DIVERSIFIED HEALTHCARE TRUST

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Note 1. Business

Diversified Healthcare Trust is a real estate investment trust, or REIT, organized under Maryland law, which owns 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 located in 36 states and Washington, D.C. On that date, the gross book value of our real estate assets was $6,818,467, excluding properties held for sale, if any.

As of December 31, 2023, we also owned an equity interest in each oftwo unconsolidated joint ventures that own medical office and life science properties located infive states with an aggregate of approximately 2.2 million rentable square feet.

Going Concern

The senior living industry has been adversely affected by a slow recovery from the COVID-19 pandemic, as well as economic and market conditions. These conditions continue to have a significant negative impact on our results of operations, financial position and cash flows. Although there have been signs of recovery and increased demand when compared to the low levels during the COVID-19 pandemic, the recovery of our senior housing operating portfolio, or SHOP, segment has been slower than previously anticipated and uneven, and we cannot be sure when or if the senior living business will return to historic pre-pandemic levels. To mitigate the effects of the slow recovery coming from the COVID-19 pandemic and the increased variability in operating cash flows from our SHOP communities, we continue to work with our senior living operators to manage costs, especially labor costs, and to increase rates and occupancy. However, increased operating costs resulting from difficult labor market conditions, wage and commodity price inflation and increased insurance costs, among other things, continue to negatively impact margins. Additionally, while our senior living operators have increased rates, those rates are increasing gradually and are not increasing at the same pace as our costs, putting further pressure on our margins. In order to increase the probability of a recovery of our cash flows, we have continued to invest capital in our SHOP segment. As a result of the slow recovery of our SHOP segment and having $700,000 of outstanding debt then becoming due within one year and only $338,431 in cash and cash equivalents as of June 30, 2023, we concluded as of May 8, 2023 that there was a substantial doubt about our ability to continue as a going concern for at least one year from the date of issuance of those condensed consolidated financial statements. Additionally, as of November 1, 2023 we were unable to demonstrate that our plans to alleviate the substantial doubt about our ability to continue as a going concern would be probable in mitigating the conditions that raised the substantial doubt given our plans were beyond our control.

On December 21, 2023, we completed a private offering of $940,534 in aggregate principal amount at maturity of senior secured notes due January 2026, with aone-year extension option. The net proceeds from the offering were approximately $730,359 after deducting initial purchaser discounts and estimated offering costs. We used a portion of the net proceeds to repay in full the $450,000 outstanding under our then secured credit facility and to redeem $250,000 of our senior notes that were scheduled to mature in May 2024. As a result of these transactions, we have no significant debt maturities until June 2025 when $500,000 of our senior notes will become due, and as of December 31, 2023, we had $245,939 of cash and cash equivalents. Additionally, as of December 31, 2023, our ratio of consolidated income available for debt service to debt service is above the 1.5 x incurrence requirement under our debt covenants, on a pro forma basis. As a result, we are able to refinance existing or maturing debt and issue new debt as long as this ratio continues to be at or above 1.5 x on a pro forma basis at the time of such refinancing or issuance. With a significant amount of unencumbered assets, including our entire SHOP segment properties, we believe we can refinance existing or maturing debt as maturities near or we believe the terms of any new debt are satisfactory. Our management has concluded that these transactions have successfully alleviated the conditions that raised the substantial doubt about our ability to continue as a going concern and that no substantial doubt about our ability to continue as going concern exists as of the date of issuance of these financial statements, or February 26, 2024.

Note 2. Summary of Significant Accounting Policies

BASIS OF PRESENTATION. Our consolidated financial statements include the accounts of Diversified Healthcare Trust, we, us or our, and our subsidiaries, all of which are 100% owned directly or indirectly by us as of December 31, 2023. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated.

REAL ESTATE PROPERTIES. We record properties at our cost and calculate depreciation on real estate investments on a straight line basis over estimated useful lives generally up to 40 years.

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 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 amortize capitalized above market lease values (included in acquired real estate leases and other intangible assets, net in our consolidated balance sheets) as a reduction to rental income over the remaining non-cancelable terms of the respective leases. We amortize capitalized below market lease values (included in other liabilities in our consolidated balance sheets) as an increase to rental income over the non-cancelable periods of the respective leases. For the years ended December 31, 2023, 2022 and 2021, such amortization resulted in a net increase in rental income of $242, $(245) and $7,211, respectively. We amortize the value of in place leases exclusive of the value of above market and below market in place leases to expense over the remaining non-cancelable periods of the respective leases. During the years ended December 31, 2023, 2022 and 2021, such amortization included in depreciation and amortization expense totaled $10,996, $11,524 and $42,783, respectively. If a lease is terminated prior to its stated expiration, the unamortized amount relating to that lease is written off.

As of December 31, 2023 and 2022, our acquired real estate leases and assumed real estate lease obligations, excluding properties held for sale, if any, were as follows:

As of December 31, 2023, the weighted average amortization periods for capitalized above market lease values, lease origination value and capitalized below market lease values were 4.8 years,7.3 years and 3.7 years, respectively. Future amortization of net intangible acquired real estate lease assets and obligations to be recognized over the current terms of the associated leases as of December 31, 2023 are estimated to be $7,501 in 2024, $5,167 in 2025, $4,473 in 2026, $3,506 in 2027, $2,553 in 2028 and $10,280 thereafter.

CASH AND CASH EQUIVALENTS. We consider highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.

RESTRICTED CASH. Restricted cash consists of amounts escrowed for real estate taxes, insurance and capital expenditures at certain of our mortgaged properties. Prior to our repayment in full of the $450,000 outstanding under our then secured credit facility and termination of our credit agreement in December 2023, restricted cash also consisted of amounts held as collateral pursuant to our credit agreement.

INVESTMENTS IN EQUITY SECURITIES. We classified the common shares we formerly owned of AlerisLife Inc., or AlerisLife, as an equity method investment. This equity method investment was included in investments in equity securities in our consolidated balance sheets.

In February 2023, in connection with the acquisition by ABP Trust of 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, 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.

At December 31, 2023 and 2022, our investment in AlerisLife had a fair value of $0 and $5,880, respectively, including a realized gain of $8,126 and an unrealized loss of $25,660, respectively. We concluded that we had significant influence, but not control, over AlerisLife's most significant activities and therefore we determined that AlerisLife was not a variable interest entity, or VIE, and accounted for our former investment in AlerisLife as an equity method investment. We elected the fair value option for our investment in AlerisLife.

See Note 8 for further information regarding our former investment in AlerisLife.

EQUITY METHOD INVESTMENTS. As of December 31, 2023, we owned a 10% equity interest in an unconsolidated joint venture that owns a life science property located in Boston, Massachusetts, or the Seaport JV, and a 20% equity interest in an unconsolidated joint venture for 10 medical office and life science properties, or the LSMD JV. The property owned by the Seaport JV is encumbered by an aggregate $620,000 of mortgage debts. The properties owned by the LSMD JV are encumbered by an aggregate $456,625 of mortgage debts. We do not control the activities that are most significant to these joint ventures and, as a result, we account for our investment in these joint ventures under the equity method of accounting under the fair value option. See Notes 3, 10 and 11 for more information regarding these joint ventures.

DEBT ISSUANCE COSTS. Debt issuance costs include issuance or assumption costs related to borrowings and we amortize those costs as interest expense over the terms of the respective loans. During 2023, we repaid all amounts outstanding under our then secured credit facility, including repayment in full of $450,000 under such credit facility in December 2023, and terminated the agreement governing such credit facility. As a result, we expensed unamortized debt issuance costs and recorded an aggregate loss on early extinguishment of debt of $1,389 during the year ended December 31, 2023. Debt issuance costs for our former credit facility totaled $0 and $29,717 at December 31, 2023 and 2022, respectively, and accumulated amortization of debt issuance costs totaled $0 and $26,315 at December 31, 2023 and 2022, respectively, and are included in other assets, net in our consolidated balance sheets. Debt issuance costs for our senior secured and unsecured notes and other secured debt totaled $67,475 and $47,661 at December 31, 2023 and 2022, respectively, and accumulated amortization of debt issuance costs totaled $22,065 and $19,791, respectively, and are presented in our consolidated balance sheet as a direct deduction from the associated debt liability. Future amortization of debt issuance costs to be recognized with respect to our loans as of December 31, 2023 are estimated to be $14,226 in 2024, $13,279 in 2025, $2,417 in 2026, $1,955 in 2027, $1,581 in 2028 and $11,952 thereafter.

