CNL HEALTHCARE PROPERTIES, INC. Caution Concerning Forward-Looking Statements
Statements contained under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report on Form 10-Q for the quarter and nine months endedSeptember 30, 2021 that are not statements of historical or current fact may constitute "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995. The Company intends that such forward-looking statements be subject to the safe harbor created by Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements are statements that do not relate strictly to historical or current facts, but reflect management's current understandings, intentions, beliefs, plans, expectations, assumptions and/or predictions regarding the future of the Company's business and its performance, the economy, and other future conditions and forecasts of future events and circumstances. Forward-looking statements are typically identified by words such as "believes," "expects," "anticipates," "intends," "estimates," "plans," "continues," "pro forma," "may," "will," "seeks," "should," and "could" and words and terms of similar substance in connection with discussions of future operating or financial performance, business strategy and portfolios, projected growth prospects, cash flows, costs and financing needs, legal proceedings, amount and timing of anticipated future distributions, estimated net asset value per share of the Company's common stock, and/or other matters. The Company's forward-looking statements are not guarantees of future performance. While the Company's management believes its forward-looking statements are reasonable, such statements are inherently susceptible to uncertainty and changes in circumstances. As with any projection or forecast, forward-looking statements are necessarily dependent on assumptions, data and/or methods that may be incorrect or imprecise, and may not be realized. The Company's forward-looking statements are based on management's current expectations and a variety of risks, uncertainties and other factors, many of which are beyond the Company's ability to control or accurately predict. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, the Company's actual results could differ materially from those set forth in the forward-looking statements due to a variety of risks, uncertainties and other factors.
Important factors that could cause the Company's actual results to vary materially from those expressed or implied in its forward-looking statements include, but are not limited to government regulation, economic, strategic, political and social conditions and the following:
? the severity and duration of the COVID-19 pandemic; ? actions that may be taken by governmental authorities to contain the COVID-19 outbreak or to treat its impact; ? the impact of the COVID-19 pandemic and health and safety measures taken to slow its spread; ? a worsening economic environment in theU.S. or globally, including financial market fluctuations; ? risks associated with the Company's investment strategy, including its concentration in the healthcare sector; ? the illiquidity of an investment in the Company's stock; ? liquidation at less than the subscription price of the Company's stock; ? the impact of regulations requiring periodic valuation of the Company on a per share basis, including the uncertainties inherent in such valuations and that the amount that a stockholder would ultimately realize upon liquidation may vary significantly from the Company's estimated net asset value; ? risks associated with real estate markets, including declining real estate values; ? risks associated with reliance on the Company's advisor and its affiliates, including conflicts of interest; ? the Company's failure to obtain, renew or extend necessary financing or to access the debt or equity markets; 16 -------------------------------------------------------------------------------- ? the use of debt to finance the Company's business activities, including refinancing and interest rate risk and the Company's failure to comply with debt covenants; ? failure to successfully manage growth or integrate acquired properties and operations; ? the Company's inability to make necessary improvements to properties on a timely or cost-efficient basis; ? competition for properties and/or tenants; defaults on or non-renewal of leases by tenants; ? failure to lease properties on favorable terms or at all; ? the impact of current and future environmental, zoning and other governmental regulations affecting the Company's properties; ? the impact of changes in accounting rules; ? inaccuracies of the Company's accounting estimates; ? unknown liabilities of acquired properties or liabilities caused by property managers or operators; ? material adverse actions or omissions by any joint venture partners; ? consequences of the Company's net operating losses; ? increases in operating costs and other expenses; ? uninsured losses or losses in excess of the Company's insurance coverage; ? the impact of outstanding and/or potential litigation; ? risks associated with the Company's tax structuring; ? failure to qualify for and maintain the Company's qualification as a REIT for federal income tax purposes; and ? the Company's inability to protect its intellectual property and the value of its brand.
Given these uncertainties, the Company cautions you not to place undue reliance on forward-looking information.
For further information regarding risks and uncertainties associated with the Company's business and other important factors that could cause the Company's actual results to vary materially from those expressed or implied in its forward-looking statements, please refer to the factors listed and described in the Company's reports filed from time to time with theSEC , including, but not limited to, the Company's quarterly reports on Form 10-Q and the Company's annual reports on Form 10-K, copies of which may be obtained from the Company's website at www.cnlhealthcareproperties.com. One of the most significant factors is the ongoing and potential impact of the current outbreak of the COVID-19 pandemic on the economy and the broader financial markets, which may have a significant negative impact on the Company's financial condition, results of operations and cash flows. The Company is unable to predict whether the continuing effects of the COVID-19 pandemic will trigger a further economic slowdown or a recession and to what extent the Company will experience disruptions related to the COVID-19 pandemic in the fourth quarter of 2021 or thereafter. All written and oral forward-looking statements attributable to the Company or persons acting on its behalf are qualified in their entirety by this cautionary note. Forward-looking statements speak only as of the date on which they are made, and the Company undertakes no obligation to, and expressly disclaims any obligation to, publicly release the results of any revisions to its forward-looking statements to reflect new information, changed assumptions, the occurrence of unanticipated subsequent events or circumstances, or changes to future operating results over time, except as otherwise required by law. 17 --------------------------------------------------------------------------------
Introduction
The following discussion is based on the condensed consolidated financial statements as ofSeptember 30, 2021 (unaudited) andDecember 31, 2020 . Amounts as ofDecember 31, 2020 included in the unaudited condensed consolidated balance sheets have been derived from the audited consolidated financial statements as of that date. This information should be read in conjunction with the accompanying unaudited condensed consolidated balance sheets and the notes thereto, as well as the audited consolidated financial statements, notes and management's discussion and analysis included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 .
