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What changed in DIVERSIFIED HEALTHCARE TRUST's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of DIVERSIFIED HEALTHCARE TRUST's 2022 and 2023 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 2023 report.

+556 added−570 removedSource: 10-K (2024-02-26) vs 10-K (2023-03-01)

Top changes in DIVERSIFIED HEALTHCARE TRUST's 2023 10-K

556 paragraphs added · 570 removed · 430 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

132 edited+27 added−38 removed332 unchanged
Biggest changeIn February 2023, in connection with the proposed acquisition of AlerisLife by a subsidiary of ABP Trust, which is the controlling shareholder of The RMR Group Inc., or RMR Inc., pursuant to a tender offer for all of the outstanding common shares of AlerisLife (other than the AlerisLife common shares owned by ABP Trust or its applicable subsidiaries), at a price of $1.31 per share, we agreed to tender all of our AlerisLife common shares into the tender offer at the tender offer price, subject to the right, but not the obligation, to purchase, in a single private transaction, on or before December 31, 2023, a number of shares of common stock of the surviving entity in the proposed acquisition constituting a percentage up to 31.9% of the then issued and outstanding shares of the common stock of the surviving entity based on the tender offer price and otherwise pursuant to a stockholders agreement to be entered into at the time of any such purchase on such terms as are negotiated and mutually agreed by the parties.
Biggest changeIn connection with the ALR Merger Agreement, on February 2, 2023, we agreed to tender all the AlerisLife common shares that we and our subsidiary then owned into the tender offer at the Tender Offer Price, subject to the right, but not the obligation, to purchase, on or before December 31, 2023, AlerisLife common shares at the Tender Offer Price, and otherwise pursuant to a stockholders agreement to be entered into at the time of any such purchase.
Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., is 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. Jennifer F.
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; 13 Table of Contents • 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); • 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; • 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.
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 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 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.
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. • 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 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.
If our managers or any of our tenants becomes unable to operate our properties, or if any of our tenants becomes unable to pay its rent because it has violated government regulations or payment laws, we may experience difficulty in finding a substitute tenant or managers or selling the affected property at a price that provides us with a desirable return, and the value of the affected property may decline materially.
If our managers or any of our tenants becomes unable to operate our properties, or if any of our tenants becomes unable to pay its rent because it has violated government regulations or payment laws, we may experience difficulty in finding a substitute tenant or manager or selling the affected property at a price that provides us with a desirable return, and the value of the affected property may decline materially.
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.
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.
Lease Terms Our medical office and life science property leases 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 for some or all of the property operating expenses.
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 rental property, 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 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.
Item 1. Business. Our Company We are a real estate investment trust, or REIT, that was organized under Maryland law in 1998. We own medical office and life science properties, senior living communities and other healthcare related properties throughout the United States.
Item 1. Business. Our Company We are a real estate investment trust, or REIT, that was organized under Maryland law in 1998. We primarily own medical office and life science properties, senior living communities and other healthcare related properties throughout the United States.
It is unclear whether any adjustments in Medicare rates will compensate for the increased costs our tenants and managers may incur for services to residents whose services are paid for by Medicare. Medicaid Reimbursement. Current and future programmatic changes to Medicaid eligibility and rates may also impact us. Enforcement.
It is unclear whether any adjustments in Medicare rates will compensate for the increased costs our tenants and managers may incur for services to residents whose services are paid for by Medicare. Current and future programmatic changes to Medicaid eligibility and rates may also impact us. Enforcement.
Your federal income tax consequences generally will differ depending on whether or not you are a “U.S. shareholder.” For purposes of this summary, a “U.S. shareholder” is a beneficial owner of our shares that is: • an individual who is a citizen or resident of the United States, including an alien individual who is a lawful permanent resident of the United States or meets the substantial presence residency test under the federal income tax laws; • an entity treated as a corporation for federal income tax purposes that is created or organized in or under the laws of the United States, any state thereof or the District of Columbia; • an estate the income of which is subject to federal income taxation regardless of its source; or 14 Table of Contents • a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or, to the extent provided in Treasury regulations, a trust in existence on August 20, 1996 that has elected to be treated as a domestic trust; whose status as a U.S. shareholder is not overridden by an applicable tax treaty.
Your federal income tax consequences generally will differ depending on whether or not you are a “U.S. shareholder.” For purposes of this summary, a “U.S. shareholder” is a beneficial owner of our shares that is: • an individual who is a citizen or resident of the United States, including an alien individual who is a lawful permanent resident of the United States or meets the substantial presence residency test under the federal income tax laws; • an entity treated as a corporation for federal income tax purposes that is created or organized in or under the laws of the United States, any state thereof or the District of Columbia; • an estate the income of which is subject to federal income taxation regardless of its source; or • a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or, to the extent provided in Treasury regulations, a trust in existence on August 20, 1996 that has elected to be treated as a domestic trust; whose status as a U.S. shareholder is not overridden by an applicable tax treaty.
Our ability to renew leases with our existing tenants or to enter into new leases with new tenants and the rents we are able to charge will depend in large part upon market conditions, which are beyond our control. Senior Living Communities Independent Living Communities.
Our ability to renew leases with our existing tenants or to enter into new leases with new tenants and the rents we are able to charge will depend in large part upon market and economic conditions, which are beyond our control. Senior Living Communities Independent Living Communities.
In implementing this acquisition strategy, we consider a range of factors relating to each proposed acquisition, including, but not limited to: • the use and size of the property; • 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 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; • our cost of capital compared to projected returns we may realize by owning the property; • the level of permitted services and regulatory history of the property and its historical tenants and managers; and • the existence of alternative sources, uses or needs for our capital and our leverage.
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.
For more information regarding our financing sources and activities, see “Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Investment and Financing Liquidity and Resources” in Part II, Item 7 of this Annual Report on Form 10-K.
For more information regarding our financing sources and activities, see “Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Financing Liquidity and Resources” in Part II, Item 7 of this Annual Report on Form 10-K.
We have made an election to be treated as a real property trade or business and accordingly do not expect the foregoing interest deduction limitations to apply to us or to the calculation of our "real estate investment trust taxable income." Distributions must be paid in the taxable year to which they relate, or in the following taxable year if declared before we timely file our federal income tax return for the earlier taxable year and if paid on or before the first regular distribution payment after that declaration.
We have made an election to be treated as a real property trade or business and accordingly do not expect the foregoing interest deduction limitations to apply to us or to the calculation of our “real estate investment trust taxable income.” Distributions must be paid in the taxable year to which they relate, or in the following taxable year if declared before we timely file our federal income tax return for the earlier taxable year and if paid on or before the first regular distribution payment after that declaration.
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.
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.
To summarize, the preferential federal income tax rates for long-term capital gains and for qualified dividends generally apply to: 26 Table of Contents (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 (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.
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, 10 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.
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.
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 operate the affected property; • the manager's or tenant's desire to dispose of or cease operating the affected property; • the proposed sale price; • 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; • the existence of alternative sources, uses or needs for our capital and our leverage; and • the tax implications to us and our shareholders for any proposed disposition.
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 and our manager, RMR, drive value, manage risk and benchmark the performance of our properties by effectively capturing and managing data through real-time energy monitoring, or RTM. RTM facilitates advanced data analytics and access to detect faults and inefficiencies in equipment operations faster meanwhile enhancing building system control in a cost-effective and scalable way.
We and our manager, RMR, drive value, manage risk and benchmark the performance of our properties by effectively capturing and managing data through real-time energy monitoring, or RTM. RTM facilitates advanced data analytics and access to detect faults and inefficiencies in equipment operations faster while enhancing building system control in a cost-effective and scalable way.
Additionally, we seek to selectively develop 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 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.
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.
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.
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.
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.
We believe that the restrictions imposed under our declaration of trust on the transfer of shares do not result in the failure of our shares to be “freely transferable.” Furthermore, we believe that no other facts or circumstances limiting the transferability of our shares exist, other than those that are enumerated under the regulation as not affecting the free transferability of shares.
We believe that the restrictions imposed under our declaration of trust and bylaws on the transfer of shares do not result in the failure of our shares to be “freely transferable.” Furthermore, we believe that no other facts or circumstances limiting the transferability of our shares exist, other than those that are enumerated under the regulation as not affecting the free transferability of shares.
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 2022 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 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.
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.
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.
We are unable to predict the future course of federal, state and local legislation or regulation. Changes in the regulatory framework could have a material adverse effect on the ability of our tenants to pay us rent, the profitability of our managed senior living communities and the values of our properties.
We are unable to predict the future course of federal, state and local legislation or regulations. Changes in the regulatory framework could have a material adverse effect on the ability of our tenants to pay us rent, the profitability of our managed senior living communities and the values of our properties.
A reportable transaction currently includes, among other things, a sale or exchange of our shares resulting in a tax loss in excess of (a) $10 million in any single year or $20 million in a prescribed combination of taxable years in the case of our shares held by a C corporation or by a partnership with only C corporation partners or (b) $2 million in any single year or $4 million in a prescribed combination of taxable years in the case of our shares held by any other partnership or an S corporation, trust or individual, including losses that flow through pass through entities to individuals.
A 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.
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 5.1% 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 5.4% per year and reach $6.8 trillion by 2030.
As of December 31, 2022, 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, 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.
Under the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, and the Health Information Technology for Economic and Clinical Health Act, or the HITECH Act, we, our managers and our tenants that are covered entities or business associates within the meaning of HIPAA 9 Table of Contents must comply with rules adopted by HHS governing the privacy, security, use and disclosure of individually identifiable information, including financial information and protected health information, or PHI, and also with security rules for electronic PHI.
Under the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, and the Health Information Technology for Economic and Clinical Health Act, or the HITECH Act, we, our managers and our tenants that are covered entities or business associates within the meaning of HIPAA must comply with rules adopted by HHS governing the privacy, security, use and disclosure of individually identifiable information, including financial information and protected health information, or PHI, and also with security rules for electronic PHI.
Our tenants must comply with the Americans with Disabilities Act and similar state and local laws to the extent that such facilities are “public accommodations” as defined in those statutes. The obligation to comply with the Americans with Disabilities Act and similar laws is an ongoing obligation, and our tenants expend significant resources to comply with such laws.
Our tenants must comply with the Americans with Disabilities Act, or ADA, and similar state and local laws to the extent that such facilities are “public accommodations” as defined in those statutes. The obligation to comply with the ADA and similar laws is an ongoing obligation, and our tenants expend significant resources to comply with such laws.
Segment Information As of December 31, 2022, we had two reporting segments: Office Portfolio and SHOP. Non-aggregated assets are classified as “non-segment” and include corporate assets and liabilities, certain triple net leased senior living communities and wellness centers.
Segment Information As of December 31, 2023, we had two reporting segments: Office Portfolio and SHOP. Non-aggregated assets are classified as “non-segment” and include corporate assets and liabilities, certain triple net leased senior living communities and wellness centers.
We expect to make similar 18 Table of Contents protective TRS elections with respect to any other subsidiary REIT that we form or acquire and may implement other protective arrangements intended to avoid a cascading REIT failure if any of our intended subsidiary REITs were not to qualify for taxation as a REIT, but we cannot be sure that such protective elections or other arrangements will be effective to avoid or mitigate the resulting adverse consequences to us.
We expect to make similar protective TRS elections with respect to any other subsidiary REIT that we form or acquire and may implement other protective arrangements intended to avoid a cascading REIT failure if any of our intended subsidiary REITs were not to qualify for taxation as a REIT, but we cannot be sure that such protective elections or other arrangements will be effective to avoid or mitigate the resulting adverse consequences to us.
We expect that a non-U.S. shareholder's receipt of (a) distributions from us, and (b) proceeds from the sale of our shares, will not be treated as income effectively connected with a U.S. trade or business and a non-U.S. shareholder will 28 Table of Contents therefore not be subject to the often higher federal tax and withholding rates, branch profits taxes and increased reporting and filing requirements that apply to income effectively connected with a U.S. trade or business.
We expect that a non-U.S. shareholder’s receipt of (a) distributions from us, and (b) proceeds from the sale of our shares, will not be treated as income effectively connected with a U.S. trade or business and a non-U.S. shareholder will therefore not be subject to the often higher federal tax and withholding rates, branch profits taxes and increased reporting and filing requirements that apply to income effectively connected with a U.S. trade or business.
