American Healthcare REIT, Inc. (Form: 10-Q, Received: 08/14/2023 14:04:53)

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number: 000-55775

AMERICAN HEALTHCARE REIT, INC.

(Exact name of registrant as specified in its charter)


Maryland						47-2887436
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

18191 Von Karman Avenue, Suite 300 Irvine, California						92612
(Address of principal executive offices)						(Zip Code)

(949) 270-9200

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of August 11, 2023, there were 19,562,539 shares of Class T common stock and 46,673,320 shares of Class I common stock of American Healthcare REIT, Inc. outstanding.

Table of Contents

AMERICAN HEALTHCARE REIT, INC.

(A Maryland Corporation)

TABLE OF CONTENTS


			Page
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)			3
Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022			3
Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2023 and 2022			5
Condensed Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2023 and 2022			6
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022			10
Notes to Condensed Consolidated Financial Statements			12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			40
Item 3. Quantitative and Qualitative Disclosures About Market Risk			55
Item 4. Controls and Procedures			57

PART II — OTHER INFORMATION

Item 1. Legal Proceedings			58
Item 1A. Risk Factors			58
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			59
Item 3. Defaults Upon Senior Securities			59
Item 4. Mine Safety Disclosures			60
Item 5. Other Information			60
Item 6. Exhibits			60
Signatures			61

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

AMERICAN HEALTHCARE REIT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

As of June 30, 2023 and December 31, 2022

(In thousands, except share and per share amounts) (Unaudited)


	June 30, 2023		December 31, 2022
ASSETS
Real estate investments, net	$	3,482,804	$	3,581,609
Debt security investment, net	84,933		83,000
Cash and cash equivalents	48,407		65,052
Restricted cash	45,343		46,854
Accounts and other receivables, net	145,663		137,501

Identified intangible assets, net	210,636		236,283
Goodwill	234,942		231,611

Operating lease right-of-use assets, net	264,293		276,342
Other assets, net	149,363		128,446
Total assets	$	4,666,384	$	4,786,698

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY
Liabilities:
Mortgage loans payable, net(1)	$	1,237,565	$	1,229,847
Lines of credit and term loan, net(1)	1,281,683		1,281,794
Accounts payable and accrued liabilities(1)	223,561		243,831
Identified intangible liabilities, net	9,995		10,837
Financing obligations(1)	47,013		48,406
Operating lease liabilities(1)	262,718		273,075
Security deposits, prepaid rent and other liabilities(1)	47,574		49,545
Total liabilities	3,110,109		3,137,335

Commitments and contingencies (Note 10)

Redeemable noncontrolling interests (Note 11)	59,873		81,598

Equity:
Stockholders’ equity:
Preferred stock, $0.01 par value per share; 200,000,000 shares authorized; none issued and outstanding	—		—
Class T common stock, $0.01 par value per share; 200,000,000 shares authorized; 19,562,539 and 19,535,095 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	194		194
Class I common stock, $0.01 par value per share; 800,000,000 shares authorized; 46,673,320 and 46,675,367 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	467		467
Additional paid-in capital	2,547,135		2,540,424
Accumulated deficit	(1,209,578)		(1,138,304)
Accumulated other comprehensive loss	(2,444)		(2,690)
Total stockholders’ equity	1,335,774		1,400,091
Noncontrolling interests (Note 12)	160,628		167,674
Total equity	1,496,402		1,567,765
Total liabilities, redeemable noncontrolling interests and equity	$	4,666,384	$	4,786,698

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AMERICAN HEALTHCARE REIT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS — (Continued)

As of June 30, 2023 and December 31, 2022

(In thousands) (Unaudited)

___________

(1)Such liabilities of American Healthcare REIT, Inc. represented liabilities of American Healthcare REIT Holdings, LP or its consolidated subsidiaries as of June 30, 2023 and December 31, 2022. American Healthcare REIT Holdings, LP is a variable interest entity, or VIE, and a consolidated subsidiary of American Healthcare REIT, Inc. The creditors of American Healthcare REIT Holdings, LP or its consolidated subsidiaries do not have recourse against American Healthcare REIT, Inc., except for the 2022 Credit Facility, as defined in Note 8, held by American Healthcare REIT Holdings, LP in the amount of $926,400 and $965,900 as of June 30, 2023 and December 31, 2022, respectively, which was guaranteed by American Healthcare REIT, Inc.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AMERICAN HEALTHCARE REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

For the Three and Six Months Ended June 30, 2023 and 2022

(In thousands, except share and per share amounts) (Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenues and grant income:
Resident fees and services	$	410,622	$	326,225	$	819,252	$	645,199
Real estate revenue	50,568		51,105		94,164		103,048
Grant income	6,381		10,969		6,381		16,183
Total revenues and grant income	467,571		388,299		919,797		764,430
Expenses:
Property operating expenses	372,549		296,059		742,695		583,219
Rental expenses	14,653		14,663		29,848		29,950
General and administrative	11,774		10,928		24,827		22,047
Business acquisition expenses	888		1,757		1,220		1,930
Depreciation and amortization	44,701		39,971		89,371		82,282
Total expenses	444,565		363,378		887,961		719,428

Other income (expense):
Interest expense:
Interest expense (including amortization of deferred financing costs, debt discount/premium and gain/loss on debt extinguishments)	(40,990)		(20,345)		(80,001)		(43,670)
Gain in fair value of derivative financial instruments	4,993		—		4,798		500
(Loss) gain on dispositions of real estate investments	(2,072)		(73)		(2,204)		683
Impairment of real estate investments	—		(17,340)		—		(17,340)

(Loss) income from unconsolidated entities	(113)		638		(419)		2,024
Gain on re-measurement of previously held equity interest	—		—		726		—
Foreign currency gain (loss)	1,068		(3,607)		2,076		(4,994)
Other income	2,589		469		4,197		1,729
Total net other expense	(34,525)		(40,258)		(70,827)		(61,068)
Loss before income taxes	(11,519)		(15,337)		(38,991)		(16,066)
Income tax expense	(348)		(205)		(491)		(373)
Net loss	(11,867)		(15,542)		(39,482)		(16,439)
Net (income) loss attributable to noncontrolling interests	(316)		(1,768)		1,427		(3,827)
Net loss attributable to controlling interest	$	(12,183)	$	(17,310)	$	(38,055)	$	(20,266)
Net loss per Class T and Class I common share attributable to controlling interest — basic and diluted	$	(0.19)	$	(0.26)	$	(0.58)	$	(0.31)
Weighted average number of Class T and Class I common shares outstanding — basic and diluted	66,033,345		65,754,423		66,029,779		65,692,159

Net loss	$	(11,867)	$	(15,542)	$	(39,482)	$	(16,439)
Other comprehensive income (loss):
Foreign currency translation adjustments	124		(493)		246		(687)
Total other comprehensive income (loss)	124		(493)		246		(687)
Comprehensive loss	(11,743)		(16,035)		(39,236)		(17,126)
Comprehensive (income) loss attributable to noncontrolling interests	(316)		(1,768)		1,427		(3,827)
Comprehensive loss attributable to controlling interest	$	(12,059)	$	(17,803)	$	(37,809)	$	(20,953)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AMERICAN HEALTHCARE REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the Three and Six Months Ended June 30, 2023 and 2022

(In thousands, except share and per share amounts) (Unaudited)


	Three Months Ended June 30, 2023
	Stockholders’ Equity
	Class T and Class I Common Stock
	Number of Shares	Amount		Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
BALANCE — March 31, 2023	66,210,308	$	661	$	2,546,299	$	(1,180,741)	$	(2,568)	$	1,363,651	$	163,338	$	1,526,989



Issuance of nonvested restricted common stock	24,200	—		—		—		—		—		—		—
Vested restricted stock units(1)	4,120	—		(72)		—		—		(72)		—		(72)
Amortization of nonvested restricted common stock and stock units	—	—		1,564		—		—		1,564		—		1,564


Stock based compensation	—	—		—		—		—		—		20		20
Repurchase of common stock	(2,769)	—		(87)		—		—		(87)		—		(87)

Distributions to noncontrolling interests	—	—		—		—		—		—		(3,092)		(3,092)


Reclassification of noncontrolling interests to mezzanine equity	—	—		—		—		—		—		(20)		(20)
Adjustment to value of redeemable noncontrolling interests	—	—		(569)		—		—		(569)		(52)		(621)
Distributions declared ($0.25 per share)	—	—		—		(16,654)		—		(16,654)		—		(16,654)
Net (loss) income	—	—		—		(12,183)		—		(12,183)		434		(11,749)		(2)
Other comprehensive income	—	—		—		—		124		124		—		124
BALANCE — June 30, 2023	66,235,859	$	661	$	2,547,135	$	(1,209,578)	$	(2,444)	$	1,335,774	$	160,628	$	1,496,402

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AMERICAN HEALTHCARE REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY — (Continued)

For the Three and Six Months Ended June 30, 2023 and 2022

(In thousands, except share and per share amounts) (Unaudited)


	Three Months Ended June 30, 2022
	Stockholders’ Equity
	Class T and Class I Common Stock
	Number of Shares	Amount		Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
BALANCE — March 31, 2022	65,952,428	$	660	$	2,538,780	$	(980,613)	$	(2,160)	$	1,556,667	$	174,154	$	1,730,821
Offering costs — common stock	—	—		1		—		—		1		—		1
Issuance of common stock under the DRIP	299,857	3		11,140		—		—		11,143		—		11,143
Issuance of nonvested restricted common stock	13,725	—		—		—		—		—		—		—
Amortization of nonvested restricted common stock and stock units	—	—		980		—		—		980		—		980


Stock based compensation	—	—		—		—		—		—		21		21
Repurchase of common stock	(174,865)	(2)		(6,447)		—		—		(6,449)		—		(6,449)

Distributions to noncontrolling interests	—	—		—		—		—		—		(3,537)		(3,537)

Reclassification of noncontrolling interests to mezzanine equity	—	—		—		—		—		—		(21)		(21)
Adjustment to value of redeemable noncontrolling interests	—	—		(976)		—		—		(976)		(1)		(977)
Distributions declared ($0.40 per share)	—	—		—		(26,405)		—		(26,405)		—		(26,405)
Net (loss) income	—	—		—		(17,310)		—		(17,310)		1,986		(15,324)		(2)
Other comprehensive loss	—	—		—		—		(493)		(493)		—		(493)
BALANCE — June 30, 2022	66,091,145	$	661	$	2,543,478	$	(1,024,328)	$	(2,653)	$	1,517,158	$	172,602	$	1,689,760

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AMERICAN HEALTHCARE REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY — (Continued)