DEFERRED LEASING COSTS. Deferred leasing costs include capitalized brokerage costs and inducements associated with the successful negotiation of leases. We amortize deferred leasing costs, which are included in depreciation and amortization expense, and inducements, which are included as a reduction in rental income, on a straight line basis over the terms of the respective leases. Deferred leasing costs are included in other assets, net in our consolidated balance sheets. Deferred leasing costs totaled $62,980 and $55,043 at December 31, 2023 and 2022, respectively, and accumulated amortization of deferred leasing costs totaled $19,985 and $15,482 at December 31, 2023 and 2022, respectively. At December 31, 2023, the remaining weighted average amortization period is approximately 8.2 years. Future amortization of deferred leasing costs to be recognized during the current terms of our existing leases as of December 31, 2023 are estimated to be $7,090 in 2024, $6,613 in 2025, $6,059 in 2026, $5,032 in 2027, $4,344 in 2028 and $13,857 thereafter.

REVENUE RECOGNITION. We are a lessor of medical office and life science properties, senior living communities and other healthcare related properties. Our leases provide our tenants with the contractual right to use and economically benefit from all of the premises demised under the leases; therefore, we have determined to evaluate our leases as lease arrangements.

Our leases provide for base rent payments and in addition may include variable payments. Rental income from operating leases, including any payments derived by index or market based indices, is recognized on a straight line basis over the lease term when we have determined that the collectability of substantially all of the lease payments is probable. Some of our leases have options to extend or terminate the lease exercisable at the option of our tenants, which are considered when determining the lease term. We do not include in our measurement of our lease receivables certain variable payments, including changes in the index or market based indices after the inception of the lease, certain tenant reimbursements and other income until the specific events that trigger the variable payments have occurred.

Certain of our leases contain non-lease components, such as property level operating expenses and capital expenditures reimbursed by our tenants as well as other required lease payments. We have determined that all of our leases qualify for the practical expedient to not separate the lease and non-lease components because (i) the lease components are operating leases and (ii) the timing and pattern of recognition of the non-lease components are the same as those of the lease components. We apply Codification Topic 842, Leases, to the combined component. Income derived by our leases is recorded in rental income in our consolidated statements of operations.

Certain tenants are obligated to pay directly their obligations under their leases for insurance, real estate taxes and certain other expenses. These obligations, which have been assumed by the tenants under the terms of their respective leases, are not reflected in our consolidated financial statements. To the extent any tenant responsible for any such obligations under the applicable lease defaults on such lease or if it is deemed probable that the tenant will fail to pay for such obligations, we would record a liability for such obligations.

For the years ended December 31, 2023, 2022 and 2021, we recognized the rental income from our operating leases on a straight line basis over the term of each lease agreement. We recognized percentage rents when realizable and earned, which was generally during the fourth quarter of the year. For the years ended December 31, 2023, 2022 and 2021, percentage rents earned aggregated $2,949, $2,978 and $1,993, respectively.

For leases where we are the lessee, we recognized a right of use asset and a lease liability equal to the present value of the minimum lease payments with rental payments being applied to the lease liability and the right of use asset being amortized over the term of the lease. The right of use assets and related lease liabilities are included within other assets, net and other liabilities, respectively, within our consolidated balance sheets. In addition, we lease equipment at certain of our managed senior living communities. These leases are short term in nature, are cancelable with no fee or do not result in an annual expense in excess of our capitalization policy and, as a result, are not recorded on our consolidated balance sheets.

As of December 31, 2023, we owned 232 senior living communities that are managed by third party managers for our account. We derive our revenues at these managed senior living communities primarily from services our managers provide to residents on our behalf and we record revenues when the services are provided. We use the taxable REIT subsidiary, or TRS, structure authorized by the REIT Investment Diversification and Empowerment Act for nearly all of our managed senior living communities.

Under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, the U.S. Department of Health and Human Services established a Provider Relief Fund. Subsequently, the American Rescue Plan Act, or ARPA, was enacted. Retention and use of the funds received under the CARES Act and ARPA are subject to certain terms and conditions. The terms and conditions require that the funds be 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. Further, fund recipients are required to be participating in Medicare at the time of distribution and are subject to certain other terms and conditions, including quarterly reporting requirements. In addition, fund recipients are required to have billed Medicare during 2019 and to continue to provide care after January 31, 2020 for diagnosis, testing or care for individuals with possible or actual COVID-19 cases. Any funds not used in accordance with the terms and conditions must be returned. We recognize income from government grants on a systematic and rational basis over the period in which we recognize the related expenses or loss of revenues for which the grants are intended to compensate when there is reasonable assurance that we will comply with the applicable terms and conditions of the grant and there is reasonable assurance that the grant will be received. During the years ended December 31, 2023, 2022 and 2021, we received $1,581, $605 and $20,800, respectively, in funds to be used to support the operations of our managed senior living communities; we have currently determined that $1,581, $4,327 and $19,554, of such funds meet the required terms and conditions. We have recognized $1,581, $4,327 and $19,554 as interest and other income in our consolidated statements of operations with respect to our SHOP segment for the years ended December 31, 2023, 2022 and 2021, respectively. As of December 31, 2023 and 2022, we have recognized all funds andno amount remained in other liabilities in our consolidated balance sheets.

PER COMMON SHARE AMOUNTS. We calculate basic earnings per common share by dividing net income (loss) by the weighted average number of our common shares of beneficial interest, $.01 par value, or our common shares, outstanding during the period. We calculate diluted earnings per common share using the more dilutive of the two class method or the treasury stock method. Unvested share awards and other potentially dilutive common shares and the related impact on earnings, are considered when calculating diluted earnings per share.

INCOME TAXES. We have elected to be taxed as a REIT under the United States Internal Revenue Code of 1986, as amended, and, as such, are generally not subject to federal and most state income taxation on our operating income provided we distribute our taxable income to our shareholders and meet certain organization and operating requirements. We do, however, lease our managed senior living communities to our wholly owned TRSs that, unlike most of our subsidiaries, file a separate consolidated federal corporate income tax return and are subject to federal and state income taxes. Our consolidated income tax provision includes the income tax provision related to the operations of our TRSs and certain state income taxes we incur despite our taxation as a REIT. Our current income tax expense (or benefit) fluctuates from period to period based primarily on the timing of our income, including gains on the disposition of properties or losses in a particular quarter.

The Income Taxes Topic of the Codification prescribes how we should recognize, measure and present in our financial statements uncertain tax positions that have been taken or are expected to be taken in a tax return. Tax benefits are recognized to the extent that it is “more likely than not” that a particular tax position will be sustained upon examination or audit. To the extent the “more likely than not” standard has been satisfied, the benefit associated with a tax position is measured as the largest amount that has a greater than 50% likelihood of being realized upon settlement. We classify interest and penalties related to uncertain tax positions, if any, in our financial statements as a component of general and administrative expense.

USE OF ESTIMATES. Preparation of these financial statements in conformity with accounting principles generally accepted in the United States, or GAAP, requires us to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and related notes. The actual results could differ from these estimates. Significant estimates in the consolidated financial statements include purchase price allocations, useful lives of fixed assets and assessment of impairment of real estate and the related intangibles.

SEGMENT REPORTING. As of December 31, 2023, we operate in, and report financial information for, the followingtwo segments: our portfolio of medical office and life science properties, or our Office Portfolio, and SHOP. We aggregate the operating results of our properties in thesetwo reporting segments based on their similar operating and economic characteristics. See Note 12 for further information regarding our reportable operating segments.

RECENT ACCOUNTING PRONOUNCEMENTS. On November 27, 2023, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, or ASU No. 2023-07, which requires public entities to: (i) provide disclosures of significant segment expenses and other segment items if they are regularly provided to the Chief Operating Decision Maker, or the CODM, and included in each reported measure of segment profit or loss; (ii) provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by ASC 280, Segment Reporting, or ASC 280, in interim periods; and (iii) disclose the CODM’s title and position, as well as an explanation of how the CODM uses the reported measures and other disclosures. Public entities with a single reportable segment must apply all the disclosure requirements of ASU No. 2023-07, as well as all the existing segment disclosures under ASC 280. The amendments in ASU No. 2023-07 are incremental to the requirements in ASC 280 and do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. ASU No. 2023-07 should be applied retrospectively to all prior periods presented in the financial statements and is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact ASU No. 2023-07 will have on our consolidated financial statements and disclosures.

