The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) for interim financial statements. In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation. Interim results of operations are not necessarily indicative of the results that may be achieved for a full year. The condensed consolidated financial statements and related notes do not include all information and notes required by GAAP for annual reports. These interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2024, included in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission (the “SEC”).

The condensed consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries, joint ventures and subsidiaries in which we have a controlling interest. We have variable interest entities (“VIEs” or “VIE”), which we consolidate when control of such entities can be achieved through means other than voting rights when we are deemed to be the primary beneficiary of such entities. All intercompany transactions and balances are eliminated in consolidation.

Our consolidated assets and liabilities include two consolidated ventures comprising our SHOP activities, each formed with a separate partner - Merrill Gardens, L.L.C. (“Merrill”) and DSHI NHI Holiday LLC (the “Discovery member”), a related party of Discovery Senior Living (“Discovery”). We consider both ventures to be VIEs as the members of each, as a group, lack the characteristics of a controlling financial interest. We are deemed to be the primary beneficiary of each VIE because we have the ability to control the activities that most significantly impact each VIE’s economic performance and the obligation to absorb losses or the right to receive benefits. Reference Notes 5 and 16 for further discussion of our SHOP ventures.

We also consolidate two real estate partnerships formed with our partners, Discovery Senior Housing Investor XXIV, LLC, a related party of Discovery, and LCS Timber Ridge LLC (“LCS”), to invest in senior housing facilities. We consider both partnerships to be VIEs, as either the members, as a group, lack the characteristics of a controlling financial interest or the total equity at risk is insufficient to finance activities without additional subordinated financial support. We direct the activities that most significantly impact economic performance of these partnerships and the obligation to absorb losses or the right to receive benefits, subject to limited protective rights extended to our partners for specified business decisions. Because of our control of these partnerships, we include their assets, liabilities, noncontrolling interests and operations in our condensed consolidated financial statements. Reference Note 16 for further discussion of these consolidated real estate partnerships.

We use the equity method of accounting when we own an interest in an entity over which we can exert significant influence, but cannot control the entity’s operations. We discontinue equity method accounting if our investment in an entity, including our net advances to the entity, is reduced to zero unless we have guaranteed obligations of the entity or are otherwise committed to provide further financial support for the entity. Reference Note 6 for further discussion of our equity method investment.

We have concluded that the Company is not the primary beneficiary for certain investments where we lack either directly, or through related parties, the power to direct the activities that most significantly impact their economic performance. Reference Note 16 for further discussion of our unconsolidated VIEs.

Contingently redeemable noncontrolling interests are recorded at their initial carrying values upon issuance and are subsequently adjusted to reflect their share of gains or losses, contributions, and distributions attributable to the noncontrolling interests. In periods where they are or will become probable of redemption, an adjustment to the redemption value of the noncontrolling interests is also recognized through capital in excess of par value on our condensed consolidated balance sheets and included in our computation of earnings per share. As of June 30, 2025 and December 31, 2024, the Merrill SHOP venture noncontrolling interest was classified as mezzanine equity on our condensed consolidated balance sheets, as further discussed in Note 10.

The noncontrolling interests associated with our two consolidated real estate partnerships and our Discovery member SHOP venture meets the conditions to be classified as equity on our condensed consolidated balance sheets as of June 30, 2025 and December 31, 2024.

Cash equivalents consist of all highly liquid investments with original maturities of three months or less. Our restricted cash includes amounts required to be held on deposit or subject to an agreement, including those with a qualified intermediary subject to an exchange agreement pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) or in accordance with agency agreements governing our mortgages. Restricted cash is included in other assets, net, on our condensed consolidated balance sheets.

