Company Quick10K Filing
Quick10K
Northstar Healthcareome
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-08-19 Regulation FD
8-K 2019-06-20 Enter Agreement, Shareholder Vote
8-K 2019-06-14 Regulation FD
8-K 2019-02-01 Other Events
8-K 2018-11-28 Other Events, Exhibits
8-K 2018-11-27 Officers
8-K 2018-10-12 Other Events, Exhibits
8-K 2018-06-21 Enter Agreement, Shareholder Vote
LHO Lasalle Hotel Properties 3,861
BCDA Biocardia 215
ZOES Zoe's Kitchen 201
RCAR RenovaCare 137
BABB BAB 6
FVRR Fiverr 0
GBBT Global Boatworks Holdings 0
AOIP Apache Offshore Investment Partnership 0
FNEC First National Energy 0
ABWN Airborne Wireless Network 0
NSHI 2019-06-30
Part I Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Purchases of Equity Securities By The Issuer and Affiliated Purchasers
Item 4. Mine Safety Disclosures
Item 6. Exhibits
EX-31.1 nshi06302019exhibit311.htm
EX-31.2 nshi06302019exhibit312.htm
EX-32.1 nshi06302019exhibit321.htm
EX-32.2 nshi06302019exhibit322.htm

Northstar Healthcareome Earnings 2019-06-30

NSHI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 nshi0630201910-q.htm 10-Q Document
 
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 June 30, 2019

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.)
590 Madison Avenue, 34th Floor, New York, NY 10022
(Address of Principal Executive Offices, Including Zip Code)
(212) 547-2600
(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
Class common stock, par value $0.01 per share
None
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, 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 o
 
Accelerated filer o
 
Non-accelerated filer ý

 
Smaller reporting company o

Emerging growth company o
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 o   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, 188,984,638 shares outstanding as of August 8, 2019.
 



NORTHSTAR HEALTHCARE INCOME, INC.
FORM 10-Q
TABLE OF CONTENTS


Index
 
Page
 
 
 
 
 
 
 
 
 
 














2





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 of 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 reliance on our advisor and our sponsor, 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. These factors include, but are not limited to:
adverse economic conditions and the impact on the real estate industry, including healthcare real estate;
the impact of economic conditions on the operators/tenants of the real property that we own as well as on borrowers of the debt we originate and acquire;
the ability of our tenants, operators and managers to conduct their respective businesses in a manner sufficient to maintain or increase their revenues and to generate sufficient income to make rent payments to us and, in turn, our ability to satisfy our obligations under our borrowings;
the impact of increased operating costs on our liquidity, financial condition and results of operations or that of our tenants, operators and managers and our ability and the ability of our tenants, operators and managers to accurately estimate the magnitude of those costs;
the nature and extent of future competition, including new construction in the markets in which our assets are located;
the ability of our tenants, operators and managers, as applicable, to comply with laws, rules and regulations in the operation of our properties, to deliver high-quality services, to attract and retain qualified personnel and to attract residents and patients;
the ability and willingness of our tenants, operators, managers and other third parties to satisfy their respective obligations to us, including in some cases their obligation to indemnify us from and against various claims and liabilities;
the financial weakness of our tenants and operators, including potential bankruptcies and downturns in their businesses, and their legal and regulatory proceedings, which results in uncertainties regarding our ability to continue to realize the full benefit of such tenants’ and operators’ leases and/or expose us to additional liabilities and expenses;
risks associated with our joint ventures and unconsolidated entities, including our reliance on joint venture partners, lack of decision making authority and the financial condition of our joint venture partners;
the impact of market and other conditions influencing the performance of our investments relative to our expectations and the impact on our actual return on invested equity, as well as the cash provided by these investments;
our liquidity and access to capital;
our use of leverage;
our ability to make distributions to our stockholders;
the lack of a public trading market for our shares;
the effect of economic conditions on the valuation of our investments;
the effect of paying distributions to our stockholders from sources other than cash flow provided by operations;
our dependence on the resources and personnel of our advisor, our sponsor and their affiliates, including our advisor’s ability to manage our portfolio on our behalf;

3





the performance of our advisor, our sponsor and their affiliates;
the impact of continued business uncertainties following our sponsor’s merger with NorthStar Realty Finance Corp. and Colony Capital, Inc., as well as adverse changes in the financial health and public perception of our sponsor;
our advisor’s and its affiliates’ ability to attract and retain qualified personnel to support our operations and potential changes to key personnel providing management services to us;
our reliance on our advisor and its affiliates and sub-advisors/co-venturers in providing management services to us, the payment of substantial fees to our advisor, and various potential conflicts of interest in our relationship with our sponsor;
changes in our business or investment strategy;
changes in the value of our portfolio;
the impact of fluctuations in interest rates;
our ability to realize current and expected returns over the life of our investments;
illiquidity of properties or debt investments in our portfolio;
environmental compliance costs and liabilities;
the effectiveness of our risk and portfolio management systems;
the potential failure to maintain effective internal controls and disclosure controls and procedures;
regulatory requirements with respect to our business and the healthcare industry generally, as well as the related cost of compliance;
the extent and timing of future healthcare reform and regulation, including changes in reimbursement policies, procedures and rates;
legislative and regulatory changes, including changes to laws governing the taxation of real estate investment trusts, or REITs;
our ability to maintain our qualification as a REIT for federal income tax purposes and limitations imposed on our business by our status as a REIT;
the loss of our exemption from registration under the Investment Company Act of 1940, or the Investment Company Act, as amended;
general volatility in capital markets;
the adequacy of our cash reserves and working capital; and
other risks associated with investing in our targeted investments, including changes in our industry, interest rates, the securities markets, the general economy or the capital markets and real estate markets specifically.
The foregoing list of factors is not exhaustive. 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, 2018 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.





4





PART I Financial Information
Item 1. Financial Statements
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
 
June 30, 2019 (Unaudited)
 
December 31, 2018
Assets
 
 
 

Cash and cash equivalents
$
29,370


$
73,811

Restricted cash
18,848


20,697

Operating real estate, net
1,733,019


1,778,914

Investments in unconsolidated ventures
288,907

 
264,319

Real estate debt investments, net
56,287


58,600

Assets held for sale
2,037

 
2,183

Receivables, net
14,253


14,436

Deferred costs and intangible assets, net
29,290


36,996

Other assets
14,195


14,460

Total assets(1)
$
2,186,206


$
2,264,416

 
 
 
 
Liabilities
 
 
 
Mortgage and other notes payable, net
$
1,441,241

 
$
1,466,349

Due to related party
3,642

 
5,675

Escrow deposits payable
4,414

 
4,379

Distribution payable

 
5,400

Accounts payable and accrued expenses
25,273

 
32,405

Other liabilities
4,714

 
5,834

Total liabilities(1)
1,479,284


1,520,042

Commitments and contingencies


 


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 June 30, 2019 and December 31, 2018

 

Common stock, $0.01 par value, 400,000,000 shares authorized, 189,181,904 and 188,495,355 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively
1,892

 
1,885

Additional paid-in capital
1,702,776

 
1,697,998

Retained earnings (accumulated deficit)
(1,000,100
)
 
(958,924
)
Accumulated other comprehensive income (loss)
(3,158
)
 
(2,284
)
Total NorthStar Healthcare Income, Inc. stockholders’ equity
701,410


738,675

Non-controlling interests
5,512

 
5,699

Total equity
706,922


744,374

Total liabilities and equity
$
2,186,206


$
2,264,416

_______________________________________
(1)
Represents the consolidated assets and liabilities of NorthStar Healthcare Income Operating Partnership, LP (the “Operating Partnership”). The Operating Partnership is a consolidated variable interest entity (“VIE”), of which the Company is the sole general partner and owns approximately 99.99%. As of June 30, 2019, the Operating Partnership includes $0.6 billion and $0.5 billion of assets and liabilities, respectively, of certain VIEs that are consolidated by the Operating Partnership. Refer to Note 2, “Summary of Significant Accounting Policies.”







