00016101142020FYfalsePrimarily includes the non-cash write-offs of straight-line rent receivables and net above-market rent lease intangible assets, offset by the fair value of furniture, fixtures, equipment and other improvements received by us as a result of the Lease Termination (as defined in Note 1). Refer to "Note 3 - Lease Termination" for details.For the year ended December 31, 2020, amount primarily consists of net proceeds from the AL/MC Portfolio Disposition. Refer to "Note 5 - Dispositions" for details.For the year ended December 31, 2020, amount primarily consists of repayments of debt in conjunction with the AL/MC Portfolio Disposition. 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the annual period ended December 31, 2020
or
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: 001-36499 
New Senior Investment Group Inc.
(Exact name of registrant as specified in its charter)
Delaware
80-0912734
(State or other jurisdiction of incorporation
(I.R.S. Employer Identification No.)
or organization)
55 West 46th Street, Suite 2204
New YorkNew York10036
(Address of principal executive offices)
(646)822-3700
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report) 
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class:
Trading Symbol
Name of exchange on which registered:
Common stock, par value $0.01 per share
SNR
New York Stock Exchange (“NYSE”)
Securities registered pursuant to Section 12 (g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
o Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
o Yes x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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. x Yes o 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). x Yes o No

i


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 
o
Accelerated filer 
ý
Non-accelerated filer 
o
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. o

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

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

The aggregate market value of the common stock held by non-affiliates as of June 30, 2020 (computed based on the closing price on such date as reported on the NYSE) was approximately $300 million.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date.
Common stock, par value $0.01 per share: 82,986,838 shares outstanding as of February 19, 2021.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Definitive Proxy Statement for New Senior’s 2021 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year ended December 31, 2020, are incorporated by reference in Part III of this Annual Report on Form 10-K.
ii



CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among other things, the operating performance of New Senior Investment Group Inc.’s (“New Senior,” the “Company,” “we,” “us” or “our”) investments, the stability of our earnings, and our financing needs. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “endeavor,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “will,” “would” or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. Our ability to predict results or the actual outcome of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from forecasted results. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:

the severity, duration and scope of the novel coronavirus (“COVID-19”) global pandemic, the effects of the pandemic and measures intended to prevent its spread on our and our tenant’s business, results of operations, cash flows and financial condition, including declines in occupancy and rental revenues and increases in operating expenses; constraints in our ability to access capital and other sources of funding, including due to fluctuations in the trading price of our common stock; increased risk of claims, litigation and regulatory proceedings; and the ability of federal, state and local governments to effectively respond to and manage the pandemic on an ongoing basis to prevent its continued spread;
our ability to comply with the terms of our financings, which depends in part on the performance of our property managers and triple net lease tenant;
any increase in our borrowing costs as a result of rising interest rates, the expected discontinuation of the London Inter-Bank Offered Rate (LIBOR) and the transition to any other interest rate benchmark, or other factors;
our ability to pay down, refinance, restructure or extend our indebtedness as it becomes due or as needed to comply with the terms of our covenants or to facilitate our ability to sell assets;
our ability to manage our liquidity and sustain distributions to our stockholders, particularly in light of the cash shortfall described in this report under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources”;
our dependence on our property managers and tenant to operate our properties successfully and in compliance with the terms of our agreements with them, the terms of our financings and applicable law;
factors affecting the performance of our properties, such as a decline in occupancy and increases in operating costs (including, but not limited to, the costs of labor, supplies, insurance and property taxes);
concentration risk with respect to Holiday Retirement (“Holiday”), which, for the year ended December 31, 2020, accounted for 94.8% of total net operating income (“NOI”) from continuing operations;
risks associated with a change of control in the ownership or senior management of Holiday;
our ability and the ability of our property managers and tenant to obtain and maintain adequate property, liability and other insurance from reputable, financially stable providers;
changes of federal, state and local laws and regulations relating to employment, fraud and abuse practices, Medicaid reimbursement and licensure, etc., including those affecting the healthcare industry that affect our costs of compliance or increase the costs, or otherwise affect the operations of our property managers or tenant;
the ability of our property managers and tenant to maintain the financial strength and liquidity necessary to satisfy their respective obligations and liabilities to us and third parties, particularly in light of the impacts of the COVID-19 pandemic on their businesses;
the quality and size of our investment pipeline, our ability to execute investments at attractive risk-adjusted prices, our ability to finance our investments on favorable terms, and our ability to deploy investable cash in a timely manner;
our ability to sell properties on favorable terms and to realize the anticipated benefits from any such dispositions, including as a result of a reduction of real estate value related to the COVID-19 pandemic;
changes in economic conditions generally and the real estate, senior housing and bond markets specifically, including general economic uncertainty as a result of the COVID-19 pandemic and a worsening of global economic conditions or low levels of economic growth;
our stock price performance and any disruption or lack of access to the capital markets or other sources of financing, including as a result of factors influenced by the COVID-19 pandemic;

iii


the impact of any current or future legal proceedings and regulatory investigations and inquiries on us or our property managers;
our reliance on our property managers for timely delivery of accurate property-level financial results; and
our ability to maintain our qualification as a Real Estate Investment Trust (“REIT”) for U.S. federal income tax purposes and the potentially onerous consequences that any failure to maintain such qualification would have on our business.

Although we believe that the expectations reflected in any forward-looking statements contained herein are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The factors noted above could cause our actual results to differ significantly from those indicated by any forward-looking statement.

Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our management’s views only as of the date of this Annual Report on Form 10-K. We are under no duty to update any of the forward-looking statements after the date of this report to conform these statements to actual results.

SPECIAL NOTE REGARDING EXHIBITS
 
In reviewing the agreements included as exhibits to this Annual Report on Form 10-K, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
 
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Annual Report on Form 10-K and the Company’s other public filings, which are available without charge through the Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.
 

iv


NEW SENIOR INVESTMENT GROUP INC. AND SUBSIDIARIES
FORM 10-K
 
INDEX
Page
Financial Statement Schedules



PART I

ITEM 1. BUSINESS

COMPANY OVERVIEW

We are an internally managed real estate investment trust focused solely on senior housing properties. We hold a geographically diversified portfolio of primarily private pay senior housing properties located across the United States. As of December 31, 2020, our portfolio was comprised of 103 senior housing properties across 36 states, which positions us as one of the largest owners of senior housing properties in the United States.

We are organized and operate as a single reportable segment, Senior Housing Properties. We changed our structure in 2020 and no longer operate in two reportable segments: Managed Independent Living (“IL”) Properties, and Other Properties. Refer to “Note 6 – Segment Reporting” to our consolidated financial statements for additional details.

We were formed as a Delaware limited liability company and wholly owned subsidiary of Drive Shack Inc., formerly Newcastle Investment Corp. (“Drive Shack”), on May 17, 2012. On November 6, 2014, we were spun off from Drive Shack and listed on the NYSE under the symbol “SNR.” We are headquartered in New York, New York.

Through December 31, 2018, we were externally managed and advised by an affiliate of Fortress Investment Group LLC (the “Former Manager”). On November 19, 2018, we entered into definitive agreements with the Former Manager to internalize our management, effective January 1, 2019 (the “Internalization”). In connection with the Internalization, we also entered into a Transition Services Agreement with the Former Manager to continue to provide certain services for a transition period. Following the effectiveness of the Internalization, our board of directors concluded its formal review of strategic alternatives, which the Company initially announced in February 2018.

The majority of our portfolio is managed by some of the largest and most experienced operators in the United States. Currently, our managed properties are managed by affiliates or subsidiaries of each of Holiday Retirement (“Holiday”), Merrill Gardens LLC (“Merrill Gardens”), and Grace Management, Inc. (“Grace”). We also own one continuing care retirement community (“CCRC”) and lease this property under a triple net lease agreement to Watermark Retirement Communities, Inc. (“Watermark”), a healthcare operating company. Holiday is among the top three largest senior housing operators in the United States. The assets in our portfolio are described in more detail below under “Our Portfolio.”

Our investment strategy is focused on acquiring private pay senior housing properties. However, from time to time, we may explore new business opportunities and asset categories as part of our business strategy.

Impact of the COVID-19 Pandemic On Our Business

The novel coronavirus (COVID-19) global pandemic is causing significant disruptions to the U.S. and global economies and has contributed to volatility and negative pressure in financial markets. The outbreak, which became widespread in the U.S. in early 2020, led federal, state and local governments and public health authorities to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders. Some of these measures have persisted into 2021, including in the areas we operate.

As an owner of senior living properties, with a portfolio of 102 IL properties and one CCRC, COVID-19 has impacted, and continues to impact, our business in various ways. Our three property managers and one tenant have all put into place various protocols to address the COVID-19 pandemic at our communities across the U.S. Some of the measures taken at the onset of the pandemic included restrictions on all non-essential visitors (including family), closure of group dining facilities and other common areas, restrictions on resident movements and group activities, as well as enhanced protocols which have required increased labor, property cleaning expenses and costs related to procuring necessary supplies such as meal containers and personal protective equipment (“PPE”). Over the last several months, our managers and tenant have lifted certain restrictions in a phased approach, based on both the status of state and local regulations that affect the property as well as the status of any COVID-19 cases at the property. Lifting restrictions at our properties, particularly restrictions related to onsite visitors, while being done in a measured approach in compliance with all state and local regulations, may contribute to an increase in COVID-19 cases.

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COVID-19 has had, and will likely continue to have, an impact on three metrics that are fundamental to our business: occupancy, rental rates and operating expenses. We describe these impacts in more detail throughout “Management's Discussion and Analysis of Financial Condition.”

INVESTMENT ACTIVITY

On February 10, 2020, we completed the sale of all 28 managed assisted living/memory care (“AL/MC”) properties pursuant to a Purchase and Sale Agreement, dated as of October 31, 2019 (the “Sale Agreement”), for a gross sales price of $385.0 million (“AL/MC Portfolio Disposition”). The sale of these properties represented a strategic shift that had a major effect on our operations and financial results. Accordingly, the operations of these properties for the current and prior periods are classified as discontinued operations in the financial statements included in this Annual Report on Form 10-K. Refer to “Note 4 – Discontinued Operations” for additional details.

In conjunction with the AL/MC Portfolio Disposition, we repaid existing loan agreements and entered into a new financing for $270.0 million which is secured by 14 Senior Housing Properties. We also amended our $125.0 million credit facility (the “Revolver”) secured by nine Senior Housing Properties. The maturity of the Revolver has been extended to February 2024, compared to the previous maturity date in December 2021. The Revolver borrowing capacity may be increased from $125.0 million to $500.0 million, subject to customary terms and conditions.

As a result of these refinancing initiatives, our weighted average debt maturity increased from 4.8 years as of December 31, 2019 to 5.3 years as of December 31, 2020. We have no significant near-term debt maturities until 2025.

During 2020, we did not purchase any properties.

SENIOR HOUSING INDUSTRY

Overview

For an overview of the senior housing industry, see “Opportunity to Consolidate Large and Fragmented Industry” and “Attractive Demand - Supply Fundamentals to Drive Organic Growth.”

Following the completion of the AL/MC Portfolio Disposition, we have only one property in our portfolio that has health care components that are licensed by the state and that participates in Medicare and Medicaid. This property is a CCRC, which has independent living, assisting living (“AL”), memory care (“MC”) and skilled nursing facility (“SNF”) care.

Large and Fragmented Industry

We believe there are significant investment opportunities in the U.S. senior housing market driven by three factors: (i) long-term demand growth from significant increases in the senior citizen population, (ii) highly fragmented ownership of senior housing properties among many smaller local and regional owner/operators and (iii) operational improvement opportunities to increase property-level net operating income. We estimate the size of the senior housing industry in the United States to be approximately $350 billion, and, according to the 2020 American Seniors Housing Association 50 Report, approximately 65% of these senior housing facilities are owned by operators with 10 or fewer properties.

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Attractive Demand - Supply Fundamentals

We believe that the rapidly growing senior citizen population in the U.S. will result in a substantially increased demand over time for senior housing properties as the baby boomer generation ages, life expectancies lengthen and more health-related services are demanded. The U.S. Census Bureau estimates that the total number of people aged 65 and older is expected to increase from approximately 49.2 million in 2016 to 78.0 million by 2035, with the number of citizens aged 65 and older expected to grow at four times the rate of the overall population by 2035. Healthcare is the largest private-sector industry in the U.S., with healthcare expenditures in the U.S. accounting for approximately 18% of gross domestic product in 2019. According to the Center for Medicare and Medicaid Services (“CMS”), the average annual compounded growth rate for national healthcare expenditures from 2019 through 2028 is expected to be 5.4%. Additionally, senior citizens are the largest consumers of healthcare services. The target age group for our properties is seniors over 70 years old while a typical resident is 80 to 85 years of age. According to CMS, average per capita healthcare expenditures by those 65 years and older continue to be about three times more than the average spent by those 19 to 64 years old. Demand for senior housing is driven both by growth of an aging population and by an increasing array of services and support required by residents. According to the U.S. Census Bureau, the percentage of Americans over 65 years of age seeking assistance with basic and instrumental activities of daily living is 20%, increasing to 27% for Americans over 75 years of age. To address these resident needs, senior housing provides varying and flexible levels of services. While our target population is growing, industry occupancy has been impacted by an elevated level of new supply in recent years. However, the ratio of units under construction to existing inventory has declined for nine consecutive quarters, according to the National Investment Center for Seniors Housing and Care (“NIC”).

Differentiated Strategy Focused on Private Pay Senior Housing

We have generally sought investments in senior housing facilities that have an emphasis on private pay sources of revenue which we believe is more stable and predictable compared to government reimbursed property types. We believe this strategy distinguishes us from our publicly-traded peers. Private pay residents are individuals who are personally obligated to pay the costs of their housing and services without relying significantly on reimbursement payments from Medicaid or Medicare. Sources for these private payments include: (i) pensions, savings and retirement funds; (ii) proceeds from the sale of real estate and personal property; (iii) assistance from residents’ families; and (iv) private insurance. While our investments may have minimal level of revenues related to government reimbursements, we focus on investments with high levels of private pay revenue and, for the year ended December 31, 2020, private pay sources represented 99.8% of the property level revenue from continuing operations derived from the residents at our facilities. Private pay facilities are not subject to governmental rate setting and, accordingly, we believe they provide for more predictable and higher rental rates from residents than facilities primarily reliant on government-funded sources.

The senior housing industry offers a full continuum of care to seniors with product types that range from “mostly housing” (i.e., senior apartments) to “mostly healthcare” (i.e., skilled nursing, hospitals, etc.). We primarily focus on product types at the center of this continuum, namely IL properties and, prior to the AL/MC Portfolio Disposition, AL/MC properties. Many of our peers have significant exposure to skilled nursing facilities and hospitals providing higher acuity levels of healthcare. Accordingly, these peers have higher levels of exposure to revenues derived from Medicaid and Medicare reimbursements. Our facilities are predominantly reliant on private pay sources of revenue and have reduced risk exposure to regulatory changes in the healthcare arena. We believe that our focused portfolio of primarily IL properties will allow investors to participate in the positive fundamentals of the senior housing sector without similar levels of risk exposure associated with higher acuity types of healthcare real estate.

Attractive, Geographically Diverse Portfolio

We started building our platform in July 2012 and owned 103 properties with a gross real estate value of $2.1 billion as of December 31, 2020. Our portfolio is geographically diverse, with a presence in 36 different states. As of December 31, 2020, we had 102 IL properties and one rental CCRC. All of our IL properties are owned on a managed basis while our CCRC property is leased.

GOVERNMENT REGULATION

Our CCRC and its operations are subject to extensive and complex federal, state and local healthcare laws and regulations relating to fraud and abuse practices, government reimbursement, licensure and certificate of need (“CON”) and similar laws governing the operation of healthcare properties. While the CCRC within our portfolio is subject to varying types of regulatory and licensing requirements, we expect that the healthcare industry, in general, will continue to face increased regulation, enforcement and pressure in the areas of fraud, waste and abuse, cost control, healthcare management and provision of services,
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among others. In fact, some states have revised and strengthened their regulation of senior housing properties and that trend may continue. In addition, efforts by third-party payors, such as Governmental Programs (as defined below) and private insurance payor organizations (which include insurance companies, health maintenance organizations and other types of health plans/managed care organizations) to impose more stringent controls upon operators are expected to intensify and continue. Changes in applicable federal, state or local laws and regulations and new interpretations of existing laws and regulations could have a material adverse effect on our business.

As used in this section, “Governmental Program” means, individually and collectively, any federal, state or local governmental reimbursement programs administered through a governmental body, agency thereof or contractor thereof (including a Governmental Program Payor) including, without limitation, the Medicare and Medicaid programs, waiver programs under the aforementioned programs or successor programs to any of the aforementioned programs. “Governmental Program Payor” means a private insurance payor organization which has a contract with a Governmental Program to arrange for the provision of assisted living property or SNF services to Governmental Program beneficiaries and which receives reimbursement from the Governmental Program to do so.

