American Healthcare REIT, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The use of the words “we,” “us” or “our” refers to American Healthcare REIT, Inc. and its subsidiaries, including American Healthcare REIT Holdings, LP, except where otherwise noted. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to promote understanding of our results of operations and financial condition. 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 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. Forward-Looking Statements Certain statements contained in this report, other than historical facts, may be considered forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the Private Securities Litigation Reform Act of 1995 (collectively with the “Securities Act and Exchange Act, or the Acts”). We intend for all such forward-looking statements to be covered by the applicable safe harbor provisions for forward-looking statements contained in the Acts. Such forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “can,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” “possible,” “initiatives,” “focus,” “seek,” “objective,” “goal,” “strategy,” “plan,” “potential,” “potentially,” “preparing,” “projected,” “future,” “long-term,” “once,” “should,” “could,” “would,” “might,” “uncertainty,” or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the SEC. Any such forward-looking statements are based on current expectations, estimates and projections about the industry and markets in which we operate, and beliefs of, and assumptions made by, our management and involve uncertainties that could significantly affect our financial results. 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, including our option to purchase the minority membership interest in Trilogy REIT Holdings; (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. Such statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from those projected or anticipated, including, without limitation: changes in economic conditions generally and the real estate market specifically; the continuing adverse effects of the COVID-19 pandemic, including its effects on the healthcare industry, senior housing and skilled nursing facilities, or SNFs, and the economy in general; legislative and regulatory changes, including changes to laws governing the taxation of real estate investment trusts, or REITs; the availability of capital; 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. federal income tax purposes; 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; changes in GAAP policies and guidelines applicable to REITs; the success of our investment strategy; 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; and unexpected labor costs and inflationary pressures. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date on which such statements are made, and undue reliance should not be placed on such statements. We undertake no obligation to update any such statements that may become untrue because of subsequent events. Additional information concerning us and our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC. 44 Table of Contents Overview and Background 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). Our healthcare facilities operated under a RIDEA structure include our senior housing operating properties, or SHOP, and our integrated senior health campuses. We have originated and acquired secured loans and may also originate and acquire other real estate-related investments on an infrequent and opportunistic basis. We generally seek investments that produce current income; however, we have selectively developed, and may continue to selectively develop, healthcare real estate properties. We have elected to be taxed as a REIT for U.S. federal income tax purposes. We believe that we have been organized and operated, and we intend to continue to operate, in conformity with the requirements for qualification and taxation as a REIT under the Code. 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 was renamed American Healthcare REIT, Inc. and the Surviving Partnership was renamed American Healthcare REIT Holdings, LP, or our operating partnership. Also on October 1, 2021, immediately prior to the consummation of the Merger, and pursuant to a contribution and exchange agreement dated June 23, 2021, GAHR III acquired a newly formed entity, American Healthcare Opps Holdings, LLC, or NewCo, which we refer to as the AHI Acquisition. Following the Merger and the AHI Acquisition, our company became self-managed. Operating Partnership 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 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. Streiff, one of our directors; Platform Healthcare Investor TII, LLC; Flaherty Trust; and a wholly owned subsidiary of Griffin Capital Company, LLC, or collectively, the NewCo Sellers. 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 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), 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. Such registration statement and contemplated listing are not yet effective. 45 Table of Contents 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 Splits. 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 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. The valuation was performed in accordance with the methodology provided in Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs, issued by the Institute for Portfolio Alternatives, or the IPA, in April 2013, in addition to guidance from the SEC. See our Current Report on Form 8-K filed with the SEC on March 17, 2023 for more information on the methodologies and assumptions used to determine, and the limitations and risks of, our updated estimated per share NAV. Our Real Estate Investments Portfolio We currently operate through six reportable business segments: 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 Our accompanying condensed consolidated financial statements are prepared in conformity with GAAP, which requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying footnotes. These estimates are made and evaluated on an on-going basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates, perhaps in material adverse ways, and those estimates could be different under different assumptions or conditions. The complete listing of our Critical Accounting Estimates was previously disclosed