What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-09 compared with 2024-05-14 · 134 added, 111 removed, 303 unchanged (45% 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 2023 Annual Report on Form 10-K, as filed with the United States Securities and Exchange Commission, or SEC, on March 22, 2024.

Such condensed consolidated financial statements and information have been prepared to reflect our financial position as of March 31, 2024 and December 31, 2023, together with our results of operations and cash flows for the three months ended March 31, 2024 and 2023.

Such condensed consolidated financial statements and information have been prepared to reflect our financial position as of June 30, 2024 and December 31, 2023, together with our results of operations for the three and six months ended June 30, 2024 and 2023 and cash flows for the six months ended June 30, 2024 and 2023.

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.

During the quarter ended December 31, 2023, we modified how we evaluate our business and make resource allocations, and therefore determined that we operate through four reportable business segments:

integrated senior health campuses, outpatient medical, or OM, (which was formerly known as medical office buildings, or MOBs), triple-net leased properties and SHOP.

integrated senior health campuses, outpatient medical, or OM, (which was formerly known as medical office buildings, or MOBs), triple-net leased properties and senior housing operating properties, or SHOP.

All segment information included in this Quarterly Report on Form 10-Q has been recast for all periods presented to reflect four reportable business segments and the change in segment name from MOBs to OM.

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Such statements include, but are not limited to:

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

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

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unexpected labor costs and inflationary pressures;

and those risks identified in Item 1A.

Risk Factors in our 2023 Annual Report on Form 10-K, as filed with the SEC on March 22, 2024, this Quarterly Report on Form 10-Q, and any future filings we make with the SEC.

and those risks identified in Item 1A, Risk Factors in our 2023 Annual Report on Form 10-K, as filed with the SEC on March 22, 2024, this Quarterly Report on Form 10-Q, and any future filings we make with the SEC.

These risks and uncertainties should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements.

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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.

Our healthcare facilities operated under a RIDEA structure include our 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.

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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 March 31, 2024 and December 31, 2023 , we owned approximately 97.4% and 95.0%, respectively, of the operating partnership units, or OP units, in our operating partnership, and the remaining 2.6% and 5.0%, respectively, limited OP units were owned by AHI Group Holdings, LLC, which is owned and controlled by Jeffrey T.

As of June 30, 2024 and December 31, 2023 , we owned approximately 97.4% and 95.0%, respectively, of the operating partnership units, or OP units, in our operating partnership, and the remaining 2.6% and 5.0%, respectively, 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, President and director, and Mathieu B.

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Following the closing of the 2024 Offering, we are presenting Common Stock, Class T common stock and Class I common stock, or collectively, common stock, as separate classes within our condensed consolidated balance sheets and condensed consolidated statements of equity.

Any references to “Common Stock” in this Quarterly Report on Form 10-Q refer to our NYSE-listed shares sold through the 2024 Offering, whereas Class T common stock and Class I common stock refer to classes of common stock that are not listed.

This applies to all historical periods presented herein.

On August 5, 2024, 180 days after the listing of our Common Stock shares on the NYSE, each share of our Class T common stock and Class I common stock automatically converted into one share of our listed Common Stock.

Our Real Estate Investments Portfolio

We currently operate through four reportable business segments:

integrated senior health campuses, outpatient medical, or OM, SHOP and triple-net leased properties.

As of March 31, 2024, we owned and/or operated 318 buildings and integrated senior health campuses, representing approximately 19,451,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $4,566,829,000.

In addition, as of March 31, 2024, we also owned a real estate-related debt investment purchased for $60,429,000.

integrated senior health campuses, OM, SHOP and triple-net leased properties.

As of June 30, 2024, we owned and/or operated 318 buildings and integrated senior health campuses, representing approximately 19,455,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $4,612,670,000.

In addition, as of June 30, 2024, we also owned a real estate-related debt investment purchased for $60,429,000.

Critical Accounting Estimates

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These estimates are made and evaluated on an ongoing 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.

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 2023 Annual Report on Form 10-K, as filed with the SEC on March 22, 2024, 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.

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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 2023 Annual Report on Form 10-K, as filed with the SEC on March 22, 2024.

During the three months ended March 31, 2024 and 2023, inflation has affected our operations.

