American Healthcare REIT(AHR) - 2024 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive loss, statements of equity, and statements of cash flows, along with detailed notes explaining the company's financial position, performance, and accounting policies Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :----- | :----------- | :----------- | | Total Assets | $4,677,012 | $4,577,933 | | Total Liabilities | $2,419,828 | $3,118,755 | | Total Equity | $2,256,964 | $1,425,335 | - Common Stock outstanding as of September 30, 2024, was 152,873,586 shares[8] Condensed Consolidated Statements of Operations and Comprehensive Loss Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per share) | Metric | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Revenues and Grant Income | $523,814 | $464,240 | $1,527,928 | $1,384,037 | | Total Expenses | $489,982 | $450,816 | $1,437,627 | $1,338,777 | | Net Loss | $(3,093) | $(6,446) | $(3,171) | $(45,928) | | Basic Net Loss Per Share | $(0.03) | $(0.09) | $(0.05) | $(0.67) | Condensed Consolidated Statements of Equity Key Equity Changes (9 Months Ended Sep 30, 2024, in thousands) | Item | Amount | | :------------------------------------------ | :------- | | Issuance of common stock in offerings | $1,243,192 | | Offering costs — common stock | $(74,498) | | Issuance of common stock from redemption of partnership units | $25,461 | | Purchase of noncontrolling interests | $(162,541) | | Distributions declared | $(104,530) | | Net loss | $(6,039) | - Total stockholders' equity increased from $1,270,321k as of December 31, 2023, to $2,207,491k as of September 30, 2024[22][23] - 66,274,793 shares of Class T and Class I common stock were converted into Common Stock during the nine months ended September 30, 2024[22] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (9 Months Ended Sep 30, in thousands) | Cash Flow Activity | 2024 | 2023 | | :----------------- | :--- | :--- | | Net cash provided by operating activities | $116,578 | $72,766 | | Net cash (used in) provided by investing activities | $(95,941) | $20,701 | | Net cash provided by (used in) financing activities | $5,239 | $(123,177) | | Net change in cash, cash equivalents and restricted cash | $25,876 | $(29,710) | | Cash, cash equivalents and restricted cash — End of period | $116,672 | $82,156 | - Proceeds from issuance of common stock in offerings totaled $1,244,036k for the nine months ended September 30, 2024[28] - Purchase of noncontrolling interests amounted to $(258,442)k for the nine months ended September 30, 2024[30] Notes to Condensed Consolidated Financial Statements 1. Organization and Description of Business - American Healthcare REIT, Inc. is a self-managed REIT that acquires, owns, and operates a diversified portfolio of clinical healthcare real estate properties, including outpatient medical buildings, senior housing, and skilled nursing facilities, across the United States, the United Kingdom, and the Isle of Man[35] Operating Partnership Ownership | Date | Ownership Percentage | | :--- | :------------------- | | Sep 30, 2024 | 98.5% | | Dec 31, 2023 | 95.0% | - The company completed two underwritten public offerings in 2024: the February 2024 Offering ($772,800k gross proceeds from 64,400,000 shares) and the September 2024 Offering ($471,236k gross proceeds from 20,010,000 shares), with all shares listed on the NYSE[38][41] - As of September 30, 2024, the company owned and/or operated 324 buildings and integrated senior health campuses, representing approximately 19,676,000 square feet of gross leasable area, with an aggregate contract purchase price of $4.67 billion[43] 2. Summary of Significant Accounting Policies - The company's condensed consolidated financial statements are prepared in conformity with GAAP and include accounts of its operating partnership (98.5% owned as of Sep 30, 2024) and controlled subsidiaries[45][46] Resident Fees and Services Revenue (in thousands) | Period | 2024 | 2023 | | :----- | :--- | :--- | | Three Months Ended Sep 30 | $476,834 | $416,206 | | Nine Months Ended Sep 30 | $1,386,965 | $1,235,458 | - Accounts receivable for resident fees and services increased by $20,064k from $148,277k on January 1, 2024, to $168,341k on September 30, 2024[54] - Properties held for sale decreased