LTC Properties Inc: Form 10-Q for the period ended Mar 31, 2025

Cautionary Statement Regarding Forward-Looking Statements

This quarterly report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, adopted pursuant to the Private Securities Litigation Reform Act of 1995. Statements that are not purely historical may be forward-looking. You can identify some of the forward-looking statements by their use of forward-looking words, such as “believes,” “expects,” “may,” “will,” “could,” “would,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates” or “anticipates,” or the negative of those words or similar words. Forward-looking statements involve inherent risks and uncertainties regarding events, conditions and financial trends that may affect our future plans of operation, business strategy, results of operations and financial position. A number of important factors could cause actual results to differ materially from those included within or contemplated by such forward-looking statements, including, but not limited to, our dependence on our operators for revenue and cash flow; government regulation of the health care industry; changes in federal, state, or local laws limiting real estate investment trust (“REIT”) investments in the health care sector; federal and state health care cost containment measures including reductions in reimbursement from third-party payors such as Medicare and Medicaid; required regulatory approvals for operation of health care facilities; a failure to comply with federal, state, or local regulations for the operation of health care facilities; the adequacy of insurance coverage maintained by our operators; our reliance on a few major operators; our ability to renew leases or enter into favorable terms of renewals or new leases; the impact of inflation, operator financial or legal difficulties; the sufficiency of collateral securing mortgage loans; an impairment of our real estate investments; the relative illiquidity of our real estate investments; our ability to develop and complete construction projects; our ability to invest cash proceeds for health care properties; a failure to qualify as a REIT; our ability to grow if access to capital is limited; and a failure to maintain or increase our dividend. For a discussion of these and other factors that could cause actual results to differ from those contemplated in the forward-looking statements, please see the discussion under “Risk Factors” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 and in our publicly available filings with the Securities and Exchange Commission. We do not undertake any responsibility to update or revise any of these factors or to announce publicly any revisions to forward-looking statements, whether as a result of new information, future events or otherwise. Although our management believes that the assumptions and expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. The actual results may differ materially from any forward-looking statements due to the risks and uncertainties of such statements.

Executive Overview

Business and Investment Strategy

We are a REIT that invests in seniors housing and health care properties through sale-leasebacks, financing receivables, mortgage financing, joint ventures and structured finance solutions including preferred equity and mezzanine lending. We create, sustain and enhance stockholder equity value and provide current income for distribution to stockholders through real estate investments in seniors housing and health care properties managed by experienced operators.

The following graph summarizes our gross investments as of March 31, 2025:

Our primary seniors housing and health care property classifications include skilled nursing centers (“SNF”), assisted living communities (“ALF”), independent living communities (“ILF”), memory care communities (“MC”) and combinations thereof. We also invest in other (“OTH”) types of properties, such as land parcels, projects under development (“UDP”) and behavioral health care hospitals. To meet these objectives, we attempt to invest in properties that provide opportunity for additional value and current returns to our stockholders and diversify our investment portfolio by geographic location, operator, property classification and form of investment.

We conduct and manage our business as one operating segment for internal reporting and internal decision-making purposes. For purposes of this quarterly report and other presentations, we generally include ALF, ILF, MC, and combinations thereof in the ALF classification. As of March 31, 2025, seniors housing and health care properties comprised approximately 99.4% of our gross investment portfolio. We have been operating since August 1992.

Substantially all of our revenues and sources of cash flows from operations are derived from rents from operating leases, interest earned on financing receivables, interest earned on outstanding loans receivable and income from investments in unconsolidated joint ventures. Income from our investments represent our primary source of liquidity to fund distributions and are dependent upon the performance of the operators on their lease and loan obligations and the rates earned thereon. To the extent that the operators experience operating difficulties and are unable to generate sufficient cash to make payments to us, there could be a material adverse impact on our consolidated results of operations, liquidity and/or financial condition. To mitigate this risk, we monitor our investments through a variety of methods determined by investment type, property type and operator. Our monitoring process includes periodic review of financial statements for each facility, periodic review of operator credit, scheduled property inspections and review of covenant compliance.

In addition to our monitoring and research efforts, we also structure our investments to help mitigate payment risk. Some operating leases and loans are credit enhanced by guaranties and/or letters of credit. In addition, operating leases are typically structured as master leases and loans are generally cross-defaulted and cross-collateralized with other loans, operating leases or agreements between us and the operator and its affiliates.

Depending upon the availability and cost of external capital, we anticipate making additional investments in health care related properties. New investments are generally funded from cash on hand, proceeds from periodic asset sales, temporary borrowings under our unsecured revolving line of credit and internally generated cash flows. Our investments generate internal cash from rent, interest from financing receivables and interest receipts and principal payments on loan receivables and income from unconsolidated joint ventures. Permanent financing for future investments, which replaces funds drawn under our unsecured revolving line of credit, may be provided through a combination of public and private offerings of debt and equity securities and secured and unsecured debt financing. The timing, source and amount of cash flows provided by financing activities and used in investing activities are sensitive to the capital markets’ environment, especially to changes in interest rates. Changes in the capital markets’ environment may impact the availability of cost-effective capital.

