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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC  20549 
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended March 31, 2021
OR 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
Commission File Number 1-15319 
DIVERSIFIED HEALTHCARE TRUST
(Exact Name of Registrant as Specified in Its Charter) 
Maryland 04-3445278
(State or Other Jurisdiction of Incorporation or
Organization)
 (IRS Employer Identification No.)
 Two Newton Place, 255 Washington Street, Suite 300, Newton, MA 02458-1634
(Address of Principal Executive Offices) (Zip Code) 
617 - 796 - 8350
(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title Of Each ClassTrading Symbol(s)Name Of Each Exchange On Which Registered
Common Shares of Beneficial InterestDHCThe Nasdaq Stock Market LLC
5.625% Senior Notes due 2042DHCNIThe Nasdaq Stock Market LLC
6.25% Senior Notes due 2046DHCNLThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large Accelerated Filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No 
Number of registrant's common shares outstanding as of May 3, 2021: 238,268,478


Table of Contents
DIVERSIFIED HEALTHCARE TRUST
FORM 10-Q
 
March 31, 2021
 
INDEX
  Page
 
   
   
 
   
 
   
 
   
 
   
   
   
   
 
   
 
   
   
   
 
 
References in this Quarterly Report on Form 10-Q to the Company, we, us or our include Diversified Healthcare Trust and its consolidated subsidiaries unless otherwise expressly stated or the context indicates otherwise.



Table of Contents
PART I.  Financial Information
 
Item 1.  Financial Statements.
 
DIVERSIFIED HEALTHCARE TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
(unaudited)
 March 31,December 31,
 20212020
Assets  
Real estate properties:  
Land$792,923 $789,125 
Buildings and improvements6,695,854 6,621,605 
Total real estate properties, gross7,488,777 7,410,730 
Accumulated depreciation(1,742,606)(1,694,901)
Total real estate properties, net5,746,171 5,715,829 
Assets of properties held for sale63,563 112,437 
Cash and cash equivalents843,237 74,417 
Restricted cash326,768 16,432 
Acquired real estate leases and other intangible assets, net274,987 286,513 
Other assets, net287,980 270,796 
Total assets$7,542,706 $6,476,424 
Liabilities and Equity  
Revolving credit facility$800,000 $ 
Term loan, net 199,049 
Senior unsecured notes, net3,101,318 2,608,189 
Secured debt and finance leases, net690,733 691,573 
Liabilities of properties held for sale393 3,525 
Accrued interest52,807 23,772 
Assumed real estate lease obligations, net65,642 67,830 
Other liabilities286,623 263,264 
Total liabilities4,997,516 3,857,202 
Commitments and contingencies
Equity:  
Equity attributable to common shareholders:
Common shares of beneficial interest, $.01 par value: 300,000,000 shares authorized, 238,268,478 shares issued and outstanding for both periods presented
2,383 2,383 
Additional paid in capital4,614,132 4,613,904 
Cumulative net income1,845,604 1,913,109 
Cumulative distributions(4,035,942)(4,033,559)
Total equity attributable to common shareholders
2,426,177 2,495,837 
Noncontrolling interest:
Total equity attributable to noncontrolling interest
119,013 123,385 
Total equity2,545,190 2,619,222 
Total liabilities and equity$7,542,706 $6,476,424 
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1

