What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-15 compared with 2023-03-17 · 276 added, 401 removed, 391 unchanged (63% of the section changed)

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federal income tax purposes (“REIT”) that focuses on acquiring and managing a diversified portfolio of healthcare-related real estate focused on medical office and other healthcare-related buildings and senior housing operating properties.

Prior to December 31, 2021, we had three reportable segments 1) Former MOBs, 2) Former NNN and 3) SHOPs.

As a result of strategic property divestitures in our Former NNN segment, and transitions of certain properties reported in our Former NNN segment into our SHOP segment, we have combined the properties in our Former NNN segment with the properties in our Former MOB segment to form a single set of MOBs.

As a result, effective December 31, 2021 we have determined that we have two reportable segments, with activities related to investing in MOBs and SHOPs.

All prior periods presented in this Annual Report on Form 10-K have been conformed to the presentation of our new reportable segment structure.

As of December 31, 2022, we owned 202 properties located in 34 states and comprised of 9.1 million rentable square feet.

As of December 31, 2023, we owned 204 properties (including two land parcels) located in 33 states and comprised of 9.0 million rentable square feet.

Substantially all of our business is conducted through the OP, a Delaware limited partnership, and its wholly owned subsidiaries.

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

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

As of December 31, 2023, we had four eligible independent contractors operating 46 SHOPs.

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

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 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.

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.

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 .

“Risk Factors — We are subject to risks associated with a pandemic, epidemic or outbreak of a contagious disease, such as the ongoing global COVID-19 pandemic” included in this Annual Report on Form 10-K for the year ended December 31, 2022.

Rent Collections

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

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 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.

“Original cash rent” refers to contractual rents on a cash basis due from tenants as stipulated in their original executed lease agreement at inception or as amended, prior to any rent deferral agreement.

We calculate “original cash rent collections” by comparing the total amount of rent collected during the period to the original cash rent due.

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 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 years ended December 31, 2022 and 2021.

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

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.

We have declared quarterly dividends entirely in shares of our common stock since October 2020 in order to preserve our liquidity.

Management Update on the Adverse Economic Impacts Since the COVID-19

During the first quarter of 2020, the global COVID-19 pandemic commenced.

The pandemic and its aftermath have had, and could continue to have, adverse impacts on economic and market conditions.

Our MOB segment has been less impacted than our SHOP segment, which continues to be challenged by the post-pandemic operating environment.

Further, recent increases in inflation brought about by labor shortages, supply chain disruptions, and higher property insurance, property tax and interest rates have had, and may continue to have, adverse impacts on our results of operations.

Moreover, these adverse economic impacts may also impact the ability of our tenants and residents to pay rent and hence negatively affect our results of operations and liquidity.

Seniors Housing Properties

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.

These and other impacts of the COVID-19 pandemic have affected and could continue to affect our ability to fill vacancies.

The below table presents SHOP occupancy since the onset of the COVID-19 pandemic in March 2020:

SHOP Occupancy

Occupancy in our SHOP portfolio trended lower since December 31, 2019 to a low of 72.0% as of March 31, 2021, stabilized and partially recovered from June 30, 2021 until June 30, 2022 and has since stabilized in the mid-70% occupied range.

As of December 31, 2023, occupancy in our SHOP segment was 74.1%.

The below table presents SHOP occupancy since December 31, 2019, which we consider the last period before the COVID-19 pandemic and its continuing impacts began:

As of Number of Properties (1)

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December 31, 2022 50 4,374 75.1%

March 31, 2023 50 4,374 73.3%

June 30, 2023 46 4,164 73.3%

September 30, 2023 46 4,164 74.1%

December 31, 2023 46 4,164 74.1%

(1) Exclusive of two land parcels.

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, 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.

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.

Contract Labor and Wage Expenses

During the year ended December 31, 2022, our third party operators needed to increase their use of temporary contract labor and agencies, and the amount paid for overtime, training and bonus wages, in response to a shortage of workers, the cost of labor generally, lack of qualified personnel that our third party operators are able to employ on a permanent basis and training hours and other onboarding costs for permanent staff which replaced previously utilized contract and agency labor.

During the year ended December 31, 2023, these contract and agency costs declined.

In particular, costs incurred from contract labor and agencies for care providers decreased in our total SHOP segment by $5.6 million, from $7.6 million in the year ended December 30, 2022, to $2.0 million as compared to the year ended December 31, 2023.

However, these costs were partially offset by increased wage costs for direct employees of our third party operators in our total SHOP segment of $5.1 million, from $74.9 million in the year ended December 31, 2022 to $80.1 million in the year ended December 31, 2023.

On a Same Store basis (as defined below in Results of Operations — Same Store Properties, ), contract labor costs decreased $5.5 million but were more than offset by increases to wage costs of $7.7 million in the year ended December 31, 2023 as compared to the year ended December 31, 2022.

The results of operations in our SHOP segment have been significantly and adversely affected because occupancy levels have not recovered to their pre-pandemic rates (as noted in the table above) and labor costs have increased, even though resident leasing rates have increased.

Rent Concessions

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

We offered $3.1 million and $3.3 million of rent concessions during the years ended December 31, 2023 and 2022, respectively.

The CARES Act

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 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 .

We did not receive any funds through the CARES Act during the year ended December 31, 2023.

During the years ended December 31, 2022 and 2021, we received $4.5 million and $5.1 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 and 2021.

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These significant accounting estimates and critical accounting policies include:

Impacts of the COVID-19 Pandemic

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 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.

For COVID-19 relief qualified changes, there are two methods to potentially account for such rent deferrals or abatements under the relief, (1) as if the changes were originally contemplated in the lease contract or (2) as if the deferred payments are variable lease payments contained in the lease contract.

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 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 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

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During the years ended December 31, 2023, 2022 and 2021 such amounts were $1.2 million, $3.2 million and $1.1 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.

Approximately $1.3 million in the year ended December 31, 2022 related to previously disposed properties.

There were no significant write-off’s related to previously disposed properties during the years ended December 31, 2023 and 2021.

Investments in Real Estate

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Disposal of real estate investments that represent a strategic shift in operations that will have a major effect on our operations and financial results are required to be presented as discontinued operations in the consolidated statements of operations.

No properties were presented as discontinued operations during the years ended December 31, 2022, 2021 or 2020.