The annual rate of inflation in the United States was 3.5% in March 2024, as measured by the Consumer Price Index.

During the six months ended June 30, 2024 and 2023, inflation has affected our operations.

The annual rate of inflation in the United States was 3.0% in both June 2024 and June 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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Scheduled Lease Expirations

Excluding our SHOP and integrated senior health campuses, as of March 31, 2024, our properties were 91.0% leased, and, during the remainder of 2024, 6.5% of the leased GLA is scheduled to expire.

Excluding our SHOP and integrated senior health campuses, as of June 30, 2024, our properties were 91.3% leased, and, during the remainder of 2024, 4.2% of the leased GLA is scheduled to expire.

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

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

As of March 31, 2024, our remaining weighted average lease term was 6.7 years, excluding our SHOP and integrated senior health campuses.

Our combined SHOP and integrated senior health campuses were 85.5% leased as of March 31, 2024.

As of June 30, 2024, our remaining weighted average lease term was 6.6 years, excluding our SHOP and integrated senior health campuses.

Our combined SHOP and integrated senior health campuses were 86.5% leased as of June 30, 2024.

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

Results of Operations

Comparison of Three Months Ended March 31, 2024 and 2023

Comparison of Three and Six Months Ended June 30, 2024 and 2023

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

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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 March 31, 2024, we operated through four reportable business segments:

As of June 30, 2024, we operated through four reportable business segments:

integrated senior health campuses, OM, SHOP and triple-net leased properties.

The most significant drivers behind changes in our consolidated results of operations for the three months ended March 31, 2024 compared to the corresponding period in 2023 were primarily due to the increase in resident occupancies and billing rates, partially offset by 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 March 31, 2023;

The most significant drivers behind changes in our consolidated results of operations for the three and six months ended June 30, 2024 compared to the corresponding periods in 2023 were primarily due to:

the increase in resident occupancies and billing rates, partially offset by 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 June 30, 2023;

and the transition of the operations of certain leased senior housing and skilled nursing facilities from triple-net leased properties to a RIDEA structure.

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See Note 2, Summary of Significant Accounting Policies — Properties Held for Sale, and 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 2024.

As of March 31, 2024 and 2023, we owned and/or operated the following types of properties (dollars in thousands):

As of June 30, 2024 and 2023, we owned and/or operated the following types of properties (dollars in thousands):

Campuses Aggregate

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(2) Weighted average leased percentage excludes our SHOP and integrated senior health campuses.

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 months ended March 31, 2024 and 2023, 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 six months ended June 30, 2024 and 2023, 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.

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

Three Months Ended March 31,

We also received grant income during the three and six months ended June 30, 2023.

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,

2024 2023 2024 2023

Resident Fees and Services Revenue

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Total real estate revenue 46,568 50,568 93,983 94,164

Total revenues $ 499,533 $ 452,226

Integrated senior health campuses — 6,381 — 6,381

Total grant income — 6,381 — 6,381

Total revenues and grant income $ 504,581 $ 467,571 $ 1,004,114 $ 919,797

Resident Fees and Services Revenue

For our integrated senior health campuses segment, we increased resident fees and services revenue by $31,352,000 for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to:

For our integrated senior health campuses segment, we increased resident fees and services revenue by $30,918,000 and $62,270,000, respectively, for the three and six months ended June 30, 2024, as compared to the three and six months ended

June 30, 2023, primarily due to:

(i) increased resident occupancy and higher resident fees as a result of an increase in billing rates and service levels;

and (ii) an increase of $5,864,000 due to the expansion of our customer base, expansion of services offered and increases in billing rates for such services at ancillary business units within Trilogy Investors, LLC, or Trilogy.

For our SHOP segment, resident fees and services revenue increased $12,136,000 for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to:

(i) an increase of $7,767,000 due to the acquisition of 14 senior housing properties in February 2024;

(ii) an increase of $4,161,000 due to the transitioning of senior housing facilities within the Michigan ALF Portfolio to a RIDEA structure in November 2023;

and (iii) an increase of $2,613,000 due to transitioning the SNFs within the Central Wisconsin Senior Care Portfolio to a RIDEA structure in March 2023.

and (ii) an increase of $4,173,000 and $10,037,000, respectively, due to the expansion of our customer base, expansion of services offered and increases in billing rates for such services at ancillary business units within Trilogy Investors, LLC, or Trilogy.

