CNL Healthcare Properties Inc.
11/13/2025 | Press release | Distributed by Public on 11/13/2025 09:34
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
Caution Concerning Forward-Looking Statements
Statements contained under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report on Form 10-Q for the quarter and nine months ended September 30, 2025 that are not statements of historical or current fact may constitute "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995. The Company intends that such forward-looking statements be subject to the safe harbor created by Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"). Forward-looking statements are statements that do not relate strictly to historical or current facts but reflect management's current understandings, intentions, beliefs, plans, expectations, assumptions and/or predictions regarding the future of the Company's business and performance, the economy, and other future conditions and forecasts of future events and circumstances. Forward-looking statements are typically identified by words such as "believes," "expects," "anticipates," "intends," "estimates," "plans," "continues," "may," "will," "seeks," "should," "could," the negative of such terms and words and terms of similar substance in connection with discussions of future operating or financial performance, the transaction contemplated by the Merger Agreement (as defined below), between the Company and Sonida Senior Living, business strategy and portfolios, projected growth prospects, cash flows, costs and financing needs, legal proceedings, amount and timing of anticipated future distributions, estimates of per share net asset value of the Company's common stock, macroeconomic conditions including inflation and interest rates and/or other matters. The Company's forward-looking statements are not guarantees of future performance. While the Company's management believes its forward-looking statements are reasonable, such statements are inherently susceptible to uncertainty and changes in circumstances. As with any projection or forecast, forward-looking statements are necessarily dependent on assumptions, data and/or methods that may be incorrect or imprecise, and may not be realized. The Company's forward-looking statements are based on management's current expectations and a variety of risks, uncertainties and other factors, many of which are beyond the Company's ability to control or accurately predict. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, the Company's actual results could differ materially from those set forth in the forward-looking statements due to a variety of risks, uncertainties and other factors. Given these uncertainties, the Company cautions you not to place undue reliance on such statements.
Important factors that could cause the Company's actual results to vary materially from those expressed or implied in its forward-looking statements include, but are not limited to government regulation, economic, strategic, political and social conditions and the following:
•a worsening economic environment in the U.S. or globally, including continued or increasing inflation, interest rate increases or financial market fluctuations;
•risks and uncertainties associated with the Company's and Sonida Senior Living's ability to complete the proposed Transactions (as defined below) on the proposed terms or on the anticipated timeline, or at all, including risks and uncertainties related to securing the necessary stockholder approval and satisfaction of other closing conditions to consummate the Transactions;
•the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement (as defined below);
•diversion of the attention of management from ongoing business operations;
•significant transaction costs and/or unknown or inestimable liabilities related to the Transactions;
•the risk of litigation, including shareholder litigation, in connection with the proposed Transactions, including any resulting expense or delay;
•risks related to future opportunities and plans for the combined company, including the uncertainty of expected future financial performance and results of the combined company following completion of the Transactions;
•effects relating to the announcement of the Transactions or any further announcements or the consummation of the Transactions on the price of Sonida Senior Living's common stock or on each company's respective relationships with tenants, employees, joint venture partners and third parties;
•risks associated with the Company's investment strategy, including its concentration in the seniors housing sector;
•the illiquidity of an investment in the Company's stock;
•liquidation at less than the subscription price of the Company's stock;
•the impact of regulations requiring periodic valuation of the Company on a per share basis, including the uncertainties inherent in such valuations and that the amount that a stockholder would ultimately realize upon liquidation may vary significantly from the Company's estimated net asset value;
•risks associated with real estate markets, including declining real estate values and rising insurance costs;
•risks associated with reliance on the Company's advisor and its affiliates, including conflicts of interest;
•the Company's failure to repay, obtain, renew, refinance or extend necessary financing or to access the debt or equity markets;
•disruptions from cybersecurity incidents;
•costs resulting from damaging weather events and climate change;
•the use of debt to finance the Company's business activities, including repayment, refinancing and interest rate risk and the Company's failure to comply with debt covenants;
•competition for properties and/or tenants;
•defaults on or non-renewal of leases by tenants;
•failure to lease properties on favorable terms or at all;
•the impact of current and future environmental, zoning and other governmental regulations affecting the Company's properties;
•the impact of changes in accounting rules;
•inaccuracies of the Company's accounting estimates;
•unknown liabilities of acquired properties or liabilities caused by property managers or operators;
•material adverse actions or omissions by any joint venture partners;
•consequences of the Company's net operating losses;
•increases in operating costs and other expenses;
•uninsured losses or losses in excess of the Company's insurance coverage;
•the impact of outstanding and/or potential litigation;
•risks associated with the Company's tax structuring; and
•failure to qualify for and maintain the Company's qualification as a REIT for federal income tax purposes.
Given these uncertainties, the Company cautions you not to place undue reliance on forward-looking information.
For further information regarding risks and uncertainties associated with the Company's business and other important factors that could cause the Company's actual results to vary materially from those expressed or implied in its forward-looking statements, please refer to the factors listed and described in the Company's reports filed from time to time with the SEC, including, but not limited to, the Company's Annual Report on Form 10-K for the year ended December 31, 2024, a copy of which may be obtained from the Company's website at www.cnlhealthcareproperties.com, as supplemented by the risks and uncertainties identified under Item 1A. "Risk Factors" in this Quarterly Report on Form 10-Q.