Overview
Substantially all of our assets are held by, and all operations are conducted, either directly or indirectly, through: (1) theOperating Partnership in which we are the sole limited partner and our wholly owned subsidiary,CHP GP, LLC , is the sole general partner; (2) a wholly owned TRS,CHP TRS Holding, Inc. ; (3) property owner subsidiaries and lender subsidiaries, which are single purpose entities; and (4) investments in joint ventures. We are externally managed and advised byCNL Healthcare Corp. (the "Advisor"). Our Advisor has responsibility for our day-to-day operations, serving as our consultant in connection with policy decisions to be made by our board of directors, and for identifying, recommending and executing on Possible Strategic Alternatives (as described below under "Possible Strategic Alternatives"), and dispositions on our behalf pursuant to an advisory agreement. For additional information on our Advisor, its affiliates or other related parties, as well as the fees and reimbursements we pay, see Note 8. "Related Party Arrangements." As ofSeptember 30, 2021 , our healthcare investment portfolio consisted of interests in 73 properties, consisting of 71 senior housing communities, one acute care property and one vacant land parcel. We are currently invested in a geographically diversified portfolio of 71 seniors housing properties. The types of seniors housing properties that we own include independent and assisted living facilities, continuing care retirement communities and Alzheimer's/memory care facilities. Five of our 71 seniors housing properties were owned through an unconsolidated joint venture. COVID-19 InMarch 2020 , theWorld Health Organization declared the outbreak of the novel coronavirus ("COVID-19") as a pandemic around the globe. Average occupancy began to decline starting in the second half ofMarch 2020 , trended lower throughMarch 31, 2021 and began to show a slight recovery during the nine months endedSeptember 30, 2021 . Our communities have been accepting new residents and we have seen activity in tours and move-ins since the beginning of the year. We have held multiple vaccination clinics at all of our communities in an effort to make vaccinations available to all our residents and staff. We continue to incur costs related to disease control and containment including higher labor costs, costs to obtain personal protective equipment and other costs related to disease control and containment. The COVID-19 pandemic has resulted in a decline in occupancy, resident fees and revenues, and coupled with an increase in COVID-19 operating expenses, has had a negative impact on results of operations and cash flow from operations at our communities. We continue to proactively work closely with our tenants and third-party operators to monitor the impact from COVID-19, including new variants of the virus, on the operations of our seniors housing communities. The continued impact of COVID-19 on the financial and credit markets and consequently on our business, financial condition and results of operations is uncertain and cannot be predicted at the current time as it depends on several factors beyond our control including, but not limited to (i) the uncertainty around the severity and duration of the outbreak, including new variants of the virus, (ii) the effectiveness ofthe United States public health response, (iii) the pandemic's impact onthe United States and global economies, (iv) the timing, scope and effectiveness of additional governmental responses to the pandemic and (v) the timing and speed of economic recovery, including the distribution and acceptance of vaccinations for COVID-19. 18 -------------------------------------------------------------------------------- As ofSeptember 30, 2021 , our 71 seniors housing communities were located throughoutthe United States in 26 states with a population of nearly 7,000 residents and approximately 4,700 community-level staff. As ofNovember 11, 2021 , as reported by our senior housing operators, we had 29 active, confirmed positive cases among our residents and staff members in eight of our communities located in six states. The number of confirmed cases in our senior housing communities has and will continue to fluctuate based on the duration, scope and depth of the COVID-19 pandemic, including new variants of the virus and vaccination rates, as well as the timing and extent of imposing/ceasing vaccine or mask mandates, stay at home and other social distancing restrictions from state and local governmental agencies. As ofSeptember 30, 2021 , we had approximately$139.3 million in liquidity and inOctober 2021 , we used the majority of the availability under our unsecured 2021 Term Loan Facility and our Revolving Credit Facility to refinance approximately$238.0 million of secured indebtedness in advance of itsJanuary 2022 maturity. See "Liquidity and Capital Resources - Uses of Liquidity and Capital Resources - Debt Repayments" below for additional information. We remain focused on maintaining liquidity and financial flexibility and continue to monitor developments as we deal with the disruptions and uncertainties from a business and financial perspective relating to COVID-19. Of our 71 senior housing communities, we owned 15 properties (leased to two separate third party tenants under triple-net leases ("NNN")), and the remaining 56 properties were managed through third party operators, including five senior housing communities owned through our unconsolidated joint venture. As ofNovember 11, 2021 , we had collected 100% of all rental amounts related to the 13 seniors housing properties leased to one of our third-party tenants under NNN leases and had collected$1.7 million in installments relating to the$2 million payment deferral (granted duringMay 2020 ), as scheduled. InApril 2021 , we entered into an agreement with our other tenant that leases two properties under NNN leases to provide rent relief (after application of rent security deposits) in the form of a maximum rent deferral of$0.9 million for rental amounts due betweenMay 1, 2021 andDecember 1, 2022 . In exchange for the rent relief, our tenant exercised its first five-year renewal option under the terms of each of its leases and agreed to terminate and release us from any further promoted interest obligations under development agreements. We did not grant any rent concessions as part of the rent relief. As ofNovember 11, 2021 , we had applied their entire$1.4 million in security deposits against amounts due under their NNN leases and the tenant had deferred the maximum$0.9 million eligible for rent deferrals. The tenant may replenish the security deposits and repay any amounts deferred at any time but no later thanAugust 2025 . InNovember 2021 , the tenant requested$1.4 million in additional relief and we are in the process of evaluating their request in the form of a rent deferral. SinceMarch 13, 2020 , there have been a number of federal, state and local government initiatives to manage the spread of the virus and its impact on the economy, financial markets and continuity of businesses of all sizes and industries. OnMarch 27, 2020 , the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law which provided, among other things, for the establishment of aProvider Relief Fund under the direction of theDepartment of Health and Human Services ("HHS"). We received approximately$5.6 million in Provider Relief Funds during the year endedDecember 31, 2020 . InSeptember 2021 , HHS announced that additional funds were made available for assisted living facilities as part of Phase 4 of theProvider Relief Fund . We submitted our application for Phase 4 inSeptember 2021 and are awaiting specific guidance from HHS on how Phase 4 relief will be calculated. We believe we are taking appropriate actions to manage through the COVID-19 pandemic. However, the full impact of COVID-19 is unknown and cannot be reasonably estimated. The ultimate extent of the impact of COVID-19 on our financial performance will depend on future developments, including the duration and spread of COVID-19 and its effect on the overall economy, all of which are highly uncertain and cannot be predicted. 19 --------------------------------------------------------------------------------
Possible Strategic Alternatives
