As filed with the Securities and Exchange Commission on September 16, 2022

Registration No. 333-                

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-11

FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933

OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES

 

 

AMERICAN HEALTHCARE REIT, INC.

(Exact Name of Registrant as Specified in its Governing Instruments)

 

 

18191 Von Karman Avenue, Suite 300

Irvine, California 92612

(949) 270-9200

(Address, Including Zip Code, and Telephone Number, including Area Code, of Registrant’s Principal Executive Offices)

 

 

Danny Prosky

Chief Executive Officer, President and Director

18191 Von Karman Avenue, Suite 300

Irvine, California 92612

(949) 270-9200

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

 

Copies to:

 

Edward F. Petrosky

Bartholomew A. Sheehan

Jason A. Friedhoff

Sidley Austin LLP

787 Seventh Avenue

New York, New York 10019

(212) 839-5300

 

Lauren B. Prevost, Esq.

Seth K. Weiner, Esq.

Morris, Manning & Martin, LLP

3343 Peachtree Road, NE

1600 Atlanta Financial Center

Atlanta, Georgia 30326

(404) 504-7744

  

Scott C. Chase

Goodwin Procter LLP

100 Northern Avenue

Boston, Massachusetts 02210

(617) 570-1000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.  ☐

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.  ☐

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

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act:  ☐

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

 

 

 


The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion, dated September 16, 2022

PROSPECTUS

                    Shares

 

LOGO

American Healthcare REIT, Inc.

Common Stock

 

 

American Healthcare REIT, Inc. is a leading internally-managed real estate investment trust that acquires, owns and operates a diverse portfolio of clinical healthcare real estate properties, focusing primarily on medical office buildings, senior housing, skilled nursing facilities, hospitals and other healthcare-related facilities. We are offering                shares of our common stock as described in this prospectus. All of the shares of our common stock offered by this prospectus are being sold by us. We currently expect the public offering price to be between $                and $                per share. We intend to apply to have our common stock offered by this prospectus listed on the New York Stock Exchange under the ticker symbol “AHR.” Currently, our common stock is not traded on a national securities exchange, and this will be our first listed public offering of securities.

We were formed as a Maryland corporation in January 2015 and have elected to be taxed as a real estate investment trust for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2016. Shares of our common stock are subject to ownership limitations that are primarily intended to assist us in maintaining our qualification for taxation as a real estate investment trust. Our charter provides that, subject to limited exceptions, no person may beneficially or constructively own shares of common stock in excess of 9.9% (in value or in number of shares of common stock, whichever is more restrictive) of the aggregate of our outstanding shares of common stock. In addition, our charter contains various other restrictions on the ownership and transfer of shares of our stock. See “Description of Capital Stock—Restrictions on Ownership and Transfer” beginning on page 236 of this prospectus.

Investing in our common stock involves risk. See “Risk Factors” beginning on page 31 of this prospectus.

 

 

 

    

Per Share

      

Total

 

Public offering price

                                             

Underwriting discount (1)

       

Proceeds, before expenses, to us

       

 

  (1)

See “Underwriting” for a complete description of the compensation payable to the underwriters.

We have granted the underwriters the option to purchase an additional                shares of our common stock on the same terms and conditions set forth above within 30 days after the date of this prospectus to cover overallotments, if any.

None of the Securities and Exchange Commission, any state securities commission, or any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of our common stock on or about                , 2022.

 

 

 

Joint Book-Running Managers

 

BofA Securities   Citigroup   KeyBanc Capital Markets

 

 

The date of this prospectus is                 , 2022


LOGO

AmericanHealthcare REIT$4.5BILLION IN TOTAL ASSETSA LEADING DIVERSIFIED HEALTHCARE REIT WITH A STRONG TRACK RECORD ACROSS MARKET CYCLES5 MILLION SQ.FT. MEDICAL OFFICE11.273SENIOR HOUSING BEDS9.635SKILLED NURSING BEDS313PROPERTIES

$4.5 BILLION IN TOTAL ASSETS A LEADING DIVERSIFIED HEALTHCARE REIT WITH A STRONG TRACK RECORD ACROSS MARKET CYCLES 5 MILLION SQ. FT. MEDICAL OFFICE 11,273 SENIOR HOUSING BEDS 9,635 SKILLED NURSING BEDS 313 PROPERTIES


TABLE OF CONTENTS

 

    

Page

 

PROSPECTUS SUMMARY

     1  

RISK FACTORS

     31  

CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS

     74  

USE OF PROCEEDS

     76  

STRUCTURE OF OUR COMPANY

     77  

DISTRIBUTION POLICY

     79  

CAPITALIZATION

     83  

DILUTION

     84  

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

     86  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     89  

INDUSTRY AND MARKET DATA

     133  

OUR BUSINESS AND PROPERTIES

     147  

MANAGEMENT

     183  

PRINCIPAL STOCKHOLDERS

     219  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     221  

POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

     226  

THE OPERATING PARTNERSHIP AND THE PARTNERSHIP AGREEMENT

     232  

DESCRIPTION OF CAPITAL STOCK

     236  

MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     241  

CERTAIN PROVISIONS OF MARYLAND LAW AND OF OUR CHARTER AND BYLAWS

     252  

SHARES ELIGIBLE FOR FUTURE SALE

     258  

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

     261  

ERISA CONSIDERATIONS

     286  

UNDERWRITING

     289  

LEGAL MATTERS

     299  

EXPERTS

     299  

WHERE YOU CAN FIND MORE INFORMATION

     299  

INDEX TO FINANCIAL STATEMENTS

     F-1  

You should rely only on the information contained in this prospectus or in any free writing prospectus prepared by us. We have not, and the underwriters have not, authorized anyone to provide you with different or additional information. If anyone other than us provides you with different or additional information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus and in any free writing prospectus prepared by us is accurate only as of the respective dates of such documents or on the date or dates specified therein. Our business, financial condition, liquidity, results of operations, FFO (as defined below), MFFO (as defined below) and prospects may have changed since those dates.

Market, Industry and Other Data

We use market, industry and other data throughout this prospectus that was obtained from publicly available information and industry publications. We have also obtained the information in “Industry and Market Data,” as well as certain information in “Prospectus Summary,” “Our Business and Properties,” and in other sections of this prospectus where indicated, from the market study prepared for us by Jones Lang LaSalle Americas Inc. (“JLL”), an independent third-party real estate advisory and consulting services firm. Such information is included herein in reliance on JLL’s authority as an expert on such matters. See “Experts.” These sources (other than JLL) generally state that the information they provide has been obtained from sources

 

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believed to be reliable, but the accuracy and completeness of such information are not guaranteed. The market data, including information from JLL, includes forecasts and projections that are based on industry surveys and the preparers’ experiences in the industry, and there is no assurance that any of the forecasts or projections will be achieved. We believe that the surveys and market research others, including JLL, have performed are reliable, but we have not independently investigated or verified this information.

Capitalization, Reverse Stock Split and Conversion

As of June 30, 2022, we had 77,864,724 shares of Class T common stock, 186,499,872 shares of Class I common stock and no shares of unclassified common stock outstanding.

We intend to effect a one-for-                reverse split of our common stock effective on                , 2022 and a corresponding reverse split of OP units (as defined below). As a result of the reverse common stock and OP unit splits, every                 shares of our common stock (including our Class T common stock and Class I common stock) and OP units will be automatically combined and converted into one issued and outstanding share of our common stock (of the applicable class) or OP unit, as applicable, rounded to the nearest 1/100th share or OP unit. The reverse common stock and OP unit splits will impact all classes of common stock and OP units proportionately and will have no impact on any stockholder’s or limited partner’s percentage ownership of the issued and outstanding shares of common stock of any individual class or of all classes or the OP units. Unless otherwise indicated, the information in this prospectus does not give effect to the reverse common stock and OP unit splits.

We intend to apply to have the common stock offered by this prospectus listed on the NYSE, and such common stock will be freely tradeable unless held by our affiliates. Our Class T common stock and Class I common stock are identical to our common stock offered by this prospectus, including with respect to voting and distribution rights, except that (1) we do not intend to list our Class T common stock or Class I common stock on the NYSE or any other national securities exchange at the time of this offering or for a period of time thereafter as described below and (2) our charter provides, upon the listing of our common stock offered by this prospectus on the NYSE (or such later date not exceeding 12 months from the date of listing as may be approved by our Board), each share of our Class T common stock and Class I common stock will automatically, and without any stockholder action, convert into one share of our listed common stock. Our Board has approved the six-month anniversary of the listing of our common stock offered by this prospectus on the NYSE as the date on which our Class T common stock and Class I common stock will automatically convert into our listed common stock.

Pro Rata Information

As of June 30, 2022, we owned and/or operated our 122 integrated senior health campuses through an entity of which we owned 72.9% of the ownership interests and 20 other buildings through entities of which we owned 86.0% to 98.0% of the ownership interests. Because we have a controlling interest in these entities, these entities and the properties these entities own are consolidated in our financial statements in accordance with GAAP (as defined below). However, while such properties are presented in our financial statements on a consolidated basis, we are only entitled to our pro rata share of the net cash flows generated by such properties. As a result, we have presented certain property information in this prospectus based on our pro rata ownership interest as of the applicable date in properties included in these entities and not on a consolidated basis. In such instances, information is noted as being presented on a “pro rata share” basis. We believe this presentation is useful to investors, as it conveys our economic interest in properties included in these entities.

Certain Defined Terms Used in this Prospectus

Unless the context otherwise requires, the following terms and phrases are used throughout this prospectus as described below:

 

   

“Affiliated MOB” means an MOB (as defined below) that, as of a specified date, has 25.0% or more of its square footage occupied by at least one healthcare system;

 

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“AHI Acquisition” means the October 2021 acquisition by the Operating Partnership (as defined below) in the Merger (as defined below) of a newly formed entity (“NewCo”) that owned substantially all of the business and operations of American Healthcare Investors, LLC (“AHI”) as well as (1) all of the equity interests in a subsidiary of AHI that served as the external advisor of GAHR III (as defined below) and (2) all of the equity interests in a subsidiary of AHI that served as our external advisor;

 

   

“Annual Base Rent” means contractual base rent for the applicable year (or portion thereof);

 

   

“Annualized Base Rent” means contractual base rent for the last month of the applicable period multiplied by 12;

 

   

“Annualized Base Rent / Annualized NOI” means, when used as the denominator of a percentage, the aggregate of (1) Annualized Base Rent from leases as of June 30, 2022 for our MOBs, senior housing—leased, SNFs (as defined below) and hospitals and (2) Annualized NOI (as defined below) as of June 30, 2022 from our SHOP (as defined below) and integrated senior health campuses;

 

   

“Annualized NOI” means the applicable propert(y)(ies) revenue and Grant Income (as defined below) accruing for the last month of the applicable period (as determined in accordance with GAAP and adjusted to eliminate the straight lining of rent revenue) minus the amount of all property operating expenses for such month (as determined in accordance with GAAP and adjusted to eliminate the straight lining of rent expense) incurred in connection with and directly attributable to the ownership and operation of such propert(y)(ies) multiplied by 12;

 

   

“Board” means the board of directors of American Healthcare REIT, Inc.;

 

   

“CARES Act” means the Coronavirus Aid, Relief, and Economic Security Act;

 

   

“Code” means the Internal Revenue Code of 1986, as amended;

 

   

“CON” means a certificate of need or other limitation imposed by an applicable governmental organization on the number of licensed skilled nursing operators and/or beds in a particular area;

 

   

“Credit Facility” means the unsecured credit facility pursuant to the Amended and Restated Credit Agreement by and among us, the Operating Partnership, certain of our subsidiaries and the lenders dated January 19, 2022;

 

   

“EIK” means an eligible independent contractor (within the meaning of Section 856(d)(9) of the Code), which is an independent contractor that, at the time such contractor enters into a management or other agreement with a TRS (as defined below) to operate a “qualified health care property,” is actively engaged in the trade or business of operating “qualified health care properties” for a person not related to the TRS or applicable REIT (as defined below);

 

   

“Exchange Act” means the Securities and Exchange Act of 1934, as amended;

 

   

“FFO” means funds from operations as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures—Funds from Operations and Modified Funds from Operations”;

 

   

“GAAP” means generally accepted accounting principles as promulgated from time to time by the Financial Accounting Standards Board in the United States of America;

 

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“GAHR II” means Griffin-American Healthcare REIT II, Inc., a Maryland corporation;

 

   

“GAHR III” means Griffin-American Healthcare REIT III, Inc., a Maryland corporation;

 

   

“GDP” means gross domestic product;

 

   

“GLA” means gross leasable area;

 

   

“Grant Income” means stimulus funds granted to us through various federal and state government programs, such as the CARES Act, established for eligible healthcare providers to preserve liquidity in response to lost revenues and/or increased healthcare expenses associated with the COVID-19 pandemic; such grants are not loans and, as such, are not required to be repaid, subject to certain conditions;

 

   

“Investment Company Act” means the Investment Company Act of 1940, as amended;

 

   

“Merger” means the October 2021 merger of GAHR III into GAHR IV (as defined below) and of the Operating Partnership into the GAHR III operating partnership. While GAHR IV (i.e., the Company) was the legal acquiror of GAHR III in the Merger, GAHR III was determined to be the accounting acquiror in the Merger. Thus, the financial information set forth herein subsequent to the consummation of the Merger reflects results of the combined companies, and the financial information set forth herein prior to the Merger reflects GAHR III’s results;

 

   

“MFFO” means modified FFO as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures—Funds from Operations and Modified Funds from Operations”;

 

   

“MGCL” means the Maryland General Corporation Law;

 

   

“MOBs” means medical office buildings;

 

   

“NAV” means net asset value;

 

   

“NOI” means net operating income as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures—Net Operating Income”;

 

   

“NYSE” means the New York Stock Exchange;

 

   

“OP units” means units of limited partnership interest in the Operating Partnership, which are redeemable for cash or, at our election, shares of our common stock on a one-for-one basis, subject to certain adjustments;

 

   

“Operating Partnership” means American Healthcare REIT Holdings, LP, a Delaware limited partnership, through which we conduct substantially all of our business and of which Continental Merger Sub, LLC, a Delaware limited liability company and our wholly-owned subsidiary, is the sole general partner;

 

   

“REIT” means real estate investment trust, as defined under the Code;

 

   

“RIDEA structure” means a structure permitted by the REIT Investment Diversification and Empowerment Act of 2007, pursuant to which we lease certain healthcare real estate properties to a wholly-owned TRS, which in turn contracts with an EIK to operate such properties for a fee. Under

 

iv


 

this structure, the EIK receives management fees, and the TRS receives revenue from the operation of the healthcare real estate properties and retains, as profit, any revenue remaining after payment of expenses (including intercompany rent paid to us and any taxes at the TRS level) necessary to operate the property. Through the RIDEA structure, in addition to receiving rental revenue from the TRS, we retain any after-tax profit from the operation of the healthcare real estate properties, benefit from any improved operational performance and bear the risk of any decline in operating performance at the properties;

 

   

“SEC” means the U.S. Securities and Exchange Commission;

 

   

“Securities Act” means the Securities Act of 1933, as amended;

 

   

“SHOP” means senior housing operating properties;

 

   

“SNFs” means skilled nursing facilities;

 

   

“Trilogy” means Trilogy Investors, LLC, one of our consolidated joint ventures, in which we indirectly owned a 72.9% interest as of June 30, 2022;

 

   

“Trilogy Manager” means Trilogy Management Services, LLC, an independent third-party operator that qualifies as an EIK and manages all of our integrated senior health campuses;

 

   

“triple-net lease” means a lease where the tenant is responsible for making rent payments, maintaining the leased property and paying property taxes and other expenses;

 

   

“TRS” means taxable REIT subsidiary; and

 

   

“we,” “our,” “us,” and “Company” mean American Healthcare REIT, Inc. (previously known as Griffin-American Healthcare REIT IV, Inc. (“GAHR IV”)), a Maryland corporation, together with its consolidated subsidiaries, including the Operating Partnership; provided, however, that statements relating to the issuer of our common stock and statements as to our qualification for taxation as a REIT refer solely to American Healthcare REIT, Inc.

 

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PROSPECTUS SUMMARY

This summary highlights some of the information included elsewhere in this prospectus. It does not contain all of the information that you should consider before making a decision to invest in the shares of our common stock offered by this prospectus. You should read carefully the more detailed information set forth under the heading “Risk Factors” and the other information, including the financial statements and related notes, included in this prospectus. Unless otherwise indicated, the information contained in this prospectus assumes that the shares of common stock to be offered by this prospectus are sold at $                 per share, which is the midpoint of the price range set forth on the front cover of this prospectus, and that the underwriters do not exercise their overallotment option to purchase up to an additional                shares of our common stock.

Company Overview

We are a leading internally-managed REIT that acquires, owns and operates a diversified portfolio of clinical healthcare real estate properties, focusing primarily on MOBs, senior housing, SNFs, hospitals and other healthcare-related facilities. We have built a fully-integrated management platform, with approximately 113 employees, that operates clinical healthcare properties throughout the United States, the United Kingdom and the Isle of Man. As of June 30, 2022, we had approximately $4.5 billion of total assets and were the ninth largest public reporting healthcare REIT (based on total assets). As of June 30, 2022, we owned and/or operated 313 buildings and integrated senior health campuses, representing an aggregate of approximately 19.5 million square feet of GLA.

Our long-standing track record of execution and expertise across multiple clinical healthcare asset classes is the foundation upon which we have built a strong, diversified portfolio of assets with a broad geographic footprint. Members of our management team have overseen the acquisition of approximately $9.3 billion in healthcare real estate investments (based on aggregate contract purchase price) over the last 16 years, on behalf of us and three other prior public reporting REITs. This long-standing track record of execution has allowed us to develop and foster deep operator, tenant and industry relationships, which we believe, in turn, have allowed us to access attractive investments and deliver favorable risk-adjusted returns. We believe that we are effectively positioned to grow over the near- and long-term through multiple operating segments, which include six reportable business segments—MOBs, integrated senior health campuses, SHOP, senior housing—leased, SNFs and hospitals.

 

   

MOBs. We value the stable and reliable cash flows our MOBs provide our portfolio, which we believe are particularly valuable during market disruptions and recessionary periods. As of June 30, 2022, we owned 105 MOBs that we lease to third parties, accounting for approximately 31.8% of our portfolio (based on aggregate contract purchase price on a pro rata share basis). These properties are similar to commercial office buildings, but typically require specialized infrastructure to accommodate physicians’ offices and examination rooms, as well as some ancillary uses, including pharmacies, hospital ancillary service space and outpatient services, such as diagnostic centers, rehabilitation clinics and outpatient-surgery operating rooms. As of June 30, 2022 and based on square feet, approximately 70.0% of our MOBs were Affiliated MOBs. Our MOBs are typically multi-tenant properties leased to healthcare providers (hospitals and physician practices) under leases that generally provide for recovery of certain operating expenses and certain capital expenditures and have initial terms of five to 10 years with fixed annual rent escalations (historically ranging from 2% to 3% per year).

 

   

Integrated Senior Health Campuses. Integrated senior health campuses are a valuable component of our portfolio because of their ability to provide a continuum of care as residents require increasing levels of care. As of June 30, 2022, we owned and/or operated 122 integrated senior

 

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health campuses, accounting for approximately 34.7% of our portfolio (based on aggregate contract purchase price on a pro rata share basis). These facilities allow residents to “age-in-place” by providing independent living, assisted living, memory care, skilled nursing and certain ancillary services, all within a single campus setting. Integrated senior health campuses predominantly focus on need-driven segments of senior care (i.e., assisted living, memory care and skilled nursing) and charge market rents in lieu of entry fees, as is commonly the case with continuing care retirement communities. Predominantly all of our integrated senior health campuses are operated utilizing a RIDEA structure, allowing us to participate in the upside from any improved operational performance and bear the risk of any decline in operating performance.

All of our integrated senior health campuses are held by Trilogy, one of our consolidated joint ventures in which we indirectly owned a 72.9% interest as of June 30, 2022, and are managed by a third-party operator, the Trilogy Manager. The management agreement between Trilogy and the Trilogy Manager limits the Trilogy Manager’s ability to compete with us and our portfolio and provides us exclusive rights to future opportunities identified by the Trilogy Manager, including future developments.

 

   

SHOP. Our SHOP segment has the potential for embedded growth through the ongoing recovery from the COVID-19 pandemic and demand growth from an aging U.S. population. As of June 30, 2022, we owned and operated 47 senior housing facilities in our SHOP segment, accounting for approximately 17.8% of our portfolio (based on aggregate contract purchase price on a pro rata share basis). Senior housing facilities cater to different segments of the elderly population based upon their personal needs and include independent living, assisted living and memory care facilities. Residents of assisted living facilities typically require limited medical care but need assistance with eating, bathing, dressing and/or medication management. Services provided by operators at these facilities are primarily paid for by the residents directly or through private insurance and are therefore less reliant on government reimbursement programs, such as Medicaid and Medicare. The facilities in our SHOP segment are operated utilizing RIDEA structures, allowing us to participate in the upside from any improved operational performance and bear the risk of any decline in operating performance.

 

   

Senior Housing—Leased. As of June 30, 2022, we owned 20 senior housing facilities that we lease to third parties within our senior housing—leased segment, accounting for approximately 4.3% of our portfolio (based on aggregate contract purchase price on a pro rata share basis). The facilities are leased to a single tenant under a triple-net lease structure with approximately 12 to 15 year initial terms and fixed annual rent escalations (historically ranging from 2% to 3% per year), and require minimum lease coverage ratios. We commonly structure senior housing—leased assets under a single master lease covering multiple facilities in order to diversify our master tenant’s sources of rent and mitigate risk.

 

   

SNFs. As of June 30, 2022, we owned 17 SNFs that we lease to third parties, accounting for approximately 6.1% of our portfolio (based on aggregate contract purchase price on a pro rata share basis). SNF residents are generally higher acuity and need assistance with eating, bathing, dressing and/or medication management and also require available 24-hour nursing care. SNFs offer restorative, rehabilitative and custodial nursing care for people who cannot live independently but do not require the more extensive and sophisticated treatment available at hospitals. Skilled nursing services provided by our tenants in SNFs are paid for either by private sources or through the Medicare and Medicaid programs. Our SNFs are leased to a single tenant under a triple-net lease, typically with 12 to 15 year initial terms, fixed annual rent escalations (historically ranging from 2% to 3% per year) and require minimum lease coverage ratios. We commonly structure SNFs under a master lease with multiple facilities in order to diversify our master tenant’s sources of rent

 

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and mitigate risk. We typically focus on SNF investments in states that require a CON in order to develop new SNFs, which we believe reduces the risk of over-supply.

 

   

Hospitals. As of June 30, 2022, we have one wholly-owned hospital and one hospital in which we own an approximately 90.6% interest, which together account for approximately 3.3% of our portfolio (based on aggregate contract purchase price on a pro rata share basis). Services provided by operators and tenants in our hospitals are paid for by private sources, third-party payors (e.g., insurance and health maintenance organizations) or through the Medicare and Medicaid programs. Our hospital properties include acute care, long-term acute care, specialty and rehabilitation services and are leased to single tenants or operators under triple-net lease structures.

Competitive Strengths

We believe we possess the following competitive strengths that enable us to implement our business objectives and growth strategies and distinguish us from other market participants:

 

   

Favorable Industry Tailwinds Primarily Driven by an Aging Demographic. An aging U.S. population is expected to drive significant incremental demand for healthcare and the real estate needed to support it. According to JLL, the biggest consumers of healthcare services in the United States are individuals aged 65 years and older—accounting for 35.0% of healthcare spending yet making up only 17.0% of the population. JLL projects that over the next decade the cohort of individuals in the United States age 80+ will grow by nearly 50% and the cohort of individuals ages 75 to 79 will grow by 36%. Consequently, healthcare expenditures in the United States as a share of total GDP are expected to continue to grow. Moreover, according to JLL, at nearly $12,000 per person during 2020, the United States spent more per capita on healthcare services than any other country. In addition to increased demand from the expected growth in the size of the older population, JLL expects longer life expectancy, aided by advances in medicine and greater demand for life-saving life sciences, to drive increased demand among all age groups over the next decade. In turn, JLL expects these factors to drive increased demand for all types of healthcare real estate, including MOBs, senior housing and SNFs. Furthermore, according to JLL, outpatient sites have become the dominant sites of care for all age groups, and this trend has increased over the past 10 years since outpatient visits exceeded inpatient admissions in 2011. JLL expects outpatient volume to grow across all sites of care, with the largest growth in areas such as physical therapy and offices/clinics. Accordingly, we expect that an aging demographic, anticipated increases in healthcare expenditures and a shift in site of care to emphasize outpatient facilities will drive incremental demand for superior healthcare real estate.

 

   

Diversified Portfolio of High-Quality Properties with National Footprint to Provide Stability. We believe that we have a high-quality portfolio that is diversified by clinical healthcare asset class, segment, geography, market and tenant, and is cross-diversified within each asset class (e.g., property-type diversification within a geographic area). As discussed above, we believe that each of our clinical healthcare asset classes will benefit from demographic trends, driving the need for additional healthcare services. We also believe that each of these clinical healthcare asset classes has qualities, including the relatively non-discretionary nature of healthcare spending, that support operating performance throughout market cycles and reduce the risks posed by economic slowdowns. We believe that our diversified portfolio provides us with acquisition flexibility, positioning us for potential significant growth, and mitigates the risks inherent in a concentration in one or a limited number of clinical healthcare asset classes, segments, geographies, markets or tenants, including risks presented by adverse industry trends, the ongoing COVID-19 pandemic, economic downturns in a particular geographic area and tenant bankruptcies.

 

3


The below charts illustrate our clinical healthcare asset class and segment diversification as of June 30, 2022 (based on aggregate contract purchase price on a pro rata share basis).

 

LOGO    LOGO

We believe our SHOP and integrated senior health campus exposure provides significant upside potential through the COVID recovery and compelling demographics (see “—Embedded Growth Potential from COVID-19 Recovery in SHOP and Integrated Senior Health Campuses Portfolio” below). We believe our significant MOB exposure increases the stability of our portfolio, as MOBs are relatively stable in terms of utilization and occupancy levels. Services provided at MOBs are, to a significant degree, often non-discretionary and, for that reason, we believe MOBs exhibit resilience during market cycles and economic slowdowns. The occupancy of our MOB portfolio was 89.9% as of March 31, 2020, prior to the impact of the COVID-19 pandemic, has not been below 89.7% since then, and was 90.3% as of June 30, 2022. Additionally, we believe MOB tenants tend to renew leases at a higher rate than traditional office tenants, due to their need for proximity to associated healthcare systems, patient populations and need for specialized property features.

We focus on maintaining a diversified portfolio of properties that are strategically located or otherwise important to the tenant’s business. As of June 30, 2022, we leased our properties to a diversified group of 651 tenants across a broad range of the healthcare industry, including both private and government-affiliated tenants. In addition, we have a geographically diversified portfolio of properties located in 36 states, the United Kingdom and the Isle of Man.

 

   

Embedded Growth Potential from COVID-19 Recovery in SHOP and Integrated Senior Health Campuses Portfolio. As illustrated in the chart below, for the six months ended June 30, 2022, approximately 52.5% our portfolio (based on aggregate contract purchase price on a pro rata share basis) consisted of SHOP and integrated senior health campuses operated utilizing RIDEA

 

4


 

structures, which allow us to participate in the upside from any improved operational performance and bear the risk of any decline in operating performance.

 

 

LOGO

We believe the recovery of our SHOP and integrated senior health campus performance from the impact of the COVID-19 pandemic (as illustrated by the below chart) will generally continue and that such recovery over time towards pre-pandemic levels will drive our overall portfolio performance.

 

 

LOGO

 

(1)

Represents $7.1 million multiplied by four, which is the annualized difference between the combined NOI (less Grant Income) from our SHOP and integrated senior health campus segments for the pre-pandemic quarter ended March 31, 2020 and the quarter ended June 30, 2022. Realizing this potential additional NOI would require us to achieve and maintain combined NOI (less Grant Income) from our SHOP and integrated senior health campus segments at least equal to the combined NOI (less Grant Income) from our SHOP and integrated senior health campus segments for the pre-pandemic quarter ended March 31, 2020. No assurance can be given as to when, or even if, we will be successful in achieving pre-pandemic levels of NOI or whether such levels would be maintained.

(2)

Represents the combined NOI (less Grant Income) from our SHOP and integrated senior health campus segments for the applicable periods. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” included elsewhere in this prospectus for a reconciliation of NOI to Net Income (Loss).

(3)

Represents the weighted average combined occupancy of our SHOP and integrated senior health campus segments as of the last day of the applicable period.

 

5


In addition, we believe that favorable demographic characteristics in many of the markets in which our assets are located will further support occupancy and revenue growth. We also believe our SHOP and integrated senior health campuses assets provide a valuable hedge against inflation, as the short-term nature of resident leases (typically for a term of one year or less) creates the opportunity for operators to adjust rents to reflect current market conditions.

 

   

Demonstrated Capital Allocation and Portfolio Growth. Our substantial experience in multiple clinical healthcare asset classes allows us to dynamically adjust our acquisition focus on the asset classes that we believe will provide the most attractive risk-adjusted returns at any point in time to take advantage of the most compelling market pricing in each asset class and continue to grow when other asset classes may have unattractive terms. We believe this broadens our investment opportunities and prospects for sustained growth. Members of our management team have overseen the acquisition of approximately $9.3 billion in healthcare real estate investments (based on aggregate contract purchase price) over the last 16 years, on behalf of us and three other prior public reporting REITs. As reflected in the below chart, from the inception of GAHR III (the company that we merged with in the Merger) in February 2014 through June 30, 2022, we and GAHR III acquired and developed assets with an aggregate contract purchase price or construction cost (including licensing and furniture and fixture expenditures), respectively, of approximately $4.7 billion.

 

 

LOGO

We believe that we maintain a competitive advantage in acquiring properties because of the scale of our business and the experience of our management team, particularly its experience in investing in properties in multiple clinical healthcare asset classes. We believe this experience allows us to identify off-market investment opportunities and investment opportunities that are strategically marketed to a limited number of investors, providing us with the opportunity to purchase assets outside of broadly-marketed, competitive bidding processes. In addition, while we have significant scale, we believe that our smaller asset size relative to certain other similar publicly traded companies potentially allows for more rapid growth at lower transaction volumes.

 

6


   

Cohesive Management Team with Experience through Market Cycles. Certain members of our management team have been together for 16 years or more, and our senior management team (consisting of eight executives) has an average of approximately 28 years of healthcare industry or real estate industry experience per person, including at two of the three largest healthcare REITs—Healthpeak Properties, Inc. (NYSE: PEAK) and Ventas, Inc. (NYSE: VTR). Danny Prosky, our Chief Executive Officer and President, has over 30 years of experience within the healthcare and real estate industries. He has significant knowledge of, and relationships within, these industries, due in part to his work at another publicly traded healthcare REIT and other healthcare companies. Our management team has a proven track record of successfully acquiring and managing portfolios of clinical healthcare assets and operating public reporting REITs (including handling SEC reporting, compliance and proactively monitoring the requisite internal controls) through various market cycles. In particular, our management team has built and managed four public healthcare REITs since 2006, including building our current portfolio since February 2014 and, for GAHR II, raising approximately $2.8 billion of equity, completing approximately $3.0 billion of gross investments, and, five years after launch, selling GAHR II for $4.0 billion to NorthStar Realty Finance Corp. (now known as DigitalBridge Group, Inc. (NYSE: DBRG)). We benefit from the significant experience of our management team and its ability to effectively navigate changing market conditions in an effort to seek to achieve attractive risk-adjusted returns.

We believe our management team’s depth of experience in the healthcare and real estate industries (including underwriting debt and equity investments in clinical healthcare assets), and operations and finance, provide us with significant perspective in underwriting potential investments. Our rigorous investment underwriting process focuses on both healthcare and real estate operations, and includes a detailed analysis of the property, including historical and projected cash flow and capital needs, visibility of location, quality of construction, and local economic, demographic and regulatory factors. Our investment underwriting process also includes an analysis of the financial strength and operational experience of the healthcare tenant or operator and, if applicable, its management team. We believe our underwriting process will support our ability to seek to achieve attractive risk-adjusted returns for our stockholders.

 

   

Deep Operator, Tenant and Industry Relationships. Over the past 16 years, our management team has developed an extensive network of relationships with high-quality operators, tenants and other participants in the healthcare and real estate industries. We seek to maintain and develop relationships with partners that possess local market knowledge, have demonstrated hands-on management and have proven track records. Our long-term participation in the healthcare and real estate industries and reputation as an experienced and collaborative partner across multiple clinical healthcare asset classes has allowed us to expand many of our existing relationships through new investments and allows us to develop new relationships with high quality operators and tenants. We believe these relationships will continue to provide us with off-market investment opportunities and investment opportunities that are strategically marketed to a limited number of investors, providing us with the opportunity to purchase assets outside of broadly-marketed, competitive bidding

 

7


 

processes. The below chart shows our top ten tenants and operators as of June 30, 2022 (based on our pro rata share of Annualized Base Rent / Annualized NOI).

 

 

LOGO

 

   

Our Trilogy Investment Creates an Opportunity to Invest in Unique Integrated Senior Health Campuses that have Demonstrated Compelling Post-Pandemic Growth. All of our integrated senior health campuses are held in Trilogy, one of our consolidated joint ventures in which we indirectly owned a 72.9% interest as of June 30, 2022. These facilities allow residents to “age-in-place” by providing independent living, assisted living, memory care, skilled nursing and certain ancillary services, all within a single campus setting. Since investing in Trilogy in December 2015, we have grown our portfolio of integrated senior health campuses from 97 to 122 properties as of June 30, 2022, primarily by developing and managing purpose-built facilities that include both assisted living and skilled nursing units and often include independent living and memory care. Since our Trilogy occupancy reached a low point during the pandemic in the fourth quarter of 2020, our Trilogy occupancy has grown from 66.9% as of December 31, 2020 to 81.7% as of June 30, 2022. In addition, from the first quarter of 2021 to the second quarter of 2022, while our quarterly net loss decreased by 23.4% and our quarterly NOI (excluding Grant Income) increased by 43.3%, quarterly Trilogy NOI grew by 524.5%. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” included elsewhere in this prospectus for a reconciliation of NOI to Net Income (Loss). All of these facilities are managed by the Trilogy Manager, an independent third-party operator of senior living communities founded in 1997, with approximately 15,300 employees as of June 30, 2022. The Trilogy Manager has a well-established track record of high-quality care that drives performance at these facilities. The management agreement between Trilogy and the Trilogy Manager limits the Trilogy Manager’s ability to compete with us and our portfolio.