Table of Contents
DIVERSIFIED HEALTHCARE TRUST
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(amounts in thousands, except per share data)
(unaudited)
 Three Months Ended March 31,
 20212020
Revenues:  
Rental income$102,758 $110,498 
Residents fees and services259,966 331,969 
Total revenues362,724 442,467 
Expenses:  
Property operating expenses287,391 316,585 
Depreciation and amortization66,153 68,430 
General and administrative7,542 8,832 
Acquisition and certain other transaction related costs 663 
Impairment of assets(174)11,234 
Total expenses360,912 405,744 
(Loss) gain on sale of properties(122)2,782 
Losses on equity securities, net(8,339)(9,943)
Interest and other income2,835 138 
Interest expense (including net amortization of debt premiums, discounts and issuance costs of $2,812 and $1,509, respectively)
(60,091)(41,650)
Gain on lease termination 22,896 
Loss on early extinguishment of debt(2,040)(246)
(Loss) income from continuing operations before income tax (expense) benefit(65,945)10,700 
Income tax (expense) benefit(238)443 
Net (loss) income(66,183)11,143 
Net income attributable to noncontrolling interest(1,322)(1,408)
Net (loss) income attributable to common shareholders$(67,505)$9,735 
Weighted average common shares outstanding (basic)237,834 237,669 
Weighted average common shares outstanding (diluted)237,834 237,669 
Per common share amounts (basic and diluted):  
Net (loss) income attributable to common shareholders$(0.28)$0.04 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands)
(unaudited)
Number of
Shares
Common
Shares
Additional
Paid In
Capital
Cumulative
Net Income
Cumulative DistributionsTotal Equity Attributable to Common ShareholdersTotal Equity Attributable to Noncontrolling
Interest
Total Equity
Balance at December 31, 2020:238,268,478 $2,383 $4,613,904 $1,913,109 $(4,033,559)$2,495,837 $123,385 $2,619,222 
Net (loss) income— — — (67,505)— (67,505)1,322 (66,183)
Distributions— — — — (2,383)(2,383)— (2,383)
Share grants— — 228 — — 228 — 228 
Distributions to noncontrolling interest— — — — — — (5,694)(5,694)
Balance at March 31, 2021:238,268,478 $2,383 $4,614,132 $1,845,604 $(4,035,942)$2,426,177 $119,013 $2,545,190 
Balance at December 31, 2019:237,897,163 $2,379 $4,612,511 $2,052,562 $(3,930,933)$2,736,519 $140,531 $2,877,050 
Net income— — — 9,735 — 9,735 1,408 11,143 
Distributions— — — — (35,684)(35,684)— (35,684)
Distribution to common shareholders of the right to receive Five Star Senior Living Inc. common stock— — — — (59,801)(59,801)— (59,801)
Share grants— — 249 — — 249 — 249 
Share repurchases(3,438)— (21)— — (21)— (21)
Distributions to noncontrolling interest— — — — — — (5,767)(5,767)
Balance at March 31, 2020:237,893,725 $2,379 $4,612,739 $2,062,297 $(4,026,418)$2,650,997 $136,172 $2,787,169 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
 Three Months Ended March 31,
 20212020
Cash flows from operating activities:  
Net (loss) income$(66,183)$11,143 
Adjustments to reconcile net (loss) income to cash provided by operating activities:  
Depreciation and amortization66,153 68,430 
Net amortization of debt premiums, discounts and issuance costs2,812 1,509 
Straight line rental income(804)(1,153)
Amortization of acquired real estate leases(1,866)(1,873)
Loss on early extinguishment of debt2,040 25 
Gain on lease termination (22,896)
Impairment of assets(174)11,234 
Loss (gain) on sale of properties122 (2,782)
Losses on equity securities, net8,339 9,943 
Other non-cash adjustments, net(715)(943)
Change in assets and liabilities:  
Other assets(24,552)(39,433)
Accrued interest29,035 5,167 
Other liabilities20,615 17,941 
Net cash provided by operating activities34,822 56,312 
Cash flows from investing activities:  
Real estate acquisitions and deposits (2,526)
Real estate improvements(44,005)(41,045)
Proceeds from sale of properties, net8,702 16,930 
Net cash used in investing activities(35,303)(26,641)
Cash flows from financing activities:  
Proceeds from issuance of senior unsecured notes, net492,500  
Proceeds from borrowings on revolving credit facility800,000 130,500 
Repayments of borrowings on revolving credit facility (83,000)
Repayment of term loan(200,000) 
Repayment of other debt(779)(2,466)
Loss on early extinguishment of debt settled in cash (221)
Payment of debt issuance costs(4,007) 
Repurchase of common shares (21)
Distributions to noncontrolling interest(5,694)(5,767)
Distributions to shareholders(2,383)(35,684)
Net cash provided by financing activities1,079,637 3,341 
Increase in cash and cash equivalents and restricted cash1,079,156 33,012 
Cash and cash equivalents and restricted cash at beginning of period90,849 52,224 
Cash and cash equivalents and restricted cash at end of period$1,170,005 $85,236 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(dollars in thousands)
(unaudited)
Three Months Ended March 31,
20212020
Supplemental cash flow information:  
Interest paid$29,071 $35,280 
Non-cash investing activities:
Five Star Senior Living Inc. common stock$ $97,896 
Restructuring Transaction additional consideration$ $(75,000)
Capitalized interest$827 $306 
Non-cash financing activities:
Distribution to common shareholders of the right to receive Five Star Senior Living Inc. common stock$ $(59,801)
Supplemental disclosure of cash and cash equivalents and restricted cash:
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within our condensed consolidated balance sheets to the amount shown in our condensed consolidated statements of cash flows:
As of March 31,
20212020
Cash and cash equivalents$843,237 $69,545 
Restricted cash (1)
326,768 15,691 
Total cash and cash equivalents and restricted cash shown in our condensed consolidated statements of cash flows$1,170,005 $85,236 
(1) As of March 31, 2021, restricted cash includes amounts we will use to redeem all $300,000 of our outstanding 6.75% senior notes due 2021 in June 2021, when these notes become redeemable with no prepayment premium. In April 2021, we delivered a notice of redemption with respect to these senior notes for a redemption price equal to the principal amount plus accrued and unpaid interest. Restricted cash also consists of amounts escrowed for real estate taxes, insurance and capital expenditures at certain of our mortgaged properties and cash held for the operations of the life science property that is owned in a joint venture arrangement in which we own a 55% equity interest.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)
 
Note 1.  Basis of Presentation
The accompanying condensed consolidated financial statements of Diversified Healthcare Trust and its subsidiaries, or we, us, or our, are unaudited. Certain information and disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2020, or our Annual Report.
In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of results for the interim period have been included. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year.

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in our condensed consolidated financial statements include purchase price allocations, useful lives of fixed assets and impairments of real estate and intangible assets.
We have been, are currently, and expect in the future to be involved in claims, lawsuits, and regulatory and other governmental audits, investigations and proceedings arising in the ordinary course of our business, some of which may involve material amounts. Also, the defense and resolution of these claims, lawsuits, and regulatory and other governmental audits, investigations and proceedings may require us to incur significant expense. We account for claims and litigation losses in accordance with FASB ASC Topic 450, Contingencies, or ASC 450. Under ASC 450, loss contingency provisions are recorded for probable and estimable losses at our best estimate of a loss or, when a best estimate cannot be made, at our estimate of the minimum loss. These estimates are often developed prior to knowing the amount of the ultimate loss, require the application of considerable judgment, and are refined as additional information becomes known. Accordingly, we are often initially unable to develop a best estimate of loss and therefore the estimated minimum loss amount, which could be zero, is recorded; and then, as information becomes known, the minimum loss amount is updated, as appropriate. A minimum or best estimate amount may be increased or decreased when events result in a changed expectation.
We are party to a joint venture arrangement with an institutional investor. This joint venture arrangement owns a life science property located in Boston, Massachusetts. The investor owns a 45% equity interest in the joint venture, and we own the remaining 55% equity interest in the joint venture. We have determined that this joint venture is a variable interest entity, or VIE, as defined under the Consolidation Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification. We concluded that we must consolidate this VIE because we are the entity with the power to direct the activities that most significantly impact the VIE's economic performance and we have the obligation to absorb losses of, and the right to receive benefits from, the VIE that could be significant to the VIE, and therefore are the primary beneficiary of the VIE. The assets of this VIE were $958,013 and $970,142 as of March 31, 2021 and December 31, 2020, respectively, and consist primarily of the net real estate owned by the joint venture. The liabilities of this VIE were $694,847 and $697,129 as of March 31, 2021 and December 31, 2020, respectively, and consist primarily of mortgage debts secured by the property. The investor's interest in this consolidated entity is reflected as a noncontrolling interest in our condensed consolidated financial statements. See Note 6 for further information about this joint venture.

