DIVERSIFIED HEALTHCARE TRUST 10-K

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion should be read in conjunction with our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. OVERVIEW We are a REIT organized under Maryland law that primarily owns medical office and life science properties, senior living communities and other healthcare related properties throughout the United States. As of December 31, 2024, we owned 367 properties located in 36 states and Washington, D.C., including 32 properties classified as held for sale and three closed senior living communities. As of December 31, 2024, we owned an equity interest in each of the Seaport JV and the LSMD JV that own medical office and life science properties located in five states with an aggregate of approximately 2.2 million rentable square feet that were 99% leased with an average (by annualized rental income) remaining lease term of 15.1 years. 57 Table of Contents We are encouraged by positive trends, including increases in rates and occupancy in our SHOP segment. Additionally, we expect that favorable supply and demand dynamics in the senior living industry will enable our managers to continue to grow occupancy and drive positive performance. While certain costs, primarily labor, insurance and food costs, have increased, we expect these cost increases to moderate, which will provide our managers the opportunity to increase rates in excess of increases in costs, resulting in improving returns to us. In an effort to optimize performance, our asset management team reviews the results of each of our senior living communities and our operators, taking into account various factors such as performance metric benchmarks, location and other relevant data points. This comprehensive review process ensures that our decisions are data-driven and strategically aligned with our overall objectives. As a result of these reviews, our strategy to drive positive performance includes analyzing non-performing communities for potential disposition or transition to different operators. We are closely monitoring the impacts of the current economic and market conditions on all aspects of our business, including, but not limited to, uncertainties surrounding interest rates and inflation, volatility in the public debt and equity markets, global geopolitical hostilities and tensions, economic uncertainties, labor market conditions and changes in real estate utilization. We expect to experience continued variability in labor, insurance and food costs in our SHOP segment. Inflationary pressures in the United States, as well as global geopolitical instability and tensions, have given rise to uncertainty regarding potential disruptions in the financial markets. 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. PORTFOLIO OVERVIEW The following tables present an overview of our portfolio (dollars in thousands, except investment per square foot or unit data): (As of December 31, 2024) Number of Properties Square Feet or Number of Units Gross Book Value of Real Estate Assets (1) % of Total Gross Book Value of Real Estate Assets Investment per Square Foot or Unit (2) 2024 Revenues % of 2024 Revenues 2024 NOI (3) % of 2024 NOI Medical Office and Life Science Portfolio 98 7,952,711 sq. ft. $ 2,136,386 29.8 % $ 269 $ 213,320 14.3 % $ 115,683 44.7 % SHOP 232 24,978 units 4,628,144 64.5 % $ 185,289 1,244,389 83.2 % 106,060 41.0 % Triple net leased senior living communities 27 2,062 units 201,287 2.8 % $ 97,617 24,500 1.6 % 24,454 9.4 % Wellness centers 10 812,246 sq. ft. 208,110 2.9 % $ 256 13,218 0.9 % 12,688 4.9 % Total 367 $ 7,173,927 100.0 % $ 1,495,427 100.0 % $ 258,885 100.0 % Occupancy As of and for the Year Ended December 31, 2024 2023 Medical Office and Life Science Portfolio (4) 82.2 % 86.9 % SHOP 79.3 % 78.1 % Triple net leased senior living communities 100.0 % 100.0 % Wellness centers 100.0 % 100.0 % (1) Represents gross book value of real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, if any. (2) Represents gross book value of real estate assets divided by number of rentable square feet or living units, as applicable, at December 31, 2024. (3) We calculate our NOI on a consolidated basis and by reportable segment. Our definition of NOI and our reconciliation of net income (loss) to NOI are included below under the heading “Non-GAAP Financial Measures”. 58 Table of Contents (4) Medical office and life science property occupancy data is as of December 31, 2024 and 2023 and includes (i) out of service assets undergoing redevelopment, (ii) space which is leased but is not occupied or is being offered for sublease by tenants and (iii) space being fitted out for occupancy. We operate in, and report financial information for, the following two segments: Medical Office and Life Science Portfolio and SHOP. Our Medical Office and Life Science Portfolio segment primarily consists of medical office properties leased to medical providers and other medical related businesses, as well as life science properties primarily leased to biotech laboratories and other similar tenants. Our SHOP segment consists of managed senior living communities that provide short term and long term residential living and in some instances care and other services for residents where we pay fees to managers to operate the communities on our behalf. We also report “all other” operations, which consists of triple net leased wellness centers and senior living communities that are leased to third party operators from which we receive rents. Medical Office and Life Science Portfolio As of December 31, 2024, we owned 98 medical office and life science properties located in 24 states and Washington, D.C. These properties have a total of 8.0 million square feet. During the year ended December 31, 2024, we entered into new and renewal leases in our Medical Office and Life Science Portfolio segment as summarized in the following table (dollars and square feet in thousands, except per square foot amounts): Year Ended December 31, 2024 New Leases Renewals Total Square feet leased during the period 100 297 397 Weighted average rental rate change (by rentable square feet) 17.0 % 6.5 % 8.9 % Weighted average lease term (years) 7.6 5.1 5.7 Total leasing costs and concession commitments (1) $ 7,288 $ 4,841 $ 12,129 Total leasing costs and concession commitments per square foot (1) $ 73.14 $ 16.32 $ 30.60 Total leasing costs and concession commitments per square foot per year (1) $ 9.59 $ 3.18 $ 5.34 (1) Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent. As of December 31, 2024, lease expirations in our Medical Office and Life Science Portfolio segment were as follows (dollars in thousands): Year Number of Tenants Square Feet Leased Percent of Total Cumulative Percent of Total Annualized Rental Income (1) Percent of Total Cumulative Percent of Total 2025 82 574,073 8.8 % 8.8% $ 16,431 7.9% 7.9% 2026 53 689,307 10.5 % 19.3% 22,215 10.7% 18.6% 2027 68 895,918 13.7 % 33.0% 22,564 10.8% 29.4% 2028 55 1,175,592 18.0 % 51.0% 35,184 16.9% 46.3% 2029 63 636,587 9.7 % 60.7% 18,770 9.0% 55.3% 2030 39 375,124 5.7 % 66.4% 10,629 5.1% 60.4% 2031 21 835,058 12.8 % 79.2% 25,413 12.2% 72.6% 2032 18 358,303 5.5 % 84.7% 13,849 6.7% 79.3% 2033 15 416,410 6.4 % 91.1% 20,174 9.7% 89.0% 2034 and thereafter 34 582,700 8.9 % 100.0% 22,972 11.0% 100.0% Total 448 6,539,072 100.0 % $ 208,201 100.0% Weighted average remaining lease term (in years) 4.8 5.2 59 Table of Contents (1) Annualized rental income is based on rents pursuant to existing leases as of December 31, 2024, including straight line rent adjustments and estimated recurring expense reimbursements for certain net and modified gross leases and excluding lease value amortization at certain of our medical office and life science properties. The following table presents information concerning our Medical Office and Life Science Portfolio tenants that represent 1% or more of total Medical Office and Life Science Portfolio annualized rental income as of December 31, 2024 (dollars in thousands): Tenant Square Feet Leased Percent of Total Square Feet Leased Annualized Rental Income (1) Percent of Total Annualized Rental Income (1) Lease Expiration Advocate Aurora Health 631,529 9.7% $ 16,939 8.1% 2026 - 2031 Alamar Biosciences, Inc. 88,508 1.4% 6,851 3.3% 2034 KSQ Therapeutics, Inc. 54,633 0.8% 5,434 2.6% 2032 Merck & Co. Inc. (2) 55,102 0.8% 5,335 2.6% 2033 Medtronic, Inc. 201,522 3.1% 5,297 2.5% 2027 - 2028 Sonova Holding AG 116,444 1.8% 5,085 2.4% 2033 Boston Children's Hospital 99,063 1.5% 4,809 2.3% 2028 Magellan Health Inc. 232,521 3.6% 4,688 2.3% 2025 Tokio Marine Holdings Inc. 81,072 1.2% 4,339 2.1% 2025 - 2033 Abbvie Inc. 197,976 3.0% 3,955 1.9% 2027 United Healthcare Services, Inc. 149,719 2.3% 3,926 1.9% 2026 McKesson Corporation 477,772 7.3% 3,823 1.8% 2028 - 2030 Hawaii Pacific Health 85,956 1.3% 3,803 1.8% 2026 - 2029 Revvity, Inc. 105,462 1.6% 3,681 1.8% 2028 HCA Holdings Inc. 72,097 1.1% 3,455 1.7% 2025 - 2029 New York University 109,983 1.7% 3,245 1.6% 2025 - 2028 Ultragenyx Pharmaceutical Inc. 63,048 1.0% 3,107 1.5% 2026 Sentara Health 139,212 2.1% 3,015 1.4% 2027 - 2032 WRA Management, Inc. 35,067 0.5% 2,594 1.2% 2025 - 2045 Organogenesis Holdings Inc. (2) 22,966 0.4% 2,463 1.2% 2031 The University of Kansas Health System 104,815 1.6% 2,453 1.2% 2027 - 2028 Cytek BioSciences, Inc. 99,378 1.5% 2,260 1.1% 2029 Warner Chilcott Limited 81,712 1.2% 2,258 1.1% 2027 Think Surgical, Inc. 75,920 1.2% 2,141 1.0% 2026 Covenant Health System 55,807 0.9% 2,121 1.0% 2034 All Other Tenants 3,101,788 47.4% 101,124 48.6% 2025 - 2043 Totals 6,539,072 100.0% $ 208,201 100.0% (1) Annualized rental income is based on rents pursuant to existing leases as of December 31, 2024, including straight line rent adjustments and estimated recurring expense reimbursements for certain net and modified gross leases and excluding lease value amortization at certain of our medical office and life science properties. (2) In January 2025, we sold three life science properties, including properties leased by these tenants, for a sales price of $159,025, excluding closing costs. 