What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-17 compared with 2022-03-18 · 310 added, 308 removed, 482 unchanged (56% of the section changed)

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The Special Limited Partner, which is also under common control with AR Global, also has an interest in us through ownership of interests in our OP.

We operate in two reportable business segments for management and internal financial reporting purposes:

We operate in two reportable business segments for management and financial reporting purposes:

MOBs and SHOPs.

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In our SHOP segment, we invest in seniors housing properties using the RIDEA structure.

As of December 31, 2021, we had six eligible independent contractors operating 54 SHOPs (not including two land parcels).

As of December 31, 2022, we had four eligible independent contractors operating 52 SHOPs (including two land parcels).

All of our properties across both business segments are located throughout the United States.

Subsequent to December 31, 2021, we terminated one of our independent contractors who managed 20 SHOPs and those management duties were assumed by other existing eligible independent contractors effective March 1, 2022 which reduced our active independent contractors to five.

We have declared quarterly dividends entirely in shares of our common stock equal to 0.01349 shares of our common stock on each share of our outstanding common stock on October 1, 2020 and January 4, 2021.

These stock dividends were issued on October 15, 2020 and January 15, 2021 to holders of record of our common stock at the close of business on October 8, 2020 and January 11, 2021, respectively.

We have declared quarterly dividends entirely in shares of our common stock equal to 0.014655 shares of our common stock on each share of our outstanding common stock on April 2, 2021, July 1, 2021, October 1, 2021, and January 3, 2022.

These stock dividends were issued on April 15, 2021, July 15, 2021, October 15, 2021, and January 15, 2022 to holders of record of our common stock at the close of business on April 8, 2021, July 8, 2021, October 8, 2021, and January 8, 2022, respectively.

Dividends payable entirely in shares of our common stock are treated in a fashion similar to a stock split for accounting purposes specifically related to per-share calculations for the current and prior periods.

The aggregate impact of these stock dividends was an increase of 0.08871 shares, cumulatively, for every one share of common stock.

No additional shares, except for the dividends paid in the form of additional shares of common stock, were issued during the year ended December 31, 2021.

Additionally, other references to weighted-average shares outstanding and per-share amounts have been retroactively adjusted for the stock dividends and are noted as such throughout the accompanying financial statements and footnotes.

On March 31, 2021, we published a new Estimated Per-Share NAV equal to $14.50 as of December 31, 2020.

Our previous Estimated Per-Share NAV was equal to $15.75 as of December 31, 2019.

The Estimated Per-Share NAV has not been adjusted since publication and will not be adjusted until the Board determines a new Estimated Per-Share NAV which is expected in early April 2022.

Dividends paid in the form of additional shares of common stock will, all things equal, cause the value of each share of common stock to decline because the number of shares outstanding will increase when dividends paid in stock are issued;

however, each stockholder will receive the same number of new shares, the total value of our common stockholder’s investment, all things equal, will not change assuming no sales or other transfers.

We intend to publish Estimated Per-Share NAV periodically at the discretion of the Board, provided that such estimates will be made at least once annually.

We have declared quarterly dividends entirely in shares of our common stock since October 2020 in order to preserve our liquidity in response to the COVID-19 pandemic.

Management Update on the Impacts of the COVID-19 Pandemic

The COVID-19 global pandemic has created several risks and uncertainties that have had and may continue to have an impact on our business, including our financial condition, future results of operations and our liquidity.

Negative impacts of the COVID-19 pandemic have caused some of our tenants to be unable to make rent payments to us timely, or at all.

There may be a decline in the demand for tenants to lease real estate, as well as a negative impact on rental rates.

The extent to which the ongoing global COVID-19 pandemic, including the outbreaks that have occurred and may occur in markets where we own properties, impacts our operations and those of our tenants and third-party operators, will continue to depend on future developments, including the scope, severity and duration of the pandemic, and the actions taken to contain the COVID-19 or treat its impact, among others, which are highly uncertain and cannot be predicted with confidence, but could be material.

The COVID-19 global pandemic created several risks and uncertainties that have had and may continue to have an impact on our business, including our financial condition, future results of operations and our liquidity.

The extent to which the ongoing global COVID-19 pandemic, including the outbreaks that have occurred and may occur in markets where we own properties, impacts our operations and those of our tenants and third-party operators, will continue to depend on future developments, including the scope, severity and duration of the pandemic, and the actions taken to contain the COVID-19 pandemic or treat its impact, among others, which are highly uncertain and cannot be predicted with confidence, but could be material.

As of December 31, 2022, our MOB segment had an occupancy of 90.4% with a weighted-average remaining lease term of 4.9 years, (based on annualized straight-line rent as of December 31, 2022), and our SHOP segment had an occupancy of 75.1% weighted by unit count.

During the second, third and fourth quarters of 2021, we experienced relative stability in occupancy and operating costs in our SHOP portfolio, although future developments in the course of the pandemic may cause further adverse impacts on our occupancy and cost levels.

Occupancy and operating costs in our MOB segment was relatively stable during these quarters.

Since the second quarter of 2021, we experienced relative stability in occupancy and operating costs in our SHOP portfolio, however, during the year ended December 31, 2022, it became necessary to increase our use of temporary contract labor and agencies, and the amount we pay for wages, including overtime wages, and bonuses, in response to a shortage of workers, largely due to, among other things, the spread of more transmissible COVID-19 variants, increased inflation raising the cost of labor generally and lack of qualified personnel that we are able to employ on a permanent basis.

Utilization of contract labor and agencies for care providers increased operating costs in our SHOP segment for the year ended December 31, 2022, by $6.1 million as compared to the year ended December 31, 2021.

Future developments in the course of the pandemic, inflation increases, labor shortages and supply chain disruptions may cause further adverse impacts on our occupancy and cost levels.

Occupancy and operating costs in our MOB segment were relatively stable during these quarters.

The negative impact of the pandemic on our results of operations and cash flows has impacted and could continue to impact our ability to comply with covenants in our Credit Facility, and the amount available for future borrowings thereunder.

We would have been in default of a covenant contained in the Credit Facility requiring us to maintain a certain minimum fixed charge coverage ratio for the four fiscal quarter period ended September 30, 2021.

We entered into an amendment to our Credit Facility on November 12, 2021, in which the lenders waived any defaults or event of defaults under the covenant requiring us to maintain a fixed charge coverage ratio of 1.60 to 1.00 for the quarter ended September 30, 2021 and reduced this covenant to 1.50 to 1.00 until the earlier of December 31, 2022 and the date on which we elect to terminate this relief, among other changes (see Liquidity and Capital Resources section below and see Note 5 — Credit Facilities, Net to our consolidated financial statements included in this Annual Report on Form 10-K for additional Information).

For example, we would have been in default of a covenant contained in the Credit Facility requiring us to maintain a certain minimum fixed charge coverage ratio for the fiscal quarter ended June 30, 2022 of 1.50 to 1.00.

As a result, we entered into the Fourth Amendment to our Credit Facility on August 11, 2022, in which the lenders agreed to reduce this covenant to permit us to avoid any Default or Event of Default.

Specifically, this covenant was reduced to (a) 1.20 to 1.00 for the period commencing with the quarter ended June 30, 2022 through the quarter ending June 30, 2023, (b) 1.35 to 1.00 for the period commencing with the quarter ending September 30, 2023 through the quarter ending December 31, 2023 and (c) 1.45 to 1.00 for the period commencing with the quarter ending March 31, 2024 and continuing thereafter, among other changes (see Liquidity and Capital Resources section below and see Note 5 — Credit Facilities, Net to our consolidated financial statements included in this Annual Report on Form 10-K for additional information).

Prospectively, based upon our current expectations, we believe our operating results through June 30, 2023 will allow us to comply with these covenants.

However, we believe our operating results may not be sufficient to comply with the increased Fixed Charge Coverage Ratio, which increases from 1.20:1.00 to 1.35:1.00 commencing with the quarter ending September 30, 2023 and thereafter.

Absent a waiver or modification from the lender group, failure to comply with the Fixed Charge Coverage Ratio would constitute an Event of Default and the balance of the Credit Facility would be due and payable.

We have obtained such waivers and modifications from the lender group in the past, but there can be no assurance that such a waiver or modification will be granted in future periods.

Additionally, we are exploring long-term secured financing opportunities, utilizing some or all of our properties as collateral, the proceeds from which we believe will be sufficient to repay all amounts outstanding under the Credit Facility, which was $180.0 million as of December 31, 2022 ($200.0 million including the $20.0 million drawn subsequent to December 31, 2022, see Note 17 — Subsequent Events for details).

There can be no assurance these opportunities will result in definitive agreements on favorable terms, or at all.

For additional information on the risks and uncertainties associated with the COVID-19 pandemic, please see Item 1A .

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We experienced delays in rent collection in the second, third and fourth quarters of 2020 and the first quarter of 2021.

We have taken several steps to mitigate the impact of the pandemic on our business.

We have been in direct contact with our tenants and operators since the crisis began, cultivating open dialogue and deepening the fundamental relationships that we have carefully developed through prior transactions and historic operations.

We have achieved mutually agreeable solutions with our tenants and in some cases, during the year ended December 31, 2020, we executed lease amendments wherein we agreed to defer payment.

We took several steps to mitigate the impact of the pandemic on our business.

We were in direct contact with our tenants and operators when the crisis began, cultivating open dialogue and deepening the fundamental relationships that we have carefully developed through prior transactions and historic operations.

We achieved mutually agreeable solutions with our MOB tenants and in some cases, during the year ended December 31, 2020, we executed lease amendments wherein we agreed to defer payment.

Based on this approach and the overall financial strength and creditworthiness of our tenants, we believe that we have had positive results in our cash rent collections during this pandemic.

During the year ended December 31, 2021, we did not enter into any rent deferral agreements with any of our tenants and all amounts previously deferred under prior rent deferral agreements have been collected.

We collected approximately 100% of the original cash rent due for the fourth quarter of 2020 and throughout 2021 in our MOB segment.

During the years ended December 31, 2022 and 2021, we did not enter into any rent deferral agreements with any of our tenants and all amounts previously deferred under prior rent deferral agreements have been collected.

We collected approximately 100% of the original cash rent due for the fourth quarter of 2020 and throughout 2021 and 2022 in our MOB segment.

Cash rental payments for our 52 SHOPs is primarily paid by the residents through private payer insurance or directly, and to a lesser extent, by government reimbursement programs such as Medicaid and Medicare, therefore we have not provided the amount of quarterly cash rent collected for our SHOP segment.

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Total rent collected during the period includes both original cash rent due and payments made by tenants pursuant to rent deferral agreements.

Eliminating the impact of deferred rent paid, we collected nearly 100% of original cash rent due for each quarter of 2021.

Eliminating the impact of deferred rent paid, we collected nearly 100% of original cash rent due for each quarter of 2021 and 2022.

A deferral agreement is an executed or approved amendment to an existing lease to defer a certain portion of cash rent due to a future period.

During the year ended December 31, 2020, we granted rent deferrals for an aggregate of $0.4 million or less than 1% of original cash rent due for the year.

No additional rent was deferred during the year ended December 31, 2021.

No additional rent was deferred during the years ended December 31, 2022 and 2021.

We have also granted rent concessions which serve to reduce revenue in our SHOP segment.

We offered $0.1 million and $0.4 million of rent concessions during the years ended December 31, 2021 and 2020, respectively.

We offered $3.3 million, $2.4 million, and $0.4 million of rent concessions during the years ended December 31, 2022, 2021 and 2020, respectively.

Seniors Housing Properties

In early March 2020, we implemented preventative actions at all our seniors housing properties in our SHOP segment, including restrictions on visitation except in very limited and controlled circumstances, social distancing measures, and the screening of all persons entering these facilities.

Some of the additional steps we have taken to address the COVID-19 pandemic include, enhanced training for staff members, the implementation of Telehealth to help residents be safe while keeping appointments with important, but non-emergency, health providers, virtual tours for potential new residents, and agreements between some of our facilities and local lab partners to provide testing services.

Starting in March 2020, the COVID-19 pandemic and measures to prevent its spread began to affect us in a number of ways.

Occupancy in our SHOP portfolio has trended lower since the second half of March 2020 to a low of 72.0% as of March 31, 2021 and has subsequently begun to recover, reaching 74.1% as of December 31, 2021, as government policies and implementation of infection control best practices and prospective residents’ concerns about communal-setting COVID-19 spread limited resident move-ins.

During the year ended December 31, 2022, we experienced a significant increase in labor costs in our SHOP segment, largely due to, among other things, increased inflation raising the cost of labor generally and a lack of qualified personnel that we are able to employ on a permanent basis.

As a result, our third party operators were forced to increase their use of temporary contract labor and agencies in our SHOP segment.

In our SHOP segment, we recorded $6.1 million in temporary contract labor and agency-related costs for care providers for the year ended December 31, 2022, as compared to almost no temporary contract labor and agency-related costs for care providers for the year ended December 31, 2021.

Using temporary contract labor and agencies is typically more costly than internal staffing supplied by our third party operators.

As a result of the increased use of temporary contract labor and agencies, as well as the continuing impact of the national labor shortage, the amounts we incurred for salaries, wages, overtime and bonuses to meet our third parties’ labor needs in our SHOP segment continued to increase during the year ended December 31, 2022 as compared to the year ended December 31, 2021.

Because occupancy levels have not yet recovered to their pre-pandemic rates (as noted in the table below) and resident fees have not increased enough to counteract these lower occupancy rates, our results of operations in our SHOP segment have been significantly adversely affected by the increase in labor costs.

There is no guarantee the occupancy levels in our SHOP segment will increase and return to their pre-pandemic levels, that we will be able to raise resident fee levels at rates that are commensurate with these increases in labor costs or that we will reduce our reliance on contract labor.

Beginning in March 2020, the COVID-19 pandemic and measures to prevent its spread began to affect us in a number of ways.

