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What changed in DIVERSIFIED HEALTHCARE TRUST's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of DIVERSIFIED HEALTHCARE TRUST's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+428 added−469 removedSource: 10-K (2025-02-25) vs 10-K (2024-02-26)

Top changes in DIVERSIFIED HEALTHCARE TRUST's 2024 10-K

428 paragraphs added · 469 removed · 347 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

104 edited+17 added−21 removed366 unchanged
Biggest changeThe restrictions on transfer enumerated in the regulation as not affecting that finding include: • any restriction on or prohibition against any transfer or assignment that would result in a termination or reclassification for federal or state tax purposes, or would otherwise violate any state or federal law or court order; • any requirement that advance notice of a transfer or assignment be given to the issuer and any requirement that either the transferor or transferee, or both, execute documentation setting forth representations as to compliance with any restrictions on transfer that are among those enumerated in the regulation as not affecting free transferability, including those described in the preceding clause of this sentence; • any administrative procedure that establishes an effective date, or an event prior to which a transfer or assignment will not be effective; and • any limitation or restriction on transfer or assignment that is not imposed by the issuer or a person acting on behalf of the issuer.
Biggest changeThe restrictions on transfer enumerated in the regulation as not affecting that finding include any restriction on or prohibition against any transfer or assignment that would result in a termination or reclassification for federal or state tax purposes, or would otherwise violate any state or federal law or court order.
Additionally, we seek to selectively develop, redevelop or reposition our properties when we believe the returns will be satisfactory. 1 Table of Contents Office Portfolio Our portfolio of medical office and life science properties, or our Office Portfolio, consists of commercial properties constructed for use or operated as medical office space for physicians and other healthcare personnel and other businesses in medical related fields, including clinics and life science or laboratory uses.
Additionally, we seek to selectively develop, redevelop or reposition our properties when we believe the returns will be satisfactory. 1 Table of Contents Medical Office and Life Science Portfolio Our portfolio of medical office and life science properties, or our Medical Office and Life Science Portfolio, consists of commercial properties constructed for use or operated as medical office space for physicians and other healthcare personnel and other businesses in medical related fields, including clinics and life science or laboratory uses.
To seek to achieve these objectives, we seek to: maintain a strong capital base of shareholders' equity; invest in properties with strong market fundamentals and high credit quality tenants and managers; use leverage to fund additional investments which increase cash flow from operations because of positive spreads between our cost of investment capital and investment yields; make structured investments, including joint venture arrangements, which generate a minimum return and provide an opportunity to participate in operating growth at our properties; when market conditions permit, refinance maturing debt with new equity or debt; and pursue diversification so that our cash flow from operations comes from diverse properties and tenants.
To seek to achieve these objectives, we seek to: maintain a strong capital base of shareholders' equity; invest in properties with strong market fundamentals and high credit quality tenants and managers; use leverage to fund additional investments which increase cash flow from operations because of positive spreads between our cost of capital and investment yields; make structured investments, including joint venture arrangements, which generate a minimum return and provide an opportunity to participate in operating growth at our properties; when market conditions permit, refinance maturing debt with new debt or equity; and pursue diversification so that our cash flow from operations comes from diverse properties and tenants.
In implementing this acquisition strategy, we consider a range of factors relating to each proposed acquisition, including, but not limited to: 3 Table of Contents • the use and size of the property; • our cost of capital compared to projected returns we may realize by owning the property; • the location of the property; • the price at which the property may be acquired as compared to the estimated replacement cost of the property; • the existing or proposed lease or management terms; • the existence of alternative sources, uses or needs for our capital and our leverage; • the availability and reputation of experienced and financially qualified tenants, managers or guarantors; • the historical and projected cash flows from the operations of the property; • the construction quality, physical condition and design of the property, including various environmental sustainability factors; • the expected capital expenditures that may be needed at the property; • the competitive market environment of the property; • the growth, tax and regulatory environments of the market in which the property is located; • the price segment and payment sources in which the property is operated; • the strategic fit of the property with the rest of our portfolio; and • the level of permitted services and regulatory history of the property and its historical tenants and managers.
In implementing this acquisition strategy, we consider a range of factors relating to each proposed acquisition, including, but not limited to: • our cost of capital compared to projected returns we may realize by owning the property; • the use and size of the property; • the location of the property; • the price at which the property may be acquired as compared to the estimated replacement cost of the property; • the existing or proposed lease or management terms; • the existence of alternative sources, uses or needs for our capital and our leverage; • the availability and reputation of experienced and financially qualified tenants, managers or guarantors; 3 Table of Contents • the historical and projected cash flows from the operations of the property; • the construction quality, physical condition and design of the property, including various environmental sustainability factors; • the expected capital expenditures that may be needed at the property; • the competitive market environment of the property; • the growth, tax and regulatory environments of the market in which the property is located; • the price segment and payment sources in which the property is operated; • the strategic fit of the property with the rest of our portfolio; and • the level of permitted services and regulatory history of the property and its historical tenants and managers.
Once a product is approved, the FDA maintains oversight of the product and its developer and can withdraw its approval, recall products or suspend their production, impose or seek to impose civil or criminal penalties on the developer or take other actions for the developer's failure to comply 9 Table of Contents with regulatory requirements, including anti-fraud, false claims, anti-kickback or physician referral laws.
Once a product is approved, the FDA maintains oversight of the product and its developer and can withdraw its approval, recall products or suspend their production, 9 Table of Contents impose or seek to impose civil or criminal penalties on the developer or take other actions for the developer's failure to comply with regulatory requirements, including anti-fraud, false claims, anti-kickback or physician referral laws.
The summary does not discuss all of the particular tax considerations that might be relevant to you if you are subject to special rules under federal income tax law, for example if you are: • a bank, insurance company or other financial institution; • a regulated investment company or REIT; • a subchapter S corporation; • a broker, dealer or trader in securities or foreign currencies; • a person who marks-to-market our shares for U.S. federal income tax purposes; • a U.S. shareholder (as defined below) that has a functional currency other than the U.S. dollar; • a person who acquires or owns our shares in connection with employment or other performance of services; • a person subject to alternative minimum tax; • a person who acquires or owns our shares as part of a straddle, hedging transaction, constructive sale transaction, constructive ownership transaction or conversion transaction, or as part of a “synthetic security” or other integrated financial transaction; • a person who owns 10% or more (by vote or value, directly or constructively under the United States Internal Revenue Code of 1986, as amended, or the IRC) of any class of our shares; • a U.S. expatriate; • a non-U.S. shareholder (as defined below) whose investment in our shares is effectively connected with the conduct of a trade or business in the United States; • a nonresident alien individual present in the United States for 183 days or more during an applicable taxable year; • a “qualified shareholder” (as defined in Section 897(k)(3)(A) of the IRC); 13 Table of Contents • a “qualified foreign pension fund” (as defined in Section 897(l)(2) of the IRC) or any entity wholly owned by one or more qualified foreign pension funds; • a non-U.S. shareholder that is a passive foreign investment company or controlled foreign corporation; • a person subject to special tax accounting rules as a result of their use of applicable financial statements (within the meaning of Section 451(b)(3) of the IRC); or • except as specifically described in the following summary, a trust, estate, tax-exempt entity or foreign person.
The summary does not discuss all of the particular tax considerations that might be relevant to you if you are subject to special rules under federal income tax law, for example if you are: • a bank, insurance company or other financial institution; • a regulated investment company or REIT; • a subchapter S corporation; • a broker, dealer or trader in securities or foreign currencies; • a person who marks-to-market our shares for U.S. federal income tax purposes; • a U.S. shareholder (as defined below) that has a functional currency other than the U.S. dollar; • a person who acquires or owns our shares in connection with employment or other performance of services; • a person subject to alternative minimum tax; • a person who acquires or owns our shares as part of a straddle, hedging transaction, constructive sale transaction, constructive ownership transaction or conversion transaction, or as part of a “synthetic security” or other integrated financial transaction; • a person who owns 10% or more (by vote or value, directly or constructively under the United States Internal Revenue Code of 1986, as amended, or the IRC) of any class of our shares; • a U.S. expatriate; • a non-U.S. shareholder (as defined below) whose investment in our shares is effectively connected with the conduct of a trade or business in the United States; 13 Table of Contents • a nonresident alien individual present in the United States for 183 days or more during an applicable taxable year; • a “qualified shareholder” (as defined in Section 897(k)(3)(A) of the IRC); • a “qualified foreign pension fund” (as defined in Section 897(l)(2) of the IRC) or any entity wholly owned by one or more qualified foreign pension funds; • a non-U.S. shareholder that is a passive foreign investment company or controlled foreign corporation; • a person subject to special tax accounting rules as a result of their use of applicable financial statements (within the meaning of Section 451(b)(3) of the IRC); or • except as specifically described in the following summary, a trust, estate, tax-exempt entity or foreign person.
In addition, if we so elect by making a timely designation to our shareholders, a shareholder would be taxed on its proportionate share of our undistributed capital gain and would generally be expected to receive a credit or refund for its proportionate share of the tax we paid. • If we have net income from the disposition of “foreclosure property,” as described in Section 856(e) of the IRC, that is held primarily for sale to customers in the ordinary course of a trade or business or other nonqualifying income from foreclosure property, we will be subject to tax on this income at the highest regular corporate income tax rate. • If we have net income from “prohibited transactions”—that is, dispositions at a gain of inventory or property held primarily for sale to customers in the ordinary course of a trade or business other than dispositions of foreclosure property and other than dispositions excepted by statutory safe harbors—we will be subject to tax on this income at a 100% rate. 15 Table of Contents • If we fail to satisfy the 75% gross income test or the 95% gross income test discussed below, due to reasonable cause and not due to willful neglect, but nonetheless maintain our qualification for taxation as a REIT because of specified cure provisions, we will be subject to tax at a 100% rate on the greater of the amount by which we fail the 75% gross income test or the 95% gross income test, with adjustments, multiplied by a fraction intended to reflect our profitability for the taxable year. • If we fail to satisfy any of the REIT asset tests described below (other than a de minimis failure of the 5% or 10% asset tests) due to reasonable cause and not due to willful neglect, but nonetheless maintain our qualification for taxation as a REIT because of specified cure provisions, we will be subject to a tax equal to the greater of $50,000 or the highest regular corporate income tax rate multiplied by the net income generated by the nonqualifying assets that caused us to fail the test. • If we fail to satisfy any provision of the IRC that would result in our failure to qualify for taxation as a REIT (other than violations of the REIT gross income tests or violations of the REIT asset tests described below) due to reasonable cause and not due to willful neglect, we may retain our qualification for taxation as a REIT but will be subject to a penalty of $50,000 for each failure. • If we fail to distribute for any calendar year at least the sum of 85% of our REIT ordinary income for that year, 95% of our REIT capital gain net income for that year and any undistributed taxable income from prior periods, we will be subject to a 4% nondeductible excise tax on the excess of the required distribution over the amounts actually distributed. • If we acquire a REIT asset where our adjusted tax basis in the asset is determined by reference to the adjusted tax basis of the asset in the hands of a C corporation, under specified circumstances we may be subject to federal income taxation on all or part of the built-in gain (calculated as of the date the property ceased being owned by the C corporation) on such asset.
In addition, if we so elect by making a timely designation to our shareholders, a shareholder would be taxed on its proportionate share of our undistributed capital gain and would generally be expected to receive a credit or refund for its proportionate share of the federal corporate income tax we paid on our retained net capital gain. • If we have net income from the disposition of “foreclosure property,” as described in Section 856(e) of the IRC, that is held primarily for sale to customers in the ordinary course of a trade or business or other nonqualifying 15 Table of Contents income from foreclosure property, we will be subject to tax on this income at the highest regular corporate income tax rate. • If we have net income from “prohibited transactions”—that is, dispositions at a gain of inventory or property held primarily for sale to customers in the ordinary course of a trade or business other than dispositions of foreclosure property and other than dispositions excepted by statutory safe harbors—we will be subject to tax on this income at a 100% rate. • If we fail to satisfy the 75% gross income test or the 95% gross income test discussed below, due to reasonable cause and not due to willful neglect, but nonetheless maintain our qualification for taxation as a REIT because of specified cure provisions, we will be subject to tax at a 100% rate on the greater of the amount by which we fail the 75% gross income test or the 95% gross income test, with adjustments, multiplied by a fraction intended to reflect our profitability for the taxable year. • If we fail to satisfy any of the REIT asset tests described below (other than a de minimis failure of the 5% or 10% asset tests) due to reasonable cause and not due to willful neglect, but nonetheless maintain our qualification for taxation as a REIT because of specified cure provisions, we will be subject to a tax equal to the greater of $50,000 or the highest regular corporate income tax rate multiplied by the net income generated by the nonqualifying assets that caused us to fail the test. • If we fail to satisfy any provision of the IRC that would result in our failure to qualify for taxation as a REIT (other than violations of the REIT gross income tests or violations of the REIT asset tests described below) due to reasonable cause and not due to willful neglect, we may retain our qualification for taxation as a REIT but will be subject to a penalty of $50,000 for each failure. • If we fail to distribute for any calendar year at least the sum of 85% of our REIT ordinary income for that year, 95% of our REIT capital gain net income for that year and any undistributed taxable income from prior periods, we will be subject to a 4% nondeductible excise tax on the excess of the required distribution over the amounts actually distributed. • If we acquire a REIT asset where our adjusted tax basis in the asset is determined by reference to the adjusted tax basis of the asset in the hands of a C corporation, under specified circumstances we may be subject to federal income taxation on all or part of the built-in gain (calculated as of the date the property ceased being owned by the C corporation) on such asset.
For more information, see “Risk Factors—Risks Related to Our Business—Ownership of real estate is subject to environmental risks and liabilities” and “Risk Factors—Risks Related to Our Business—We are subject to risks from adverse weather, natural disasters and adverse impact from global climate change, and we incur significant costs and invest significant amounts with respect to these matters” in Part I, Item 1A of this Annual Report on Form 10-K and “Management's Discussion and Analysis of Financial Condition and Results of Operations—Impact of Climate Change” in Part II, Item 7 of this Annual Report on Form 10-K.
For more information, see “Risk Factors—Risks Related to Our Business—Ownership of real estate is subject to environmental risks and liabilities” and “Risk Factors—Risks Related to Our Business—We are subject to risks from adverse weather, natural disasters and adverse impacts from global climate change, and we incur significant costs and invest significant amounts with respect to these matters” in Part I, Item 1A of this Annual Report on Form 10-K and “Management's Discussion and Analysis of Financial Condition and Results of Operations—Impact of Climate Change” in Part II, Item 7 of this Annual Report on Form 10-K.
Assuming that each class of our shares will be “widely held” and that no other facts and circumstances exist that restrict transferability of these shares, our counsel, Sullivan & Worcester LLP, is of the opinion that our shares will not fail to be “freely transferable” for purposes of the regulation due to the restrictions on transfer of our shares in our declaration of trust and bylaws and that under the regulation each class of our currently outstanding shares is publicly offered and our assets will not be deemed to be “plan assets” of any ERISA Plan or Non-ERISA Plan that acquires our shares in a public offering.
Assuming that each class of our shares will be “widely held” and that no facts and circumstances exist that restrict transferability of these shares, our counsel, Sullivan & Worcester LLP, is of the opinion that our shares will not fail to be “freely transferable” for purposes of the regulation due to the restrictions on transfer of our shares in our declaration of trust and bylaws and that under the regulation each class of our currently outstanding shares is publicly offered and our assets will not be deemed to be “plan assets” of any ERISA Plan or Non-ERISA Plan that acquires our shares in a public offering.
In order to qualify for taxation as a REIT under the IRC, we are required to make annual distributions other than capital gain dividends to our shareholders in an amount at least equal to the excess of: (1) the sum of 90% of our “real estate investment trust taxable income” and 90% of our net income after tax, if any, from property received in foreclosure, over (2) the amount by which our noncash income (e.g., imputed rental income or income from transactions inadvertently failing to qualify as like-kind exchanges) exceeds 5% of our “real estate investment trust taxable income.” For these purposes, our “real estate investment trust taxable income” is as defined under Section 857 of the IRC and is computed without regard to the dividends paid deduction and our net capital gain and will generally be reduced by specified corporate-level income taxes that we pay (e.g., taxes on built-in gains or foreclosure property income).
In order to qualify for taxation as a REIT under the IRC, we are required to make annual distributions other than capital gain dividends to our shareholders in an amount at least equal to the excess of: (1) the sum of 90% of our “real estate investment trust taxable income” and 90% of our net income after tax, if any, from property received in foreclosure, over (2) the amount by which our noncash income (e.g., cancellation of indebtedness income, imputed rental income or income from transactions inadvertently failing to qualify as like-kind exchanges) exceeds 5% of our “real estate investment trust taxable income.” For these purposes, our “real estate investment trust taxable income” is as defined under Section 857 of the IRC and is computed without regard to the dividends paid deduction and our net capital gain and will generally be reduced by specified corporate-level income taxes that we pay (e.g., taxes on built-in gains or foreclosure property income).
At the close of each calendar quarter of each taxable year, we must also satisfy the following asset percentage tests in order to qualify for taxation as a REIT for federal income tax purposes: 21 Table of Contents • At least 75% of the value of our total assets must consist of “real estate assets,” defined as real property (including interests in real property and interests in mortgages on real property or on interests in real property), ancillary personal property to the extent that rents attributable to such personal property are treated as rents from real property in accordance with the rules described above, cash and cash items, shares in other REITs, debt instruments issued by “publicly offered REITs” as defined in Section 562(c)(2) of the IRC, government securities and temporary investments of new capital (that is, any stock or debt instrument that we hold that is attributable to any amount received by us (a) in exchange for our shares or (b) in a public offering of our five-year or longer debt instruments, but in each case only for the one-year period commencing with our receipt of the new capital). • Not more than 25% of the value of our total assets may be represented by securities other than those securities that count favorably toward the preceding 75% asset test. • Of the investments included in the preceding 25% asset class, the value of any one non-REIT issuer’s securities that we own may not exceed 5% of the value of our total assets.
At the close of each calendar quarter of each taxable year, we must also satisfy the following asset percentage tests in order to qualify for taxation as a REIT for federal income tax purposes: • At least 75% of the value of our total assets must consist of “real estate assets,” defined as real property (including interests in real property and interests in mortgages on real property or on interests in real property), ancillary personal property to the extent that rents attributable to such personal property are treated as rents from real property in accordance with the rules described above, cash and cash items, shares in other REITs, debt instruments issued by “publicly offered REITs” as defined in Section 562(c)(2) of the IRC, government securities and temporary investments of new capital (that is, any stock or debt instrument that we hold that is attributable to any amount received by us (a) in exchange for our shares or (b) in a public offering of our five-year or longer debt instruments, but in each case only for the one-year period commencing with our receipt of the new capital). • Not more than 25% of the value of our total assets may be represented by securities other than those securities that count favorably toward the preceding 75% asset test. • Of the investments included in the preceding 25% asset class, the value of any one non-REIT issuer’s securities that we own may not exceed 5% of the value of our total assets.
On February 2, 2023, AlerisLife entered into an Agreement and Plan of Merger, or the ALR Merger Agreement, with certain subsidiaries of ABP Trust, pursuant to which ABP Trust acquired all of the publicly held outstanding AlerisLife common shares, at a price of $1.31 per share, or the Tender Offer Price, by tender offer, or the AlerisLife Transaction.
On February 2, 2023, AlerisLife entered into an Agreement and Plan of Merger, or the ALR Merger Agreement, with certain subsidiaries of ABP Trust, pursuant to which ABP Trust acquired all of the publicly held outstanding AlerisLife common shares at a price of $1.31 per share, or the Tender Offer Price, by tender offer.
A portion of our medical office and life science property leases are “full service” leases where we receive fixed rent from the tenants and do not charge the tenants for any property operating expenses. Most of our leases for senior living communities and wellness centers are “triple net” leases.
A portion of our medical office and life science property leases are “full service” leases where we receive fixed rent from the tenants and do not charge the tenants for any property operating expenses. Our leases for senior living communities and wellness centers are “triple net” leases.
Accordingly, we have complied and will continue to comply with these regulations, including by requesting annually from holders of significant percentages of our shares information regarding the ownership of our shares. Under our declaration of trust, our shareholders are required to respond to these requests for information.
Accordingly, we have complied and will continue to comply with these regulations, including by requesting annually from holders of significant percentages of our shares information regarding the ownership of our shares. Under our declaration of trust and bylaws, our shareholders are required to respond to these requests for information.
The regulation further provides that, where a security is part of an offering in which the minimum investment is $10,000 or less, some restrictions on transfer ordinarily will not, alone or in combination, affect a finding that these securities are freely transferable.
The regulation further provides that, where a security is part of an offering in which the minimum investment is $10,000 or less, some restrictions on transfer ordinarily will not, alone or in combination, affect a finding that the securities are freely transferable.
Census data, between now and 2030, more than 20% of the total U.S. population will be age 65 or older, with that demographic projected to grow thereafter by the equivalent of 10,000 people per day.
Census data, between now and 2030, more than 20% of the total U.S. population will be age 65 or older, with that demographic projected to grow thereafter by the equivalent of 10,000 people per day. According to U.S.