from $3,477k as of December 31, 2023, to $0 as of September 30, 2024, following the disposition of one SHOP for $4,500k, which resulted in a $645k gain on sale[60] - The company is evaluating the impact of new accounting pronouncements: ASU 2023-07 (Segment Reporting), ASU 2023-09 (Income Taxes), and the SEC's stayed rules on Climate-Related Disclosures[62][63][64][65] 3. Real Estate Investments, Net Real Estate Investments, Net (in thousands) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :----- | :----------- | :----------- | | Building, improvements and construction in process | $3,767,879 | $3,604,299 | | Land and improvements | $364,150 | $335,946 | | Furniture, fixtures and equipment | $256,779 | $237,350 | | Less: accumulated depreciation | $(852,865) | $(752,157) | | Total Real Estate Investments, Net | $3,535,943 | $3,425,438 | Depreciation Expense (in thousands) | Period | 2024 | 2023 | | :----- | :--- | :--- | | Three Months Ended Sep 30 | $37,610 | $36,929 | | Nine Months Ended Sep 30 | $111,611 | $109,967 | - For the nine months ended September 30, 2024, the company incurred $57,551k in capital expenditures, including $18,969k for the development of one integrated senior health campus and $11,730k to expand three existing campuses[67] - Acquisitions during the nine months ended September 30, 2024, included four land parcels in Michigan for $5,821k and three previously leased real estate investments in Kentucky and Ohio for $45,841k[68][70] - The company disposed of two OM buildings for $11,136k, recognizing an aggregate net gain of $1,617k for the nine months ended September 30, 2024, with no impairment of real estate investments recognized in 2024, compared to $12,510k in 2023[72][73] 4. Business Combinations - In 2024, the company acquired 14 senior housing properties in Oregon (Feb 1) and five in Washington (Sep 3) by assuming mortgage loans of $94,461k and $36,178k, respectively, due to borrower defaults[75][76] - In February 2023, the company acquired a 60.0% controlling interest in Memory Care Partners, LLC for $900k, increasing its ownership to 100% and recognizing a $726k gain on re-measurement of its previously held equity interest[77] Acquisition Date Fair Values (9 Months Ended Sep 30, 2024, in thousands) | Asset/Liability | Amount | | :-------------- | :----- | | Building and improvements | $90,531 | | Land | $19,006 | | In-place leases | $17,717 | | Accounts receivable | $343 | | Other assets | $175 | | Mortgage loans payable | $(127,254) | | Accounts payable and accrued liabilities | $(518) | 5. Debt Security Investment, Net - The company holds a commercial mortgage-backed debt security with a 4.24% interest rate, maturing on August 25, 2025, at an aggregate stated amount of $93,433k[81] Debt Security Investment, Net (in thousands) | Date | Carrying Amount | | :--- | :-------------- | | Sep 30, 2024 | $90,144 | | Dec 31, 2023 | $86,935 | Accretion on Debt Security (in thousands) | Period | 2024 | 2023 | | :----- | :--- | :--- | | Three Months Ended Sep 30 | $1,168 | $1,060 | | Nine Months Ended Sep 30 | $3,447 | $3,126 | - No credit loss was recorded for the debt security investment for the three and nine months ended September 30, 2024 and 2023[83] 6. Identified Intangible Assets and Liabilities Identified Intangible Assets and Liabilities, Net (in thousands) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :----- | :----------- | :----------- | | Total Identified Intangible Assets, Net | $177,804 | $180,470 | | Total Identified Intangible Liabilities, Net | $5,271 | $6,095 | Amortization Expense on Identified Intangible Assets (in thousands) | Period | 2024 | 2023 | | :----- | :--- | :--- | | Three Months Ended Sep 30 | $6,652 | $15,351 | | Nine Months Ended Sep 30 | $20,793 | $40,133 | - In June 2024, the company wrote off a $1,831k customer relationship intangible asset due to the closure of a pharmacy facility[85] Weighted Average Remaining Life | Metric | Sep 30, 2024 | Dec 31, 2023 | | :----- | :----------- | :----------- | | Identified Intangible Assets | 6.5 years | 7.8 years | | Identified Intangible Liabilities | 6.7 years | 7.2 years | 7. Other Assets, Net Other Assets, Net (in thousands) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :----- | :----------- | :----------- | | Deferred