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What changed in American Healthcare REIT, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of American Healthcare REIT, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+565 added−740 removedSource: 10-K (2024-03-22) vs 10-K (2023-03-17)

Top changes in American Healthcare REIT, Inc.'s 2023 10-K

565 paragraphs added · 740 removed · 382 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

86 edited+23 added−68 removed91 unchanged
Biggest changeOn October 1, 2021, also pursuant to the Merger Agreement, Griffin-American Healthcare REIT IV Holdings, LP, a Delaware limited partnership and subsidiary and operating partnership of GAHR IV, or GAHR IV Operating Partnership, merged with and into Griffin-American Healthcare REIT III Holdings, LP, a Delaware limited partnership, or our operating partnership, with our operating partnership being the surviving entity, or the Partnership Merger.
Biggest changeOn October 1, 2021, Griffin-American Healthcare REIT III, Inc., or GAHR III, merged with and into a wholly-owned subsidiary, or Merger Sub, of Griffin-American Healthcare REIT IV, Inc., or GAHR IV, with Merger Sub being the surviving company, which we refer to as the REIT Merger, and our operating partnership, Griffin-American Healthcare REIT IV Holdings, LP, merged with and into Griffin-American Healthcare REIT III Holdings, LP, or the Surviving Partnership, with the Surviving Partnership being the surviving entity, which we refer to as the Partnership Merger and, together with the REIT Merger, the Merger.
We seek to invest in properties associated with strong health systems and operators, that provide exceptional care, have dominant market share and/or are critical to the healthcare delivery system in the communities that they serve. • Quality.
We seek to invest in properties that are associated with strong health systems and operators, provide exceptional care, have dominant market share and/or are critical to the healthcare delivery system in the communities that they serve. • Quality.
We seek to acquire properties that are suitable for their intended use with a quality of construction that is capable of sustaining the property’s investment potential for the long-term, assuming funding of budgeted maintenance, repairs and capital improvements. • Location.
We seek to acquire properties that are suitable for their intended use with a quality of construction that is capable of sustaining the property’s long-term investment potential, assuming funding of budgeted maintenance, repairs and capital improvements. • Location.
However, we will not make or invest in any loans that are subordinate to any mortgage or equity interest of any of our directors, or any of our affiliates. We also may invest in participations in mortgage loans. Second mortgage loans are secured by second deeds of trust on real property that is already subject to prior mortgage indebtedness.
However, we will not make or invest in any loans that are subordinate to any mortgage or equity interest of any of our directors or affiliates. We also may invest in participations in mortgage loans. Second mortgage loans are secured by second deeds of trust on real property that is already subject to prior mortgage indebtedness.
The benefits of the refinancing may include increased cash flows resulting from reduced debt service requirements, an increase in distributions from proceeds of the refinancing, and an increase in diversification and assets owned if all or a portion of the refinancing proceeds are reinvested.
The benefits of refinancing may include increased cash flows resulting from reduced debt service requirements, an increase in distributions from proceeds of the refinancing and an increase in diversification and assets owned if all or a portion of the refinancing proceeds are reinvested.
Private, federal and state payment programs and the effect of other laws and regulations may also have a significant impact on the ability of our tenants and operators to compete successfully for patients and residents at the properties. For additional information on the risks associated with our business, please see Item 1A, Risk Factors.
Private, federal and state payment programs and the effect of other laws and regulations may also have a significant impact on the ability of our tenants and operators to compete successfully for patients and residents at our properties. For additional information on the risks associated with our business, please see Item 1A, Risk Factors.
Compliance with such laws and regulations may require us, among other things, to conduct additional risk analysis, modify our risk management plan, implement new policies and procedures and conduct additional training.
Compliance with such laws and regulations may require us to, among other things, conduct additional risk analysis, modify our risk management plan, implement new policies and procedures and conduct additional training.
A mezzanine loan is a loan made in respect of certain real property but is secured by a lien on the ownership interests of the entity that, directly or indirectly, owns the real property. A bridge loan is short term financing, for an individual or business, until permanent or the next stage of financing can be obtained.
A mezzanine loan is a loan made in respect of certain real property but is secured by a lien on the ownership interests of the entity that, directly or indirectly, owns the real property. A bridge loan is short-term financing for an individual or business, until the next stage of financing can be obtained.
We focus on local or regional markets that have potential for stable and growing property level cash flows over the long-term. These determinations are based in part on an evaluation of local and regional economic, demographic and regulatory factors affecting the property.
We focus on local or regional markets that have potential for stable and growing property level cash flows in the long term. These determinations are based in part on an evaluation of local and regional economic, demographic and regulatory factors affecting the property.
Real Estate-Related Investments In addition to our acquisition of properties, we have invested on an infrequent and opportunistic basis and may continue to invest, in real estate-related investments, including loans and securities investments. Investment in Real Estate Mortgages We have invested, and we may continue to invest, in first and second mortgage loans, mezzanine loans and bridge loans.
Real Estate-Related Investments In addition to our acquisition of properties, we have invested on an infrequent and opportunistic basis, and may continue to invest, in real estate-related investments, including loans and securities investments. Investments in Real Estate Mortgages We have invested, and we may continue to invest, in first and second mortgage loans, mezzanine loans and bridge loans.
We seek to structure any such sale-leaseback transaction such that the lease will be characterized as a “true lease” and so that we will be treated as the owner of the property for U.S. federal income tax purposes.
We seek to structure any such sale-leaseback transaction such that the lease will be characterized as a “true lease” and we will be treated as the owner of the property for U.S. federal income tax purposes.
We generally seek to acquire real estate of the types described above that will best enable us to meet our investment objectives, taking into account, among other things, the diversification of our portfolio at the time, relevant real estate and financial factors, the location, the income-producing capacity and the prospects for long-range appreciation of a particular property.
We generally seek to acquire real estate of the types described above that will best enable us to meet our investment objectives, taking into account, among other things, the diversification of our portfolio at the time, relevant real estate and financial factors, location, income-producing capacity and the prospects for long-term appreciation of a particular property.
If our investments produce sufficient cash flows, we expect to continue paying distributions to our stockholders as determined at the discretion of our board of directors.
If our investments produce sufficient cash flows, we expect to continue paying distributions to our stockholders as determined at the discretion of our board.
We did not establish any limit on the amount of net proceeds from the initial offering or borrowings that may be used to fund distributions, except that, in accordance with our organizational documents and Maryland law, we may not make distributions that would: (i) cause us to be unable to pay our debts as they become due in the usual course of business; or (ii) cause our total assets to be less than the sum of our total liabilities plus senior liquidation preferences.
We did not establish any limit on the amount of net proceeds from the initial offering or 9 Table of Contents borrowings that may be used to fund distributions, except that, in accordance with our organizational documents and Maryland law, we may not make distributions that would: (i) cause us to be unable to pay our debts as they become due in the usual course of business; or (ii) cause our total assets to be less than the sum of our total liabilities plus senior liquidation preferences.
Within our portfolio, we work with tenants and operators to implement energy efficiency wherever possible, including light-emitting diode (known as LED) retrofitting and water conservation efforts. We follow a policy of monitoring our properties for the presence of hazardous or toxic substances.
Within our portfolio, we work with tenants and operators to implement energy efficiency wherever possible, including light-emitting diode (known as LED) retrofitting and water conservation efforts. In addition, we follow a policy of monitoring our properties for the presence of hazardous or toxic substances.
Geographic Concentration For a discussion of our geographic information, see Item 2, Properties — Geographic Diversification/Concentration Table, as well as Note 19, Segment Reporting, and Note 20, Concentration of Credit Risk, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.
Geographic Concentration For a discussion of our geographic information, see Item 2, Properties — Geographic Diversification/Concentration Table, as well as Note 18, Segment Reporting, and Note 19, Concentration of Credit Risk, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.
We seek to acquire properties that are located in established or otherwise appropriate markets, with access and visibility suitable to meet the needs of its occupants. In addition to United States properties, we may also seek to acquire international properties that meet our investment criteria. • Market; Supply and Demand.
We seek to acquire properties that are located in established or otherwise appropriate markets, with access and visibility suitable to meet the needs of their occupants. In addition to United States properties, we also may seek to acquire international properties that meet our investment criteria. • Market; Supply and Demand.
Integrated senior health campuses predominantly focus on needs-driven segments of senior care (i.e., assisted living, memory care and skilled nursing) and charge market rents in lieu of entry fees, as is commonly the case with continuing care retirement communities.
Integrated senior health campuses predominantly focus on need-driven segments of senior care (i.e., assisted living, memory care and skilled nursing) and charge market rents in lieu of entry fees, as is commonly the case with continuing care retirement communities.
See Note 13, Redeemable Noncontrolling Interests, and Note 14, Equity – Noncontrolling Interests in Total Equity, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion of the ownership in our operating partnership.
See Note 12, Redeemable Noncontrolling Interests, and Note 13, Equity — Noncontrolling Interests in Total Equity, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion of the ownership in our operating partnership.
In addition, as of March 17, 2023, we also owned a real estate-related debt investment purchased for $60,429,000. Our principal executive offices are located at 18191 Von Karman Avenue, Suite 300, Irvine, California 92612, and our telephone number is (949) 270-9200. We maintain a web site at www.americanhealthcarereit.com, at which there is additional information about us.
In addition, as of March 22, 2024, we also owned a real estate-related debt investment purchased for $60,429,000. Our principal executive offices are located at 18191 Von Karman Avenue, Suite 300, Irvine, California 92612, and our telephone number is (949) 270-9200. We maintain a web site at www.americanhealthcarereit.com, at which there is additional information about us.
See Note 14, Equity, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion of our public offerings.
See Note 13, Equity, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion of our public offerings.
We have built a fully-integrated management platform, with approximately 113 employees, that operates clinical healthcare properties throughout the United States, the United Kingdom, and the Isle of Man.
We have built a fully-integrated management platform, with approximately 110 employees, that operates clinical healthcare properties throughout the United States, the United Kingdom and the Isle of Man .
The number and mix of properties and real estate-related investments we will acquire will depend upon real estate and market conditions and other circumstances existing at the time we are acquiring our properties and making our investments and the amount of debt financing available. Real Estate Investments We generally seek investments that produce current income.
The number and mix of properties and real estate-related investments we will acquire will depend upon real estate and market conditions and other circumstances existing at the time we are acquiring our properties and making our investments and the amount of debt financing available. 5 Table of Contents Real Estate Investments We generally seek investments that produce current income.
See Part II, Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Distributions, for a further discussion of distributions approved by our board. Competition We compete with many other entities engaged in real estate investment activities for acquisitions and dispositions of MOBs, hospitals, SNFs, senior housing and other healthcare-related facilities.
See Part II, Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Distributions, for a further discussion of distributions approved by our board. Competition We compete with many other entities engaged in real estate investment activities for acquisitions and dispositions of OM buildings, SNFs, senior housing and other healthcare-related facilities.
SNF residents are generally higher acuity and need assistance with eating, bathing, dressing and/or medication management and also require available 24-hour nursing 16 Table of Contents care. SNFs offer restorative, rehabilitative and custodial nursing care for people who cannot live independently but do not require the more extensive and sophisticated treatment available at hospitals.
SNF residents are generally higher acuity and need assistance with eating, bathing, dressing and/or medication management and also require available 24-hour nursing care. SNFs offer restorative, rehabilitative and custodial nursing care for people who cannot live independently but do not require the more extensive and sophisticated treatment available at hospitals.
See Note 4, Business Combinations — 2021 Business Combinations, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion of the Merger and the AHI Acquisition.
See Note 1, Organization and Description of Business, and Note 4, Business Combinations — 2021 Business Combinations, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion of the Merger and the AHI Acquisition.
When interest rates are high or financing is otherwise unavailable on a timely basis, we may purchase certain assets for cash with the intention of obtaining debt financing at a later time.
When interest rates are high or financing is otherwise unavailable on a timely basis, we may purchase certain assets for cash with the intention of obtaining 8 Table of Contents debt financing at a later time.
Requirements 13 Table of Contents pertaining to such licensure and certification relate to the quality of care provided by the operator, qualifications of the operator’s staff and continuing compliance with applicable laws and regulations. In addition, CON laws and regulations may place restrictions on certain activities such as the addition of beds at our facilities and changes in ownership.
Requirements pertaining to such licensure and certification relate to the quality of care provided by the operator, qualifications of the operator’s staff and continuing compliance with applicable laws and regulations. In addition, CON laws and regulations may place restrictions on certain activities such as the addition of beds/units at our facilities and changes in ownership.
A property or real estate-related investment may be sold before the end of the expected holding period if: (i) diversification benefits exist associated with disposing of the investment and rebalancing our investment portfolio; (ii) an opportunity arises to pursue a more attractive investment; (iii) the value of the investment might decline; (iv) with respect to properties, a major tenant involuntarily liquidates or is in default under its lease; (v) the investment was acquired as part of a portfolio acquisition and does not meet our general acquisition criteria; (vi) an opportunity exists to enhance overall investment returns by raising capital through sale of the investment; (vii) the sale of the investment is in the best interest of our stockholders; or (viii) in connection with the strategic goals of one of our joint ventures.
A property or real estate-related investment may be sold before the end of the expected holding period if: (i) diversification benefits exist associated with disposing of the investment and rebalancing our investment portfolio; (ii) an opportunity arises to pursue a more attractive investment; (iii) the value of the investment might decline; (iv) with respect to properties, a major tenant involuntarily liquidates or is in default under its lease; (v) the investment was acquired as part of a portfolio acquisition and does not meet our general acquisition criteria; (vi) an opportunity exists to enhance overall investment returns by raising capital through sale of the investment; or (vii) the sale of the investment is in our best interest and the best interests of our stockholders.
Our real estate investments may also include: • hospitals; • long-term acute care facilities; • surgery centers; • memory care facilities; • specialty medical and diagnostic service facilities; 8 Table of Contents • laboratories and research facilities; • pharmaceutical and medical supply manufacturing facilities; and • offices leased to tenants in healthcare-related industries, including life sciences.
Our real estate investments may also include: • hospitals; • long-term acute care facilities; • surgery centers; • memory care facilities; • specialty medical and diagnostic service facilities; • laboratories and research facilities; • pharmaceutical and medical supply manufacturing facilities; and • offices leased to tenants in healthcare-related industries, including life sciences.
In such an event, our TRS will engage a third party in the business of operating healthcare-related facilities to manage the property. Through our TRS, we bear all operational risks and liabilities associated with the operation of such healthcare-related facilities unlike our triple-net leased properties.
In such an event, our TRS will 6 Table of Contents engage a third party in the business of operating healthcare-related facilities to manage the property. Through our TRS, we bear operational risks and liabilities associated with the operation of such healthcare-related facilities unlike our triple-net leased properties.
However, there can be no assurance we would not be required to alter one or more of our systems and data security procedures to be in compliance with these laws.
However, there can be no assurance we would not be required to alter one or more of our systems and data security 10 Table of Contents procedures to be in compliance with these laws.
These properties are similar to commercial office buildings, but typically require specialized infrastructure to accommodate a medical use (e.g., physicians’ offices and examination rooms, as well as some ancillary uses, including pharmacies, hospital ancillary service space and outpatient services, such as diagnostic centers, rehabilitation clinics and outpatient-surgery operating rooms).
These properties are similar to commercial office buildings, but typically require specialized infrastructure to accommodate physicians’ offices and examination rooms, as well as some ancillary uses, including pharmacies, hospital ancillary service space and outpatient services, such as diagnostic centers, rehabilitation clinics and outpatient-surgery operating rooms.
Governance W e believe maintaining a rigorous corporate governance framework is essential to the success of our organization, and we seek to adhere to policies and procedures that ensure transparency, accountability, oversight, and risk minimization.
Governance W e believe maintaining a rigorous corporate governance framework is essential to the success of our organization, and we seek to adhere to policies and procedures that ensure transparency, accountability, oversight and risk minimization across all levels of our company.
For a further discussion of our segment reporting for the years ended December 31, 2022, 2021 and 2020, see Item 2, Properties, Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Note 19, Segment Reporting, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K. 17 Table of Contents
For a further discussion of our segment reporting for the years ended December 31, 2023, 2022 and 2021, see Item 2, Properties, Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Note 18, Segment Reporting, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K. 14 Table of Contents
We expect our real estate investments to include: • MOBs; • integrated senior health campuses; • senior housing facilities; • SNFs; and • healthcare-related facilities operated utilizing a RIDEA structure.
We expect our real estate investments to include: • outpatient medical buildings; • integrated senior health campuses; • senior housing; • SNFs; and • healthcare-related facilities operated utilizing a RIDEA structure.
If we incur mortgage indebtedness, we will endeavor to obtain level payment financing, meaning that the amount of debt service payable would be substantially the same each year, although some mortgages are likely to provide for one large payment and we may incur floating or adjustable rate financing when our board determines it to be in our best interest. 11 Table of Contents Dispositions We have disposed, and may continue to dispose, of assets.
If we incur mortgage indebtedness, we will endeavor to obtain level payment financing, meaning that the amount of debt service payable would be substantially the same each year, although some mortgages are likely to provide for one large payment and we may incur floating or adjustable rate financing when our board determines it to be in our best interest.
Operating expenses typically include, but are not limited to, real estate and other taxes, utilities, insurance and building repairs, and other building operation and 9 Table of Contents management costs.
Operating expenses typically include, but are not limited to, real estate and other taxes, utilities, insurance and building repairs, and other building operation and management costs.
This includes committees of our board, comprised solely of independent directors, which oversee a wide range of matters such as financial reporting, executive compensation, ESG policies and conflict of interest related matters. We have structured our corporate governance in a manner we believe closely aligns our interests with those of our stockholders.
This includes numerous committees of our board, comprised solely of independent directors, which oversee a wide range of matters such as investment activities, executive compensation, ESG policies and conflict of interest related matters. 12 Table of Contents We have structured our corporate governance in a manner we believe closely aligns our interests with those of our stockholders.
Notable features of our corporate governance structure include the following: • our board is not classified and each of our directors is subject to election annually; • we have fully independent audit, compensation and nominating and corporate governance committees; • at least one of our directors qualifies as an “audit committee financial expert” under applicable SEC regulations and all members of the Audit Committee are financially literate in accordance with the NYSE listing rules and requirements; 15 Table of Contents • our board has opted out of the business combination statute in the MGCL (provided that such business combination is first approved by our board) and, pursuant to our bylaws, we have opted out of the control share acquisition statute in the MGCL; • we do not have a stockholder rights plan, and do not intend to adopt a stockholder rights plan in the future without (i) the approval of our stockholders or (ii) seeking ratification from our stockholders within 12 months of adoption of the plan if our board determines, in the exercise of the directors’ duties under applicable law, that it is in our best interests to adopt a rights plan without the delay of seeking prior stockholder approval; and • our Corporate Governance Guidelines adopted by our board require our directors and officers to own certain minimum amounts of our common stock.
Additionally, our charter provides that we may not elect to be subject to the provision of the MGCL that would permit us to classify our board, unless we receive prior approval from stockholders; • we have fully independent audit, compensation and nominating and corporate governance committees; • at least one of our directors qualifies as an “audit committee financial expert” under applicable SEC regulations, and all members of the Audit Committee are financially literate in accordance with the NYSE listing rules and requirements; • our board has opted out of the business combination statute in the MGCL (provided that such business combination is first approved by our board), and, pursuant to our bylaws, we have opted out of the control share acquisition statute in the MGCL; • we do not have a stockholder rights plan and do not intend to adopt a stockholder rights plan in the future without (i) the approval of our stockholders or (ii) seeking ratification from our stockholders within 12 months of adoption of the plan if our board determines, in the exercise of the directors’ duties under applicable law, that it is in our best interests to adopt a rights plan without the delay of seeking prior stockholder approval; and • our Corporate Governance Guidelines adopted by our board require our directors and officers to own certain minimum amounts of our common stock.
Company American Healthcare REIT, Inc., a Maryland corporation, is a leading internally-managed real estate investment trust, or REIT, that owns a diversified portfolio of clinical healthcare real estate properties, focusing primarily on medical office buildings, or MOBs, senior housing, skilled nursing facilities, or SNFs, hospitals and other healthcare-related facilities.
Company American Healthcare REIT, Inc., a Maryland corporation, is a self-managed real estate investment trust, or REIT, that acquires, owns and operates a diversified portfolio of clinical healthcare real estate properties, focusing primarily on outpatient medical buildings, senior housing, skilled nursing facilities, or SNFs, and other healthcare-related facilities.
As a result, we measure our success not only by our ability to generate profits but also our ability to reduce our impact on the environment, affect positive social change in our community and conduct our operations in accordance with the highest ethical standards. To achieve this, we are developing a comprehensive ESG strategy and related ESG policy.
As a result, we measure our success not only by our ability to generate profits but also our ability to reduce our impact on the environment, affect positive social change in our community and conduct our operations in accordance with the highest ethical standards.
Healthcare Licensure and Certification Generally, certain properties in our portfolio are subject to licensure, may require a certificate of need, or CON, or other certification through regulatory agencies in order to operate and participate in Medicare and Medicaid programs.
See Item 1C, Cybersecurity, below for a further discussion. Healthcare Licensure and Certification Generally, certain properties in our portfolio are subject to licensure, may require a certificate of need, or CON, or other certification through regulatory agencies in order to operate and participate in Medicare and Medicaid programs.
Our MOBs are typically multi-tenant properties leased to healthcare providers (hospitals and physician practices) under leases that generally provide for recovery of certain operating expenses and certain capital expenditures and have initial terms of five to 10 years with fixed annual rent escalations.
Our OM buildings are typically multi-tenant properties leased to healthcare providers (hospitals and physician practices) under leases that generally provide for recovery of certain operating expenses and certain capital expenditures and have initial terms of five to 10 years with fixed annual rent escalations (historically ranging from 2% to 3% per year).
We believe that we have been organized and operated, and we intend to continue to operate, in conformity with the requirements for qualification and taxation as a REIT under the Code. Merger of Griffin-American Healthcare REIT III, Inc. and Griffin-American Healthcare REIT IV, Inc.
We believe that we have been organized and operated, and we intend to continue to operate, in conformity with the requirements for qualification and taxation as a REIT under the Code.
We commonly structure senior housing — leased assets under a single master lease covering multiple facilities in order to diversify our master tenant’s sources of rent and mitigate risk. Hospitals As of December 31, 2022, we have one wholly-owned hospital and one hospital in which we own an approximately 90.6% interest.