Note 2.  Real Estate Properties
As of March 31, 2021, we owned 396 properties located in 36 states and Washington, D.C., including four properties classified as held for sale and one life science property owned in a joint venture arrangement in which we own a 55% equity interest.
We regularly evaluate our assets for indicators of impairment. Impairment indicators may include declining tenant or resident occupancy, weak or declining profitability from the property, decreasing tenant cash flows or liquidity, our decision to dispose of an asset before the end of its estimated useful life, and legislative, market or industry changes that could permanently reduce the value of an asset. If indicators of impairment are present, we evaluate the carrying value of the affected assets by
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)
comparing it to the expected future cash flows to be generated from those assets. The future cash flows are subjective and are based in part on assumptions regarding hold periods, market rents and terminal capitalization rates. If the sum of these expected future cash flows is less than the carrying value, we reduce the net carrying value of the asset to its estimated fair value.
During the three months ended March 31, 2021, we recorded a reversal of impairment charges of $174 related to the estimated costs to sell 10 senior living communities that were classified as held for sale as of December 31, 2020 and changed the status of those communities from held for sale to held and used as of March 31, 2021.
Acquisitions and Dispositions:
During the three months ended March 31, 2021, we sold one property for a sale price of $9,000, excluding closing costs, as presented in the table below. The sale of this property does not represent a significant disposition, nor do we believe it represents a strategic shift in our business. As a result, the results of the operation for this property is included in continuing operations through the date of sale of such property in our condensed consolidated statements of comprehensive income (loss).
Date of SaleLocationType of PropertyNumber of PropertiesSquare Feet
Sale Price (1)
Loss on Sale
February 2021PennsylvaniaMedical Office192,000 $9,000 $(122)
1$9,000 $(122)
(1)Sale price excludes closing costs.

As of March 31, 2021, we had four properties classified as held for sale in our condensed consolidated balance sheet as follows:
Type of PropertyNumber of PropertiesGross Book Value
Life Science and Medical Office4$66,113 
4$66,113 
In April 2021, we sold these four life science and medical office properties for a sales price of $95,500, excluding closing costs.
In April 2021, we entered into an agreement to acquire a property which is adjacent to one of our existing properties located in Silver Springs, Maryland for a purchase price of $19,600, excluding acquisition related costs. This acquisition is expected to close during the third quarter of 2021. However, this acquisition is subject to conditions; accordingly, we cannot be sure that we will complete this acquisition, that this acquisition will not be delayed or that the terms will not change.

Note 3.  Leases
We are a lessor of medical office and life science properties, senior living communities and other healthcare related properties. Our leases provide our tenants with the contractual right to use and economically benefit from all of the premises demised under the leases; therefore, we have determined to evaluate our leases as lease arrangements.
Certain of our leases provide for base rent payments and in addition may include variable payments. Rental income from operating leases, including any payments derived by index or market based indices, is recognized on a straight line basis over the lease term when we have determined that the collectability of substantially all of the lease payments is probable. Some of our leases have options to extend or terminate the lease exercisable at the option of our tenants, which are considered when determining the lease term.
We increased rental income to record revenue on a straight line basis by $804 and $1,153 for the three months ended March 31, 2021 and 2020, respectively. Rents receivable, excluding receivables related to our properties classified as held for sale, include $105,279 and $104,803 of straight line rent receivables at March 31, 2021 and December 31, 2020, respectively, and are included in other assets, net in our condensed consolidated balance sheets.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)
We do not include in our measurement of our lease receivables certain variable payments, including changes in the index or market based indices after the inception of the lease, certain tenant reimbursements and other income until the specific events that trigger the variable payments have occurred. Such payments totaled $18,228 and $20,028 for the three months ended March 31, 2021 and 2020, respectively, of which tenant reimbursements totaled $18,180 and $19,983, respectively.
Certain of our tenants requested relief from their obligations to pay rent due to us in response to the current economic conditions resulting from the COVID-19 pandemic. In most cases, these tenants granted deferrals were obligated to pay the deferred rents in 12 equal monthly installments beginning in September 2020. As of March 31, 2021 and December 31, 2020, deferred payments totaling $878 and $1,486, respectively, are included in other assets, net in our condensed consolidated balance sheets. These deferred amounts did not negatively impact our operating results for the three months ended March 31, 2021 or 2020.
Right of Use Asset and Lease Liability. For leases where we are the lessee, we recognized a right of use asset and a lease liability equal to the present value of the minimum lease payments with rental payments being applied to the lease liability and the right of use asset being amortized over the term of the lease. The values of the right of use asset and related liability representing our future obligation under the lease arrangement for which we are the lessee were $4,216 and $4,395, respectively, as of March 31, 2021, and $4,237 and $4,410, respectively, as of December 31, 2020. The right of use asset and related lease liability are included within other assets, net and other liabilities, respectively, within our condensed consolidated balance sheets. In addition, we lease equipment at certain of our managed senior living communities. These leases are short term in nature, are cancelable with no fee or do not result in an annual expense in excess of our capitalization policy and, as a result, are not recorded on our condensed consolidated balance sheets.