rent receivables | $50,223 | $47,540 | | Prepaid expenses, deposits, other assets and deferred tax assets, net | $33,037 | $33,204 | | Inventory — finished goods | $20,234 | $19,472 | | Investments in unconsolidated entities | $16,259 | $20,611 | | Total | $144,817 | $146,141 | - A $565k loss on debt extinguishment was recorded in February 2024 due to the partial write-off of unamortized deferred financing costs related to the replacement of the 2022 Credit Facility with the 2024 Credit Facility[90] 8. Mortgage Loans Payable, Net Mortgage Loans Payable, Net (in thousands) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :----- | :----------- | :----------- | | Total fixed-rate debt | $1,143,148 | $990,325 | | Total variable-rate debt | $164,554 | $335,988 | | Mortgage loans payable, net | $1,282,853 | $1,302,396 | - The weighted average effective interest rate on mortgage loans payable was 4.28% as of September 30, 2024, down from 4.72% as of December 31, 2023[91] - For the nine months ended September 30, 2024, the company incurred an aggregate loss of $872k on the early extinguishment of mortgage loans payable, primarily due to a $176,145k payoff in February 2024 using proceeds from the public offering[93] - Scheduled principal payments for mortgage loans payable for the remaining three months of 2024 are $33,036k[94] 9. Lines of Credit and Term Loan - The company entered into a new $1.15 billion 2024 Credit Facility on February 14, 2024, replacing the 2022 Credit Facility, consisting of a $600 million revolving credit facility (matures Feb 14, 2028) and a $550 million term loan facility (matures Jan 19, 2027)[98][99] - As of September 30, 2024, borrowings outstanding under the 2024 Credit Facility totaled $596,500k, with a weighted average interest rate of 6.39% per annum[103] - The Trilogy Credit Facility has an aggregate maximum principal amount of $400 million and matures on June 5, 2025, with borrowings outstanding as of September 30, 2024, of $32k at a weighted average interest rate of 7.95% per annum[104][106][107] 10. Derivative Financial Instruments - The company uses interest rate swaps to manage interest rate risk on variable-rate debt, which are not designated as hedges[108][109] - As of September 30, 2024, the aggregate fair value of derivative financial instruments was a net liability of $(3,088)k[109] Net (Loss) Gain in Fair Value of Derivative Financial Instruments (in thousands) | Period | 2024 | 2023 | | :----- | :--- | :--- | | Three Months Ended Sep 30 | $(8,967) | $3,402 | | Nine Months Ended Sep 30 | $(2,162) | $8,200 | - One interest rate swap with a notional amount of $200 million was terminated on September 20, 2024, resulting in a $415k termination fee[109] 11. Commitments and Contingencies - The company is not currently subject to any material litigation or environmental liabilities that would have a material adverse effect on its consolidated financial position, results of operations, or cash flows[111][112] 12. Redeemable Noncontrolling Interests Redeemable Noncontrolling Interests (in thousands) | Metric | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :----- | :-------------------------- | :-------------------------- | | Beginning balance | $33,843 | $81,598 | | Reclassification to equity | $(15,303) | $0 | | Redemption of redeemable noncontrolling interests | $(10,771) | $(15,954) | | Ending balance | $220 | $59,961 | - The decrease in redeemable noncontrolling interests in 2024 was primarily due to reclassification to noncontrolling interests in total equity following the February 2024 Offering and the redemption of Trilogy equity interests[114][115] 13. Equity - The company is authorized to issue 1 billion shares of common stock ($0.01 par value), including 700 million shares of Common Stock, 200 million shares of Class T common stock, and 100 million shares of Class I common stock[120] - In 2024, the company issued 64.4 million shares of Common Stock for $772,800k gross proceeds in February and 20.01 million shares for $471,236k gross proceeds in September, with all Class T and Class I common stock converting to listed Common Stock on August 5, 2024[121][122][123] - The Distribution Reinvestment Plan (DRIP) and share repurchase plan were suspended in November 2022[124][125] - The company