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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 September 30, 2022
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 October 28, 2022: 239,703,660

DIVERSIFIED HEALTHCARE TRUST
FORM 10-Q
 
September 30, 2022
 
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.


PART I.  Financial Information
 
Item 1.  Financial Statements.
 
DIVERSIFIED HEALTHCARE TRUST
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
(unaudited)
 September 30,December 31,
 20222021
Assets  
Real estate properties:  
Land$668,908 $741,501 
Buildings and improvements5,927,958 6,072,055 
Total real estate properties, gross6,596,866 6,813,556 
Accumulated depreciation(1,784,935)(1,737,807)
Total real estate properties, net4,811,931 5,075,749 
Investments in unconsolidated joint ventures159,476 215,127 
Cash and cash equivalents691,040 634,848 
Restricted cash109,765 382,097 
Acquired real estate leases and other intangible assets, net48,432 48,746 
Other assets, net251,842 266,947 
Total assets$6,072,486 $6,623,514 
Liabilities and Shareholders' Equity  
Revolving credit facility$700,000 $800,000 
Senior unsecured notes, net2,316,493 2,806,811 
Secured debt and finance leases, net40,936 69,713 
Accrued interest32,157 29,845 
Assumed real estate lease obligations, net1,205 2,556 
Other liabilities275,640 252,199 
Total liabilities3,366,431 3,961,124 
Commitments and contingencies
Shareholders' equity:  
Common shares of beneficial interest, $.01 par value: 300,000,000 shares authorized, 239,704,493 and 238,994,894 shares issued and outstanding, respectively
2,397 2,390 
Additional paid in capital4,616,756 4,615,475 
Cumulative net income2,137,172 2,087,624 
Cumulative distributions(4,050,270)(4,043,099)
Total shareholders' equity2,706,055 2,662,390 
Total liabilities and shareholders' equity$6,072,486 $6,623,514 
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
DIVERSIFIED HEALTHCARE TRUST
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(amounts in thousands, except per share data)
(unaudited)
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Revenues:    
Rental income$63,960 $101,403 $191,767 $306,555 
Residents fees and services258,960 236,013 754,914 739,926 
Total revenues322,920 337,416 946,681 1,046,481 
Expenses:    
Property operating expenses289,096 266,073 823,904 818,096 
Depreciation and amortization60,407 68,702 175,927 202,743 
General and administrative6,179 8,870 20,671 25,538 
Acquisition and certain other transaction related costs289 3,108 1,826 15,179 
Impairment of assets— — — (174)
Total expenses355,971 346,753 1,022,328 1,061,382 
(Loss) gain on sale of properties(5,044)200 322,064 30,838 
Losses on equity securities, net(2,674)(14,755)(21,384)(26,943)
Interest and other income4,099 976 6,760 19,849 
Interest expense (including net amortization of debt premiums, discounts and issuance costs of $1,908, $3,948, $6,698 and $9,777, respectively)
(46,936)(64,493)(160,042)(192,241)
Loss on modification or early extinguishment of debt— — (30,043)(2,410)
(Loss) income from continuing operations before income tax expense and equity in earnings of investees(83,606)(87,409)41,708 (185,808)
Income tax expense(13)(595)(845)(1,024)
Equity in earnings of investees2,127 — 8,685 — 
Net (loss) income(81,492)(88,004)49,548 (186,832)
Net income attributable to noncontrolling interest— (1,339)— (4,238)
Net (loss) income attributable to common shareholders$(81,492)$(89,343)$49,548 $(191,070)
Weighted average common shares outstanding (basic and diluted)238,344 238,008 238,231 237,905 
Per common share amounts (basic and diluted):    
Net (loss) income attributable to common shareholders$(0.34)$(0.38)$0.21 $(0.80)
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
DIVERSIFIED HEALTHCARE TRUST
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
Balance at December 31, 2021:238,994,894 $2,390 $4,615,475 $2,087,624 $(4,043,099)$2,662,390 
Net income— — — 240,423 — 240,423 
Distributions— — — — (2,390)(2,390)
Share grants— — 318 — — 318 
Share repurchases(1,698)— (5)— — (5)
Share forfeitures(4,900)— (3)— — (3)
Balance at March 31, 2022:238,988,296 2,390 4,615,785 2,328,047 (4,045,489)2,900,733 
Net loss— — — (109,383)— (109,383)
Distributions— — — — (2,390)(2,390)
Share grants140,000 1 668 — — 669 
Share forfeitures(4,800)— (4)— — (4)
Balance at June 30, 2022:239,123,496 2,391 4,616,449 2,218,664 (4,047,879)2,789,625 
Net loss— — — (81,492)— (81,492)
Distributions— — — — (2,391)(2,391)
Share grants707,000 7 470 — — 477 
Share repurchases(122,403)(1)(159)— — (160)
Share forfeitures(3,600)— (4)— — (4)
Balance at September 30, 2022:239,704,493 $2,397 $4,616,756 $2,137,172 $(4,050,270)$2,706,055 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
DIVERSIFIED HEALTHCARE TRUST
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
