NORTHSTAR HEALTHCARE INCOME, INC. The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included in Part I, Item 1. "Financial Statements" and the risk factors in Part II, Item 1A. "Risk Factors." References to "we," "us," "our," or "NorthStar Healthcare " refer toNorthStar Healthcare Income, Inc. and its subsidiaries unless the context specifically requires otherwise.
Business Summary
We have invested in independent living facilities, or ILFs, assisted living facilities, or ALFs, memory care facilities, or MCFs, and continuing care retirement communities, or CCRCs, which we collectively refer to as seniors housing facilities, skilled nursing facilities, or SNFs, medical office buildings, or MOBs, and hospitals.
Our primary investment segments are as follows:
•Direct Investments - Operating - Healthcare properties operated pursuant to management agreements with healthcare managers.
•Direct Investments -
•Unconsolidated Investments - Healthcare joint ventures, including properties operated under net leases with an operator or pursuant to management agreements with healthcare managers, in which we own a minority interest. •Debt Investments - Mortgage loans or mezzanine loans to owners of healthcare real estate. During the year endedDecember 31, 2021 , we had one mezzanine loan, which was repaid inAugust 2021 .
For information regarding our investments as of
Business Update
Investments, Financings and Disposition Activities
The year endedDecember 31, 2021 marked a pivotal and transitional period for our business, portfolio composition and liquidity. The following is a summary of significant investment, financing and disposition activities during the year: •InDecember 2021 , we completed the sale of the Watermark Fountains net lease and operating portfolios for$580.0 million . The sale generated net proceeds of approximately$114.0 million after the repayment of mortgage notes, which totaled$450.7 million and payment of transaction and other costs, distributions to non-controlling interests, and releases of reserves and other prorations. •InAugust 2021 , the outstanding principal balance of our mezzanine loan was repaid in full. Principal repayments received during the year endedDecember 31, 2021 totaled$74.4 million , which includes payment-in-kind interest. The borrower funded these principal repayments through net proceeds generated from the sale of underlying collateral and available operating cash flow.
•In
•In
•In
•InApril 2021 , we extended the maturity date of a mortgage note payable for a property within the Rochester portfolio toAugust 2022 and made a$1.0 million principal repayment. •InMarch 2021 , we completed the sale of a property within the Aqua portfolio for$22.0 million . The sale generated net proceeds of$0.9 million , after the repayment of the outstanding mortgage principal balance of$20.1 million and transaction costs. 47
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•InJanuary 2021 , we refinanced an existing$18.7 million note payable, collateralized by a property within the Aqua portfolio, with a$26.0 million mortgage note payable. The new mortgage note carries a fixed interest rate of 3.0% throughFebruary 2024 and has an initial maturity date ofFebruary 2026 .
Operating Performance
Throughout the year endedDecember 31, 2021 , the world continued to experience the broad effects of the COVID-19 pandemic. Our healthcare real estate business and investments were challenged by declines in resident occupancy, lower labor force participation rates, which drove increased labor costs, and inflationary pressures on other operating expenses. Significant vaccine deployment helped to reduce COVID-19 infections and transmissions within our communities, which in turn, improved demand, led to an improvement in resident occupancy at our communities during the third and fourth quarters of 2021 and reduced preventative operating costs. We continue to see increased demand and lead generation for our communities and remain optimistic on the long-term outlook for the seniors housing industry, but anticipate the continuing impact of the COVID-19 pandemic on the operational and financial performance of our business, which may differ considerably across regions and fluctuate over time. New variants of the virus, which may increase reported infection rates, along with labor and inflationary pressures on costs, may further interfere with the general economic recovery. At this time, the progression of the global economic recovery from the broad effects of the pandemic is difficult to assess and estimate the future impact on our results of operations. Accordingly, any estimates of the effects of COVID-19 as reflected or discussed are based upon our best estimates using information known to us as of the date of this Annual Report on Form 10-K, and such estimates may change in the future, the effects of which could be material. The following is a summary of the performance of our investment segments for the year endedDecember 31, 2021 as compared to the year endedDecember 31, 2020 . For additional information on financial results, refer to "-Results of Operations."
Direct Investments - Operating
The impact of COVID-19 resulted in occupancy levels nearing historical lows across our direct operating investments at the beginning of 2021. While average occupancy was lower for the year endedDecember 31, 2021 as compared to 2020, on a same store basis, our direct operating investments experienced an improved demand and an increase in the number of resident move-ins during 2021. Recent occupancy trends have shown improvements, with average monthly occupancy inDecember 2021 exceeding the average monthly occupancy inDecember 2020 by 2.5%. A summary of average occupancy by manager is as follows: Average Monthly Occupancy Average Annual Occupancy Operator / Manager December 2021 December 2020 Variance 2021 2020 Variance Watermark Retirement Communities(1) 77.2 % 76.4 % 0.8 % 75.4 % 77.5 % (2.1) % Solstice Senior Living 77.2 % 74.2 % 3.0 % 73.9 % 76.8 % (2.9) % Avamere Health Services 85.0 % 80.1 % 4.9 % 81.9 % 85.5 % (3.6) % Integral Senior Living(1) 97.5 %
100.0 % (2.5) % 98.1 % 88.8 % 9.3 % Direct Investments - Operating 77.9 % 75.4 % 2.5 % 75.1 % 77.7 % (2.6) %
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(1)Average monthly and annual occupancy excludes properties sold.
On a same store basis, rental and resident fee income of our direct operating investments declined to$163.3 million for the year endedDecember 31, 2021 as compared to$163.9 million for the year endedDecember 31, 2020 . Overall, average annual occupancy for our direct operating investments declined by 2.6% in 2021 as compared to 2020. However, declines in revenue from lower occupancy were partially offset by rate increases. While occupancy improved during the second half of 2021, our direct operating investments' occupancy levels remain below pre-pandemic averages. On a same store basis, excluding COVID-19 related expenses, property operating expenses of our direct operating investments increased to$120.4 million for the year endedDecember 31, 2021 as compared to$111.0 million for the year endedDecember 31, 2020 . We continue to experience staffing challenges and, in turn, salaries and wages expense has increased due to additional overtime hours and use of agency and contract labor to fill open positions. In addition, sales and marketing expenses have increased with the improved volume of resident move-ins, while the resumption of normalized business operations has allowed our managers to complete deferred repairs and maintenance projects. 48
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Overall, on a same store basis, rental and resident fee income, net of property operating expenses, of our direct operating investments decreased to$42.9 million for the year endedDecember 31, 2021 as compared to$52.9 million for the year endedDecember 31, 2020 . Our direct operating investments incurred COVID-19 related expenses totaling$4.4 million and$9.9 million for the years endedDecember 31, 2021 and 2020, respectively. In addition, during the years endedDecember 31, 2021 and 2020, our direct operating investments received and recognized grant income totaling$7.7 million and$1.8 million , respectively, from theProvider Relief Fund administered by theU.S. Department of Health and Human Services , or HHS. These grants are intended to mitigate the negative financial impact of the COVID-19 pandemic as reimbursements for expenses incurred to prevent, prepare for and respond to COVID-19 and lost revenues attributable to COVID-19. Provided that we attest to and comply with certain terms and conditions of the grants, we will not be required to repay these grants in the future.
Direct Investments -
On a same store basis, we recognized
•The operator of our Arbors portfolio has failed to remit contractual rent and satisfy other lease conditions. Contractual monthly rent obligations have been remitted throughApril 2021 and we have recorded rental income to the extent rental payments were received during the year endedDecember 31, 2021 . •We sold our Watermark Fountains net lease portfolio inDecember 2021 . The operator remitted full contractual rent per the amended terms of its lease throughNovember 2021 . InApril 2021 , we executed a lease modification that allowed the operator to defer up to$3.0 million of contractual rent payments over the remaining term of the lease, which were forgiven upon the sale of the portfolio.
•We sold our Smyrna property in
Unconsolidated Investments
Overall, our unconsolidated investment portfolios experienced similar operational challenges presented by the COVID-19 pandemic as our direct operating investments. Equity in earnings totaled$15.8 million for the year endedDecember 31, 2021 as compared to equity in losses of$34.5 million for the year endedDecember 31, 2020 . Equity in earnings includes our proportionate share of net gains from sales transactions in the Espresso and Eclipse joint ventures, which totaled$22.0 million for the year endedDecember 31, 2021 . These sales resulted in lower rental income recognized by the joint ventures during the year endedDecember 31, 2021 . Equity in losses for the year endedDecember 31, 2020 includes our proportionate share of impairment losses recorded by the underlying joint ventures of our unconsolidated investments, which totaled$38.2 million . During the year endedDecember 31, 2021 , we received distributions from our unconsolidated investments, which totaled$18.1 million as compared to$5.9 million for the year endedDecember 31, 2020 . The increase in distributions is primarily a result of increased sales activity during the year endedDecember 31, 2021 . Distributions continued to be limited by reinvestment and development in the Trilogy joint venture, operational challenges in the Diversified US/UK and Eclipse joint ventures and debt repayments in the Espresso joint venture.