For our SHOP segment, resident fees and services revenue increased $16,473,000 and $28,609,000, respectively, for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023, primarily due to:

(i) an increase of $11,758,000 and $19,525,000, respectively, due to the acquisition of 14 senior housing properties in February 2024;

(ii) an increase of $4,178,000 and $8,339,000, respectively, due to the transitioning of leased senior housing facilities of the Michigan ALF Portfolio to a RIDEA structure in November 2023;

and (iii) an increase of $1,139,000 and $3,752,000, respectively, due to transitioning the leased SNFs of 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 increased resident occupancy and higher resident fees as a result of an increase in billing rates and service levels.

Such increases were partially offset by a decrease of $5,859,000 for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, due to real estate dispositions within our SHOP segment since March 31, 2023.

Such increases were partially offset by a decrease of $5,160,000 and $11,696,000, respectively, for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023, primarily due to real estate dispositions within our SHOP segment since June 30, 2023.

Real Estate Revenue

For the three months ended March 31, 2024, real estate revenue within our triple-net leased properties segment increased $7,235,000, as compared to the three months ended March 31, 2023, primarily due to the transitioning of SNFs within the Central Wisconsin Senior Care Portfolio to a RIDEA structure in March 2023 that resulted in the full amortization of $8,073,000 of above-market leases recorded against real estate revenue.

Such increase was partially offset by $1,489,000 due to the transitioning of senior housing facilities within Michigan ALF Portfolio to a RIDEA structure in November 2023.

Real estate revenue for our OM segment decreased $3,416,000 for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to a decrease of $3,402,000 related to dispositions of OM buildings since March 31, 2023.

For the three months ended June 30, 2024, real estate revenue within our triple-net leased properties segment decreased $1,042,000, as compared to the three months ended June 30, 2023, primarily due to the transitioning of senior housing facilities of the Michigan ALF Portfolio to a RIDEA structure in November 2023.

For the six months ended June 30, 2024, real estate revenue within our triple-net leased properties segment increased $6,193,000, as compared to the six months ended June 30, 2023, primarily due to transitioning the leased SNFs of the Central Wisconsin Senior Care Portfolio to a RIDEA structure in March 2023 that resulted in the full amortization of $8,073,000 of above-market leases recorded against real estate revenue in the prior year.

Such increase for the six months ended June 30, 2024 was partially offset by $2,981,000 due to the transitioning of leased senior housing facilities of the Michigan ALF Portfolio to a RIDEA structure in November 2023.

Real estate revenue for our OM segment decreased $2,958,000 and $6,374,000, respectively, for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023, primarily due to a decrease of $2,532,000 and $5,775,000, respectively, related to dispositions of OM buildings since June 30, 2023 and a slight decrease in occupancy.

For both the three and six months ended June 30, 2024, we did not recognize any grant income.

For the three and six months ended June 30, 2023, we recognized $6,381,000 of grant income at our integrated senior health campuses related to government grants received through certain federal and state pandemic-related relief measures, such as reimbursement programs.

Property Operating Expenses and Rental Expenses

Integrated senior health campuses and SHOP typically have a higher percentage of direct operating expenses to revenue than OM buildings and triple-net leased properties due to the nature of RIDEA-type facilities where we conduct day-to-day operations.

Property operating expenses and property operating expenses as a percentage of resident fees and services revenue, 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 March 31,

Integrated senior health campuses and SHOP typically have a higher percentage of direct operating expenses to revenue and grant income than OM buildings and triple-net leased properties due to the nature of RIDEA-type facilities where we conduct day-to-day operations.

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,

2024 2023 2024 2023

Property Operating Expenses

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Total rental expenses $ 13,323 28.6 % $ 14,653 29.0 % $ 27,050 28.8 % $ 29,848 31.7 %

For the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, the increase in total property operating expenses for our integrated senior health campuses segment was predominately due to:

For the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023, the increase in total property operating expenses for our integrated senior health campuses segment was predominately due to:

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

and (ii) an increase of $8,354,000 within Trilogy’s ancillary business unit due to higher labor costs associated with the expansion of services offered and inflation impacting such costs.