In 2017, we began evaluating possible strategic alternatives to provide liquidity to our stockholders. InApril 2018 , our board of directors formed a special committee consisting solely of our independent directors ("Special Committee") to consider possible strategic alternatives, including, but not limited to (i) the listing of our or one of our subsidiaries' common stock on a national securities exchange, (ii) an orderly disposition of our assets or one or more of our asset classes and the distribution of the net sale proceeds thereof to our stockholders and (iii) a potential business combination or other transaction with a third-party or parties that provides our stockholders with cash and/or securities of a publicly traded company (collectively, among other options, "Possible Strategic Alternatives"). Since 2018, the Special Committee has engagedKeyBanc Capital Markets Inc. to act as its financial advisor in connection with exploring our Possible Strategic Alternatives. In connection with our consideration of the Possible Strategic Alternatives, our board of directors suspended both our Reinvestment Plan and our Redemption Plan effectiveJuly 11, 2018 . In addition, as part of executing on Possible Strategic Alternatives, our board of directors committed to a plan to sell 70 properties which included the MOB/Healthcare Portfolio, a portfolio of 63 properties (consisting of 53 medical office buildings ("MOBs"), five post-acute care facilities and five acute care hospitals across the US) plus seven skilled nursing facilities. ThroughDecember 31, 2020 , we sold 68 properties, received net sales proceeds of$1,442.3 million , used the net sales proceeds to: (1) repay indebtedness secured by the properties; (2) strategically rebalance other corporate borrowings; (3) make a special cash distribution inMay 2019 of$347.9 million ($2.00 per share) to our stockholders and (4) retained net sales proceeds for other corporate purposes, because we were focused on maintaining balance sheet strength and liquidity during COVID-19 to enhance financial flexibility. We decided to discontinue marketing for sale ourHurst Specialty Hospital due to financial difficulties experienced by the tenant of this property and as ofDecember 31, 2020 , we had one remaining acute care property classified as held for sale, which we sold to the tenant of the property inJanuary 2021 . We received net sales proceeds of$7.4 million and retained these proceeds for corporate purposes. During the year endedDecember 31, 2020 , we shifted our focus away from the pursuit of larger strategic alternatives to provide further liquidity to our stockholders due to the market and industry disruptions in the seniors housing sector from COVID-19. However, our Special Committee continues to work with our financial advisor to carefully study market data and potential options to determine suitable liquidity alternatives that are in the best interests of all of our stockholders. Seniors Housing Portfolio
Our remaining investment focus is in seniors housing communities. We invested in or developed the following types of seniors housing properties:
Independent Living Facilities. Independent living facilities are age-restricted, multi-family rental or ownership (condominium) housing with central dining facilities that provide residents, as part of a monthly fee, meals and other services such as housekeeping, linen service, transportation, social and recreational activities. Assisted Living Facilities. Assisted living facilities are usually state-regulated rental properties that provide the same services as independent living facilities, but also provide, in a majority of the units, supportive care from trained employees to residentswho are unable to live independently and require assistance with activities of daily living. The additional services may include assistance with bathing, dressing, eating, and administering medications.
Portfolio Overview
As ofSeptember 30, 2021 , our healthcare investment portfolio consisted of interests in 73 properties, comprising 71 senior housing communities, one vacant land parcel and one acute care hospital. Of our properties held as ofSeptember 30, 2021 , five of our 71 seniors housing properties were owned through an unconsolidated joint venture. 20 -------------------------------------------------------------------------------- We believe demographic trends and compelling supply and demand indicators presented a strong case for an investment focus on seniors housing real estate and real estate-related assets. Our seniors housing investment portfolio is geographically diversified with properties in 26 states. The map below shows our seniors housing investment portfolio across geographic regions as ofNovember 11, 2021 : [[Image Removed: img261523031_0.jpg]]
The following table summarizes our seniors housing investment portfolio by
investment structure as of
Amount of Percentage
Number of Investments of Total
Type of Investment Investments (in millions) Investments
Consolidated investments:
Seniors housing leased (1) 15 $ 311.0 17.3 %
Seniors housing managed (2) 51 1,427.8 79.3 %
Seniors housing unimproved land 1 1.1 0.1 %
Acute care leased (1) 1 29.5 1.6 %
Unconsolidated investments:
Seniors housing managed (3) 5 31.1 1.7 %
73 $ 1,800.5 100.0 %
_____________
FOOTNOTES:
(1)
Properties that are leased to third-party tenants for which we report rental
income and related revenues.
(2)
Properties that are leased to TRS entities and managed pursuant to third-party
management contracts (i.e. RIDEA structure) where we report resident fees and
services, and the corresponding property operating expenses.
(3)
Properties that are owned through an unconsolidated joint venture and are leased
to TRS entities and managed pursuant to third-party management contracts (i.e.
RIDEA structure). The joint venture is accounted for using the equity method.
21
--------------------------------------------------------------------------------Portfolio Evaluation
While we are not directly impacted by the performance of the underlying properties leased to third-party tenants, we believe that the financial and operational performance of our tenants provides an indication about the stability of our tenants and their ability to pay rent. To the extent that our tenants, managers or joint venture partners experience operating difficulties and become unable to generate sufficient cash to make rent payments to us, there could be a material adverse impact on our consolidated results of operations, liquidity and/or financial condition. Our tenants and managers are generally contractually required to provide this information to us in accordance with their respective lease, management and/or joint venture agreements. Therefore, in order to mitigate the aforementioned risk, we monitor our investments through a variety of methods determined by the type of property. We monitor the performance of our tenants and third-party operators to stay abreast of any material changes in the operations of the underlying properties by (1) reviewing the current, historical and prospective operating margins (measured by a tenant's earnings before interest, taxes, depreciation, amortization and facility rent), (2) monitoring trends in the source of our tenants' revenue, including the relative mix of public payors (including Medicare, Medicaid, etc.) and private payors (including commercial insurance and private pay patients), (3) evaluating the effect of evolving healthcare legislation and other regulations on our tenants' profitability and liquidity, and (4) reviewing the competition and demographics of the local and surrounding areas in which the tenants operate. We have and continue to proactively work closely with our tenants and third-party operators to monitor the impact from COVID-19 on the operations of our seniors housing communities. When evaluating the performance of our seniors housing portfolio, management reviews property-level operating performance versus budgeted expectations, conducts periodic operational review calls with operators and conducts periodic property inspections or site visits. Management also reviews occupancy levels and monthly revenue per occupied unit, which we define as total revenue divided by average number of occupied units. Similarly, when evaluating the performance of our third-party operators, management reviews monthly financial statements, property-level operating performance versus budgeted expectations, conducts periodic operational review calls with operators and conducts periodic property inspections or site visits. All of the aforementioned operating and statistical metrics assist us in determining the ability of our properties or operators to achieve market rental rates, to assess the overall performance of our diversified healthcare portfolio, and to review compliance with leases, debt, licensure, real estate taxes, and other collateral.