The following is a summary of operations and performance for the Trilogy,
Diversified US/
•Trilogy: Labor shortages, resulting in additional overtime and agency staffing, continued to impact the operations of the predominantly SNF portfolio during the year endedDecember 31, 2021 . Additionally, less federal COVID-19 provider relief grants were received and recognized as income during the year endedDecember 31, 2021 as compared to 2020. While challenged throughout 2021, occupancy and financial results improved during the fourth quarter of 2021. •Espresso: The joint venture received full contractual rent from its net lease operators during the year endedDecember 31, 2021 . InDecember 2021 , the joint venture resumed distributions to its partners for the first time since the second quarter of 2017. During 2021, the portfolio sold 43 properties, or 28% of the portfolio. Net proceeds from the sales were used to repay our mezzanine loan originated to the joint venture. Refer to "-Business Update" for further detail on the mezzanine loan repayment. •Diversified US/UK : The joint venture received substantially all contractual monthly rent from its net lease and MOB tenants inthe United States during the year endedDecember 31, 2021 . SNF and ALF operating portfolios sustained suboptimal occupancy levels and experienced staffing challenges resulting from the continued broad effects of the 49
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COVID-19 pandemic. The operator of the joint venture's net lease portfolio in
the
Debt Investments
During the year endedDecember 31, 2021 , interest income generated by our mezzanine loan debt investment totaled$4.7 million , a decrease from$7.7 million for the ended year endedDecember 31, 2020 , as a result of the loan being repaid in full inAugust 2021 . The borrower funded principal repayments through net proceeds generated from the sale of underlying collateral and available operating cash flow.
Recent Developments
The following is a discussion of material events which have occurred subsequent
to
Sponsor Transaction
OnFebruary 28, 2022 , our former Sponsor,DigitalBridge Group, Inc. , or our Former Sponsor, completed the previously announced disposition of its wellness infrastructure platform, or the Sponsor Transaction, which includedCNI NSHC Advisors, LLC , or our Advisor, and the individuals currently engaged in the management and oversight of the healthcare platform. The sale resulted in a change of the owner and control of our Advisor toNRF Holdco, LLC , or NRF or our New Sponsor, but did not directly impact the ownership or control of us or any of our assets. Advisory Agreement In connection with the Sponsor Transaction, our advisory agreement was renewed for a one-year term commencing onFebruary 28, 2022 upon terms identical to those in effect throughFebruary 28, 2022 , but removed our Former Sponsor as the Sponsor and added NRF as the New Sponsor.
Sponsor Line of Credit
On
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Table of Contents Outlook and Recent Trends The healthcare industry, which includes ILFs, ALFs, MCFs, CCRCs, SNFs, MOBs and hospitals, continues to experience the effects of COVID-19, including declines in resident occupancy, lower operating cash flows and compressed operating margins. The CARES Act has provided over$100 billion in grants to eligible health care providers for health care related expenses or lost revenues that are attributable to COVID-19. Licensed assisted living providers became eligible to apply for funding under the Provider Relief Fund Phase 2 General Distribution allocation and remain eligible under the Provider Relief Fund Phase 3 and Phase 4 General Distributions. In addition, the CMS has provided accelerated and advance payments to Medicare providers. Operators continue to evaluate their options for financial assistance, such as utilizing programs within the CARES Act as well as other state and local government relief programs. However, the uncertainty regarding future availability of such relief, and its ultimate impact, including the extent to which relief funds from such programs will provide meaningful support for lost revenue and increasing costs, is uncertain. Additionally, although we continue to evaluate and monitor the terms and conditions associated with relief programs, we cannot ensure ultimate compliance with all the requirements related to the assistance received. If any of our operators fail to comply with all of the terms and conditions, they may be required to repay some or all of the grants received and may be subject to other enforcement action, which could have a material adverse impact on our business and financial condition. Healthcare industry operating results will continue to be impacted to the extent occupancy remains below pre-pandemic levels. Further, the healthcare industry anticipates operating margins will continue to be impacted by cost inflation, labor pressures, additional staffing needs and related cost burdens. The healthcare industry's operational and financial recovery from the impact of the COVID-19 will depend on a variety of factors, which may differ considerably across regions, fluctuate over time and are highly uncertain. The healthcare industry experienced a higher pace of move-ins during the fourth quarter of 2021 as compared to the third quarter of 2021. As a result of overall increase in resident demand, improving consumer sentiment and easing restrictions on visitation and admissions, the seniors housing industry occupancy average rose to 81.0% during the fourth quarter of 2021 from 80.1% in the third quarter of 2021. In addition, annual inventory growth decreased to 2.4% during the fourth quarter of 2021, while construction versus inventory ratio of 5.2% remained elevated in the fourth quarter of 2021 (source:The National Investment Centers for Seniors Housing & Care , or NIC).
Notwithstanding the demographics and forecasted spending growth, economic and healthcare market uncertainty, development, and competitive pressures have had a negative impact on the seniors housing industry, weakening the market's fundamentals and ultimately reducing operating income for managers and operators. Supply growth, which has outpaced demand, has challenged the seniors housing industry over the past several years. New inventory, coupled with the average move-in age of seniors housing residents increasing over time, has resulted in declining occupancy for the industry on average. Further, to remain competitive with the new supply, owners and operators of older facilities have increased capital expenditure spending, which in turn has negatively affected cash flow. While off its peak of 7.7% in the fourth quarter of 2017, seniors housing under construction as a share of inventory was 5.2% in the fourth quarter of 2021 (source: NIC). It is expected that, as demographics and demand continues to increase long-term, supply growth will follow. As a result of increased supply, the seniors housing industry has experienced competitive pressures that have limited rent growth over the past several years. Average market rent growth reached its peak of 4.2% in 2016 and has since decreased to 2.3% as of the fourth quarter of 2021, with pressures caused by the COVID-19 pandemic contributing to the decline (source: NIC). Limited future supply growth and reestablishing normal operations in a post-pandemic environment will be factors in achieving near and long term revenue growth for the industry. Further, prior to the COVID-19 pandemic, a tight labor market and competition to attract quality staff had resulted in increased wages and personnel costs, resulting in lower margins. The COVID-19 pandemic has further exacerbated operating expense growth, with increased staffing needs and personal protective equipment requirements. While it is expected that the increases in expenses to combat the effects of the COVID-19 pandemic will be temporary, wage and benefits increases may continue to impact the industry's margins in the future, as labor represents 60% of the seniors housing industry's operating expenses (source:Green Street ). 51
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Table of Contents SkilledNursing While generally impacted by the same conditions as the seniors housing industry, SNF operators are currently facing various operational, reimbursement, legal and regulatory challenges. Increased wages and labor costs, narrowing of referral networks, shorter lengths of stay, staffing shortages, expenses associated with inspections, enforcement proceedings and legal actions related to professional and general liability claims have contributed to compressed margins and declines in cash flow. SNF operators receive a majority of their revenues from governmental payors, primarily Medicare and Medicaid. With a dependence on government reimbursement as the primary source of their revenues, SNF operators are also subject to intensified efforts to impose pricing pressures and more stringent cost controls, through value-based payments, managed care and similar programs, which could result in lower daily reimbursement rates, lower lease coverage, decreased occupancy and declining operating margins, liquidity and financial conditions. OnFebruary 28, 2022 , theWhite House announced a set of reforms, developed by and implemented through HHS, aimed at improving safety and quality of nursing home care. The new initiatives include establishing a minimum nursing home staffing requirement, reducing resident room crowding and reinforcing safeguards against unnecessary medications and treatments. To ensure compliance, in addition to increased government inspections, theWhite House Administration plans to expand the financial penalties and other enforcement sanctions against facilities not meeting the set standards. These reforms might further increase the cost burdens for our SNF operators and expose them to financial penalties.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted inthe United States , orU.S. GAAP, which requires the use of estimates and assumptions that involve the exercise of judgment and that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Certain accounting policies are considered to be critical accounting policies. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management's subjective and complex judgments, and for which the impact of changes in estimates and assumptions could have a material effect on our financial statements. We believe that all of the decisions and assessments upon which our financial statements are based were reasonable at the time made, based upon information available to us at that time.
For a summary of our accounting policies, refer to Note 2, "Summary of Significant Accounting Policies" in our accompanying consolidated financial statements included in Part II, Item 8. "Financial Statements and Supplementary Data."
We highlight below accounting estimates that we believe are critical based on the nature of our operations and/or require significant management judgment and assumptions: •Impairment Our investments are reviewed on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value of our investments may be impaired or that carrying value may not be recoverable. In conducting these reviews, we consider macroeconomic factors, including healthcare sector conditions, together with asset and market specific circumstance, among other factors. To the extent an impairment has occurred, the loss will be measured as compared to the carrying amount of the investment. Fair values can be estimated based upon the income capitalization approach, using net operating income for each property and applying indicative capitalization and discount rates or sales comparison approach, using what other purchasers and sellers in the market have agreed to as price for comparable properties.
Impairment
During the year endedDecember 31, 2021 , we recorded impairment losses totaling$5.4 million on our operating real estate, consisting of$4.6 million recognized for one facility within our Winterfell portfolio, as a result of lower estimated future cash flows and market value, and$0.8 million for our Smyrna net lease property, which was sold inMay 2021 . As ofDecember 31, 2020 , we had accumulated impairment losses of$145.1 million for operating real estate that we continue to hold as ofDecember 31, 2021 . Refer to our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 for additional information regarding impairment recorded in prior years.
During the year ended
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Due to uncertainties over the extent and duration of the COVID-19 pandemic, at this time, it is difficult to assess and estimate the further economic effects of COVID-19 with any meaningful precision. As the future impact of COVID-19 will depend on many factors beyond our control and knowledge, the resulting effect on impairment of our operating real estate and investments in unconsolidated ventures may materially differ from our current expectations and further impairment charges may be recorded in the future.