60 Table of Contents Senior Housing Operating Portfolio Our managed senior living communities are operated by third parties pursuant to management agreements. Five Star, which is an operating division of AlerisLife, manages many of our SHOP communities, and we lease nearly all of our senior living communities, including those managed by third party managers, to our TRSs. Five Star manages 118 of our senior living communities for our account pursuant to an amended and restated master management agreement, or the Master Management Agreement. Pursuant to the Master Management Agreement, Five Star receives a management fee equal to 5% of the gross revenues realized at the applicable senior living communities plus reimbursement for its direct costs and expenses related to such communities. Five Star may receive an annual incentive fee equal to 15% of the amount by which the annual EBITDA of all communities on a combined basis exceeds the target EBITDA for all communities on a combined basis for such calendar year. The target EBITDA for those senior living communities on a combined basis is increased annually based on the greater of the annual increase of the consumer price index, or CPI, or 2%, plus 6% of any capital investments funded at the managed senior living communities on a combined basis in excess of the target capital investment. Unless otherwise agreed, the target capital investment increases annually based on the greater of the annual increase of CPI or 2%. Any senior living communities that are undergoing a major renovation or repositioning are excluded from the calculation of the incentive fee. The Master Management Agreement expires in 2036, subject to Five Star's right to extend for two consecutive five year terms if Five Star achieves certain performance targets for the combined managed communities portfolio, unless earlier terminated. Pursuant to the Master Management Agreement, beginning in 2025, we have the right to terminate up to 10% of the senior living communities that Five Star is continuing to manage, based on total revenues per year for failure to meet 80% of a target EBITDA for the applicable period. In addition, Five Star delivered to us a related amended and restated guaranty agreement pursuant to which Five Star is continuing to guarantee the payment and performance of each of its applicable subsidiary's obligations under the applicable management agreements. Our other third party managers manage 114 of our senior living communities. In October 2022, we and one of our operators agreed to terminate the lease agreements for three of these senior living communities and replaced them with management agreements under our TRS structure, and an affiliate of the same operator will continue to operate these properties. Additionally, effective October 31, 2022, Five Star ceased managing our active adult community, and RMR assumed management of that community. In March 2024, we terminated our management agreement with one of our third party managers, Cedarhurst Senior Living, which manages certain of our communities located in Wisconsin and Illinois and transitioned these communities to another third party manager, Charter Senior Living, with which we have an existing relationship. For the years ended December 31, 2024, 2023 and 2022, we recorded $2.2 million, $0.0 million and $2.1 million, respectively, of costs that we incurred related to retention, transition, termination and other costs to acquisition and certain other transaction related costs in our consolidated statements of comprehensive income (loss). The terms of the management agreements with the other third party managers are generally as follows: the other third party managers will receive a management fee equal to 5% to 6% of the gross revenues realized at the applicable senior living communities plus reimbursement for direct costs and expenses related to such communities. These agreements generally also provide for the other third party managers to earn a minimum base fee for a portion of the term of the agreement. Additionally, the other third party managers have the ability to earn incentive fees equal to 15% to 25% of the amount by which EBITDA of the applicable communities exceeds the target EBITDA for the applicable communities. The other third party managers can also earn a construction supervision fee ranging between 3% and 5% of construction costs. The initial terms of the management agreements with the other third party managers are generally five years, subject to automatic extensions of successive terms of two years each unless earlier terminated or timely notice of nonrenewal is delivered. The management agreements with the other third party managers also generally provide us with the right to terminate the management agreements for communities that do not earn 70% to 80% of the target EBITDA for such communities, after an agreed upon stabilized period. 61 Table of Contents The following table presents a summary of the other third party managers as of December 31, 2024: Manager Location Number of Communities Number of Units Charter Senior Living FL/MD/TN/VA/IL/WI 30 1,759 IntegraCare Senior Living PA 2 146 Life Care Services DE 3 517 Navion Senior Solutions SC 5 238 Northstar Senior Living AZ/CA 7 418 Oaks-Caravita Senior Care GA/SC 26 1,415 Oaks Senior Living GA 3 264 Omega Senior Living NE 1 69 Phoenix Senior Living AL/AR/KY/MO/NC/SC 23 1,457 RMR TX 1 169 Stellar Senior Living CO/TX/WY 10 1,094 Total (1) 111 7,546 (1) Excludes three closed senior living communities. For further information regarding the terms of the Master Management Agreement and of the management agreements with the other third party managers and our other business arrangements with Five Star, see Note 6 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K, and for more information about our dealings and relationships with Five Star generally, and the risks which may arise as a result of these related person transactions, see “Risk Factors—Risks Related to Our Relationships with RMR and AlerisLife (including Five Star)” in Part I, Item 1A of this Annual Report on Form 10-K, “Related Person Transactions” below and Note 8 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. All Other As of December 31, 2024, lease expirations at our triple net leased wellness centers and senior living communities leased to third party operators were as follows (dollars in thousands): Year Number of Properties Number of Units or Square Feet Annualized Rental Income (1) Percent of Total Cumulative Percent of Total 2025 — — $ — — % — % 2026 — — — — % — % 2027 4 533 units 4,659 11.7 % 11.7 % 2028 — — — — % 11.7 % 2029 1 155 units 547 1.4 % 13.1 % 2030 5 283 units and 129,600 sq. ft. 5,046 12.7 % 25.8 % 2031 — — — — % 25.8 % 2032 (2) 18 876 units 10,254 25.8 % 51.6 % 2033 1 215 units 5,177 13.0 % 64.6 % 2034 and thereafter 7 682,646 sq. ft. 14,068 35.4 % 100.0 % Total (3) 36 $ 39,751 100.0 % Weighted average remaining lease term (in years) (4) 9.2 10.0 (1) Annualized rental income is based on rents pursuant to existing leases as of December 31, 2024. Annualized rental income includes estimated percentage rents and straight line rent adjustments and excludes lease value amortization. (2) We have entered into an agreement to sell these 18 communities for a sales price of $135.0 million, excluding closing costs. We expect this sale to close during the first quarter of 2025. 62 Table of Contents (3) Excludes one closed senior living community classified as held for sale as of December 31, 2024. (4) Weighted average lease term is calculated based on square feet and annualized rental income. During the year ended December 31, 2024, we entered into renewal leases at three of our wellness centers totaling 129,600 square feet at rates that were 7.5% higher than prior rents for the same space at a weighted average lease term of five years. We did not incur any leasing costs or concessions commitments for these renewals. GENERAL INDUSTRY TRENDS The healthcare industry remains one of the most resilient commercial real estate sectors, in part due to the scale of the U.S. healthcare market, which collectively represents approximately 18% of the U.S. GDP, according to CMS. The healthcare sector’s continued expansion has been driven by rising standards of care, increasing life expectancies and other demographic trends, as well as funding from both public and private sources. In the medical office sector, the industry has been trending toward a greater proportion of outpatient care resulting in an increasing number of multi-practice medical office buildings, anchor leased by hospital systems, and a decline in free-standing medical practices, a potential benefit to our Medical Office and Life Science Portfolio. The pandemic further accelerated this trend because of stronger consumer preference for off-campus care in more convenient locations. Costs within the industry continue to be in focus with health system operating margins being under pressure in recent years, which is, while moderating, a theme that may continue in 2025. In the life science sector, particularly with properties that provide laboratory or medical manufacturing space, over the years there has been significant capital invested across the bio-medical research space, driving a large increase in