National Healthcare Properties Inc.
11/05/2025 | Press release | Distributed by Public on 11/05/2025 15:58
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of National Healthcare Properties, Inc. and the notes thereto. As used herein, the terms the "Company," "we," "our" and "us" refer to National Healthcare Properties, Inc., a Maryland corporation, including, as required by context, National Healthcare Properties Operating Partnership, LP (our "OP"), a Delaware limited partnership, and its subsidiaries. Prior to consummation of the Internalization (as defined below), the Company was externally managed by Healthcare Trust Advisors, LLC (the "Advisor"), a Delaware limited liability company. Capitalized terms used herein, but not otherwise defined, have the meaning ascribed to those terms in "Part I - Financial Information" included in the notes to the consolidated financial statements and contained herein.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains "forward-looking statements," as that term is defined under the Private Securities Litigation Reform Act of 1995 ("PSLRA"), Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements include statements regarding the intent, belief or current expectations of the Company and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects," "plans,", "projects," "potential," "predicts," "intends," "would," "could," "should" or similar expressions, although not all forward-looking statements contain these identifying words. Actual results may differ materially from those contemplated by such forward-looking statements. We believe these forward-looking statements are reasonable; however, you should not place undue reliance on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law. We intend that all forward-looking statements be subject to the safe-harbor provisions of the PSLRA.
These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of our control, which could cause actual results to differ materially from the results contemplated by the forward-looking statements. These risks and uncertainties include the risks associated with the internalization of our property management and advisory functions; the geopolitical instability due to the ongoing military conflicts between Russia and Ukraine, including related impact on us, our tenants, operators and the global economy and financial markets; the increased economic and political uncertainties due to the tariffs imposed by, or imposed on, the United States and its trading relationships; and that our ongoing or potential future transactions are subject to market conditions and capital availability and may not be identified or completed on favorable terms, or at all. Some of the additional risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements are set forth in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2024, in Part II - Other Information, Item IA - Risk Factors of this Quarterly Report on Form 10-Q and as described from time to time in our other filings with the Securities and Exchange Commission.
Overview
We are a real estate investment trust ("REIT") for U.S. federal income tax purposes. We acquire, own and manage a diversified portfolio of healthcare-related real estate focused on outpatient medical facilities ("OMFs") and senior housing operating properties ("SHOPs"). As of September 30, 2025, we owned 174 properties (including one land parcel and one property classified as held-for-sale) located in 30 states and comprised of 7.3 million rentable square feet.
Substantially all of our business is conducted through the OP and its wholly-owned subsidiaries. Prior to consummation of the Internalization on September 27, 2024, our former Advisor managed our day-to-day business with the assistance of our property manager, Healthcare Trust Properties, LLC (the "Property Manager"); the former Advisor and Property Manager were under common control with AR Global Investments, LLC (the "Advisor Parent") and these related parties received compensation and fees for providing services to us. In connection with the Internalization, we internalized our advisory and property management functions with our own dedicated workforce; the Property Manager became our wholly-owned subsidiary as a result of the Internalization (See Note 1 - Organizationand Note 9 - Related Party Transactions and Arrangementsto our consolidated financial statements in this Quarterly Report on Form 10-Q).
We operate in two reportable business segments for management and financial reporting purposes: OMFs and SHOPs. All of our properties across both business segments are located throughout the United States. In our OMF operating segment, we own, manage and lease single- and multi-tenant OMFs where tenants are generally required to pay their pro rata share of property operating expenses, which may be subject to expense exclusions and floors, in addition to base rent. Our Property Manager or third-party managers manage our OMFs. In our SHOP segment, we invest in seniors housing properties through the REIT Investment Diversification and Empowerment Act of 2007 structure. As of September 30, 2025, we had four eligible independent contractors operating 39 SHOPs.
We declared and issued quarterly dividends entirely in shares of our common stock from October 2020 through January 2024. We do not intend to declare any further stock dividends in the future.
On March 26, 2025, we published a new Estimated Per-Share NAV equal to $32.15 as of December 31, 2024. The Estimated Per-Share NAV has not been adjusted since publication and will not be adjusted until our board of directors ("Board") determines a new Estimated Per-Share NAV. We intend to publish Estimated Per-Share NAV periodically at the discretion of the Board, provided that such estimates will be made at least once annually unless and until we list our common stock.
Reverse Stock Split
Effective September 30, 2024, we effected a reverse stock split of our common stock (the "Reverse Stock Split"). Upon the effectiveness of the Reverse Stock Split, every four shares of our issued and outstanding common stock automatically combined and reclassified into one issued and outstanding share of common stock. All share and per share data in this Quarterly Report on Form 10-Q have been adjusted for all periods presented to reflect the Reverse Stock Split.
Significant Accounting Estimates and Critical Accounting Policies
For a discussion about our significant accounting estimates and critical accounting policies, see the "Significant Accounting Estimates and Critical Accounting Policies" section of our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on February 27, 2025. Except for those required by new accounting pronouncements discussed below, there have been no material changes from these significant accounting estimates and critical accounting policies.
Recently Issued Accounting Pronouncements
See Note 2 - Summary of Significant Accounting Policies - Recently Issued Accounting Pronouncementsto our consolidated financial statements in this Quarterly Report on Form 10-Q for further discussion.
Properties
The following table presents certain additional information about the properties we owned as of September 30, 2025:
| Portfolio |
Number of Properties |
Rentable Square Feet |
Percentage Leased (1)
|
Weighted Average Remaining
Lease Term in Years (2)
|
Gross Asset Value (3)
|
|||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
| OMF Segment | 133 | 3,771,395 | 90.6% | (5) | 5.5 | $ | 1,165,275 | |||||||||||||||||||||||||
| SHOP Segment | 41 | (4) | 3,538,285 | 84.9% | (5) | N/A | 1,043,136 | |||||||||||||||||||||||||
| Total Portfolio | 174 | 7,309,680 | $ | 2,208,411 | ||||||||||||||||||||||||||||
________
(1)Percentage leased as of September 30, 2025.
(2)Weighted-average remaining lease term in years is calculated based on square feet as of September 30, 2025.
(3)Gross asset value represents total real estate investments, at cost ($2.2 billion total as of September 30, 2025) net of gross market lease intangible liabilities ($19.9 million total as of September 30, 2025). Cumulative impairment charges are reflected within gross asset value.
(4)Includes one parcel of land. As of September 30, 2025, we had 3,730 rentable units in our SHOP segment. The SHOP segment excludes one vacant SHOP property.