Key drivers of the success of our Trilogy investment, include: (1) providing residents with the ability to “age-in-place” and increase their level of care without changing facilities; (2) providing both assisted living and skilled nursing units within the same facility, resulting in operational efficiencies and cost savings; (3) using size and geographic concentrations to seek efficiencies (for example, the Trilogy Manager leverages centralized key business functions, such as recruiting, marketing and compliance, for use by multiple facilities, and the Trilogy Manager has developed an “internal agency” of nurses, called Flex Force, that can work as needed at different facilities, eliminating the need for costly third-party staffing agencies and increasing the ability to maintain consistent high-quality service); (4) newer buildings with an average age of 9.6 years (as compared to the industry average of 41.2 years for SNFs and 21.5 years for senior housing, according to JLL Research, NIC Map Data Services); (5) emphasizing post-acute skilled nursing, which provides a

 

8


source of future assisted living residents; and (6) utilizing the Trilogy Manager development teams to identify, source and manage the ground-up development of facilities (for example, over the past seven years the Trilogy Manager has sourced three to five facilities for Trilogy annually, which we believe is scalable and will provide potential opportunities for future growth).

 

   

Robust Operating Platform and Proactive Portfolio Management with Institutional Scale. As the ninth largest public reporting healthcare REIT (based on total assets as of June 30, 2022), we have a significant operating platform, with approximately 113 employees and with sophisticated internal systems to manage our properties. We have a proactive approach to asset and property management that we believe enhances the performance of our portfolio. We seek to identify and address issues that may adversely affect our assets, such as deterioration in local real estate fundamentals, operating deficiencies, credit deterioration and general market disruption (e.g., such as from the COVID-19 pandemic or regulatory developments).

We actively monitor our portfolio through a variety of methods, which include regular and ongoing contact with our tenants and operators to closely track financial and operating performance by, among other things, reviewing financial statements that our counterparties are contractually obligated to provide to us, reviewing operating performance and clinical outcome data for our facilities, and meetings and joint strategic planning sessions with facility management teams to seek to optimize outcomes. We believe this level of engagement, combined with our management team’s experience in the healthcare and real estate industries, allow us to adopt risk mitigation strategies for troubled tenants and operators (which could include their replacement and sale of non-core properties), anticipate changes in economic, market and regulatory conditions and make appropriate adjustments to our portfolio. Our daily focus on asset management enables us to identify strategic opportunities to complete capital expenditures designed to enhance a facility and improve its market position, occupancy and growth prospects.

Business Objectives and Growth Strategies

Our business objectives are to grow our cash flows, maintain financial flexibility, increase the value of our portfolio, make regular cash distributions to our stockholders, and generate risk-adjusted returns through the following growth strategies:

 

   

Capture Embedded Growth from COVID-19 Recovery through Leasing and Expense Controls at Our Senior Housing Facilities, Integrated Senior Health Campuses and SNFs. Occupancy at senior housing facilities, integrated senior health campuses and SNFs has generally been recovering from declines brought on by the COVID-19 pandemic. We believe that the high-quality residential experience delivered by the operators and tenants at our senior housing facilities, integrated senior health campuses and SNFs will, over time, support a continuing recovery in occupancy towards pre-pandemic levels and potentially increase value. See “—Competitive Strengths—Embedded Growth Potential from COVID-19 Recovery in SHOP and Integrated Senior Health Campuses Portfolio.” Additionally, our operators and tenants have increasingly focused on expense controls, with specific emphasis on reducing reliance on “agency” staffing, which is often inefficient and reduces the ability to maintain consistent high-quality staffing. Finally, as senior housing resident leases expire, which typically occurs annually, our operators and tenants have the opportunity to increase rates, which we believe is a valuable quality in an inflationary environment. We believe that occupancy trends, expense control initiatives and the ability to seek rent increases when relatively short-term resident leases expire in senior housing will improve performance at our integrated senior health campus and SHOP segments and increase rent coverage and the stability of our rental revenue in our senior housing—leased and SNF segments over time.

 

9


   

External Growth through Disciplined and Targeted Acquisitions to Expand Our Diversified Portfolio. We plan to continue our disciplined and targeted acquisition strategy of identifying healthcare real estate investments that are individually compelling and contribute to our portfolio’s overall diversification by healthcare asset class, geography, market, tenant and operator. We intend to focus primarily on MOBs, senior housing facilities and SNF investments. When making MOB investments, we will continue to focus on strong hospital system affiliations, as well as high-quality properties with creditworthy tenants. When making senior housing facility and SNF investments, we focus on assets that we believe are located in areas that have characteristics supporting demand, such as growing senior populations. We work closely with numerous strong tenants and operators in order to identify acquisition and other investment opportunities in their local markets, as well as selective new markets. Many of our tenants and operators have demonstrated a desire, as well as the resources, to grow, and we expect our strong relationships with these tenants and operators to continue to lead to additional investment opportunities. We will also look to establish new tenant and operator relationships with local and regional operators with experienced management teams that we believe are highly qualified and meet our investment and operating standards.

We are highly focused on growing our business where we believe that we can capture the most attractive opportunities across different clinical healthcare asset classes while maintaining our portfolio’s overall diversification. We intend to execute our external growth strategy in our existing markets and selectively in new markets that we believe have attractive demographic and competitive trends. We believe our reputation, in-depth market knowledge and extensive network of established relationships in the healthcare and real estate industries will continue to provide us access to attractive investment opportunities.

 

   

Continue to Develop Integrated Senior Health Campuses through Experienced Development Partner. Through Trilogy, as of June 30, 2022, we have invested in the development of 27 integrated senior health campuses. The five most recently opened integrated senior health campuses developed and owned by Trilogy that have stabilized had a weighted average cost of approximately $15.8 million per facility, or $148,048 per bed, and a weighted average stabilized yield on cost of 13.5%. See “Our Business and Properties—Trilogy and the Trilogy Manager—Trilogy—Trilogy Developments” for more information and for how we define “stabilized” and “yield on cost.” As a result of these developments and other expansions and investments, we have added approximately 3,880 beds to our portfolio since our investment in Trilogy in December 2015, a 35.7% increase in number of beds. We, through Trilogy, have exclusive rights to opportunities identified by the Trilogy Manager, including future developments. Trilogy has long-standing relationships in the industry, and we intend to continue to seek to expand our portfolio by leveraging those relationships in order to develop integrated senior housing campuses. We work closely with the Trilogy Manager to identify acquisition, development, and other investment opportunities in its existing markets, as well as selective new markets.

As reflected in the below chart, as of June 30, 2022, Trilogy had under construction (1) 14 expansions expected to add an aggregate of approximately 234 beds, to be completed in 2022, and to have an aggregate total estimated cost to Trilogy of approximately $11 million and (2) six new developments expected to add an aggregate of approximately 713 beds, to be completed in 2023 and the first quarter of 2024, and to have an aggregate total estimated cost to Trilogy of

 

10


approximately $137 million. There can be no assurance that these expansion or development projects will be completed on the timeline and terms described or at all.

 

Location

  Beds Added     Total Estimated Cost
(in thousands)
    Planned
Opening Date
 

Expansions

     

Muncie, IN

    12     $ 1,250       September 2022  

Ottawa, OH

    18       325       September 2022  

Louisville, KY

    14       175       September 2022  

Louisville, KY

    16       300       September 2022  

Louisville, KY

    15       250       September 2022  

Louisville, KY

    17       520       September 2022  

Greenfield, IN

    10       85       September 2022  

Crawfordsville, IN

    17       350       September 2022  

Madison, IN

    12       275       October 2022  

Corydon, IN

    22       5,960       October 2022  

Lafayette, IN

    14       340       November 2022  

Evansville, IN

    14       275       November 2022  

Genoa, OH

    13       275       November 2022  

Columbus, OH

    40       400       November 2022  
 

 

 

   

 

 

   

Expansions Total

    234       10,780    
 

 

 

   

 

 

   

Developments

     

La Grange, KY

    116       19,802       Q1 2023  

Liberty Township, OH

    120       22,584       Q2 2023  

Bowling Green, OH

    116       22,862       Q3 2023  

Muskegon, MI

    124       24,849       Q4 2023  

Lancaster, OH

    113       24,402       Q4 2023  

Hudsonville, MI

    124       22,723       Q1 2024  
 

 

 

   

 

 

   

Developments Total

    713       137,222    
 

 

 

   

 

 

   

Total

    947     $ 148,002    
 

 

 

   

 

 

   

 

   

Provide Sustained Stability through Consistent MOB Performance with Opportunity for Revenue Growth Driven by Occupancy Gains and Improving Mark-to-Market Lease Spreads. Our MOB segment has historically provided the most stable cash flows of our segments. We expect our diverse MOB portfolio to continue to provide stable cash flows to help support an attractive dividend to our stockholders. We will also seek to increase MOB occupancy and rental rates to unlock additional rental revenue. Our experienced leasing professionals are dedicated to increasing tenant retention and releasing spreads, as well as entering into leases with new tenants, and executing leases with attractive terms, such as favorable rent escalation clauses. As of June 30, 2022, our MOBs were 90.3% leased. Based on our view of the generally favorable supply/demand dynamic, which continues to improve with increased construction costs, and current leasing activity, we believe that we can increase our overall MOB occupancy and rental rates to grow rental revenue. Additionally, most of our MOB leases benefit from contractual rent escalation provisions that provide organic rent growth in addition to potential gains that may be achieved through leasing activity.

 

   

Actively Position our Balance Sheet for Growth. Upon completion of this offering, we believe we will be well positioned to grow our portfolio by opportunistically pursuing acquisitions in a disciplined manner, while maintaining a flexible balance sheet. As of June 30, 2022, on a pro forma

 

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basis after the use of a portion of the net proceeds from this offering to repay certain indebtedness, we had total debt of approximately $                ,                 % of which was unsecured, and $                 of total liquidity, comprised of $                 of undrawn capacity under our Credit Facility and $                of cash and cash equivalents. We believe our leverage profile, which we believe has a well-laddered maturity schedule, and liquidity position us to pursue attractive external growth opportunities in a prudently capitalized manner. We believe that becoming a publicly traded REIT will enable us over time to access multiple forms of equity and debt capital currently not available to us, potentially further enhancing our financial flexibility and external growth opportunities.

Our Properties

As of June 30, 2022, we owned and/or operated 313 buildings and integrated senior health campuses. The following table presents certain additional information about our real estate investments as of June 30, 2022.

 

(sq ft and dollars in thousands)                       Pro Rata Share Basis     Consolidated Basis        

Reportable
Segment

  Number of
Buildings /
Campuses
(1)(2)
    GLA
(Sq Ft)
    % of
GLA
    Aggregate
Contract
Purchase
Price
    Annualized
Base
Rent /
Annualized
NOI (3)
    % of
Annualized
Base Rent /
Annualized
NOI
    Annualized
Base
Rent /
Annualized
NOI (3)
    % of
Annualized
Base Rent /
Annualized
NOI
    Leased
Percentage (4)
 

Integrated senior health campuses

    122       9,149       46.9   $ 1,865,786     $ 90,247       34.3   $ 123,812       41.6     81.7

MOBs

    105       4,986       25.6       1,249,658       113,683       43.3       114,182       38.3       90.3

SHOP

    47       3,338       17.2       708,050       14,710       5.6       14,848       5.0       73.7

Senior housing—leased

    20       673       3.5       169,885       12,061       4.6       12,061       4.0       100

SNFs

    17       1,142       5.9       237,300       23,729       9.0       23,729       8.0       100

Hospitals

    2       173       0.9       139,780       8,386       3.2       9,117       3.1       100
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total/weighted average (5)

    313       19,461       100   $ 4,370,459     $ 262,816       100   $ 297,749       100     93.1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

(1)

As of June 30, 2022, we owned and/or operated 100% of our properties, with the exception of our investments through Trilogy, Lakeview IN Medical Plaza, Southlake TX Hospital, Central Florida Senior Housing Portfolio, Pinnacle Beaumont ALF, Pinnacle Warrenton ALF, Catalina West Haven ALF, Louisiana Senior Housing Portfolio and Catalina Madera ALF.

(2)

We own fee simple interests in all of our land, buildings and campuses except for 24 MOB buildings for which we own fee simple interests in the buildings and other improvements on such properties subject to the respective ground leases and for 21 integrated senior health campuses that were leased to Trilogy by third parties.

(3)

With the exception of our SHOP and integrated senior health campuses, amount is based on Annualized Base Rent (on a pro rata share or consolidated basis, as applicable) from leases as of June 30, 2022. For our SHOP and integrated senior health campuses, amount is based on Annualized NOI (on a pro rata share or consolidated basis, as applicable) due to the characteristics of the RIDEA structure.

(4)

Leased percentage includes all third-party leased space of the properties included in the respective segment (including master leases), except for our SHOP and integrated senior health campuses where leased percentage represents resident occupancy on the available units/beds therein.

(5)

Weighted average leased percentage excludes our SHOP and integrated senior health campuses.

 

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Geographic Diversification

The following map shows our 313 buildings and integrated senior health campuses as of June 30, 2022:

 

 

LOGO

The following charts show our regional diversification as of June 30, 2022 based on percentage of Annualized Base Rent / Annualized NOI on a pro rata share basis.

 

 

LOGO

 

(1)

Based on the aggregate of (a) Annualized Base Rent (on a pro rata share basis) from leases as of June 30, 2022 for our MOBs, senior housing—leased, SNFs and hospitals and (b) Annualized NOI (on a pro rata share basis) as of June 30, 2022 from our SHOP and integrated senior health campuses.

 

13


LOGO

 

(1)

Based on the aggregate of (a) Annualized Base Rent (on a pro rata share basis) from leases as of June 30, 2022 for our MOBs, senior housing—leased, SNFs and hospitals and (b) Annualized NOI (on a pro rata share basis) as of June 30, 2022 from our SHOP and integrated senior health campuses.

The following table shows the percentage of each our top 10 states’ Annualized Base Rent / Annualized NOI on a pro rata share basis that is applicable to each of our reportable segments.

Reportable Segment Composition of Top 10 States (1)

 

State

   Integrated
Senior
Health
Campuses
    MOBs     SHOP     Senior
Housing—Leased
    Hospitals     SNFs     Total  

1. Indiana

     95.0     5.9     (0.9 )%      —         —         —         100

2. Michigan

     61.9     14.7     0.6     22.8     —         —         100

3. Ohio

     77.9     22.1     —         —         —         —         100

4. Texas

     —         58.4     3.1     —         38.5     —         100

5. Missouri

     —         44.5     1.8     —         —         53.7     100

6. Pennsylvania

     —         35.5     64.5     —         —         —         100

7. Massachusetts

     —         36.7     —         —         —         63.3     100

8. Georgia

     —         100     —         —         —         —         100

9. New Jersey

     —         100     —         —         —         —         100

10. Illinois

     —         66.0     —         34.0     —         —         100

 

(1)

Based on the aggregate of (a) Annualized Base Rent (on a pro rata share basis) from leases as of June 30, 2022 for our MOBs, senior housing—leased, SNFs and hospitals and (b) Annualized NOI (on a pro rata share basis) as of June 30, 2022 from our SHOP and integrated senior health campuses.

 

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Tenant and Operator Diversification

The following table provides certain information regarding our portfolio’s top 10 tenants and operators as of June 30, 2022.

 

Tenants / Operators

   Property Segment      % of Annualized
Base Rent /
Annualized NOI
on a Pro Rata
Share Basis (1)
 

Trilogy Manager (operator)

     Integrated Senior Health Campuses        34.3

Heritage Senior Living (operator)

     SHOP        4.3  

Reliant Care Management (tenant and operator)

     SNF        3.1  

Methodist Health System (tenant and operator)

     Hospitals        2.7  

Bane Care Management (tenant and operator)

     SNF        2.4  

TL Management (tenant and operator)

     SNF        1.8  

Mercy Health (tenant)

     MOBs        1.7  

Vista Springs (tenant and operator)

     Senior Housing—Leased        1.6  

Prime Healthcare (tenant)

     MOBs        1.5  

Cadence SL Garner (operator)

     SHOP        1.4  
     

 

 

 

Total

        54.8
     

 

 

 

 

(1)

Represents the percentage of the aggregate of (a) Annualized Base Rent (on a pro rata share basis) from leases as of June 30, 2022 for our MOBs, senior housing—leased, SNFs and hospitals and (b) Annualized NOI (on a pro rata share basis) as of June 30, 2022 from our SHOP and integrated senior health campuses.

Lease Expirations

Substantially all of our leases with residents at our SHOP and integrated senior health campuses are for a term of one year or less. The following table presents the sensitivity of our Annual Base Rent due to lease expirations for the next 10 years and thereafter at our properties as of June 30, 2022, excluding our SHOP and integrated senior health campuses:

 

(sq ft and dollars in thousands)                             

Year

   Number of
Expiring
Leases
     Total Sq.
Ft. of Expiring
Leases
     % of GLA
Represented by
Expiring
Leases
    Annual Base Rent
of Expiring
Leases (1)
     % of Total
Annual Base
Rent

Represented by
Expiring
Leases
 

2022

     89        309        4.8   $ 6,904        3.9

2023

     107        466        7.2       11,692        6.6  

2024

     95        627        9.7       13,999        7.9  

2025

     80        652        10.0       17,251        9.8  

2026

     56        276        4.3       6,354        3.6  

2027

     54        375        5.8       10,006        5.7  

2028

     38        516        7.9       16,015        9.1  

2029

     36        437        6.7       11,834        6.7  

2030

     28        360        5.5       12,458        7.0  

2031

     16        513        7.9       15,199        8.6  

2032

     20        399        6.1       10,145        5.7  

Thereafter

     32        1,568        24.1       44,792        25.4  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total

     651        6,498        100   $ 176,649        100
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

(1)

Amount is based on the total Annual Base Rent expiring in the applicable year, based on leases as of June 30, 2022.

 

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Segment Information

The following table provides certain historical information regarding our six segments:

 

(dollars in millions, except annual base rent per sq. ft.)    As of and for the
Three Months Ended
    As of and for the
Years Ended
December 31,
 
     June 30,
2022
    March 31,
2022
    2021     2020  

Integrated Senior Health Campuses

        

Leased Percentage (1)

     81.7     80.0     78.1     66.9

Revenue

   $ 288     $ 281     $ 1,026     $ 983  

NOI Margin (2)

     10.0     9.9     8.0     5.4

SHOP

        

Leased Percentage (1)

     73.7     71.9     72.4     75.2

Revenue

   $ 39     $ 38     $ 144     $ 154  

NOI Margin (2)

     3.9     10.4     9.5     19.3

MOBs

        

Leased Percentage (3)

     90.3     89.7     92.0     90.3

Annual Base Rent Per Sq Ft

   $ 25.37     $ 24.83     $ 24.23     $ 23.78  

NOI Margin (2)

     62.6     62.2     63.5     63.7

SNFs

        

Leased Percentage (3)

     100     100     100     100

Tenant Occupancy (1)

     88.0     88.7     86.0     82.4

Revenue

   $ 7     $ 6     $ 26     $ 28  

NOI Margin (2)

     92.1     89.3     92.5     92.4

Hospital

        

Leased Percentage (3)

     100     100     100     100

Tenant Occupancy (1)

     NA       NA       NA       NA  

Revenue

   $ 2     $ 2     $ 10     $ 11  

NOI Margin (2)

     94.2     95.5     95.4     95.9

Senior Housing—Leased

        

Leased Percentage (3)

     100     100     100     100

Tenant Occupancy (1)

     74.5     75.3     77.5     76.9

Revenue

   $ 5     $ 5     $ 23     $ 23  

NOI Margin (2)

     96.0     96.6     96.2     96.0

 

(1)

Represents resident occupancy on the available units/beds therein.

(2)

Calculated as NOI divided by net revenue excluding Grant Income. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” included elsewhere in this prospectus for a reconciliation of NOI to Net Income (Loss).

(3)

Includes all third-party leased space of the properties included in the respective segment (including master leases).

 

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The following chart provides certain historical information regarding the revenue per unit/bed of certain of our segments.

Revenue Per Unit/Bed

 

LOGO

Industry Overview and Market Opportunity

Unless otherwise indicated, all information in this section is derived from the market study prepared for us by JLL. See “Industry and Market Data” for more information.

The healthcare industry is one of the largest in the United States and is expected to grow the fastest over the next five years in terms of employment, underscoring the scale and essential nature of the services provided. Total healthcare expenditures reached an estimated $4.3 trillion in 2021 and are forecasted to grow by 57.1% by 2030 to $6.8 trillion, driving demand for MOBs, nursing care facilities and senior housing.

 

 

LOGO

 

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Older populations are projected to grow faster than any other age cohort in the United States over the next 10 years. Specifically, the 80+ population is expected to grow by nearly 50% in the next decade, driving a demographic surge of demand for the healthcare property sector. As the healthcare industry heals and recovers from the disruptions associated with the pandemic, the demographic tidal wave of the aging population will continue to drive outsized growth for these healthcare asset classes.

 

LOGO

Relative to other major U.S. corporate sectors, healthcare is among the safest from a creditworthiness perspective. Average credit ratings suggest healthcare service providers, hospitals and medical operators pose a lower risk of default than corporate entities in other sectors.

 

 

LOGO

 

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MOBs are one of the most stable asset classes in terms of utilization and occupancy levels. Occupancy has historically averaged between 91.0% and 93.0% compared with the traditional office market, where occupancy dropped steadily after the onset of the pandemic from 86.0% to about 81.0%, where it remains. Occupancy continues to tick upward across the three key healthcare asset classes, driving rent growth. Senior housing and nursing care recorded 3.8% and 2.7% annual rent growth, respectively, with additional rent growth anticipated amid tightening market conditions. MOB rent growth has continued to build at a consistent rate of close to 2.0% a year.

The MOB, nursing care and senior housing sectors are institutionalizing, and this wave will continue as alternative real estate asset classes continue to attract new entrants. From 2010-2012, 9.3% of MOB acquisitions volume was attributed to large institutional investors. MOB acquisitions rose to 25.4% in the period from 2020 through the second quarter of 2022. Similarly in the nursing care and senior housing sectors, institutional volume share rose from 7.8% to 14.7% across the same periods. The increased presence of deep-pocketed institutional investors in the sector has supported price gains over the last decade and provided a stronger liquidity pool for current asset owners.

Structure of Our Company

Capitalization, Reverse Stock Split and Conversion

Our charter authorizes us to issue up to 1,200,000,000 shares of stock, of which 1,000,000,000 shares are designated as common stock at $0.01 par value per share and 200,000,000 shares are designated as preferred stock at $0.01 par value per share. Of the 1,200,000,000 shares of common stock authorized,                shares are classified as Class T common stock,                shares are classified as Class I common stock, and                shares are unclassified common stock. As of June 30, 2022, we had 77,864,724 shares of Class T common stock, 186,499,872 shares of Class I common stock, and no shares of unclassified common stock outstanding.

We intend to effect a one-for-                reverse split of our common stock effective on                , 2022 and a corresponding reverse split of OP units. As a result of the reverse common stock and OP unit splits, every                 shares of our common stock (including our Class T common stock and Class I common stock) and OP units will be automatically combined and converted into one issued and outstanding share of our common stock (of the applicable class) or OP unit, as applicable, rounded to the nearest 1/100th share or OP unit. The reverse common stock and OP unit splits will impact all classes of common stock and OP units proportionately and will have no impact on any stockholder’s or limited partner’s percentage ownership of the issued and outstanding shares of common stock of any individual class or of all classes or the OP units. Unless otherwise indicated, the information in this prospectus does not give effect to the reverse common stock and OP unit splits.

We intend to apply to have the common stock offered by this prospectus listed on the NYSE, and such common stock will be freely tradeable unless held by our affiliates. Our Class T common stock and Class I common stock are identical to our common stock offered by this prospectus, including with respect to voting and distribution rights, except that (1) we do not intend to list our Class T common stock or Class I common stock on the NYSE or any other national securities exchange at the time of this offering or for a period of time thereafter as described below, and (2) our charter provides, upon the listing of our common stock offered by this prospectus on the NYSE (or such later date not exceeding 12 months from the date of listing as may be approved by our Board), each share of our Class T common stock and Class I common stock will automatically, and without any stockholder action, convert into one share of our listed common stock. Our Board has approved the six-month anniversary of the listing of our common stock offered by this prospectus on the NYSE as the date on which our Class T common stock and Class I common stock will automatically convert into our listed common stock.

 

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The Operating Partnership

Substantially all of our business is conducted through the Operating Partnership. We will contribute the net proceeds received by us from this offering to the Operating Partnership in exchange for OP units. Our interest in the Operating Partnership generally entitles us to share in cash distributions from, and in the profits and losses of, the Operating Partnership in proportion to our percentage ownership. Through a wholly-owned subsidiary that is the sole general partner of the Operating Partnership, we have the exclusive power under the partnership agreement to manage and conduct the business and affairs of the Operating Partnership, subject to certain limited approval and voting rights of the limited partners. After giving effect to this offering, we would have directly or indirectly controlled                % of the OP units as of                , 2022. The currently outstanding OP units will be subject to the 180-day lock-up period described in “Underwriting—No Sales of Similar Securities.”

In general, beginning on and after the date that is one year after the issuance of OP units to a limited partner, such limited partner will have the right to require the Operating Partnership to redeem part or all of such OP units for cash, based upon the value of an equivalent number of shares of our common stock at the time of the redemption, or, at our election, shares of our common stock on a one-for-one basis, subject to certain adjustments and the restrictions on ownership and transfer of our stock set forth in our charter and described under “Description of Capital Stock—Restrictions on Ownership and Transfer.” Each redemption of OP units will increase our percentage ownership interest in the Operating Partnership and our share of its cash distributions and profits and losses. See “The Operating Partnership and the Partnership Agreement” for more information.

 

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Structure Chart

The following chart sets forth, as of                 , 2022, information about us, the Operating Partnership, and certain related parties upon completion of this offering. Ownership percentages below assume that the underwriters’ overallotment option to purchase additional shares of our common stock is not exercised.

 

LOGO

 

(1)

Includes 892,257 shares of unvested restricted Class T common stock and unvested restricted Class I common stock. Excludes (a) 2,531,167 shares of our common stock available for future issuance under our Amended and Restated 2015 Incentive Plan (our “incentive plan”), (b) 76,800 shares of Class T common stock underlying unvested time-based restricted stock units (“RSUs”), and (c) 234,820 shares of Class T common stock underlying unvested performance-based RSUs (such number of shares assumes that we issue shares of our common stock underlying such unvested performance-based awards at maximum levels for performance and market conditions that have not yet been achieved; to the extent that performance or market conditions do not meet maximum levels, the actual number of shares of our common stock issued under our incentive plan would be less than the amount reflected above).

Corporate Responsibility—Environmental, Social and Governance (ESG)

We are committed to conducting our business in a manner that benefits all of our stakeholders and ensures a lasting and positive impact from our operations. As a result, we measure our success not only by our ability to generate profits but also our ability to reduce our impact on the environment, affect positive social change in our community and conduct our operations in accordance with the highest ethical standards. To achieve this, we are developing a

 

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comprehensive ESG strategy and related ESG policy. This policy, which we intend to update regularly as applicable, will be posted on our website, http://www.AmericanHealthcareREIT.com, and will contain more detailed information once available. See “Our Business and Properties—Corporate Responsibility—Environmental, Social and Governance.” Information contained on, or accessible through, our website is not incorporated by reference into and does not constitute a part of this prospectus.

We believe that one of the keys to our success is our ability to benefit from a wide range of opinions and experiences. We believe the best way to accomplish this is through promoting racial, gender, and generational diversity across all layers of our organization. As of June 30, 2022, 69.0% of our employees were minorities and 64.6% were females. Generationally, our organization was composed of 4.4% Generation Z, 46.0% Millennials, 42.5% Generation X and 7.1% Baby Boomers.

We have structured our corporate governance in a manner we believe closely aligns our interests with those of our stockholders. Notable features of our corporate governance structure include the following:

 

   

our Board is not classified and each of our directors is subject to election annually, and, upon completion of this offering, our charter will provide that we may not elect to be subject to the provision of the MGCL that would permit us to classify our Board, unless we receive prior approval from stockholders;

 

   

we have fully independent audit, compensation and nominating and corporate governance committees;

 

   

at least one of our directors qualifies as an “audit committee financial expert” under applicable SEC regulations and all members of the Audit Committee are financially literate in accordance with the NYSE listing rules and requirements;

 

   

our Board has opted out of the business combination statute in the MGCL (provided that such business combination is first approved by our Board) and, pursuant to our bylaws, we have opted out of the control share acquisition statute in the MGCL;

 

   

we do not have a stockholder rights plan, and do not intend to adopt a stockholder rights plan in the future without (1) the approval of our stockholders or (2) seeking ratification from our stockholders within 12 months of adoption of the plan if our Board determines, in the exercise of the directors’ duties under applicable law, that it is in our best interests to adopt a rights plan without the delay of seeking prior stockholder approval;

 

   

our Corporate Governance Guidelines require our directors and officers to own certain minimum amounts of our common stock; and

 

   

upon completion of this offering, none of our directors or stockholders (or their respective designees) will have the right to be nominated to our Board.

Our Tax Status

We have elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2016. We believe that we have been organized and operated, and we intend to continue to operate, in conformity with the requirements for qualification and taxation as a REIT under the Code. Our qualification as a REIT, and maintenance of such qualification, will depend on our ability to meet, on a continuing basis, various complex requirements under the Code relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the concentration of ownership of our stock.

 

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As a REIT, we generally are not subject to U.S. federal income tax on the REIT taxable income that we currently distribute to our stockholders. Under the Code, REITs are subject to numerous organizational and operational requirements, including a requirement that they distribute annually at least 90.0% of their REIT taxable income to their stockholders. If we fail to qualify as a REIT in any calendar year and do not qualify for certain statutory relief provisions, our REIT taxable income would be subject to U.S. federal income tax at the regular corporate rate, and we would likely be precluded from qualifying for treatment as a REIT until the fifth calendar year following the year in which we fail to qualify. Accordingly, our failure to qualify as a REIT could have a material adverse effect on us. Even if we qualify as a REIT, we may still be subject to certain U.S. federal, state and local taxes on our income and assets and to U.S. federal income and excise taxes on our undistributed REIT taxable income. In addition, subject to maintaining our qualification as a REIT, a portion of our business has been, and is likely to continue to be, conducted through, and a portion of our income may be earned in, one or more TRSs that are themselves subject to regular corporate income taxation.

In connection with this offering, we will receive an opinion from Sidley Austin LLP to the effect that commencing with our REIT taxable year ended December 31, 2016, we have been organized and operated in conformity with the requirements for qualification and taxation as a REIT under the Code, and that our current and proposed method of operation will enable us to continue to meet the requirements for qualification and taxation as a REIT. See “Material U.S. Federal Income Tax Considerations.”

Distribution Policy

We intend to make quarterly distributions to holders of our common stock, including those offered by this prospectus, when, as and if authorized by our Board, out of legally-available funds. We intend to make a pro rata distribution to holders of the common stock offered by this prospectus with respect to the period commencing upon completion of this offering and ending on                 , 2022 based on a distribution rate of $                per share of common stock for a full quarter. On an annualized basis, this would be $                per share of common stock, or an annualized distribution rate of approximately                % based on an assumed public offering price of $                per share, which is the midpoint of the price range set forth on the front cover of this prospectus. We plan to maintain our intended distributions for the 12 months following the completion of this offering unless our results of operations, FFO, MFFO, liquidity, cash flows, financial condition, prospects; economic conditions; or other factors differ materially from the assumptions used in calculating our intended distribution rate.

U.S. federal income tax law generally requires that a REIT distribute annually at least 90.0% of its REIT taxable income and that it pay tax at the regular corporate rate to the extent that it annually distributes less than 100% of its REIT taxable income. As a result, in addition to the intended distribution amounts specified above and in order to satisfy the requirements for us to qualify and maintain our qualification as a REIT for U.S. federal income tax purposes and generally not be subject to U.S. federal income and excise tax, we intend to make distributions of at least 100% of our REIT taxable income to holders of our common stock out of legally-available funds in each taxable year. We do not intend to reduce the annualized distributions per share of common stock if the underwriters’ exercise their overallotment option to purchase additional shares of our common stock.

Any distributions we make to our stockholders will be at the sole discretion of our Board, and their form, timing and amount will depend upon a number of factors, including our actual and projected results of operations, FFO, MFFO, liquidity, cash flows and financial condition, the revenue we actually receive from our properties, our operating expenses, our debt service requirements, our capital expenditures, prohibitions and other limitations under our financing arrangements, our REIT taxable income, the annual REIT distribution requirements, applicable law and such other factors as our Board deems relevant.

 

23


Restrictions on Ownership and Transfer of Our Common Stock

Our charter contains restrictions on the ownership and transfer of our common stock, preferred stock and other stock that are intended, among other purposes, to assist us in maintaining our qualification for taxation as a REIT for U.S. federal income tax purposes. The relevant sections of our charter provide that, subject to limited exceptions, no person may beneficially or constructively own (1) shares of common stock in excess of 9.9% (in value or in number of shares of common stock, whichever is more restrictive) of the aggregate of our outstanding shares of common stock or (2) shares of stock in excess of 9.9% in value of the aggregate of our outstanding shares of stock (which we refer to collectively as our “ownership limits”).

Our Board, in its sole discretion, may exempt (prospectively or retroactively) a person or entity from either or both of the ownership limits and may establish or increase an excepted holder limit for such person if certain conditions are satisfied.

Our charter also prohibits any person from, among other matters:

 

   

beneficially or constructively owning shares of our stock to the extent that such beneficial or constructive ownership of our shares would result in our being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year), or otherwise cause us to fail to qualify as a REIT; and

 

   

transferring shares of our stock that, if effective, would result in our shares of our stock being beneficially owned by fewer than 100 persons (determined under the principles of Section 856(a)(5) of the Code).

Our charter also provides that if any transfer of shares of our stock would result in any person beneficially or constructively owning shares of our stock in violation of the foregoing restrictions, then that number of shares of our stock the beneficial or constructive ownership of which otherwise would cause such person to violate the foregoing restrictions will be automatically transferred to a charitable trust for the benefit of a charitable beneficiary, except if any transfer of our stock would result in shares of our stock being beneficially owned by fewer than 100 persons (determined under the principles of Section 856(a)(5) of the Code), then any such purported transfer will be void and of no force or effect and the intended transferee will acquire no rights in the shares. See “Description of Capital Stock—Restrictions on Ownership and Transfer.”

Corporate Information

Our principal executive offices are located at 18191 Von Karman Avenue, Suite 300, Irvine, California 92612, and our telephone number is (949) 270-9200. We maintain a web site at www.AmericanHealthcareREIT.com, where investors can find additional information about us. The contents of that website are not incorporated by reference in, or otherwise a part of, this prospectus.

Summary of Risk Factors

An investment in our common stock involves risks. You should carefully consider the risks discussed below and described more fully along with other risks in the “Risk Factors” section beginning on page 31 of this prospectus for factors you should consider before making a decision to invest in the shares of our common stock offered by this prospectus.

Risks Related to Our Business and Financial Results

   

The COVID-19 pandemic has adversely impacted, and will likely continue to adversely impact, our business and financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted.

 

24


   

We have experienced net losses in the past and we may experience additional losses in the future.

