NorthStar Healthcare Income, Inc. [NHHS] Filings

10-Q 1 nshi-20240930.htm 10-Q nshi-20240930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-55190

NORTHSTAR HEALTHCARE INCOME, INC.

(Exact Name of Registrant as Specified in its Charter)


Maryland			27-3663988
(State or Other Jurisdiction of			(IRS Employer
Incorporation or Organization)			Identification No.)

575 Lexington Avenue, 14th Floor, New York, NY 10022

(Address of Principal Executive Offices, Including Zip Code)

(929) 777-3135

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

The Company has one class of common stock, $0.01 par value per share, 185,712,103 shares outstanding as of November 7, 2024.

Table of Contents

NORTHSTAR HEALTHCARE INCOME, INC.

FORM 10-Q

TABLE OF CONTENTS


Index		Page

Part I.	Financial Information	4
Item 1.	Financial Statements	4
	Consolidated Balance Sheets as of September 30, 2024 (unaudited) and December 31, 2023	4
	Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2024 and 2023	5
	Consolidated Statements of Comprehensive Income (Loss) (unaudited) for the three and nine months ended September 30, 2024 and 2023	6
	Consolidated Statements of Equity (unaudited) for the three and nine months ended September 30, 2024 and 2023	7
	Consolidated Statements of Cash Flow (unaudited) for the nine months ended September 30, 2024 and 2023	9
	Notes to Consolidated Financial Statements (unaudited)	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	49
Item 4.	Control and Procedures	50
Part II.	Other Information	50
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3.	Defaults Upon Senior Securities	51
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	51
Item 6.	Exhibits	52
Signatures		53

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “seek,” “anticipate,” “estimate,” “believe,” “could,” “project,” “predict,” “continue,” “future” or other similar words or expressions. Forward-looking statements are not guarantees of performance and are based on certain assumptions, discuss future expectations, describe plans and strategies, contain projections of results of operations or financial condition or state other forward-looking information. Such statements include, but are not limited to, those relating to our ability to make distributions to our stockholders; our ability to retain our senior executives and other sufficient personnel to manage our business; our ability to realize substantial efficiencies as well as anticipated strategic and financial benefits of the internalization of our management function; the operating performance of our investments; our financing needs; the effects of our current strategies and investment activities; and our ability to effectively deploy capital. Our ability to predict results or the actual effect of plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements and you should not unduly rely on these statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from those forward-looking statements.

All forward-looking statements included in this Quarterly Report on Form 10-Q are based on information available to us on the date hereof and we are under no duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results.

Factors that could have a material adverse effect on our operations and future prospects are set forth in our filings with the U.S. Securities and Exchange Commission, or the SEC, including Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and in Part II, Item 1A of this Quarterly Report on Form 10-Q under the heading “Risk Factors.” The risk factors set forth in our filings with the SEC could cause our actual results to differ significantly from those contained in any forward-looking statement contained in this report.

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PART I—Financial Information

Item 1. Financial Statements

NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands, Except Per Share Data)


	September 30, 2024 (Unaudited)		December 31, 2023
Assets
Cash and cash equivalents	$	333,264	$	85,037
Restricted cash	7,411		7,906
Operating real estate, net	802,478		821,270
Investments in unconsolidated ventures ($142 held at fair value as of September 30, 2024 and December 31, 2023)	507		122,949
Assets held for sale	185		11,611
Receivables, net	1,867		1,558
Intangible assets, net	1,663		1,916
Other assets	4,665		7,172
Total assets(1)	$	1,152,040	$	1,059,419

Liabilities
Mortgage notes payable, net	$	876,954	$	898,154
Due to related party	—		121
Accounts payable and accrued expenses	34,934		27,502
Other liabilities	2,287		1,962
Total liabilities(1)	914,175		927,739
Commitments and contingencies (Note 12)
Equity
NorthStar Healthcare Income, Inc. Stockholders’ Equity
Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding as of September 30, 2024 and December 31, 2023	—		—
Common stock, $0.01 par value, 400,000,000 shares authorized, 185,712,103 shares issued and outstanding as of September 30, 2024 and December 31, 2023	1,857		1,857
Additional paid-in capital	1,716,933		1,716,757
Retained earnings (accumulated deficit)	(1,479,361)		(1,585,725)

Total NorthStar Healthcare Income, Inc. stockholders’ equity	239,429		132,889
Non-controlling interests	(1,564)		(1,209)
Total equity	237,865		131,680
Total liabilities and equity	$	1,152,040	$	1,059,419

_______________________________________

(1)Includes $106.4 million and $181.0 million of assets and liabilities, respectively, of certain VIEs that are consolidated by the Operating Partnership as of September 30, 2024. Refer to Note 2, “Summary of Significant Accounting Policies.”

Refer to accompanying notes to consolidated financial statements (unaudited).

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NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in Thousands, Except Per Share Data)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Property and other revenues
Resident fee income	$	12,642	$	11,966	$	37,410	$	35,655
Rental income	38,693		40,330		111,126		115,897
Other revenue	1,283		1,078		3,092		2,893
Total property and other revenues	52,618		53,374		151,628		154,445


Expenses
Property operating expenses	32,892		36,890		98,685		106,993
Interest expense	12,790		14,250		38,277		37,143
Transaction costs	33		358		70		455
General and administrative expenses	2,797		2,921		9,273		10,424
Depreciation and amortization	9,101		9,848		27,031		29,305
Impairment loss	235		—		3,695		43,422
Total expenses	57,848		64,267		177,031		227,742
Other income (expense)
Other income (expense), net	—		—		84		202
Gain (loss) on investments and other	128,511		(347)		128,521		(4,662)
Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax expense	123,281		(11,240)		103,202		(77,757)
Equity in earnings (losses) of unconsolidated ventures	1,074		(127)		2,903		(6,595)
Income tax expense	(20)		(17)		(59)		(43)
Net income (loss)	124,335		(11,384)		106,046		(84,395)
Net (income) loss attributable to non-controlling interests	106		166		318		1,470
Net income (loss) attributable to NorthStar Healthcare Income, Inc. common stockholders	$	124,441	$	(11,218)	$	106,364	$	(82,925)
Net income (loss) per share of common stock, basic/diluted(1)	$	0.67	$	(0.06)	$	0.57	$	(0.43)
Weighted average number of shares of common stock outstanding, basic/diluted(1)	185,712,103		185,712,103		185,712,103		191,367,117
Distributions declared per share of common stock	$	—	$	—	$	—	$	—

_______________________________________

(1) The Company had 300,333 and 203,742 restricted stock units issued and outstanding as of September 30, 2024 and 2023, respectively. The impact of the restricted stock units on the diluted earnings per share calculation is de minimis for the three and nine months ended September 30, 2024. The restricted stock units have been excluded from the diluted earnings per share calculation as their impact is anti-dilutive due to the net loss generated during the three and nine months ended September 30, 2023.

Refer to accompanying notes to consolidated financial statements (unaudited).

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NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in Thousands)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Net income (loss)	$	124,335	$	(11,384)	$	106,046	$	(84,395)
Other comprehensive income (loss)
Foreign currency translation adjustments related to investment in unconsolidated venture	—		—		—		3,679
Comprehensive income (loss)	124,335		(11,384)		106,046		(80,716)
Comprehensive (income) loss attributable to non-controlling interests	106		166		318		1,470
Comprehensive income (loss) attributable to NorthStar Healthcare Income, Inc. common stockholders	$	124,441	$	(11,218)	$	106,364	$	(79,246)

Refer to accompanying notes to consolidated financial statements (unaudited).

