What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-14 compared with 2023-05-15 · 182 added, 149 removed, 311 unchanged (52% of the section changed)

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Such discussion is provided as a supplement to, and should be read in conjunction with our accompanying condensed consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and in our 2022 Annual Report on Form 10-K, as filed with the United States Securities and Exchange Commission, or SEC, on March 17, 2023.

Such condensed consolidated financial statements and information have been prepared to reflect our financial position as of March 31, 2023 and December 31, 2022, together with our results of operations and cash flows for the three months ended March 31, 2023 and 2022.

Such condensed consolidated financial statements and information have been prepared to reflect our financial position as of June 30, 2023 and December 31, 2022, together with our results of operations and cash flows for the three and six months ended June 30, 2023 and 2022.

Our results of operations and financial condition, as reflected in the accompanying condensed consolidated financial statements and related notes, are subject to management’s evaluation and interpretation of business conditions, changing capital market conditions, and other factors that could affect the ongoing viability of our tenants and residents.

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Such statements include, but are not limited to:

(i) statements about our plans, strategies, initiatives and prospects;

including our proposed listing and future capital-raising initiatives;

(ii) statements about the coronavirus, or COVID-19, pandemic, including its duration and potential or expected impact on our business and our view on forward trends;

(i) statements about our plans, strategies, initiatives and prospects, including our proposed listing and future capital-raising initiatives and planned or future acquisitions or dispositions of properties and other assets;

(ii) statements about the coronavirus, or COVID-19, pandemic, including its duration and potential or expected impact on our business and our view on forward trends as well as the termination of the federally declared public health emergency;

and (iii) statements about our future results of operations, capital expenditures and liquidity.

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federal income tax purposes;

changes in interest rates and foreign currency risk;

uncertainty from the discontinuance of the London Inter-bank Offered Rate, or LIBOR, and the transition to the Secured Overnight Financing Rate, or SOFR;

changes in interest rates, including uncertainties about whether and when interest rates will continue to increase, and foreign currency risk;

competition in the real estate industry;

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Overview and Background

American Healthcare REIT, Inc., a Maryland corporation, is a self-managed real estate investment trust, or REIT, that owns a diversified portfolio of clinical healthcare real estate properties, focusing primarily on medical office buildings, or MOBs, senior housing facilities, SNFs, hospitals and other healthcare-related facilities.

American Healthcare REIT, Inc., a Maryland corporation, is a self-managed REIT that owns a diversified portfolio of clinical healthcare real estate properties, focusing primarily on medical office buildings, or MOBs, senior housing, SNFs, hospitals and other healthcare-related facilities.

We also operate healthcare-related facilities utilizing the structure permitted by the REIT Investment Diversification and Empowerment Act of 2007, which is commonly referred to as a “RIDEA” structure (the provisions of the Internal Revenue Code of 1986, as amended, or the Code, authorizing the RIDEA structure were enacted as part of the Housing and Economic Recovery Act of 2008).

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On October 1, 2021, Griffin-American Healthcare REIT III, Inc., or GAHR III, merged with and into a wholly owned subsidiary, or Merger Sub, of Griffin-American Healthcare REIT IV, Inc., or GAHR IV, with Merger Sub being the surviving company, which we refer to as the REIT Merger, and our operating partnership, Griffin-American Healthcare REIT IV Holdings, LP, merged with and into Griffin-American Healthcare REIT III Holdings, LP, or the Surviving Partnership, with the Surviving Partnership being the surviving entity, which we refer to as the Partnership Merger and, together with the REIT Merger, the Merger.

Following the Merger on October 1, 2021, our company, or the Combined Company, was renamed American Healthcare REIT, Inc.

Following the Merger on October 1, 2021, our company was renamed American Healthcare REIT, Inc.

and the Surviving Partnership was renamed American Healthcare REIT Holdings, LP, or our operating partnership.

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We conduct substantially all of our operations through our operating partnership, and we are the sole general partner of our operating partnership.

As of both March 31, 2023 and December 31, 2022 , we owned 95.0% of the partnership units, or OP units, in our operating partnership, and the remaining 5.0% limited OP units, were owned by AHI Group Holdings, LLC, which is owned and controlled by Jeffrey T.

As of both June 30, 2023 and December 31, 2022 , we owned 95.0% of the partnership units, or OP units, in our operating partnership, and the remaining 5.0% limited OP units, were owned by AHI Group Holdings, LLC, which is owned and controlled by Jeffrey T.

Hanson, the non-executive Chairman of our board of directors, or our board, Danny Prosky, our Chief Executive Officer and President, and Mathieu B.

Streiff, one of our directors, or collectively, the AHI Principals;

Streiff, one of our directors;

Platform Healthcare Investor TII, LLC;

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and a wholly owned subsidiary of Griffin Capital Company, LLC, or collectively, the NewCo Sellers.

See Note 12, Redeemable Noncontrolling Interests, and Note 13, Equity — Noncontrolling Interests in Total Equity, for a further discussion of the ownership in our operating partnership.

See Note 11, Redeemable Noncontrolling Interests, and Note 12, Equity — Noncontrolling Interests in Total Equity, to our accompanying condensed consolidated financial statements for a further discussion of the ownership in our operating partnership.

Public Offerings

As of March 31, 2023, after taking into consideration the Merger and the impact of the reverse stock split as discussed below, we had issued 65,445,557 shares for a total of $2,737,716,000 of common stock since February 26, 2014 in our initial public offerings and our distribution reinvestment plan, or DRIP, offerings (includes historical offering amounts sold by GAHR III and GAHR IV prior to the Merger).

As of June 30, 2023, after taking into consideration the Merger and the impact of the reverse stock split as discussed below, we had issued 65,445,557 shares for a total of $2,737,716,000 of common stock since February 26, 2014 in our initial public offerings and our distribution reinvestment plan, or DRIP, offerings (includes historical offering amounts sold by GAHR III and GAHR IV prior to the Merger).

On September 16, 2022, we filed with the SEC a Registration Statement on Form S-11 (File No.

333-267464) with respect to a proposed public offering by us of our shares of common stock in conjunction with a contemplated listing of our common stock on the New York Stock Exchange, or the Proposed Listing.

333-267464), and on July 14, 2023, we filed with the SEC Amendment No.

1 to the Registration Statement on Form S-11, with respect to a proposed public offering by us of our shares of common stock in conjunction with a contemplated listing of our common stock on the New York Stock Exchange, or the Proposed Listing.

Such registration statement and contemplated listing are not yet effective.

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We currently operate through six reportable business segments:

integrated senior health campuses, MOBs, SHOP, SNFs, senior housing — leased and hospitals.

As of March 31, 2023, we owned and/or operated 314 buildings and integrated senior health campuses, including completed development and expansion projects, or approximately 19,956,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $4,626,119,000.

In addition, as of March 31, 2023, we also owned a real estate-related debt investment purchased for $60,429,000.

integrated senior health campuses, MOBs, SNFs, SHOP, senior housing — leased and hospitals.