   

Our prior performance may not be an accurate predictor of our ability to achieve our business objectives or of our future results.

   

Our success is dependent on the performance and continued contributions of certain of our key personnel and, in the event they are no longer employed by us, we could be materially and adversely affected.

   

Our financial results, our ability to make distributions to our stockholders, and our ability to dispose of our investments are subject to international, national and local market conditions we cannot control or predict.

   

All of our integrated senior health campuses are managed by the Trilogy Manager and account for a significant portion of our revenues and operating income. Adverse developments in the Trilogy Manager’s business or financial strength could have a material adverse effect on us.

Risks Related to Investments in Real Estate

   

Uncertain market conditions could lead our real estate investments to decrease in value or may cause us to sell our properties at a loss in the future.

   

Most of our costs, such as operating and general and administrative expenses, interest expense and real estate acquisition and construction costs, are subject to inflation and may not be recoverable.

   

Our high concentrations of properties in particular geographic areas magnify the effects of negative conditions affecting those geographic areas.

   

Our real estate investments may be concentrated in MOBs, senior housing, SNFs, hospitals or other healthcare-related facilities, making us more vulnerable to negative factors affecting these classes than if our investments were diversified beyond the healthcare industry.

   

Our business, tenants, residents and operators may face litigation and experience rising liability and insurance costs, which may materially and adversely affect us.

Risks Relating to Real Estate-Related Investments

   

Unfavorable real estate market conditions and delays in liquidating defaulted mortgage loan investments may negatively impact mortgage loans in which we have invested and may invest, which could result in losses to us.

   

We expect a portion of our real estate-related investments to be illiquid and we may not be able to adjust our portfolio in a timely manner in response to changes in economic and other conditions.

Risks Related to the Healthcare Industry

   

The healthcare industry is heavily regulated and new laws or regulations, changes to existing laws or regulations, loss of licensure or failure to obtain licensure could result in the inability of our tenants to make rent payments to us or adversely affect our operators’ ability to operate facilities held in RIDEA structures.

   

Reductions in reimbursement from third-party payors, including Medicare and Medicaid, could adversely affect the operations of our tenants and their ability to make rental payments to us or our operators’ ability to operate facilities held in RIDEA structures, either of which could materially and adversely affect us.

   

If seniors delay moving to senior housing facilities until they require greater care or forgo moving to senior housing facilities altogether, such action could have a material adverse effect on us.

   

Adverse trends in healthcare provider operations may materially and adversely affect us.

   

We, our tenants and our operators for our senior housing facilities and SNFs may be subject to various government reviews, audits and investigations that could materially and adversely affect us, including an obligation to refund amounts previously paid to us, potential criminal charges, the imposition of fines and/or the loss of the right to participate in Medicare and Medicaid programs.

 

25


Risks Related to Joint Ventures

   

Property ownership through joint ventures could limit our control of those investments or our decisions with respect to other investments, restrict our ability to operate and finance properties on our terms and reduce their expected return.

Risks Related to Debt Financing

   

We have substantial indebtedness and may incur additional indebtedness in the future, which could materially and adversely affect us.

   

To the extent we borrow funds at floating interest rates, we will be adversely affected by rising interest rates unless fully hedged. Rising interest rates will also increase our interest expense on future fixed-rate debt.

   

Lenders may require us to enter into restrictive covenants relating to our business.

Risks Related to Our Corporate Structure and Organization

   

The limit on the percentage of shares of our common stock that any person may own may discourage a takeover or business combination that may have benefited our stockholders.

Risks Related to Taxes and Our REIT Status

   

Failure to maintain our qualification as a REIT for U.S. federal income tax purposes would subject us to U.S. federal income tax on our REIT taxable income at the regular corporate rate, which would substantially reduce our ability to make distributions to our stockholders.

   

We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability or reduce our operating flexibility.

   

If the Merger does not qualify as a tax-free reorganization, there may be adverse tax consequences.

Risks Related to this Offering

   

There is currently no public trading market for shares of our common stock, and we cannot assure you that a public trading market will develop, will be maintained or will be liquid.

   

The estimated per share NAV of our common stock may not be an accurate reflection of fair value of our assets and liabilities and likely will not represent the amount of net proceeds that would result if we were liquidated, dissolved or completed a merger or other sale of our company.

   

The market price and trading volume of shares of our common stock may be volatile and decline significantly.

   

Because we have a large number of stockholders and shares of our common stock have not been listed on a national securities exchange prior to this offering, there may be significant pent-up demand to sell shares of our common stock (including our Class T common stock and Class I common stock). Significant sales of shares of our common stock, or the perception that significant sales of such shares could occur, may cause the price of shares of our common stock to decline significantly.

   

We may be unable to raise additional capital needed to grow our business.

 

26


The Offering

 

Common stock offered by us

            shares (or                shares if the underwriters exercise in full their overallotment option to purchase additional shares)

 

Total common stock outstanding prior to the completion of this offering (1)(2)(3)(4)

264,171,478 shares

 

Class T common stock (3)

77,895,942 shares

 

Class I common stock (4)

186,275,536 shares

 

Total common stock (including Class T common stock and Class I common stock) to be outstanding upon completion of this offering (1)(2)(3)(4)

                shares

 

Total OP units outstanding prior to the completion of this offering

14,007,903 OP units

 

Total common stock (including Class T common stock and Class I common stock) and OP units to be outstanding upon completion of this offering (1)(3)(4)

            shares and 14,007,903 OP units

 

Conversion rights

Our charter provides that upon the listing of our common stock offered by this prospectus on the NYSE (or such later date not exceeding 12 months from the date of listing as may be approved by our Board), each share of our Class T common stock and Class I common stock will automatically, and without any stockholder action, convert into one share of our listed common stock. Our Board has approved the six-month anniversary of the listing of our common stock offered by this prospectus on the NYSE as the date on which our Class T common stock and Class I common stock will automatically convert into our listed common stock.

 

Dividend rights

Our listed common stock, our Class T common stock, and our Class I common stock will share equally in any dividends authorized by our Board and declared by us.

 

Voting rights

Each share of our listed common stock, our Class T common stock, and our Class I common stock will entitle its holder to one vote per share.

 

Use of proceeds

We estimate that the net proceeds we will receive from this offering, after deducting the underwriting discount and our estimated offering expenses, will be approximately $                million (or approximately

 

27


 

$                million if the underwriters exercise their overallotment option in full), assuming a public offering price of $                per share, which is the midpoint of the price range set forth on the front cover of this prospectus.

 

  We will contribute the net proceeds from this offering to the Operating Partnership in exchange for OP units. We expect the Operating Partnership to use the net proceeds received from us to repay $                of the amount outstanding under our Credit Facility, to fund external growth with potential future property acquisitions and for other general corporate uses. See “Use of Proceeds.”

 

Risk factors

Investing in our common stock involves risks. Before you make a decision to invest in our common stock being offered by this prospectus, you should carefully consider the risk factors set forth under the heading “Risk Factors” beginning on page 31, together with all of the other information included in this prospectus.

 

Proposed NYSE symbol

“AHR”

 

(1)

As of                , 2022. Excludes (a) up to                shares of our common stock that may be issued by us upon exercise of the underwriters’ overallotment option and (b) 2,531,167 shares of our common stock available for future issuance under our incentive plan.

(2)

Excludes 14,007,903 shares of our common stock that may be issued for redeeming OP units.

(3)

As of                 , 2022. Includes 885,308 shares of unvested restricted Class T common stock. Excludes 311,620 shares of Class T common stock underlying unvested time-based RSUs and performance-based RSUs (such number of shares assumes that we issue shares of our common stock underlying such unvested performance-based awards at maximum levels for performance and market conditions that have not yet been achieved; to the extent that performance or market conditions do not meet maximum levels, the actual number of shares of our common stock issued under our incentive plan would be less than the amount reflected above).

(4)

As of                 , 2022. Includes 6,949 shares of unvested restricted Class I common stock.

 

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Summary Selected Consolidated Financial and Other Data

Our consolidated balance sheet data as of December 31, 2021 and 2020 and consolidated operating data for the years ended December 31, 2021, 2020 and 2019 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our consolidated balance sheet data as of December 31, 2019 has been derived from our audited consolidated financial statements not included in this prospectus. The below information also includes our unaudited condensed consolidated balance sheet data as of June 30, 2022 and our unaudited condensed consolidated operating data for the six months ended June 30, 2022 and 2021, which have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The unaudited condensed consolidated balance sheet data as of June 30, 2021 has been derived from our unaudited consolidated financial statements not included in this prospectus. The unaudited condensed consolidated financial statements were prepared on a basis consistent with our audited consolidated financial statements and include, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial information contained in those statements. Our consolidated financial data included below and set forth elsewhere in this prospectus are not necessarily indicative of our future performance.

The unaudited pro forma condensed combined balance sheet data as of June 30, 2022, gives effect to this offering, the reverse stock split and the related use of the net proceeds as if they had been consummated on June 30, 2022. The unaudited pro forma condensed combined operating data for the six months ended June 30, 2022, gives effect to this offering, the reverse stock split and the related use of the net proceeds as if they had been consummated on January 1, 2021. The unaudited pro forma condensed combined operating data for the year ended December 31, 2021, gives effect to the Merger, the AHI Acquisition, the reverse stock split and this offering and the related use of the net proceeds as if they had been consummated on January 1, 2021. The unaudited pro forma condensed combined balance sheet data as of June 30, 2022, and the unaudited pro forma condensed combined operating data for the six months ended June 30, 2022, do not include pro forma effects of the Merger and the AHI Acquisition as they were consummated on October 1, 2021, and are reflected in our historical audited consolidated balance sheet data as of December 31, 2021. The preparation of the unaudited pro forma condensed combined financial statements requires management to make estimates and assumptions deemed appropriate. The unaudited pro forma condensed combined financial statements are not intended to represent, or be indicative of what our actual financial position and results of operations would have been as of the date and for the period indicated, nor does it purport to represent our future financial position or results of operations.

In connection with the Merger, we were the legal acquiror and GAHR III was the accounting acquiror for financial reporting purposes. Thus, the financial information set forth herein subsequent to the Merger reflects results of the combined company, and the financial information set forth herein prior to the Merger reflects GAHR III’s results. You should read the following summary selected consolidated financial and other data together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Our Business and Properties,” and our consolidated financial statements and related notes appearing elsewhere in this prospectus.

 

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    As of and for the
Six Months Ended June 30,
    As of and for the
Years Ended December 31,
 
(in thousands, except per share
amounts)
  2022
(Pro Forma)
    2022     2021     2021
(Pro Forma)
    2021     2020     2019  

Operating Data:

 

           

Total revenues and Grant Income

  $ 764,430     $ 764,430     $ 599,371     $ 1,392,884     $ 1,282,254     $ 1,244,301     $ 1,223,116  

Property operating expenses

    (583,219)       (583,219)       (495,568)       (1,074,372)       (1,030,193)       (993,727)       (967,860)  

Rental expenses

    (29,950)       (29,950)       (16,174)       (55,351)       (38,725)       (32,298)       (33,859)  

General and administrative

    (22,047)       (22,047)       (14,600)       (53,957)       (43,199)       (27,007)       (29,749)  

Business acquisition expenses

    (1,930)       (1,930)       (3,998)       (19,382)       (13,022)       (290)       161  

Depreciation and amortization

    (82,282)       (82,282)       (52,080)       (170,304)       (133,191)       (98,858)       (111,412)  

Total net other expense

      (61,068)       (40,527)         (76,237)       (86,336)       (79,725)  

Income tax (expense) benefit

    (373)       (373)       (658)       (956)       (956)       3,078       (1,524)  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

    $ (16,439)     $ (24,234)       $ (53,269)     $ 8,863     $ (852)  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to controlling interest

    $ (20,266)     $ (19,525)       $ (47,794)     $ 2,163     $ (4,965)  

Comprehensive (loss) income

    $ (17,126)     $ (24,123)       $ (53,334)     $ 9,110     $ (547)  

Comprehensive (loss) income attributable to controlling interest

    $ (20,953)     $ (19,414)       $ (47,752)     $ 2,410     $ (4,660)  

Per Share Data:

 

           

Net (loss) income per share of common stock attributable to controlling interest—basic and diluted

    $ (0.08)     $ (0.11)       $ (0.24)     $ 0.01     $ (0.03)  

Common stock distributions declared per share

    $ 0.20     $ 0.02       $ 0.17     $ 0.22     $ 0.65  

Weighted-average number of shares of common stock outstanding—basic and diluted

      262,768,637       179,628,315         200,324,561       179,916,841       181,931,306  

Balance Sheet Data:

             

Real estate investments, net

  $ 3,491,845     $ 3,491,845     $ 2,397,092       $ 3,514,686     $ 2,330,000     $ 2,270,421  

Total assets

    $ 4,523,900     $ 3,208,774       $ 4,580,339     $ 3,234,937     $ 3,172,289  

Mortgage loans payable, net

  $ 1,134,059     $ 1,134,059     $ 917,121       $ 1,095,594     $ 810,478     $ 792,870  

Lines of credit and term loans, net

    $ 1,266,691     $ 837,234       $ 1,226,634     $ 843,634     $ 815,879  

Total liabilities

    $ 2,758,803     $ 2,162,129       $ 2,750,768     $ 2,160,114     $ 2,069,521  

Redeemable noncontrolling interests

  $ 75,337     $ 75,337     $ 40,174       $ 72,725     $ 40,340     $ 44,105  

Total stockholders’ equity

    $ 1,517,158     $ 842,920       $ 1,581,293     $ 866,108     $ 900,555  

Noncontrolling interests

    $ 172,602     $ 163,551       $ 175,553     $ 168,375     $ 158,108  

Total equity

    $ 1,689,760     $ 1,006,471       $ 1,756,846     $ 1,034,483     $ 1,058,663  

Other Operational Data: (1)

             

FFO attributable to controlling interest

    $ 65,334     $ 28,179       $ 69,678     $ 95,675     $ 91,159  

MFFO attributable to controlling interest

    $ 73,926     $ 29,234       $ 77,642     $ 96,672     $ 96,703  

NOI

    $ 151,261     $ 87,629       $ 213,336     $ 218,276     $ 221,397  

 

(1)

For definitions of these metrics, reconciliations of these metrics to the most directly comparable GAAP financial measure and a statement of why our management believes the presentation of these metrics provides useful information to investors and any additional purposes for which management uses these metrics, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.”

 

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RISK FACTORS

Investing in our common stock involves risks. Before you make a decision to invest in our common stock, you should carefully consider the risk factors below, together with all of the other information included in this prospectus, including our historical and pro forma consolidated financial statements and the notes thereto. If any of the risks discussed in this prospectus were to occur, our business, financial condition, liquidity, results of operations, FFO, MFFO and prospects, and our ability to service our debt and make distributions to our stockholders at a particular rate, or at all, could be materially and adversely affected (which we refer to collectively as “materially and adversely affecting us” or having “a material adverse effect on us” and comparable phrases), and, as a result, the market price of our common stock could be highly volatile and decline significantly and you could lose all or part of your investment in our common stock. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. See the section titled “Cautionary Statement Concerning Forward Looking Statements.”

Risks Related to Our Business and Financial Results

The COVID-19 pandemic has adversely impacted, and will likely continue to adversely impact, our business and financial results and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted.

As a result of the COVID-19 pandemic and related shelter-in-place, business re-opening and quarantine restrictions, our property values, revenues and financial results may decline, and our tenants and operating partners have been, and may continue to be, limited in their ability to generate income, service patients and residents, and/or properly manage our properties. In addition, as of June 30, 2022, we have experienced an approximately 8.4% decline in resident occupancies at our SHOP since February 2020, as well as a significant increase in costs for residents at our SHOP and integrated senior health campuses, which have adversely affected our financial results. Our senior housing—leased and SNF tenants have also experienced, and may continue to experience, similar pressures related to occupancy declines and expense increases, which may impact their ability to pay rent to us.

There remains significant uncertainty of the impacts and effects of the COVID-19 pandemic, as well as public perception of these matters and regional healthcare safety in our properties. Therefore, we are unable to predict the ultimate impact it will have on our tenants’ continued ability to pay rent to us or on the operating results at our SHOP and integrated senior health campuses and prior historical information should not serve as an indication of expected future performance. As such, our immediate focus continues to be on resident occupancy recovery and operating expense management. Of course, the emergence of additional variants of COVID-19 may put additional pressure on our business and financial results.

The lasting effect of the COVID-19 pandemic over the next 12 months could be significant and will largely depend on future developments, including COVID-19 vaccine booster rates; the long term efficacy of COVID-19 vaccinations and boosters; and the potential emergence of new, more transmissible or severe variants, which cannot be predicted with confidence at this time.

Although vaccines for COVID-19 that have been approved for use are generally effective, vaccine boosters may be necessary and there can be no assurance that efforts to vaccinate the public will be successful in ending the pandemic in the near term, or at all, or that vaccines will be effective against current and future COVID-19 variants. The rapid development and fluidity of this situation continues to preclude any prediction as to the ultimate adverse impact of the COVID-19 pandemic on economic and market conditions, and, as a result, present material uncertainty and risk with respect to us and the performance of our investments. The full extent of the impact and effects of the COVID-19 pandemic will depend on future developments, including, among other factors, the success of efforts to contain or treat COVID-19 and its variants, the use and distribution of effective vaccines and availability of such vaccines and vaccine boosters, potential resurgences of COVID-19,

 

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along with the related travel advisories, quarantines and business restrictions, the recovery time of the disrupted supply chains and industries, the impact on the labor market, the impact of government interventions, public perception, and the performance or valuation outlook for healthcare REIT markets and certain property types. The COVID-19 pandemic and the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk and have had an adverse effect on us and may have a material adverse effect on us in the future.

We have experienced net losses in the past and we may experience additional losses in the future.

Historically, we have experienced net losses (calculated in accordance with GAAP) and we may not be profitable or realize growth in the value of our investments. Many of our losses can be attributed to start-up costs, general and administrative expenses, depreciation and amortization, as well as acquisition expenses incurred in connection with purchasing properties or making other investments. For a further discussion of our operational history and the factors affecting our net losses, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical and pro forma consolidated financial statements and the notes thereto included elsewhere in this prospectus.

Our prior performance may not be an accurate predictor of our ability to achieve our business objectives or of our future results.

You should not rely on our past performance to predict our future results. You should review our prospects in light of the risks, uncertainties and difficulties frequently encountered by companies that have a limited operating history, many of which may be beyond our control. For example, due to challenging economic conditions in the past, distributions to stockholders were reduced. Therefore, to be successful in this market, we must, among other things:

 

   

identify and acquire investments that further our business objectives and growth strategies;

 

   

attract, integrate, motivate and retain qualified personnel to manage our day-to-day operations;

 

   

respond to competition both for investment opportunities and potential investors’ investment in us; and

 

   

build and expand our operational structure to support our business.

We cannot guarantee that we will succeed in achieving these goals, and our failure to do so could materially and adversely affect us and the market price of our common stock could be highly volatile and decline significantly and stockholders could lose all or a portion of their investment.

Our success is dependent on the performance and continued contributions of certain of our key personnel and, in the event they are no longer employed by us, we could be materially and adversely affected.

Our success depends, to a significant degree, upon the continued contributions of our executives and key officers. In particular, Danny Prosky would be difficult to replace. Mr. Prosky currently serves as our Chief Executive Officer and one of our directors. In the event that Mr. Prosky or one of our other executives or key executive officers are no longer employed by us, for any reason, it could have a material adverse effect on us and we may not be able to attract and hire equally capable individuals to replace them. If we were to lose the benefit of the experience, efforts and abilities of one or more of our executives or other key officers, we could be materially and adversely affected.

 

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Our financial results, our ability to make distributions to our stockholders and our ability to dispose of our investments are subject to international, national and local market conditions we cannot control or predict.

We are subject to the risks of an international or national economic slowdown or downturn and other changes in international, national and local market conditions. The following factors may have affected, and may continue to affect, income and yields from our properties, our ability to acquire and dispose of properties, and our overall financial results and ability to make distributions to our stockholders:

 

   

poor economic times may result in defaults by tenants of our properties due to bankruptcy, lack of liquidity or operational failures. We may provide rent concessions, tenant improvement expenditures or reduced rental rates to maintain or increase occupancy levels;

 

   

fluctuations as a result of supply and demand imbalances and reduced occupancies and rental rates may cause the properties that we own to decrease in value. Consequently, we may not be able to recover the carrying amount of our properties, which may require us to recognize an impairment charge or record a loss on sale in our financial results;

 

   

reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain or maintain debt financing secured by our properties and may reduce the availability of unsecured loans;

 

   

constricted access to credit may result in tenant defaults or non-renewals under leases;

 

   

layoffs may lead to a lower demand for medical services and cause vacancies to increase and a lack of future population and job growth may make it difficult to maintain or increase occupancy levels;

 

   

disruptions in the financial markets, deterioration in economic conditions or a public health crisis, such as the COVID-19 pandemic, have resulted, and may continue to result, in lower occupancy in our facilities, increased vacancy rates for commercial real estate due to generally lower demand for rentable space, as well as an oversupply of rentable space;

 

   

governmental actions and initiatives, including risks associated with the impact of a prolonged government shutdown or budgetary reductions or impasses; and

 

   

increased insurance premiums, real estate taxes or utilities or other expenses, such as inflation costs, will decrease our financial results and may reduce funds available for distribution to our stockholders or, to the extent such increases are passed through to tenants, may lead to tenant defaults. Also, any such increased expenses may not coincide with our ability to increase rents to tenants on turnover, which would adversely impact our financial results.

The length and severity of any economic slowdown or downturn cannot be predicted with confidence at this time. We have been, and we expect may continue to be, negatively impacted to the extent an economic slowdown or downturn is prolonged or becomes more severe.

We face significant competition for the acquisition and disposition of MOBs, senior housing, SNFs, hospitals and other healthcare-related facilities, which may impede our ability to take, and increase the cost of, such actions, which may materially and adversely affect us.

We face significant competition from other entities engaged in real estate investment activities for acquisitions and dispositions of MOBs, senior housing, SNFs, hospitals and other healthcare-related facilities, some of whom may have greater resources, lower costs of capital and higher risk tolerances than we do. Increased competition makes it more challenging for us to identify and successfully capitalize on opportunities

 

33


that meet our business objectives and could improve the bargaining power of our counterparties, thereby impeding our investment, acquisition and disposition activities. If we pay higher prices per property or receive lower prices for dispositions of our MOBs, senior housing, SNFs, hospitals or other healthcare-related facilities as a result of such competition, we may be materially and adversely affected.

Our investments in, and acquisitions of, MOBs, senior housing, SNFs, hospitals and other healthcare-related facilities may be unsuccessful or fail to meet our expectations.

Some of our acquisitions may not prove to be successful. We could encounter unanticipated difficulties and expenditures relating to any acquired properties, including contingent liabilities, and acquired properties might require significant management attention that would otherwise be devoted to our ongoing business. Such expenditures may negatively affect our results of operations. Investments in and acquisitions of MOBs, senior housing, SNFs, hospitals and other healthcare-related facilities entail risks associated with real estate investments generally, including risks that the investment will not achieve expected returns, that the cost estimates for necessary property improvements will prove inaccurate or that the tenant or operator will fail to meet performance expectations. Furthermore, there can be no assurance that our anticipated acquisitions and investments, the completion of which is subject to various conditions, will be consummated in accordance with anticipated timing, on anticipated terms, or at all. In addition, we may not be able to identify off-market investment opportunities or investment opportunities that are strategically marketed to a limited number of investors at the rate that we anticipate or at all. We may be unable to obtain or assume financing for acquisitions on favorable terms or at all. Healthcare properties are often highly customizable and the development or redevelopment of such properties may require costly tenant-specific improvements. We may experience delays and disruptions to property redevelopment as a result of supply chain issues and construction material and labor shortages. We also may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations, and this could have a material adverse effect on us. Acquired properties may be located in new markets, either within or outside the United States, where we may face risks associated with a lack of market knowledge or understanding of the local economy, lack of business relationships in the area, costs associated with opening a new regional office, and unfamiliarity with local governmental and permitting procedures. As a result, we cannot assure you that we will achieve the economic benefit we expect from acquisitions, investment, development and redevelopment opportunities and may lead to impairment of such assets.

As a result of the AHI Acquisition, we are newly self-managed.

As a result of the Merger and the AHI Acquisition, we are a self-managed REIT. We will no longer bear the costs of the various fees and expense reimbursements previously paid to our and GAHR III’s former external advisors and their affiliates; however, our expenses will include the compensation and benefits of our officers and other employees, as well as overhead previously paid by our and GAHR III’s former external advisors and their affiliates. Our employees will provide services historically provided by our former external advisors and their affiliates. We are now subject to potential liabilities that are commonly faced by employers, such as workers’ disability and compensation claims, potential labor disputes and other employee-related liabilities and grievances, and we will bear the cost of the establishment and maintenance of any of our employee compensation plans, including our incentive plan. In addition, prior to the Merger and AHI Acquisition, we did not operate as a self-managed REIT and may encounter unforeseen costs, expenses and difficulties associated with providing these services on a self-advised basis, which, if encountered, would adversely affect our financial results.

We are uncertain of all of our sources of debt or equity for funding our capital needs. If we cannot obtain funding on favorable terms, our ability to acquire, and make necessary capital improvements to, properties may be impaired or delayed, which could have a material adverse effect on us.

We have not identified all of our sources of debt or equity for funding, and such sources of funding may not be available to us on favorable terms or at all. If we do not have access to sufficient funding on favorable

 

34


terms in the future, we may not be able to acquire, and make necessary capital improvements to, properties, pay other expenses, or expand our business when desired, or at all, which could have a material adverse effect on us.

We are dependent on tenants for our revenue, and lease terminations could reduce our ability to make distributions to our stockholders.

The successful performance of our real estate investments is materially dependent on the financial stability of our tenants. Lease payment defaults by tenants would cause us to lose the revenue associated with such leases and could reduce our ability to make distributions to our stockholders. If a property is subject to a mortgage, a default by a significant tenant on its lease payments to us may result in a foreclosure on the property if we are unable to find an alternative source of revenue to meet our mortgage payments. In the event of a tenant default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing our property. Further, we cannot assure our stockholders that we will be able to re-lease the property for the rent previously received, if at all, or that lease terminations will not cause us to sell the property at a loss.

All of our integrated senior health campuses are managed by the Trilogy Manager and account for a significant portion of our revenues and operating income. Adverse developments in the Trilogy Manager’s business or financial strength could have a material adverse effect on us.

As of June 30, 2022, the Trilogy Manager managed all of the day-to-day operations for all of our integrated senior health campuses pursuant to a long-term management agreement. These integrated senior health campuses accounted for approximately 34.7% of our portfolio (based on aggregate contract purchase price on a pro rata share basis) as of June 30, 2022 and contributed approximately 34.3% of our Annualized Base Rent / Annualized NOI (on a pro rata share basis) as of such date. Although we have various rights as the joint venture owner of these integrated senior health campuses under our management agreement, we rely on the Trilogy Manager’s personnel, expertise, technical resources and information systems, proprietary information, good faith and judgment to manage our integrated senior health campuses operations efficiently and effectively, and to identify and manage development opportunities for new integrated senior health campuses. We also rely on the Trilogy Manager to provide accurate campus-level financial results for our integrated senior health campuses in a timely manner and to otherwise operate our integrated senior health campuses in compliance with the terms of our management agreement and all applicable laws and regulations. We depend on the Trilogy Manager’s ability to attract and retain skilled personnel to provide these services. A shortage of nurses or other trained personnel or general inflationary pressures may force the Trilogy Manager to enhance its pay and benefits package to compete effectively for such personnel, the cost of which we would bear in proportion to our joint venture interest, but it may not be able to offset these added costs by increasing the rates charged to residents. As such, any adverse developments in the Trilogy Manager’s business or financial strength, including its ability to retain key personnel, could impair its ability to manage our integrated senior health campuses efficiently and effectively and could have a material adverse effect on us. In addition, if the Trilogy Manager experiences any significant financial, legal, accounting or regulatory difficulties due to a weak economy, industry downturn, or otherwise, such difficulties could result in, among other adverse events, acceleration of its indebtedness, impairment of its continued access to capital, the enforcement of default remedies by its counterparties, or the commencement of insolvency proceedings by or against it under the U.S. Bankruptcy Code. Any one or a combination of these risks could have a material adverse effect on us.

In the event that our management agreement with the Trilogy Manager is terminated or not renewed, we may be unable to replace the Trilogy Manager with another suitable operator, or, if we were successful in locating such an operator, we cannot guarantee that it would manage the integrated senior health campuses efficiently and effectively or that any such transition would be completed timely, which may have a material adverse effect on us.

In the event we were to contemplate pursuing any existing or future contractual rights or remedies under our management agreement with Trilogy Manager, including termination rights (see “Our Business and

 

35


Properties—Trilogy and the Trilogy Manager—Trilogy Manager Management Agreement—Term and Termination”), we would consider numerous factors, including legal, contractual, regulatory, business and other relevant considerations. In the event that we exercise our rights to terminate the management agreement with the Trilogy Manager for any reason or such agreements are not renewed upon expiration of their terms, we would attempt to reposition the affected integrated senior health campuses with another operator. Although we believe that other qualified national and regional operators would be interested in managing our integrated senior health campuses, we cannot provide any assurance that we would be able to locate another suitable operator or, if we were successful in locating such an operator, that it would manage the integrated senior health campuses efficiently and effectively or that any such transition would be completed timely or would not require substantial capital expenditures. Any such transition would likely result in disruption of the operation of such facilities, including matters relating to staffing and reporting. Moreover, the transition to a replacement operator may require approval by the applicable regulatory authorities and, in most cases, one or more of our lenders, including the mortgage lenders for certain of the integrated senior health campuses, and we cannot provide any assurance that such approvals would be granted on a timely basis, if at all. Any inability to replace, or delay in replacing, the Trilogy Manager as the operator of integrated senior health campuses with a highly qualified successor on favorable terms could have a material adverse effect on us.

The financial deterioration, insolvency or bankruptcy of one or more of our major tenants, operators, borrowers or other obligors could have a material adverse effect on us.

A downturn in any of our tenants’, operators’, borrowers’ or other obligors’ businesses could ultimately lead to voluntary or involuntary bankruptcy or similar insolvency proceedings, including but not limited to assignment for the benefit of creditors, reorganization, liquidation or winding-up. Bankruptcy and insolvency laws afford certain rights to a defaulting tenant, operator or borrower that has filed for bankruptcy or reorganization that may render certain of our remedies unenforceable or, at the least, delay our ability to pursue such remedies and realize any related recoveries. A debtor has the right to assume, or to assume and assign to a third party, or to reject its executory contracts and unexpired leases in a bankruptcy proceeding. If a debtor were to reject its leases with us, obligations under such rejected leases would cease. The claim against the rejecting debtor would be an unsecured claim, which would be limited by the statutory cap set forth in the U.S. Bankruptcy Code, and there may be insufficient assets to satisfy all unsecured claims, even ones limited by the statutory cap. This statutory cap may be substantially less than the remaining rent actually owed under the lease. In addition, a debtor may also assert in bankruptcy proceedings that leases should be re-characterized as financing agreements, which could result in our being deemed a lender instead of a landlord. A lender’s rights and remedies, as compared to a landlord’s, generally are materially less favorable, and our rights as a lender may be subordinated to other creditors’ rights.

Furthermore, the automatic stay provisions of the U.S. Bankruptcy Code would preclude us from enforcing our remedies unless we first obtain relief from the court having jurisdiction over the bankruptcy case. This would effectively limit or delay our ability to collect unpaid rent or interest payments, and we may ultimately not receive any payment at all. In addition, we would likely be required to fund certain expenses and obligations to preserve the value of our properties, avoid the imposition of liens on our properties, or transition our properties to a new tenant or operator. Additionally, we lease many of our properties to healthcare providers who provide long-term custodial care to the elderly. Evicting operators for failure to pay rent while the property is occupied typically involves specific procedural or regulatory requirements and may not be successful. Even if eviction is possible, we may determine not to do so due to reputational or other risks. Bankruptcy or insolvency proceedings typically also result in increased costs to the operator, significant management distraction, and performance declines. If we are unable to transition affected properties, they would likely experience prolonged operational disruption, leading to lower occupancy rates and further depressed revenues. Publicity about the operator’s financial troubles and bankruptcy or insolvency proceedings may also negatively impact their and our reputations, decreasing customer demand and revenues. Any or all of these risks could have a material adverse effect on us.

 

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We may incur additional costs in re-leasing properties with specialized uses, which could materially and adversely affect us.

Some of the properties we have acquired and will seek to acquire are healthcare properties designed or built primarily for a particular tenant of a specific type of use known as a single-user facility. If we or our tenants terminate the leases for these properties or our tenants default on their lease obligations or lose their regulatory authority to operate such properties, we may not be able to locate suitable replacement tenants to lease the properties for their specialized uses. Alternatively, we may be required to spend substantial amounts to adapt the properties to other uses or incur other significant re-leasing costs. Any loss of revenues or additional capital expenditures required as a result may have a material adverse effect on us.

We may be unable to secure funds for future tenant or other capital improvements, which could limit our ability to attract, replace or retain tenants, pay our expenses and make distributions to our stockholders.

When tenants do not renew their leases or otherwise vacate their space, in order to attract replacement tenants, we have expended, and may be required to expend in the future, substantial funds for tenant improvements and leasing commissions related to the vacated space. Such tenant improvements have required, and may continue to require, us to incur substantial capital expenditures. If we have not established capital reserves for such tenant or other capital improvements, we will have to obtain financing from other sources and we have not identified any sources for such financing. We may also have future financing needs for other capital improvements to refurbish or renovate our properties. If we need to secure financing sources for tenant or other capital improvements in the future, but are unable to secure such financing or are unable to secure financing on terms we feel are acceptable, we may be unable to make tenant and other capital improvements or we may be required to defer such improvements. If this happens, it may cause one or more of our properties to suffer from a greater risk of obsolescence or a decline in value, or a greater risk of decreased cash flows as a result of fewer potential tenants being attracted to the property or our existing tenants not renewing their leases. If we do not have access to sufficient funding in the future, we may also not be able to pay our expenses or make distributions to our stockholders.

A breach of information technology systems on which we rely could materially and adversely impact us.