(5)Percentage leased for the OMF segment is presented as of the end of the period shown; percentage leased for the SHOP segment represents occupancy as of the end of the period shown.
Results of Operations
Comparison of the Three Months Ended September 30, 2025 and 2024
Net loss attributable to common stockholders was $15.9 million and $44.1 million, respectively, for the three months ended September 30, 2025 and 2024. The following table shows our results of operations for the three months ended September 30, 2025 and 2024 and the period to period change by line item of the consolidated statements of operations:
| Three Months Ended September 30, | Increase (Decrease) | |||||||||||||||||||
| (Dollars in thousands) | 2025 | 2024 | $ | |||||||||||||||||
| Revenue from tenants | $ | 86,026 | $ | 88,940 | $ | (2,914) | ||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Property operating and maintenance | 53,845 | 56,407 | (2,562) | |||||||||||||||||
| Impairment charges | 6,641 | 8,829 | (2,188) | |||||||||||||||||
|
Operating fees to related parties
|
- | 6,391 | (6,391) | |||||||||||||||||
|
Termination fees to related parties
|
- | 8,409 | (8,409) | |||||||||||||||||
| Acquisition and transaction related | 91 | 5,187 | (5,096) | |||||||||||||||||
| General and administrative | 5,671 | 5,502 | 169 | |||||||||||||||||
| Depreciation and amortization | 18,029 | 20,720 | (2,691) | |||||||||||||||||
| Total expenses | 84,277 | 111,445 | (27,168) | |||||||||||||||||
| Operating loss before loss on sale of real estate investments | 1,749 | (22,505) | 24,254 | |||||||||||||||||
|
Gain on sale of real estate investments
|
626 | 1,579 | (953) | |||||||||||||||||
|
Operating income (loss)
|
2,375 | (20,926) | 23,301 | |||||||||||||||||
|
Other expense:
|
||||||||||||||||||||
| Interest expense | (15,060) | (18,007) | 2,947 | |||||||||||||||||
|
Interest and other income
|
294 | 548 | (254) | |||||||||||||||||
|
Gain on non-designated derivatives
|
(77) | (2,384) | 2,307 | |||||||||||||||||
| Total other expenses | (14,843) | (19,843) | 5,000 | |||||||||||||||||
| Loss before income taxes | (12,468) | (40,769) | 28,301 | |||||||||||||||||
|
Income tax benefit
|
(66) | - | (66) | |||||||||||||||||
| Net loss | (12,534) | (40,769) | 28,235 | |||||||||||||||||
| Net loss attributable to non-controlling interests | (21) | 77 | (98) | |||||||||||||||||
| Allocation for preferred stock | (3,326) | (3,450) | 124 | |||||||||||||||||
| Net loss attributable to common stockholders | $ | (15,881) | $ | (44,142) | $ | 28,261 | ||||||||||||||
Segment Results - Outpatient Medical Facilities
The following table presents the revenue and property operating and maintenance expense and the period to period change within our OMF segment for the three months ended September 30, 2025 and 2024:
| Three Months Ended September 30, | Increase (Decrease) to NOI | |||||||||||||||||||||||||
| (in thousands) | 2025 | 2024 | $ | % | ||||||||||||||||||||||
| Revenue from tenants | $ | 29,022 | $ | 34,303 | $ | (5,281) | (15.4) | % | ||||||||||||||||||
| Less: Property operating and maintenance | 8,391 | 10,656 | (2,265) | (21.3) | % | |||||||||||||||||||||
| NOI | $ | 20,631 | $ | 23,647 | $ | (3,016) | (12.8) | % | ||||||||||||||||||
|
Number of Properties at September 30,
|
Ending Occupancy at September 30,
|
|||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||
| Total Portfolio | 133 | 153 | 90.6 | % | 90.5 | % | ||||||||||||||||||||
Revenue from tenants primarily reflects contractual rent received from tenants in our OMFs and operating expense reimbursements. These reimbursements generally increase in proportion with the increase in property operating and maintenance expenses in our OMF segment. Pursuant to many of our lease agreements in our OMFs, tenants are generally required to pay their pro rata share of property operating and maintenance expenses, which may be subject to expense exclusions and floors, certain capital expenditures, and salaries in addition to base rent. Property operating and maintenance expenses reflect the costs associated with our OMFs, including real estate taxes, utilities, repairs, maintenance and property management fees.
The OMF net operating income ("NOI") decrease for the three months ended September 30, 2025 over the same period in 2024 was primarily driven by OMF dispositions subsequent to September 30, 2024, which was partially offset by increased expense recovery from tenants (See Note 15 - Segment Reportingto our consolidated financial statements in this Quarterly Report on Form 10-Q for additional information on our presentation of NOI for the segments).
Segment Results - Seniors Housing Operating Properties
The following table presents the revenue and property operating and maintenance expenses and the period to period change within our SHOP segment for the three months ended September 30, 2025 and 2024:
| Three Months Ended September 30, | Increase (Decrease) to NOI | |||||||||||||||||||||||||
| (in thousands) | 2025 | 2024 | $ | % | ||||||||||||||||||||||
| Revenue from tenants | $ | 57,004 | $ | 54,637 | $ | 2,367 | 4.3 | % | ||||||||||||||||||
| Less: Property operating and maintenance | 45,454 | 45,751 | (297) | (0.6) | % | |||||||||||||||||||||
| NOI | $ | 11,550 | $ | 8,886 | $ | 2,664 | 30.0 | % | ||||||||||||||||||
|
Number of Properties at September 30,
|
Average Occupancy for the Three Months Ended September 30,
|
|||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||
|
Total Portfolio (1)
|
41 | 45 | 83.2 | % | 77.5 | % | ||||||||||||||||||||
(1)Includes one land parcel for both the three months ended September 30, 2025 and 2024.
Revenues from tenants within our SHOP segment are generated in connection with rent and services offered to residents depending on the level of care required, as well as fees associated with other ancillary services. Property operating and maintenance expenses relate to the costs associated with staffing to provide care for the residents in our SHOPs, as well as food, marketing, real estate taxes, management fees paid to our third-party operators and costs associated with maintaining the physical site.
The SHOP NOI increase for the three months ended September 30, 2025 over the same period in 2024 was primarily due to positive trends in revenue driven by occupancy gains and lower insurance expenses in 2025, which were partially offset by dispositions subsequent to September 30, 2024.
Other Results of Operations
Impairment Charges
We recorded $6.6 million of impairment charges during the three months ended September 30, 2025. This impairment was recorded to reduce the carrying value of two SHOPs and two OMFs to their estimated fair value.