Results of Operations
Impact of COVID-19
Throughout the year endedDecember 31, 2021 , the world continued to experience the broad effects of the COVID-19 pandemic. Our healthcare real estate business and investments were challenged by declines in resident occupancy, lower labor force participation rates, which drove increased labor costs, and inflationary pressures on other operating expenses. We continue to monitor the progression of the economic recovery from COVID-19 and its effects on our results of operations and assess recoverability of value across our assets as conditions change. Comparison of the Year EndedDecember 31, 2021 toDecember 31, 2020 (dollars in thousands): Year Ended December 31, Increase (Decrease) 2021 2020 Amount % Property and other revenues Resident fee income$ 105,955 $ 118,126 $ (12,171) (10.3) % Rental income 137,322 157,024 (19,702) (12.5) % Other revenue - 198 (198) (100.0) % Total property and other revenues 243,277 275,348 (32,071) (11.6) % Interest income Interest income on debt investments 4,667 7,674 (3,007) (39.2) %
Expenses
Property operating expenses 177,936 184,178 (6,242) (3.4) % Interest expense 61,620 65,991 (4,371) (6.6) % Transaction costs 54 65 (11) (16.9) % Asset management fees - related party 11,105 17,170 (6,065) (35.3) % General and administrative expenses 12,691 16,505 (3,814) (23.1) % Depreciation and amortization 54,836 65,006 (10,170) (15.6) % Impairment loss 5,386 165,968 (160,582) (96.8) % Total expenses 323,628 514,883 (191,255) (37.1) % Other income, net 7,278 1,840 5,438 295.5 % Realized gain (loss) on investments and other 79,477 302 79,175 26,216.9 % Equity in earnings (losses) of unconsolidated ventures 15,843 (34,466) 50,309 (146.0) % Income tax expense (99) (53) (46) 86.8 % Net income (loss)$ 26,815 $ (264,238) $ 291,053 (110.1) % Resident Fee Income
The following table presents resident fee income generated by our direct investments (dollars in thousands):
Year Ended December 31, Increase (Decrease)
2021 2020 Amount %
Same store ALF/MCF properties (excludes
properties sold) $ 40,668 $ 39,800 $ 868 2.2 %
Properties sold 65,287 78,326 (13,039) (16.6) %
Total resident fee income $ 105,955 $ 118,126 $ (12,171) (10) %
Resident fee income decreased $12.2 million as a result of property sales in the
year ended December 31, 2021 . The Watermark Fountains portfolio sold in December
2021 , the Kansas City portfolio in June 2021 and a property within the Aqua
portfolio sold in March 2021 .
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Excluding properties sold, resident fee income increased
Rental Income
The following table presents rental income generated by our direct investments
(dollars in thousands):
Year Ended December 31, Increase (Decrease)
2021 2020 Amount %
Same store ILF properties (excludes
properties sold) $ 122,614 $ 124,125 $ (1,511) (1.2) %
Same store net lease properties (excludes
properties sold)
Rental payments 3,449 10,139 (6,690) (66.0) %
Straight-line rental income (loss) (7,350) 476 (7,826) (1,644.1) %
Properties sold 18,609 22,284 (3,675) (16.5) %
Total rental income $ 137,322 $ 157,024 $ (19,702) (12.5) %
Rental income decreased $19.7 million primarily due to the operator of our
Arbors net lease portfolio not remitting full contractual rent during the year
ended December 31, 2021 , which also resulted in the write-off of straight-line
rent receivables. Limited move-ins and elevated move-outs throughout the first
half of 2021 resulted in lower average occupancy and rental income recognized by
our ILFs. Additionally, the Watermark Fountains net lease portfolio was sold in
December 2021 and recognized lower contractual rent in 2021 under the amended
terms of the lease.
Other Revenue
Other revenue is primarily interest earned on uninvested cash, which has been impacted by declining market interest rates.
Interest Income on Debt Investments
During the year endedDecember 31, 2021 , interest income generated by our mezzanine loan debt investment decreased as a result of receiving the full repayment of outstanding principal inAugust 2021 . The borrower funded principal repayments through net proceeds generated from the sale of underlying collateral and available operating cash flow.
Property Operating Expenses
The following table presents property operating expenses incurred by our direct investments (dollars in thousands):
Year Ended December 31, Increase (Decrease)
2021 2020 Amount %
Same store (excludes properties sold and
COVID-19 related expenses)
ALF/MCF properties $ 30,384 $ 27,866 $ 2,518 9.0 %
ILF properties 89,970 83,172 6,798 8.2 %
Net lease properties 29 13 16 123.1 %
COVID-19 related expenses 2,528 5,725 (3,197) (55.8) %
Properties sold 55,025 67,402 (12,377) (18.4) %
Total Property operating expenses $ 177,936 $ 184,178 $ (6,242) (3.4) %
Overall, total operating expenses decreased $6.2 million primarily as a result
of property sales in the year ended December 31, 2021 . The Watermark Fountains
portfolio sold in December 2021 , the Kansas City portfolio in June 2021 and a
property within the Aqua portfolio sold in March 2021 . Additionally, COVID-19
related expenses were lower during the year ended December 31, 2021 as compared
to 2020.
Excluding properties sold and COVID-19 related expenses, operating expenses
increased $9.3 million , primarily as a result of our operators experiencing
staffing challenges, which has increased salaries and wages due to additional
overtime hours and use of agency and contract labor to fill open positions. In
addition, the resumption of normalized business operations has allowed our
operators to complete deferred repairs and maintenance projects.
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Interest Expense
The following table presents interest expense incurred on our borrowings
(dollars in thousands):
Year Ended December 31, Increase (Decrease)
2021 2020 Amount %
Same store (excludes properties sold)
ALF/MCF properties $ 5,562 $ 5,688 $ (126) (2.2) %
ILF properties 33,000 34,151 (1,151) (3.4) %
Net lease properties 3,699 3,797 (98) (2.6) %
Properties sold 18,618 21,406 (2,788) (13.0) %
Corporate 741 949 (208) (21.9) %
Total interest expense $ 61,620 $ 65,991 $ (4,371) (6.6) %
Interest expense decreased $4.4 million primarily as a result of the repayment
of mortgage notes payable which were collateralized by properties sold during
the year ended December 31, 2021 . In addition, average mortgage notes principal
balances decreased during the year ended December 31, 2021 due to continued
principal amortization, while lower LIBOR has reduced interest expense on our
floating-rate debt. Corporate interest expense represents interest resulting
from the borrowings under our Sponsor Line, which was repaid in full in July
2021 .
Asset Management Fees -
Our Advisor receives a monthly asset management fee equal to one-twelfth of 1.5% of our most recently published aggregate estimated net asset value. Asset management fees - related party decreased$6.1 million as a result of the estimated net asset value effectiveDecember 2020 decreasing from the previous estimated net asset value effectiveDecember 2019 .
General and Administrative Expenses
General and administrative expenses decreased$3.8 million primarily as a result of amortizing our directors' and officers' insurance premium incurred and reimbursed to our Advisor over the term of the policy, beginning inDecember 2021 . The policy premium was expensed as incurred by the Advisor during the year endedDecember 31, 2020 . In addition, we incurred non-operating costs at a property within the Watermark Fountains net lease portfolio during the year endedDecember 31, 2020 .
Depreciation and Amortization
The following table presents depreciation and amortization recognized on our direct investments (dollars in thousands):
Year Ended December 31, Increase (Decrease)
2021 2020 Amount %
Same store (excludes properties sold)
ALF/MCF properties $ 6,995 $ 7,443 $ (448) (6.0) %
ILF properties 29,306 30,167 (861) (2.9) %
Net lease properties 3,444 3,444 - - %
Properties sold 15,091 23,952 (8,861) (37.0) %
Total depreciation and amortization $ 54,836 $ 65,006 $ (10,170) (15.6) %
Depreciation and amortization expense decreased $10.2 million , primarily as a
result of properties sold during the year ended December 31, 2021 , as well as
impairments recognized during the year ended December 31, 2020 , which reduced
building depreciation expense in 2021.
Impairment Loss
During the year endedDecember 31, 2021 , impairment losses on operating real estate totaled$5.4 million , consisting of$4.6 million recognized for one facility within our Winterfell portfolio and$0.8 million for our Smyrna net lease property, which was sold inMay 2021 . During the year endedDecember 31, 2020 , impairment losses totaling$166.0 million were recorded, consisting of$84.9 million recognized for nine facilities within our Winterfell portfolio,$4.2 million for a facility within the Avamere portfolio,$12.5 million for two facilities within the Rochester portfolio and$64.4 million for properties that were sold in 2021. 55
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Table of Contents Other Income, Net Other income, net for the year endedDecember 31, 2021 consisted of$7.7 million in federal COVID-19 provider relief grants from HHS, partially offset by a$0.5 million non-operating loss recognized at a property within the Watermark Fountains portfolio. During the year endedDecember 31, 2020 ,$1.8 million in federal COVID-19 provider relief grants from HHS were received and recognized.
Realized Gain (Loss) on Investments and Other
Real estate property sales during the year endedDecember 31, 2021 resulted in net realized gains, which totaled$84.0 million and were partially offset by debt extinguishment losses, which totaled$8.7 million . In addition, we recognized gains on distributions that exceeded our carrying value for our investments in the Espresso and Envoy joint ventures, which totaled$4.4 million .