Our CCRC is regulated by state and local laws governing licensure, provision of services, staffing requirements and other operational matters. Owners and/or operators of certain senior housing properties, are required to be licensed or certified by the state in which they operate. In granting and renewing such licenses, the state regulatory agencies consider numerous factors relating to a property’s physical plant and operations, including, but not limited to, admission and discharge standards, staffing and training. A decision to grant or renew a license may also be affected by a property’s record with respect to licensure compliance, patient and consumer rights, medication guidelines and other regulations. Certain states require additional licensure and impose additional staffing and other operational standards in order for a property to provide higher levels of assisted living services. Senior housing properties may also be subject to state and/or local building, zoning, fire and food service laws before licensing or certification may be granted. Senior housing properties may also be subject to additional building code requires under the licensing process such as the National Fire Protection Association Life Safety Code and these components may be more restrictive than local residential building codes. Our CCRC may also be affected by changes in accreditation standards or procedures of accreditation bodies that are recognized by states or a Governmental Program in the licensure or certification process.

In the future, we may also acquire senior housing properties that include SNFs. SNFs are licensed by the state in which the facility is located, and, if an owner chooses to participate in Medicaid, Medicare or certain other Governmental Programs, the facility must also be certified to participate in such programs. In that regard, SNFs are particularly subject to myriad, comprehensive federal Medicare and Medicaid certification requirements that not only require state licensure but also separately (apart from state licensure) regulate the type, quantity and quality of the medical and/or nursing care provided, ancillary services (e.g., respiratory, occupational, physical and infusion therapies), qualifications of the administrative personnel and nursing staff, the adequacy of the physical plant and equipment, reimbursement and rate setting and other operational issues and policies.

In the future, we may also acquire certain healthcare properties (including assisted living properties in some states and SNFs in most states) that are subject to a variety of CON or similar laws. Where applicable, such laws generally require, among other requirements, as a prerequisite to licensure that a facility demonstrate the need for (i) constructing a new facility, (ii) adding beds or expanding an existing facility, (iii) investing in major capital equipment or adding new services, (iv) changing the ownership or control of an existing licensed facility, or (v) terminating services that have been previously approved through the CON process. These laws could affect, and even restrict, our ability to expand into new markets and to expand our properties and services in existing markets. In addition, CON laws may constrain the ability of an operator to transfer responsibility for operating a particular facility to a new operator. If we have to replace a facility operator who is excluded from participating in a federal or state healthcare program (as discussed below), our ability to replace the operator may be affected by a particular state’s CON laws, regulations and applicable guidance governing changes in provider control.

Aside from CON considerations, transfers of ownership, provider control and/or operations of assisted living properties and SNFs are subject to licensure and other regulatory approvals not required for transfers of other types of commercial operations and real estate. These regulations may also constrain or even impede our ability to replace property managers or tenant of our properties, and they may also impact our acquisition or sale of senior housing properties. In addition, if any of our licensed properties operate outside of its licensed authority, doing so could subject the facility to penalties, including fines, a denial of new admissions, suspension of its license, revocation of its license or closure of the facility. Failure to obtain licensure or loss or suspension of licensure or certification may prevent an assisted living property or SNF from operating or result in a suspension of Governmental Program reimbursement payment until all licensure or certification issues have been resolved.
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The level of assisted living Medicaid reimbursement varies from state to state. Thus, the revenues generated by our CCRC may be adversely affected by payor mix, acuity level, changes in Medicaid eligibility and reimbursement levels. In addition, a state could lose its Medicaid waiver and no longer be permitted to utilize Medicaid dollars to reimburse for assisted living services. Such changes in revenues could in turn have a material adverse effect on our business. Many states are now reimbursing providers of long term care services, which includes SNFs, through mandatory Medicaid Managed Care Organizations (“MMCOs”). These arrangements may result in an increase in denied claims and/or reduced Medicaid rates as a result of contracting pressures.

A significant portion of the revenues received by our CCRC is from self-pay residents. The remaining revenue source is primarily Medicare and Medicaid under certain federal waiver programs. As a part of the Omnibus Budget Reconciliation Act of 1981 (“OBRA”), Congress established a waiver program enabling some states to offer Medicaid reimbursement to assisted living providers as an alternative to institutional long-term care services. The provisions of OBRA and subsequent federal enactments permit states to seek a waiver from typical Medicaid requirements to develop cost-effective alternatives to long-term care, including Medicaid payments for assisted living and, in some instances, including payment for such services through Governmental Program Payors. There can be no guarantee that a state Medicaid program operating pursuant to a waiver will be able to maintain its waiver status that funding levels will not decrease or that eligibility requirements will not change.

Rates paid by self-pay residents of properties within our managed properties are determined in accordance with applicable provisions of the management agreements entered into with our property managers, and are impacted by local market conditions and operating costs. Rates paid by self-pay residents of our triple net lease property are determined by the tenant.

Unlike assisted living operators, SNF operators typically receive most of their revenues from the Medicare and Medicaid programs, with the balance representing reimbursement payments from private insurance payor organizations (and perhaps minimal self-pay). Consequently, changes in federal or state reimbursement policies may also adversely affect our business if we acquire properties with a SNF component.

The percentage of federal Medicaid revenue support used for long-term care varies from state to state, due in part to different ratios of elderly population and eligibility requirements. Within certain federal guidelines, states have a fairly wide range of discretion to determine eligibility and to establish a reimbursement methodology for SNF Medicaid patients. Many states reimburse SNFs pursuant to fixed daily Medicaid rates which are applied prospectively based on patient acuity and the historical costs incurred in providing patient care. Reasonable costs typically include allowances for staffing, administrative and general expenses, property and equipment (e.g., real estate taxes, depreciation and fair rental).

The Medicare SNF benefit covers skilled nursing care, rehabilitation services and other goods and services, and the facility receives a pre-determined daily rate for each day of care, up to 100 days. These prospective payment system (“PPS”) rates are expected to cover all operating and capital costs that efficient properties would be expected to incur in furnishing most SNF services, with certain high-cost, low-probability ancillary services paid separately.

There is a risk that some skilled nursing facilities’ costs could exceed the fixed payments under the prospective payment system for skilled nursing facilities (“SNF PPS”), and there is also a risk that payments under the SNF PPS may be set below the costs to provide certain items and services, which could have a material adverse effect on an SNF. Further, SNFs are subject to periodic pre- and post-payment reviews and other audits by federal and state authorities. Such a review or audit could result in recoupments, denials, or delay of payments in the future, which could have a material adverse effect on the business of a SNF. In addition, the implementation of the “Patient Driven Payment Model” which revises the payment classification system for therapy services in skilled nursing facilities, may impact reimbursement by revising the classifications of certain patients.

In the ordinary course of business, our CCRC has been and is subject regularly to inspections, inquiries, investigations and audits by state agencies that oversee applicable laws and regulations. State licensure laws and, where applicable, Governmental Program certification, require license renewals and compliance surveys on an annual or bi-annual basis. The failure of our CCRC to maintain or renew any required license or regulatory approval, as well as the failure of our managers to correct serious deficiencies identified in a compliance survey, could result in the suspension of operations at a property. In addition, if our CCRC, where applicable, is found to be out of compliance with Governmental Program conditions of participation, the property’s manager may be excluded from participating in those Governmental Programs. Any such occurrence may impair the ability of a property manager to meet its obligations. If we have to replace a property manager, our ability to do so may be affected by the federal and state regulations governing such changes. This may result in payment delays, an inability to find a
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replacement property manager or other difficulties. Unannounced surveys or inspections of a property may occur annually or bi-annually or following a regulator’s receipt of a complaint regarding the property. From time-to-time, our properties receive deficiency reports from state regulatory bodies resulting from such inspections or surveys. Most deficiencies are resolved through a plan of corrective action relating to the property’s operations but, whether the deficiencies are cured or not, the applicable governmental authority typically has the authority to take further action against a licensee. Such an action could result in the imposition of fines, imposition of a provisional or conditional license, suspension or revocation of a license or Governmental Program participation, suspension or denial of admissions or imposition of other sanctions, including criminal penalties. The imposition of such sanctions may adversely affect our business.

SNF, CCRCs and properties participating in Medicaid waiver programs (collectively, “Licensed Healthcare Properties”) that participate in Governmental Programs are subject to numerous federal, state and local laws, including implementing regulations and applicable governmental guidance that govern the operational, financial and other arrangements that may be entered into by healthcare properties and other providers. Certain of these laws prohibit direct or indirect payments of any kind for the purpose of inducing or encouraging the referral of patients for medical products or services reimbursable by Governmental Programs. All healthcare providers, including, but not limited to, assisted living properties and SNFs that participate in Governmental Programs, are also subject to the Federal Anti-Kickback Statute, a criminal statute which generally prohibits persons from offering, providing, soliciting or receiving remuneration to induce either the referral of an individual or the furnishing of a good or service for which payment may be made under a federal Governmental Program. SNFs and certain other types of healthcare properties and providers are also subject to the Federal Ethics in Patient Referral Act of 1989, commonly referred to as the “Stark Law.” The Stark Law generally prohibits the submission of claims to Medicare for payment if the claim results from a physician referral for certain designated services and the physician has a financial relationship with the health service provider that does not qualify under one of the exceptions for a financial relationship under the Stark Law. Many states have similar prohibitions on physician self-referrals and submission of claims which are applicable to all payor sources, including state Medicaid programs.

Other laws require providers to furnish only medically necessary services and submit to the Governmental Program and Governmental Program Payors valid and accurate statements for each service, and other laws require providers to comply with a variety of safety, health and other requirements relating to the condition of the licensed property and the quality of care provided. Sanctions for violations of these laws may include, but are not limited to, criminal and/or civil penalties and fines, loss of licensure, immediate termination of government payments and exclusion from any Governmental Program participation. In certain circumstances, violation of these laws (such as those prohibiting abusive and fraudulent behavior and, in the case of Governmental Program Payors, also prohibiting insurance fraud) with respect to one property may subject other properties under common control or ownership to sanctions, including exclusion from participation in Governmental Programs. In the ordinary course of business, our properties are regularly subjected to inquiries, investigations and audits by the federal and state agencies that oversee these laws.

Further, healthcare properties and other providers, including, but not limited to, assisted living properties and SNFs, that receive Governmental Program payments, are subject to substantial financial and other (in some cases, criminal) penalties under the Civil Monetary Penalties Act, the Federal False Claims Act and, in particular, actions under the Federal False Claims Act’s “whistleblower” provisions. Violations of these laws can also subject persons and entities to termination from participation in Governmental Programs or result in the imposition of substantial damages, fines or other penalties. Private enforcement of healthcare fraud has increased due in large part to amendments to the Federal False Claims Act that encourage private individuals to sue on behalf of the government. These whistleblower suits brought by private individuals, known as “qui tam actions,” may be filed by almost anyone, including present and former patients, nurses and other employees. Significantly, if a claim is successfully adjudicated, the Federal False Claims Act provides for treble damages in addition to penalties up to $22,363 per claim. Various state false claim act and anti-kickback laws may also apply to each property operator, regardless of payor source (i.e., such as a private insurance payor organization or a Governmental Program), and violations of those state laws can also result in substantial fines and/or adverse licensure actions to our material detriment.

Government investigations and enforcement actions brought against the healthcare industry have increased dramatically over the past several years and are expected to continue. Some of these enforcement actions represent novel legal theories and expansions in the application of the Federal False Claims Act. Governmental agencies, both state and federal, are also devoting increasing attention and resources to anti-fraud initiatives against healthcare properties and other providers. Legislative developments, including changes to federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), have greatly expanded the definition of healthcare fraud and related offenses and broadened its scope to include certain private insurance payor organizations in addition to Governmental Programs. Congress also has greatly increased funding for the Department of Justice, Federal Bureau of Investigation and the Office of the Inspector General of the Department of Health and Human Services (“HHS”) to audit, investigate and prosecute suspected healthcare fraud. Moreover, a significant portion of the
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billions in healthcare fraud recoveries over the past several years has also been returned to government agencies to further fund their fraud investigation and prosecution efforts. Responding to, and defending against, any of these potential government investigations and enforcement actions, or any state or federal false claims act actions, is expensive, and the cost, including attorneys’ fees, may be substantial and adversely impact our performance. Any of these actions could result in a financial payment to state and federal authorities, which payments could adversely impact our performance. In addition, the Office of Inspector General could require in the settlement of an investigation that some or all of our facilities operate under a Corporate Integrity Agreement for a number of years, which could be costly and adversely affect our performance.

HIPAA regulations provide for communication of health information through standard electronic transaction formats and for the privacy and security of health information. In order to comply with the regulations, healthcare providers that meet the definition of a Covered Entity as defined by HIPAA often must undertake significant operational and technical implementation efforts. Operators also may face significant financial exposure if they fail to maintain the privacy and security of medical records and other personal health information about individuals. The Health Information Technology for Economic and Clinical Health Act (“HITECH”), passed in February 2009, strengthened the HHS Secretary’s authority to impose civil money penalties for HIPAA violations occurring after February 18, 2009. HITECH directs the HHS Secretary to provide for periodic audits to ensure that covered entities and their business associates (as that term is defined under HIPAA) comply with the applicable HITECH requirements, increasing the likelihood that a HIPAA violation will result in an enforcement action. The CMS issued an interim final rule which conformed HIPAA enforcement regulations to HITECH, increasing the maximum penalty for multiple violations of a single requirement or prohibition to $1.5 million. Higher penalties may accrue for violations of multiple requirements or prohibitions. Additionally, on January 17, 2013, the CMS released a final rule, which expands the applicability of HIPAA and HITECH and strengthens the government’s ability to enforce these laws. The final rule broadens the definition of “business associate” and provides for civil money penalty liability against covered entities and business associates for the acts of their agents regardless of whether a business associate agreement is in place. Additionally, the final rule adopts certain changes to the HIPAA enforcement regulations to incorporate the increased and tiered civil monetary penalty structure provided by HITECH, and makes business associates of covered entities directly liable under HIPAA for compliance with certain of the HIPAA privacy standards and HIPAA security standards. HIPAA violations are also potentially subject to criminal penalties.

The Patient Protection and Affordable Care Act (the “Affordable Care Act”) and the HealthCare and Education Reconciliation Act of 2010, which amends the Affordable Care Act (collectively, the “Health Reform Laws”), and the June 28, 2012 United States Supreme Court ruling upholding the individual mandate of the Health Reform Laws and partially invalidating the expansion of Medicaid (further discussed below) may have a significant impact on Medicare, Medicaid and other Governmental Programs, as well as private insurance payor organizations, which in turn may impact the reimbursement amounts received by our properties which participate in Governmental Programs. In fact, the Health Reform Laws could have a substantial and material adverse effect on all parties directly or indirectly involved in the healthcare system. Together, the Health Reform Laws make the most sweeping and fundamental changes to the U.S. healthcare system undertaken since the creation of Medicare and Medicaid and contain various provisions that may directly impact our business.

Finally, entities that run IL facilities, AL facilities and SNFs can be subject to private causes of action that may be brought by plaintiff’s counsel against these facilities, which can raise allegations under state law facilities for among other things elder abuse, wrongful death, negligence, failure to provide care and for other causes of action designed to redress injuries allegedly suffered by residents. These actions can be brought as class actions, and whether pursued on behalf of an individual or a class may result in substantial financial recoveries.

These Health Reform Laws include, without limitation, the expansion of Medicaid eligibility, requiring most individuals to have health insurance, establishing new regulations on certain private insurance payor organizations (including Governmental Program Payors), establishing health insurance exchanges and modifying certain payment systems to encourage more cost-effective care and a reduction of inefficiencies and waste, including through new tools to address fraud and abuse. Because many of our properties deliver healthcare services, we will be impacted by the risks associated with the healthcare industry, including the Health Reform Laws. While the expansion of healthcare coverage may result in some additional demand for services provided by our properties, reimbursement levels may be lower than the costs required to provide such services, which could materially adversely affect our business. The Health Reform Laws also enhance certain fraud and abuse penalty provisions in the event of one or more violations of the federal healthcare regulatory laws. In addition, the Health Reform Laws have provisions that impact the health coverage that our property managers or tenant provide to their respective employees. We cannot predict whether the existing Health Reform Laws, or future healthcare reform legislation or regulatory changes, will have a material impact on our business.

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Additionally, certain provisions of the Health Reform Laws are designed to increase transparency and program integrity of SNFs. Specifically, SNFs will be required to institute compliance and ethics programs. Additionally, the Health Reform Laws make it easier for consumers to file complaints against nursing homes by mandating that states establish complaint websites. The provisions calling for enhanced transparency will increase the administrative burden and costs on SNF providers.