Occupancy in our SHOP portfolio has trended lower since December 31, 2019 to a low of 72.0% as of March 31, 2021 and has subsequently begun to stabilize.

As of December 31, 2022, occupancy in our SHOP segment reached 75.1%.

We have also continued to experience lower inquiry volumes and reduced in-person tours.

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December 31, 2021 54 4,494 74.1%

March 31, 2022 50 4,378 75.9%

June 30, 2022 50 4,374 76.3%

September 30, 2022 50 4,374 75.8%

December 31, 2022 50 4,374 75.1%

(1) Exclusive of two land parcels.

The declines in revenue we experienced during the year ended December 31, 2021 and 2020, as compared to the year ended December 31, 2019, were primarily attributable to the decline in occupancy in or SHOP segment, noted in the table above, and our SHOP disposals which reduced the average number of rentable units over the periods.

In addition, starting in mid-March of 2020, operating costs began to rise materially, including for services, labor and personal protective equipment and other supplies, as our operators took appropriate actions to protect residents and caregivers.

At the SHOP facilities, we generally bear these cost increases, which were partially offset by funds received under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), and to a lesser extent, cost recoveries for personal protective equipment from residents.

The declines in revenue we experienced during the years ended December 31, 2022 and 2021, as compared to the year ended December 31, 2020, were primarily attributable to the decline in occupancy in or SHOP segment, as noted in the table above, and our SHOP disposals which reduced the average number of rentable units over the periods, partially offset by recovering occupancy and increased rental rates on some of our properties which were effective January 1, 2022.

In addition, although operating costs began to rise materially, including for services, labor and personal protective equipment and other supplies as early as March 2020, during the year ended December 31, 2022, these trends became more prominent as our third party operators relied more on the use of contract labor and agencies and had to increase the amounts we incur for salaries, wages, overtime and bonuses, as noted above.

At the SHOPs, we generally bear these cost increases, which were partially offset by funds received under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), and to a lesser extent, cost recoveries for personal protective equipment from residents.

See below for additional information on the CARES Act.

There can be no assurance, however, that future developments in the course of the pandemic will not cause further adverse impacts to our occupancy and cost levels, and these trends may continue to impact us and have a material adverse effect on our revenues and income in the other quarters.

There can be no assurance, however, that future developments in the course of the pandemic, inflation increases, labor shortages and supply disruptions will not cause further adverse impacts to our occupancy, revenues and cost levels, and these trends may continue to impact us and have a material adverse effect on our revenues and net income in future quarters.

We believe that our vaccination participation achieved in 2021 for both residents and staff populations have mitigated certain adverse impacts of COVID-19.

Furthermore, as infections decline and more vaccinations and boosters are administered during 2023, our occupancy may further increase.

However, there can be no assurance as to when or if we will be able to approach pre-pandemic levels of occupancy due to, among other factors, the ongoing vaccine hesitancy and resistance in certain segments of the population and the recent spread of more transmissible COVID-19 variants such as the Delta and Omicron variants.

The pandemic raises the risk of an elevated level of resident exposure to illness and restrictions on move-ins at our SHOPs, which has and could also continue to adversely impact occupancy and revenues as well as increase costs.

We believe that the actions we have taken help reduce the incidences of COVID-19 at our properties, but there can be no assurance in this regard.

There have been some incidences of COVID-19 among the residents and staff at certain of our seniors housing properties.

Further incidences, or the perception that outbreaks may occur, could materially and adversely affect our revenues and income , as well as cause reputational harm to us and our tenants, managers and operators.

On March 27, 2020, Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law and it provides funding to Medicare providers in order to provide financial relief during the COVID-19 pandemic.

However, there can be no assurance as to when or if we will be able to approach pre-pandemic levels of occupancy.

The pandemic raised the risk of an elevated level of resident exposure to illness and restrictions on move-ins at our SHOPs, and increased the general level of frailty for our incoming residents, which has and could also continue to adversely impact resident length of stay, occupancy and revenues, as well as increase costs.

We believe that the actions we have taken help reduce, but do not eliminate, the incidences of COVID-19 at our properties.

Any incidences, or the perception that outbreaks may occur, could materially and adversely affect our revenues and net income , as well as cause reputational harm to us and our tenants, managers and operators.

The extent to which the global COVID-19 pandemic, including the outbreaks that have occurred and may occur in markets where we own properties, impacts our operations and those of our tenants and third-party operators, will continue to depend on future developments, including the scope, severity and duration of the pandemic, and the actions taken to contain the COVID-19 or treat its impact, among others, which are highly uncertain and cannot be predicted with confidence, but could be material.

On March 27, 2020, the CARES Act was signed into law providing, among other things, funding to Medicare providers in order to provide financial relief during the COVID-19 pandemic.

Funds provided under the program were to be used for the preparation, prevention, and medical response to COVID-19, and were designated to reimburse providers for healthcare related expenses and lost revenues attributable to COVID-19.

During the year ended December 31, 2021 we received $5.1 million from CARES Act grants.

Previously, we received $3.6 million in grants during the year ended December 31, 2020.

We have applied for additional funds under the CARES Act, however, there can be no assurance that any funds requested will actually be received.

We consider the funds to be a grant contribution from the government and the full amount was recognized as a reduction of property operating expenses in our consolidated statement of operations during the years ended December 31, 2021 and 2020.

There can be no assurance that the program will be extended or any further amounts received under currently effective or potential future government programs.

During the years ended December 31, 2022, 2021, and 2020, we received $4.5 million, $5.1 million and $3.6 million, respectively, from CARES Act grants .

For accounting purposes, we treat the funds as grant contributions from the government and the full amounts were recognized as reductions of property operating and maintenance expenses in our consolidated statement of operations during the years ended December 31, 2022, 2021 and 2020.

We do not anticipate that any further funds under the CARES Act will be received, and there can be no assurance that the program will be extended or any further amounts received under currently effective or potential future government programs.

Significant Accounting Estimates and Critical Accounting Policies

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Impacts of the COVID-19 Pandemic

As discussed above we have taken a proactive approach to achieve mutually agreeable solutions with its tenants and in some cases, in the second, third and fourth quarters of 2020, we executed lease amendments providing for deferral of rent.

As discussed above we took a proactive approach to achieve mutually agreeable solutions with our tenants and in some cases, in the year ended December 31, 2020, we executed lease amendments providing for deferral of rent.

For accounting purposes, in accordance with ASC 842:

Leases, normally a company would be required to assess a lease modification to determine if the lease modification should be treated as a separate lease and if not, modification accounting would be applied which would require a company to reassess the classification of the lease (including leases for which the prior classification under ASC 840 was retained as part of the election to apply the package of practical expedients allowed upon the adoption of ASC 842, which doesn’t apply to leases subsequently modified).

However, in light of the COVID-19 pandemic in which many leases are being modified, the FASB and SEC have provided relief that allows companies to make a policy election as to whether they treat COVID-19 related lease amendments as a provision included in the pre-concession arrangement, and therefore, not a lease modification, or to treat the lease amendment as a modification.

However, in light of the COVID-19 pandemic in which many leases were modified, the FASB and SEC provided relief that allowed companies to make a policy election as to whether they treat COVID-19 related lease amendments as a provision included in the pre-concession arrangement, and therefore, not a lease modification, or to treat the lease amendment as a modification.

In order to be considered COVID-19 related, cash flows must be substantially the same or less than those prior to the concession.

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For all other lease changes that did not qualify for FASB relief, we would be required to apply modification accounting including assessing classification under ASC 842.

Some, but not all of our lease modifications qualify for the FASB relief.

Some, but not all of our lease modifications qualified for the FASB relief.

In accordance with the relief provisions, instead of treating these qualifying leases as modifications, we elected to treat the modifications as if previously contained in the lease and recast rents receivable prospectively (if necessary).

Under that accounting, for modifications that were deferrals only, there would be no impact on overall rental revenue and for any abatement amounts that reduced total rent to be received, the impact would be recognized ratably over the remaining life of the lease.

For leases not qualifying for this relief, we applied modification accounting and determined that there were no changes in the current classification of its leases impacted by negotiations with its tenants.

For leases not qualified for this relief, we applied modification accounting and determined that there were no changes in the current classification of our leases impacted by negotiations with our tenants.

Revenue Recognition

Our revenues, which are derived primarily from lease contracts, include rent received from tenants in our triple-net MOBs.

Our revenues, which are derived primarily from lease contracts, include rent received from tenants in our MOB segment.

As of December 31, 2022 these leases had a weighted average remaining lease term of 4.9 years.

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Pursuant to certain of our lease agreements, tenants are required to reimburse us for certain property operating expenses, in addition to paying base rent, whereas under certain other lease agreements, the tenants are directly responsible for all operating costs of the respective properties.

Under ASC 842, we have elected to report combined lease and non-lease components in a single line “Revenue from tenants.” For comparative purposes, we have also elected to reflect prior revenue and reimbursements reported under ASC 842 also on a single line.

For expenses paid directly by the tenant, under both ASC 842 and 840, we have reflected them on a net basis.

Our revenues also include resident services and fee income primarily related to rent derived from lease contracts with residents in the Company’s SHOPs held using a structure permitted by RIDEA and to fees for ancillary services performed for SHOP residents, which are generally variable in nature.

Rental income from residents in our SHOP segment is recognized as earned.

Under ASC 842, we have elected to report combined lease and non-lease components in a single line “Revenue from tenants.” For expenses paid directly by the tenant, under both ASC 842 and 840, we have reflected them on a net basis.

Our revenues also include resident services and fee income primarily related to rent derived from lease contracts with residents in the Company’s SHOP segment, held using a structure permitted under RIDEA and to a lesser extent, fees for ancillary services performed for SHOP residents, which are generally variable in nature.

Rental income from residents in our SHOP segment is recognized as earned when services are provided.

Residents pay monthly rent that covers occupancy of their unit and basic services, including utilities, meals and some housekeeping services.

The terms of the rent are short term in nature, primarily month-to-month.

The terms of the leases are short term in nature, primarily month-to-month.

Fees for ancillary services are recorded in the period in which the services are performed.

We defer the revenue related to lease payments received from tenants and residents in advance of their due dates.

Pursuant to certain of our lease agreements, tenants are required to reimburse us for certain property operating expenses related to non-SHOP assets (recorded in revenue from tenants), in addition to paying base rent, whereas under certain other lease agreements, the tenants are directly responsible for all operating costs of the respective properties.

Pursuant to certain of our lease agreements, tenants are required to reimburse us for certain property operating and maintenance expenses related to non-SHOP assets (recorded in revenue from tenants), in addition to paying base rent, whereas under certain other lease agreements, the tenants are directly responsible for all operating and maintenance costs of the respective properties.

We continually review receivables related to rent and unbilled rents receivable and determine collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located.

Under leasing standards, we are required to assess, based on credit risk only, if it is probable that we will collect virtually all of the lease payments at lease commencement date and it must continue to reassess collectability periodically thereafter based on new facts and circumstances affecting the credit risk of the tenant.

Under the leasing standards, we are required to assess, based on credit risk only, if it is probable that we will collect virtually all of the lease payments at lease commencement date and it must continue to reassess collectability periodically thereafter based on new facts and circumstances affecting the credit risk of the tenant.

Partial reserves, or the ability to assume partial recovery are no longer permitted.

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However, if we determine it is not probable that we will collect virtually all of the lease payments, the lease will be accounted for on a cash basis and a full reserve would be recorded on previously accrued amounts in cases where it was subsequently concluded that collection was not probable.

Cost recoveries from tenants are included in operating revenue from tenants beginning on January 1, 2019, in accordance with accounting rules adopted after that date, on the accompanying consolidated statements of operations and comprehensive income (loss) in the period the related costs are incurred, as applicable.

Cost recoveries from tenants are included in operating revenue from tenants in accordance with accounting rules, on the accompanying consolidated statements of operations and comprehensive income (loss) in the period the related costs are incurred, as applicable.

Under ASC 842, which was adopted effective on January 1, 2019, uncollectable amounts are reflected as reductions in revenue.

Under ASC 840, we recorded such amounts as bad debt expense as part of property operating expenses.

During the years ended December 31, 2021, 2020 and 2019 such amounts were $1.1 million, $2.7 million, and $6.5 million, respectively, which include bad debt expense related to the NuVista and LaSalle Tenants (see Note 3 — Real Estate Investments, Net to the consolidated financial statements included in this Annual Report on Form 10-K for additional information).

During the years ended December 31, 2022, 2021 and 2020 such amounts were $3.2 million, $1.1 million and $2.7 million, respectively.

Approximately $1.3 million and $1.0 million in the years ended December 31, 2022 and 2020, respectively, related to previously disposed properties.

There were no significant write-off’s related to previously disposed properties during the year ended December 31, 2021.

Investments in Real Estate

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Properties are no longer depreciated when they are classified as held for sale.

There were $0.1 million in real estate investments held for sale as of December 31, 2020 and none as of December 31, 2021 (see Note 3 — Real Estate Investments, Net to the consolidated financial statements included in this Annual Report on Form 10-K for additional information).

All of our leases as lessor prior to the adoption of new lease accounting rules on January 1, 2019, were accounted for as operating leases and they continue to be accounted for as operating leases under the transition guidance.

We evaluate new leases originated after the adoption date (by us or by a predecessor lessor/owner) pursuant to the new guidance where a lease for some or all of a building is classified by a lessor as a sales-type lease if the significant risks and rewards of ownership reside with the tenant.

This situation is met if, among other things, there is an automatic transfer of title during the lease, a bargain purchase option, the non-cancelable lease term is for more than major part of remaining economic useful life of the asset (e.g.,

equal to or greater than 75%), if the present value of the minimum lease payments represents substantially all (e.g., equal to or greater than 90%) of the leased property’s fair value at lease inception, or if the asset so specialized in nature that it provides no alternative use to the lessor (and therefore would not provide any future value to the lessor) after the lease term.

