HEALTHCARE : TRUST, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

The following discussion and analysis should be read in conjunction with the
accompanying consolidated financial statements of Healthcare Trust, Inc. and the
notes thereto. As used herein, the terms the "Company," "we," "our" and "us"
refer to Healthcare Trust, Inc., a Maryland corporation, including, as required
by context, Healthcare Trust Operating Partnership, LP (our "OP"), a Delaware
limited partnership, and its subsidiaries. The Company is externally managed by
Healthcare Trust Advisors, LLC (our "Advisor"), a Delaware limited liability
company. Capitalized terms used herein, but not otherwise defined, have the
meaning ascribed to those terms in "Part I - Financial Information" included in
the notes to the consolidated financial statements and contained herein.
Forward-Looking Statements
Certain statements included in this Quarterly Report on Form 10-Q are
forward-looking statements. Those statements include statements regarding the
intent, belief or current expectations of Healthcare Trust, Inc. ("we," "our" or
"us") and members of our management team, as well as the assumptions on which
such statements are based, and generally are identified by the use of words such
as "may," "will," "seeks," "anticipates," "believes," "estimates," "expects,"
"plans," "intends," "should" or similar expressions. Actual results may differ
materially from those contemplated by such forward-looking statements. Further,
forward-looking statements speak only as of the date they are made, and we
undertake no obligation to update or revise forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated events or changes
to future operating results over time, unless required by law.
These forward-looking statements are subject to risks, uncertainties, and other
factors, many of which are outside of our control, which could cause actual
results to differ materially from the results contemplated by the
forward-looking statements. Some of the risks and uncertainties, although not
all risks and uncertainties, that could cause our actual results to differ
materially from those presented in our forward-looking statements are set forth
in the Risk Factors section of our Annual Report on Form 10-K for the year ended
December 31, 2020.
Overview
We are an externally managed REIT that focuses on acquiring and managing a
diversified portfolio of healthcare-related real estate focused on MOBs, NNN
properties, and SHOPs. As of March 31, 2021, we owned 190 properties located in
31 states and comprised of 9.3 million rentable square feet.
Substantially all of our business is conducted through the OP, a Delaware
limited partnership, and its wholly owned subsidiaries. Our Advisor manages our
day-to-day business with the assistance of Healthcare Trust Properties, LLC (our
"Property Manager"). Our Advisor and Property Manager are under common control
with AR Global Investments, LLC ("AR Global") and these related parties receive
compensation and fees for providing services to us. We also reimburse these
entities for certain expenses they incur in providing these services to us.
Healthcare Trust Special Limited Partnership, LLC (the "Special Limited
Partner"), which is also under common control with AR Global, also has an
interest in us through ownership of interests in our OP. As of March 31, 2021,
we owned 55 seniors housing properties under the REIT Investment Diversification
and Empowerment Act ("RIDEA") structure in our SHOP segment. Under RIDEA, a REIT
may lease qualified healthcare properties on an arm's length basis to a taxable
REIT subsidiary ("TRS") if the property is operated on behalf of such subsidiary
by a person who qualifies as an eligible independent contractor.
We have declared and paid quarterly dividends entirely in shares of our common
stock. Stock dividends paid in October 2020 and January 2021 were equal to
0.01349 shares of common stock on each share of our outstanding common stock The
stock dividend paid in April 2021 was equal to 0.014655 shares of our common
stock on each share of our outstanding common stock. Dividends payable entirely
in shares of common stock are treated in a fashion similar to a stock split for
accounting purposes specifically related to per-share calculations for the
current and prior periods. The aggregate impact of all three Stock Dividends was
an increase of 1,392,822 shares. Dividends payable entirely in shares of common
stock are treated in fashion similar to a stock split for accounting purposes
specifically related to per-share calculations for the current and prior
periods. The aggregate impact of all three stock dividends was an increase of
1,392,822 shares. No additional shares, except for the stock dividends, were
issued during the three months ended March 31, 2021. References made to
weighted-average shares and per-share amounts in the accompanying consolidated
statements of operations and comprehensive income have been retroactively
adjusted to reflect the increase of 0.04222 shares for every share outstanding
due to the stock dividends. Additionally, other references to weighted-average
shares outstanding and per-share amounts have been retroactively adjusted for
the stock dividends and are noted as such throughout the accompanying financial
statements and footnotes.
On April 1, 2021, we published a new Estimated Per-Share NAV equal to $14.50 as
of December 31, 2020. Our previous Estimated Per-Share NAV was equal to $15.75
as of December 31, 2019. The Estimated Per-Share NAV reflects the October 2020
stock dividend we paid and took into consideration the January 2021 stock
dividend we paid but has not been adjusted to reflect the April 2021 stock
dividend we paid and will not be adjusted for stock dividends we pay in the
future until the board of directors (the "Board") determines a new Estimated
Per-Share NAV. Paying dividends in additional shares of common stock
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will, all things equal, cause the value of each share to decline because the
number of shares outstanding will increase when Stock Dividends are paid;
however, because each stockholder will receive the same number of new shares,
the total value of our common stockholders' investment, all things equal, will
not change assuming no sales or other transfers. Unless we list our common stock
on a national security exchange, we intend to publish Estimated Per-Share NAV at
least once annually.
Management Update on the Impacts of the COVID-19 Pandemic
The COVID-19 global pandemic has created several risks and uncertainties that
have had and may continue to have an impact on our business, including our
financial condition, future results of operations and our liquidity. Negative
impacts of the COVID-19 pandemic have caused some of our tenants to be unable to
make rent payments to us timely, or at all. There may be a decline in the demand
for tenants to lease real estate, as well as a negative impact on rental rates.
The extent to which the ongoing global COVID-19 pandemic, including the
outbreaks that have occurred and may occur in markets where we own properties,
impacts our operations and those of our tenants and third-party operators, will
continue to depend on future developments, including the scope, severity and
duration of the pandemic, and the actions taken to contain the COVID-19 or treat
its impact, among others, which are highly uncertain and cannot be predicted
with confidence, but could be material.
As of March 31, 2021, our MOB segment had an occupancy of 91.7% with a
weighted-average remaining lease term of 4.8 years, (based on annualized
straight-line rent as of March 31, 2021), our triple-net leased healthcare
facilities segment had an occupancy of 94.5% with a weighted average remaining
lease term of 6.2 years (based on annualized straight-line rent as of March 31,
2021) and our SHOP segment had an occupancy of 72.7%. During the three months
ended March 31, 2021, we experienced a decline in occupancy and an increase in
costs at our SHOP portfolio, however, we received grants under the CARES Act of
$5.1 million during the first quarter of 2021 which helped offset the COVID-19
related operating costs. The negative impact of the pandemic on our results of
operations and cash flows has impacted and could continue to impact our ability
to comply with covenants in our senior secured credit facility (the"Credit
Facility"), which is comprised of our revolving credit facility (the "Revolving
Credit Facility") and a term loan (the "Term Loan"), and the amount available
for future borrowings thereunder.
For a further discussion of the risks and uncertainties associated with the
impact of the COVID-19 pandemic on us, please see   Item 1A  . "Risk Factors" in
our Annual Report on Form 10-K for the year ended December 31, 2020.
Rent Collections
We experienced delays in rent collection in the second, third and fourth
quarters of 2020 and the first quarter of 2021. We have taken several steps to
mitigate the impact of the pandemic on our business. We have been in direct
contact with our tenants and operators since the crisis began, cultivating open
dialogue and deepening the fundamental relationships that we have carefully
developed through prior transactions and historic operations. We have achieved
mutually agreeable solutions with our tenants and in some cases, during the year
ended December 31, 2020, we executed lease amendments providing for deferral of
rent. Based on this approach and the overall financial strength and
creditworthiness of our tenants, we believe that we have had positive results in
our cash rent collections during this pandemic.
We have collected nearly 100% of the original cash rent due for the first
quarter of 2021 in our MOB segment and 100% in our triple-net leased healthcare
facilities segment. Cash rental payments for our 55 SHOPs is primarily paid for
by the residents through private payer insurance or directly, and to a lesser
extent, by government reimbursement programs such as Medicaid and Medicare.
These cash rental payments are subject to timing differences, therefore we have
not provided the amount of first quarter 2021 cash rent collected for our SHOP
segment.
"Original cash rent" refers to contractual rents on a cash basis due from
tenants as stipulated in their original executed lease agreement at inception or
as amended, prior to any rent deferral agreement. We calculate "original cash
rent collections" by comparing the total amount of rent collected during the
period to the original cash rent due. Total rent collected during the period
includes both original cash rent due and payments made by tenants pursuant to
rent deferral agreements. Eliminating the impact of deferred rent paid, we
collected nearly 100% of original cash rent due for the first quarter of 2021.
A deferral agreement is an executed or approved amendment to an existing lease
to defer a certain portion of cash rent due to a future period. During the year
ended December 31, 2020, we granted rent deferrals for an aggregate of
$0.4 million or less than 1% of original cash rent due for the year. No
additional rent was deferred during the three months ended March 31, 2021.
Rent collections in April 2021 were materially consistent with the first quarter
of 2021, and we expect this trend to continue. We have also granted rent
concessions which serve to reduce revenue in our SHOP segment. The impact of the
COVID-19 pandemic on our tenants and operators thus our ability to collect rents
in future periods cannot be determined at present.
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Seniors Housing Properties
In early March 2020, we implemented preventative actions at all our seniors
housing properties in our SHOP segment, including restrictions on visitation
except in very limited and controlled circumstances, social distancing measures,
and the screening of all persons entering these facilities. Some of the
additional steps we have taken to address the COVID-19 pandemic include,
enhanced training for staff members, the implementation of Telehealth to help
residents be safe while keeping appointments with important, but non-emergency,
health providers, virtual tours for potential new residents, and agreements
between some of our facilities and local lab partners to provide COVID-19
testing services.
Starting in March 2020, the COVID-19 pandemic and measures to prevent its spread
began to affect us in a number of ways. Occupancy in our SHOP portfolio has
trended lower since the second half of March 2020 as government policies and
implementation of infection control best practices and prospective residents'
concerns about communal-setting COVID-19 spread limited resident move-ins. We
have also continued to experience lower inquiry volumes and reduced in-person
tours during the pandemic. These and other impacts of the COVID-19 pandemic have
affected and could continue to affect our ability to fill vacancies. We have
also continued to experience lower inquiry volumes and reduced in-person tours
during the pandemic. SHOP occupancy has continued to decline from 84.1% as of
March 31, 2020, to 79.5% as of June 30, 2020, to 77.9% as of September 30,2020,
to 75.1% as of December 31, 2020 and to 72.7% as of March 31, 2021. The declines
in revenue we experienced during the first quarter of 2021 were primarily
attributable to this decline in occupancy. In addition, starting in mid-March of
2020, operating costs began to rise materially, including for services, labor
and personal protective equipment and other supplies, as our operators took
appropriate actions to protect residents and caregivers. At our SHOP facilities,
we bear these cost increases. These trends accelerated during the second, third
and fourth quarters of 2020 and into the beginning of the first quarter of 2021
as the surge of new COVID-19 cases that started in late 2020 crested, and have
continued through the end of the first quarter of 2021 and into the second
quarter of 2021 and may continue to impact us in the and have a material adverse
effect on our revenues and income in the other quarters thereafter. We believe
that, as infections decline and more vaccinations are administered during 2021,
our occupancy will stop declining, and may start to increase, but there can be
no assurance as to when or if we will be able to approach pre-pandemic levels of
occupancy.
The pandemic raises the risk of an elevated level of resident exposure to
illness and restrictions on move-ins at our SHOPs, which has and could also
continue to adversely impact occupancy and revenues as well as increase costs.
We believe that the actions we have taken help reduce the incidences of COVID-19
at our properties, but there can be no assurance in this regard. There have been
some incidences of COVID-19 among the residents and staff at certain of our
seniors housing properties. Further incidences, or the perception that outbreaks
may occur, could materially and adversely affect our revenues and income, as
well as cause reputational harm to us and our tenants, managers and operators.
The extent to which the ongoing global COVID-19 pandemic, including the
outbreaks that have occurred and may occur in markets where we own properties,
impacts our operations and those of our tenants and third-party operators, will
continue to depend on future developments, including the scope, severity and
duration of the pandemic, and the actions taken to contain the COVID-19 or treat
its impact, among others, which are highly uncertain and cannot be predicted
with confidence, but could be material.
On March 27, 2020, Coronavirus Aid, Relief, and Economic Security Act ("CARES
Act") was signed into law and it provides funding to Medicare providers in order
to provide financial relief during the COVID-19 pandemic. Funds provided under
the program were to be used for the preparation, prevention, and medical
response to COVID-19, and were designated to reimburse providers for healthcare
related expenses and lost revenues attributable to COVID-19. During the first
quarter of 2021, we received an additional $5.1 million in CARES Act funding. We
consider the funds to be a grant contribution from the government and the full
amount was recognized as a reduction of property operating expenses in our
consolidated statement of operations during the first quarter of 2021. There can
be no assurance that the program will be extended or any further amounts
received under currently effective or potential future government programs.
Significant Accounting Estimates and Critical Accounting Policies
For a discussion about our significant accounting estimates and critical
accounting policies, see the "Significant Accounting Estimates and Critical
Accounting Policies" section of our 2020 Annual Report on Form 10-K. Except for
those required by new accounting pronouncements discussed below, there have been
no material changes from these significant accounting estimates and critical
accounting policies.
Recently Issued Accounting Pronouncements
Please see   Note 2   - Summary of Significant Accounting Policies - Recently
Issued Accounting Pronouncements to our consolidated financial statements in
this Quarterly Report on Form 10-Q for further discussion.
CARES Act Grants
As discussed in   Note 2   - Summary of Significant Accounting Policies - CARES
Act Grants, we adopted a new policy with respect to accounting for such grants
received.
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Table of Contents