OUR PORTFOLIO

The key characteristics of our senior housing portfolio, excluding properties classified as discontinued operations, are set forth in the tables below (dollars in thousands):
As of December 31,Year Ended December 31,
YearNumber of CommunitiesNumber of Beds
Real Estate Investments, at Cost (A)
Real Estate Investment per Bed
Total Revenues (B)
Number of States
202010312,438 $2,125,648 $171 $336,281 36 
201910312,439 2,112,321 170 345,903 36 
(A) Real estate investments, at cost represents the gross carrying value of real estate before accumulated depreciation and amortization.
(B) Revenues relate to the period the properties were owned by us in a calendar year and, therefore, are not indicative of full-year results for all properties.

We classify our properties by asset type and operating model, as described in more detail below.

Product Type

IL Properties: IL properties are age-restricted, multifamily properties with central dining that provide residents access to meals and other services such as housekeeping, linen service, transportation and social and recreational activities. A typical resident is 80 to 85 years old and is relatively healthy. Residents are typically charged all-inclusive monthly rates.

CCRC Properties: CCRCs are a particular type of retirement community that offer several levels (generally more than three) of health care at one facility or campus, often including independent living, assisted living/memory care and skilled nursing. CCRCs offer a tiered approach to the aging process, accommodating residents’ changing needs as they age.

Former AL/MC Properties: Prior to the AL/MC Portfolio Disposition, we also focused on AL/MC properties, which are state-regulated rental properties that provide the same services as IL properties and additionally have staff to provide residents assistance with activities of daily living, such as management of medications, bathing, dressing, toileting, ambulating and eating. AL/MC properties may include memory care properties that specifically provide care for individuals with Alzheimer’s disease and other forms of dementia or memory loss. The average age of an AL/MC resident is similar to that of an IL resident, but AL/MC residents typically have greater healthcare needs. Residents are typically charged all-inclusive monthly rates for IL services and additional “care charges” for AL/MC services, which vary depending on the types of services required. AL/MC properties are generally private pay, although many states will allow residents to cover a portion of the cost with Medicaid.

Operating Model

Our current operating model is focused on Managed Properties and our Triple Net Lease Property.

Managed Properties: We have entered into long-term property management agreements for our managed properties with Holiday, Merrill Gardens, and Grace. Our property management agreements have initial five-year or 10-year terms, with successive, automatic one-year renewal periods. We pay property management fees of 4.5% to 5.0% of effective gross income pursuant to our property management agreements and, in some cases, the property managers are eligible to earn an incentive fee based on operating performance. As the owner of the Managed Properties, we are responsible for the properties’ operating costs, including maintenance, utilities, taxes, insurance, repairs, capital improvements and the payroll expense of property-level employees. The payroll expense is structured as a reimbursement to the property manager, who is the employer of record. We have various rights as the property owner under our property management agreements, including rights to set budget guidelines and to terminate and exercise remedies under those agreements as provided therein. However, we rely on our property managers’ personnel, expertise, technical accounting resources and information systems, proprietary information, good faith and judgment to manage our senior housing operations efficiently and effectively. We also rely on our property managers to otherwise operate our properties in compliance with the terms of the management agreements, although we have various rights as the property owner to terminate and exercise remedies under the management agreements.

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Triple Net Lease Property: We own one CCRC that is leased to the tenant pursuant to a triple net lease. Our triple net lease arrangement has an initial term of approximately 15 years and includes renewal options and annual rent increases ranging from 2.75% to 3.25%. Under the triple net lease, the tenant is typically responsible for (i) operating its portion of the portfolio and bearing the related costs, including maintenance, utilities, taxes, insurance, repairs, capital improvements, and the payroll expense of property-level employees, and (ii) complying with the terms of the mortgage financing documents.

Prior to 2019, we had additional triple net lease agreements with affiliates of Holiday. On May 9, 2018, we entered into a lease termination agreement to terminate our triple net leases with affiliates of Holiday relating to 51 IL properties (the “Holiday Portfolio”). The lease termination was effective May 14, 2018 (the “Lease Termination”). Concurrently with the Lease Termination, we entered into property management agreements with Holiday to manage the properties in the Holiday Portfolio following the Lease Termination in exchange for a property management fee. As a result, such properties are now included in the Managed Properties operating model. Refer to “Note 3 – Lease Termination” to our consolidated financial statements for additional details.

FINANCING STRATEGY

Our ability to access capital in a timely and cost effective manner is critical to the success of our business strategy because it affects our ability to make future investments. Our access to and cost of external capital are dependent on various factors, including general market conditions, interest rates, credit ratings on our securities, expectations of our potential future earnings and cash distributions and the trading price of our common stock.

We employ leverage as part of our investment strategy. We do not have a predetermined target debt to equity ratio as we believe the appropriate leverage for the particular assets we are financing depends on the credit quality of those assets. We utilize leverage for the sole purpose of financing our portfolio and not for the purpose of speculating on changes in interest rates. We strive to maintain our financial strength and invest profitably by actively managing our leverage, optimizing our capital structure and developing our access to multiple sources of liquidity. Historically, we have relied primarily on non-recourse U.S. government agency financing to finance a portion of our real estate investments. We may, over time, seek access to additional sources of liquidity, including revolving credit agreements, bank debt, the unsecured public debt and equity markets. Generally, we attempt to match the long-term duration of our investments in senior housing properties with staggered maturities of long-term debt and equity. As of December 31, 2020, 69.2% of our consolidated debt was variable rate debt.

Subject to maintaining our qualification as a REIT, we may, from time to time, utilize derivative financial instruments to manage interest rate risk associated with our borrowings. These derivative instruments may include interest rate swap agreements, interest rate cap agreements, interest rate floor or collar agreements or other financial instruments that we deem appropriate.

POLICIES WITH RESPECT TO CERTAIN OTHER ACTIVITIES

Subject to the approval of our board of directors, we have the authority to offer our common stock or other equity or debt securities in exchange for property and to repurchase or otherwise reacquire our common stock or any other securities and may engage in such activities in the future.

We also may make loans to, or provide guarantees of certain obligations of, our subsidiaries.

Subject to the percentage ownership and gross income and asset tests necessary for REIT qualification, we may invest in securities of other REITs, other entities engaged in real estate activities or securities of other issuers, including for the purpose of exercising control over such entities.

We may engage in the purchase and sale of investments.

Our officers and directors may change any of these policies without a vote of our stockholders.

In the event that we determine to raise additional equity capital, our board of directors has the authority, without stockholder approval (subject to certain NYSE requirements), to issue additional common stock or preferred stock in any manner and on such terms and for such consideration it deems appropriate, including in exchange for property.

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OPERATIONAL AND REGULATORY STRUCTURE

REIT Qualification

We are organized and conduct our operations to qualify as a REIT for U.S. federal income tax purposes. Our qualification as a REIT depends upon our ability to meet, on a continuing basis, various complex requirements under the Internal Revenue Code (“Code”), relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels to our stockholders and the concentration of ownership of our capital stock. Commencing with our initial taxable year ending December 31, 2014, we have been organized in conformity with the requirements for qualification and taxation as a REIT under the Code and we believe that our intended manner of operation will continue to enable us to meet the requirements for qualification and taxation as a REIT.

COMPETITION

We generally compete for investments in senior housing with other market participants, such as other REITs, real estate partnerships, private equity and hedge fund investors, banks, insurance companies, finance and investment companies, government-sponsored agencies, healthcare operators, developers and other investors. Many of our anticipated competitors are significantly larger than we are, have better access to capital and other resources and may have other advantages over us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could lead them to offer higher prices for assets that we might be interested in acquiring and cause us to lose bids for those assets. In addition, other potential purchasers of senior housing properties may be more attractive to sellers of senior housing properties if the sellers believe that these potential purchasers could obtain any necessary third party approvals and consents more easily than us.

Our property managers and tenant compete on a local and regional basis with operators of properties that provide comparable services. Operators compete for residents based on a number of factors including quality of care, reputation, physical appearance of properties, location, services offered, family preferences, staff and price. We also face competition from other healthcare facilities for residents, such as physicians and other healthcare providers that provide comparable properties and services, as well as home care options, including technology-enabled home health care options.

SEASONALITY

There are slight seasonal impacts in our business, with move-in volumes generally being slightly stronger in the summer months and lower in the colder winter months, and utility costs generally being higher in the first and third quarters of each year due to colder temperature and warmer temperatures, respectively. These seasonal impacts have been affected by the COVID-19 pandemic, which among other things suppressed move-in volumes throughout the year due to restrictions and protocols in place. Refer to “Item 1. "Business- Impact of the COVID-19 Pandemic On Our Business" of this Annual Report Form 10-K for additional details.

EMPLOYEES AND HUMAN CAPITAL

As of December 31, 2020, we had 17 full-time employees and an eight-member Board of Directors with a diverse mix of women and men in management, leadership, and board positions. We strive to maintain a workplace that is free from discrimination or harassment on the basis of color, race, sex, national origin, ethnicity, religion, age, disability, sexual orientation, gender identification or expression or any other status protected by law. We conduct annual trainings to prevent harassment and discrimination and monitor employee conduct year-round.

We believe that our employees are fairly compensated, without regard to gender, race and ethnicity, and recognized appropriately for outstanding performance. Our compensation program is designed to attract and retain talent. We continually assess and strive to enhance employee satisfaction and engagement. Our employees are offered opportunities to participate in professional development programs at the Company’s expense.

Prior to the Internalization, we did not have any employees. Our officers and other individuals who provided services to us prior to the Internalization were employed by the Former Manager. In connection with the Internalization, we hired 16 of the 17 employees who had supported our business while employed by the Former Manager, including two of our executive officers.

As the owner of managed properties, we are responsible for the payroll expense of property-level employees (as well as the properties’ other operating costs). The payroll expense is structured as a reimbursement to the property manager, who is the employer of record.
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ADDITIONAL INFORMATION

We file annual, quarterly and current reports, proxy statements and other information required by the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with the SEC. Our SEC filings are available to the public from the SEC’s website at www.sec.gov. We make the materials available free of charge through our website, www.newseniorinv.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Information on, or accessible through, our website is not a part of, and is not incorporated into, this report.

EXECUTIVE OFFICERS OF THE REGISTRANT
The current executive officers of the Company, as of February 1, 2021, are listed below.

NameAgeCurrent Position
Susan Givens44Chief Executive Officer
Lori B. Marino46Executive Vice President, General Counsel and Corporate Secretary
Bhairav Patel42Executive Vice President of Finance and Accounting and Interim Chief Financial Officer

Susan Givens was appointed Chief Executive Officer and a director of the Company in October 2014, which included serving as the Chief Executive Officer of the Company while the Company was externally managed by the Former Manager from 2014 through the Internalization. Ms. Givens has nearly 20 years of private equity, capital markets, mergers and acquisitions, general management and finance experience. Prior to her current appointment, Ms. Givens was a Managing Director in the Private Equity group at the Former Manager, where she served from 2001 to 2014. While at the Former Manager she also served as the Chief Financial Officer and Treasurer of New Residential Investment Corp., and was responsible for various real estate, healthcare, financial services, infrastructure and leisure investments during her tenure. In addition, Ms. Givens was also responsible for overseeing equity capital markets transactions in the Former Manager’s Private Equity group. Prior to joining the Former Manager, she held various private equity and investment banking roles at Seaport Capital and Deutsche Bank in New York and London. Ms. Givens is a member of the 2021 Executive Board of the National Association of Real Estate Investment Trusts (NAREIT). She is also a member of The Real Estate Roundtable.

Lori B. Marino has served as the Executive Vice President, General Counsel and Secretary of the Company since April 2019. Prior to joining the Company, Ms. Marino served as Vice President, Deputy General Counsel & Secretary at ITT Inc., a publicly-traded global multi-industrial manufacturer, from 2016 to 2019 and as Vice President, Chief Corporate Counsel & Secretary from 2013 to 2016. Prior to that, she held various positions from 2007 through 2012 at Medco Health Solutions, Inc., most recently as Vice President, Assistant General Counsel and Assistant Secretary. She began her career as a corporate associate at the law firm of Cravath, Swaine & Moore LLP in New York.

Bhairav Patel has served as the Executive Vice President of Finance and Accounting since January 2019 and as the interim Chief Financial Officer since October 2019. Mr. Patel previously served as a Managing Director at the Former Manager from 2014 to 2018. Mr. Patel joined the Former Manager in 2007 and has served in various capacities within the corporate accounting and finance divisions, including as head of the Former Manager’s financial planning and analysis group. Prior to joining the Former Manager, Mr. Patel served as an accounting manager at GSC Group, a credit-based alternative investment manager. Mr. Patel is also a Certified Public Accountant (inactive).
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ITEM 1A. RISK FACTORS
 
You should carefully consider the following risks and other information in this Annual Report on Form 10-K in evaluating us and our common stock. Any of the following risks, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could materially and adversely affect our results of operations or financial condition. The risk factors generally have been separated into the following groups: risks related to our business, risks related to our taxation as a REIT and risks related to our common stock. However, these categories do overlap and should not be considered exclusive.

RISK FACTORS SUMMARY
The following is a summary of the principal risks that could adversely affect our business, operations, and financial results.

Risks related to our business

The COVID-19 pandemic and measures intended to prevent its spread have had, and may continue to have, a material adverse effect on our business, results of operations, financial condition and liquidity, as well as on the price of our common stock, and may heighten or increase the magnitude of the other risks we face.
Our investments are concentrated in senior housing real estate, and in certain geographic areas.
Covenants in our debt instruments limit our operational flexibility (including our ability to sell assets) and breaches of these covenants could materially adversely affect our business, results of operations and financial condition.
We may be unable to obtain financing on favorable terms, if at all, which may impede our ability to grow or to make distributions to our stockholders.
Return on our investments and our ability to distribute cash may be affected by our use of leverage.
We rely on a limited number of operators and are subject to manager concentration risk.
We may not be able to complete new investments, and the investments we do complete may not be successful.
Real estate investments are relatively illiquid.
We are dependent on our operators for the performance of our assets, and, as a REIT, we are not able to operate certain types of managed properties.
Various factors can result in our managed properties performing poorly, such as weak occupancy or increased expenses.
We and our operators rely on information technology in our operations, and any material failure, inadequacy, interruption or breach of that technology could harm our business.
Our property managers and our tenant may be faced with significant potential litigation and rising insurance costs that may affect their ability to obtain and maintain adequate liability and other insurance and, in the case of our triple net lease property, our tenant’s ability to pay its lease payments and generally to fulfill its insurance and indemnification obligations to us.
Our operators may fail to comply with laws relating to the operation of our properties, which may have a material adverse effect on the ability of our tenant to provide services and pay us rent and adversely affect the profitability of our managed properties and the value of our properties.
Senior housing and healthcare properties are at greater risk for civil lawsuits.
We may not be able to attract and retain management and other key employees.
Competition may affect our operators’ ability to meet their obligations to us.
Overbuilding in markets in which our senior housing properties are located could adversely affect our future occupancy rates, operating margins and profitability.
Tenants may be unable or unwilling to satisfy their lease obligations to us, and there can be no assurance that the applicable guarantor of our lease will be able to cover any shortfall or maintain compliance with applicable financial covenants, which may have a material adverse effect on our financial condition, cash flows, results of operations and liquidity.
We could incur substantial liabilities and costs from potential environmental disputes.

Risks related to our Licensed Healthcare Properties

Our current Licensed Healthcare Properties and any that we might buy in the future are subject to extensive regulations. Failure to comply, or allegations of failing to comply, could have a material adverse effect on us.
Transfers of healthcare properties may require regulatory approvals, and these properties may not have efficient alternative uses.
Changes in reimbursement rates, payment rates or methods of payment from government and other third-party payors, including Medicaid and Medicare, could have a material adverse effect on us and our operators.
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Risks related to our taxation as a REIT

Our failure to qualify as a REIT would result in higher taxes and reduced cash available for distribution to our stockholders.
Drive Shack’s failure to qualify as a REIT could cause us to lose our REIT status.
Our failure to continue to qualify as a REIT would cause our stock to be delisted from the NYSE.
Qualifying as a REIT involves highly technical and complex provisions of the Code.
Dividends payable by REITs do not qualify for the reduced tax rates available for some “qualified dividends.”
We may be unable to pay sufficient distributions to our stockholders to satisfy the REIT distribution requirements, and such requirements could adversely affect our liquidity and our ability to execute our business plan.
The stock ownership limit imposed by the Code on REITs and our certificate of incorporation may inhibit market activity in our stock and restrict our business combination opportunities.
Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.
Complying with REIT requirements may negatively impact our investment returns or cause us to forgo otherwise attractive opportunities, liquidate assets or contribute assets to the taxable REIT subsidiary ("TRS").
Complying with the REIT requirements may limit our ability to hedge effectively.
Distributions to tax-exempt investors may be classified as unrelated business taxable income.
The tax on prohibited transactions will limit our ability to engage in certain transactions which could be treated as prohibited transactions for U.S. federal income tax purposes.
Liquidation of assets may jeopardize our REIT qualification or create additional tax liability for us.
The lease of our properties to a TRS is subject to special requirements.
Changes to U.S. federal income tax laws could materially and adversely affect us and our stockholders.