Refer to accompanying notes to consolidated financial statements.

5





NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
(Unaudited)

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Property and other revenues
 
 
 
 
 
 
 
 
Resident fee income
 
$
33,497

 
$
32,956

 
$
65,375

 
$
65,764

Rental income
 
40,472

 
38,891

 
80,758

 
79,640

Other revenue
 
1,003

 
930

 
1,360

 
1,678

Total property and other revenues
 
74,972

 
72,777

 
147,493

 
147,082

Net interest income
 
 
 
 
 
 
 
 
Interest income on debt investments
 
1,923

 
1,921

 
3,825

 
3,820

Interest income on mortgage loans held in a securitized trust
 

 

 

 
5,149

Interest expense on mortgage obligations issued by a securitization trust
 

 

 

 
(3,824
)
Net interest income
 
1,923

 
1,921

 
3,825

 
5,145

Expenses
 
 
 
 
 
 
 
 
Real estate properties - operating expenses
 
44,636

 
47,731

 
89,854

 
94,157

Interest expense
 
17,294

 
17,693

 
34,690

 
34,731

Other expenses related to securitization trust
 

 

 

 
811

Transaction costs
 
38

 
41

 
76

 
804

Asset management and other fees - related party
 
4,995

 
5,951

 
9,989

 
11,894

General and administrative expenses
 
2,349

 
3,424

 
5,403

 
7,111

Depreciation and amortization
 
15,962

 
27,494

 
38,361

 
56,314

Impairment loss
 
10,146

 
2,456

 
10,146

 
5,239

Total expenses
 
95,420

 
104,790

 
188,519

 
211,061

Other income (loss)
 
 
 
 
 
 
 
 
Realized gain (loss) on investments and other
 
5,485

 

 
5,722

 
3,495

Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense)
 
(13,040
)
 
(30,092
)
 
(31,479
)
 
(55,339
)
Equity in earnings (losses) of unconsolidated ventures
 
(4,405
)
 
(4,098
)
 
(4,629
)
 
(12,724
)
Income tax benefit (expense)
 
(15
)
 
(15
)
 
(21
)
 
(30
)
Net income (loss)
 
(17,460
)
 
(34,205
)
 
(36,129
)
 
(68,093
)
Net (income) loss attributable to non-controlling interests
 
314

 
111

 
366

 
331

Net income (loss) attributable to NorthStar Healthcare Income, Inc. common stockholders
 
$
(17,146
)
 
$
(34,094
)
 
$
(35,763
)
 
$
(67,762
)
Net income (loss) per share of common stock, basic/diluted
 
$
(0.09
)
 
$
(0.18
)
 
$
(0.19
)
 
$
(0.36
)
Weighted average number of shares of common stock outstanding, basic/diluted
 
189,082,397

 
187,326,437

 
189,044,376

 
187,200,347

Distributions declared per share of common stock
 
$

 
$
0.08

 
$
0.03

 
$
0.17











Refer to accompanying notes to consolidated financial statements.

6





NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in Thousands)
(Unaudited)


 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Net income (loss)
 
$
(17,460
)
 
$
(34,205
)
 
$
(36,129
)
 
$
(68,093
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
Foreign currency translation adjustments related to investment in unconsolidated venture
 
(1,074
)
 
(1,629
)
 
(874
)
 
(886
)
Total other comprehensive income (loss)
 
(1,074
)
 
(1,629
)
 
(874
)
 
(886
)
Comprehensive income (loss)
 
(18,534
)
 
(35,834
)
 
(37,003
)
 
(68,979
)
Comprehensive (income) loss attributable to non-controlling interests
 
314

 
111

 
366

 
331

Comprehensive income (loss) attributable to NorthStar Healthcare Income, Inc. common stockholders
 
$
(18,220
)
 
$
(35,723
)
 
$
(36,637
)
 
$
(68,648
)


































Refer to accompanying notes to consolidated financial statements.

7





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, 2017
186,709

 
$
1,867

 
$
1,681,040

 
$
(744,090
)
 
$
(316
)
 
$
938,501

 
$
6,298

 
$
944,799

Share-based payment of advisor asset management fees
294

 
3

 
2,497

 

 

 
2,500

 

 
2,500

Amortization of equity-based compensation

 

 
42

 

 

 
42

 

 
42

Non-controlling interests - contributions

 

 

 

 

 

 
71

 
71

Non-controlling interests - distributions

 

 

 

 

 

 
(150
)
 
(150
)
Shares redeemed for cash
(1,048
)
 
(11
)
 
(8,195
)
 

 

 
(8,206
)
 

 
(8,206
)
Distributions declared

 

 

 
(15,560
)
 

 
(15,560
)
 

 
(15,560
)
Proceeds from distribution reinvestment plan
1,274

 
13

 
10,818

 

 

 
10,831

 

 
10,831

Other comprehensive income (loss)

 

 

 

 
743

 
743

 

 
743

Net income (loss)

 

 

 
(33,668
)
 

 
(33,668
)
 
(220
)
 
(33,888
)
Balance as of March 31, 2018 (Unaudited)
187,229

 
$
1,872

 
$
1,686,202

 
$
(793,318
)
 
$
427

 
$
895,183

 
$
5,999

 
$
901,182

Share-based payment of advisor asset management fees
294

 
3

 
2,497

 

 

 
2,500

 

 
2,500

Issuance and amortization of equity-based compensation
21

 

 
42

 

 

 
42

 

 
42

Non-controlling interests - contributions

 

 

 

 

 

 
218

 
218

Non-controlling interests - distributions

 

 

 

 

 

 
(160
)
 
(160
)
Shares redeemed for cash
(1,003
)
 
(10
)
 
(7,857
)
 

 

 
(7,867
)
 

 
(7,867
)
Distributions declared

 

 

 
(15,750
)
 

 
(15,750
)
 

 
(15,750
)
Proceeds from distribution reinvestment plan
925

 
9

 
7,850

 

 

 
7,859

 

 
7,859

Other comprehensive income (loss)

 

 

 

 
(1,629
)
 
(1,629
)
 

 
(1,629
)
Net income (loss)

 

 

 
(34,094
)
 

 
(34,094
)
 
(111
)
 
(34,205
)
Balance as of June 30, 2018 (Unaudited)
187,466

 
$
1,874

 
$
1,688,734

 
$
(843,162
)
 
$
(1,202
)
 
$
846,244

 
$
5,946

 
$
852,190












Refer to accompanying notes to consolidated financial statements.