Such assets are commonly leased under a single master lease covering multiple facilities in order to diversify a master tenant’s sources of rent and mitigate risk. As of December 31, 2023, we have one wholly-owned hospital and one hospital in which we own an approximately 90.6% interest within our triple-net leased properties segment.
We collectively refer to the REIT Merger and the Partnership Merger as the Merger. Following the Merger on October 1, 2021, our company, or the Combined Company, was renamed American Healthcare REIT, Inc. and our operating partnership, also referred to as the surviving partnership, was renamed American Healthcare REIT Holdings, LP.
Following the Merger on October 1, 2021, our company was renamed American Healthcare REIT, Inc. and the Surviving Partnership was renamed American Healthcare REIT Holdings, LP, or our operating partnership.
In evaluating prospective loan investments, we consider factors, including, but not limited to: (i) the ratio of the investment amount to the underlying property’s value; (ii) current and projected cash flows of the property; (iii) the degree of liquidity of the investment; (iv) the quality, experience and creditworthiness of the borrower; and (v) in the case of mezzanine loans, the ability to acquire the underlying real property.
In evaluating prospective loan investments, we consider factors, including, but not limited to: (i) the ratio of the investment amount to the underlying property’s value; (ii) current and projected cash flows of the property; (iii) the degree of liquidity of the investment; (iv) the quality, experience and creditworthiness of the borrower; and (v) in the case of mezzanine loans, the ability to acquire the underlying real property. 7 Table of Contents Our criteria for making or investing in loans are substantially the same as those involved in our investment in properties.
For example, we promote the use of electronic communication over printing whenever possible and have implemented electronic approval systems. Our corporate office in California is located in Leadership in Energy and Environmental Design (known as LEED) certified buildings.
In addition, we encourage all of our employees to adopt sustainable best practices. For example, we promote the use of electronic communication over printing whenever possible and have implemented electronic approval systems. Our corporate office in California is located in a Leadership in Energy and Environmental Design (known as LEED) certified building.
Our criteria for making or investing in loans are substantially the same as those involved in our investment in properties. We do not intend to make loans to other persons, to underwrite securities of other issuers or to engage in the purchase and sale of any types of investments other than those relating to real estate.
We do not intend to make loans to other persons, to underwrite securities of other issuers or to engage in the purchase and sale of any types of investments other than those relating to real estate.
We will determine whether a particular property or real estate-related investment should be sold or otherwise disposed of after consideration of the relevant factors, including prevailing economic conditions, with a view toward maximizing our investment objectives. We intend to hold each property or real estate-related investment we acquire for an extended period.
Dispositions We have disposed, and may continue to dispose, of assets. We will determine whether a particular property or real estate-related investment should be sold or otherwise disposed of after consideration of the relevant factors, including prevailing economic conditions, with a view toward maximizing our investment objectives.
Integrated senior health campuses are a valuable component of our portfolio because of their ability to provide a continuum of care as residents require increasing levels of care. MOBs As of December 31, 2022, we owned 104 MOBs that we lease to third parties.
Integrated Senior Health Campuses Integrated senior health campuses are a valuable component of our portfolio because of their ability to provide a continuum of care as residents require increasing levels of care. As of December 31, 2023, we owned and/or operated 125 integrated senior health campuses.
To the extent that any of our distributions exceed our current and accumulated earnings and profits, such amounts constitute a return of capital to our stockholders for U.S. federal income tax purposes, to the extent of their basis in their stock and thereafter will constitute capital gain.
To the extent that any of our distributions exceed our current and accumulated earnings and profits, such amounts constitute a return of capital to our stockholders for U.S. federal income tax purposes and thereafter will constitute capital gain. Any portion of distributions to our stockholders paid from net offering proceeds or borrowings will be treated in the same manner.
AHI Acquisition Also on October 1, 2021, immediately prior to the consummation of the Merger, GAHR III acquired a newly formed entity, American Healthcare Opps Holdings, LLC, or NewCo, which we refer to as the AHI Acquisition, pursuant to a contribution and exchange agreement dated June 23, 2021, or the Contribution Agreement, between GAHR III; our operating partnership; American Healthcare Investors, LLC, or AHI; Griffin Capital Company, LLC, or Griffin Capital; Platform Healthcare Investor T-II, LLC; Flaherty Trust; and Jeffrey T.
Also on October 1, 2021, immediately prior to the consummation of the Merger, GAHR III acquired a newly formed entity, American Healthcare Opps Holdings, LLC, which we refer to as the AHI Acquisition, pursuant to a contribution and exchange agreement dated June 23, 2021. Following the Merger and the AHI Acquisition, our company became self-managed.
Business Objectives and Growth Strategies Our business objectives are to grow our cash flows, maintain financial flexibility, increase the value of our portfolio, make regular cash distributions to our stockholders, and generate risk-adjusted returns through the following growth strategies: • capture embedded growth from COVID-19 recovery through leasing and expense controls at our senior housing facilities, integrated senior health campuses and SNFs; • external growth through disciplined and targeted acquisitions to expand our diversified portfolio; • continue to develop integrated senior health campuses through experienced development partner (i.e., Trilogy); and • provide sustained stability through consistent MOB performance with opportunity for revenue growth driven by occupancy gains and improving mark-to-market lease spreads.
Business Objectives and Growth Strategies Our business objectives are to grow our earnings and cash flows, maintain financial flexibility, increase the value of our portfolio, make regular cash distributions to our stockholders and generate attractive risk-adjusted returns through the following growth strategies: • external growth through disciplined and targeted acquisitions to expand our diversified portfolio; • continue to develop integrated senior health campuses through experienced development partners (i.e., Trilogy); 4 Table of Contents • provide sustained stability through consistent outpatient medical building performance with the opportunity for revenue growth driven by occupancy gains and improving lease spreads; and • actively position our balance sheet for growth.
Because the factors considered, including the specific weight we place on each factor, will vary for each prospective loan investment, we do not, and are not able to, assign a specific weight or level of importance to any particular factor. 10 Table of Contents We will evaluate all potential loan investments to determine if the security for the loan and the loan-to-value ratio meets our investment criteria and objectives.
Because the factors considered, including the specific weight we place on each factor, will vary for each prospective loan investment, we do not, and are not able to, assign a specific weight or level of importance to any particular factor.
All of our employees are provided with a comprehensive benefits and wellness package, which may include high-quality medical, dental, and vision insurance, life insurance, 401(k) matching, long-term incentive plans, educational grants, fitness programs, and other benefits.
Because of this, we have implemented a number of programs to foster not only their professional growth, but also their growth as global citizens. All of our employees are provided with a comprehensive benefits and wellness package, which may include high-quality medical, dental, and vision insurance, life insurance, 401(k) matching, long-term incentive plans, educational grants, fitness programs and other benefits.
Further, we are not aware of any material environmental liability or any unasserted claim or assessment with respect to an environmental liability that we believe would require additional disclosure or the recording of a loss contingency. 14 Table of Contents Social Human Capital Resources A s of December 31, 2022, we had approximately 113 employees.
Further, we are not aware of any material environmental liability or any unasserted claim or assessment with respect to an environmental liability that we believe would require additional disclosure or the recording of a loss contingency.
Integrated Senior Health Campuses As of December 31, 2022, we owned and/or operated 120 integrated senior health campuses. These facilities allow residents to “age-in-place” by providing independent living, assisted living, memory care, skilled nursing and certain ancillary services, all within a single campus setting.
These facilities allow residents to “age-in-place” by providing independent living, assisted living, memory care, skilled nursing and certain ancillary services, all within a single campus setting.
Our SHOP segment has the potential for embedded growth through the ongoing recovery from the COVID-19 pandemic and demand growth from an aging U.S. population. Senior Housing — Leased As of December 31, 2022, we owned 20 senior housing facilities that we lease to third parties within our senior housing — leased segment.
Senior Housing Operating Properties Our SHOP segment has the potential for embedded growth through the ongoing recovery from the COVID-19 pandemic and demand growth from an aging U.S. population. As of December 31, 2023, we owned and operated an aggregate 55 senior housing and skilled nursing facilities in our SHOP segment.
Residents of assisted living facilities typically require limited medical care but need assistance with eating, bathing, dressing and/or medication management. Services provided by operators at these facilities are primarily paid for by the residents directly or through private insurance and are therefore less reliant on government reimbursement programs, such as Medicaid and Medicare.
Services provided by operators at these facilities are primarily paid for by the residents directly or through private insurance and are therefore less reliant on government reimbursement programs, such as Medicaid and Medicare.
Health and Safety W e are committed to providing a safe and healthy workplace. We continuously strive to meet or exceed compliance with all laws, regulations and accepted practices pertaining to workplace safety. All employees and contractors are required to comply with established safety policies, standards and procedures.
We continuously strive to meet or exceed compliance with all laws, regulations and accepted practices pertaining to workplace safety. All employees and contractors are required to comply with established safety policies, standards and procedures. Our focus is on promoting employee health and safety and ensuring business continuity.
Item 1. Business. The use of the words “we,” “us” or “our” refers to Griffin-American Healthcare REIT III, Inc., or GAHR III, and its subsidiaries, including Griffin-American Healthcare REIT III Holdings, LP, for periods prior to the Merger, as defined below, and American Healthcare REIT, Inc.
Item 1. Business. The use of the words “we,” “us” or “our” refers to American Healthcare REIT, Inc. and its subsidiaries, including American Healthcare REIT Holdings, LP, except where otherwise noted.
Services provided by operators and tenants in our hospitals are paid for by private sources, third-party payors (e.g., insurance and health maintenance organizations) or through the Medicare and Medicaid programs. Our hospital properties include acute care, long-term acute care, specialty and rehabilitation services and are leased to single tenants or operators under triple-net lease structures.
Services provided by operators and tenants in our hospitals are paid for by private sources, third-party payors (e.g., insurance and health maintenance organizations) or through the Medicare and Medicaid programs.
Investment Strategy We have acquired, and may continue to acquire, properties either directly or jointly with third parties. We have disposed, and may continue to dispose, non-core properties from time to time to improve the quality of our portfolio .
Investment Strategy We have acquired, and may continue to acquire, properties either directly or jointly with third parties and may also consider disposing of, non-core properties from time to time outright or in joint ventures .
We make such investment determinations based upon a variety of factors, including the anticipated risk-adjusted returns for such properties when compared with other available properties, the appropriate diversification of the portfolio and our objectives of realizing both current income and capital appreciation. 7 Table of Contents We seek to grow our cash flows, maintain financial flexibility, increase the value of our portfolio, make regular cash distributions, and generate risk-adjusted returns for our stockholders through the business objectives and growth strategies discussed above.
We make such investment determinations based upon a variety of factors, including the anticipated risk-adjusted returns for such properties when compared with other available properties, the appropriate diversification of our portfolio and our objectives of realizing both current income and capital appreciation.
The facilities in our SHOP segment are operated utilizing RIDEA structures, allowing us to participate in the upside from any improved operational performance but requiring us to bear the risk of any decline in operating performance.
The facilities in our SHOP segment are operated utilizing RIDEA structures, allowing us to participate in the upside from any improved operational performance while bearing the risk of any decline in operating performance. Triple-Net Leased Properties Our triple-net leased properties segment includes senior housing, skilled nursing facilities and hospitals.
We monitor our operations and our assets on an ongoing basis in order to ensure that neither we, nor any of our subsidiaries, meet the definition of “investment company” under Section 3(a)(1) of the Investment Company Act. Among other things, we monitor the proportion of our portfolio that is placed in investments in securities.
We anticipate that our assets generally will be held in our wholly and majority-owned subsidiaries, each formed to hold a particular asset. We monitor our operations and our assets on an ongoing basis in order to ensure that neither we, nor any of our subsidiaries, meet the definition of “investment company” under Section 3(a)(1) of the Investment Company Act.
However, if we were required to make significant expenditures under applicable regulations, we could be materially and adversely affected. Privacy and Security Laws and Regulations There are various federal and state privacy laws and regulations that provide for consumer protection of personal health information, particularly electronic security and privacy.
Privacy and Security Laws and Regulations There are various federal and state privacy laws and regulations that provide for consumer protection of personal health information, particularly electronic security and privacy.
We believe, based in part on third-party due diligence reports which are generally obtained at the time we acquire the properties, that all of our properties comply in all material respects with current regulations or are currently being remediated pursuant to a government approved plan.
We believe, based in part on third-party due diligence reports which are generally obtained at the time we acquire the properties, that all of our properties comply in all material respects with current regulations. However, if we were required to make significant expenditures under applicable regulations, we could be materially and adversely affected.
At our headquarters, we leverage the latest technology to minimize our energy use, such as efficient and automated lighting systems, moderation, and monitoring of heating and air conditioning, and recycling paper, plastics, metals, and electronics. In addition, we encourage all of our employees to adopt sustainable best practices.
We strive to consciously manage our operations in a way that minimizes our impact 11 Table of Contents on the environment and promotes sustainability. At our headquarters, we leverage the latest technology to minimize our energy use, such as efficient and automated lighting systems, moderation, and monitoring of heating and air conditioning, and recycling paper, plastics, metals, and electronics.
The facilities are leased to a single tenant under a triple-net lease structure with approximately 12 to 15 year initial terms and fixed annual rent escalations and require minimum lease coverage ratios.
Each facility is leased to a single tenant under a triple-net lease structure with an initial term typically ranging from approximately 12 to 15 years, fixed annual rent escalations (historically ranging from 2% to 3% per year) and requiring minimum lease coverage ratios.
We have also substantially reduced employee travel to only essential business needs in favor of ongoing video-based meetings. For our healthcare-related facilities operated pursuant to a RIDEA structure, which include our SHOP and integrated senior health campuses, we rely on each management company to attract and retain skilled personnel to provide services at our healthcare-related facilities.
As part of such efforts, we have maintained a telecommuting policy, providing our people with valued flexibility. For our healthcare-related facilities operated pursuant to a RIDEA structure, which include our SHOP and integrated senior health campuses, we rely on each management company to attract and retain skilled personnel to provide services at our healthcare-related facilities.
Environmental In 2022, we launched our ESG program and began conducting a materiality assessment to assist us in prioritizing our efforts and maximizing the efficacy of our program. We strive to consciously manage our operations in a way that minimizes our impact on the environment and promotes sustainability.
Environmental Responsibility Protecting the environment and pursuing strong environmental initiatives are integral to our company’s business. In 2022, we launched our ESG program and began conducting a materiality assessment to assist us in prioritizing our efforts and maximizing the efficacy of our program.
We provide our employees, consultants and executive officers with competitive compensation and, where applicable, opportunities for equity ownership through our Amended and Restated 2015 Incentive Plan, or the AHR Incentive Plan. See Note 14, Equity — AHR 2015 Incentive Plan, to the Consolidated Financial Statements that are part of this Annual Report on Form 10-K, for a further discussion.
We provide our employees, consultants and executive officers with competitive compensation and, where applicable, opportunities for equity ownership through our Second Amended and Restated 2015 Incentive Plan, or the AHR Incentive Plan.
Hanson, the non-executive Chairman of our board of directors, or our board, Danny Prosky, our Chief Executive Officer and President, and Mathieu B. Streiff, one of our directors, or collectively, the AHI Principals.
Hanson, the non-executive Chairman of our board of directors, or our board, Danny Prosky, our Chief Executive Officer, President and director, and Mathieu B. Streiff, one of our directors; Platform Healthcare Investor TII, LLC; Flaherty Trust; and a wholly-owned subsidiary of Griffin Capital Company, LLC.
However, circumstances might arise which could result in a shortened holding period for certain investments.
We intend to hold each property or real estate-related investment we acquire for an extended period. However, circumstances might arise which could result in a shortened holding period for certain investments.
Nearly all of our integrated senior health campuses are operated utilizing a RIDEA structure, allowing us to participate in the upside from any improved operational performance and bear the risk of any decline in operating performance.
Predominantly all of our integrated senior health campuses are operated utilizing a RIDEA structure, allowing us to participate in the upside from any improved operational performance while bearing the risk of any decline in operating performance. 13 Table of Contents Outpatient Medical We value the stable and reliable cash flows our OM buildings provide our company, which we believe are particularly valuable during market disruptions and recessionary periods.
Information About Industry Segments We segregate our operations into reporting segments in order to assess the performance of our business in the same way that management reviews our performance and makes operating decisions. As of December 31, 2022, we operated through six reportable business segments — integrated senior health campuses, MOBs, SNFs, SHOP, senior housing — leased and hospitals.
Among other things, we monitor the proportion of our portfolio that is placed in investments in securities. Information About Industry Segments We segregate our operations into reporting segments in order to assess the performance of our business in the same way that management reviews our performance and makes operating decisions.
Skilled nursing services provided by our tenants in SNFs are paid for either by private sources or through the Medicare and Medicaid programs. Our SNFs are leased to a single tenant under a triple-net lease, typically with 12 to 15 year initial terms, fixed annual rent escalations and require minimum lease coverage ratios.
Skilled nursing services provided by our tenants in SNFs are paid for either by private sources or through the Medicare and Medicaid programs.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIf we do not have access to sufficient funding on favorable terms in the future, we may not be able to acquire, and make necessary capital improvements to, properties, pay other expenses, or expand our business when desired, or at all, which could have a material adverse effect on us.
Biggest changeIf we do not have access to sufficient funding on favorable terms in the future, we may not be able to acquire new properties, make necessary capital improvements to our existing properties, pay other expenses, exercise our option to purchase the remaining 24.0% minority membership interest held by our joint venture partner in Trilogy REIT Holdings (the purchase price of which must include at least a minimum cash consideration as defined in Note 13, Equity — Noncontrolling Interests in Total Equity — Membership Interest in Trilogy REIT Holdings, or the Minimum Cash Consideration) or expand our business when desired, or at all, which would have a material adverse effect on us. 19 Table of Contents All of our integrated senior health campuses are managed by the Trilogy Manager and account for a significant portion of our revenues and operating income.
Therefore, a significant increase in inflation rates would have a material adverse impact on our financing costs and interest expense. We have long term lease agreements with our tenants that contain effective annual rent escalations that were either fixed or indexed based on a consumer price index or other index.
Therefore, a significant increase in inflation or interest rates would have a material adverse impact on our financing costs and interest expense. We have long-term lease agreements with our tenants that contain effective annual rent escalations that were either fixed or indexed based on a consumer price index or other index.
Because the OP units may, at our election, be exchanged for shares of our common stock, any merger, exchange or conversion between our operating partnership and another entity ultimately could result in the issuance of a substantial number of shares of our common stock, thereby diluting the percentage ownership interest of other stockholders.
Because the OP units may, at our election, be exchanged for shares of our common stock, any merger, exchange or conversion between the operating partnership and another entity ultimately could result in the issuance of a substantial number of shares of our common stock, thereby diluting the percentage ownership interest of other stockholders.
Thereafter, any business combination with the interested stockholder or an affiliate of the interested stockholder must be recommended by the corporation’s board and approved by the affirmative vote of at least 80.0% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation, and two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares of voting stock held by the interested stockholder.
Thereafter, any business combination with the interested stockholder or an affiliate of the interested stockholder must be recommended by the corporation’s board and approved by the affirmative vote of at least 80.0% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation and two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder.
A significant amount of debt subjects us to many risks that, if realized, would materially and adversely affect us, including the risk that: • our cash flow from operating activities could become insufficient to make required payments of principal and interest on our debt, which would likely result in (i) acceleration of the debt (and any other debt containing a cross-default or cross-acceleration provision), increasing the likelihood of further distress if refinancing is not available on favorable terms or at all, (ii) our inability to borrow undrawn amounts under other existing financing arrangements, even if we have timely made all required payments under such arrangements, further compromising our liquidity and/or (iii) the loss of some or all of our assets that are pledged as collateral in connection with our financing arrangements; • our debt may increase our vulnerability to adverse economic and industry conditions with no assurance that such debt will increase our investment returns in an amount sufficient to offset the associated risks relating to leverage; • we may be required to dedicate a substantial portion of our cash flow from operating activities to payments on our debt, thereby reducing funds available for operations, future business opportunities, stockholder distributions and/or other purposes; and • to the extent the maturity of certain debt occurs prior to the maturity of a related asset pledged or transferred as collateral for such debt, we may not be able to refinance that debt on favorable terms or at all, which may reduce available liquidity and/or cause significant losses to us.
A significant amount of debt subjects us to many risks that, if realized, would materially and adversely affect us, including the risk that: • our cash flow from operating activities could become insufficient to make required payments of principal and interest on our debt, which would likely result in (i) acceleration of the debt (and any other debt containing a cross-default or cross-acceleration provision), increasing the likelihood of further distress if refinancing is not available on favorable terms or at all, (ii) our inability to borrow undrawn amounts under other existing financing arrangements, even if we have timely made all required payments under such arrangements, further compromising our liquidity and/or (iii) the loss of some or all of our assets that are pledged as collateral in connection with our financing arrangements; 37 Table of Contents • our debt may increase our vulnerability to adverse economic and industry conditions with no assurance that such debt will increase our investment returns in an amount sufficient to offset the associated risks relating to leverage; • we may be required to dedicate a substantial portion of our cash flow from operating activities to payments on our debt, thereby reducing funds available for operations, future business opportunities, stockholder distributions and/or other purposes; and • to the extent the maturity of certain debt occurs prior to the maturity of a related asset pledged or transferred as collateral for such debt, we may not be able to refinance that debt on favorable terms or at all, which may reduce available liquidity and/or cause significant losses to us.
If we are unable to manage these risks effectively, we could be materially and adversely affected. Lenders may require us to enter into restrictive covenants relating to our business. When providing financing, a lender may impose restrictions on us that affect our ability to incur additional debt, make distributions to our stockholders and operate our business.
If we are unable to manage these risks effectively, we could be materially and adversely affected. Lenders may require us to enter into restrictive covenants that could adversely affect our business. When providing financing, a lender may impose restrictions on us that affect our ability to incur additional debt, make distributions to our stockholders and operate our business.
Similarly, state and local laws also may regulate expansion, including the addition of new beds or services or the acquisition of medical equipment at a facility, and the construction of healthcare-related facilities, by requiring a CON or other similar approval. State CON laws and other similar laws are not uniform throughout the United States and are subject to change.
Similarly, state and local laws also may regulate expansion, including the addition of new beds/units or services or the acquisition of medical equipment at a facility, and the construction of healthcare-related facilities, by requiring a CON or other similar approval. State CON laws and other similar laws are not uniform throughout the United States and are subject to change.