During the year ended
Equity in Earnings (Losses) of
The following table presents the results of our unconsolidated ventures (dollars
in thousands):
Year Ended December 31 , Year Ended December 31,
2021 2020 2021 2020 2021 2020 2021 2020
Equity in Earnings, after FFO
Portfolio Equity in Earnings (Losses) FFO and MFFO adjustments(1) and MFFO adjustments Increase (Decrease) Cash DistributionsEclipse$ 2,130 $ (3,774) $ (1,563) $ 4,769 $ 567 $ 995 $ (428) (43.0) %$ 2,898 $ 86 Envoy 740 (7) (744) - (4) (7) 3 (42.9) % 817 390 Diversified US/UK (3,676) (35,396) 17,441 47,177 13,765 11,781 1,984 16.8 % 4,257 1,487 Espresso 19,619 270 (9,690) 9,415 9,929 9,685 244 2.5 % 5,500 - Trilogy (2,891) 4,495 15,033 13,617 12,142 18,112 (5,970) (33.0) % 4,638 3,960 Subtotal$ 15,922 $ (34,412) $ 20,477 $ 74,978 $ 36,399 $ 40,566 $ (4,167) (10.3) %$ 18,110 $ 5,923 Solstice (79) (54) 2 - (77) (54) (23) 42.6 % - - Total$ 15,843 $ (34,466) $ 20,479 $ 74,978 $ 36,322 $ 40,512 $ (4,190) (10.3) %$ 18,110 $ 5,923
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(1)Represents our proportionate share of revenues and expenses excluded from the calculation of FFO and MFFO for unconsolidated investments. Refer to "-Non-GAAP Financial Measures" for additional discussion. We recognized equity in earnings from our investments in unconsolidated investments during the year endedDecember 31, 2021 , primarily due to realized gains on property sales in the Eclipse and Espresso joint ventures, as compared to losses recognized during the year endedDecember 31, 2020 primarily due to real estate impairments recorded by the Diversified US/UK , Trilogy and Eclipse joint ventures. Equity in earnings, after FFO and MFFO adjustments, decreased by$4.2 million as a result of lower COVID-19 provider relief grants received and recognized by the Trilogy joint venture, partially offset by lower tax expense recognized in the Diversified US/UK portfolio for the year endedDecember 31, 2021 . 56
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Comparison of the Year EndedDecember 31, 2020 toDecember 31, 2019 (dollars in thousands): Year Ended December 31, Increase (Decrease) 2020 2019 Amount % Property and other revenues Resident fee income$ 118,126 $ 130,135 $ (12,009) (9.2) % Rental income 157,024 161,084 (4,060) (2.5) % Other revenue 198 1,959 (1,761) (89.9) % Total property and other revenues 275,348 293,178 (17,830) (6.1) % Interest income Interest income on debt investments 7,674 7,703 (29) (0.4) %
Expenses
Property operating expenses 184,178 181,214 2,964 1.6 % Interest expense 65,991 68,896 (2,905) (4.2) % Transaction costs 65 122 (57) (46.7) % Asset management and other fees-related party 17,170 19,789 (2,619) (13.2) % General and administrative expenses 16,505 12,761 3,744 29.3 % Depreciation and amortization 65,006 70,989 (5,983) (8.4) % Impairment loss 165,968 27,554 138,414 502.3 % Total expenses 514,883 381,325 133,558 35.0 % Other income 1,840 - 1,840 100.0 % Realized gain (loss) on investments and other 302 6,314 (6,012) (95.2) % Equity in earnings (losses) of unconsolidated ventures (34,466) (3,545) (30,921) 872.2 % Income tax expense (53) (75) 22 (29.3) % Net income (loss)$ (264,238) $ (77,750) $ (186,488) 239.9 % Resident Fee Income
The following table presents resident fee income generated by our direct investments (dollars in thousands):
Year Ended December 31, Increase (Decrease)
2020 2019 Amount %
Same store ALF/MCF/CCRC properties $ 118,126 $ 130,135 $ (12,009) (9.2) %
On a same store basis, resident fee income decreased $12.0 million primarily as
a result of lower occupancy at our ALFs, MCFs and CCRCs during the year ended
December 31, 2020 . The effects of the COVID-19 pandemic resulted in limited
inquiries and tours, which significantly decreased the number of move-ins at our
facilities, and increased the number of move-outs during 2020.
Rental Income
The following table presents rental income generated by our direct investments
(dollars in thousands):
Year Ended December 31, Increase (Decrease)
2020 2019 Amount %
Same store (excludes properties sold)
ILF properties $ 124,125 $ 127,660 $ (3,535) (2.8) %
Net lease properties 32,899 32,826 73 0.2 %
Properties sold - 598 (598) (100.0) %
Total rental income $ 157,024 $ 161,084 $ (4,060) (2.5) %
Rental income decreased $4.1 million primarily due to overall decreases in
occupancy at our ILFs and the sale of a net lease property during 2019. The
effects of the COVID-19 pandemic resulted in limited inquiries and tours, which
significantly decreased the number of move-ins at our facilities, and increased
the number of move-outs in 2020.
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EffectiveJune 1, 2020 , we granted a lease concession to the operator of the Watermark Fountains net lease portfolio. The concession allowed the operator to defer a portion of contractual rent payments for a 90-day period, with full contractual rent repaid over the 12 months following the concession period. The amount of the deferred rental payments under the lease concession totaled$3.9 million . As there were no substantive changes to the original lease or changes in total cash flows, the concession was not treated as a lease modification and we continued to recognize lease income and receivables under the original terms of the lease.
Other Revenue
Other revenue decreased primarily as a result of non-recurring service provider incentives recognized by the Winterfell portfolio during 2019, as well as lower interest earned on uninvested cash during the year endedDecember 31, 2020 .
Interest Income on Debt Investments
For the year ended
Property Operating Expenses
The following table presents property operating expenses incurred by our direct investments (dollars in thousands):
Year Ended December 31, Increase (Decrease)
2020 2019 Amount %
Same store (excludes COVID-19 related
expenses)
ALF/MCF/CCRC properties $ 91,062 $ 94,678 $ (3,616) (3.8) %
ILF properties 83,172 86,526 (3,354) (3.9) %
Net lease properties 13 10 3 30.0 %
COVID-19 related expenses 9,931 - 9,931 NA
Total Property operating expenses $ 184,178 $ 181,214 $ 2,964 1.6 %
Overall, operating expenses increased $3.0 million for the year ended
December 31, 2020 as compared to the year ended December 31, 2019 . The increase
was primarily attributable COVID-19 related expenses, which totaled $9.9 million
for the year ended December 31, 2020 . These expenses include personal protective
equipment for residents and staff as well as wages for increased staffing and
paying a premium for labor in many markets, particularly in communities that
were severely impacted by COVID-19.
Excluding COVID-19 related expenses, operating expenses decreased $7.0 million
for the year ended December 31, 2020 as compared to the year ended December 31,
2019 . Lower census in our direct investment operating portfolio resulted in
lower utilities and food and beverage costs. Additionally, repairs and
maintenance expense was lower year over year, as operators minimized all
non-essential projects across our direct investment operating portfolio in
response to COVID-19.
Interest Expense
The following table presents interest expense incurred on our borrowings
(dollars in thousands):
Year Ended December 31, Increase (Decrease)
2020 2019 Amount %
Same store (excludes properties sold)
ALF/MCF/CCRC properties $ 19,059 $ 20,620 $ (1,561) (7.6) %
ILF properties 34,151 35,740 (1,589) (4.4) %
Net lease properties 11,832 12,187 (355) (2.9) %
Properties sold - 247 (247) (100.0) %
Corporate 949 102 847 830.4 %
Total interest expense $ 65,991 $ 68,896 $ (2,905) (4.2) %
Interest expense decreased $2.9 million during the year ended December 31, 2020
as a result of lower average mortgage notes principal balances due to continued
principal amortization and loan payoffs. In addition, lower LIBOR reduced
interest expense
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on our floating rate debt. For the year ended
Asset Management and Other Fees -
Our Advisor receives a monthly asset management fee equal to one-twelfth of 1.5% of our most recently published aggregate estimated net asset value. Asset management and other fees - related party decreased$2.6 million as a result of the declining estimated net asset value year over year.
General and Administrative Expenses
General and administrative expenses increased$3.7 million for the year endedDecember 31, 2020 , as compared to the year endedDecember 31, 2019 , as a result of significant increases to insurance premiums. Further, we incurred non-operating compensation costs for a property within the Watermark Fountains net lease portfolio during the year endedDecember 31, 2020 .
Depreciation and Amortization
The following table presents depreciation and amortization recognized on our direct investments (dollars in thousands):
Year Ended December 31, Increase (Decrease)
2020 2019 Amount %
Same store (excludes properties sold)
ALF/MCF/CCRC properties $ 19,899 $ 19,933 $ (34) (0.2) %
ILF properties 30,167 36,727 (6,560) (17.9) %
Net lease properties 14,940 14,226 714 5.0 %
Properties sold - 103 (103) (100.0) %
Total depreciation and amortization $ 65,006 $ 70,989 $ (5,983) (8.4) %
Depreciation and amortization expense decreased $6.0 million , primarily as a
result of intangible assets becoming fully amortized in the Winterfell and
Rochester portfolios in 2019. In addition, impairment losses recognized reduced
depreciation expense during the year ended December 31, 2020 .
Impairment Loss
During the year endedDecember 31, 2020 , impairment losses on operating real estate and held for sale assets totaled$166.0 million for properties with sustained poor performance, declines in occupancy and operating margins, and which have been significantly impacted by the effects of COVID-19. During the year endedDecember 31, 2019 , impairment losses on operating real estate and held for sale assets totaled$27.6 million . Impairment was recognized for two ALFs with sustained low occupancy within the Rochester portfolio, two poor performing properties within theKansas City portfolio and a net lease property classified as held for sale.
Other Income
Other income for the year endedDecember 31, 2020 includes$1.8 million in federal COVID-19 provider relief grants from HHS. These grants were intended to mitigate the negative financial impact of the COVID-19 pandemic as reimbursements for expenses incurred to prevent, prepare for and respond to COVID-19 and lost revenues attributable to COVID-19 by our direct operating investments. Provided that we attest to and comply with certain terms and conditions of the grants, we will not be required to repay these grants in the future.