As of June 30, 2023, we owned and/or operated 300 buildings and integrated senior health campuses, including completed development and expansion projects, representing approximately 19,142,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $4,517,298,000.

In addition, as of June 30, 2023, we also owned a real estate-related debt investment purchased for $60,429,000.

Critical Accounting Estimates

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Other than the effects of inflation and the lasting effects of the COVID-19 pandemic discussed below, as well as other national economic conditions affecting real estate generally, or as otherwise disclosed in our risk factors, we are not aware of any material trends or uncertainties that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition, disposition, management and operation of our properties.

For a further discussion of these and other factors that could impact our future results or performance, see “Forward-Looking Statements” above and Part I, Item 1A, Risk Factors, previously disclosed in our 2022 Annual Report on Form 10-K, as filed with the SEC on March 17, 2023.

For a further discussion of these and other factors that could impact our future results or performance, see “Forward-Looking Statements” above and Part II, Item 1A, Risk Factors, of this Quarterly Report on Form 10-Q and those Risk Factors previously disclosed in our 2022 Annual Report on Form 10-K, as filed with the SEC on March 17, 2023.

Our residents, tenants, operating partners and managers, our industry and the U.S.

economy have been adversely affected by the impact of the COVID-19 pandemic.

While the COVID-19 pandemic has subsided from its peaks, the timing and extent

of the economic recovery from the COVID-19 pandemic is dependent upon many factors, including the emergence and severity of new COVID-19 variants, the effectiveness of vaccines, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, among others.

As the lasting economic effects of the responses to the COVID-19 pandemic, such as inflation and labor market challenges, are still impacting the healthcare system to a certain extent, such effects continue to present challenges for us as an owner and operator of healthcare facilities, making it difficult to ascertain the long-term impact the COVID-19 pandemic will have on real estate markets in which we own and/or operate properties and our portfolio of investments.

economy have been adversely affected by the impact of the COVID-19 pandemic and the economic impact of the pandemic.

While the immediate effects of the

COVID-19 pandemic have subsided, the timing and extent of the economic recovery towards pre-pandemic norms is dependent upon many factors, including the emergence and severity of future COVID-19 variants, the effectiveness and frequency of booster vaccinations, the duration and implications of ongoing or future restrictions and safety measures, the availability of ongoing government financial support to our tenants, operating partners and managers and the overall pace of economic recovery, among others.

As an owner and operator of healthcare facilities, we expect to continue to be adversely affected by the long-term effects of the COVID-19 pandemic for some period of time;

however, it is not possible to predict the full extent of its future impact on us, the operations of our properties or the markets in which they are located, or the overall healthcare industry.

COVID-19 is particularly dangerous among the senior population and results in heightened risk to our senior housing and SNFs, and we continue to work diligently to maintain aggressive protocols at such facilities as well as actively collaborate with our tenants, operating partners and managers to respond and take action to mitigate the impact of the COVID-19 pandemic.

We have evaluated such economic impacts of the COVID-19 pandemic on our business thus far and incorporated information concerning such impacts into our assessments of liquidity, impairment and collectability from tenants and residents as of March 31, 2023.

We will continue to monitor such impacts and will adjust our estimates and assumptions based on the best available information.

The COVID-19 pandemic resulted in a significant decline in resident occupancies at our senior housing facilities and SNF’s.

We have also incurred increased operational costs as a result of public health measures and other regulations affecting our properties, as well as additional health and safety measures adopted by us and our operators related to the COVID-19 pandemic, including increases in labor, personal protective equipment and sanitation.

We expect total property operating expenses to remain elevated as many of these additional health and safety measures have become standard practice.

Therefore, our focus at such facilities continues to be on resident occupancy recovery and operating expense management.

As of March 31, 2023, resident occupancies at our senior housing facilities and SNFs have almost returned to pre-pandemic levels.

We believe the operational recovery of such facilities from the impact of the COVID-19 pandemic will generally continue and that such recovery over time towards pre-pandemic levels will drive our overall portfolio performance.

As a result of the federal government's COVID-19 public health emergency declaration in January 2020, certain federal and state pandemic-related relief measures, such as funding, procedural waivers and/or reimbursement increases, became available to some of our tenants and operators that mitigated some of the financial impact of the COVID-19 pandemic.

On May 11, 2023, the Biden Administration ended such COVID-19 public health emergency declaration, creating uncertainty as to how widespread these measures will continue to be and to what extent they may be distributed to and benefit our tenants and operators.

See the “Results of Operations” and “Liquidity and Capital Resources” sections below, for a further discussion.

During the three months ended March 31, 2023 and 2022, inflation has affected our operations.

The annual rate of inflation in the United States was 4.9% in April 2023, as measured by the Consumer Price Index.

The COVID-19 pandemic resulted in a significant decline in resident occupancy at our senior housing — leased facilities, SNFs, SHOP and integrated senior health campuses and an increase in COVID-19-related operating expenses.

Among other things, due to the shortage of healthcare personnel, the pandemic caused higher labor costs that continue to adversely affect us, including those related to greater reliance on agency staffing and more costly short-term hires.

Expenses also increased due to pandemic-related costs (e.g., heightened cleaning and sanitation protocols) and the ongoing inflationary environment.

This has, in general, resulted in decreased net operating income, or NOI, and margin at these properties relative to pre-pandemic levels.

Therefore, our focus at such properties continues to be on improving occupancy and managing operating expenses.

While occupancy has generally been improving, it has not returned to pre-pandemic levels across all asset types, and labor costs remain elevated, as we have had difficulty filling open positions and experienced increased labor costs.

The timing and extent of any further improvement in occupancy or relief from these labor pressures remains unclear.

As a result of the federal government's COVID-19 public health emergency declaration in January 2020 and its COVID-19 national emergency declaration in March 2020, certain federal and state pandemic-related relief measures, such as funding, procedural waivers and/or reimbursement increases, became available to us and some of our tenants and operators.

These declarations expired on May 11, 2023 and April 10, 2023, respectively, and certain relief measures have been wound down and others are being phased out.

It is unclear what pandemic related relief measures, including funding, waiver and reimbursement programs, that we and certain of our tenants and operators benefited from will continue to be available or the extent they will be available.

The impact on individual skilled nursing facilities’ operators will vary, and therefore it is not possible to quantify the financial impact it will have on resident occupancies.

See the “Results of Operations” and “Liquidity and Capital Resources” sections below, for further discussion.

During the six months ended June 30, 2023 and 2022, inflation has affected our operations.

The annual rate of inflation in the United States was 3.2% in July 2023, as measured by the Consumer Price Index.

We believe inflation has impacted our operations such that we have experienced, and continue to experience, increases in the cost of labor, services, energy and supplies, and therefore continued inflationary pressures on our integrated senior health campuses and SHOP could continue to impact our profitability in future periods.

However, an inflationary environment has also impacted our operations at such properties in that we have the ability to seek increases in rent when relatively short-term resident leases expire (typically one year or less), which will improve our operating performance at such properties, as well as increase rent coverage and the stability of our real estate revenue in our senior housing — leased and SNF segments over time.