Further, such new leases would be evaluated to consider whether they would be failed sale-leaseback transactions and accounted for as financing transactions by the lessor.

For the three-year period ended December 31, 2021, we have no leases as a lessor that would be considered as sales-type leases or financings under sale-leaseback rules.

We are also the lessee under certain land leases which were previously classified prior to adoption of lease accounting and will continue to be classified as operating leases under transition elections unless subsequently modified.

These leases are reflected on the balance sheet and the rent expense is reflected on a straight-line basis over the lease term.

We generally determine the value of construction in progress based upon the replacement cost.

During the construction period, we capitalize interest, insurance and real estate taxes until the development has reached substantial completion.

There were no real estate investments held for sale as of December 31, 2022 or December 31, 2021.

Purchase Price Allocation

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In allocating the fair value to assumed mortgages, amounts are recorded to debt premiums or discounts based on the present value of the estimated cash flows, which is calculated to account for either above or below-market interest rates.

In allocating the fair value to any assumed or issued non-controlling interests, amounts are recorded at their fair value at the close of business on the acquisition date.

In a business combination, the difference between the purchase price and the fair value of identifiable net assets acquired is either recorded as goodwill or as a bargain purchase gain.

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All acquisitions during the years ended December 31, 2022, 2021 and 2020 were accounted for as asset acquisitions.

We acquired four properties during the year ended December 31, 2022.

For acquired properties with leases classified as operating leases, we allocate the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed, based on their respective fair values.

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We utilize various estimates, processes and information to determine the as-if vacant property value.

We estimate fair value using data from appraisals, comparable sales, discounted cash flow analysis and other methods.

We estimate the fair value using data from appraisals, comparable sales, discounted cash flow analysis and other methods.

Fair value estimates are also made using significant assumptions such as capitalization rates, fair market lease rates and land values per square foot.

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We did not record any intangible asset amounts related to customer relationships during the years ended December 31, 2022 and 2021.

Accounting for Leases

Lessor Accounting

In accordance with the lease accounting standard, all of our leases as lessor prior to adoption were accounted for as operating leases.

This situation is met if, among other things, there is an automatic transfer of title during the lease, a bargain purchase option, the non-cancelable lease term is for more than a major part of the remaining economic useful life of the asset (e.g., equal to or greater than 75%), the present value of the minimum lease payments represents substantially all (e.g., equal to or greater than 90%) of the leased property’s fair value at lease inception, or the asset is so specialized in nature that it provides no alternative use to the lessor (and therefore would not provide any future value to the lessor) after the lease term.

Further, such new leases would be evaluated to consider whether they would be failed sale-leaseback transactions and accounted for as financing transactions by the lessor.

As of December 31, 2022 and 2021, we did not have any leases as a lessor that would be considered as sales-type leases or financings under sale-leaseback rules.

As a lessor of real estate, we elected, by class of underlying assets, to account for lease and non-lease components (such as tenant reimbursements of property operating and maintenance expenses) as a single lease component as an operating lease because (a) the non-lease components have the same timing and pattern of transfer as the associated lease component;

and (b) the lease component, if accounted for separately, would be classified as an operating lease.

Additionally, only incremental direct leasing costs may be capitalized under the accounting guidance.

Indirect leasing costs in connection with new or extended tenant leases, if any, are being expensed.

Lessee Accounting

We are also the lessee under certain land leases which will continue to be classified as operating leases under transition elections unless subsequently modified.

These leases are reflected on the consolidated balance sheets as of December 31, 2022 and 2021, and the rent expense is reflected on a straight-line basis over the lease term in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2022, 2021 and 2020.

For lessees, the accounting standard requires the application of a dual lease classification approach, classifying leases as either operating or finance leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee.

Lease expense for operating leases is recognized on a straight-line basis over the term of the lease, while lease expense for finance leases is recognized based on an effective interest method over the term of the lease.

Also, lessees must recognize a

right-of-use asset (“ROU”) and a lease liability for all leases with a term of greater than 12 months regardless of their classification.

Further, certain transactions where at inception of the lease the buyer-lessor accounted for the transaction as a purchase of real estate and a new lease, may now be required to have symmetrical accounting to the seller-lessee if the transaction was not a qualified sale-leaseback and accounted for as a financing transaction.

For additional information and disclosures related to our operating leases, see Note 16 — Commitments and Contingencies to the consolidated financial statements included in this Annual Report on Form 10-K.

Impairment of Long-Lived Assets

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These estimates consider factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors.

If an impairment

exists, due to the inability to recover the carrying value of a property, we would recognize an impairment loss in the consolidated statement of operations and comprehensive (loss) to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used.

If an impairment exists, due to the inability to recover the carrying value of a property, we would recognize an impairment loss in the consolidated statement of operations and comprehensive (loss) to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used.

For properties held for sale, the impairment loss recorded would equal the adjustment to fair value less estimated cost to dispose of the asset.

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CARES Act Grants

On March 27, 2020, the CARES Act was signed into law and it provides funding to Medicare providers in order to provide financial relief during the COVID-19 pandemic.

We received $5.1 million and $3.6 million in these funds during the years ended December 31, 2021 and 2020, respectively, related to four of our SHOPs and considered the funds to be a grant contribution from the government.

The full amounts received were recognized as a reduction of property operating expenses in the Company’s consolidated statement of operations for the years ended December 31, 2021 and 2020, respectively, to offset the incurred COVID-19 expenses.

There can be no assurance that the program will be extended or any further amounts received.

During the years ended December 31, 2022, 2021 and 2020 we received $4.5 million, $5.1 million and $3.6 million in funding from CARES Act grants, respectively.

For accounting purposes, the CARES Act funds are treated as a grant contribution from the government.

The funding we received was recognized as a reduction of property operating and maintenance expenses in our consolidated statements of operations to offset the negative impacts of COVID-19.

We do not anticipate that any further funds under the CARES Act will be received, and there can be no

assurance that the program will be extended or any further amounts received under currently effective or potential future government programs.

Recently Issued Accounting Pronouncements

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Results of Operations

Below is a discussion of our results of operations for the years ended December 31, 2022 and 2021.

Please see the “Results of Operations” section located on page 60 under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021 for a discussion of our results of operations for the year ended December 31, 2020 and year-to-date comparisons between December 31, 2021 and 2020.

Same Store Properties

Information based on Same Store, Acquisitions and Dispositions (as each are defined below) allows us to evaluate the performance of our portfolio based on a consistent population of properties owned for the entire period of time covered.

Information based on Same Store Properties, Acquired Properties and Disposed Properties (as each are defined below) allows us to evaluate the performance of our portfolio based on a consistent population of properties owned for the entire period of time covered.

As of December 31, 2022, we owned 202 properties.

There were 176 properties (our “Same Store” properties) owned for the entire years ended December 31, 2021 and 2020, including two vacant land parcels.

Since January 1, 2020 and through December 31, 2021, we acquired 26 properties (our “Acquisitions”) and disposed of 17 properties (our “Dispositions”).

There were 181 properties (our “Same Store Properties”) owned for the entire years ended December 31, 2022 and 2021, including two land parcels.

Since January 1, 2021 and through December 31, 2022, we acquired 21 properties (our “Acquired Properties”) and disposed of 12 properties (our “Disposed Properties”).

The following table presents a roll-forward of our properties owned from January 1, 2021 to December 31, 2022:

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Disposition activity during the year ended December 31, 2021

Transition activity during the year ended December 31, 2020

Number of properties, December 31, 2021

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Number of Same Store Properties (1)

Number of Acquired Properties 21 — 21

Number of Disposed Properties 3 9 12

_______________

(1) Includes the acquisition of a land parcel adjacent to an existing property which is not considered an Acquisition.

In addition to the comparative period-over-period discussions below, please see the “Overview — Management Update on the Impacts of the COVID-19 Pandemic” section above for additional information on the risks and uncertainties associated with the COVID-19 pandemic and management’s responses.

Below is a discussion of our results of operations for the years ended December 31, 2021 and 2020.

Please see the “Results of Operations” section located in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020 for a comparison of our results of operations for the year ended December 31, 2020 and 2019.

Comparison of the Years Ended December 31, 2022 and 2021

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Revenue from tenants $ 335,846 $ 329,355 $ 6,491

$ 329,355 $ 381,612 $ (52,257)

Operating expenses:

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Operating loss before gain on sale of real estate investments (31,416) (41,083) 9,667

Gain on sale of real estate investments 3,648 5,230 (1,582)

Gain (loss) on sale of real estate investments (125) 3,648 (3,773)

Operating loss

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Interest and other income

Loss on non-designated derivatives

Gain on non-designated derivatives 3,834 37 3,797

Total other expenses

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Net loss (79,621) (85,440) 5,819

Net (income) loss attributable to non-controlling interests 260 (303) 563

Net loss attributable to non-controlling interests 135 260 (125)

Allocation for preferred stock (13,799) (7,762) (6,037)

Net loss attributable to common stockholders $ (93,285) $ (92,942) $ (343)

NM — Not Meaningful

Net Operating Income

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We believe NOI provides useful and relevant information because it reflects only those income and expense items that are incurred at the property level and presents such items on an unlevered basis.

See “Non-GAAP Financial Measures” below for additional disclosure and a reconciliation, in the aggregate, of the NOI for the segments presented below to our net income (loss) attributable to common stockholders.

See “Non-GAAP Financial Measures” below for additional disclosure and a reconciliation, in the aggregate, of the NOI for the segments presented below to our net loss attributable to common stockholders.

Segment Results — Medical Office Buildings

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(1) Our MOB segment included 129 Same Store Properties.

(2) Our MOB segment included 22 Acquisition properties.

(3) Our MOB segment included four Disposition properties.

(2) Our MOB segment included 21 Acquired Properties.

(3) Our MOB segment included three Disposed Properties.

(4) Our MOB segment consisted of 150 properties.

NM — Not Meaningful

Revenue from tenants is primarily related to contractual rent received from tenants in our MOBs.

It also includes operating expense reimbursements which generally increase with the increase in property operating and maintenance expenses in our MOB segment.

In addition to base rent, dependent on the specific lease, tenants are generally required to pay either (i) their pro rata share of property operating and maintenance expenses, which may be subject to expense exclusions and floors or (ii) their share of increases in property operating and maintenance expenses to the extent they exceed the properties’expenses for the base year of the respective leases.

Revenue from tenants primarily reflects contractual rent received from tenants in our MOBs and operating expense reimbursements.

These reimbursements generally increase in proportion with the increase in property operating and maintenance expenses in our MOB segment.

Pursuant to many of our lease agreements in our MOBs, tenants are required to pay their pro rata share of property operating and maintenance expenses, which may be subject to expense exclusions and floors, in addition to base rent.

Revenue from Tenants

During the year ended December 31, 2022, revenue from tenants increased by $8.6 million in our MOB segment as compared to the year ended December 31, 2021, primarily as a result of increased revenue from tenants of $11.0 million generated from our Acquired Properties and increased revenue from tenants of $1.5 million from our Same Store Properties, partially offset by a decrease in revenue from tenants of $3.9 million from our Disposed Properties.

The increase in revenue from our Same Store Properties was primarily attributable from increased operating expense reimbursement revenue from increased property, operating and maintenance expenses, partially offset by non-recoverable amounts from marginally lower occupancy in the year ended December 31, 2022 as compared to December 31, 2021.

Property Operating and Maintenance

Property operating and maintenance relates to the costs associated with our properties, including real estate taxes, utilities, repairs, maintenance, and unaffiliated third party property management fees.

During the year ended December 31, 2021, the MOB segment contributed a $1.4 million increase in NOI as compared to the year ended December 31, 2020.

Of our 26 Acquisitions, during the period from January 1, 2020 through December 31, 2021, 22 were MOBs which contributed a $4.8 million increase in NOI, and our Disposition properties contributed a $1.1 million decrease in NOI, while NOI from our Same Store properties contributed a $2.3 million decrease in NOI as compared to the year ended December 31, 2020.

The decrease in NOI from our Same Store properties is due to one-time expense recoveries which occurred in the year ended December 31, 2020 which did not occur in the year ended December 31, 2021.

During the year ended December 31, 2022, property operating and maintenance costs in our MOB segment increased by $1.5 million as compared to the year ended December 31, 2021, primarily as a result of increased costs from our Acquired Properties of $2.2 million and increased costs from our Same Store Properties of $1.8 million.

These increases were partially offset by decreased costs from our Disposed Properties of $2.6 million.

The increase in property operating and maintenance expenses from our Same Store properties is primarily the result of the impacts of inflation on utility and maintenance costs, which are largely reimbursed by tenants.

Segment Results — Seniors Housing Operating Properties

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(1) Our SHOP segment included 52 Same Store Properties, including two land parcels.

(2) Our SHOP segment included four Acquisitions properties.

(3) Our SHOP segment included 13 Dispositions properties.

(2) Our SHOP segment included zero Acquired Properties.

(3) Our SHOP segment included nine Disposed Properties.

(4) Our SHOP segment included 52 properties, including two land parcels.

NM — Not Meaningful

Revenues from tenants within our SHOP segment are generated in connection with rent and services offered to residents in our SHOPs depending on the level of care required, as well as fees associated with other ancillary services.

Revenues from tenants within our SHOP segment are generated in connection with rent and services offered to residents depending on the level of care required, as well as fees associated with other ancillary services.

Property operating and maintenance expenses relates to the costs associated with staffing to provide care for the residents in our SHOPs, as well as food, marketing, real estate taxes, management fees paid to our third party operators, and costs associated with maintaining the physical site.

During the year ended December 31, 2021, revenue from tenants decreased by $55.3 million in our SHOP segment as compared to the year ended December 31, 2020 primarily giving effect to a $38.6 million decrease from our Disposition properties, and a decrease of $18.6 million from our Same Store properties.

These decreases were partially offset by $1.9 million of additional revenue through our Acquisition properties.

