UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark One)
ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-55190
NORTHSTAR HEALTHCARE INCOME, INC.
(Exact Name of Registrant as Specified in its Charter)
|
| |
| Maryland | 27-3663988 |
| (State or Other Jurisdiction of | (IRS Employer |
| Incorporation or Organization) | Identification No.) |
590 Madison Avenue, 34th Floor, New York, NY 10022
(Address of Principal Executive Offices, Including Zip Code)
(212) 547-2600
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934: None
Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934: Common Stock, $0.01 par value per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No ý
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. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Annual Report on Form 10-K or any amendment to this Annual Report on Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 o | | Non-accelerated filer ý
| | Smaller reporting company o
Emerging growth company o |
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
There is no established trading market for the registrant’s common stock and therefore the aggregate market value of the registrant’s common stock held by non-affiliates cannot be determined.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
The Company has one class of common stock, $0.01 par value per share, 189,138,283 shares outstanding as of March 21, 2019.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the definitive proxy statement related to the registrant’s 2019 Annual Meeting of Stockholders to be filed hereafter are incorporated by reference into Part III (Items 10, 11, 12, 13 and 14) of this Annual Report on Form 10-K.
EXPLANATORY NOTE
NorthStar Healthcare Income, Inc. (the “Company”) is filing this Annual Report on Form 10-K/A for the year ended December 31, 2018 (this “Form 10-K/A”) to amend its original Annual Report on Form 10-K for the year ended December 31, 2018 originally filed on March 22, 2019 (the “Original Form 10-K”). This Form 10-K/A should be read in conjunction with the Original Form 10-K and the Company’s subsequent reports filed with the Securities and Exchange Commission. Except for the information specifically amended and restated herein, this Form 10-K/A has not been updated to reflect events, results or developments that occurred after the date of the Original Form 10-K nor does it change any other disclosures contained in the Original Form 10-K.
This Form 10-K/A is being filed to include the audit reports of Ernst & Young LLP, who have audited the financial statements of Healthcare GA Holdings, General Partnership as of and for the years ended December 31, 2018 and 2017 and whose reports are relied upon by Grant Thornton LLP, the Company’s independent registered public accounting firm. The Ernst & Young LLP reports were inadvertently omitted from the Original Form 10-K. Accordingly, Item 8. “Financial Statements and Supplementary Data” and Item 15. “Exhibits and Financial Statement Schedules” are hereby amended in their entirety. No other changes to the Company’s financial statements or the audit report of Grant Thornton LLP have been made.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of NorthStar Healthcare Income, Inc. and the notes related to the foregoing consolidated financial statements, together with the independent registered public accounting firm’s report thereon are included in this Item 8.
Index to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
NorthStar Healthcare Income, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of NorthStar Healthcare Income, Inc. (a Maryland corporation) and subsidiaries (the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and financial statement schedules included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, based on our audits and the report of the other auditors, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
We did not audit the financial statements of Healthcare GA Holdings, General Partnership (“Griffin - American”) the investment in which is accounted for under the equity method of accounting. The equity in its net loss was $12.7 million and $6.9 million of consolidated equity in earnings (losses) of unconsolidated ventures for the year ending December 31, 2018 and 2017, respectively. Those statements were audited by other auditors, whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Griffin - American, is based solely on the report of the other auditors.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2010
New York, New York
March 22, 2019
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of Healthcare GA Holdings, General Partnership
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Healthcare GA Holdings, General Partnership (the Partnership) as of December 31, 2018, the related consolidated statement of operations, comprehensive income (loss), changes in partners’ equity, and cash flows for the year ended December 31, 2018, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Partnership at December 31, 2018, and the results of its operations and its cash flows for the year ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
The Partnership’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Partnership has pending debt maturities in 2019 and has stated that substantial doubt exists about its ability to continue as a going concern. Management's evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
Supplementary Information
The accompanying other financial information, including the Healthcare GA Holdings, General Partnership Consolidated Financial Statements - Historical Basis of NorthStar Healthcare Income, Inc., have been subjected to audit procedures performed in conjunction with the audit of the Partnership’s financial statements. Such information is the responsibility of the Partnership’s management. Our audit procedures included determining whether the information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information. In our opinion, the information is fairly stated, in all material respects, in relation to the consolidated financial statements as a whole.
Basis for Opinion
These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on the Partnership’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Partnership’s auditor since 2017.
New York, New York
March 21, 2019
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of Healthcare GA Holdings, General Partnership
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Healthcare GA Holdings, General Partnership (the Company) as of December 31, 2017, the related consolidated statement of operations, comprehensive income (loss), changes in partners’ equity, and cash flows for each of the year ended December 31, 2017, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2017, and the results of its operations and its cash flows for the year ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Supplementary Information
The accompanying other financial information, including the Combined Financial Statements - Contractual Basis of the Borrowers and the Healthcare GA Holdings, General Partnership Consolidated Financial Statements - Historical Basis of NorthStar Healthcare Income, Inc. have been subjected to audit procedures performed in conjunction with the audit of the Company’s financial statements. Such information is the responsibility of the Company’s management. Our audit procedures included determining whether the information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information. In our opinion, the information is fairly stated, in all material respects, in relation to the consolidated financial statements as a whole.
/s/ Ernst & Young LLP
We have served as the Partnership’s auditor since 2017.
Los Angeles, California
March 30, 2018
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Data)
|
| | | | | | | |
| | December 31, 2018 | | December 31, 2017 |
| Assets | | | |
|
| Cash and cash equivalents | $ | 73,811 |
|
| $ | 50,046 |
|
| Restricted cash | 20,697 |
|
| 30,442 |
|
| Operating real estate, net | 1,778,914 |
|
| 1,852,428 |
|
| Investments in unconsolidated ventures | 264,319 |
| | 325,582 |
|
| Real estate debt investments, net | 58,600 |
|
| 74,650 |
|
| Senior housing mortgage loans held in a securitization trust, at fair value | — |
| | 545,048 |
|
| Assets held for sale | 2,183 |
| | — |
|
| Receivables, net | 14,436 |
|
| 18,363 |
|
| Deferred costs and intangible assets, net | 36,996 |
|
| 84,720 |
|
| Other assets | 14,460 |
|
| 17,474 |
|
Total assets(1) | $ | 2,264,416 |
|
| $ | 2,998,753 |
|
| | | | |
| Liabilities | | | |
| Mortgage and other notes payable, net | $ | 1,466,349 |
| | $ | 1,487,480 |
|
| Senior housing mortgage obligations issued by a securitization trust, at fair value | — |
| | 512,772 |
|
| Due to related party | 5,675 |
| | 1,046 |
|
| Escrow deposits payable | 4,379 |
| | 3,817 |
|
| Distribution payable | 5,400 |
| | 10,704 |
|
| Accounts payable and accrued expenses | 32,405 |
| | 33,478 |
|
| Other liabilities | 5,834 |
| | 4,657 |
|
Total liabilities(1) | 1,520,042 |
|
| 2,053,954 |
|
| Commitments and contingencies |
|
| |
|
|
| Equity | | | |
| NorthStar Healthcare Income, Inc. Stockholders’ Equity | | | |
| Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares issued and outstanding as of December 31, 2018 and December 31, 2017 | — |
| | — |
|
| Common stock, $0.01 par value, 400,000,000 shares authorized, 188,495,355 and 186,709,303 shares issued and outstanding as of December 31, 2018 and December 31, 2017, respectively | 1,885 |
| | 1,867 |
|
| Additional paid-in capital | 1,697,998 |
| | 1,681,040 |
|
| Retained earnings (accumulated deficit) | (958,924 | ) | | (744,090 | ) |
| Accumulated other comprehensive income (loss) | (2,284 | ) | | (316 | ) |
| Total NorthStar Healthcare Income, Inc. stockholders’ equity | 738,675 |
|
| 938,501 |
|
| Non-controlling interests | 5,699 |
| | 6,298 |
|
| Total equity | 744,374 |
|
| 944,799 |
|
| Total liabilities and equity | $ | 2,264,416 |
|
| $ | 2,998,753 |
|
_______________________________________
| |
| (1) | Represents the consolidated assets and liabilities of NorthStar Healthcare Income Operating Partnership, LP (the “Operating Partnership”). The Operating Partnership is a consolidated variable interest entity (“VIE”), of which the Company is the sole general partner and owns approximately 99.99%. As of December 31, 2018, the Operating Partnership includes $0.7 billion and $0.5 billion of assets and liabilities, respectively, of certain VIEs that are consolidated by the Operating Partnership. Refer to Note 2, “Summary of Significant Accounting Policies.” |
Refer to accompanying notes to consolidated financial statements.
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2018 | | 2017 | | 2016 |
| Property and other revenues | | | | | | |
| Resident fee income | | $ | 129,855 |
| | $ | 127,180 |
| | $ | 102,915 |
|
| Rental income | | 159,481 |
| | 155,700 |
| | 132,108 |
|
| Other revenue | | 4,935 |
| | 2,895 |
| | 1,585 |
|
| Total property and other revenues | | 294,271 |
| | 285,775 |
| | 236,608 |
|
| Net interest income | | | | | | |
| Interest income on debt investments | | 7,706 |
| | 7,696 |
| | 17,720 |
|
| Interest income on mortgage loans held in a securitized trust | | 5,149 |
| | 25,955 |
| | 5,022 |
|
| Interest expense on mortgage obligations issued by a securitization trust | | (3,824 | ) | | (19,510 | ) | | (3,772 | ) |
| Net interest income | | 9,031 |
| | 14,141 |
| | 18,970 |
|
| Expenses | | | | | | |
| Real estate properties - operating expenses | | 188,761 |
| | 163,837 |
| | 129,954 |
|
| Interest expense | | 70,196 |
| | 61,082 |
| | 50,243 |
|
| Other expenses related to securitization trust | | 811 |
| | 3,922 |
| | 765 |
|
| Transaction costs | | 888 |
| | 9,407 |
| | 2,204 |
|
| Asset management and other fees - related party | | 23,478 |
| | 41,954 |
| | 45,092 |
|
| General and administrative expenses | | 14,390 |
| | 13,488 |
| | 24,843 |
|
| Depreciation and amortization | | 107,133 |
| | 105,459 |
| | 81,786 |
|
| Impairment loss | | 36,277 |
| | 5,000 |
| | — |
|
| Total expenses | | 441,934 |
| | 404,149 |
| | 334,887 |
|
| Other income (loss) | | | | | | |
| Unrealized gain (loss) on senior housing mortgage loans and debt held in securitization trust, net | | — |
| | 1,503 |
| | 298 |
|
| Realized gain (loss) on investments and other | | 20,243 |
| | 116 |
| | 600 |
|
| Gain (loss) on consolidation of unconsolidated venture | | — |
| | — |
| | 6,408 |
|
| Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense) | | (118,389 | ) | | (102,614 | ) | | (72,003 | ) |
| Equity in earnings (losses) of unconsolidated ventures | | (33,517 | ) | | (35,314 | ) | | (62,175 | ) |
| Income tax benefit (expense) | | (114 | ) | | (43 | ) | | (7,104 | ) |
| Net income (loss) | | (152,020 | ) | | (137,971 | ) | | (141,282 | ) |
| Net (income) loss attributable to non-controlling interests | | 442 |
| | 200 |
| | 7 |
|
| Net income (loss) attributable to NorthStar Healthcare Income, Inc. common stockholders | | $ | (151,578 | ) | | $ | (137,771 | ) | | $ | (141,275 | ) |
| Net income (loss) per share of common stock, basic/diluted | | $ | (0.81 | ) | | $ | (0.74 | ) | | $ | (0.77 | ) |
| Weighted average number of shares of common stock outstanding, basic/diluted | | 187,501,302 |
| | 186,418,183 |
| | 182,446,286 |
|
Refer to accompanying notes to consolidated financial statements.
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in Thousands)
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2018 | | 2017 | | 2016 |
| Net income (loss) | | $ | (152,020 | ) | | $ | (137,971 | ) | | $ | (141,282 | ) |
| Other comprehensive income (loss) | | | | | | |
| Foreign currency translation adjustments related to investment in unconsolidated venture | | (1,968 | ) | | 872 |
| | (1,188 | ) |
| Total other comprehensive income (loss) | | (1,968 | ) | | 872 |
| | (1,188 | ) |
| Comprehensive income (loss) | | (153,988 | ) | | (137,099 | ) | | (142,470 | ) |
| Comprehensive (income) loss attributable to non-controlling interests | | 442 |
| | 200 |
| | 7 |
|
| Comprehensive income (loss) attributable to NorthStar Healthcare Income, Inc. common stockholders | | $ | (153,546 | ) | | $ | (136,899 | ) | | $ | (142,463 | ) |
Refer to accompanying notes to consolidated financial statements.
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars and Shares in Thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-in Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Income (Loss) | | Total Company’s Stockholders’ Equity | | Non-controlling Interests | | Total Equity |
| | Shares | | Amount | | | | | | |
| Balance as of December 31, 2015 | 179,137 |
| | $ | 1,791 |
| | $ | 1,614,452 |
| | $ | (216,099 | ) | | $ | — |
| | $ | 1,400,144 |
| | $ | 5,356 |
| | $ | 1,405,500 |
|
| Net proceeds from issuance of common stock | 81 |
| | 1 |
| | 295 |
| | — |
| | — |
| | 296 |
| | — |
| | 296 |
|
| Issuance and amortization of equity-based compensation | 14 |
| | — |
| | 166 |
| | — |
| | — |
| | 166 |
| | — |
| | 166 |
|
| Non-controlling interests - contributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 291 |
| | 291 |
|
| Non-controlling interests - distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (291 | ) | | (291 | ) |
| Shares redeemed for cash | (1,765 | ) | | (18 | ) | | (16,120 | ) | | | | — |
| | (16,138 | ) | | — |
| | (16,138 | ) |
| Distributions declared | — |
| | — |
| | — |
| | (123,142 | ) | | — |
| | (123,142 | ) | | — |
| | (123,142 | ) |
| Proceeds from distribution reinvestment plan | 7,568 |
| | 76 |
| | 67,686 |
| | — |
| | — |
| | 67,762 |
| | — |
| | 67,762 |
|
| Other comprehensive income (loss) | — |
| | — |
| | — |
| | — |
| | (1,188 | ) | | (1,188 | ) | | — |
| | (1,188 | ) |
| Net income (loss) | — |
| | — |
| | — |
| | (141,275 | ) | | — |
| | (141,275 | ) | | (7 | ) | | (141,282 | ) |
| Balance as of December 31, 2016 | 185,035 |
| | $ | 1,850 |
| | $ | 1,666,479 |
| | $ | (480,516 | ) | | $ | (1,188 | ) | | $ | 1,186,625 |
| | $ | 5,349 |
| | $ | 1,191,974 |
|
| Issuance and amortization of equity-based compensation | 20 |
| | — |
| | 176 |
| | — |
| | — |
| | 176 |
| | — |
| | 176 |
|
| Non-controlling interests - contributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,988 |
| | 2,988 |
|
| Non-controlling interests - distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (1,839 | ) | | (1,839 | ) |
| Shares redeemed for cash | (5,728 | ) | | (57 | ) | | (52,713 | ) | | — |
| | — |
| | (52,770 | ) | | — |
| | (52,770 | ) |
| Distributions declared | — |
| | — |
| | — |
| | (125,803 | ) | | — |
| | (125,803 | ) | | — |
| | (125,803 | ) |
| Proceeds from distribution reinvestment plan | 7,382 |
| | 74 |
| | 67,098 |
| | — |
| | — |
| | 67,172 |
| | — |
| | 67,172 |
|
| Other comprehensive income (loss) | — |
| | — |
| | — |
| | — |
| | 872 |
| | 872 |
| | — |
| | 872 |
|
| Net income (loss) | — |
| | — |
| | — |
| | (137,771 | ) | | — |
| | (137,771 | ) | | (200 | ) | | (137,971 | ) |
| Balance as of December 31, 2017 | 186,709 |
| | $ | 1,867 |
| | $ | 1,681,040 |
| | $ | (744,090 | ) | | $ | (316 | ) | | $ | 938,501 |
| | $ | 6,298 |
| | $ | 944,799 |
|
| Share-based payment of advisor asset management fees | 1,078 |
| | 11 |
| | 9,019 |
| | — |
| | — |
| | 9,030 |
| | — |
| | 9,030 |
|
| Issuance and amortization of equity-based compensation | 21 |
| | — |
| | 174 |
| | — |
| | — |
| | 174 |
| | — |
| | 174 |
|
| Non-controlling interests - contributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 484 |
| | 484 |
|
| Non-controlling interests - distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (641 | ) | | (641 | ) |
| Shares redeemed for cash | (3,275 | ) | | (33 | ) | | (25,874 | ) | | — |
| | — |
| | (25,907 | ) | | — |
| | (25,907 | ) |
| Distributions declared | — |
| | — |
| | — |
| | (63,256 | ) | | — |
| | (63,256 | ) | | — |
| | (63,256 | ) |
| Proceeds from distribution reinvestment plan | 3,962 |
| | 40 |
| | 33,639 |
| | — |
| | — |
| | 33,679 |
| | — |
| | 33,679 |
|
| Other comprehensive income (loss) | — |
| | — |
| | — |
| | — |
| | (1,968 | ) | | (1,968 | ) | | — |
| | (1,968 | ) |
| Net income (loss) | — |
| | — |
| | — |
| | (151,578 | ) | | — |
| | (151,578 | ) | | (442 | ) | | (152,020 | ) |
| Balance as of December 31, 2018 | 188,495 |
| | $ | 1,885 |
| | $ | 1,697,998 |
| | $ | (958,924 | ) | | $ | (2,284 | ) | | $ | 738,675 |
| | $ | 5,699 |
| | $ | 744,374 |
|
Refer to accompanying notes to consolidated financial statements.
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| Cash flows from operating activities: | | | | | |
| Net income (loss) | $ | (152,020 | ) | | $ | (137,971 | ) | | $ | (141,282 | ) |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | |
| Equity in (earnings) losses of unconsolidated ventures | 33,517 |
| | 35,314 |
| | 62,175 |
|
| Depreciation and amortization | 107,133 |
| | 105,459 |
| | 81,786 |
|
| Impairment loss | 36,277 |
| | 5,000 |
| | — |
|
| Amortization of below market debt | 2,932 |
| | 2,703 |
| | 2,339 |
|
| Straight-line rental income, net and amortization of lease inducements | 440 |
| | (1,673 | ) | | (1,780 | ) |
| Amortization of premium/accretion of discount on investments | (101 | ) | | (92 | ) | | (35 | ) |
| Amortization of deferred financing costs | 1,946 |
| | 1,586 |
| | 1,813 |
|
| Amortization of equity-based compensation | 174 |
| | 176 |
| | 166 |
|
| Deferred income tax (benefit) expense, net | — |
| | (6 | ) | | 7,019 |
|
| Realized (gain) loss on investments and other | (20,243 | ) | | (116 | ) | | (600 | ) |
| (Gain) loss on consolidation of unconsolidated venture | — |
| | — |
| | (6,408 | ) |
| Unrealized (gain) loss on senior housing mortgage loans and debt held in securitization trust, net | — |
| | (1,503 | ) | | (298 | ) |
| Allowance for uncollectible accounts | 3,172 |
| | 1,314 |
| | 153 |
|
| Distributions of cumulative earnings from unconsolidated ventures | — |
| | — |
| | 267 |
|
| Changes in assets and liabilities: | | | | | |
| Receivables | 1,219 |
| | (5,545 | ) | | (1,777 | ) |
| Other assets | 645 |
| | (3,975 | ) | | (1,463 | ) |
| Due to related party | 13,796 |
| | 827 |
| | (224 | ) |
| Escrow deposits payable | 563 |
| | 608 |
| | 792 |
|
| Accounts payable and accrued expenses | (2,205 | ) | | 8,375 |
| | 3,550 |
|
| Other liabilities | 741 |
| | (352 | ) | | (817 | ) |
| Net cash provided by (used in) operating activities | 27,986 |
| | 10,129 |
| | 5,376 |
|
| Cash flows from investing activities: | | | | | |
| Acquisition of operating real estate investments | — |
| | (278,959 | ) | | (142,941 | ) |
| Improvement of operating real estate investments | (31,212 | ) | | (20,176 | ) | | (29,428 | ) |
| Sale of operating real estate investment | 11,784 |
| | — |
| | — |
|
| Sale of healthcare-related securities | 35,771 |
| | — |
| | — |
|
| Sale of ownership interest in unconsolidated ventures | 47,813 |
| | — |
| | — |
|
| Deferred costs and intangible assets | — |
| | (19,057 | ) | | — |
|
| Repayment on real estate debt investments | — |
| | — |
| | 118,411 |
|
| Investment in unconsolidated ventures | (4,470 | ) | | (12,956 | ) | | (20,731 | ) |
| Distributions in excess of cumulative earnings from unconsolidated ventures | 12,672 |
| | 13,466 |
| | 34,511 |
|
| Purchase of healthcare-related securities | — |
| | — |
| | (30,475 | ) |
| Working capital of consolidated real estate investment | — |
| | — |
| | 11,174 |
|
| Other assets | 1,590 |
| | 3,288 |
| | (876 | ) |
| Net cash provided by (used in) investing activities | 73,948 |
| | (314,394 | ) | | (60,355 | ) |
| Cash flows from financing activities: | | | | | |
| Borrowing from mortgage notes | — |
| | 249,091 |
| | 18,760 |
|
| Repayment of mortgage notes | (25,979 | ) | | (2,719 | ) | | (10,500 | ) |
| Borrowings from line of credit - related party | — |
| | 25,000 |
| | — |
|
| Repayment of borrowings from line of credit - related party | — |
| | (25,000 | ) | | — |
|
| Payment of deferred financing costs | (283 | ) | | (3,384 | ) | | (694 | ) |
| Net proceeds from issuance of common stock | — |
| | — |
| | 405 |
|
| Debt extinguishment costs | (97 | ) | | — |
| | — |
|
| Shares redeemed for cash | (25,907 | ) | | (52,770 | ) | | (16,138 | ) |
| Payments under capital leases | (610 | ) | | — |
| | — |
|
| Distributions paid on common stock | (68,560 | ) | | (125,678 | ) | | (122,565 | ) |
| Proceeds from distribution reinvestment plan | 33,679 |
| | 67,172 |
| | 67,762 |
|
| Contributions from non-controlling interests | 484 |
| | 2,988 |
| | 291 |
|
| Distributions to non-controlling interests | (641 | ) | | (1,839 | ) | | (291 | ) |
| Net cash provided by (used in) financing activities | (87,914 | ) | | 132,861 |
| | (62,970 | ) |
| Net increase (decrease) in cash, cash equivalents and restricted cash | 14,020 |
| | (171,404 | ) | | (117,949 | ) |
| Cash, cash equivalents and restricted cash-beginning of period | 80,488 |
| | 251,892 |
| | 369,841 |
|
| Cash, cash equivalents and restricted cash-end of period | $ | 94,508 |
| | $ | 80,488 |
| | $ | 251,892 |
|
Refer to accompanying notes to consolidated financial statements.