If, contrary to our expectation, a gain on the sale of our shares is subject to U.S. federal income taxation (for example, because neither of the above exemptions were then available, i.e. , that class of our shares were not then listed on a U.S. national securities exchange and we were not a “domestically controlled” REIT), then (a) a non-U.S. shareholder would generally be subject to the same treatment as a U.S. shareholder with respect to its gain (subject to any applicable alternative minimum tax 29 Table of Contents and a special alternative minimum tax in the case of nonresident alien individuals), (b) the non-U.S. shareholder would also be subject to fulsome U.S. federal income tax return reporting requirements, and (c) a purchaser of that class of our shares from the non-U.S. shareholder may be required to withhold 15% of the purchase price paid to the non-U.S. shareholder and to remit the withheld amount to the IRS.
If, contrary to our expectation, a gain on the sale of our shares is subject to U.S. federal income taxation (for example, because neither of the above exemptions were then available, i.e. , that class of our shares were not then listed on a U.S. national securities exchange and we were not a “domestically controlled” REIT), then (a) a non-U.S. shareholder would generally be subject to the same treatment as a U.S. shareholder with respect to its gain (subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals), (b) the non-U.S. shareholder would also be subject to fulsome U.S. federal income tax return reporting requirements, and (c) a purchaser of that class of our shares from the non-U.S. shareholder may be required to withhold 15% of the purchase price paid to the non-U.S. shareholder and to remit the withheld amount to the IRS.
To summarize, the preferential federal income tax rates for long-term capital gains and for qualified dividends generally apply to: (1) long-term capital gains, if any, recognized on the disposition of our shares; (2) our distributions designated as long-term capital gain dividends (except to the extent attributable to real estate depreciation recapture, in which case the distributions are subject to a maximum 25% federal income tax rate); (3) our dividends attributable to dividend income, if any, received by us from C corporations such as TRSs; (4) our dividends attributable to earnings and profits that we inherit from C corporations; and (5) our dividends to the extent attributable to income upon which we have paid federal corporate income tax (such as taxes on foreclosure property income or on built-in gains), net of the corporate income taxes thereon.
To summarize, the preferential federal income tax rates for long-term capital gains and for qualified dividends generally apply to: (1) long-term capital gains, if any, recognized on the disposition of our shares; (2) our distributions designated as long-term capital gain dividends (except to the extent attributable to real estate depreciation recapture, in which case the distributions are subject to a maximum 25% federal income tax rate); (3) our dividends attributable to dividend income, if any, received by us from C corporations such as TRSs; (4) our dividends attributable to earnings and profits that we inherit from C corporations; and 26 Table of Contents (5) our dividends to the extent attributable to income upon which we have paid federal corporate income tax (such as taxes on foreclosure property income or on built-in gains), net of the corporate income taxes thereon.
However, even if we continue to qualify for taxation as a REIT, we may still be subject to federal tax in the following circumstances, as described below: • We will be taxed at regular corporate income tax rates on any undistributed “real estate investment trust taxable income,” determined by including our undistributed ordinary income and net capital gains, if any.
However, even if we continue to qualify for taxation as a REIT, we may still be subject to federal tax in the following circumstances, as described below: • We will be taxed at regular corporate income tax rates on any undistributed “real estate investment trust taxable income,” including our undistributed ordinary income and net capital gains, if any.
For more information regarding climate change and other environmental matters and their possible adverse impact on us, see “Risk Factors—Risks Related to Our Business—Ownership of real estate is subject to environmental risks” and “Risk Factors—Risks Related to Our Business—We are subject to risks from adverse weather, natural disasters and adverse impact from global climate change, and we incur significant costs and invest significant amounts with respect to these matters" in Part I, Item 1A of this Annual Report on Form 10-K and “Management's Discussion and Analysis of Financial Condition and Results of Operations—Impact of Climate Change” in Part II, Item 7 of this Annual Report on Form 10-K.
For more information regarding climate change and other environmental matters and their possible adverse impacts on us, see “Risk Factors—Risks Related to Our Business—Ownership of real estate is subject to environmental risks and liabilities” and “Risk Factors—Risks Related to Our Business—We are subject to risks from adverse weather, natural disasters and adverse impacts from global climate change, and we incur significant costs and invest significant amounts with respect to these matters" in Part I, Item 1A of this Annual Report on Form 10-K and “Management's Discussion and Analysis of Financial Condition and Results of Operations—Impact of Climate Change” in Part II, Item 7 of this Annual Report on Form 10-K.
If the relief provision were to apply to us, we would be subject to tax at a 100% rate upon the greater of the amount by which we failed the 75% gross income test or the amount by which we failed the 95% gross income test, with adjustments, multiplied by a fraction intended to reflect our profitability for the taxable year; even though we have little or no nonqualifying income from other sources in a typical taxable year, imposition of this 100% tax in this circumstance would be material because a significant number of the properties leased to our TRSs are managed for the TRSs by this contractor.
If the relief provision were to apply to us, we would be subject to tax at a 100% rate upon the greater of the amount by which we failed the 75% gross income test or the amount by which we failed the 95% gross income test, with adjustments, multiplied by a fraction intended to reflect our profitability for the taxable year; even though we have little or no nonqualifying income from other sources in a 23 Table of Contents typical taxable year, imposition of this 100% tax in this circumstance would be material because a significant number of the properties leased to our TRSs are managed for the TRSs by this contractor.
We believe that each of our direct and indirect wholly owned subsidiaries, other than the TRSs discussed below (and entities whose equity is owned in whole or in part by such TRSs), will be either a qualified REIT subsidiary within the meaning 17 Table of Contents of Section 856(i)(2) of the IRC or a noncorporate entity that for federal income tax purposes is not treated as separate from its owner under Treasury regulations issued under Section 7701 of the IRC, each such entity referred to as a QRS.
We believe that each of our direct and indirect wholly owned subsidiaries, other than the TRSs discussed below (and entities whose equity is owned in whole or in part by such TRSs), will be either a qualified REIT subsidiary within the meaning of Section 856(i)(2) of the IRC or a noncorporate entity that for federal income tax purposes is not treated as separate from its owner under Treasury regulations issued under Section 7701 of the IRC, each such entity referred to as a QRS.
For the year ended December 31, 2023, substantially all of our net operating income, or NOI, from our senior living communities was generated from properties where a majority of the revenues are derived from our tenants' and residents' private resources, and a small amount of our NOI was generated from our senior living communities where a majority of the revenue is dependent upon Medicare and Medicaid programs.
For the year ended December 31, 2024, substantially all of our net operating income, or NOI, from our senior living communities was generated from properties where a majority of the revenues are derived from our tenants' and residents' private resources, and a small amount of our NOI was generated from our senior living communities where a majority of the revenue is dependent upon Medicare and Medicaid programs.
We or the tenants or managers of our properties may incur significant costs and losses as a result of these activities, both in terms of operating, preparing and repairing our properties in anticipation of, during and after adverse weather, natural disasters and adverse impact from global climate change and in terms of potential lost business due to the interruption in operating our properties.
We or the tenants or managers of our properties may incur significant costs and losses as a result of these activities, both in terms of operating, preparing and repairing our properties in anticipation of, during and after adverse weather, natural disasters and adverse impacts from global climate change and in terms of potential lost business due to the interruption in operating our properties.
To the extent that distributions in excess of our current and accumulated earnings and profits exceed the non-U.S. shareholder’s adjusted basis in our shares, the distributions will give rise to U.S. federal income tax liability only in the unlikely event that the non-U.S. shareholder would otherwise be subject to tax on any gain from the sale or exchange of these shares, as discussed 28 Table of Contents below under the heading “—Dispositions of Our Shares.” A non-U.S. shareholder may seek a refund from the IRS of amounts withheld on distributions to it in excess of such shareholder’s allocable share of our current and accumulated earnings and profits.
To the extent that distributions in excess of our current and accumulated earnings and profits exceed the non-U.S. shareholder’s adjusted basis in our shares, the distributions will give rise to U.S. federal income tax liability only in the unlikely event that the non-U.S. shareholder would otherwise be subject to tax on any gain from the sale or exchange of these shares, as discussed below under the heading “—Dispositions of Our Shares.” A non-U.S. shareholder may seek a refund from the IRS of amounts withheld on distributions to it in excess of such shareholder’s allocable share of our current and accumulated earnings and profits.
Our Business Strategy The healthcare industry remains one of the most resilient commercial real estate sectors, in part due to the scale of the U.S. healthcare market, which collectively represents approximately 17% of the U.S. gross domestic product, or GDP, according to the Centers for Medicare and Medicaid Services, or CMS.
Our Business Strategy The healthcare industry remains one of the most resilient commercial real estate sectors, in part due to the scale of the U.S. healthcare market, which collectively represents approximately 18% of the U.S. gross domestic product, or GDP, according to the Centers for Medicare and Medicaid Services, or CMS.
In some of our independent living communities, separate parts of the property are dedicated to assisted living and/or nursing services. We also own an active adult community, which we have classified as an independent living community. Assisted Living Communities. Assisted living communities typically have one bedroom or studio units which include private bathrooms and efficiency kitchens.
In some of our independent living communities, separate parts of the property are dedicated to assisted living, memory care and/or nursing services. We also own an active adult community, which we have classified as an independent living community. Assisted Living Communities. Assisted living communities typically have one bedroom or studio units which include private bathrooms and efficiency kitchens.
Our counsel, Sullivan & Worcester LLP, is of the opinion that we have been organized and have qualified for taxation as a REIT under the IRC for our 1999 through 2023 taxable years, and that our current and anticipated investments and plan of operation will enable us to continue to meet the requirements for qualification and taxation as a REIT under the IRC.
Our counsel, Sullivan & Worcester LLP, is of the opinion that we have been organized and have qualified for taxation as a REIT under the IRC for our 1999 through 2024 taxable years, and that our current and anticipated investments and plan of operation will enable us to continue to meet the requirements for qualification and taxation as a REIT under the IRC.
Any gain that a REIT recognizes on the sale of foreclosure property held as inventory or primarily for sale to customers, plus any income it receives from foreclosure property that would not otherwise qualify under the 75% gross income test in the absence of foreclosure property treatment, reduced by expenses directly connected with the production of those items of income, would be subject to federal income tax at the highest regular corporate income tax rate under the foreclosure 20 Table of Contents property income tax rules of Section 857(b)(4) of the IRC.
Any gain that a REIT recognizes on the sale of foreclosure property held as inventory or primarily for sale to customers, plus any income it receives from foreclosure property that would not otherwise qualify under the 75% gross income test in the absence of foreclosure property treatment, reduced by expenses directly connected with the production of those items of income, would be subject to federal income tax at the highest regular corporate income tax rate under the foreclosure property income tax rules of Section 857(b)(4) of the IRC.
For example, an independent living community may include one or two meals per day in a central dining room, daily or weekly maid service or a social director in the base charge. Additional services are generally available from staff employees on a fee for service basis.
For example, an independent living community may include one or two meals per day in a central dining room, daily or weekly maid service or social programming in the base charge. Additional services are generally available from staff employees on a fee for service basis.
U.S. shareholders who are individuals, estates or trusts are generally required to pay a 3.8% Medicare tax on their net investment income (including dividends on our shares (without regard to any deduction allowed by Section 199A of the IRC) and gains from the sale or other disposition of our shares), or in the case of estates and trusts on their net investment income that is not distributed, in each case to the extent that their total adjusted income exceeds applicable thresholds.
U.S. shareholders who are individuals, estates or trusts are generally required to pay a 3.8% Medicare tax on their net investment income (including dividends on our shares (without regard to any deduction allowed by Section 199A of the IRC) and gains from the sale or other disposition of our shares), or in the case of estates and trusts on their net investment income 27 Table of Contents that is not distributed, in each case to the extent that their total adjusted income exceeds applicable thresholds.
Foreclosure property is generally any real property, including interests in real property, and any personal property incident to such real property: • that is acquired by a REIT as a result of the REIT having bid on such property at foreclosure, or having otherwise reduced such property to ownership or possession by agreement or process of law, after there was a default or when default was imminent on a lease of such property or on indebtedness that such property secured; • for which any related loan acquired by the REIT was acquired at a time when the default was not imminent or anticipated; and • for which the REIT makes a proper election to treat the property as foreclosure property.
Foreclosure property is generally any real property, including interests in real property, and any personal property incident to such real property: • that is acquired by a REIT as a result of the REIT having bid on such property at foreclosure, or having otherwise reduced such property to ownership or possession by agreement or process of law, after there was a default or when default was imminent on a lease of such property or on indebtedness that such property secured; 20 Table of Contents • for which any related loan acquired by the REIT was acquired at a time when the default was not imminent or anticipated; and • for which the REIT makes a proper election to treat the property as foreclosure property.
A reportable transaction currently includes, among other things, a sale or exchange of our shares resulting in a tax loss in excess of (a) $10 million in any single year or $20 million in a prescribed combination of taxable years in the case of our shares held by a C corporation or by a partnership with only C corporation partners or (b) $2 million in any single year or $4 million in a prescribed combination of taxable years in the case of our shares held by any other partnership or an S corporation, trust or individual, including losses that flow through pass through 27 Table of Contents entities to individuals.
A reportable transaction currently includes, among other things, a sale or exchange of our shares resulting in a tax loss in excess of (a) $10 million in any single year or $20 million in a prescribed combination of taxable years in the case of our shares held by a C corporation or by a partnership with only C corporation partners or (b) $2 million in any single year or $4 million in a prescribed combination of taxable years in the case of our shares held by any other partnership or an S corporation, trust or individual, including losses that flow through pass through entities to individuals.
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.
As of December 31, 2024, 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.
Even without having executed an applicable IRS Form W-8 or substantially similar form, however, in some cases information reporting and backup withholding will not apply to proceeds that a non-U.S. shareholder receives upon the sale, exchange, redemption, retirement or other disposition of our shares if the non-U.S. shareholder receives those proceeds through a broker’s foreign office.
Even without having executed an applicable IRS Form W-8 or substantially similar form, however, in some cases information reporting and backup withholding will not 30 Table of Contents apply to proceeds that a non-U.S. shareholder receives upon the sale, exchange, redemption, retirement or other disposition of our shares if the non-U.S. shareholder receives those proceeds through a broker’s foreign office.
In the case of a REIT that is a partner in a partnership, Treasury regulations under the IRC provide that, for purposes of the REIT qualification requirements regarding income and assets described below, the REIT is generally deemed to own its proportionate share, based on respective capital interests, of the income and assets of the partnership (except that for purposes of the 10% value test, described below, the REIT’s proportionate share of the partnership’s assets is based on its proportionate interest in the equity and specified debt securities issued by the partnership).
In the case of a REIT that is a partner in a partnership, Treasury regulations under the IRC provide that, for purposes of the REIT qualification requirements regarding income and assets described below, the REIT is generally deemed to own its proportionate share, based on respective capital interests (including any preferred equity interests in the partnership), of the income and assets of the partnership (except that for purposes of the 10% value test, described below, the REIT’s proportionate share of the partnership’s assets is based on its proportionate interest in the equity and specified debt securities issued by the partnership).
Among other requirements, a TRS of ours must: (1) not directly or indirectly operate or manage a lodging facility or a health care facility; and (2) not directly or indirectly provide to any person, under a franchise, license or otherwise, rights to any brand name under which any lodging facility or health care facility is operated, except that in limited circumstances a subfranchise, sublicense or similar right can be granted to an independent contractor to operate or manage a lodging facility or a health care facility.
Among other requirements, a TRS of ours must: (1) not directly or indirectly operate or manage a health care facility or a lodging facility; and 18 Table of Contents (2) not directly or indirectly provide to any person, under a franchise, license or otherwise, rights to any brand name under which any health care facility or lodging facility is operated, except that in limited circumstances a subfranchise, sublicense or similar right can be granted to an independent contractor to operate or manage a health care facility or a lodging facility.
We make available, free of charge, through the "Investors" section of our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) 12 Table of Contents of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after these forms are filed with, or furnished to, the Securities and Exchange Commission, or SEC.
We make available, free of charge, through the "Investors" section of our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after these forms are filed with, or furnished to, the Securities and Exchange Commission, or SEC.
Furthermore, we cannot be sure that we will be able to monitor and enforce these restrictions, nor will our shareholders necessarily be aware of ownership of our shares attributed to them under the IRC's attribution rules. 19 Table of Contents • There is a limited exception to the above prohibition on earning “rents from real property” from a 10% affiliated tenant where the tenant is a TRS.
Furthermore, we cannot be sure that we will be able to monitor and enforce these restrictions, nor will our shareholders necessarily be aware of ownership of our shares attributed to them under the IRC's attribution rules. • There is a limited exception to the above prohibition on earning “rents from real property” from a 10% affiliated tenant where the tenant is a TRS.
We seek to improve the environmental footprint of our properties, including by reducing carbon emissions, energy consumption and water usage, especially when doing so may reduce operating 10 Table of Contents costs and exposure to policies that call for a carbon tax or other emissions-based penalties and enhance the properties’ competitive position.
We seek to improve the environmental footprint of our properties, including by reducing carbon emissions, energy consumption and water usage, especially when doing so may reduce operating costs and exposure to policies that call for a carbon tax or other emissions-based penalties and enhance the properties’ competitive position.
Lease Terms Our medical office and life science property leases primarily include both “triple net” leases, where the tenant is generally responsible for the payment of property operating expenses and capital expenditures during the lease term, and “net” and “modified gross” leases, where we are responsible for operating and maintaining the properties and we charge the tenants for some or all of the property operating expenses.
Lease Terms Our medical office and life science property leases primarily include both “triple net” leases, where the tenant is generally responsible for the payment of property operating expenses and capital expenditures during the lease term, and “net” and “modified gross” leases, where we are responsible for operating and maintaining the properties and we charge the tenants 2 Table of Contents for some or all of the property operating expenses.
Taxation as a REIT We have elected to be taxed as a REIT under Sections 856 through 860 of the IRC, commencing with our 1999 taxable year. Our REIT election, assuming continuing compliance with the then applicable qualification tests, has continued and will continue in effect for subsequent taxable years.
Taxation as a REIT We have elected to be taxed as a REIT under Sections 856 through 860 of the IRC, commencing with our 1999 taxable year. Our REIT election, assuming continuing compliance with the then applicable qualification tests, has continued and will 14 Table of Contents continue in effect for subsequent taxable years.
Subject to the discussion below, we believe that we and each of our TRSs have complied 18 Table of Contents with, and will continue to comply with, the requirements for TRS status at all times during which the subsidiary’s TRS election is intended to be in effect, and we believe that the same will be true for any TRS that we later form or acquire.
Subject to the discussion below, we believe that we and each of our TRSs have complied with, and will continue to comply with, the requirements for TRS status at all times during which the subsidiary’s TRS election is intended to be in effect, and we believe that the same will be true for any TRS that we later form or acquire.
Based upon those surveys, other studies we may have since reviewed and our understanding of the operations of these properties by our tenants and managers, we do not believe that there are environmental conditions at any of our properties that have had or will have a material adverse effect on us.
Based upon those surveys, other studies we may have since reviewed and our understanding of the operations of these properties by our tenants and managers, 11 Table of Contents we do not believe that there are environmental conditions at any of our properties that have had or will have a material adverse effect on us.
We generally do not intend to lease property to any party if rents from that property would not qualify as “rents from real property,” but application of the 10% ownership rule is dependent upon complex attribution rules and circumstances that may be beyond our control.
We generally do not intend to lease property to any party if rents from that property 19 Table of Contents would not qualify as “rents from real property,” but application of the 10% ownership rule is dependent upon complex attribution rules and circumstances that may be beyond our control.
A distribution of this type will generally be subject to U.S. federal income tax and withholding at the rate of 30%, or at a lower rate if the non-U.S. shareholder has in the manner prescribed by the IRS demonstrated to the applicable withholding agent its entitlement to benefits under a tax treaty.
A 28 Table of Contents distribution of this type will generally be subject to U.S. federal income tax and withholding at the rate of 30%, or at a lower rate if the non-U.S. shareholder has in the manner prescribed by the IRS demonstrated to the applicable withholding agent its entitlement to benefits under a tax treaty.
Even if this relief provision does apply, a 100% tax is imposed upon the greater of the amount by which we failed the 75% gross income test or the amount by which we failed the 95% gross income test, with adjustments, multiplied by a fraction intended to reflect our profitability for the taxable year.
Even if this relief provision does apply, a 100% tax is imposed upon the greater of the amount by which we failed the 75% gross income 21 Table of Contents test or the amount by which we failed the 95% gross income test, with adjustments, multiplied by a fraction intended to reflect our profitability for the taxable year.
This means that the leases of our properties must be classified for U.S. federal income tax purposes as true leases, rather than as sales or financing arrangements, and we believe this to be the case. 25 Table of Contents Distributions to our Shareholders As described above, we expect to make distributions to our shareholders from time to time.
This means that the leases of our properties must be classified for U.S. federal income tax purposes as true leases, rather than as sales or financing arrangements, and we believe this to be the case. Distributions to our Shareholders As described above, we expect to make distributions to our shareholders from time to time.
We also have a policy outlining procedures for handling concerns or complaints about accounting, internal accounting controls or auditing matters and a governance hotline accessible on our website that shareholders can use to report concerns or complaints about accounting, internal accounting controls or auditing matters or violations or possible violations of our Code of Conduct.