We recorded $8.8 million of impairment charges during the three months ended September 30, 2024. This impairment was recorded to reduce the carrying value of a held-for-use OMF to its estimated fair value.
See Note 3- Real Estate Investments, Netto our consolidated financial statements in this Quarterly Report on Form 10-Q for additional information on the impairment charges.
Operating Fees to Related Parties
Prior to the consummation of the Internalization, our former Advisor and the Property Manager were paid for asset management and property management services for managing our properties on a day-to-day basis. Following the consummation of the Internalization, we are no longer paying the above-referenced fees to the related parties.
Operating fees to these related parties were $6.4 million for the three months ended September 30, 2024. No operating fees to related parties were incurred during the three months ended September 30, 2025 as a result of the Internalization.
See Note 9- Related Party Transactions and Arrangementsto our consolidated financial statements in this Quarterly Report on Form 10-Q which provides detail on our fees and expense reimbursements to our former Advisor.
Termination Fees to Related Parties
We recorded $8.4 millionof termination fees to related parties in the three months ended September 30, 2024 as a result of our termination of the advisory agreement with the former Advisor and our transition to self-management through the Internalization.
Acquisition and Transaction Related Expenses
Acquisition and transaction related expenses decreased by $5.1 millionto $0.1 million for the three months ended September 30, 2025 from $5.2 million for the three months ended September 30, 2024, primarily due to advisory, legal and other professional costs and non-recurring employee transition expenses directly related to the Internalization incurred in 2024.
General and Administrative Expenses
General and administrative expenses increased by $0.2 million to $5.7 million for the three months ended September 30, 2025 from $5.5 million for the three months ended September 30, 2024, primarily due to the stock-basedcompensation expense incurred in the three months ended September 30, 2025. This increase was partially offset by lower professional fees for the three months ended September 30, 2025.
See Note 11- Equity-Based Compensationto our consolidated financial statements in this Quarterly Report on Form 10-Q which provides detail on stock-based compensation.
Depreciation and Amortization Expenses
Depreciation and amortization expense decreased by $2.7 millionto $18.0 million for the three months ended September 30, 2025 from $20.7 million for the three months ended September 30, 2024. The decrease was primarily attributable to property dispositions subsequent to the third quarter of 2024.
Gain on Sale of Real Estate Investments
Gain on sale of real estate investments decreased by $1.0 million to $0.6 million for the three months ended September 30, 2025 from $1.6 million for the three months ended September 30, 2024, primarily due to the disposal of seven OMFs, one SHOP and one land parcel for an aggregate contract sales price of $79.3 million and an aggregate gain on sale of $1.6 million in 2024.
Interest Expense
Interest expense decreased by $2.9 million to $15.1 million for the three months ended September 30, 2025 from $18.0 million for the three months ended September 30, 2024. The decrease in interest expense was mainly due to lower average balances of our indebtedness during the three months ended September 30, 2025, as compared to the three months ended September 30, 2024.
Our interest expense in future periods will vary based on our level of future borrowings and the cost of borrowings, among other factors (including the impact of variable rates to the extent such borrowings are not hedged). Continued high interest rates may adversely impact the terms on which we may borrow in the future and thus our results of operations.
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 decreased by $0.3 million to $0.3 million for the three months ended September 30, 2025 from $0.5 million for the three months ended September 30, 2024. This decrease is due to excess insurance reimbursement in September 30, 2024, partially offset byhigher interest rates on, and balances of, our cash accounts during the three months ended September 30, 2025.
Gain (loss) on Non-Designated Derivatives
The gain (loss) in the three months ended September 30, 2025 and 2024 on non-designated derivative instruments related to interest rate caps that are designed to protect us from adverse interest rate changes in connection with our Fannie Mae Secured Debt, which have floating interest rates. The relevant amounts in each period represent the change in value and any cash received on the non-designated derivatives.
Income Tax Benefit
Income taxes generally relate to our SHOPs, which are leased to our TRS. We recorded an income tax benefit of approximately $0.1 million for the three months ended September 30, 2025. Income tax benefit for the three months ended September 30, 2024was not material.
Because of our TRS's recent operating history of losses and the adverse economic impacts from increases in the rate of inflation in recent years on the results of operations of our SHOP assets, we are not able to conclude that it is more likely than not we will realize the future benefit of our deferred tax assets; thus we have recorded a 100% valuation allowance on our net deferred tax assets through September 30, 2025. 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 loss.
Allocation for Preferred Stock Distributions
Allocation for preferred stock decreased by $0.1 million to $3.3 million for the three months ended September 30, 2025 from$3.5 million for the three months ended September 30, 2024. The decrease is due to repurchases of our preferred stock during the three months ended September 30, 2025.
