Diversified Healthcare Trust (DHC) risk factors, FY2024 10-K

Risks Related to Our Business

1. 01Unfavorable market and industry conditions may have a material adverse effect on our results of operations, financial condition and ability to pay distributions to our shareholders
2. 02As of December 31, 2024, our consolidated principal amount of debt was $3.1 billion
3. 03We may fail to comply with the terms of our debt agreements, which could adversely affect our business and prohibit us from paying distributions to our shareholders
4. 04Secured debt exposes us to the possibility of foreclosure, which could result in the loss of our investment in certain of our subsidiaries or in a property or group of properties or other assets that secure that debt
5. 05We are limited in our ability to operate our senior living communities and are thus dependent on our managers or other operators
6. 06We are exposed to operational risks, liabilities and claims with respect to our SHOP segment that could adversely affect our revenues and operations
7. 07The trend for seniors to delay moving to senior living communities until they require greater care or to forgo moving to senior living communities altogether could have a material adverse effect on our business, financial condition and results of operations
8. 08Increased labor costs, decreased labor availability and staffing turnover have negatively impacted our managers and our SHOP segment operating results, and these conditions may continue for an extended period
9. 09Termination of assisted living resident agreements and resident attrition could adversely affect revenues and earnings at our senior living communities
10. 10Our investments in our properties may not yield the returns we expect and may cost more than expected and take longer to complete
11. 11Depressed U.S. housing market conditions and other factors may reduce the willingness or ability of seniors to relocate to our senior living communities
12. 12REIT distribution requirements and limitations on our ability to access capital at reasonable costs or at all may adversely impact our ability to carry out our business plan
13. 13We face challenges from uncertainties regarding interest rates, and high interest rates have significantly increased our interest expense and may otherwise materially and negatively affect us
14. 14Our managers or other operators may fail to comply with laws relating to the operation of our senior living communities
15. 15We and our managers and other operators and tenants face significant competition
16. 16We may be unable to lease our properties when our leases expire
17. 17We are exposed to risks associated with property development, redevelopment and repositioning that could adversely affect us, including our financial condition and results of operations
18. 18Ownership of real estate is subject to environmental risks and liabilities
19. 19We are subject to risks from adverse weather, natural disasters and adverse impacts from global climate change, and we incur significant costs and invest significant amounts with respect to these matters
20. 20Vacancies in a property could result in significant capital expenditures and illiquidity and reduce the value of the property
21. 21RMR and our senior living community managers rely on information technology and systems in providing services to us, and any material failure, inadequacy, interruption or security breach of that technology or those systems could materially harm us
22. 22business continuity processes could be impacted by a third party’s inability to perform in a remote work environment or by the failure of, or attack on, their information systems and technology
23. 23RMR is incorporating artificial intelligence, or AI, into some of its business workflows and processes, and challenges with properly managing its use could result in reputational harm, competitive harm, legal liability, and increased regulatory costs and adversely affect our results of operations
24. 24Sustainability initiatives, requirements and market expectations may impose additional costs and expose us to new risks
25. 25Insurance may not adequately cover our losses, and insurance costs may increase
26. 26We may not succeed in selling properties we may identify for sale and any proceeds we may receive from sales we do complete may be less than expected, and we may incur losses with respect to any such sales
27. 27We may be unable to grow our business by acquiring additional properties, and we might encounter unanticipated difficulties and expenditures relating to our acquired properties
28. 28Our existing and any future joint ventures may limit our flexibility with jointly owned investments and we may not realize the benefits we expect from these arrangements
29. 29Bankruptcy law may adversely impact us
30. 30A severe cold or flu season, epidemics or any other widespread illnesses could adversely affect the operations of our senior living communities

Risks Related to Our Relationships with RMR and AlerisLife (including Five Star)

