National Healthcare Properties, Inc. 10-Q

Item 1A. Risk Factors. Except as set forth in this Item 1A, there have been no material changes to the risk factors disclosed in Part I — Item 1A “ Risk Factors ” of our Annual Report on Form 10-K (as amended) for the year ended December 31, 2023, filed with the SEC on March 22, 2024 and as amended on March 22, 2024, and we direct your attention to those risk factors. There can be no assurance that we could become “internalized” or “self-managed” without the Internalization Merger. There can be no assurance that we could internalize or otherwise become self-managed if the Internalization Merger (as defined in Note 1 – Organization ) is not consummated. We would be required to terminate the Second A&R Advisory Agreement, which we can only do for cause. Further, the agreement does not provide us the right to solicit persons employed by Advisor Parent or its affiliates (including all the person presently providing services to us) to become employees. Advisor Parent would also be under no obligation to transfer any assets or licenses that we may need to internalize the management functions. Lastly, some of our loan agreements governing the indebtedness of our subsidiaries require lender consents to replace the property manager. There is no assurance the applicable parties would consent. We may not manage the Internalization Merger efficiently, effectively or realize the anticipated benefits. We may not be able to successfully internalize our management in a manner that permits us to realize the anticipated benefits of the Internalization Merger. We may not be able to retain all of the current employees of our Advisor that we expect will become our employees as a result of the Internalization Merger. The failure to manage the Internalization Merger efficiently and effectively, including the failure to smoothly transition services or retain employees, could result in the anticipated benefits of the Internalization Merger not being realized in the timeframe currently anticipated or at all. The Internalization Merger may not be financially beneficial to us and our stockholders. There is no assurance that the Internalization Merger will be financially beneficial to us and our stockholders. If the expenses we assume as a result of the Internalization Merger are higher than the fees that we have historically paid to the Advisor and its affiliates or otherwise higher than we anticipate, we may not realize the anticipated cost savings and other benefits from the Internalization Merger, which could have a material adverse effect on our business, financial condition, and results of operations. The Internalization Merger is expected to be a time-consuming and costly process and the expenses arising from the Internalization Merger could exceed our current estimates. Further, transactions involving the internalization by a REIT of an external manager affiliated with the REIT’s sponsor have, in some cases, been the subject of litigation. If such litigation arose in connection with the Internalization Merger, we could be forced to spend significant amounts of money and management resources defending the claims (even if such claims were without merit), which would reduce the amount of funds available for us to invest in properties or other investments or to pay distributions. Additionally, while we will no longer effectively bear the costs of the various fees currently paid to the Advisor and its affiliates following the Internalization Merger, our expenses following the Internalization Merger will include the compensation and benefits of our executive officers and employees, as well as overhead currently paid by the Advisor or its affiliates in managing our business and operations. There are no assurances that, following the Internalization Merger, these employees will be able or incentivized to provide services at the same level or for the same costs as are currently provided to us by the Advisor. There may also be other unforeseen costs, expenses and difficulties associated with operating as an internally managed company. The pendency of the Internalization Merger could adversely affect our business and operations. Between the date that the Internalization Agreement was executed and the date that the Internalization Merger is consummated, the attention of our management may be diverted from our day-to-day operations, regardless of whether or not the Internalization Merger is ultimately consummated. The pendency of the Internalization Merger could have an adverse impact on our relationships with unaffiliated third parties, which parties may delay or decline entering into agreements with us as a result of the announcement of our entry into the Internalization Agreement. In addition, due to covenants in the Internalization Agreement, we may be unable during the pendency of the Internalization Merger to pursue certain transactions or pursue certain other actions that are not in the ordinary course of business, even if such actions would prove beneficial. 67 There can be no certainty that the Internalization Merger will be consummated and our inability to consummate the Internalization Merger may materially adversely affect our business, financial condition and results of operations. Consummation of the Internalization Merger is subject to the satisfaction or waiver of a number of conditions and receipt of third-party consents. There can be no guarantee that all of these closing conditions will be satisfied or waived and the Internalization Merger will be consummated. If the Internalization Merger is not consummated, we may be subject to a number of material risks that could materially adversely affect our strategy, business, financial condition, and results of operations. There may be unexpected delays in the consummation of the pending Internalization Merger. The consummation of the Internalization Merger may be delayed by a variety of events, including those that are not within our control. Events that could delay the consummation of the Internalization Merger include delays and difficulties in satisfying any closing conditions to which the Internalization Merger is subject. The Internalization Agreement may be terminated, subject to certain limitations set forth in the Internalization Agreement, (i) by mutual written agreement by the parties thereto, (ii) by any party if a final and non-appealable order is entered that permanently restrains or otherwise prohibits the Internalization, or (iii) by any party should the Effective Time (as defined in the Internalization Agreement) not have occurred on or before June 28, 2025. Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Mine Safety Disclosures. Not applicable.