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The accompanying condensed consolidated financial statements of Diversified Healthcare Trust and its subsidiaries, or we, us, or our, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2019, or our Annual Report.  

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in our condensed consolidated financial statements include purchase price allocations, useful lives of fixed assets and impairments of real estate and intangible assets. We have made reclassifications to the financial statements of prior periods to conform to the current period presentation. These reclassifications had no effect on net income (loss) or equity.

We have a joint venture arrangement with an institutional investor for one of our life science properties located in Boston, Massachusetts. The investor owns a 45% equity interest in the joint venture, and we own the remaining 55% equity interest in the joint venture. We have determined that this joint venture is a variable interest entity, or VIE, as defined under the Consolidation Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification. We concluded that we must consolidate this VIE because we are the entity with the power to direct the activities that most significantly impact the VIE's economic performance and we have the obligation to absorb losses of, and the right to receive benefits from, the VIE that could be significant to the VIE, and therefore are the primary beneficiary of the VIE. The assets of this VIE were $991,730 and $1,015,661 as of June 30, 2020 and December 31, 2019, respectively, and consist primarily of the net real estate owned by the joint venture. The liabilities of this VIE were $699,761 and $704,344 as of June 30, 2020 and December 31, 2019, respectively, and consist primarily of the secured debts on the property. The investor's interest in this consolidated entity is reflected as a noncontrolling interest in our condensed consolidated financial statements. See Note 7 for further information about this joint venture.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires that entities use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. We adopted this standard which was effective as of January 1, 2020 using the modified retrospective approach. The implementation of this standard did not have a material impact in our condensed consolidated financial statements.

As of June 30, 2020, we owned 412 properties located in 38 states and Washington, D.C., including 21 properties classified as held for sale and one life science property owned in a joint venture arrangement in which we own a 55% equity interest.

We regularly evaluate our assets for indicators of impairment. Impairment indicators may include declining tenant or resident occupancy, weak or declining profitability from the property, decreasing tenant cash flows or liquidity, our decision to dispose of an asset before the end of its estimated useful life, and legislative, market or industry changes that could permanently reduce the value of an asset. If indicators of impairment are present, we evaluate the carrying value of the affected assets by comparing it to the expected future cash flows to be generated from those assets. The future cash flows are subjective and are

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based in part on assumptions regarding hold periods, market rents and terminal capitalization rates. If the sum of these expected future cash flows is less than the carrying value, we reduce the net carrying value of the asset to its estimated fair value.

Acquisition Activities:

In January 2020, we acquired a vacant land parcel adjacent to a property we own in our portfolio of medical office and life science properties, or our Office Portfolio, segment located in Tempe, Arizona for $2,600, excluding acquisition costs.

Disposition Activities:

During the six months ended June 30, 2020, we sold 12 properties for an aggregate sales price of $68,154, excluding closing costs, as presented in the table below. The sales of these properties do not represent significant dispositions individually or in the aggregate, nor do we believe they represent a strategic shift in our business. As a result, the results of the operation for these properties are included in continuing operations through the date of sale of such properties in our condensed consolidated statements of comprehensive income (loss).

Date of Sale		Location		Type of Property		Number of Properties		Square Feet or Number of Units				Sales Price (1)				Gain (loss) on Sale				Impairment of Assets
January 2020		Louisiana		Medical Office		6		40,575		sq. ft.		$	5,925			$	(81	)		$	—
February 2020		Pennsylvania		Medical Office		1		50,000		sq. ft.		2,900				—				(47		)
March 2020		Texas		Medical Office		1		70,229		sq. ft.		8,779				2,863				—
April 2020		California		Managed Senior Living		3		599		units		47,000				(168		)		5,465
June 2020		South Carolina		Medical Office		1		49,242		sq. ft.		3,550				—				2,753
						12						$	68,154			$	2,614			$	8,171

(1)	Sales price excludes closing costs.

As of June 30, 2020, we had 21 properties classified as held for sale in our condensed consolidated balance sheet as follows:

Type of Property		Number of Properties		Undepreciated Carrying Value				Impairment of Assets(1)
Managed Senior Living		15		$	52,563			$	30,752
Medical Office		3		11,832				415
Triple Net Leased, Senior Living		3		48,236				—
		21		$	112,631			$	31,167

(1)	We recorded an aggregate of $31,167 impairment of real estate during the six months ended June 30, 2020 to adjust the carrying values of certain of these properties to their estimated fair values less costs to sell.

Subsequent to June 30, 2020, two of the three medical office properties and two of the 15 managed senior living communities classified as held for sale in the table above were sold for an aggregate sales price of $5,197, excluding closing costs.

We also recorded impairment charges of $3,071 related to seven medical office properties and two senior living communities that were classified as held for sale during the three months ended March 31, 2020. These properties were subsequently reclassified to held and used as of June 30, 2020.

As of August 3, 2020, we had 24 properties under agreements to sell for an aggregate sales price of approximately $231,725, excluding closing costs. We may not complete the sales of any or all of the properties we currently plan to sell. Also, we may sell some or all of these properties at amounts that are less than currently expected and/or less than the carrying values of such properties and we may incur losses on any such sales as a result.

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

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

We increased rental income to record revenue on a straight line basis by $1,385 and $430 for the three months ended June 30, 2020 and 2019, respectively, and $2,538 and $2,364 for the six months ended June 30, 2020 and 2019, respectively. Rents receivable, excluding properties classified as held for sale, include $107,178 and $99,297 of straight line rent receivables at June 30, 2020 and December 31, 2019, respectively, and are included in other assets, net in our condensed consolidated balance sheets.

We do not include in our measurement of our lease receivables certain variable payments, including changes in the index or market based indices after the inception of the lease, certain tenant reimbursements and other income until the specific events that trigger the variable payments have occurred. We recognized such payments totaling $18,263 and $19,525 for the three months ended June 30, 2020 and 2019, respectively, of which tenant reimbursements totaled $1,074 and $1,203, respectively, and $38,291 and $38,370 for the six months ended June 30, 2020 and 2019, respectively, of which tenant reimbursements totaled $2,094 and $2,400, respectively.

As a result of the COVID-19 pandemic, some of our tenants have requested relief from their obligations to pay rent due to us. As of August 3, 2020, we granted requests for certain of our tenants to defer rent payments totaling $5,474. These tenants are obligated to pay, in most cases, the deferred rents in 12 equal monthly installments commencing in September 2020. We have elected to use the FASB relief package regarding the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. The FASB relief package provides entities with the option to account for lease concessions resulting from the COVID-19 pandemic outside of the existing lease modification guidance if the resulting cash flows from the modified lease are substantially the same as the original lease. Because the majority of the deferred rents referenced above will generally be repaid over a 12-month period, the cash flows from the respective leases are substantially the same as before the rent deferrals. These deferred amounts did not negatively impact our results for the three and six months ended June 30, 2020 and, as of June 30, 2020, we recognized an increase in our accounts receivable related to these deferred amounts of $3,504.

Right of Use Asset and Lease Liability. For leases where we are the lessee, we recognized a right of use asset and a lease liability equal to the present value of the minimum lease payments with rental payments being applied to the lease liability and the right of use asset being amortized over the term of the lease. The value of the right of use asset and related liability representing our future obligation under the lease arrangement for which we are the lessee were $4,278 and $4,437, respectively, as of June 30, 2020, and $4,319 and $4,461, respectively, as of December 31, 2019. The right of use asset and related lease liability are included within other assets, net and other liabilities, respectively, within our condensed consolidated balance sheets. In addition, we lease equipment at certain of our managed senior living communities. These leases are short term in nature, are cancelable with no fee or do not result in an annual expense in excess of our capitalization policy and, as a result, are not recorded on our condensed consolidated balance sheets.

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Our principal debt obligations at June 30, 2020 were: (1) $2,650,000 outstanding principal amount of senior unsecured notes; (2) $200,000 outstanding principal amount under our term loan; and (3) $685,428 aggregate principal amount of mortgage notes (excluding premiums, discounts and net debt issuance costs) secured by seven properties, of which $620,000 is related to a joint venture arrangement in which we own a 55% equity interest. These seven mortgaged properties had a 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 $1,258,457 at June 30, 2020. We also had two properties subject to finance leases with lease obligations totaling $8,352 at June 30, 2020; these two properties had gross book value of real estate assets of $35,708 at June 30, 2020, and the finance leases expire in 2026.

We have a $1,000,000 unsecured revolving credit facility that is available for general business purposes. The maturity date of our revolving credit facility is January 15, 2022, and, subject to the payment of an extension fee and meeting other conditions, we have the option to extend the maturity date of the facility for an additional year. Our revolving credit facility provides that we can borrow, repay and re-borrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity. As of June 30, 2020, our revolving credit facility required interest to be paid on borrowings at the annual rate of 2.6%, plus a facility fee of 30 basis points per annum on the total amount of lending commitments under the facility.