On December 14, 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, or ASU No. 2023-09, which requires public entities to enhance its annual income tax disclosures by requiring: (i) consistent categories and greater disaggregation of information in the rate reconciliation, and (ii) income taxes paid disaggregated by jurisdiction. ASU No. 2023-09 should be applied prospectively but entities have the option to apply it retrospectively to all prior periods presented in the financial statements. ASU No. 2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact ASU No. 2023-09 will have on our consolidated financial statements and disclosures.

Note 3. Real Estate Investments

As of December 31, 2023, our owned properties include:102 medical office and life science properties with approximately 8.6 million rentable square feet;259 senior living communities, including independent living (including active adult), assisted living, memory care and skilled nursing facilities, or SNFs, with 27,271 living units; and 10 wellness centers with approximately 812,000 square feet of interior space plus outdoor developed facilities.

Acquisitions:

The table below represents the purchase price allocations (including net closing adjustments) of acquisitions for the years ended December 31, 2023, 2022 and 2021:

(1)Cash paid includes closing costs.

(2)We have accounted for our 2022 acquisition as an acquisition of assets. We funded this acquisition using cash on hand.

Impairment:

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

During 2023, we recorded impairment charges of $14,034 to adjust the carrying value offour life science and medical office properties to their estimated fair value. We sold three of these life science and medical office properties in 2023. One of these medical office properties was classified as held for sale in our consolidated balance sheet as of December 31, 2023. During 2023, we also recorded impairment charges of $4,346 to adjust the carrying values oftwo senior living communities to their aggregate estimated fair value. We soldone of these senior living communities in 2023. These impairment charges, in aggregate, are included in impairment of assets in our consolidated statements of operations.

During 2022, no impairment charges were recorded.

Dispositions:

During the years ended December 31, 2023 and 2021, we sold eight andfive properties, respectively, for aggregate sales prices of $18,880 and $104,500, respectively, excluding closing costs, as presented in the table below. During the year ended December 31, 2022, we didnot dispose of any properties. The sales of these properties do not represent significant dispositions, individually or in the aggregate, and we do not believe these sales represent a strategic shift in our business. As a result, the results of operations for these properties are included in continuing operations through the date of sale of such properties in our consolidated statements of operations.

(1)Sales price excludes closing costs.

(2)These communities were closed prior to their respective dispositions.

During the year ended December 31, 2023, we recognized a gain of $940 related to the sales of skilled nursing bed licenses at certain of our senior living communities.

We classify all properties as held for sale in our consolidated balance sheets that meet the applicable criteria for that treatment as set forth in the Property, Plant and Equipment Topic of the Codification. As of December 31, 2023, we hadone medical office property classified as held for sale. As of December 31, 2022, we hadone closed senior living community classified as held for sale.

Investments and Capital Expenditures:

During 2023, we committed an aggregate $62,180 for leasing related costs related to 0.9 million and 0.2 million square feet of leases executed at our medical office and life science properties and wellness centers, respectively. During 2022, we committed $22,911 for leasing related costs related to 0.9 million square feet of leases executed at our medical office and life science properties.

Committed and unspent tenant related obligations based on executed leases as of December 31, 2023 and 2022 were $54,124 and $39,314, respectively.

Other:

In September 2022, certain of our managed senior living communities located in Florida experienced hurricane related damage. We carry comprehensive property, casualty, flood and business interruption insurances that we anticipate will cover our losses at these senior living communities, subject to a deductible. During the year ended December 31, 2022, we incurred total losses of $11,253 related to the property damage sustained and deductible incurred. For the year ended December 31, 2022, we recognized a loss of $7,635 for the involuntary conversion of nonmonetary assets and wrote off a portion of the net book value of the damaged assets and included this amount in our consolidated statements of operations. During the year ended December 31, 2022, we received $14,466 in cash from our insurance provider, and as such, we have recovered the total losses of $11,253 incurred during the year ended December 31, 2022. The loss of $7,635 for the involuntary conversion of nonmonetary assets, recovery of those $7,635 in losses and the deductible of $3,618 are included in property operating expenses in our consolidated statements of operations. We received $534 and $3,213 in cash in excess of our losses during the years ended December 31, 2023 and 2022, respectively. These amounts are included in other liabilities in our consolidated balance sheets.

Unconsolidated Joint Venture Investments:

As of December 31, 2023, we had equity investments in unconsolidated joint ventures as follows:

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

(1)Amounts are not adjusted for our minority equity interest.

(2)Following the deconsolidation in December 2021 of the net assets of the Seaport JV, we no longer include this $620,000 of secured debt financing in our consolidated balance sheet; however, we continue to provide certain guaranties on this debt.

(3)The debt securing these properties is non-recourse to us.

(4)The joint venture exercised its option to extend the maturity date of this mortgage loan by one year to February 9, 2025, and this mortgage loan requires interest to be paid at an annual rate of SOFR, plus a premium of 1.90%. The interest rate is as of December 31, 2023. This joint venture has also purchased an interest rate cap through February 2025 with a SOFR strike rate equal to 4.48% and an initial premium of $1,200. The maturity date of this mortgage loan is subject totwo remainingone-year extension options.

In March 2017, we entered into the Seaport JV with an institutional investor. The investor owned a 45% equity interest in the joint venture, and we owned the remaining 55% equity interest in the joint venture. We determined that, while we owned a 55% equity interest in this joint venture, this joint venture was a VIE as defined under the Consolidation Topic of the Financial Accounting Standards Board Codification. We concluded that we must consolidate this VIE, and we did so, until we sold an additional 35% equity interest in the joint venture in December 2021. We reached this determination because we were the entity with the power to direct the activities that most significantly impacted the VIE's economic performance and we had the obligation to absorb losses of, and the right to receive benefits from, the VIE that could be significant to the VIE, and therefore were the primary beneficiary of the VIE. The joint venture investor's interest in this consolidated entity was reflected as noncontrolling interest in our consolidated financial statements.

In December 2021, we sold an additional 35% equity interest from our then remaining 55% equity interest in the Seaport JV to another third party institutional investor for $378,000, before closing costs and other adjustments. Effective as of the date of the sale, we deconsolidated the net assets of this joint venture and recognized a net gain on sale of $461,434 related to this transaction during the year ended December 31, 2021, which is included in gain on sale of properties in our consolidated statements of operations. After giving effect to the sale, we owned a 20% equity interest in this joint venture but determined that we were no longer the primary beneficiary. Effective as of the date of the sale, we deconsolidated this joint venture, and we now account for this joint venture using the equity method of accounting under the fair value option. Prior to the deconsolidation of the net assets of this joint venture, the joint venture investor's interest in this consolidated entity was reflected as noncontrolling interest in our consolidated financial statements. In June 2022, we sold an additional 10% equity interest from our then remaining 20% equity interest in the Seaport JV to an existing joint venture investor for $108,000, before closing costs and other adjustments. We received net proceeds of $108,424 from this transaction, which included working capital prorations and formation costs. We recognized a net loss on sale of $1,428 related to this transaction during the year ended December 31, 2022, which is included in gain on sale of properties in our consolidated statements of operations. After giving effect to these sales, we continue to own a 10% equity interest in this joint venture. Our initial investment amount was based on a property valuation of $1,700,000, less $620,000 of existing mortgage debts on the property that this joint venture assumed. See Note 10 for more information regarding the valuation of our investment in this joint venture.

In January 2022, we entered into the LSMD JV withtwo unrelated third party institutional investors. We sold equity interests in this joint venture to those investors for aggregate proceeds, before closing costs and other adjustments, of approximately $653,300. We deconsolidated the net assets of these properties effective as of the date of the sale and recognized a net gain on sale of $322,468 related to this transaction during the year ended December 31, 2022, which is included in gain on sale of properties in our consolidated statements of operations. The equity interests that the investors acquired from us equaled 41% and 39%, respectively, of the total equity interests in the joint venture, and we retained a 20% equity interest in the joint venture. Following the sale, we account for this joint venture using the equity method of accounting under the fair value option. The initial investment amounts were based upon a property valuation of approximately $702,500, less approximately $456,600 of secured debt on the properties incurred by this joint venture. See Note 10 for more information regarding the valuation of our investment in this joint venture.