The following table provides a reconciliation of cash, cash equivalents and restricted cash from our condensed consolidated statements of cash flows to the amounts presented on our condensed consolidated balance sheets ($ in thousands):


	Six Months Ended
	June 30,
	2025		2024
Beginning of the period:
Cash and cash equivalents	$	24,289	$	22,347
Restricted cash	2,213		2,270
Total cash, cash equivalents and restricted cash	$	26,502	$	24,617
End of the period:
Cash and cash equivalents	$	18,640	$	14,766
Restricted cash	683		2,137
Total cash, cash equivalents and restricted cash	$	19,323	$	16,903

Our credit risks primarily relate to cash and cash equivalents and investments in mortgage and other notes receivable. Cash and cash equivalents are primarily held in bank accounts and overnight investments. We maintain our bank deposit accounts with large financial institutions in amounts that may exceed federally insured limits. We have not experienced any losses in such accounts. Our mortgage and other notes receivable consist primarily of secured loans on healthcare facilities.

Our financial instruments, principally our investments in mortgage and other notes receivable, are subject to the possibility of loss as a result of the failure of other parties to perform according to their contractual obligations which may make the instruments less valuable. We obtain collateral in the form of mortgage liens and other protective rights for mortgage and other notes receivable and continually monitor these rights in order to reduce such possibilities of loss. We evaluate the need to provide for reserves for potential losses on our financial instruments based on management’s periodic review of our portfolio on an instrument-by-instrument basis.

We evaluate the recoverability of the carrying amounts of our long-lived assets when events or circumstances, including significant physical changes, significant adverse changes in general economic conditions or significant deterioration of the underlying cash flows of the long-lived assets, indicate that the carrying amounts of a long-lived assets may not be recoverable. We assess whether an impairment charge is needed by comparing the future estimated undiscounted cash flows of the identified asset to its carrying amount. If recognition of an impairment charge is necessary, it is measured as the amount by which the carrying amount of the identified asset exceeds its estimated fair value. Impairment charges are included in loan and realty (gains) losses, net, in our condensed consolidated statements of income.

Rental Income - Our operating leases with tenants typically provide for rent escalators. Base rental income is recognized using the straight-line method over the term of the lease to the extent that lease payments are considered collectable from tenants and the lease provides for specific contractual escalators. Under certain leases, we may receive additional contingent rent, which is calculated as a percentage of the increase in revenues of the tenant over a base year or base quarter. We recognize contingent rent annually or quarterly based on the actual revenues of the tenant once the target threshold has been achieved. Lease payments that are considered contingent rent are excluded from our schedule of future minimum lease payments. Reference Note 3 for additional information.

We review our operating lease receivables for collectability on a regular basis, taking into consideration changes in factors such as the tenant’s payment history, the financial condition of the tenant, business conditions in which the tenant operates and economic conditions in the area where the property is located. In the event that collectability of substantially all lease payments with respect to any tenant is not probable, a direct write-off of the receivable is made as an adjustment to rental income and any future rental revenue is recognized only when the tenant makes a rental payment. Reference Note 3 for further discussion.

Resident Fees and Services - Resident fees and services revenue associated with our SHOP activities is recognized as the related performance obligations are satisfied and include resident room charges, community fees and other resident charges.

Residency agreements are generally short-term (30 days to one year) and entitle residents to certain room and care services for a monthly fee billed in advance. Revenue for certain related services is billed monthly in arrears. We have elected the lessor practical expedient within Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 842, Leases, not to separate the lease and non-lease components within our residency agreements as the timing and pattern of transfer of the underlying services to the resident are the same. We have determined that the non-lease component is the predominant component within the contract, and therefore recognizes revenue under ASC 606, Revenue Recognition from Contracts with Customers.

Interest Income from Mortgage and Other Notes Receivable - Interest income is recognized based on the interest rates and principal amounts outstanding on the notes receivable. We identify a mortgage or other note receivable that is non-performing and place it on non-accrual status based on various criteria including timeliness of required payments, compliance with other provisions under the related note agreement, and an evaluation of the borrower’s current financial condition for indicators that it is probable it cannot pay its contractual amounts. A non-performing loan is returned to accrual status at such time as the note becomes contractually current and management believes all future principal and interest will be received according to the contractual terms of the note. As of June 30, 2025, we had two mezzanine loans totaling $13.3 million that are designated as non-performing loans. Reference Note 4 for additional information.