Significant Tenants and Operators
Our real estate portfolio of 73 properties is operated by a mix of national or regional operators and the following represent the significant tenants and operators that lease or manage 10% or more of our rentable space as ofNovember 11, 2021 , excluding the vacant land parcel and the five properties owned through our unconsolidated joint venture: Rentable Percentage Lease Number of Square Feet of Rentable Expiration Tenants Properties (in thousands) Square Feet Year TSMM Management, LLC 13 1,261 74.8 % 2022-2025 Wellmore, LLC 2 366 21.7 % 2031-2032 Other 1 58 3.5 % 2031 16 1,685 100.0 % Rentable Percentage Operator Number of Square Feet of Rentable Expiration Operators Properties (in thousands) Square Feet Year Integrated Senior Living, LLC 7 1,948 31.1 % 2022-2024 Prestige Senior Living, LLC 13 895 14.3 % 2023-2024 Morningstar Senior Management, LLC 4 834 13.3 % 2023 Other operators (1) 27 2,578 41.3 % 2022-2029 51 6,255 100.0 % 22
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_________________ FOOTNOTES: (1)
Comprised of various operators each of which comprise less than 10% of our consolidated rentable square footage.
Tenant Lease Expirations
As ofSeptember 30, 2021 , we owned 15 seniors housing properties and one acute care property that were leased to third party tenants under triple-net operating leases. During the nine months endedSeptember 30, 2021 , our rental income from continuing operations represented approximately 10.2% of our total revenues from continuing operations. Under the terms of our triple-net lease agreements, each tenant is responsible for payment of property taxes, general liability insurance, utilities, repairs and maintenance, including structural and roof expenses. Each tenant is expected to pay real estate taxes directly to the taxing authorities. However, if the tenant does not pay the real estate taxes, we will be liable. Refer to "Liquidity and Capital Resources - Tenant Financial Difficulties" below for information on real estate taxes paid relating to our one acute care property. We work with our tenants in advance of the lease expirations or renewal period options in order for us to maintain a balanced lease rollover schedule and high occupancy levels, as well as to enhance the value of our properties through extended lease terms. Certain amendments or modifications to the terms of existing leases could require lender approval. InApril 2021 , as part of providing temporary rent relief to the tenant of two of our properties, our tenant exercised its first renewal option extending the maturity date of each lease beyond 2030. In addition, we have leases covering five of our properties that are scheduled to expire inFebruary 2022 . We have been working with the tenant on proposed renewal terms and anticipate executing new leases with the tenant that will commence inFebruary 2022 . The following table lists, on an aggregate basis, scheduled expirations for the remainder of 2021, each of the next nine years and thereafter on our consolidated healthcare investment portfolio, assuming that none of the tenants exercise any of their renewal options (in thousands, except for number of tenants and percentages): Percentage Expiring Expiring of Expiring Number of Leased Annualized Annual Year of Expiration (1) Properties Square Feet Base Rents (2) Base Rents 2021 - - $ - - 2022 5 518 8,610 27.8 % 2023 - - - - 2024 - - - - 2025 8 743 11,999 38.7 % 2026 - - - - 2027 - - - - 2028 - - - - 2029 - - - - 2030 - - - - Thereafter 3 424 10,390 33.5 % Total 16 1,685$ 30,999 100.0 % Weighted Average Remaining Lease Term: (3) 5.0 years _________________ FOOTNOTES: (1) Represents current lease expiration and does not take into consideration lease renewals available under existing leases at the option of the tenants. (2) Represents the current base rent, excluding tenant reimbursements and the impact of future rent bumps included in leases, multiplied by 12 and included in the year of expiration. (3) Weighted average remaining lease term is the average remaining term weighted by annualized current base rents. 23 --------------------------------------------------------------------------------
Liquidity and Capital Resources
General
Our ongoing primary source of capital includes proceeds from operating cash flows. Our primary use of capital includes the payment of distributions, payment of operating expenses, funding capital improvements to existing properties and payment of debt service. Generally, we expect to meet short-term working capital needs from our cash flows from operations. Our ongoing sources and uses of capital have been and will continue to be impacted by the COVID-19 pandemic as described above in "COVID-19". As necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures or to cover periodic shortfalls between distributions paid and cash flows from operating activities. As ofSeptember 30, 2021 , we had approximately$139.3 million of liquidity (consisting of cash on hand and undrawn availability under our Credit Facilities). InOctober 2021 we used the majority of the availability under our unsecured 2021 Term Loan Facility and our Revolving Credit Facility to refinance approximately$238.0 million of secured indebtedness in advance of itsJanuary 2022 maturity. See "Liquidity and Capital Resources - Uses of Liquidity and Capital Resources - Debt Repayments" below for additional information. We remain focused on maintaining liquidity and financial flexibility and continue to monitor developments as we continue to deal with the disruptions and uncertainties from a business and financial perspective relating to COVID-19. However, the full impact of COVID-19 is unknown and cannot be reasonably estimated. The ultimate extent of the impact of COVID-19 on our financial performance will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the outbreak of the pandemic, including variants of the virus, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. We have pledged certain of our properties in connection with our borrowings and may continue to strategically leverage our real estate and use debt financing as a means of providing additional funds for the payment of distributions to stockholders, working capital and for other corporate purposes. Our ability to increase our borrowings could be adversely affected by credit market conditions, including the COVID-19 pandemic, which could result in lenders reducing or limiting funds available for loans, including loans collateralized by real estate. We may also be negatively impacted by rising interest rates on our unhedged variable rate debt or the timing of when we seek to refinance existing debt. In addition, we continue to evaluate the need for additional interest rate protection in the form of interest rate swaps or caps on unhedged variable rate debt. Our cash flows from operating and investing activities as described within "Sources of Liquidity and Capital Resources" and "Uses of Liquidity and Capital Resources" represent cash flows from continuing operations and exclude the results of two properties that were classified as discontinued operations, one of which was sold inFebruary 2020 and the other which was sold inJanuary 2021 .
