What changed in this filing

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Item 1A. Risk Factors

2021-02-24 compared with 2020-02-18 · 106 added, 25 removed, 443 unchanged (23% of the section changed)

Risk Factor Summary

The following summarizes the principal factors that make an investment in our Company speculative or risky, all of which are more fully described in the Risk Factors section below.

This summary should be read in conjunction with the Risk Factors section below and should not be relied upon as an exhaustive summary of the material risks facing our business.

The order of presentation is not necessarily indicative of the level of risk that each factor poses to us.

Risks Related to Our Business

Our business model and the operations of our business involve risks, including those related to:

• our dependency on investments and the performance of those investments primarily in the healthcare sector;

• the competition we face for investments in MOBs and other healthcare facilities;

• our relationships with certain tenants, health systems and hospitals;

• general economic conditions of commercial real estate and the credit markets;

• the supply of external capital which may limit our ability to make new investments, refinance debt, or make distributions to our stockholders;

• the continued involvement and contributions of our Board members and certain key personnel;

• material failures of our information technology and related infrastructure;

• pandemics and other health concerns, including the ongoing COVID-19 pandemic, and measures intended to prevent or limit their spread.

Risks Related to Our Organizational Structure

Our organizational structure involves exposure to risks, including those related to:

• our acquisitions of property in exchange for limited partnership interests that could limit our liquidity or flexibility;

• possible changes to our investment objectives and/or strategies without stockholder approval;

• various provisions of Maryland law restricting our ability and/or timing to effect a change of control transaction.

Risks Related to Investments in Real Estate and Other Real Estate Related Assets

Investments in real estate and other real estate related assets expose us to risk, including risks related to:

• the financial stability of our tenants, including the consequences to us from their bankruptcy or financial insolvency;

• concentrations or instability of our tenant base;

• competition to our MOBs and other property types with other real estate not owned by us;

• the ongoing financial viability of tenant groups, hospitals, and related health systems relevant to us;

• the unique nature of certain of our property types, including our senior care facilities;

• the impact to us of climate change and severe weather;

• uninsured losses or the potential of our properties and operations to be under-insured;

• our ability to integrate acquired assets with existing operations or our failure to operate newly acquired assets successfully;

• the impact to us of increases in property taxes;

• limitations or restrictions on the use of our properties from existing ground lease or other arrangements;

• the risks to us of our development, redevelopment and construction activities;

• the impact to us of our disposition of real estate assets and the corresponding market rates and terms for those dispositions being on unfavorable terms;

• the impact of unfavorable real estate market conditions on our mortgage or real-estate loans;

• the impact to us of the variability of market lease rates, including those on longer-term leases or for leases with contractual lease rates;

• our compliance with the Americans with Disabilities Act of 1990 and other similar legislature.

Risks Related to the Healthcare Industry

Our dependence on the healthcare industry involves risks to us, including those related to:

• laws affecting the healthcare industry, healthcare legislation reform, and licensure of our tenants;

• adverse changes in reimbursement rates from third-party payors to our tenants;

• government budget deficits and reduced appropriations to Medicare and Medicaid;

• the violation of laws by our tenants, including fraud and abuse laws and licensure violations.

Risks Related to Debt Financing

Our debt financing arrangements involve risks to us, including those related to:

• our dependence on indebtedness and associated business risks, including the hindrance of our ability to make distributions;

• changes to or elimination of the London Inter-Bank Offered Rate;

• restrictive covenants that may limit our operational flexibility;

• adverse changes in our credit ratings and the potential inability for us to seek additional financing on favorable terms, if at all.

Risks Related to Joint Ventures

Our investments in joint venture arrangements involves risks to us that the terms of our agreements could impair our cash flow, operating flexibility and/or our results of operations.

Federal Income Tax Risks

We face risks related to certain tax laws and associated taxation of our company, including those related to:

• our failure to qualify as a REIT for U.S.

federal income tax purposes;

• our ability to continue qualifying as a REIT;

• ownership limits with respect to capital stock contained in our corporate charter may delay, defer or prevent a change of control or other transaction.

Risks Related to Our Common Stock and Forward Sale Agreements

Our common stock, including our common stock sold pursuant to forward sales agreements involves risks, including those related to:

• historical and possible future fluctuations in the price of our common stock;

• future offerings of debt securities ranking senior to our common stock, or our issuance of additional equity securities that may be senior and/or dilutive to our existing stockholders;

• changes in the frequency or amount of our dividends;

• increases in market interest rates;

• the failure of securities analysts to publish reports about us or the downgrading of our common stock and/or the healthcare real-estate sector;

• settlement provisions contained in our forward sale agreements resulting in dilution to our stockholders;

federal income tax treatment of cash we might receive from cash settlement of our forward sale agreements may jeopardize our qualification as a REIT;

• in case of our bankruptcy or insolvency we would not receive the expected proceeds from any forward sales of our common stock.