Properties

The following table presents certain additional information about the properties we owned as of March 31, 2021:

                                                                                                                       Weighted Average
                                                                                                                           Remaining
                                            Number                   Rentable                                            Lease Term in           Gross Asset
Portfolio                                of Properties             Square Feet            Percentage Leased(1)             Years (2)              Value (3)
                                                                                                                                               (In thousands)
Medical Office Buildings                      118                  3,941,057                      91.7%                       4.8              $  1,094,451
Triple-Net Leased Healthcare
Facilities:
Hospitals                                      6                     514,962                      90.7%                       6.0                

133,580

Post-Acute / Skilled Nursing                   8                     354,016                     100.0%                       6.6                    86,574
Total Triple-Net Leased
Healthcare Facilities                         14                     868,978                      94.5%                       6.2                   220,154
Seniors Housing - Operating                                                                                      (4)
Properties (6)                                55                   4,265,466                      72.7%                       N/A                 1,229,434
Jupiter Property - Recently                                                                                      (5)
Developed                                      1                     235,445                      10.0%                       9.7                    58,005
Land                                           2                               N/A                 N/A                        N/A                     3,665
Total Portfolio                               190                  9,310,946                                                                   $  2,605,709


_______________
(1)Inclusive of leases signed but not yet commenced as of March 31, 2021.
(2)Weighted-average remaining lease term in years is calculated based on square
feet as of March 31, 2021.
(3)Gross asset value represents total real estate investments, at cost
($2.6 billion total as of March 31, 2021) net of gross market lease intangible
liabilities ($22.2 million total as of March 31, 2021). Impairment charges are
already reflected within gross asset value.
(4)Weighted by unit count as of March 31, 2021.
(5)Our development property in Jupiter, Florida was substantially completed in
the fourth quarter of 2019. Although a portion of the property has been leased
as of March 31, 2021, the property is separately shown and excluded from
combined occupancy numbers. Occupancy in the triple-net leased healthcare
facilities segment would have been 76.5% had the development property been
included. This property is currently under a PSA to be sold. Although the
disposition is expected to be completed in the second quarter of 2021, and there
can be no assurance that the disposition will be completed on its contemplated
terms, or at all.
(6)One SHOP in Wellington, Florida is under a PSA to be sold. Although the
disposition is expected to be completed in the second quarter of 2021, there can
be no assurance that the disposition will be completed on its contemplated
terms, or at all. During the three months ended March 31, 2021, four MI SHOPs
located in Michigan were transferred to their buyer pursuant to their sale in
November 2020.
N/A  Not applicable.
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Results of Operations
We operate in three reportable business segments for management and internal
financial reporting purposes: MOBs, triple-net leased healthcare facilities, and
SHOPs. In our MOB operating segment, we own, manage and lease single and
multi-tenant MOBs where tenants are required to pay their pro rata share of
property operating expenses, which may be subject to expense exclusions and
floors, in addition to base rent. In our triple-net leased healthcare facilities
operating segment, we own, manage and lease seniors housing properties,
hospitals, post-acute care and skilled nursing facilities throughout the United
States under long-term triple-net leases, and tenants are generally directly
responsible for all operating costs of the respective properties.Our Property
Manager or third party managers manage our MOBs and our triple-net leased
healthcare facilities. In our SHOP segment, we invest in seniors housing
properties using the RIDEA structure. As of March 31, 2021, we had six eligible
independent contractors operating 55 SHOPs (not including two land parcels). All
of our properties across all three business segments are located throughout the
United States.
Same Store Properties
Information based on Same Store, Acquisitions and Dispositions (as each are
defined below) allows us to evaluate the performance of our portfolio based on a
consistent population of properties owned for the entire period of time covered.
As of March 31, 2021, we owned 190 properties. There were 180 properties (our
"Same Store" properties) owned for the entire year ended December 31, 2020 and
the three months ended March 31, 2021. Our Same Store properties include two
vacant land parcels and one development property that was substantially
completed in the fourth quarter of 2019. Since January 1, 2020, we acquired ten
properties (our "Acquisitions") and disposed of 13 properties (our
"Dispositions"). As described in more detail under "Results of Operations -
Comparison of the Three Months Ended March 31, 2021 - Transition Properties"
below, our Same Store properties include four Transition Properties that were
transitioned from Senior Housing - Triple Net Leased to our SHOP segment
effective July 1, 2020. These four Transition Properties were owned for the
entire same store period and merely moved between segments. We retroactively
adjusted our Same Store for those segments to include the Transition Properties
as part of our Same Store in our SHOP segment and excluded them from the Same
Store in our triple-net leased healthcare facilities segment (each segment as so
retroactively adjusted, the "Segment Same Store"). See   Note 3   - Real Estate
Investments, Net for further information about the Transition Properties and the
transition.
The following table presents a roll-forward of our properties owned from January
1, 2019 to March 31, 2021:
                                                                             Number of Properties
Number of properties, January 1, 2020                                                      193
Acquisition activity during the year ended December 31, 2020                                 9
Disposition activity during the year ended December 31, 2020                                (9)
Number of properties, December 31, 2020                                                    193

Acquisition activity during the three months ended March 31, 2021

                  1

Disposition activity during the three months ended March 31, 2021

                 (4)
Number of properties, March 31, 2021                                                       190

Number of Same Store Properties (1)                                                        180

___________

(1) Includes the acquisition of a land parcel adjacent to an existing property which is not considered an Acquisition.

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In addition to the comparative period-over-period discussions below, please see
the "Overview - Management Update on the Impacts of the COVID-19 Pandemic"
section above for additional information on the risks and uncertainties
associated with the COVID-19 pandemic and management's responses.
Comparison of the Three Months Ended March 31, 2021 and 2020
Net loss attributable to common stockholders was $12.2 million and $24.7 million
for the three months ended March 31, 2021 and 2020, respectively. The following
table shows our results of operations for the three months ended March 31, 2021
and 2020 and the period to period change by line item of the consolidated
statements of operations:
                                                                                                                Increase
                                                                     Three Months Ended March 31,              (Decrease)
(Dollars in thousands)                                                  2021                  2020                 $
Revenue from tenants                                             $        83,436          $ 100,235          $   (16,799)

Operating expenses:
Property operating and maintenance                                        49,355             61,723              (12,368)
Impairment charges                                                           878             18,038              (17,160)
Operating fees to related parties                                          5,883              6,049                 (166)
Acquisition and transaction related                                          132                327                 (195)
General and administrative                                                 6,052              6,730                 (678)
Depreciation and amortization                                             20,102             20,195                  (93)
Total expenses                                                            82,402            113,062              (30,660)

Operating income (loss) before gain on sale of real estate investments

                                                                1,034            (12,827)              13,861
Gain on sale of real estate investments                                     (172)             2,306               (2,478)
Operating loss                                                               862            (10,521)              11,383
Other income (expense):
Interest expense                                                         (12,322)           (13,257)                 935
Interest and other income                                                     52                  5                   47
Loss on non-designated derivatives                                            14                 16                   (2)
Total other expenses                                                     (12,256)           (13,236)                 980
Loss before income taxes                                                 (11,394)           (23,757)              12,363
Income tax expense                                                           (48)              (332)                 284
Net loss                                                                 (11,442)           (24,089)              12,647
Net (income) loss attributable to non-controlling
interests                                                                    (46)                87                 (133)
Allocation for preferred stock                                              (742)              (742)                   -
Net loss attributable to common stockholders                     $       (12,230)         $ (24,744)         $    12,514