Sources of Liquidity and Capital Resources
Proceeds from Sale of Real Estate - Continuing Operations
As part of executing under our Possible Strategic Alternatives, during the nine months endedSeptember 30, 2020 , we closed on the sale of six skilled nursing properties (the Perennial Communities) and received net sales proceeds of$53.7 million . We retained the net sales proceeds for corporate purposes given our focus on maintaining a strong balance sheet, liquidity and financial flexibility because of the uncertainty relating to COVID-19. We did not sell any properties from continuing operations during the nine months endedSeptember 30, 2021 .
Proceeds from Sale of Real Estate - Discontinued Operations
As part of executing under our Possible Strategic Alternatives, during the nine months endedSeptember 30, 2021 , we closed on the sale of one acute care property and received net sales proceeds of$7.4 million . During the nine months endedSeptember 30, 2020 , we closed on the sale of one post-acute care property and received net sales proceeds of$28.4 million . We retained these net sales proceeds for corporate purposes to maintain liquidity due to COVID-19. 24 --------------------------------------------------------------------------------
Borrowings
There were no borrowings during the nine months endedSeptember 30, 2021 . InSeptember 2021 , we entered into the 2021 Term Loan Facility which provided for an additional$150.0 million of borrowing capacity, subject to borrowing base availability, under our Revolving Credit Facility. Upon the execution of the 2021 Term Loan Agreement, we paid fees totaling approximately$0.7 million and a refinancing fee to the Advisor of approximately$1.5 million . InOctober 2021 , we used the majority of the availability under our unsecured 2021 Term Loan Facility and our Revolving Credit Facility to refinance approximately$238.0 million of secured indebtedness in advance of itsJanuary 2022 maturity. See "Liquidity and Capital Resources - Uses of Liquidity and Capital Resources - Debt Repayments" below for additional information regarding debt repayments during the nine months endedSeptember 30, 2021 and 2020. InApril 2020 , we borrowed$40.0 million from our 2019 Credit Facilities as a precautionary measure to increase liquidity and preserve financial flexibility in light of COVID-19 (which we repaid inSeptember 2020 ). We may borrow money to fund enhancements to our portfolio, as well as to cover periodic shortfalls between distributions paid and cash flows from operating activities, to the extent impacted by the disruption and uncertainties from COVID-19.
Net Cash Provided by Operating Activities - Continuing Operations
Cash flows from operating activities for the nine months endedSeptember 30, 2021 and 2020 were approximately$32.9 million and$46.6 million , respectively. The change in cash flows from operating activities for the nine months endedSeptember 30, 2021 as compared to the same period in 2020 was primarily the result of the following: ? a decline in property net operating income ("NOI"), related to our seniors housing properties due to the COVID-19 pandemic, caused primarily by lower occupancy revenues; partially offset by ? lower interest expense resulting from the repayment of approximately$20.5 million of indebtedness related to the Primrose II Communities and a decline in LIBOR rates. Lease Renewals and Extensions InApril 2021 , as part of providing temporary rent relief to the tenant of two of our properties, our tenant exercised its first renewal option extending the maturity date of each lease beyond 2030. In addition, we have leases covering five of our properties that are scheduled to expire inFebruary 2022 . We have been working with the tenant on proposed renewal terms and anticipate executing new leases with the tenant that will commence inFebruary 2022 .
Tenant Financial Difficulties
The tenant of ourHurst Specialty Hospital experienced financial difficulties during 2020, was unable to remain current under its lease obligation and had$1.2 million of past due rents and real estate tax receivables outstanding (all of which were reserved) as ofDecember 31, 2020 . We record rental income on a cash basis for this tenant because we assessed that collectability of lease payments was not probable. As ofNovember 11, 2021 , we had collected approximately$1.8 million from the tenant, representing the majority of the rental amounts due under its lease agreement throughNovember 2021 . We have initiated legal action and reserve the right to terminate the lease and/or remove the tenant if rental amounts are not collected.
Uses of Liquidity and Capital Resources
Capital Expenditures
We paid approximately
25
--------------------------------------------------------------------------------Debt Repayments
During the nine months endedSeptember 30, 2021 , we paid approximately$8.4 million of scheduled repayments on our mortgages and other notes payable. During the nine months endedSeptember 30, 2020 , we paid approximately$29.0 million , which included approximately$20.5 million of debt obligations that were scheduled to mature inJune 2020 and$8.5 million of scheduled repayments on our mortgages and other notes payable. InOctober 2021 , we refinanced approximately$238.0 million of secured indebtedness, consisting of debt collateralized by 22 properties, in advance of its scheduled maturity ofJanuary 2022 . We added the 22 properties to the borrowing base of our unsecured 2021 Term Loan Facility and Revolving Credit Facility and used the majority of amounts available under both facilities to repay our secured indebtedness. Additionally, inOctober 2021 , we entered into a new interest rate cap agreement with a notional amount of$130.0 million and an expiration date ofDecember 2022 to hedge a portion of our 2021 Term Loan Facility. On an ongoing basis, we monitor our debt maturities, engage in dialogue with third-party lenders about various financing scenarios and analyze our overall portfolio borrowings in advance of scheduled maturity dates of the debt obligations to determine the optimal borrowing strategy. The aggregate amount of long-term financing is not expected to exceed 60% of our gross asset values (as defined in our Credit Facilities) on an annual basis. As ofSeptember 30, 2021 andDecember 31, 2020 , we had aggregate debt leverage ratios of approximately 31.9% and 32.3%, respectively, of the aggregate carrying value of our assets. Generally, the loan agreements for our mortgage loans contain customary financial covenants and ratios; including (but not limited to) the following: debt service coverage ratio, minimum occupancy levels, limitations on incurrence of additional indebtedness, etc. The loan agreements also contain customary performance criteria and remedies for the lenders. As ofDecember 31, 2020 andSeptember 30, 2021 , our 22 properties that were cross collateralized in the secured debt transaction described above that we refinanced inOctober 2021 , did not achieve a minimum debt service coverage covenant. The missed covenant was remedied effective with the early repayment of the indebtedness inOctober 2021 . The Credit Facilities contain affirmative, negative, and financial covenants which are customary for loans of this type. As ofSeptember 30, 2021 , we were in compliance with all financial covenants related to our Credit Facilities.