We also have a policy outlining 12 Table of Contents procedures for handling concerns or complaints about accounting, internal accounting controls or auditing matters and a governance hotline accessible on our website that shareholders can use to report concerns or complaints about accounting, internal accounting controls or auditing matters or violations or possible violations of our Code of Conduct.
Foreign financial institutions located in 30 Table of Contents jurisdictions that have an intergovernmental agreement with the United States with respect to these requirements may be subject to different rules. The foregoing withholding regime generally applies to payments of dividends on our shares.
Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States with respect to these requirements may be subject to different rules. The foregoing withholding regime generally applies to payments of dividends on our shares.
Bilotto is also our President and Chief Executive Officer, and our Chief Financial Officer and Treasurer, Matthew C. Brown, is a senior vice president of RMR. Mr. Bilotto, Mr. Brown and other officers of RMR also serve as officers of other companies to which RMR or its subsidiaries provide management services.
Bilotto is also our President and Chief Executive Officer, our Chief Financial Officer and Treasurer, Matthew C. Brown, is a senior vice president of RMR and our Vice President, Anthony Paula, is a vice president of RMR. Other officers of RMR also serve as officers of other companies to which RMR or its subsidiaries provide management services.
This relief provision may apply to a failure of the applicable conditions even if the failure first occurred in a year prior to the taxable year in which the failure was discovered. Our Wholly Owned Subsidiaries and Our Investments Through Partnerships.
This relief provision may 17 Table of Contents apply to a failure of the applicable conditions even if the failure first occurred in a year prior to the taxable year in which the failure was discovered. Our Wholly Owned Subsidiaries and Our Investments Through Partnerships.
We believe there is a favorable mix of increased demand and limited supply for senior living communities which we expect will benefit us and our existing portfolio of senior living communities in the future. As a result of elevated financing and construction costs over recent years, inventory growth for senior living communities has reached a new low.
We believe there is a favorable mix of increased demand and limited supply for senior living communities, which we expect will benefit us and our existing portfolio of senior living communities in the future. As a result of elevated financing and construction costs over recent years, inventory growth for senior living communities has been historically low.
We may seek to obtain lines of credit or to issue securities senior to our 5 Table of Contents common shares, including preferred shares or debt securities, some of which may be convertible into our common shares or be accompanied by warrants to purchase our common shares.
We may seek to obtain lines of credit or to issue securities senior to our common shares, including preferred shares or debt securities, some of which may be convertible into our common shares or be accompanied by warrants to purchase our common shares.
Finally, OCR and other regulatory bodies have become increasingly focused on cybersecurity risks, including the emerging threat of ransomware and similar cyberattacks. The increasing sophistication of cybersecurity threats presents challenges to the entire healthcare industry. In addition, many states have enacted their own security and privacy laws relating to individually identifiable information.
Finally, OCR and other regulatory bodies have become increasingly focused on cybersecurity risks, including the emerging threat of ransomware and similar cyberattacks. The increasing sophistication of cybersecurity threats presents challenges to the entire healthcare industry. 8 Table of Contents In addition, many states have enacted their own security and privacy laws relating to individually identifiable information and consumer health information.
We cannot be sure that financing would be available for these purposes on favorable terms, or at all. We may be able to rectify a failure to pay sufficient dividends for any year by paying “deficiency dividends” to shareholders in a later year.
We cannot be sure that financing would be available for these purposes on favorable terms, or at all. 24 Table of Contents We may be able to rectify a failure to pay sufficient dividends for any year by paying “deficiency dividends” to shareholders in a later year.
RMR's RTM program captures 22 of our properties and generated $3.9 million in cumulative savings to date, of which $0.9 million was generated in 2023. Furthermore, properties that reach specified levels of sustainability and energy efficiency may receive potential environmental designations and certifications, such as Leadership in Energy and Environmental Design, or LEED®, designations and/or “ENERGY STAR” certifications.
RMR's RTM program captures 21 of our properties and generated $3.7 million in cumulative savings to date, of which $0.9 million was generated in 2024. Furthermore, properties that reach specified levels of sustainability and energy efficiency may receive potential environmental designations and certifications, such as Leadership in Energy and Environmental Design, or LEED®, designations and/or “ENERGY STAR” certifications.
Our intentions and beliefs described in this summary are based upon our understanding of applicable laws and regulations that are in effect as of February 26, 2024. If new laws or regulations are enacted which impact us directly or indirectly, we may change our intentions or beliefs.
Our intentions and beliefs described in this summary are based upon our understanding of applicable laws and regulations that are in effect as of February 25, 2025. If new laws or regulations are enacted which impact us directly or indirectly, we may change our intentions or beliefs.
Accordingly, we expect that the rental income from our current and future TRSs will qualify as “rents from real property,” and that the 100% tax on excessive rents from a TRS will not apply. 23 Table of Contents Annual Distribution Requirements .
Accordingly, we expect that the rental income from our current and future TRSs will qualify as “rents from real property,” and that the 100% tax on excessive rents from a TRS will not apply. Annual Distribution Requirements .
Under this structure, we lease certain of our communities to 2 Table of Contents our TRSs, and our TRSs enter into management agreements with third parties for the operation of such communities.
Under this structure, we lease certain of our communities to our TRSs, and our TRSs enter into management agreements with third parties for the operation of such communities.
As of February 21, 2024, the executive officers of RMR are: Adam D. Portnoy, president and chief executive officer; Christopher J. Bilotto, executive vice president; Jennifer B. Clark, executive vice president, general counsel and secretary; Matthew P. Jordan, executive vice president, chief financial officer and treasurer; and John G. Murray, executive vice president. Mr.
As of February 21, 2025, the executive officers of RMR are: Adam D. Portnoy, president and chief executive officer; Christopher J. Bilotto, executive vice president; Jennifer B. Clark, executive vice president, general counsel and secretary; Matthew P. Jordan, executive vice president, chief financial officer and treasurer; Jeffrey C. Leer, executive vice president; and John G. Murray, executive vice president. Mr.
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. and an officer and employee of RMR. Jennifer F.
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. and an officer and employee of RMR. Christopher J.
Also, as a result of medical advances, seniors are living longer, and CMS reports that healthcare spending is projected to grow at an average rate of 5.4% per year and reach $6.8 trillion by 2030.
Also, as a result of medical advances, seniors are living longer, and CMS reports that healthcare spending is projected to grow at an average rate of 5.6% per year and reach $7.7 trillion by 2032.
During the property acquisition due diligence and annual budgeting processes, RMR assesses, among other things, environmental sustainability opportunities and physical and policy driven climate related risks. • Environmental Stewardship.
During the property acquisition due diligence and annual budgeting processes, RMR assesses, among other things, environmental sustainability opportunities and physical and policy driven climate related risks. 10 Table of Contents • Environmental Stewardship.
As of December 31, 2023, we owned an equity interest in each of two unconsolidated joint ventures that own medical office and life science properties located in five states with an aggregate of approximately 2.2 million rentable square feet that were 98% leased with an average (by annualized rental income) remaining lease term of 5.3 years.
As of December 31, 2024, we owned an equity interest in each of two unconsolidated joint ventures that own medical office and life science properties located in five states with an aggregate of approximately 2.2 million rentable square feet that were 99% leased with an average (by annualized rental income) remaining lease term of 15.1 years.
According to The National Investment Center for Seniors Housing and Care, or NIC, annual inventory growth was 1.3% across all markets during the fourth quarter of 2023. Additionally, annual absorption was 4.1% for the fourth quarter of 2023, according to NIC.
According to The National Investment Center for Seniors Housing and Care, or NIC, annual inventory growth was 1.2% across all markets during the fourth quarter of 2024. Additionally, annual absorption was 3.7% for the fourth quarter of 2024, according to NIC.
As of December 31, 2023, Five Star Senior Living, or Five Star, which is an operating division of AlerisLife Inc., or AlerisLife, managed 119 of our senior living communities. Also as of December 31, 2023, 113 of our senior living communities were managed by other third party managers. We lease nearly all of our senior living communities to our TRSs.
As of December 31, 2024, Five Star Senior Living, or Five Star, which is an operating division of AlerisLife Inc., or AlerisLife, managed 118 of our senior living communities. Also as of December 31, 2024, 114 of our senior living communities were managed by other third party managers. We lease nearly all of our senior living communities to our TRSs.
Our tenants and managers operate facilities in many states and they and we participate in federal and state healthcare payment programs, including the federal Medicare and state Medicaid benefit programs for services in SNFs and other similar facilities and state Medicaid programs for services in assisted living communities.
Our tenants and managers operate facilities in many states and they and we participate in federal and state healthcare payment programs, including the federal Medicare and state Medicaid 7 Table of Contents benefit programs for services in SNFs and other similar facilities and state Medicaid programs for services in assisted living communities. Government Payers.
On December 10, 2020, HHS 8 Table of Contents issued a proposed rule that would modify certain standards, definitions and patient rights under the previously promulgated Standards for Privacy of Individually Identifiable Health Information to address barriers to coordinated care and case management. The effect of this proposed rule, if finalized, upon our operations is unknown at this time.
On January 21, 2021, HHS issued a proposed rule that would modify certain standards, definitions and patient rights under the previously promulgated Standards for Privacy of Individually Identifiable Health Information to address barriers to coordinated care and case management. The effect of this proposed rule, if finalized, upon our operations is unknown at this time.
We make disposition decisions based on a number of factors, including, but not limited to, the following: • our ability to lease or operate the affected property on terms acceptable to us or have the affected property managed with our realizing acceptable returns; • the manager's or tenant's desire to dispose of or cease operating the affected property; • the proposed sale price or targeted returns; • the existence of alternative sources, uses or needs for our capital and our leverage; • the remaining length of the lease relating to the property and its other terms; • our evaluation of future cash flows which may be achieved from the property; 4 Table of Contents • the strategic fit of the property or investment with the rest of our portfolio; • the age and capital required to maintain the property; • the estimated value we may receive by selling the property; • our intended use of the proceeds we may realize from the sale of a property; • the expected benefits that can be achieved from contributing additional properties to our existing or any new joint ventures; and • the tax implications to us and our shareholders.
We make disposition decisions based on a number of factors, including, but not limited to, the following: • our ability to lease or operate the affected property on terms acceptable to us or have the affected property managed with our realizing acceptable returns; • the manager's or tenant's desire to dispose of or cease operating the affected property; • the proposed sale price or targeted returns; • the existence of alternative sources, uses or needs for our capital and our leverage; • the remaining length of the lease relating to the property and its other terms; • our evaluation of future cash flows which may be achieved from the property; • the strategic fit of the property or investment with the rest of our portfolio; • the age and capital required to maintain the property; • the estimated value we may receive by selling the property; • our intended use of the proceeds we may realize from the sale of a property; • the expected benefits that can be achieved from contributing additional properties to our existing or any new joint ventures; and • the tax implications to us and our shareholders. 4 Table of Contents Other Investments We have no policies which specifically limit the percentage of our assets that may be invested in any individual property, in any one type of property, in properties leased to any one tenant or to an affiliated group of tenants or in properties operated by any one tenant or manager or by an affiliated group of tenants or managers or in securities of one or more persons.
On February 16, 2024, we exercised this purchase right and acquired, together with our applicable TRS, approximately 34.0% of the currently outstanding AlerisLife common shares from ABP Trust at the Tender Offer Price, for a total purchase price of $14.9 million, and we, our applicable TRS, ABP Trust and AlerisLife entered into a stockholders agreement.
On February 16, 2024, we exercised this purchase right and acquired, together with our applicable TRS, approximately 34.0% of the then outstanding AlerisLife common shares from ABP Trust at the Tender Offer Price, for a total purchase price of $15.5 million, including transaction related costs, and we, our applicable TRS, ABP Trust and AlerisLife entered into a stockholders agreement.
First, for so long as a class of our shares is listed on a U.S. national securities exchange, a non-U.S. shareholder’s gain on the sale of those shares will not be subject to U.S. federal income taxation as a sale of a USRPI. Second, our shares will not constitute USRPIs if we are a “domestically controlled” REIT.
First, for so long as a class of our shares is listed on a U.S. national securities exchange, a non-U.S. shareholder’s gain on the sale of those shares will not be subject to U.S. federal income taxation as a sale of a USRPI.
The costs to comply with these laws may adversely affect the profitability of our managed senior living communities and the ability of our tenants to pay their rent to us.
We require our tenants and managers to comply with all laws that regulate the operation of our senior living communities. The costs to comply with these laws may adversely affect the profitability of our managed senior living communities and the ability of our tenants to pay their rent to us.
Also, to the extent of our current and accumulated earnings and profits, all distributions to our shareholders will generally be taxable as ordinary dividends potentially eligible for the preferential tax rates discussed below under the heading “—Taxation of Taxable U.S. Shareholders” and, subject to limitations in the IRC, will be potentially eligible for the dividends received deduction for corporate shareholders.
Also, to the extent of our current and accumulated earnings and profits, all distributions to our shareholders will generally be taxable as ordinary dividends potentially eligible for the preferential tax 16 Table of Contents rates discussed below under the heading “—Taxation of Taxable U.S.
We expect improving market fundamentals and constrained supply to continue to result in increased occupancy at our senior living communities over the next 12 to 24 months.
We expect improving market fundamentals and constrained supply to continue to result in increased occupancy at our senior living communities.
The IRC also provides an excepted securities safe harbor to the 10% value test that includes among other items (a) “straight debt” securities, (b) specified rental agreements in which payment is to be made in subsequent years, (c) any obligation to pay “rents from real property,” (d) securities issued by governmental entities that are not dependent in whole or in part on the profits of or payments from a nongovernmental entity, and (e) any security issued by another REIT.
These relief provisions may apply to a failure of the applicable asset tests even if the failure first occurred in a year prior to the taxable year in which the failure was discovered. 22 Table of Contents The IRC also provides an excepted securities safe harbor to the 10% value test that includes among other items (a) “straight debt” securities, (b) specified rental agreements in which payment is to be made in subsequent years, (c) any obligation to pay “rents from real property,” (d) securities issued by governmental entities that are not dependent in whole or in part on the profits of or payments from a nongovernmental entity, and (e) any security issued by another REIT.
We believe that this will increase demand for our senior living communities (including active adult communities) and for healthcare services and products supplied by the tenants in our medical office and life science properties. The primary market for senior living services is individuals age 80 and older. According to U.S.
We believe that this will increase demand for our senior living communities (including active adult communities) and for healthcare services and products supplied by the tenants in our medical office and life science properties.
State and local health and social service agencies and other regulatory authorities regulate and license many senior living communities. State health authorities regulate and license clinics and other healthcare facilities. In most states in which we own properties, we and our tenants and managers are prohibited from providing certain services without first obtaining 6 Table of Contents appropriate licenses.
State health authorities regulate and license clinics and other healthcare facilities. In most states in which we own properties, we and our tenants and managers are prohibited from providing certain services without first obtaining appropriate licenses.
Distributions to our shareholders generally are included in our shareholders’ income as dividends to the extent of our available current or accumulated earnings and profits.
As a REIT, we generally are not subject to federal income tax on our net income distributed as dividends to our shareholders. Distributions to our shareholders generally are included in our shareholders’ income as dividends to the extent of our available current or accumulated earnings and profits.
Although we cannot be sure, we believe that from and after our 1999 taxable year we have been organized and have operated, and will continue to be organized and to operate, in a manner that qualified us and will continue to qualify us to be taxed as a REIT under the IRC. 14 Table of Contents As a REIT, we generally are not subject to federal income tax on our net income distributed as dividends to our shareholders.
Although we cannot be sure, we believe that from and after our 1999 taxable year we have been organized and have operated, and will continue to be organized and to operate, in a manner that qualified us and will continue to qualify us to be taxed as a REIT under the IRC.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe following is a summary of the principal risk factors described in this section: • unfavorable market and commercial real estate industry conditions due to, among other things, high interest rates, prolonged high inflation, labor market challenges, supply chain disruptions, volatility in the public equity and debt markets, pandemics, geopolitical instability and tensions (such as the ongoing wars in Ukraine and the Middle East), economic downturns or a possible recession, changes in real estate utilization and other conditions beyond our control, may have a material adverse effect on our and our tenants’, managers’ and other operators’ results of operations and financial conditions, and our and their businesses may not return to the levels experienced prior to the COVID-19 pandemic, and our tenants, managers and other operators may fail to satisfy their obligations to us; • we are exposed to risks related to our dependence on our managers or other operators for the operation of our senior living communities, and changes and trends in the healthcare industry could negatively impact our managers and other operators and our SHOP segment operating results; • we and our managers and other operators and tenants face significant competition; • we have a substantial amount of debt and we are subject to risks related to our debt, including our ability to refinance maturing debt and the cost of any such refinanced debt and our ability to reduce our debt leverage, which may remain at or above current levels for an indefinite period, covenants and conditions contained in our debt agreements which may restrict our operations by increasing our interest expense and limiting our ability to make investments in our properties, sell properties securing our debt and pay distributions to our shareholders, potential downgrades to our credit ratings and other limitations on our ability to access capital at reasonable costs or at all, including the limited availability of debt capital to office and healthcare REITs generally; • we may be unable to renew our leases when they expire without decreasing rents or incurring significant costs or at all; • our potential future development or redevelopment projects or sales or acquisitions may not be successful or may not be executed on the terms or within the timing we expect as a result of ongoing market and economic conditions, including capital market disruptions, high interest rates, prolonged high inflation, competition, or otherwise; • we are subject to risks related to our qualification for taxation as a REIT, including REIT distribution requirements; • our existing and any future joint ventures may limit our flexibility with jointly owned investments and we may not realize the benefits we expect from these arrangements or our joint ventures could require us to provide additional capital; • ownership of real estate is subject to environmental risks and liabilities, as well as risks from adverse weather, natural disasters and adverse impact from global climate change; • insurance may not adequately cover our losses, and insurance costs may continue to increase; • we are subject to risks related to our dependence upon RMR to implement our business strategies and manage our day to day operations; • we are subject to risks related to the security of RMR’s or our senior living community managers’ or other operators’ information technology; • our management structure and agreements with RMR and our relationships with our related parties, including our Managing Trustees, RMR, AlerisLife (including Five Star) and others affiliated with them, may create conflicts of interest; • sustainability initiatives, requirements and market expectations may impose additional costs and expose us to new risks; 34 Table of Contents • provisions in our declaration of trust, bylaws and other agreements, as well as certain provisions of Maryland law, may deter, delay or prevent a change in our control or unsolicited acquisition proposals, limit our rights and the rights of our shareholders to take action against our Trustees and officers or limit our shareholders’ ability to obtain a favorable judicial forum for certain disputes; • we may change our operational, financing and investment policies without shareholder approval; and • our distributions to shareholders may remain at $0.01 per common share per quarter for an indefinite period or be eliminated and the form of payment could change.
Biggest changeCovenants and conditions contained in our debt agreements may restrict our operations by increasing our interest expense and limiting our ability to make investments in our properties, sell properties securing our debt and pay distributions to our shareholders, potential downgrades to our credit ratings and other limitations on our ability to access capital at reasonable costs or at all, including the limited availability of debt capital to office and healthcare REITs generally; • we may be unable to renew our leases when they expire without decreasing rents or incurring significant costs or at all; • our potential future development or redevelopment projects or sales or acquisitions may not be successful or may not be executed on the terms or within the timing we expect as a result of ongoing market and economic conditions, including capital market disruptions, uncertainties surrounding interest rates and inflation, competition, or otherwise; • we are subject to risks related to our qualification for taxation as a REIT, including REIT distribution requirements; • our existing and any future joint ventures may limit our flexibility with jointly owned investments and we may not realize the benefits we expect from these arrangements or our joint ventures could require us to provide additional capital; • ownership of real estate is subject to environmental risks and liabilities, as well as risks from adverse weather, natural disasters and adverse impacts from global climate change; • insurance may not adequately cover our losses, and insurance costs may increase; • we are subject to risks related to our dependence upon RMR to implement our business strategies and manage our day to day operations; • we are subject to risks related to the security of RMR’s or our senior living community managers’ or other operators’ information technology and RMR's use of artificial intelligence; • our management structure and agreements with RMR and our relationships with our related parties, including our Managing Trustees, RMR, AlerisLife (including Five Star) and others affiliated with them, may create conflicts of interest; • sustainability initiatives, requirements and market expectations may impose additional costs and expose us to new risks; • provisions in our declaration of trust, bylaws and other agreements, as well as certain provisions of Maryland law, may deter, delay or prevent a change in our control or unsolicited acquisition proposals, limit our rights and the rights of our shareholders to take action against our Trustees and officers or limit our shareholders’ ability to obtain a favorable judicial forum for certain disputes; • we may change our operational, financing and investment policies without shareholder approval; and • our distributions to shareholders may remain at $0.01 per common share per quarter for an indefinite period or be eliminated and the form of payment could change.
Excessive or expensive debt could reduce the available cash flow to fund, or limit our ability to obtain financing for, working capital, capital expenditures, acquisitions, development or redevelopment projects, refinancing, lease obligations or other purposes and hinder our ability to pay distributions to our shareholders.
Excessive or expensive debt could reduce the available cash flow to fund, or limit our ability to obtain financing for, working capital, capital expenditures, refinancing, lease obligations, acquisitions, development or redevelopment projects or other purposes and hinder our ability to pay distributions to our shareholders.