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in Thousands)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| Supplemental disclosure of cash flow information: | | | | | |
| Cash paid for interest | $ | 64,568 |
| | $ | 55,830 |
| | $ | 45,898 |
|
| Cash paid for income taxes | 187 |
| | 54 |
| | 81 |
|
| Supplemental disclosure of non-cash investing and financing activities: | | | | | |
| Accrued distribution payable | $ | 5,400 |
| | $ | 10,704 |
| | $ | 10,579 |
|
| Accrued capital expenditures | 1,456 |
| | — |
| | — |
|
| Reclassification of assets held for sale | 2,183 |
| | — |
| | — |
|
| Issuance of common stock as payment for asset management fees | 9,030 |
| | — |
| | — |
|
| Deconsolidation of securitization trust (VIE asset/liability) | 512,772 |
| | — |
| | — |
|
| Acquisition of operating real estate under capital lease obligations | 2,108 |
| | — |
| | — |
|
| Assumption of mortgage notes payable upon acquisitions of operating real estate | — |
| | 21,685 |
| | 648,211 |
|
| Change in carrying value of securitization trust (VIE asset/liability) | — |
| | 10,162 |
| | — |
|
| Debt financing provided by seller for investment acquisition | — |
| | 15,855 |
| | — |
|
| Contingent purchase price payable upon acquisition of operating real estate | — |
| | 1,800 |
| | — |
|
| Consolidation of securitization trust (VIE asset/liability) | — |
| | — |
| | 522,933 |
|
| Transfer of non-controlling interest in joint venture for controlling interest in consolidated real estate investment | — |
| | — |
| | 103,005 |
|
| Reclassification related to measurement-period adjustment | — |
| | — |
| | 143,070 |
|
| Escrow deposits related to real estate debt investments | — |
| | — |
| | 293 |
|
Refer to accompanying notes to consolidated financial statements.
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| |
| 1. | Business and Organization |
NorthStar Healthcare Income, Inc., together with its consolidated subsidiaries, (the “Company”) was formed to acquire, originate and asset manage a diversified portfolio of equity, debt and securities investments in healthcare real estate, directly or through joint ventures, with a focus on the mid-acuity senior housing sector, which the Company defines as assisted living (“ALF”), memory care (“MCF”), skilled nursing (“SNF”), independent living (“ILF”) facilities and continuing care retirement communities (“CCRC”), which may have independent living, assisted living, skilled nursing and memory care available on one campus. The Company also invests in other healthcare property types, including medical office buildings (“MOB”), hospitals, rehabilitation facilities and ancillary healthcare services businesses. The Company’s investments are predominantly in the United States, but it also selectively makes international investments.
The Company was formed in October 2010 as a Maryland corporation and commenced operations in February 2013. The Company elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), commencing with the taxable year ended December 31, 2013. The Company conducts its operations so as to continue to qualify as a REIT for U.S. federal income tax purposes.
Substantially all of the Company’s business is conducted through NorthStar Healthcare Income Operating Partnership, LP (the “Operating Partnership”). The Company is the sole general partner of the Operating Partnership. The limited partners of the Operating Partnership are NorthStar Healthcare Income Advisor, LLC (the “Prior Advisor”) and NorthStar Healthcare Income OP Holdings, LLC (the “Special Unit Holder”), each an affiliate of the Company’s sponsor. The Prior Advisor invested $1,000 in the Operating Partnership in exchange for common units and the Special Unit Holder invested $1,000 in the Operating Partnership and was issued a separate class of limited partnership units (the “Special Units”), which are collectively recorded as non-controlling interests on the accompanying consolidated balance sheets as of December 31, 2018 and December 31, 2017. As the Company issued shares, it contributed substantially all of the proceeds from its continuous, public offerings to the Operating Partnership as a capital contribution. As of December 31, 2018, the Company’s limited partnership interest in the Operating Partnership was 99.99%.
The Company’s charter authorizes the issuance of up to 400.0 million shares of common stock with a par value of $0.01 per share and up to 50.0 million shares of preferred stock with a par value of $0.01 per share. The board of directors of the Company is authorized to amend its charter, without the approval of the stockholders, to increase the aggregate number of authorized shares of capital stock or the number of shares of any class or series that the Company has authority to issue.
The Company completed its initial public offering (the “Initial Offering”) on February 2, 2015 by raising gross proceeds of $1.1 billion, including 108.6 million shares issued in its initial primary offering (the “Initial Primary Offering”) and 2.0 million shares issued pursuant to its distribution reinvestment plan (the “DRP”). In addition, the Company completed its follow-on offering (the “Follow-On Offering”) on January 19, 2016 by raising gross proceeds of $700.0 million, including 64.9 million shares issued in its follow-on primary offering (the “Follow-on Primary Offering”) and 4.2 million shares issued pursuant to the DRP. The Company refers to its Initial Primary Offering and its Follow-on Primary Offering collectively as the “Primary Offering” and its Initial Offering and Follow-On Offering collectively as the “Offering.” In December 2015, the Company registered an additional 30.0 million shares to be offered pursuant to the DRP and continues to offer such shares. From inception through January 31, 2019, the Company raised total gross proceeds of $2.0 billion, including $232.6 million in DRP proceeds.
The Company is externally managed and has no employees. The Company is sponsored by Colony Capital, Inc. (NYSE: CLNY) (“Colony Capital” or the “Sponsor”), which was formed as a result of the mergers of NorthStar Asset Management Group Inc.(“NSAM”), its prior sponsor, with Colony Capital, Inc. (“Colony”) and NorthStar Realty Finance Corp. (“NorthStar Realty”) in January 2017. Effective June 25, 2018, the Sponsor changed its name from Colony NorthStar, Inc. to Colony Capital, Inc. and its ticker symbol from “CLNS” to “CLNY.” Following the mergers, the Sponsor became an internally-managed equity REIT, with a diversified real estate and investment management platform.
Colony Capital manages capital on behalf of its stockholders, as well as institutional and retail investors in private funds, non-traded and traded REITs and registered investment companies. The Company’s advisor, CNI NSHC Advisors, LLC (the “Advisor”), is a subsidiary of Colony Capital and manages its day-to-day operations pursuant to an advisory agreement.
| |
| 2. | Summary of Significant Accounting Policies |
Basis of Accounting
The accompanying consolidated financial statements and related notes of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, the Operating Partnership and their consolidated subsidiaries. The Company consolidates variable interest entities (“VIEs”) where the Company is the primary beneficiary and voting interest entities which are generally majority owned or otherwise controlled by the Company. All significant intercompany balances are eliminated in consolidation.
Variable Interest Entities
A VIE is an entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The determination of whether an entity is a VIE includes both a qualitative and quantitative analysis. The Company bases its qualitative analysis on its review of the design of the entity, its organizational structure including decision-making ability and relevant financial agreements and the quantitative analysis on the forecasted cash flow of the entity. The Company reassesses its initial evaluation of an entity as a VIE upon the occurrence of certain reconsideration events.
A VIE must be consolidated only by its primary beneficiary, which is defined as the party who, along with its affiliates and agents, has both the: (i) power to direct the activities that most significantly impact the VIE’s economic performance; and (ii) obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. The Company determines whether it is the primary beneficiary of a VIE by considering qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of its investment; the obligation or likelihood for the Company or other interests to provide financial support; consideration of the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders and the similarity with and significance to the business activities of the Company and the other interests. The Company reassesses its determination of whether it is the primary beneficiary of a VIE each reporting period. Significant judgments related to these determinations include estimates about the current and future fair value and performance of investments held by these VIEs and general market conditions.
The Company evaluates its investments and financings, including investments in unconsolidated ventures and securitization financing transactions to determine whether each investment or financing is a VIE. The Company analyzes new investments and financings, as well as reconsideration events for existing investments and financings, which vary depending on type of investment or financing.
As of December 31, 2018, the Company has identified certain consolidated and unconsolidated VIEs. Assets of each of the VIEs, other than the Operating Partnership, may only be used to settle obligations of the respective VIE. Creditors of each of the VIEs have no recourse to the general credit of the Company.
Consolidated VIEs
The most significant consolidated VIEs are the Operating Partnership and certain properties that have non-controlling interests. These entities are VIEs because the non-controlling interests do not have substantive kick-out or participating rights. The Operating Partnership consolidates certain properties that have non-controlling interests. Included in operating real estate, net on the Company’s consolidated balance sheet as of December 31, 2018 is $617.7 million related to such consolidated VIEs. Included in mortgage and other notes payable, net on the Company’s consolidated balance sheet as of December 31, 2018 is $467.3 million, collateralized by the real estate assets of the related consolidated VIEs.
Investing VIEs
The Company’s investment in a securitization financing entity (“Investing VIE”) consisted of subordinate first-loss certificates in a securitization trust, generally referred to as Class B certificates, which represents interests in such VIE. Investing VIEs are structured as pass through entities that receive principal and interest payments from the underlying debt collateral assets and distribute those payments to the securitization trust’s certificate holders, including the Class B certificates. A securitization trust will name a directing certificate holder, who is generally afforded the unilateral right to terminate and appoint a replacement for the special servicer, and as such may qualify as the primary beneficiary of the trust.
If it is determined that the Company is the primary beneficiary of an Investing VIE as a result of acquiring the subordinate first-loss certificates in a securitization trust, the Company would consolidate the assets, liabilities, income and expenses of the entire Investing VIE. The assets held by an Investing VIE are restricted and can only be used to fulfill its own obligations. The obligations
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
of an Investing VIE have neither any recourse to the general credit of the Company as the consolidating parent entity of an Investing VIE, nor to any of the Company’s other consolidated entities.
As of December 31, 2017, the Company held Class B certificates in an Investing VIE for which the Company had determined it was the primary beneficiary because it had the power to direct the activities that most significantly impacted the economic performance of the securitization trust. As a result, all of the assets, liabilities (obligations to the certificate holders of the securitization trust, less the Company’s retained interest from the Class B certificates of the securitization), income and expense of the entire Investing VIE were presented in the consolidated financial statements of the Company as required by U.S. GAAP. The Company’s Class B certificates, which represented the retained interest and related interest income, were eliminated in consolidation. Regardless of the presentation, the Company’s consolidated financial statements of operations ultimately reflect the net income attributable to its retained interest in the Class B certificates. Refer to Note 6, “Healthcare-Related Securities” for further detail.
The Company elected the fair value option for the initial recognition of the assets and liabilities of its consolidated Investing VIE. Interest income and interest expense associated with this VIE are presented separately on the consolidated statements of operations. The assets and liabilities of the Investing VIE are presented as “Senior housing mortgage loans held in a securitization trust, at fair value” and “Senior housing mortgage obligations issued by a securitization trust, at fair value,” respectively, on the consolidated balance sheets. Refer to Note 12, “Fair Value” for further detail.
In March 2018, the Company sold the Class B certificates of its consolidated Investing VIE, relinquishing its rights as directing certificate holder. As a result, the Company was no longer deemed the primary beneficiary of the securitization trust and, accordingly, did not present the assets or liabilities of the securitization trust on its consolidated balance sheets as of December 31, 2018. The Company has presented the income and expenses of the securitization trust on its consolidated statements of operations for the period that the Company owned the Class B certificates and was considered the primary beneficiary in 2018.
Unconsolidated VIEs
As of December 31, 2018, the Company identified unconsolidated VIEs related to its real estate equity investments with a carrying value of $264.3 million. The Company’s maximum exposure to loss as of December 31, 2018 would not exceed the carrying value of its investment in the VIEs and its investment in a mezzanine loan to a subsidiary of one of the VIEs. Based on management’s analysis, the Company determined that it is not the primary beneficiary of these VIEs and, accordingly, they are not consolidated in the Company’s financial statements as of December 31, 2018. The Company did not provide financial support to its unconsolidated VIEs during the year ended December 31, 2018, except for funding its proportionate share of capital call contributions. As of December 31, 2018, there were no explicit arrangements or implicit variable interests that could require the Company to provide financial support to its unconsolidated VIEs.
Voting Interest Entities
A voting interest entity is an entity in which the total equity investment at risk is sufficient to enable it to finance its activities independently and the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The usual condition for a controlling financial interest in a voting interest entity is ownership of a majority voting interest. If the Company has a majority voting interest in a voting interest entity, the entity will generally be consolidated. The Company does not consolidate a voting interest entity if there are substantive participating rights by other parties and/or kick-out rights by a single party or through a simple majority vote.
The Company performs on-going reassessments of whether entities previously evaluated under the voting interest framework have become VIEs, based on certain events, and therefore subject to the VIE consolidation framework.
Investments in Unconsolidated Ventures
A non-controlling, unconsolidated ownership interest in an entity may be accounted for using the equity method or the Company may elect the fair value option.
The Company will account for an investment under the equity method of accounting if it has the ability to exercise significant influence over the operating and financial policies of an entity, but does not have a controlling financial interest. Under the equity method, the investment is adjusted each period for capital contributions and distributions and its share of the entity’s net income (loss). Capital contributions, distributions and net income (loss) of such entities are recorded in accordance with the terms of the governing documents. An allocation of net income (loss) may differ from the stated ownership percentage interest in such entity as a result of preferred returns and allocation formulas, if any, as described in such governing documents. Equity method investments
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
are recognized using a cost accumulation model, in which the investment is recognized based on the cost to the investor, which includes acquisition fees. The Company records as an expense certain acquisition costs and fees associated with consolidated investments deemed to be business combinations and capitalizes these costs for investments deemed to be acquisitions of an asset, including an equity method investment.
Non-controlling Interests
A non-controlling interest in a consolidated subsidiary is defined as the portion of the equity (net assets) in a subsidiary not attributable, directly or indirectly, to the Company. A non-controlling interest is required to be presented as a separate component of equity on the consolidated balance sheets and presented separately as net income (loss) and comprehensive income (loss) attributable to controlling and non-controlling interests. An allocation to a non-controlling interest may differ from the stated ownership percentage interest in such entity as a result of a preferred return and allocation formula, if any, as described in such governing documents.
Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that could affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates and assumptions.
Comprehensive Income (Loss)
The Company reports consolidated comprehensive income (loss) in separate statements following the consolidated statements of operations. Comprehensive income (loss) is defined as the change in equity resulting from net income (loss) and other comprehensive income (loss) (“OCI”). The only component of OCI for the Company is foreign currency translation adjustments related to its investment in an unconsolidated venture.
Fair Value Option
The fair value option provides an election that allows a company to irrevocably elect to record certain financial assets and liabilities at fair value on an instrument-by-instrument basis at initial recognition. The Company may elect to apply the fair value option for certain investments due to the nature of the instrument. Any change in fair value for assets and liabilities for which the election is made is recognized in earnings.
The Company elected the fair value option to account for the eligible financial assets and liabilities of its consolidated Investing VIEs in order to mitigate potential accounting mismatches between the carrying value of the instruments and the related assets and liabilities to be consolidated. The Company adopted guidance issued by the FASB allowing the Company to measure both the financial assets and liabilities of a qualifying collateralized financing entity (“CFE”) it consolidated using the fair value of either the CFE’s financial assets or financial liabilities, whichever is more observable.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly-liquid investments with an original maturity date of three months or less to be cash equivalents. Cash, including amounts restricted, may at times exceed the Federal Deposit Insurance Corporation deposit insurance limit of $250,000 per institution. The Company mitigates credit risk by placing cash and cash equivalents with major financial institutions. To date, the Company has not experienced any losses on cash and cash equivalents.
Restricted cash consists of amounts related to loan origination (escrow deposits) and operating real estate (escrows for taxes, insurance, capital expenditures, security deposits received from tenants and payments required under certain lease agreements).
The following table provides a reconciliation of cash, cash equivalents, and restricted cash as reported on the consolidated balance sheets to the total of such amounts as reported on the consolidated statements of cash flows (dollars in thousands):
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2018 | | 2017 | | 2016 |
| Cash and cash equivalents | | $ | 73,811 |
| | $ | 50,046 |
| | $ | 223,102 |
|
| Restricted cash | | 20,697 |
| | 30,442 |
| | 28,790 |
|
| Total cash, cash equivalents and restricted cash | | $ | 94,508 |
| | $ | 80,488 |
| | $ | 251,892 |
|
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Operating Real Estate
The Company evaluates whether a real estate acquisition constitutes a business and whether business combination accounting is appropriate. The Company accounts for purchases of operating real estate that qualify as business combinations using the acquisition method, where the purchase price is allocated to tangible assets such as land, building, furniture, fixtures, and equipment, improvements and other identified intangibles such as in-place leases, goodwill and above or below market mortgages assumed, as applicable. Costs directly related to an acquisition deemed to be a business combination are expensed and included in transaction costs in the consolidated statements of operations.
Major replacements and betterments which improve or extend the life of the asset are capitalized and depreciated over their useful life. Ordinary repairs and maintenance are expensed as incurred. Operating real estate is carried at historical cost less accumulated depreciation. Operating real estate is depreciated using the straight-line method over the estimated useful life of the assets, summarized as follows:
|
| | |
| Category: | | Term: |
| Building | | 30 to 50 years |
| Building improvements | | Lesser of the useful life or remaining life of the building |
| Land improvements | | 9 to 15 years |
| Tenant improvements | | Lesser of the useful life or remaining term of the lease |
| Furniture, fixtures and equipment | | 5 to 14 years |
Construction costs incurred in connection with the Company’s investments are capitalized and included in operating real estate, net on the consolidated balance sheets. Construction in progress is not depreciated until the development is substantially completed.
In a situation in which a net lease(s) associated with a significant tenant has been, or is expected to be, terminated early, the Company evaluates the remaining useful life of depreciable or amortizable assets in the asset group related to the lease that will be terminated (i.e., tenant improvements, above- and below-market lease intangibles, in-place lease value and deferred leasing costs). Based upon consideration of the facts and circumstances surrounding the termination, the Company may write-off or accelerate the depreciation and amortization associated with the asset group. Such amounts are included within rental and other income for above- and below-market lease intangibles and depreciation and amortization for the remaining lease related asset groups in the consolidated statements of operations.
When the Company acquires a controlling interest in an existing unconsolidated joint venture, the Company records the consolidated investment at the updated purchase price, which is reflective of fair value. The difference between the carrying value of the Company’s investment in the existing unconsolidated joint venture on the acquisition date and the Company’s share of the fair value of the investment’s purchase price is recorded in gain (loss) on consolidation of unconsolidated venture in the Company’s consolidated statements of operations.
The Company may from time to time enter into capital leases in order to finance tangible assets, such as equipment, at properties. A lease is classified as a capital lease if it provides for transfer of ownership of the leased asset at the end of the lease term, contains a bargain purchase option, has a lease term greater than 75.0% of the economic life of the leased asset, or if the net present value of the future minimum lease payments are in excess of 90.0% of the fair value of the leased asset. Assets under capital leases are amortized over either the useful life of the asset or lease term, as appropriate, on a straight line basis. The present value of the related lease payments is recorded as a debt obligation.
The Company has entered into capital leases for equipment totaling $3.2 million which is included in furniture, fixtures, and equipment within operating real estate on the Company’s consolidated balance sheets. The leased equipment is amortized on a straight line basis over seven years. The following table presents the future minimum lease payments under capital leases and the present value of the minimum lease payments as of December 31, 2018, which is included in other liabilities on the Company’s consolidated balance sheets (dollars in thousands):
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | | |
| Years Ending December 31: | | |
| 2019 | | $ | 675 |
|
| 2020 | | 636 |
|
| 2021 | | 597 |
|
| 2022 | | 505 |
|
| 2023 | | 83 |
|
| Thereafter | | — |
|
| Total minimum lease payments | | $ | 2,496 |
|
| Less: Amount representing interest | | $ | (262 | ) |
| Present value of minimum lease payments | | $ | 2,234 |
|
The weighted average interest rate related to the lease obligations is 5.5% with a final maturity date in August 2023.
Assets Held For Sale
The Company classifies certain long-lived assets as held for sale once the criteria, as defined by U.S. GAAP, have been met and are expected to sell within one year. Long-lived assets to be disposed of are reported at the lower of their carrying amount or fair value minus cost to sell, with any write-down recorded to impairment loss on the consolidated statements of operations. Depreciation and amortization is not recorded for assets classified as held for sale. As of December 31, 2018, the Company reclassified one of its operating real estate properties in the Peregrine portfolio as held for sale, as presented on its consolidated balance sheets. No operating real estate was classified as held for sale on the Company’s consolidated balance sheets as of December 31, 2017.
Real Estate Debt Investments
Real estate debt investments are generally intended to be held to maturity and, accordingly, are carried at cost, net of unamortized loan fees, premium, discount and unfunded commitments. Debt investments that are deemed to be impaired record an allowance for loan losses, which is generally measured as the difference between the carrying value of the loan and either the present value of cash flows expected to be collected, discounted at the original effective interest rate of the loan, or an observable market price for the loan. Debt investments where the Company does not have the intent to hold the loan for the foreseeable future or until its expected payoff are classified as held for sale and recorded at the lower of cost or estimated fair value.
Healthcare-Related Securities
The Company classifies its securities investments as available for sale on the acquisition date, which are carried at fair value. Unrealized gains (losses) on available for sale securities are recorded as a component of accumulated OCI in the consolidated statements of equity. However, the Company has elected the fair value option for its available for sale security, and as a result, any unrealized gains (losses) are recorded in unrealized gain (loss) on senior housing mortgage loans and debt held in securitization trust, net in the consolidated statements of operations. Refer to Note 6, “Healthcare-Related Securities” for further discussion.
Deferred Costs and Intangible Assets
Deferred Costs
Deferred costs primarily include deferred financing costs and deferred lease costs. Deferred financing costs represent commitment fees, legal and other third-party costs associated with obtaining financing. These costs are recorded against the carrying value of such financing and are amortized to interest expense over the term of the financing using the effective interest method. Unamortized deferred financing costs are expensed to realized gain (loss) on investments and other, when the associated borrowing is repaid before maturity. Costs incurred in seeking financing transactions, which do not close, are expensed in the period in which it is determined that the financing will not occur. Deferred lease costs consist of fees incurred to initiate and renew operating leases, which are amortized on a straight-line basis over the remaining lease term and are recorded to depreciation and amortization in the consolidated statements of operations.