All written and oral forward-looking statements attributable to the Company or persons acting on its behalf are qualified in their entirety by this cautionary note. Forward-looking statements speak only as of the date on which they are made, and the Company undertakes no obligation to, and expressly disclaims any obligation to, publicly release the results of any revisions to its forward-looking statements to reflect new information, changed assumptions, the occurrence of unanticipated subsequent events or circumstances, or changes to future operating results over time, except as otherwise required by law.
Introduction
The following discussion is based on the condensed consolidated financial statements as of September 30, 2025 (unaudited) and December 31, 2024. Amounts as of December 31, 2024 included in the unaudited condensed consolidated balance sheets have been derived from the audited consolidated financial statements as of that date. This information should be read in conjunction with the accompanying unaudited condensed consolidated balance sheets and the notes thereto, as well as the audited consolidated financial statements, notes and management's discussion and analysis included in our Annual Report on Form 10-K for the year ended December 31, 2024.
Overview
CNL Healthcare Properties, Inc. is a Maryland corporation that elected to be taxed as a REIT for U.S. federal income tax purposes. We have and intend to continue to be organized and operate in a manner that allows us to remain qualified as a REIT for federal income tax purposes. The terms "us," "we," "our," "Company" and "CNL Healthcare Properties" include CNL Healthcare Properties, Inc. and each of its subsidiaries.
Substantially all of our assets are held by, and all operations are conducted, either directly or indirectly, through: (1) the Operating Partnership in which we are the sole limited partner and our wholly owned subsidiary, CHP GP, LLC, is the sole general partner; (2) a wholly owned TRS, CHP TRS Holding, Inc.; (3) property owner subsidiaries and lender subsidiaries, which are single purpose entities; and (4) through November 1, 2024, an investment in a consolidated joint venture.
We are externally managed and advised by CNL Healthcare Corp. (the "Advisor"). Our Advisor has responsibility for our day-to-day operations, serving as our consultant in connection with policy decisions to be made by our board of directors, and for identifying, recommending and executing on Possible Strategic Alternatives (as described below under "Possible Strategic Alternatives"), and dispositions on our behalf pursuant to the Advisory Agreement. In June 2023, we amended the Advisory Agreement and extended it through June 2025. On May 7, 2025, the Company, the Operating Partnership and the Advisor agreed to renew the Advisory Agreement for a one-year term ending June 30, 2026. For additional information on our Advisor, its affiliates or other related parties, as well as the fees and reimbursements we pay, see Note 7. "Related Party Arrangements."
As of September 30, 2025, our seniors housing investment portfolio consisted of interests in 70 properties, consisting of a geographically diversified portfolio of 69 seniors housing communities and one vacant land parcel. The types of seniors housing properties that we own include independent and assisted living facilities, continuing care retirement communities and Alzheimer's/memory care facilities.
Possible Strategic Alternatives
In 2017, we began evaluating possible strategic alternatives to provide liquidity to our stockholders. In April 2018, our board of directors formed a special committee consisting solely of our independent directors ("Special Committee") to consider possible strategic alternatives, including, but not limited to (i) the listing of our or one of our subsidiaries' common stock on a national securities exchange; (ii) an orderly disposition of our assets or one or more of our asset classes and the distribution of the net sale proceeds thereof to our stockholders; and (iii) a potential business combination or other transaction with a third-party or parties that provides our stockholders with cash and/or securities of a publicly traded company (collectively, among other options, "Possible Strategic Alternatives"). Since 2018, the Special Committee has engaged KeyBanc Capital Markets Inc. to act as its financial advisor in connection with exploring our Possible Strategic Alternatives.
In connection with our consideration of the Possible Strategic Alternatives, our board of directors suspended both our Reinvestment Plan and our common stock redemption plan ("Redemption Plan") effective July 11, 2018. In addition, as part of executing on Possible Strategic Alternatives, our board of directors committed to a plan to sell 70 properties, consisting of medical office buildings, post-acute care facilities, acute care hospitals and several skilled nursing facilities across the U.S. The Company completed the sale of the last of the 70 properties in 2022.
On November 4, 2025, we entered into the Merger Agreement with Sonida Senior Living whereby Sonida Senior Living will acquire 100% of the outstanding common stock of the Company in a cash and stock transaction valued at approximately $1.8 billion. Under the terms of the Merger Agreement, each outstanding share of our common stock will be converted into shares of Sonida Senior Living common stock based on an exchange ratio, as defined in the Merger Agreement, and $2.32 in cash. The exchange ratio is subject to collar mechanisms depending on the trading price of Sonida Senior Living common stock, set forth in the Merger Agreement.
The acquisition transaction is subject to customary closing conditions for each of the Company and Sonida Senior Living, including approval by our stockholders, approval by Sonida Senior Living's stockholders, regulatory consents, authorization for listing of the new shares of Sonida Senior Living common stock, effectiveness of a registration statement, and absence of material adverse effects for either Sonida Senior Living or the Company, respectively. Additional conditions to the Company's obligation to close the transaction include placement of director and officer insurance, board appointments, and consummation of an equity financing by Sonida Senior Living. Additional conditions to Sonida Senior Living's obligation to close the transaction include a transition services agreement not having been terminated, delivery of a plan of liquidation and delivery of an opinion regarding the Company's status as a REIT. Either party may terminate the agreement under certain conditions. Assuming all closing conditions are met, we anticipate closing on the merger transaction in the second quarter of 2026. However, there can be no assurance that the closing conditions will be satisfied or that the merger agreement will be consummated.