_________
NM - Not Meaningful
Transition Properties
Some of our properties move between our operating segments, for example if they
are converted from being triple-net leased to third parties in our triple-net
leased healthcare facilities segment to being leased to one of our TRSs and
operated and managed on our behalf by a third-party operator in our SHOP
segment. When transfers between segments occur, we reclassify the operating
results of the transferred properties to their current segment for both the
current and all historical periods in order to present a consistent group of
property results. See   Note 3   - Real Estate Investments, Net - "Impairments"
and "Held for Use Assets" and   Note 15   - Segment Reporting to our
consolidated financial statements included in this Quarterly Report on Form 10-Q
for additional information.
Over the last three years, we have had properties transfer between operating
segments. Upon such transfers we retroactively restate the historical operating
results for the segment for all periods presented in that filing and,
thereafter, we will restate other later prior periods when they are subsequently
reported in later filings for comparative purposes. As a result, we provide
transition disclosure adjustments only for properties that have transitioned
since the prior numbers were previously
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reported. We transitioned the four triple-net leased properties in Texas (the
"LaSalle Properties") effective July 1, 2020 (the "Transition Properties").
As described in more detail below, our Same Store includes the four Transition
Properties, which transitioned from our triple-net leased healthcare facilities
segment to our SHOP segment during the third quarter of 2020.
During the three months ended March 31, 2021, as shown in more detail in the
table below, the Transition Properties contributed approximately $(0.2) million
of net operating income ("NOI"). The results of operations of the Transition
Properties are included in Segment Same Store with respect to the SHOP segment.
The bad debt expense relating to the Transition Properties is included as a
reduction to revenue from tenants on the consolidated statement of operations.
For purposes of the discussion and analysis of the segment results of operations
during the three months ended March 31, 2021 as compared to the three months
ended March 31, 2020, the results of operations for the Transition Properties
are included as part of our SHOP segment and excluded from our triple-net leased
healthcare facilities segment.
The following table presents by segment Same Store properties' NOI before and
after adjusting for the Transition Properties as described above, to arrive at
"Segment Same Store" results. Our MOB segment was not affected by the Transition
Properties.
                                           Three Months Ended March 31, 2021                    Three Months Ended March 31, 2020                   

Increase (Decrease)

                                       Same Store      Transition    Segment Same           Same Store       Transition    Segment Same          

Same Store Transition Segment Same (Dollar amounts in thousands) Properties Properties Store

              Properties       Properties        Store             Properties      Properties        Store
NNN Segment
Revenue from tenants                 $      5,299    $     (1,350)   $    

3,949 $ 4,709 $ (624) $ 4,085 $

  590    $        (726)   $     (136)
Less: Property operating and
maintenance                                 2,541          (1,527)        1,014                  1,460             (925)          535                1,081             (602)          479
NOI                                  $      2,758    $        177    $    2,935          $       3,249    $         301    $    3,550          $      (491)   $        (124)   $     (615)

SHOP Segment
Revenue from tenants                 $     47,958    $      1,350    $   49,308          $      58,611    $         624    $   59,235          $   (10,653)   $         726    $   (9,927)
Less: Property operating and
maintenance                                36,196           1,527        37,723                 43,435              925        44,360               (7,239)             602        (6,637)
NOI                                  $     11,762    $       (177)   $   11,585          $      15,176    $        (301)   $   14,875          $    (3,414)   $         124    $   (3,290)



Net Operating Income
NOI is a non-GAAP financial measure used by us to evaluate the operating
performance of our real estate portfolio. NOI is equal to revenue from tenants
less property operating and maintenance expenses. NOI excludes all other
financial statement amounts included in net income (loss) attributable to common
stockholders. We believe NOI provides useful and relevant information because it
reflects only those income and expense items that are incurred at the property
level and presents such items on an unlevered basis. See Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Non-GAAP Financial Measures included elsewhere in this Quarterly Report for
additional disclosure and a reconciliation to our net income (loss) attributable
to common stockholders.
Segment Results - Medical Office Buildings
The following table presents the components of NOI and the period to period
change within our MOB segment for the three months ended March 31, 2021 and
2020:
                                                   Same Store (1)                                            Acquisitions (2)                                          Dispositions (3)                                           Segment Total (4)
                                                                         Increase                                                  Increase                                                  Increase                                                    Increase
                                 Three Months Ended March 31,           (Decrease)          Three Months Ended March 31,          (Decrease)          Three Months Ended March 31,          (Decrease)           Three Months Ended March 31,           (Decrease)
(Dollars in thousands)              2021              2020                  $                    2021              2020                $                  2021              2020                $                   2021              2020                  $
Revenue from tenants            $  25,199          $ 25,808          $        (609)         $       941          $ 329          $        612          $      250          $ 233          $          17          $  26,390          $ 26,370          $          20
Less: Property operating
and maintenance                     7,609             7,517                     92                  221             61                   160                   -             32                    (32)             7,830             7,610                    220
   NOI                          $  17,590          $ 18,291          $        (701)         $       720          $ 268          $        452          $      250          $ 201          $          49          $  18,560          $ 18,760          $        (200)


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(1)Our MOB segment included 112 Same Store properties. (2)Our MOB segment included six Acquisition properties. (3)Our MOB segment included one Disposition property. (4)Our MOB segment included 118 properties. NM - Not Meaningful

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Revenues from tenants is primarily related to contractual rent received from
tenants in our MOBs. It also includes operating expense reimbursements which
generally increase in proportion with the increase in property operating and
maintenance expenses in our MOB segment. Pursuant to many of our lease
agreements in our MOBs, tenants are required to pay their pro rata share of
property operating and maintenance expenses, which may be subject to expense
exclusions and floors, in addition to base rent.
Property operating and maintenance relates to the costs associated with our
properties, including real estate taxes, utilities, repairs, maintenance, and
unaffiliated third-party property management fees.
During the three months ended March 31, 2021, the MOB segment contributed a $0.2
million decrease in NOI as compared to the three months ended March 31, 2020. Of
our ten Acquisitions during the period from January 1, 2020 through March 31,
2021, six were MOBs which contributed a $0.5 million increase in NOI and our
Disposition properties contributed a $49,000 increase in NOI due to
non-recurring property operating expenses, while NOI from our Same Store
properties decreased by $0.7 million during the three months ended March 31,
2021 as compared to March 31, 2020.
Segment Results - Triple-Net Leased Healthcare Facilities
The following table presents the components of NOI and the period to period
change within our triple-net leased healthcare facilities segment for the three
months ended March 31, 2021 and 2020:
                                                   Same Store (1)                                             Acquisitions (2)                                               Dispositions (3)                                            Segment Total (4)
                                                                        Increase                                                     Increase                                                       Increase                                                   Increase
                                 Three Months Ended March 31,          (Decrease)           Three Months Ended March 31,            (Decrease)             Three Months Ended March 31,            (Decrease)           Three Months Ended March 31,          (Decrease)
(Dollars in thousands)              2021              2020                 $                     2021               2020                 $                     2021               2020                  $                  2021              2020                 $
Revenue from tenants             $  3,949          $ 4,085          $        (136)         $         -            $   -          $            -          $         -            $    -          $            -          $  3,949          $ 4,085          $        (136)
Less: Property operating
and maintenance                     1,014              535                    479                    -                -                       -                    -                 -                       -             1,014              535                    479
NOI                              $  2,935          $ 3,550          $        (615)         $         -            $   -          $            -          $         -            $    -          $            -          $  2,935          $ 3,550          $        (615)


_________
(1)  Our triple-net leased healthcare facilities segment included 15 Same Store
properties.
(2)Our triple-net leased healthcare facilities segment included zero Acquisition
properties.
(3)Our triple-net leased healthcare facilities segment included zero Disposition
properties.
(4)Our triple-net leased healthcare facilities segment included 15 properties.
Revenue from tenants for our triple-net leased healthcare facilities generally
consist of fixed rental amounts (which may be subject to annual contractual
escalations) received from our tenants in accordance with the applicable lease
terms. These revenues are contractual rent received from tenants that does not
vary based on the underlying operating performance of the properties. In
addition, revenue from tenants also includes operating expense reimbursements in
our triple-net leased healthcare facilities segment, which generally include
reimbursement for property operating expenses that we pay on behalf of tenants
in this segment. However, pursuant to many of our lease agreements in this
segment, tenants are generally directly responsible for all operating costs of
the respective properties in addition to base rent. Property operating and
maintenance expense should typically include minimal activity in our triple-net
leased healthcare facilities segment except for real estate taxes and insurance.
Real estate taxes are typically paid directly by the tenants; however, they may
be paid by us and reimbursed by the tenants.
During the three months ended March 31, 2021, revenue from tenants in our
triple-net leased healthcare facilities segment increased $0.1 million compared
to the three months ended March 31, 2020, driven by our Same Store Properties.
Property operating and maintenance expenses of $1.0 million and $0.5 million
during the three months ended March 31, 2021 and 2020, respectively, primarily
relates to property taxes and operating expenses.
Segment Results - Seniors Housing - Operating Properties
The following table presents the components of NOI and the period to period
change within our SHOP segment for the three months ended March 31, 2021 and
2020:
                                                      Same Store (1)                                           Acquisitions (2)                                        Dispositions (3)                                        

Segment Total (4)
                                                                           Increase                                                 Increase            Three Months Ended March            Increase                                                   Increase
                                    Three Months Ended March 31,          (Decrease)          Three Months Ended March 31,         (Decrease)                      31,                     (Decrease)           Three Months Ended March 31,          (Decrease)
(Dollars in thousands)                 2021              2020                  $                 2021              2020                 $                 2021             2020                 $                  2021              2020                 $
Revenue from tenants               $  49,308          $ 59,235          $     (9,927)         $  3,464          $ 1,618          $      1,846          $   325          $ 8,927          $     (8,602)         $  53,097          $ 69,780          $   (16,683)
Less: Property operating and
maintenance                           37,723            44,360                (6,637)            2,696            1,217                 1,479               92            8,001                (7,909)            40,511            53,578              (13,067)
NOI                                $  11,585          $ 14,875          $     (3,290)         $    768          $   401          $        367          $   233          $   926          $       (693)         $  12,586          $ 16,202          $    (3,616)