For the Three and Six Months Ended June 30, 2023 and 2022

(In thousands, except share and per share amounts) (Unaudited)


	Six Months Ended June 30, 2023
	Stockholders’ Equity
	Class T and Class I Common Stock
	Number of Shares	Amount		Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
BALANCE — December 31, 2022	66,210,462	$	661	$	2,540,424	$	(1,138,304)	$	(2,690)	$	1,400,091	$	167,674	$	1,567,765



Issuance of nonvested restricted common stock	26,156	—		—		—		—		—		—		—
Vested restricted stock units(1)	4,120	—		(72)		—		—		(72)		—		(72)
Amortization of nonvested restricted common stock and stock units	—	—		2,615		—		—		2,615		—		2,615


Stock based compensation	—	—		—		—		—		—		41		41
Repurchase of common stock	(4,879)	—		(165)		—		—		(165)		—		(165)

Distributions to noncontrolling interests	—	—		—		—		—		—		(6,194)		(6,194)


Reclassification of noncontrolling interests to mezzanine equity	—	—		—		—		—		—		(41)		(41)
Adjustment to value of redeemable noncontrolling interests	—	—		4,333		—		—		4,333		89		4,422
Distributions declared ($0.50 per share)	—	—		—		(33,219)		—		(33,219)		—		(33,219)
Net loss	—	—		—		(38,055)		—		(38,055)		(941)		(38,996)		(2)
Other comprehensive income	—	—		—		—		246		246		—		246
BALANCE — June 30, 2023	66,235,859	$	661	$	2,547,135	$	(1,209,578)	$	(2,444)	$	1,335,774	$	160,628	$	1,496,402

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AMERICAN HEALTHCARE REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY — (Continued)

For the Three and Six Months Ended June 30, 2023 and 2022

(In thousands, except share and per share amounts) (Unaudited)


	Six Months Ended June 30, 2022
	Stockholders’ Equity
	Class T and Class I Common Stock
	Number of Shares	Amount		Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
BALANCE — December 31, 2021	65,758,004	$	658	$	2,533,904	$	(951,303)	$	(1,966)	$	1,581,293	$	175,553	$	1,756,846

Offering costs — common stock	—	—		(2)		—		—		(2)		—		(2)
Issuance of common stock under the DRIP	606,375	6		22,441		—		—		22,447		—		22,447
Issuance of nonvested restricted common stock	13,725	—		—		—		—		—		—		—
Amortization of nonvested restricted common stock and stock units	—	—		1,791		—		—		1,791		—		1,791
Stock based compensation	—	—		—		—		—		—		42		42
Repurchase of common stock	(286,959)	(3)		(10,580)		—		—		(10,583)		—		(10,583)



Distributions to noncontrolling interests	—	—		—		—		—		—		(7,052)		(7,052)
Adjustment to noncontrolling interest in connection with the Merger	—	—		(1,173)		—		—		(1,173)		1,173		—

Reclassification of noncontrolling interests to mezzanine equity	—	—		—		—		—		—		(42)		(42)
Adjustment to value of redeemable noncontrolling interests	—	—		(2,903)		—		—		(2,903)		(930)		(3,833)
Distributions declared ($0.80 per share)	—	—		—		(52,759)		—		(52,759)		—		(52,759)
Net (loss) income	—	—		—		(20,266)		—		(20,266)		3,858		(16,408)		(2)
Other comprehensive loss	—	—		—		—		(687)		(687)		—		(687)
BALANCE — June 30, 2022	66,091,145	$	661	$	2,543,478	$	(1,024,328)	$	(2,653)	$	1,517,158	$	172,602	$	1,689,760

___________

(1)The amounts are shown net of common stock withheld from issuance to satisfy employee minimum tax withholding requirements in connection with the vesting of restricted stock units. See Note 12, Equity — AHR 2015 Incentive Plan, for further discussion.

(2)For the three months ended June 30, 2023 and 2022, amounts exclude $(118) and $(218), respectively, of net loss attributable to redeemable noncontrolling interests. For the six months ended June 30, 2023 and 2022, amounts exclude $(486) and $(31), respectively, of net loss attributable to redeemable noncontrolling interests. See Note 11, Redeemable Noncontrolling Interests, for further discussion.

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AMERICAN HEALTHCARE REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30, 2023 and 2022

(In thousands) (Unaudited)


	Six Months Ended June 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(39,482)	$	(16,439)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	89,371		82,293
Other amortization	32,647		12,178
Deferred rent	(2,083)		(3,542)

Stock based compensation	2,656		1,779



Impairment of real estate investments	—		17,340
Loss (gain) on dispositions of real estate investments	2,204		(683)
Loss (income) from unconsolidated entities	419		(2,024)
Gain on re-measurement of previously held equity interest	(726)		—
Foreign currency (gain) loss	(2,125)		4,848


Loss on extinguishments of debt	—		4,410

Change in fair value of derivative financial instruments	(4,798)		(500)


Changes in operating assets and liabilities:
Accounts and other receivables	(9,827)		(14,474)
Other assets	(4,449)		(5,277)
Accounts payable and accrued liabilities	(4,662)		(5,231)
Accounts payable due to affiliates	—		(184)
Operating lease liabilities	(18,866)		(8,617)
Security deposits, prepaid rent and other liabilities	3,363		(9,739)
Net cash provided by operating activities	43,642		56,138
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from dispositions of real estate investments	87,446		14,002
Developments and capital expenditures	(52,074)		(35,508)
Acquisitions of real estate investments	(12,333)		(75,125)
Acquisition of previously held equity interest	(335)		—



Investments in unconsolidated entities	(12,000)		(200)


Real estate and other deposits	(1,017)		(533)


Net cash provided by (used in) investing activities	9,687		(97,364)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under mortgage loans payable	61,077		89,712
Payments on mortgage loans payable	(55,127)		(40,662)

Borrowings under the lines of credit and term loan	199,300		1,009,900
Payments on the lines of credit and term loan	(199,400)		(968,900)
Deferred financing costs	(1,903)		(5,617)
Debt extinguishment costs	—		(2,790)


Payments on financing and other obligations	(7,779)		(12,141)


Distributions paid to common stockholders	(43,086)		(30,247)
Repurchase of common stock	(165)		(10,583)


Payments to taxing authorities in connection with common stock directly withheld from employees	(72)		—
Distributions to noncontrolling interests in total equity	(6,612)		(7,052)

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AMERICAN HEALTHCARE REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

For the Six Months Ended June 30, 2023 and 2022

(In thousands) (Unaudited)


	Six Months Ended June 30,
	2023		2022
Contribution from redeemable noncontrolling interest	$	—	$	173
Distributions to redeemable noncontrolling interests	(1,012)		(1,405)
Repurchase of redeemable noncontrolling interests	(15,954)		—
Payment of offering costs	(781)		(9)
Security deposits	(61)		(455)
Net cash (used in) provided by financing activities	(71,575)		19,924
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	$	(18,246)	$	(21,302)
EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH, CASH EQUIVALENTS AND RESTRICTED CASH	90		(8)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — Beginning of period	111,906		125,486
CASH, CASH EQUIVALENTS AND RESTRICTED CASH — End of period	$	93,750	$	104,176

RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Beginning of period:
Cash and cash equivalents	$	65,052	$	81,597
Restricted cash	46,854		43,889
Cash, cash equivalents and restricted cash	$	111,906	$	125,486

End of period:
Cash and cash equivalents	$	48,407	$	59,101
Restricted cash	45,343		45,075
Cash, cash equivalents and restricted cash	$	93,750	$	104,176

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for:
Interest	$	76,013	$	36,348
Income taxes	$	797	$	382
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Accrued developments and capital expenditures	$	25,664	$	14,055



Tenant improvement overage	$	1,047	$	568










Issuance of common stock under the DRIP	$	—	$	22,447
Distributions declared but not paid — common stockholders	$	16,559	$	8,812
Distributions declared but not paid — limited partnership units	$	875	$	467
Distributions declared but not paid — restricted stock units	$	123	$	37
Accrued offering costs	$	1,023	$	—



The following represents the net increase (decrease) in certain assets and liabilities in connection with our acquisitions and dispositions of investments:
Accounts and other receivables	$	(1,733)	$	(262)
Other assets, net	$	(920)	$	5,480
Mortgage loan payable, net	$	—	$	(12,059)

Accounts payable and accrued liabilities	$	(461)	$	1,672

Financing obligations	$	12	$	56
Security deposits, prepaid rent and other liabilities	$	28	$	8,129

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AMERICAN HEALTHCARE REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the Three and Six Months Ended June 30, 2023 and 2022

The use of the words “we,” “us” or “our” refers to American Healthcare REIT, Inc. and its subsidiaries, including American Healthcare REIT Holdings, LP, except where otherwise noted.

1. Organization and Description of Business

Overview and Background

American Healthcare REIT, Inc., a Maryland corporation, is a self-managed real estate investment trust, or REIT, that owns a diversified portfolio of clinical healthcare real estate properties, focusing primarily on medical office buildings, or MOBs, senior housing, skilled nursing facilities, or SNFs, hospitals and other healthcare-related facilities. We also operate healthcare-related facilities utilizing the structure permitted by the REIT Investment Diversification and Empowerment Act of 2007, which is commonly referred to as a “RIDEA” structure (the provisions of the Internal Revenue Code of 1986, as amended, or the Code, authorizing the RIDEA structure were enacted as part of the Housing and Economic Recovery Act of 2008). Our healthcare facilities operated under a RIDEA structure include our senior housing operating properties, or SHOP, and our integrated senior health campuses. We have originated and acquired secured loans and may also originate and acquire other real estate-related investments on an infrequent and opportunistic basis. We generally seek investments that produce current income; however, we have selectively developed, and may continue to selectively develop, healthcare real estate properties. We have elected to be taxed as a REIT for U.S. federal income tax purposes. We believe that we have been organized and operated, and we intend to continue to operate, in conformity with the requirements for qualification and taxation as a REIT under the Code.

On October 1, 2021, Griffin-American Healthcare REIT III, Inc., or GAHR III, merged with and into a wholly owned subsidiary, or Merger Sub, of Griffin-American Healthcare REIT IV, Inc., or GAHR IV, with Merger Sub being the surviving company, which we refer to as the REIT Merger, and our operating partnership, Griffin-American Healthcare REIT IV Holdings, LP, merged with and into Griffin-American Healthcare REIT III Holdings, LP, or the Surviving Partnership, with the Surviving Partnership being the surviving entity, which we refer to as the Partnership Merger and, together with the REIT Merger, the Merger. Following the Merger on October 1, 2021, our company was renamed American Healthcare REIT, Inc. and the Surviving Partnership was renamed American Healthcare REIT Holdings, LP, or our operating partnership.