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.
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.
Under this approach, the non-U.S. shareholder would be able to offset as a credit against its resulting U.S. federal income tax liability its proportionate share of the tax paid by us on the undistributed capital gain treated as distributed to the non-U.S. shareholder, and receive from the IRS a refund to the extent its proportionate share of the tax paid by us were to exceed the non-U.S. shareholder's actual U.S. federal income tax liability on such deemed 29 Table of Contents distribution.
Under this approach, the non-U.S. shareholder would be able to offset as a credit against its resulting U.S. federal income tax liability its proportionate share of the tax paid by us on the undistributed capital gain treated as distributed to the non-U.S. shareholder, and receive from the IRS a refund to the extent its proportionate share of the tax paid by us were to exceed the non-U.S. shareholder’s actual U.S. federal income tax liability on such deemed distribution.
On December 10, 2020, HHS issued a proposed rule that would modify certain standards, definitions and patient rights under the previously-promulgated Standards for Privacy of Individually Identifiable Health Information to address barriers to coordinated care and case management. The effect of this proposed rule, if finalized, upon our operations is unknown at this time.
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.
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.
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.
If we fail to qualify for taxation as a REIT in any year, then we will be subject to federal income taxation as if we were a corporation taxed under subchapter C of the IRC, or a C 15 Table of Contents corporation, and our shareholders will be taxed like shareholders of a regular C corporation, meaning that federal income tax generally will be applied at both the corporate and shareholder levels.
If we fail to qualify for taxation as a REIT in any year, then we will be subject to federal income taxation as if we were a corporation taxed under subchapter C of the IRC, or a C corporation, and our shareholders will be taxed like shareholders of a regular C corporation, meaning that federal income tax generally will be applied at both the corporate and shareholder levels.
For these purposes, an otherwise eligible independent contractor is not disqualified from that status on account of (a) the TRS bearing the expenses of the operation of the qualified health care property, (b) the TRS receiving the revenues from the operation of the qualified health care property, net of 23 Table of Contents expenses for that operation and fees payable to the eligible independent contractor, or (c) the REIT receiving income from the eligible independent contractor pursuant to a preexisting or otherwise grandfathered lease of another property.
For these purposes, an otherwise eligible independent contractor is not disqualified from that status on account of (a) the TRS bearing the expenses of the operation of the qualified health care property, (b) the TRS receiving the revenues from the operation of the qualified health care property, net of expenses for that operation and fees payable to the eligible independent contractor, or (c) the REIT receiving income from the eligible independent contractor pursuant to a preexisting or otherwise grandfathered lease of another property.
To help comply with condition (6), our declaration of trust restricts transfers of our shares that would otherwise result in concentrated ownership positions. These restrictions, however, do not ensure that we have previously satisfied, and may not ensure that we will in all cases be able to continue to satisfy, the share ownership requirements described in condition (6).
To help comply with condition (6), our declaration of trust and bylaws restrict transfers of our shares that would otherwise result in concentrated ownership positions. These restrictions, however, do not ensure that we have previously satisfied, and may not ensure that we will in all cases be able to continue to satisfy, the share ownership requirements described in condition (6).
Our Financing Policies Although there are no limitations in our organizational documents on the amount of indebtedness we may incur, our credit agreement and our senior unsecured notes indentures and their supplements contain covenants which, among other things, restrict our ability to incur debts and generally require us to maintain certain financial ratios.
Our Financing Policies Although there are no limitations in our organizational documents on the amount of indebtedness we may incur, our senior notes indentures and their supplements contain covenants which, among other things, restrict our ability to incur debts and generally require us to maintain certain financial ratios.
Subject to the discussion below, we believe that we and each of our TRSs have complied with, and will continue to comply with, the requirements for TRS status at all times during which the subsidiary's TRS election is intended to be in effect, and we believe that the same will be true for any TRS that we later form or acquire.
Subject to the discussion below, we believe that we and each of our TRSs have complied 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.
Our Board of Trustees may change our financing policies at any time without a vote of, or notice to, our shareholders. 6 Table of Contents Our Manager RMR Inc. is a holding company and substantially all of its business is conducted by its majority owned subsidiary, The RMR Group LLC, or RMR.
Our Board of Trustees may change our financing policies at any time without a vote of, or notice to, our shareholders. Our Manager The RMR Group Inc., or RMR Inc., is a holding company and substantially all of its business is conducted by its majority owned subsidiary, The RMR Group LLC, or RMR.
Accordingly, we have complied and will continue to comply with these regulations, including by requesting annually from holders of significant percentages of our shares 17 Table of Contents 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, our shareholders are required to respond to these requests for information.
To the extent that we do 24 Table of Contents not distribute all of our net capital gain and all of our “real estate investment trust taxable income,” as adjusted, we will be subject to federal income tax at regular corporate income tax rates on undistributed amounts.
To the extent that we do not distribute all of our net capital gain and all of our “real estate investment trust taxable income,” as adjusted, we will be subject to federal income tax at regular corporate income tax rates on undistributed amounts.
We may invest in the securities of other entities for the purpose of exercising control, or otherwise, 5 Table of Contents make loans to other persons or entities, engage in the sale of investments, offer securities in exchange for property or repurchase or reacquire our securities. Historically, we have primarily owned wholly owned investments in fee interests.
We may invest in the securities of other entities for the purpose of exercising control, or otherwise, make loans to other persons or entities, engage in the sale of investments, offer securities in exchange for property or repurchase or reacquire our securities. Historically, we have primarily owned wholly owned investments in fee interests.
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.
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.
We seek to selectively sell properties from time to time when we determine our continued ownership or ongoing required capital expenditures will not achieve desired returns or when we believe we can successfully pursue more desirable opportunities than retaining these properties.
We also seek to selectively sell properties from time to time when we determine our continued ownership or ongoing required capital expenditures will not achieve desired returns, when we believe we have maximized returns or when we believe we can successfully pursue more desirable opportunities than retaining these properties.
Gains subject to the 100% penalty tax are excluded from the 75% and 95% gross income tests, whereas real property gains that are not dealer gains 21 Table of Contents or that are exempted from the 100% penalty tax on account of the safe harbors are considered qualifying gross income for purposes of the 75% and 95% gross income tests.
Gains subject to the 100% penalty tax are excluded from the 75% and 95% gross income tests, whereas real property gains that are not dealer gains or that are exempted from the 100% penalty tax on account of the safe harbors are considered qualifying gross income for purposes of the 75% and 95% gross income tests.
The CARES Act, among other things, provided $2.0 trillion in aid to certain individuals, businesses and state and local governments suffering from the COVID-19 pandemic. Additionally, the American Rescue Plan Act, or ARPA, was signed into law on March 11, 2021 to provide additional economic stimulus.
The CARES Act, among other things, provided $2.0 trillion in aid to certain individuals, businesses and state and local governments 7 Table of Contents suffering from the COVID-19 pandemic. Additionally, the American Rescue Plan Act, or ARPA, was signed into law on March 11, 2021 to provide additional economic stimulus.
We generally do not expect to sell assets if doing so would result in the imposition of a material built-in gains tax liability; but if and when we do sell assets that may have associated built-in gains tax exposure, then we expect to make appropriate provision for the associated tax liabilities on our financial statements. 25 Table of Contents Earnings and Profits.
Shareholders”. We generally do not expect to sell assets if doing so would result in the imposition of a material built-in gains tax liability; but if and when we do sell assets that may have associated built-in gains tax exposure, then we expect to make appropriate provision for the associated tax liabilities on our financial statements. Earnings and Profits.
The terms and conditions of the Provider Relief Fund 8 Table of Contents require that the funds are utilized to compensate for lost revenues that are attributable to the COVID-19 pandemic and for eligible costs to prevent, prepare for and respond to the COVID-19 pandemic that are not covered by other sources.
The terms and conditions of the Provider Relief Fund require that the funds are utilized to compensate for lost revenues that are attributable to the COVID-19 pandemic and for eligible costs to prevent, prepare for and respond to the COVID-19 pandemic that are not covered by other sources.
Further, we may acquire interests in joint ventures as part of an acquisition of properties or entities or we may contribute wholly owned properties into our existing or new joint ventures.
Further, we may acquire interests in joint ventures as part of an acquisition of properties or entities or we may contribute properties into our existing or new joint ventures.
To seek to achieve these objectives, we seek to: maintain a strong capital base of shareholders' equity; invest in strong credit quality properties with strong 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; 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 debt with additional equity or long term 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 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.
State and local health and social service agencies and other regulatory authorities regulate and license many senior living communities. State health authorities regulate and license clinics and other healthcare facilities. In most states in which we own properties, we and our tenants and managers are prohibited from providing certain services without first obtaining appropriate licenses.
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.
This information reporting requirement applies regardless 30 Table of Contents of whether the non-U.S. shareholder is subject to withholding on distributions on our shares or whether the withholding was reduced or eliminated by an applicable tax treaty.
This information reporting requirement applies regardless of whether the non-U.S. shareholder is subject to withholding on distributions on our shares or whether the withholding was reduced or eliminated by an applicable tax treaty.
We may seek to obtain lines of credit or to issue securities senior to our common shares, including preferred shares or debt securities, some of which may be convertible into our common shares or be accompanied by warrants to purchase our common shares.
We may seek to obtain lines of credit or to issue securities senior to our 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.
Accordingly, we believe that our revenues 20 Table of Contents from TRS-provided services, whether the charges are separately stated or not, qualify as “rents from real property” because the services satisfy the geographically customary standard, because the services have been provided by a TRS, or for both reasons.
Accordingly, we believe that our revenues from TRS-provided services, whether the charges are separately stated or not, qualify as “rents from real property” because the services satisfy the geographically customary standard, because the services have been provided by a TRS, or for both reasons.
Our day to day operations are conducted by RMR. RMR originates and presents investment and divestment opportunities to our Board of Trustees and provides management and administrative services to us. RMR has a principal place of business at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts, 02458-1634, and its telephone number is (617) 796-8390.
RMR originates and presents investment and divestment opportunities to our Board of Trustees and provides management and administrative services to us. RMR has a principal place of business at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts, 02458-1634, and its telephone number is (617) 796-8390.
In addition, any corporation (other than a REIT and other than a QRS) in which a TRS directly or indirectly owns more than 35% of the voting power or value of the outstanding securities is automatically a TRS (excluding, for this purpose, certain "straight debt" securities).
In addition, any corporation (other than a REIT and other than a QRS) in which a TRS directly or indirectly owns more than 35% of the voting power or value of the outstanding securities is automatically a TRS (excluding, for this purpose, certain “straight debt” securities).
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 .
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 .
For the year ended December 31, 2022, substantially all of our net operating income, or 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 revenue is dependent upon Medicare and Medicaid programs.
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.
In addition, most states require a certificate of need, or CON, before an entity may open an assisted living facility or expand services at an existing community.
In addition, some states require a certificate of need, or CON, before an entity may open an assisted living community or SNF or expand services at an existing facility.
However, if we fail to do so, relief provisions would allow us to maintain our qualification for taxation as a REIT provided we distribute 16 Table of Contents any subsequently discovered C corporation earnings and profits and pay an interest charge in respect of the period of delayed distribution. • Our subsidiaries that are C corporations, including our TRSs, generally will be required to pay federal corporate income tax on their earnings, and a 100% tax may be imposed on any transaction between us and one of our TRSs that does not reflect arm's length terms. • As discussed below, we are invested in real estate through subsidiaries that we believe qualify for taxation as REITs.
However, if we fail to do so, relief provisions would allow us to maintain our qualification for taxation as a REIT provided we distribute any subsequently discovered C corporation earnings and profits and pay an interest charge in respect of the period of delayed distribution. • Our subsidiaries that are C corporations, including our “taxable REIT subsidiaries”, as defined in Section 856(l) of the IRC, or TRSs, generally will be required to pay federal corporate income tax on their earnings, and a 100% tax may be imposed on any transaction between us and one of our TRSs that does not reflect arm’s length terms. • As discussed below, we are invested in real estate through subsidiaries that we believe qualify for taxation as REITs.
Wellness centers often market themselves as clubs for which members may pay monthly fees plus additional fees for specific services. Other Types of Real Estate In the past, we have considered investing in real estate different from our existing property types and some properties located outside the United States.