This section highlights significant factors, events and uncertainties that could create risk with an investment in our securities.

The events and consequences discussed in these risk factors could, in circumstances we may not be able to accurately predict, recognize or control, have a material adverse effect on our business, growth, reputation, prospects, financial condition, operating results, cash flows, liquidity, ability to pay dividends and the price of our common stock.

These risk factors do not identify all risks that we face.

Our operations could also be affected by factors, events or uncertainties that are not presently known to us or that we currently do not consider to present significant risks to our operations.

Risks Related to Our Business

We are dependent on investments in the healthcare property sector, making our profitability more vulnerable to a downturn or slowdown in that specific sector than if we were investing in multiple industries.

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• increases in vacancy rates due to tenant defaults, the expiration or termination of tenant leases, and reduced demand for MOBs and other facilities that serve the healthcare industry;

increases in tenant inducements, tenant improvement expenditures, rent concessions or reduced rental rates, especially to maintain or increase occupancies at our properties;

• increases in tenant inducements, tenant improvement expenditures, rent concessions or reduced rental rates, especially to maintain or increase occupancy at our properties;

• reduced values of our properties, thereby limiting our ability to dispose of our assets at attractive prices or obtain debt financing secured by our properties on satisfactory terms, as well as reducing the availability of unsecured loans;

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If we cannot obtain capital from third-party sources, we may not be able to acquire properties when strategic opportunities exist, satisfy our principal and interest obligations to our lenders or make the cash distributions to our stockholders necessary to maintain our qualification as a REIT.

Our success depends to a significant degree upon the continued contributions of certain key personnel, each of whom would be difficult to replace.

Our success depends to a significant degree upon the continued contributions of our Board members, and certain of our key personnel, each of whom would be difficult to replace.

If we were to lose the benefit of the experience, efforts and abilities of one or more of these individuals, our operating results could suffer.

Our ability to achieve our investment objectives and to pay distributions is dependent upon the performance of our Board of Directors, our executive officers and our other employees, in the identification and acquisition of investments, the determination and finalization of our financing arrangements, the asset management of our investments, and the operation of our day-to-day activities.

Our ability to achieve our investment objectives and to pay distributions is dependent upon the performance of our Board of Directors, our executive officers and our other employees.

Our Board of Directors establishes important policies, governance objectives and strategic goals, and our management team serves a critical role in the identification and acquisition of investments, the determination and finalization of our financing arrangements, the asset management of our investments, and the operation of our day-to-day activities.

Our stockholders will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments that are not described in this Annual Report or other periodic filings with the SEC.

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If we were to lose the benefit of the experience, efforts and abilities of these executives, without satisfactory replacements, our operating results could suffer.

In addition, if any member of our Board of Directors were to resign, we would lose the benefit of such director’s governance, experience and familiarity with us and the sector within which we operate.

In addition, if any member of our Board of Directors were to resign, we would lose the benefit of such director’s governance expertise and experience, and familiarity with us and the sector within which we operate.

As a result of the foregoing, we may be unable to achieve our investment objectives or to pay distributions to our stockholders.

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Any failure to maintain proper function, security and availability of our information systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could have an adverse effect on our business, results of operations and financial condition.

Pandemics and other health concerns, including the currently ongoing COVID-19 pandemic, and the measures intended to prevent their spread, could have a material adverse effect on our business, results of operations, cash flows and financial condition.

Pandemics, including the ongoing COVID-19 pandemic and those caused by possible new strains or mutations of the SARS-CoV-2 virus, as well as both future widespread and localized outbreaks of infectious diseases and other health concerns, and the measures taken to prevent the spread or lessen the impact, could cause a material disruption to our industry or deteriorate the economy as a whole.

The impacts of such events could be severe and far-reaching, and may impact our operations in several ways.

Such operational impacts include, but are not limited to, the following:

(i) tenants could experience deteriorating financial conditions and be unable or unwilling to pay rent on time and in full;

(ii) we may have to restructure tenants' obligations and may not be able to do so on terms that are favorable to us;

(iii) inquiries and tours at our properties could decrease;

(iv) move-ins and new tenanting efforts, and re-letting efforts could slow or stop altogether;

(v) move-outs and potential early termination of leases thereunder could increase;

(vi) operating expenses, including the costs of certain essential

services or supplies, including payments to third-party contractors, service providers, and employees essential to ensure continuity in our building operations may increase;

and (vii) costs of development, including expenditures for materials utilized in construction and labor essential to complete existing developments in progress may increase substantively.

Further, disruption in the real estate markets may restrict our ability to deploy capital for new investments, or limit our ability to make new investments on terms that are favorable to us.

Additionally, these types of events could cause severe economic, market and other disruptions worldwide which could stretch to bank lending, capital and other financial markets.