In addition, we may not be able to identify off-market investment opportunities or investment opportunities that are strategically marketed to a limited number of investors at the rate that we anticipate or at all. We may be unable to obtain or assume financing for acquisitions on favorable terms or at all.
In addition, we may not be able to identify off-market or other investment opportunities or investment opportunities that are strategically marketed to a limited number of investors at the rate that we anticipate or at all. We may be unable to obtain or assume financing for acquisitions on favorable terms or at all.
These federal and foreign laws include: • the Federal Anti-Kickback Statute, a criminal law which prohibits, among other things, the offer, payment, solicitation or receipt of any form of remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in return for, or to induce, the referral of an individual for, or the purchase, order or recommendation of, any item or service for which payment may be made under a federal healthcare program such as Medicare and Medicaid; • the Federal Physician Self-Referral Prohibition, which, subject to specific exceptions, restricts physicians from making referrals for specifically designated health services for which payment may be made under federal healthcare programs to an entity with which the physician, or an immediate family member, has a financial relationship; • the False Claims Act, which prohibits any person from knowingly presenting, or causing to be presented, false or fraudulent claims for payment or approval that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government, including claims paid by the Medicare and Medicaid programs; • the Civil Monetary Penalties Law, which authorizes the U.S.
These federal and foreign laws include: • the Federal Anti-Kickback Statute, a criminal law which prohibits, among other things, the offer, payment, solicitation or receipt of any form of remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in return for, or to induce, the referral of an individual for, or the purchase, order or recommendation of, any item or service for which payment may be made under a federal healthcare program such as Medicare and Medicaid; • the Federal Physician Self-Referral Prohibition, which, subject to specific exceptions, restricts physicians from making referrals for specifically designated health services for which payment may be made under federal healthcare programs to an entity with which the physician, or an immediate family member, has a financial relationship; 31 Table of Contents • the False Claims Act, which prohibits any person from knowingly presenting, or causing to be presented, false or fraudulent claims for payment or approval that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government, including claims paid by the Medicare and Medicaid programs; • the Civil Monetary Penalties Law, which authorizes the U.S.
Any adverse determination in a legal proceeding or regulatory or other governmental investigation, whether currently asserted or arising in the future, could negatively affect a tenant’s or operator’s business and financial strength.
Any adverse determination or settlement in a legal proceeding or regulatory or other governmental investigation, whether currently asserted or arising in the future, could negatively affect a tenant’s or operator’s business and financial strength.
It is possible that NorthStar will have interests that differ from ours, and our ability to pursue our interests we may be limited by their rights under the joint venture arrangements.
It is possible that NorthStar will have interests that differ from ours, and our ability to pursue our interests may be limited by their rights under the joint venture arrangements.
These and other changes in federal, state, or local regulation or in societal expectations could materially and adversely affect us directly or indirectly through the impact on our operators.
These and other changes in international, federal, state, or local regulation or in societal expectations could materially and adversely affect us directly or indirectly through the impact on our operators.
In addition, our operating partnership is required to indemnify us and our officers, directors, employees and designees to the extent permitted by applicable law from and against any and all claims arising from operations of our operating partnership, unless it is established that: (i) the act or omission was material to the matter giving rise to the proceeding and either was committed in bad faith or was the result of active and deliberate dishonesty; (ii) the indemnified party received an improper personal benefit, in money, property or services; or (iii) in the case of a criminal proceeding, the indemnified person had reasonable cause to believe that the act or omission was unlawful.
In addition, our operating partnership is required to indemnify us and our officers, directors, employees and designees to the extent permitted by 40 Table of Contents applicable law from and against any and all claims arising from operations of our operating partnership, unless it is established that: (i) the act or omission was material to the matter giving rise to the proceeding and either was committed in bad faith or was the result of active and deliberate dishonesty; (ii) the indemnified party received an improper personal benefit, in money, property or services; or (iii) in the case of a criminal proceeding, the indemnified person had reasonable cause to believe that the act or omission was unlawful.
As of December 31, 2022, the majority of our existing leases were either triple-net leases or leases that allow us to recover certain operating expenses and certain capital expenditures. Our remaining leases are generally modified gross, or base year, leases, which only provide for recoveries of operating expenses above the operating expenses from the initial year within each lease.
As of December 31, 2023, the majority of our existing leases were either triple-net leases or leases that allow us to recover certain operating expenses and certain capital expenditures. Our remaining leases are generally modified gross, or base year, leases, which only provide for recoveries of operating expenses above the operating expenses from the initial year within each lease.
The following factors may have affected, and may continue to affect, income from our properties, our ability to acquire and dispose of properties, and our overall financial results and ability to make distributions to our stockholders: • poor economic times may result in defaults by tenants of our properties due to bankruptcy, lack of liquidity or operational failures.
The following factors may have affected, and may continue to affect, income from our properties, our ability to acquire and develop properties, and our overall financial results and ability to make distributions to our stockholders: • poor economic times may result in defaults by tenants of our properties due to bankruptcy, lack of liquidity or operational failures.
If a tenant or 37 Table of Contents operator is unable to obtain or maintain insurance coverage, if judgments are obtained in excess of the insurance coverage, if uninsured punitive damages are required to be paid, or if an uninsurable government enforcement action is brought, the tenant or operator could be exposed to substantial additional liabilities, which may affect the tenant’s ability to pay rent to us or the operator’s ability to manage our properties efficiently and effectively, which could have a material adverse effect on us.
If a tenant or operator is unable to obtain or maintain insurance coverage, if judgments are obtained in excess of the insurance coverage, if uninsured punitive damages are required to be paid, or if an uninsurable government enforcement action is brought, the tenant or operator could be exposed to substantial additional liabilities, which may affect the tenant’s ability to pay rent to us or the operator’s ability to manage our properties efficiently and effectively, which could have a material adverse effect on us.
If the government or a court were to conclude that such errors, deficiencies or disagreements constituted criminal violations or were to conclude that such errors, deficiencies or disagreements resulted in the submission of false claims to federal healthcare programs, or if the government were to discover other problems in addition to the ones identified by the probe reviews that rose to actionable levels, our tenants and operators might face potential criminal charges and/or civil claims, administrative sanctions and penalties for amounts that could be material to us.
If the government or a court were to conclude that such errors, deficiencies or disagreements constituted criminal violations or were to conclude that such errors, deficiencies or disagreements resulted in the submission of false claims to federal healthcare programs, or if the government were to discover other problems in addition to the ones identified by the probe reviews that rose to actionable levels, we, our officers and our tenants and operators and their officers might face potential criminal charges and/or civil claims, administrative sanctions and penalties for amounts that could be material to us.
In addition, if the Trilogy Manager experiences any significant financial, legal, accounting or regulatory difficulties due to a weak economy, industry downturn or otherwise, such difficulties could result in, among other adverse events, acceleration of its indebtedness, impairment of its continued access to capital, the enforcement of default remedies by its counterparties, or the commencement 25 Table of Contents of insolvency proceedings by or against it under the U.S.
In addition, if the Trilogy Manager experiences any significant financial, legal, accounting or regulatory difficulties due to a weak economy, industry downturn or otherwise, such difficulties could result in, among other adverse events, acceleration of its indebtedness, impairment of its continued access to capital, the enforcement of default remedies by its counterparties or the commencement of insolvency proceedings by or against it under the U.S.
Our joint ventures, and joint ventures we may enter into in the future, may involve risks not present with respect to our wholly owned properties, including the following: • we may share with, or even delegate decision-making authority to, our joint venture partners regarding certain major decisions affecting the ownership or operation of the joint venture and the joint venture property, such as, but not limited to, (1) additional capital contribution requirements, (2) obtaining, refinancing or paying off debt and (3) obtaining consent prior to the sale or transfer of our interest in the joint venture to a third party, which may prevent us from taking actions that are opposed by our joint venture partners; • our joint venture partners may have business interests or goals with respect to the joint venture property that conflict with our business interests and goals, which could increase the likelihood of disputes regarding the ownership, management or disposition of the property; • in some instances, we may enter into arrangements with our joint venture partners that may (1) require an acquisition opportunity to be allocated to the joint venture when we otherwise may have acquired the asset ourselves or (2) cause the joint venture to sell an asset at a time when we otherwise may not have initiated such a transaction; • disputes may develop with our joint venture partners over decisions affecting the joint venture property or the joint venture, which may result in litigation or arbitration that would increase our expenses and distract our officers from focusing their time and effort on our business, disrupt the day-to-day operations of the property, such as by delaying the implementation of important decisions until the conflict is resolved, have an adverse impact on the operations and profitability of the joint venture and possibly force a sale of the property if the dispute cannot be resolved; • our joint venture partners may be unable to or refuse to make capital contributions when due, or otherwise fail to meet their obligations, which could require us to fund the shortfall or forego our equity in the joint venture; and • the activities of a joint venture could adversely affect our ability to maintain our qualification as a REIT.
Our joint ventures, and joint ventures we may enter into in the future, may involve risks not present with respect to our wholly-owned properties, including the following: • we may share with, or even delegate decision-making authority to, our joint venture partners regarding certain major decisions affecting the ownership or operation of the joint venture and the joint venture property, such as, but not limited to, (i) additional capital contribution requirements, (ii) obtaining, refinancing or paying off debt and (iii) obtaining consent prior to the sale or transfer of our interest in the joint venture to a third party, which may prevent us from taking actions that are opposed by our joint venture partners; • our joint venture partners might become bankrupt and such proceedings could have an adverse impact on the operations of the joint venture; • our joint venture partners may have business interests or goals with respect to the joint venture property that conflict with our business interests and goals, which could increase the likelihood of disputes regarding the ownership, management or disposition of the property; • in some instances, we may enter into arrangements with our joint venture partners that may (i) require an acquisition opportunity to be allocated to the joint venture when we otherwise may have acquired the asset ourselves or (ii) cause the joint venture to sell an asset at a time when we otherwise may not have initiated such a transaction; • disputes may develop with our joint venture partners over decisions affecting the joint venture property or the joint venture, which may result in litigation or arbitration that would increase our expenses and distract our officers from focusing their time and effort on our business, disrupt the day-to-day operations of the property, such as by delaying the implementation of important decisions until the conflict is resolved, have an adverse impact on the operations and profitability of the joint venture and possibly force a sale of the property if the dispute cannot be resolved; • our joint venture partners may be unable to or refuse to make capital contributions when due, or otherwise fail to meet their obligations, which could require us to fund the shortfall or forego our equity in the joint venture; and • the activities of a joint venture could adversely affect our ability to maintain our qualification as a REIT.
We have acquired, and may continue to acquire, real estate assets located in areas that are susceptible to terrorist attacks, acts of violence or war, political protests or public health crises. These events may directly impact the value of our assets through 29 Table of Contents damage, destruction, loss or increased security costs.
We have acquired, and may continue to acquire, real estate assets located in areas that are susceptible to terrorist attacks, acts of violence or war, political protests or public health crises. These events may directly impact the value of our assets through damage, destruction, loss or increased security costs.
Historically, we have experienced net losses (calculated in accordance with GAAP) and we may not be profitable or realize growth in the value of our investments. Many of our losses can be attributed to start-up costs, general and administrative expenses, depreciation and amortization, as well as acquisition expenses incurred in connection with purchasing properties or making other investments.
Historically, we have experienced net losses (calculated in accordance with GAAP), and we may not be profitable or realize growth in the value of our investments. Many of our losses can be attributed to general and administrative expenses, depreciation and amortization, as well as acquisition expenses incurred in connection with purchasing properties or making other investments.
In addition, other key personnel and our tenants and operators and their other key personnel could be temporarily or permanently excluded from future participation in state and federal healthcare reimbursement programs such as Medicaid and Medicare.
In addition, we, our officers and other key personnel and our tenants and operators and their officers and other key personnel could be temporarily or permanently excluded from future participation in state and federal healthcare reimbursement programs such as Medicaid and Medicare.
Consequently, we may not be able to recover the carrying amount of our properties, which may require us to recognize an impairment charge or record a loss on sale in our financial results; • reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain or maintain debt financing secured by our properties and may reduce the availability of unsecured loans; • constricted access to credit may result in tenant defaults or non-renewals under leases; • layoffs may lead to a lower demand for medical services and cause vacancies to increase and a lack of future population and job growth may make it difficult to maintain or increase occupancy levels; • disruptions in the financial markets, deterioration in economic conditions or a public health crisis, such as the COVID-19 pandemic, have resulted, and may continue to result, in lower occupancy in our facilities, increased vacancy rates for commercial real estate due to generally lower demand for rentable space, as well as an oversupply of rentable space; • governmental actions and initiatives, including risks associated with the impact of a prolonged government shutdown or budgetary reductions or impasses; and • increased insurance premiums, real estate taxes or utilities or other expenses, such as inflation costs, will decrease our financial results and may reduce funds available for distribution to our stockholders or, to the extent such increases are passed through to tenants, may lead to tenant defaults.
Consequently, we may not be able to recover the carrying amount of our properties, which may require us to recognize an impairment charge or record a loss on sale in our financial results; • reduced values of our properties may limit our ability to obtain or maintain debt financing secured by our properties and may reduce the availability of unsecured loans; • constricted access to credit may result in tenant defaults or non-renewals under leases; • layoffs may lead to a lower demand for medical services and cause vacancies to increase and a lack of future population and job growth may make it difficult to maintain or increase occupancy levels; • disruptions in the financial markets, deterioration in economic conditions or a public health crisis, such as the COVID-19 pandemic, have resulted in the past, and may result in the future, in lower occupancy in our facilities, increased vacancy rates for commercial real estate due to generally lower demand for rentable space, as well as an oversupply of rentable space; • governmental actions and initiatives, including risks associated with the impact of a prolonged government shutdown or budgetary reductions or impasses; and 18 Table of Contents • increased insurance premiums, real estate taxes or utilities or other expenses, such as inflation costs, will decrease our financial results and may reduce funds available for distribution to our stockholders or, to the extent such increases are passed through to tenants, may lead to tenant defaults.
Risks Related to Investments in Real Estate • Uncertain market conditions could lead our real estate investments to decrease in value or may cause us to sell our properties at a loss in the future. • Most of our costs, such as operating and general and administrative expenses, interest expense and real estate acquisition and construction costs, are subject to inflation and may not be recoverable. • Our high concentrations of properties in particular geographic areas magnify the effects of negative conditions affecting those geographic areas. • Our real estate investments may be concentrated in MOBs, senior housing, SNFs, hospitals or other healthcare-related facilities, making us more vulnerable to negative factors affecting these classes than if our investments were diversified beyond the healthcare industry. 18 Table of Contents • Our business, tenants, residents and operators may face litigation and experience rising liability and insurance costs, which may materially and adversely affect us.
Risks Related to Investments in Real Estate • Uncertain market conditions could lead our real estate investments to decrease in value or may cause us to sell our properties at a loss in the future. • Most of our costs, such as operating and general and administrative expenses, interest expense and real estate acquisition and construction costs, are subject to inflation and may not be recoverable. • Our high concentrations of properties in particular geographic areas magnify the effects of negative conditions affecting those geographic areas. • Our real estate investments may be concentrated in OM buildings, senior housing, SNFs or other healthcare-related facilities, making us more vulnerable to negative factors affecting these classes than if our investments were diversified beyond the healthcare industry. • Our business, tenants, residents and operators may face litigation and experience rising liability and insurance costs, which may materially and adversely affect us.
Additionally, if any purchaser defaults under a financing arrangement with us, it could negatively impact our ability to make distributions to our stockholders. Representations and warranties made by us in connection with sales of our properties may subject us to liability that could materially and adversely affect us.
Additionally, if any purchaser defaults under a financing arrangement with us, it could negatively impact our ability to make distributions to our stockholders. 25 Table of Contents Representations and warranties made by us in connection with sales of our properties may subject us to liability that could materially and adversely affect us.
In addition, we have granted, and expect to grant in the future, equity awards under our incentive plan to our independent directors and certain of our employees, including our executive officers, which to date have consisted of our restricted stock and restricted share units, which are exchangeable into shares of our common stock subject to satisfaction of certain conditions.
In addition, we have granted, and expect to grant in the future, equity awards under our incentive plan to our independent directors and certain of our employees, including our executive officers, which to date have consisted of our restricted stock and RSUs, which are exchangeable into shares of our common stock subject to satisfaction of certain conditions.
In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, our stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability.
In that event, our 42 Table of Contents stockholders would be treated as if they earned that income and paid the tax on it directly. However, our stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability.
Accordingly, we cannot be certain that we will be successful in operating in compliance with the REIT rules in such manner as to allow us to maintain our qualification as a REIT.
Accordingly, we cannot be certain that we, or Trilogy REIT, will be successful in operating in compliance with the REIT rules in such manner as to allow us to maintain our qualification as a REIT.
However, if the bylaws provision exempting us from the control share acquisition statute or our board resolution opting out of the business combination statute were repealed in whole or in part at any time, these provisions of the MGCL could delay or prevent offers to acquire us and increase the difficulty of consummating any such offers, even if such a transaction would be in our stockholders’ best interest.
However, if the bylaws provision exempting us from the control share acquisition statute or our board resolution opting out of the business combination statute were repealed in whole or in part at any time, these provisions of the MGCL could delay or prevent offers to acquire us and increase the difficulty of consummating any such offers, even if such a transaction would be in the best interests of our stockholders.
Similarly, our MOB and senior housing—leased tenants face competition from other medical practices in nearby hospitals and other medical facilities and their failure to compete successfully with these other practices could adversely affect their ability to make rental payments to us, which could materially and adversely affect us.
Similarly, our OM building and senior housing — leased tenants face competition from other medical practices in nearby hospitals and other medical facilities, and their failure to compete successfully with these other practices could adversely affect their ability to make rental payments to us, which could materially and adversely affect us.
There are certain decisions that are deemed “major decisions” with respect to Trilogy’s business (such as terminating the management agreement with the Trilogy Manager, taking certain actions under the management agreement, making certain sales of the Trilogy properties, and taking certain other actions with respect 39 Table of Contents to the Trilogy portfolio) that require the approval of NorthStar.
There are certain decisions that are deemed “major decisions” with respect to Trilogy’s business (such as terminating the management agreement with the Trilogy Manager, taking certain actions under the management agreement, making certain sales of the Trilogy properties, and taking certain other actions with respect to the Trilogy portfolio) that require the approval of NorthStar.
Because we may generally issue any such debt or preferred stock in the future without obtaining the approval of our stockholders, you will bear the risk of our future issuances reducing the market price of our common stock and diluting your proportionate ownership.
Because we may generally issue any such debt or preferred stock in the future without obtaining the approval of our stockholders, our stockholders will bear the risk of our future issuances reducing the market price of our common stock and diluting their proportionate ownership.
Therefore, any investments we make outside the United States will subject us to foreign currency risk due to potential fluctuations in exchange rates between foreign currencies and the U.S. dollar, and there can be no assurance that any attempt to mitigate foreign currency risk through hedging transactions or otherwise will be successful.
Therefore, any investments we make outside the United States will subject us to foreign currency risk due to potential fluctuations in exchange rates between foreign currencies and the U.S. dollar, and there can be no 26 Table of Contents assurance that any attempt to mitigate foreign currency risk through hedging transactions or otherwise will be successful.
Our real estate investments may be concentrated in MOBs, senior housing, SNFs, hospitals or other healthcare-related facilities, making us more vulnerable to negative factors affecting these classes than if our investments were diversified beyond the healthcare industry. As a REIT, we invest primarily in real estate.
Our real estate investments may be concentrated in OM buildings, senior housing, SNFs or other healthcare-related facilities, making us more vulnerable to negative factors affecting these classes than if our investments were diversified beyond the healthcare industry. As a REIT, we invest primarily in real estate.
We face significant competition from other entities engaged in real estate investment activities for acquisitions and dispositions of MOBs, senior housing, SNFs, hospitals and other healthcare-related facilities, some of whom may have greater resources, lower costs of capital and higher risk tolerances than we do.
We face significant competition from other entities engaged in real estate investment activities for acquisitions and dispositions of OM buildings, senior housing, SNFs and other healthcare-related facilities, some of whom may have greater resources, lower costs of capital and higher risk tolerances than we do.
If all or a portion of the Healthcare Reform Act, including the individual mandate, is eventually ruled unconstitutional, our tenants and operators may have more patients and residents who do not have insurance coverage, which may adversely impact the tenants’ and operators’ collections and revenues.
However, challenges to the Healthcare Reform Act may continue. If all or a portion of the Healthcare Reform Act, including the individual mandate, is eventually ruled unconstitutional, our tenants and operators may have more patients and residents who do not have insurance coverage, which may adversely impact the tenants’ and operators’ collections and revenues.
As a result, tenants and operators of our MOBs, senior housing, SNFs, hospitals and other healthcare-related facilities operating in these states may be liable for punitive damage awards that are either not covered or are in excess of their insurance policy limits.
As a result, tenants and operators of our OM buildings, senior housing, SNFs and other healthcare-related facilities operating in these states may be liable for punitive damage awards that are either not covered or are in excess of their insurance policy limits.
If we have not established capital reserves for such tenant or other capital improvements, we will have to obtain financing from other sources and we have not identified any sources for such financing. We may also have future financing needs for other capital improvements to refurbish or renovate our properties.
If we have not established capital reserves for such tenant or other capital improvements, we will have to obtain financing from other sources. We may also have future financing needs for other capital improvements to refurbish or renovate our properties.
To the extent we suffer such losses with respect to our bridge loans, we may be materially and adversely affected. 33 Table of Contents If we sell real estate-related investments prior to their maturity, we may be forced to sell those investments on unfavorable terms or at a loss.
To the extent we suffer such losses with respect to our bridge loans, we may be materially and adversely affected. If we sell real estate-related investments prior to their maturity, we may be forced to sell those investments on unfavorable terms or at a loss.
Efforts by such payors to reduce healthcare costs will likely continue, which may result in reductions or slower growth in reimbursement for certain services provided by some of our tenants and operators, which could have a material adverse effect on us.
Efforts by such payors to reduce healthcare costs will likely continue, which may result in the slower growth in reimbursement rates for certain services provided by some of our tenants and operators, which could have a material adverse effect on us.
These requirements could have the effect of inhibiting a change in control even if a change in control were in our stockholders’ best interests.