For properties that are not operated under a RIDEA structure, there are provisions in the majority of our tenant leases that help us mitigate the impact of inflation.

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However, due to the long-term nature of existing leases, among other factors, the leases may not reset frequently enough to cover inflation.

A period of inflation could also cause an increase in the cost of our variable-rate debt due to rising interest rates.

Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk section below, for a further discussion.

In addition, inflation also caused an increase in the cost of our variable-rate debt due to rising interest rates.

Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk section below, for further discussion.

Scheduled Lease Expirations

Excluding our SHOP and integrated senior health campuses, as of March 31, 2023, our properties were 91.7% leased, and during the remainder of 2023, 6.2% of the leased GLA is scheduled to expire.

Our leasing strategy focuses on negotiating renewals for leases scheduled to expire during the next twelve months.

Excluding our SHOP and integrated senior health campuses, as of June 30, 2023, our properties were 92.5% leased, and during the remainder of 2023, 4.0% of the leased GLA is scheduled to expire.

Our leasing strategy focuses on negotiating

renewals for leases scheduled to expire during the next twelve months.

In the future, if we are unable to negotiate renewals, we will try to identify new tenants or collaborate with existing tenants who are seeking additional space to occupy.

As of March 31, 2023, our remaining weighted average lease term was 6.9 years, excluding our SHOP and integrated senior health campuses.

Our combined SHOP and integrated senior health campuses were 82.4% leased as of March 31, 2023.

As of June 30, 2023, our remaining weighted average lease term was 6.9 years, excluding our SHOP and integrated senior health campuses.

Our combined SHOP and integrated senior health campuses were 82.6% leased as of June 30, 2023.

Substantially all of our leases with residents at such properties are for a term of one year or less.

Results of Operations

Comparison of Three Months Ended March 31, 2023 and 2022

Our operating results are primarily comprised of income derived from our portfolio of properties and expenses in connection with the acquisition and operation of such properties.

Comparison of Three and Six Months Ended June 30, 2023 and 2022

Our primary sources of revenue include rent generated by our leased, non-RIDEA properties, and resident fees and services revenue from our RIDEA properties.

Our primary expenses include property operating expenses and rental expenses.

In general, and under a normal operating environment without the adverse effect of the COVID-19 pandemic and challenging economic conditions resulting from inflation, we expect revenues and expenses related to our portfolio of leased, non-RIDEA properties to increase in the future primarily due to fixed annual rent escalations and revenues and expenses related to our portfolio of RIDEA properties to increase in the future primarily due to an overall increase in occupancies and market rents as well as an increase in the pricing of care services provided.

We segregate our operations into reporting segments in order to assess the performance of our business in the same way that management reviews our performance and makes operating decisions.

As of March 31, 2023, we operated through six reportable business segments:

integrated senior health campuses, MOBs, SHOP, SNFs, senior housing — leased and hospitals.

Except where otherwise noted, the changes in our consolidated results of operations for 2023 as compared to 2022 are primarily due to the adverse effect of inflation, which resulted in increases in the cost of labor, services, energy and supplies for the three months ended March 31, 2023 compared to the same period last year.

There were also changes in our results of operations by reporting segment due to the transition of the operations of skilled nursing facilities within Central Wisconsin Senior Care Portfolio on March 1, 2023 to a RIDEA structure, which facilities are included within our SHOP segment as of March 31, 2023.

As of March 31, 2023 and 2022, we owned and/or operated the following types of properties:

As of June 30, 2023, we operated through six reportable business segments:

integrated senior health campuses, MOBs, SNFs, SHOP, senior housing — leased and hospitals.

Except where otherwise noted, the changes in our consolidated results of operations for 2023 as compared to 2022 are primarily due to the adverse effect of inflation, which resulted in increases in the cost of labor, services, energy and supplies for the three and six months ended June 30, 2023 compared to the same period last year.

There were also changes in our results of operations due to our acquisitions and dispositions of investments subsequent to June 30, 2022, as well as the transition of the operations of skilled nursing facilities within our Central Wisconsin Senior Care Portfolio on March 1, 2023 to a RIDEA structure, which facilities are included within our SHOP segment as of June 30, 2023.

See Note 3, Real Estate Investments, Net and Business Combinations, to our accompanying condensed consolidated financial statements for a further discussion of our acquisitions and dispositions during 2023.

As of June 30, 2023 and 2022, we owned and/or operated the following types of properties (dollars in thousands):

Campuses Aggregate

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Total/weighted average(3) 300 $ 4,517,298 92.5 % 313 $ 4,519,918 93.1 %

(1) The leased percentage for the resident units of our integrated senior health campuses was 84.6% and 80.0% as of March 31, 2023 and 2022, respectively.

(2) The leased percentage for the resident units of our SHOP was 76.4% and 71.9% as of March 31, 2023 and 2022, respectively.

(3) Leased percentage includes all third-party leased space at our non-RIDEA properties (including master leases), and excludes our SHOP and integrated senior health campuses where leased percentage represents resident occupancy on the available units/beds therein.

(1) The leased percentage for the resident units of our integrated senior health campuses was 83.9% and 81.7% as of June 30, 2023 and 2022, respectively.

(2) The leased percentage for the resident units of our SHOP was 78.6% and 73.7% as of June 30, 2023 and 2022, respectively.

Revenues and Grant Income

Our primary sources of revenue include resident fees and services revenue generated by our RIDEA properties and rent from our leased, non-RIDEA properties.

For three months ended March 31, 2023 and 2022, resident fees and services revenue primarily consisted of rental fees related to resident leases, extended health care fees and other ancillary services, and real estate revenue primarily consisted of base rent and expense recoveries.

The amount of revenues generated by our RIDEA properties depends principally on our ability to maintain resident occupancy rates at our RIDEA properties.

For the three and six months ended June 30, 2023 and 2022, resident fees and services revenue primarily consisted of rental fees related to resident leases, extended health care fees and other ancillary services, and real estate revenue primarily consisted of base rent and expense recoveries.

The amount of revenues generated by our RIDEA properties depends principally on our ability to maintain resident occupancy rates.

The amount of revenues generated by our non-RIDEA properties is dependent on our ability to maintain tenant occupancy rates of currently leased space and to lease available space at the then existing rental rates.

We also receive grant income.

Revenues and grant income by reportable segment consisted of the following for the periods then ended:

Three Months Ended March 31,

Revenues and grant income by reportable segment consisted of the following for the periods then ended (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

2023 2022 2023 2022

Resident Fees and Services Revenue

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Resident Fees and Services Revenue

For our integrated senior health campuses segment, we experienced an increase in resident fees and services revenue of $43,080,000 for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, due to our acquisition of the 50.0% controlling interest in a privately held company, RHS Partners, LLC, or RHS, on August 1, 2022, which owns and/or operates 16 integrated senior health campuses located in Indiana.

The remaining increase in resident fees and services revenue for our integrated senior health campuses segment was primarily attributable to improved resident occupancy and higher resident fees as a result of an increase in billing rates.