For the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, total property operating expenses for our SHOP segment increased primarily due to:

(i) an increase of $6,401,000 due to acquisition of 14 senior housing properties in February 2024;

(ii) an increase of $5,797,000 due to the transitioning of senior housing facilities within the Michigan ALF Portfolio from triple-net leased properties to a RIDEA structure in November 2023;

(iii) an increase of $3,568,000 due to the transitioning of SNFs within the Central Wisconsin Senior Care Portfolio from triple-net leased properties to a RIDEA structure in March 2023;

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

and (v) higher operating expenses as a result of increased occupancy.

Such amounts were partially offset by a decrease of $6,631,000 in total property operating expenses for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, due to real estate dispositions within our SHOP segment since March 31, 2023.

Rental expenses for our OM segment decreased for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, primarily due to the dispositions of OM buildings since March 31, 2023.

General and Administrative

For the three months ended March 31, 2024, general and administrative expenses were $11,828,000, as compared to $13,053,000 for the three months ended March 31, 2023.

The decrease in general and administrative expenses of $1,225,000 was primarily the result of a decrease in professional and legal fees of $1,315,000.

and (ii) an increase of $7,861,000 and $16,215,000, respectively, within Trilogy’s ancillary business unit due to higher labor costs associated with the expansion of services offered and inflation impacting labor costs and other operating expenses.

For the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023, total property operating expenses for our SHOP segment increased primarily due to:

(i) an increase of $10,521,000 and $16,922,000, respectively, due to the acquisition of 14 senior housing properties in February 2024;

(ii) an increase of $5,780,000 and $11,578,000, respectively, due to the transitioning of senior housing facilities of the Michigan ALF Portfolio from triple-net leased properties to a RIDEA structure in November 2023;

(iii) higher labor costs due to an increase in employee wages;

and (iv) higher operating expenses as a result of increased occupancy.

Additionally, $3,470,000 of the increase in total property operating expenses for our SHOP segment for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, was due to transitioning SNFs of the Central Wisconsin Senior Care Portfolio from triple-net leased properties to a RIDEA structure in March 2023.

Such increases in total property operating expenses for our SHOP segment were partially offset by a decrease of $5,607,000 and $12,324,000, respectively, in total property operating expenses for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023, due to real estate dispositions within our SHOP segment since June 30, 2023.

Rental expenses for our OM segment decreased for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023, primarily due to the dispositions of OM buildings since June 30, 2023.

Business Acquisition Expenses

For the three months ended March 31, 2024 and 2023, we recorded business acquisition expenses of $2,782,000 and $332,000, respectively.

The increase in such expenses was primarily due to acquisition costs incurred in pursuit of our investment in properties operated under a RIDEA structure and included in our SHOP segment.

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 senior housing facilities acquired in February 2024.

Depreciation and Amortization

For the three months ended March 31, 2024 and 2023, depreciation and amortization was $42,767,000 and $44,670,000, respectively, which primarily consisted of depreciation on our operating properties of $37,135,000 and $35,899,000, respectively, and amortization of our identified intangible assets of $4,997,000 and $7,988,000, respectively.

For the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, the decrease in depreciation and amortization of $1,903,000 was primarily due to the full amortization of $885,000 of in-place leases related to the transition of SNFs within the Central Wisconsin Senior Care Portfolio from triple-net leased properties to a RIDEA structure in March 2023 and a decrease in depreciation and amortization as a result of real estate dispositions within our SHOP

and OM segments subsequent to March 31, 2023.

Such amounts were partially offset by an increase in depreciation and amortization in our SHOP and integrated senior health campuses segments as a result of real estate acquisitions and capital expenditures in those segments that occurred subsequent to March 31, 2023.

For the three and six months ended June 30, 2024, we recorded business acquisition expenses of $15,000 and $2,797,000, respectively, primarily incurred in pursuit of our investment in properties operated under a RIDEA structure and included in our SHOP segment.

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-investment opportunities.