These requirements could have the effect of inhibiting a change in control even if a change in control were in the best interests of our stockholders.
With the elimination of the individual mandate enforcement mechanism, several states brought suit seeking to invalidate the entire Healthcare Reform Act. On June 17, 2021, the U.S. Supreme Court dismissed this lawsuit without specifically ruling on the constitutionality of the law. However, challenges to the Healthcare Reform Act may continue.
With the elimination of the individual mandate enforcement mechanism, several states brought suit seeking to invalidate the entire Healthcare Reform Act. On June 17, 2021, the U.S. Supreme Court dismissed this lawsuit without specifically ruling on the constitutionality of the law.
Risks Related to Taxes and Our REIT Status Failure to maintain our qualification as a REIT for U.S. federal income tax purposes would subject us to U.S. federal income tax on our REIT taxable income at the regular corporate rate, which would substantially reduce our ability to make distributions to our stockholders.
Risks Related to Taxes and Our REIT Status Failure to maintain our qualification as a REIT for U.S. federal income tax purposes would subject us to U.S. federal income tax on our REIT taxable income at the regular corporate rate, which would substantially increase our income tax expenses and reduce our distributions to our stockholders.
Additionally, inflationary pricing may have a negative effect on the real estate acquisitions and construction costs necessary to complete our development and redevelopment projects, including, but not limited to, costs of construction materials, labor, and services from third-party contractors and suppliers.
Additionally, inflationary pricing may have a negative effect on the acquisition and construction costs necessary to complete our development and redevelopment projects, including, but not limited to, costs of construction materials, labor and services from third-party contractors and suppliers.
If (1) we are a “pension-held REIT,” (2) a tax-exempt stockholder has incurred (or is deemed to have incurred) debt to purchase or hold our shares or (3) a holder of our shares is a certain type of tax-exempt stockholder, dividends on, and gains recognized on the sale of, shares by such tax-exempt stockholder may be subject to U.S. federal income tax as unrelated business taxable income under the Code.
If (i) we are a “pension-held REIT,” (ii) a tax-exempt stockholder has incurred (or is deemed to have incurred) debt to purchase or hold our shares or (iii) a holder of our shares is a certain type of tax-exempt stockholder, dividends on, and gains recognized on the sale of, shares by such tax-exempt stockholder may be subject to U.S. federal income tax as unrelated business taxable income under the Code.
We face significant competition for the acquisition and disposition of MOBs, senior housing, SNFs, hospitals and other healthcare-related facilities, which may impede our ability to take, and increase the cost of, such actions, which may materially and adversely affect us.
We face significant competition for the acquisition and disposition of OM buildings, senior housing, SNFs and other healthcare-related facilities, which may impede our ability to take, and increase the cost of, such actions, which may materially and adversely affect us.
If we pay higher prices per property or receive lower prices for dispositions of our MOBs, senior housing, SNFs, hospitals or other healthcare-related facilities as a result of such competition, we may be materially and adversely affected.
If we pay higher prices per property or receive lower prices for dispositions of our OM buildings, senior housing, SNFs or other healthcare-related facilities as a result of such competition, we may be materially and adversely affected.
Hedging activity may expose us to risks. We have used, and may continue to use, derivative financial instruments to hedge our exposure to changes in exchange rates and interest rates. If we use derivative financial instruments to hedge against exchange rate or interest rate fluctuations, we will be exposed to credit risk and legal enforceability risks.
We have used, and may continue to use, derivative financial instruments to hedge our exposure to changes in exchange rates and interest rates. If we use derivative financial instruments to hedge against exchange rate or interest rate fluctuations, we will be exposed to credit risk and legal enforceability risks.
Additionally, international, governmental, and societal responses to climate change may materially and adversely affect us or our operators’, including through shifts in fuel sources leading to short or long-term increases in energy costs and new and more stringent building codes pertaining to energy efficiency, reduced emissions, or weather resistance that may be more costly to comply with, any of which could increase our building costs and our and our operators’ capital expenditures, maintenance, and operating costs.
Additionally, we are subject to transition risk from international, governmental and societal responses to climate change that may materially and adversely affect us or our operators, including through shifts in fuel sources leading to short- or long-term increases in energy costs and new and more stringent building codes pertaining to energy efficiency, reduced emissions or weather resistance that may be more costly to comply with, any of which could increase our building costs and our and our operators’ capital expenditures, maintenance and operating costs.
As a result, during periods when the impact of inflation exceeds the annual rent escalation percentages in our current leases and the percentage increase in rents in new leases, our financial results will be impaired, potentially significantly.
As a result, during periods when the impact of inflation exceeds the annual rent escalation percentages in our current leases and the percentage increase in rents in new leases, our financial results may be impaired.
Expensive debt could reduce or limit our available cash flow to fund working capital, capital expenditures, acquisitions and 40 Table of Contents development projects, hinder our ability to meet certain debt service ratios under our credit agreements or impose restrictions on our ability to incur additional debt for so long as certain debt service ratios are not met.
Expensive debt could reduce or limit our available cash flow to fund working capital, capital expenditures, acquisitions and development projects, reduce cash available for distributions to stockholders, hinder our ability to meet certain debt service ratios under our credit agreements or impose restrictions on our ability to incur additional debt for so long as certain debt service ratios are not met.
When we provide financing to purchasers, we will bear the risk that the purchaser may default on its obligations under the financing, which could negatively 30 Table of Contents impact cash flows from operations.
When we provide financing to purchasers, we will bear the risk that the purchaser may default on its obligations under the financing, which could negatively impact cash flows from operations.
Investments in and acquisitions of MOBs, senior housing, SNFs, hospitals and other healthcare- 24 Table of Contents related facilities entail risks associated with real estate investments generally, including risks that the investment will not achieve expected returns, that the cost estimates for necessary property improvements will prove inaccurate or that the tenant or operator will fail to meet performance expectations.
Investments in and acquisitions of OM buildings, senior housing, SNFs and other healthcare-related facilities entail risks associated with real estate investments generally, including risks that the investment will not achieve expected returns, that the cost estimates for necessary property improvements will prove inaccurate or that the tenant or operator will fail to meet performance expectations.
Our investments in, and acquisitions of, MOBs, senior housing, SNFs, hospitals and other healthcare-related facilities may be unsuccessful or fail to meet our expectations. Some of our acquisitions may not prove to be successful.
Our investments in, and acquisitions of, OM buildings, senior housing, SNFs and other healthcare-related facilities may be unsuccessful or fail to meet our expectations. Some of our acquisitions may not prove to be successful.
Seniors have been increasingly delaying their moves to senior housing facilities, including to our senior housing—leased facilities and SHOP, until they require greater care and are increasingly forgoing moving to senior housing facilities altogether.
Some seniors have been delaying their moves to senior housing facilities, including to our triple-net leased properties and SHOP, until they require greater care and are increasingly forgoing moving to senior housing facilities altogether.
Annually, our employee compensation is adjusted to reflect merit increases; however, to maintain our ability to successfully compete for the best talent, rising inflation rates has required and may continue to require us to provide compensation increases beyond historical annual merit increases, which may significantly increase our compensation costs.
Annually, our employee compensation is adjusted to reflect merit increases; however, in order for us to maintain our ability to successfully compete for the best talent, rising inflation rates in recent years have required, and may continue to require, us to provide compensation increases beyond historical annual merit increases, which may significantly increase our compensation costs.
In a rising interest rate environment, the value of commercial mortgage-backed securities may be adversely affected when payments on underlying mortgages loan(s) do not occur as anticipated, resulting in the extension of the security’s effective maturity and the related increase in interest rate sensitivity of a longer-term instrument.
In a rising interest rate environment like the one that has prevailed in recent years, the value of commercial mortgage-backed securities may be adversely affected when payments on underlying mortgages loan(s) do not occur as anticipated, resulting in the extension of the security’s effective maturity and the related increase in interest rate sensitivity of a longer-term instrument.
Commercial mortgage-backed securities are securities which evidence interests in, or are secured by, a single commercial mortgage loan or a pool of commercial mortgage loans. Accordingly, the commercial mortgage-backed securities in which we have invested, and may continue to invest, are subject to all the risks of the underlying mortgage loans.
The commercial mortgage-backed securities in which we have invested, and may continue to invest, are subject to several types of risks. Commercial mortgage-backed securities are securities which evidence interests in, or are secured by, a single commercial mortgage loan or a pool of commercial mortgage loans.
Mr. Prosky currently serves as our Chief Executive Officer and one of 23 Table of Contents our directors. In the event that Mr.
Mr. Prosky currently serves as our Chief Executive Officer and one of our directors. In the event that Mr.
It is possible that future economic, market, legal, tax or other considerations may cause our board to determine that it 46 Table of Contents is not in our best interest to maintain our qualification as a REIT, and to revoke our REIT election, which it may do without stockholder approval.
It is possible that future economic, market, legal, tax or other considerations may cause our board to determine that it is not in our best interests to maintain our qualification as a REIT, and to revoke our REIT election, which it may do without stockholder approval.
Pursuant to the MGCL, our bylaws exempt us from the control share acquisition statute, which eliminates voting rights for certain levels of shares that could exercise control over us, and our board has adopted a resolution providing that any business combination between us and any other person is exempted from the business combination statute, provided that such business combination is first approved by our board.
Pursuant to the MGCL, our bylaws contain a provision exempting from the control share acquisition provisions of the MGCL any and all acquisitions by any person of shares of our stock, which eliminates voting rights for certain levels of shares that could exercise control over us, and our board has adopted a resolution providing that any business combination between us and any other person is exempted from the business combination statute, provided that such business combination is first approved by our board.
Though we anticipate that our overall leverage will not exceed 50.0% of the combined fair market value of all of our properties and other real estate-related investments, as determined at the end of each calendar year, our organizational documents do not place a limitation on the amount of leverage that we may incur, and we could incur leverage substantially in excess of this amount.
This represented approximately 5.7% of the combined fair market value of all of our properties and other real estate-related investments as of December 31, 2023.Though we anticipate that our overall leverage will approximate 50.0% of the combined fair market value of all of our properties and other real estate-related investments, as determined at the end of each calendar year, our organizational documents do not place a limitation on the amount of leverage that we may incur, and we could incur leverage substantially in excess of this amount.
Maryland law prohibits certain business combinations, which may make it more difficult for us to be acquired and may limit or delay our stockholders’ ability to dispose of their shares of our common stock.
Certain provisions of Maryland law may make it more difficult for us to be acquired and may limit or delay our stockholders’ ability to dispose of their shares of our common stock.
Therefore, existing stockholders will experience dilution of their equity investment in us as we (1) sell additional shares of our common stock in the future, (2) sell securities that are convertible into or exchangeable for shares of our common stock, including OP units, (3) issue restricted shares of our common stock, restricted stock units or other equity-based securities under the AHR Incentive Plan or (4) issue shares of our common stock in a merger or to sellers of properties acquired by us in connection with an exchange of OP units.
Therefore, existing stockholders will experience dilution of their equity investment in us as we (i) sell additional shares of our common stock in the future, (ii) sell securities that are convertible into or exchangeable for shares of our common stock, including OP units, (iii) issue restricted shares of our common stock, RSUs or other equity-based securities under our incentive plan or (iv) issue shares of our common stock in a merger or to sellers of properties acquired by us in connection with an exchange of OP units.
The Healthcare Reform Act and similar foreign laws impose additional requirements regarding compliance and disclosure. The Healthcare Reform Act requires SNFs to have a compliance and ethics program that is effective in preventing and detecting criminal, civil and administrative violations and in promoting quality of care. The U.S.
The Healthcare Reform Act and similar foreign laws impose additional requirements regarding compliance and disclosure. The Healthcare Reform Act requires SNFs to have a compliance and ethics program that is effective in preventing and detecting criminal, civil and administrative violations and in promoting quality of care as a condition of participation in Medicare and Medicaid.
Rising interest rates will also increase our interest expense on future fixed-rate debt. • Lenders may require us to enter into restrictive covenants relating to our business.
Rising interest rates will also increase our interest expense on future fixed-rate debt. • Lenders may require us to enter into restrictive covenants that could adversely affect our business.
Risks Related to Our Corporate Structure and Organization • Future offerings of debt securities, which would be senior to our common stock, or equity securities, which would dilute our existing stockholders and may be senior to our common stock, may adversely affect our stockholders.
Future offerings of debt securities, which would be senior to our common stock, or equity securities, which would dilute our existing stockholders and may be senior to our common stock, may adversely affect our stockholders.
To continue to maintain our qualification as a REIT, we must meet various requirements set forth in the Code concerning, among other things, the ownership of our outstanding common stock, the nature of our assets, the sources of our income, and the amount of our distributions to stockholders.
To continue to maintain our qualification as a REIT, we, and our subsidiary REIT, Trilogy Real Estate Investment Trust, or Trilogy REIT, must meet various requirements set forth in the Code concerning, among other things, the ownership of our, or Trilogy REIT’s, outstanding common stock, the nature of our, or Trilogy REIT’s, assets, the sources of our, or Trilogy REIT’s, income, and the amount of our, or Trilogy REIT’s, distributions to stockholders.
Risk Factor Summary Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary should be read in conjunction with the full risk factors contained below . Investment Risks • There is no public market for the shares of our common stock.
Risk Factor Summary Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary should be read in conjunction with the full risk factors contained below .
Risks Related to Taxes and Our REIT Status • Failure to maintain our qualification as a REIT for U.S. federal income tax purposes would subject us to U.S. federal income tax on our REIT taxable income at the regular corporate rate, which would substantially reduce our ability to make distributions to our stockholders. • We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability or reduce our operating flexibility. • If the REIT Merger does not qualify as a tax-free reorganization, there may be adverse tax consequences.
Risks Related to Taxes and Our REIT Status • Failure to maintain our qualification as a REIT for U.S. federal income tax purposes would subject us to U.S. federal income tax on our REIT taxable income at the regular corporate rate, which would substantially increase our income tax expenses and reduce our distributions to our stockholders. • We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability or reduce our operating flexibility.
Although the reduced U.S. federal income tax rate applicable to dividend income from regular corporate dividends does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to qualified dividends from C corporations could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay qualified dividends, which could adversely affect the market price of the shares of common stock of REITs, including our shares of common stock. 48 Table of Contents Dividends on, and gains recognized on the sale of, shares by a tax-exempt stockholder may be subject to U.S. federal income tax as unrelated business taxable income.
Although the reduced U.S. federal income tax rate applicable to dividend income from regular corporate dividends does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to qualified dividends from C corporations could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay qualified dividends, which could adversely affect the market price of the shares of common stock of REITs, including our shares of common stock.
If the market in which the asset is located fails to recover according to the borrower’s projections, or if the borrower fails to improve the quality of the asset’s management and/or the value of the asset, the borrower may not receive a sufficient return on the asset to satisfy the bridge loan, and we bear the risk that we may not recover some or all of our initial expenditure.
If the market in which the asset is located fails to recover according to the borrower’s projections, or if the borrower fails to improve the quality of the asset’s management and/or the value of the asset, the borrower may not receive a sufficient return on the asset to satisfy the bridge loan, and we bear the risk that we may not recover some or all of our initial expenditure. 28 Table of Contents In addition, borrowers usually use the proceeds of a conventional mortgage to repay a bridge loan.
We have a concentration of properties in particular geographic areas; therefore, any adverse situation that disproportionately effects one of those areas would have a magnified adverse effect on our portfolio.
Our high concentrations of properties in particular geographic areas magnify the effects of negative conditions affecting those geographic areas. We have a concentration of properties in particular geographic areas; therefore, any adverse situation that disproportionately effects one of those areas would have a magnified adverse effect on our portfolio.
Similarly, were an operator of a facility held in a RIDEA structure (where we are entitled to participate in any positive operating performance of the facility) to fail to comply with a regulatory obligation, it could adversely affect the operating performance of the facility and our participation therein.
Similarly, were an operator of a facility held in a RIDEA structure (where we benefit from positive operating performance, if any, at such facilities) to fail to comply with a regulatory obligation, it could adversely affect the operating performance of the facility and our participation therein.
Risks Related to the Healthcare Industry • The healthcare industry is heavily regulated and new laws or regulations, changes to existing laws or regulations, loss of licensure, or failure to obtain licensure could result in the inability of our tenants to make rent payments to us or adversely affect our operators’ ability to operate facilities held in RIDEA structures. • Reductions in reimbursement from third-party payors could adversely affect our tenants’ operations and ability to make rental payments to us or our operators’ ability to operate facilities held in RIDEA structures. • If seniors delay moving to senior housing facilities until they require greater care or forgo moving to senior housing facilities altogether, such action could have a material adverse effect on us. • We, our tenants and our operators for our senior housing facilities and SNFs may be subject to various government reviews, audits and investigations that could materially and adversely affect us, including an obligation to refund amounts previously paid to us.
Risks Related to the Healthcare Industry • The healthcare industry is heavily regulated, and new laws or regulations, changes to existing laws or regulations, loss of licensure or failure to obtain licensure could result in the inability of our tenants to make rent payments to us or adversely affect our operators’ ability to operate facilities held in RIDEA structures. 15 Table of Contents • Reimbursement rates from third-party payors, including Medicare and Medicaid, that do not rise as quickly, or at all, compared to the rate of inflation, could adversely affect our tenants’ operations and ability to make rental payments to us or our profitability from operating facilities held in RIDEA structures. • If seniors delay moving to senior housing facilities until they require greater care or forgo moving to senior housing facilities altogether, such action could have a material adverse effect on us. • We, our tenants and our operators for our senior housing facilities and SNFs may be subject to various government reviews, audits and investigations that could materially and adversely affect us, including an obligation to refund amounts previously paid to us, potential criminal charges, the imposition of fines and/or the loss of the right to participate in Medicare and Medicaid programs.
Certain provisions of the Maryland General Corporation Law, or the MGCL, such as the business combination statute and the control share acquisition statute, are designed to prevent, or have the effect of preventing, someone from acquiring control of us.
Certain provisions of the Maryland General Corporation Law, or MGCL, such as the business combination statute and the control share acquisition statute, are designed to prevent, or have the effect of preventing, someone from acquiring control of us. The MGCL prohibits “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder.
The financial impact on our tenants and operators could adversely affect a tenant’s ability to make rent payments to us or an operator’s ability to operate facilities held in RIDEA structures efficiently, either of which could have a material adverse effect on us.
The financial impact on our tenants and operators could adversely affect a tenant’s ability to make rent payments to us or an operator’s ability to operate facilities held in RIDEA structures efficiently, either of which could have a material adverse effect on us. In addition, other legislative changes have been proposed and adopted since the ACA was enacted.
As of March 17, 2023, properties located in Indiana, Ohio and Michigan accounted for approximately 37.8%, 11.9% and 10.7%, respectively, of our total property portfolio’s annualized base rent or annualized NOI. Accordingly, there is a geographic concentration of risk subject to fluctuations in each such state’s economy, real estate and other market conditions.
As of December 31, 2023, properties located in Indiana and Michigan accounted for approximately 35.3% and 10.4%, respectively, of our total property portfolio’s annualized base rent or annualized NOI. Accordingly, there is a geographic concentration of risk subject to fluctuations in each such state’s economy, real estate and other market conditions.
The healthcare industry is currently experiencing: • changes in the demand for and methods of delivering healthcare services; • changes in third-party reimbursement policies; • significant unused capacity in certain areas, which has created substantial competition for patients among healthcare providers in those areas; • increased expenses for uninsured patients; • increased competition among healthcare providers; • increased liability insurance expenses; • continued pressure by private and governmental payors to reduce payments to providers of services; • increased scrutiny of billing, referral and other practices by federal and state authorities; • changes in federal and state healthcare program payment models; • increased emphasis on compliance with privacy and security requirements related to personal health information; and • increased instability in the Health Insurance Exchange market and lack of access to insurance plans participating in the exchange.
The healthcare industry is currently experiencing: • changes in the demand for and methods of delivering healthcare services; • changes in third-party reimbursement policies; • significant unused capacity in certain areas, which has created substantial competition for patients among healthcare providers in those areas; • increased expenses for uninsured patients; • increased competition among healthcare providers; • increased liability insurance expenses; • continued pressure by private and governmental payors to reduce payments to providers of services; • increased scrutiny of billing, referral and other practices by federal and state authorities; • changes in federal and state healthcare program payment models; • increased emphasis on compliance with privacy and security requirements related to personal health information; and • increased instability in the Health Insurance Exchange market and lack of access to insurance plans participating in the exchange. 32 Table of Contents Additionally, in connection with the COVID-19 pandemic, many governmental entities relaxed certain licensure and other regulatory requirements relating to telemedicine, allowing more patients to virtually access care without having to visit a healthcare facility.
We cannot guarantee that we will succeed in achieving these goals, and our failure to do so could materially and adversely affect us and our stockholders could lose all or a portion of their investment.
