Summary of Key Points from the Conference Call Industry Overview - The report focuses on the **China Healthcare** industry, specifically the **medical device sector** and the implementation of **Value-Based Procurement (VBP)** [1][2][3]. Core Insights and Arguments - **VBP Implementation Pace**: The overall pace of VBP implementation has been slow in 2025, with significant announcements made in January but actual provincial actions only starting in October [2][3]. - **Shift in Public Sentiment**: There is a noticeable shift in public sentiment towards VBP, emphasizing the efficacy and quality of medical devices over mere price reductions [2][3]. - **Impact on Domestic Brands**: Domestic brands have gained hospital access and market share due to VBP, allowing them to compete effectively with multinational corporations (MNCs) [3][4]. - **Prolonged Impact on Fundamentals**: The effects of VBP on pricing and revenue may last longer than initially expected, potentially extending beyond two years due to various factors such as inventory adjustments and regional rollout differences [4][13]. - **Government Support for Innovation**: The government intends to support innovation in medical devices, but substantial support will likely depend on the implementation of Diagnosis-Related Groups (DRG) and Diagnosis-Related Payment (DIP) systems [2][4]. Upcoming VBP Announcements - Several upcoming VBP announcements are expected, covering various product categories and regions, including heart occluders, high-frequency electrosurgical units, and TCM acupuncture needles [10][11]. Company-Specific Insights - **AK Medical**: The company is confident in achieving a net profit of **Rmb 330-340 million** for FY25, despite VBP pressures. VBP-ed products account for over **66%** of domestic sales, leading to some margin compression [13][14]. - **Weigao**: Reported a preliminary 3Q revenue of **Rmb 3.26 billion**, with modest growth of **+2.6%** year-over-year. The orthopedic segment showed stronger growth post-VBP renewal [15]. - **Angelalign**: Management expressed concerns about the upcoming VBP for clear aligners, with potential delays in patient treatments impacting volumes [16]. - **Mindray**: Anticipates lower revenue from ultrasonic scalpels and staplers due to slower-than-expected VBP implementation. The IVD industry is projected to contract in 2025 [19][20]. - **SNIBE**: Reports a **10-15%** year-over-year decline in testing volume, but expects a smaller decline of **2-3%** next year, with stable pricing anticipated for the upcoming VBP renewal [21]. Additional Important Insights - **Market Share Changes**: The market share of MNCs has decreased across various product categories post-VBP, indicating a shift towards domestic players [30][31]. - **Pricing Trends**: The pricing cuts from ceiling prices in VBP have become more rational since 2022, with a notable reduction in the average cut from ceiling prices compared to earlier years [24][25]. This summary encapsulates the key points discussed in the conference call, highlighting the current state and future outlook of the China healthcare medical device sector amidst ongoing VBP implementations.

Financial Performance - Net loss of $(0.56) per basic and diluted share, with Nareit defined Funds from Operations (FFO) of $0.23 per diluted share, and Adjusted Funds from Operations (AFFO) of $0.36 per diluted share[5] - The net loss attributable to common stockholders for Q3 2025 was $15,881,000, compared to a net loss of $24,189,000 in Q2 2025, indicating an improvement of 34.5%[29] - The comprehensive loss attributable to common stockholders for Q3 2025 was $17,762,000, down from $26,394,000 in Q2 2025, reflecting a decrease of 32.7%[28] - Funds from Operations (FFO) attributable to common stockholders increased to $6,708,000 in Q3 2025, up 25.3% from $5,352,000 in Q2 2025[34] - Adjusted Funds from Operations (AFFO) reached $10,364,000 in Q3 2025, representing a 14.0% increase compared to $9,091,000 in Q2 2025[34] - The company reported a significant increase in AFFO per common share to $0.36 in Q3 2025, compared to $0.32 in Q2 2025[34] Revenue and Occupancy - Same Store revenue increased by 12.0% year-over-year[5] - Same Store average occupancy increased by 4.0% year-over-year to 83.7%[5] - Revenue from tenants for Q3 2025 was $86,026,000, a slight increase from $85,332,000 in Q2 2025[28] - SHOP segment revenue from tenants increased to $57,004,000 in Q3 2025, up 1.6% from $56,081,000 in Q2 2025[40] Operating Income and Expenses - The company reported an operating income of $2,375,000 in Q3 2025, recovering from an operating loss of $5,518,000 in Q2 2025[28] - Total expenses for Q3 2025 were $84,277,000, down from $93,502,000 in Q2 2025, representing a decrease of approximately 9.5%[28] - Interest expense for Q3 2025 was $15,060,000, slightly lower than $15,836,000 in Q2 2025[28] Cash Flow and NOI - Cash Net Operating Income (NOI) for Q3 2025 was $31,254,000, a 2.5% increase from $30,384,000 in Q2 2025[38] - Same-store Cash NOI for Q3 2025 was $31,935,000, reflecting a 2.5% increase from $31,143,000 in Q2 2025[38] - Same Store Cash Net Operating Income (NOI) growth was 12.2% year-over-year, with the Senior Housing Operating Property segment showing a 27.2% increase[5] - Year-over-year Same Store Cash NOI growth of 27.2% and quarter-over-quarter growth of 10.3%[5] - Same Store Cash NOI Margin expanded by 2.5% year-over-year to 21.5%[5] Debt and Liabilities - Total debt outstanding as of September 30, 2025, was $1.0 billion, with a weighted average interest rate of 5.1% and an average remaining term of 3.5 years[4] - Year-to-date through September 2025, the company has paid down $83.1 million of debt using proceeds from dispositions[4] - The total liabilities as of the latest reporting period were $1,106,409,000, remaining stable compared to $1,106,414,000 in the previous quarter[26] - Total stockholders' equity increased to $627,219,000 in Q3 2025 from $647,033,000 in Q2 2025, indicating a decrease of approximately 3.1%[26] Impairment and Share Repurchase - Impairment charges in Q3 2025 were $6,641,000, significantly lower than $15,212,000 in Q2 2025, showing a reduction of 56.3%[28] - The company repurchased $4.5 million of previously outstanding shares of preferred stock at a weighted average yield of 11.9%[7] Property Portfolio - Total properties as of September 30, 2025, included 133 in the OMF segment and 41 in the SHOP segment, with a total of 174 properties[41]