We have evaluated and begun to enter into structures provided in the REIT Investment Diversification and Empowerment Act of 2007 (commonly referred to as “RIDEA”) as permitted by the Housing and Economic Recovery Act of 2008. Under a typical RIDEA structure, we have certain oversight approval rights and the right to review operational and financial reporting information, but our third party managers will ultimately control the day-to-day operations of the property. Offering RIDEA structures represent a further aspect of our traditional strategy of investing through vehicles such as triple-net leases, mortgage loans, and structured finance. We believe that RIDEA structures provide us with additional investment opportunities. Subsequent to March 31, 2025, we transitioned a triple-net portfolio of 12 memory care communities operated by Anthem Memory Care, LLC to our new seniors housing operating portfolio (“SHOP”) under the RIDEA structure. An additional property with New Perspective Senior Living, LLC (“New Perspective”) is expected to transition later during the second quarter of 2025. To develop and implement RIDEA structures, we may need to continue to commit financial and operational resources. While we anticipate that adding RIDEA transactions will be positive for our business model, our ability to succeed in this new focus will be determined by numerous factors, including our ability to identify suitable investments and our relationship with operators of RIDEA structures.

We believe our business model has enabled and will continue to enable us to maintain the integrity of our property investments, including in response to financial difficulties that may be experienced by operators. Traditionally, we have taken a conservative approach to managing our business, choosing to maintain liquidity and exercise patience until favorable investment opportunities arise.

Real Estate Portfolio Overview

The following tables summarize our real estate investment portfolio as of March 31, 2025 (dollar amounts in thousands):

(1) We have investments in owned properties, financing receivables, mortgage loans, notes receivable and unconsolidated joint ventures in 25 states to 28 operators.

(2) Includes three parcels of land held-for-use and one behavioral health care hospital.

(3) Excludes $3,090 variable rental income from lessee reimbursement of our real estate taxes and $492 write-off of straight-line rent and lease incentive write-offs.

(4) Included in the Interest and other income line item of our Consolidated Statements of Income.

(5) Excludes income from the redemption of our preferred equity investment in a joint venture.

As of March 31, 2025, we had $1.7 billion in net carrying value of investments, consisting of $916.7 million or 55.5% invested in owned and leased properties, $357.8 million or 21.7% invested in financing receivables, $314.4 million or 19.0% invested in mortgage loans secured by first mortgages, $44.3 million or 2.7% in notes receivable and $17.6 million or 1.1% in unconsolidated joint ventures.

Rental income, income from financing receivables and interest income from mortgage loans represented 64.1%, 14.3% and 18.7%, respectively, of Total revenues on the Consolidated Statements of Income for the three months ended March 31, 2025. In most instances, our lease structure contains fixed annual rental escalations and/or annual rental escalations that are contingent upon changes in the Consumer Price Index. Certain leases have annual rental escalations that are contingent upon changes in the gross operating revenues of the property. This revenue is not recognized until the appropriate contingencies have been resolved.

During the three months ended March 31, 2025, a master lease covering two skilled nursing centers in Tennessee that was scheduled to mature on December 31, 2025, was amended extending the maturity to December 31, 2026. Additionally, the master lease purchase option window, which expired on December 31, 2024, was extended for another year to December 31, 2025. Additionally, we terminated two existing leases with the same operator, and combined them into a single master lease. The new master lease has a five-year term with one 1-year extension option and four 5-year extension options. Annual cash rent is $2.5 million for the first lease year escalating by 2.0% annually thereafter. The terms and economics of the new master lease is similar to those of the two leases that were terminated.

Subsequent to March 31, 2025, we terminated our Anthem triple-net master leases and transitioned the 12 memory care communities covered under the master leases into our new SHOP portfolio under the RIDEA structure. In anticipation of this event, we wrote-off Anthem’s working capital note of $2.7 million and the related interest receivable of $0.4 million during the three months ended March 31, 2025.

For the three months ended March 31, 2025, we recorded $0.6 million in straight-line rental adjustment reflecting higher cash rent received than recorded as rental income, and amortization of lease incentive cost of $0.2 million. During the first quarter of 2025, we wrote-off a straight-line rent receivable of $0.2 million and a lease incentive balance of $0.2 million in connection with the termination of two existing leases with the same operator, and combining them into a single master as discussed above. During the three months ended March 31, 2025, we received $32.7 million of cash rental income, which includes $3.1 million of operator reimbursements for real estate taxes. At March 31, 2025, the straight-line rent receivable balance on the consolidated balance sheet was $20.7 million.