No properties were presented as discontinued operations during the years ended December 31, 2023, 2022 and 2021.

Properties that are intended to be sold are to be designated as “held for sale” on the consolidated balance sheets at the lesser of carrying amount or fair value less estimated selling costs when they meet specific criteria to be presented as held for sale, most significantly that the sale is probable within one year.

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

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

There were no real estate investments held for sale as of December 31, 2023 and 2022.

Purchase Price Allocation

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All acquisitions during the years ended December 31, 2023, 2022 and 2021 were accounted for as asset acquisitions.

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

We acquired seven properties during the year ended December 31, 2023.

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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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.

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.

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

These assessments have a direct impact on net income because recording an impairment loss results in an immediate negative adjustment to net earnings.

Depreciation and Amortization

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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.

We did not receive any funds through the CARES Act in the year ended December 31, 2023.

During the years ended December 31, 2022 and 2021 we received $4.5 million and $5.1 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.

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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Below is a discussion of our results of operations for the years ended December 31, 2023 and 2022.

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 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 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:

MOB SHOP Total

Number of properties, December 31, 2020

Acquisition activity during the year ended December 31, 2021

Disposition activity during the year ended December 31, 2021

Number of properties, December 31, 2021

Acquisition activity during the year ended December 31, 2022

Disposition activity during the year ended December 31, 2022

Number of properties, December 31, 2022

Number of Same Store Properties (1)

Number of Acquired Properties 21 — 21

Number of Disposed Properties 3 9 12

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

Please see the “Results of Operations” section located on page 49 under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of our results of operations for the year ended December 31, 2022 and comparisons between December 31, 2022 and 2021.

Comparison of the Years Ended December 31, 2023 and 2022

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Year Ended December 31, Increase (Decrease)

(Dollar amounts in thousands) 2022 2021 $

(in thousands) 2023 2022 $

Revenue from tenants $ 345,925 $ 335,846 $ 10,079

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Total expenses 350,341 367,262 (16,921)

367,262 370,438 (3,176)

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

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

Operating loss before loss on sale of real estate investments (4,416) (31,416) 27,000

Loss on sale of real estate investments (322) (125) (197)

Operating loss (4,738) (31,541) 26,803

(31,541) (37,435) 5,894

Other income (expense):

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Interest and other income 734 27 707

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

(Loss) gain on non-designated derivatives (1,995) 3,834 (5,829)

Total other expenses (67,339) (47,879) (19,460)

(47,879) (47,802) (77)

Loss before income taxes (72,077) (79,420) 7,343

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Net loss attributable to common stockholders $ (86,097) $ (93,285) $ 7,188

Net Operating Income

NOI is a non-GAAP financial measure used by us to evaluate the operating performance of our real estate portfolio.

NOI is equal to revenue from tenants less property operating and maintenance expenses.

NOI excludes all other financial statement amounts included in net income (loss) attributable to common stockholders.

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 loss attributable to common stockholders.

Segment Income

We evaluate the performance of the combined properties in each segment based on total revenues from tenants, less property operating costs.

As such, this excludes all other items of expense and income included in the financial statements in calculating net loss (each item discussed separately in “Other Results of Operations” below).

We use segment income to assess and compare property level performance and to make decisions concerning the operation of our properties.

We believe that segment income is useful as a performance measure because, when compared across periods, segment income reflects the impact on operations from trends in occupancy rates, rental rates, operating expenses and acquisition activity on an unleveraged basis, providing perspective not immediately apparent from net loss.

Same Store Properties

As of December 31, 2023, we owned 204 properties (including two land parcels).

There were 193 properties (our “Same Store Properties”) owned for the entire years ended December 31, 2023 and 2022 (including two land parcels).

Since January 1, 2022 and through December 31, 2023, we acquired 11 properties (our “Acquired Properties”) and disposed of nine properties (our “Disposed Properties”).

The following table presents a roll-forward of our properties owned from January 1, 2022 to December 31, 2023:

MOB SHOP Total

Number of properties, December 31, 2021

Acquisition activity during the year ended December 31, 2022

Disposition activity during the year ended December 31, 2022

Number of properties, December 31, 2022

Acquisition activity during the year ended December 31, 2023

Disposition activity during the year ended December 31, 2023

Number of properties, December 31, 2023

Number of Same Store Properties 145 48 193

Number of Acquired Properties 11 — 11

Number of Disposed Properties 1 8 9

Segment Results — Medical Office Buildings

The following table presents the components of NOI and the period to period change within our MOB segment for the years ended December 31, 2022 and 2021:

The following table presents the components of segment income and the period to period change within our MOB segment for the years ended December 31, 2023 and 2022:

Segment Same Store (1)

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Year Ended December 31, Increase (Decrease) Year Ended December 31, Increase (Decrease) Year Ended December 31, Increase (Decrease) Year Ended December 31, Increase (Decrease)

(Dollar amounts in thousands) 2022 2021 $ 2022 2021 $ 2022 2021 $ 2022 2021 $

(In thousands) 2023 2022 $ 2023 2022 $ 2023 2022 $ 2023 2022 $

Revenue from tenants $ 131,201 $ 130,542 $ 659 $ 4,187 $ 911 $ 3,276 $ 61 $ (9) $ 70 $ 135,449 $ 131,444 $ 4,005

$ 114,860 $ 113,342 $ 1,518 $ 16,576 $ 5,592 $ 10,984 $ 9 $ 3,933 $ (3,924) $ 131,445 $ 122,867 $ 8,578

Property operating and maintenance 37,347 35,665 1,682 425 84 341 182 196 (14) 37,954 35,945 2,009

32,484 30,659 1,825 3,482 1,291 2,191 (20) 2,530 (2,550) 35,946 34,480 1,466

$ 82,376 $ 82,683 $ (307) $ 13,094 $ 4,301 $ 8,793 $ 29 $ 1,403 $ (1,374) $ 95,499 $ 88,387 $ 7,112

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Segment income $ 93,854 $ 94,877 $ (1,023) $ 3,762 $ 827 $ 2,935 $ (121) $ (205) $ 84 $ 97,495 $ 95,499 $ 1,996

(1) Our MOB segment included 145 Same Store Properties.

(2) Our MOB segment included 11 Acquired Properties.