Property Ownership and Operations - As of September 30, 2025, the company owned 174 properties, comprising 7.3 million rentable square feet across 30 states[248]. - The total gross asset value of the company was $2.2 billion as of September 30, 2025[257]. - The average occupancy rate for the SHOP segment improved to 83.2% in 2025 from 77.5% in 2024[263]. - The company internalized its advisory and property management functions on September 27, 2024, transitioning to a dedicated workforce[249]. Financial Performance - For the three months ended September 30, 2025, net loss attributable to common stockholders was $15.9 million, a decrease of 64% from $44.1 million in the same period of 2024[260]. - Revenue from tenants for the OMF segment decreased by 15.4% to $29.0 million for the three months ended September 30, 2025, compared to $34.3 million in 2024[261]. - The SHOP segment reported a 4.3% increase in revenue from tenants, reaching $57.0 million for the three months ended September 30, 2025, up from $54.6 million in 2024[263]. - Total expenses for the three months ended September 30, 2025, were $84.3 million, down 24.4% from $111.4 million in 2024[260]. - Net loss attributable to common stockholders was $45.1 million for the nine months ended September 30, 2025, compared to $183.1 million for the same period in 2024[283]. - Revenue from tenants in the SHOP segment increased by 3.9% to $168.9 million for the nine months ended September 30, 2025[286]. Expenses and Charges - The OMF segment's net operating income (NOI) decreased by 12.8% to $20.6 million for the three months ended September 30, 2025, compared to $23.6 million in 2024[261]. - Impairment charges recorded were $6.6 million for Q3 2025, compared to $8.8 million for Q3 2024[266]. - Acquisition and transaction related expenses decreased by $5.1 million to $0.1 million for Q3 2025 from $5.2 million for Q3 2024[271]. - General and administrative expenses increased by $0.2 million to $5.7 million for Q3 2025, primarily due to stock-based compensation[272]. - Depreciation and amortization expenses decreased by $2.7 million to $18.0 million for Q3 2025 from $20.7 million for Q3 2024[274]. - Impairment charges for the nine months ended September 30, 2025 totaled $33.8 million, compared to $11.5 million for the same period in 2024[289]. - General and administrative expenses decreased by $1.3 million to $15.6 million for the nine months ended September 30, 2025, from $16.9 million in 2024[294]. - Depreciation and amortization expenses decreased by $3.1 million to $60.3 million for the nine months ended September 30, 2025, compared to $63.4 million in 2024[295]. - Interest expense decreased by $6.7 million to $45.4 million for the nine months ended September 30, 2025, from $52.1 million in 2024[298]. Cash Flow and Distributions - Cash flows provided by operating activities increased by $83.3 million during the nine months ended September 30, 2025, compared to the same period in 2024[306]. - Cash flows provided by investing activities increased by $14.6 million during the nine months ended September 30, 2025, primarily due to proceeds from the sale of 15 held-for-use OMFs and four held-for-use SHOPs[307]. - Total cash distributions for the three months ended September 30, 2025, were $3,374,000, with a total of $10,301,000 for the year-to-date[345]. - Cash flows used in operations for the nine months ended September 30, 2025, were $3.0 million, indicating insufficient cash generation to fund current dividend rates[347]. - The company funded distributions to holders of Series A and B Preferred Stock and Series A Preferred Units primarily with available cash on hand[347]. Stock and Dividends - The company declared and issued quarterly dividends entirely in shares of common stock from October 2020 through January 2024, with no further stock dividends intended in the future[251]. - The Board authorized a stock repurchase program for up to $50.0 million of Series A and Series B Preferred Stock, with no stated expiration date[330]. - In Q3 2025, the company repurchased 74,713 shares of Series A Preferred Stock at an average price of $16.10 and 97,670 shares of Series B Preferred Stock at an average price of $16.03[331]. - For the nine months ended September 30, 2025, the company repurchased 131,629 shares of Series A Preferred Stock at an average price of $15.39 and 163,883 shares of Series B Preferred Stock at an average price of $15.14[331]. - The Board may reduce or suspend dividend payments based on various factors, including financial condition and capital expenditure requirements[342]. - The company has not paid cash dividends on common stock since mid-2020, opting instead for stock dividends until January 2024[341]. Market and Economic Factors - As of September 30, 2025, the 12-month Consumer Price Index increased by 3.0%, impacting lease agreements without indexed escalation provisions[350]. - Most leases in the OMF segment contain rent escalation provisions, but these rates are generally below current inflation rates[350]. - Increased operating costs under net leases could adversely affect tenants' ability to pay rent, impacting the company's revenue[351]. - Leases at SHOPs do not typically have rent escalations, but the company can renew leases at market rates due to their short-term nature[352]. - There has been no material change in the company's exposure to market risk during the nine months ended September 30, 2025[354].