Note 4.  Indebtedness
Our principal debt obligations at March 31, 2021 were: (1) outstanding borrowings under our $800,000 revolving credit facility; (2) $3,150,000 outstanding principal amount of senior unsecured notes; and (3) $683,990 aggregate principal amount of mortgage notes (excluding premiums, discounts and net debt issuance costs) secured by seven properties, of which $620,000 is related to the life science property owned by a joint venture arrangement in which we own a 55% equity interest. These seven mortgaged properties had a gross book value of $947,085 at March 31, 2021. We also had two properties subject to finance leases with lease obligations totaling $7,525 at March 31, 2021; these two properties had gross book value and accumulated depreciation of $35,893 and $17,685, respectively, at March 31, 2021, and $35,676 and $17,579, respectively, at December 31, 2020, and the finance leases expire in 2026.
We have a $800,000 revolving credit facility that is available for general business purposes. The maturity date of our revolving credit facility is January 2022, and, subject to the payment of an extension fee and meeting other conditions, we have two, one year options to extend the maturity date of the facility to January 2024. Our revolving credit facility provides that we can borrow, repay and re-borrow funds available under our revolving credit facility until maturity, and no principal repayment is due until maturity. As of March 31, 2021, our revolving credit facility required interest to be paid on borrowings at the annual rate of 2.9%, plus a facility fee of 30 basis points per annum on the total amount of lending commitments under the facility.
The weighted average annual interest rates for borrowings under our revolving credit facility were 2.9% and 2.6% for the three months ended March 31, 2021 and 2020, respectively. The interest rate premium and facility fee are each subject to adjustment based upon changes to our credit ratings. On March 31, 2021, we borrowed $800,000 under our revolving credit facility as a precautionary measure to increase our cash position and preserve financial flexibility in light of continued uncertainty resulting from the COVID-19 pandemic. As of March 31, 2021 and May 3, 2021, we were fully drawn under our revolving credit facility.
In February 2021, we issued $500,000 aggregate principal amount of our 4.375% senior notes due 2031 in an underwritten public offering raising net proceeds of $491,365, after deducting estimated offering expenses and underwriters' discounts. These notes are guaranteed by all of our subsidiaries, except for certain excluded subsidiaries, including pledged subsidiaries under the agreement governing our revolving credit facility, or our credit agreement, and require semi-annual interest payments through maturity. We used the net proceeds from this offering to prepay in full our $200,000 term loan which was scheduled to mature in September 2022. The weighted average interest rate under our $200,000 term loan was 2.9% for the period from January 1, 2021 to February 7, 2021. As a result of the prepayment of our $200,000 term loan, we recorded a loss on early extinguishment of debt of $1,477 for the three months ended March 31, 2021. We will use the remaining net proceeds from this
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)
offering and cash on hand to redeem all $300,000 of our outstanding 6.75% senior notes due 2021 in June 2021, when these notes become redeemable with no prepayment premium. In April 2021, we delivered a notice of redemption to U.S. Bank National Association, as trustee, with respect to these senior notes for a redemption price equal to the principal amount plus accrued and unpaid interest.
In January 2021, we amended the agreements governing our revolving credit facility and our $200,000 term loan, or collectively, our credit and term loan agreements, in order to provide us with certain flexibility in light of the uncertainties related to the COVID-19 pandemic. Pursuant to the amendments:
certain of the financial covenants under our credit and term loan agreements, including covenants that require us to maintain certain financial ratios, have been waived through June 2022, or the Amendment Period;
the revolving credit facility commitments have been reduced from $1,000,000 to $800,000, and as a result of the reduction in commitments, we recorded a loss on early extinguishment of debt of $563 for the three months ended March 31, 2021;
we pledged certain equity interests of subsidiaries owning properties to secure our obligations under our credit and term loan agreements and agreed to provide first mortgage liens on 62 medical office and life science properties with an aggregate gross book value of real estate assets of $1,035,255 as of March 31, 2021 to secure our obligations, which pledges and/or mortgage liens may be removed or new ones may be added during the Amendment Period based on outstanding debt amounts, among other things;
we have the ability to fund $250,000 of capital expenditures per year, which increased to $350,000 per year following the repayment of our term loan in February 2021, and are restricted in our ability to acquire real property as defined in our credit agreement;
the interest rate premium over LIBOR under our revolving credit facility and term loan increased by 30 basis points;
certain covenants and restrictions on distributions to common shareholders, share repurchases, capital expenditures, acquiring additional properties and incurring additional indebtedness (in each case subject to various exceptions), and the minimum liquidity requirement of $200,000 will remain in place during the Amendment Period; and
we are generally required to apply the net cash proceeds from the disposition of assets, capital markets transactions, and debt financings to the repayment of our $300,000 senior notes due in 2021, or maintain sufficient cash for such payment of these senior notes until they can be paid at par, our $200,000 term loan and any amounts outstanding under our revolving credit facility. In February 2021, we prepaid our $200,000 term loan using proceeds from our February 2021 issuance of $500,000 aggregate principal amount of 4.375% senior notes due 2031. We will use the remaining net proceeds from this offering and cash on hand to redeem all of our outstanding 6.75% senior notes due 2021 in June 2021, when these notes become redeemable with no prepayment premium. In April 2021, we delivered a notice of redemption to U.S. Bank National Association, as trustee, with respect to these senior notes for a redemption price equal to the principal amount plus accrued and unpaid interest.
Our credit agreement and our senior unsecured notes indentures and their supplements provide for acceleration of payment of all amounts due thereunder upon the occurrence and continuation of certain events of default, such as, in the case of our credit agreement, a change of control of us, as defined, which includes The RMR Group LLC, or RMR LLC, ceasing to act as our business and property manager. Our credit agreement and our senior unsecured notes indentures and their supplements also contain covenants, including covenants that restrict our ability to incur debts, and generally require us to maintain certain financial ratios, and our credit agreement restricts our ability to make distributions under certain circumstances. We believe we were in compliance with the terms and conditions of the respective covenants under our credit agreement and our senior unsecured notes indentures and their supplements at March 31, 2021. Although we have taken steps to enhance our ability to maintain sufficient liquidity, as noted elsewhere in this Quarterly Report on Form 10-Q, a protracted negative economic impact resulting from the COVID-19 pandemic may cause increased pressure on our ability to satisfy financial and other covenants. We may fail to satisfy covenants and conditions under our credit agreement 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 revolving credit facility and our public debt covenants in 2021 as the continued effects of the COVID-19 pandemic adversely impact our operations. We will not be allowed to incur additional debt while this ratio is below 1.5x.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)