In addition, current economic conditions and volatility in the commercial real estate markets, generally, may cause delays in leasing these properties or possible loss of tenancies and negatively impact our ability to generate cash flows from these properties that meet or exceed our cost of investment.
In addition, current economic conditions and volatility in the commercial real estate markets, generally, may cause delays in leasing these properties or possible loss of tenancies and may negatively impact our ability to generate cash flows from these properties that meet or exceed our cost of investment.
RMR and our senior living community managers take various actions, and incur significant costs, to maintain and protect the operation and security of information technology and systems, including the data maintained in those systems.
RMR and our senior living community managers take various actions, and incur significant costs, to maintain and protect the operation and security of information technology systems, including the data maintained in those systems.
For example: • notwithstanding pre-acquisition due diligence, we could acquire a property that contains undisclosed defects in design or construction or unknown liabilities, including those related to undisclosed environmental contamination, or our analyses and assumptions for the properties may prove to be incorrect; • an acquired property may be located in a new market where we may face risks associated with investing in an unfamiliar market; • the market in which an acquired property is located may experience unexpected changes that adversely affect the property’s value; and • property operating costs for our acquired properties may be higher than anticipated and our acquired properties may not yield expected returns.
For example: • an acquired property may be located in a new market where we may face risks associated with investing in an unfamiliar market; • the market in which an acquired property is located may experience unexpected changes that adversely affect the property’s value; • property operating costs for our acquired properties may be higher than anticipated and our acquired properties may not yield expected returns; and • notwithstanding pre-acquisition due diligence, we could acquire a property that contains undisclosed defects in design or construction or unknown liabilities, including those related to undisclosed environmental contamination, or our analyses and assumptions for the properties may prove to be incorrect.
Conflicts of interest or the perception of conflicts of interest could have a material adverse impact on our reputation, business and the market price of our common shares and other securities and we may be subject to increased risk of litigation as a result.
Conflicts of interest or the perception of conflicts of interest could have a material adverse impact on our reputation, business and the market price of our common shares and other securities and we may be subject to increased risk of litigation as a result.
Our subsidiaries that guarantee the Notes are the sole obligor on the guarantees of such notes, or the Guarantees. The subsidiaries that guarantee the 2025 Notes, the 2026 Notes and the 2031 Notes do not currently guarantee any of our other Notes.
Our subsidiaries that guarantee the Notes are the sole obligor on the guarantees of such notes, or the Guarantees. The subsidiaries that guarantee the 2025 Notes, the 2026 Notes and/or the 2031 Notes do not currently guarantee any of our other Notes.
Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, the Guarantees and the related liens, if applicable (or any future Notes that are guaranteed by our subsidiaries), could be voided, or claims in respect of a guarantee and the related lien, if applicable, could be subordinated to all other debts of that guarantor if, among other things, the guarantor, at the time it incurred the debt evidenced by its guarantee and related lien, if applicable: • received less than reasonably equivalent value or fair consideration for the incurrence of such guarantee or granting of such lien, if applicable; • was insolvent or rendered insolvent by reason of such incurrence; • was engaged in a business or transaction for which the guarantor’s remaining assets constituted unreasonably small capital; or • intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature.
Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, the Guarantees and any related liens (or any future Notes that are guaranteed by our subsidiaries), could be voided, or claims in respect of a guarantee and the related lien, if applicable, could be subordinated to all other debts of that guarantor if, among other things, the guarantor, at the time it incurred the debt evidenced by its guarantee and related lien, if applicable: • received less than reasonably equivalent value or fair consideration for the incurrence of such guarantee or granting of such lien, if applicable; • was insolvent or rendered insolvent by reason of such incurrence; • was engaged in a business or transaction for which the guarantor’s remaining assets constituted unreasonably small capital; or • intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature.
We plan to selectively sell certain properties from time to time to reduce our leverage, fund capital expenditures and future acquisitions and strategically update, rebalance and reposition our investment portfolio. Our ability to sell properties or other assets and the prices we may receive in any such sales, may be affected by various factors.
We plan to selectively sell properties from time to time to reduce our leverage, fund capital expenditures and future acquisitions and strategically update, rebalance and reposition our investment portfolio. Our ability to sell properties or other assets and the prices we may receive in any such sales, may be affected by various factors.
Additionally, provisions contained in our declaration of trust and bylaws or under Maryland law may have a similar impact, including, for example, provisions relating to: • limitations on shareholder voting rights with respect to certain actions that are not approved by our Board of Trustees; • the authority of our Board of Trustees, and not our shareholders, to adopt, amend or repeal our bylaws and to fill vacancies on our Board of Trustees; • shareholder voting standards which require a supermajority of shares for approval of certain actions; • the fact that only our Board of Trustees, or, if there are no Trustees, our officers, may call shareholder meetings and that shareholders are not entitled to act without a meeting; • required qualifications for an individual to serve as a Trustee and a requirement that certain of our Trustees be “Managing Trustees” and other Trustees be “Independent Trustees,” as defined in our governing documents; • limitations on the ability of our shareholders to propose nominees for election as Trustees and propose other business to be considered at a meeting of our shareholders; • limitations on the ability of our shareholders to remove our Trustees; • the authority of our Board of Trustees to create and issue new classes or series of shares (including shares with voting rights and other rights and privileges that may deter a change in control) and issue additional common shares; • restrictions on business combinations between us and an interested shareholder that have not first been approved by our Board of Trustees (including a majority of Trustees not related to the interested shareholder); and • the authority of our Board of Trustees, without shareholder approval, to implement certain takeover defenses.
Additionally, provisions contained in our declaration of trust and bylaws or under Maryland law may have a similar impact, including, for example, provisions relating to: • limitations on shareholder voting rights with respect to certain actions that are not approved by our Board of Trustees; • the authority of our Board of Trustees, and not our shareholders, to adopt, amend or repeal our bylaws and to fill vacancies on our Board of Trustees; • shareholder voting standards which require a supermajority of shares for approval of certain actions; 48 Table of Contents • the fact that only our Board of Trustees, or, if there are no Trustees, our officers, may call shareholder meetings and that shareholders are not entitled to act without a meeting; • required qualifications for an individual to serve as a Trustee and a requirement that certain of our Trustees be “Managing Trustees” and other Trustees be “Independent Trustees,” as defined in our governing documents; • limitations on the ability of our shareholders to propose nominees for election as Trustees and propose other business to be considered at a meeting of our shareholders; • limitations on the ability of our shareholders to remove our Trustees; • the authority of our Board of Trustees to create and issue new classes or series of shares (including shares with voting rights and other rights and privileges that may deter a change in control) and issue additional common shares; • restrictions on business combinations between us and an interested shareholder that have not first been approved by our Board of Trustees (including a majority of Trustees not related to the interested shareholder); and • the authority of our Board of Trustees, without shareholder approval, to implement certain takeover defenses.
Some of our competitors may have greater financial and other resources than us and may be able to accept more risk than we can prudently manage, including risks with respect to the creditworthiness of property operators and the extent of leverage used in their capital structure.
Some of our competitors may have greater financial resources than us and may be able to accept more risk than we can prudently manage, including risks with respect to the creditworthiness of property operators and the extent of leverage used in their capital structure.
The arbitration and exclusive forum provisions of our bylaws may limit a shareholder’s ability to bring a claim in a judicial forum that the shareholder believes is favorable for disputes with us or our Trustees, officers, managers or other agents, which may discourage lawsuits against us and our Trustees, officers, managers or other agents.
The exclusive forum provisions of our bylaws may limit a shareholder’s ability to bring a claim in a judicial forum that the shareholder believes is favorable for disputes with us or our Trustees, officers, managers or other agents, which may discourage lawsuits against us and our Trustees, officers, managers or other agents.
Our agreements with related parties or in respect of transactions among related parties may not be on terms as favorable to us as they would have been if they had been negotiated among unrelated parties. Our shareholders or the shareholders of RMR Inc. or other related parties may challenge such related party transactions.
Our agreements with related parties or in respect of transactions among related parties may not be on terms as favorable to us as they would have been if they had been negotiated among unrelated parties. Our shareholders or the shareholders of RMR Inc. or other related parties may challenge any such related party transactions.
For example, current market conditions have caused, and may continue to cause, increased capitalization rates which, together with high interest rates, have resulted in reduced commercial real estate transaction volume, and such conditions may continue or worsen.
For example, current market conditions have caused, and may continue to cause, increased capitalization rates which, together with increased interest rates, have resulted in reduced commercial real estate transaction volume, and such conditions may continue or worsen.
For our TRS arrangements to comply as intended with the REIT qualification and taxation rules under the IRC, a number of requirements must be satisfied, including: • our TRSs may not directly or indirectly operate or manage a healthcare facility, as defined by the IRC; • the leases to our TRSs must be respected as true leases for federal income tax purposes and not as service contracts, partnerships, joint ventures, financings or other types of arrangements; • the leased properties must constitute qualified healthcare properties (including necessary or incidental property) under the IRC; • our leased properties must be managed and operated on behalf of the TRSs by independent contractors who are less than 35% affiliated with us and who are actively engaged (or have affiliates so engaged) in the trade or business of managing and operating qualified healthcare properties for any person unrelated to us; and 52 Table of Contents • the rental and other terms of the leases must be arm’s length.
For our TRS arrangements to comply as intended with the REIT qualification and taxation rules under the IRC, a number of requirements must be satisfied, including: • our TRSs may not directly or indirectly operate or manage a healthcare facility, as defined by the IRC; • the leases to our TRSs must be respected as true leases for federal income tax purposes and not as service contracts, partnerships, joint ventures, financings or other types of arrangements; • the leased properties must constitute qualified healthcare properties (including necessary or incidental property) under the IRC; • our leased properties must be managed and operated on behalf of the TRSs by independent contractors who are less than 35% affiliated with us and who are actively engaged (or have affiliates so engaged) in the trade or business of managing and operating qualified healthcare properties for any person unrelated to us; and • the rental and other terms of the leases must be arm’s length.
During 2020, we reduced our quarterly cash distribution rate on our common shares to $0.01 per common share to enhance our liquidity until our leverage profile otherwise improves, subject to applicable REIT tax requirements; however: • our ability to pay distributions to our shareholders or sustain the rate of distributions may continue to be adversely affected if any of the risks described in this Annual Report on Form 10-K occur, including any negative impact caused by current market and economic conditions, such as high interest rates, prolonged high inflation and economic downturns or a possible recession, on our business, results of operations and liquidity; and • the timing and amount of any distributions will be determined at the discretion of our Board of Trustees and will depend on various factors that our Board of Trustees deems relevant, including, but not limited to, our funds from operations, or FFO, our normalized funds from operations, or Normalized FFO, requirements to maintain our qualification for taxation as a REIT, limitations in our debt agreements, the availability to us of debt and equity capital, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations.
During 2020, we reduced our quarterly cash distribution rate on our common shares to $0.01 per common share to enhance our liquidity until our leverage profile otherwise improves, subject to applicable REIT tax requirements; however: • our ability to pay distributions to our shareholders or sustain the rate of distributions may continue to be adversely affected if any of the risks described in this Annual Report on Form 10-K occur, including any negative impact caused by current market and economic conditions, such as uncertainties surrounding interest rates and inflation and economic downturns or a possible recession, on our business, results of operations and liquidity; and • the timing and amount of any distributions will be determined at the discretion of our Board of Trustees and will depend on various factors that our Board of Trustees deems relevant, including, but not limited to, our funds from operations, or FFO, our normalized funds from operations, or Normalized FFO, requirements to maintain our qualification for taxation as a REIT, limitations in our debt agreements, the availability to us of debt and equity capital, our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations.
Our debt could increase our costs of capital, limit our ability to incur additional debt in the future, and increase our exposure to floating interest rates or expose us to potential events of default (if not cured or waived) under covenants contained in debt instruments that could have a material adverse effect on our business, financial condition and operating results.
Our debt could increase our cost of capital, limit our ability to incur additional debt in the future, and increase our exposure to floating interest rates or expose us to potential events of default (if not cured or waived) under covenants contained in debt instruments that could have a material adverse effect on our business, financial condition and operating results.
High interest rates have significantly increased our borrowing costs. Although we have an option to extend the maturity date of certain of our debt upon payment of a fee and meeting other conditions, the applicable conditions may not be met, and we may be required to repay or refinance our existing debt with new debt on less favorable terms.
High interest rates have significantly increased our borrowing costs. Although we have an option to extend the maturity date of certain of our debt upon payment of a fee and meeting other conditions, the applicable conditions may not be met, and we may be required to repay or refinance our existing debt with new debt at less favorable terms.
The rights of holders of the Notes to benefit from any of the assets of our non-guarantor subsidiaries are subject to the prior satisfaction of claims of those subsidiaries’ creditors.
The rights of holders of the Notes to benefit from any of the assets of our non-guarantor subsidiaries are subject to the prior satisfaction of claims of our non-guarantor subsidiaries’ creditors.
In particular, these factors could arise from weaknesses in or a lack of established markets for the properties we may identify for sale, the availability of financing to potential purchasers on reasonable terms, changes in the financial condition of prospective purchasers for and the tenants of the properties, the terms of leases with tenants at certain of the properties, the characteristics, quality and prospects of the properties, the number of prospective purchasers, the number of competing properties in the market, unfavorable local, national or international economic conditions, such as high interest rates, prolonged high inflation, labor market challenges, supply chain challenges and economic downturns or a possible recession, and changes in laws, regulations or fiscal policies of jurisdictions in which the properties are located.
In particular, these factors could arise from weaknesses in or a lack of established markets for the properties we may identify for sale, the availability of financing to potential purchasers on reasonable terms, changes in the financial condition of prospective purchasers for and the tenants of the properties, the terms of leases with tenants at certain of the properties, the characteristics, quality and prospects of the properties, the number of prospective purchasers, the number of competing properties in the market, unfavorable local, national or international economic conditions, such as uncertainties surrounding interest rates and inflation, supply chain challenges, economic downturns or a possible recession and labor market conditions, and changes in laws, regulations or fiscal policies of jurisdictions in which the properties are located.
If any of the covenants in these debt agreements are breached and not cured within the applicable cure period, we could be required to repay the debt immediately, even in the absence of a payment default, or be prevented from refinancing maturing debt.
If any of the covenants in these debt agreements are breached and not cured within the applicable cure period, we could be required to repay the debt immediately, even in the absence of a payment default, or be prevented from refinancing maturing debt or issuing new debt.
More favorable rates will nevertheless continue to apply to regular corporate “qualified” dividends, which may cause some investors to perceive that an investment in a REIT is less attractive than an investment in a non-REIT entity that pays dividends, thereby reducing the demand and market price of our common shares. 51 Table of Contents REIT distribution requirements could adversely affect us and our shareholders.
More favorable rates will nevertheless continue to apply to regular corporate “qualified” dividends, which may cause some investors to perceive that an investment in a REIT is less attractive than an investment in a non-REIT entity that pays dividends, thereby reducing the demand and market price of our common shares. REIT distribution requirements could adversely affect us and our shareholders.
Further, courts interpreting change of control provisions under New York law (which is the governing law of the indentures governing the 2025 Notes, the 2026 Notes and the 2031 Notes) have not provided clear and consistent meanings of such change of control provisions which leads to subjective judicial interpretation of what may constitute a “Change of Control.” 55 Table of Contents Some or all of the Guarantees may be released automatically.
Further, courts interpreting change of control provisions under New York law (which is the governing law of the indentures governing the 2025 Notes, the 2026 Notes and the 2031 Notes) have not provided clear and consistent meanings of such change of control provisions which leads to subjective judicial interpretation of what may constitute a “Change of Control.” Some or all of the Guarantees may be released automatically.
A protracted negative impact on the economy or the industries in which our properties and businesses operate, wage and commodity price inflation, high interest rates, increased insurance costs, geopolitical risks or other economic, market or industry conditions, such as the delayed recovery of the senior housing industry, economic downturns or a possible recession, may have various negative consequences.
A protracted negative impact on the economy or the industries in which our properties and businesses operate, wage and commodity price inflation, high interest rates, geopolitical risks or other economic, market or industry conditions, such as the delayed recovery of the senior housing industry, economic downturns or a possible recession, may have various negative consequences.
In addition, RMR’s, our senior living community managers’ or other third parties’ data security, data privacy, investor reporting and business continuity processes could be impacted by a third party’s inability to perform in a remote work environment or by the failure of, or attack on, their information systems and technology.
In addition, RMR’s, our senior living community managers’ or other third parties’ data security, data privacy, investor reporting and 41 Table of Contents business continuity processes could be impacted by a third party’s inability to perform in a remote work environment or by the failure of, or attack on, their information systems and technology.
Historically, during periods of high interest rates, the U.S. housing market has experienced declines. If seniors have difficulty selling their homes, their ability to relocate to our senior living communities or 38 Table of Contents finance their stays at our senior living communities with private resources could be adversely affected.
Historically, during periods of high interest rates, the U.S. housing market has experienced declines. If seniors have difficulty selling their homes, their ability to relocate to our senior living communities or finance their stays at our senior living communities with private resources could be adversely affected.
Pursuant to RMR’s zero emissions goal, RMR has pledged to reduce its Scope 1 and 2 emissions to net zero by 2050 with a 50% reduction commitment by 2030 from a 2019 baseline.
Pursuant to RMR’s zero emissions goal, RMR has pledged to reduce its Scope 1 and 2 emissions to net zero by 2050 with a 50% reduction commitment by 2029 from a 2019 baseline.
However, these provisions may also inhibit acquisitions of a significant stake in us and may deter, delay or prevent a change in control of us or unsolicited acquisition proposals that a shareholder may consider favorable.
However, these restrictions may also inhibit acquisitions of a significant stake in us and may deter, delay or prevent a change in control of us or unsolicited acquisition proposals that a shareholder may consider favorable.
Further, the payment of the termination fee could have a material adverse effect on our financial condition, including our ability to pay distributions to our shareholders. 47 Table of Contents We may not realize the benefits we expect from our ownership interest in AlerisLife. We own an approximately 34.0% ownership interest in AlerisLife.
Further, the payment of the termination fee could have a material adverse effect on our financial condition, including our ability to pay distributions to our shareholders. We may not realize the benefits we expect from our ownership interest in AlerisLife. We own an approximately 34.0% ownership interest in AlerisLife.
In addition, we may elect to change or abandon our strategy and forego or abandon property or other asset sales. 43 Table of Contents We may be unable to grow our business by acquiring additional properties, and we might encounter unanticipated difficulties and expenditures relating to our acquired properties. Our business plan includes the acquisition of additional properties.
In addition, we may elect to change or abandon our strategy and forego or abandon property or other asset sales. We may be unable to grow our business by acquiring additional properties, and we might encounter unanticipated difficulties and expenditures relating to our acquired properties. Our business plan includes the acquisition of additional properties.
These trends may continue and other factors, such as seniors' and their families’ concerns regarding the impact on seniors of infectious diseases, virus transmissions or other public health safety conditions, may intensify those trends in the future, as may current economic conditions, such as economic downturns or a possible recession, weak housing market conditions, high interest rates, prolonged high inflation and stock market volatility.
These trends may continue and other factors, such as seniors' and their families’ concerns regarding the impact on seniors of infectious diseases, virus transmissions or other public health safety conditions, may intensify those trends in the future, as may current economic conditions, such as economic downturns or a possible recession, weak housing market conditions, uncertainties surrounding interest rates and inflation and stock market volatility.
Some of these senior living competitors are larger and have greater financial resources than our managers or other operators do, and some of these competitors are not for-profit entities which have endowment income and may not face the same financial pressures that they do.
Some of these senior living competitors are larger and have greater financial resources than our managers or other operators do, and some of these competitors are not for-profit entities which have endowment income and may not face the same financial pressures that 39 Table of Contents they do.
Further, we and our managers and other operators have been, are currently, and expect in the future to be involved in claims, lawsuits and regulatory and government audits, investigations and proceedings arising in the ordinary course of senior living operations.
Further, we and our managers and other operators have been, are currently, and expect in the future to be involved in claims, lawsuits and regulatory and government audits, investigations and proceedings arising in the ordinary course of senior 36 Table of Contents living operations.
Our bylaws currently also provide that the Circuit Court for Baltimore City, Maryland will be the sole and exclusive forum for any dispute, or portion thereof, regarding the meaning, interpretation or validity of any provision of our declaration of trust or bylaws.
Our bylaws currently also provide that the Circuit Court for Baltimore City, Maryland will be the sole and exclusive forum for any dispute, or portion thereof, regarding 49 Table of Contents the meaning, interpretation or validity of any provision of our declaration of trust or bylaws.
To the extent that we satisfy this distribution requirement, federal corporate income tax will not apply to the earnings that we distribute, but if we distribute less than 100% of our REIT taxable income, then we will be subject to federal corporate income tax on our undistributed taxable income.
To the extent that we satisfy this distribution requirement, federal corporate income tax will not apply to the earnings that we distribute, but if we 50 Table of Contents distribute less than 100% of our REIT taxable income, then we will be subject to federal corporate income tax on our undistributed taxable income.
As of December 31, 2023, our consolidated debt was $3.1 billion. We are subject to numerous risks associated with our debt, including our ability to refinance maturing debt and the cost of any refinancing, the risk that our liquidity could be insufficient for us to make required payments and risks associated with high interest rates.