The weighted average annual interest rates for borrowings under our revolving credit facility were 1.8% and 3.6% for the three months ended June 30, 2020 and 2019, respectively, and 2.2% and 3.6% for the six months ended June 30, 2020 and 2019, respectively. The interest rate premium and facility fee are each subject to adjustment based upon changes to our credit ratings. As of June 30, 2020 and August 3, 2020, we had no outstanding borrowings and $1,000,000 available for borrowing under our revolving credit facility.

We have a $200,000 unsecured term loan that matures in September 2022 and is prepayable without penalty at any time. At June 30, 2020, the annual interest rate payable on amounts outstanding under this term loan was 2.4%. The weighted average annual interest rate for amounts outstanding under this term loan was 2.3% and 3.9% for the three months ended June 30, 2020 and 2019, respectively, and 2.7% and 3.9% for the six months ended June 30, 2020 and 2019, respectively. The interest rate premium is subject to adjustment based upon changes to our credit ratings.

In February 2020, we prepaid a mortgage note secured by one of our life science properties with an outstanding principal balance of approximately $1,554, a maturity date in March 2026 and an annual interest rate of 6.25%. As a result of this prepayment, we recorded a loss on early extinguishment of debt of $246 for the six months ended June 30, 2020. We prepaid this mortgage using cash on hand and borrowings under our revolving credit facility.

In April 2020, we redeemed all of our outstanding 6.75% senior notes due 2020 for a redemption price equal to the principal amount of $200,000 plus accrued and unpaid interest of $6,750. We funded this redemption with cash on hand and borrowings under our revolving credit facility.

In May 2020, we prepaid a mortgage note secured by one of our medical office properties with an outstanding principal balance of approximately $1,213, a maturity date in January 2022 and an annual interest rate of 7.49%. As a result of the prepayment of this mortgage note, we recorded a loss on early extinguishment of debt of $155 for both the three and six months ended June 30, 2020. We prepaid this mortgage using cash on hand and borrowings under our revolving credit facility.

In June 2020, we issued $1,000,000 aggregate principal amount of our 9.75% senior notes due 2025 in an underwritten public offering raising net proceeds of $983,500, after deducting estimated offering expenses and underwriters' discounts. These notes are guaranteed by all of our subsidiaries, except for certain excluded subsidiaries, and require semi-annual interest payments through maturity. Prior to June 15, 2022, we may, at our option, redeem all or a portion of these notes at a redemption price equal to the outstanding principal amount of these notes, plus accrued and unpaid interest, plus the make-whole amount set forth in the indenture which governs these notes, as supplemented, or our 2025 Notes Indenture. Prior to June 15, 2022, we may also, at our option, redeem up to 40% of the aggregate principal amount of these notes with the net proceeds of certain equity offerings at the redemption price set forth in the 2025 Notes Indenture, so long as at least 50% of the original aggregate principal amount of these notes remains outstanding after each such redemption. In addition, we have the option to redeem all or a portion of these notes at any time on or after June 15, 2022 at the redemption prices set forth in the 2025 Notes Indenture. We used the net proceeds from this offering to prepay in full our $250,000 unsecured term loan which was scheduled to mature

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in June 2020 and to reduce amounts outstanding under our revolving credit facility. The weighted average interest rate under our $250,000 senior unsecured term loan was 1.9% and 2.4% for the periods from April 1, 2020 to June 2, 2020 and January 1, 2020 to June 2, 2020, respectively. As a result of the repayment of our $250,000 senior unsecured term loan, we recorded a loss on early extinguishment of debt of $26 for the three and six months ended June 30, 2020.

In June 2020, we amended the agreements governing our $1,000,000 unsecured revolving credit facility and $200,000 unsecured term loan, or collectively, our credit and term loan agreements. The amendments modify certain of the financial covenants under our credit and term loan agreements through June 30, 2021, or the Amendment Period, during which, subject to certain conditions, we will continue to have access to undrawn amounts under our revolving credit facility. We have the right to terminate the Amendment Period prior to June 30, 2021, subject to certain conditions.

During the Amendment Period:

•	our interest rate premium over LIBOR under our revolving credit facility and term loan increased by 50 basis points;

•	we will generally be required to apply the net cash proceeds from the disposition of assets, capital markets transactions, debt financings or COVID-19 government stimulus programs, if allowed, to the repayment of outstanding loans under the revolving credit facility, if any;

•

we will be subject to certain additional covenants, including additional restrictions on our ability to incur indebtedness (with exceptions for borrowings under our revolving credit facility and certain other categories of secured and unsecured indebtedness), and to acquire real property or make other investments (with exceptions for, among other things, certain categories of capital expenditures and costs);

•	we will be required to maintain unrestricted liquidity (unrestricted cash and undrawn availability under our revolving credit facility) of not less than $200,000; and

•	our ability to pay distributions on our common shares will be limited to paying a cash dividend of $0.01 per common share per quarter and amounts required to maintain our qualification for taxation as a real estate investment trust, or REIT, and to avoid the payment of certain income and excise taxes.

Our credit and term loan agreements and our senior unsecured notes indentures and their supplements provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, such as, in the case of our credit and term loan agreements, a change of control of us, as defined, which includes The RMR Group LLC, or RMR LLC, ceasing to act as our business and property manager. Our credit and term loan agreements and our senior unsecured notes indentures and their supplements also contain covenants, including covenants that restrict our ability to incur debts, and generally require us to maintain certain financial ratios, and our credit and term loan agreements restrict our ability to make distributions under certain circumstances. We believe we were in compliance with the terms and conditions of the respective covenants under our credit and term loan agreements and our senior unsecured notes indentures and their supplements at June 30, 2020. Although we have taken steps to enhance our ability to maintain sufficient liquidity, as noted elsewhere in this Quarterly Report on Form 10-Q, a protracted negative economic impact resulting from the COVID-19 pandemic may cause increased pressure on our ability to satisfy financial and other covenants.

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The following table presents certain of our assets that are measured at fair value at June 30, 2020, categorized by the level of inputs as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.

						Fair Value at Reporting Date Using
						Quoted Prices in  Active Markets for Identical Assets				Significant Other Observable Inputs				Significant Unobservable Inputs
Description		Total				(Level 1)				(Level 2)				(Level 3)
Recurring Fair Value Measurements Assets:
Investment in Five Star (1)		$	41,697			$	41,697			$	—			$	—
Non-Recurring Fair Value Measurements Assets:
Real estate properties held for sale (2)		$	52,957			$	—			$	52,957			$	—

(1)

Our 10,691,658 shares of common stock of Five Star Senior Living Inc., or Five Star, are included in other assets, net in our condensed consolidated balance sheets, and are reported at fair value, which is based upon quoted market prices on The Nasdaq Stock Market LLC, or Nasdaq, (Level 1 inputs). On April 1, 2019, we entered into a transaction agreement with Five Star, or the Transaction Agreement, to restructure our business arrangements with Five Star, or the Restructuring Transaction. Pursuant to the Transaction Agreement, on January 1, 2020, Five Star issued 10,268,158 Five Star common shares to us. The fair value and initial cost basis of the Five Star common shares issued to us on January 1, 2020 was $38,095. Our adjusted cost basis inclusive of the 423,500 Five Star common shares we owned as of December 31, 2019 and the 10,268,158 Five Star common shares issued to us on January 1, 2020 was $44,448 as of June 30, 2020. During the three and six months ended June 30, 2020, we recorded unrealized gains of $11,974 and $2,031, respectively, which is included in gains and losses on equity securities, net in our condensed consolidated statements of comprehensive income (loss), to adjust the carrying value of our investment in Five Star common shares to their fair value. See Note 12 for further information about our investment in Five Star.

(2)

We have assets in our condensed consolidated balance sheets that are measured at fair value on a nonrecurring basis. During the six months ended June 30, 2020, we recorded impairment charges of $267 to reduce the carrying value of one medical office property that is classified as held for sale to its estimated sales price, less estimated costs to sell of $84, based on the sales price under a purchase and sale agreement that we have entered into with a third party buyer for this medical office property of $625. We also recorded impairment charges of $30,752 to reduce the carrying value of 15 senior living communities that are classified as held for sale to their estimated sales price, less estimated costs to sell of $1,184, based on the aggregate sales prices under the purchase and sale agreements that we have entered into with third party buyers for these senior living communities of $53,600. See Note 3 for further information about impairment charges and these and other properties we have classified as held for sale.