Risks related to our common stock

We have not established a minimum distribution payment level, and may be unable to pay distributions in the future.
The market for our stock may not provide you with adequate liquidity, which may make it difficult for you to sell the common stock when you want or at prices you find attractive.
Your percentage ownership in our Company may be diluted in the future.
Our outstanding Redeemable Series A Preferred stock and any debt, equity or equity-related securities, that we may issue in the future may negatively affect the market price of our common stock.
We may in the future choose to pay dividends in our own stock, in which case you could be required to pay income taxes in excess of the cash dividends you receive.
An increase in market interest rates may have an adverse effect on the market price of our common stock.
Provisions in our certificate of incorporation and bylaws and of Delaware law may prevent or delay an acquisition of our company, which could decrease the trading price of our common stock.


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RISKS RELATED TO OUR BUSINESS

The ongoing COVID-19 global pandemic and measures intended to prevent its spread have had, and may continue to have, a material adverse effect on our business, results of operations, financial condition and liquidity, as well as on the price of our common stock.

The COVID-19 pandemic is causing significant disruptions to the U.S. and global economies and has contributed to volatility and negative pressure in financial markets. The outbreak has led federal, state and local governments and public health authorities to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders.

Our portfolio consists entirely of independent senior living properties. Accordingly, factors that affect real estate and the senior housing industry will have a more pronounced effect on our portfolio relative to a portfolio of more diversified investments. In particular, because COVID-19 has had disproportionately severe impacts on the health of seniors, we expect to be more significantly affected by COVID-19 than other REITs that focus on different sectors. Although our operators have taken, and are continuing to take, various measures to reduce the risk of transmission of COVID-19 in our properties, including limiting visitor access to our properties and access to common areas within our properties, and we are working proactively with our property managers to monitor their protocols and share best practices for reducing the spread of COVID-19, we can provide no assurance that these measures will be effective in preventing cases of COVID-19 within our properties. Residents and associates at some of our properties have already contracted COVID-19, and we expect to continue to see cases of COVID-19 for the foreseeable future.

COVID-19 and the measures that we have taken in response to combat the virus have resulted in reduced occupancy rates of our properties, resulting in reduced rental revenue, and we expect occupancy rates will continue to be depressed for at least the duration of the COVID-19 pandemic due to a reduction in, or in some cases prohibitions on, new tenant move-ins, stricter move-in criteria, lower inquiry volumes, and reduced in-person tours, as well as incidences of COVID-19 outbreaks at our communities or the perception that outbreaks may occur. These outbreaks, which directly affect the lifestyle of our residents as well as the staff at our communities, have and could continue to materially and adversely disrupt operations, even in communities where there is only one or a few confirmed cases of COVID-19. Outbreaks also could cause significant reputational harm to us and our operators and could adversely affect demand for senior housing both during the pandemic and after the pandemic subsides.

Responding to the COVID-19 pandemic also has caused our operators to face material cost increases as a result of the need for the procurement of PPE and other supplies such as packaging necessary for in-room meal deliveries to residents. While to date these costs have largely been offset by variable expense savings associated with lower occupancy and strong expense management from our operators, we can provide no assurance that this will continue and depending on how the pandemic evolves, there may be other future operating expenses that we may be required to bear, such as costs for testing kits for residents and staff, temperature screening machines, additional cleaning equipment, or new protocols related to the properties. The COVID-19 pandemic has also caused and is likely to continue to cause regulatory changes and, as a result, our industry may face increased regulatory scrutiny. Any changes in the regulatory framework or the intensity or extent of government or private enforcement actions could materially increase operating costs incurred by us or our property managers or tenant for monitoring and reporting compliance.

The COVID-19 pandemic has also caused, and is likely to continue to cause, severe economic, market and other disruptions worldwide, including a significant decline and volatility in equity markets and in asset values more generally. These factors have significantly affected the price of our common stock, which traded as high as $8.35 per share and as low as $1.72 per share during the year ended December 31, 2020. We cannot assure you that conditions in the credit, capital and other financial markets will not continue to deteriorate as a result of the pandemic, or that our ability to obtain financing, including through refinancing our existing indebtedness at the times of maturity, will not become constrained, which could adversely affect the availability and terms of our ability to access equity and debt capital markets, or make future borrowings, renewals or refinancings. In addition, our liquidity may be adversely affected by these factors, reductions in our revenues due to decreased occupancy in our properties and reduced asset values, which over time may limit the borrowing availability under the Revolver. Our residents and tenant are also likely experiencing deteriorating financial conditions as a result of the COVID-19 pandemic and may be unwilling or unable to satisfy their obligations to us on a timely basis, or at all, which may further reduce our revenues and cash flows.

The impact of the COVID-19 pandemic on our managed portfolio of communities is direct, because we receive cash flow from the operations of the property (as compared to receiving contractual rent from our third party tenant-operator under our single triple-net lease structure), and we also bear all operational risks and liabilities associated with the operation of these managed
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properties, other than those arising out of certain actions by our property managers, such as their gross negligence or willful misconduct. Accordingly, we may be directly adversely impacted by increased exposure to our business caused by the pandemic to lawsuits or other legal or regulatory proceedings filed at the same time across multiple jurisdictions, such as professional liability litigation alleging wrongful death or negligence claims related to COVID-19 outbreaks that have occurred or may occur at our properties. These claims may result in significant damage awards and not be indemnified or subject to sufficient insurance coverage. Federal, state, local and industry-initiated efforts may limit us, our property managers’ and our tenant’s liabilities from COVID-19 related quality of care litigation, but the extent of such limitations are uncertain and such liabilities could still be significant. These same factors may also affect our triple net lease tenant and may limit its ability to pay the contractual rent to us when due.

The extent of the COVID-19 pandemic’s effect on our business, operational, financial performance and liquidity will depend on future developments, including the duration, spread, intensity and recurrence of the pandemic, health and safety actions taken to contain its spread, the timing, availability, continuing efficacy and public usage and acceptance of vaccines, and how quickly and to what extent normal economic and operating conditions can resume within the markets in which we operate, each of which is highly uncertain and very difficult to predict at this time. Even after the COVID-19 pandemic subsides, we may continue to experience adverse impacts to our business and financial results as a result of its global economic impact, including any economic downturn or recession that may occur in the future. The adverse impact of the COVID-19 pandemic on our business, results of operations, financial condition, cash flows and stock price could be material.

In addition, to the extent COVID-19 adversely affects our business, financial condition, and results of operations and economic conditions more generally, it may also have the effect of heightening or increasing the magnitude of many of the other risk factors described herein.

Our investments are concentrated in senior housing real estate, and in certain geographic areas.

Our investments are concentrated solely in the senior housing sector. Any factors that affect real estate and the senior housing industry will have a more pronounced effect on our portfolio relative to a portfolio of more diversified investments. In addition, the geographic concentration of our assets in certain states may result in losses due to our significant exposure to the effects of economic and real estate conditions in those markets. The geographic location of our properties and the percentage of total revenues by geographic location are set forth under Item 1. "Business-Our Portfolio" of this Annual Report Form 10-K. As a result of this concentration, a material portion of our portfolios are significantly exposed to the effects of economic and real estate conditions in those particular markets, such as the supply of competing properties, home prices, income levels, the financial condition of our tenant, and general levels of employment and economic activity. To the extent that weak economic or real estate conditions affect markets in which we have a significant presence more severely than other areas of the country, our financial performance could be negatively impacted. Some or all of these properties could be affected if these regions experience severe weather or natural disasters; including as a result of climate change, delays in obtaining regulatory approvals; delays or decreases in the availability of personnel or services; and/or changes in the regulatory, political or fiscal environment.

Covenants in our debt instruments limit our operational flexibility (including our ability to sell assets) and impose requirements on our operators, and breaches of these covenants could materially adversely affect our business, results of operations and financial condition.

The terms of our financings require us to comply with a number of customary financial and other covenants, minimum tangible net worth requirements, REIT status and certain levels of debt service coverage. Our continued ability to conduct business is subject to compliance with these financial and other covenants, which limit our operational flexibility and depend on the compliance of our tenant with the terms of the applicable lease. The terms of the financings of our leased asset generally treat an event of default by the tenant or guarantor under the related lease and guaranty as an event of default under the financing. Therefore, our ability to comply with certain terms of our financings depends on the actions and operating results of our tenant and guarantor, which is outside of our control.

Mortgages and other loan documents for financings secured by our properties contain customary covenants such as those that limit or restrict our ability, without the consent of the lender, to further encumber or sell the applicable properties, or to replace the applicable tenant or operator. Breaches of certain covenants may result in defaults under the mortgages and other loan documents for financings secured by our properties and cross-defaults under certain of our other indebtedness, even if we satisfy our payment obligations to the respective obligee. Covenants that limit our operational flexibility as well as defaults resulting from the breach of any of these covenants could materially adversely affect our business, results of operations and financial condition. A failure to comply with the terms of our financings could result in the acceleration of the requirement to repay all or a portion of our outstanding indebtedness. In addition, the terms of our financings may prohibit or limit our ability
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to amend or terminate our triple net lease if we desired to do so, including in situations where our tenant and guarantor may not have the resources to make payments under the terms of the lease or guaranty, respectively.

If we are unable to obtain financing on favorable terms, it may impede our ability to grow or to make distributions to our stockholders.

We do not currently retain any cash from operations on account of the distributions we make to stockholders (see “We have not established a minimum distribution payment level, and we cannot assure you of our ability to pay any distributions in the future.”). If we are unable to generate enough cash flow, we have relied in the past and may need to rely in the future on external sources of capital, including debt and equity financing or asset sales, to fulfill our capital requirements. If we cannot access these external sources of capital, we may not be able to make the investments needed to grow our business or to make distributions to stockholders. In addition, we may seek to refinance the debt on our leased asset if we anticipate that our tenant may not be able to comply with the terms of the applicable lease, which could result in an event of default and there can be no assurance that we will be able to obtain such refinancing on attractive terms or at all.

Our ability to obtain financing or refinance existing debt depends upon a number of factors, some of which we have little or no control over, including but not limited to:

general availability of credit and market conditions, including rising interest rates and increasing borrowing costs;
the market price of the shares of our equity securities;
the market’s perception of our growth potential, compliance with applicable laws and our historic and potential future earnings and cash distributions;
our degree of financial leverage and operational flexibility;
the financing integrity of our lenders, which might impact their ability to meet their commitments to us or their willingness to make additional loans to us, and our inability to replace the financing commitment of any lender who loses such financing integrity on favorable terms, or at all;
the stability in the market value of our properties;
the financial performance and general market perception of our property managers and tenant;
changes in the credit ratings on United States government debt securities or default or delay in payment by the United States of its obligations; and
issues facing the healthcare industry, including, but not limited to, healthcare reform and changes in government reimbursement policies.

Any limitation on our access to financing as a result of these or other factors could impede our ability to grow and have a material adverse effect on our liquidity, ability to fund operations, make payments on our debt obligations, fund distributions to our stockholders, including distributions or redemption obligations under our Redeemable Series A Preferred Stock, acquire properties and undertake development activities.

Our determination of how much leverage to apply to our investments may adversely affect our return on our investments and may reduce cash available for distribution.

We have leveraged our assets through a variety of borrowings, including floating rate financings. We do not have any policies that limit the amount or type of leverage we may incur. The return we are able to earn on our investments and cash available for distribution to our stockholders may be significantly reduced due to changes in market conditions, which may cause the cost of our financing to increase relative to the income that can be derived from our assets (see “We have not established a minimum distribution payment level, and we cannot assure you of our ability to pay any distributions in the future.”).

We rely on a limited number of operators and are subject to manager concentration risk.

All of our managed properties are subject to management agreements with three operators: Holiday, Merrill Gardens and Grace. However, Holiday is our most significant operator, serving as the manager of 98 of our 102 managed properties and representing 99.3% of the NOI from our managed properties as of December 31, 2020.

The risks of relying so significantly on one operator is that we rely upon its personnel, expertise, technical resources and information systems, compliance procedures and programs, proprietary information, good faith and judgment to manage our senior housing operations efficiently and effectively (see “We are dependent on our operators for the performance of our assets, and, as a REIT, we are not able to operate certain types of managed properties.”). Any failure, inability or unwillingness on the
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part of our property managers to satisfy their respective obligations under our management agreements, or any change of control, acquisition, wind down or other change in the business operations of our property managers, or adverse developments in our property managers’ business and affairs or financial condition that impacts or impairs their ability to manage our properties efficiently and effectively and in compliance with applicable laws, could have a material adverse effect on our business, results of operations or financial condition.

We may not be able to complete new investments, and the investments we do complete may not be successful.

We face significant competition from other REITs, investment companies, private equity and hedge fund investors, sovereign funds, healthcare operators, lenders, developers and other institutional investors, some of whom may have greater resources or lower costs of capital than we do. Increased competition makes it more challenging for us to identify and successfully capitalize on opportunities that meet our business goals and could improve the bargaining power of property owners seeking to sell, thereby impeding our investment, acquisition and development activities. A failure to make investments at favorable prices, or to finance acquisitions on commercially favorable terms, could have a material adverse effect on our business, results of operations or financial condition.

We might never realize the anticipated benefits of the investments we do complete. We might encounter unanticipated difficulties and expenditures relating to any investments. We may not be able to consummate attractive acquisition opportunities because of market conditions, liquidity constraints, regulatory reasons or other factors. The current low interest rate environment may create difficulties for sourcing new investments, for instance by driving sales prices up. Furthermore, notwithstanding pre-acquisition due diligence, newly acquired properties might require significant management attention or may have unexpected issues. For example, we could acquire a property that contains undisclosed defects in design or construction. In addition, after our acquisition of a property, the market in which the acquired property is located may experience unexpected changes that adversely affect the property’s value. The occupancy of properties that we acquire may decline during our ownership, and rents or returns that are in effect or expected at the time a property is acquired may decline. Also, our operating costs for acquired properties may be higher than we anticipate, acquisitions of properties may not yield the returns we expect and, if financed using debt or new equity issuances, may result in stockholder dilution. For these reasons, among others, any acquisitions of additional properties may adversely affect our business, results of operations or financial condition.

Real estate investments are relatively illiquid.

Real estate investments are relatively illiquid, and our ability to quickly sell or exchange our properties in response to changes in economic or other conditions is limited. In the event we desire or need to sell any of our properties, the value of those properties and our ability to sell at a price or on terms acceptable to us could be adversely affected by factors including a downturn in the real estate industry or any weakness in the senior housing industry. We cannot assure you that we will recognize the full value of any property that we sell, and our inability to respond quickly to changes in the performance of our investments could adversely affect our business, results of operations or financial condition.

We are dependent on our operators for the performance of our assets.

During the year ended December 31, 2020, 95.4% of our NOI from continuing operations was attributable to our managed portfolio. We have engaged third parties to operate all of our managed assets on our behalf. The income generated by our managed properties depends on the ability of our property managers to successfully manage these properties, which is a complex task. Although we have various rights pursuant to our property management agreements, we rely upon our property managers’ personnel, expertise, technical resources and information systems, compliance procedures and programs, proprietary information, good faith and judgment to manage our senior housing operations efficiently and effectively. We also rely on our property managers to set appropriate resident fees, to provide accurate property-level financial results for our properties in a timely manner and to otherwise operate our senior housing properties in compliance with the terms of our property management agreements and all applicable laws and regulations. We rely on our property managers to attract and retain skilled management personnel and property level personnel who are responsible for the day-to-day operations of our properties. We have various rights as the property owner under our property management agreements, including various rights to set budget guidelines and to terminate and exercise remedies under those agreements as provided therein. A failure to effectively manage property operating expense, including, without limitation, labor costs and resident referral fees, or significant changes in our property managers’ ability to manage our properties efficiently and effectively, could adversely affect the income we receive from our properties and have a material adverse effect on us. Any failure, inability or unwillingness on the part of our property managers to satisfy their respective obligations under our management agreements, or any change of control, acquisition, wind down or
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other change in the business operations of our property managers, or adverse developments in our property managers’ business and affairs or financial condition that impacts or impairs their ability to manage our properties efficiently and effectively and in compliance with applicable laws, could have a material adverse effect on our business, results of operations or financial condition.

While we monitor our property managers’ performance, we have limited recourse under our property management agreements to address poor performance other than through exercising our termination rights. Termination may be an unattractive remedy since we may not be able to identify a suitable alternative operator and transitioning management is subject to risks and in some cases we may incur termination fees.

In summary, our performance is almost entirely dependent on the abilities and performance of our property managers, and even if we desired to take management control of our properties, due to tax law restrictions we are unable to self-manage certain types of senior housing properties that we have owned in the past and may own again in the future.

