What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-13 compared with 2023-08-14 · 148 added, 145 removed, 348 unchanged (46% 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 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.

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

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the availability of capital;

our ability to pay down, refinance, restructure or extend our indebtedness as it becomes due;

our ability to pay down, refinance, restructure or extend our indebtedness as it becomes due, including our ability to refinance the 2019 Trilogy Credit Facility on acceptable terms, or at all;

our ability to maintain our qualification as a REIT for U.S.

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the success of our investment strategy;

information technology security breaches;

cybersecurity incidents and information technology failures, including unauthorized access to our computer systems and/or our vendors’ computer systems, and our third-party management companies’ computer systems and/or their vendors’ computer systems;

our ability to retain our executive officers and key employees;

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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 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.

As of both September 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.

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Public Offerings

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).

As of September 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), and on July 14, 2023, we filed with the SEC Amendment No.

333-267464), which was last amended on November 7, 2023 upon filing with the SEC Amendment No.

2 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.

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On November 15, 2022 we effected a one-for-four reverse stock split of our common stock and a corresponding reverse split of the OP units, or the Reverse Splits.

All numbers of common shares and per share data, as well as the OP units, in our accompanying condensed consolidated financial statements and related notes have been retroactively adjusted for all periods presented to give effect to the Reverse Spli ts.

See Note 12, Equity, to our accompanying condensed consolidated financial statements, for a further discussion of our public offerings.

On March 15, 2023, our board, at the recommendation of the audit committee of our board, which is comprised solely of independent directors, unanimously approved and established an updated estimated per share net asset value, or NAV, of our common stock of $31.40.

We provide this updated estimated per share NAV annually to assist broker-dealers in connection with their obligations under Financial Industry Regulatory Authority, or FINRA, Rule 2231 with respect to customer account statements.

We provide this updated estimated per share NAV annually to assist broker-dealers in connection with their obligations under Financial Industry Regulatory Authority Rule 2231 with respect to customer account statements.

The updated estimated per share NAV is based on the estimated value of our assets less the estimated value of our liabilities, divided by the number of shares outstanding on a fully diluted basis, calculated as of December 31, 2022.

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We currently operate through six reportable business segments:

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.

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

As of September 30, 2023, we owned and/or operated 298 buildings and integrated senior health campuses, including completed development and expansion projects, representing approximately 18,875,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $4,485,940,000.

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

Critical Accounting Estimates

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Factors Which May Influence Results of Operations

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.

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, and 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 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 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.

economy have been adversely affected by the impacts of the COVID-19 pandemic, including its economic impact.

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.

however, it is not possible to predict the full extent of its future impact on us, our residents, tenants, operating partners and managers, 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 June 30, 2023.

We have evaluated such economic impacts of the COVID-19 pandemic on our business thus far and have incorporated information concerning such impacts into our assessments of liquidity, impairment and collectability from tenants and residents as of September 30, 2023.

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

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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.

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

Resident occupancy for our properties has been improving, but labor costs continue to remain elevated, and we have had difficulty filling open positions and retaining existing staff.

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

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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.

The impact on individual skilled nursing facilities’ operators will vary, and therefore it is not possible to predict or 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.

During the nine months ended September 30, 2023 and 2022, inflation has affected our operations.

The annual rate of inflation in the United States was 3.7% in September 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.

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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.

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.

In addition, inflation also caused, and may continue to 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 of this Quarterly Report on Form 10Q for further discussion.

Scheduled Lease Expirations

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.

Excluding our SHOP and integrated senior health campuses, as of September 30, 2023, our properties were 92.6% leased, and during the remainder of 2023, 3.5% 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 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.

As of September 30, 2023, our remaining weighted average lease term was 6.2 years, excluding our SHOP and integrated senior health campuses.

Our combined SHOP and integrated senior health campuses were 84.4% leased as of September 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 and Six Months Ended June 30, 2023 and 2022

Comparison of Three and Nine Months Ended September 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.

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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 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.

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

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

The most significant drivers behind changes in our consolidated results of operations for the three and nine months ended September 30, 2023 compared to the corresponding periods in 2022 were the adverse effect of inflation, which resulted in increases in the cost of labor, services, energy and supplies;

our acquisitions and dispositions of investments subsequent to September 30, 2022;

and the transitions of the operations of certain leased skilled nursing and senior housing facilities to a RIDEA structure.