For the year ended December 31, 2021, an additional $0.8 million was generated through COVID-19 surcharges for PPE as compared to $1.1 million in PPE billings during the year ended December 31, 2020.

We also offered $0.1 million of rent concessions related to COVID-19 in the year ended December 31, 2021 as compared to $0.4 million of rent concessions granted during the year ended December 31, 2020.

Revenues declined in our Same Store SHOPs primarily due to a decrease in occupancy as a result of COVID-19 as discussed in Management Update on the Impacts of the COVID-19 Pandemic .

Regulatory and government-imposed restrictions and infectious disease protocols have hindered our ability to accommodate and conduct in-person tours and process and attract new move-ins at our SHOPs which has affected and could continue to affect our ability to fill vacancies.

We also generated a portion of our SHOP revenue from skilled nursing facilities (which include ancillary revenue from non-residents) at two of our Same Store SHOPs and two of our Disposition SHOPs.

This revenue declined $9.8 million from $13.3 million during the year ended December 31, 2020 to $3.5 million during the year ended December 31, 2021 as a result of limiting the services we offered at our skilled nursing facilities during the COVID-19 pandemic to protect our residents and on-site staff, as well as from disposing of our two largest SNFs in Lutz and Wellington, Florida in December 2020 and May 2021, respectively.

The property in Wellington, Florida generated ancillary revenues of $1.6 million and $3.9 million in the years ended December 31, 2021 and 2020, respectively.

The property in Lutz, Florida generated ancillary revenue of $4.0 million in the year ended December 31, 2020.

These properties’ results are presented in Disposition properties in the table above.

As a result of these dispositions, we expect ancillary revenue to continue to decline in future quarters relative to prior quarters where we owned these properties.

Our remaining SNFs generated ancillary revenue of $1.9 million and $5.4 million in the years ended December 31, 2021 and 2020, respectively.

During the year ended December 31, 2021, property operating and maintenance expenses decreased $39.4 million in our SHOP segment as compared to the year ended December 31, 2020, primarily due to a decrease of $34.6 million from our Dispositions and a decrease of $6.3 million in our Same Store properties.

These increases were partially offset by an increase in property operating and maintenance expenses from our Acquisitions of $1.5 million.

Our property operating and maintenance expenses for our Same Store properties decreased due to $5.1 million in CARES Act funds received, $4.4 million of which related to our Same Store properties.

We received $3.6 million of CARES Act funds in 2020, $0.9 million of which related to our Same Store properties.

We consider the receipt of CARES Act funds as government grants which reduce property operating and maintenance expenses for the period in which they are received.

In addition, we had lower operating costs as a result of lower occupancy levels as well as some lessening of COVID-related costs in the year ended December 31, 2021 as compared to the year ended December 31, 2020.

Revenue from Tenants

During the year ended December 31, 2022, revenue from tenants decreased by $2.1 million in our SHOP segment as compared to the year ended December 31, 2021, which was primarily driven by a decrease in revenue from tenants of $10.9 million due to our Disposed Properties, partially offset by an increase in revenue from tenants of $8.8 million from our Same Store Properties.

The increase to our Same Store Properties revenue from tenants was primarily driven by higher monthly leasing rates in the year ended December 31, 2022, as compared to the year ended December 31, 2021.

Our revenue from tenants also improved due to higher and recovering occupancy in the year ended December 31, 2022 as compared to lower and declining occupancy in the year ended December 31, 2021.

For our Same Store Properties, average quarterly occupancy was 75.7% and 74.4% in the years ended December 31, 2022 and 2021, respectively.

These increases were partially offset by an increase in rent concessions offered during the year ended December 31, 2022 of $3.2 million, as compared to $2.0 million in the year ended December 31, 2021.

We also previously generated a portion of our SHOP revenue from SNFs (which include ancillary revenue from non-residents) at two of our Same Store SHOPs and two of our Disposition SHOPs.

This revenue was $3.5 million during the year ended December 31, 2021 and was not significant during the year ended December 31, 2022 as a result of transitioning our SNF units to other types of units at our Same Store Properties, as well as from disposing of our SNF in Wellington, Florida in May 2021.

This property’s results are presented in Disposed Properties in the table above.

As a result of these unit transitions and dispositions, we do not expect ancillary revenue to be a significant source of revenue in future periods.

Additionally, during the years ended December 31, 2022 and 2021, we recorded reductions in revenue related to bad debt of $3.2 million and $1.1 million, respectively.

Approximately $1.3 million of bad debt expense recorded in the years ended December 31, 2022 was related to our Disposed Properties.

There were no significant write-off’s related to previously disposed properties during the year ended December 31, 2021.

Property Operating and Maintenance

During the year ended December 31, 2022, property operating and maintenance expenses increased $6.2 million in our SHOP segment as compared to the year ended December 31, 2021, primarily due to an increase in property operating and maintenance expenses of $15.1 million from our Same Store Properties, partially offset by a decrease in property operating and maintenance expenses of $8.9 million from our Disposed Properties.

Our Same Store properties operating and maintenance expenses increased significantly in the year ended December 31, 2022 compared to the year ended December 31, 2021, primarily from increased amounts incurred from contract labor and agencies, as well as amounts incurred for wages, including overtime and bonus amounts, paid to employees of our third-party operators.

Contract labor and agency costs at our Same Store Properties increased $6.0 million, and amounts our third party operators pay for overtime wages and bonuses, as well as overall inflation on utilities and supplies increased our property maintenance and operating costs by $8.5 million in the year ended December 31, 2022.

For additional information on the risks and uncertainties associated with increases in inflation and labor costs, see the Inflation section below and Part 1 — Item 1A.

Risk Factors section of this Annual Report on Form 10-K.

The total increase in Same Store Properties operating and maintenance expenses was also impacted by the receipt of $4.5 million of funds through the CARES Act in the year ended December 31, 2022, as compared to $5.1 million during the year ended December 31, 2021, which offset costs incurred from the COVID-19 pandemic.

Of the $4.5 million of CARES Act funds received by us in the year ended December 31, 2022, $3.9 million was recognized as a reduction to our Same Store Property operating and maintenance expenses in the table above, with the remainder attributable to our Disposed properties.

Of the $5.1 million of CARES Act funds received in the year ended December 31, 2021, $4.5 million was attributable to our Same Store Property operating and maintenance expenses with the remainder attributable to our Disposed properties.

There can be no assurance that the program will be extended or any further amounts received.

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Impairment Charges

We incurred $27.6 million of impairment charges for the year ended December 31, 2022, of which $10.6 million related to seven skilled nursing facilities in our MOB segment located in Illinois, $15.1 million related to six held for use SHOP properties of eight total properties that we are actively marketing for sale and $1.8 million related to an MOB property located in Pennsylvania which we began marketing for sale in the fourth quarter of 2022.

All of these impairment charges were recorded to reduce the carrying value of the properties to their fair values, respectively, as determined by estimated discounted cash flows over our intended holding periods.

We incurred $41.0 million of impairment charges for the year ended December 31, 2021.

The impairment charges for the year ended December 31, 2021 related to a $0.9 million impairment on our Wellington property, which was recorded to adjust the carrying value to its fair value as determined by its purchase and sale agreement, a $6.1 million impairment related to an MOB property located in Sun City, Arizona, and $34.0 million related to our LaSalle properties.

We incurred $36.4 million of impairment charges for the year ended December 31, 2020.

We recorded $19.6 million of impairment charges related to the 11 Michigan SHOPs, which was recognized after an amendment to the PSA for the sale of these properties in April 2020 which reduced the number of properties under consideration as well as the contract purchase price.

We recorded $16.9 million of impairment charges related to the two Florida properties in Jupiter and Wellington as a result of our marketing efforts during the COVID-19 pandemic which concluded with a PSA in August 2020, for which the contract purchase was less than the carrying values of the properties, as well as expected closing costs that were not previously anticipated, which reduced the net amount expected to be realized on the sale of properties.

See Note 3 — Real Estate Investments to our consolidated financial statements in this Annual Report on Form 10-K for additional information on impairment charges.

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Our Advisor and Property Manager are paid for asset management and property management services for managing our properties on a day-to-day basis.

The fixed portion of the base management fee we pay for asset management services is equal to $1.6 million per month, while the variable portion of the base management fee is equal, per month, to one twelfth per month of 1.25% of the cumulative net proceeds of any equity the we raise.

Asset management fees increased $0.7 million to $20.7 million for the year ended December 31, 2021, due to the increase in the variable portion of the base management fee related to the issuance and sale of Series B Preferred Stock in October 2021.

Property management fees decreased $0.4 million to $3.7 million, inclusive of $0.3 million of leasing commissions paid, during the year ended December 31, 2021 from $4.2 million during the year ended December 31, 2020.

Property management fees increase or decrease in direct correlation with gross revenues of the properties managed.

We pay a fixed base management fee equal to $1.6 million per month, while the variable portion of the base management fee is equal, per month, to one twelfth of 1.25% of the cumulative net proceeds of any equity raised subsequent to February 17, 2017.

Asset management fees increased $1.1 million to $21.8 million for the year ended December 31, 2022 from $20.7 million for the year ended December 31, 2021.

The increase in the variable portion of the base management fee was a result of a full year of fees in 2022 for preferred equity offerings completed in May and October 2021, which increased the variable asset management fee in the year ended December 31, 2022 relative to the year ended December 31, 2021.

There are no fees earned for stock dividend issuances.

Variable asset management fees will further increase if we issue additional equity securities in the future.

There were no incentive fees incurred in either of the years ended December 31, 2022 or 2021.

Property management fees increased $0.5 million to $4.2 million during the year ended December 31, 2022 from $3.7 million for the year ended December 31, 2021.

Property management fees increase or decrease in direct correlation with gross revenues of the properties managed and depending on the mix of properties managed, as the fee payable for different types of properties varies.

See Note 9 — Related Party Transactions and Arrangements to our consolidated financial statements found in this Annual Report on Form 10-K which provides detail on our asset and property management fees.

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Acquisition and transaction related expenses were $1.5 million for the year ended December 31, 2022 and $2.7 million for the year ended December 31, 2021.

The increase is mainly due to $1.2 million of costs incurred from our terminated Preferred Stock Equity Line, $0.8 million from litigation costs related to our Michigan dispositions which occurred in the first quarter of 2021, $0.2 million from a legal settlement related to our Jupiter, Florida disposition which occurred in the second quarter of 2021, and $0.3 million of increased costs related to dead deal and other miscellaneous costs incurred in the year ended December 31, 2021 as compared to the year ended December 31, 2020.

The expenses in both periods primarily related to indirect costs associated with potential acquisitions.

This decrease was due to certain transactions that occurred in the year ended December 31, 2021 which did not occur in the year ended December 31, 2022.

The acquisition and transaction related expenses incurred during the year ended December 31, 2022 consist of:

(i) dead deal costs of $0.8 million, (ii) legal fees related to terminated SHOP operators of $0.5 million and (iii) mortgage repayment penalties of $0.2 million.

The acquisition and transaction related expenses incurred during the year ended December 31, 2021 consisted of:

(i) the write-off of offering costs relating to the Preferred Stock Equity Line of $1.2 million (see Note 8 — Stockholder’s Equity for additional information), (ii) $0.8 million of litigation costs related to our Michigan dispositions which occurred in the first quarter of 2021, (iii) $0.5 million of dead deal and other miscellaneous costs and (iv) $0.2 million of settlement charges related to our Jupiter, Florida disposition which occurred in the second quarter of 2021.

General and Administrative Expenses

General and administrative expenses decreased $4.7 million to $16.8 million for the year ended December 31, 2021 compared to $21.6 million for the year ended December 31, 2020.

For the year ended December 31, 2021 and 2020, incurred expense reimbursements and distributions on partnership units of the OP designated as Class B Units to related parties were $8.4 million and $11.1 million, respectively.

Class B Units will not receive cash distributions, and no further expense will be incurred, for so long as we pay distributions to our common stockholders in stock instead of cash.

The decrease in expense reimbursements to related parties was primarily due to $2.2 million of costs incurred in the year ended December 31, 2020 related to severance payments to our former chief executive officer and related legal costs which did not occur in the year ended December 31, 2021.

Both the years ended December 31, 2021 and 2020 include reductions of expenses related to 2020 and 2019 employee bonuses, respectively, of $1.0 million and $1.2 million of professional fee credits from the Advisor.

For additional details on the 2020 and 2019 bonus awards (see Note 9 – Related Party Transactions and Arrangements to our consolidated financial statements included in this Annual Report on Form 10-K).

In addition to lower expense reimbursements, the decrease was primarily due the decrease in distributions on Class B Units of $0.2 million, lower legal expenses of $0.9 million, lower auditing expenses of $0.4 million, lower printing expenses of $0.6 million, and lower transfer agent expenses of $0.2 million.

The aforementioned professional reimbursement fees to the Advisor are subject to a cap which is equal to the greater of a fixed or variable component.

We did not meet the cap for the years ended December 2021 and 2020.

The fixed component increases by an annual cost of living adjustment equal to the greater of (x) 3.0% and (y) the CPI, as defined in the Advisory Agreement Amendment for the prior year ended December 31st.

General and administrative expenses increased $0.5 million to $17.3 million for the year ended December 31, 2022 compared to $16.8 million for the year ended December 31, 2021, which includes $8.8 million and $8.4 million (net of a professional fee credit discussed below) for the years ended December 31, 2022 and 2021, respectively, incurred in expense reimbursements.

The increase in general and administrative expenses was primarily driven by a professional fee credit of $1.0 million during the year ended December 31, 2021 related to an adjustment for 2020 bonuses.

See Note 9 – Related Party Transactions and Arrangements to our consolidated financial statements included in this Annual Report on Form 10-K for additional information.

Depreciation and Amortization Expenses

Depreciation and amortization expense decreased marginally to $79.9 million for the year ended December 31, 2021 from $81.1 million for the year ended December 31, 2020 as decreases from property dispositions were largely offset by increases from acquisitions.