Financial Performance - The Company reported a net loss of $(0.85) per basic and diluted share, with Nareit defined Funds from Operations (FFO) of $0.19 per diluted share, and Adjusted Funds from Operations (AFFO) of $0.32 per diluted share[6]. - FFO per share increased by 35.7% quarter-over-quarter, while AFFO per share increased by 3.2% quarter-over-quarter[6]. - The net loss attributable to common stockholders for Q2 2025 was $(24,189) thousand, compared to $(5,019) thousand in Q1 2025, indicating a significant increase in losses[35]. - Comprehensive loss attributable to common stockholders for Q2 2025 was $26,394, compared to $10,013 in Q1 2025[31]. - Operating loss before gain on sale of real estate investments was $8,170 for Q2 2025, an improvement from a loss of $11,965 in Q1 2025[30]. - Interest expense for Q2 2025 was $15,836, an increase from $14,529 in Q1 2025[30]. - Total stockholders' equity rose to $647,033 in Q2 2025, compared to $674,579 in Q1 2025, reflecting a decrease of 4.1%[30]. Revenue and Income - Same Store revenue increased by 11.8% year-over-year[6]. - Revenue from tenants for Q2 2025 was $85,332, a decrease of 1.3% from Q1 2025's $86,443[30]. - Net Operating Income (NOI) for Q2 2025 was $31,484, up from $28,903 in Q1 2025, indicating an increase of 5.5%[33]. - Cash net operating income (NOI) for the OMF segment was $20,440 thousand in Q2 2025, a 5.7% increase from Q1 2025 and a 4.4% increase from Q2 2024[40]. - SHOP segment revenue from tenants reached $56,081 thousand in Q2 2025, reflecting a 6.6% increase from Q1 2025 and a 17.3% increase from Q2 2024[40]. - Same Store Cash Net Operating Income (NOI) growth was 8.5% year-over-year, with the Senior Housing Operating Property (SHOP) segment showing a growth of 17.3%[6]. Expenses and Liabilities - Total expenses for Q2 2025 were $93,502, down 5.5% from $98,408 in Q1 2025[30]. - Total liabilities increased to $1,106,414 in Q2 2025 from $1,151,765 in Q1 2025, a decrease of 3.9%[30]. - The Company completed dispositions totaling $21.4 million during the quarter, resulting in a net gain of $2.7 million[4]. - Year-to-date through June 2025, the Company paid down $83.1 million of debt using proceeds from dispositions[5]. Capital Expenditures and Impairments - Recurring capital expenditures for Q2 2025 were $10,571 thousand, up from $6,658 thousand in Q1 2025[35]. - The company reported impairment charges of $15,212 thousand in Q2 2025, compared to $11,899 thousand in Q1 2025[38]. - Impairment charges increased to $15,212 in Q2 2025 from $11,899 in Q1 2025, reflecting a 27.0% rise[30]. Stock and Debt Management - The Company repurchased $1.8 million of preferred stock at a weighted average yield of 12.8%, reducing leverage by $1.3 million[7]. - As of June 30, 2025, total debt outstanding was $1.0 billion with a weighted average interest rate of 5.1% and an average remaining term of 3.7 years[5]. - FFO per common share diluted increased to $0.19 in Q2 2025 from $0.14 in Q1 2025[35]. Operational Outlook - The Company is preparing for an eventual public listing, supported by strong operational performance and portfolio quality[2]. - Same Store average occupancy increased by 5.0% year-over-year to 82.8%[6]. - Total properties in the OMF segment decreased from 136 as of March 31, 2025, to 133 as of June 30, 2025, while SHOP segment properties decreased from 45 to 42 in the same period[41].