purchased NHI's 24.0% minority membership interest in Trilogy REIT Holdings for $258 million in September 2024, resulting in 100% ownership of Trilogy REIT Holdings and indirectly 100% of Trilogy[128] Stock Compensation Expense (AHR Incentive Plan, in thousands) | Period | 2024 | 2023 | | :----- | :--- | :--- | | Three Months Ended Sep 30 | $2,630 | $1,558 | | Nine Months Ended Sep 30 | $7,309 | $4,173 | 14. Fair Value Measurements - As of September 30, 2024, derivative financial instruments (interest rate swaps) were measured at a fair value of $(3,088)k (liability) and classified as Level 2 in the fair value hierarchy[140][145] Financial Instruments Disclosed at Fair Value (Sep 30, 2024, in thousands) | Instrument | Carrying Amount | Fair Value | | :--------- | :-------------- | :--------- | | Debt security investment | $90,144 | $93,246 | | Mortgage loans payable | $1,282,853 | $1,166,413 | | Lines of credit and term loan | $591,490 | $596,903 | - The valuations of debt security investment, mortgage loans payable, and lines of credit and term loan are classified in Level 2 of the fair value hierarchy[149] 15. Income Taxes - As a REIT, the company is generally not subject to U.S. federal income tax on taxable income distributed to stockholders, while its taxable REIT subsidiaries (TRS) are subject to corporate tax rates[151] - The company did not have any tax benefits or liabilities for uncertain tax positions as of September 30, 2024, and December 31, 2023[154] - A valuation allowance fully reserves the net deferred tax assets due to historical losses and inherent uncertainty of future income[155] 16. Leases Lessor - Operating Lease Revenues (in thousands) | Period | 2024 | 2023 | | :----- | :--- | :--- | | Three Months Ended Sep 30 | $45,168 | $45,582 | | Nine Months Ended Sep 30 | $136,382 | $137,101 | - As of September 30, 2024, total undiscounted cash flows for future minimum base rents under operating leases for properties wholly owned by the company amounted to $1.03 billion[158] Lessee - Operating Lease Cost (in thousands) | Period | 2024 | 2023 | | :----- | :--- | :--- | | Three Months Ended Sep 30 | $9,060 | $11,049 | | Nine Months Ended Sep 30 | $29,212 | $34,445 | - As of September 30, 2024, the weighted average remaining lease term for operating leases was 12.1 years, with a weighted average discount rate of 5.85%[163] - Total undiscounted operating lease payments as of September 30, 2024, were $270.66 million[166] 17. Segment Reporting - The company operates through four reportable business segments: integrated senior health campuses, outpatient medical (OM), senior housing operating properties (SHOP), and triple-net leased properties[168] Segment Net Operating Income (NOI, in thousands) | Period | 2024 | 2023 | | :----- | :--- | :--- | | Three Months Ended Sep 30 | $93,536 | $75,063 | | Nine Months Ended Sep 30 | $264,407 | $222,317 | Total Assets by Reportable Segment (Sep 30, 2024, in thousands) | Segment | Amount | | :-------------------------- | :------- | | Integrated senior health campuses | $2,224,315 | | OM | $1,197,920 | | SHOP | $745,858 | | Triple-net leased properties | $497,291 | Revenues and Grant Income by Geographic Region (9 Months Ended Sep 30, in thousands) | Region | 2024 | 2023 | | :----- | :--- | :--- | | United States | $1,522,902 | $1,380,542 | | International | $5,026 | $3,495 | 18. Concentration of Credit Risk - Properties in Indiana, Ohio, and Kentucky accounted for 28.7%, 12.5%, and 12.3%, respectively, of the total consolidated property portfolio's annualized base rent or annualized NOI as of September 30, 2024, indicating a geographic concentration of risk[186] - As of September 30, 2024, the integrated senior health campuses, OM, SHOP, and triple-net leased properties segments accounted for 55.8%, 23.4%, 11.3%, and 9.5%, respectively, of the total consolidated property portfolio's annualized base rent or annualized NOI[187] 19. Earnings Per Share - For the three months ended September 30, 2024, 2,933,361 limited OP units, 1,092,886 nonvested RSAs, 341,098 nonvested TBUs, and 309,254 nonvested PBUs were excluded from diluted EPS computation as they were anti-dilutive[190][191] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis provides insights into the company's financial