demand for laboratory and research space. Venture capital funding significantly declined in 2022, 2023 and 2024. Funding in the past three years has been increasingly concentrated on companies located in the top three markets of Boston, San Francisco and San Diego with more stringent requirements. New construction of life science properties hit record levels in 2023 across major markets, and the construction pipeline, while decreasing, remains elevated into 2025. This has been met by softening demand from tenants and resulted in rising vacancy rates across the major life science markets. We believe that the primary market for senior living services is individuals age 80 and older. According to U.S. Census data, the age 75+ demographic is projected to be among the fastest growing age cohorts in the United States over the next 20 years, and according to CMS, the age 85+ demographic is projected to grow over 30% over the next five years. Also, as a result of medical advances, seniors are living longer. Due to these demographic trends, we expect the demand for senior living services and housing to increase for the foreseeable future. Despite this trend, future economic downturns, softness in the U.S. housing market, higher levels of unemployment among our potential residents' family members, changes in demand and market practices, lower levels of consumer confidence, stock market volatility and/or changes in demographics could adversely affect the ability of seniors to afford the resident fees at our senior living communities. The medical advances which are increasing average life spans are also causing some seniors to delay moving to senior living communities until they require greater care or to forgo moving to senior living communities altogether, but we do not believe this factor is sufficient to offset the long term positive demographic trends causing increased demand for senior living communities for the foreseeable future. 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 been historically low. According to 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. The senior living industry is subject to extensive and frequently changing federal, state and local laws and regulations. For further information regarding these laws and regulations, and possible legislative and regulatory changes, see "Business—Government Regulation and Reimbursement" in Part I, Item 1 of this Annual Report on Form 10-K. 63 Table of Contents RESULTS OF OPERATIONS (dollars and square feet in thousands, unless otherwise noted) The following table summarizes the results of operations of each of our segments for the years ended December 31, 2024 and 2023: For the Year Ended December 31, 2024 2023 Revenues: Medical Office and Life Science Portfolio $ 213,320 $ 220,530 SHOP 1,244,389 1,151,908 All Other 37,718 37,870 Total revenues $ 1,495,427 $ 1,410,308 Net loss: Medical Office and Life Science Portfolio $ (66,668) $ (12,183) SHOP (89,807) (99,620) All Other (213,780) (181,769) Net loss $ (370,255) $ (293,572) The following sections analyze and discuss the results of operations of each of our segments for the periods presented. Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 (dollars and square feet in thousands, except average monthly rate): Unless otherwise indicated, references in this section to changes or comparisons of results, income or expenses refer to comparisons of the results for the year ended December 31, 2024 to the year ended December 31, 2023. Our definition of NOI and our reconciliation of net income (loss) to NOI and a description of why we believe NOI is an appropriate supplemental measure are included below under the heading “Non-GAAP Financial Measures.” For a comparison of consolidated results for the year ended December 31, 2023 compared to the year ended December 31, 2022, see Part II, Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023. For the Year Ended December 31, 2024 2023 $ Change % Change NOI by segment: Medical Office and Life Science Portfolio $ 115,683 $ 122,566 $ (6,883) (5.6) % SHOP 106,060 76,817 29,243 38.1 % All Other 37,142 36,774 368 1.0 % Total NOI 258,885 236,157 22,728 9.6 % Depreciation and amortization 284,957 284,083 874 0.3 % General and administrative 26,518 26,131 387 1.5 % Acquisition and certain other transaction related costs 2,510 10,853 (8,343) (76.9) % Impairment of assets 70,734 18,380 52,354 nm (Loss) gain on sale of properties (18,938) 1,205 (20,143) nm Gains on equity securities, net — 8,126 (8,126) (100.0) % Interest and other income 8,950 15,536 (6,586) (42.4) % Interest expense (235,239) (191,775) (43,464) 22.7 % Loss on modification or early extinguishment of debt (324) (2,468) 2,144 (86.9) % Loss before income taxes and equity in net earnings (losses) of investees (371,385) (272,666) (98,719) 36.2 % Income tax expense (467) (445) (22) 4.9 % Equity in net earnings (losses) of investees 1,597 (20,461) 22,058 nm Net loss $ (370,255) $ (293,572) $ (76,683) 26.1 % nm – not meaningful 64 Table of Contents Medical Office and Life Science Portfolio: Comparable Properties (1) All Properties As of December 31, As of December 31, 2024 2023 2024 2023 Total properties 87 87 98 102 Total square feet 6,976 6,971 7,953 8,610 Occupancy 90.2 % 92.5 % 82.2 % 86.9 % Year Ended December 31, Comparable (1) Non-Comparable Properties Results Properties Results Consolidated Properties Results 2024 2023 $ Change % Change 2024 2023 2024 2023 $ Change % Change Rental income $ 194,274 $ 192,972 $ 1,302 0.7 % $ 19,046 $ 27,558 $ 213,320 $ 220,530 $ (7,210) (3.3) % Property operating expenses (82,870) (81,119) 1,751 2.2 % (14,767) (16,845) (97,637) (97,964) (327) (0.3) % NOI $ 111,404 $ 111,853 $ (449) (0.4) % $ 4,279 $ 10,713 $ 115,683 $ 122,566 $ (6,883) (5.6) % (1) Consists of medical office and life science properties that we have owned and which have been in service continuously since January 1, 2023; excludes properties classified as held for sale or out of service undergoing redevelopment, if any, and properties owned by unconsolidated joint ventures in each of which we own an equity interest. Rental income. Rental income increased at our comparable properties primarily due to increased parking revenue at one of our properties and leasing activity, partially offset by vacancies at certain of our properties. Rental income decreased at our non-comparable properties primarily due to vacancies at one of our properties sold during the fourth quarter of 2024 and one of our properties classified as held for sale as of December 31, 2024 and dispositions since January 1, 2023, partially offset by a tenant default at one of our properties during 2023 and an increase in rental income at one of our properties classified as held for sale as of December 31, 2024. Property operating expenses. Property operating expenses consist of real estate taxes, utility expenses, insurance, management fees, salaries and benefit costs of property level personnel, repairs and maintenance expense, cleaning expense and other direct costs of operating these properties. The increase in property operating expenses at our comparable properties is primarily due to increased insurance costs recorded in 2024 and increases in cleaning costs and utility expenses, partially offset by a decrease in real estate taxes due to refunds realized and a reduction in assessed values as a result of successful appeals during 2024. Property operating expenses decreased at our non-comparable properties primarily due to dispositions since January 1, 2023. Net operating income. The change in NOI reflects the net changes in rental income and property operating expenses described above. SHOP: Comparable Properties (1) All Properties As of and For the Year Ended December 31, As of and For the Year Ended December 31, 2024 2023 2024 2023 Total properties 208 208 232 232 Number of units 23,135 23,135 24,978 25,209 Occupancy 80.2 % 78.8 % 79.3 % 78.1 % Average monthly rate (2) $ 5,103 $ 4,807 $ 5,193 $ 4,888 Year Ended December 31, Comparable (1) Non-Comparable Properties Results Properties Results Consolidated Properties Results 2024 2023 $ Change % Change 2024 2023 2024 2023 $ Change % Change Residents fees and services $ 1,138,903 $ 1,051,806 $ 87,097 8.3 % $ 105,486 $ 100,102 $ 1,244,389 $ 1,151,908 $ 92,481 8.0 % Property operating expenses (1,021,436) (961,801) 59,635 6.2 % (116,893) (113,290) (1,138,329) (1,075,091) 63,238 5.9 % NOI $ 117,467 $ 90,005 $ 27,462 30.5 % $ (11,407) $ (13,188) $ 106,060 $ 76,817 $ 29,243 38.1 % (1) Consists of senior living communities that we have owned and which have been in service, reported in the same segment and operated by the same operator continuously since January 1, 2023; excludes communities classified as held for sale, closed or out of service, if any. 65 Table of Contents (2) Average monthly rate reflects the average monthly residents fees and services per occupied unit for the period presented. The average monthly rate is calculated based on the actual number of days during the period. Residents fees and services. Residents fees and services are the revenues earned at our managed senior living communities. We recognize these revenues as services are provided and related fees are accrued. Residents fees and services increased at our comparable properties primarily due to increases in occupancy and average monthly rate at our communities as shown in the table above. We expect residents fees and services to continue to increase in the short term at our comparable SHOP communities due to favorable market fundamentals, inflation and operational improvements at our communities. The activity for our non-comparable properties primarily reflects the 13 communities transitioned to an