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NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(Dollars and Shares in Thousands)


	Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Total Company’s Stockholders’ Equity		Non-controlling Interests		Total Equity
	Shares	Amount
Balance as of December 31, 2022	195,422	$	1,954	$	1,729,589	$	(1,428,840)	$	(3,679)	$	299,024	$	2,048	$	301,072
Non-controlling interests - contributions	—	—		—		—		—		—		45		45
Non-controlling interests - distributions	—	—		—		—		—		—		(22)		(22)
Other comprehensive income (loss)	—	—		—		—		1,248		1,248		—		1,248
Net income (loss)	—	—		—		(13,926)		—		(13,926)		(71)		(13,997)
Balance as of March 31, 2023 (Unaudited)	195,422	$	1,954	$	1,729,589	$	(1,442,766)	$	(2,431)	$	286,346	$	2,000	$	288,346
Non-controlling interests - contributions	—	—		—		—		—		—		55		55
Non-controlling interests - distributions	—	—		—		—		—		—		(33)		(33)
Retirement of common stock	(9,710)	(97)		(13,302)		—		—		(13,399)		—		(13,399)
Other comprehensive income (loss)	—	—		—		—		(844)		(844)		—		(844)
Reclassification of accumulated other comprehensive loss(1)	—	—		—		—		3,275		3,275		—		3,275
Net income (loss)	—	—		—		(57,781)		—		(57,781)		(1,233)		(59,014)
Balance as of June 30, 2023 (Unaudited)	185,712	$	1,857	$	1,716,287	$	(1,500,547)	$	—	$	217,597	$	789	$	218,386
Amortization of equity-based compensation	—	—		414		—		—		414		—		414
Non-controlling interests - contributions	—	—		—		—		—		—		44		44
Non-controlling interests - distributions	—	—		—		—		—		—		(28)		(28)
Net income (loss)	—	—		—		(11,218)		—		(11,218)		(166)		(11,384)
Balance as of September 30, 2023 (Unaudited)	185,712	$	1,857	$	1,716,701	$	(1,511,765)	$	—	$	206,793	$	639	$	207,432

_______________________________________

(1)The Company reclassified the accumulated other comprehensive loss related to foreign currency adjustments for an unconsolidated venture ownership interest that was sold during the three months ended June 30, 2023. The accumulated balance was reclassified to other gain (loss) on investments and other on the consolidated statements of operations.

Refer to accompanying notes to consolidated financial statements (unaudited).

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NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY (Continued)

(Dollars and Shares in Thousands)


	Common Stock			Additional Paid-in Capital		Retained Earnings (Accumulated Deficit)		Accumulated Other Comprehensive Income (Loss)		Total Company’s Stockholders’ Equity		Non-controlling Interests		Total Equity
	Shares	Amount
Balance as of December 31, 2023	185,712	$	1,857	$	1,716,757	$	(1,585,725)	$	—	$	132,889	$	(1,209)	$	131,680
Amortization of equity-based compensation	—	—		56		—		—		56		—		56
Non-controlling interests - contributions	—	—		—		—		—		—		13		13
Non-controlling interests - distributions	—	—		—		—		—		—		(38)		(38)
Net income (loss)	—	—		—		(7,932)		—		(7,932)		(115)		(8,047)
Balance as of March 31, 2024 (Unaudited)	185,712	$	1,857	$	1,716,813	$	(1,593,657)	$	—	$	125,013	$	(1,349)	$	123,664
Amortization of equity-based compensation	—	—		56		—		—		56		—		56
Non-controlling interests - contributions	—	—		—		—		—		—		23		23
Non-controlling interests - distributions	—	—		—		—		—		—		(38)		(38)
Net income (loss)	—	—		—		(10,145)		—		(10,145)		(97)		(10,242)
Balance as of June 30, 2024 (Unaudited)	185,712	$	1,857	$	1,716,869	$	(1,603,802)	$	—	$	114,924	$	(1,461)	$	113,463
Amortization of equity-based compensation	—	—		64		—		—		64		—		64
Non-controlling interests - contributions	—	—		—		—		—		—		37		37
Non-controlling interests - distributions	—	—		—		—		—		—		(34)		(34)
Net income (loss)	—	—		—		124,441		—		124,441		(106)		124,335
Balance as of September 30, 2024 (Unaudited)	185,712	$	1,857	$	1,716,933	$	(1,479,361)	$	—	$	239,429	$	(1,564)	$	237,865

Refer to accompanying notes to consolidated financial statements (unaudited).

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NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Unaudited)


	Nine Months Ended September 30,
	2024		2023
Cash flows from operating activities:
Net income (loss)	$	106,046	$	(84,395)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Equity in (earnings) losses of unconsolidated ventures	(2,903)		6,595
Depreciation and amortization	27,031		29,305
Impairment loss	3,695		43,422

Amortization of below market debt	2,547		2,487


Amortization of deferred financing costs	380		988
Amortization of equity-based compensation	176		170

(Gain) loss on investments and other	(128,521)		4,662
Change in allowance for uncollectible accounts	425		360
Distributions from unconsolidated ventures	—		10,640
Changes in assets and liabilities:
Receivables	(734)		203
Other assets	1,798		(3,786)
Due to related party	(121)		(177)
Accounts payable and accrued expenses	6,573		2,640
Other liabilities	347		(48)
Net cash provided by (used in) operating activities	16,739		13,066
Cash flows from investing activities:
Capital expenditures for operating real estate	(11,329)		(28,425)
Sales of real estate	12,068		135

Sale of ownership interest in unconsolidated ventures	253,936		—
Insurance proceeds	329		—

Distributions from unconsolidated ventures	—		13,472
Sales of other assets	221		523

Net cash provided by (used in) investing activities	255,225		(14,295)
Cash flows from financing activities:

Repayments of mortgage notes	(24,115)		(14,066)
Payment of deferred financing costs	(12)		(48)

Payments on financing and other obligations	(68)		(96)
Acquisition and retirement of common stock	—		(1,315)

Contributions from non-controlling interests	73		144
Distributions to non-controlling interests	(110)		(83)
Net cash provided by (used in) financing activities	(24,232)		(15,464)
Net increase (decrease) in cash, cash equivalents and restricted cash	247,732		(16,693)
Cash, cash equivalents and restricted cash-beginning of period	92,943		115,660
Cash, cash equivalents and restricted cash-end of period	$	340,675	$	98,967


	Nine Months Ended September 30,
	2024		2023
Supplemental disclosure of cash flow information:
Cash paid for interest	$	26,133	$	29,666
Cash paid for income taxes	75		61
Supplemental disclosure of non-cash investing and financing activities:
Accrued capital expenditures	$	859	$	540
Reclassification of assets held for sale	450		—
Exchange of ownership interests in unconsolidated ventures for common stock	—		13,399
Assets acquired under capital lease obligations	176		25

Refer to accompanying notes to consolidated financial statements (unaudited).

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NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Business and Organization

NorthStar Healthcare Income, Inc., together with its consolidated subsidiaries (the “Company”), owns a diversified portfolio of seniors housing properties, including independent living facilities (“ILFs”), assisted living facilities (“ALFs”) and memory care facilities (“MCFs”) located throughout the United States.

The Company was formed in October 2010 as a Maryland corporation and commenced operations in February 2013. The Company elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), commencing with the taxable year ended December 31, 2013. The Company has conducted its operations, and intends to do so in the future, so as to continue to qualify as a REIT for U.S. federal income tax purposes.

Substantially all of the Company’s business is conducted through NorthStar Healthcare Income Operating Partnership, LP (the “Operating Partnership”). The Company is the sole general partner of the Operating Partnership. The limited partners of the Operating Partnership are NorthStar Healthcare Income Advisor, LLC and NorthStar Healthcare Income OP Holdings, LLC (the “Special Unit Holder”), which became indirect subsidiaries of the Company on June 9, 2023. NorthStar Healthcare Income Advisor, LLC invested $1,000 in the Operating Partnership in exchange for common units and the Special Unit Holder invested $1,000 in the Operating Partnership and was issued a separate class of limited partnership units (the “Special Units”), which were collectively recorded as non-controlling interests on the accompanying consolidated balance sheets prior to June 9, 2023. As the Company issued shares, it contributed substantially all of the proceeds from its continuous, public offerings to the Operating Partnership as a capital contribution. As of September 30, 2024, the Company’s limited partnership interest in the Operating Partnership, directly or indirectly, was 100%.

The Company’s charter authorizes the issuance of up to 400.0 million shares of common stock with a par value of $0.01 per share and up to 50.0 million shares of preferred stock with a par value of $0.01 per share. The board of directors of the Company is authorized to amend its charter, without the approval of the stockholders, to increase the aggregate number of authorized shares of capital stock or the number of shares of any class or series that the Company has authority to issue.

The Company raised $2.0 billion in total gross proceeds from the sale of shares of common stock in its continuous, public offerings (the “Offering”), including $232.6 million pursuant to its distribution reinvestment plan (the “DRP”).

The Internalization

From inception through October 21, 2022, the Company was externally managed by CNI NSHC Advisors, LLC or its predecessor (the “Former Advisor”), an affiliate of NRF Holdco, LLC (the “Former Sponsor”). The Former Advisor was responsible for managing the Company’s operations, subject to the supervision of the Company’s board of directors, pursuant to an advisory agreement. On October 21, 2022, the Company completed the internalization of the Company’s management function (the “Internalization”). In connection with the Internalization, the Company agreed with the Former Advisor to terminate the advisory agreement and arranged for the Former Advisor to continue to provide certain services for a transition period.

2. Summary of Significant Accounting Policies

Basis of Accounting

The accompanying consolidated financial statements and related notes of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and note disclosures normally included in the consolidated financial statements prepared under U.S. GAAP have been condensed or omitted. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which was filed with the U.S. Securities and Exchange Commission on March 22, 2024.