For additional information on the Merger Agreement, please refer to our Current Report on Form 8-K filed with the SEC on November 5, 2025.
Seniors Housing Portfolio
Our remaining investment focus is in seniors housing communities. We have invested in or developed the following types of seniors housing properties:
Independent Living Facilities. Independent living facilities are age-restricted, multi-family rental or ownership (condominium) housing with central dining facilities that provide residents, as part of a monthly fee, meals and other services such as housekeeping, linen service, transportation, social and recreational activities.
Assisted Living Facilities. Assisted living facilities are usually state-regulated rental properties that provide the same services as independent living facilities, but also provide, in a majority of the units, supportive care from trained employees to residents who are unable to live independently and require assistance with activities of daily living. The additional services may include assistance with bathing, dressing, eating, and administering medications.
Memory Care/Alzheimer's Facilities. Those suffering from the effects of Alzheimer's disease or other forms of memory loss need specialized care. Memory care/Alzheimer's centers provide the specialized care for this population including residential housing and assistance with the activities of daily living.
Portfolio Overview
As of September 30, 2025, our healthcare investment portfolio consisted of interests in 70 properties, comprising 69 seniors housing communities and one vacant land parcel.
We believe demographic trends and compelling supply and demand indicators present a strong case for an investment focus on seniors housing real estate and real estate-related assets. Our seniors housing investment portfolio is geographically diversified with properties in 26 states. The map below shows our seniors housing investment portfolio across geographic regions as of November 12, 2025:
The following table summarizes our seniors housing investment portfolio by investment structure as of November 12, 2025:
| Type of Investment |
Number of Investments |
Amount of Investments (in millions) |
Percentage of Total Investments |
|||||||||||||||||
| Consolidated investments: | ||||||||||||||||||||
|
Seniors housing leased(1)
|
15 | $ | 311.0 | 17.8 | % | |||||||||||||||
|
Seniors housing managed(2)
|
54 | 1,429.1 | 82.1 | |||||||||||||||||
| Vacant land | 1 | 1.1 | 0.1 | |||||||||||||||||
| 70 | $ | 1,741.2 | 100.0 | % | ||||||||||||||||
________________________________
FOOTNOTES:
(1)Properties that are leased to third-party tenants for which we report rental income and related revenues.
(2)Properties that are leased to TRS entities and managed pursuant to third-party management contracts (i.e. RIDEA structure) where we report resident fees and services, and the corresponding property operating expenses.
Portfolio Evaluation
While we are not directly impacted by the performance of the underlying properties leased to third-party tenants, we believe that the financial and operational performance of our tenants provides an indication about the stability of our tenants and their ability to pay rent. To the extent that our tenants, managers or joint venture partners experience operating difficulties and become unable to generate sufficient cash to make rent payments to us, there could be a material adverse impact on our consolidated results of operations, liquidity and/or financial condition. Our tenants and managers are generally contractually required to provide this information to us in accordance with their respective lease and/or management agreements. Therefore, in order to mitigate the aforementioned risk, we monitor our investments through a variety of methods determined by the type of property.
We monitor the credit of our tenants to stay abreast of any material changes in credit quality. We monitor credit quality by (1) reviewing financial statements that are required to be delivered to us under the applicable lease, (2) direct interaction with onsite property managers, (3) monitoring news and rating agency reports regarding our tenants (or their parent companies) and their underlying businesses, (4) monitoring the timeliness of rent collections and (5) monitoring lease coverage.
When evaluating the performance of our seniors housing portfolio, management reviews property-level operating performance versus budgeted expectations, conducts periodic operational review calls with operators and conducts periodic property inspections or site visits. Management also reviews occupancy levels and monthly revenue per occupied unit, which we define as total revenue divided by average number of occupied units. Similarly, when evaluating the performance of our third-party operators, management reviews monthly financial statements, property-level operating performance versus budgeted expectations, conducts periodic operational review calls with operators and conducts periodic property inspections or site visits. All of the aforementioned operating and statistical metrics assist us in determining the ability of our properties or operators to achieve market rental rates, to assess the overall performance of our diversified healthcare portfolio, and to review compliance with leases, debt, licensure, real estate taxes, and other collateral.
Significant Tenants and Operators
Our real estate portfolio of 69 seniors housing properties is operated by a mix of national or regional operators and the following represents the significant tenants and operators that lease or manage 10% or more of our rentable space as of November 12, 2025, excluding the vacant land parcel:
| Tenants |
Number of Properties |
Rentable Square Feet (in thousands) |
Percentage of Rentable Square Feet |
Lease Expiration Year |
||||||||||||||||||||||
| TSMM Management, LLC | 13 | 1,261 | 77.5 | % | 2030 | |||||||||||||||||||||
| Wellmore, LLC | 2 | 366 | 22.5 | 2031-2032 | ||||||||||||||||||||||
| 15 | 1,627 | 100.0 | % | |||||||||||||||||||||||
| Operators |
Number of Properties |
Rentable Square Feet (in thousands) |
Percentage of Rentable Square Feet |
Operator Expiration Year |
||||||||||||||||||||||
| Integrated Senior Living, LLC | 7 | 1,948 | 30.8 | % | 2026 | |||||||||||||||||||||
| Prestige Senior Living, LLC | 13 | 895 | 14.2 | 2026 | ||||||||||||||||||||||
| Morningstar Senior Management, LLC | 4 | 834 | 13.2 | 2026 | ||||||||||||||||||||||
|
Other operators (1)
|
30 | 2,645 | 41.8 | 2026-2029 | ||||||||||||||||||||||
| 54 | 6,322 | 100.0 | % | |||||||||||||||||||||||
_____________________________
FOOTNOTE:
(1)Comprised of various operators, each of which comprise less than 10% of our consolidated rentable square footage.