As of December 31, 2024, our consolidated principal amount of debt was $3.1 billion. We are subject to numerous risks associated with our debt, including our ability to refinance maturing debt and the cost of any refinancing, the risk that our liquidity could be insufficient for us to make required payments and risks associated with high interest rates.
If any of our tenants, managers or other operators files for bankruptcy, we may experience delays in enforcing our rights, and may be limited in our ability to replace the tenant, manager or other operator.
If 44 Table of Contents any of our tenants, managers or other operators files for bankruptcy, we may experience delays in enforcing our rights, and may be limited in our ability to replace the tenant, manager or other operator.
Further, rehabilitation therapy and other services are increasingly being 37 Table of Contents provided to seniors on an outpatient basis or in seniors’ personal residences in response to market demand and government regulation, which may increase the trend for seniors to delay moving to senior living communities.
Further, rehabilitation therapy and other services are increasingly being provided to seniors on an outpatient basis or in seniors’ personal residences in response to market demand and government regulation, which may increase the trend for seniors to delay moving to senior living communities.
These risks include fluctuations in occupancy experienced during the normal course of business, Medicare and Medicaid reimbursement, if applicable, and private pay rates; economic conditions, such as high interest rates, prolonged high inflation, labor market challenges and economic downturns or a possible recession; competition; litigation and regulatory and government proceedings; federal, state, local, and industry-regulated licensure, certification and inspection laws, regulations, and standards; the availability and increases in cost of general and professional liability insurance coverage; increases in property taxes; state regulation and rights of residents related to entrance fees; federal and state housing laws and regulations; the availability and increases in the cost of labor (as a result of unionization or otherwise); and increases in commodity prices, such as the prices of food and construction materials, as a result of, among other things, supply chain challenges or other market conditions in the global economy, including the U.S. economy.
These risks include fluctuations in occupancy experienced during the normal course of business, Medicare and Medicaid reimbursement, if applicable, and private pay rates; economic conditions, such as uncertainties surrounding interest rates and inflation, economic downturns or a possible recession and labor market conditions; competition; litigation and regulatory and government proceedings; federal, state, local, and industry-regulated licensure, certification and inspection laws, regulations, and standards; the availability and increases in cost of general and professional liability insurance coverage; increases in property taxes; state regulation and rights of residents related to entrance fees; federal and state housing laws and regulations; the availability and increases in the cost of labor (as a result of unionization or otherwise); and increases in commodity prices, such as the prices of food and construction materials, as a result of, among other things, supply chain challenges or other market conditions.
Current conditions have negatively impacted our ability to pay distributions to our shareholders and these or other conditions may continue to have similar impacts in the future and on our results of operations and financial condition.
Unfavorable market conditions have negatively impacted our ability to pay distributions to our shareholders and these or other conditions may continue to have similar impacts in the future and on our results of operations and financial condition.
It is also uncertain what the impact of changing market and economic conditions would be on our and our managers’ and other operators’ and tenants’ businesses. As a result of these uncertainties, our and our managers’ and other 35 Table of Contents operators’ and tenants’ businesses may not return to the levels experienced prior to the COVID-19 pandemic.
It is uncertain what the impact of changing market and economic conditions would be on our and our managers’ and other operators’ and tenants’ businesses. As a result of these uncertainties, our and our managers’ and other operators’ and tenants’ businesses may not return to the levels experienced prior to the COVID-19 pandemic.
Upon any distribution to our creditors in a bankruptcy, liquidation, reorganization or similar proceeding relating to us or our property, the holders of our secured debt, including debt under the 2026 Notes (to the extent such debt remains outstanding and is still then secured), will be entitled to exercise the remedies available to a secured lender under applicable law and pursuant to the instruments governing such debt and to be paid in full, from the assets securing that secured debt before any payment may be made with respect to the Notes that are not secured by those assets.
Upon any distribution to our creditors in a bankruptcy, liquidation, reorganization or similar proceeding relating to us or our property, the holders of our secured debt, including debt under the 2026 Notes and our $127.5 million in aggregate principal amount of mortgage notes (to the extent such debt remains outstanding and is still then secured), will be entitled to exercise the remedies available to a secured lender under applicable law and pursuant to the instruments governing such debt and to be paid in full, from the assets securing that secured debt before any payment may be made with respect to the Notes that are not secured by those assets.
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 45 Table of Contents RMR Inc. and an officer and employee of RMR.
Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., the chair of the board of directors, a managing director and the president and chief executive officer of RMR Inc. and an officer and employee of RMR.
The occurrence of a tenant bankruptcy could reduce the rent we receive from that tenant, and the current economic conditions, such as prolonged high inflation, high interest rates, labor market challenges, supply chain challenges and economic downturns or a possible recession, may increase the risk of our tenants and the managers and other operators of our senior living communities filing for bankruptcy.
The occurrence of a tenant bankruptcy could reduce the rent we receive from that tenant, and economic conditions, such as uncertainties surrounding interest rates and inflation, supply chain challenges, economic downturns or a possible recession and labor market conditions, may increase the risk of our tenants and the managers and other operators of our senior living communities filing for bankruptcy.
In addition, if the 2025 Notes and the 2031 Notes have a rating equal to or higher than Baa2 (or the equivalent) by Moody’s or BBB (or the equivalent) by Standard & Poor’s and at such time no default or event of default under the indenture and related supplements governing the 2025 Notes and the 2031 Notes has occurred and is continuing, the Guarantees and all other obligations of the subsidiary guarantors under the indenture will automatically terminate and be released.
In addition, if the 2025 Notes and the 2031 Notes have a rating equal to or higher than Baa2 (or the equivalent) by Moody’s Investors Service, or Moody's, or BBB (or the equivalent) by Standard & Poor’s Rating Services, or Standard & Poor's, and at such time no default or event of default under the indenture and related supplements governing the 2025 Notes and the 2031 Notes has occurred and is continuing, the Guarantees and all other obligations of the subsidiary guarantors under the indenture will automatically terminate and be 54 Table of Contents released.
Our participation in joint ventures is subject to risks, including the following: • we share approval rights over major decisions affecting the ownership or operation of the joint ventures and any property owned by the joint ventures; • we may need to contribute additional capital in order to preserve, maintain or grow the joint ventures and their investments; • joint venture investors may have economic or other business interests or goals that are inconsistent with our business interests or goals, which could affect our ability to lease, relet or operate properties owned by the joint ventures; • joint venture investors may be subject to different laws or regulations than us, or may be structured differently than us for tax purposes, which could create conflicts of interest and/or affect our ability to maintain our qualification for taxation as a REIT; • our ability to sell our interest in, or sell additional properties to, the joint ventures or the joint ventures’ ability to sell additional interests of, or properties owned by, the joint ventures when we so desire are subject to the approval rights of the other joint venture investors under the terms of the agreements governing the joint ventures; and • disagreements with joint venture investors could result in litigation or arbitration that could be expensive and distracting to management and could delay important decisions. 44 Table of Contents Any of the foregoing risks could have a material adverse effect on our business, financial condition and results of operations.
Our participation in joint ventures is subject to risks, including the following: • we share approval rights over major decisions affecting the ownership or operation of the joint ventures and any property owned by the joint ventures; • we may need to contribute additional capital in order to preserve, maintain or grow the joint ventures and their investments; • joint venture investors may have economic or other business interests or goals that are inconsistent with our business interests or goals, which could affect our ability to lease, relet or operate properties owned by the joint ventures; • joint venture investors may be subject to different laws or regulations than us, or may be structured differently than us for tax purposes, which could create conflicts of interest and/or affect our ability to maintain our qualification for taxation as a REIT; • our ability to sell our interest in, or sell additional properties to, the joint ventures or the joint ventures’ ability to sell additional interests of, or properties owned by, the joint ventures when we so desire are subject to the approval rights of the other joint venture investors under the terms of the agreements governing the joint ventures; and • disagreements with joint venture investors could result in litigation or arbitration that could be expensive and distracting to management and could delay important decisions.
This provision may not be effective to protect the Guarantees or any future guarantees from being voided under fraudulent transfer laws, or may eliminate the guarantor’s obligations or reduce the guarantor’s obligations to an amount that effectively makes the guarantee worthless.
This provision may not be effective to protect the Guarantees or any future guarantees from being voided under 53 Table of Contents fraudulent transfer laws, or may eliminate the guarantor’s obligations or reduce the guarantor’s obligations to an amount that effectively makes the guarantee worthless.
Such events could also adversely impact us or the tenants of our properties if we or they are unable to operate our or their businesses due to damage resulting from such events. Insurance may not adequately cover all losses sustained by us or the tenants of our properties.
Severe weather events and climatic conditions could also adversely impact us and the tenants of our properties if we or they are unable to operate our or their businesses due to damage resulting from such events. Insurance may not adequately cover all losses sustained by us or the tenants of our properties.
Third party providers of corporate sustainability 42 Table of Contents ratings and reports on companies have increased in number, resulting in varied and, in some cases, inconsistent standards.
Third party providers of corporate sustainability ratings and reports on companies have increased in number, resulting in varied and, in some cases, inconsistent standards.
The ownership limitation in our declaration of trust is intended to help us preserve our ability to use our net operating losses and other tax benefits to reduce our future taxable income. We also believe these provisions promote good orderly governance.
This ownership limitation in our bylaws is intended to help us preserve our ability to use our net operating losses and other tax benefits to reduce our future taxable income. We also believe these restrictions in our declaration of trust and bylaws promote good orderly governance.
Any decline in market prices, regardless of cause, may adversely affect the liquidity and trading markets for the Notes. A further downgrade in credit ratings could materially adversely affect the market price of the Notes and may increase our cost of capital.
Any decline in market prices, regardless of cause, may adversely affect the liquidity and trading markets for the Notes. Downgrades in our credit ratings could materially adversely affect the market price of the Notes and may increase our cost of capital.
Because of competition for acquisitions, as well as limitations on acquisitions included in our debt agreements, we may be unable to acquire desirable properties or we may pay higher prices for, and realize lower net cash flows than we hope to achieve from, acquisitions. 40 Table of Contents We may be unable to lease our properties when our leases expire.
Due to competition for acquisitions, as well as limitations on acquisitions included in our debt agreements, we may be unable to acquire desirable properties or we may pay higher prices for, and realize lower net cash flows than we hope to achieve from, acquisitions. We may be unable to lease our properties when our leases expire.
Our revenues and our managers’ and other operators’ and tenants’ revenues with respect to our senior living communities are dependent on occupancy and could significantly decrease in the event of a severe cold and flu season, an epidemic or pandemic such as a new variant in the COVID-19 pandemic or any other widespread illness.
Our revenues and our managers’ and other operators’ and tenants’ revenues with respect to our senior living communities are dependent on occupancy and could significantly decrease in the event of a severe cold and flu season, an epidemic or pandemic or any other widespread illness.
In addition, we may incur significant costs in attempting to comply with regulatory requirements, ESG policies or third party expectations or demands. Insurance may not adequately cover our losses, and insurance costs may continue to increase.
In addition, we may incur significant costs in attempting to comply with regulatory requirements, ESG policies or third party expectations or demands. 42 Table of Contents Insurance may not adequately cover our losses, and insurance costs may increase.
Portnoy holds equity investments in other companies to which RMR or its subsidiaries provide management services and some of these companies have significant cross ownership interests, including, for example: as of December 31, 2023, Mr. Portnoy beneficially owned 9.8% of our outstanding common shares and approximately 6.1% of AlerisLife’s outstanding common shares (including through ABP Trust).
Portnoy holds equity investments in other companies 45 Table of Contents to which RMR or its subsidiaries provide management services and some of these companies have significant cross ownership interests, including, for example: as of December 31, 2024, Mr. Portnoy beneficially owned 9.8% of our outstanding common shares and approximately 66.0% of AlerisLife’s outstanding common shares (including through ABP Trust).
If any challenges to related party transactions were to be successful, we might not realize the benefits expected from the transactions being challenged.
If any challenges to related party transactions were to be successful, we might not realize the benefits expected 47 Table of Contents from the transactions being challenged.
Further, market and economic conditions may limit the availability and cost of government-sponsored enterprise and agency financing that we may otherwise have access to.
Further, market and economic conditions may impact the cost of government-sponsored enterprise and agency financing that we have access to.
The loss or downsizing of a tenant may reduce the value of a property and require us to spend significant amounts of capital to renovate the property before it is suitable for a new tenant.
Vacancies in a property could result in significant capital expenditures and illiquidity and reduce the value of the property. The loss or downsizing of a tenant may reduce the value of a property and require us to spend significant amounts of capital to renovate the property before it is suitable for a new tenant.
Further, certain of our secured debt agreements contain exceptions to the general non-recourse provisions that obligate us to indemnify the lenders for certain potential environmental losses relating to hazardous materials and violations of environmental law. We may incur substantial liabilities and costs for environmental matters.
Further, certain of our secured debt agreements contain exceptions to the general non-recourse provisions that obligate us to indemnify the lenders for certain potential environmental losses relating to hazardous materials and violations of environmental law.
RMR or its subsidiaries also act as the manager to certain other Nasdaq listed companies and private companies, and Mr. Portnoy serves as a managing trustee, director or trustee, as applicable, of those companies, and as chair of the board of trustees of those Nasdaq listed companies. Christopher J. Bilotto, our President and Chief Executive Officer, and Matthew C.
RMR or its subsidiaries also act as the manager to certain other Nasdaq listed companies and private companies, and Mr. Portnoy serves as a managing trustee, director or trustee, as applicable, of those companies, and as chair of the board of trustees of those Nasdaq listed companies. Christopher J.
New legislation, Treasury regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to remain qualified for taxation as a REIT or the tax consequences of such qualification to us and our shareholders.
We cannot predict how changes in the tax laws might affect us or our shareholders. New legislation, Treasury regulations, administrative interpretations or court decisions could significantly and negatively affect our ability to remain qualified for taxation as a REIT or the tax consequences of such qualification to us and our shareholders.
Our bylaws currently provide that, unless the dispute has been referred to binding arbitration, the Circuit Court for Baltimore City, Maryland will be the sole and exclusive forum for: (1) any derivative action or proceeding brought on our behalf; (2) any action asserting a claim for breach of a fiduciary duty owed by any of our Trustees, officers, managers or other agents to us or our shareholders; (3) any action asserting a claim against us or any of our Trustees, officers, managers or other agents arising pursuant to Maryland law, our declaration of trust or bylaws brought by or on behalf of a shareholder, either on such shareholder’s own behalf, on our behalf or on behalf of any series or class of shares of beneficial interest of ours or by our shareholders against us or any of our Trustees, officers, managers or other agents, including any disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of our declaration of trust or 50 Table of Contents bylaws; or (4) any action asserting a claim against us or any of our Trustees, officers, managers or other agents that is governed by the internal affairs doctrine of the State of Maryland.
Our bylaws currently provide that other than any action arising under the Securities Act, the Circuit Court for Baltimore City, Maryland will be the sole and exclusive forum for: (1) any Internal Corporate Claim, as such term is defined under the Maryland General Corporation Law; (2) any derivative action or proceeding brought on our behalf; (3) any action asserting a claim for breach of a fiduciary duty owed by any of our Trustees, officers, managers or other agents to us or our shareholders; (4) any action asserting a claim against us or any of our Trustees, officers, managers or other agents arising pursuant to Maryland law, our declaration of trust or bylaws, including any disputes, claims or controversies brought by or on behalf of a shareholder, either on such shareholder’s own behalf, on our behalf or on behalf of any series or class of shares of beneficial interest of ours or by our shareholders against us or any of our Trustees, officers, managers or other agents, including any disputes, claims or controversies relating to the meaning, interpretation, effect, validity, performance or enforcement of our declaration of trust or bylaws; and (5) any action asserting a claim against us or any of our Trustees, officers, managers or other agents that is governed by the internal affairs doctrine of the State of Maryland.
Investors and prospective investors should consider the risks described below and the information contained under the caption “Warning Concerning Forward-Looking Statements” and elsewhere in this Annual Report on Form 10-K before deciding whether to invest in our securities. We may update these risk factors in our future periodic reports.
Investors and prospective investors should consider the risks described below and the information contained under the caption “Warning Concerning Forward-Looking Statements” and elsewhere in this Annual Report on Form 10-K before deciding whether to invest in our securities.
Although the rate of new development of senior living communities has slowed significantly, the increased supply of senior living communities from such development activity has increased competitive pressures on our managers and other operators, particularly in certain geographic markets where we own senior living communities, and we expect these competitive challenges to continue for at least the next few years.
A significant number of new senior living communities were developed in recent years, resulting in increased competitive pressures on our managers and other operators, particularly in certain geographic markets where we own senior living communities, and, although the rate of new development has slowed significantly, we expect these competitive challenges to continue for at least the next few years.
Legislative or other actions affecting REITs could materially and adversely affect us and our shareholders. The rules dealing with U.S. federal, state, and local taxation are constantly under review by persons involved in the legislative process and by the IRS, the U.S. Department of the Treasury and other taxation authorities.
The rules dealing with U.S. federal, state, and local taxation are constantly under review by persons involved in the legislative process and by the IRS, the U.S. Department of the Treasury and other taxation authorities. Changes to the tax laws, with or without retroactive application, could materially and adversely affect us and our shareholders.
Generally, however, a guarantor would be considered insolvent if: • the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets; • the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or • it could not pay its debts as they become due. 54 Table of Contents We cannot be sure as to what standard a court would apply in making these determinations.
Generally, however, a guarantor would be considered insolvent if: • the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets; • the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or • it could not pay its debts as they become due.
When interest rates are high, such as they are currently, real estate transaction volumes slow due to increased borrowing costs and property investors often demand higher capitalization rates, which causes property values to decline.
When interest rates are high, such as they are currently, real estate transaction volumes slow due to increased borrowing costs and property investors often demand higher capitalization rates, which causes property values to decline. High interest rates could therefore lower the value of our properties and cause the value of our securities to decline.
In addition, each Guarantee contains, and any future guarantees may contain, a provision intended to limit the guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent transfer.
We cannot be sure as to what standard a court would apply in making these determinations. In addition, each Guarantee contains, and any future guarantees may contain, a provision intended to limit the guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent transfer.
If these conditions continue, our managers and other operators may increasingly be challenged in fully operating our senior living communities, which may require us to reduce our operations; as a result of these conditions, our revenues and growth may decline and our costs may continue to increase.
If these conditions continue, our managers and other operators may increasingly be challenged in fully operating our senior living communities, which may require us to reduce our operations; as a result of these conditions, our revenues and growth may decline and our costs may continue to increase. 37 Table of Contents Termination of assisted living resident agreements and resident attrition could adversely affect revenues and earnings at our senior living communities.
Because the earnings we are permitted to retain are limited by the rules governing REIT qualification and taxation, if we are unable to raise reasonably priced capital, we may not be able to carry out our business plan. High interest rates have significantly increased our interest expense and may otherwise materially and negatively affect us.
Because the earnings we are permitted to retain are limited by the rules governing REIT qualification and taxation, if we are unable to raise reasonably priced capital, we may not be able to carry out our business plan.
In such case, our lenders or noteholders may demand immediate payment of any outstanding debt and could seek payment from the subsidiary guarantors under our senior notes indentures, seek to sell any pledged equity interests of certain subsidiaries or the mortgaged properties owned by certain pledging subsidiaries, or we could be forced to liquidate our assets for less than the values we would receive in a more orderly process.
In such case, our lenders or noteholders may demand immediate payment of any outstanding debt and could seek payment from the subsidiary guarantors under our senior notes indentures, seek to sell any pledged equity interests of certain subsidiaries or mortgaged properties, or we could be forced to liquidate our assets for less than the values we would receive in a more orderly process. 35 Table of Contents We may fail to comply with the terms of our debt agreements, which could adversely affect our business and prohibit us from paying distributions to our shareholders.
Our ability to make profitable acquisitions is subject to risks, including, but not limited to, risks associated with: • the extent of our debt leverage; • the availability, terms and cost of debt and equity capital; • competition from other investors; and • contingencies in our acquisition agreements.
Our ability to make profitable acquisitions is subject to risks, including, but not limited to, risks associated with: • the extent of our debt leverage; • the availability, terms and cost of debt and equity capital; • our liquidity position; • competition from other investors; and • contingencies in our acquisition agreements. 43 Table of Contents These risks may limit our ability to grow our business by acquiring additional properties.
The costs of insurance have increased significantly and continue to increase, and these increased costs have had an adverse effect on us and our managers or other operators and tenants.
The costs of insurance may increase, which may have an adverse effect on us and our managers or other operators and tenants.
In addition, we may be obligated to pay or reimburse the expenses incurred by our present and former Trustees and officers without requiring a preliminary determination of their ultimate entitlement to indemnification. 49 Table of Contents As a result of these limitations on liability and indemnification obligations, we and our shareholders may have more limited rights against our present and former Trustees and officers than might exist with other companies, which could limit shareholder recourse in the event of actions which some shareholders may believe are not in our best interest.
As a result of these limitations on liability and indemnification obligations, we and our shareholders may have more limited rights against our present and former Trustees and officers than might exist with other companies, which could limit shareholder recourse in the event of actions which some shareholders may believe are not in our best interest.
