424B5 1 tm215006-2_424b5.htm 424B5 tm215006-2_424b5 - none - 10.0001481s
   
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-225831
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities Offered
Maximum
Amount to be
Registered
Amount of
Registration
Fee(1)
4.375% Senior Notes due 2031
$ 500,000,000 $ 54,550
(1)
Calculated in accordance with Rule 457(r) of the Securities Act of 1933, as amended.

PROSPECTUS SUPPLEMENT
(To prospectus dated May 28, 2020)
Diversified Healthcare Trust
[MISSING IMAGE: lg_divershealthtrust-pn.jpg]
$500,000,000 4.375% Senior Notes Due 2031
COMPANY

We are a real estate investment trust organized under Maryland law which owns medical office and life science properties, senior living communities and other healthcare related properties throughout the United States.
USE OF PROCEEDS

We expect to use the net proceeds from this offering for general business purposes, including to redeem the $300.0 million principal amount outstanding of our 6.75% Senior Notes due 2021 on or after June 15, 2021 (when such notes become redeemable without the payment of a premium) and to prepay in full our $200.0 million term loan. See “Use of proceeds.”
NOTES

We are offering $500.0 million aggregate principal amount of our 4.375% Senior Notes due 2031, or the notes.

Interest on the notes will be payable semiannually on March 1 and September 1 of each year, commencing September 1, 2021.

We may redeem the notes at our option in whole or in part at any time and from time to time prior to their maturity. The redemption price for the notes will equal the outstanding principal amount of the notes being redeemed, plus accrued and unpaid interest, if any, on the notes being redeemed, to, but not including, the applicable redemption date, plus the Make-Whole Amount (as defined herein), if any. If the notes are redeemed on or after September 1, 2030 (six months prior to their stated maturity date), the Make-Whole Amount will equal zero. See “Description of the Notes — Optional Redemption of the Notes.” The notes will not have the benefit of a sinking fund.

The notes will be fully and unconditionally guaranteed, on a joint and several basis and on a senior unsecured basis, by all of our subsidiaries, except for our foreign subsidiaries and certain other excluded subsidiaries. The notes and the guarantees will be effectively subordinated to all of our and the subsidiary guarantors’ secured indebtedness, respectively, to the extent of the value of the collateral securing such secured indebtedness, and will be structurally subordinated to all indebtedness and other liabilities of any of our subsidiaries that do not guarantee the notes, including guarantees of or pledges under other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity.

The notes constitute a new issue of securities with no established trading market and we do not intend to apply for listing of the notes on any securities exchange or for quotation of the notes on any automated dealer quotation system.
Investing in the notes involves risks that are described in the “Risk Factors” section beginning on page S-23 of this prospectus supplement, as well as in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2020.
Per Note
Total
Public offering price(1)
100.00% $ 500,000,000
Underwriting discount
1.50% $ 7,500,000
Proceeds, before expenses, to Diversified Healthcare Trust
98.50% $ 492,500,000
(1)
Plus accrued interest, if any, from the date the notes are issued, if settlement occurs after that date.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the notes to purchasers in book-entry form only through The Depository Trust Company for the accounts of its participants, including Clearstream Banking, S.A. and Euroclear Bank SA/NV, on or about February 8, 2021.
Joint Book-Running Managers
Wells Fargo Securities
Citigroup
Mizuho Securities
BofA Securities
PNC Capital Markets LLC
RBC Capital Markets
Joint Lead Managers
BMO Capital Markets
Regions Securities LLC
SMBC Nikko
Co-Managers
Ramirez & Co., Inc.
FHN Financial Securities Corp.
Morgan Stanley
US Bancorp
UBS Investment Bank
The date of this prospectus supplement is February 3, 2021.

 
TABLE OF CONTENTS
Page
Prospectus Supplement
S-ii
S-1
S-17
S-21
S-22
S-23
S-30
S-31
S-47
S-52
S-56
S-56
S-56
S-57
S-58
S-63
Prospectus
ii
1
1
1
2
7
7
8
18
23
26
28
41
41
42
42
43
43
 
S-i

 
ABOUT THIS PROSPECTUS SUPPLEMENT
References in this prospectus supplement to “we,” “us,” “our” and “DHC” mean Diversified Healthcare Trust and its consolidated subsidiaries, except in the sections entitled “Prospectus Supplement Summary — The Offering” and “Description of the Notes” or unless the context otherwise requires. References in this prospectus supplement to the “notes” mean the 4.375% Senior Notes due 2031 offered hereby.
This prospectus supplement contains a description of the terms of the notes and the guarantees thereof. A description of the indenture relating to our debt securities is set forth in the accompanying prospectus under “Description of Debt Securities and Related Guarantees.” This prospectus supplement, and the information incorporated by reference herein, may add, update or change information in the accompanying prospectus (or the information incorporated by reference therein). If information in this prospectus supplement is inconsistent with the accompanying prospectus, this prospectus supplement will apply and will supersede that information in the accompanying prospectus.
It is important for you to read and consider all information contained in this prospectus supplement, the accompanying prospectus and the information incorporated by reference herein and therein in making your investment decision. You should also read and consider the information in the documents to which we have referred you in “Where You Can Find More Information” in this prospectus supplement and the accompanying prospectus.
You should rely only on the information contained or incorporated by reference in this prospectus supplement, the accompanying prospectus and any related free writing prospectus issued by us. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus supplement, the accompanying prospectus and any related free writing prospectus issued by us, as well as information we previously filed with the Securities and Exchange Commission, or SEC, and incorporated by reference, is accurate only as of their respective dates. Our business, financial condition, results of operations, liquidity and prospects may have changed since those dates.
 
S-ii

 
PROSPECTUS SUPPLEMENT SUMMARY
The information below is only a summary of more detailed information contained in this prospectus supplement and the accompanying prospectus, including the documents incorporated by reference herein and therein. This summary does not contain all of the information that is important to you or that you should consider before investing in the notes. As a result, you should read this entire prospectus supplement and the accompanying prospectus, as well as the information incorporated by reference herein and therein, carefully.
Our Company
We are a real estate investment trust, or REIT, that was organized under Maryland law in 1998 and which owns medical office and life science properties, senior living communities and other healthcare related properties throughout the United States. As of September 30, 2020, we owned 407 properties, including 22 properties classified as held for sale and 10 properties scheduled for closure and/or sale, located in 37 states and Washington, D.C., including one life science property owned in a joint venture arrangement in which we own a 55% equity interest. At September 30, 2020, the gross book value of our real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, was $8.2 billion. Our principal place of business is Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634 and our telephone number is (617) 796-8350.
Our business plan focuses primarily on investments in medical office and life science properties, senior living communities (including active adult rental properties) and other healthcare related properties. Some properties may combine more than one type of service in a single building or campus.
We believe that the primary market for senior living services is individuals age 75 and older. According to U.S. Census data, the age 75+ demographic is projected to be among the fastest growing age cohorts in the United States over the next 20 years, and according to the Centers for Medicare & Medicaid Services, or CMS, the age 85+ demographic is projected to grow over 30% over the next five years. Also, as a result of medical advances, seniors are living longer, and CMS reports that healthcare spending is projected to grow at an average rate of 5.7% per year and reach $6.0 trillion by 2027.
In light of these demographic trends, we believe that the aging of the U.S. population will increase demand for existing medical office and life science properties, senior living communities (including active adult rental properties) and other medical and healthcare related properties. Although we are currently generally prohibited from making acquisitions or other capital investments pursuant to recent amendments to the agreements governing our revolving credit facility and our $200.0 million term loan, or together, our credit and term loan agreements, which are described below, we plan to seek to profit from this demand in the future by, over time, acquiring additional properties and entering into leases and management arrangements with qualified tenants and managers which generate returns to us that exceed our operating and capital costs, including structuring leases that provide for or permit periodic rent increases. Despite this trend, future economic downturns, softness in the U.S. housing market, higher levels of unemployment among our potential residents’ family members, lower levels of consumer confidence, stock market volatility and/or changes in demographics could adversely affect the ability of seniors to afford the resident fees at our senior living communities. Further, as discussed further elsewhere in this prospectus supplement and the documents incorporated by reference herein, the COVID-19 pandemic and expected economic impacts therefrom may negatively impact our senior living operations.
We seek to selectively sell properties from time to time when we determine our continued ownership or ongoing required capital expenditures will not achieve desired returns or when we believe we can successfully pursue more desirable opportunities than retaining these properties. We also expect to use future sales proceeds, at such time as we are no longer prohibited from doing so pursuant to the amendments to our credit and term loan agreements, to acquire new properties that we believe will help us reduce the average age of our properties, increase our weighted average lease term, reduce our ongoing capital requirements and/or increase our distributions to shareholders. We refer to this as our capital recycling program.
 
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The following charts set forth certain geographic and asset class information regarding our property portfolio as of September 30, 2020:
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(1)
Includes 22 properties with gross book value of real estate assets of $172.1 million, which are classified as held for sale in our condensed consolidated balance sheet as of September 30, 2020.
(2)
Gross book value of real estate assets is real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations, less impairment writedowns, if any.
(3)
Includes $0.6 million of revenues and $(0.2) million of net operating income, or NOI, from properties that we sold and $19.4 million of revenues and $0.9 million of NOI from properties classified as held for sale in our condensed consolidated balance sheet as of September 30, 2020. See below for the calculation of NOI and a reconciliation of net income (loss) determined in accordance with U.S. generally accepted accounting principles, or GAAP, to that amount.
 
S-2

 
Office Portfolio
Our portfolio of medical office and life science properties, or our Office Portfolio, consists of commercial properties constructed for use or operated as medical office space for physicians and other healthcare personnel, and other businesses in medical related fields, including clinics and life science or laboratory uses. Some of our medical office properties are occupied as administrative facilities for healthcare companies, such as hospitals and healthcare insurance companies.
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(1)
Includes both medical office and life science properties. Based on Q3 2020 NOI. See below for the calculation of NOI and a reconciliation of net income (loss) determined in accordance with GAAP to that amount.
(2)
As of market close, February 2, 2021. Source: The Nasdaq Stock Market LLC.
(3)
LTM GAAP total revenues as reported by Vertex for the period ended September 30, 2020.
 
S-3

 
[MISSING IMAGE: tm215006d1-chrt_office.jpg]
(1)
Source: U.S. Census Bureau.
(2)
Source: Centers for Medicare & Medicaid Services, Office of the Actuary, September 2018.
(3)
Source: U.S. BLS, CBRE Research, PWCMoneyTree, Q3 2020. Note: Quarterly VC funding in Biotechnology, Drug Development, Drug Discovery, Disease Diagnostics and Pharma/Drugs.
(4)
Source: Newmark Knight Frank, 2020 Life Sciences Overview.
 
S-4

 
Calculation and Reconciliation of NOI and Cash Basis NOI(1)
For the Nine Months Ended
September 30,
Year Ended December 31,
2020
2019
2019
2018
Calculation of NOI and Cash Basis NOI:
Revenues:
Rental income
$ 320,943 $ 459,349 $ 606,558 $ 700,641
Residents fees and services(2)
926,174 324,767 433,597 416,523
Total revenues
1,247,117 784,116 1,040,155 1,117,164
Property operating expenses(2)
(934,150) (362,498) (489,070) (451,581)
NOI
312,967 421,618 551,085 665,583
Non-cash straight line rent adjustments
(3,029) (3,550) (4,508) (10,227)
Lease value amortization
(5,559) (4,922) (6,791) (5,787)
Non-cash amortization included in property operating expenses
(597) (597) (797) (797)
Cash Basis NOI
$ 303,782 $ 412,549 $ 538,989 $ 648,772
Reconciliation of Net Income (Loss) to NOI and Cash Basis NOI:
Net income (loss)
$ (119,387) $ (32,258) $ (82,878) $ 292,414
Equity in earnings of an investee
(617) (400) (516)
Income tax expense (benefit)
1,048 (47) 436 476
Loss on early extinguishment of debt
427 17 44 22
Gain on lease termination
(22,896)
Interest expense
143,715 136,840 180,112 179,287
Interest and other income
(8,008) (590) (941) (667)
Losses (gains) on equity investments, net
(14,541) 41,476 41,898 20,724
Dividend income
(1,846) (1,846) (2,901)
Gain on sale of properties
(2,403) (21,893) (39,696) (261,916)
Impairment of assets
106,611 41,518 115,201 66,346
Acquisition and certain other transaction related costs 
803 11,209 13,102 194
General and administrative
23,132 28,287 37,028 85,885
Depreciation and amortization
204,466 219,522 289,025 286,235
NOI
312,967 421,618 551,085 665,583
Non-cash amortization included in property operating
expenses
(597) (597) (797) (797)
Lease value amortization
(5,559) (4,922) (6,791) (5,787)
Non-cash straight line rent adjustments
(3,029) (3,550) (4,508) (10,227)
Cash Basis NOI
$ 303,782 $ 412,549 $ 538,989 $ 648,772
(1)
The calculations of NOI and Cash Basis NOI exclude certain components of net income (loss) in order to provide results that are more closely related to our property level results of operations. We calculate NOI and Cash Basis NOI as shown above. We define NOI as income from our real estate less our property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions that we record as depreciation and amortization. We define Cash Basis NOI as NOI excluding non-cash straight line rent adjustments, lease value amortization, lease termination fee
 
S-5

 
amortization, if any, and non-cash amortization included in property operating expenses. NOI and Cash Basis NOI are non-GAAP financial measures and should not be considered alternatives to net income (loss) as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with net income (loss) as presented in our consolidated statements of income (loss). We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with net income (loss). We believe these measures provide useful information to investors because reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations at our properties. We use NOI and Cash Basis NOI to evaluate individual and company wide property level performance. Other real estate companies and REITs may calculate NOI and Cash Basis NOI differently than we do.
(2)
Residents fees and services for the nine months ended September 30, 2020 for our SHOP segment is net of a $4,005 reserve for an estimated Medicare refund we expected to pay. Property operating expenses for the nine months ended September 30, 2020 for our SHOP segment includes $2,167 of estimated penalties, compliance costs and professional fees, net of management fees reimbursable by Five Star Senior Living Inc., or Five Star, related to the Medicare refund we expected to pay.
Senior Living Communities
Independent Living Communities. Independent living communities provide high levels of privacy to residents and require residents to be capable of relatively high degrees of independence. An independent living community usually bundles several services as part of a regular monthly charge. For example, an independent living community may include one or two meals per day in a central dining room, daily or weekly maid service or a social director in the base charge. Additional services are generally available from staff employees on a fee for service basis. In some of our independent living communities, separate parts of the property are dedicated to assisted living and/or nursing services. We also own an active adult rental property, which we have classified as an independent living community.
Assisted Living Communities. Assisted living communities typically have one bedroom or studio units which include private bathrooms and efficiency kitchens. Services bundled within one charge usually include three meals per day in a central dining room, daily housekeeping, laundry, medical reminders and 24 hour availability of assistance with the activities of daily living, such as dressing and bathing. Professional nursing and healthcare services are usually available at the property on call or at regularly scheduled times. In some of our assisted living communities, separate parts of the property are dedicated to independent living and/or nursing services.
Skilled Nursing Facilities. Skilled nursing facilities, or SNFs, generally provide extensive nursing and healthcare services similar to those available in hospitals, without the high costs associated with operating rooms, emergency rooms or intensive care units. A typical purpose built SNF includes mostly rooms with one or two beds, a separate bathroom and shared dining facilities. Licensed nursing professionals staff SNFs 24 hours per day.
Wellness Centers
Wellness centers typically have gymnasiums, strength and cardiovascular equipment areas, tennis and racquet sports facilities, pools, spas and children’s centers. Professional sports training and therapist services are often available. Wellness centers often market themselves as clubs for which members may pay monthly fees plus additional fees for specific services.
Other Types of Real Estate
In the past, we have considered investing in real estate different from our existing property types and some properties located outside the United States. For example, we recently acquired an age restricted active adult rental property which we have classified as an independent living community, to diversify our portfolio of senior living communities. We may explore these or other alternative investments in the future.
 
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Lease Terms
Our medical office and life science property leases include both “triple net” leases, as described below, and “net” and “modified gross” leases, where we are responsible for operating and maintaining the properties and we charge the tenants for some or all of the property operating expenses. A small percentage of our medical office and life science property leases are “full service” leases where we receive fixed rent from the tenants and do not charge the tenants for any property operating expenses. The leases for some of our senior living communities and all of our wellness centers are “triple net” leases.
Triple net leases generally require the tenants 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 their expense, to remove and dispose of hazardous substances on the properties in compliance with applicable law and to maintain insurance on the properties for their and our benefit. In the event of any damage, or immaterial condemnation, of a leased property, the tenants are generally required to rebuild with insurance or condemnation proceeds or, if such proceeds are insufficient, other amounts made available by us, if any, but if other amounts are made available by us, the rent will be increased accordingly. In the event of any material or total condemnation of a leased property, generally the lease will terminate with respect to that leased property, in which event we will be entitled to the condemnation proceeds and the rent will be reduced accordingly. In the event of any material or total destruction of a leased property, in certain cases the applicable tenant may terminate the lease with respect to that leased property, in which event the tenant will be required to pay us any shortfall in the amount of proceeds we receive from insurance compared to the replacement cost of that leased property.
Our Investment and Operating Policies
Our investment objectives include increasing cash flows from operations from dependable and diverse sources in order to make distributions to our shareholders. To seek to achieve these objectives, we seek to: maintain a strong capital base of shareholders’ equity; invest in strong credit quality properties with strong credit quality tenants and managers; use debt leverage to fund additional investments which increase cash flow from operations because of positive spreads between our cost of investment capital and investment yields; structure investments which generate a minimum return and provide an opportunity to participate in operating growth at our properties; when market conditions permit, refinance debt with additional equity or long term debt; and pursue diversification so that our cash flow from operations comes from diverse properties and tenants.
Our Board of Trustees may change our investment and operating policies at any time without a vote of, or notice to, our shareholders.
Acquisition Policies
Subject to the current limitations on acquisitions imposed by our credit and term loan agreements, our acquisition strategy is to seek to acquire additional properties primarily for income and secondarily for appreciation potential. We may purchase individual properties or multiple properties in one portfolio. In implementing this acquisition strategy, we consider a range of factors relating to each proposed acquisition. An important part of our acquisition strategy is to identify and select, or create, qualified, experienced and financially stable tenants and managers.
Disposition Policies
We plan to selectively sell certain properties from time to time to fund future acquisitions and to strategically update, rebalance and reposition our investment portfolio, and to achieve and maintain leverage consistent with our investment grade rated peers with a goal of (1) improving the asset quality of our portfolio by reducing the average age, lengthening the weighted average term of our leases and increasing the likelihood of retaining our tenants and (2) increasing our distributions to shareholders. We expect further disruptions to future disposition activity due to uncertain market conditions as a result of the COVID-19 pandemic and resulting economic conditions.
Other than as described, we generally consider ourselves to be a long term owner of properties and are more interested in the long term earnings potential of our properties and stability of our portfolio than selling
 
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properties for short term gains. However, from time to time, we may consider the sale of all or a stake in one or more of our properties or other investments. We make disposition decisions based on a number of factors, including, but not limited to, the following:

our ability to lease or operate the affected property on terms acceptable to us or have the affected property managed with our realizing acceptable returns;

the manager’s or tenant’s desire to acquire or operate the affected property;

the manager’s or tenant’s desire to dispose of or cease operating the affected property;

the proposed sale price;

the remaining length of the lease relating to the property and its other terms;

our evaluation of future cash flows which may be achieved from the property;

the strategic fit of the property or investment within our portfolio;

the capital required to maintain the property;

the estimated value we may receive by selling the property;

our intended use of the proceeds we may realize from the sale of a property; and

the existence of alternative sources, uses or needs for capital.
Other Investments
We have no policies which specifically limit the percentage of our assets that may be invested in any individual property, in any one type of property, in properties leased to any one tenant or to an affiliated group of tenants or in properties operated by any one tenant or manager or by an affiliated group of tenants or managers or in securities of one or more persons.
We own a significant number of common shares of Five Star, 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. We may also in the future acquire additional common shares or securities of other entities, including entities engaged in real estate activities. We may invest in the securities of other entities for the purpose of exercising control, or otherwise, make loans to other persons or entities, engage in the sale of investments, offer securities in exchange for property or repurchase or reacquire our securities. As of September 30, 2020, Five Star managed 239 senior living communities for our account.
We prefer wholly owned investments in fee interests. However, circumstances may arise in which we may invest in leaseholds, joint ventures, mortgages and other real estate interests. We may invest or enter into real estate joint ventures if we conclude that by doing so we may benefit from the participation of co-venturers or that our opportunity to participate in the investment is contingent on the use of a joint venture structure. For example, in March 2017, we entered a joint venture with a sovereign investor for one of our life science properties located in Boston, Massachusetts. Further, we may acquire interests in joint ventures as part of an acquisition of properties or entities. We may invest in participating, convertible or other types of mortgages if we conclude that by doing so, we may benefit from the cash flow or appreciation in the value of a property which is not available for purchase. See “Risk Factors — Risks Relating to Our Business — We do not expect to reduce our debt leverage in accordance with the timing contemplated by our previous plans and our debt leverage may remain at or above current levels for an indefinite period.”
Mergers and Strategic Combinations
In the past, we have considered the possibility of entering into mergers or strategic combinations with other companies and we may explore such possibilities in the future.
Impacts of COVID-19
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic and, in response to the outbreak, the U.S. Health and Human Services Secretary declared a public health
 