Various factors can result in our managed properties performing poorly, such as weak occupancy or increased expenses.

Currently, all but one of our properties are owned on a managed basis. Compared to leased properties, which generally provide a steady and predictable cash flow, properties owned on a managed basis are generally subject to more volatility in NOI. This could have an adverse effect on our results of operations and cash flows. In addition, we are required to cover all property-related expenses for our managed portfolio, including maintenance, utilities, taxes, insurance, repairs and capital improvements, which could have an adverse effect on our liquidity.

A failure by our operators to grow or maintain occupancy could adversely affect the NOI generated by our managed properties. Unlike a typical apartment leasing arrangement that involves lease agreements with terms of a year or longer, resident agreements at our senior housing properties generally allow residents to terminate their agreements with 30 days’ notice. In an effort to increase occupancy or avoid a decline in occupancy, our property managers may offer incentives or discounts, which could also have a material adverse effect on our results of operations.

Occupancy levels at our properties may not increase, or may decline, due to a variety of factors, including, without limitation, falling home prices, declining incomes, stagnant home sales, competition from other senior housing developments, reputational issues faced by our operators, a regulatory ban on admissions or forced closure. In addition, the senior housing sector may experience a decline in occupancy due to the state of the national, regional or local economies and the related decision of certain potential residents to elect home care options instead of senior housing. Occupancy levels may also decline due to seasonal contagious illnesses such as influenza.

In terms of expenses, wages and employee benefits represent a significant part of the expense structure at our properties. We rely on our property managers to attract and retain skilled management personnel and property level personnel who are responsible for the day-to-day operations of our properties, but we are responsible for the payroll expense of property-level employees (as well as the properties’ other operating costs). Our property managers may be required to pay increased compensation or offer other incentives to retain key personnel and other employees. In particular, the market for qualified nurses and healthcare professionals is highly competitive. Periodic and geographic area shortages of nurses or other trained personnel may require our property managers to increase the wages and benefits offered to their employees in order to attract and retain these personnel or to hire temporary personnel, which are generally more expensive than regular employees. In addition, certain states have recently increased or proposed to increase the minimum wage, which could increase our property operating expenses and adversely affect our results of operations. Changes in minimum wage laws can have an impact beyond the expense of minimum wage workers, because an increase in the minimum wage can result in an increase in wages for workers who are relatively close to the minimum wage. In addition to pressure from wages, employee benefits costs, including employee health insurance and workers’ compensation insurance costs, have materially increased in recent years. Increasing employee health and workers’ compensation insurance costs may materially and negatively affect the NOI of our properties. We cannot assure you that labor costs at our properties will not increase or that any increase will be matched by corresponding increases in rates charged to residents. Any significant failure by our property managers to control labor costs or to pass on increased labor costs to residents through rate increases could have a material adverse effect on our business, financial condition and results of operations.

Property-level insurance coverage, in particular property and casualty insurance and general and professional liability insurance, is also a significant expense for us and is managed for us by our property managers. We have seen significant increases in costs in recent years, due to claims data and a general tightening of the insurance markets and in 2020 due to
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concerns related to COVID-19, and the failure by or inability of our property managers to control the rising costs of insurance could have a material adverse effect on our business, financial condition and results of operations.

We and our operators rely on information technology in our operations, and any material failure, inadequacy, interruption or breach of that technology could harm our business.

We and our operators rely on information technology networks and systems to process, transmit and store electronic information and to manage or support a variety of our business processes, including financial transactions and maintenance of records, which may include personal identifying information of the residents at our properties. We and our operators rely on commercially available systems, software, tools and monitoring to provide security for processing, transmitting and storing this confidential information, such as individually identifiable information relating to financial accounts. Although we and our operators have taken steps to protect the security of the data maintained in our information systems, it is possible that such security measures will not be able to prevent the systems’ improper functioning, or the improper disclosure of personally identifiable information such as in the event of cyber-attacks. Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information. We and our operators employ a number of measures to prevent, detect and mitigate these threats; however, there is no guarantee such efforts will be successful in preventing or promptly detecting a cyber-attack. A cybersecurity attack could compromise the confidential information of our employees, our tenant, our vendors and the residents. A successful attack could disrupt and otherwise adversely affect our business operations and financial prospects, damage our reputation and involve significant legal and/or financial liabilities and penalties, including through lawsuits by third-parties. A cybersecurity attack could trigger mandatory self-reporting to the federal Office of Civil Rights with the Department of Health and Human Services and could result in civil fines under the Health Insurance Portability and Accountability Act (“HIPAA”). Any failure to maintain proper function, security and availability of our information systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could materially and adversely affect our business, financial condition and results of operations.

Our property managers and our tenant may be faced with significant potential litigation and rising insurance costs that not only affect their ability to obtain and maintain adequate liability and other insurance, but also may affect, in the case of our triple net lease property, our tenant’s ability to pay its lease payments and generally to fulfill its insurance and indemnification obligations to us.

In some states, advocacy groups monitor the quality of care at assisted and independent living communities, and these groups have brought litigation against operators. Also, in several instances, private litigation by assisted and independent living community residents or their families have succeeded in winning very large damage awards for alleged neglect or mistreatment and we cannot assure you that we will not be subject to these types of claims. The effect of this litigation and potential litigation has been to, amongst other matters, materially increase the costs of monitoring and reporting quality of care compliance. The cost of liability and medical malpractice insurance has increased and may continue to increase. This may affect the ability of some of our property managers and our tenant to obtain and maintain adequate liability and other insurance and manage their related risk exposures. In addition to causing some of our property managers and our tenant to be unable to fulfill their insurance, indemnification and other obligations to us under their property management agreements or leases and thereby potentially exposing us to those risks, these litigation risks and costs could cause our tenant to become unable to pay rents due to us. Such nonpayment could potentially affect our ability to meet future monetary obligations under our financing arrangements.

The failure to comply with laws relating to the operation of our properties may result in increased expenditures, litigation or otherwise have a material adverse effect on our business, including on the ability of our tenant to provide services, pay us rent, the profitability of our managed properties and the value of our properties.

We and our operators are subject to or impacted by extensive, frequently changing federal, state and local laws and regulations. Some of these laws and regulations include: state laws related to patient abuse and neglect; laws protecting consumers against deceptive practices; laws relating to the operation of our properties and how our property managers and our tenant conduct their operations, such as fire, health and safety laws and privacy laws; the Americans with Disabilities Act, the Fair Housing Act, and similar state and local laws; and safety and health standards set by the Occupational Safety and Health Administration. We and our operators expend significant resources to maintain compliance with these laws and regulations, and responding to any allegations of noncompliance would result in the expenditure of significant resources. If we or our operators fail to comply with any applicable legal requirements, or are unable to cure deficiencies, certain sanctions may be imposed and, if imposed, may materially and adversely affect our tenant’s ability to pay its rent, the profitability of our managed properties, the values of our
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properties, our ability to complete additional acquisitions in the state in which the violation occurred, and our reputation. Further, changes in the regulatory framework could have a material adverse effect on the ability of our tenant to pay us rent (and any such nonpayment could potentially affect our ability to meet future monetary obligations under our financing arrangements), as well as the profitability of, and the values of, our properties.

We and our operators are required to comply with federal and state laws governing the privacy, security, use and disclosure of individually identifiable information, including financial information and protected health information. When one of our communities operates in such a way as to meet the definition of a Covered Entity under HIPAA, we and our operators are required to comply with the HIPAA privacy rule, security standards and standards for electronic healthcare transactions. State laws also govern the privacy of individual health information, and these laws are, in some jurisdictions, more stringent than HIPAA. Other federal and state laws govern the privacy of individually identifiable information.

The management of infectious medical waste, as well as certain other hazardous or toxic substances, including handling, storage, transportation, treatment and disposal, is also subject to regulation under various laws, including federal, state and local environmental laws. Further, the presence of asbestos-based materials, mold, lead-based paint, contaminants in drinking water, radon and/or other substances at any of the communities we own or may acquire may lead to the incurrence of costs for remediation, mitigation or the implementation of an operations and maintenance plan. For instance, building owners and those exercising control over a building’s management are sometimes required to identify and warn employees and other employers operating in the building of risks associated with the known or potential asbestos-containing materials. Environmental laws also govern the removal, encapsulation, disturbance, handling and/or disposal of asbestos-containing materials and potential asbestos-containing materials when such materials are in poor condition or in the event of construction, remodeling, renovation, or demolition of a building. Such laws may impose additional costs or liability for improper handling of such materials or a release to the environment, and third parties alleging exposure to such materials may seek recovery from owners or operators of real estate for personal injury.

While we are not aware of material non-compliance with or liabilities under environmental laws associated with our properties or operations, including related to infectious medical waste, hazardous or toxic substances, asbestos, mold, lead-based paint, contaminants in drinking water, radon and/or other substances at our senior housing properties, these environmental laws are amended from time to time and we cannot predict when and to what extent liability or the need to incur additional capital or operational costs may arise. In addition, because these environmental laws vary from jurisdiction to jurisdiction, expansion of our operations to locations where we do not currently operate may subject us to additional restrictions on the manner in which we operate our senior housing properties. If we or our operators fail to comply with applicable federal, state or local standards, we or they could be subject to civil sanctions and criminal penalties, which could materially and adversely affect our business, financial condition and results of operations.

Senior housing and healthcare properties are at greater risk for lawsuits involving negligent care and breach of duty.

Senior housing and healthcare properties are at greater risk for lawsuits alleging negligent care and/or breach of duty due to the oversight and care services provided. These suits can be costly to defend and can negatively impact the reputation of a community, which in turn can have a negative impact on occupancy and operations. Judgements can be significant and could affect our property managers’ and our tenant’s ability to satisfy their obligations to us. If any of our property managers or our tenant becomes unable to operate our properties, or if our tenant becomes unable to pay its rent because of a judgement, we may experience difficulty in finding a substitute tenant or property manager or selling the affected property for a fair and commercially reasonable price, and the value of an affected property may decline materially.

We may not be able to attract and retain management and other key employees.

Our employees, particularly our management, are vital to our success and difficult to replace. We may be unable to retain them or to attract other highly qualified individuals, particularly if we do not offer employment terms competitive with the rest of the market. Failure to attract and retain highly qualified employees, or failure to develop and implement a viable succession plan, could result in inadequate depth of institutional knowledge or skill sets, adversely affecting our business.

Competition may affect our operators’ ability to meet their obligations to us.

Our property managers compete with other companies on a number of different levels, including: the quality of care provided, reputation, the physical appearance of a property, price and range of services offered, alternatives for healthcare delivery, the supply of competing properties, physicians, staff, referral sources, location, the size and demographics of the population in surrounding areas and the financial condition of our tenant and managers. A property manager’s inability to successfully
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compete with other companies on one or more of the foregoing levels could adversely affect the senior housing property and materially reduce our property-level NOI.

The healthcare industry is also highly competitive, and our operators may encounter increased competition for residents and patients, including with respect to the scope and quality of care and services provided, reputation and financial condition, physical appearance of the properties, price and location. The operations of our properties depend on the competitiveness and financial viability of the properties. If our managers are unable to successfully compete with other operators and managers by maintaining profitable occupancy and rate levels, their ability to generate income for us may be materially adversely affected. The operations of our triple net lease tenant also depend upon its ability to successfully compete with other operators. If our tenant is unable to successfully compete, its ability to fulfill its obligations to us, including the ability to make rent payments to us, may be materially adversely affected.

Overbuilding in markets in which our senior housing properties are located could adversely affect our future occupancy rates, operating margins and profitability.

The senior housing industry generally has limited barriers to entry, and, as a consequence, the development of new senior housing properties could outpace demand. If development outpaces demand for those asset types in the markets in which our properties are located, those markets may become saturated, and we could experience decreased occupancy, reduced operating margins and lower profitability. New supply is expected to remain at elevated levels and has had, and is expected to continue to have, a negative impact on our portfolio.

Our current tenant and any future tenants may be unable or unwilling to satisfy their lease obligations to us, and there can be no assurance that the applicable guarantor of our lease will be able to cover any shortfall or maintain compliance with applicable financial covenants, which may have a material adverse effect on our financial condition, cash flows, results of operations and liquidity.

Since May 2015, our CCRC is leased on a triple net basis to a tenant. Rental income from our triple net lease represented 4.6% of our NOI during the year ended December 31, 2020.

Our triple net lease and any triple net leases we may enter into in the future subject us to credit and other risks from our tenant. Any failure by a tenant to effectively conduct its operations or to maintain and improve our properties could adversely affect its business reputation and its ability to attract and retain residents in our properties, which could impair such tenant’s ability to generate sufficient income to satisfy its obligations to us. Our tenant has also agreed, and we expect our future tenants will also agree, to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities arising in connection with their respective businesses, and we cannot assure you that they will have sufficient assets, income, access to financing and insurance coverage to enable them to satisfy their respective indemnification obligations.

If a tenant is not able to satisfy its obligations to us, we would be entitled, among other remedies, to use any funds of such tenant then held by us and to seek recourse against the guarantor under its guaranty of the applicable lease. The guaranty of the applicable lease subjects us to credit risk from our guarantor. There can be no assurance that a guarantor will have the resources necessary to satisfy its obligations to us under its guaranty of the applicable lease in the event that a tenant fails to satisfy its lease obligations to us in full, which would have a material adverse effect on our financial condition, results of operations, liquidity and ability to make payments on our financings. In addition, a guarantor’s obligations to us may be limited to an amount that is less than our damages under the related lease.

We cannot assure you that our tenant and lease guarantor will remain in compliance with any applicable financial covenants, either through the performance of the underlying portfolio or through the use of cash cures, if permitted. A failure to comply with or cure a financial covenant, if applicable, would generally give rise to an event of a default under a lease, and such event of default could result in an event of default under our financing for the applicable property, which could have a material adverse effect on our financial position, cash flows, results of operations and liquidity.

Even if our tenant is current on its obligations to make payments to us, a breach of a non-curable financial covenant applicable to a tenant or guarantor could result in an event of default under the applicable financing, which could have a material adverse effect on our financial position, cash flows, results of operations and liquidity. The failure of our tenant or any of our lease guarantors to comply with the terms of their respective leases, or the termination of any of our leases before the expiration of
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the original term (even in the absence of a breach by the tenant), could have a material adverse effect on our financial position, cash flows, results of operations and liquidity.

In addition, we cannot predict whether our tenant will satisfy its obligations to us or renew its leases at the end of the applicable term, and we may agree to voluntarily terminate the lease prior to the end of its stated term.

If there is a default under one or more of our leases, or these leases are not renewed or they are terminated before the expiration of the original term, it may not be feasible to re-lease such properties to a new tenant. There can be no assurance that we would be able to identify a suitable replacement tenant, enter into a lease with a new tenant on terms as favorable to us as the current leases or that we would be able to lease those properties at all.

Upon the termination of any lease, we may decide to sell the properties or to operate such properties on a managed basis. A sale would subject us to reinvestment risk, and owning the properties on a managed basis could be meaningfully less profitable than owning such properties subject to a lease.

Our tenant and guarantor may not be able to satisfy the payments due to us or otherwise comply with the terms of the applicable lease or guaranty, which may result in a tenant or guarantor bankruptcy or insolvency, or a tenant or guarantor might become subject to bankruptcy or insolvency proceedings for other reasons, which could have a material adverse effect on us.

We may be required to fund certain expenses (e.g., real estate taxes and maintenance) to preserve the value of our property, avoid the imposition of liens on a property and/or transition a property to a new tenant. If we cannot transition a leased property to a new tenant, we may take possession of that property, which may expose us to certain successor liabilities. Should such events occur, our revenue and operating cash flow may be adversely affected.

If any of our properties are found to be contaminated, or if we become involved in any environmental disputes, we could incur substantial liabilities and costs.

Under federal and state environmental laws and regulations, owners, tenants, and operators of real property may be liable for costs related to the investigation, removal and remediation of hazardous or toxic substances that are released from or are present at or under, or that are disposed of in connection with such property. Owners, tenants, and operators of real property may also face other environmental liabilities, including governmental fines and penalties imposed by regulatory authorities and damages for injuries to persons, property or natural resources. Environmental laws and regulations may impose joint and several liability without regard to whether the owner, tenant, or operator was aware of, or was responsible for, the presence, release or disposal of hazardous or toxic substances. In certain circumstances, environmental liability may result from the activities of a current or former owner, tenant, or operator of the property, or if waste disposed is released at another location. As owners of real property, we may therefore become liable for releases of hazardous or toxic substances that are released by us or other parties. We are generally indemnified by our property managers and tenant of our properties for contamination caused by them, but these indemnities may not adequately cover all environmental costs. Further, although we do not believe we have incurred such liabilities as would have a material effect on our business, financial condition, and results of operations, we could be subject to substantial future liability for environmental contamination we have no knowledge about as of this date and/or for which we may not be at fault.

