Real Estate Investments

12 Months Ended

Dec. 31, 2022

Our real estate properties, excluding those classified as held for sale, if any, consisted of land of $668,918 and buildings and improvements of $6,023,625 as of December 31, 2022, and land of $741,501 and buildings and improvements of $6,072,055 as of December 31, 2021. Accumulated depreciation was $1,640,094 and $188,258 for buildings and improvements, respectively, as of December 31, 2022, and $1,587,573 and $150,234 for buildings and improvements, respectively, as of December 31, 2021.

Our portfolio as of December 31, 2022 includes: 105 medical office and life science properties with approximately 8.8 million rentable square feet; 264 senior living communities, including independent living (including active adult), assisted living, memory care and skilled nursing facilities, or SNFs, with 27,408 living units; and 10 wellness centers with approximately 812,000 square feet of interior space plus outdoor developed facilities.

We have accounted for our 2022 acquisition as an acquisition of assets. We funded this acquisition using cash on hand.

Joint Venture Activities:

As of December 31, 2022, we had equity investments in joint ventures as follows:


Joint Venture	DHC Ownership	DHC Carrying Value of Investment at December 31, 2022		Number of Properties	Location	Square Feet
Seaport Innovation LLC	10%	$	104,697	1	MA	1,134,479
The LSMD Fund REIT LLC	20%	50,780		10	CA, MA, NY, TX, WA	1,068,763
		$	155,477	11		2,203,242

The following table provides a summary of the mortgage debts of these joint ventures:


Joint Venture	Coupon Rate	Maturity Date	Principal Balance at December 31, 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%	2/11/2032	189,800
Mortgage Notes Payable (secured by one property in California) (3)	5.90%	2/9/2024	266,825
Weighted Average / Total	4.10%		$	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 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 December 31, 2022. This joint venture has also purchased an interest rate cap through February 2024 with a SOFR strike rate equal to 4.00%.

In March 2017, we entered into the Seaport JV with an institutional investor. The investor owned a 45% equity interest in the joint venture, and we owned the remaining 55% equity interest in the joint venture. We determined that, while we owned a 55% equity interest in this joint venture, this joint venture was a VIE as defined under the Consolidation Topic of the Financial Accounting Standards Board Codification. We concluded that we must consolidate this VIE, and we did so, until we sold an additional 35% equity interest in the joint venture in December 2021. We reached this determination because we were the entity with the power to direct the activities that most significantly impacted the VIE's economic performance and we had the obligation to absorb losses of, and the right to receive benefits from, the VIE that could be significant to the VIE, and therefore were the primary beneficiary of the VIE. The joint venture investor's interest in this consolidated entity was reflected as noncontrolling interest in our consolidated financial statements.

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 the net assets of this joint venture and recognized a net gain on sale of $461,434 related to this transaction during the year ended December 31, 2021, which is included in gain on sale of properties in our consolidated statements of comprehensive income (loss). After giving effect to the sale, we owned a 20% equity interest in this joint venture, but determined that we were no longer the primary beneficiary. 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. We received net proceeds of $108,424 from this transaction, which included working capital prorations and formation costs. We recognized a net loss on sale of $1,428 related to this transaction during the year ended December 31, 2022, which is included in gain on sale of properties in our 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 10 for more information regarding the valuation of our investment in this joint venture.

In January 2022, we entered into the LSMD JV with two unrelated third party institutional investors. 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 during the year ended December 31, 2022, which is included in gain on sale of properties in our 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 10 for more information regarding the valuation of our investment in this joint venture.

Acquisitions:

The table below represents the purchase price allocations (including net closing adjustments) of acquisitions for the years ended December 31, 2022, 2021 and 2020:

Date

Location

Type of Property

Number of Properties

Square Feet

Cash Paid (1)

Land

Buildings
and
Improvements

Acquired
Real Estate
Leases

Acquisitions during the year ended December 31, 2022:

July 2022

California

Life Science

88,508

75,105

15,774

45,249

14,082

Acquisitions during the year ended December 31, 2021:

We did not acquire any properties during the year ended December 31, 2021.

Acquisitions during the year ended December 31, 2020:

We did not acquire any properties during the year ended December 31, 2020.

(1)Cash paid includes closing costs.

In January 2020, we acquired a vacant land parcel adjacent to a life science property we own located in Tempe, Arizona for $2,600, excluding acquisition costs.

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 undiscounted 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 2022, no impairment charges were recorded on held and used properties.

During 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 in our consolidated balance sheet 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. These impairment charges, in aggregate, are included in impairment of assets in our consolidated statements of comprehensive income (loss).

