HEALTHCARE(HTIBP) - 2025 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements. Unaudited consolidated financial statements for Q1 2025 and Q4 2024, including balance sheets, operations, equity, cash flows, and notes Consolidated Balance Sheets Consolidated Balance Sheet Highlights (In thousands) | Item | March 31, 2025 | December 31, 2024 | | :----------------------------------- | :------------- | :---------------- | | Total real estate investments, net | $1,614,903 | $1,768,966 | | Cash and cash equivalents | $71,383 | $21,652 | | Total assets | $1,831,885 | $1,946,023 | | Mortgage notes payable, net | $711,065 | $779,160 | | Credit facilities | $360,774 | $362,216 | | Total liabilities | $1,151,765 | $1,255,898 | | Total equity | $680,120 | $690,125 | - Total assets decreased by approximately $114.1 million from December 31, 2024, to March 31, 2025, primarily driven by a reduction in real estate investments, net[8] - Cash and cash equivalents significantly increased from $21.7 million at December 31, 2024, to $71.4 million at March 31, 2025[8] Consolidated Statements of Operations and Comprehensive Loss Consolidated Statements of Operations Highlights (In thousands, except per share data) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Revenue from tenants | $86,443 | $88,299 | | Total expenses | $98,408 | $89,419 | | Operating income (loss) | $13,024 | $(1,120) | | Gain on sale of real estate investments | $24,989 | $— | | Impairment charges | $11,899 | $260 | | Operating fees to related parties | $— | $6,366 | | Net loss attributable to common stockholders | $(5,019) | $(19,000) | | Net loss per share attributable to common stockholders | $(0.18) | $(0.67) | - Net loss attributable to common stockholders significantly improved from $(19.0) million in Q1 2024 to $(5.0) million in Q1 2025[10] - The company recorded a $25.0 million gain on the sale of real estate investments in Q1 2025, compared to $0 in Q1 2024[10] - Operating fees to related parties were eliminated in Q1 2025 due to the Internalization, down from $6.4 million in Q1 2024[10] Consolidated Statements of Changes in Equity Consolidated Statements of Changes in Equity Highlights (In thousands) | Item | Balance, December 31, 2024 | Balance, March 31, 2025 | | :----------------------------------- | :------------------------- | :---------------------- | | Total Stockholders' Equity | $684,560 | $674,579 | | Total Equity | $690,125 | $680,120 | - Total stockholders' equity decreased by approximately $10.0 million from December 31, 2024, to March 31, 2025[14] - Key factors for the decrease include distributions declared on Series A and Series B Preferred Stock ($1.8 million and $1.6 million, respectively) and an unrealized loss on designated derivatives ($5.0 million)[14] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (In thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash (used in) provided by operating activities | $(21,229) | $2,543 | | Net cash provided by (used in) investing activities | $78,043 | $(12,216) | | Net cash used in financing activities | $(4,501) | $(5,229) | | Net change in cash, cash equivalents and restricted cash | $52,313 | $(14,902) | | Cash, cash equivalents and restricted cash, end of period | $126,408 | $76,414 | - Net cash used in operating activities was $(21.2) million in Q1 2025, a decrease from $2.5 million provided in Q1 2024, primarily due to the repayment of a $30.3 million promissory note[17][263] - Net cash provided by investing activities significantly increased to $78.0 million in Q1 2025 from $(12.2) million used in Q1 2024, driven by proceeds from real estate sales[17][264] Notes to Consolidated Financial Statements Note 1 — Organization - Company operates as a REIT, owning and managing 181 healthcare-related properties (OMFs and SHOPs) across 30 states, totaling 7.6 million rentable square feet as of March 31, 2025[23][24][27][228] - Completed internalization of management on September 27, 2024, terminating prior advisory arrangements and bringing property management in-house[25][30][31][229][233] - Effected a one-for-four reverse stock split on September 30, 2024, and changed its name to 'National Healthcare Properties, Inc.' from 'Healthcare Trust, Inc.'