We and our tenants and operators rely on information technology systems, including the internet and networks and systems maintained and controlled by third-party vendors and other third parties, to process, transmit and store information and to manage or support our business processes. Third-party vendors collect and hold personally identifiable information and other confidential information of our tenants, operators, patients, stockholders and employees. We also maintain confidential financial and business information regarding us and persons and entities with which we do business on our information technology systems. While we and our tenants and operators take steps to protect the security of the information maintained in our information technology systems, including the use of commercially available systems, software, tools and monitoring to provide security for processing, transmitting and storing of the information, it is possible that such security measures will not be able to prevent human error or the systems’ improper functioning, or the loss, misappropriation, disclosure or corruption of personally identifiable information or other confidential or sensitive information, including information about our tenants and employees. Cybersecurity breaches, including physical or electronic break-ins, computer viruses, phishing scams, attacks by hackers, breaches due to employee error or misconduct and similar breaches, can create, and in some instances in the past resulted in, system disruptions, shutdowns or unauthorized access to information maintained on our information technology systems or the information technology systems of our third-party vendors or other third parties or otherwise cause disruption or negative impacts to occur to our business and materially and adversely affect us. While we and, we believe, most of our tenants and operators maintain cyber risk insurance to provide some coverage for certain risks arising out of cybersecurity breaches, there is no assurance that such insurance would cover all or a significant portion of the costs or consequences associated with a cybersecurity breach. As our reliance on technology increases, so will the risks posed to our information systems, both internal and those we outsource. In addition, as the techniques

 

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used to obtain unauthorized access to information technology systems become more varied and sophisticated and the occurrence of such breaches becomes more frequent, we and our third-party vendors and other third parties may be unable to adequately anticipate these techniques or breaches and implement appropriate preventative measures. There is no guarantee that any processes, procedures and internal controls we have implemented or will implement will prevent cyber intrusions. Any failure to prevent cybersecurity breaches and maintain the proper function, security and availability of our or our third-party vendors’ and other third parties’ information technology systems could interrupt our operations, damage our reputation and brand, damage our competitive position, make it difficult for us to attract and retain tenants, and subject us to liability claims or regulatory penalties, which could materially and adversely affect us.

Risks Related to Investments in Real Estate

Uncertain market conditions could lead our real estate investments to decrease in value or may cause us to sell our properties at a loss in the future.

Our management, subject to the oversight of our Board, may exercise its discretion as to whether and when to sell a property, and we have no obligation to sell properties at any particular time or at all. We cannot predict with any certainty the various market conditions affecting real estate investments that will exist at any particular time in the future. As such, we may be purchasing our properties at a time when capitalization rates are at historically low levels and purchase prices are high. In addition, we may be required to expend funds to correct defects or to make improvements before a property can be sold. We may not have adequate funds available to correct such defects or to make such improvements. Moreover, in acquiring a property, we may agree to restrictions that prohibit the sale of that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. The value of our properties may not increase over time, which may restrict our ability to sell our properties, or in the event we are able to sell such properties, may lead to sale prices less than the prices that we paid to purchase the properties or the price at which we value the property. Additionally, we may incur prepayment penalties in the event we sell a property subject to a mortgage earlier than we otherwise had planned. Accordingly, our ability to realize potential appreciation on our real estate investments and make distributions to our stockholders will, among other things, be dependent upon uncertain market conditions.

Our real estate assets may decline in value and be subject to significant impairment losses, which may reduce our net income.

We periodically evaluate long-lived assets, primarily consisting of investments in real estate that are carried at historical cost less accumulated depreciation, for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. In our evaluation of impairment, we consider indicators such as significant negative industry or economic trends, significant underperformance relative to historical or projected future operating results and a significant change in the extent or manner in which the asset is used or significant physical change in the asset. If indicators of impairment of long-lived assets are present, we evaluate the carrying value of the related real estate investment in relation to the future undiscounted cash flows of the underlying operations. In performing this evaluation, we consider market conditions and our current intentions with respect to holding or disposing of the asset. If we determine that an impairment has occurred, we would be required to make a downward adjustment to the net book value of the property, which could have a material adverse effect on us in the period in which the impairment charge is recorded. We have recorded impairment charges related to certain properties in the six months ended June 30, 2022 and in the years ended December 31, 2021 and 2020, and may record future impairments based on actual results and changes in circumstances. Negative developments in the real estate market may cause management to reevaluate the business and macro-economic assumptions used in its impairment analysis. Changes in management’s assumptions based on actual results may have a material impact on the Company’s financial statements. See “Management’s Discussion and

 

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Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates—Impairment of Long-Lived Assets.”

Most of our costs, such as operating and general and administrative expenses, interest expense and real estate acquisition and construction costs, are subject to inflation and may not be recoverable.

A significant portion of our operating expenses is sensitive to inflation. These include expenses for property-related costs such as insurance, utilities and repairs and maintenance. Property taxes are also impacted by inflationary changes as taxes are typically regularly reassessed in most states based on changes in the fair value of our properties. We also have ground lease expenses in certain of our properties. Ground lease costs are contractual, but in some cases, lease payments reset every few years based on changes on consumer price indexes.

Operating expenses on our non-RIDEA properties, with the exception of ground lease rental expenses, are typically recoverable through our lease arrangements, which allow us to pass through substantially all expenses associated with property taxes, insurance, utilities, repairs and maintenance, and other operating expenses (including increases thereto) to our tenants. As of June 30, 2022, the majority of our existing leases were either triple-net leases or leases that allow us to recover certain operating expenses and certain capital expenditures. Our remaining leases are generally gross leases, which only provide for recoveries of operating expenses above the operating expenses from the initial year within each lease. During inflationary periods, we expect to recover increases in operating expenses from our triple-net leases and our gross leases. As a result, we do not believe that inflation would result in a significant adverse effect on our NOI, results of operations and operating cash flows at the property level. For our RIDEA properties, increases in operating expenses, including labor, that are caused by inflationary pressures will generally be passed through to us and may materially and adversely affect us.

Our general and administrative expenses consist primarily of compensation costs, as well as professional and legal fees. Annually, our employee compensation is adjusted to reflect merit increases; however, to maintain our ability to successfully compete for the best talent, rising inflation rates has required and may continue to require us to provide compensation increases beyond historical annual merit increases, which may significantly increase our compensation costs. Similarly, professional and legal fees are also subject to the impact of inflation and expected to increase proportionately with increasing market prices for such services. Consequently, inflation is expected to increase our general and administrative expenses over time and may materially and adversely affect us.

Also, during inflationary periods, interest rates have historically increased, which would have a direct effect on the interest expense of our borrowings. Our variable-rate borrowings consist of borrowings under our credit facilities and variable-rate mortgage loans payable. As of June 30, 2022, on a pro forma basis after the use of a portion of the net proceeds from this offering to repay certain indebtedness, our outstanding variable-rate borrowings aggregated $                billion, of which                % was unhedged. Rising interest rates will also increase our interest expense on future fixed-rate borrowings. Therefore, a significant increase in inflation rates would have a material adverse impact on our interest expense.

We have long term lease agreements with our tenants that contain effective annual rent escalations that were either fixed or indexed based on a consumer price index or other index. We believe our annual lease expirations allow us to reset these leases to market rents upon renewal or re-leasing and that annual rent escalations within our long-term leases are generally sufficient to offset the effect of inflation on non-recoverable costs, such as general and administrative expenses and interest expense. However, it is possible that during higher inflationary periods like the one existing in 2022, the impact of inflation will not be adequately offset by the resetting of rents from our renewal and re-leasing activities and our annual rent escalations. As a result, during periods when the impact of inflation exceeds the annual rent escalation percentages in our current leases and the percentage increase in rents in new leases, our financial results will be impaired, potentially significantly.

 

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Additionally, inflationary pricing may have a negative effect on the real estate acquisitions and construction costs necessary to complete our development and redevelopment projects, including, but not limited to, costs of construction materials, labor and services from third-party contractors and suppliers. Higher acquisition and construction costs could adversely impact our net investments in real estate and expected yields in our development and redevelopment projects, which may make otherwise lucrative investment opportunities less profitable to us. Any of these matters may materially and adversely affect us over time.

Our high concentrations of properties in particular geographic areas magnify the effects of negative conditions affecting those geographic areas.

We have a concentration of properties in particular geographic areas; therefore, any adverse situation that disproportionately effects one of those areas would have a magnified adverse effect on our portfolio. As of June 30, 2022, properties located in Indiana, Michigan, Ohio, Texas and Missouri accounted for approximately 32.8%, 9.3%, 8.5%, 6.4% and 5.1%, respectively, of our total property portfolio’s Annualized Base Rent / Annualized NOI. Accordingly, there is a geographic concentration of risk subject to fluctuations in each such state’s economy, real estate and other market conditions.

Our real estate investments may be concentrated in MOBs, senior housing, SNFs, hospitals or other healthcare-related facilities, making us more vulnerable to negative factors affecting these classes than if our investments were diversified beyond the healthcare industry.

As a REIT, we invest primarily in real estate. Within the real estate industry, we have acquired, and may continue to acquire, or selectively develop and own MOBs, senior housing, SNFs, hospitals and other healthcare-related facilities. As of June 30, 2022, our asset class concentrations (based on aggregate contract purchase price on a pro rata share basis) were senior housing (37.8%), MOBs (31.8%), SNFs (25.1%), hospitals (3.2%) and a debt investment (2.0%). We are subject to risks inherent in concentrating investments in real estate. These risks resulting from a lack of diversification become even greater as a result of our business objectives and growth strategies, which involve investing substantially all of our assets in clinical healthcare real estate.

A downturn in the commercial real estate industry generally could significantly adversely affect the value of our properties. A downturn in the healthcare industry could negatively affect our lessees’ ability to make lease payments to us and our operators’ ability to manage our properties efficiently and effectively. These matters could materially and adversely affect us and could be more pronounced than if we diversified our investments outside of real estate or if our portfolio did not include a substantial concentration in MOBs, senior housing, SNFs, hospitals or healthcare-related facilities.

Terrorist attacks, acts of violence or war, political protests and unrest or public health crises have affected and may affect the markets in which we operate and have a material adverse effect on us.

Terrorist attacks, acts of violence or war, political protests and unrest or public health crises (including the COVID-19 pandemic) have negatively affected, and may continue to negatively affect, our operations and our stockholders’ investments. We have acquired, and may continue to acquire, real estate assets located in areas that are susceptible to terrorist attacks, acts of violence or war, political protests or public health crises. These events may directly impact the value of our assets through damage, destruction, loss or increased security costs. Although we may obtain terrorism insurance, we may not be able to obtain sufficient coverage to fund any losses we may incur. Risks associated with potential acts of terrorism could sharply increase the premiums we pay for coverage against property and casualty claims. Further, certain losses resulting from these types of events are uninsurable or not insurable at reasonable costs. In addition, other than any reserves we may establish, we have no source of funding to repair or reconstruct any uninsured damaged property, and we cannot assure our stockholders that any such sources of funding will be available to us for such purposes in the future. Also, to the extent we must pay unexpectedly large amounts for uninsured losses, our cash flows could be impaired in a

 

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manner that would result in little or no cash being distributed to our stockholders. More generally, any terrorist attack, other act of violence or war, political protest and unrest or public health crisis could result in increased volatility in, or damage to, the United States and worldwide financial markets and economy, all of which could adversely affect our tenants’ ability to pay rent on their leases with us, our operators’ ability to manage our properties efficiently and effectively and our ability to borrow money or issue capital stock on favorable terms, which could have a material adverse effect on us.

Our business, tenants, residents and operators may face litigation and experience rising liability and insurance costs, which may materially and adversely affect us.

We currently intend to pursue insurance recovery for any losses caused by the COVID-19 pandemic, but there can be no assurance that coverage will be available under our existing policies or if such coverage is available, which and how much of our losses will be covered and what other limitations may apply. Due to the likely increase in claims as a result of the impact of the COVID-19 pandemic, insurance companies may limit or stop offering coverage to companies like ours for pandemic related claims and/or significantly increase the cost of insurance so that it is no longer available at commercially reasonable rates.

With respect to our SHOP and integrated senior health campuses, we are ultimately responsible for operational risks and other liabilities of the facility, other than those arising out of certain actions by our operator, such as gross negligence or willful misconduct. As such, operational risks include, and our resulting revenues therefore depend on, the availability and cost of general and professional liability insurance coverage or increases in insurance policy deductibles. Furthermore, because we bear such operational risks and liabilities related to our SHOP and integrated senior health campuses, we may be directly adversely impacted by potential litigation or investigations related to the COVID-19 pandemic that have occurred or may occur at those facilities, and our insurance coverage may not cover or may not be sufficient to cover any potential losses.

Additionally, as a result of the COVID-19 pandemic, the cost of insurance for our tenants, operators and residents is expected to increase as well, and such insurance may not cover certain claims related to COVID-19, which could impair their ability to pay rent to us. Our exposure to COVID-19 related litigation or investigation risk may be further increased if our operators or residents of such facilities are subject to bankruptcy or insolvency.

Any of these matters could materially and adversely affect us.

Inaccuracies in our underwriting assumptions and/or delays in the selection, acquisition, expansion or development of real properties may materially and adversely affect us.

Inaccuracies in our underwriting assumptions and/or delays we encounter in the selection, acquisition, expansion and development of real properties could materially and adversely affect us. In deciding whether to acquire, expand or develop a particular property, we make assumptions regarding the expected future performance of that property. In particular, we estimate the return on our investment based on expected construction costs, lease up velocity, occupancy, rental rates, operating expenses, capital costs and future competition. If our financial projections with respect to a new property are inaccurate, the property may fail to perform as we expected in analyzing our investment. Our development/expansion and construction projects are vulnerable to the impact of material shortages and inflation. For example, shortages and fluctuations in the price of lumber or in other important raw materials could result in delays in the start or completion of, or increase the cost of, developing one or more of our projects. Pricing for labor and raw materials can be affected by various national, regional, local, economic and political factors, including changes to immigration laws that impact the availability of labor or tariffs on imported construction materials.

In connection with our development, expansion and related construction activities, we may be unable to obtain, or suffer delays in obtaining, necessary zoning, land-use, building, occupancy and other required

 

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governmental permits and authorizations, or satisfactory tax rates, incentives or abatements. Operators of new facilities we construct may need to obtain Medicare and Medicaid certification and enter into Medicare and Medicaid provider agreements and/or third-party payor contracts. In the event that the operator is unable to obtain the necessary licensure, certification, provider agreements or contracts after the completion of construction, there is a risk that we will not be able to earn any revenues on the facility until either the initial operator obtains a license or certification to operate the new facility and the necessary provider agreements or contracts or we find and contract with a new operator that is able to obtain a license to operate the facility for its intended use and the necessary provider agreements or contracts.

One of our growth strategies is to develop new and expand existing clinical healthcare real estate; we may do this directly or indirectly through joint ventures, including through Trilogy. In particular, Trilogy is currently engaged in six new developments, with a total estimated cost of approximately $137 million, and 14 expansions, with a total estimated cost of approximately $11 million. See “Our Business and Properties—Trilogy and the Trilogy Manager—Trilogy—Trilogy Developments.” Expanding and, in particular, developing properties exposes us to increased risks beyond those associated with investing in stabilized, cash flowing real estate. For example, actual costs could significantly exceed estimates (particularly during periods of rapid inflation), construction and stabilization (i.e., substantial lease-up) could take longer than expected, and occupancy and/or rental rates could prove to be lower than expected or property operating expenses could be higher. Any of these events could materially reduce any returns we achieve, or result in losses, on expansion or development projects. For the developments we have completed to date, the time to stabilization has varied, in some cases significantly, and certain developments have not yet stabilized. There can be no assurance that our current or any future development or expansion projects will be completed in accordance with our budgeted expectations, that they will achieve our underwritten returns or result in yields on cost similar to those achieved on past investments, that they will be stabilized in accordance with our expectations or at all or that, if stabilization is achieved, such stabilization will be maintained. In addition, development and expansion projects undertaken indirectly through Trilogy are primarily overseen by the Trilogy Manager, and we do not have the same level of day-to-day involvement or control over such projects that we do in a project we undertake directly. Accordingly, with respect to projects undertaken through Trilogy, we rely on the development expertise of the Trilogy Manager.

Where properties are acquired prior to the start of construction or during the early stages of construction or when an existing property is expanded, it will typically take several months to complete construction and lease available space. Development and other construction projects, subject us to uncertainties associated with re-zoning for development, environmental concerns of governmental entities and/or community groups and our builder’s ability to build in conformity with plans, specifications, budgeted costs and timetables. If a builder fails to perform, we may resort to legal action to rescind the purchase or the construction contract or to compel performance. A builder’s performance may also be affected or delayed by conditions beyond the builder’s control. Delays in completion of construction could give tenants the right to terminate preconstruction leases for space at a newly developed project. We may incur additional risks if we make periodic progress payments or other advances to builders prior to completion of construction. These and other such factors can result in increased costs of a project or loss of our investment. In addition, we will be subject to normal lease-up risks relating to newly constructed projects. We also must rely on rental income and expense projections and estimates of the fair market value of property upon completion of construction when agreeing upon a price at the time we acquire the property. If our projections are inaccurate, we may pay too much for a property, and our return on our investment could suffer or result in a loss.

If we contract with a development company for newly developed property, our earnest money deposit made to the development company may not be fully refunded.

We may acquire one or more properties under development. We anticipate that if we do acquire properties that are under development, we will be obligated to pay a substantial earnest money deposit at the time of contracting to acquire such properties, and that we will be required to close the purchase of the property upon completion of the development of the property. We may enter into such a contract with the development

 

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company even if at the time we enter into the contract, we have not yet secured sufficient financing to enable us to close the purchase of such property. However, we may not be required to close a purchase from the development company, and may be entitled to a refund of our earnest money, generally in any of the following circumstances depending on the contract:

 

   

the development company fails to complete the development of the property according to contractual requirements;

 

   

all or a specified portion of the pre-leased tenants fail to take possession under their leases for any reason; or

 

   

we are unable to secure sufficient financing to pay the purchase price at closing.

The obligation of the development company to refund our earnest money deposit will be unsecured, and we may not be able to obtain a refund of such earnest money deposit from it under these circumstances since the development company may be an entity without substantial assets or operations.

We may not retain any profits resulting from the sale of our properties, or receive such profits in a timely manner, because we may provide financing to the purchaser of such property.

When we decide to sell one of our properties, we may provide financing to the purchasers. When we provide financing to purchasers, we will bear the risk that the purchaser may default on its obligations under the financing, which could negatively impact cash flows from operations. Even in the absence of a purchaser default, the distribution of sale proceeds or their reinvestment in other assets, will be delayed until the promissory notes or other property we may accept upon the sale are actually paid, sold, refinanced or otherwise disposed of. In some cases, we may receive initial down payments in cash and other property in the year of sale in an amount less than the selling price, and subsequent payments will be spread over a number of years. Additionally, if any purchaser defaults under a financing arrangement with us, it could negatively impact our ability to make distributions to our stockholders.

Representations and warranties made by us in connection with sales of our properties may subject us to liability that could materially and adversely affect us.

When we sell a property, we have been required, and may continue to be required, to make representations and warranties regarding the property and other customary items. In the event of a breach of such representations or warranties, the purchaser of the property may have claims for damages against us, rights to indemnification from us or otherwise have remedies against us. In any such case, we may incur liabilities that could materially and adversely affect us.

We face possible liability for environmental cleanup costs and damages for contamination related to properties we acquire, which could materially and adversely affect us.

Because we own and operate real estate, we are subject to various international, U.S. federal, state and local environmental laws, ordinances and regulations. Under these laws, ordinances and regulations, a current or previous owner or operator of real estate may be liable for the cost of removal or remediation of hazardous or toxic substances on, under or in such property. The costs of removal or remediation could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Under such laws, a current owner or operator of property can be held liable for contamination on the property caused by the former owner or operator. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures. Environmental laws provide for sanctions in the event of noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for release of and exposure to hazardous substances, including the release of asbestos-containing materials into the air, and third parties may

 

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seek recovery from owners or operators of real estate for personal injury or property damage associated with exposure to released hazardous substances. In addition, new or more stringent laws or stricter interpretations of existing laws could change the cost of compliance or liabilities and restrictions arising out of such laws. The cost of defending against these claims, complying with environmental regulatory requirements, conducting remediation of any contaminated property, or of paying personal injury claims could be substantial and could materially and adversely affect us. In addition, the presence of hazardous substances on a property or the failure to meet environmental regulatory requirements may materially impair our ability to use, lease or sell a property, or to use the property as collateral for borrowing.

Our current and future properties and our tenants may be unable to compete successfully, which could result in lower rent payments and could materially and adversely affect us.

Our current and future properties often will face competition from nearby properties that provide comparable services. Some of those competing properties are owned by governmental agencies and supported by tax revenues, and others are owned by nonprofit corporations and may be supported to a large extent by endowments and charitable contributions. These types of support are not available to our properties. Operators of competing properties may provide superior services than those provided by our operators, which could reduce the competitiveness of our properties, which could have a material adverse effect on us.

Similarly, our MOB and senior housing—leased tenants face competition from other medical practices in nearby hospitals and other medical facilities and their failure to compete successfully with these other practices could adversely affect their ability to make rental payments to us, which could materially and adversely affect us. Further, from time to time and for reasons beyond our control, referral sources, including physicians and managed care organizations, may change their lists of hospitals or physicians to which they refer patients or that are permitted to participate in the payor program. This could also adversely affect our tenants’ ability to make rental payments to us, which could materially and adversely affect us.

Ownership of property outside the United States may subject us to different or greater risks than those associated with our domestic operations.

As of June 30, 2022, we had $68,085,000 invested in the United Kingdom and the Isle of Man, or 1.5% of our portfolio, based on our aggregate purchase price of real estate investments. International development, ownership and operating activities involve risks that are different from those we face with respect to our domestic development, ownership and operating activities. For example, we have limited investing experience in international markets. If we are unable to successfully manage the risks associated with international expansion and operations, we may be materially and adversely affected.

Additionally, our ownership of properties in the United Kingdom and the Isle of Man currently subjects us to fluctuations in the exchange rates between U.S. dollars and the U.K. pound sterling, which may, from time to time, impact our financial condition, cash flows and results of operations. Revenues generated from any properties or other real estate-related investments we acquire or ventures we enter into relating to transactions involving assets located in markets outside the United States likely will be denominated in the local currency. Therefore, any investments we make outside the United States will subject us to foreign currency risk due to potential fluctuations in exchange rates between foreign currencies and the U.S. dollar, and there can be no assurance that any attempt to mitigate foreign currency risk through hedging transactions or otherwise will be successful. As a result, changes in exchange rates of any such foreign currency to U.S. dollars may material adversely affect us and the book value of our assets. In addition, changes in foreign currency exchange rates used to value a REIT’s foreign assets may be considered changes in the value of the REIT’s assets. These changes may adversely affect our status as a REIT. Further, bank accounts in a foreign currency which are not considered cash or cash equivalents may adversely affect our status as a REIT.

 

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Acquired properties may expose us to unknown liability.

We may acquire properties or invest in joint ventures that own properties subject to liabilities and without any recourse, or with only limited recourse, against the prior owners or other third parties with respect to unknown liabilities. As a result, if a liability were asserted against us based upon ownership of those properties, we might have to pay substantial sums to settle or contest it, which could adversely affect our results of operations and cash flow. Unknown liabilities with respect to acquired properties might include liabilities for clean-up of undisclosed environmental contamination, claims by tenants, vendors or other persons against the former owners of the properties, liabilities incurred in the ordinary course of business, and claims for indemnification by general partners, directors and others indemnified by the former owners of the properties.

Risks Related to Real Estate-Related Investments

Unfavorable real estate market conditions and delays in liquidating defaulted mortgage loan investments may negatively impact mortgage loans in which we have invested and may invest, which could result in losses to us.

The investment in mortgage loans or mortgage-backed securities we have made, and may continue to make, involve special risks relating to the particular borrower or issuer of the mortgage-backed securities and we will be at risk of loss on those investments, including losses as a result of defaults on our mortgage loan investments. These losses may be caused by many conditions beyond our control, including economic conditions affecting real estate values, tenant defaults and lease expirations, interest rate levels, and the other economic and liability risks associated with real estate. If we acquire property by foreclosure following defaults under our mortgage loan investments, we will have the economic and liability risks as the owner described above. We do not know whether the values of the property securing any of our mortgage loan investments will remain at the levels existing on the dates we initially make the related investment. If the values of the underlying properties drop, our risk will increase and the values of our interests may decrease. Furthermore, if there are defaults under our mortgage loan investments, we may not be able to foreclose on or obtain a suitable remedy with respect to such investments. Specifically, we may not be able to repossess and sell the underlying properties quickly, which could reduce the value of our investment. For example, an action to foreclose on a property securing a mortgage loan is regulated by state statutes and rules and is subject to many of the delays and expenses of lawsuits if the defendant raises defenses or counterclaims. Additionally, in the event of default by a mortgagor, these restrictions, among other things, may impede our ability to foreclose on or sell the mortgaged property or to obtain proceeds sufficient to repay all amounts due to us on the mortgage loan.

The commercial mortgage-backed securities in which we have invested, and may continue to invest, are subject to several types of risks.

Commercial mortgage-backed securities are securities which evidence interests in, or are secured by, a single commercial mortgage loan or a pool of commercial mortgage loans. Accordingly, the commercial mortgage-backed securities in which we have invested, and may continue to invest, are subject to all the risks of the underlying mortgage loans.

In a rising interest rate environment, the value of commercial mortgage-backed securities may be adversely affected when payments on underlying mortgages loan(s) do not occur as anticipated, resulting in the extension of the security’s effective maturity and the related increase in interest rate sensitivity of a longer-term instrument. The value of commercial mortgage-backed securities may also change due to shifts in the market’s perception of securitization sponsors and borrower sponsors and regulatory or tax changes adversely affecting the mortgage securities markets as a whole. In addition, commercial mortgage-backed securities are subject to the credit risk associated with the performance of the underlying mortgage properties.

Commercial mortgage-backed securities are also subject to several risks created through the securitization structuring process. Subordinate commercial mortgage-backed securities are paid to the extent that

 

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there are funds available to make payments. To the extent the collateral pool includes a large percentage of delinquent loans, there is a risk that payments on subordinate commercial mortgage-backed securities will not be fully paid. In addition, commercial mortgage-backed securities are also subject to greater credit risk than those commercial mortgage-backed securities of the same series that are more highly rated.

The mezzanine loans in which we have invested in the past, and may continue to invest, involve greater risks of loss than senior loans secured by income-producing real estate.

We have in the past, and may in the future, invest in mezzanine loans that take the form of subordinated loans secured by second mortgages on the underlying real estate or loans secured by a pledge of the ownership interests of either the entity owning the real estate or the entity that owns the interest in the entity owning the real estate. These types of investments involve a higher degree of risk than long-term senior mortgage lending secured by income-producing real estate because the investment may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of such entity or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to our loan or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt. As a result, we may not recover some or all of our investment. In addition, mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the real estate and increasing the risk of loss of principal.

We expect a portion of our real estate-related investments to be illiquid and we may not be able to adjust our portfolio in a timely manner in response to changes in economic and other conditions.

We may acquire real estate-related investments in connection with privately negotiated transactions which are not registered under the relevant securities laws, resulting in a prohibition against their transfer, sale, pledge or other disposition except in a transaction that is exempt from the registration requirements of, or is otherwise not subject to, those laws. As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited. The mezzanine and bridge loans we may purchase will be particularly illiquid investments due to their short life, their unsuitability for securitization, and the greater difficulty of recoupment in the event of a borrower’s default.

Bridge loans involve a greater risk of loss than traditional investment-grade mortgage loans with fully insured borrowers.

We have in the past, and may in the future, acquire bridge loans secured by first lien mortgages on a property to borrowers who are typically seeking short-term capital to be used in an acquisition, construction or rehabilitation of a property, or other short-term liquidity needs. The typical borrower under a bridge loan has usually identified an undervalued asset that has been under-managed and/or is located in a recovering market. If the market in which the asset is located fails to recover according to the borrower’s projections, or if the borrower fails to improve the quality of the asset’s management and/or the value of the asset, the borrower may not receive a sufficient return on the asset to satisfy the bridge loan, and we bear the risk that we may not recover some or all of our initial expenditure.

In addition, borrowers usually use the proceeds of a conventional mortgage to repay a bridge loan. A bridge loan therefore is subject to the risk of a borrower’s inability to obtain permanent financing to repay the bridge loan. Bridge loans are also subject to risks of borrower defaults, bankruptcies, fraud, losses, and special hazard losses that are not covered by standard hazard insurance. In the event of any default under bridge loans held by us, we bear the risk of loss of principal and non-payment of interest and fees to the extent of any deficiency between the value of the mortgage collateral and the principal amount and unpaid interest of the bridge loan. To the extent we suffer such losses with respect to our bridge loans, we may be materially and adversely affected.

 

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If we sell real estate-related investments prior to their maturity, we may be forced to sell those investments on unfavorable terms or at a loss.

Our Board may choose to sell certain of our assets from time to time, including our real estate-related investments. If we plan to sell those investments prior to their maturity, we may be forced to do so at undesirable times and on unfavorable terms, which may result in losses. For instance, if we sell mortgage loans at a time when prevailing interest rates are higher than the interest rates of such mortgage loans, we would likely sell such loans at a discount to their stated principal values.

Risks Related to the Healthcare Industry

The healthcare industry is heavily regulated and new laws or regulations, changes to existing laws or regulations, loss of licensure, or failure to obtain licensure could result in the inability of our tenants to make rent payments to us or adversely affect our operators’ ability to operate facilities held in RIDEA structures.

The healthcare industry is heavily regulated by federal, state and local governmental bodies. The tenants and operators of our healthcare facilities generally will be subject to laws and regulations covering, among other things, licensure, certification for participation in government programs and relationships with physicians and other referral sources. Changes in these laws and regulations, or a tenant’s or operator’s failure to comply with these laws and regulations, could adversely affect us. For example, such non-compliance could materially and adversely affect a tenant’s ability to make rent payments to us. Similarly, were an operator of a facility held in a RIDEA structure (where we are entitled to participate in any positive operating performance of the facility) to fail to comply with a regulatory obligation, it could adversely affect the operating performance of the facility and our participation therein.

Many of our healthcare facilities and their tenants and operators require a license or CON. Failure to obtain a license or CON, or the loss of a required license or CON, would prevent a facility from operating in the manner intended by the tenant or operator. These events could materially and adversely affect a tenant’s ability to make rent payments to us or for an operator to operate a facility held in a RIDEA structure efficiently, either of which could have a material adverse effect on us. Similarly, state and local laws also may regulate expansion, including the addition of new beds or services or the acquisition of medical equipment at a facility, and the construction of healthcare-related facilities, by requiring a CON or other similar approval. State CON laws and other similar laws are not uniform throughout the United States and are subject to change. Restrictions on the expansion of our facilities could materially and adversely affect a tenant’s ability to make rent payments to us or for an operator to operate a facility held in a RIDEA structure efficiently, either of which could have a material adverse effect on us. We cannot predict the impact of state CON laws or similar laws on our development or expansion of facilities or the operations of our tenants or operators.

In addition, in certain areas state CON laws materially limit the ability of competitors to enter into the markets served by our facilities, thereby limiting competition. The repeal of CON laws could allow competitors to freely operate in previously closed markets. Any such increased competition could materially and adversely affect a tenant’s ability to make rent payments to us or for an operator to operate a facility held in a RIDEA structure efficiently, either of which could have a material adverse effect on us. These CON laws could also restrict our ability to expand in new markets.

In certain circumstances, loss of state licensure or certification or closure of a facility could ultimately result in loss of authority to operate the facility or provide services at the facility and require new CON authorization licensure and/or authorization or potential authorization from the Centers for Medicare and Medicaid Services (“CMS”) to re-institute operations. As a result, the value of the facility may be reduced, which could materially and adversely affect us.

 

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Reductions in reimbursement from third-party payors, including Medicare and Medicaid, could adversely affect the operations of our tenants and their ability to make rental payments to us or our operators’ ability to operate facilities held in RIDEA structures, either of which could materially and adversely affect us.

Sources of revenue for our tenants and operators may include the federal Medicare program, state Medicaid programs, private insurance carriers and health maintenance organizations, among others. Efforts by such payors to reduce healthcare costs will likely continue, which may result in reductions or slower growth in reimbursement for certain services provided by some of our tenants and operators, which could have a material adverse effect on us. In addition, the healthcare billing rules and regulations are complex, and the failure of any of our tenants or operators to comply with various laws and regulations could jeopardize their ability to continue participating in Medicare, Medicaid, and other government sponsored payment programs. Moreover, the state and federal governmental healthcare payment programs are subject to reductions by state and federal legislative actions, and changes in reimbursement models may reduce our tenants’ and operators’ revenues and adversely affect our tenants’ ability to make rent payments to us or our operators’ ability to operate facilities held in RIDEA structures efficiently, either of which could have a material adverse effect on us.

The healthcare industry continues to face various challenges, including increased government and private payor pressure on healthcare providers to control or reduce costs. It is possible that our tenants and operators will continue to experience a shift in payor mix away from fee-for-service payors, resulting in an increase in the percentage of revenues attributable to reimbursement based upon value-based principles and quality driven managed care programs, and general industry trends that include pressures to control healthcare costs. Pressures to control healthcare costs and a shift away from traditional health insurance reimbursement based upon a fee for service payment to payment based upon quality outcomes have increased the uncertainty of payments.

In addition, the Patient Protection and Affordable Care Act of 2010 (the “Healthcare Reform Act”) was passed with an intent to reduce the number of individuals in the United States without health insurance and effect significant other changes to the ways in which healthcare is organized, delivered and reimbursed. Included within the legislation is a limitation on physician-owned hospitals from expanding facility capacity, unless the facility satisfies very narrow federal exceptions to this limitation. Therefore, if our tenants are physicians that own and refer to a hospital, the hospital may be limited in its operations and expansion potential, which may limit the hospital’s services and resulting revenues and may impact the owner’s ability to make rental payments.

Furthermore, the Healthcare Reform Act included new payment models with new shared savings programs and demonstration programs that include bundled payment models and payments contingent upon reporting on satisfaction of quality benchmarks. The new payment models will likely change how physicians are paid for services. These changes could negatively affect some of our tenants and operators, which could have a material adverse effect on us.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“TCJA”) was signed into law and repealed the individual mandate financial penalty portion of the Healthcare Reform Act beginning in 2019. With the elimination of the individual mandate enforcement mechanism, several states brought suit seeking to invalidate the entire Healthcare Reform Act. On June 17, 2021, the U.S. Supreme Court dismissed this lawsuit without specifically ruling on the constitutionality of the law. However, challenges to the Healthcare Reform Act may continue. If all or a portion of the Healthcare Reform Act, including the individual mandate, is eventually ruled unconstitutional, our tenants and operators may have more patients and residents who do not have insurance coverage, which may adversely impact the tenants’ and operators’ collections and revenues. The financial impact on our tenants and operators could adversely affect a tenant’s ability to make rent payments to us or an operator’s ability to operate facilities held in RIDEA structures efficiently, either of which could have a material adverse effect on us.

We cannot predict the ultimate content, timing or effect of any further healthcare reform legislation or the impact of potential legislation on us. We expect that additional state and federal healthcare reform measures

 

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will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare services, which may adversely impact our tenants’ ability to make rental payments to us or our operators’ ability to operate facilities held in RIDEA structures efficiently, either of, which could have a material adverse effect on us.

If seniors delay moving to senior housing facilities until they require greater care or forgo moving to senior housing facilities altogether, such action could have a material adverse effect on us.