Comparison of the Nine Months Ended September 30, 2025 and 2024
Net loss attributable to common stockholders was $45.1 million and $183.1 million, respectively, for the nine months ended September 30, 2025 and 2024. The following table shows our results of operations for the nine months ended September 30, 2025 and 2024 and the period to period change by line item of the consolidated statements of operations:
| Nine Months Ended September 30, | Increase (Decrease) | |||||||||||||||||||
| (in thousands) | 2025 | 2024 | ||||||||||||||||||
| Revenue from tenants | $ | 257,801 | $ | 266,056 | $ | (8,255) | ||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Property operating and maintenance | 165,880 | 166,557 | (677) | |||||||||||||||||
| Impairment charges | 33,752 | 11,498 | 22,254 | |||||||||||||||||
|
Operating fees to related parties
|
- | 19,181 | (19,181) | |||||||||||||||||
|
Termination fees to related parties
|
- | 106,650 | (106,650) | |||||||||||||||||
| Acquisition and transaction related | 639 | 5,686 | (5,047) | |||||||||||||||||
| General and administrative | 15,642 | 16,938 | (1,296) | |||||||||||||||||
| Depreciation and amortization | 60,274 | 63,386 | (3,112) | |||||||||||||||||
|
Total expenses
|
276,187 | 389,896 | (113,709) | |||||||||||||||||
|
Operating loss before gain/ (loss) on sale of real estate investments
|
(18,386) | (123,840) | 105,454 | |||||||||||||||||
|
Gain on sale of real estate investments
|
28,267 | 1,354 | 26,913 | |||||||||||||||||
|
Operating income (loss)
|
9,881 | (122,486) | 132,367 | |||||||||||||||||
| Other income (expense): | ||||||||||||||||||||
| Interest expense | (45,425) | (52,142) | 6,717 | |||||||||||||||||
|
Interest and other income
|
512 | 1,077 | (565) | |||||||||||||||||
| Gain on extinguishment of debt | 257 | - | 257 | |||||||||||||||||
|
(Loss) gain on non-designated derivatives
|
(46) | 449 | (495) | |||||||||||||||||
|
Total other expenses
|
(44,702) | (50,616) | 5,914 | |||||||||||||||||
| Loss before income taxes | (34,821) | (173,102) | 138,281 | |||||||||||||||||
| Income tax expense | (60) | (135) | 75 | |||||||||||||||||
| Net loss | (34,881) | (173,237) | 138,356 | |||||||||||||||||
|
Net (income) loss attributable to non-controlling interests
|
(44) | 529 | (573) | |||||||||||||||||
| Allocation for preferred stock | (10,162) | (10,350) | 188 | |||||||||||||||||
| Net loss attributable to common stockholders | $ | (45,087) | $ | (183,058) | $ | 137,971 | ||||||||||||||
Segment Results - Outpatient Medical Facilities
The following table presents the revenue and property operating and maintenance expense and the period to period change within our OMF segment for the nine months ended September 30, 2025 and 2024:
| Nine Months Ended September 30, |
Increase (Decrease) to NOI
|
|||||||||||||||||||||||||
| (in thousands) | 2025 | 2024 |
$
|
%
|
||||||||||||||||||||||
| Revenue from tenants | $ | 88,908 | $ | 103,573 | $ | (14,665) | (14.2) | % | ||||||||||||||||||
| Less: Property operating and maintenance | 28,219 | 30,083 | (1,864) | (6.2) | % | |||||||||||||||||||||
|
NOI
|
$ | 60,689 | $ | 73,490 | $ | (12,801) | (17.4) | % | ||||||||||||||||||
|
Number of Properties at September 30,
|
Ending Occupancy at September 30,
|
|||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||
|
Total Portfolio
|
133 | 153 | 90.6 | % | 90.5 | % | ||||||||||||||||||||
Revenue from tenants primarily reflects contractual rent received from tenants in our OMFs and operating expense reimbursements. These reimbursements generally increase in proportion with the increase in property operating and maintenance expenses in our OMF segment. Pursuant to many of our lease agreements in our OMFs, tenants are generally required to pay their pro rata share of property operating and maintenance expenses, which may be subject to expense exclusions and floors, certain capital expenditures, and salaries in addition to base rent. Property operating and maintenance expenses reflect the costs associated with our OMFs, including real estate taxes, utilities, repairs, maintenance and property management fees.
The OMF NOI decrease for the nine months ended September 30, 2025 over the same period in 2024 was primarily driven by OMF dispositions subsequent to September 30, 2024, which was partially offset by increased expense recovery from tenants.
Segment Results - Seniors Housing - Operating Properties
The following table presents the revenue and property operating and maintenance expense and the period to period change within our SHOP segment for the nine months ended September 30, 2025 and 2024:
| Nine Months Ended September 30, |
Increase (Decrease) to NOI
|
|||||||||||||||||||||||||
| (in thousands) | 2025 | 2024 |
$
|
%
|
||||||||||||||||||||||
| Revenue from tenants | $ | 168,893 | $ | 162,483 | $ | 6,410 | 3.9 | % | ||||||||||||||||||
| Less: Property operating and maintenance | 137,661 | 136,474 | 1,187 | 0.9 | % | |||||||||||||||||||||
|
NOI
|
$ | 31,232 | $ | 26,009 | $ | 5,223 | 20.1 | % | ||||||||||||||||||
|
Number of Properties at September 30,
|
Average Occupancy for the Nine Months Ended September 30,
|
|||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||
|
Total Portfolio (1)
|
41 | 45 | 81.0 | % | 76.4 | % | ||||||||||||||||||||
(1)Includes one land parcel for both the nine months ended September 30, 2025 and 2024,.
Revenues from tenants within our SHOP segment are generated in connection with rent and services offered to residents depending on the level of care required, as well as fees associated with other ancillary services. Property operating and maintenance expenses relate to the costs associated with staffing to provide care for the residents in our SHOPs, as well as food, marketing, real estate taxes, management fees paid to our third-party operators and costs associated with maintaining the physical site.
The SHOP NOI increase for the nine months ended September 30, 2025 over the same period in 2024 was primarily due to positive trends in revenue driven by occupancy gains and lower insurance expenses in 2025, which were partially offset by dispositions subsequent to September 30, 2024.
Other Results of Operations
Impairment Charges
We recorded $33.8 million of impairment charges during the nine months ended September 30, 2025 on five SHOPs and four OMFs. These properties were impaired to their contractual sales price as determined by their purchase and sale agreements or estimated fair value.
We recorded $11.5 million of impairment charges during the nine months ended September 30, 2024 on two OMFs and one SHOP which were disposed in the nine months ended September 30, 2024.
See Note 3- Real Estate Investments, Netto our consolidated financial statements in this Quarterly Report on Form 10-Q for additional information on the impairment charges for the nine months ended September 30, 2025 and 2024.
Operating Fees to Related Parties
Operating fees to these related parties were $19.2 million for the nine months ended September 30, 2024. No operating fees to related parties were incurred during the nine months ended September 30, 2025 as a result of the Internalization.
See Note 9- Related Party Transactions and Arrangementsto our consolidated financial statements in this Quarterly Report on Form 10-Q which provides detail on our fees and expense reimbursements to our former Advisor.
Termination Fees to Related Parties
We recorded $106.7 million of termination fees to related parties in the nine months ended September 30, 2024 as a result of our termination of the advisory agreement with the former Advisor and our transition to self-management through the Internalization.
Acquisition and Transaction Related Expenses
Acquisition and transaction related expenses decreased by $5.0 million to $0.6 million for the nine months ended September 30, 2025 compared to $5.7 million for the nine months ended September 30, 2024. The decrease is primarily due to advisory, legal and other professional costs and non-recurring employee transition expenses directly related to the Internalization incurred in 2024.
General and Administrative Expenses
General and administrative expenses decreased by $1.3 million to $15.6 million for the nine months ended September 30, 2025 compared to $16.9 million for the nine months ended September 30, 2024. The decrease in general and administrative expenses was primarily due to $0.7 million of severance payments incurred in the nine months ended September 30, 2024 made to employees of the former Advisor and lower professional fees in the nine months ended September 30, 2025. This was partially offset by the stock-basedcompensation incurred in the nine months ended September 30, 2025.