In addition to the assets described in the table above, our financial instruments at June 30, 2020 and December 31, 2019 included cash and cash equivalents, restricted cash, other assets, our revolving credit facility, term loans, senior unsecured notes, secured debt and finance leases and other unsecured obligations and liabilities. The fair values of these financial instruments approximated their carrying values in our condensed consolidated financial statements as of such dates, except as follows:

		As of June 30, 2020								As of December 31, 2019
Description		Carrying Amount (1)				Estimated Fair Value				Carrying Amount (1)				Estimated Fair Value
Senior unsecured notes		$	2,605,153			$	2,454,286			$	1,820,681			$	1,890,386
Secured debts(2)		693,179				692,589				697,729				697,142
		$	3,298,332			$	3,146,875			$	2,518,410			$	2,587,528

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

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(2)

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

We estimated the fair value of our two issuances of senior unsecured notes due 2042 and 2046 based on the closing price on Nasdaq (Level 1 input) as of June 30, 2020. We estimated the fair values of our four issuances of senior unsecured notes due 2021, 2024, 2025 and 2028 using an average of the bid and ask price on Nasdaq on or about June 30, 2020 (Level 2 inputs as defined in the fair value hierarchy under GAAP). We estimated the fair values of our secured debts by using discounted cash flows analyses and currently prevailing market terms as of the measurement date (Level 3 inputs as defined in the fair value hierarchy under GAAP). Because Level 3 inputs are unobservable, our estimated fair values may differ materially from the actual fair values.

Realized and unrealized gains and losses for our equity securities for the three and six months ended June 30, 2020 and 2019 were as follows:

		Three Months Ended June 30,								Six Months Ended June 30,
		2020				2019				2020				2019
Realized gains and losses on equity securities sold (1)		$	—			$	(62,272	)		$	—			$	(41,436	)
Unrealized gains and losses on equity securities held		11,974				(2,176		)		2,031				(80		)
Gains and losses on equity securities, net		$	11,974			$	(64,448	)		$	2,031			$	(41,516	)

(1)	This amount relates to our sale of our former investment in The RMR Group Inc., or RMR Inc., on July 1, 2019. For further information about our former investment in RMR Inc. see our Annual Report.

We have a joint venture arrangement with an institutional investor for one of our life science properties located in Boston, Massachusetts. The investor owns a 45% equity interest in the joint venture, and we own the remaining 55% equity interest in the joint venture. We continue to control this property and therefore continue to account for this property on a consolidated basis in our condensed consolidated financial statements under the VIE model. The portion of the joint venture's net income and comprehensive income not attributable to us, or $1,330 and $1,413 for the three months ended June 30, 2020 and 2019, respectively, and $2,738 and $2,835 for the six months ended June 30, 2020 and 2019, respectively, is reported as a noncontrolling interest in our condensed consolidated statements of comprehensive income (loss). The joint venture made aggregate cash distributions to the other joint venture investor of $5,616 and $5,684 for the three months ended June 30, 2020 and 2019, respectively, and $11,383 and $11,187 for the six months ended June 30, 2020 and 2019, respectively, which are reflected as a decrease in total equity attributable to noncontrolling interest in our condensed consolidated balance sheets. As of June 30, 2020, this joint venture held real estate assets with an aggregate net book value of $714,906, subject to mortgage notes of $620,000.

In assessing whether we have a controlling interest in this joint venture arrangement and are required to consolidate the accounts of the joint venture entity, we considered the members' rights to residual gains and obligations to absorb losses, which activities most significantly impact the economic performance of the entity and which member has the power to direct those activities.

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Common Share Awards:

On May 19, 2020, in accordance with our Trustee compensation arrangements, we awarded to each of our six Trustees 10,000 of our common shares, valued at $2.94 per share, the closing price of our common shares on Nasdaq on that day.

Common Share Purchases:

During the six months ended June 30, 2020, we purchased our common shares from certain former officers and employees of RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares, valued at the closing price of our common shares on Nasdaq on the purchase dates, as follows:

Date Purchased		Number of Shares			Price per Share
1/9/2020		1,938			$	8.10
3/13/2020		1,500			$	3.79
6/30/2020		1,757			$	4.43

Distributions:

During the six months ended June 30, 2020, we declared and paid quarterly distributions to common shareholders as follows:

Record Date		Payment Date		Distribution Per Share				Total Distributions
January 27, 2020		February 20, 2020		$	0.15			$	35,684
April 13, 2020		May 21, 2020		$	0.01			$	2,379

As described in Note 10, pursuant to the Transaction Agreement, on January 1, 2020, Five Star issued an aggregate of 16,118,849 of its common shares, with a value of $59,801, to our shareholders of record as of December 13, 2019. We recorded this issuance as a non-cash distribution in our condensed consolidated financial statements.

On July 16, 2020, we declared a quarterly distribution payable to our common shareholders of record on July 27, 2020 in the amount of $0.01 per share, or approximately $2,380. We expect to pay this distribution on or about August 20, 2020.

We operate in, and report financial information for, the following two segments: Office Portfolio and senior housing operating portfolio, or SHOP. We aggregate each of these two reporting segments based on their similar operating and economic characteristics. Our Office Portfolio segment consists of medical office properties leased to medical providers and other medical related businesses, as well as life science properties leased to biotech laboratories and other similar tenants. Our SHOP segment consists of managed senior living communities that provide short term and long term residential living and in some instances care and other services for residents where we pay fees to the operator to manage the communities for our account. In addition, prior to January 1, 2020, our SHOP segment included triple net leased senior living communities that provided short term and long term residential living and in some instances care and other services for residents and from which we received rents from Five Star. Pursuant to the Restructuring Transaction, effective January 1, 2020, our previously existing master leases and management and pooling agreements with Five Star were terminated and replaced with new management and related agreements, or collectively, the New Management Agreements, for all of our senior living communities operated by Five Star. Prior periods have been recast to reflect these reportable segments for all periods presented.

We also report “non-segment” operations, which consists of triple net leased senior living communities, which are leased to operators other than Five Star from which we receive rents, and wellness centers, which we do not consider to be sufficiently

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material to constitute a separate reporting segment, and any other income or expenses that are not attributable to a specific reporting segment.

		For the Three Months Ended June 30, 2020
		Office Portfolio				SHOP				Non-Segment				Consolidated
Revenues:
Rental income		$	95,510			$	—			$	10,697			$	106,207
Residents fees and services		—				304,104				—				304,104
Total revenues		95,510				304,104				10,697				410,311
Expenses:
Property operating expenses		30,893				271,022				—				301,915
Depreciation and amortization		32,234				33,773				2,818				68,825
General and administrative		—				—				7,312				7,312
Acquisition and certain other transaction related costs		—				—				87				87
Impairment of assets		538				30,637				—				31,175
Total expenses		63,665				335,432				10,217				409,314
Loss on sale of properties		—				(168		)		—				(168		)
Gains on equity securities, net		—				—				11,974				11,974
Interest and other income		—				7,346				390				7,736
Interest expense		(6,020		)		(560		)		(37,394		)		(43,974		)
Loss on early extinguishment of debt		(155		)		—				(26		)		(181		)
Income (loss) from continuing operations before income tax expense		25,670				(24,710		)		(24,576		)		(23,616		)
Income tax expense		—				—				(1,126		)		(1,126		)
Net income (loss)		25,670				(24,710		)		(25,702		)		(24,742		)
Net income attributable to noncontrolling interest		(1,330		)		—				—				(1,330		)
Net income (loss) attributable to common shareholders		$	24,340			$	(24,710	)		$	(25,702	)		$	(26,072	)

    

Under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, the U.S. Department of Health and Human Services, or HHS, established the Provider Relief Fund. Retention and use of the funds received under the CARES Act are subject to certain terms and conditions. The terms and conditions require that the funds be utilized to compensate for lost revenues that are attributable to the COVID-19 pandemic and for eligible costs to prevent, prepare for and respond to the COVID-19 pandemic that are not covered by other sources. Further, fund recipients are required to be participating in Medicare at the time of distribution and are subject to certain other terms and conditions, including quarterly reporting requirements. In addition, fund recipients are required to have billed Medicare during 2019 and to continue to provide care after January 31, 2020 for diagnosis, testing or care for individuals with possible or actual COVID-19 cases. Any funds not used in accordance with the terms and conditions must be returned to HHS. As of June 30, 2020, we had received $10,133 in funds from the Provider Relief Fund to be used to support the operations of our managed senior living communities; we have currently determined that $7,346 of such funds meet the required terms and conditions and have therefore recognized such amount as other income with respect to our SHOP segment for the three and six months ended June 30, 2020. We currently expect to return the remaining $2,787 of such funds to HHS in August 2020 unless we determine that such funds meet the required terms and conditions and have therefore included that amount in other liabilities in our condensed consolidated financial statements as of June 30, 2020.

