DIVERSIFIED HEALTHCARE TRUST 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk. We are exposed to risks associated with market changes in interest rates. We manage our exposure to this market risk by monitoring available financing alternatives, including fixed rate debt, and employing derivative instruments, including interest rate caps, to limit our exposure to increasing interest rates. Other than as described below, we do not currently expect any significant changes in our exposure to fluctuations in interest rates or in how we manage this exposure in the near future. Floating Rate Debt As of March 31, 2025, our outstanding floating rate debt consisted of the following: Principal Annual Annual Maturity Interest Payments Debt Balance Interest Rate (1) Interest Expense Date Due Floating rate mortgage loan $ 140,000 6.82% $ 9,681 3/31/2028 Monthly (1) The annual interest rate is the rate stated in the applicable contract, as adjusted by our interest rate cap. Our $140,000 floating rate mortgage loan is subject to two, one-year extension options and requires that interest be paid at an annual rate of SOFR plus a premium of 2.50%. We are vulnerable to changes in the U.S. dollar based on short term interest rates, specifically SOFR. In connection with this mortgage loan, to hedge our exposure to risks related to changes in SOFR and pursuant to the terms of the applicable loan agreement, we have purchased an interest rate cap with a SOFR strike rate equal to 4.50%. 37 Table of Contents In addition, upon renewal or refinancing of these obligations, we are vulnerable to increases in interest rate premiums, including increases in the cost of replacement interest rate caps, due to market conditions and our perceived credit risk. The following table presents the approximate impact a one percentage point increase in interest rates would have on our annual floating rate interest expense at March 31, 2025, including the impact of our interest rate cap: Impact of an Increase in Interest Rates Total Interest Annual Earnings Interest rate Outstanding Debt Expense Per Year Per Share Impact (1) As of March 31, 2025 6.82% $ 140,000 $ 9,681 $ (0.04) One percentage point increase (2) 7.00% $ 140,000 $ 9,936 $ (0.04) (1) Based on the diluted weighted average common shares outstanding for the three months ended March 31, 2025. (2) A one percentage point increase in interest rates would be capped at 7.00% for our floating rate debt as a result of our 4.50% interest rate cap purchased for our $140,000 floating rate mortgage loan. However, a one percentage point increase in the interest rate of our floating rate debt to 7.82% at March 31, 2025 would result in total floating rate interest expense per year of $11,107 and a decrease in annual earnings per share of $0.05. The foregoing table shows the impact of an immediate one percentage point change in floating interest rates, including the impact of our interest rate cap. Our exposure to fluctuations in floating interest rates will increase or decrease in the future with increases or decreases in the outstanding amounts of any floating rate debt we may incur and the impact, if any, of interest rate caps we may purchase. Generally, if interest rates were to change gradually over time, the impact would be spread over time. Fixed Rate Debt There have been no material changes to market interest rate risks associated with our fixed rate debt during the three months ended March 31, 2025. For a discussion of market interest rate risks associated with our fixed rate debt, see "Quantitative and Qualitative Disclosures About Market Risk" included in Part II, Item 7A of our Annual Report.