Additional drivers behind the changes in our consolidated results of operations are discussed in more detail below.

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):

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

September 30,

Campuses Aggregate

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Total/weighted average(3) 298 $ 4,485,940 92.6 % 312 $ 4,548,366 92.6 %

(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.

(1) The leased percentage for the resident units of our integrated senior health campuses was 85.5% and 84.0% as of September 30, 2023 and 2022, respectively.

(2) The leased percentage for the resident units of our SHOP was 80.7% and 75.3% as of September 30, 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 of the available units/beds therein.

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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 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.

For the three and nine months ended September 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.

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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,

Three Months Ended September 30,

Nine Months Ended September 30,

2023 2022 2023 2022

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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 $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;

For our integrated senior health campuses segment, we experienced an increase in resident fees and services revenue of $43,540,000 and $199,572,000, respectively, for the three and nine months ended September 30, 2023, as compared to the three and nine months ended September 30, 2022, due to:

(i) an increase of $14,053,000 and $97,806,000, respectively, related to 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.

and (iii) an increase of $5,897,000 and $33,371,000, 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 $3,590,000 and $12,054,000, 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 $4,360,000 and $22,381,000, respectively, for the three and nine months ended September 30, 2023, as compared to the three and nine months ended September 30, 2022, primarily due to:

(i) our acquisition of a portfolio of seven senior housing facilities in Texas within our SHOP segment on December 5, 2022, which increased revenue by $6,907,000 and $20,464,000 respectively;

and (ii) an increase of $3,656,000 and $8,378,000, respectively, 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 $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.

Such increases were partially offset by a decrease of $7,169,000 and $11,398,000, respectively, for the three and nine months ended September 30, 2023, as compared to the three and nine months ended September 30, 2022, due to real estate dispositions within our SHOP segment during the three months ended December 31, 2022 and the nine months ended September 30, 2023.

Real Estate Revenue

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.

For the three and nine months ended September 30, 2023, we experienced a decrease in real estate revenue for our SNFs of $458,000 and $8,992,000, respectively, as compared to the three and nine months ended September 30, 2022, due to transitioning the SNFs within the Central Wisconsin Senior Care Portfolio to a RIDEA structure in March 2023, which amount included the full amortization of $8,073,000 of above-market leases.

In addition, for the three and nine months ended September 30, 2023, we experienced a decrease in real estate revenue for our senior housing — leased segment of $2,459,000 and $2,351,000, respectively, as compared to the three and nine months ended September 30, 2022, primarily due to transitioning the senior housing — leased facilities within Michigan ALF Portfolio to RIDEA, which amount included the full amortization of $2,756,000 of above-market leases.

We also experienced a net decrease in real estate revenue for our MOBs segment for both the three and nine months ended September 30, 2023 of $1,440,000 and $1,987,000, respectively, as compared to the three and nine months ended September 30, 2022, primarily due to real estate dispositions of MOBs during the fourth quarter of 2022 and the nine months ended September 30, 2023, which was partially offset by fixed rent escalations and lease-up activity.

For the three months ended September 30, 2023 and 2022, we recognized $1,064,000 and $6,533,000, 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 nine months ended September 30, 2023 and 2022, we recognized $7,445,000 and $22,716,000, respectively, of grant income at our integrated senior health campuses and SHOP primarily 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.

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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 (dollars in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2023 2022 2023 2022

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Total rental expenses $ 14,574 31.0 % $ 14,850 28.9 % $ 44,422 31.5 % $ 44,800 29.0 %

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.

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:

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

For the three and nine months ended September 30, 2023, as compared to the three and nine months ended September 30, 2022, the increase in total property operating expenses for our integrated senior health campuses segment was predominately due to (i) an increase of $14,481,000 and $95,737,000, respectively, attributable to our acquisition of the 50.0% interest in RHS on August 1, 2022;

(ii) increased occupancy at the facilities within such segment;

and (iii) an increase of $7,438,000 and $34,636,000, 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 $2,851,000 and $9,311,000, respectively, due to real estate dispositions within our integrated senior health campuses segment during the third and fourth quarters of 2022.

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

(i) an increase of $5,756,000 and $16,645,000, respectively, due to the acquisition of a portfolio of seven senior housing facilities within our SHOP segment in Texas on December 5, 2022;

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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 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.