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NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Reclassifications

Prior period amounts have been reclassified on the consolidated balance sheets and consolidated statement of cash flows from escrow deposit payable to other liabilities to conform to the current period presentation.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, the Operating Partnership and their consolidated subsidiaries. The Company consolidates entities in which it has a controlling financial interest by first considering if an entity meets the definition of a variable interest entity (“VIE”) for which the Company is deemed to be the primary beneficiary or if the Company has the power to control an entity through majority voting interest or other arrangements. All significant intercompany balances are eliminated in consolidation.

Variable Interest Entities

A VIE is an entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The determination of whether an entity is a VIE includes both a qualitative and quantitative analysis. The Company bases its qualitative analysis on its review of the design of the entity, its organizational structure including decision-making ability and relevant financial agreements and the quantitative analysis on the forecasted cash flow of the entity. The Company reassesses its initial evaluation of an entity as a VIE upon the occurrence of certain reconsideration events.

A VIE must be consolidated only by its primary beneficiary, which is defined as the party who, along with its affiliates and agents, has both the: (i) power to direct the activities that most significantly impact the VIE’s economic performance; and (ii) obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. The Company determines whether it is the primary beneficiary of a VIE by considering qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of its investment; the obligation or likelihood for the Company or other interests to provide financial support; consideration of the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders and the similarity with and significance to the business activities of the Company and the other interests. The Company reassesses its determination of whether it is the primary beneficiary of a VIE each reporting period. Judgments related to these determinations include estimates about the current and future fair value and performance of investments held by these VIEs and general market conditions.

As of September 30, 2024, the Company has identified certain consolidated and unconsolidated VIEs. Assets of each of the VIEs may only be used to settle obligations of the respective VIE. Creditors of each of the VIEs have no recourse to the general credit of the Company.

Consolidated VIEs

The most significant VIEs of the Company are certain entities that are consolidated by the Operating Partnership. These entities are VIEs because of non-controlling interests owned by third parties, which do not have substantive kick-out or participating rights. Included in operating real estate, net and mortgage notes payable, net on the Company’s consolidated balance sheet as of September 30, 2024 is $99.1 million and $160.4 million, respectively, related to such consolidated VIEs.

Unconsolidated VIEs

As of September 30, 2024, the Company identified unconsolidated VIEs related to its investments in unconsolidated ventures with a carrying value totaling $0.5 million. The Company’s maximum exposure to loss as of September 30, 2024 would not exceed the carrying value of its investment in the VIEs. The Company determined that it is not the primary beneficiary of these VIEs and, accordingly, they are not consolidated in the Company’s financial statements as of September 30, 2024. The Company did not provide financial support to its unconsolidated VIEs during the nine months ended September 30, 2024. As of September 30, 2024, there were no explicit arrangements or implicit variable interests that could require the Company to provide financial support to its unconsolidated VIEs.

Voting Interest Entities

A voting interest entity is an entity in which the total equity investment at risk is sufficient to enable it to finance its activities independently and the equity holders have the power to direct the activities of the entity that most significantly impact its

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economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The usual condition for a controlling financial interest in a voting interest entity is ownership of a majority voting interest. If the Company has a majority voting interest in a voting interest entity, the entity will generally be consolidated. The Company does not consolidate a voting interest entity if there are substantive participating rights by other parties and/or kick-out rights by a single party or through a simple majority vote.

The Company performs on-going reassessments of whether entities previously evaluated under the voting interest framework have become VIEs, based on certain events, and therefore subject to the VIE consolidation framework.

Investments in Unconsolidated Ventures

The Company will account for an investment under the equity method of accounting if it has the ability to exercise significant influence over the operating and financial policies of an entity, but does not have a controlling financial interest. Under the equity method, the investment is adjusted each period for capital contributions and distributions and its share of the entity’s net income (loss). Capital contributions, distributions and net income (loss) of such entities are recorded in accordance with the terms of the governing documents. An allocation of net income (loss) may differ from the stated ownership percentage interest in such entity as a result of preferred returns and allocation formulas, if any, as described in such governing documents. Equity method investments are recognized using a cost accumulation model, in which the investment is recognized based on the cost to the investor, which includes acquisition fees. The Company records as an expense certain acquisition costs and fees associated with consolidated investments deemed to be business combinations and capitalizes these costs for investments deemed to be acquisitions of an asset, including an equity method investment.

The Company may elect the fair value option of accounting for an investment that would otherwise be accounted for under the equity method. The fair value option election allows an entity to make an irrevocable election of fair value for certain financial assets and liabilities on an instrument-by-instrument basis at the initial or subsequent measurement. The decision to elect the fair value option must be applied to an entire instrument and is irrevocable once elected. Under the fair value option, the Company records its share of the changes to fair value of the investment through gain (loss) on investments and other in the consolidated statements of operations. On June 30, 2023, the Company elected the fair value option method to account for its investment in the Espresso joint venture. Refer to Note 4 “Investment in Unconsolidated Ventures” and Note 10 “Fair Value” for further discussion.

Non-controlling Interests

A non-controlling interest in a consolidated subsidiary is defined as the portion of the equity (net assets) in a subsidiary not attributable, directly or indirectly, to the Company. A non-controlling interest is required to be presented as a separate component of equity on the consolidated balance sheets and presented separately as net income (loss) and comprehensive income (loss) attributable to controlling and non-controlling interests. An allocation to a non-controlling interest may differ from the stated ownership percentage interest in such entity as a result of a preferred return and allocation formula, if any, as described in the relevant governing documents.

Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that could affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates and assumptions. Any estimates of the effects of inflation, rising interest rates, risk of recession and other economic conditions as reflected and/or discussed in these financial statements are based upon the Company's best estimates using information known to the Company as of the date of this Quarterly Report on Form 10-Q. Such estimates may change and the impact of which could be material.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly-liquid investments with an original maturity date of three months or less to be cash equivalents. Cash, including amounts restricted, may at times exceed the Federal Deposit Insurance Corporation deposit insurance limit of $250,000 per institution. The Company mitigates credit risk by placing cash and cash equivalents with major financial institutions and money market funds invested in short-term U.S. government securities. To date, the Company has not experienced any losses on cash and cash equivalents.

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Restricted cash consists of amounts related to operating real estate (escrows for taxes, insurance, capital expenditures, security deposits received from residents and payments required under certain lease agreements) and other escrows required by lenders of the Company’s borrowings.

The following table provides a reconciliation of cash, cash equivalents and restricted cash as reported on the consolidated balance sheets to the total of such amounts as reported on the consolidated statements of cash flows (dollars in thousands):


	September 30, 2024 (Unaudited)		December 31, 2023
Cash and cash equivalents	$	333,264	$	85,037
Restricted cash	7,411		7,906
Total cash, cash equivalents and restricted cash	$	340,675	$	92,943

Operating Real Estate

Operating real estate is carried at historical cost less accumulated depreciation. Major replacements and betterments which improve or extend the life of the asset are capitalized and depreciated over their useful life. Ordinary repairs and maintenance are expensed as incurred. Operating real estate is depreciated using the straight-line method over the estimated useful life of the assets, summarized as follows:


Category:						Term:
Building						39 to 49 years
Building improvements						Lesser of the useful life or remaining life of the building
Land improvements						9 to 15 years
Tenant improvements						Lesser of the useful life or remaining term of the lease
Furniture, fixtures and equipment						5 to 14 years

Construction costs incurred in connection with the Company’s investments are capitalized and included in operating real estate, net on the consolidated balance sheets. Construction in progress is not depreciated until the asset is available for its intended use.

Lessee Accounting

A leasing arrangement, a right to control the use of an identified asset for a period of time in exchange for consideration, is classified by the lessee either as a finance lease, which represents a financed purchase of the leased asset, or as an operating lease. For leases with terms greater than 12 months, a lease asset and a lease liability are recognized on the balance sheet at commencement date based on the present value of lease payments over the lease term.

Lease renewal or termination options are included in the lease asset and lease liability only if it is reasonably certain that the option to extend would be exercised or the option to terminate would not be exercised. As the implicit rate in most leases are not readily determinable, the Company’s incremental borrowing rate for each lease at commencement date is used to determine the present value of lease payments. Consideration is given to the Company’s recent debt financing transactions, as well as publicly available data for instruments with similar characteristics, adjusted for the respective lease term, when estimating incremental borrowing rates.

Lease expense is recognized over the lease term based on an effective interest method for finance leases and on a straight-line basis for operating leases.

Right of Use (“ROU”) - Finance Assets

The Company has entered into finance leases for equipment which are included in operating real estate, net on the Company’s consolidated balance sheets. As of September 30, 2024, furniture, fixtures and equipment under finance leases totaled $0.3 million. The leased equipment is amortized on a straight-line basis. Payments for finance leases totaled $0.1 million for the nine months ended September 30, 2024 and 2023.