condition and results of operations, highlighting key drivers such as increased resident occupancies and billing rates, strategic acquisitions, and the impact of inflation, also covering critical accounting estimates, recent acquisitions and dispositions, and factors influencing future performance Overview and Background - American Healthcare REIT, Inc. is a self-managed REIT that acquires, owns, and operates a diversified portfolio of clinical healthcare real estate properties, focusing on outpatient medical buildings, senior housing, and skilled nursing facilities across the United States, the United Kingdom, and the Isle of Man[198] - The company operates its integrated senior health campuses and senior housing operating properties (SHOP) using a REIT Investment Diversification and Empowerment Act of 2007 (RIDEA) structure[198] Operating Partnership - The company conducts substantially all operations through its operating partnership, where its ownership increased from 95.0% as of December 31, 2023, to 98.5% as of September 30, 2024[199] - Platform Healthcare Investor T-II, LLC redeemed all of its operating partnership units (OP units) for 1,216,571 shares of Common Stock on August 19, 2024[199] Public Offerings and Listing - The company closed two underwritten public offerings in 2024: the February 2024 Offering (64.4 million shares, $772,800k gross proceeds) and the September 2024 Offering (20.01 million shares, $471,236k gross proceeds), with shares listed on the NYSE[201][203] - On August 5, 2024, all Class T common stock and Class I common stock automatically converted into listed Common Stock[202] Our Real Estate Investments Portfolio - As of September 30, 2024, the company owned and/or operated 324 buildings and integrated senior health campuses, representing approximately 19,676,000 square feet of gross leasable area, with an aggregate contract purchase price of $4.67 billion[205] - The portfolio also included a real estate-related debt investment purchased for $60.43 million as of September 30, 2024[205] Factors Which May Influence Results of Operations - Inflation has increased the cost of labor, services, energy, and supplies, impacting the profitability of integrated senior health campuses and SHOP[210] - The company mitigates inflation through higher annual rent and care fee increases for existing residents in RIDEA properties and through negotiated rental increases (2-3% per year) and expense reimbursements in non-RIDEA tenant leases[210][211] - Inflation has also led to an increase in the cost of variable-rate debt due to rising interest rates[213] Scheduled Lease Expirations - As of September 30, 2024, non-RIDEA properties were 91.0% leased with a weighted average lease term of 6.5 years, and 2.8% of leased GLA is scheduled to expire during the remainder of 2024[214] - Combined SHOP and integrated senior health campuses were 87.8% leased as of September 30, 2024, with most resident leases having a term of one year or less[215] Results of Operations Revenues and Grant Income Total Revenues and Grant Income (in thousands) | Period | 2024 | 2023 | | :----- | :--- | :--- | | Three Months Ended Sep 30 | $523,814 | $464,240 | | Nine Months Ended Sep 30 | $1,527,928 | $1,384,037 | - Resident fees and services revenue for integrated senior health campuses increased by $99,605k for the nine months ended September 30, 2024, primarily due to increased resident occupancy, higher billing rates, and expansion of ancillary business units[223] - SHOP resident fees and services revenue increased by $51,902k for the nine months ended September 30, 2024, driven by acquisitions and the transition of properties to a RIDEA structure[224] - Grant income was $0 for both the three and nine months ended September 30, 2024, compared to $1,064k and $7,445k, respectively, in 2023[222][228] Property Operating Expenses and Rental Expenses Total Property Operating Expenses (in thousands) | Period | 2024 | 2023 | | :----- | :--- | :--- | | Three Months Ended Sep 30 | $417,128 | $374,603 | | Nine Months Ended Sep 30 | $1,223,321 | $1,117,298 | - Integrated senior health campuses' property operating expenses increased due to higher resident occupancy and a $22,789k increase in labor costs and other operating expenses within Trilogy's ancillary business