For the three months ended March 31, 2025, we recorded $7.0 million in Interest income from financing receivables which includes $6.7 million of interest received in cash and $0.3 million in financing receivables effective interest. At March 31, 2025, the financing receivables effective interest receivable which is included in the Interest receivable line item on our Consolidated Balance Sheets was $5.8 million.

For the three months ended March 31, 2025, we recorded $9.2 million in Interest income from mortgage loans which includes $8.2 million of interest received in cash and $1.0 million in mortgage loans effective interest. At March, 31, 2025, the mortgage loans effective interest receivable which is included in the Interest receivable line item on our Consolidated Balance Sheets was $53.8 million.

Update on Certain Operators

ALG Senior Living

We hold controlling interest in three joint ventures with ALG Senior Living (“ALG”). The joint ventures own 28 assisted living and memory care communities in North Carolina (27) and South Carolina (1) with a total of 1,263 units. The joint ventures lease these communities to affiliates of ALG under three 10-year master leases and has provided the lessee with the option to purchase these communities. In accordance with GAAP, the communities are recorded as Financing Receivables on our Consolidated Balance Sheets. Additionally, ALG operates a 45-unit assisted living and memory care community in North Carolina under a mortgage loan, which was scheduled to mature in January 2025. During the three months ended March 31, 2025, the mortgage loan maturity was extended to September 2025. ALG has paid their contractual rent and interest obligations through May 2025.

Prestige Healthcare

Prestige Healthcare (“Prestige”) operates 21 skilled nursing centers located in Michigan secured under four mortgage loans and two skilled nursing centers located in South Carolina under a master lease. Prestige is our largest operator based upon revenues and assets representing 16.5% of our total revenues and 14.7% of our total assets as of March 31, 2025.

Under one of the mortgage loans with Prestige secured by 14 properties, the minimum mortgage interest payment due to us is based on an annual current pay rate of 8.5% on the outstanding loan balance. The difference between the contractual interest rate and the current pay interest rate of 8.5% on the outstanding loan balance remains an obligation of Prestige and is payable through the application of security deposits we hold on behalf of Prestige or is payable at maturity

During the first quarter of 2025, we received full contractual cash interest of $5.0 million from Prestige through $3.8 million of cash receipts and application of $1.2 million of Prestige’s security. At March 31, 2025, Prestige’s security totaled $3.8 million and subsequently, we received $2.3 million in retroactive Medicaid payments from Prestige, which was added to the security deposits we hold. Beginning in 2025, 50% of Prestige’s excess cash flow will be added to our security, and used to pay contractual interest beyond the current pay amount. Our projections continue to indicate we will receive all contractual interest due in 2025.

Anthem Memory Care

Anthem operates 12 memory care communities located in California, Colorado, Kansas, Illinois and Ohio under a triple-net master lease. Subsequent to March 31, 2025, we terminated our Anthem triple-net master leases and transitioned the 12 memory care communities covered under the master leases into our new SHOP portfolio under the RIDEA structure. In anticipation of this event, we wrote-off Anthem’s working capital note of $2.7 million and the related interest receivable of $0.4 million during the three months ended March 31, 2025.

Other Operators

We had a JV that owned two assisted living communities with a total of 186 units in Oregon. The communities were leased under two separate leases with the same operator, who was the non-controlling member of the JV. During the three months ended March 31, 2025, we acquired the operator’s $4.0 million non-controlling interest in the JV for $1.2 million and terminated the two existing leases. In conjunction with the termination of these leases, we wrote-off $0.2 million straight-line rent receivable and $0.2 million lease incentive. Concurrently, we entered into a new combined master lease with the same operator. The new master lease has a five-year term with 1 one-year extension option and four 5-year extension options. Annual cash rent is $2.5 million for the first lease year escalating by 2% annually thereafter. Additionally, the master lease provides the operator with an earn-out of up to $4.0 million, contingent on achieving certain performance thresholds.

Additionally, during the three months ended March 31, 2025, we engaged a broker to sell seven skilled nursing centers under a master lease, following the operator’s election not to exercise the renewal option available under the master lease. The master lease covers skilled nursing centers in California (1), Florida (2) and Virginia (4) and matures in January 2026. At March 31, 2025, these centers met the criteria under GAAP as held-for-sale. Accordingly, these centers have been classified as held-for-sale at March 31, 2025. The operator is obligated to pay rent on the portfolio through maturity and is current on rent obligations through May 2025.

2025 Activities Overview

The following tables summarize our transactions during the three months ended March 31, 2025 (dollar amounts in thousands):

Investment in Improvement projects

Properties Held -for-Sale

Properties Sold

(1) Calculation of net gain includes cost of sales and write-off of straight-line receivable and lease incentives, when applicable.

RIDEA Structure

Subsequent to March 31, 2025, we transitioned a triple-net portfolio of 12 memory care communities operated by Anthem to our new SHOP portfolio under the RIDEA structure. An additional property with New Perspective is expected to transition later during the second quarter of 2025.