We intend at all times to qualify as a REIT under Internal Revenue Code Sections 856 through 860. Accordingly, we will generally not be subject to U.S. federal income tax, provided that we continue to qualify as a REIT. A failure to qualify to the applicable REIT qualification rules and regulations would have a material adverse impact on our consolidated financial position, results of operations and cash flows.

Certain activities that we undertake may be conducted by subsidiary entities that have elected to be treated as taxable REIT subsidiaries (“TRS”). TRSs are subject to federal, state, and local income taxes. Accordingly, a provision for income taxes is made in our condensed consolidated financial statements, when applicable.

We operate our business through two reportable segments: Real Estate Investments and SHOP. In our Real Estate Investments segment, we invest in (i) senior housing and healthcare real estate and lease those properties to healthcare operating companies under primarily triple-net leases that obligate tenants to pay all property-related expenses and (ii) mortgage and other notes receivable throughout the United States. As of June 30, 2025, our SHOP segment is comprised of the operations of 15 ILFs located in eight states that are operated on behalf of us by third-party property managers pursuant to the terms of separate management agreements. Reference Notes 5 and 15 for additional information on our segments.

There were no transfers of assets or liabilities between our segments during the three and six months ended June 30, 2025 and 2024. When a real estate property is transferred from one segment to another, the operating results associated with the property, including leasing arrangements, are included with the operating results of the original segment until the date of transfer. Operating results generated from the real estate property after the transfer date are included in the new segment.

We have, and may continue to, enter into forward equity sales agreements relating to shares of our common stock, either through our at-the-market (“ATM”) equity program or through underwritten public offerings. These agreements may be physically settled in our common stock, settled in cash or net share settled at our election. The forward sale price that we will receive upon physical settlement of forward equity sale agreement will be subject to adjustment for (i) a floating interest rate factor equal to a specified daily rate less a spread adjustment, and (ii) scheduled dividends during the term of the forward equity sale agreement. To the extent our forward equity sales agreements do not meet all the criteria to qualify for equity treatment on our consolidated balance sheet under ASC 815, Derivatives and Hedging, we recognize the change in the fair value of the derivative in our earnings. We evaluated our forward equity sales agreements and concluded they meet the conditions to be classified as equity on our condensed consolidated balance sheets as of June 30, 2025 and December 31, 2024.

Shares issuable under a forward equity sale agreement are reflected in our diluted earnings per share calculations for the applicable periods using the treasury stock method. Under this method, the number of our common shares used in calculating diluted earnings per share is deemed to be increased by the excess, if any, of the number of common shares that would be issued upon full physical settlement of the forward equity sale agreement over the number of common shares that could be purchased by us in the market (based on the average market price during the period) using the proceeds receivable upon full physical settlement (based on the weighted average forward price during the reporting period).

Our unvested restricted stock awards contain non-forfeitable rights to dividends, and accordingly, these awards are deemed to be participating securities. Therefore, we apply the two-class method to calculate basic and diluted earnings per share. Under the two-class method, we allocate net income attributable to stockholders to common stockholders and holders of unvested restricted stock awards by using the weighted-average shares of each class outstanding for quarter-to-date and year-to-date periods, based on their respective participation rights to dividends declared and undistributed earnings. Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share reflect the effect of dilutive securities.

In December 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which includes amendments to the existing guidance that further enhance income tax disclosures, primarily through standardization of income tax rate reconciliation categories and disaggregation of income taxes paid by jurisdiction. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the potential impact of this accounting standard on our consolidated financial statements and related disclosures.

In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires public entities to enhance transparency of income statement disclosures, on an interim and annual basis, by providing additional disaggregated information related to certain costs and expenses. This guidance is effective for annual periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027, with early adoption permitted. We are currently evaluating the potential impact of this accounting standard on our consolidated financial statements and related disclosures.

In July 2025, the FASB issued ASU 2025-05, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provides public entities with a practical expedient in estimating credit losses to current accounts receivable and contract assets arising from transactions accounted for under ASC 606. This guidance is effective for annual and interim periods beginning after December 15, 2025, with early adoption permitted. We are currently evaluating the potential impact of this accounting standard on our consolidated financial statements and related disclosures.