Unfavorable economic and industry conditions may be due to, among other things, high interest rates, prolonged high inflation, labor market challenges, supply chain disruptions, volatility in the public equity and debt markets, pandemics, geopolitical instability and tensions (such as the ongoing wars in Ukraine and the Middle East), economic downturns or a possible recession, changes in real estate utilization and other conditions beyond our control.
Unfavorable economic and industry conditions may be due to, among other things, uncertainties surrounding interest rates and inflation, supply chain disruptions, volatility in the public debt and equity markets, pandemics, geopolitical instability and tensions, economic uncertainties, labor market conditions, changes in real estate utilization and other conditions beyond our control.
Risks Related to Our Business Unfavorable market and industry conditions may have a material adverse effect on our results of operations, financial condition and ability to pay distributions to our shareholders.
We may update these risk factors in our future periodic reports. 34 Table of Contents Risks Related to Our Business Unfavorable market and industry conditions may have a material adverse effect on our results of operations, financial condition and ability to pay distributions to our shareholders.
If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds, which could materially and adversely affect us. 36 Table of Contents We are limited in our ability to operate our senior living communities and are thus dependent on our managers or other operators.
If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds, which could materially and adversely affect us.
We may not be able to satisfy all of these conditions or may default on some of these covenants for various reasons, including for reasons beyond our control.
Our debt agreements contain financial and/or operating covenants. These covenants may limit our operational flexibility and acquisition and disposition activities. We may not be able to satisfy all of these conditions or may default on some of these covenants for various reasons, including for reasons beyond our control.
Competition may make it difficult for us to attract and retain tenants and may reduce the rents we are able to charge and the values of our properties. A significant number of new senior living communities were developed in recent years.
Competition may make it difficult for us to attract and retain tenants and may reduce the rents we are able to charge and the values of our properties.
We are subject to risks from adverse weather, natural disasters and adverse impact from global climate change, and we incur significant costs and invest significant amounts with respect to these matters. We are subject to risks and could be exposed to additional costs from adverse weather, natural disasters and adverse impact from global climate change.
We are subject to risks and could be exposed to additional costs from adverse weather, natural disasters and adverse impacts from global climate change.

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Item 2. Properties

Properties — owned and leased real estate

6 edited+1 added−1 removed0 unchanged
Biggest changeAs of December 31, 2023, one property with a gross book value of real estate assets of $25.0 million was encumbered by a mortgage with a principal balance of $9.1 million.
Biggest changeAs of December 31, 2024, nine properties with a gross book value of real estate assets of $301.0 million were encumbered by two mortgages with an aggregate principal balance of $127.5 million.
The eleven properties owned by our unconsolidated joint ventures in which we own 10% and 20% interests were encumbered by three mortgages totaling $1.1 billion as of December 31, 2023.
The eleven properties owned by our unconsolidated joint ventures in which we own 10% and 20% interests were encumbered by three mortgages totaling $1.1 billion as of December 31, 2024.
For more information regarding our finance leases, mortgages, senior secured notes and two unconsolidated joint ventures, see Notes 3 and 9 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. 56 Table of Contents The following table summarizes certain information about our owned properties as of December 31, 2023.
For more information regarding our finance leases, mortgages, senior secured notes and two unconsolidated joint ventures, see Notes 3 and 9 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. 55 Table of Contents The following table summarizes certain information about our owned properties as of December 31, 2024.
Item 2. Properties. At December 31, 2023, our portfolio was comprised of 371 owned properties. The gross book value of real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, or gross book value of real estate assets, of these properties totaled $7.2 billion at December 31, 2023.
Item 2. Properties. At December 31, 2024, our portfolio was comprised of 367 owned properties. The gross book value of real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, or gross book value of real estate assets, of these properties totaled $7.2 billion at December 31, 2024.
As of December 31, 2023, 95 properties with a gross book value of real estate assets of $1.6 billion were encumbered by our senior secured notes with a principal balance of $940.5 million.
As of December 31, 2024, 95 properties with a gross book value of real estate assets of $1.6 billion were encumbered by our senior secured notes due 2026 with a principal balance of $940.5 million.
As of December 31, 2023, two properties with a gross book value of real estate assets of $43.4 million were subject to finance lease obligations with an aggregate principal balance of $3.9 million.
As of December 31, 2024, two properties with a gross book value of real estate assets of $43.8 million were subject to finance lease obligations with an aggregate principal balance of $2.3 million.
Removed
All dollar amounts are in thousands: Office Portfolio Senior Housing Operating Portfolio All Other Consolidated State Number of Properties Gross Book Value of Real Estate Assets (1) Net Book Value Number of Properties Gross Book Value of Real Estate Assets (1) Net Book Value Number of Properties Gross Book Value of Real Estate Assets (1) Net Book Value Number of Properties Gross Book Value of Real Estate Assets (1) Net Book Value AL — $ — $ — 8 $ 105,624 $ 73,132 — $ — $ — 8 $ 105,624 $ 73,132 AR — — — 3 46,373 27,703 — — — 3 46,373 27,703 AZ 4 77,357 54,998 6 171,288 103,994 1 3,510 1,885 11 252,155 160,877 CA 10 448,262 328,089 9 211,388 134,862 1 7,281 3,994 20 666,931 466,945 CO 2 20,780 12,373 8 116,698 75,925 2 18,594 11,783 12 156,072 100,081 CT 1 7,928 5,243 — — — — — — 1 7,928 5,243 DC 2 107,529 80,622 — — — — — — 2 107,529 80,622 DE — — — 6 125,926 82,377 — — — 6 125,926 82,377 FL 7 43,691 30,271 19 667,684 429,150 2 18,487 16,501 28 729,862 475,922 GA 5 89,609 60,611 25 322,044 214,549 2 50,028 36,416 32 461,681 311,576 HI 1 80,643 56,944 — — — — — — 1 80,643 56,944 ID — — — — — — 2 23,298 15,541 2 23,298 15,541 IL 4 70,142 44,639 11 186,787 109,603 1 20,641 13,115 16 277,570 167,357 IN 1 22,296 12,445 11 183,207 121,584 2 69,406 48,704 14 274,909 182,733 KS 2 63,299 39,240 3 71,093 44,037 — — — 5 134,392 83,277 KY — — — 9 120,188 67,793 — — — 9 120,188 67,793 MA 6 166,169 123,338 1 35,524 20,967 — — — 7 201,693 144,305 MD 1 8,252 5,707 11 269,741 180,513 1 20,964 14,605 13 298,957 200,825 MI — — — — — — 5 15,942 8,617 5 15,942 8,617 MN 9 128,542 85,784 1 16,969 12,514 2 6,319 3,440 12 151,830 101,738 MO 3 141,111 89,045 5 73,817 46,698 — — — 8 214,928 135,743 NC 2 61,899 42,663 16 240,351 174,940 1 6,839 3,689 19 309,089 221,292 NE — — — 1 8,661 5,312 1 26,702 18,239 2 35,363 23,551 NJ — — — 3 128,507 88,895 1 2,277 2,277 4 130,784 91,172 NM 2 39,879 28,465 1 34,237 19,433 3 33,303 20,620 6 107,419 68,518 NV — — — 2 85,927 58,415 — — — 2 85,927 58,415 NY 3 80,821 53,425 1 115,283 80,642 — — — 4 196,104 134,067 OH 1 18,601 11,573 1 50,011 29,616 1 4,428 1,643 3 73,040 42,832 OR — — — 1 50,225 43,158 — — — 1 50,225 43,158 PA 4 57,376 37,442 7 93,517 57,080 2 3,535 1,952 13 154,428 96,474 SC 1 4,942 3,291 17 141,655 99,483 2 3,935 2,195 20 150,532 104,969 TN 1 9,764 6,159 13 185,177 137,456 2 15,667 9,698 16 210,608 153,313 TX 11 223,296 149,414 13 390,146 251,462 1 20,502 13,618 25 633,944 414,494 VA 8 130,117 83,289 11 150,770 97,382 — — — 19 280,887 180,671 WA — — — — — — 2 18,743 10,714 2 18,743 10,714 WI 10 169,236 112,860 7 121,620 83,833 — — — 17 290,856 196,693 WY — — — 2 14,997 7,940 — — — 2 14,997 7,940 Total 101 2,271,541 1,557,930 232 4,535,435 2,980,448 37 390,401 259,246 370 7,197,377 4,797,624 Held for Sale 1 13,405 9,377 — — — — — — 1 13,405 9,377 Grand Total 102 $ 2,284,946 $ 1,567,307 232 $ 4,535,435 $ 2,980,448 37 $ 390,401 $ 259,246 371 $ 7,210,782 $ 4,807,001 (1) Represents gross book value of real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, if any. 57 Table of Contents
Added
All dollar amounts are in thousands: Medical Office and Life Science Portfolio SHOP All Other Consolidated State Number of Properties Gross Book Value of Real Estate Assets (1) Net Book Value Number of Properties Gross Book Value of Real Estate Assets (1) Net Book Value Number of Properties Gross Book Value of Real Estate Assets (1) Net Book Value Number of Properties Gross Book Value of Real Estate Assets (1) Net Book Value AL — $ — $ — 8 $ 105,206 $ 70,777 — $ — $ — 8 $ 105,206 $ 70,777 AR — — — 3 47,068 27,039 — — — 3 47,068 27,039 AZ 2 40,903 28,288 6 178,736 105,762 — — — 8 219,639 134,050 CA 7 242,506 173,471 9 215,124 130,945 1 7,279 3,731 17 464,909 308,147 CO 2 20,780 11,895 8 118,932 71,759 1 14,264 9,357 11 153,976 93,011 DC 2 108,453 78,380 — — — — — — 2 108,453 78,380 DE — — — 2 62,519 35,655 — — — 2 62,519 35,655 FL 7 48,211 33,535 19 691,602 429,174 1 20,692 19,728 27 760,505 482,437 GA 6 93,135 61,691 25 329,395 212,258 2 65,306 50,791 33 487,836 324,740 HI 1 81,190 55,640 — — — — — — 1 81,190 55,640 ID — — — — — — 2 22,658 14,920 2 22,658 14,920 IL 3 52,370 33,314 11 190,420 108,478 1 20,641 12,626 15 263,431 154,418 IN 1 22,211 12,027 11 186,277 119,479 1 66,189 45,452 13 274,677 176,958 KS 1 18,100 8,927 3 70,289 40,654 — — — 4 88,389 49,581 KY — — — 9 123,611 66,616 — — — 9 123,611 66,616 MA 6 163,881 115,270 1 37,589 21,655 — — — 7 201,470 136,925 MD 1 8,142 5,562 11 274,476 175,891 1 20,964 14,192 13 303,582 195,645 MN 8 100,781 64,037 1 17,214 11,307 — — — 9 117,995 75,344 MO 2 84,145 51,055 5 73,602 44,802 — — — 7 157,747 95,857 NC 2 62,674 41,898 16 244,945 172,384 — — — 18 307,619 214,282 NE — — — 1 8,508 5,007 1 26,702 17,688 2 35,210 22,695 NJ — — — 3 130,773 87,218 — — — 3 130,773 87,218 NM 2 39,717 27,119 1 36,023 20,291 3 33,303 19,892 6 109,043 67,302 NV — — — 2 86,826 56,619 — — — 2 86,826 56,619 NY 3 81,381 51,648 1 115,814 81,238 — — — 4 197,195 132,886 OH 1 18,601 11,251 1 51,269 28,727 1 4,428 1,531 3 74,298 41,509 OR — — — 1 52,356 43,379 — — — 1 52,356 43,379 PA 4 57,131 35,911 7 96,438 56,806 — — — 11 153,569 92,717 SC 1 4,942 3,170 17 143,812 97,228 — — — 18 148,754 100,398 TN 1 9,971 6,164 13 186,228 132,539 — — — 14 196,199 138,703 TX 10 202,768 131,314 13 401,567 248,267 1 20,502 13,171 24 624,837 392,752 VA 8 130,405 80,166 11 153,156 93,639 — — — 19 283,561 173,805 WA — — — — — — 2 18,356 10,183 2 18,356 10,183 WI 10 169,236 108,920 7 122,082 80,967 — — — 17 291,318 189,887 Total 91 1,861,634 1,230,653 226 4,551,857 2,876,560 18 341,284 233,262 335 6,754,775 4,340,475 Held for Sale 7 274,752 175,948 6 76,287 47,535 19 68,113 37,900 32 419,152 261,383 Grand Total 98 $ 2,136,386 $ 1,406,601 232 $ 4,628,144 $ 2,924,095 37 $ 409,397 $ 271,162 367 $ 7,173,927 $ 4,601,858 (1) Represents gross book value of real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, if any. 56 Table of Contents

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+0 added−0 removed2 unchanged
Biggest changeThe following table provides information about our purchases of our equity securities during the quarter ended December 31, 2023: Calendar Month Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs December 1 - December 31, 2023 2,451 $ 3.06 — — (1) These common share withholdings and purchases were made to satisfy tax withholding and payment obligations of a former employee of RMR in connection with the vesting of prior awards of our common shares.
Biggest changeThe following table provides information about our purchases of our equity securities during the quarter ended December 31, 2024: Calendar Month Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs December 1 - December 31, 2024 670 $ 2.28 — — (1) These common share withholdings and purchases were made to satisfy tax withholding and payment obligations of certain former employees of RMR in connection with the vesting of prior awards of our common shares.
We withheld and purchased these shares at their fair market value based upon the trading price of our common shares at the close of trading on Nasdaq on the purchase dates. Our current cash distribution rate to common shareholders is $0.01 per share per quarter, or $0.04 per share per year.
We withheld and purchased these shares at their fair market value based upon the trading price of our common shares at the close of trading on Nasdaq on the purchase date. Our current cash distribution rate to common shareholders is $0.01 per share per quarter, or $0.04 per share per year.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our common shares are traded on Nasdaq (symbol: DHC). As of February 21, 2024, there were 3,269 shareholders of record of our common shares, although there is a larger number of beneficial owners. Issuer purchases of equity securities.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our common shares are traded on Nasdaq (symbol: DHC). As of February 21, 2025, there were 1,212 shareholders of record of our common shares, although there is a larger number of beneficial owners. Issuer purchases of equity securities.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

118 edited+38 added−64 removed64 unchanged
Biggest changeFor the Year Ended December 31, 2023 2022 $ Change % Change NOI by segment: Office Portfolio $ 122,566 $ 128,091 $ (5,525) (4.3) % SHOP 76,817 8,726 68,091 nm Non-Segment 36,774 37,679 (905) (2.4) % Total NOI 236,157 174,496 61,661 35.3 % Depreciation and amortization 284,083 239,280 44,803 18.7 % General and administrative 26,131 26,435 (304) (1.1) % Acquisition and certain other transaction related costs 10,853 2,605 8,248 nm Impairment of assets 18,380 — 18,380 100.0 % Gain on sale of properties 1,205 321,862 (320,657) (99.6) % Gains and losses on equity securities, net 8,126 (25,660) 33,786 (131.7) % Interest and other income 15,536 15,929 (393) (2.5) % Interest expense (191,775) (209,383) 17,608 (8.4) % Loss on modification or early extinguishment of debt (2,468) (30,043) 27,575 (91.8) % Loss before income tax expense and equity in net (losses) earnings of investees (272,666) (21,119) (251,547) nm Income tax expense (445) (710) 265 (37.3) % Equity in net (losses) earnings of investees (20,461) 6,055 (26,516) nm Net loss $ (293,572) $ (15,774) $ (277,798) nm nm – not meaningful 67 Table of Contents Office Portfolio: Comparable Properties (1) All Properties As of December 31, As of December 31, 2023 2022 2023 2022 Total buildings 91 91 102 105 Total square feet 7,683 7,689 8,610 8,811 Occupancy 92.1 % 92.1 % 86.9 % 84.7 % Year Ended December 31, Comparable (1) Non-Comparable Properties Results Properties Results Consolidated Properties Results 2023 2022 $ Change % Change 2023 2022 2023 2022 $ Change % Change Rental income $ 197,840 $ 194,212 $ 3,628 1.9 % $ 22,690 $ 28,178 $ 220,530 $ 222,390 $ (1,860) (0.8) % Property operating expenses (83,177) (79,598) 3,579 4.5 % (14,787) (14,701) (97,964) (94,299) 3,665 3.9 % NOI $ 114,663 $ 114,614 $ 49 0.0 % $ 7,903 $ 13,477 $ 122,566 $ 128,091 $ (5,525) (4.3) % (1) Consists of medical office and life science properties that we have owned and which have been in service continuously since January 1, 2022; excludes properties classified as held for sale or out of service undergoing redevelopment, if any, and properties owned by unconsolidated joint ventures in each of which we own an equity interest.
Biggest changeFor the Year Ended December 31, 2024 2023 $ Change % Change NOI by segment: Medical Office and Life Science Portfolio $ 115,683 $ 122,566 $ (6,883) (5.6) % SHOP 106,060 76,817 29,243 38.1 % All Other 37,142 36,774 368 1.0 % Total NOI 258,885 236,157 22,728 9.6 % Depreciation and amortization 284,957 284,083 874 0.3 % General and administrative 26,518 26,131 387 1.5 % Acquisition and certain other transaction related costs 2,510 10,853 (8,343) (76.9) % Impairment of assets 70,734 18,380 52,354 nm (Loss) gain on sale of properties (18,938) 1,205 (20,143) nm Gains on equity securities, net — 8,126 (8,126) (100.0) % Interest and other income 8,950 15,536 (6,586) (42.4) % Interest expense (235,239) (191,775) (43,464) 22.7 % Loss on modification or early extinguishment of debt (324) (2,468) 2,144 (86.9) % Loss before income taxes and equity in net earnings (losses) of investees (371,385) (272,666) (98,719) 36.2 % Income tax expense (467) (445) (22) 4.9 % Equity in net earnings (losses) of investees 1,597 (20,461) 22,058 nm Net loss $ (370,255) $ (293,572) $ (76,683) 26.1 % nm – not meaningful 64 Table of Contents Medical Office and Life Science Portfolio: Comparable Properties (1) All Properties As of December 31, As of December 31, 2024 2023 2024 2023 Total properties 87 87 98 102 Total square feet 6,976 6,971 7,953 8,610 Occupancy 90.2 % 92.5 % 82.2 % 86.9 % Year Ended December 31, Comparable (1) Non-Comparable Properties Results Properties Results Consolidated Properties Results 2024 2023 $ Change % Change 2024 2023 2024 2023 $ Change % Change Rental income $ 194,274 $ 192,972 $ 1,302 0.7 % $ 19,046 $ 27,558 $ 213,320 $ 220,530 $ (7,210) (3.3) % Property operating expenses (82,870) (81,119) 1,751 2.2 % (14,767) (16,845) (97,637) (97,964) (327) (0.3) % NOI $ 111,404 $ 111,853 $ (449) (0.4) % $ 4,279 $ 10,713 $ 115,683 $ 122,566 $ (6,883) (5.6) % (1) Consists of medical office and life science properties that we have owned and which have been in service continuously since January 1, 2023; excludes properties classified as held for sale or out of service undergoing redevelopment, if any, and properties owned by unconsolidated joint ventures in each of which we own an equity interest.
Property operating expenses consist of real estate taxes, utility expenses, insurance, management fees, salaries and benefit costs of property level personnel, repairs and maintenance expense, cleaning expense and other direct costs of operating these properties.
Property operating expenses. Property operating expenses consist of real estate taxes, utility expenses, insurance, management fees, salaries and benefit costs of property level personnel, repairs and maintenance expense, cleaning expense and other direct costs of operating these properties.
Property operating expenses consist of wages and benefit costs of community level personnel, real estate taxes, utility expenses, insurance, repairs and maintenance expense, management fees, cleaning expense and other direct costs of operating these communities.
Property operating expenses consist of real estate taxes, utility expenses, insurance, wages and benefit costs of community level personnel, repairs and maintenance expense, management fees, cleaning expense and other direct costs of operating these communities.
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 a property.
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.
In calculating Normalized FFO, we adjust for the items shown below including similar adjustments for our unconsolidated joint ventures, if any. FFO and Normalized FFO are among the factors considered by our Board when determining the amount of distributions to our shareholders.
In calculating Normalized FFO, we adjust for the items shown below including similar adjustments for our unconsolidated joint ventures, if any. FFO and Normalized FFO are among the factors considered by our Board of Trustees when determining the amount of distributions to our shareholders.
For further information about these and other such relationships and related person transactions, see Notes 3, 6, 7 and 8 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K, which are incorporated herein by reference and our other filings with the SEC including our definitive Proxy Statement for our 2024 Annual Meeting of Shareholders, or our definitive Proxy Statement, to be filed with the SEC within 120 days after the fiscal year ended December 31, 2023.
For further information about these and other such relationships and related person transactions, see Notes 3, 6, 7 and 8 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K, which are incorporated herein by reference and our other filings with the SEC including our definitive Proxy Statement for our 2025 Annual Meeting of Shareholders, or our definitive Proxy Statement, to be filed with the SEC within 120 days after the fiscal year ended December 31, 2024.
Our definition of NOI and our reconciliation of net income (loss) to NOI and a description of why we believe NOI is an appropriate supplemental measure are included below under the heading “Non-GAAP Financial Measures.” For a comparison of consolidated results for the year ended December 31, 2022 compared to the year ended December 31, 2021, see Part II, Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022.