Note 4. Leases

We are a lessor of medical office and life science properties, senior living communities and other healthcare related properties. Our leases provide our tenants with the contractual right to use and economically benefit from all of the premises demised under the leases; therefore, we have determined to evaluate our leases as lease arrangements.

Our leases provide for base rent payments and, in addition, may include variable payments. Rental income from operating leases, including any payments derived by index or market based indices, is recognized on a straight line basis over the lease term when we have determined that the collectability of substantially all of the lease payments is probable. Some of our leases have options to extend or terminate the lease exercisable at the option of our tenants, which are considered when determining the lease term.

We increased rental income to record revenue on a straight line basis by $(1,095), $8,916 and $5,846 for the years ended December 31, 2023, 2022 and 2021, respectively. Rents receivable, excluding receivables related to our properties classified as held for sale, if any, include $75,306 and $76,363 of straight line rent receivables at December 31, 2023 and 2022, respectively, and are included in other assets, net in our consolidated balance sheets.

We do not include in our measurement of our lease receivables certain variable payments, including changes in the index or market based indices after the inception of the lease, certain tenant reimbursements and other income until the specific events that trigger the variable payments have occurred. Such payments totaled $51,367, $47,669 and $74,860 for the years ended December 31, 2023, 2022 and 2021, respectively, of which tenant reimbursements totaled $48,215, $44,470 and $72,690, respectively.

The following table presents our operating lease maturity analysis, excluding lease payments from properties classified as held for sale, if any, as of December 31, 2023:

Right of Use Asset and Lease Liability. For leases where we are the lessee, we recognized a right of use asset and a lease liability equal to the present value of the minimum lease payments with rental payments being applied to the lease liability and the right of use asset being amortized over the term of the lease. The values of the right of use assets and related liabilities representing our future obligation under the respective lease arrangements for which we are the lessee were $23,366 and $23,748, respectively, as of December 31, 2023, and $26,508 and $26,889, respectively, as of December 31, 2022. The right of use assets and related lease liabilities are included within other assets, net andother liabilities, respectively, within our consolidated balance sheets. In addition, we lease equipment at certain of our managed senior living communities. These leases are short term in nature, are cancelable with no fee or do not result in an annual expense in excess of our capitalization policy and, as a result, are not recorded on our consolidated balance sheets.

Note 5. Shareholders' Equity

We have common shares available for issuance under the terms of our equity compensation plan adopted in 2012, as amended, or the 2012 Plan. During the years ended December 31, 2023, 2022 and 2021, we awarded to our officers and other employees of The RMR Group LLC, or RMR, annual share awards of 800,000,707,000 and 718,000 of our common shares, respectively, valued at $1,864, $919 and $2,448, in aggregate, respectively. In accordance with our Trustee compensation arrangements, we also awarded each of our then Trustees 20,000 common shares with an aggregate value of $244 ($35 per Trustee),20,000 common shares with an aggregate value of $300 ($43 per Trustee) and 20,000 common shares with an aggregate value of $444 ($74 per Trustee) in 2023, 2022 and 2021, respectively. Also in September 2023, in connection with the election ofone of our Trustees, we awarded 20,000 of our common shares to this Trustee with a value of $45. The values of the share awards were based upon the closing price of our common shares trading on The Nasdaq Stock Market LLC, or Nasdaq, on the dates of awards. The common shares awarded to our Trustees vested immediately. The common shares awarded to our officers and certain other employees of RMR (in those capacities) vest infive equal annual installments beginning on the date of award. We include the value of awarded shares in general and administrative expenses in our consolidated statements of operations ratably over the vesting period. At December 31, 2023,1,938,197 of our common shares remain available for issuance under the 2012 Plan.

A summary of shares awarded, forfeited, vested and unvested under the terms of the 2012 Plan from January 1, 2021 to December 31, 2023 is as follows:

The 1,228,200 unvested shares as of December 31, 2023 are scheduled to vest as follows:428,200 shares in 2024,377,200 shares in 2025,270,400 shares in 2026 and 152,400 shares in 2027. As of December 31, 2023, the estimated future compensation for the unvested shares was $2,489 based on the adjusted award date fair value of these shares. At December 31, 2023, the weighted average period over which the compensation expense will be recorded is approximately 1.8 years. We recorded share based compensation expense of $1,840 in 2023, $1,733 in 2022 and $1,960 in 2021. We recognize forfeitures as they occur.

During 2023, 2022 and 2021, we purchased an aggregate of 184,344,133,752 and 109,384, respectively, of our common shares from certain of our Trustees and officers and certain other current and former officers and employees of RMR in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares. See Note 8 for further information regarding these purchases.

A summary of cash distributions paid to common shareholders, for federal income tax purposes, are as follows for the periods presented:

On January 11, 2024, we declared a quarterly distribution to common shareholders of record on January 22, 2024 of $0.01 per share, or approximately $2,403 in aggregate. We paid this distribution on February 15, 2024, using cash on hand.

Note 6. Senior Living Community Management Agreements

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 managed by third party managers, to our TRSs.

Management Arrangements with Five Star. On June 9, 2021, we and Five Star entered into an amended and restated master management agreement, or the Master Management Agreement, for the senior living communities that Five Star manages for us and interim management agreements for the senior living communities that we and Five Star agreed to transition to other third party managers. In addition, AlerisLife delivered to us an amended and restated guaranty agreement pursuant to which AlerisLife is continuing to guarantee the payment and performance of each of its applicable subsidiary’s obligations under the applicable management agreements. The principal changes to the management arrangements included:

•that Five Star agreed to cooperate with us in transitioning 108 of our senior living communities with approximately 7,500 living units to other third party managers without our payment of any termination fee to Five Star;

•that we no longer have the right to sell up to an additional $682,000 of senior living communities currently managed by Five Star and terminate Five Star's management of those communities without our payment of a fee to Five Star upon sale;

•that Five Star is continuing to manage 119 of the 120 of our senior living communities that were included as part of the management arrangements (the management for one active adult community was terminated by mutual agreement effective October 31, 2022), and that the skilled nursing units in all of our continuing care retirement communities that Five Star is continuing to manage, which then included approximately 1,500 living units, were closed and are being evaluated and repositioned;

•that beginning in 2025, we will 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 earnings before interest, taxes, depreciation and amortization, or EBITDA, for the applicable period;

•that the incentive fee that Five Star may earn in any calendar year for the senior living communities that Five Star is continuing to manage is no longer subject to a cap and that any senior living communities that are undergoing a major renovation or repositioning are excluded from the calculation of the incentive fee;

•that RMR will oversee any major renovation or repositioning activities at the senior living communities that Five Star is continuing to manage; and

•that the term of our management agreements with Five Star for our senior living communities that Five Star is continuing to manage was extended bytwo years to December 31, 2036.

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 fortwo 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 connection with ABP Trust’s acquisition of AlerisLife on March 20, 2023, we amended the Master Management Agreement to eliminate any change of control default or event of default provisions effective upon the consummation of the AlerisLife acquisition by ABP Trust. See Note 8 for further information regarding ABP Trust’s acquisition of AlerisLife.

In 2021, we completed the transition of 107 of the 108 senior living communities, containing 7,340 living units, from Five Star to other third party managers. The remaining senior living community was closed in February 2022 and we are assessing opportunities to redevelop that property. We recorded $0, $2,096 and $17,363 for the years ended December 31, 2023, 2022 and 2021, respectively, of costs that we incurred related to retention and other transition costs to acquisition and certain other transaction related costs in our consolidated statements of operations.

Our Senior Living Communities Managed by Five Star. Five Star managed 119,119 and 120 of our senior living communities as of December 31, 2023, 2022 and 2021, respectively. We lease our senior living communities that are managed by Five Star to our TRSs, and Five Star manages these communities pursuant to the Master Management Agreement. Effective October 31, 2022, Five Star ceased managing an active adult community we own located in Plano, TX, and RMR assumed management of that community pursuant to our property management agreement with RMR. We paid Five Star a termination fee of $350 in connection with the termination of Five Star's management of this community.

We incurred management fees payable to Five Star of $40,119, $37,037 and $47,479 for the years ended December 31, 2023, 2022 and 2021, respectively. For the years ended December 31, 2023, 2022 and 2021, $37,436, $33,737 and $43,864, respectively, of the total management fees were expensed to property operating expenses in our consolidated statements of operations and $2,683, $3,300 and $3,615, respectively, were capitalized in our consolidated balance sheets. The amounts capitalized are being depreciated over the estimated useful lives of the related capital assets.