in our 2022 Annual Report on Form 10-K, as filed with the SEC on March 17, 2023, and there have been no material changes to our Critical Accounting Estimates as disclosed therein, except as included within Note 2, Summary of Significant Accounting Policies, to our accompanying condensed consolidated financial statements. Interim Unaudited Financial Data For a discussion of interim unaudited financial data, see Note 2, Summary of Significant Accounting Policies — Interim Unaudited Financial Data, to our accompanying condensed consolidated financial statements. Our accompanying condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our 2022 Annual Report on Form 10-K, as filed with the SEC on March 17, 2023. Acquisitions and Dispositions in 2023 For a discussion of our acquisitions and dispositions of investments in 2023, see Note 3, Real Estate Investments, Net and Business Combinations, to our accompanying condensed consolidated financial statements. 46 Table of Contents 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, 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. COVID-19 Our residents, tenants, operating partners and managers, our industry and the U.S. 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, 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 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. 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 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. 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 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. 47 Table of Contents Inflation 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. 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. These provisions include negotiated rental increases, which historically range from 2% to 3% per year, reimbursement billings for operating expense pass-through charges and real estate tax and insurance reimbursements. 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, and may continue to cause, an increase in the cost of our variable-rate debt due to rising interest rates. See Item 3. 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 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 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 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. Our primary expenses include property operating expenses and rental expenses. 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 September 30, 2023, we operated through six reportable business segments: integrated senior health campuses, MOBs, SHOP, SNFs, senior housing — leased and hospitals. 48 Table of Contents 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 September 30, 2023 and 2022, we owned and/or operated the following types of properties (dollars in thousands): September 30, 2023 2022 Number of Buildings/ Campuses Aggregate Contract Purchase Price Leased % Number of Buildings/ Campuses Aggregate Contract Purchase Price Leased % Integrated senior health campuses 125 $ 1,943,134 (1) 121 $ 1,894,235 (1) MOBs 90 1,270,474 89.7 % 105 1,378,995 89.6 % SHOP 46 729,767 (2) 47 706,871 (2) Senior housing — leased 20 179,285 100 % 20 179,285 100 % SNFs 15 223,500 100 % 17 249,200 100 % Hospitals 2 139,780 100 % 2 139,780 100 % 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 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. 49 Table of Contents 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 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. 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 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Resident Fees and Services Revenue Integrated senior health campuses $ 372,291 $ 328,751 $ 1,096,917 $ 897,345 SHOP 43,915 39,555 138,541 116,160 Total resident fees and services revenue 416,206 368,306 1,235,458 1,013,505 Real Estate Revenue MOBs 35,688 37,128 109,811 111,798 SNFs 6,175 6,633 10,633 19,625 Senior housing — leased 2,684 5,143 13,352 15,703 Hospitals 2,423 2,419 7,338 7,245 Total real estate revenue 46,970 51,323 141,134 154,371 Grant Income Integrated senior health campuses 1,064 5,796 7,445 21,861 SHOP — 737 — 855 Total grant income 1,064 6,533 7,445 22,716 Total revenues and grant income $ 464,240 $ 426,162 $ 1,384,037 $ 1,190,592 Resident Fees and Services Revenue 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 $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 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. 50 Table of Contents Real Estate Revenue 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. Grant Income 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. 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 (dollars in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Property Operating Expenses Integrated senior health campuses $ 335,563 89.9 % $ 299,197 89.4 % $ 992,620 89.9 % $ 811,281 88.3 % SHOP 39,040 88.9 % 38,290 95.0 % 124,678 90.0 % 109,425 93.5 % Total property operating expenses $ 374,603 89.8 % $ 337,487 90.0 % $ 1,117,298 89.9 % $ 920,706 88.9 % Rental Expenses MOBs $ 13,690 38.4 % $ 14,155 38.1 % $ 42,025 38.3 % $ 42,259 37.8 % SNFs 352 5.7 % 437 6.6 % 1,199 11.3 % 1,644 8.4 % Senior housing — leased 446 16.6 % 160 3.1 % 874 6.5 % 551 3.5 % Hospitals 86 3.5 % 98 4.1 % 324 4.4 % 346 4.8 % 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, 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. 51 Table of Contents 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; (ii) an increase of $3,962,000 and $9,223,000, 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 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 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) $1,910,000 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 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. 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 in April 2022. Depreciation and Amortization 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. 