Identified Intangibles
The Company records acquired identified intangibles, which includes intangible assets (such as the value of the above-market leases, in-place leases, goodwill and other intangibles) and intangible liabilities (such as the value of below-market leases), based on estimated fair value. The value allocated to the identified intangibles are amortized over the remaining lease term. Above/below-market leases for which the Company is the lessor are amortized into rental income, above/below-market leases for which
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the Company is the lessee are amortized into real estate properties-operating expense and in-place leases are amortized into depreciation and amortization expense.
Goodwill represents the excess of the purchase price over the fair value of net tangible and intangible assets acquired in a business combination and is not amortized. The Company performs an annual impairment test for goodwill and evaluates the recoverability whenever events or changes in circumstances indicate that the carrying value of goodwill may not be fully recoverable. In making such assessment, qualitative factors are used to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the estimated fair value of the reporting unit is less than its carrying value, then an impairment charge is recorded. During the year ended December 31, 2018, the Company sold an operating property, which was part of a reporting unit with goodwill. The Company determined that the carrying value of the property was in excess of its fair value, which resulted in the impairment of goodwill totaling $0.7 million, proportionate to the fair value of the reporting unit.
Identified intangible assets are recorded in deferred costs and intangible assets, net on the consolidated balance sheets. The following table presents a summary of deferred costs and intangible assets, net as of December 31, 2018 and 2017 (dollars in thousands):
|
| | | | | | | | |
| | | December 31, 2018 |
| | December 31, 2017 |
| Deferred costs and intangible assets, net: | | | | |
| In-place lease value, net | | $ | 14,559 |
| | $ | 61,593 |
|
| Goodwill | | 21,387 |
| | 22,112 |
|
| Other intangible assets | | 380 |
| | 380 |
|
| Subtotal intangible assets | | 36,326 |
| | 84,085 |
|
| Deferred costs, net | | 670 |
| | 635 |
|
| Total | | $ | 36,996 |
| | $ | 84,720 |
|
The Company recorded $47.3 million and $51.7 million of in-place lease and deferred cost amortization expense for the years ended December 31, 2018 and 2017, respectively.
The following table presents future amortization of in-place lease value and deferred costs (dollars in thousands):
|
| | | | |
| Years Ending December 31: | | |
| 2019 | | $ | 8,420 |
|
| 2020 | | 2,093 |
|
| 2021 | | 1,871 |
|
| 2022 | | 592 |
|
| 2023 | | 337 |
|
| Thereafter | | 1,916 |
|
| Total | | $ | 15,229 |
|
Acquisition Fees and Expenses
The total of all acquisition fees and expenses for an investment, including acquisition fees to the Advisor, cannot exceed, in the aggregate, 6.0% of the contract purchase price of such investment unless such excess is approved by a majority of the Company’s directors, including a majority of its independent directors. Effective January 1, 2018, the Advisor no longer receives an acquisition fee in connection with the Company’s acquisitions of real estate properties or debt investments. For the year ended December 31, 2018, total acquisition fees and expenses incurred to third parties did not exceed the allowed limit for any investment. An acquisition fee incurred related to an equity investment will generally be expensed as incurred. An acquisition fee paid to the Advisor related to the acquisition of an equity or debt investment in an unconsolidated joint venture is included in investments in unconsolidated ventures on the consolidated balance sheets. An acquisition fee paid to the Advisor related to the origination or acquisition of debt investments is included in real estate debt investments, net on the consolidated balance sheets and is amortized to interest income over the life of the investment using the effective interest method. The Company records as an expense certain acquisition costs and fees associated with transactions deemed to be business combinations in which it consolidates the asset and capitalizes these costs for transactions deemed to be acquisitions of an asset, including an equity investment.
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other Assets
The following table presents a summary of other assets as of December 31, 2018 and 2017 (dollars in thousands):
|
| | | | | | | | |
| | | December 31, 2018 | | December 31, 2017 |
| Other assets: | | | | |
| Healthcare facility regulatory reserve deposit | | $ | 6,000 |
| | $ | 6,000 |
|
Remainder interest in condominium units(1) | | 3,025 |
| | 3,704 |
|
| Prepaid expenses | | 3,536 |
| | 3,352 |
|
| Lease / rent inducements, net | | 1,254 |
| | 1,691 |
|
| Utility deposits | | 325 |
| | 503 |
|
| Construction deposit | | — |
| | 993 |
|
| Other | | 320 |
| | 1,231 |
|
| Total | | $ | 14,460 |
| | $ | 17,474 |
|
_______________________________________
| |
| (1) | Represents future interests in property subject to life estates (“Remainder Interest”). |
Revenue Recognition
Operating Real Estate
Rental income includes rental and escalation income from operating real estate and is derived from leasing of space to various types of tenants and healthcare operators. Rental revenue recognition commences when the tenant takes legal possession of the leased space and the leased space is substantially ready for its intended use. The leases are for fixed terms of varying length and generally provide for rentals and expense reimbursements to be paid in monthly installments. Rental income from leases is recognized on a straight-line basis over the term of the respective leases. The excess of rents recognized over amounts contractually due pursuant to the underlying leases are included in receivables, net on the consolidated balance sheets. The Company amortizes any tenant inducements as a reduction of revenue utilizing the straight-line method over the term of the lease. Escalation income represents revenue from tenant/operator leases which provide for the recovery of all or a portion of the operating expenses and real estate taxes paid by the Company on behalf of the respective property. This revenue is recognized in the same period as the expenses are incurred.
The Company also generates operating income from operating healthcare properties. Revenue related to operating healthcare properties includes resident room and care charges and other resident service charges. Rent is charged and revenue is recognized when such services are provided, generally defined per the resident agreement as of the date upon which a resident occupies a room or uses the services and is recorded in resident fee income in the consolidated statements of operations.
Real Estate Debt Investments
Interest income is recognized on an accrual basis and any related premium, discount, origination costs and fees are amortized over the life of the investment using the effective interest method. The amortization is reflected as an adjustment to interest income in the consolidated statements of operations. The amortization of a premium or accretion of a discount is discontinued if such investment is reclassified to held for sale.
Healthcare-Related Securities
Interest income is recognized using the effective interest method with any premium or discount amortized or accreted through earnings based on expected cash flow through the expected maturity date of the security. Changes to expected cash flow may result in a change to the yield which is then applied retrospectively for high-credit quality securities that cannot be prepaid or otherwise settled in such a way that the holder would not recover substantially all of the investment or prospectively for all other securities to recognize interest income.
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Credit Losses and Impairment on Investments
Generally, the carrying value of the Company’s investments represent depreciated historical cost bases or, for investments that have been previously impaired, fair value or net realizable value. Such amounts are based upon the Company’s reasonable assumptions about the highest and best use of the investments and the intent and ability to hold the investments for a reasonable period that would allow for the recovery of the investments’ carrying values. If such assumptions change, including shortening the expected hold period, impairment losses on investments may be required to adjust carrying values to fair value or fair value less costs to sell.
Operating Real Estate
The Company’s real estate portfolio is reviewed on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value of its operating real estate may be impaired or that its carrying value may not be recoverable. A property’s value is considered impaired if the Company’s estimate of the aggregate expected future undiscounted cash flow generated by the property is less than the carrying value. In conducting this review, the Company considers U.S. macroeconomic factors, real estate and healthcare sector conditions, together with asset specific and other factors. To the extent an impairment has occurred, the loss is measured as the excess of the carrying value of the property over the estimated fair value and recorded in impairment loss in the consolidated statements of operations.
As of December 31, 2018, the Company has impaired the following properties:
| |
| • | Winterfell portfolio. Impairment totaling $24.0 million was recorded for two facilities as a result of sustained declines in occupancy. |
| |
| • | Kansas City portfolio. Impairment totaling $4.4 million was recorded for two facilities as a result of poor operating performance. |
| |
| • | Peregrine portfolio. Impairment totaling $10.1 million was recorded for two facilities as a result of deteriorating operating results of the tenant and reclassification of a facility as held for sale. |
| |
| • | Watermark portfolio. Impairment totaling $2.8 million was recorded to reflect net realizable value as a result of designating a property and its operations as held for sale. The property was sold in August 2018. |
An allowance for a doubtful account for a tenant/operator/resident receivable is established based on a periodic review of aged receivables resulting from estimated losses due to the inability of tenant/operator/resident to make required rent and other payments contractually due. Additionally, the Company establishes, on a current basis, an allowance for future tenant/operator/resident credit losses on unbilled rent receivable based on an evaluation of the collectability of such amounts.
Real Estate Debt Investments
Real estate debt investments are considered impaired when, based on current information and events, it is probable that the Company will not be able to collect all principal and interest amounts due according to the contractual terms. The Company assesses the credit quality of the portfolio and adequacy of reserves on a quarterly basis or more frequently as necessary. Significant judgment of the Company is required in this analysis. The Company considers the estimated net recoverable value of the investment as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the quality and financial condition of the borrower and the competitive situation of the area where the underlying collateral is located. Because this determination is based on projections of future economic events, which are inherently subjective, the amount ultimately realized may differ materially from the carrying value as of the balance sheet date. If upon completion of the assessment, the estimated fair value of the underlying collateral is less than the net carrying value of the investment, a reserve is recorded with a corresponding charge to a credit provision. The reserve for each investment is maintained at a level that is determined to be adequate by management to absorb probable losses.
Income recognition is suspended for an investment at the earlier of the date at which payments become 90-days past due or when, in the opinion of the Company, a full recovery of income and principal becomes doubtful. When the ultimate collectability of the principal of an impaired investment is in doubt, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the principal of an impaired investment is not in doubt, contractual interest is recorded as interest income when received, under the cash basis method until an accrual is resumed when the investment becomes contractually current and performance is demonstrated to be resumed. Interest accrued and not collected will be reversed against interest income. An investment is written off when it is no longer realizable and/or legally discharged. As of December 31, 2018, the Company did not have any impaired real estate debt investments.
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Investments in Unconsolidated Ventures
The Company reviews its investments in unconsolidated ventures for which the Company did not elect the fair value option on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value may be impaired or that its carrying value may not be recoverable. An investment is considered impaired if the projected net recoverable amount over the expected holding period is less than the carrying value. In conducting this review, the Company considers global macroeconomic factors, including real estate sector conditions, together with investment specific and other factors. To the extent an impairment has occurred and is considered to be other than temporary, the loss is measured as the excess of the carrying value of the investment over the estimated fair value and recorded in equity in earnings (losses) of unconsolidated ventures in the consolidated statements of operations.
As of December 31, 2018, certain of the unconsolidated ventures in which the Company invests have recorded impairments and the Company has concluded that no additional impairment of its investments in unconsolidated ventures is required. The Company’s proportionate ownership share of a loan loss reserve within the Espresso portfolio totaled $11.4 million and was recognized through equity in earnings (losses) of unconsolidated ventures during the year ended December 31, 2017. During the third quarter of 2017, the Espresso sub-portfolio associated with the direct financing lease commenced an operator transition and determined certain future cash flows of the direct financing lease to be uncollectible. The cash flows deemed uncollectible primarily impact distributions on mandatorily redeemable units issued at the time of the original acquisition that allowed the seller to participate in certain future cash flows from the direct financing lease following the closing of the original acquisition. Pursuant to ASC 480, Distinguishing Liabilities from Equity, the redemption value of the corresponding unconsolidated venture’s liability for the units issued to the seller was not assessed until the termination of the lease, which occurred in the third quarter of 2018. As a result of the lease termination, the unconsolidated venture determined the value of the liability for the units issued to the seller to be zero and recognized a gain on the extinguishment of the liability, of which the Company’s proportionate share totaled $14.1 million and was recognized through equity in earnings (losses) of unconsolidated ventures during the year ended December 31, 2018. Further, upon termination of the lease, the direct financing lease assets were reclassified to operating real estate and recorded at the lower of cost or fair value, resulting in an impairment, of which our proportionate share totaled $13.9 million and was also recognized through equity in earnings (losses) of unconsolidated ventures during the year ended December 31, 2018.
In addition to the impairment and reserves referenced above, the Espresso portfolio recorded an additional loan loss reserve for a separate sub-portfolio during the fourth quarter of 2018, of which the Company’s proportionate share totaled $13.9 million.
The Company’s investment in the Griffin-American joint venture has $1.7 billion of non-recourse mortgage debt on certain properties in the joint venture that matures in December 2019. The Sponsor, who is an equity partner in the Griffin-American joint venture, is currently evaluating options in connection with the December 2019 scheduled maturity of this debt, of which the Company’s proportionate share is approximately $246 million. In connection with pursuing the options available, the joint venture has re-evaluated certain assumptions, including the holding period of the real estate assets collateralizing the debt, which has resulted in impairment of these assets, of which the Company’s proportionate share totaled $7.7 million and was recognized through equity in earnings (losses) of unconsolidated ventures during the year ended December 31, 2018.
Healthcare-Related Securities
Securities for which the fair value option is elected are not evaluated for other-than-temporary impairment (“OTTI”) as any change in fair value is recorded in the consolidated statements of operations. Realized losses on such securities are reclassified to realized gain (loss) on investments and other as losses occur. Securities for which the fair value option is not elected are evaluated for OTTI quarterly.
Foreign Currency
Assets and liabilities denominated in a foreign currency for which the functional currency is a foreign currency are translated using the currency exchange rate in effect at the end of the period presented and the results of operations for such entities are translated into U.S. dollars using the average currency exchange rate in effect during the period. The resulting foreign currency translation adjustment is recorded as a component of accumulated OCI in the consolidated statements of equity.
Assets and liabilities denominated in a foreign currency for which the functional currency is the U.S. dollar are remeasured using the currency exchange rate in effect at the end of the period presented and the results of operations for such entities are remeasured into U.S. dollars using the average currency exchange rate in effect during the period. The resulting foreign currency remeasurement adjustment is recorded in unrealized gain (loss) on investments and other in the consolidated statements of operations.
As of December 31, 2018 and December 31, 2017, the Company had exposure to foreign currency through an investment in an
unconsolidated venture.
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Equity-Based Compensation
The Company accounts for equity-based compensation awards using the fair value method, which requires an estimate of fair value of the award at the time of grant. All fixed equity-based awards to directors, which have no vesting conditions other than time of service, are amortized to compensation expense over the awards’ vesting period on a straight-line basis. Equity-based compensation is classified within general and administrative expenses in the consolidated statements of operations.
Income Taxes
The Company elected to be taxed as a REIT and to comply with the related provisions of the Internal Revenue Code beginning in its taxable year ended December 31, 2013. Accordingly, the Company will generally not be subject to U.S. federal income tax to the extent of its distributions to stockholders as long as certain asset, income and share ownership tests are met. To maintain its qualification as a REIT, the Company must annually distribute at least 90.0% of its REIT taxable income to its stockholders and meet certain other requirements. The Company believes that all of the criteria to maintain the Company’s REIT qualification have been met for the applicable periods, but there can be no assurance that these criteria will continue to be met in subsequent periods. If the Company were to fail to meet these requirements, it would be subject to U.S. federal income tax and potential interest and penalties, which could have a material adverse impact on its results of operations and amounts available for distributions to its stockholders. The Company’s accounting policy with respect to interest and penalties is to classify these amounts as a component of income tax expense, where applicable. The Company has assessed its tax positions for all open tax years, which include 2015 to 2018, and concluded there were no material uncertainties to be recognized. The Company has not recognized any such amounts related to uncertain tax positions for the years ended December 31, 2018, 2017, and 2016.
The Company may also be subject to certain state, local and franchise taxes. Under certain circumstances, federal income and excise taxes may be due on its undistributed taxable income.
The Company made a joint election to treat certain subsidiaries as taxable REIT subsidiaries (“TRS”) which may be subject to U.S. federal, state and local income taxes. In general, a TRS of the Company may perform non-customary services for tenants/operators/residents of the Company, hold assets that the Company cannot hold directly and may engage in any real estate or non-real estate-related business.
Certain subsidiaries of the Company are subject to taxation by federal, state and foreign authorities for the periods presented. Income taxes are accounted for by the asset/liability approach in accordance with U.S. GAAP. Deferred taxes, if any, represent the expected future tax consequences when the reported amounts of assets and liabilities are recovered or paid. Such amounts arise from differences between the financial reporting and tax bases of assets and liabilities and are adjusted for changes in tax laws and tax rates in the period which such changes are enacted. A provision for income tax represents the total of income taxes paid or payable for the current period, plus the change in deferred taxes. Current and deferred taxes are provided on the portion of earnings (losses) recognized by the Company with respect to its interest in the TRS. Deferred income tax assets and liabilities are calculated based on temporary differences between the Company’s U.S. GAAP consolidated financial statements and the federal and state income tax basis of assets and liabilities as of the consolidated balance sheet date. The Company evaluates the realizability of its deferred tax assets (e.g., net operating loss and capital loss carryforwards) and recognizes a valuation allowance if, based on the available evidence, it is more likely than not that some portion or all of its deferred tax assets will not be realized. When evaluating the realizability of its deferred tax assets, the Company considers estimates of expected future taxable income, existing and projected book/tax differences, tax planning strategies available and the general and industry specific economic outlook. This realizability analysis is inherently subjective, as it requires the Company to forecast its business and general economic environment in future periods. Changes in estimate of deferred tax asset realizability, if any, are included in provision for income tax benefit (expense) in the consolidated statements of operations. The Company has a deferred tax asset, which as of December 31, 2018 totaled $11.0 million and continues to have a full valuation allowance recognized, as there are no changes in the facts and circumstances to indicate that the Company should release the valuation allowance.
On December 22, 2017, the Tax Cuts and Jobs Act was enacted, which provides for a reduction in the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018. The effects of the tax rate change did not have a material impact on the Company’s existing deferred tax balances.
The Company recorded an income tax expense of approximately $114,000, $43,000 and $7.1 million for the years ended December 31, 2018, 2017 and 2016 respectively.
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Recent Accounting Pronouncements
Recently Adopted
Revenue Recognition—In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“New Revenue Recognition Standard”), requiring a company to recognize as revenue the amount of consideration it expects to be entitled to in connection with the transfer of promised goods or services to customers. The Company has adopted the New Revenue Recognition Standard on its required effective date of January 1, 2018 using the modified retrospective approach, and has applied the guidance to contracts not yet completed as of the date of adoption. The New Revenue Recognition Standard specifically excludes revenue streams for which specific guidance is stipulated in other sections of the codification, therefore it will not impact rental income and interest income generated on financial instruments such as real estate debt investment and securities.
The Company is the lessor for triple net and gross leases classified as operating leases in which rental income and tenant reimbursements are recorded. The revenue from these leases are scoped out of the New Revenue Recognition Standard guidance. All leases are accounted for under ASC 840 until the adoption of the new leasing guidance within ASC 842. Within resident fee income, the Company records room, care and other resident service revenue for operating healthcare properties. Such revenues include skilled nursing services provided at CCRCs, which were deemed to fall under the New Revenue Recognition Standard. These services are a series of distinct services satisfied over time and revenue is recognized monthly. There were no significant changes as a result of the New Revenue Recognition Standard.
Financial Instruments—In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. ASU No. 2016-01 addresses certain aspects of accounting and disclosure requirements of financial instruments, including the requirement that equity investments with readily determinable fair value be measured at fair value with changes in fair value recognized in results of operations. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company does not have any equity investments with readily determinable fair value recorded as available-for-sale. The Company has adopted this guidance on its required effective date and it did not impact its consolidated financial statements and related disclosures.
Cash Flow Classifications—In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which makes eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The new guidance requires adoption on a retrospective basis unless it is impracticable to apply, in which case the company would be required to apply the amendments prospectively as of the earliest date practicable. The Company has adopted this guidance and it did not have a material impact on its consolidated financial statements and related disclosures.
Restricted Cash—In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash, which requires that cash and cash equivalent balances in the statement of cash flows include restricted cash and restricted cash equivalent amounts, and therefore, changes in restricted cash and restricted cash equivalents be presented in the statement of cash flows. This will eliminate the presentation of transfers between cash and cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item of the balance sheet, this ASU requires disclosure of a reconciliation between the totals in the statement of cash flows and the related captions on the balance sheet. The new guidance also requires disclosure of the nature of the restricted cash and restricted cash equivalents, similar to the existing requirements under Regulation S-X, however, it does not define restricted cash and restricted cash equivalents. The Company adopted ASU 2016-18 on January 1, 2018 and the required retrospective application of this new standard resulted in changes to the previously reported statement of cash flows as follows (dollars in thousands):
|
| | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 |
| Cash flow provided by (used in): | | As Previously Reported | | After Adoption of ASU 2016-18 | | As Previously Reported | | After Adoption of ASU 2016-18 |
| Operating activities | | $ | 11,708 |
| | $ | 10,129 |
| | $ | 3,972 |
| | $ | 5,376 |
|
| Investing activities | | (305,331 | ) | | (314,394 | ) | | (74,331 | ) | | (60,355 | ) |
| Financing activities | | 97,916 |
| | 132,861 |
| | (60,768 | ) | | (62,970 | ) |
Business Combination—In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business, which amends the guidance for determining whether a transaction involves the purchase or disposal of a business or an asset. The
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
amendments clarify that when substantially all of the fair value of the gross assets acquired or disposed of is concentrated in a single identifiable asset or a group of similar identifiable assets, the set of transferred assets and activities is not a business. The guidance is effective for fiscal years, and interim periods within those years, beginning December 15, 2017. The amendments in this update will be applied on a prospective basis. The Company expects that most acquisitions of real estate or in-substance real estate will not meet the revised definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e., land, buildings and related intangible assets). A significant difference between the accounting for an asset acquisition and a business combination is that transaction costs are capitalized for an asset acquisition, rather than expensed for a business combination. The Company adopted the standard on its required effective date of January 1, 2018. This guidance did not have a material impact on its consolidated financial statements and related disclosures.