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emergency in the United States and many states and municipalities declared public health emergencies. The virus that causes COVID-19 has continued to spread throughout the United States and the world. Various governmental and market responses attempting to contain and mitigate the spread of the virus have negatively impacted, and continue to negatively impact, the global economy, including the U.S. economy. States and municipalities across the United States have generally allowed most businesses to re-open and have generally eased certain restrictions they had previously implemented in response to the COVID-19 pandemic, often in stages that are phased in over time, although some states and municipalities have imposed or re-imposed certain restrictions in response to increases in COVID-19 infections experienced since then. Recently, economic data have indicated that the U.S. economy has increasingly improved since the lowest periods experienced in March and April 2020, although the U.S. gross domestic product remains below pre-pandemic levels. It is unclear whether the increases in the number of COVID-19 infections will continue or amplify in the United States or elsewhere and, if so, what the impact of that would be on human health and safety, the economy, or our or our manager’s and other operators’ and tenants’ businesses.
Our business is focused on healthcare related properties, including medical office and life science properties, senior living communities, wellness centers and other medical and healthcare related properties. We believe that the healthcare sector and many of our tenants provide essential services across the United States. Due to restrictions intended to prevent the spread of the virus that causes COVID-19, certain of our medical office and wellness center tenants, which include physician practices that had discontinued non-essential surgeries and procedures and fitness centers, that had been ordered closed by state executive orders have experienced disruptions to their businesses. Our senior living community operators have also experienced disruptions, including limitations on in-person tours and new admissions, and are experiencing challenges in attracting new residents to their communities in addition to experiencing increased expenses due to increased labor costs, including higher health benefits costs, and increased costs and consumption of supplies, including personal protective equipment. There will be lasting impacts of the COVID-19 pandemic, even as states and municipalities have eased and may further ease restrictions. Our tenants and their businesses may become increasingly negatively impacted, which may result in our tenants seeking assistance from us regarding their rent obligations owed to us, their being unable or unwilling to pay us rent, their ceasing to pay us rent and their ceasing to continue as going concerns.
We are closely monitoring the impacts of the COVID-19 pandemic on all aspects of our business, including:

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;

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.
With respect to our SHOP segment, we expect that our senior living community operators will be operating our communities at lower average occupancy with higher operating expenses per resident, which will likely lead to decreased returns to us as a result of the COVID-19 pandemic. Our operators continue to follow federal, state and local health department guidelines and their own infection prevention protocols but we expect to see additional cases of COVID-19 in our senior living communities.
Five Star, the manager of our senior living communities, has taken a number of proactive measures to protect the health and safety of their staff and our residents and patients, including:
 
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restricting access to our senior living communities to essential visitors and team members and only reopening communities when it is determined safe to do so in accordance with applicable federal, state and local regulations and guidelines and Five Star’s internal criteria;

enhancing infectious disease prevention and control policies, procedures and protocols;

providing additional and enhanced training to team members at all levels of the organization;

working with vendors to provide adequate supplies and personal protective equipment to our senior living communities; and

effectively transitioning to virtual sales and marketing activities and thoughtfully proceeding with resident move-ins, when appropriate.
In December 2020, the U.S. Food and Drug Administration issued emergency use authorizations, or EUAs, to Pfizer Inc. / BioNTech SE and Moderna, Inc. for vaccines for the prevention of COVID-19. The Centers for Disease Control & Prevention’s, or CDC’s, Advisory Committee on Immunization Practices, or ACIP, has placed long-term care facility residents and healthcare personnel in the highest priority group to receive COVID-19 vaccines during “Phase 1a.” Despite the issuances of these EUAs, and potentially others for additional vaccines in the future, it is expected to take an extended period of time, and considerable effort and expense, for all of the residents and employees at our senior living communities to be vaccinated and several months for the vaccines to be produced, distributed and administered to a sufficient number of people to enable the cessation of the COVID-19 pandemic. Five Star has partnered with CVS to administer vaccines to SHOP community residents and staff, which commenced in December 2020. We expect vaccination clinics for SHOP community residents and staff to be substantially complete by the end of the first quarter of 2021. As it pertains to our SHOP segment, as of January 29, 2021:

approximately 18,000 total residents and staff, or more than 65% of residents and more than 30% of staff, of our senior living communities have received one or more doses of the vaccine, including over 2,000 residents and staff who have received both doses of the vaccine;

approximately 93% of our senior living communities are currently open to new admissions; and

approximately 3.5% of our senior living community residents have active cases of COVID-19, and approximately 67% of those who have tested positive for COVID-19 during the pandemic have since recovered, as defined by CDC guidelines.
We may be subject to claims by residents and staff related to vaccines we administer or the care we provide following administration of the vaccine. However, any such potential liability will be limited by the Public Readiness and Emergency Preparedness, or PREP, Act, which provides immunity protections under federal and state law for individuals and entities, or Covered Persons, against claims of loss relating to certain COVID-19 countermeasures, or Covered Countermeasures. We and our personnel that administer Covered Countermeasures such as the COVID-19 vaccine are classified as Covered Persons immune to claims arising from COVID-19 vaccine administration with the exception of death or serious physical injury caused by willful misconduct.
For the months ended September 30, October 31, November 30 and December 31, 2020, average occupancies in DHC’s SHOP segment were 74.5%, 73.8%, 72.5% and 70.7%, respectively. Although occupancy has declined because of reduced move-ins by residents, sales leads have increased substantially since the end of 2020. The rolling four-week average sales leads as of January 24, 2021 were 83% higher than the rolling four-week average sales leads at the beginning of the fourth quarter of 2020.
We also believe that we, Five Star and our impacted tenants may benefit from provisions of the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, signed into law in March 2020, or other federal or state relief programs allowing them to continue or resume business activity. During the nine months ended September 30, 2020, we recognized other income of $7.3 million related to funds received under the CARES Act.
We believe that our current financial position and recent financing activities will enable us to withstand the COVID-19 pandemic and its aftermath due in part to the following:
 
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on June 2, 2020, we issued $1.0 billion aggregate principal amount of our 9.75% Senior Notes due 2025, or our 9.75% 2025 notes. We used the net proceeds from that offering to prepay in full our $250.0 million term loan that was scheduled to mature on June 12, 2020 and to reduce amounts outstanding under our revolving credit facility;

also in June 2020, we amended certain financial covenants under our credit and term loan agreements through June 30, 2021 in order to provide us with additional flexibility, and in January 2021, we further amended our credit and term loan agreements to, among other things, obtain waivers from compliance with certain financial covenants through June 2022; and

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.
In light of the above actions, resources, expectations and conditions, we believe that we are well positioned to weather the present disruptions facing the real estate industry and, in particular, the real estate healthcare industry, including senior living. However, as a result of the COVID-19 pandemic, some of our tenants have requested relief from their obligations to pay rent due to us. While the number and value of these monthly requests have been declining, we continue to evaluate these requests as they are made on a tenant-by-tenant basis. As of January 29, 2021, we had granted requests to 72 of our tenants to defer rent payments totaling $2.1 million with respect to leases that represented, as of December 31, 2020, approximately 5.4% of our annualized rental income. Those 72 of our tenants consist of 71 tenants in our Office Portfolio segment, which accounted for $1.8 million of deferrals, which represented approximately 4.8% of our Office Portfolio segment annualized rental income as of December 31, 2020, and one triple net senior living tenant. As of December 31, 2020, we recognized an increase in our accounts receivable balance related to these deferred rent payments of $1.5 million. These tenants were obligated to pay, in most cases, the deferred rents in 12 equal monthly installments beginning in September 2020. For the three months ended December 31, 2020, we collected approximately 99% of our contractual rents due from tenants in our Office Portfolio segment. While these deferred amounts have not negatively impacted our results of operations, the deferred rents have temporarily reduced our operating cash flows.
We do not have any employees and the personnel and various services we require to operate our business are provided to us by The RMR Group LLC, or RMR LLC, pursuant to our business and property management agreements with RMR LLC for our Office Portfolio. RMR LLC has implemented enhanced cleaning protocols and social distancing guidelines at its corporate headquarters and regional offices, as well as business continuity plans to ensure that RMR LLC employees remain safe and able to support us and other companies managed by RMR LLC or its subsidiaries, including providing appropriate information technology such as notebook computers, smart phones, computer applications, information technology security applications and technology support.
With respect to our properties where property management is provided by RMR LLC, all RMR LLC property management and engineering personnel have been trained on COVID-19 precaution procedures. As states and local communities across the United States moved to stay at home orders, RMR LLC worked to reduce and optimize our operating costs at our properties by:

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.
RMR LLC’s property management teams have also established business continuity plans to ensure operational stability at our properties. RMR LLC regional management offices limit walk-in visitors and maintain maximum office occupancy limits as required by state and local guidelines, including weekly rotations of employees as needed.
As stay at home orders were and may be lifted or loosened across the United States, RMR LLC has implemented additional procedures at our properties based on recommended guidelines from the CDC and other regulatory agencies. For example:
 
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focusing on sanitizing high touch points in common areas and restrooms;

shutting down certain building amenities;

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

installing signage throughout our properties with social distancing reminders;

changing certain building HVAC systems and equipment, including adjusting outdoor air control programs to increase the amount of outside air delivered to interior spaces and to adjust control sequences to maintain space relative humidity in order to help minimize the concentration of the virus;

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 staff to 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.
RMR LLC has significantly reduced non-essential work travel and its regional leadership personnel have not been allowed to work in the same locations at the same time. RMR LLC also requires its employees who work at our properties to use personal protective equipment and business continuity bonus payments have been provided by RMR LLC to certain essential workers at our properties.
There are extensive uncertainties surrounding the COVID-19 pandemic and its aftermath. These uncertainties include, among others:

the duration and severity of the negative economic impact;

the strength and sustainability of any economic recovery;

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

the responses of governments, businesses and the general public to any increased level or rates of COVID-19 infections.
As a result of these uncertainties, we are unable to determine what the ultimate impacts will be on our, our tenants’, our operators’ and other stakeholders’ businesses, operations, financial results and financial position. For further information and risks relating to the COVID-19 pandemic and its aftermath on us and our business, see Part II, Item 1A, “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, or our Quarterly Report.
Amendments to Credit and Term Loan Agreements
On January 29, 2021, we amended our credit and term loan agreements, each with Wells Fargo Bank, National Association, as administrative agent and a lender, and a syndicate of other lenders. Pursuant to the amendments, certain of the financial covenants included in our credit and term loan agreements, including covenants that require us to maintain certain financial ratios, have been waived through June 30, 2022, or the Waiver Period. In addition, pursuant to the amendment to our credit agreement, the $1.0 billion maximum amount of our revolving credit facility was reduced to $800.0 million, and we have an additional option to extend the maturity date of our revolving credit facility to January 2024. The principal amount and maturity date of our term loan remain unchanged by the amendments. During the Waiver Period, subject to certain conditions, we continue to have access to undrawn amounts under our revolving credit facility.
 
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The amendments further provide that the interest rate payable on borrowings under our revolving credit facility is increased from a rate of LIBOR plus a premium of 205 basis points per annum to a rate of LIBOR plus a premium of 235 basis points per annum, with the facility fee remaining unchanged at 30 basis points per annum on the total amount of lending commitments under the facility, and that the interest rate payable on the amount outstanding under our term loan is increased from a rate of LIBOR plus a premium of 225 basis points per annum to a rate of LIBOR plus a premium of up to 255 basis points per annum. The interest rate premiums and the facility fee continue to be subject to adjustment based upon changes to our credit ratings. LIBOR is subject to a 50 basis points floor when determining the interest rate payable on borrowings under our revolving credit facility and term loan.
The amendments provide for certain additional restrictions on us during the Waiver Period. Subject to certain exceptions and without the prior written consent of the lenders, we continue to be generally restricted during the Waiver Period from incurring additional debt or acquiring additional properties and to be required to maintain $200.0 million of unrestricted cash or undrawn availability under our revolving credit facility, and our ability to pay cash distributions to our shareholders remains limited during the Waiver Period to amounts required to maintain our qualification for taxation as a REIT, to avoid the payment of income or excise taxes and to pay a dividend of $0.01 per share per quarter. In addition, our ability to fund capital expenditures, as defined, is limited to $250.0 million per year, which amount will increase to $350.0 million per year following our repayment of our term loan. The amendments also require us to apply any net cash proceeds from property sales, capital market transactions or debt financings to redeem our 6.75% Senior Notes due December 2021, our term loan and amounts outstanding under our revolving credit facility, if any.
In connection with the amendments, on January 29, 2021, we and certain of our subsidiaries entered into a pledge agreement in favor of Wells Fargo Bank, National Association, in its capacity as collateral agent, or the pledge agreement. Pursuant to the pledge agreement, we and our subsidiaries party to the pledge agreement have pledged all our respective equity interests in certain of our direct and indirect subsidiaries as collateral for all loans and other obligations under our credit and term loan agreements. Following the closing of the amendments, we will provide first mortgage liens on 91 medical office and life science properties owned by the pledged subsidiaries with an undepreciated book value of $1.4 billion as of September 30, 2020 to secure our obligations under our credit and term loan agreements. From time to time during the Waiver Period, certain of these pledges and/or mortgage liens may be removed or new ones may be added based on outstanding debt amounts under our revolving credit facility and term loan, among other things.
Financing Policies
Although there are no limitations in our organizational documents on the amount of indebtedness we may incur, our $800.0 million revolving credit facility and our unsecured Senior Notes indentures and their supplements contain financial covenants which, among other things, restrict our ability to incur indebtedness and require us to maintain certain financial ratios. One such ratio is our consolidated income available for debt service to debt service ratio, which is required to be a minimum of 1.5x. As of September 30, 2020, our consolidated income available for debt service to debt service ratio was 2.31x, based on the results for the fourth quarter of 2019 and first, second and third quarters of 2020. This ratio was 2.90x as of year-end 2019, 2.86x as of March 31, 2020 and was 2.76x as of June 30, 2020. We expect the ratio could fall below the 1.5x requirement as of the end of the second quarter of 2021 as the COVID-19 pandemic continues to have an adverse impact on our operations. We will not be allowed to incur additional debt while this ratio is below 1.5x, and as a result, we may borrow the remaining balance of our revolving credit facility prior to the end of the second quarter of 2021 as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of continued uncertainty in the global markets resulting from the COVID-19 pandemic. The proceeds from this borrowing may be used for general business purposes. For more information, see “Description of the Notes — Certain Covenants” and “Risk Factors — Risks Relating to the Notes — We may need waivers from our lenders or noteholders in order to avoid defaulting under our credit and term loan agreements or our public debt agreements, and the terms of our current waivers under our credit and term loan agreements impose restrictions on our ability to pay distributions and make capital investments, and any future waiver or amendment may impose similar or additional restrictions.”
 
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The Offering
Issuer
Diversified Healthcare Trust
Securities offered
$500.0 million aggregate principal amount of 4.375% Senior Notes due 2031
Maturity
March 1, 2031
Interest rate
4.375% per annum
Interest payment dates
Semiannually in arrears on March 1 and September 1 of each year, commencing September 1, 2021
Subsidiary Guarantees
The notes will be fully and unconditionally guaranteed, on a joint and several basis and on a senior unsecured basis, by all of our subsidiaries, except for our foreign subsidiaries and certain other excluded subsidiaries. Such other excluded subsidiaries include, but are not limited to, subsidiaries whose equity has been pledged to secure borrowings under our credit and term loan agreements, subsidiaries that are not directly, or indirectly, wholly owned by us and subsidiaries with secured indebtedness secured by properties that are prohibited from guaranteeing indebtedness. As of September 30, 2020, we had $2.65 billion of senior unsecured notes outstanding, $1.65 billion of which do not have the benefit of any guarantees. Our $1.0 billion of outstanding 9.75% 2025 notes are guaranteed by certain of our subsidiaries.
A subsidiary guarantor’s guarantee of the notes and all other obligations of such subsidiary guarantor under the indenture governing the notes will automatically terminate and such subsidiary guarantor will automatically be released from all of its obligations under such subsidiary guarantee and the indenture under certain circumstances, including on and after the date on which (a) the notes have received an Investment Grade Rating from both Rating Agencies and one Investment Grade Rating is a Mid-BBB Investment Grade Rating (each as defined herein), and (b) no default or event of default has occurred and is continuing under the indenture.
See “Description of the Notes — Subsidiary Guarantees.”
Ranking
Notes:   The notes will be our senior unsecured obligations and will rank equally with all of our other existing and future unsecured and unsubordinated indebtedness outstanding from time to time. The notes will not be secured by any of our properties or assets, and, as a result, noteholders will be our unsecured creditors. The notes will be effectively subordinated to all of our outstanding borrowings under our credit and term loan agreements to the extent of the value of the equity pledge described above under “— Subsidiary Guarantees” and our other secured indebtedness, if any, to the extent of the value of the collateral securing such secured indebtedness, and will be structurally subordinated to all indebtedness and other liabilities of our subsidiaries that do not guarantee the notes, including guarantees of or pledges under other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity.
As of September 30, 2020, we had outstanding indebtedness of approximately $2.65 billion, which will rank equally with the notes, including our $1.0 billion of outstanding 9.75% 2025 notes, which
 
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benefit from guarantees by certain of our subsidiaries. Additionally, as of September 30, 2020, we had $200.0 million outstanding under our term loan, which currently has the benefit of the equity pledge described under “Description of the Notes — Subsidiary Guarantees,” and no other secured debt outstanding. We have also agreed to provide first mortgage liens on 91 properties owned by such pledged subsidiaries with an undepreciated book value of $1.4 billion as of September 30, 2020 to secure our obligations under our credit and term loan agreements. In addition, substantially all of our subsidiaries, including all of the subsidiary guarantors, guarantee the payment and performance of our obligations under our credit and term loan agreements.
As of September 30, 2020, our subsidiaries that initially will not guarantee the notes had outstanding indebtedness of approximately $685.0 million, including guarantees of other indebtedness and trade payables but excluding liabilities owed to us or a subsidiary guarantor, which will be structurally senior to the notes. Additionally, as of September 30, 2020, these non-guarantor subsidiaries had (i) Undepreciated Real Estate Assets (as defined herein) of approximately $2.3 billion, representing approximately 30.8% of our consolidated Undepreciated Real Estate Assets and (ii) assets of approximately $2.5 billion, representing approximately 37.6% of our total consolidated assets.
Guarantees:   The guarantees of the notes will be senior unsecured obligations of the subsidiary guarantors and will rank equally with all existing and future unsecured and unsubordinated indebtedness of the subsidiary guarantors outstanding from time to time, including the guarantees of the subsidiary guarantors of our 9.75% 2025 notes. The subsidiary guarantees will not be secured by any property or assets, and, as a result, noteholders will be unsecured creditors of the subsidiary guarantors. The subsidiary guarantees will be effectively subordinated to all of the subsidiary guarantors’ secured indebtedness to the extent of the value securing such indebtedness, and will be structurally subordinated to all indebtedness and other liabilities of our subsidiaries that do not guarantee the notes, including guarantees of or pledges under other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity.
As of September 30, 2020, our subsidiaries that will initially guarantee the notes had outstanding indebtedness of approximately $2.9 billion, including finance leases and guarantees of other indebtedness.
Optional redemption
We may redeem the notes at our option in whole or in part at any time and from time to time prior to their maturity. The redemption price for the notes will equal the outstanding principal amount of the notes being redeemed, plus accrued and unpaid interest, if any, on the notes being redeemed, to, but not including, the applicable redemption date, plus the Make-Whole Amount (as defined in “Description of the Notes — Certain Defined Terms”), if any. If the notes are redeemed on or after September 1, 2030 (six months prior to their stated maturity date), the Make-Whole Amount will equal zero. See “Description of the Notes — Optional Redemption of the Notes.”
 
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Change of Control
If a Change of Control (as defined in “Description of the Notes — Certain Defined Terms”) occurs, we will be required to make an offer to purchase the notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, up to, but not including, the purchase date. See “Description of the Notes — Repurchase of Notes upon a Change of Control.”
Certain covenants
The indenture under which the notes will be issued will contain various covenants, including the following:

We will not be able to incur Debt (as defined in “Description of the Notes — Certain Defined Terms”) if the aggregate principal amount of our outstanding Debt is greater than 60% of Adjusted Total Assets (as defined in “Description of the Notes — Certain Defined Terms”).

We will not be able to incur any Secured Debt (as defined in “Description of the Notes — Certain Defined Terms”) if the aggregate principal amount of our outstanding Secured Debt is greater than 40% of Adjusted Total Assets.

We will not be able to incur Debt unless our Consolidated Income Available for Debt Service (as defined in “Description of the Notes — Certain Defined Terms”) is at least 1.5 times our Annual Debt Service (as defined in “Description of the Notes — Certain Defined Terms”).