________
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(1)Our SHOP segment included 53 Same Store properties, including two land
parcels.
(2)Our SHOP segment included four Acquisition properties.
(3)Our SHOP segment included 12 Disposition properties.
(4)Our SHOP segment included 57 properties, including two land parcels.
Revenue from tenants within our SHOP segment are generated in connection with
rent and services offered to residents in our SHOPs depending on the level of
care required, as well as fees associated with other ancillary services.
Property operating and maintenance expenses relates to the costs associated with
staffing to provide care for the residents in our SHOPs, as well as food,
marketing, real estate taxes, management fees paid to our third party operators,
and costs associated with maintaining the physical site.
During the three months ended March 31, 2021, revenues from tenants decreased by
$16.7 million in our SHOP segment as compared to the three months ended
March 31, 2020 which was primarily driven by a decrease in revenue of $9.9
million due to our Same Store properties, which includes our Transition
Properties, as well as a decrease in revenue of $8.6 million due to our
Disposition properties. These revenue decreases were partially offset by an
increase of $1.8 million due to our Acquisition properties. These revenue
decreases were also offset by $0.5 million in COVID-19 surcharges during the
quarter related to billing residents for Personal Protective Equipment ("PPE").
Revenues declined in our Same Store SHOPs primarily due to a decrease in
occupancy as a result of the impact of COVID-19 as discussed above. SHOP
occupancy has declined from 84.1% as of March 31, 2020 to 72.7% as of March 31,
2021. Regulatory and government-imposed restrictions and infectious disease
protocols have hindered, and continue to hinder, our ability to accommodate and
conduct in-person tours, process and attract new move-ins at our SHOPs and these
and other impacts of the COVID-19 pandemic have affected, and could continue to
affect, our ability to fill vacancies.
In addition, we also generated a portion of our SHOP revenue from skilled
nursing facilities (which include ancillary revenue from non-residents) at three
of our Same Store SHOPs. This revenue declined $0.8 million from $2.6 million
during the three months ended March 31, 2020 to $1.8 million during the quarter
ended March 31, 2021 as a result of us limiting the services we offer at our
skilled nursing facilities, during the COVID-19 pandemic, to protect our
residents and on-site staff. We also offered COVID-related rent concessions of
$0.1 million for the quarter ended March 31, 2021.
During the three months ended March 31, 2021, property operating and maintenance
expenses decreased $13.1 million in our SHOP segment as compared to the three
months ended March 31, 2020, primarily due to a decrease of $6.6 million due to
our Same Store properties, which include our Transition properties, and a
decrease of $7.9 million from our Disposition properties, partially offset by an
increase of $1.5 million in our Acquisition properties.
The total decrease in Same Store operating costs mainly related to funds
received through the CARES Act of $5.1 million which offset costs incurred from
the ongoing COVID-19 pandemic which totaled $0.7 million for the quarter ended
March 31, 2021. The full amount of the CARES Act funds was recognized as a
reduction to our Same Store property operating expenses in the table above for
the quarter ended March 31, 2021. The remaining decrease in property operating
expenses at our Same Store properties are explained by lower operating expenses
incurred due to lower levels of occupancy. As a result we experienced a decrease
in Same Store operating costs of $6.6 million year over year. There can be no
assurance that the program will be extended or any further amounts received. See
the "Overview - Management Update on the Impacts of the COVID-19 Pandemic"
section above for additional information on the risks and uncertainties
associated with the COVID-19 pandemic and management's actions taken in
response.
The LaSalle Properties
On July 1, 2020, we transitioned four triple-net leased properties in Texas
(collectively, the "LaSalle Properties") from the triple-net leased healthcare
facilities segment to the SHOP segment, and the LaSalle Properties are now
leased to our TRS and operated and managed on our behalf by a third-party
operator.
During 2019, The LaSalle Group Inc., a guarantor of certain of the lease
obligations of prior tenants (collectively, the "LaSalle Tenant"), filed for
voluntarily relief under chapter 11 of the United States Bankruptcy Code. We
have filed proofs of claims related to amounts previously awarded to it from the
bankruptcy proceeding, however, we have no amounts due from the LaSalle Tenant
in its consolidated balance sheets as of March 31, 2021 and December 2020 as we
do not believe recovery is likely against the LaSalle Tenant.
Other Results of Operations
Impairment Charges
We incurred $0.9 million of impairment charges for the three months ended
March 31, 2021 due to an amended purchase and sale agreement ("PSA") which
reduced the sales price of the skilled nursing facility in Wellington, Florida
to $30.7 million.
We incurred $18.0 million of impairment charges for the three months ended March
31, 2020 related to an amendment to a purchase and sale agreement ("PSA")
related to the sale of SHOP assets located in Michigan (the "Michigan SHOPs") to
reduce
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the number of properties to be sold from 14 to 11 and to reduce the sale price
from $71.8 million to $11.8 million. See   Note 3   - Real Estate Investments to
our consolidated financial statements in this Quarterly Report on Form 10-Q for
additional information on the impairment charges for the three months ended
March 31, 2021 and 2020.
Operating Fees to Related Parties
Operating fees to related parties were $5.9 million for the three months ended
March 31, 2021 and $6.0 million for March 31, 2020 respectively.
Our Advisor and Property Manager are paid for asset management and property
management services for managing our properties on a day-to-day basis. We pay a
base management fee equal to $1.6 million per month, while the variable portion
of the base management fee is equal, per month, to one twelfth per month of
1.25% of the cumulative net proceeds of any equity raised subsequent to February
17, 2017. Asset management fees were $5.0 million in the three months ended
March 31, 2021 and 2020, as we had raised any equity in the fourth quarter of
2019. In May 2021, we raised net proceeds of $56.7 million in equity pursuant to
an underwritten offering of our Series A Preferred Stock (see   N    ote 17 