(3) Our MOB segment included three Disposed Properties.

(4) Our MOB segment consisted of 150 properties.

(3) Our MOB segment included one Disposed Property.

(4) Our MOB segment consisted of 156 total properties.

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

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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.

During the year ended December 31, 2023, revenue from tenants increased by $4.0 million in our MOB segment as compared to the year ended December 31, 2022, primarily as a result of increased revenue from tenants of $3.3 million generated from our Acquired Properties, increased revenue from tenants of $0.7 million from our Same Store Properties and an increase in revenue from tenants of $0.1 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.

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, 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.

During the year ended December 31, 2023, property operating and maintenance costs in our MOB segment increased by $2.0 million as compared to the year ended December 31, 2022, primarily as a result of increased costs from our Same Store Properties of $1.7 million and increased costs from our Acquired Properties of $0.3 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 as well as increased property insurance and property tax expenses, which are largely reimbursed by tenants.

Segment Results — Seniors Housing Operating Properties

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Year Ended December 31, Increase (Decrease) Year Ended December 31, Increase (Decrease) Year Ended December 31, Increase (Decrease) Year Ended December 31, Increase (Decrease)

(Dollar amounts in thousands) 2022 2021 $ 2022 2021 $ 2022 2021 $ 2022 2021 $

(In thousands) 2023 2022 $ 2023 2022 $ 2023 2022 $ 2023 2022 $

Revenue from tenants $ 207,707 $ 196,749 $ 10,958 $ — $ — $ — $ 2,769 $ 7,653 $ (4,884) $ 210,476 $ 204,402 $ 6,074

$ 204,443 $ 195,652 $ 8,791 $ — $ — $ — $ (41) $ 10,836 $ (10,877) $ 204,402 $ 206,488 $ (2,086)

Property operating and maintenance 176,745 167,064 9,681 — — — 3,093 10,435 (7,342) 179,838 177,499 2,339

174,516 159,432 15,084 — — — 2,983 11,901 (8,918) 177,499 171,333 6,166

$ 29,927 $ 36,220 $ (6,293) $ — $ — $ — $ (3,024) $ (1,065) $ (1,959) $ 26,903 $ 35,155 $ (8,252)

Segment income $ 30,962 $ 29,685 $ 1,277 $ — $ — $ — $ (324) $ (2,782) $ 2,458 $ 30,638 $ 26,903 $ 3,735

(1) Our SHOP segment included 48 Same Store Properties, including two land parcels.

(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.

(3) Our SHOP segment included eight Disposed Properties.

(4) Our SHOP segment included 48 total properties, including two land parcels.

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.

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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.

During the year ended December 31, 2023, revenue from tenants increased by $6.1 million in our SHOP segment as compared to the year ended December 31, 2022, which was primarily driven by an increase in revenue from tenants of $11.0 million from our Same Store Properties, partially offset by a decrease in revenue from tenants of $4.9 million due to our Disposed 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, 2023, as compared to the year ended December 31, 2022.

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.

We offered consistent levels of rent concessions between the periods of $3.2 million, which are recorded as reductions to revenue.

Additionally, during the years ended December 31, 2023 and 2022, we recorded reductions in revenue related to bad debt of $1.2 million and $3.2 million, respectively.

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

Approximately $1.3 million of bad debt expense recorded in the year 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, 2023.

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During the year ended December 31, 2023, property operating and maintenance expenses increased $2.3 million in our SHOP segment as compared to the year ended December 31, 2022, primarily due to an increase in property operating and maintenance expenses of $9.7 million from our Same Store Properties, partially offset by a decrease in property operating and maintenance expenses of $7.3 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.

Our Same Store properties operating and maintenance expenses increased significantly in the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily from increased amounts incurred for wages, including overtime and bonus amounts, paid to employees of our third-party operators.

These amounts increased our property maintenance and operating costs by $7.7 million in the year ended December 31, 2023 as compared to the year ended December 31, 2022, but were partially offset by a decrease in amounts paid for contract labor of $5.5 million.

The remainder of the increase in our Same Store property operating and maintenance expenses was attributable to the general increase in food, utilities and supplies from inflation, as well as increases to property insurance and property tax rates.

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.

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 no funds received through the CARES Act during the year ended December 31, 2023, 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, $3.7 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 $4.7 million of impairment charges for the year ended December 31, 2023 related to one held-for-use SHOP property and one held-for-use MOB property.

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

We are actively marketing these properties for sale.

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 and $1.8 million related to an MOB property located in Pennsylvania.

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

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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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.

Asset management fees were consistent at $21.8 million for the years ended December 31, 2023 and 2022.

There are no fees earned for stock dividend issuances.

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There were no incentive fees incurred in either of the years ended December 31, 2023 or 2022.

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 increased $0.2 million to $3.7 million during the year ended December 31, 2023 from $3.5 million for the year ended December 31, 2022, primarily due to additional property management fees on revenues from recently acquired MOBs.

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.

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Acquisition and transaction related expenses were $0.5 million for the year ended December 31, 2023 and $1.5 million for the year ended December 31, 2022.

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.

The acquisition and transaction related expenses incurred during the year ended December 31, 2023 consist of dead deal costs of $0.2 million and legal fees related to terminated SHOP operators of $0.3 million.

The acquisition and transaction related expenses incurred during the year ended December 31, 2022 consisted of dead deal costs of $0.8 million, legal fees related to terminated SHOP operators of $0.5 million and mortgage repayment penalties of $0.2 million.

General and Administrative Expenses

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.

General and administrative expenses increased $1.6 million to $18.9 million for the year ended December 31, 2023 compared to $17.3 million for the year ended December 31, 2022, which includes $10.6 million and $8.8 million for the years ended December 31, 2023 and 2022, respectively, incurred in professional fees and other expense reimbursements.

The professional fees and other expense reimbursements relating to salaries, wages and benefits, including for executive officers and all other employees of the Advisor or its affiliates who provide services to us, increased by $0.9 million to $6.9 million for the year ended December 31, 2023 from $6.0 million for the year ended December 31, 2022.

These reimbursable professional fees are subject to a limit (the “Capped Reimbursement Amount”), which was $8.0 million and $7.8 million as of December 31, 2023 and 2022, respectively.