[35][37][234] - Published a new Estimated Per-Share NAV of $32.15 as of December 31, 2024, on March 26, 2025[29][232] Note 2 — Summary of Significant Accounting Policies - Adopted ASU 2023-07, Segment Reporting — Improvements to Reportable Segment Disclosures, retrospectively, requiring incremental disclosures for reportable segments[77] - Revenue from OMFs is recognized on a straight-line basis over the lease term, while SHOP revenue is recognized as earned, primarily month-to-month[43][44] - Maintains a 100% valuation allowance of $11.1 million on deferred tax assets as of March 31, 2025, due to historical operating losses of its TRS and adverse economic impacts on SHOP assets[76] Note 3 — Real Estate Investments, Net - No properties acquired during the three months ended March 31, 2025; four properties acquired in the same period of 2024[82][83] - Disposed of 12 held-for-use OMFs in Q1 2025 for $168.4 million, resulting in a $25.0 million gain on sale[89][254] Impairment Charges by Segment (Three Months Ended March 31) | (In thousands) | 2025 | 2024 | | :--- | :--- | :--- | | OMF | $747 | $— | | SHOP | $11,152 | $260 | | Total impairment charges | $11,899 | $260 | - As of March 31, 2025, Florida (22.1%), Georgia (11.1%), and Pennsylvania (10.7%) represented significant concentrations of annualized rental income[86] Note 4 — Mortgage Notes Payable, Net Mortgage Notes Payable, Net (In thousands) | Item | March 31, 2025 | December 31, 2024 | | :----------------------------------- | :------------- | :---------------- | | Gross mortgage notes payable | $721,040 | $789,647 | | Deferred financing costs, net | $(8,812) | $(9,304) | | Mortgage premiums and discounts, net | $(1,163) | $(1,183) | | Mortgage notes payable, net | $711,065 | $779,160 | - Weighted-average effective interest rate for gross mortgage notes payable was 4.63% as of March 31, 2025 (4.56% as of December 31, 2024)[98] - Debt paydowns related to dispositions totaled $33.7 million on Capital One OMF Loan, $20.0 million on Multi-Property CMBS Loan, and $14.7 million on Barclays OMF Loan[102] Note 5 — Credit Facilities Credit Facilities Outstanding (In thousands) | Item | March 31, 2025 | December 31, 2024 | | :----------------------------------- | :------------- | :---------------- | | Fannie Mae Master Credit Facilities | $339,066 | $340,508 | | OMF Warehouse Facility | $21,708 | $21,708 | | Total Credit Facilities | $360,774 | $362,216 | - Weighted-average effective interest rate for credit facilities was 6.93% as of March 31, 2025 (7.23% as of December 31, 2024)[104] - OMF Warehouse Facility, with $21.7 million outstanding, was repaid in full and terminated in April 2025[106][113][223] - Had eight non-designated interest rate cap agreements with an aggregate notional amount of $369.2 million, capping one-month SOFR at 3.50% through January 2027[114][140][280] Note 6 — Fair Value of Financial Instruments - Derivative assets are classified as Level 2 in the fair value hierarchy, as credit valuation adjustments are not significant to the overall valuation[119][124] Derivative Assets at Fair Value (In thousands) | Item | March 31, 2025 | December 31, 2024 | | :----------------------------------- | :------------- | :---------------- | | Derivative assets, at fair value (non-designated) | $1,623 | $2,554 | | Derivative assets, at fair value (designated) | $11,658 | $16,652 | | Total | $13,281 | $19,206 | - Impairment charges were recorded for three held-for-use properties (two SHOPs, one OMF) to reduce carrying value to contractual sales price, as they are being marketed for sale[126] Note 7 — Derivatives and Hedging Activities - One derivative with a notional value of $330.2 million (March 31, 2025) is designated as a cash flow hedge of interest rate risk, maturing December 2026[136] - Received $1.5 million in Q1 2025 from the partial unwind of a derivative, accelerating reclassification of gains from AOCI to earnings, reducing interest expense[138][255] - Eight non-designated interest rate caps with an aggregate notional amount of $369.2 million limit one-month SOFR to 3.50% through January 2027[140][141][280] Gain (Loss) on Interest Rate Derivatives Designated as Cash Flow Hedges (In thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :-------------------------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Amount of (loss) gain recognized in accumulated other comprehensive income on interest rate derivatives | $(1,200) | $7,047 | | Amount of gain reclassified from accumulated other comprehensive income into income as interest expense | $3,794 | $4,767 | Note 8 — Stockholders' Equity - 28,296,439 shares of common stock outstanding as of March 31, 2025 and December 31, 2024[151] - Share repurchase program (SRP) remains suspended since August 2020[152] - Outstanding preferred stock: 3,977,144 Series A shares and 3,630,000 Series B shares as of March 31, 2025[157] - Company has not declared a quarterly stock dividend since January 2024 and does not intend to declare any further stock