-

Subsequent Events).
Property management fees were $1.0 million for the three months ended March 31,
2021 and $1.1 million for the three months ended March 31, 2020. Property
management fees increase or decrease in direct correlation with gross revenues
of the properties managed.
See   Note 9   - Related Party Transactions and Arrangements to our consolidated
financial statements in this Quarterly Report on Form 10-Q which provides detail
on our fees and expense reimbursements.
Acquisition and Transaction Related Expenses
Acquisition and transaction related expenses were $0.1 million for the three
months ended March 31, 2021, compared to approximately $0.3 million for the
three months ended March 31, 2020. The expenses in both periods relate to
indirect costs related to acquisitions.
General and Administrative Expenses
General and administrative expenses decreased to $6.1 million for the three
months ended March 31, 2021 compared to $6.7 million for the three months ended
March 31, 2020, which includes $2.6 million and $2.6 million for the three
months ended March 31, 2021 and March 31, 2020, respectively, incurred in
expense reimbursements and distributions on partnership units of the OP
designated as "Class B Units" ("Class B Units") to related parties. Class B
Units will not receive distributions, and no expense will be incurred, for so
long as we pay distributions to our common stockholders in stock instead of
cash.
Depreciation and Amortization Expenses
Depreciation and amortization expense decreased $0.1 million to $20.1 million
for the three months ended March 31, 2021 from $20.2 million for the three
months ended March 31, 2020.
Gain on Sale of Real Estate Investments
During the three months ended March 31, 2021, we transferred the remaining four
Michigan SHOPs to the buyer at a second closing in the first quarter of 2021 and
as a result, we recorded a loss on sale of $0.2 million during the three months
ended March 31, 2021. During the three months ended March 31, 2020 we sold one
MOB property which resulted in a gain on sale of $2.3 million. This property
sold for a contract purchase price of $8.6 million.
Interest Expense
Interest expense decreased by $0.9 million to $12.3 million for the three months
ended March 31, 2021 from $13.3 million for the three months ended March 31,
2020. The decrease in interest expense resulted from lower interest rates. As of
March 31, 2021 our outstanding debt obligations were $1.2 billion at a weighted
average interest rate of 3.55% per year. As of March 31, 2020, we had total
borrowings of $1.3 billion, at a weighted average interest rate of 3.79% per
year.
Our interest expense in future periods will vary based on our level of future
borrowings, the cost of borrowings among other factors.
Interest and Other Income
Interest and other income includes income from our investment securities and
interest income earned on cash and cash equivalents held during the period.
Interest and other income was approximately $52,000 and a $5,000 income for the
three months ended March 31, 2021 and 2020, respectively.
Gain (Loss) on Non-Designated Derivatives
The gain (loss) on non-designated derivative instruments for the three months
ended March 31, 2021 and 2020 related to interest rate caps that are designed to
protect us from adverse interest rate changes in connection with our Fannie Mae
Master Credit Facilities, which have floating interest rates.
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Income Tax Expense
We recorded an income tax expense of $48,000 and $0.3 million for the three
months ended March 31, 2021 and 2020, respectively, primarily related to
deferred tax assets generated by temporary differences and current period net
operating income associated with our TRS. These deferred tax assets are
partially offset by other income tax benefits incurred during the same period.
Income taxes generally relate to our SHOPs, which are leased by our TRS.
Because of our TRS's recent operating history of losses and the on-going impacts
of the COVID-19 pandemic on the results of operations of our SHOP assets, we are
not able to conclude that it is more likely than not we will realize the future
benefit of our deferred tax assets; thus we have retained a 100% valuation
allowance as of March 31, 2021 of $4.3 million. If and when we believe it is
more likely than not that we will recover our deferred tax assets, we will
reverse the valuation allowance as an income tax benefit in our consolidated
statements of comprehensive income (loss).
Net Loss Attributable to Non-Controlling Interests
Net loss attributable to non-controlling interests was approximately $0.0
million and $0.1 million for the three months ended March 31, 2021 and 2020,
respectively. These amounts represent the portion of our net loss that is
related to the OP Units and non-controlling interest holders in our subsidiaries
that own certain properties.
Cash Flows from Operating Activities
During the three months ended March 31, 2021, net cash provided by operating
activities was $14.0 million. The level of cash flows used in or provided by
operating activities is affected by, among other things, the number of
properties owned, the performance of those properties, the timing of interest
payments and the amount of borrowings outstanding during the period, as well as
the receipt of scheduled rent payments and the level of operating expenses. Cash
inflows include non-cash items of $11.5 million (net loss of $11.4 million
adjusted for non-cash items including depreciation and amortization of tangible
and identifiable intangible real estate assets, deferred financing costs and
mortgage premiums and discounts, bad debt expense, equity-based compensation,
gain on non-designated derivatives and impairment charges), an decrease in
prepaid expenses and other assets of $2.7 million and in increase in deferred
rent an other liabilities of $1.2 million. These cash inflows were partially
offset a decrease in accounts payable and accrued expenses of $1.2 million
related to timing of payments for real estate taxes, property operating expenses
and professional and legal fees and a net increase in unbilled receivables
recorded in accordance with straight-line basis accounting of $0.2 million.
During the three months ended March 31, 2020, net cash provided by operating
activities was $19.0 million. The level of cash flows used in or provided by
operating activities is affected by, among other things, the number of
properties owned, the performance of those properties, the timing of interest
payments and the amount of borrowings outstanding during the period, as well as
the receipt of scheduled rent payments and the level of operating expenses. Cash
inflows include non-cash items of $14.3 million (net loss of $24.1 million
adjusted for non-cash items including depreciation and amortization of tangible
and identifiable intangible real estate assets, deferred financing costs and
mortgage premiums and discounts, bad debt expense, equity-based compensation,
gain on non-designated derivatives and impairment charges), an increase in
accounts payable and accrued expenses of $4.3 million related to higher accrued
real estate taxes, property operating expenses and professional and legal fees
and a decrease in prepaid expenses and other assets of $1.3 million. These cash
inflows were partially offset by a net increase in unbilled receivables recorded
in accordance with straight-line basis accounting of $1.2 million.
Cash Flows from Investing Activities
Net cash used in investing activities during the three months ended March 31,
2021 was $10.9 million. The cash used in investing activities included $6.7
million for the acquisition of one property and $4.0 million in capital
expenditures.
Net cash used in investing activities during the three months ended March 31,
2020 was $93.8 million. The cash used in investing activities included $91.0
million for the acquisition of eight properties and $11.1 million in capital
expenditures. These cash outflows were partially offset by proceeds from sale of
real estate of $8.3 million.
Cash Flows from Financing Activities
Net cash used in financing activities of $1.3 million during the three months
ended March 31, 2021 related to cash outflows of payments of deferred financing
costs of $0.0 million and dividends paid to preferred stockholders of $0.7
million, payments for derivative instruments of $0.1 million and principal
payments on mortgages of $0.3 million.
Net cash used in financing activities of $69.8 million during the three months
ended March 31, 2020 related to proceeds of $95.0 million from our Revolving
Credit Facility. These cash inflows were partially offset by distributions to
stockholders of $13.2 million, common stock repurchases of $10.5 million,
payments of deferred financing costs of $0.9 million and dividends paid to
preferred stockholders of $0.2 million.
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Liquidity and Capital Resources
The negative impacts of the COVID-19 pandemic has caused and may continue to
cause certain of our tenants to be unable to make rent payments to us timely, or
at all, which has had, and could continue to have, an adverse effect on the
amount of cash we receive from our operations. In addition to the discussion
below, please see the "Overview - Management Update on the Impacts of the
COVID-19 Pandemic" section above for additional information on the risks and
uncertainties associated with the COVID-19 pandemic and management's actions
taken in response.
As of March 31, 2021, we had $74.1 million of cash and cash equivalents. Our
ability to use this cash on hand is restricted. Under our amended Credit
Facility, we are required to maintain a combination of cash, cash equivalents
and availability for future borrowings under our revolving credit facility under
our Credit Facility (our "Revolving Credit Facility") totaling at least $50.0
million. As of March 31, 2021, $42.8 million was available for future borrowings
under our Revolving Credit Facility. Certain other restrictions and conditions
described below will no longer apply starting in the "Commencement Quarter"
which is a quarter in which we make an election and, as of the day prior to the
commencement of the applicable quarter we have a combination of cash, cash
equivalents and availability for future borrowings under the Revolving Credit
Facility totaling at least $100.0 million, giving effect to the aggregate amount
of distributions projected to be paid by us during the applicable quarter, and
our ratio of consolidated total indebtedness to consolidated total asset value
(expressed as a percentage) is less than 62.5%. As of March 31, 2021, our ratio
of consolidated total indebtedness to consolidated total asset value for these
purposes was 63.0%. The Commencement Quarter may be no earlier than the fiscal
quarter ending June 30, 2021. We did not, however, satisfy the conditions to
make the quarter ending June 30, 2021 the Commencement Quarter. There can be no
assurance as to if, or when, we will be able to satisfy these conditions. We,
may not pay distributions to holders of common stock in cash or any other cash
distributions (including repurchases of shares of our common stock) on our
common stock until the Commencement Quarter. Moreover, beginning in the
Commencement Quarter, we may only pay cash distributions provided that the
aggregate distributions (as defined in the Credit Facility and including
dividends on Series A Preferred Stock) for any period of four fiscal quarters do
not exceed 95% of Modified FFO (as defined in the Credit Facility) for the same
period based only on fiscal quarters after the Commencement Quarter.
Our amended Credit Facility also restricts our sources of liquidity. Until the
first day of the Commencement Quarter, we must use all of the net cash proceeds
from any capital event (such as an asset sale, financing or equity issuance) to
prepay amounts outstanding under the Revolving Credit Facility. We may reborrow
any amounts so repaid if all relevant conditions are met, including sufficient
availability for future borrowings. There can be no assurance these conditions
will be met. The availability for future borrowings under the Credit Facility is
calculated using the adjusted net operating income of the real estate assets
comprising the borrowing base, and availability has been, and may continue to
be, adversely affected by the decreases in cash rent collected from our tenants
and income from our operators that have resulted from the effects of the
COVID-19 pandemic and may persist for some time. See "Item 1A. Risk Factors to
our Annual Report on Form 10-K for the year ended December 31, 2020. Our Credit
Facility restricts our ability to use cash that would otherwise be available to
us, and there can be no assurance our available liquidity will be sufficient to
meet our capital needs."
We expect to fund our future short-term operating liquidity requirements,
including dividends to holders of Series A Preferred Stock, through a
combination of current cash on hand, net cash provided by our property
operations and proceeds from the Revolving Credit Facility, which may include
amounts reborrowed following the repayments we were required to make with the
net proceeds from our dispositions and Series A Preferred Stock offering
completed in May 2021.
Our principal demands for cash are for acquisitions, capital expenditures, the
payment of our operating and administrative expenses, debt service obligations
(including principal repayment), and dividends to holders of our Series A
Preferred Stock. We closely monitor our current and anticipated liquidity
position relative to our current and anticipated demands for cash and believe
that we have sufficient current liquidity and access to additional liquidity to
meet our financial obligations for at least the next 12 months. Our future
liquidity requirements, and available liquidity, however, depend on many
factors, such as the on-going impact of COVID-19 on our tenants and operators
and our ability to complete our pending dispositions on their contemplated
terms, or at all.
Preferred Stock Equity Line with B. Riley Principal Capital, LLC
On September 15, 2020, we entered into a preferred stock purchase agreement and
registration rights agreement with B. Riley Principal Capital, LLC ("B. Riley"),
pursuant to which we have the right from time to time to sell up to an aggregate
of $15 million of shares of our Series A Preferred Stock to B. Riley until
December 31, 2023, on the terms and subject to the conditions set forth in the
purchase agreement. This arrangement is also referred to as the "Preferred Stock
Equity Line." We control the timing and amount of any sales to B. Riley under
the Preferred Stock Equity Line, and B. Riley is obligated to make purchases of
up to 3,500 shares of Series A Preferred Stock each time (as may be increased by
mutual agreement by the parties) in accordance with the purchase agreement, upon
certain terms and conditions being met. We did not sell any shares under the
Preferred Stock Equity Line during the quarter ended March 31, 2021 or year
ended December 31, 2020.