We expect that the general and administrative expenses we incur from salaries, wages, and benefits will continue to increase in the year ended December 31, 2024, and we expect that the Capped Reimbursement Amount for 2024 will be approximately $8.2 million.

Please 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 increased $0.8 million to $82.9 million for the year ended December 31, 2023 from $82.1 million for the year ended December 31, 2022.

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.

The increase in depreciation and amortization expense was primarily attributable to $0.3 million of increased expense from our Same Store Properties and $1.5 million of increased expense from our Acquired Properties, partially offset by $1.0 million of decreased expense from our Disposed Properties.

The increase to our 2023 Same Store depreciation and amortization includes $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.

The increase in depreciation and amortization expense in the year ended December 31, 2023 also includes an out-of period adjustment of $0.7 million recorded in the year ended December 31, 2023 due to the understatement of depreciation and amortization expense on certain capital improvements and deferred leasing commissions, thereby understating previously reported depreciation and amortization expense by $0.1 million and $0.6 million which related to the year ended December 31, 2022 and pre-2022 periods, respectively.

For additional information, please see Note 2 — Summary of Significant Accounting Policies to our consolidated financial statements included in this Annual Report on Form 10-K .

Loss on Sale of Real Estate Investments

During the year ended December 31, 2023, we disposed of four SHOPs and one MOB for an aggregate contract sales price of $13.8 million.

Two of the four disposed SHOPs were impaired by $15.1 million in the year ended December 31, 2022 (see above).

As a result, the Company recorded an aggregate loss on sale of $0.3 million in the year ended December 31, 2023.

During the year ended December 31, 2022 we disposed of four SHOPs for an aggregate contract sales price of $12.4 million.

These four SHOPs had been previously impaired by $34.0 million in the year ended December 31, 2021.

As a result, we recorded a loss on sale of $0.3 million for the year ended December 31, 2022.

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 on the dispositions noted above.

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Interest expense increased by $14.3 million to $66.1 million for the year ended December 31, 2023 from $51.7 million for the year ended December 31, 2022.

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.

The increase in interest expense resulted from higher average interest rates on our variable debt in 2023 as compared to 2022, as well as from higher levels of debt.

We also recorded $2.6 million of accelerated deferred financing cost amortization in the year ended December 31, 2023 from the termination of our Prior Credit Facility.

These increases were partially offset by $4.2 million of reclassifications from AOCI as decreases to interest expense from our 2023 interest rate swap terminations which resulted in a gain of $5.4 million which is being amortized into earnings through March 2024 (see Note 7 — Derivatives and Hedging Activities for additional information).

As of December 31, 2023 we had total borrowings of $1.2 billion, at a weighted average interest rate of 5.56% per year.

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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.

Market interest rates continued to increase throughout the year ended December 31, 2023.

Our weighted average interest rate as of December 31, 2023 was higher than that as of December 31, 2022.

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.

We anticipate that interest expense for the year ended December 31, 2024 may exceed the $66.1 million expense recorded for the year ended December 31, 2023 if interest rates remain at current levels or increase.

Interest and Other Income

Interest and other income includes income from our investment securities and interest income earned on cash and cash equivalents held during the period.

Interest and other income was approximately $27,000 for the year ended December 31, 2022.

Interest and other income was approximately $0.7 million for the year ended December 31, 2023.

Interest and other income was approximately $27,000 for the year ended December 31, 2022.

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.

(Loss) gain on Non-Designated Derivatives

(Loss) gain on non-designated derivative instruments for the years ended December 31, 2023 and 2022 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 and MOB Warehouse Facility, which have variable interest rates.

The loss recorded in the year ended December 31, 2023 was due to decreases in forward-interest rate curves, and represents the decrease in fair value as well as $5.6 million of cash received from our interest rate caps.

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

Income Tax Expense

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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, 2023.

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).

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.

Net loss attributable to non-controlling interests was $82,000 and $135,000 for the years ended December 31, 2023 and 2022, respectively.

These amounts represent the portion of our net loss 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.

Allocation for preferred stock was $13.8 million for the years ended December 31, 2023 and 2022.

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

During the year ended December 31, 2022, net cash provided by operating activities was $28.3 million.

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.

The following table presents a reconciliation of our net cash provided by operations from our net loss for the years ended December 31, 2023 and 2022:

(in thousands) Year Ended December 31, Increase

Cash flows from operating activities:

2023 2022 (Decrease)

Net loss $ (72,380) $ (79,621) $ 7,241

Adjustments to reconcile net loss to net cash provided by operating activities

Depreciation and amortization 82,873 82,064 809

Amortization (including write-offs) of deferred financing costs 6,702 4,879 1,823

Amortization of terminated swap (4,195) 423 (4,618)

Amortization of mortgage premiums and discounts, net 91 51 40

(Accretion) amortization of market lease and other intangibles, net (890) (625) (265)

Bad debt expense 1,225 3,159 (1,934)

Equity-based compensation 919 1,185 (266)

(Gain) loss on non-designated derivative instruments 1,995 (3,834) 5,829

Cash received from non-designated derivative instruments 5,580 286 5,294

(Gain) loss on sales of real estate investments, net 322 125 197

Impairment charges 4,676 27,630 (22,954)

Deferred tax valuation allowance 1,165 2,750 (1,585)

Changes in assets and liabilities:

Straight-line rent receivable (1,049) (1,523) 474

Prepaid expenses and other assets (6,069) (3,036) (3,033)

Accounts payable, accrued expenses and other liabilities 83 (2,924) 3,007

Deferred rent 576 (2,694) 3,270

Net cash provided by operating activities $ 21,624 $ 28,295 $ (6,671)

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).

In addition, cash provided by operating activities was impacted by an increase in accounts payable and accrued expenses of $1.3 million related to higher accrued real estate taxes, property operating expenses and professional and legal fees, a net decrease in prepaid expenses and other assets of $2.1 million, and by an increase in deferred rent of $1.7 million.

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.

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 $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 $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 following table presents our net cash used in investing activities for the years ended December 31, 2023 and 2022:

(in thousands) Year Ended December 31, Increase

Cash flows from investing activities:

2023 2022 (Decrease)

Property acquisitions $ (35,261) $ (25,538) $ (9,723)

Investments in non-designated interest rate caps (9,962) — (9,962)

Capital expenditures (22,397) (27,993) 5,596

Proceeds from sales of real estate investments 4,803 11,749 (6,946)

Net cash used in investing activities $ (62,817) $ (41,782) $ (21,035)

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.