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The following table presents the future minimum lease payments under finance leases and the present value of the minimum lease payments, which are included in other liabilities on the Company’s consolidated balance sheets (dollars in thousands):


October 1 through December 31, 2024	$	19
Years Ending December 31:
2025	$	75
2026	70
2027	55
2028	42
Thereafter	36
Total minimum lease payments	$	297
Less: Amount representing interest	(57)
Present value of minimum lease payments	$	240

The weighted average interest rate related to the finance lease obligations is 8.5% with a weighted average lease term of 4.4 years.

As of September 30, 2024, there were no leases that had yet to commence which would create significant rights and obligations to the Company as lessee.

Assets Held For Sale

The Company classifies certain long-lived assets as held for sale once the criteria, as defined by U.S. GAAP, have been met and are expected to sell within one year. Long-lived assets to be disposed of are reported at the lower of their carrying amount or fair value minus cost to sell, with any write-down recorded to impairment loss on the consolidated statements of operations. Depreciation and amortization is not recorded for assets classified as held for sale.

In September 2024, the Company entered into an agreement to sell a land parcel within the Rochester portfolio for $0.2 million, and as of September 30, 2024, has classified the property as held for sale on its consolidated balance sheets. At the time of the reclassification to held for sale, the Company recorded an impairment loss of $0.3 million. As of December 31, 2023, the Company had one property within the Rochester portfolio classified as held for sale, which was sold in February 2024.

Intangible Assets and Deferred Costs

Deferred Costs

Deferred costs consist of deferred financing costs. Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining financing. These costs are recorded against the carrying value of such financing and are amortized to interest expense over the term of the financing using the effective interest method. Unamortized deferred financing costs are expensed to gain (loss) on investments and other, when the associated borrowing is repaid before maturity. Costs incurred in seeking financing transactions which do not close are expensed in the period in which it is determined that the financing will not occur.

Identified Intangibles

The Company records acquired identified intangibles, such as the value of in-place leases and other intangibles, based on estimated fair value at the acquisition date. The value allocated to the identified intangibles is amortized over the remaining lease term. In-place leases are amortized into depreciation and amortization expense.

Impairment analysis for identified intangible assets is performed in connection with the impairment assessment of the related operating real estate. An impairment establishes a new basis for the identified intangible asset and any impairment loss recognized is not subject to subsequent reversal. Refer to “—Impairment on Operating Real Estate and Investments in Unconsolidated Ventures” for additional information.

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Intangible assets, net, as presented on the consolidated balance sheets relate to the Company’s in-place lease values for the Company’s four net lease properties. The following table presents intangible assets, net (dollars in thousands):


	September 30, 2024 (Unaudited)		December 31, 2023
In-place lease value	$	120,149	$	120,149
Less: Accumulated amortization	(118,486)		(118,233)
Intangible assets, net	$	1,663	$	1,916

During the three months ended September 30, 2024 and 2023, the Company recorded $0.1 million of amortization expense for in-place leases. During the nine months ended September 30, 2024 and 2023, the Company recorded $0.3 million of amortization expense for in-place leases.

The following table presents future amortization of in-place lease value (dollars in thousands):


October 1 through December 31, 2024	$	84
Years Ending December 31:
2025	337
2026	337
2027	337
2028	337
Thereafter	231
Total	$	1,663

Derivative Instruments

The Company uses derivative instruments to manage its interest rate risk. The Company’s derivative instruments are recorded at fair value. The accounting for changes in fair value of derivatives depends upon whether or not the Company has elected to designate the derivative in a hedging relationship and the derivative qualifies for hedge accounting. Under hedge accounting, changes in fair value for derivatives are recorded through other comprehensive income. When hedge accounting is not elected, changes in fair value for derivatives are recorded through the income statement.

The Company has interest rate caps that have not been designated for hedge accounting. As of September 30, 2024, the Company has one interest rate cap agreement in place. The fair value of the Company's interest rate caps totaled $0.2 million and $0.4 million as of September 30, 2024 and December 31, 2023, respectively, and is presented in other assets on the consolidated balance sheets. Changes in fair value of derivatives have been recorded in gain (loss) on investments and other in the consolidated statements of operations. The Company recognized losses related to changes in fair value totaling $0.2 million and $0.3 million for the three months ended September 30, 2024 and 2023, respectively, and losses totaling $0.5 million for the nine months ended September 30, 2024 and 2023.

Revenue Recognition

Operating Real Estate

Rental income from operating real estate is derived from leasing of space to operators and residents, including rent received from the Company’s net lease properties and rent, ancillary service fees and other related revenue earned from ILF residents. Rental income recognition commences when the operator takes legal possession of the leased space and the leased space is substantially ready for its intended use. The leases are for fixed terms of varying length and generally provide for rentals and expense reimbursements to be paid in monthly installments. Rental income from leases, which includes community and move-in fees, is recognized over the term of the respective leases. ILF resident agreements are generally short-term in nature and may allow for termination with 30 days’ notice.

The Company also generates revenue from operating healthcare properties. Revenue related to operating healthcare properties includes resident room and care charges, ancillary fees and other resident service charges. Rent is charged and revenue is recognized when such services are provided, generally defined per the resident agreement as of the date upon which a resident occupies a room or uses the services. Resident agreements are generally short-term in nature and may allow for termination with

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30 days’ notice. Revenue derived from our ALFs and MCFs is recorded in resident fee income in the consolidated statements of operations.

Revenue from operators and residents is recognized at lease commencement only to the extent collection is expected to be probable. This assessment is based on several qualitative and quantitative factors, including and as appropriate, the payment history, ability to satisfy its lease obligations, the value of the underlying collateral or deposit, if any, and current economic conditions. If collection is assessed to not be probable, thereafter lease income recognized is limited to amounts collected, with the reversal of any revenue recognized to date in excess of amounts received. If collection is subsequently reassessed to be probable, revenue is adjusted to reflect the amount that would have been recognized had collection always been assessed as probable.

Beginning in February 2021, the operator of the Company’s four net lease properties failed to remit contractual monthly rent obligations and the Company deemed it not probable that these obligations will be satisfied in the foreseeable future. On March 27, 2023, the Company entered into a lease forbearance and modification agreement (the “Forbearance Agreement”) with the existing operator, pursuant to which, among other things, the Company will be entitled to receive all cash flow in excess of permitted expenses, and be required to fund any operating deficits, through 2025, subject to the terms and conditions thereof. The Company received and recorded rental income related to its net lease properties of $1.1 million and $1.5 million during the three and nine months ended September 30, 2024, respectively, and $0.8 million and $1.2 million during the three and nine months ended September 30, 2023, respectively.

For the three months ended September 30, 2024 and 2023, total property and other revenue includes variable lease revenue of $3.7 million and $3.6 million, respectively. For the nine months ended September 30, 2024 and 2023, total property and other revenue includes variable lease revenue of $10.8 million and $10.7 million, respectively. Variable lease revenue includes ancillary services provided to residents, as well as non-recurring services and fees at the Company’s operating facilities.

Impairment on Operating Real Estate and Investments in Unconsolidated Ventures

Operating Real Estate and Assets Held for Sale

The Company’s real estate portfolio is reviewed on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value of its operating real estate may be impaired or that its carrying value may not be recoverable. A property’s value may be impaired if the Company’s estimate of the aggregate expected future undiscounted cash flow generated by the property is less than the carrying value. In conducting this review, the Company considers U.S. macroeconomic factors, real estate and healthcare sector conditions, together with asset specific and other factors. To the extent an impairment has occurred, the loss is measured as the excess of the carrying value of the property over the estimated fair value and recorded as impairment loss in the consolidated statements of operations.

Real estate held for sale is stated at the lower of its carrying amount or estimated fair value less disposal cost, with any write-down to disposal cost recorded as an impairment loss. For any increase in fair value less disposal cost subsequent to classification as held for sale, the impairment may be reversed, but only up to the amount of cumulative loss previously recognized.

The Company considered the potential impact of the lasting effects of inflation, elevated interest rates, risk of recession and other economic conditions on the future net operating income of its real estate held for investment as an indicator of impairment. Fair values were estimated based upon the income capitalization approach, using net operating income for each property and applying indicative capitalization rates.

During the nine months ended September 30, 2024, the Company recorded impairment losses on its operating real estate totaling $3.7 million, including impairment losses of $3.0 million for the Company’s Oak Cottage property as a result of lower operating margins and projected future cash flows, $0.4 million of impairment losses for property damage sustained by facilities within the Winterfell and Aqua portfolios and impairment losses of $0.3 million to reflect the market value of land parcels within the Rochester portfolio.