(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 
Net (loss) income— — — (34,222)— (34,222)1,577 (32,645)
Distributions— — — — (2,383)(2,383)— (2,383)
Share grants120,000 1 675 — — 676 — 676 
Share repurchases(13,906)— (59)— — (59)— (59)
Distributions to noncontrolling interest— — — — — — (5,630)(5,630)
Balance at June 30, 2021:238,374,572 2,384 4,614,748 1,811,382 (4,038,325)2,390,189 114,960 2,505,149 
Net (loss) income— — — (89,343)— (89,343)1,339 (88,004)
Distributions— — — — (2,384)(2,384)— (2,384)
Share grants718,000 7 738 — — 745 — 745 
Share repurchases(94,937)(1)(321)— — (322)— (322)
Share forfeitures(2,200)— (3)— — (3)— (3)
Distributions to noncontrolling interest— — — — — — (5,524)(5,524)
Balance at September 30, 2021:238,995,435 $2,390 $4,615,162 $1,722,039 $(4,040,709)$2,298,882 $110,775 $2,409,657 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
DIVERSIFIED HEALTHCARE TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
 Nine Months Ended September 30,
 20222021
Cash flows from operating activities:  
Net income (loss)$49,548 $(186,832)
Adjustments to reconcile net income (loss) to cash used in operating activities:  
Depreciation and amortization175,927 202,743 
Net amortization of debt premiums, discounts and issuance costs6,698 9,777 
Straight line rental income(7,193)(3,804)
Amortization of acquired real estate leases204 (5,563)
Loss on modification or early extinguishment of debt30,043 2,410 
Impairment of assets— (174)
Gain on sale of properties(322,064)(30,838)
Losses on equity securities, net21,384 26,943 
Other non-cash adjustments, net(1,376)(1,183)
Unconsolidated joint venture distributions7,400 — 
Equity in earnings of investees(8,685)— 
Change in assets and liabilities:  
Deferred leasing costs, net(6,188)(11,736)
Other assets9,809 (29,227)
Accrued interest2,312 23,462 
Other liabilities5,233 (9,176)
Net cash used in operating activities(36,948)(13,198)
Cash flows from investing activities:  
Real estate acquisitions(75,105)— 
Real estate improvements(189,118)(126,142)
Proceeds from sale of properties, net822 103,257 
Proceeds from sale of properties to joint venture, net638,488 — 
Proceeds from sale of interest in joint venture, net108,626 — 
Net cash provided by (used in) investing activities483,713 (22,885)
Cash flows from financing activities:  
Proceeds from issuance of senior unsecured notes, net— 492,500 
Proceeds from borrowings on revolving credit facility— 800,000 
Repayments of borrowings on revolving credit facility(100,000)— 
Redemption of senior unsecured notes(500,000)(300,000)
Repayment of term loan— (200,000)
Repayment of other debt(28,373)(2,349)
Loss on early extinguishment of debt settled in cash(24,375)— 
Payment of debt issuance costs(2,821)(9,101)
Repurchase of common shares(165)(381)
Distributions to noncontrolling interest— (16,848)
Distributions to shareholders(7,171)(7,150)
Net cash (used in) provided by financing activities(662,905)756,671 
(Decrease) increase in cash and cash equivalents and restricted cash(216,140)720,588 
Cash and cash equivalents and restricted cash at beginning of period1,016,945 90,849 
Cash and cash equivalents and restricted cash at end of period$800,805 $811,437 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
DIVERSIFIED HEALTHCARE TRUST
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(dollars in thousands)
(unaudited)
Nine Months Ended September 30,
20222021
Supplemental cash flow information:  
Interest paid$151,032 $160,091 
Income taxes paid$905 $1,985 
Non-cash investing activities:
Decrease in assets resulting from the deconsolidation of investments that were previously consolidated:
   Real estate, net$(355,669)$— 
Real estate improvements accrued, not paid$24,218 $15,751 
Capitalized interest$— $1,089 
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 September 30,
20222021
Cash and cash equivalents$691,040 $794,739 
Restricted cash (1)
109,765 16,698 
Total cash and cash equivalents and restricted cash shown in our condensed consolidated statements of cash flows$800,805 $811,437 
(1) As of September 30, 2022, restricted cash consists of proceeds from the sale of joint venture interests and proceeds from the sale of properties to joint ventures held as collateral pursuant to the agreement governing our revolving credit facility, or our credit agreement. We may use these funds to pay for approved expenditures in accordance with our credit agreement. Restricted cash also consists of amounts escrowed for real estate taxes, insurance and capital expenditures at certain of our mortgaged properties. Prior to the deconsolidation of the joint venture that owns a life science property located in Boston, Massachusetts, or the Seaport JV, restricted cash also consisted of cash held for the operations of this joint venture.