Such amounts were partially offset by a decrease in total resident fees and services revenue of $4,127,000 due to dispositions within our integrated senior health campuses segment during the third and fourth quarter of 2022.

For our SHOP segment, we experienced an increase in resident fees and services revenue of $6,836,000 for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, due to our acquisition of a portfolio of seven senior housing facilities in Texas within our SHOP segment on December 5, 2022, as well as an increase of $1,388,000 due to transitioning the SNFs within the Central Wisconsin Senior Care Portfolio to a RIDEA structure in March 2023.

For our integrated senior health campuses segment, we experienced an increase in resident fees and services revenue of $40,636,000 and $83,754,000, respectively, for the three and six months ended June 30, 2023, as compared to the three and six months ended June 30, 2022, due to:

(i) our acquisition of the remaining 50.0% interest in a privately held company, RHS Partners, LLC, or RHS, on August 1, 2022, which owns and/or operates 16 integrated senior health campuses located in Indiana;

(ii) improved resident occupancy and higher resident fees as a result of an increase in billing rates;

and (iii) an increase of $12,259,000 and $27,224,000 for the three and six months ended June 30, 2023, respectively, due to the expansion of our customer base, expansion of services offered and an increase in billing rates for such services at an ancillary business unit within Trilogy Investors, LLC, or Trilogy.

Such amounts were partially offset by a decrease in total resident fees and services revenue of $4,479,000 and $8,464,000 for the three and six months ended June 30, 2023, respectively, due to dispositions within our integrated senior health campuses segment during the third and fourth quarter of 2022.

For our SHOP segment, we experienced an increase in resident fees and services revenue of $6,721,000 and $13,557,000, respectively, for the three and six months ended June 30, 2023, as compared to the three and six months ended June 30, 2022, due to our acquisition of a portfolio of seven senior housing facilities in Texas within our SHOP segment on December 5, 2022, as well as an increase of $3,334,000 and $4,722,000, respectively, for the three and six months ended June 30, 2023, as compared to the three and six months ended June 30, 2022, due to transitioning the SNFs within the Central Wisconsin Senior Care Portfolio to a RIDEA structure in March 2023.

The remaining increase in resident fees and services revenue for our SHOP segment was primarily attributable to improved resident occupancy and higher resident fees as a result of an increase in billing rates.

Such amounts were partially offset by a decrease of $1,312,000 due to real estate dispositions within our SHOP segment during the fourth quarter of 2022.

Such amounts were partially offset by a decrease of $2,782,000 and $4,094,000, respectively, for the three and six months ended June 30, 2023, as compared to the three and six months ended June 30, 2022, due to real estate dispositions within our SHOP segment during the three months ended December 31, 2022 and the six months ended June 30, 2023.

Real Estate Revenue

For the three months ended March 31, 2023, we experienced a decrease in rental revenue for our SNFs segment of $7,789,000 due to transitioning the SNFs within the Central Wisconsin Senior Care Portfolio to a RIDEA structure in March 2023, which amount predominantly included the full amortization of $8,073,000 of above-market leases.

We also experienced a modest decrease in rental revenue for our MOBs segment primarily due to a disposition of a medical office building in Tennessee in December 2022.

For the three months ended March 31, 2023 and 2022, we recognized $0 and $5,214,000, respectively, of grant income at

our integrated senior health campuses and SHOP primarily related to government grants received through the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, economic stimulus programs.

For the three and six months ended June 30, 2023, we experienced a decrease in real estate revenue for our SNFs segment of $444,000 and $8,233,000, respectively, due to transitioning the SNFs within the Central Wisconsin Senior Care Portfolio to a RIDEA structure in March 2023, which amount predominantly included the full amortization of $8,073,000 of above-market leases.

We also experienced a net decrease in real estate revenue for our MOBs segment for both the three and six months ended June 30, 2023, primarily due to real estate dispositions of MOBs during the fourth quarter of 2022 and the second quarter of 2023, which was partially offset by fixed rent escalations.

For the three months ended June 30, 2023 and 2022, we recognized $6,381,000 and $10,969,000, respectively, of grant income at our integrated senior health campuses related to government grants received through the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, economic stimulus programs.

For the six months ended June 30, 2023 and 2022, we recognized $6,381,000 and $16,183,000, respectively, of grant income at our integrated senior health campuses and SHOP related to government grants received through the CARES Act economic stimulus programs.

As of April 2023, the federal government’s COVID-19 public health emergency declaration expired and certain relief measures have been wound down and others are being phased out.

Property Operating Expenses and Rental Expenses

Property operating expenses and property operating expenses as a percentage of resident fees and services revenue and grant income, as well as rental expenses and rental expenses as a percentage of real estate revenue, by reportable segment consisted of the following for the periods then ended:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

2023 2022 2023 2022

Property Operating Expenses

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Total property operating expenses $ 372,549 89.3 % $ 296,059 87.8 % $ 742,695 90.0 % $ 583,219 88.2 %

$ 370,146,000 90.6 % $ 287,160,000 88.6 %

Rental Expenses

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Total rental expenses $ 14,653 29.0 % $ 14,663 28.7 % $ 29,848 31.7 % $ 29,950 29.1 %

$ 15,195,000 34.9 % $ 15,287,000 29.4 %

Integrated senior health campuses and SHOP typically have a higher percentage of direct operating expenses to revenue than MOBs, hospitals, and leased senior housing and SNFs due to the nature of RIDEA-type facilities where we conduct day-to-day operations.

The increase in total property operating expenses for our integrated senior health campuses segment was predominately due to an increase of $41,946,000 in property operating expenses attributable to our acquisition of the 50.0% controlling interest in RHS, as well as higher operating expenses as a result of increased occupancy.

Such amounts were partially offset by a decrease in total property operating expenses of $3,599,000 due to dispositions within our integrated senior health campuses segment during the third and fourth quarters of 2022.

For the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, total property operating expenses for our SHOP segment primarily increased due to:

(i) an increase of $5,182,000 due to the acquisition of a portfolio of seven senior housing facilities within our SHOP segment in Texas on December 5, 2022;

(ii) an increase of $1,211,000 due to transitioning the SNFs within the Central Wisconsin Senior Care Portfolio to a RIDEA structure in March 2023;

For the three and six months ended June 30, 2023, as compared to the three and six months ended June 30, 2022, the increase in total property operating expenses for our integrated senior health campuses segment was predominately due to an increase of $40,253,000 and $81,257,000, respectively, in property operating expenses attributable to our acquisition of the 50.0% interest in RHS on August 1, 2022.

Further, we experienced higher operating expenses as a result of increased occupancy and an increase of $11,993,000 and $27,198,000 in operating expenses for the three and six months ended June 30, 2023, respectively, within Trilogy’s ancillary business unit due to higher labor costs associated with the expansion of services offered and inflation impacting the cost of goods sold.

Such amounts were partially offset by a decrease in total property operating expenses of $3,239,000 and $6,459,000, respectively, due to dispositions within our integrated senior health campuses segment during the third and fourth quarters of 2022.