In addition to providing management services to us, Five Star also provides certain other services to residents at some of the senior living communities it manages for us, such as rehabilitation services. At senior living communities Five Star manages for us where Five Star provides rehabilitation services on an outpatient basis, the residents, third party payers or government programs pay Five Star for those rehabilitation services. At senior living communities Five Star manages for us where Five Star provides both inpatient and outpatient rehabilitation services, we generally pay Five Star for those rehabilitation services and charges for these services are included in amounts charged to residents, third party payers or government programs. During 2023, Five Star closed all inpatient clinics and as such we do not expect to incur these fees to Five Star in the future. We incurred fees of $1,213, $6,289 and $11,233 for the years ended December 31, 2023, 2022 and 2021, respectively, with respect to rehabilitation services Five Star provided at our senior living communities that are payable by us. These amounts are included in property operating expenses in our consolidated statements of operations.

Since January 1, 2021, we sold certain senior living communities that were then managed by Five Star. We and Five Star terminated our management agreements for these senior living communities in connection with these sales. See Note 3 for further information regarding these sales.

We lease to Five Star space at certain of our senior living communities, which it uses to provide certain outpatient rehabilitation and wellness services.

Our Senior Living Communities Managed by Other Third Party Managers. As of December 31, 2023, 2022 and 2021, respectively, our other third party managers managed 113,111 and 107 of our senior living communities. 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 oftwo 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.

In December 2023, we notified one of our third party managers which manages certain of our communities located in Wisconsin and Illinois that we will be terminating our management agreement with respect to these communities. We expect to transition these communities during the first half of 2023 to another third party manager which we have an existing relationship with. We expect the terms of the management agreement for these communities to be generally consistent with the terms outlined above. We expect to pay a termination fee of approximately $1,000 in connection with this transition.

We incurred management fees payable to our other third party managers of $21,863, $20,739 and $6,239 for the years ended December 31, 2023, 2022 and 2021, respectively. These amounts are included in property operating expenses in our consolidated statements of operations.

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

Note 7. Business and Property Management Agreements with RMR

We haveno employees. The personnel and various services we require to operate our business are provided to us by RMR. We havetwo agreements with RMR to provide management services to us: (1) a business management agreement, which relates to our business generally; and (2) a property management agreement, which relates to the property level operations of many of our properties, including our medical office and life science properties, and major renovation or repositioning activities at our senior living communities that we may request RMR to manage from time to time. See Note 8 for further information regarding our relationship, agreements and transactions with RMR.

Management Agreements with RMR. Our management agreements with RMR provide for an annual base management fee, an annual incentive management fee and property management and construction supervision fees, payable in cash, among other terms:

•Base Management Fee. The annual base management fee payable to RMR by us for each applicable period is equal to the lesser of:

◦the sum of (a)0.5% of the daily weighted average of the aggregate book value of our real estate assets owned by us or our subsidiaries as of October 12, 1999, or the Transferred Assets, plus (b)0.7% of the average aggregate historical cost of our real estate investments excluding the Transferred Assets up to $250,000, plus (c)0.5% of the average aggregate historical cost of our real estate investments excluding the Transferred Assets exceeding $250,000; and

◦the sum of (a)0.7% of the average closing price per share of our common shares on the stock exchange on which such shares are principally traded during such period, multiplied by the average number of our common shares outstanding during such period, plus the daily weighted average of the aggregate liquidation preference of each class of our preferred shares outstanding during such period, plus the daily weighted average of the aggregate principal amount of our consolidated indebtedness during such period, or, together, our Average Market Capitalization, up to $250,000, plus (b)0.5% of our Average Market Capitalization exceeding $250,000.

The average aggregate historical cost of our real estate investments includes our consolidated assets invested, directly or indirectly, in equity interests in or loans secured by real estate and personal property owned in connection with such real estate (including acquisition related costs and costs which may be allocated to intangibles or are unallocated), all before reserves for depreciation, amortization, impairment charges or bad debts or other similar non-cash reserves.

•Incentive Management Fee. The incentive management fee which may be earned by RMR for an annual period is calculated as follows:

•An amount, subject to a cap, based on the value of our common shares outstanding, equal to 12.0% of the product of:

◦our equity market capitalization on the last trading day of the year immediately prior to the relevant three year measurement period, and

◦the amount (expressed as a percentage) by which the total return per share, as defined in the business management agreement and further described below, of our common shareholders (i.e., share price appreciation plus dividends) exceeds the total shareholder return of the applicable market index, or the benchmark return per share, for the relevant measurement period. The MSCI U.S. REIT/Health Care REIT Index is the benchmark index for periods on or after August 1, 2021, and the SNL U.S. REIT Healthcare Index is the benchmark index for periods prior to August 1, 2021.

For purposes of the total return per share of our common shareholders, share price appreciation for a measurement period is determined by subtracting (1) the closing price of our common shares on Nasdaq on the last trading day of the year immediately before the first year of the applicable measurement period, or the initial share price, from (2) the average closing price of our common shares on the 10 consecutive trading days having the highest average closing prices during the final 30 trading days in the last year of the measurement period.

◦The calculation of the incentive management fee (including the determinations of our equity market capitalization, initial share price and the total return per share of our common shareholders) is subject to adjustments if we issue or repurchase our common shares, or if our common shares are forfeited, during the measurement period.

◦No incentive management fee is payable by us unless our total return per share during the measurement period is positive.

◦The measurement periods arethree year periods ending with the year for which the incentive management fee is being calculated.

◦If our total return per share exceeds 12.0% per year in any measurement period, the benchmark return per share is adjusted to be the lesser of the total shareholder return of the applicable market index for such measurement period and 12.0% per year, or the adjusted benchmark return per share. In instances where the adjusted benchmark return per share applies, the incentive management fee will be reduced if our total return per share is between 200 basis points and 500 basis points below the applicable market index in any year, by a low return factor, as defined in the business management agreement, and there will beno incentive management fee paid if, in these instances, our total return per share is more than 500 basis points below the applicable market index in any year, determined on a cumulative basis (i.e. between 200 basis points and 500 basis point per year multiplied by the number of years in the measurement period and below the applicable market index).

◦The incentive management fee is subject to a cap. The cap is equal to the value of the number of our common shares which would, after issuance, represent 1.5% of the number of our common shares then outstanding multiplied by the average closing price of our common shares during the 10 consecutive trading days having the highest average closing prices during the final 30 trading days of the relevant measurement period.

◦Incentive management fees we paid to RMR for any period may be subject to “clawback” if our financial statements for that period are restated due to material non-compliance with any financial reporting requirements under the securities laws as a result of the bad faith, fraud, willful misconduct or gross negligence of RMR and the amount of the incentive management fee we paid was greater than the amount we would have paid based on the restated financial statements.

Pursuant to our business management agreement with RMR, we recognized net business management fees of $13,965,$16,646 and $23,378 for the years ended December 31, 2023, 2022 and 2021, respectively. The net business management fees we recognized are included in general and administrative expenses in our consolidated statements of operations for these periods. The net business management fees we recognized for the years ended December 31, 2023, 2022 and 2021 reflect a reduction of $2,974, for each of those years for the amortization of the liability we recorded in connection with our former investment in RMR Inc.

We did not recognize an incentive management fee payable to RMR for the years ended December 31, 2023, 2022 or 2021.

•Property Management and Construction Supervision Fees. The property management fees payable to RMR by us for each applicable period are equal to 3.0% of gross collected rents and the construction supervision fees payable to RMR by us for each applicable period are equal to 5.0% of construction costs. In connection with our entry into the Master Management Agreement, on June 9, 2021, we and RMR amended our property management agreement to, among other things, provide for RMR's oversight of any major capital projects and repositionings at our senior living communities, including our senior living communities which Five Star is continuing to manage, and that RMR receives the same fee previously paid to Five Star for such services, which is equal to 3.0% of the cost of any such major capital project or repositioning.