Realized Gain (Loss) on Investments and Other
During the year endedDecember 31, 2020 , we recognized a$0.3 million gain on the settlement of the share-based payment to our Advisor. During the year endedDecember 31, 2019 , realized gains totaled$6.3 million and were primarily related to the sale of two net lease properties and two condominiums units for which we held future interests in the Watermark Fountains portfolio. 59
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Equity in Earnings (Losses) of
The following table presents the results of our unconsolidated ventures (dollars
in thousands):
Year Ended December 31 , Year Ended December 31,
2020 2019 2020 2019 2020 2019 2020 2019
Equity in Earnings, after FFO
Portfolio Equity in Earnings (Losses) FFO and MFFO adjustments(1) and MFFO adjustments Increase (Decrease) Cash DistributionsEclipse$ (3,774) $ 435 $ 4,769 $ 987 $ 995 $ 1,422 $ (427) (30.0) % $ 86$ 2,717 Envoy (7) 20 - 892 (7) 912 (919) (100.8) % 390 4,339 Diversified US/UK (35,396) (4,540) 47,177 16,359 11,781 11,819 (38) (0.3) % 1,487 23,061 Espresso 270 (2,426) 9,415 8,530 9,685 6,104 3,581 58.7 % - - Trilogy 4,495 3,003 13,617 13,797 18,112 16,800 1,312 7.8 % 3,960 5,805 Subtotal$ (34,412) $ (3,508) $ 74,978 $ 40,565 $ 40,566 $ 37,057 $ 3,509 9.5 %$ 5,923 $ 35,922 Solstice (54) (37) - - (54) (37) (17) 45.9 % - - Total$ (34,466) $ (3,545) $ 74,978 $ 40,565 $ 40,512 $ 37,020 $ 3,492 9.4 %$ 5,923 $ 35,922
_______________________________________
(1)Represents our proportionate share of revenues and expenses excluded from the calculation of FFO and MFFO. Refer to "-Non-GAAP Financial Measures" for additional discussion.
Our proportionate share of losses generated by our unconsolidated ventures increased$30.9 million for the year endedDecember 31, 2020 , as compared to the year endedDecember 31, 2019 , primarily due to real estate impairments recorded by the Diversified US/UK , Eclipse and Trilogy joint ventures. Equity in earnings, after FFO and MFFO adjustments, increased by$3.5 million . Improved performance in the Espresso joint venture, primarily due to full contractual rent collections and lower interest and operating expenses, as well as federal COVID-19 provider relief funds received and recognized by the Trilogy joint venture, were the main contributors to the increase. Non-recurring earnings recognized by the Envoy joint venture upon the completion of the sale of its remaining operating assets in 2019 and declines in operational performance in the Diversified US/UK and Eclipse joint ventures, as a result of the effects of COVID-19, partially offset the increase.
Non-GAAP Financial Measures
Funds from Operations and Modified Funds from Operations
We believe that Funds from Operations, or FFO, and Modified Funds from Operations, or MFFO, are additional appropriate measures of the operating performance of a REIT and of us in particular. We compute FFO in accordance with the standards established by theNational Association of Real Estate Investment Trusts , or NAREIT, as net income (loss) (computed in accordance withU.S. GAAP), excluding gains (losses) from sales of depreciable property, the cumulative effect of changes in accounting principles, real estate-related depreciation and amortization, impairment on depreciable property owned directly or indirectly and after adjustments for unconsolidated ventures. Changes in the accounting and reporting rules underU.S. GAAP that have been put into effect since the establishment of NAREIT's definition of FFO have prompted an increase in the non-cash and non-operating items included in FFO. For instance, the accounting treatment for acquisition fees related to business combinations has changed from being capitalized to being expensed. Additionally, publicly registered, non-traded REITs are typically different from traded REITs because they generally have a limited life followed by a liquidity event or other targeted exit strategy. Non-traded REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation as compared to later years when the proceeds from their initial public offering have been fully invested and when they may seek to implement a liquidity event or other exit strategy. However, it is likely that we will make investments past the acquisition and development stage, albeit at a substantially lower pace. Acquisition fees paid to our Advisor in connection with the origination and acquisition of debt investments have been amortized over the life of the investment as an adjustment to interest income, while fees paid to our Advisor in connection with the acquisition of equity investments were generally expensed underU.S. GAAP. In both situations, the fees were included in the computation of net income (loss) and income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense), both of which are performance measures underU.S. GAAP. We adjusted MFFO for the amortization of acquisition fees in the period when such amortization was recognized underU.S. GAAP or in the period in which the acquisition fees were expensed. Acquisition fees were paid in cash that would otherwise have been available to distribute to our 60
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stockholders. Such fees and expenses will not be reimbursed by our Advisor or its affiliates and third parties. However, in general, we earned origination fees for debt investments from our borrowers in an amount equal to the acquisition fees paid to our Advisor. EffectiveJanuary 1, 2018 , our Advisor no longer receives an acquisition fee in connection with our acquisition of real estate properties or debt investments. Due to certain of the unique features of publicly-registered, non-traded REITs, theInstitute for Portfolio Alternatives , or IPA, an industry trade group, standardized a performance measure known as MFFO and recommends the use of MFFO for such REITs. Management believes MFFO is a useful performance measure to evaluate our business and further believes it is important to disclose MFFO in order to be consistent with the IPA recommendation and other non-traded REITs. MFFO adjustments for items such as acquisition fees would only be comparable to non-traded REITs that have completed the majority of their acquisition activity and have other similar operating characteristics as us. Neither theU. S. Securities and Exchange Commission , orSEC , nor any other regulatory body has approved the acceptability of the adjustments that we use to calculate MFFO. In the future, theSEC or another regulatory body may decide to standardize permitted adjustments across the non-listed REIT industry and we may need to adjust our calculation and characterization of MFFO. MFFO is a metric used by management to evaluate our future operating performance once our organization and offering and acquisition and development stages are complete and is not intended to be used as a liquidity measure. Although management uses the MFFO metric to evaluate future operating performance, this metric excludes certain key operating items and other adjustments that may affect our overall operating performance. MFFO is not equivalent to net income (loss) as determined underU.S. GAAP. In addition, MFFO is not a useful measure in evaluating net asset value, since impairment is taken into account in determining net asset value but not in determining MFFO. We define MFFO in accordance with the concepts established by the IPA, and adjust for certain items, such as accretion of a discount and amortization of a premium on borrowings and related deferred financing costs, as such adjustments are comparable to adjustments for debt investments and will be helpful in assessing our operating performance. Similarly, we adjust for the non-cash effect of unrealized gains or losses on unconsolidated ventures. Our computation of MFFO may not be comparable to other REITs that do not calculate MFFO using the same method MFFO is calculated using FFO. FFO, as defined by NAREIT, is a computation made by analysts and investors to measure a real estate company's operating performance. The IPA's definition of MFFO excludes from FFO the following items:
•acquisition fees and expenses;
•non-cash amounts related to straight-line rent and the amortization of above or below market and in-place intangible lease assets and liabilities (which are adjusted in order to reflect such payments from an accrual basis of accounting underU.S. GAAP to a cash basis of accounting);
•amortization of a premium and accretion of a discount on debt investments;
•non-recurring impairment of real estate-related investments that meet the
specified criteria identified in the rules and regulations of the
•realized gains (losses) from the early extinguishment of debt;
•realized gains (losses) on the extinguishment or sales of hedges, foreign exchange, securities and other derivative holdings except where the trading of such instruments is a fundamental attribute of our business;
•unrealized gains (losses) from fair value adjustments on real estate securities, including CMBS and other securities, interest rate swaps and other derivatives not deemed hedges and foreign exchange holdings;
•unrealized gains (losses) from the consolidation from, or deconsolidation to, equity accounting;
•adjustments related to contingent purchase price obligations; and
•adjustments for consolidated and unconsolidated partnerships and joint ventures calculated to reflect MFFO on the same basis as above.
Certain of the above adjustments are also made to reconcile net income (loss) to
net cash provided by (used in) operating activities, such as for the
amortization of a premium and accretion of a discount on debt and securities
investments, amortization of fees, any unrealized gains (losses) on derivatives,
securities or other investments, as well as other adjustments.