Depreciation and Amortization Expenses
Depreciation and amortization expense decreased by $3.1 millionto $60.3 million for the ninemonths ended September 30, 2025 as compared with $63.4 million for the ninemonths ended September 30, 2024. The decrease was primarily attributable to property dispositions subsequent to the third quarter of 2024, which was partly offset by amortization of deferred leasing commissions.
Gain on Sale of Real Estate Investments
During the ninemonths ended September 30, 2025, we disposed of 15 held-for-use OMFs and four SHOPs (three held-for-use and one held-for-sale) for an aggregate contract sales price of $191.6 million and recorded an an aggregate gain on sale of $28.3 million.
During the nine months ended September 30, 2024, we disposed of seven OMFs, two SHOPs and one land parcel for an aggregate contract sales price of $82.6 million and recorded an aggregate gain on sale of $1.4 million.
Interest Expense
Interest expense decreased by $6.7 million to $45.4 million for the nine months ended September 30, 2025 from $52.1 million for the nine months ended September 30, 2024. The decrease in interest expense was mainly due to lower average balances of our indebtedness nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024.
Our interest expense in future periods will vary based on our level of future borrowings and the cost of borrowings, among other factors (including the impact of variable rates to the extent such borrowings are not hedged). Continued high interest rates may adversely impact the terms on which we may borrow in the future and thus our results of operations.
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 decreased by $0.6 million to $0.5 million for the nine months ended September 30, 2025 from $1.1 million. This decrease is due to excess insurance reimbursement in September 30, 2024.
Gain on extinguishment of debt
We recorded a $0.3 million gain on extinguishment of debt the nine months ended September 30, 2025 in connection with the repayment of a loan prior to maturity relating to the sale of a property.
Gain on Non-Designated Derivatives
Gain on non-designated derivative instruments for the nine months ended September 30, 2025 and 2024 related to interest rate caps that are designed to protect us from adverse interest rate changes in connection with the Fannie Mae Secured Debt, which have floating interest rates.
Income Tax Expense
Income taxes generally relate to our SHOPs, which are leased to our TRS. We recorded an income tax expense of approximately $0.1 million for both nine months ended September 30, 2025 and 2024.
Allocation for Preferred Stock
Allocation for preferred stock decreased by$0.2 million to $10.2 million for the nine months ended September 30, 2025 from $10.4 million for the nine months ended September 30, 2024. The decrease is due to repurchases of our preferred stock during the nine months ended September 30, 2025.
Cash Flows
The following table presents a reconciliation of our net cash provided by operations from our net loss for the nine months ended September 30, 2025 and 2024:
| Nine Months Ended September 30, | Increase | |||||||||||||||||||
|
(in thousands)
|
2025 | 2024 | (Decrease) | |||||||||||||||||
| Cash, cash equivalents and restricted cash, beginning of period | $ | 74,095 | $ | 91,316 | $ | (17,221) | ||||||||||||||
| Net cash used in operating activities | (3,008) | (86,300) | 83,292 | |||||||||||||||||
| Net cash provided by investing activities | 73,137 | 58,563 | 14,574 | |||||||||||||||||
| Net cash (used in) provided by financing activities | (41,688) | 21,333 | (63,021) | |||||||||||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 102,536 | $ | 84,912 | $ | 17,624 | ||||||||||||||
Cash Flows from Operating Activities
Cash flows provided by operating activities increased by $83.3 million during the nine months ended September 30, 2025 compared to the same period in 2024, primarily due to payments to the former Advisor Parent including partial repayment of the promissory note issued in connection with the Internalization (the "Promissory Note") of $76.4 million in 2024.
Cash Flows from Investing Activities
Cash flows provided by investing activities increased by $14.6 million during the nine months ended September 30, 2025 compared to the same period in 2024, primarily due to proceeds from the sale of 15 held-for-use OMFs and four held-for-use SHOPs during the ninemonths ended September 30, 2025 and lower costs incurred relating to property acquisitions in 2025.
Cash Flows from Financing Activities
Cash flows used in financing activities decreased by $63.0 million during the nine months ended September 30, 2025 compared to the same period in 2024, primarily due to the incurrence of the $30.3 million balance on the Promissory Note in 2024, full repayment of the OMF Warehouse Facility for $21.7 million in 2025 and preferred stock repurchases of $4.5 million in 2025 under our preferred stock repurchase program discussed below.
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 distributions to holders of our Series A Preferred Stock and 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 to meet our financial obligations for at least the next twelve months.
Our future liquidity requirements and available liquidity, however, depend on many factors, such as recent and continuing increases in inflation, labor shortages, supply chain disruptions and higher property insurance, property tax and interest rates, all of which have and may continue to have adverse impacts on our results of operations and thus ultimately our liquidity. Moreover, these adverse impacts, as well as the increased economic and political uncertainties due to the ongoing wars in Ukraine, Israel and related sanctions and the tariffs imposed by, or imposed on, the United States and its trading relationships, may also adversely impact our tenants' and residents' ability to pay rent and thus our cash flows.
We expect to fund our future short-term operating liquidity requirements, including distributions to holders of Series A Preferred Stock and Series B Preferred Stock, through a combination of current cash on hand, net cash provided by our operating activities, net cash provided by our property dispositions (as discussed below) and potential new financings utilizing certain of our currently unencumbered properties.
As of September 30, 2025, we had $47.1 million of cash and cash equivalents. The Barclays OMF Loan Agreement requires us to maintain a minimum balance of cash and cash equivalents of $12.5 million at all times.
Internalization
Pursuant to the merger agreement dated August 6, 2024 (the "Internalization Agreement") effecting the Internalization, (i) the outstanding membership interests of the former Advisor were converted into the right to receive from us an internalization fee of $98.2 million and (ii) the former Advisor Parent received (x) an asset management fee of $5.5 million, representing the aggregate base management fee that we would have been required to pay to our former Advisor during the remaining three month notice period required to terminate the advisory agreement, and (y) a property management fee of $2.9 million, representing the aggregate management fees that we would have been required to pay to the Property Manager through the current term of the property management agreement, subject to certain other adjustments (collectively, the "Closing Payments" in an aggregate amount of $106.6 million). For more information regarding the Internalization, including the fees paid therewith, see Note 1- Organizationand Note 9- Related Party Transactions and Arrangementsto our consolidated financial statements in this Quarterly Report on Form 10-Q.
Following the Internalization, we are no longer required to pay asset management and property management fees to the former Advisor Parent.