We recognized aggregate net property management and construction supervision fees of $8,886, $10,329 and $12,504 for the years ended December 31, 2023, 2022 and 2021, respectively. The net property management and construction supervision fees we recognized for the years ended December 31, 2023, 2022 and 2021 reflect a reduction of $797 for each of those years for the amortization of the liability we recorded in connection with our former investment in RMR Inc., as further described in Note 8. For the years ended December 31, 2023, 2022 and 2021, $5,686, $5,657 and $9,684, respectively, of the total property management fees were expensed to property operating expenses in our consolidated statements of operations and $3,200, $4,672 and $2,820, respectively, were capitalized as building improvements in our consolidated balance sheets. The amounts capitalized are being depreciated over the estimated useful lives of the related capital assets.

Expense Reimbursement. We are generally responsible for all our operating expenses, including certain expenses incurred or arranged by RMR on our behalf. We are generally not responsible for payment of RMR's employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR's employees assigned to work exclusively or partly at our properties, our share of the wages, benefits and other related costs of RMR's centralized accounting personnel, our share of RMR's costs for providing our internal audit function, or as otherwise agreed. Our property level operating expenses are generally incorporated into the rents charged to our tenants, including certain payroll and related costs incurred by RMR. We reimbursed RMR $14,587, $12,901 and $13,161 for these expenses and costs for the years ended December 31, 2023, 2022 and 2021, respectively. These amounts are included in property operating expenses or general and administrative expenses, as applicable, in our consolidated statements of operations for these periods.

Term. Our management agreements with RMR have terms that end on December 31, 2043, and automatically extend on December 31st of each year for an additional year, so that the terms of our management agreements thereafter end on the 20th anniversary of the date of the extension.

Termination Rights. We have the right to terminate one or both of our management agreements with RMR: (i) at any time on 60 days' written notice for convenience, (ii) immediately on written notice for cause, as defined therein, (iii) on written notice given within 60 days after the end of an applicable calendar year for a performance reason, as defined therein, and (iv) by written notice during the 12 months following a change of control of RMR, as defined therein. RMR has the right to terminate the management agreements for good reason, as defined therein.

Termination Fee. If we terminateone or both of our management agreements with RMR for convenience, or if RMR terminatesone or both of our management agreements for good reason, we have agreed to pay RMR a termination fee in an amount equal to the sum of the present values of the monthly future fees, as defined therein, for the terminated management agreement(s) for the term that was remaining prior to such termination, which, depending on the time of termination would be between 19 and 20 years. If we terminateone or both of our management agreements with RMR for a performance reason, we have agreed to pay RMR the termination fee calculated as described above, but assuming a 10 year term was remaining prior to the termination. We are not required to pay any termination fee if we terminate our management agreements with RMR for cause or as a result of a change of control of RMR.

Transition Services. RMR has agreed to provide certain transition services to us for 120 days following an applicable termination by us or notice of termination by RMR, including cooperating with us and using commercially reasonable efforts to facilitate the orderly transfer of the management and real estate investment services provided under our business management agreement and to facilitate the orderly transfer of the management of the managed properties under our property management agreement, as applicable.

Vendors. Pursuant to our management agreements with RMR, RMR may from time to time negotiate on our behalf with certain third party vendors and suppliers for the procurement of goods and services to us. As part of this arrangement, we may enter agreements with RMR and other companies to which RMR or its subsidiaries provide management services for the purpose of obtaining more favorable terms from such vendors and suppliers.

Investment Opportunities. Under our business management agreement with RMR, we acknowledge that RMR may engage in other activities or businesses and act as the manager to any other person or entity (including other REITs) even though such person or entity has investment policies and objectives similar to ours and we are not entitled to preferential treatment in receiving information, recommendations and other services from RMR.

Management Agreements between our Joint Ventures and RMR. We havetwo separate joint venture arrangements with third party institutional investors, the Seaport JV and the LSMD JV. RMR provides management services to both of these joint ventures. Our joint ventures are not our consolidated subsidiaries and, as a result, we are not obligated to pay management fees to RMR under our management agreements with RMR for the services it provides regarding the joint ventures. Prior to December 23, 2021, the Seaport JV was our consolidated subsidiary and, as such, we were previously obligated to pay management fees to RMR under our management agreements with RMR for the services it provided that joint venture; however, that joint venture paid management fees directly to RMR, and those fees were credited against the fees payable by us to RMR. In addition, we wholly owned the 10 medical office and life science properties included in the LSMD JV until the contribution of these properties to the LSMD JV in January 2022, and we paid management fees to RMR for the management services it provided to us for those properties until the contribution of those properties to the LSMD JV.

Note 8. Related Person Transactions

We have relationships and historical and continuing transactions with AlerisLife (including Five Star), RMR, RMR Inc. and others related to them, including other companies to which RMR or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers. RMR Inc. is the managing member of RMR. The Chair of our Board of Trustees and one of our Managing Trustees, Adam D. Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., chair of the board of directors, a managing director and the president and chief executive officer of RMR Inc., an officer and employee of RMR and, until the acquisition of AlerisLife by ABP Trust on March 20, 2023, the chair of the board of directors and a managing director of AlerisLife, and currently a director of AlerisLife. Jennifer F. Francis, our other Managing Trustee, our former President and Chief Executive Officer and a former managing director of AlerisLife served as an officer of RMR until December 31, 2023 and will remain an employee of RMR until her retirement on July 1, 2024. Our current President and Chief Executive Officer and our Chief Financial Officer and Treasurer are also employees and officers of RMR. Jennifer B. Clark, our Secretary and former Managing Trustee, also serves as a managing director and the executive vice president, general counsel and secretary of RMR Inc., an officer and employee of RMR, an officer of ABP Trust and secretary of AlerisLife and, until March 20, 2023, a managing director of AlerisLife. Certain of AlerisLife's officers are officers and employees of RMR. Some of our Independent Trustees also serve as independent trustees of other public companies to which RMR or its subsidiaries provide management services. Adam D. Portnoy serves as the chair of the board and as a managing trustee of these companies. Other officers of RMR, including Ms. Clark and certain of our officers, serve as managing trustees, or officers of certain of these companies. In addition, officers of RMR and RMR Inc. serve as our officers and officers of other companies to which RMR or its subsidiaries provide management services. As of December 31, 2023, ABP Trust and Adam D. Portnoy owned 9.8% of our outstanding common shares.

AlerisLife. Until March 20, 2023, we were AlerisLife's largest stockholder, owning approximately 31.9% of AlerisLife's outstanding common shares, and ABP Acquisition LLC, or ABP Acquisition, a subsidiary of ABP Trust, together with ABP Trust, owned approximately 6.1% of AlerisLife's outstanding common shares. Five Star is an operating division of AlerisLife. Five Star manages certain of the senior living communities we own pursuant to the Master Management Agreement. RMR provides management services to both us and AlerisLife. AlerisLife participates in our property insurance program for the senior living communities AlerisLife owns. The premiums AlerisLife pays for this coverage are allocated pursuant to a formula based on the profiles of the properties included in the program. See Note 6 for further information regarding our relationships, agreements and transactions with AlerisLife (including Five Star) and Note 10 for further information regarding our investment in AlerisLife.

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 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 $14,890, 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.

See Note 6 for further information regarding our relationships, agreements and transactions with AlerisLife (including Five Star) and Note 10 for further information regarding our investment in AlerisLife.

Termination of the Merger Agreement with Office Properties Income Trust. As previously disclosed, on April 11, 2023, we and Office Properties Income Trust, or OPI, entered into an Agreement and Plan of Merger, or the Merger Agreement, pursuant to which we and OPI agreed that we would merge with and into OPI, with OPI as the surviving entity in the merger. On September 1, 2023, we and OPI mutually terminated the Merger Agreement, effective September 1, 2023. Neither we nor OPI were required to pay any termination fee as a result of the mutual decision to terminate the Merger Agreement, and we and OPI bore our and its respective costs and expenses related to the Merger Agreement in accordance with the terms of the Merger Agreement. We recorded $9,900 of expenses during the year ended December 31, 2023 related to the terminated merger with OPI, which is included in acquisition and certain other transaction related costs in our consolidated statement of operations.

Our Manager, RMR. We havetwo agreements with RMR to provide management services to us: (1) a business management agreement, which relates to our business generally; and (2) a property management agreement, which relates to the property level operations of many of our properties, including our medical office and life science properties, and major renovation or repositioning activities at our senior living communities that we may request RMR to manage from time to time. See Note 7 for further information regarding our management agreements with RMR.