For the three and six months ended June 30, 2023, as compared to the three and six months ended June 30, 2022, total property operating expenses for our SHOP segment primarily increased due to:

(i) an increase of $5,707,000 and $10,889,000, respectively, due to the acquisition of a portfolio of seven senior housing facilities within our SHOP segment in Texas on December 5, 2022;

(ii) an increase of $4,049,000 and $5,261,000, respectively, due to transitioning the SNFs within the Central Wisconsin Senior Care Portfolio to a RIDEA structure in March 2023;

(iii) higher operating expenses as a result of increased occupancy;

and (iv) higher labor costs due to an increase in employee wages.

Such amounts were partially offset by a decrease in total property operating expenses of $1,374,000 due to real estate dispositions within our SHOP segment during the fourth quarter of 2022.

Such amounts were partially offset by a decrease in total property operating expenses for the three and six months ended June 30, 2023, as compared to the three and six months ended June 30, 2022, of $3,343,000 and $4,717,000, respectively, due to real estate dispositions within our SHOP segment during the three months ended December 31, 2022 and during the six months ended June 30, 2023.

General and Administrative

For the three months ended March 31, 2023, general and administrative expenses were $13,053,000 compared to $11,119,000 for the three months ended March 31, 2022.

For the three months ended June 30, 2023, general and administrative expenses were $11,774,000 compared to $10,928,000 for the three months ended June 30, 2022.

The increase in general and administrative expenses of $846,000 was primarily the result of an increase of $592,000 in stock compensation expenses.

For the six months ended June 30, 2023, general and administrative expenses were $24,827,000 compared to $22,047,000 for the six months ended June 30, 2022.

The increase in general and administrative expenses of $2,780,000 was primarily the result of an increase of:

(i) $1,247,000 in professional fees and legal fees;

(ii) $514,000 in transition related expenses related to the transition of SNFs within the Central Wisconsin Senior Care Portfolio to a RIDEA structure;

and (iii) $295,000 in stock compensation expenses.

and (ii) $887,000 in stock compensation expenses.

Business Acquisition Expenses

For the three and six months ended June 30, 2023, we recorded business acquisition expenses of $888,000 and $1,220,000, respectively, primarily incurred in pursuit of real estate-related investment opportunities.

For the three and six months ended June 30, 2022, we recorded business acquisition expenses of $1,757,000 and $1,930,000, respectively, primarily incurred in connection with $938,000 in transaction costs related to the acquisition of a pharmaceutical business in April 2022 and $596,000 and $719,000, respectively, of costs incurred in the pursuit of real estate investments that did not close.

See Note 3, Real Estate Investments, Net and Business Combinations — Business Combinations, to our accompanying condensed consolidated financial statements for a further discussion of our acquisition of a pharmaceutical business.

Depreciation and Amortization

For the three months ended March 31, 2023 and 2022, depreciation and amortization was $44,670,000 and $42,311,000, respectively, which primarily consisted of depreciation on our operating properties of $35,899,000 and $34,422,000, respectively, and amortization of our identified intangible assets of $7,988,000 and $7,125,000, respectively.

For the three months ended March 31, 2023, the increase in depreciation and amortization of $2,359,000 was primarily due to an increase in depreciation and amortization within our SHOP segment and our integrated senior health campuses segment of $2,668,000 and $2,348,000, respectively, as a result of acquisitions that occurred subsequent to March 31, 2022, as well as the full amortization of $885,000 of in-place leases related to transition of SNFs within the Central Wisconsin Senior Care Portfolio to a RIDEA structure.

Such amounts were partially offset by a decrease of $3,581,000 in depreciation and amortization primarily due to a decrease in depreciable assets in our portfolio as a result of real estate dispositions within our SHOP segment and our MOBs segment subsequent to March 31, 2022.

For the three months ended June 30, 2023 and 2022, depreciation and amortization was $44,701,000 and $39,971,000, respectively, which primarily consisted of depreciation on our operating properties of $37,139,000 and $34,328,000, respectively, and amortization of our identified intangible assets of $6,852,000 and $5,008,000, respectively.

For the six months ended June 30, 2023 and 2022, depreciation and amortization was $89,371,000 and $82,282,000, respectively, which primarily consisted of depreciation on our operating properties of $73,038,000 and $68,750,000, respectively, and amortization of our identified intangible assets of $14,840,000 and $12,133,000, respectively.

For the three and six months ended June 30, 2023, as compared to the three and six months ended June 30, 2022, the increase in depreciation and amortization of $4,730,000 and $7,089,000, respectively, was primarily due to:

(i) an increase in depreciation and amortization within our SHOP segment and our integrated senior health campuses segment as a result of acquisitions that occurred subsequent to June 30, 2022, as well as development and capital expenditures since June 30, 2022;

(ii) the full amortization of $885,000 of in-place leases related to transition of SNFs within the Central Wisconsin Senior Care Portfolio to a RIDEA structure;

and (iii) the full amortization of $529,000 of depreciable assets as a result of storm damage affecting our properties in Texas and Louisiana.

Such amounts were partially offset by a decrease in depreciation and amortization as a result of real estate dispositions within our SHOP segment and our MOBs segment subsequent to June 30, 2022.

Interest Expense

Interest expense, including gain or loss in fair value of derivative financial instruments, consisted of the following for the periods presented:

Three Months Ended March 31,

Interest expense, including gain or loss in fair value of derivative financial instruments, consisted of the following for the periods presented (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

2023 2022 2023 2022

Interest expense:

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890 347 1,775 330

Gain (loss) in fair value of derivative financial instruments 195,000 (500,000)

Loss on extinguishments of debt — 4,591,000

Gain in fair value of derivative financial instruments (4,993) — (4,798) (500)

(Gain) loss on extinguishments of debt — (181) — 4,410

Interest on finance lease liabilities 66 66 157 140

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Total $ 35,997 $ 20,345 $ 75,203 $ 43,170

The increase in total interest expense for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, was primarily related to an increase in variable interest rates on our outstanding variable rate debt and a decrease in the fair value recognized on our derivative financial instruments of $695,000, partially offset by a decrease in loss on debt extinguishment of $4,591,000.

The increase in total interest expense for the three and six months ended June 30, 2023, as compared to the three and six months ended June 30, 2022, was primarily due to an increase in debt balances since June 30, 2022 and a higher weighted average effective interest rate on our variable debt, which was 7.25% and 3.59% as of June 30, 2023 and 2022, respectively.

Such increases in total interest expense for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022, were primarily offset by:

(i) a $4,298,000 increase in gain in fair value of our derivative financial instrument;

(ii) $895,000 of net proceeds from our interest rate swap;

and (iii) a $4,410,000 decrease in loss on extinguishments of debt.

See Note 7, Mortgage Loans Payable, Net, and Note 8, Lines of Credit and Term Loan, to our accompanying condensed consolidated financial statements for a further discussion on debt extinguishments.