MFFO excludes non-recurring impairment of real estate-related investments. We
assess the credit quality of our investments and adequacy of reserves/impairment
on a quarterly basis, or more frequently as necessary. Significant judgment is
required in this analysis. With respect to debt investments, we consider the
estimated net recoverable value of the loan as well as other factors,
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including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the prospects for the borrower and the competitive situation of the region where the borrower does business. Fair value is typically estimated based on discounting expected future cash flow of the underlying collateral taking into consideration the discount rate, capitalization rate, occupancy, creditworthiness of major tenants and many other factors. This requires significant judgment and because it is based on projections of future economic events, which are inherently subjective, the amount ultimately realized may differ materially from the carrying value as of the consolidated balance sheets date. If the estimated fair value of the underlying collateral for the debt investment is less than its net carrying value, a loan loss reserve is recorded with a corresponding charge to provision for loan losses. With respect to a real estate investment, a property's value is considered impaired if a triggering event is identified and our estimate of the aggregate future undiscounted cash flow to be generated by the property is less than the carrying value of the property. The value of our investments may be impaired and their carrying values may not be recoverable due to our limited life. Investors should note that while impairment charges are excluded from the calculation of MFFO, investors are cautioned that due to the fact that impairments are based on estimated future undiscounted cash flow and the relatively limited term of a non-traded REIT's anticipated operations, it could be difficult to recover any impairment charges through operational net revenues or cash flow prior to any liquidity event. We believe that MFFO is a useful non-GAAP measure for non-traded REITs. It is helpful to management and stockholders in assessing our future operating performance once our organization and offering, and acquisition and development stages are complete. However, MFFO may not be a useful measure of our operating performance or as a comparable measure to other typical non-traded REITs if we do not continue to operate in a similar manner to other non-traded REITs, including if we were to extend our acquisition and development stage or if we determined not to pursue an exit strategy. However, MFFO does have certain limitations. For instance, the effect of any amortization or accretion on debt investments originated or acquired at a premium or discount, respectively, is not reported in MFFO. In addition, realized gains (losses) from acquisitions and dispositions and other adjustments listed above are not reported in MFFO, even though such realized gains (losses) and other adjustments could affect our operating performance and cash available for distribution. Any mark-to-market or fair value adjustments may be based on many factors, including current operational or individual property issues or general market or overall industry conditions. Neither FFO nor MFFO is equivalent to net income (loss) or cash flow provided by operating activities determined in accordance withU.S. GAAP and should not be construed to be more relevant or accurate than theU.S. GAAP methodology in evaluating our operating performance. Neither FFO nor MFFO is necessarily indicative of cash flow available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO do not represent amounts available for management's discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties. Furthermore, neither FFO nor MFFO should be considered as an alternative to net income (loss) as an indicator of our operating performance. 62
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The following table presents a reconciliation of net income (loss) attributable
to common stockholders to FFO and MFFO attributable to common stockholders
(dollars in thousands):
Year Ended December 31,
2021 2020 2019
Funds from operations:
Net income (loss) attributable to NorthStar
Healthcare Income, Inc. common stockholders $ 25,067 $ (261,458) $ (76,960)
Adjustments:
Depreciation and amortization 54,836 65,006 70,989
Depreciation and amortization related to
non-controlling interests (480) (647) (635)
Depreciation and amortization related to
unconsolidated ventures 30,054 31,999 31,892
Realized (gain) loss from sales of property (83,873) - (6,104)
Realized gain (loss) from sales of property
related to non-controlling interests 2,092 - -
Realized (gain) loss from sales of property
related to unconsolidated ventures (31,314) (320) (4,065)
Impairment losses of depreciable real estate 5,386 165,968 27,554
Impairment loss on real estate related to
non-controlling interests - (2,253) (585)
Impairment losses of depreciable real estate
held by unconsolidated ventures 1,494 37,893 2,663
Funds from operations attributable to NorthStar
Healthcare Income, Inc. common stockholders $ 3,262 $ 36,188 $ 44,749
Modified funds from operations:
Funds from operations attributable to NorthStar
Healthcare Income, Inc. common stockholders $ 3,262 $ 36,188 $ 44,749
Adjustments:
Transaction costs 54 65 122
Straight-line rental (income) loss 7,803 441 (467)
Amortization of premiums, discounts and fees on
investments and borrowings 4,177 4,975 4,914
Realized (gain) loss on investments and other 4,396 (302) (679)
Adjustments related to unconsolidated
ventures(1) 20,245 5,406 10,075
Adjustments related to non-controlling interests (212) (48) (25)
Modified funds from operations attributable to
NorthStar Healthcare Income, Inc. common
stockholders $ 39,725 _______________________________________
(1)Primarily represents our proportionate share of liability extinguishment gains, loan loss reserves, transaction costs and amortization of above/below market debt adjustments, straight-line rent adjustments, debt extinguishment losses and deferred financing costs, incurred through our investments in unconsolidated ventures.
Liquidity and Capital Resources
Our current principal liquidity needs are to fund: (i) operating expenses; (ii) principal and interest payments on our borrowings and other commitments; and (iii) capital expenditures, including capital calls in connection with our unconsolidated joint venture investments. Our current primary sources of liquidity include the following: (i) cash on hand; (ii) proceeds from full or partial realization of investments; (iii) cash flow generated by our investments, both from our operating activities and distributions from our unconsolidated joint ventures; and (iv) secured or unsecured financings from banks and other lenders, including investment-level financing and/or a corporate credit facility. Our investments generate cash flow in the form of rental revenues, resident fees and interest income, which are reduced by operating expenditures, debt service payments and capital expenditures and are used to pay corporate general and administrative expenses. As ofMarch 17, 2022 , we had approximately$191.1 million of unrestricted cash and currently believe that our capital resources are sufficient to meet our capital needs for the following 12 months. Liquidity has improved during the year endedDecember 31, 2021 , as a result of proceeds received from both consolidated and unconsolidated investment portfolio sales and the full collection of the principal outstanding on our Espresso mezzanine loan debt investment. 63
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While we have the ability to meet our near-term liquidity needs, an extended recovery period from the effects of COVID-19 increases the risk of a prolonged negative impact on our financial condition and results of operations. Our board of directors determined to suspend distributions in order to preserve capital and liquidity inFebruary 2019 . Our board of directors continues to evaluate our distribution policy on a recurring basis, and more frequently as facts and circumstances warrant. While we do not anticipate recurring dividends in the near future, in light of the cash flow generated by our investments as compared to our capital expenditure needs and debt service obligations, our board will evaluate special distributions in connection with asset sales and other realization of our investments on a case-by-case basis based on, among other factors, current and projected liquidity needs, opportunities for investment in our assets (such as capital expenditure and de-levering opportunities) and other strategic initiatives.
For additional information regarding our liquidity needs and capital resources, see below.
Cash From Operations We primarily generate cash flow from operations through net operating income from our operating properties and rental income from our net lease properties, in addition to receiving distributions from our investments in unconsolidated ventures. Net cash used in operating activities was$6.4 million for the year endedDecember 31, 2021 . During the year endedDecember 31, 2021 , debt service payments on our borrowings exceeded our cash flow from operations. We have utilized proceeds from asset sales and repayments on our mezzanine loan to fund debt service payments, which is expected to continue until occupancy and revenues of our direct investments improve from current levels. A substantial majority of our direct investments are operating properties whereby we are directly exposed to various operational risks. While our direct operating investments have not experienced any significant issues collecting rents or other fees from residents as a result of COVID-19, cash flow has continued to be negatively impacted by, among other things, suboptimal occupancy levels, rate pressures, increased labor and benefits costs, as well as rising real estate taxes. We expect that these factors will continue to materially impact our revenues, expenses and cash flow generated by the communities of our direct operating investments. For our net lease investment, the operator of our Arbors portfolio has been impacted by the same COVID-19 factors discussed above, which has and will continue to affect its ability and willingness to pay rent. As ofMarch 17, 2022 , the operator has satisfied its contractual rent obligations throughMay 2021 and continues to make partial rental payments based on availability of cash and liquidity. The operator has applied for and benefited from federal relief assistance, however, the operator's ability to pay rent in the future is currently unknown. Numerous state, local, federal and industry-initiated efforts have also affected or may affect the landlord and its ability to collect rent and/or enforce remedies for the failure to pay rent. In addition, we have significant joint ventures and may not be able to control the timing of distributions, if any, from these investments. As ofDecember 31, 2021 , our unconsolidated joint ventures and consolidated joint ventures represented 40.3% and 12.3%, respectively, of our total real estate equity investments, based on cost. Our unconsolidated joint ventures, which have been similarly impacted by COVID-19 as our direct investments, are likely to continue to limit distributions to preserve liquidity.
Borrowings
We use asset-level financing as part of our investment strategy to leverage our investments while managing refinancing and interest rate risk. We typically finance our investments with medium to long-term, non-recourse mortgage loans, though our borrowing levels and terms vary depending upon the nature of the assets and the related financing. In addition, our Sponsor has made available a revolving line of credit to provide additional short-term liquidity as needed. We are required to make recurring principal and interest payments on our borrowings. As ofDecember 31, 2021 , we had$943.8 million of consolidated asset-level borrowings outstanding and paid$92.8 million in recurring principal and interest payments on borrowings during the year endedDecember 31, 2021 . Our unconsolidated joint ventures also have significant asset level borrowings, which may require capital to be funded if favorable refinancing is not obtained. During the year, the operator for the Arbors portfolio failed to remit contractual rent and satisfy other conditions under its leases, which resulted in a defaults under the operator's leases, and in turn, resulted in a non-monetary default under the mortgage notes collateralized by the properties as ofDecember 31, 2021 . We have remitted contractual debt service and are in compliance with the other contractual terms under the mortgage notes collateralized by the properties. As the impact of COVID-19 continues to influence our investments' performance, we may experience defaults in the future and it may have a negative impact on our ability to service or refinance our borrowings. 64
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Our charter limits us from incurring borrowings that would exceed 300.0% of our net assets. We cannot exceed this limit unless any excess in borrowing over such level is approved by a majority of our independent directors. We would need to disclose any such approval to our stockholders in our next quarterly report along with the justification for such excess. An approximation of this leverage limitation, excluding indirect leverage held through our unconsolidated joint venture investments and any securitized mortgage obligations to third parties, is 75.0% of our assets, other than intangibles, before deducting loan loss reserves, other non-cash reserves and depreciation. As ofDecember 31, 2021 , our leverage was 53.6% of our assets, other than intangibles, before deducting loan loss reserves, other non-cash reserves and depreciation. As ofDecember 31, 2021 , indirect leverage on assets, other than intangibles, before deducting loan loss reserves, other non-cash reserves and depreciation, held through our unconsolidated joint ventures was 59.5%. For additional information regarding our borrowings, including principal repayments, timing of maturities and loans currently in default, refer to Note 6, "Borrowings" in our accompanying consolidated financial statements included in Part II, Item 8. "Financial Statements and Supplementary Data."
Capital Expenditures Activities
We are responsible for capital expenditures for our operating properties and, from time to time, may also fund capital expenditures for certain net lease properties. We continue to invest capital into our operating portfolio in order to maintain market position, functional and operating standards, increase operating income, achieve property stabilization and enhance the overall value of our assets. However, there can be no assurance that these initiatives will achieve these intended results. We are also party to certain agreements that contemplate development of healthcare properties funded by us and our joint venture partners. Although we may not be obligated to fund such capital contributions or capital projects, we may be subject to adverse consequences under our joint venture governing documents for any such failure to fund.