Wellness centers often market themselves as clubs for which members may pay monthly fees plus additional fees for specific services. Other Types of Real Estate In the past, we have considered investing in real estate different from our existing property types and some properties located outside the United States. We may explore these or other alternative investments in the future.
Loss, suspension or modification of a license or certification or the imposition of other sanctions or penalties could adversely affect the values of our properties, the ability of our tenants to pay their rents and the profitability of our managed senior living communities. The Centers for Medicare and Medicaid Services, or CMS, of the U.S.
Loss, suspension or modification of a license or certification or the imposition of other sanctions or penalties could adversely affect the values of our properties, the ability of our tenants to pay their rents and the profitability of our managed senior living communities. CMS of the U.S.
The ACA facilitates the Department of Justice's, or the DOJ's, ability to investigate allegations of wrongdoing or fraud at healthcare facilities, in part because of increased cooperation and data sharing among CMS, the United States Department of Health and Human Services, Office of the Inspector General, or the OIG, the DOJ and the states.
The ACA facilitates the Department of Justice's, or the DOJ's, ability to investigate allegations of wrongdoing or fraud at healthcare facilities, in part because of increased cooperation and data sharing among CMS, HHS, Office of the Inspector General, or the OIG, the DOJ and the states.
Our declaration of trust generally disallows transfers or purported acquisitions, directly or by attribution, of our shares to the extent necessary to maintain our qualification for taxation as a REIT under the IRC.
Our declaration of trust and bylaws generally disallow transfers or purported acquisitions, directly or by attribution, of our shares to the extent necessary to maintain our qualification for taxation as a REIT under the IRC.
As of December 31, 2022, 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 6.0 years.
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.
We currently own properties that we purchased to be leased to our TRSs or which are being leased to our TRSs as a result of modifications to, or expirations of, a prior lease, all as agreed to by applicable parties.
Our Relationship with Our Taxable REIT Subsidiaries. We currently own properties that we purchased to be leased to our TRSs or which are being leased to our TRSs as a result of modifications to, or expirations of, a prior lease, all as agreed to by applicable parties.
As of December 31, 2022, we wholly owned 379 properties, including eight closed senior living communities, located in 36 states and Washington, D.C. On that date, the gross book value of our real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, was $7.1 billion.
As of December 31, 2023, we owned 371 properties, including three closed senior living communities, located in 36 states and Washington, D.C. On that date, the gross book value of our real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, was $7.2 billion.
Census data, the age 75+ demographic is projected to be among the fastest growing age cohorts in the United States over the next 20 years, and according to the Centers for Medicare & Medicaid Services, or CMS, the age 85+ demographic is projected to grow over 30% over the next five years.
Census data, the age 75+ demographic is projected to be among the fastest growing age cohorts in the United States over the next 20 years, and according to CMS, the age 85+ demographic is projected to grow over 30% over the next five years.
Depending upon what aspects of the laws and regulations are altered, the ability of our biotechnology laboratory tenants to pay rent to us could be adversely and materially affected. Competition Investing in medical office and life science properties, senior living communities and other healthcare related properties, and their operations, are highly competitive businesses.
Depending upon what aspects of the laws and regulations are altered, the ability of our biotechnology laboratory tenants to pay rent to us could be adversely and materially affected. Competition Owning and operating medical office and life science properties, senior living communities and other healthcare related properties is a highly competitive business.
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 a severe weather or climate-related event 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 impact from global climate change and in terms of potential lost business due to the interruption in operating our properties.
For further information and risks relating to these economic uncertainties, including as related to the COVID-19 pandemic, and their impact on our business and financial condition, see elsewhere in this Annual Report on Form 10-K, including “Warning Concerning Forward-Looking Statements”, Part I, Item 3 Table of Contents 1A, “Risk Factors” and Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations".
For further information and risks relating to these economic uncertainties, see elsewhere in this Annual Report on Form 10-K, including “Warning Concerning Forward-Looking Statements”, Part I, Item 1A, “Risk Factors” and Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations".
Some of our medical office properties are occupied as administrative facilities for healthcare companies, such as hospitals and healthcare insurance companies.
Some of our office properties are occupied as administrative facilities, such as hospitals and healthcare insurance companies or similar uses.
Our ability to successfully compete is also impacted by economic and population trends, availability of acceptable investment opportunities, our ability to negotiate beneficial investment terms, availability and cost of capital, limitations in agreements governing our debt and new and existing laws and regulations. Some of our competitors are dominant in selected geographic or property markets, including in markets we operate.
Our ability to successfully compete is also impacted by current economic and industry conditions, demographic trends, availability of attractive investment opportunities, our ability to negotiate beneficial investment terms, the availability and cost of capital and new and existing laws and regulations. Some of our competitors are dominant in selected geographic or property markets, including in markets we operate.

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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, economic and real estate conditions due to, among other things, rising or sustained high interest rates and high inflation, labor market challenges, supply chain challenges, volatility in the public equity and debt markets, pandemics (such as the COVID-19 pandemic) or other adverse public health safety events or conditions, geopolitical instability (such as the war in Ukraine), 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 they 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 business and operating results; • we and our managers and other operators and tenants face significant competition; • we are subject to risks related to our debt, including that covenants and conditions contained in our debt agreements may restrict our operations and ability to make investments and distributions, and if we fail to satisfy those covenants and conditions we may be unable to incur additional debt and may need to repay outstanding debt from other sources of capital; • we may need additional waivers from our lenders or waivers from our noteholders in order to avoid defaulting under our credit agreement or public debt agreements and the terms of our current waivers under our credit agreement impose restrictions on our ability to pay distributions and to make capital investments, and if we default under our credit agreement, we may lose some or all of the equity interests in certain of our subsidiaries that we have pledged or face foreclosure on properties on which we have provided first mortgage liens to secure our obligations under the credit agreement; • we may be unable to renew our leases when they expire without decreasing rents or incurring significant costs or at all; • our development or redevelopment projects or potential 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 competition, current market and economic conditions, including capital market disruptions, rising or sustained high interest rates and high inflation, 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 climate change and climate related events; • 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; 34 Table of Contents • ESG 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; • 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; and • if we do not regain compliance with Nasdaq's minimum bid price continued listing standard, or we fail to meet other Nasdaq continued listing standards, Nasdaq may elect to delist our common shares, which could negatively impact the market price and liquidity of our common shares and reduce our ability to raise additional capital.
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.
Our debt could increase our costs of capital, limit our ability to incur additional debt in the future, 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 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.
We and our managers or other operators are subject to, or impacted by, extensive and frequently changing federal, state and local laws and regulations, including: licensure laws; laws protecting consumers against deceptive practices; laws relating to the operation of our properties and how our managers and other operators conduct their operations, such as with respect to health and safety, fire and privacy matters; laws affecting communities that participate in Medicaid; clinics and other healthcare facilities that participate in both Medicare and Medicaid which mandate allowable costs, pricing, reimbursement procedures and limitations, quality of services and care, food service and physical plants; resident rights laws (including abuse and neglect laws) and fraud laws; anti-kickback and physician referral laws; the Americans with Disabilities Act and similar laws; and safety and health standards established by OSHA.
We and our managers or other operators are subject to, or impacted by, extensive and frequently changing federal, state and local laws and regulations, including: licensure laws; laws protecting consumers against deceptive practices; laws relating to the operation of our properties and how our managers and other operators conduct their operations, such as with respect to health and safety, fire and privacy matters; laws affecting communities that participate in Medicaid; laws affecting clinics and other healthcare facilities that participate in both Medicare and Medicaid which mandate allowable costs, pricing, reimbursement procedures and limitations, quality of services and care, food service and physical plants; resident rights laws (including abuse and neglect laws) and fraud laws; anti-kickback and physician referral laws; the Americans with Disabilities Act and similar laws; and safety and health standards established by OSHA.
RMR and our senior living community managers rely on information technology and systems, including the Internet and cloud-based infrastructures, commercially available software and their respective internally developed applications, to process, transmit, store and safeguard information and to manage or support a variety of their business processes (including managing our building systems), including financial transactions and maintenance of records, which may include personal identifying information of employees, residents, tenants and guarantors and lease data.
RMR and our senior living community managers rely on information technology and systems, including the Internet and cloud-based infrastructures and services, commercially available software and their respective internally developed applications, to process, transmit, store and safeguard information and to manage or support a variety of their business processes (including managing our building systems), including financial transactions and maintenance of records, which may include personal identifying information of employees, residents, tenants and guarantors and lease data.
As a result, the Notes and the Guarantees are, and, except to the extent that future Notes are guaranteed by our non-guarantor subsidiaries, will be, structurally subordinated to all indebtedness and other liabilities of our subsidiaries that do not guarantee the 2025 Notes and the 2031 Notes, including guarantees of or pledges under other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity.
As a result, the Notes and the Guarantees are, and, except to the extent that future Notes are guaranteed by our non-guarantor subsidiaries, will be, structurally subordinated to all indebtedness and other liabilities of our subsidiaries that do not guarantee the 2025 Notes, the 2026 Notes and the 2031 Notes, including guarantees of or pledges under other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity.
Because these properties have been designed or physically modified for a particular tenant, if the current lease is terminated or not renewed, we may be required to renovate the property at substantial costs, decrease the rent we charge or provide other concessions in order to lease the property to another tenant.
Because these properties have been designed or physically modified for a particular tenant, if the current lease is terminated, downsized or not renewed, we may be required to renovate the property at substantial costs, decrease the rent we charge or provide other concessions in order to lease the property to another tenant.
In addition, if we fail to meet our payment or other obligations under our secured debt, the holders of that secured debt would be entitled to foreclose on our assets securing that secured debt and liquidate those assets. Accordingly, we may not have sufficient funds to pay amounts due on such Notes.
In addition, if we fail to meet our payment or other obligations under our secured debt, the holders of that secured debt would be entitled to foreclose on our assets securing that secured debt and liquidate those assets. Accordingly, we may not have sufficient funds to pay amounts due on such unsecured Notes.
In that event, because such Notes and the Guarantees will not be secured by any of our assets, it is possible that there will be no assets from which claims of holders of such Notes can be satisfied or, if any assets remain, that the remaining assets will be insufficient to satisfy those claims in full.
In that event, because the Unsecured Notes and Guarantees will not be secured by any of our assets, it is possible that there will be no assets from which claims of holders of such unsecured Notes can be satisfied or, if any assets remain, that the remaining assets will be insufficient to satisfy those claims in full.
If the value of such remaining assets is less than the aggregate outstanding principal amount of such Notes and accrued interest and all future debt ranking equally with such Notes and the Guarantees, we will be unable to fully satisfy our obligations under such Notes.
If the value of such remaining assets is less than the aggregate outstanding principal amount of such unsecured Notes and accrued interest and all future debt ranking equally with such Unsecured Notes and Guarantees, we will be unable to fully satisfy our obligations under such unsecured Notes.
For those TRS arrangements intended to comply 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; 51 Table of Contents • 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.
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.
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 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, 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.
We are exposed to operational risks, liabilities and claims with respect to our SHOP segment properties that could adversely affect our revenues and operations. We are exposed to various operational risks with respect to our SHOP segment properties that may increase our costs or adversely affect our ability to generate revenues.
We are exposed to operational risks, liabilities and claims with respect to our SHOP segment that could adversely affect our revenues and operations. We are exposed to various operational risks with respect to our SHOP segment that may increase our costs or adversely affect our ability to generate revenues.
Economic conditions, including high inflation, may cause our tenants not to renew or extend their leases when they expire, or to seek to renew their leases for less space than they currently occupy.
Economic conditions, including prolonged high inflation, may cause our tenants not to renew or extend their leases when they expire, or to seek to renew their leases for less space than they currently occupy.
See “Material United States Federal Income Tax Considerations—REIT Qualification Requirements—Annual Distribution Requirements” included in Part I, Item 1 of this Annual Report on Form 10-K. Accordingly, we may not be able to retain sufficient cash to fund our operations, repay our debt, invest in our properties or fund our acquisitions or development, redevelopment or repositioning efforts.
See “Material United States Federal Income Tax Considerations—REIT Qualification Requirements—Annual Distribution Requirements” included in Part I, Item 1 of this Annual Report on Form 10-K. Accordingly, we may not be able to retain sufficient cash to fund our operations, repay our debts, invest in our properties or fund our acquisitions or development, redevelopment or repositioning efforts.