We cannot guarantee that we will succeed in achieving these goals, and our failure to do so could materially and adversely affect us and the market price of our common stock could be highly volatile and decline significantly and our stockholders could lose all or a portion of their investment.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe following table presents the sensitivity of our annual base rent due to lease expirations for the next 10 years and thereafter at our properties as of December 31, 2022, excluding our SHOP and integrated senior health campuses: Year Number of Expiring Leases Total Square Feet of Expiring Leases % of GLA Represented by Expiring Leases Annual Base Rent of Expiring Leases(1) % of Total Annual Base Rent Represented by Expiring Leases 2023 134 497,000 7.7 % $ 12,098,000 6.8 % 2024 93 526,000 8.2 12,301,000 6.9 2025 93 677,000 10.5 17,963,000 10.0 2026 58 263,000 4.1 6,084,000 3.4 2027 67 424,000 6.6 11,408,000 6.4 2028 44 523,000 8.1 15,483,000 8.7 2029 39 385,000 6.0 11,001,000 6.1 2030 33 417,000 6.5 14,106,000 7.9 2031 15 281,000 4.4 6,958,000 3.9 2032 28 649,000 10.1 18,774,000 10.5 Thereafter 48 1,787,000 27.8 52,504,000 29.4 Total 652 6,429,000 100 % $ 178,680,000 100 % ___________ (1) Amount is based on the total annual contractual base rent expiring in the applicable year, based on leases as of December 31, 2022. 52 Table of Contents Geographic Diversification/Concentration Table The following table lists our property locations and provides certain information regarding our portfolio’s geographic diversification/concentration as of December 31, 2022: State Number of Buildings/ Campuses GLA (Sq Ft) % of GLA Annualized Base Rent/NOI(1) % of Annualized Base Rent/NOI Alabama 5 290,000 1.5 % $ 4,948,000 1.5 % Arizona 1 34,000 0.2 848,000 0.3 Arkansas 1 51,000 0.3 448,000 0.1 California 9 333,000 1.7 3,595,000 1.1 Colorado 6 287,000 1.4 6,673,000 2.0 Connecticut 6 187,000 0.9 3,892,000 1.2 District of Columbia 1 134,000 0.7 4,861,000 1.5 Florida 8 715,000 3.5 907,000 0.3 Georgia 16 494,000 2.5 10,323,000 3.2 Iowa 1 38,000 0.2 584,000 0.2 Illinois 13 411,000 2.1 7,201,000 2.2 Indiana 74 5,208,000 26.2 118,131,000 36.2 Kansas 2 116,000 0.5 3,044,000 0.9 Kentucky 14 1,377,000 6.9 (2,686,000) (0.8) Louisiana 7 257,000 1.3 1,625,000 0.5 Maryland 1 77,000 0.4 1,687,000 0.5 Massachusetts 7 513,000 2.5 12,999,000 4.0 Michigan 27 1,588,000 8.0 27,995,000 8.6 Minnesota 1 46,000 0.2 1,075,000 0.3 Mississippi 2 76,000 0.4 626,000 0.2 Missouri 12 769,000 3.9 15,710,000 4.8 Nebraska 2 282,000 1.4 1,882,000 0.6 Nevada 1 191,000 1.0 4,819,000 1.6 New Jersey 5 327,000 1.6 8,278,000 2.5 New York 1 91,000 0.5 2,970,000 0.9 North Carolina 8 330,000 1.7 5,279,000 1.6 Ohio 33 2,534,000 12.7 25,045,000 7.7 Oregon 1 62,000 0.3 1,709,000 0.5 Pennsylvania 9 592,000 3.0 13,797,000 4.2 South Carolina 1 59,000 0.3 1,671,000 0.5 Tennessee 1 46,000 0.2 605,000 0.2 Texas 23 1,466,000 7.4 22,323,000 6.8 Utah 1 66,000 0.3 (1,682,000) (0.6) Virginia 2 284,000 1.4 4,684,000 1.4 Washington 2 77,000 0.4 2,158,000 0.7 Wisconsin 4 334,000 1.7 3,897,000 1.2 Total Domestic 308 19,742,000 99.2 321,921,000 98.6 Isle of Man and UK 6 155,000 0.8 4,467,000 1.4 Total 314 19,897,000 100 % $ 326,388,000 100 % 53 Table of Contents ___________ (1) Amount is based on contractual base rent from leases as of December 31, 2022, with the exception of our SHOP and integrated senior health campuses, which amount is based on annualized NOI due to the characteristics of the RIDEA structure.
Biggest changeFt. of Expiring Leases % of GLA Represented by Expiring Leases Annual Base Rent of Expiring Leases(1) % of Total Annual Base Rent Represented by Expiring Leases 2024 113 532 9.8 % $ 12,814 8.0 % 2025 75 577 10.7 15,782 10.0 2026 45 211 3.9 4,947 3.1 2027 57 402 7.4 11,036 6.9 2028 59 523 9.7 15,099 9.4 2029 43 423 7.8 12,160 7.6 2030 36 447 8.3 14,766 9.2 2031 18 295 5.5 7,380 4.6 2032 24 595 11.0 17,180 10.7 2033 21 644 11.9 18,193 11.4 Thereafter 35 760 14.0 30,566 19.1 Total 526 5,409 100 % $ 159,923 100 % ___________ (1) Amount is based on the total annual contractual base rent expiring in the applicable year, based on leases as of December 31, 2023. 51 Table of Contents Geographic Diversification/Concentration Table The following table lists our property locations and provides certain information regarding our portfolio’s geographic diversification/concentration as of December 31, 2023 (square feet and dollars in thousands): State Number of Buildings/ Campuses GLA (Sq Ft) % of GLA Annualized Base Rent/NOI(1) % of Annualized Base Rent/NOI Alabama 5 290 1.5 % $ 4,550 1.3 % Arkansas 1 51 0.3 534 0.2 Arizona 1 34 0.2 873 0.3 California 8 314 1.7 3,474 1.0 Colorado 6 287 1.5 6,793 2.0 Connecticut 3 109 0.6 2,291 0.7 District of Columbia 1 134 0.7 4,983 1.4 Florida 1 11 0.1 632 0.2 Georgia 11 420 2.1 9,636 2.7 Iowa 1 38 0.2 598 0.2 Illinois 10 330 1.8 5,668 1.6 Indiana 75 5,242 27.9 122,062 35.3 Kansas 2 116 0.6 3,085 0.9 Kentucky 17 1,504 8.0 (1,970) (0.6) Louisiana 7 257 1.4 1,741 0.5 Massachusetts 7 513 2.7 13,330 3.9 Maryland 1 77 0.4 1,732 0.5 Michigan 28 1,588 8.4 36,065 10.4 Minnesota 1 46 0.2 1,091 0.3 Missouri 12 769 4.1 16,942 4.9 Mississippi 2 76 0.4 890 0.3 North Carolina 8 330 1.8 7,165 2.1 Nebraska 2 282 1.5 691 0.2 New Jersey 4 161 0.9 3,848 1.1 Nevada 1 191 1.0 4,974 1.4 New York 1 91 0.5 3,038 0.9 Ohio 32 2,468 13.1 32,060 9.3 Oregon 1 62 0.3 1,740 0.5 Pennsylvania 8 556 3.0 11,001 3.2 South Carolina 1 59 0.3 1,716 0.5 Tennessee 1 46 0.2 617 0.2 Texas 22 1,454 7.7 24,032 7.0 Utah 1 66 0.4 450 0.1 Virginia 2 284 1.5 4,643 1.3 Washington 2 77 0.4 2,171 0.6 Wisconsin 4 334 1.8 7,555 2.2 Total Domestic 290 18,667 99.2 $ 340,701 98.6 Isle of Man and UK 6 155 0.8 4,840 1.4 Total 296 18,822 100 % $ 345,541 100 % 52 Table of Contents ___________ (1) Amount is based on contractual base rent from leases as of December 31, 2023, with the exception of our SHOP and integrated senior health campuses, which amount is based on annualized NOI due to the characteristics of the RIDEA structure.
Indebtedness For a discussion of our indebtedness, see Note 8, Mortgage Loans Payable, Net, and Note 9, Lines of Credit and Term Loans, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.
Indebtedness For a discussion of our indebtedness, see Note 8, Mortgage Loans Payable, Net, and Note 9, Lines of Credit and Term Loan, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.
(2) Leased percentage includes all third-party leased space at our non-RIDEA properties (including master leases), and excludes our SHOP and integrated senior health campuses where leased percentage represents resident occupancy on the available units/beds therein. (3) Total portfolio weighted average leased percentage excludes our SHOP and integrated senior health campuses.
(2) Leased percentage includes all third-party leased space at our non-RIDEA properties (including master leases), except for our SHOP and integrated senior health campuses where leased percentage represents resident occupancy on the available units/beds therein. (3) Total portfolio weighted average leased percentage excludes our SHOP and integrated senior health campuses.
For additional information regarding our real estate investments, see Schedule III, Real Estate and Accumulated Depreciation, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K. Lease Expirations Substantially all of our leases with residents at our SHOP and integrated senior health campuses are for a term of one year or less.
For additional information regarding our real estate investments, see Schedule III, Real Estate and Accumulated Depreciation, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K. 50 Table of Contents Lease Expirations Substantially all of our leases with residents at our SHOP and integrated senior health campuses are for a term of one year or less.
See Note 13, Redeemable Noncontrolling Interests, and Note 14, Equity — Noncontrolling Interests in Total Equity, to the Consolidated Financial Statements that are part of this Annual Report on Form 10-K, for a further discussion of our noncontrolling interests.
See Note 12, Redeemable Noncontrolling Interests, and Note 13, Equity — Noncontrolling Interests in Total Equity, to the Consolidated Financial Statements that are part of this Annual Report on Form 10-K, for a further discussion of our noncontrolling interests.
We own and/or operate 100% of our properties as of December 31, 2022, with the exception of our investments through Trilogy, or Trilogy Portfolio, Lakeview IN Medical Plaza, Southlake TX Hospital, Central Florida Senior Housing Portfolio, Pinnacle Beaumont ALF, Pinnacle Warrenton ALF and Louisiana Senior Housing Portfolio.
We own and/or operate 100% of our properties as of December 31, 2023, with the exception of our investments through Trilogy, or Trilogy Portfolio, Lakeview IN Medical Plaza, Southlake TX Hospital, Pinnacle Beaumont ALF, Pinnacle Warrenton ALF and Louisiana Senior Housing Portfolio.
Item 2. Properties. As of December 31, 2022, our principal executive offices are located at 18191 Von Karman Avenue, Suite 300, Irvine, California 92612. As of December 31, 2022, we also leased office and building space in Arizona. We believe our existing leased facilities are in good condition and suitable for the conduct of our business.
Item 2. Properties. As of December 31, 2023, our principal executive offices are located at 18191 Von Karman Avenue, Suite 300, Irvine, California 92612. We believe our existing leased facilities are in good condition and suitable for the conduct of our business.
We own fee simple interests in all of our land, buildings and campuses except for 17 MOBs and seven integrated senior health campuses, for which we own fee simple interests in the buildings and other improvements on such properties subject to the respective ground leases and for 21 integrated senior health campuses that were leased to Trilogy Portfolio by third parties. 51 Table of Contents The following information generally applies to our properties: • we believe all of our properties are adequately covered by insurance and are suitable for their intended purposes; • we have no plans for any material renovations, improvements or development with respect to any of our properties, except in accordance with planned budgets and within our Trilogy Portfolio; • our properties are located in markets where we are subject to competition for attracting new tenants and residents, as well as retaining current tenants and residents; and • depreciation is provided on a straight-line basis over the estimated useful lives of the buildings and capital improvements, up to 39 years, over the shorter of the lease term or useful lives of the tenant improvements, up to 34 years, and over the estimated useful life of furniture, fixtures and equipment, up to 28 years.
The following information generally applies to our properties: • we believe all of our properties are adequately covered by insurance and are suitable for their intended purposes; • we have no plans for any material renovations, improvements or development with respect to any of our properties, except in accordance with planned budgets and within our Trilogy Portfolio; • our properties are located in markets where we are subject to competition for attracting new tenants and residents, as well as retaining current tenants and residents; and • depreciation is provided on a straight-line basis over the estimated useful lives of the buildings and capital improvements, up to 39 years, over the shorter of the lease term or useful lives of the tenant improvements, up to 34 years, and over the estimated useful life of furniture, fixtures and equipment, up to 28 years.
Real Estate Investments As of December 31, 2022, we operated through six reportable business segments: integrated senior health campuses, MOBs, SNFs, SHOP, senior housing — leased and hospitals.
Real Estate Investments As of December 31, 2023, we operated through four reportable business segments: integrated senior health campuses, OM, triple-net leased properties and SHOP.
The following table presents certain additional information about our real estate investments as of December 31, 2022: Reportable Segment Number of Buildings/ Campuses GLA (Sq Ft) % of GLA Aggregate Contract Purchase Price Annualized Base Rent/NOI(1) % of Annualized Base Rent/NOI Leased Percentage(2) Integrated senior health campuses 120 9,089,000 45.7 % $ 1,898,591,000 $ 152,652,000 46.8 % 84.5 % MOBs 104 4,964,000 24.9 1,369,596,000 108,862,000 33.4 89.0 % SHOP 51 3,856,000 19.4 787,797,000 19,535,000 6.0 77.0 % Senior housing — leased 20 673,000 3.4 179,285,000 12,149,000 3.7 100 % SNFs 17 1,142,000 5.7 249,200,000 24,009,000 7.3 100 % Hospitals 2 173,000 0.9 139,780,000 9,181,000 2.8 100 % Total/weighted average(3) 314 19,897,000 100 % $ 4,624,249,000 $ 326,388,000 100 % 92.2 % ___________ (1) With the exception of our SHOP and integrated senior health campuses, amount is based on annualized contractual base rent from leases as of December 31, 2022.
The following table presents certain additional information about our real estate investments as of December 31, 2023 (square feet and dollars in thousands): Reportable Segment Number of Buildings/ Campuses GLA (Sq Ft) % of GLA Aggregate Contract Purchase Price Annualized Base Rent/NOI(1) % of Annualized Base Rent/NOI Leased Percentage(2) Integrated senior health campuses 125 9,234 49.1 % $ 1,948,122 $ 176,314 51.0 % 85.5 % OM 88 4,448 23.6 1,253,089 99,206 28.7 89.2 % SHOP 55 3,716 19.7 802,367 30,495 8.8 81.2 % Triple-net leased properties 28 1,424 7.6 469,965 39,526 11.5 100 % Total/weighted average(3) 296 18,822 100 % $ 4,473,543 $ 345,541 100 % 91.3 % ___________ (1) With the exception of our SHOP and integrated senior health campuses, amount is based on annualized contractual base rent from leases as of December 31, 2023.
Added
We own fee simple interests in all of our land, buildings and campuses, except for the following properties that are located on land that is subject to ground leases: (a) 19 OM buildings; (b) five integrated senior health campuses; and (c) one SNF, in each case, for which we own fee simple interests in the building and other improvements on such properties.
Added
Additionally, we operate 20 integrated senior health campuses that were leased to Trilogy by third parties.
Added
The following table presents the sensitivity of our annual base rent due to lease expirations for the next 10 years and thereafter at our properties as of December 31, 2023, excluding our SHOP and integrated senior health campuses (square feet and dollars in thousands): Year Number of Expiring Leases Total Sq.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings. For a discussion of our legal proceedings, see Note 12, Commitments and Contingencies — Litigation, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K. Item 4. Mine Safety Disclosures. Not applicable. 54 Table of Contents PART II
Biggest changeItem 3. Legal Proceedings. For a discussion of our legal proceedings, see Note 11, Commitments and Contingencies — Litigation, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K. Item 4. Mine Safety Disclosures. Not applicable. 53 Table of Contents PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 54 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 55 Item 6. [Reserved] 57 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 58 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 77
Biggest changeItem 4. Mine Safety Disclosures 53 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 54 Item 6. [Reserved] 55 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 56 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 73

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information There is no established public trading market for shares of our common stock.
Biggest changeItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock began trading on the NYSE under the ticker symbol “AHR” on February 7, 2024. As of March 15, 2024, we had approximately 131,597,967 aggregate shares of our common stock outstanding, held by approximately 48,187 stockholders of record.
The amount of the distributions paid to our common stockholders was determined quarterly or monthly, as applicable, by our board and was dependent on a number of factors, including funds available for payment of distributions, our financial condition, capital expenditure requirements and annual distribution requirements needed to maintain our qualification as a REIT under the Code.
The amount of the quarterly distributions paid to our common stockholders was determined by our board and was dependent on a number of factors, including funds available for payment of distributions, our financial condition, capital expenditure requirements and annual distribution requirements needed to maintain our qualification as a REIT under the Code.
In determining the updated estimated per share NAV of our shares, our board considered information and analysis, including valuation materials that were provided by an independent third-party valuation firm, and the estimated per share NAV recommendation made by the audit committee of our board, which committee is comprised entirely of independent directors.
In determining the estimated per share NAV of our shares as of December 31, 2022, our board considered information and analysis, including valuation materials that were provided by an independent third-party valuation firm, and the estimated per share NAV recommendation made by the audit committee of our board, which committee is comprised entirely of independent directors.
The updated estimated per share NAV of $31.40 was approved and established by our board on March 15, 2023 based on the estimated value of our assets less the estimated value of our liabilities, divided by the number of shares outstanding on a fully diluted basis, calculated as of December 31, 2022.
On March 15, 2023, based on the estimated value of our assets less the estimated value of our liabilities, divided by the number of shares outstanding on a fully diluted basis, calculated as of December 31, 2022, our board authorized and established an estimated per share NAV of $31.40.
We have not established any limit on the amount of borrowings that may be used to fund distributions, except that, in accordance with Maryland law, we may not make distributions that would: (i) cause us to be unable to pay our debts as they become due in the usual course of business; or (ii) cause our total assets to be less than the sum of our total liabilities plus senior liquidation preferences. 56 Table of Contents Recent Sales of Unregistered Securities None.
We have not established any limit on the amount of borrowings that may be used to fund distributions, except that, in accordance with Maryland law, we may not make distributions that would: (i) cause us to be unable to pay our debts as they become due in the usual course of business; or (ii) cause our total assets to be less than the sum of our total liabilities plus senior liquidation preferences.
Effective beginning with the third quarter of 2022, distributions, if any, were or shall be authorized by our board on a quarterly basis, in such amounts as our board determined or shall determine, and each quarterly record date for the purposes of such distributions was or shall be determined and authorized by our board in the last month of each calendar quarter until such time as our board changes our distribution policy.
Distributions Our board shall authorize distributions, if any, on a quarterly basis, in such amounts as our board shall determine, and each quarterly record date for the purposes of such distributions shall be determined and authorized by our board in the last month of each calendar quarter until such time as our board changes our distribution policy.
As a result of the suspension of the AHR DRIP, unless and until our board reinstates the AHR DRIP Offering, stockholders who are current participants in the AHR DRIP were or will be paid distributions in cash.
On November 14, 2022, our board suspended our DRIP offering beginning with distributions declared, if any, for the quarter ending December 31, 2022. As a result of the suspension of our DRIP, unless and until our board reinstates our DRIP offering, stockholders who are current participants in our DRIP were or will be paid distributions in cash.
The quarterly distribution was equal to $0.40 per share of our common stock, which was equal to an annualized distribution rate of $1.60 per share and paid in cash, only from legally available funds.
Such quarterly distributions were equal to an annualized distribution rate of $1.00 per share and paid in cash, only from legally available funds.
AHR Incentive Plan In October 2022, we repurchased 11,679 shares of our common stock, for an aggregate of $434,000, at a repurchase price of $37.16 per share in order to satisfy minimum statutory withholding tax obligations associated with the vesting of restricted stock awards issued pursuant to the AHR Incentive Plan.
Recent Sales of Unregistered Securities None. 54 Table of Contents Purchase of Equity Securities by the Issuer and Affiliated Purchasers In October 2023, we repurchased 9,683 shares of our common stock, for an aggregate of $304,000, at a repurchase price of $31.40 per share in order to satisfy minimum statutory withholding tax obligations associated with the vesting of restricted stock awards issued pursuant to the AHR Incentive Plan.
Pursuant to FINRA rules, we generally disclose an estimated per share NAV of our shares based on a valuation performed at least annually, and we disclose the resulting estimated per share NAV in our Annual Reports on Form 10-K distributed to stockholders.
Prior to the 2024 Offering, to assist the members of FINRA and their associated persons, pursuant to FINRA Rule 2231, we generally disclosed an estimated per share NAV of our shares based on a valuation performed at least annually.
Removed
To assist the members of FINRA and their associated persons, pursuant to FINRA Rule 2231, we disclose in each annual report distributed to stockholders a per share estimated value of the shares, the method by which it was developed, and the date of the data used to develop the estimated value.
Added
This number does not represent the actual number of beneficial owners of our common stock because shares of our common stock are frequently held in “street name” by securities dealers and others for the beneficial owners who may vote the shares. Prior to February 7, 2024, there was no established public trading market for our common stock.
Removed
In addition, we prepare annual statements of the estimated per share value to assist fiduciaries of benefit plans and IRAs subject to the annual reporting requirements of ERISA in the preparation of their reports relating to an investment in shares of our common stock.
Added
On February 9, 2024, we closed the 2024 Offering, through which we issued 64,400,000 shares, including the underwriters’ overallotment of 8,400,000 shares, of a new class of common stock, $0.01 par value per share, at an initial price to the public of $12.00 per share.
Removed
For these purposes, our updated estimated per share NAV is $31.40 calculated as of December 31, 2022, and represents a decrease from our previously determined estimated per share NAV of $37.16, which management believes generally reflects changes in property specific factors, such as the age of a property, demand for space and the financial stability of major tenants, and to an even greater degree, broader market factors such as the continued impact on operations from COVID-19, inflation, prevailing interest rates and movements in capitalization rates that also significantly impact values.
Added
Securities Authorized for Issuance Under Equity Compensation Plans See Part III, Item 11, Executive Compensation — AHR Incentive Plan, and Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, for a discussion of our equity compensation plan information.
Removed
However, there is no established public trading market for the shares of our common stock at this time, and there can be no assurance that stockholders could receive $31.40 per share if such a market did exist and they sold their shares of our common stock or that they would be able to receive such amount for their shares of our common stock in the future.
Added
Since the first quarter of 2023, our board has authorized a quarterly distribution equal to $0.25 per share to holders of our common stock, which we expect will continue to be paid in the future, though we cannot guarantee that our distributions will continue at the current value.
Removed
Stockholders As of March 10, 2023, we had approximately 47,938 stockholders of record. Distributions The following information represents distributions of GAHR IV for the nine months ended September 30, 2021 and the year ended December 31, 2020.
Removed
Following the consummation of the Merger between GAHR III and GAHR IV on October 1, 2021, the information included below represents the distributions of the Combined Company.
Removed
Prior to March 31, 2020, the GAHR IV board authorized a daily distribution to our stockholders of record as of the close of business on each day of the period commencing on May 1, 2016 and ending on March 31, 2020.
Removed
The daily distributions were calculated based on 365 days in the calendar year and were equal to $0.006575344 per share of our Class T common stock and Class I common stock, which was equal to an annualized distribution rate of $2.40 per share.
Removed
These distributions were aggregated and paid in cash or shares of our common stock pursuant to the DRIP on a monthly basis, in arrears, only from legally available funds. 55 Table of Contents In response to the COVID-19 pandemic and its effects to our business and operations, at the end of the first quarter of 2020, the GAHR IV board decided to take steps to protect our capital and maximize our liquidity in an effort to strengthen our long-term financial prospects by reducing our distribution payments to stockholders.
Removed
Consequently, the GAHR IV board authorized a daily distribution to our stockholders of record as of the close of business on each day of the period commencing on April 1, 2020 and ending on August 31, 2021, which was calculated based on 365 days in the calendar year and was equal to $0.004383560 per share of our Class T common stock and Class I common stock.