Financial Performance - For the three months ended June 30, 2025, the net loss attributable to common stockholders was $24.2 million, a significant improvement from a net loss of $119.9 million in the same period of 2024 [256]. - Revenue from tenants decreased to $85.3 million for the three months ended June 30, 2025, down from $88.8 million in 2024, representing a decline of 3.9% [256]. - The total expenses for the three months ended June 30, 2025, were $93.5 million, a decrease of $95.5 million compared to $189.0 million in 2024 [256]. - The company reported a net operating income (NOI) of $21.2 million for the OMF segment for the three months ended June 30, 2025, down 14.9% from $24.9 million in 2024 [257]. - The SHOP NOI for the three months ended June 30, 2025 was $10.2 million, representing a 15.5% increase from $8.9 million in 2024 [259]. - Net loss attributable to common stockholders for the six months ended June 30, 2025 was $29.2 million, significantly improved from a loss of $138.9 million in 2024 [277]. - Funds from Operations (FFO) attributable to stockholders for Q2 2025 was $5.4 million, a significant improvement from a loss of $96.5 million in Q2 2024 [332]. - Adjusted Funds from Operations (AFFO) attributable to stockholders for Q2 2025 was $9.1 million, compared to $4.4 million in Q2 2024 [332]. Revenue and Expenses - Revenue from tenants in the SHOP segment increased to $56.1 million for the three months ended June 30, 2025, up 3.6% from $54.1 million in 2024 [259]. - Revenue from tenants in the OMF segment decreased by 13.5% to $59.9 million for the six months ended June 30, 2025, down from $69.3 million in 2024 [278]. - The OMF NOI for the six months ended June 30, 2025 was $40.7 million, reflecting an 18.3% decrease from $49.8 million in 2024 [278]. - Total expenses for the six months ended June 30, 2025 were $191.9 million, a decrease of $86.5 million from $278.5 million in 2024 [277]. - General and administrative expenses rose by $0.7 million to $5.4 million for the three months ended June 30, 2025, mainly due to stock-based compensation [266]. - General and administrative expenses decreased by $0.8 million to $10.6 million for the six months ended June 30, 2025, compared to $11.4 million in the same period of 2024 [289]. - Interest expense decreased by $1.9 million to $15.8 million for the three months ended June 30, 2025, attributed to lower average indebtedness and interest rates [269]. - Interest expense decreased by $3.8 million to $30.4 million for the six months ended June 30, 2025, from $34.1 million in the same period of 2024 [292]. Asset and Capital Management - As of June 30, 2025, the company owned 175 properties, comprising 7.3 million rentable square feet across 30 states [244]. - The gross asset value of the company's total real estate investments was $2.2 billion as of June 30, 2025 [253]. - As of June 30, 2025, total debt leverage ratio was approximately 44.9%, with net debt totaling $1.0 billion against a gross asset value of $2.2 billion [309]. - As of June 30, 2025, the company had $706.2 million in mortgage notes payable at a weighted-average annual interest rate of 4.64% [313]. - Aggregate capital expenditures for the six months ended June 30, 2025, were $12.4 million, with expectations of stable quarterly rates for the remainder of the year [319]. - The company disposed of 15 held-for-use OMFs and three held-for-use SHOPs for an aggregate contract sales price of $189.8 million, resulting in a gain on sale of $27.6 million [321]. Stock and Dividends - The company declared and issued quarterly dividends entirely in shares of common stock from October 2020 through January 2024, with no further stock dividends planned [247]. - A reverse stock split was effective on September 30, 2024, combining every four shares of common stock into one [249]. - The company authorized a stock repurchase program for up to $50.0 million of Series A and Series B Preferred Stock, with no stated expiration date [323]. - During Q2 2025, the company repurchased 56,916 shares of Series A Preferred Stock at an average price of $14.46 and 66,213 shares of Series B Preferred Stock at an average price of $13.83 [324]. - Distributions on Series A Preferred Stock are $1.84375 per share annually, equivalent to 7.375% of the $25.00 liquidation preference, while Series B Preferred Stock distributions are $1.78125 per share annually, equivalent to 7.125% [334]. - Total cash distributions for Q2 2025 amounted to $3.4 million, with 52.5% going to Series A Preferred Stockholders and 46.2% to Series B Preferred Stockholders [339]. - The company has not paid cash dividends on common stock since mid-2020, opting instead for stock dividends until January 2024 [335]. Operational Changes - The company internalized its advisory and property management functions on September 27, 2024, transitioning to a dedicated workforce [245]. - Operating fees to related parties were $12.8 million for the six months ended June 30, 2024, with no fees incurred in the same period of 2025 due to Internalization [286]. - Termination fees to related parties amounted to $98.2 million for the six months ended June 30, 2024, resulting from the termination of the advisory agreement [287]. Cash Flow - Cash flows provided by operating activities decreased by $22.1 million during the six months ended June 30, 2025, primarily due to the full repayment of a $30.3 million promissory note [300]. - Cash flows from investing activities increased by $91.7 million during the six months ended June 30, 2025, primarily due to proceeds from the sale of 15 held-for-use OMFs [301]. - Cash flows used in operations for the six months ended June 30, 2025, were $13.2 million, indicating insufficient cash generation to fund current distribution rates [341]. Market Risks - The company faces inflation risks, with a 3.0% increase in the 12-month Consumer Price Index as of June 30, 2025, potentially impacting lease agreements without indexed escalation provisions [343]. - OMF tenants are generally required to pay their pro rata share of property operating and maintenance expenses, which may impact their ability to pay rent if these costs exceed revenue increases [345]. - Leases at SHOPs typically do not have rent escalations, but can be renewed at market rates, which is crucial as inflation increases labor costs [346]. - There has been no material change in the company's exposure to market risk during the six months ended June 30, 2025 [348].