During the nine months ended September 30, 2023, the Company recorded impairment losses on its operating real estate totaling $38.7 million, including impairment losses of $38.6 million for five facilities within the Rochester Sub-Portfolio (as defined in Note 5, “Borrowings”).

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Investments in Unconsolidated Ventures

The Company reviews its investments in unconsolidated ventures on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value may be impaired or that its carrying value may not be recoverable. An investment is considered impaired if the projected net recoverable amount over the expected holding period is less than the carrying value. In conducting this review, the Company considers global macroeconomic factors, including real estate sector conditions, together with investment specific and other factors. To the extent an impairment has occurred on the Company’s investment in unconsolidated ventures, and is considered to be other than temporary, the loss is measured as the excess of the carrying value of the investment over the estimated fair value and recorded in impairment loss in the consolidated statements of operations.

During the nine months ended September 30, 2024, the Company did not record impairment on its investments in unconsolidated ventures.

During the nine months ended September 30, 2023, the Company impaired its investment in the Espresso joint venture by $4.7 million, which reduced the carrying value of its investment to $3.1 million as of June 30, 2023. The Company’s assessment for the fair value of its investment took into consideration the joint venture’s remaining assets and estimated future cash distributions, less transaction and wind down costs. Upon impairing its investment, the Company elected the fair value option method to account for its investment in the Espresso joint venture on June 30, 2023.

Credit Losses on Receivables

The current expected credit loss model, in estimating expected credit losses over the life of a financial instrument at the time of origination or acquisition, considers historical loss experiences, current conditions and the effects of reasonable and supportable expectations of changes in future macroeconomic conditions. The Company assesses the estimate of expected credit losses on a quarterly basis or more frequently as necessary. The Company considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

The Company measures expected credit losses of receivables on a collective basis when similar risk characteristics exist. If the Company determines that a particular receivable does not share risk characteristics with its other receivables, the Company evaluates the receivable for expected credit losses on an individual basis.

When developing an estimate of expected credit losses on receivables, the Company considers available information relevant to assessing the collectability of cash flows. This information may include internal information, external information, or a combination of both relating to past events, current conditions, and reasonable and supportable forecasts. The Company considers relevant qualitative and quantitative factors that relate to the environment in which the Company operates and are specific to the borrower.

Further, the fair value of the collateral, less estimated costs to sell, may be used when determining the allowance for credit losses for a receivable for which the repayment is expected to be provided substantially through the sale of the collateral when the borrower is experiencing financial difficulty.

As of September 30, 2024, the Company has not recorded an allowance for credit losses on its receivables.

Acquisition Fees and Expenses

The Company expensed certain acquisition costs and fees associated with transactions deemed to be business combinations and capitalized these costs for transactions deemed to be acquisitions of an asset, including an equity investment.

Equity-Based Compensation

The Company accounts for equity-based compensation awards using the fair value method, which requires an estimate of fair value of the award at the time of grant. All fixed equity-based awards to directors, which have no vesting conditions other than time of service, are amortized to compensation expense over the awards’ vesting period on a straight-line basis. Equity-based compensation is classified within general and administrative expenses in the consolidated statements of operations.

Income Taxes

The Company elected to be taxed as a REIT and to comply with the related provisions of the Internal Revenue Code beginning in its taxable year ended December 31, 2013. Accordingly, the Company will generally not be subject to U.S. federal income tax to the extent of its distributions to stockholders as long as certain asset, gross income and share ownership tests are met. To maintain its qualification as a REIT, the Company must annually distribute dividends equal to at least 90.0% of its REIT taxable

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income (with certain adjustments) to its stockholders and meet certain other requirements. The Company believes that all of the criteria to maintain the Company’s REIT qualification have been met for the applicable periods.

For the taxable year ended December 31, 2024, the Company anticipates that its REIT taxable income, if any, will be offset by its net operating loss carry-forward and as such, the Company will not be subject to the distribution requirements. The Company’s most recently filed tax return is for the year ended December 31, 2023 and includes a net operating loss carry-forward of $349.2 million.

If the Company were to fail to meet these requirements, it would be subject to U.S. federal income tax and potential interest and penalties, which could have a material adverse impact on its results of operations and amounts available for distributions to its stockholders. The Company’s accounting policy with respect to interest and penalties is to classify these amounts as a component of income tax expense, where applicable. The Company has assessed its tax positions for all open tax years, which include 2019 to 2023, and concluded there were no material uncertainties to be recognized. The Company may also be subject to certain state, local and franchise taxes. Under certain circumstances, federal income and excise taxes may be due on its undistributed taxable income.

The Company made a joint election to treat certain subsidiaries as taxable REIT subsidiaries (“TRS”) which may be subject to U.S. federal, state and local income taxes. In general, a TRS of the Company may perform services for managers/operators/residents of the Company, hold assets that the Company cannot hold directly and may engage in any real estate or non-real estate related business.

Certain subsidiaries of the Company are subject to taxation by federal and state authorities for the periods presented. Income taxes are accounted for by the asset/liability approach in accordance with U.S. GAAP. Deferred taxes, if any, represent the expected future tax consequences when the reported amounts of assets and liabilities are recovered or paid. Such amounts arise from differences between the financial reporting and tax bases of assets and liabilities and are adjusted for changes in tax laws and tax rates in the period which such changes are enacted. A provision for income tax represents the total of income taxes paid or payable for the current period, plus the change in deferred taxes. Current and deferred taxes are provided on the portion of earnings (losses) recognized by the Company with respect to its interest in the TRS.

The Company recorded an income tax expense of $20,000 and $59,000 for the three and nine months ended September 30, 2024, respectively. The Company recorded an income tax expense of approximately $17,000 and $43,000 for the three and nine months ended September 30, 2023, respectively.

Deferred income tax assets and liabilities are calculated based on temporary differences between the Company’s U.S. GAAP consolidated financial statements and the federal and state income tax basis of assets and liabilities as of the consolidated balance sheet date. The Company evaluates the realizability of its deferred tax assets (e.g., net operating loss and capital loss carryforwards) and recognizes a valuation allowance if, based on the available evidence, it is more likely than not that some portion or all of its deferred tax assets will not be realized. When evaluating the realizability of its deferred tax assets, the Company considers estimates of expected future taxable income, existing and projected book/tax differences, tax planning strategies available and the general and industry specific economic outlook. This realizability analysis is inherently subjective, as it requires the Company to forecast its business and general economic environment in future periods. Changes in estimate of deferred tax asset realizability, if any, are included in provision for income tax expense in the consolidated statements of operations. The Company has a deferred tax asset and continues to have a full valuation allowance recognized, as there are no changes in the facts and circumstances to indicate that the Company should release the valuation allowance.

The components of the Company’s deferred tax assets as of September 30, 2024 and December 31, 2023 are as follows (in thousands):


	September 30, 2024 (Unaudited)		December 31, 2023
Fixed assets and other	$	874	$	656
Net operating losses	16,211		15,827
Total deferred tax assets	$	17,085	$	16,483
Valuation allowance	(17,085)		(16,483)
Net deferred income tax assets	$	—	$	—

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Comprehensive Income (Loss)

The Company reports consolidated comprehensive income (loss) in separate statements following the consolidated statements of operations. Comprehensive income (loss) is defined as the change in equity resulting from net income (loss) and other comprehensive income (loss) (“OCI”). The only component of OCI for the Company was foreign currency translation adjustments related to its investment in an unconsolidated venture.

Foreign Currency

Prior to the sale of the Company’s investment in an unconsolidated venture in 2023, the Company had exposure to foreign currency through the investment, the effects of which were recorded as a component of accumulated OCI in the consolidated statements of equity and in equity in earnings (losses) in the consolidated statements of operations. Upon the sale, the accumulated foreign currency losses were reclassified to gain (loss) on investments and other on the consolidated statements of operations and the Company is no longer exposed to foreign currency.

Recent Accounting Pronouncements

Accounting Standards Adopted in 2024

None.

Future Application of Accounting Standards

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis, primarily through enhanced disclosures of significant segment expenses. ASU No. 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 and requires retrospective application to all periods presented upon adoption. Early adoption is permitted. The Company plans to adopt ASU No. 2023-07 on its Annual Report on Form 10-K for the fiscal year ended December 31, 2024 and does not anticipate the application of the accounting standards will have a material impact on the Company’s financial statements.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disclosure of incremental income tax information within the rate reconciliation and expanded disclosures of income taxes paid, among other disclosure requirements. ASU No. 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company plans to adopt ASU No. 2023-09 on its Annual Report on Form 10-K for the fiscal year ended December 31, 2024 and does not anticipate the application of the accounting standards will have a material impact on the Company’s financial statements.