Distributions
In order to qualify as a REIT, we are required to make distributions, other than
capital gain distributions, to our stockholders each year in the amount of at
least 90% of our taxable income. We may make distributions in the form of cash
or other property, including distributions of our own securities. While we
generally expect to pay distributions from cash flows provided by operating
activities, we have and may continue to cover periodic shortfalls between
distributions paid and cash flows from operating activities with proceeds from
other sources; such as from cash flows provided by financing activities ("Other
Sources"), a component of which could include borrowings, whether collateralized
by our properties or unsecured, or net sales proceeds from the sale of real
estate.
The following table represents total cash distributions declared, distributions
reinvested and cash distributions per share for quarter and nine months ended
September 30, 2021 and 2020 (in thousands, except per share data):
26
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Cash Flows
Cash Total Cash Provided by
Distributions Distributions Operating
Periods per Share Declared (1) Activities (2)
2021 Quarters
First $ 0.05120 $ 8,907 $ 12,633
Second 0.05120 8,906 11,560
Third 0.05120 8,907 8,719
Total $ 0.15360 $ 26,720 $ 32,912
2020 Quarters
First $ 0.05120 $ 8,906 $ 17,860
Second 0.05120 8,907 14,151
Third 0.05120 8,907 15,486
Total $ 0.15360 $ 26,720 $ 47,497
__________
FOOTNOTES:
(1)
For the nine months ended September 30, 2021 and 2020, our net (loss) income
attributable to common stockholders was approximately ($2.1) million and $3.2
million , respectively, while cash distributions declared for each of the periods
were approximately $26.7 million . For each of the nine months ended September
30, 2021 and 2020, 100% of cash distributions declared to stockholders were
considered to be funded with cash provided by operating activities as calculated
on a quarterly basis for GAAP purposes.
(2)
Amounts herein include cash flows from discontinued operations. Cash flows from
operating activities calculated in accordance with GAAP are not necessarily
indicative of the amount of cash available to pay distributions and as such our
board of directors uses other measures such as FFO and MFFO in order to evaluate
the level of distributions.
Results of Operations
Except for the impact from the COVID-19 pandemic as described above in
"COVID-19", we are not aware of other material trends or uncertainties,
favorable or unfavorable, that may be reasonably anticipated to have a material
impact on either capital resources or the revenues or income to be derived from
the operation of properties, other than those referred to in the risk factors
identified in "Part II, Item 1A" of this report and the "Risk Factors" section
of our Annual Report.
The following discussion and analysis should be read in conjunction with the
accompanying unaudited condensed consolidated financial statements and the notes
thereto.
Quarter and nine months ended
As of
Investment count as of September 30,
Consolidated operating investment types: 2021 2020
Seniors housing leased 15 15
Seniors housing managed 51 51
Acute care leased 1 1
67 67
Rental Income and Related Revenues. Rental income and related revenues were
approximately $7.7 million and $22.5 million for the quarter and nine months
ended September 30, 2021 , respectively, as compared to approximately $6.8
million and $21.8 million for the quarter and nine months ended September 30,
2020 , respectively. The increase in revenue during the quarter and nine months
ended September 30, 2021 as compared to the quarter and nine months
27
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ended September 30, 2020 was primarily due to the straight-line rent impact from
the April 2021 lease extension on two of our properties (refer to "Liquidity and
Capital Resources - Lease Renewals and Extensions" for additional information).
The increase in revenue during the nine months ended September 30, 2021 as
compared to the nine months ended September 30, 2020 was partially offset by the
sale of the six skilled nursing facilities located in Arkansas ("Perennial
Communities") in March 2020 .
Resident Fees and Services. Resident fees and services income was approximately
$66.4 million and $197.1 million for the quarter and nine months ended September
30, 2021 , respectively, as compared to approximately $69.4 million and $214.6
million for the quarter and nine months ended September 30, 2020 , respectively.
As described above in "COVID-19", resident fees and services were negatively
impacted starting in mid-March 2020 as a result of declines in occupancy levels
affected by move-in restrictions, intensified screening and other measures
enacted at our communities to address the spread of COVID-19.
Property Operating Expenses. Property operating expenses were approximately
$49.5 million and $144.7 million for the quarter and nine months ended September
30, 2021 , respectively, as compared to approximately $48.4 million and $145.5
million for the quarter and nine months ended September 30, 2020 , respectively.
Property operating expenses decreased during the nine months ended September 30,
2021 as compared to the nine months ended September 30, 2020 , primarily due to
reduced occupancy levels experienced due to COVID-19. However, property
operating expenses increased during the quarter ended September 30, 2021 as
compared to the quarter ended September 30, 2020 primarily as a result of
increased labor costs. We expect increases in labor costs to continue to impact
our property operating expenses for the remainder of 2021.
General and Administrative Expenses. General and administrative expenses were
approximately $2.2 million and $6.7 million for the quarter and nine months
ended September 30, 2021 , respectively, as compared to approximately $2.3
million and $7.0 million for the quarter and nine months ended September 30,
2020 , respectively. General and administrative expenses were comprised primarily
of personnel expenses of affiliates of our Advisor, directors' and officers'
insurance, franchise taxes, accounting and legal fees, and board of director
fees.