Financial Performance - For the three months ended March 31, 2025, the net loss attributable to common stockholders was $5.0 million, a significant improvement from a net loss of $19.0 million in the same period of 2024[241]. - Revenue from tenants decreased to $86.4 million for the three months ended March 31, 2025, down from $88.3 million in 2024, reflecting a decline of 2.1%[241]. - The company's outpatient medical facilities (OMFs) segment reported a revenue decrease of 11.5%, with tenant revenue of $30.6 million compared to $34.6 million in 2024[242]. - The senior housing operating properties (SHOP) segment experienced a revenue increase of 3.9%, reaching $55.8 million for the three months ended March 31, 2025[244]. - General and administrative expenses decreased by $1.6 million to $5.2 million for the three months ended March 31, 2025, from $6.8 million for the same period in 2024[252]. - Depreciation and amortization expenses increased by $3.0 million to $23.7 million for the three months ended March 31, 2025, from $20.7 million for the same period in 2024[253]. - Interest expense decreased by $1.9 million to $14.5 million for the three months ended March 31, 2025, from $16.4 million for the same period in 2024[255]. - Funds from Operations (FFO) attributable to stockholders for the three months ended March 31, 2025, was $4.116 million, up from $0.907 million in 2024[293]. - Adjusted Funds from Operations (AFFO) attributable to stockholders for the three months ended March 31, 2025, was $8.785 million, compared to $1.505 million in 2024[293]. - Total cash distributions for the three months ended March 31, 2025, amounted to $3.497 million, with 52.4% going to Series A Preferred Stockholders and 46.2% to Series B Preferred Stockholders[300]. - Cash flows used in operations for the three months ended March 31, 2025, were $21.229 million, indicating insufficient cash generation to fund current distribution rates[302]. Property and Asset Management - As of March 31, 2025, the company owned 181 properties across 30 states, totaling 7.6 million rentable square feet[228]. - The total gross asset value of the company's real estate investments was approximately $2.3 billion as of March 31, 2025[238]. - The weighted average remaining lease term for the OMF segment was 5.8 years as of March 31, 2025[237]. - The company internalized its property management and advisory functions on September 27, 2024, eliminating previous management fees[233]. - SHOP NOI increased due to positive revenue trends from occupancy gains and expense management, partially offset by the disposition of two SHOPs[246]. - The company disposed of twelve OMFs for an aggregate contract sales price of $168.4 million, recording a gain on sale of $25.0 million during the three months ended March 31, 2025[254]. - The company disposed of one OMF and three SHOPs for an aggregate contract sales price of $9.1 million after March 31, 2025[284]. Debt and Capital Structure - As of March 31, 2025, total debt leverage ratio was approximately 44.6%, with net debt totaling $1.0 billion[272]. - As of March 31, 2025, the company had $721.0 million in mortgage notes payable at a weighted-average annual interest rate of 4.63%[276]. - Capital expenditures for the three months ended March 31, 2025, were $5.7 million, with $3.6 million related to the OMF segment and $2.1 million related to the SHOP segment[282]. - A reverse stock split was executed on September 30, 2024, consolidating every four shares into one[234]. - The Board authorized a stock repurchase program for up to $50.0 million of Series A and Series B Preferred Stock, with no stated expiration date[285]. Dividend Policy - The company declared no further stock dividends after January 2024, having issued quarterly dividends entirely in shares of common stock from October 2020 to January 2024[231]. - The company has not paid cash dividends on common stock since mid-2020, opting instead for stock dividends until January 2024[296]. - The ability to pay distributions depends on increasing cash generated from property operations, which is subject to various risks and uncertainties[303]. Economic Indicators - The increase in the 12-month Consumer Price Index as of March 31, 2025, was 3.0%, impacting lease agreements without indexed escalation provisions[304].

Company Portfolio and Operations - As of December 31, 2024, the company owned 193 properties across 31 states, totaling 8.4 million rentable square feet, with an annualized rental income of $323.573 million[19][20]. - The portfolio includes 148 outpatient medical facilities (OMFs) with a gross asset value of $1.381 billion and 44 seniors housing operating properties (SHOPs) valued at $1.082 billion[22]. - As of December 31, 2024, the company owned 44 seniors housing operating properties (SHOPs) leased to a wholly owned taxable REIT subsidiary (TRS) which operates these facilities through third-party management contracts[39]. - The company executed a reverse stock split on September 30, 2024, consolidating every four shares into one[18]. - The company internalized its advisory and property management functions on September 27, 2024, enhancing operational efficiency[17]. Market Trends and Demographics - The healthcare industry is projected to grow at an average rate of 5.6% per year from 2023 to 2032, outpacing the projected GDP growth of 4.3% during the same period[24]. - The U.S. population aged 65 and older is expected to increase to 88.8 million by 2060, representing 24.4% of the total population, up from 17.3% in 2022[26]. - The healthcare sector is expected to add approximately 2.3 million new jobs from 2023 to 2033, driven by an aging population and increased demand for healthcare services[24]. Financial Performance and Risks - The company has experienced net losses in the past and may continue to do so in the future, impacting financial stability[73]. - The company incurred bad debt expenses of $1.5 million, $1.2 million, and $3.2 million for the years ended December 31, 2024, 2023, and 2022, respectively, due to tenant defaults[85]. - Rising expenses, including increased operating costs and inflation, could negatively impact cash flow and the company's results of operations[94][95]. - The company may face challenges in collecting rent from tenants due to potential bankruptcies, which could adversely affect cash flow and the ability to pay dividends[83]. - The company has not paid cash distributions on its common stock since 2020, raising concerns about future cash distributions[73]. Regulatory Environment - The healthcare industry is highly regulated, and regulatory changes could adversely affect tenants' ability to meet contractual obligations, impacting rental