Investment in Mortgage Loans Receivable

(1) Funding relates to a $19,500 mortgage loan commitment for the construction of an 85-unit ALF and MC in Michigan. The borrower contributed $12,100 of equity upon origination in July 2023, which was used to initially fund the construction. Our remaining commitment is $4,828. The interest-only loan term is approximately three years at a rate of 8.75%, and includes two one-year extensions, each of which is contingent on certain coverage thresholds.

Preferred Equity Investment in Unconsolidated Joint Ventures

During the three months ended March 31, 2025, we received $16.0 million, including a 13% exit IRR of $3.0 million, from the redemption of our preferred equity investment in a joint venture that owns a 267-unit independent and assisted living community in Washington.

Investment in Notes Receivable

(1) Represents the write-off of Anthem working capital note in connection with the transition of triple-net leases covering 12 properties to RIDEA.

Health Care Regulatory

The Centers for Medicare & Medicaid Services (“CMS”) annually updates Medicare SNF prospective payment system rates and other policies. On July 31, 2024, CMS issued a final rule to update SNF rates and policies for the fiscal year 2025. CMS estimated that the updated payment rates would result in a net increase of 4.2%, or approximately $1.4 billion, in Medicare Part A payments to SNFs in fiscal year 2025. CMS stated that its impact figures do not incorporate the SNF Value-Based Purchasing (“VBP”) reductions for certain SNFs subject to the net reduction in payments under the SNF VBP, which are estimated to total $196.5 million in fiscal year 2025. The final rule also changes CMS’s enforcement policies as they relate to imposing civil monetary penalties (“CMPs”) for health and safety violations in nursing homes. In the final rule, CMS expanded the type of CMPs that can be imposed to allow for more per instance and per day CMPs to be imposed, and to permit both types of penalties to be imposed concurrently. In addition, the final rule finalized updates to the SNF Quality Reporting Program (“QRP”) to better account for adverse social conditions that negatively impact individuals’ health or health care. Finally, for the SNF VBP program, CMS finalized several operational and administrative proposals. On April 11, 2025, CMS issued a proposed rule for updates to Medicare payment policies and rates for SNFs under the SNF Prospective Payment System (“PPS”) for fiscal year 2026. For fiscal year 2026, CMS proposed updating SNF PPS rates by 2.8% based on the proposed SNF market basket of 3.0%, plus a 0.6% market basket forecast error adjustment, and a negative 0.8% productivity adjustment. These impact figures do not incorporate the SNF VBP reductions for certain SNFs subject to the net reduction in payments under the SNF VBP. Those adjustments are estimated to total $196.5 million in FY 2025. CMS also proposed a series of operational and administrative proposals for the SNF VBP program. In addition, for the SNF Quality Reporting Program (“QRP”), CMS proposed to remove four standardized patient assessment data elements beginning October 1, 2025.

On April 22, 2024, CMS issued the Minimum Staffing Standards for Long-Term Care Facilities and Medicaid Institutional Payment Transparency Reporting final rule. The final rule set forth new comprehensive minimum staffing requirements. It finalized a total nurse staffing standard of 3.48 hours per resident day (“HPRD”), which must include at least 0.55 hours per resident day of direct registered nurse care and 2.45 hours per resident day of direct nurse aide care. It permitted facilities to use any combination of nurse staff (registered nurse, licensed practical nurse and licensed vocational nurse, or nurse aide) to account for the additional 0.48 hours per resident day needed to comply with the total nurse staffing standard. CMS also finalized enhanced facility assessment requirements and a requirement to have a registered nurse onsite 24 hours a day, seven days a week (“24/7”), to provide skilled nursing care. The final rule also provided a staggered implementation timeframe of the minimum nurse staffing standards and 24/7 registered nurse requirement based on geographic location as well as possible exemptions for qualifying facilities for some parts of these requirements based on workforce unavailability and other factors. The final rule was challenged in federal courts in Texas and Iowa. In the litigation proceeding in Texas, on April 7, 2025, the United States District Court for the Northern District of Texas granted the plaintiffs’ motion for summary judgment and vacated the 24/7 requirement and the HPRD requirements at 42 C.F.R. Section 483.35(b)(1) and 483.35(c). It is uncertain whether the judgement will be appealed.

There can be no assurance that these rules or future regulations modifying Medicare SNF payment rates or other requirements for Medicare and/or Medicaid participation will not have an adverse effect on the financial condition of our borrowers and lessees which could, in turn, adversely impact the timing or level of their payments to us. Failure by an operator to comply with regulatory requirements can, among other things, jeopardize a facility’s compliance with the conditions of participation under relevant federal and state healthcare programs. Further the ability of our operators to comply with applicable regulations, including minimum staffing requirements, can be adversely impacted by changes in the labor market and increases in inflation.