8





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, 2018
188,495

 
$
1,885

 
$
1,697,998

 
$
(958,924
)
 
$
(2,284
)
 
$
738,675

 
$
5,699

 
$
744,374

Share-based payment of advisor asset management fees
352

 
4

 
2,496

 

 

 
2,500

 

 
2,500

Amortization of equity-based compensation

 

 
45

 

 

 
45

 

 
45

Non-controlling interests - contributions

 

 

 

 

 

 
256

 
256

Non-controlling interests - distributions

 

 

 

 

 

 
(72
)
 
(72
)
Shares redeemed for cash
(279
)
 
(3
)
 
(1,975
)
 

 

 
(1,978
)
 

 
(1,978
)
Distributions declared

 

 

 
(5,413
)
 

 
(5,413
)
 

 
(5,413
)
Proceeds from distribution reinvestment plan
687

 
7

 
4,869

 

 

 
4,876

 

 
4,876

Other comprehensive income (loss)

 

 

 

 
200

 
200

 

 
200

Net income (loss)

 

 

 
(18,617
)
 

 
(18,617
)
 
(52
)
 
(18,669
)
Balance as of March 31, 2019 (Unaudited)
189,255

 
$
1,893

 
$
1,703,433

 
$
(982,954
)
 
$
(2,084
)
 
$
720,288

 
$
5,831

 
$
726,119

Share-based payment of advisor asset management fees
352

 
4

 
2,496

 

 

 
2,500

 

 
2,500

Issuance and amortization of equity-based compensation
25

 

 
46

 

 

 
46

 

 
46

Non-controlling interests - contributions

 

 

 

 

 

 
62

 
62

Non-controlling interests - distributions

 

 

 

 

 

 
(67
)
 
(67
)
Shares redeemed for cash
(450
)
 
(5
)
 
(3,199
)
 

 

 
(3,204
)
 

 
(3,204
)
Other comprehensive income (loss)

 

 

 

 
(1,074
)
 
(1,074
)
 

 
(1,074
)
Net income (loss)

 

 

 
(17,146
)
 

 
(17,146
)
 
(314
)
 
(17,460
)
Balance as of June 30, 2019 (Unaudited)
189,182

 
$
1,892

 
$
1,702,776

 
$
(1,000,100
)
 
$
(3,158
)
 
$
701,410

 
$
5,512

 
$
706,922

















Refer to accompanying notes to consolidated financial statements.

9





NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)

 
Six Months Ended June 30,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(36,129
)
 
$
(68,093
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Equity in (earnings) losses of unconsolidated ventures
4,629

 
12,724

Depreciation and amortization
38,361

 
56,314

Impairment loss
10,146

 
5,239

Amortization of below market debt
1,497

 
1,453

Straight-line rental income, net and amortization of lease inducements
(428
)
 
876

Amortization of premium/accretion of discount on investments
(55
)
 
(49
)
Amortization of deferred financing costs
909

 
1,024

Amortization of equity-based compensation
91

 
84

Realized (gain) loss on investments and other
(5,722
)
 
(3,495
)
Allowance for uncollectible accounts
460

 
585

Changes in assets and liabilities:
 
 
 
Receivables
53

 
2,772

Other assets
48

 
2,329

Due to related party
2,967

 
6,884

Escrow deposits payable
35

 
969

Accounts payable and accrued expenses
(7,548
)
 
(6,952
)
Other liabilities
(836
)
 
598

Net cash provided by (used in) operating activities
8,478

 
13,262

Cash flows from investing activities:
 
 
 
Improvement of operating real estate investments
(8,158
)
 
(13,732
)
Sale of operating real estate
19,618

 

Sale of healthcare-related securities

 
35,771

Investment in unconsolidated ventures
(39,801
)
 
(4,470
)
Distributions from unconsolidated ventures
12,079

 
6,325

Other assets
583

 

Net cash provided by (used in) investing activities
(15,679
)
 
23,894

Cash flows from financing activities:
 
 
 
Repayment of mortgage notes
(27,865
)
 
(8,105
)
Payment of deferred financing costs

 
(284
)
Shares redeemed for cash
(5,182
)
 
(16,073
)
Payments under finance leases
(284
)
 
(294
)
Distributions paid on common stock
(10,813
)
 
(36,822
)
Proceeds from distribution reinvestment plan
4,876

 
18,690

Contributions from non-controlling interests
318

 
289

Distributions to non-controlling interests
(139
)
 
(310
)
Net cash provided by (used in) financing activities
(39,089
)
 
(42,909
)
Net increase (decrease) in cash, cash equivalents and restricted cash
(46,290
)
 
(5,753
)
Cash, cash equivalents and restricted cash-beginning of period
94,508

 
80,488

Cash, cash equivalents and restricted cash-end of period
$
48,218

 
$
74,735


 
Six Months Ended June 30,
 
2019
 
2018
Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Accrued distribution payable
$

 
$
5,192

Accrued capital expenditures
609

 
623

Reclassification of assets held for sale

 
14,423

Issuance of common stock as payment for asset management fees
5,000

 
5,000

Deconsolidation of securitization trust (VIE asset/liability)

 
512,772

Acquisition of operating real estate under capital lease obligations

 
1,921




Refer to accompanying notes to consolidated financial statements.

10





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”), was formed to acquire, originate and asset manage a diversified portfolio of equity, debt and securities investments in healthcare real estate, directly or through joint ventures, with a focus on the mid-acuity senior housing sector, which the Company defines as assisted living (“ALF”), memory care (“MCF”), skilled nursing (“SNF”), independent living (“ILF”) facilities and continuing care retirement communities (“CCRC”), which may have independent living, assisted living, skilled nursing and memory care available on one campus. The Company also invests in other healthcare property types, including medical office buildings (“MOB”), hospitals, rehabilitation facilities and ancillary healthcare services businesses. The Company’s investments are predominantly in the United States, but it also selectively makes international investments.
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 conducts its operations 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 (the “Prior Advisor”) and NorthStar Healthcare Income OP Holdings, LLC (the “Special Unit Holder”), each an affiliate of the Company’s sponsor. The Prior Advisor 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 are collectively recorded as non-controlling interests on the accompanying consolidated balance sheets as of June 30, 2019 and December 31, 2018. 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 June 30, 2019, the Company’s limited partnership interest in the Operating Partnership was 99.99%.
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 completed its initial public offering (the “Initial Offering”) on February 2, 2015 by raising gross proceeds of $1.1 billion, including 108.6 million shares issued in its initial primary offering (the “Initial Primary Offering”) and 2.0 million shares issued pursuant to its distribution reinvestment plan (the “DRP”). In addition, the Company completed its follow-on offering (the “Follow-On Offering”) on January 19, 2016 by raising gross proceeds of $700.0 million, including 64.9 million shares issued in its follow-on primary offering (the “Follow-on Primary Offering”) and 4.2 million shares issued pursuant to the DRP. The Company refers to its Initial Primary Offering and its Follow-on Primary Offering collectively as the “Primary Offering” and its Initial Offering and Follow-On Offering collectively as the “Offering.” In December 2015, the Company registered an additional 30.0 million shares to be offered pursuant to the DRP and continues to offer such shares, however, as of February 1, 2019, the Company suspended payment of monthly distributions to stockholders. From inception through August 8, 2019, the Company raised total gross proceeds of $2.0 billion, including $232.6 million in DRP proceeds.
The Company is externally managed and has no employees. The Company is sponsored by Colony Capital, Inc. (NYSE: CLNY) (“Colony Capital” or the “Sponsor”), which was formed as a result of the mergers of NorthStar Asset Management Group Inc.(“NSAM”), its prior sponsor, with Colony Capital, Inc. (“Colony”) and NorthStar Realty Finance Corp. (“NorthStar Realty”) in January 2017. Effective June 25, 2018, the Sponsor changed its name from Colony NorthStar, Inc. to Colony Capital, Inc. and its ticker symbol from “CLNS” to “CLNY.” Following the mergers, the Sponsor became an internally-managed equity REIT, with a diversified real estate and investment management platform.
Colony Capital manages capital on behalf of its stockholders, as well as institutional and retail investors in private funds, non-traded and traded REITs and registered investment companies. The Company’s advisor, CNI NSHC Advisors, LLC (the “Advisor”), is a subsidiary of Colony Capital and manages its day-to-day operations pursuant to an advisory agreement.