Tenant Lease Expirations
As of September 30, 2025, we owned 15 seniors housing properties that were leased to third party tenants under triple-net operating leases. In May 2025, we entered into new leases with one tenant covering 13 of our properties that were scheduled to expire in May and December 2025. The new leases will expire in May 2030. During the nine months ended September 30, 2025, our rental income represented approximately 7.3% of our total revenues.
Under the terms of our triple-net lease agreements, each tenant is responsible for payment of property taxes, general liability insurance, utilities, repairs and maintenance, including structural and roof expenses. Each tenant is expected to pay real estate taxes directly to the taxing authorities. However, if the tenant does not pay the real estate taxes, we are liable.
We work with our tenants in advance of the lease expirations or renewal period options in order for us to maintain a balanced lease rollover schedule and high occupancy levels, as well as to enhance the value of our properties through extended lease terms. Certain amendments or modifications to the terms of existing leases could require lender approval.
The following table lists, on an aggregate basis, scheduled expirations for the remainder of 2025, each of the next nine years and thereafter on our consolidated seniors housing portfolio, assuming that none of the tenants exercise any of their renewal options (in thousands, except for number of properties and percentages):
|
Year of Expiration(1)
|
Number of Properties |
Expiring Leased Square Feet |
Expiring
Annualized
Base Rents(2)
|
Percentage
of Expiring
Annual
Base Rents
|
||||||||||||||||||||||
| 2025 | - | - | $ | - | - | % | ||||||||||||||||||||
| 2026 | - | - | - | - | ||||||||||||||||||||||
| 2027 | - | - | - | - | ||||||||||||||||||||||
| 2028 | - | - | - | - | ||||||||||||||||||||||
| 2029 | - | - | - | - | ||||||||||||||||||||||
| 2030 | 13 | 1,261 | 18,598 | 67.0 | ||||||||||||||||||||||
| 2031 | 1 | 137 | 3,936 | 14.1 | ||||||||||||||||||||||
| 2032 | 1 | 229 | 5,237 | 18.9 | ||||||||||||||||||||||
| 2033 | - | - | - | - | ||||||||||||||||||||||
| 2034 | - | - | - | - | ||||||||||||||||||||||
| Thereafter | - | - | - | - | ||||||||||||||||||||||
| Total | 15 | 1,627 | $ | 27,771 | 100.0 | % | ||||||||||||||||||||
|
Weighted Average Remaining Lease Term:(3)
|
5.3 years | |||||||||||||||||||||||||
_______________________________
FOOTNOTES:
(1)Represents current lease expiration and does not take into consideration lease renewals available under existing leases at the option of the tenants.
(2)Represents the current base rent, excluding the impact of future rent increases included in leases, multiplied by 12 and included in the year of expiration.
(3)Weighted average remaining lease term is the average remaining term weighted by annualized current base rents.
Operator Expirations
As of September 30, 2025, we had 54 seniors housing properties managed by third-party operators. Nearly all of our management agreements have been in place for multiple years, and some include annual auto-renewal clauses which are effective unless a notice of termination is provided by either party. We work with our operators in advance of management agreement expirations or renewal period options in order for us to maintain a balanced operator rollover schedule, which provides us flexibility to execute on possible strategic alternatives, minimize potential early termination fees and align with the broader industry. The management agreements for 20 of our managed seniors housing properties are scheduled to expire within one year or less, all of which are expected to be renewed.
Liquidity and Capital Resources
General
Our ongoing primary source of capital is proceeds from operating cash flows. Our primary uses of capital include the payment of distributions, payment of operating expenses, funding capital improvements to existing properties and payment of debt service. Generally, we expect to meet short-term working capital needs from our cash flows from operations. As necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures.
Weighted average occupancy was higher during the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024. Rate increases at our properties as part of ongoing resident lease renewals combined with improved occupancy, as compared to 2024, resulted in an increase in revenues and NOI margins during the nine months ended September 30, 2025.
Macro-economic and geopolitical events around the globe, in addition to a higher for longer interest rate environment, contributed to volatile credit markets in recent years. We have used and may continue to use interest rate caps and swaps for interest rate protection on a portion of our variable rate debt and continue to monitor opportunities to further protect the remaining unhedged variable rate debt.
As of September 30, 2025, we had approximately $92.7 million of liquidity (consisting of $57.7 million cash on hand and $35.0 million in undrawn availability under the 2023 Revolving Credit Facility). We remain focused on maintaining liquidity and financial flexibility and continue to prioritize improving occupancy and implementing market rate increases to improve property net operating income. The rate of revenue growth, volatility in the credit markets and the current interest rate environment have impacted and may continue to impact our sources and uses of capital, financial condition, results of operations and cash flows.