Removed
Such daily distribution was equal to an annualized distribution rate of $1.60 per share. The distributions were aggregated and paid in cash or shares of our common stock pursuant to the DRIP on a monthly basis, in arrears, only from legally available funds.
Removed
On March 18, 2021, in connection with the GAHR IV special committee's strategic alternative review process, the GAHR IV board of directors authorized the suspension of the DRIP, effective as of April 1, 2021.
Removed
As a result, beginning with the April 2021 distributions, which were paid in May 2021, there were no further issuances of shares pursuant to the DRIP, and stockholders who were participants in the AHR DRIP received cash distributions instead.
Removed
On October 4, 2021, our board authorized the reinstatement of the DRIP and as a result, beginning with the October 2021 distribution, which was paid in November 2021, stockholders who previously enrolled as participants in the DRIP (including former GAHR III stockholders who participated in the GAHR III distribution reinvestment plan) received distributions in shares of our common stock pursuant to the terms of the AHR DRIP, instead of cash distributions.
Removed
The GAHR IV board of directors also authorized distributions to our Class T common stockholders and Class I common stockholders of record as of the close of business on September 17, 2021, equal to $0.131506800 per share of our common stock, which was equal to an annualized distribution rate of $1.60 per share.
Removed
Further, our board authorized record date distributions to our Class T common stockholders and Class I common stockholders of record as of each monthly record date from October 2021 through June 2022, equal to $0.133333332 per share of our common stock, which was equal to an annualized distribution rate of $1.60 per share.
Removed
The distributions were paid in cash or shares of our common stock pursuant to the AHR DRIP.
Removed
On September 28, 2022, our board authorized a distribution to our Class T common stockholders and Class I common stockholders of record as of the close of business on September 29, 2022, for the quarter commencing on July 1, 2022 and ending on September 30, 2022.
Removed
The quarterly distribution was equal to $0.40 per share of our common stock, which was equal to an annualized distribution rate of $1.60 per share. The third quarter distribution was paid in October 2022 in cash or shares of our common stock pursuant to the AHR DRIP, only from legally available funds.
Removed
On November 14, 2022, our board suspended the AHR DRIP Offering beginning with distributions declared, if any, for the quarter ending December 31, 2022.
Removed
On December 12, 2022, our board authorized a distribution to our Class T common stockholders and Class I common stockholders of record as of the close of business on December 29, 2022, for the quarter commencing on October 1, 2022 and ending on December 31, 2022.
Removed
In response to interest rates that have increased drastically since the beginning of 2022, from a Federal Funds Rate of 0.08% as of January 2022 to 4.57% as of February 2023, and greater uncertainty surrounding further interest rate movements, our board elected to reduce our quarterly distribution to $0.25 per share in order to preserve our liquidity, better align distributions with available cash flows and position our company for its long-term strategic goals.
Removed
On March 15, 2023, our board authorized a reduced quarterly distribution from $0.40 per share to $0.25 per share to our Class T common stockholders and Class I common stockholders of record as of the close of business on April 4, 2023.
Removed
The distribution for the quarter commencing January 1, 2023 to March 31, 2023, which will be paid on or about April 18, 2023, represents an annualized distribution rate of $1.00 per share. See our Current Report on Form 8-K filed with the SEC on March 17, 2023 for more information.
Removed
Purchase of Equity Securities by the Issuer and Affiliated Purchasers Share Repurchase Plan Our share repurchase plan allowed for repurchases of shares of our common stock by us when certain criteria were met. Share repurchases were made at the sole discretion of our board.
Removed
Funds for the repurchase of shares of our common stock originated exclusively from the cumulative proceeds we received from the sale of shares of our common stock pursuant to our DRIP Offerings.
Removed
On October 4, 2021, our board approved our amended and restated share repurchase plan that included a change in the repurchase price with respect to repurchases resulting from the death or qualifying disability (as such term is defined in our share repurchase plan) of stockholders, to the most recently published estimated per share NAV.
Removed
In addition, on October 4, 2021, our board authorized the partial reinstatement of our share repurchase plan with respect to requests to repurchase shares resulting from the death or qualifying disability of stockholders, effective with respect to qualifying repurchases for the fiscal quarter ending December 31, 2021.
Removed
All share repurchase requests other than those requests resulting from the death or qualifying disability of stockholders were rejected. On November 14, 2022, our board suspended our share repurchase plan with respect to all repurchase requests, including repurchases resulting from the death or qualifying disability of stockholders, beginning with share repurchases for the quarter ending December 31, 2022.
Removed
See Note 14, Equity — Share Repurchase Plan, to the Consolidated Financial Statements that are part of this Annual Report on Form 10-K, for a further discussion.
Removed
During the three months ended December 31, 2022, we repurchased shares of our common stock pursuant to our share repurchase plan, as follows: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased As Part of Publicly Announced Plan or Program Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs October 1, 2022 to October 31, 2022 119,389 $ 37.16 119,389 (1) November 1, 2022 to November 30, 2022 145 $ 37.16 145 (1) December 1, 2022 to December 31, 2022 668 $ 37.16 668 (1) Total 120,202 $ 37.16 120,202 ___________ (1) A description of the maximum number of shares that may be purchased under our share repurchase plan is included in Note 14, Equity — Share Repurchase Plan, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

116 edited+45 added−104 removed36 unchanged
Biggest changeFor the years ended December 31, 2022 and 2021, MFFO would have been approximately $108,812,000 and $62,480,000, respectively, excluding government grants recognized. 74 Table of Contents The following is a reconciliation of net income or loss, which is the most directly comparable GAAP financial measure, to FFO and MFFO for the periods presented below: Years Ended December 31, 2022 2021 Net loss $ (73,383,000) $ (53,269,000) Depreciation and amortization related to real estate — consolidated properties 167,860,000 133,191,000 Depreciation and amortization related to real estate — unconsolidated entities 1,102,000 3,116,000 Impairment of real estate investments — consolidated properties 54,579,000 3,335,000 (Gain) loss on dispositions of real estate investments — consolidated properties (5,481,000) 100,000 Gain on re-measurement of previously held equity interest(1) (19,567,000) — Net (income) loss attributable to noncontrolling interests (7,919,000) 5,475,000 Depreciation, amortization, impairments, gain/loss on dispositions and gain on re-measurement — noncontrolling interests (22,614,000) (22,270,000) FFO attributable to controlling interest $ 94,577,000 $ 69,678,000 Business acquisition expenses(2) $ 4,388,000 $ 13,022,000 Amortization of above- and below-market leases(3) 2,596,000 953,000 Amortization of closing costs(4) 237,000 201,000 Change in deferred rent(5) (3,355,000) (20,000) Loss on debt extinguishments(6) 5,166,000 2,655,000 Gain in fair value of derivative financial instruments(7) (500,000) (8,200,000) Foreign currency loss(8) 5,206,000 564,000 Impairment of goodwill(9) 23,277,000 — Adjustments for unconsolidated entities(10) 222,000 573,000 Adjustments for noncontrolling interests(10) (3,419,000) (1,784,000) MFFO attributable to controlling interest $ 128,395,000 $ 77,642,000 Weighted average Class T and Class I common shares outstanding — basic and diluted 65,807,868 50,081,140 Net loss per Class T and Class I common share — basic and diluted $ (1.12) $ (1.06) FFO attributable to controlling interest per Class T and Class I common share — basic and diluted $ 1.44 $ 1.39 MFFO attributable to controlling interest per Class T and Class I common share — basic and diluted $ 1.95 $ 1.55 ___________ (1) We recognized a gain upon the acquisition of the 50.0% controlling interest in RHS.
Biggest changeIn the future, the SEC, NAREIT or another regulatory body may decide to standardize the allowable adjustments across the REIT industry and we would have to adjust our calculation and characterization of FFO or Normalized FFO. 71 Table of Contents The following is a reconciliation of net income or loss, which is the most directly comparable GAAP financial measure, to FFO and Normalized FFO for the periods presented below (in thousands except for share and per share amounts): Years Ended December 31, 2023 2022 2021 Net loss $ (76,887) $ (73,383) $ (53,269) Depreciation and amortization related to real estate — consolidated properties 182,452 167,860 133,191 Depreciation and amortization related to real estate — unconsolidated entities 401 1,102 3,116 Impairment of real estate investments — consolidated properties 13,899 54,579 3,335 (Gain) loss on dispositions of real estate investments, net — consolidated properties (32,472) (5,481) 100 Net loss (income) attributable to noncontrolling interests 5,418 (7,919) 5,475 Gain on re-measurement of previously held equity interests (726) (19,567) — Depreciation, amortization, impairments, net gain/loss on dispositions and gain on re-measurements — noncontrolling interests (26,518) (22,614) (22,270) NAREIT FFO attributable to controlling interest $ 65,567 $ 94,577 $ 69,678 Business acquisition expenses $ 5,795 $ 4,388 $ 13,022 Amortization of above- and below-market leases 9,744 2,596 953 Amortization of closing costs — debt security investments 278 237 201 Change in deferred rent 1,149 (3,355) (20) Non-cash impact of changes to equity instruments 5,621 3,909 1,008 Capitalized interest (163) (150) (628) Loss on debt extinguishments 345 5,166 2,655 Loss (gain) in fair value of derivative financial instruments 926 (500) (8,200) Foreign currency (gain) loss (2,307) 5,206 564 Impairment of intangible assets and goodwill 10,520 23,277 — Adjustments for unconsolidated entities (321) 113 573 Adjustments for noncontrolling interests (4,786) (3,530) (1,653) Normalized FFO attributable to controlling interest $ 92,368 $ 131,934 $ 78,153 Weighted average Class T and Class I common shares outstanding — basic and diluted 66,047,114 65,807,868 50,081,140 Net loss per Class T and Class I common share attributable to controlling interest — basic and diluted $ (1.08) $ (1.24) $ (0.95) NAREIT FFO per Class T and Class I common share attributable to controlling interest — basic and diluted $ 0.99 $ 1.44 $ 1.39 Normalized FFO per Class T and Class I common share attributable to controlling interest — basic and diluted $ 1.40 $ 2.00 $ 1.56 Net Operating Income Net operating income, or NOI, is a non-GAAP financial measure that is defined as net income (loss), computed in accordance with GAAP, generated from properties before general and administrative expenses, business acquisition expenses, depreciation and amortization, interest expense, gain or loss on dispositions, impairment of real estate investments, impairment of intangible assets and goodwill, income or loss from unconsolidated entities, gain on re-measurement of previously held equity interests, foreign currency gain or loss, other income and income tax benefit or expense.
The following Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to promote understanding of our results of operations and financial condition. The following discussion is provided as a supplement to, and should be read in conjunction with our accompanying consolidated financial statements and notes thereto appearing elsewhere in this Annual Report on Form 10-K.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to promote understanding of our results of operations and financial condition. Such discussion is provided as a supplement to, and should be read in conjunction with, our accompanying consolidated financial statements and notes thereto appearing elsewhere in this Annual Report on Form 10-K.
Impairments For the year ended December 31, 2022, we recognized aggregate impairment charges on our real estate investments of $54,579,000 related to our SHOP within the Central Florida Senior Housing Portfolio, Pinnacle Warrenton ALF and Mountain Crest Senior Housing Portfolio.
For the year ended December 31, 2022, we recognized aggregate impairment charges on our real estate investments of $54,579,000 related to our SHOP within the Central Florida Senior Housing Portfolio, Pinnacle Warrenton ALF and the Mountain Crest Senior Housing Portfolio.
See Note 8, Mortgage Loans Payable, Net, and Note 9, Lines of Credit and Term Loans, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion on debt extinguishments.
See Note 8, Mortgage Loans Payable, Net, and Note 9, Lines of Credit and Term Loan, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion of debt extinguishments.
For the years ended December 31, 2022 and 2021, resident fees and services revenue primarily consisted of rental fees related to resident leases, extended health care fees and other ancillary services, and real estate revenue primarily consisted of base rent and expense recoveries.
For the years ended December 31, 2023, 2022 and 2021, resident fees and services revenue primarily consisted of rental fees related to resident leases, extended health care fees and other ancillary services, and real estate revenue primarily consisted of base rent and expense recoveries.
Nevertheless, we believe that the use of FFO, which excludes the impact of real estate-related depreciation and amortization and impairments, provides a further understanding of our performance to investors and to our 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 (loss).
Nevertheless, we believe that the use of FFO, which excludes the impact of real estate-related depreciation and amortization and impairments, provides a further understanding of our operating performance to investors, industry analysts and our 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 (loss).
Investing Activities The decrease in net cash used in investing activities during the year ended December 31, 2022 as compared to the prior year period of $20,074,000 was primarily due to a $43,798,000 increase in proceeds from dispositions of real estate, a $17,852,000 decrease in cash, cash equivalents and restricted cash acquired in connection with the Merger on October 1, 2021 and a $8,175,000 decrease in developments and capital expenditures.
The decrease of $20,074,000 in net cash used in investing activities during the year ended December 31, 2022, as compared to the year ended December 31, 2021, was primarily due to a $43,798,000 increase in proceeds from dispositions of real estate, a $17,852,000 decrease in cash, cash equivalents and restricted cash acquired in connection with the Merger on October 1, 2021 and a $8,175,000 decrease in developments and capital expenditures.
The fair value measurement and its allocation require significant judgment and in some cases involve complex calculations. These allocation assessments directly impact our financial statements. Impairment of Long-Lived Assets We also periodically perform analysis that requires us to judge whether indicators of impairment exist and to estimate likely future cash flows.
The fair value measurement and its allocation require significant judgment and, in some cases, involve complex calculations. These allocation assessments directly impact our financial statements. Impairment of Long-Lived Assets We periodically perform an analysis that requires us to judge whether indicators of impairment exist and to estimate likely future cash flows.
Acquisitions and Dispositions in 2022, 2021 and 2020 For a discussion of our acquisitions and dispositions of investments in 2022, 2021 and 2020, see Note 2, Summary of Significant Accounting Policies — Properties Held for Sale, Note 3, Real Estate Investments, Net, and Note 4, Business Combinations, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.
Acquisitions and Dispositions in 2023, 2022 and 2021 For a discussion of our acquisitions and dispositions of investments in 2023, 2022 and 2021, see Note 2, Summary of Significant Accounting Policies — Properties Held for Sale, Note 3, Real Estate Investments, Net, and Note 4, Business Combinations, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.
We may also make distributions with cash from capital transactions including, without limitation, the sale of one or more of our properties. Commitments and Contingencies For a discussion of our commitments and contingencies, see Note 12, Commitments and Contingencies, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.
We may also make distributions with cash from capital transactions including, without limitation, the sale of one or more of our properties. Commitments and Contingencies For a discussion of our commitments and contingencies, see Note 11, Commitments and Contingencies, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.
Funds from Operations and Modified Funds from Operations Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group, has promulgated a measure known as funds from operations, a non-GAAP financial measure, which we believe to be an appropriate supplemental performance measure to reflect the operating performance of a REIT.
Funds from Operations and Normalized Funds from Operations Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group, has promulgated a measure known as funds from operations, a non-GAAP financial measure, which we believe to be an appropriate supplemental performance measure to reflect the operating performance of a REIT.
See Note 13, Redeemable Noncontrolling Interests, and Note 14, Equity — Noncontrolling Interests in Total Equity, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion of the ownership in our operating partnership.
See Note 12, Redeemable Noncontrolling Interests, and Note 13, Equity — Noncontrolling Interests in Total Equity, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion of the ownership in our operating partnership.
The amount of revenues generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease available space at the then existing rental rates. We also receive grant income.
The amount of revenues generated by our RIDEA properties depends principally on our ability to maintain resident occupancy rates of currently leased space and to lease available space at the then existing rental rates. We also receive grant income.
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.
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 Normalized FFO measures and the adjustments to GAAP in calculating FFO and Normalized FFO.
Revenue Recognition and Grant Income A significant portion of resident fees and services revenue represents healthcare service revenue that is reported at the amount that we expect to be entitled to in exchange for providing patient care.
Revenue Recognition A significant portion of resident fees and services revenue represents healthcare service revenue that is reported at the amount that we expect to be entitled to in exchange for providing patient care.
Real Estate Revenue For the year ended December 31, 2022, $67,234,000 of real estate revenue was primarily due to the increase in the size of our portfolio as a result of the Merger.
For the year ended December 31, 2022, as compared to the year ended December 31, 2021, $67,234,000 of real estate revenue was primarily due to the increase in the size of our portfolio as a result of the Merger.
For the year ended December 31, 2022, the decrease in such expenses primarily related to a decrease of $12,599,000 in third-party legal costs and professional services incurred related to the Merger and the AHI Acquisition, partially offset by an increase of $3,158,000 in transaction costs related to our business combinations and an increase of $807,000 in dead-deal costs incurred in the pursuit of real estate investments that did not close.
For the year ended December 31, 2022, the decrease in business acquisition expenses, as compared to the year December 31, 2021, primarily related to a decrease of $12,599,000 in third-party legal costs and professional services incurred related to the Merger and the AHI Acquisition, partially offset by an increase of $3,158,000 in transaction costs related to our business combinations and an increase of $807,000 in dead-deal costs incurred in the pursuit of real estate investments that did not close.
We have built a fully-integrated management platform, with approximately 113 employees, that operates clinical healthcare properties throughout the United States, the United Kingdom, and the Isle of Man.
We have built a fully-integrated management platform, with approximately 110 employees, that operates clinical healthcare properties throughout the United States, the United Kingdom and the Isle of Man.
Operating Activities The increase in net cash provided by operating activities during the year ended December 31, 2022 as compared to the prior year period of $129,855,000 was due to the increase in the size of our portfolio as a result of the Merger on October 1, 2021, thereby increasing our net operating income.
In addition, the increase of $129,855,000 in net cash provided by operating activities during the year ended December 31, 2022, as compared to the year ended December 31, 2021, was due to the increase in the size of our portfolio as a result of the Merger on October 1, 2021, thereby increasing our net operating income.
A discussion of our significant accounting policies is included within Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K. There have been no significant changes to our critical accounting policies during 2022.
A discussion of our significant accounting policies is included within Note 2, Summary of Significant Accounting Policies, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K. There have been no significant changes to our critical accounting estimates during 2023.
These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Forward-looking statements in this Annual Report on Form 10-K speak only as of the date on which such statements are made, and 58 Table of Contents undue reliance should not be placed on such statements.
These risks and uncertainties should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements. Forward-looking statements in this Annual Report on Form 10-K speak only as of the date on which such statements are made, and undue reliance should not be placed on such statements.
For the year ended December 31, 2021, we recognized an aggregate net loss on dispositions of our real estate investments of $100,000 related to the sale of one MOB, one SNF and two integrated senior health campuses.
For the year ended December 31, 2021, we recognized an aggregate net loss on dispositions of our real estate investments of $100,000 related to the sale of one OM building, one SNF and two integrated senior health campuses.
Such amounts were partially offset by a decrease in rental revenue for our senior housing — leased segment of $2,200,000 for the year ended December 31, 2022, primarily due to transitioning the leased senior housing facilities within Delta Valley ALF portfolio to a RIDEA structure and including such facilities within SHOP on December 1, 2021.
Such amounts were partially offset by a decrease in rental revenue for our senior housing — leased segment of $2,200,000 for the year ended December 31, 2022, as compared to the year ended December 31, 2021, primarily due to transitioning the leased senior housing facilities within Delta Valley ALF portfolio to a RIDEA structure and including such facilities within SHOP in December 2021.
The capital plan for each investment is adjusted through ongoing, regular reviews of our portfolio or as necessary to respond to unanticipated additional capital needs. As of December 31, 2022, we had $17,776,000 of restricted cash in loan impounds and reserve accounts to fund a portion of such capital expenditures.
The capital plan for each investment is adjusted through ongoing, regular reviews of our portfolio or as necessary to respond to unanticipated additional capital needs. As of December 31, 2023, we had $17,818,000 of restricted cash in loan impounds and reserve accounts to fund a portion of such capital expenditures.
See Note 4, Business Combinations — 2021 Business Combinations, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion of the Merger and the AHI Acquisition.
See Note 1, Organization and Description of Business, and Note 4, Business Combinations — 2021 Business Combinations, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion of the Merger and the AHI Acquisition.
Except where otherwise noted, the changes in our consolidated results of operations for 2022 as compared to 2021 are primarily due to the acquisition of GAHR IV’s portfolio of 92 buildings, or approximately 4,799,000 square feet of GLA, as a result of the Merger on October 1, 2021, the disruption to our normal operations as a result of the COVID-19 pandemic and grant income received, as well as the adverse effect of inflation.
The changes in our consolidated results of operations for 2022 as compared to 2021 are primarily due to the acquisition of GAHR IV’s portfolio of 92 buildings, or approximately 4,799,000 square feet of GLA, as a result of the Merger on October 1, 2021; the disruption to our normal operations as a result of the COVID-19 pandemic; grant income received; and the adverse effect of inflation.
These critical accounting policies involve estimates that may require complex judgment in their application and are evaluated on an on-going basis using information that is available as well as various other assumptions believed to be reasonable under the circumstances.
These critical accounting estimates may require complex judgment in their application and are evaluated on an ongoing basis using information that is available as well as various other assumptions believed to be reasonable under the circumstances.
Substantially all of such allowances are recorded as direct 62 Table of Contents reductions of resident fees and services revenue as contractual adjustments provided to third-party payors or implicit price concessions in our accompanying consolidated statements of operations and comprehensive income (loss).
Substantially all of such allowances are recorded as direct reductions of resident fees and services revenue as contractual adjustments provided to third-party payors or implicit price concessions in our accompanying consolidated statements of operations and comprehensive loss.
We generally seek investments that produce current income; however, we have selectively developed, and may continue to selectively develop, healthcare real estate properties. We have elected to be taxed as a REIT for U.S. federal income tax purposes.
We generally seek investments that produce current income; however, we have selectively developed, and may continue to 56 Table of Contents selectively develop, healthcare real estate properties. We have elected to be taxed as a REIT for U.S. federal income tax purposes.
Below is a summary of the key judgments and estimates used in our critical accounting policies. 61 Table of Contents Real Estate Investments Purchase Price Allocation Upon the acquisition of real estate properties or entities owning real estate properties, we determine whether the transaction is a business combination, which requires that the assets acquired and liabilities assumed constitute a business.