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


6
DIVERSIFIED HEALTHCARE TRUST
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, 2021, 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 the Financial Accounting Standards Board Accounting Standards Codification 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.

Note 2.  Real Estate Investments
As of September 30, 2022, we wholly owned 379 properties located in 36 states and Washington, D.C. and we owned an equity interest in each of two unconsolidated joint ventures that own medical office and life science properties located in five states with an aggregate of approximately 2.2 million rentable square feet.
Joint Venture Activities:
As of September 30, 2022, we had equity investments in joint ventures as follows:
Joint VentureDHC Ownership
DHC Carrying Value of Investment at September 30, 2022
Number of PropertiesLocationSquare Feet
Seaport Innovation LLC10%$108,395 1MA1,134,479 
The LSMD Fund REIT LLC20%51,081 10CA, MA, NY, TX, WA1,068,763 
$159,476 112,203,242 
7
DIVERSIFIED HEALTHCARE TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)
The following table provides a summary of the mortgage debts of these joint ventures:
Joint VentureCoupon RateMaturity Date
Principal Balance at September 30, 2022 (1)
Mortgage Notes Payable (secured by one property in Massachusetts) (2)
3.53%8/6/2026$620,000 
Mortgage Notes Payable (secured by nine properties in five states)
3.46%2/11/2032189,800 
Mortgage Notes Payable (secured by one property in California) (3)
4.75%2/9/2024266,825 
3.82%$1,076,625 
(1)Amounts are not adjusted for our minority equity interest.
(2)Following the deconsolidation in December 2021 of the net assets of the Seaport JV, we no longer include this $620,000 of secured debt financing in our condensed consolidated balance sheet; however, we continue to provide certain guaranties on this debt.
(3)The maturity date of February 9, 2024 is subject to three, one year extension options and requires interest to be paid at an annual rate based on the secured overnight financing rate, or SOFR, plus a premium of 1.90%. The interest rate is as of September 30, 2022. This joint venture has also purchased an interest rate cap through February 2024 with a SOFR strike rate equal to 4.00%.