Any foreclosure on a property or group of properties could have a material adverse effect on the overall value of our portfolio of properties and more generally on us.
Any foreclosure on a mortgaged property or group of properties could have a material adverse effect on the overall value of our portfolio of properties and more generally on us.
Such release may occur at any time upon a sale, disposition or transfer, in compliance with the provisions of the indenture and related supplements governing the 2025 Notes and the 2031 Notes, of the capital stock of such subsidiary guarantor or of substantially all of the assets of such subsidiary guarantor, or if such subsidiary guarantor becomes an Excluded Subsidiary or a Foreign Subsidiary, as such terms are defined in the applicable supplemental indenture.
Such release may occur at any time upon a sale, disposition or transfer, in compliance with the provisions of the indentures and related supplements governing 2025 Notes, the 2026 Notes and the 2031 Notes, of the capital stock of such subsidiary guarantor or of substantially all of the assets of such subsidiary guarantor, or if such subsidiary guarantor becomes an Excluded Subsidiary or a Foreign Subsidiary, as such terms are defined in the applicable indenture or supplemental indenture.
The Notes and the Guarantees are structurally subordinated to the payment of all indebtedness and other liabilities of our subsidiaries that do not guarantee the 2025 Notes and the 2031 Notes.
The Notes and the Guarantees are structurally subordinated to the payment of all indebtedness and other liabilities of our subsidiaries that do not guarantee the 2025 Notes, the 2026 Notes and the 2031 Notes.
Increased labor costs, decreased labor availability and staffing turnover have negatively impacted our managers and our SHOP business and operating results, and these conditions may continue for an extended period. Wages and employee benefits associated with the operations of our managed senior living communities represent a significant part of our managed senior living communities' operating expenses.
Increased labor costs, decreased labor availability and staffing turnover have negatively impacted our managers and our SHOP segment operating results, and these conditions may continue for an extended period. Wages and employee benefits associated with the operations of our managed senior living communities represent a significant part of our managed senior living communities’ operating expenses.
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 our credit agreement (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 (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.
Our executive officers may also own equity investments in other companies to which RMR or its subsidiaries provide management services.
Our executive officers also own equity investments in other companies to which RMR or its subsidiaries provide management services.
Our property management fees are calculated based on rents we receive and construction supervision fees for construction at our properties overseen and managed by RMR, and our base business management fee is calculated based upon the lower of the historical costs of our real estate investments and our market capitalization.
Our property management fees are calculated based on rents we receive and we also pay RMR construction supervision fees for construction at our properties overseen and managed by RMR, and our base business management fee is calculated based upon the lower of the historical costs of our real estate investments and our market capitalization.
These recommendations by proxy advisory firms have affected the outcomes of past Board of Trustees elections and votes on our say on pay, and similar recommendations in the future would likely affect the outcome of future Board of Trustees elections and votes on our say on pay, which may increase shareholder activism and litigation.
These recommendations by proxy advisory firms have affected the outcomes of past Board of Trustees elections and votes on our say on pay, and similar recommendations in the future would likely affect the outcome of future Board of Trustees elections and votes on our say on pay or other shareholder votes, which may increase shareholder activism and litigation.
Although much of RMR's and our senior living community managers' staff returned to their offices during the pandemic, flexible working arrangements have resulted in a higher extent of remote working than they experienced prior to the pandemic.
Although most of RMR’s and our senior living community managers’ staff returned to their offices during the pandemic, flexible working arrangements have resulted in a higher extent of remote working than they experienced prior to the pandemic.
Because economic conditions in the United States may affect the demand for healthcare related space and senior living communities, real estate values, occupancy levels and property income, current and future economic conditions in the United States, including slower growth or a recession and capital market volatility or disruptions, could have a material adverse impact on our earnings and financial condition.
As economic conditions in the United States may affect the demand for healthcare related space and senior living communities, real estate values, occupancy levels and property income, current and future economic conditions in the United States, including slower growth or a possible recession and capital market volatility or disruptions, could have a material adverse impact on our earnings and financial condition.
The occurrence of a tenant bankruptcy could reduce the rent we receive from that tenant, and the current economic conditions, such as high inflation, rising or continued 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 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.
It is unclear whether COVID-19 infection rates will surge again in the future or if other variants of that virus or other public health safety conditions will arise in the United States or 35 Table of Contents elsewhere and, if so, what the impact of that would be on human health and safety, the economy, or our managers' and other operators' and tenants' businesses.
It is unclear whether COVID-19 infection rates will surge again in the future or if other variants of that virus or other public health safety conditions will arise in the United States or elsewhere and, if so, what the impact of that would be on human health and safety, the economy, or our managers’ and other operators’ and tenants’ businesses.
In addition, certain important corporate events, such as leveraged recapitalizations that would increase the level of our indebtedness, would not constitute a “Change of Control” under the indenture and related supplements governing the 2025 Notes and the 2031 Notes although these types of transactions could affect our capital structure or credit ratings and the holders of such Notes.
In addition, certain important corporate events, such as leveraged recapitalizations that would increase the level of our indebtedness, would not constitute a “Change of Control” under the indentures and related supplements governing the 2025 Notes, the 2026 Notes and the 2031 Notes although these types of transactions could affect our capital structure or credit ratings and the holders of such Notes.
Although the rate of new development of senior living communities has slowed, the increased supply of senior living communities from recent 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.
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.
Losses of a catastrophic nature, such as those caused by hurricanes, flooding, volcanic eruptions and earthquakes, among other things, losses as a result of outbreaks of pandemics or acts of terrorism, may be covered by insurance policies with limitations such as large deductibles or co-payments that we or a responsible tenant may not be able to pay.
Losses of a catastrophic nature, such as those caused by hurricanes, flooding, volcanic eruptions and earthquakes or losses as a result of outbreaks of pandemics or acts of terrorism, may be covered by insurance policies with limitations such as large deductibles or co-payments that we or a responsible tenant may not be able to pay.
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 operators' and tenants' businesses may not return to the levels experienced prior to the COVID-19 pandemic.
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.
The loss 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.
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.
If we could not refinance such debt or otherwise obtain a waiver from the holders of such debt, we would be prohibited from repurchasing the 2025 Notes and the 2031 Notes, which would constitute an event of default under the indenture and related supplements governing such Notes, which in turn would constitute a default under such debt arrangements.
If we could not refinance such debt or otherwise obtain a waiver from the holders of such debt, we would be prohibited from repurchasing the 2025 Notes, the 2026 Notes and the 2031 Notes, which would constitute an event of default under the indentures and related supplements governing such Notes, which in turn would constitute a default under such debt arrangements.
In particular, these factors could arise from weaknesses in or a lack of established markets for the properties we may identify for sale, 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 availability of financing to potential purchasers on reasonable terms, the number of prospective purchasers, the number of competing properties in the market, unfavorable local, national or international economic conditions, such as high inflation, rising or sustained high interest rates, labor market challenges, supply chain challenges and economic downturns or recessions, 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 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.
Some of these senior living competitors are larger and have greater financial resources than our managers or other operators do, and some of 40 Table of Contents 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 they do.
It is possible that the arbitration provisions of our bylaws may ultimately be determined to be unenforceable. 49 Table of Contents By agreeing to the arbitration provisions of our bylaws, shareholders will not be deemed to have waived compliance by us with federal securities laws and the rules and regulations thereunder.
It is possible that the arbitration provisions of our bylaws may ultimately be determined to be unenforceable. By agreeing to the arbitration provisions of our bylaws, shareholders will not be deemed to have waived compliance by us with federal securities laws and the rules and regulations thereunder.
Conflicts of interest or the perception of conflicts of interest could have a 45 Table of Contents 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.
As changes occur in the marketplace for corporate governance policies, the above provisions may change, be removed, or new ones may be added. 48 Table of Contents Our rights and the rights of our shareholders to take action against our Trustees and officers are limited.
As changes occur in the marketplace for corporate governance policies, the above provisions may change, be removed, or new ones may be added. Our rights and the rights of our shareholders to take action against our Trustees and officers are limited.
Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, a guarantee of the 2025 Notes and the 2031 Notes (or any future Notes that are guaranteed by our subsidiaries) could be voided, or claims in respect of a guarantee 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: • received less than reasonably equivalent value or fair consideration for the incurrence of such guarantee; • 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 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.
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 credit agreement, 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 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.
Any decline in market prices, regardless of cause, may adversely affect the liquidity and trading markets for the Notes. 54 Table of Contents 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. A further downgrade in credit ratings could materially adversely affect the market price of the Notes and may increase our cost of capital.
These risks include cost overruns and untimely completion of construction due to, among other things, weather conditions, inflation, labor or material shortages or delays in receiving permits or other governmental approvals, as well as the availability and pricing of financing on favorable terms or at all.
These risks include cost overruns and untimely completion of construction due to, among other things, weather conditions, inflation, labor or material shortages or delays in receiving permits or other governmental approvals, inability to achieve desired returns, as well as the availability and pricing of financing on favorable terms or at all.
We may be unable to lease our properties when our leases expire. Although we typically will seek to renew or extend the terms of leases for our properties with tenants when they expire, we cannot be sure that we will be successful in doing so.
Although we typically will seek to renew or extend the terms of leases for our properties with tenants when they expire, we cannot be sure that we will be successful in doing so.
As a result, noteholders may lose a portion or the entire value of their 53 Table of Contents investment in such Notes. Further, the terms of the outstanding Notes and the Guarantees permit, and the terms of any Notes we may issue in the future may permit, us to incur additional secured debt subject to compliance with certain debt ratios.
As a result, noteholders may lose a portion or the entire value of their investment in such unsecured Notes. Further, the terms of the outstanding Unsecured Notes and Guarantees permit, and the terms of any Notes we may issue in the future may permit, us to incur additional secured debt subject to compliance with certain debt ratios.
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.
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.
RMR may exercise its discretion in a manner that results in investment returns that are substantially below expectations or that results in losses. Our management structure and agreements and relationships with RMR and RMR's and its controlling shareholder ' s relationships with others may create conflicts of interest, or the perception of such conflicts, and may restrict our investment activities.
RMR may exercise its discretion in a manner that results in investment returns that are substantially below expectations or that results in losses. Our management structure and agreements and relationships with RMR and RMR’s and its controlling shareholder’s relationships with others may create conflicts of interest, or the perception of such conflicts, and may restrict our investment activities.
If we cease to qualify for taxation as a REIT under the IRC, then our ability to raise capital might be adversely affected, we will be in breach under our credit agreement, we may be subject to material amounts of federal and state income taxes, our cash available for distribution to our shareholders could be reduced, and the market price of our common shares could decline.
If we cease to qualify for taxation as a REIT under the IRC, then our ability to raise capital might be adversely affected, we may be subject to material amounts of federal and state income taxes, our cash available for distribution to our shareholders could be reduced, and the market price of our common shares could decline.
Some investors may use ESG factors to guide their investment strategies and, in some cases, may choose not to 42 Table of Contents invest in us, or otherwise do business with us, if they believe our or RMR's policies relating to corporate sustainability are inadequate.
Some investors may use ESG factors to guide their investment strategies and, in some cases, may choose not to invest in us, or otherwise do business with us, if they believe our or RMR’s policies relating to corporate sustainability are inadequate.
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 and that 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.
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.
In addition, we may incur significant costs in preparing for possible future climate change or climate related events or in response to our tenants' requests for such investments and we may not realize desirable returns on those investments. Vacancies in a property could result in significant capital expenditures and illiquidity and reduce the value of the property.
In addition, we may incur significant costs in preparing for possible future climate change or in response to our tenants’ requests for such investments and we may not realize desirable returns on those investments. 41 Table of Contents Vacancies in a property could result in significant capital expenditures and illiquidity and reduce the value of the property.
Accordingly, the 2025 Notes and the 2031 Notes may not at all times be guaranteed by some or all of the subsidiaries which guaranteed the 2025 Notes or the 2031 Notes on the date they were initially issued. Item 1B. Unresolved Staff Comments. None. 55 Table of Contents
Accordingly, the 2025 Notes, the 2026 Notes and the 2031 Notes may not at all times be guaranteed by some or all of the subsidiaries which guaranteed the 2025 Notes, the 2026 Notes and the 2031 Notes on the date they were initially issued. Item 1B. Unresolved Staff Comments. None.