Below is a summary of the key judgments and assumptions used in our critical accounting estimates. Real Estate Investments Purchase Price Allocation Upon the acquisition of real estate properties or entities owning real estate properties, we determine whether the transaction is a business combination, which requires that the assets acquired and liabilities assumed constitute a business.
For the year ended December 31, 2022, the increase in depreciation and amortization of $34,766,000 was primarily the result of the increase in depreciable assets in our portfolio as a result of the Merger resulting in depreciation and amortization expense of $27,280,000 as well as an increase in depreciable assets in our portfolio as a result of acquisitions at our integrated senior health campuses segment of $9,368,000.
For the year ended December 31, 2022, the increase in depreciation and amortization of $34,766,000, as compared to the year ended December 31, 2021, was primarily the result of the increase in depreciable assets in our portfolio as a result of the Merger resulting in depreciation and amortization expense of $27,280,000 as well as an increase in depreciable assets in our portfolio as a result of acquisitions within our integrated senior health campuses segment of $9,368,000.
See Note 2, Summary of Significant Accounting Policies, and Note 3, Real Estate Investments, Net, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.
See Note 2, Summary of Significant Accounting Policies — Properties Held for Sale, and Note 3, Real Estate Investments, Net, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.
However, there can be no assurances that management will be able to effectively achieve such plans. 72 Table of Contents Related Party Transactions For a discussion of related party transactions, see Note 15, Related Party Transactions, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.
However, there can be no assurances that management will be able to effectively achieve such plans. Related Party Transactions For a discussion of related party transactions, see Note 14, Related Party Transactions, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.
The weighted average effective interest rate on our outstanding debt was 5.82% per annum. See Note 8, Mortgage Loans Payable, Net, and Note 9, Lines of Credit and Term Loans, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion.
The weighted average effective interest rate on our outstanding debt factoring in our interest rate swaps was 5.72% per annum. See Note 8, Mortgage Loans Payable, Net, and Note 9, Lines of Credit and Term Loan, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion.
The remaining increase in resident fees and services revenue for our SHOP segment for the year ended December 31, 2022, as compared to the prior year period, was primarily attributable to: (i) increased resident occupancy; (ii) higher move-in fees; (iii) an increase of $5,661,000 due to transitioning the leased senior housing facilities within Delta Valley ALF portfolio to a RIDEA structure and including such facilities within SHOP on December 1, 2021; and (iv) an increase of $1,995,000 due to the acquisition of a portfolio of seven senior housing facilities in Texas that are now included within our SHOP segment.
The remaining increase in resident fees and services revenue for our SHOP segment for the year ended December 31, 2022, as compared to the year ended December 31, 2021, was primarily attributable to: (i) improved resident occupancy; (ii) higher resident move-in fees; (iii) an increase of $5,661,000 due to transitioning the leased senior housing facilities within Delta Valley ALF portfolio to a RIDEA structure and including such facilities within SHOP on December 2021; and (iv) an increase of $1,995,000 due to the acquisition of a portfolio of seven senior housing facilities in Texas in December 2022, which is included within our SHOP segment.
Critical Accounting Estimates Our critical accounting policies are those that will have the most impact on the reporting of our financial condition and results of operations and those requiring significant judgments and estimates. We believe that our judgments and estimates are consistently applied and produce financial information that fairly present our financial condition and results of operations.
Critical Accounting Estimates Our critical accounting estimates have the most impact on the reporting of our financial condition and results of operations and require significant judgments and estimates. We believe that our judgments and estimates are consistently applied and produce financial information that fairly present our financial condition and results of operations.
Gain or loss on dispositions of real estate investments For the year ended December 31, 2022, we recognized an aggregate gain on dispositions of our real estate investments of $5,481,000 primarily related to the sale of one MOB, three senior housing facilities within our Central Florida Senior Housing Portfolio and two integrated senior health campuses.
For the year ended December 31, 2022, we recognized an aggregate net gain on dispositions of our real estate investments of $5,481,000 related to the sale of one OM building, three senior housing facilities within our Central Florida Senior Housing Portfolio and two integrated senior health campuses.
Other than the effects of the Merger and the AHI Acquisition discussed above, and the impacts of the COVID-19 pandemic and inflation discussed below, as well as other national economic conditions affecting real estate generally, or as otherwise disclosed in our risk factors, we are not aware of any material trends or uncertainties that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition, disposition, management and operation of our properties.
Factors Which May Influence Results of Operations Other than the effects of inflation discussed below, as well as other national economic conditions affecting real estate generally, and as otherwise disclosed in our risk factors, we are not aware of any material trends or uncertainties that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition, disposition, management and operation of our properties.
Goodwill Goodwill represents the excess of consideration paid over the fair value of underlying identifiable net assets of a business acquired. This allocation is based upon our determination of the value of the acquired assets and assumed liabilities, which requires judgment and some of the estimates involve complex calculations. These allocation assessments have a direct impact on our financial statements.
Goodwill Goodwill represents the excess of consideration paid over the fair value of underlying identifiable net assets of a business acquired. This allocation is based upon our determination of the value of the acquired assets and assumed liabilities, which requires judgment and some of the estimates involve complex calculations.
For a further discussion of FFO, including a reconciliation of our GAAP net loss to FFO, see “Funds from Operations and Modified Funds from Operations” below. For information on future distributions of the Combined Company, see Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Distributions.
For a further discussion of FFO, including a reconciliation of our GAAP net loss to FFO, see “Funds from Operations and Normalized Funds from Operations” below. See Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Distributions, for a further discussion of our distributions.
Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different REITs, although it should be noted that not all REITs calculate funds from operations and modified funds from operations the same way, so comparisons with other REITs may not be meaningful.
Presentation of this information is intended to provide useful information to investors, industry analysts and management as they compare the operating performance used by the REIT industry, although it should be noted that not all REITs calculate funds from operations and normalized funds from operations the same way, so comparisons with other REITs may not be meaningful.
The increase in total property operating expenses for our integrated senior health campuses segment was predominately due to higher operating expenses as a result of increased occupancy, as well as $77,097,000 due to our acquisition of the 50.0% controlling interest in RHS on August 1, 2022 and our acquisition of an integrated senior health campus on January 3, 2022.
For the year ended December 31, 2022, the increase in total property operating expenses for our integrated senior health campuses segment, as compared to the year ended December 31, 2021, was predominately due to higher operating expenses as a result of increased occupancy, as well as $77,097,000 due to our acquisition of the 50.0% controlling interest in RHS and our acquisition of an integrated senior health campus in January 2022.
See Note 9, Lines of Credit and Term Loans, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion.
See Note 9, Lines of Credit and Term Loan, and Note 21, Subsequent Events — 2024 Credit Facility, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion.
In addition, for the year ended December 31, 2022, we experienced a decrease in rental revenue for our MOBs segment of $782,000, primarily due to a one-time lease termination fee recognized in June 2021 for one of our MOBs. 66 Table of Contents Grant Income For the years ended December 31, 2022 and 2021, we recognized $25,675,000 and $16,951,000, respectively, of grant income at our integrated senior health campuses and SHOP primarily related to government grants received through the CARES Act economic stimulus programs.
In addition, for the year ended December 31, 2022, we experienced a decrease in rental revenue for our OM segment of $782,000, primarily due to a one-time lease termination fee recognized in June 2021 for Stockbridge GA OM III. 62 Table of Contents Grant Income For the years ended December 31, 2023, 2022 and 2021, we recognized $7,475,000, $25,675,000 and $16,951,000, respectively, of grant income at our integrated senior health campuses and SHOP primarily related to government grants received through Coronavirus Aid, Relief, and Economic Security Act economic stimulus programs.
The following tables reflect distributions we paid for the year ended December 31, 2022 compared to distributions we paid for the year ended December 31, 2021, along with the amount of distributions reinvested pursuant to the AHR DRIP or GAHR III distribution reinvestment plan, as applicable, and the sources of distributions as compared to cash flows from operations or funds from operations attributable to controlling interest, or FFO, a non-GAAP financial measure: Years Ended December 31, 2022 2021 Distributions paid in cash $ 51,122,000 $ 22,788,000 Distributions reinvested 36,812,000 7,666,000 $ 87,934,000 $ 30,454,000 Sources of distributions: Cash flows from operations $ 87,934,000 100 % $ 17,913,000 58.8 % Proceeds from borrowings — — 12,541,000 41.2 $ 87,934,000 100 % $ 30,454,000 100 % Years Ended December 31, 2022 2021 Distributions paid in cash $ 51,122,000 $ 22,788,000 Distributions reinvested 36,812,000 7,666,000 $ 87,934,000 $ 30,454,000 Sources of distributions: FFO attributable to controlling interest $ 87,934,000 100 % $ 30,454,000 100 % Proceeds from borrowings — — — — $ 87,934,000 100 % $ 30,454,000 100 % 71 Table of Contents As of December 31, 2022, any distributions of amounts in excess of our current and accumulated earnings and profits have resulted in a return of capital to our stockholders, and some portion of a distribution to our stockholders may have been paid from borrowings.
The following tables reflect distributions we paid for the years ended December 31, 2023, 2022 and 2021, along with the amount of distributions reinvested pursuant to our DRIP offering, as applicable, and the sources of distributions as compared to cash flows from operations or funds from operations attributable to controlling interest, or FFO, a non-GAAP financial measure (dollars in thousands): Years Ended December 31, 2023 2022 2021 Distributions paid in cash $ 76,284 $ 51,122 $ 22,788 Distributions reinvested — 36,812 7,666 $ 76,284 $ 87,934 $ 30,454 Sources of distributions: Cash flows from operations $ 76,284 100 % $ 87,934 100 % $ 17,913 58.8 % Proceeds from borrowings — — — — 12,541 41.2 $ 76,284 100 % $ 87,934 100 % $ 30,454 100 % Years Ended December 31, 2023 2022 2021 Distributions paid in cash $ 76,284 $ 51,122 $ 22,788 Distributions reinvested — 36,812 7,666 $ 76,284 $ 87,934 $ 30,454 Sources of distributions: FFO attributable to controlling interest $ 65,567 86.0 % $ 87,934 100 % $ 30,454 100 % Proceeds from borrowings 10,717 14.0 — — — — $ 76,284 100 % $ 87,934 100 % $ 30,454 100 % As of December 31, 2023, any distributions of amounts in excess of our current and accumulated earnings and profits have resulted in a return of capital to our stockholders, and some portion of a distribution to our stockholders may have been paid from borrowings.
Such consolidated financial statements and information have been prepared to reflect our financial position as of December 31, 2022 and 2021, together with our results of operations and cash flows for the years ended December 31, 2022, 2021 and 2020. This section discusses the results of operations and cash flows for fiscal year 2022 compared to fiscal year 2021.
Such consolidated financial statements and information have been prepared to reflect our financial position as of December 31, 2023 and 2022, together with our results of operations and cash flows for the years ended December 31, 2023, 2022 and 2021.
The remaining increase in total property operating expenses for our SHOP segment was due to: (i) higher operating expenses as a result of increased occupancy; (ii) an increase in labor costs, such as a significant increase in employee wages, agency fees and temporary labor expenses; (iii) an increase of $4,743,000 due to transitioning the leased senior housing facilities within Delta Valley ALF portfolio to a RIDEA structure and including such facilities within SHOP on December 1, 2021; and (iv) an increase of $1,961,000 due to the acquisition of a portfolio of seven senior housing facilities in Texas within our SHOP segment on December 5, 2022.
The remaining increase in total property operating expenses for our SHOP segment was due to: (i) higher operating expenses as a result of increased occupancy; (ii) an increase in labor costs, such as a significant increase in employee wages, agency fees and temporary labor expenses; (iii) an increase of $4,743,000 due to transitioning the leased senior housing facilities within Delta Valley ALF portfolio to a RIDEA structure and including such facilities within SHOP in December 2021; and (iv) an increase of $1,961,000 due to the acquisition of a portfolio of seven senior housing facilities in Texas within our SHOP segment in December 2022. 63 Table of Contents General and Administrative For the year ended December 31, 2023, general and administrative expenses were $47,510,000, compared to $43,418,000 for the year ended December 31, 2022.
As of December 31, 2022, we owned and/or operated 314 buildings and integrated senior health campuses including completed development and expansion projects, or approximately 19,897,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $4,624,249,000. In addition, as of December 31, 2022, we also owned a real estate-related debt investment purchased for $60,429,000.
As of December 31, 2023, we owned and/or operated 296 buildings and integrated senior health campuses including completed development and expansion projects, representing approximately 18,822,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $4,473,543,000. In addition, as of December 31, 2023, we also owned a real estate-related debt investment purchased for $60,429,000.
As of December 31, 2022, our aggregate borrowing capacity under the 2022 Credit Facility and the 2019 Trilogy Credit Facility, as amended, was $1,450,000,000. As of December 31, 2022, our aggregate borrowings outstanding under our credit facilities was $1,282,634,000 and we had an aggregate of $167,366,000 available on such facilities.
As of December 31, 2023, our aggregate borrowing capacity under the 2022 Credit Facility and the 2019 Trilogy Credit Facility, as amended, was $1,450,000,000. As of December 31, 2023, our aggregate borrowings outstanding under our credit facilities was $1,224,723,000 and we had an aggregate of $225,277,000 available on such facilities.
We believe that we have been organized and operated, and we intend to continue to operate, in conformity with the requirements for qualification and taxation as a REIT under the Code. Merger of Griffin-American Healthcare REIT III, Inc. and Griffin-American Healthcare REIT IV, Inc.
We believe that we have been organized and operated, and we intend to continue to operate, in conformity with the requirements for qualification and taxation as a REIT under the Code.
Such registration statement and contemplated listing are not yet effective. On November 10, 2022, our board approved charter amendments to effect, on November 15, 2022 a one-for-four reverse stock split of our common stock and a corresponding reverse split of the OP units, or the Reverse Splits.
On November 10, 2022, our board approved charter amendments to effect, on November 15, 2022, a one-for-four reverse stock split of our common stock and a corresponding reverse split of the OP units, or the Reverse Splits.
Our most critical accounting policies that involve judgments and estimates include (1) real estate investments purchase price allocation, (2) impairment of long-lived assets, (3) goodwill, (4) revenue recognition and grant income, (5) resident receivable allowances and (6) income taxes.
Our critical accounting estimates include (1) real estate investments purchase price allocation, (2) impairment of long-lived assets, (3) goodwill, (4) revenue recognition and (5) resident receivable allowances.
As a result of our annual assessment of goodwill, we determined that goodwill pertaining to our SHOP reporting segment was fully impaired as of December 31, 2022 and recognized an impairment loss of $23,277,000 in our accompanying consolidated statements of operations and comprehensive income (loss).
For the year ended December 31, 2022, we determined that goodwill pertaining to our SHOP reporting segment was fully impaired and recognized an impairment loss of $23,277,000 in our accompanying consolidated statements of operations and comprehensive loss.
Overview and Background American Healthcare REIT, Inc., a Maryland corporation, is a leading internally-managed REIT that owns a diversified portfolio of clinical healthcare real estate properties, focusing primarily on medical office buildings, or MOBs, senior housing, SNFs, hospitals and other healthcare-related facilities.
Overview and Background American Healthcare REIT, Inc., a Maryland corporation, is a self-managed REIT that acquires, owns and operates a diversified portfolio of clinical healthcare real estate properties, focusing primarily on outpatient medical buildings, senior housing, skilled nursing facilities, or SNFs, and other healthcare-related facilities.
While impairment charges are excluded from the calculation of FFO as described above, investors are cautioned that impairments are based on estimated future undiscounted cash flows. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect funds from operations. Our FFO calculation complies with NAREIT’s policy described above. Historical accounting for real estate involves the use of GAAP.
While impairment charges are excluded from the calculation of FFO as described above, investors are cautioned that impairments are based on estimated future undiscounted cash flows. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect funds from operations.
The subjectivity of assumptions used in the future cash flow analysis, including discount rates, where applicable, could result in an incorrect assessment of the real estate fair value and could result in the misstatement of the carrying value of our real estate assets and net income (loss).
The subjectivity of assumptions used in the future cash flow analysis, including capitalization and growth rates, where applicable, could result in an incorrect assessment of the recoverability of the carrying value of our real estate assets.
Debt Service Requirements A significant liquidity need is the payment of principal and interest on our outstanding indebtedness. As of December 31, 2022, we had $1,254,479,000 of fixed-rate and variable-rate mortgage loans payable outstanding secured by our properties. As of December 31, 2022, we had $1,282,634,000 outstanding and $167,366,000 remained available under our lines of credit.
Debt Service Requirements A significant liquidity need is the payment of principal and interest on our outstanding indebtedness. As of December 31, 2023, we had $1,326,313,000 of fixed-rate and variable-rate mortgage loans payable outstanding secured by our properties. As of December 31, 2023, we had $1,224,723,000 outstanding and $225,277,000 remained available under our lines of credit.
See Note 1, Organization and Description of Business and Note 4, Business Combinations, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion.
See Note 4, Business Combinations, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion of the acquisitions of previously held equity interests.
We collectively refer to the REIT Merger and the Partnership Merger as the Merger. Following the Merger on October 1, 2021, our company, or the Combined Company, was renamed American Healthcare REIT, Inc. and our operating partnership, also referred to as the surviving partnership, was renamed American Healthcare REIT Holdings, LP.
Following the Merger on October 1, 2021, our company was renamed American Healthcare REIT, Inc., and the Surviving Partnership was renamed American Healthcare REIT Holdings, LP, or our operating partnership.
Cash Flows The following table sets forth changes in cash flows: Years Ended December 31, 2022 2021 Cash, cash equivalents and restricted cash — beginning of period $ 125,486,000 $ 152,190,000 Net cash provided by operating activities 147,768,000 17,913,000 Net cash used in investing activities (118,578,000) (138,652,000) Net cash (used in) provided by financing activities (42,924,000) 94,109,000 Effect of foreign currency translation on cash, cash equivalents and restricted cash 154,000 (74,000) Cash, cash equivalents and restricted cash — end of period $ 111,906,000 $ 125,486,000 The following summary discussion of our changes in our cash flows is based on our accompanying consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below.
Cash Flows The following table sets forth changes in cash flows (in thousands): Years Ended December 31, 2023 2022 2021 Cash, cash equivalents and restricted cash — beginning of period $ 111,906 $ 125,486 $ 152,190 Net cash provided by operating activities 98,535 147,768 17,913 Net cash provided by (used in) investing activities 9,396 (118,578) (138,652) Net cash (used in) provided by financing activities (129,062) (42,924) 94,109 Effect of foreign currency translation on cash, cash equivalents and restricted cash 7 154 (74) Cash, cash equivalents and restricted cash — end of period $ 90,782 $ 111,906 $ 125,486 The following summary discussion of our changes in our cash flows is based on our accompanying consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below. 67 Table of Contents Operating Activities For the years ended December 31, 2023, 2022 and 2021, cash flows provided by operating activities were primarily related to property operations, offset by payments of general and administrative expenses and interest payments on our outstanding indebtedness.
Additionally, our net operating income increased substantially for our integrated senior health campuses segment, which experienced improved margins primarily due to improved resident occupancy and expense management. In general, cash flows from operating activities are affected by the timing of cash receipts and payments. See the “Results of Operations” section above for a further discussion.
In general, cash flows from operating activities are affected by the timing of cash receipts and payments, as well as the substantial increase in net operating income for properties within our integrated senior health campuses segment since 2021 due to improved resident occupancy and expense management. See the “Results of Operations” section above for a further discussion.
No such costs were paid during the year ended December 31, 2021. Such amounts were partially offset by an increase in net borrowings under our lines of credit and term loans of $161,900,000 and borrowings under a financing obligation of $25,900,000.
Such amounts were partially offset by an increase in net borrowings under our lines of credit and term loans of $161,900,000 and borrowings under a financing obligation of $25,900,000.
We compare the fair value of a reporting segment with its carrying amount. We recognize an impairment loss to the extent the carrying value of goodwill exceeds the implied value in the current period.
When step one of the impairment test is utilized, we compare the fair value of the reporting unit with its carrying amount. We recognize an impairment loss to the extent the carrying value of goodwill exceeds the implied value in the current period.
For a further discussion of these and other factors that could impact our future results or performance, see Part I, Item 1A, Risk Factors, of this Annual Report on Form 10-K.
For a further discussion of these and other factors that could impact our future results or performance, see Part I, Item 1A, Risk Factors, of this Annual Report on Form 10-K. Inflation For the years ended December 31, 2023, 2022 and 2021 inflation has affected our operations.
See Note 4, Business Combinations, to our accompanying condensed consolidated financial statements for a further discussion of our acquisition of RHS. 70 Table of Contents Financing Activities The decrease in net cash provided by financing activities during the year ended December 31, 2022 as compared to the prior year period of $137,033,000 was primarily due to a decrease in net borrowings under our mortgage loans payable of $269,296,000, a $28,334,000 increase in distributions paid to our common stockholders and a $20,317,000 payment to repurchase our common stock.
The decrease of $137,033,000 in net cash provided by financing activities during the year ended December 31, 2022, as compared to the year ended December 31, 2021, was primarily due to a decrease in net borrowings under our mortgage loans payable of $269,296,000, a $28,334,000 increase in distributions paid to our common stockholders and a $20,317,000 payment to repurchase our common stock.
See Note 14, Equity, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion of our public offerings.
For information on our share repurchase plan, see Note 13, Equity — Share Repurchase Plan, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The use of the words “we,” “us” or “our” refers to Griffin-American Healthcare REIT III, Inc., or GAHR III, and its subsidiaries, including Griffin-American Healthcare REIT III Holdings, LP, for periods prior to the Merger, as defined below, and American Healthcare REIT, Inc.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The use of the words “we,” “us” or “our” refers to American Healthcare REIT, Inc. and its subsidiaries, including American Healthcare REIT Holdings, LP, except where otherwise noted.
AHI Acquisition Also on October 1, 2021, immediately prior to the consummation of the Merger, GAHR III acquired a newly formed entity, American Healthcare Opps Holdings, LLC, or NewCo, which we refer to as the AHI Acquisition, pursuant to a contribution and exchange agreement dated June 23, 2021, or the Contribution Agreement, between GAHR III; our operating partnership; American Healthcare Investors, LLC, or AHI; Griffin Capital Company, LLC, or Griffin Capital; Platform Healthcare Investor T-II, LLC; Flaherty Trust; and Jeffrey T.