payments[41]. - Compliance with extensive federal, state, and local laws is critical for tenants, as failure to comply could result in loss of licensure and negatively impact rental payments[43]. - The uncertain status of the Affordable Care Act (ACA) and potential budget cuts to Medicare and Medicaid could affect future planning and revenue streams for the company[56]. - The transition of Medicare to a capitated value-based and bundled payment approach presents challenges for providers, potentially affecting the financial health of tenants[59]. - Increased enforcement of fraud and abuse laws could materially affect tenants' liquidity and financial condition, impacting their ability to meet rental obligations[53]. Investment Strategy and Capital Structure - The investment strategy focuses on maintaining a diversified portfolio, pursuing opportunistic investments, and ensuring a strong capital structure[21]. - The company utilizes a combination of debt and equity for funding, with access to a $50 million variable-rate financing facility[36][37]. - The company has total outstanding indebtedness of $1.2 billion as of December 31, 2024[152]. - The company may invest in properties through joint ventures and development partnerships, particularly in the healthcare sector[23]. Environmental and Operational Risks - The company is subject to various environmental regulations, which could result in substantial costs for compliance or penalties for non-compliance[64]. - Properties may be subject to catastrophic weather events, which could result in substantial damages and increased insurance costs, affecting overall financial performance[99][100]. - The company may incur costs related to compliance with the Americans with Disabilities Act, which could adversely impact cash flow[141]. - Environmental laws may impose significant costs and liabilities on the company, including remediation expenses for hazardous materials[108]. Shareholder and Governance Issues - The company has not paid any cash distributions on its common stock since 2020 and does not intend to declare further stock dividends in the future[81]. - The stockholder rights plan has been extended to May 18, 2026, which may deter third-party acquisitions that could result in a premium price for stockholders[182]. - The classification of the board of directors may delay or prevent a change in control, potentially affecting stockholder value[174]. - The company relies on distributions from its Operating Partnership (OP) and its subsidiaries for cash flow, with no assurance that these distributions will be sufficient to meet obligations[187]. Tax and REIT Compliance - To qualify as a REIT, the company must distribute at least 90% of its REIT taxable income annually to stockholders[193]. - The company’s ability to satisfy REIT qualification requirements is complex and could be jeopardized by changes in operations or IRS recharacterization[189]. - The company may incur significant costs from system failures or cyber incidents, which could disrupt operations and require additional resources for remediation[183]. - Changes in tax laws could adversely affect the company's tax liability and the market value of its shares[210].

Property Portfolio - As of September 30, 2024, the company owned 198 properties across 32 states, totaling 8.6 million rentable square feet[255]. - The gross asset value of the company's total real estate investments was approximately $2.52 billion as of September 30, 2024[265]. - The company acquired 4 properties and disposed of 10 properties during the nine months ended September 30, 2024, resulting in a total of 198 properties owned[268]. - As of September 30, 2024, the outpatient medical facilities (OMFs) segment had a weighted average remaining lease term of 4.3 years and a leased percentage of 90.3%[264]. - Unencumbered real estate investments at cost were $523.4 million as of September 30, 2024[352]. Financial Performance - For the three months ended September 30, 2024, the company reported a net loss attributable to common stockholders of $44.1 million, compared to a net loss of $19.6 million for the same period in 2023[270]. - Net loss attributable to common stockholders increased to $183.1 million for the nine months ended September 30, 2024, compared to $57.8 million for the same period in 2023, representing a decrease of $125.3 million[305]. - Revenue from tenants increased to $88.94 million for the three months ended September 30, 2024, up from $85.69 million in 2023, representing a growth of 3.8%[270]. - Revenue from tenants increased by $6.9 million to $266.1 million for the nine months ended September 30, 2024, compared to $259.1 million in 2023[305]. - Revenue from tenants in the Outpatient Medical Facilities (OMF) segment for Q3 2024 was $33.8 million, a decrease of $0.6 million compared to Q3 2023, primarily due to a $1.3 million decrease from Disposed Properties, partially offset by a $1.4 million increase from Same Store Properties[275]. - In the Seniors Housing Operating Properties (SHOP) segment, revenue from tenants increased by $2.6 million to $54.6 million in Q3 2024, primarily due to a $3.5 million increase from Same Store Properties[281]. Expenses and Charges - Total expenses for the three months ended September 30, 2024, were $111.45 million, an increase of 29% from $86.43 million in the same period of 2023[270]. - Property operating and maintenance expenses in the OMF segment increased by $1.3 million to $10.9 million in Q3 2024, driven by inflation impacts on utility and maintenance costs[277][278]. - Property operating and maintenance expenses in the SHOP segment rose by $0.8 million to $44.1 million in Q3 2024, mainly due to increased staffing costs[284]. - The company reported impairment charges of $8.83 million for the three months ended September 30, 2024, which were not present in the same period of 2023[270]. - Impairment charges of $11.5 million were recorded during the nine months ended September 30, 2024, with no impairment charges recorded in the same period of 2023[320]. Debt and Financing - As of September 30, 2024, the company's outstanding debt obligations were $1.2 billion at a weighted average interest rate of 5.61%[298]. - Interest expense increased by $2.3 million to $18.0 million in Q3 2024, attributed to higher average indebtedness[297]. - Total debt leverage ratio was approximately 46.1% as of September 30, 2024, with net debt totaling $1.2 billion against a gross asset value of $2.5 billion[349]. - Mortgage notes payable totaled $828.0 million at a weighted-average interest rate of 4.60% and a remaining term of 5.4 years[353]. Cash Flow and Distributions - Cash flows from operating activities showed a net cash used of $86.3 million