The following table presents our net cash provided by financing activities for the years ended December 31, 2023 and 2022:

(in thousands) Year Ended December 31, Increase

Cash flows from investing activities:

2023 2022 (Decrease)

Payments on credit facilities $ (200,602) $ (2,998) $ (197,604)

Proceeds from credit facilities 34,748 30,000 4,748

Proceeds from mortgage notes payable 240,000 — 240,000

Payments on mortgage notes payable (1,139) (6,662) 5,523

Payments for non-designated derivative instruments — — —

Proceeds from interest rate swap terminations 5,413 — —

Payments of deferred financing costs (8,748) (1,672) (7,076)

Proceeds from issuance of Series A Preferred Stock, net — — —

Proceeds from issuance of Series B Preferred Stock, net — (42) 42

Dividends paid on Series A Preferred stock (7,334) (7,333) (1)

Dividends paid on Series B Preferred stock (6,466) (6,466) —

Contributions from non-controlling interest holders 284 — —

Distributions to non-controlling interest holders (185) (184) (1)

Net cash provided by financing activities $ 55,971 $ 4,643 $ 45,631

Liquidity and Capital Resources

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 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.

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

Our future liquidity requirements, and available liquidity, however, depend on many factors, such as recent increases in inflation, labor shortages, supply chain disruptions, and higher property insurance, property tax and interest rates, all of which may adversely impact our results of operations and thus ultimately our liquidity.

Moreover, these adverse impacts, as well as the ongoing wars in Ukraine, Israel and related sanctions, 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 wars in Ukraine, Israel 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.

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, potential future advances under our Fannie Mae Master Credit Facilities and MOB Warehouse Facility, net cash provided by our property dispositions and potential new financings utilizing certain of our currently unencumbered properties.

As of December 31, 2023 and 2022, we had $46.4 million and $53.7 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.

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 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, 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, 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.

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.

The Barclays MOB Loan Agreement requires us to maintain a minimum balance of cash and cash equivalents of $12.5 million at all times.

As of December 31, 2023, our total debt leverage ratio (net debt divided by gross asset value) was approximately 43.7%.

Net debt totaled $1.1 billion, which represents gross debt ($1.1 billion) less cash and cash equivalents ($53.7 million).

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).

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%.

Our net debt totaled $1.1 billion, which represents gross debt ($1.2 billion) less cash and cash equivalents ($46.4 million).

Our 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).

Cumulative impairment charges are reflected within gross asset value.

As of December 31, 2023, we had total gross borrowings of $1.2 billion, at a weighted-average interest rate of 5.59% and a weighted-average remaining term of 5.1 years.

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

As of December 31, 2022, the carrying value of our real estate investments, at cost was $2.6 billion, with $0.9 billion of this amount pledged as collateral for mortgage notes payable, $0.6 billion of this amount pledged to secure advances under the Fannie Mae Master Credit Facilities and $0.9 billion of this amount comprising the borrowing base of the Credit Facility.

These real estate assets are not available to satisfy other debts and obligations, or to serve as collateral with respect to new indebtedness, as applicable, unless the existing indebtedness associated with the property is satisfied or the property is removed from the borrowing base of the Credit Facility, which would impact availability thereunder.

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 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 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.

Inclusive of the effect of our non-designated hedging instruments, our total portfolio economic interest rate was 5.00% and 4.47% as of December 31, 2023 and 2022, respectively.

As of December 31, 2023, the carrying value of our real estate investments, at cost was $2.6 billion, with $1.3 billion of this amount secured as collateral for mortgage notes payable, $614.0 million of this amount pledged to secure advances under the Fannie Mae Master Credit Facilities and $23.0 million of this amount was pledged to secure advances under the MOB Warehouse Facility.

These real estate assets are not available to satisfy other debts and obligations, or to serve as collateral with respect to new indebtedness, as applicable, unless the existing indebtedness associated with the property is satisfied or the property is removed from the borrowing base of the Fannie Mae Master Credit Facilities or MOB Warehouse Facility, which would impact availability thereunder.

Unencumbered real estate investments, at cost as of December 31, 2023 was $635.9 million.

There can be no assurance as to the amount of liquidity we would be able to generate from leveraging these unencumbered real estate investments , if we are able to leverage them at all.

Mortgage Notes Payable

As of December 31, 2022, we had $585.2 million in gross mortgage notes payable outstanding.

As of December 31, 2023, we had $821.4 million in gross mortgage notes payable outstanding with a weighted-average interest rate of 4.58% and a weighted-average remaining term of 6.1 years.

Future scheduled principal payments on our mortgage notes payable for 2024 are $1.2 million.

Credit Facility

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 a one one-year extension at our option.

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

Loans under our Credit Facility may be prepaid at any time, in whole or in part, without premium or penalty, subject to customary breakage costs.

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

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, 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.

The equity interests and related rights in our wholly-owned subsidiaries that directly own or lease the eligible unencumbered real estate assets comprising the borrowing base of the Revolving Credit Facility are pledged for the benefit of the lenders thereunder.

The Credit Facility also contains a subfacility for letters of credit of up to $25.0 million.

The applicable margin used to determine the interest rate under both the Term Loan and Revolving Credit Facility components of the Credit Facility varies based on our leverage.

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

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.

All of our mortgage debt is either fixed-rate, or effectively fixed-rate via our interest rate swap.

During the year ended December 31, 2023, we entered into one new mortgage note, which is described below:

Barclays MOB Loan

On May 24, 2023, we entered into the Barclays MOB Loan with the Lenders, in the aggregate amount of $240.0 million.

In connection with the Barclays MOB Loan Agreement, we entered into the Guaranty and the Environmental Indemnity for the benefit of the Lenders.

The Barclays MOB Loan is secured by, among other things, first priority mortgages on 62 of our MOBs with an aggregate gross asset value of $417.5 million.

The Barclays MOB Loan has a 10-year term and is interest-only at a fixed rate of 6.453% per year.

Under the Barclays MOB Loan Agreement, we are required to make interest-only payments on a monthly basis with the principal balance due on the maturity date of June 6, 2033.