1. 31We are dependent upon RMR to manage our business and implement our growth strategy
2. 32RMR has broad discretion in operating our day to day business
3. 33Our management structure and agreements and relationships with RMR and RMR’s and its controlling shareholder’s relationships with others may create conflicts of interest, or the perception of such conflicts, and may restrict our investment activities
4. 34Our management agreements with RMR were not negotiated on an arm’s length basis and their fee and expense structure may not create proper incentives for RMR, which may increase the risk of an investment in our common shares
5. 35The termination of our management agreements with RMR may require us to pay a substantial termination fee, including in the case of a termination for unsatisfactory performance, which may limit our ability to end our relationship with RMR
6. 36Our management arrangements with RMR may discourage a change of control of us
7. 37Our business dealings with AlerisLife (including Five Star) comprise a significant part of our business and operations and they may create conflicts of interest or the perception of such conflicts of interest
8. 38We may be required to pay a substantial termination fee to Five Star if Five Star terminates our management agreements due to our default
9. 39We may not realize the benefits we expect from our ownership interest in AlerisLife
10. 40We are party to transactions with related parties that may increase the risk of allegations of conflicts of interest
11. 41We may be at an increased risk for dissident shareholder activities due to perceived conflicts of interest arising from our management structure and relationships

Risks Related to Our Organization and Structure

1. 42We may change our operational, financing and investment policies without shareholder approval and we may become more highly leveraged, which may increase our risk of default under our debt obligations
2. 43Ownership limitations and certain provisions in our declaration of trust, bylaws and agreements, as well as certain provisions of Maryland law, may deter, delay or prevent a change in our control or unsolicited acquisition proposals
3. 44Our rights and the rights of our shareholders to take action against our Trustees and officers are limited
4. 45Disputes with RMR may be referred to mandatory arbitration proceedings, which follow different procedures than in-court litigation and may be more restrictive to those asserting claims than in-court litigation

Risks Related to Our Taxation

1. 46Our failure to remain qualified for taxation as a REIT under the IRC could have significant adverse consequences
2. 47Distributions to shareholders generally will not qualify for reduced tax rates applicable to “qualified dividends.”
3. 48REIT distribution requirements could adversely affect us and our shareholders
4. 49Even if we remain qualified for taxation as a REIT under the IRC, we may face other tax liabilities that reduce our cash flow
5. 50If arrangements involving our TRSs fail to comply as intended with the REIT qualification and taxation rules, we may fail to qualify for taxation as a REIT under the IRC or be subject to significant penalty taxes
6. 51Legislative or other actions affecting REITs could materially and adversely affect us and our shareholders

Risks Related to Our Securities

1. 52Our quarterly cash distribution rate on our common shares is currently $0.01 per common share and future distributions may remain at this level for an indefinite period or be eliminated and the form of payment could change
2. 53The Notes and the Guarantees are structurally subordinated to the payment of all indebtedness and other liabilities of our subsidiaries that do not guarantee the 2025 Notes, the 2026 Notes and the 2031 Notes
3. 54The Notes and the Guarantees, other than the 2026 Notes and related Guarantees on a senior secured basis, are unsecured and effectively subordinated to all of our and the subsidiary guarantors’ existing and future secured debt to the extent of the value of the assets securing such debt
4. 55Federal and state statutes allow courts, under specific circumstances, to void guarantees and require holders of notes to return payments received from guarantors
5. 56In addition, any payment by that guarantor pursuant to its guarantee could be voided and required to be returned to the guarantor, or to a fund for the benefit of our creditors or the creditors of the guarantor
6. 57There may be no public market for certain of the Notes, and one may not develop, be maintained or be liquid
7. 58Downgrades in our credit ratings could materially adversely affect the market price of the Notes and may increase our cost of capital
8. 59We may not have the ability to raise the funds necessary to finance the repurchase of the 2025 Notes, the 2026 Notes and the 2031 Notes upon a change of control event as will be required
9. 60Some or all of the Guarantees may be released automatically