During 2020, we recorded impairment charges of $98,414 to adjust the carrying values of 28 senior living communities to their aggregate estimated fair value. These 28 senior living communities included nine senior living communities which we sold in 2020, seven senior living communities which we closed in 2020 and three of which we sold in February 2023, and 10 senior living communities which were classified as held for sale in our consolidated balance sheet as of December 31, 2020. During 2020, we also recorded impairment charges of $8,558 to adjust the carrying value of seven medical office properties to their estimated fair value. We sold four of these medical office properties in 2020. One of these medical office properties was classified as held for sale in our consolidated balance sheet as of December 31, 2020 and sold in February 2021. These impairment charges, in aggregate, are included in impairment of assets in our consolidated statements of comprehensive income (loss).

Dispositions:

During the year ended December 31, 2022, we did not dispose of any properties, and during the years ended December 31, 2021 and 2020, we sold five and 27 properties, respectively, for aggregate sales prices of $104,500 and $152,893, respectively, excluding closing costs, as presented in the table below. The sales of these properties do not represent significant dispositions, individually or in the aggregate, and we do not believe these sales represent a strategic shift in our business. As a result, the results of operations for these properties are included in continuing operations through the date of sale of such properties in our consolidated statements of comprehensive income (loss).


Date of Sale	Location	Type of Property	Number of Properties	Square Feet or Number of Units		Sales Price (1)		Gain (loss) on Sale
Dispositions during the year ended December 31, 2022:
We did not dispose of any properties during the year ended December 31, 2022.


Dispositions during the year ended December 31, 2021:
February 2021	Pennsylvania	Medical Office	1	92,000	sq. ft.	$	9,000	$	(122)
April 2021	Florida	Life Science / Medical Office	4	263,656	sq. ft.	95,500		30,760
			5			$	104,500	$	30,638

Dispositions during the year ended December 31, 2020:
January 2020	Louisiana	Medical Office	6	40,575	sq. ft.	$	5,925	$	(81)
February 2020	Pennsylvania	Medical Office	1	50,000	sq. ft.	2,900		—
March 2020	Texas	Medical Office	1	70,229	sq. ft.	8,779		2,863
April 2020 (2)	California	IL / AL	3	599	units	47,000		(256)
June 2020	South Carolina	Medical Office	1	49,242	sq. ft.	3,550		—
July 2020	Texas	Medical Office	1	6,849	sq. ft.	2,072		(30)
July 2020	Connecticut	Medical Office	1	32,162	sq. ft.	625		(25)
August 2020 (2)	Mississippi	AL	2	116	units	2,500		(42)
September 2020	Mississippi	Medical Office	1	78,747	sq. ft.	7,250		(114)
October 2020	Various	AL	3	239	units	46,000		4,292
November 2020 (2)	Nebraska	AL	1	131	units	3,000		(26)
December 2020	New York	Medical Office	1	64,060	sq. ft.	3,875		(273)
December 2020	Ohio	Life Science	2	232,016	sq. ft.	7,917		257
December 2020 (2)	Wisconsin	SNF / AL	3	537	units	11,500		(303)
			27			$	152,893	$	6,262

(1)Sales price excludes closing costs.

(2)These senior living communities were previously operated by Five Star.

We classify all properties as held for sale in our consolidated balance sheets that meet the applicable criteria for that treatment as set forth in the Property, Plant and Equipment Topic of the Codification. As of December 31, 2022, we had one closed senior living community classified as held for sale. As of December 31, 2021, we had no properties classified as held for sale.

In February 2023, we sold three closed senior living communities, including the community classified as held for sale as of December 31, 2022, for an aggregate sales price of $2,800, excluding closing costs.

Investments and Capital Expenditures:

During 2022, we committed $22,911 for leasing related costs related to 0.9 million square feet of leases executed at our medical office and life science properties. During 2021, we committed $97,520 for leasing related costs related to 2.6 million square feet of leases executed at our medical office and life science properties.

Committed and unspent tenant related obligations based on executed leases as of December 31, 2022 and 2021 were $39,314 and $76,573, respectively.

Other:

In September 2022, certain of our managed senior living communities located in Florida experienced hurricane related damage. We carry comprehensive property, casualty, flood and business interruption insurances that we anticipate will cover our losses at these senior living communities, subject to a deductible. During the year ended December 31, 2022, we incurred total losses of $11,253 related to the property damage sustained and deductible incurred. For the year ended December 31, 2022, we recognized a loss of $7,635 for the involuntary conversion of nonmonetary assets and wrote off a portion of the net book value of the damaged assets and included this amount in our consolidated statements of comprehensive income (loss). As of December 31, 2022, we received $14,466 in cash from our insurance provider, and as such, we have recovered the total losses of $11,253 incurred during the year ended December 31, 2022. The loss of $7,635 for the involuntary conversion of nonmonetary assets, recovery of those $7,635 in losses and the deductible of $3,618 are included in property operating

expenses in our consolidated statements of comprehensive income (loss). We received $3,213 in cash in excess of our losses, which is included in other liabilities in our consolidated balance sheets.