If these markets are affected, future access to capital and other sources of funding could be constrained which could adversely affect the availability and terms of our future borrowings, our ability to refinance existing debt, our ability to draw on our revolving credit facility, and our ability to raise equity financing on terms that are favorable to us.

Risks Related to Our Organizational Structure

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• we may acquire properties that are not initially accretive to our results upon acquisition and we may not successfully manage and lease those properties to meet our expectations;

we may spend more than budgeted to make necessary improvements or renovations to acquired properties;

• we may spend more than amounts budgeted to make necessary improvements or renovations to acquired properties;

• we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations and, as a result, our results of operations and financial condition could be adversely affected;

• market conditions may result in higher than expected vacancy rates and lower than expected rental rates;

we may acquire properties subject to liabilities, including contingent liabilities, and without any recourse, or with only limited recourse, with respect to unknown liabilities for the clean-up of undisclosed environmental contamination, claims by tenants or other persons dealing with former owners of the properties, liabilities, claims, and litigation, including indemnification obligations, whether or not incurred in the ordinary course of business, relating to periods prior to or following our acquisitions, claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties, and liabilities for taxes relating to periods prior to our acquisitions.

• we may acquire properties subject to liabilities, including contingent liabilities, and without any recourse, or with only limited recourse to third-parties, with respect to unknown liabilities for the clean-up of undisclosed environmental contamination, claims by tenants or other persons dealing with former owners of the properties, liabilities, claims, and litigation, including indemnification obligations, whether or not incurred in the ordinary course of business, relating to periods prior to or following our acquisitions, claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties, and liabilities for taxes relating to periods prior to our acquisitions.

If we are unable to successfully operate acquired properties, our financial condition, results of operations, the market price of our common stock, cash flow and ability to satisfy our principal and interest obligations and to make distributions to our stockholders could be adversely affected.

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Our ownership of certain MOB properties and other facilities are subject to ground leases or other similar agreements which limit our uses of these properties and may restrict our ability to sell or otherwise transfer such properties.

As of December 31, 2019 , we held interests in MOB properties and other facilities that serve the healthcare industry through leasehold interests in the land on which the buildings are located and we may acquire additional properties in the future that are subject to ground leases or other similar agreements.

As of December 31, 2020, we held interests in certain MOB properties and other facilities that serve the healthcare industry through leasehold interests in the land on which the buildings are located and we may acquire additional properties in the future that are subject to ground leases or other similar agreements.

As of December 31, 2020, these properties represented 38% of our total GLA.

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• we may encounter delays as a result of a variety of factors that are beyond our control, including natural disasters, material shortages, and regulatory requirements;

time required to complete the construction of a project or to lease up the completed project may be greater than originally anticipated, thereby adversely affecting our cash flows and liquidity;

• the time required to complete the construction of a project or to lease up the completed project may be longer than originally anticipated, thereby adversely affecting our cash flows and liquidity;

• lease rates and rents at newly developed or redeveloped properties may fluctuate based on factors beyond our control, including market and economic conditions as well as the aforementioned budget overages;

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For instance, if we are required to liquidate mortgage loans at a time when prevailing interest rates are higher than the interest rates of such mortgage loans, we would likely sell such loans at a discount to their stated principal values.

Any inability to sell a

property or liquidation of a mortgage investment prior to maturity could adversely impact our business, financial condition and results of operation, the market price of our common stock and ability to pay distributions to our stockholders.

Any inability to sell a property or liquidation of a mortgage investment prior to maturity could adversely impact our business, financial condition and results of operation, the market price of our common stock and ability to pay distributions to our stockholders.

The mortgage or other real estate-related loans in which we have in the past, and may in the future, invest may be impacted by unfavorable real estate market conditions and delays in liquidation, which could decrease their value.

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Certain of our long-term leases provide for rent to increase over time.

However, if we do not accurately judge the potential for increases in market rental rates, we may set the terms of these long-term leases at levels such that even after contractual rental increases, the rent under our long-term leases is less than then-current market rental rates.

However, if we do not accurately judge the potential for future increases in market rental rates, we may set the terms of these long-term leases at levels such that even after contractual rental increases, the rent under our long-term leases is less than then-current market rental rates.

Further, we may have no ability to terminate those leases or to adjust the rent to then-prevailing market rates.

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The healthcare industry is heavily regulated by federal, state and local governmental agencies.

Our tenants generally are subject to laws and regulations covering, among other things, licensure, certification for participation in government programs,

and relationships with physicians and other referral sources.

Our tenants generally are subject to laws and regulations covering, among other things, licensure, certification for participation in government programs, and relationships with physicians and other referral sources.

Changes in these laws and regulations could negatively affect the ability of our tenants to make lease payments to us and our ability to make distributions to our stockholders.