Interest Expense

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

2024 2023 2024 2023

Interest expense:

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Mortgage loans payable

786 559 1,566 1,136

Amortization of debt discount/premium, net

(Gain) loss in fair value of derivative financial instruments (6,417) 195

1,402 890 2,776 1,775

Gain in fair value of derivative financial instruments (388) (4,993) (6,805) (4,798)

Loss on extinguishments of debt — — 1,280 —

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Interest expense on financing obligations and other liabilities

664 171 1,326 344

Total $ 30,208 $ 35,997 $ 60,229 $ 75,203

The decrease in total interest expense for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, was primarily due to:

(i) a decrease in debt balances predominately related to the payoff of $176,145,000 of variable-rate mortgage loans payable and $545,010,000 on our variable-rate lines of credit in February 2024 from the net proceeds received from the 2024 Offering;

and (ii) a change from loss to gain in fair value of derivative financial instruments.

Such decreases in total interest expense were partially offset by a $1,280,000 loss on extinguishments of debt in 2024 due to the above-mentioned debt payoffs.

The decrease in total interest expense for the three and six months ended June 30, 2024, as compared to the three and six months ended June 30, 2023, was primarily due to a decrease in debt balances predominately related to the payoff of $176,145,000 of variable-rate mortgage loans payable and $545,010,000 on our variable-rate lines of credit in February 2024 from the net proceeds received from the 2024 Offering.

Such decrease in total interest expense for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, was partially offset by a decrease in gain in fair value of derivative financial instruments of $4,605,000.

Such decrease in total interest expense for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, was partially offset by a $1,280,000 loss on extinguishments of debt in

2024 due to the debt payoffs mentioned above.

See Note 6, Other Assets, Net, and Note 7, Mortgage Loans Payable, Net, 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 March 31, 2024, we recognized an aggregate net gain on dispositions of our real estate investments of $2,263,000 related to the sale of two OM buildings and one SHOP in 2024.

For the three months ended June 30, 2024, we did not have any real estate investment dispositions.

For the six months ended June 30, 2024, we recognized an aggregate net gain on dispositions of our real estate investments of $2,261,000 related to the sale of two OM buildings and one SHOP in 2024.

See Note 2, Summary of Significant Accounting Policies — Properties Held for Sale and 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 months ended March 31, 2023, we recognized an aggregate net loss on dispositions of our real estate investments of $132,000 primarily related to the disposition of one SHOP in Florida.

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 OM buildings.

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 OM buildings.

Gain on Re-measurement of Previously Held Equity Interest

For both the three and six months ended June 30, 2024, we did not recognize any gain on re-measurement of any previously held equity interest.

For the three and six months ended June 30, 2023, we recognized $0 and $726,000, respectively, gain on re-measurement of the fair value of our previously held equity interest in Memory Care Partners, LLC.

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

Liquidity and Capital Resources

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

As of March 31, 2024, we had $17,077,000 of restricted cash in loan impounds and reserve accounts to fund a portion of such capital expenditures.

Based on the budget for the properties we owned as of March 31, 2024, we estimated that unspent discretionary expenditures for capital and tenant improvements as of such date are equal to $62,446,000 for the remaining nine months of 2024, although actual expenditures are dependent on many factors which are not presently known.

As of June 30, 2024, we had $15,578,000 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, 2024, we estimated that unspent discretionary expenditures for capital and tenant improvements as of such date are to be approximately $49,462,000 for the remaining six months of 2024, although actual expenditures are dependent on many factors which are not presently known.

Contractual Obligations

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(iii) ground and other lease obligations;

and (iv) financing and other obligations as of March 31, 2024 (in thousands):

and (iv) financing and other obligations as of June 30, 2024 (in thousands):

Payments Due by Period

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— 281,054 671,043 7,700 959,797

Interest payments — variable-rate debt (based on rates in effect as of March 31, 2024)

Interest payments — variable-rate debt (based on rates in effect as of June 30, 2024)

34,873 101,524 12,336 665 149,398

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

As of March 31, 2024, our aggregate borrowing capacity under the 2024 Credit Facility and the Trilogy Credit Facility was $1,550,000,000.

As of March 31, 2024, our aggregate borrowings outstanding under our credit facilities was $760,000,000, and we had an aggregate of $790,000,000 available on such facilities.

As of June 30, 2024, our aggregate borrowing capacity under the 2024 Credit Facility and the Trilogy Credit Facility was $1,550,000,000.

As of June 30, 2024, our aggregate borrowings outstanding under our credit facilities was $784,500,000, and we had an aggregate of $765,500,000 available on such facilities.