Also on October 1, 2021, immediately prior to the consummation of the Merger, and pursuant to a contribution and exchange agreement dated June 23, 2021, GAHR III acquired a newly formed entity, American Healthcare Opps Holdings, LLC, or NewCo, which we refer to as the AHI Acquisition. Following the Merger and the AHI Acquisition, our company became self-managed.

Operating Partnership

We conduct substantially all of our operations through our operating partnership and we are the sole general partner of our operating partnership. As of both June 30, 2023 and December 31, 2022, we owned 95.0% of the partnership units, or OP units, in our operating partnership, and the remaining 5.0% limited OP units, were owned by AHI Group Holdings, LLC, which is owned and controlled by Jeffrey T. Hanson, the non-executive Chairman of our board of directors, or our board, Danny Prosky, our Chief Executive Officer and President, and Mathieu B. Streiff, one of our directors; Platform Healthcare Investor TII, LLC; Flaherty Trust; and a wholly owned subsidiary of Griffin Capital Company, LLC, or collectively, the NewCo Sellers. See Note 11, Redeemable Noncontrolling Interests, and Note 12, Equity — Noncontrolling Interests in Total Equity, for a further discussion of the ownership in our operating partnership.

Public Offerings

As of June 30, 2023, after taking into consideration the impact of the Merger and the reverse stock split as discussed in Note 2, Summary of Significant Accounting Policies, we had issued 65,445,557 shares for a total of $2,737,716,000 of common stock since February 26, 2014 in our initial public offerings and our distribution reinvestment plan, or DRIP, offerings (includes historical offering amounts sold by GAHR III and GAHR IV prior to the Merger).

On September 16, 2022, we filed with the United States Securities and Exchange Commission, or the SEC, a Registration Statement on Form S-11 (File No. 333-267464), and on July 14, 2023, we filed with the SEC Amendment No. 1 to Registration Statement on Form S-11, with respect to a proposed public offering by us of our shares of common stock in conjunction with a contemplated listing of our common stock on the New York Stock Exchange, or the Proposed Listing. Such registration statement and contemplated listing are not yet effective.

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See Note 12, Equity — Common Stock, and Note 12, Equity — Distribution Reinvestment Plan, for a further discussion of our public offerings.

Our Real Estate Investments Portfolio

We currently operate through six reportable business segments: integrated senior health campuses, MOBs, SNFs, SHOP, senior housing — leased and hospitals. As of June 30, 2023, we owned and/or operated 300 buildings and integrated senior health campuses, including completed development and expansion projects, representing approximately 19,142,000 square feet of gross leasable area, or GLA, for an aggregate contract purchase price of $4,517,298,000. In addition, as of June 30, 2023, we also owned a real estate-related debt investment purchased for $60,429,000.

COVID-19

Our residents, tenants, operating partners and managers, our industry and the U.S. economy have been adversely affected by the impact of the COVID-19 pandemic and the economic impact of the pandemic. While the immediate effects of the COVID-19 pandemic have subsided, the timing and extent of the economic recovery towards pre-pandemic norms is dependent upon many factors, including the emergence and severity of future COVID-19 variants, the effectiveness and frequency of booster vaccinations, the duration and implications of ongoing or future restrictions and safety measures, the availability of ongoing government financial support to our tenants, operating partners and managers and the overall pace of economic recovery, among others. As an owner and operator of healthcare facilities, we expect to continue to be adversely affected by the long-term effects of the COVID-19 pandemic for some period of time; however, it is not possible to predict the full extent of its future impact on us, the operations of our properties or the markets in which they are located, or the overall healthcare industry.

We have evaluated such economic impacts of the COVID-19 pandemic on our business thus far and incorporated information concerning such impacts into our assessments of liquidity, impairment and collectability from tenants and residents as of June 30, 2023. We will continue to monitor such impacts and will adjust our estimates and assumptions based on the best available information.

2. Summary of Significant Accounting Policies

The summary of significant accounting policies presented below is designed to assist in understanding our accompanying condensed consolidated financial statements. Such condensed consolidated financial statements and the accompanying notes thereto are the representations of our management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America, or GAAP, in all material respects, and have been consistently applied in preparing our accompanying condensed consolidated financial statements.

Basis of Presentation

Our accompanying condensed consolidated financial statements include our accounts and those of our operating partnership, the wholly owned subsidiaries of our operating partnership and all non-wholly owned subsidiaries in which we have control, as well as any VIEs in which we are the primary beneficiary. The portion of equity in any subsidiary that is not wholly owned by us is presented in our accompanying condensed consolidated financial statements as a noncontrolling interest. We evaluate our ability to control an entity, and whether the entity is a VIE and we are the primary beneficiary, by considering substantive terms of the arrangement and identifying which enterprise has the power to direct the activities of the entity that most significantly impacts the entity’s economic performance.

On November 15, 2022 we effected a one-for-four reverse stock split of our common stock and a corresponding reverse split of the OP units, or the Reverse Splits. All numbers of common shares and per share data, as well as the OP units, in our accompanying condensed consolidated financial statements and related notes have been retroactively adjusted for all periods presented to give effect to the Reverse Splits.

We operate and intend to continue to operate in an umbrella partnership REIT structure in which our operating partnership, or wholly owned subsidiaries of our operating partnership and all non-wholly owned subsidiaries of which we have control, will own substantially all of the interests in properties acquired on our behalf. We are the sole general partner of our operating partnership and as of both June 30, 2023 and December 31, 2022, we owned a 95.0% general partnership interest therein, and the remaining 5.0% limited partnership interest was owned by the NewCo Sellers.

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The accounts of our operating partnership are consolidated in our accompanying condensed consolidated financial statements because we are the sole general partner of our operating partnership and have unilateral control over its management and major operating decisions (even if additional limited partners are admitted to our operating partnership). All intercompany accounts and transactions are eliminated in consolidation.

Interim Unaudited Financial Data

Our accompanying condensed consolidated financial statements have been prepared by us in accordance with GAAP in conjunction with the rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to the SEC’s rules and regulations. Accordingly, our accompanying condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. Our accompanying condensed consolidated financial statements reflect all adjustments which are, in our view, of a normal recurring nature and necessary for a fair presentation of our financial position, results of operations and cash flows for the interim period. Interim results of operations are not necessarily indicative of the results to be expected for the full year; such full year results may be less favorable.

In preparing our accompanying condensed consolidated financial statements, management has evaluated subsequent events through the financial statement issuance date. We believe that although the disclosures contained herein are adequate to prevent the information presented from being misleading, our accompanying condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in our 2022 Annual Report on Form 10-K, as filed with the SEC on March 17, 2023.

Use of Estimates

The preparation of our accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities, at the date of our condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include, but are not limited to, the initial and recurring valuation of certain assets acquired and liabilities assumed through property acquisitions, including through business combinations, goodwill and its impairment, revenues and grant income, allowance for credit losses, impairment of long-lived and intangible assets and contingencies. These estimates are made and evaluated on an on-going basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates, perhaps in material adverse ways, and those estimates could be different under different assumptions or conditions.

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Revenue Recognition — Resident Fees and Services Revenue

Disaggregation of Resident Fees and Services Revenue

The following tables disaggregate our resident fees and services revenue by line of business, according to whether such revenue is recognized at a point in time or over time (in thousands):


	Three Months Ended June 30,
	2023						2022
	Integrated Senior Health Campuses		SHOP(1)		Total		Integrated Senior Health Campuses		SHOP(1)		Total
Over time	$	298,628	$	46,600	$	345,228	$	232,839	$	37,891	$	270,730
Point in time	64,228		1,166		65,394		54,743		752		55,495
Total resident fees and services	$	362,856	$	47,766	$	410,622	$	287,582	$	38,643	$	326,225


	Six Months Ended June 30,
	2023						2022
	Integrated Senior Health Campuses		SHOP(1)		Total		Integrated Senior Health Campuses		SHOP(1)		Total
Over time	$	597,479	$	92,212	$	689,691	$	463,373	$	75,107	$	538,480
Point in time	127,147		2,414		129,561		105,221		1,498		106,719
Total resident fees and services	$	724,626	$	94,626	$	819,252	$	568,594	$	76,605	$	645,199

The following tables disaggregate our resident fees and services revenue by payor class (in thousands):


	Three Months Ended June 30,
	2023						2022
	Integrated Senior Health Campuses		SHOP(1)		Total		Integrated Senior Health Campuses		SHOP(1)		Total
Private and other payors	$	165,154	$	44,996	$	210,150	$	137,419	$	35,632	$	173,051
Medicare	117,999		—		117,999		93,680		—		93,680
Medicaid	79,703		2,770		82,473		56,483		3,011		59,494
Total resident fees and services	$	362,856	$	47,766	$	410,622	$	287,582	$	38,643	$	326,225


	Six Months Ended June 30,
	2023						2022
	Integrated Senior Health Campuses		SHOP(1)		Total		Integrated Senior Health Campuses		SHOP(1)		Total
Private and other payors	$	334,831	$	88,846	$	423,677	$	269,222	$	70,669	$	339,891
Medicare	244,466		311		244,777		188,197		—		188,197
Medicaid	145,329		5,469		150,798		111,175		5,936		117,111
Total resident fees and services	$	724,626	$	94,626	$	819,252	$	568,594	$	76,605	$	645,199

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___________

(1)Includes fees for basic housing, as well as fees for assisted living or skilled nursing care. We record revenue when services are rendered at amounts billable to individual residents. Residency agreements are generally for a term of 30 days, with resident fees billed monthly in advance. For patients under reimbursement arrangements with Medicaid, revenue is recorded based on contractually agreed-upon amounts or rates on a per resident, daily basis or as services are rendered.