Seniors have been increasingly delaying their moves to senior housing facilities, including to our senior housing—leased facilities and SHOP, until they require greater care and are increasingly forgoing moving to senior housing facilities altogether. The COVID-19 pandemic could cause seniors and their families to be even more reluctant to move into senior housing facilities during the pandemic. Further, rehabilitation therapy and other services are increasingly being provided to seniors on an outpatient basis or in seniors’ personal residences in response to market demand and government regulation, which may increase the trend for seniors to delay moving to senior housing facilities. Such delays may cause decreases in occupancy rates and increases in resident turnover rates at our senior housing facilities. Moreover, seniors may have greater care needs and require higher acuity services, which may increase our tenants’ and operators’ cost of business, expose our tenants and operators to additional liability, or result in lost business and shorter stays at our leased and managed senior housing facilities if our tenants and operators are not able to provide the requisite care services or fail to adequately provide those services. These trends may negatively impact the occupancy rates and revenues at our leased and managed senior housing, which could have a material adverse effect on us. Further, if any of our tenants or operators are unable to offset lost revenues from these trends by providing and growing other revenue sources, such as new or increased service offerings to seniors, our senior housing facilities may be unprofitable, we may receive lower returns and rent, and the value of our senior housing facilities may decline.

Events that adversely affect the ability of seniors and their families to afford resident fees at our senior housing facilities could cause our occupancy rates and revenues to decline, which could have a material adverse effect on us.

Costs to seniors associated with independent and assisted living services are generally not reimbursable under Medicare, and the scope of services that may be covered by Medicaid varies by state. In many cases, only seniors with income or assets meeting or exceeding the comparable median in the regions where our facilities are located typically will be able to afford to pay the entrance fees and monthly resident fees, and a weak economy, depressed housing market or changes in demographics could adversely affect their continued ability to do so. If our tenants and operators are unable to retain and attract seniors with sufficient income, assets or other resources required to pay the fees associated with independent and assisted living services and other services provided by our tenants and operators at our healthcare facilities, our occupancy rates and revenues could decline, which could, in turn, materially and adversely affect us.

Some tenants and operators of our facilities will be subject to fraud and abuse laws, the violation of which could materially and adversely affect a tenant’s ability to make rent payments to us or an operator’s ability to operate a facility held in a RIDEA structure efficiently, either of which could have a material adverse effect on us.

There are various federal, foreign and state laws prohibiting fraudulent and abusive business practices by healthcare providers who participate in, receive payments from, or are in a position to make referrals in connection with government-sponsored healthcare programs, including Medicare and Medicaid. Our contractual arrangements with tenants and operators may also be subject to these fraud and abuse laws, including federal laws such as the Anti-Kickback Statute and the Stark Law. Moreover, our agreements with tenants and operators may be required to satisfy individual state law requirements that vary from state to state, which impacts the terms and conditions that may be negotiated in such agreements.

 

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These federal and foreign laws include:

 

   

the Federal Anti-Kickback Statute, a criminal law which prohibits, among other things, the offer, payment, solicitation or receipt of any form of remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in return for, or to induce, the referral of an individual for, or the purchase, order or recommendation of, of any item or service for which payment may be made under a federal healthcare program such as Medicare and Medicaid;

 

   

the Federal Physician Self-Referral Prohibition, which, subject to specific exceptions, restricts physicians from making referrals for specifically designated health services for which payment may be made under federal healthcare programs to an entity with which the physician, or an immediate family member, has a financial relationship;

 

   

the False Claims Act, which prohibits any person from knowingly presenting, or causing to be presented, false or fraudulent claims for payment or approval that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government, including claims paid by the Medicare and Medicaid programs;

 

   

the Civil Monetary Penalties Law, which authorizes the U.S. Department of Health & Human Services to impose monetary penalties or exclusion from participating in state or federal healthcare programs for certain fraudulent acts;

 

   

the Health Insurance Portability and Accountability Act of 1996, as amended, which makes it a federal crime to defraud any health benefit plan, including private payors;

 

   

the Exclusions Law, which authorizes the U.S. Department of Health & Human Services to exclude persons or entities from participating in state or federal healthcare programs for certain fraudulent acts; and

 

   

the UK Bribery Act 2010, a criminal law which relates to any function of a public nature, connected with a business, performed in the course of a person’s employment or performed on behalf of a company or another body of persons, covering bribery both in the public and private sectors.

Each of these laws includes criminal and/or civil penalties for violations that range from punitive sanctions, damage assessments, penalties, imprisonment, denial of Medicare and Medicaid payments and/or exclusion from the Medicare and Medicaid programs. Monetary penalties associated with violations of these laws have been increased in recent years. Certain laws, such as the False Claims Act, allow for individuals to bring whistleblower actions on behalf of the government for violations thereof. Additionally, states in which the facilities are located may have similar fraud and abuse laws. Investigation by a federal or state governmental body for violation of fraud and abuse laws or imposition of any of these penalties upon one of our tenants or operators could materially and adversely affect a tenant’s ability to make rent payments to us or an operator’s ability to operate a facility held in a RIDEA structure efficiently, either of which could have a material adverse effect on us.

Efforts to ensure compliance with applicable healthcare laws and regulations may cause our tenants and operators to incur substantial costs that could materially and adversely affect a tenant’s ability to make rent payments to us or an operator’s ability to operate a facility held in a RIDEA structure efficiently, either of which could have a material adverse effect on us.

Adverse trends in healthcare provider operations may materially and adversely affect us.

The healthcare industry is currently experiencing:

 

   

changes in the demand for and methods of delivering healthcare services;

 

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changes in third-party reimbursement policies;

 

   

significant unused capacity in certain areas, which has created substantial competition for patients among healthcare providers in those areas;

 

   

increased expenses for uninsured patients;

 

   

increased competition among healthcare providers;

 

   

increased liability insurance expenses;

 

   

continued pressure by private and governmental payors to reduce payments to providers of services;

 

   

increased scrutiny of billing, referral and other practices by federal and state authorities;

 

   

changes in federal and state healthcare program payment models;

 

   

increased emphasis on compliance with privacy and security requirements related to personal health information; and

 

   

increased instability in the Health Insurance Exchange market and lack of access to insurance plans participating in the exchange.

Additionally, in connection with the COVID-19 pandemic, many governmental entities relaxed certain licensure and other regulatory requirements relating to telemedicine, allowing more patients to virtually access care without having to visit a healthcare facility. If governmental and regulatory authorities continue to allow for increased virtual healthcare, this may affect the demand for some of our properties, such as MOBs.

These factors may negatively affect the economic performance of some or all of our tenants and operators, which could have a material adverse effect on us.

Our tenants and operators may be affected by the financial deterioration, insolvency and/or bankruptcy of other companies in the healthcare industry.

Certain companies in the healthcare industry, including some key senior housing operators, are experiencing considerable financial, legal and/or regulatory difficulties which have resulted or may result in financial deterioration and, in some cases, insolvency and/or bankruptcy. The adverse effects on these companies could have a significant impact on the industry as a whole, including but not limited to negative public perception by investors, lenders, patients and residents. As a result, our tenants and properties managed by our operators could experience the damaging financial effects of a weakened industry sector driven by negative headlines, and we could be materially and adversely affected.

Our tenants and operators may be subject to significant legal and regulatory actions that could subject them to increased operating costs and substantial uninsured liabilities, which could have a material adverse effect on us.

Our tenants and operators may become subject to claims that their services have resulted in patient injury or other adverse effects. Healthcare providers have experienced an increasing trend in the frequency and severity of professional liability and general liability insurance claims and litigation asserted against them. The insurance coverage maintained by our tenants and operators may not cover all claims made against them nor continue to be available at a reasonable cost, if at all. In some states, insurance coverage for the risk of punitive damages arising from professional liability and general liability claims and/or litigation may not, in certain cases,

 

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be available to our tenants and operators due to state law prohibitions or limitations of availability. As a result, tenants and operators of our MOBs, senior housing, SNFs, hospitals and other healthcare-related facilities operating in these states may be liable for punitive damage awards that are either not covered or are in excess of their insurance policy limits. We also believe that there has been, and will continue to be, an increase in regulatory or other governmental investigations of certain healthcare providers, particularly in the area of Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. Insurance may not always be available to cover such losses. Any adverse determination in a legal proceeding or regulatory or other governmental investigation, whether currently asserted or arising in the future, could negatively affect a tenant’s or operator’s business and financial strength. If a tenant or operator is unable to obtain or maintain insurance coverage, if judgments are obtained in excess of the insurance coverage, if uninsured punitive damages are required to be paid, or if an uninsurable government enforcement action is brought, the tenant or operator could be exposed to substantial additional liabilities, which may affect the tenant’s ability to pay rent to us or the operator’s ability to manage our properties efficiently and effectively, which could have a material adverse effect on us.

We, our tenants and our operators for our senior housing facilities and SNFs may be subject to various government reviews, audits and investigations that could materially and adversely affect us, including an obligation to refund amounts previously paid to us, potential criminal charges, the imposition of fines and/or the loss of the right to participate in Medicare and Medicaid programs.

We, our tenants and our operators for our senior housing facilities and SNFs are subject to various governmental reviews, audits and investigations to verify compliance with the Medicaid and Medicare programs and applicable laws and regulations. We, our tenants and our operators for our senior housing facilities and SNFs are also subject to audits under various government programs, including Recovery Audit Contractors, Unified Program Integrity Contractors, and other third party audit programs, in which third-party firms engaged by CMS conduct extensive reviews of claims data and medical and other records to identify potential improper payments under the Medicare and Medicaid programs. Private pay sources also reserve the right to conduct audits. An adverse review, audit or investigation could result in:

 

   

an obligation to refund amounts previously paid to us, our tenants or our operators pursuant to the Medicare or Medicaid programs or from private payors, in amounts that could be material to us;

 

   

state or federal agencies imposing fines, penalties and other sanctions on us, our tenants or our operators;

 

   

loss of our right, our tenants’ right or our operators’ right to participate in the Medicare or Medicaid programs or one or more private payor networks;

 

   

an increase in private litigation against us, our tenants or our operators; and

 

   

damage to our reputation in various markets.

While we, our tenants and our operators for our senior housing and SNFs have always been subject to post-payment audits and reviews, more intensive “probe reviews” appear to be a permanent procedure with our fiscal intermediaries. If the government or a court were to conclude that such errors, deficiencies or disagreements constituted criminal violations or were to conclude that such errors, deficiencies or disagreements resulted in the submission of false claims to federal healthcare programs, or if the government were to discover other problems in addition to the ones identified by the probe reviews that rose to actionable levels, we, our officers and our tenants and operators and their officers might face potential criminal charges and/or civil claims, administrative sanctions and penalties for amounts that could be material to us. In addition, we, our officers and other key personnel and our tenants and operators and their officers and other key personnel could be temporarily or permanently excluded from future participation in state and federal healthcare reimbursement programs such

 

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as Medicaid and Medicare. In any event, it is likely that a governmental investigation alone, regardless of its outcome, would divert material time, resources and attention from our management team and our staff or those of our tenants and our operators and could materially and adversely affect us during and after any such investigation or proceedings.

In cases where claim and documentation review by any CMS contractor results in repeated poor performance, a facility can be subjected to protracted oversight. This oversight may include repeat education and re-probe, extended pre-payment review, referral to recovery audit or integrity contractors, or extrapolation of an error rate to other reimbursement outside of specifically reviewed claims. Sustained failure to demonstrate improvement towards meeting all claim filing and documentation requirements could ultimately lead to Medicare and Medicaid decertification, which materially and adversely affects us. Adverse actions by CMS may also cause third party payor or licensure authorities to audit our tenants or operators. These additional audits could result in termination of third-party payor agreements or licensure of the facility, which could have a material adverse effect on us.

In addition, our tenants and operators that accepted relief funds distributed to combat the adverse effects of COVID-19 and reimburse providers for unreimbursed expenses and lost revenues may be subject to certain reporting and auditing obligations associated with the receipt of such relief funds. If these tenants or operators fail to comply with the terms and conditions associated with relief funds, they may be subject to government recovery and enforcement actions. Furthermore, regulatory guidance relating to use of the relief funds, recordkeeping requirements and other terms and conditions continues to evolve and there is a high degree of uncertainty surrounding many aspects of the relief funds. This uncertainty may create compliance challenges for tenants and operators who accepted relief funds.

The Healthcare Reform Act and similar foreign laws impose additional requirements regarding compliance and disclosure.

The Healthcare Reform Act requires SNFs to have a compliance and ethics program that is effective in preventing and detecting criminal, civil and administrative violations and in promoting quality of care. The U.S. Department of Health and Human Services included in the final rule published on October 4, 2016 the requirement for operators to implement a compliance and ethics program as a condition of participation in Medicare and Medicaid. Long-term care facilities, including SNFs, had until November 28, 2019 to comply. If our operators fall short in their compliance and ethics programs and quality assurance and performance improvement programs, if and when required, their reputations and ability to attract patients and residents could be adversely affected, which could have a material adverse effect on us.

Similar requirements also apply to healthcare properties in the UK under national law and guidance. The Health & Care Professions Council, the regulator of health, psychological and care professionals in the UK, requires a qualification to demonstrate standards of proficiency and also set standards, hold a register, quality assure education and investigate complaints. They have set out an ethical framework with standards of conduct, performance and ethics including restrictions on confidentiality and the use of social media. If any of our operators in the UK fall short in their obligations, their reputations and ability to attract patients and residents may be adversely affect which might have a material adverse effect on their business and by extension us.

Risks Related to Joint Ventures

Property ownership through joint ventures could limit our control of those investments or our decisions with respect to other investments, restrict our ability to operate and finance properties on our terms, and reduce their expected return.

In connection with the purchase of real estate, we have entered, and may continue to enter, into joint ventures with third parties. For instance, see “Our Business and Properties—Trilogy and the Trilogy Manager—

 

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Trilogy,” which describes our relationship with Trilogy, a joint venture accounting for approximately 34.7% of our portfolio (based on aggregate contract purchase price on a pro rata share basis) as of June 30, 2022 and contributing approximately 34.3% of our Annualized Base Rent / Annualized NOI (on a pro rata share basis) as of such date. We may also purchase or develop properties in co-ownership arrangements with the property sellers, developers or other parties. We may own properties through both consolidated and unconsolidated joint ventures. These structures involve participation in the investment by other parties whose interests and rights may not be the same as ours. Our joint ventures, and joint ventures we may enter into in the future, may involve risks not present with respect to our wholly owned properties, including the following:

 

   

we may share with, or even delegate decision-making authority to, our joint venture partners regarding certain major decisions affecting the ownership or operation of the joint venture and the joint venture property, such as, but not limited to, (1) additional capital contribution requirements, (2) obtaining, refinancing or paying off debt and (3) obtaining consent prior to the sale or transfer of our interest in the joint venture to a third party, which may prevent us from taking actions that are opposed by our joint venture partners;

 

   

our joint venture partners might become bankrupt and such proceedings could have an adverse impact on the operations of the joint venture;

 

   

our joint venture partners may have business interests or goals with respect to the joint venture property that conflict with our business interests and goals, which could increase the likelihood of disputes regarding the ownership, management or disposition of the property;

 

   

disputes may develop with our joint venture partners over decisions affecting the joint venture property or the joint venture, which may result in litigation or arbitration that would increase our expenses and distract our officers from focusing their time and effort on our business, disrupt the day-to-day operations of the property, such as by delaying the implementation of important decisions until the conflict is resolved, have an adverse impact on the operations and profitability of the joint venture and possibly force a sale of the property if the dispute cannot be resolved;

 

   

our joint venture partners may be unable to or refuse to make capital contributions when due, or otherwise fail to meet their obligations, which could require us to fund the shortfall or forego our equity in the joint venture; and

 

   

the activities of a joint venture could adversely affect our ability to maintain our qualification as a REIT.

As noted above, as of June 30, 2022, we indirectly own a 72.9% interest in Trilogy, a consolidated joint venture representing approximately 34.7% of our portfolio (based on aggregate contract purchase price on a pro rata share basis) and contributing approximately 34.3% of our Annualized Base Rent / Annualized NOI (on a pro rata share basis) as of such date. Approximately 23.0% of Trilogy is indirectly owned by NorthStar Healthcare Income, Inc. (“NorthStar”), with the remaining 4.1% primarily owned by affiliates of the Trilogy Manager, an EIK that manages the day-to-day operations of the joint venture. In addition to relying on the Trilogy Manager to manage the joint venture effectively, our investment in Trilogy exposes us to many of the risks described above with respect to joint venture investments generally. For example, other parties with interests in Trilogy have certain rights that could affect our investment in Trilogy. There are certain decisions that are deemed “major decisions” with respect to Trilogy’s business (such as terminating the management agreement with the Trilogy Manager, taking certain actions under the management agreement, making certain sales of the Trilogy properties, and taking certain other actions with respect to the Trilogy portfolio) that require the approval of NorthStar. It is possible that NorthStar will have interests that differ from ours, and our ability to pursue our interests we may be limited by their rights under the joint venture arrangements. Additionally, if we seek to transfer our indirect ownership interests in Trilogy, we are required to first offer such interests to NorthStar, which could delay our

 

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ability to sell such interests or adversely affect the price we receive in connection with a sale. After September 11, 2025, we and NorthStar have the right to force the sale of all of Trilogy’s assets at a price set by the party exercising such right, provided that, if this right is triggered by a party, the non-triggering party has a right to elect to purchase the Trilogy assets at such price. This could cause us to increase our investment in Trilogy or result in the sale of Trilogy at a time when we would not to choose to effect a sale.

We may structure our joint venture relationships in a manner which limits the amount we participate in the cash flows or appreciation of an investment.

We have entered, and may continue to enter, joint venture agreements, the economic terms of which may provide for the distribution of income to us otherwise than in direct proportion to our ownership interest in the joint venture. For example, while we and another joint venture party may invest an equal amount of capital in an investment, the investment may be structured such that one joint venture partner has a right to priority distributions of cash flows up to a certain target return while another joint venture partner may receive a disproportionately greater share of cash flows once such target return has been achieved. This type of investment structure may result in our joint venture partner receiving more of the cash flows, including any from appreciation, of an investment than we receive. If we do not accurately judge the appreciation prospects of a particular investment or structure the venture appropriately, we may incur losses on joint venture investments or have limited participation in the profits of a joint venture investment, either of which could reduce our ability to make distributions to our stockholders.

Risks Related to Debt Financing

We have substantial indebtedness and may incur additional indebtedness in the future, which could materially and adversely affect us.

We have substantial indebtedness and may incur additional indebtedness in the future, which could materially and adversely affect us. As of June 30, 2022, on a pro forma basis after the use of a portion of the net proceeds from this offering to repay certain indebtedness, we had indebtedness of $                , which comprises $                 in unsecured debt (lines of credit and term loans) and $                 in mortgage loans payable. As of June 30, 2022, on a pro forma basis after the use of a portion of the net proceeds from this offering to repay certain indebtedness, we had $                 of total liquidity, comprised of $                 of undrawn capacity under our Credit Facility and $                of cash and cash equivalents. On a pro forma basis after the use of a portion of the net proceeds from this offering to repay certain indebtedness, this represented approximately                 % of the combined fair market value of all of our properties and other real estate-related investments as of June 30, 2022. Though we anticipate that our overall leverage will not exceed 50.0% of the combined fair market value of all of our properties and other real estate-related investments, as determined at the end of each calendar year, our organizational documents do not place a limitation on the amount of leverage that we may incur, and we could incur leverage substantially in excess of this amount.

We expect to fund a portion of our cash needs, including funding investment activity, with additional indebtedness. Our ability to access additional debt capital and the cost of other terms thereof will be significantly influenced by our creditworthiness and any rating assigned by a rating agency, as well as by general economic and market conditions. Significant secured and unsecured indebtedness adversely affects our creditworthiness and could prevent us from achieving an investment grade credit rating or cause a rating agency to lower a rating or to place a rating on a “watchlist” for possible downgrade. Deteriorations in our creditworthiness or in any ratings that we may achieve, or the perception that any such deterioration may occur, would adversely affect our ability to access additional debt capital and increase the cost of any debt capital that is available to us and may require us to accept restrictive covenants. A reduction in our access to debt capital, an increase in the cost thereof or our acceptance of restrictive covenants could limit our ability to achieve our business objectives and pursue our growth strategies.

 

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We may also incur mortgage debt and other property-level debt on properties that we already own in order to obtain funds to acquire additional properties or make other capital investments. In addition, we may borrow as necessary or advisable to ensure that we maintain our qualification as a REIT for U.S. federal income tax purposes, including borrowings to satisfy the REIT requirement that we distribute at least 90.0% of our annual REIT taxable income to our stockholders. However, we cannot guarantee that we will be able to obtain any such borrowings on favorable terms or at all.

If we mortgage a property and there is a shortfall between the cash flows from that property and the cash flows needed to service mortgage debt on that property, our financial results would be negatively affected and the amount of cash available for distributions to stockholders would be reduced. In addition, incurring mortgage debt increases the risk of loss of a property since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. If any mortgages contain cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties. In addition, lenders may have recourse to assets other than those specifically securing the repayment of indebtedness. For tax purposes, a foreclosure on any of our properties will be treated as a disposition of the property, which could cause us to recognize taxable income on foreclosure, without receiving corresponding cash proceeds. We may give full or partial guarantees to lenders of mortgage debt on behalf of the entities that own our properties. When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity.

A significant amount of debt subjects us to many risks that, if realized, would materially and adversely affect us, including the risk that:

 

   

our cash flow from operating activities could become insufficient to make required payments of principal and interest on our debt, which would likely result in (1) acceleration of the debt (and any other debt containing a cross-default or cross-acceleration provision), increasing the likelihood of further distress if refinancing is not available on favorable terms or at all, (2) our inability to borrow undrawn amounts under other existing financing arrangements, even if we have timely made all required payments under such arrangements, further compromising our liquidity and/or (3) the loss of some or all of our assets that are pledged as collateral in connection with our financing arrangements;

 

   

our debt may increase our vulnerability to adverse economic and industry conditions with no assurance that such debt will increase our investment returns in an amount sufficient to offset the associated risks relating to leverage;

 

   

we may be required to dedicate a substantial portion of our cash flow from operating activities to payments on our debt, thereby reducing funds available for operations, future business opportunities, stockholder distributions and/or other purposes; and

 

   

to the extent the maturity of certain debt occurs prior to the maturity of a related asset pledged or transferred as collateral for such debt, we may not be able to refinance that debt on favorable terms or at all, which may reduce available liquidity and/or cause significant losses to us.

To the extent we borrow funds at floating interest rates, we will be adversely affected by rising interest rates unless fully hedged. Rising interest rates will also increase our interest expense on future fixed-rate debt.

Interest we pay on our debt obligations reduces our financial results and cash available for distributions to our stockholders. Whenever we incur variable-rate debt, increases in interest rates would increase our interest expense unless fully hedged. As of June 30, 2022, on a pro forma basis after the use of a portion of the net proceeds from this offering to repay certain indebtedness, our outstanding debt aggregated $                 billion, of which                 % was unhedged variable-rate debt. Rising interest rates will also increase our interest expense

 

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on future fixed-rate debt. If we need to repay existing debt during periods of rising interest rates, which is currently the case, we could be required to sell one or more of our properties at times which may not permit realization of the maximum return on such investments, which could result in losses.

To the extent we borrow at fixed rates or enter into fixed interest rate swaps, we will not benefit from reduced interest expense if interest rates decrease.

We are exposed to the effects of interest rate changes primarily as a result of borrowings we have used to maintain liquidity and fund expansion and refinancing of our real estate investment portfolio and operations. To limit the impact of interest rate changes on earnings, prepayment penalties, and cash flows and to lower overall borrowing costs while taking into account variable interest rate risk, we have borrowed, and may continue to borrow, at fixed rates or variable rates depending upon prevailing market conditions. We have and may also continue to enter into derivative financial instruments such as interest rate swaps and caps in order to mitigate our interest rate risk on a related financial instrument. Therefore, to the extent we borrow at fixed rates or enter into fixed interest rate swaps, we will not benefit from reduced interest expense if interest rates decrease.

Hedging activity may expose us to risks.

We have used, and may continue to use, derivative financial instruments to hedge our exposure to changes in exchange rates and interest rates. If we use derivative financial instruments to hedge against exchange rate or interest rate fluctuations, we will be exposed to credit risk and legal enforceability risks. In this context, credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. Legal enforceability risks encompass general contractual risks, including the risk that the counterparty will breach the terms of, or fail to perform its obligations under, the derivative contract. These derivative instruments are speculative in nature and there is no guarantee that they will be effective. If we are unable to manage these risks effectively, we could be materially and adversely affected.

Lenders may require us to enter into restrictive covenants relating to our business.

When providing financing, a lender may impose restrictions on us that affect our ability to incur additional debt, make distributions to our stockholders and operate our business. We have entered into, and may continue to enter into, loan documents that contain covenants that limit our ability to further mortgage the property or discontinue insurance coverage. These or other limitations may adversely affect our flexibility and our ability to achieve our business objectives.

Interest-only indebtedness may increase our risk of default, adversely affect our ability to refinance or sell properties and ultimately may reduce our funds available for distribution to our stockholders.

We may finance or refinance our properties using interest-only mortgage indebtedness. During the interest-only period, the amount of each scheduled payment will be less than that of a traditional amortizing mortgage loan. The principal balance of the mortgage loan will not be reduced (except in the case of prepayments) because there are no scheduled monthly payments of principal during this period. After the interest-only period, we will be required either to make scheduled payments of amortized principal and interest or to make a lump-sum or “balloon” payment at maturity. At the time such a balloon payment is due, we may or may not be able to refinance the balloon payment on terms as favorable as the original loan or sell the particular property at a price sufficient to make the balloon payment. Furthermore, these required principal or balloon payments will increase the amount of our scheduled payments and may increase our risk of default under the related mortgage loan. If the mortgage loan has an adjustable interest rate, the amount of our scheduled payments would likely increase at a time of rising interest rates, depending upon the adjustment terms. In addition, payments of principal and interest made to service our debt, including balloon payments, may leave us with insufficient cash to pay the distributions to our stockholders, including those that we are required to pay to maintain our qualification as a REIT. Any of these results could have a material adverse effect on us.

 

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If we are required to make payments under any “bad boy” carve-out guaranties that we may provide in connection with certain mortgages and related loans, we could be materially and adversely affected.

In obtaining certain nonrecourse loans, we have provided, and may continue to provide, standard carve-out guaranties. These guaranties are only applicable if and when the borrower directly, or indirectly through agreement with an affiliate, joint venture partner or other third party, voluntarily files a bankruptcy or similar liquidation or reorganization action or takes other actions that are fraudulent or improper (commonly referred to as “bad boy” guaranties). Although we believe that “bad boy” carve-out guaranties are not guaranties of payment in the event of foreclosure or other actions of the foreclosing lender that are beyond the borrower’s control, some lenders in the real estate industry have recently sought to make claims for payment under such guaranties. In the event such a claim was made against us under a “bad boy” carve-out guaranty following foreclosure on mortgages or related loans, and such claim was successful, we could be materially and adversely affected.

Changes in banks’ inter-bank lending rate reporting practices or the method pursuant to which the London Interbank Offered Rate (“LIBOR”) is determined may adversely affect the value of the financial obligations to be held or issued by us that are linked to LIBOR.

LIBOR and other indices which are deemed “benchmarks” are the subject of recent national, international and other regulatory guidance and proposals for reform. Some of these reforms are already effective while others are still to be implemented. These reforms may cause such “benchmarks” to perform differently than in the past, or have other consequences which cannot be predicted. As published by the Federal Reserve Bank of New York, it currently appears that, over time, U.S. dollar LIBOR may be replaced by the Secured Overnight Financing Rate (“SOFR”). The Financial Conduct Authority (“FCA”) ceased publishing one-week and two-month LIBOR after December 31, 2021 and intends to cease publishing all remaining LIBOR index maturities after June 30, 2023. At this time, it is not known whether or when SOFR or other alternative reference rates will attain market traction as replacements for LIBOR. Market participants are still considering how various types of financial instruments and securitization vehicles should react to a discontinuation of LIBOR. It is possible that not all of our assets and liabilities will transition away from LIBOR at the same time, or to the same alternative reference rate, in each case increasing the difficulty of hedging. The process of transition involves operational risks. It is also possible that no transition will occur for many financial instruments. At this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates or any other reforms to LIBOR that may be implemented. Uncertainty as to the nature of such potential changes, alternative reference rates or other reforms may adversely affect the market for or value of any securities on which the interest or dividend is determined by reference to LIBOR, loans, derivatives and other financial obligations or on our overall financial condition, cash flows or results of operations. More generally, any of the above changes, any other consequential changes to LIBOR or any other “benchmark” as a result of international, national, or other proposals for reform or other initiatives, or any further uncertainty in relation to the timing and manner of implementation of such changes, could have a material adverse effect on the value of financial assets and liabilities based on or linked to a “benchmark,” including our own.

Risks Related to Our Corporate Structure and Organization

The limit on the percentage of shares of our common stock that any person may own may discourage a takeover or business combination that may have benefited our stockholders.

Our charter restricts the direct or indirect ownership by one person or entity to no more than 9.9% of the value of shares of our then outstanding capital stock (which includes common stock and any preferred stock we may issue) and no more than 9.9% of the value or number of shares, whichever is more restrictive, of our then outstanding common stock. This restriction may discourage a change of control of us and may deter individuals or entities from making tender offers for shares of our stock on terms that might be financially attractive to our stockholders or which may cause a change in our management. This ownership restriction may also prohibit

 

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business combinations that would have otherwise been approved by our Board and our stockholders. In addition to deterring potential transactions that may be favorable to our stockholders, these provisions may also decrease our stockholders’ ability to sell their shares of our common stock.

Our stockholders’ ability to control our operations is severely limited.

Our Board determines our major strategies, including our strategies regarding investments, financing, growth, capitalization, REIT qualification and distributions. Our Board may amend or revise these and other strategies without a vote of the stockholders. Under our charter and Maryland law, our stockholders have a right to vote only on the following matters:

 

   

the election or removal of directors;

 

   

the amendment of our charter, except that our Board may amend our charter without stockholder approval to change our name or the name of other designation or the par value of any class or series of our stock and the aggregate par value of our stock, increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have the authority to issue, or effect certain reverse stock splits;

 

   

our dissolution; and

 

   

certain mergers, consolidations, conversions, statutory share exchanges and sales or other dispositions of all or substantially all of our assets.

All other matters are subject to the sole discretion of our Board.

Conflicts of interest could arise as a result of our officers’ other positions and/or interests outside of our company.

We rely on our management for implementation of our policies and our day-to-day operations. Although a majority of their business time is spent working for our company, they may engage in other investment and business activities in which we have no economic interest. Their responsibilities to these other entities could result in action or inaction that is detrimental to our business, which could harm the implementation of our growth strategies and achievement of our business strategies. They may face conflicts of interest in allocating time among us and their other business ventures and in meeting obligations to us and those other entities.

Maryland law prohibits certain business combinations, which may make it more difficult for us to be acquired and may limit or delay our stockholders’ ability to dispose of their shares of our common stock.

Certain provisions of the MGCL, such as the business combination statute and the control share acquisition statute, are designed to prevent, or have the effect of preventing, someone from acquiring control of us. The MGCL prohibits “business combinations” between a Maryland corporation and:

 

   

any person who beneficially owns, directly or indirectly, 10.0% or more of the voting power of the corporation’s outstanding voting stock, which is referred to as an “interested stockholder”;

 

   

an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was an interested stockholder; or

 

   

an affiliate of an interested stockholder.

These prohibitions last for five years after the most recent date on which the interested stockholder became an interested stockholder. Thereafter, any business combination with the interested stockholder or an

 

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affiliate of the interested stockholder must be recommended by the corporation’s board and approved by the affirmative vote of at least 80.0% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation and two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares of voting stock held by the interested stockholder. These requirements could have the effect of inhibiting a change in control even if a change in control were in our stockholders’ best interests.

Pursuant to the MGCL, our bylaws exempt us from the control share acquisition statute, which eliminates voting rights for certain levels of shares that could exercise control over us, and our Board has adopted a resolution providing that any business combination between us and any other person is exempted from the business combination statute, provided that such business combination is first approved by our Board. However, if the bylaws provision exempting us from the control share acquisition statute or our Board resolution opting out of the business combination statute were repealed in whole or in part at any time, these provisions of the MGCL could delay or prevent offers to acquire us and increase the difficulty of consummating any such offers, even if such a transaction would be in our stockholders’ best interest.

The MGCL and our organizational documents limit our stockholders’ right to bring claims against our officers and directors.

The MGCL provides that a director has no liability in such capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in the corporation’s best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Our charter requires us, to the maximum extent permitted by Maryland law, to indemnify and advance expenses to our directors and officers and our subsidiaries’ directors and officers. Additionally, our charter limits, to the maximum extent permitted by Maryland law, the liability of our directors and officers to us and our stockholders for monetary damages. Moreover, we have entered into separate indemnification agreements with each of our directors and executive officers and intend to enter into indemnification agreements with each of our future directors and executive officers. Although our charter does not limit the liability of our directors and officers or allow us to indemnify our directors and officers to a greater extent than permitted under Maryland law, we and our stockholders may have more limited rights against our directors and officers than might otherwise exist under common law, which could reduce our stockholders’ and our recovery against them. In addition, we may be obligated to fund the defense costs incurred by our directors and officers in some cases, which would decrease the cash otherwise available for distribution to our stockholders.

Our stockholders’ investment return may be reduced if we are required to register as an investment company under the Investment Company Act. If we become subject to registration under the Investment Company Act, we may not be able to continue our business.

We do not intend to register as an investment company under the Investment Company Act. We monitor our operations and our assets on an ongoing basis in order to ensure that neither we, nor any of our subsidiaries, meet the definition of “investment company” under Section 3(a)(1) of the Investment Company Act. If we were obligated to register as an investment company, we would have to comply with a variety of substantive requirements under the Investment Company Act imposing, among other things: limitations on capital structure; restrictions on specified investments; prohibitions on transactions with affiliates; compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly change our operations; and potentially, compliance with daily valuation requirements.

To maintain compliance with our Investment Company Act exemption, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. Similarly, we may have to acquire additional income- or loss-generating assets that we might not otherwise have acquired or may have to forgo opportunities to acquire interests in companies that we would otherwise want to acquire and would be important to our investment strategy. Accordingly, our Board may not be able to change our investment policies as our Board may deem appropriate if such change would cause us to meet the definition of an

 

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“investment company.” In addition, a change in the value of any of our assets could negatively affect our ability to avoid being required to register as an investment company. If we were required to register as an investment company under the Investment Company Act, but failed to do so, we would be prohibited from engaging in our business, and criminal and civil actions could be brought against us. In addition, our contracts would be unenforceable unless a court were to require enforcement, and a court could appoint a receiver to take control of us and liquidate our business, which would result in our stockholders’ losing all of their investment in us.

Our structure may result in potential conflicts of interest with limited partners in the Operating Partnership whose interests may not be aligned with those of our stockholders.