Derecognition and Partial Sales of Nonfinancial Assets—In February 2017, the FASB issued ASU No. 2017-05, Clarifying the Scope of Asset Derecognition and Accounting for Partial Sales of Nonfinancial Assets, which clarifies the scope and application of recently established guidance on recognition of gains and losses from derecognition of non-financial assets, and defines in-substance non-financial assets. In addition, the guidance clarifies the accounting for partial sales of non-financial assets to be more consistent with the accounting for sale of a business. Specifically, in a partial sale to a non-customer, when a non-controlling interest is received or retained, the latter is considered a non-cash consideration and measured at fair value, which would result in full gain or loss recognized upon sale. This guidance has the same effective date as the new revenue guidance, which is January 1, 2018, with early adoption permitted beginning January 1, 2017. Both the revenue guidance and this update must be adopted concurrently. While the transition method is similar to the new revenue guidance, either full retrospective or modified retrospective, the transition approach need not be aligned between both updates. The Company has adopted the standard on its required effective date of January 1, 2018 using the modified retrospective approach. Under the new standard, if the Company sells a partial interest in its real estate assets to non-customers or contributes real estate assets to unconsolidated ventures, and the Company retains a non-controlling interest in the asset, such transactions could result in a larger gain on sale. The adoption of this standard could have a material impact to the Company’s results of operations in a period if the Company sells a significant partial interest in a real estate asset. There were no such sales for the year ended December 31, 2018.
Pending Adoption
Leases—In February 2016, the FASB issued ASU No. 2016-02, Leases, which amends existing lease accounting standards, primarily requiring lessees to recognize most leases on balance sheet as a right of use asset and a corresponding liability for future lease obligations, and to a lesser extent, making targeted changes to lessor accounting. Additionally, under the new lease standard, only incremental initial direct costs incurred in the execution of a lease can be capitalized by both lessor and lessee.
ASU No. 2016-02 is effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted. The new leases standard requires adoption using a modified retrospective approach for all leases existing at, or entered into after, the date of initial application. Full retrospective application is prohibited. In applying the modified retrospective approach, the standard provides the option to elect a package of practical expedients that exempts an entity from having to reassess whether any expired or expiring contracts contain leases, revisit lease classification for any expired or expiring leases and reassess initial direct costs for any existing leases.
In July 2018, the FASB issued ASU No. 2018-11, Targeted Improvements to Topic 842, Leases, which provides the option of (i) applying the effective date of the new lease standard as the date of initial application in transition instead of the earliest comparative period presented; as well as (ii) electing as practical expedient, by class of underlying asset, not to segregate lease and non-lease components in a contract but to account for it as a single component in accordance with either the new lease standard or the revenue standard depending on whether the lease or non-lease component is predominant.
In December 2018, the FASB issued ASU No. 2018-20, Narrow Scope Improvements for Lessors, which provides certain practical expedients for lessor accounting. ASU No. 2018-20: (i) allows lessor to make an accounting policy election to present on a net basis sales and similar taxes arising from a leasing transaction with related collections from lessee (otherwise to present on a gross basis if lessor is determined to be the primary obligor); (ii) requires net presentation of lessor costs paid directly by lessee to a third party (for example, property taxes and insurance paid directly by lessee) and gross presentation of lessor costs that are paid by the lessor and reimbursed by the lessee (for example, property taxes and insurance initially paid by lessor and reimbursed by lessee); and (iii) requires allocation of variable payments to lease and non-lease components when applicable changes in facts and circumstances occur and that the non-lease component be subject to recognition under other applicable guidance, such as the revenue standard.
The Company will adopt the new lease standard effective January 1, 2019 and will adopt the package of practical expedients as well as the transition option. As a result, the Company will apply the new lease standard prospectively to leases existing or commencing on or after January 1, 2019. Comparative periods presented will not be restated upon adoption. Similarly, new
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
disclosures under the standard will be made for periods beginning January 1, 2019, and not for comparative periods. In addition, the Company, as lessor, will make accounting policy elections to: (i) treat the lease and non-lease components in a contract as a single performance obligation to the extent that the timing and pattern of transfer are similar for the lease and non-lease components and the lease component qualifies as an operating lease; and (ii) to present on a net basis sales and similar taxes from leasing transactions.
The Company is in the process of finalizing the evaluation of its leasing arrangements. The Company has not noted any significant items that will require a gross-up of a right of use asset and lease liability on its balance sheet at this time. The Company is not the lessee of any office or ground leases. The effect of the new standard to the Company, as lessor, is not expected to materially effect its financial condition or results of operations.
Credit Losses—In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments- Credit Losses, which changes the impairment model for certain financial instruments by requiring companies to recognize an allowance for expected losses, rather than incurred losses as required currently by the incurred loss approach. The guidance will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments in leases and off-balance-sheet credit exposures (e.g., loan commitments). The new guidance is effective for reporting periods beginning after December 15, 2019 and will be applied as a cumulative adjustment to retained earnings as of the effective date. The Company is currently assessing the potential effect the adoption of this guidance will have on its consolidated financial statements and related disclosures.
Goodwill Impairment—In January 2017, the FASB issued ASU No. 2017-04, Intangibles- Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which removes Step 2 from the goodwill impairment test that requires a hypothetical purchase price allocation. Goodwill impairment is now measured as the excess in carrying value over fair value of the reporting unit, with the loss recognized not to exceed the amount of goodwill assigned to that reporting unit. The guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, to be applied prospectively. Early adoption is permitted as of the first interim or annual impairment test of goodwill after January 1, 2017. The Company is currently assessing the potential effect the adoption of this guidance will have on its consolidated financial statements and related disclosures.
The following table presents operating real estate, net as of December 31, 2018 and 2017 (dollars in thousands):
|
| | | | | | | | |
| | | December 31, 2018 | | December 31, 2017 |
| Land | | $ | 236,736 |
| | $ | 239,580 |
|
| Land improvements | | 22,453 |
| | 21,908 |
|
| Buildings and improvements | | 1,580,058 |
| | 1,608,180 |
|
| Tenant improvements | | 11,774 |
| | 8,291 |
|
| Construction in progress | | 5,605 |
| | 5,376 |
|
| Furniture, fixtures and equipment | | 93,371 |
| | 83,017 |
|
| Subtotal | | 1,949,997 |
| | 1,966,352 |
|
| Less: Accumulated depreciation | | (171,083 | ) | | (113,924 | ) |
| Operating real estate, net | | $ | 1,778,914 |
| | $ | 1,852,428 |
|
For the years ended December 31, 2018, 2017 and 2016, depreciation expense was $59.3 million, $53.8 million and $40.8 million, respectively.
Within the table above, buildings and improvements includes impairment totaling $31.0 million and $5.0 million as of December 31, 2018 and 2017, respectively. Impairment recorded for the years ended December 31, 2018 and 2017 totaled $36.3 million and $5.0 million, respectively, is included in impairment loss in the consolidated statements of operations.
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dispositions
In August 2018, through a joint venture with an affiliate of Watermark Retirement Communities (“Watermark”), the Company completed the sale of an operating real estate property located in Southfield, Michigan for $12.0 million. Proceeds from the sale were used to repay the outstanding mortgage note payable of $9.0 million, resulting in $2.7 million of net proceeds to the joint venture, after transaction costs and prorations. The joint venture is owned 97.0% by a subsidiary of the Company and 3.0% by Watermark.
Minimum Future Rents
Minimum rental amounts due under leases are generally either subject to scheduled fixed increases or adjustments. The following table presents approximate future minimum rental income under noncancelable operating leases to be received over the next five years and thereafter as of December 31, 2018 are as follows (dollars in thousands):
|
| | | | |
Years Ending December 31:(1) | | |
| 2019 | | $ | 33,405 |
|
| 2020 | | 34,240 |
|
| 2021 | | 35,096 |
|
| 2022 | | 14,635 |
|
| 2023 | | 10,919 |
|
| Thereafter | | 68,268 |
|
| Total | | $ | 196,563 |
|
_______________________________________
| |
| (1) | Excludes rental income from residents at ILFs that are subject to short-term leases. |
Excluding ILFs, which are managed by operators on the Company’s behalf, net lease rental properties owned as of December 31, 2018 are leased under noncancelable operating leases with current expirations ranging from 2021 to 2029, with certain tenant renewal rights. These net lease arrangements require the tenant to pay rent and substantially all the expenses of the leased property including maintenance, taxes, utilities and insurance. For certain properties, the tenants pay the Company, in addition to the contractual base rent, their pro rata share of real estate taxes and operating expenses. The Company’s net lease agreements provide for periodic rental increases based on the greater of certain percentages or increase in the consumer price index.
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| |
| 4. | Investments in Unconsolidated Ventures |
All investments in unconsolidated ventures are accounted for under the equity method. The following tables present the Company’s investments in unconsolidated ventures as of December 31, 2018 and 2017 and activity for the years ended December 31, 2018 and 2017 (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | Properties as of December 31, 2018(1) |
| Portfolio | | Partner | | Acquisition Date | | Ownership | | Purchase Price(2) | | Equity Investment(3) | | Senior Housing Facilities | | MOB | | SNF | | Hospitals | | Total |
| Eclipse | | Colony Capital/Formation Capital, LLC | | May-2014 | | 5.6 | % | | $ | 1,048,000 |
| | $ | 23,400 |
| | 44 |
| | — |
| | 32 |
| | — |
| | 76 |
|
Envoy(4) | | Formation Capital, LLC/Safanad Management Limited | | Sep-2014 | | 11.4 | % | | 145,000 |
| | 5,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Griffin-American | | Colony Capital | | Dec-2014 | | 14.3 | % | | 3,238,547 |
| | 206,143 |
| | 92 |
| | 108 |
| | 41 |
| | 14 |
| | 255 |
|
| Espresso | | Formation Capital, LLC/Safanad Management Limited | | Jul-2015 | | 36.7 | % | | 870,000 |
| | 55,146 |
| | 6 |
| | — |
| | 150 |
| | — |
| | 156 |
|
| Trilogy | | Griffin-American Healthcare REIT III & IV /Management Team of Trilogy Investors, LLC | | Dec-2015 | | 23.2 | % | | 1,162,613 |
| | 186,632 |
| | 9 |
| | — |
| | 70 |
| | — |
| | 79 |
|
| Subtotal | | | | | | | | $ | 6,464,160 |
| | $ | 476,321 |
| | 151 |
| | 108 |
| | 293 |
| | 14 |
| | 566 |
|
Operator Platform(5) | | Jul-2017 | | 20.0 | % | | 2 |
| | 2 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Total | | | | | | | | $ | 6,464,162 |
| | $ | 476,323 |
| | 151 |
| | 108 |
| | 293 |
| | 14 |
| | 566 |
|
_______________________________________
| |
| (1) | Excludes six properties sold during the year ended December 31, 2018 and twelve properties designated as held for sale as of December 31, 2018. |
| |
| (2) | Purchase price represents the actual or implied gross purchase price for the joint venture on the acquisition date. Purchase price is not adjusted for subsequent acquisitions or dispositions of interest. |
| |
| (3) | Represents initial and subsequent contributions to the underlying joint venture through December 31, 2018. During the year ended December 31, 2018, the Company funded an additional capital contribution of $4.5 million into the Trilogy joint venture. The additional funding related to certain business initiatives, including the development of additional senior housing and SNFs. In October 2018, the Company sold 20.0% of our ownership interest in the Trilogy joint venture, which generated gross proceeds of $48.0 million and reduced its ownership interest in the joint venture from approximately 29% to 23%. |
| |
| (4) | All remaining properties within the Envoy portfolio have been reclassified as held for sale as of December 31, 2018. In March 2019, the Envoy joint venture completed the sale of the 11 properties, for a sales price of $118.0 million. |
| |
| (5) | Represents investment in Solstice Senior Living, LLC (“Solstice”). In November 2017, the Company began the transition of operations of the Winterfell portfolio from the former manager, an affiliate of Holiday Retirement, to a new manager, Solstice. Solstice is a joint venture between affiliates of Integral Senior Living, LLC (“ISL”), a leading management company of ILF, ALF and MCF founded in 2000, which owns 80.0%, and the Company, which owns 20.0%. |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2018 | | Year Ended December 31, 2017 | | Carrying Value(2) |
| | | | | Select Revenues and Expenses, net(1) | | | | | | Select Revenues and Expenses, net(1) | | | | | | |
| Portfolio | | Equity in Earnings (Losses) | | | Cash Distributions | | Equity in Earnings (Losses) | | | Cash Distributions | | December 31, 2018 | | December 31, 2017 |
| Eclipse | | $ | (624 | ) | | $ | (2,280 | ) | | $ | 754 |
| | $ | (1,562 | ) | | $ | (3,401 | ) | | $ | 1,227 |
| | $ | 11,765 |
| | $ | 13,143 |
|
| Envoy | | (37 | ) | | (301 | ) | | 283 |
| | (934 | ) | | (1,349 | ) | | 427 |
| | 4,717 |
| | 5,037 |
|
Griffin-American(3) | | (12,717 | ) | | (24,780 | ) | | 5,553 |
| | (6,885 | ) | | (18,728 | ) | | 8,505 |
| | 113,982 |
| | 134,219 |
|
Espresso(4)(5) | | (21,460 | ) | | (26,906 | ) | | — |
| | (20,737 | ) | | (32,752 | ) | | 3,307 |
| | — |
| | 5,308 |
|
Trilogy(6) | | 1,153 |
| | (14,810 | ) | | 5,977 |
| | (5,224 | ) | | (23,193 | ) | | — |
| | 133,764 |
| | 167,845 |
|
| Subtotal | | $ | (33,685 | ) | | $ | (69,077 | ) | | $ | 12,567 |
| | $ | (35,342 | ) | | $ | (79,423 | ) | | $ | 13,466 |
| | $ | 264,228 |
| | $ | 325,552 |
|
Operator Platform(7) | | 168 |
| | — |
| | 107 |
| | 28 |
| | — |
| | — |
| | 91 |
| | 30 |
|
| Total | | $ | (33,517 | ) | | $ | (69,077 | ) | | $ | 12,674 |
| | $ | (35,314 | ) | | $ | (79,423 | ) | | $ | 13,466 |
| | $ | 264,319 |
| | $ | 325,582 |
|
_______________________________________
| |
| (1) | Represents the net amount of the Company’s proportionate share of the following revenues and expenses: straight-line rental income (expense), (above)/below market lease and in-place lease amortization, (above)/below market debt and deferred financing costs amortization, depreciation and amortization expense, acquisition fees and transaction costs, loan loss reserves, liability extinguishment gains, impairment, as well as unrealized and realized gain (loss) from sales of real estate and investments. |
| |
| (2) | Includes $1.3 million, $0.4 million, $13.4 million, $7.6 million, and $9.8 million of capitalized acquisition costs for the Company’s investments in the Eclipse, Envoy, Griffin-American, Espresso and Trilogy joint ventures, respectively. During the year ended December 31, 2018, the Company expensed, through equity in earnings, the capitalized acquisition costs for the Company’s investment in the Envoy joint venture, which reduced the carrying value. |
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| |
| (3) | Includes impairment recorded by the joint venture, of which the Company’s proportionate share totaled $7.7 million. Refer to “Credit Losses and Impairment on Investments” in Note 2, “Summary of Significant Accounting Policies” for additional discussion. |
| |
| (4) | As a result of impairments and other non-cash reserves recorded by the joint venture, the Company’s carrying value of its Espresso unconsolidated investment was reduced to zero as of December 31, 2018. The Company has recorded the excess equity in losses related to its unconsolidated venture as a reduction to the carrying value of its mezzanine loan, which was originated to a subsidiary of the Espresso joint venture. |
| |
| (5) | For the years ended December 31, 2018 and 2017, equity in earnings (losses) included a liability extinguishment gain recorded by the joint venture, of which the Company’s proportionate share totaled $14.1 million, and a loan loss reserve recorded by the joint venture, of which the Company’s proportionate share totaled $11.4 million, respectively. Refer to “Credit Losses and Impairment on Investments” in Note 2, “Summary of Significant Accounting Policies” for additional discussion. |
| |
| (6) | In October 2018, the Company sold 20.0% of its ownership interest in the Trilogy joint venture, which generated gross proceeds of $48.0 million and reduced the Company’s ownership interest in the joint venture from approximately 29% to 23%. |
| |
| (7) | Represents the Company’s investment in Solstice. |
Summarized Financial Data
The combined balance sheets as of December 31, 2018 and 2017 and combined statements of operations for the years ended December 31, 2018, 2017 and 2016 for the Company’s unconsolidated ventures are as follows (dollars in thousands): |
| | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2018 | | December 31, 2017 | | | | Year Ended December 31, |
| | | | | | | 2018 | | 2017 | | 2016 |
| Assets | | | | | | | | | | | | |
| Operating real estate, net | | $ | 5,016,977 |
| | $ | 4,879,168 |
| | Total revenues | | $ | 1,514,098 |
| | $ | 1,457,208 |
| | $ | 1,461,890 |
|
| Other assets | | 1,003,614 |
| | 1,318,504 |
| | Net income (loss) | | $ | (150,170 | ) | | $ | (158,445 | ) | | $ | (243,503 | ) |
| Total assets | | $ | 6,020,591 |
| | $ | 6,197,672 |
| | | | | | | | |
| | | | | | | | | | | | | |
| Liabilities and equity | | | | | | | | | | | | |
| Total liabilities | | $ | 4,565,451 |
| | $ | 4,547,846 |
| | | | | | | | |
| Equity | | 1,455,140 |
| | 1,649,826 |
| | | | | | | | |
| Total liabilities and equity | | $ | 6,020,591 |
| | $ | 6,197,672 |
| | | | | | | | |
| |
| 5. | Real Estate Debt Investments |
The following table presents the Company’s one debt investment as of December 31, 2018 and December 31, 2017 (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | |
| | | Carrying Value(2) | | |
| Asset Type: |
| Principal Amount | | December 31, 2018 | | December 31, 2017 | | Fixed Rate |
| Unlevered Current Yield |
Mezzanine loan(1) |
| $ | 75,000 |
| | $ | 58,600 |
| | $ | 74,650 |
| | 10.0 | % | | 10.3 | % |
_______________________________________
| |
| (1) | Loan has a final maturity date of January 30, 2021. |
| |
| (2) | As a result of impairments and other non-cash reserves recorded by the joint venture, the Company’s carrying value of its Espresso unconsolidated investment was reduced to zero as of December 31, 2018. The Company has recorded the excess equity in losses related to its unconsolidated investment as a reduction to the carrying value of its mezzanine loan, which was originated to a subsidiary of the Espresso joint venture. |
Credit Quality Monitoring
The Company evaluates its debt investments at least quarterly and differentiates the relative credit quality principally based on: (i) whether the borrower is currently paying contractual debt service in accordance with its contractual terms; and (ii) whether the Company believes the borrower will be able to perform under its contractual terms in the future, as well as the Company’s expectations as to the ultimate recovery of principal at maturity. The Company categorizes a debt investment for which it expects to receive full payment of contractual principal and interest payments as “performing.” The Company will categorize a weaker credit quality debt investment that is currently performing, but for which it believes future collection of all or some portion of principal and interest is in doubt, into a category called “performing with a loan loss reserve.” The Company will categorize a weaker credit quality debt investment that is not performing, which the Company defines as a loan in maturity default and/or past due at least 90 days on its contractual debt service payments, as a non-performing loan (“NPL”). The Company’s definition of an NPL may differ from that of other companies that track NPLs.
As of December 31, 2018, the Company’s debt investment was not performing in accordance with the contractual terms of its governing documents. The Company’s debt investment is a mezzanine loan to the Espresso joint venture that has several sub-portfolios, three of which have experienced tenant lease defaults and operator transitions. The underlying tenant defaults resulted in defaults under the senior loans with respect to the applicable sub-portfolios, which in turn resulted in defaults under the mezzanine
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
loan. The Company is actively monitoring the actions of the senior lenders of each sub-portfolio and assessing the Company’s rights and remedies. The Company is also actively monitoring the operator transitions and continues to assess the collectability of principal and interest. As of December 31, 2018, contractual debt service has been paid in accordance with contractual terms and the Company expects to receive full payment of contractual principal and interest. Accordingly, the debt investment was categorized as a performing loan.
For the year ended December 31, 2018, the debt investment contributed 100.0% of the Company’s interest income on debt investments as presented on the consolidated statement of operations.
| |
| 6. | Healthcare-Related Securities |
In October 2016, the Company purchased the Class B certificates in a $575.1 million securitization trust (Freddie Mac 2016-KS06 Mortgage Trust), which is secured by a pool of 41 mortgage loans related to senior housing facilities with a weighted average maturity of 9.8 years at the time of the acquisition. The securitization trust issued $517.6 million of permanent, non-recourse, investment grade securitization bonds, or Class A certificates, which were purchased by unrelated third parties, and $57.5 million of subordinate Class B certificates which were purchased by the Company at a discount to par of $27.0 million, or 47.0%, and have a fixed coupon of 4.47%, producing a bond equivalent yield of 13.1%.
U.S. GAAP required the Company to consolidate the assets, liabilities, income and expenses of the securitization trust as an Investing VIE. Refer to Note 2, “Summary of Significant Accounting Policies” for further discussion on Investing VIEs.
In March 2018, the Company sold the Class B certificates of its consolidated Investing VIE and no longer presented the assets or liabilities of the entire securitization trust on its consolidated balance sheets as of December 31, 2018. The Company has presented the income and expenses of the entire securitization trust on its consolidated statements of operations for the period that the Company owned the Class B certificates in 2018. The Company recorded a gain of $3.5 million related to the sale of the Class B certificates in realized gain (loss) on investments and other on its consolidated statement of operations for the year ended December 31, 2018.
The following table presents the assets and liabilities recorded on the consolidated balance sheets attributable to the securitization trust as of December 31, 2017 (dollars in thousands):
|
| | | | |
| | | December 31, 2017 |
| Assets | | |
| Senior housing mortgage loans held in a securitization trust, at fair value | | $ | 545,048 |
|
| Receivables | | 2,127 |
|
| Total assets | | $ | 547,175 |
|
| Liabilities | | |
| Senior housing mortgage obligations issued by a securitization trust, at fair value | | $ | 512,772 |
|
| Accounts payable and accrued expenses | | 1,918 |
|
| Total liabilities | | $ | 514,690 |
|
The Company elected the fair value option to measure the assets and liabilities of the securitization trust, which requires that changes in valuations of the securitization trust be reflected in the Company’s consolidated statements of operations.
The difference between the carrying values of the senior housing mortgage loans held in the securitization trust and the carrying value of the securitized mortgage obligations was $32.3 million as of December 31, 2017 and approximates the fair value of the Company’s underlying investment in Class B certificates of the securitization trust. Refer to Note 12, “Fair Value” for a description of the valuation techniques used to measure fair value of assets and liabilities of the Investing VIE.