Accounts Receivable, Net — Resident Fees and Services Revenue

The beginning and ending balances of accounts receivable, net — resident fees and services are as follows (in thousands):


	Private and Other Payors		Medicare		Medicaid		Total
Beginning balance — January 1, 2023	$	55,484	$	45,669	$	20,832	$	121,985
Ending balance — June 30, 2023	58,199		45,477		18,708		122,384
Increase (decrease)	$	2,715	$	(192)	$	(2,124)	$	399

Deferred Revenue — Resident Fees and Services Revenue

Deferred revenue is included in security deposits, prepaid rent and other liabilities in our accompanying condensed consolidated balance sheets. The beginning and ending balances of deferred revenue — resident fees and services, almost all of which relates to private and other payors, are as follows (in thousands):


	Total
Beginning balance — January 1, 2023	$	17,901
Ending balance — June 30, 2023	22,232
Increase	$	4,331

Resident and Tenant Receivables and Allowances

Resident receivables, which are related to resident fees and services revenue, are carried net of an allowance for credit losses. An allowance is maintained for estimated losses resulting from the inability of residents and payors to meet the contractual obligations under their lease or service agreements. Substantially all of such allowances are recorded as direct reductions of resident fees and services revenue as contractual adjustments provided to third-party payors or implicit price concessions in our accompanying condensed consolidated statements of operations and comprehensive loss. Our determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, the residents’ financial condition, security deposits, cash collection patterns by payor and by state, current economic conditions, future expectations in estimating credit losses and other relevant factors. Tenant receivables, which are related to real estate revenue, and unbilled deferred rent receivables are reduced for amounts where collectability is not probable, which are recognized as direct reductions of real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive loss.

As of June 30, 2023 and December 31, 2022, we had $15,046,000 and $14,071,000, respectively, in allowances, which were determined necessary to reduce receivables by our expected future credit losses. For the six months ended June 30, 2023 and 2022, we increased allowances by $9,090,000 and $9,581,000, respectively, and reduced allowances for collections or adjustments by $3,596,000 and $3,643,000, respectively. For the six months ended June 30, 2023 and 2022, $4,519,000 and $3,518,000, respectively, of our receivables were written off against the related allowances.

Accounts Payable and Accrued Liabilities

As of June 30, 2023 and December 31, 2022, accounts payable and accrued liabilities primarily include insurance reserves of $42,307,000 and $39,893,000, respectively, reimbursement of payroll-related costs to the managers of our SHOP and integrated senior health campuses of $39,408,000 and $38,624,000, respectively, accrued developments and capital expenditures to unaffiliated third parties of $25,664,000 and $30,211,000, respectively, accrued property taxes of $25,415,000 and $24,926,000, respectively, and accrued distributions to common stockholders of $16,559,000 and $26,484,000, respectively.

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Recently Issued Accounting Pronouncement

In July 2023, the Financial Accounting Standards Board, or FASB, issued Accounting Standard Update, or ASU, 2023-03, Presentation of Financial Statements (Topic 205), Income Statement-Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation-Stock Compensation (Topic 718): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280-General Revision of Regulation S-X: Income or Loss Applicable to Common Stock, or ASU 2023-03. ASU 2023-03 amends the Accounting Standards Codification, or ASC, for SEC updates pursuant to SEC Staff Accounting Bulletin No. 120; SEC Staff Announcement at the March 24, 2022 Emerging Issues Task Force Meeting; and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280 - General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. These updates were immediately effective and did not have a material impact on our consolidated financial statements and disclosures.

3. Real Estate Investments, Net and Business Combinations

Our real estate investments, net consisted of the following as of June 30, 2023 and December 31, 2022 (in thousands):


	June 30, 2023		December 31, 2022
Building, improvements and construction in process	$	3,618,097	$	3,670,361
Land and improvements	341,262		344,359
Furniture, fixtures and equipment	235,159		221,727
	4,194,518		4,236,447
Less: accumulated depreciation	(711,714)		(654,838)
	$	3,482,804	$	3,581,609

Depreciation expense for the three months ended June 30, 2023 and 2022 was $37,139,000 and $34,328,000, respectively, and for the six months ended June 30, 2023 and 2022 was $73,038,000 and $68,750,000, respectively. For the three months ended June 30, 2023, we incurred capital expenditures of $18,858,000 for our integrated senior health campuses, $7,268,000 for our MOBs, $2,179,000 for our SHOP and $245,000 for our senior housing — leased. We did not incur any capital expenditures for our properties within our hospitals and SNFs segments for the three months ended June 30, 2023. For the six months ended June 30, 2023, we incurred capital expenditures of $29,059,000 for our integrated senior health campuses, $10,842,000 for our MOBs, $3,929,000 for our SHOP and $245,000 for our senior housing — leased. We did not incur any capital expenditures for our properties within our hospitals and SNFs segments for the six months ended June 30, 2023.

For both the three and six months ended June 30, 2023, we did not recognize impairment charges on real estate investments. During both the three and six months ended June 30, 2022, we determined that four of our SHOP were impaired and recognized an aggregate impairment charge of $17,340,000, which reduced the total carrying value of such assets to $19,325,000. The fair value of one SHOP was determined by the sales price from an executed purchase and sale agreement with a third-party buyer, which was considered a Level 2 measurement within the fair value hierarchy. The fair value of the remaining three SHOP were based on their projected sales prices, which were considered Level 2 measurements within the fair value hierarchy. We disposed of three of such impaired facilities during the fourth quarter of 2022 and one of such impaired facilities during the first quarter of 2023. See the “Dispositions of Real Estate Investments” section below.

Acquisitions of Real Estate Investments

On February 15, 2023, we, through a majority-owned subsidiary of Trilogy Investors, LLC, or Trilogy, acquired an integrated senior health campus located in Kentucky for a contract purchase price of $11,000,000, plus immaterial closing costs. We financed such acquisition with cash on hand and a mortgage loan payable placed on the property at the time of acquisition with a principal balance of $7,700,000.

On June 30, 2023, we, through a majority-owned subsidiary of Trilogy, acquired a land parcel in Ohio for a contract purchase price of $660,000, plus closing costs, for the future expansion of an existing integrated senior health campus.

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We accounted for our acquisition of land and real estate investment completed during the six months ended June 30, 2023 as asset acquisitions. The following table summarizes the purchase price of such acquisitions based on their relative fair values (in thousands):


	2023 Acquisitions
Building and improvements	$	10,139
Land and improvements	1,575




Total assets acquired	$	11,714

Dispositions of Real Estate Investments

For the six months ended June 30, 2023, we disposed of five SHOP and 11 MOBs. We recognized a total aggregate net loss on such dispositions of $1,975,000. The following is a summary of such dispositions (dollars in thousands):


Location	Number of Buildings	Type	Date Disposed	Contract Sales Price
Pinellas Park, FL(1)	1	SHOP	02/01/23	$	7,730
Olympia Fields, IL	1	MOB	04/10/23	3,750
Auburn, CA	1	MOB	04/26/23	7,050
Pottsville, PA	1	MOB	04/26/23	6,000
New London, CT	1	MOB	05/24/23	4,200
Stratford, CT	1	MOB	05/24/23	4,800
Westbrook, CT	1	MOB	05/24/23	7,250
Lakeland, FL(1)	1	SHOP	06/01/23	7,080
Winter Haven, FL(1)	1	SHOP	06/01/23	17,500
Acworth, GA	3	MOB	06/14/23	8,775
Lithonia, GA	1	MOB	06/14/23	3,445
Stockbridge, GA	1	MOB	06/14/23	2,430
Lake Placid, FL(1)	1	SHOP	06/30/23	5,620
Brooksville, FL(1)	1	SHOP	06/30/23	7,800
Total	16			$	93,430

___________

(1)See Note 11, Redeemable Noncontrolling Interests, for information about the ownership of the Central Florida Senior Housing Portfolio.

Business Combinations

On February 15, 2023, we, through a majority-owned subsidiary of Trilogy, acquired from an unaffiliated third party, a 60.0% controlling interest in a privately held company, Memory Care Partners, LLC, or MCP, that operated integrated senior health campuses located in Kentucky. The contract purchase price for the acquisition of MCP was $900,000, which was acquired using cash on hand. Prior to such acquisition, we owned a 40.0% interest in MCP, which was accounted for as an equity method investment and was included in investments in unconsolidated entities within other assets, net in our accompanying condensed consolidated balance sheet as of December 31, 2022. In connection with the acquisition of the remaining interest in MCP, we now own a 100% controlling interest in MCP. As a result, we re-measured the fair value of our previously held equity interest in MCP and recognized a gain on re-measurement of $726,000 in our accompanying condensed consolidated statements of operations and comprehensive loss.

On January 3, 2022, we, through a majority-owned subsidiary of Trilogy, acquired an integrated senior health campus in Kentucky from an unaffiliated third party. The contract purchase price for such property acquisition was $27,790,000 plus immaterial transaction costs. We acquired such property using cash on hand and placed a mortgage loan payable of $20,800,000 on the property at the time of acquisition. Further, on April 1, 2022, we, through a majority-owned subsidiary of Trilogy, acquired a 50.0% interest in a pharmaceutical business in Florida from an unaffiliated third party and incurred

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transaction costs of $938,000. Prior to such pharmaceutical business acquisition, we owned the other 50.0% interest in such business, which was accounted for as an equity method investment. Therefore, through March 31, 2022, our 50.0% interest in the net earnings or losses of such unconsolidated entity was included in income (loss) from unconsolidated entities in our accompanying condensed consolidated statements of operations and comprehensive loss.

Based on quantitative and qualitative considerations, such business combinations were not material to us individually or in the aggregate and therefore, pro forma financial information is not provided. Any necessary adjustments are finalized within one year from the date of acquisition. The table below summarizes the acquisition date fair values of the assets acquired and liabilities assumed of our business combinations during the six months ended June 30, 2023 and 2022 (in thousands):


	2023 Acquisition		2022 Acquisitions
Building and improvements	$	—	$	17,273
Land	—		3,060
In-place leases	—		3,420
Goodwill	3,331		2,816
Furniture, fixtures and equipment	39		1,936
Cash and restricted cash	565		971
Certificates of need	—		690
Operating lease right-of-use assets	—		646
Other assets	66		457
Accounts receivable, net	—		427
Total assets acquired	4,001		31,696
Security deposits and other liabilities	(812)		(8,129)

Accounts payable and accrued liabilities	(1,676)		(1,802)
Operating lease liabilities	—		(646)
Financing obligations	(12)		(56)
Total liabilities assumed	(2,500)		(10,633)
Net assets acquired	$	1,501	$	21,063

4. Debt Security Investment, Net

Our investment in a commercial mortgage-backed debt security, or debt security, bears an interest rate on the stated principal amount thereof equal to 4.24% per annum, the terms of which security provide for monthly interest-only payments. The debt security matures on August 25, 2025 at a stated amount of $93,433,000, resulting in an anticipated yield-to-maturity of 10.0% per annum. The debt security was issued by an unaffiliated mortgage trust and represents a 10.0% beneficial ownership interest in such mortgage trust. The debt security is subordinate to all other interests in the mortgage trust and is not guaranteed by a government-sponsored entity.