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

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

Three Months Ended March 31,

Six Months Ended June 30,

Cash, cash equivalents and restricted cash — beginning of period $ 90,782 $ 111,906

Net cash (used in) provided by operating activities (5,954) 23,862

Net cash used in investing activities (5,223) (33,319)

Net cash provided by operating activities 53,448 43,642

Net cash (used in) provided by investing activities (65,534) 9,687

Net cash provided by (used in) financing activities 18,935 (71,575)

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Operating Activities

For the three months ended March 31, 2024 and 2023, cash flows from operating activities were primarily related to property operations, offset by payments of general and administrative expenses and interest payments on our outstanding indebtedness.

The change from net cash provided by operating activities for the three months ended March 31, 2023, to net cash used in operating activities for the three months ended March 31, 2024, was primarily due to the timing of cash receipts and payments.

For the six months ended June 30, 2024 and 2023, cash flows from operating activities were primarily related to 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.

In addition, the increase in net cash provided by operating activities for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, was primarily driven by the increase in operating performance of our real estate investments in our integrated senior health campuses and SHOP segments, as well as a decrease in interest paid on our outstanding indebtedness.

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

Investing Activities

For the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, the decrease in net cash used in investing activities was primarily due to an $11,328,000 decrease in cash paid to acquire real estate investments, a $7,621,000 increase in proceeds from dispositions of real estate investments and a $6,000,000 decrease in investments in unconsolidated entities.

For the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, the change from net cash provided by investing activities to net cash used in investing activities was primarily due to a $72,926,000 decrease in proceeds from dispositions of real estate investments and a $34,095,000 increase in cash paid to acquire real estate investments, offset by a $13,699,000 decrease in developments and capital expenditures, a $12,000,000 decrease in investments in unconsolidated entities and net principal repayments on real estate notes receivable of $4,880,000.

Financing Activities

For the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, the change from net cash used in financing activities to net cash provided by financing activities was primarily due to the closing of the 2024 Offering that resulted in $772,800,000 in gross offering proceeds from the issuance of Common Stock.

Such amount was partially offset by the increase in payment of offering costs of $47,534,000 in connection with the 2024 Offering, as well as a change from $34,078,000 of net borrowings under our lines of credit and mortgage loans payable to $630,378,000 of net payments on our lines of credit and mortgage loans payable, primarily using the net proceeds from the 2024 Offering for such paydowns.

For the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, the change from net cash used in financing activities to net cash provided by financing activities was primarily due to the closing of the 2024 Offering that resulted in $772,800,000 in gross offering proceeds from the issuance of Common Stock.

Such amount was partially offset by the increase in payment of offering costs of $49,469,000 in connection with the 2024 Offering, a $20,129,000 increase in cash paid to redeem certain equity interests owned in Trilogy Investors, LLC, as well as a change from $5,850,000 of net borrowings under our lines of credit and mortgage loans payable to $607,579,000 of net payments on our lines of credit and mortgage loans payable, primarily using the net proceeds from the 2024 Offering for such paydowns.

Distributions

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The amount of the quarterly distributions paid to our common stockholders was determined by our board and was dependent on a number of factors, including funds available for payment of distributions, our financial condition, capital expenditure requirements and annual distribution requirements needed to maintain our qualification as a REIT under the Code.

The following tables reflect distributions we paid for the three months ended March 31, 2024 and 2023, 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):

Three Months Ended March 31,

The following tables reflect distributions we paid for the six months ended June 30, 2024 and 2023, and the sources of distributions as compared to cash flows from operations or funds from operations attributable to controlling interest, or FFO, a non-GAAP financial measure (dollars in thousands):

Six Months Ended June 30,

Distributions paid in cash $ 49,594 $ 43,086

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$ 49,594 100 % $ 43,086 100 %

Three Months Ended March 31,

Six Months Ended June 30,

Distributions paid in cash $ 49,594 $ 43,086

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$ 49,594 100 % $ 43,086 100 %

As of March 31, 2024, 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.

As of June 30, 2024, 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 income (loss) to FFO, see “Funds from Operations and Normalized Funds from Operations” below.

Mortgage Loans Payable, Net

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

As of March 31, 2024, we had $1,255,120,000 of fixed-rate and variable-rate mortgage loans payable outstanding secured by our properties.

As of March 31, 2024, we had $760,000,000 outstanding, and $790,000,000 remained available under our lines of credit.