The following table presents the activity recorded for the years ended December 31, 2018, 2017 and 2016 related to the securitization trust on the consolidated statements of operations (dollars in thousands):
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2018 | | 2017 | | 2016 |
| Statements of Operations | | | | | | |
| Interest income on mortgage loans held in a securitized trust | | $ | 5,149 |
| | $ | 25,955 |
| | $ | 5,022 |
|
| Interest expense on mortgage obligations issued by a securitization trust | | (3,824 | ) | | (19,510 | ) | | (3,772 | ) |
| Net interest income | | 1,325 |
| | 6,445 |
| | 1,250 |
|
| Other expenses related to securitization trust | | (811 | ) | | 3,922 |
| | 765 |
|
| Transaction costs | | — |
| | — |
| | 57 |
|
| Unrealized gain (loss) on senior housing mortgage loans and debt held in securitization trust, net | | — |
| | 1,503 |
| | 298 |
|
| Net income attributable to NorthStar Healthcare Income, Inc. common stockholders | | $ | 514 |
| | $ | 4,026 |
| | $ | 726 |
|
For the year ended December 31, 2018, the consolidated securitization trust contributed 100.0% of the Company’s interest income on mortgage loans held in a securitized trust as presented on the consolidated statements of operations.
The following table presents the Company’s borrowings as of December 31, 2018 and 2017 (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | December 31, 2018 | | December 31, 2017 |
| | Recourse vs. Non-Recourse | | Final Maturity | | Contractual Interest Rate(1) | | Principal Amount(2) | | Carrying Value(2) | | Principal
Amount(2) | | Carrying
Value(2) |
| Mortgage notes payable, net | | | | | | | | | | | | | |
Peregrine Portfolio(3) | | | | | | | | | | | | | |
| Various locations | Non-recourse | | Dec-19 | | LIBOR + 3.50% | | $ | 16,545 |
| | $ | 16,277 |
| | $ | 23,417 |
| | $ | 23,030 |
|
| Watermark Aqua Portfolio | | | | | | | | | | | | | |
| Denver, CO | Non-recourse | | Feb-21 | | LIBOR + 2.92% | | 20,866 |
| | 20,774 |
| | 21,193 |
| | 21,053 |
|
| Frisco, TX | Non-recourse | | Mar-21 | | LIBOR + 3.04% | | 19,460 |
| | 19,377 |
| | 19,755 |
| | 19,630 |
|
| Milford, OH | Non-recourse | | Sep-26 | | LIBOR + 2.68% | | 18,760 |
| | 18,288 |
| | 18,760 |
| | 18,216 |
|
| Rochester Portfolio | | | | | | | | | | | | | |
| Rochester, NY | Non-recourse | | Feb-25 | | 4.25% | | 20,849 |
| | 20,734 |
| | 21,444 |
| | 21,312 |
|
Rochester, NY(4) | Non-recourse | | Aug-27 | | LIBOR + 2.34% | | 101,224 |
| | 100,162 |
| | 101,224 |
| | 100,061 |
|
Arbors Portfolio(5) | | | | | | | | | | | | | |
| Various locations | Non-recourse | | Feb-25 | | 3.99% | | 90,751 |
| | 89,508 |
| | 92,407 |
| | 90,913 |
|
Watermark Fountains Portfolio(6) | | | | | | | | | | | | |
| Various locations | Non-recourse | | Jun-22 | | 3.92% | | 399,023 |
| | 396,421 |
| | 410,000 |
| | 406,207 |
|
| Various locations | Non-recourse | | Jun-22 | | 5.56% | | 75,401 |
| | 74,776 |
| | 75,401 |
| | 74,776 |
|
Winterfell Portfolio(7) | | | | | | | | | | | | | |
| Various locations | Non-recourse | | Jun-25 | | 4.17% | | 642,954 |
| | 622,329 |
| | 648,211 |
| | 624,656 |
|
Avamere Portfolio(8) | | | | | | | | | | | | | |
| Various locations | Non-recourse | | Feb-27 | | 4.66% | | 72,466 |
| | 71,848 |
| | 72,466 |
| | 71,771 |
|
| Subtotal mortgage notes payable, net | | | | | | 1,478,299 |
|
| 1,450,494 |
|
| 1,504,278 |
|
| 1,471,625 |
|
| Other notes payable | | | | | | | | | | | | | |
| Oak Cottage | | | | | | | | | | | | | |
| Santa Barbara, CA | Non-recourse | | Feb-22 | | 6.00% | | 3,500 |
| | 3,500 |
| | 3,500 |
| | 3,500 |
|
| Rochester Portfolio | | | | | | | | | | | | | |
| Rochester, NY | Non-recourse | | Aug-19 | | 6.00% | | 12,355 |
| | 12,355 |
| | 12,355 |
| | 12,355 |
|
| Subtotal other notes payable, net | | | | | | 15,855 |
| | 15,855 |
| | 15,855 |
| | 15,855 |
|
| Total mortgage and other notes payable, net | | | | | | $ | 1,494,154 |
| | $ | 1,466,349 |
| | $ | 1,520,133 |
| | $ | 1,487,480 |
|
_______________________________________
| |
| (1) | Floating rate borrowings are comprised of $160.3 million principal amount at one-month London Interbank Offered Rate (“LIBOR”) and $16.5 million principal amount at three-month LIBOR. |
| |
| (2) | The difference between principal amount and carrying value of mortgage notes payable is attributable to deferred financing costs, net for all borrowings other than the Winterfell portfolio which is attributable to below market debt intangibles. |
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| |
| (3) | Mortgage note arrangement is secured and collateralized by three healthcare real estate properties. |
| |
| (4) | Comprised of seven individual mortgage notes payable secured by seven healthcare real estate properties, cross-collateralized and subject to cross-default. |
| |
| (5) | Comprised of four individual mortgage notes payable secured by four healthcare real estate properties, cross-collateralized and subject to cross-default. |
| |
| (6) | Includes $399.0 million principal amount of fixed rate borrowings, secured by 14 healthcare real estate properties, cross-collateralized and subject to cross-default as well as a supplemental financing totaling $75.4 million of principal, secured by seven healthcare real estate properties, cross-collateralized and subject to cross-default. |
| |
| (7) | Comprised of 32 individual mortgage notes payable secured by 32 healthcare real estate properties, cross-collateralized and subject to cross-default. |
| |
| (8) | Comprised of five individual mortgage notes payable secured by five healthcare real estate properties, cross-collateralized and subject to cross-default. |
The following table presents scheduled principal payments on borrowings based on final maturity as of December 31, 2018 (dollars in thousands):
|
| | | | |
| Years Ending December 31: | | |
| 2019 | | $ | 52,170 |
|
| 2020 | | 24,315 |
|
| 2021 | | 63,986 |
|
| 2022 | | 464,997 |
|
| 2023 | | 18,820 |
|
| Thereafter | | 869,866 |
|
| Total | | $ | 1,494,154 |
|
As of December 31, 2017, the Company’s Peregrine portfolio did not maintain certain minimum financial coverage ratios required under the contractual terms of its mortgage note. Following a partial repayment of the mortgage note in January 2018, the Company was in compliance with the financial covenants. However, during the year ended December 31, 2018, an operator of the Peregrine portfolio failed to remit rental payments in a timely manner, which resulted in a cross-default under the mortgage note agreement as of December 31, 2018.
Colony Capital Line of Credit
In October 2017, the Company obtained a revolving line of credit from an affiliate of Colony Capital, the Sponsor, for up to $15.0 million at an interest rate of 3.5% plus LIBOR (the “Sponsor Line”). The Sponsor Line had an initial one year term, with an extension option of six months. In November 2017, the borrowing capacity under the Sponsor Line was increased to $35.0 million. During 2017, the Company had drawn and fully repaid $25.0 million under the Sponsor Line. The Company did not utilize the Sponsor Line during the year ended December 31, 2018. In March 2018, the Sponsor Line maturity was extended through December 2020.
Corporate Credit Facility
In December 2017, the Company executed a corporate credit facility with Key Bank (the “Corporate Facility”), for up to $25.0 million. The Corporate Facility has a three year term at interest rates ranging between 2.5% and 3.5% plus LIBOR and has not been utilized. As of December 31, 2018, the Company did not have the ability to draw upon the Corporate Facility as a result of not achieving certain continuing financial covenant conditions.
| |
| 8. | Related Party Arrangements |
Advisor
Subject to certain restrictions and limitations, the Advisor is responsible for managing the Company’s affairs on a day-to-day basis and for identifying, acquiring, originating and asset managing investments on behalf of the Company. The Advisor may delegate certain of its obligations to affiliated entities, which may be organized under the laws of the United States or foreign jurisdictions. References to the Advisor include the Advisor and any such affiliated entities. For such services, to the extent permitted by law and regulations, the Advisor receives fees and reimbursements from the Company. Pursuant to the advisory agreement, the Advisor may defer or waive fees in its discretion. Below is a description and table of the fees and reimbursements incurred to the Advisor.
In December 2017, the advisory agreement was amended with changes to the asset management and acquisition fee structure as further described below. In June 2018, the advisory agreement was renewed for an additional one-year term commencing on June 30, 2018, with terms identical to those in effect through June 30, 2018.
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fees to Advisor
Asset Management Fee
From inception through December 31, 2017, the Advisor received a monthly asset management fee equal to one-twelfth of 1.0% of the sum of the amount funded or allocated for investments, including expenses and any financing attributable to such investments, less any principal received on debt and securities investments (or the proportionate share thereof in the case of an investment made through a joint venture).
Effective January 1, 2018, the Advisor receives a monthly asset management fee equal to one-twelfth of 1.5% of the Company’s most recently published aggregate estimated net asset value, as may be subsequently adjusted for any special distribution declared by the board of directors in connection with a sale, transfer or other disposition of a substantial portion of the Company’s assets, with $2.5 million per calendar quarter of such fee paid in shares of the Company’s common stock at a price per share equal to the most recently published net asset value per share.
The Advisor has also agreed that all shares of the Company’s common stock issued to it in consideration of the asset management fee will be subordinate in the share repurchase program to shares of the Company’s common stock held by third party stockholders for a period of two years, unless the advisory agreement is earlier terminated.
Incentive Fee
The Advisor is entitled to receive distributions equal to 15.0% of net cash flows of the Company, whether from continuing operations, repayment of loans, disposition of assets or otherwise, but only after stockholders have received, in the aggregate, cumulative distributions equal to their invested capital plus a 6.75% cumulative, non-compounded annual pre-tax return on such invested capital.
Acquisition Fee
From inception through December 31, 2017, the Advisor received fees for providing structuring, diligence, underwriting advice and related services in connection with real estate acquisitions equal to 2.25% of each real estate property acquired by the Company, including acquisition costs and any financing attributable to an equity investment (or the proportionate share thereof in the case of an indirect equity investment made through a joint venture or other investment vehicle) and 1.0% of the amount funded or allocated by the Company to acquire or originate debt investments, including acquisition costs and any financing attributable to such investments (or the proportionate share thereof in the case of an indirect investment made through a joint venture or other investment vehicle).
Effective January 1, 2018, the Advisor no longer receives an acquisition fee in connection with the Company’s acquisitions of real estate properties or debt investments.
Disposition Fee
For substantial assistance in connection with the sale of investments and based on the services provided, as determined by the Company’s independent directors, the Advisor may receive a disposition fee of 2.0% of the contract sales price of each property sold and 1.0% of the contract sales price of each debt investment sold. The Company does not pay a disposition fee upon the maturity, prepayment, workout, modification or extension of a debt investment unless there is a corresponding fee paid by the borrower, in which case the disposition fee is the lesser of: (i) 1.0% of the principal amount of the debt investment prior to such transaction; or (ii) the amount of the fee paid by the borrower in connection with such transaction. If the Company takes ownership of a property as a result of a workout or foreclosure of a debt investment, the Company will pay a disposition fee upon the sale of such property. A disposition fee from the sale of an investment is generally expensed and included in asset management and other fees - related party in the Company’s consolidated statements of operations. A disposition fee for a debt investment incurred in a transaction other than a sale is included in debt investments, net on the consolidated balance sheets and is amortized to interest income over the life of the investment using the effective interest method.
Reimbursements to Advisor
Operating Costs
The Advisor is entitled to receive reimbursement for direct and indirect operating costs incurred by the Advisor in connection with administrative services provided to the Company. The Advisor allocates, in good faith, indirect costs to the Company related to the Advisor’s and its affiliates’ employees, occupancy and other general and administrative costs and expenses in accordance with the terms of, and subject to the limitations contained in, the advisory agreement with the Advisor. The indirect costs include the
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Company’s allocable share of the Advisor’s compensation and benefit costs associated with dedicated or partially dedicated personnel who spend all or a portion of their time managing the Company’s affairs, based upon the percentage of time devoted by such personnel to the Company’s affairs. The indirect costs also include rental and occupancy, technology, office supplies, travel and entertainment and other general and administrative costs and expenses. However, there is no reimbursement for personnel costs related to executive officers (although there may be reimbursement for certain executive officers of the Advisor) and other personnel involved in activities for which the Advisor receives an acquisition fee or a disposition fee. The Advisor allocates these costs to the Company relative to its and its affiliates’ other managed companies in good faith and has reviewed the allocation with the Company’s board of directors, including its independent directors. The Advisor updates the board of directors on a quarterly basis of any material changes to the expense allocation and provides a detailed review to the board of directors, at least annually, and as otherwise requested by the board of directors. The Company reimburses the Advisor quarterly for operating costs (including the asset management fee) based on a calculation for the four preceding fiscal quarters not to exceed the greater of: (i) 2.0% of its average invested assets; or (ii) 25.0% of its net income determined without reduction for any additions to reserves for depreciation, loan losses or other similar non-cash reserves and excluding any gain from the sale of assets for that period. Notwithstanding the above, the Company may reimburse the Advisor for expenses in excess of this limitation if a majority of the Company’s independent directors determines that such excess expenses are justified based on unusual and non-recurring factors. The Company calculates the expense reimbursement quarterly based upon the trailing twelve-month period.
Summary of Fees and Reimbursements
The following tables present the fees and reimbursements incurred to the Advisor for the years ended December 31, 2018 and 2017 the amount due to related party as of December 31, 2018, 2017 and 2016 (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | |
| Type of Fee or Reimbursement | | | | Due to Related Party as of December 31, 2017 | | Year Ended December 31, 2018 | | Due to Related Party as of December 31, 2018 |
| | Financial Statement Location | | | Incurred | | Paid | |
| Fees to Advisor Entities | | | | | | | | | | |
Asset management(1) | | Asset management and other fees-related party | | $ | — |
| | $ | 23,486 |
| | $ | (21,821 | ) | (2) | $ | 1,665 |
|
Acquisition(2) | | Investments in unconsolidated ventures/Asset management and other fees-related party | | 8 |
| | (8 | ) | | — |
| | — |
|
| Reimbursements to Advisor Entities | | | | | | | | | |
|
Operating costs(3) | | General and administrative expenses | | 1,038 |
| | 12,631 |
| | (9,659 | ) | | 4,010 |
|
| Total | | | | $ | 1,046 |
| | $ | 36,109 |
| | $ | (31,480 | ) | | $ | 5,675 |
|
_______________________________________
| |
| (1) | Includes $9.0 million paid in shares of the Company’s common stock and a $0.2 million gain recognized on the settlement of the share-based payment. |
| |
| (2) | From inception through December 31, 2018, the Advisor waived $0.3 million of acquisition fees related to healthcare-related securities. The Company did not incur any disposition fees during the year ended December 31, 2018, nor were any such fees outstanding as of December 31, 2017. |
| |
| (3) | As of December 31, 2018, the Advisor did not have any unreimbursed operating costs which remained eligible to be allocated to the Company. |
|
| | | | | | | | | | | | | | | | | | |
| Type of Fee or Reimbursement | | | | Due to Related Party as of December 31, 2016 | | Year Ended December 31, 2017 | | Due to Related Party as of December 31, 2017 |
| | Financial Statement Location | | | Incurred | | Paid | |
| Fees to Advisor Entities | | | | | | | | | | |
| Asset management | | Asset management and other fees-related party | | $ | 12 |
| | $ | 34,302 |
| | $ | (34,314 | ) | | $ | — |
|
Acquisition(1) | | Investments in unconsolidated ventures/Asset management and other fees-related party | | 66 |
| | 8,206 |
| | (8,264 | ) | | 8 |
|
| Reimbursements to Advisor Entities | | | | | | | | | | |
Operating costs(2) | | General and administrative expenses | | 141 |
| | 11,208 |
| | (10,311 | ) | | 1,038 |
|
| Total | | | | $ | 219 |
| | $ | 53,716 |
| | $ | (52,889 | ) | | $ | 1,046 |
|
_______________________________________
| |
| (1) | Acquisition/disposition fees incurred to the Advisor related to debt investments are generally offset by origination/exit fees paid to the Company by borrowers if such fees are required from the borrower. Acquisition fees related to equity investments are included in asset management and other fees-related party in the consolidated statements of operations. Acquisition fees related to investments in unconsolidated joint ventures are included in investments in unconsolidated ventures on the consolidated balance sheets. From inception through December 31, 2017, the Advisor waived $0.3 million of acquisition fees related to healthcare-related securities. The Company did not incur any disposition fees during the year ended December 31, 2017, nor were any such fees outstanding as of December 31, 2016. |
| |
| (2) | As of December 31, 2017, the Advisor did not have any unreimbursed operating costs which remained eligible to be allocated to the Company. |
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Issuance of Common Stock to the Advisor
Pursuant to the December 2017 amendment of the advisory agreement, for the year ended December 31, 2018, the Company issued 1.1 million shares totaling $9.0 million to an affiliate of the Advisor as part of its asset management fee.
Investments in Joint Ventures
In November 2017, the Company began the transition of operations of the Winterfell portfolio, from the former manager, an affiliate of Holiday Retirement, to a new manager, Solstice. Solstice is a joint venture between affiliates of Integral Senior Living, LLC, a leading management company of ILF, ALF and MCF founded in 2000, which owns 80.0%, and the Company, which owns 20.0%. For the year ended December 31, 2018 the Company recognized property management fee expense of $5.3 million paid to Solstice related to the Winterfell portfolio.
The below table indicates the Company’s investments for which Colony Capital is also an equity partner in the joint venture. Each investment was approved by the Company’s board of directors, including all of its independent directors. Refer to Note 4, “Investments in Unconsolidated Ventures” for further discussion of these investments:
|
| | | | | | |
| Portfolio | | Partner(s) | | Acquisition Date | | Ownership |
| Eclipse | | Colony Capital/Formation Capital, LLC | | May-2014 | | 5.6% |
| Griffin-American | | Colony Capital | | Dec-2014 | | 14.3% |
In connection with the acquisition of the Griffin-American portfolio by NorthStar Realty, now a subsidiary of Colony Capital, and the Company, the Sponsor acquired a 43.0%, as adjusted, ownership interest in American Healthcare Investors, LLC (“AHI”) and Mr. James F. Flaherty III, a partner of the Sponsor, acquired a 12.3% ownership interest in AHI. AHI is a healthcare-focused real estate investment management firm that co-sponsored and advised Griffin-American, until Griffin-American was acquired by the Company and NorthStar Realty.
In December 2015, the Company, through a joint venture with Griffin-American Healthcare REIT III, Inc., a REIT sponsored and advised by AHI, acquired a 29.0% interest in the Trilogy portfolio, a $1.2 billion healthcare portfolio and contributed $201.7 million for its interest. The purchase was approved by the Company’s board of directors, including all of its independent directors. In 2016 and 2017, the Company funded additional capital contributions of $18.8 million and $8.3 million, respectively, in accordance with the joint venture agreement. Additionally, in 2018, the Company funded capital contributions of $4.5 million for a total contribution of $233.3 million. The additional fundings related to certain business initiatives, including the acquisition of additional senior housing and skilled nursing facilities and repayment of certain outstanding obligations. In October 2018, the Company sold 20.0% of its ownership interest in the Trilogy joint venture, which generated gross proceeds of $48.0 million and reduced its ownership interest in the joint venture from approximately 29% to 23%. The Company sold the ownership interest to a wholly-owned subsidiary of the operating partnership of Griffin-American Healthcare REIT IV, Inc., a REIT sponsored by AHI.
Origination of Mezzanine Loan
In July 2015, the Company originated a $75.0 million mezzanine loan to a subsidiary of Espresso, which bears interest at a fixed rate of 10.0% per year and matures in January 2021. Refer to Note 5, “Real Estate Debt Investments” for further discussion.
Colony Capital Line of Credit
In October 2017, the Company obtained the Sponsor Line, which provides up to $35.0 million at an interest rate of 3.5% plus LIBOR. Refer to Note 7, “Borrowings” for further discussion.
| |
| 9. | Equity-Based Compensation |
The Company adopted a long-term incentive plan, as amended (the “Plan”), which it may use to attract and retain qualified officers, directors, employees and consultants, as well as an independent directors compensation plan, which is a component of the Plan. Pursuant to the Plan, as of December 31, 2018, the Company’s independent directors were granted a total of 96,625 shares of restricted common stock for an aggregate $0.9 million, based on the share price on the date of each grant. The restricted stock granted prior to 2015 generally vests quarterly over four years and the restricted stock granted in and subsequent to 2015 generally vests quarterly over two years. However, the stock will become fully vested on the earlier occurrence of: (i) the termination of the independent director’s service as a director due to his or her death or disability; or (ii) a change in control of the Company.
The Company recognized equity-based compensation expense of $0.2 million for the years ended December 31, 2018, 2017 and 2016, respectively. Equity-based compensation expense is related to the issuance of restricted stock to the independent directors and is recorded in general and administrative expenses in the consolidated statements of operations. Unrecognized equity-based compensation for unvested shares totaled $0.2 million as of December 31, 2018 and 2017, respectively. Unvested shares totaled 20,827 and 19,248 as of December 31, 2018 and 2017, respectively.
Common Stock
The Company stopped accepting subscriptions for the Follow-On Offering on December 17, 2015 and all of the shares initially registered for the Follow-On Offering were issued on or before January 19, 2016. The Company issued 173.4 million shares of common stock generating gross proceeds of $1.7 billion in the Primary Offering.