We will maintain Total Unencumbered Assets of at least 1.5 times our Unsecured Debt.
These covenants are complex and are described in more detail under “Description of the Notes — Certain Covenants.”
Use of proceeds
We estimate that our net proceeds from this offering will be approximately $491.1 million after payment of the underwriting discount and other estimated offering expenses payable by us. We expect to use the net proceeds from this offering for general business purposes, including to redeem the $300.0 million principal amount outstanding of our 6.75% Senior Notes due 2021 in June 2021 (when such notes become redeemable without the payment of a premium) and to prepay in full our $200.0 million term loan. Pending such application, we may invest the net proceeds in short term investments, some or all of which may not be investment grade rated. Affiliates of certain of the underwriters may own some of our 6.75% Senior Notes due 2021 and/or act as lenders under our $200.0 million term loan and will receive pro rata portions of the net proceeds from this offering used to redeem such notes and to prepay amounts outstanding thereunder. See “Underwriting (Conflicts of Interest) — Conflicts of Interest.”
Risk factors
Investing in the notes involves risks that are described in the “Risk Factors” beginning on page S-23 of this prospectus supplement, as well as in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019, or our Annual Report, and our Quarterly Report.
 
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SUMMARY CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
(amounts in thousands)
(unaudited)
You should read the following summary financial information in conjunction with “Management’s discussion and analysis of financial condition and results of operations” and the historical financial statements and related notes included in our Annual Report and our Quarterly Report, each of which is incorporated by reference into this prospectus supplement. See “Information Incorporated by Reference.” The summary historical consolidated financial information for the years ended December 31, 2017, 2018 and 2019 and the summary historical consolidated balance sheet information as of December 31, 2018 and 2019 have been derived from our audited consolidated financial statements included in our Annual Report. The summary historical condensed consolidated financial information for the nine months ended September 30, 2019 and 2020 and the summary selected historical condensed consolidated balance sheet information as of September 30, 2020 have been derived from our unaudited condensed consolidated financial statements included in our Quarterly Report. All amounts are in thousands.
As of
September 30,
2020
As of December 31,
2019
2018
ASSETS
Total real estate properties, gross
$ 7,371,731 $ 7,461,586 $ 7,876,300
Accumulated depreciation
(1,651,864) (1,570,801) (1,534,392)
Total real estate properties, net
5,719,867 5,890,785 6,341,908
Assets of properties held for sale
164,363 209,570 1,928
Cash and cash equivalents
82,241 37,357 54,976
Restricted cash
16,134 14,867 15,095
Acquired real estate leases and other intangible assets, net
298,429 337,875 419,244
Other assets, net
254,084 163,372 327,275
Total assets
$ 6,535,118 $ 6,653,826 $ 7,160,426
LIABILITIES AND EQUITY
Debt, net
$ 3,497,848 $ 3,501,661 $ 3,648,417
Other liabilities
395,564 275,115 332,139
Total liabilities
3,893,412 3,776,776 3,980,556
Total equity
2,641,706 2,877,050 3,179,870
Total liabilities and equity
$ 6,535,118 $ 6,653,826 $ 7,160,426
 
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Year Ended December 31,
Nine Months Ended September 30,
2019
2018
2017
2020
2019
Revenues:
Rental income
$ 606,558 $ 700,641 $ 681,022 $ 320,943 $ 459,349
Residents fees and services
433,597 416,523 393,707 926,174 324,767
Total revenues
1,040,155 1,117,164 1,074,729 1,247,117 784,116
Expenses:
Property operating expenses
489,070 451,581 413,492 934,150 362,498
Depreciation and amortization
289,025 286,235 276,861 204,466 219,522
General and administrative
37,028 85,885 103,694 23,132 28,287
Acquisition and certain other transaction related costs
13,102 194 403 803 11,209
Impairment of assets
115,201 66,346 5,082 106,611 41,518
Total expenses
943,426 890,241 799,532 1,269,162 663,034
Gain (loss) on sale of properties
39,696 261,916 46,055 2,403 21,893
Dividend income
1,846 2,901 2,637 1,846
Gains and losses on equity securities, net 
(41,898) (20,724) 14,541 (41,476)
Interest and other income
941 667 406 8,008 590
Interest expense, net
(180,112) (179,287) (165,019) (143,715) (136,840)
Gain on lease termination
22,896
Loss on early extinguishment of debt
(44) (22) (7,627) (427) (17)
Income (loss) from continuing operations
before income tax expense and equity in
earnings of an investee
(82,842) 292,374 151,649 (118,339) (32,922)
Income tax expense
(436) (476) (454) (1,048) 47
Equity in earnings of an investee
400 516 608 617
Net income (loss)
(82,878) 292,414 151,803 (119,387) (32,258)
Net income attributable to noncontrolling
interest
(5,356) (5,542) (4,193) (3,838) (4,279)
Net income (loss) attributable to common
shareholders
$ (88,234) $ 286,872 $ 147,610 $ (123,225) $ (36,537)
Other financial data:
EBITDA(1)
386,695 758,412 594,137 229,842 324,057
EBITDAre(1)
462,200 562,842 553,164 334,050 343,682
Adjusted EBITDAre(1)
518,632 586,006 563,349 305,181 397,524
Last Quarter Annualized Adjusted EBITDAre(1)
484,432 471,340 428,748 314,036 487,976
Cash Flows information:
Cash provided by operating activities 
265,845 392,840 419,304 158,979 195,670
Cash used for real estate improvements 
(222,417) (103,804) (117,213) (118,141) (175,146)
Proceeds from sale of properties, net
254,241 332,389 55,068 78,244 50,355
(1)
We calculate earnings before interest, taxes, depreciation and amortization, or EBITDA, EBITDA for real estate, or EBITDAre, and Adjusted EBITDAre as shown below. EBITDAre is calculated on the basis
 
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defined by the National Association of Real Estate Investment Trusts, which is EBITDA, excluding gains and losses on the sale of real estate, loss on impairment of real estate assets, if any, as well as certain other adjustments currently not applicable to us. In calculating Adjusted EBITDAre, we adjust for the items shown below and include business management incentive fees, if any, only in the fourth quarter versus the quarter when they are recognized as expense in accordance with GAAP due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year. EBITDA, EBITDAre and Adjusted EBITDAre are non-GAAP financial measures and should not be considered alternatives to income (loss) from continuing operations or net income (loss) as indicators of our operating performance or as measures of our liquidity. These measures should be considered in conjunction with income (loss) from continuing operations and income (loss) as presented in our consolidated statements of comprehensive income (loss). We consider these non-GAAP measures to be appropriate supplemental measures of operating performance for a REIT, along with income (loss) from continuing operations and net income (loss). We believe these measures provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation and amortization expense, they may facilitate a comparison of our operating performance between periods and with other REITs. Other real estate companies and REITs may calculate EBITDA, EBITDAre and Adjusted EBITDAre differently than we do. Last Quarter Annualized Adjusted EBITDAre represents Adjusted EBITDAre for the fiscal quarter ended December 31 or September 30, as applicable, of the respective year, annualized.
Calculation and reconciliation of EBITDA, EBITDAre and Adjusted EBITDA
Year Ended December 31,
Nine Months Ended September 30,
2019
2018
2017
2020
2019
Net income (loss)
$ (82,878) $ 292,414 $ 151,803 $ (119,387) $ (32,258)
Interest expense, net
180,112 179,287 165,019 143,715 136,840
Income tax expense (benefit)
436 476 454 1,048 (47)
Depreciation and amortization
289,025 286,235 276,861 204,466 219,522
EBITDA
386,695 758,412 594,137 229,842 324,057
(Gain) loss on sale of properties
(39,696) (261,916) (46,055) (2,403) (21,893)
Impairment of assets
115,201 66,346 5,082 106,611 41,518
EBITDAre 462,200 562,842 553,164 334,050 343,682
General and administrative expense paid in common shares(1)
1,388 2,224 2,155 1,166 1,140
Acquisition and certain other transaction related costs
13,102 194 403 803 11,209
Gain on lease termination
(22,896)
Loss on early extinguishment of debt
44 22 7,627 427 17
Costs and payment obligations related to compliance assessment at one of our senior living communities(3)
6,172
Losses (gains) on equity securities, net(2)
41,898 20,724 (14,541) 41,476
Adjusted EBITDAre
$ 518,632 $ 586,006 $ 563,349 $ 305,181 $ 397,524
(1)
Amounts represent equity compensation awarded to our trustees, officers and certain other employees of RMR LLC.
(2)
Losses (gains) on equity securities, net, represent the adjustment required to adjust the carrying value of our investments in The RMR Group Inc. class A common stock and Five Star common shares to their fair value as of the end of the period in accordance with new GAAP standards effective January 1, 2018.
 
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(3)
Costs and payment obligations related to compliance assessment at one of our senior living communities consist of residents fees and services as well as property operating expenses. Residents fees and services for the three and nine months ended September 30, 2020 for our SHOP segment is net of a $4,005 reserve for an estimated Medicare refund we expected to pay. Property operating expenses for the three and nine months ended September 30, 2020 for our SHOP segment includes $2,167 of estimated penalties, compliance costs and professional fees, net of management fees reimbursable by Five Star, related to the Medicare refund we expected to pay.
 
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USE OF PROCEEDS
We estimate that our net proceeds from this offering will be approximately $491.1 million after payment of the underwriting discount and other estimated offering expenses payable by us. We expect to use the net proceeds from this offering for general business purposes, including to redeem the $300.0 million principal amount outstanding of our 6.75% Senior Notes due 2021 in June 2021 (when such notes become redeemable without the payment of a premium) and to prepay in full our $200.0 million term loan. We may redeem our 6.75% Senior Notes due 2021 at any time in whole or in part. However, if we redeem these notes prior to June 15, 2021, we will be required to pay a “make-whole” premium; if we redeem these notes on or after June 15, 2021, we will not be required to pay a make-whole premium. Pending such application, we may invest the net proceeds from this offering in short term investments, some or all of which may not be investment grade rated.
At February 1, 2021, there was $300.0 million principal amount outstanding of our 6.75% Senior Notes due 2021, and there was $200.0 million outstanding under our term loan. At February 1, 2021, the interest rate under our term loan was 3.05% per annum.
Affiliates of certain of the underwriters may own some of our 6.75% Senior Notes due 2021 and/or act as lenders under our $200.0 million term loan. Such affiliates will receive pro rata portions of the net proceeds from this offering used to redeem such notes and to prepay amounts outstanding under our term loan. See “Underwriting (Conflicts of Interest) — Conflicts of Interest.”
 
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CAPITALIZATION
(amounts in thousands)
(unaudited)
The following table presents our actual capitalization as of September 30, 2020 and our pro forma capitalization after giving effect to the offering of the notes and the application of the net proceeds from this offering.
Actual
Pro Forma(1)
Cash and cash equivalents
$ 82,241 $ 73,241
Debt:
Revolving credit facility
$ $
Term loan due 2022
200,000
Secured debt and finance leases
693,046 693,046
Senior unsecured notes
6.750% Notes due 2021
300,000
4.750% Notes due 2024
250,000 250,000
9.750% Notes due 2025
1,000,000 1,000,000
4.750% Notes due 2028
500,000 500,000
4.375% Notes due 2031
500,000
5.625% Notes due 2042
350,000 350,000
6.250% Notes due 2046
250,000 250,000
Total senior unsecured notes
2,650,000 2,850,000
Shareholders’ equity
$ 2,641,706 $ 2,641,706
Total capitalization
$ 6,184,752 $ 6,184,752
(1)
Pro forma amounts give effect to our issuance of the $500.0 million in principal amount of notes being sold by us in this offering and the application of the net proceeds to redeem the $300.0 million principal amount outstanding of our 6.75% Senior Notes due 2021 in June 2021 (when such notes become redeemable without the payment of a premium) and to prepay in full our $200.0 million term loan. See “Use of proceeds.”
 
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RISK FACTORS
Our business faces many risks, a number of which are described under the caption “Risk Factors” in our Annual Report and our Quarterly Report. The risks described in our Annual Report, our Quarterly Report and below may not be the only risks we face. Other risks of which we are not yet aware, or that we currently believe are not material, may also materially and adversely impact our business operations or financial results. If any of the events or circumstances described in the risk factors contained in our Annual Report, Quarterly Report or described below occurs, our business, financial condition, liquidity or results of operations and prospects could be adversely impacted and the value of an investment in our securities could decline. Prospective investors should consider the risks described in our Annual Report, our Quarterly Report and below, and the information contained under the caption “Warning Concerning Forward-Looking Statements” in this prospectus supplement and in our Annual Report and Quarterly Report before deciding whether to invest in the notes.
Risks Relating to Our Business
The COVID-19 pandemic and its resulting economic impact have materially adversely affected our business, operations, financial results and liquidity and the extent and duration of the COVID-19 pandemic are unknown and unpredictable.
The COVID-19 pandemic has had a substantial adverse impact on the global economy, including the U.S. economy. These conditions have materially adversely impacted our and many of our tenants’ and our senior living communities’ manager’s businesses, results of operations and liquidity.
Since the beginning of the COVID-19 pandemic, we have experienced reduced occupancy at our senior living communities as a result of restrictions on allowing outside persons to enter senior living communities due to social distancing and other containment measures and perceptions that senior living communities are unsafe during a pandemic or other widespread illness, which have negatively impacted prospective residents’ visits and move-ins, as well as elevated levels of resident illness and move-outs. In addition, our senior living communities have experienced increased operating costs. These increased costs result from staffing, including overtime, particularly if a community experiences a reduction in available personnel due to illness or otherwise, the increased need and cost for supplies, including personal protective equipment, adopting enhanced disinfection measures and/or implementing quarantines for residents. We expect occupancy at our senior living communities to continue to decline as a result of the pandemic and that the costs for operating those senior living communities may continue at elevated levels or increase during the COVID-19 pandemic and its aftermath, and these declines in occupancy and increases in operating costs may be significant. Those conditions would reduce the returns we realize from our senior living communities. Further, our manager and tenants may be limited in operating our senior living communities if they are unable to obtain the necessary staffing and supplies, such as a result of illness of staff, shortages of supplies due to supply chain or production challenges, or for other reasons. Additionally, downturns or stagnation in the U.S. housing market as a result of an economic downturn could adversely affect the ability, or perceived ability, of seniors to afford the resident fees and services at our senior living communities as prospective residents may use the proceeds from the sale of their homes to cover the cost of such fees.
In addition, economic downturns and recessions in the United States have historically negatively impacted the commercial office real estate market, including increased tenant defaults, decreased occupancies and reduced rental rates. Our tenants have experienced and may continue to experience increased cancellations or rescheduling of elective procedures at the properties in our Office Portfolio due to the COVID-19 pandemic, which may negatively impact our tenants’ operating results at those properties and their ability or willingness to pay us rent. The current economic conditions have had, and we expect that they will continue to have, similar negative impacts on our Office Portfolio and we expect that the extent of those negative consequences will depend to a large extent on the duration and depth of the economic recession in the United States and the strength and sustainability of any economic recovery that may follow.
Further, despite the issuances of the EUAs, and potentially others for additional vaccines in the future, and Five Star’s partnership with CVS to administer the COVID-19 vaccine, it is expected to take an extended period of time, and considerable effort and expense, for all of the residents and staff in our senior living communities to be vaccinated and several months for the vaccines to be produced, distributed and
 
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administered to a sufficient number of people to enable the cessation of the pandemic. In addition, despite the protections afforded under the PREP Act, we may be subject to claims by residents and employees related to vaccine we administer or the care we provide following administration of the vaccine.
We cannot predict the extent and duration of the COVID-19 pandemic or the severity and duration of its economic impact, but we expect that the ultimate adverse impact on our business will be substantial. Further, the extent and strength of any economic recovery after the COVID-19 pandemic ends or otherwise are uncertain and subject to various factors and conditions. Our business, operations and financial position may continue to be negatively impacted after the COVID-19 pandemic ends and may remain at depressed levels compared to prior to the outbreak of the COVID-19 pandemic and those conditions may continue for an extended period.
We have taken several actions in an attempt to address the operating and financial impact from the COVID-19 pandemic, and we continue to assess and explore other actions, but those actions and plans may not be sufficient to avoid continued and potentially increased substantial harm to our business, operations and financial condition.
As discussed above under “Prospectus Supplement Summary — Our Company — Impacts of COVID- 19,” we have taken several actions in an attempt to address the operating and financial impact from the COVID-19 pandemic. However, there can be no assurance that these actions or others that we may take will be successful or that they will enable us to maintain sufficient liquidity and withstand the current economic challenges posed by the COVID-19 pandemic.
The trend for seniors to delay moving to senior living communities until they require greater care or to forgo moving to senior living communities altogether has been exacerbated by the COVID-19 pandemic and could have a material adverse effect on our business, financial condition and results of operations.
Seniors have been increasingly delaying their moves to senior living communities until they require greater care or forgoing moving to senior living communities altogether. The COVID-19 pandemic has exacerbated and may continue to exacerbate these trends. Further, rehabilitation therapy and other services are increasingly being provided to seniors on an outpatient basis or in seniors’ personal residences in response to market demand and government regulation, which may increase the trend for seniors to delay moving to senior living communities. Such delays may cause decreases in occupancy rates and increases in resident turnover rates at our senior living communities. Moreover, older aged persons may have greater care needs and require higher acuity services, which may increase costs at our senior living communities, expose our manager or other operators to additional liability or result in lost business and shorter stays at our senior living communities if our manager or other operators are not able to provide the requisite care services or fail to adequately provide those services. Further, if we or our manager or other operators fail to successfully act upon and address these and other trends and changes in seniors’ needs and preferences or in the healthcare industry generally, we or they may be unable to offset associated lost revenues by growing other revenue sources, such as by offering new or increased service offerings to seniors, and our senior living communities may become unprofitable and the value of our senior living communities may decline.
The high levels of infected COVID-19 patients and deaths at senior living communities and resulting negative publicity may have a long term significant detrimental impact on the senior living industry, including us, even if our senior living communities do not experience similar levels of COVID-19 infections and deaths as others in the industry.
COVID-19 has proven to be particularly harmful to seniors and persons with other pre-existing health conditions. If the senior living industry continues to experience high levels of residents infected with COVID-19 and related deaths, and news accounts emphasize these experiences, seniors may increasingly delay or forgo moving into senior living communities or using other services provided by senior living healthcare providers. These trends could be realized across the senior living industry and not discriminate among owners and operators that have higher or lower levels of residents experiencing COVID-19 infections and related deaths. As a result, our operating results from our senior living communities, and the values of those communities, may experience a long term significant detrimental impact.
 