Our directors and officers have duties to us and our stockholders under Maryland law and our charter in connection with their management of us. At the same time, the general partner of the Operating Partnership, of which we are the sole owner, has fiduciary duties under Delaware law to the Operating Partnership and to the limited partners in connection with the management of the Operating Partnership. The duties of the general partner to the Operating Partnership and its partners may come into conflict with the duties of our directors and officers to us and our stockholders. Under Delaware law, a general partner of a Delaware limited partnership owes its limited partners the duties of good faith and fair dealing. Other duties, including fiduciary duties, may be modified or eliminated in the partnership agreement. If there is a conflict in the fiduciary duties owed by us (as the sole member of the general partner) to our stockholders on one hand and by the general partner to any limited partners on the other, we shall be entitled to resolve such conflict in favor of our stockholders.

Additionally, the partnership agreement expressly limits our liability by providing that we and our officers, directors, stockholders, trustees, representatives, agents and employees will not be liable or accountable to the Operating Partnership for (1) any act or omission performed or failed to be performed, or for any losses, claims, costs, damages, or liabilities arising from any such act or omission, (2) any tax liability imposed on the Operating Partnership or (3) any losses due to the misconduct, negligence (gross or ordinary), dishonesty or bad faith of any agents of the Operating Partnership, if we or any such person acted consistent with the obligation of good faith and fair dealing and with applicable duties of care and loyalty. In addition, the Operating Partnership is required to indemnify us and our officers, directors, employees and designees to the extent permitted by applicable law from and against any and all claims arising from operations of the Operating Partnership, unless it is established that: (1) the act or omission was material to the matter giving rise to the proceeding and either was committed in bad faith or was the result of active and deliberate dishonesty; (2) the indemnified party received an improper personal benefit, in money, property or services; or (3) in the case of a criminal proceeding, the indemnified person had reasonable cause to believe that the act or omission was unlawful. The provisions of Delaware law that allow the fiduciary duties of a general partner to be modified by a partnership agreement have not been tested in a court of law, and we have not obtained an opinion of counsel covering the provisions set forth in the partnership agreement that purport to waive or restrict our fiduciary duties.

Risks Related to Taxes and Our REIT Status

Failure to maintain our qualification as a REIT for U.S. federal income tax purposes would subject us to U.S. federal income tax on our REIT taxable income at the regular corporate rate, which would substantially reduce our ability to make distributions to our stockholders.

We have elected to be taxed as a REIT under the Code commencing with our taxable year ended December 31, 2016. We believe that we have been, and, through the time of the Merger, GAHR III was, organized and operated, and we intend to continue to operate in conformity with the requirements for qualification and taxation as a REIT under the Code. To continue to maintain our qualification as a REIT, we, and our subsidiary REIT, Trilogy Real Estate Investment Trust (“Trilogy REIT”), must meet various requirements set forth in the Code concerning, among other things, the ownership of our, or Trilogy REIT’s, outstanding common stock, the nature of our, or Trilogy REIT’s, assets, the sources of our, or Trilogy REIT’s

 

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income, and the amount of our, or Trilogy REIT’s distributions to stockholders. In addition, if it is determined that GAHR III lost, in any year prior to the Merger, its qualification as a REIT without being entitled to any relief under the statutory provisions to preserve REIT status, we, as a “successor” to GAHR III under the REIT rules, will not be able to qualify as a REIT to the extent we are unable to avail ourselves of any relief under the statutory provisions to preserve REIT status. The REIT qualification requirements are extremely complex, and interpretations of the U.S. federal income tax laws governing qualification as a REIT are limited. In addition, the determination of various factual matters and circumstances not entirely within our control may affect our ability to continue to qualify as a REIT. Accordingly, we cannot be certain that we, or Trilogy REIT, will be successful in operating in compliance with the REIT rules in such manner as to allow us to maintain our qualification as a REIT. At any time, new laws, interpretations or court decisions may change the U.S. federal tax laws relating to, or the U.S. federal income tax consequences of, qualification as a REIT. It is possible that future economic, market, legal, tax or other considerations may cause our Board to determine that it is not in our best interest to maintain our qualification as a REIT, and to revoke our REIT election, which it may do without stockholder approval.

If we fail to maintain our qualification as a REIT for any taxable year, we will be subject to U.S. federal income tax on our REIT taxable income at the corporate rate and could also be subject to increased state and local taxes. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status unless the U.S. Internal Revenue Service (the “IRS”) grants us relief under certain statutory provisions. Losing our REIT status would reduce our net earnings available for investment and amounts available for distribution to our stockholders because of the additional tax liability. In addition, distributions would no longer qualify for the distributions paid deduction, and we would no longer be required to make distributions to our stockholders. If this occurs, we might be required to raise debt or equity capital or sell some investments in order to pay the applicable tax.

As a result of all these factors, our failure to maintain our qualification as a REIT could impair our ability to expand our business and raise capital, could materially and adversely affect the trading price of our common stock and would substantially reduce our ability to make distributions to our stockholders.

TRSs are subject to corporate-level taxes and our dealings with TRSs may be subject to a 100% excise tax.

A REIT may own up to 100% of the stock of one or more TRSs. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35.0% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 20.0% (25.0% for taxable years beginning prior to January 1, 2018) of the gross value of a REIT’s assets may consist of stock or securities of one or more TRSs. A TRS may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT, including gross income from operations pursuant to management contracts. We lease our properties that are “qualified health care properties” to one or more TRSs which, in turn, contract with independent third-party management companies to operate those “qualified health care properties” on behalf of those TRSs. In addition, we may use one or more TRSs generally to hold properties for sale in the ordinary course of a trade or business or to hold assets or conduct activities that we cannot conduct directly as a REIT. A TRS is subject to applicable U.S. federal, state, local and foreign income tax on its taxable income, as well as limitations on the deductibility of its interest expenses. In addition, the Code imposes a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis.

If our “qualified health care properties” are not properly leased to a TRS or the operators of those “qualified health care properties” do not qualify as EIKs, we could fail to qualify as a REIT.

In general, under the REIT rules, we cannot directly operate any properties that are “qualified health care properties” and can only indirectly participate in the operation of “qualified health care properties” on an after-tax basis by leasing those properties to independent health care facility operators or to TRSs. A “qualified

 

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health care property” is any real property (and any personal property incident to that real property) which is, or is necessary or incidental to the use of, a hospital, nursing facility, assisted living facility, congregate care facility, qualified continuing care facility or other licensed facility which extends medical or nursing or ancillary services to patients and is operated by a provider of those services that is eligible for participation in the Medicare program with respect to that facility. Furthermore, rent paid by a lessee of a “qualified health care property” that is a “related party tenant” of ours will not be qualifying income for purposes of the two gross income tests applicable to REITs. However, a TRS that leases “qualified health care properties” from us will not be treated as a “related party tenant” with respect to our “qualified health care properties” that are managed by an EIK. If we incorrectly classified a property as a “qualified health care property” and leased it to a TRS, any rental income therefrom would likely not be qualifying income for purposes of the two gross income tests applicable to REIT.

An EIK is an independent contractor that, at the time such contractor enters into a management or other agreement with a TRS to operate a “qualified health care property,” is actively engaged in the trade or business of operating “qualified health care properties” for any person not related to us or the TRS. Among other requirements to qualify as an independent contractor, an operator must not own, directly or indirectly (or applying attribution provisions of the Code), more than 35.0% of the shares of our outstanding stock (by value), and no person or group of persons can own more than 35.0% of the shares of our outstanding stock and 35.0% of the ownership interests of the operator (taking into account only owners of more than 5.0% of our shares and, with respect to ownership interest in such operators that are publicly traded, only holders of more than 5.0% of such ownership interests). The ownership attribution rules that apply for purposes of the 35.0% thresholds are complex. There can be no assurance that the amount of our shares beneficially owned by our operators and their owners will not exceed the above thresholds. If a healthcare facility operator at one of our properties that uses the RIDEA structure was determined to not be an EIK, any rental income we receive from the TRS with respect to such property would likely not be qualifying income for purposes of the two gross income tests applicable to REITs.

If our leases with TRSs are not respected as true leases for U.S. federal income tax purposes, we likely would fail to qualify as a REIT.

To qualify as a REIT, we must satisfy two gross income tests, under which specified percentages of our gross income must be derived from certain sources, such as “rents from real property.” Rent paid by TRSs pursuant to the lease of our “qualified health care properties” will constitute a substantial portion of our gross income. For that rent to qualify as “rents from real property” for purposes of the REIT gross income tests, the leases must be respected as true leases for U.S. federal income tax purposes and not be treated as service contracts, joint ventures or some other type of arrangement. If our leases are not respected as true leases for U.S. federal income tax purposes, we may fail to qualify as a REIT.

We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability or reduce our operating flexibility.

In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of U.S. federal and state income tax laws applicable to investments similar to an investment in shares of our common stock. Additional changes to the tax laws are likely to continue to occur, and we cannot assure our stockholders that any such changes will not adversely affect our taxation and our ability to continue to qualify as a REIT or the taxation of a stockholder. Any such changes could have a material adverse effect on an investment in shares of our common stock or on the market price thereof or the resale potential of our assets. Our stockholders are urged to consult with their tax advisor with respect to the impact of recent legislation on their investment in our stock and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in shares of our common stock.

Although REITs generally receive better tax treatment than entities taxed as regular corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more

 

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advantageous for a company that invests in real estate to elect to be treated for U.S. federal and state income tax purposes as a regular corporation. As a result, our charter provides our Board with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a regular corporation, without the vote of our stockholders. Our Board has fiduciary duties to us and our stockholders and could only cause such changes in our tax treatment if it determines in good faith that such changes are in the best interests of our stockholders.

In certain circumstances, we may be subject to U.S. federal, state and foreign income taxes even if we maintain our qualification as a REIT, which would reduce our cash available for distribution to our stockholders.

Even if we maintain our qualification as a REIT, we may be subject to U.S. federal income taxes, state income taxes or foreign income taxes. For example, net income from a “prohibited transaction” will be subject to a 100% tax. We may not be able to make sufficient distributions to avoid excise taxes applicable to REITs. We may also decide to retain capital gains we earn from the sale or other disposition of our property and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, our stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability. We may also be subject to state and local taxes or foreign taxes on our income or property, either directly or at the level of the companies through which we indirectly own our assets. Any U.S. federal, state or foreign taxes we pay will reduce our cash available for distribution to our stockholders.

Dividends payable by REITs generally do not qualify for the reduced tax rates on dividend income as compared to regular corporations, which could adversely affect the value of our shares.

The maximum U.S. federal income tax rate for certain qualified dividends payable to domestic stockholders that are individuals, trusts and estates generally is 20.0%. Dividends payable by REITs, however, are generally not eligible for these reduced rates for qualified dividends except to the extent the REIT dividends are attributable to “qualified dividends” received by the REIT itself. For taxable years beginning after December 31, 2017 and before January 1, 2026, U.S. individuals, trusts and estates are permitted a deduction for certain pass-through business income, including “qualified REIT dividends” (generally, dividends received by a REIT stockholder that are not designated as capital gain dividends or qualified dividend income), allowing them to deduct up to 20.0% of such amounts, subject to certain limitations. Although the reduced U.S. federal income tax rate applicable to dividend income from regular corporate dividends does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to qualified dividends from C corporations could cause investors who are individuals, trusts, and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay qualified dividends, which could adversely affect the market price of the shares of common stock of REITs, including our shares of common stock.

Dividends on, and gains recognized on the sale of, shares by a tax-exempt stockholder may be subject to U.S. federal income tax as unrelated business taxable income.

If (1) we are a “pension-held REIT,” (2) a tax-exempt stockholder has incurred (or is deemed to have incurred) debt to purchase or hold our shares or (3) a holder of our shares is a certain type of tax-exempt stockholder, dividends on, and gains recognized on the sale of, shares by such tax-exempt stockholder may be subject to U.S. federal income tax as unrelated business taxable income under the Code.

Characterization of our sale-leaseback transactions may be challenged, which could jeopardize our REIT status or require us to make an unexpected distribution.

We have participated, and may continue to participate, in sale-leaseback transactions in which we purchase real estate investments and lease them back to the sellers of such properties. We believe we have

 

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structured and intend to structure any of our sale-leaseback transactions such that the lease will be characterized as a “true lease” and so that we will be treated as the owner of the property for U.S. federal income tax purposes. However, we cannot assure our stockholders that the IRS will not take the position that specific sale-leaseback transactions that we treated as leases be re-characterized as financing arrangements or loans for U.S. federal income tax purposes. In the event that any such sale-leaseback transaction is re-characterized as a financing transaction for U.S. federal income tax purposes, deductions for depreciation and cost recovery relating to such real estate investment would be disallowed or significantly reduced. If a sale-leaseback transaction is so re-characterized, we might fail to satisfy the REIT asset tests, income tests or distribution requirements and, consequently, lose our REIT status or be required to elect to distribute an additional distribution of the increased taxable income to avoid the loss of REIT status. This distribution would be paid to all stockholders at the time of declaration rather than the stockholders existing in the taxable year affected by the re-characterization.

Complying with the REIT requirements may cause us to forego otherwise attractive opportunities.

To maintain our qualification as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of shares of our common stock. We may be required to make distributions to our stockholders at disadvantageous times or when we do not have funds readily available for distribution, or we may be required to raise debt or equity capital or forego otherwise attractive investments in order to comply with the REIT tests. We may need to borrow funds to meet the REIT distribution requirements even if market conditions are not favorable for these borrowings. We cannot assure you that we will have access to such capital on favorable terms at the desired times, or at all. Thus, compliance with the REIT requirements could materially and adversely affect us and may hinder our ability to operate solely on the basis of maximizing our financial results.

If the Operating Partnership fails to maintain its status as a partnership and were to be treated as a corporation for U.S. federal income tax purposes, its income may be subject to taxation, which would reduce the cash available for distribution to stockholders and likely result in a loss of our REIT status.

We intend to maintain the status of the operating partnership as a partnership for U.S. federal income tax purposes. However, if the IRS were to successfully challenge the status of the operating partnership as a partnership for such purposes, it would be taxable as a corporation. In such event, this would reduce the amount of distributions that the operating partnership could make to us. This would also likely result in us losing REIT status, and, if so, becoming subject to a corporate level tax on our own income. This would substantially reduce any cash available to pay distributions. In addition, if any of the partnerships or limited liability companies through which the operating partnership owns its properties, in whole or in part, loses its characterization as a partnership and is otherwise not disregarded for U.S. federal income tax purposes, such partnership or limited liability company would be subject to taxation as a corporation, thereby reducing distributions to the operating partnership. Such a recharacterization of an underlying partnership or limited liability company could also threaten our ability to maintain our status as a REIT.

Foreign purchasers of shares of our common stock may be subject to FIRPTA tax upon the sale of their shares of our common stock or upon the payment of a capital gains dividend.

A foreign person disposing of a U.S. real property interest, including shares of stock of a U.S. corporation whose assets consist principally of U.S. real property interests, is generally subject to withholding pursuant to the Foreign Investment in Real Property Tax Act of 1980, as amended (“FIRPTA”), on the amount received from the disposition. However, foreign pension plans and certain foreign publicly traded entities are exempt from FIRPTA withholding. Further, such FIRPTA tax does not apply to the disposition of stock in a REIT if the REIT is “domestically controlled.” A REIT is “domestically controlled” if less than 50.0% of the REIT’s stock, by value, has been owned directly or indirectly by persons who are not qualifying U.S. persons during a continuous five-year period ending on the date of disposition or, if shorter, during the entire period of

 

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the REIT’s existence. We cannot assure our stockholders that we will qualify as a “domestically controlled” REIT. If we were to fail to so qualify, amounts received by foreign investors on a sale of shares of our common stock would be subject to FIRPTA tax, unless the shares of our common stock are regularly traded on an established securities market and the foreign investor did not at any time during a specified period directly or indirectly own more than 10.0% of the value of our outstanding common stock. Additionally, a foreign stockholder will likely be subject to FIRPTA upon the payment of any distribution by us that is attributable to gain from sales or exchanges of U.S. real property interests, unless the shares of our common stock are regularly traded on a U.S. established securities market and the foreign investor did not own at any time during the 1-year period ending on the date of such distribution more than 10.0% of such class of common stock.

If the Merger does not qualify as a tax-free reorganization, there may be adverse tax consequences.

The Merger was intended to qualify as a tax-free reorganization within the meaning of Section 368(a) of the Code. The closing of the Merger was conditioned on the receipt by us and GAHR III of an opinion of counsel to the effect that the Merger will qualify as a tax-free reorganization within the meaning of Section 368(a) of the Code. However, these legal opinions will not be binding on the IRS or on the courts. If, for any reason, the Merger were to fail to qualify as a tax-free reorganization, then there would be adverse tax implications to us and our stockholders, which could materially and adversely affect us.

Risks Related to this Offering

There is currently no public trading market for shares of our common stock, and we cannot assure you that a public trading market will develop, will be maintained or will be liquid.

Prior to this offering, there has been no public trading market for shares of our common stock, and we cannot assure you that a public trading market will develop, will be maintained or will be liquid. In the absence of a public trading market, a stockholder may be unable to sell his, her or its shares of our common stock when desired at an attractive price, or at all. The initial public offering price for shares of our common stock will be determined by agreement among us and the underwriters upon consideration of various matters described under “Underwriting—NYSE Listing,” and we cannot assure you that shares of our common stock will not trade below the initial public offering price following completion of this offering. Whether a public trading market for shares of our common stock will develop will depend on a number of factors, including the extent of institutional investor interest in us, the reputation of REITs generally and healthcare REITs specifically and the attractiveness of their equity securities in comparison to other equity securities (including securities issued by other real estate-based companies), our actual and projected financial results, our distribution policy and general stock and market conditions.

The estimated per share NAV of our common stock may not be an accurate reflection of fair value of our assets and liabilities and likely will not represent the amount of net proceeds that would result if we were liquidated, dissolved or completed a merger or other sale of our company.

On March 24, 2022, our Board, at the recommendation of the Audit Committee, which is comprised solely of independent directors, unanimously approved and established an updated estimated per share NAV of our Class T common stock and Class I common stock of $9.29 as of December 31, 2021. We provided this updated estimated per share NAV to assist broker-dealers in connection with their obligations under Financial Industry Regulatory Authority (“FINRA”) Rule 2231, with respect to customer account statements. The valuation was performed in accordance with the methodology provided in the Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs, issued by the Institute for Portfolio Alternatives (“IPA”) in April 2013, in addition to guidance from the SEC. We do not plan to continue publishing these valuations.

The updated estimated per share NAV was determined after consultation with an independent third-party valuation firm, the engagement of which was approved by the Audit Committee. FINRA rules provide no

 

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guidance on the methodology an issuer must use to determine its estimated per share NAV. As with any valuation methodology, our independent valuation firm’s methodology was based upon a number of estimates and assumptions that may not have been accurate or complete. Different parties with different assumptions and estimates could derive a different estimated per share NAV, and these differences could be significant. Furthermore, as described under “Underwriting—NYSE Listing,” the initial public offering price in this offering will be determined by us and the underwriters based on various matters that differ from the aforementioned third-party valuation firm in determining our historical estimated per share NAV, and there can be no assurance that such initial public offering price per share of common stock will equal or exceed such historical estimated per share NAV.

The updated estimated per share NAV was not audited or reviewed by our independent registered public accounting firm and did not represent the fair value of our assets or liabilities according to GAAP. In addition, the updated estimated per share NAV was an estimate as of a given point in time and the value of shares of our common stock will fluctuate over time as a result of, among other things, the number of shares of our common stock outstanding, developments related to individual assets and changes in the real estate and capital markets. Accordingly, with respect to the updated estimated per share NAV, we can give no assurance that:

 

   

a stockholder would be able to resell his, her or its shares at our updated estimated per share NAV;

 

   

a stockholder would ultimately realize distributions per share equal to our updated estimated per share NAV upon liquidation of our assets and settlement of our liabilities or a sale of our company;

 

   

our shares of common stock would trade at any updated estimated per share NAV on a national securities exchange;

 

   

an independent third-party appraiser or other third-party valuation firm, other than the third-party valuation firm engaged by our Board to assist in its determination of the updated estimated per share NAV, would agree with our estimated per share NAV; or

 

   

the methodology used to estimate our updated per share NAV would be acceptable to FINRA or comply with reporting requirements under the Employee Retirement Income Security Act (“ERISA”), the Code or other applicable law.

Further, our Board has ultimately been responsible for determining the estimated per share NAV. Our independent valuation firm calculates estimates of the value of our assets, and our Board then determines the net value of assets and liabilities taking into consideration such estimate provided by the independent valuation firm. After any particular valuation, , there are likely to be changes in the value of our assets that would not be reflected in the published estimated per share NAV.

For a full description of the methodologies used to value our assets and liabilities in connection with the calculation of the updated estimated per share NAV, see “Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.”

The market price and trading volume of shares of our common stock may be volatile and decline significantly.

The U.S. stock markets, including the NYSE on which we intend to apply to have shares of our common stock listed, have experienced significant price declines and volume fluctuations. As a result, the market price of shares of our common stock is likely to be similarly volatile, and investors in shares of our common stock may experience a significant decrease in the market price of their shares, including decreases unrelated to our operating performance or prospects. We cannot assure you that the market price of shares of our common stock will not be volatile or decline significantly in the future.

 

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In addition to the risks listed in this “Risk Factors” section, a number of factors could negatively affect the market price, or volatility of the market price, of our common stock, potentially significantly, or result in fluctuations in the trading volume of shares of our common stock, including:

 

   

the annual yield from distributions on shares of our common stock as compared to yields on other financial instruments;

 

   

equity issuances by us, or future sales of substantial amounts of shares of our common stock (including holders of our Class T common stock or Class I common stock or holders of our common stock upon conversion thereof) by our existing or future stockholders, or the perception that such issuances or future sales may occur;

 

   

increases in market interest rates or a decrease in our distributions to stockholders that lead purchasers of shares of our common stock to demand a higher yield;

 

   

changes in market valuations of similar companies;

 

   

fluctuations in stock market prices and volumes;

 

   

additions or departures of key management personnel;

 

   

our operating performance and the performance of other similar companies;

 

   

actual or anticipated differences in our quarterly operating results;

 

   

changes in expectations of future financial performance or changes in estimates of securities analysts;

 

   

our concentration in the healthcare industry and particular classes within it, as well as our geographic concentration;

 

   

publication of research reports about us or our industry by securities analysts;

 

   

failure to qualify as a REIT;

 

   

adverse market reaction to any indebtedness we incur in the future, or our level of secured or overall indebtedness;

 

   

strategic decisions by us or our competitors, such as acquisitions, divestments, spin offs, joint ventures, strategic investments or changes in business strategy;

 

   

the passage of legislation or other regulatory developments that adversely affect us, our tenants, our operators or the healthcare industry;

 

   

speculation in the press or investment community;

 

   

failure to satisfy the listing or other rules or requirements of the NYSE;

 

   

failure to comply with the requirements of the Sarbanes-Oxley Act of 2002;

 

   

actions by institutional stockholders;

 

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changes in accounting principles or the necessity for accounting restatements or existence of other accounting problems; and

 

   

general market conditions, including factors unrelated to our operating performance and prospects.

In the past, securities class action litigation has often been instituted against companies following periods of volatility or a significant decline in the market price of their common stock. This type of litigation could result in substantial costs and divert our management’s attention and resources, which could have a material adverse effect on us.

Higher market interest rates may result in a decrease in the market price of shares of our common stock, potentially significantly.

One of the factors that will influence the market price of shares of our common stock will be the distribution yield on shares of our common stock (as a percentage of the price of shares of our common stock) relative to market interest rates. Higher market interest rates may lead prospective purchasers of shares of our common stock to expect a higher distribution yield and also would likely increase our borrowing costs and potentially decrease funds available for distribution to our stockholders. Thus, higher market interest rates could cause the market price of our common stock to decrease, potentially significantly.

Because we have a large number of stockholders and shares of our common stock have not been listed on a national securities exchange prior to this offering, there may be significant pent-up demand to sell shares of our common stock (including our Class T common stock and Class I common stock). Significant sales of shares of our common stock, or the perception that significant sales of such shares could occur, may cause the price of shares of our common stock to decline significantly.

As of                 , 2022, we had (1) an aggregate of 264,171,478 shares of our Class T common stock and Class I common stock issued and outstanding, (2) an aggregate of 892,257 shares of unvested restricted Class T common stock and unvested restricted Class I common stock issued and outstanding, (3) 76,800 shares of Class T common stock underlying unvested time-based RSUs, (4) 234,820 shares of Class T common stock underlying unvested performance-based RSUs (such number of shares assumes that we issue shares of our common stock underlying such unvested performance-based awards at maximum levels for performance and market conditions that have not yet been achieved; to the extent that performance or market conditions do not meet maximum levels, the actual number of shares of our common stock issued under our incentive plan would be less than the amount reflected above) and (5) 14,007,903 shares of our common stock that may be issued for redeeming OP units. In addition, we have the right to issue an additional 2,531,167 shares of our common stock under our incentive plan. Our share repurchase program, which, in any event, only allowed us in any 12-month period to repurchase up to 5.0% of the weighted average number of shares of our common stock outstanding during the prior calendar year, was fully suspended on                , 2022. Prior to this offering, our common stock, Class T common stock and Class I common stock were not listed on any national securities exchange and the ability of a stockholder to sell his, her or its shares was limited. Although shares of our Class T common stock and Class I common stock will not be listed on a national securities exchange at the same time as the common stock offered by this prospectus, these shares are not subject to transfer restrictions (other than the restrictions on ownership and transfer of stock set forth in our charter); therefore, such stock will be freely tradable, to extent that a market exists for such stock. As a result, it is possible that a market may develop for shares of our Class T common stock and Class I common stock, and sales of such shares, or the perception that such sales could occur, could have a material adverse effect on the per share trading price of shares of our common stock.

As provided by our charter, our Class T common stock and Class I common stock may not convert into shares of our listed common stock until a date up to 12 months from the listing of shares of our common stock for trading on a national securities exchange as approved by our Board and will remain subject to certain ownership and transfer restrictions contained in our charter. Our Board has approved the six-month anniversary

 

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of the listing of our common stock offered by this prospectus on the NYSE as the date on which our Class T common stock and Class I common stock will automatically convert into our listed common stock. As a result, there may be significant pent-up demand to sell shares of our common stock. Holders of shares of our Class T common stock and Class I common stock seeking to immediately sell his, her or its shares of our common stock could engage in immediate short sales of shares of our common stock prior to the date on which the shares of our Class T common stock and Class I common stock convert into shares of our common stock and use the shares of our common stock that they receive upon conversion of their Class T common stock and Class I common stock to cover these short sales in the future. A large volume of sales of shares of our common stock could decrease the market price of shares of our common stock significantly and could impair our ability to raise additional capital through the sale of equity or hybrid securities in the future. Even if a substantial number of sales of shares of our common stock are not effected, the mere perception of the possibility of these sales could decrease the market price of shares of our common stock significantly and have a negative effect on our ability to raise capital in the future.

We may allocate the net proceeds from this offering in ways that you and other stockholders may not approve.

We will contribute the net proceeds from this offering to the Operating Partnership in exchange for OP units. We expect the Operating Partnership to use the net proceeds received from us to repay $                of the amount outstanding under our Credit Facility, to fund external growth with potential future property acquisitions and for other general corporate uses. However, we have not yet committed to acquire any specific properties with the net proceeds from this offering that are not used to reduce our outstanding indebtedness, and you will be unable to evaluate the economic merits of any such acquisitions before making an investment decision to purchase shares of our common stock in this offering. We have broad authority to acquire real estate investments that we may identify in the future, and we may make investments with which you do not agree. In addition, our business objectives and growth strategies may be amended or revised from time to time without the approval of our stockholders. Our management has broad discretion in the use of certain of the net proceeds from this offering and could spend such net proceeds in ways that will not necessarily improve our operating results or enhance the market price of our common stock. These factors increase the uncertainty, and thus the risk, of an investment in shares of our common stock.

Future offerings of debt securities, which would be senior to our common stock, or equity securities, which would dilute our existing stockholders and may be senior to our common stock, may adversely affect our stockholders.

We may in the future attempt to increase our capital resources by offering debt or equity securities, including notes and classes of preferred or common stock. Debt securities or shares of preferred stock will generally be entitled to receive interest payments or distributions, both current and in connection with any liquidation or sale, prior to the holders of our common stock. We are not required to offer any such additional debt or preferred stock to existing common stockholders on a preemptive basis. Therefore, issuances of common stock or other equity securities will generally dilute the holdings of our existing stockholders. Because we may generally issue any such debt or preferred stock in the future without obtaining the approval of our stockholders, you will bear the risk of our future issuances reducing the market price of our common stock and diluting your proportionate ownership. Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the form amount, timing or nature of our future issuances.

In addition, subject to any limitations set forth under Maryland law, our Board may amend our charter to increase or decrease the number of authorized shares of stock, or the number of shares of any class or series of stock designated, or reclassify any unissued shares into other classes or series of stock without the necessity of obtaining stockholder approval. All such shares may be issued in the sole discretion of our Board. In addition, we have granted, and expect to grant in the future, equity awards under our incentive plan to our independent directors and certain of our employees, including our executive officers, which to date have consisted of our

 

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restricted stock and RSUs, which are exchangeable into shares of our common stock subject to satisfaction of certain conditions. Finally, we have OP units outstanding which are redeemable for cash or, at our election, exchangeable into shares of our common stock.

Therefore, existing stockholders will experience dilution of their equity investment in us as we (1) sell additional shares of our common stock in the future, (2) sell securities that are convertible into or exchangeable for shares of our common stock, including OP units, (3) issue restricted shares of our common stock, RSUs or other equity-based securities under our incentive plan or (4) issue shares of our common stock in a merger or to sellers of properties acquired by us in connection with an exchange of OP units.

Because the OP units may, at our election, be exchanged for shares of our common stock, any merger, exchange or conversion between the Operating Partnership and another entity ultimately could result in the issuance of a substantial number of shares of our common stock, thereby diluting the percentage ownership interest of other stockholders. Because of these and other reasons, our stockholders may experience substantial dilution in their equity investment in us.

We may be unable to raise additional capital needed to grow our business.

We may not be able to increase our capital resources by engaging in additional debt or equity financings. Even if we complete such financings, they may not be on favorable terms. These circumstances could materially and adversely affect our financial results and impair our ability to achieve our business objectives. Additionally, we may be required to accept terms that restrict our ability to incur additional indebtedness or take other actions (including terms that require us to maintain specified liquidity or other ratios) that would otherwise be in the best interests of our stockholders.

If we make distributions from sources other than our cash flows from operations, we may not be able to sustain any prevailing distribution rate and we may have fewer funds available for acquisitions of healthcare properties and other assets.

Our organizational documents permit us to make distributions to our stockholders from any source without limit (other than those limits set forth under Maryland law). To the extent we fund distributions from sources other than our cash flows from operations, we will have fewer funds available for acquisitions of healthcare properties and other assets. At times, we may need to borrow funds or sell equity securities to make distributions to our stockholders, which could increase the costs to operate our business or dilute our stockholders’ investments in us, as the case may be. Furthermore, if we cannot cover our distributions to our stockholders with cash flows from operations, we may be unable to sustain any prevailing distribution rate.

Our distributions to stockholders may change, which could decrease the market price of shares of our common stock, potentially significantly.

All distributions made to our stockholders will be at the sole discretion of our Board and will depend upon our business, financial condition, liquidity, results of operations, FFO, MFFO, prospects, maintenance of our REIT qualification, and such other matters as our Board may deem relevant from time to time. We intend to evaluate our distribution policy from time to time, and it is possible that stockholders may not receive distributions equivalent to those previously paid by us for various reasons, including the following: we may not have enough cash to pay such distributions due to changes in our cash requirements, indebtedness, capital spending plans, operating cash flows or financial condition; decisions on whether, when, and in what amounts to make any future distributions will remain at all times entirely at the sole discretion of our Board, which reserves the right to change our distribution practices at any time and for any reason; our Board may elect to retain cash for investment purposes, working capital reserves or other purposes, or to maintain or improve our credit ratings; and the amount of distributions that our subsidiaries, joint ventures or investees may distribute to us may be subject to restrictions imposed by state law, state regulators and/or the terms of any current or future

 

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indebtedness or other financing that these entities may undertake. Stockholders have no contractual or other legal right to distributions that have not been authorized by our Board and declared by us. We cannot assure our stockholders that we will be able to pay any distributions or maintain the current level of distributions or that distributions will increase over time, nor can we give any assurance that incomes from the properties will increase or that the properties we buy will increase in value or support existing or increased distributions over time. We may need to fund such distributions from external sources, as to which no assurances can be given. In addition, as noted above, we may choose to retain operating cash flows, and these retained funds, although they may increase the value of our underlying assets, may not correspondingly increase the market price of shares of our common stock. Our failure to meet the market’s expectations with regard to the level of cash distributions to our stockholders likely would decrease the market price of shares of our common stock, potentially significantly.

The underwriters of this offering may waive or release parties to the lock-up agreements entered into in connection with this offering, which could decrease the market price of our common stock significantly and impair our ability to raise capital.

We, all of our directors and executive officers, and the holders of OP units have entered or will enter into lock-up agreements pursuant to which we and they will be subject to certain restrictions with respect to the sale or other disposition of shares of our common stock during the period ending 180 days after the date of listing of our common stock for trading on a national securities exchange. The underwriters, at any time and without notice, may release all or any portion of the shares of common stock subject to the foregoing lock-up agreements. See “Underwriting” for more information on these agreements. If the restrictions under the lock-up agreements are waived, then the shares of common stock, subject to compliance with the Securities Act or exceptions therefrom, will be available for sale into the public markets, which could cause the market price of shares of our common stock to decline significantly and impair our ability to raise capital.

If we fail to maintain an effective system of internal control over financial reporting and disclosure controls, we may not be able to accurately and timely report our financial results.

Effective internal control over financial reporting and disclosure controls are necessary for us to provide reliable financial reports, effectively prevent fraud and operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, it could have a material adverse effect on us. We are currently required to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, and we will be required to have our independent registered public accounting firm attest to the same, as required by Section 404 of the Sarbanes-Oxley Act of 2002. To date, the audit of our consolidated financial statements by our independent registered public accounting firm has included a consideration of internal control over financial reporting as a basis of designing their audit procedures, but not for the purpose of expressing an opinion (as will be required pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002) on the effectiveness of our internal control over financial reporting. If a material weakness or significant deficiency was to be identified in the effectiveness of our internal control over financial reporting, we may also identify deficiencies in some of our disclosure controls and procedures that we believe require remediation. If we or our independent registered public accounting firm discover control issues, we will make efforts to improve our internal control over financial reporting and disclosure controls. However, there is no assurance that we will be successful. Any failure to maintain effective controls or timely effect any necessary improvement of our internal control over financial reporting and disclosure controls could harm operating results or cause us to fail to meet our reporting obligations, which could affect the listing of our common stock on NYSE. Ineffective internal control over financial reporting and disclosure controls could also cause investors to lose confidence in our reported financial information. Any of these matters could cause a significant decline in the market price of our common stock.