existing third party manager during 2024 and six properties classified as held for sale as of December 31, 2024. Property operating expenses. Property operating expenses consist of real estate taxes, utility expenses, insurance, wages and benefit costs of community level personnel, repairs and maintenance expense, management fees, cleaning expense and other direct costs of operating these communities. Property operating expenses increased at our comparable properties primarily due to increases in labor costs, maintenance and repairs, dietary expenses, insurance costs and other direct costs, partially offset by reduced contract labor. The activity for our non-comparable properties primarily reflects the 13 communities transitioned to an existing third party manager during 2024 and six properties classified as held for sale. Net operating income. The change in NOI reflects the net changes in residents fees and services and property operating expenses described above. All Other (1) : Comparable Properties (2) All Properties As of and For the Year Ended December 31, As of and For the Year Ended December 31, 2024 2023 2024 2023 Total properties: Triple net leased senior living communities 8 8 27 27 Wellness centers 10 10 10 10 Rent coverage: Other triple net leased senior living communities (3) 1.95 x 1.65 x 1.85 x 1.49 x Wellness centers (3) 2.56 x 2.64 x 2.56 x 2.64 x Year Ended December 31, Comparable (2) Non-Comparable Properties Results Properties Results Consolidated Properties Results 2024 2023 $ Change % Change 2024 2023 2024 2023 $ Change % Change Rental income $ 27,304 $ 27,195 $ 109 0.4 % $ 10,414 $ 10,675 $ 37,718 $ 37,870 $ (152) (0.4) % Property operating expenses (529) (1,093) (564) (51.6) % (47) (3) (576) (1,096) (520) (47.4) % NOI $ 26,775 $ 26,102 $ 673 2.6 % $ 10,367 $ 10,672 $ 37,142 $ 36,774 $ 368 1.0 % (1) All Other operations consist of all of our other operations, including certain senior living communities and wellness centers that are leased to third party operators, which segment we do not consider to be sufficiently material to constitute a separate reportable segment, and any other income or expenses that are not attributable to a specific reportable segment. (2) Consists of properties that we have owned and which have been reported in the same segment and leased to the same operator continuously since January 1, 2023; excludes properties classified as held for sale, if any. (3) All tenant operating data presented are based upon the operating results provided by our tenants for the most recent prior period for which tenant operating results are available to us. Rent coverage is calculated using the annualized operating cash flows from our triple net lease tenants' operations of our properties, before subordinated charges, if any, divided by annualized rental income. We have not independently verified tenant operating data. Excludes data for historical periods prior to our ownership of certain properties. Rental income. Rental income increased at our comparable properties primarily due to higher cash rents received during 2024, partially offset by increased 2023 revenue from a cash settlement from a tenant previously in default under leases for six of our wellness centers. In January 2023, we agreed to amend the lease for three of these wellness centers and repossess the remaining three wellness centers. The three wellness centers we repossessed were subsequently re-leased to other tenants. The activity for our non-comparable properties primarily reflects the 18 triple net leased senior living communities classified as held for sale as of December 31, 2024. 66 Table of Contents Property operating expenses. Property operating expenses consist of real estate taxes, insurance and other expenses that are not paid directly by our tenants. The decrease in property operating expenses for our comparable properties primarily reflects real estate taxes and other expenses we paid during 2023 on behalf of a tenant previously in default under leases for six of our wellness centers. We also continued to pay real estate taxes and other expenses for two wellness centers until the leases commenced during 2024. Net operating income. The change in NOI reflects the net changes in rental income and property operating expenses described above. Consolidated: References to changes in the income and expense categories below relate to the comparison of consolidated results for the year ended December 31, 2024, compared to the year ended December 31, 2023. Depreciation and amortization expense. Depreciation and amortization expense increased primarily due to the purchase of capital improvements at certain of our properties, partially offset by certain depreciable assets becoming fully depreciated and dispositions since January 1, 2023. General and administrative expense . General and administrative expense consists of fees paid to RMR under our business management agreement, legal and accounting fees, fees and expenses of our Trustees, equity compensation expense and other costs relating to our status as a publicly traded company. General and administrative expense increased primarily due to an increase in fees incurred to RMR under our business management agreement of $2,503 as a result of an increase in average share price and weighted average debt, partially offset by a decrease in legal and other professional fees and franchise taxes. Acquisition and certain other transaction related costs. For the year ended December 31, 2024, acquisition and certain other transaction related costs primarily represent termination and other fees as a result of our transition of 13 communities to an existing third party manager. For the year ended December 31, 2023, acquisition and certain other transaction related costs primarily represent costs incurred in connection with our terminated merger with Office Properties Income Trust, costs incurred for financial advisory services regarding our then existing 2024 debt maturities and costs related to the transition of certain senior living communities to other third party managers. Impairment of assets. For information about our asset impairment charges, see Note 3 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. (Loss) gain on sale of properties. For information regarding (loss) gain on sale of properties, see Note 3 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. Gains on equity securities, net. Gains on equity securities, net, represent the net gains to adjust our investment in AlerisLife to its fair value during 2023. For further information regarding our investment in AlerisLife, see Notes 2 and 8 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. Interest and other income. The decrease in interest and other income is primarily due to lower average invested cash balances during the year ended December 31, 2024 compared to the year ended December 31, 2023 and $1,581 of funds we received from certain programs under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, the American Rescue Plan Act, or ARPA, and various state programs during the year ended December 31, 2023. Interest expense. Interest expense increased primarily due to the issuance of $940,534 of our senior secured notes due 2026 in December 2023, resulting in discount accretion of $86,778 during 2024. Additionally, we executed a $120,000 mortgage loan in May 2024 at a fixed interest rate of 6.864% per annum. These increases were partially offset by the repayment and termination of our former credit facility and the redemption of $250,000 of our senior notes that were scheduled to mature in May 2024. The net proceeds from our $940,534 senior secured notes due 2026 were used to make these repayments in December 2023 aggregating $700,000. Additionally, 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 and in November 2024 we redeemed another $60,000 of our outstanding 9.75% senior unsecured notes due 2025 using cash on hand. Loss on modification or early extinguishment of debt. During the year ended December 31, 2024, we recorded a loss on early extinguishment of debt in connection with the partial redemption of an aggregate $120,000 of our outstanding 9.75% senior unsecured notes due 2025. During the year ended December 31, 2023, we recorded a loss on modification or early 67 Table of Contents extinguishment of debt in connection with amendments to and repayment in full of our then credit facility as well as redemption of $250,000 of our 4.750% senior notes due May 2024. Income tax expense. Income tax expense is the result of operating income we earned in certain jurisdictions where we are subject to state income taxes. Equity in net earnings (losses) of investees. Equity in net earnings (losses) of investees is the change in the fair value of our investments in our joint ventures and also represents our proportionate share of the earnings of our equity method investment in AlerisLife. For further information regarding our investments in our joint ventures and AlerisLife see Notes 2, 3 and 8 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. Non-GAAP Financial Measures (dollars in thousands, except per share amounts) We present certain "non-GAAP financial measures" within the meaning of applicable SEC rules, including FFO, Normalized FFO and NOI for the years ended December 31, 2024 and 2023. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with net income (loss) as presented in our consolidated statements of comprehensive income (loss). We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss). We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization, they may facilitate a comparison of our operating performance between periods and with other REITs and, in the case of NOI, reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of our properties. Funds From Operations and Normalized Funds From Operations We calculate FFO and Normalized FFO as shown below. FFO is calculated on the basis defined by the National Association of Real Estate Investment Trusts, which is net income (loss), calculated in accordance with GAAP, excluding any gain or loss on sale of properties, equity in net earnings or losses of investees, loss on impairment of real estate assets, gains or losses on equity securities, net, if any, and including adjustments to reflect our proportionate share of FFO of our equity method investees, plus real estate depreciation and amortization of consolidated properties, as well as certain other adjustments currently not applicable to us. In calculating Normalized FFO, we adjust for the items shown below including similar adjustments for our unconsolidated joint ventures, if any. FFO and Normalized FFO are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders. Other factors include, but are not limited to, requirements to maintain our qualification for taxation as a REIT, limitations in the agreements governing our debt, the availability to us of debt and equity capital, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations. Other real estate companies and REITs may calculate FFO and Normalized FFO differently than we do. Our calculations of FFO and Normalized FFO for the years ended December 31, 2024 and 2023 and reconciliations of net income (loss), the most directly comparable financial measure under GAAP reported in our consolidated financial statements, to FFO and Normalized FFO appear in the following table. This table also provides a comparison of distributions to shareholders, FFO and Normalized FFO and net income (loss) per share for these periods. 68 Table of Contents For the Year Ended December 31, 2024 2023 Net loss $ (370,255) $ (293,572) Depreciation and amortization 284,957 284,083 Loss (gain) on sale of properties 18,938 (1,205) Impairment of assets 70,734 18,380 Gains on equity securities, net — (8,126) Equity in net (earnings) losses of investees (1,597) 20,461 Share of FFO from unconsolidated joint ventures 9,006 7,738 Adjustments to reflect our share of FFO attributable to an equity method investment 13,807 (1,586) FFO 25,590 26,173 Acquisition and certain other transaction related costs 2,510 10,853 Loss on modification or early extinguishment of debt 324 2,468 Adjustments to reflect our share of Normalized FFO attributable to an equity method investment (8,755) 1,576 Normalized FFO $ 19,669 $ 41,070 Weighted average common shares outstanding (basic and diluted) 239,535 238,836 Per common share data (basic and diluted): Net loss $ (1.55) $ (1.23) FFO $ 0.11 $ 0.11 Normalized FFO $ 0.08 $ 0.17 Distributions declared $ 0.04 $ 0.04 Property Net Operating Income (NOI) We calculate NOI as shown below. The calculation of NOI excludes certain components of net income (loss) in order to provide results that are more closely related to our property level results of operations. We define NOI as income from our real estate less our property operating expenses. NOI excludes depreciation and amortization. We use NOI to evaluate individual and company-wide property level performance. Other real estate companies and REITs may calculate NOI differently than we do. 69 Table of Contents The calculation of NOI by reportable segment is included above in this Item 7. The following table includes the reconciliation of net loss to NOI for the years ended December 31, 2024 and 2023. For the Year Ended December 31, 2024 2023 Reconciliation of Net Loss to NOI: Net loss $ (370,255) $ (293,572) Equity in net (earnings) losses of investees (1,597) 20,461 Income tax expense 467 445 Loss before income taxes and equity in net earnings (losses) of investees (371,385) (272,666) Loss on modification or early extinguishment of debt 324 2,468 Interest expense 235,239 191,775 Interest and other income (8,950) (15,536) Gains on equity securities, net — (8,126) Loss (gain) on sale of properties 18,938 (1,205) Impairment of assets 70,734 18,380 Acquisition and certain other transaction related costs 2,510 10,853 General and administrative 26,518 26,131 Depreciation and amortization 284,957 284,083 Total NOI $ 258,885 $ 236,157 Medical Office and Life Science Portfolio NOI $ 115,683 $ 122,566 SHOP NOI 106,060 76,817 All Other NOI 37,142 36,774 Total NOI $ 258,885 $ 236,157 LIQUIDITY AND CAPITAL RESOURCES Our principal sources of cash to meet operating and capital expenses, pay our debt service obligations and make distributions to our shareholders are the operating cash flows we generate as rental income from our leased properties, residents fees and services revenues from our managed communities and proceeds from the disposition of certain properties. We believe that these sources of funds will be sufficient to meet our operating and capital expenses, pay our debt service obligations and make distributions to our shareholders for at least the next 12 months and for the foreseeable future thereafter. Our future cash flows from operating activities will depend primarily upon: • our ability to receive rents from our tenants; • our ability to maintain or increase the occupancy of, and the rates at, our properties; • our and our managers' abilities to control operating expenses and capital expenses at our properties, including increased operating expenses that we may incur in response to wage and commodity price inflation, limited labor availability and increased insurance costs; and • our managers' abilities to maintain or increase our returns from our managed senior living communities. 70 Table of Contents The following is a summary of our sources and uses of cash flows for the periods presented, as reflected in our Consolidated Statements of Cash Flows included in Part IV, Item 15 of this Annual Report on Form 10-K (dollars in thousands): Year Ended December 31, 2024 2023 Cash and cash equivalents and restricted cash at beginning of period $ 246,961 $ 688,302 Net cash provided by (used in): Operating activities 112,223 10,483 Investing activities (187,019) (202,111) Financing activities (22,311) (249,713) Cash and cash equivalents and restricted cash at end of period $ 149,854 $ 246,961 We have a significant number of unencumbered properties in our SHOP segment. As of December 31, 2024, our unencumbered gross book value of real estate assets was $5.0 billion. As of February 21, 2025, we have executed term sheets with various lenders for proceeds of approximately $276.0 million, and are in active negotiations with an additional lender for expected proceeds of $64.0 million, for loans that will be secured by certain of our unencumbered SHOP communities. We believe that with $144.6 million of cash and cash equivalents as of December 31, 2024, the above referenced loan proceeds and proceeds from sales of certain unencumbered properties, we will satisfy the $380.0 million outstanding principal amount of 9.75% senior unsecured notes due in June 2025, which is our next significant debt maturity. Our Operating Liquidity and Resources We generally receive minimum rents from tenants at our medical office and life science properties, triple net leased wellness centers and senior living communities monthly, we receive residents fees and services revenues, net of expenses, from our managed senior living communities monthly and we receive percentage rents from tenants at certain of our triple net senior living senior living communities monthly, quarterly or annually. The increase in cash provided by operating activities for the year ended December 31, 2024 compared to 2023 was primarily due to higher cash flows from our properties as a result of increased rates and occupancy at the senior living communities in our SHOP segment. Additionally, cash interest payments decreased in 2024 compared to 2023 primarily due to the repayment and termination of our former credit facility and the redemption of $250.0 million of our senior notes in December 2023. Our Investing Liquidity and Resources The decrease in cash used in investing activities for the year ended December 31, 2024 compared to 2023 was primarily due to a decrease in real estate improvements and an increase in proceeds from the sale of properties during 2024 compared to 2023. The decrease was partially offset by our purchase in February 2024 of approximately 34.0% of the then outstanding AlerisLife common shares from ABP Trust at the tender offer price of $1.31 per share for a total purchase price, including transaction related costs, of $15.5 million. During 2023, we tendered all of our AlerisLife common shares at $1.31 per share. 