11




NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

2.
Summary of Significant Accounting Policies
Basis of Accounting
Basis of Quarterly Presentation
The accompanying unaudited 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, 2018, which was filed with the U.S. Securities and Exchange Commission on March 22, 2019.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, the Operating Partnership and their consolidated subsidiaries. The Company consolidates variable interest entities (“VIEs”) where the Company is the primary beneficiary and voting interest entities which are generally majority owned or otherwise controlled by the Company. 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. Significant 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.
The Company evaluates its investments and financings, including investments in unconsolidated ventures and securitization financing transactions to determine whether each investment or financing is a VIE. The Company analyzes new investments and financings, as well as reconsideration events for existing investments and financings, which vary depending on type of investment or financing.
As of June 30, 2019, the Company has identified certain consolidated and unconsolidated VIEs. Assets of each of the VIEs, other than the Operating Partnership, 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 consolidated VIEs are the Operating Partnership and certain properties that have non-controlling interests. These entities are VIEs because the non-controlling interests do not have substantive kick-out or participating rights. The Operating

12




NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Partnership consolidates certain properties that have non-controlling interests. Included in operating real estate, net on the Company’s consolidated balance sheets as of June 30, 2019 is $600.0 million related to such consolidated VIEs. Included in mortgage and other notes payable, net on the Company’s consolidated balance sheet as of June 30, 2019 is $465.0 million, collateralized by the real estate assets of the related consolidated VIEs.
Investing VIEs
The Company’s investment in a securitization financing entity (“Investing VIE”) consisted of subordinate first-loss certificates in a securitization trust, generally referred to as Class B certificates, which represents interests in such VIE. Investing VIEs are structured as pass through entities that receive principal and interest payments from the underlying debt collateral assets and distribute those payments to the securitization trust’s certificate holders, including the Class B certificates. A securitization trust will name a directing certificate holder, who is generally afforded the unilateral right to terminate and appoint a replacement for the special servicer, and as such may qualify as the primary beneficiary of the trust.
The Company held Class B certificates in an Investing VIE for which the Company had determined it was the primary beneficiary because it had the power to direct the activities that most significantly impacted the economic performance of the securitization trust. As a result, all of the assets, liabilities (obligations to the certificate holders of the securitization trust, less the Company’s retained interest from the Class B certificates of the securitization), income and expense of the entire Investing VIE were presented in the consolidated financial statements of the Company as required by U.S. GAAP. The Company’s Class B certificates, which represented the retained interest and related interest income, were eliminated in consolidation. Regardless of the presentation, the Company’s consolidated financial statements of operations ultimately reflect the net income attributable to its retained interest in the Class B certificates.
In March 2018, the Company sold the Class B certificates of its consolidated Investing VIE, relinquishing its rights as directing certificate holder. As a result, the Company was no longer deemed the primary beneficiary of the securitization trust and, accordingly, did not present the assets or liabilities of the securitization trust on its consolidated balance sheets as of June 30, 2019 and December 31, 2018. The Company has presented the income and expenses of the securitization trust on its consolidated statements of operations for the period that the Company owned the Class B certificates and was considered the primary beneficiary in 2018.
Unconsolidated VIEs
As of June 30, 2019, the Company identified unconsolidated VIEs related to its real estate equity investments with a carrying value of $288.9 million. The Company’s maximum exposure to loss as of June 30, 2019 would not exceed the carrying value of its investment in the VIEs and its investment in a mezzanine loan to a subsidiary of one of the VIEs. Based on management’s analysis, 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 June 30, 2019. The Company did not provide financial support to its unconsolidated VIEs during the six months ended June 30, 2019, except for funding its proportionate share of capital call contributions. As of June 30, 2019, 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 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
A non-controlling, unconsolidated ownership interest in an entity may be accounted for using the equity method or the Company may elect the fair value option.

13




NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

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.
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 such 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.
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 is foreign currency translation adjustments related to its investment in an unconsolidated venture.
Fair Value Option
The fair value option provides an election that allows a company to irrevocably elect to record certain financial assets and liabilities at fair value on an instrument-by-instrument basis at initial recognition. The Company may elect to apply the fair value option for certain investments due to the nature of the instrument. Any change in fair value for assets and liabilities for which the election is made is recognized in earnings.
The Company elected the fair value option to account for the eligible financial assets and liabilities of its consolidated Investing VIEs in order to mitigate potential accounting mismatches between the carrying value of the instruments and the related assets and liabilities to be consolidated. The Company adopted guidance issued by the Financial Accounting Standards Board (“FASB”) allowing the Company to measure both the financial assets and liabilities of a qualifying collateralized financing entity (“CFE”) it consolidated using the fair value of either the CFE’s financial assets or financial liabilities, whichever is more observable.
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. To date, the Company has not experienced any losses on cash and cash equivalents.
Restricted cash consists of amounts related to loan origination (escrow deposits) and operating real estate (escrows for taxes, insurance, capital expenditures, security deposits received from tenants and payments required under certain lease agreements).

14




NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

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):
 
 
June 30, 2019 (Unaudited)
 
December 31, 2018
Cash and cash equivalents
 
$
29,370

 
$
73,811

Restricted cash
 
18,848

 
20,697

Total cash, cash equivalents and restricted cash
 
$
48,218

 
$
94,508

Operating Real Estate
The Company evaluates whether a real estate acquisition constitutes a business and whether business combination accounting is appropriate. The Company accounts for purchases of operating real estate that qualify as business combinations using the acquisition method, where the purchase price is allocated to tangible assets such as land, building, furniture, fixtures, and equipment, improvements and other identified intangibles such as in-place leases, goodwill and above or below market mortgages assumed, as applicable. Costs directly related to an acquisition deemed to be a business combination are expensed and included in transaction costs in the consolidated statements of operations.
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 carried at historical cost less accumulated depreciation. Operating real estate is depreciated using the straight-line method over the estimated useful life of the assets, summarized as follows:
Category:
 
Term:
Building
 
30 to 50 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 development is substantially completed.
In a situation in which a net lease(s) associated with a significant tenant has been, or is expected to be, terminated early, the Company evaluates the remaining useful life of depreciable or amortizable assets in the asset group related to the lease that will be terminated (i.e., tenant improvements, above- and below-market lease intangibles, in-place lease value and deferred leasing costs). Based upon consideration of the facts and circumstances surrounding the termination, the Company may write-off or accelerate the depreciation and amortization associated with the asset group. Such amounts are included within rental and other income for above- and below-market lease intangibles and depreciation and amortization for the remaining lease related asset groups in the consolidated statements of operations.
When the Company acquires a controlling interest in an existing unconsolidated joint venture, the Company records the consolidated investment at the updated purchase price, which is reflective of fair value. The difference between the carrying value of the Company’s investment in the existing unconsolidated joint venture on the acquisition date and the Company’s share of the fair value of the investment’s purchase price is recorded in gain (loss) on consolidation of unconsolidated venture in the Company’s consolidated statements of operations.
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

15




NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

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.
Finance Leases
The Company has entered into finance leases for equipment totaling $3.2 million, which is included in furniture, fixtures, and equipment within operating real estate, net on the Company’s consolidated balance sheets. The leased equipment is amortized on a straight-line basis.
For the six months ended June 30, 2019 and 2018, payments for finance leases totaled $0.3 million, respectively. The following table presents the future minimum lease payments under finance leases and the present value of the minimum lease payments as of June 30, 2019, which is included in other liabilities on the Company’s consolidated balance sheets (dollars in thousands):
   July 1 to December 31, 2019
 
$
330

   Years Ending December 31:
 