 

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We have no operating history as a publicly traded company and may not be able to successfully operate as a publicly traded company.

We have no operating history as a publicly traded company. We cannot assure you that the past experience of our management team will be sufficient for us to successfully operate as a publicly traded company. Upon completion of this offering, we will be required to comply with NYSE listing rules and requirements, and this transition could place a significant strain on our management systems, infrastructure and other resources. Failure to operate successfully as a publicly traded company would have a material adverse effect on us.

If securities or industry analysts do not publish research or publish unfavorable research about our business, the market price and trading volume of our common stock could decline significantly.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause the market price and trading volume of our common stock to decline significantly. Moreover, if our operating results do not meet the expectations of the investor community, one or more of the analysts who cover our company may change their recommendations regarding our company, and the market price of our common stock could decline significantly.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS

Certain statements contained in this prospectus, other than historical facts, may be considered forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act, and the Private Securities Litigation Reform Act of 1995 (collectively with the Securities Act and Exchange Act, the “Acts”). We intend for all such forward-looking statements to be covered by the applicable safe harbor provisions for forward-looking statements contained in the Acts. Such forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “can,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” “possible,” “initiatives,” “focus,” “seek,” “objective,” “goal,” “strategy,” “plan,” “potential,” “potentially,” “preparing,” “projected,” “future,” “long-term,” “once,” “should,” “could,” “would,” “might,” “uncertainty,” or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the SEC.

Any such forward-looking statements are based on current expectations, estimates and projections about the industry and markets in which we operate, and beliefs of, and assumptions made by, our management and involve uncertainties that could significantly affect our financial results. Such statements include, but are not limited to: (1) statements about our plans, strategies, initiatives and prospects; (2) statements about the anticipated impact of the Merger; (3) statements about the COVID-19 pandemic, including its duration and potential or expected impact on our business and our view on forward trends; and (4) statements about our future results of operations, capital expenditures and liquidity. Such statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from those projected or anticipated, including, without limitation:

 

   

changes in economic conditions generally and the real estate market specifically;

 

   

the continuing adverse effects of the COVID-19 pandemic, including its effects on the healthcare industry, senior housing and SNFs and the economy in general;

 

   

use of proceeds of this offering;

 

   

legislative and regulatory changes, including changes to laws governing the taxation of REITs;

 

   

the availability of capital;

 

   

our ability to pay down, refinance, restructure or extend our indebtedness as it becomes due;

 

   

our ability to qualify and maintain our qualification as a REIT for U.S. federal income tax purposes;

 

   

changes in interest rates and foreign currency risk;

 

   

uncertainty from the discontinuance of LIBOR and the transition to SOFR;

 

   

competition in the real estate industry;

 

   

changes in GAAP policies and guidelines applicable to REITs;

 

   

the success of our investment strategy;

 

   

information technology security breaches;

 

   

our ability to retain our executives and key employees;

 

   

unexpected labor costs and inflationary pressures; and

 

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additional factors described in this prospectus under the headings “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Our Business and Properties.”

Should one or more of the risks or uncertainties described above or elsewhere in this prospectus occur, or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in any forward-looking statements. You are cautioned not to place undue reliance on these statements, which speak only as of the date of this prospectus.

All forward-looking statements, expressed or implied, included in this prospectus are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on their behalf may issue.

Except as required by law, we do not undertake any obligation to update or revise any forward-looking statements contained in this prospectus.

 

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USE OF PROCEEDS

We estimate that the net proceeds we will receive from this offering, after deducting the underwriting discount and our estimated offering expenses, will be approximately $                million (or approximately $                million if the underwriters exercise their overallotment option in full), assuming a public offering price of $                per share, which is the midpoint of the price range set forth on the front cover of this prospectus.

We will contribute the net proceeds from this offering to the Operating Partnership in exchange for OP units. We expect the Operating Partnership to use the net proceeds received from us to repay $                of the amount outstanding under our Credit Facility, to fund external growth with potential future property acquisitions and for other general corporate uses.

As of                , 2022, we had approximately $                outstanding under our Credit Facility and the weighted average interest rate on such amount outstanding was                % per annum . The revolving loan portion of our Credit Facility matures on January 19, 2026, and may be extended for one 12-month period, and the term loan portion of our Credit Facility matures on January 19, 2027.

Pending the permanent use of the net proceeds from this offering, we intend to invest the net proceeds in interest-bearing, short-term investment-grade securities, money-market accounts or other investments that are consistent with our intention to qualify for taxation as a REIT for U.S. federal income tax purposes.

Certain affiliates of BofA Securities, Inc. and KeyBanc Capital Markets Inc. are acting as lenders under our Credit Facility and will receive their pro rata portion of the net proceeds from this offering used to repay amounts outstanding under the facility. See “Underwriting—Relationships.”

 

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STRUCTURE OF OUR COMPANY

Capitalization, Reverse Stock Split, and Conversion

Our charter authorizes us to issue up to 1,200,000,000 shares of stock, of which 1,000,000,000 shares are designated as common stock at $0.01 par value per share and 200,000,000 shares are designated as preferred stock at $0.01 par value per share. Of the 1,200,000,000 shares of common stock authorized,                shares are classified as Class T common stock,                shares are classified as Class I common stock, and                shares are unclassified common stock. As of June 30, 2022, we had 77,864,724 shares of Class T common stock, 186,499,872 shares of Class I common stock, and no shares of unclassified common stock outstanding.

We intend to effect a one-for-                reverse split of our common stock effective on                , 2022 and a corresponding reverse split of OP units. As a result of the reverse common stock and OP unit splits, every                 shares of our common stock (including our Class T common stock and Class I common stock) and OP units will be automatically combined and converted into one issued and outstanding share of our common stock (of the applicable class) or OP unit, as applicable, rounded to the nearest 1/100th share or OP unit. The reverse common stock and OP unit splits will impact all classes of common stock and OP units proportionately and will have no impact on any stockholder’s or limited partner’s percentage ownership of the issued and outstanding shares of common stock of any individual class or of all classes or the OP units. Unless otherwise indicated, the information in this prospectus does not give effect to the reverse common stock and OP unit splits.

We intend to apply to have the common stock offered by this prospectus listed on the NYSE, and such common stock will be freely tradeable unless held by our affiliates. Our Class T common stock and Class I common stock are identical to our common stock offered by this prospectus, including with respect to voting and distribution rights, except that (1) we do not intend to list our Class T common stock or Class I common stock on the NYSE or any other national securities exchange at the time of this offering or for a period of time thereafter as described below, and (2) our charter provides, upon the listing of our common stock offered by this prospectus on the NYSE (or such later date not exceeding 12 months from the date of listing as may be approved by our Board), each share of our Class T common stock and Class I common stock will automatically, and without any stockholder action, convert into one share of our listed common stock. Our Board has approved the six-month anniversary of the listing of our common stock offered by this prospectus on the NYSE as the date on which our Class T common stock and Class I common stock will automatically convert into our listed common stock.

The Operating Partnership

Substantially all of our business is conducted through the Operating Partnership. We will contribute the net proceeds received by us from this offering to the Operating Partnership in exchange for OP units. Our interest in the Operating Partnership generally entitles us to share in cash distributions from, and in the profits and losses of, the Operating Partnership in proportion to our percentage ownership. Through a wholly-owned subsidiary that is the sole general partner of the Operating Partnership, we have the exclusive power under the partnership agreement to manage and conduct the business and affairs of the Operating Partnership, subject to certain limited approval and voting rights of the limited partners. After giving effect to this offering, we would have directly or indirectly controlled                % of the OP units as of                , 2022. The currently outstanding OP units will be subject to the 180-day lock-up period described in “Underwriting—No Sales of Similar Securities.”

In general, beginning on and after the date that is one year after the issuance of OP units to a limited partner, such limited partner will have the right to require the Operating Partnership to redeem part or all of such OP units for cash, based upon the value of an equivalent number of shares of our common stock at the time of the redemption, or, at our election, shares of our common stock on a one-for-one basis, subject to certain adjustments and the restrictions on ownership and transfer of our stock set forth in our charter and described under “Description of Capital Stock—Restrictions on Ownership and Transfer.” Each redemption of OP units will

 

77


increase our percentage ownership interest in the Operating Partnership and our share of its cash distributions and profits and losses. See “The Operating Partnership and the Partnership Agreement” for more information.

Structure Chart

The following chart sets forth, as of                 , 2022, information about us, the Operating Partnership, and certain related parties upon completion of this offering. Ownership percentages below assume that the underwriters’ overallotment option to purchase additional shares of our common stock is not exercised.

 

 

LOGO

 

(1)

Includes 892,257 shares of unvested restricted Class T common stock and unvested restricted Class I common stock. Excludes (a) 2,531,167 shares of our common stock available for future issuance under our incentive plan, (b) 76,800 shares of Class T common stock underlying unvested time-based RSUs, and (c) 234,820 shares of Class T common stock underlying unvested performance-based RSUs (such number of shares assumes that we issue shares of our common stock underlying such unvested performance-based awards at maximum levels for performance and market conditions that have not yet been achieved; to the extent that performance or market conditions do not meet maximum levels, the actual number of shares of our common stock issued under our incentive plan would be less than the amount reflected above).

 

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DISTRIBUTION POLICY

We have elected to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ended December 31, 2016. U.S. federal income tax law generally requires that a REIT distribute annually at least 90.0% of its REIT taxable income and that it pay tax at the regular corporate rate to the extent that it annually distributes less than 100% of its REIT taxable income. As a result, we have made, and intend to continue to make, distributions each taxable year equal to at least 100% of our REIT taxable income.

Beginning with the third quarter of 2022, distributions, if any, shall be authorized by our Board on a quarterly basis, in such amounts as our Board determines, and each quarterly record date for purposes of such distributions shall be determined and authorized by our Board in the last month of each calendar quarter until such time as our Board changes such policy. On                , 2022, our Board authorized a distribution to our stockholders of $                payable on                , 2022. Purchasers of shares of common stock in this offering will not receive the distribution payable                , 2022 on such shares.

We intend to make quarterly distributions to holders of our common stock, including those offered by this prospectus, when, as and if authorized by our Board, out of legally-available funds. We intend to make a pro rata distribution to holders of the common stock offered by this prospectus with respect to the period commencing upon completion of this offering and ending on                 , 2022 based on a distribution rate of $                per share of common stock for a full quarter. On an annualized basis, this would be $                per share of common stock, or an annualized distribution rate of approximately                % based on an assumed public offering price of $                per share, which is the midpoint of the price range set forth on the front cover of this prospectus. We estimate that this annual distribution rate will represent approximately                % of our estimated cash available for distribution to stockholders for the 12 months ending June 30, 2023, assuming that the underwriters do not exercise their overallotment option to purchase up to an additional                 shares of our common stock. We do not intend to reduce the annualized distributions per share of our common stock if the underwriters exercise their overallotment option to purchase additional shares. Our intended annual distribution rate has been established based on our estimate of cash available for distribution for the 12 months ending June 30, 2023, which we have calculated based on adjustments to our net loss for the 12 months ended June 30, 2022. This estimate was based on our historical operating results and does not take into account our long-term business and growth strategies, nor does it take into account any unanticipated expenditures we may have to make or any financings for such expenditures. In estimating our cash available for distribution for the 12 months ending June 30, 2023, we have made certain assumptions as reflected in the table and footnotes below.

Our estimate of cash available for distribution does not include the effect of any changes in our working capital resulting from changes in our working capital accounts. It also does not reflect the amount of cash estimated to be used for investing activities, financing activities or other activities, other than estimated capital expenditures, contractual obligations for tenant improvement costs, and leasing commissions and scheduled principal payments on debt. Any such investing and/or financing activities may have a material and adverse effect on our estimate of cash available for distribution. Because we have made the assumptions described herein in estimating cash available for distribution, we do not intend this estimate to be a projection or forecast of our actual results of operations, FFO, MFFO, liquidity or financial condition, and we have estimated cash available for distribution for the sole purpose of determining our estimated annual distribution amount. Our estimate of cash available for distribution should not be considered as an alternative to cash flow from operating activities (computed in accordance with GAAP) or as an indicator of our liquidity or our ability to make distributions. In addition, the methodology upon which we made the adjustments described herein is not necessarily intended to be a basis for determining future distributions.

We plan to maintain our intended distributions for the 12 months following the completion of this offering unless our business, financial condition, liquidity, results of operations, FFO, MFFO, prospects, economic conditions, or other factors differ materially from the assumptions used in calculating our intended distribution rate. We believe that our estimate of cash available for distribution constitutes a reasonable basis for

 

79


setting the distribution rate. However, we cannot assure you that our estimate will prove accurate, and actual distributions may therefore be significantly below the expected distributions. Our actual results of operations will be affected by a number of factors, including the revenue received from our properties, our operating expenses, interest expense and unanticipated capital expenditures. We may, from time to time, be required, or elect, to borrow under our Credit Facility or otherwise to make distributions.

We cannot assure you that our estimated distributions will be made or sustained or that our Board will not change our distribution policy in the future. Any distributions we make to our stockholders will be at the sole discretion of our Board, and their form, timing and amount, if any, will depend upon a number of factors, including our actual and projected business, financial condition, liquidity, results of operations, FFO, MFFO, prospects, the revenue we actually receive from our properties, our operating expenses, our debt service requirements, our capital expenditures, prohibitions and other limitations under our financing arrangements, our REIT taxable income, the annual REIT distribution requirements, applicable law, including restrictions on distributions under Maryland law, and such other factors as our Board deems relevant. For more information regarding risk factors that could materially and adversely affect us and our ability to make cash distributions, see “Risk Factors.” If our operations do not generate sufficient cash flow to enable us to pay our intended or required distributions, we may be required to fund distributions from working capital, borrow or raise equity, or reduce such distributions. In addition, our charter allows us to issue preferred stock that could have a preference on distributions and could limit our ability to make distributions to our stockholders. Additionally, under certain circumstances, agreements relating to our indebtedness could limit our ability to make distributions to our stockholders.

In addition to the annual distribution requirements described above, a REIT will be required to pay a 4.0% nondeductible excise tax on the amount, if any, by which the distributions it makes in a calendar year are less than the sum of 85.0% of its ordinary income, 95.0% of its capital gain net income and 100% of its undistributed income from prior years. For more information, see “Material U.S. Federal Income Tax Considerations.” We anticipate that our estimated cash available for distribution will be sufficient to enable us to meet the annual distribution requirements applicable to REITs and to avoid or minimize the imposition of corporate and excise taxes. However, under some circumstances, we may be required to make distributions in excess of cash available for distribution in order to meet these distribution requirements or to avoid or reduce the imposition of tax and we may need to borrow funds to make certain distributions.

 

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The following table sets forth calculations relating to the estimated initial distribution after this offering based on our net loss for the 12 months ended June 30, 2022 and is provided solely for the purpose of illustrating the estimated initial distribution after this offering and is not intended to be a basis for future distribution. Dollar amounts are in thousands:

 

Net loss for the year ended December 31, 2021

   $                    

Less: Net loss for the six months ended June 30, 2021

  

Add: Net loss for the six months ended June 30, 2022

  
  

 

 

 

Net loss for the 12 months ended June 30, 2022

   $    
  

 

 

 

Add: Net loss of Griffin-American Healthcare REIT IV, Inc. for the three months ended September 30, 2021

  
  

 

 

 

Net loss of the combined company for the 12 months ended June 30, 2022

   $    
  

 

 

 

Add: Depreciation and amortization

  

Add: Non-cash impairment charges (1)

  

Add: Non-cash interest expense and loss on debt extinguishment

  

Add: Non-cash share-based compensation, net

  

Less: Adjustments related to acquisition and disposition activity (2)

  

Add: Transaction and acquisition expenses (3)

  

Add: Loss on disposal of property, net

  

Less: Gain on the disposal of property, net

  

Less: Amortization of above- and below-market leases (4)

  

Less: Straight-line rental income and expense adjustments (5)

  

Less: Net (income) loss attributable to noncontrolling interest

  

Less: Adjustments related to noncontrolling interest

  

Add: Adjustments related to unconsolidated joint ventures (6)

  
  

 

 

 

Estimated cash flows from operating activities for the 12 months ending June 30, 2023

   $    
  

 

 

 

Less: Estimated capital expenditures, net of noncontrolling interest (7)

  

Less: Contractual obligations for tenant improvement costs, leasing commissions, and redevelopment costs, net of noncontrolling interest (8)

  

Less: Scheduled principal payments on debt, net of noncontrolling interest (9)

  
  

 

 

 

Estimated cash available for distribution for the 12 months ending June 30, 2023

   $    
  

 

 

 

Share of estimated cash available to the Operating Partnership for distribution attributable to holders of OP units (10)

     %  

Share of estimated cash available to the Operating Partnership for distribution attributable to American Healthcare REIT, Inc. (10)

     %  

Total estimated initial annual distribution to our stockholders and to holders of OP units (11)

   $    

Total estimated initial annual distribution to holders of OP units

   $    

Total estimated initial annual distribution to our stockholders (11)

   $    

Estimated initial annual distributions per share of our common stock

   $    
Payout ratio based on our Company’s share of estimated cash available for distribution (12)      %  

 

(1)

Represents the elimination of non-cash impairment charges recognized on real estate properties for the 12 months ended June 30, 2022.

 

81


(2)

Represents the net contribution to cash available for distribution from (a) the net increase associated with property acquisitions and dispositions that were consummated during the 12 months ended June 30, 2022 and (b) the net increase associated with property acquisitions and dispositions that (i) were consummated after June 30, 2022 and (ii) are subject to executed purchase and sale agreements prior to the date of this prospectus and are scheduled to be consummated during the 12 months ending June 30, 2023.

(3)

Represents the elimination of non-capitalizable transaction expenses associated with the acquisition and disposition activity described in footnote 5 above.

(4)

Represents the elimination of non-cash amortization of above-market and below-market lease intangibles for the 12 months ended June 30, 2022.

(5)

Represents the elimination of adjustments from cash basis to straight-line accrual basis of revenue and expense recognition for the 12 months ended June 30, 2022.

(6)

Represents our pro rata share of the adjustments set forth in the above table associated with properties owned through our unconsolidated joint ventures.

(7)

For purposes of calculating the distribution in the above table, we have assumed we will incur approximately $                million of capital expenditures, which are based on our property-related capital expenditures during the twelve months ended June 30, 2022 of $                million adjusted for inflation. Property-related capital expenditures are costs to maintain properties and their common areas.

(8)

For purposes of calculating the distribution in the above table, we have assumed that between June 30, 2022 and June 30, 2023 we will incur approximately $                million of tenant improvements and leasing commissions costs that we are contractually obligated to provide pursuant to the terms of new and renewal leases that have been signed prior to the date of this prospectus. Such amount is based on tenant improvements and leasing commissions during the twelve months ended June 30, 2022 of $                million adjusted for inflation.

(9)

Represents scheduled payments of mortgage loan principal due during the 12 months ending June 30, 2023.

(10)

Based on a total of                OP units and                shares of our common stock, shares of Class T common stock, and shares of Class I common stock to be outstanding after this offering (assuming that the underwriters do not exercise their overallotment option to purchase up to an additional                shares of our common stock). If the underwriters exercise their overallotment option in full, (a) a total of                 shares of our common stock would be outstanding after this offering and (b) the share of estimated cash available to the Operating Partnership for distribution attributable to holders of OP units and American Healthcare REIT, Inc. would be                % and                %, respectively.

(11)

Based on a total of                OP units and                shares of our common stock, shares of Class T common stock, and shares of Class I common stock to be outstanding after this offering (assuming that the underwriters do not exercise their overallotment option to purchase up to an additional                shares of our common stock). If the underwriters exercise their overallotment option in full, (a) a total of                 shares of our common stock would be outstanding after this offering and (b) the total estimated initial annual distribution to our stockholders and to holders of OP units would increase to approximately $                million, approximately $                million of which would be attributable to the estimated initial annual distribution to our stockholders.

(12)

Calculated as estimated initial annual distribution to stockholders divided by American Healthcare REIT, Inc.’s share of estimated cash available for distribution for the 12 months ending June 30, 2023, assuming the underwriters do not exercise their overallotment option to purchase up to an additional                shares of our common stock. If instead the underwriters’ overallotment option is exercised in full, the payout ratio based on our Company’s share of estimated cash available for distribution would be                %.

 

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CAPITALIZATION

The following table sets forth our capitalization as of June 30, 2022:

 

   

on a historical basis; and

 

   

on a pro forma basis to give effect to (1) the Merger, (2) the AHI Acquisition, (3) the reverse common stock and OP unit splits, (4) the issuance by us of                shares of our common stock in this offering (assuming that the underwriters do not exercise their overallotment option to purchase up to an additional                shares of our common stock) at an assumed public offering price of $                per share, which is the midpoint of the price range set forth on the front cover of this prospectus, and (5) the use of the net proceeds from this offering as set forth in “Use of Proceeds.”

You should read this table together with “Use of Proceeds,” “Structure of Our Company,” “Selected Consolidated Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and notes thereto included elsewhere in this prospectus.

 

     As of June 30, 2022  

(in thousands)

   Historical      Pro Forma  

Cash, cash equivalents, and restricted cash:

     

Cash and cash equivalents

   $ 59,101      $    

Restricted cash

     45,075        45,075  
  

 

 

    

 

 

 

Total cash, cash equivalents, and restricted cash

   $ 104,176      $    
  

 

 

    

 

 

 

Debt:

     

Mortgage loans payable, net

   $ 1,134,059      $ 1,134,059  

Lines of credit and term loans, net

     1,266,691     
  

 

 

    

 

 

 

Total debt

     2,400,750     
  

 

 

    

 

 

 

Redeemable noncontrolling interests

     75,337        75,337  

Equity:

     

Stockholders’ equity:

     

Preferred stock, $0.01 par value per share

     —          —    

Common stock, $0.01 par value per share (1)

     —       

Class T common stock, $0.01 par value per share (1)(2)

     770     

Class I common stock, $0.01 par value per share (1)(2)

     1,865     

Additional paid in capital (1)(2)

     2,541,504     

Accumulated deficit

     (1,024,328      (1,024,328

Accumulated other comprehensive loss

     (2,653   
  

 

 

    

 

 

 

Total stockholders’ equity

     1,517,158     
  

 

 

    

 

 

 

Noncontrolling interests

     172,602     
  

 

 

    

 

 

 

Total equity

     1,689,760     
  

 

 

    

 

 

 

Total capitalization

   $ 4,165,847      $    
  

 

 

    

 

 

 

 

(1)

Excludes (a) 2,531,167 shares of our common stock available for future issuance under our incentive plan and (b) 14,007,903 shares of common stock that may be issued for redeeming OP units.

(2)

Includes 892,257 shares of unvested restricted Class T common stock and unvested restricted Class I common stock. Excludes 76,800 shares of Class T common stock underlying unvested time-based RSUs and 234,820 shares of Class T common stock underlying unvested performance-based RSUs (such number of shares assumes that we issue shares of our common stock underlying such unvested performance-based awards at maximum levels for performance and market conditions that have not yet been achieved; to the extent that performance or market conditions do not meet maximum levels, the actual number of shares of our common stock issued under our incentive plan would be less than the amount reflected above).

 

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DILUTION

If you invest in shares of our common stock, your interest will be diluted immediately to the extent of the difference between the public offering price per share you will pay in this offering and the net tangible book value per share of our common stock immediately after this offering. References in this section to “common stock” include our common stock being offered by this prospectus and our Class T common stock and Class I common stock, collectively.

Our net tangible book value as of June 30, 2022 was approximately $1.3 billion or $4.69 per share. After giving effect to the sale of shares of our common stock in this offering and the use of net proceeds described herein and the other adjustments described in the unaudited pro forma financial statements included elsewhere in this prospectus, our pro forma net tangible book value as of June 30, 2022 would have been approximately $                , or $                per share. This represents an immediate decrease in pro forma net tangible book value of $                per share and an immediate dilution of $                per share to new investors. The following table illustrates this calculation on a per share basis:

 

Assumed public offering price per share of our common stock

      $                    

Net tangible book value per share of our common stock as of June 30, 2022 (1)

   $                       

Decrease per share attributable to this offering

   $       
  

 

 

    

Pro forma net tangible book value per share of our common stock after this offering and other pro forma adjustments (2)

      $            
     

 

 

 

Dilution per share to new investors (3)

      $    
     

 

 

 

 

(1)

Net tangible book value per share as June 30, 2022, is determined by dividing net tangible book value by the number of shares of our common stock (including OP units that may be exchanged for our common stock on a one-for-one basis) owned by continuing investors as of June 30, 2022. Net tangible book value equals total tangible assets less total tangible liabilities.

(2)

Pro forma net tangible book value per share is determined by dividing pro forma net tangible book value by the total number of shares of our common stock to be outstanding after this offering. The total number of shares of our common stock to be outstanding after this offering includes the number of shares owned by continuing investors as of June 30, 2022 (including OP units that may be exchanged for our common stock on a one-for-one basis) and the number of shares of common stock issued in this offering, but excludes any shares that may be issued upon exercise of the underwriters’ overallotment option and any shares that may be issued in the future under our incentive plan.

(3)

The dilution in pro forma net tangible book value per share to new investors is determined by subtracting pro forma net tangible book value per share from the assumed initial public offering price per share.

The dilution information discussed above is illustrative only and will change based on the actual initial public offering price and other terms determined at the time of pricing of this offering. A $1.00 increase (decrease) in the assumed initial public offering price of $                per share, the midpoint of the price range set forth on the front cover of this prospectus, would increase (decrease) pro forma net tangible book value per share after this offering and other pro forma adjustments by $                per share and increase (decrease) the dilution to new investors by $                per share, in each case less the underwriting discount and estimated offering expenses payable by us, assuming the number of shares of common stock offered by us, as set forth on the front cover of this prospectus, remains the same. If the underwriters exercise in full their overallotment option to purchase additional shares of our common stock, our pro forma net tangible book value per share would be $                and the dilution to new investors would be $                per share, assuming an initial public offering price of $                per share, the midpoint of the range set forth on the front cover of this prospectus.

 

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Differences Between New Investors and Continuing Investors

The table below summarizes as of June 30, 2022, on a pro forma basis after giving effect to this offering and the other pro forma adjustments, the differences between the number of shares of common stock, shares of Class T common stock, shares of Class I common stock, and OP units held by continuing investors and received by new investors in this offering, the total consideration paid, and the average price per share paid by continuing investors and new investors.

 

     Common Stock,
Class T Common
Stock, Class I
Common Stock,
and OP Units
    Total Consideration     Average
Price Per
Share
 
     Number      Percentage     Amount      Percentage  

Continuing investors

                         $                          $                    

New investors in this offering

        $          $    
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

        100   $        100  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

Our consolidated balance sheet data as of December 31, 2021 and 2020 and consolidated operating data for the years ended December 31, 2021, 2020, and 2019 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our consolidated balance sheet data as of December 31, 2019, 2018, and 2017 and our consolidated operating data for the years ended December 31, 2018 and 2017 have been derived from our audited consolidated financial statements not included in this prospectus. The below information also includes our unaudited condensed consolidated balance sheet data as of June 30, 2022 and our unaudited condensed consolidated operating data for the six months ended June 30, 2022 and 2021, which have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The unaudited condensed consolidated balance sheet data as of June 30, 2021 has been derived from our unaudited consolidated financial statements not included in this prospectus. The unaudited condensed consolidated financial statements were prepared on a basis consistent with our audited consolidated financial statements and include, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the financial information contained in those statements. Our consolidated financial data included below and set forth elsewhere in this prospectus are not necessarily indicative of our future performance.

The unaudited pro forma condensed combined balance sheet data as of June 30, 2022, gives effect to this offering, the reverse stock split, and the related use of the net proceeds as if they had been consummated on June 30, 2022. The unaudited pro forma condensed combined operating data for the six months ended June 30, 2022, gives effect to this offering, the reverse stock split, and the related use of the net proceeds as if they had been consummated on January 1, 2021. The unaudited pro forma condensed combined operating data for the year ended December 31, 2021, gives effect to the Merger, the AHI Acquisition, the reverse stock split, and this offering and the related use of the net proceeds as if they had been consummated on January 1, 2021. The unaudited pro forma condensed combined balance sheet data as of June 30, 2022, and the unaudited pro forma condensed combined operating data for the six months ended June 30, 2022, do not include pro forma effects of the Merger and the AHI Acquisition as they were consummated on October 1, 2021, and are reflected in our historical audited consolidated balance sheet data as of December 31, 2021. The preparation of the unaudited pro forma condensed combined financial statements requires management to make estimates and assumptions deemed appropriate. The unaudited pro forma condensed combined financial statements are not intended to represent, or be indicative of what our actual financial position and results of operations would have been as of the date and for the period indicated, nor does it purport to represent our future financial position or results of operations.

In connection with the Merger, we were the legal acquiror and GAHR III was the accounting acquiror for financial reporting purposes. Thus, the financial information set forth herein subsequent to the Merger reflects results of the combined company, and the financial information set forth herein prior to the Merger reflects GAHR III’s results. You should read the following selected consolidated financial and other data together with

 

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“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Our Business and Properties,” and our consolidated financial statements and related notes appearing elsewhere in this prospectus.

 

    As of and for the
Six Months Ended June 30,
    As of and for the
Years Ended December 31,
 
(in thousands, except per
share amounts)
  2022
(Pro Forma)
    2022     2021     2021
(Pro Forma)
    2021     2020     2019     2018     2017  

Operating Data:

                 

Total revenues and Grant Income

  $ 764,430     $ 764,430     $ 599,371     $ 1,392,884     $ 1,282,254     $ 1,244,301     $ 1,223,116     $ 1,135,260     $ 1,054,292  

Property operating expenses

    (583,219     (583,219     (495,568     (1,074,372     (1,030,193     (993,727     (967,860     (889,071     (806,439

Rental expenses

    (29,950     (29,950     (16,174     (55,351     (38,725     (32,298     (33,859     (34,823     (33,075

General and administrative

    (22,047     (22,047     (14,600     (53,957     (43,199     (27,007     (29,749     (28,770     (32,587

Business acquisition expenses

    (1,930     (1,930     (3,998     (19,382     (13,022     (290     161       2,913       3,833  

Depreciation and amortization

    (82,282     (82,282     (52,080     (170,304     (133,191     (98,858     (111,412     (95,678     (113,226

Total net other expense

      (61,068     (40,527       (76,237     (86,336     (79,725     (76,091     (70,675

Income tax (expense) benefit

    (373     (373     (658     (956     (956     3,078       (1,524     797       3,227  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

    $ (16,439   $ (24,234     $ (53,269   $ 8,863     $ (852   $ 14,537     $ 5,350  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to controlling interest

    $ (20,266   $ (19,525     $ (47,794   $ 2,163     $ (4,965   $ 13,297     $ 11,222  

Comprehensive (loss) income

    $ (17,126   $ (24,123     $ (53,334   $ 9,110     $ (547   $ 13,948     $ 6,408  

Comprehensive (loss) income attributable to controlling interest

    $ (20,953   $ (19,414     $ (47,752   $ 2,410     $ (4,660   $ 12,708     $ 12,280  

Per Share Data:

                 

Net (loss) income per share of common stock attributable to controlling interest—basic and diluted

    $ (0.08   $ (0.11     $ (0.24   $ 0.01     $ (0.03   $ 0.07     $ 0.06  

Common stock distributions declared per share

    $ 0.20     $ 0.02       $ 0.17     $ 0.22     $ 0.65     $ 0.60     $ 0.60  

Weighted-average number of shares of common stock outstanding—basic and diluted

      262,768,637       179,628,315         200,324,561       179,916,841       181,931,306       185,277,317       183,684,252  

Balance Sheet Data:

                 

Real estate investments, net

  $ 3,491,845     $ 3,491,845     $ 2,397,092       $ 3,514,686     $ 2,330,000     $ 2,270,421     $ 2,222,681     $ 2,163,258  

Total assets

    $ 4,523,900     $ 3,208,774       $ 4,580,339     $ 3,234,937     $ 3,172,289     $ 2,889,092     $ 2,800,475  

Mortgage loans payable, net

  $ 1,134,059     $ 1,134,059     $ 917,121       $ 1,095,594     $ 810,478     $ 792,870     $ 688,262     $ 613,558  

Lines of credit and term loans, net

    $ 1,266,691     $ 837,234       $ 1,226,634     $ 843,634     $ 815,879     $ 738,048     $ 624,125  

Total liabilities

    $ 2,758,803     $ 2,162,129       $ 2,750,768     $ 2,160,114     $ 2,069,521     $ 1,632,212     $ 1,421,465  

Redeemable noncontrolling interests

  $ 75,337     $ 75,337     $ 40,174       $ 72,725     $ 40,340     $ 44,105     $ 38,245     $ 32,435  

Total stockholders’ equity

    $ 1,517,158     $ 842,920       $ 1,581,293     $ 866,108     $ 900,555     $ 1,060,507     $ 1,187,850  

Noncontrolling interests

    $ 172,602     $ 163,551       $ 175,553     $ 168,375     $ 158,108     $ 158,128     $ 158,725  

Total equity

    $ 1,689,760     $ 1,006,471       $ 1,756,846     $ 1,034,483     $ 1,058,663     $ 1,218,635     $ 1,346,575  

 

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    As of and for the
Six Months Ended June 30,
    As of and for the
Years Ended December 31,
 
(in thousands, except per
share amounts)
  2022
(Pro Forma)
    2022     2021     2021
(Pro Forma)
    2021     2020     2019     2018     2017  

Other Operational Data: (1)

                 

FFO attributable to controlling interest

    $ 65,334     $ 28,179       $ 69,678     $ 95,675     $ 91,159     $ 96,958     $ 113,464  

MFFO attributable to controlling interest

    $ 73,926     $ 29,234       $ 77,642     $ 96,672     $ 96,703     $ 94,677     $ 102,272  

NOI

    $ 151,261     $ 87,629       $ 213,336     $ 218,276     $ 221,397     $ 211,366     $ 214,778  

 

(1)

For definitions of these metrics, reconciliations of these metrics to the most directly comparable GAAP financial measure and a statement of why our management believes the presentation of these metrics provides useful information to investors and any additional purposes for which management uses these metrics, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.”

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This prospectus contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in forward-looking statements for many reasons, including the risks described in “Risk Factors” and elsewhere in this prospectus. Our results of operations and financial condition, as reflected in the accompanying financial statements and related notes, are subject to management’s evaluation and interpretation of business conditions, changing capital market conditions, and other factors that could affect the ongoing viability of our tenants. You should read the following discussion with “Cautionary Statement Concerning Forward Looking Statements,” “Our Business and Properties” and the historical and pro forma consolidated financial statements and the notes thereto included elsewhere in this prospectus.