RISKS RELATED TO OUR LICENSED HEALTHCARE PROPERTIES

We only have one property in our portfolio that has health care components that are licensed by the state and that participates in Medicare and Medicaid. This property is a continuing care retirement community (“CCRC”), which has independent senior housing units, assisting living units, memory care, and skilled nursing facility (“SNF”) beds.

Our current Licensed Healthcare Properties and any that we might buy in the future are subject to extensive regulations. Failure to comply, or allegations of failing to comply, could have a material adverse effect on us.

Various governmental authorities mandate certain physical and operational characteristics of our Licensed Healthcare Properties and any potential future Licensed Healthcare Properties. Changes in laws and regulations relating to these matters may require significant expenditures. Our property management agreements and triple net lease generally require our operators and tenant to maintain our properties in compliance with applicable laws and regulations, and we expend resources to monitor their compliance. However, our monitoring efforts may fail to detect weaknesses in our operators’ and tenant’s performance on the clinical and other aspects of their duties, which could expose the operator to the risk of penalties, license suspension or
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revocation, criminal sanctions and civil litigation. Any such actions, even if ultimately dismissed or decided in our favor, could have a material adverse effect on our reputation and results of operations. In addition, our operators and tenant may neglect maintenance of our properties if they suffer financial distress. In the case of our triple net lease property, we may agree to fund capital expenditures in return for rent increases or other concessions. Our available financial resources or those of our tenant may be insufficient to fund the expenditures required to operate our properties in accordance with applicable laws and regulations. If we fund these expenditures, our tenant’s financial resources may be insufficient to satisfy its increased rental payments to us or other incremental obligations. Failure to obtain a license or registration, or loss of a required license or registration, would prevent a property from operating in the manner intended by the property managers or our tenant, which could have a material adverse effect on our property managers’ ability to generate income for us or our tenant’s ability to make rent payments to us. Any compliance issues could also make it more difficult to obtain or maintain required licenses and registrations.

Licensing, Medicare and Medicaid and other laws may also require some or all of our operators to comply with extensive standards governing their operations and such operations are subject to routine inspections. In addition, certain laws prohibit fraud by senior housing operators and other healthcare communities, including civil and criminal laws that prohibit false claims in Medicare, Medicaid and other programs that regulate patient referrals. In recent years, federal and state governments have devoted increasing resources to monitoring the quality of care at senior housing communities and to anti-fraud investigations in healthcare operations generally. When violations of applicable laws are identified, federal or state authorities may impose civil monetary damages, treble damages, repayment requirements and criminal sanctions. In addition to these penalties, violation of any of these laws may subject our operators to exclusion from participation in any federal or state healthcare program. For example, if an operator is subject to a criminal conviction relating to the delivery of goods or services under the Medicare or Medicaid programs, the operator would be excluded from participation in those programs for five years. These fraud and abuse laws and regulations are complex, and we and our operators do not always have the benefit of significant regulatory or judicial interpretation of these laws and regulations. While we do not believe our operators are in violation of these prohibitions, we cannot assure you that governmental officials charged with the responsibility of enforcing the provisions of these prohibitions will not assert that an operator is in violation of such laws and regulations. Violations of law often result in significant media attention. Healthcare communities may also be subject to license revocation or conditional licensure and exclusion from or conditional Medicare or Medicaid participation. When quality of care deficiencies or improper billing are alleged or identified, various laws, including laws prohibiting patient abuse and neglect, may authorize civil money penalties or fines; the suspension, modification or revocation of a license (which could result in the suspension of operations) or Medicare or Medicaid participation; the suspension or denial of admissions of residents; the removal of residents from properties; the denial of payments in full or in part; the implementation of state oversight, temporary management or receivership; and the imposition of criminal penalties. We, our property managers and our tenant have received inquiries and requests from various government agencies and we have in the past and may in the future receive notices of potential sanctions, and governmental authorities may impose such sanctions from time to time on our properties based on allegations of violations or alleged or actual failures to cure identified deficiencies. If imposed, such sanctions may adversely affect the profitability of managed properties, the ability to maintain managed properties (including properties unrelated to the property in question) in a given state, our ability to continue to engage certain managers and our tenant’s ability to pay rents to us (and any such nonpayment could potentially affect our ability to meet future monetary obligations or could trigger an event of default under our financing arrangements). Any such claims could also result in material civil litigation. Federal and state requirements for change in control of healthcare communities, including, as applicable, approvals of the proposed operator for licensure, certificate of need (“CON”), Medicare and Medicaid participation, and the terms of our debt may also limit or delay our ability to find a substitute tenant or property managers. If any of our property managers or our tenant becomes unable to operate our properties, or if our tenant becomes unable to pay its rent because it has violated government regulations or payment laws, we may experience difficulty in finding a substitute tenant or property manager or selling the affected property for a fair and commercially reasonable price, and the value of an affected property may decline materially.

Future changes in government regulation may adversely affect the healthcare industry, including our Licensed Healthcare Properties and healthcare operations, property managers and tenant, and our property managers and our tenant may not achieve and maintain occupancy and rate levels that will enable them to satisfy their obligations to us. Any adverse changes in the regulation of the healthcare industry or the competitiveness of our property managers and our tenant could have a more pronounced effect on us than if we had investments outside the senior housing and healthcare industries.

Transfers of healthcare properties may require regulatory approvals, and these properties may not have efficient alternative uses.

Transfers of healthcare properties to successor operators frequently are subject to regulatory approvals or notifications, including, but not limited to, change of ownership approvals under a CON or determination of need laws, state licensure laws,
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Medicare and Medicaid provider arrangements that are not required for transfers of other types of real estate. The replacement of a healthcare property operator could be delayed by the approval process of any federal, state or local agency necessary for the transfer of the property or the replacement of the operator licensed to manage the property, whether as a result of regulatory issues identified elsewhere in this report or otherwise. Alternatively, given the specialized nature of our properties, we may be required to spend substantial time and funds to adapt these properties to other uses. If we are unable to timely transfer properties to successor operators or find efficient alternative uses, our revenue and operations may be adversely affected.

Changes in reimbursement rates, payment rates or methods of payment from government and other third-party payors, including Medicaid and Medicare, could have a material adverse effect on us and our operators.

Certain of our operators rely on reimbursement from third-party payors, including the Medicare and Medicaid programs. Medicare and Medicaid programs, as well as numerous private insurance and managed care plans, generally require participating providers to accept government-determined reimbursement levels as payment in full for services rendered, without regard to the facility’s charges. Changes in the reimbursement rate or methods of payment from third-party payors, including Medicare and Medicaid, or the implementation of other measures to reduce reimbursements for services provided by our property managers or our tenant, could result in a substantial reduction in our and our tenant’s revenues. In addition, the implementation of the Patient Driven Payment Model which revises the payment classification system for therapy services in skilled nursing facilities, may impact our tenant by revising the classifications of certain patients.

Additionally, revenue under third-party payor agreements can change after examination and retroactive adjustment by payors during the claims settlement processes or as a result of post-payment audits. Payors may disallow requests for reimbursement based on determinations that certain costs are not reimbursable or reasonable or because additional documentation is necessary or because certain services were not covered or were not medically necessary. We cannot assure you that our operators who currently depend on governmental or private payor reimbursement will be adequately reimbursed for the services they provide. Significant limits by governmental and private third-party payors on the scope of services reimbursed or on reimbursement rates and fees, whether from legislation, administrative actions or private payor efforts, could have a material adverse effect on liquidity, financial condition and results of operations, which could affect adversely their ability to comply with the terms of our leases and have a material adverse effect on us.

RISKS RELATED TO OUR TAXATION AS A REIT

Our failure to qualify as a REIT would result in higher taxes and reduced cash available for distribution to our stockholders.

We are organized and conduct our operations to qualify as a REIT for U.S. federal income tax purposes. Our ability to satisfy the REIT asset tests depends upon our analysis of the fair market values of our assets, some of which are not susceptible to a precise determination, and for which we do not obtain independent appraisals. Our compliance with the REIT income and quarterly asset requirements also depends upon our ability to successfully manage the composition of our income and assets on an ongoing basis. Moreover, the proper classification of one or more of our investments may be uncertain in some circumstances, which could affect the application of the REIT qualification requirements. Accordingly, there can be no assurance that the Internal Revenue Service will not contend that our investments violate the REIT requirements.

If we were to fail to qualify as a REIT in any taxable year, we would be subject to U.S. federal income tax, including any applicable alternative minimum tax for taxable years beginning prior to January 1, 2018, on our taxable income at regular corporate rates and distributions to stockholders would not be deductible by us in computing our taxable income. Any such corporate tax liability could be substantial and would reduce the amount of cash available for distribution to our stockholders, which in turn could have an adverse impact on the value of, and trading prices for, our stock. Unless entitled to relief under certain provisions of the Code, we also would be disqualified from taxation as a REIT for the four taxable years following the year during which we initially ceased to qualify as a REIT.

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Drive Shack’s failure to qualify as a REIT could cause us to lose our REIT status.

If Drive Shack failed to qualify as a REIT for a taxable year ending on or before December 31, 2015, the rule against re-electing REIT status following a loss of such status could also apply to us if we were treated as a successor to Drive Shack for U.S. federal income tax purposes, which could cause us to fail to qualify for taxation as a REIT for our 2019 and/or earlier years. Although Drive Shack has provided (i) a representation in the Separation and Distribution Agreement that it had no knowledge of any fact or circumstance that would cause us to fail to qualify as a REIT and (ii) a covenant in the Separation and Distribution Agreement to use its reasonable best efforts to maintain its REIT status for each of Drive Shack’s taxable years ending on or before 2015 (unless Drive Shack obtains an opinion from a nationally recognized tax counsel or a private letter ruling from the IRS to the effect that Drive Shack’s failure to maintain its REIT status will not cause us to fail to qualify as a REIT under the successor REIT rule referred to above), no assurance can be given that such representation and covenant would prevent us from failing to qualify as a REIT. In the event of a breach of this covenant, we may be able to seek damages from Drive Shack, but there can be no assurance that such damages, if any, would appropriately compensate us. In addition, if Drive Shack were to fail to qualify as a REIT despite its reasonable best efforts, we would have no claim against Drive Shack.

Our failure to continue to qualify as a REIT would cause our stock to be delisted from the NYSE.

The NYSE requires, as a condition to the continued listing of our shares, that we maintain our REIT status. Consequently, if we fail to maintain our REIT status, our shares would promptly be delisted from the NYSE, which would significantly decrease the trading activity in our shares and make it more difficult to raise equity financing or complete acquisitions in the future.

If we were delisted as a result of losing our REIT status and desired to relist our shares on the NYSE, we would have to reapply to the NYSE to be listed as a domestic corporation. As the NYSE’s listing standards for REITs are less onerous than its standards for domestic corporations, we might not be able to satisfy the NYSE’s listing standards for a domestic corporation. As a result, if we were delisted from the NYSE, we might not be able to relist as a domestic corporation, in which case our shares could not trade on the NYSE.

Qualifying as a REIT involves highly technical and complex provisions of the Code.

Qualification as a REIT involves the application of highly technical and complex Code provisions for which only limited judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize our REIT qualification. Our qualification as a REIT depends on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis. Compliance with these requirements must be carefully monitored, and there can be no assurance that we will be able to successfully monitor our compliance.

Dividends payable by REITs do not qualify for the reduced tax rates available for some “qualified dividends.”

Dividends payable to domestic stockholders that are individuals, trusts and estates are generally taxed at reduced tax rates applicable to “qualified dividends.” Dividends payable by REITs, however, generally are not eligible for those reduced rates. The more favorable rates applicable to regular corporate dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the stock of REITs, including our common stock. In addition, the relative attractiveness of real estate in general may be adversely affected by the favorable tax treatment given to non-REIT corporate dividends, which could affect the value of our real estate assets negatively.

We may be unable to pay sufficient distributions to our stockholders to satisfy the REIT distribution requirements, and such requirements could adversely affect our liquidity and our ability to execute our business plan.

We generally must distribute at least 90% of our REIT taxable income annually, excluding any net capital gain, in order for corporate income tax not to apply to earnings that we distribute. To qualify for the tax benefits accorded to REITs, we intend to make distributions to our stockholders in amounts such that we distribute an amount at least equal to all or substantially all of our REIT taxable income each year, subject to certain adjustments. However, differences in timing between the recognition of taxable income and the actual receipt of cash could cause us to fail to meet, or could require us to sell assets, borrow funds on a short-term or long-term basis or take other disadvantageous actions to meet, the 90% distribution requirement of the Code. Certain of our assets may generate substantial mismatches between taxable income and available cash. As a result, the requirement to distribute a substantial portion of our REIT taxable income could cause us to, without limitation: (i) sell assets in
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adverse market conditions; (ii) borrow on unfavorable terms; (iii) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt; or (iv) make taxable distributions of our capital stock or debt securities in order to comply with REIT requirements. Further, amounts distributed will not be available to fund investment activities. If we fail to obtain debt or equity capital in the future, it could limit our ability to satisfy our liquidity needs, which could adversely affect the value of our common stock.

The stock ownership limit imposed by the Code on REITs and our certificate of incorporation may inhibit market activity in our stock and restrict our business combination opportunities.

In order for us to maintain our qualification as a REIT under the Code, not more than 50% in value of our outstanding stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) at any time during the last half of each taxable year after our first taxable year. Our certificate of incorporation, with certain exceptions, authorizes our board of directors to take the actions that are necessary and desirable to preserve our qualification as a REIT. Unless exempted by our board of directors, no person may own more than 9.8% of the aggregate value of our outstanding capital stock. Our board of directors may grant an exemption in its sole discretion, subject to such conditions, representations and undertakings as it may determine in its sole discretion. These ownership limits could delay or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.

Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.

Even if we remain qualified for taxation as a REIT, we may be subject to certain federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes. Moreover, if a REIT distributes less than the sum of 85% of its ordinary income, 95% of its capital gain net income and any undistributed shortfall from prior year (“Required Distribution”) to its stockholders during any calendar year (including any distributions declared by the last day of the calendar year but paid in the subsequent year), then it is required to pay an excise tax on 4% of any shortfall between the Required Distribution and the amount that was actually distributed. If we are subject to any of these taxes, they would decrease cash available for our operations and distribution to our stockholders. In addition, our TRS is subject to corporate level income tax at regular rates.

Complying with REIT requirements may negatively impact our investment returns or cause us to forgo otherwise attractive opportunities, liquidate assets or contribute assets to the TRS.

To qualify as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our stock. As a result of these tests, we may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution, forgo otherwise attractive investment opportunities, liquidate assets in adverse market conditions or contribute assets to a TRS that is subject to regular corporate federal income tax. Our ability to acquire investments will be subject to the applicable REIT qualification tests, and we may have to hold these interests through our TRS, which would negatively impact our returns from these assets. In general, compliance with the REIT requirements may hinder our ability to make and retain certain attractive investments.

Complying with the REIT requirements may limit our ability to hedge effectively.

The existing REIT provisions of the Code may substantially limit our ability to hedge our operations because a significant amount of the income from those hedging transactions is likely to be treated as non-qualifying income for purposes of both REIT gross income tests. In addition, we must limit our aggregate income from non-qualified hedging transactions, from our provision of services and from other non-qualifying sources, to less than 5% of our annual gross income (determined without regard to gross income from qualified hedging transactions). As a result, we may have to limit our use of certain hedging techniques or implement those hedges through total return swaps. This could result in greater risks associated with changes in interest rates than we would otherwise want to incur or could increase the cost of our hedging activities. If we fail to comply with these limitations, we could lose our REIT qualification for U.S. federal income tax purposes, unless our failure was due to reasonable cause, and not due to willful neglect, and we meet certain other technical requirements. Even if our failure were due to reasonable cause, we might incur a penalty tax.

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Distributions to tax-exempt investors may be classified as unrelated business taxable income.

An investor that is a tax-exempt organization for U.S. federal income tax purposes and therefore generally exempt from U.S. federal income taxation may nevertheless be subject to tax on its “unrelated business taxable income.” Neither ordinary nor capital gain distributions with respect to our stock nor gain from the sale of stock should generally constitute unrelated business taxable income to a tax-exempt investor. However, there are certain exceptions to this rule. In particular:

part of the income and gain recognized by certain qualified employee pension trusts with respect to our stock may be treated as unrelated business taxable income if shares of our stock are predominantly held by qualified employee pension trusts, and we are required to rely on a special look-through rule for purposes of meeting one of the REIT ownership tests, and we are not operated in a manner to avoid treatment of such income or gain as unrelated business taxable income; and
part of the income and gain recognized by a tax-exempt investor with respect to our stock would constitute unrelated business taxable income if the investor incurs debt in order to acquire the stock.

The tax on prohibited transactions will limit our ability to engage in certain transactions which could be treated as prohibited transactions for U.S. federal income tax purposes.