 
2020
 
636

2021
 
597

2022
 
505

2023
 
82

Thereafter
 

Total minimum lease payments
 
$
2,150

Less: Amount representing interest
 
$
(200
)
Present value of minimum lease payments
 
$
1,950

The weighted average interest rate related to the finance lease obligations is 5.8% with a weighted average lease term of 3.4 years.
As of June 30, 2019, 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. As of June 30, 2019 and December 31, 2018, the Company had one operating real estate property in the Peregrine portfolio classified as held for sale, as presented on its consolidated balance sheets. In May 2019, the Company completed the sale of two properties within the Peregrine portfolio for a sale price totaling $19.7 million. The properties had been reclassified as held for sale during the three months ended March 31, 2019.
Real Estate Debt Investments
Real estate debt investments are generally intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan fees, premium, discount and unfunded commitments. Debt investments that are deemed to be impaired record an allowance for loan losses, which is generally measured as the difference between the carrying value of the loan and either the present value of cash flows expected to be collected, discounted at the original effective interest rate of the loan, or an observable market price for the loan. Debt investments where the Company does not have the intent to hold the loan for the foreseeable future or until its expected payoff are classified as held for sale and recorded at the lower of cost or estimated fair value.
Deferred Costs and Intangible Assets
Deferred Costs
Deferred costs primarily include deferred financing costs and deferred lease 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 realized gain (loss) on investments and other, when the associated borrowing is repaid

16




NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

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. Deferred lease costs consist of fees incurred to initiate and renew operating leases, which are amortized on a straight-line basis over the remaining lease term and are recorded to depreciation and amortization in the consolidated statements of operations.
Identified Intangibles
The Company records acquired identified intangibles, which includes intangible assets (such as the value of the above-market leases, in-place leases, goodwill and other intangibles) and intangible liabilities (such as the value of below-market leases), based on estimated fair value. The value allocated to the identified intangibles are amortized over the remaining lease term. Above/below-market leases for which the Company is the lessor are amortized into rental income, above/below-market leases for which the Company is the lessee are amortized into real estate properties-operating expense and in-place leases are amortized into depreciation and amortization expense.
Goodwill represents the excess of the purchase price over the fair value of net tangible and intangible assets acquired in a business combination and is not amortized. The Company performs an annual impairment test for goodwill and evaluates the recoverability whenever events or changes in circumstances indicate that the carrying value of goodwill may not be fully recoverable. In making such assessment, qualitative factors are used to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the estimated fair value of the reporting unit is less than its carrying value, then an impairment charge is recorded.
Identified intangible assets are recorded in deferred costs and intangible assets, net on the consolidated balance sheets. The following table presents a summary of deferred costs and intangible assets, net as of June 30, 2019 and December 31, 2018 (dollars in thousands):
 
 
June 30, 2019 (Unaudited)
 
December 31, 2018
Deferred costs and intangible assets, net:
 
 
 
 
In-place lease value, net
 
$
7,338

 
$
14,559

Goodwill
 
21,387

 
21,387

Other intangible assets
 
380

 
380

Subtotal intangible assets
 
29,105

 
36,326

Deferred costs, net
 
185

 
670

Total
 
$
29,290

 
$
36,996

The following table presents future amortization of in-place lease value and deferred costs (dollars in thousands):
July 1 to December 31, 2019
 
$
937

Years Ending December 31:
 
 
2020
 
1,871

2021
 
1,871

2022
 
591

2023
 
336

Thereafter
 
1,917

Total
 
$
7,523

Acquisition Fees and Expenses
The total of all acquisition fees and expenses for an investment, including acquisition fees to the Advisor, cannot exceed, in the aggregate, 6.0% of the contract purchase price of such investment unless such excess is approved by a majority of the Company’s directors, including a majority of its independent directors. Effective January 1, 2018, the Advisor no longer receives an acquisition fee in connection with the Company’s acquisitions of real estate properties or debt investments. For the six months ended June 30, 2019, the Company did not incur any acquisition fees or expenses to the Advisor or third parties. The Company records as an expense certain acquisition costs and fees associated with transactions deemed to be business combinations in which it consolidates the asset and capitalizes these costs for transactions deemed to be acquisitions of an asset, including an equity investment.

17




NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Other Assets
The following table presents a summary of other assets as of June 30, 2019 and December 31, 2018 (dollars in thousands):
 
 
June 30, 2019 (Unaudited)
 
December 31, 2018
Other assets:
 
 
 
 
Healthcare facility regulatory reserve deposit
 
$
6,000

 
$
6,000

Remainder interest in condominium units(1)
 
2,712

 
3,025

Prepaid expenses
 
3,102

 
3,536

Lease / rent inducements, net
 
1,764

 
1,254

Utility deposits
 
316

 
325

Other
 
301

 
320

Total
 
$
14,195

 
$
14,460

_______________________________________
(1)
Represents future interests in property subject to life estates (“Remainder Interest”).
Revenue Recognition
Operating Real Estate
Rental income from operating real estate is derived from leasing of space to various types of tenants and healthcare operators, including rent received from the Company’s net lease properties as well as rent, ancillary service fees and other related revenue earned from ILF residents. Rental revenue recognition commences when the tenant 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 is recognized on a straight-line basis over the term of the respective leases. The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in receivables, net on the consolidated balance sheets. The Company amortizes any tenant inducements as a reduction of revenue utilizing the straight-line method over the term of the lease.
The Company also generates operating income 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. Income derived from our ALF, MC and CCRC facilities is recorded in resident fee income in the consolidated statements of operations.
Real Estate Debt Investments
Interest income is recognized on an accrual basis and any related premium, discount, origination costs and fees are amortized over the life of the investment using the effective interest method. The amortization is reflected as an adjustment to interest income in the consolidated statements of operations. The amortization of a premium or accretion of a discount is discontinued if such investment is reclassified to held for sale.
Healthcare-Related Securities
Interest income is recognized using the effective interest method with any premium or discount amortized or accreted through earnings based on expected cash flow through the expected maturity date of the security. Changes to expected cash flow may result in a change to the yield which is then applied retrospectively for high-credit quality securities that cannot be prepaid or otherwise settled in such a way that the holder would not recover substantially all of the investment or prospectively for all other securities to recognize interest income.

18




NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Credit Losses and Impairment on Investments
Generally, the carrying value of the Company’s investments represent depreciated historical cost bases or, for investments that have been previously impaired, fair value or net realizable value. Such amounts are based upon the Company’s reasonable assumptions about the highest and best use of the investments and the intent and ability to hold the investments for a reasonable period that would allow for the recovery of the investments’ carrying values. If such assumptions change, including shortening the expected hold period, impairment losses on investments may be required to adjust carrying values to fair value or fair value less costs to sell.
Operating Real Estate
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 is considered 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 in impairment loss in the consolidated statements of operations.
The Company recorded impairment losses totaling $10.1 million on its operating real estate and held for sale investments during the six months ended June 30, 2019. The impairment recognized in 2019 to date includes $10.0 million for an operating property within the Rochester portfolio with continuing poor performance and sustained declines in occupancy, as well as $0.1 million to reflect an updated estimated fair value for a net lease property previously designated held for sale.
Refer to “Note 3, Operating Real Estate” for additional information regarding impairment of operating real estate.
Lease income from tenants/operators/residents is recognized at lease commencement only to the extent collection is expected to be probable in consideration of tenants’/operators’/residents’ creditworthiness. If collection is assessed to not be probable thereafter, lease income recognized is limited to lease payments collected, with the reversal of any income recognized to date in excess of amounts received. If collection is subsequently reassessed to be probable, lease income is adjusted to reflect the amount of income that would have been recognized had collection always been assessed as probable.
Real Estate Debt Investments
Real estate debt investments are considered impaired when, based on current information and events, it is probable that the Company will not be able to collect all principal and interest amounts due according to the contractual terms. The Company assesses the credit quality of the portfolio and adequacy of reserves on a quarterly basis or more frequently as necessary. Significant judgment of the Company is required in this analysis. The Company considers the estimated net recoverable value of the investment as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the quality and financial condition of the borrower and the competitive situation of the area where the underlying collateral is located. Because this determination is based on projections of future economic events, which are inherently subjective, the amount ultimately realized may differ materially from the carrying value as of the consolidated balance sheets date. If upon completion of the assessment, the estimated fair value of the underlying collateral is less than the net carrying value of the investment, a reserve is recorded with a corresponding charge to a credit provision. The reserve for each investment is maintained at a level that is determined to be adequate by management to absorb probable losses.
Income recognition is suspended for an investment at the earlier of the date at which payments become 90-days past due or when, in the opinion of the Company, a full recovery of income and principal becomes doubtful. When the ultimate collectability of the principal of an impaired investment is in doubt, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the principal of an impaired investment is not in doubt, contractual interest is recorded as interest income when received, under the cash basis method until an accrual is resumed when the investment becomes contractually current and performance is demonstrated to be resumed. Interest accrued and not collected will be reversed against interest income. An investment is written off when it is no longer realizable and/or legally discharged. As of June 30, 2019, the Company did not have any impaired real estate debt investments.
Investments in Unconsolidated Ventures
The Company reviews its investments in unconsolidated ventures for which the Company did not elect the fair value option on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value may be impaired or that