Financings
As of September 30, 2025, our total debt leverage ratio (total debt divided by total gross asset value) was approximately 45.1%. Net debt totaled $1.0 billion, which represents gross debt ($1.0 billion) less cash and cash equivalents ($47.1 million). Gross asset value totaled $2.2 billion, which represents total real estate investments, at cost ($2.2 billion) net of gross market lease intangible liabilities ($19.9 million). Cumulative impairment charges are reflected within gross asset value.
As of September 30, 2025, we had total gross borrowings of $1.0 billion, at a weighted-average interest rate of 5.44% and a weighted-average remaining term of 3.5 years. The weighted-average interest rate includes the impact of "pay-fixed" swaps that are designated as hedging instruments on a portion of our variable-rate debt, but does not include the impact of our non-designated interest rate caps (discussed below). Inclusive of our non-designated interest rate caps, the weighted-average economic interest rate on our total gross borrowings was 5.11% as of September 30, 2025.
As of September 30, 2025, the carrying value of our real estate investments, at cost was $2.2 billion, with $1.2 billion of this asset value pledged as collateral for mortgage notes payable and $625.0 million of this asset value pledged to secure advances under our Fannie Mae and other secured debt. 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 and other secured debt, which would impact availability thereunder.
Unencumbered real estate investments, at cost as of September 30, 2025 was $418.9 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 September 30, 2025, we had $705.9 million in mortgage notes payable outstanding, all of which is either fixed-rate or effectively fixed through our interest rate swap at a weighted-average annual interest rate of 4.70% and a weighted-average remaining term of 4.6 years.
Fannie Mae and Other Secured Debt
As of September 30, 2025, $336.2 million was outstanding under our Fannie Mae and other secured debt, which bore interest at a weighted-average annual rate of 7.00% and had a weighted-average remaining term of 1.1 years. Inclusive of our non-designated interest rate caps, the weighted-average economic interest rate was 6.00% as of September 30, 2025.
In April 2025, we repaid the OMF Warehouse Facility in full in the amount of $21.7 million plus unpaid interest and terminated the facility.
Non-Designated Interest Rate Caps
Our interest rate caps are used to limit our exposure to interest rate movements on our Fannie Mae Secured Debt for economic purposes, however, we do not elect to apply hedge accounting to these instruments. As of September 30, 2025, we had six SOFR-based interest rate caps with an aggregate notional amount of $342.8 million, which limits one-month SOFR to 3.50% and have varying maturities through November 2026. Although these interest rate caps are not designated hedging instruments, we consider them economically related to our variable-rate secured debt.
As SOFR has increased beyond 3.50%, we received cash payments of $2.6 million in the nine months ended September 30, 2025. We received $5.4 million of cash payments in the nine months ended September 30, 2024.
In April 2025, we terminated two interest rate caps with a notional of $21.7 million.
In June 2025, we purchased three interest rate caps with a notional of $133.8 million for $1.1 million that limit one-month SOFR to 3.50% and mature in November 2026 related to the Fannie Mae Secured Debt. These interest rate caps were purchased in advance of interest rate caps set to expire.
In October 2025, we purchased two interest rate caps with a notional of $146.1 million for $0.4 million that limit one-month SOFR to 3.50% and mature in November 2026 related to the Fannie Mae Secured Debt. These interest rate caps were purchased in advance of interest rate caps set to expire.
Capital Expenditures
During the nine months ended September 30, 2025, our aggregate capital expenditures were $17.0 million. We anticipate our quarterly rate of capital expenditures for the OMF and SHOP segments throughout the remainder of 2025 to be relatively consistent with the prior quarters.
Dispositions - Three and Nine Months Ended September 30, 2025
We disposed of one held-for-sale SHOP during the three months ended September 30, 2025 for a contract sales price of $1.8 million. This disposition resulted in a gain on sale of $0.1 million, which is included in our consolidated statements of operations and comprehensive loss for the three months ended September 30, 2025.
We disposed of 15 held-for-use OMFs and four SHOPs (three held-for-use and one held-for-sale) during the ninemonths ended September 30, 2025 for an aggregate contract sales price of $191.6 million. These dispositions resulted in an aggregate gain on sale of $28.3 million, which is included in our consolidated statements of operations and comprehensive loss for the ninemonths ended September 30, 2025.
Dispositions - Subsequent to September 30, 2025
Subsequent to September 30, 2025, we disposed of one SHOP in Georgia for a contract sales price of $6.3 million. As of September 30, 2025, the SHOP was classified as held-for-sale.
Preferred Stock Repurchase Program
On May 2, 2025, our Board authorized a stock repurchase program for up to an aggregate amount of $50.0 million of our Series A Preferred Stock and Series B Preferred Stock. Under the program, which does not have a stated expiration date, we may repurchase shares of Series A Preferred Stock and Series B Preferred Stock from time to time through open market purchases, including pursuant to Rule 10b5-1 pre-set trading plans, block trades, privately negotiated transactions, accelerated share repurchase transactions entered into with one or more counterparties or otherwise, in compliance with applicable securities laws and other legal requirements. The timing, volume, and nature of repurchases are subject to market conditions, applicable securities laws and other factors, and the program may be amended, suspended or discontinued at any time. The program does not obligate us to repurchase any specific number of shares of Series A Preferred Stock and Series B Preferred Stock.
During the three months ended September 30, 2025, we repurchased and retired 74,713 shares of Series A Preferred Stock at an average price of $16.10 and 97,670 shares of Series B Preferred Stock at an average price of $16.03, inclusive of commissions. During the nine months ended September 30, 2025, we repurchased and retired 131,629 shares of Series A Preferred Stock at an average price of $15.39 and 163,883 shares of Series B Preferred Stock at an average price of $15.14, inclusive of commissions.
Non-GAAP Financial Measures
This section discusses certain of the non-GAAP financial measures we use to evaluate our performance, including Funds from Operations ("FFO") and Adjusted Funds from Operations ("AFFO"). A description of these non-GAAP financial measures and reconciliations to the most directly comparable GAAP measure, which is net loss attributable to common stockholders, are provided below.