Our definition of NOI and our reconciliation of net income (loss) to NOI and a description of why we believe NOI is an appropriate supplemental measure are included below under the heading “Non-GAAP Financial Measures.” For a comparison of consolidated results for the year ended December 31, 2023 compared to the year ended December 31, 2022, see Part II, Item 7 “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023.
The pandemic further accelerated this trend because of stronger consumer preference for off-campus care in more convenient locations. Costs within the industry continue to be in focus with health system operating margins being under pressure in recent years, which is, while moderating, a theme that may continue in 2024.
The pandemic further accelerated this trend because of stronger consumer preference for off-campus care in more convenient locations. Costs within the industry continue to be in focus with health system operating margins being under pressure in recent years, which is, while moderating, a theme that may continue in 2025.
Our credit and debt ratings depend upon evaluations by credit rating agencies of our business practices and plans, including our ability to maintain our earnings, to stagger our debt maturities and to balance our use of debt and equity capital so that our financial performance and leverage ratios afford us flexibility to withstand any reasonably anticipated adverse changes.
Our credit and debt ratings depend upon evaluations by credit rating agencies of our business practices and plans, including our ability to maintain our earnings, our liquidity position, to stagger our debt maturities and to balance our use of debt and equity capital so that our financial performance and leverage ratios afford us flexibility to withstand any reasonably anticipated adverse changes.
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.
We allocate a portion of the purchase price to above market and below market leases based on the present value (using an interest rate which reflects the risks associated with acquired in place leases at the time each property was acquired by us) of the difference, if any, between (i) the contractual amounts to be paid pursuant to the acquired in 76 Table of Contents place leases and (ii) our estimates of fair market lease rates for the corresponding leases, measured over a period equal to the terms of the respective leases.
In the medical office sector, the industry has been trending toward a greater proportion of outpatient care resulting in an increasing number of multi-practice medical office buildings, anchor leased by hospital systems, and a decline in free-standing medical practices, a potential benefit to our Office Portfolio.
In the medical office sector, the industry has been trending toward a greater proportion of outpatient care resulting in an increasing number of multi-practice medical office buildings, anchor leased by hospital systems, and a decline in free-standing medical practices, a potential benefit to our Medical Office and Life Science Portfolio.
Impact of Government Reimbursement For the year ended December 31, 2023, substantially all of our NOI was generated from properties where a majority of the revenues are derived from our tenants' and residents' private resources, and a small amount of our NOI was generated from properties where a majority of the revenues are derived from Medicare and Medicaid payments.
Impact of Government Reimbursement For the year ended December 31, 2024, substantially all of our NOI was generated from properties where a majority of the revenues are derived from our tenants' and residents' private resources, and a small amount of our NOI was generated from properties where a majority of the revenues are derived from Medicare and Medicaid payments.
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 (dollars and square feet in thousands, except average monthly rate): Unless otherwise indicated, references in this section to changes or comparisons of results, income or expenses refer to comparisons of the results for the year ended December 31, 2023 to the year ended December 31, 2022.
Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 (dollars and square feet in thousands, except average monthly rate): Unless otherwise indicated, references in this section to changes or comparisons of results, income or expenses refer to comparisons of the results for the year ended December 31, 2024 to the year ended December 31, 2023.
An economic recession, or continued or intensified disruptions in the financial markets, could adversely affect our financial condition and that of our managers, operators and tenants, could adversely impact the ability or willingness of our managers, operators, tenants or residents to pay amounts owed to us, could impair our ability to effectively deploy our capital or realize our target returns on our investments, may restrict our access to, and would likely increase our cost of, capital, and may cause the values of our properties and of our securities to decline.
Continued or intensified disruptions in the financial markets could adversely affect our financial condition and that of our managers, operators and tenants, could adversely impact the ability or willingness of our managers, operators, tenants or residents to pay amounts owed to us, could impair our ability to effectively deploy our capital or realize our target returns on our investments, may restrict our access to, and would likely increase, our cost of capital, and may cause the values of our properties and of our securities to decline.
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.
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.
The change in NOI reflects the net changes in residents fees and services and property operating expenses described above.
Net operating income. The change in NOI reflects the net changes in residents fees and services and property operating expenses described above.
Non-GAAP Financial Measures (dollars in thousands, except per share amounts) We present certain "non-GAAP financial measures" within the meaning of applicable SEC rules, including FFO, Normalized FFO and NOI for the years ended December 31, 2023 and 2022.
Non-GAAP Financial Measures (dollars in thousands, except per share amounts) We present certain "non-GAAP financial measures" within the meaning of applicable SEC rules, including FFO, Normalized FFO and NOI for the years ended December 31, 2024 and 2023.
Our calculations of FFO and Normalized FFO for the years ended December 31, 2023 and 2022 and reconciliations of net income (loss), the most directly comparable financial measure under GAAP reported in our consolidated financial statements, to FFO and Normalized FFO appear in the following table.
Our calculations of FFO and Normalized FFO for the years ended December 31, 2024 and 2023 and reconciliations of net income (loss), the most directly comparable financial measure under GAAP reported in our consolidated financial statements, to FFO and Normalized FFO appear in the following table.
We cannot currently predict the type and magnitude of the potential Medicare and Medicaid policy changes, rate changes or other changes that may be implemented, but we believe that some of these changes will cause these government funded 80 Table of Contents healthcare programs to fail to provide rates that match our and our tenants' increasing expenses and that such changes may be material and adverse to our future financial results.
We cannot currently predict the type and magnitude of the potential Medicare and Medicaid policy changes, rate changes or other changes that may be implemented, but we believe that some of these changes will cause these government funded healthcare programs to fail to provide rates that match our and our tenants' increasing expenses and that such changes may be material and adverse to our future financial results.
GENERAL INDUSTRY TRENDS The healthcare industry remains one of the most resilient commercial real estate sectors, in part due to the scale of the U.S. healthcare market, which collectively represents approximately 17% of the U.S. GDP, according to CMS.
GENERAL INDUSTRY TRENDS The healthcare industry remains one of the most resilient commercial real estate sectors, in part due to the scale of the U.S. healthcare market, which collectively represents approximately 18% of the U.S. GDP, according to CMS.
If the value of tenant relationships becomes material in the future, we may separately allocate those amounts and amortize the allocated amount over the estimated life of the relationships. We regularly evaluate our properties for indicators of impairment.
If the value of tenant relationships becomes material in the future, we may separately allocate those amounts and amortize the allocated amount over the estimated life of the relationships. We regularly evaluate our assets for indicators of impairment.
We believe we may have access to certain types of financings, including debt or equity offerings, to fund our operations and to repay our debts and other obligations as they become due.
We believe we may have access to various types of financings, including debt or equity offerings, to fund our operations and repay our debts and other obligations as they become due.
As of December 31, 2023, we believe we were in compliance with all of the covenants under our senior notes indentures and their supplements and our other debt obligations.
As of December 31, 2024, we believe we were in compliance with all of the covenants under our senior notes indentures and their supplements and our other debt obligations.
Our non-guarantor subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due on our 9.75% senior notes due 2025 or our 4.375% senior notes due 2031 or the respective guarantees, or to make any funds available therefor, whether by 78 Table of Contents dividend, distribution, loan or other payments.
Our non-guarantor subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due on our 9.75% senior notes due 2025 or our 4.375% senior notes due 2031 or the respective guarantees, or to make any funds available therefor, whether by dividend, distribution, loan or other payments.
While certain costs, primarily labor, insurance and food costs, have increased, we expect these cost increases to moderate and decline, which will provide our operators the opportunity to increase rates in excess of increases in costs, resulting in improving returns to us.
While certain costs, primarily labor, insurance and food costs, have increased, we expect these cost increases to moderate, which will provide our managers the opportunity to increase rates in excess of increases in costs, resulting in improving returns to us.
Pursuant to the Master Management Agreement, Five Star receives a 62 Table of Contents 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.
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.
Funding in the past two years has been increasingly concentrated on companies located in the top three markets of Boston, San Francisco and San Diego with more stringent requirements. New construction of life science properties hit record levels in 2021 and 2023 across major markets, and the construction pipeline, while decreasing, remains elevated into 2024.
Funding in the past three years has been increasingly concentrated on companies located in the top three markets of Boston, San Francisco and San Diego with more stringent requirements. New construction of life science properties hit record levels in 2023 across major markets, and the construction pipeline, while decreasing, remains elevated into 2025.
We believe that these sources of funds will be sufficient to meet our operating and capital expenses, pay debt service obligations and make distributions to our shareholders for at least the next 12 months.
We believe that these sources of funds will be sufficient to meet our operating and capital expenses, pay our debt service obligations and make distributions to our shareholders for at least the next 12 months and for the foreseeable future thereafter.
We believe there is a favorable mix of increased demand and limited supply for senior living communities which we expect will benefit us and our existing portfolio of senior living communities in the future. As a result of elevated financing and construction costs over recent years, inventory growth for senior living communities has reached a new low.
We believe there is a favorable mix of increased demand and limited supply for senior living communities which we expect will benefit us and our existing portfolio of senior living communities in the future. As a result of elevated financing and construction costs over recent years, inventory growth for senior living communities has been historically low.
As of December 31, 2023, all $500.0 million of our 9.75% senior notes due 2025 and all $500.0 million of our 4.375% senior notes due 2031 were fully and unconditionally guaranteed, on a joint, several and unsecured basis, by all of our subsidiaries, except for certain excluded subsidiaries.
As of December 31, 2024, all $380.0 million of our 9.75% senior notes due 2025 and all $500.0 million of our 4.375% senior notes due 2031 were fully and unconditionally guaranteed, on a joint, several and unsecured basis, by all of our subsidiaries except certain excluded subsidiaries.
A protracted negative impact on the economy or the industries in which our properties and businesses operate, wage and commodity price inflation, high interest rates, increased insurance costs, geopolitical risks or other economic, market or industry conditions, including the delayed recovery of the senior housing industry, economic downturns and a possible recession, may have various negative consequences including a decline in financing availability and 76 Table of Contents increased costs for financing.
A protracted negative impact on the economy or the industries in which our properties and businesses operate resulting from wage and commodity price inflation, high interest rates, geopolitical risks or other economic, market or industry conditions, including the delayed recovery of the senior housing industry, economic downturns and a possible recession, may have various negative consequences including a decline in financing availability and increased costs for financing.
(2) Consists of properties that we have owned and which have been reported in the same segment and leased to the same operator continuously since January 1, 2022; excludes properties classified as held for sale, if any. Rental income.
(2) Consists of properties that we have owned and which have been reported in the same segment and leased to the same operator continuously since January 1, 2023; excludes properties classified as held for sale, if any.
Our ability to complete, and the costs associated with, future debt or equity transactions depends primarily upon credit market conditions and our then creditworthiness and our ability to be in compliance with our debt covenants as discussed below. We have no control over market conditions.
Our ability to complete, and the costs associated with, future debt or equity transactions depends primarily upon market conditions and our then creditworthiness and our ability to be in compliance with our debt covenants. We have no control over market conditions.
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.
The notes and related guarantees are effectively subordinated to all of our and the subsidiary guarantors' secured indebtedness, respectively, to the extent of the value of the applicable collateral, and are structurally subordinated to all indebtedness and other liabilities and any preferred equity of any of our subsidiaries that do not guarantee the notes.
During the year ended December 31, 2023, we paid quarterly cash distributions to our shareholders totaling approximately $9.6 million using existing cash balances. For further information regarding the distributions we paid during 2022, see Note 5 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
During the year ended December 31, 2024, we paid quarterly cash distributions to our shareholders totaling approximately $9.6 million using cash on hand. For further information regarding the distributions we paid during 2024, see Note 5 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
Loss on modification or early extinguishment of debt. During the year ended December 31, 2023, we recorded a loss on modification or early extinguishment of debt in connection with amendments to and repayment in full of our then credit facility as well as redemption of $250,000 of our 4.750% senior notes due May 2024.
During the year ended December 31, 2023, we recorded a loss on modification or early 67 Table of Contents extinguishment of debt in connection with amendments to and repayment in full of our then credit facility as well as redemption of $250,000 of our 4.750% senior notes due May 2024. Income tax expense.
OVERVIEW We are a REIT organized under Maryland law that primarily owns medical office and life science properties, senior living communities and other healthcare related properties throughout the United States. As of December 31, 2023, we owned 371 properties located in 36 states and Washington, D.C., including one property classified as held for sale and three closed senior living communities.
OVERVIEW We are a REIT organized under Maryland law that primarily owns medical office and life science properties, senior living communities and other healthcare related properties throughout the United States. As of December 31, 2024, we owned 367 properties located in 36 states and Washington, D.C., including 32 properties classified as held for sale and three closed senior living communities.
As of December 31, 2023, we had $245.9 million of cash and cash equivalents. We typically use cash balances, net proceeds from offerings of securities, debt issuances or dispositions of assets and cash flows from our operations to fund our operations, debt repayments, distributions, acquisitions, investments, capital expenditures and other general business purposes.
As of December 31, 2024, we had $144.6 million of cash and cash equivalents. We typically use cash balances, net proceeds from offerings of securities, debt issuances or dispositions of assets and cash flows from our operations to fund our operations, debt repayments, distributions, acquisitions, investments, capital expenditures and other general business purposes.
We also report “non-segment” operations, which consists of triple net leased senior living communities that are leased to third party operators from which we receive rents and wellness centers. Office Portfolio As of December 31, 2023, we owned 102 medical office and life science properties located in 24 states and Washington, D.C.
We also report “all other” operations, which consists of triple net leased wellness centers and senior living communities that are leased to third party operators from which we receive rents. Medical Office and Life Science Portfolio As of December 31, 2024, we owned 98 medical office and life science properties located in 24 states and Washington, D.C.
During the years ended December 31, 2023, December 31, 2022 and December 31, 2021, we recognized $1.6 million, $4.3 million and $19.6 million, respectively, in interest and other income in our consolidated statements of operations related to funds received under the CARES Act and ARPA. Seasonality Senior housing operations have historically reflected modest seasonality.
During the years ended December 31, 2024, 2023 and 2022, we recognized $0.0 million, $1.6 million and $4.3 million, respectively, in interest and other income in our consolidated statements of comprehensive income (loss) related to funds received under the CARES Act and ARPA. 77 Table of Contents Seasonality Senior housing operations have historically reflected modest seasonality.
We have not independently verified tenant operating data. We operate in, and report financial information for, the following two segments: Office Portfolio and SHOP. 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.
We operate in, and report financial information for, the following two segments: Medical Office and Life Science Portfolio and SHOP. Our Medical Office and Life Science Portfolio segment primarily consists of medical office properties leased to medical providers and other medical related businesses, as well as life science properties primarily leased to biotech laboratories and other similar tenants.
In the life science sector, particularly with properties that provide laboratory or medical manufacturing space, over the years there has been significant capital invested across the bio-medical research space, driving a large increase in demand for laboratory and research space. Venture capital funding reached an all-time high in 2021; however, such funding significantly declined in 2022 and 2023.
In the life science sector, particularly with properties that provide laboratory or medical manufacturing space, over the years there has been significant capital invested across the bio-medical research space, driving a large increase in demand for laboratory and research space. Venture capital funding significantly declined in 2022, 2023 and 2024.
(2) Building improvements generally include capital expenditures to replace obsolete building components that extend the useful life of existing assets or other improvements to increase the marketability of the property. (3) Development, redevelopment and other activities generally include capital expenditures that reposition a property or result in new sources of revenue.
(2) Includes capital expenditures to replace obsolete building components that extend the useful life of existing assets or other improvements to increase the marketability of the property. (3) Includes capital expenditures that reposition a property or result in new sources of revenue.
Senior Housing Operating Portfolio Our managed senior living communities are operated by third parties pursuant to management agreements. Five Star, which is an operating division of AlerisLife, manages many of our SHOP communities, and we lease nearly all of our senior living communities, including those managed by third party managers, to our TRSs.
Five Star, which is an operating division of AlerisLife, manages many of our SHOP communities, and we lease nearly all of our senior living communities, including those managed by third party managers, to our TRSs.
These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) or net income (loss) attributable to common shareholders as indicators of our operating performance or as measures of our liquidity.
These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss) as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with net income (loss) as presented in our consolidated statements of comprehensive income (loss).
Our remaining $1.1 billion of senior unsecured notes do not have the benefit of any guarantees as of December 31, 2023.
Our remaining $1.1 billion of senior unsecured notes do not have the benefit of any guarantees.
Debt Covenants Our principal debt obligations at December 31, 2023 were: (1) $2.1 billion outstanding principal amount of senior unsecured notes; (2) $940.5 million outstanding principal amount of senior secured notes; and (3) $9.1 million aggregate principal amount of mortgage notes (excluding premiums, discounts and net debt issuance costs) secured by one property.
Debt Covenants Our principal debt obligations at December 31, 2024 were: (1) $2.0 billion outstanding principal amount of senior unsecured notes; (2) $940.5 million outstanding principal amount of senior secured notes; and (3) $127.5 million aggregate principal amount of mortgage notes (excluding discounts, premiums and net debt issuance costs) secured by nine properties.
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 $2.4 million in aggregate. We paid this distribution on February 15, 2024, using cash on hand.
On January 16, 2025, we declared a quarterly distribution to common shareholders of record on January 27, 2025 of $0.01 per share, or approximately $2.4 million in aggregate. We paid this distribution on February 20, 2025, using cash on hand.
For further information regarding our acquisitions and dispositions, see Note 3 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
For further information regarding our outstanding debt, see Note 9 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
For the years ended December 31, 2023, 2022 and 2021, we recorded $0, $2.1 million and $17.4 million, 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.
For the years ended December 31, 2024, 2023 and 2022, we recorded $2.2 million, $0.0 million and $2.1 million, respectively, of costs that we incurred related to retention, transition, termination and other costs to acquisition and certain other transaction related costs in our consolidated statements of comprehensive income (loss).
FFO is calculated on the basis defined by the National Association of Real Estate Investment Trusts, which is net income (loss) attributable to common shareholders, calculated in accordance with GAAP, excluding any gain or loss on sale of properties, equity in net earnings or losses of unconsolidated joint ventures, loss on impairment of real estate assets, gains or losses on equity securities, net, if any, and including adjustments to reflect our proportionate share of FFO of our former equity method investment in AlerisLife for the periods we had an equity investment in AlerisLife that we accounted for as an equity method investment and our proportionate share of FFO from our unconsolidated joint ventures, plus real estate depreciation and amortization of consolidated properties, as well as certain other adjustments currently not applicable to us.
FFO is calculated on the basis defined by the National Association of Real Estate Investment Trusts, which is net income (loss), calculated in accordance with GAAP, excluding any gain or loss on sale of properties, equity in net earnings or losses of investees, loss on impairment of real estate assets, gains or losses on equity securities, net, if any, and including adjustments to reflect our proportionate share of FFO of our equity method investees, plus real estate depreciation and amortization of consolidated properties, as well as certain other adjustments currently not applicable to us.
The change in cash provided by (used in) operating activities for the year ended December 31, 2023 compared to the prior year was primarily due to increased NOI as a result of increased rates and occupancy at the senior living communities in our SHOP segment.
The increase in cash provided by operating activities for the year ended December 31, 2024 compared to 2023 was primarily due to higher cash flows from our properties as a result of increased rates and occupancy at the senior living communities in our SHOP segment.
We subsequently redeemed $500.0 million of this debt in June 2022, with $500.0 million remaining outstanding. On February 3, 2021, we issued $500.0 million of our 4.375% senior notes due 2031.
We subsequently redeemed $500.0 million and $120.0 million of this debt during 2022 and 2024, respectively, with $380.0 million remaining outstanding. On February 3, 2021, we issued $500.0 million of our 4.375% senior notes due 2031.
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.
Our $940.5 million in outstanding senior secured notes due 2026 are fully and unconditionally guaranteed, on a joint, several and senior secured basis, by certain of our subsidiaries that own 95 properties, or the Collateral Guarantors, and on a joint, several and unsecured basis, by all our subsidiaries other than the Collateral Guarantors and certain excluded subsidiaries.
Gains and losses on equity securities, net, represent the net realized and unrealized gains and losses to adjust our former investment in AlerisLife to its fair value. For further information regarding our former investment in AlerisLife, see Note 10 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
For information regarding (loss) gain on sale of properties, see Note 3 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. Gains on equity securities, net. Gains on equity securities, net, represent the net gains to adjust our investment in AlerisLife to its fair value during 2023.
The calculation of NOI excludes certain components of net income (loss) in order to provide results that are more closely related to our property level results of operations. We define NOI as income from our real estate less our property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions that we record as depreciation and amortization.
The calculation of NOI excludes certain components of net income (loss) in order to provide results that are more closely related to our property level results of operations. We define NOI as income from our real estate less our property operating expenses. NOI excludes depreciation and amortization. We use NOI to evaluate individual and company-wide property level performance.
We used a portion of the net proceeds to repay in full the $450.0 million outstanding under our then secured credit facility and to redeem $250.0 million of our senior notes that were scheduled to mature in May 2024.
The net proceeds from the offering were approximately $730.4 million after deducting initial purchaser discounts and estimated offering costs. We used a portion of the net proceeds to repay in full the $450.0 million outstanding under our then secured credit facility and to redeem $250.0 million of our senior notes that were scheduled to mature in May 2024.
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.