The Barclays MOB Loan Agreement requires us to comply with certain covenants, including, maintaining combined cash and cash equivalents totaling at least $12.5 million at all times.

We paid $7.8 million in deferred financing costs related to the Barclay’s MOB Loan, which is amortized into interest expense over the term of the loan.

At the closing of the Barclays MOB Loan, we applied $194.8 million of the proceeds to repay and terminate the Prior Credit Facility.

The remaining proceeds of approximately $39.0 million (after the payment of Barclays MOB Loan closing costs and reimbursement of deposits) were used for general corporate purposes, subject to the terms of the Barclays MOB Loan Agreement.

Additionally, by terminating the Prior Credit Facility, we are no longer subject to certain restrictive covenants previously imposed by the Prior Credit Facility (see Note 5 — Credit Facilities for additional information).

Credit Facilities

As of December 31, 2023, we had $361.0 million in total amounts outstanding under our credit facilities at a weighted-average interest rate of 7.90% and a weighted-average remaining term of 2.8 years.

Inclusive of our non-designated interest rate caps, the economic interest rate on our credit facilities was 5.94% as of December 31, 2023.

Future scheduled principal payments on our credit facilities for 2024 are $5.8 million.

Fannie Mae Master Credit Facilities

As of December 31, 2023, $346.3 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.

Borrowings under the Fannie Mae Master Credit Facilities bear annual interest at a rate that varies on a monthly basis and is equal to the sum of the current LIBOR for one month U.S.

dollar-denominated deposits and 2.62%, with a combined floor of 2.62%.

Borrowings under the Fannie Mae Master Credit Facilities bear annual interest at a rate that varies on a monthly basis and is equal to the sum of the current SOFR for one month U.S.

dollar-denominated deposits and a spread (2.41% and 2.46% for the Capital One Facility and the KeyBank Facility, respectively) with a combined floor of 2.62%.

The Fannie Mae Master Credit Facilities mature on November 1, 2026.

Future scheduled principal payments on our Fannie Mae Master Credit Facilities for 2024 are $5.8 million.

During the year ended December 31, 2023, we provided multiple deposits related to our interest rate swaps to Fannie Mae totaling $11.8 million.

These deposits were provided because the debt service coverage ratios of the underlying properties of each facility were below those of the minimum required amounts per the debt agreements.

These deposits will be refunded upon either (i) the achievement of debt service coverage ratios above those of the required minimum amounts or (ii) the maturity of the Fannie Mae Master Credit Facilities.

MOB Warehouse Facility

On December 22, 2023, we, entered into a loan agreement with Capital One to provide up to $50.0 million of variable-rate financing.

As of December 31, 2023, $14.7 million was outstanding under the MOB Warehouse Facility.

We may request future advances under the MOB Warehouse Facility by adding eligible MOBs to the collateral pool subject to customary conditions, including satisfaction of minimum debt service coverage and maximum loan-to-value tests.

Borrowings under the MOB Warehouse Facility bear interest at a monthly rate equal to the sum of the current SOFR for one-month denominated deposits and a spread of 3.0%.

Interest payments are due monthly, with no principal payments due until maturity in December 2026.

Non-Designated Interest Rate Caps

Our interest rate caps are used to limit our exposure to interest rate movements on our credit facilities for economic purposes, however, we do not elect to apply hedge accounting to these instruments.

As of December 31, 2023, we had seven SOFR-based interest rate caps with an aggregate notional amount of $364.2 million, which limits 30-day SOFR to 3.50% and have varying maturities through January 2027.

As 30-day SOFR has increased beyond 3.50%, we have received cash payments of $5.6 million in the year ended December 31, 2023.

We received $0.3 million of cash payments in the year ended December 31, 2022.

We paid premiums of $9.6 million to renew five interest rate caps with an aggregate notional amount of $289.4 million which matured in the year ended December 31, 2023, and we also paid $0.4 million for a new interest rate cap entered into during the year ended December 31, 2023 for a notional amount of $14.7 million.

One interest rate cap with a notional amount of $60.0 million matures in April 2024, which represents the next interest rate cap maturity.

We estimate that this renewal will cost us approximately $1.3 million in premiums.

Upon the maturity and renewal of our interest rate caps, we have been obligated to provide cash deposits to Fannie Mae because the debt service coverage ratios of the underlying SHOPs of each facility were below those of the minimum required amounts per the debt agreements.

In the year ended December 31, 2023, we provided a cash deposit of $11.8 million.

We expect to provide another deposit, which we estimate to be $2.3 million, upon the maturity of one interest rate cap in April 2024.

Please see the Fannie Mae Master Credit Facilities section above for additional information.

Capital Expenditures

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 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.

During the year ended December 31, 2023, our capital expenditures, including accrued capital expenditures, were $25.3 million, of which $10.5 million related our MOB segment and $14.8 million related to our SHOP segment.

We anticipate this rate of capital expenditures will be similar for the MOB segment and our SHOP capital expenditures will decrease in 2024.

Acquisitions — Year Ended December 31, 2023

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.

During the year ended December 31, 2023, we acquired seven single-tenant MOBs for an aggregate contract purchase price of $34.9 million.

These acquisitions were funded with $20.0 million from draws under our Prior Credit Facility and the remainder with cash on hand.

Acquisitions — Subsequent Year Ended December 31, 2023

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.

We acquired four MOB properties subsequent to December 31, 2023 for an aggregate contract purchase price of $12.6 million.

This acquisition was funded with $7.5 million of proceeds from a new mortgage note secured by the four acquired properties and the remainder with cash on hand.

Dispositions — Year Ended December 31, 2023

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.

During the year ended December 31, 2023, we disposed of four SHOPs and one MOB for an aggregate contract sales price of $13.8 million.

Pursuant to the terms of the Prior Credit Facility, $5.2 million of net proceeds were used to repay amounts then outstanding, and $2.7 million of net proceeds were used to partially repay the Multi-Property CMBS Loan mortgage note.

Dispositions — Subsequent to December 31, 2023

Subsequent to December 31, 2023, we did not dispose of any properties.

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.

However, we have one MOB and one SHOP scheduled for sale in the second quarter of 2024.

There can be no assurance that these properties will be sold on favorable terms, or at all.