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Depressed U.S. housing market conditions and other factors may reduce the willingness or ability of seniors to relocate to our senior living communities.
Downturns or stagnation in the U.S. housing market could adversely affect the ability, or perceived ability, of seniors to afford our senior living community entrance and resident fees, as prospective residents frequently use the proceeds from the sale of their homes to cover the cost of such fees. If seniors have difficulty selling their homes, their ability to relocate to our senior living communities or finance their stays at our senior living communities with private resources could be adversely affected. Recent high unemployment as a result of the COVID-19 pandemic may also reduce the ability of family members to relocate seniors to senior living communities, and family members’ willingness and ability to offer free care may also affect seniors’ relocation to senior living communities. If these and other factors reduce seniors’ willingness or ability to relocate to our senior living communities, occupancy rates, revenues and cash flows at our senior living communities and our results of operations could be negatively impacted.
Risks Relating to the Notes
We have a substantial amount of debt and may incur additional debt.
As of September 30, 2020, our consolidated indebtedness was $3.5 billion and our consolidated net debt to total gross assets ratio was 42.3%.
We are subject to numerous risks associated with our debt, including the risk that our cash flows could be insufficient for us to make required payments on our debt. There are no limits in our organizational documents on the amount of debt we may incur, and we may incur substantial debt. Our debt obligations could have important consequences to our securityholders. Our incurrence of debt may increase our vulnerability to adverse economic, market and industry conditions, limit our flexibility in planning for, or reacting to, changes in our business, and place us at a disadvantage in relation to competitors that have lower debt levels. Our incurrence of debt could also increase the costs to us of incurring additional debt, increase our exposure to floating interest rates or expose us to potential events of default (if not cured or waived) under covenants contained in debt instruments that could have a material adverse effect on our business, financial condition and operating results. Excessive debt could reduce the available cash flow to fund, or limit our ability to obtain financing for, working capital, capital expenditures, acquisitions, construction projects, refinancing, lease obligations or other purposes or to make or sustain distributions to our shareholders. If our credit ratings decline, our interest rates may increase.
If we default under any of our debt obligations, we may be in default under the agreements governing other debt obligations of ours which have cross default provisions, including our credit and term loan agreements and our senior unsecured notes indentures and their supplements. In such case, our lenders may demand immediate payment of any outstanding indebtedness and we could be forced to liquidate our assets for less than the values we would receive in a more orderly process.
We may need additional waivers from our lenders or noteholders in order to avoid defaulting under our credit and term loan agreements or our public debt agreements, and the terms of our current waivers under our credit and term loan agreements impose restrictions on our ability to pay distributions and make capital investments, and any future waiver or amendment may impose similar or additional restrictions.
In June 2020, we amended certain financial covenants under our credit and term loan agreements through June 2021 in order to provide us with additional flexibility, and in January 2021, we further amended our credit and term loan agreements to, among other things, obtain waivers from compliance with certain financial covenants through June 2022. To obtain these waivers, we agreed to restrictions on our ability to pay distributions, other than as currently contemplated or to maintain our qualification for taxation as a REIT, and make capital investments. We may need to obtain additional waivers from our lenders or waivers from our noteholders in the future in order to avoid failing to satisfy certain financial covenants under our debt agreements, but our lenders or noteholders are not required to grant any such waivers and may determine not to do so. If we fail to receive any required waiver, we may be in default under our credit and term loan agreements and the lenders could terminate our revolving credit facility and term loan and require us to pay our then outstanding borrowings under our revolving credit facility and term loan. Any future waiver we may obtain may impose similar or additional restrictions, which may limit our ability to pay or
 
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increase distributions to our shareholders, make investments that we believe we should make and could reduce our ability to pursue business opportunities, grow our business and improve our operating results. In addition, continued availability of borrowings under our revolving credit facility is subject to our satisfying certain financial covenants and other credit facility conditions.
We may fail to comply with the terms of our credit and term loan agreements and our senior unsecured notes indentures and their supplements, which could adversely affect our business, would limit our ability to incur indebtedness and may prevent our making distributions to our shareholders.
Our credit and term loan agreements and our senior unsecured notes indentures and their supplements include various conditions, covenants and events of default. We may not be able to satisfy all of these conditions or may default on some of these covenants for various reasons, including for reasons beyond our control. For example, our credit and term loan agreements and our senior unsecured notes indentures and their supplements require us to maintain certain debt service ratios. Our ability to comply with such covenants will depend upon the net rental income and returns we receive from our properties. If the occupancy at our properties declines or if our rents or returns decline, we may be unable to borrow under our revolving credit facility. Complying with these covenants may limit our ability to take actions that may be beneficial to us and our securityholders. In addition, continued availability of borrowings under our revolving credit facility is subject to our satisfying certain financial covenants and other credit facility conditions. If our operating results and financial condition are significantly negatively impacted by the current economic conditions or otherwise, we may fail to satisfy covenants and conditions under our credit and term loan agreements or fail to satisfy our public debt covenants. We expect the ratio of consolidated income available for debt service to debt service could fall below the 1.5x requirement under our public debt covenants as of the end of the second quarter of 2021. We will not be allowed to incur additional debt while this ratio is below 1.5x, which could materially and adversely impact our business, operations, financial results and liquidity, and could cause us to borrow amounts available under our credit agreement earlier than we may otherwise choose to do so. An inability to incur additional indebtedness would require us to meet our capital needs from other sources, such as cash on hand, operating cash flow, equity financing or asset sales, which may not be available to us on attractive terms or at all and we may be unable to meet our obligations or grow our business by acquiring additional properties or otherwise.
Further, if we default under our credit and term loan agreements, our lenders may demand immediate payment and may elect not to fund future borrowings. 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. Any default under our credit or term loan agreements that results in acceleration of our obligations to repay outstanding indebtedness or in our no longer being permitted to borrow under our revolving credit facility would likely have serious adverse consequences to us and would likely cause the value of our securities to decline.
In the future, we may obtain additional debt financing, and the covenants and conditions which apply to any such additional debt may be more restrictive than the covenants and conditions that are contained in our credit or term loan agreements or our senior unsecured notes indentures and their supplements.
The notes and the guarantees will be structurally subordinated to the payment of all indebtedness and other liabilities of our subsidiaries that do not guarantee the notes, including guarantees of or pledges under other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity.
We and the subsidiary guarantors will be the sole obligors on the notes and the guarantees, respectively. Our non-guarantor subsidiaries are separate and distinct legal entities and will have no obligation, contingent or otherwise, to pay any amounts due on the notes or the guarantees, or to make any funds available therefor, whether by dividend, distribution, loan or other payments. The rights of holders of the notes to benefit from any of the assets of our non-guarantor subsidiaries are subject to the prior satisfaction of claims of those subsidiaries’ creditors and any preferred equity holders. As a result, the notes and the guarantees will be structurally subordinated to all indebtedness and other liabilities of our subsidiaries that do not guarantee the notes, including guarantees of or pledges under other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity. As of September 30, 2020, our non-guarantor subsidiaries had total indebtedness and other liabilities of approximately $804.5 million (including guarantees
 
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of other indebtedness and trade payables, but excluding liabilities to us or a subsidiary guarantor), which will be structurally senior to the notes.
The notes and the guarantees will be unsecured and effectively subordinated to our and the subsidiary guarantors’ existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness.
The notes and the guarantees will not be secured. Upon any distribution to our creditors in a bankruptcy, liquidation, reorganization or similar proceeding relating to us or our property, the holders of our secured debt, including debt under our credit and term loan agreements (to the extent such debt remains outstanding is still then secured), will be entitled to exercise the remedies available to a secured lender under applicable law and pursuant to the instruments governing such debt and to be paid in full, from the assets securing that secured debt before any payment may be made with respect to the notes that are not secured by those assets. In that event, because the notes and the guarantees will not be secured by any of our assets, it is possible that there will be no assets from which claims of holders of the notes can be satisfied or, if any assets remain, that the remaining assets will be insufficient to satisfy those claims in full. If the value of such remaining assets is less than the aggregate outstanding principal amount of the notes and accrued interest and all future debt ranking equally with the notes and the guarantees, we will be unable to fully satisfy our obligations under the notes. In addition, if we fail to meet our payment or other obligations under our secured debt, the holders of that secured debt would be entitled to foreclose on our assets securing that secured debt and liquidate those assets. Accordingly, we may not have sufficient funds to pay amounts due on the notes. As a result, noteholders may lose a portion or the entire value of their investment in the notes. Further, the terms of the notes and the guarantees will permit us to incur additional secured indebtedness subject to compliance with certain debt ratios. The notes and the guarantees will be effectively subordinated to any such additional secured indebtedness.
Federal and state statutes allow courts, under specific circumstances, to void guarantees and require holders of notes to return payments received from guarantors.
Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, a guarantee of the notes could be voided, or claims in respect of a guarantee could be subordinated to all other debts of that guarantor if, among other things, the guarantor, at the time it incurred the debt evidenced by its guarantee:

received less than reasonably equivalent value or fair consideration for the incurrence of such guarantee; and

was insolvent or rendered insolvent by reason of such incurrence;

was engaged in a business or transaction for which the guarantor’s remaining assets constituted unreasonably small capital; or

intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee could be voided and required to be returned to the guarantor, or to a fund for the benefit of our creditors or the creditors of the guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a guarantor would be considered insolvent if:

the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets;

the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or

it could not pay its debts as they become due.
We cannot assure you as to what standard a court would apply in making these determinations. In addition, each guarantee will contain a provision intended to limit the guarantor’s liability to the maximum
 
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amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent transfer. This provision may not be effective to protect the guarantees from being voided under fraudulent transfer laws, or may eliminate the guarantor’s obligations or reduce the guarantor’s obligations to an amount that effectively makes the guarantee worthless.
There is no public market for the notes, and one may not develop, be maintained or be liquid.
The notes are a new issue of securities with no established trading market. We do not intend to apply for listing of the notes on any securities exchange or for quotation of the notes on any automated dealer quotation system. We cannot assure you that an active trading market for any of our notes will exist in the future. Even if a market develops, the liquidity of the trading market for any of our notes and the market price quoted for any such notes may be adversely affected by changes in the overall market for fixed income securities, by changes in our financial performance or prospects, or by changes in the prospects for REITs or for the real estate industry generally.
A downgrade in credit ratings could materially adversely affect the market price of the notes and may increase our cost of capital.
The notes may be assigned credit ratings by one or more rating agencies. These credit ratings are continually reviewed by rating agencies and may change at any time based upon, among other things, our results of operations and financial condition. In connection with the recent amendments to our credit and term loan agreements, and certain business updates which we provided as of February 1, 2021, Moody’s downgraded our senior unsecured debt rating from Ba2 to B1 and our 9.75% Senior Notes due 2025 rating from Ba1 to Ba3, and Standard & Poor’s downgraded our senior unsecured debt rating from BB to BB- and our 9.75% Senior Notes due 2025 rating from BB+ to BB, respectively. Negative changes in the ratings assigned to our debt securities could have an adverse effect on the market price of the Notes and our cost and availability of capital, which could in turn have a material adverse effect on our results of operations and our ability to satisfy our debt service obligations.
We may not have the ability to raise the funds necessary to finance the repurchase of the notes upon a change of control event as will be required by the indenture for the notes.
Upon the occurrence of a Change of Control (as defined under “Description of the Notes”), we will be required to offer to repurchase all outstanding notes at 101% of the principal amount thereof, plus accrued and unpaid interest on the notes, if any, to, but not including, the date of repurchase. However, it is possible that we will not have sufficient funds, or the ability to raise sufficient funds, at the time of the change of control to make the required repurchase of the notes. In addition, the occurrence of certain events that constitute a change of control would constitute an event of default under our revolving credit facility and term loan agreements, and restrictions under future debt we may incur may not allow us to repurchase the notes upon a change of control, which could result in such debt becoming immediately due and payable and the commitments thereunder terminated. If we could not refinance such debt or otherwise obtain a waiver from the holders of such debt, we would be prohibited from repurchasing the notes, which would constitute an event of default under the indenture governing the notes, which in turn would constitute a default under such debt arrangements. In addition, certain important corporate events, such as leveraged recapitalizations that would increase the level of our indebtedness, would not constitute a “Change of Control” under the indenture governing the notes although these types of transactions could affect our capital structure or credit ratings and the holders of the notes. Further, courts interpreting change of control provisions under New York law (which will be the governing law of the indenture governing the Notes) have not provided clear and consistent meanings of such change of control provisions which leads to subjective judicial interpretation of what may constitute a “Change of Control.” See “Description of the Notes — Repurchase of Notes Upon a Change of Control.”
Some or all of the guarantees of the notes may be released automatically.
A subsidiary guarantor may be released from its guarantee under various circumstances described under “Description of the Notes — Subsidiary Guarantees.” Such release may occur at any time upon a sale, disposition or transfer, in compliance with the provisions of the indenture relating to the notes, of the
 
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capital stock of such subsidiary guarantor or of substantially all of the assets of such subsidiary guarantor, or if such subsidiary guarantor becomes an Excluded Subsidiary or a Foreign Subsidiary, as such terms are defined herein. In addition, if the notes have a Mid-BBB Investment Grade Rating by both Moody’s and Standard & Poor’s and at such time no default or event of default under the indenture governing the notes has occurred and is continuing, the guarantees and all other obligations of the subsidiary guarantors under the indenture will automatically terminate and be released. Accordingly, the notes may not at all times be guaranteed by some or all of the subsidiaries which will guarantee the notes on the date they are initially issued. See “Description of the Notes — Subsidiary Guarantees.”
 
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SUMMARY SUBSIDIARY GUARANTOR FINANCIAL INFORMATION
(amounts in thousands)
(unaudited)
The following table presents summarized financial information for us and the subsidiary guarantors, on a combined basis after elimination of (i) intercompany transactions and balances among us and the subsidiary guarantors and (ii) equity in earnings from, and any investments in, any of our non-guarantor subsidiaries:
As of
September 30, 2020
December 31, 2019
Real estate properties, net
$ 3,812,543 $ 3,912,201
Other assets, net
264,442 133,370
Total assets
$ 4,076,985 $ 4,045,571
Indebtedness, net
$ 2,813,547 $ 2,817,359
Other liabilities
275,383 141,656
Total liabilities
$ 3,088,930 $ 2,959,015
Nine Months Ended
September 30, 2020
Year Ended
December 31, 2019
Revenues
$ 982,725 $ 682,607
Expenses
1,046,937 597,385
Loss from continuing operations
(143,769) (107,847)
Net loss
(144,817) (107,883)
Net loss attributable to DHC
(144,817) (107,883)
 
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DESCRIPTION OF THE NOTES
The following description of the particular terms of the notes and subsidiary guarantees supplements and, to the extent inconsistent with, replaces the description of the general terms and provisions of debt securities and related guarantees set forth under “Description of Debt Securities and Related Guarantees” in the accompanying prospectus. Definitions of certain capitalized words used in discussing the terms of the notes and the subsidiary guarantees appear below under “— Certain Defined Terms.” References in this section and in the defined terms to “DHC,” “we,” “our,” and “us” mean Diversified Healthcare Trust and not its subsidiaries.
General
We will issue the notes under an indenture dated as of February 18, 2016, or the base indenture, between us and U.S. Bank National Association, as trustee, or the Trustee, as supplemented by a supplemental indenture thereto to be dated the Issue Date, or, as so supplemented, the Indenture, among us, the initial Subsidiary Guarantors and the Trustee. The Indenture is subject to, and governed by, the Trust Indenture Act of 1939, as amended, or the Trust Indenture Act. This prospectus supplement briefly summarizes some of the provisions of the Indenture. This summary is not complete. If you would like more information on these provisions, review the copy of the base indenture that we have filed with the SEC and the supplemental indenture thereto relating to the notes that we will file with the SEC. See “Incorporation of Certain Information By Reference” and “Where You Can Find More Information” in this prospectus supplement and “Information incorporated by reference” and “Where you can find more information” in the accompanying prospectus for information about how to locate these documents. You may also review the Indenture at the Trustee’s corporate trust office at One Federal Street, 3rd Floor, Boston, Massachusetts 02110.
The notes will be a separate series under the Indenture, initially in the aggregate principal amount of $500.0 million. The Indenture does not limit the amount of debt securities that we may issue under the Indenture, and we may issue debt securities in one or more series up to the initial aggregate principal amount authorized by us for each series. We may, without the consent of the holders of the notes, reopen this series of notes and issue additional notes, or Additional Notes, under the Indenture having the same terms as the notes offered by this prospectus supplement, except for issue date, issue price and, if applicable, date of the first payment of interest thereon and related interest accrual date. Any Additional Notes of this series would rank equally with the notes offered hereby; provided that if such Additional Notes are not fungible with the notes offered hereby for U.S. federal income tax purposes, or to the extent required by applicable securities laws or regulations or procedures of The Depository Trust Company, or DTC, such Additional Notes would have a different CUSIP number. Unless the context otherwise requires, references herein to “notes” are deemed to include any Additional Notes actually issued, to the extent appropriate.
Unless previously redeemed, the notes will mature on March 1, 2031. The notes will be issued only in fully registered form without coupons, in denominations of $2,000 and integral multiples of $1,000 in excess thereof. The notes will be evidenced by one or more global notes in book-entry form, except under the limited circumstances described below under “— Book-Entry System and Form of Notes.”
The notes will be our senior unsecured obligations and will rank equally with all of our other existing and future unsecured and unsubordinated indebtedness outstanding from time to time. The notes will not be secured by any of our property or assets, and, as a result, noteholders will be unsecured creditors. The notes will be fully and unconditionally guaranteed, on a joint and several basis and on a senior unsecured basis, by all of our Subsidiaries, except for our Foreign Subsidiaries and our Excluded Subsidiaries as more fully described below. The notes and the subsidiary guarantees will be effectively subordinated to our and the Subsidiary Guarantors’ secured indebtedness (including, in the case of the notes, our outstanding borrowings under the Existing Credit and Term Loan Agreements), to the extent of the value of the collateral securing such secured indebtedness, and will be structurally subordinated to all indebtedness and other liabilities and any preferred equity of our non-guarantor Subsidiaries, including guarantees of or pledges under other indebtedness of ours, payment obligations under lease agreements, trade payables and preferred equity. As of September 30, 2020, we had no secured debt outstanding. As of September 30, 2020, we had $200.0 million of outstanding borrowings under the Existing Credit and Term Loan Agreements, which are currently secured by pledges of the Capital Stock of certain of our Subsidiaries and which are currently guaranteed by substantially all of our Subsidiaries, including all of the Subsidiary Guarantors, and no other Secured Debt outstanding. We have also agreed to provide first mortgage liens on 91 properties owned
 
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by such Pledged Subsidiaries with an undepreciated book value of $1.4 billion as of September 30, 2020 to secure our obligations under the Existing Credit and Term Loan Agreements. As of September 30, 2020, we had additional unsecured indebtedness of approximately $2.65 billion, which will rank equally with the notes, including our $1.0 billion of outstanding 9.75% 2025 notes, which benefit from guarantees by certain of our Subsidiaries, and our non-guarantor Subsidiaries had total indebtedness and other liabilities of approximately $804.5 million (including guarantees of other indebtedness and trade payables, but excluding liabilities owed to us or a Subsidiary Guarantor), which will be structurally senior to the notes. We and our Subsidiaries may incur additional indebtedness, including secured indebtedness, subject to the provisions described below under “— Certain Covenants — Limitations on Incurrence of Debt.”
Except as described under “— Repurchase Upon a Change of Control” and “— Certain Covenants” in this prospectus supplement and “Description of Debt Securities and Related Guarantees — Merger, Consolidation or Sale of Assets” in the accompanying prospectus, the Indenture does not contain any other provisions that would afford you protection in the event of (1) a highly leveraged or similar transaction involving us or any of our Affiliates, (2) a change of control, or (3) a reorganization, restructuring, merger or similar transaction involving us that may adversely affect you. In addition, subject to the limitations set forth under “— Certain Covenants” in this prospectus supplement and “Description of Debt Securities and Related Guarantees — Merger, Consolidation or Sale of Assets” in the accompanying prospectus, we may enter into certain transactions such as the sale of all or substantially all of our assets or a merger or consolidation that would increase the amount of our indebtedness or substantially reduce or eliminate our assets, which might have an adverse effect on our ability to service our indebtedness, including the notes.
We have no present intention of engaging in a highly leveraged or similar transaction.
Interest and Maturity
The notes will bear interest at the rate per annum set forth on the cover page of this prospectus supplement from the date the notes are issued, which we expect will be February 8, 2021, or from the immediately preceding Interest Payment Date (as defined below) to which interest has been paid. Interest on the notes is payable semiannually in arrears on March 1 and September 1 of each year, or the Interest Payment Dates, beginning on September 1, 2021, to the persons in whose names the notes are registered at the close of business on February 15 or August 15, as the case may be, immediately preceding the applicable Interest Payment Date, or the Regular Record Date, regardless of whether the Regular Record Date is a Business Day. Accrued interest is also payable on the date of maturity or earlier redemption or repurchase of the notes. Interest on the notes will be computed on the basis of a 360-day year consisting of twelve 30-day months. Unless previously redeemed or repurchased, the notes will mature on March 1, 2031. If any Interest Payment Date, stated maturity date, redemption date or repurchase date falls on a day that is not a Business Day, the payment will be made on the next Business Day and no interest will accrue for the period from and after such Interest Payment Date, stated maturity date, redemption date or repurchase date.
Payments of principal, premium, if any, and interest to holders of book-entry interests in the notes in global form will be made in accordance with the procedures of DTC and its participants in effect from time to time. See “— Book-Entry System and Form of Notes” below and “Description of Debt Securities and Related Guarantees — Global Debt Securities” in the accompanying prospectus.
Subsidiary Guarantees
DHC’s obligations under the notes and the Indenture will be jointly and severally guaranteed on a full and unconditional basis by each existing and future Subsidiary of DHC (other than an Excluded Subsidiary or a Foreign Subsidiary). As of September 30, 2020, our Subsidiaries that will be Subsidiary Guarantors on the Issue Date had outstanding indebtedness of approximately $2.9 billion, including finance leases and guarantees of other indebtedness.
In connection with guaranteeing the notes, the Subsidiary Guarantors will be required to guarantee our obligations under our Existing Credit and Term Loan Agreements. The guarantees of the notes will be senior unsecured obligations of the Subsidiary Guarantors and will rank equally with all existing and future
 