19




NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

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 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 equity in earnings (losses) of unconsolidated ventures in the consolidated statements of operations.
During the six months ended June 30, 2019, the Company did not impair any of its investments in unconsolidated ventures.
Foreign Currency
Assets and liabilities denominated in a foreign currency for which the functional currency is a foreign currency are translated using the currency exchange rate in effect at the end of the period presented and the results of operations for such entities are translated into U.S. dollars using the average currency exchange rate in effect during the period. The resulting foreign currency translation adjustment is recorded as a component of accumulated OCI in the consolidated statements of equity.
Assets and liabilities denominated in a foreign currency for which the functional currency is the U.S. dollar are remeasured using the currency exchange rate in effect at the end of the period presented and the results of operations for such entities are remeasured into U.S. dollars using the average currency exchange rate in effect during the period. The resulting foreign currency remeasurement adjustment is recorded in unrealized gain (loss) on investments and other in the consolidated statements of operations.
As of June 30, 2019 and December 31, 2018, the Company had exposure to foreign currency through an investment in an unconsolidated venture.
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 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, but there can be no assurance that these criteria will continue to be met in subsequent periods. 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 2015 to 2018, 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 tenants/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, state and foreign 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. Deferred income tax assets and liabilities

20




NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

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 sheets 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 benefit (expense) in the consolidated statements of operations. The Company has a deferred tax asset, which as of June 30, 2019 totaled $12.2 million 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. 
On December 22, 2017, the Tax Cuts and Jobs Act was enacted, which provides for a reduction in the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018. The effects of the tax rate change did not have a material impact on the Company’s existing deferred tax balances.
The Company recorded an income tax expense of approximately $15,000 and $21,000 for the three and six months ended June 30, 2019, respectively. The Company recorded an income tax expense of approximately $15,000 and $30,000 for the three and six months ended June 30, 2018, respectively.
Recent Accounting Pronouncements
Recently Adopted
Leases—In February 2016, the FASB issued ASU No. 2016-02, Leases, which amended existing lease accounting standards. ASU 2016-02, along with several clarifying amendments were codified in Accounting Standards Codification (“ASC”) Topic 842. The new standard primarily requires lessees to recognize their rights and obligations under most leases on balance sheet, to be capitalized as a right-of-use (“ROU”) asset and a corresponding liability for future lease obligations. Targeted changes were made to lessor accounting, primarily to align to the lessee model and the new revenue recognition standard.
The Company adopted the new lease standard and related amendments on January 1, 2019 using the modified retrospective method to leases existing or commencing on or after January 1, 2019, with a cumulative effect adjustment to beginning retained earnings. Comparative periods presented have not been restated and continue to be reported under the standards in effect for those prior periods.
ASC 842 limits the definition of initial direct costs to only the incremental costs of obtaining a lease, such as leasing commissions, for both lessee and lessor accounting. Indirect costs such as allocated overhead, certain legal fees and negotiation costs are no longer capitalized under the new standard. The application of ASC 842 did not have a material impact on the statements of operations.
The Company applied the package of practical expedients, which exempts the Company from having to reassess whether any expired or expiring contracts contain leases, revisit lease classification for any expired or expiring leases and reassess initial direct costs for any existing leases. The Company also elected the practical expedient related to land easements, allowing us to carry forward the accounting treatment for land easements on existing agreements. The Company did not, however, elect the hindsight practical expedient to determine the lease terms for existing leases.
The Company reclassified its capital lease assets to ROU-finance assets as of January 1, 2019, which had no material impact to the Company’s consolidated financial statements and related disclosures.
The Company determined if an arrangement contained a lease and determined the classification of leasing arrangements at inception. The Company has operating leases with property tenants that expire at various dates with renewal options typically exercised at the lessee's election. Therefore, such options are only recognized once they are deemed reasonably certain, typically at the time the option is exercised.
As lessor, the Company made the accounting policy election to treat the lease and nonlease components in a contract as a single component to the extent that the timing and pattern of transfer are similar for the lease and nonlease components and the lease component qualifies as an operating lease. Nonlease components of tenant reimbursements for net leases and resident fee income qualify for the practical expedient to be combined with their respective lease component and accounted for as a single component under the lease standard as the lease component is predominant.

21




NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Rental and resident fee income is made up of a tenant/resident lease component, which includes the effect of minimum rent increases and rent abatements, and non-lease components. The services provided by the Company under the non-lease components have the same pattern of transfer as their respective lease components and have been combined with the lease components, which are predominant.
For the three months ended June 30, 2019 and 2018, total property and other revenues includes variable lease revenues of $4.1 million and $3.9 million, respectively. For the six months ended June 30, 2019 and 2018, total property and other revenues includes variable lease revenues of $8.1 million and $8.2 million, respectively. Variable lease income includes ancillary services provided to tenant/residents, as well as non-recurring services and fees at the Company’s operating facilities.
Under the new standard, lessors are required to evaluate collectability of all lease payments based upon the creditworthiness of the lessee. Rental and resident fee income is recognized only to the extent collection is determined to be probable. If collection is subsequently determined to no longer be probable, any previously accrued revenue that has not been collected is subject to reversal. If collection is subsequently determined to be probable, revenue and the corresponding receivable would be reestablished to an amount that would have been recognized if collection had always been deemed to be probable. The initial application of the collectability guidance did not have a material impact on the Company’s consolidated financial statements.
Goodwill Impairment—In January 2017, the FASB issued ASU No. 2017-04, Intangibles- Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which removes Step 2 from the goodwill impairment test that requires a hypothetical purchase price allocation. Goodwill impairment is now measured as the excess in carrying value over fair value of the reporting unit, with the loss recognized not to exceed the amount of goodwill assigned to that reporting unit. The guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, to be applied prospectively. Early adoption is permitted as of the first interim or annual impairment test of goodwill after January 1, 2017. The Company adopted the standard on January 1, 2019. This guidance did not have a material impact on its consolidated financial statements and related disclosures.
Pending Adoption
Credit Losses—In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments- Credit Losses, which amends the credit impairment model for financial instruments. The existing incurred loss model will be replaced with a lifetime current expected credit loss (“CECL”) model for financial instruments carried at amortized cost and off-balance sheet credit exposures, such as loans, loan commitments, held-to-maturity (“HTM”) debt securities, financial guarantees, net investment in leases, reinsurance and trade receivables, which will generally result in earlier recognition of allowance for losses. For available-for-sale (“AFS”) debt securities, unrealized credit losses will be recognized as allowances rather than reductions in amortized cost basis and elimination of the OTTI concept will result in more frequent estimation of credit losses. The accounting model for purchased credit impaired loans and debt securities will be simplified, including elimination of some of the asymmetrical treatment between credit losses and credit recoveries, to be consistent with the CECL model for originated and purchased non-credit impaired assets. The existing model for beneficial interests that are not of high credit quality will be amended to conform to the new impairment models for HTM and AFS debt securities. Expanded disclosures on credit risk include credit quality indicators by vintage for financing receivables and net investment in leases. Transition will generally be on a modified retrospective basis, with prospective application for other-than-temporarily impaired debt securities and purchased credit impaired assets.
ASU No. 2016-13 is effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted for annual and interim periods beginning after December 15, 2018. The Company is currently assessing the potential effect the adoption of this guidance will have on its consolidated financial statements and related disclosures.
Variable Interest Entities—In November 2018, the FASB issued ASU No. 2018-17, Targeted Improvements to Related Party Guidance for Variable Interest Entities. The ASU amends the VIE guidance to align the evaluation of a decision maker's or service provider's fee in assessing a variable interest with the guidance in the primary beneficiary test. Specifically, indirect interests held by a related party that is under common control will now be considered on a proportionate basis, rather than in their entirety, when assessing whether the fee qualifies as a variable interest. The proportionate basis approach is consistent with the treatment of indirect interests held by a related party under common control when evaluating the primary beneficiary of a VIE. This effectively means that when a decision maker or service provider has an interest in a related party, regardless of whether they are under common control, it will consider that related party’s interest in a VIE on a proportionate basis throughout the VIE model, for both the assessment of a variable interest and the determination of a primary beneficiary. Transition is generally on a modified retrospective basis, with the cumulative effect adjusted to retained earnings at the beginning of the earliest period presented. ASU No. 2018-17 is effective for fiscal years and interim periods beginning after December 15, 2019, with early adoption permitted in an interim period for which financial statements have not been issued. The Company is currently evaluating the impact of this