As of June 30, 2023 and December 31, 2022, the carrying amount of the debt security investment was $84,933,000 and $83,000,000, respectively, net of unamortized closing costs of $633,000 and $767,000, respectively. Accretion on the debt security for the three months ended June 30, 2023 and 2022 was $1,046,000 and $986,000, respectively, and for the six months ended June 30, 2023 and 2022 was $2,066,000 and $1,966,000, respectively, which is recorded as an increase to real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive loss. Amortization expense of closing costs for the three months ended June 30, 2023 and 2022 was $68,000 and $58,000, respectively, and for the six months ended June 30, 2023 and 2022 was $133,000 and $114,000, respectively, which is recorded as a decrease to real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive loss. We evaluated credit quality indicators such as the agency ratings and the underlying collateral of such investment in order to determine expected future credit loss. We did not record a credit loss for the three and six months ended June 30, 2023 and 2022.

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5. Intangibles

Identified intangible assets, net and identified intangible liabilities, net consisted of the following as of June 30, 2023 and December 31, 2022 (dollars in thousands):


	June 30, 2023		December 31, 2022
Amortized intangible assets:
In-place leases, net of accumulated amortization of $46,451 and $38,930 as of June 30, 2023 and December 31, 2022, respectively (with a weighted average remaining life of 7.4 years and 7.0 years as of June 30, 2023 and December 31, 2022, respectively)	$	59,937	$	75,580
Above-market leases, net of accumulated amortization of $6,503 and $6,360 as of June 30, 2023 and December 31, 2022, respectively (with a weighted average remaining life of 8.2 years and 9.0 years as of June 30, 2023 and December 31, 2022, respectively)	20,238		30,194
Customer relationships, net of accumulated amortization of $859 and $785 as of June 30, 2023 and December 31, 2022, respectively (with a weighted average remaining life of 13.2 years and 13.7 years as of June 30, 2023 and December 31, 2022, respectively)	1,981		2,055

Unamortized intangible assets:
Certificates of need	97,693		97,667
Trade names	30,787		30,787
Total identified intangible assets, net	$	210,636	$	236,283

Amortized intangible liabilities:
Below-market leases, net of accumulated amortization of $3,169 and $2,508 as of June 30, 2023 and December 31, 2022, respectively (with a weighted average remaining life of 8.1 years and 8.4 years as of June 30, 2023 and December 31, 2022, respectively)	$	9,995	$	10,837
Total identified intangible liabilities, net	$	9,995	$	10,837

Amortization expense on identified intangible assets for the three months ended June 30, 2023 and 2022 was $7,711,000 and $6,121,000, respectively, which included $859,000 and $1,113,000, respectively, of amortization recorded as a decrease to real estate revenue for above-market leases in our accompanying condensed consolidated statements of operations and comprehensive loss. Amortization expense on identified intangible assets for the six months ended June 30, 2023 and 2022 was $24,782,000 and $14,360,000, respectively, which included $9,942,000 and $2,227,000, respectively, of amortization recorded as a decrease to real estate revenue for above-market leases in our accompanying condensed consolidated statements of operations and comprehensive loss. On March 1, 2023, we transitioned our SNFs within Central Wisconsin Senior Care Portfolio to a RIDEA structure, which resulted in a full amortization of $8,073,000 of above-market leases and $885,000 of in-place leases.

Amortization expense on below-market leases for the three months ended June 30, 2023 and 2022 was $404,000 and $414,000, respectively, and for the six months ended June 30, 2023 and 2022 was $812,000 and $1,023,000, respectively, which is recorded as an increase to real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive loss.

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The aggregate weighted average remaining life of the identified intangible assets was 7.8 years and 7.7 years as of June 30, 2023 and December 31, 2022, respectively. The aggregate weighted average remaining life of the identified intangible liabilities was 8.1 years and 8.4 years as of June 30, 2023 and December 31, 2022, respectively. As of June 30, 2023, estimated amortization expense on the identified intangible assets and liabilities for the six months ending December 31, 2023 and for each of the next four years ending December 31 and thereafter was as follows (in thousands):


	Amortization Expense
Year	Intangible Assets		Intangible Liabilities
2023	$	12,461	$	777
2024	12,638		1,470
2025	9,838		1,343
2026	8,683		1,193
2027	8,110		1,158
Thereafter	30,426		4,054
Total	$	82,156	$	9,995

6. Other Assets, Net

Other assets, net consisted of the following as of June 30, 2023 and December 31, 2022 (dollars in thousands):


	June 30, 2023		December 31, 2022
Deferred rent receivables	$	48,508	$	46,867
Prepaid expenses, deposits, other assets and deferred tax assets, net	31,121		25,866
Investments in unconsolidated entities	21,306		9,580
Inventory — finished goods	19,289		19,775
Lease commissions, net of accumulated amortization of $6,646 and $6,260 as of June 30, 2023 and December 31, 2022, respectively	18,723		19,217

Derivative financial instrument	4,798		—
Deferred financing costs, net of accumulated amortization of $7,391 and $5,704 as of June 30, 2023 and December 31, 2022, respectively	2,986		4,334
Lease inducement, net of accumulated amortization of $2,368 and $2,193 as of June 30, 2023 and December 31, 2022, respectively (with a weighted average remaining life of 7.4 years and 7.9 years as of June 30, 2023 and December 31, 2022, respectively)	2,632		2,807
Total	$	149,363	$	128,446

Deferred financing costs included in other assets, net were related to the 2019 Trilogy Credit Facility and the senior unsecured revolving credit facility portion of the 2022 Credit Facility. See Note 8, Lines of Credit and Term Loan, for further discussion. Amortization expense on lease inducement for both the three and six months ended June 30, 2023 and 2022 was $88,000 and $176,000, respectively, which is recorded as a decrease to real estate revenue in our accompanying condensed consolidated statements of operations and comprehensive loss.

7. Mortgage Loans Payable, Net

As of June 30, 2023 and December 31, 2022, mortgage loans payable were $1,260,429,000 ($1,237,565,000, net of discount/premium and deferred financing costs) and $1,254,479,000 ($1,229,847,000, net of discount/premium and deferred financing costs), respectively. As of June 30, 2023, we had 71 fixed-rate mortgage loans payable and 12 variable-rate mortgage loans payable with effective interest rates ranging from 2.21% to 8.01% per annum based on interest rates in effect as of June 30, 2023 and a weighted average effective interest rate of 4.51%. As of December 31, 2022, we had 68 fixed-rate mortgage loans payable and 11 variable-rate mortgage loans payable with effective interest rates ranging from 2.21% to 7.26% per annum based on interest rates in effect as of December 31, 2022 and a weighted average effective interest rate of 4.29%. We are required by the terms of certain loan documents to meet certain reporting requirements and covenants, such as net worth ratios, fixed charge coverage ratios and leverage ratios.

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Mortgage loans payable, net consisted of the following as of June 30, 2023 and December 31, 2022 (in thousands):


	June 30, 2023		December 31, 2022
Total fixed-rate debt	$	929,442	$	885,892
Total variable-rate debt	330,987		368,587
Total fixed- and variable-rate debt	1,260,429		1,254,479
Less: deferred financing costs, net	(8,851)		(8,845)
Add: premium	199		237
Less: discount	(14,212)		(16,024)
Mortgage loans payable, net	$	1,237,565	$	1,229,847

The following table reflects the changes in the carrying amount of mortgage loans payable, net for the six months ended June 30, 2023 and 2022 (in thousands):


	Six Months Ended June 30,
	2023		2022
Beginning balance	$	1,229,847	$	1,095,594
Additions:
Borrowings under mortgage loans payable	61,077		155,882

Amortization of deferred financing costs	1,136		1,191
Amortization of discount/premium on mortgage loans payable, net	632		1,528
Deductions:
Scheduled principal payments on mortgage loans payable	(55,127)		(40,662)
Early payoff of mortgage loans payable	—		(78,437)

Deferred financing costs	—		(1,037)
Ending balance	$	1,237,565	$	1,134,059

For the three and six months ended June 30, 2023, we did not incur any gain or loss on the early extinguishment of mortgage loans payable. For the three and six months ended June 30, 2022, we incurred an aggregate gain (loss) on the early extinguishment of mortgage loans payable of $181,000 and $(1,249,000), respectively, which is recorded as an decrease (increase) to interest expense in our accompanying condensed consolidated statements of operations and comprehensive loss. Such aggregate net loss was primarily related to the write-off of unamortized loan discount related to eight mortgage loans payable that we refinanced on January 1, 2022 that were due to mature in 2044 through 2052.

As of June 30, 2023, the principal payments due on our mortgage loans payable for the six months ending December 31, 2023 and for each of the next four years ending December 31 and thereafter were as follows (in thousands):


Year	Amount
2023	$	24,165
2024	332,910
2025	166,091
2026	155,736
2027	35,023
Thereafter	546,504
Total	$	1,260,429

8. Lines of Credit and Term Loan

2022 Credit Facility

On January 19, 2022, we, through our operating partnership, as borrower, and certain of our subsidiaries, or the subsidiary guarantors, collectively as guarantors, entered into an agreement, or the 2022 Credit Agreement, to amend and

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restate the credit agreement for our existing credit facility with Bank of America, N.A., or Bank of America, KeyBank National Association, Citizens Bank, National Association, and the lenders named therein. The 2022 Credit Agreement provides for a credit facility with an aggregate maximum principal amount up to $1,050,000,000, or the 2022 Credit Facility, which consists of a senior unsecured revolving credit facility in the initial aggregate amount of $500,000,000 and a senior unsecured term loan facility in the initial aggregate amount of $550,000,000. The proceeds of loans made under the 2022 Credit Facility may be used for refinancing existing indebtedness and for general corporate purposes including for working capital, capital expenditures and other corporate purposes not inconsistent with obligations under the 2022 Credit Agreement. We may also obtain up to $25,000,000 in the form of standby letters of credit pursuant to the 2022 Credit Facility. Unless defined herein, all capitalized terms under this “2022 Credit Facility” subsection are defined in the 2022 Credit Agreement.

Under the terms of the 2022 Credit Agreement, the revolving loans mature on January 19, 2026, and may be extended for one 12-month period, subject to the satisfaction of certain conditions, including payment of an extension fee. The term loan matures on January 19, 2027, and may not be extended. The maximum principal amount of the 2022 Credit Facility may be increased by an aggregate incremental amount of $700,000,000, subject to: (i) the terms of the 2022 Credit Agreement; and (ii) at least five business days’ prior written notice to Bank of America.