Such amounts were partially offset by a decrease in total property operating expenses for the three and nine months ended September 30, 2023, as compared to the three and nine months ended September 30, 2022, of $8,717,000 and $13,445,000, respectively, due to real estate dispositions within our SHOP segment during the three months ended December 31, 2022 and during the nine months ended September 30, 2023.

General and Administrative

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.

For the three months ended September 30, 2023, general and administrative expenses were $11,342,000 compared to $9,626,000 for the three months ended September 30, 2022.

The increase in general and administrative expenses of $1,716,000 was primarily the result of an increase of $1,712,000 in bad debt expense.

For the nine months ended September 30, 2023, general and administrative expenses were $36,169,000 compared to $31,673,000 for the nine months ended September 30, 2022.

The increase in general and administrative expenses of $4,496,000 was primarily the result of an increase of:

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

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

(i) $1,910,000 in bad debt expense;

(ii) $1,586,000 in stock compensation expense;

and (iii) $890,000 in professional fees and legal fees.

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.

For the three and nine months ended September 30, 2023, we recorded business acquisition expenses of $1,024,000 and $2,244,000, respectively, primarily incurred in pursuit of real estate-related investment opportunities.

For the three and nine months ended September 30, 2022, we recorded business acquisition expenses of $231,000 and $2,161,000, respectively, primarily incurred in connection with $938,000 in transaction costs related to the acquisition of a pharmaceutical business in April 2022 and $61,000 and $780,000, respectively, of costs incurred in the pursuit of real estate investments that did not close.

Depreciation and Amortization

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.

For the three months ended September 30, 2023 and 2022, depreciation and amortization was $49,273,000 and $40,422,000, respectively, which primarily consisted of depreciation on our operating properties of $36,929,000 and $35,327,000, respectively, and amortization of our identified intangible assets of $11,778,000 and $4,421,000, respectively.

For the nine months ended September 30, 2023 and 2022, depreciation and amortization was $138,644,000 and $122,704,000, respectively, which primarily consisted of depreciation on our operating properties of $109,967,000 and $104,077,000, respectively, and amortization of our identified intangible assets of $26,618,000 and $16,554,000, respectively.

For the three and nine months ended September 30, 2023, as compared to the three and nine months ended September 30, 2022, the increase in depreciation and amortization of $8,851,000 and $15,940,000, 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 September 30, 2022, as well as development and capital expenditures since September 30, 2022;

(ii) the full amortization of an aggregate $6,635,000 of in-place leases related to the transition of SNFs within the Central Wisconsin Senior Care Portfolio to a RIDEA structure in March 2023 and the transition of senior housing — leased facilities within the Michigan ALF Portfolio to a RIDEA structure;

and (iii) the full amortization of $1,157,000 of depreciable assets as a result of storm damage affecting our properties in Louisiana, Nebraska, North Carolina and Texas.

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 September 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 (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2023 2022 2023 2022

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Gain in fair value of derivative financial instruments (3,402) — (8,200) (500)

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

Loss on extinguishments of debt 345 628 345 5,038

Interest on finance lease liabilities 82 43 239 183

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Total $ 38,603 $ 27,524 $ 113,806 $ 70,694

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;

The increase in total interest expense for the three and nine months ended September 30, 2023, as compared to the three and nine months ended September 30, 2022, was primarily due to an increase in debt balances since September 30, 2022 and a higher weighted average effective interest rate on our variable debt, which was 7.52% and 5.13% as of September 30, 2023 and 2022, respectively.

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

(i) a $7,700,000 increase in gain in fair value of our derivative financial instruments;

(ii) $2,039,000 of net proceeds from our interest rate swaps;

and (iii) a $4,693,000 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.

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 of 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.

For the three months ended September 30, 2023, we recognized an aggregate net gain on dispositions of our real estate investments of $31,981,000 primarily related to the sale of one SHOP within our Central Florida Senior Housing Portfolio and three MOBs.

For the nine months ended September 30, 2023, we recognized an aggregate net gain on dispositions of our real estate investments of $29,777,000 primarily related to the sale of six SHOP within our Central Florida Senior Housing Portfolio and 14 MOBs.

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

For the three and nine months ended September 30, 2022, we recognized an aggregate net gain on dispositions of our real estate investments of $2,113,000 and $2,796,000, respectively, primarily related to the disposition of one integrated senior health campus in Indiana.

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 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.