Gain or Loss on Dispositions of Real Estate Investments

For the three months ended June 30, 2023, we recognized an aggregate net loss on dispositions of our real estate investments of $2,072,000 primarily related to the sale of four SHOP within our Central Florida Senior Housing Portfolio and 11 MOBs.

For the six months ended June 30, 2023, we recognized an aggregate net loss on dispositions of our real estate investments of $2,204,000 primarily related to the sale of five SHOP within our Central Florida Senior Housing Portfolio and 11 MOBs.

See Note 3, Real Estate Investments, Net and Business Combinations, to our accompanying condensed consolidated financial statements for further discussion.

For the six months ended June 30, 2022, we recognized a gain on dispositions of our real estate investments of $683,000 related to the sale of 77.0% ownership interests in several real estate assets for development in February 2022, within our integrated senior health campuses segment.

Impairment of Real Estate Investments

For both the three and six months ended June 30, 2023, we did not recognize impairment charges on real estate investments.

For both the three and six months ended June 30, 2022, we recognized an impairment charge of $17,340,000 on four of our SHOP within the Central Florida Senior Housing Portfolio.

Such SHOP were subsequently disposed in the fourth quarter of 2022 and first quarter of 2023.

See Note 3, Real Estate Investments, Net and Business Combinations, to our accompanying condensed consolidated financial statements for further discussion.

Gain on Re-measurement of Previously Held Equity Interest

For the three months ended March 31, 2023, we recognized a $726,000 gain on re-measurement of the fair value of our previously held equity interest in Memory Care Partners, LLC, or MCP.

For the three months ended March 31, 2022, we did not recognize a gain on re-measurement of previously held equity interest.

See Note 3, Real Estate Investments, Net and Business Combinations, to our accompanying condensed consolidated financial statements for a further discussion.

For the six months ended June 30, 2023, we recognized a $726,000 gain on re-measurement of the fair value of our previously held equity interest in Memory Care Partners, LLC, or MCP.

For the six months ended June 30, 2022, we did not recognize a gain on re-measurement of previously held equity interest.

See Note 3, Real Estate Investments, Net and Business Combinations, to our accompanying condensed consolidated financial statements for further discussion.

Liquidity and Capital Resources

In the normal course of business, our material cash requirements consist of payment of operating expenses, capital improvement expenditures, interest on our indebtedness, distributions to our stockholders (including distributions necessary to maintain our qualification as a REIT) and general and administrative expenses .

Our sources of funds primarily consist of operating cash flows and borrowings.

Our principal sources of liquidity are cash flows from operations, borrowings under our lines of credit and proceeds from dispositions of real estate investments.

For the next 12 months, our principal liquidity needs are to:

(i) fund property operating expenses and general and administrative expenses;

(ii) meet our debt service requirements (including principal and interest);

(iii) fund development activities and capital expenditures;

and (iv) make distributions to our stockholders, as required for us to continue to qualify as a REIT.

We believe that the sources of liquidity described above will be sufficient to satisfy our cash requirements for the next 12 months and the longer term thereafter.

We do not have any material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources.

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The capital plan for each investment is adjusted through ongoing, regular reviews of our portfolio or as necessary to respond to unanticipated additional capital needs.

As of March 31, 2023, we had $17,202,000 of restricted cash in loan impounds and reserve accounts to fund a portion of such capital expenditures.

Based on the budget for the properties we owned as of March 31, 2023, we estimated that unspent discretionary expenditures for capital and tenant improvements as of such date are equal to $57,115,000 for the remaining nine months of 2023, although actual expenditures are dependent on many factors which are not presently known.

As of June 30, 2023, we had $16,556,000 of restricted cash in loan impounds and reserve accounts to fund a portion of such capital expenditures.

Based on the budget for the properties we owned as of June 30, 2023, we estimated that unspent discretionary expenditures for capital and tenant improvements as of such date are equal to $69,420,000 for the remaining six months of 2023, although actual expenditures are dependent on many factors which are not presently known.

Contractual Obligations

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(i) the maturity and scheduled principal repayment of our secured mortgage loans payable and our lines of credit and term loan;

(ii) interest payments on our mortgage loans payable and lines of credit and term loan, excluding the effect of our interest rate swap (for information on our interest rate swap, see Note 9, Derivative Financial Instruments, to our accompanying condensed consolidated financial statements);

(ii) interest payments on our mortgage loans payable and lines of credit and term loan, excluding the effect of our interest rate swap (for information on our interest rate swap, see Note 9, Derivative Financial Instrument, to our accompanying condensed consolidated financial statements);

(iii) ground and other lease obligations;

and (iv) financing obligations as of March 31, 2023:

and (iv) financing obligations as of June 30, 2023 (in thousands):

Payments Due by Period

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370,478 288,987 926,765 27,292 1,613,522

Interest payments — variable-rate debt (based on rates in effect as of March 31, 2023)

Interest payments — variable-rate debt (based on rates in effect as of June 30, 2023)

50,001 140,744 45,148 6,491 242,384

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In addition, we are party to an agreement, as amended, regarding a senior secured revolving credit facility with an aggregate maximum principal amount of $400,000,000, or the 2019 Trilogy Credit Facility, which is scheduled to mature on September 5, 2023.

See Note 8, Lines of Credit and Term Loan, to our accompanying condensed consolidated financial statements for a further discussion.

We intend to satisfy the certain conditions pursuant to the 2019 Trilogy Credit Facility and pay the required extension fee in order to exercise our option to extend the maturity date for one 12-month period.

As of March 31, 2023, our aggregate borrowing capacity under the 2022 Credit Facility and the 2019 Trilogy Credit Facility was $1,450,000,000.

As of March 31, 2023, our aggregate borrowings outstanding under our credit facilities was $1,314,134,000 and we had an aggregate of $135,866,000 available on such facilities.

We believe that the resources described above will be sufficient to satisfy our cash requirements for the next 12 months and the longer term thereafter.

The following table sets forth changes in cash flows:

Three Months Ended March 31,

See Note 8, Lines of Credit and Term Loan, to our accompanying condensed consolidated financial statements for further discussion.

We intend to satisfy the conditions pursuant to the 2019 Trilogy Credit Facility and pay the required extension fee in order to exercise our option to extend the maturity date for one 12-month period.

As of June 30, 2023, our aggregate borrowing capacity under the 2022 Credit Facility and the 2019 Trilogy Credit Facility was $1,450,000,000.

As of June 30, 2023, our aggregate borrowings outstanding under our credit facilities was $1,282,534,000 and we had an aggregate of $167,466,000 available on such facilities.

The following table sets forth changes in cash flows (in thousands):

Six Months Ended June 30,

Cash, cash equivalents and restricted cash — beginning of period $ 111,906 $ 125,486

Net cash provided by operating activities 43,642 56,138

Net cash used in investing activities (33,319,000) (27,367,000)

Net cash used in financing activities (14,300,000) (1,307,000)

Net cash provided by (used in) investing activities 9,687 (97,364)

Net cash (used in) provided by financing activities (71,575) 19,924

Effect of foreign currency translation on cash, cash equivalents and restricted cash 90 (8)

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Operating Activities

For the three months ended March 31, 2023 and 2022, cash flows provided by operating activities were primarily related to the cash flows provided by our property operations, offset by payments of general and administrative expenses and interest payments on our outstanding indebtedness.