The weighted average effective interest rate on our outstanding debt, factoring in our interest rate swaps, was 4.90% per annum as

of March 31, 2024.

As of June 30, 2024, we had $1,253,419,000 of fixed-rate and variable-rate mortgage loans payable outstanding secured by our properties.

As of June 30, 2024, we had $784,500,000 outstanding, and $765,500,000 remained available under our lines of credit.

The weighted average effective interest rate on our outstanding debt, factoring in our interest rate swaps, was 4.86% per annum as of June 30, 2024.

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

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

As of March 31, 2024, we were in compliance with all such covenants and requirements on our mortgage loans payable and our lines of credit and term loan.

As of June 30, 2024, 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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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.

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.

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

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

2024 2023 2024 2023

Net income (loss)

$ 2,926 $ (11,867) $ (78) $ (39,482)

Depreciation and amortization related to real estate — consolidated properties 45,226 44,663 87,955 89,295

Depreciation and amortization related to real estate — unconsolidated entities 186 95 372 158

(Gain) loss on dispositions of real estate investments, net — consolidated properties (2,263) 132

Loss (gain) on dispositions of real estate investments, net — consolidated properties 2 2,072 (2,261) 2,204

Net (income) loss attributable to noncontrolling interests (947) (316) (1,835) 1,427

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

Depreciation, amortization, impairments, net gain/loss on dispositions and gain on re-measurement — noncontrolling interests (5,462) (6,538)

Depreciation, amortization, net gain/loss on dispositions and gain on re-measurement — noncontrolling interests (5,647) (7,073) (11,109) (13,611)

NAREIT FFO attributable to controlling interest $ 41,746 $ 27,574 $ 73,044 $ 39,265

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Loss on debt extinguishments — — 1,280 —

(Gain) loss in fair value of derivative financial instruments (6,417) 195

Foreign currency loss (gain) 426 (1,008)

Gain in fair value of derivative financial instruments (388) (4,993) (6,805) (4,798)

Foreign currency (gain) loss (82) (1,068) 344 (2,076)

Adjustments for unconsolidated entities (138) (179) (248) (253)

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$ 43,740 $ 24,147 $ 74,838 $ 44,376

Weighted average common shares outstanding — basic and diluted 104,295,142 66,026,173

Net loss per common share attributable to controlling interest — basic and diluted $ (0.04) $ (0.39)

NAREIT FFO per common share attributable to controlling interest — basic and diluted $ 0.30 $ 0.18

Normalized FFO per common share attributable to controlling interest — basic and diluted $ 0.30 $ 0.31

Weighted average common shares outstanding — diluted 130,689,889 66,033,345 117,413,643 66,029,779

Net income (loss) per common share attributable to controlling interest — diluted $ 0.01 $ (0.19) $ (0.02) $ (0.58)

NAREIT FFO per common share attributable to controlling interest — diluted $ 0.32 $ 0.42 $ 0.62 $ 0.59

Normalized FFO per common share attributable to controlling interest — diluted $ 0.33 $ 0.37 $ 0.64 $ 0.67

Net Operating Income

Net operating income, or NOI, is a non-GAAP financial measure that is defined as net income (loss), computed in accordance with GAAP, generated from properties before general and administrative expenses, business acquisition expenses, depreciation and amortization, interest expense, gain or loss on dispositions, impairment of real estate investments, impairment of intangible assets and goodwill, 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.

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

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

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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.

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.

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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

2024 2023 2024 2023

Net income (loss)

$ 2,926 $ (11,867) $ (78) $ (39,482)

General and administrative 11,746 11,774 23,574 24,827

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Interest expense 30,596 40,990 67,034 80,001

(Gain) loss on dispositions of real estate investments, net (2,263) 132

Gain in fair value of derivative financial instruments (388) (4,993) (6,805) (4,798)

Loss (gain) on dispositions of real estate investments, net 2 2,072 (2,261) 2,204

Loss from unconsolidated entities 1,035 113 2,240 419

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

Foreign currency loss (gain) 426 (1,008)

Other income (1,863) (1,608)

Foreign currency (gain) loss (82) (1,068) 344 (2,076)

Other income, net (3,106) (2,589) (4,969) (4,197)

Income tax expense 686 348 964 491

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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