Further, courts interpreting change of control provisions under New York law (which is the governing law of the indenture governing the 2025 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.
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.
Upon the occurrence of a change of control, we will be required to offer to repurchase the outstanding 2025 Notes and 2031 Notes at 101% of the principal amount thereof, plus accrued and unpaid interest on such Notes, if any, to, but not including, the date of repurchase.
Upon the occurrence of a change of control, we will be required to offer to repurchase the outstanding 2025 Notes and 2031 Notes at 101% of the principal amount thereof, and the outstanding 2026 Notes at 100% of the principal amount thereof, in each case plus accrued and unpaid interest on such Notes, if any, to, but not including, the date of repurchase.
Third party providers of corporate sustainability ratings and reports on companies have increased in number, resulting in varied and, in some cases, inconsistent standards.
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.
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 rising or sustained high interest rates and high inflation, labor market challenges, supply chain challenges and economic downturns or recessions; competition; 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 currently being experienced 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 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.
If we fail to adequately prepare for such 41 Table of Contents events, our revenues, results of operations and financial condition may be impacted.
If we fail to adequately prepare for such events, our revenues, results of operations and financial condition may be impacted.
We are subject to risks from adverse weather, natural disasters and climate change and climate related events, 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 climate change and climate related events.
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.
If we and RMR fail to satisfy the expectations of investors and our tenants and other stakeholders or our or RMR's announced goals and other initiatives are not executed as planned, our and RMR's reputation and financial results could be adversely affected, and our revenues, results of operations and ability to grow our business may be negatively impacted.
If we and RMR fail to comply with ESG related regulations and to satisfy the expectations of investors and our tenants and other stakeholders or our or RMR’s announced goals and other initiatives are not executed as planned, our and RMR’s reputation could be adversely affected, and our revenues, results of operations and ability to grow our business may be negatively impacted.
We may not have the ability to raise the funds necessary to finance the repurchase of the 2025 Notes and the 2031 Notes upon a change of control event as will be required by the indenture for the notes.
We may not have the ability to raise the funds necessary to finance the repurchase of the 2025 Notes, the 2026 Notes and the 2031 Notes upon a change of control event as will be required.
Risks Related to Our Business Unfavorable market, economic and real estate conditions may have a material adverse effect on our results of operations, financial condition and ability to pay distributions to our shareholders.
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.
However, this provision 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 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.
When interest rates increase, our interest costs will increase, which could adversely affect our cash flows, our ability to pay principal and interest on our debt, our cost of refinancing our fixed rate debts when they become due and our ability to pay distributions to our shareholders.
When interest rates increase, our borrowing costs with respect to any such debt will increase, which could adversely affect our cash flows, our ability to pay principal and interest on our debt, our cost of refinancing our fixed rate debts when they become due and our ability to pay distributions to our shareholders.
Those trends may continue and other factors, such as the COVID-19 pandemic and 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 inflation, rising or sustained high interest rates 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, high interest rates, prolonged high inflation and stock market volatility.
If we default under any of our debt obligations, we may be in default under other debt agreements of ours that have cross default provisions, including our credit agreement and our senior unsecured notes indentures and their supplements.
If we default under any of our debt obligations, we may be in default under other debt agreements of ours that have cross default provisions, including our senior notes indentures and their supplements, as applicable.
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.
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.
We have debt that is secured by properties that we or our joint ventures own or a pledge of the equity interests of certain of our subsidiaries.
More than half of our debt is secured by properties that we or our joint ventures own or by a pledge of the equity interests of certain of our subsidiaries.
More favorable rates will nevertheless continue to apply to 50 Table of Contents 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.
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.
REIT distribution requirements could adversely affect us and our shareholders. We generally must distribute annually at least 90% of our REIT taxable income, subject to specified adjustments and excluding any net capital gain, in order to maintain our qualification for taxation as a REIT under the IRC.
We generally must distribute annually at least 90% of our REIT taxable income, subject to specified adjustments and excluding any net capital gain, in order to maintain our qualification for taxation as a REIT under the IRC.
REIT distribution requirements and limitations on our ability to access reasonably priced capital may adversely impact our ability to carry out our business plan. To maintain our qualification for taxation as a REIT under the IRC, we are required to satisfy distribution requirements imposed by the IRC.
REIT distribution requirements and limitations on our ability to access capital at reasonable costs or at all may adversely impact our ability to carry out our business plan. To maintain our qualification for taxation as a REIT under the IRC, we are required to satisfy distribution requirements imposed by the IRC.
We and our managers and other operators and tenants face significant competition. We face significant competition for acquisition opportunities from other investors, including publicly traded and private REITs, numerous financial institutions, individuals, foreign investors and other public and private companies.
We also face significant competition for acquisition opportunities from other investors, including publicly traded and private REITs, numerous financial institutions, individuals, foreign investors and other public and private companies.
We may also be unable to raise reasonably priced capital because of reasons related to our business, market perceptions of our prospects, the terms of our debt, the extent of our leverage or for reasons beyond our control, such as capital market volatility, rising or sustained high interest rates and other market conditions.
We may also be unable to raise capital at reasonable costs or at all because of reasons related to our business, market perceptions of our prospects, the terms of our debt, the extent of our leverage or for reasons beyond our control, such as capital market volatility, high interest rates and other market conditions.
For example, current market conditions have caused, and may continue to cause, increased capitalization rates which, together with rising interest rates, has resulted in reduced 43 Table of Contents 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 high interest rates, have resulted in reduced commercial real estate transaction volume, and such conditions may continue or worsen.
Our business may be adversely affected by market, economic and real estate conditions in the U.S. and global economies and/or the local economies in the markets in which our properties are located.
Our business and operations may be adversely affected by market and economic volatility experienced by the U.S. and global economies, the commercial real estate industry and/or the local economies in the markets in which our properties are located.
Historically, during periods of rising or sustained high interest rates, the U.S. housing market has experienced declines. The U.S. economy is currently experiencing increasing interest rates. 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.
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.
As of December 31, 2022, our non-guarantor subsidiaries had total indebtedness and other liabilities of approximately $42.1 million (including guarantees of other indebtedness and trade payables, but excluding liabilities to us or a subsidiary guarantor), which are structurally senior to the 2025 Notes and the 2031 Notes.
As of December 31, 2023, our non-guarantor subsidiaries had total indebtedness and other liabilities of approximately $31.5 million (including guarantees of other indebtedness and trade payables 53 Table of Contents but excluding liabilities to us or a subsidiary guarantor), which are structurally senior to the 2025 Notes, the 2026 Notes and the 2031 Notes.
Heightened levels of staffing turnover at our senior living communities, particularly with respect to key and skilled positions, such as management, regional and executive directors and other skilled and qualified personnel, may disrupt operations, limit or slow the execution of business strategies, and decrease revenues and increase costs at our managed senior living communities, which may have a material adverse effect on our business, financial condition, results of operations and prospects.
Heightened levels of staffing turnover at our senior living communities, particularly with respect to key and skilled positions, such as management, regional and executive directors and other skilled and qualified personnel, may disrupt operations, limit or slow the execution of business strategies, and decrease revenues and increase costs at our managed senior living communities.
Such a decrease could 44 Table of Contents significantly impact our and our managers' and tenants' revenues from our senior living communities.
Such a decrease could significantly impact our and our managers’ and tenants’ revenues from our senior living communities.
In July 2022, RMR announced its zero emissions goal pursuant to which it 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 2030 from a 2019 baseline.
The Chair of our Board of Trustees and one of our Managing Trustees, Adam 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.
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.
As a result of these relationships, our agreements with AlerisLife (including Five Star) were not negotiated on an arm's length basis between unrelated parties, and therefore their terms may be different from those negotiated on an arm's length basis between unrelated parties.
As a result of these relationships, our agreements with AlerisLife (including Five Star) were not negotiated on an arm’s length basis between unrelated parties, and therefore, while such agreements were negotiated with the use of a special committee and/or disinterested Trustees, their terms may be different from those negotiated on an arm’s length basis between unrelated parties.
Rising interest rates have significantly increased, and may continue to significantly increase, our interest expense. 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, acquisitions, development or redevelopment projects, refinancing, lease obligations or other purposes and hinder our ability to pay distributions to our shareholders.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAll 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 $ 102,379 $ 73,083 — $ — $ — 8 $ 102,379 $ 73,083 AR — — — 3 45,371 28,014 — — — 3 45,371 28,014 AZ 4 73,465 53,958 6 158,428 97,616 1 3,510 1,963 11 235,403 153,537 CA 10 449,855 341,620 9 200,928 131,841 1 7,281 4,257 20 658,064 477,718 CO 2 20,756 12,826 8 109,329 74,148 2 18,867 12,343 12 148,952 99,317 CT 1 7,683 5,263 — — — — — — 1 7,683 5,263 DC 2 107,301 83,054 — — — — — — 2 107,301 83,054 DE — — — 6 114,265 74,787 — — — 6 114,265 74,787 FL 7 41,034 28,648 19 644,870 421,172 2 12,345 10,586 28 698,249 460,406 GA 5 85,944 58,521 25 320,801 221,934 2 46,811 34,099 32 453,556 314,554 HI 1 79,591 57,988 — — — — — — 1 79,591 57,988 ID — — — — — — 2 22,839 15,595 2 22,839 15,595 IL 4 68,101 43,858 11 181,593 107,258 1 20,641 13,604 16 270,335 164,720 IN 1 22,240 12,838 11 177,979 123,221 2 69,243 50,303 14 269,462 186,362 KS 2 62,475 39,596 3 68,748 45,017 — — — 5 131,223 84,613 KY — — — 9 115,815 68,066 — — — 9 115,815 68,066 MA 6 161,383 123,847 1 35,216 21,452 — — — 7 196,599 145,299 MD 3 46,219 30,571 11 263,471 181,431 1 20,964 15,017 15 330,654 227,019 MI — — — — — — 5 15,943 8,967 5 15,943 8,967 MN 9 126,565 87,129 1 16,129 13,120 2 6,319 3,578 12 149,013 103,827 MO 3 140,388 91,602 5 73,581 48,533 — — — 8 213,969 140,135 NC 2 61,388 43,602 16 238,093 179,363 1 6,839 3,840 19 306,320 226,805 NE — — — 1 8,566 5,583 1 26,702 18,789 2 35,268 24,372 NJ — — — 3 123,218 86,116 1 2,240 2,240 4 125,458 88,356 NM 2 38,267 27,932 1 33,906 20,093 3 33,303 21,348 6 105,476 69,373 NV — — — 2 84,856 59,230 — — — 2 84,856 59,230 NY 3 80,265 55,138 1 115,423 81,927 — — — 4 195,688 137,065 OH 1 18,601 11,895 1 47,694 29,046 1 4,428 1,755 3 70,723 42,696 OR — — — 1 49,047 43,790 — — — 1 49,047 43,790 PA 5 63,545 43,415 9 90,446 57,321 2 3,535 2,028 16 157,526 102,764 SC 2 15,575 9,759 17 142,780 104,554 2 3,935 2,279 21 162,290 116,592 TN 1 9,571 6,144 14 182,323 141,027 2 15,667 10,286 17 207,561 157,457 TX 11 220,642 151,945 13 377,797 254,017 1 20,502 14,066 25 618,941 420,028 VA 8 128,215 84,754 12 149,595 100,438 — — — 20 277,810 185,192 WA — — — — — — 2 18,892 11,241 2 18,892 11,241 WI 10 169,236 116,800 7 116,286 81,775 — — — 17 285,522 198,575 WY — — — 2 14,153 8,331 — — — 2 14,153 8,331 Total 105 2,298,305 1,622,703 236 4,403,086 2,983,304 37 380,806 258,184 378 7,082,197 4,864,191 Held for Sale — — — 1 486 385 — — — 1 486 385 Grand Total 105 $ 2,298,305 $ 1,622,703 237 $ 4,403,572 $ 2,983,689 37 $ 380,806 $ 258,184 379 $ 7,082,683 $ 4,864,576 (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
Biggest changeAll 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
Item 2. Properties. At December 31, 2022, our portfolio was comprised of 379 wholly 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, of these properties totaled $7.1 billion at December 31, 2022.
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.
