W-8 or substantially similar form, however, in some cases information reporting and backup withholding will not apply to proceeds that a non-U.S.

Even without having executed an applicable IRS Form W-8 or substantially similar form, however, in some cases information reporting and backup withholding will not

apply to proceeds that a non-U.S.

shareholder receives upon the sale, exchange, redemption, retirement or other disposition of our shares if the non-U.S.

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

Foreign financial institutions located in

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

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

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

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The regulation provides that whether a security is “freely transferable” is a factual question to be determined on the basis of all relevant facts and circumstances.

The regulation further provides that, where a security is part of an offering in which the minimum investment is $10,000 or less, some restrictions on transfer ordinarily will not, alone or in combination, affect a finding that these securities are freely transferable.

The restrictions on transfer enumerated in the regulation as not affecting that finding include:

• any restriction on or prohibition against any transfer or assignment that would result in a termination or reclassification for federal or state tax purposes, or would otherwise violate any state or federal law or court order;

• any requirement that advance notice of a transfer or assignment be given to the issuer and any requirement that either the transferor or transferee, or both, execute documentation setting forth representations as to compliance with any restrictions on transfer that are among those enumerated in the regulation as not affecting free transferability, including those described in the preceding clause of this sentence;

• any administrative procedure that establishes an effective date, or an event prior to which a transfer or assignment will not be effective;

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

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

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

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

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

The restrictions on transfer enumerated in the regulation as not affecting that finding include any restriction on or prohibition against any transfer or assignment that would result in a termination or reclassification for federal or state tax purposes, or would otherwise violate any state or federal law or court order.

We believe that the restrictions imposed under our declaration of trust and bylaws on the transfer of shares do not result in the failure of our shares to be “freely transferable.” In addition, we do not expect or intend to impose in the future, or to permit any person to impose on our behalf, any limitations or restrictions on transfer that would not be among the enumerated permissible limitations or restrictions in the regulation.

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

This opinion is conditioned upon certain assumptions and representations, as discussed above under the heading “Material United States Federal Income Tax Considerations—Taxation as a REIT.” Also, the opinion of our counsel is not binding on either the Department of Labor or a court, and either could take a position different from that expressed by our counsel.

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

What changed 10-K

Item 1. Business