Distribution Reinvestment Plan
The Company adopted the DRP through which common stockholders may elect to reinvest an amount equal to the distributions declared on their shares in additional shares of the Company’s common stock in lieu of receiving cash distributions. The purchase price under the Company’s Initial DRP was $9.50. In connection with its determination of the offering price for shares of the Company’s common stock in the Follow-On Offering, the board of directors determined that distributions may be reinvested in shares of the Company’s common stock at a price of $9.69 per share, which was approximately 95% of the offering price of $10.20 per share established for purposes of the Follow-On Offering. In April 2016, the board of directors determined that distributions may be reinvested in shares of the Company’s common stock at a price equal to the most recent estimated value per share of the shares of common stock. The following table presents the price at which dividends were invested based on when the price became effective:
|
| | | | | | |
| Effective Date | | Estimated Value per Share | | Valuation Date |
| April 2016 | | $ | 8.63 |
| | 12/31/2015 |
| December 2016 | | 9.10 |
| | 6/30/2016 |
| December 2017 | | 8.50 |
| | 6/30/2017 |
| December 2018 | | 7.10 |
| | 6/30/2018 |
No selling commissions or dealer manager fees were paid on shares issued pursuant to the DRP. The board of directors of the Company may amend, suspend or terminate the DRP for any reason upon ten-days’ notice to participants, except that the Company may not amend the DRP to eliminate a participant’s ability to withdraw from the DRP.
For the year ended December 31, 2018, the Company issued 4.0 million shares of common stock totaling $33.7 million of gross offering proceeds pursuant to the DRP. For the year ended December 31, 2017, the Company issued 7.4 million shares of common stock totaling $67.2 million of gross offering proceeds pursuant to the DRP. From inception through December 31, 2018, the Company issued 25.0 million shares of common stock, generating gross offering proceeds of $227.7 million pursuant to the DRP.
Distributions
From inception through December 31, 2017, distributions to stockholders were declared quarterly by the board of directors of the Company and paid monthly based on a daily amount of $0.00184932 per share, equivalent to an annualized distribution amount of $0.675 per share of the Company’s common stock.
During the year ended December 31, 2018, the Company’s board of directors approved daily cash distributions of $0.000924658 per share of common stock, equivalent to an annualized distribution amount of $0.3375 per share.
Distributions were generally paid to stockholders on the first business day of the month following the month for which the distribution was accrued.
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents distributions declared for the years ended December 31, 2018, 2017 and 2016 (dollars in thousands):
|
| | | | | | | | | | | | |
| | | Distributions(1) |
| Period | | Cash | | DRP | | Total |
| 2018 | | | | | | |
| First Quarter | | $ | 7,684 |
| | $ | 7,876 |
| | $ | 15,560 |
|
| Second Quarter | | 8,028 |
| | 7,722 |
| | 15,750 |
|
| Third Quarter | | 8,374 |
| | 7,567 |
| | 15,941 |
|
| Fourth Quarter | | 8,653 |
| | 7,352 |
| | 16,005 |
|
| Total | | $ | 32,739 |
| | $ | 30,517 |
| | $ | 63,256 |
|
| | | | | | | |
| 2017 | | | | | | |
| First Quarter | | $ | 14,228 |
| | $ | 16,669 |
| | $ | 30,897 |
|
| Second Quarter | | 14,557 |
| | 16,804 |
| | 31,361 |
|
| Third Quarter | | 14,899 |
| | 16,873 |
| | 31,772 |
|
| Fourth Quarter | | 15,082 |
| | 16,691 |
| | 31,773 |
|
| Total | | $ | 58,766 |
| | $ | 67,037 |
| | $ | 125,803 |
|
| | | | | | | |
| 2016 | | | | | | |
| First Quarter | | $ | 13,408 |
| | $ | 16,827 |
| | $ | 30,235 |
|
| Second Quarter | | 13,580 |
| | 16,915 |
| | 30,495 |
|
| Third Quarter | | 13,974 |
| | 17,120 |
| | 31,094 |
|
| Fourth Quarter | | 14,261 |
| | 17,057 |
| | 31,318 |
|
| Total | | $ | 55,223 |
| | $ | 67,919 |
| | $ | 123,142 |
|
_________________________________________________
| |
| (1) | Represents distributions declared for the period, even though such distributions are actually paid to stockholders in the month following such period. |
In order to continue to qualify as a REIT, the Company must distribute annually at least 90% of its REIT taxable income. For the years ended December 31, 2018, 2017 and 2016, the Company generated net operating losses for tax purposes and, accordingly, was not required to make distributions to its stockholders to qualify as a REIT. The Company’s most recently filed tax return is for the year ended December 31, 2017 and includes a net operating loss carry-forward of $45.7 million.
Effective February 1, 2019, the Company’s board of directors determined to suspend distributions in order to preserve capital and liquidity. Refer to Note 16, “Subsequent Events” for additional information regarding distributions.
Share Repurchase Program
The Company adopted a share repurchase program that may enable stockholders to sell their shares to the Company in limited circumstances (the “Share Repurchase Program”). The Company is not obligated to repurchase shares under the Share Repurchase Program. The Company may amend, suspend or terminate the Share Repurchase Program at its discretion at any time, subject to certain notice requirements.
In December 2017, the Company’s board of directors approved the following amendments to the Share Repurchase Program:
| |
| • | Limit the amount of shares that may be repurchased pursuant to the Share Repurchase Program (including repurchases in the case of death or qualifying disability) as follows: (a) for repurchase requests made during the calendar quarter ending December 31, 2017, $8.0 million in aggregate repurchases and (b) for repurchase requests made in 2018 and thereafter, the lesser of (1) 5% of the weighted average number of shares of the Company’s common stock outstanding during the prior calendar year, less shares repurchased during the current calendar year, or (2) the net proceeds received by the Company during the calendar quarter in which such repurchase requests were made from the sale of shares pursuant to the Company’s DRP; |
| |
| • | The price paid for shares will be: (a) for shares repurchased in connection with a death or disability, the lesser of the price paid for the shares or the most recently published estimated value per share, which is currently $8.50 and (b) for all other shares, 90.0% of the Company’s most recently published estimated value per share, which is currently $7.65; and |
| |
| • | In the event all repurchase requests in a given quarter could not be satisfied, the Company first repurchased shares submitted in connection with a stockholder’s qualifying death or disability and thereafter repurchased shares pro rata, and the Company sought to honor any unredeemed shares in a future quarter (unless the stockholder withdrew its request). |
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In October 2018, the Company’s board of directors approved an amended and restated Share Repurchase Program, under which the Company will only repurchase shares in connection with the death or qualifying disability of a stockholder. The amended and restated Share Repurchase Program became effective October 29, 2018.
For the year ended December 31, 2018, the Company repurchased 3.3 million shares of common stock for $25.9 million at an average price of $7.91 per share. For the year ended December 31, 2017, the Company repurchased 5.7 million shares of common stock for $52.8 million at an average price of $9.22 per share pursuant to the Share Repurchase Program.
The Company has funded repurchase requests received during a quarter with cash on hand, borrowings or other available capital. Repurchases pursuant to the Share Repurchase Program have not exceeded proceeds received from its DRP in 2018. As of December 31, 2018, the Company had a total of 12.0 million shares, or $85.0 million, based on its most recently published estimated value per share of $7.10, in unfulfilled repurchase requests. Refer to Note 16, “Subsequent Events” for additional information regarding the Share Repurchase Program.
| |
| 11. | Non-controlling Interests |
Operating Partnership
Non-controlling interests include the aggregate limited partnership interests in the Operating Partnership held by limited partners, other than the Company. Income (loss) attributable to the non-controlling interests is based on the limited partners’ ownership percentage of the Operating Partnership. Income (loss) allocated to the Operating Partnership non-controlling interests for the years ended December 31, 2018, 2017 and 2016 was de minimis.
Other
Other non-controlling interests represent third-party equity interests in ventures that are consolidated with the Company’s financial statements. Net loss attributable to the other non-controlling interests was approximately $0.4 million and $0.2 million for the years ended December 31, 2018 and 2017, respectively and de minimis for the year ended December 31, 2016.
Fair Value Measurement
The fair value of financial instruments is categorized based on the priority of the inputs to the valuation technique and categorized into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
Financial assets and liabilities recorded at fair value on the consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:
| |
| Level 1. | Quoted prices for identical assets or liabilities in an active market. |
| |
| Level 2. | Financial assets and liabilities whose values are based on the following: |
| |
| a) | Quoted prices for similar assets or liabilities in active markets. |
| |
| b) | Quoted prices for identical or similar assets or liabilities in non-active markets. |
| |
| c) | Pricing models whose inputs are observable for substantially the full term of the asset or liability. |
| |
| d) | Pricing models whose inputs are derived principally from or corroborated by observable market data for substantially the full term of the asset or liability. |
| |
| Level 3. | Prices or valuation techniques based on inputs that are both unobservable and significant to the overall fair value measurement. |
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following is a description of the valuation techniques used to measure fair value of assets and liabilities accounted for at fair value on a recurring basis and the general classification of these instruments pursuant to the fair value hierarchy.
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Healthcare-Related Securities
Investing VIEs
As discussed in Note 6, “Healthcare-Related Securities,” the Company elected the fair value option for the financial assets and liabilities of its consolidated Investing VIE. The Investing VIE was “static”; that is, no reinvestment was permitted and there was very limited active management of the underlying assets. The Company was required to determine whether the fair value of the financial assets or the fair value of the financial liabilities of the Investing VIE were more observable, but in either case, the methodology resulted in the fair value of the assets of the securitization trust being equal to the fair value of their liabilities. The Company determined that the fair value of the liabilities of the securitization trust were more observable, since market prices for the liabilities were available from a third-party pricing service or were based on quoted prices provided by dealers who make markets in similar financial instruments. The financial assets of the securitization trust were not readily marketable and their fair value measurement required information that may be limited in availability.
In determining the fair value of the securitization trust’s financial liabilities, the dealers will consider contractual cash payments and yields expected by market participants. Dealers also incorporate common market pricing methods, including a spread measurement to the treasury curve or interest rate swap curve as well as underlying characteristics of the particular security including coupon, periodic and life caps, collateral type, rate reset period and seasoning or age of the security. The Company’s senior housing collateralized mortgage obligations were classified as Level 2 fair values. In accordance with ASC 810, Consolidation, the assets of the securitization trust was an aggregate value derived from the fair value of the trust liabilities. The Company determined that the valuation of the trust assets in their entirety, including its retained interests from the securitization (eliminated in consolidation in accordance with U.S. GAAP) should be classified as Level 3 valuations.
In March 2018, the Company sold the Class B certificates of its consolidated Investing VIE and no longer presented the assets or liabilities of the entire securitization trust on its consolidated balance sheets as of December 31, 2018. The Company has presented the income and expenses of the entire securitization trust on its consolidated statements of operations for the period that the Company owned the Class B certificates in 2018.
Fair Value Hierarchy
Financial assets and liabilities recorded at fair value on a recurring basis are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. There were no assets or liabilities accounted for at fair value on a recurring basis as of December 31, 2018. The following table presents financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2017 by level within the fair value hierarchy (dollars in thousands):
|
| | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| Financial Assets | | | | | | | |
| Senior housing mortgage loans held in a securitization trust, at fair value | $ | — |
| | $ | — |
| | $ | 545,048 |
| | $ | 545,048 |
|
| Financial Liabilities | | | | | | | |
| Senior housing mortgage obligations issued by a securitization trust, at fair value | $ | — |
| | $ | 512,772 |
| | $ | — |
| | $ | 512,772 |
|
As of December 31, 2018, the Company had no financial assets and liabilities that were accounted for at fair value on a non-recurring basis.
The following table presents the changes in fair value of financial assets which are measured at fair value on a recurring basis using Level 3 inputs to determine fair value for the years ended December 31, 2018 and 2017 (dollars in thousands):
|
| | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 |
| Beginning balance | $ | 545,048 |
| | $ | 553,707 |
|
| Purchases/contributions | — |
| | — |
|
| Paydowns/distributions | — |
| | (4,058 | ) |
| Derecognition | (545,048 | ) | | — |
|
| Unrealized gain (loss) | — |
| | (4,601 | ) |
| Ending balance | $ | — |
| | $ | 545,048 |
|
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
There were no financial liabilities measured at fair value on a recurring basing using Level 3 inputs during the year ended December 31, 2018. The following table presents the changes in fair value of financial liabilities which are measured at fair value on a recurring basis using Level 3 inputs to determine fair value for the years ended December 31, 2018 and 2017 (dollars in thousands):
|
| | | |
| | Year Ended December 31, 2017 |
| Beginning balance | $ | 522,933 |
|
Transfers to Level 2(1) | (522,933 | ) |
| Paydowns/distributions | — |
|
| Sale of investment | — |
|
| Unrealized (gain) loss | — |
|
| Ending balance | $ | — |
|
_______________________________________
| |
| (1) | Transfers to Level 2 from Level 3 represent a fair value measurement from a third-party pricing service or broker quotations that have become more observable during the period. Transfers are assumed to occur at the beginning of the year. |
For the year ended December 31, 2017, the key unobservable inputs used in the fair value analysis included a weighted average yield of 13.1% and a weighted average life of 9.6 years. Significant increases (decreases) in any one of the inputs described above in isolation may result in a significantly different fair value for the financial assets using such Level 3 inputs.
Fair Value Option
The Company may elect to apply the fair value option of accounting for certain of its financial assets or liabilities due to the nature of the instrument at the time of the initial recognition of the investment. In the case of its healthcare-related securities, the Company elected the fair value option because management believes it is a more useful presentation for such investments.
Fair Value of Financial Instruments
U.S. GAAP requires disclosure of fair value about all financial instruments. The following disclosure of estimated fair value of financial instruments was determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on estimated fair value.
The following table presents the principal amount, carrying value and fair value of certain financial assets and liabilities as of December 31, 2018 and 2017 (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2018 | | December 31, 2017 |
| | Principal Amount | | Carrying Value | | Fair Value | | Principal Amount | | Carrying Value | | Fair Value |
Financial assets:(1) | | | | | | | | | | | |
| Real estate debt investments, net | $ | 75,000 |
| | $ | 58,600 |
| | $ | 75,000 |
| | $ | 75,000 |
| | $ | 74,650 |
| | $ | 75,000 |
|
Financial liabilities:(1) | | | | | | | | | | | |
| Mortgage and other notes payable, net | $ | 1,494,154 |
| | $ | 1,466,349 |
| | $ | 1,464,533 |
| | $ | 1,520,133 |
| | $ | 1,487,480 |
| | $ | 1,480,407 |
|
_______________________________________
| |
| (1) | The fair value of other financial instruments not included in this table is estimated to approximate their carrying value. |
Disclosure about fair value of financial instruments is based on pertinent information available to management as of the reporting date. Although management is not aware of any factors that would significantly affect fair value, such amounts have not been comprehensively revalued for purposes of these consolidated financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.
Real Estate Debt Investments, Net
For commercial real estate (“CRE”) debt investments, fair values were determined by comparing the current yield to the estimated yield for newly originated loans with similar credit risk or the market yield at which a third party might expect to purchase such investment; or based on discounted cash flow projections of principal and interest expected to be collected, which includes consideration of the financial standing of the borrower or sponsor as well as operating results of the underlying collateral. As of
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the reporting date, the Company believes that principal amount approximates fair value. These fair value measurements of CRE debt are generally based on unobservable inputs, and as such, are classified as Level 3 of the fair value hierarchy.
Mortgage and Other Notes Payable, Net
For mortgage and other notes payable, the Company primarily uses rates currently available with similar terms and remaining maturities to estimate fair value. These measurements are determined using comparable U.S. Treasury rates as of the end of the reporting period. These fair value measurements are based on observable inputs, and as such, are classified as Level 2 of the fair value hierarchy.
| |
| 13. | Quarterly Financial Information (Unaudited) |
The following tables present selected quarterly information for the years ended December 31, 2018 and 2017 (dollars in thousands, except per share data):
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | December 31, | | September 30, | | June 30, | | March 31, |
| | | 2018 | | 2018 | | 2018 | | 2018 |
| Property and other revenues | | $ | 73,721 |
| | $ | 73,470 |
| | $ | 72,777 |
| | $ | 74,303 |
|
| Net interest income | | 1,943 |
| | 1,943 |
| | 1,921 |
| | 3,224 |
|
| Expenses | | 131,445 |
| | 99,430 |
| | 104,790 |
| | 106,269 |
|
| Equity in earnings (losses) of unconsolidated ventures | | (37,424 | ) | | 16,631 |
| | (4,098 | ) | | (8,626 | ) |
| Net income (loss) | | (77,257 | ) | | (6,670 | ) | | (34,205 | ) | | (33,888 | ) |
| Net income (loss) attributable to NorthStar Healthcare Income, Inc. common stockholders | | (77,212 | ) | | (6,604 | ) | | (34,094 | ) | | (33,668 | ) |
| | | | | | | | | |
Net income (loss) per share of common stock, basic/diluted (1) | | $ | (0.40 | ) | | $ | (0.04 | ) | | $ | (0.18 | ) | | $ | (0.18 | ) |
_______________________________________
| |
| (1) | The total for the year may differ from the sum of the quarters as a result of weighting. |
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | December 31, | | September 30, | | June 30, | | March 31, |
| | | 2017 | | 2017 | | 2017 | | 2017 |
| Property and other revenues | | $ | 76,335 |
| | $ | 74,401 |
| | $ | 68,594 |
| | $ | 66,445 |
|
| Net interest income | | 3,545 |
| | 3,557 |
| | 3,538 |
| | 3,501 |
|
| Expenses | | 121,088 |
| | 104,257 |
| | 87,070 |
| | 91,734 |
|
| Equity in earnings (losses) of unconsolidated ventures | | (4,080 | ) | | (18,557 | ) | | (7,055 | ) | | (5,622 | ) |
| Net income (loss) | | (44,882 | ) | | (44,487 | ) | | (21,560 | ) | | (27,042 | ) |
| Net income (loss) attributable to NorthStar Healthcare Income, Inc. common stockholders | | (44,709 | ) | | (44,390 | ) | | (21,593 | ) | | (27,079 | ) |
| | | | | | | | | |
Net income (loss) per share of common stock, basic/diluted (1) | | $ | (0.23 | ) | | $ | (0.24 | ) | | $ | (0.12 | ) | | $ | (0.15 | ) |
| |
| (1) | The total for the year may differ from the sum of the quarters as a result of weighting. |
The Company conducts its business through the following five segments, which are based on how management reviews and manages its business.
| |
| • | Direct Investments - Net Lease - Healthcare properties operated under net leases with a tenant operator. |
| |
| • | Direct Investments - Operating - Healthcare properties operated pursuant to management agreements with healthcare operators. |
| |
| • | Unconsolidated Investments - Healthcare joint ventures, including properties operated under net leases or pursuant to management agreements with healthcare operators, in which we own a minority interest. |
| |
| • | Debt and Securities Investments - Mortgage loans or mezzanine loans to owners of healthcare real estate and commercial mortgage backed securities backed primarily by loans secured by healthcare properties. |
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| |
| • | Corporate - The corporate segment includes corporate level asset management and other fees - related party and general and administrative expenses. |
The Company primarily generates rental and resident fee income from its direct investments and net interest income on real estate debt and securities investments. The Company’s healthcare-related securities represent its investment in the Class B certificates of the securitization trust which are eliminated in consolidation.