Share Repurchase Program

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

Under the Prior Credit Facility, we were restricted from repurchasing shares.

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

1 unchanged sentence

There can be no assurance, however, as to whether our SRP will be reactivated or on what terms.

Beginning in the Commencement Quarter, we will be permitted to repurchase up to $50.0 million of shares of our common stock (including amounts previously repurchased during the term of the Revolving Credit Facility) if, after giving effect to the repurchases, we maintain cash and cash equivalents of at least $30.0 million and our ratio of consolidated total indebtedness to consolidated total asset value (expressed as a percentage) is less than 55.0%.

No assurances can be made as to when or if our SRP will be reactivated.

Non-GAAP Financial Measures

This section discusses the non-GAAP financial measures we use to evaluate our performance including Funds from Operations (“FFO”), Modified Funds from Operations (“MFFO”) and NOI.

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 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:

This section discusses the non-GAAP financial measures we use to evaluate our performance including Funds from Operations (“FFO”) and Modified Funds from Operations (“MFFO”).

MFFO is based on our total performance as a company and therefore reflects the impacts of interest expense, general and administrative expenses and operating fees to related parties.

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

Funds from Operations and Modified Funds from Operations

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings, improvements, and straight-line amortization of intangibles, which implies that the value of a real estate asset diminishes predictably over time.

We believe that, because real estate values historically rise and fall with market conditions, including, but not limited to, inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using the historical accounting convention for depreciation and certain other items may be less informative.

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, and straight-line amortization of intangibles, which implies that the value of a real estate asset diminishes predictably over time.

We believe that, because real estate values historically rise and fall with market conditions including, but not limited to, inflation, interest rates, business cycles, unemployment levels and consumer spending, presentations of operating results for REITs using the historical accounting convention for depreciation, amortization and certain other items may not be informative.

Because of these factors, the National Association of Real Estate Investment Trusts (“NAREIT”), an industry trade group, has published a standardized measure of performance known as FFO, which is used in the REIT industry as a supplemental performance measure.

We believe FFO, which excludes certain items such as real estate-related depreciation and amortization, is an appropriate supplemental measure of a REIT’s operating performance.

FFO is not equivalent to our net income or loss as determined under GAAP.

FFO is not equivalent to our net loss as determined under GAAP, and FFO is not intended to replace financial performance measures determined under GAAP.

We calculate FFO, a non-GAAP measure, consistent with the standards established over time by the Board of Governors of NAREIT, as restated in a White Paper approved by the Board of Governors of NAREIT effective in December 2018 (the “White Paper”).

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 our proportionate share of FFO attributable to our stockholders.

The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding (i) depreciation and amortization related to real estate assets, (ii) gains and losses from the sale of certain real estate assets, (iii) gains and losses from changes in control and (iv) 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 the proportionate share of FFO attributable to our stockholders.

Our FFO calculation complies with NAREIT’s definition.

We believe that the use of FFO provides a more complete understanding of our operating performance to investors and to management, and reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.

Changes in the accounting and reporting promulgations under GAAP that were put into effect in 2009 subsequent to the establishment of NAREIT’s definition of FFO, such as the change to expense as incurred rather than capitalize and depreciate acquisition fees and expenses incurred for business combinations, have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed under GAAP across all industries.

We believe that FFO provides a more complete understanding of our operating performance to investors and to management, and reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net loss as determined by GAAP.

Changes in the accounting and reporting promulgations under GAAP that were put into effect in 2009 subsequent to the establishment of NAREIT’s definition of FFO, such as the change to expense as incurred rather than capitalized and depreciated acquisition fees and expenses incurred for business combinations, have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed under GAAP across all industries.

These changes had a particularly significant impact on publicly registered, non-listed REITs, which typically have a significant amount of acquisition activity in the early part of their existence, particularly during the period when they are raising capital through ongoing initial public offerings.

Because of these factors, the Institute of Portfolio Alternatives (“IPA”), an industry trade group, has published a standardized measure of performance known as MFFO, which the IPA has recommended as a supplemental measure for publicly registered, non-listed REITs.

MFFO is designed to be reflective of the ongoing operating performance of publicly registered, non-listed REITs by adjusting for those costs that are more reflective of acquisitions and investment activity, along with other items the IPA believes are not indicative of the ongoing operating performance of a publicly registered, non-listed REIT, such as straight-lining of rents as required by GAAP.

We believe it is appropriate to use MFFO as a supplemental measure of operating performance because we believe that, when compared year-over-year, both before and after we have deployed all of our offering proceeds and are no longer incurring a significant amount of acquisition fees or other related costs, it reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income.

MFFO is not equivalent to our net income or loss as determined under GAAP.

MFFO is designed to be reflective of the ongoing operating performance of publicly registered, non-listed REITs by adjusting for those costs that are more reflective of acquisition and investment activity, along with other items the IPA believes are not indicative of the ongoing operating performance of a publicly registered, non-listed REIT, such as straight-lining of rents as required by GAAP.

MFFO is not equivalent to our net loss as determined under GAAP, and MFFO is not intended to replace financial performance measures determined under GAAP.

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

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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 (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.

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 (i) acquisition fees and expenses, (ii) amortization of above and below-market leases and other intangible lease assets and liabilities, (iii) 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), (iv) accretion of discounts and amortization of premiums on debt investments, (v) mark-to-market adjustments included in net loss as determined by GAAP, (vi) hedges, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, and (vii) 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.

In addition, because we have collected all concessions granted to our tenants as a result of the COVID-19 pandemic (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.

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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Accounting Treatment of Rent Deferrals

All of the concessions granted to our tenants as a result of the COVID-19 pandemic are rent deferrals with the original lease term unchanged and collection of deferred rent deemed probable (see the “Overview - Management Update on the Impacts of the COVID-19 Pandemic” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information).

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.

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.

All of the concessions granted to our tenants as a result of the COVID-19 pandemic were rent deferrals with the original lease term unchanged and all deferred rent has been collected (see the “Overview - Management Update on the Impacts of the COVID-19 Pandemic” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information).

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 significantly impacted by these types of deferrals.