Depreciation and amortization expense increased $2.1 million to $82.1 million for the year ended December 31, 2022 from $79.9 million for the year ended December 31, 2021.

The increase was due to our acquisitions of approximately $4.7 million, partially offset by a decrease in Same Store depreciation and amortization of $0.9 million primarily due to several intangible assets becoming fully amortized and a decrease due to dispositions of $2.0 million.

The decrease in our Same Store depreciation and amortization was partially offset by $1.3 million of accelerated depreciation we recorded in the year ended December 31, 2022 on one MOB property in Florida which incurred damages as a result of Hurricane Ian as well as 15 SHOPs across the Midwest which suffered cold weather-related damages.

Gain on Sale of Real Estate Investments

During the third quarter of 2021, we began to actively market the LaSalle Properties for sale, and a non-binding letter of intent was signed in the fourth quarter of 2021 for an aggregate contract sales price of $12.4 million.

We completed the sale of the LaSalle Properties in the first quarter of 2022 and, as a result, we recorded a loss on sale of $0.3 million for the year ended December 31, 2022.

We had previously recorded $34.0 million of impairment charges on the LaSalle Properties in the year ended December 31, 2021.

We also recorded a gain on sale of $0.2 million in the year ended December 31, 2022 related to the settlement of a lien on formerly disposed properties.

During the year ended December 31, 2021, we disposed of eight properties.

The properties were sold for an aggregate contract price of $133.6 million, which resulted in an aggregate gain on sale of $3.6 million.

See N ote 3 — Real Estate Investments, Net to our consolidated financial statements in this Annual Report on Form 10-K for additional information.

See N ote 3 — Real Estate Investments, Net to our consolidated financial statements in this Annual Report on Form 10-K for additional information on the dispositions noted above.

Interest Expense

Interest expense decreased by $3.6 million to $47.9 million for the year ended December 31, 2021 from $51.5 million for the year ended December 31, 2020.

The decrease in interest expense resulted from lower interest rates as well as lower average outstanding debt in 2021 compared to 2020.

As of December 31, 2021 our outstanding debt obligations were $1.1 billion at a weighted average interest rate of 3.44% per year.

Interest expense increased by $3.8 million to $51.7 million for the year ended December 31, 2022 from $47.9 million for the year ended December 31, 2021.

The increase in interest expense resulted from higher average interest rates of amounts outstanding under our Revolving Credit Facility during 2022, as compared to 2021.

As of December 31, 2022 we had total borrowings of $1.1 billion, at a weighted average interest rate of 4.83% per year.

Our interest expense in future periods will vary based on our level of future borrowings, the cost of borrowings among other factors.

As of December 31, 2021, we had total borrowings of $1.1 billion, at a weighted average interest rate of 3.44% per year.

Our interest expense in future periods will vary based on our level of future borrowings and the cost of borrowings (including current market rates) among other factors.

Market interest rates have continued to increase throughout the year ended December 31, 2022 and subsequently thereafter.

Our weighted average interest rate as of December 31, 2022 was higher than that as of December 31, 2021.

We anticipate that interest expense for the year ended December 31, 2023 will exceed the $51.7 million expense recorded for the year ended December 31, 2022 if interest rates maintain current levels or continue to increase.

Interest and Other Income

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Interest and other income was approximately $61,000 for the year ended December 31, 2021.

Loss on Non-Designated Derivatives

Loss on non-designated derivative instruments for the years ended December 31, 2021 and 2020 related to interest rate caps that are designed to protect us from adverse interest rate changes in connection with our Fannie Mae Master Credit Facilities, which have floating interest rates.

Loss on derivative instruments for the years ended December 31, 2021 and 2020 were $37,000 and $0.1 million, respectively.

Income Tax Benefit (Expense)

We recorded income tax expense of $0.2 million and $4.1 million for the years ended December 31, 2021 and 2020, respectively, related to deferred tax assets generated by temporary differences and current period net operating income associated with our TRS.

During the year ended December 31, 2020, we recorded an initial $4.6 million valuation allowance against our net deferred tax assets.

During the year ended December 31, 2021, we continue to maintain a full valuation allowance against our net deferred tax assets.

Income taxes generally relate to our SHOPs, which are leased by our TRS.

Because of our TRS recent operating history of losses and the on-going impacts of the COVID-19 pandemic on the results of operations of our SHOP assets, we are not able to conclude that it is more likely than not we will realize the future benefit of our deferred tax assets;

thus we have recorded a 100% valuation allowance in the year ended December 31, 2020 and we have continued to maintain this valuation allowance through December 31, 2021.

Gain on Non-Designated Derivatives

Gain on non-designated derivative instruments for the years ended December 31, 2022 and 2021 related to interest rate caps that are designed to protect us from adverse interest rate changes in connection with our Fannie Mae Master Credit Facilities, which have floating interest rates.

The gain recorded in the year ended December 31, 2022 was due to significant increases in interest rates during the period and represents the change in value as well as $0.3 million of cash received from these interest rate caps.

In prior years, these interest rate caps were not limiting interest expense and did not have significant changes in value, nor was any cash received.

Income Tax Expense

Income taxes generally relate to our SHOPs, which are leased to our TRS.

We recorded income tax expense of $0.2 million and $0.2 million for the years ended December 31, 2022 and 2021, respectively

Because of our TRS’s recent operating history of losses and the impacts of the COVID-19 pandemic on the results of operations of our SHOP assets, in the third quarter of 2020, we were not able to conclude that it is more likely than not we will realize the future benefit of our deferred tax assets and recorded a full valuation allowance.

Since that time, our TRS’s operating performance has not significantly improved and thus we have recorded a 100% valuation allowance on our net deferred tax assets through December 31, 2022.

If and when we believe it is more likely than not that we will recover our deferred tax assets, we will reverse the valuation allowance as an income tax benefit in our consolidated statements of comprehensive income (loss).

As of December 31, 2021, our consolidated TRS had net operating loss carryforwards for federal income tax purposes of approximately $13.3 million at December 31, 2021 (of which $7.6 million were incurred prior to January 1, 2018).

For losses incurred prior to January 1, 2018, if unused, these will begin to expire in 2035.

For net operating losses incurred subsequent to December 31, 2017, there is no expiration date.

Net Income/Loss Attributable to Non-Controlling Interests

Net loss attributable to non-controlling interests was approximately $0.3 million and net income attributable non-controlling interests was $0.3 million for the years ended December 31, 2021 and 2020, respectively.

These amounts represent the portion of our net loss that is related to the OP Units and non-controlling interest holders in our subsidiaries that own certain properties.

Net Loss Attributable to Non-Controlling Interests

Net loss attributable to non-controlling interests was $0.1 million and $0.3 million for the years ended December 31, 2022 and 2021, respectively.

These amounts represent the portion of our net income that is related to the Series A Preferred Units held by third parties (issued in connection with a property acquisition in September, 2021), Common OP Units held by third parties, and other non-controlling interest holders in our subsidiaries that own certain properties.

Allocation for Preferred Stock

Allocation for preferred stock was $13.8 million and $7.8 million for the years ended December 31, 2022 and 2021, respectively.

These amounts represent the allocation of our net income that is related to holders of Series A Preferred Stock and holders of Series B Preferred Stock.

The increase in the allocation for preferred stock is the result of additional shares of Series A Preferred Stock and Series B Preferred Stock issued in the year ended December 31, 2021, which were outstanding for a partial year in the year ended December 31, 2021 but which were outstanding for a full year in the year ended December 31, 2022.

Cash Flows from Operating Activities

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The level of cash flows provided by operating activities is affected by, among other things, the number of properties owned, the performance of those properties, the timing of interest payments and the amount of borrowings outstanding during the period, as well as the receipt of scheduled rent payments and the level of operating expenses.

Cash inflows include non-cash items of $38.5 million (net loss of $79.6 million adjusted for non-cash items including depreciation and amortization of tangible and identifiable intangible real estate assets, deferred financing costs and mortgage premiums and discounts, bad debt expense, equity-based compensation, gain on non-designated derivatives and impairment charges) and a decrease in prepaid expenses and other assets of $3.0 million.

These cash inflows were partially offset by a decrease in accounts payable and accrued expenses of $2.9 million related to timing of payments for real estate taxes, property operating expenses and professional and legal fees, a decrease in deferred rent and other liabilities of $2.7 million and by a net increase in unbilled receivables recorded in accordance with straight-line basis accounting of $1.5 million.

During the year ended December 31, 2021, net cash provided by operating activities was $38.9 million.

Cash inflows include non-cash items of $38.8 million (net loss of $85.4 million adjusted for non-cash items including depreciation and amortization of tangible and identifiable intangible real estate assets, deferred financing costs and mortgage premiums and discounts, bad debt expense, equity-based compensation, gain on non-designated derivatives and impairment charges).

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These cash inflows were partially offset by a net increase in unbilled receivables recorded in accordance with straight-line basis accounting of $0.8 million.

During the year ended December 31, 2020, net cash provided by operating activities was $41.8 million.

The level of cash flows used in or provided by operating activities is affected by, among other things, the number of properties owned, the performance of those properties, the timing of interest payments and the amount of borrowings outstanding during the period, as well as the receipt of scheduled rent payments and the level of operating expenses.

Cash inflows include non-cash items of $50.4 million (net loss of $75.5 million adjusted for non-cash items including depreciation and amortization of tangible and identifiable intangible real estate assets, deferred financing costs and mortgage premiums and discounts, bad debt expense, equity-based compensation, gain on non-designated derivatives and impairment charges).

These inflows were partially offset by a decrease in accounts payable and accrued expenses of $4.6 million related to higher accrued real estate taxes, property operating expenses and professional and legal fees, a net increase in prepaid expenses and other assets of $0.1 million, a net increase in unbilled receivables recorded in accordance with straight-line basis accounting of $2.4 million and by a decrease in deferred rent of $1.6 million.

Cash Flows from Investing Activities

Net cash used in investing activities during the year ended December 31, 2022 was $41.8 million.

The cash used in investing activities included $159.3 million for the acquisition of 17 properties and $19.1 million in capital expenditures.

These cash outflows were partially offset by proceeds from the sale of real estate of $130.4 million.

The cash used in investing activities included $25.5 million for the acquisition of four properties and $28.0 million in capital expenditures.

These cash outflows were partially offset by $11.7 million in proceeds from the sale of the four LaSalle Properties.

Net cash used in investing activities during the year ended December 31, 2021 was $47.9 million.

The cash used in investing activities included $95.0 million for the acquisition of nine properties and $21.9 million in capital expenditures.

The cash used in investing activities included $159.3 million for the acquisition of 17 properties and $19.1 million in capital expenditures.

These cash outflows were partially offset by proceeds from the sale of real estate of $130.4 million.

Cash Flows from Financing Activities

Net cash provided by financing activities of $4.6 million during the year ended December 31, 2022 was comprised of cash inflows of $30.0 million from borrowings under our Revolving Credit facility, partially offset by outflows of payments on our Credit Facilities of $3.0 million, payments of deferred financing costs of $1.7 million, dividends paid to holders of Series A Preferred Stock of $7.3 million, dividends paid to holders of Series B Preferred Stock of $6.5 million and principal payments on mortgages of $6.7 million.

Net cash provided by financing activities of $4.1 million during the year ended December 31, 2021 related to net proceeds from the issuance of Series A preferred stock of $56.3 million, net proceeds from the issuance of Series B preferred stock of $86.9 million and proceeds from a mortgage note payable of $42.8 million.

These cash inflows were partially offset by net repayments under our Revolving Credit Facility of $173.8 million, payment for deferred financing costs of $1.5 million and payments of preferred stock dividends of $5.1 million.

Net cash provided by financing activities of $19.4 million during the year ended December 31, 2020 included proceeds of $95.0 million from our Revolving Credit Facility.

These cash inflows were partially offset by distributions to stockholders of $31.4 million, common stock repurchases of $10.5 million, payments for deferred financing costs of $2.2 million, the buyout of a non-controlling interest of $0.6 million and dividends paid to preferred stockholders $2.4 million.

Liquidity and Capital Resources

Our principal demands for cash are for acquisitions, capital expenditures, the payment of our operating and administrative expenses, debt service obligations (including principal repayment), and dividends to holders of our Series A Preferred Stock and holders of Series B Preferred Stock.

Our existing principal demands for cash are to fund acquisitions, capital expenditures, the payment of our operating and administrative expenses, debt service obligations (including principal repayment), and dividends to holders of our Series A Preferred Stock and holders of our Series B Preferred Stock.

We closely monitor our current and anticipated liquidity position relative to our current and anticipated demands for cash and believe that we have sufficient current liquidity and access to additional liquidity to meet our financial obligations for at least the next 12 months.

Our future liquidity requirements, and available liquidity, however, depend on many factors, such as the on-going impact of COVID-19 on our tenants and operators.

We expect to fund our future short-term operating liquidity requirements, including dividends to holders of Series A Preferred Stock and holders of Series B Preferred Stock, through a combination of current cash on hand, net cash provided by our property operations and draws on the Revolving Credit Facility, which may include amounts reborrowed following the repayments we were or are required to make thereunder.

As of December 31, 2021 and 2020, we had $59.7 million and $72.4 million of cash and cash equivalents, respectively.

Our ability to use this cash on hand is restricted.

Our future liquidity requirements, and available liquidity, however, depend on many factors, such as the impact of COVID-19 on our tenants and operators.

Further, recent and continuing increases in inflation brought about by labor shortages, supply chain disruptions and increases in interest rates may adversely impact our results of operations and thus ultimately our liquidity.

Moreover, these increases in the rate of inflation, the ongoing war in Ukraine and related sanctions, supply chain disruptions and increases in interest rates, may also impact our tenant and residents’ ability to pay rent and thus our cash flows.