For both the three and nine months ended September 30, 2023, we recognized an aggregate impairment charge of $12,510,000 for two of our SHOP within the Northern CA Senior Housing Portfolio.

For the three and nine months ended September 30, 2022, we recognized an aggregate impairment charge of $21,851,000 and $39,191,000 on our SHOP within the Central Florida Senior Housing Portfolio, respectively.

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

Gain on Re-measurement of Previously Held Equity Interests

For the nine months ended September 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 both the three and nine months ended September 30, 2022, we recognized a $19,567,000 gain on re-measurement of the fair value of our previously held equity interest in RHS.

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

Liquidity and Capital Resources

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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 believe that the sources of liquidity described above, along with the probable refinancing of the 2019 Trilogy Credit Facility, 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 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.

As of September 30, 2023, we had $17,866,000 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 September 30, 2023, we estimated that unspent discretionary expenditures for capital and tenant improvements as of such date are equal to $52,883,000 for the remaining three months of 2023, although actual expenditures are dependent on many factors which are not presently known.

Contractual Obligations

The following table provides information with respect to:

(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 Instrument, to our accompanying condensed consolidated financial statements);

(i) the maturity and scheduled principal repayment of our secured mortgage loans payable and 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 swaps;

(iii) ground and other lease obligations;

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

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

Payments Due by Period

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57 660,430 925,443 27,328 1,613,258

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

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

31,009 167,433 46,801 6,746 251,989

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$ 53,831 $ 1,146,663 $ 1,280,882 $ 1,048,790 $ 3,530,166

Distributions and Share Repurchases

Distributions

For information on distributions, see the “Distributions” section below.

For information on our share repurchase plan, see Note 12, Equity — Share Repurchase Plan, to our accompanying condensed consolidated financial statements.

Credit Facilities

We are party to a credit agreement, as amended, with an aggregate maximum principal amount up to $1,050,000,000, or the 2022 Credit Facility.

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 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.

We are currently evaluating our options for refinancing the 2019 Trilogy Credit Facility based on current loan-to-value ratios and lending market conditions and believe it is probable that we could extend the maturity date of this facility or obtain a replacement facility that would extend the maturity date beyond 12 months from the filing date of this Quarterly Report on Form 10-Q.

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

As of September 30, 2023, our aggregate borrowings outstanding under our credit facilities was $1,277,900,000 and we had an aggregate of $172,100,000 available on such facilities.

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

Six Months Ended June 30,

Nine Months Ended September 30,

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

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Operating Activities

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.

For the nine months ended September 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.

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Investing Activities

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.

For the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, the change from net cash used in investing activities to net cash provided by investing activities was primarily due to a $142,239,000 increase in proceeds from dispositions of real estate investments and a $29,743,000 decrease in cash paid to acquire real estate investments.

Such amounts were partially offset by a $23,028,000 increase in development and capital expenditures and an $7,563,000 increase in investments in unconsolidated entities.

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Financing Activities

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.

For the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, the change from net cash provided by financing activities to net cash used in financing activities was primarily due to the change from net borrowings under our lines of credit and mortgage loans payable of $94,296,000 to net payments on our lines of credit and mortgage loans payable of $15,853,000.

Distributions

Our board authorized record date distributions to our Class T common stockholders and Class I common stockholders of record as of each monthly record date from January 2022 through June 2022, equal to $0.133333332 per share of our common stock, which was equal to an annualized distribution rate of $1.60 per share.

Our board authorized record date distributions to holders of our Class T common stock and Class I common stock of record as of each monthly record date from January 2022 through June 2022, equal to $0.133333332 per share of our common stock, which was equal to an annualized distribution rate of $1.60 per share.

The distributions were paid in cash or shares of our common stock pursuant to the DRIP offering.

Effective beginning with the third quarter of 2022, distributions, if any, were or shall be authorized by our board on a quarterly basis, in such amounts as our board determined or shall determine, and each quarterly record date for the purposes of such distributions was or shall be determined and authorized by our board in the last month of each calendar quarter until such time as our board changes our distribution policy.

Our board authorized a quarterly distribution to our Class T common stockholders and Class I common stockholders of record as of the close of business on September 29, 2022.

Our board authorized a quarterly distribution to holders of our Class T common stock and Class I common stock of record as of the close of business on September 29, 2022.

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.

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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.

Our board authorized a quarterly distribution to our Class T common stockholders and Class I common stockholders of record as of the close of business on December 29, 2022.