The 2022 Credit Facility bears interest at varying rates based upon, at our option, (i) Daily SOFR, plus the Applicable Rate for Daily SOFR Rate Loans or (ii) the Term SOFR, plus the Applicable Rate for Term SOFR Rate Loans. If, under the terms of the 2022 Credit Agreement, there is an inability to determine the Daily SOFR or the Term SOFR then the 2022 Credit Facility will bear interest at a rate per annum equal to the Base Rate plus the Applicable Rate for Base Rate Loans. The loans may be repaid in whole or in part without prepayment premium or penalty, subject to certain conditions.

The 2022 Credit Agreement requires us to add additional subsidiaries as guarantors in the event the value of the assets owned by the subsidiary guarantors falls below a certain threshold as set forth in the 2022 Credit Agreement. In the event of default, Bank of America has the right to terminate the commitment of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions under the 2022 Credit Agreement, and to accelerate the payment on any unpaid principal amount of all outstanding loans and interest thereon. On March 1, 2023, we entered into an amendment to the 2022 Credit Agreement, or the First Amendment. The material terms of the First Amendment provided for revisions to certain financial covenants for a limited period of time. Except as modified by the terms of the First Amendment, the material terms of the 2022 Credit Agreement remain in full force and effect.

As of both June 30, 2023 and December 31, 2022, our aggregate borrowing capacity under the 2022 Credit Facility was $1,050,000,000, excluding the $25,000,000 in standby letters of credit described above. As of June 30, 2023 and December 31, 2022, borrowings outstanding under the 2022 Credit Facility totaled $926,400,000 ($925,549,000, net of deferred financing costs related to the senior unsecured term loan facility portion of the 2022 Credit Facility) and $965,900,000 ($965,060,000, net of deferred financing costs related to the senior unsecured term loan facility portion of the 2022 Credit Facility), respectively, and the weighted average interest rate on such borrowings outstanding was 6.82% and 6.07% per annum, respectively.

In January 2022, in connection with the 2022 Credit Agreement, we incurred an aggregate $3,161,000 loss on the extinguishment of a portion of senior unsecured term loan related to former credit facilities. Such loss on extinguishment of debt is recorded as an increase to interest expense in our accompanying condensed consolidated statements of operations and comprehensive loss, and primarily consisted of lender fees we paid to obtain the 2022 Credit Facility.

2019 Trilogy Credit Facility

We, through Trilogy RER, LLC, are party to an amended and restated loan agreement, or the 2019 Trilogy Credit Agreement, among certain subsidiaries of Trilogy OpCo, LLC, Trilogy RER, LLC, and Trilogy Pro Services, LLC; KeyBank; CIT Bank, N.A.; Regions Bank; KeyBanc Capital Markets, Inc.; Regions Capital Markets; Bank of America; The Huntington National Bank; and a syndicate of other banks, as lenders named therein, with respect to a senior secured revolving credit facility that had an aggregate maximum principal amount of $360,000,000, consisting of: (i) a $325,000,000 secured revolver supported by real estate assets and ancillary business cash flow and (ii) a $35,000,000 accounts receivable revolving credit facility supported by eligible accounts receivable, or the 2019 Trilogy Credit Facility. The proceeds of the 2019 Trilogy Credit Facility may be used for acquisitions, debt repayment and general corporate purposes. The maximum principal amount of the 2019 Trilogy Credit Facility could have been increased by up to $140,000,000, for a total principal amount of $500,000,000, subject to certain conditions.

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On December 20, 2022, we entered into an amendment to the 2019 Trilogy Credit Agreement, or the 2019 Trilogy Credit Amendment. The material terms of the 2019 Trilogy Credit Amendment provided for an increase to the secured revolver amount from $325,000,000 to $365,000,000, thereby increasing our aggregate maximum principal amount under the credit facility from $360,000,000 to $400,000,000. In addition, all references to the London Inter-bank Offered Rate, or LIBOR, were replaced with the Secured Overnight Financing Rate, or SOFR. On March 30, 2023, we further amended the 2019 Trilogy Credit Agreement to update the definition of Implied Debt Service, which is used to calculate the Real Estate Borrowing Base Availability, for interest rate changes and to add an annual interest-only payment calculation option. Except as modified by the terms of the amendments, the material terms of the 2019 Trilogy Credit Agreement remain in full force and effect. Unless defined herein, all capitalized terms under this “2019 Trilogy Credit Facility” subsection are defined in the 2019 Trilogy Credit Amendment.

The 2019 Trilogy Credit Facility matures on September 5, 2023 and may be extended for one 12-month period during the term of the 2019 Trilogy Credit Amendment, subject to the satisfaction of certain conditions, including payment of an extension fee. We intend to satisfy the conditions pursuant to the 2019 Trilogy Credit Facility and pay the required extension fee in order to exercise our option to extend the maturity date for one 12-month period. At our option, the 2019 Trilogy Credit Facility bears interest at per annum rates equal to (a) SOFR, plus 2.75% for SOFR Rate Loans and (b) for Base Rate Loans, 1.75% plus the highest of: (i) the fluctuating rate per annum of interest in effect for such day as established from time to time by KeyBank as its prime rate, (ii) 0.50% above the Federal Funds Effective Rate and (iii) 1.00% above one-month Adjusted Term SOFR.

As of both June 30, 2023 and December 31, 2022, our aggregate borrowing capacity under the 2019 Trilogy Credit Facility was $400,000,000. As of June 30, 2023 and December 31, 2022, borrowings outstanding under the 2019 Trilogy Credit Facility totaled $356,134,000 and $316,734,000, respectively, and the weighted average interest rate on such borrowings outstanding was 7.94% and 7.17% per annum, respectively.

9. Derivative Financial Instrument

We use a derivative financial instrument to manage interest rate risk associated with our variable-rate term loan pursuant to our 2022 Credit Facility and we record such derivative financial instrument in our accompanying condensed consolidated balance sheets as either an asset or a liability measured at fair value. We did not have any derivative financial instruments as of December 31, 2022. The following table provides information with respect to the derivative financial instrument held by us as of June 30, 2023, which was included in other assets, net in our accompanying condensed consolidated balance sheet (dollars in thousands):

Instrument

Notional Amount

Index

Interest Rate

Maturity Date

Fair Value
June 30, 2023

Swap

275,000

one month
Term SOFR

3.74%

01/19/26

4,798

As of June 30, 2023, our derivative financial instrument was not designated as a hedge. The derivative financial instrument not designated as a hedge is not speculative and is used to manage our exposure to interest rate movements, but does not meet the strict hedge accounting requirements. For the three months ended June 30, 2023 and 2022, we recorded $4,993,000 and $0, respectively, and for the six months ended June 30, 2023 and 2022, we recorded $4,798,000 and $500,000, respectively, as a decrease to interest expense in our accompanying condensed consolidated statements of operations and comprehensive loss related to the change in the fair value of our derivative financial instrument.

See Note 13, Fair Value Measurements, and Note 19, Subsequent Event, for a further discussion of our derivative financial instruments.

10. Commitments and Contingencies

Litigation

We are not presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against us, which if determined unfavorably to us, would have a material adverse effect on our consolidated financial position, results of operations or cash flows.

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Environmental Matters

We follow a policy of monitoring our properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist at our properties, we are not currently aware of any environmental liability with respect to our properties that would have a material effect on our consolidated financial position, results of operations or cash flows. Further, we are not aware of any material environmental liability or any unasserted claim or assessment with respect to an environmental liability that we believe would require additional disclosure or the recording of a loss contingency.

Other

Our other commitments and contingencies include the usual obligations of real estate owners and operators in the normal course of business, which include calls/puts to sell/acquire properties. In our view, these matters are not expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.

11. Redeemable Noncontrolling Interests

As of both June 30, 2023 and December 31, 2022, we, through our direct and indirect subsidiaries, owned a 95.0% general partnership interest in our operating partnership and the remaining 5.0% limited partnership interest in our operating partnership was owned by the NewCo Sellers. Some of the limited partnership units outstanding, which account for approximately 1.0% of our total operating partnership units outstanding, have redemption features outside of our control and are accounted for as redeemable noncontrolling interests presented outside of permanent equity in our accompanying condensed consolidated balance sheets.

As of both June 30, 2023 and December 31, 2022, we, through Trilogy REIT Holdings LLC, or Trilogy REIT Holdings, in which we indirectly hold a 76.0% ownership interest, owned 97.4% and 96.2%, respectively, of the outstanding equity interests of Trilogy. As of June 30, 2023 and December 31, 2022, certain members of Trilogy’s management and certain members of an advisory committee to Trilogy’s board of directors owned approximately 2.6% and 3.8%, respectively, of the outstanding equity interests of Trilogy. We account for such equity interests as redeemable noncontrolling interests in our accompanying condensed consolidated balance sheets in accordance with FASB Accounting Standards Codification Topic 480-10-S99-3A given certain features associated with such equity interests. For the three and six months ended June 30, 2023, we redeemed a portion of the equity interests owned by current members of Trilogy’s management for an aggregate of $84,000 and $15,954,000, respectively. For the six months ended June 30, 2022, we did not redeem any equity interests of Trilogy.

As of June 30, 2023 and December 31, 2022, we own, through our operating partnership, approximately 98.0% of the joint ventures with an affiliate of Meridian Senior Living, LLC, or Meridian, that own Central Florida Senior Housing Portfolio, Pinnacle Beaumont ALF and Pinnacle Warrenton ALF. The noncontrolling interests held by Meridian have redemption features outside of our control and are accounted for as redeemable noncontrolling interests in our accompanying condensed consolidated balance sheets. See Note 3, Real Estate Investments, Net and Business Combinations — Dispositions of Real Estate Investments, for dispositions within our Central Florida Senior Housing Portfolio.

We previously owned 90.0% of the joint venture with Avalon Health Care, Inc., or Avalon, that owned Catalina West Haven ALF and Catalina Madera ALF. The noncontrolling interests held by Avalon had redemption features outside of our control and were accounted for as redeemable noncontrolling interests until December 1, 2022, when we exercised our right to purchase the remaining 10.0% of the joint venture with Avalon for a contract purchase price of $295,000. As such, 10.0% of the net earnings of such joint venture were allocated to redeemable noncontrolling interests in our accompanying consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2022.

