BASIS OF PRESENTATION. Our consolidated financial statements include the accounts of Diversified Healthcare Trust, we, us or our, and our subsidiaries, all of which are 100% owned directly or indirectly by us. All intercompany transactions and balances with or among our consolidated subsidiaries have been eliminated. Accounting principles generally accepted in the United States, or GAAP, require us to make estimates and assumptions that may affect the amounts reported in these financial statements and related notes. The actual results could differ from these estimates.

We allocate the purchase prices of our properties to land, building and improvements based on determinations of the fair values of these assets assuming the properties are vacant. We determine the fair value of each property using methods similar to those used by independent appraisers, which may involve estimated cash flows that are based on a number of factors, including capitalization rates and discount rates, among others. In some circumstances, we engage independent real estate appraisal firms to provide market information and evaluations which are relevant to our purchase price allocations and determinations of depreciable useful lives; however, we are ultimately responsible for the purchase price allocations and determinations of useful lives. We allocate a portion of the purchase price to above market and below market leases based on the present value (using an interest rate which reflects the risks associated with acquired in place leases at the time each property was acquired by us) of the difference, if any, between (i) the contractual amounts to be paid pursuant to the acquired in place leases and (ii) our estimates of fair market lease rates for the corresponding leases, measured over a period equal to the terms of the respective leases. The terms of below market leases that include bargain renewal options, if any, are further adjusted if we determine that renewal is probable. We allocate a portion of the purchase price to acquired in place leases and tenant relationships based upon market estimates to lease up the property based on the leases in place at the time of purchase. In making these allocations, we consider factors such as estimated carrying costs during the expected lease up periods, including real estate taxes, insurance and other operating income and expenses and costs, such as leasing commissions, legal and other related expenses, to execute similar leases in current market conditions at the time a property was acquired by us. We allocate this aggregate value between acquired in place lease values and tenant relationships based on our evaluation of the specific characteristics of each tenant's lease. However, we have not separated the value of tenant relationships from the value of acquired in place leases because such value and related amortization expense is immaterial to our consolidated financial statements. If the value of tenant relationships becomes material in the future, we may separately allocate those amounts and amortize the allocated amount over the estimated life of the relationships.

We amortize capitalized above market lease values (included in acquired real estate leases and other intangible assets, net in our consolidated balance sheets) as a reduction to rental income over the remaining non-cancelable terms of the respective leases. We amortize capitalized below market lease values (presented as assumed real estate lease obligations in our consolidated balance sheets) as an increase to rental income over the non-cancelable periods of the respective leases. For the years ended December 31, 2021, 2020 and 2019, such amortization resulted in a net increase in rental income of $7,211, $7,405 and $6,791, respectively. We amortize the value of in place leases exclusive of the value of above market and below market in place leases to expense over the remaining non-cancelable periods of the respective leases. During the years ended December 31, 2021, 2020 and 2019, such amortization included in depreciation totaled $42,783, $48,669 and $64,203, respectively. If a lease is terminated prior to its stated expiration, the unamortized amount relating to that lease is written off.


	December 31,
	2021		2020
Acquired real estate leases:
Capitalized above market lease values (1)	$	8,092	$	12,304
Less: accumulated amortization	(6,268)		(9,236)
Capitalized above market lease values, net	1,824		3,068

Lease origination value	123,682		551,141
Less: accumulated amortization	(76,760)		(267,696)
Lease origination value, net	46,922		283,445
Acquired real estate leases and other intangible assets, net	$	48,746	$	286,513

Assumed real estate lease obligations:
Capitalized below market lease values	$	6,141	$	128,991
Less: accumulated amortization	(3,585)		(61,161)
Assumed real estate lease obligations, net	$	2,556	$	67,830

As of December 31, 2021, the weighted average amortization periods for capitalized above market lease values, lease origination value and capitalized below market lease values were 3.7 years, 5.3 years and 6.9 years, respectively. Future amortization of net intangible acquired real estate lease assets and liabilities to be recognized over the current terms of the associated leases as of December 31, 2021 are estimated to be $12,095 in 2022, $11,326 in 2023, $8,030 in 2024, $4,869 in 2025, $3,267 in 2026 and $6,603 thereafter.

INVESTMENTS IN EQUITY SECURITIES. We previously owned 2,637,408 shares of class A common stock of The RMR Group Inc., or RMR Inc., that we sold on July 1, 2019. Prior to July 1, 2019, our equity securities were recorded at fair value based on their quoted market price at the end of each reporting period. We classify the common shares we own of AlerisLife Inc. (f/k/a Five Star Senior Living Inc.), or AlerisLife, as an equity method investment. This equity method investment is included in investments of equity securities in our consolidated balance sheets.

On April 1, 2019, we and Five Star Senior Living, or Five Star, which is an operating division of AlerisLife, entered into a transaction agreement, or the Transaction Agreement, to restructure our business arrangements with Five Star effective January 1, 2020, or the 2020 Restructuring Transaction. At December 31, 2019, we owned 423,500 AlerisLife common shares after giving effect to the one-for-ten reverse stock split effected by AlerisLife with respect to its common shares on September 30, 2019. Pursuant to the 2020 Restructuring Transaction, on January 1, 2020, AlerisLife issued 10,268,158 common shares to us. The fair value and initial cost basis of the AlerisLife common shares issued to us on January 1, 2020 was $38,095. At December 31, 2021, we owned 10,691,658 AlerisLife common shares. At December 31, 2021 and 2020, our investment in AlerisLife had a fair value of $31,540 and $73,772, respectively, including an unrealized loss of $42,232 and unrealized gain of $34,106, respectively. Based on the terms of the Transaction Agreement, including the issuance of additional AlerisLife shares to us, we concluded that we have significant influence over AlerisLife and therefor account for our investment in AlerisLife as an equity method investment starting January 1, 2020. We have elected the fair value option for our investment in AlerisLife. We continue to present our investment in AlerisLife in Investments in equity securities in our consolidated balance sheets due to the comparable accounting treatment of the shares we owned in AlerisLife as of December 31, 2021 and 2020.

EQUITY METHOD INVESTMENTS. As of December 31, 2021, we owned a 20% equity interest in an unconsolidated joint venture which owns a life science property located in Boston, Massachusetts. The property owned by this joint venture is encumbered by an aggregate $620,000 of mortgage debts. We do not control the activities that are most significant to this joint venture and, as a result, we account for our investment in this joint venture under the equity method of accounting under the fair value option. See Notes 3, 10 and 11 for more information regarding this joint venture.

We account for our investment in Affiliates Insurance Company, or AIC, until AIC was dissolved as described in Note 8, using the equity method of accounting. Significant influence was present through common representation on our Board of Trustees and the board of directors of AIC until February 13, 2020. The Chair of our Board of Trustees and one of our Managing Trustees, Adam D. Portnoy, as the sole trustee of ABP Trust, is the controlling shareholder of RMR Inc. He is also a managing director and an executive officer of RMR Inc. Substantially all of the business of RMR Inc. is conducted by its majority owned subsidiary, The RMR Group LLC, or RMR LLC, which is our manager and provided management and administrative services to AIC. Most of our Trustees were directors of AIC. See Note 8 for more information about our investment in AIC. As previously discussed, we also account for our investment in AlerisLife as an equity method investment under the fair value option.

DEBT ISSUANCE COSTS. Debt issuance costs include issuance or assumption costs related to borrowings and we amortize those costs as interest expense over the terms of the respective loans. Debt issuance costs for our revolving credit facility totaled $27,383 and $19,332 at December 31, 2021 and 2020, respectively, and accumulated amortization of debt issuance costs totaled $22,899 and $16,201 at December 31, 2021 and 2020, respectively, and are included in other assets in our consolidated balance sheets. Debt issuance costs for our previously existing term loans, senior notes, and mortgage notes payable totaled $53,649 and $53,496 at December 31, 2021 and 2020, respectively, and accumulated amortization of debt issuance costs totaled $15,800 and $15,589, respectively, and are presented in our consolidated balance sheet as a direct deduction from the associated debt liability. Future amortization of debt issuance costs to be recognized with respect to our loans as of December 31, 2021 are estimated to be $9,974 in 2022, $5,832 in 2023, $5,521 in 2024, $3,556 in 2025, $1,956 in 2026 and $15,494 thereafter.

DEFERRED LEASING COSTS. Deferred leasing costs include capitalized brokerage and other fees associated with the successful negotiation of leases, which are amortized to depreciation and amortization expense on a straight line basis over the terms of the respective leases. Deferred leasing costs are included in other assets in our consolidated balance sheets. Deferred leasing costs totaled $64,255 and $44,506 at December 31, 2021 and 2020, respectively, and accumulated amortization of deferred leasing costs totaled $17,074 and $15,605 at December 31, 2021 and 2020, respectively. At December 31, 2021, the remaining weighted average amortization period is approximately 8.7 years. Future amortization of deferred leasing costs to be recognized during the current terms of our existing leases as of December 31, 2021, are estimated to be $7,168 in 2022, $6,502 in 2023, $5,903 in 2024, $5,397 in 2025, $4,732 in 2026 and $17,479 thereafter.

For leases where we are the lessee, we recognize 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 right of use asset and related lease liability are included within other assets, net and other liabilities, respectively, within our 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, will not be recorded on our consolidated balance sheets.

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 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.

Certain tenants are obligated to pay directly their obligations under their leases for insurance, real estate taxes and certain other expenses. These obligations, which have been assumed by the tenants under the terms of their respective leases, are not reflected in our consolidated financial statements. To the extent any tenant responsible for any such obligations under the applicable lease defaults on such lease or if it is deemed probable that the tenant will fail to pay for such obligations, we would record a liability for such obligations.

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 recognize income from government grants on a systematic and rational basis over the period in which we recognize the related expenses or loss of revenues for which the grants are intended to compensate when there is reasonable assurance that we will comply with the applicable terms and conditions of the grant and there is reasonable assurance that the grant will be received. During the years ended December 31, 2021 and 2020, we received $20,800 and $19,961, respectively, in funds from the Provider Relief Fund to be used to support the operations of our managed senior living communities; we have currently determined that $19,554 and $17,485 of such funds meet the required terms and conditions. We have recognized $19,554 and $17,485 as other income in our consolidated statements of comprehensive income (loss) with respect to our senior housing operating portfolio, or SHOP, segment for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, we had not recognized $3,722 and $2,476, respectively, of funds from the Provider Relief Fund and included these amounts in other liabilities in our consolidated balance sheets. We currently expect to return the remaining $3,722 of such funds to HHS in 2022 unless and to the extent we determine that such funds meet the required terms and conditions. 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.

PER COMMON SHARE AMOUNTS. We calculate basic earnings per common share by dividing net income (loss) by the weighted average number of our common shares of beneficial interest, $.01 par value, or our common shares, outstanding during the period. We calculate diluted earnings per common 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.

INCOME TAXES. We have elected to be taxed as a REIT under the United States 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.

The Income Taxes Topic of the Codification prescribes how we should recognize, measure and present in our financial statements uncertain tax positions that have been taken or are expected to be taken in a tax return. Tax benefits are recognized to the extent that it is “more likely than not” that a particular tax position will be sustained upon examination or audit. To the extent the “more likely than not” standard has been satisfied, the benefit associated with a tax position is measured as the largest

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

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, or ASU No. 2021-08, which requires that an acquirer account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The acquiring entity shall recognize and measure the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements, rather than at fair value at the acquisition date. ASU No. 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. On October 1, 2021, we early adopted ASU No. 2021-08. The adoption of ASU No. 2021-08 did not have an impact on our consolidated financial statements.

In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, or ASU No. 2021-10, which requires business entities to disclose government assistance accounted for by applying a grant or contribution model by analogy. ASU No. 2021-10 states that an entity shall disclose the nature of the transactions, the related accounting policies used, the effect of the transactions on an entity's financial statements and significant terms and conditions of the transactions. ASU No. 2021-10 is effective for annual periods beginning after December 15, 2021, with early adoption permitted. On November 17, 2021, we early adopted ASU No. 2021-10. The adoption of ASU No. 2021-10 did not have a material impact on our consolidated financial statements.