unit for the nine months ended September 30, 2024[230] - SHOP property operating expenses increased by $27,588k due to acquisitions and $13,350k from property transitions to a RIDEA structure for the nine months ended September 30, 2024[232] - Rental expenses for the OM segment decreased for both periods in 2024, primarily due to dispositions of OM buildings[233] Business Acquisition Expenses Business Acquisition Expenses (in thousands) | Period | 2024 | 2023 | | :----- | :--- | :--- | | Three Months Ended Sep 30 | $3,537 | $1,024 | | Nine Months Ended Sep 30 | $6,334 | $2,244 | - The increase in 2024 was primarily due to $4,926k in aggregate acquisition costs for RIDEA properties within the SHOP segment[234] Depreciation and Amortization Depreciation and Amortization (in thousands) | Period | 2024 | 2023 | | :----- | :--- | :--- | | Three Months Ended Sep 30 | $44,246 | $49,273 | | Nine Months Ended Sep 30 | $132,277 | $138,644 | - The decrease in 2024 was primarily due to the full amortization of $6,635k of in-place leases related to property transitions to a RIDEA structure in 2023[236] Interest Expense Total Interest Expense (in thousands) | Period | 2024 | 2023 | | :----- | :--- | :--- | | Three Months Ended Sep 30 | $39,362 | $38,603 | | Nine Months Ended Sep 30 | $99,591 | $113,806 | - The decrease in interest expense for the nine months ended September 30, 2024, was primarily due to debt paydowns of $176.15 million (mortgage loans) and $545.01 million (lines of credit) from the February 2024 Offering proceeds, and $194 million (lines of credit) from the September 2024 Offering proceeds[238] - This decrease was partially offset by a $10,362k change from a gain to a loss in the fair value of derivative financial instruments[238] Gain or Loss on Dispositions of Real Estate Investments - For the nine months ended September 30, 2024, the company recognized an aggregate net gain of $2,257k on dispositions of real estate investments, primarily from the sale of two OM buildings and one SHOP[239] - For the nine months ended September 30, 2023, the company recognized a larger aggregate net gain of $29,777k from the sale of six SHOP and 14 OM buildings[240] Impairment of Real Estate Investments - No impairment charges on real estate investments were recognized for the three and nine months ended September 30, 2024, compared to an aggregate impairment charge of $12,510k in the corresponding periods of 2023[241] Gain on Re-measurement of Previously Held Equity Interest - No gain on re-measurement of previously held equity interest was recognized for the three and nine months ended September 30, 2024, while a $726k gain was recognized for the nine months ended September 30, 2023, related to the acquisition of Memory Care Partners, LLC[243] Liquidity and Capital Resources Material Cash Requirements - As of September 30, 2024, the company had $16,297k of restricted cash in loan impounds and reserve accounts to fund capital expenditures[245] - Estimated unspent discretionary expenditures for capital and tenant improvements for the remaining three months of 2024 are approximately $14,686k[245] Contractual Obligations Contractual Obligations as of September 30, 2024 (in thousands) | Obligation Type | 2024 (Remaining) | 2025-2026 | 2027-2028 | Thereafter | Total | | :------------------------------------------ | :--------------- | :-------- | :-------- | :--------- | :---------- | | Principal payments — fixed-rate debt | $33,036 | $298,228 | $196,677 | $615,207 | $1,143,148 | | Interest payments — fixed-rate debt | $10,525 | $70,572 | $53,024 | $346,809 | $480,930 | | Principal payments — variable-rate debt | $0 | $164,586 | $596,500 | $0 | $761,086 | | Interest payments — variable-rate debt | $13,084 | $82,588 | $5,051 | $0 | $100,723 | | Ground and other lease obligations | $8,055 | $62,314 | $63,895 | $136,396 | $270,660 | | Financing obligations and other obligations | $1,494 | $10,984 | $9,856 | $31,833 | $54,167 | | Total | $66,194 | $689,272 | $925,003 | $1,130,245 | $2,810,714 | Credit Facilities - As of September 30, 2024, the company's aggregate borrowing capacity under the 2024 Credit Facility and Trilogy Credit Facility was $1.55 billion[251] - Aggregate borrowings outstanding under these facilities were $596.53 million, leaving $953.47 million available as of September 30, 2024[251] Cash Flows Cash Flows (9 Months Ended Sep 30, in thousands) | Cash Flow Activity | 2024 | 2023 | | :----------------- | :--- | :--- | | Net cash provided by operating activities | $116,578 | $72,766 | | Net cash (used in) provided by investing activities | $(95,941) | $20,701 | | Net cash provided by (used in) financing activities | $5,239 | $(123,177) | | Cash, cash equivalents and restricted cash — End of period | $116,672 | $82,156 | - The increase in operating cash flows in 2024 was driven by improved operating performance of real estate investments and a decrease in interest paid due to debt paydowns from public offering proceeds[253] - The shift in investing activities to net cash used was primarily due to a $153,332k decrease in proceeds from dispositions of real estate investments[254] - Financing activities shifted to net cash provided, primarily due to $1.24 billion in gross proceeds from common stock offerings, partially offset by $761.59 million in net payments on credit lines and mortgage loans, and $258 million paid to purchase noncontrolling interest in Trilogy REIT Holdings LLC[255] Distributions - The board has authorized a quarterly distribution of $0.25 per share ($1.00 annualized) to common stockholders since the first quarter of 2023, paid in cash[257] - The Distribution Reinvestment Plan (DRIP) was suspended on November 14, 2022[256] Distributions Paid in Cash (9 Months Ended Sep 30, in thousands) | Period | 2024 | 2023 | | :----- | :--- | :--- | | Distributions paid in cash | $82,591 | $59,685 | | Sources from cash flows from operations | 100% | 100% | REIT Requirements - To maintain REIT qualification, the company must distribute a minimum of 90.0% of its REIT taxable income to stockholders[261] - The company may use secured and unsecured debt financing or proceeds from property sales to meet distribution requirements if there is a shortfall in net cash available[261] Debt Service Requirements - As of September 30, 2024, the company had $1.31 billion in mortgage loans payable and $596.53 million outstanding under its lines of credit and term loan[263] - The weighted average effective interest rate on the company's outstanding debt, factoring in interest rate swaps, was 4.72% per annum as of September 30, 2024[263] - The company was in compliance with all financial and non-financial covenants on its mortgage loans payable and credit facilities as of September 30, 2024[264] Funds from Operations and Normalized Funds from Operations - Funds from Operations (FFO) and Normalized FFO are non-GAAP financial measures used by management and investors to evaluate the operating performance of a REIT[265][268] NAREIT FFO Attributable to Controlling Interest (in thousands) | Period | 2024 | 2023 | | :----- | :--- | :--- | | Three Months Ended Sep 30 | $35,640 | $17,810 | | Nine Months Ended Sep 30 | $108,684 | $57,075 | Normalized FFO Attributable to Controlling Interest (in thousands) | Period | 2024 | 2023 | | :----- | :--- | :--- | | Three Months Ended Sep 30 | $47,688 | $23,173 | | Nine Months Ended Sep 30 | $122,526 | $67,549 | Net Operating Income - Net Operating Income (NOI), a non-GAAP financial measure, increased significantly for both the three and nine months ended September 30, 2024, reflecting improved operating performance of the property portfolio[272][274] Net Operating Income (in thousands) | Period | 2024 | 2023 | | :----- | :--- | :--- | | Three Months Ended Sep 30 | $93,536 | $75,063 | | Nine Months Ended Sep 30 | $264,407 | $222,317 | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, primarily interest rate risk, and the strategies employed to manage it, detailing the impact of interest rate changes on debt and derivative financial instruments Interest Rate Risk - The company's primary market risk is interest rate risk, managed through derivative financial instruments like interest rate swaps, which are not designated as hedges[277][278] - As of September 30, 2024, the interest rate swaps were recorded as other liabilities at an aggregate fair value of $(3,088)k[278] - A 0.50% increase in market interest rates would increase the company's overall annualized interest expense on variable-rate mortgage loans and lines of credit by $1,070k, or 