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unsecured and unsubordinated indebtedness of the Subsidiary Guarantors outstanding from time to time, including the guarantees they provide under our Existing Credit and Term Loan Agreements and our 9.75% 2025 notes.
Not all of our Subsidiaries will Guarantee the notes. Foreign Subsidiaries and Excluded Subsidiaries will not be required to be Subsidiary Guarantors. Excluded Subsidiaries include Pledged Subsidiaries whose Capital Stock has been pledged as collateral to secure amounts outstanding under the Existing Credit and Term Loan Agreements. In the event of a bankruptcy, liquidation or reorganization of any of these non-guarantor Subsidiaries, these non-guarantor Subsidiaries will generally be required to pay the holders of their debts and their trade creditors and the holders of their preferred equity, if any, before they will be able to distribute any of their assets to us.
As of September 30, 2020, our Subsidiaries that will not be Subsidiary Guarantors, including the Pledged Subsidiaries, on the Issue Date had total indebtedness and other liabilities of approximately $804.5 million (including guarantees of other indebtedness and trade payables but excluding liabilities owed to us or a Subsidiary Guarantor), which will be structurally senior to the notes. Additionally, as of September 30, 2020, these non-guarantor Subsidiaries had (i) Undepreciated Real Estate Assets of approximately $2.3 billion, representing approximately 30.8% of our Undepreciated Real Estate Assets and (ii) assets of approximately $2.5 billion representing 37.6% of our total consolidated assets.
The obligations of each Subsidiary Guarantor under its subsidiary guarantee and the Indenture will be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor that are relevant under federal or state bankruptcy, fraudulent conveyance, fraudulent transfer or similar laws, and after giving effect to any collections from, rights to receive contribution from, or payments made by or on behalf of, any other Subsidiary Guarantor in respect of the obligations of such Subsidiary Guarantor under its subsidiary guarantee and the Indenture, result in the obligations of such Subsidiary Guarantor under its subsidiary guarantee and the Indenture not constituting a fraudulent conveyance or fraudulent transfer under such laws. See “Risk Factors — Risks Relating to the Notes — Federal and state statutes allow courts, under specific circumstances, to avoid guarantees and require holders of notes to return payments received from guarantors.”
The subsidiary guarantee of a Subsidiary Guarantor will automatically terminate and be released, all other obligations of such Subsidiary Guarantor under the Indenture will automatically terminate and such Subsidiary Guarantor will be automatically released from its obligations under its subsidiary guarantee and its other obligations under the Indenture:
(1)
in the event of a sale or other disposition of all or substantially all of the properties or assets of such Subsidiary Guarantor (including by way of merger or consolidation) to a Person that is not (either before or after giving effect to such transaction) DHC or a Subsidiary;
(2)
in the event of a sale or other disposition (including through merger or consolidation) of Capital Stock of such Subsidiary Guarantor to a Person that is not (either before or after giving effect to such transaction) DHC or a Subsidiary and such Subsidiary Guarantor ceases to be a Subsidiary as a result of the sale or other disposition;
(3)
upon such Subsidiary Guarantor becoming an Excluded Subsidiary or a Foreign Subsidiary;
(4)
upon the discharge, full defeasance or covenant defeasance of the notes as described under “Description of Debt Securities and Related Guarantees—Discharge, Defeasance and Covenant Defeasance” in the accompanying prospectus;
(5)
upon the liquidation or dissolution of such Subsidiary Guarantor, provided no default or event of default has occurred that is continuing;
(6)
upon the merger of such Subsidiary Guarantor into, or the consolidation of such Subsidiary Guarantor with (a) a Subsidiary if the surviving or resulting entity is an Excluded Subsidiary or a Foreign Subsidiary or (b) DHC or another Subsidiary Guarantor; or
 
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(7)
on and after the date on which (a) the notes have received an Investment Grade Rating from both Rating Agencies and one of such Investment Grade Ratings is a Mid-BBB Investment Grade Rating, and (b) no default or event of default has occurred and is continuing.
Optional Redemption of the Notes
We may redeem the notes at our option, in whole at any time or in part from time to time, prior to their maturity. The redemption price will equal the outstanding principal amount of the notes being redeemed, plus accrued and unpaid interest, if any, on the notes being redeemed, to, but not including, the applicable redemption date, plus the Make-Whole Amount, if any. If the notes are redeemed on or after September 1, 2030 (six months prior to their stated maturity date), the Make-Whole Amount will equal zero.
We are required to give notice of such a redemption not less than 15 days nor more than 60 days prior to the redemption date to each holder’s address appearing in the securities register maintained by the Trustee or, in the case of book-entry interests in notes in global form, in accordance with the procedures of DTC and its participants in effect from time to time. In the event we elect to redeem less than all of the notes, the particular notes to be redeemed will be selected by the Trustee by such method as the Trustee shall deem appropriate and in accordance with the procedures of DTC and its participants in effect from time to time. See “— Book-Entry System and Form of Notes” below and “Description of Debt Securities and Related Guarantees — Global Debt Securities” in the accompanying prospectus.
We are not required to make any sinking fund or redemption payments prior to the stated maturity of the notes. However, under certain circumstances, we may be required to offer to repurchase the notes as described under the caption “— Repurchase of Notes Upon a Change of Control” below.
Repurchase of Notes Upon a Change of Control
If a Change of Control occurs, each holder of notes will have the right to require DHC to repurchase some or all (in minimum principal amounts of $2,000 or an integral multiple of $1,000, provided that the remaining principal amount of any note repurchased in part must not be less than $2,000) of such holder’s notes at a purchase price in cash equal to 101% of the principal amount of the notes plus accrued and unpaid interest, if any, up to, but not including, the date of repurchase, or the Change of Control Payment.
Within ten Business Days following a Change of Control, DHC will mail a notice to each holder (with a copy to the Trustee) describing the transaction or transactions that constitute, or are expected to constitute, the Change of Control and offering to repurchase notes on a specified date, or the Change of Control Payment Date, at a purchase price equal to the Change of Control Payment, or the Change of Control Offer. The Change of Control Payment Date will be no earlier than 30 days and no later than 60 days from the date such notice is mailed (or in the case of global notes, given pursuant to applicable DTC procedures).
On the Change of Control Payment Date, DHC will, to the extent lawful:
(1)
accept for payment all notes or portions thereof properly tendered and not withdrawn pursuant to the Change of Control Offer;
(2)
deposit with the paying agent an amount equal to the Change of Control Payment in respect of all notes or portions thereof so accepted; and
(3)
deliver or cause to be delivered to the Trustee the notes accepted and an officer’s certificate stating the aggregate principal amount of all notes purchased by DHC.
The paying agent will promptly mail to each holder of notes properly tendered (or in the case of global notes, will promptly pay to DTC or its nominee) the Change of Control Payment for such notes, and the Trustee will promptly authenticate and mail, or cause to be transferred by book entry, to each holder a new note in principal amount equal to any unpurchased portion of the notes surrendered; provided that such new note will be in a minimum principal amount of $2,000 or an integral multiple of $1,000 in excess thereof.
DHC will comply with the requirements of Section 14(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and any other securities laws or regulations to the extent those laws and
 
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regulations are applicable to any Change of Control Offer. If the provisions of any of the applicable securities laws or regulations conflict with the provisions of the covenant described above, DHC will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the covenant described above by virtue of that compliance.
DHC will not be obligated to make or consummate a Change of Control Offer if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by DHC and purchases all notes properly tendered and not withdrawn under such Change of Control Offer. In addition, DHC will not be obligated to make or consummate a Change of Control Offer with respect to the notes, if it has irrevocably elected to redeem all of the notes under provisions described under “— Optional Redemption of the Notes” and has not defaulted on its redemption obligations. Notwithstanding anything to the contrary contained herein, a Change of Control Offer may be made in advance of a Change of Control, subject to one or more conditions precedent, including, but not limited to, the consummation of such Change of Control. The Change of Control Payment Date may be delayed until such time (including more than 60 days after the notice is mailed or delivered, including by electronic transmission) as such Change of Control is consummated. DHC may rescind or amend the Change of Control Offer in the event that DHC shall determine that the Change of Control will not occur by the Change of Control Payment Date, or by the Change of Control Payment Date as so delayed. A Change of Control Offer made in advance of the Change of Control may be made at the same time as consents are solicited with respect to an amendment, supplement or waiver of the Indenture. Prior to the occurrence of a Change of Control, the provisions under the Indenture relating to DHC’s obligation to make a Change of Control Offer may be waived or modified with the written consent of the holders of a majority in principal amount of the notes then outstanding.
DHC’s ability to repurchase notes pursuant to a Change of Control Offer may be limited by a number of factors. The occurrence of certain events that constitute a Change of Control would constitute an event of default under our Existing Credit and Term Loan Agreements, which could result in the acceleration of the payment of indebtedness outstanding under our Existing Credit and Term Loan Agreements. Agreements governing future indebtedness of DHC or its Subsidiaries may contain prohibitions on certain events that would constitute a Change of Control or require such indebtedness to be repurchased or repaid if a Change of Control occurs. Moreover, the exercise by the holders of their right to require DHC to repurchase the notes could cause a default under such indebtedness, even if the Change of Control itself does not. Finally, DHC’s ability to pay cash to the holders of notes, if required to do so, may be limited by its then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases. See “Risk Factors — Risks Relating to the Notes — We may not have the ability to raise the funds necessary to finance the repurchase of the notes upon a change of control event as will be required by the indenture for the notes.”
Even if sufficient funds were otherwise available, agreements governing the indebtedness of DHC or its Subsidiaries may prohibit DHC’s repurchase of the notes before their scheduled maturity. Consequently, if DHC is not able to prepay its indebtedness under such agreements or obtain consents of the holders of such indebtedness to the repurchase of the notes, DHC will be unable to fulfill its repurchase obligations if holders of notes exercise their repurchase rights following a Change of Control, resulting in a default under the Indenture. A default under the Indenture may result in a cross-default under other agreements governing the indebtedness of DHC or its Subsidiaries.
The definition of “Change of Control” includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of “all or substantially all” of the properties or assets of DHC and its Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law. Furthermore, this term has not been interpreted under New York law (which is the governing law of the Indenture) to represent a specific quantitative test. Accordingly, the ability of a holder of notes to require DHC to repurchase its notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of DHC and its Subsidiaries taken as a whole to another Person or group may be uncertain.
 
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Certain Covenants
Limitations on Incurrence of Debt.   DHC will not, and will not permit any Subsidiary to, incur any Debt if, immediately after giving effect to the incurrence of such additional Debt and the application of the proceeds therefrom, the aggregate principal amount of all outstanding Debt of DHC and its Subsidiaries on a consolidated basis determined in accordance with GAAP is greater than 60% of the sum of (without duplication):
(1)
the Total Assets of DHC and its Subsidiaries as of the end of the fiscal quarter covered by DHC’s Annual Report on Form 10-K, or its Quarterly Report on Form 10-Q, as the case may be, most recently filed with the SEC (or, if such filing is not permitted or required under the Exchange Act with the Trustee) prior to the incurrence of such additional Debt; and
(2)
the purchase price of any real estate assets or mortgages receivable acquired, and the amount of any securities offering proceeds received (to the extent that such proceeds were not used to acquire real estate assets or mortgages receivable or used to reduce Debt), by DHC or any Subsidiary since the end of such fiscal quarter, including those proceeds obtained in connection with the incurrence of such additional Debt.
The sum of (1) and (2) is our “Adjusted Total Assets.”
DHC will not, and will not permit any Subsidiary to, incur any Secured Debt if, immediately after giving effect to the incurrence of such additional Secured Debt and the application of the proceeds therefrom, the aggregate principal amount of all outstanding Secured Debt of DHC and its Subsidiaries on a consolidated basis determined in accordance with GAAP is greater than 40% of Adjusted Total Assets.
DHC will not, and will not permit any Subsidiary to, incur any Debt if, immediately after giving effect to the incurrence of such additional Debt and on a pro forma basis, including the application of the proceeds therefrom, the ratio of Consolidated Income Available for Debt Service to the Annual Debt Service for the four consecutive fiscal quarters most recently ended prior to the date on which such additional Debt is to be incurred is less than 1.5 to 1.0, calculated on the assumptions that:
(1)
such Debt and any other Debt incurred by DHC and its Subsidiaries on a consolidated basis since the first day of such four-quarter period and the application of the proceeds therefrom, including to refinance other Debt, had occurred at the beginning of such period,
(2)
the repayment, retirement or other discharge of any other Debt by DHC and its Subsidiaries on a consolidated basis since the first day of such four-quarter period had occurred at the beginning of such period (except that, in making such computation, the amount of Debt under any revolving credit facility shall be computed based upon the average daily balance of such Debt during such period),
(3)
in the case of Acquired Debt or Debt incurred in connection with or in contemplation of any acquisition, including any Person becoming a Subsidiary, since the first day of such four-quarter period, the related acquisition had occurred as of the first day of such period with appropriate adjustments with respect to such acquisition being included in such pro forma calculation, and
(4)
in the case of any acquisition or disposition by DHC and its Subsidiaries on a consolidated basis of any asset or group of assets since the first day of such four-quarter period, whether by merger, stock purchase or sale, or asset purchase or sale, such acquisition or disposition or any related repayment of Debt had occurred as of the first day of such period with the appropriate adjustments with respect to such acquisition or disposition being included in such pro forma calculation.
If the Debt giving rise to the need to make the foregoing calculation or any other Debt incurred after the first day of the relevant four-quarter period bears interest at a floating interest rate, then, for purposes of calculating the Annual Debt Service, the interest rate on such Debt will be computed on a pro forma basis as if the average interest rate which would have been in effect during the entirety of such four-quarter period had been the applicable rate for the entirety of such period.
 
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Maintenance of Total Unencumbered Assets.   DHC and its Subsidiaries will at all times maintain Total Unencumbered Assets of not less than 150% of the aggregate outstanding principal amount of the Unsecured Debt of DHC and its Subsidiaries on a consolidated basis in accordance with GAAP.
Provision of Financial Information.   Whether or not DHC remains required to do so under the Exchange Act, it will transmit by mail to all holders, without cost, and file with the Trustee copies of all annual, quarterly and other reports and financial statements it would have been required to file with the SEC pursuant to the Exchange Act and promptly upon written request and payment of the reasonable cost of duplication and delivery, supply copies of such documents to any prospective holder; provided that DHC may satisfy the foregoing requirements by making the materials available on the SEC’s EDGAR system or on DHC’s website within the time periods specified in the Indenture. If the notes become guaranteed by any direct or indirect parent company of DHC, DHC may satisfy its obligations under this covenant with respect to financial information relating to DHC by furnishing financial information relating to such direct or indirect parent company.
Additional Subsidiary Guarantees.   If at any time (i) any Subsidiary (whether existing at the Issue Date or acquired or created after the Issue Date) becomes (including on the date of acquisition or creation) a Subsidiary that is not an Excluded Subsidiary or a Foreign Subsidiary or (ii) any Subsidiary ceases to be an Excluded Subsidiary or a Foreign Subsidiary, then DHC will cause such Subsidiary to execute and deliver to the Trustee, within 30 days from the date such Subsidiary became a Subsidiary that is not an Excluded Subsidiary or a Foreign Subsidiary or ceased to be an Excluded Subsidiary or a Foreign Subsidiary, as the case may be, a supplemental indenture pursuant to which such Subsidiary will fully and unconditionally guarantee the notes, jointly and severally with all other Subsidiary Guarantors, and deliver an officer’s certificate and opinion of counsel reasonably satisfactory to the Trustee.
The covenant in the immediately preceding paragraph will automatically and permanently terminate and DHC will be automatically and permanently released from all its obligations under such covenant on and after the date on which (a) the notes have received an Investment Grade Rating from both Rating Agencies and one of such Investment Grade Ratings is a Mid-BBB Investment Grade Rating, and (b) no default or event of default has occurred and is continuing.
Merger, Consolidation or Sale of Assets
DHC:   The provisions of the Indenture relating to certain mergers and consolidations involving DHC, and certain sales of DHC’s assets, described under “Description of Debt Securities and Related Guarantees — Merger, Consolidation or Sale of Assets” in the accompanying prospectus will apply to the notes.
Subsidiary Guarantors:   A Subsidiary Guarantor may not consolidate with or merge into any other Person or convey, transfer or lease all or substantially all of its properties and assets to any other Person (other than DHC or another Subsidiary Guarantor), and a Subsidiary Guarantor may not permit any other Person (other than DHC or another Subsidiary Guarantor) to consolidate with or merge into it, unless:

either (i) the Subsidiary Guarantor is the surviving entity or (ii) the Person formed by or surviving any such consolidation or merger (if other than the Subsidiary Guarantor) or to which such conveyance, transfer or lease has been made (such Person, the Successor Guarantor) is an entity organized and validly existing under the laws of the United States, any state thereof or the District of Columbia and expressly assumes, by a supplemental indenture executed and delivered to the Trustee, in form satisfactory to the Trustee, the Subsidiary Guarantor’s obligations under its subsidiary guarantee and the Indenture;

immediately after giving effect to such transaction, and treating any indebtedness which becomes an obligation of the Subsidiary Guarantor, any other Subsidiary or DHC as a result of such transaction as having been incurred by the Subsidiary Guarantor, such Subsidiary or DHC at the time of such transaction, no event of default, and no event which, after notice or lapse of time or both, would become an event of default has happened and is continuing; and

DHC will have delivered to the Trustee an officer’s certificate and an opinion of counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is
 
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required in connection with such transaction, such supplemental indenture comply with the provisions of the Indenture described in this paragraph and that all conditions precedent provided for in the Indenture relating to such transaction have been complied with;
provided that the foregoing paragraph shall not apply to a transaction pursuant to which such Subsidiary Guarantor shall be released from its obligations under its subsidiary guarantee and the Indenture in accordance with the provisions described under “ —  Subsidiary Guarantees.”
Upon any transaction or series of related transactions to which the foregoing requirements apply and are effected in accordance with such requirements, the Successor Guarantor shall succeed to, and be substituted for, and may exercise every right and power of, the applicable Subsidiary Guarantor under the Indenture with the same effect as if such Successor Guarantor had been named as the applicable Subsidiary Guarantor therein; and when a Successor Guarantor duly assumes all of the obligations of the applicable Subsidiary Guarantor under its subsidiary guarantee and the Indenture, except in the case of a lease, the predecessor Subsidiary Guarantor shall be relieved of all such obligations.
Events of Default, Notice and Waiver
The Indenture provides that the following events are “events of default” with respect to the notes:
(1)
default in the payment of principal of or any premium on the notes when due and payable, whether at stated maturity, upon optional redemption or upon required repurchase (including a default in making a payment to purchase notes pursuant to a Change of Control Offer), upon declaration or otherwise;
(2)
default for 30 days in the payment of any installment of interest payable on the notes when due and payable;
(3)
default in the performance of, or breach of, any covenant of DHC or any Subsidiary Guarantor contained in the Indenture with respect to the notes (not including a covenant added to the Indenture solely for the benefit of a series of debt other than the notes), other than a default covered by clauses (1) and (2) above, which default continues for 60 days after DHC receives a notice of default or breach as provided in the Indenture stating DHC is in default or breach and requiring that it be remedied;
(4)
default under any bond, debenture, note or other evidence of indebtedness of DHC, or under any mortgage, indenture or other instrument of DHC (including a default with respect to debt securities issued under the Indenture other than the notes) under which there may be issued or by which there may be secured any indebtedness of DHC (or by any Subsidiary, the repayment of which DHC has guaranteed or for which DHC is directly responsible or liable as obligor or guarantor), whether such indebtedness now exists or is created by the Indenture, which default constitutes a failure to pay an aggregate principal amount exceeding $50.0 million after the expiration of any applicable grace period, and which default results in the acceleration of the maturity of such indebtedness; such default is not an event of default if the other indebtedness is discharged, or the acceleration is rescinded or annulled, within a period of 10 days after DHC receives notice as provided in the Indenture specifying the default and requiring that DHC discharge the other indebtedness or cause the acceleration to be rescinded or annulled;
(5)
certain specified events of bankruptcy, insolvency or reorganization, or court appointment of a receiver, liquidator or trustee of DHC or any Significant Subsidiary or for all or substantially all of either of their property; or
(6)
any subsidiary guarantee of a Subsidiary Guarantor that is a Significant Subsidiary ceases to be in full force and effect (except as contemplated by the terms of the Indenture) or is declared null and void in a judicial proceeding or any Subsidiary Guarantor that is a Significant Subsidiary or group of Subsidiary Guarantors that taken together would constitute a Significant Subsidiary denies or disaffirms its or their, as the case may be, obligations under the Indenture or its or their subsidiary guarantees, as the case may be.
 