We consider FFO and AFFO to be useful supplemental measures for reviewing comparative operating and financial performance because, by excluding the applicable items listed below, FFO and AFFO can help investors compare our operating performance between periods or as compared to other companies. While FFO and AFFO are relevant and widely used measures of operating performance of REITs, they do not represent, nor are they meant to replace, cash flows from operations and net income or loss as defined by GAAP, and should not be considered alternatives to those measures in evaluating our liquidity or operating performance. Rather, FFO and AFFO should be reviewed in conjunction with these and other GAAP measurements as an indication of our operational performance and are not necessarily indicative of cash available to fund our future cash requirements, including our ability to pay dividends and other distributions to our stockholders. Additionally, our computation of FFO and AFFO may not be comparable to FFO and AFFO reported by other REITs that do not define FFO in accordance with the current National Association of Real Estate Investment Trusts ("NAREIT") definition or that interpret the current NAREIT definition or define AFFO differently than we do.
The methods utilized to evaluate the performance of a publicly registered, non-listed REIT under GAAP should be construed as more relevant measures of operational performance and considered more prominently than the non-GAAP measures, FFO and AFFO, and the adjustments to GAAP in calculating FFO and AFFO.
Funds from Operations
Our consolidated financial statements are presented in accordance with GAAP, utilizing historical cost accounting which, among other things, requires depreciation of real estate investments. As a result, our operating results imply that the value of our real estate investments will decrease predictably over a set time period. However, we believe that the value of our real estate investments will fluctuate over time based on various market conditions and as such, depreciation under historical cost accounting may be less informative. FFO is a standard REIT industry metric defined by NAREIT as net income or loss (computed in accordance with GAAP), adjusted for (i) real estate-related depreciation and amortization, (ii) impairment charges on depreciable real property, (iii) gains or losses from sales of depreciable real property and (iv) similar adjustments for non-controlling interests and unconsolidated entities.
We believe that the use of FFO provides a more complete understanding of our operating 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 loss.
Adjusted Funds from Operations
We also believe that AFFO is a meaningful supplemental non-GAAP measure of our operating results. We calculate AFFO by further adjusting FFO to reflect the performance of our portfolio for items we believe are not directly attributable to our operations. We believe that AFFO is a beneficial indicator of our ongoing portfolio performance and isolates the financial results of our operations. Our adjustments to FFO to arrive at AFFO include removing the impacts of (i) acquisition and transaction related costs (including certain expenses directly related to the Internalization and the Reverse Stock-Split), (ii) amortization of market-lease intangible assets and liabilities, (iii) adjustments for straight-line rent, (iv) termination fees to related parties, (v) equity-based compensation expense, (vi) depreciation and amortization related to non-real estate related assets, (vii) mark-to-market gains and losses from our non-designated derivatives, (viii) non-cash components of interest expense, (ix) casualty-related charges, (x) gains or losses on extinguishment of debt and (xi) similar adjustments for non-controlling interests and unconsolidated entities. We believe that AFFO is a recognized measure of sustainable operating performance by the REIT industry and is useful in comparing the sustainability of our operating performance with the sustainability of the operating performance of other real estate companies.
The table below reflects the items deducted from or added to net loss attributable to stockholders in our calculation of FFO and AFFO for the periods indicated:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (In thousands) | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
|
Net loss attributable to common stockholders (in accordance with GAAP)
|
$ | (15,881) | $ | (44,142) | $ | (45,087) | $ | (183,058) | ||||||||||||||||||
| Depreciation and amortization related to real estate assets | 16,647 | 19,293 | 56,055 | 59,944 | ||||||||||||||||||||||
| Impairment charges | 6,641 | 8,829 | 33,752 | 11,498 | ||||||||||||||||||||||
|
(Gain) loss on sale of real estate investments
|
(626) | (1,579) | (28,267) | (1,354) | ||||||||||||||||||||||
|
Adjustments for non-controlling interests
|
(73) | (64) | (275) | (285) | ||||||||||||||||||||||
|
FFO (as defined by NAREIT) attributable to stockholders
|
6,708 | (17,663) | 16,178 | (113,255) | ||||||||||||||||||||||
|
(Amortization) accretion of market lease and other intangibles, net
|
(174) | (134) | 2,022 | (822) | ||||||||||||||||||||||
|
Straight-line rent adjustments
|
(753) | (458) | (2,411) | (360) | ||||||||||||||||||||||
|
Acquisition and transaction related (1)
|
91 | 5,187 | 639 | 5,686 | ||||||||||||||||||||||
|
Termination fees to related parties
|
- | 8,409 | - | 106,650 | ||||||||||||||||||||||
| Equity-based compensation | 1,333 | 153 | 1,903 | 613 | ||||||||||||||||||||||
| Depreciation and amortization on non-real estate assets | 1,382 | 1,427 | 4,218 | 3,442 | ||||||||||||||||||||||
|
Mark-to-market losses from derivatives (2)
|
911 | 4,224 | 2,655 | 4,956 | ||||||||||||||||||||||
|
Non-cash components of interest expense (3)
|
761 | 880 | 3,100 | 1,368 | ||||||||||||||||||||||
|
Adjustments for non-controlling interests
|
(10) | (91) | (42) | (540) | ||||||||||||||||||||||
|
Gain on extinguishment
|
- | - | (257) | - | ||||||||||||||||||||||
|
Casualty-related charges (4)
|
115 | 2 | 237 | 77 | ||||||||||||||||||||||
| AFFO attributable to stockholders | $ | 10,364 | $ | 1,936 | $ | 28,242 | $ | 7,815 | ||||||||||||||||||
_______
(1)Includes certain advisory, legal, accounting, information technology, tax and other professional expenses and other non-recurring employee transition expenses that were directly related to the Internalization and the Reverse Stock Split. We do not consider these expenses to be indicative of our performance given their unique and non-recurring nature.
(2)Presented as total gains or losses from our non-designated derivatives net of cash received.
(3)Non-cash components of interest expense include (i) deferred financing cost amortization, (ii) mortgage discount and premium amortization and (iii) amortized gains or losses from terminated hedging instruments.
(4)Includes labor, supplies and evacuation expenses from natural disasters not covered by insurance.
Dividends and Other Distributions
Distributions 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 holders of Series A Preferred Stock, which is equivalent to 7.375% of per annum in the $25.00 liquidation preference per share of Series A Preferred Stock. Distributions on our Series B Preferred Stock are declared quarterly in an amount equal to $1.78125 per share each year ($0.445313 per share per quarter) to holders of Series B Preferred Stock, which is equivalent to 7.125% of per annum in the $25.00 liquidation preference per share of Series B Preferred Stock. Distributions on the Series A Preferred Stock and 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 and declared by us.