for the nine months ended September 30, 2024, compared to cash provided of $16.4 million in 2023[340]. - Total cash distributions for the three months ended September 30, 2024, amounted to $3.497 million, with 100% of distributions funded by cash flows from operations and available cash on hand[385]. - The company has not paid cash dividends on common stock since mid-2020, opting instead for stock dividends at a rate of $3.40 per share per year until January 2024[381]. - The company must distribute at least 90% of its REIT taxable income annually to maintain its REIT status, which affects its distribution strategy[390]. Operational Changes - The company completed the internalization of its advisory and property management functions on September 27, 2024, eliminating prior management fees[260]. - Termination fees to related parties amounted to $8.4 million in Q3 2024 due to the termination of the Advisory Agreement[291]. - Acquisition and transaction-related expenses increased significantly to $5.2 million in Q3 2024 from $0.2 million in Q3 2023, primarily due to costs related to the Internalization[292]. - General and administrative expenses rose by $0.7 million to $5.5 million in Q3 2024, including increased employee compensation expenses[293]. Market and Economic Factors - As of September 30, 2024, the 12-month CPI increase was 3.0%, impacting lease agreements without indexed escalation provisions[391]. - The company faces risks related to inflation affecting lease agreements and operational costs, particularly in its OMF segment[391].

Property Portfolio and Management - As of June 30, 2024, the company owned 207 properties across 32 states, totaling 9.0 million rentable square feet[272]. - The company plans to transition to self-management and internalize management functions by the fourth quarter of 2024[278]. - The company intends to transition to self-management, with an internalization agreement executed in August 2024, which includes a self-management termination fee[406]. - The company expects to internalize management by Q4 2024, which will eliminate asset management fees previously paid, totaling $5.5 million for the three months ended June 30, 2024[372][373]. Financial Performance - Net loss attributable to common stockholders increased to $119.9 million for the three months ended June 30, 2024, compared to a loss of $20.8 million in the same period of 2023, representing an increase of 476%[294]. - For the six months ended June 30, 2024, net loss attributable to common stockholders was $138.9 million, compared to $38.3 million for the same period in 2023, representing an increase of $100.6 million[331]. - Funds From Operations (FFO) attributable to stockholders for the three months ended June 30, 2024, was $(96.499) million, a significant decrease from $(646) thousand in the prior year[405]. - Adjusted Funds From Operations (AFFO) attributable to stockholders for the three months ended June 30, 2024, was $4.357 million, compared to $3.830 million in the same period of 2023, reflecting a year-over-year increase of 13.7%[405]. Revenue and Expenses - Revenue from tenants rose to $88.8 million in Q2 2024, up from $86.1 million in Q2 2023, reflecting an increase of $2.7 million or 3.1%[294]. - Total expenses surged to $189.0 million in Q2 2024, compared to $85.0 million in Q2 2023, marking an increase of $104.0 million or 122.4%[294]. - Revenue from tenants for the six months ended June 30, 2024, was $177.1 million, an increase of $3.7 million from $173.5 million in 2023[331]. - Total expenses for the six months ended June 30, 2024, were $278.5 million, up from $170.5 million in 2023, reflecting an increase of $107.9 million[331]. Occupancy and Leasing - The SHOP segment's occupancy rate improved to 76.4% as of June 30, 2024, up from a low of 72.0% as of March 31, 2021[281]. - The MOB segment had a leased percentage of 90.3% as of June 30, 2024, with a gross asset value of $1.48 billion[289]. - The Seniors Housing Operating Properties (SHOP) segment saw revenue from tenants increase by $2.0 million to $54.1 million in Q2 2024, compared to $52.2 million in Q2 2023, driven by higher leasing rates[304]. - Revenue from tenants in the MOB segment increased by $1.7 million for the six months ended June 30, 2024, primarily due to $1.2 million from Acquired Properties and $0.6 million from Same Store Properties[333]. Costs and Expenses - The company experienced a decrease in contract labor costs in the SHOP segment from $0.6 million in Q2 2023 to $0.3 million in Q2 2024[284]. - Direct employee wage costs in the SHOP segment increased by $1.0 million in Q2 2024 compared to Q2 2023[285]. - General and administrative expenses increased to $4.7 million in Q2 2024 from $4.3 million in Q2 2023, reflecting an increase of $0.4 million or 9.3%[317]. - Depreciation and amortization expenses rose to $21.9 million in Q2 2024, up from $20.6 million in Q2 2023, an increase of $1.3 million or 6.3%[318]. Debt and Interest - As of June 30, 2024, outstanding debt obligations were $1.2 billion at a weighted average interest rate of 5.61%, compared to the same amount at 5.49% in 2023[322]. - Interest expense decreased by $1.0 million to $17.8 million for the three months ended June 30, 2024, from $18.7 million in 2023[321]. - Interest expense decreased by $0.4 million to $34.1 million, with outstanding debt obligations at $1.2 billion and a weighted average interest rate of 5.61%[356][357]. Cash Flow and Dividends - Net cash provided by operating activities was $8.9 million for the six months ended June 30, 2024, compared to $10.7 million in 2023[366]. - Cash used in investing activities was $15.6 million for the six months ended June 30, 2024, down from $34.4 million in 2023[368]. - Cash flows provided by operations for the six months ended June 30, 2024, were $8.9 million, indicating a need for improved cash generation to support dividend payments[417]. - The company has not paid cash dividends on common stock since mid-2020, opting instead for stock dividends until January 2024[411]. Market and Economic Conditions - As of June 30, 2024, the 12-month Consumer Price Index (CPI) increase was 3.0%, impacting lease agreements without indexed escalation provisions[421]. - Tenants in MOB leases are responsible for property operating and maintenance expenses, which may impact their ability to pay rent if costs exceed revenue increases[422]. - SHOP leases typically do not have rent escalations, but can be renewed at market rates; increased labor costs due to inflation may affect operational results if new residents cannot be admitted[423]. - There has been no material change in the company's exposure to market risk during the six months ended June 30, 2024[425].