These notes and the guarantees provided by the Collateral Guarantors are secured by a first priority lien and security interest in each of the collateral properties and 100% of the equity interests in each of the Collateral Guarantors.
Income tax expense is the result of operating income we earned in certain jurisdictions where we are subject to state income taxes. Equity in net earnings of investees. Equity in net earnings of investees is the change in the fair value of our investments in our unconsolidated joint ventures.
Income tax expense is the result of operating income we earned in certain jurisdictions where we are subject to state income taxes. Equity in net earnings (losses) of investees.
In addition, Five Star delivered to us a related amended and restated guaranty agreement pursuant to which Five Star is continuing to guarantee the payment and performance of each of its applicable subsidiary's obligations under the applicable management agreements. As of December 31, 2023, Five Star managed 119 senior living communities for our account.
In addition, Five Star delivered to us a related amended and restated guaranty agreement pursuant to which Five Star is continuing to guarantee the payment and performance of each of its applicable subsidiary's obligations under the applicable management agreements. Our other third party managers manage 114 of our senior living communities.
This table also provides a comparison of distributions to shareholders, FFO and Normalized FFO and net income (loss) per share for these periods. 71 Table of Contents For the Year Ended December 31, 2023 2022 Net loss $ (293,572) $ (15,774) Depreciation and amortization 284,083 239,280 Gain on sale of properties (1,205) (321,862) Impairment of assets 18,380 — Gains and losses on equity securities, net (8,126) 25,660 Equity in net losses (earnings) of unconsolidated joint ventures 20,461 (6,055) Share of FFO from unconsolidated joint ventures 7,738 11,518 Adjustments to reflect our share of FFO attributable to an equity method investment (1,586) (7,715) FFO 26,173 (74,948) Acquisition and certain other transaction related costs 10,853 2,605 Loss on modification or early extinguishment of debt 2,468 30,043 Adjustments to reflect our share of Normalized FFO attributable to an equity method investment 1,576 3,975 Normalized FFO $ 41,070 $ (38,325) Weighted average common shares outstanding (basic and diluted) 238,836 238,314 Per common share data (basic and diluted): Net loss $ (1.23) $ (0.07) FFO $ 0.11 $ (0.31) Normalized FFO $ 0.17 $ (0.16) Distributions declared $ 0.04 $ 0.04 Property Net Operating Income (NOI) We calculate NOI as shown below.
This table also provides a comparison of distributions to shareholders, FFO and Normalized FFO and net income (loss) per share for these periods. 68 Table of Contents For the Year Ended December 31, 2024 2023 Net loss $ (370,255) $ (293,572) Depreciation and amortization 284,957 284,083 Loss (gain) on sale of properties 18,938 (1,205) Impairment of assets 70,734 18,380 Gains on equity securities, net — (8,126) Equity in net (earnings) losses of investees (1,597) 20,461 Share of FFO from unconsolidated joint ventures 9,006 7,738 Adjustments to reflect our share of FFO attributable to an equity method investment 13,807 (1,586) FFO 25,590 26,173 Acquisition and certain other transaction related costs 2,510 10,853 Loss on modification or early extinguishment of debt 324 2,468 Adjustments to reflect our share of Normalized FFO attributable to an equity method investment (8,755) 1,576 Normalized FFO $ 19,669 $ 41,070 Weighted average common shares outstanding (basic and diluted) 239,535 238,836 Per common share data (basic and diluted): Net loss $ (1.55) $ (1.23) FFO $ 0.11 $ 0.11 Normalized FFO $ 0.08 $ 0.17 Distributions declared $ 0.04 $ 0.04 Property Net Operating Income (NOI) We calculate NOI as shown below.
The 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.
No cash interest will accrue on these senior secured notes prior 73 Table of Contents to maturity. The accreted value of these senior secured notes will increase at a rate of 11.25% per annum compounded semiannually on January 15 and July 15 of each year.
All Other As of December 31, 2023, lease expirations at our triple net leased senior living communities leased to third party operators and wellness centers were as follows (dollars in thousands): Year Number of Properties Number of Units or Square Feet Annualized Rental Income (1) Percent of Total Cumulative Percent of Total 2024 — — $ — — % — % 2025 3 129,500 sq. ft. 1,458 3.7 % 3.7 % 2026 — — — — % 3.7 % 2027 4 533 units 4,612 11.8 % 15.5 % 2028 — — — — % 15.5 % 2029 1 155 units 547 1.4 % 16.9 % 2030 2 283 units 3,496 8.9 % 25.8 % 2031 1 — — — % 25.8 % 2032 18 876 units 9,836 25.1 % 50.9 % 2033 and thereafter 8 215 units and 682,500 sq. ft. 19,227 49.1 % 100.0 % Total 37 $ 39,176 100.0 % (1) Annualized rental income is based on rents pursuant to existing leases as of December 31, 2023.
All Other As of December 31, 2024, lease expirations at our triple net leased wellness centers and senior living communities leased to third party operators were as follows (dollars in thousands): Year Number of Properties Number of Units or Square Feet Annualized Rental Income (1) Percent of Total Cumulative Percent of Total 2025 — — $ — — % — % 2026 — — — — % — % 2027 4 533 units 4,659 11.7 % 11.7 % 2028 — — — — % 11.7 % 2029 1 155 units 547 1.4 % 13.1 % 2030 5 283 units and 129,600 sq. ft. 5,046 12.7 % 25.8 % 2031 — — — — % 25.8 % 2032 (2) 18 876 units 10,254 25.8 % 51.6 % 2033 1 215 units 5,177 13.0 % 64.6 % 2034 and thereafter 7 682,646 sq. ft. 14,068 35.4 % 100.0 % Total (3) 36 $ 39,751 100.0 % Weighted average remaining lease term (in years) (4) 9.2 10.0 (1) Annualized rental income is based on rents pursuant to existing leases as of December 31, 2024.
For the Year Ended December 31, 2023 2022 Reconciliation of Net Loss to NOI: Net loss $ (293,572) $ (15,774) Equity in net losses (earnings) of investees 20,461 (6,055) Income tax expense 445 710 Loss from continuing operations before income tax expense and equity in net (losses) earnings of investees (272,666) (21,119) Loss on modification or early extinguishment of debt 2,468 30,043 Interest expense 191,775 209,383 Interest and other income (15,536) (15,929) Gains and losses on equity securities, net (8,126) 25,660 Gain on sale of properties (1,205) (321,862) Impairment of assets 18,380 — Acquisition and certain other transaction related costs 10,853 2,605 General and administrative 26,131 26,435 Depreciation and amortization 284,083 239,280 Total NOI $ 236,157 $ 174,496 Office Portfolio NOI $ 122,566 $ 128,091 SHOP NOI 76,817 8,726 Non-Segment NOI 36,774 37,679 Total NOI $ 236,157 $ 174,496 LIQUIDITY AND CAPITAL RESOURCES Our principal sources of cash to meet operating and capital expenses, pay debt service obligations and make distributions to our shareholders are the operating cash flows we generate as rental income from our leased properties, residents fees and services revenues from our managed communities and proceeds from the disposition of certain properties.
For the Year Ended December 31, 2024 2023 Reconciliation of Net Loss to NOI: Net loss $ (370,255) $ (293,572) Equity in net (earnings) losses of investees (1,597) 20,461 Income tax expense 467 445 Loss before income taxes and equity in net earnings (losses) of investees (371,385) (272,666) Loss on modification or early extinguishment of debt 324 2,468 Interest expense 235,239 191,775 Interest and other income (8,950) (15,536) Gains on equity securities, net — (8,126) Loss (gain) on sale of properties 18,938 (1,205) Impairment of assets 70,734 18,380 Acquisition and certain other transaction related costs 2,510 10,853 General and administrative 26,518 26,131 Depreciation and amortization 284,957 284,083 Total NOI $ 258,885 $ 236,157 Medical Office and Life Science Portfolio NOI $ 115,683 $ 122,566 SHOP NOI 106,060 76,817 All Other NOI 37,142 36,774 Total NOI $ 258,885 $ 236,157 LIQUIDITY AND CAPITAL RESOURCES Our principal sources of cash to meet operating and capital expenses, pay our debt service obligations and make distributions to our shareholders are the operating cash flows we generate as rental income from our leased properties, residents fees and services revenues from our managed communities and proceeds from the disposition of certain properties.
For the year ended December 31, 2023, acquisition and certain other transaction related costs primarily represent costs incurred in connection with our terminated merger with OPI and costs incurred for financial advisory services regarding our then 2024 debt maturities.
For the year ended December 31, 2023, acquisition and certain other transaction related costs primarily represent costs incurred in connection with our terminated merger with Office Properties Income Trust, costs incurred for financial advisory services regarding our then existing 2024 debt maturities and costs related to the transition of certain senior living communities to other third party managers.
For further information regarding these laws and regulations, and possible legislative and regulatory changes, see "Business—Government Regulation and Reimbursement" in Part I, Item 1 of this Annual Report on Form 10-K. 66 Table of Contents RESULTS OF OPERATIONS (dollars and square feet in thousands, unless otherwise noted) The following table summarizes the results of operations of each of our segments for the years ended December 31, 2023 and 2022: For the Year Ended December 31, 2023 2022 Revenues: Office Portfolio $ 220,530 $ 222,390 SHOP 1,151,908 1,022,826 Non-Segment 37,870 38,350 Total revenues $ 1,410,308 $ 1,283,566 Net income (loss): Office Portfolio $ (12,183) $ 378,282 SHOP (99,620) (139,589) Non-Segment (181,769) (254,467) Net income (loss) $ (293,572) $ (15,774) The following sections analyze and discuss the results of operations of each of our segments for the periods presented.
For further information regarding these laws and regulations, and possible legislative and regulatory changes, see "Business—Government Regulation and Reimbursement" in Part I, Item 1 of this Annual Report on Form 10-K. 63 Table of Contents RESULTS OF OPERATIONS (dollars and square feet in thousands, unless otherwise noted) The following table summarizes the results of operations of each of our segments for the years ended December 31, 2024 and 2023: For the Year Ended December 31, 2024 2023 Revenues: Medical Office and Life Science Portfolio $ 213,320 $ 220,530 SHOP 1,244,389 1,151,908 All Other 37,718 37,870 Total revenues $ 1,495,427 $ 1,410,308 Net loss: Medical Office and Life Science Portfolio $ (66,668) $ (12,183) SHOP (89,807) (99,620) All Other (213,780) (181,769) Net loss $ (370,255) $ (293,572) The following sections analyze and discuss the results of operations of each of our segments for the periods presented.
Consolidated: References to changes in the income and expense categories below relate to the comparison of consolidated results for the year ended December 31, 2023, compared to the year ended December 31, 2022. Depreciation and amortization expense.
Net operating income. The change in NOI reflects the net changes in rental income and property operating expenses described above. Consolidated: References to changes in the income and expense categories below relate to the comparison of consolidated results for the year ended December 31, 2024, compared to the year ended December 31, 2023. Depreciation and amortization expense.
Our senior unsecured notes indentures and their supplements contain cross default provisions to any other debts of more than $20.0 million ($50.0 million or more in the case of our senior notes indentures and supplements entered in February 2016, February 2018, June 2020, February 2021 and December 2023).
See "—Our Financing Liquidity and Resources" above for information regarding recent changes to our issuer credit rating and senior debt ratings. 74 Table of Contents Our senior unsecured notes indentures and their supplements contain cross default provisions to any other debts of more than $20.0 million ($50.0 million or more in the case of our senior notes indentures and supplements entered in February 2016, February 2018, June 2020, February 2021 and December 2023).
(2) Represents gross book value of real estate assets divided by number of rentable square feet or living units, as applicable, at December 31, 2023. (3) We calculate our NOI on a consolidated basis and by reportable segment. Our definition of NOI and our reconciliation of net income (loss) to NOI are included below under the heading “Non-GAAP Financial Measures”.
(2) Represents gross book value of real estate assets divided by number of rentable square feet or living units, as applicable, at December 31, 2024. (3) We calculate our NOI on a consolidated basis and by reportable segment.
For information about our asset impairment charges, see Note 3 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. Gain on sale of properties. Gain on sale of properties is the net result of our sales of certain of our properties and joint venture equity interests during 2023 and 2022.
Impairment of assets. For information about our asset impairment charges, see Note 3 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. (Loss) gain on sale of properties.
For more information regarding the merger, see Note 8 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
For further information regarding our investment in AlerisLife, see Notes 2 and 8 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. Interest and other income.
For further information regarding gain on sale of properties, see Note 3 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. Gains and losses on equity securities, net.
For further information regarding our investments in our joint ventures and AlerisLife see Notes 2, 3 and 8 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
These policies affect our: • allocation of purchase prices among various asset categories, including allocations to above and below market leases, and the related impact on the recognition of rental income and depreciation and amortization expenses; and • assessment of the carrying values and impairments of long lived assets. 79 Table of Contents 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.
Our most critical accounting policies involve our investments in real property. These policies affect our: • allocation of purchase prices among various asset categories, including allocations to above and below market leases, and the related impact on the recognition of rental income and depreciation and amortization expenses; and • assessment of the carrying values and impairments of long lived assets.
In December 2023, we issued $940.5 million in aggregate principal amount at maturity of our senior secured notes due 2026 in a private offering, raising net proceeds of $730.4 million, after deducting initial purchaser discounts and estimated offering costs.
The decrease was partially offset by the issuance of $940.5 million in aggregate principal amount at maturity of our senior secured notes due 2026 in a private offering, raising net proceeds of $730.4 million, after deducting initial purchaser discounts and estimated offering costs, and the redemption of $120.0 million of our 9.75% senior notes due June 2025 during 2024.
This analysis requires us to judge whether indicators of impairment exist and to estimate likely future cash flows. The future cash flows are subjective and are based in part on assumptions regarding hold periods, market rents and terminal capitalization rates.
The future cash flows are subjective and are based in part on assumptions regarding hold periods, market rents and terminal capitalization rates.
These measures should be considered in conjunction with net income (loss) and net income (loss) attributable to common shareholders as presented in our consolidated statements of operations. We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss) and net income (loss) attributable to common shareholders.
We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss).
(5) Medical office and life science property occupancy data is as of December 31, 2023 and 2022 and includes (i) out of service assets undergoing redevelopment, (ii) space which is leased but is not occupied or is being offered for sublease by tenants and (iii) space being fitted out for occupancy.
Our definition of NOI and our reconciliation of net income (loss) to NOI are included below under the heading “Non-GAAP Financial Measures”. 58 Table of Contents (4) Medical office and life science property occupancy data is as of December 31, 2024 and 2023 and includes (i) out of service assets undergoing redevelopment, (ii) space which is leased but is not occupied or is being offered for sublease by tenants and (iii) space being fitted out for occupancy.
These properties have a total of 8.6 million square feet. 60 Table of Contents During the year ended December 31, 2023, we entered into new and renewal leases in our Office Portfolio segment as summarized in the following table (dollars and square feet in thousands, except per square foot amounts): Year Ended December 31, 2023 New Leases Renewals Total Square feet leased during the period 284 602 886 Weighted average rental rate change (by rentable square feet) 12.8 % 10.4 % 11.1 % Weighted average lease term (years) 10.3 6.2 7.5 Total leasing costs and concession commitments (1) $ 24,151 $ 11,932 $ 36,083 Total leasing costs and concession commitments per square foot (1) $ 85.08 $ 19.82 $ 40.74 Total leasing costs and concession commitments per square foot per year (1) $ 8.24 $ 3.20 $ 5.42 (1) Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent.
During the year ended December 31, 2024, we entered into new and renewal leases in our Medical Office and Life Science Portfolio segment as summarized in the following table (dollars and square feet in thousands, except per square foot amounts): Year Ended December 31, 2024 New Leases Renewals Total Square feet leased during the period 100 297 397 Weighted average rental rate change (by rentable square feet) 17.0 % 6.5 % 8.9 % Weighted average lease term (years) 7.6 5.1 5.7 Total leasing costs and concession commitments (1) $ 7,288 $ 4,841 $ 12,129 Total leasing costs and concession commitments per square foot (1) $ 73.14 $ 16.32 $ 30.60 Total leasing costs and concession commitments per square foot per year (1) $ 9.59 $ 3.18 $ 5.34 (1) Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent.
If indicators of impairment are present, we evaluate the carrying value of the related property by comparing it to the expected future cash flows to be generated from that property. If the sum of these expected future cash flows is less than the carrying value, we reduce the net carrying value of the property to its estimated fair value.
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.
Until its repayment in full and termination 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 $0.3 million per quarter.
In February 2023, we further reduced the commitments to $450.0 million following our repayment of $136.4 million in outstanding borrowings under our former credit facility. Until its repayment in full and termination on December 21, 2023, we had a $450.0 million credit facility that was fully drawn.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

6 edited+2 added−2 removed6 unchanged
Biggest changeOur debt agreements contain provisions that allow us to make repayments earlier than the stated maturity date.
Biggest changeFederal Reserve raised interest rates multiple times during 2022 and 2023. The U.S. Federal Reserve cut interest rates three times in late 2024, and it may further reduce interest rates, increase interest rates or maintain current interest rates. Our debt agreements contain provisions that allow us to make repayments earlier than the stated maturity date.
Changes in market interest rates also would affect the fair value of our fixed rate debt obligations; increases in market interest rates decrease the fair value of our fixed rate debt, while decreases in market interest rates increase the fair value of our fixed rate debt. In response to significant and prolonged increases in inflation, the U.S.
Changes in market interest rates also would affect the fair value of our fixed rate debt obligations; increases in market interest rates decrease the fair value of our fixed rate debt, while decreases in market interest rates increase the fair value of our fixed rate debt. In response to significant increases in inflation, the U.S.
(2) 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. No principal repayments are due under our senior notes until maturity.
(2) 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.
We may in the future enter into hedge arrangements or derivative contracts from time to time to mitigate our exposure to changes in interest rates. 81 Table of Contents Fixed Rate Debt At December 31, 2023, our outstanding fixed rate debt included the following (dollars in thousands): Annual Annual Principal Interest Interest Interest Debt Balance (1) Rate (1) Expense Maturity Payments Due Senior unsecured notes 500,000 9.750 % 48,750 2025 Semi-Annually Senior secured notes (2) 940,534 0.000 % — 2026 At Maturity Senior unsecured notes 500,000 4.750 % 23,750 2028 Semi-Annually Senior unsecured notes 500,000 4.375 % 21,875 2031 Semi-Annually Senior unsecured notes 350,000 5.625 % 19,688 2042 Quarterly Senior unsecured notes 250,000 6.250 % 15,625 2046 Quarterly Mortgage note 9,109 6.444 % 587 2043 Monthly $ 3,049,643 $ 130,275 (1) The principal balances and interest rates are the amounts stated in the applicable contracts.
We may in the future enter into hedge arrangements or derivative contracts from time to time to mitigate our exposure to changes in interest rates. 78 Table of Contents Fixed Rate Debt At December 31, 2024, our outstanding fixed rate debt included the following (dollars in thousands): Annual Annual Principal Interest Interest Interest Debt Balance (1) Rate (1) Expense Maturity Payments Due Senior unsecured notes 380,000 9.750 % 37,050 2025 Semi-Annually Senior secured notes (2) 940,534 0.000 % — 2026 At Maturity Senior unsecured notes 500,000 4.750 % 23,750 2028 Semi-Annually Senior unsecured notes 500,000 4.375 % 21,875 2031 Semi-Annually Senior unsecured notes 350,000 5.625 % 19,688 2042 Quarterly Senior unsecured notes 250,000 6.250 % 15,625 2046 Quarterly Mortgage note 120,000 6.864 % 8,237 2034 Monthly Mortgage note 7,464 6.444 % 481 2043 Monthly $ 3,047,998 $ 126,706 (1) The principal balances and interest rates are the amounts stated in the applicable contracts.
Our mortgage notes generally require principal and interest payments through maturity pursuant to amortization schedules. Because these debts require interest to be paid at a fixed rate, changes in market interest rates during the term of these debts will not affect our interest obligations.
Because these debts require interest to be paid at a fixed rate, changes in market interest rates during the term of these debts will not affect our interest obligations.
The information required by this item is included in Part IV, Item 15 of this Annual Report on Form 10-K. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None. 82 Table of Contents
Floating Rate Debt At December 31, 2024 and February 21, 2025, we did not have any floating rate debt obligations. Item 8. Financial Statements and Supplementary Data. The information required by this item is included in Part IV, Item 15 of this Annual Report on Form 10-K. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Removed
Federal Reserve has raised interest rates multiple times since the beginning of 2022. Although the U.S. Federal Reserve has indicated that it may lower interest rates in 2024, we cannot be sure that it will do so, and interest rates may remain at the current high levels or continue to increase.
Added
We have a one-time option to extend the maturity date of these notes by one year, to January 15, 2027, subject to satisfaction of certain conditions and payment of an extension fee. No principal repayments are due under our senior notes until maturity.
Removed
Floating Rate Debt At December 31, 2023 and February 21, 2024, we did not have any floating rate debt obligations. In December 2023, we repaid all amounts outstanding under our then secured credit facility and terminated the agreement governing such credit facility. Item 8. Financial Statements and Supplementary Data.
Added
Our $120.0 million mortgage note due 2034 is a fixed rate, interest only loan and our mortgage note due 2043 requires principal and interest payments through maturity pursuant to an amortization schedule.

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