In December 2021, we sold an additional 35% equity interest from our then remaining 55% equity interest in the Seaport JV to another third party institutional investor for $378,000, before closing costs and other adjustments. Effective as of the date of the sale, we deconsolidated this joint venture and we now account for this joint venture using the equity method of accounting under the fair value option. Prior to the deconsolidation of the net assets of this joint venture, the joint venture investor's interest in this consolidated entity was reflected as noncontrolling interest in our consolidated financial statements. In June 2022, we sold an additional 10% equity interest from our then remaining 20% equity interest in the Seaport JV to an existing joint venture investor for $108,000, before closing costs and other adjustments. The net proceeds of $108,956, which include working capital prorations and formation costs, were included as a receivable in other assets, net in our condensed consolidated balance sheet as of June 30, 2022. We received the proceeds from this sale in July 2022. We recognized a net loss on sale of $1,226 related to this transaction, which is included in (loss) gain on sale of properties in our condensed consolidated statements of comprehensive income (loss). After giving effect to these sales, we continue to own a 10% equity interest in this joint venture. Our initial investment amount was based on a property valuation of $1,700,000, less $620,000 of existing mortgage debts on the property that this joint venture assumed. See Note 5 for more information regarding the valuation of our investment in this joint venture.
In January 2022, we entered into a joint venture with two unrelated third party institutional investors for 10 medical office and life science properties we owned, or the LSMD JV. We sold equity interests in this joint venture to those investors for aggregate proceeds, before closing costs and other adjustments, of approximately $653,300. We deconsolidated the net assets of these properties effective as of the date of the sale and recognized a net gain on sale of $322,468 related to this transaction, which is included in (loss) gain on sale of properties in our condensed consolidated statements of comprehensive income (loss). The equity interests that the investors acquired from us equaled 41% and 39%, respectively, of the total equity interests in the joint venture and we retained a 20% equity interest in the joint venture. Following the sale, we account for this joint venture using the equity method of accounting under the fair value option. The initial investment amounts were based upon a property valuation of approximately $702,500, less approximately $456,600 of secured debt on the properties incurred by this joint venture. See Note 5 for more information regarding the valuation of our investment in this joint venture.
Acquisitions and Dispositions:
We have accounted for our July 2022 acquisition of a life science property located in California as an acquisition of assets. We funded this acquisition using cash on hand. The table below represents the purchase price allocation (including net closing adjustments) of this acquisition:
DateLocationType of PropertyNumber of PropertiesSquare Feet
Cash Paid (1)
LandBuildings and ImprovementsAcquired Real Estate Leases
July 2022CaliforniaLife Science188,508 $75,105 $15,774 $45,249 $14,082 
(1)Cash paid includes closings costs.
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DIVERSIFIED HEALTHCARE TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)
We did not dispose of any properties during the nine months ended September 30, 2022.
Impairment:
We regularly evaluate our assets for indicators of impairment. Impairment indicators may include declining tenant or resident occupancy, weak or declining profitability from the property, decreasing tenant cash flows or liquidity, our decision to dispose of an asset before the end of its estimated useful life, and legislative, market or industry changes that could permanently reduce the value of an asset. If indicators of impairment are present, we evaluate the carrying value of the affected assets by comparing it to the expected future cash flows to be generated from those assets. The future cash flows are subjective and are 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. No material impairment charges were recorded on held and used properties during the three or nine months ended September 30, 2022 or 2021.
Other:
During the three and nine months ended September 30, 2022, we recorded $4,112 of expenses representing insurance deductibles and other costs associated with Hurricane Ian's damage at certain of our managed senior living communities located in Florida and are evaluating additional losses. These amounts are included in property operating expenses in our condensed consolidated statements of comprehensive income (loss).

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 $2,738 and $1,679 for the three months ended September 30, 2022 and 2021, respectively, and $7,193 and $3,804 for the nine months ended September 30, 2022 and 2021, respectively. Rents receivable, excluding receivables related to our properties classified as held for sale, if any, include $74,640 and $82,131 of straight line rent receivables at September 30, 2022 and December 31, 2021, respectively, and are included in other assets, net in our condensed consolidated balance sheets.
We do not include in our measurement of our lease receivables certain variable payments, including changes in the index or market based indices after the inception of the lease, certain tenant reimbursements and other income until the specific events that trigger the variable payments have occurred. Such payments totaled $11,312 and $17,930 for the three months ended September 30, 2022 and 2021, respectively, of which tenant reimbursements totaled $11,263 and $17,875, respectively, and $32,450 and $54,634 for the nine months ended September 30, 2022 and 2021, respectively, of which tenant reimbursements totaled $32,276 and $54,495, respectively.
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 assets and related liabilities representing our future obligation under the respective lease arrangements for which we are the lessee were $27,257 and $27,637, respectively, as of September 30, 2022, and $4,153 and $4,352, respectively, as of December 31, 2021. The right of use assets and related lease liabilities 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.
9
DIVERSIFIED HEALTHCARE TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)