3. Operating Real Estate

The following table presents operating real estate, net (dollars in thousands):


	September 30, 2024 (Unaudited)		December 31, 2023
Land	$	114,681	$	115,758
Land improvements	13,768		12,705
Buildings and improvements	868,382		861,452
Tenant improvements	372		372
Construction in progress	646		5,493
Furniture, fixtures and equipment	99,296		93,373
Subtotal	$	1,097,145	$	1,089,153
Less: Accumulated depreciation	(294,667)		(267,883)
Operating real estate, net	$	802,478	$	821,270

For the three and nine months ended September 30, 2024, depreciation expense was $9.0 million and $26.8 million, respectively. For the three and nine months ended September 30, 2023, depreciation expense was $9.8 million and $29.1 million, respectively.

Within the table above, operating real estate has been reduced by accumulated impairment losses of $166.2 million and $162.9 million as of September 30, 2024 and December 31, 2023, respectively. Impairment losses, as presented on the consolidated

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statements of operations, for the Company’s operating real estate and properties held for sale totaled $0.2 million and $3.7 million for the three and nine months ended September 30, 2024, respectively, and $38.7 million for the three and nine months ended September 30, 2023. Refer to Note 2, “Summary of Significant Accounting Policies” for further discussion.

The following table presents the operators and managers of the Company’s operating real estate (dollars in thousands):


	As of September 30, 2024		Nine Months Ended September 30, 2024
Operator / Manager	Properties Under Management	Units Under Management	Property and Other Revenues		% of Total Property and Other Revenues
Solstice Senior Living	32	3,969	$	104,136	68.7	%
Watermark Retirement Communities(1)	6	723	22,074		14.6	%
Arete Living(2)	5	453	17,479		11.5	%
Integral Senior Living	1	40	3,521		2.3	%
Arcadia Management(3)	4	564	1,486		1.0	%
Other(4)	—	—	2,932		1.9	%
Total	48	5,749	$	151,628	100.0	%

______________________________________

(1)Property count and units exclude the properties within the Rochester Sub-Portfolio, which were placed into a receivership in October 2023.

(2)Formerly known as Avamere Health Services.

(3)Revenues represent rental income received and recognized from the operator of the Company’s net lease investments.

(4)Consists primarily of interest income earned on corporate-level cash and cash equivalents.

Rochester Sub-Portfolio

As a result of the mortgage loan payment defaults in July 2023, on October 30, 2023, the Rochester Sub-Portfolio (as defined in Note 5, “Borrowings”) was placed into a receivership. The receiver now has effective control of the properties until ownership of the properties transfers to the lender or its designee.

As a result of the loss of control, the Company discontinued recognizing revenues and expenses related to the Rochester Sub-Portfolio as of October 30, 2023 and derecognized the properties and related assets from the Company’s financial statements, which resulted in a $59.0 million loss recognized in accordance with ASC 610-20, “Gains and Losses from the Derecognition of Nonfinancial Assets” during the year ended December 31, 2023.

Arbors Portfolio

Beginning in February 2021, Arcadia Management, the operator of the Company’s four net lease properties in the Arbors portfolio, failed to remit contractual monthly rent obligations. The Company deemed it not probable that these obligations will be satisfied in the foreseeable future and began recognizing rental income as received on a cash basis. During the three and nine months ended September 30, 2024, the Company received and recorded rental income of $1.1 million and $1.5 million, respectively, related to its net lease properties.

4. Investments in Unconsolidated Ventures

The Company’s investments in unconsolidated ventures are accounted for under the equity method or fair value option. The following table presents the Company’s investments in unconsolidated ventures (dollars in thousands):


				Carrying Value
Portfolio	Acquisition Date	Ownership		September 30, 2024 (Unaudited)		December 31, 2023
Trilogy	Dec-2015	24.0	%	$	—	$	122,339
Solstice	Jul-2017	20.0	%	365		468
Espresso	Jul-2015	36.7	%	142		142
Investments in Unconsolidated Ventures				$	507	$	122,949

Trilogy

Trilogy REIT Holdings, LLC (the “Trilogy Investment”) indirectly owns 126 integrated senior health campuses, providing services associated with ILFs, ALFs, MFCs, and skilled nursing facilities, located in the Midwest, which are all operating

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properties managed pursuant to a management agreement with Trilogy Management Services, as well as ancillary services businesses, including a therapy business and a pharmacy business. Affiliates of American Healthcare REIT, Inc. (“AHR”) own the controlling interest of the Trilogy Investment.

The Company, acting through subsidiaries of its operating partnership, entered into a membership interest purchase agreement (the “Option Agreement”) on November 3, 2023 with AHR and its subsidiary granting to AHR the right to purchase all of the Company’s ownership interest in the Trilogy Investment for a purchase price ranging from $240.5 million to up to $260 million depending upon the purchase price consideration and timing of the closing, subject to and on the conditions set forth in the Option Agreement.

On September 20, 2024, the Company completed the sale of its Trilogy Investment in accordance with the Option Agreement, which resulted in net cash proceeds, after transaction costs, received by the Company totaling $254.0 million.

Based on the carrying value of its investment in the Trilogy Investment prior to the transaction, the Company recognized a gain on the sale totaling $128.6 million, which is recorded within gain (loss) on investments and other on the Company's consolidated statements of operations for the three and nine months ended September 30, 2024.

Solstice

Solstice Senior Living, LLC (“Solstice”), the manager of one of the Company’s operating investments, the Winterfell portfolio, is a joint venture between affiliates of Integral Senior Living, LLC (“ISL”), a management company of ILFs, ALFs and MCFs founded in 2000, which owns 80.0%, and the Company, which owns 20.0%.

Espresso

During the year ended December 31, 2023, the Espresso joint venture completed the sale of its remaining sub-portfolios. The Company’s elected the fair value option method to account for its investment in the Espresso joint venture on June 30, 2023. As of September 30, 2024, the remaining carrying value represents the Company’s proportionate share of available cash, less wind down costs and other expenses.

The following table presents the results of the Company’s investment in unconsolidated ventures (dollars in thousands):


	Three Months Ended September 30,								Nine Months Ended September 30,
	2024				2023				2024				2023
Portfolio	Equity in Earnings (Losses)		Cash Distribution		Equity in Earnings (Losses)		Cash Distribution		Equity in Earnings (Losses)		Cash Distribution		Equity in Earnings (Losses)		Cash Distribution
Trilogy(1)	$	1,100	$	—	$	(146)	$	—	$	3,005	$	—	$	454	$	4,668
Solstice	(26)		—		19		—		(102)		—		(41)		—
Espresso(2)	—		—		—		—		—		—		9,228		19,444
Investments sold in 2023	—		—		—		—		—		—		(16,236)		—
Total	$	1,074	$	—	$	(127)	$	—	$	2,903	$	—	$	(6,595)	$	24,112

_______________________________________

(1)Represents the Company’s proportionate share of earnings through the date of sale of the Company’s ownership interest on September 20, 2024.

(2)The Company elected the fair value option to account for the joint venture on June 30, 2023, which resulted in no equity in earnings (losses) recorded subsequent to the accounting policy election.

Investments Sold in 2023

In June 2023, the Company sold its 14% interest in Healthcare GA Holdings, General Partnership, which indirectly owned 48 care homes across the United Kingdom (the “Diversified US/UK Portfolio”), and its 6% interest in Eclipse Health, General Partnership, which indirectly owned 34 seniors housing facilities (the “Eclipse Portfolio”), together with $1.1 million in cash, to its Former Sponsor, who is affiliated with the majority partner of each joint venture, for all of the Company’s equity securities held by the Former Sponsor and its affiliates, including 9,709,553 shares of common stock of the Company, 100 common units in the Operating Partnership and 100 special units in the Operating Partnership. Upon completion of the sale, the Company retired all of the shares of common stock acquired.

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5. Borrowings

The following table presents the Company’s mortgage notes payable (dollars in thousands):


				September 30, 2024 (Unaudited)				December 31, 2023
	Recourse vs. Non-Recourse(1)	Initial Maturity	Contractual Interest Rate(2)	Principal Amount(3)		Carrying Value(3)		Principal Amount(3)		Carrying Value(3)

Aqua Portfolio
Frisco, TX	Non-recourse	Feb 2026	SOFR + 2.91%	$	26,000	$	25,797	$	26,000	$	25,694
Milford, OH	Non-recourse	Sep 2026	SOFR + 2.79%	18,059		17,941		18,173		18,015
Rochester Portfolio
Rochester, NY	Non-recourse	Feb 2025	4.25%	16,898		16,889		17,470		17,448
Rochester, NY(4)	Non-recourse	Jul 2023	SOFR + 2.45%	99,786		99,786		99,786		99,786
Rochester, NY(5)	Non-recourse	Repaid	SOFR + 2.93%	—		—		10,874		10,853
Arbors Portfolio(6)
Various locations	Non-recourse	Feb 2025	3.99%	79,833		79,776		81,397		81,209
Winterfell Portfolio(7)
Various locations	Non-recourse	Jun 2025	4.17%	573,489		571,262		583,471		578,694
Pacific Northwest Portfolio(8)
Various locations	Non-recourse	Feb 2027	4.66%	65,682		65,503		66,691		66,455
Mortgage notes payable, net				$	879,747	$	876,954	$	903,862	$	898,154

_______________________________________

(1)Subject to non-recourse carve-outs.