22




NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

new guidance but does not expect the adoption of this standard to have a material effect on its financial condition or results of operations.
3.
Operating Real Estate
The following table presents operating real estate, net as of June 30, 2019 and December 31, 2018 (dollars in thousands):
 
 
June 30, 2019 (Unaudited)
 
December 31, 2018
Land
 
$
236,036

 
$
236,736

Land improvements
 
22,620

 
22,453

Buildings and improvements
 
1,560,418

 
1,580,058

Tenant improvements
 
13,439

 
11,774

Construction in progress
 
4,943

 
5,605

Furniture, fixtures and equipment
 
95,495

 
93,371

Subtotal
 
$
1,932,951

 
$
1,949,997

Less: Accumulated depreciation
 
(199,932
)
 
(171,083
)
Operating real estate, net
 
$
1,733,019

 
$
1,778,914

Within the table above, buildings and improvements have been reduced by impairment totaling $41.0 million and $31.0 million as of June 30, 2019 and December 31, 2018, respectively. Impairment loss, as presented on the consolidated statements of operations, totaled $10.1 million and $5.2 million for the six months ended June 30, 2019 and 2018, respectively.
Future Minimum Rental Income
Minimum rental amounts due under leases are generally either subject to scheduled fixed increases or adjustments. The following table presents approximate future minimum rental income under noncancelable operating leases to be received over the next five years and thereafter as of June 30, 2019 (dollars in thousands):
July 1 to December 31, 2019(1)
 
$
16,721

Years Ending December 31:(1)
 
 
2020
 
34,282

2021
 
35,139

2022
 
14,910

2023
 
10,919

Thereafter
 
68,268

Total
 
$
180,239

_______________________________________
(1)
Excludes rental income from residents at ILFs that are subject to short-term leases.

As of December 31, 2018, approximate future minimum rental income under noncancelable operating leases to be received over the next five years and thereafter was as follows (dollars in thousands):
Years Ending December 31:(1)
 
 
2019
 
$
33,405

2020
 
34,240

2021
 
35,096

2022
 
14,635

2023
 
10,919

Thereafter
 
68,268

Total
 
$
196,563

_______________________________________
(1)
Excludes rental income from residents at ILFs that are subject to short-term leases.

23




NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Net lease rental properties owned as of June 30, 2019 are leased under noncancelable operating leases with current expirations ranging from 2021 to 2029, with certain tenant renewal rights. These net lease arrangements require the tenant to pay rent and substantially all the expenses of the leased property including maintenance, taxes, utilities and insurance. For certain properties, the tenants pay the Company, in addition to the contractual base rent, their pro rata share of real estate taxes and operating expenses. The Company’s net lease agreements provide for periodic rental increases based on the greater of certain percentages or increase in the consumer price index.
Dispositions
In May 2019, the Company completed the sale of two properties within the Peregrine portfolio for $19.7 million. The sale generated net proceeds of $3.3 million after the repayment of the outstanding mortgage principal balance of $16.4 million and transaction costs.
4.
Investments in Unconsolidated Ventures
All investments in unconsolidated ventures are accounted for under the equity method. The following tables present the Company’s investments in unconsolidated ventures as of June 30, 2019 and December 31, 2018 and activity for the three and six months ended June 30, 2019 and 2018 (dollars in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
Properties as of June 30, 2019(1)
Portfolio
 
Partner
 
Acquisition Date
 
Ownership
 
Purchase Price(2)
 
Equity Investment(3)
 
Senior Housing Facilities
 
MOB
 
SNF
 
Hospitals
 
Total
Eclipse
 
Colony Capital/Formation Capital, LLC
 
May-2014
 
5.6
%
 
$
1,048,000

 
$
23,400

 
44

 

 
32

 

 
76

Griffin-American
 
Colony Capital
 
Dec-2014
 
14.3
%
 
3,238,547

 
243,544

 
92

 
108

 
41

 
9

 
250

Espresso
 
Formation Capital, LLC/Safanad Management Limited
 
Jul-2015
 
36.7
%
 
870,000

 
55,146

 
6

 

 
149

 

 
155

Trilogy(4)
 
Griffin-American Healthcare REIT III & IV /Management Team of Trilogy Investors, LLC
 
Dec-2015
 
23.2
%
 
1,162,613

 
189,032

 
9

 

 
68

 

 
77

Subtotal
 
 
 
 
 
 
 
$
6,319,160

 
$
511,122

 
151

 
108

 
290

 
9

 
558

Operator Platform(5)
 
Jul-2017
 
20.0
%
 
2

 
2

 

 

 

 

 

Total
 
 
 
 
 
 
 
$
6,319,162

 
$
511,124

 
151

 
108

 
290

 
9

 
558

_______________________________________
(1)
Excludes properties classified as held for sale.
(2)
Purchase price represents the actual or implied gross purchase price for the joint venture on the acquisition date. Purchase price is not adjusted for subsequent acquisitions or dispositions of interest.
(3)
Represents initial and subsequent contributions to the underlying joint venture through June 30, 2019. During the six months ended June 30, 2019, the Company funded an additional capital contribution of $2.4 million into the Trilogy joint venture and $37.4 million into the Griffin-American joint venture. The additional funding for Trilogy related to certain business initiatives, including the development of additional senior housing and SNFs. The additional funding for Griffin-American was provided in connection with the joint venture refinancing existing mortgage debt.
(4)
In October 2018, the Company sold 20.0% of its ownership interest in the Trilogy joint venture, which reduced its ownership interest in the joint venture from approximately 29% to 23%.
(5)
Represents the Company’s investment in Solstice Senior Living, LLC (“Solstice”), the manager of the Winterfell portfolio. Solstice is a joint venture between affiliates of Integral Senior Living, LLC (“ISL”), a leading management company of ILF, ALF and MCF founded in 2000, which owns 80.0%, and the Company, which owns 20.0%.