As of December 31, 2022, four properties with gross book value of real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, of $97.9 million and a net book value of $60.2 million were subject to secured financing and finance lease obligations with an aggregate principal balance of $30.1 million. 56 Table of Contents The following table summarizes certain information about our wholly owned properties as of December 31, 2022.
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.
Added
As 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.
Added
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.
Added
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.
Added
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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeHowever, the timing, amount and form of future distributions will be determined at the discretion of our Board of Trustees and will depend upon various factors that our Board of Trustees deems relevant, including our historical and projected net income, Normalized FFO, our then current and expected needs and availability of cash to pay our obligations, distributions which we may be required to pay to satisfy our REIT distribution requirements, limitations in the agreements governing our debt and other factors deemed relevant by our Board of Trustees in its discretion.
Biggest changeHowever, the timing, amount and form of future distributions will be determined at the discretion of our Board of Trustees and will depend upon various factors that our Board of Trustees deems relevant, including, but not limited to, our FFO, our 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.
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 24, 2023, there were 1,302 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, 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.
The following table provides information about our purchases of our equity securities during the quarter ended December 31, 2022: 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 October 2022 833 $ 0.98 — $ — December 2022 8,818 $ 0.65 — — Total 9,651 $ 0.68 — $ — (1) These common share withholdings and purchases were made to satisfy tax withholding and payment obligations of a former employee and a former officer and employee of RMR in connection with the vesting of prior awards of our common shares.
The 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.

Item 7. Management's Discussion & Analysis

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

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Biggest changeOur 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, 2021 compared to the year ended December 31, 2020, 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, 2021. 66 Table of Contents For the Year Ended December 31, 2022 2021 $ Change % Change NOI by segment: Office Portfolio $ 128,091 $ 240,284 $ (112,193) (46.7) % SHOP 8,726 10,124 (1,398) (13.8) % Non-Segment 37,679 40,992 (3,313) (8.1) % Total NOI 174,496 291,400 (116,904) (40.1) % Depreciation and amortization 239,280 271,131 (31,851) (11.7) % General and administrative 26,435 34,087 (7,652) (22.4) % Acquisition and certain other transaction related costs 2,605 17,506 (14,901) (85.1) % Impairment of assets — (174) 174 (100.0) % Gain on sale of properties 321,862 492,272 (170,410) (34.6) % Loss on equity securities, net (25,660) (42,232) 16,572 (39.2) % Interest and other income 15,929 20,635 (4,706) (22.8) % Interest expense (209,383) (255,759) 46,376 (18.1) % Loss on modification or early extinguishment of debt (30,043) (2,410) (27,633) nm (Loss) income from continuing operations before income tax expense and equity in net earnings of investees (21,119) 181,356 (202,475) nm Income tax expense (710) (1,430) 720 (50.3) % Equity in net earnings of investees 6,055 — 6,055 nm Net (loss) income (15,774) 179,926 (195,700) nm Net income attributable to noncontrolling interest — (5,411) 5,411 (100.0) % Net (loss) income attributable to common shareholders $ (15,774) $ 174,515 $ (190,289) nm nm – not meaningful Office Portfolio: Comparable Properties (1) All Properties As of December 31, As of December 31, 2022 2021 2022 2021 Total buildings 94 94 105 116 Total square feet 7,894 7,895 8,811 9,793 Occupancy 90.0 % 92.3 % 84.7 % 91.3 % (1) Consists of medical office and life science properties that we have owned and which have been in service continuously since January 1, 2021; excludes properties classified as held for sale or out of service undergoing redevelopment, if any, and medical office and life science properties owned by unconsolidated joint ventures in each of which we own an equity interest.
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.
Census data, the age 75+ demographic is projected to be among the fastest growing age cohorts in the United States over the next 20 years, and according to the CMS, the age 85+ demographic is projected to grow over 30% over the next five years. Also, as a result of medical advances, seniors are living longer.
Census data, the age 75+ demographic is projected to be among the fastest growing age cohorts in the United States over the next 20 years, and according to CMS, the age 85+ demographic is projected to grow over 30% over the next five years. Also, as a result of medical advances, seniors are living longer.
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 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.
During the year ended December 31, 2022, 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, 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.
For further information regarding our indebtedness, see Note 9 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. Our senior unsecured notes are governed by our senior unsecured notes indentures and their supplements.
For further information regarding our indebtedness, see Note 9 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. Our senior notes are governed by our senior notes indentures and their supplements.
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 2023 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, 2022.
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.
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 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 of investees. Equity in net earnings of investees is the change in the fair value of our investments in our unconsolidated joint ventures.
Property operating expenses consist of wages and benefit costs of property 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 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.
(2) Represents gross book value of real estate assets divided by number of rentable square feet or living units, as applicable, at December 31, 2022. (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, 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”.
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. 80 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.
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.
In January 2023, Moody's downgraded our 9.75% senior notes due 2025 rating from B3 to Caa3, our 4.375% senior notes due 2031 rating from B3 to Caa3 and our senior unsecured debt rating from Caa1 to Ca.
In January 2023, Moody's downgraded our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031 ratings from B3 to Caa3 and our senior unsecured debt rating from Caa1 to Ca.
In February 2023, Standard & Poor's downgraded our 9.75% senior notes due 2025 rating from BB- to B, our 4.375% senior notes due 2031 rating from BB- to B and our senior unsecured debt rating from B to CCC+.
In February 2023, Standard & Poor's downgraded our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031 ratings from BB- to B and our senior unsecured debt rating from B to CCC+.
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 81 Table of Contents 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 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.
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 79 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 78 Table of Contents dividend, distribution, loan or other payments.
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 2022 and 2021.
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.
During fourth quarter holiday periods, residents at such facilities are sometimes discharged to spend time with family and admission decisions are often deferred. The first quarter of each calendar year usually coincides with increased illness among residents which can result in increased costs or discharges to hospitals.
During fourth quarter holiday periods, residents at such communities are sometimes discharged to spend time with family and admission decisions are often deferred. The first quarter of each calendar year usually coincides with increased illness among residents which can result in increased costs or discharges to hospitals.
(5) Medical office and life science property occupancy data is as of December 31, 2022 and 2021 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.
(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.
In October 2022, we repaid a mortgage note secured by one of our life science properties with an outstanding principal balance of approximately $10.3 million, a maturity date in October 2022 and an annual interest rate of 4.85%, using cash on hand.
In October 2022, we repaid at maturity a mortgage note secured by one of our life science properties with an outstanding principal balance of approximately $10.3 million and an annual interest rate of 4.85%, using cash on hand.
To mitigate the effects of the slow recovery coming from the COVID-19 pandemic and the increased variability in operating cash flows from our SHOP segment, we continue to work with our senior living operators to manage costs, especially labor costs, and to increase rates and occupancy.
To mitigate the effects of the slow recovery coming from the COVID-19 pandemic and the increased variability in operating cash flows from our SHOP communities, we continue to work with our senior living operators to manage costs, especially labor costs, and to increase rates and occupancy.
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 comprehensive income (loss). We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss) and net income (loss) attributable to common shareholders.
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.
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 unsecured notes indentures and supplements entered in February 2016, February 2018, June 2020 and February 2021).
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).
Impact of Government Reimbursement For the year ended December 31, 2022, 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, 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.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 (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, 2022 to the year ended December 31, 2021.
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.
We believe that these sources 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 debt service obligations and make distributions to our shareholders for at least the next 12 months.
(7) Operating data for other triple net leased senior living communities leased to third party operators and wellness centers are presented based upon the operating results provided by our tenants for the 12 months ended September 30, 2022 and 2021, or the most recent prior period for which tenant operating results are made available to us.
(7) Operating data for our triple net leased senior living communities leased to third party operators and wellness centers are presented based upon the operating results provided by our tenants for the 12 months ended September 30, 2023 and 2022, or the most recent prior period for which tenant operating results are made available to us.
(2) Office Portfolio segment 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) 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.
These measures do not represent cash generated by operating activities in accordance with 70 Table of Contents 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) or net income (loss) attributable to common shareholders as indicators of our operating performance or as measures of our liquidity.
Further, there are other existing and recently enacted legislation, and related litigation, related to government payments, insurance and healthcare delivery. Examples of these, and other information regarding such matters and developments, are provided under the caption “Business-Government Regulation and Reimbursement” above in this Annual Report on Form 10-K.
Further, there are other existing and recently enacted legislation, and related litigation, related to government payments, insurance and healthcare delivery. Examples of these, and other information regarding such matters and developments, are provided under the caption “Business—Government Regulation and Reimbursement” above in Part I, Item 1 of this Annual Report on Form 10-K.
We 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, 2022, we wholly owned 105 medical office and life science properties located in 24 states and Washington, D.C.
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.
Our initial investment amount was based on a property valuation of $1.7 billion, less $620.0 million of existing mortgage debts on the property that this joint venture assumed. In February 2023, we sold three former senior living communities for an aggregate sales price of $2.8 million, excluding closing costs.
Our initial investment amount was based on a property valuation of $1.7 billion, less $620.0 million of existing mortgage debts on the property that this joint venture assumed. In February 2023, we sold three properties for an aggregate sales price of $2.8 million, excluding closing costs.
A small percentage of our medical office and life science property leases are full-service leases where we receive fixed rent from our tenants and no reimbursement for our property operating costs.
A portion of our medical office and life science property leases are full-service leases where we receive fixed rent from our tenants and no reimbursement for our property operating costs.
Our calculations of FFO attributable to common shareholders and Normalized FFO attributable to common shareholders for the years ended December 31, 2022 and 2021 and reconciliations of net income (loss) attributable to common shareholders, the most directly comparable financial measure under GAAP reported in our consolidated financial statements, to FFO attributable to common shareholders and Normalized FFO attributable to common shareholders appear in the following table.
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.
(2) Comparable properties 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, 2021; excludes properties classified as held for sale, if any.
(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.
We completed the transition of 107 senior living communities from Five Star to other third party managers in 2021 and we have closed, and are assessing opportunities to redevelop, the remaining senior living community.
We completed the transition of 107 senior living communities from Five Star to other third party managers in 2021 and we have closed the remaining senior living community.
FFO attributable to common shareholders 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, including adjustments to reflect our proportionate share of FFO of our equity method investment in AlerisLife and our proportionate share of FFO from our unconsolidated joint ventures, plus real estate depreciation and amortization of consolidated properties and minus FFO adjustments attributable to noncontrolling interest, 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) 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.
Our remaining $1.35 billion of senior unsecured notes do not have the benefit of any guarantees as of December 31, 2022.
Our remaining $1.1 billion of senior unsecured notes do not have the benefit of any guarantees as of December 31, 2023.
The following table presents a summary of the other third party managers: Manager Location Number of Communities Number of Units Cedarhurst Senior Living IL/WI 13 785 Charter Senior Living FL/MD/TN/VA 17 977 IntegraCare Senior Living PA 2 143 Life Care Services DE 3 517 Navion Senior Solutions SC 5 235 Northstar Senior Living AZ/CA 7 418 Oaks-Caravita Senior Care GA/SC 26 1,415 Oaks Senior Living GA 3 264 Omega Senior Living NE 1 69 Phoenix Senior Living AL/AR/KY/MO/NC/SC 23 1,462 RMR TX 1 169 Stellar Senior Living CO/TX/WY 10 1,169 Total 111 7,623 For further information regarding the 2020 Restructuring Transaction, the terms of the Master Management Agreement and of the management agreements with the other third party managers and our other business arrangements with Five Star, see Note 6 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K, and for more information about our dealings and relationships with Five Star generally, and the risks which may arise as a result of these related person transactions, see “Risk Factors—Risks Related to Our Relationships with RMR and AlerisLife (including 63 Table of Contents Five Star)” in Part I, Item 1A of this Annual Report on Form 10-K, “—Related Person Transactions” below and Note 8 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
We expect to pay a termination fee of approximately $1.0 million in connection with this transition. 63 Table of Contents The following table presents a summary of the other third party managers as of December 31, 2023: Manager Location Number of Communities Number of Units Cedarhurst Senior Living IL/WI 13 767 Charter Senior Living FL/MD/TN/VA 17 977 IntegraCare Senior Living PA 2 143 Life Care Services DE 3 517 Navion Senior Solutions SC 5 235 Northstar Senior Living AZ/CA 7 418 Oaks-Caravita Senior Care GA/SC 26 1,415 Oaks Senior Living GA 3 264 Omega Senior Living NE 1 69 Phoenix Senior Living AL/AR/KY/MO/NC/SC 23 1,486 RMR TX 1 169 Stellar Senior Living CO/TX/WY 10 1,094 Total 111 7,554 For further information regarding the terms of the Master Management Agreement and of the management agreements with the other third party managers and our other business arrangements with Five Star, see Note 6 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K, and for more information about our dealings and relationships with Five Star generally, and the risks which may arise as a result of these related person transactions, see “Risk Factors—Risks Related to Our Relationships with RMR and AlerisLife (including Five Star)” in Part I, Item 1A of this Annual Report on Form 10-K, “—Related Person Transactions” below and Note 8 to our Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
During the years ended December 31, 2022, December 31, 2021 and December 31, 2020, we recognized $4.3 million, $19.6 million and $17.5 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. Seasonality Senior housing operations have historically reflected modest seasonality.