Property Portfolio - As of March 31, 2024, the company owned 208 properties across 33 states, totaling 9.1 million rentable square feet[255] - The total gross asset value of the company's portfolio was approximately $2.6 billion as of March 31, 2024[271] - The company acquired 11 properties and disposed of five properties from January 1, 2023, to March 31, 2024[274] - The MOB segment had a weighted average remaining lease term of 4.7 years as of March 31, 2024[271] - As of March 31, 2024, the carrying value of real estate investments at cost was $2.6 billion, with $1.4 billion pledged as collateral for mortgage notes payable[320] Financial Performance - The company's Estimated Per-Share NAV decreased from $14.00 as of December 31, 2022, to $13.00 as of December 31, 2023[259] - Net loss attributable to common stockholders increased to $19.0 million for Q1 2024 from $17.5 million in Q1 2023, representing a $1.5 million increase[277] - The net loss for the three months ended March 31, 2024, was approximately $15.55 million, compared to a net loss of $14.07 million for the same period in 2023[312] - Funds from Operations (FFO) attributable to stockholders for the three months ended March 31, 2024, was $907,000, down from $1,891,000 in the same period of 2023[353] - Modified Funds from Operations (MFFO) attributable to stockholders for the three months ended March 31, 2024, was $1,147,000, compared to $3,360,000 in the same period of 2023[353] Revenue and Expenses - Revenue from tenants rose by $1.0 million to $88.3 million in Q1 2024 compared to $87.4 million in Q1 2023, driven by $0.7 million from Acquired Properties and $0.3 million from Same Store Properties[282] - Property operating and maintenance expenses increased by $0.7 million to $55.1 million in Q1 2024, primarily due to higher costs in Same Store Properties[284] - General and administrative expenses increased by $1.7 million to $6.8 million in Q1 2024, including $4.0 million in expense reimbursements[299] - Total expenses increased by $3.9 million to $89.4 million in Q1 2024 compared to $85.5 million in Q1 2023[277] Cash Flow and Liquidity - Cash flows from operating activities provided $2.54 million for the three months ended March 31, 2024, down from $4.99 million in the same period of 2023[312] - The company had $28.7 million in cash and cash equivalents as of March 31, 2024, exceeding the required minimum balance of $12.5 million[317] - The company incurred cash used in investing activities of $12.22 million for the three months ended March 31, 2024, compared to $29.08 million in 2023[313] - Cash flows provided by operations for the three months ended March 31, 2024, were $2.5 million[361] - Cash flows provided by operations were $2,543,000, covering 72.7% of total distributions, while available cash on hand contributed 27.3%[362] Debt and Interest - As of March 31, 2024, the company's outstanding debt obligations were $1.2 billion at a weighted average interest rate of 5.60% per year, compared to $1.1 billion at 5.18% as of March 31, 2023[304] - Interest expense rose by $0.6 million to $16.4 million in Q1 2024, attributed to higher average rates and balances of indebtedness[302] - The weighted-average economic interest rate on total gross borrowings was 5.00% as of March 31, 2024, including the impact of non-designated interest rate caps[319] Dividend Policy - The company has not paid cash dividends on common stock since mid-2020, opting instead for stock dividends until January 2024[358] - The company must distribute at least 90% of its REIT taxable income to maintain its REIT status, which affects its ability to pay dividends[364] - The ability to pay dividends depends on increasing cash generated from property operations and successful acquisitions of new properties[363] Market and Economic Conditions - As of March 31, 2024, the 12-month CPI increase was 3.5%, impacting leases without indexed escalation provisions[365] - Most leases in the MOB segment contain rent escalation provisions, but these rates are generally below the current inflation rate, potentially affecting revenue[365] - Leases with residents at SHOPs do not have rent escalations, but the company can renew leases at market rates, which may be impacted by rising labor costs[367] - Increased operating costs under net leases could adversely affect tenants' ability to pay rent, impacting the company's revenue[366] - There has been no material change in the company's exposure to market risk during the three months ended March 31, 2024[369]