The following table presents the operators and tenants of the Company’s properties, excluding properties owned through unconsolidated joint ventures as of December 31, 2018 (dollars in thousands):
|
| | | | | | | | | | | | | |
| | | | | | | Year Ended December 31, 2018 |
| Operator / Tenant | | Properties Under Management | | Units Under Management(1) | | Property and Other Revenues | | % of Total Property and Other Revenues |
| Watermark Retirement Communities | | 30 |
| | 5,265 |
| | $ | 152,875 |
| | 52.0 | % |
| Solstice Senior Living | (2) | 32 |
| | 4,000 |
| | 105,617 |
| | 35.9 | % |
| Avamere Health Services | (3) | 5 |
| | 453 |
| | 16,735 |
| | 5.7 | % |
| Arcadia Management | | 4 |
| | 572 |
| | 10,615 |
| | 3.6 | % |
| Integral Senior Living | (2) | 3 |
| | 162 |
| | 5,695 |
| | 1.9 | % |
| Peregrine Senior Living | | 2 |
| | 114 |
| | 1,467 |
| | 0.5 | % |
| Senior Lifestyle Corporation | (4) | 1 |
| | 63 |
| | 51 |
| | — | % |
| Other | (5) | — |
| | — |
| | 1,216 |
| | 0.4 | % |
| Total | | 77 |
| | 10,629 |
| | $ | 294,271 |
| | 100.0 | % |
______________________________________
| |
| (1) | Represents rooms for ALF and ILF and beds for MCF and SNF, based on predominant type. |
| |
| (2) | Solstice Senior Living, LLC is a joint venture of which affiliates of Integral Senior Living own 80%. |
| |
| (3) | Effective February 2018, properties under the management of Bonaventure were transitioned to Avamere Health Services. |
| |
| (4) | As a result of the tenant failing to remit rental payments, the Company accelerated the amortization of capitalized lease inducements. Properties and unit counts exclude one property held for sale. |
| |
| (5) | Consists primarily of interest income earned on corporate-level cash accounts. |
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the year ended December 31, 2018, the Company changed the composition of its reportable segments and has reflected the change for all prior year information presented. The following tables present segment reporting for the years ended December 31, 2018, 2017 and 2016 (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Statement of Operations: | | Direct Investments | | | | | | | | | | | | |
| Year Ended December 31, 2018 | | Net Lease | | Operating | | Unconsolidated Investments | | Debt and Securities | | Corporate(1) | | Subtotal | | Investing VIE(2) | | Total |
| Rental and resident fee income | | $ | 34,275 |
| | $ | 255,061 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 289,336 |
| | $ | — |
| | $ | 289,336 |
|
| Net interest income on debt and securities | | — |
| | — |
| | — |
| | 8,534 |
| | (314 | ) | (3) | 8,220 |
| | 811 |
| | 9,031 |
|
| Other revenue | | 1 |
| | 3,718 |
| | — |
| | 375 |
| | 841 |
| | 4,935 |
| | — |
| | 4,935 |
|
| Property operating expenses | | (1,346 | ) | | (187,415 | ) | | — |
| | — |
| | — |
| | (188,761 | ) | | — |
| | (188,761 | ) |
| Interest expense | | (13,326 | ) | | (56,595 | ) | | — |
| | — |
| | (275 | ) | | (70,196 | ) | | — |
| | (70,196 | ) |
| Other expenses related to securitization trust | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (811 | ) | | (811 | ) |
| Transaction costs | | (60 | ) | | (828 | ) | | — |
| | — |
| | — |
| | (888 | ) | | — |
| | (888 | ) |
| Asset management and other fees - related party | | — |
| | — |
| | — |
| | — |
| | (23,478 | ) | | (23,478 | ) | | — |
| | (23,478 | ) |
| General and administrative expenses | | (183 | ) | | (856 | ) | | (2 | ) | | (46 | ) | | (13,303 | ) | | (14,390 | ) | | — |
| | (14,390 | ) |
| Depreciation and amortization | | (13,694 | ) | | (93,439 | ) | | — |
| | — |
| | — |
| | (107,133 | ) | | — |
| | (107,133 | ) |
| Impairment loss | | (5,094 | ) | | (31,183 | ) | | — |
| | — |
| | — |
| | (36,277 | ) | | — |
| | (36,277 | ) |
| Unrealized gain (loss) on senior housing mortgage loans and debt held in securitization trust, net | | — |
| | — |
| | — |
| | (314 | ) | | 314 |
| (3) | — |
| | — |
| | — |
|
| Realized gain (loss) on investments and other | | — |
| | 2,525 |
| | 14,086 |
| | 3,495 |
| | 137 |
| | 20,243 |
| | — |
| | 20,243 |
|
| Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense) | | 573 |
| | (109,012 | ) | | 14,084 |
| | 12,044 |
| | (36,078 | ) | | (118,389 | ) | | — |
| | (118,389 | ) |
| Equity in earnings (losses) of unconsolidated ventures | | — |
| | — |
| | (33,517 | ) | | — |
| | — |
| | (33,517 | ) | | — |
| | (33,517 | ) |
| Income tax benefit (expense) | | — |
| | (114 | ) | | — |
| | — |
| | — |
| | (114 | ) | | — |
| | (114 | ) |
| Net income (loss) | | $ | 573 |
| | $ | (109,126 | ) | | $ | (19,433 | ) | | $ | 12,044 |
| | $ | (36,078 | ) | | $ | (152,020 | ) | | $ | — |
| | $ | (152,020 | ) |
_______________________________________
| |
| (1) | Includes unallocated asset management fee-related party and general and administrative expenses. |
| |
| (2) | Investing VIEs are not considered to be a segment that the Company conducts its business through, however U.S. GAAP requires the Company, as the primary beneficiary, to present the assets and liabilities of the securitization trust on its consolidated balance sheets and recognize the related interest income and interest expense, as net interest income on the consolidated statements of operations. Though U.S. GAAP requires this presentation, the Company views its investment in the securitization trust as a net investment in debt and securities. |
| |
| (3) | Represents income earned from the healthcare-related securities purchased at a discount, recognized using the effective interest method had the transaction been recorded as an available for sale security, at amortized cost. During the year ended December 31, 2018, $0.3 million was attributable to discount accretion income and was eliminated in consolidation in the corporate segment. |
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Statement of Operations: | | Direct Investments | | | | | | | | | | | | |
| Year Ended December 31, 2017 | | Net Lease | | Operating | | Unconsolidated Investments | | Debt and Securities | | Corporate(1) | | Subtotal | | Investing VIE(2) | | Total |
| Rental and resident fee income | | $ | 34,798 |
| | $ | 248,082 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 282,880 |
| | $ | — |
| | $ | 282,880 |
|
| Net interest income on debt and securities | | — |
| | (1 | ) | | — |
| | 11,749 |
| | (1,529 | ) | (3) | 10,219 |
| | 3,922 |
| | 14,141 |
|
| Other revenue | | 5 |
| | 2,244 |
| | — |
| | — |
| | 646 |
| | 2,895 |
| | — |
| | 2,895 |
|
| Property operating expenses | | (31 | ) | | (163,806 | ) | | — |
| | — |
| | — |
| | (163,837 | ) | | — |
| | (163,837 | ) |
| Interest expense | | (12,266 | ) | | (48,742 | ) | | — |
| | — |
| | (74 | ) | | (61,082 | ) | | — |
| | (61,082 | ) |
| Other expenses related to securitization trust | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3,922 | ) | | (3,922 | ) |
| Transaction costs | | (435 | ) | | (8,972 | ) | | — |
| | — |
| | — |
| | (9,407 | ) | | — |
| | (9,407 | ) |
| Asset management and other fees - related party | | — |
| | — |
| | — |
| | — |
| | (41,954 | ) | | (41,954 | ) | | — |
| | (41,954 | ) |
| General and administrative expenses | | (82 | ) | | (866 | ) | | — |
| | (49 | ) | | (12,491 | ) | | (13,488 | ) | | — |
| | (13,488 | ) |
| Depreciation and amortization | | (13,127 | ) | | (92,332 | ) | | — |
| | — |
| | — |
| | (105,459 | ) | | — |
| | (105,459 | ) |
| Impairment of operating real estate | | (5,000 | ) | | — |
| | — |
| | — |
| | — |
| | (5,000 | ) | | — |
| | (5,000 | ) |
| Unrealized gain (loss) on senior housing mortgage loans and debt held in securitization trust, net | | — |
| | — |
| | — |
| | (26 | ) | | 1,529 |
| (3) | 1,503 |
| | — |
| | 1,503 |
|
| Realized gain (loss) on investments and other | | — |
| | 116 |
| | — |
| | — |
| | — |
| | 116 |
| | — |
| | 116 |
|
| Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense) | | 3,862 |
| | (64,277 | ) | | — |
| | 11,674 |
| | (53,873 | ) | | (102,614 | ) | | — |
| | (102,614 | ) |
| Equity in earnings (losses) of unconsolidated ventures | | — |
| | — |
| | (35,314 | ) | | — |
| | — |
| | (35,314 | ) | | — |
| | (35,314 | ) |
| Income tax benefit (expense) | | — |
| | (43 | ) | | — |
| | — |
| | — |
| | (43 | ) | | — |
| | (43 | ) |
| Net income (loss) | | $ | 3,862 |
| | $ | (64,320 | ) | | $ | (35,314 | ) | | $ | 11,674 |
| | $ | (53,873 | ) | | $ | (137,971 | ) | | $ | — |
| | $ | (137,971 | ) |
_______________________________________
| |
| (1) | Includes unallocated asset management fee-related party and general and administrative expenses. |
| |
| (2) | Investing VIEs are not considered to be a segment that the Company conducts its business through, however U.S. GAAP requires the Company, as the primary beneficiary, to recognize the related interest income and interest expense, as net interest income on the consolidated statements of operations. Though U.S. GAAP requires this presentation, the Company views its investment in the securitization trust as a net investment in debt and securities. |
| |
| (3) | Represents income earned from the healthcare-related securities purchased at a discount, recognized using the effective interest method had the transaction been recorded as an available for sale security, at amortized cost. During the year ended December 31, 2017, $1.5 million was attributable to discount accretion income and was eliminated in consolidation in the corporate segment. |
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Statement of Operations: | | Direct Investments | | | | | | | | | | | | |
| Year Ended December 31, 2016 | | Net Lease | | Operating | | Unconsolidated Investments | | Debt and Securities | | Corporate(1) | | Subtotal | | Investing VIE(2) | | Total |
| Rental and resident fee income | | $ | 33,974 |
| | $ | 201,049 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 235,023 |
| | $ | — |
| | $ | 235,023 |
|
| Net interest income on debt and securities | | — |
| | — |
| | — |
| | 18,533 |
| | (328 | ) | (3) | 18,205 |
| | 765 |
| | 18,970 |
|
| Other revenue | | (45 | ) | | 1,511 |
| | — |
| | — |
| | 119 |
| | 1,585 |
| | — |
| | 1,585 |
|
| Property operating expenses | | — |
| | (129,808 | ) | | (146 | ) | | — |
| | — |
| | (129,954 | ) | | — |
| | (129,954 | ) |
| Interest expense | | (12,200 | ) | | (38,043 | ) | | — |
| | — |
| | — |
| | (50,243 | ) | | — |
| | (50,243 | ) |
| Other expenses related to securitization trust | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (765 | ) | | (765 | ) |
| Transaction costs | | — |
| | (2,147 | ) | | — |
| | (57 | ) | | — |
| | (2,204 | ) | | — |
| | (2,204 | ) |
| Asset management and other fees - related party | | — |
| | — |
| | — |
| | — |
| | (45,092 | ) | | (45,092 | ) | | — |
| | (45,092 | ) |
| General and administrative expenses | | (525 | ) | | (250 | ) | | — |
| | (84 | ) | | (23,984 | ) | | (24,843 | ) | | — |
| | (24,843 | ) |
| Depreciation and amortization | | (12,202 | ) | | (69,584 | ) | | — |
| | — |
| | — |
| | (81,786 | ) | | — |
| | (81,786 | ) |
| Unrealized gain (loss) on senior housing mortgage loans and debt held in securitization trust, net | | — |
| | — |
| | — |
| | (30 | ) | | 328 |
| (3) | 298 |
| | — |
| | 298 |
|
| Realized gain (loss) on investments and other | | — |
| | 600 |
| | — |
| | — |
| | — |
| | 600 |
| | — |
| | 600 |
|
| Gain (loss) on consolidation of unconsolidated venture | | — |
| | — |
| | 6,408 |
| | — |
| | — |
| | 6,408 |
| | — |
| | 6,408 |
|
| Income (loss) before equity in earnings (losses) of unconsolidated ventures and income tax benefit (expense) | | 9,002 |
| | (36,672 | ) | | 6,262 |
| | 18,362 |
| | (68,957 | ) | | (72,003 | ) | | — |
| | (72,003 | ) |
| Equity in earnings (losses) of unconsolidated ventures | | — |
| | — |
| | (62,175 | ) | | — |
| | — |
| | (62,175 | ) | | — |
| | (62,175 | ) |
| Income tax benefit (expense) | | — |
| | (7,104 | ) | | — |
| | — |
| | — |
| | (7,104 | ) | | — |
| | (7,104 | ) |
| Net income (loss) | | $ | 9,002 |
| | $ | (43,776 | ) | | $ | (55,913 | ) | | $ | 18,362 |
| | $ | (68,957 | ) | | $ | (141,282 | ) | | $ | — |
| | $ | (141,282 | ) |
_________________________________________________
| |
| (1) | Includes unallocated asset management fee-related party and general and administrative expenses. |
| |
| (2) | Investing VIEs are not considered to be a segment that the Company conducts its business through, however U.S. GAAP requires the Company, as the primary beneficiary, to recognize the related interest income and interest expense, as net interest income on the consolidated statement of operations. Though U.S. GAAP requires this presentation, the Company views its investment in the securitization trust as a net investment in debt and securities. |
| |
| (3) | Represents income earned from the healthcare-related securities purchased at a discount, recognized using the effective interest method had the transaction been recorded as an available for sale security, at amortized cost. During the year ended December 31, 2016, $0.3 million was attributable to discount accretion income and was eliminated in consolidation in the corporate segment. |
The following table presents total assets by segment as of December 31, 2018 and 2017 (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Direct Investments | | | | | | | | | | | | |
| Total Assets: | | Net Lease | | Operating | | Unconsolidated Investments | | Debt and Securities | | Corporate(1) | | Subtotal | | Investing VIEs(2) | | Total |
| December 31, 2018 | | $ | 394,697 |
| | $ | 1,481,522 |
| | $ | 264,317 |
| | $ | 59,620 |
| | $ | 64,260 |
| | $ | 2,264,416 |
| | $ | — |
| | $ | 2,264,416 |
|
| December 31, 2017 | | 419,846 |
| | 1,594,445 |
| | 325,582 |
| | 107,780 |
| | 3,925 |
| | 2,451,578 |
| | 547,175 |
| | 2,998,753 |
|
_______________________________________
| |
| (1) | Represents corporate cash and cash equivalent balances. These balances are partially offset by elimination of healthcare-related securities in consolidation as of December 31, 2017. |
| |
| (2) | Investing VIEs are not considered to be a segment through which the Company conducts business, however U.S. GAAP requires the Company, as the primary beneficiary, to present the assets and liabilities of the securitization trust on its consolidated balance sheets. Though U.S. GAAP requires this presentation, the Company’s management and chief decision makers view the Company’s investment in the securitization trust as a net investment in debt and securities. |
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| |
| 15. | Commitments and Contingencies |
The purchase price of an operating real estate portfolio acquired in November 2017 includes $1.8 million in contingent consideration, which is payable dependent upon the future operating performance of the portfolio. The purchase price contingency was included in the asset allocation of the purchase price during the year ended December 31, 2017 and is included in other liabilities on the Company’s consolidated balance sheets as of December 31, 2017.
During the year ended December 31, 2018, the Company concluded that the payment of the contingent consideration would not be required, based on operating performance of the portfolio. The Company relieved the liability in full and recorded a gain on the contingent consideration in realized gain (loss) on investments and other on the Company’s consolidated statement of operations for the year ended December 31, 2018.
Litigation and Claims
The Company may be involved in various litigation matters arising in the ordinary course of its business. Although the Company is unable to predict with certainty the eventual outcome of any litigation, any current legal proceedings are not expected to have a material adverse effect on its financial position or results of operations.
The Company’s tenants, operators and managers may be involved in various litigation matters arising in the ordinary course of their business. The unfavorable resolution of any such actions, investigations or claims could, individually or in the aggregate, materially adversely affect such tenants’, operators’ or managers’ liquidity, financial condition or results of operations and their ability to satisfy their respective obligations to the Company, which, in turn, could have a material adverse effect on the Company.
Environmental Matters
The Company follows a policy of monitoring its properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist at its properties, the Company is not currently aware of any environmental liability with respect to its properties that would have a material effect on its consolidated financial position, results of operations or cash flows. Further, the Company is not aware of any material environmental liability or any unasserted claim or assessment with respect to an environmental liability that it believes would require additional disclosure or the recording of a loss contingency.
General Uninsured Losses
The Company obtains various types of insurance to mitigate the impact of property, business interruption, liability, flood, windstorm, earthquake, environmental and terrorism related losses. The Company attempts to obtain appropriate policy terms, conditions, limits and deductibles considering the relative risk of loss, the cost of such coverage and current industry practice. There are, however, certain types of extraordinary losses, such as those due to acts of war or other events that may be either uninsurable or not economically insurable.
Distribution Reinvestment Plan
For the period from January 1, 2019 through January 31, 2019, the Company issued 0.7 million shares pursuant to the DRP, representing gross proceeds of $4.9 million.
Share Repurchases
For the period from January 1, 2019 through March 21, 2019, the Company repurchased 0.3 million shares for a total of $2.0 million or a price of $7.10 per share under the Share Repurchase Program. Prior to the most recent amendments to the Share Repurchase program, the Company had a total of 12.0 million shares, or $85.0 million, based on its most recently published estimated value per share of $7.10, in unfulfilled repurchase requests. Refer to Note 10, “Stockholders’ Equity” for additional information regarding the Share Repurchase Program.
Distributions
Effective February 1, 2019, the Company’s board of directors determined to suspend distributions in order to preserve capital and liquidity.
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Dispositions
Envoy
In March 2019, the Envoy joint venture, of which the Company owns 11.4%, completed the sale of the remaining 11 properties in the portfolio, for a sales price of $118.0 million.
Peregrine
In March 2019, the Company executed a purchase and sale agreement totaling $19.7 million for two properties within the Peregrine portfolio.
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2018
(Dollars in Thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Column A | | Column B | | Column C Initial Cost | | Column D Capitalized Subsequent to Acquisition(1) | | Column E Gross Amount Carried at Close of Period(2) | | Column F | | Column G | | Column H |
| Location City, State | | Encumbrances | | Land | | Building & Improvements | | Land, Buildings & Improvements | | Land | | Building & Improvements | | Total | | Accumulated Depreciation | | Total | | Date Acquired | | Life on Which Depreciation is Computed |
| Net Lease Portfolio | | | | | | | | | | | | | | | | | | | | | | |
| Skaneateles, NY | | $ | 1,950 |
| | $ | 400 |
| | $ | 2,600 |
| | $ | — |
| | $ | 400 |
| | $ | 2,600 |
| | $ | 3,000 |
| | $ | 356 |
| | $ | 2,644 |
| | Oct-13 | | 40 years |
| Smyrna, GA | | 6,559 |
| | 825 |
| | 9,175 |
| | (2,132 | ) | | 825 |
| | 7,043 |
| | 7,868 |
| | 1,272 |
| | 6,596 |
| | Dec-13 | | 40 years |
| Cheektowaga, NY | | 8,036 |
| | 300 |
| | 12,200 |
| | 113 |
| | 300 |
| | 12,313 |
| | 12,613 |
| | 1,642 |
| | 10,971 |
| | Feb-14 | | 40 years |
| Bohemia, NY | | 24,148 |
| | 4,258 |
| | 27,805 |
| | 160 |
| | 4,258 |
| | 27,965 |
| | 32,223 |
| | 3,443 |
| | 28,780 |
| | Sep-14 | | 40 years |
| Hauppauge, NY | | 14,651 |
| | 2,086 |
| | 18,495 |
| | 1,351 |
| | 2,086 |
| | 19,846 |
| | 21,932 |