Our board authorized a quarterly distribution to holders of our Class T common stock and Class I common stock of record as of the close of business on December 29, 2022.

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, only from legally available funds.

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.

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.

Therefore, our board authorized a quarterly distribution equal to $0.25 per share to holders of our Class T common stock and Class I common stock commencing with the first quarter of 2023.

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,

See our Current Reports on Form 8-K filed with the SEC on March 17, 2023, June 16, 2023 and September 20, 2023 for more information.

The following tables reflect distributions we paid for the nine months ended September 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):

Nine Months Ended September 30,

Distributions paid in cash $ 59,685 $ 35,391

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$ 59,685 100 % $ 61,509 100 %

Six Months Ended June 30,

Nine Months Ended September 30,

Distributions paid in cash $ 59,685 $ 35,391

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$ 59,685 100 % $ 61,509 100 %

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.

As of September 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 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.

As of September 30, 2023, our aggregate borrowings were 53.2% 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 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.

As of September 30, 2023, we had $1,243,358,000 of fixed-rate and variable-rate mortgage loans payable outstanding secured by our properties.

As of September 30, 2023, we had $1,277,900,000 outstanding and $172,100,000 remained available under our lines of credit.

The weighted average effective interest rate on our outstanding debt, factoring in our interest rate swaps, was 5.77% per annum as of September 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 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.

As of September 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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and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect NFFO on the same basis.

However, FFO and NFFO should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income (loss) as an indicator of our operating performance, GAAP cash flows from operations as an indicator of our liquidity or indicative of funds available to fund our cash needs, including our ability to make distributions to our stockholders.

The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and NFFO measures and the adjustments to GAAP in calculating FFO and NFFO.

Presentation of this information is intended to provide useful information to management, investors and industry analysts as they compare the operating performance used by the REIT industry, although it should be noted that not all REITs calculate funds from operations and normalized funds from operations the same way, so comparisons with other REITs may not be meaningful.

FFO and NFFO should be reviewed in conjunction with other measurements as an indication of our performance.

None of the SEC, NAREIT, or any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or NFFO.

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.

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,

Three Months Ended September 30,

Nine Months Ended September 30,

2023 2022 2023 2022

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Impairment of real estate investments — consolidated properties 12,510 21,851 12,510 39,191

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

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

Gain on dispositions of real estate investments, net — consolidated properties (31,981) (2,113) (29,777) (2,796)

Net loss (income) attributable to noncontrolling interests 457 (5,861) 1,884 (9,688)

Gain on re-measurement of previously held equity interests — (19,567) (726) (19,567)

Depreciation, amortization, impairments, net gain on dispositions and gain on re-measurements — noncontrolling interests (6,061) (757) (19,672) (14,910)

FFO attributable to controlling interest $ 17,810 $ 26,496 $ 57,075 $ 91,830

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Capitalized interest (47) (44) (127) (122)

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

Loss on debt extinguishments 345 628 345 5,038

Gain in fair value of derivative financial instruments (3,402) — (8,200) (500)

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

Foreign currency loss (gain) 1,704 3,695 (372) 8,689

Adjustments for unconsolidated entities (106) (6) (359) 162

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Net Operating Income

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 interests, 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.

Furthermore, NOI should not be considered as an alternative to net income (loss) as an indication of our operating performance or as an alternative to cash flows from operations as an indication of our liquidity.

NOI should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income (loss) or in its applicability in evaluating our operating performance.

NOI should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income (loss).

NOI should be reviewed in conjunction with other measurements as an indication of our performance.

Investors are also cautioned that NOI should only be used to assess our operational performance in periods in which we have not incurred or accrued any business acquisition expenses.

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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 (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2023 2022 2023 2022

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Interest expense 38,603 27,524 113,806 70,694

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

Gain on dispositions of real estate investments, net (31,981) (2,113) (29,777) (2,796)

Impairment of real estate investments 12,510 21,851 12,510 39,191

Loss (income) from unconsolidated entities 505 344 924 (1,680)

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

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

Gain on re-measurement of previously held equity interests — (19,567) (726) (19,567)

Foreign currency loss (gain) 1,704 3,695 (372) 8,689

Other income (1,755) (670) (5,952) (2,399)

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Net operating income $ 75,063 $ 73,825 $ 222,317 $ 225,086

Subsequent Event

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