Key Performance Indicators, Trends and Uncertainties

We utilize several key performance indicators to evaluate the various aspects of our business. These indicators are discussed below and relate to concentration risk and credit strength. Management uses these key performance indicators to facilitate internal and external comparisons to our historical operating results in making operating decisions and for budget planning purposes.

Concentration Risk. We evaluate by gross investment our concentration risk in terms of asset mix, real estate investment mix, operator mix and geographic mix. Concentration risk is valuable to understand what portion of our real estate investments could be at risk if certain sectors were to experience downturns. Asset mix measures the portion of our investments that are real property or mortgage loans. The National Association of Real Estate Investment Trusts (“NAREIT”), an organization representing U.S. REITs and publicly traded real estate companies, classifies a company with 50% or more of assets directly or indirectly in the equity ownership of real estate as an equity REIT. Investment mix measures the portion of our investments that relate to our various property classifications. Operator mix measures the portion of our investments that relate to our top five operators. Geographic mix measures the portion of our real estate investment that relate to our top five states.

The following table reflects our recent historical trends of concentration risk (gross investment, in thousands):

(1) Includes three parcels of land located adjacent to properties securing the Prestige Healthcare mortgage loan and are managed by Prestige.

Credit Strength. We measure our credit strength both in terms of leverage ratios and coverage ratios. Our leverage ratios include debt to gross asset value and debt to market capitalization. The leverage ratios indicate how much of our Consolidated Balance Sheets capitalization is related to long-term obligations. Our coverage ratios include interest coverage ratio and fixed charge coverage ratio. The coverage ratios indicate our ability to service interest and fixed charges (interest). The coverage ratios are based on earnings before interest, taxes, depreciation and amortization for real estate (“EBITDAre”) as defined by NAREIT. EBITDAre is calculated as net income available to common stockholders (computed in accordance with GAAP) excluding (i) interest expense, (ii) income tax expense, (iii) real estate depreciation and amortization, (iv) impairment write-downs of depreciable real estate, (v) gains or losses on the sale of depreciable real estate, and (vi) adjustments for unconsolidated partnerships and joint ventures. Leverage ratios and coverage ratios are widely used by investors, analysts and rating agencies in the valuation, comparison, rating and investment recommendations of companies. The following table reflects the recent historical trends for our credit strength measures:

Balance Sheet Metrics

(1) Decreased due to increase in market capitalization due to increase in stock price.

(2) Increased due to decrease in interest expense.

(3) Decreased due to decrease in outstanding debt, partially offset by decrease in gross asset value.

(4) Decreased due to decrease in outstanding debt, partially offset by decrease in market capitalization from lower stock price.

(5) Increased due to decrease in interest expense and increase in rental income, partially offset by decrease in other income.

(6) Decreased due to decrease in outstanding debt and increase in market capitalization resulting from the sale of common stock under our Original Equity Distribution Agreements, as well as increase in stock price.

(7) Increase due to decrease in interest expense and increase in rental and other income.

(8) Decreased due to increase in gross asset value.

(9) Increased primarily due to increase in rental income from acquisitions, contractual rent increases and annual escalations.

(10) In calculating our interest coverage and fixed charge coverage ratios above, we use EBITDAre, which is a financial measure not derived in accordance with GAAP (non-GAAP financial measure). EBITDAre is not an alternative to net income, operating income or cash flows from operating activities as calculated and presented in accordance with GAAP. You should not rely on EBITDAre as a substitute for any such GAAP financial measures or consider it in isolation, for the purpose of analyzing our financial performance, financial position or cash flows. Net income is the most directly comparable GAAP measure to EBITDAre.

(1) Includes $2,693 write-off of a working capital note, $371 of related interest receivable, and $303 of one-time transaction costs, all in connection with the transition to RIDEA, partially offset by the 13% exit IRR of $2,962 received in connection with the redemption of our preferred equity investment in a JV.

(2) Includes a one-time additional straight-line income of $3,158 related to restoring accrual basis accounting for two master leases, recovery of credit losses of $511 related to a mortgage loan receivable write-off, partially offset by $290 provision for credit losses related to the write-off of an uncollectible loan receivable.

(3) Includes an aggregate one-time income of $4,493 received from three former operators, the recovery of provisions for credit losses of $293 related to a mortgage loan receivable payoff, partially offset by the uncollectible effective interest write-off of $613 related to the partial paydown of a mortgage loan receivable.

(4) Includes $321 write-off of an uncollectible straight-line rent receivable, $1,635 provision for credit losses related to acquisitions totaling $163,460 accounted for as financing receivables, partially offset by $934 recovery of provision for credit losses related to the payoffs of mortgage loan receivables.

(5) Represents the repayment of an operator rent credit received from the buyer/lessee in connection with the sale of a 110-unit ALF in Wisconsin.