Note 5.  Fair Value of Assets and Liabilities
The following table presents certain of our assets that are measured at fair value at March 31, 2021, categorized by the level of inputs as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.
Fair Value at Reporting Date Using
 Quoted Prices in 
Active Markets for Identical Assets
Significant Other Observable Inputs Significant Unobservable Inputs
DescriptionTotal(Level 1)(Level 2)(Level 3)
Recurring Fair Value Measurements Assets:    
Investment in Five Star (1)
$65,433 $65,433 $ $ 
(1)Our 10,691,658 shares of common stock of Five Star Senior Living Inc., or Five Star, are included in other assets, net in our condensed consolidated balance sheets, and are reported at fair value, which is based upon quoted market prices on The Nasdaq Stock Market LLC, or Nasdaq, (Level 1 inputs). Our adjusted cost basis for these shares was $44,448 as of March 31, 2021. During the three months ended March 31, 2021 and 2020, we recorded unrealized losses of $8,339 and $9,943, respectively, which are included in losses on equity securities, net in our condensed consolidated statements of comprehensive income (loss), to adjust the carrying value of our investment in Five Star common shares to their fair value. See Note 11 for further information about our investment in Five Star.
In addition to the assets described in the table above, our financial instruments at March 31, 2021 and December 31, 2020 included cash and cash equivalents, restricted cash, other assets, our revolving credit facility, term loan, senior unsecured notes, secured debt and finance leases and other unsecured obligations and liabilities. The fair values of these financial instruments approximated their carrying values in our condensed consolidated financial statements as of such dates, except as follows:
 As of March 31, 2021As of December 31, 2020
Description
Carrying Amount (1)
Estimated Fair Value
Carrying Amount (1)
Estimated Fair Value
Senior unsecured notes, 6.750% coupon rate, due in 2021 (2)
$299,470 $302,631 $299,273 $303,891 
Senior unsecured notes, 4.750% coupon rate, due in 2024
249,138 258,289 249,068 256,258 
Senior unsecured notes, 9.750% coupon rate, due in 2025
985,245 1,130,760 984,359 1,135,800 
Senior unsecured notes, 4.750% coupon rate, due in 2028
491,244 493,445 490,925 502,648 
Senior unsecured notes, 4.375% coupon rate, due in 2031
491,490 487,870   
Senior unsecured notes, 5.625% coupon rate, due in 2042
341,897 323,400 341,802 330,120 
Senior unsecured notes, 6.250% coupon rate, due in 2046
242,834 243,600 242,762 245,000 
Secured debts (3) (4)
690,733 704,289 691,573 716,185 
 $3,792,051 $3,944,284 $3,299,762 $3,489,902 
(1)Includes unamortized net debt issuance costs, premiums and discounts.
(2)In April 2021, we delivered a notice of redemption to redeem all $300,000 of our outstanding 6.75% senior notes due 2021 in June 2021, when these notes become redeemable with no prepayment premium.
(3)We assumed certain of these secured debts in connection with our acquisition of certain properties. We recorded the assumed mortgage notes at estimated fair value on the date of acquisition and we are amortizing the fair value adjustments, if any, to interest expense over the respective terms of the mortgage notes to adjust interest expense to the estimated market interest rates as of the date of acquisition.
(4)Includes secured debts for the life science property owned by a joint venture arrangement in which we own a 55% equity interest. The amounts listed in the table for these debts have not been adjusted to reflect the equity interests in the joint venture that we do not own.
We estimated the fair value of our two issuances of senior unsecured notes due 2042 and 2046 based on the closing price on Nasdaq (Level 1 input) as of March 31, 2021. We estimated the fair values of our five issuances of senior unsecured notes due 2021, 2024, 2025, 2028 and 2031 using an average of the bid and ask price on Nasdaq on or about March 31, 2021 (Level 2 inputs as defined in the fair value hierarchy under GAAP). We estimated the fair values of our secured debts by using
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)
discounted cash flows analyses and currently prevailing market terms as of the measurement date (Level 3 inputs as defined in the fair value hierarchy under GAAP). Because Level 3 inputs are unobservable, our estimated fair values may differ materially from the actual fair values.

Note 6. Noncontrolling Interest
We are party to a joint venture arrangement with an institutional investor for one of our life science properties located in Boston, Massachusetts. The investor owns a 45% equity interest in the joint venture, and we own the remaining 55% equity interest in the joint venture. We continue to control this property and therefore continue to account for this property on a consolidated basis in our condensed consolidated financial statements under the VIE model. The portion of the joint venture's net income and comprehensive income not attributable to us, or $1,322 and $1,408 for the three months ended March 31, 2021 and 2020, respectively, is reported as a noncontrolling interest in our condensed consolidated statements of comprehensive income (loss). The joint venture made aggregate cash distributions to the other joint venture investor of $5,694 and $5,767 for the three months ended March 31, 2021 and 2020, respectively, which are reflected as a decrease in total equity attributable to noncontrolling interest in our condensed consolidated balance sheets. As of March 31, 2021, this joint venture held real estate assets with an aggregate net book value of $700,192, subject to mortgage notes of $620,000.
In assessing whether we have a controlling interest in this joint venture arrangement and are required to consolidate the accounts of the joint venture entity, we considered the members' rights to residual gains and obligations to absorb losses, which activities most significantly impact the economic performance of the entity and which member has the power to direct those activities.

Note 7.  Shareholders' Equity
Distributions:
During the three months ended March 31, 2021, we declared and paid a quarterly distribution to common shareholders as follows:
Record DatePayment DateDistribution Per ShareTotal Distributions
January 25, 2021February 18, 2021$0.01 $2,383 
On April 15, 2021, we declared a quarterly distribution payable to our common shareholders of record on April 26, 2021 in the amount of $0.01 per share, or approximately $2,383. We expect to pay this distribution on or about May 20, 2021.