Realization and Disposition of Investments
We will actively pursue dispositions of assets and portfolios where we believe the disposition will achieve a desired return, improve our liquidity position and generate value for shareholders. We have made significant investments through both consolidated and unconsolidated joint ventures with third parties. We may share decision-making authority for these joint ventures that could prevent us from selling properties or our interest in the joint venture. Further, as the impact of COVID-19 continues to influence the property's performance, it may have a negative impact on our ability to generate desired returns on dispositions. Distributions To continue to qualify as a REIT, we are required to distribute annually dividends equal to at least 90% of our taxable income, subject to certain adjustments, to stockholders. We have generated net operating losses for tax purposes and, accordingly, are currently not required to make distributions to our stockholders to qualify as a REIT. Refer to "-Distributions Declared and Paid" for further information regarding our historical distributions.
Repurchases
We adopted a share repurchase program, or the Share Repurchase Program, effectiveAugust 7, 2012 , which enabled stockholders to sell their shares to us in limited circumstances. Our board of directors may amend, suspend or terminate our Share Repurchase Program at any time, subject to certain notice requirements. InOctober 2018 , our board of directors approved an amended and restated Share Repurchase Program, under which we only repurchased shares in connection with the death or qualifying disability of a stockholder. OnApril 7, 2020 , our board of directors suspended all repurchases under our existing Share Repurchase Program effectiveApril 30, 2020 in order to preserve capital and liquidity. Other Commitments We expect to continue to make payments to our Advisor, or its affiliates, pursuant to our advisory agreement, as applicable, in connection with the management of our assets and costs incurred by our Advisor in providing services to us. InDecember 2017 , our advisory agreement was amended with changes to the asset management and acquisition fee structure. InJune 2021 , our advisory agreement was amended and renewed for an additional one-year term commencing onJune 30, 2021 . In connection with the Sponsor Transaction, our advisory agreement was renewed for an additional one-year term commencing onFebruary 28, 2022 . Refer to "-Related Party Arrangements" for further information regarding our advisory fees. 65
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Cash Flows
The following presents a summary of our consolidated statements of cash flows
(dollars in thousands):
Year Ended December 31,
2021 vs. 2020 2020 vs. 2019
Cash flows provided by (used in): 2021 2020 2019 Change Change
Operating activities $ (6,438) $ 31,018
661,826 (8,415) (4,287) 670,241 (4,128)
Financing activities (538,020) 12,147 (56,699) (550,167) 68,846
Net increase (decrease) in cash,
cash equivalents and restricted
cash $ 117,368 $ 34,750
Year Ended
Operating Activities
Net cash used in operating activities totaled$6.4 million for the year endedDecember 31, 2021 , as compared to$31.0 million net cash provided by operating activities for the year endedDecember 31, 2020 . The change in cash flow from operating activities was a result of the following:
•declines in average occupancy, which resulted in lower rent and resident fees collected;
•less contractual rent collected from direct net lease investment operators; and
•higher payments for property operating expenses, general and administrative expenses and mortgage payable interest, as a result of debt service that was deferred during the year endedDecember 31, 2020 .
Investing Activities
Our cash flows from investing activities are primarily proceeds from investment dispositions, net of any capital expenditures. Net cash provided by investing activities was$661.8 million for the year endedDecember 31, 2021 as compared to$8.4 million net cash used for the year endedDecember 31, 2020 . Cash flows provided by investing activities for the year endedDecember 31, 2021 were from property sales and principal repayments on our real estate debt investment. Cash inflows were used to fund recurring capital expenditures for existing investments and for general operations. Cash flows used in investing activities for the year endedDecember 31, 2020 were primarily recurring capital expenditures for existing investments.
The following table presents cash used for capital expenditures, excluding our unconsolidated ventures (dollars in thousands):
Year Ended December 31,
2021 2020 2021 vs. 2020 Change
Capital Expenditures $ 27,773 $ 15,214 $ 12,559
Recurring capital expenditures have increased during the year ended December 31,
2021 , as compared to the year ended December 31, 2020 as a result of the
resumption of normalized business operations allowing our operators to complete
deferred capital improvements.
Financing Activities
For the year endedDecember 31, 2021 , net cash flows used in financing activities were primarily the repayment of mortgage notes payable collateralized by properties sold during the year, the repayment of the borrowings under the Sponsor Line and continued principal amortization on our mortgage notes. Cash outflows were partially offset by the refinancing of a mortgage note payable for a property within our Aqua portfolio, which generated$6.5 million in net proceeds. Cash flows used in financing activities was$538.0 million for the year endedDecember 31, 2021 compared to$12.1 million cash flows provided by financing activities for the year endedDecember 31, 2020 . Cash flows provided by financing activities during the year endedDecember 31, 2020 , were primarily the$35.0 million borrowed under the Sponsor Line, partially offset by principal amortization payments on mortgage notes and repurchases of shares under our Share Repurchase Program. 66
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Year Ended
Operating Activities
Net cash provided by operating activities totaled$31.0 million for the year endedDecember 31, 2020 , compared to$25.3 million for the year endedDecember 31, 2019 . The increase in cash provided from operating activities was a result of the following:
•collection of a regulatory reserve deposit for a healthcare facility;
•lower interest expense, due to lower debt principal balances and effective interest rates;
•lower cash interest payments due to deferred debt service under executed debt forbearance agreements; and
•lower asset management fees paid in cash.
Cash flow improvements were partially offset by lower rent and resident fee income as well as higher operating expenses as a result of the effects of the COVID-19 pandemic.
Investing Activities Net cash used in investing activities was$8.4 million for the year endedDecember 31, 2020 , compared to$4.3 million for the year endedDecember 31, 2019 . Cash flows used in investing activities for the year endedDecember 31, 2020 were primarily recurring capital expenditures for existing investments, partially offset by distributions received from our unconsolidated joint ventures. Cash flows used in investing activities for the year endedDecember 31, 2019 consisted primarily of an equity contribution to our unconsolidated investment in the Diversified US/UK joint venture, partially offset by the net proceeds generated from the sale of two net lease properties and distributions received from unconsolidated investments.
The following table presents cash used for capital expenditures, excluding our unconsolidated ventures (dollars in thousands):
Year Ended December 31,
Capital Expenditures 2020 2019 2020 vs. 2019 Change
Recurring $ 15,214 $ 22,323 $ (7,109)
Recurring capital expenditures have decreased during the year ended December 31,
2020 , as compared to the year ended December 31, 2019 as a result of limiting
expenditures in response to COVID-19.
Financing Activities
For the year endedDecember 31, 2020 , our cash flows from financing activities were principally impacted by borrowing$35.0 million under our Sponsor Line, partially offset by repurchases of common stock and repayments on our mortgage notes. Cash flows provided by financing activities was$12.1 million for the year endedDecember 31, 2020 compared to cash flows used in financing activities of$56.7 million for the year endedDecember 31, 2019 . During the year endedDecember 31, 2019 , the payment of dividends, repurchases of common stock and the repayment of a mortgage note payable upon the sale of two net lease properties were the primary drivers of financing cash flows. 67
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Contractual Obligations and Commitments
The following table presents contractual obligations and commitments as of
Payments Due by Period
2027 and
2022 2023 - 2024 2025 - 2026 Thereafter
Less than 1 More than 5
Total year 1-3 years 3-5 years years
Mortgage and notes other payables(1)
Estimated interest payments(2) 136,888 37,424 71,829 25,581 2,054 Advisor asset management fee(3) 67,500 11,250 22,500 22,500 11,250 Total(4)$ 1,148,153 $ 78,169 $ 135,336 $ 766,307 $ 168,341
____________________________________
(1)Represents amortization of principal and repayment upon contractual initial maturity date. (2)Estimated interest payments are based on the remaining life of the borrowings. Applicable LIBOR rate, plus the respective spread as ofDecember 31, 2021 was used to estimate payments for our floating-rate borrowings. (3)Our advisory agreement may be renewed on different terms or may be terminated at any time, subject to notice requirements. As a result, the amount included in the table above is an estimate only and assumes the current net asset value and the continuation of our advisory agreement on its current terms. Refer to "-Related Party Arrangements" for additional information on our Advisor asset management fee. (4)Excludes construction related and other commitments for future development. Borrowings that are maturing in our unconsolidated ventures may require us to fund additional contributions if favorable refinancing is not obtained. We are not obligated to fund capital contributions, however our investment in the unconsolidated investment may be diluted and we may be prohibited from participating in future cash flows if we are unable to fund. In addition, our joint venture partners may be entitled to call additional capital under the governing documents of our joint ventures and certain of our operators and managers may require us to fund capital projects under our leases or management agreements. Although we may not be obligated to fund such capital contributions or capital projects, we may be subject to adverse consequences for any such failure to fund.
Off-Balance Sheet Arrangements
As ofDecember 31, 2021 , we are not dependent on the use of any off-balance sheet financing arrangements for liquidity. We have made investments in unconsolidated ventures. Refer to Note 4, "Investments inUnconsolidated Ventures " in Part I. Item 1. "Financial Statements" for a discussion of such unconsolidated ventures in our consolidated financial statements. In each case, our exposure to loss is limited to the carrying value of our investment.
Distributions Declared and Paid
We generally paid distributions on a monthly basis based on daily record dates on the first business day of the month following the month for which the distribution was accrued. From the date of our first investment onApril 5, 2013 throughDecember 31, 2017 , we paid an annualized distribution amount of$0.675 per share of our common stock. Our board of directors approved a daily cash distribution of$0.000924658 per share of common stock, equivalent to an annualized distribution amount of$0.3375 per share, for the year endedDecember 31, 2018 and month endedJanuary 31, 2019 . EffectiveFebruary 1, 2019 , our board of directors suspended distributions in order to preserve capital and liquidity.