52 Table of Contents 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Interest expense: Lines of credit and term loan and derivative financial instruments $ 24,966 $ 14,806 $ 72,655 $ 31,382 Mortgage loans payable 14,215 10,485 41,310 29,637 Amortization of deferred financing costs: Lines of credit and term loan 686 722 2,491 2,255 Mortgage loans payable 554 530 1,690 1,463 Amortization of debt discount/premium, net 887 134 2,662 464 Gain in fair value of derivative financial instruments (3,402) — (8,200) (500) Loss on extinguishments of debt 345 628 345 5,038 Interest on finance lease liabilities 82 43 239 183 Interest expense on financing obligations and other liabilities 270 176 614 772 Total $ 38,603 $ 27,524 $ 113,806 $ 70,694 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 of debt extinguishments. Gain or Loss on Dispositions of Real Estate Investments 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 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. 53 Table of Contents Liquidity and Capital Resources 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, 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. Material Cash Requirements Capital Improvement Expenditures A capital plan for each investment is established upon acquisition that contemplates the estimated capital needs of that investment, including costs of refurbishment, tenant improvements or other major capital expenditures. The capital plan also sets forth the anticipated sources of the necessary capital, which may include operating cash generated by the investment, capital reserves, a line of credit or other loan established with respect to the investment, other borrowings or additional equity investments from us and joint venture partners. 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 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 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 September 30, 2023 (in thousands): Payments Due by Period 2023 2024-2025 2026-2027 Thereafter Total Principal payments — fixed-rate debt $ 4,804 $ 183,615 $ 190,619 $ 528,962 $ 908,000 Interest payments — fixed-rate debt 7,647 54,339 38,683 248,626 349,295 Principal payments — variable-rate debt 57 660,430 925,443 27,328 1,613,258 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 Ground and other lease obligations 8,972 70,936 70,690 202,022 352,620 Financing obligations 1,342 9,910 8,646 35,106 55,004 Total $ 53,831 $ 1,146,663 $ 1,280,882 $ 1,048,790 $ 3,530,166 Distributions For information on distributions, see the “Distributions” section below. 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, and an outstanding balance of $367,000,000 as of September 30, 2023, which is scheduled to mature in less than 12 months on September 5, 2024. See Note 8, Lines of Credit and Term Loan, to our accompanying condensed consolidated financial statements for further discussion. 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. 54 Table of Contents 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. Cash Flows The following table sets forth changes in cash flows (in thousands): Nine Months Ended September 30, 2023 2022 Cash, cash equivalents and restricted cash — beginning of period $ 111,906 $ 125,486 Net cash provided by operating activities 72,766 113,441 Net cash provided by (used in) investing activities 20,701 (122,539) Net cash (used in) provided by financing activities (123,177) 7,969 Effect of foreign currency translation on cash, cash equivalents and restricted cash (40) (59) Cash, cash equivalents and restricted cash — end of period $ 82,156 $ 124,298 The following summary discussion of our changes in our cash flows is based on our accompanying condensed consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below. Operating Activities 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. See the “Results of Operations” section above for further discussion. Investing Activities 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. 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 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 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 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. 55 Table of Contents 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. 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 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, 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, 2023 2022 Distributions paid in cash $ 59,685 $ 35,391 Distributions reinvested — 26,118 $ 59,685 $ 61,509 Sources of distributions: Cash flows from operations $ 59,685 100 % $ 61,509 100 % Proceeds from borrowings — — — — $ 59,685 100 % $ 61,509 100 % Nine Months Ended September 30, 2023 2022 Distributions paid in cash $ 59,685 $ 35,391 Distributions reinvested — 26,118 $ 59,685 $ 61,509 Sources of distributions: FFO attributable to controlling interest $ 57,075 95.6 % $ 61,509 100 % Proceeds from borrowings 2,610 4.4 — — $ 59,685 100 % $ 61,509 100 % 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. Financing We anticipate that our overall leverage will approximate 50.0% of the combined fair market value of all of our properties, and other real estate-related investments, as determined at the end of each calendar year. For these purposes, the market value of each asset will be equal to the contract purchase price paid for the asset or, if the asset was appraised subsequent to the date of purchase, then the market value will be equal to the value reported in the most recent independent appraisal of the asset. Our policies do not limit the amount we may borrow with respect to any individual investment. 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. 56 Table of Contents Mortgage Loans Payable, Net For a discussion of our mortgage loans payable, see Note 7, Mortgage Loans Payable, Net, to our accompanying condensed consolidated financial statements. Lines of Credit and Term Loan For a discussion of our lines of credit and term loan, see Note 8, Lines of Credit and Term Loan, to our accompanying condensed consolidated financial statements. REIT Requirements In order to maintain our qualification as a REIT for U.S. federal income tax purposes, we are required to distribute to our stockholders a minimum of 90.0% of our REIT taxable income. Existin g Internal Revenue Service, or IRS, guidance includes a safe harbor pursuant to which publicly offered REITs ca n satisfy the distribution requirement by distributing a combination of cash and stock to stockholders. In general, to qualify under the safe harbor, each stockholder must elect to receive either cash or stock, and the aggregate cash component of the distribution to stockholders must represent at least 20.0% of the total distribution . In the event that there is a shortfall in net cash available due to factors including, without limitation, the timing of such distributions or the timing of the collection of receivables, we may seek to obtain capital to make distributions by means of secured and unsecured debt financing through one or more unaffiliated third parties. We may also make distributions with cash from capital transactions including, without limitation, the sale of one or more of our properties. Commitments and Contingencies For a discussion of our commitments and contingencies, see Note 10, Commitments and Contingencies, to our accompanying condensed consolidated financial statements. Debt Service Requirements A significant liquidity need is the payment of principal and interest on our outstanding indebtedness. 