Our Joint Ventures. In connection with our entering into the LSMD JV in January 2022, we paid mortgage escrow amounts and closing costs that were payable by that joint venture. The remaining costs totaled $6,080 as of December 31, 2023 and are included in other assets, net, in our consolidated balance sheet. RMR provides management services to each of the Seaport JV and the LSMD JV. See Note 7 for further information regarding those management agreements with RMR.

Leases with RMR. We lease office space to RMR in certain of our properties for RMR's property management offices. We recognized rental income from RMR for leased office space of $196, $303 and $190 for the years ended December 31, 2023, 2022 and 2021, respectively. Our office space leases with RMR are terminable by RMR if our management agreements with RMR are terminated.

Share Awards to RMR Employees. As described in Note 5, we award shares to our officers and other employees of RMR annually. Generally, one fifth of these awards vest on the grant date and one fifth vests on each of the next four anniversaries of the grant dates. In certain instances, we may accelerate the vesting of an award, such as in connection with the award holder's retirement as an officer of us or an officer or employee of RMR. These awards to RMR employees are in addition to the share awards to our Managing Trustees, as Trustee compensation, and the fees we paid to RMR. See Note 5 for information regarding our share awards and activity as well as certain share purchases we made in connection with share award recipients satisfying tax withholding obligation on vesting share awards.

Note 9. Indebtedness

At December 31, 2023 and 2022, our outstanding indebtedness consisted of the following:

(1)In December 2023, we repaid the remaining principal balance of our then credit facility which had an original maturity date of January 2024 and terminated the agreement.

(1)As of December 31, 2023 and 2022, the unamortized net debt issuance costs on certain of these notes were $23,899 and $27,870, respectively.

(2)These notes are fully and unconditionally guaranteed, on a joint, several and unsecured basis, by all of our subsidiaries, except for certain excluded subsidiaries. The notes and the guarantees are effectively subordinated to all of our and the subsidiary guarantors' secured indebtedness, respectively, to the extent of the value of the collateral securing such secured indebtedness, 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.

(1)The principal balances are the amounts stated in the contracts. In accordance with GAAP, our carrying values and recorded interest expense may be different because of market conditions at the time we assumed certain of these debts. As of December 31, 2023 and 2022, the unamortized net premiums and debt issuance costs on certain of these mortgages were $0 and $(109), respectively.

(2)These notes 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, except for certain excluded subsidiaries, or the Non-Collateral Guarantors. These notes and the guarantees provided by the Collateral Guarantors are secured by a first priority lien and security interest on each of the collateral properties and 100% of the equity interests in each of the Collateral Guarantors. The guarantees provided by the Non-Collateral Guarantors are effectively subordinated to all of the subsidiary guarantors' secured indebtedness to the extent of the value of the collateral securing such secured indebtedness, and the notes and the guarantees are structurally subordinated to all indebtedness and other liabilities and any preferred equity of any of our subsidiaries that do not guarantee the notes.

(3)These notes require no cash interest to accrue prior to maturity and will accrete at a rate of 11.25% per annum compounded semiannually on January 15 and July 15 of each year, such that the accreted value will equal the principal amount at maturity. These notes have an unamortized discount balance of $187,813 and unamortized net debt issuance costs of $21,510 as of December 31, 2023, respectively.

(4)We have a one-time option to extend the maturity date of these notes byone year, to January 15, 2027, subject to satisfaction of certain conditions and payment of an extension fee. If we exercise this option, interest payments will be due semiannually during the extension period at an initial interest rate of 11.25% with increases of 50 basis points every 90 days these notes remain outstanding.

Until its repayment in full on December 21, 2023, we had a $450,000 credit facility that was fully drawn. At December 21, 2023, our former credit facility required interest to be paid on borrowings at the annual rate of 8.4%, plus a facility fee of $338 per quarter. As of December 31, 2023, our former credit facility is fully paid off and our credit agreement is terminated. The weighted average annual interest rates for borrowings under our credit facility were 7.9%,4.5% and 2.9% for the years ended December 31, 2023, 2022 and 2021, respectively.

As of December 31, 2023, all $940,534 of our senior secured notes due 2026 are fully and unconditionally guaranteed, on a joint, several and senior secured basis by the Collateral Guarantors and on a joint, several and unsecured basis by the Non-Collateral Guarantors, and all $500,000 of our 9.75% senior notes due 2025 and all $500,000 of our 4.375% senior notes due 2031 were fully and unconditionally guaranteed, on a joint, several and unsecured basis, by all of our subsidiaries, except for certain excluded subsidiaries. The notes and the guarantees (other than our senior secured notes and the guarantees provided by the Collateral Guarantors) are effectively subordinated to all of our and the subsidiary guarantors' secured indebtedness, respectively, to the extent of the value of the collateral securing such secured indebtedness, and the notes and the guarantees are structurally subordinated to all indebtedness and other liabilities and any preferred equity of any of our subsidiaries that do not guarantee the notes. Our remaining $1,100,000 of senior unsecured notes do not have the benefit of any guarantees as of December 31, 2023.

In February 2022, we and our lenders amended our credit agreement. Pursuant to the amendment, among other things, the facility commitments were reduced from $800,000 to $700,000 following our repayment of $100,000. In February 2022, we exercised our option to extend the maturity date of our former credit facility by one year to January 2024. In January 2023, pursuant to our credit agreement, we repaid $113,627 in outstanding borrowings under our former credit facility and the facility commitments were reduced to $586,373. In February 2023, we and our lenders further amended our credit agreement. Pursuant to the amendment the facility commitments were reduced from $586,373 to $450,000 following our repayment of $136,373 in then outstanding borrowings, and as a result of the reduction in commitments, we recorded a loss on modification or early extinguishment of debt of $1,075 for the year ended December 31, 2023.

In February 2021, we issued $500,000 aggregate principal amount of our 4.375% senior notes due 2031 in an underwritten public offering raising net proceeds of $491,357, after deducting estimated offering expenses and underwriters' discounts. These notes are guaranteed by all of our subsidiaries, except for certain excluded subsidiaries, and require semi-annual interest payments through maturity. We used the net proceeds from this offering to prepay in full in February 2021 our $200,000 term loan which was scheduled to mature in September 2022. The weighted average interest rate under our $200,000 term loan was 2.9% for the period from January 1, 2021 to February 7, 2021. As a result of the prepayment of our $200,000 term loan, we recorded a loss on early extinguishment of debt of $1,477 for the year ended December 31, 2021. In June 2021, we used the remaining net proceeds from this offering and cash on hand to redeem all of our outstanding 6.75% senior notes due 2021 for a redemption price equal to the principal amount of $300,000 plus accrued and unpaid interest of $10,125, when these notes became redeemable with no prepayment premium. In connection with this redemption, we recorded a loss on early extinguishment of debt of $370 for the year ended December 31, 2021.

In April 2022, we prepaid a mortgage note secured byone of our medical office properties with an outstanding principal balance of approximately $10,934, a maturity date in July 2022 and an annual interest rate of 6.28%, using cash on hand.

In June 2022, we redeemed $500,000 of our outstanding 9.75% senior notes due 2025 for a redemption price equal to 104.875% of the $500,000 principal amount of the notes being redeemed plus accrued and unpaid interest of $1,083, using restricted cash on hand. As a result of this redemption, we recorded a loss on early extinguishment of debt of $29,576 for the year ended December 31, 2022.

In July 2022, we prepaid a mortgage note secured bytwo of our senior living communities with an outstanding principal balance of approximately $15,273, a maturity date in October 2022 and an annual interest rate of 5.75%, using cash on hand.

In October 2022, we repaid at maturity a mortgage note secured byone of our life science properties with an outstanding principal balance of approximately $10,287 and an annual interest rate of 4.85%, using cash on hand.

In April 2023, we prepaid a mortgage note secured byone of our senior living communities with an outstanding principal balance of approximately $14,565, a maturity date in June 2023 and an annual interest rate of 6.64% using cash on hand.