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Upon acceleration of the notes in accordance with the terms of the Indenture following the occurrence of an event of default, the principal amount of the notes, plus accrued and unpaid interest thereon, will become due and payable. See “Description of Debt Securities and Related Guarantees — Events of Default and Related Matters” in the accompanying prospectus for a description of rights, remedies and other matters relating to events of default.
Modification of the Indenture
The following description replaces the description set forth under “Description of Debt Securities and Related Guarantees  —  Modification of an Indenture” in the accompanying prospectus in its entirety.
There are three types of changes we can make to the Indenture and the notes:
Changes Requiring Your Approval.   First, we cannot make certain changes to the Indenture and the notes without the approval of each holder of notes affected by the change. The following is a list of those types of changes:

change the stated maturity of the principal of, or interest on, a note or change the date on which any notes may be subject to redemption;

reduce the principal of, or the rate of interest on, a note;

reduce the amount (including the amount of any premium) due upon redemption of a note;

change the currency or place of payment on a note;

impair a holder’s right to sue for payment on or after the stated maturity of the notes;

reduce the percentage of holders of notes whose consent is needed to modify or amend the Indenture;

reduce the percentage of holders of notes whose consent is needed to waive compliance with certain provisions of the Indenture or certain defaults and their consequences;

waive past defaults in the payment of principal of or premium, if any, or interest on the notes or in respect of any covenant or provision that cannot be modified or amended without the approval of each holder of the notes;

release any Subsidiary Guarantor from any of its obligations under its subsidiary guarantee or the Indenture except in accordance with the terms of the Indenture;

amend, supplement, waive or modify our obligation to make a Change of Control Offer, or reduce the premium payable upon any repurchase of notes pursuant to a Change of Control Offer or change the time at which any notes may be repurchased pursuant to the covenant set forth under “ —  Repurchase of Notes Upon a Change of Control,” whether through an amendment, supplement, waiver or modification of provisions in such covenant or any definitions or other provisions in the Indenture or otherwise, unless such amendment, supplement waiver or modification shall be in effect prior to the occurrence of the applicable Change of Control; or

modify any of the foregoing provisions.
Changes Requiring Majority Approval.   Second, certain changes require the approval of holders of not less than a majority in principal amount of the outstanding notes. We require the same majority vote to obtain a waiver of a past default. However, we cannot obtain a waiver of a payment default or any other aspect of the Indenture or the notes listed in the first category described above under “ — Changes Requiring Your Approval” without the consent of each holder of notes affected by the waiver.
Changes Not Requiring Approval.   Third, certain changes do not require any approval of holders of notes. These include:

to evidence the assumption by a successor obligor of our obligations or the obligations of a subsidiary guarantor;

to add to our or any subsidiary guarantor’s covenants for the benefit of holders of the notes or the debt securities of any series or to surrender any right or power conferred upon us or any subsidiary guarantor;
 
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to add any additional events of default for the benefit of holders of the notes or any other series of debt securities;

to add to or change any provisions necessary to permit or facilitate the issuance of debt securities of any series in bearer form, registrable or not registrable as to principal, and with or without interest coupons, or to permit or facilitate the issuance of any series of debt securities in uncertificated form;

to add to, change or eliminate any of the provisions, so long as such addition, change or elimination does not apply to any debt security of any existing series of debt security entitled to the benefit of such provision or modify the rights of the holder of any such debt security with respect to such provision or such addition, change or elimination only becomes effective when there is no such security outstanding;

to add guarantees of or to secure the notes or any other series of debt securities or any guarantees thereof;

to evidence the release of any subsidiary guarantor of the notes or any guarantor of the debt securities of any series;

to establish the forms or terms of debt securities of any series or to provide for the issuance of additional debt securities of any series;

to evidence and provide for the acceptance of appointment of a successor trustee;

to cure any ambiguity, to correct or supplement any provision in the Indenture which may be defective or inconsistent with any other provision contained therein or to conform the terms of the Indenture that are applicable to a series of debt securities to the description of the terms of such debt securities in the offering memorandum, prospectus supplement or other offering document applicable to such debt securities at the time of initial sale thereof;

to permit or facilitate the defeasance or satisfaction and discharge of the notes or the debt securities of any other series; provided that such action does not adversely affect the interests of any holder of debt securities in any material respect;

to prohibit the authentication and delivery of additional series of debt securities;

to add to or change or eliminate any provision as shall be necessary or desirable in accordance with any amendments to the Trust Indenture Act;

to comply with the rules of any applicable depositary; or

to change anything that does not adversely affect the interests of the holders of debt securities of any series in any material respect.
Further Details Concerning Approval.   Notes are not considered outstanding, and therefore the holders thereof are not eligible to vote or consent or give their approval or take other action under the Indenture, if we have deposited or set aside in trust for holders of those notes money for their payment or redemption or if we or one of our affiliates own them. Notes are also not considered to be outstanding and therefore the holders thereof are not eligible to vote or consent or give their approval or take other action under the Indenture if they have been fully defeased or discharged, as described in the accompanying prospectus under “Description of Debt Securities and Related Guarantees  —  Discharge, Defeasance and Covenant Defeasance  —  Discharge” or “ —  Full Defeasance.”
Discharge, Defeasance and Covenant Defeasance
The provisions of the Indenture relating to discharge, full defeasance and covenant defeasance described under “Description of Debt Securities and Related Guarantees  —  Discharge, Defeasance and Covenant Defeasance” in the accompanying prospectus will apply to the notes. For the avoidance of doubt, upon such discharge, full defeasance or covenant defeasance with respect to the notes, the subsidiary guarantees will automatically terminate and be released, all other obligations of the Subsidiary Guarantors under the Indenture will automatically terminate and the Subsidiary Guarantors will be automatically released from their obligations under their subsidiary guarantees and their other obligations under the Indenture.
 
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Book-Entry System and Form of Notes
The notes will initially be issued in the form of one or more fully registered global notes without coupons that will be deposited with or on behalf of DTC and registered in the name of its nominee, Cede & Co. This means that we will not issue certificates to each holder of notes. Each global note will be issued to DTC, which will keep a computerized record of its participants (for example, your broker) whose clients have purchased the notes. The participant will then keep a record of its clients who purchased the notes. Unless it is exchanged in whole or in part for a certificated note, each global note may not be transferred, except that DTC, its nominees, and their successors may transfer a global note in whole to one another. Beneficial interests in a global note will be shown on, and transfers of a global note will be made only through, records maintained by DTC and its participants. Additional information about notes in global form, DTC and the book-entry system is contained in the accompanying prospectus under “Description of Debt Securities and Related Guarantees  —  Global Debt Securities.”
Certain Defined Terms
The following defined terms relate only to, and should be read in conjunction with the description of, the notes.
“Acquired Debt” means Debt of a Person (1) existing at the time such Person becomes a Subsidiary or (2) assumed in connection with the acquisition of assets from such Person, in each case, other than Debt incurred in connection with, or in contemplation of, such Person becoming a Subsidiary or such acquisition. Acquired Debt is deemed to be incurred on the date of the related acquisition of assets from any Person or the date the acquired Person becomes a Subsidiary.
“Adjusted Total Assets” is defined above under “ —  Certain Covenants  —  Limitations on Incurrence of Debt.”
“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
“Annual Debt Service” as of any date means the maximum amount which is expensed in any 12- month period for interest on Debt of DHC and its Subsidiaries, excluding amortization of debt discounts and deferred financing costs.
“Business Day” means any day other than a Saturday or Sunday or a day on which banking institutions in The City of New York or in the city in which the corporate trust office of the Trustee is located are required or authorized to close.
“Capital Stock” means, with respect to any Person, any capital stock (including preferred stock), shares, interests, participation or other ownership interests (however designated) of such Person and any rights (other than debt securities convertible into or exchangeable for capital stock), warrants or options to purchase any thereof.
“Cash Equivalents” means demand deposits, certificates of deposit or repurchase agreements with banks or other financial institutions, marketable obligations issued or directly and fully guaranteed as to timely payment by the United States of America or any of its agencies or instrumentalities, or any commercial paper or other obligation rated, at time of purchase, “P-2” ​(or its equivalent) or better by Moody’s or “A-2” ​(or its equivalent) or better by Standard & Poor’s.
“Change of Control” means the occurrence of one or more of the following events:
(1)
any direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of DHC and its Subsidiaries taken as a whole to any “person” or “group” (as such terms are defined in Sections 13(d) and 14(d) of the Exchange Act), other than DHC or any of its Subsidiaries or one or more Permitted Holders;
 
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(2)
a “person” or “group” ​(as such terms are defined in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, becomes the ultimate “beneficial owner” ​(as defined in Rule 13d-3 under the Exchange Act, except that such person or group will be deemed to have “beneficial ownership” of all securities that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time) of more than 50% of the total voting power of the Voting Stock of DHC on a fully diluted basis;
(3)
the approval by the holders of common shares of beneficial interest of DHC of any plan or proposal for the liquidation or dissolution of DHC; or
(4)
RMR or any of its subsidiaries ceases for any reason to act as the sole business manager for DHC.
Notwithstanding the foregoing, a transaction will not be deemed to involve a Change of Control solely as a result of DHC becoming a direct or indirect wholly owned subsidiary of a holding company if (A) the direct or indirect holders of the Voting Stock of such holding company immediately following that transaction are substantially the same as the holders of DHC’s Voting Stock immediately prior to that transaction or (B) immediately following that transaction, no “person” or “group” ​(as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, but other than a holding company satisfying the requirements of this sentence), other than one or more Permitted Holders, is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of Voting Stock representing more than 50% of the voting power of the Voting Stock of such holding company.
“Consolidated Income Available for Debt Service” for any period means Earnings from Operations of DHC and its Subsidiaries plus amounts which have been deducted, and minus amounts which have been added, for the following (without duplication): (1) interest or distributions on Debt of DHC and its Subsidiaries, (2) provision for taxes of DHC and its Subsidiaries based on income, (3) amortization of debt premiums/discounts and deferred debt issuance costs, (4) provisions for gains and losses on properties and property depreciation and amortization, (5) the effect of any noncash charge resulting from a change in accounting principles in determining Earnings from Operations for such period and (6) amortization of deferred charges.
“Debt” of DHC or any Subsidiary means, without duplication, any indebtedness of DHC or any Subsidiary, whether or not contingent, in respect of:
(1)
borrowed money or evidenced by bonds, notes, debentures or similar instruments,
(2)
borrowed money secured by any Encumbrance existing on property owned by DHC or any Subsidiary, to the extent of the lesser of (x) the amount of indebtedness so secured or (y) the fair market value of the property subject to such Encumbrance,
(3)
the reimbursement obligations, contingent or otherwise, in connection with any letters of credit actually issued (other than letters of credit issued to provide credit enhancement or support with respect to other indebtedness of DHC or any Subsidiary otherwise reflected as Debt hereunder) or amounts representing the balance deferred and unpaid of the purchase price of any property or services, except any such balance that constitutes an accrued expense or trade payable, or all conditional sale obligations or obligations under any title retention agreement,
(4)
the principal amount of all obligations of DHC or any Subsidiary with respect to redemption, repayment or other repurchase of any Disqualified Stock, or
(5)
any lease of property by DHC or any Subsidiary as lessee which is reflected on DHC’s consolidated balance sheet as a capitalized lease in accordance with GAAP,
to the extent, in the case of items of indebtedness under (1) through (5) above, that any such items (other than letters of credit) would be properly classified as a liability on DHC’s consolidated balance sheet in accordance with GAAP. Debt also (1) excludes any indebtedness (A) with respect to which a defeasance or covenant defeasance or discharge has been effected (or an irrevocable deposit is made with a trustee in an amount at least equal to the outstanding principal amount of such indebtedness, the remaining scheduled payments of interest thereon to, but not including, the applicable maturity date or redemption date, and any
 
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premium or otherwise as provided in the terms of such indebtedness) in accordance with the terms thereof or which has been repurchased, retired, repaid, redeemed, irrevocably called for redemption (and an irrevocable deposit is made with a trustee in an amount at least equal to the outstanding principal amount of such indebtedness, the remaining scheduled payments of interest thereon to, but not including, such redemption date, and any premium) or otherwise satisfied or (B) that is secured by cash or Cash Equivalents irrevocably deposited with a trustee in an amount, in the case of this clause (B), at least equal to the outstanding principal amount of such indebtedness and the remaining scheduled payments of interest thereon and (2) includes, to the extent not otherwise included, any obligation by DHC or any Subsidiary to be liable for, or to pay, as obligor, guarantor or otherwise (other than for purposes of collection in the ordinary course of business), Debt of another Person (other than DHC or any Subsidiary) (it being understood that Debt shall be deemed to be incurred by DHC or any Subsidiary whenever DHC or such Subsidiary shall create, assume, guarantee or otherwise become liable in respect thereof).
“Disqualified Stock” means, with respect to any Person, any Capital Stock of such Person which by the terms of such Capital Stock (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable), upon the happening of any event or otherwise, (1) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise (other than Capital Stock which is redeemable solely in exchange for Capital Stock which is not Disqualified Stock or for Subordinated Debt), (2) is convertible into or exchangeable or exercisable for Debt, other than Subordinated Debt, or Disqualified Stock, or (3) is redeemable at the option of the holder thereof, in whole or in part (other than Capital Stock which is redeemable solely in exchange for Capital Stock which is not Disqualified Stock or for Subordinated Debt), in each case on or prior to the stated maturity of the principal of the notes.
“Domestic Subsidiary” means any Subsidiary of DHC that was organized under the laws of the United States or any state of the United States or the District of Columbia (excluding, for the avoidance of doubt, any Subsidiary organized under U.S. possessions such as Puerto Rico).
“Earnings from Operations” for any period means net earnings excluding gains and losses on sales of investments, gains or losses on early extinguishment of debt, extraordinary items and property valuation losses, in each case as reflected in the financial statements of DHC and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP.
“Encumbrance” means any mortgage, lien, charge, pledge, security interest or other encumbrance of any kind.
“Excluded Subsidiary” means any Subsidiary of DHC (i) that is a Pledged Subsidiary, (ii) that is not a Wholly Owned Subsidiary or that holds no material assets other than the Capital Stock of one or more Subsidiaries that are not Wholly Owned Subsidiaries, or (iii)(a) holding title to or beneficially owning Properties which are subject to an Encumbrance securing Debt of such Subsidiary, or being a beneficial owner of a Subsidiary of DHC holding title to or beneficially owning such Properties (but having no material assets other than such beneficial ownership interests or the Capital Stock of a Subsidiary of DHC having no material assets other than such beneficial ownership interests) and (b) which (x) is, or is expected to be, prohibited from Guaranteeing the indebtedness of any other Person pursuant to any document, instrument or agreement evidencing such Secured Debt or (y) is prohibited from Guaranteeing the indebtedness of any other Person pursuant to a provision of such Subsidiary’s organizational documents which provision was included in such Subsidiary’s organizational documents as a condition or anticipated condition to the extension of such Secured Debt; for purposes of this subsection (iii), any Subsidiary which is a lessee under a lease with a Subsidiary which is an Excluded Subsidiary under this subsection (iii) shall also be deemed to be an Excluded Subsidiary. In addition, (i) RSA Healthcare, Inc., a Tennessee corporation, a Wholly Owned Subsidiary that does not own any Property or other assets, and (ii) any Subsidiary that is an “Excluded Subsidiary” as defined under the Existing Credit and Term Loan Agreements shall be deemed to be an Excluded Subsidiary for purposes of this definition.
“Existing Credit and Term Loan Agreements” means, collectively, (i) that certain Amended and Restated Credit Agreement, dated August 1, 2017, by and among DHC, Wells Fargo Bank, National Association, as administrative agent, and the lenders and the other parties thereto, and (ii) that certain Amended and Restated Term Loan Agreement, dated August 1, 2017, by and among DHC, Wells Fargo Bank, National Association, as administrative agent, and the lenders and the other parties thereto, in each
 
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case, as amended, restated, supplemented, modified, renewed, refunded, increased, extended, replaced in any manner (whether upon or after termination or otherwise) or refinanced in whole or in part from time to time.
“Foreign Subsidiary” means (a) any Real Foreign Subsidiary, (b) any Domestic Subsidiary that has no material assets (with the determination of materiality to be made in good faith by DHC) other than Capital Stock of one or more Real Foreign Subsidiaries, and (c) any Subsidiary (including any Subsidiary that would otherwise be a Domestic Subsidiary) of DHC that owns any Capital Stock of a Real Foreign Subsidiary if the provision of a subsidiary guarantee by such Subsidiary could reasonably be expected, in the good faith judgment of DHC, cause any earnings of such Real Foreign Subsidiary, as determined for U.S. federal income tax purposes, to be treated as a deemed dividend to such Real Foreign Subsidiary’s United States parent for U.S. federal income tax purposes.
“GAAP” means generally accepted accounting principles in the United States, which were in effect on December 20, 2001, which is the date on which securities were initially issued by DHC under the Indenture, dated as of December 20, 2001, between DHC and State Street Bank and Trust Company, as trustee.
“Guarantee” means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any indebtedness of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person:
(1)
to purchase or pay (or advance or supply funds for the purchase or payment of) such indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise); or
(2)
entered into for purposes of assuring in any other manner the obligee of such indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term “Guarantee” will not include endorsements for collection or deposit in the ordinary course of business. The term “Guarantee” used as a verb has a corresponding meaning.
“Investment Grade Rating” means a rating equal to or higher than Baa3 (or the equivalent) by Moody’s or BBB- (or the equivalent) by Standard & Poor’s, or if Moody’s or Standard & Poor’s ceases to rate the notes for reasons outside of DHC’s control, the equivalent investment grade rating from any other Rating Agency.
“Issue Date” means the date on which the notes are first issued under the Indenture.
“Joint Venture Interests” means assets of DHC and its Subsidiaries constituting an equity investment in real estate assets or other properties, or in an entity holding real estate assets or other properties, jointly owned by DHC and its Subsidiaries, on the one hand, and one or more other Persons not constituting DHC’s Affiliates, on the other hand, excluding any entity or properties (1) which is a Subsidiary or are properties if the co-ownership thereof (if in a separate entity) would constitute or would have constituted a Subsidiary or (2) to which, at the time of determination, DHC’s manager at such time or an Affiliate of DHC’s manager at such time provides management services. In no event shall Joint Venture Interests include equity securities that are part of a class of equity securities that are traded on a national or regional securities exchange or a recognized over-the-counter market or any investments in debt securities, mortgages or other Debt.
“Make-Whole Amount” means, in connection with any optional redemption of any notes prior to September 1, 2030, the excess, if any, of (i) the aggregate present value as of the date of such redemption of each dollar of principal being redeemed and the amount of interest (exclusive of interest accrued to the date of redemption) that would have been payable in respect of such dollar if such redemption had been made on September 1, 2030 determined by discounting, on a semiannual basis, such principal and interest at the Reinvestment Rate (determined on the third Business Day preceding the date such notice of redemption is given) from the respective dates on which such principal and interest would have been payable if such redemption had been made on September 1, 2030 over (ii) the aggregate principal amount of the notes being redeemed. In the case of any redemption of the notes on or after September 1, 2030, the Make-Whole Amount equals zero.
 
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The Make-Whole Amount shall be calculated by DHC and set forth in an officer’s certificate delivered to the Trustee, and the Trustee shall be entitled to rely on said officer’s certificate.
“Mid-BBB Investment Grade Rating” means a rating equal to or higher than Baa2 (or the equivalent) by Moody’s or BBB (or the equivalent) by Standard & Poor’s, or if Moody’s or Standard & Poor’s ceases to rate the notes for reasons outside of DHC’s control, the equivalent investment grade rating from any other Rating Agency.
“Moody’s” means Moody’s Investors Service, Inc., or any successor thereof.
“Permitted Holder” means (i) RMR or any Person to which RMR or its subsidiaries provide management services, in each case, so long as one or more Principal Parties together, directly or indirectly, control RMR, (ii) a Principal Party and (iii) any Person, directly or indirectly, controlled by a Principal Party.
“Person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
Pledged Subsidiary” means a Subsidiary the Capital Stock of which has been pledged as collateral to secure amounts outstanding under the Existing Credit and Term Loan Agreements.
“Principal Party” means the individual who, as of the Issue Date, is the ultimate controlling stockholder of RMR, and his immediate family members and his and their lineal descendants.
“Property” means any parcel of real property, together with all improvements thereon.
“Rating Agencies” means (1) each of Moody’s and Standard & Poor’s; and (2) if either Moody’s or Standard & Poor’s ceases to rate the notes or fails to make a rating of the notes publicly available for reasons outside of DHC’s control, a “nationally recognized statistical rating organization” as such term is defined in Section 3(a)(62) of the Exchange Act, selected by DHC as a replacement agency for Moody’s or Standard & Poor’s, or either of them, as the case may be.
“Real Foreign Subsidiary” means a Subsidiary of DHC that is not a Domestic Subsidiary.
“Reinvestment Rate” means a rate per annum equal to the sum of 0.50% (fifty one hundredths of one percent) and the arithmetic mean of the yields on treasury securities at constant maturity displayed for each of the five most recent days published in the Statistical Release under the caption “Treasury constant maturities” for the maturity (rounded to the nearest month) corresponding to the remaining life to maturity (which, in the case of maturities corresponding to the principal and interest due on the notes at their maturity, shall be deemed to be September 1, 2030), as of the redemption date of the notes being redeemed. If no maturity exactly corresponds to such remaining life to maturity, yields for the two published maturities most closely corresponding to such remaining life to maturity shall be calculated pursuant to the immediately preceding sentence and the Reinvestment Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For purposes of calculating the Reinvestment Rate, the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used.
“RMR” means The RMR Group Inc. or its successors and assigns.
“Secured Debt” means Debt of DHC or its Subsidiaries secured by an Encumbrance on the property of DHC or its Subsidiaries.
“Significant Subsidiary” means any Subsidiary which is a “significant subsidiary” ​(within the meaning of Regulation S-X, promulgated by the SEC under the Securities Act of 1933, as amended) of DHC.
“Standard & Poor’s” means Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business, or any successor thereof.
“Statistical Release” means the statistical release designated “H.15” or any successor publication which is published daily by the Federal Reserve System and which establishes yields on actively traded United States government securities adjusted to constant maturities or, if such statistical release (or any successor
 
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publication) is not published at the time of any determination under the Indenture, then any publicly available source of similar market data used for this purpose in accordance with customary market practice which shall be designated by DHC.
“Subordinated Debt” means Debt which by the terms of such Debt is subordinated in right of payment to the principal of and interest and premium, if any, on the notes.
“Subsidiary” means any corporation or other Person of which a majority of (1) the voting power of the voting equity securities or (2) the outstanding equity interests of which are owned, directly or indirectly, by DHC or one or more other Subsidiaries of DHC, and which is required to be consolidated in accordance with GAAP. For the purposes of this definition, “voting equity securities” means equity securities having voting power for the election of directors or persons serving comparable functions as directors, whether at all times or only so long as no senior class of security has such voting power by reason of any contingency.
“subsidiary guarantee” means, individually, any Guarantee of payment of the notes by a Subsidiary Guarantor pursuant to the terms of the Indenture.
“Subsidiary Guarantor” means each Subsidiary of DHC in existence on the Issue Date that provides a subsidiary guarantee of the notes on the Issue Date and any other Subsidiary of DHC that provides a subsidiary guarantee of the notes in accordance with the Indenture; provided that upon the release or discharge of such Person from its subsidiary guarantee in accordance with the Indenture, such Person ceases to be a Subsidiary Guarantor.
“Total Assets” as of any date means the sum of (1) the Undepreciated Real Estate Assets and (2) all other assets of DHC and its Subsidiaries determined in accordance with GAAP (but excluding accounts receivable and intangibles).
“Total Unencumbered Assets” as of any date means the sum of (1) Undepreciated Real Estate Assets not securing any portion of Secured Debt and (2) the amount of all other assets of DHC and its Subsidiaries, not securing any portion of Secured Debt, in each case on such date determined on a consolidated basis in accordance with GAAP (but excluding accounts receivable and intangibles); provided that, in determining Total Unencumbered Assets as a percentage of the aggregate outstanding principal amount of the Unsecured Debt of DHC and its Subsidiaries on a consolidated basis for purposes of the covenant set forth above under “ —  Certain Covenants  —  Maintenance of Total Unencumbered Assets,” Joint Venture Interests shall be excluded from Total Unencumbered Assets to the extent such Joint Venture Interests would otherwise be included therein.
“Undepreciated Real Estate Assets” as of any date means the cost (original cost plus capital improvements) of real estate and associated tangible personal property used in connection with the real estate assets of DHC and its Subsidiaries on such date, before depreciation and amortization determined on a consolidated basis in accordance with GAAP.
“Unsecured Debt” means any Debt of DHC or its Subsidiaries which is not Secured Debt.
“Voting Stock” means with respect to any Person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors, trustees, managers or other voting members of the governing body of such Person.
“Wholly Owned Subsidiary” means any Subsidiary of DHC of which all the outstanding Voting Stock of such Subsidiary (other than directors’ qualifying shares and other than an immaterial amount of Voting Stock required to be owned by other Persons pursuant to applicable law or regulation) is owned by DHC and/or one or more Subsidiaries of DHC.
Sinking Fund
The notes are not entitled to any sinking fund payments.
The Registrar and Paying Agent
We have initially designated U.S. Bank National Association as the registrar and paying agent for the notes. Payments of interest and principal will be made, and the notes will be transferable, at the office of the paying agent, or at such other place or places as may be designated pursuant to the Indenture. For notes which we issue in book-entry form evidenced by a global note, payments will be made to DTC.
 