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We record the carrying amount of redeemable noncontrolling interests at the greater of: (i) the initial carrying amount, increased or decreased for the noncontrolling interests’ share of net income or loss and distributions or (ii) the redemption value. The changes in the carrying amount of redeemable noncontrolling interests consisted of the following for the six months ended June 30, 2023 and 2022 (in thousands):


	Six Months Ended June 30,
	2023		2022
Beginning balance	$	81,598	$	72,725
Additional redeemable noncontrolling interest	—		173
Reclassification from equity	41		42
Distributions	(904)		(1,405)
Repurchase of redeemable noncontrolling interests	(15,954)		—
Adjustment to redemption value	(4,422)		3,833
Net loss attributable to redeemable noncontrolling interests	(486)		(31)
Ending balance	$	59,873	$	75,337

12. Equity

Preferred Stock

Pursuant to our charter, we are authorized to issue 200,000,000 shares of our preferred stock, par value $0.01 per share. As of both June 30, 2023 and December 31, 2022, no shares of preferred stock were issued and outstanding.

Common Stock

Pursuant to our charter, as amended, we are authorized to issue 1,000,000,000 shares of our common stock, par value $0.01 per share, whereby 200,000,000 shares are classified as Class T common stock and 800,000,000 shares are classified as Class I common stock. As of June 30, 2023, after taking into consideration the Merger and the impact of the reverse stock split as discussed below, we had issued 65,445,557 shares for a total of $2,737,716,000 of common stock since February 26, 2014 in our initial public offerings and DRIP offerings (includes historical offering amounts sold by GAHR III and GAHR IV prior to the Merger). See “Distribution Reinvestment Plan” section below for further discussion.

On November 15, 2022 we effected a one-for-four reverse split of our common stock and a corresponding reverse split of the partnership units in our operating partnership. As a result of the Reverse Splits, every four shares of our common stock, or four partnership units in our operating partnership, were automatically combined and converted into one issued and outstanding share of our common stock of like class, or one partnership unit of like class, as applicable, rounded to the nearest 1/100th share or unit. The Reverse Splits impacted all classes of common stock and partnership units proportionately and had no impact on any stockholder’s or partner’s ownership percentage. Neither the number of authorized shares nor the par value of the Class T common stock and Class I common stock were ultimately impacted. All numbers of common shares and per share data, as well as partnership units in our operating partnership, in our accompanying condensed consolidated financial statements and related notes have been retroactively adjusted for all periods presented to give effect to the Reverse Splits.

Distribution Reinvestment Plan

Our DRIP allowed our stockholders to elect to reinvest an amount equal to the distributions declared on their shares of common stock in additional shares of our common stock in lieu of receiving cash distributions. However, in connection with the Proposed Listing, on November 14, 2022, our board suspended the DRIP offering beginning with the distributions declared for the quarter ended December 31, 2022. As a result of the suspension of the DRIP offering, unless and until our board reinstates the DRIP offering, stockholders who are current participants in the DRIP were or will be paid distributions in cash.

Our board has been establishing an estimated per share net asset value, or NAV, annually. Shares of our common stock issued pursuant to our DRIP are issued at the current estimated per share NAV until such time as our board determined an updated estimated per share NAV.

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The following is a summary of the historical estimated per share NAV:


Approval Date by our Board	Estimated Per Share NAV



03/24/22	$	37.16
03/15/23	$	31.40

For both the three and six months ended June 30, 2023, there were no distributions reinvested and no shares of our common stock were issued pursuant to our DRIP offerings. For the three and six months ended June 30, 2022, $11,143,000 and $22,447,000, respectively, in distributions were reinvested and 299,857 and 606,375 shares of our common stock, respectively, were issued pursuant to our DRIP offerings.

Share Repurchase Plan

Our share repurchase plan allowed for repurchases of shares of our common stock by us when certain criteria were met. Share repurchases were made at the sole discretion of our board. On October 4, 2021, as a result of the Merger, our board authorized the partial reinstatement of our share repurchase plan with respect to requests to repurchase shares resulting from the death or qualifying disability of stockholders, effective with respect to qualifying repurchases for the fiscal quarter ending December 31, 2021. All share repurchase requests other than those requests resulting from the death or qualifying disability of stockholders were rejected. On November 14, 2022, our board suspended our share repurchase plan beginning with share repurchase requests for the quarter ending December 31, 2022. All share repurchase requests, including requests resulting from the death or qualifying disability of stockholders, received commencing with the quarter ended December 31, 2022, will not be processed, will be considered canceled in full and will not be considered outstanding repurchase requests.

Funds for the repurchase of shares of our common stock were derived from the cumulative proceeds we received from the sale of shares of our common stock pursuant to our DRIP offerings. Pursuant to our share repurchase plan, the repurchase price with respect to repurchases resulting from the death or qualifying disability of stockholders was equal to the most recently published estimated per share NAV.

We did not repurchase any shares of our common stock pursuant to our share repurchase plan for the three months ended June 30, 2023. For the six months ended June 30, 2023, pursuant to our share repurchase plan, we repurchased 1,681 shares of common stock for $62,000, at a repurchase price of $37.16 per share. For the three and six months ended June 30, 2022, pursuant to our share repurchase plan, we repurchased 174,865 and 286,959 shares of common stock, respectively, for an aggregate of $6,449,000 and $10,583,000, respectively, at a repurchase price of $36.88 per share. Such repurchase requests were submitted prior to the suspension of our share repurchase plan.

Noncontrolling Interests in Total Equity

As of June 30, 2023 and December 31, 2022, Trilogy REIT Holdings owned approximately 97.4% and 96.2%, respectively, of Trilogy. We are the indirect owner of a 76.0% interest in Trilogy REIT Holdings pursuant to an amended joint venture agreement with an indirect, wholly owned subsidiary of NorthStar Healthcare Income, Inc., or NHI. We serve as the managing member of Trilogy REIT Holdings. As of both June 30, 2023 and December 31, 2022, NHI indirectly owned a 24.0% membership interest in Trilogy REIT Holdings and as such, for the three and six months ended June 30, 2023 and 2022, 24.0%of the net earnings of Trilogy REIT Holdings were allocated to noncontrolling interests.

In connection with our operation of Trilogy, time-based profit interest units in Trilogy, or the Profit Interests, were issued to Trilogy Management Services, LLC and two independent directors of Trilogy, both unaffiliated third parties that manage or direct the day-to-day operations of Trilogy. The Profit Interests are measured at their grant date fair value and vest in increments of 20.0% on each anniversary of the respective grant date over a five-year period. We amortize the Profit Interests on a straight-line basis over the vesting periods, which are recorded to general and administrative expenses in our accompanying condensed consolidated statements of operations and comprehensive loss. The nonvested Profit Interests are presented as noncontrolling interests in total equity in our accompanying condensed consolidated balance sheets, and are re-classified to redeemable noncontrolling interests upon vesting as they had redemption features outside of our control, similar to the common stock units held by Trilogy’s management. See Note 11, Redeemable Noncontrolling Interests, for further discussion.

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There were no canceled, expired or exercised Profit Interests during the three and six months ended June 30, 2023 and 2022. For the three months ended June 30, 2023 and 2022, we recognized stock compensation expense related to the time-based Profit Interests of $20,000 and $21,000, respectively. For the six months ended June 30, 2023 and 2022, we recognized stock compensation expense related to the time-based Profit Interests of $41,000 and $42,000, respectively.

One of our consolidated subsidiaries issued non-voting preferred shares of beneficial interests to qualified investors for total proceeds of $125,000. These preferred shares of beneficial interests are entitled to receive cumulative preferential cash dividends at the rate of 12.5% per annum. We classify the value of our subsidiary’s preferred shares of beneficial interests as noncontrolling interests in our accompanying condensed consolidated balance sheets and the dividends of the preferred shares of beneficial interests in net income or loss attributable to noncontrolling interests in our accompanying condensed consolidated statements of operations and comprehensive loss.

As of both June 30, 2023 and December 31, 2022, we owned an 86.0% interest in a consolidated limited liability company that owns Lakeview IN Medical Plaza. As such, 14.0% of the net earnings of Lakeview IN Medical Plaza were allocated to noncontrolling interests in our accompanying condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2023 and 2022.

As of both June 30, 2023 and December 31, 2022, we owned a 90.6% membership interest in a consolidated limited liability company that owns Southlake TX Hospital. As such, 9.4% of the net earnings of Southlake TX Hospital were allocated to noncontrolling interests in our accompanying condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2023 and 2022.

As of both June 30, 2023 and December 31, 2022, we owned a 90.0% interest in a joint venture that owns the Louisiana Senior Housing Portfolio. As such, 10.0% of the net earnings of the joint venture were allocated to noncontrolling interests in our accompanying condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2023 and 2022.

As discussed in Note 1, Organization and Description of Business, as of both June 30, 2023 and December 31, 2022, we, through our direct and indirect subsidiaries, own a 95.0% general partnership interest in our operating partnership and the remaining 5.0% limited partnership interest in our operating partnership is owned by the NewCo Sellers. As of both June 30, 2023 and December 31, 2022, 4.0% of our total operating partnership units outstanding is presented in total equity in our accompanying condensed consolidated balance sheets. See Note 11, Redeemable Noncontrolling Interests, for further discussion.

AHR 2015 Incentive Plan

Pursuant to the Amended and Restated 2015 Incentive Plan, our board (with respect to options and restricted shares of common stock granted to independent directors), or our compensation committee (with respect to any other award), may grant options, restricted shares of common stock, stock purchase rights, stock appreciation rights or other awards to our independent directors, officers, employees and consultants. On June 15, 2023, we adopted the Second Amended and Restated 2015 Incentive Plan, or the AHR Incentive Plan, which, among other things, increased the maximum number of shares of our common stock that may be issued pursuant to such plan from 1,000,000 to 4,000,000 shares, extended the term of such plan to June 15, 2033 and made certain administrative changes to the Amended and Restated 2015 Incentive Plan.

Restricted common stock

Pursuant to the AHR Incentive Plan, through June 30, 2023, we granted an aggregate of 315,459 shares of our restricted common stock, or RSAs, which include restricted Class T common stock and restricted Class I common stock, as defined in the AHR Incentive Plan. RSAs were granted to our independent directors in connection with their initial election or re-election to our board or in consideration of their past services rendered. In addition, certain executive officers and key employees received grants of restricted Class T common stock. RSAs generally have a vesting period ranging from one to four years and are subject to continuous service through the vesting dates.

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Restricted stock units

Pursuant to the AHR Incentive Plan, through June 30, 2023, we granted our executive officers an aggregate 70,751 of performance-based restricted stock units, or PBUs, representing the right to receive shares of our Class T common stock upon vesting. We also granted to our executive officers and certain employees 169,529 time-based restricted stock units, or TBUs, representing the right to receive shares of our Class T common stock upon vesting. PBUs and TBUs are collectively referred to as RSUs. RSUs granted to executive officers and employees generally have a vesting period of up to three years and are subject to continuous service through the vesting dates, and any performance conditions, as applicable.

