Portfolio Overview - 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]. - 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]. - The company has 3,939 rentable units in the SHOP segment, which includes assisted living, memory care, and independent living facilities[19]. - As of December 31, 2024, the company owned 44 seniors housing operating properties (SHOPs) which are leased to a taxable REIT subsidiary (TRS) for management[39]. - Approximately 10% or more of the company's consolidated annualized rental income for the fiscal year ended December 31, 2024, was generated from Florida, Pennsylvania, and Georgia, indicating a high concentration of properties in these states[76]. Market Trends - National health expenditures are projected to grow at an average rate of 5.6% per year from 2023 to 2032, exceeding 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 industry is projected to add approximately 2.3 million new jobs from 2023 to 2033, with a job growth rate of 10.0%, driven by an aging population and chronic conditions[24]. Operational Changes - The company has internalized its advisory and property management functions as of September 27, 2024, enhancing operational efficiency[17]. - A reverse stock split was executed on September 30, 2024, consolidating every four shares into one[18]. - The company is now internally managed and responsible for its own workforce, which may lead to unforeseen costs and challenges[80]. Financial Strategy - The investment strategy focuses on maintaining a diversified portfolio, pursuing opportunistic investments, and maintaining a strong capital structure[21]. - The company utilizes a combination of debt and equity for funding, with access to a $50 million OMF Warehouse Facility for expedited financing needs[36]. - The company has total outstanding indebtedness of $1.2 billion as of December 31, 2024[152]. - The company has incurred variable-rate debt, which may increase the cost of new debt or refinancing due to elevated federal funds rates[160]. - The company has a designated interest rate swap with a notional amount of $378.5 million, which fixes a portion of its variable-rate debt, and eight interest rate caps with a notional amount of $369.2 million to limit exposure to rising rates[160]. Regulatory Risks - The company faces regulatory risks as tenants must comply with extensive federal, state, and local laws, which could result in loss of licensure or reimbursement, adversely affecting rental payments[43]. - The Affordable Care Act (ACA) has led to reductions in Medicare reimbursement rates, impacting healthcare operations and financial planning for the company[55]. - Federal and state budget pressures may lead to further cuts in Medicare and Medicaid expenditures, affecting the financial health of tenants[57]. - The transition from fee-for-service to value-based and bundled payment models by CMS presents challenges for healthcare providers, potentially impacting the company’s revenue streams[59]. - Increased enforcement of fraud and abuse laws could result in significant penalties for tenants, adversely impacting their financial condition and ability to meet rental obligations[53]. Financial Performance - The company reported a per-share net asset value (NAV) of $13.00 as of December 31, 2023, which reflects a reverse stock split adjustment to $52.00[69]. - The company has not paid cash distributions on its common stock since 2020, raising concerns about future cash distributions[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 operating expenses, including increased insurance premiums and labor costs, have negatively impacted cash flow and may continue to do so[94]. - The company has experienced net losses in recent years and may not achieve profitability or growth in the future[122]. Competition and Market Challenges - The healthcare real estate market is highly competitive, with competition from other REITs, private investment funds, and institutional investors, which may have greater financial resources[40]. - The company may face challenges in collecting rent from tenants experiencing financial difficulties, which could adversely affect cash flow and dividend payments[87]. - The company may experience reduced rental income due to increased competition from newly built properties in proximity to its locations[107]. - The company competes with numerous entities for property acquisitions and creditworthy tenants, which may increase acquisition prices and reduce cash flow[106]. Environmental and Operational Risks - Catastrophic weather events and climate change could lead to significant damages and operational expenses, potentially exceeding insurance coverage[99]. - Legislative changes regarding greenhouse gas emissions could result in increased capital expenditures and compliance costs, adversely impacting tenant operations and their ability to pay rent[101]. - Environmental regulations may impose significant costs and liabilities on the company, potentially affecting its financial position and cash flows[108]. - The company relies on independent contractors for facility management, which increases operational risks and may affect performance[111]. Governance and Compliance - The independent directors of the Board oversee the valuation process, but the appraised value of properties may not reflect their potential realizable value[166]. - The classification of the Board may delay or prevent a change in control, impacting stockholder interests[174]. - Maryland law prohibits certain business combinations for five years after an interested stockholder becomes such, which may deter potential acquisitions[175]. - 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]. Taxation and REIT Compliance - To qualify as a REIT, the company must distribute at least 90% of its REIT taxable income annually to stockholders, which may limit investment opportunities and require borrowing under unfavorable conditions[193]. - The company may incur tax liabilities even as a REIT, which could reduce cash available for distribution to stockholders[192]. - If the company fails to maintain its REIT status, it could face corporate tax rates on taxable income, reducing net earnings available for distribution[190]. - The company must ensure that leases with TRSs are respected as true leases for tax purposes; otherwise, it risks failing to qualify as a REIT[200]. Cybersecurity Risks - Cybersecurity risks are a concern, with potential significant costs associated with system failures or breaches impacting operations[183]. - The company may face significant remediation costs and lost revenues from cyber incidents, which could also lead to reputational harm[185].
HEALTHCARE(HTIBP) - 2024 Q4 - Annual Report