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of United States federal income tax considerations is based upon the Internal Revenue Code of 1986, as amended, or the IRC, Treasury regulations, and rulings and decisions now in effect, all of which are subject to change, possibly with retroactive effect, or possible differing interpretations. We have not sought a ruling from the Internal Revenue Service, or the IRS, with respect to any matter described in this summary, and we cannot provide any assurance that the IRS or a court will agree with the statements made in this summary. The summary applies to you only if you hold our notes as a capital asset, which is generally an asset held for investment rather than as inventory or as property used in a trade or business. The summary does not discuss all of the particular tax considerations that might be relevant to you if you are subject to special rules under federal income tax law, for example if you are:

a bank, insurance company or other financial institution;

a regulated investment company or REIT;

a subchapter S corporation;

a broker, dealer or trader in securities or foreign currencies;

a U.S. holder (as defined below) that has a functional currency other than the United States dollar;

a person that acquires or owns our notes in connection with employment or other performance of services;

a person subject to alternative minimum tax;

a person that acquires or owns our notes as part of a straddle, hedging transaction, constructive sale transaction, constructive ownership transaction or conversion transaction, or as part of a “synthetic security” or other integrated financial transaction;

a person that acquires notes in this offering and also has 6.75% Senior Notes due 2021 redeemed;

a United States expatriate;

a nonresident alien individual present in the United States for 183 days or more during an applicable taxable year; or

except as specifically described in the following summary, a trust, estate, tax-exempt entity or foreign person.
Prospective acquirors of our notes subject to special tax accounting rules under Section 451(b) of the IRC may be subject to special rules not discussed below, and such prospective acquirors are encouraged to consult with their own tax advisors regarding the application and federal income tax consequences of these rules. In addition, the following summary does not address all possible tax considerations relating to the acquisition, ownership and disposition of our notes, and in particular does not discuss any estate, gift, generation-skipping transfer, state, local or foreign tax considerations or the possibility that different consequences may apply if a holder has 6.75% Senior Notes due 2021 and acquires notes in this offering. For all these reasons, we encourage you and any prospective acquiror of our notes to consult with a tax advisor about the federal income tax and other tax considerations of the acquisition, ownership and disposition of our notes.
Your federal income tax consequences generally will differ depending on whether or not you are a “U.S. holder.” For purposes of this summary, you are a U.S. holder if you are a beneficial owner of our notes and for federal income tax purposes are:

an individual who is a citizen or resident of the United States, including an alien individual who is a lawful permanent resident of the United States or meets the substantial presence residency test under the federal income tax laws;

an entity treated as a corporation for federal income tax purposes that is created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

an estate the income of which is subject to federal income taxation regardless of its source; or
 
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a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust, or, to the extent provided in Treasury regulations, a trust in existence on August 20, 1996 that has elected to be treated as a domestic trust;
whose status as a U.S. holder is not overridden by an applicable tax treaty. Conversely, you are a “non-U.S. holder” if you are a beneficial owner of our notes other than an entity (or other arrangement) treated as a partnership for federal income tax purposes or a U.S. holder. If any entity (or other arrangement) treated as a partnership for federal income tax purposes holds our notes, the tax treatment of a partner in the partnership generally will depend upon the tax status of the partner and the activities of the partnership. Any entity (or other arrangement) treated as a partnership for federal income tax purposes that holds our notes and the partners in such a partnership (as determined for federal income tax purposes) are urged to consult their own tax advisors about the federal income tax consequences and other tax consequences of the acquisition, ownership and disposition of our notes.
We would be required to pay you a premium if you require us to repurchase your notes upon a Change of Control (as defined herein under “Description of the Notes”). We believe the likelihood that we will be obligated to make any additional payments on the notes is remote. Accordingly, we intend to take the position that the notes will not be treated as contingent payment debt instruments under the applicable Treasury regulations. Our determination that the notes are not contingent payment debt instruments is not binding on the IRS. Our determination that the notes are not contingent payment debt instruments is binding on you unless you disclose your contrary position to the IRS in the manner prescribed by applicable Treasury regulations. If the IRS were to challenge successfully this determination and the notes were treated as contingent payment debt instruments, you might be required, among other things, to accrue interest income (regardless of your method of accounting for federal income tax purposes) at a rate higher than the stated interest rate on the notes, and treat as ordinary income, rather than capital gain, any gain recognized on a sale, exchange or redemption of a note. For all these reasons, you and any prospective acquiror of notes should consult your tax advisor about the federal income tax and other tax considerations of your acquisition, ownership and disposition of notes. In particular, you should consult your tax advisor regarding the tax consequences of the notes being treated as contingent payment debt instruments. The remainder of this discussion assumes that the notes are not treated as contingent payment debt instruments.
It is expected that the notes will not be issued with original issue discount for United States federal income tax purposes, or OID. The notes will be treated as issued with OID if their principal amount exceeds their “issue price” ​(i.e., the first price at which a substantial amount of our notes is sold for money, not including sales to bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers) by an amount greater than or equal to a de minimis amount (generally 0.25% of the principal amount of the note multiplied by the number of complete years from the issue date of the note to its maturity). If the notes are treated as issued with OID under these rules, a holder would generally be required to include OID in income based on a constant yield to maturity accrual method before the receipt of corresponding cash payments. The remainder of this discussion assumes that the notes will not be issued with OID for United States federal income tax purposes.
Tax Considerations for U.S. Holders
If you are a U.S. holder:
Payments of interest.   You must generally include interest on a note in your gross income as ordinary interest income:

when you receive it, if you use the cash method of accounting for federal income tax purposes, or

when it accrues, if you use the accrual method of accounting for federal income tax purposes.
Any portion of the purchase price for a note that is allocable to prior accrued interest generally may be treated as offsetting a portion of the interest income from the next scheduled interest payment on the note. Any interest income so offset is not taxable.
Market discount.   If you acquire a note and your adjusted tax basis in it upon acquisition is less than its principal amount, you will be treated as having acquired the note at a “market discount” unless the amount
 
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of this market discount is less than a de minimis amount (generally 0.25% of the principal amount of the note multiplied by the number of remaining whole years to maturity of the note). Under the market discount rules, you will be required to treat any gain on the sale, exchange, redemption, retirement, or other taxable disposition of a note, or any appreciation in a note in the case of certain nontaxable dispositions, such as a gift, as ordinary income to the extent of the market discount which has not previously been included in your income and which is treated as having accrued on the note at the time of the disposition. In addition, you may be required to defer, until the maturity of the note or earlier taxable disposition, the deduction of all or a portion of the interest expense on any indebtedness incurred or continued to purchase or carry the note. Any market discount will be considered to accrue ratably during the period from the date of your acquisition to the maturity date of the note, unless you elect to accrue the market discount on a constant yield method. In addition, you may elect to include market discount in income currently as it accrues, on either a ratable or constant yield method, in which case the rule described above regarding deferral of interest deductions will not apply. This election to include market discount in income currently, once made, applies to all market discount obligations acquired by you during or after the first taxable year to which the election applies and may not be revoked without the consent of the IRS. We encourage you to consult with your tax advisor regarding these elections.
Amortizable bond premium.   If you acquire a note and your adjusted tax basis in it upon acquisition is greater than its principal amount, you will be treated as having acquired the note with “bond premium.” You generally may elect to amortize this bond premium over the remaining term of the note on a constant yield method, and the amount amortized in any year will generally be treated as a reduction of your interest income from the note for that year. If the amount of your bond premium amortization would be lower if calculated based on an earlier optional redemption date and the redemption price on that date than the amount of amortization calculated through that date based on the note’s maturity date and its stated principal amount, then you must calculate the amount and timing of your bond premium amortization deductions assuming that the note will be redeemed on the optional redemption date at the optional redemption price. You may generally recalculate your bond premium amortization amount and schedule of deductions to the extent your note is not actually redeemed at that earlier optional redemption date. If you do not make an election to amortize bond premium, your bond premium on a note will decrease the gain or increase the loss that you otherwise recognize on a disposition of that note. Any election to amortize bond premium applies to all taxable debt obligations that you hold at the beginning of the first taxable year to which the election applies and that you thereafter acquire. You may not revoke an election to amortize bond premium without the consent of the IRS. We encourage you to consult with your tax advisor regarding this election.
Disposition of a note.   Upon the sale, exchange, redemption, retirement or other taxable disposition of a note, you generally will recognize gain or loss in an amount equal to the difference, if any, between (1) the amount you receive in cash or in property, valued at its fair market value, upon this sale, exchange, redemption, retirement or other disposition, other than amounts representing accrued and unpaid interest which will be taxable as described above under “Payments of interest”, and (2) your adjusted tax basis in the note. Your adjusted tax basis in the note will, in general, equal your acquisition cost for the note, exclusive of any amount paid allocable to prior accrued interest, as increased by any market discount you have included in income in respect of the note, and as decreased by any amortized bond premium on the note. Except to the extent of any accrued market discount not previously included in income, as discussed above, your gain or loss will generally be capital gain or loss, and will be long-term capital gain or loss if you have held the note for more than one year at the time of disposition. For noncorporate U.S. holders, preferential rates of tax may apply to long-term capital gains. The deductibility of capital losses is subject to limitation.
Medicare contribution tax.   U.S. holders that are individuals, estates or trusts are generally required to pay a 3.8% Medicare tax on their net investment income (including interest on our notes and gains from the sale or other disposition of our notes), or in the case of estates and trusts on their net investment income that is not distributed, in each case to the extent that their total adjusted income exceeds applicable thresholds.
Tax Considerations for Non-U.S. Holders
The rules governing the United States federal income taxation of non-U.S. holders are complex, and the following discussion is intended only as a summary of material considerations of an investment in our notes relevant to such investors. If you are a non-U.S. holder, we urge you to consult with your own tax
 
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advisor to determine the impact of United States federal, state, local and foreign tax laws, including any tax return filing and other reporting requirements, with respect to your acquisition of or investment in our notes.
If you are a non-U.S. holder:
Generally.   You will not be subject to federal income taxes on payments of principal, premium, or Make-Whole Amount, if any, or interest on a note, or upon the sale, exchange, redemption, retirement or other disposition of a note, if:

you do not own directly or indirectly 10% or more of the total voting power of all classes of our voting shares;

your income and gain in respect of the note is not effectively connected with the conduct of a United States trade or business;

you are not a controlled foreign corporation that is related to or under common control with us;

we or the applicable paying agent, or the Withholding Agent, have timely received from you a properly executed, applicable IRS Form W-8 or substantially similar form in the year in which a payment of interest, principal, premium, or Make-Whole Amount occurs, or in a previous calendar year to the extent provided for in the instructions to the applicable IRS Form W-8; and

in the case of gain upon the sale, exchange, redemption, retirement or other disposition of a note recognized by an individual non-U.S. holder, you were present in the United States for less than 183 days during the taxable year in which the gain was recognized.
The IRS Form W-8 or a substantially similar form must be signed by you under penalties of perjury certifying that you are a non-U.S. holder and providing your name and address, and you must inform the Withholding Agent of any change in the information on the statement within 30 days of the change. If you hold a note through a securities clearing organization or other qualified financial institution, the organization or institution may provide a signed statement to the Withholding Agent. However, in that case, the signed statement must generally be accompanied by a statement containing the relevant information from the executed IRS Form W-8 or substantially similar form that you provided to the organization or institution. If you are a partner in a partnership holding our notes, both you and the partnership must comply with applicable certification requirements.
Except in the case of income or gain in respect of a note that is effectively connected with the conduct of a United States trade or business, discussed below, interest received or gain recognized by you which does not qualify for exemption from taxation will be subject to federal income tax at a rate of 30%, which will be withheld from payments of interest, unless reduced or eliminated by an applicable income tax treaty. You must generally use an applicable IRS Form W-8, or a substantially similar form, to claim income tax treaty benefits. If you are a non-U.S. holder claiming benefits under an income tax treaty, you should be aware that you may be required to obtain a taxpayer identification number and to certify your eligibility under the applicable treaty’s limitations on benefits article in order to comply with the applicable certification requirements of the Treasury regulations.
Effectively connected income and gain.   If you are a non-U.S. holder whose income and gain in respect of a note are effectively connected with the conduct of a United States trade or business (and, if provided by an applicable income tax treaty, are attributable to a permanent establishment or fixed base you maintain in the United States), you will be subject to regular federal income tax on this income and gain in generally the same manner as U.S. holders, and general federal income tax return filing requirements will apply. In addition, if you are a corporation, you may be subject to a branch profits tax equal to 30% of your effectively connected adjusted earnings and profits for the taxable year, unless you qualify for a lower rate under an applicable income tax treaty. To obtain an exemption from withholding on interest on the notes that is effectively connected with the conduct of a United States trade or business, you must generally supply to the Withholding Agent an applicable IRS Form W-8, or a substantially similar form.
Information Reporting, Backup Withholding, and Foreign Account Withholding
Information reporting, backup withholding and withholding under the Foreign Account Tax Compliance Act, or FATCA, may apply to interest and other payments to you under the circumstances
 
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discussed below. Amounts withheld under backup withholding are generally not an additional tax and may be refunded by the IRS or credited against your federal income tax liability, provided that you furnish required information to the IRS.
Under FATCA, non-U.S. financial institutions and other non-U.S. entities are subject to diligence and reporting requirements for purposes of identifying accounts and investments held directly or indirectly by U.S. persons. The failure to comply with these additional information reporting, certification and other requirements could result in a 30% withholding tax on applicable payments to non-U.S. persons, notwithstanding any otherwise applicable provisions of an income tax treaty. In particular, a payee that is a foreign financial institution that is subject to the diligence and reporting requirements described above must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by “specified United States persons” or “United States-owned foreign entities” ​(each as defined in the IRC and administrative guidance thereunder), annually report information about such accounts, and withhold 30% on applicable payments to noncompliant foreign financial institutions and account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States with respect to these requirements may be subject to different rules. The foregoing withholding will generally apply to payments of interest on our notes. In general, to avoid withholding, any non-U.S. intermediary through which a holder owns our notes must establish its compliance with the foregoing regime, and a non-U.S. holder must provide specified documentation (usually an applicable IRS Form W-8) containing information about its identity, its status, and if required, its direct and indirect U.S. owners. We encourage you to consult with your tax advisor regarding foreign account tax compliance if you hold our notes through a non-U.S. intermediary or are a non-U.S. holder.
If you are a U.S. holder.   You may be subject to backup withholding when you receive interest payments on a note or proceeds upon the sale, exchange, redemption, retirement or other disposition of a note. In general, you can avoid this backup withholding if you properly execute under penalties of perjury an IRS Form W-9 or a substantially similar form on which you:

provide your correct taxpayer identification number;

certify that you are exempt from backup withholding because (a) you come within an enumerated exempt category, (b) you have not been notified by the IRS that you are subject to backup withholding, or (c) you have been notified by the IRS that you are no longer subject to backup withholding; and

certify that you are a U.S. citizen or other U.S. person.
If you do not provide your correct taxpayer identification number and appropriate certifications on an IRS Form W-9 or a substantially similar form, you may be subject to penalties imposed by the IRS.
Unless you have established on a properly executed IRS Form W-9 or a substantially similar form that you come within an enumerated exempt category, interest and other payments on the notes paid to you during the calendar year, and the amount of tax withheld, if any, will be reported to you and to the IRS.
If you are a non-U.S. holder.   The amount of interest paid to you on a note during each calendar year, and the amount of tax withheld, if any, will generally be reported to you and to the IRS. This information reporting requirement applies regardless of whether you were subject to withholding on interest and other payments on our notes or whether the withholding was reduced or eliminated by an applicable tax treaty. Also, interest paid to you on a note generally will be subject to backup withholding unless you properly certify to the Withholding Agent your non-U.S. holder status on an applicable IRS Form W-8 or a substantially similar form in the manner described above, under “Tax Considerations for Non-U.S. Holders.” Information reporting and backup withholding will not apply to proceeds you receive upon the sale, exchange, redemption, retirement or other disposition of a note, if you properly certify to the Withholding Agent that you are a non-U.S. holder on an applicable IRS Form W-8 or a substantially similar form. Even without having executed an applicable IRS Form W-8 or a substantially similar form, however, in some cases information reporting and backup withholding may not apply to proceeds you receive upon the sale, exchange, redemption, retirement or other disposition of a note, if you receive those proceeds through a broker’s foreign office.
 
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UNDERWRITING (CONFLICTS OF INTEREST)
We intend to offer the notes through the underwriters named below. Wells Fargo Securities, LLC, Citigroup Global Markets Inc. and Mizuho Securities USA LLC are acting as joint book-running managers of this offering and as representatives of the underwriters. Subject to the terms and conditions contained in an underwriting agreement between us and the underwriters, we have agreed to sell to the underwriters, and the underwriters have severally and not jointly agreed to purchase from us, the aggregate principal amount of the notes listed opposite their names below.
Underwriter
Principal
Amount of Notes
Wells Fargo Securities, LLC
$ 77,501,000
Citigroup Global Markets Inc.
77,500,000
Mizuho Securities USA LLC
77,500,000
BofA Securities, Inc.
52,500,000
PNC Capital Markets LLC
52,500,000
RBC Capital Markets, LLC
52,500,000
BMO Capital Markets Corp.
25,000,000
Regions Securities LLC
25,000,000
SMBC Nikko Securities America, Inc.
25,000,000
Samuel A. Ramirez & Company, Inc.
11,667,000
FHN Financial Securities Corp.
5,833,000
Morgan Stanley & Co. LLC
5,833,000
U.S. Bancorp Investments, Inc.
5,833,000
UBS Securities LLC
5,833,000
Total
$ 500,000,000
The underwriters have agreed to purchase all of the notes sold pursuant to the underwriting agreement if they purchase any of the notes. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated.
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended, or to contribute to payments the underwriters may be required to make in respect of those liabilities.
The underwriters are offering the notes, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the notes and the guarantees, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officers’ certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
Commissions, Discount and Expenses
The representatives of the underwriters have advised us that the underwriters propose initially to offer the notes to the public at the public offering price listed on the cover page of this prospectus supplement and to dealers at that price less a concession not in excess of 0.60% of the principal amount per note. The underwriters may allow, and the dealers may reallow, a discount not in excess of 0.40% of the principal amount per note to other dealers. After the initial public offering, the public offering prices, concessions and discount may be changed.
 