We previously pledged certain of our properties in connection with our borrowings and may strategically leverage our real estate and use debt financing to provide additional funds for the payment of distributions to stockholders, working capital and for other corporate purposes. Our ability to increase our borrowings could be adversely affected by credit market conditions and the current interest rate environment, which could result in lenders reducing or limiting funds available for loans, including loans collateralized by real estate. We may also be negatively impacted by interest rate levels on our unhedged variable rate debt or the timing of when we seek to refinance existing debt. As part of our variable debt hedging strategy, we have purchased interest rate caps and swaps for interest rate protection. We continue to monitor the credit markets and continue to evaluate the need and the timing for additional interest rate protection in the form of interest rate caps or swaps on unhedged variable rate debt or variable rate debt with interest rate protection scheduled to mature.
Sources of Liquidity and Capital Resources
Borrowings
During the nine months ended September 30, 2025, we borrowed $16.0 million from our 2023 Revolving Credit Facility to repay approximately $15.8 million of secured indebtedness in advance of its February 2026 maturity. There were no borrowings during the nine months ended September 30, 2024.
Net Cash Provided by Operating Activities
Cash flows from operating activities for the nine months ended September 30, 2025 and 2024 were approximately $43.9 million and $31.0 million, respectively. The change in cash flows from operating activities for the nine months ended September 30, 2025 as compared to the same period in 2024 was primarily the result of the following:
•an increase in property NOI, related to our seniors housing properties due to higher average occupancy and rate increases during 2025; and
•favorable changes in operating assets and liabilities across periods.
Lease Renewals
In May 2025, we entered into new leases with one tenant covering 13 of our properties that were scheduled to expire in May and December 2025. The new leases with the same tenant will expire in May 2030 and each lease has one five-year renewal option. We do not have any leases expiring until 2030.
Uses of Liquidity and Capital Resources
Capital Expenditures
We paid approximately $11.2 million and $9.2 million in capital expenditures during the nine months ended September 30, 2025 and 2024, respectively. We continue to invest in capital improvements to maintain and improve our properties.
Debt Repayments
During the nine months ended September 30, 2025 and 2024, we paid approximately $15.9 million and $0.7 million, respectively, of repayments on our mortgages and other notes payable. Amounts paid during the nine months ended September 30, 2025 included the March 2025 repayment of approximately $15.8 million of secured indebtedness in advance of its scheduled maturity date of February 2026, which consisted of debt collateralized by five properties. We used $16.0 million from amounts available under the unsecured 2023 Revolving Credit Facility to repay this indebtedness. In April 2025 and March 2024, we used cash on hand to pay down approximately $5.0 million and $10.0 million, respectively, of amounts outstanding under our 2023 Revolving Credit Facility.
The following is a schedule of future principal payments for our total indebtedness for the remainder of 2025, each of the next four years and thereafter, in the aggregate, as of September 30, 2025(in thousands):
| 2025 | $ | - | |||
| 2026 | 565,000 | ||||
| 2027 | - | ||||
| 2028 | - | ||||
| 2029 | - | ||||
| Thereafter | - | ||||
| $ | 565,000 | ||||
On an ongoing basis, we monitor our debt maturities, engage in dialogue with third-party lenders about various financing scenarios and analyze our overall portfolio borrowings in advance of scheduled maturity dates of the debt obligations to determine the optimal borrowing strategy.
As of September 30, 2025, we had approximately $92.7 million of liquidity (consisting of $57.7 million cash on hand and $35.0 million available under the 2023 Revolving Credit Facility). As of September 30, 2025, we do not have any scheduled principal payments or debt maturities during the remainder of 2025.
We had approximately $565.0 million outstanding under our 2023 Credit Facilities as of the balance sheet date which mature in May 2026. As of the balance sheet date, we do not have sufficient cash on hand to satisfy these obligations. Based on our historical experience in the debt market, and initial indications from the market and discussions with existing and potential lenders, we believe it is probable we will be successful in refinancing the amounts outstanding under the 2023 Credit Facilities. Our low leverage profile, along with current and anticipated cash flows, are expected to be sufficient to support a refinancing of the current outstanding indebtedness while maintaining reasonable debt service coverage ratios. There can be no assurance that the refinancing will occur or will occur on terms similar to those of the 2023 Credit Facilities. If sufficient refinancing cannot be arranged under an unsecured facility to satisfy the outstanding obligations due in May 2026, it may impact our ability to continue operations. We believe we have other options to meet our obligation. These other options include, but are not limited to, refinancing with lending institutions as a secured loan facility, issuing mortgages collateralized by unencumbered properties in our portfolio and/or selling all or a portion of our properties and using net sales proceeds to satisfy the obligation.
The aggregate amount of long-term financing is not expected to exceed 60% of our gross asset values (as defined in our 2023 Credit Facilities agreement) on an annual basis. As of September 30, 2025 and December 31, 2024, we had aggregate debt leverage ratios of approximately 29.5% and 30.1%, respectively, of the aggregate gross carrying value of our assets.
The 2023 Credit Facilities contain affirmative, negative, and financial covenants which are customary for loans of this type, including (but not limited to): (i) maximum leverage, (ii) minimum fixed charge coverage ratio, (iii) minimum consolidated net worth, (iv) restrictions on payments of cash distributions except if required by REIT requirements, (v) maximum secured indebtedness, (vi) maximum secured recourse debt, (vii) minimum unsecured interest coverage, (viii) maximum unsecured indebtedness ratio and (ix) limitations on certain types of investments and with respect to the pool of properties supporting borrowings under the 2023 Credit Facilities, minimum weighted average occupancy, and remaining lease terms, as well as property type, MSA, operator, and asset value concentration limits. The limitations on distributions generally include a limitation on the extent of allowable distributions, which are not to exceed the greater of 70% of adjusted FFO (as defined per the 2023 Credit Facilities) and the minimum amount of distributions required to maintain the Company's REIT status. As of September 30, 2025, we were in compliance with all financial covenants related to our 2023 Credit Facilities.