We evaluate our key performance indicators in conjunction with current expectations to determine if historical trends are indicative of future results. Our expected results may not be achieved, and actual results may differ materially from our expectations. This may be a result of various factors, including, but not limited to

• the status of the economy;
• the status of capital markets, including prevailing interest rates;
• compliance with and changes to regulations and payment policies within the health care industry;
• changes in financing terms;
• competition within the health care and seniors housing industries;
• changes in federal, state and local legislation; and
• the duration, spread and severity of a public health crises such as a pandemic.

Management regularly monitors the economic and other factors listed above. We develop strategic and tactical plans designed to improve performance and maximize our competitive position. Our ability to achieve our financial objectives is dependent upon our ability to effectively execute these plans and to appropriately respond to emerging economic and company-specific trends.

Operating Results (unaudited, in thousands)

(1) Decreased primarily due to a one-time revenue received in 2024 related to the repayment of $2,377 in rent credits, lower rent due to property sales and the write-off of a straight-line rent receivable and lease incentive balance in connection with the termination of two existing leases with the same operator, and combining them into a single master lease. These increases were partially offset by rent increases from fair-market rent resets, annual escalations and amendments.

(2) Increased primarily due to the exchange of two mortgage loan receivables during the second quarter of 2024 for controlling interests in two newly formed JVs that are accounted for as financing receivables.

(3) Decreased primarily due to explanation (2) above and payoffs partially offset by additional mortgage loan funding.

(4) Decreased due to lower outstanding balance on our revolving line of credit, scheduled principal paydowns on our senior unsecured notes and lower interest rates.

(5) Increased due to the write-off of a working capital note and the related interest receivable in connection with the transition of triple net leases covering 12 properties to RIDEA.

(6) Represents the gain on sale of sale of a 39-unit ALF in Ohio partially offset by the loss on sale of a 29-unit ALFs located in Oklahoma.

(7) Represents the gain on sale of a 110-unit community in Wisconsin partially offset by the aggregate loss on sale of 6 ALFs located in Texas (five) and Florida (one).

(8) Increased due to the 13% exit IRR of $2,962 received in connection with the redemption of our preferred equity investment in a JV.

Funds From Operations Available to Common Stockholders

Funds from Operations (“FFO”) attributable to common stockholders, basic FFO attributable to common stockholders per share and diluted FFO attributable to common stockholders per share are supplemental measures of a REIT’s financial performance that are not defined by GAAP. Real estate values historically rise and fall with market conditions, but cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time. We believe that by excluding the effect of historical cost depreciation, which may be of limited relevance in evaluating current performance, FFO facilitates comparisons of operating performance between periods.

We use FFO as a supplemental performance measurement of our cash flow generated by operations. FFO does not represent cash generated from operating activities in accordance with GAAP, and is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to net income available to common stockholders.

We calculate and report FFO in accordance with the definition and interpretive guidelines issued by NAREIT. FFO, as defined by NAREIT, means net income available to common stockholders (computed in accordance with GAAP) excluding gains or losses on the sale of real estate and impairment write-downs of depreciable real estate plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Our calculation of FFO may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition or that have a different interpretation of the current NAREIT definition from us; therefore, caution should be exercised when comparing our FFO to that of other REITs.

The following table reconciles GAAP net income available to common stockholders to NAREIT FFO available to common stockholders (unaudited, amounts in thousands, except per share amounts):

Liquidity and Capital Resources

Sources and Uses of Cash

As of March 31, 2025, we had $681.2 million in liquidity as follows (amounts in thousands, except per share amounts):

We believe that our current cash balance, cash flow from operations available for distribution or reinvestment, our borrowing capacity and our potential ability to access the capital markets are sufficient to provide for payment of our current operating costs, meet debt obligations and pay common dividends at least sufficient to maintain our REIT status and repay borrowings at, or prior to, their maturity. The timing, source and amount of cash flows used in financing and investing activities are sensitive to the capital markets environment, especially to changes in interest rates. In addition inflation may adversely affect our operators’ business, results of operations, cash flows and financial condition which could, in turn, adversely affect our financial position.

The operating results of the facilities will be impacted by various factors over which the operators/owners may have no control. Those factors include, without limitation, the health of the economy, inflation pressures, employee availability and cost, changes in supply of or demand for competing seniors housing and health care facilities, ability to hire and maintain qualified staff, ability to control other rising operating costs, and the potential for significant reforms in the health care industry and related occupancy challenges in the governmental regulations and financing of the health care industry or the impact of any other infectious disease and epidemic outbreaks. We cannot presently predict what impact these potential events may have, if any. We believe that adequate provision has been made for the possibility of loans proving uncollectible but we will continually evaluate the financial condition of the operations of our seniors housing and health care properties. In addition, we will monitor our borrowers and the underlying collateral for mortgage loans and will make future revisions to the provision, if considered necessary.