A summary of the status of our nonvested RSAs and RSUs as of June 30, 2023 and December 31, 2022 and the changes for the six months ended June 30, 2023 is presented below:


	Number of Nonvested RSAs	Weighted Average Grant Date Fair Value - RSAs		Number of Nonvested RSUs		Weighted Average Grant Date Fair Value - RSUs




Balance — December 31, 2022	183,240	$	36.97	48,553		$	37.16
Granted	26,156	31.83		191,728		31.40
Vested	(21,030)	37.47		(6,400)	(1)	37.16
Forfeited	—	—		—		—
Balance — June 30, 2023	188,366	$	36.20	233,881		$	32.44

___________

(1)Amount includes 2,280 shares of common stock that were withheld from issuance to satisfy employee minimum tax withholding requirements associated with the vesting of RSUs during the six months ended June 30, 2023.

For the three months ended June 30, 2023 and 2022, we recognized $1,564,000 and $980,000, respectively, and for the six months ended June 30, 2023 and 2022, we recognized $2,615,000 and $1,791,000, respectively, in stock compensation expense related to awards granted pursuant to the AHR Incentive Plan based on the grant date fair value for time based awards and for performance-based awards that are probable of vesting, which grant date fair value is equal to the most recently published estimated per share NAV. Such stock compensation expense is included in general and administrative expenses in our accompanying condensed consolidated statements of operations and comprehensive loss.

13. Fair Value Measurements

Assets and Liabilities Reported at Fair Value

The table below presents our assets and liabilities measured at fair value on a recurring basis as of June 30, 2023, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):


	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total



Assets:
Derivative financial instrument	$	—	$	4,798	$	—	$	4,798

Total assets at fair value	$	—	$	4,798	$	—	$	4,798

There were no transfers into and out of fair value measurement levels during the six months ended June 30, 2023 and 2022. We did not have any assets and liabilities measured at fair value on a recurring basis as of December 31, 2022.

Derivative Financial Instruments

We entered into an interest rate swap to manage interest rate risk associated with variable-rate debt. We also previously used interest rate swaps or interest rate caps to manage such interest rate risk. The valuation of these instruments was determined using widely accepted valuation techniques including a discounted cash flow analysis on the expected cash flows of each derivative. Such valuation reflected the contractual terms of the derivatives, including the period to maturity, and used

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observable market-based inputs, including interest rate curves, as well as option volatility. The fair value of our interest rate swap was determined by netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts were based on an expectation of future interest rates derived from observable market interest rate curves.

We incorporated credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurement. In adjusting the fair value of our derivative contract for the effect of nonperformance risk, we considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.

Although we determined that the majority of the inputs used to value our derivative financial instrument fell within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with this instrument utilized Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and our counterparty. However, as of June 30, 2023, we assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative position and determined that the credit valuation adjustments were not significant to the overall valuation of our derivative. As a result, we determined that our derivative valuation in its entirety was classified in Level 2 of the fair value hierarchy. On January 25, 2022, our prior interest rate swap contracts matured and as of December 31, 2022, we did not have any derivative financial instruments.

Financial Instruments Disclosed at Fair Value

Our accompanying condensed consolidated balance sheets include the following financial instruments: debt security investment, cash and cash equivalents, restricted cash, accounts and other receivables, accounts payable and accrued liabilities, mortgage loans payable and borrowings under our lines of credit and term loan.

We consider the carrying values of cash and cash equivalents, restricted cash, accounts and other receivables and accounts payable and accrued liabilities to approximate the fair value for these financial instruments based upon an evaluation of the underlying characteristics, market data and because of the short period of time between origination of the instruments and their expected realization.

The fair value of our debt security investment is estimated using a discounted cash flow analysis using interest rates available to us for investments with similar terms and maturities. The fair values of our mortgage loans payable and our lines of credit and term loan are estimated using discounted cash flow analyses using borrowing rates available to us for debt instruments with similar terms and maturities. We have determined that the valuations of our debt security investment, mortgage loans payable and lines of credit and term loan are classified in Level 2 within the fair value hierarchy. The carrying amounts and estimated fair values of such financial instruments as of June 30, 2023 and December 31, 2022 were as follows (in thousands):


	June 30, 2023				December 31, 2022
	Carrying Amount(1)		Fair Value		Carrying Amount(1)		Fair Value
Financial Assets:

Debt security investment	$	84,933	$	92,998	$	83,000	$	93,230
Financial Liabilities:
Mortgage loans payable	$	1,237,565	$	1,096,898	$	1,229,847	$	1,091,667
Lines of credit and term loan	$	1,278,697	$	1,283,619	$	1,277,460	$	1,285,205

___________

(1)Carrying amount is net of any discount/premium and unamortized deferred financing costs.

14. Income Taxes

As a REIT, we generally will not be subject to U.S. federal income tax on taxable income that we distribute to our stockholders. We have elected to treat certain of our consolidated subsidiaries as taxable REIT subsidiaries, or TRS, pursuant to the Code. TRS may participate in services that would otherwise be considered impermissible for REITs and are subject to federal and state income tax at regular corporate tax rates.

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Current Income Tax

Federal and state income taxes are generally a function of the level of income recognized by our TRS. Foreign income taxes are generally a function of our income on our real estate located in the United Kingdom, or UK, and Isle of Man.

Deferred Taxes

Deferred income tax is generally a function of the period’s temporary differences (primarily basis differences between tax and financial reporting for real estate assets and equity investments) and generation of tax net operating loss that may be realized in future periods depending on sufficient taxable income.

We recognize the financial statement effects of an uncertain tax position when it is more likely than not, based on the technical merits of the tax position, that such a position will be sustained upon examination by the relevant tax authorities. If the tax benefit meets the “more likely than not” threshold, the measurement of the tax benefit will be based on our estimate of the ultimate tax benefit to be sustained if audited by the taxing authority. As of both June 30, 2023 and December 31, 2022, we did not have any tax benefits or liabilities for uncertain tax positions that we believe should be recognized in our accompanying condensed consolidated financial statements.

We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A valuation allowance is established if we believe it is more likely than not that all or a portion of the deferred tax assets are not realizable. As of both June 30, 2023 and December 31, 2022, our valuation allowance fully reserves the net deferred tax assets due to historical losses and inherent uncertainty of future income. We will continue to monitor industry and economic conditions, and our ability to generate taxable income based on our business plan and available tax planning strategies, which would allow us to utilize the tax benefits of the net deferred tax assets and thereby allow us to reverse all, or a portion of, our valuation allowance in the future.

15. Leases

Lessor

We have operating leases with tenants that expire at various dates through 2050. For the three months ended June 30, 2023 and 2022, we recognized $49,216,000 and $50,060,000, respectively, of revenues related to operating lease payments, of which $9,711,000 and $9,663,000, respectively, was for variable lease payments. For the six months ended June 30, 2023 and 2022, we recognized $91,519,000 and $100,790,000, respectively, of revenues related to operating lease payments, of which $19,750,000 and $20,076,000, respectively, was for variable lease payments. As of June 30, 2023, the following table sets forth the undiscounted cash flows for future minimum base rents due under operating leases for the six months ending December 31, 2023 and for each of the next four years ending December 31 and thereafter for properties that we wholly own (in thousands):


Year	Amount
2023	$	75,245
2024	143,777
2025	131,148
2026	120,394
2027	114,746
Thereafter	581,532
Total	$	1,166,842

Lessee

We lease certain land, buildings, furniture, fixtures, campus and office equipment and automobiles. We have lease agreements with lease and non-lease components, which are generally accounted for separately. Most leases include one or more options to renew, with renewal terms that generally can extend at various dates through 2107, excluding extension options. The exercise of lease renewal options is at our sole discretion. Certain leases also include options to purchase the leased property. As of June 30, 2023, we had future lease payments of $6,054,000 for an operating lease that had not yet commenced. Such operating lease will commence in fiscal year 2023 with a lease term of five years.

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The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Certain of our lease agreements include rental payments that are adjusted periodically based on the United States Bureau of Labor Statistics’ Consumer Price Index, and may also include other variable lease costs (i.e., common area maintenance, property taxes and insurance). Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The components of lease costs were as follows (in thousands):


		Three Months Ended June 30,
Lease Cost	Classification	2023		2022
Operating lease cost(1)	Property operating expenses, rental expenses or general and administrative expenses	$	11,473	$	5,408
Finance lease cost:
Amortization of leased assets	Depreciation and amortization	297		316
Interest on lease liabilities	Interest expense	66		66
Sublease income	Resident fees and services revenue or other income	(172)		(234)
Total lease cost		$	11,664	$	5,556


		Six Months Ended June 30,
Lease Cost	Classification	2023		2022
Operating lease cost(1)	Property operating expenses, rental expenses or general and administrative expenses	$	23,396	$	11,764
Finance lease cost:
Amortization of leased assets	Depreciation and amortization	600		629
Interest on lease liabilities	Interest expense	157		140
Sublease income	Resident fees and services revenue or other income	(328)		(382)
Total lease cost		$	23,825	$	12,151

___________

(1)Includes short-term leases and variable lease costs, which are immaterial.

Additional information related to our leases for the periods presented below was as follows (dollars in thousands):


Lease Term and Discount Rate	June 30, 2023		December 31, 2022
Weighted average remaining lease term (in years):
Operating leases	12.5		12.8
Finance leases	1.9		2.3
Weighted average discount rate:
Operating leases	5.71	%	5.69	%
Finance leases	7.74	%	7.66	%


	Six Months Ended June 30,
Supplemental Disclosure of Cash Flows Information	2023		2022

Operating cash outflows related to finance leases	$	157	$	140
Financing cash outflows related to finance leases	$	38	$	26

Right-of-use assets obtained in exchange for operating lease liabilities	$	1,155	$	646

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Operating Leases

As of June 30, 2023, the following table sets forth the undiscounted cash flows of our scheduled obligations for future minimum payments for the six months ending December 31, 2023 and for each of the next four years ending December 31 and thereafter, as well as the reconciliation of those cash flows to operating lease liabilities on our accompanying condensed consolidated balance sheet (in thousands):


Year	Amount
2023	$	19,240
2024	37,822
2025	37,210
2026	37,256
2027	37,890
Thereafter	229,084
Total undiscounted operating lease payments	398,502
Less: interest	135,784
Present value of operating lease liabilities	$	262,718

Finance Leases

As of June 30, 2023, the following table sets forth the undiscounted cash flows of our scheduled obligations for future minimum payments for the six months ending December 31, 2023 and for each of the next four years ending December 31 and thereafter, as well as a reconciliation of those cash flows to finance lease liabilities (in thousands):