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		For the Six Months Ended June 30, 2020
		Office Portfolio				SHOP				Non-Segment				Consolidated
Revenues:
Rental income		$	194,280			$	—			$	22,425			$	216,705
Residents fees and services		—				636,073				—				636,073
Total revenues		194,280				636,073				22,425				852,778
Expenses:
Property operating expenses		63,599				554,901				—				618,500
Depreciation and amortization		64,397				66,815				6,043				137,255
General and administrative		—				—				16,144				16,144
Acquisition and certain other transaction related costs		—				—				750				750
Impairment of assets		6,756				35,653				—				42,409
Total expenses		134,752				657,369				22,937				815,058
Gain (loss) on sale of properties		2,782				(168		)		—				2,614
Gains on equity securities, net		—				—				2,031				2,031
Interest and other income		—				7,346				528				7,874
Interest expense		(12,072		)		(1,124		)		(72,428		)		(85,624		)
Gain on lease termination		—				—				22,896				22,896
Loss on early extinguishment of debt		(401		)		—				(26		)		(427		)
Income (loss) from continuing operations before income tax expense		49,837				(15,242		)		(47,511		)		(12,916		)
Income tax expense		—				—				(683		)		(683		)
Net income (loss)		49,837				(15,242		)		(48,194		)		(13,599		)
Net income attributable to noncontrolling interest		(2,738		)		—				—				(2,738		)
Net income (loss) attributable to common shareholders		$	47,099			$	(15,242	)		$	(48,194	)		$	(16,337	)

During the six months ended June 30, 2020, interest and other income for our SHOP segment includes $7,346 of funds we received pursuant to the CARES Act.

		As of June 30, 2020
		Office Portfolio				SHOP				Non-Segment				Consolidated
Total assets		$	3,119,928			$	3,005,164			$	475,431			$	6,600,523

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		For the Three Months Ended June 30, 2019
		Office Portfolio				SHOP				Non-Segment				Consolidated
Revenues:
Rental income		$	104,385			$	33,400			$	15,312			$	153,097
Residents fees and services		—				108,906				—				108,906
Total revenues		104,385				142,306				15,312				262,003
Expenses:
Property operating expenses		32,525				87,668				—				120,193
Depreciation and amortization		35,037				34,226				4,661				73,924
General and administrative		—				—				8,867				8,867
Acquisition and certain other transaction related costs		—				—				903				903
Impairment of assets		96				2,117				—				2,213
Total expenses		67,658				124,011				14,431				206,100
Gain on sale of properties		2,625				15,207				—				17,832
Dividend income		—				—				923				923
Losses on equity securities, net		—				—				(64,448		)		(64,448		)
Interest and other income		—				—				238				238
Interest expense		(5,988		)		(902		)		(39,522		)		(46,412		)
Loss on early extinguishment of debt		—				(17		)		—				(17		)
Income (loss) from continuing operations before income tax benefit and equity in earnings of an investee		33,364				32,583				(101,928		)		(35,981		)
Income tax benefit		—				—				35				35
Equity in earnings of an investee		—				—				130				130
Net income (loss)		33,364				32,583				(101,763		)		(35,816		)
Net income attributable to noncontrolling interest		(1,413		)		—				—				(1,413		)
Net income (loss) attributable to common shareholders		$	31,951			$	32,583			$	(101,763	)		$	(37,229	)

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		For the Six Months Ended June 30, 2019
		Office Portfolio				SHOP				Non-Segment				Consolidated
Revenues:
Rental income		$	207,606			$	72,713			$	31,019			$	311,338
Residents fees and services		—				216,951				—				216,951
Total revenues		207,606				289,664				31,019				528,289
Expenses:
Property operating expenses		64,702				172,713				—				237,415
Depreciation and amortization		71,138				65,179				9,837				146,154
General and administrative		—				—				18,683				18,683
Acquisition and certain other transaction related costs		—				—				8,717				8,717
Impairment of assets		96				8,323				—				8,419
Total expenses		135,936				246,215				37,237				419,388
Gain on sale of properties		2,503				15,207				—				17,710
Dividend income		—				—				1,846				1,846
Losses on equity securities, net		—				—				(41,516		)		(41,516		)
Interest and other income		—				—				352				352
Interest expense		(12,018		)		(1,896		)		(78,109		)		(92,023		)
Loss on early extinguishment of debt		—				(17		)		—				(17		)
Income (loss) from continuing operations before income tax expense and equity in earnings of an investee		62,155				56,743				(123,645		)		(4,747		)
Income tax expense		—				—				(99		)		(99		)
Equity in earnings of an investee		—				—				534				534
Net income (loss)		62,155				56,743				(123,210		)		(4,312		)
Net income attributable to noncontrolling interest		(2,835		)		—				—				(2,835		)
Net income (loss) attributable to common shareholders		$	59,320			$	56,743			$	(123,210	)		$	(7,147	)

	As of December 31, 2019
	Office Portfolio				SHOP				Non-Segment				Consolidated
Total assets	$	3,165,577			$	3,044,989			$	443,260			$	6,653,826

As of December 31, 2019, we leased 166 senior living communities to Five Star. As of that date, we also leased to our taxable REIT subsidiaries, or TRSs, 78 communities that we owned and that were managed by Five Star for our account.

Restructuring of our Business Arrangements with Five Star

The Transaction Agreement with Five Star. Pursuant to the Transaction Agreement, effective January 1, 2020, or the Conversion Time:

•	our previously existing master leases with Five Star for all of our senior living communities that Five Star leased, as well as our previously existing management agreements and pooling agreements with Five Star for our senior living communities that Five Star managed, were terminated and replaced, or the Conversion, with the New Management Agreements;

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•	Five Star issued to us 10,268,158 Five Star common shares and an aggregate of 16,118,849 Five Star common shares to our shareholders of record as of December 13, 2019; and

•	as consideration for these share issuances, we provided Five Star with $75,000 of additional consideration by assuming certain of Five Star's working capital liabilities and through cash payments, resulting in a gain on lease termination of $22,896 for the six months ended June 30, 2020 in our condensed consolidated statements of comprehensive income (loss).

Also pursuant to the Transaction Agreement: (1) commencing February 1, 2019, the aggregate amount of monthly minimum rent payable to us by Five Star under our previously existing master leases with Five Star was set at $11,000 as of February 1, 2019, subject to adjustment, and subsequently reduced in accordance with the Transaction Agreement as a result of our subsequent sales of certain of the leased senior living communities, and no additional rent was payable to us by Five Star from such date until the Conversion Time; and (2) as of April 1, 2019, we purchased from Five Star $49,155 of unencumbered Qualifying PP&E (as defined in the Transaction Agreement) related to our senior living communities leased and operated by Five Star.

Pursuant to the New Management Agreements, Five Star receives a management fee equal to 5% of the gross revenues realized at the applicable senior living communities plus reimbursement for its direct costs and expenses related to such communities, as well as an annual incentive fee equal to 15% of the amount by which the annual earnings before interest, taxes, depreciation and amortization, or EBITDA, of all communities on a combined basis exceeds the target EBITDA for all communities on a combined basis for such calendar year, provided that in no event shall the incentive fee be greater than 1.5% of the gross revenues realized at all communities on a combined basis for such calendar year.

The New Management Agreements expire in 2034, subject to Five Star's right to extend for two consecutive five year terms if Five Star achieves certain performance targets for the combined managed communities portfolio, unless earlier terminated. The New Management Agreements also provide us with the right to terminate the New Management Agreement for any community that does not earn 90% of the target EBITDA for such community for two consecutive calendar years or in any two of three consecutive calendar years, with the measurement period commencing January 1, 2021 (and the first termination not possible until the beginning of calendar year 2023), provided we may not in any calendar year terminate communities representing more than 20% of the combined revenues for all communities for the calendar year prior to such termination. Pursuant to a guaranty agreement dated as of January 1, 2020 made by Five Star in favor of our applicable subsidiaries, Five Star has guaranteed the payment and performance of each of its applicable subsidiary's obligations under the applicable New Management Agreements.

On April 1, 2019, we concluded that the Restructuring Transaction constituted a reconsideration event requiring us to assess whether we held a controlling financial interest in Five Star. As a result of this assessment, we determined that Five Star was a VIE effective as of the date of the Transaction Agreement. We determined not to consolidate Five Star in our condensed consolidated financial statements, as we do not have the power to direct the activities of Five Star that most significantly impact Five Star's economic performance and therefore are not the primary beneficiary of Five Star. Effective January 1, 2020, we determined that Five Star is not a VIE and we will account for our 33.9% investment in Five Star using the equity method of accounting because we are deemed to exert significant influence, but not control, over Five Star's most significant activities. We have elected to use the fair value option to account for our investment in Five Star.

Our Senior Living Communities Formerly Leased by Five Star. Prior to the Conversion Time, we leased senior living communities to Five Star pursuant to five master leases with Five Star, each of which was terminated as of January 1, 2020 pursuant to the Transaction Agreement.