Depending on our borrowing capacity, compliance with financial covenants, ability to access the capital markets, and the payment of dividends may be negatively impacted. We continuously evaluate the availability of cost-effective capital and believe we have sufficient liquidity for our current dividend, corporate expenses and additional capital investments in 2025.

Our investments, principally our investments in owned properties, financing receivables and mortgage loans, are subject to the possibility of loss of their carrying values as a result of changes in market prices, interest rates and inflationary expectations. The effects on interest rates may affect our costs of financing our operations and the fair market value of our financial assets. Generally, our leases have agreed upon annual increases and our loans have predetermined increases in interest rates. Inasmuch as we may initially fund some of our investments with variable interest rate debt, we would be at risk of net interest margin deterioration if medium and long-term rates were to increase.

Our primary sources of cash include rent and interest receipts, borrowings under our unsecured credit facility, public and private issuances of debt and equity securities, proceeds from investment dispositions and principal payments on loans receivable. Our primary uses of cash include dividend distributions, debt service payments (including principal and interest), real property investments

(including acquisitions, capital expenditures and construction advances), loan advances and general and administrative expenses. These sources and uses of cash are reflected in our Consolidated Statements of Cash Flows as summarized below (in thousands):

Debt Obligations

Unsecured Credit Facility. We have an unsecured credit agreement (the Credit Agreement”) that provides for an aggregate commitment of the lenders of up to $525.0 million comprised of a $425.0 million revolving credit facility (the “Revolving Line of Credit”) and two $50.0 million term loans (the “Term Loans”). The Term Loans mature on November 19, 2025 and November 19, 2026. The Revolving Line of Credit has a maturity date of November 19, 2026. The Credit Agreement permitted us to request increases to the Revolving Line of Credit and Term Loans commitments up to a total of $1.0 billion.

Based on our leverage at March 31, 2025, the facility provides for interest annually at Adjusted SOFR plus 110 basis points and a facility fee of 15 basis points and the Term Loans provide for interest annually at Adjusted SOFR plus 125 basis points.

Interest Rate Swap Agreements. In connection with entering into the Term Loans as described above, we entered into two receive variable/pay fixed interest rate swap agreements (the “Interest Rate Swaps”) with maturities of November 19, 2025 and November 19, 2026, respectively, that will effectively lock-in the forecasted interest payments on the Term Loans’ borrowings over their four and five year terms of the loans. The Interest Rate Swaps are considered cash flow hedges and are recorded on our Consolidated Balance Sheets at fair value, with changes in the fair value of these instruments recognized in Accumulated other comprehensive income (loss) on our Consolidated Balance Sheets. During the three months ended March 31, 2025, we recorded a decrease of $0.9 million in fair value of Interest Rate Swaps.

As of March 31, 2025, the terms of the Interest Rate Swaps are as follows (dollar amounts in thousands):

Senior Unsecured Notes. We have senior unsecured notes held by institutional investors with interest rates ranging from 3.66% to 4.50%. The senior unsecured notes mature between 2026 and 2033.

The senior unsecured notes and the Credit Agreement, including the Revolving Line of Credit and the Term Loans, contain financial covenants, which are measured quarterly, that require us to maintain, among other things:

• a ratio of total indebtedness to total asset value not greater than 0.6 to 1.0;
• a ratio of secured debt to total asset value not greater than 0.35 to 1.0;
• a ratio of unsecured debt to the value of the unencumbered asset value not greater than 0.6 to 1.0; and
• a ratio of EBITDA, as calculated in the debt obligation, to fixed charges not less than 1.50 to 1.0.

At March 31, 2025, we were in compliance with all applicable financial covenants. These debt obligations also contain additional customary covenants and events of default that are subject to a number of important and significant limitations, qualifications and exceptions.

The debt obligations by component as of March 31, 2025 are as follows (dollar amounts in thousands):

(1) Represents weighted average of interest rate as of March 31, 2025.

(2) Subsequent to March 31, 2025, we repaid $18,900 under our unsecured revolving line of credit. Accordingly, we have $129,950 outstanding and $295,050 available for borrowing under our unsecured revolving line of credit.

During the three months ended March 31, 2025, our debt borrowings and repayments were as follows (in thousands):

(1) Subsequent to March 31, 2025, we repaid $18,900 under our unsecured revolving line of credit. Accordingly, we have $129,950 outstanding and $295,050 available for borrowing under our unsecured revolving line of credit.

Equity

At March 31, 2025, we had 45,887,855 shares of common stock outstanding, total equity on our balance sheet $1.0 billion and our equity securities had a market value of $1.6 billion. During the three months ended March 31, 2025, we declared and paid $27.3 million of cash dividends.

During the three months ended March 31, 2025, we acquired 138,010 shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.