Overview and Background

We are a leading internally-managed REIT that acquires, owns, and operates a diversified portfolio of clinical healthcare real estate properties, focusing primarily on MOBs, senior housing, SNFs, hospitals, and other healthcare-related facilities. We have built a fully-integrated management platform, with approximately 113 employees, that operates clinical healthcare properties throughout the United States, the United Kingdom, and the Isle of Man. As of June 30, 2022, we had approximately $4.5 billion of total assets and were the ninth largest public reporting healthcare REIT (based on total assets). As of June 30, 2022, we owned and/or operated 313 buildings and integrated senior health campuses, representing an aggregate of approximately 19.5 million square feet of GLA.

Merger

On October 1, 2021, we merged with GAHR III through the Merger and internalized our management through the AHI Acquisition. Following the Merger, the combined company was renamed American Healthcare REIT, Inc., and the Operating Partnership was renamed American Healthcare REIT Holdings, LP. The Merger was intended to qualify as a tax-free reorganization under, and within the meaning of, Section 368(a) of the Code. As a result of and at the effective time of the Merger, the separate corporate existence of GAHR III and our pre-Merger operating partnership ceased.

At the effective time of the Merger, each issued and outstanding share of GAHR III’s common stock, $0.01 par value per share, converted into the right to receive 0.9266 shares of our Class I common stock. Further, at the effective time of the Merger, (1) each OP unit outstanding immediately prior to the effective time of the Merger was converted automatically into the right to receive 0.9266 of a Class I OP unit, and (2) each unit of limited partnership interest in our pre-Merger operating partnership outstanding immediately prior to the effective time of the Merger was converted automatically into the right to receive one OP unit of like class.

AHI Acquisition

On October 1, 2021, immediately prior to the consummation of the Merger, GAHR III acquired NewCo (i.e., the AHI Acquisition), pursuant to a contribution and exchange agreement dated June 23, 2021 (the “Contribution Agreement”) between: GAHR III; the Operating Partnership; AHI; Griffin Capital Company, LLC (“Griffin Capital”); Platform Healthcare Investor T-II, LLC; Flaherty Trust; and Jeffrey T. Hanson, our former Chief Executive Officer and current Chairman of the Board, Danny Prosky, our former Chief Operating Officer and current Chief Executive Officer, President and director, and Mathieu B. Streiff, our former Executive Vice President, General Counsel, former Chief Operating Officer and current Executive Vice President and director (collectively, the “AHI Principals”). NewCo owned substantially all of the business and operations of AHI as well as all of the equity interests in (1) a subsidiary of AHI that served as our external advisor and (2) a subsidiary of AHI that served as the external advisor of GAHR III.

 

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Pursuant to the Contribution Agreement, AHI contributed substantially all of its business and operations to the Operating Partnership, including its interest in the external advisor of GAHR III and our external advisor, and Griffin Capital contributed its then-current ownership interest in the external advisor of GAHR III and our external advisor to the Operating Partnership. In exchange for these contributions, the Operating Partnership issued OP units. Subject to working capital and other customary adjustments, the total approximate value of these OP units at the time of consummation of the transactions contemplated by the Contribution Agreement was approximately $131,674,000, with a reference value for purposes thereof of $8.71 per OP unit, such that the Operating Partnership issued 15,117,529 OP units as consideration. Following the consummation of the Merger and the AHI Acquisition, we became self-managed. Such OP units were owned by AHI Group Holdings, LLC (“AHI Group Holdings”), which was owned and controlled by the AHI Principals, Platform Healthcare Investor T-II, LLC, Flaherty Trust, and a wholly owned subsidiary of Griffin Capital (collectively, the “NewCo Sellers”).

The AHI Acquisition was treated as a business combination for accounting purposes, with GAHR III as both the legal and accounting acquiror of NewCo. While we were the legal acquiror of GAHR III in the Merger, GAHR III was determined to be the accounting acquiror in the Merger in accordance with Financial Accounting Standards Board, Accounting Standards Codification, Topic 805, Business Combinations, after considering the relative share ownership and the composition of the governing body of us. Thus, the financial information set forth herein subsequent to the consummation of the Merger and the AHI Acquisition reflects results of the combined company, and the financial information set forth herein prior to the Merger and the AHI Acquisition reflects GAHR III’s results. For this reason, period to period comparisons may not be meaningful.

Operating Partnership and Former Advisor

We conduct substantially all of our operations through the Operating Partnership. Through September 30, 2021, we were externally advised by our former advisor pursuant to an advisory agreement, as amended (the “Advisory Agreement”), between us and our former advisor. Our former advisor, subject to the oversight and review of our Board, provided asset management, property management, acquisition, disposition, and other advisory services on our behalf consistent with our investment policies and objectives. Following the Merger and the AHI Acquisition, we became self-managed and are no longer externally advised. As a result, any fees that would have otherwise been payable to our former advisor are no longer being paid. Also, on October 1, 2021 and in connection with the AHI Acquisition, the Operating Partnership redeemed all 22,222 shares of our common stock owned by the former advisor of GAHR III and the 20,833 shares of our Class T common stock owned by our former advisor.

Prior to the Merger and the AHI Acquisition, our former advisor was 75.0% owned and managed by wholly owned subsidiaries of AHI, and 25.0% owned by a wholly owned subsidiary of Griffin Capital (collectively, our “former co-sponsors”). Prior to the AHI Acquisition, AHI was 47.1% owned by AHI Group Holdings, 45.1% indirectly owned by DigitalBridge Group, Inc. (NYSE: DBRG), and 7.8% owned by James F. Flaherty III. We were not affiliated with Griffin Capital, DigitalBridge Group, Inc., or Mr. Flaherty; however, we were affiliated with our former advisor, AHI and AHI Group Holdings. Please see the “—Merger” and “—AHI Acquisition” above for a further discussion of our operations effective October 1, 2021.

Public Offering

We raised $754,118,000 through a best efforts initial public offering and issued 75,639,681 aggregate shares of our Class T common stock and Class I common stock. In addition, during the best efforts initial public offering, we issued 3,253,535 aggregate shares of its Class T common stock and Class I common stock pursuant to the dividend reinvestment plan (“DRIP”) for a total of $31,021,000 in reinvested distributions. Following the deregistration of the best efforts initial public offering, we continued issuing shares of our common stock pursuant to the DRIP through a subsequent offering. We recommenced offering shares pursuant to the DRIP on March 1, 2019, following the termination of the best efforts initial public offering on February 15, 2019. On March 18, 2021, our Board authorized the suspension of the DRIP, effective as of April 1, 2021.

 

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On October 4, 2021, our Board authorized the reinstatement of the DRIP. As of June 30, 2022 and December 31, 2021, a total of $77,083,000 and $54,637,000, respectively, in distributions were reinvested that resulted in 8,180,513 and 5,755,013 shares of common stock, respectively, being issued pursuant to the DRIP. On                 2022, our Board authorized the suspension of the DRIP, effective as of                , 2022.

On March 24, 2022, our Board, at the recommendation of the Audit Committee, which is comprised solely of independent directors, unanimously approved and established an updated estimated per share NAV of our common stock of $9.29 as of December 31, 2021. We provide this updated estimated per share NAV annually to assist broker-dealers in connection with their obligations under FINRA Rule 2231 with respect to customer account statements. The updated estimated per share NAV is based on the estimated value of our assets less the estimated value of our liabilities, divided by the number of shares outstanding on a fully diluted basis, calculated as of December 31, 2021. The valuation was performed in accordance with the methodology provided in Practice Guideline 2013-01, Valuations of Publicly Registered Non-Listed REITs, issued by the IPA in April 2013, in addition to guidance from the SEC.

Our Real Estate Investments Portfolio

We currently operate through six reportable business segments: MOBs, integrated senior health campuses, SHOP, senior housing—leased, SNFs, and hospitals. As of June 30, 2022 and December 31, 2021, we owned and/or operated 313 buildings and integrated senior health campuses with an aggregate contract purchase price of $4,370,459,000 and $4,292,371,000, respectively, including the fair value of the properties acquired in the Merger. In addition, as of June 30, 2022 and December 31, 2021, we also owned a real estate-related debt investment purchased for $60,429,000.

Critical Accounting Estimates

Our critical accounting policies are those that will have the most impact on the reporting of our financial condition and results of operations and those requiring significant judgments and estimates. We believe that our judgments and estimates are consistently applied and produce financial information that fairly present our financial condition and results of operations. Our most critical accounting policies that involve judgments and estimates include (1) real estate investments purchase price allocation, (2) impairment of long-lived assets, (3) goodwill, (4) revenue recognition and Grant Income, (5) resident receivable allowances, and (6) income taxes.

These critical accounting policies involve estimates that may require complex judgment in their application and are evaluated on an on-going basis using information that is available as well as various other assumptions believed to be reasonable under the circumstances. However, if our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, we may have applied a different accounting treatment, resulting in a different presentation of our financial statements.

The following is a summary of the key judgments and estimates used in our critical accounting policies:

Real Estate Investments Purchase Price Allocation

Upon the acquisition of real estate properties or entities owning real estate properties, we determine whether the transaction is a business combination, which requires that the assets acquired and liabilities assumed constitute a business. If the assets acquired and liabilities assumed are not a business, we account for the transaction as an asset acquisition. Under both methods, we recognize the identifiable assets acquired and liabilities assumed; however, for a transaction accounted for as an asset acquisition, we capitalize transaction costs and allocate the purchase price using a relative fair value method allocating all accumulated costs. Whereas, for a transaction accounted for as a business combination, we immediately expense transaction costs incurred associated with the business combination and allocate the purchase price based on the estimated fair value of each separately identifiable asset and liability.

 

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In accounting for asset acquisitions and business combinations, we, with assistance from independent valuation specialists, measure the fair value of tangible and intangible identified assets and liabilities, as applicable, based on their respective fair values for acquired properties, which is then allocated to acquired investments in real estate. The fair value measurement and its allocation require significant judgment and in some cases involve complex calculations. These allocation assessments directly impact our financial statements.

Impairment of Long-Lived Assets

We also periodically perform analysis that requires us to judge whether indicators of impairment exist and to estimate likely future cash flows. Projections of expected future operating cash flows require that we estimate future revenue amounts, future property operating expenses, and the number of years the property is held for investment, among other factors. The subjectivity of assumptions used in the future cash flow analysis, including discount rates, where applicable, could result in an incorrect assessment of the real estate fair value and could result in the misstatement of the carrying value of our real estate assets and net income (loss).

Goodwill

Goodwill represents the excess of consideration paid over the fair value of underlying identifiable net assets of a business acquired. This allocation is based upon our determination of the value of the acquired assets and assumed liabilities, which requires judgment and some of the estimates involve complex calculations. These allocation assessments have a direct impact on our financial statements. Our goodwill has an indeterminate life and is not amortized, but is tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Such evaluation could involve estimated future cash flows, which is highly subjective, and is based in part on assumptions regarding future events. We compare the fair value of a reporting segment with its carrying amount. We recognize an impairment loss to the extent the carrying value of goodwill exceeds the implied value in the current period. We take a qualitative approach to consider whether an impairment of goodwill exists prior to quantitatively determining the fair value of the reporting segment in step one of the impairment test.

Revenue Recognition and Grant Income

A significant portion of resident fees and services revenue represents healthcare service revenue that is reported at the amount that we expect to be entitled to in exchange for providing patient care. These amounts are due from patients, third-party payors (including health insurers and government programs), other healthcare facilities, and others and include variable consideration for retroactive revenue adjustments due to settlement of audits, reviews, and investigations. Such variable consideration is included in the determination of the estimated transaction price for providing care. These settlements include estimates based on the terms of the payment agreement with the payor, correspondence from the payor, and our historical settlement activity, including an assessment to ensure that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the retroactive adjustment is subsequently resolved. Estimated settlements are adjusted in future periods as adjustments become known (that is, new information becomes available), or as years are settled or are no longer subject to such audits, reviews, and investigations.

We recognize amounts granted through federal and state government programs (such as through the CARES Act) that were established for eligible healthcare providers to preserve liquidity in response to the COVID-19 pandemic as Grant Income or as a reduction of property operating expenses, as applicable, when there is reasonable assurance that the grants will be received and all conditions to retain the funds will be met. We adjust our estimates and assumptions of such grants based on the applicable guidance provided by the government and the available information that we have.

Resident Receivable Allowances

An allowance is maintained for estimated losses resulting from the inability of residents and payors to meet the contractual obligations under their lease or service agreements. Substantially all of such allowances are

 

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recorded as direct reductions of resident fees and services revenue as contractual adjustments provided to third-party payors or implicit price concessions in our accompanying consolidated statements of operations and comprehensive income (loss). Our determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, the residents’ financial condition, security deposits, cash collection patterns by payor and by state, current economic conditions, future expectations in estimating credit losses, and other relevant factors.

Income Taxes

We have elected to be taxed as a REIT under the Code for U.S. federal income tax purposes commencing with our taxable year ended December 1, 2016. We believe that we have been organized and operated, and we intend to continue to operate, in conformity with the requirements for qualification and taxation as a REIT under the Code. Our qualification as a REIT, and maintenance of such qualification, will depend on our, and Trilogy REIT’s, ability to meet, on a continuing basis, various complex requirements under the Code relating to, among other things, the sources of our, or Trilogy REIT’s, gross income, the composition and values of our, or Trilogy REIT’s, assets, our, or Trilogy REIT’s, distribution levels and the concentration of ownership of our, or Trilogy REIT’s, stock. As a REIT, we generally will not be subject to U.S. federal income tax on REIT taxable income that we currently distribute to our stockholders.

If we fail to qualify as a REIT in any calendar year and do not qualify for certain statutory relief provisions, our income would be subject to U.S. federal income tax at the corporate rate, and we would likely be precluded from qualifying for treatment as a REIT until the fifth calendar year following the year in which we fail to qualify. Accordingly, our failure to qualify as a REIT could have a material adverse effect on our results of operations and amounts available for distribution to our stockholders. Even if we qualify as a REIT, we may still be subject to certain U.S. federal, state and local taxes on our income and assets and to U.S. federal income and excise taxes on our undistributed income. In addition, subject to maintaining our qualification as a REIT, a portion of our business may be conducted through, and a portion of our income may be earned in, one or more TRSs that are themselves subject to regular corporate income taxation.

Factors Which May Influence Results of Operations

In connection with the Merger, we were the legal acquiror and GAHR III was the accounting acquiror for financial reporting purposes. Thus, the financial information set forth herein subsequent to the Merger reflects results of the combined company, and the financial information set forth herein prior to the Merger reflects GAHR III’s results. Furthermore, as a result of the closing of the AHI Acquisition on October 1, 2021, and following the Merger, our company is now self-managed and employs all the employees necessary to operate as a self-managed company. The impact of being a self-managed company on our results of operations is predominantly an increase in general and administrative costs related to employing the workforce necessary to operate as a self-managed company and cost savings associated with no longer paying advisory fees to our former advisor. For these reasons, period to period comparisons may not be meaningful.

Other than the effects of the Merger and the AHI Acquisition, discussed above, and the COVID-19 pandemic, discussed below, as well as other national economic conditions affecting real estate generally, we are not aware of any material trends or uncertainties that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition, disposition, management, and operation of our properties. For a further discussion of these and other factors that could impact our future results or performance, see “Risk Factors.”

COVID-19

Our residents, tenants, operating partners and managers, our industry and the U.S. economy continue to be adversely affected by the COVID-19 pandemic and related supply chain disruptions and labor shortages. The

 

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timing and extent of the economic recovery from the COVID-19 pandemic is dependent upon many factors, including the emergence and severity of COVID-19 variants, the continued effectiveness and frequency of booster vaccinations and the duration and implications of continued restrictions and safety measures. As the COVID-19 pandemic is still impacting the healthcare system to a certain extent, it continues to present challenges for us as an owner and operator of healthcare facilities, making it difficult to ascertain the long-term impact the COVID-19 pandemic will have on real estate markets in which we own and/or operate properties and our portfolio of investments. COVID-19 is particularly dangerous among the senior population and results in heightened risk to our senior housing and SNFs, and we continue to work diligently to maintain aggressive protocols at such facilities as well as actively collaborate with our tenants, operating partners, and managers to respond and take action to mitigate the impact of the COVID-19 pandemic.

We have evaluated the impact of the COVID-19 pandemic on our business thus far and incorporated information concerning such impacts into our assessments of liquidity, impairment, and collectability from tenants and residents as of June 30, 2022 and as of December 31, 2021. We will continue to monitor such impacts and will adjust our estimates and assumptions based on the available information.

The COVID-19 pandemic has resulted in a significant decline in resident occupancies at our senior housing—leased facilities, SHOP, integrated senior health campuses, and SNFs, and an increase in COVID-19 related operating expenses with more costly short-term hires due to the shortage of healthcare personnel. Therefore, our focus at such properties continues to be on resident occupancy recovery and operating expense management. While resident occupancies at our integrated senior health campuses and SNFs have gradually improved to near pre-pandemic levels, our SHOP have been slower to recover.

To date, the impact of the COVID-19 pandemic have been significant, rapidly evolving and may continue into the future. The information in this prospectus is based on data currently available to us and will likely change as the COVID-19 pandemic progresses. Future actions that may be taken by state and local governments to mitigate the impact of COVID-19 variants that may emerge could disrupt our business, activities, and operations, the extent to which are highly uncertain. We continue to closely monitor COVID-19 developments and are continuously assessing the implications to our business, residents, tenants, operating partners, managers and our portfolio of investments. We cannot predict with reasonable certainty when demand for healthcare services at our senior housing—leased, SHOP, and SNF segments will return to pre-COVID-19 pandemic levels.

The lasting effect of the COVID-19 pandemic over the next 12 months could be significant and will largely depend on future developments, including: COVID-19 vaccination and booster rates; the long term efficacy of COVID-19 vaccinations and boosters; and the potential emergence of new, more transmissible or severe variants, which cannot be predicted with confidence at this time. See the “—Results of Operations” and “—Liquidity and Capital Resources” sections below and “Risk Factors—Risks Relating to Our Business and Financial Results—The COVID-19 pandemic has adversely impacted, and will likely continue to adversely impact, our business and financial results, and the ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted.”

Scheduled Lease Expirations

Excluding our SHOP and integrated senior health campuses, as of June 30, 2022 and December 31, 2021, our properties were 93.1% and 94.3% leased, respectively, and during the remainder of 2022, 4.8% of the leased GLA is scheduled to expire. Our leasing strategy focuses on negotiating renewals for leases scheduled to expire during the next twelve months. In the future, if we are unable to negotiate renewals, we will try to identify new tenants or collaborate with existing tenants who are seeking additional space to occupy. As of June 30, 2022 and December 31, 2021, our remaining weighted average lease term was 7.1 and 7.6 years, respectively, excluding our SHOP and integrated senior health campuses.

 

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Our combined SHOP and integrated senior health campuses were 79.5% and 77.9% leased as of June 30, 2022 and December 31, 2021, respectively. Substantially all of our leases with residents at such properties are for a term of one year or less.

Results of Operations

In connection with the Merger, we were the legal acquiror and GAHR III was the accounting acquiror for financial reporting purposes. Thus, the financial information set forth herein subsequent to the Merger reflects results of the combined company, and the financial information set forth herein prior to the Merger reflects GAHR III’s results.

Comparison of Six Months Ended June 30, 2022 and 2021

Our operating results are primarily comprised of income derived from our portfolio of properties and expenses in connection with the acquisition and operation of such properties. Our primary sources of revenue include rent generated by our non-RIDEA properties, and resident fees and services revenue from our RIDEA properties. Our primary expenses include property operating expenses and rental expenses. In addition, beginning in the fourth quarter of 2021, following the AHI Acquisition that resulted in our company being self-managed, general and administrative expenses include payroll and other corporate operating expenses but no longer include advisory fees to our former advisor. In general, and under a normal operating environment without the disruption of the COVID- 19 pandemic, we expect amounts related to our portfolio of properties to increase in the future due to fixed annual rent escalations on our portfolio of properties. The ability to compare one period to another is also impacted by the closing of the AHI Acquisition and the increase in size of our real estate portfolio as a result of the Merger.

We segregate our operations into reporting segments in order to assess the performance of our business in the same way that management reviews our performance and makes operating decisions. As of June 30, 2022, we operated through six reportable business segments: MOBs; integrated senior health campuses; SHOP; senior housing—leased; SNFs; and hospitals.

Except where otherwise noted, the changes in our consolidated results of operations for 2022 as compared to 2021 are primarily due to GAHR III’s acquisition (as accounting acquiror) of our portfolio of 92 buildings, or approximately 4,799,000 square feet of GLA, as a result of the Merger on October 1, 2021, the disruption to our normal operations as a result of the COVID-19 pandemic, and Grant Income received. As of June 30, 2022 and 2021, we owned and/or operated the following types of properties:

 

     June 30,  
     2022     2021  
     Number of
Buildings/
Campuses
     Aggregate
Contract
Purchase Price
     Leased
%
    Number of
Buildings/
Campuses
     Aggregate
Contract
Purchase Price
     Leased
%
 

Integrated senior health campuses

     122      $ 1,865,786,000        (1     120      $ 1,754,233,000        (1

MOBs

     105        1,249,658,000        90.3     63        657,885,000        89.3

SHOP

     47        708,050,000        (2     20        433,891,000        (2

Senior housing—leased

     20        169,885,000        100     9        89,535,000        100

SNFs

     17        237,300,000        100     6        119,500,000        100

Hospitals

     2        139,780,000        100     2        139,780,000        100
  

 

 

    

 

 

      

 

 

    

 

 

    

Total/weighted average (3)

     313      $ 4,370,459,000        93.1     220      $ 3,194,824,000        92.0
  

 

 

    

 

 

      

 

 

    

 

 

    

 

(1)

The leased percentage for the resident units of our integrated senior health campuses was 81.7% and 77.4% as of June 30, 2022 and 2021, respectively.

 

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(2)

The leased percentage for the resident units of our SHOP was 73.7% and 73.9% as of June 30, 2022 and 2021, respectively.

(3)

Leased percentage excludes our SHOP and integrated senior health campuses.

Revenues and Grant Income

Our primary sources of revenue include rent generated by our non-RIDEA properties, and resident fees and services revenue from our RIDEA properties. The amount of revenues generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease available space at the then existing rental rates. We also receive Grant Income. Revenues and Grant Income by reportable segment consisted of the following for the periods then ended:

 

     Six Months Ended June 30,  
     2022      2021  

Resident Fees and Services Revenue

     

Integrated senior health campuses

   $ 568,594,000      $ 489,041,000  

SHOP

     76,605,000        40,337,000  
  

 

 

    

 

 

 

Total resident fees and services revenue

     645,199,000        529,378,000  
  

 

 

    

 

 

 

Real Estate Revenue

     

MOBs

     74,670,000        40,658,000  

SNFs

     12,992,000        7,328,000  

Senior housing—leased

     10,560,000        7,176,000  

Hospitals

     4,826,000        5,503,000  
  

 

 

    

 

 

 

Total real estate revenue

     103,048,000        60,665,000  
  

 

 

    

 

 

 

Grant Income

     

Integrated senior health campuses

     16,065,000        9,127,000  

SHOP

     118,000        201,000  
  

 

 

    

 

 

 

Total Grant Income

     16,183,000        9,328,000  
  

 

 

    

 

 

 

Total revenues and Grant Income

   $ 764,430,000      $ 599,371,000  
  

 

 

    

 

 

 

For the six months ended June 30, 2022 and 2021, resident fees and services revenue primarily consisted of rental fees related to resident leases, extended healthcare fees, and other ancillary services, and real estate revenue primarily consisted of base rent and expense recoveries. For the six months ended June 30, 2022, $28,542,000 in resident fees and services revenue for our SHOP was due to the increase in the size of our portfolio as a result of the Merger. The remaining increase in resident fees and services revenue was primarily attributable to improved occupancy and higher reimbursement rates from both Medicare and Medicaid programs for our integrated senior health campuses and SHOP. In addition, for the six months ended June 30, 2022, $44,629,000 of real estate revenue was primarily due to the increase in the size of our portfolio as a result of the Merger. Such amounts were partially offset by a decrease in rental revenue for our MOB segment of $910,000 for the six months ended June 30, 2022, primarily due to a one-time lease termination fee recognized in June 2021 for one of our MOBs.

For the six months ended June 30, 2022 and 2021, we recognized $16,183,000 and $9,328,000, respectively, of Grant Income at our integrated senior health campuses and SHOP related to government grants received through the CARES Act economic stimulus programs.

 

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Property Operating Expenses and Rental Expenses

Property operating expenses and property operating expenses as a percentage of resident fees and services revenue and Grant Income, as well as rental expenses and rental expenses as a percentage of real estate revenue, by reportable segment consisted of the following for the periods then ended:

 

     Six Months Ended June 30,  
     2022     2021  

Property Operating Expenses

          

Integrated senior health campuses

   $ 512,084,000        87.6   $ 461,630,000        92.7

SHOP

     71,135,000        92.7     33,938,000        83.7
  

 

 

      

 

 

    

Total property operating expenses

   $ 583,219,000        88.2   $ 495,568,000        92.0
  

 

 

      

 

 

    

Rental Expenses

          

MOBs

   $ 28,104,000        37.6   $ 15,125,000        37.2

SNFs

     1,207,000        9.3     744,000        10.2

Hospitals

     248,000        5.1     260,000        4.7

Senior housing—leased

     391,000        3.7     45,000        0.6
  

 

 

      

 

 

    

Total rental expenses

   $ 29,950,000        29.1   $ 16,174,000        26.7
  

 

 

      

 

 

    

Integrated senior health campuses and SHOP typically have a higher percentage of direct operating expenses to revenue than MOBs, hospitals, senior housing—leased and SNFs due to the nature of RIDEA-type facilities where we conduct day-to-day operations. For the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, rental expenses increased by $12,291,000 and property operating expenses increased by $30,671,000 for our SHOP due to the increase in the size of our portfolio as a result of the Merger. Further, the remaining increase in total property operating expenses was due to an increase in labor costs at our SHOP and integrated senior health campuses, such as a significant increase in employee wages, agency fees and temporary labor expenses.

General and Administrative

For the six months ended June 30, 2022, general and administrative expenses were $22,047,000 compared to $14,600,000 for the six months ended June 30, 2021. The increase in general and administrative expenses; of $7,447,000 was primarily the result of an increase of: (i) $11,272,000 in payroll and compensation costs for the personnel hired as a result of the AHI Acquisition; (ii) $3,133,000 in professional and legal fees; (iii) $2,131,000 in corporate operating expenses; and (iv) $1,226,000 in stock compensation expenses. Such increases were partially offset by a decrease in our asset management and property management oversight fees of $11,401,000 as a result of the AHI Acquisition.

Business Acquisition Expenses

For the six months ended June 30, 2022 and 2021, we recorded business acquisition expense of $1,930,000 and $3,998,000, respectively. The decrease in such expenses primarily related to a $3,682,000 decrease in legal costs and professional services incurred related to the Merger and the AHI Acquisition, partially offset by $938,000 in transaction costs related to the acquisition of a pharmaceutical business in April 2022 and $676,000 in dead-deal costs incurred in the pursuit of real estate investments that did not close.

Depreciation and Amortization

For the six months ended June 30, 2022 and 2021, depreciation and amortization was $82,282,000 and $52,080,000, respectively, which primarily consisted of depreciation on our properties of $68,750,000 and

 

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$48,853,000, respectively, and amortization of our identified intangible assets of $12,133,000 and $2,357,000, respectively. For the six months ended June 30, 2022, the increase in depreciation and amortization of $30,202,000 was primarily the result of the increase in depreciable assets in our portfolio as a result of the Merger resulting in depreciation and amortization expense of $27,386,000.

Interest Expense

Interest expense, including gain or loss in fair value of derivative financial instruments, consisted of the following for the periods presented:

 

     Six Months Ended June 30,  
     2022      2021  

Interest expense:

     

Lines of credit and term loans and derivative financial instruments

   $ 16,576,000      $ 15,474,000  

Mortgage loans payable

     19,152,000        17,300,000  

Amortization of deferred financing costs:

     

Lines of credit and term loans

     1,533,000        2,150,000  

Mortgage loans payable

     933,000        719,000  

Amortization of debt discount/premium, net

     330,000        405,000  

Gain in fair value of derivative financial instruments

     (500,000      (3,596,000

Loss on extinguishments of debt

     4,410,000        2,293,000  

Interest on finance lease liabilities

     140,000        192,000  

Interest expense on financing obligations and other liabilities

     596,000        322,000  
  

 

 

    

 

 

 

Total

   $ 43,170,000      $ 35,259,000  
  

 

 

    

 

 

 

For the six months ended June 30, 2022, interest expense was $43,170,000 compared to $35,259,000 for the six months ended June 30, 2021. The increase in total interest expense was primarily related to an increase in interest expense incurred on our lines of credit and term loans and mortgage loans payable due to a larger debt portfolio as a result of the Merger, as well as a decrease in the gain in fair value recognized on our derivative financial instruments of $3,096,000 and an increase in loss on debt extinguishment of $2,117,000.

Impairment of Real Estate Investments

For the six months ended June 30, 2022, we recognized an impairment charge of $17,340,000 on four of our SHOP within our Central Florida senior housing portfolio. For the six months ended June 30, 2021, we recognized an impairment charge of $3,335,000 on one MOB, Mount Dora Medical Center.

Comparison of the Years Ended December 31, 2021 and 2020

Our operating results are primarily comprised of income derived from our portfolio of properties and expenses in connection with the acquisition and operation of such properties. Our primary sources of revenue include rent generated by our non-RIDEA properties, and resident fees and services revenue from our RIDEA properties. Our primary expenses include property operating expenses and rental expenses. In addition, in the fourth quarter of 2021, following the AHI Acquisition that resulted in our company being self-managed, general and administrative expenses include payroll and other corporate operating expenses but no longer include advisory fees to our former advisor. In general, and under a normal operating environment without the disruption of the COVID-19 pandemic, we expect amounts related to our portfolio of properties to increase in the future due to fixed annual rent escalations on our portfolio of properties. The ability to compare one period to another is also impacted by the closing of the AHI Acquisition and the increase in size of our real estate portfolio as a result of the Merger.

 

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We segregate our operations into reporting segments in order to assess the performance of our business in the same way that management reviews our performance and makes operating decisions. As of December 31, 2021, we operated through six reportable business segments: MOBs; integrated senior health campuses; SHOP; senior housing—leased; SNFs; and hospitals.

The COVID-19 pandemic has had a significant adverse impact on the operations of our real estate portfolio. Although we experienced some delays in receiving rent payments from our tenants, substantially all of the contractual rent through December 2021 from our MOB tenants has been received. However, given the ongoing uncertainty of the impact of the COVID-19 pandemic over the next 12 months, we are unable to predict the impact it will have on such tenants’ continued ability to pay rent.

Except where otherwise noted, the changes in our consolidated results of operations for 2021 as compared to 2020 are primarily due to GAHR III’s acquisition (as accounting acquiror) of our portfolio of 92 buildings, or approximately 4,799,000 square feet of GLA, as a result of the Merger on October 1, 2021, the disruption to our normal operations as a result of the COVID-19 pandemic, Grant Income received, and transitioning the operations of the four senior housing facilities within Delta Valley ALF Portfolio to a RIDEA structure in December 2021. As of December 31, 2021 and 2020, we owned and/or operated the following types of properties:

 

     December 31,  
     2021     2020  
    

Number of
Buildings/
Campuses

    

Aggregate
Contract
Purchase Price

    

Leased
%

   

Number of
Buildings/
Campuses

    

Aggregate
Contract
Purchase Price

    

Leased
%

 

Integrated senior health campuses

     122      $ 1,787,698,000        (1     119      $ 1,626,950,000        (1

MOBs

     105        1,249,658,000        92.0     63        657,885,000        89.0

SHOP

     47        708,050,000        (2     20        433,891,000        (2

Senior housing—leased

     20        169,885,000        100     9        89,535,000        100

SNFs

     17        237,300,000        100     7        128,000,000        100

Hospitals

     2        139,780,000        100     2        139,780,000        100
  

 

 

    

 

 

      

 

 

    

 

 

    

Total/weighted average (3)

     313      $ 4,292,371,000        94.3     220      $ 3,076,041,000        91.9
  

 

 

    

 

 

      

 

 

    

 

 

    

 

(1)

The leased percentage for the resident units of our integrated senior health campuses was 78.1% and 66.9% as of December 31, 2021 and 2020, respectively.

(2)

The leased percentage for the resident units of our SHOP was 72.4% and 70.0% as of December 31, 2021 and 2020, respectively.

(3)

Leased percentage excludes our SHOP and integrated senior health campuses.

 

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Revenues and Grant Income

Our primary sources of revenue include rent generated by our non-RIDEA properties, and resident fees and services revenue from our RIDEA properties. The amount of revenues generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease available space at the then existing rental rates. We also receive Grant Income. Revenues and Grant Income by reportable segment consisted of the following for the periods then ended:

 

     Years Ended December 31,  
     2021      2020  

Resident Fees and Services Revenue

     

Integrated senior health campuses

   $ 1,025,699,000      $ 983,169,000  

SHOP

     98,236,000        85,904,000  
  

 

 

    

 

 

 

Total resident fees and services revenue

     1,123,935,000        1,069,073,000  
  

 

 

    

 

 

 

Real Estate Revenue

     

MOBs

     97,297,000        78,424,000  

SNFs

     17,309,000        16,107,000  

Senior housing—leased

     16,530,000        14,524,000  

Hospitals

     10,232,000        10,992,000  
  

 

 

    

 

 

 

Total real estate revenue

     141,368,000        120,047,000  
  

 

 

    

 

 

 

Grant Income

     

Integrated senior health campuses

     13,911,000        53,855,000  

SHOP

     3,040,000        1,326,000  
  

 

 

    

 

 

 

Total Grant Income

     16,951,000        55,181,000  
  

 

 

    

 

 

 

Total revenues and Grant Income

   $ 1,282,254,000      $ 1,244,301,000  
  

 

 

    

 

 

 

For the years ended December 31, 2021 and 2020, resident fees and services revenue primarily consisted of rental fees related to resident leases, extended healthcare fees, and other ancillary services, and real estate revenue primarily consisted of base rent and expense recoveries. For the year ended December 31, 2021, $14,211,000 in resident fees and services revenue for our SHOP was due to the increase in the size of our portfolio as a result of the Merger. The remaining increase in resident fees and services revenue was primarily attributable to improved occupancy and higher reimbursement rates from both Medicare and Medicaid programs for our integrated senior health campuses. In addition, for the year ended December 31, 2021, $21,682,000 of real estate revenue was primarily due to the increase in the size of our portfolio as a result of the Merger.

For the years ended December 31, 2021 and 2020, we recognized $16,951,000 and $55,181,000, respectively, of Grant Income at our integrated senior health campuses and SHOP related to government grants received through the CARES Act economic stimulus programs.

 

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Property Operating Expenses and Rental Expenses

Property operating expenses and property operating expenses as a percentage of resident fees and services revenue and Grant Income, as well as rental expenses and rental expenses as a percentage of real estate revenues, by reportable segment consisted of the following for the periods then ended:

 

     Years Ended December 31,  
     2021     2020  

Property Operating Expenses

          

Integrated senior health