| | 2,556 |
| | 19,376 |
| | Sep-14 | | 40 years |
| Islandia, NY | | 36,001 |
| | 8,437 |
| | 37,198 |
| | 218 |
| | 8,437 |
| | 37,416 |
| | 45,853 |
| | 4,691 |
| | 41,162 |
| | Sep-14 | | 40 years |
| Westbury, NY | | 15,951 |
| | 2,506 |
| | 19,163 |
| | 174 |
| | 2,506 |
| | 19,337 |
| | 21,843 |
| | 2,344 |
| | 19,499 |
| | Sep-14 | | 40 years |
| Bellevue, WA | | 30,767 |
| | 13,801 |
| | 18,208 |
| | 3,223 |
| | 13,801 |
| | 21,431 |
| | 35,232 |
| | 2,775 |
| | 32,457 |
| | Jun-15 | | 40 years |
| Dana Point, CA | | 32,616 |
| | 6,286 |
| | 41,199 |
| | 465 |
| | 6,286 |
| | 41,664 |
| | 47,950 |
| | 4,273 |
| | 43,677 |
| | Jun-15 | | 40 years |
| Kalamazoo, MI | | 34,651 |
| | 4,521 |
| | 30,870 |
| | 2,444 |
| | 4,521 |
| | 33,314 |
| | 37,835 |
| | 4,028 |
| | 33,807 |
| | Jun-15 | | 40 years |
| Oklahoma City, OK | | 2,987 |
| | 3,104 |
| | 6,119 |
| | 1,185 |
| | 3,104 |
| | 7,304 |
| | 10,408 |
| | 1,522 |
| | 8,886 |
| | Jun-15 | | 40 years |
| Palm Desert, CA | | 20,532 |
| | 5,365 |
| | 38,889 |
| | 2,092 |
| | 5,365 |
| | 40,981 |
| | 46,346 |
| | 4,768 |
| | 41,578 |
| | Jun-15 | | 40 years |
| Sarasota, FL | | 74,269 |
| | 12,845 |
| | 64,403 |
| | 3,447 |
| | 12,845 |
| | 67,850 |
| | 80,695 |
| | 7,552 |
| | 73,143 |
| | Jun-15 | | 40 years |
| Senior Housing Operating Portfolio | | | | | | | | | | | | | | | | | | | | | | |
| Leawood, KS | | — |
| | 900 |
| | 7,100 |
| | (1,843 | ) | | 900 |
| | 5,257 |
| | 6,157 |
| | 1,106 |
| | 5,051 |
| | Oct-13 | | 40 years |
| Spring Hill, KS | | — |
| | 430 |
| | 6,570 |
| | (1,427 | ) | | 430 |
| | 5,143 |
| | 5,573 |
| | 953 |
| | 4,620 |
| | Oct-13 | | 40 years |
| Milford, OH | | 18,760 |
| | 1,160 |
| | 14,440 |
| | 1,472 |
| | 1,160 |
| | 15,912 |
| | 17,072 |
| | 2,662 |
| | 14,410 |
| | Dec-13 | | 40 years |
| Milford, OH | | — |
| | 700 |
| | — |
| | 5,572 |
| | 696 |
| | 5,576 |
| | 6,272 |
| | 27 |
| | 6,245 |
| | Jul-17 | | 40 years |
| Denver, CO | | 20,866 |
| | 4,300 |
| | 27,200 |
| | 9,042 |
| | 4,300 |
| | 36,242 |
| | 40,542 |
| | 4,941 |
| | 35,601 |
| | Jan-14 | | 40 years |
| Frisco, TX | | 19,460 |
| | 3,100 |
| | 35,874 |
| | 1,863 |
| | 3,100 |
| | 37,737 |
| | 40,837 |
| | 5,073 |
| | 35,764 |
| | Feb-14 | | 40 years |
| Alexandria, VA | | 45,037 |
| | 7,950 |
| | 41,124 |
| | 2,014 |
| | 7,950 |
| | 43,138 |
| | 51,088 |
| | 4,594 |
| | 46,494 |
| | Jun-15 | | 40 years |
| Crystal Lake, IL | | 27,511 |
| | 6,580 |
| | 28,210 |
| | 2,089 |
| | 6,580 |
| | 30,299 |
| | 36,879 |
| | 3,315 |
| | 33,564 |
| | Jun-15 | | 40 years |
| Independence, MO | | 15,533 |
| | 1,280 |
| | 17,090 |
| | 1,244 |
| | 1,280 |
| | 18,334 |
| | 19,614 |
| | 2,197 |
| | 17,417 |
| | Jun-15 | | 40 years |
| Millbrook, NY | | 24,719 |
| | 6,610 |
| | 20,854 |
| | 3,385 |
| | 6,610 |
| | 24,239 |
| | 30,849 |
| | 3,039 |
| | 27,810 |
| | Jun-15 | | 40 years |
| St. Petersburg, FL | | 40,579 |
| | 8,920 |
| | 44,137 |
| | 5,204 |
| | 8,920 |
| | 49,341 |
| | 58,261 |
| | 5,418 |
| | 52,843 |
| | Jun-15 | | 40 years |
| Tarboro, NC | | 22,487 |
| | 2,400 |
| | 17,800 |
| | 3,523 |
| | 2,400 |
| | 21,323 |
| | 23,723 |
| | 2,459 |
| | 21,264 |
| | Jun-15 | | 40 years |
| Tuckahoe, NY | | 36,785 |
| | 4,870 |
| | 26,980 |
| | 1,009 |
| | 4,870 |
| | 27,989 |
| | 32,859 |
| | 2,943 |
| | 29,916 |
| | Jun-15 | | 40 years |
| Tucson, AZ | | 65,951 |
| | 7,370 |
| | 60,719 |
| | 3,954 |
| | 7,370 |
| | 64,673 |
| | 72,043 |
| | 7,063 |
| | 64,980 |
| | Jun-15 | | 40 years |
| Apple Valley, CA | | 21,673 |
| | 1,168 |
| | 24,625 |
| | 473 |
| | 1,168 |
| | 25,098 |
| | 26,266 |
| | 2,344 |
| | 23,922 |
| | Mar-16 | | 40 years |
| Auburn, CA | | 24,485 |
| | 1,694 |
| | 18,438 |
| | 785 |
| | 1,694 |
| | 19,223 |
| | 20,917 |
| | 1,897 |
| | 19,020 |
| | Mar-16 | | 40 years |
| Austin, TX | | 26,960 |
| | 4,020 |
| | 19,417 |
| | 814 |
| | 4,020 |
| | 20,231 |
| | 24,251 |
| | 1,971 |
| | 22,280 |
| | Mar-16 | | 40 years |
| Bakersfield, CA | | 17,109 |
| | 1,831 |
| | 21,006 |
| | 631 |
| | 1,831 |
| | 21,637 |
| | 23,468 |
| | 2,090 |
| | 21,378 |
| | Mar-16 | | 40 years |
| Bangor, ME | | 21,820 |
| | 2,463 |
| | 23,205 |
| | 668 |
| | 2,463 |
| | 23,873 |
| | 26,336 |
| | 2,339 |
| | 23,997 |
| | Mar-16 | | 40 years |
| Bellingham, WA | | 24,228 |
| | 2,242 |
| | 18,807 |
| | 761 |
| | 2,242 |
| | 19,568 |
| | 21,810 |
| | 1,951 |
| | 19,859 |
| | Mar-16 | | 40 years |
| Clovis, CA | | 19,067 |
| | 1,821 |
| | 21,721 |
| | 371 |
| | 1,821 |
| | 22,092 |
| | 23,913 |
| | 2,077 |
| | 21,836 |
| | Mar-16 | | 40 years |
| Columbia, MO | | 23,069 |
| | 1,621 |
| | 23,521 |
| | 422 |
| | 1,621 |
| | 23,943 |
| | 25,564 |
| | 2,253 |
| | 23,311 |
| | Mar-16 | | 40 years |
| Corpus Christi, TX | | 18,903 |
| | 2,263 |
| | 20,142 |
| | 793 |
| | 2,263 |
| | 20,935 |
| | 23,198 |
| | 2,021 |
| | 21,177 |
| | Mar-16 | | 40 years |
| East Amherst, NY | | 18,829 |
| | 2,873 |
| | 18,279 |
| | 449 |
| | 2,873 |
| | 18,728 |
| | 21,601 |
| | 1,779 |
| | 19,822 |
| | Mar-16 | | 40 years |
| El Cajon, CA | | 21,330 |
| | 2,357 |
| | 14,733 |
| | 579 |
| | 2,357 |
| | 15,312 |
| | 17,669 |
| | 1,595 |
| | 16,074 |
| | Mar-16 | | 40 years |
| El Paso, TX | | 12,409 |
| | 1,610 |
| | 14,103 |
| | 707 |
| | 1,610 |
| | 14,810 |
| | 16,420 |
| | 1,424 |
| | 14,996 |
| | Mar-16 | | 40 years |
| Fairport, NY | | 16,791 |
| | 1,452 |
| | 19,427 |
| | 299 |
| | 1,452 |
| | 19,726 |
| | 21,178 |
| | 1,859 |
| | 19,319 |
| | Mar-16 | | 40 years |
| Fenton, MO | | 24,951 |
| | 2,410 |
| | 22,216 |
| | 660 |
| | 2,410 |
| | 22,876 |
| | 25,286 |
| | 2,187 |
| | 23,099 |
| | Mar-16 | | 40 years |
| Grand Junction, CO | | 19,803 |
| | 2,525 |
| | 26,446 |
| | 406 |
| | 2,525 |
| | 26,852 |
| | 29,377 |
| | 2,589 |
| | 26,788 |
| | Mar-16 | | 40 years |
| Grand Junction, CO | | 10,147 |
| | 1,147 |
| | 12,523 |
| | 485 |
| | 1,147 |
| | 13,008 |
| | 14,155 |
| | 1,369 |
| | 12,786 |
| | Mar-16 | | 40 years |
| Grapevine, TX | | 22,697 |
| | 1,852 |
| | 18,143 |
| | 914 |
| | 1,852 |
| | 19,057 |
| | 20,909 |
| | 1,864 |
| | 19,045 |
| | Mar-16 | | 40 years |
| Groton, CT | | 17,883 |
| | 3,673 |
| | 21,879 |
| | 692 |
| | 3,673 |
| | 22,571 |
| | 26,244 |
| | 2,397 |
| | 23,847 |
| | Mar-16 | | 40 years |
| Guilford, CT | | 24,693 |
| | 6,725 |
| | 27,488 |
| | (14,598 | ) | | 6,725 |
| | 12,890 |
| | 19,615 |
| | 2,991 |
| | 16,624 |
| | Mar-16 | | 40 years |
| Joliet, IL | | 15,154 |
| | 1,473 |
| | 23,427 |
| | (7,544 | ) | | 1,473 |
| | 15,883 |
| | 17,356 |
| | 2,292 |
| | 15,064 |
| | Mar-16 | | 40 years |
| Kennewick, WA | | 7,801 |
| | 1,168 |
| | 18,933 |
| | 373 |
| | 1,168 |
| | 19,306 |
| | 20,474 |
| | 1,837 |
| | 18,637 |
| | Mar-16 | | 40 years |
| Las Cruces, NM | | 11,368 |
| | 1,568 |
| | 15,091 |
| | 655 |
| | 1,568 |
| | 15,746 |
| | 17,314 |
| | 1,498 |
| | 15,816 |
| | Mar-16 | | 40 years |
| Lees Summit, MO | | 27,629 |
| | 1,263 |
| | 20,500 |
| | 806 |
| | 1,263 |
| | 21,306 |
| | 22,569 |
| | 2,147 |
| | 20,422 |
| | Mar-16 | | 40 years |
| Lodi, CA | | 20,438 |
| | 2,863 |
| | 21,152 |
| | 509 |
| | 2,863 |
| | 21,661 |
| | 24,524 |
| | 2,067 |
| | 22,457 |
| | Mar-16 | | 40 years |
| Normandy Park, WA | | 16,493 |
| | 2,031 |
| | 16,407 |
| | 825 |
| | 2,031 |
| | 17,232 |
| | 19,263 |
| | 1,672 |
| | 17,591 |
| | Mar-16 | | 40 years |
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2018
(Dollars in Thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Column A | | Column B | | Column C Initial Cost | | Column D Capitalized Subsequent to Acquisition(1) | | Column E Gross Amount Carried at Close of Period(2) | | Column F | | Column G | | Column H |
| Location City, State | | Encumbrances | | Land | | Building & Improvements | | Land, Buildings & Improvements | | Land | | Building & Improvements | | Total | | Accumulated Depreciation | | Total | | Date Acquired | | Life on Which Depreciation is Computed |
| Palatine, IL | | 20,437 |
| | 1,221 |
| | 26,993 |
| | 717 |
| | 1,221 |
| | 27,710 |
| | 28,931 |
| | 2,690 |
| | 26,241 |
| | Mar-16 | | 40 years |
| Plano, TX | | 16,351 |
| | 2,200 |
| | 14,860 |
| | 1,181 |
| | 2,200 |
| | 16,041 |
| | 18,241 |
| | 1,533 |
| | 16,708 |
| | Mar-16 | | 40 years |
| Renton, WA | | 19,355 |
| | 2,642 |
| | 20,469 |
| | 758 |
| | 2,642 |
| | 21,227 |
| | 23,869 |
| | 2,072 |
| | 21,797 |
| | Mar-16 | | 40 years |
| Sandy, UT | | 16,054 |
| | 2,810 |
| | 19,132 |
| | 289 |
| | 2,810 |
| | 19,421 |
| | 22,231 |
| | 1,829 |
| | 20,402 |
| | Mar-16 | | 40 years |
| Santa Rosa, CA | | 28,398 |
| | 5,409 |
| | 26,183 |
| | 519 |
| | 5,409 |
| | 26,702 |
| | 32,111 |
| | 2,630 |
| | 29,481 |
| | Mar-16 | | 40 years |
| Sun City West, AZ | | 26,093 |
| | 2,684 |
| | 29,056 |
| | 1,339 |
| | 2,684 |
| | 30,395 |
| | 33,079 |
| | 3,147 |
| | 29,932 |
| | Mar-16 | | 40 years |
| Tacoma, WA | | 30,536 |
| | 7,974 |
| | 32,435 |
| | 835 |
| | 7,974 |
| | 33,270 |
| | 41,244 |
| | 3,319 |
| | 37,925 |
| | Mar-16 | | 40 years |
| Frisco, TX | | — |
| | 1,130 |
| | — |
| | 12,595 |
| | 1,130 |
| | 12,595 |
| | 13,725 |
| | 851 |
| | 12,874 |
| | Oct-16 | | 40 years |
| Albany, OR | | 8,900 |
| | 958 |
| | 6,625 |
| | 394 |
| | 758 |
| | 7,219 |
| | 7,977 |
| | 457 |
| | 7,520 |
| | Feb-17 | | 40 years |
| Port Townsend, WA | | 17,016 |
| | 1,613 |
| | 21,460 |
| | 561 |
| | 996 |
| | 22,638 |
| | 23,634 |
| | 1,378 |
| | 22,256 |
| | Feb-17 | | 40 years |
| Roseburg, OR | | 12,590 |
| | 699 |
| | 11,589 |
| | 509 |
| | 459 |
| | 12,338 |
| | 12,797 |
| | 719 |
| | 12,078 |
| | Feb-17 | | 40 years |
| Sandy, OR | | 14,360 |
| | 1,611 |
| | 16,697 |
| | 376 |
| | 1,233 |
| | 17,451 |
| | 18,684 |
| | 1,013 |
| | 17,671 |
| | Feb-17 | | 40 years |
| Santa Barbara, CA | | 3,500 |
| | 2,408 |
| | 15,674 |
| | 34 |
| | 2,408 |
| | 15,708 |
| | 18,116 |
| | 788 |
| | 17,328 |
| | Feb-17 | | 40 years |
| Wenatchee, WA | | 19,600 |
| | 2,540 |
| | 28,971 |
| | 630 |
| | 1,534 |
| | 30,607 |
| | 32,141 |
| | 1,641 |
| | 30,500 |
| | Feb-17 | | 40 years |
| Churchville, NY | | 6,575 |
| | 296 |
| | 7,712 |
| | 333 |
| | 296 |
| | 8,045 |
| | 8,341 |
| | 439 |
| | 7,902 |
| | Aug-17 | | 40 years |
| Greece, NY | | — |
| | 534 |
| | 18,158 |
| | 290 |
| | 534 |
| | 18,448 |
| | 18,982 |
| | 719 |
| | 18,263 |
| | Aug-17 | | 40 years |
| Greece, NY | | 26,833 |
| | 1,007 |
| | 31,960 |
| | 630 |
| | 1,007 |
| | 32,590 |
| | 33,597 |
| | 1,462 |
| | 32,135 |
| | Aug-17 | | 40 years |
| Henrietta, NY | | 11,881 |
| | 1,153 |
| | 16,812 |
| | 664 |
| | 1,153 |
| | 17,476 |
| | 18,629 |
| | 1,006 |
| | 17,623 |
| | Aug-17 | | 40 years |
| Penfield, NY | | 12,502 |
| | 781 |
| | 20,273 |
| | 913 |
| | 781 |
| | 21,186 |
| | 21,967 |
| | 1,259 |
| | 20,708 |
| | Aug-17 | | 40 years |
| Penfield, NY | | 10,918 |
| | 516 |
| | 9,898 |
| | 183 |
| | 516 |
| | 10,081 |
| | 10,597 |
| | 560 |
| | 10,037 |
| | Aug-17 | | 40 years |
| Rochester, NY | | 20,849 |
| | 2,426 |
| | 31,861 |
| | 1,054 |
| | 2,426 |
| | 32,915 |
| | 35,341 |
| | 1,497 |
| | 33,844 |
| | Aug-17 | | 40 years |
| Rochester, NY | | 5,341 |
| | 297 |
| | 12,484 |
| | 962 |
| | 297 |
| | 13,446 |
| | 13,743 |
| | 649 |
| | 13,094 |
| | Aug-17 | | 40 years |
| Victor, NY | | 27,174 |
| | 1,060 |
| | 33,246 |
| | 1,096 |
| | 1,060 |
| | 34,342 |
| | 35,402 |
| | 1,473 |
| | 33,929 |
| | Aug-17 | | 40 years |
| Victor, NY | | 12,355 |
| | 557 |
| | 13,570 |
| | 9 |
| | 557 |
| | 13,579 |
| | 14,136 |
| | 430 |
| | 13,706 |
| | Nov-17 | | 40 years |
| Undeveloped Land | | | | | | | | | | | | | | | | | | | | | | |
| Bellevue, WA | | — |
| | 14,200 |
| | — |
| | — |
| | 14,200 |
| | — |
| | 14,200 |
| | — |
| | 14,200 |
| | Jun-15 | | 40 years |
| Kalamazoo, MI | | — |
| | 100 |
| | — |
| | — |
| | 100 |
| | — |
| | 100 |
| | — |
| | 100 |
| | Jun-15 | | 40 years |
| Crystal Lake, IL | | — |
| | 810 |
| | — |
| | — |
| | 810 |
| | — |
| | 810 |
| | — |
| | 810 |
| | Jun-15 | | 40 years |
| Millbrook, NY | | — |
| | 1,050 |
| | — |
| | — |
| | 1,050 |
| | — |
| | 1,050 |
| | — |
| | 1,050 |
| | Jun-15 | | 40 years |
| Rochester, NY | | — |
| | 544 |
| | — |
| | — |
| | 544 |
| | — |
| | 544 |
| | — |
| | 544 |
| | Aug-17 | | 40 years |
| Penfield, NY | | — |
| | 534 |
| | — |
| | — |
| | 534 |
| | — |
| | 534 |
| | — |
| | 534 |
| | Aug-17 | | 40 years |
| Subtotal | | $ | 1,494,154 |
| | $ | 239,181 |
| | $ | 1,642,169 |
| | $ | 68,647 |
| | $ | 236,736 |
| | $ | 1,713,261 |
| | $ | 1,949,997 |
| | $ | 171,083 |
| | $ | 1,778,914 |
| | | | |
| Held for Sale | | | | | | | | | | | | | | | | | | | | | | |
| Clinton, CT | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2,183 |
| | — |
| | 2,183 |
| | Oct-13 | | 40 years |
| Total | | $ | 1,494,154 |
| | $ | 239,181 |
| | $ | 1,642,169 |
| | $ | 68,647 |
| | $ | 236,736 |
| | $ | 1,713,261 |
| | $ | 1,952,180 |
| | $ | 171,083 |
| | $ | 1,781,097 |
| | | | |
_____________________________
| |
| (1) | Negative amount represents impairment of operating real estate. |
| |
| (2) | The aggregate cost for federal income tax purposes is approximately $2.2 billion. |
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2018
(Dollars in Thousands)
The following table presents changes in the Company’s operating real estate portfolio for the years ended December 31, 2018, 2017 and 2016 (dollars in thousands):
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2018 | | 2017 | | 2016 |
| Balance at beginning of year | | $ | 1,966,352 |
| | $ | 1,632,153 |
| | $ | 851,639 |
|
| Property acquisitions | | — |
| | 317,224 |
| | 751,086 |
|
| Property dispositions | | (15,240 | ) | | — |
| | — |
|
| Improvements | | 35,889 |
| | 21,251 |
| | 29,428 |
|
| Impairment | | (33,494 | ) | | (5,000 | ) | | — |
|
Reclassification(1) | | — |
| | 724 |
| | — |
|
| Balance at end of year, including held for sale | | 1,953,507 |
| | 1,966,352 |
| | 1,632,153 |
|
Classified as held for sale(2) | | (3,510 | ) | | — |
| | — |
|
Balance at end of year(3) | | $ | 1,949,997 |
| | $ | 1,966,352 |
| | $ | 1,632,153 |
|
_____________________________
| |
| (1) | Represents a measurement period adjustment of operating real estate acquired in 2016 reclassified from below market debt in connection with the final purchase price allocation for the Winterfell portfolio. |
| |
| (2) | Amounts classified as held for sale during the year and remain as held for sale at the end of the year. |
| |
| (3) | The aggregate cost of the properties are approximately $40.6 million higher for federal income tax purposes as of December 31, 2018. |
The following table presents changes in accumulated depreciation as of December 31, 2018, 2017 and 2016 (dollars in thousands):
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2018 | | 2017 | | 2016 |
| Balance at beginning of year | | $ | 113,924 |
| | $ | 60,173 |
| | $ | 19,386 |
|
| Depreciation expense | | 60,028 |
| | 53,751 |
| | 40,787 |
|
| Property dispositions | | (1,542 | ) | | — |
| | — |
|
| Balance at end of year, including held for sale | | 172,410 |
| | 113,924 |
| | 60,173 |
|
| Classified as held for sale | | (1,327 | ) | | — |
| | — |
|
| Balance at end of year | | $ | 171,083 |
| | $ | 113,924 |
| | $ | 60,173 |
|
NORTHSTAR HEALTHCARE INCOME, INC. AND SUBSIDIARIES
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 2018
(Dollars in Thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Asset Type: | Location / Description | | Count | | Fixed Rate | | Maturity Date(1) | | Periodic Payment Terms(2) | | Prior Liens(3) | | Principal Amount | | Carrying Value(4) | | Principal Amount of Loans Subject to Delinquent Principal or Interest |
| |
| | Espresso Mezzanine Loan | Various / SNF / ALF | | 1 | | 10.0 | % | | Jan-21 | | I/O | | $ | 721,877 |
| | $ | 75,000 |
| | $ | 58,600 |
| | — |
|
| |
| (1) | Reflects the initial maturity date of the investment and does not consider any options to extend beyond such date. |
| |
| (2) | Interest Only, or I/O; principal amount due in full at maturity. |
| |
| (3) | Represents only third-party liens. |
| |
| (4) | The federal income tax basis is approximately $75.0 million. |
Reconciliation of Carrying Value of Real Estate Debt (dollars in thousands):
|
| | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2018 | | 2017 | | 2016 |
| Balance at beginning of year | | $ | 74,650 |
| | $ | 74,558 |
| | $ | 192,934 |
|
| Additions: | | | | | | |
| Principal amount of new loans and additional funding on existing loans | | — |
| | — |
| | — |
|
| Acquisition cost (fees) on new loans | | — |
| | — |
| | — |
|
| Origination fees received on new loans | | — |
| | — |
| | — |
|
| Deductions: | | | | | | |
Reclassification (1) | | (16,151 | ) | | — |
| | — |
|
| Repayment of principal | | — |
| | — |
| | (118,411 | ) |
| Amortization of acquisition costs, fees, premiums and discounts | | 101 |
| | 92 |
| | 35 |
|
| Balance at end of year | | $ | 58,600 |
| | $ | 74,650 |
| | $ | 74,558 |
|
_______________________________________
| |
| (1) | As a result of impairments and other non-cash reserves recorded by the joint venture, the Company’s carrying value of its Espresso unconsolidated investment was reduced to zero as of December 31, 2018. The Company has recorded the excess equity in losses related to its unconsolidated venture as a reduction to the carrying value of its mezzanine loan, which was originated to a subsidiary of the Espresso joint venture. |
Item 15. Exhibits and Financial Statement Schedules
(a)1. Consolidated Financial Statements and (a)2. Financial Statement Schedules are included in Item 8. “Financial Statements and Supplementary Data’’ of this Annual Report on Form 10-K/A:
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Equity for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
Notes to the Consolidated Financial Statements
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 2018
Schedule IV - Mortgage Loans on Real Estate as of December 31, 2018
(a)3. Exhibit Index:
|
| | |
Exhibit Number | | Description of Exhibit |
| 3.1 | | |
| 3.2 | | |
| 3.3 | | |
| 4.1 | | |
| 10.1 | | |
| 10.2 | | |
| 10.3 | | |
| 10.4 | | |
| 10.5 | | |
| 10.6 | | |
| 10.7 | | |
| 10.8 | | |
| 10.9 | | |
| 10.10 | | |
| 10.11 | | |
| 10.12 | | |
| 21.1 | | |
| 23.1* | | |
| 23.2* | | |
| 23.3* | | |
| 24.1 | | |
| 31.1* | | |
| 31.2* | | |
| 32.1* | | |
| 32.2* | | |
| 101** | | The following materials from the NorthStar Healthcare Income, Inc. Annual Report on Form 10-K for the year ended December 31, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2018 and 2017; (ii) Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016; (iii) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2018, 2017 and 2016; (iv) Consolidated Statements of Equity for the years ended December 31, 2018, 2017 and 2016; (v) Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016; and (vi) Notes to Consolidated Financial Statements |
______________________________________________________
| |
| ** | Previously submitted with the Company’s Annual Report on Form 10-K filed on March 22, 2019. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| | | | |
| | | NorthStar Healthcare Income, Inc. |
| Date: | September 16, 2019 | By: | /s/ RONALD J. JEANNEAULT |
| | | | Name: | Ronald J. Jeanneault |
| | | | Title: | Chief Executive Officer, President and Vice Chairman |
|
| | | | |
| Signature | | Title | | Date |
| | | | | |
| /s/ RONALD J. JEANNEAULT | | Chief Executive Officer, President and Vice Chairman | | September 16, 2019 |
| Ronald J. Jeanneault | | (Principal Executive Officer) | | |
| | | | | |
| | | Chief Financial Officer and Treasurer | | |
| /s/ FRANK V. SARACINO | | (Principal Financial Officer and | | September 16, 2019 |
| Frank V. Saracino | | Principal Accounting Officer) | | |
| | | | | |
| | | | | |
| * | | Chairman | | September 16, 2019 |
| Justin Chang | | | | |
| | | | | |
| | | | | |
| * | | Director | | September 16, 2019 |
| Daniel J. Altobello | | | | |
| | | | | |
| | | | | |
| * | | Director | | September 16, 2019 |
| Gregory A. Samay | | | | |
| | | | | |
| | | | | |
| * | | Director | | September 16, 2019 |
| Jack F. Smith, Jr. | | | | |
| | | | | |
| | | | | |
| * By: /s/ ANN B. HARRINGTON | | Attorney-in-Fact pursuant to Power of Attorney | | September 16, 2019 |
| Ann B. Harrington | | | | |