Note 4.  Indebtedness
Our principal debt obligations, excluding any debt obligations of our joint ventures, at September 30, 2022 were: (1) outstanding borrowings under our $700,000 revolving credit facility; (2) $2,350,000 outstanding principal amount of senior unsecured notes; and (3) $35,200 aggregate principal amount of mortgage notes secured by three properties. These three mortgaged properties had a gross book value of $65,957 at September 30, 2022. We also had two properties subject to finance leases with lease obligations totaling $5,562 at September 30, 2022; these two properties had gross book value and accumulated depreciation of $38,697 and $18,839, respectively, at September 30, 2022, and $36,730 and $18,203, respectively, at December 31, 2021, and the finance leases expire in 2026.
We have a $700,000 revolving credit facility that is used for general business purposes. The maturity date of our revolving credit facility is January 2024. Our revolving credit facility generally 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. We are required to pay interest at a rate of LIBOR plus a premium, which was 250 basis points per annum at September 30, 2022, on the amount outstanding under our revolving credit facility. We also pay a facility fee on the total amount of lender commitments under our revolving credit facility, which was 30 basis points per annum at September 30, 2022. As of September 30, 2022, our revolving credit facility required interest to be paid on borrowings at the annual rate of 5.6%.
The weighted average annual interest rates for borrowings under our revolving credit facility were 4.8% and 2.9% for the three months ended September 30, 2022 and 2021, respectively, and 3.8% and 2.9% for the nine months ended September 30, 2022 and 2021, respectively. The interest rate premium and facility fee are each subject to adjustment based upon changes to our credit ratings. As of September 30, 2022 and October 28, 2022, we were fully drawn under our revolving credit facility.
In February 2022, we and our lenders amended our credit agreement. Pursuant to the amendment:
•the waiver of the fixed charge coverage ratio covenant included in our credit agreement has been extended through December 31, 2022, or the Amendment Period;
•the revolving credit facility commitments have been reduced from $800,000 to $700,000 following our repayment of $100,000, and as a result of the reduction in commitments, we recorded a loss on modification or early extinguishment of debt of $483 for the nine months ended September 30, 2022;
•we have the ability to fund $400,000 of capital expenditures per year and we are restricted in our ability to acquire real property as defined in our credit agreement;
•the interest rate premium under our revolving credit facility increased by 15 basis points; and
•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.
Also in February 2022, we exercised our option to extend the maturity date of our revolving credit facility by one year to January 2024. Pursuant to our credit agreement, the borrowing capacity under our revolving credit facility will be reduced to $586,373 in January 2023 and, as such, we will be required to repay $113,627 under our revolving credit facility by that time.
Pursuant to our credit agreement, we pledged certain equity interests of subsidiaries owning properties to secure our obligations under our credit agreement and agreed to provide, and as of September 2021 had provided, first mortgage liens on 61 medical office and life science properties with an aggregate gross book value of real estate assets of $997,724 as of September 30, 2022 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.
In April 2022, we prepaid a mortgage note secured by one of our medical office properties with an outstanding principal balance of approximately $10,934, a maturity date in July 2022 and an annual interest rate of 6.28%, using cash on hand.
10
DIVERSIFIED HEALTHCARE TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)
In June 2022, we redeemed $500,000 of our outstanding 9.75% senior notes due 2025 for a redemption price equal to 104.875% of the $500,000 principal amount of the notes being redeemed plus accrued and unpaid interest of $1,083, using restricted cash on hand. As a result of this redemption, we recorded a loss on early extinguishment of debt of $29,576 for the nine months ended September 30, 2022.
In July 2022, we prepaid a mortgage note secured by two of our senior living communities with an outstanding principal balance of approximately $15,273, a maturity date in October 2022 and an annual interest rate of 5.75%, using cash on hand.
In October 2022, we repaid a mortgage note secured by one of our life science properties with an outstanding principal balance of approximately $10,287, a maturity date in October 2022 and an annual interest rate of 4.85%, using cash on hand.
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, 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. As of September 30, 2022, our ratio of consolidated income available for debt service to debt service was below the 1.5x incurrence requirement under our revolving credit facility and our public debt covenants as the effects of the COVID-19 pandemic continued to adversely impact our operations. We are unable to incur additional debt until this ratio is at or above 1.5x on a pro forma basis. We believe we were in compliance with the remaining terms and conditions of the respective covenants under our credit agreement and our senior unsecured notes indentures and their supplements at September 30, 2022, subject to the waivers noted above. Although we have taken steps to enhance our ability to maintain sufficient liquidity, a protracted negative impact on the economy or the industries in which our properties and businesses operate may cause increased pressure on our ability to satisfy financial and other covenants. 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 economic conditions or otherwise, we may fail to satisfy covenants and conditions under our credit agreement or fail to satisfy our public debt covenants. If we believe we will not be able to satisfy our financial or other covenants, we expect that we would seek waivers or amendments prior to any covenant violation or seek other financing alternatives.