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 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. However, there can be no assurances that management will be able to effectively achieve such plans. Funds from Operations and Normalized Funds from Operations Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group, has promulgated a measure known as funds from operations, a non-GAAP financial measure, which we believe to be an appropriate supplemental performance measure to reflect the operating performance of a REIT. The use of funds from operations is recommended by the REIT industry as a supplemental performance measure, and our management uses FFO to evaluate our performance over time. FFO is not equivalent to our net income (loss) as determined under GAAP. We define FFO, a non-GAAP financial measure, consistent with the standards established by the White Paper on funds from operations approved by the Board of Governors of NAREIT, or the White Paper. The White Paper defines funds from operations as net income (loss) computed in accordance with GAAP, excluding gains or losses from sales of certain real estate assets, gains or losses upon consolidation of a previously held equity interest, and impairment writedowns of certain real estate assets and investments, plus depreciation and amortization related to real estate, and after adjustments for unconsolidated partnerships and joint ventures. While impairment charges are excluded from the calculation of FFO as described above, investors are cautioned that impairments are based on estimated future undiscounted cash flows. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect funds from operations. Our FFO calculation complies with NAREIT’s policy described above. 57 Table of Contents Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate-related depreciation and amortization and impairments, provides a further understanding of our operating performance to investors, industry analysts and to our management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses and interest costs, which may not be immediately apparent from net income (loss). We define normalized FFO attributable to controlling interest, or NFFO, as FFO further adjusted for the following items included in the determination of GAAP net income (loss): 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); the non-cash impact of changes to our equity instruments; non-cash or non-recurring income or expense; the non-cash effect of income tax benefits or expenses; capitalized interest; impairment of goodwill; amortization of closing costs on debt investments; mark-to-market adjustments included in net income (loss); gains or losses included in net income (loss) from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan; 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 or NFFO. 58 Table of Contents 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net loss $ (6,446) $ (7,644) $ (45,928) $ (24,083) Depreciation and amortization related to real estate — consolidated properties 49,235 40,390 138,530 122,640 Depreciation and amortization related to real estate — unconsolidated entities 96 197 254 1,043 Impairment of real estate investments — consolidated properties 12,510 21,851 12,510 39,191 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 Business acquisition expenses $ 1,024 $ 231 $ 2,244 $ 2,161 Amortization of above- and below-market leases 3,103 700 12,233 1,904 Amortization of closing costs 71 60 204 174 Change in deferred rent 1,478 (1,029) 1,238 (3,333) Non-cash impact of changes to equity instruments 1,579 880 4,244 2,659 Capitalized interest (47) (44) (127) (122) Loss on debt extinguishments 345 628 345 5,038 Gain in fair value of derivative financial instruments (3,402) — (8,200) (500) Foreign currency loss (gain) 1,704 3,695 (372) 8,689 Adjustments for unconsolidated entities (106) (6) (359) 162 Adjustments for noncontrolling interests (386) (575) (976) (2,078) NFFO attributable to controlling interest $ 23,173 $ 31,036 $ 67,549 $ 106,584 Weighted average Class T and Class I common shares outstanding — basic and diluted 66,048,991 65,819,808 66,036,253 65,735,176 Net loss per Class T and Class I common share attributable to controlling interest — basic and diluted $ (0.09) $ (0.21) $ (0.67) $ (0.51) FFO per Class T and Class I common share attributable to controlling interest — basic and diluted $ 0.27 $ 0.40 $ 0.86 $ 1.40 NFFO per Class T and Class I common share attributable to controlling interest — basic and diluted $ 0.35 $ 0.47 $ 1.02 $ 1.62 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 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). 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. 59 Table of Contents We believe that NOI is an appropriate supplemental performance measure to reflect the performance of our operating assets because NOI excludes certain items that are not associated with the operations of the properties. We believe that NOI is a widely accepted measure of comparative operating performance in the real estate community. 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. 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net loss $ (6,446) $ (7,644) $ (45,928) $ (24,083) General and administrative 11,342 9,626 36,169 31,673 Business acquisition expenses 1,024 231 2,244 2,161 Depreciation and amortization 49,273 40,422 138,644 122,704 Interest expense 38,603 27,524 113,806 70,694 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 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) Income tax expense 284 126 775 499 Net operating income $ 75,063 $ 73,825 $ 222,317 $ 225,086