Note 8.  Segment Reporting
We operate in, and report financial information for, the following two segments: Office Portfolio and senior housing operating portfolio, or SHOP. We aggregate each of these two reporting segments based on their similar operating and economic characteristics. Our Office Portfolio segment consists of medical office properties leased to medical providers and other medical related businesses, as well as life science properties leased to biotech laboratories and other similar tenants. Our SHOP segment consists of managed senior living communities that provide short term and long term residential living and in some instances care and other services for residents where we pay fees to the operator to manage the communities for our account.
We also report “non-segment” operations, which consists of triple net leased senior living communities that are leased to operators from which we receive rents, and wellness centers, which we do not consider to be sufficiently material to constitute a separate reporting segment, and any other income or expenses that are not attributable to a specific reporting segment.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)
 For the Three Months Ended March 31, 2021
 Office PortfolioSHOPNon-SegmentConsolidated
Revenues:    
Rental income$93,323 $ $9,435 $102,758 
Residents fees and services 259,966  259,966 
Total revenues93,323 259,966 9,435 362,724 
Expenses:    
Property operating expenses31,293 256,098  287,391 
Depreciation and amortization31,938 31,361 2,854 66,153 
General and administrative  7,542 7,542 
Impairment of assets (174) (174)
Total expenses63,231 287,285 10,396 360,912 
Loss on sale of properties(122)  (122)
Losses on equity securities, net  (8,339)(8,339)
Interest and other income 2,433 402 2,835 
Interest expense(5,939)(528)(53,624)(60,091)
Loss on early extinguishment of debt  (2,040)(2,040)
Income (loss) from continuing operations before income tax expense
24,031 (25,414)(64,562)(65,945)
Income tax expense  (238)(238)
Net income (loss)24,031 (25,414)(64,800)(66,183)
Net income attributable to noncontrolling interest(1,322)  (1,322)
Net income (loss) attributable to common shareholders
$22,709 $(25,414)$(64,800)$(67,505)
Under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, the U.S. Department of Health and Human Services, or HHS, established a Provider Relief Fund. Retention and use of the funds received under the CARES Act are subject to certain terms and conditions. The terms and conditions require that the funds be utilized to compensate for lost revenues that are attributable to the COVID-19 pandemic and for eligible costs to prevent, prepare for and respond to the COVID-19 pandemic that are not covered by other sources. Further, fund recipients are required to be participating in Medicare at the time of distribution and are subject to certain other terms and conditions, including quarterly reporting requirements. In addition, fund recipients are required to have billed Medicare during 2019 and to continue to provide care after January 31, 2020 for diagnosis, testing or care for individuals with possible or actual COVID-19 cases. Any funds not used in accordance with the terms and conditions must be returned to HHS. We have recognized $2,433 as other income with respect to our SHOP segment for the three months ended March 31, 2021. We have applied for additional funds that may be available under the CARES Act Provider Relief Fund; however, we may not receive any additional funding.
 As of March 31, 2021
 Office PortfolioSHOP Non-SegmentConsolidated
Total assets$3,072,160 $2,908,334 $1,562,212 $7,542,706 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)
 For the Three Months Ended March 31, 2020
 Office PortfolioSHOPNon-SegmentConsolidated
Revenues:    
Rental income$98,770 $ $11,728 $110,498 
Residents fees and services 331,969  331,969 
Total revenues98,770 331,969 11,728 442,467 
Expenses:    
Property operating expenses32,706 283,879  316,585 
Depreciation and amortization32,163 33,042 3,225 68,430 
General and administrative  8,832 8,832 
Acquisition and certain other transaction related costs
  663 663 
Impairment of assets6,218 5,016  11,234 
Total expenses71,087 321,937 12,720 405,744 
Gain on sale of properties2,782   2,782 
Losses on equity securities, net  (9,943)(9,943)
Interest and other income  138 138 
Interest expense(6,052)(564)(35,034)(41,650)
Gain on lease termination  22,896 22,896 
Loss on early extinguishment of debt(246)  (246)
Income (loss) from continuing operations before income tax benefit24,167 9,468 (22,935)10,700 
Income tax benefit  443 443 
Net income (loss)24,167 9,468 (22,492)11,143 
Net income attributable to noncontrolling interest
(1,408)  (1,408)
Net income (loss) attributable to common shareholders
$22,759 $9,468 $(22,492)$9,735 
 As of December 31, 2020
Office PortfolioSHOP Non-SegmentConsolidated
Total assets$3,092,289 $2,912,570 $471,565 $6,476,424 