dividends[159][231][296] Note 9 — Related Party Transactions and Arrangements - Internalization on September 27, 2024, terminated advisory agreement, eliminating asset management and property management fees to former Advisor and affiliates[160][166][233][249][271] Related Party Operation Fees and Reimbursements (Incurred, In thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Acquisition cost reimbursements | $— | $20 | | Asset management fees | $— | $5,458 | | Professional fees and other reimbursements | $— | $3,958 | | Property management fees | $— | $1,470 | | Total related party operation fees and reimbursements | $— | $10,906 | - The $30.3 million Promissory Note issued to the Advisor Parent in connection with the Internalization was repaid in full in January 2025[34][171][263] Note 10 — Economic Dependency - Prior to the Internalization, the Company was dependent on its former Advisor and affiliates for essential services including asset management, property management, and administrative responsibilities[179] Note 11 — Equity-Based Compensation - Restricted Share Plan (RSP) expired in February 2023; no unvested shares or unrecognized compensation cost as of March 31, 2025[180] - Compensation expense related to restricted shares was $0.2 million for the three months ended March 31, 2024, and $0 for 2025[180] Note 12 — Accumulated Other Comprehensive Income Changes in Accumulated Other Comprehensive Income (In thousands) | Item | Unrealized Gain on Designated Derivative | | :-------------------------------------------------------------------------------- | :--------------------------------------- | | Balance, December 31, 2024 | $16,640 | | Amount of gain recognized in accumulated other comprehensive income on interest rate derivatives | $(1,200) | | Amount of gain reclassified from accumulated other comprehensive income | $(3,794) | | Balance, March 31, 2025 | $11,646 | Note 13 — Non-controlling Interests Non-controlling Interests Breakdown (In thousands) | Item | March 31, 2025 | December 31, 2024 | | :----------------------------------- | :------------- | :---------------- | | Series A Preferred Units held by third parties | $2,578 | $2,578 | | Common OP Units held by third parties | $2,172 | $2,212 | | Non-controlling Interests in property owning subsidiaries | $791 | $775 | | Total Non-controlling interests | $5,541 | $5,565 | Net Loss Attributable to Non-controlling Interests (In thousands) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net loss attributable to non-controlling interests | $(54) | $— | Note 14 — Net Loss Per Share Net Loss Per Share Attributable to Common Stockholders (In thousands, except per share data) | Item | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net loss attributable to common stockholders | $(5,019) | $(19,000) | | Basic and diluted weighted-average shares outstanding | 28,296,439 | 28,287,140 | | Basic and diluted net loss per share | $(0.18) | $(0.67) | Weighted Average Antidilutive Common Stock Equivalents | Item | 2025 | 2024 | | :------------------------------------------ | :--- | :--- | | Unvested restricted shares | — | 13,103 | | Common OP Units | 124,161 | 124,161 | | Class B Units | 109,865 | 109,865 | | Total weighted average antidilutive common stock equivalents | 234,026 | 247,129 | Note 15 — Segment Reporting - Company's Chief Executive Officer serves as the Chief Operating Decision Maker (CODM), evaluating performance and allocating resources based on OMF and SHOP segments[203][204] Net Operating Income (NOI) by Segment (Three Months Ended March 31, In thousands) | Segment | 2025 | 2024 | | :----------------------------------- | :--- | :--- | | OMFs NOI | $19,466 | $24,899 | | SHOPs NOI | $9,437 | $8,255 | | Total NOI | $28,903 | $33,154 | - OMF NOI decreased by 21.8% primarily due to the disposition of 24 OMFs subsequent to March 31, 2024[243] - SHOP NOI increased by 14.3% due to positive trends in revenue from occupancy gains and continued expense management, partially offset by disposition of two SHOPs[246] Note 16 — Commitments and Contingencies - As of March 31, 2025, the Company had $6.9 million in operating lease right-of-use (ROU) assets and $7.8 million in operating lease liabilities[216] - Ground operating leases have a weighted-average remaining lease term of 29.6 years and a weighted-average discount rate of 7.35% as of March 31, 2025[217] - No material legal or regulatory proceedings pending or known to be contemplated against the Company[218][312] Note 17 — Subsequent Events - Disposed of one OMF and three SHOPs for an aggregate contract sales price of $9.1 million subsequent to March 