Net income that we derive from a prohibited transaction is subject to a 100% tax. The term “prohibited transaction” generally includes a sale or other disposition of property that is held primarily for sale to customers in the ordinary course of our trade or business. We might be subject to this tax if we were to dispose of our property in a manner that was treated as a prohibited transaction for U.S. federal income tax purposes.

We generally intend to conduct our operations so that no significant asset that we own (or are treated as owning) will be treated as, or as having been, held for sale to customers, and that a sale of any such asset will not be treated as having been in the ordinary course of our business. As a result, we may choose not to engage in certain sales at the REIT level due to the risk of prohibited transaction treatment, even though the sales might otherwise be beneficial to us. In addition, whether property is held “primarily for sale to customers in the ordinary course of a trade or business” depends on the particular facts and circumstances. No assurance can be given that any property that we sell will not be treated as property held for sale to customers, or that we can comply with certain safe-harbor provisions of the Code that would prevent such treatment as a prohibited transaction. The 100% prohibited transaction tax does not apply to gains from the sale of property that is held through a TRS or other taxable corporation, although such income will be subject to tax in the hands of the corporation at regular corporate rates.

Liquidation of assets may jeopardize our REIT qualification or create additional tax liability for us.

To qualify as a REIT, we must comply with requirements regarding the composition of our assets and our sources of income. If we are compelled to liquidate our investments to repay obligations to our lenders, we may be unable to comply with these requirements, ultimately jeopardizing our qualification as a REIT, or we may be subject to a 100% tax on any resultant gain if we sell assets that are treated as dealer property or inventory.

The lease of certain properties to a TRS, and other structures in which we hold properties, is subject to special requirements.

We have in the past leased, and could in the future lease, certain “qualified healthcare properties” (which generally include assisted living properties and certain independent living properties) to our TRS (or a disregarded entity owned by a TRS) under the provisions of RIDEA. In such a structure, the TRS, in turn, contracts with a third-party operator to manage the healthcare operations at these properties. The rents paid by the TRS in this structure will be treated as qualifying rents from real property for purposes of the REIT requirements only if (i) they are paid pursuant to an arm’s-length lease of a qualified healthcare property and (ii) the operator qualified as an “eligible independent contractor” with respect to the property. An operator qualifies as an eligible independent contractor if it meets certain ownership tests with respect to us, and if, at the time the operator entered into the property management agreement, the operator was actively engaged in the trade or business of operating qualified healthcare properties for any person who is not a related person to us or the TRS. If any of the above conditions are not satisfied with respect to a RIDEA structure, then the rents would not be considered income from a qualifying source for purposes of the REIT rules, which could cause us to incur penalty taxes or to fail to qualify as a REIT. In addition, other structures in which we hold properties may, depending on the circumstances, be subject to certain requirements relating to
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the classification of the property, the need for the property to be managed by an eligible independent contractor or other requirements, and those requirements or our ability to comply therewith may be uncertain. Any failure to satisfy these requirements could adversely affect our ability to qualify for taxation as a REIT.

Changes to U.S. federal income tax laws could materially and adversely affect us and our stockholders.

The present U.S. federal income tax treatment of REITs and their stockholders may be modified, possibly with retroactive effect, by legislative, judicial or administrative action at any time, which could affect the U.S. federal income tax treatment of an investment in our shares. The U.S. federal income tax rules, including those dealing with REITs, are constantly under review by persons involved in the legislative process, the IRS and the U.S. Treasury Department, which results in statutory changes as well as frequent revisions to regulations and interpretations. We cannot predict how changes in the tax laws might affect our investors or us. Revisions to U.S. federal tax laws and interpretations thereof could significantly and negatively affect our ability to qualify as a REIT, as well as the tax considerations relevant to an investment in us, or could cause us to change our investments and commitments.

RISKS RELATED TO OUR COMMON STOCK

We have not established a minimum distribution payment level, and we cannot assure you of our ability to pay any distributions in the future.

Our cash flows from operating activities, less capital expenditures and principal payments, have been, and continue to be, less than the amount of distributions to our stockholders. There can be no assurance that we will pay cash dividends in an amount consistent with prior quarters. Any difference between the amount of any future dividend and the amount of dividends in prior quarters could be material, and there can be no assurance that our board will declare any dividend at all.

We cannot assure you that we will be able to successfully operate our business, execute our investment strategy or generate sufficient liquidity to make or sustain distributions to our stockholders. Our ability to make distributions to our stockholders depends, in part, on the liquidity we generate on a recurring basis as well as the liquidity generated from episodic asset sales. The liquidity we generate on a recurring basis, which is generally equal to our cash flows from operating activities, less capital expenditures and principal payments on our debt, has consistently been less than the amount of distributions to our stockholders in prior quarters. We have funded the shortfall using cash on hand. A portion of that amount is held in operating accounts used to fund expenses at our managed properties and, therefore, may not be available for distribution to stockholders. For further information about factors that could affect our liquidity, see Part I, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources” and Item 7A, “Quantitative and Qualitative Disclosures About Market Risk.”

In the case of any future dividend, we may, but are not obligated to, fund the shortfall described above using cash generated from asset sales, but there can be no assurance that we will have such sources of cash or other potential sources of cash from non-operating activities (see “Real estate investments are relatively illiquid,” and “The tax on prohibited transactions will limit our ability to engage in certain transactions which would be treated as prohibited transactions for U.S. federal income tax purposes.”). Moreover, we may decide to use cash generated from asset sales for other corporate purposes, such as new investments or capital expenditures. A failure to deploy the proceeds of asset sales into investments with an adequate cash yield could exacerbate the shortfall while increasing our reliance on liquidity generated other than through operations to fund distributions, which could further impair our ability to make distributions at the current level or even at a lower level. The reduction in the amount of any future dividend could be material.

Furthermore, while we are required to make distributions in order to maintain our REIT status, we may elect not to maintain our REIT status, in which case we would no longer be required to make such distributions. Moreover, even if we do elect to maintain our REIT status, we may elect to comply with the applicable requirements by, after completing various procedural steps, distributing, under certain circumstances, a portion of the required amount in the form of shares of our common stock in lieu of cash. If we elect not to maintain our REIT status or to satisfy any required distributions in shares of common stock in lieu of cash, such action could negatively affect our business and financial condition as well as the price of our common stock. No assurance can be given that we will pay any dividends on shares of our common stock in the future.

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We can provide no assurance that the market for our stock will provide you with adequate liquidity, which may make it difficult for you to sell the common stock when you want or at prices you find attractive.

The market price of our common stock may fluctuate widely, depending upon many factors, some of which may be beyond our control. These factors include, without limitation:

a shift in our investor base;
our quarterly or annual earnings, or those of other comparable companies;
actual or anticipated fluctuations in our operating results;
our dependence on our property managers and tenant to operate our properties successfully and in compliance with the terms of our agreements with them, applicable law and the terms of our financings;
changes in accounting standards, policies, guidance, interpretations or principles;
announcements by us or our competitors of significant investments, acquisitions or dispositions;
the failure of securities analysts to cover our common stock;
changes in earnings estimates by securities analysts or our ability to meet those estimates;
the operating and stock price performance of other comparable companies;
overall market fluctuations; and
general economic conditions.

Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the trading price of our common stock.

Your percentage ownership in our Company may be diluted in the future.

Your percentage ownership in our Company may be diluted in the future because of equity awards that we expect will be granted to our directors, officers and employees, as well as other equity instruments such as debt and equity financing. Our board of directors has approved an Amended and Restated Nonqualified Stock Option and Incentive Award Plan (the “Plan”) providing for the grant of equity-based awards, including restricted stock, stock options, stock appreciation rights, performance awards and other equity-based and non-equity based awards, in each case to our directors, officers, employees, service providers, consultants and advisors. We have reserved 27,922,570 shares of our common stock for issuance under the Plan and as of December 31, 2020, 22,642,798 shares are available for issuance under the Plan.

Our outstanding Redeemable Series A Preferred stock as well as any debt, equity or equity-related securities, including additional preferred stock that we may issue in the future, may negatively affect the market price of our common stock.

As of December 31, 2020, there were 200,000 shares of Redeemable Series A Preferred Stock issued and outstanding. Additionally, we may in the future incur or issue debt or issue equity or equity-related securities. Upon our liquidation, dissolution or winding up, lenders and holders of our debt and holders of our preferred stock, including holders of the outstanding shares of our Redeemable Series A Preferred Stock, would receive a distribution of our available assets before common stockholders. Any future incurrence or issuance of debt would increase our interest cost and could adversely affect our results of operations and cash flows. We are not required to offer any additional equity securities to existing common stockholders on a preemptive basis. Therefore, additional issuances of common stock, directly or through convertible or exchangeable securities (including limited partnership interests in our operating partnership), warrants or options, will dilute the holdings of our existing common stockholders and such issuances, or the perception of such issuances, may reduce the market price of our common stock. Our outstanding Redeemable Series A Preferred Stock provides that, subject to certain exceptions, no dividend or other distribution may be declared, made or paid or set apart for payment upon a class of capital stock ranking junior to or on parity with the Redeemable Series A Preferred Stock. Additionally, any preferred stock issued by us in the future would likely have a preference on distribution payments, periodically or upon liquidation, which could eliminate or otherwise limit our ability to make distributions to common stockholders. Because our decision to incur or issue debt or issue equity or equity-related securities, including additional preferred stock, in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, nature or success of our future capital raising efforts. Thus, common stockholders bear the risk that our future incurrence or issuance of debt or issuance of equity or equity-related securities, including additional preferred stock, will adversely affect the market price of our common stock.

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We may in the future choose to pay dividends in our stock, in which case you could be required to pay income taxes in excess of the cash dividends you receive.

We may in the future distribute taxable dividends that are payable in cash and shares of our common stock at the election of each stockholder. Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, stockholders may be required to pay income taxes with respect to such dividends in excess of the cash dividends received. If a U.S. stockholder sells the stock that it receives as a dividend in order to pay this tax, the sale proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our common stock.

In August 2017, the IRS issued guidance authorizing elective cash/stock dividends to be made by public REITs where there is a minimum (of at least 20%) amount of cash that may be paid as part of the dividend, provided that certain requirements are met. It is unclear whether and to what extent we would be able to or choose to pay taxable dividends in cash and stock. No assurance can be given that the IRS will not impose additional requirements in the future with respect to taxable cash/stock dividends, including on a retroactive basis, or assert that the requirements for such taxable cash/stock dividends have not been met.

An increase in market interest rates may have an adverse effect on the market price of our common stock.

One of the factors that investors may consider in deciding whether to buy or sell shares of our common stock is our distribution rate as a percentage of our share price relative to market interest rates. If the market price of our common stock is based primarily on the earnings and return that we derive from our investments and income with respect to our investments and our related distributions to stockholders, and not from the market value of the investments themselves, then interest rate fluctuations and capital market conditions will likely affect the market price of our common stock. For instance, if market interest rates rise without an increase in our distribution rate, the market price of our common stock could decrease as potential investors may require a higher distribution yield on our common stock or seek other securities paying higher distributions or interest. In addition, rising interest rates would result in increased interest expense on our floating rate debt, thereby adversely affecting cash flow and our ability to service our indebtedness and pay distributions.

In addition, we have loans, derivative contracts, and other financial instruments with terms that are benchmarked to LIBOR, which is expected to be discontinued at the end of 2021. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021 or whether LIBOR will be replaced by alternative reference rates. Certain of our newer loans and financial instruments have alternative LIBOR provisions which give our lenders substantial flexibility in setting alternative rates if and when LIBOR is discontinued. It is not possible to predict the effect of these changes, other reforms or the establishment of alternative reference rates and their impact on the market for or value of any LIBOR-linked securities, loans, derivatives and other financial obligations or extensions of credit held by or due to us or on our overall financial condition or results of operations.

Provisions in our certificate of incorporation and bylaws and of Delaware law may prevent or delay an acquisition of our company, which could decrease the trading price of our common stock.

Our certificate of incorporation, bylaws and Delaware law contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the raider and to encourage prospective acquirers to negotiate with our board of directors rather than to attempt a hostile takeover. These provisions include, among others:

a classified board of directors with staggered three-year terms;
amendment of provisions in our certificate of incorporation and bylaws regarding the election of directors, classes of directors, the term of office of directors, the filling of director vacancies and the resignation and removal of directors only upon the affirmative vote of at least 80% of the then issued and outstanding shares of our capital stock entitled to vote thereon;
amendment of provisions in our certificate of incorporation regarding corporate opportunity only upon the affirmative vote of at least 80% of the then issued and outstanding shares of our capital stock entitled to vote thereon;
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removal of directors only for cause and only with the affirmative vote of at least 80% of the then issued and outstanding shares of our capital stock entitled to vote in the election of directors;
our board of directors to determine the powers, preferences and rights of our preferred stock and to issue such preferred stock without stockholder approval;
advance notice requirements applicable to stockholders for director nominations and actions to be taken at annual meetings; and
a prohibition, in our certificate of incorporation, stating that no holder of shares of our common stock will have cumulative voting rights in the election of directors, which means that the holders of a majority of the issued and outstanding shares of common stock can elect all the directors standing for election.

Public stockholders who might desire to participate in these types of transactions may not have an opportunity to do so, even if the transaction is considered favorable to stockholders. These anti-takeover provisions could substantially impede the ability of public stockholders to benefit from a change in control or a change in our management and board of directors and, as a result, may adversely affect the market price of our common stock and stockholders’ ability to realize any potential change of control premium.

ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

ITEM 2. PROPERTIES
Our direct investments in senior housing are described under Item 1, “Business - Our Portfolio.”
We lease our principal executive and administrative office located at 55 West 46th St, Suite 2204, New York, New York, 10036.
We maintain our properties in good condition and believe that our current facilities are adequate to meet the present needs of our business. We do not believe any individual property is material to our financial condition or results of operations.

ITEM 3. LEGAL PROCEEDINGS
We are and may become involved in legal proceedings, including regulatory investigations and inquiries, in the ordinary course of our business. Although we are unable to predict with certainty the eventual outcome of any litigation, regulatory investigation or inquiry, in the opinion of management, we do not expect our current and any threatened legal proceedings to have a material adverse effect on our financial position or results of operations. Given the inherent unpredictability of these types of proceedings, however, it is possible that future adverse outcomes could have a material adverse effect on our financial results.

ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

We have one class of common stock which trades on the NYSE under the trading symbol “SNR”. On February 19, 2021, the closing sale price for our common stock, as reported on the NYSE, was $5.72 and there were approximately 38 stockholders of record. This figure does not reflect the beneficial ownership of shares held in nominee name.

PERFORMANCE GRAPH

The following graph compares the cumulative total return for our shares (stock price change plus reinvested dividends) with the comparable return of three indices: S&P 500 Index, MSCI US REIT Index and FTSE NAREIT Equity Index. The graph assumes an investment of $100 in our shares and in each of the indices on November 7, 2014, and that all dividends were reinvested. The past performance of our shares is not an indication of future performance.
snr-20201231_g1.jpg
Index12/31/1512/31/1612/31/1712/31/1812/31/1912/31/20
New Senior Investment Group Inc.$100.00 $109.53 $94.71 $57.75 $116.54 $85.47 
S&P 500 Index100.00 111.96 136.40 130.42 171.49 203.04 
MSCI US REIT Index100.00 108.60 114.11 108.89 137.03 126.65 
FTSE NAREIT Equity Index100.00 107.42 107.26 114.12 138.67 129.69 
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ITEM 6. SELECTED FINANCIAL DATA

The financial data as of and for the years ended December 31, 2020, 2019 and 2018 has been derived from our audited financial statements for those dates included elsewhere in this Annual Report on Form 10-K. The financial data for the years ended December 31, 2017 and 2016 has been derived from our audited financial statements that are not included in this Annual Report on Form 10-K. The selected financial data provided below should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical consolidated financial statements and related notes.

Operating results for the periods presented are not necessarily indicative of the results that may be expected for any future period. The data should be read in conjunction with the consolidated financial statements, related notes and other financial information included herein.

We have reclassified income and expenses attributable to properties classified as discontinued operations at December 31, 2020 to “Discontinued operations, net” for all the period presented. See “Note 4 – Discontinued Operations” to our consolidated financial statements for more information.