71 Table of Contents The following is a summary of capital expenditures, development, redevelopment and other activities for the periods presented (dollars in thousands): Year Ended December 31, 2024 2023 Medical Office and Life Science Portfolio capital expenditures: Lease related costs (1) $ 21,289 $ 38,070 Building improvements (2) 6,002 12,984 Recurring capital expenditures - Medical Office and Life Science Portfolio 27,291 51,054 SHOP fixed assets and capital improvements 93,043 100,981 Wellness centers lease related costs (1) 20,618 9,721 Total recurring capital expenditures $ 140,952 $ 161,756 Development, redevelopment and other activities - Medical Office and Life Science Portfolio (3) $ 3,012 $ 9,244 Development, redevelopment and other activities - SHOP (3) 46,558 82,207 Total development, redevelopment and other activities $ 49,570 $ 91,451 Capital expenditures by segment: Medical Office and Life Science Portfolio $ 30,303 $ 60,298 SHOP 139,601 183,188 All Other - wellness centers 20,618 9,721 Total capital expenditures $ 190,522 $ 253,207 (1) Includes capital expenditures to improve tenants' space or amounts paid directly to tenants to improve their space and other leasing related costs, such as brokerage commissions and tenant inducements. (2) Includes capital expenditures to replace obsolete building components that extend the useful life of existing assets or other improvements to increase the marketability of the property. (3) Includes capital expenditures that reposition a property or result in new sources of revenue. We generally plan to continue investing capital in our properties, including redevelopment projects, to better position these properties in their respective markets in order to increase our returns in future years. As of December 31, 2024, we had estimated unspent leasing related obligations at our medical office and life science properties of approximately $22.6 million, of which we expect to spend approximately $19.7 million during calendar year 2025. We expect to fund these obligations using operating cash flows, cash on hand, proceeds from the disposition of certain properties and future financing activities. We are currently in the process of redeveloping certain properties, primarily our managed senior living communities. We continue to assess opportunities to redevelop other properties in our SHOP segment and Medical Office and Life Science Portfolio. These redevelopment projects may require significant capital expenditures and time to complete and we may defer certain redevelopment projects to preserve liquidity. Additionally, due to labor availability constraints and wage and commodity price inflation, the capital investments we plan to make may be delayed or cost more than we expect. During the year ended December 31, 2024, we sold five properties for an aggregate sales price of $35.7 million, excluding closing costs. Subsequent to December 31, 2024, we sold five properties for an aggregate sales price of $178.7 million, excluding closing costs. The net proceeds from three of these properties sold in 2025, which have a sales price, excluding closing costs, of $159.0 million, will be used to partially redeem our outstanding senior secured notes due 2026. As of February 24, 2025, we had 26 properties under agreements or letters of intent to sell for an aggregate sales price of $219.6 million, excluding closing costs. The net proceeds from 19 of these properties, which have an expected aggregate sales price, excluding closing costs, of $142.1 million, will be used to partially redeem our outstanding senior secured notes due 2026, if the sales of such properties are completed. We may not complete the sales of any or all of the properties we currently plan to sell. Also, we may sell some or all of these properties at amounts that are less than currently expected and/or less than the carrying values of such properties and we may incur losses on any such sales as a result. For further information regarding 72 Table of Contents our dispositions, see Note 3 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. 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. Our Financing Liquidity and Resources The decrease in cash used in financing activities for the year ended December 31, 2024 compared to 2023 was primarily due to $700.0 million in repayments of borrowings under our former credit facility during 2023, the redemption in December 2023 of all $250.0 million of our outstanding 4.750% senior notes due May 2024 and our execution of a $120.0 million mortgage loan during 2024. The decrease was partially offset by the issuance of $940.5 million in aggregate principal amount at maturity of our senior secured notes due 2026 in a private offering, raising net proceeds of $730.4 million, after deducting initial purchaser discounts and estimated offering costs, and the redemption of $120.0 million of our 9.75% senior notes due June 2025 during 2024. As of December 31, 2024, we had $144.6 million of cash and cash equivalents. We typically use cash balances, net proceeds from offerings of securities, debt issuances or dispositions of assets and cash flows from our operations to fund our operations, debt repayments, distributions, acquisitions, investments, capital expenditures and other general business purposes. During the year ended December 31, 2024, we paid quarterly cash distributions to our shareholders totaling approximately $9.6 million using cash on hand. For further information regarding the distributions we paid during 2024, see Note 5 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. On January 16, 2025, we declared a quarterly distribution to common shareholders of record on January 27, 2025 of $0.01 per share, or approximately $2.4 million in aggregate. We paid this distribution on February 20, 2025, using cash on hand. We believe we may have access to various types of financings, including debt or equity offerings, to fund our operations and repay our debts and other obligations as they become due. Our ability to complete, and the costs associated with, future debt or equity transactions depends primarily upon market conditions and our then creditworthiness and our ability to be in compliance with our debt covenants. We have no control over market conditions. Our credit and debt ratings depend upon evaluations by credit rating agencies of our business practices and plans, including our ability to maintain our earnings, our liquidity position, to stagger our debt maturities and to balance our use of debt and equity capital so that our financial performance and leverage ratios afford us flexibility to withstand any reasonably anticipated adverse changes. Similarly, our ability to raise equity capital in the future will depend primarily upon equity capital market conditions and our ability to conduct our business to maintain and grow our operating cash flows. We intend to conduct our business activities in a manner which will afford us reasonable access to capital for investment and financing activities, but we cannot be sure that we will be able to successfully carry out that intention. A protracted negative impact on the economy or the industries in which our properties and businesses operate resulting from wage and commodity price inflation, high interest rates, geopolitical risks or other economic, market or industry conditions, including the delayed recovery of the senior housing industry, economic downturns and a possible recession, may have various negative consequences including a decline in financing availability and increased costs for financing. Further, those conditions could also disrupt capital markets and limit our access to financing from public sources, particularly if the global financial markets experience significant disruptions. In January 2023, we repaid $113.6 million in outstanding borrowings under our former credit facility and the commitments were reduced to $586.4 million. In February 2023, we further reduced the commitments to $450.0 million following our repayment of $136.4 million in outstanding borrowings under our former credit facility. Until its repayment in full and termination on December 21, 2023, we had a $450.0 million credit facility that was fully drawn. At December 21, 2023, our former credit facility required interest to be paid on borrowings at an annual rate of 8.4%, plus a facility fee of $0.3 million per quarter. On December 21, 2023, we completed a private offering of $940.5 million in aggregate principal amount at maturity of senior secured notes due January 2026, with a one-year extension option. The net proceeds from the offering were approximately $730.4 million after deducting initial purchaser discounts and estimated offering costs. We used a portion of the net proceeds to repay in full the $450.0 million outstanding under our then secured credit facility and to redeem $250.0 million of our senior notes that were scheduled to mature in May 2024. No cash interest will accrue on these senior secured notes prior 73 Table of Contents to maturity. The accreted value of these senior secured notes will increase at a rate of 11.25% per annum compounded semiannually on January 15 and July 15 of each year. Our $940.5 million in outstanding senior secured notes due 2026 are fully and unconditionally guaranteed, on a joint, several and senior secured basis, by 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. These notes and the guarantees provided by the Collateral Guarantors are secured by a first priority lien and security interest in each of the collateral properties and 100% of the equity interests in each of the Collateral Guarantors. In January 2025, we sold three properties that secure these senior secured notes for a sales price of $159.0 million, excluding closing costs. As of February 24, 2025, we are under agreements to sell 19 additional properties that secure these senior secured notes for an expected aggregate sales price of $142.1 million, excluding closing costs. The net proceeds from these sales will be used to partially redeem these senior secured notes. In May 2024, we executed a $120.0 million fixed rate, interest only mortgage loan secured by eight medical office and life science properties. This mortgage loan matures in June 2034 and requires that interest be paid at an annual rate of 6.864%. The net proceeds from this mortgage loan were approximately $117.1 million after deducting estimated closing costs, and in June 2024 we used $60.0 million of the net proceeds to partially redeem our then outstanding $500.0 million 9.75% senior notes due 2025. In November 2024, we redeemed $60.0 million of our outstanding 9.75% senior unsecured notes due 2025 using