Note 9. Leases and Management Agreements with Five Star
2020 Restructuring of our Business Arrangements with Five Star. Effective as of January 1, 2020:
our previously existing master leases with Five Star for all of our senior living communities that Five Star leased, as well as our previously existing management agreements and pooling agreements with Five Star for our senior living communities that Five Star managed, were terminated and replaced with new management agreements and a related omnibus agreement, or collectively, the Five Star management agreements;
Five Star issued to us 10,268,158 Five Star common shares and an aggregate of 16,118,849 Five Star common shares to our shareholders of record as of December 13, 2019;
as consideration for these share issuances, we provided Five Star with $75,000 of additional consideration by assuming certain of Five Star's working capital liabilities and through cash payments, resulting in a gain on lease termination of $22,896 for the three months ended March 31, 2020 in our condensed consolidated statements of comprehensive income (loss); and
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)
pursuant to a guaranty agreement dated as of January 1, 2020 made by Five Star in favor of our applicable subsidiaries, Five Star has guaranteed the payment and performance of each of its applicable subsidiary's obligations under the applicable Five Star management agreements.
Effective January 1, 2020, we determined that Five Star is not a VIE and we will account for our 33.8% investment in Five Star using the equity method of accounting because we are deemed to exert significant influence, but not control, over Five Star's most significant activities. We have elected to use the fair value option to account for our investment in Five Star.
2021 Amendments to our Management Arrangements with Five Star. On April 9, 2021, we announced that we have agreed to amend our management arrangements with Five Star. The principal changes to the management arrangements will include:
that Five Star will cooperate with us in transitioning 108 of our senior living communities with approximately 7,500 living units to other third party operators without our payment of any termination fee to Five Star, and that we will no longer have the right to sell up to an additional $682,000 of senior living communities currently managed by Five Star and terminate Five Star's management of those communities without our payment of a fee to Five Star upon sale;
that Five Star will continue to manage 120 of our senior living communities with approximately 18,000 living units for our account, and that the skilled nursing units in all of our continuing care retirement communities that Five Star will continue to manage for our account, which currently includes approximately 1,500 living units, will be closed and repositioned;
that our performance termination rights pursuant to our existing management agreements with Five Star will be amended for the senior living communities that Five Star will continue to manage for our account, such that, commencing in 2025, we can terminate up to 10% of the senior living communities managed by Five Star for our account, based on total revenues, per year without our payment of any termination fee to Five Star for failure to meet 80% of a target EBITDA in prior years;
that the incentive fee calculation included in our existing management agreements with Five Star will be amended for the senior living communities that Five Star will continue to manage for our account such that there will no longer be a cap placed on any incentive fee earned by Five Star in any calendar year and that any senior living communities that are undergoing a major renovation or repositioning will be excluded from the calculation;
that RMR LLC will assume control of any major renovation or repositioning activities at the senior living communities that Five Star will continue to manage for our account; and
that the term of our existing management agreements with Five Star will be extended by two years to December 31, 2036.
We expect that the transition of the management of the 108 senior living communities to other third party operators will be completed before year end 2021. We also expect to incur costs related to retention, temporary labor and other transition costs for these communities, which costs may be significant.
Our Senior Living Communities Managed by Five Star. Five Star managed 235, including seven closed senior living communities, and 244 senior living communities for our account as of March 31, 2021 and 2020, respectively. We lease our senior living communities that are managed by Five Star to our taxable REIT subsidiaries, or TRSs.
We incurred management fees payable to Five Star of $13,850 and $17,050 for the three months ended March 31, 2021 and 2020, respectively. For the three months ended March 31, 2021 and 2020, $13,016 and $16,588, respectively, of the total management fees were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $834 and $462, respectively, were capitalized in our condensed consolidated balance sheets.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)
The following table presents residents fees and services revenue disaggregated by type of contract and payer:
Three Months Ended March 31,
Revenue from contracts with customers:20212020
Basic housing and support services$188,029 $231,516 
Medicare and Medicaid programs35,948 49,668 
Private pay and other third party payer SNF services 35,989 50,785 
Total residents fees and services$259,966 $331,969 
We incurred fees of $5,441 and $8,057 for the three months ended March 31, 2021 and 2020, respectively, with respect to rehabilitation services Five Star provided at senior living communities it manages for our account that are payable by us. These amounts are included in property operating expenses in our condensed consolidated statements of comprehensive income (loss).
As a result of routine monitoring protocols that are a part of Five Star's compliance program activities related to Medicare billing, Five Star discovered potentially inadequate documentation at one of our senior living communities that Five Star manages. This monitoring was not initiated in response to any specific complaint or allegation but rather was of the type that Five Star periodically undertakes to test its compliance with applicable Medicare billing rules. We and Five Star voluntarily disclosed this matter to the United States Department of Health and Human Services, Office of the Inspector General, or the OIG, pursuant to the OIG’s Provider Self-Disclosure Protocol. In January 2021, we and Five Star settled this matter with the OIG and we agreed to pay approximately $5,763 in exchange for a customary release, but we and Five Star did not admit any liability. We recognized that amount in our consolidated statement of comprehensive income (loss) during the year ended December 31, 2020 and paid that amount to the OIG in January 2021. Five Star refunded to us approximately $115 of management fees it previously received relating to the Medicare payments we refunded to the OIG.
Since January 1, 2020, we sold certain senior living communities that were then managed by Five Star. We and Five Star terminated our management agreements for these senior living communities in connection with these sales. See Note 3 to the consolidated financial statements contained in our Annual Report for further information regarding these sales.
We lease to Five Star space at certain of our senior living communities that Five Star manages. Five Star uses this space for outpatient rehabilitation clinics. We recognized a reduction in property operating expenses of $397 and $294 for the three months ended March 31, 2021 and 2020, respectively, with respect to these leases.

Note 10. Business and Property Management Agreements with RMR LLC
We have no employees. The personnel and various services we require to operate our business are provided to us by RMR LLC. We have two agreements with RMR LLC to provide management services to us: (1) a business management agreement, which relates to our business generally; and (2) a property management agreement, which relates to the property level operations of our medical office and life science properties. RMR LLC will also provide certain construction supervision services at our senior living communities managed by Five Star. We also have a subsidiary level management agreement with RMR LLC related to the life science property located in Boston, Massachusetts, which we entered in connection with the joint venture arrangement for that life science property. Under that agreement, our subsidiary pays RMR LLC certain business management fees directly, which fees are credited against the business management fees payable by us to RMR LLC. See Note 11 for further information regarding our relationship, agreements and transactions with RMR LLC.
We recognized net business management fees payable to RMR LLC of $5,317 and $5,769 for the three months ended March 31, 2021 and 2020, respectively. The net business management fees we recognized include $725 of management fees related to our subsidiary level management agreement with RMR LLC entered in connection with our joint venture arrangement for both the three months ended March 31, 2021 and 2020. Based on our common share total return, as defined in our business management agreement, as of each of March 31, 2021 and 2020, no estimated incentive fees are included in the net business management fees we recognized for the three months ended March 31, 2021 or 2020. The actual amount of annual incentive fees for 2021, if any, will be based on our common share total return as defined in our business management agreement, for the three-year period ending December 31, 2021, and will be payable in 2022. We did not incur any incentive fee payable for the
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)
year ended December 31, 2020. We recognize business management and incentive fees in general and administrative expenses in our condensed consolidated statements of comprehensive income (loss).
We recognized aggregate net property management and construction supervision fees payable to RMR LLC of $3,154 and $3,192 for the three months ended March 31, 2021 and 2020, respectively. Of those amounts, for the three months ended March 31, 2021 and 2020, $2,485 and $2,596, respectively, were expensed to property operating expenses in our condensed consolidated statements of comprehensive income (loss) and $669 and $596, respectively, were capitalized as building improvements in our condensed consolidated balance sheets.
We are generally responsible for all our operating expenses, including certain expenses incurred or arranged by RMR LLC on our behalf. We are generally not responsible for payment of RMR LLC's employment, office or administrative expenses incurred to provide management services to us, except for the employment and related expenses of RMR LLC's employees assigned to work exclusively or partly at our medical office and life science properties, our share of the wages, benefits and other related costs of RMR LLC's centralized accounting personnel, our share of RMR LLC's costs for providing our internal audit function, or as otherwise agreed. Our property level operating expenses are generally incorporated into the rents charged to our tenants, including certain payroll and related costs incurred by RMR LLC. We reimbursed RMR LLC $3,297 and $3,443 for these expenses and costs for the three months ended March 31, 2021 and 2020, respectively. These amounts are included in property operating expenses and general and administrative expenses, as applicable, in our condensed consolidated statements of comprehensive income (loss).