Distributions
In order to qualify as a REIT, we are required to make distributions, other than capital gain distributions, to our stockholders each year in the amount of at least 90% of our taxable income. We may make distributions in the form of cash or other property, including distributions of our own securities. While we generally expect to pay distributions from cash flows provided by operating activities, we have and may continue to cover periodic shortfalls between distributions paid and cash flows from operating activities with proceeds from other sources; such as from cash flows provided by financing activities, a component of which could include borrowings, whether collateralized by our properties or unsecured, or net sales proceeds from the sale of real estate.
The following table presents total cash distributions declared and cash distributions per share on a quarterly basis for the nine months ended September 30, 2025 and 2024 (in thousands, except per share data):
| Periods |
Cash Distributions per Share |
Total Cash
Distributions
Declared(1)
|
Cash Flows
Provided by
Operating
Activities(2)
|
|||||||||||||||||
| 2025 Quarters | ||||||||||||||||||||
| First | $ | 0.02560 | $ | 4,453 | $ | 14,300 | ||||||||||||||
| Second | 0.02560 | 4,453 | 16,165 | |||||||||||||||||
| Third | 0.02560 | 4,453 | 13,427 | |||||||||||||||||
| Total | $ | 0.07680 | $ | 13,359 | $ | 43,892 | ||||||||||||||
| 2024 Quarters | ||||||||||||||||||||
| First | $ | 0.02560 | $ | 4,453 | $ | 7,148 | ||||||||||||||
| Second | 0.02560 | 4,453 | 13,505 | |||||||||||||||||
| Third | 0.02560 | 4,453 | 10,312 | |||||||||||||||||
| Total | $ | 0.07680 | $ | 13,359 | $ | 30,965 | ||||||||||||||
_______________________________
FOOTNOTES:
(1)For the nine months ended September 30, 2025 and 2024, our net loss attributable to common stockholders was approximately $5.6 million and $9.5 million, respectively, while total cash distributions declared for each of the periods were approximately $13.4 million. For the nine months ended September 30, 2025 and 2024, 100% of cash distributions declared to stockholders were considered to be funded with cash provided by operating activities as calculated on a quarterly basis for GAAP purposes.
(2)Cash flows from operating activities calculated in accordance with GAAP are not necessarily indicative of the amount of cash available to pay distributions and as such our board of directors uses other measures such as FFO and MFFO in order to evaluate the level of distributions.
Results of Operations
We are not aware of other material trends or uncertainties, favorable or unfavorable, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from the operation of properties, other than those referred to in the risk factors identified in "Part II, Item 1A" of this report and the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2024.
The following discussion and analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto.
Quarter and nine months ended September 30, 2025 as compared to the quarter and nine months ended September 30, 2024
As of September 30, 2025 and 2024, excluding our vacant land, we owned 69 consolidated operating investment properties, respectively.
| Investment count as of September 30, | ||||||||||||||
| Consolidated operating investment types: | 2025 | 2024 | ||||||||||||
| Seniors housing leased | 15 | 15 | ||||||||||||
| Seniors housing managed | 54 | 54 | ||||||||||||
| 69 | 69 | |||||||||||||
Rental Income and Related Revenues.Rental income and related revenues were approximately $7.6 million and $21.4 million for the quarter and nine months ended September 30, 2025, respectively, as compared to approximately $6.9 million and $20.5 million for the quarter and nine months ended September 30, 2024, respectively. The increase in revenue during the quarter and nine months ended September 30, 2025 as compared to the quarter and nine months ended September 30, 2024 was primarily due to the new leases executed in May 2025 with one tenant related to 13 properties as well as percentage rent recognized during the quarter and nine months ended September 30, 2025.
Resident Fees and Services.Resident fees and services income was approximately $91.7 million and $270.9 million for the quarter and nine months ended September 30, 2025, respectively, as compared to approximately $85.9 million and $252.2 million for the quarter and nine months ended September 30, 2024, respectively. The increase in revenue during the quarter and nine months ended September 30, 2025, as compared to the quarter and nine months ended September 30, 2024, was primarily due to an increase in average occupancy and increases in rates charged to our residents.
Property Operating Expenses. Property operating expenses were approximately $66.4 million and $195.2 million for the quarter and nine months ended September 30, 2025, respectively, as compared to approximately $62.6 million and $181.8 million for the quarter and nine months ended September 30, 2024, respectively. Property operating expenses increased during the quarter and nine months ended September 30, 2025, as compared to the quarter and nine months ended September 30, 2024, primarily due to an increase in average occupancy.
General and Administrative Expenses. General and administrative expenses were approximately $2.5 million and $7.1 million for the quarter and nine months ended September 30, 2025, respectively, as compared to approximately $1.8 million and $6.3 million for the quarter and nine months ended September 30, 2024, respectively. General and administrative expenses were comprised primarily of personnel expenses of affiliates of our Advisor, directors' and officers' insurance, franchise taxes, sales taxes, accounting and legal fees, and board of director fees.