cash on hand. In January 2024, Moody's upgraded our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031 ratings from Ca to Caa3 and our senior unsecured debt rating from C to Ca, and Moody's also assigned a Caa2 rating to our senior secured notes due 2026. In January 2024, Standard & Poor's upgraded our 9.75% senior notes due 2025 rating from CCC+ to B, our 4.375% senior notes due 2031 rating from CCC+ to B and our senior unsecured debt rating from CCC- to CCC, and Standard & Poor's also assigned a B rating to our senior secured notes due 2026. For further information regarding our outstanding debt, see Note 9 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. Debt Covenants Our principal debt obligations at December 31, 2024 were: (1) $2.0 billion outstanding principal amount of senior unsecured notes; (2) $940.5 million outstanding principal amount of senior secured notes; and (3) $127.5 million aggregate principal amount of mortgage notes (excluding discounts, premiums and net debt issuance costs) secured by nine properties. For further information regarding our indebtedness, see Note 9 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. Our senior notes are governed by our senior notes indentures and their supplements. Our senior notes indentures and their supplements provide for acceleration of payment of all amounts outstanding upon the occurrence and continuation of certain events of default. Our senior notes indentures and their supplements also contain covenants that restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts and require us to maintain various financial ratios. As of December 31, 2024, we believe we were in compliance with all of the covenants under our senior notes indentures and their supplements and our other debt obligations. Although we continue to take steps to enhance our ability to maintain sufficient liquidity, as noted elsewhere in this Annual Report on Form 10-K, a protracted negative impact on the economy or the industries in which our properties and businesses operate resulting from wage or commodity price inflation, high interest rates, geopolitical risks or other economic, market or industry conditions, including the delayed recovery of the senior housing industry, economic downturns or a possible recession, may cause increased pressure on our ability to satisfy financial and other covenants. If our operating results and financial condition are significantly negatively impacted by economic conditions or otherwise, we may fail to satisfy our debt covenants and conditions. Our senior notes indentures and their supplements do not contain provisions for acceleration which could be triggered by our debt ratings. See "—Our Financing Liquidity and Resources" above for information regarding recent changes to our issuer credit rating and senior debt ratings. 74 Table of Contents Our senior unsecured notes indentures and their supplements contain cross default provisions to any other debts of more than $20.0 million ($50.0 million or more in the case of our senior notes indentures and supplements entered in February 2016, February 2018, June 2020, February 2021 and December 2023). The loan agreements governing the aggregate $620.0 million secured debt financing related to the Seaport JV contain customary covenants and provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default. We no longer include this $620.0 million of secured debt financing in our consolidated balance sheet following the deconsolidation of the net assets of this joint venture; however, we continue to provide certain guaranties on this debt. The debt secured by the properties included in the LSMD JV in which we own a 20% equity interest is guaranteed by this joint venture and is non-recourse to us. Supplemental Guarantor Information On May 28, 2020, we issued $1.0 billion of our 9.75% senior notes due 2025. We subsequently redeemed $500.0 million and $120.0 million of this debt during 2022 and 2024, respectively, with $380.0 million remaining outstanding. On February 3, 2021, we issued $500.0 million of our 4.375% senior notes due 2031. As of December 31, 2024, all $380.0 million of our 9.75% senior notes due 2025 and all $500.0 million of our 4.375% senior notes due 2031 were fully and unconditionally guaranteed, on a joint, several and unsecured basis, by all of our subsidiaries except certain excluded subsidiaries. The notes and related guarantees are effectively subordinated to all of our and the subsidiary guarantors' secured indebtedness, respectively, to the extent of the value of the applicable collateral, and are structurally subordinated to all indebtedness and other liabilities and any preferred equity of any of our subsidiaries that do not guarantee the notes. Our remaining $1.1 billion of senior unsecured notes do not have the benefit of any guarantees. A subsidiary guarantor's guarantee of our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031, as applicable, and all other obligations of such subsidiary guarantor under the indenture governing the notes will automatically terminate and such subsidiary guarantor will automatically be released from all of its obligations under such subsidiary guarantee and the indenture under certain circumstances, including on or after the date (a) the notes have an investment grade rating from two rating agencies and one of such investment grade ratings is a mid-BBB investment grade rating and (b) no default or event of default has occurred and is continuing under the indenture. Our non-guarantor subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due on our 9.75% senior notes due 2025 or our 4.375% senior notes due 2031 or the respective guarantees, or to make any funds available therefor, whether by dividend, distribution, loan or other payments. The rights of holders of our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031, as applicable, to benefit from any of the assets of our non-guarantor subsidiaries are subject to the prior satisfaction of claims of those subsidiaries' creditors and any preferred equity holders. As a result, our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031 and the respective guarantees are structurally subordinated to all indebtedness, guarantees and other liabilities of our subsidiaries that do not guarantee our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031, including guarantees of other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity. 75 Table of Contents The following tables present summarized financial information for guarantor entities and issuer, on a combined basis after eliminating (i) intercompany transactions and balances among the guarantor entities and (ii) equity in earnings from, and any investments in, any subsidiary that is a non-guarantor (dollars in thousands): December 31, 2024 Real estate properties, net $ 3,311,804 Other assets, net 376,197 Total assets $ 3,688,001 Indebtedness, net $ 2,783,826 Other liabilities 222,811 Total liabilities $ 3,006,637 Year Ended December 31, 2024 Revenues $ 1,273,278 Expenses $ 1,425,312 Loss from continuing operations $ (372,682) Net loss $ (371,552) Related Person Transactions We have relationships and historical and continuing transactions with RMR, RMR Inc., AlerisLife (including Five Star) and others related to them. For further information about these and other such relationships and related person transactions, see Notes 3, 6, 7 and 8 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K, which are incorporated herein by reference and our other filings with the SEC including our definitive Proxy Statement for our 2025 Annual Meeting of Shareholders, or our definitive Proxy Statement, to be filed with the SEC within 120 days after the fiscal year ended December 31, 2024. For further information about the risks that may arise as a result of these and other related person transactions and relationships, see elsewhere in this Annual Report on Form 10-K, including “Warning Concerning Forward-Looking Statements,” Part I, Item 1, “Business” and Part I, Item 1A, “Risk Factors.” We may engage in additional transactions with related persons, including businesses to which RMR or its subsidiaries provide management services. Critical Accounting Estimates Our critical accounting policies are those that will have the most impact on the reporting of our financial condition and results of operations and those requiring significant judgments and estimates. We believe that our judgments and estimates have been and will be consistently applied and produce financial information that fairly presents our results of operations. Our most critical accounting policies involve our investments in real property. These policies affect our: • allocation of purchase prices among various asset categories, including allocations to above and below market leases, and the related impact on the recognition of rental income and depreciation and amortization expenses; and • assessment of the carrying values and impairments of long lived assets. We allocate the purchase prices of our properties to land, building and improvements based on determinations of the fair values of these assets assuming the properties are vacant. We determine the fair value of each property using methods similar to those used by independent appraisers, which may involve estimated cash flows that are based on a number of factors, including capitalization rates and discount rates, among others. In some circumstances, we engage independent real estate appraisal firms to provide market information and evaluations which are relevant to our purchase price allocations and determinations of depreciable useful lives; however, we are ultimately responsible for the purchase