Under our previously existing leases with Five Star, Five Star paid us annual rent plus percentage rent equal to 4.0% of the increase in gross revenues at certain of our senior living communities over base year gross revenues as specified in the applicable leases. We recognized rental income payable by Five Star of $33,400 and $72,713 (including percentage rent of $538 for each applicable period) for the three and six months ended June 30, 2019, respectively. Rental income from Five Star represented 12.7% and 13.8% of our total revenues for the three and six months ended June 30, 2019, respectively, and the properties Five Star leased from us represented 26.4%, excluding properties held for sale, of our real estate investments, at cost, as of June 30, 2019. Pursuant to the Transaction Agreement, commencing February 1, 2019, no percentage rent was payable to us by Five Star. We previously determined percentage rent due under these leases annually and recognized it when all contingencies were met, which was typically at year end.

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Our previously existing leases with Five Star were “triple net” leases, which generally required Five Star to pay rent and all property operating expenses, to indemnify us from liability which may arise by reason of our ownership of the properties, to maintain the properties at Five Star's expense, to remove and dispose of hazardous substances on the properties in compliance with applicable law and to maintain insurance on the properties for Five Star's and our benefit.

For the six months ended June 30, 2019, we funded $86,288 of improvements to communities leased to Five Star, including $49,155 of fixed assets and improvements that we purchased pursuant to the Transaction Agreement as discussed above. Also pursuant to the Transaction Agreement, Five Star's rent did not increase as a result of these purchases.

Our Senior Living Communities Managed by Five Star. Five Star managed 241 and 77 senior living communities for our account as of June 30, 2020 and 2019, respectively. We lease our senior living communities that are managed by Five Star to our TRSs, and Five Star manages these communities pursuant to long term management agreements. As described above, pursuant to the Transaction Agreement, effective January 1, 2020, we replaced our long term management and pooling agreements with Five Star with the New Management Agreements, the terms of which are described above.

We incurred management fees payable to Five Star of $15,262 and $3,871 for the three months ended June 30, 2020 and 2019, respectively, and $31,850 and $7,660 for the six months ended June 30, 2020 and 2019, respectively. These amounts are included in property operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.

The following table presents residents fees and services revenue disaggregated by type of contract and payer:

		Three Months Ended June 30,								Six Months Ended June 30,
Revenue from contracts with customers:		2020				2019				2020				2019
Basic housing and support services		$	218,783			$	89,082			$	450,299			$	176,494
Medicare and Medicaid programs		42,910				7,686				92,578				16,431
Private pay and other third party payer SNF services		42,411				12,138				93,196				24,026
Total residents fees and services		$	304,104			$	108,906			$	636,073			$	216,951

In addition to providing management services to us, Five Star also provides certain other services to residents at some of the senior living communities it manages for us, such as rehabilitation services. At senior living communities Five Star manages for us where Five Star provides rehabilitation services on an outpatient basis, the residents, third party payers or government programs pay Five Star for those rehabilitation services. At senior living communities Five Star manages for us where Five Star provides both inpatient and outpatient rehabilitation services, we generally pay Five Star for those rehabilitation services and charges for these services are included in amounts charged to residents, third party payers or government programs. We incurred fees of $5,814 and $1,513 for the three months ended June 30, 2020 and 2019, respectively, and $13,871 and $3,188 for the six months ended June 30, 2020 and 2019, respectively, with respect to rehabilitation services Five Star provided at senior living communities it manages for us that are payable by us. These amounts are included in property operating expenses in our condensed consolidated statements of comprehensive income (loss).

Since January 1, 2020, we sold certain senior living communities that were then managed by Five Star. We and Five Star terminated our management agreements for these senior living communities in connection with these sales. We have also identified additional senior living communities for sale that are currently managed by Five Star. If these sales are consummated, we and Five Star will terminate the management agreements for these senior living communities. See Note 3 for further information regarding these sales.

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We have no employees. The personnel and various services we require to operate our business are provided to us by RMR LLC. We have two agreements with RMR LLC to provide management services to us: (1) a business management agreement, which relates to our business generally; and (2) a property management agreement, which relates to the property level operations of our medical office and life science properties. We also have a subsidiary level management agreement with RMR LLC related to one of our life science properties located in Boston, Massachusetts, which we entered in connection with the joint venture arrangement for that life science property. Under that agreement, our subsidiary pays RMR LLC certain business management fees directly, which fees are credited against the business management fees payable by us to RMR LLC. See Note 12 for further information regarding our relationship, agreements and transactions with RMR LLC.

Pursuant to our business management agreement with RMR LLC, we recognized net business management fees of $4,841 and $6,582 for the three months ended June 30, 2020 and 2019, respectively, and $10,610 and $14,301 for the six months ended June 30, 2020 and 2019, respectively. The net business management fees we recognized include $725 and $1,450 of management fees related to our subsidiary level management agreement with RMR LLC entered in connection with our joint venture arrangement for the three and six months ended June 30, 2020 and 2019, respectively. Based on our common share total return, as defined in our business management agreement, as of each of June 30, 2020 and 2019, no estimated incentive fees are included in the net business management fees we recognized for the three or six months ended June 30, 2020 or 2019. The actual amount of annual incentive fees for 2020, if any, will be based on our common share total return as defined in our business management agreement, for the three-year period ending December 31, 2020, and will be payable in 2021. We did not incur any incentive fee payable for the year ended December 31, 2019. We recognize business management and incentive fees in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss).

Pursuant to our property management agreement with RMR LLC, we recognized aggregate net property management and construction supervision fees of $3,407 and $3,491 for the three months ended June 30, 2020 and 2019, respectively, and $6,599 and $6,555 for the six months ended June 30, 2020 and 2019, respectively. These amounts are included in property operating expenses or have been capitalized, as appropriate, in our condensed consolidated financial statements.

We are generally responsible for all our operating expenses, including certain expenses incurred or arranged by RMR LLC on our behalf. We are generally not responsible for payment of RMR LLC's employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR LLC's employees assigned to work exclusively or partly at our medical office and life science properties, our share of the wages, benefits and other related costs of RMR LLC's centralized accounting personnel, our share of RMR LLC's costs for providing our internal audit function, or as otherwise agreed. Our property level operating expenses are generally incorporated into the rents charged to our tenants, including certain payroll and related costs incurred by RMR LLC. We reimbursed RMR LLC $3,419 and $3,352 for these expenses and costs for the three months ended June 30, 2020 and 2019, respectively, and $6,862 and $6,726 for the six months ended June 30, 2020 and 2019, respectively. These amounts are included in other operating expenses and general and administrative expenses, as applicable, in our condensed consolidated statements of comprehensive income (loss).

 

We have relationships and historical and continuing transactions with RMR LLC, RMR Inc., Five Star and others related to them, including other companies to which RMR LLC or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers. RMR Inc. is the managing member of RMR LLC. The Chair of our Board 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., a managing director and the president and chief executive officer of RMR Inc., an officer and employee of RMR LLC and the chair of the board of directors and a managing director of Five Star. Jennifer Clark, our other Managing Trustee and our Secretary, also serves as a managing director and the executive vice president, general counsel and secretary of RMR Inc., an officer and employee of RMR LLC, an officer of ABP Trust and a managing director and the secretary of Five Star, and each of our officers is also an officer and employee of RMR LLC. Some of our Independent Trustees also serve as independent trustees or independent directors of other public companies to which RMR LLC or its subsidiaries provide management services. Adam Portnoy serves as the chair of the boards of trustees or boards of directors of several of these public companies and as a managing director or managing trustee of these companies. Other officers of RMR LLC, including Ms. Clark and certain of our other officers, serve as managing trustees, managing directors or officers of certain of these companies.

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Five Star. We are currently Five Star's largest stockholder. As of June 30, 2020, we owned 10,691,658 Five Star common shares, or approximately 33.9% of Five Star's outstanding common shares. Five Star manages for us most of the senior living communities we own. RMR LLC provides management services to both us and Five Star. See Note 10 for further information regarding our relationships, agreements and transactions with Five Star and Note 6 for further information regarding our investment in Five Star.

As of June 30, 2020, ABP Acquisition LLC, a subsidiary of ABP Trust, the controlling shareholder of RMR Inc., together with ABP Trust, owned approximately 6.4% of Five Star's outstanding common shares. RMR LLC provides management services to both us and Five Star and Adam Portnoy is the chair of the board of directors and a managing director of Five Star. Jennifer Clark is a managing director and the secretary of Five Star. Five Star's president and chief executive officer and executive vice president, chief financial officer and treasurer are officers and employees of RMR LLC.

Our Manager, RMR LLC. We have two agreements with RMR LLC to provide management services to us. See Note 11 for further information regarding our management agreements with RMR LLC.

AIC. Until its dissolution in February 2020, we, ABP Trust, Five Star and four other companies to which RMR LLC provides management services owned Affiliates Insurance Company, or AIC, an Indiana insurance company, in equal amounts. Certain of our Trustees and certain directors or trustees of the other AIC shareholders served on the board of directors of AIC until its dissolution.

We and the other AIC shareholders historically participated in a combined property insurance program arranged and insured or reinsured in part by AIC. The policies under that program expired on June 30, 2019, and we and the other AIC shareholders elected not to renew the AIC property insurance program; we have instead purchased standalone property insurance coverage with unrelated third party insurance providers.