For more information about the risks and uncertainties associated with inflation, the ongoing war in Ukraine and related sanctions, and labor shortages and labor costs, please see the Inflation section below and Part I – Item 1A.

Risk Factors section of this Annual Report on Form 10-K.

We expect to fund our future short-term operating liquidity requirements, including dividends to holders of Series A Preferred Stock and holders of Series B Preferred Stock, through a combination of current cash on hand, net cash provided by our property operations and draws on the Revolving Credit Facility, which may include additional borrowings following the repayments we were or are required to make thereunder.

As of December 31, 2022 and 2021, we had $53.7 million and $59.7 million of cash and cash equivalents, respectively, and our ability to use this cash on hand is restricted.

Under our Credit Facility, we are required to maintain a combination of cash, cash equivalents and availability for future borrowings under our Revolving Credit Facility totaling at least $50.0 million.

December 31, 2021, $236.6 million was available for future borrowings under our Revolving Credit Facility.

Certain other restrictions and conditions described below, including those on paying cash dividends, will no longer apply starting in the “Commencement Quarter” which is a quarter in which we make an election and, as of the day prior to the commencement of the applicable quarter we have a combination of cash, cash equivalents and availability for future borrowings under the Revolving Credit Facility totaling at least $100.0 million, giving effect to the aggregate amount of distributions projected to be paid by us during the applicable quarter, and our ratio of consolidated total indebtedness to consolidated total asset value (expressed as a percentage) is less than 62.5%, and the Covenant Relief Period has terminated.

As of December 31, 2022, $203.4 million was available for future borrowings under our Revolving Credit Facility, of which $90.0 million was available for general corporate purposes and acquisitions, with the remainder available to repay other existing debt obligations.

Certain other restrictions and conditions described below, including those on paying cash dividends on our common stock, will no longer apply starting in the “Commencement Quarter” which is a quarter in which we make an election and, as of the day prior to the commencement of the applicable quarter we have a combination of cash, cash equivalents and availability for future borrowings under the Revolving Credit Facility totaling at least $100.0 million, giving effect to the aggregate amount of distributions projected to be paid by us during the applicable quarter, our ratio of consolidated total indebtedness to consolidated total asset value (expressed as a percentage) is less than 62.5%, and our Fixed Charge Coverage Ratio is not less than 1.50 to 1.00 for the most recently ended four fiscal quarters.

The fiscal quarter ended June 30, 2021 was the first quarter that could have been the Commencement Quarter.

We satisfied the conditions during the quarter ended December 31, 2021 in order to elect the quarter ending March 31, 2022 as the Commencement Quarter, but chose not to do so.

There can be no assurance as to if, or when, we will elect to do so, including to the extent we may be unable to satisfy these conditions in future periods.

We did not satisfy the conditions during the quarter ended December 31, 2022 in order to elect the quarter ending March 31, 2023 as the Commencement Quarter.

There can be no assurance as to if, or when, we will, or will be able to, elect the Commencement Quarter, including to the extent we may be unable to satisfy these conditions in future periods.

We may not pay distributions to holders of common stock in cash or any other cash distributions (including repurchases of shares of our common stock) on our common stock until the Commencement Quarter.

Moreover, beginning in the Commencement Quarter, we may only pay cash distributions provided that the aggregate distributions (as defined in the Credit Facility and including dividends on Series A Preferred Stock and Series B Preferred Stock) for any period of four fiscal quarters do not exceed 95% of Modified FFO (as defined in the Credit Facility) for the same period based only on fiscal quarters after the Commencement Quarter.

Moreover, beginning in the Commencement Quarter, we may only pay cash distributions provided that the aggregate distributions (as defined in the Credit Facility and including dividends on Series A Preferred Stock, Series B Preferred Stock or any other class of preferred stock that may be issued) for any period of four fiscal quarters that do not exceed 95% of Modified FFO (as defined in the Credit Facility) for the same period based only on fiscal quarters after the Commencement Quarter.

Our Credit Facility also restricts our uses of liquidity.

Until the first day of the Commencement Quarter, we must use all of the net cash proceeds from any capital event (such as an asset sale, financing or equity issuance) to repay amounts outstanding under the Revolving Credit Facility.

We may reborrow any amounts so repaid if all relevant conditions are met, including sufficient availability for future borrowings.

We may borrow additional amounts if all relevant conditions are met, including sufficient availability for future borrowings.

There can be no assurance these conditions will be met.

The availability for future borrowings under the Credit Facility is calculated using the adjusted net operating income of the real estate assets comprising the borrowing base, and availability has been, and may continue to be, adversely affected by the decreases in cash rent collected from our tenants and income from our operators that have resulted from the effects of the COVID-19 pandemic and may persist for some time.

During the year ended December 31, 2021, we generated liquidity through the sale of equity securities and from various financings as described below.

Preferred Stock Equity Line with B.

Riley Principal Capital, LLC

On September 15, 2020, we entered into a preferred stock purchase agreement and registration rights agreement with B.

Riley Principal Capital, LLC (“B.

Riley”), pursuant to which we had the right from time to time to sell up to an aggregate of $15 million of shares of our Series A Preferred Stock to B.

Riley until December 31, 2023, on the terms and subject to the conditions set forth in the purchase agreement (“Preferred Stock Equity Line”).

We sold 15,000 shares of Series A Preferred Stock under the Preferred Stock Equity Line during the year ended December 31, 2021, resulting in gross proceeds of $0.4 million and net proceeds of $0.3 million after fees and commissions.

In total, we incurred $1.2 million in costs related to establishing the Preferred Stock Equity Line which were all initially recorded in prepaid expenses and other assets on our consolidated balance sheet.

Upon receiving proceeds under the Preferred Stock Equity Line in the third quarter of 2021, the Company reclassified $30,000 of these prepaid costs to additional paid in capital in our consolidated statement of changes in equity as a reduction of the gross proceeds received under the Preferred Stock Equity Line.

In the fourth quarter of 2021, we determined that it was not probable that additional proceeds would be received from the Preferred Stock Equity Line and later terminated the Preferred Stock Equity Line.

As a result, we expensed the remaining balance of prepaid costs within acquisition and transaction related costs on the consolidated statement of operations and comprehensive income during the year ended December 31, 2021.

We did not sell any Series A Preferred Stock under the Preferred Stock Equity Line during the year ended December 31, 2020.

Series A Preferred Stock Add-On Offering

On May 11, 2021, we completed an underwritten public offering of 2,352,144 shares (which included 152,144 shares issued and sold pursuant to the underwriters’ exercise of their option to purchase additional shares) of our Series A Preferred Stock for net proceeds of $56.0 million after deducting the underwriters’ discount, structuring fees and other offering costs aggregating to $2.9 million.

Pursuant to the terms of the Credit Facility, all proceeds were used to repay amounts outstanding under the Credit Facility.

Subject to the terms and conditions set forth in the Credit Facility, we may then draw on the Credit Facility to borrow any amounts so repaid.

Series B Preferred Stock Offering

On October 6, 2021, we completed the initial issuance and sale of 3,630,000 shares (which includes 430,000 shares issued and sold pursuant to the underwriters’ exercise of their option to purchase additional shares) of our 7.125% Series B Preferred Stock in an underwritten public offering at a public offering price equal to the liquidation preference of $25.00 per share.

The offering generated gross proceeds of $90.8 million and net proceeds of $86.8 million, after deducting underwriting discounts, structuring fees and other offering costs.

Pursuant to the terms of the Credit Facility, all proceeds were used to repay amounts outstanding under the

Credit Facility.

Subject to the terms and conditions set forth in the Credit Facility, we may then draw on the Credit Facility to borrow any amounts so repaid.

The availability for future borrowings under the Credit Facility is calculated using the adjusted net operating income of the real estate assets comprising the borrowing base, and availability has been, and may continue to be, adversely affected by the increases in operating costs, primarily costs arising from the use of contract labor for care providers and, to a lesser extent, the amount we pay in overtime wages and bonuses, that have resulted from the effects of the COVID-19 pandemic and may persist for some time.

As of December 31, 2022, our total debt leverage ratio (net debt divided by gross asset value) was approximately 41.5%.

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Gross asset value totaled $2.6 billion, which represents total real estate investments, at cost ($2.6 billion), net of gross market lease intangible liabilities ($23.5 million).

Impairment charges are already reflected within gross asset value.

Cumulative impairment charges are already reflected within gross asset value.

As of December 31, 2022, we had total gross borrowings of $1.1 billion, at a weighted average interest rate of 4.83%.

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We expect to utilize proceeds from our Credit Facility to fund future property acquisitions, as well as, subject to the terms of our Credit Facility, other sources of funds that may be available to us.

These actions may require us to add some or all of our unencumbered properties as security for that debt or add them to the borrowing base under our Credit Facility.

Unencumbered real estate investments, at cost as of December 31, 2021 was $110.4 million.

These actions may require us to add some or all of our unencumbered properties to the borrowing base under our Credit Facility.

Unencumbered real estate investments, at cost as of December 31, 2022 was $0.1 billion.

There can be no assurance as to the amount of liquidity we would be able to generate from adding any of the unencumbered assets we own to the borrowing base of our Credit Facility.

Pursuant to the Credit Facility, any resulting net proceeds from these dispositions prior to the Commencement Quarter must be used to prepay amounts outstanding under the Revolving Credit Facility.

Pursuant to the Credit Facility, any resulting net proceeds from dispositions prior to the Commencement Quarter must be used to repay amounts outstanding under the Revolving Credit Facility, to the extent there are any such amounts outstanding.

Mortgage Notes Payable

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Our Credit Facility consists of two components, the Revolving Credit Facility and our Term Loan.

The Revolving Credit Facility is interest-only and matures on March 13, 2023, subject to one one-year extension at our option.

The Revolving Credit Facility is interest-only and matures on March 13, 2023, subject to a one one-year extension at our option.

Our Term Loan is interest-only and matures on March 13, 2024.

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Any amounts repaid under our Term Loan may not be re-borrowed.

We drew $125.0 million under our Credit Facility during the year ended December 31, 2021, primarily to fund acquisitions during the year.

We repaid $298.8 million of amounts outstanding under our Revolving Credit Facility during the year ended December 31, 2021 derived from $88.0 million of net proceeds of our dispositions of the Wellington, Florida and Jupiter, Florida properties, all $56.7 million of net cash proceeds from our May 2021 Series A Preferred Stock offering, $87.6 million of net cash proceeds from our October Series B Preferred Stock Offering, $37.0 million of proceeds from our BMO CMBS Loan and $29.4 million from cash on hand.

The total commitments under the Credit Facility are $655.0 million, including $505.0 million under the Revolving Credit Facility.

The Credit Facility includes an uncommitted “accordion feature” that may be used to increase the commitments under either component of the Credit Facility by up to an additional $370.0 million to a total of $1.0 billion.

As of December 31, 2021, $150.0 million was outstanding under the Term Loan, and no amounts were outstanding under the Revolving Credit Facility.

The unused borrowing availability under the Credit Facility was $236.6 million.

The amount available for future borrowings under the Revolving Credit Facility is based on either the value of the pool of eligible unencumbered real estate assets comprising the borrowing base, or satisfying a minimum debt service coverage ratio with respect to the borrowing base.

Both of these amounts are calculated using the adjusted net operating income of the real estate assets comprising the borrowing base, and, therefore, availability under our Revolving Credit Facility has been adversely affected by the decreases in cash rent collected from our tenants and income from our operators due to the effects of the COVID-19 pandemic, and may continue to be adversely affected.

The Credit Facility includes an uncommitted “accordion feature” that may, subject to conditions, be used to increase the commitments under either component of the Credit Facility by up to an additional $370.0 million to a total of $1.0 billion.

As of December 31, 2022, $150.0 million was outstanding under the Term Loan, and $30.0 million amounts were outstanding under the Revolving Credit Facility.

The unused borrowing availability under the Credit Facility was $203.4 million, of which $90.0 million was available for general corporate purposes and acquisitions, with the remainder available to repay other existing debt obligations.

The amount available for future borrowings under the Credit Facility is based on either the value of the pool of eligible unencumbered real estate assets comprising the borrowing base, or a minimum debt service coverage ratio with respect to the borrowing base.

Both of these amounts are calculated using the adjusted net operating income of the real estate assets comprising the borrowing base, and, therefore, availability under our Credit Facility has been adversely affected by the increases in operating costs, primarily costs arising from the use of contract labor for care providers and, to a lesser extent, the amount we pay in overtime wages and bonuses, due to the effects of the COVID-19 pandemic, and may continue to be adversely affected.

See also the discussion above regarding the need to maintain certain levels of liquidity until the Commencement Quarter.

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As of December 31, 2022, the Term Loan had an effective interest rate per annum equal to 5.11%.

The Credit Facility prohibits us from exceeding a maximum ratio of consolidated total indebtedness to consolidated total asset value, and requires us to maintain a minimum ratio of adjusted consolidated EBITDA to consolidated fixed charges (the “Fixed Charge

Coverage Ratio”) on a quarterly basis and a minimum consolidated tangible net worth.

We entered into an amendment to our Credit Facility on November 12, 2021.

We would have been in default of the Fixed Charge Coverage Ratio for the four fiscal quarter period ended September 30, 2021.

Pursuant to the terms of a third amendment entered into on November 12, 2021 by us, the agent and the requisite lenders under the Credit Facility, the lenders waived any defaults or event of defaults under the covenant requiring us to maintain a Fixed Charge Coverage Ratio of 1.60 to 1.00 for the quarter ended September 30, 2021 and any further defaults or Events of Default (as defined in the Credit Facility) resulting from the breach of the Fixed Charge Coverage Ratio covenant.

In addition, as described above, the Fixed Charge Coverage Ratio we are required to maintain was reduced from 1.60 to 1.00 to 1.50 to 1.00 until the earlier of December 31, 2022, and such earlier date as we elect to terminate this relief.

There can be no assurance our lenders will consent to any amendments or waivers that may become necessary to comply with the terms of the Credit Facility in the future.