Asset Management Fees. We incurred asset management fees of approximately $3.5 million and $10.4 million for the quarter and nine months ended September 30, 2025, respectively, as compared to approximately $3.3 million and $10.0 million for the quarter and nine months ended September 30, 2024, respectively.
Property Management Fees. We incurred property management fees payable to our third-party property managers of approximately $4.5 million and $13.4 million for the quarter and nine months ended September 30, 2025, respectively, as compared to approximately $4.3 million and $12.4 million for the quarter and nine months ended September 30, 2024, respectively. The property management fees are based on a percentage of revenues under the property management agreement and the increase across periods is reflective of the increase in average occupancy and resident fees and service revenue over the same period as described above.
Depreciation and Amortization. Depreciation and amortization expenses were approximately $12.9 million and $38.8 million for the quarter and nine months ended September 30, 2025, respectively, as compared to approximately $12.6 million and $37.8 million for the quarter and nine months ended September 30, 2024, respectively. Depreciation and amortization expenses are comprised of depreciation and amortization of the buildings, equipment, land improvements and in-place leases related to our real estate portfolio. The increase during the nine months ended September 30, 2025 was due to increased capital purchases made to maintain and improve our properties.
Interest Expense and Loan Cost Amortization. Interest expense and loan cost amortization were approximately $10.9 million and $33.0 million for the quarter and nine months ended September 30, 2025, respectively, as compared to approximately $11.5 million and $34.6 million for the quarter and nine months ended September 30, 2024, respectively. The decrease in interest expense and loan cost amortization was primarily due to a decline in weighted average debt outstanding and a decline in interest rates in the latter part of 2024.
Net Operating Income
We generally expect to meet future cash needs for general and administrative expenses, debt service and distributions from NOI. We define NOI, a non-GAAP measure, as total revenues less the property operating expenses and property management fees from managed properties. We use NOI as a key performance metric for internal monitoring and planning purposes, including the preparation of annual operating budgets and monthly operating reviews, as well as to facilitate analysis of future investment and business decisions. It does not represent cash flows from operating activities in accordance with GAAP and should not be considered to be an alternative to net income or loss (determined in accordance with GAAP) as an indication of our operating performance or to be an alternative to cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity. We believe the presentation of this non-GAAP measure is important to the understanding of our operating results for the periods presented because it is an indicator of the return on property investment and provides a method of comparing property performance over time. We aggregate NOI on a "same store" basis for comparable properties that we have owned during the entirety of all periods presented. The chart below presents a reconciliation of our net income to NOI for the quarter and nine months ended September 30, 2025 and 2024 (in thousands) and the amount invested in properties as of September 30, 2025 and 2024 (in millions):
| Quarter Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||
| September 30, | Change | September 30, | Change | |||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | $ | % | 2025 | 2024 | $ | % | |||||||||||||||||||||||||||||||||||||||||||
| Net loss | $ | (1,578) | $ | (3,155) | $ | (5,638) | $ | (9,468) | ||||||||||||||||||||||||||||||||||||||||||
| Adjusted to exclude: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | 2,537 | 1,841 | 7,054 | 6,251 | ||||||||||||||||||||||||||||||||||||||||||||||
| Asset management fees | 3,452 | 3,337 | 10,393 | 10,011 | ||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 12,901 | 12,619 | 38,810 | 37,785 | ||||||||||||||||||||||||||||||||||||||||||||||
| Other expense | 10,825 | 11,171 | 32,585 | 33,619 | ||||||||||||||||||||||||||||||||||||||||||||||
| Income tax expense | 181 | 125 | 497 | 363 | ||||||||||||||||||||||||||||||||||||||||||||||
| Same Store NOI | $ | 28,318 | $ | 25,938 | $ | 2,380 | 9.2 | % | $ | 83,701 | $ | 78,561 | $ | 5,140 | 6.5 | % | ||||||||||||||||||||||||||||||||||
| Invested in operating properties, end of period (in millions) | $ | 1,740 | $ | 1,739 | $ | 1,740 | $ | 1,739 | ||||||||||||||||||||||||||||||||||||||||||
Overall, our NOI for the nine months ended September 30, 2025 increased by approximately $5.1 million as compared to the nine months ended September 30, 2024. NOI increased primarily due to an increase in average occupancy and increases in rates charged to our residents during the nine months ended September 30, 2025, partially offset by higher operating expenses.
Funds from Operations and Modified Funds from Operations
Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts, ("NAREIT") promulgated a measure known as funds from operations ("FFO"), which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to net income or loss as determined under GAAP.
We define FFO, a non-GAAP measure, consistent with the standards approved by the Board of Governors of NAREIT. NAREIT defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property, real estate asset impairment write-downs, plus depreciation and amortization of real estate related assets, and after adjustments for unconsolidated partnerships and joint ventures. Our FFO calculation complies with NAREIT's policy described above.
The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or is requested or required by lessees for operational purposes in order to maintain the value of the property. We believe that, because real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization, provides a more complete understanding of our performance to investors and to management, and when compared year over year, 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 or loss. However, FFO and MFFO, as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or loss in its applicability in evaluating operating performance. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO.
Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses for business combinations from a capitalization/depreciation model) to an expensed-as-incurred model that were put into effect in 2009, and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT's definition of FFO, have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed under GAAP and accounted for as operating expenses. Our management believes these fees and expenses do not affect our overall long-term operating performance. Publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start up entities may also experience significant acquisition activity during their initial years, we believe that non-listed REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after acquisition activity ceases. Due to the above factors and other unique features of publicly registered, non-listed REITs, the IPA has standardized a measure known as modified funds from operations ("MFFO") which the IPA has recommended as a supplemental measure for publicly registered non-listed REITs and which we believe to be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT. MFFO is not equivalent to our net income or loss as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended. We believe that because MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO and also excludes acquisition fees and expenses that affect our operations only in periods in which properties are acquired, 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 after the period in which we acquired our properties and once our portfolio is in place. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry.
We define MFFO, a non-GAAP measure, consistent with the IPA's Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: MFFO, or the Practice Guideline, issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of GAAP net income or loss: acquisition fees and expenses; amounts relating to deferred rent receivables and amortization of above and below market leases and liabilities (which are adjusted from a GAAP accrual basis in order to reflect such payments on a cash basis of amounts expected to be received for such lease and rental payments); contingent purchase price consideration adjustments; accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income or loss; 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; and unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income or loss in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized.
Our MFFO calculation complies with the IPA's Practice Guideline described above. In calculating MFFO, we exclude acquisition related expenses. Under GAAP, acquisition fees and expenses are characterized as operating expenses in determining operating net income or loss. These expenses are paid in cash by us. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property.
Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other non-listed REITs which have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate in this manner. We believe that our use of MFFO and the adjustments used to calculate it allow us to present our performance in a manner that reflects certain characteristics that are unique to non-listed REITs, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence that the use of such measures is useful to investors. For example, acquisition costs are funded from our subscription proceeds and other financing sources and not from operations.
By excluding expensed acquisition costs, the use of MFFO provides information consistent with management's analysis of the operating performance of the properties.
Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different non-listed REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way and as such comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flows available to fund cash needs and should not be considered as an alternative to net income (or loss) or income (or loss) from continuing operations as an indication of our performance, as an alternative to cash flows from operations, as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. MFFO is useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods.
Neither the SEC, NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments we use to calculate FFO or MFFO. In the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO.
The following table presents a reconciliation of net income to FFO and MFFO for the quarter and nine months ended September 30, 2025 and 2024 (in thousands, except per share data):
| Quarter Ended | Nine Months Ended | |||||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||
| Net loss attributable to common stockholders | $ | (1,578) | $ | (3,174) | $ | (5,638) | $ | (9,511) | ||||||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||
| Depreciation and amortization | 12,901 | 12,619 | 38,810 | 37,785 | ||||||||||||||||||||||
|
FFO adjustments attributable to noncontrolling interests(1)
|
- | (12) | - | (36) | ||||||||||||||||||||||
| FFO attributable to common stockholders | 11,323 | 9,433 | 33,172 | 28,238 | ||||||||||||||||||||||
|
Straight-line rent adjustments(2)
|
143 | 513 | 1,153 | 1,331 | ||||||||||||||||||||||
|
Realized loss on extinguishment of debt(3)
|
- | - | 56 | - | ||||||||||||||||||||||
| MFFO adjustments attributable to noncontrolling interests | - | - | - | (1) | ||||||||||||||||||||||
| MFFO attributable to common stockholders | $ | 11,466 | $ | 9,946 | $ | 34,381 | $ | 29,568 | ||||||||||||||||||
|
Weighted average number of shares of common stock outstanding (basic and diluted) |
173,942 | 173,942 | 173,942 | 173,942 | ||||||||||||||||||||||
| Net loss per share (basic and diluted) | $ | (0.01) | $ | (0.02) | $ | (0.03) | $ | (0.05) | ||||||||||||||||||
| FFO per share (basic and diluted) | $ | 0.06 | $ | 0.05 | $ | 0.19 | $ | 0.16 | ||||||||||||||||||
| MFFO per share (basic and diluted) | $ | 0.07 | $ | 0.06 | $ | 0.20 | $ | 0.17 | ||||||||||||||||||
______________________________
FOOTNOTES:
(1)On November 1, 2024, we acquired the remaining 5% noncontrolling interest in our consolidated joint venture from our co-venture partner and currently own a 100% interest in this joint venture. We no longer have any noncontrolling interests.
(2)Under GAAP, rental receipts are allocated to periods using various methodologies. This may result in income or expense recognition that is significantly different than underlying contract terms. By adjusting for these items (from a GAAP accrual basis in order to reflect such payments on a cash basis of amounts expected to be received for such lease and rental payments), MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments, providing insight on the contractual cash flows of such lease terms and debt investments, and aligns results with management's analysis of operating performance.
(3)Management believes that adjusting for the realized loss on the extinguishment of debt, hedges or other derivatives is appropriate because the adjustments are not reflective of our ongoing operating performance and, as a result, the adjustments better align results with management's analysis of operating performance.
Related Party Transactions
See Item 1. "Condensed Consolidated Financial Information" and our Annual Report on Form 10-K for the year ended December 31, 2024 for a summary of our related party transactions.
Critical Accounting Policies and Estimates
See Item 1. "Condensed Consolidated Financial Information" and our Annual Report on Form 10-K for the year ended December 31, 2024 for a summary of our critical accounting policies and estimates. There were no material changes to our critical accounting policies and estimates during the quarter ended September 30, 2025.
Recent Accounting Pronouncements
See Item 1. "Condensed Consolidated Financial Information" for a summary of the impact of recent accounting pronouncements.
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