Operating Data
Years Ended December 31,
(dollars in thousands, except share data)20202019201820172016
Total revenues$336,281 $345,903 $323,024 $324,465 $345,446 
Total expenses356,747 375,111 509,792 376,229 424,897 
Income (loss) before income taxes(20,466)8,978 (146,678)19,999 (66,095)
Income tax expense (benefit)178 210 4,950 2,378 (861)
Income (loss) from continuing operations(20,644)8,768 (151,628)17,621 (65,234)
Discontinued operations, net16,885 (6,754)(7,727)(5,413)(7,015)
Net income (loss)(3,759)2,014 (159,355)12,208 (72,249)
Deemed dividend on redeemable preferred stock(2,403)(2,407)— — — 
Net income (loss) attributable to common stockholders$(6,162)$(393)$(159,355)$12,208 $(72,249)
Basic earnings per common share (A):
Income (loss) from continuing operations attributable to common stockholders$(0.28)$0.08 $(1.85)$0.21 $(0.79)
Discontinued operations, net0.20 (0.08)(0.09)(0.06)(0.09)
Net income (loss) attributable to common stockholders (B)
$(0.08)$— $(1.94)$0.15 $(0.88)
Diluted earnings per common share (A):
Income (loss) from continuing operations attributable to common stockholders$(0.28)$0.08 $(1.85)$0.21 $(0.79)
Discontinued operations, net0.20 (0.08)(0.09)(0.06)(0.09)
Net income (loss) attributable to common stockholders (B)
$(0.08)$— $(1.94)$0.15 $(0.88)
Weighted average number of shares of common stock outstanding
Basic82,496,460 82,208,173 82,148,869 82,145,295 82,357,349 
Diluted (C)
82,496,460 82,208,173 82,148,869 82,741,322 82,357,349 
Dividends declared per share of common stock$0.33 $0.52 $0.78 $1.04 $1.04 
(A) Basic earnings per share (“EPS”) is calculated by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding. The outstanding shares used to calculate the weighted average basic shares exclude 454,921 and 754,594 restricted stock awards, net of forfeitures, as of December 31, 2020 and 2019, respectively, as those shares were issued but were not vested and therefore, not considered outstanding for purposes of computing basic EPS share. Diluted EPS is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding plus the additional dilutive effect, if any, of common stock equivalents during each period.
(B) Amounts may not sum due to rounding.
(C) Dilutive share equivalents and options were excluded for the years ended December 31, 2020, 2018 and 2016 as their inclusion would have been anti-dilutive given our loss position.
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Cash Flow Data
Years Ended December 31,
(dollars in thousands)20202019201820172016
Net cash provided by (used in):
Operating activities$53,303 $75,411 $121,077 $60,445 $102,345 
Investing activities360,433 (15,009)(19,162)319,895 2,144 
Financing activities(423,770)(89,229)(166,744)(320,372)(146,479)

Balance Sheet Data

The following table presents data on a consolidated basis including assets and liabilities relating to properties classified as discontinued operations:
December 31,
(dollars in thousands)20202019201820172016
Total assets$1,773,536 $2,194,709 $2,286,258 $2,508,027 $2,821,728 
Total debt, net1,486,164 1,845,727 1,884,882 1,907,928 2,130,387 
Total liabilities1,550,050 1,917,808 1,963,806 2,002,142 2,242,833 
Redeemable preferred stock20,253 40,506 40,000 — — 
Total equity203,233 236,395 282,452 505,885 578,895 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis of financial condition and results of operations is intended to help the reader understand the results of operations and financial condition of New Senior. The following should be read in conjunction with the consolidated financial statements and notes thereto included within this Annual Report on Form 10-K. This discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties. Actual results and the timing of events may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors, including those included in Part I, Item 1A “Risk Factors.”

OVERVIEW

Our Business

As of December 31, 2020, we were a REIT with a portfolio of 103 senior housing properties located across the United States. We believe that we are the only REIT focused solely on senior housing and we are one of the largest owners of senior housing properties. We are listed on the NYSE under the symbol “SNR” and are headquartered in New York, New York.

We are organized and operate as a single reportable segment, Senior Housing Properties. We changed our structure in 2020 and no longer operate in two reportable segments: Managed Independent Living (“IL”) Properties, and Other Properties. See our consolidated financial statements and the related notes included in Item 8 “Financial Statements and Supplementary Data.”

COVID-19 & Considerations Related to Our Business

The novel coronavirus (COVID-19) global pandemic is causing significant disruptions to the U.S. and global economies and has contributed to volatility and negative pressure in financial markets. The outbreak has led federal, state and local governments and public health authorities to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders.

As an owner of senior living properties, with a portfolio of 102 IL properties and one continuing care retirement community (“CCRC”), COVID-19 has impacted our business in various ways. Our three property managers and one tenant have all put into place various protocols to address the COVID-19 pandemic at our communities across the U.S. Some of the measures taken at the onset of the pandemic included restrictions on all non-essential visitors (including family), closure of group dining facilities and other common areas, restrictions on resident movements and group activities, as well as enhanced protocols which have
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required increased labor, property cleaning expenses and costs related to procuring necessary supplies such as meal containers and personal protective equipment (“PPE”). Over the last several months, our properties have lifted certain restrictions in a phased approach, based on both the status of state and local regulations that affect the property as well as the status of any COVID-19 cases at the property. Lifting restrictions at our properties, particularly restrictions related to onsite visitors, even while being done in a measured approach in compliance with all state and local regulations, may contribute to an increase in COVID-19 cases.

COVID-19 is having and will likely continue to have an impact on three metrics that are fundamental to our business: occupancy, rental rates and operating expenses.

Occupancy:
Following the COVID-19 outbreak, occupancy at our properties began to decrease materially as move-ins at those properties slowed due to the voluntary restrictions our operators have imposed on move-ins at our properties as discussed above. At the same time, the pandemic raises the risk of an elevated level of resident illnesses and therefore higher move-out levels at our properties. While move-out levels were slightly below historical levels at the onset of the pandemic, they have increased in recent months, likely due to pent-up demand to move-out that has been hampered by the pandemic. We do not know the extent of the ultimate impacts that COVID-19 will have on our business, and whether it will fundamentally alter the demand for senior housing in general or in our properties in particular. Ending occupancy in the third quarter of 2020 decreased 160 basis points compared to the second quarter, and 150 basis points in the fourth quarter of 2020 compared to the third quarter. The timing of a recovery in occupancy is difficult to predict and could be harmed by the incidence of COVID-19 at our properties or the perception that outbreaks could occur.

The senior housing industry offers a full continuum of care to seniors with product types that range from “mostly housing” (i.e., senior apartments) to “mostly healthcare” (i.e., skilled nursing, hospitals, etc.). We primarily focus on product types at the center of this continuum, namely IL properties. We believe that our focused portfolio of primarily IL properties will allow investors to participate in the positive fundamentals of the senior housing sector. However, according to the U.S. Centers for Disease Control and Prevention (the “CDC”), older adults and people of any age who have serious underlying medical conditions might be at higher risk for severe illness from COVID-19. The CDC guidance also states that people age 65 and older and those living in nursing homes or long-term care facilities are at high-risk for severe illness from COVID-19. While we do not own nursing facilities, the age and other demographics of our residents fall within the CDC guidance. We do not know if or how this will affect seniors’ views on different types of senior living and whether it will alter demand for our types of senior living properties in the future.

Rental Rates:
Our cash flows from operating activities are primarily driven by rental revenues and fees received from residents of our managed properties, and we typically increase rental fees annually. Seniors, like much of the U.S. population, may be experiencing deteriorating financial conditions as a result of the COVID-19 pandemic, which may make it difficult for them to pay rent. In addition, there may be pressure for us to reduce rental rates or offer other concessions in light of the pandemic and its effects on our residents and our business.

Operating Expenses:
During the first quarter of 2020, operating expenses were in line with expectations through the middle of March. We saw a slight increase in property level expenses associated with the COVID-19 pandemic towards the end of March, driven by expenditures related to the procurement of PPE and other supplies such as packaging necessary for in-room meal deliveries to residents. Since the second quarter of 2020, these costs have continued, but they been largely offset by variable expense savings associated with lower occupancy and strong expense management from our operators. Depending on how the pandemic continues to evolve, there may be other future operating expenses that we may be required to bear or need to continue to bear, such as costs for testing kits for residents and staff, temperature screening machines, additional cleaning equipment, or new protocols related to the properties.

Given the evolving nature of the COVID-19 pandemic, all of the observations and forward-looking statements above represent our current good faith views based upon the information that we have available to us at this time. We believe that the extent of the pandemic’s effect on our business, operational and financial performance and liquidity will depend upon many factors and future developments, including the duration, spread, intensity and recurrence of the pandemic, health and safety actions taken to contain its spread, the availability, continuing efficacy and public usage and acceptance of vaccines, and how quickly and to what extent normal economic and operating conditions can resume within the markets in which we operate, each of which is highly uncertain and difficult to predict at this time. Even after the COVID-19 pandemic subsides, we may continue to experience adverse impacts to our business and financial results as a result of its global economic impact, including any
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economic downturn or recession that may occur in the future. See also Item 1A. ”Risk Factors” and below “Liquidity and Capital Resources,” for additional discussions regarding COVID-19 and its impact on our business.

Other Recent Developments

Formed a Strategic Relationship with Atria Senior Living

In February 2021, we announced that we entered into management agreements with Atria Senior Living (“Atria”), pursuant to which we intend to transition the management of 21 properties from Holiday to Atria in the second quarter of 2021.

Completion of AL/MC Portfolio Disposition & Related Refinancing Activity

On February 10, 2020, we completed the sale of all 28 of our managed assisted living/memory care (“AL/MC”) properties pursuant to a Purchase and Sale Agreement, dated as of October 31, 2019 (the “Sale Agreement”), for a gross sale price of $385.0 million (“AL/MC Portfolio Disposition”). We recognized a gain on sale of $20.0 million from the AL/MC Portfolio Disposition, which is recorded in “Gain on sale of real estate” within “Discontinued operations, net” in our Consolidated Statements of Operations. The sale of these properties represented a strategic shift that had a major effect on our operations and financial results. Accordingly, the operations of these properties were classified as discontinued operations in our consolidated financial statements included in this Annual Report on Form 10-K. All prior period information has been reclassified to conform to current period presentation. Refer to “Note 4 – Discontinued Operations” to our consolidated financial statements for additional details.

In February 2020, in conjunction with the AL/MC Portfolio Disposition, we repaid $368.1 million of debt and recognized a loss of extinguishment of debt of $5.9 million, comprising of $4.5 million in prepayment penalties and $1.4 million in the write-off of unamortized deferred financing costs on the loans, which is included in “Loss on extinguishment of debt” in our Consolidated Statements of Operations. We also entered into a new financing for $270.0 million, which is secured by 14 Senior Housing Properties. In addition, we amended our secured revolving credit facility in the amount of $125.0 million (the “Revolver”), which is currently secured by nine Senior Housing Properties and the pledge of the equity interests of certain of our wholly owned subsidiaries. The amendment extended the maturity of the Revolver from December 2021 to February 2024. The amendment allows the Revolver to be increased with lender consent to a maximum aggregate amount of borrowing capacity of $500.0 million, subject to customary terms and conditions. Refer to “Note 9 – Debt, Net” to our consolidated financial statements for additional details.

As a result of these refinancing initiatives, our weighted average debt maturity increased from 4.8 years as of December 31, 2019 to 5.3 years as of December 31, 2020. We have no significant debt maturities until 2025.

During the third quarter of 2020, we entered into a $270.0 million notional interest rate swap with a maturity in September 2025 that effectively converts LIBOR-based floating rate debt to fixed rate debt, thus reducing the impact of interest-rate changes on future interest expense.

MARKET CONSIDERATIONS

Senior housing is a $350 billion market, and ownership of senior housing assets is highly fragmented. Given these industry fundamentals and compelling demographics that we expect will drive increased demand for senior housing, we believe the senior housing industry could present attractive investment opportunities. However, increased competition from other buyers of senior housing assets, as well as liquidity constraints and other factors, including the COVID-19 pandemic, could impair our ability to source attractive investment opportunities within the senior housing industry and thus to seek investments in the broader healthcare industry. There can be no assurance that any investments we may make will be successful, and investments in asset classes other than senior housing could involve additional risks and uncertainties.

According to data from the National Investment Center for Seniors Housing and Care (“NIC”) on the 99 Primary and Secondary Markets, occupancy was down 680 basis points year-over-year in the fourth quarter of 2020, the third full quarter impacted by the COVID-19 pandemic. New Senior’s occupancy results outperformed the industry in the fourth quarter, with same store managed occupancy down 560 basis points year-over-year. Industry occupancy for majority IL facilities was down 620 basis points year-over-year, while industry occupancy for majority AL facilities was down 740 basis points year-over-year.

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Industry-wide, new supply remains elevated compared to pre-2015 levels, but continues to decrease. Units under construction represent 5.1% of inventory, but the ratio has decreased 230 basis points from the recent high in the third quarter of 2018. The ratio of IL construction to inventory (5.1%) is slightly higher than that for AL (5.0%).

While supply trends have improved recently, rate growth has decelerated over the past several quarters. Industry rate growth was 1.5% in the fourth quarter of 2020, down from the recent high of 3.4% in the first quarter of 2019. Rate growth for IL facilities (1.6%) was slightly higher than rate growth for AL facilities (1.4%).

The value of our existing portfolio could be impacted by new construction, as well as increased availability and popularity of home health care or other alternatives to senior housing, by hampering occupancy and rate growth, along with increasing operating expenses.

Additionally, as discussed in more detail above, the COVID-19 pandemic impacted our business in 2020 and will continue to have an impact in 2021. The timing of a recovery is difficult to predict, and could be harmed by the incidence of COVID-19 at our properties or the perception that outbreaks could occur.

RESULTS OF OPERATIONS

Segment Overview

Our primary business is investing in senior housing properties. Due to the AL/MC Portfolio Disposition in 2020, we changed our structure during the fourth quarter of 2020 to one reportable segment. This change was made based on the financial information reviewed and used by the chief operating decision maker to make operating decisions, assess performance, develop strategy and allocate capital resources. More than 98.1% of our revenues are derived from managed properties.

Net Operating Income

We evaluate performance of our properties based on net operating income ("NOI") and Cash NOI. We consider NOI and Cash NOI important supplemental measures used to evaluate the operating performance of our properties because they allow investors, analysts and our management to assess our unleveraged property-level operating results and to compare our operating results between periods and to the operating results of other real estate companies on a consistent basis. We define NOI as total revenues less property-level operating expenses, which include property management fees and travel cost reimbursements. We define Cash NOI as NOI excluding the effects of straight-line rental revenue, amortization of above/ below market lease intangibles and the amortization of deferred community fees and other, which includes the net change in deferred community fees and other rent discounts or incentives.

Our Senior Housing Properties segment is primarily comprised of independent living senior housing properties that are operated by property managers to which we pay a management fee. We also own one CCRC leased on a long-term basis, and our tenant is typically responsible for bearing property-related expenses including maintenance, utilities, taxes, insurance, repairs, capital improvements and the payroll expense of property-level employees. Depreciation and amortization, interest expense, acquisition, transaction and integration expense, termination fee, management fees and incentive compensation to affiliate, general and administrative expense, loss on extinguishment of debt, impairment of real estate, other expense (income), gain (loss) on sale of real estate, gain on lease termination, litigation proceeds, net, and income tax expense (benefit) are not allocated to individual properties for purposes of assessing property performance. In deciding how to allocate resources and assess performance, our chief operating decision maker regularly evaluates the performance of our reportable segment on the basis of NOI and Cash NOI.

Effective May 14, 2018, we terminated our triple net leases with respect to the properties in the Holiday Portfolio and concurrently entered into property management agreements with Holiday with respect to such properties. This resulted in a significant increase in resident fees and services and property operating expenses with a corresponding decrease in rental revenue during the years ended December 31, 2019 and 2018.

Same Store

Same store information is intended to enable management to evaluate the performance of a consistent portfolio of real estate in a manner that eliminates variances attributable to changes in the composition of our portfolio over time, due to sales and various other factors. Properties acquired, sold, transitioned to other operators or between segments, or classified as held for sale or discontinued operations during the comparable periods are excluded from the same store amounts. Same store portfolio results
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comparing 2019 and 2018 exclude the performance of the Holiday Portfolio which was converted from a triple net lease structure to a managed structure in May 2018 as a result of the Lease Termination. Refer to “Note 3 - Lease Termination” in our consolidated financial statements for additional details.

Year ended December 31, 2020 compared to the year ended December 31, 2019

The following table provides a reconciliation of our NOI to net income (loss), and compares the results of operations for the respective periods:
Years Ended December 31,Increase (Decrease)
(dollars in thousands)20202019Amount%
Total NOI$138,220 $141,546 $(3,326)(2.3)%
Expenses
Interest expense61,562 76,364 (14,802)(19.4)%
Depreciation and amortization66,291 68,806 (2,515)(3.7)%
General and administrative expense23,018 21,672 1,346 6.2 %
Acquisition, transaction and integration expense467 1,501 (1,034)(68.9)%
Loss on extinguishment of debt5,884 335 5,549 NM
Other expense1,464 2,076 (612)(29.5)%
Total expenses158,686 170,754 (12,068)(7.1)%
Loss on sale of real estate— (122)122 NM
Litigation proceeds, net— 38,308 (38,308)NM
Income (loss) before income taxes(20,466)8,978 (29,444)NM
Income tax expense178 210 (32)(15.2)%
Income (loss) from continuing operations