1.2% of total annualized interest expense[282] Debt Security Investment, Net - As of September 30, 2024, the net carrying value of the debt security investment was $90,144k, with an effective interest rate of 4.24% per annum[280] - The company expects to hold its debt security investment to maturity, and fluctuations in interest rates are not anticipated to have a significant impact on operations[280] Mortgage Loans Payable, Net and Lines of Credit and Term Loan - As of September 30, 2024, mortgage loans payable totaled $1.31 billion, and $596.53 million was outstanding under lines of credit and term loan[281] - The weighted average effective interest rate on the company's outstanding debt, factoring in interest rate swaps, was 4.72% per annum as of September 30, 2024[282] Item 4. Controls and Procedures The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2024, with no material changes in internal control over financial reporting occurring during the fiscal quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2024[286] - There were no material changes in internal control over financial reporting during the fiscal quarter ended September 30, 2024[287] PART II — OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any material litigation or threatened legal proceedings that would have a material adverse effect on its financial position, results of operations, or cash flows - The company is not presently subject to any material litigation nor, to its knowledge, is any material litigation threatened against it[289] Item 1A. Risk Factors The company's risk factors include magnified effects of negative conditions due to high concentrations of properties in specific geographic areas (Indiana, Ohio, Kentucky) and potential increases in operating costs and regulatory penalties from new federal minimum staffing requirements for skilled nursing facilities - Properties located in Indiana, Ohio, and Kentucky accounted for approximately 28.7%, 12.5%, and 12.3%, respectively, of the total property portfolio's annualized base rent or annualized NOI as of September 30, 2024, creating geographic concentration risk[291] - New federal nursing home staffing rules, finalized in April 2024, may increase operating costs for skilled nursing tenants and operators, and non-compliance could lead to financial penalties or reputational harm[293] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds On August 19, 2024, Platform Healthcare Investor T-II, LLC redeemed its OP units in exchange for 1.22 million shares of the company's Common Stock, which was an unregistered sale exempt from registration under Section 4(a)(2) of the Securities Act of 1933 - Platform Healthcare Investor T-II, LLC redeemed all of its OP units for 1.22 million shares of Common Stock on August 19, 2024[294] - The issuance of these shares was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended[294] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - No defaults upon senior securities were reported[294] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Mine Safety Disclosures are not applicable to the registrant[294] Item 5. Other Information During the reporting period, none of the company's directors or executive officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - None of the company's directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the period covered by this report[295] Item 6. Exhibits This section lists all exhibits included or incorporated by reference in the Quarterly Report on Form 10-Q for the period ended September 30, 2024, including organizational documents, agreements, and certifications - Exhibits include Fourth Articles of Amendment and Restatement, Articles of Amendment (Reverse Stock Split, Par Value Decrease, Common Stock Reclassification, Subtitle 8 Opt-Out), Amended and Restated Bylaws, a Waiver and Agreement, CEO/CFO Certifications (302 and 906), and Inline XBRL documents[297] Signatures The report is officially signed by Danny Prosky, Chief Executive Officer, President and Director, and Brian S. Peay, Chief Financial Officer, on November 13, 2024, confirming its submission - The report was signed by Danny Prosky (Chief Executive Officer, President and Director) and Brian S. Peay (Chief Financial Officer) on November 13, 2024[300]