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.
The following table includes the reconciliation of net income (loss) to NOI for the years ended December 31, 2022 and 2021.
The following table includes the reconciliation of net loss to NOI for the years ended December 31, 2023 and 2022.
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 the contractual amounts of returns, rents or other obligations due to us, could impair our ability to effectively deploy our capital or realize our investments on favorable terms, 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.
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.
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 attributable to common shareholders, Normalized FFO attributable to common shareholders and NOI for the years ended December 31, 2022 and 2021.
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.
As of December 31, 2022, 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 and several basis and on a senior unsecured basis, by all of our subsidiaries, except for certain excluded subsidiaries, including pledged subsidiaries under our credit agreement.
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.
Our future cash flows from operating activities will depend primarily upon: • our ability to receive rents from our tenants; • our ability to maintain or increase the occupancy of, and the rates at, our properties, particularly at our senior living communities; • our and our managers' abilities to control operating expenses and capital expenses at our properties, including increased operating expenses that we may incur in response to high inflation, limited labor availability or supply chain challenges; and • our managers' abilities to maintain or increase our returns from our managed senior living communities.
Our future cash flows from operating activities will depend primarily upon: • our ability to receive rents from our tenants; • our ability to maintain or increase the occupancy of, and the rates at, our properties; • our and our managers' abilities to control operating expenses and capital expenses at our properties, including increased operating expenses that we may incur in response to wage and commodity price inflation, limited labor availability and increased insurance costs; and • our managers' abilities to maintain or increase our returns from our managed senior living communities.
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. Losses on equity securities, net. Losses on equity securities, net, represent the net unrealized losses to adjust our investment in AlerisLife to its fair value.
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.
General and administrative expense decreased primarily due to a decrease in our base business management fees expense as a result of lower consolidated indebtedness and lower trading prices for our common shares during 2022 compared to 2021. Acquisition and certain other transaction related costs.
General and administrative expense decreased primarily due to a decrease in our base business management fees expense as a result of lower consolidated indebtedness and lower trading prices for our common shares during 2023 compared to 2022, partially offset by an increase in legal and other professional fees. Acquisition and certain other transaction related costs.
Our ability to complete, and the costs associated with, future debt or equity transactions depends primarily upon credit market conditions and our then creditworthiness. We have no control over market conditions.
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.
The gain on sale of properties during the year ended December 31, 2022 reflects the contribution of 10 medical office and life science properties to the LSMD JV in which we retained a 20% equity interest.
Our aggregate gain on sale of properties during 2023 was not significant. The gain on sale of properties during the year ended December 31, 2022 reflects our sale of 10 medical office and life science properties to the LSMD JV in which we retained a 20% equity interest and our sale of a 10% equity interest in the Seaport JV.
Other real estate companies and REITs may calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders differently than we do.
Other real estate companies and REITs may calculate FFO and Normalized FFO differently than we do.
For the year ended December 31, 2022, acquisition and certain other transaction related costs primarily represent costs related to the transition of certain senior living communities to other third party managers. Impairment of assets.
For the years ended December 31, 2023 and 2022, acquisition and certain other transaction related costs also include costs related to the transition of certain senior living communities to other third party managers. Impairment of assets.
Although we have taken steps to enhance our ability to maintain sufficient liquidity, as noted elsewhere in this Annual Report on Form 10-K, a protracted negative impact on the economy or the industries in which our properties and businesses operate resulting from high inflation, rising or sustained high interest rates, geopolitical risks or other economic, market or industry conditions, including downturns or recessions, may cause increased pressure on our ability to satisfy financial and other covenants.
Although we continue to take steps to enhance our ability to maintain sufficient liquidity, as noted elsewhere in this Annual Report on Form 10-K, a protracted negative impact on the economy or the industries in which our properties and businesses operate resulting from wage or commodity price inflation, high interest rates, geopolitical risks or other economic, market or industry conditions, including the delayed recovery of the senior housing industry, economic downturns or a possible recession, may cause increased pressure on our ability to satisfy financial and other covenants.
We typically use cash balances, net proceeds from offerings of securities 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, 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.
(2) Average monthly rate is calculated by taking the average daily rate, which is defined as total residents fees and services divided by occupied units during the period, and multiplying it by 30 days.
(2) Average monthly rate is calculated by taking the average daily rate, which is defined as total residents fees and services divided by occupied units during the period, and multiplying it by 30 days. Residents fees and services. Residents fees and services are the revenues earned at our managed senior living communities.
In November 2022, Standard & Poor's downgraded our 9.75% senior notes due 2025 rating from BB to BB-, our 4.375% senior notes due 2031 rating from BB to BB- and our senior unsecured debt rating from BB- to B.
In September 2023, Standard & Poor's downgraded our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031 ratings from B to CCC+ and our senior unsecured debt rating from CCC+ to CCC-.
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 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.
We expect to fund these obligations using operating cash flows we generate as rental income from our leased properties, residents fees and services revenues from our managed communities, cash on hand, proceeds from the disposition of certain properties and proceeds related to contributions we may make of properties we own to joint ventures.
We expect to fund these obligations using operating cash flows we generate as rental income from our leased properties, residents fees and services revenues from our managed communities, cash on hand, proceeds from the disposition of certain properties, future financing activities with unencumbered properties and proceeds related to distributions from our two unconsolidated joint ventures.
The debt secured by the properties included in the LSMD JV in which we own a 20% equity interest is guaranteed by this joint venture. Supplemental Guarantor Information On May 28, 2020, we issued $1.0 billion of our 9.75% senior notes due 2025. We subsequently redeemed $500.0 million of this debt in June 2022, with $500.0 million remaining outstanding.
The debt secured by the properties included in the LSMD JV in which we own a 20% equity interest is guaranteed by this joint venture and is non-recourse to us. Supplemental Guarantor Information On May 28, 2020, we issued $1.0 billion of our 9.75% senior notes due 2025.
The medical advances which are increasing average life spans are also causing some seniors to delay moving to senior living communities until they require greater care or to forgo moving to senior living communities altogether, but we do not believe this factor is sufficient to offset the long term positive demographic trends causing increased demand for senior living communities for the foreseeable future. 64 Table of Contents In recent years, a significant number of new senior living communities have been developed and continue to be developed.
The medical advances which are increasing average life spans are also causing some seniors to delay moving to senior living communities until they require greater care or to forgo moving to senior living communities altogether, but we do not believe this factor is sufficient to offset the long term positive demographic trends causing increased demand for senior living communities for the foreseeable future.
Funds From Operations and Normalized Funds From Operations Attributable to Common Shareholders We calculate FFO attributable to common shareholders and Normalized FFO attributable to common shareholders as shown below.
Funds From Operations and Normalized Funds From Operations We calculate FFO and Normalized FFO as shown below.
Our senior unsecured notes indentures and their supplements and our credit agreement also contain covenants that restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts and require us to maintain 78 Table of Contents various financial ratios, and our credit agreement contains covenants that restrict our ability to make distributions to our shareholders in certain circumstances.
Our senior notes indentures and their supplements also contain covenants that restrict our ability to incur debts, including debts secured by mortgages on our properties, in excess of calculated amounts and require us to maintain various financial ratios.
We incurred costs related to retention and other transition costs with respect to these transitioned communities. For the years ended December 31, 2022 and December 31, 2021, we recorded $2.1 million and $17.4 million, respectively, of these costs to acquisition and certain other transaction related costs in our consolidated statements of comprehensive income (loss).
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.
The following is a summary of our sources and uses of cash flows for the periods presented, as reflected in our consolidated statements of cash flows (dollars in thousands): Year Ended December 31, 2022 2021 Cash and cash equivalents and restricted cash at beginning of period $ 1,016,945 $ 90,849 Net cash provided by (used in): Operating activities (40,353) (63,323) Investing activities 387,708 242,696 Financing activities (675,998) 746,723 Cash and cash equivalents and restricted cash at end of period $ 688,302 $ 1,016,945 Our Operating Liquidity and Resources We generally receive minimum rents from our tenants monthly or quarterly, we receive residents fees and services revenues, net of expenses, from our managed senior living communities monthly and we receive percentage rents from certain of our senior living community tenants monthly, quarterly or annually.
The following is a summary of our sources and uses of cash flows for the periods presented, as reflected in our consolidated statements of cash flows (dollars in thousands): Year Ended December 31, 2023 2022 Cash and cash equivalents and restricted cash at beginning of period $ 688,302 $ 1,016,945 Net cash provided by (used in): Operating activities 10,483 (40,353) Investing activities (202,111) 387,708 Financing activities (249,713) (675,998) Cash and cash equivalents and restricted cash at end of period $ 246,961 $ 688,302 74 Table of Contents Our Operating Liquidity and Resources We generally receive minimum rents from tenants at our Office Portfolio properties, triple net leased senior living communities and wellness centers monthly, we receive residents fees and services revenues, net of expenses, from our managed senior living communities monthly and we receive percentage rents from tenants at certain of our senior living communities monthly, quarterly or annually.
The change in NOI reflects the net changes in rental income and property operating expenses described above.
The change in NOI reflects the net changes in residents fees and services and property operating expenses described above.
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.
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.
As of December 31, 2022, Five Star managed 119 senior living communities for our account. 62 Table of Contents In June 2021, we amended our then existing management arrangements with Five Star and Five Star agreed to cooperate with us in transitioning 108 of our senior living communities to other third party managers.
In June 2021, we amended our then existing management arrangements with Five Star and Five Star agreed to cooperate with us in transitioning 108 of our senior living communities to other third party managers.
For the Year Ended December 31, 2022 2021 Reconciliation of Net Income (Loss) to NOI: Net (loss) income $ (15,774) $ 179,926 Equity in net earnings of investees (6,055) — Income tax expense 710 1,430 (Loss) income from continuing operations before income tax expense and equity in net earnings of investees (21,119) 181,356 Loss on modification or early extinguishment of debt 30,043 2,410 Interest expense 209,383 255,759 Interest and other income (15,929) (20,635) Losses on equity securities, net 25,660 42,232 Gain on sale of properties (321,862) (492,272) Impairment of assets — (174) Acquisition and certain other transaction related costs 2,605 17,506 General and administrative 26,435 34,087 Depreciation and amortization 239,280 271,131 Total NOI $ 174,496 $ 291,400 Office Portfolio NOI $ 128,091 $ 240,284 SHOP NOI 8,726 10,124 Non-Segment NOI 37,679 40,992 Total NOI $ 174,496 $ 291,400 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, 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.
These redevelopment projects may require significant capital expenditures and time to complete. In July 2022, we acquired one life science property located in California with approximately 88,508 square feet for approximately $75.1 million, including closing costs and credits. We funded this acquisition using cash on hand.
These redevelopment projects may require significant capital expenditures and time to complete, and we have deferred, and may in the future defer, certain redevelopment projects to preserve liquidity. In July 2022, we acquired one life science property located in California with approximately 88,508 square feet for approximately $75.1 million, including closing costs and credits.
OVERVIEW We are a REIT organized under Maryland law and which owns medical office and life science properties, senior living communities and other healthcare related properties throughout the United States. As of December 31, 2022, we wholly owned 379 properties, including eight closed senior living communities, located in 36 states and Washington, D.C.
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.