Subsequent to March 31, 2025, we declared a monthly cash dividend of $0.19 per share on our common stock for the months of April, May and June 2025, payable on April 30, May 30, and June 30, 2025, respectively, to stockholders of record on April 22, May 22, and June 20, 2025, respectively.

At-The-Market Program. We have an equity distribution agreement (the “Equity Distribution Agreement”) to offer and sell, from time to time, up to $400.0 million in aggregate offering price of shares of our common stock. The Equity Distribution Agreement provides for sales of common shares to be made by means of ordinary brokers’ transactions, which may include block trades, or transactions that are deemed to be “at the market” offerings.

During the three months ended March 31, 2025, we sold 238,100 shares of common stock for $8.5 million in net proceeds under our Equity Distribution Agreement. In conjunction with the sale of common stock, we incurred $74,000 of costs associated with this agreement which have been recorded in additional paid in capital as a reduction of proceeds received. At March 31, 2025, we had $381.7 million available under the Equity Distribution Agreement. Subsequent to March 31, 2025, we sold 30,400 shares of common stock for $1.1 million in net proceeds under our Equity Distribution Agreement. Accordingly, subsequent to March 31, 2025, we had $380.7 million available under the Equity Distribution Agreement.

Available Shelf Registrations. We have an automatic shelf registration statement on file with the SEC and currently have the ability to file additional automatic shelf registration statements to provide us with capacity to publicly offer an indeterminate amount of common stock, preferred stock, warrants, debt, depositary shares, or units. We may from time to time raise capital under our automatic registration statement in amounts, at prices, and on terms to be announced when and if the securities are offered. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of the offering. Our shelf registration statement expires in November 2027.

Stock-Based Compensation. During the second quarter of 2021, we adopted and our shareholders approved the 2021 Equity Participation Plan (“the 2021 Plan”) which replaces the 2015 Equity Participation Plan (“the 2015 Plan”). Under the 2021 Plan, 1,900,000 shares of common stock have been authorized and reserved for awards, less one share for every one share that was subject to an award granted under the 2015 Plan after December 31, 2020 and prior to adoption. In addition, any shares that are not issued under outstanding awards under the 2015 Plan because the shares were forfeited or cancelled after December 31, 2020 will be added to and again be available for awards under the 2021 Plan. Under the 2021 Plan, the shares were authorized and reserved for awards to officers, employees, non-employee directors and consultants. The terms of the awards granted under the 2021 Plan and the 2015 Plan are set by our compensation committee at its discretion.

During the three months ended March 31, 2025, 136,292 shares of restricted stock and 163,221 performance-based stock units vested. Subsequent to March 31, 2025, 13,362 shares of restricted stock and 19,694 performance-based stock units vested in connection with an employee retirement. During the three months ended March 31, 2025, we awarded restricted stock and performance-based stock units as follows:

(1) Vesting is based on achieving certain total shareholder return (“TSR”) targets in 3 years.

(2) Vesting is based on achieving certain TSR targets relative to the TSR of a predefined peer group in 3 years.

(3) Subsequent to March 31, 2025, 5,626 shares of restricted stock were granted and will vest in three years.

Critical Accounting Policies

Our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q are prepared in conformity with U.S. generally accepted accounting principles for interim financial information set forth in the Accounting Standards Codification as published by the Financial Accounting Standards Board, which require us to make estimates and assumptions regarding future events that affect the amounts reported in our financial statements and accompanying footnotes. We base these estimates on our experience and assumptions regarding future events we believe to be reasonable under the circumstances. Actual results could differ from those estimates and such differences may be material to the consolidated financial statements. We have described our most critical accounting policies in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended December 31, 2024. There have been no material changes to our critical accounting policies or estimates since December 31, 2024.

There were no material changes in our market risk during the three months ended March 31, 2025. For additional information, refer to Item 7A as presented in our Annual Report on Form 10-K for the year ended December 31, 2024.

Our management, with the participation of our Co-Chief Executive Officers and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on such evaluation our Co-Chief Executive Officers and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

There has not been any change in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15d and 15d-15(d) under the Exchange Act that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

The additional risk factor below should be read in conjunction with the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

Changes in federal, state, or local laws limiting REIT investments in the health care sector may adversely impact our ability to participate in the ownership of and investment in health care real estate.

Legislation potentially impacting REIT ownership and investment in the health care sector has recently been introduced or is under discussion at the federal and state level. These legislative proposals range from additional oversight to prohibitions on investors acquiring or increasing ownership, or operational or financial control, in a nursing home. Such legislation or similar laws or regulations, if enacted, may limit our opportunities to participate in the ownership of, or investment in, health care real estate. Changes in federal, state, or local laws or regulations limiting REIT investment in the health care sector, reducing health care related benefits for REITs, or requiring additional approvals for health care entities to do business with REITs, could have a material adverse effect on our financial condition and operations.

Except as described in this Item 1A, there have been no other known material changes from the risk factors since December 31, 2024.