Since mid-2020, we have not paid cash dividends on our shares of common stock but we issued stock dividends to the holders from October 2020 until January 2024. The stock dividends were declared quarterly using a rate of $3.40(as adjusted to reflect the Reverse Stock Split) per share per year. The number of shares issued with each dividend was based on the estimated per share asset value in effect on the applicable date. We do not intend to declare further stock dividends in the future.
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. The Board may reduce the amount of dividends or distributions paid or suspend dividend or distribution payments at any time and therefore dividend and distribution payments are not assured. Any accrued and unpaid distributions payable with respect to the Series A Preferred Stock or Series B Preferred Stock become part of the liquidation preference thereof.
The following table shows the sources for the payment of distributions to preferred stockholders, including distributions on unvested restricted shares and Common OP Units, but excluding distributions related to Class B Units as these distributions are recorded as an expense in our consolidated statements of operations and comprehensive loss, for the periods indicated. No cash distributions were made to common stockholders, restricted shareholders, holders of Common OP Units or holders of Class B Units in the three months ended September 30, 2025.
| Three Months Ended | Year-To-Date | |||||||||||||||||||||||||||||||||||||||||||||||||
| March 31, 2025 | June 30, 2025 | September 30, 2025 | September 30, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | Amounts | Percentage of Distributions | Amounts | Percentage of Distributions | Amounts | Percentage of Distributions | Amounts | Percentage of Distributions | ||||||||||||||||||||||||||||||||||||||||||
| Distributions: | ||||||||||||||||||||||||||||||||||||||||||||||||||
|
Distributions to holders of Series A Preferred Stock
|
$ | 1,834 | 52.4% | $ | 1,800 | 52.5% | $ | 1,776 | 52.6% | $ | 5,410 | 52.6% | ||||||||||||||||||||||||||||||||||||||
|
Distributions to holders of Series B Preferred Stock
|
1,616 | 46.2% | 1,584 | 46.2% | 1,552 | 46.1% | 4,752 | 46.1% | ||||||||||||||||||||||||||||||||||||||||||
| Distributions paid to holders of Series A Preferred Units | 47 | 1.4% | 46 | 1.3% | 46 | 1.4% | 139 | 1.3% | ||||||||||||||||||||||||||||||||||||||||||
| Total cash distributions | $ | 3,497 | 100.0% | $ | 3,430 | 100.0% | $ | 3,374 | 100.1% | $ | 10,301 | 100.0% | ||||||||||||||||||||||||||||||||||||||
| Source of distribution coverage: | ||||||||||||||||||||||||||||||||||||||||||||||||||
|
Cash flows used in operations (1)
|
$ | - | -% | $ | - | -% | $ | 3,374 | 100.0% | $ | - | -% | ||||||||||||||||||||||||||||||||||||||
|
Available cash on hand (2)
|
3,497 | 100.0% | 3,430 | 100.0% | - | -% | 10,301 | 100.0% | ||||||||||||||||||||||||||||||||||||||||||
| Total source of distribution coverage | $ | 3,497 | 100.0% | $ | 3,430 | 100.0% | $ | 3,374 | 100.0% | $ | 10,301 | 100.0% | ||||||||||||||||||||||||||||||||||||||
|
Cash flows used in operations (in accordance with GAAP)
|
$ | (21,229) | $ | (13,177) | $ | 31,398 | $ | (3,008) | ||||||||||||||||||||||||||||||||||||||||||
| Net loss (in accordance with GAAP) | $ | (1,515) | $ | (20,834) | $ | (12,534) | $ | (34,881) | ||||||||||||||||||||||||||||||||||||||||||
______
(1)Assumes the use of available cash flows from operations before any other sources.
(2)Cash available cash on hand also includes proceeds from property dispositions and additional secured financings and borrowings.
For the nine months ended September 30, 2025, cash flows used in operations were $3.0 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 distributions to holders of Series A Preferred Stock, Series B Preferred Stock and Series A Preferred Units with available cash on hand.
Our ability to pay distributions 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 but not limited to our ability to complete acquisitions of new properties and our ability to improve operations at our existing properties. There can be no assurance that we will complete acquisitions on a timely basis or on acceptable terms and conditions, if at all. 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.
Inflation
We may be adversely impacted by inflation on the leases with tenants in our OMF segment that do not contain indexed escalation provisions, or those leases which have escalations at rates which do not exceed or approximate current inflation rates. Recent increases in inflation, driven by factors such as labor shortages, supply chain disruptions, higher property insurance, property tax and interest rates and increased economic and political uncertainties due to the tariffs imposed by, or imposed on, the United States, have and may continue to have adverse impacts on our results of operations and our liquidity as well as our tenants' and residents' ability to pay rent. As of September 30, 2025, the increase to the 12-month Consumer Price Index for all items, as published by the Bureau of Labor Statistics, was 3.0%. To help mitigate the adverse impact of inflation, most of our leases with our tenants in our OMF segment contain rent escalation provisions which increase the cash that is due under these leases over time. 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). Although most of our leases with tenants in our OMF segment contain rent escalation provisions, these rates are generally below the current rate of inflation.
In addition to base rent, depending on the specific lease, OMF tenants are generally required to pay either (i) their pro rata share of property operating and maintenance expenses, which may be subject to expense exclusions and floors or (ii) their share of increases in property operating and maintenance expenses to the extent they exceed the properties' expenses for the base year of the respective leases. Property operating and maintenance expenses include common area maintenance costs, real estate taxes and insurance. Increased operating costs paid by our tenants under these net leases could have an adverse impact on our tenants if increases in their operating expenses exceed increases in their revenue, which may adversely affect our tenants' ability to pay rent owed to us or property expenses to be paid, or reimbursed to us, by our tenants. Renewals of leases or future leases for our net lease properties may not be negotiated on a triple-net basis or on a basis requiring the tenants to pay all or some of such expenses, in which event we may have to pay those costs. If we are unable to lease properties on a triple-net basis or on a basis requiring the tenants to pay all or some of such expenses, or if tenants fail to pay required tax, utility and other impositions, we could be required to pay those costs.
Leases with residents at our SHOPs typically do not have rent escalations, however, we are able to renew leases at market rates as they mature due to their short-term nature. As inflation rates increase or persist at high levels, the cost of providing medical care at our SHOPs, particularly labor costs, will increase. If we are unable to admit new residents or renew resident leases at market rates, while bearing these increased costs from providing services to our residents, our results of operations may be affected.
Related-Party Transactions and Agreements
See Note 9- Related Party Transactions and Arrangementsto our consolidated financial statements included in this Quarterly Report on Form 10-Q for a discussion of the various related party transactions, agreements and fees.
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