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Series A Preferred Stock Add-On Offering
On May 11, 2021, we completed an underwritten public offering of 2,352,144
shares (which includes 152,144 shares issued and sold pursuant to the
underwriters' exercise of their option to purchase additional shares) of its
Series A Preferred Stock for net proceeds of $56.7 million after deducting the
underwriters' discount and a structuring fee aggregating to $2.1 million.
Pursuant to the terms under the Credit Facility amendment all proceeds were used
to prepay amounts outstanding under the Credit Facility.
Financings
As of March 31, 2021, our total debt leverage ratio (total debt divided by total
gross asset value) was approximately 44.3%. Net debt totaled $1.2 billion, which
represents gross debt ($1.2 billion) less cash and cash equivalents ($74.1
million). Gross asset value totaled $2.6 billion, which represents total real
estate investments, at cost ($2.6 billion) net of gross market lease intangible
liabilities $22.2 million. Impairment charges are already reflected within gross
asset value.
As of March 31, 2021, we had total gross borrowings of $1.2 billion, at a
weighted average interest rate of 3.5%. As of December 31, 2020, we had total
gross borrowings of $1.2 billion at a weighted average interest rate of 3.6%. As
of March 31, 2021, the carrying value of our real estate investments, at cost
was $2.6 billion, with $0.9 billion of this asset value pledged as collateral
for mortgage notes payable, $0.6 billion of this asset value pledged to secure
advances under the Fannie Mae Master Credit Facilities and $0.9 billion of this
asset value comprising the borrowing base of the Credit Facility. These real
estate assets are not available to satisfy other debts and obligations, or to
serve as collateral with respect to new indebtedness, as applicable unless the
existing indebtedness associated with the property is satisfied or the property
is removed from the borrowing base of the Credit Facility, which would impact
availability thereunder.
We expect to utilize proceeds from our Credit Facility to fund future property
acquisitions, as well as, subject to the terms of our Credit Facility, other
sources of funds that may be available to us. These actions may require us to
add some or all of our unencumbered properties to the borrowing base under our
Credit Facility. Unencumbered real estate investments, at cost as of March 31,
2021 was $200.0 million. There can be no assurance as to the amount of liquidity
we would be able to generate from adding any of the unencumbered assets we own
to the borrowing base of our Credit Facility.
Mortgage Notes Payable
As of March 31, 2021, we had $550.1 million in mortgage notes payable
outstanding. Future scheduled principal payments on our mortgage notes payable
for the remainder of 2021 are $1.0 million.
Credit Facility
Our Credit Facility consists of two components, the Revolving Credit Facility
and our Term Loan. The Revolving Credit Facility is interest-only and matures on
March 13, 2023, subject to a one-year extension at our option. Our Term Loan is
interest-only and matures on March 13, 2024. Loans under our Credit Facility may
be prepaid at any time, in whole or in part, without premium or penalty, subject
to customary breakage costs. Any amounts repaid under our Term Loan may not be
re-borrowed.
In March 2020, we borrowed an additional $95.0 million under the Revolving
Credit Facility a portion of which was used for general corporate purposes.
Subsequently, we have not borrowed additional amount under the Revolving Credit
Facility.
The total commitments under the Credit Facility are $630.0 million including
$480.0 million under the Revolving Credit Facility. The Credit Facility includes
an uncommitted "accordion feature" that may be used to increase the commitments
under either component of the Credit Facility by up to an additional $370.0
million to a total of $1.0 billion. As of March 31, 2021, $323.7 million was
outstanding under the Credit Facility and the unused borrowing availability
under the Credit Facility was $42.8 million. The amount available for future
borrowings under the Credit Facility is based on either the value of the pool of
eligible unencumbered real estate assets comprising the borrowing base, or a
minimum debt service coverage ratio with respect to the borrowing base. Both of
these amounts are calculated using the adjusted net operating income of the real
estate assets comprising the borrowing base, and, therefore, availability under
our Credit Facility has been adversely affected by the decreases in cash rent
collected from our tenants and income from our operators due to the effects of
the COVID-19 pandemic, and may continue to be adversely affected.
As of March 31, 2021, $150.0 million was outstanding under our Term Loan, and
$173.7 million was outstanding under the Revolving Credit Facility. The equity
interests and related rights in our wholly owned subsidiaries that directly own
or lease the eligible unencumbered real estate assets comprising the borrowing
base of the Revolving Credit Facility are pledged for the benefit of the lenders
thereunder. The Credit Facility also contains a subfacility for letters of
credit of up to $25.0 million. The applicable margin used to determine the
interest rate under both the Term Loan and Revolving Credit Facility components
of the Credit Facility varies based on our leverage. As of March 31, 2021, the
Revolving Credit Facility and the Term Loan had an effective interest rate per
annum equal to 3.21% and 4.95%, respectively. The Credit Facility prohibits us
from exceeding a maximum ratio of consolidated total indebtedness to
consolidated total asset value, and requires us to maintain a minimum ratio of
adjusted consolidated EBITDA to consolidated fixed charges on a quarterly basis
and a minimum consolidated tangible net
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worth. As of March 31, 2021, we were in compliance with the financial covenants
under the Credit Facility. Based upon our current expectations, we believe our
operating results during the next 12 months will allow us to comply with these
covenants.
Fannie Mae Master Credit Facilities
As of March 31, 2021, $355.2 million was outstanding under the Fannie Mae Master
Credit Facilities. We may request future advances under the Fannie Mae Master
Credit Facilities by adding eligible properties to the collateral pool or by
borrowing-up against the increased value of the collateral pool, subject to
customary conditions, including satisfaction of minimum debt service coverage
and maximum loan-to-value tests. Future advances based on the increased value of
the collateral pool may only occur until November 2021 and not more than once
annually for each of the Fannie Mae Master Credit Facilities. Borrowings under
the Fannie Mae Master Credit facilities bear annual interest at a rate that
varies on a monthly basis and is equal to the sum of the current LIBOR for one
month U.S. dollar-denominated deposits and 2.62%, with a floor of 2.62%. The
Fannie Mae Master Credit Facilities mature on November 1, 2026.
Capital Expenditures
During the first three months of 2021, our capital expenditures were $4.0
million, of which $0.5 million related our MOB segment and $3.5 million related
to our SHOP segment. All other capital expenditures were typical in nature for
the other properties in our portfolio. We anticipate this rate of capital
expenditures for the MOB and SHOP segments throughout 2020, however, given the
recent economic uncertainty created by the COVID-19 global pandemic will
continue to impact our decisions on the amount and timing of future capital
expenditures.
Acquisitions - Three Months Ended March 31, 2021
During the three months ended March 31, 2021, we completed the acquisitions of
one multi-tenant MOB for a contract purchase price of $6.6 million. This
acquisition was funded with proceeds from cash on hand.
Acquisitions - Subsequent to March 31, 2021
We did not complete any acquisitions subsequent to March 31, 2021. We have
signed two definitive purchase and sale agreements PSAs to acquire a total of
two MOBs for an aggregate contract purchase price of approximately $10.1 million
and we have signed one non-binding letter of intent ("LOI") for a portfolio of
MOBs for an aggregate contract purchase price of approximately $19.7 million. We
anticipate using cash on hand to fund the consideration required to complete
these acquisitions. The PSAs are subject to conditions and the LOI is
non-binding. There can be no assurance we will complete any of these
acquisitions, or any future acquisitions or other investments, on a timely basis
or on acceptable terms and conditions, if at all.
Disposition - Three Months Ended March 31, 2021
During the three months ended March 31, 2021, four Michigan SHOPs were
transferred to their buyer pursuant to their sale in November, 2020, which
resulted in a loss on sale of $0.2 million. There were no assets classified as
held for sale as of March 31, 2021.
With respect to the sale of the Michigan SHOPs, in November 2020, we received
payment of the full $11.8 million sales price for all 11 of the Michigan SHOPs,
less $0.8 million held in escrow, and transferred seven of the properties to the
buyer. The remaining four properties were transferred to the buyer at a second
closing in January 2021 when the $0.8 million held in escrow was released to the
buyer. Of the properties transferred at the initial closing, four were part of
the borrowing base under the Credit Facility, one was part of the collateral
pool under the Fannie Mae Master Credit Facility with Capital One and two were
unencumbered. Of the properties transferred at the second closing, three were
part of the borrowing base under the Credit Facility until the initial closing
and one was unencumbered. At the initial closing, $4.2 million of the net
proceeds was used to repay amounts outstanding under the Fannie Mae Master
Credit Facility with Capital One, $4.4 million of the net proceeds were used to
repay amounts outstanding under the Revolving Credit Facility, with the
remainder used for closing costs. Following the sale of the SHOP in Lutz,
Florida, all $17.6 million of the net proceeds were used to repay amounts
outstanding under the Credit Facility.
Dispositions - Subsequent to March 31, 2021
We had previously entered into a definitive PSA to sell the property in Jupiter
Florida for $65.0 million and a skilled nursing facility in Wellington, Florida
for $33.0 million. On April 30, 2021, we amended the PSA which reduced the sales
price of the skilled nursing facility in Wellington, Florida to $30.7 million.
The property in Jupiter, Florida and the property in Wellington, Florida are
expected to be sold in the second quarter of 2021, however, there can be no
assurance that these dispositions will be completed on their contemplated terms,
or at all. The sales of these assets are subject to conditions, and, due to the
persistence of the COVID-19 pandemic and other factors beyond our control, there
can be no assurance that we will be able to meet these conditions and that these
dispositions will be completed on their contemplated terms, or at all. With
respect to the skilled nursing facility in Wellington, Florida, closing may not
occur unless, among other conditions, certain occupancy and revenue levels have
been maintained at the property for a period of time. The property in Jupiter,
Florida is not currently encumbered by any mortgage debt or part of the
borrowing base under our Credit Facility. The skilled nursing facility in
Wellington Florida is part of the borrowing base under our Credit Facility.
Pursuant to the terms of our amended Credit Facility,
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the net cash proceeds from any completed dispositions must be used to prepay
amounts outstanding under the Revolving Credit Facility and will therefore not
be available to us for any other purpose. We may reborrow any amounts so repaid
if all relevant conditions are met, including sufficient availability for future
borrowings. There can be no assurance these conditions will be met.
Share Repurchase Program
Our Board has adopted the SRP, which enables our common stockholders to sell
their shares of common stock to us under limited circumstances. At the time a
common stockholder requests a repurchase, we may, subject to certain conditions,
repurchase the shares presented for repurchase for cash. There are limits on the
number of shares we may repurchase under this program during any calendar year.
We are only authorized to repurchase shares using the proceeds secured from our
DRIP in any given period, although the Board has the power, in its sole
discretion, to determine the number of shares repurchased during any period as
well as the amount of funds to be used for that purpose.
Under the currently effective amended and restated SRP, subject to certain
conditions, only repurchase requests made following the death or qualifying
disability of stockholders that purchased shares of our common stock or received
their shares from us (directly or indirectly) through one or more non-cash
transactions would be considered for repurchase. Additionally, pursuant to the
SRP, the repurchase price per share equals 100% of the Estimated Per-Share NAV
in effect on the last day of the fiscal semester, or the six-month period ending
June 30 or December 31.
The amended Credit Facility restricts the Company from repurchasing shares until
no earlier than the quarter ending June 30, 2021. In light of this provision,
the Board suspended repurchases under the SRP effective August 14, 2020. The
Board has also rejected all repurchase requests made during the period from
January 1, 2020 until the effectiveness of the suspension of the SRP. No further
repurchase requests under the SRP may be made unless and until the SRP is
reactivated. Beginning in the Commencement Quarter, we will be permitted to
repurchase up to $50.0 million of shares of our common stock (including amounts
previously repurchased during the term of the Revolving Credit Facility) if,
after giving effect to the repurchases, we maintain cash and cash equivalents of
at least $30.0 million and our ratio of consolidated total indebtedness to
consolidated total asset value (expressed as a percentage) is less than 55.0%.
No assurances can be made as to when or if our SRP will be reactivated.
Non-GAAP Financial Measures
This section discusses the non-GAAP financial measures we use to evaluate our
performance including Funds from Operations ("FFO"), Modified Funds from
Operations ("MFFO") and NOI. While NOI is a property-level measure, MFFO is
based on our total performance as a company and therefore reflects the impact of
other items not specifically associated with NOI such as, interest expense,
general and administrative expenses and operating fees to related parties.
Additionally, NOI as defined here, includes straight-line rent which is excluded
from MFFO. A description of these non-GAAP financial measures and
reconciliations to the most directly comparable GAAP measure, which is net
income, are provided below:
Funds from Operations and Modified Funds from Operations
The historical accounting convention used for real estate assets requires
straight-line depreciation of buildings, improvements, and straight-line
amortization of intangibles, which implies that the value of a real estate asset
diminishes predictably over time. We believe that, because real estate values
historically rise and fall with market conditions, including, but not limited
to, inflation, interest rates, the business cycle, unemployment and consumer
spending, presentations of operating results for a REIT using the historical
accounting convention for depreciation and certain other items may be less
informative.
Because of these factors, the National Association of Real Estate Investment
Trusts ("NAREIT"), an industry trade group, has published a standardized measure
of performance known as FFO, which is used in the REIT industry as a
supplemental performance measure. We believe FFO, which excludes certain items
such as real estate-related depreciation and amortization, is an appropriate
supplemental measure of a REIT's operating performance. FFO is not equivalent to
our net income or loss as determined under GAAP.
We calculate FFO, a non-GAAP measure, consistent with the standards established
over time by the Board of Governors of NAREIT, as restated in a White Paper
approved by the Board of Governors of NAREIT effective in December 2018 (the
"White Paper"). The White Paper defines FFO as net income or loss computed in
accordance with GAAP, excluding depreciation and amortization related to real
estate, gains and losses from the sale of certain real estate assets, gains and
losses from change in control and impairment write-downs of certain real estate
assets and investments in entities when the impairment is directly attributable
to decreases in the value of depreciable real estate held by the entity.
Adjustments for unconsolidated partnerships and joint ventures are calculated to
reflect FFO. Our FFO calculation complies with NAREIT's definition.
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We believe that the use of FFO provides a more complete understanding of our
operating performance to investors and to management, and reflects the impact on
our operations from trends in occupancy rates, rental rates, operating costs,
general and administrative expenses, and interest costs, which may not be
immediately apparent from net income.
Changes in the accounting and reporting promulgations under GAAP that were put
into effect in 2009 subsequent to the establishment of NAREIT's definition of
FFO, such as the change to expense as incurred rather than capitalize and
depreciate acquisition fees and expenses incurred for business combinations,
have prompted an increase in cash-settled expenses, specifically acquisition
fees and expenses, as items that are expensed under GAAP across all industries.
These changes had a particularly significant impact on publicly registered,
non-listed REITs, which typically have a significant amount of acquisition
activity in the early part of their existence, particularly during the period
when they are raising capital through ongoing initial public offerings.
Because of these factors, the Institute of Portfolio Alternatives ("IPA"), an
industry trade group, has published a standardized measure of performance known
as MFFO, which the IPA has recommended as a supplemental measure for publicly
registered, non-listed REITs. MFFO is designed to be reflective of the ongoing
operating performance of publicly registered, non-listed REITs by adjusting for
those costs that are more reflective of acquisitions and investment activity,
along with other items the IPA believes are not indicative of the ongoing
operating performance of a publicly registered, non-listed REIT, such as
straight-lining of rents as required by GAAP. We believe it is appropriate to
use MFFO as a supplemental measure of operating performance because we believe
that, when compared year-over-year, both before and after we have deployed all
of our offering proceeds and are no longer incurring a significant amount of
acquisition fees or other related costs, it reflects the impact on our
operations from trends in occupancy rates, rental rates, operating costs,
general and administrative expenses, and interest costs, which may not be
immediately apparent from net income. MFFO is not equivalent to our net income
or loss as determined under GAAP.
We calculate MFFO, a non-GAAP measure, consistent with the IPA's Guideline
2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed
REITs: Modified Funds from Operations (the "Practice Guideline") issued by the
IPA in November 2010. The Practice Guideline defines MFFO as FFO further
adjusted for acquisition fees and expenses and other items. In calculating MFFO,
we follow the Practice Guideline and exclude acquisition fees and expenses,
amortization of above and below market and other intangible lease assets and
liabilities, amounts relating to straight-line rent adjustments (in order to
reflect such payments from a GAAP accrual basis to a cash basis of disclosing
the lease and rental payments), contingent purchase price consideration,
accretion of discounts and amortization of premiums on debt investments,
mark-to-market adjustments included in net income, gains or losses included in
net income from the extinguishment or sale of debt, hedges, foreign exchange,
derivatives or securities holdings where trading of such holdings is not a
fundamental attribute of the business plan, unrealized gains or losses resulting
from consolidation from, or deconsolidation to, equity accounting, and
adjustments for unconsolidated partnerships and joint ventures, with such
adjustments calculated to reflect MFFO on the same basis. We also exclude other
non-operating items in calculating MFFO, such as transaction-related fees and
expenses and capitalized interest.
We believe that, because MFFO excludes costs that we consider more reflective of
acquisition activities and other non-operating items, MFFO can provide, on a
going-forward basis, an indication of the sustainability (that is, the capacity
to continue to be maintained) of our operating performance once our portfolio is
stabilized. Our Modified FFO (as defined in our Credit Facility) is similar but
not identical to MFFO as discussed in this Quarterly Report on Form 10-Q. We
also believe that MFFO is a recognized measure of sustainable operating
performance by the non-listed REIT industry and allows for an evaluation of our
performance against other publicly registered, non-listed REITs.
Not all REITs, including publicly registered, non-listed REITs, calculate FFO
and MFFO the same way. Accordingly, comparisons with other REITs, including
publicly registered, non-listed REITs, may not be meaningful. Furthermore, FFO
and MFFO are not indicative of cash flow available to fund cash needs and should
not be considered as an alternative to net income (loss) or income (loss) from
continuing operations as determined under GAAP as an indication of our
performance, as an alternative to cash flows from operations as an indication of
our liquidity, or indicative of funds available to fund our cash needs including
our ability to pay dividends and other distributions to our stockholders. FFO
and MFFO should be reviewed in conjunction with GAAP measurements as an
indication of our performance. The methods utilized to evaluate the performance
of a publicly registered, non-listed REIT under GAAP should be construed as more
relevant measures of operational performance and considered more prominently
than the non-GAAP measures, FFO and MFFO, and the adjustments to GAAP in
calculating FFO and MFFO.
Neither the SEC, NAREIT, the IPA nor any other regulatory body or industry trade
group has passed judgment on the acceptability of the adjustments that we use to
calculate FFO or MFFO. In the future, updates to the White Paper or the Practice
Guideline may be published or the SEC or another regulatory body could
standardize the allowable adjustments across the publicly registered, non-listed
REIT industry and we would have to adjust our calculation and characterization
of FFO or MFFO accordingly.
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Accounting Treatment of Rent Deferrals
All of the concessions granted to our tenants as a result of the COVID-19
pandemic are rent deferrals with the original lease term unchanged and
collection of deferred rent deemed probable (see the "Overview - Management
Update on the Impacts of the COVID-19 Pandemic" section of this Management's
Discussion and Analysis of Financial Condition and Results of Operations for
additional information). As a result of relief granted by the FASB and SEC
related to lease modification accounting, rental revenue used to calculate Net
Income and NAREIT FFO has not been, and we do not expect it to be, significantly
impacted by these types of deferrals. In addition, since we currently believe
that these deferral amounts are collectable, we have excluded from the increase
in straight-line rent for MFFO purposes the amounts recognized under GAAP
relating to these types of rent deferrals. For a detailed discussion of our
revenue recognition policy, including details related to the relief granted by
the FASB and SEC, see   Note 2   - Significant Accounting Polices to our
consolidated financial statements included in this Quarterly Report on Form
10-Q.
The table below reflects the items deducted from or added to net loss
attributable to stockholders in our calculation of FFO and MFFO for the periods
indicated. In calculating our FFO and MFFO, we exclude the impact of amounts
attributable to our non-controlling interests.
                                                                              Three Months Ended March 31,
(In thousands)                                                                   2021                  2020