For the six months ended June 30, 2023 and 2022, cash flows provided by operating activities were primarily related to the cash flows provided by our property operations, offset by payments of general and administrative expenses and interest payments on our outstanding indebtedness.

In general, cash flows from operating activities are affected by the timing of cash receipts and payments.

See the “Results of Operations” section above for a further discussion.

See the “Results of Operations” section above for further discussion.

Investing Activities

The increase in net cash used in investing activities of $5,952,000 was primarily due to a $7,173,000 decrease in proceeds from dispositions of real estate, a $5,800,000 increase in investments in unconsolidated entities and a $644,000 increase in developments and capital expenditures.

Such amounts were partially offset by an $8,198,000 decrease in cash paid to acquire real estate investments.

See Note 3, Real Estate Investments, Net and Business Combinations, to our accompanying condensed consolidated financial statements for a further discussion of our acquisitions.

For the six months ended June 30, 2023, as compared to the six months ended June 30, 2022, the change from net cash used in investing activities to net cash provided by investing activities was primarily due to a $73,444,000 increase in proceeds from dispositions of real estate investments and a $62,792,000 decrease in cash paid to acquire real estate investments.

Such amounts were partially offset by a $16,566,000 increase in development and capital expenditures and an $11,800,000 increase in investments in unconsolidated entities.

See Note 3, Real Estate Investments, Net and Business Combinations, to our accompanying condensed consolidated financial statements for a further discussion of our acquisitions and dispositions.

Financing Activities

The increase in net cash used in financing activities of $12,993,000 was primarily due to a $15,803,000 payment to redeem a portion of the equity interests owned by a current member of Trilogy Investors, LLC management and a decrease in borrowings under our mortgage loans payable of $14,789,000 during the three months ended March 31, 2023 as compared to the prior year period.

Such amounts were partially offset by an increase in net borrowings under our lines of credit and term loans of $19,000,000.

For the six months ended June 30, 2023, as compared to the six months ended June 30, 2022, the change from net cash provided by financing activities to net cash used in financing activities was primarily due to a decrease in net borrowings under our mortgage loans payable of $43,100,000 and a decrease in net borrowings under our lines of credit and term loans of $41,100,000 and a $15,954,000 payment to redeem a portion of the equity interests owned by members of Trilogy Investors, LLC management.

Such amounts were partially offset by a $10,418,000 decrease in repurchases of our common stock.

Distributions

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Such quarterly distribution was equal to $0.40 per share of our common stock, which was equal to an annualized distribution rate of $1.60 per share and paid in cash or shares of our common stock pursuant to the DRIP offering, only from legally available funds.

On November 14, 2022, our board suspended the DRIP offering beginning with distributions declared, if any, for the quarter ending December 31, 2022.

On November 14, 2022, our board suspended the DRIP offering beginning with distributions declared for the quarter ended December 31, 2022.

As a result of the suspension of the DRIP offering, unless and until our board reinstates the DRIP offering, stockholders who are current participants in the DRIP will be paid distributions in cash.

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In response to interest rates that have increased drastically since the beginning of 2022, and greater uncertainty surrounding further interest rate movements, our board elected to reduce our quarterly distribution to $0.25 per share in order to preserve our liquidity, better align distributions with available cash flows and position our company for its long-term strategic goals.

Our board authorized a reduced quarterly distribution from $0.40 per share to $0.25 per share to our Class T common stockholders and Class I common stockholders of record as of the close of business on April 4, 2023.

Such quarterly distribution was equal to an annualized distribution rate of $1.00 per share and paid in cash, only from legally available funds.

See our Current Report on Form 8-K filed with the SEC on March 17, 2023 for more information.

The following tables reflect distributions we paid for the three months ended March 31, 2023 and 2022, along with the amount of distributions reinvested pursuant to the DRIP and the sources of distributions as compared to cash flows from operations or funds from operations attributable to controlling interest, or FFO, a non-GAAP financial measure:

Three Months Ended March 31,

Therefore, our board authorized a quarterly distribution equal to $0.25 per share to our Class T common stockholders and Class I common stockholders of record as of the close of business on each of April 4, 2023 and June 28, 2023, which distributions were paid on April 18, 2023 and July 13, 2023, respectively.

Such quarterly distributions were equal to an annualized distribution rate of $1.00 per share and paid in cash, only from legally available funds.

See our Current Reports on Form 8-K filed with the SEC on March 17, 2023 and June 16, 2023 for more information.

The following tables reflect distributions we paid for the six months ended June 30, 2023 and 2022, along with the amount of distributions reinvested pursuant to the DRIP and the sources of distributions as compared to cash flows from operations or funds from operations attributable to controlling interest, or FFO, a non-GAAP financial measure (dollars in thousands):

Six Months Ended June 30,

Distributions paid in cash $ 43,086 $ 30,247

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$ 43,086 100 % $ 52,694 100 %

Three Months Ended March 31,

Six Months Ended June 30,

Distributions paid in cash $ 43,086 $ 30,247

5 unchanged sentences

$ 43,086 100 % $ 52,694 100 %

As of March 31, 2023, any distributions of amounts in excess of our current and accumulated earnings and profits have resulted in a return of capital to our stockholders, and some portion of a distribution to our stockholders may have been paid from borrowings.

As of June 30, 2023, any distributions of amounts in excess of our current and accumulated earnings and profits have resulted in a return of capital to our stockholders, and some portion of a distribution to our stockholders may have been paid from borrowings.

For a further discussion of FFO, including a reconciliation of our GAAP net loss to FFO, see “Funds from Operations and Normalized Funds from Operations” below.

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Our policies do not limit the amount we may borrow with respect to any individual investment.

As of March 31, 2023, our aggregate borrowings were 53.4% of the combined market value of all of our real estate and real estate-related investments.

As of June 30, 2023, our aggregate borrowings were 53.6% of the combined market value of all of our real estate and real estate-related investments.

Mortgage Loans Payable, Net

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A significant liquidity need is the payment of principal and interest on our outstanding indebtedness.

As of March 31, 2023, we had $1,257,057,000 of fixed-rate and variable-rate mortgage loans payable outstanding secured by our properties.

As of March 31, 2023, we had $1,314,134,000 outstanding and $135,866,000 remained available under our lines of credit.

The weighted average effective interest rate on our outstanding debt, factoring in our interest rate swap, was 5.56% per annum as of March 31, 2023.

As of June 30, 2023, we had $1,260,429,000 of fixed-rate and variable-rate mortgage loans payable outstanding secured by our properties.

As of June 30, 2023, we had $1,282,534,000 outstanding and $167,466,000 remained available under our lines of credit.

The weighted average effective interest rate on our outstanding debt, factoring in our interest rate swap, was 5.69% per annum as of June 30, 2023.

See Note 7, Mortgage Loans Payable, Net, and Note 8, Lines of Credit and Term Loan, to our accompanying condensed consolidated financial statements.