As of each of June 30, 2020 and December 31, 2019, our investment in AIC had a carrying value of $11 and $298, respectively. These amounts are included in other assets, net in our condensed consolidated balance sheets. In June 2020, we received an additional liquidating distribution of approximately $287 from AIC in connection with its dissolution. We did not recognize any income related to our investment in AIC for the three and six months ended June 30, 2020 and recognized $130 and $534 related to our investment in AIC for the three and six months ended June 30, 2019, respectively. These amounts are presented as equity in earnings of an investee in our condensed consolidated statements of comprehensive income (loss). Our other comprehensive income included our proportionate share of unrealized gains on securities that were owned by AIC, related to our investment in AIC.

For further information about these and other such relationships and certain other related person transactions, see our Annual Report.

We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, and, as such, are generally not subject to federal and most state income taxation on our operating income provided we distribute our taxable income to our shareholders and meet certain organization and operating requirements. We do, however, lease our managed senior living communities to our wholly owned TRSs that, unlike most of our subsidiaries, file a separate consolidated federal corporate income tax return and are subject to federal and state income taxes. Our consolidated income tax provision includes the income tax provision related to the operations of our TRSs and certain state income taxes we incur despite our taxation as a REIT. During the three months ended June 30, 2020 and 2019, we recognized income tax expense of $1,126 and benefit of $35, respectively, and during the six months ended June 30, 2020 and 2019, we recognized income tax expense of $683 and $99, respectively.

We calculate basic earnings per common share by dividing net income (loss) by the weighted average number of our common shares outstanding during the period. We calculate diluted earnings per share using the more dilutive of the two class method or the treasury stock method. Unvested share awards and other potentially dilutive common shares, and the related

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impact on earnings, are considered when calculating diluted earnings per share. For the three months ended June 30, 2020 and 2019, 346 and 68 unvested common shares, respectively, and for the six months ended June 30, 2020 and 2019, 234 and 18 unvested common shares, respectively, were not included in the calculation of diluted earnings per share because to do so would have been antidilutive.

•	our tenants and their ability to withstand the current economic conditions and continue to pay us rent;

•	our senior living community operators' ability to operate our communities, mitigate and contain the spread of the virus that causes COVID-19 at our communities and to keep the residents and our operators' employees at our communities safe and healthy;

•	our operations, liquidity and capital needs and resources;

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•	conducting financial modeling and sensitivity analyses;

•	actively communicating with our tenants, our operators and other key constituents and stakeholders in order to help assess market conditions, opportunities, best practices and mitigate risks and potential adverse impacts; and

•	monitoring, with the assistance of counsel and other specialists, possible government relief funding sources and other programs that may be available to us, our tenants, or our operators to enable us and them to operate through the current economic conditions and enhance our tenants' ability to pay us rent or our operators' ability to operate our communities.

•	On June 2, 2020, we issued $1.0 billion aggregate principal amount of our 9.75% senior notes due 2025. We used the net proceeds from this offering to prepay in full our $250.0 million unsecured term loan that was scheduled to mature on June 12, 2020 and to reduce amounts outstanding under our revolving credit facility;

•	Beginning in the second quarter of 2020, we reduced our quarterly cash distribution rate on our common shares to $0.01 per share, conserving approximately $33.3 million of cash per calendar quarter compared to our prior quarterly distribution rate;

•	As of August 3, 2020, we had $1.0 billion of availability under our revolving credit facility; and

•	Our next debt maturity does not occur until our $300.0 million senior unsecured notes mature in December 2021.

•	focusing on sanitizing high touch points in common areas and restrooms;

•	shutting down certain building amenities; and

•	prudently managing the execution or deferment of tenant work orders to limit RMR LLC staff and tenant interactions at our properties.

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•	deferring non-emergency work;

•	implementing energy reduction protocols for lighting and HVAC systems;

•	reducing non-essential building services and staff; and

•	reducing the frequency of trash removal.

•	installing signage throughout our managed properties with social distancing reminders;

•	making changes to certain building HVAC systems and equipment, including adjusting indoor air control programs to increase the amount of outside air delivered to interior spaces and to adjust control sequences to maintain relative humidity levels in order to help minimize the concentration of the virus that causes COVID-19;

•	flushing domestic water systems to prepare for re-occupancy;

•	performing service calls and preventative maintenance after business hours to limit social interactions;

•	requiring vendors to follow best practices under COVID-19 pandemic conditions, including providing RMR LLC with documented preventative measures for their employees and requiring that staff wear appropriate personal protective equipment when working at our properties; and

•	altering cleaning schedules to perform vacuuming at times intended to reduce the potential airborne spread of the virus.

•	the duration and severity of the negative economic impact;

•	the strength and sustainability of any economic recovery;

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•

the timing and process for how federal, state and local governments and other market participants may oversee and conduct the return of economic activity when the COVID-19 pandemic abates, such as what continuing restrictions and protective measures may remain in place or be added and what restrictions and protective measures may be lifted or reduced in order to foster a return of increased economic activity in the United States; and

•	whether, following a recommencing of more normal levels of economic activities, the United States or other countries experience any “second wave” of COVID-19 infection outbreaks and, if so, the responses of governments, businesses and the general public to those events.

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(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. Amounts include $112,631 of gross book value of 21 properties classified as held for sale as of June 30, 2020, which amounts are included in assets of properties held for sale in our condensed consolidated balance sheet.

(2)	Represents gross book value of real estate assets divided by number of rentable square feet or living units, as applicable, at June 30, 2020.

(3)	Includes $301 of revenues and $(573) of NOI from properties that we sold and $16,683 of revenues and $(1,062) of NOI from properties classified as held for sale in our condensed consolidated balance sheet as of June 30, 2020.

(4)	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.”

(5)

Our medical office and life science property leases include some triple net leases where, in addition to paying fixed rents, the tenants assume the obligation to operate and maintain the properties at their expense, and some net and modified gross leases where we are responsible for the operation and maintenance of the properties and we charge tenants for some or all of the property operating 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.

(6)	Medical office and life science property occupancy data is as of June 30, 2020 and 2019 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.

(7)	Excludes data for periods prior to our ownership of certain properties, data for properties sold or classified as held for sale and data for which there was a transfer of operations during the periods presented.

(8)

Operating data for other triple net leased senior living communities leased to third party operators other than Five Star and wellness centers are presented based upon the operating results provided by our tenants for the 12 months ended March 31, 2020 and 2019, or the most recent prior period for which tenant operating results are made available to us. We have not independently verified tenant operating data.

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(1)

Annualized rental income is based on rents pursuant to existing leases as of June 30, 2020, including straight line rent adjustments, estimated recurring expense reimbursements for certain net and modified gross leases and excluding lease value amortization at certain of our medical office and life science properties. Annualized rental income also includes 100% of rental income as reported under GAAP from our life science property owned in a joint venture arrangement in which we own a 55% equity interest.

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(1)	Consists of medical office and life science properties that we have owned and which have been in service continuously since April 1, 2019, including our life science property owned in a joint venture arrangement in which we own a 55% equity interest; excludes properties classified as held for sale or out of service undergoing redevelopment, if any.

(2)	Prior periods exclude space remeasurements made subsequent to those periods.

(3)	Medical office and life science property occupancy 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. Comparable property occupancy excludes out of service assets undergoing redevelopment.

(1)	Consists of medical office and life science properties that we have owned and which have been in service continuously since April 1, 2019, including our life science property owned in a joint venture arrangement in which we own a 55% equity interest; excludes properties classified as held for sale or out of service undergoing redevelopment, if any.

(1)	Consists of senior living communities that we have owned and which have been operated by the same operator continuously since April 1, 2019; excludes communities classified as held for sale, if any.

(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.

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(1)	Consists of senior living communities that we have owned and which have been operated by the same operator continuously since April 1, 2019; excludes communities classified as held for sale, if any.

(1)	Non-segment operations consists of all of our other operations, including certain senior living communities leased to third party operators other than Five Star and wellness centers, which segment we do not consider to be sufficiently material to constitute a separate reporting segment, and any other income or expenses that are not attributable to a specific reporting segment.

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(2)	Comparable properties consists of properties that we have owned and which have been leased to the same operator continuously since April 1, 2019; excludes properties classified as held for sale, if any.

(3)

All tenant operating data presented is based upon the operating results provided by our tenants for the 12 months ended March 31, 2020 and 2019 or the most recent prior period for which tenant operating results are available to us. Rent coverage is calculated using the operating cash flows from our triple net lease tenants' operations of our properties, before subordinated charges, if any, divided by triple net lease minimum rents payable to us. We have not independently verified tenant operating data. Excludes data for historical periods prior to our ownership of certain properties, as well as data for properties sold or classified as held for sale during the periods presented.