Asset Management Fees. We incurred asset management fees of approximately $3.6
million and $12.2 million for the quarter and nine months ended September 30,
2021 , respectively, as compared to approximately $4.5 million and $13.6 million
for the quarter and nine months ended September 30, 2020 , respectively. Asset
management fees are paid to our Advisor for the management of our real estate
assets, including our pro rata share of investments in unconsolidated entities,
loans and other permitted investments. In May 2021 , our Advisor amended the
advisory agreement, effective May 26, 2021 , to reduce asset management fees from
1.0% per annum to 0.80% per annum of average invested assets. As a result of
this amendment, we expect asset management fees to be lower in 2021 as compared
to 2020.
Property Management Fees. We incurred property management fees payable to our
third-party property managers of approximately $3.2 million and $9.4 million for
the quarter and nine months ended September 30, 2021 , respectively, as compared
to approximately $3.8 million and $10.6 million for the quarter and nine months
ended September 30, 2020 , respectively. The decrease across periods is
reflective of the decrease in resident fees and service revenue over the same
period.
Depreciation and Amortization. Depreciation and amortization expenses were
approximately $12.6 million and $37.6 million for the quarter and nine months
ended September 30, 2021 , respectively, as compared to approximately $14.4
million and $39.4 million for the quarter and nine months ended September 30,
2020 , respectively. Depreciation and amortization expenses are comprised of
depreciation and amortization of the buildings, equipment, land improvements and
in-place leases related to our real estate portfolio.
Gain on Sale of Real Estate. Gain on sale of real estate relating to the sale of
the Perennial Communities was approximately $1.1 million for the nine months
ended September 30, 2020 . We did not sell any properties from continuing
operations during the quarter and nine months ended September 30, 2021 or the
quarter ended September 30, 2020 .
Interest Expense and Loan Cost Amortization. Interest expense and loan cost
amortization were approximately $5.2 million and $15.8 million for the quarter
and nine months ended September 30, 2021 , respectively, as compared to
approximately $5.7 million and $18.8 million for the quarter and nine months
ended September 30, 2020 , respectively.
28
--------------------------------------------------------------------------------The decrease in interest expense and loan cost amortization was primarily the result of the reduction in average debt outstanding and a decline in LIBOR rates.
Income tax benefit (expense). We incurred income tax benefit (expense) of approximately$1.5 million and$3.9 million during the quarter and nine months endedSeptember 30, 2021 , respectively, and$0.4 million and$(0.9) million during the quarter and nine months endedSeptember 30, 2020 , respectively. The increase in income tax benefit during the quarter and nine months endedSeptember 30, 2021 , as compared to the quarter and nine months endedSeptember 30, 2020 , is primarily attributable to an increase in our TRS's net operating losses resulting in an increase in our net deferred tax assets.
Net Operating Income
We generally expect to meet future cash needs for general and administrative expenses, debt service and distributions from NOI. We define NOI, a non-GAAP measure, as total revenues less the property operating expenses and property management fees from managed properties. We use NOI as a key performance metric for internal monitoring and planning purposes, including the preparation of annual operating budgets and monthly operating reviews, as well as to facilitate analysis of future investment and business decisions. It does not represent cash flows from operating activities in accordance with GAAP and should not be considered to be an alternative to net income or loss (determined in accordance with GAAP) as an indication of our operating performance or to be an alternative to cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity. We believe the presentation of this non-GAAP measure is important to the understanding of our operating results for the periods presented because it is an indicator of the return on property investment and provides a method of comparing property performance over time. In addition, we have aggregated NOI on a "same-store" basis only for comparable properties that we have owned during the entirety of all periods presented. Non-same-store NOI represents NOI from the Perennial Communities that were sold inMarch 2020 , as we did not own those properties during the entirety of all periods presented. The chart below presents a reconciliation of our net income to NOI for the quarter and nine months endedSeptember 30, 2021 and 2020 (in thousands) and the amount invested in properties as ofSeptember 30, 2021 and 2020 (in millions), excluding properties classified as discontinued operations: Quarter Ended Nine Months Ended September 30, Change September 30, Change 2021 2020 $ % 2021 2020 $ % Net (loss) income$ (512 ) $ (1,722 ) $ (2,098 ) $ 3,302 Adjusted to exclude: General and administrative expenses 2,229 2,296 6,747 7,014 Asset management fees 3,575 4,488 12,158 13,563 Depreciation and amortization 12,641 14,378 37,585 39,376 Gain on sale of real estate - - - (1,074 ) Other expenses, net of other income 5,047 5,274 14,961 17,927 Income tax (benefit) expense (1,502 ) (420 ) (3,861 ) 905 (Income) loss from discontinued operations - (218 ) 10 (798 ) NOI$ 21,478 $ 24,076 $ (2,598 ) (10.8 )%
- - - (987 )
Same-store NOI $ 21,478 $ 24,076 $ (2,598 ) (10.8 )% $ 65,502 $ 79,228 $ (13,726 ) (17.3 )%
Invested in
operating
properties,
end of period (in
millions) $ 1,768 $ 1,768 $ 1,768 $ 1,768 Overall, our same-store NOI for the quarter and nine months endedSeptember 30, 2021 and 2020 decreased by approximately$2.6 million and$13.7 million , respectively, as compared to the same periods in the prior year. As described above in "COVID-19", same store NOI was negatively impacted as a result of declines in property occupancy levels, resident fees and services affected by move-in restrictions, intensified screening and other measures enacted at our communities to address the spread of COVID-19. 29
--------------------------------------------------------------------------------
Funds from Operations and Modified Funds from Operations
Due to certain unique operating characteristics of real estate companies, as discussed below, theNational Association of Real Estate Investment Trusts , ("NAREIT") promulgated a measure known as funds from operations ("FFO"), which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to net income or loss as determined under GAAP. We define FFO, a non-GAAP measure, consistent with the standards approved by theBoard of Governors of NAREIT. NAREIT defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property, real estate asset impairment write-downs, plus depreciation and amortization of real estate related assets, and after adjustments for unconsolidated partnerships and joint ventures. Our FFO calculation complies with NAREIT's policy described above. The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or is requested or required by lessees for operational purposes in order to maintain the value of the property. We believe that, because real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income or loss. However, FFO and MFFO, as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or loss in its applicability in evaluating operating performance. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO. Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses for business combinations from a capitalization/depreciation model) to an expensed-as-incurred model that were put into effect in 2009, and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT's definition of FFO, have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses, as items that are expensed under GAAP and accounted for as operating expenses. Our management believes these fees and expenses do not affect our overall long-term operating performance. Publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. While other start up entities may also experience significant acquisition activity during their initial years, we believe that non-listed REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after acquisition activity ceases. Due to the above factors and other unique features of publicly registered, non-listed REITs, the IPA has standardized a measure known as modified funds from operations ("MFFO") which the IPA has recommended as a supplemental measure for publicly registered non-listed REITs and which we believe to be another appropriate supplemental measure to reflect the operating performance of a non-listed REIT. MFFO is not equivalent to our net income or loss as determined under GAAP, and MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate with a limited life and targeted exit strategy, as currently intended. We believe that because MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO and also excludes acquisition fees and expenses that affect our operations only in periods in which properties are acquired, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we acquired our properties and once our portfolio is in place. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the non-listed REIT industry. 30