As of December 31, 2021, we were in compliance with the financial covenants under the Credit Facility.

Based upon our current expectations, we believe we will be able to comply with these covenants during the next 12 months.

Please see “Item 1A.

Risk Factors.

Risks Related to our Indebtedness.”

Under the Credit Facility, we must comply with covenants governing the maximum ratio of consolidated total indebtedness to consolidated total asset value, and requiring us to maintain a minimum ratio of adjusted consolidated EBITDA to consolidated fixed charges (the “Fixed Charge Coverage Ratio”) on a quarterly basis, a minimum consolidated tangible net worth and a minimum debt service coverage ratio.

We entered into the Fourth Amendment to the Credit Facility on August 11, 2022.

As described above, pursuant to the Fourth Amendment, the Fixed Charge Coverage Ratio we must satisfy, based on the four most recently ended fiscal quarters, is (a) 1.20 to 1.00 for the period commencing with the quarter ended June 30, 2022 through the quarter ending June 30, 2023, (b) 1.35 to 1.00 for the period commencing with the quarter ending September 30, 2023 through the quarter ending December 31, 2023 and (c) 1.45 to 1.00 for the period commencing with the quarter ending March 31, 2024 and continuing thereafter, provided, however, that from and after the Commencement Quarter, we must satisfy a minimum Fixed Charge Coverage Ratio of 1.50 to 1.00.

Without the Fourth Amendment, we would have been in default of the pre-amendment Fixed Charge Coverage Ratio for the four fiscal quarter period ended June 30, 2022.

However, we were in compliance with the new covenants under the Credit Facility for the five fiscal quarter periods ended December 31, 2022.

Prospectively, based upon our current expectations, we believe our operating results through June 30, 2023 will allow us to comply with these covenants.

We have obtained such waivers and modifications from the lender group in the past, but there can be no assurance that such a waiver or modification will be granted in future periods.

Additionally, we are exploring long-term secured financing opportunities, utilizing some or all of our properties as collateral, the proceeds from which we believe will be sufficient to repay all amounts outstanding under the Credit Facility, which was $180.0 million as of December 31, 2022 (including the $20.0 million drawn subsequent to December 31, 2022, see Note 17 — Subsequent Events for details).

There can be no assurance these opportunities will result in definitive agreements on favorable terms, or at all.

See Note 5 — Credit Facilities, Net to our consolidated financial statements in this Annual Report on Form 10-K for additional information on the Credit Facility, its related covenants, and the Fourth Amendment.

Fannie Mae Master Credit Facilities

As of December 31, 2022, $352.0 million was outstanding under the Fannie Mae Master Credit Facilities.

We may request future advances under the Fannie Mae Master Credit Facilities by adding eligible properties to the collateral pool subject to customary conditions, including satisfaction of minimum debt service coverage and maximum loan-to-value tests.

We may request future advances under the Fannie Mae Master Credit Facilities by adding eligible properties to the collateral pool subject to

customary conditions, including satisfaction of minimum debt service coverage and maximum loan-to-value tests.

We do not expect to draw any further amounts on the Fannie Mae Master Credit Facilities.

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During the year ended December 31, 2022, our capital expenditures were $28.0 million, of which approximately $10.5 million related our MOB segment and $17.5 million related to our SHOP segment.

We anticipate this rate of capital expenditures will be similar for the MOB and SHOP segments throughout 2022, however, the recent economic uncertainty created by the COVID-19 global pandemic will continue to impact our decisions on the amount and timing of future capital expenditures.

Our capital expenditures in 2021 were funded using cash on hand, and we also expect to fund future capital expenditures using cash on hand.

We anticipate this rate of capital expenditures will be similar for the MOB and SHOP segments throughout 2023, however, the economic uncertainty created by the COVID-19 global pandemic will continue to impact our decisions on the amount and timing of future capital expenditures.

Acquisitions — Year Ended December 31, 2022

During the year ended December 31, 2021, we completed the acquisitions of five multi-tenant MOBs and 12 single tenant MOBs for an aggregate contract purchase price of $160.2 million.

The acquisition of one multi-tenant MOB and two single-tenant MOBs for a contract purchase price of $12.8 million, was completed during the three months ended December 31, 2021.

The properties acquired during the year were funded with proceeds cash on hand and borrowings from our Revolving Credit Facility, and in one case, in part by the issuance of our Series A Preferred OP Units (see Note 8 — Stockholders’ Equity and Note 13 — Non-Controlling Interests to our consolidated financial statements included in this Annual Report on Form 10-K).

Acquisitions — Subsequent to December 31, 2021

We did not acquire any properties subsequent to December 31, 2021.

We have entered into one non-binding letter of intent to purchase one MOB property for a contract purchase price of $8.2 million.

During the year ended December 31, 2022, we acquired one multi-tenant MOB and three single-tenant MOBs for an aggregate contract purchase price of $25.3 million.

These acquisitions were funded with cash on hand.

Acquisitions — Subsequent Year Ended December 31, 2022

We acquired four single-tenant MOB properties subsequent to December 31, 2022 for a contract purchase price of $20.0 million, which was funded with borrowings from our Revolving Credit Facility.

We have entered into one purchase and sale agreement to acquire one MOB property for a contract purchase price of $5.2 million.

There can be no assurance we will complete this acquisition on its contemplated terms, or at all.

We anticipate primarily using proceeds from borrowings under our Revolving Credit Facility to fund the consideration required to complete this acquisition.

Dispositions — Year Ended December 31, 2022

During the year ended December 31, 2021, we sold eight properties (three MOBs and five SHOPs) for an aggregate contract price of $133.6 million, which resulted in an aggregate gain on sale of $3.6 million.

Two of these properties were sold in the fourth quarter of 2021 and had an aggregate contract sales price of $37.8 million, which resulted in an aggregate gain on sale of $1.3 million.

Of the properties disposed in the year ended December 31, 2021, one was encumbered under the Capital One MOB loan, one was unencumbered, and six were part of the borrowing base of our Credit Facility.

Pursuant to the terms of our amended Credit Facility, all proceeds from these dispositions were used to repay amounts outstanding under the Credit Facility.

During the year ended December 31, 2022, we completed the sale of the LaSalle Properties for an aggregate contract sales price of $12.4 million.

We had previously recorded $34.0 million of impairment charges on the LaSalle Properties in the year ended December 31, 2021.

Dispositions — Subsequent to December 31, 2022

Subsequent to December 31, 2022, we did not dispose of any properties.

We have entered into a PSA to dispose of the four LaSalle properties located in Texas for an aggregate contract sales price of $12.4 million.

The PSA is subject to conditions, and there can be no assurance this, or any, disposition will be completed on the contemplated terms, or at all.

Pursuant to the terms of our Credit Facility, the net cash proceeds from any completed dispositions must be used to prepay amounts outstanding under the Revolving Credit Facility and will therefore not be available to us for any other purpose.

We may reborrow any amounts so repaid if all relevant conditions are met, including sufficient availability for future borrowings.

There can be no assurance these conditions will be met.

We have entered into five purchase and sale agreements to dispose of five SHOPs for an aggregate contract sales price of $26.1 million.

Pursuant to the terms of the Credit Facility, the net proceeds from these dispositions will be used to repay amounts outstanding under the Revolving Credit Facility.

There can be no assurance that we will complete these dispositions on their contemplated terms, or at all.

Share Repurchase Program

Under the Credit Facility, we are restricted from repurchasing shares until the end of the Commencement Quarter.

Under the Credit Facility, we are restricted from repurchasing shares until the Commencement Quarter.

Thus, the Board suspended repurchases under the SRP effective August 14, 2020.

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While NOI is a property-level measure, MFFO is based on our total performance as a company and therefore reflects the impact of other items not specifically associated with NOI such as, interest expense, general and administrative expenses and operating fees to related parties.

Additionally, NOI as defined here, includes straight-line rent which is excluded from MFFO.

Additionally, NOI as defined herein, includes straight-line rent which is excluded from MFFO.

A description of these non-GAAP financial measures and reconciliations to the most directly comparable GAAP measure, which is net income, are provided below:

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The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity.

Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO.

Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect our proportionate share of FFO attributable to our stockholders.

Our FFO calculation complies with NAREIT’s definition.

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We calculate MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs:

Modified Funds from Operations (the “Practice Guideline”) issued by the IPA in

November 2010.

Modified Funds from Operations (the “Practice Guideline”) issued by the IPA in November 2010, except that we adjust for deferred tax asset allowances based on management’s determination.

The Practice Guideline defines MFFO as FFO further adjusted for acquisition fees and expenses and other items.

In calculating MFFO, we follow the Practice Guideline and exclude acquisition fees and expenses, amortization of above and below market and other intangible lease assets and liabilities, amounts relating to straight-line rent adjustments (in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the lease and rental payments), contingent purchase price consideration, accretion of discounts and amortization of premiums on debt investments, mark-to-market adjustments included in net income, gains or losses included in net income 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, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and adjustments for unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis.

In calculating MFFO, we follow the Practice Guideline (with the added adjustment for deferred tax asset allowances based on management’s determination as noted above) and exclude acquisition fees and expenses, amortization of above and below market and other intangible lease assets and liabilities, amounts relating to straight-line rent adjustments (in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the lease and rental payments), contingent purchase price consideration, accretion of discounts and amortization of premiums on debt investments, mark-to-market adjustments included in net income, gains or losses included in net income 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, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and adjustments for unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis.

We also exclude other non-operating items in calculating MFFO, such as transaction-related fees and expenses and capitalized interest.

In addition, because we currently believe that concessions granted to our tenants as a result of the COVID-19 pandemic are collectable (see Accounting Treatment of Rent Deferrals below), we have excluded from the increase in straight-line rent for MFFO purposes the amounts recognized under GAAP relating to these deferrals, which is not considered by the Practice Guideline.

We believe that, because MFFO excludes costs that we consider more reflective of acquisition activities and other non-operating items, MFFO can provide, on a going-forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance once our portfolio is stabilized.

Our Modified FFO (as defined in our Credit Facility) is similar but not identical to MFFO as discussed in this Annual Report on Form 10-K.

Our Modified FFO (as defined in our Credit Facility) is similar but not identical to MFFO as discussed in this Quarterly Report on Form 10-Q.

We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry and allows for an evaluation of our performance against other publicly registered, non-listed REITs.

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As a result of relief granted by the FASB and SEC related to lease modification accounting, rental revenue used to calculate Net Income and NAREIT FFO has not been, and we do not expect it to be, significantly impacted by these types of deferrals.

In addition, because we currently believe that these deferred amounts are collectable, we have excluded from the increase in straight-line rent for MFFO purposes the amounts recognized under GAAP relating to these deferrals.

As of December 31, 2022, all deferred amounts have been collected and we have not deferred any additional amounts since the year ended December 31, 2020.

For a detailed discussion of our revenue recognition policy, including details related to the relief granted by the FASB and SEC, see Note 2 — Significant Accounting Polices to our consolidated financial statements included in this Annual Report on Form 10-K.

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27,630 40,951 36,446

Gain on sale of real estate investments (3,648) (5,230)

Loss (gain) on sale of real estate investments 125 (3,648) (5,230)

Adjustments for non-controlling interests (2)

(490) (529) (526)

FFO (as defined by NAREIT) attributable to common stockholders

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Acquisition and transaction related

1,484 2,714 173

(Accretion) amortization of market lease and other lease intangibles, net

(625) (198) (80)

Straight-line rent adjustments

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(Gain) loss on non-designated derivatives (3,834) (37) 102

Cash received from non-designated derivatives 286 — —

Deferred tax asset valuation allowance (4)

2,750 (482) 4,641

Adjustments for non-controlling interests (2)

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NOI should not be considered as an alternative to net income (loss) as an indication of our performance or to cash flows as a measure of our liquidity or ability to pay distributions.

The following table reflects the items deducted from or added to net loss attributable to common stockholders in our calculation of NOI for the year ended December 31, 2021:

(In thousands) Same Store Acquisitions Dispositions Non-Property Specific Total

The following table reflects the items deducted from or added to net loss attributable to common stockholders in our calculation of Same Store, Acquisitions and Dispositions NOI for the year ended December 31, 2022:

Same Store Acquisitions Dispositions Non-Property Specific Total

(In thousands) MOB SHOP MOB SHOP MOB SHOP

Net (loss) income attributable to common stockholders (in accordance with GAAP) $ 27,224 $ (18,432) $ 5,447 $ — $ 38 $ (3,491) $ (104,071) $ (93,285)

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Interest and other income (5) (1) — — (9) — (12) (27)

Loss on non-designated derivative instruments — — — (37) (37)

Gain on non-designated derivative instruments — — — — — — (3,834) (3,834)

Loss on sale of real estate investments — — — — — 125 — 125

Income tax expense — — — — — — 201 201

Net income attributable to non-controlling interests — — — (260) (260)

Net loss attributable to non-controlling interests — — — — — — (135) (135)

Allocation for preferred stock — — — — — — 13,799 13,799

NOI $ 82,376 $ 29,927 $ 13,094 $ — $ 29 $ (3,024) $ — $ 122,402

The following table reflects the items deducted from or added to net loss attributable to common stockholders in our calculation of NOI for the year ended December 31, 2020:

(In thousands) Same Store Acquisitions Dispositions Non-Property Specific Total

Same Store Acquisitions Dispositions Non-Property Specific Total

(In thousands) MOB SHOP MOB SHOP MOB SHOP

Net income (loss) attributable to common stockholders (in accordance with GAAP) $ 33,017 $ 4,557 $ 1,395 $ — $ 3,131 $ (37,632) $ (97,410) $ (92,942)

$ 62,691 $ 983 $ (40,010) $ (102,445) $ (78,781)

Impairment charges 6,082 — — — — 34,869 — 40,951

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Interest and other income (18) (1) — — — — (42) (61)

Loss on non-designated derivative instruments — — — 102 102

Gain on non-designated derivative instruments — — — — — — (37) (37)

Gain on sale of real estate investments — — — — (3,706) 58 — (3,648)

Income tax expense — — — — — — 203 203

Net income (loss) attributable to non-controlling interests

— — — 303 303

Net loss attributable to non-controlling interests — — — — — — (260) (260)

Allocation for preferred stock — — — — — — 7,762 7,762

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Dividends and Other Distributions

Dividends on our Series A Preferred Stock accrue in an amount equal to $1.84375 per share each year ($0.460938 per share per quarter) to Series A Preferred Stock holders, which is equivalent to 7.375% per annum on the $25.00 liquidation preference per share of Series A Preferred Stock.