24




NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

 
 
Three Months Ended June 30, 2019
 
Three Months Ended June 30, 2018
 
Carrying Value
Portfolio
 
Equity in Earnings (Losses)
 
Select Revenues and (Expenses), net(1)
 
Cash Distributions
 
Equity in Earnings (Losses)
 
Select Revenues and (Expenses), net(1)
 
Cash Distributions
 
June 30, 2019 (Unaudited)(2)
 
December 31, 2018(2)
Eclipse
 
$
(232
)
 
$
(622
)
 
$
208

 
$
75

 
$
(442
)
 
$
191

 
$
11,147

 
$
11,765

Envoy(3)
 

 
(12
)
 
38

 
(366
)
 
(363
)
 

 
474

 
4,717

Griffin - American
 
(3,433
)
 
(6,229
)
 
3,435

 
(1,843
)
 
(5,126
)
 
1,706

 
141,930

 
113,982

Espresso(4)
 
(1,771
)
 
(2,217
)
 

 
(2,651
)
 
(3,794
)
 

 

 

Trilogy(5)
 
1,037

 
(3,329
)
 
1,451

 
640

 
(3,779
)
 
1,451

 
135,294

 
133,764

Subtotal
 
$
(4,399
)
 
$
(12,409
)
 
$
5,132

 
$
(4,145
)
 
$
(13,504
)
 
$
3,348

 
$
288,845

 
$
264,228

Operator Platform(6)
 
(6
)
 

 

 
47

 

 
92

 
62

 
91

Total
 
$
(4,405
)
 
$
(12,409
)
 
$
5,132

 
$
(4,098
)
 
$
(13,504
)
 
$
3,440

 
$
288,907

 
$
264,319

_______________________________________
(1)
Represents the net amount of the Company’s proportionate share of select revenues and expenses, including: straight-line rental income (expense), (above)/below market lease and in-place lease amortization, (above)/below market debt and deferred financing costs amortization, depreciation and amortization expense, acquisition fees and transaction costs, loan loss reserves, liability extinguishment gains, debt extinguishment losses, impairment, as well as unrealized and realized gain (loss) from sales of real estate and investments.
(2)
Includes $1.3 million, $13.4 million, $7.6 million, and $9.8 million of capitalized acquisition costs for the Company’s investments in the Eclipse, Griffin-American, Espresso and Trilogy joint ventures, respectively.
(3)
In March 2019, the Envoy joint venture completed the sale of its remaining 11 properties for a sales price of $118.0 million.
(4)
As a result of impairments and other non-cash reserves recorded by the joint venture, the Company’s carrying value of its Espresso unconsolidated investment was reduced to zero in the fourth quarter of 2018. The Company has recorded the excess equity in losses related to its unconsolidated venture as a reduction to the carrying value of its mezzanine loan, which was originated to a subsidiary of the Espresso joint venture.
(5)
In October 2018, the Company sold 20.0% of its ownership interest in the Trilogy joint venture, which generated gross proceeds of $48.0 million and reduced the Company’s ownership interest in the joint venture from approximately 29% to 23%.
(6)
Represents the Company’s investment in Solstice.
 
 
Six Months Ended June 30, 2019
 
Six Months Ended June 30, 2018
Portfolio
 
Equity in Earnings (Losses)
 
Select Revenues and (Expenses), net(1)
 
Cash Distributions
 
Equity in Earnings (Losses)
 
Select Revenues and (Expenses), net(1)
 
Cash Distributions
Eclipse
 
$
(332
)
 
$
(1,152
)
 
$
287

 
$
80

 
$
(842
)
 
$
445

Envoy
 
96

 
(822
)
 
4,339

 
(368
)
 
(364
)
 

Griffin - American
 
(4,028
)
 
(9,812
)
 
4,551

 
(1,887
)
 
(8,812
)
 
2,422

Espresso
 
(2,367
)
 
(4,050
)
 

 
(11,555
)
 
(13,686
)
 

Trilogy
 
2,032

 
(6,657
)
 
2,902

 
898

 
(7,585
)
 
3,366

Subtotal
 
$
(4,599
)
 
$
(22,493
)
 
$
12,079

 
$
(12,832
)
 
$
(31,289
)
 
$
6,233

Operator Platform(2)
 
(30
)
 

 

 
108

 

 
92

Total
 
$
(4,629
)
 
$
(22,493
)
 
$
12,079

 
$
(12,724
)
 
$
(31,289
)
 
$
6,325

_______________________________________
(1)
Represents the net amount of the Company’s proportionate share of select revenues and expenses, including: straight-line rental income (expense), (above)/below market lease and in-place lease amortization, (above)/below market debt and deferred financing costs amortization, depreciation and amortization expense, acquisition fees and transaction costs, loan loss reserves, liability extinguishment gains, debt extinguishment losses, impairment, as well as unrealized and realized gain (loss) from sales of real estate and investments.
(2)
Represents the Company’s investment in Solstice.
5.
Real Estate Debt Investments
The following table presents the Company’s one debt investment as of June 30, 2019 and December 31, 2018 (dollars in thousands):
 
 
Carrying Value(2)
 
 
Asset Type:

Principal Amount
 
June 30, 2019 (Unaudited)
 
December 31, 2018
 
Fixed Rate

Unlevered Current Yield
Mezzanine loan(1)

$
75,000

 
$
56,287

 
$
58,600

 
10.0
%
 
10.3
%
_______________________________________
(1)
Loan has a final maturity date of January 30, 2021.
(2)
As a result of impairments and other non-cash reserves recorded by the joint venture, the Company’s carrying value of its Espresso unconsolidated investment was reduced to zero in the fourth quarter of 2018. The Company has recorded the excess equity in losses related to its unconsolidated investment as a reduction to the carrying value of its mezzanine loan, which was originated to a subsidiary of the Espresso joint venture. As of June 30, 2019 and December 31, 2018, the cumulative excess equity in losses included in the mezzanine loan carrying value were $18.5 million and $16.2 million, respectively.

25




NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Credit Quality Monitoring
The Company evaluates its debt investments at least quarterly and differentiates the relative credit quality principally based on: (i) whether the borrower is currently paying contractual debt service in accordance with its contractual terms; and (ii) whether the Company believes the borrower will be able to perform under its contractual terms in the future, as well as the Company’s expectations as to the ultimate recovery of principal at maturity. The Company categorizes a debt investment for which it expects to receive full payment of contractual principal and interest payments as “performing.” The Company will categorize a weaker credit quality debt investment that is currently performing, but for which it believes future collection of all or some portion of principal and interest is in doubt, into a category called “performing with a loan loss reserve.” The Company will categorize a weaker credit quality debt investment that is not performing, which the Company defines as a loan in maturity default and/or past due at least 90 days on its contractual debt service payments, as a non-performing loan (“NPL”). The Company’s definition of an NPL may differ from that of other companies that track NPLs.
As of June 30, 2019, the Company’s debt investment was not performing in accordance with the contractual terms of its governing documents.  The Company’s debt investment is a mezzanine loan to the Espresso joint venture that has several sub-portfolios, one of which has a tenant lease in default.  The underlying tenant default has resulted in a default under the senior loan with respect to the applicable sub-portfolio, which in turn resulted in a default under the mezzanine loan.  The Company is actively monitoring the actions of the senior lender and assessing the Company’s rights and remedies.  The Company continues to assess the collectability of principal and interest. As of June 30, 2019, contractual debt service has been paid in accordance with contractual terms and the Company expects to receive full payment of contractual principal and interest. Accordingly, the debt investment was categorized as a performing loan.
For the six months ended June 30, 2019, the debt investment contributed 100.0% of the Company’s interest income on debt investments as presented on the consolidated statements of operations.

26




NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

6.
Borrowings
The following table presents the Company’s borrowings as of June 30, 2019 and December 31, 2018 (dollars in thousands):
 
 
 
 
 
 
 
June 30, 2019 (Unaudited)
 
December 31, 2018