For further information and risks relating to these economic uncertainties, including changes related to the COVID-19 pandemic, and their impact on our business and financial condition, see elsewhere in this Annual Report on Form 10-K, including "Warning Concerning Forward-Looking Statements," Part I, Item 1 "Business" and Part I, Item 1A "Risk Factors".
We expect continued volatility in labor, insurance and food costs in our SHOP segment. For further information and risks relating to these economic uncertainties and their impact on our business and financial condition, see elsewhere in this Annual Report on Form 10-K, including "Warning Concerning Forward-Looking Statements," Part I, Item 1, "Business" and Part I, Item 1A, "Risk Factors".
In calculating Normalized FFO attributable to common shareholders, we adjust for the items shown below. FFO attributable to common shareholders and Normalized FFO attributable to common shareholders are among the factors considered by our Board of Trustees 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 when determining the amount of distributions to our shareholders.
On January 12, 2023, we declared a quarterly distribution payable to common shareholders of record on January 23, 2023 in the amount of $0.01 per share, or approximately $2.4 million. We paid this distribution on February 16, 2023 using cash on hand.
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.
This table also provides a comparison of distributions to shareholders, FFO attributable to common shareholders and Normalized FFO attributable to common shareholders and net income (loss) attributable to common shareholders per share for these periods. 71 Table of Contents For the Year Ended December 31, 2022 2021 Net (loss) income attributable to common shareholders $ (15,774) $ 174,515 Depreciation and amortization 239,280 271,131 Gain on sale of properties (321,862) (492,272) Impairment of assets — (174) Losses on equity securities, net 25,660 42,232 FFO adjustments attributable to noncontrolling interest — (20,584) Equity in net earnings of unconsolidated joint ventures (6,055) — Share of FFO from unconsolidated joint ventures 11,518 273 Adjustments to reflect our share of FFO attributable to an equity method investment (7,715) (6,017) FFO attributable to common shareholders (74,948) (30,896) Acquisition and certain other transaction related costs 2,605 17,506 Loss on modification or early extinguishment of debt 30,043 2,410 Adjustments to reflect our share of Normalized FFO attributable to an equity method investment 3,975 3,074 Normalized FFO attributable to common shareholders $ (38,325) $ (7,906) Weighted average common shares outstanding (basic and diluted) 238,314 237,967 Per common share data (basic and diluted): Net (loss) income attributable to common shareholders $ (0.07) $ 0.73 FFO attributable to common shareholders $ (0.31) $ (0.13) Normalized FFO attributable to common shareholders $ (0.16) $ (0.03) 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. 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.
A protracted negative impact on the economy or the industries in which our properties and businesses operate, high inflation, rising or sustained high interest rates, geopolitical risks or other economic, market or industry conditions, including downturns or recessions, may have various negative consequences including a decline in financing availability and increased costs for financing.
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.
Property operating expenses consist of real estate taxes and other expenses we paid on behalf of a tenant in default under leases for six of our wellness centers. Pursuant to an agreement with this tenant in January 2023, we expect to continue to incur real estate taxes and other direct costs for three of these properties. Net operating income.
Property operating expenses. Property operating expenses consist of real estate taxes and other direct costs of operating certain of our wellness centers. Pursuant to an agreement with a previously defaulted tenant in January 2023, we expect to continue to incur real estate taxes and other direct costs for three of these wellness centers.
In September 2022, Moody's downgraded our 9.75% senior notes due 2025 rating from B2 to B3, our 4.375% senior notes due 2031 rating from B2 to B3 and our senior unsecured debt rating from B3 to Caa1.
In September 2023, Moody's downgraded our 9.75% senior notes due 2025 and our 4.375% senior notes due 2031 ratings from Caa3 to Ca and our senior unsecured debt rating from Ca to C.
All Other As of December 31, 2022, lease expirations at our other 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 2023 — — $ — — % — % 2024 — — — — % — % 2025 — — — — % — % 2026 — — — — % — % 2027 4 533 units 4,469 13.6 % 13.6 % 2028 6 354,000 sq. ft. — — % 13.6 % 2029 1 155 units 547 1.7 % 15.3 % 2030 2 283 units 3,496 10.7 % 26.0 % 2031 1 — — — % 26.0 % 2032 and thereafter 23 1,091 units and 458,000 sq. ft. 24,295 74.0 % 100.0 % Total 37 $ 32,807 100.0 % (1) Annualized rental income is based on rents pursuant to existing leases as of December 31, 2022.
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.
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. 65 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, 2022 and 2021: For the Year Ended December 31, 2022 2021 Revenues: Office Portfolio $ 222,390 $ 367,597 SHOP 1,022,826 974,623 Non-Segment 38,350 40,992 Total revenues $ 1,283,566 $ 1,383,212 Net income (loss) attributable to common shareholders: Office Portfolio $ 378,282 $ 575,836 SHOP (139,589) (104,081) Non-Segment (254,467) (297,240) Net income (loss) attributable to common shareholders $ (15,774) $ 174,515 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. 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.
Rental income decreased primarily due to the deconsolidation of 11 medical office and life science properties currently owned by two unconsolidated joint ventures in each of which we own an equity interest, our disposition of five properties since January 1, 2021 and certain of our properties being taken out of service and/or currently undergoing redevelopment, partially offset by our acquisition of one property since January 1, 2021 and an increase in rental income at our comparable properties and at certain of our recently redeveloped properties.
Rental income decreased due to a tenant default at one of our properties resulting in a write off of the corresponding unamortized straight line rent receivable, the deconsolidation of 10 medical office and life science properties currently owned by an unconsolidated joint venture in which we own an equity interest and certain of our properties being taken out of service and/or currently undergoing redevelopment, partially offset by the acquisition of one property since January 1, 2022 and an increase in rental income at our comparable properties and at certain of our recently redeveloped properties.
The following is a summary of capital expenditures, development, redevelopment and other activities for the periods presented (dollars in thousands): For the Year Ended December 31, 2022 2021 Office Portfolio segment capital expenditures: Lease related costs (1) $ 25,227 $ 40,253 Building improvements (2) 11,955 15,407 SHOP segment fixed assets and capital improvements 109,529 141,122 Recurring capital expenditures $ 146,711 $ 196,782 Development, redevelopment and other activities - Office Portfolio segment (3) $ 48,390 $ 40,253 Development, redevelopment and other activities - SHOP segment (3) 118,601 17,274 Total development, redevelopment and other activities $ 166,991 $ 57,527 (1) Office Portfolio segment lease related costs generally include capital expenditures to improve tenants' space or amounts paid directly to tenants to improve their space and other leasing related costs, such as brokerage commissions and tenant inducements.
The following is a summary of capital expenditures, development, redevelopment and other activities for the periods presented (dollars in thousands): For the Year Ended December 31, 2023 2022 Office Portfolio segment capital expenditures: Lease related costs (1) $ 38,070 $ 25,227 Building improvements (2) 12,984 11,955 Recurring capital expenditures - Office Portfolio segment 51,054 37,182 SHOP fixed assets and capital improvements 100,981 109,529 Wellness centers lease related costs (1) 9,721 — Recurring capital expenditures $ 161,756 $ 146,711 Development, redevelopment and other activities - Office Portfolio segment (3) $ 9,244 $ 48,390 Development, redevelopment and other activities - SHOP segment (3) 82,207 118,601 Total development, redevelopment and other activities $ 91,451 $ 166,991 (1) Lease related costs generally include capital expenditures to improve tenants' space or amounts paid directly to tenants to improve their space and other leasing related costs, such as brokerage commissions and tenant inducements.
The decrease in property operating expenses is primarily due to the deconsolidation of 11 medical office and life science properties currently owned by two unconsolidated joint ventures in each of which we own an equity interest, our disposition of five properties since January 1, 2021 and certain of our properties being taken out of service and/or currently undergoing redevelopment, partially offset by our acquisition of one property since January 1, 2021 and an increase in property operating expenses at our comparable properties and at certain of our recently redeveloped properties.
The increase in property operating expenses is primarily due to an increase in property operating expenses at our comparable properties and at certain of our recently developed properties, and our acquisition of one property since January 1, 2022, partially offset by the deconsolidation of 10 medical office and life science properties currently owned by an unconsolidated joint venture in which we own an equity interest.
Although there have been signs of recovery and increased demand during the year ended December 31, 2022 when compared to the low levels during the COVID-19 pandemic, we cannot be sure when or if the senior housing business will return to historic pre-pandemic levels.
Although there have been signs of recovery and increased demand when compared to the low levels during the COVID-19 pandemic, the recovery of our SHOP segment has been slower than previously anticipated and uneven, and we cannot be sure when or if the senior living business will return to historic pre-pandemic levels.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeFederal Reserve has raised interest rates multiple times since the beginning of 2022 in an effort to combat high inflation and may continue to do so. Our senior unsecured notes and certain of our mortgages contain provisions that allow us to make repayments earlier than the stated maturity date.
Biggest changeFederal 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.
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.
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
In accordance with GAAP, our carrying values and recorded interest expense may differ from these amounts because of market conditions at the time we assumed certain of these debts. This table does not include obligations under finance leases. No principal repayments are due under our unsecured notes until maturity.
In accordance with GAAP, our carrying values and recorded interest expense may differ from these amounts because of market conditions at the time we assumed certain of these debts. This table does not include obligations under finance leases.
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. 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 and prolonged increases in inflation, the U.S.
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. 82 Table of Contents Fixed Rate Debt At December 31, 2022, 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 $ 250,000 4.750 % $ 11,875 2024 Semi-Annually Senior unsecured notes 500,000 9.750 % 48,750 2025 Semi-Annually 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 14,732 6.640 % 978 2023 Monthly Mortgage note 9,997 4.444 % 444 2043 Monthly $ 2,374,729 $ 142,985 (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. 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.
If these debts were refinanced at interest rates which are one percentage point higher or lower than shown above, our annual interest cost would increase or decrease by approximately $23.7 million.
If these debts were refinanced at interest rates which are one percentage point higher or lower than shown above, our annual interest cost would increase or decrease by approximately $21.1 million, which amount excludes our $940.5 million of our senior secured notes due 2026 as no interest is due until maturity.
Removed
Floating Rate Debt At December 31, 2022, our floating rate debt obligations consisted of $700.0 million outstanding under our credit facility. Our credit facility matures in January 2024.
Added
(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.
Removed
Borrowings under our credit facility are in U.S. dollars and interest is required to be paid at the rate of a benchmark such as LIBOR or SOFR beginning in February 2023 plus a premium that is subject to adjustment based upon changes to our credit ratings.
Added
Our debt agreements contain provisions that allow us to make repayments earlier than the stated maturity date.
Removed
Accordingly, we are exposed to interest rate risk for changes in U.S. dollar based short term rates, and to changes in our credit ratings. In addition, upon renewal or refinancing of our credit facility, we are vulnerable to increases in interest rate premiums due to market conditions or our perceived credit characteristics.
Added
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.
Removed
Generally, a change in interest rates would not affect the value of our floating rate debt but would affect our operating results. 83 Table of Contents The following table presents the impact a one percentage point increase in interest rates would have on our annual floating rate interest expense as of December 31, 2022 (dollars in thousands except per share amounts): Impact of Changes in Interest Rates Interest Rate (1) Outstanding Floating Rate Debt Total Interest Expense Per Year Annual Earnings per Share Impact (2) At December 31, 2022 6.88 % $ 700,000 $ 48,160 $ 0.20 One percentage point increase 7.88 % $ 700,000 $ 55,160 $ 0.23 (1) Interest rate under our credit facility as of December 31, 2022.
Removed
(2) Based on weighted average number of shares outstanding (basic and diluted) for the year ended December 31, 2022. The foregoing table shows the impact of an immediate increase in floating interest rates. If interest rates were to increase gradually over time, the impact would be spread over time.
Removed
Our exposure to fluctuations in floating interest rates will increase or decrease in the future with increases or decreases in the amount of our borrowings outstanding under our credit facility or other floating rate debt. LIBOR Transition As of December 31, 2022, we were required to pay interest on borrowings under our credit facility at floating rates based on LIBOR.
Removed
The determination of interest under our credit facility has been revised pursuant to the terms of the February 2023 amendment to our credit agreement and the interest rate premium under our credit facility will be based on SOFR beginning in February 2023. This may result in our paying increased interest amounts. Item 8. Financial Statements and Supplementary Data.

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