We are required by the terms of certain loan documents to meet various financial and non-financial covenants, such as leverage ratios, net worth ratios, debt service coverage ratios and fixed charge coverage ratios.

As of March 31, 2023, we were in compliance with all such covenants and requirements on our mortgage loans payable and our lines of credit and term loan.

As of June 30, 2023, we were in compliance with all such covenants and requirements on our mortgage loans payable and our lines of credit and term loan.

If any future covenants are violated, we anticipate seeking a waiver or amending the debt covenants with the lenders when and if such event should occur.

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expensed acquisition fees and costs, which we refer to as business acquisition expenses;

amounts relating to changes in deferred rent and amortization of above- and below-market leases (which

are adjusted in order to reflect such payments from a GAAP accrual basis);

amounts relating to changes in deferred rent and amortization of above- and below-market leases (which are adjusted in order to reflect such payments from a GAAP accrual basis);

the non-cash impact of changes to our equity instruments;

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In the future, the SEC, NAREIT, or another regulatory body may decide to standardize the allowable adjustments across the REIT industry and we would have to adjust our calculation and characterization of FFO.

For the three months ended March 31, 2023 and 2022, we recognized government grants as grant income or as a reduction of property operating expenses, as applicable, and within income or loss from unconsolidated entities.

Such amounts were granted through federal and state government programs, such as through the CARES Act, and which were established for eligible healthcare providers to preserve liquidity in response to the COVID-19 pandemic.

See the “Results of Operations” section above for a further discussion.

The government grants helped mitigate some of the negative impact that the COVID-19 pandemic had on our financial condition and results of operations.

Without such relief funds, the COVID-19 pandemic would have had a material adverse impact to our FFO and NFFO.

For the three months ended March 31, 2023 and 2022, FFO would have been approximately $11,548,000 and $28,244,000, respectively, excluding government grants recognized.

For the three months ended March 31, 2023 and 2022, NFFO would have been approximately $20,086,000 and $33,419,000, respectively, excluding government grants recognized.

The following is a reconciliation of net income or loss, which is the most directly comparable GAAP financial measure, to FFO and NFFO for the periods presented below:

Three Months Ended March 31,

The following is a reconciliation of net income or loss, which is the most directly comparable GAAP financial measure, to FFO and NFFO for the periods presented below (in thousands except for share and per share amounts):

Three Months Ended June 30,

Six Months Ended June 30,

2023 2022 2023 2022

$ (11,867) $ (15,542) $ (39,482) $ (16,439)

Depreciation and amortization related to real estate — consolidated properties 44,663 39,939 89,295 82,250

Depreciation and amortization related to real estate — unconsolidated entities 95 420 158 846

Impairment of real estate investments — consolidated properties — 17,340 — 17,340

Loss (gain) on dispositions of real estate investments — consolidated properties 2,072 73 2,204 (683)

Net loss (income) attributable to noncontrolling interests 1,743,000 (2,059,000)

Net (income) loss attributable to noncontrolling interests (316) (1,768) 1,427 (3,827)

Gain on re-measurement of previously held equity interest — — (726) —

Depreciation, amortization, gain/loss on dispositions and gain on re-measurement — noncontrolling interests (6,538,000) (6,409,000)

Depreciation, amortization, impairments, gain/loss on dispositions and gain on re-measurement — noncontrolling interests (7,073) (7,744) (13,611) (14,153)

FFO attributable to controlling interest $ 27,574 $ 32,718 $ 39,265 $ 65,334

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Capitalized interest (54) (14) (80) (78)

Loss on debt extinguishments — 4,591,000

Loss (gain) in fair value of derivative financial instruments 195,000 (500,000)

(Gain) loss on debt extinguishments — (181) — 4,410

Gain in fair value of derivative financial instruments (4,993) — (4,798) (500)

Foreign currency (gain) loss (1,068) 3,607 (2,076) 4,994

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Weighted average Class T and Class I common shares outstanding — basic and diluted 66,033,345 65,754,423 66,029,779 65,692,159

Net loss per Class T and Class I common share — basic and diluted $ (0.42) $ (0.01)

FFO attributable to controlling interest per Class T and Class I common share — basic and diluted $ 0.18 $ 0.50

NFFO attributable to controlling interest per Class T and Class I common share — basic and diluted $ 0.31 $ 0.58

Net loss per Class T and Class I common share attributable to controlling interest — basic and diluted $ (0.19) $ (0.26) $ (0.58) $ (0.31)

FFO per Class T and Class I common share attributable to controlling interest — basic and diluted $ 0.42 $ 0.50 $ 0.59 $ 0.99

NFFO per Class T and Class I common share attributable to controlling interest — basic and diluted $ 0.37 $ 0.57 $ 0.67 $ 1.15

Net Operating Income

Net operating income, or NOI, is a non-GAAP financial measure that is defined as net income (loss), computed in accordance with GAAP, generated from properties before general and administrative expenses, business acquisition expenses, depreciation and amortization, interest expense, gain or loss on dispositions, income or loss from unconsolidated entities, gain on re-measurement of previously held equity interest, foreign currency gain or loss, other income and income tax benefit or expense.

NOI is a non-GAAP financial measure that is defined as net income (loss), computed in accordance with GAAP, generated from properties before general and administrative expenses, business acquisition expenses, depreciation and amortization, interest expense, gain or loss on dispositions, income or loss from unconsolidated entities, gain on re-measurement of previously held equity interest, foreign currency gain or loss, other income and income tax benefit or expense.

NOI is not equivalent to our net income (loss) as determined under GAAP and may not be a useful measure in measuring operational income or cash flows.

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However, our use of the term NOI may not be comparable to that of other real estate companies as they may have different methodologies for computing this amount.

For the three months ended March 31, 2023 and 2022, we recognized government grants as grant income or as a reduction of property operating expenses, as applicable.

The government grants helped mitigate some of the negative impact that the COVID-19 pandemic had on our financial condition and results of operations.

Without such relief funds, the COVID-19 pandemic would have had a material adverse impact to our NOI.

For the three months ended March 31, 2023 and 2022, NOI would have been approximately $66,742,000 and $68,470,000, respectively, excluding government grants recognized.

To facilitate understanding of this financial measure, the following is a reconciliation of net income or loss, which is the most directly comparable GAAP financial measure, to NOI for the periods presented below:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

2023 2022 2023 2022

$ (11,867) $ (15,542) $ (39,482) $ (16,439)

General and administrative 11,774 10,928 24,827 22,047

3 unchanged sentences

Loss (gain) on dispositions of real estate investments 2,072 73 2,204 (683)

Impairment of real estate investments — 17,340 — 17,340

Loss (income) from unconsolidated entities 113 (638) 419 (2,024)

5 unchanged sentences

Subsequent Event

For a discussion of a subsequent event, see Note 20, Subsequent Event, to our accompanying condensed consolidated financial statements.

For a discussion of our subsequent event, see Note 19, Subsequent Event, to our accompanying condensed consolidated financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis