Exhibit 99.1
DIVERSIFIED HEALTHCARE TRUST
Introduction to Unaudited Pro Forma Condensed Consolidated Financial Statements
On January 28, 2022 we entered into a joint venture for 10 of our medical office and life science properties with two unrelated third party institutional investors for total cash proceeds of approximately $653.3 million. The investors acquired a 41% and 39% equity interest in this joint venture from us for approximately $100.8 million and $95.9 million, respectively, and we retained a 20% equity interest in this joint venture. The investment amounts are based on a property valuation of $702.5 million, less approximately $456.6 million of secured debt on the properties incurred by this joint venture.
Also, as previously disclosed in our Current Report on Form 8-K filed with the Securities and Exchange Commission on December 29, 2021, on December 23, 2021, we sold a 35% equity interest from the 55% equity interest we owned in a pre-existing joint venture arrangement with an institutional investor for a life science property located in Boston, Massachusetts to another unrelated third party institutional investor for $378.0 million. We continue to own a 20% equity interest in this joint venture and the pre-existing joint venture partner continues to own a 45% equity interest in this joint venture.
Pursuant to the agreement governing our revolving credit facility, or our credit agreement, the net cash proceeds to us from these transactions are being held as restricted cash. Effective as of the applicable date of these transactions, the results of operations of these joint ventures are deconsolidated and our remaining 20% equity interest in each joint venture is accounted for using the equity method.
The unaudited pro forma condensed consolidated balance sheet at September 30, 2021 reflects our financial position as if the transactions described in the notes to the unaudited condensed consolidated pro forma financial statements were completed on September 30, 2021. The unaudited pro forma condensed consolidated statements of income (loss) for the nine months ended September 30, 2021 and the year ended December 31, 2020 present our results of operations as if the transactions described in the notes to the unaudited condensed consolidated pro forma financial statements were completed on January 1, 2020.
These unaudited pro forma condensed consolidated financial statements should be read in connection with our unaudited financial statements for the nine months ended September 30, 2021, included in our Quarterly Report on Form 10-Q filed on November 3, 2021 with the Securities and Exchange Commission, or the SEC, and our audited financial statements for the year ended December 31, 2020, included in our Annual Report on Form 10-K filed on February 25, 2021 with the SEC.
These unaudited pro forma condensed consolidated financial statements are provided for informational purposes only. Our financial position and results of operations may be significantly different than what is presented in these unaudited pro forma condensed consolidated financial statements. In the opinion of our management, all adjustments necessary to reflect the effects of the transactions described in the notes to the unaudited pro forma condensed consolidated financial statements have been included.
Adjustments have been made to the unaudited pro forma condensed consolidated balance sheet and the unaudited pro forma condensed consolidated statements of income (loss) to reflect factually supportable items that are directly attributable to these transactions, and with respect to the unaudited pro forma condensed consolidated statements of income (loss), are expected to have a continuing impact on our financial results.
DIVERSIFIED HEALTHCARE TRUST
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 2021
(dollars in thousands, except share data)
| | | Historical | | | Sale of Interest in Boston JV | | | Deconsolidation of Boston JV | | | Sale of Interest in 10 Property
JV | | | Deconsolidation of 10 Property JV | | | Pro Forma | |
| | | | | | (A) | | | (B) | | | (C) | | | (D) | | | | |
| Assets | | | | | | | | | | | | | | | | | | | | | | | | |
| Real estate properties: | | | | | | | | | | | | | | | | | | | | | | | | |
| Land | | $ | 793,555 | | | $ | — | | | $ | (52,644 | ) | | $ | — | | | $ | (89,393 | ) | | $ | 651,518 | |
| Buildings and improvements | | | 6,760,990 | | | | — | | | | (783,572 | ) | | | — | | | | (360,315 | ) | | | 5,617,103 | |
| Total real estate properties, gross | | | 7,554,545 | | | | — | | | | (836,216 | ) | | | — | | | | (449,708 | ) | | | 6,268,621 | |
| Accumulated depreciation | | | (1,841,172 | ) | | | — | | | | 145,833 | | | | — | | | | 93,159 | | | | (1,602,180 | ) |
| Total real estate properties, net | | | 5,713,373 | | | | — | | | | (690,383 | ) | | | — | | | | (356,549 | ) | | | 4,666,441 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | | 794,739 | | | | — | | | | 252 | | | | — | | | | — | | | | 794,991 | |
| Restricted cash | | | 16,698 | | | | 373,832 | | | | (13,800 | ) | | | 649,237 | | | | — | | | | 1,025,967 | |
| Investment in unconsolidated joint venture | | | — | | | | 216,540 | | | | — | | | | 49,095 | | | | — | | | | 265,635 | |
| Acquired real estate leases and other intangible assets, net | | | 252,629 | | | | — | | | | (199,913 | ) | | | — | | | | (5,671 | ) | | | 47,045 | |
| Other assets, net | | | 288,609 | | | | — | | | | (27,597 | ) | | | — | | | | (24,140 | ) | | | 236,872 | |
| Total assets | | $ | 7,066,048 | | | $ | 590,372 | | | $ | (931,441 | ) | | $ | 698,332 | | | $ | (386,360 | ) | | $ | 7,036,951 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Liabilities and Equity | | | | | | | | | | | | | | | | | | | | | | | | |
| Revolving credit facility | | $ | 800,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 800,000 | |
| Senior unsecured notes, net | | | 2,805,154 | | | | — | | | | — | | | | — | | | | — | | | | 2,805,154 | |
| Secured debt and finance leases, net | | | 689,044 | | | | — | | | | (618,377 | ) | | | — | | | | — | | | | 70,667 | |
| Accrued interest | | | 47,234 | | | | — | | | | (1,520 | ) | | | — | | | | — | | | | 45,714 | |
| Assumed real estate lease obligations, net | | | 61,335 | | | | — | | | | (58,645 | ) | | | — | | | | (1,106 | ) | | | 1,584 | |
| Other liabilities | | | 253,624 | | | | — | | | | (12,001 | ) | | | — | | | | (6,894 | ) | | | 234,729 | |
| Total liabilities | | | 4,656,391 | | | | — | | | | (690,543 | ) | | | — | | | | (8,000 | ) | | | 3,957,848 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Commitments and contingencies | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity: | | | | | | | | | | | | | | | | | | | | | | | | |
| Equity attributable to common shareholders: | | | | | | | | | | | | | | | | | | | | | | | | |
| Common shares of beneficial interest, $.01 par value | | | 2,390 | | | | — | | | | — | | | | — | | | | — | | | | 2,390 | |
| Additional paid in capital | | | 4,615,162 | | | | 130,123 | | | | (130,123 | ) | | | 378,360 | | | | (378,360 | ) | | | 4,615,162 | |
| Cumulative net income | | | 1,722,039 | | | | 460,249 | | | | — | | | | 319,972 | | | | — | | | | 2,502,260 | |
| Cumulative distributions | | | (4,040,709 | ) | | | — | | | | — | | | | — | | | | — | | | | (4,040,709 | ) |
| Total equity attributable to common shareholders | | | 2,298,882 | | | | 590,372 | | | | (130,123 | ) | | | 698,332 | | | | (378,360 | ) | | | 3,079,103 | |
| Noncontrolling interest: | | | | | | | | | | | | | | | | | | | | | | | | |
| Total equity attributable to noncontrolling interest | | | 110,775 | | | | — | | | | (110,775 | ) | | | — | | | | — | | | | — | |
| Total equity | | | 2,409,657 | | | | 590,372 | | | | (240,898 | ) | | | 698,332 | | | | (378,360 | ) | | | 3,079,103 | |
| Total liabilities and equity | | $ | 7,066,048 | | | $ | 590,372 | | | $ | (931,441 | ) | | $ | 698,332 | | | $ | (386,360 | ) | | $ | 7,036,951 | |
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
DIVERSIFIED HEALTHCARE TRUST
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS)
For the Nine Months Ended September 30, 2021
(amounts in thousands, except per share data)
| | | Historical | | | Sale of Interest in Boston JV | | | Deconsolidation of Boston JV | | | Sale of Interest in 10 Property
JV | | | Deconsolidation of 10 Property JV | | | Pro Forma | |
| | | | | | (E) | | | (F) | | | (G) | | | (H) | | | | |
| Revenues: | | | | | | | | | | | | | | | | | | | | | | | | |
| Rental income | | $ | 306,555 | | | $ | — | | | $ | (81,581 | ) | | $ | — | | | $ | (42,203 | ) | | $ | 182,771 | |
| Residents fees and services | | | 739,926 | | | | — | | | | — | | | | — | | | | — | | | | 739,926 | |
| Total revenues | | | 1,046,481 | | | | — | | | | (81,581 | ) | | | — | | | | (42,203 | ) | | | 922,697 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
| Property operating expenses | | | 818,096 | | | | — | | | | (20,995 | ) | | | — | | | | (13,729 | ) | | | 783,372 | |
| Depreciation and amortization | | | 202,743 | | | | — | | | | (35,159 | ) | | | — | | | | (9,775 | ) | | | 157,809 | |
| General and administrative | | | 25,538 | | | | — | | | | (2,211 | ) | | | — | | | | — | | | | 23,327 | |
| Acquisition and certain other transaction related costs | | | 15,179 | | | | — | | | | — | | | | — | | | | — | | | | 15,179 | |
| Impairment of assets | | | (174 | ) | | | — | | | | — | | | | — | | | | — | | | | (174 | ) |
| Total expenses | | | 1,061,382 | | | | — | | | | (58,365 | ) | | | — | | | | (23,504 | ) | | | 979,513 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gain on sale of properties | | | 30,838 | | | | — | | | | — | | | | — | | | | — | | | | 30,838 | |
| Gains and losses on equity securities, net | | | (26,943 | ) | | | — | | | | — | | | | — | | | | — | | | | (26,943 | ) |
| Interest and other income | | | 19,849 | | | | — | | | | — | | | | — | | | | — | | | | 19,849 | |
| Interest expense | | | (192,241 | ) | | | — | | | | 16,848 | | | | — | | | | — | | | | (175,393 | ) |
| Loss on early extinguishment of debt | | | (2,410 | ) | | | — | | | | — | | | | — | | | | — | | | | (2,410 | ) |
| Loss from continuing operations before income tax expense and equity in earnings of an investee | | | (185,808 | ) | | | — | | | | (6,368 | ) | | | — | | | | (18,699 | ) | | | (210,875 | ) |
| Income tax expense | | | (1,024 | ) | | | — | | | | — | | | | — | | | | — | | | | (1,024 | ) |
| Equity in earnings of an investee | | | — | | | | 1,142 | | | | — | | | | 1,850 | | | | — | | | | 2,992 | |
| Net (loss) income | | | (186,832 | ) | | | 1,142 | | | | (6,368 | ) | | | 1,850 | | | | (18,699 | ) | | | (208,907 | ) |
| Net income attributable to noncontrolling interest | | | (4,238 | ) | | | — | | | | 4,238 | | | | | | | | — | | | | — | |
| Net (loss) income attributable to common shareholders | | $ | (191,070 | ) | | $ | 1,142 | | | $ | (2,130 | ) | | $ | 1,850 | | | $ | (18,699 | ) | | $ | (208,907 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Weighted average common shares outstanding (basic and diluted) | | | 237,905 | | | | | | | | | | | | | | | | | | | | 237,905 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Per common share amounts (basic and diluted): | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss attributable to common shareholders | | $ | (0.80 | ) | | | | | | | | | | | | | | | | | | $ | (0.88 | ) |
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
DIVERSIFIED HEALTHCARE TRUST
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS)
For the Year Ended December 31, 2020
(amounts in thousands, except per share data)
| | | Historical | | | Sale of Interest in Boston JV | | | Deconsolidation of Boston JV | | | Sale of Interest in 10 Property JV | | | Deconsolidation of 10 Property JV | | | Pro Forma | |
| | | | | | (I) | | | (J) | | | (K) | | | (L) | | | | |
| Revenues: | | | | | | | | | | | | | | | | | | | | | | | | |
| Rental income | | $ | 427,215 | | | $ | — | | | $ | (107,644 | ) | | $ | — | | | $ | (54,898 | ) | | $ | 264,673 | |
| Residents fees and services | | | 1,204,811 | | | | — | | | | — | | | | — | | | | — | | | | 1,204,811 | |
| Total revenues | | | 1,632,026 | | | | — | | | | (107,644 | ) | | | — | | | | (54,898 | ) | | | 1,469,484 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
| Property operating expenses | | | 1,236,357 | | | | — | | | | (27,703 | ) | | | — | | | | (18,159 | ) | | | 1,190,495 | |
| Depreciation and amortization | | | 270,147 | | | | — | | | | (46,887 | ) | | | — | | | | (13,051 | ) | | | 210,209 | |
| General and administrative | | | 30,593 | | | | — | | | | (2,944 | ) | | | — | | | | — | | | | 27,649 | |
| Acquisition and certain other transaction related costs | | | 814 | | | | — | | | | — | | | | — | | | | — | | | | 814 | |
| Impairment of assets | | | 106,972 | | | | — | | | | — | | | | — | | | | — | | | | 106,972 | |
| Total expenses | | | 1,644,883 | | | | — | | | | (77,534 | ) | | | — | | | | (31,210 | ) | | | 1,536,139 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gain on sale of properties | | | 6,487 | | | | — | | | | — | | | | — | | | | — | | | | 6,487 | |
| Gains and losses on equity securities, net | | | 34,106 | | | | — | | | | — | | | | — | | | | — | | | | 34,106 | |
| Interest and other income | | | 18,221 | | | | — | | | | (20 | ) | | | — | | | | — | | | | 18,201 | |
| Interest expense | | | (201,483 | ) | | | — | | | | 22,586 | | | | — | | | | — | | | | (178,897 | ) |
| Gain on lease termination | | | 22,896 | | | | — | | | | — | | | | — | | | | — | | | | 22,896 | |
| Loss on early extinguishment of debt | | | (427 | ) | | | — | | | | — | | | | — | | | | — | | | | (427 | ) |
| Loss from continuing operations before income tax expense and equity in earnings of an investee | | | (133,057 | ) | | | — | | | | (7,544 | ) | | | — | | | | (23,688 | ) | | | (164,289 | ) |
| Income tax expense | | | (1,250 | ) | | | — | | | | — | | | | — | | | | — | | | | (1,250 | ) |
| Equity in earnings of an investee | | | — | | | | 1,334 | | | | — | | | | 2,218 | | | | — | | | | 3,552 | |
| Net (loss) income | | | (134,307 | ) | | | 1,334 | | | | (7,544 | ) | | | 2,218 | | | | (23,688 | ) | | | (161,987 | ) |
| Net income attributable to noncontrolling interest | | | (5,146 | ) | | | — | | | | 5,146 | | | | — | | | | — | | | | — | |
| Net (loss) income attributable to common shareholders | | $ | (139,453 | ) | | $ | 1,334 | | | $ | (2,398 | ) | | $ | 2,218 | | | $ | (23,688 | ) | | $ | (161,987 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Weighted average common shares outstanding (basic and diluted) | | | 237,739 | | | | | | | | | | | | | | | | | | | | 237,739 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Per common share amounts (basic and diluted): | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss attributable to common shareholders | | $ | (0.59 | ) | | | | | | | | | | | | | | | | | | $ | (0.68 | ) |
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
DIVERSIFIED HEALTHCARE TRUST
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Unaudited Pro Forma Condensed Consolidated Balance Sheet at September 30, 2021 Adjustments
| (A) | As of September 30, 2021, we owned a 55% equity interest in a joint venture with a third party institutional investor for a property located in Boston, Massachusetts, or the Boston JV. The adjustments represent the effect of our sale on December 23, 2021 of a 35% equity interest in the Boston JV from the 55% equity interest we owned for approximately $373,832, net of closing costs, to another unrelated third party institutional investor, and the proceeds of this transaction being held by us as restricted cash pursuant to our credit agreement, as if this transaction occurred on September 30, 2021. We have adjusted retained earnings to recognize an estimated gain of $460,249. We continue to own a 20% equity interest in the Boston JV. |
| (B) | The adjustments represent the elimination of the assets, liabilities and noncontrolling interest related to the deconsolidation of the Boston JV. |
| (C) | The adjustments represent the acquisition on January 28, 2022 by two institutional investors of a 41% and 39% equity interest in a joint venture from us for 10 of our medical office and life science properties for approximately $100,800 and $95,900, respectively, or the 10 Property JV. The investment amounts are based on a property valuation of $702,500, before closing costs and less approximately $456,600 of secured debt on the properties incurred by the 10 Property JV. The approximately $653,300 of total cash proceeds from this transaction, before closing costs or other adjustments, will be held by us as restricted cash, pursuant to our credit agreement, as if this transaction occurred on September 30, 2021. We have adjusted retained earnings to recognize an estimated gain of $319,972. We continue to own a 20% equity interest in the 10 Property JV. |
| (D) | The adjustments represent the elimination of the assets and liabilities related to the deconsolidation of the 10 Property JV. |
Unaudited Pro Forma Condensed Consolidated Statement of Income (Loss) for the nine months ended September 30, 2021 Adjustments
| (E) | The adjustments represent pro forma equity in earnings of an investee representing our pro forma 20% equity interest in the Boston JV for the nine months ended September 30, 2021. |
| (F) | The adjustments represent the historical income and expenses relating to the Boston JV as of and for the nine months ended September 30, 2021, which are being removed as a result of the deconsolidation of the Boston JV. The decrease in general and administrative expenses primarily represents the removal of the historical asset management fee paid by a subsidiary of the Boston JV to The RMR Group LLC, or RMR LLC, as a result of the deconsolidation of the Boston JV. The asset management agreement between the subsidiary of the Boston JV and RMR LLC will continue to remain in effect, but the asset management fees paid under that agreement will not be included in our consolidated results. |
| (G) | The adjustments represent pro forma equity in earnings of an investee representing our pro forma 20% equity interest in the 10 Property JV for the nine months ended September 30, 2021. |
| (H) | The adjustments represent the historical income and expenses relating to the medical office and life science properties we contributed to the 10 Property JV as of and for the nine months ended September 30, 2021, which are being removed as a result of the deconsolidation of the 10 Property JV. |
Unaudited Pro Forma Condensed Consolidated Statement of Income (Loss) for the year ended December 31, 2020 Adjustments
| (I) | The adjustments represent pro forma equity in earnings of an investee representing our pro forma 20% equity interest in the Boston JV for the year ended December 31, 2020. |
| (J) | The adjustments represent the historical income and expenses relating to the Boston JV as of and for the year ended December 31, 2020, which are being removed as a result of the deconsolidation of the Boston JV. The decrease in general and administrative expenses primarily represents the removal of the historical asset management fee paid by a subsidiary of the Boston JV to RMR LLC as a result of the deconsolidation of the Boston JV. The asset management agreement between the subsidiary of the Boston JV and RMR LLC will continue to remain in effect, but the asset management fees paid under that agreement will not be included in our consolidated results. |
| (K) | The adjustments represent pro forma equity in earnings of an investee representing our pro forma 20% equity interest in the 10 Property JV for the year ended December 31, 2020. |
| (L) | The adjustments represent the historical income and expenses relating to the medical office and life science properties we contributed to the 10 Property JV as of and for the year ended December 31, 2020, which are being removed as a result of the deconsolidation of the 10 Property JV. |