Note 11. Related Person Transactions
We have relationships and historical and continuing transactions with RMR LLC, The RMR Group Inc., or RMR Inc., Five Star and others related to them, including other companies to which RMR LLC or its subsidiaries provide management services and some of which have trustees, directors or officers who are also our Trustees or officers. RMR Inc. is the managing member of RMR LLC. The Chair of our Board and one of our Managing Trustees, Adam D. Portnoy, is the sole trustee, an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc., a managing director and the president and chief executive officer of RMR Inc., an officer and employee of RMR LLC and the chair of the board of directors and a managing director of Five Star. Jennifer B. Clark, our other Managing Trustee and our Secretary, also serves as a managing director and the executive vice president, general counsel and secretary of RMR Inc., an officer and employee of RMR LLC, an officer of ABP Trust and a managing director and the secretary of Five Star. Jennifer F. Francis, our President and Chief Operating Officer is an executive vice president of RMR Inc. and she and our Chief Financial Officer and Treasurer are also employees and officers of RMR LLC. Certain of Five Star's officers are officers and employees of RMR LLC. Some of our Independent Trustees also serve as independent trustees or independent directors of other public companies to which RMR LLC or its subsidiaries provide management services. Adam Portnoy serves as the chair of the boards of trustees or boards of directors of several of these public companies and as a managing director or managing trustee of these companies. Other officers of RMR LLC, including Ms. Clark and certain of our officers, serve as managing trustees, managing directors or officers of certain of these companies. In addition, officers of RMR LLC and RMR Inc. serve as our officers and officers of other companies to which RMR LLC or its subsidiaries provide management services.
Five Star. We are currently Five Star's largest stockholder. As of March 31, 2021, we owned 10,691,658 Five Star common shares, or approximately 33.8% of Five Star's outstanding common shares. Five Star currently manages for our account most of the senior living communities we own. RMR LLC provides management services to both us and Five Star. See Note 9 for further information regarding our relationships, agreements and transactions with Five Star and Note 5 for further information regarding our investment in Five Star.
As of March 31, 2021, ABP Acquisition LLC, a subsidiary of ABP Trust, the controlling shareholder of RMR Inc., together with ABP Trust, owned approximately 6.3% of Five Star's outstanding common shares.
Our Manager, RMR LLC. We have two agreements with RMR LLC to provide management services to us. See Note 10 for further information regarding our management agreements with RMR LLC.
For further information about these and other such relationships and certain other related person transactions, see our Annual Report.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)

Note 12.  Income Taxes
We have elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, and, as such, are generally not subject to federal and most state income taxation on our operating income provided we distribute our taxable income to our shareholders and meet certain organization and operating requirements. We do, however, lease our managed senior living communities to our wholly owned TRSs that, unlike most of our subsidiaries, file a separate consolidated federal corporate income tax return and are subject to federal and state income taxes. Our consolidated income tax provision includes the income tax provision related to the operations of our TRSs and certain state income taxes we incur despite our taxation as a REIT. During the three months ended March 31, 2021 and 2020, we recognized income tax expense of $238 and benefit of $443, respectively.

Note 13. Weighted Average Common Shares (share amounts in thousands)
We calculate basic earnings per common share by dividing net income (loss) by the weighted average number of our common shares outstanding during the period. We calculate diluted earnings per share using the more dilutive of the two class method or the treasury stock method. Unvested share awards and other potentially dilutive common shares, and the related impact on earnings, are considered when calculating diluted earnings per share. For the three months ended March 31, 2021 and 2020, 20 and 123 unvested common shares, respectively, were not included in the calculation of diluted earnings per share because to do so would have been antidilutive.
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Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and with our Annual Report.
OVERVIEW
We are a REIT that was organized under Maryland law and which owns medical office and life science properties, senior living communities and other healthcare related properties throughout the United States. As of March 31, 2021, we owned 396 properties located in 36 states and Washington, D.C., including four properties classified as held for sale and one life science property owned in a joint venture arrangement in which we own a 55% equity interest. At March 31, 2021, 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, including $66.1 million of gross book value classified as held for sale in our condensed consolidated balance sheet.
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 and our manager 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 experienced disruptions to their businesses. Our senior living community operators also experienced disruptions, including limitations on in-person tours and new admissions, and experienced 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.
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.
Throughout the first quarter, Five Star coordinated multiple COVID-19 vaccination clinics at our SHOP communities for residents and staff. At the conclusion of the vaccination clinics, over 96% of residents had received a vaccine. All of our communities are now open to admissions.
We also believe that we, Five Star and our impacted tenants have and may continue to benefit from provisions of the CARES Act, signed into law in March 2020 and further supplemented by the Consolidated Appropriations Act, 2021, or other federal or state relief programs allowing them to continue or resume business activity. During the three months ended March 31, 2021, we recognized $2.4 million in interest and other income in our condensed consolidated statement of comprehensive income (loss) related to funds received under the CARES Act.
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. In the first quarter of 2021, following the holiday season, the reopening of economies and the easing of restrictions, the United States experienced peak numbers of COVID-19 infections. In some cases, certain states and municipalities again required the closure of certain business activities and imposed certain other restrictions. 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 manager's and other operators' and tenants' businesses. 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 I, Item 1, “Business—COVID-19 Pandemic” and Part I, Item 1A, “Risk Factors” in our Annual Report.
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2021 Amendments to our Management Arrangements with Five Star

On April 9, 2021, we announced that we have agreed to amend our management arrangements with Five Star. The principal changes to the management arrangements will include:
that Five Star will cooperate with us in transitioning 108 of our senior living communities with approximately 7,500 living units to other third party operators without our payment of any termination fee to Five Star, and that we will no longer have the right to sell up to an additiona