As of December 31, 2021, all deferred amounts had 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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Net loss attributable to common stockholders (in accordance with GAAP) $ (86,097) $ (93,285) $ (92,942)

$ (93,285) $ (92,942) $ (78,781)

Depreciation and amortization (1)

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Impairment charges 4,676 27,630 40,951

27,630 40,951 36,446

Loss (gain) on sale of real estate investments 322 125 (3,648)

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FFO (as defined by NAREIT) attributable to common stockholders (1,445) 14,043 21,947

14,043 21,947 31,552

Acquisition and transaction related 545 1,484 2,714

1,484 2,714 173

(Accretion) amortization of market lease and other lease intangibles, net (890) (625) (198)

(625) (198) (80)

Straight-line rent adjustments (1,049) (1,523) (780)

(1,523) (780) (2,405)

Straight-line rent (rent deferral agreements) (3)

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MFFO attributable to common stockholders $ 6,030 $ 12,642 $ 22,940

$ 12,642 $ 22,940 $ 34,314

(1) Net of non-real estate depreciation and amortization.

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These amounts are included in the straight-line rent receivable on our consolidated balance sheet but are considered to be earned revenue attributed to the current period for purposes of MFFO as they are expected to be collected.

(4) This is a non-cash item and is added back as it is not considered a part of operating performance.

Net Operating Income

NOI is a non-GAAP financial measure used by us to evaluate the operating performance of our real estate portfolio.

NOI is equal to revenue from tenants less property operating and maintenance expenses.

NOI excludes all other items of expense and income included in the financial statements in calculating net income (loss).

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.

We use NOI to assess and compare property level performance and to make decisions concerning the operation of the properties.

Further, we believe NOI is useful to investors as a performance measure because, when compared across periods, NOI reflects the impact on operations from trends in occupancy rates, rental rates, operating expenses and acquisition activity on an unleveraged basis, providing perspective not immediately apparent from net income (loss).

NOI excludes certain components from net income (loss) in order to provide results that are more closely related to a property’s results of operations.

For example, interest expense is not necessarily linked to the operating performance of a real estate asset and is often incurred at the corporate level.

In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance at the property level.

NOI presented by us may not be comparable to NOI reported by other REITs that define NOI differently.

We believe that in order to facilitate a clear understanding of our operating results, NOI should be examined in conjunction with net income (loss) as presented in our consolidated financial statements.

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 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)

Impairment charges 12,488 15,142 — — — — — 27,630

Operating fees to related parties — — — — — — 25,353 25,353

Acquisition and transaction related 212 — 1 — — — 1,271 1,484

General and administrative 84 13 — — — — 17,190 17,287

Depreciation and amortization 42,257 31,819 7,646 — — 342 — 82,064

Interest expense 116 1,386 — — — — 50,238 51,740

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

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 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

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)

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

Operating fees to related parties — — — — — — 24,206 24,206

Acquisition and transaction related — 3 — — — — 2,711 2,714

General and administrative 92 22 — — — 21 16,693 16,828

Depreciation and amortization 43,187 30,235 2,907 — 1,978 1,619 — 79,926

Interest expense 322 1,404 — — — — 46,174 47,900

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

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

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

NOI $ 82,682 $ 36,220 $ 4,302 $ — $ 1,403 $ (1,065) $ — $ 123,542

Refer to Note 15 — Segment Reporting to our consolidated financial statements found in this Annual Report on Form 10-K for a reconciliation of NOI to net loss attributable to stockholders by reportable segment.

(4) Represents the non-cash change of the reserve against our deferred tax asset, which has been fully reserved since December 31, 2020, which we do not consider part of our normal operations.

Dividends and Other Distributions

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 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.

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 our Fixed Charge Coverage Ratio is not less than 1.50 to 1.00 for the most recently ended four fiscal quarters.

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, 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.

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 and a minimum debt service coverage ratio.

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.

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 Internal Revenue Code of 1986 (the “Code”).

Distribution payments are dependent on the availability of funds.

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March 31, 2023 June 30, 2023 September 30, 2023 December 31, 2023 December 31, 2023

(In thousands) Percentage of Distributions Percentage of Distributions Percentage of Distributions Percentage of Distributions Percentage of Distributions

(In thousands) Amounts Percentage of Distributions Amounts Percentage of Distributions Amounts Percentage of Distributions Amounts Percentage of Distributions Amounts Percentage of Distributions

Distributions:

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For the year ended December 31, 2023, cash flows provided by operations were $21.6 million.

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, 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.

Our ability to pay dividends on our Series A Preferred Stock, Series B Preferred Stock and Series A Preferred Units and other distributions 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 our ability to complete acquisitions of new properties and our ability to improve operations at our existing properties, some of which have recently been impacted by the adverse effects of inflation, labor shortages, and supply chain disruptions.

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

Our ability to improve operations at our existing properties is also subject to a variety of risks and uncertainties, many of which are beyond our control, and there can be no assurance we will be successful in achieving this objective.

We may still pay any cash distributions necessary to maintain its status as a REIT and 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 under the Credit Facility.

Loan Obligations

The payment terms of our mortgage notes payable generally require principal and interest amounts payable monthly with all unpaid principal and interest due at maturity.

The payment terms of our Credit Facility require interest only amounts payable monthly with all unpaid principal and interest due at maturity.

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

The payment terms of our MOB Warehouse Facility require interest only payments with all unpaid principal due in December 2026.

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

We elected to be taxed as a REIT under Sections 856 through 860 of the Code, effective for our taxable year ended December 31, 2013.

Commencing with that taxable year, we have been organized and operated in a manner so that we qualify as a REIT under the Code.

Commencing with that taxable year, we believe we have been organized and operated in a manner so that we qualify as a REIT under the Code.

We intend to continue to operate in such a manner but can provide no assurances that we will operate in a manner so as to remain qualified for taxation as a REIT.

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As of December 31, 2023, the increase to the 12-month CPI for all items, as published by the Bureau of Labor Statistics, was 3.4%.

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.

To help mitigate the adverse impact of inflation, most of our leases with our tenants in our MOB segment contain rent escalation provisions which increase the cash that is due under these leases over their respective terms.

These provisions generally increase rental rates during the terms of the leases either at fixed rates or indexed escalations (based on the Consumer Price Index or other measures).

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

Although most of our leases with tenants in our MOB segment contain rent escalation provisions, these escalation rates are generally below the rate of inflation.

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.

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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