31, 2025[222][284] - Repaid in full and terminated the OMF Warehouse Facility ($21.7 million) and two related interest rate caps in April 2025[223][279][281] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Analyzes Q1 2025 financial condition and results, including segment performance, cash flow, liquidity, and non-GAAP measures Overview - Company is a REIT owning 181 healthcare-related properties (OMFs and SHOPs) across 30 states, totaling 7.6 million rentable square feet as of March 31, 2025[228][237] - Internalized advisory and property management functions on September 27, 2024, eliminating related party fees[229][233] - Effected a one-for-four reverse stock split on September 30, 2024[234] - Published a new Estimated Per-Share NAV of $32.15 as of December 31, 2024, on March 26, 2025[232] Results of Operations Key Financial Results (Three Months Ended March 31, In thousands) | Item | 2025 | 2024 | Increase (Decrease) | | :----------------------------------- | :--- | :--- | :---------------- | | Revenue from tenants | $86,443 | $88,299 | $(1,856) | | Total expenses | $98,408 | $89,419 | $8,989 | | Operating income (loss) | $13,024 | $(1,120) | $14,144 | | Net loss attributable to common stockholders | $(5,019) | $(19,000) | $13,981 | - Net loss attributable to common stockholders decreased by $13.98 million, from $(19.0) million in Q1 2024 to $(5.0) million in Q1 2025[241] - Gain on sale of real estate investments was $25.0 million in Q1 2025, compared to $0 in Q1 2024[241][254] - Operating fees to related parties decreased by $6.4 million to $0 in Q1 2025 due to the Internalization[241][250] - Impairment charges increased to $11.9 million in Q1 2025 from $0.3 million in Q1 2024[241][248] Segment Results — Outpatient Medical Facilities OMF Segment Performance (Three Months Ended March 31, In thousands) | Item | 2025 | 2024 | Increase (Decrease) to NOI | | :----------------------------------- | :--- | :--- | :---------------- | | Revenue from tenants | $30,635 | $34,599 | $(3,964) | | Less: Property operating and maintenance | $11,169 | $9,700 | $1,469 | | NOI | $19,466 | $24,899 | $(5,433) | - OMF NOI decreased by 21.8% ($5.4 million) primarily due to the disposition of 24 OMFs subsequent to March 31, 2024[243] Segment Results — Seniors Housing Operating Properties SHOP Segment Performance (Three Months Ended March 31, In thousands) | Item | 2025 | 2024 | Increase (Decrease) to NOI | | :----------------------------------- | :--- | :--- | :---------------- | | Revenue from tenants | $55,808 | $53,700 | $2,108 | | Less: Property operating and maintenance | $46,371 | $45,445 | $926 | | NOI | $9,437 | $8,255 | $1,182 | - SHOP NOI increased by 14.3% ($1.2 million) primarily due to positive trends in revenue from occupancy gains and continued expense management, partially offset by the disposition of two SHOPs[246] - Occupancy for the SHOP segment increased from 75.6% in Q1 2024 to 78.8% in Q1 2025[244] Cash Flows Cash Flow Summary (Three Months Ended March 31, In thousands) | Item | 2025 | 2024 | Increase (Decrease) | | :------------------------------------------ | :--- | :--- | :---------------- | | Net cash (used in) provided by operating activities | $(21,229) | $2,543 | $(23,772) | | Net cash provided by (used in) investing activities | $78,043 | $(12,216) | $90,259 | | Net cash used in financing activities | $(4,501) | $(5,229) | $728 | | Net change in cash, cash equivalents and restricted cash | $52,313 | $(14,902) | $67,215 | - Operating cash flow decreased by $23.8 million, primarily due to the full repayment of a $30.3 million promissory note in January 2025[263] - Investing cash flow increased by $90.3 million, driven by proceeds from the sale of 12 OMFs in Q1 2025[264] Liquidity and Capital Resources - Believes it has sufficient current liquidity to meet financial obligations for at least the next twelve months[266] - Cash and cash equivalents were $71.4 million as of March 31, 2025[269] - Total debt leverage ratio was approximately 44.6% as of March 31, 2025 (total debt of $1.1 billion divided by total gross asset value of $2.3 billion)[272] - Total gross borrowings were $1.1 billion at a weighted-average interest rate of 5.40% (5.1% inclusive of non-designated interest rate caps) and a weighted-average remaining term of 3.9 years[273] - Board authorized a $50.0 million stock repurchase program for Series A and Series B Preferred Stock on May 2, 2025[285] Non-GAAP Financial Measures - FFO and AFFO are used as supplemental non-GAAP measures to evaluate operating performance, excluding items like depreciation, impairment, and gains/losses from real estate