Company Overview - As of December 31, 2023, the company owned 204 properties across 33 states, totaling 9.0 million rentable square feet with a gross asset value of $2.6 billion[19]. - The annualized rental income for the total portfolio was $320.7 million as of December 31, 2023, with 4,164 rentable units in the SHOP segment[20]. - As of December 31, 2023, the company had 156 medical office and healthcare-related buildings, totaling 5.2 million square feet, leased to tenants providing various healthcare services[29]. - The company’s seniors housing properties include 46 facilities with a total of 4,133 units, primarily consisting of assisted living, memory care, and independent living facilities[34]. - The company owned 46 seniors housing operating properties (SHOPs) as of December 31, 2023, which are leased to a wholly owned taxable REIT subsidiary (TRS)[51]. Investment Strategy - The company’s investment strategy focuses on maintaining a balanced, diversified portfolio, pursuing opportunistic investments, and maintaining a strong capital structure[21]. - The company utilizes a combination of debt and equity to fund investment activities, with short-term borrowing options available through various credit facilities[47]. - The company may need to secure additional funding for tenant improvements or capital needs, which may not be available on favorable terms[101]. Market Trends - The healthcare industry is projected to grow at an average rate of 5.4% per year from 2022 to 2031, outpacing the projected GDP growth of 4.6% during the same period[24]. - The U.S. population aged 65 and older is expected to increase to 94.7 million by 2060, up from 49.2 million in 2016, driving demand for healthcare-related facilities[26]. - The healthcare industry is experiencing rapid regulatory changes that could adversely affect tenants' ability to meet contractual obligations[53]. - The healthcare industry is experiencing rapid regulatory changes, which could negatively impact the economic performance of tenants and, in turn, the company's revenues and cash flows[135]. Financial Performance - The total debt leverage ratio as of December 31, 2023, was approximately 43.7%, with net debt totaling $1.1 billion and gross asset value at $2.6 billion[49]. - The company has total outstanding indebtedness of $1.2 billion as of December 31, 2023[161]. - The Estimated Per-Share NAV decreased from $15.00 as of December 31, 2021, to $14.00 as of December 31, 2022[80]. - The Estimated Per-Share NAV will be updated as of December 31, 2023, and is subject to subjective judgments and assumptions[186]. - The independent valuer estimates the market value of real estate assets, which may not reflect the realizable value, affecting the Estimated Per-Share NAV[187]. Operational Challenges - Recent inflationary pressures have impacted operating costs, including labor and supply chain disruptions, affecting the company's results[40]. - The company has reduced reliance on temporary contract labor in 2023, although wage expenses have increased due to inflation and a lack of qualified personnel[42]. - The company reported that occupancy in the SHOP segment trended downward from March 2020 until June 2021 but has since stabilized[41]. - The company may face challenges in collecting rent from tenants due to potential bankruptcies or financial difficulties, impacting cash flow and dividend payments[97]. - The company may face challenges in renewing leases or re-leasing space, which could lead to vacancies and reduced cash flow from properties[127]. Regulatory and Compliance Risks - The company is subject to extensive federal, state, and local laws and regulations, which could impact tenants' operations and their ability to pay rent[55]. - The company is subject to various regulatory laws regarding healthcare licenses, which could delay revenue collection if compliance is not met[124]. - The ACA has led to reductions in Medicare reimbursement rates, impacting healthcare operations[67]. - Increased enforcement of HIPAA regulations has resulted in significant penalties for healthcare providers, affecting their financial health[66]. Economic and Market Risks - The ongoing Russia-Ukraine conflict and the escalation of the Israel-Hamas conflict may lead to significant volatility in commodity prices and adversely affect the financial performance of the company[131]. - Federal and state budget pressures may lead to further reductions in Medicare and Medicaid expenditures[69]. - A shift in payor mix towards managed care payors is increasing revenue pressures on tenants, potentially affecting their ability to make rent payments[144]. - Changes in reimbursement rates from third-party payors, including Medicare and Medicaid, could hinder tenants' ability to make rent payments, affecting the company's financial condition[141]. Debt and Financing Risks - 62.5% of the total gross debt as of December 31, 2023, bore interest at variable rates, primarily based on the Secured Overnight Financing Rate (SOFR)[173]. - The significant increase in the federal funds rate in 2022 and 2023 has raised borrowing costs on variable-rate debt, impacting future financing costs[172]. - The company may face challenges in refinancing maturing indebtedness due to rising interest rates, which could adversely affect financial condition and liquidity[171]. - Changes in the debt markets could lead to tighter underwriting standards and reduced availability of financing, impacting capital access[168]. Stockholder Considerations - The common stock is not traded on a national securities exchange, and the Stock Repurchase Program (SRP) is suspended, limiting stockholders' ability to sell shares[185]. - The company has restrictions on stock ownership, limiting any person to own no more than 9.8% of the aggregate outstanding shares, which may deter potential acquirers[194]. - The change of control features of preferred stock may discourage third-party acquisitions that could provide premium prices to stockholders[195]. - The board is classified into three classes, which may delay or prevent changes in control that could benefit stockholders[196]. Environmental and Operational Risks - Catastrophic weather events and climate change pose risks to the company's properties, potentially leading to substantial damages that exceed insurance coverage[108]. - The company may incur significant costs related to environmental compliance and potential liabilities from hazardous conditions[119]. - Changes in insurance costs and availability could expose the company to uninsured losses, impacting asset value and cash flow[113]. Management and Advisory Risks - The company relies on its Advisor for investment opportunities, which may lead to conflicts of interest affecting investment decisions[177]. - The company does not maintain key person life insurance for its executive officers, which could pose risks if key personnel leave[211]. - The advisory agreement has limited termination rights, requiring a termination fee up to four times the compensation paid to the Advisor in the previous year under certain conditions[205].
HEALTHCARE(HTIA) - 2023 Q4 - Annual Report