(1)	Consists of properties that we have owned and which have been leased to the same operator continuously since April 1, 2019; excludes properties classified as held for sale, if any.

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(1)	Consists of medical office and life science properties that we have owned and which have been in service continuously since January 1, 2019, including our life science property owned in a joint venture arrangement in which we own a 55% equity interest; excludes properties classified as held for sale or out of service undergoing redevelopment, if any.

(2)	Prior periods exclude space remeasurements made subsequent to those periods.

(3)	Medical office and life science property occupancy 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. Comparable property occupancy excludes out of service assets undergoing redevelopment.

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(1)	Consists of medical office and life science properties that we have owned and which have been in service continuously since January 1, 2019, including our life science property owned in a joint venture arrangement in which we own a 55% equity interest; excludes properties classified as held for sale or out of service undergoing redevelopment, if any.

(1)	Consists of senior living communities that we have owned and which have been operated by the same operator continuously since January 1, 2019; excludes communities classified as held for sale, if any.

(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.

(1)	Consists of senior living communities that we have owned and which have been operated by the same operator continuously since January 1, 2019; excludes communities classified as held for sale, if any.

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(1)	Non-segment operations consists of all of our other operations, including certain senior living communities leased to third party operators other than Five Star and wellness centers, which segment we do not consider to be sufficiently material to constitute a separate reporting segment, and any other income or expenses that are not attributable to a specific reporting segment.

(2)	Comparable properties consists of properties that we have owned and which have been leased to the same operator continuously since January 1, 2019; excludes properties classified as held for sale, if any.

(3)

All tenant operating data presented is based upon the operating results provided by our tenants for the 12 months ended March 31, 2020 and 2019 or the most recent prior period for which tenant operating results are available to us. Rent coverage is calculated using the operating cash flows from our triple net lease tenants' operations of our properties, before subordinated charges, if any, divided by triple net lease minimum rents payable to us. We have not independently verified tenant operating data. Excludes data for historical periods prior to our ownership of certain properties, as well as data for properties sold or classified as held for sale during the periods presented.

(1)	Consists of properties that we have owned and which have been leased to the same operator continuously since January 1, 2019; excludes properties classified as held for sale, if any.

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•	our ability to receive rents from our tenants in light of the COVID-19 pandemic and generally;

•	our ability to maintain or increase the occupancy of, and the rental rates at, our properties or reduce the extent of the declines in occupancy and rental rates in response to the COVID-19 pandemic, particularly at our senior living communities;

•	our ability to control operating expenses and capital expenses at our properties, including increased operating expenses in response to the COVID-19 pandemic; and

•	our manager's ability to operate our managed senior living communities during the COVID-19 pandemic and generally so as to maintain or increase our returns or, during the COVID-19 pandemic, to reduce the extent of the declines in our returns.

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(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.

(2)	Office Portfolio segment building improvements generally include 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.

(4)	Prior period includes capital improvements for communities that were previously leased to Five Star.

(1)	Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent.

(2)	Weighted based on annualized rental income pursuant to existing leases as of June 30, 2020, including straight line rent adjustments and estimated recurring expense reimbursements, and excluding lease value amortization.

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•	our interest rate premium over LIBOR under our revolving credit facility and term loan increased by 50 basis points;

•	we will generally be required to apply the net cash proceeds from the disposition of assets, capital markets transactions, debt financings or COVID-19 government stimulus programs, if allowed, to the repayment of outstanding loans under our revolving credit facility, if any;

•	we will be subject to certain additional covenants, including additional restrictions on our ability to incur indebtedness (with exceptions for borrowings under our revolving credit facility and certain other categories of secured and

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•	we will be required to maintain unrestricted liquidity (unrestricted cash and undrawn availability under our revolving credit facility) of not less than $200.0 million; and

•	our ability to pay distributions on our common shares will be limited to paying a cash dividend of $0.01 per common share per quarter and amounts required to maintain our qualification for taxation as a REIT and to avoid the payment of certain income and excise taxes.

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(1)	The principal balances and interest rates are the amounts stated in the applicable contracts. 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.

(2)	The life science property encumbered by these mortgages is owned in a joint venture arrangement in which we own a 55% equity interest. The principal amounts listed in the table for these debts have not been adjusted to reflect the equity interest in the joint venture that we do not own.

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(1)	Weighted based on the respective interest rates and outstanding borrowings under our credit facility and term loan as of June 30, 2020.

(2)	Based on weighted average number of shares outstanding (basic and diluted) for the six months ended June 30, 2020.

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(1)	Weighted based on the respective interest rates and outstanding borrowings under our credit facility (assuming fully drawn) and term loan as of June 30, 2020.

(2)	Based on weighted average number of shares outstanding (basic and diluted) for the six months ended June 30, 2020.

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•	The duration and severity of the economic downturn resulting from the COVID-19 pandemic and its impact on us and our tenants' and operators' businesses,

•	The likelihood and extent to which the COVID-19 pandemic and its aftermath will negatively impact our tenants' and senior living community residents' ability to pay rent,

•	Our ability to pay distributions to our shareholders and to sustain the amount of such distributions,

•	The ability of Five Star, the manager of our managed senior living communities, to manage our senior living communities during the COVID-19 pandemic and to manage them profitably and maintain or increase our returns from our managed senior living communities, or to limit the extent of decreases in our returns during the COVID-19 pandemic and economic downturn,

•	Whether the aging U.S. population and increasing life spans of seniors will increase the demand for senior living communities and other medical and healthcare related properties and healthcare services,

•	Our ability to retain our existing tenants, attract new tenants and maintain or increase current rental rates on terms as favorable to us as our prior leases,

•	The credit qualities of our tenants,

•	Our ability to compete for tenancies and acquisitions effectively,

•	Our ability to maintain and increase occupancy, revenues and NOI at our properties, or to limit their decline during the COVID-19 pandemic and economic downturn,

•	Our expectations regarding the impact of the COVID-19 pandemic on our tenants, the healthcare sector and our financial condition,

•	The expectation that, as a result of the COVID-19 pandemic, overall tenant retention levels may increase,

•	Our acquisitions and sales of properties,

•	Our ability to raise debt or equity capital,

•	Our ability to complete our target dispositions,

•	The future availability of borrowings under our revolving credit facility,

•	Our policies and plans regarding investments, financings and dispositions,

•	Our ability to pay interest on and principal of our debt,

•	Our ability to appropriately balance our use of debt and equity capital,

•	Our credit ratings,

•	Our expectation that we benefit from our relationships with RMR LLC and RMR Inc.,

•	Our qualification for taxation as a REIT, and

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•	Other matters.

•	The impact of the COVID-19 pandemic and its aftermath on us and our tenants' and operators' businesses,

•	The impact of conditions in the economy and the capital markets on us and our tenants and operators,

•	Compliance with, and changes to, federal, state and local laws and regulations, accounting rules, tax laws and similar matters,

•	Limitations imposed on our business and our ability to satisfy complex rules in order for us to maintain our qualification for taxation as a REIT for U.S. federal income tax purposes,

•	Competition within the healthcare and real estate industries, particularly in those markets in which our properties are located,

•	Actual and potential conflicts of interest with our related parties, including our Managing Trustees, Five Star, RMR LLC, RMR Inc. and others affiliated with them, and

•	Acts of terrorism, outbreaks of pandemics, including the COVID-19 pandemic, or other manmade or natural disasters beyond our control.

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If the severity of the COVID-19 pandemic continues for an extended period or if business activity and the economy fail to sufficiently improve if and when the substantial adverse impacts of the COVID-19 pandemic abate, we may realize sustained losses and liquidity challenges. Further, we may incur increased operating expenses, particularly at our senior living communities, for supplies and personnel to address the current COVID-19 pandemic and we may be prevented from accepting additional residents at certain of our senior living communities if we become restricted from doing so due to the COVID-19 pandemic. In addition, under the current economic conditions, our tenants and operators may not be able to profitably operate their businesses at our properties, our tenants may become unable or unwilling to pay rent owed to us, or the manager of our senior living communities may be unable to generate our minimum returns for sustained periods. Additionally, our ability to borrow under our credit facility is subject to us satisfying financial and other covenants, and if we default under our credit facility or other debt obligations due to the impact of the COVID-19 pandemic or otherwise, we may be required to repay our outstanding borrowings and other debt. Further, although we have taken steps to enhance our ability to maintain sufficient liquidity, unanticipated events, such as emergencies in addition to, or as an expansion of, the current impact of the COVID-19 pandemic, may require us to expend amounts not currently planned,

•	The Conversion was a significant change in our business arrangements with Five Star and has resulted, and will likely continue to result in the future, in our realizing significantly different operating results from our senior living communities managed by Five Star, including increased variability in such results,

•	If Five Star fails to provide quality services at our senior living communities, the NOI generated by these communities may be adversely affected,

•	Five Star, the manager of our managed senior living communities, has experienced significant operating and financial challenges, resulting from a number of factors, some of which are beyond Five Star's control, and which challenges directly impact our operating results from our managed senior living communities, including, but not limited to:

•	The impact of the COVID-19 pandemic,

•	Increases in Five Star's labor costs or in costs Five Star pays for goods and services,

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•	Competition within the senior living industry,

•	Seniors delaying or forgoing moving into senior living communities or purchasing healthcare services that Five Star provides,

•	The impact of changes in the economy and the capital markets on Five Star and its residents and other customers,

•	Changes in Medicare or Medicaid policies and regulations or the possible future repeal, replacement or modification of these or other existing or proposed legislation or regulations,

•	Increases in compliance costs,

•	Continued efforts by third party payers to reduce healthcare costs,

•	Increases in tort and insurance liability costs, and

•	Five Star's exposure to litigation and regulatory and government proceedings due to the nature of its business.