Also on October 1, 2021, immediately prior to the consummation of the Merger, GAHR III acquired a newly formed entity, American Healthcare Opps Holdings, LLC, which we refer to as the AHI Acquisition, pursuant to a contribution and exchange agreement dated June 23, 2021. Following the Merger and the AHI Acquisition, our company became self-managed.
For the years ended December 31, 2022 and 2021, NOI would have been approximately $276,290,000 and $196,385,000, respectively, excluding government grants recognized. 76 Table of Contents To facilitate understanding of this financial measure, the following is a reconciliation of net income or loss, which is the most directly comparable GAAP financial measure, to NOI for the periods presented below: Years Ended December 31, 2022 2021 Net loss $ (73,383,000) $ (53,269,000) General and administrative 43,418,000 43,199,000 Business acquisition expenses 4,388,000 13,022,000 Depreciation and amortization 167,957,000 133,191,000 Interest expense 105,456,000 72,737,000 (Gain) loss on dispositions of real estate investments (5,481,000) 100,000 Impairment of real estate investments 54,579,000 3,335,000 Impairment of goodwill 23,277,000 — (Income) loss from unconsolidated entities (1,407,000) 1,355,000 Gain on re-measurement of previously held equity interest (19,567,000) — Foreign currency loss 5,206,000 564,000 Other income (3,064,000) (1,854,000) Income tax expense 586,000 956,000 Net operating income $ 301,965,000 $ 213,336,000 Subsequent Events For a discussion of subsequent events, see Note 22, Subsequent Events, to our accompanying consolidated financial statements.
To facilitate understanding of this financial measure, the following is a reconciliation of net income or loss, which is the most directly comparable GAAP financial measure, to NOI for the periods presented below (in thousands): Years Ended December 31, 2023 2022 2021 Net loss $ (76,887) $ (73,383) $ (53,269) General and administrative 47,510 43,418 43,199 Business acquisition expenses 5,795 4,388 13,022 Depreciation and amortization 182,604 167,957 133,191 Interest expense 164,117 105,456 72,737 (Gain) loss on dispositions of real estate investments, net (32,472) (5,481) 100 Impairment of real estate investments 13,899 54,579 3,335 Impairment of intangible assets and goodwill 10,520 23,277 — Loss (income) from unconsolidated entities 1,718 (1,407) 1,355 Gain on re-measurement of previously held equity interests (726) (19,567) — Foreign currency (gain) loss (2,307) 5,206 564 Other income (7,601) (3,064) (1,854) Income tax expense 663 586 956 Net operating income $ 306,833 $ 301,965 $ 213,336 Subsequent Events For a discussion of subsequent events, see Note 21, Subsequent Events, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.
On October 1, 2021, also pursuant to the Merger Agreement, Griffin-American Healthcare REIT IV Holdings, LP, a Delaware limited partnership and subsidiary and operating partnership of GAHR IV, or GAHR IV Operating Partnership, merged with and into Griffin-American Healthcare REIT III Holdings, LP, a Delaware limited partnership, or our operating partnership, with our operating partnership being the surviving entity, or the Partnership Merger.
On October 1, 2021, Griffin-American Healthcare REIT III, Inc., or GAHR III, merged with and into a wholly-owned subsidiary, or Merger Sub, of Griffin-American Healthcare REIT IV, Inc., or GAHR IV, with Merger Sub being the surviving company, which we refer to as the REIT Merger, and our operating partnership, Griffin-American Healthcare REIT IV Holdings, LP, merged with and into Griffin-American Healthcare REIT III Holdings, LP, or the Surviving Partnership, with the Surviving Partnership being the surviving entity, which we refer to as the Partnership Merger and, together with the REIT Merger, the Merger.
Lines of Credit and Term Loans For a discussion of our lines of credit and term loans, see Note 9, Lines of Credit and Term Loans, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.
Financing Mortgage Loans Payable, Net For a discussion of our mortgage loans payable, see Note 8, Mortgage Loans Payable, Net, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K. 69 Table of Contents Lines of Credit and Term Loan For a discussion of our lines of credit and term loan, see Note 9, Lines of Credit and Term Loan, and Note 21, Subsequent Events — 2024 Credit Facility, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.
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.
Our FFO calculation complies with NAREIT’s policy described above. 70 Table of Contents 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.
Substantially all of our leases with residents at such properties are for a term of one year or less. 64 Table of Contents Results of Operations Comparison of the Years Ended December 31, 2022 and 2021 Our operating results are primarily comprised of income derived from our portfolio of properties and expenses in connection with the acquisition and operation of such properties.
Results of Operations Comparison of the Years Ended December 31, 2023, 2022 and 2021 Our operating results are primarily comprised of income derived from our portfolio of properties and expenses in connection with the acquisition and operation of such properties.
In addition, we are subject to an amended and restated loan agreement regarding a senior secured revolving credit facility with an aggregate maximum principal amount of $360,000,000, or the 2019 Trilogy Credit Facility, which was further amended on December 20, 2022 to increase the aggregate maximum principal amount to $400,000,000.
In addition, we are party to an agreement, as amended, regarding a senior secured revolving credit facility with an aggregate maximum principal amount of $400,000,000, or the 2019 Trilogy Credit Facility.
We do not have any material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources. Material Cash Requirements Capital Improvement Expenditures A capital plan for each investment is established upon acquisition that contemplates the estimated capital needs of that investment, including costs of refurbishment, tenant improvements or other major capital expenditures.
Material Cash Requirements Capital Improvement Expenditures A capital plan for each investment is established upon acquisition that contemplates the estimated capital needs of that investment, including costs of refurbishment, tenant improvements or other major capital expenditures.
Interest Expense Interest expense, including gain or loss in fair value of derivative financial instruments, consisted of the following for the periods then ended: Years Ended December 31, 2022 2021 Interest expense: Lines of credit and term loans and derivative financial instruments $ 52,351,000 $ 33,966,000 Mortgage loans payable 41,417,000 36,253,000 Amortization of deferred financing costs: Lines of credit and term loans 3,000,000 4,261,000 Mortgage loans payable 1,988,000 1,652,000 Amortization of debt discount/premium, net 827,000 773,000 Gain in fair value of derivative financial instruments (500,000) (8,200,000) Loss on extinguishment of debt 5,166,000 2,655,000 Interest on finance lease liabilities 261,000 — Interest expense on financing obligations and other liabilities 946,000 1,377,000 Total $ 105,456,000 $ 72,737,000 The increase in total interest expense was primarily related to an increase in interest expense incurred on our lines of credit and term loans and mortgage loans payable due to: (i) a larger debt portfolio as a result of the Merger; (ii) an increase in variable interest rates; (iii) a decrease in the gain in fair value recognized on our derivative financial instruments of $7,700,000; and (iv) an increase in loss on debt extinguishment of $2,511,000.
Such amounts were partially offset by a decrease of $1,979,000 in depreciable assets in our portfolio as a result of a real estate disposition within our OM segment during the year ended December 31, 2022. 64 Table of Contents Interest Expense Interest expense, including gain or loss in fair value of derivative financial instruments, consisted of the following for the periods then ended (in thousands): Years Ended December 31, 2023 2022 2021 Interest expense: Lines of credit and term loan and derivative financial instruments $ 96,417 $ 52,351 $ 33,966 Mortgage loans payable 55,584 41,417 36,253 Amortization of deferred financing costs: Lines of credit and term loan 3,060 3,000 4,261 Mortgage loans payable 2,284 1,988 1,652 Amortization of debt discount/premium, net 3,549 827 773 Loss (gain) in fair value of derivative financial instruments 926 (500) (8,200) Loss on extinguishment of debt 345 5,166 2,655 Interest on finance lease liabilities 353 261 — Interest expense on financing obligations and other liabilities 1,599 946 1,377 Total $ 164,117 $ 105,456 $ 72,737 The increase in total interest expense for the year ended December 31, 2023, as compared to the year ended December 31, 2022, was primarily due to: (i) an increase in debt balances during 2023; (ii) a higher weighted average effective interest rate on our variable debt, which was 7.50% and 6.44% as of December 31, 2023 and 2022, respectively; (iii) a $2,722,000 increase in amortization of debt discount/premium, net; and (iv) a $1,426,000 change from gain to loss in fair value of our derivative financial instruments.
Mortgage Loans Payable, Net For a discussion of our mortgage loans payable, see Note 8, Mortgage Loans Payable, Net, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K.
See Note 18, Segment Reporting, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion of such goodwill impairment.
Such statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from those projected or anticipated, including, without limitation: changes in economic conditions generally and the real estate market specifically; the continuing adverse effects of the COVID-19 pandemic, including its effects on the healthcare industry, senior housing and skilled nursing facilities, or SNFs, and the economy in general; legislative and regulatory changes, including changes to laws governing the taxation of real estate investment trusts, or REITs; the availability of capital; our ability to pay down, refinance, restructure or extend our indebtedness as it becomes due; our ability to maintain our qualification as a REIT for U.S. federal income tax purposes; changes in interest rates and foreign currency risk; uncertainty from the discontinuance of the London Interbank Offered Rate, or LIBOR, and the transition to the Secured Overnight Financing Rate, or SOFR; competition in the real estate industry; changes in GAAP policies and guidelines applicable to REITs; the success of our investment strategy; information technology security breaches; our ability to retain our executives and key employees; and unexpected labor costs and inflationary pressures.
Such statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from those projected or anticipated, including, without limitation: changes in economic conditions generally and the real estate market specifically; legislative and regulatory changes, including changes to laws governing the taxation of real estate investment trusts, or REITs; the availability of capital; our ability to pay down, refinance, restructure or extend our indebtedness as it becomes due; our ability to maintain our qualification as a REIT for U.S. federal income tax purposes; changes in interest rates, including uncertainties about whether and when interest rates will continue to increase, and foreign currency risk; competition in the real estate industry; changes in accounting principles generally accepted in the United States of America, or GAAP, policies and guidelines applicable to REITs; the success of our investment strategy; cybersecurity incidents and information technology failures, including unauthorized access to our computer systems and/or our vendors’ computer systems and our third-party management companies’ computer systems and/or their vendors’ computer systems; our ability to retain our executive officers and key employees; and unexpected labor costs and inflationary pressures.
Distributions The income tax treatment for distributions reportable for the years ended December 31, 2022 and 2021 was as follows: Years Ended December 31, 2022 2021 Ordinary income $ 40,745,000 46.5 % $ 7,989,000 26.3 % Capital gain — — — — Return of capital 46,890,000 53.5 22,406,000 73.7 $ 87,635,000 100 % $ 30,395,000 100 % Amounts listed above do not include distributions paid on nonvested shares of our restricted common stock which have been separately reported.
The change in share repurchases was due to the suspension of the GAHR III share repurchase plan from May 31, 2020 through October 4, 2021, when the partial reinstatement of our share repurchase plan was approved by our board. 68 Table of Contents Distributions The income tax treatment for distributions reportable for the years ended December 31, 2023, 2022, and 2021 was as follows (dollars in thousands): Years Ended December 31, 2023 2022 2021 Ordinary income $ 2,208 2.9 % $ 40,745 46.5 % $ 7,989 26.3 % Capital gain — — — — — — Return of capital 73,614 97.1 46,890 53.5 22,406 73.7 $ 75,822 100 % $ 87,635 100 % $ 30,395 100 % Amounts listed above do not include distributions paid on nonvested shares of our restricted common stock which have been separately reported.
For our integrated senior health campuses segment, we experienced an increase in resident fees and services revenue of $69,992,000 for the year ended December 31, 2022 due to our acquisition of the 50.0% controlling interest in a privately held company, RHS Partners, LLC, or RHS.
For our integrated senior health campuses segment, we increased resident fees and services revenue by $69,992,000 for the year ended December 31, 2022, as compared to the year ended December 31, 2021, due to: (i) improved resident occupancy; (ii) our acquisition of the 50.0% controlling interest in RHS; and (iii) an increase of $11,480,000 due to our acquisition of an integrated senior health campus in Kentucky in January 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAs of December 31, 2022, we did not have any derivative financial instruments. We do not enter into derivative transactions for speculative purposes. See Note 22, Subsequent Events — Interest Rate Swap, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion.
Biggest changeAs of December 31, 2023, our interest rate swaps are recorded in other assets and other liabilities in our accompanying consolidated balance sheet at their aggregate fair value of $1,463,000 and ($2,389,000), respectively. We do not enter into derivative transactions for speculative purposes. As of December 31, 2022, we did not have any derivative financial instruments.
There were no material changes in our market risk exposures, or in the methods we use to manage market risk, between the years ended December 31, 2022 and 2021. Interest Rate Risk We are exposed to the effects of interest rate changes primarily as a result of long-term debt used to acquire and develop properties and other investments.
There were no material changes in our market risk exposures, or in the methods we use to manage market risk, between the years ended December 31, 2023 and 2022. Interest Rate Risk We are exposed to the effects of interest rate changes primarily as a result of long-term debt used to acquire and develop properties and other investments.
As we expect to hold our debt security investment to maturity and the amounts due under such debt security investment would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our debt security investment, would have a significant impact on our operations.
As we expect to hold our debt security investment to maturity and the amounts due under such debt security investment are limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our debt security investment, would have a significant impact on our operations.
An increase in the variable interest rate on our variable-rate mortgage loans payable and lines of credit and term loans constitutes a market risk.
An increase in the variable interest rate on our variable-rate mortgage loans payable and lines of credit and term loan constitutes a market risk.
See Note 16, Fair Value Measurements, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a discussion of the fair value of our investment in a held-to-maturity debt security. The effective interest rate on our debt security investment was 4.24% per annum as of December 31, 2022.
See Note 15, Fair Value Measurements, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a discussion of the fair value of our investment in a held-to-maturity debt security. The effective interest rate on our debt security investment was 4.24% per annum as of December 31, 2023.
We did not elect to apply hedge accounting treatment to these derivatives; therefore, changes in the fair value of interest rate derivative financial instruments were recorded as a component of interest expense in gain or loss in fair value of derivative financial instruments in our accompanying consolidated statements of operations and comprehensive income (loss).
We have not elected, and may continue to not elect, to apply hedge accounting treatment to these derivatives; therefore, changes in the fair value of interest rate derivative financial instruments were recorded as a component of interest expense in gain or loss in fair value of derivative financial instruments in our accompanying consolidated statements of operations and comprehensive loss.
As of December 31, 2022, a 0.50% increase in the market rates of interest would have increased our overall annualized interest expense on all of our other variable-rate mortgage loans payable and lines of credit and term loans by $8,371,000, or 7.76% of total annualized interest expense on our mortgage loans payable and lines of credit and term loans.
As of December 31, 2023, a 0.50% increase in the market rates of interest would have increased our overall annualized interest expense on all of our other variable-rate mortgage loans payable and lines of credit by $5,124,000, or 3.48% of total annualized interest expense on our mortgage loans payable and lines of credit and term loan.
As of December 31, 2022, we had 68 fixed-rate mortgage loans payable and 11 variable-rate mortgage loans payable with effective interest rates ranging from 2.21% to 7.26% per annum and a weighted average effective interest rate of 5.29%.
As of December 31, 2023, we had 76 fixed-rate mortgage loans payable and 13 variable-rate mortgage loans payable with effective interest rates ranging from 2.21% to 8.46% per annum and a weighted average effective interest rate of 4.72%.
Mortgage Loans Payable, Net and Lines of Credit and Term Loan s Mortgage loans payable were $1,254,479,000 ($1,229,847,000, net of discount/premium and deferred financing costs) as of December 31, 2022.
Mortgage Loans Payable, Net and Lines of Credit and Term Loan Mortgage loans payable were $1,326,313,000 ($1,302,396,000, net of discount/premium and deferred financing costs) as of December 31, 2023.
We have entered into, and may continue to enter into, derivative financial instruments such as interest rate swaps and interest rate caps in order to mitigate our interest rate risk on a related financial instrument, and for which we have not and may not elect hedge accounting treatment.
To achieve our objectives, we may borrow or lend at fixed or variable rates. We have entered into, and may continue to enter into, derivative financial instruments, such as interest rate swaps and interest rate caps, in order to mitigate our interest rate risk on a related financial instrument.
In addition, as of December 31, 2022, we had $1,282,634,000 ($1,281,794,000, net of deferred financing fees) outstanding under our lines of credit and term loans, at a weighted-average interest rate of 6.34% per annum. As of December 31, 2022, the weighted average effective interest rate on our outstanding debt was 5.82% per annum.
In addition, as of December 31, 2023, we had $1,224,723,000 ($1,223,967,000, net of deferred financing fees) outstanding under our lines of credit and term loan, at a weighted-average interest rate of 7.36% per annum. As of December 31, 2023, the weighted average effective interest rate on our outstanding debt, factoring in our fixed-rate interest rate swaps, was 5.72% per annum.
See Note 8, Mortgage Loans Payable, Net, and Note 9, Lines of Credit and Term Loans, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion. 78 Table of Contents Other Market Risk In addition to changes in interest rates and foreign currency exchange rates, the value of our future investments is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of tenants, which may affect our ability to refinance our debt if necessary.
Other Market Risk In addition to changes in interest rates and foreign currency exchange rates, the value of our future investments is subject to fluctuations based on changes in local and regional economic conditions and changes in the creditworthiness of tenants and residents, which may affect our ability to refinance our debt if necessary. Item 8.
Item 8. Financial Statements and Supplementary Data. See Part IV, Item 15, Exhibits, Financial Statement Schedules. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.
Financial Statements and Supplementary Data. See Part IV, Item 15, Exhibits, Financial Statement Schedules.
See Note 9, Lines of Credit and Term Loans — 2022 Credit Facility, and 2019 Trilogy Credit Facility, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion of the interest rate terms applicable to such facilities. 77 Table of Contents We have variable-rate debt outstanding and maturing on various dates from 2023 to 2031 that are indexed to LIBOR.
See Note 8, Mortgage Loans Payable, Net, and Note 9, Lines of Credit and Term Loan, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion.
Removed
To achieve our objectives, we may borrow or lend at fixed or variable rates.
Added
See Note 10, Derivative Financial Instruments, and Note 15, Fair Value Measurements, to the Consolidated Financial Statements that are a part of this Annual Report on Form 10-K, for a further discussion on our interest rate swaps. 73 Table of Contents As of December 31, 2023, the table below presents the principal amounts and weighted average interest rates by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes, excluding the effect of our interest rate swap (dollars in thousands): Expected Maturity Date 2024 2025 2026 2027 2028 Thereafter Total Fair Value Assets Debt security held-to-maturity $ — $ 93,433 $ — $ — $ — $ — $ 93,433 $ 93,304 Weighted average interest rate on maturing fixed-rate debt security — % 4.24 % — % — % — % — % 4.24 % — Liabilities Fixed-rate debt — principal payments $ 48,168 $ 136,701 $ 156,379 $ 49,998 $ 16,234 $ 582,845 $ 990,325 $ 846,985 Weighted average interest rate on maturing fixed-rate debt 3.56 % 4.30 % 3.00 % 3.43 % 3.25 % 3.59 % 3.58 % — Variable-rate debt — principal payments $ 263,277 $ 339,975 $ 379,953 $ 550,177 $ 187 $ 27,142 $ 1,560,711 $ 1,564,165 Weighted average interest rate on maturing variable-rate debt (based on rates in effect as of December 31, 2023) 8.11 % 8.16 % 7.15 % 7.05 % 7.61 % 7.60 % 7.50 % — Debt Security Investment, Net As of December 31, 2023, the net carrying value of our debt security investment was $86,935,000.
Removed
The Financial Conduct Authority, or FCA, ceased publishing one-week and two-month LIBOR after December 31, 2021 and intends to cease publishing all remaining LIBOR after June 30, 2023. On January 19, 2022, we through our operating partnership, entered into the 2022 Credit Facility that bears interest at varying SOFR rates, at our option.
Removed
On December 20, 2022, we entered into an amendment to the 2019 Trilogy Credit Facility, that among other things, replaced all references of LIBOR to SOFR.
Removed
As such, we are monitoring and evaluating the related risks of the discontinuation of LIBOR, which include possible changes to the interest on loans or amounts received and paid on derivative instruments we may enter into in the future. These risks arise in connection with transitioning contracts to a new alternative rate, including any resulting value transfer that may occur.
Removed
The value of loans or derivative instruments tied to LIBOR could also be impacted when LIBOR is discontinued. For some instruments, the method of transitioning to an alternative rate may be challenging, as they may require negotiation with the respective counterparty.
Removed
If a contract is not transitioned to an alternative rate when LIBOR is discontinued, the impact on our contracts is likely to vary. When LIBOR is discontinued, interest rates on our current or future indebtedness may be adversely affected.
Removed
Currently we cannot estimate the overall impact of the phase-out of LIBOR on our current debt agreements, although it is possible that an alternative variable rate could raise our borrowing costs.
Removed
It is not possible to predict whether LIBOR will continue to be viewed as an acceptable market “benchmark” prior to June 30, 2023, and it is possible that LIBOR will become unavailable prior to that point. This could result, for example, if a sufficient number of banks decline to make submissions to the LIBOR administrator.
Removed
In that case, the risks associated with the transition to an alternative reference rate will be accelerated and magnified. As of December 31, 2022, the table below presents the principal amounts and weighted average interest rates by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes.
Removed
Expected Maturity Date 2023 2024 2025 2026 2027 Thereafter Total Fair Value Assets Debt security held-to-maturity $ — $ — $ 93,433,000 $ — $ — $ — $ 93,433,000 $ 93,230,000 Weighted average interest rate on maturing fixed-rate debt security — % — % 4.24 % — % — % — % 4.24 % — Liabilities Fixed-rate debt — principal payments $ 19,022,000 $ 73,545,000 $ 135,356,000 $ 154,957,000 $ 34,197,000 $ 468,815,000 $ 885,892,000 $ 717,458,000 Weighted average interest rate on maturing fixed-rate debt 3.17 % 3.55 % 4.28 % 2.98 % 3.29 % 2.97 % 3.24 % — Variable-rate debt — principal payments $ 490,803,000 $ 144,407,000 $ 30,198,000 $ 416,111,000 $ 550,226,000 $ 19,476,000 $ 1,651,221,000 $ 1,659,414,000 Weighted average interest rate on maturing variable-rate debt (based on rates in effect as of December 31, 2022) 7.03 % 6.97 % 6.31 % 6.10 % 6.05 % 6.58 % 6.44 % — Debt Security Investment, Net As of December 31, 2022, the net carrying value of our debt security investment was $83,000,000.

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