-------------------------------------------------------------------------------- We define MFFO, a non-GAAP measure, consistent with the IPA's Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: MFFO, or the Practice Guideline, issued by the IPA inNovember 2010 . The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of GAAP net income or loss: acquisition fees and expenses; amounts relating to deferred rent receivables and amortization of above and below market leases and liabilities (which are adjusted from a GAAP accrual basis in order to reflect such payments on a cash basis of amounts expected to be received for such lease and rental payments); contingent purchase price consideration adjustments; accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income or loss; gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan; and unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income or loss in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized. Our MFFO calculation complies with the IPA's Practice Guideline described above. In calculating MFFO, we exclude acquisition related expenses. Under GAAP, acquisition fees and expenses are characterized as operating expenses in determining operating net income or loss. These expenses are paid in cash by us. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the property. Our management uses MFFO and the adjustments used to calculate it in order to evaluate our performance against other non-listed REITs which have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate in this manner. We believe that our use of MFFO and the adjustments used to calculate it allow us to present our performance in a manner that reflects certain characteristics that are unique to non-listed REITs, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence that the use of such measures is useful to investors. For example, acquisition costs are funded from our subscription proceeds and other financing sources and not from operations.
By excluding expensed acquisition costs, the use of MFFO provides information consistent with management's analysis of the operating performance of the properties.
Presentation of this information is intended to provide useful information to investors as they compare the operating performance of different non-listed REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way and as such comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flows available to fund cash needs and should not be considered as an alternative to net income (or loss) or income (or loss) from continuing operations as an indication of our performance, as an alternative to cash flows from operations, as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other GAAP measurements as an indication of our performance. MFFO is useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods. Neither theSEC , NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments we use to calculate FFO or MFFO. In the future, theSEC , NAREIT or another regulatory body may decide to standardize the allowable adjustments across the non-listed REIT industry and we would have to adjust our calculation and characterization of FFO or MFFO. 31
-------------------------------------------------------------------------------- The following table presents a reconciliation of net income to FFO and MFFO for the quarter and nine months endedSeptember 30, 2021 and 2020 (in thousands, except per share data): Quarter Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Net (loss) income attributable to common stockholders$ (533 ) $ (1,738 ) $ (2,086 ) $ 3,224 Adjustments: Depreciation and amortization: Continuing operations 12,641 14,378 37,585 39,376 Gain on sale of real estate: Continuing operations - - - (1,074 ) FFO adjustments attributable to noncontrolling interests: Continuing operations (45 ) (48 ) (142 ) (143 ) FFO adjustments from unconsolidated entities (1) 167 (51 ) 463 38 FFO attributable to common stockholders 12,230 12,541 35,820 41,421 Straight-line rent adjustments: (2) Continuing operations 310 550 1,039 1,363 Amortization of premium for debt investments: Continuing operations (10 ) (10 ) (31 ) (31 ) Realized gain on extinguishment of debt: (3) Continuing operations - - - 35 Unrealized gain on investment in short term securities: (4) Continuing operations - (5 ) - 11 MFFO adjustments attributable to noncontrolling interests: Continuing operations 4 12 (3 ) 7 MFFO attributable to common stockholders$ 12,534 $ 13,088 $ 36,825 $ 42,806 Weighted average number of shares of common stock outstanding (basic and diluted) 173,960 173,960 173,960 173,960 Net (loss) income per share (basic and diluted)$ (0.00 ) $ (0.01 ) $ (0.01 ) $ 0.02 FFO per share (basic and diluted)$ 0.07 $ 0.07 $ 0.21 $ 0.24 MFFO per share (basic and diluted)$ 0.07 $ 0.08 $ 0.21 $ 0.25 ________________ FOOTNOTES: (1) This amount represents our share of the FFO or MFFO adjustments allowable under the NAREIT or IPA definitions, respectively, calculated using the HLBV method. (2) Under GAAP, rental receipts are allocated to periods using various methodologies. This may result in income or expense recognition that is significantly different than underlying contract terms. By adjusting for these items (from a GAAP accrual basis in order to reflect such payments on a cash basis of amounts expected to be received for such lease and rental payments), MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments, providing insight on the contractual cash flows of such lease terms and debt investments, and aligns results with management's analysis of operating performance. (3) Management believes that adjusting for the realized gain on the extinguishment of debt, hedges or other derivatives is appropriate because the adjustments are not reflective of our ongoing operating performance and, as a result, the adjustments better align results with management's analysis of operating performance. (4) Management believes that adjusting for the unrealized gain on investment in short term securities is appropriate because the adjustment is not reflective of our ongoing operating performance and, as a result, the adjustments better align results with management's analysis of operating performance.
Related Party Transactions
See Item 1. "Condensed Consolidated Financial Information" and our Annual Report on Form 10-K for the year endedDecember 31, 2020 for a summary of our related party transactions.
Critical Accounting Policies and Estimates
See Item 1. "Condensed Consolidated Financial Information" and our Annual Report on Form 10-K for the year endedDecember 31, 2020 for a summary of our critical accounting policies and estimates. 32 --------------------------------------------------------------------------------
Recent Accounting Pronouncements
See Item 1. "Condensed Consolidated Financial Information" for a summary of the impact of recent accounting pronouncements.
33--------------------------------------------------------------------------------
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