Dividends on our Series A Preferred Stock are declared quarterly in an amount equal to $1.84375 per share each year ($0.460938 per share per quarter) to Series A Preferred Stock holders, which is equivalent to 7.375% per annum on the $25.00 liquidation preference per share of Series A Preferred Stock.

Dividends on the Series A Preferred Stock are cumulative and payable quarterly in arrears on the 15th day of January, April, July and October of each year or, if not a business day, the next succeeding business day to holders of record on the close of business on the record date set by our board of directors and declared by us.

Dividends on our Series B Preferred Stock accrue in an amount equal to $1.78125 per share each year ($0.445313 per share per quarter) to Series B Preferred Stock holders, which is equivalent to 7.125% of per annum in the $25.00 liquidation preference per share of Series B Preferred Stock.

Dividends on our Series B Preferred Stock are declare quarterly in an amount equal to $1.78125 per share each year ($0.445313 per share per quarter) to Series B Preferred Stock holders, which is equivalent to 7.125% of per annum in the $25.00 liquidation preference per share of Series B Preferred Stock.

Dividends on the Series B Preferred Stock are cumulative and payable quarterly in arrears on the 15th day of January, April, July and October of each year or, if not a business day, the next succeeding business day to holders of record on the close of business on the record date set by our board of directors and declared by us.

The first dividend on the Series B Preferred Stock was paid in January 2022.

From March 1, 2018 until June 20, 2020, we paid distributions to our common stockholders, at a rate equivalent to $0.85 per annum, per share of common stock.

Distributions were payable by the 5th day following each month end to stockholders of record at the close of business each day during the prior month.

On June 29, 2020, the Board approved a change in our common stock distribution policy changing from daily record dates to a single record date during the applicable month.

Under our Credit Facility we may not pay distributions to holders of common stock in cash or any other cash distributions (including repurchases of shares of the Company’s common stock), subject to certain exceptions.

On February 20, 2018, the Board authorized the rate at which we pay monthly distributions to stockholders, effective as of March 1, 2018, which is $0.85 per annum, per share of common stock.

Also, on August 13, 2020, the Board changed our common stock distribution policy in order to preserve our liquidity and maintain additional financial flexibility in light of the COVID-19 pandemic and to comply with the Credit Facility at the time.

Under this distribution policy, distributions authorized by the Board on shares of our common stock, if and when declared, are now paid on a quarterly basis in arrears in shares of our common stock valued at the estimated per share asset value in effect on the applicable date, based on a single record date to be specified at the beginning of each quarter.

Under our Credit Facility we may not pay distributions to holders of common stock in cash or make any other cash distributions (including repurchases of shares of our common stock), subject to certain exceptions.

These exceptions include paying cash dividends on the Series A Preferred Stock and the Series B Preferred Stock or any other preferred stock we may issue and paying any cash distributions necessary to maintain our status as a REIT.

We may not pay any cash distributions (including dividends on Series A Preferred Stock and Series B Preferred Stock) if a default or event of default exists or would result therefrom.

The restrictions on paying cash distributions will no longer apply starting in the quarter in which we make an election and, as of the day prior to the commencement of the applicable quarter, we have a combination of cash, cash equivalents and availability for future borrowings under the Revolving Credit Facility totaling at least $100.0 million, giving effect to the aggregate amount of distributions projected to be paid by us during the applicable quarter, our ratio of consolidated total indebtedness to consolidated total asset value (expressed as a percentage) is less than 62.5%, and the Covenant Relief Period has ended.

There can be no assurance as to if, or when, we will be able to satisfy these conditions.

We may only pay cash distributions on our common stock beginning in the Commencement Quarter and the aggregate distributions (as defined in the Credit Facility and including dividends on Series A Preferred Stock and Series B Preferred Stock) for any period of four fiscal quarters do not exceed 95% of Modified FFO (as defined in the Credit Facility) for the same period based only on fiscal quarters after the Commencement Quarter.

In addition, our ability to pay cash distributions may be limited by financial covenants in the Credit Facility, including our requirement to maintain a minimum ratio of adjusted consolidated EBITDA to consolidated fixed charges.

Until four full fiscal quarters have elapsed after the commencement of Commencement Quarter, the aggregate amount of permitted distributions and Modified FFO will be determined by using only the fiscal quarters that have elapsed from and after the Commencement Quarter and annualizing those amounts.

On August 13, 2020, the Board changed our common stock distribution policy in order to preserve our liquidity and maintain additional financial flexibility in light of the continued COVID-19 pandemic and to comply with the Credit Facility described above.

Under the new policy, distributions authorized by the Board on shares of our common stock, if and when declared, are now paid on a quarterly basis in arrears in shares of our common stock valued at the Estimated Per-Share NAV in effect on the applicable date, based on a single record date to be specified at the beginning of each quarter.

In each of October 2020 and January 2021, we declared and issued stock dividends equal to 0.01349 shares of common stock on each share of outstanding common stock, and in April 2021, July 2021, October 2021 and January 2022, we declared and issued a stock dividend equal to 0.014655 shares of common stock on each share of outstanding common stock.

The amounts of these stock dividends were based on our prior cash distribution rate of $0.85 per share per annum and the then applicable Estimated Per-Share NAV.

We did not pay any cash dividends on our common stock during the year ended December 31, 2021.

See “— Overview” for additional information on the impact of the stock dividends.

Subject to the restrictions in our Credit Facility, the amount of dividends and other distributions payable to our stockholders is determined by the Board and is dependent on a number of factors, including funds available for distribution, our financial condition, capital expenditure requirements, as applicable, requirements of Maryland law and annual distribution requirements needed to maintain our status as a REIT under the Code.

We may only pay cash distributions on our common stock beginning in the Commencement Quarter and the aggregate distributions (as defined in the Credit Facility and including dividends on Series A Preferred Stock, Series B Preferred Stock or any other class of preferred stock that may be issued) for any period of four fiscal quarters do not exceed 95% of Modified FFO (as defined in the Credit Facility) for the same period based only on fiscal quarters after the Commencement Quarter.

Until four full fiscal quarters have elapsed after the commencement of the Commencement Quarter, the aggregate amount of permitted distributions and Modified FFO will be determined by using only the fiscal quarters that have elapsed from and after the Commencement Quarter and annualizing those amounts.

Distribution payments are dependent on the availability of funds.

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Any accrued and unpaid dividends payable with respect to the Series A Preferred Stock or Series B Preferred Stock become part of the liquidation preference thereof.

The following table shows the sources for the payment of distributions to common stockholders and preferred stockholders, including distributions on restricted shares and OP Units, but excluding distributions related to Class B Units because these distributions are recorded as an expense in our consolidated statement of operations and comprehensive loss, for the periods indicated:

The following table shows the sources for the payment of distributions to common stockholders and preferred stockholders, including distributions on restricted shares and Common OP Units, but excluding distributions related to Class B Units because these distributions are recorded as an expense in our consolidated statement of operations and comprehensive loss, for the periods indicated.

No cash distributions were made to common stockholders, restricted shareholders, holders of Common OP Units or holders of Class B Units in the year ended December 31, 2022.

Three Months Ended Year Ended

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Dividends paid to holders of Series A Preferred Stock $ 1,833 52.4% $ 1,833 52.4% $ 1,834 52.5% $ 1,833 52.4% $ 7,333 52.4%

Distributions paid to holders of Series A OP Units — — — 46 46

Dividends paid to holders of Series B Preferred Stock 1,616 46.2% 1,617 46.3% 1,616 46.2% 1,617 46.3% 6,466 46.2%

Distributions paid to holders of Series A Preferred Units 46 1.3% 46 1.3% 46 1.3% 46 1.3% 184 1.3%

Total cash distributions $ 3,495 100.0% $ 3,496 100.0% $ 3,496 100.0% $ 3,496 100.0% $ 13,983 100.0%

$ 742 $ 742 $ 1,827 $ 1,879 $ 5,190

Source of distribution coverage:

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(1) Assumes the use of available cash flows from operations before any other sources.

[2] During 2021 all dividends on common stock and common stock OP Units were issued in the form of additional shares and therefore, are not included in the table above.

[3] Our Series B Preferred Stock was first issued in October 2021, and we are required to begin paying dividends on the Series B Preferred Stock in January 2022.

For the year ended December 31, 2022, cash flows provided by operations were $28.3 million.

We had not historically generated sufficient cash flow from operations to fund the payment of dividends and other distributions at the current rate prior to switching from paying cash dividends to stock dividends on our common stock.

As shown in the table above, we funded distributions with cash flows provided by operations.

We had not historically generated sufficient cash flows from operations to fund the payment of dividends and other distributions at the current rate prior to switching from paying cash dividends to stock dividends on our common stock.

As shown in the table above, we funded dividends to holders of Series A Preferred Stock, Series B Preferred Stock and Series A Preferred Units with cash flows provided by operations.

Because shares of common stock are only offered and sold pursuant to the DRIP in connection with the reinvestment of distributions paid in cash, participants in the DRIP will not be able to reinvest in shares thereunder for so long as we pay distributions in stock instead of cash.

Our ability to pay dividends on our Series A Preferred Stock and Series B Preferred Stock and starting with the Commencement Quarter, other distributions and maintain compliance with the restrictions on the payment of distributions in our Credit Facility depends on our ability to increase the amount of cash we generate from property operations which in turn depends on a variety of factors, including the duration and scope of the COVID-19 pandemic and its impact on our tenants and properties, our ability to complete acquisitions of new properties and our ability to improve operations at our existing properties.

Our ability to pay dividends on our Series A Preferred Stock, Series B Preferred Stock and Series A Preferred Units and, starting with the Commencement Quarter, other distributions and maintain compliance with the restrictions on the payment of distributions in our Credit Facility depends on our ability to increase the amount of cash we generate from property operations which in turn depends on a variety of factors, including the duration and scope of the COVID-19 pandemic and its impact on our tenants and properties, our ability to complete acquisitions of new properties and our ability to improve operations at our existing properties.

There can be no assurance that we will complete acquisitions on a timely basis or on acceptable terms and conditions, if at all.

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The payment terms of our Fannie Mae Master Credit Facilities required interest only payments through November 2021 and principal and interest payments thereafter.

Our loan agreements require us to comply with specific reporting covenants.

As of December 31, 2021, we were in compliance with the financial and reporting covenants under our loan agreements.

Our loan agreements require us to comply with specific financial and reporting covenants.

Pursuant to the terms of the Fourth Amendment entered into on August 11, 2022, as described above, the prior Fixed Charge Coverage Ratio, based on the four most recently ended fiscal quarters, of 1.50 to 1.00 was reduced to (a) 1.20 to 1.00 for the period commencing with the quarter ended June 30, 2022 through the quarter ending June 30, 2023, (b) 1.35 to 1.00 for the period commencing with the quarter ending September 30, 2023 through the quarter ending December 31, 2023 and (c) 1.45 to 1.00 for the period commencing with the quarter ending March 31, 2024 and continuing thereafter;

provided, however, that from and after the Commencement Quarter, we must satisfy a minimum Fixed Charge Coverage Ratio of 1.50 to 1.00.

Prospectively, based upon our current expectations, we believe our operating results through June 30, 2023 will allow us to comply with these covenants.

We have obtained such waivers and modifications from the lender group in the past, but there can be no assurance that such a waiver or modification will be granted in future periods.

See Note 5 — Credit Facilities, Net for additional information on the Fourth Amendment.

Under our Credit Facility, until the first day of the Commencement Quarter, we must use all the net cash proceeds from any capital event (such as an asset sale, financing or equity issuance) to repay amounts outstanding under the Revolving Credit Facility, to the extent there are any such amounts outstanding.

We may borrow additional amounts if all relevant conditions are met, including sufficient availability for future borrowings.

There can be no assurance these conditions will be met.

Election as a REIT

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We may be adversely impacted by inflation on the leases with tenants in our MOB segment that do not contain indexed escalation provisions, or those leases which have escalations at rates which do not exceed or approximate current inflation rates.

For the year ended December 31, 2021, the increase to the 12-month CPI for all items, as published by the Bureau of Labor Statistics, was 7.0%.

As of December 31, 2022, the increase to the 12-month CPI for all items, as published by the Bureau of Labor Statistics, was 6.5%.

To help mitigate the adverse impact of inflation, approximately 90% of our leases with our tenants in our MOB segment contain rent escalation provisions which average 2.3% per year.

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Approximately 85.9% are fixed-rate, 4.1% are based on the Consumer Price Index and 10% do not contain any escalation provisions.

In addition to base rent, depending on the specific lease, MOB tenants are generally reuired to pay either (i) their pro rata share of property operating and maintenance expenses, which may be subject to expense exclusions and floors or (ii) their share of increases in property operating and maintenance expenses to the extent they exceed the properties’ expenses for the base year of the respective leases.

In addition to base rent, depending on the specific lease, MOB tenants are generally required to pay either (i) their pro rata share of property operating and maintenance expenses, which may be subject to expense exclusions and floors or (ii) their share of increases in property operating and maintenance expenses to the extent they exceed the properties’ expenses for the base year of the respective leases.

Property operating and maintenance expenses include common area maintenance costs, real estate taxes and insurance.

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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 7. Management’s Discussion and Analysis