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The following table shows the underwriting discount that we are to pay to the underwriters in connection with this offering.
Underwriting Discount
Paid by Us
Per Note
1.50%
Total
$ 7,500,000
The expenses of this offering, not including the underwriting discount, are estimated to be $1,400,000 million and are payable by us.
New Issue of Securities
The notes will be a new issue of securities with no established trading market. We do not intend to apply for listing of the notes on any securities exchange or for quotation of the notes on any automated dealer quotation system. We have been advised by certain of the underwriters that they presently intend to make a market in the notes after completion of this offering. However, they are under no obligation to do so and may discontinue any market-making activities at any time without any notice. We cannot provide you with any assurance of the liquidity of the trading market for the notes or that an active public market will develop for the notes. If an active public trading market does not develop for the notes, the market price and liquidity of the notes may be adversely affected.
Price Stabilization and Short Positions
In connection with this offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the notes. Specifically, the underwriters may over-allot in connection with the offering of the notes, creating a syndicate short position. In addition, the underwriters may bid for, and purchase, the notes in the open market to cover short positions or to stabilize the price of the notes. Finally, the underwriters may reclaim selling concessions allowed for distributing the notes in this offering, if the underwriters repurchase previously distributed notes in transactions to cover short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the notes above independent market levels. The underwriters are not required to engage in any of these activities at any time.
Neither we nor any of the underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described in the preceding paragraph may have on the price of the notes. In addition, neither we nor any of the underwriters makes any representation that the underwriters will engage in those types of transactions or that those transactions, once commenced, will not be discontinued without notice.
Extended Settlement
It is expected that delivery of the notes will be made against payment thereof on or about February 8, 2021, which will be the third business day following the pricing of the notes (such settlement cycle being herein referred to as “T + 3”). Pursuant to Rule 15c6-1 under the Exchange Act, trades in the secondary market generally are required to settle in two business days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade the notes on the date of pricing will be required, by virtue of the fact that the notes initially will settle T + 3, to specify an alternate settlement cycle at the time of any such trade to prevent a failed settlement. Purchasers of the notes who wish to trade the notes on the date of pricing of the notes should consult their own advisor.
Conflicts of Interest
Affiliates of some of the underwriters are lenders to us under our term loan and may own some of our 6.75% Senior Notes due 2021 which we expect to prepay and redeem as described above under “Use of Proceeds.” Such affiliates will receive pro rata portions of any net proceeds from this offering used to prepay amounts outstanding under our term loan and to redeem our 6.75% Senior Notes due 2021. Nonetheless,
 
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in accordance with Rule 5121 of the Financial Industry Regulatory Authority, Inc., the appointment of a qualified independent underwriter is not necessary in connection with this offering because REITs are excluded from that requirement.
Other Relationships
Some of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us. They have received, and may in the future receive, customary fees and commissions for these transactions.
In addition, in the ordinary course of their business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. Certain of the underwriters or their affiliates that have a lending relationship with us routinely hedge their credit exposure to us consistent with their customary risk management policies. Typically, such underwriters and their affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in our securities, including potentially the notes offered hereby. Any such credit default swaps or short positions could adversely affect future trading price of the notes offered hereby. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
U.S. Bancorp Investments, Inc., one of the underwriters, is an affiliate of the trustee.
Associated Investment Services, Inc. (AIS), a Financial Industry Regulatory Authority member, a subsidiary of Associated Banc-Corp, is being paid a referral fee by Samuel A. Ramirez & Company, Inc.
First Hawaiian Bank is being paid a referral fee by Samuel A. Ramirez & Company, Inc.
Notice to Prospective Investors in Canada
The notes may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the notes must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws. Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus supplement or the accompanying prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts, or NI 33-105, the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
Notice to Prospective Investors in Hong Kong
The notes have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the notes
 
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has been or will be issued or has been or will be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the notes which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
Notice to Prospective Investors in Singapore
This prospectus supplement and the accompanying prospectus have not been and will not be registered as a prospectus under the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, by the Monetary Authority of Singapore, and the offer of the notes in Singapore is made primarily pursuant to the exemptions under Sections 274 and 275 of the SFA. Accordingly, this prospectus supplement, the accompanying prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the notes may not be circulated or distributed, nor may the notes be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor as defined in Section 4A of the SFA, or an Institutional Investor, pursuant to Section 274 of the SFA, (ii) to an accredited investor as defined in Section 4A of the SFA, or an Accredited Investor, or other relevant person as defined in Section 275(2) of the SFA, or a Relevant Person, and pursuant to Section 275(1) of the SFA, or to any person pursuant to an offer referred to in Section 275(1A) of the SFA and (where applicable) Regulation 3 of the Securities and Futures (Classes of Investors) Regulations 2018, and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with, the conditions of any other applicable exemption or provision of the SFA.
It is a condition of the offer that where the notes are subscribed for or acquired pursuant to an offer made in reliance on Section 275 of the SFA by a Relevant Person which is: (a) a corporation (which is not an Accredited Investor), the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an Accredited Investor; or (b) a trust (where the trustee is not an Accredited Investor), the sole purpose of which is to hold investments and each beneficiary of the trust is an individual who is an Accredited Investor, securities or securities-based derivatives contracts (each as defined in Section 2(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within 6 months after that corporation or that trust has subscribed for or acquired the notes except: (1) to an Institutional Investor, Accredited Investor, or other Relevant Person, or which arises from an offer referred to in Section 275(1A) of the SFA (in the case of that corporation) or Section 276(4)(i)(B) of the SFA (in the case of that trust); (2) where no consideration is or will be given for the transfer; (3) where the transfer is by operation of law; or (4) as specified in Section 276(7) of the SFA.
Singapore Securities and Futures Act Product Classification — Solely for the purposes of its obligations pursuant to Sections 309B(1)(a) and 309B(1)(c) of the SFA, we have determined, and hereby notify all relevant persons (as defined in Section 309A of the SFA) that the notes are “prescribed capital markets products” ​(as defined in the Securities and Futures (Capital Markets Products) Regulations 2018) and “Excluded Investment Products” ​(as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).
 
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LEGAL MATTERS
Sullivan & Worcester LLP, Boston, Massachusetts, our lawyers, will issue an opinion about the legality of the notes and the related guarantees as to certain matters of Delaware, Massachusetts and New York law. Sidley Austin LLP, New York, New York, the underwriters’ lawyers, will also issue an opinion to the underwriters as to certain matters. Sullivan & Worcester LLP and Sidley Austin LLP will rely, as to certain matters of Maryland law, upon an opinion of Venable LLP, Baltimore, Maryland, and, as to certain matters of Indiana law, upon an opinion of Taft Stettinius & Hollister LLP, Cincinnati, Ohio. Sullivan & Worcester LLP also has passed upon our qualification and taxation as a REIT in an opinion filed as an exhibit to the registration statement of which this prospectus supplement and the accompanying prospectus are a part. Sullivan & Worcester LLP also represents RMR LLC, which is our manager, Five Star and certain of their affiliates and related parties on various matters.
EXPERTS
Ernst & Young LLP, independent registered public accounting firm, has audited our consolidated financial statements and schedule included in our Annual Report on Form 10-K for the year ended December 31, 2019, and the effectiveness of our internal control over financial reporting as of December 31, 2019, as set forth in their reports, which are incorporated by reference in this prospectus supplement and elsewhere in the registration statement. Our financial statements and schedule are incorporated by reference in reliance on Ernst & Young LLP’s reports, given on their authority as experts in accounting and auditing.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to “incorporate by reference” the information we file with it, which means that we can disclose important information to you by referring you to documents previously filed with the SEC. The information incorporated by reference is considered to be part of this prospectus supplement and the accompanying prospectus, and information that we subsequently file with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below which were filed with the SEC under the Exchange Act:


our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020, June 30, 2020 and September 30, 2020;

our Current Reports on Form 8-K filed with the SEC on January 2, 2020, May 20, 2020, June 1, 2020, June 5, 2020, June 15, 2020, July 2, 2020 and February 1, 2021; and

the information identified as incorporated by reference under Items 10, 11, 12, 13 and 14 of Part III of our Annual Report from our definitive Proxy Statement for our 2020 Annual Meeting of Shareholders dated April 13, 2020.
We also incorporate by reference each of the following documents that we may file with the SEC after the date of this prospectus supplement but before the termination of the offering of the notes:

reports filed under Sections 13(a) and (c) of the Exchange Act;

definitive proxy or information statements filed under Section 14 of the Exchange Act in connection with any subsequent shareholders’ meeting; and

any reports filed under Section 15(d) of the Exchange Act.
References in this prospectus supplement to documents or information incorporated by reference shall include documents that are deemed to be incorporated by reference herein pursuant to Item 12 of our Registration Statement on Form S-3, as amended, of which this prospectus supplement and the accompanying prospectus form a part.
You may request a copy of any of these filings (excluding exhibits other than those which we specifically incorporate by reference in this prospectus supplement or the accompanying prospectus), at no cost, by writing, emailing or telephoning us at the following address:
 
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Investor Relations
Diversified Healthcare Trust
Two Newton Place
255 Washington Street, Suite 300
Newton, Massachusetts 02458-1634
(617) 796-8234
info@dhcreit.com
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. This prospectus supplement is part of a registration statement and does not contain all of the information set forth in the registration statement. You can review our SEC filings and the registration statement by accessing the SEC’s website at www.sec.gov or by accessing our website at www.dhcreit.com. Website addresses are included in this prospectus supplement as textual references only and the information on such websites, and any information that is linked to our website (other than our filings with the SEC that are expressly incorporated by reference as set forth under “Information Incorporated by Reference”), is not incorporated by reference into this prospectus supplement.
 
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WARNING CONCERNING FORWARD-LOOKING STATEMENTS
This prospectus supplement, the accompanying prospectus, and the documents incorporated herein or therein by reference contain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Also, whenever we use words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “will,” “may” and negatives or derivatives of these or similar expressions, we are making forward-looking statements. These forward-looking statements are based upon our present intent, beliefs or expectations, but forward-looking statements are not guaranteed to occur and may not occur. Forward-looking statements included or incorporated by reference into this prospectus supplement relate to various aspects of our business, including:

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 its resulting 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 net operating income, or 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, other than in our SHOP segment, overall tenant retention levels may increase as a result of the COVID-19 pandemic,

Our application for additional funds that may be available under the CARES Act Provider Relief Fund may be denied and we may not receive any additional funding,

Our acquisitions and sales of properties,

Our closures of senior living communities,

Our ability to raise debt or equity capital,

Our ability to complete 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 The RMR Group Inc., or RMR Inc., the managing member of RMR LLC,

Our qualification for taxation as a REIT, and
 
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Other matters.
Our actual results may differ materially from those contained in or implied by our forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. Risks, uncertainties and other factors that could have a material adverse effect on our forward-looking statements and upon our business, results of operations, financial condition, funds from operations, or FFO, attributable to common shareholders, Normalized FFO attributable to common shareholders, NOI, cash flows, liquidity and prospects include, but are not limited to:

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.
For example:

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,

This prospectus supplement states that more than 65% of residents and more than 30% of staff at our SHOP communities have received vaccinations and that we expect vaccination clinics for SHOP community residents and staff to be substantially complete by the end of the first quarter of 2021; however, the availability and rate of vaccinations may not continue at the current pace and may be delayed, including for reasons beyond our control,

This prospectus supplement discusses recent increases in sales leads; however, recent increases in sales leads may not result in substantial move-ins by residents in the future, SHOP segment occupancy rates may not improve and could decline further and senior living performance may take longer to recover than we expect,

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
 
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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,

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, 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,

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,

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,

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,
 
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We cannot be sure we will close any of the communities that we have scheduled to close or what the terms or timing of any such closures may be. In addition, we cannot be sure that we will reduce operating losses or otherwise improve the quality of our portfolio through any such closures,

We cannnot be sure that the vaccination clinics for SHOP community residents and staff will be substantially completed by the end of the first quarter of 2021.

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 be competitive, despite these capital investments, or these capital investments may be delayed due to the COVID-19 pandemic,

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,

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 on our ability to make acquisitions under our credit and term loan agreements 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,

Although we obtained a limited waiver of certain financial covenants under our credit and term loan agreements through June 2022, we may fail to satisfy other covenants or conditions contained in those agreements or in the agreements governing our public debt,

Our ability to borrow under our revolving credit facility is subject to our satisfying financial covenants and other conditions. If our operating results and financial condition are further significantly and adversely impacted by the COVID-19 pandemic and its aftermath or otherwise, we may fail to satisfy those covenants and conditions,

Actual costs under our revolving credit facility or other floating rate debt will be higher than then stated rates 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,
 
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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 September 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. However, our residents and patients may become unable to fund our charges with private resources and we may be required or may elect for business reasons to accept or pursue revenues from government sources, which could result in an increased part of our NOI and revenue being generated from government payments and our becoming more dependent on government payments,

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,

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,

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,

Our current intent is to use the proceeds from this offering to redeem the $300.0 million principal amount outstanding of our 6.75% Senior Notes due 2021 and to prepay our $200.0 million term loan; the receipt and use of the proceeds are dependent on the closing of this offering and may not occur if the closing does not occur or for other reasons, and

This prospectus supplement states that we expect to issue and deliver the notes on or about February  8, 2021. In fact, the issuance and delivery of the notes is subject to various conditions and contingencies as are customary in underwriting agreements in the United States. If these conditions are not satisfied or the specified contingencies do not occur, this offering may be delayed or may not be completed.
Currently unexpected results could occur due to many different circumstances, some of which are beyond our control, such as the COVID-19 pandemic and its aftermath, new legislation or regulations
 
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affecting our business or the businesses of our tenants or operators, changes in our tenants’ or operators’ revenues or costs, worsening or lack of improvement of Five Star’s financial condition or changes in our tenants’ financial conditions, deficiencies in operations by a tenant or manager of one or more of our senior living communities, changed Medicare or Medicaid rates, acts of terrorism, pandemics, natural disasters or changes in capital markets or the economy generally.
The information contained elsewhere in this prospectus supplement and in the accompanying prospectus or in our other filings with the SEC, including under the caption “Risk Factors” in this prospectus supplement and in our Annual Report and our Quarterly Report, or incorporated herein or therein, identifies other important factors that could cause differences from our forward-looking statements. Our filings with the SEC are available on the SEC’s website at www.sec.gov.
You should not place undue reliance upon our forward-looking statements.
Except as required by law, we do not intend to update or change any forward-looking statements as a result of new information, future events or otherwise.
STATEMENT CONCERNING LIMITED LIABILITY
The Amended and Restated Declaration of Trust establishing Diversified Healthcare Trust, dated September 20, 1999, as amended and supplemented, as filed with the State Department of Assessments and Taxation of Maryland, provides that no trustee, officer, shareholder, employee or agent of Diversified Healthcare Trust shall be held to any personal liability, jointly or severally, for any obligation of, or claim against, Diversified Healthcare Trust. All persons dealing with Diversified Healthcare Trust in any way shall look only to the assets of Diversified Healthcare Trust for the payment of any sum or the performance of any obligation.
 
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PROSPECTUS
DIVERSIFIED HEALTHCARE TRUST
Debt Securities, Common Shares of Beneficial Interest,
Preferred Shares of Beneficial Interest, Depositary Shares and Warrants
Guarantees of Debt Securities of Diversified Healthcare Trust by Subsidiary Guarantors
Diversified Healthcare Trust, or we, us or our, or our selling security holders may offer, issue and sell, from time to time, in one or more offerings:

debt securities;

guarantees by the Subsidiary Guarantors of debt securities of Diversified Healthcare Trust;

common shares of beneficial interest;

preferred shares of beneficial interest;

depositary shares; and

warrants.
The securities described in this prospectus may be offered and sold separately or in any combination and may include convertible or exchangeable securities.
This prospectus describes some of the general terms that may apply to these securities. The debt securities may be fully and unconditionally guaranteed on a joint and several basis by one or more of our wholly-owned subsidiaries, as described in this prospectus. The specific amounts and terms of any securities to be offered, issued or sold, and the identity of any selling security holders, will be described in the applicable prospectus supplement. The applicable prospectus supplement may also add to, update or change information contained in this prospectus. You should carefully read this prospectus and any accompanying prospectus supplement as well as the documents incorporated by reference in such documents before you decide to invest in any of these securities.
We or our selling security holders may offer and sell these securities to or through one or more underwriters, dealers and agents, or directly to purchasers, on a continuous or delayed basis. The prospectus supplement for each offering will describe the terms of the plan of distribution and set forth the names of any underwriters, dealers or agents involved in the sale of the securities. Unless otherwise set forth in the applicable prospectus supplement, we will not receive any proceeds from the sale of securities sold by any selling security holder.
Our common shares of beneficial interest are listed on The Nasdaq Stock Market LLC, or Nasdaq, under the symbol “DHC.” If any other securities offered by this prospectus will be listed on a securities exchange, such listing will be described in the applicable prospectus supplement.
Investment in our securities involves risk, including those described under “Risk Factors” beginning on page 1 of this prospectus. You should carefully read and consider these risk factors and the risk factors included in the reports that we file under the Securities Exchange Act of 1934, as amended, in any prospectus supplement relating to specific offerings of securities and in other documents that we file with the Securities and Exchange Commission.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is May 28, 2020.
 

 
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ABOUT THIS PROSPECTUS
References in this prospectus to “we,” “us,” “our” or “DHC” mean Diversified Healthcare Trust and its consolidated subsidiaries, unless the context otherwise requires. References in this prospectus to “Subsidiary Guarantors” means one or more of our wholly-owned subsidiaries that are listed as subsidiary guarantor registrants in the registration statement of which this prospectus forms a part.
This prospectus is part of an “automatic shelf” registration statement that we filed with the Securities and Exchange Commission, or the SEC, as a “well-known seasoned issuer” as defined in Rule 405 under the Securities Act of 1933, as amended, or the Securities Act. Under this shelf registration process, we or our selling security holders may, from time to time, offer, issue and sell any of the securities or any combination of the securities described in this prospectus in such amounts and on such terms as set forth in a prospectus supplement in one or more offerings.
This prospectus provides you with a general description of the securities that may be offered, which is not meant to be a complete description of each security. Each time we offer, issue or sell securities hereunder, or any selling security holder offers or sells securities hereunder, we or such selling security holder, as applicable, will provide a prospectus supplement that contains specific information about the amounts and terms of that offering. The prospectus supplement may also add to, update or change information contained in this prospectus. You should read both this prospectus and any prospectus supplement together with additional information described under the headings “Where You Can Find More Information” and “Information Incorporated By Reference.” If there is any inconsistency between the information in this prospectus and any applicable prospectus supplement, you should rely on the information in the applicable prospectus supplement.
You should rely only on the information provided or incorporated by reference in this prospectus or any relevant prospectus supplement. We have not authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. Neither we nor any selling security holder will make an offer of the securities in any jurisdiction where it is unlawful. You should assume that the information in this prospectus and any relevant prospectus supplement, as well as the information in any document incorporated or deemed to be incorporated into this prospectus and any relevant prospectus supplement is accurate only as of the date of the documents containing the information.
 
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OUR COMPANY
We are a real estate investment trust, or REIT, organized under Maryland law and own medical office and life science properties, senior living communities and other healthcare related properties throughout the United States. As of March 31, 2020, we owned 416 properties, including 24 properties classified as held for sale, located in 38 states and Washington, D.C., including one life science property owned in a joint venture arrangement in which we own a 55% equity interest. At March 31, 2020, the gross book value of our real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, was $8.4 billion, including $287.4 million of gross book value classified as held for sale in our condensed consolidated balance sheet.
Our principal executive offices are located at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458-1634, and our telephone number is (617) 796-8350. Our website is www.dhcreit.com. The content of our website, and any information that is linked to our website (other than our filings with the SEC that are expressly incorporated by reference, as set forth under “Information Incorporated by Reference”), is not incorporated by reference in this prospectus, and you should not consider it a part of this prospectus.
RISK FACTORS
Investing in our securities involves certain risks. You should carefully review the risk factors contained under the heading “Risk Factors” in our most recent Annual Report on Form 10-K, or our Annual Report, any subsequent Quarterly Report on Form 10-Q or Current Reports on Form 8-K filed (and not furnished) by us with the SEC subsequent to the last day of the fiscal year covered by our most recent Annual Report on Form 10-K, which risk factors are incorporated by reference in this prospectus, the information contained under the heading “Warning Concerning Forward-looking Statements” in this prospectus or under any similar heading in any applicable prospectus supplement or in any document incorporated herein or therein by reference, any specific risk factors discussed under the caption “Risk Factors” in any applicable prospectus supplement or in any document incorporated herein or therein by reference and the other information contained in, or incorporated by reference in, this prospectus or any applicable prospectus supplement before making an investment decision. If any such risks occur, our business, financial condition or results of operations could be materially harmed, the market price of our securities could decline and you could lose all or part of your investment.
SUMMARY SUBSIDIARY GUARANTOR FINANCIAL INFORMATION
(amounts in thousands)
(unaudited)
The following table presents summarized financial information for us and the subsidiary guarantors, on a combined basis after elimination of (i) intercompany transactions and balances among us and the subsidiary guarantors and (ii) equity in earnings from, and any investments in, any of our non-guarantor subsidiaries:
Year Ended
December 31, 2019
Three Months Ended
March 31, 2020
Real estate properties, net
$ 5,212,252 $ 5,185,677
Other assets, net