sales[287][289][291] FFO and AFFO Attributable to Stockholders (Three Months Ended March 31, In thousands) | Item | 2025 | 2024 | | :----------------------------------- | :--- | :--- | | Net loss attributable to common stockholders (GAAP) | $(5,019) | $(19,000) | | FFO (as defined by NAREIT) attributable to stockholders | $4,116 | $907 | | AFFO attributable to stockholders | $8,785 | $1,505 | - AFFO attributable to stockholders increased significantly to $8.8 million in Q1 2025 from $1.5 million in Q1 2024[293] Dividends and Other Distributions - Quarterly distributions on Series A Preferred Stock are $0.460938 per share (7.375% per annum) and on Series B Preferred Stock are $0.445313 per share (7.125% per annum)[295] - No cash dividends paid on common stock since mid-2020; stock dividends were issued from October 2020 until January 2024, with no further stock dividends intended[296] Source of Distribution Coverage (Three Months Ended March 31, 2025, In thousands) | Item | Amounts | Percentage of Distributions | | :----------------------------------- | :--- | :--- | | Distributions to holders of Series A Preferred Stock | $1,834 | 52.4% | | Distributions to holders of Series B Preferred Stock | $1,616 | 46.2% | | Distributions paid to holders of Series A Preferred Units | $47 | 1.4% | | Total cash distributions | $3,497 | 100.0% | | Source of distribution coverage: | | | | Cash flows used in operations | $— | —% | | Available cash on hand | $3,497 | 100.0% | - Cash flows used in operations were $(21.2) million for Q1 2025; distributions to preferred stockholders and Series A Preferred Units were funded by available cash on hand[302] Inflation - Inflation, driven by labor shortages, supply chain disruptions, higher property insurance, property tax, and interest rates, adversely impacts operations and liquidity[267][304] - Most OMF leases contain rent escalation provisions, but these rates are generally below the current 12-month Consumer Price Index increase of 3.0% as of March 31, 2025[304] - SHOP leases, being short-term, allow for market rate renewals, but increased operating costs, particularly labor, could affect results if not offset by higher rents[307] Related-Party Transactions and Agreements - Refer to Note 9 for details on related party transactions and agreements, which were significantly impacted by the Internalization[308] Item 3. Quantitative and Qualitative Disclosures About Market Risk. No material change in market risk exposure during Q1 2025, with further details in the Annual Report on Form 10-K - No material change in exposure to market risk during the three months ended March 31, 2025[309] Item 4. Controls and Procedures. CEO and CFO affirmed effective disclosure controls as of March 31, 2025; no material changes in internal control over financial reporting - Disclosure controls and procedures were effective as of March 31, 2025, as concluded by the CEO and CFO[310] - No material changes in internal control over financial reporting during the three months ended March 31, 2025[311] PART II - OTHER INFORMATION Item 1. Legal Proceedings. The company is not involved in any material pending legal proceedings, nor are its properties subject to such - Not a party to, and none of its properties are subject to, any material pending legal proceedings[312] Item 1A. Risk Factors. No material changes to risk factors disclosed in the Annual Report on Form 10-K for FY2024 are reported - No material changes to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024[313] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities. No unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities occurred - None reported for unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities[314] Item 3. Defaults Upon Senior Securities. No defaults upon senior securities were reported during the period - None reported for defaults upon senior securities[315] Item 4. Mine Safety Disclosures. This item is not applicable to the company - Not applicable[316] Item 5. Other Information. No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the last fiscal quarter[317] Item 6. Exhibits. The report includes various exhibits, such as certifications, written statements, and Inline XBRL documents - Includes certifications (31.1, 31.2), written statements (32), and Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104) as exhibits[319] Signatures. Report signed by Michael Anderson (CEO, President, Director) and Scott M. Lappetito (CFO, Treasurer) on May 8, 2025 - Report signed by Michael Anderson (CEO, President, Director) and Scott M. Lappetito (CFO, Treasurer) on May 8, 2025[322]