Net loss attributable to common stockholders (in accordance with GAAP)

$       (12,230)         $ (24,744)
Depreciation and amortization (1)                                                  19,688             19,862
Impairment charges                                                                    878             18,038
Gain on sale of real estate investment                                                172             (2,306)
Adjustments for non-controlling interests (2)                                         (96)              (166)
FFO (as defined by NAREIT) attributable to stockholders                             8,412             10,684
Acquisition and transaction related                                                   132                327

(Accretion) amortization of market lease and other intangibles, net

           (34)                18
Straight-line rent adjustments                                                       (224)            (1,175)
Straight-line rent (rent deferral agreements) (2)                                    (234)                 -
Amortization of mortgage premiums and discounts, net                                   14                 15
(Gain) loss on non-designated derivatives                                             (14)               (16)
Deferred tax asset allowance (4)                                                     (340)                 -
Adjustments for non-controlling interests (3)                                           4                  4
MFFO attributable to stockholders                                         $ 

7,716 $ 9,857

_______

(1)  Net of non-real estate depreciation and amortization.
(2)  Represents the amount of deferred rent pursuant to lease negotiations which
qualify for FASB relief for which rent was deferred but not reduced. These
amounts are included in the straight-line rent receivable on our consolidated
balance sheet but are considered to be earned revenue attributed to the current
period for purposes of MFFO as they are expected to be collected.
(3)  Represents the portion of the adjustments allocable to non-controlling
interest.
(4)  Represents the reversal of a previously recorded non-cash add-back.
Net Operating Income
NOI is a non-GAAP financial measure used by us to evaluate the operating
performance of our real estate portfolio. NOI is equal to revenue from tenants
less property operating and maintenance. NOI excludes all other items of expense
and income included in the financial statements in calculating net income
(loss).
We believe NOI provides useful and relevant information because it reflects only
those income and expense items that are incurred at the property level and
presents such items on an unlevered basis. We use NOI to assess and compare
property level performance and to make decisions concerning the operation of the
properties. Further, we believe NOI is useful to investors as a performance
measure because, when compared across periods, NOI reflects the impact on
operations from trends in occupancy rates, rental rates, operating expenses and
acquisition activity on an unleveraged basis, providing perspective not
immediately apparent from net income (loss).
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NOI excludes certain components from net income (loss) in order to provide
results that are more closely related to a property's results of operations. For
example, interest expense is not necessarily linked to the operating performance
of a real estate asset and is often incurred at the corporate level. In
addition, depreciation and amortization, because of historical cost accounting
and useful life estimates, may distort operating performance at the property
level. NOI presented by us may not be comparable to NOI reported by other REITs
that define NOI differently. We believe that in order to facilitate a clear
understanding of our operating results, NOI should be examined in conjunction
with net income (loss) as presented in our consolidated financial statements.
NOI should not be considered as an alternative to net income (loss) as an
indication of our performance or to cash flows as a measure of our liquidity or
ability to pay distributions.
The following table reflects the items deducted from or added to net loss
attributable to stockholders in our calculation of NOI for the three months
ended March 31, 2021:
                                                                                                                   Non-Property
(In thousands)                                  Same Store           Acquisitions           Dispositions             Specific               Total
Net income (loss) attributable to
common stockholders (in accordance with
GAAP)                                         $    11,743          $        

402 $ 311 $ (24,686) $ (12,230) Impairment charges

                                    878                      -                      -                       -                878
Operating fees to related parties                       -                      -                      -                   5,883              5,883
Acquisition and transaction related                     3                      -                      -                     129                132
General and administrative                             32                      -                      -                   6,020              6,052
Depreciation and amortization                      19,016                  1,086                      -                       -             20,102
Interest expense                                      452                      -                      -                  11,870             12,322
Interest and other income                             (14)                     -                      -                     (38)               (52)
Loss on sale of real estate investments                 -                      -                    172                       -                172
Gain on non-designated derivative
instruments                                             -                      -                      -                     (14)               (14)
Income tax (benefit) expense                            -                      -                                             48                 48
Allocation for preferred stock                          -                      -                      -                     742                742
Net income attributable to
non-controlling interests                               -                      -                      -                      46                 46
NOI                                           $    32,110          $       1,488          $         483          $            -          $  34,081


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The following table reflects the items deducted from or added to net income
(loss) attributable to stockholders in our calculation of Same Store,
Acquisitions and Dispositions NOI for the three months ended March 31, 2020:
                                                                                                                   Non-Property
(In thousands)                                  Same Store           Acquisitions           Dispositions             Specific               Total
Net income (loss) attributable to
common stockholders (in accordance with
GAAP)                                         $    26,659          $        