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On December 18, 2019, the U.S.

Court of Appeals for the Fifth Circuit ruled that the ACA’s “individual mandate” was unconstitutional but sent the case back to the District Court for further analysis of whether the entire ACA is also rendered unconstitutional.

The ACA will remain law while the case proceeds through the appeals process;

however, the case creates additional uncertainty as to whether any or all of the ACA could be struck down, which creates risk for the health care industry.

We cannot predict whether any of these attempts to amend or repeal the law will be successful.

The future of the ACA is uncertain and any changes to existing laws and regulations, including the ACA’s repeal, modification or replacement, could have a long-term financial impact on the delivery of and payment for healthcare.

Both our tenants and us may be adversely affected by the law or its repeal, modification or replacement.

Court of Appeals for the Fifth Circuit ruled that the ACA’s “individual mandate” was unconstitutional but sent the case back to the

District Court for further analysis of whether the entire ACA is also rendered unconstitutional.

In November 2020, Joseph Biden was elected President, and in January 2021, the Democratic Party obtained control of the Senate.

As a result of these electoral developments, we believe it is unlikely that continued legislative efforts will be pursued to repeal the ACA.

Instead, we believe it is possible that legislation will be pursued in order to enhance or reform the ACA.

At this time, we are unable to state with certainty what the impact of any potential legislation may have on our business.

Both we and our tenants may be adversely affected by new laws, or any modification and/or replacement of existing law.

Reductions in reimbursement from third party payors, including Medicare and Medicaid, could adversely affect the profitability of our tenants and hinder their ability to make rent payments to us.

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The need to control Medicaid expenditures may be exacerbated by the potential for increased enrollment in state Medicaid programs due to unemployment, declines in family incomes and eligibility expansions required by the recently enacted healthcare reform law.

These potential reductions could be compounded by the potential for federal cost-cutting efforts that could lead to reductions in

reimbursement rates under both the federal Medicare program and state Medicaid programs.

These potential reductions could be compounded by the potential for federal cost-cutting efforts that could lead to reductions in reimbursement rates under both the federal Medicare program and state Medicaid programs.

Potential reductions in reimbursements under these programs could negatively impact the ability of our tenants and their ability to meet their obligations to us, which could, in turn, have an adverse effect on our business, financial condition and results of operations, the market price of our common stock and our ability to make distributions to our stockholders.

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If the specified daily rate is less than the spread on any day, the interest factor will result in a daily reduction of the applicable forward sale price.

As of the date of this prospectus supplement, the specified daily rate was less than the expected spread for any particular forward agreement.

If the market value of our common stock, determined in accordance with the terms of the relevant forward sale agreement, during the relevant valuation period under the particular forward sale agreement is above the applicable forward sale price, in the case of cash settlement, we would pay the relevant forward purchaser under that particular forward sale agreement an amount in cash equal to the difference or, in the case of net share settlement, we would deliver to the relevant forward purchaser a number of common stock having a value, determined in accordance with the terms of the relevant forward sale agreement, equal to the difference.

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If the market value of our common stock, determined in accordance with the terms of the relevant forward sale agreement, during the relevant valuation period under that particular forward sale agreement is below the applicable forward sale price, in the case of cash settlement, we would be paid the difference in cash by the relevant forward purchaser under that particular forward sale agreement or, in the case of net share settlement, we would receive from the relevant forward purchaser a number of common stock having a value equal to the difference.

See “Plan of Distribution” for information on the forward sale agreements.

federal income tax treatment of the cash that we might receive from cash settlement of a forward sale agreement is unclear and could jeopardize our ability to meet the REIT qualification requirements.

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In that case, we may be able to rely upon the relief provisions under the Code in order to avoid the loss of our REIT status.

Even if the relief provisions apply, we will be subject to a 100% tax on the greater of (i) the excess of 75% of our gross income (excluding gross income from prohibited transactions) over the amount of such income attributable to sources that qualify under the 75% test or (ii) the excess of 95% of our gross income (excluding gross income from prohibited transactions) over the amount of such gross income attributable to sources that qualify under the 95% test, as discussed in the accompanying prospectus under “Material U.S.

Federal Income Tax Considerations-Taxation of our Company,” multiplied in either case by a fraction intended to reflect our profitability.

Even if the relief provisions apply, we will be subject to a 100% tax on the greater of (i) the excess of 75% of our gross income (excluding gross income from prohibited transactions) over the amount of such income attributable to sources that qualify under the 75% test or (ii) the excess of 95% of our gross income (excluding gross income from prohibited transactions) over the amount of such gross income attributable to sources that qualify under the 95% test as multiplied in either case by a fraction intended to reflect our profitability.

In the event that these relief provisions were not available, we could lose our REIT status under the Code.

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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-K

Item 1A. Risk Factors