(2)Floating-rate borrowings total $143.8 million of principal outstanding and reference one-month of the Secured Overnight Financing Rate (“SOFR”).

(3)The difference between principal amount and carrying value of mortgage notes payable is attributable to deferred financing costs, net for all borrowings, other than for the Winterfell portfolio, which is attributable to below market debt intangibles.

(4)Composed of seven individual mortgage notes payable secured by the Rochester Sub-Portfolio (as defined below), which are cross-collateralized and in default.

(5)Upon the sale of the underlying collateral property, the mortgage note was repaid in full in February 2024.

(6)Composed of four individual mortgage notes payable secured by four ALFs, cross-collateralized and subject to cross-default.

(7)Composed of 32 individual mortgage notes payable secured by 32 ILFs, cross-collateralized and subject to cross-default.

(8)Formerly known as the Avamere portfolio. Composed of five individual mortgage notes payable secured by five ALFs, cross-collateralized and subject to cross-default.

The following table presents future scheduled principal payments on mortgage notes payable based on initial maturity as of September 30, 2024 (dollars in thousands):


October 1 through December 31, 2024(1)	$	104,359
Years Ending December 31:
2025	667,623
2026	45,369
2027	62,396
Total	$	879,747

_______________________________________

(1)Includes the outstanding principal of the Rochester Sub-Portfolio Loan (as defined below), which is in default.

Rochester Sub-Portfolio Loan

In July 2023, the Company elected not to use cash reserves to pay July debt service on seven cross-defaulted and cross-collateralized mortgage notes with an aggregate principal amount outstanding of $99.8 million (the “Rochester Sub-Portfolio Loan") secured by five ILFs and two ALFs (the “Rochester Sub-Portfolio") that did not generate sufficient cash flow to pay debt service in full. The Rochester Sub-Portfolio Loan is non-recourse to the Company, subject to limited customary exceptions.

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As a result of the payment default, on October 25, 2023, the lender filed a complaint seeking the appointment of a receiver and foreclosure on the underlying properties and to enforce its rights in its collateral under the loan documents and, on October 30, 2023, the Rochester Sub-Portfolio was placed into a receivership to facilitate an orderly transition of the operations, and eventually ownership, of the properties.

Once legal ownership of the Rochester Sub-Portfolio transfers and the obligations under the Rochester Sub-Portfolio Loan are extinguished, the Company expects to recognize a gain related to the debt extinguishment in accordance with ASC 470, “Debt.” However, until the extinguishment occurs, default interest expense and any other expenses related to the Rochester Sub-Portfolio Loan will continue to accrue. As of September 30, 2024, $99.8 million of outstanding mortgage debt and $17.2 million of accrued interest expense were included on the Company's consolidated balance sheets related to the Rochester Sub-Portfolio Loan.

Arbors Portfolio

Beginning in February 2021, the operator of the four net lease properties in the Arbors portfolio was unable to satisfy its obligations under its leases and began remitting rent based on its available cash after satisfying property-level expenses, which resulted in a default under the four cross-defaulted and cross-collateralized mortgage notes secured by the Arbor portfolio (the “Arbors Loan”). On March 27, 2023, with consent of the lender, the Company entered into a forbearance agreement relating to the lease defaults. During the nine months ended September 30, 2024, cash flow, net of expenses, paid by the operator of the Arbors portfolio to the Company in accordance with the forbearance agreement was not sufficient to cover related debt service on the Arbors Loan and the Company used $2.5 million of cash reserves to pay contractual debt service on the Arbors Loan. As of September 30, 2024, the Company is current with all payment obligations under the Arbors Loan. The Arbors Loan matures in February 2025 and is non-recourse to the Company, subject to limited customary exceptions. The Company will continue to monitor the operator of the Arbors portfolio’s performance and cash flows closely, as well as evaluate options for this portfolio.

6. Related Party Arrangements

Former Advisor

In connection with the Internalization, on October 21, 2022, the advisory agreement was terminated and, along with the Operating Partnership and the Former Advisor, the Company entered into a Transition Services Agreement (the “TSA”) to facilitate an orderly transition of the Company’s management of its operations. As of December 31, 2023, the TSA was effectively terminated.

Prior to the Internalization, the Former Advisor was responsible for managing the Company’s affairs on a day-to-day basis and for identifying, acquiring, originating and asset managing investments on behalf of the Company. For such services, to the extent permitted by law and regulations, the Former Advisor received fees and reimbursements from the Company. Pursuant to the advisory agreement, the Former Advisor could defer or waive fees in its discretion.

Investments in Unconsolidated Ventures

Solstice, the manager of one of the Company’s operating investments, the Winterfell portfolio, is a joint venture between affiliates of ISL, which owns 80.0%, and the Company, which owns 20.0%. For the nine months ended September 30, 2024, the Company recognized property management fee expense of $5.4 million payable to Solstice related to the Winterfell portfolio.

7. Equity-Based Compensation

The Company adopted a long-term incentive plan, as amended (the “Plan”), which it may use to attract and retain qualified officers, directors, employees and consultants, as well as an independent directors compensation plan, which is a component of the Plan. Under the Plan, 2.0 million shares of restricted common stock were eligible to be issued for any equity-based awards granted under the Plan.

Pursuant to the Plan, as of September 30, 2024, the Company’s independent directors were granted a total of 159,932 shares of restricted common stock and 300,333 restricted stock units totaling $1.3 million and $1.0 million, respectively, based on the share price on the date of each grant.

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The restricted common stock and restricted stock units granted generally vest quarterly over two years in equal installments and will become fully vested on the earlier occurrence of: (i) the termination of the independent director’s service as a director due to his or her death or disability; or (ii) a change in control of the Company. The restricted stock units are convertible, on a one-for-one basis, into shares of the Company’s common stock upon the earlier occurrence of: (i) the termination of the independent director’s service as a director; or (ii) a change in control of the Company.

The Company recognized equity-based compensation expense of $63,750 and $56,250 for the three months ended September 30, 2024 and 2023, respectively, and $176,250 and $170,000 for the nine months ended September 30, 2024 and 2023, respectively. Equity-based compensation expense is recorded in general and administrative expenses in the consolidated statements of operations.

Unrecognized expense related to unvested restricted stock units totaled $318,750 and $240,000 as of September 30, 2024 and December 31, 2023, respectively. Unvested restricted stock units totaled 117,153 and 77,741 as of September 30, 2024 and December 31, 2023, respectively.

8. Stockholders’ Equity

Common Stock

The Company stopped accepting subscriptions for its Offering on December 17, 2015 and all of the shares initially registered for its Offering were issued on or before January 19, 2016. The Company issued 173.4 million shares of common stock generating gross proceeds of $1.7 billion, excluding proceeds from the DRP.

Distribution Reinvestment Plan

The Company adopted the DRP through which common stockholders were able to elect to reinvest an amount equal to the distributions declared on their shares in additional shares of the Company’s common stock in lieu of receiving cash distributions. Since inception, the Company issued 25.7 million shares of common stock, generating gross offering proceeds of $232.6 million pursuant to the DRP. No selling commissions or dealer manager fees were paid on shares issued pursuant to the DRP. In April 2022, the Company’s board of directors elected to end the DRP, effective April 30, 2022.

Distributions

Effective February 1, 2019, the Company’s board of directors determined to stop recurring distributions in order to preserve capital and liquidity.

On April 20, 2022, the Company’s board of directors declared a special distribution of $0.50 per share (the “Special Distribution”) for each stockholder of record on May 2, 2022 totaling approximately $97.0 million.

Share Repurchase Program

The Company adopted a share repurchase program that enabled stockholders to sell their shares to the Company in limited circumstances and could be amended, suspended, or terminated at any time. The Company previously funded repurchase requests with cash on hand, borrowings or other available capital. In April 2020, the Company’s board of directors determined to suspend all repurchases under the share repurchase program effective April 30, 2020 in order to preserve capital and liquidity and does not currently anticipate resuming the share repurchase program.