Note 5.  Fair Value of Assets and Liabilities
The following table presents certain of our assets that are measured at fair value at September 30, 2022 and December 31, 2021, categorized by the level of inputs as defined in the fair value hierarchy under GAAP, used in the valuation of each asset.
As of September 30, 2022As of December 31, 2021
DescriptionCarrying AmountEstimated Fair ValueCarrying AmountEstimated Fair Value
Recurring Fair Value Measurements Assets:    
Investment in AlerisLife (Level 1) (1)
$10,156 $10,156 $31,540 $31,540 
Investment in unconsolidated joint venture (Level 3) (2)
$108,395 $108,395 $215,127 $215,127 
Investment in unconsolidated joint venture (Level 3) (3)
$51,081 $51,081 $— $— 
(1)Our 10,691,658 shares of common stock of AlerisLife Inc., or AlerisLife, 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). During the three months ended September 30, 2022 and 2021, we recorded unrealized losses of $2,674 and $14,755, respectively, and during the nine months ended September 30, 2022 and 2021, we recorded unrealized losses of $21,384 and $26,943, 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 AlerisLife common shares to their fair value. See Note 11 for further information about our investment in AlerisLife.
(2)The 10% equity interest we own in the Seaport JV is included in investments in unconsolidated joint ventures in our condensed consolidated balance sheet, and is reported at fair value, which is based on significant unobservable inputs (Level 3 inputs). The significant unobservable inputs used in the fair value analysis are a discount rate of 5.58%, an
11
DIVERSIFIED HEALTHCARE TRUST
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollar amounts in thousands, except per share data or as otherwise stated)
exit capitalization rate of 5.25%, a holding period of approximately 10 years and market rents. The assumptions made in the fair value analysis are based on the location, type and nature of the property, and current and anticipated market conditions, which are derived from appraisers, industry publications and our experience. See Note 2 for further information regarding this joint venture.
(3)The 20% equity interest we own in the LSMD JV is included in investments in unconsolidated joint ventures in our condensed consolidated balance sheet, and is reported at fair value, which is based on significant unobservable inputs (Level 3 inputs). The significant unobservable inputs used in the fair value analysis are discount rates of between 5.60% and 8.00%, exit capitalization rates of between 5.10% and 6.25%, holding periods of approximately 10 years and market rents. The assumptions we made in the fair value analysis are based on the location, type and nature of each property, and current and anticipated market conditions, which are derived from appraisers, industry publications and our experience. See Note 2 for further information regarding this joint venture.
In addition to the assets described in the table above, our financial instruments at September 30, 2022 and December 31, 2021 included cash and cash equivalents, restricted cash, other assets, our revolving credit facility, 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 September 30, 2022As of December 31, 2021
Description
Carrying Amount (1)
Estimated Fair Value
Carrying Amount (1)
Estimated Fair Value
Senior unsecured notes, 4.750% coupon rate, due 2024
$249,558 $215,470 $249,348 $257,695 
Senior unsecured notes, 9.750% coupon rate, due 2025
495,274 452,305 987,903 1,081,990 
Senior unsecured notes, 4.750% coupon rate, due 2028
493,154 315,000 492,199 491,480 
Senior unsecured notes, 4.375% coupon rate, due 2031
492,771 323,750 492,127 480,763 
Senior unsecured notes, 5.625% coupon rate, due 2042
342,469 165,620 342,183 309,260 
Senior unsecured notes, 6.250% coupon rate, due 2046
243,267 114,100 243,051 226,500 
Secured debts (2)
40,936 39,171 69,713 71,963 
 $2,357,429 $1,625,416