In December 2023, we issued $940,534 in aggregate principal amount at maturity of our senior secured notes due 2026 in a private offering, raising net proceeds of $730,359, after deducting initial purchaser discounts and estimated offering costs. These notes are fully and unconditionally guaranteed, on a joint, several and senior secured basis, by the Collateral Guarantors, and on a joint, several and unsecured basis, by the Non-Collateral Guarantors. These notes and the guarantees provided by the Collateral Guarantors are secured by a first priority lien and security interest on each of the collateral properties and 100% of the equity interests in each of the Collateral Guarantors. These notes require no cash interest payments to accrue prior to maturity. The accreted value of these secured notes will increase at a rate of 11.25% per annum compounded semiannually on

January 15 and July 15 of each year. We used the net proceeds from this offering to repay in full and terminate our then $450,000 secured credit facility and to redeem all $250,000 of our outstanding 4.750% senior notes, which were scheduled to mature in January 2024 and May 2024, respectively. As a result of the prepayment in full of our credit facility and redemption of our 4.750% senior notes, we recorded a loss on modification or early extinguishment of debt of $314 and $1,079 for the year ended December 31, 2023, respectively.

Interest on our senior unsecured notes are payable either semi-annually or quarterly in arrears; however, no principal repayments are due until maturity. No interest is payable on our senior secured notes with the full principal amount due at maturity. Required monthly payments on our mortgages include principal and interest. Payments under our finance leases are due monthly. We include amortization of finance lease assets in depreciation and amortization expense.

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.

Required principal payments on our outstanding debt as of December 31, 2023, were as follows:

(1) The carrying value of our total debt outstanding as of December 31, 2023, including unamortized debt issuance costs, premiums and discounts was $2,816,849.

Note 10. Fair Value of Assets and Liabilities

The following table presents certain of our assets that are measured at fair value at December 31, 2023 and 2022, categorized by the level of inputs as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.

(1)On February 2, 2023, in connection with the proposed acquisition of AlerisLife by a subsidiary of ABP Trust, which is the controlling shareholder of RMR Inc., we agreed to tender all of the 10,691,658 AlerisLife common shares we owned at a price of $1.31 per share, and the acquisition was completed on March 20, 2023. Prior to March 20, 2023, these AlerisLife common shares were included in investments in equity securities in our consolidated balance sheets and were reported at fair value, which was based upon quoted market prices on Nasdaq (Level 1 inputs). During the years ended December 31, 2023 and 2022, we recorded unrealized gains (losses) of $8,126 and $25,660, respectively, which are included in gains and losses on equity securities, net in our consolidated statements of operations, to adjust the carrying value of our former investment in AlerisLife common shares to their fair value. See Notes 6 and 8 for further information about our investment in AlerisLife.

(2)The 10% equity interest we own in the Seaport JV is included in investments in unconsolidated joint ventures in our consolidated balance sheet, and is reported at fair value, which is based on significant unobservable inputs (Level 3 inputs). The significant unobservable inputs used in the fair value analysis are a discount rate of 8.00%, an exit capitalization rate of 6.00%, a holding period of 10 years and market rents. The assumptions made in the fair value analysis are based on the location, type and nature of the property, and current and anticipated market conditions, which are derived from appraisers. See Note 3 for further information regarding this joint venture.

(3)The 20% equity interest we own in the LSMD JV is included in investments in unconsolidated joint ventures in our consolidated balance sheet, and is reported at fair value, which is based on significant unobservable inputs (Level 3 inputs). The significant unobservable inputs used in the fair value analysis are discount rates of between 6.25% and 8.00%, exit capitalization rates of between 4.75% and 7.00%, holding periods of 10 years and market rents. The assumptions we made in the fair value analysis are based on the location, type and nature of each property, and current and anticipated market conditions, which are derived from appraisers. See Note 3 for further information regarding this joint venture.

In addition to the assets described in the table above, our financial instruments at December 31, 2023 and December 31, 2022 included cash and cash equivalents, restricted cash, certain other assets, our former credit facility, senior unsecured notes, secured debt and finance leases and certain other unsecured obligations and liabilities. The fair values of these financial instruments approximated their carrying values in our consolidated financial statements as of such dates, except as follows:

(1)Includes unamortized net debt issuance costs, premiums and discounts.

(2)We assumed certain of these secured debts in connection with our acquisition of certain properties. We recorded the assumed mortgage notes at estimated fair value on the date of acquisition and we are amortizing the fair value adjustments, if any, to interest expense over the respective terms of the mortgage notes to adjust interest expense to the estimated market interest rates as of the date of acquisition.

We estimated the fair values of ourtwo issuances of senior unsecured notes due 2042 and 2046 based on the closing price on Nasdaq (Level 1 inputs as defined in the fair value hierarchy under GAAP) as of December 31, 2023 and 2022. We estimated the fair values of ourfour issuances of senior unsecured notes due 2024, 2025, 2028 and 2031 and our senior secured notes due 2026 using an average of the bid and ask price on Nasdaq on or about December 31, 2023 and 2022 (Level 2 inputs as defined in the fair value hierarchy under GAAP). We estimated the fair values of our secured debts by using discounted cash flows analyses and currently prevailing market terms as of the measurement date (Level 3 inputs as defined in the fair value hierarchy under GAAP). Because Level 3 inputs are unobservable, our estimated fair values may differ materially from the actual fair values.

Note 11. Noncontrolling Interest

In March 2017, we entered into the Seaport JV. The investor owned a 45% equity interest in the joint venture, and we owned the remaining 55% equity interest in the joint venture. We determined that, while we owned a 55% equity interest in this joint venture, this joint venture was a VIE and that we controlled the activities that most significantly impacted the economic performance of this entity; we therefore consolidated the results of this joint venture in our financial statements. In December 2021, we sold an additional 35% equity interest in the Seaport JV to another third party institutional investor. After giving effect to the sale, we owned a 20% equity interest in this joint venture but determined that we are no longer the primary beneficiary. Effective as of the date of the sale, we deconsolidated these properties and accounted for this joint venture using the equity method of accounting under the fair value option. In June 2022, we sold an additional 10% equity interest from our then remaining 20% equity interest in this joint venture to an existing joint venture investor and continue to account for this joint venture using the equity method of accounting under the fair value option. The portion of the joint venture's net income and comprehensive income not attributable to us, or $5,411 for the year ended December 31, 2021, is reported as a noncontrolling interest in our consolidated statements of operations. This joint venture made aggregate cash distributions to the other joint venture investor of $22,348 for the year ended December 31, 2021, which are reflected as a decrease in total equity attributable to noncontrolling interest in our consolidated statements of shareholders' equity.

Note 12. Segment Reporting

We operate in, and report financial information for, the followingtwo segments: Office Portfolio and SHOP. We aggregate the operating results of our properties in thesetwo reporting segments based on their similar operating and economic characteristics. Our Office Portfolio segment consists of medical office properties leased to medical providers and other medical related businesses, as well as life science properties leased to biotech laboratories and other similar tenants. Our SHOP segment consists of managed senior living communities that provide short term and long term residential living and, in some instances, care and other services for residents where we pay fees to managers to operate the communities on our behalf.

We also report “non-segment” operations, which consists of triple net leased senior living communities and wellness centers that are leased to third party operators from which we receive rents, which we do not consider to be sufficiently material to constitute a separate reporting segment, and any other income or expenses that are not attributable to a specific reporting segment.

Note 13. Income Taxes

Our provision for income taxes consists of the following:

A reconciliation of our effective tax rate and the U.S. federal statutory income tax rate is as follows:

Deferred income tax balances reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities in our consolidated balance sheets and the amounts used for income tax purposes and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. Significant components of our deferred tax assets and liabilities were as follows:

Because of our TRSs' history of losses, we are not able to conclude that it is more likely than not we will realize the future benefit of our deferred tax assets; thus we have provided a 100% valuation allowance as of December 31, 2023 and 2022. If and when we believe it is more likely than not that we will recover our deferred tax assets, we will reverse the valuation allowance as an income tax benefit in our consolidated statements of operations. As of December 31, 2023, our consolidated TRSs had net operating loss carry forwards for federal income tax purposes of approximately $316,314, which do not expire. As of December 31, 2023, we, excluding our subsidiaries, had net operating loss carry forwards for federal income tax purposes of approximately $403,477, which do not expire. In the normal course of business, income tax authorities in various income tax jurisdictions conduct routine audits of our income tax returns filed in prior years. Income tax years subsequent to 2019 may be open to examination in some of the income tax jurisdictions in which we operate.

Note 14. Weighted Average Common Shares (share amounts in thousands)

We calculate basic earnings per common share using the two class method. We calculate diluted earnings per share using the more dilutive of the two class method or the treasury stock method. Unvested share awards and other potentially dilutive common shares, together with the related impact on earnings, are considered when calculating diluted earnings per share.