9. Non-controlling Interests

Operating Partnership

Non-controlling interests included the aggregate limited partnership interests in the Operating Partnership held by limited partners, other than the Company. Income (loss) attributable to the non-controlling interests was based on the limited partners’ ownership percentage of the Operating Partnership. The Company acquired limited partner interests in 2023 as part of the consideration for the sale of certain investments in unconsolidated ventures, and as a result, the Company’s limited partnership interest in the Operating Partnership, directly or indirectly, is 100%. Income (loss) allocated to the Operating Partnership non-controlling interests for the period prior to June 9, 2023 was de minimis.

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Other

Other non-controlling interests represent third-party equity interests in ventures that are consolidated with the Company’s financial statements. Net loss attributable to the other non-controlling interests was $0.1 million and $0.2 million for the three months ended September 30, 2024 and 2023, respectively, and $0.3 million and $1.5 million for the nine months ended September 30, 2024 and 2023, respectively.

10. Fair Value

Fair Value Measurement

The fair value of financial instruments is categorized based on the priority of the inputs to the valuation technique and categorized into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Financial assets and liabilities recorded at fair value on the consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:

Level 1.Quoted prices for identical assets or liabilities in an active market.

Level 2.Financial assets and liabilities whose values are based on the following:

a)Quoted prices for similar assets or liabilities in active markets.

b)Quoted prices for identical or similar assets or liabilities in non-active markets.

c)Pricing models whose inputs are observable for substantially the full term of the asset or liability.

d)Pricing models whose inputs are derived principally from or corroborated by observable market data for substantially the full term of the asset or liability.

Level 3.Prices or valuation techniques based on inputs that are both unobservable and significant to the overall fair value measurement.

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Derivative Instruments

Derivative instruments consist of interest rate contracts and foreign exchange contracts that are generally traded over-the-counter, and are valued using a third-party service provider. Quotations on over-the-counter derivatives are not adjusted and are generally valued using observable inputs such as contractual cash flows, yield curve, foreign currency rates and credit spreads, and are classified as Level 2 of the fair value hierarchy. Although credit valuation adjustments, such as the risk of default, rely on Level 3 inputs, these inputs are not significant to the overall valuation of its derivatives. As a result, derivative valuations in their entirety are classified as Level 2 of the fair value hierarchy.

Fair Value Hierarchy

Financial assets recorded at fair value on a recurring basis are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table presents financial assets that were accounted for at fair value on a recurring basis as of September 30, 2024 and December 31, 2023 by level within the fair value hierarchy (dollars in thousands):


	September 30, 2024 (Unaudited)						December 31, 2023
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Financial assets:
Derivative assets - interest rate caps	$	—	$	229	$	—	$	—	$	433	$	—
Investment in Espresso joint venture	—		—		142		—		—		142

Derivative Assets - Interest Rate Caps

The Company’s interest rate caps fair values are determined using models developed by the respective counterparty that use the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The floating interest rates used in the calculation of projected receipts on the caps are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.

Investment in Espresso Joint Venture

During the year ended December 31, 2023, the Espresso joint venture completed the sale of its remaining sub-portfolios. The Company’s assessment of fair value for its unconsolidated investment in the Espresso joint venture took into consideration its proportionate share of available cash, less wind down costs and other expenses. The Company believes the assessment of fair value to be reasonable as of September 30, 2024 and did not make any fair value adjustments during the nine months ended September 30, 2024.

Fair Value of Financial Instruments

U.S. GAAP requires disclosure of fair value about all financial instruments. The following disclosure of estimated fair value of financial instruments was determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on estimated fair value.

The following table presents the principal amount, carrying value and fair value of certain financial assets and liabilities (dollars in thousands):


	September 30, 2024 (Unaudited)						December 31, 2023
	Principal Amount		Carrying Value		Fair Value		Principal Amount		Carrying Value		Fair Value
Financial liabilities:(1)
Mortgage notes payable, net	$	879,747	$	876,954	$	839,470	$	903,862	$	898,154	$	842,559

_______________________________________

(1)The fair value of other financial instruments not included in this table is estimated to approximate their carrying value.

Disclosure about fair value of financial instruments is based on pertinent information available to management as of the reporting date. Although management is not aware of any factors that would significantly affect fair value, such amounts have

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not been comprehensively revalued for purposes of these consolidated financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.

Mortgage Notes Payable

The Company primarily uses rates currently available with similar terms and remaining maturities to estimate fair value. These measurements are determined using comparable U.S. Treasury and SOFR rates as of the end of the reporting period. These fair value measurements are based on observable inputs, and as such, are classified as Level 2 of the fair value hierarchy.

Nonrecurring Fair Values

The Company measures fair value of certain assets on a nonrecurring basis when events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Adjustments to fair value generally result from the application of lower of amortized cost or fair value accounting for assets held for sale or otherwise or write-down of asset values due to impairment.

The following table summarizes the fair value and impairment losses of Level 3 assets which have been measured at fair value on a nonrecurring basis at the time of impairment during the periods presented (dollars in thousands):


	Nine Months Ended				Year Ended
	September 30, 2024 (Unaudited)				December 31, 2023
	Fair Value		Impairment Losses(1)		Fair Value		Impairment Losses(1)
Operating real estate, net	$	12,191	$	3,000	$	56,718	$	44,294
Investments in unconsolidated ventures	—		—		3,075		4,728
Assets held for sale	680		304		11,611		355

_______________________________________

(1)Excludes impairment losses for property damage sustained by facilities.

Operating Real Estate, Net

Operating real estate that is impaired is carried at fair value at the time of impairment. Impairment was driven by various factors that impacted undiscounted future net cash flows, including declines in operating performance, market growth assumptions and expected margins to be generated by the properties. Fair value of impaired operating real estate was estimated based upon various approaches including discounted cash flow analysis using terminal capitalization rates ranging from 6.25% to 8.50% and discount rates ranging from 7.75% to 10.50%, third party appraisals and offer prices.

Investments in Unconsolidated Ventures

In June 2023, the Company impaired its investment in the Espresso joint venture by $4.7 million, which reduced the carrying value of its investment to $3.1 million as of June 30, 2023. The Company’s assessment of fair value at the time of impairment for its investment took into consideration the net proceeds that are estimated to be realized from the sales, under contract, of the remaining real estate owned by the joint venture as well as the Company’s proportionate share of available cash, less wind down costs and other expenses. Upon impairing its investment, the Company elected the fair value option method to account for its investment in the Espresso joint venture on June 30, 2023.

Assets Held For Sale

Assets held for sale are carried at the lower of amortized cost or fair value. Assets held for sale that were written down to fair value were generally valued using either broker opinions of value, or a combination of market information, including third-party appraisals and indicative sale prices, adjusted as deemed appropriate by management to account for the inherent risk associated with specific properties. In all cases, the fair value of assets held for sale is reduced for estimated selling costs. As of September 30, 2024, the Company had one land parcel within the Rochester portfolio classified as held for sale. In March 2024, the Company classified one land parcel within the Rochester portfolio as held for sale, which was sold in May 2024. As of December 31, 2023, the Company classified one operating real estate property within the Rochester portfolio as held for sale, which was sold in February 2024.

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11. Segment Reporting

The Company conducts its business through the following segments, which are based on how management reviews and manages its business.

•Operating Investments - Properties operated pursuant to management agreements with healthcare managers.

•Net Lease Investments - Properties operated under net leases with an operator.

•Unconsolidated Investments - Joint venture investments, in which the Company owns a minority, non-controlling interest.

Our chief operating decision maker (“CODM”) evaluates performance of each reportable business segment and determines how to allocate resources to those segments, in significant part, based on net operating income (“NOI”) and related measures for each segment. The Company defines NOI as property and other revenues, less property operating expenses. While the Company believes that net income (loss), as defined by GAAP, is the most appropriate earnings measurement, the Company believes that NOI provides useful information to stockholders and provides management with a performance measure to compare the Company's operating results to the operating results of other healthcare real estate companies between periods on a consistent basis.

The following tables present the NOI of the Company’s operating investments and net lease investments segments and the Company's proportionate share of the NOI generated by the joint ventures of its unconsolidated investments segment (dollars in thousands):


Three Months Ended September 30, 2024	Net Lease Investments		Operating Investments		Unconsolidated Investments(2)		Non-Segment(3)		Adjustments(4)		Total(5)
Property and other revenues(1)	$	1,080	$	50,318	$	87,960	$	1,220	$	(87,960)	$	52,618
Property operating expenses	—		(32,892)		(77,637)		—		77,637		(32,892)
Net operating income	$	1,080	$	17,426	$	10,323	$	1,220	$	(10,323)	$	19,726

Interest expense											(12,790)
Transaction costs											(33)
General and administrative expenses