Since inception of our first investment, we declared
To the extent distributions are paid from sources other than FFO, the ownership interest of our public stockholders will be diluted. Future distributions declared and paid may exceed FFO and cash flow provided by operations. FFO, as defined, may not reflect actual cash available for distributions. Our ability to pay distributions from FFO or cash flow provided by operations depends upon our operating performance, including the financial performance of our investments in the current real estate and financial environment, the type and mix of our investments, accounting of our investments in accordance withU.S. GAAP, the performance of underlying debt and ability to maintain liquidity. We will continue to assess our distribution policy in light of our operating performance and capital needs. Related Party Arrangements Advisor
Subject to certain restrictions and limitations, our Advisor is responsible for managing our affairs on a day-to-day basis and for identifying, acquiring, originating and asset managing investments on our behalf. Our Advisor may delegate certain of its
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obligations to affiliated entities, which may be organized under the laws ofthe United States or foreign jurisdictions. References to our Advisor include our Advisor and any such affiliated entities. For such services, to the extent permitted by law and regulations, our Advisor receives fees and reimbursements from us. Pursuant to our advisory agreement, our Advisor may defer or waive fees in its discretion. Below is a description and table of the fees and reimbursements incurred to our Advisor. InJune 2021 , our advisory agreement was renewed for an additional one-year term commencing onJune 30, 2021 , with terms identical to those in effect throughJune 30, 2021 , but for the following modifications:
•the payment of the asset management fee entirely in the form of our shares of common stock; and
•effectiveJanuary 1, 2022 , a reduction of the asset management fee with respect to our corporate cash balance exceeding$75.0 million , subject to the terms and conditions set forth in the advisory agreement. In connection with the Sponsor Transaction, our advisory agreement was renewed for an additional one-year term commencing onFebruary 28, 2022 , upon terms identical to those in effect throughFebruary 28, 2022 , but for certain updates to remove our Former Sponsor and add NRF as our New Sponsor for certain limited provisions. Fees to Advisor Asset Management Fee EffectiveJanuary 1, 2018 , our Advisor receives a monthly asset management fee equal to one-twelfth of 1.5% of our most recently published aggregate estimated net asset value, as may be subsequently adjusted for any special distribution declared by our board of directors in connection with a sale, transfer or other disposition of a substantial portion of our assets. EffectiveJuly 1, 2021 , the asset management fee is paid entirely in shares of our common stock at a price per share equal to the most recently published net asset value per share, and effectiveJanuary 1, 2022 , the fee will be reduced if our corporate cash balances exceed$75.0 million , subject to the terms and conditions set forth in the advisory agreement. Incentive Fee Our Advisor is entitled to receive distributions equal to 15.0% of our net cash flows, whether from continuing operations, repayment of loans, disposition of assets or otherwise, but only after stockholders have received, in the aggregate, cumulative distributions equal to their invested capital plus a 6.75% cumulative, non-compounded annual pre-tax return on such invested capital. From inception throughDecember 31, 2021 , our Advisor has not received any incentive fees. Acquisition Fee
Effective
Disposition Fee
EffectiveJune 30, 2020 , our Advisor no longer has the potential to receive a disposition fee in connection with the sale of real estate properties or debt investments. Reimbursements to Advisor Operating Costs Our Advisor is entitled to receive reimbursement for direct and indirect operating costs incurred by our Advisor in connection with administrative services provided to us. Our Advisor allocates, in good faith, indirect costs to us related to our Advisor's and its affiliates' employees, occupancy and other general and administrative costs and expenses in accordance with the terms of, and subject to the limitations contained in, the advisory agreement with our Advisor. The indirect costs include our allocable share of our Advisor's compensation and benefit costs associated with dedicated or partially dedicated personnel who spend all or a portion of their time managing our affairs, based upon the percentage of time devoted by such personnel to our affairs. The indirect costs also include rental and occupancy, technology, office supplies and other general and administrative costs and expenses. However, there is no reimbursement for personnel costs related to our executive officers (although there may be reimbursement for certain executive officers of our Advisor) and other personnel involved in activities for which our Advisor receives an acquisition fee or a disposition fee. Our Advisor allocates these costs to us relative to its and its affiliates' other managed companies in good faith and has reviewed the allocation with our board of directors, including our independent directors. Our Advisor updates our board of directors on a quarterly basis of any material changes to the expense allocation and provides a detailed review to the board of directors, at least annually, and as otherwise requested by the board of directors. We reimburse our Advisor quarterly for operating costs (including the asset management fee) based on a calculation, or the 2%/25% Guidelines, for the four preceding fiscal quarters not to exceed the greater of: (i) 2.0% of our average invested assets; or (ii) 69
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25.0% of our net income determined without reduction for any additions to reserves for depreciation, loan losses or other similar non-cash reserves and excluding any gain from the sale of assets for that period. Notwithstanding the above, we may reimburse our Advisor for expenses in excess of this limitation if a majority of our independent directors determines that such excess expenses are justified based on unusual and non-recurring factors. We calculate the expense reimbursement quarterly based upon the trailing twelve-month period.
Summary of Fees and Reimbursements
The following table presents the fees and reimbursements incurred and paid to our Advisor (dollars in thousands):
Due to Related Year Ended December 31, 2021 Due to Related Party
Party as of as of December 31,
Type of Fee or Reimbursement Financial Statement Location December 31, 2020 Incurred Paid 2021
Fees to Advisor Entities
Asset management(1) Asset management fees-related
party $ 923 $ 11,105 $ (11,091) (1) $ 937Reimbursements to Advisor Entities
Operating costs(2) General and administrative
expenses 7,395 14,035 (15,029) 6,401
Total $ 8,318 $ 25,140 $ (26,120) $ 7,338
_______________________________________
(1)Includes$10.6 million paid in shares of our common stock. (2)As ofDecember 31, 2021 , our Advisor did not have any unreimbursed operating costs which remained eligible to be allocated to us. For the year endedDecember 31, 2021 , total operating expenses included in the 2%/25% Guidelines represented 0.5% of average invested assets and 103.4% of net income without reduction for any additions to reserves for depreciation, loan losses or other similar non-cash reserves. Cost of capital is included in net proceeds from issuance of common stock in our consolidated statements of equity. For the year endedDecember 31, 2021 , we did not incur any offering costs. Due to Related Year Ended December 31, 2020 Due to Related Party as of Party as of Type of Fee or Reimbursement Financial Statement Location December 31, 2019 Incurred Paid December 31, 2020 Fees to Advisor Entities(1) Asset management(2) Asset management and other fees-related party$ 1,477 $ 17,170 $ (17,724) (2) $ 923
Reimbursements to Advisor Entities
Operating costs(3) General and administrative
expenses 4,303 14,682 (11,590) 7,395
Total $ 5,780 $ 31,852 $ (29,314) $ 8,318 _______________________________________
(1)EffectiveJune 30, 2020 , our Advisor no longer had the potential to receive a disposition fee in connection with the sale of real estate properties or debt investments. We did not incur any disposition fees during the year endedDecember 31, 2020 , nor were any such fees outstanding as ofDecember 31, 2020 . (2)Includes$9.7 million paid in shares of our common stock and a$0.3 million gain recognized on the settlement of the share-based payment. (3)As ofDecember 31, 2020 , our Advisor did not have any unreimbursed operating costs which remained eligible to be allocated to us. For the year endedDecember 31, 2020 , total operating expenses included in the 2%/25% Guidelines represented 0.4% of average invested assets and 58.9% of net loss without reduction for any additions to reserves for depreciation, loan losses or other similar non-cash reserves. Cost of capital is included in net proceeds from issuance of common stock in our consolidated statements of equity. For the year endedDecember 31, 2020 , we did not incur any offering costs. Pursuant to our advisory agreement, for the year endedDecember 31, 2021 , we issued 2.7 million shares totaling$10.6 million based on the estimated value per share on the date of each issuance, to an affiliate of our Advisor as part of its asset management fee. As ofDecember 31, 2021 , our Advisor, our Sponsor and their affiliates owned a total of 7.4 million shares, or$29.0 million of our common stock based on our most recent estimated value per share. As ofDecember 31, 2021 , our Advisor, our Sponsor and their affiliates owned 3.8% of the total outstanding shares of our common stock.
Investments in Joint Ventures
Solstice, the manager of the Winterfell portfolio, is a joint venture between affiliates of ISL, who owns 80.0%, and us, who owns 20.0%. For the year endedDecember 31, 2021 , we recognized property management fee expense of$4.9 million paid to Solstice related to the Winterfell portfolio.
The below table indicates our investments for which our Sponsor is also an
equity partner in the joint venture. Each investment was approved by our board
of directors, including all of its independent directors. Refer to Note 4,
"Investments in
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Portfolio Partner(s) Acquisition Date Ownership
NRF/
Eclipse Formation Capital, LLC May 2014 5.6%
Diversified US/UK NRF December 2014 14.3%
In addition, we own a 23.2% interest in the Trilogy joint venture, of which AHR
and the management of Trilogy own the remaining 76.8% of the portfolio. Our
Former Sponsor owns a passive, non-controlling interest in AHR, which was formed
by the combination of Griffin American Healthcare REIT III, Inc., American
Healthcare Investors, LLC and Griffin-American Healthcare REIT IV, Inc. Mezzanine Loan
InJuly 2015 , we originated a$75.0 million mezzanine loan to a subsidiary of the Espresso joint venture, of which we own a minority interest. InAugust 2021 , the outstanding principal balance of the mezzanine loan was repaid in full. Refer to "-Business Update" for further detail.
Line of Credit -
InOctober 2017 , we obtained our Sponsor Line, which was approved by our board of directors, including all of our independent directors. InApril 2020 , we borrowed$35.0 million under the Sponsor Line to improve our liquidity position in response to the COVID-19 pandemic. InJuly 2021 , we repaid, in full, the$35.0 million outstanding borrowings under our Sponsor Line. Our Sponsor Line has a borrowing capacity of$35.0 million at an interest rate of 3.5% plus LIBOR and has a maturity date ofFebruary 2024 .
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