281 $ (24,916) $ (26,768) $ (24,744) Impairment charges

                                (10,138)                     -                 28,176                       -             18,038
Operating fees to related parties                       -                      -                      -                   6,049              6,049
Acquisition and transaction related                     3                      -                      -                     324                327
General and administrative                             47                      -                      -                   6,683              6,730
Depreciation and amortization                      19,634                    388                    173                       -             20,195
Interest expense                                      511                      -                      -                  12,746             13,257
Interest and other income                               -                      -                      -                      (5)                (5)
Gain on sale of real estate investments                 -                      -                 (2,306)                      -             (2,306)
Loss on non-designated derivative
instruments                                             -                      -                      -                     (16)               (16)
Income tax (benefit) expense                            -          -                      -                                 332                332
Allocation for preferred stock                          -                      -                      -                     742                742
Net loss attributable to
non-controlling interests                               -                      -                      -                     (87)               (87)
NOI                                           $    36,716          $         669          $       1,127          $            -          $  38,512


Distributions and Dividends
Dividends on our Series A Preferred Stock accrue in an amount equal to $1.84375
per share each year ($0.460938 per share per quarter) to Series A Preferred
Stock holders, which is equivalent to 7.375% of per annum in the $25.00
liquidation preference per share of Series A Preferred Stock. Dividends on the
Series A Preferred Stock are cumulative and payable quarterly in arrears on the
15th day of January, April, July and October of each year or, if not a business
day, the next succeeding business day to holders of record on the close of
business on the record date set by our board of directors and declared by us.
From March 1, 2018 until June 30, 2020, we paid distributions to our common
stockholders at a rate equivalent to $0.85 per annum per share of common stock.
Distributions were payable by the 5th day following each month end to
stockholders of record at the close of business each day during the prior month.
On June 29, 2020, the Board approved a change in our common stock distribution
policy whereby we would no longer declare distributions based on daily record
dates. Instead, any future distributions authorized by the Board on shares of
our common stock were to be paid on a monthly basis in arrears based on a single
record date during the applicable month.
As noted herein under our amended Credit Facility we may not pay distributions
to holders of common stock in cash or any other cash distributions (including
repurchases of shares of the Company's common stock), subject to certain
exceptions. These exceptions include paying cash dividends on the Series A
Preferred Stock or any other preferred stock we may issue and paying any cash
distributions necessary to maintain our status as a REIT. We may not pay any
cash distributions (including dividends on Series A Preferred Stock) if a
default or event of default exists or would result therefrom. Beginning in the
Commencement Quarter we will be able to pay cash distributions to holders of
common stock, subject to the restrictions described below. There can be no
assurance as to if, or when, we will be able to satisfy these conditions. We may
only pay cash distributions beginning in the Commencement Quarter and the
aggregate distributions (as defined in the Credit Facility and including
dividends on Series A Preferred Stock) for any period of four fiscal quarters do
not exceed 95% of Modified FFO (as defined in the Credit Facility) for the same
period based only on fiscal quarters after the Commencement Quarter. Until four
full fiscal quarters have elapsed after the commencement of Commencement
Quarter, the aggregate amount of permitted distributions and Modified FFO will
be determined by using only the fiscal quarters that have elapsed from and after
the Commencement Quarter and annualizing those amounts.
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On August 13, 2020, the Board changed our common stock distribution policy in
order to preserve our liquidity and maintain additional financial flexibility in
light of the continued COVID-19 pandemic and to comply with the amended Credit
Facility described above. Under the new policy, distributions authorized by the
Board on shares of our common stock, if and when declared, are now paid on a
quarterly basis in arrears in shares of our common stock valued at the Estimated
Per-Share NAV in effect on the applicable date, based on a single record date to
be specified at the beginning of each quarter. In each of October 2020 and
January 2021, we declared and paid stock dividends equal to 0.01349 shares of
common stock on each share of outstanding common stock , and, in April 2021, we
declared and paid a stock dividend equal to 0.01466 shares of common stock on
each share of outstanding common stock. The amounts of these stock dividends
were based on our prior cash distribution rate of $0.85 per share per annum and
the then applicable Estimated Per-Share NAV. We did not pay any cash dividends
on our common stock during the first quarter of 2021. See "- Overview" for
additional information on the impact of the stock dividends.
Subject to the restrictions in our amended Credit Facility, the amount of
dividends and other distributions payable to our stockholders is determined by
the Board and is dependent on a number of factors, including funds available for
distribution, our financial condition, capital expenditure requirements, as
applicable, requirements of Maryland law and annual distribution requirements
needed to maintain our status as a REIT under the Internal Revenue Code of 1986
(the "Code"). Distribution payments are dependent on the availability of funds.
The Board may reduce the amount of dividends or distributions paid or suspend
dividend or distribution payments at any time and therefore dividend and
distribution payments are not assured. Any accrued and unpaid dividends payable
with respect to the Series A Preferred Stock become part of the liquidation
preference thereof.
The following table shows the sources for the payment of distributions to
preferred stockholders, including distributions on unvested restricted shares
and OP Units, but excluding distributions related to Class B Units as these
distributions are recorded as an expense in our consolidated statement of
operations and comprehensive loss, for the periods indicated:
                                                                         Year-To-Date
                                                                                                 March 31, 2021
                                                                                                                                                      Percentage of
(In thousands)                                                                                                                                        Distributions
Distributions:

Distributions to common stockholders not reinvested in common stock issued under the DRIP

                                                                                              $       -

Distributions reinvested in common stock issued under the DRIP

                                                                                                                                    -
Dividends to preferred stockholders                                                                                                   742
Distributions on OP Units                                                                                                               -
Total distributions                                                                                                             $     742

Source of distribution coverage:
Cash flows provided by operations (1)                                                                                           $     742

100.0 %

Total source of distribution coverage                                                                                           $     742

100 %

Cash flows provided by operations (in accordance with GAAP)                                                                     $  13,959
Net loss attributable to stockholders (in accordance with
GAAP)                                                                                                                           $ (12,230)


______
(1) Assumes the use of available cash flow from operations before any other
sources.
For the three months ended March 31, 2021, cash flows provided by operations
were $14.0 million. We had not historically generated sufficient cash flow from
operations to fund the payment of dividends and other distributions at the
current rate prior to switching from paying cash dividends to stock dividends on
our common stock. As shown in the table above, we funded distributions with cash
flows provided by operations, proceeds received from common stock issued under
our DRIP and available cash on hand, comprised of proceeds from financings and
dispositions. Because shares of common stock are only offered and sold pursuant
to the DRIP in connection with the reinvestment of distributions paid in cash,
participants in the DRIP will not be able to reinvest in shares thereunder for
so long as we pay distributions in stock instead of cash.
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Our ability to pay dividends on our Series A Preferred Stock and starting with
the Commencement Quarter, other distributions and maintain compliance with the
restrictions on the payment of distributions in our Credit Facility depends on
our ability to increase the amount of cash we generate from property operations
which in turn depends on a variety of factors, including the duration and scope
of the COVID-19 pandemic and its impact on our tenants and properties, our
ability to complete acquisitions of new properties and our ability to improve
operations at our existing properties. There can be no assurance that we will
complete acquisitions on a timely basis or on acceptable terms and conditions,
if at all. Our ability to improve operations at our existing properties is also
subject to a variety of risks and uncertainties, many of which are beyond our
control, and there can be no assurance we will be successful in achieving this
objective.
We may still pay any cash distributions necessary to maintain our status as a
REIT and may not pay any cash distributions (including dividends on Series A
Preferred Stock) if a default or event of default exists or would result
therefrom under the Credit Facility. The amendment provided that the covenants
restricting payment of distributions to a threshold based on Modified FFO and
requiring maintenance of a minimum ratio of consolidated total indebtedness to
consolidated total asset value and a minimum ratio of adjusted consolidated
EBITDA to consolidated fixed charges did not apply for the fiscal quarter ended
June 30, 2020. In addition, the lenders waived any defaults or event of defaults
under those covenants that may have occurred during the fiscal quarter ended
June 30, 2020 as well as any additional default or event of default resulting
therefrom prior to August 10, 2020. There can be no assurance our lenders will
consent to any amendments or waivers that may become necessary to comply with
our Credit Facility in the future.
Loan Obligations
The payment terms of our mortgage notes payable generally require principal and
interest amounts payable monthly with all unpaid principal and interest due at
maturity. The payment terms of our Credit Facility require interest only
amounts payable monthly with all unpaid principal and interest due at maturity.
The payment terms of our Fannie Mae Master Credit Facilities require interest
only payments through November 2021 and principal and interest payments
thereafter. Our loan agreements require us to comply with specific reporting
covenants. As of March 31, 2021, we were in compliance with the financial and
reporting covenants under our loan agreements.
Under our amended Credit Facility, until the first day of the Commencement
Quarter, we must use all the net cash proceeds from any capital event (such as
an asset sale, financing or equity issuance) to prepay amounts outstanding under
the Revolving Credit Facility. We may reborrow any amounts so repaid if all
relevant conditions are met, including sufficient availability for future
borrowings. There can be no assurance these conditions will be met.
Contractual Obligations
There were no material changes in our contractual obligations as of March 31,
2021, as compared to those reported in our Annual Report on Form 10-K for the
year ended December 31, 2020.
Election as a REIT
We elected to be taxed as a REIT under Sections 856 through 860 of the Code,
effective for our taxable year ended December 31, 2013. Commencing with that
taxable year, we have been organized and operated in a manner so that we qualify
as a REIT under the Code. We intend to continue to operate in such a manner but
we can provide no assurances that we will operate in a manner so as to remain
qualified for taxation as a REIT. To continue to qualify as a REIT, we must
distribute annually at least 90% of our REIT taxable income (which does not
equal net income as calculated in accordance with GAAP) determined without
regard to the deduction for dividends paid and excluding net capital gains, and
comply with a number of other organizational and operational requirements. If we
continue to qualify as a REIT, we generally will not be subject to U.S. federal
corporate income tax on the portion of our REIT taxable income that we
distribute to our stockholders. Even if we continue to qualify for taxation as a
REIT, we may be subject to certain state and local taxes on our income and
properties as well as U.S. federal income and excise taxes on our undistributed
income.
Inflation
We may be adversely impacted by inflation on any leases that do not contain
indexed escalation provisions. In addition, we may be required to pay costs for
maintenance and operation of properties, which may adversely impact our results
of operations due to potential increases in costs and operating expenses
resulting from inflation.
Related-Party Transactions and Agreements
Please see   Note 9   - Related Party Transactions and Arrangements to our
consolidated financial statements included in this Quarterly Report on Form 10-Q
for a discussion of the various related party transactions, agreements and fees.
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Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to investors.

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