•	If Five Star's other operations are not profitable or if it does not operate our managed senior living communities successfully, it could become insolvent,

•	We own a significant number of Five Star common shares and we expect to own these shares for the foreseeable future. However, we may sell some or all of our Five Star common shares, or our ownership interest in Five Star may otherwise be diluted in the future,

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Beginning in the second quarter of 2020, we reduced our quarterly cash distribution rate on our common shares to $0.01 per share ($0.04 per common share annually) due to the operating challenges and uncertain economic challenges as a result of the COVID-19 pandemic. Our distribution rate may be set and reset from time to time by our Board of Trustees. Our Board of Trustees will consider many factors when setting or resetting our distribution rate, 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 maintain our qualification for taxation as a REIT, limitations in the agreements governing our debt and other factors deemed relevant by our Board of Trustees in its discretion. Further, our projected cash available for distribution may change and may vary from our expectations. Accordingly, future distributions to our shareholders may be increased or decreased and we cannot be sure as to the rate at which future distributions will be paid,

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Our ability to make future distributions to our shareholders and to make payments of principal and interest on our indebtedness depends upon a number of factors, including our future earnings, the capital costs we incur to lease and operate our properties and our working capital requirements. We may be unable to pay our debt obligations or to maintain our current rate of distributions on our common shares and future distributions may be reduced or eliminated,

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We plan to selectively sell certain properties from time to time to fund future acquisitions, subject to limitations on acquisitions in agreements governing our debt, and to strategically update, rebalance and reposition our investment portfolio, which we refer to as our capital recycling program. In addition, to reduce our leverage, we have sold properties and other assets and have identified additional properties to sell. We expect that the pace of our future asset sales will slow considerably because of current market conditions related to the COVID-19 pandemic. We cannot be sure we will sell any of these properties or what the terms or timing of any such sales may be. In addition, in the case of our capital recycling program, we cannot be sure that we will acquire replacement properties that improve the quality of our portfolio or our ability to increase our distributions to shareholders, and, we may sell properties at prices that are less than expected and less than their carrying values and therefore incur losses,

•	Contingencies in our acquisition and sale agreements that we may enter may not be satisfied and any acquisitions and sales pursuant to such agreements and any related management arrangements we may expect to enter may not occur, may be delayed or the terms of such transactions or arrangements may change,

•	The essential capital investments we are making at our senior living communities and our plan to invest additional capital into our senior living communities to better position them in their respective markets in order to increase our future returns may not be successful and may not achieve our expected results. Our senior living communities may not

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•	Our redevelopment projects may not be successful and may cost more or take longer to complete than we currently expect. In addition, we may not realize the returns we expect from these projects and we may incur losses from these projects,

•	We may spend more for capital expenditures than we currently expect,

•	Our existing joint venture and any other joint ventures that we may enter may not be successful,

•	Our tenants may experience losses and default on their rent obligations to us,

•	Some of our tenants may not renew expiring leases, and we may be unable to obtain new tenants to maintain or increase the historical occupancy rates of, or rents from, our properties,

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Our ability to grow our business and maintain or increase our distributions to shareholders depends in large part upon our ability to buy properties and arrange for their profitable operation or lease them for rents, less their property operating expenses, that exceed our capital costs. We may be unable to identify properties that we want to acquire, and are currently subject to limitations from making acquisitions under the agreements governing our debt, and we may fail to reach agreement with the sellers and complete the purchase of any properties we do want to acquire. In addition, any properties we may acquire may not provide us with rents or revenues less property operating costs that exceed our capital costs or achieve our expected returns. If our cash flows are reduced and our leverage increases, we may need to sell additional properties,

•	Rents that we can charge at our properties may decline upon renewals or expirations because of changing market conditions or otherwise,

•	We expect to enter into additional management arrangements with Five Star for additional senior living communities that we own or may acquire in the future. However, we cannot be sure that we will enter into any additional management or other arrangements with Five Star,

•	Continued availability of borrowings under our revolving credit facility is subject to our satisfying certain financial covenants and other credit facility conditions that we may be unable to satisfy,

•	Actual costs under our revolving credit facility or other floating rate debt will be higher than LIBOR plus a premium because of fees and expenses associated with such debt,

•	The maximum borrowing availability under our revolving credit facility and our $200.0 million term loan may be increased to up to $2.4 billion on a combined basis in certain circumstances. However, increasing the maximum borrowing availability under our revolving credit facility and this term loan is subject to our obtaining additional commitments from lenders, which may not occur,

•	We have the option to extend the maturity date of our revolving credit facility upon payment of a fee and meeting other conditions; however, the applicable conditions may not be met,

•	The premiums used to determine the interest rate payable on our revolving credit facility and term loan and the facility fee payable on our revolving credit facility are based on our credit ratings. In March 2020, our issuer credit rating was downgraded as a result of which our revolving credit facility and term loan premiums and facility fee increased,

•	We may be unable to repay our debt obligations when they become due,

•	We intend to conduct our business activities in a manner that will afford us reasonable access to capital for investment and financing activities. However, we may not succeed in this regard and we may not have reasonable access to capital,

•	For the three months ended June 30, 2020, substantially all of our NOI was generated from properties where a majority of the revenues are derived from our tenants' and residents' private resources. This may imply that we will maintain or increase the percentage of our NOI generated from private resources at our senior living communities.

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Circumstances that adversely affect the ability of seniors or their families to pay for our manager's and other operators' services, such as economic downturns, weak housing market conditions, higher levels of unemployment among our residents' family members, lower levels of consumer confidence, stock market volatility and/or changes in demographics generally could affect the profitability of our senior living communities,

•	It is difficult to accurately estimate tenant space preparation costs. Our unspent leasing related obligations may cost more or less and may take longer to complete than we currently expect, and we may incur increasing amounts for these and similar purposes in the future,

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Our senior living communities are subject to extensive government regulation, licensure and oversight. We sometimes experience deficiencies in the operation of our senior living communities and some of our communities may be prohibited from admitting new residents or our license to continue operations at a community may be revoked. Also, operating deficiencies or a license revocation at one or more of our senior living communities may have an adverse impact on our ability to obtain licenses for or attract residents to our other communities,

•	We believe that our relationships with our related parties, including Five Star, RMR LLC, RMR Inc., ABP Trust and others affiliated with them may benefit us and provide us with competitive advantages in operating and growing our business. However, the advantages we believe we may realize from these relationships may not materialize, and

•	The business and property management agreements between us and RMR LLC have continuing 20 year terms. However, those agreements permit early termination in certain circumstances. Accordingly, we cannot be sure that these agreements will remain in effect for continuing 20 year terms.

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•	we reduced our quarterly cash distribution rate on our common shares to $0.01 per share payable;

•	we amended certain financial covenants under our credit and term loan agreements through June 30, 2021 in order to provide us with additional flexibility;

•	we have been in regular, frequent contact with our senior living communities' manager to adopt measures to minimize losses, preserve liquidity and maintain operations; and

•	we have communicated with many of our medical office, life science and other tenants regarding their operation of or at our properties in the current challenging economic conditions, and we have agreed to provide deferrals of approximately $5.5 million of rent owed to us that are generally required to be repaid in installments beginning later this year.

•	our ability to make or sustain the rate of distributions may continue to be adversely affected by the negative impact of the COVID-19 pandemic and its aftermath on our business, results of operations and liquidity;

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our making of distributions is subject to restrictions contained in our credit and term loan agreements, including being limited to amounts required to maintain our qualification for taxation as a REIT and $0.01 per common share per quarter during the Amendment Period, and may be subject to restrictions in future debt obligations we may incur; during the continuance of any event of default under our credit and term loan agreements, we may be limited or in some cases prohibited from making distributions to our shareholders; and

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the timing and amount of any distributions will be determined at the discretion of our Board of Trustees and will depend on various factors that our Board of Trustees deems relevant, including 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 maintain our qualification for taxation as a REIT, limitations in the agreements governing our debt and other factors deemed relevant by our Board of Trustees in its discretion.

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