price allocations and determinations of useful lives. We allocate a portion of the purchase price to above market and below market leases based on the present value (using an interest rate which reflects the risks associated with acquired in place leases at the time each property was acquired by us) of the difference, if any, between (i) the contractual amounts to be paid pursuant to the acquired in 76 Table of Contents place leases and (ii) our estimates of fair market lease rates for the corresponding leases, measured over a period equal to the terms of the respective leases. The terms of below market leases that include bargain renewal options, if any, are further adjusted if we determine that renewal is probable. We allocate a portion of the purchase price to acquired in place leases and tenant relationships based upon market estimates to lease up the property based on the leases in place at the time of purchase. In making these allocations, we consider factors such as estimated carrying costs during the expected lease up periods, including real estate taxes, insurance and other operating income and expenses and costs, such as leasing commissions, legal and other related expenses, to execute similar leases in current market conditions at the time a property was acquired by us. We allocate this aggregate value between acquired in place lease values and tenant relationships based on our evaluation of the specific characteristics of each tenant's lease. However, we have not separated the value of tenant relationships from the value of acquired in place leases because such value and related amortization expense is immaterial to our consolidated financial statements. If the value of tenant relationships becomes material in the future, we may separately allocate those amounts and amortize the allocated amount over the estimated life of the relationships. We regularly evaluate our assets for indicators of impairment. Impairment indicators may include declining tenant or resident occupancy, weak or declining profitability from the property, decreasing tenant cash flows or liquidity, our decision to dispose of an asset before the end of its estimated useful life and legislative, market or industry changes that could permanently reduce the value of an asset. This analysis requires us to judge whether indicators of impairment exist and to estimate likely future cash flows. If indicators of impairment are present, we evaluate the carrying value of the affected assets by comparing it to the expected future undiscounted cash flows to be generated from those assets. The future cash flows are subjective and are based in part on assumptions regarding hold periods, market rents and terminal capitalization rates. If we misjudge or estimate incorrectly or if future tenant operations, market or industry factors differ from our expectations, we may record an impairment charge that is inappropriate or fail to record a charge when we should have done so, or the amount of any such charges may be inaccurate. 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. These accounting policies involve significant judgments made based upon our experience and the experience of our management and our Board of Trustees, including judgments about current valuations, ultimate realizable value, estimated useful lives, salvage or residual value, the ability and willingness of our tenants to perform their obligations to us and the current and likely future operating and competitive environments in which our properties are operated. In the future, we may need to revise our carrying value assessments to incorporate information which is not now known, and such revisions could increase or decrease our depreciation expense or impairment charges related to properties we own, result in the classification of our leases as other than operating leases or decrease the carrying values of our assets. Impact of Government Reimbursement For the year ended December 31, 2024, substantially all of our NOI was generated from properties where a majority of the revenues are derived from our tenants' and residents' private resources, and a small amount of our NOI was generated from properties where a majority of the revenues are derived from Medicare and Medicaid payments. Nonetheless, we own, and our tenants, managers and operators operate, facilities in many states that participate in federal and state healthcare payment programs, including the federal Medicare and state Medicaid programs and other federal and state healthcare payment programs. Also, some of our medical office and life science property tenants participate in federal Medicare and state Medicaid programs and other government healthcare payment programs. Because of shifting policy priorities, the current and projected federal budget deficit, other federal spending priorities and challenging fiscal conditions in some states, there have been numerous recent legislative and regulatory actions or proposed actions with respect to federal Medicare rates, state Medicaid rates and federal payments to states for Medicaid programs, as well as existing regulations that impact these matters. Further, there are other existing and recently enacted legislation, and related litigation, related to government payments, insurance and healthcare delivery. Examples of these, and other information regarding such matters and developments, are provided under the caption “Business—Government Regulation and Reimbursement” above in Part I, Item 1 of this Annual Report on Form 10-K. We cannot currently predict the type and magnitude of the potential Medicare and Medicaid policy changes, rate changes or other changes that may be implemented, but we believe that some of these changes will cause these government funded healthcare programs to fail to provide rates that match our and our tenants' increasing expenses and that such changes may be material and adverse to our future financial results. During the years ended December 31, 2024, 2023 and 2022, we recognized $0.0 million, $1.6 million and $4.3 million, respectively, in interest and other income in our consolidated statements of comprehensive income (loss) related to funds received under the CARES Act and ARPA. 77 Table of Contents Seasonality Senior housing operations have historically reflected modest seasonality. During fourth quarter holiday periods, residents at such communities are sometimes discharged to spend time with family and admission decisions are often deferred. The first quarter of each calendar year usually coincides with increased illness among residents which can result in increased costs or discharges to hospitals. As a result of these and other factors, these operations sometimes produce greater earnings in the second and third quarters of a calendar year and lesser earnings in the fourth and first calendar quarters. We do not expect these seasonal differences to have a material impact upon the ability of our tenants to pay our rent or our ability to fund our managed senior living operations or our other businesses. Our medical office and life science properties and wellness centers do not typically experience seasonality. Impact of Climate Change Concerns about climate change have resulted in various treaties, laws and regulations that are intended to limit carbon emissions and address other environmental concerns. These and other laws may cause energy or other costs at our properties to increase. We do not expect the direct impact of these increases to be material to our results of operations, because the increased costs either would be the responsibility of our tenants directly or in the longer term, passed through and paid by tenants of our properties. 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. In an effort to reduce the effects of any increased energy costs in the future, we continuously study ways to improve the energy efficiency at all of our properties. Our property manager, RMR, is a member of the ENERGY STAR program, a joint program of the U.S. Environmental Protection Agency and the U.S. Department of Energy that is focused on promoting energy efficiency at commercial properties through its “ENERGY STAR” partner program, and a member of the U.S. Green Building Council, a nonprofit organization focused on promoting energy efficiency at commercial properties through its leadership in energy and environmental design, or LEED®, green building program. RMR's annual Sustainability Report summarizes the ESG initiatives RMR and its clients, including DHC, employ. RMR's Sustainability Report may be accessed on RMR Inc.'s website at www.rmrgroup.com/corporate-sustainability/default.aspx. The information on or accessible through RMR Inc.'s website is not incorporated by reference into this Annual Report on Form 10-K. For more information, see "Business—Corporate Sustainability" in Part I, Item 1 of this Annual Report on Form 10-K. Some observers believe severe weather in different parts of the world over the last few years is evidence of global climate change. Severe weather may have an adverse effect on certain properties we own. Rising sea levels could cause flooding at some of our properties, which may have an adverse effect on individual properties we own. We mitigate these risks by procuring, or requiring our tenants to procure, insurance coverage we believe adequate to protect us from material damages and losses resulting from the consequences of losses caused by climate change. However, we cannot be sure that our mitigation efforts will be sufficient or that future storms, rising sea levels or other changes that may occur due to future climate change could not have a material adverse effect on our financial results.